IRB 2016-39 (Rev. September 26, 2016) · 2016-09-23 · quarter in 2016. In addition, pursuant to...

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. 2016–23, page 382Interest rates: underpayments and overpayments. The ratesfor interest determined under section 6621 of the code for thecalendar quarter beginning October 1, 2016, will be 4 percentfor overpayments (3 percent in the case of a corporation), 4percent for underpayments, and 6 percent for large corporateunderpayments. The rate of interest paid on the portion of acorporate overpayment exceeding $10,000 will be 1.5 percent.

Rev. Rul. 2016–24, page 395.Fringe benefits aircraft valuation formula. For purposes ofsection 1.61–21(g) of the Income Tax Regulations, relating tothe rule for valuing non-commercial flights on employer-provided aircraft, the Standard Industry Fare Level (SIFL) cents-per-mile rates and terminal charge in effect for the second halfof 2016 are set forth.

Announcement 2016–33, page 422.Announcement of Certification Resulting from the 2012–2013Phase III Allocation Round of the Qualifying Advanced CoalProject Program. The announcement discloses the certificationresulting from the 2012–13 Phase III allocation round of thequalifying advanced coal project program of § 48A of theInternal Revenue Code.

Announcement 2016–34, page 422.Announcement of the Results of the Phase III Allocation Round ofthe Qualifying Gasification Project Program. The proposed an-nouncement discloses the results of the Phase III allocation roundunder the qualifying gasification project program of § 48B of theInternal Revenue Code. This announcement also serves as noticeto applicants that no additional allocation rounds will be conductedunder the qualifying gasification project program.

Notice 2016–53, page 421.Section 2016 Section 45Q Inflation Adjustment Factor. Thisnotice publishes the inflation adjustment factor for the carbondioxide (CO2) sequestration credit under § 45Q for calendaryear 2016.

T.D. 9784, page 402.Real estate investment trusts (REITs) have certain REIT qualifi-cation requirements. At least 75 percent of a REIT’s assetsmust be in real estate assets, cash and cash items, andgovernment securities. A real estate asset includes real prop-erty and interests in real property. These regulations definereal property for REIT purposes.

EMPLOYEE PLANS

T.D. 9783, page 396.These final regulations change the regulations regarding theminimum present value requirements for defined benefit plandistributions to permit plans to simplify the treatment of certainoptional forms of benefit that are paid partly in the form of anannuity and partly in a more accelerated form.

(Continued on the next page)

Finding Lists begin on page ii.

Bulletin No. 2016–39September 26, 2016

EXEMPT ORGANIZATIONS

Announcement 2016–35, page 423.Serves notice to potential donors of a stipulated decision bythe United States Tax Court in declaratory judgment proceed-ings under Section 7428.



The IRS MissionProvide America’s taxpayers top-quality service by helpingthem understand and meet their tax responsibilities and en-force the 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.

It is the policy of the Service to publish in the Bulletin allsubstantive rulings necessary to promote a uniform applicationof the tax laws, including all rulings that supersede, revoke,modify, or amend any of those previously published in theBulletin. All published rulings apply retroactively unless other-wise indicated. Procedures relating solely to matters of internalmanagement are not published; however, statements of inter-nal practices and procedures that affect the rights and dutiesof taxpayers are published.

Revenue rulings represent the conclusions of the Service onthe application of the law to the pivotal facts stated in therevenue ruling. In those based on positions taken in rulings totaxpayers or technical advice to Service field offices, identify-ing details and information of a confidential nature are deletedto prevent unwarranted invasions of privacy and to comply withstatutory requirements.

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 cautioned

against 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, TaxConventions and Other Related Items, and Subpart B, Legisla-tion and Related Committee Reports.

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

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

The last Bulletin for each month includes a cumulative index forthe 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.

September 26, 2016 Bulletin No. 2016–39

Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986Section 6621.—Determination of Rate ofInterest26 CFR 301.6621–1: Interest rate.

Rev. Rul. 2016–23

Section 6621 of the Internal RevenueCode establishes the interest rates onoverpayments and underpayments of tax.Under section 6621(a)(1), the overpay-ment rate is the sum of the federal short-term rate plus 3 percentage points (2 per-centage points in the case of acorporation), except the rate for the por-tion of a corporate overpayment of taxexceeding $10,000 for a taxable period isthe sum of the federal short-term rate plus0.5 of a percentage point. Under section6621(a)(2), the underpayment rate is thesum of the federal short-term rate plus 3percentage points.

Section 6621(c) provides that for pur-poses of interest payable under section6601 on any large corporate underpay-ment, the underpayment rate under section6621(a)(2) is determined by substituting“5 percentage points” for “3 percentagepoints.” See section 6621(c) and section301.6621–3 of the Regulations on Proce-dure and Administration for the definitionof a large corporate underpayment andfor the rules for determining the applica-ble date. Section 6621(c) and section301.6621–3 are generally effective for pe-riods after December 31, 1990.

Section 6621(b)(1) provides that theSecretary will determine the federal short-term rate for the first month in each cal-endar quarter. Section 6621(b)(2)(A) pro-vides that the federal short-term ratedetermined under section 6621(b)(1) forany month applies during the first calen-dar quarter beginning after that month.Section 6621(b)(3) provides that the fed-eral short-term rate for any month is thefederal short-term rate determined duringthat month by the Secretary in accordancewith section 1274(d), rounded to the near-est full percent (or, if a multiple of 1/2 of1 percent, the rate is increased to the nexthighest full percent).

Notice 88–59, 1988–1 C.B. 546, an-nounced that in determining the quarterlyinterest rates to be used for overpaymentsand underpayments of tax under section6621, the Internal Revenue Service willuse the federal short-term rate based ondaily compounding because that rate ismost consistent with section 6621 which,pursuant to section 6622, is subject todaily compounding.

The federal short-term rate determinedin accordance with section 1274(d) duringJuly 2016 is the rate published in RevenueRuling 2016–18, 2016–31 IRB 194, totake effect beginning August 1, 2016. Thefederal short-term rate, rounded to thenearest full percent, based on daily com-pounding determined during the month ofJuly 2016 is 1 percent. Accordingly, anoverpayment rate of 4 percent (3 percentin the case of a corporation) and an un-derpayment rate of 4 percent are estab-

lished for the calendar quarter beginningOctober 1, 2016. The overpayment ratefor the portion of a corporate overpaymentexceeding $10,000 for the calendar quar-ter beginning October 1, 2016 is 1.5 per-cent. The underpayment rate for large cor-porate underpayments for the calendarquarter beginning October 1, 2016, is 6percent. These rates apply to amountsbearing interest during that calendar quar-ter.

Pursuant to section 6654(a)(1), the 4percent rate also applies to estimated taxunderpayments for the fourth calendarquarter in 2016. In addition, pursuant tosection 6603(d)(4), the rate of interest onsection 6603 deposits is 1 percent for thefourth calendar quarter in 2016.

Interest factors for daily compound in-terest for annual rates of 1.5 percent, 3percent, 4 percent and 6 percent are pub-lished in Tables 56, 59, 61 and 65 of Rev.Proc. 95–17, 1995–1 C.B. 610, 613, 615and 619.

Annual interest rates to be com-pounded daily pursuant to section 6622that apply for prior periods are set forth inthe tables accompanying this revenue rul-ing.

DRAFTING INFORMATION

The principal author of this revenueruling is Sarah McLemore of the Office ofAssociate Chief Counsel (Procedure &Administration). For further informationregarding this revenue ruling, contact Ms.McLemore at (202) 317-6844 (not a toll-free number).

APPENDIX A

365 Day Year0.5% Compound Rate 184 Days

Days Factor Days Factor Days Factor

1 0.000013699 63 0.000863380 125 0.001713784

2 0.000027397 64 0.000877091 126 0.001727506

3 0.000041096 65 0.000890801 127 0.001741228

4 0.000054796 66 0.000904512 128 0.001754951

5 0.000068495 67 0.000918223 129 0.001768673

6 0.000082195 68 0.000931934 130 0.001782396

7 0.000095894 69 0.000945646 131 0.001796119




8 0.000109594 70 0.000959357 132 0.001809843

9 0.000123294 71 0.000973069 133 0.001823566

10 0.000136995 72 0.000986781 134 0.001837290

11 0.000150695 73 0.001000493 135 0.001851013

12 0.000164396 74 0.001014206 136 0.001864737

13 0.000178097 75 0.001027918 137 0.001878462

14 0.000191798 76 0.001041631 138 0.001892186

15 0.000205499 77 0.001055344 139 0.001905910

16 0.000219201 78 0.001069057 140 0.001919635

17 0.000232902 79 0.001082770 141 0.001933360

18 0.000246604 80 0.001096484 142 0.001947085

19 0.000260306 81 0.001110197 143 0.001960811

20 0.000274008 82 0.001123911 144 0.001974536

21 0.000287711 83 0.001137625 145 0.001988262

22 0.000301413 84 0.001151339 146 0.002001988

23 0.000315116 85 0.001165054 147 0.002015714

24 0.000328819 86 0.001178768 148 0.002029440

25 0.000342522 87 0.001192483 149 0.002043166

26 0.000356225 88 0.001206198 150 0.002056893

27 0.000369929 89 0.001219913 151 0.002070620

28 0.000383633 90 0.001233629 152 0.002084347

29 0.000397336 91 0.001247344 153 0.002098074

30 0.000411041 92 0.001261060 154 0.002111801

31 0.000424745 93 0.001274776 155 0.002125529

32 0.000438449 94 0.001288492 156 0.002139257

33 0.000452154 95 0.001302208 157 0.002152985

34 0.000465859 96 0.001315925 158 0.002166713

35 0.000479564 97 0.001329641 159 0.002180441

36 0.000493269 98 0.001343358 160 0.002194169

37 0.000506974 99 0.001357075 161 0.002207898

38 0.000520680 100 0.001370792 162 0.002221627

39 0.000534386 101 0.001384510 163 0.002235356

40 0.000548092 102 0.001398227 164 0.002249085

41 0.000561798 103 0.001411945 165 0.002262815

42 0.000575504 104 0.001425663 166 0.002276544

43 0.000589211 105 0.001439381 167 0.002290274

44 0.000602917 106 0.001453100 168 0.002304004

45 0.000616624 107 0.001466818 169 0.002317734

46 0.000630331 108 0.001480537 170 0.002331465

47 0.000644039 109 0.001494256 171 0.002345195

48 0.000657746 110 0.001507975 172 0.002358926

49 0.000671454 111 0.001521694 173 0.002372657

50 0.000685161 112 0.001535414 174 0.002386388

51 0.000698869 113 0.001549133 175 0.002400120

52 0.000712578 114 0.001562853 176 0.002413851

Bulletin No. 2016–39 September 26, 2016383



53 0.000726286 115 0.001576573 177 0.002427583

54 0.000739995 116 0.001590293 178 0.002441315

55 0.000753703 117 0.001604014 179 0.002455047

56 0.000767412 118 0.001617734 180 0.002468779

57 0.000781121 119 0.001631455 181 0.002482511

58 0.000794831 120 0.001645176 182 0.002496244

59 0.000808540 121 0.001658897 183 0.002509977

60 0.000822250 122 0.001672619 184 0.002523710

61 0.000835960 123 0.001686340

62 0.000849670 124 0.001700062



1 0.000013661 63 0.000861020 125 0.001709097

2 0.000027323 64 0.000874693 126 0.001722782

3 0.000040984 65 0.000888366 127 0.001736467

4 0.000054646 66 0.000902040 128 0.001750152

5 0.000068308 67 0.000915713 129 0.001763837

6 0.000081970 68 0.000929387 130 0.001777522

7 0.000095632 69 0.000943061 131 0.001791208

8 0.000109295 70 0.000956735 132 0.001804893

9 0.000122958 71 0.000970409 133 0.001818579

10 0.000136620 72 0.000984084 134 0.001832265

11 0.000150283 73 0.000997758 135 0.001845951

12 0.000163947 74 0.001011433 136 0.001859638

13 0.000177610 75 0.001025108 137 0.001873324

14 0.000191274 76 0.001038783 138 0.001887011

15 0.000204938 77 0.001052459 139 0.001900698

16 0.000218602 78 0.001066134 140 0.001914385

17 0.000232266 79 0.001079810 141 0.001928073

18 0.000245930 80 0.001093486 142 0.001941760

19 0.000259595 81 0.001107162 143 0.001955448

20 0.000273260 82 0.001120839 144 0.001969136

21 0.000286924 83 0.001134515 145 0.001982824

22 0.000300590 84 0.001148192 146 0.001996512

23 0.000314255 85 0.001161869 147 0.002010201

24 0.000327920 86 0.001175546 148 0.002023889

25 0.000341586 87 0.001189223 149 0.002037578

26 0.000355252 88 0.001202900 150 0.002051267

27 0.000368918 89 0.001216578 151 0.002064957

28 0.000382584 90 0.001230256 152 0.002078646

29 0.000396251 91 0.001243934 153 0.002092336

30 0.000409917 92 0.001257612 154 0.002106025

31 0.000423584 93 0.001271291 155 0.002119715




32 0.000437251 94 0.001284969 156 0.002133405

33 0.000450918 95 0.001298648 157 0.002147096

34 0.000464586 96 0.001312327 158 0.002160786

35 0.000478253 97 0.001326006 159 0.002174477

36 0.000491921 98 0.001339685 160 0.002188168

37 0.000505589 99 0.001353365 161 0.002201859

38 0.000519257 100 0.001367044 162 0.002215550

39 0.000532925 101 0.001380724 163 0.002229242

40 0.000546594 102 0.001394404 164 0.002242933

41 0.000560262 103 0.001408085 165 0.002256625

42 0.000573931 104 0.001421765 166 0.002270317

43 0.000587600 105 0.001435446 167 0.002284010

44 0.000601269 106 0.001449127 168 0.002297702

45 0.000614939 107 0.001462808 169 0.002311395

46 0.000628608 108 0.001476489 170 0.002325087

47 0.000642278 109 0.001490170 171 0.002338780

48 0.000655948 110 0.001503852 172 0.002352473

49 0.000669618 111 0.001517533 173 0.002366167

50 0.000683289 112 0.001531215 174 0.002379860

51 0.000696959 113 0.001544897 175 0.002393554

52 0.000710630 114 0.001558580 176 0.002407248

53 0.000724301 115 0.001572262 177 0.002420942

54 0.000737972 116 0.001585945 178 0.002434636

55 0.000751643 117 0.001599628 179 0.002448331

56 0.000765315 118 0.001613311 180 0.002462025

57 0.000778986 119 0.001626994 181 0.002475720

58 0.000792658 120 0.001640678 182 0.002489415

59 0.000806330 121 0.001654361 183 0.002503110

60 0.000820003 122 0.001668045 184 0.002516806

61 0.000833675 123 0.001681729

62 0.000847348 124 0.001695413

TABLE OF INTEREST RATESPERIODS BEFORE JUL. 1, 1975—PERIODS ENDING DEC. 31, 1986

OVERPAYMENTS AND UNDERPAYMENTSPERIOD RATE In 1995–1 C.B. DAILY RATE TABLE

Before Jul. 1, 1975 6% Table 2, pg. 557

Jul. 1, 1975—Jan. 31, 1976 9% Table 4, pg. 559

Feb. 1, 1976—Jan. 31, 1978 7% Table 3, pg. 558

Feb. 1, 1978—Jan. 31, 1980 6% Table 2, pg. 557

Feb. 1, 1980—Jan. 31, 1982 12% Table 5, pg. 560

Feb. 1, 1982—Dec. 31, 1982 20% Table 6, pg. 560

Jan. 1, 1983—Jun. 30, 1983 16% Table 37, pg. 591

Jul. 1, 1983—Dec. 31, 1983 11% Table 27, pg. 581

Jan. 1, 1984—Jun. 30, 1984 11% Table 75, pg. 629


TABLE OF INTEREST RATESPERIODS BEFORE JUL. 1, 1975—PERIODS ENDING DEC. 31, 1986

OVERPAYMENTS AND UNDERPAYMENTSPERIOD RATE In 1995–1 C.B. DAILY RATE TABLE

Jul. 1, 1984—Dec. 31, 1984 11% Table 75, pg. 629

Jan. 1, 1985—Jun. 30, 1985 13% Table 31, pg. 585

Jul. 1, 1985—Dec. 31, 1985 11% Table 27, pg. 581

Jan. 1, 1986—Jun. 30, 1986 10% Table 25, pg. 579

Jul. 1, 1986—Dec. 31, 1986 9% Table 23, pg. 577

TABLE OF INTEREST RATESFROM JAN. 1, 1987—Dec. 31, 1998

OVERPAYMENTS UNDERPAYMENTS1995–1 C.B. 1995–1 C.B.

RATE TABLE PG RATE TABLE PG

Jan. 1, 1987—Mar. 31, 1987 8% 21 575 9% 23 577

Apr. 1, 1987—Jun. 30, 1987 8% 21 575 9% 23 577

Jul. 1, 1987—Sep. 30, 1987 8% 21 575 9% 23 577

Oct. 1, 1987—Dec. 31, 1987 9% 23 577 10% 25 579

Jan. 1, 1988—Mar. 31, 1988 10% 73 627 11% 75 629

Apr. 1, 1988—Jun. 30, 1988 9% 71 625 10% 73 627

Jul. 1, 1988—Sep. 30, 1988 9% 71 625 10% 73 627

Oct. 1, 1988—Dec. 31, 1988 10% 73 627 11% 75 629

Jan. 1, 1989—Mar. 31, 1989 10% 25 579 11% 27 581

Apr. 1, 1989—Jun. 30, 1989 11% 27 581 12% 29 583

Jul. 1, 1989—Sep. 30, 1989 11% 27 581 12% 29 583

Oct. 1, 1989—Dec. 31, 1989 10% 25 579 11% 27 581

Jan. 1, 1990—Mar. 31, 1990 10% 25 579 11% 27 581

Apr. 1, 1990—Jun. 30, 1990 10% 25 579 11% 27 581

Jul. 1, 1990—Sep. 30, 1990 10% 25 579 11% 27 581

Oct. 1, 1990—Dec. 31, 1990 10% 25 579 11% 27 581

Jan. 1, 1991—Mar. 31, 1991 10% 25 579 11% 27 581

Apr. 1, 1991—Jun. 30, 1991 9% 23 577 10% 25 579

Jul. 1, 1991—Sep. 30, 1991 9% 23 577 10% 25 579

Oct. 1, 1991—Dec. 31, 1991 9% 23 577 10% 25 579

Jan. 1, 1992—Mar. 31, 1992 8% 69 623 9% 71 625

Apr. 1, 1992—Jun. 30, 1992 7% 67 621 8% 69 623

Jul. 1, 1992—Sep. 30, 1992 7% 67 621 8% 69 623

Oct. 1, 1992—Dec. 31, 1992 6% 65 619 7% 67 621

Jan. 1, 1993—Mar. 31, 1993 6% 17 571 7% 19 573

Apr. 1, 1993—Jun. 30, 1993 6% 17 571 7% 19 573

Jul. 1, 1993—Sep. 30, 1993 6% 17 571 7% 19 573

Oct. 1, 1993—Dec. 31, 1993 6% 17 571 7% 19 573

Jan. 1, 1994—Mar. 31, 1994 6% 17 571 7% 19 573

Apr. 1, 1994—Jun. 30, 1994 6% 17 571 7% 19 573

Jul. 1, 1994—Sep. 30, 1994 7% 19 573 8% 21 575

Oct. 1, 1994—Dec. 31, 1994 8% 21 575 9% 23 577

Jan. 1, 1995—Mar. 31, 1995 8% 21 575 9% 23 577


TABLE OF INTEREST RATESFROM JAN. 1, 1987—Dec. 31, 1998

OVERPAYMENTS UNDERPAYMENTS1995–1 C.B. 1995–1 C.B.

RATE TABLE PG RATE TABLE PG

Apr. 1, 1995—Jun. 30, 1995 9% 23 577 10% 25 579

Jul. 1, 1995—Sep. 30, 1995 8% 21 575 9% 23 577

Oct. 1, 1995—Dec. 31, 1995 8% 21 575 9% 23 577

Jan. 1, 1996—Mar. 31, 1996 8% 69 623 9% 71 625

Apr. 1, 1996—Jun. 30, 1996 7% 67 621 8% 69 623

Jul. 1, 1996—Sep. 30, 1996 8% 69 623 9% 71 625

Oct. 1, 1996—Dec. 31, 1996 8% 69 623 9% 71 625

Jan. 1, 1997—Mar. 31, 1997 8% 21 575 9% 23 577

Apr. 1, 1997—Jun. 30, 1997 8% 21 575 9% 23 577

Jul. 1, 1997—Sep. 30, 1997 8% 21 575 9% 23 577

Oct. 1, 1997—Dec. 31, 1997 8% 21 575 9% 23 577

Jan. 1, 1998—Mar. 31, 1998 8% 21 575 9% 23 577

Apr. 1, 1998—Jun. 30, 1998 7% 19 573 8% 21 575

Jul. 1, 1998—Sep. 30, 1998 7% 19 573 8% 21 575

Oct. 1, 1998—Dec. 31, 1998 7% 19 573 8% 21 575

TABLE OF INTEREST RATESFROM JANUARY 1, 1999—PRESENT

NONCORPORATE OVERPAYMENTS AND UNDERPAYMENTS1995–1 C.B.

RATE TABLE PAGE

Jan. 1, 1999—Mar. 31, 1999 7% 19 573

Apr. 1, 1999—Jun. 30, 1999 8% 21 575

Jul. 1, 1999—Sep. 30, 1999 8% 21 575

Oct. 1, 1999—Dec. 31, 1999 8% 21 575

Jan. 1, 2000—Mar. 31, 2000 8% 69 623

Apr. 1, 2000—Jun. 30, 2000 9% 71 625

Jul. 1, 2000—Sep. 30, 2000 9% 71 625

Oct. 1, 2000—Dec. 31, 2000 9% 71 625

Jan. 1, 2001—Mar. 31, 2001 9% 23 577

Apr. 1, 2001—Jun. 30, 2001 8% 21 575

Jul. 1, 2001—Sep. 30, 2001 7% 19 573

Oct. 1, 2001—Dec. 31, 2001 7% 19 573

Jan. 1, 2002—Mar. 31, 2002 6% 17 571

Apr. 1, 2002—Jun. 30, 2002 6% 17 571

Jul. 1, 2002—Sep. 30, 2002 6% 17 571

Oct. 1, 2002—Dec. 31, 2002 6% 17 571

Jan. 1, 2003—Mar. 31, 2003 5% 15 569

Apr. 1, 2003—Jun. 30, 2003 5% 15 569

Jul. 1, 2003—Sep. 30, 2003 5% 15 569

Oct. 1, 2003—Dec. 31, 2003 4% 13 567

Jan. 1, 2004—Mar. 31, 2004 4% 61 615

Apr. 1, 2004—Jun. 30, 2004 5% 63 617

Jul. 1, 2004—Sep. 30, 2004 4% 61 615




RATE TABLE PAGE

Oct. 1, 2004—Dec. 31, 2004 5% 63 617

Jan. 1, 2005—Mar. 31, 2005 5% 15 569

Apr. 1, 2005—Jun. 30, 2005 6% 17 571

Jul. 1, 2005—Sep. 30, 2005 6% 17 571

Oct. 1, 2005—Dec. 31, 2005 7% 19 573

Jan. 1, 2006—Mar. 31, 2006 7% 19 573

Apr. 1, 2006—Jun. 30, 2006 7% 19 573

Jul. 1, 2006—Sep. 30, 2006 8% 21 575

Oct. 1, 2006—Dec. 31, 2006 8% 21 575

Jan. 1, 2007—Mar. 31, 2007 8% 21 575

Apr. 1, 2007—Jun. 30, 2007 8% 21 575

Jul. 1, 2007—Sep. 30, 2007 8% 21 575

Oct. 1, 2007—Dec. 31, 2007 8% 21 575

Jan. 1, 2008—Mar. 31, 2008 7% 67 621

Apr. 1, 2008—Jun. 30, 2008 6% 65 619

Jul. 1, 2008—Sep. 30, 2008 5% 63 617

Oct. 1, 2008—Dec. 31, 2008 6% 65 619

Jan. 1, 2009—Mar. 31, 2009 5% 15 569

Apr. 1, 2009—Jun. 30, 2009 4% 13 567

Jul. 1, 2009—Sep. 30, 2009 4% 13 567

Oct. 1, 2009—Dec. 31, 2009 4% 13 567

Jan. 1, 2010—Mar. 31, 2010 4% 13 567

Apr. 1, 2010—Jun. 30, 2010 4% 13 567

Jul. 1, 2010—Sep. 30, 2010 4% 13 567

Oct. 1, 2010—Dec. 31, 2010 4% 13 567

Jan. 1, 2011—Mar. 31, 2011 3% 11 565

Apr. 1, 2011—Jun. 30, 2011 4% 13 567

Jul. 1, 2011—Sep. 30, 2011 4% 13 567

Oct. 1, 2011—Dec. 31, 2011 3% 11 565

Jan. 1, 2012—Mar. 31, 2012 3% 59 613

Apr. 1, 2012—Jun. 30, 2012 3% 59 613

Jul. 1, 2012—Sep. 30, 2012 3% 59 613

Oct. 1, 2012—Dec. 31, 2012 3% 59 613

Jan. 1, 2013—Mar. 31, 2013 3% 11 565

Apr. 1, 2013—Jun. 30, 2013 3% 11 565

Jul. 1, 2013—Sep. 30, 2013 3% 11 565

Oct. 1, 2013—Dec. 31, 2013 3% 11 565

Jan. 1, 2014—Mar. 31, 2014 3% 11 565

Apr. 1, 2014—Jun. 30, 2014 3% 11 565

Jul. 1, 2014—Sep. 30, 2014 3% 11 565

Oct. 1, 2014—Dec. 31, 2014 3% 11 565

Jan. 1, 2015—Mar. 31, 2015 3% 11 565

Apr. 1, 2015—Jun. 30, 2015 3% 11 565




RATE TABLE PAGE

Jul. 1, 2015—Sep. 30, 2015 3% 11 565

Oct. 1, 2015—Dec. 31, 2015 3% 11 565

Jan. 1, 2016—Mar. 31, 2016 3% 59 613

Apr. 1, 2016—Jun. 30, 2016 4% 61 615

Jul. 1, 2016—Sep. 30, 2016 4% 61 615

Oct. 1, 2016—Dec. 31, 2016 4% 61 615


CORPORATE OVERPAYMENTS AND UNDERPAYMENTSOVERPAYMENTS UNDERPAYMENTS

1995–1 C.B. 1995–1 C.B.RATE TABLE PG RATE TABLE PG

Jan. 1, 1999—Mar. 31, 1999 6% 17 571 7% 19 573

Apr. 1, 1999—Jun. 30, 1999 7% 19 573 8% 21 575

Jul. 1, 1999—Sep. 30, 1999 7% 19 573 8% 21 575

Oct. 1, 1999—Dec. 31, 1999 7% 19 573 8% 21 575

Jan. 1, 2000—Mar. 31, 2000 7% 67 621 8% 69 623

Apr. 1, 2000—Jun. 30, 2000 8% 69 623 9% 71 625

Jul. 1, 2000—Sep. 30, 2000 8% 69 623 9% 71 625

Oct. 1, 2000—Dec. 31, 2000 8% 69 623 9% 71 625

Jan. 1, 2001—Mar. 31, 2001 8% 21 575 9% 23 577

Apr. 1, 2001—Jun. 30, 2001 7% 19 573 8% 21 575

Jul. 1, 2001—Sep. 30, 2001 6% 17 571 7% 19 573

Oct. 1, 2001—Dec. 31, 2001 6% 17 571 7% 19 573

Jan. 1, 2002—Mar. 31, 2002 5% 15 569 6% 17 571

Apr. 1, 2002—Jun. 30, 2002 5% 15 569 6% 17 571

Jul. 1, 2002—Sep. 30, 2002 5% 15 569 6% 17 571

Oct. 1, 2002—Dec. 31, 2002 5% 15 569 6% 17 571

Jan. 1, 2003—Mar. 31, 2003 4% 13 567 5% 15 569

Apr. 1, 2003—Jun. 30, 2003 4% 13 567 5% 15 569

Jul. 1, 2003—Sep. 30, 2003 4% 13 567 5% 15 569

Oct. 1, 2003—Dec. 31, 2003 3% 11 565 4% 13 567

Jan. 1, 2004—Mar. 31, 2004 3% 59 613 4% 61 615

Apr. 1, 2004—Jun. 30, 2004 4% 61 615 5% 63 617

Jul. 1, 2004—Sep. 30, 2004 3% 59 613 4% 61 615

Oct. 1, 2004—Dec. 31, 2004 4% 61 615 5% 63 617

Jan. 1, 2005—Mar. 31, 2005 4% 13 567 5% 15 569

Apr. 1, 2005—Jun. 30, 2005 5% 15 569 6% 17 571

Jul. 1, 2005—Sep. 30, 2005 5% 15 569 6% 17 571

Oct. 1, 2005—Dec. 31, 2005 6% 17 571 7% 19 573

Jan. 1, 2006—Mar. 31, 2006 6% 17 571 7% 19 573

Apr. 1, 2006—Jun. 30, 2006 6% 17 571 7% 19 573



CORPORATE OVERPAYMENTS AND UNDERPAYMENTSOVERPAYMENTS UNDERPAYMENTS

1995–1 C.B. 1995–1 C.B.RATE TABLE PG RATE TABLE PG

Jul. 1, 2006—Sep. 30, 2006 7% 19 573 8% 21 575

Oct. 1, 2006—Dec. 31, 2006 7% 19 573 8% 21 575

Jan. 1, 2007—Mar. 31, 2007 7% 19 573 8% 21 575

Apr. 1, 2007—Jun. 30, 2007 7% 19 573 8% 21 575

Jul. 1, 2007—Sep. 30, 2007 7% 19 573 8% 21 575

Oct. 1, 2007—Dec. 31, 2007 7% 19 573 8% 21 575

Jan. 1, 2008—Mar. 31, 2008 6% 65 619 7% 67 621

Apr. 1, 2008—Jun. 30, 2008 5% 63 617 6% 65 619

Jul. 1, 2008—Sep. 30, 2008 4% 61 615 5% 63 617

Oct. 1, 2008—Dec. 31, 2008 5% 63 617 6% 65 619

Jan. 1, 2009—Mar. 31, 2009 4% 13 567 5% 15 569

Apr. 1, 2009—Jun. 30, 2009 3% 11 565 4% 13 567

Jul. 1, 2009—Sep. 30, 2009 3% 11 565 4% 13 567

Oct. 1, 2009—Dec. 31, 2009 3% 11 565 4% 13 567

Jan. 1, 2010—Mar. 31, 2010 3% 11 565 4% 13 567

Apr. 1, 2010—Jun. 30, 2010 3% 11 565 4% 13 567

Jul. 1, 2010—Sep. 30, 2010 3% 11 565 4% 13 567

Oct. 1, 2010—Dec. 31, 2010 3% 11 565 4% 13 567

Jan. 1, 2011—Mar. 31, 2011 2% 9 563 3% 11 565

Apr. 1, 2011—Jun. 30, 2011 3% 11 565 4% 13 567

Jul. 1, 2011—Sep. 30, 2011 3% 11 565 4% 13 567

Oct. 1, 2011—Dec. 31, 2011 2% 9 563 3% 11 565

Jan. 1, 2012—Mar. 31, 2012 2% 57 611 3% 59 613

Apr. 1, 2012—Jun. 30, 2012 2% 57 611 3% 59 613

Jul. 1, 2012—Sep. 30, 2012 2% 57 611 3% 59 613

Oct. 1, 2012—Dec. 31, 2012 2% 57 611 3% 59 613

Jan. 1, 2013—Mar. 31, 2013 2% 9 563 3% 11 565

Apr. 1, 2013—Jun. 30, 2013 2% 9 563 3% 11 565

Jul. 1, 2013—Sep. 30, 2013 2% 9 563 3% 11 565

Oct. 1, 2013—Dec. 31, 2013 2% 9 563 3% 11 565

Jan. 1, 2014—Mar. 31, 2014 2% 9 563 3% 11 565

Apr. 1, 2014—Jun. 30, 2014 2% 9 563 3% 11 565

Jul. 1, 2014—Sep. 30, 2014 2% 9 563 3% 11 565

Oct. 1, 2014—Dec. 31, 2014 2% 9 563 3% 11 565

Jan. 1, 2015—Mar. 31, 2015 2% 9 563 3% 11 565

Apr. 1, 2015—Jun. 30, 2015 2% 9 563 3% 11 565

Jul. 1, 2015—Sep. 30, 2015 2% 9 563 3% 11 565

Oct. 1, 2015—Dec. 31, 2015 2% 9 563 3% 11 565

Jan. 1, 2016—Mar. 31, 2016 2% 57 611 3% 59 613

Apr. 1, 2016—Jun. 30, 2016 3% 59 613 4% 61 615

Jul. 1, 2016—Sep. 30, 2016 3% 59 613 4% 61 615

Oct. 1, 2016—Dec. 31, 2016 3% 59 613 4% 61 615


TABLE OF INTEREST RATES FOR LARGE CORPORATE UNDERPAYMENTSFROM JANUARY 1, 1991—PRESENT

1995–1 C.B.RATE TABLE PG

Jan. 1, 1991—Mar. 31, 1991 13% 31 585

Apr. 1, 1991—Jun. 30, 1991 12% 29 583

Jul. 1, 1991—Sep. 30, 1991 12% 29 583

Oct. 1, 1991—Dec. 31, 1991 12% 29 583

Jan. 1, 1992—Mar. 31, 1992 11% 75 629

Apr. 1, 1992—Jun. 30, 1992 10% 73 627

Jul. 1, 1992—Sep. 30, 1992 10% 73 627

Oct. 1, 1992—Dec. 31, 1992 9% 71 625

Jan. 1, 1993—Mar. 31, 1993 9% 23 577

Apr. 1, 1993—Jun. 30, 1993 9% 23 577

Jul. 1, 1993—Sep. 30, 1993 9% 23 577

Oct. 1, 1993—Dec. 31, 1993 9% 23 577

Jan. 1, 1994—Mar. 31, 1994 9% 23 577

Apr. 1, 1994—Jun. 30, 1994 9% 23 577

Jul. 1, 1994—Sep. 30, 1994 10% 25 579

Oct. 1, 1994—Dec. 31, 1994 11% 27 581

Jan. 1, 1995—Mar. 31, 1995 11% 27 581

Apr. 1, 1995—Jun. 30, 1995 12% 29 583

Jul. 1, 1995—Sep. 30, 1995 11% 27 581

Oct. 1, 1995—Dec. 31, 1995 11% 27 581

Jan. 1, 1996—Mar. 31, 1996 11% 75 629

Apr. 1, 1996—Jun. 30, 1996 10% 73 627

Jul. 1, 1996—Sep. 30, 1996 11% 75 629

Oct. 1, 1996—Dec. 31, 1996 11% 75 629

Jan. 1, 1997—Mar. 31, 1997 11% 27 581

Apr. 1, 1997—Jun. 30, 1997 11% 27 581

Jul. 1, 1997—Sep. 30, 1997 11% 27 581

Oct. 1, 1997—Dec. 31, 1997 11% 27 581

Jan. 1, 1998—Mar. 31, 1998 11% 27 581

Apr. 1, 1998—Jun. 30, 1998 10% 25 579

Jul. 1, 1998—Sep. 30, 1998 10% 25 579

Oct. 1, 1998—Dec. 31, 1998 10% 25 579

Jan. 1, 1999—Mar. 31, 1999 9% 23 577

Apr. 1, 1999—Jun. 30, 1999 10% 25 579

Jul. 1, 1999—Sep. 30, 1999 10% 25 579

Oct. 1, 1999—Dec. 31, 1999 10% 25 579

Jan. 1, 2000—Mar. 31, 2000 10% 73 627

Apr. 1, 2000—Jun. 30, 2000 11% 75 629

Jul. 1, 2000—Sep. 30, 2000 11% 75 629

Oct. 1, 2000—Dec. 31, 2000 11% 75 629

Jan. 1, 2001—Mar. 31, 2001 11% 27 581

Apr. 1, 2001—Jun. 30, 2001 10% 25 579

Jul. 1, 2001—Sep. 30, 2001 9% 23 577

Oct. 1, 2001—Dec. 31, 2001 9% 23 577




Jan. 1, 2002—Mar. 31, 2002 8% 21 575

Apr. 1, 2002—Jun. 30, 2002 8% 21 575

Jul. 1, 2002—Sep. 30, 2002 8% 21 575

Oct. 1, 2002—Dec. 31, 2002 8% 21 575

Jan. 1, 2003—Mar. 31, 2003 7% 19 573

Apr. 1, 2003—Jun. 30, 2003 7% 19 573

Jul. 1, 2003—Sep. 30, 2003 7% 19 573

Oct. 1, 2003—Dec. 31, 2003 6% 17 571

Jan. 1, 2004—Mar. 31, 2004 6% 65 619

Apr. 1, 2004—Jun. 30, 2004 7% 67 621

Jul. 1, 2004—Sep. 30, 2004 6% 65 619

Oct. 1, 2004—Dec. 31, 2004 7% 67 621

Jan. 1, 2005—Mar. 31, 2005 7% 19 573

Apr. 1, 2005—Jun. 30, 2005 8% 21 575

Jul. 1, 2005—Sep. 30, 2005 8% 21 575

Oct. 1, 2005—Dec. 31, 2005 9% 23 577

Jan. 1, 2006—Mar. 31, 2006 9% 23 577

Apr. 1, 2006—Jun. 30, 2006 9% 23 577

Jul. 1, 2006—Sep. 30, 2006 10% 25 579

Oct. 1, 2006—Dec. 31, 2006 10% 25 579

Jan. 1, 2007—Mar. 31, 2007 10% 25 579

Apr. 1, 2007—Jun. 30, 2007 10% 25 579

Jul. 1, 2007—Sep. 30, 2007 10% 25 579

Oct. 1, 2007—Dec. 31, 2007 10% 25 579

Jan. 1, 2008—Mar. 31, 2008 9% 71 625

Apr. 1, 2008—Jun. 30, 2008 8% 69 623

Jul. 1, 2008—Sep. 30, 2008 7% 67 621

Oct. 1, 2008—Dec. 31, 2008 8% 69 623

Jan. 1, 2009—Mar. 31, 2009 7% 19 573

Apr. 1, 2009—Jun. 30, 2009 6% 17 571

Jul. 1, 2009—Sep. 30, 2009 6% 17 571

Oct. 1, 2009—Dec. 31, 2009 6% 17 571

Jan. 1, 2010—Mar. 31, 2010 6% 17 571

Apr. 1, 2010—Jun. 30, 2010 6% 17 571

Jul. 1, 2010—Sep. 30, 2010 6% 17 571

Oct. 1, 2010—Dec. 31, 2010 6% 17 571

Jan. 1, 2011—Mar. 31, 2011 5% 15 569

Apr. 1, 2011—Jun. 30, 2011 6% 17 571

Jul. 1, 2011—Sep. 30, 2011 6% 17 571

Oct. 1, 2011—Dec. 31, 2011 5% 15 569

Jan. 1, 2012—Mar. 31, 2012 5% 63 617

Apr. 1, 2012—Jun. 30, 2012 5% 63 617

Jul. 1, 2012—Sep. 30, 2012 5% 63 617

Oct. 1, 2012—Dec. 31, 2012 5% 63 617




Jan. 1, 2013—Mar. 31, 2013 5% 15 569

Apr. 1, 2013—Jun. 30, 2013 5% 15 569

Jul. 1, 2013—Sep. 30, 2013 5% 15 569

Oct. 1, 2013—Dec. 31, 2013 5% 15 569

Jan. 1, 2014—Mar. 31, 2014 5% 15 569

Apr. 1, 2014—Jun. 30, 2014 5% 15 569

Jul. 1, 2014—Sep. 30, 2014 5% 15 569

Oct. 1, 2014—Dec. 31, 2014 5% 15 569

Jan. 1, 2015—Mar. 31, 2015 5% 15 569

Apr. 1, 2015—Jun. 30, 2015 5% 15 569

Jul. 1, 2015—Sep. 30, 2015 5% 15 569

Oct. 1, 2015—Dec. 31, 2015 5% 15 569

Jan. 1, 2016—Mar. 31, 2016 5% 63 617

Apr. 1, 2016—Jun. 30, 2016 6% 65 619

Jul. 1, 2016—Sep. 30, 2016 6% 65 619

Oct. 1, 2016—Dec. 31, 2016 6% 65 619

TABLE OF INTEREST RATES FOR CORPORATE OVERPAYMENTS EXCEEDING $10,000FROM JANUARY 1, 1995—PRESENT


Jan. 1, 1995—Mar. 31, 1995 6.5% 18 572

Apr. 1, 1995—Jun. 30, 1995 7.5% 20 574

Jul. 1, 1995—Sep. 30, 1995 6.5% 18 572

Oct. 1, 1995—Dec. 31, 1995 6.5% 18 572

Jan. 1, 1996—Mar. 31, 1996 6.5% 66 620

Apr. 1, 1996—Jun. 30, 1996 5.5% 64 618

Jul. 1, 1996—Sep. 30, 1996 6.5% 66 620

Oct. 1, 1996—Dec. 31, 1996 6.5% 66 620

Jan. 1, 1997—Mar. 31, 1997 6.5% 18 572

Apr. 1, 1997—Jun. 30, 1997 6.5% 18 572

Jul. 1, 1997—Sep. 30, 1997 6.5% 18 572

Oct. 1, 1997—Dec. 31, 1997 6.5% 18 572

Jan. 1, 1998—Mar. 31, 1998 6.5% 18 572

Apr. 1, 1998—Jun. 30, 1998 5.5% 16 570

Jul. 1. 1998—Sep. 30, 1998 5.5% 16 570

Oct. 1, 1998—Dec. 31, 1998 5.5% 16 570

Jan. 1, 1999—Mar. 31, 1999 4.5% 14 568

Apr. 1, 1999—Jun. 30, 1999 5.5% 16 570

Jul. 1, 1999—Sep. 30, 1999 5.5% 16 570

Oct. 1, 1999—Dec. 31, 1999 5.5% 16 570

Jan. 1, 2000—Mar. 31, 2000 5.5% 64 618

Apr. 1, 2000—Jun. 30, 2000 6.5% 66 620

Jul. 1, 2000—Sep. 30, 2000 6.5% 66 620

Oct. 1, 2000—Dec. 31, 2000 6.5% 66 620




Jan. 1, 2001—Mar. 31, 2001 6.5% 18 572

Apr. 1, 2001—Jun. 30, 2001 5.5% 16 570

Jul. 1, 2001—Sep. 30, 2001 4.5% 14 568

Oct. 1, 2001—Dec. 31, 2001 4.5% 14 568

Jan. 1, 2002—Mar. 31, 2002 3.5% 12 566

Apr. 1, 2002—Jun. 30, 2002 3.5% 12 566

Jul. 1, 2002—Sep. 30, 2002 3.5% 12 566

Oct. 1, 2002—Dec. 31, 2002 3.5% 12 566

Jan. 1, 2003—Mar. 31, 2003 2.5% 10 564

Apr. 1, 2003—Jun. 30, 2003 2.5% 10 564

Jul. 1, 2003—Sep. 30, 2003 2.5% 10 564

Oct. 1, 2003—Dec. 31, 2003 1.5% 8 562

Jan. 1, 2004—Mar. 31, 2004 1.5% 56 610

Apr. 1, 2004—Jun. 30, 2004 2.5% 58 612

Jul. 1, 2004—Sep. 30, 2004 1.5% 56 610

Oct. 1, 2004—Dec. 31, 2004 2.5% 58 612

Jan. 1, 2005—Mar. 31, 2005 2.5% 10 564

Apr. 1, 2005—Jun. 30, 2005 3.5% 12 566

Jul. 1, 2005—Sep. 30, 2005 3.5% 12 566

Oct. 1, 2005—Dec. 31, 2005 4.5% 14 568

Jan. 1, 2006—Mar. 31, 2006 4.5% 14 568

Apr. 1, 2006—Jun. 30, 2006 4.5% 14 568

Jul. 1, 2006—Sep. 30, 2006 5.5% 16 570

Oct. 1, 2006—Dec. 31, 2006 5.5% 16 570

Jan. 1, 2007—Mar. 31, 2007 5.5% 16 570

Apr. 1, 2007—Jun. 30, 2007 5.5% 16 570

Jul. 1, 2007—Sep. 30, 2007 5.5% 16 570

Oct. 1, 2007—Dec. 31, 2007 5.5% 16 570

Jan. 1, 2008—Mar. 31, 2008 4.5% 62 616

Apr. 1, 2008—Jun. 30, 2008 3.5% 60 614

Jul. 1, 2008—Sep. 30, 2008 2.5% 58 612

Oct. 1, 2008—Dec. 31, 2008 3.5% 60 614

Jan. 1, 2009—Mar. 31, 2009 2.5% 10 564

Apr. 1, 2009—Jun. 30, 2009 1.5% 8 562

Jul. 1, 2009—Sep. 30, 2009 1.5% 8 562

Oct. 1, 2009—Dec. 31, 2009 1.5% 8 562

Jan. 1, 2010—Mar. 31, 2010 1.5% 8 562

Apr. 1, 2010—Jun. 30, 2010 1.5% 8 562

Jul. 1, 2010—Sep. 30, 2010 1.5% 8 562

Oct. 1, 2010—Dec. 31, 2010 1.5% 8 562

Jan. 1, 2011—Mar. 31, 2011 0.5%*

Apr. 1, 2011—Jun. 30, 2011 1.5% 8 562

Jul. 1, 2011—Sep. 30, 2011 1.5% 8 562

Oct. 1, 2011—Dec. 31, 2011 0.5%*




Jan. 1, 2012—Mar. 31, 2012 0.5%*

Apr. 1, 2012—Jun. 30, 2012 0.5%*

Jul. 1, 2012—Sep. 30, 2012 0.5%*

Oct. 1, 2012—Dec. 31, 2012 0.5%*

Jan. 1, 2013—Mar. 31, 2013 0.5%*

Apr. 1, 2013—Jun. 30, 2013 0.5%*

Jul. 1, 2013—Sep. 30, 2013 0.5%*

Oct. 1, 2013—Dec. 31, 2013 0.5%*

Jan. 1, 2014—Mar. 31, 2014 0.5%*

Apr. 1, 2014—Jun. 30, 2014 0.5%*

Jul. 1, 2014—Sep. 30, 2014 0.5%*

Oct. 1, 2014—Dec. 31, 2014 0.5%*

Jan. 1, 2015—Mar. 31, 2015 0.5%*

Apr. 1, 2015—Jun. 30, 2015 0.5%*

Jul. 1, 2015—Sep. 30, 2015 0.5%*

Oct. 1, 2015—Dec. 31, 2015 0.5%*

Jan. 1, 2016—Mar. 31, 2016 0.5%*

Apr. 1, 2016—Jun. 30, 2016 1.5% 56 610

Jul. 1, 2016—Sep. 30, 2016 1.5% 56 610

Oct. 1, 2016—Dec. 31, 2016 1.5% 56 610

* The asterisk reflects the interest factors for daily compound interest for annual rates of 0.5 percent are published inAppendix A of this Revenue Ruling.

Section 61 Gross IncomeDefined26 CFR 1.61–21: Taxation of fringe benefits.

Rev. Rul. 2016–24

For purposes of the taxation of fringebenefits under section 61 of the InternalRevenue Code, section 1.61–21(g) of the

Income Tax Regulations provides a rulefor valuing noncommercial flights onemployer-provided aircraft. Section 1.61–21(g)(5) provides an aircraft valuationformula to determine the value of suchflights. The value of a flight is determinedunder the base aircraft valuation formula(also known as the Standard Industry FareLevel formula or SIFL) by multiplying theSIFL cents-per-mile rates applicable for

the period during which the flight wastaken by the appropriate aircraft multipleprovided in section 1.61–21(g)(7) andthen adding the applicable terminalcharge. The SIFL cents-per-mile rates inthe formula and the terminal charge arecalculated by the Department of Transpor-tation and are reviewed semi-annually.

The following chart sets forth the ter-minal charge and SIFL mileage rates:

Period During Which the Flight Is Taken Terminal Charge SIFL Mileage Rates

7/1/16–12/31/16 $37.68 Up to 500 miles � $.2061 per mile

501–1500 miles � $.1572 per mile

Over 1500 miles � $.1511 per mile

DRAFTING INFORMATION

The principal author of this revenueruling is Kathleen Edmondson of the

Office of Associate Chief Counsel (TaxExempt/Government Entities). For fur-ther information regarding this revenue

ruling, contact Ms. Edmondson at (202)317-6798 (not a toll-free number).


26 CFR 1.417(e)–1: Restrictions and valuations ofdistributions from plans subject to sections401(a)(11) and 417

T.D. 9783

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Part 1

Modifications to MinimumPresent Value Requirementsfor Partial AnnuityDistribution Options underDefined Benefit Pension Plans

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains fi-nal regulations providing guidance relat-ing to the minimum present value require-ments applicable to certain defined benefitpension plans. These regulations changethe regulations regarding the minimumpresent value requirements for definedbenefit plan distributions to permit plansto simplify the treatment of certain op-tional forms of benefit that are paid partlyin the form of an annuity and partly in asingle sum or other more acceleratedform. These regulations affect partici-pants, beneficiaries, sponsors, and admin-istrators of defined benefit pension plans.

DATES: Effective date: These regulationsare effective on September 9, 2016.

Applicability date: These regulationsapply to distributions with annuity startingdates in plan years beginning on or afteron or after January 1, 2017. In addition, ataxpayer can elect to apply these regula-tions with respect to any earlier period.

FOR FURTHER INFORMATIONCONTACT: Neil S. Sandhu or Linda S. F.Marshall at (202) 317-6700 (not a toll-freenumber).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendmentsto the Income Tax Regulations (26 CFRpart 1) under section 417(e) of the InternalRevenue Code (Code). These final regu-lations amend §1.417(e)–1 of the Treasuryregulations.

Section 401(a)(11) of the Code pro-vides that, in order for a defined benefitplan to qualify under section 401(a), andexcept as provided under section 417, inthe case of a vested participant who doesnot die before the annuity starting date,the accrued benefit payable to such partic-ipant must be provided in the form of aqualified joint and survivor annuity(QJSA), as defined in section 417(b).

Section 417(e)(1) provides that a planmay provide that the present value of aQJSA or a qualified preretirement survi-vor annuity (QPSA), as defined in 417(c),will be immediately distributed if thatpresent value does not exceed the amountthat can be distributed without the partic-ipant’s consent under section 411(a)(11).Section 417(e)(2) provides that, if thepresent value of the QJSA or QPSA ex-ceeds the amount that can be distributedwithout the participant’s consent undersection 411(a)(11), then a plan may im-mediately distribute the present value ofthat annuity only if the participant and thespouse of the participant (or if the partic-ipant has died, the surviving spouse) con-sent in writing to the distribution.

Section 417(e)(3)(A) provides that thepresent value shall not be less than thepresent value calculated by using the ap-plicable mortality table and the applicableinterest rate.1 Section 417(e)(3)(B) and(C) define the terms “applicable mortalitytable” and “applicable interest rate,” re-spectively.

Section 411(a)(13) of the Code, asadded by section 701(b) of PPA ’06, pro-vides that an “applicable defined benefitplan,” as defined by section411(a)(13)(C), is not treated as failing tomeet the requirements of section 417(e)with respect to accrued benefits derivedfrom employer contributions solely be-cause the present value of a participant’s

accrued benefit (or any portion thereof)may be, under the terms of the plan, equalto the amount expressed as the hypothet-ical account balance or as an accumulatedpercentage of such participant’s final av-erage compensation.

Section 411(d)(6)(B) provides that aplan amendment that has the effect ofeliminating or reducing an early retire-ment benefit or a retirement-type subsidy,or eliminating an optional form of benefit,with respect to benefits attributable to ser-vice before the amendment is treated asimpermissibly reducing accrued benefits.However, the last sentence of section411(d)(6)(B) provides that the Secretarymay by regulations provide that section411(d)(6)(B) does not apply to a planamendment that eliminates an optionalform of benefit (other than a plan amend-ment that has the effect of eliminating orreducing an early retirement benefit or aretirement-type subsidy).

Final regulations under section 417 re-lating to the QJSA and QPSA require-ments were issued on August 22, 1988.The final regulations were amended onApril 3, 1998, to reflect changes enactedby the Uruguay Round Agreements Act,Public Law 103–465 (108 Stat. 4809(1994)).

Section 1.417(e)–1(d)(1) provides thata defined benefit plan generally must pro-vide that the present value of any accruedbenefit and the amount of any distribution,including a single sum, must not be lessthan the amount calculated using the spec-ified applicable interest rate and the spec-ified applicable mortality table. The pres-ent value of any optional form of benefitcannot be less than the present value ofthe accrued benefit determined in accor-dance with the preceding sentence.

Section 1.417(e)–1(d)(6) provides anexception from the minimum presentvalue requirements of section 417(e) and§ 1.417(e)–1(d). This exception applies tothe amount of a distribution paid in theform of an annual benefit that either doesnot decrease during the life of the partic-ipant (or, in the case of a QPSA, the life ofthe participant’s spouse), or that decreasesduring the life of the participant merelybecause of the death of the survivor annu-

1Under section 411(a)(11)(B), the same applicable mortality table and applicable interest rate are used for purposes of determining whether the present value of a participant’s nonforfeitableaccrued benefit exceeds the maximum amount that can be immediately distributed without the participant’s consent.


itant (but only if the reduction is to a levelnot below 50 percent of the annual benefitpayable before the death of such survivorannuitant) or the cessation or reduction ofSocial Security supplements or qualifieddisability benefits.

Sections 204(g) and 205(g) of the Em-ployee Retirement Income Security Act of1974, Public Law 93–406 (88 Stat. 829(1974)), as amended (ERISA), containrules that are parallel to Code sections411(d)(6) and 417(e), respectively. Undersection 101 of Reorganization Plan No. 4of 1978 (43 FR 47713), the Secretary ofthe Treasury has interpretive jurisdictionover the subject matter addressed in theseregulations for purposes of ERISA, aswell as the Code. Thus, these regulationsapply for purposes of the Code and thecorresponding provisions of ERISA.

In the case of a defined benefit plan thatoffers a single-sum distribution or otherform of accelerated distribution as an op-tional form of benefit in addition to therequired QJSA, many participants havebeen reluctant to elect lifetime paymentsto insure against unexpected longevity,choosing instead an accelerated distribu-tion form in order to maximize their li-quidity. However, participants who elect asingle sum or other accelerated form ofdistribution may face greater challenges inprotecting against the risk of outlivingtheir retirement savings. The Treasury De-partment and the IRS believe that manyparticipants are better served by havingthe opportunity to elect to receive a por-tion of their retirement benefits in annuityform (which provides financial protectionagainst unexpected longevity) while re-ceiving accelerated payments for the re-mainder of their benefits to provide in-creased liquidity during retirement.

In order to permit plans to simplify thetreatment of certain optional forms of ben-efit that are paid partly in the form of anannuity and partly in a more acceleratedform, the IRS issued proposed regulationsunder section 417(e)(3) (77 FR 5454) onFebruary 3, 2012, that would have modi-fied existing final regulations regardingthe minimum present value requirementsfor defined benefit plan distributions. Anumber of comments were received on theproposed regulations, and a public hearingwas held on June 1, 2012. After consider-ation of the comments received, the Trea-

sury Department and the IRS are issuingthese final regulations to adopt the rulesset forth in the proposed regulations withmodifications in response to the com-ments received.

Explanation of Provisions

Treatment of bifurcated accrued benefits

In order to facilitate the payment ofbenefits partly in the form of an annuityand partly as a single sum (or other accel-erated form), this document amends theregulations under section 417(e) to permitplans to simplify the treatment of certainoptional forms of benefit that are paid to aparticipant partly in the form of an annuitythat is excepted from the minimum pres-ent value requirements of section417(e)(3) pursuant to § 1.417(e)–1(d)(6)and partly in a more accelerated form.Like the proposed regulations, these finalregulations provide rules under which theparticipant’s accrued benefit can be bifur-cated so that the minimum present valuerequirements of section 417(e)(3) and§ 1.417(e)–1(d) apply to only the portionof the participant’s accrued benefit that ispaid in an accelerated form.

The proposed regulations would haveprovided for three different approaches tobifurcating the accrued benefit so that theminimum present value requirements ap-ply to only a portion of the accrued ben-efit. Under the first approach in the pro-posed regulations, a plan could haveprovided for two separate portions of theaccrued benefit that were determinedwithout regard to any election of optionalform of benefit and permitted a participantto select different distribution optionswith respect to each of those portions ofthe accrued benefit. Under the second ap-proach, a plan could have provided forproportionate benefits with respect to eachdistribution option equal to the pro rataportion of the amount of the distributionthat would be determined if that distribu-tion option had been applied to the entireaccrued benefit. Finally, under the thirdapproach, a plan could have provided fora specified amount to be distributed as asingle sum, but only if the plan satisfied aminimum benefit requirement with re-spect to the distribution that was not paidin a single sum.

Commenters generally supported theadoption of the rules in the proposed reg-ulations, but raised several specific issues.Several commenters stated that it wassometimes difficult to determine whichapproach for bifurcating the accrued ben-efit applied to a particular plan design.These commenters suggested that certainplan designs appeared to fit within morethan one approach, while other plan de-signs that were consistent with the intentof the proposed regulations did not seemto fit within any approach. In response tocomments received, the rules providingfor the bifurcation of the accrued benefithave been simplified and clarified in thesefinal regulations.

The final regulations combine the firsttwo bifurcation approaches from the pro-posed regulations into a single, morebroadly applicable rule. Under the rule inthese final regulations, a plan is permittedto explicitly bifurcate the accrued benefitso that the plan provides that the require-ments of § 1.417(e)–1(d) apply to a spec-ified portion of a participant’s accruedbenefit as if that portion were the partici-pant’s entire accrued benefit. This ruledoes not impose any requirements withrespect to the distribution options for theremaining portion of the accrued benefit.

An alternative rule is provided in thefinal regulations under which a plan thatdistributes a specified single-sum amountto a participant satisfies the requirementsof § 1.417(e)–1(d) with respect to thatpayment, provided the remaining portionof the participant’s accrued benefit satis-fies a minimum requirement. This rule isessentially the same as the third bifurca-tion approach from the proposed regula-tions. Under this alternative rule, the por-tion of the participant’s accrued benefit,expressed in the normal form of benefitunder the plan and commencing at normalretirement age (or at the current date, iflater), that is not settled by the single-sumpayment must be no less than the excessof: (1) the participant’s total accrued ben-efit expressed in that form; over (2) theannuity payable in that form that is actu-arially equivalent to the single-sum pay-ment, determined using the applicable in-terest rate and the applicable mortalitytable. Thus, the portion of the partici-pant’s accrued benefit that is settled by thepayment of a specified single-sum amount


is implicitly determined as the actuarialequivalent of that single-sum amount.

The regulations provide a number ofrules of operation that apply to one or bothof the rules for bifurcating the accruedbenefit. In particular, the regulations pro-vide that if a participant selects differentdistribution options with respect to twoseparate portions of the participant’s ac-crued benefit that were determined underthe rules in these regulations, then the twodifferent distribution options are treated astwo separate optional forms of benefit forpurposes of applying the requirements ofsection 417(e)(3) and § 1.417(e)–1(d),even if the distribution options have thesame annuity starting date. Thus, if one ofthose separate optional forms of benefit isexempt from the requirement to use thesection 417(e)(3) assumptions, the plan isrequired to apply the section 417(e)(3)assumptions only to the other optionalform of benefit. This would permit a planto use its usual annuity equivalence fac-tors for the annuity portion (rather thanbeing required to make a special calcula-tion of the annuity portion using the sec-tion 417(e)(3) assumptions). The ap-proach set forth in these regulations issimpler than applying the section417(e)(3) assumptions to the entire op-tional form of benefit, and yields an intu-itive result that is consistent with plansponsor and participant expectations.

The regulations provide that explicitbifurcation must be used in specifiedcases. One such case is the situation inwhich a plan has been amended to elimi-nate an optional form of benefit (but, inaccordance with section 411(d)(6), retainsthe optional form of benefit with respectto benefits accrued as of the applicableamendment date). Commenters indicatedthat it was unclear which bifurcation ap-proach would apply to this situation underthe proposed regulations. In response tothese comments, the final regulationsspecify that if the amount of a distributionin an optional form of benefit to which§ 1.417(e)–1(d) applies is determined byreference to the portion of a participant’saccrued benefit as of the applicableamendment date, then the plan is not per-mitted to use the alternative rule underwhich the amount of the benefit that issettled by the single-sum payment is im-plicitly determined but could use the ex-

plicit bifurcation rule in order to avoidapplication of section 417(e) to both op-tional forms of benefit. The implicit bifur-cation rule also is not available in a situ-ation in which a single-sum distribution isavailable to settle a participant’s entireaccrued benefit and the plan permits aportion of the benefit to be paid as a lumpsum.

Under the regulations, if a plan pro-vides for an early retirement benefit, aretirement-type subsidy, an optional formof benefit, or an ancillary benefit, thatapplies only to a portion of a participant’saccrued benefit, and the plan provides foran accelerated form of distribution thatsettles some, but not all, of the partici-pant’s accrued benefit, then the plan mustspecify which portion of the participant’stotal accrued benefit is settled by that dis-tribution. This is necessary in order todetermine the extent to which the earlyretirement benefit, retirement-type sub-sidy, optional form of benefit, or ancillarybenefit applies with respect to the remain-ing portion of the accrued benefit. Forexample, if a plan had one set of earlyretirement factors that applied to the ac-crued benefit as of December 31, 2005,but a different set of early retirement fac-tors that applied to benefit accruals earnedafter that date, and the plan provides for asingle-sum distribution that settles only aportion of a participant’s accrued benefit,then the plan must specify which portionof the accrued benefit is settled by thatdistribution (in order to determine whichearly retirement factors apply to the re-maining portion of the accrued benefit).

The regulations provide for limitedsection 411(d)(6) relief in the case of aplan that, for plan years beginning beforeJanuary 1, 2017, uses the section417(e)(3) applicable interest rate and ap-plicable mortality table to calculate theamount of a distribution that is made tosettle a portion of the accrued benefit if,pursuant to these final regulations, the re-quirements of section 417(e)(3) need notapply to the distribution. In such a case,section 411(d)(6) is not violated solelybecause, in accordance with these finalregulations, the plan is amended on orbefore December 31, 2017, to provide thatthe amount of the distribution described inthe preceding sentence to which the re-quirements of section 417(e)(3) need not

apply is determined for an annuity startingdate on or after the applicable amendmentdate (within the meaning of § 1.411(d)–3(g)(4)) using the same actuarial assump-tions that would apply to calculate theamount of a distribution in that same formof benefit if the participant elected to re-ceive the entire accrued benefit in thatform.

The final regulations include a numberof examples in order to illustrate the bi-furcation rules of the regulations and therules of operation with respect to theserules.

Effective/Applicability Date

These regulations are effective on Sep-tember 9, 2016.

The changes under these regulationsapply to distributions with annuity startingdates in plan years beginning on or afterJanuary 1, 2017. However, taxpayers mayapply these rules to earlier periods.

Special Analyses

Certain IRS regulations, including thisone, are exempt from the requirements ofExecutive Order 12866, as supplementedand reaffirmed by Executive Order 13563.Therefore, a regulatory assessment is notrequired. It also has been determined thatsection 553(b) of the Administrative Pro-cedure Act (5 U.S.C. chapter 5) does notapply to these regulations, and because theregulation does not impose a collection ofinformation on small entities, the Regula-tory Flexibility Act (5 U.S.C. chapter 6)does not apply. Pursuant to section7805(f) of the Code, the proposed regula-tions preceding these final regulationswere submitted to the Chief Counsel forAdvocacy of the Small Business Admin-istration for comment on its impact onsmall business.

Drafting Information

The principal authors of these regula-tions are Neil S. Sandhu and Linda S. F.Marshall, Office of Division Counsel/As-sociate Chief Counsel (Tax Exempt andGovernment Entities). However, otherpersonnel from the IRS and the TreasuryDepartment participated in the develop-ment of these regulations.

* * * * *


Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 1 isamended as 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 1.417(e)–1 is amended

by:1. Redesignating paragraph (d)(1) as

paragraph (d)(1)(i) and revising the head-ing of the newly redesignated paragraph(d)(1)(i).

2. Adding a heading for paragraph(d)(1).

3. In the first sentence of newly redes-ignated paragraph (d)(1)(i), removing ”Adefined benefit plan” and adding “Exceptas provided in section 411(a)(13) and theregulations thereunder, a defined benefitplan” in its place.

4. Adding paragraph (d)(1)(ii).5. Revising paragraph (d)(7), the head-

ing for paragraph (d)(8), and paragraph(d)(8)(i).

6. Adding paragraph (d)(8)(v).The additions and revisions read as fol-

lows:

§ 1.417(e)–1 Restrictions and valuationsof distributions from plans subject tosections 401(a)(11) and 417.

* * * * *(d) Present value requirement—(1)

General rule—(i) Defined benefit plans. ** *

(ii) Defined contribution plans. Be-cause the accrued benefit under a definedcontribution plan equals the account bal-ance, a defined contribution plan is notsubject to the requirements of this para-graph (d), regardless of whether the re-quirements of section 401(a)(11) apply tothe plan.

* * * * *(7) Application to portion of a partici-

pant’s benefit—(i) In general. This para-graph (d)(7) provides rules under whichthe requirements of this paragraph (d) ap-ply to the distribution of only a portion ofa participant’s accrued benefit. Paragraph(d)(7)(ii) of this section provides rules forhow a participant’s accrued benefit may

be bifurcated into separate componentsfor purposes of applying this paragraph(d). Paragraph (d)(7)(iii) of this sectionprovides rules of application. Paragraph(d)(7)(iv) of this section provides certainlimited section 411(d)(6) relief, and para-graph (d)(7)(v) of this section providesexamples of the application of the rules ofthis paragraph (d)(7).

(ii) Bifurcation of accrued benefit—(A) Explicit plan-specified bifurcation. Aplan is permitted to provide that the re-quirements of this paragraph (d) apply to aspecified portion of a participant’s ac-crued benefit as if that portion were theparticipant’s entire accrued benefit. Forexample, a plan is permitted to providethat a distribution in the form of a single-sum payment described in this paragraph(d)(7)(ii)(A) is made to settle a specifiedpercentage of the participant’s accruedbenefit. As another example, a plan ispermitted to provide that a distribution inthe form of a single-sum payment de-scribed in this paragraph (d)(7)(ii)(A) ismade to settle the accrued benefit derivedfrom contributions made by an employee.In both examples, the distribution mustsatisfy the requirements of this paragraph(d) with respect to the specified portion ofthe accrued benefit, and the remainingportion of the accrued benefit (the partic-ipant’s total accrued benefit less the por-tion of the accrued benefit settled by thesingle-sum payment) can be paid in someother form of distribution that is availableunder the plan.

(B) Distribution of specified amount. Aplan that provides for a distribution of asingle-sum payment that is not describedin paragraph (d)(7)(ii)(A) of this sectionsatisfies the requirements of this para-graph (d) with respect to that distributionif the portion of the participant’s accruedbenefit, expressed in the normal form ofbenefit under the plan and commencing atnormal retirement age (or at the currentdate, if later), that is not settled by thedistribution is no less than the excess of—

(1) The participant’s total accrued ben-efit expressed in that form; over

(2) The annuity payable in that form thatis actuarially equivalent to the single-sumpayment, determined using the applicableinterest rate and the applicable mortalitytable.

(iii) Rules of operation—(A) Multipledistribution options. If a participant se-lects different distribution options with re-spect to two separate portions of the par-ticipant’s accrued benefit that weredetermined in accordance with paragraph(d)(7)(ii) of this section, then the two dif-ferent distribution options are treated astwo separate optional forms of benefit forpurposes of applying the requirements ofsection 417(e)(3) and this paragraph (d),even if the distribution options have thesame annuity starting date. Thus, if theexception from the requirements of sec-tion 417(e)(3) and this paragraph (d) thatis contained in paragraph (d)(6) of thissection applies to one of those optionalforms of benefit, then this paragraph (d)applies only to the other optional form ofbenefit.

(B) Repeated application of rule. If aparticipant’s accrued benefit has been bi-furcated in accordance with paragraph(d)(7)(ii) of this section, then the provi-sions of paragraph (d)(7)(ii) of this sectionmay be applied again to bifurcate the re-maining accrued benefit.

(C) Requirement to use explicit plan-specified bifurcation in certain cases—(1)Section 411(d)(6)-protected optionalform. If the amount of a distribution in anoptional form of benefit to which thisparagraph (d) applies is determined byreference to the portion of a participant’saccrued benefit as of the applicableamendment date for an amendment thateliminates that optional form of benefit(but, in accordance with section411(d)(6), retains the optional form ofbenefit with respect to benefits accrued asof the applicable amendment date), thenthe plan must provide for explicit bifurca-tion of the accrued benefit as described inparagraph (d)(7)(ii)(A) of this section.

(2) Single-sum available with respectto entire accrued benefit. If a plan pro-vides that a single-sum distribution isavailable to settle a participant’s entireaccrued benefit, then, in order to also pro-vide for a distribution in the form of asingle-sum payment that settles only aportion of a participant’s accrued benefit,the plan must provide for explicit bifurca-tion of the accrued benefit as described inparagraph (d)(7)(ii)(A) of this section.

(D) Application of different factors todifferent portions of the accrued benefit. If


a plan provides for an early retirementbenefit, a retirement-type subsidy, an op-tional form of benefit, or an ancillary ben-efit, that applies only to a portion of aparticipant’s accrued benefit, and the planprovides for a distribution that settlessome, but not all, of the participant’s ac-crued benefit, then the plan must specifywhich portion of the participant’s totalaccrued benefit is settled by that distribu-tion. For example, if a plan had one set ofearly retirement factors that applied to theaccrued benefit as of December 31, 2005,but a different set of early retirement fac-tors that applied to benefit accruals earnedafter that date, and the plan provides for asingle-sum distribution that settles only aportion of a participant’s accrued benefit,then the plan must specify which portionof the accrued benefit is settled by thatdistribution (in order to determine whichearly retirement factors apply to the re-maining portion of the accrued benefit).

(iv) Limited section 411(d)(6) anti-cutback relief. This paragraph (d)(7)(iv)applies in the case of a plan that, for planyears beginning before January 1, 2017,uses the section 417(e)(3) applicable in-terest rate and applicable mortality tableto calculate the amount of a distributionthat is made to settle a portion of theaccrued benefit if, pursuant to this para-graph (d)(7), the requirements of section417(e)(3) and this paragraph (d) need notapply to the distribution. In such a case,section 411(d)(6) is not violated merelybecause, in accordance with this para-graph (d)(7), the plan is amended on orbefore December 31, 2017, to provide thatthe amount of a distribution described in thepreceding sentence is determined for an an-nuity starting date on or after the applicableamendment date (within the meaning of§ 1.411(d)–3(g)(4)) using the same actuarialassumptions that apply to calculate theamount of a distribution in the same form ofbenefit that is made to settle the participant’sentire accrued benefit.

(v) Examples. The following examplesillustrate the rules of this paragraph (d)(7).Unless otherwise indicated, these exam-ples are based on the following assump-tions: The taxpayers elect to apply therules of this paragraph (d)(7) in 2016;each plan is a noncontributory definedbenefit plan with a calendar-year plan yearand a normal retirement age of age 65; a

one-year stability period coinciding withthe calendar year and a two-month look-back are used for determining the appli-cable interest rate; and all participant elec-tions are made with proper spousalconsent. The November 2015 segmentrates are 1.76%, 4.15% and 5.13%.

Example 1. (i) Plan A offers a number of optionalforms of payment, including a qualified joint andsurvivor annuity and a single-sum payment. Thesingle-sum payment is equal to the present value ofthe participant’s immediate benefit (but not less thanthe present value of the participant’s accrued benefitpayable at normal retirement age) using the applica-ble interest and mortality rates under section417(e)(3). The amount of the joint and survivorannuity is determined using plan factors that are notbased on the applicable interest and mortality ratesunder section 417(e)(3). Plan A permits a participantto elect to receive a percentage of the accrued benefitas a single sum and the remainder in any annuityform provided under the plan, with the amount of thesingle-sum payment determined by multiplying theamount that would be payable if the entire benefitwere paid as a single sum by the percentage of theaccrued benefit settled by the single-sum payment.

(ii) Participant S retires at age 62 in 2016, withan accrued benefit of $1,000 per month payable as astraight life annuity at normal retirement age. Par-ticipant S is eligible for an unreduced early retire-ment benefit and can therefore collect a straight lifeannuity benefit of $1,000 per month beginning im-mediately. Alternatively, Participant S can elect toreceive the benefit in other forms, including a single-sum payment of $168,516 (based on the applicableinterest and mortality rates under section 417(e),which are the November 2015 segment rates and the2016 applicable mortality table), or a 100% joint andsurvivor annuity of $850 per month (based on theplan’s actuarial equivalence factors). Participant Selects to receive 25% of the accrued benefit in theform of a single-sum payment and the remaining75% of the accrued benefit as a 100% joint andsurvivor annuity.

(iii) Participant S receives a single-sum paymentwith respect to 25% of the accrued benefit. Accord-ingly, this single-sum payment is equal to 25% of thefull single-sum amount, or $42,129. The remainingportion of the accrued benefit is 75% of the totalaccrued benefit, or $750 per month payable as astraight life annuity at normal retirement age.

(iv) To settle the remaining portion of the ac-crued benefit, in addition to the single-sum paymentof $42,129, Participant S receives a 100% joint andsurvivor annuity in the amount of $637.50 permonth, which is determined by applying the plan’sunreduced early retirement and actuarial equivalencefactors to the remaining portion of the accrued ben-efit of $750 per month payable as a straight lifeannuity at normal retirement age. The joint and sur-vivor annuity benefit is not subject to the minimumpresent value requirements of section 417(e)(3) be-cause it is treated as a separate optional form ofbenefit under paragraph (d)(7)(iii)(A) of this section.

Example 2. (i) Plan B is a contributory definedbenefit plan that permits a participant to elect a singlesum distribution equal to the participant’s employee

contributions, accumulated with interest, with the re-mainder payable as an annuity. Plan B provides that theprobability of death before normal retirement age is nottaken into account for purposes of determining actuar-ial equivalence between the single-sum payment and anannuity at normal retirement age. Based on the appli-cable mortality table for 2016 and the November 2015segment rates, the deferred annuity factor at age 60 forlifetime payments commencing at age 65 (determinedwithout taking mortality before age 65 into account) is10.209.

(ii) Participant T retires at age 60 in 2016 with anaccrued benefit of $1,500 per month payable as astraight life annuity commencing at normal retire-ment age. For benefits commencing at age 60, Plan Bprovides for an early retirement reduction factor of75% and an actuarial equivalence factor of 98% foradjusting a straight life annuity to a 10-year certainand life annuity, neither of which is based on theapplicable interest and mortality rates under section417(e)(3). Participant T’s benefit commencing at age60 in the form of a 10-year certain and life annuitywould be $1,500 x 75% x 98% � $1,102.50 permonth. Participant T elects to receive a single sumpayment of $32,000 equal to T’s accumulated con-tributions with interest, and the remainder as a 10-year certain and life annuity.

(iii) The single-sum payment elected by Partici-pant T is a distribution that is determined by refer-ence to Participant T’s contributions and interest,and not by reference to a specified portion of theparticipant’s accrued benefit. Therefore, the single-sum payment is not described in paragraph(d)(7)(ii)(A) of this section. In order to satisfy para-graph (d)(7)(ii)(B) of this section, the portion of theparticipant’s accrued benefit that is not settled by thesingle-sum payment must be no less than the excessof (A) the participant’s total accrued benefit over (B)the annuity that is actuarially equivalent to thesingle-sum payment, (determined using the applica-ble interest and mortality rates under section417(e)(3) as applicable), both expressed in the nor-mal form of benefit commencing at normal retire-ment age. The amount of that actuarially equivalentannuity is determined by dividing Participant T’ssingle-sum payment of $32,000 by the deferred an-nuity factor for lifetime payments commencing atage 65 under the terms of Plan B (10.209, not con-sidering mortality for the deferral period) and divid-ing by 12 for an actuarially equivalent monthly ben-efit commencing at age 65 of $261.21. Thus, in orderto satisfy paragraph (d)(7)(ii)(B) of this section, theremaining portion of T’s accrued benefit must be atleast $1,238.79 per month ($1,500.00 – $261.21) pay-able as a straight life annuity at normal retirement age.

(iv) Based on Plan B’s early retirement and op-tional form factors applied to the remaining portion, theannuity benefit payable to Participant T in the form ofa 10-year certain and life annuity beginning at age 60cannot be less than $910.51 per month ($1,238.79 x75% x 98%). Participant T receives this in addition tothe single-sum payment of $32,000. The 10-year cer-tain and life benefit is not subject to the minimumpresent value requirements of section 417(e)(3) be-cause it is treated as a separate optional form of benefitunder paragraph (d)(7)(iii)(A) of this section.

(v) If, instead, Plan B’s terms had provided for asingle-sum payment equal to the present value of the


participant’s employee-provided accrued benefit asdetermined under section 411(c)(3), then the plan isdetermining the single-sum payment as the presentvalue of a specified portion of the accrued benefit. Insuch a case, the plan is using explicit bifurcation asdescribed in paragraph (d)(7)(ii)(A) of this sectionand the single-sum payment would have to be setequal to the present value, determined under PlanB’s terms, of T’s employee-provided accrued benefit(which may or may not be equal to T’s accumulatedcontributions and interest, depending on the plan’sterms). The remaining annuity benefit payable toParticipant T would have been based on an accruedbenefit equal to $1,500 per month minus the amountof T’s employee-provided accrued benefit.

Example 3. (i) The facts are the same as inExample 2 of this paragraph (d)(7)(v), except thatPlan B also offers a single-sum payment option withrespect to a participant’s entire benefit. The single-sum payment is determined as the present value ofthe participant’s early retirement benefit (but no lessthan the present value of the participant’s accruedbenefit) using the applicable interest and mortalityrates under section 417(e)(3). Based on the applica-ble mortality table for 2016 and the November 2015segment rates, the immediate annuity factor for life-time payments commencing at age 60 is 14.632.Under the terms of the plan, the early retirementbenefit payable as a straight life annuity to Partici-pant T at age 60 with respect to T’s full accruedbenefit is $1,125 ($1,500 x 75%), and the corre-sponding single-sum amount payable to T is $1,125x 14.632 x 12 � $197,532. (Note that this amount islarger than the age-60 present value of T’s accruedbenefit without taking mortality before age 65 intoaccount, $1,500 x 10.209 x 12 � $183,762.) Partic-ipant T elects to receive a partial single-sum pay-ment of $32,000, equal to T’s accumulated contri-butions with interest and to take the remainingaccrued benefit in the form of a 10-year certain andlife annuity commencing at age 60.

(ii) Because the plan also provides for a single-sum payment option with respect to a participant’sentire benefit, pursuant to paragraph (d)(7)(iii)(C)(2)of this section the partial single-sum payment mustbe determined pursuant to the explicit bifurcationrules of paragraph (d)(7)(ii)(A) of this section.

(iii) The portion of the participant’s accrued ben-efit that is settled by the single-sum payment of$32,000 is determined as the amount that bears thesame ratio to the total accrued benefit as that single-sum payment bears to the single-sum payment withrespect to the entire accrued benefit (($32,000 �$197,532) x $1,500), which is $243 per month pay-able as a straight life annuity at normal retirementage. Thus, the remaining portion of the accruedbenefit is $1,257.00 per month payable as a straightlife annuity at normal retirement age.

(iv) Based on Plan B’s early retirement and op-tional form factors applied to the remaining portion,the annuity benefit payable to Participant T in theform of a 10-year certain and life annuity beginningat age 60 is $923.90 per month ($1,257 x 75% x98%). Participant T receives this benefit in additionto the single sum payment of $32,000. The 10-yearcertain and life benefit is not subject to the minimumpresent value requirements of section 417(e)(3) be-

cause it is treated as a separate optional form ofbenefit under paragraph (d)(7)(iii)(A) of this section.

Example 4. (i) Plan C was amended to freezebenefits under a traditional defined benefit formulaas of December 31, 2016, and to provide benefitsunder a cash balance formula beginning January 1,2017. The plan provides that participants may electseparate distribution options for the portion of thebenefit accrued under the traditional formula as ofDecember 31, 2016, and the portion of the benefitearned under the cash balance formula. Furthermore,the plan provides that a participant may elect toreceive a single-sum payment only with respect tothe portion of the benefit earned under the cashbalance formula.

(ii) In accordance with paragraph (d)(7)(ii)(A) ofthis section, Plan C provides for an explicitly bifur-cated accrued benefit because the portion of theaccrued benefit settled by a distribution is deter-mined separately for the portion under the traditionalformula and the portion under the cash balance for-mula. As provided under paragraph (d)(7)(iii)(A) ofthis section, a single-sum payment under the cashbalance formula and a distribution option under thetraditional formula are treated as two separate op-tional forms of benefit for purposes of applying theprovisions of the plan implementing the require-ments of section 417(e)(3) and this paragraph (d).Therefore, whether a participant elects to receive asingle-sum payment of the portion of the benefitearned under the cash balance formula does notaffect whether the distribution elected with respect tothe portion of the benefit earned as of December 31,2016, is subject to the minimum present value re-quirements of section 417(e)(3).

Example 5. (i) The facts are the same as inExample 4 of this paragraph (d)(7)(v), except thatPlan C also permits a participant to elect, with re-spect to the cash balance portion of the benefit, toreceive a percentage of that portion as a single sumand the remainder in any annuity form providedunder the plan, with the amount of the single-sumpayment determined by multiplying the amount thatwould be payable if the entire cash balance portionwere paid as a single sum by the percentage of thecash balance portion settled by the single-sum pay-ment. Participant W retires at age 65, with an ac-crued benefit under the traditional defined benefitformula (earned as of December 31, 2016) of $500per month payable as a straight life annuity at normalretirement age and a cash balance hypothetical ac-count balance of $45,000. Based on Plan C’s actu-arial equivalence factors, Participant W’s accruedbenefit derived from the cash balance hypotheticalaccount is $320 per month, payable as a straight lifeannuity at normal retirement age. Participant Welects to receive 1/3 or $15,000 of the current hypo-thetical account balance in the form of a single sumand to receive the remainder of the total accruedbenefit as a straight life annuity.

(ii) Under the analysis set forth in Example 4 ofthis paragraph (d)(7)(v), Plan C provides for anexplicitly bifurcated accrued benefit with respect tothe traditional defined benefit portion and the cashbalance portion because the portion of the accruedbenefit settled by a distribution is determined sepa-rately for the portion under the traditional formulaand the portion under the cash balance formula. As

provided under paragraph (d)(7)(iii)(A) of this sec-tion, a single-sum payment under the cash balanceformula and a distribution option under the tradi-tional formula are treated as two separate optionalforms of benefit for purposes of applying the provi-sions of the plan implementing the requirements ofsection 417(e)(3) and this paragraph (d). Thus, aseparate distribution option may be chosen for eachof these two portions, and section 417(e)(3) appliesseparately to each portion.

(iii) In accordance with paragraph (d)(7)(ii)(A)of this section, Plan C also provides for an explicitlybifurcated accrued benefit with respect to the cashbalance benefit because the plan provides that adistribution in the form of a single-sum payment ismade to settle a specified percentage of the cashbalance benefit. As provided under paragraph(d)(7)(iii)(A) of this section, the single-sum paymentand the annuity selected by Participant W with re-spect to the cash balance benefit are treated as twoseparate optional forms of benefit for purposes ofapplying the provisions of the plan implementing therequirements of section 417(e)(3) and this paragraph(d). Thus, in accordance with paragraph (d)(7)(ii)(A)of this section, 1/3 of the cash balance hypotheticalaccount is settled by the distribution paid out as asingle sum (that is, $15,000 � $45,000). After thesingle-sum payment, the remaining portion of theaccrued benefit derived from the cash balance ac-count is 2/3 of the initial accrued benefit derivedfrom the cash balance account, or a straight lifeannuity at normal retirement age of $213.33 permonth (2/3 x $320).

(iv) To settle the remaining portion of the entireaccrued benefit (the portion of the benefit attribut-able to service as of December 31, 2016 plus theremaining portion of the cash balance benefit), Par-ticipant W receives a monthly life annuity of$713.33 per month payable as a straight life annuityat normal retirement age (equal to the $500 straightlife annuity at normal retirement age earned as ofDecember 31, 2016 plus the remaining benefit de-rived from the cash balance portion of a straight lifeannuity payable at normal retirement age of $213.33per month). Participant W’s election to receive asingle-sum payment of part of the benefit earnedunder the cash balance formula does not affectwhether the remainder of Participant W’s distribu-tion is subject to the minimum present value require-ments of section 417(e)(3).

Example 6. (i) Plan D permits participants toelect a single-sum payment of up to $10,000 with theremaining benefit payable in the form of an annuity.Participant X retires in 2016 at age 55 with anaccrued benefit of $1,000 per month payable as astraight life annuity at normal retirement age. Par-ticipant X is eligible for an unreduced early retire-ment benefit of $1,000 per month payable as astraight life annuity. Alternatively, based on PlanD’s definition of actuarial equivalence (which is notbased on the applicable interest and mortality ratesunder section 417(e)(3)), Participant X can receivean immediate benefit in the form of a 100% joint andsurvivor annuity of $800 per month. Participant Xelects to receive a single-sum payment of $10,000,with the balance of the benefit payable as a 100%joint and survivor annuity beginning at age 55.Based on the applicable mortality table for 2016 and


the November 2015 segment rates, the deferred an-nuity factor at age 55 for lifetime payments com-mencing at age 65 is 7.602.

(ii) Plan D provides for a single-sum distributionof a portion of the participant’s accrued benefit but,because the plan initially specifies the amount of thesingle-sum distribution (rather than the portion of theaccrued benefit that is being settled by that distribu-tion), Plan D is described in paragraph (d)(7)(ii)(B)of this section. As provided under paragraph(d)(7)(iii)(A) of this section, the single-sum paymentand the joint-and-survivor annuity selected by Par-ticipant X are treated as two separate optional formsof benefit for purposes of applying the provisions ofthe plan implementing the requirements of section417(e)(3) and this paragraph (d).

(iii) A straight life annuity of $109.62 per monthpayable at normal retirement age is actuariallyequivalent to the $10,000 single-sum payment, de-termined using the applicable mortality table for2016 and the November 2015 segment rates($10,000 � 12 � 7.602). Therefore, pursuant toparagraph (d)(7)(ii)(B) of this section, in order tosatisfy this paragraph (d) the remaining portion ofthe accrued benefit after the single-sum payment of$10,000 must be no less than $890.38 per monthpayable as a straight life annuity at normal retire-ment age ($1,000.00 – $109.62).

(iv) Based on Plan D’s early retirement and op-tional form factors, in order to satisfy this paragraph(d), the annuity benefit payable to Participant X inthe form of a 100% joint-and-survivor annuity be-ginning at age 55 must be no less than $712.30 permonth ($890.38 x .8). Participant X receives thisbenefit in addition to the single sum payment of$10,000. The joint and survivor annuity benefit is notsubject to the minimum present value requirementsof section 417(e)(3) because it is treated as a separateoptional form of benefit under paragraph(d)(7)(iii)(A) of this section.

Example 7. (i) Plan E provides for an unreducedearly retirement benefit for participants who havemet certain age and service requirements. Prior toamendment, Plan E permitted participants to elect asingle-sum payment equal to the present value of theparticipant’s unreduced early retirement benefit, de-termined using the applicable interest rate and appli-cable mortality table under section 417(e)(3). Plan Edid not permit participants to elect a single-sumpayment with respect to only a portion of theirbenefits. Effective December 31, 2012, Plan E wasamended to eliminate the single-sum payment withrespect to benefits accrued after that date.

(ii) Participant Y retires on December 31, 2016,at age 60, after meeting Plan E’s age and servicerequirements for an unreduced early retirement ben-efit. Participant Y’s accrued benefit is $1,000 permonth payable as a straight life annuity commencingat normal retirement age, of which $800 per monthwas accrued as of December 31, 2012. Participant Yelects to take a single-sum payment based on thebenefit accrued as of December 31, 2012, with theremainder paid as a lifetime annuity commencing atage 60. Based on the applicable mortality table for2016 and the November 2015 segment rates, theimmediate annuity factor for lifetime payments com-mencing at age 60 is 14.632, so Y’s single-sumpayment is $800 x 12 x 14.632 � $140,467.20.

(iii) In accordance with paragraph(d)(7)(iii)(C)(1) of this section, Plan E provides forexplicit bifurcation of the accrued benefit as de-scribed in paragraph (d)(7)(ii)(A) of this section.Therefore, Participant Y must receive an annuity of$200 earned after December 31, 2012 in addition tothe single-sum payment of $140,467. Plan E is notpermitted to use the approach described in paragraph(d)(7)(ii)(B) of this section to reduce or eliminate the$200 annuity earned after December 31, 2012.

(8) Effective/applicability date—(i) Ingeneral. Except as otherwise provided inthis paragraph (d)(8), this paragraph (d)applies to distributions with annuity start-ing dates in plan years beginning on orafter January 1, 1995.

* * * * *(v) Effective date for special rules ap-

plicable to the payment of a portion of aparticipant’s benefit. Paragraph (d)(7) ofthis section applies to distributions withannuity starting dates in plan years begin-ning on or after January 1, 2017. How-ever, taxpayers may elect to apply therules of paragraph (d)(7) of this section toearlier periods.

* * * * *John M. Dalrymple,

Deputy Commissioner forServices and Enforcement.

Approved: August 3, 2016.

Mark J. Mazur,Assistant Secretary of

the Treasury (Tax Policy).

Filed by the Office of the Federal Reg-ister on September 8, 2016, 8:45 a.m., andpublished in the issue of the Federal Regis-ter for September 9, 2016, 81 F.R. 62359)

26 CFR 1.856–10: Definition of real property;26 CFR 1.856–3: Definitions

T.D. 9784

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Part 1

Definition of Real EstateInvestment Trust RealProperty

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains fi-nal regulations that clarify the definitionof real property for purposes of the realestate investment trust provisions of theInternal Revenue Code (Code). Thesefinal regulations provide guidance toreal estate investment trusts and theirshareholders.

DATES: Effective date: These regulationsare effective on August 31, 2016.

Applicability date: For dates of appli-cability, see §1.856–10(h).

FOR FURTHER INFORMATIONCONTACT: Julanne Allen of the Officeof Associate Chief Counsel (Financial In-stitutions and Products) at (202) 317-6945(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendmentsto the Income Tax Regulations (26 CFRpart 1) relating to real estate investmenttrusts (REITs). Section 856 of the Codedefines a REIT by setting forth variousrequirements. One of the requirements fora taxpayer to qualify as a REIT is that atthe close of each quarter of the taxableyear at least 75 percent of the value of itstotal assets is represented by real estateassets, cash and cash items (includingreceivables), and Government securities.See section 856(c)(4). Section 856(c)(5)(B)defines real estate assets to include realproperty (including interests in real prop-erty and interests in mortgages on realproperty). Section 856(c)(5)(C) definesinterests in real property to include feeownership and co-ownership of “land orimprovements thereon.” Prior to these fi-nal regulations, § 1.856–3(d) of the In-come Tax Regulations, promulgated in1962 in TD 6598 (the 1962 Regulations),defined real property for purposes of theregulations under sections 856 through859. Under § 1.856–3(d) of the 1962 Reg-ulations, the term real property meansland or improvements thereon, such asbuildings or other inherently permanentstructures thereon (including items whichare structural components of such build-ings or structures). In addition, the term“real property” includes interests in real


property. Local law definitions will not becontrolling for purposes of determiningthe meaning of the term “real property” asused in section 856 and the regulationsthereunder. The term includes, for exam-ple, the wiring in a building, plumbingsystems, central heating, or central air-conditioning machinery, pipes or ducts,elevators or escalators installed in thebuilding, or other items which are struc-tural components of a building or otherpermanent structure. The term does notinclude assets accessory to the operationof a business, such as machinery, printingpress, transportation equipment which isnot a structural component of the building,office equipment, refrigerators, individualair-conditioning units, grocery counters,furnishings of a motel, hotel, or officebuilding, etc., even though such itemsmay be termed fixtures under local law.

The IRS issued revenue rulings be-tween 1969 and 1975 addressing whethercertain assets qualify as real property forpurposes of section 856. Specifically, thepublished rulings address whether assetssuch as railroad properties,1 mobile homeunits permanently installed in a plannedcommunity,2 air rights over real property,3

interests in mortgage loans secured by to-tal energy systems,4 and mortgage loanssecured by microwave transmission prop-erty5 qualify as either real property orinterests in real property under section856. After these published rulings wereissued, REITs invested in various types ofassets that are not directly addressed bythe regulations or the published rulings,and some of these REITs received letterrulings from the IRS concluding that cer-tain of these various assets qualified asreal property. A letter ruling, however,may not be relied upon by taxpayers otherthan the taxpayer that received the letterruling6 and is limited to its particularfacts. The Treasury Department and the

IRS recognized the need to provide up-dated published guidance on the definitionof real property under sections 856through 859. On May 14, 2014, the Trea-sury Department and the IRS published inthe Federal Register a notice of proposedrulemaking (REG–150760–13 at 79 FR27508) (NPRM) to define “real property”solely for purposes of sections 856through 859 and provisions that referencethe definition of real property in section856 and the regulations thereunder.

Written and electronic comments re-sponding to the NPRM were received. Thewritten comments are available for publicinspection at http://www.regulations.gov orupon request. A public hearing was held onSeptember 18, 2014.

After consideration of all the com-ments, these final regulations adopt theproposed regulations as revised by thisTreasury decision.7 The comments and re-visions are discussed in this preamble.

Summary of Comments andExplanation of Revisions

I. The Definition of Land

The proposed regulations defined theterm “land” to include water and air spacesuperjacent to land and natural productsand deposits that are unsevered from theland. A commenter requested clarificationthat land includes water space and airspace above ground that the taxpayer doesnot own. For example, a taxpayer mayown a building and purchase air rightssuperjacent to one or more neighboringbuildings to enhance the value of thebuilding the taxpayer owns, or a taxpayermay purchase air rights in anticipation ofusing those rights to facilitate the futureacquisition or development of property.The Treasury Department and the IRSagree that air space or water space super-jacent to land each qualify as land even if

the taxpayer owns only the air space orwater space and does not own an interestin the underlying land. The proposed reg-ulations stated that superjacent water andair space qualify as land, and these finalregulations retain the language of the pro-posed regulations.

II. The Definition of Improvements toLand

The proposed regulations generally de-fined the term “improvements to land” tomean inherently permanent structures(IPSs) and their structural components. Acommenter recommended that these finalregulations clarify that clearing, grading,landscaping, and earthen dams should betreated as improvements to land. TheTreasury Department and the IRS believethat, to the extent these assets are distinctassets that have value apart from the land,the REIT must analyze these assets sepa-rately under these final regulations. Forexample, if landscaping includes shrubsplanted in the ground, the shrubs arewithin the definition of land in these finalregulations so long as the shrubs remainunsevered natural products of the land. If,however, landscaping includes a benchthat is a distinct asset, the bench is ana-lyzed under the factors for an IPS in thesefinal regulations to determine whether thebench is real property.

III. The Definition of IPS

A. Passive function requirement andactive function prohibition

1. In General

Under the proposed regulations, IPSsinclude buildings and other inherentlypermanent structures (OIPSs). To qualifyas an OIPS under the proposed regula-tions, a structure must serve a passive

1Rev. Rul. 69–94 (1969–1 CB 189).

2Rev. Rul. 71–220 (1971–1 CB 210).

3Rev. Rul. 71–286 (1971–2 CB 263).

4Rev. Rul. 73–425 (1973–2 CB 222).

5Rev. Rul. 75–424 (1975–2 CB 269).

6Rev. Proc. 2016–1 (2016–1 IRB 1), section 11.02; see section 6110(k)(3) of the Code.

7Under section 856(c)(2) and (3), in order for an entity to qualify as a REIT, certain prescribed percentages of that entity’s gross income must be derived from certain types of income (whichinclude “rents from real property” and “interest on obligations secured by mortgages on real property or on interests in real property”). The definition of real property in these final regulationsapplies for purposes of section 856(c)(2) and (3), but these final regulations provide neither explicit nor implicit guidance regarding whether various types of income are described in section856(c)(2) and (3).


function, such as contain, support, shelter,cover, or protect, and not serve an activefunction, such as manufacture, create, pro-duce, convert, or transport. Commenterssuggested that use of the terms active andpassive may cause confusion because, forexample, REITs may be engaged in theactive conduct of a trade or businesswithin the meaning of section 355(b)solely by virtue of functions with respectto rental activity that produce incomequalifying as rents from real propertywithin the meaning of section 856(d).8

During the hearing, a commenter statedthat REITs may perform certain servicesand that the requirement that an IPS servea passive function may be at odds withthis permissible activity. This commentersuggested that the requirement be revised to:(1) State that OIPSs serve a real estate-related function; (2) require that the assetnot primarily contribute to the production ofincome other than for the use, occupancy, orfinancing of space; or (3) not include theterms passive and active when describingpermissible and prohibited functions. Othercommenters suggested that the function of adistinct asset not be considered in determin-ing whether the distinct asset is an OIPS.These commenters maintained that inherentpermanence should be the only requirementfor a distinct asset to qualify as an OIPS.

These final regulations do not adoptthese suggestions. These final regula-tions address whether the asset itself hasa passive function, not whether the assetis used in an active trade or business orwhether income from the asset is in-come from an active trade or business.The requirement in the proposed regu-lations and in these final regulations thatan asset serve a passive function is in-tended to be a more precise statement ofthe distinction previously set forth in§ 1.856 –3(d) of the 1962 Regulations,which treated as real property certainpassive assets but not assets accessoryto the operation of a business, includingmachinery. The Treasury Departmentand the IRS believe that the terms pas-sive and active, when taken togetherwith the examples in these final regula-tions, appropriately clarify and illustrate

the permissible functions of an OIPS.The passive function requirement nei-ther prohibits a tenant from using a pas-sive asset, such as an office building, inthe tenant’s active business nor limits aREIT’s ability to perform eitherthe services excepted under section856(d)(7)(C)(ii) or the trustee or direc-tor functions permitted by § 1.856 –4(b)(5)(ii).

The Treasury Department and the IRSbelieve that the commenters’ suggestedreal estate-related standard is circular andmight support real property treatment forassets that serve active functions. Further,the Treasury Department and the IRS donot agree that inherent permanence aloneis a sufficient basis for a distinct asset tobe treated as an IPS. For example, theTreasury Department and the IRS con-tinue to believe that some inherently per-manent assets, such as large, heavy ma-chinery, do not qualify as real property forpurposes of section 856.

A commenter suggested replacing thepassive function requirement with a test thatfocuses on an asset’s human factor, whichthe commenter defined as whether, and theextent to which, human involvement isneeded for an asset to function. This com-menter contended that human involvementis a characteristic of an active function and,therefore, should be taken into account indetermining whether a particular asset isactive or passive. The Treasury Departmentand the IRS disagree and continue to believethat machinery, including automated ma-chinery that functions with little or no hu-man involvement, does not qualify as realproperty for purposes of section 856.

2. Transport as a Prohibited ActiveFunction

The proposed regulations listed trans-port as an active function. Commentersnoted that this active function differs fromthe other four active functions (manufac-ture, create, produce, and convert) thatinvolve changing the physical nature orcharacter of a commodity or good. Com-menters also suggested that some of theassets on the list of types of OIPSs in the

proposed regulations, such as railroadtracks and tunnels, help to transport agood or a commodity.9

The Treasury Department and the IRSagree that the term transport could be inter-preted to describe functions of both passiveconduits used for transportation and ma-chines that push or pull items through oralong a conduit. The Treasury Departmentand the IRS intend the term transport tomean to cause to move, and these final reg-ulations retain transport as a prohibited ac-tive function of an OIPS. To provide clarity,these final regulations include providing aconduit (such as in the case of a pipeline orelectrical wire) or route (as in the case of aroad or railroad track) as a permitted passivefunction of an OIPS.

3. Assets with Both Active and PassiveFunctions

In addition to other requirements,§1.856–10(d)(2)(i) of the proposed regu-lations stated that a distinct asset thatserves an active function, such as machin-ery or equipment, is not a building orOIPS.

Commenters suggested that solar pan-els can perform dual functions, includinga passive function (that is, to shelter) andan active function (that is, to convert (en-ergy)). Commenters stated that solar pan-els may be used to protect pastures, park-ing lots, buildings, and other structuresfrom the detrimental effects of solar radi-ation and to manage temperature throughshading. The structures to which solarpanels are attached—or even into whichthey are integrated—may qualify as IPSsunder the proposed regulations.

The Treasury Department and the IRSnote that the example given by the com-menters presumes that the solar panelstructure is a single distinct asset thatserves a passive function of sheltering andan active function of converting energyfor sale to third parties. If this were thecase, the solar panel structure would failto qualify as an IPS under § 1.856–10(d)(2)(i) of the proposed regulations asa result of the structure’s active function.If, however, a solar panel structure is

8See Rev. Rul. 2001–29 (2001–1 CB 1348).

9Commenters also noted that several assets listed as structural components, such as elevators and escalators, transport objects or occupants of a building. A structural component may havean active function if the structural component serves the passive function of the IPS of which it is constituent.


composed of multiple distinct assets, theneach of those distinct assets would be an-alyzed under the proposed regulations todetermine whether it qualifies as an IPS oras a structural component of an IPS.10

Because these final regulations retain therequirement that an IPS not serve an ac-tive function, machinery and equipmentthat may serve both passive and activefunctions are excluded from the definitionof an IPS.

B. Definition of building

Section 1.856–10(d)(2)(ii)(A) of theproposed regulations stated that a buildingencloses a space within its walls and iscovered by a roof. Examples given in§ 1.856–10(d)(2)(ii)(B) of the proposedregulations were permanently affixedhouses, apartments, hotels, factory and of-fice buildings, warehouses, barns, en-closed garages, enclosed transportationstations and terminals, and stores.

During the hearing, a commenter statedthat for appraisal purposes, buildings areconsidered to be buildings regardless oftheir permanence. This commenter sug-gested that these final regulations shouldadopt standards published by an appraisalorganization to define real property.

Section 1.856–3(d) of the 1962 Regu-lations indicates that inherent permanenceis important in determining whether astructure qualifies as real property. A tent,for example, may satisfy the portion of thedefinition of a building in the proposedregulations that referenced enclosingwithin its walls a space that is covered bya roof, but the impermanent nature of thetent would prevent it from qualifying as abuilding for purposes of section 856. Thepurposes of definitions used by appraisalorganizations, which focus on valuation,differ from the purposes of definitions usedfor REIT qualification purposes. For exam-ple, although both permanent and imperma-nent property may be appraised, perma-nence is of crucial importance in definingreal property for REIT qualification pur-poses. Therefore, these final regulations donot adopt standards published by an ap-praisal organization.

Another commenter urged the Trea-sury Department and the IRS to change

the definition of building in these finalregulations so that the definition does notdepend on whether a space is completelyenclosed by its walls and covered by aroof. The commenter stated that even anoutdoor sports stadium or amphitheaterand an unenclosed parking garage that arepermanently affixed to land or another IPSmay fail to qualify as buildings under theproposed regulations.

The Treasury Department and the IRSagree that these structures may fail tomeet the definition of building under theproposed regulations. The Treasury De-partment and the IRS believe, however,that many outdoor sports stadiums, am-phitheaters, and unenclosed parking ga-rages would satisfy the definition of anOIPS in § 1.856–10(d)(2)(iii) of the pro-posed regulations and that this definitionis more appropriate for these structures.Therefore, the definition of building in theproposed regulations is retained in thesefinal regulations.

C. Clarification of the term indefinitely

The proposed regulations stated that, toqualify as an IPS, a distinct asset must bepermanently affixed and that if the affix-ation is reasonably expected to last indef-initely based on all the facts and circum-stances, the affixation is consideredpermanent.

Commenters indicated that the term in-definitely as used in determining whetheran asset is an IPS was unclear. A com-menter suggested using an asset’s usefullife as an alternate to indefinitely. TheTreasury Department and the IRS haveconcluded that relying on the useful life ofan asset as the measure for permanencewould have the effect of treating certainimpermanent assets as real property. Forexample, if an asset has a useful life oftwo years, it would be inappropriate forthe asset to be treated as permanently af-fixed solely because the asset was reason-ably expected to remain in place for twoyears.

Another commenter provided the ex-ample of a REIT that constructs a buildingon land on which the REIT holds a 99-year ground lease. Upon expiration of thelease, the building is subject to removal.

In this case, the building may not be onthe land in 100 years. Another commenterprovided the example of a building that issubject to condemnation and that will betorn down in the future.

Another commenter suggested thatwhether an asset is inherently permanentshould be based upon an objective analy-sis of the physical nature of the manner ofaffixation, rather than on a particular tax-payer’s subjective intent. This commenterrecommended that if the manner of affix-ation is of a permanent nature and is con-sistent with the distinct asset remaining inplace indefinitely based on all the factsand circumstances, the affixation is con-sidered permanent. Commenters alsourged the Treasury Department and theIRS to provide a statement in the pream-ble to these final regulations that indefi-nitely does not mean forever but rathermeans for the foreseeable future.

The Treasury Department and the IRSdo not intend the term indefinitely to meanforever. The proposed regulations statedthat whether affixation is reasonably ex-pected to last indefinitely is based on allthe facts and circumstances. Section1.856 –10(d)(2)(iv) provides factors thatmust be taken into account to determinewhether a distinct asset is an IPS if thatdistinct asset is not included in the listsof types of buildings in § 1.856 –10(d)(2)(ii)(B) or types of OIPSs in§ 1.856 –10(d)(2)(iii)(B). These factorsprovide additional guidance on themeaning of permanent affixation. Theprimary focus of these factors is onthe nature of the distinct asset and theaffixation, including the manner inwhich the distinct asset is affixed,whether the distinct asset is designed tobe removed, the damage that removalwould cause, and the time and expenserequired to move the distinct asset. Al-though one factor includes any circum-stances that suggest the expected periodof affixation is not indefinite and pro-vides as an example a lease that requiresor permits removal of the distinct assetupon the expiration of the lease, thedetermination of whether a distinct assetis an IPS is based on all of the facts andcircumstances.

10A similar analysis was applied to the solar energy site assets in §1.856–10(g), Example 8, of the proposed regulations.


These final regulations do not adoptthese suggestions and, because the Trea-sury Department and the IRS do not be-lieve additional guidance regarding inher-ent permanence is necessary, retain thedefinition of IPS as proposed.

D. Suggested presumption for structureswith a certificate of occupancy orsimilar license

A commenter agreed that state or localdefinitions of property should not controlfor purposes of the definition of real prop-erty under section 856, but suggested thatwhen a certificate of occupancy or similarlicense or certification is granted with re-spect to a structure, the structure be pre-sumed to constitute real property for pur-poses of section 856 unless the facts andcircumstances clearly indicate that thestructure is not permanent.

Local law standards for a certificate ofoccupancy or similar license or certifica-tion might be inconsistent with the defini-tion of real property for purposes ofsection 856. For example, local law mightpermit issuance of a certificate of occu-pancy for a tent that is not inherentlypermanent. In addition, this presumptionmight lead to inconsistent results. For ex-ample, two identical assets located in lo-calities that use different standards for li-censing might be treated differently forpurposes of section 856 because a certif-icate of occupancy has been granted toone of the assets and not to the other. Forthese reasons, we believe the suggestedpresumption would create confusion andadministrative difficulty, and, therefore,these final regulations do not adopt thiscomment.

IV. The Definition of StructuralComponent

A. Income produced by a structuralcomponent

In generally defining the term struc-tural component, §1.856–10(d)(3)(i) ofthe proposed regulations stated, in part,that a structural component is any distinctasset that is a constituent part of and in-tegrated into an IPS, serves the IPS in itspassive function, and, even if capable ofproducing income other than consider-ation for the use or occupancy of space,

does not produce or contribute to the pro-duction of such income.

A commenter requested that the words“and related services” be added to thelanguage of § 1.856–10(d)(3)(i). If thatrequest were adopted, structural compo-nents would include assets that serve theIPS and even if capable of producing in-come other than consideration for the useor occupancy of space and related ser-vices, do not produce or contribute to theproduction of such income (emphasisadded to indicate commenter’s suggestedlanguage). The commenter stated thatREITs use property such as the systemsthat supply utilities to a building to pro-vide services to tenants. The commenterexplained that a REIT may receive addi-tional compensation to cover utilities thatthe REIT provides to the tenant when thetenant uses space in the building outsideof specified business hours.

The Treasury Department and the IRShave concluded that the definition ofstructural component in the proposed reg-ulations adequately accounts for the con-cerns raised by the commenter, and ac-cordingly these final regulations do notincorporate the commenter’s suggestedrevision.

B. Proposed utility safe harbor forstructural components

A commenter recommended that thesefinal regulations adopt a safe harbor fordistinct assets that provide utilities toIPSs. The commenter recognized that theutility-like function aspect of the defini-tion in the proposed regulations under-scores the importance of that type ofstructural component and suggested that adistinct asset that serves a utility-likefunction with respect to an IPS should beconclusively presumed to be a structuralcomponent of that IPS.

The Treasury Department and the IRSnote that the list of types of structuralcomponents in the proposed regulationsincluded several utility-like systems, suchas plumbing systems, central heating andair-conditioning systems, fire suppressionsystems, central refrigeration systems, andhumidity control systems. The TreasuryDepartment and the IRS may add othersystems that satisfy the factors in §1.856–10(d)(3)(iii) to the structural component

list through future guidance published inthe Internal Revenue Bulletin. The pro-posed regulations differentiated systemsthat perform utility-like functions fromother distinct assets to permit analysis ofthese systems as a whole. Under the pro-posed regulations, once it has been deter-mined that an asset or assets function as autility-like system, the system is analyzedas a distinct asset basing the determinationof whether the system is real property onall of the facts and circumstances and us-ing the factors listed under § 1.856–10(d)(3)(iii) for structural components. Asystem or asset that provides a utility butthat does not qualify as a structural com-ponent under the facts and circumstancestest under § 1.856–10(d)(3)(iii) (for ex-ample, a window air-conditioning unit) isnot a structural component.

Because the Treasury Department andthe IRS believe that the factors listed un-der § 1.856–10(d)(3)(iii) for structuralcomponents are important to the analysisof systems that provide a utility-like func-tion these final regulations decline toadopt the blanket rule suggested by thecommenter.

C. The equivalent interest requirementfor structural components

Section 1.856–10(d)(3)(i) of the pro-posed regulations stated that a distinct as-set is a structural component if the interestheld therein is included with an equivalentinterest held by the taxpayer in the IPS towhich the structural component is func-tionally related. Commenters suggestedthat the equivalent interest requirementfor structural components be deleted oramended because the requirement: (1) Isinconsistent with industry practices and anasset should qualify as a structural com-ponent even if the REIT owns the assetbut leases from another party the buildingserved by the structural component; (2)may negatively affect investment in en-ergy efficient and renewable energy as-sets; (3) was not explained in the proposedregulations and seemingly serves no taxpolicy purpose; and (4) is contrary to con-gressional intent, case law, and the treat-ment of structural components by the IRSin other contexts.

The Treasury Department and the IRSintended that the equivalent interest re-


quirement in the proposed regulations en-sure that an asset did not qualify as astructural component unless that assetserved real property in which the REITalso had an interest. The Treasury Depart-ment and the IRS set forth a similar re-quirement in Rev. Rul. 73–425, whichaddresses notes secured by a total energysystem. Rev. Rul. 73–425 holds that ob-ligations secured by a mortgage coveringa total energy system and the building thatthe system served qualify as real estateassets. The revenue ruling also holds thatan obligation secured only by the totalenergy system does not qualify as a realestate asset.

The Treasury Department and the IRSbelieve that, to treat an asset as a structuralcomponent, a REIT must hold its interestin the structural component together witha real property interest with respect to thespace in the IPS that the structural com-ponent serves. For example, a central air-conditioning system is a machine thatdoes not separately qualify as an IPS. Acentral air-conditioning system that iswholly owned by a REIT may, however,qualify as a structural component if theREIT also holds a real property interest,such as a leasehold interest, with respectto the space in the IPS served by thecentral air-conditioning system. Limitingthe definition of structural component toassets that serve an IPS in which the REIThas a real property interest is consistentwith the statutory requirement that REITsinvest in real property or interests in realproperty.

For these reasons, these final regula-tions provide that a distinct asset qualifiesas a structural component only if the REITholds its interest in the distinct asset to-gether with a real property interest withrespect to the space in the IPS that thedistinct asset serves. In addition, as illus-trated by Rev. Rul. 73–425, for a mort-gage that is secured by a structural com-ponent to qualify as a real estate assetunder these final regulations, the mortgagealso must be secured by the IPS served bythe structural component.

D. Suggested standard for structuralcomponents

Section 1.856–10(3)(i) of the proposedregulations defined a structural compo-

nent to include a distinct asset that servesthe IPS in its passive function, and, even ifcapable of producing income other thanconsideration for the use or occupancy ofspace, does not produce or contribute tothe production of such income. Section1.856–10(d)(3)(ii) of the proposed regu-lations furnished a list of distinct assetsthat are structural components. The pro-posed regulations also stated that a dis-tinct asset that was not on this list mightstill be a structural component based onall of the facts and circumstances. Inparticular, the proposed regulations re-quired the factors listed under § 1.856 –10(d)(3)(iii) to be taken into account.

A commenter suggested that the stan-dard for a structural component should berevised so that a structural component isdefined as a distinct asset that is intendedto protect, preserve, secure, or support thesafe operation of the IPS. The commentersuggested that satisfying this standardshould be sufficient to determine if a dis-tinct asset is a structural component and,therefore, the structural component factortest under § 1.856–10(d)(3)(iii) of theproposed regulations is unnecessary.

These final regulations do not adopt thecommenter’s suggestion because the stan-dard suggested would in some circum-stances unduly limit the functions a struc-tural component may serve and in othercircumstances unduly expand the func-tions a structural component may serve.The Treasury Department and the IRS donot believe this modification is necessarygiven these final regulations’ requirementthat a structural component serve the IPSto which the structural component is con-stituent in the IPS’s passive function. Inaddition, the Treasury Department and theIRS have concluded that adopting a stan-dard that takes into account a taxpayer’sintent regarding an asset may lead to in-consistent results because different tax-payers may have different intentions re-garding the same type of distinct asset.

V. Requested Additions to the Lists ofQualifying Assets

A. General suggestions

Sections 1.856–10(d)(2)(ii)(B), 1.856–10(d)(2)(iii)(B), and 1.856–10(d)(3)(ii) ofthe proposed regulations furnished lists of

types of distinct assets that would qualify asbuildings, OIPSs, and structural compo-nents, respectively. A commenter requestedthat certain other distinct assets be includedon these lists. These other distinct assetsincluded car charging stations, healthcarefacilities, storage facilities, timber, electricaldistribution and redundancy systems, tele-communication systems, and equipmentcomprising a building management system.

The Treasury Department and the IRShave considered the proposed additions tothe lists of qualifying assets and believethat the proposed regulations already ad-dressed the tax treatment of certain ofthese assets, such as storage facilities andtimber. In addition, the Treasury Depart-ment and the IRS are not persuaded thatthe other assets will in all cases satisfy therelevant definition. Therefore, these finalregulations do not include these suggestedadditions to the lists of qualifying assets.

B. Additions to the lists for types of IPSs

1. Additions to the List for Types ofBuildings

Commenters suggested adding motels,casinos, health care facilities, storage fa-cilities, greenhouses, enclosed stadiums,enclosed shopping malls, museums, mu-nicipal buildings, other housing (such asassisted living), parking garages (whetheror not fully enclosed), and mixed-useproperties combining one or more of theforegoing to the list for buildings under§ 1.856–10(d)(2)(ii)(B) of the proposedregulations.

These assets would not always qualifyas buildings as defined under the proposedregulations and in these final regulations.For example, casinos may be on an unaf-fixed barge or riverboat, health care facil-ities may be in tents, storage facilities mayinclude movable pods, and greenhousesmay be structures that are not permanentlyaffixed. Unenclosed parking garages werenot within the definition of a building un-der the proposed regulations but were in-cluded in the list of types of OIPSs in§ 1.856–10(d)(2)(iii)(B) of the proposedregulations (which included permanentlyaffixed parking facilities). Museums mayexist on unaffixed boats, in a room insidea building, or in the open air.


A mixed-use building would still qual-ify as a building because it encloses spacewithin its walls and is covered by a roof.On the other hand, a mixed-use propertycomprised of several structures would re-quire a separate analysis of each structure.The suggestions to include municipalbuildings and assisted-living facilities fo-cus on the use, rather than the type, ofstructure. In addition, office buildings,apartments, and houses were already in-cluded on the proposed regulations’ list.

A distinct asset not on the list maynevertheless qualify as a building, becausethe list for types of buildings in the pro-posed regulations is not exclusive. More-over, many of the requested assets arealready included in that list. For thesereasons, these final regulations do not in-clude all the requested assets on the listfor types of buildings. However, these fi-nal regulations include as types of build-ings permanently affixed motels, enclosedstadiums and arenas, and enclosed shop-ping malls.

2. Additions to the List for Types ofOIPSs

Some commenters requested certainassets be added to the list under § 1.856–10(d)(2)(iii)(B) of the proposed regula-tions for types of OIPSs, including energystorage components, solar photovoltaic(PV) panels, related wiring and function-ally related transformers, power condi-tioning equipment, and electrical powerinverters and related wiring.

The Treasury Department and the IRShave determined that adding these assetsto the list for types of OIPSs is not war-ranted. Inclusion of these assets would beinconsistent with the requirements thatOIPSs serve a passive function and do notserve an active function.11 Therefore,these final regulations do not include theseassets on the list for types of OIPSs.

C. Additions to the list for types ofstructural components

One commenter suggested that the listunder § 1.856–10(d)(3)(ii) of the pro-posed regulations for types of structuralcomponents should include special floor-

ing for data centers. The proposed regula-tions stated that customization of a dis-tinct asset in connection with the rental ofspace in or on an IPS to which the distinctasset relates does not affect whether thedistinct asset qualifies as a structural com-ponent. The list of types of structural com-ponents in § 1.856–10(d)(3)(ii) of the pro-posed regulations included permanentcoverings of floors. The commenter’s sug-gestion of specifically including specialflooring in a data center is an example ofcustomization of a distinct asset in con-nection with the rental of space in an IPS.These final regulations, like the proposedregulations, permit the customization ofdistinct assets in connection with therental of space in or on an IPS, providedthat the customized asset is integrated intothe IPS and is held together with a realproperty interest in the space in the IPSthat is served by the asset. Accordingly,these final regulations do not include spe-cial flooring in a data center on the list oftypes of structural components.

Another commenter recommended thatthe list for types of structural components beexpanded to include solar energy generatingand heating systems and related energy stor-age equipment. The Treasury Departmentand the IRS do not believe that solar energygenerating and heating systems and relatedenergy storage equipment necessarily sat-isfy the definition of structural componentsin § 1.856–10(d)(3) of the proposed regula-tions but rather believe these assets shouldbe analyzed using all the facts and circum-stances and taking into account the factorsprovided in § 1.856–10(d)(3)(iii) of thesefinal regulations. For these reasons, thesefinal regulations do not adopt the recom-mendation.

VI. Recommended Changes to theFactor Lists in § 1.856–10(d)(2)(iii) and(3)(iv) of the Proposed Regulations

A. Recommended change to the factorsused to determine whether a distinctasset is an IPS

The proposed regulations listed factorsto be considered in determining whether adistinct asset (other than a type of buildingor type of OIPS listed in § 1.856–

10(d)(2)(ii)(B) of the proposed regula-tions or §1.856–10(d)(2)(iii)(B) of theproposed regulations, respectively) is anIPS. One factor is whether there are anycircumstances that suggest the expectedperiod of affixation is not indefinite (forexample, a lease that requires or permitsremoval of the distinct asset upon the ex-piration of the lease).

One commenter stated that buildingsconstructed on land subject to a long-termground lease arguably would not satisfythis factor. Another commenter stated thatremoval provisions are common in com-mercial leases and, as a practical matter,such provisions may not be determinativeas to whether the asset is ultimately re-moved by the lessee at the expiration ofthe lease. This commenter recommendedthat the factor be changed to any circum-stance that suggests the manner of affixa-tion is temporary in nature rather thanpermanent.

As previously discussed in this pream-ble, for purposes of section 856, the Trea-sury Department and the IRS do not in-tend the term indefinitely to mean forever.Whether a distinct asset qualifies as anIPS depends on all the facts and circum-stances including an analysis of the fac-tors in § 1.856–10(d)(2)(iv). For thesereasons, this factor is not modified in thesefinal regulations.

B. Recommended change to the factorsused to determine whether a distinctasset is a structural component

For distinct assets other than thoselisted in § 1.856–10(d)(3)(ii) of the pro-posed regulations as structural compo-nents, the proposed regulations listed fac-tors under § 1.856–10(d)(3)(iii) that mustbe taken into account in determiningwhether the distinct asset qualifies as astructural component of an IPS. One ofthose factors was whether the owner ofthe property was also the legal ownerof the distinct asset. A commenter notedthat a REIT may have a leasehold interestin real property and may own a structuralcomponent that it installs as part of thereal property. An example provided by thecommenter is a REIT that leases the shellof a building and then engages indepen-

11Depending on all the facts and circumstances, however, some or all of these assets may qualify as structural components of an IPS.


dent contractors to complete internalbuild-outs to customize the shell of thebuilding into a shopping mall.

The Treasury Department and the IRShave considered this comment, along withthe comments received regarding theequivalent interest requirement, as dis-cussed in this preamble. Accordingly,these final regulations require that, for adistinct asset to be a structural component,a REIT must hold a legally enforceablereal property interest in the space in theIPS that the structural component serves.

VII. Intangible Assets

A. Intangibles derived from the trade orbusiness of earning revenues for the useof real property or related services

Under §1.856–10(f) of the proposedregulations, an intangible asset is realproperty or an interest in real property ifthe asset derives its value from real prop-erty or an interest in real property, is in-separable from that real property or inter-est in real property, and does not produceor contribute to the production of incomeother than consideration for the use oroccupancy of space. Commenters re-quested inclusion of intangible assets de-rived from services that produce incomeother than consideration for the use or oc-cupancy of space, which would includeworkforce-in-place and customer-based in-tangibles. The Treasury Department and theIRS believe that intangible assets that areseparable from real property or an interest inreal property should not qualify as real prop-erty. The final regulations clarify that intan-gible assets that are related to services andthat are separable from the real property donot qualify as real property.

B. In-place above and below-marketleases

Commenters requested that intangibleassets related to in-place above-marketleases in which the REIT is the lessor andbelow-market leases in which the REIT isthe lessee be treated as qualifying realproperty. Under section 856(c)(5)(C), alease of land or improvements thereon isan interest in real property and, therefore,a lease of land or improvements thereonis a real estate asset under section856(c)(5)(B). A lease of real property that

produces both rents from real propertyunder section 856(d)(1) and other incomethat does not so qualify is, in part, aninterest in real property under section856(c)(5)(C) and, in part, an asset other thanan interest in real property. To the extent theportion of the lease that is an interest in realproperty has value, that portion is a realestate asset under section 856(c)(5)(B).These final regulations have been modifiedto clarify that an intangible asset may be, inpart, an interest in real property and, in part,an asset other than an interest in real prop-erty. In addition, these final regulations in-clude an example illustrating the applicationof these final regulations to an in-placeabove-market lease that produces both in-come that qualifies as rents from real prop-erty under section 856(d)(1) and other in-come that does not so qualify.

C. Intangible assets that result frommergers, certain business combinations,and stock or asset acquisitions

Section 1.856–10(f)(1) of the proposedregulations generally defined an intangi-ble asset to include certain intangible as-sets established under generally acceptedaccounting principles (GAAP) as a resultof an acquisition of real property or aninterest in real property. Commentersnoted that intangible assets may resultfrom mergers, certain business combina-tions, and stock or asset acquisitions. Thecommenters urged that the final regula-tions acknowledge that REITs may ac-quire intangible assets in both asset andstock transactions.

The proposed regulations used the acqui-sition of real property or an interest in realproperty as an example of a type of trans-action in which an intangible asset may beestablished under GAAP. Under § 1.856–2(d)(3), the term total assets means the grossassets of the REIT determined in accor-dance with GAAP. Thus, an intangible assetthat, in accordance with GAAP, results froma merger, business combination, or stock orasset acquisition may qualify as real prop-erty. Because the proposed regulations didnot preclude real property treatment of in-tangible assets resulting from mergers, cer-tain business combinations, or stock or assetacquisitions, the Treasury Department andthe IRS have concluded that no change is

necessary to the final regulations to accom-modate the commenter’s concern.

D. Use permits and leases requiringproperty to be operated for a specificuse

Section 856(c)(5)(C) defines interestsin real property to include leaseholds ofland or improvements thereon. Section1.856–10(f)(2) of the proposed regula-tions stated that, if a license, permit, orother similar right solely for the use, en-joyment, or occupation of land or an IPSis in the nature of a leasehold or easement,that right generally is an interest in realproperty. However, a license or permit toengage in or operate a business generallyis not real property or an interest in realproperty because the license or permitproduces or contributes to the productionof income other than consideration for theuse or occupancy of space.

Section 1.856–10(g), Example 12, ofthe proposed regulations concluded that aspecial use permit from a governmentthat, under governmental regulations, wasnot a lease of the land but was a permit touse the land for a cell tower was an inter-est in real property. Section 1.856–10(g),Example 13, of the proposed regulationsillustrated that a license from a govern-ment to operate a casino in a specificbuilding is a license to engage in the busi-ness of operating a casino and is not realproperty.

A commenter noted that many leasesrequire property to be operated for a spe-cific use. A property owner has an interestin requiring its property to be operated forits intended purpose. The commenter sug-gested that a specific-purpose lease shouldnot be excluded from the definition of realproperty as an operating license.

The Treasury Department and the IRSgenerally agree that a requirement in alease agreement that property be operatedfor a specific use does not cause the leaseto fail to be treated as an interest in realproperty. A specific use requirement in alease is distinguishable from a license orpermit to operate a business. Such a re-quirement is generally a term or conditionof a lease requiring that real property beused in the manner permitted by the prop-erty owner or landlord and does not con-stitute a separate grant by a governmental


entity of the right to operate a business.Example 12 concludes that a special usepermit to use land for a specific purpose, acell tower, is an interest in real property.Consistent with Example 13, if the specialuse permit in Example 12 included a gov-ernmental authorization required to con-duct a business that would produce in-come other than consideration for the useor occupancy of space, that portion of thespecial use permit would not be real prop-erty for purposes of these rules. Therefore,the Treasury Department and the IRS donot believe that any change in the pro-posed regulations is needed to address thecommenter’s concern.

E. Treatment of intangible assets inanother context

A commenter noted that goodwill isnot considered real property for appraisalpurposes. The commenter recommendedthat goodwill be characterized as some-thing other than real property, but never-theless be provided the same tax treatmentas real property. The Treasury Departmentand the IRS do not agree with this recom-mendation. Section 856 governs the deter-mination of whether an asset is real prop-erty for REIT qualification purposes.Under §1.856–2(d)(3), the gross assets ofthe REIT are determined in accordancewith GAAP. Therefore an asset deter-mined in accordance with GAAP, such asGAAP goodwill, must for purposes ofsections 856 through 859 be accounted foreither as real property or as property thatis not real property. Although section856(c)(5)(J)(ii) permits the Secretary todetermine that an item of income that isnot otherwise qualifying REIT income isconsidered as gross income that is quali-fying REIT income, section 856 does notinclude a similar provision to permit anasset that is not otherwise real property tobe treated as real property.

VIII. Procedural and AdministrativeMatters

A. Previously issued letter rulings

A commenter requested that the finalregulations provide that taxpayers may

continue to rely on previously issued letterrulings. Section 11.04 of Rev. Proc.2016–112 states that a letter ruling may berevoked or modified by the issuance oftemporary or final regulations that are in-consistent with that letter ruling. Accord-ingly, to the extent a previously issuedletter ruling is inconsistent with these finalregulations, the letter ruling is revokedprospectively from the applicability dateof these final regulations.

B. Revised applicability date andelection to apply these final regulationsto earlier quarters

The proposed regulations’ applicabilitydate was for calendar quarters beginningafter the date that the proposed regulationsare published as final regulations in theFederal Register. Commenters requestedthat the final regulations apply to taxableyears beginning after the date that finalregulations are published in the FederalRegister and that taxpayers be permittedto apply the final regulations to earliertaxable years and quarters.

The Treasury Department and the IRSunderstand that an applicability date basedon a calendar quarter may have unin-tended consequences in applying the grossincome tests in section 856(c)(2) and (3)because those tests apply on an annualbasis. For example, for rents to qualify asrents from interests in real property, theasset from which the rents are derivedmust qualify as real property. An assetthat qualifies as real property before theapplicability date, but not on or after theapplicability date, would generate rentsfrom real property only during quartersbefore the applicability date. These finalregulations adopt this suggestion and ap-ply to taxable years that begin after thedate that the final regulations are pub-lished as final regulations in the FederalRegister. In addition, because the Trea-sury Department and the IRS intend thesefinal regulations generally to be a clarifi-cation of current law, taxpayers are per-mitted to rely on the final regulations forperiods beginning on or before the appli-cability date. The applicability date forthese final regulations is discussed further

in this preamble in the “Effective/Appli-cability Date” section.

IX. Interaction of the Definition of RealProperty for Purposes of Sections 856through 859 with Other Code Provisions

A. Interaction of the final regulationswith other provisions that cross-reference the definition of real propertyfor REIT purposes

A commenter noted that §1.860G–2(a)(4) references the definition of realproperty found in § 1.856–3(d) of the1962 Regulations for purposes of deter-mining whether an obligation is “princi-pally secured by an interest in real prop-erty” for regulated mortgage investmentconduit qualification purposes. The pro-posed regulations were proposed to revise§ 1.856–3(d) to read as follows: “See§ 1.856–10 for the definition of real prop-erty.” To the extent other Treasury regu-lations reference the definition of realproperty in §1.856–3(d), § 1.856–3(d), asproposed in the NPRM and as amendedby these final regulations, directs taxpay-ers to apply the definition found in§ 1.856–10.

B. Reconciling definitions of realproperty

The preamble to the proposed regula-tions discussed various Code provisions inwhich the term real property appears. Not-ing the diverse contexts and varying leg-islative purposes of the Code provisions inwhich the term real property appears, theTreasury Department and the IRS re-quested comments on the extent to whichthe various meanings of real property thatappear in the Treasury regulations shouldbe reconciled.

Several commenters were concernedthat the term real property has differentmeanings as the term is applied for pur-poses of different Code provisions, whichcould lead to confusion and inconsistenttreatment of taxpayers. A commenternoted that there is no Federal definition ofreal property and suggested that anotherCode provision’s restrictions on the use ofreal property should not preclude a REITfrom investing in or financing such real

12Rev. Proc. 2016–1 (2016–1 IRB at 59).


property so long as the property is other-wise inherently permanent. Another com-menter noted that under section 197, cer-tain intangible assets are amortized asseparate assets not associated with anotherasset. A third commenter requested clari-fication that the final regulations applyonly to the definition of real property forpurposes of sections 856 through 859, sothat there is no conflict between the REITprovisions and other provisions of theCode that govern the investment tax creditand depreciation.

As discussed in the preamble to theproposed regulations, in drafting the pro-posed regulations, the Treasury Depart-ment and the IRS sought to balance (1) thegeneral principle that common terms usedin different provisions should have com-mon meanings with (2) the particular pol-icies underlying the definition used in theREIT provisions. These final regulationsretain the language in § 1.856–10(a) ofthe proposed regulations stating that§ 1.856–10 provides definitions for pur-poses of part II, subchapter M, chapter 1of the Code. This language addresses thecommenters’ concerns by limiting the ap-plication of the definition of real propertyunder these final regulations to sections856 through 859.

X. Environmental Concerns

Some commenters suggested that theproposed regulations would encouragebuilding in, on, or above water, whichthese commenters suggested is dangerousto water ecosystems and fish habitats. Thecommenters also suggested that the after-math of hurricanes such as Katrina andSandy should have demonstrated to theGovernment that development near or onwater is dangerous to humans and ex-tremely costly.

Neither section 856 nor the regulationsthereunder override any environmentalrules or regulations that may restrict de-velopment in these areas. In defining land,the Treasury Department and the IRShave concluded that it is important to in-clude water space superjacent to land be-cause rights to this water space are ana-lytically indistinguishable from rights toair space superjacent to land, which, asdiscussed in this preamble, are treated asreal property. See Rev. Rul. 71–286.

XI. Renewable Energy

A. Consequence of net metering on anasset’s qualification as real property

Under § 1.856–10(d)(3)(i) of the pro-posed regulations, to qualify as real prop-erty, a structural component must serve anIPS and, even if capable of producingincome other than consideration for theuse or occupancy of space, must not pro-duce or contribute to the production ofsuch income. The preamble to the pro-posed regulations indicated that the Trea-sury Department and the IRS are consid-ering guidance to address the treatment ofany income earned when a system thatprovides electricity to an IPS held by aREIT also transfers excess electricity to autility company. Commenters questionedwhether a structural component wouldmaintain its qualification as real propertyif the structural component served an IPSin its passive function but also produced aproduct, such as electricity, that was pro-vided to third parties. One commentersuggested that the relevant test should bewhether or not the property has net salesof electricity to the grid. Another com-menter noted that the amount of electricitya building may net meter is regulated bythe marketplace because utility companiesoften limit the percentage or amount ofelectricity that a building may net meter.

The Treasury Department and the IRSare considering whether additional guid-ance is necessary to address the circum-stances under which a distinct asset thatserves an IPS may produce electricity thatis also sold to third parties and qualify asa structural component of the IPS forREIT purposes. Until additional guidanceis published in the Internal Revenue Bul-letin, in any taxable year in which (1) thequantity of excess electricity transferredto the utility company during the taxableyear from such distinct assets does notexceed (2) the quantity of electricity pur-chased from the utility company duringthe taxable year to serve the IPS, the IRS(x) will not treat the transfer of such ex-cess electricity as affecting the qualifica-tion of such distinct assets as structuralcomponents of the IPS for REIT purposes,(y) will exercise its authority under sec-tion 856(c)(5)(J)(i) to treat any incomeresulting from the transfer of such excess

electricity as not constituting gross in-come for purposes of section 856(c)(2)and (3), and (z) will not treat any netincome resulting from the transfer of suchexcess electricity as constituting net in-come derived from a prohibited transac-tion under section 857(b)(6).

B. Qualification of renewable energycredits as real property for purposes ofsections 856 though 859

Commenters requested that the finalregulations address the qualification of re-newable energy credits (RECs) as realproperty. Renewable energy credits arecredits issued to a provider of renewableenergy and may be freely bought and sold.The owner of a system that produces re-newable energy may sell RECs withoutselling the system or the electricity pro-duced by the system.

Because RECs are intangible assets,the Treasury Department and the IRShave determined that RECs should be an-alyzed as such under § 1.856–10(f) ofthese final regulations. Thus, RECs do notqualify as intangible real property assetsunder these final regulations becauseRECs may be sold separately from anyreal property to which they relate.

C. Treatment of renewable energy assetsas real property as a matter of publicpolicy

Commenters urged the Treasury De-partment and the IRS to allow REITs toinvest in solar energy sites as a means offurthering clean energy objectives. Thesecommenters requested that investors insolar energy have the same access toREIT financing as investors in conven-tional energy sources such as natural gas,oil, and other fossil and electric energyproperty. Other commenters noted thatprivate investment would be encouragedby treating certain electricity generatingassets as real property.

Congress has not provided for solarenergy assets to be treated differentlyfrom other assets for purposes of deter-mining whether the assets qualify as realproperty under the REIT provisions. Forthis reason, the final regulations do notadopt this suggestion.


D. Treatment of sunlight and wind rightsas interests in land

Commenters suggested that sunlightused to power a solar energy site shouldbe considered either real property or aninterest in real property. One commenteranalogized sunlight and wind to rights toair space, suggested that a REIT should beallowed to sell the rights to the sunlight orwind enjoyed on its property to third par-ties, and further suggested that a REITshould be able to treat income from thesale of such rights as qualifying income.This commenter posited that the processused to convert sunlight into electricity isanalogous to the process inherent in fruit-bearing plants, which are discussed in§ 1.856–10(g), Example 1, of the pro-posed regulations, and that the sunlight,like the plants in Example 1, should betreated as real property. Another com-menter characterized sunlight as a re-source analogous to oil, gas, and mineralresources inherent in land.

The Treasury Department and the IRSagree that a REIT may lease the air spacesuperjacent to its land, which is an interestin its land, and may allow its tenants ac-cess to sunlight and wind. The TreasuryDepartment and the IRS, however, are notaware of an approach that could be used toenable a REIT to rent or grant an interestin sunlight or wind separate from its in-terest in the land or the air space superja-cent to the land. Therefore, these finalregulations do not adopt these sugges-tions.

E. Qualification of a concentrating solarpower system and its associated assetsas real property for purposes of sections856 through 859

A commenter suggested that a concen-trating solar power system uses assets thatdiffer from PV panels to harvest solarenergy. This commenter suggested that aconcentrating solar power system, includ-ing, for example, a parabolic trough sys-tem, should be considered real propertyunder these final regulations.

The Treasury Department and the IRShave concluded that this type of system is

comprised of many distinct assets thatmay serve different functions. As illus-trated in § 1.856–10(g), Examples 8 and9, these distinct assets may be analyzedusing the standards provided in the finalregulations for OIPSs and structural com-ponents. Accordingly, concentrating solarpower systems and their associated assetsare not added to the lists of qualifyingassets in these final regulations.

XII. Examples

Section 1.856–10(g) of the proposedregulations provided thirteen examples il-lustrating the application of the proposedregulations in a variety of factual scenar-ios.

A. References to net leases

Each of § 1.856–10(g), Examples 1, 5,6, 7, 8, and 10, of the proposed regulationsstated that the REIT enters into a longterm, triple-net lease of property. A com-menter noted that the term “net lease” isnot defined for purposes of section 856and, therefore, may encompass differenteconomic arrangements, the variations inwhich are not relevant to whether propertyis real property. The commenter furthercontended that many REITs do not netlease their assets. The commenter sug-gested that if it is necessary to describe theunderlying facts, the term “lease” is suf-ficient and avoids the implication that aREIT must net lease its asset.

Each of Examples 1, 5, 6, 7, 8, and 10of the proposed regulations stated that theassets are net leased to avoid any potentialimplication that the REIT is operating theproperty. Examples 1, 5, 6, 7, 8, and 10are revised in these final regulations toprovide that the REIT neither operates theproperty nor provides services to the les-see.

B. Example 4

Section 1.856–10(g), Example 4, of theproposed regulations analyzed whether abus shelter is an IPS. One commentersuggested that Example 4 be deleted be-

cause it was uncertain if a REIT wouldmake a section 1033(g)13 election withrespect to the bus shelter. Additionally,the commenter was not aware of anyREIT that leases or intends to lease busshelters to a transit authority and believedthat such shelters are rarely relocated. Forthese reasons, the commenter recom-mended that the example be stricken. Nocommenters, however, disagreed with theconclusion in the example.

The Treasury Department and the IRSbelieve that Example 4 is helpful becauseit describes a structure that is not perma-nently affixed and thus does not qualify asan IPS under the standards provided in theregulations. Therefore, these final regula-tions do not adopt this suggestion.

C. Example 6

Section 1.856–10(g), Example 6, of theproposed regulations illustrated the defi-nition of structural component in the con-text of a data center. One commenter sug-gested changes to Example 6 includingclarification that the electrical system andtelecommunication infrastructure systemsare (1) embedded in significant part withinthe walls and floors of the building, (2)would be difficult to remove, and (3) areintended to remain in place indefinitely.Although suggestions (1) and (2) wouldclarify the example and would not affectthe analysis or conclusion of the example,suggestion (3) is not relevant because thestructural component factors in § 1.856–10(d)(3)(ii)(B) of the proposed regula-tions do not include the intent of theowner of the asset. Accordingly, these fi-nal regulations revise Example 6 to accu-rately reflect the integration of these assetsinto the data center building.14

Another commenter suggested thatcross-connects used in a data centershould not be considered real propertybecause the cross-connects produce in-come that is not for the use or occupancyof space and this income is significant incomparison to the income produced byother assets in a data center. Example 6did not, and was not intended to, addressevery distinct asset that may be part of adata center. Distinct assets that are not

13Section 1033(g)(3) provides that a taxpayer may elect to treat property that constitutes an outdoor advertising display as real property for purposes of chapter 1 of the Code.

14For consistency and clarity, similar revisions have been made to other examples illustrating the definition of structural component.


addressed in the example may be analyzedby applying the standards set forth in theproposed regulations. Accordingly, nochange was made to the final regulation inresponse to this comment.

E. Example 8

Section 1.856–10(g), Example 8, of theproposed regulations analyzed a solar en-ergy site that includes land, photovoltaicmodules (PV modules), mounts and an exitwire. The solar energy site was triple-netleased to an operator who uses the assets toproduce and transmit energy to an electricalpower grid for sale to third parties. Theexample concluded that the land, mounts,and exit wire qualify as real property andthat the PV modules do not qualify as IPSsbecause they convert solar energy into elec-tricity, which is an active function.

One commenter requested that theTreasury Department and the IRS updateExample 8 to include an analysis of in-verters, which the commenter contendedserve an active function compared to PVmodules, which the commenter contendedare relatively passive. Another commenterelaborated on the function of the PV mod-ules, above ground wiring, and inverters.The commenter proposed adding lan-guage to Example 8 to state that theseassets have no moving parts and are there-fore passive.

The Treasury Department and the IRShave concluded that PV modules and in-verters that are used in the generation ofenergy for sale to third parties do notqualify as IPSs under the proposed regu-lations. The Treasury Department and theIRS do not believe the inclusion of aboveground wiring in Example 8, which al-ready analyzes an exit wire, is necessaryto illustrate the application of the rules in§1.856–10 to above ground wiring. Forthese reasons, the final regulations do notadopt these suggestions.

F. Example 9

Section 1.856–10(g), Example 9, of theproposed regulations described a solar en-ergy site similar to the solar energy site inExample 8, except that the solar energysite in Example 9 is mounted on landadjacent to an office building owned bythe REIT. Other than occasional transfers

of electricity to the grid, the solar energysite in Example 9 serves only the REIT’soffice building to which it is constituent.The solar energy site in Example 9 of theproposed regulations qualifies as a struc-tural component.

A commenter recommended revisionsto the statements in Example 9 that thesolar energy site was (1) designed specif-ically for the particular office building ofwhich it is a part and (2) expensive andtime consuming to install and remove.The commenter stated that most materialsused for solar rooftop and other smaller-scale installations are mass-produced andstandardized and can be removed and re-installed without major complications ordamage. These final regulations revise Ex-ample 9 to state that the size and otherspecifications of the solar energy systemwere established to serve the needs of theoffice building and that no facts indicatethat the solar energy system will not re-main in place indefinitely.

Another commenter requested clarifi-cation of the term “occasionally trans-fers.” This commenter recommendedchanging “occasionally transfers” to “reg-ularly transfers” in describing the transferof energy from the solar energy site to autility company. As discussed in sectionXI.A. of this preamble, the Treasury De-partment and the IRS are consideringwhether additional guidance is necessaryto address this commenter’s concern. Un-til the issuance of such additional guid-ance, the Treasury Department and theIRS (1) will not treat the transfer of theexcess electricity as affecting the qualifi-cation of the distinct assets as structuralcomponents of the IPS for REIT purposes,(2) will exercise its authority under sec-tion 856(c)(5)(J)(i) to treat any incomeresulting from the transfer of the excesselectricity as not constituting gross in-come for purposes of section 856(c)(2)and (3), and (3) will not treat any netincome resulting from the transfer of theexcess electricity as constituting net in-come derived from a prohibited transac-tion under section 857(b)(6).

A commenter noted that even when abuilding uses all of the solar electricityproduced by a solar energy site, such asthe one in Example 9, the tenant of thebuilding may earn income through thesale of RECs awarded under a local re-

newable portfolio standard. The TreasuryDepartment and the IRS believe that in-come earned by a tenant from RECs inthis situation would not affect the qualifi-cation of the solar energy site as a struc-tural component. The tax consequences ofincome earned by a REIT from RECs arebeyond the scope of this guidance.

Another commenter requested that Ex-ample 9 be modified to address wind facil-ities rather than solar facilities. The Trea-sury Department and the IRS believe thatthe components of wind facilities may sim-ilarly be analyzed using the standards pro-vided in §1.856–10(d)(3) of the proposedregulations. For these reasons, the final reg-ulations do not adopt these recommendations.

G. Example 10

Section 1.856–10(g), Example 10, ofthe proposed regulations addressed appli-cation of the proposed regulations to apipeline transmission system. Distinct as-sets of the pipeline transmission system in-clude underground pipelines, storage tanks,valves, vents, meters, and compressors. Theexample stated that the pipeline transmis-sion system serves a passive function, con-taining oil, and an active function, transport-ing oil. The example further stated that,even though the pipeline transmission sys-tem serves an active function, a distinct as-set within the system may nevertheless bean IPS if that asset does not perform anactive function.

One commenter noted that whether theentire system performs an active functionis not relevant because the system is com-posed of distinct assets, each of whichmust be separately analyzed. The Trea-sury Department and the IRS believe thatExample 10 is helpful because it demon-strates that a distinct asset within a systemmay still qualify as an IPS, or a structuralcomponent thereof, even though the sys-tem serves an active function.

As discussed in section III.A.2. of thispreamble, these final regulations includeproviding a conduit or route as a permittedpassive function and retain transport,which has been clarified to mean cause tomove, as a prohibited active function. TheTreasury Department and the IRS haverevised Example 10 to illustrate thatthe pipelines in Example 10 serve the pas-sive function of providing a conduit.


Another commenter suggested revisingExample 10 so that the pipeline transmis-sion system transports natural gas ratherthan oil and suggested changing the ventsand valves to isolation valves and vents,pressure control valves, relief valves, andpressure regulating stations. The com-menter also suggested that Example 10 berevised to apply the factors set forth in theregulations to determine whether these as-sets are structural components. These finalregulations incorporate this commenter’ssuggestions.

In addition, commenters argued that thecompressors within a pipeline transmissionsystem are analogous to elevators and esca-lators within a building, with the function ofmoving things or people within an IPS. Onecommenter noted that compressors may beviewed as performing a propelling function.Another commenter suggested that eleva-tors and escalators serve a building by en-abling access to taller buildings, higher lev-els of occupancy, and more efficient usage.Another commenter suggested that com-pressors enable the efficient use of spacewithin a pipeline.

To qualify as a structural component, adistinct asset must serve an IPS in itspassive function. The compressors thattransport natural gas through the pipelinetransmission system in Example 10 do notserve the underground pipelines in theirpassive function of providing a conduitbut rather cause the natural gas to movethrough the conduit, which is an activefunction. For this reason, these final reg-ulations do not adopt these suggestions.

H. Example 11

Section 1.856–10(g), Example 11,of the proposed regulations addressedwhether goodwill established underGAAP as a result of the acquisition ofstock of a corporation that owned a hotelqualifies as real property for purposes ofsections 856 through 859. This examplestated that the amount of the acquisitioncost allocated to the hotel was limited tothe hotel’s depreciated replacement cost.The example also stated that the differ-ence between the amount paid for the ac-quired corporation’s stock and the depre-ciated replacement cost of the hotel wastreated as goodwill attributable to the ac-quired hotel. The Treasury Department

and the IRS have been advised that depre-ciated replacement cost is no longer thestandard under GAAP for valuing prop-erty such as the hotel. The Treasury De-partment and the IRS have therefore re-moved this example.

I. Example 13

Section 1.856–10(g), Example 13, ofthe proposed regulations addressedwhether a license to operate a casino isreal property. Example 13 concluded thatbecause the license permits the holder toengage in the business of operating a ca-sino the license is not real property eventhough the license applies only to theREIT’s building and cannot be transferredto another location.

One commenter stated that in someforeign jurisdictions, a casino license maybe more in the nature of a zoning permitthat may be transferred to a subsequentbuyer. This commenter suggested that alicense that runs with the land is more inthe nature of a zoning permit. The com-menter recommended either deleting Ex-ample 13 or revising it to distinguishtransferable zoning-based or similar realestate-based licenses.

Another commenter noted that the per-mitted use of a facility for gaming purposesmay enhance its value as real estate, apartfrom the value of the gaming license itself.The commenter also remarked that zoninglaws frequently restrict gaming activities orliquor sales to particular geographical areasor locations, which restrictions, in general,favorably affect the value of real estate inthese areas or locations.

These final regulations do not adoptthese recommendations. Under §1.856–10(f) of the proposed regulations, whether alicense runs with the land is not dispositivein determining whether the license is realproperty for purposes of sections 856through 859. The valuation of real property,including any effect that zoning may haveon the value of real property, are beyond thescope of these final regulations.

J. Additional examples

The Treasury Department and the IRSreceived requests to add additional exam-ples to the final regulations.

Section VII.B. of this preamble de-scribes comments received requestingclarification that intangible assets relatedto in-place above-market leases in whichthe REIT is the lessor and below-marketleases in which the REIT is the lessee betreated as qualifying real property. As dis-cussed in section VII.B., these final regu-lations include § 1.856–10(g), Example11, which illustrates the application ofthese final regulations to an in-placeabove-market lease that produces bothrents from real property under section856(d)(1) and other income that does notqualify as rents from real property undersection 856(d)(1).

A commenter suggested adding an ex-ample applying these final regulations toan electric transmission and distributionsystem. The Treasury Department and theIRS believe that the distinct assets of anelectric transmission and distribution sys-tem are similar in many respects to thedistinct assets of the solar energy site ad-dressed by § 1.856–10(g), Example 8 ofthe proposed regulations, and may be an-alyzed using the standards provided in§ 1.856–10(d)(2) and (3) of the proposedregulations. Accordingly, these final reg-ulations adequately address the distinctassets that may be part of an electricaltransmission and distribution system.

Another commenter suggested that thefinal regulations include an example illus-trating the components of an in-groundswimming pool. (The proposed regula-tions listed the pool itself as an OIPS.)The Treasury Department and the IRS arenot aware that there have been significantquestions concerning whether the variouscomponents qualify as real property.Therefore, these final regulations do notinclude an example addressing whetherthese components qualify as real propertyfor purposes of sections 856 through 859.

XIII. Additional Comments

A. Potential tax inequality amongtaxpayers

Three commenters viewed the pro-posed regulations as a substantial expan-sion of the definition of real property. TheTreasury Department and the IRS believethat the proposed regulations and thesefinal regulations generally clarify existing


law. These commenters also called forequal application of the tax laws and ap-pear to believe that REITs are a vehiclethat some corporations use to avoid taxes.The REIT structure was established byCongress in 1960, and it is not within thescope of these final regulations to changethe REIT structure as these commenterssuggest.

B. Clarification that buildings can be onor inside of other buildings or IPSs

A commenter requested that the finalregulations clarify that buildings can beon or inside of other buildings or IPSs.The Treasury Department and the IRS be-lieve that this comment was adequatelyaddressed by the proposed regulations,which provided that the affixation of anIPS (which may be a building) may be toland or to another IPS. In addition,§ 1.856–10(g), Example 3, concludes thata large sculpture inside an office buildingqualifies as an IPS. A building inside an-other building is not analytically differentfrom the sculpture inside the building inExample 3. Accordingly, the proposedregulations, as finalized by this Treasurydecision, adequately address this com-menter’s concern.

C. Qualification of appurtenances andzoning and similar rights

A commenter suggested that appurte-nances should be included in the defini-tion of land. The commenter suggestedthat real estate law provides that an appur-tenance encompasses easements andrights of way over another’s land to accessone’s own land. In addition, this com-menter suggested that zoning and similarrights should be included in the definitionof real property.

Taxpayers should apply § 1.856–10(f)(2) of these final regulations, whichaddresses the treatment of rights for theuse, enjoyment, or occupation of land, todetermine whether an appurtenance qual-ifies as real property for purposes of sec-tions 856 through 859. Zoning rights mayincrease the value of real property. Con-sistent with § 1.856–2(d)(3), if a zoningright is considered a separate asset underGAAP, then the zoning right should be

analyzed as an intangible asset under§ 1.856–10(f) of these final regulations.

D. Additional comments

A commenter suggested that the finalregulations address the definition of rentsfrom real property, eliminate the standardrequiring that total assets be based onGAAP, and regulate the type of servicesthat a taxable REIT subsidiary may pro-vide. These issues are beyond the scope ofthese final regulations.

Effective/Applicability Date

These final regulations apply to taxableyears that begin after August 31, 2016.Under section 856(c)(4), whether a tax-payer loses status as a REIT in one quartermay depend on whether the taxpayer sat-isfied section 856(c)(4) at the close of oneor more prior quarters. For purposes ofapplying the first sentence of the flushlanguage in section 856(c)(4) to a quarterin a taxable year that begins after August31, 2016, these final regulations apply indetermining whether the taxpayer met therequirements of section 856(c)(4) at theclose of prior quarters. Taxpayers mayrely on these final regulations for quartersthat end before the applicability date.

Special Analyses

Certain IRS regulations, including thisone, are exempt from the requirements ofExecutive Order 12866, as supplementedand reaffirmed by Executive Order 13563.Therefore, a regulatory impact 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 tosection 7805(f) of the Internal RevenueCode, the proposed regulations precedingthese final regulations were submitted tothe Chief Counsel for Advocacy of theSmall Business Administration for com-ment on their impact on small business.No comments were received.

Drafting Information

The principal author of these regula-tions is Julanne Allen, Office of AssociateChief Council (Financial Institutions andProducts). However, other personnel fromthe Treasury Department and the IRS par-ticipated in their development.

Statement of Availability of IRSDocuments

The IRS revenue rulings and revenueprocedure cited in this preamble are pub-lished in the Internal Revenue Bulletin (orCumulative Bulletin) and are availablefrom the Superintendent of Documents,U.S. Government Publishing Office,Washington, DC 20402, or by visiting theIRS website at www.irs.gov.

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 1 isamended as 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 1.856–3(d) is revised to

read as follows:

§ 1.856–3 Definitions.

* * * * *(d) Real property. See §1.856–10 for

the definition of real property. A regula-tion that adopts the definition of real prop-erty in this paragraph is to be interpretedas if it had referred to §1.856–10.

* * * * *Par. 3. Section 1.856–10 is added to

read as follows:

§ 1.856–10 Definition of real property.

(a) In general. This section providesdefinitions for purposes of part II, sub-chapter M, chapter 1 of the Internal Rev-enue Code. Paragraph (b) of this sectiondefines real property, which includes landas defined under paragraph (c) of this sec-tion and improvements to land as definedunder paragraph (d) of this section. Im-provements to land include inherently per-


manent structures as defined under para-graph (d)(2) of this section and structuralcomponents of inherently permanentstructures as defined under paragraph(d)(3) of this section. Paragraph (e) of thissection provides rules for determiningwhether an item is a distinct asset forpurposes of applying the definitions inparagraphs (b), (c), and (d) of this section.Paragraph (f) of this section identifies in-tangible assets that are real property orinterests in real property. Paragraph (g) ofthis section provides examples illustratingthe rules of paragraphs (b) through (f) ofthis section. Paragraph (h) of this sectionprovides the effective/applicability datefor this section.

(b) Real property. The term real prop-erty means land and improvements toland. Local law definitions are not control-ling for purposes of determining themeaning of the term real property.

(c) Land. Land includes water and airspace superjacent to land and naturalproducts and deposits that are unseveredfrom the land. Natural products and de-posits, such as crops, water, ores, andminerals, cease to be real property whenthey are severed, extracted, or removedfrom the land. The storage of severed orextracted natural products or deposits,such as crops, water, ores, and minerals,in or upon real property does not cause thestored property to be recharacterized asreal property.

(d) Improvements to land—(1) In gen-eral. The term improvements to landmeans inherently permanent structuresand their structural components.

(2) Inherently permanent structure—(i) In general. The term inherently perma-nent structure means any permanently af-fixed building or other permanentlyaffixed structure. Affixation may be toland or to another inherently permanentstructure and may be by weight alone. Ifthe affixation is reasonably expected tolast indefinitely based on all the facts andcircumstances, the affixation is consideredpermanent. A distinct asset that serves anactive function, such as an item of ma-chinery or equipment, is not a building orother inherently permanent structure.

(ii) Building—(A) In general. A build-ing encloses a space within its walls and iscovered by a roof.

(B) Types of buildings. Buildings in-clude the following distinct assets if per-manently affixed: houses; apartments; ho-tels; motels; enclosed stadiums andarenas; enclosed shopping malls; factoryand office buildings; warehouses; barns;enclosed garages; enclosed transportationstations and terminals; and stores.

(iii) Other inherently permanent struc-tures—(A) In general. Other inherentlypermanent structures serve a passive func-tion, such as to contain, support, shelter,cover, protect, or provide a conduit or aroute, and do not serve an active function,such as to manufacture, create, produce,convert, or transport.

(B) Types of other inherently perma-nent structures. Other inherently perma-nent structures include the following dis-tinct assets if permanently affixed:microwave transmission, cell, broadcast,and electrical transmission towers; tele-phone poles; parking facilities; bridges;tunnels; roadbeds; railroad tracks; trans-mission lines; pipelines; fences; in-groundswimming pools; offshore drilling plat-forms; storage structures such as silos andoil and gas storage tanks; and stationarywharves and docks. Other inherently per-manent structures also include outdoor ad-vertising displays for which an electionhas been properly made under section1033(g)(3).

(iv) Facts and circumstances determi-nation. If a distinct asset (within themeaning of paragraph (e) of this section)does not serve an active function as de-scribed in paragraph (d)(2)(iii)(A) of thissection and is not otherwise listed inparagraph (d)(2)(ii)(B) or (d)(2)(iii)(B) ofthis section or in guidance published inthe Internal Revenue Bulletin (see§601.601(d)(2)(ii) of this chapter), the de-termination of whether that asset is aninherently permanent structure is based onall the facts and circumstances. In partic-ular, the following factors must be takeninto account:

(A) The manner in which the distinctasset is affixed to real property;

(B) Whether the distinct asset is de-signed to be removed or to remain in placeindefinitely;

(C) The damage that removal of thedistinct asset would cause to the item it-self or to the real property to which it isaffixed;

(D) Any circumstances that suggest theexpected period of affixation is not indef-inite (for example, a lease that requires orpermits removal of the distinct asset uponthe expiration of the lease); and

(E) The time and expense required tomove the distinct asset.

(3) Structural components—(i) In gen-eral. The term structural componentmeans any distinct asset (within the mean-ing of paragraph (e) of this section) that isa constituent part of and integrated into aninherently permanent structure, serves theinherently permanent structure in its pas-sive function, and, even if capable of pro-ducing income other than considerationfor the use or occupancy of space, doesnot produce or contribute to the produc-tion of such income. If interconnected as-sets work together to serve an inherentlypermanent structure with a utility-likefunction (for example, systems that pro-vide a building with electricity, heat, orwater), the assets are analyzed together asone distinct asset that may be a structuralcomponent. A structural component mayqualify as real property only if the realestate investment trust (REIT) holds itsinterest in the structural component to-gether with a real property interest in thespace in the inherently permanent struc-ture served by the structural component. Amortgage secured by a structural compo-nent is a real estate asset only if the mort-gage is also secured by a real propertyinterest in the inherently permanent struc-ture served by the structural component. Ifa distinct asset is customized in connec-tion with the rental of space in or on aninherently permanent structure to whichthe asset relates, the customization doesnot affect whether the distinct asset is astructural component.

(ii) Types of structural components.Structural components include the fol-lowing distinct assets and systems if in-tegrated into the inherently permanentstructure and held together with a realproperty interest in the space in the in-herently permanent structure served bythat distinct asset or system: wiring;plumbing systems; central heating andair-conditioning systems; elevators orescalators; walls; floors; ceilings; per-manent coverings of walls, floors, andceilings; windows; doors; insulation;chimneys; fire suppression systems,


such as sprinkler systems and firealarms; fire escapes; central refrigera-tion systems; security systems; and hu-midity control systems.

(iii) Facts and circumstances determi-nation. If an interest in a distinct asset(within the meaning of paragraph (e) ofthis section) is held together with a realproperty interest in the space in the in-herently permanent structure served bythat distinct asset and that asset is nototherwise listed in paragraph (d)(3)(ii)of this section or in guidance publishedin the Internal Revenue Bulletin (see§601.601(d)(2)(ii) of this chapter), thedetermination of whether that asset is astructural component is based on all thefacts and circumstances. In particular,the following factors must be taken intoaccount:

(A) The manner, time, and expense ofinstalling and removing the distinct asset;

(B) Whether the distinct asset is de-signed to be moved;

(C) The damage that removal of thedistinct asset would cause to the item it-self or to the inherently permanent struc-ture to which it is affixed;

(D) Whether the distinct asset serves autility-like function with respect to theinherently permanent structure;

(E) Whether the distinct asset servesthe inherently permanent structure in itspassive function;

(F) Whether the distinct asset producesincome from consideration for the use oroccupancy of space in or upon the inher-ently permanent structure;

(G) Whether the distinct asset is in-stalled during construction of the inher-ently permanent structure; and

(H) Whether the distinct asset will re-main if the tenant vacates the premises.

(e) Distinct asset—(1) In general. Adistinct asset is analyzed separately fromany other assets to which the asset relatesto determine if the asset is real property,whether as land, an inherently permanentstructure, or a structural component of aninherently permanent structure.

(2) Facts and circumstances. The de-termination of whether a particular sepa-rately identifiable item of property is adistinct asset is based on all the facts andcircumstances. In particular, the followingfactors must be taken into account:

(i) Whether the item is customarilysold or acquired as a single unit ratherthan as a component part of a larger asset;

(ii) Whether the item can be separatedfrom a larger asset, and if so, the cost ofseparating the item from the larger asset;

(iii) Whether the item is commonlyviewed as serving a useful function inde-pendent of a larger asset of which it is apart; and

(iv) Whether separating the item froma larger asset of which it is a part impairsthe functionality of the larger asset.

(f) Intangible assets—(1) In general.To the extent that an intangible asset, in-cluding an intangible asset established un-der generally accepted accounting princi-ples (GAAP) as a result of an acquisitionof real property or an interest in real prop-erty, derives its value from real propertyor an interest in real property, is insepa-rable from that real property or interest inreal property, and does not produce orcontribute to the production of incomeother than consideration for the use oroccupancy of space, the intangible asset isreal property or an interest in real prop-erty.

(2) Licenses and permits. A license,permit, or other similar right that is solelyfor the use, enjoyment, or occupation ofland or an inherently permanent structureand that is in the nature of a leasehold oreasement generally is an interest in realproperty. A license or permit to engagein or operate a business is not real prop-erty or an interest in real property if thelicense or permit produces or contributesto the production of income other thanconsideration for the use or occupancy ofspace.

(g) Examples. The following exam-ples demonstrate the rules of this sec-tion. Examples 1 and 2 illustrate thedefinition of land as provided in para-graph (c) of this section. Examples 3through 10 illustrate the definition ofimprovements to land as provided inparagraph (d) of this section. Finally,Examples 11 through 13 illustratewhether certain intangible assets are realproperty or interests in real property asprovided in paragraph (f) of this section.

Example 1. Natural products of land. A is aREIT. REIT A owns land with perennial fruit-bearing plants. REIT A leases the fruit-bearingplants to a tenant and grants the tenant an easementto enter the land to cultivate the plants and to harvest

the fruit. The lease and easement are long-term andREIT A provides no services to the tenant. Theunsevered plants are natural products of the land andare land within the meaning of paragraph (c) of thissection. The tenant annually harvests fruit from theplants. Upon severance from the land, the harvestedfruit ceases to qualify as land. Storage of the har-vested fruit upon or within real property does notcause the harvested fruit to be real property.

Example 2. Water space superjacent to land.REIT B leases a marina from a governmentalentity. The marina is comprised of U-shaped boatslips and end ties. The U-shaped boat slips arespaces on the water that are surrounded by a dockon three sides. The end ties are spaces on the waterat the end of a slip or on a long, straight dock.REIT B rents the boat slips and end ties to boatowners. The boat slips and end ties are water spacesuperjacent to land that is land within the meaningof paragraph (c) of this section and, therefore, arereal property.

Example 3. Indoor sculpture. (i) REIT C owns anoffice building and a large sculpture in the atrium ofthe building. The sculpture measures 30 feet tall by18 feet wide and weighs five tons. The building wasspecifically designed to support the sculpture, whichis permanently affixed to the building by supportsembedded in the building’s foundation. The sculp-ture was constructed within the building. Removalwould be costly and time consuming and woulddestroy the sculpture. The sculpture is reasonablyexpected to remain in the building indefinitely. Thesculpture does not manufacture, create, produce,convert, transport, or serve any similar active func-tion.

(ii) The sculpture is not an asset listed in para-graph (d)(2)(iii)(B) of this section, and, therefore, thesculpture is an asset that must be analyzed to deter-mine whether it is an inherently permanent structureusing the factors provided in paragraph (d)(2)(iv) ofthis section. The sculpture—

(A) Is permanently affixed to the building bysupports embedded in the building’s foundation;

(B) Is not designed to be removed and is de-signed to remain in place indefinitely;

(C) Would be damaged if removed and woulddamage the building to which it is affixed;

(D) Will remain affixed to the building after anytenant vacates the premises and will remain affixedto the building indefinitely; and

(E) Would require significant time and expenseto move.

(iii) The factors described in this paragraph (g)Example 3 (ii)(A) through (E) all support the con-clusion that the sculpture is an inherently permanentstructure within the meaning of paragraph (d)(2) ofthis section and, therefore, is real property.

Example 4. Bus shelters. (i) REIT D owns 400bus shelters, each of which consists of four posts, aroof, and panels enclosing two or three sides. REITD enters into a long-term lease with a local transitauthority for use of the bus shelters. Each bus shelteris prefabricated from steel and is bolted to the side-walk. Bus shelters are disassembled and movedwhen bus routes change. Moving a bus shelter takesless than a day and does not significantly damageeither the bus shelter or the real property to which itwas affixed.


(ii) The bus shelters are not permanently affixedenclosed transportation stations or terminals and donot otherwise meet the definition of a building inparagraph (d)(2)(ii) of this section nor are they listedas types of other inherently permanent structures inparagraph (d)(2)(iii)(B) of this section. Therefore,the bus shelters must be analyzed to determinewhether they are inherently permanent structuresusing the factors provided in paragraph (d)(2)(iv) ofthis section. The bus shelters—

(A) Are not permanently affixed to the land or aninherently permanent structure;

(B) Are designed to be removed and are notdesigned to remain in place indefinitely;

(C) Would not be damaged if removed andwould not damage the sidewalks to which they areaffixed;

(D) Will not remain affixed after the local transitauthority vacates the site and will not remain affixedindefinitely; and

(E) Would not require significant time and ex-pense to move.

(iii) The factors described in this paragraph (g)Example 4 (ii)(A) through (E) all support the con-clusion that the bus shelters are not inherently per-manent structures within the meaning of paragraph(d)(2) of this section. Although the bus shelters servea passive function of sheltering, the bus shelters arenot permanently affixed, which means the bus shel-ters are not inherently permanent structures withinthe meaning of paragraph (d)(2) of this section and,therefore, are not real property.

Example 5. Cold storage warehouse. (i) REIT Eowns a refrigerated warehouse (Cold Storage Ware-house). REIT E enters into a long-term lease with atenant. REIT E neither operates the Cold StorageWarehouse nor provides services to its tenant. Thetenant uses the Cold Storage Warehouse to storeperishable products. Certain components and utilitysystems that are integrated into the Cold StorageWarehouse have been customized to accommodatethe tenant’s need for refrigerated storage space. Forexample, the Cold Storage Warehouse has custom-ized freezer walls and a central refrigeration system.Freezer walls within the Cold Storage Warehouseare specifically designed to maintain the desired tem-perature within the Cold Storage Warehouse. Thefreezer walls and central refrigeration system com-prise a series of interconnected assets that worktogether to serve a utility-like function within theCold Storage Warehouse, were installed during con-struction of the building, and will remain in placewhen the tenant vacates the premises. The freezerwalls and central refrigeration system were designedto remain permanently in place.

(ii) Walls and central refrigeration systems arelisted as structural components in paragraph(d)(3)(ii) of this section and, therefore, are real prop-erty. The customization of the freezer walls does notaffect their qualification as structural components ofREIT E’s Cold Storage Warehouse within the mean-ing of paragraph (d)(3) of this section. Therefore, thefreezer walls and central refrigeration system arestructural components of REIT E’s Cold StorageWarehouse.

Example 6. Data center. (i) REIT F owns abuilding that it leases to a tenant under a long-termlease. REIT F neither operates the building nor pro-

vides services to its tenant. To accommodate theparticular requirements for housing computer serv-ers, certain interior components and utility systemswithin the building have been customized to providea higher level of functionality than a conventionaloffice building. These customized systems areowned by REIT F and include an electrical distribu-tion and redundancy system (Electrical System), acentral heating and air-conditioning system, a tele-communication infrastructure system, an integratedsecurity system, a fire suppression system, and ahumidity control system (each, a System). In addi-tion, the space for computer servers in REIT F’sbuilding has been constructed with raised flooringthat is integrated into the building to accommodatethe Systems. Each System is comprised of a series ofinterconnected assets that work together to serve autility-like function within the building. The Systemsare integrated into the office building, were installedduring construction of the building, and will remainin place when the tenant vacates the premises. Eachof the Systems was customized to enhance the ca-pacity of the System in connection with the rental ofspace within the building.

(ii) The central heating and air-conditioning sys-tem, integrated security system, fire suppression sys-tem, and humidity control system are listed as struc-tural components in paragraph (d)(3)(ii) of thissection and, therefore, are real property. The cus-tomization of these Systems does not affect the qual-ification of these Systems as structural componentsof REIT F’s building within the meaning of para-graph (d)(3) of this section. Therefore, these Systemsare structural components of REIT F’s building.

(iii) In addition to wiring and flooring, which arelisted as structural components in paragraph(d)(3)(ii) of this section and, therefore, are real prop-erty, the Electrical System and telecommunicationinfrastructure system include equipment used to en-sure that the tenant is provided with uninterruptable,stable power and telecommunication services. TheElectrical System and telecommunication infrastruc-ture system are not listed in paragraph (d)(3)(ii) ofthis section, and, therefore, they must be analyzed todetermine whether they are structural components ofthe building using the factors provided in paragraph(d)(3)(iii) of this section. The Electrical System andtelecommunication infrastructure system—

(A) Are embedded within the walls and floors ofthe building and would be costly to remove;

(B) Are not designed to be moved and are de-signed specifically for the particular building ofwhich they are a part;

(C) Would not be significantly damaged uponremoval and, although removing them would dam-age the walls and floors in which they are embedded,their removal would not significantly damage thebuilding;

(D) Serve a utility-like function with respect tothe building;

(E) Serve the building in its passive functions ofcontaining, sheltering, and protecting computer serv-ers;

(F) Produce income as consideration for the useor occupancy of space within the building;

(G) Were installed during construction of thebuilding; and

(H) Will remain in place when the tenant vacatesthe premises.

(iv) The factors described in this paragraph (g)Example 6 (iii)(A), (B), and (D) through (H) allsupport the conclusion that the Electrical System andtelecommunication infrastructure system are struc-tural components of REIT F’s building within themeaning of paragraph (d)(3) of this section and,therefore, are real property. The factor described inthis paragraph (g) Example 6 (iii)(C) would supporta conclusion that the Electrical System and telecom-munication infrastructure system are not structuralcomponents. However this factor does not outweighthe factors supporting the conclusion that the Elec-tric System and telecommunication infrastructuresystem are structural components.

Example 7. Partitions. (i) REIT G owns an officebuilding that it leases to tenants under long-termleases. REIT G neither operates the office buildingnor provides services to its tenants. Partitions areowned by REIT G and are used to delineate spacebetween tenants and within each tenant’s space. Theoffice building has two types of interior, non-load-bearing drywall partition systems: a conventionaldrywall partition system (Conventional PartitionSystem) and a modular drywall partition system(Modular Partition System). Neither the Conven-tional Partition System nor the Modular PartitionSystem was installed during construction of the of-fice building. Conventional Partition Systems arecomprised of fully integrated gypsum board parti-tions, studs, joint tape, and covering joint compound.Modular Partition Systems are comprised of assem-bled panels, studs, tracks, and exposed joints. Boththe Conventional Partition System and the ModularPartition System reach from the floor to the ceiling.

(ii) Depending on the needs of a new tenant, theConventional Partition System may remain in placewhen a tenant vacates the premises. The Conven-tional Partition System is integrated into the officebuilding and is designed and constructed to remainin areas not subject to reconfiguration or expansion.The Conventional Partition System can be removedonly by demolition, and, once removed, neither theConventional Partition System nor its componentscan be reused. Removal of the Conventional Parti-tion System causes substantial damage to the Con-ventional Partition System itself but does not causesubstantial damage to the building.

(iii) Modular Partition Systems are typically re-moved when a tenant vacates the premises. ModularPartition Systems are not designed or constructed toremain permanently in place. Modular Partition Sys-tems are designed and constructed to be movable.Each Modular Partition System can be readily re-moved, remains in substantially the same conditionas before, and can be reused. Removal of a ModularPartition System does not cause any substantial dam-age to the Modular Partition System itself or to thebuilding. The Modular Partition System may bemoved to accommodate the reconfigurations of theinterior space within the office building for varioustenants that occupy the building.

(iv) The Conventional Partition System is com-prised of walls that are integrated into an inherentlypermanent structure, and thus are listed as structuralcomponents in paragraph (d)(3)(ii) of this section.


The Conventional Partition System, therefore, is realproperty.

(v) The Modular Partition System is not inte-grated into the building and, therefore, is not listed inparagraph (d)(3)(ii) of this section. Thus, the Mod-ular Partition System must be analyzed to determinewhether it is a structural component using the factorsprovided in paragraph (d)(3)(iii) of this section. TheModular Partition System—

(A) Is installed and removed quickly and withlittle expense;

(B) Is designed to be moved and is not designedspecifically for the particular building of which it isa part;

(C) Is not damaged, and the building is notdamaged, upon its removal;

(D) Does not serve a utility-like function withrespect to the building;

(E) Serves the building in its passive functions ofcontaining and protecting the tenants’ assets;

(F) Produces income only as consideration forthe use or occupancy of space within the building;

(G) Was not installed during construction of thebuilding; and

(H) Will not remain in place when a tenantvacates the premises.

(vi) The factors described in this paragraph (g)Example 7 (v)(A) through (D), (G) and (H) all sup-port the conclusion that the Modular Partition Sys-tem is not a structural component of REIT G’sbuilding within the meaning of paragraph (d)(3) ofthis section and, therefore, is not real property. Thefactors described in this paragraph (g) Example 7(v)(E) and (F) would support a conclusion that theModular Partition System is a structural component.These factors, however, do not outweigh the factorssupporting the conclusion that the Modular PartitionSystem is not a structural component.

Example 8. Solar energy site. (i) REIT H owns asolar energy site, among the components of whichare land, photovoltaic modules (PV Modules),mounts and an exit wire. REIT H enters into along-term lease with a tenant for the solar energysite. REIT H neither operates the solar energy sitenor provides services to its tenant. The mounts sup-port the PV Modules. The racks are affixed to theland through foundations made from poured con-crete. The mounts will remain in place when thetenant vacates the solar energy site. The PV Modulesconvert solar photons into electric energy (electric-ity). The exit wire is buried underground, is con-nected to equipment that is in turn connected to thePV Modules, and transmits the electricity producedby the PV Modules to an electrical power grid,through which the electricity is distributed for sale tothird parties.

(ii) REIT H’s PV Modules, mounts, and exit wireare each separately identifiable items. Separationfrom a mount does not affect the ability of a PVModule to convert photons to electricity. Separationfrom the equipment to which it is attached does notaffect the ability of the exit wire to transmit electric-ity to the electrical power grid. The types of PVModules and exit wire that REIT H owns are eachcustomarily sold or acquired as single units. Re-moval of the PV Modules from the mounts thatsupport them does not damage the function of themounts as support structures and removal is not

costly. The PV Modules serve the active function ofconverting photons to electricity. Disconnecting theexit wire from the equipment to which it is attacheddoes not damage the function of that equipment, andthe disconnection is not costly. The PV Modules,mounts, and exit wire are each distinct assets withinthe meaning of paragraph (e) of this section.

(iii) The land is real property as defined in para-graph (c) of this section.

(iv) The mounts are designed and constructed toremain in place indefinitely, and they have a passivefunction of supporting the PV Modules. The mountsare not listed in paragraph (d)(2)(iii)(B) of this sec-tion, and, therefore, the mounts are assets that mustbe analyzed to determine whether they are inherentlypermanent structures using the factors provided inparagraph (d)(2)(iv) of this section. The mounts—

(A) Are permanently affixed to the land throughthe concrete foundations or molded concrete anchors(which are part of the mounts);

(B) Are not designed to be removed and aredesigned to remain in place indefinitely;

(C) Would be damaged if removed;(D) Will remain affixed to the land after the

tenant vacates the premises and will remain affixedto the land indefinitely; and

(E) Would require significant time and expenseto move.

(v) The factors described in this paragraph (g)Example 8 (iv)(A) through (E) all support the con-clusion that the mounts are inherently permanentstructures within the meaning of paragraph (d)(2) ofthis section and, therefore, are real property.

(vi) The PV Modules convert solar photons intoelectricity that is transmitted through an electricalpower grid for sale to third parties. The conversion isan active function. Thus, the PV Modules are itemsof machinery or equipment and therefore are notinherently permanent structures within the meaningof paragraph (d)(2) of this section and, so, are notreal property. The PV Modules do not serve themounts in their passive function of providing sup-port; instead, the PV Modules produce electricity forsale to third parties, which is income other thanconsideration for the use or occupancy of space.Thus, the PV Modules are not structural componentsof REIT H’s mounts within the meaning of para-graph (d)(3) of this section and, therefore, are notreal property.

(vii) The exit wire is buried under the ground andtransmits the electricity produced by the PV Mod-ules to the electrical power grid. The exit wire wasinstalled during construction of the solar energy siteand is designed to remain permanently in place. Theexit wire is permanently affixed and is a transmissionline, which is listed as an inherently permanent struc-ture in paragraph (d)(2)(iii)(B) of this section. There-fore, the exit wire is real property.

Example 9. Solar-powered building. (i) REIT Iowns a solar energy site similar to that described inExample 8, except that REIT I’s solar energy siteassets (Solar Energy Site Assets) are mounted onland adjacent to an office building owned by REIT I.REIT I leases the office building and the solar energysite to a single tenant. REIT I does not operate theoffice building or the solar energy site and does notprovide services to its tenant. Although the tenantoccasionally transfers excess electricity produced by

the Solar Energy Site Assets to a utility company, theSolar Energy Site Assets are designed and intendedto produce electricity only to serve the office build-ing. The size and specifications of the Solar EnergySite Assets were designed to be appropriate to serveonly the electricity needs of the office building.Although the Solar Energy Site Assets were notinstalled during construction of the office building,no facts indicate either that the Solar Energy SiteAssets will not remain in place indefinitely or thatthey may be removed if the tenant vacates the prem-ises.

(ii) With the exception of the occasional transfersof excess electricity to a utility company, the SolarEnergy Site Assets serve the office building to whichthey are adjacent, and, therefore, the Solar EnergySite Assets are analyzed to determine whether theyare a structural component using the factors providedin paragraph (d)(3)(iii) of this section. The SolarEnergy Site Assets—

(A) Are expensive and time consuming to installand remove;

(B) Were designed with the size and specifica-tions needed to serve only the office building;

(C) Will be damaged, but will not cause damageto the office building, upon removal;

(D) Serve a utility-like function with respect tothe office building;

(E) Serve the office building in its passive func-tions of containing, sheltering, and protecting thetenant and the tenant’s assets;

(F) Produce income from consideration for theuse or occupancy of space within the office building;

(G) Were not installed during construction of theoffice building; and


(iii) The factors described in this paragraph (g)Example 9 (ii)(A) through (C) (in part), (ii)(D)through (F), and (ii)(H) all support the conclusionthat the Solar Energy Site Assets are a structuralcomponent of REIT I’s office building within themeaning of paragraph (d)(3) of this section and,therefore, are real property. The factors described inthis paragraph (g) Example 9 (ii)(C) (in part) and(ii)(G) would support a conclusion that the SolarEnergy Site Assets are not a structural component,but these factors do not outweigh the factors sup-porting the conclusion that the Solar Energy SiteAssets are a structural component.

(iv) The result in this Example 9 would notchange if, instead of the Solar Energy Site Assets,solar shingles were used as the roof of REIT I’soffice building. Solar shingles are roofing shingleslike those commonly used for residential housing,except that they contain built-in PV modules. Thesolar shingle installation was specifically designedand constructed to serve only the needs of REIT I’soffice building, and the solar shingles were installedas a structural component to provide solar energy toREIT I’s office building (although REIT I’s tenantoccasionally transfers excess electricity produced bythe solar shingles to a utility company). The analysisof the application of the factors provided in para-graph (d)(3)(ii) of this section would be similar tothe analysis of the application of the factors to theSolar Energy Site Assets in this paragraph (g) Ex-ample 9 (ii) and (iii).


Example 10. Pipeline transmission system. (i)REIT J owns a natural gas pipeline transmissionsystem that provides a conduit to transport naturalgas from unrelated third-party producers and gather-ing facilities to unrelated third-party distributors andend users. REIT J enters into a long-term lease witha tenant for the pipeline transmission system. REITJ neither operates the pipeline transmission systemnor provides services to its tenant. The pipelinetransmission system is comprised of undergroundpipelines, isolation valves and vents, pressure con-trol and relief valves, meters, and compressors. Al-though the pipeline transmission system as a wholeserves an active function (transporting natural gas),one or more distinct assets within the system maynevertheless be inherently permanent structures thatdo not themselves perform active functions. Each ofthese distinct assets was installed during construc-tion of the pipeline transmission system and willremain in place when the tenant vacates the pipelinetransmission system. Each of these assets was de-signed to remain permanently in place.

(ii) The pipelines are permanently affixed and arelisted as other inherently permanent structures inparagraph (d)(2)(iii)(B) of this section. Therefore,the pipelines are real property.

(iii) Isolation valves and vents are placed at reg-ular intervals along the pipelines to isolate and evac-uate sections of the pipelines in case there is need fora shut-down or maintenance of the pipelines. Pres-sure control and relief valves are installed at regularintervals along the pipelines to provide overpressureprotection. The isolation valves and vents and pres-sure control and relief valves are not listed in para-graph (d)(3)(ii) and, therefore, must be analyzed todetermine whether they are structural componentsusing the factors provided in paragraph (d)(3)(iii) ofthis section. The isolation valves and vents and pres-sure control and relief valves—

(A) Are time consuming and expensive to installand remove from the pipelines;

(B) Are designed specifically for the particularpipelines for which they are a part;

(C) Will sustain damage and will damage thepipelines if removed;

(D) Do not serve a utility-like function withrespect to the pipelines;

(E) Serve the pipelines in their passive functionof providing a conduit for natural gas;

(F) Produce income only from consideration forthe use or occupancy of space within the pipelines;

(G) Were installed during construction of thepipelines; and


(iv) The factors described in this paragraph (g)Example 10 (iii)(A) through (C) and (iii)(E) through(H) support the conclusion that the isolation valves

and vents and pressure control and relief valves arestructural components of REIT J’s pipelines withinthe meaning of paragraph (d)(3) of this section and,therefore, are real property. The factor described inthis paragraph (g) Example 10 (iii)(D) would supporta conclusion that the isolation valves and vents andpressure control and relief valves are not structuralcomponents, but this factor does not outweigh thefactors that support the conclusion that the isolationvalves and vents and pressure control and reliefvalves are structural components.

(v) Meters are used to measure the natural gaspassing into or out of the pipeline transmission sys-tem for purposes of determining the end users’ con-sumption. Over long distances, pressure is lost due tofriction in the pipeline transmission system. Com-pressors are required to add pressure to transportnatural gas through the entirety of the pipeline trans-mission system. The meters and compressors do notserve the pipelines in their passive function of pro-viding a conduit for the natural gas, and are used inconnection with the production of income from thesale and transportation of natural gas, rather than asconsideration for the use or occupancy of spacewithin the pipelines. The meters and compressors arenot structural components within the meaning ofparagraph (d)(3) of this section and, therefore, arenot real property.

Example 11. Above-market lease. REIT K ac-quires an office building from an unrelated thirdparty subject to a long-term lease with a single tenantunder which the tenant pays above-market rents. Theabove-market lease is an intangible asset underGAAP. Seventy percent of the value of the above-market lease asset is attributable to income from thelong-term lease that qualifies as rents from real prop-erty, as defined in section 856(d)(1). The remainingthirty percent of the value of the above-market leaseasset is attributable to income from the long-termlease that does not qualify as rents from real prop-erty. The portion of the value of the above-marketlease asset that is attributable to rents from realproperty (here, seventy percent) derives its valuefrom real property, is inseparable from that realproperty, does not produce or contribute to the pro-duction of income other than consideration for theuse or occupancy of space, and, therefore, is aninterest in real property under section 856(c)(5)(C)and a real estate asset under section 856(c)(5)(B).The remaining portion of the above-market leaseasset does not derive its value from real propertyand, therefore, is not a real estate asset.

Example 12. Land use permit. REIT L receives aspecial use permit from the government to placea cell tower on Federal Government land that abutsa federal highway. Government regulations providethat the permit is not a lease of the land, but is apermit to use the land for a cell tower. Under the

permit, the government reserves the right to cancelthe permit and compensate REIT L if the site isneeded for a higher public purpose. REIT L leasesspace on the tower to various cell service providers.Each cell service provider installs its equipment on adesignated space on REIT L’s cell tower. The permitdoes not produce, or contribute to the production of,any income other than REIT L’s receipt of paymentsfrom the cell service providers in consideration fortheir being allowed to use space on the tower. Thepermit is in the nature of a leasehold that allowsREIT L to place a cell tower in a specific location ongovernment land. Therefore, the permit is an interestin real property.

Example 13. License to operate a business. REITM owns a building and receives a license from Stateto operate a casino in the building. The licenseapplies only to REIT M’s building and cannot betransferred to another location. REIT M’s building isan inherently permanent structure under paragraph(d)(2)(i) of this section and, therefore, is real prop-erty. However, REIT M’s license to operate a casinois not a right for the use, enjoyment, or occupation ofREIT M’s building but is rather a license to engagein the business of operating a casino in the building.Therefore, the casino license is not real property.

(h) Effective/applicability date. Therules of this section apply for taxable yearsbeginning after August 31, 2016. For pur-poses of applying the first sentence of theflush language of section 856(c)(4) to aquarter in a taxable year that begins afterAugust 31, 2016, the rules of this sectionapply in determining whether the taxpayermet the requirements of section 856(c)(4) atthe close of prior quarters. Taxpayers mayrely on this section for quarters that endbefore the applicability date.

John Dalrymple,Deputy Commissioner for

Services and Enforcement.

Approved: August 8, 2016

Mark J. Mazur,Assistant Secretary of

the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on August 30,2016, 8:45 a.m., and published in the issue of the FederalRegister for August 31, 2016, 81 F.R. 59849)


Part III. Administrative, Procedural, and MiscellaneousCredit for Carbon DioxideSequestration 2016Section 45Q InflationAdjustment Factor

Notice 2016–53

SECTION 1. PURPOSE

This notice publishes the inflation ad-justment factor for the credit for carbondioxide (CO2) sequestration under § 45Qof the Internal Revenue Code (§ 45Qcredit) for calendar year 2016. The infla-tion adjustment factor is used to determinethe amount of the credit allowable under§ 45Q. This notice also publishes the ag-gregate amount of qualified CO2 takeninto account for purposes of § 45Q.

SECTION 2. BACKGROUND

Section 45Q(a)(1) allows a credit of$20 per metric ton of qualified CO2 that iscaptured by the taxpayer at a qualifiedfacility, disposed of by the taxpayer insecure geological storage, and not used bythe taxpayer as a tertiary injectant. Section45Q(a)(2) allows a credit of $10 per met-ric ton of qualified CO2 that is captured bythe taxpayer at a qualified facility, used bythe taxpayer as a tertiary injectant in aqualified enhanced oil or natural gas re-covery project, and disposed of by thetaxpayer in secure geological storage.

Section 45Q(b)(1) defines the term“qualified carbon dioxide” as CO2 cap-tured from an industrial source that wouldotherwise be released into the atmosphereas industrial emission of greenhouse gas,and that is measured at the source of cap-ture and verified at the point of disposal orinjection. Qualified CO2includes the ini-tial deposit of captured CO2used as a ter-tiary injectant but does not includeCO2that is re-captured, recycled, or other-wise re-injected as part of the enhancedoil and natural gas recovery process.

Section 45Q(c) defines the term “qual-ified facility” as an industrial facility thatis owned by the taxpayer, where carboncapture equipment is placed in service,and where at least 500,000 metric tons ofCO2 is captured during the taxable year.

Section 45Q(d)(2) provides that theSecretary, in consultation with the Admin-istrator of the Environmental ProtectionAgency (EPA), the Secretary of Energy,and the Secretary of the Interior, shallestablish regulations for determining ade-quate security measures for the geologicalstorage of CO2 under § 45Q(a)(1)(B) or(a)(2)(C) such that the CO2 does not es-cape into the atmosphere. See section 5 ofNotice 2009–83, 2009–2 C.B. 588, forprocedures regarding secure geologicalstorage.

Section 45Q(d)(5) allows the § 45Qcredit to the person that captures andphysically or contractually ensures thedisposal of or the use as a tertiary injectantof the qualified CO2.

Under § 45Q(d)(7), for taxable yearsbeginning in a calendar year after 2009,the dollar amount contained in § 45Q(a)must be adjusted for inflation by multiply-ing such dollar amount by the inflationadjustment factor for such calendar yeardetermined under § 43(b)(3)(B), deter-mined by substituting “2008” for “1990.”

Section 43(b)(3)(B) defines the term“inflation adjustment factor” as, with re-spect to any calendar year, a fraction thenumerator of which is the GNP implicitprice deflator for the preceding calendaryear and the denominator of which is theGNP implicit price deflator for 1990. Forpurposes of § 45Q(d)(7), with respect to2016 calendar year, the inflation adjust-ment factor is a fraction the numerator ofwhich is the GNP implicit price deflatorfor 2015 (109.868) and the denominatorof which is the GNP implicit price deflatorfor 2008 (99.239).

Section 45Q(e) provides that the § 45Qcredit will apply with respect to qualified

CO2 before the end of the calendar year inwhich the Secretary, in consultation withthe EPA, certifies that 75,000,000 metrictons of qualified CO2have been taken intoaccount in accordance with § 45Q(a).

SECTION 3. INFLATIONADJUSTMENT FACTOR

The inflation adjustment factor for cal-endar year 2016 is 1.1071. The § 45Qcredit for calendar year 2016 is $22.14 permetric ton of qualified CO2 under§ 45Q(a)(1) and $11.07 per metric ton ofqualified CO2 under § 45Q(a)(2).

SECTION 4. TAX CREDITUTILIZATION

Section 6 of Notice 2009–83 requirestaxpayers to file annual reports that pro-vide (among other information) theamounts (in metric tons) of qualified CO2

for the taxable year that has been takeninto account for purposes of claiming the§ 45Q credit. The annual reports must befiled with the Service not later than thelast day of the second calendar monthfollowing the month during which the taxreturn on which the § 45Q credit isclaimed was due (including extensions).

Based on the annual reports filed withthe Service as of September 26, 2016, theaggregate amount of qualified CO2takeninto account for purposes of § 45Q is44,590,130 metric tons.

SECTION 5. DRAFTINGINFORMATION

The principal author of this notice isJennifer C. Bernardini of the Office ofAssociate Chief Counsel (Passthroughs &Special Industries). For further informa-tion regarding this notice contact JenniferC. Bernardini on (202) 317-6853 (not atoll-free number).


Part IV. Items of General InterestAnnouncement ofCertification Resulting fromthe 2012–2013 Phase IIIAllocation Round of theQualifying Advanced CoalProject Program

Announcement 2016–33

This announcement discloses the certi-fication resulting from the 2012–2013Phase III allocation round of the qualify-ing advanced coal project program pro-vided by § 48A of the Internal RevenueCode.

SECTION 1. QUALIFYINGADVANCED COAL PROJECTPROGRAM

Pursuant to § 48A(d)(4), on August 13,2012, the Internal Revenue Service (the“Service”) published Notice 2012–51,2012–2 C.B. 150 (the “Notice”) to estab-lish the § 48A Phase III qualifying ad-vanced coal project program (the “PhaseIII program”) to allocate § 48A credits(the “Phase III credits”).

The Notice provides that the credit fora taxable year under the Phase III programis an amount equal to 30 percent of thequalified investment for that taxable yearin a qualifying advanced coal project thatuses integrated gasification combined cy-cle technology or other advanced coal-based generation technology. To receivean allocation of the Phase III credits, aqualifying advanced coal project must in-

clude equipment that separates and se-questers at least 70 percent of such proj-ect’s total carbon dioxide emissions.

Section 48A(d)(5) provides that theSecretary shall, upon making a certifica-tion under § § 48A(d) or 48B(d), publiclydisclose the identity of the applicant andthe amount of the credit certified withrespect to such applicant. Section 10.01 ofthe Notice further provides that the Ser-vice intends to publish the results of thePhase III allocation round, and disclosethe following information in the event thePhase III credit is allocated to the taxpay-er’s project: (a) the name of the taxpayerand (b) the amount of the Phase III creditallocated to the project.

Accordingly, the certification resultingfrom the 2012–2013 Phase III allocationround of the qualifying advanced coalproject program provided by § 48A is asfollows:

Program Taxpayer Amount of Credit Certified

Phase III STCE Holdings, LLC $324,000,000


The principal author of this announce-ment is Jennifer C. Bernardini of the Of-fice of Associate Chief Counsel (Pass-throughs & Special Industries). Forfurther information regarding this an-nouncement, contact Ms. Bernardini at(202) 317-5118 (not a toll-free number).

Announcement of theResults of the Phase IIIAllocation Round of theQualifying GasificationProject Program


This announcement discloses the re-sults of the Phase III allocation round un-

der the qualifying gasification project pro-gram of § 48B of the Internal RevenueCode. This announcement also serves asnotice to applicants that no additional al-location rounds will be conducted underthe qualifying gasification project pro-gram.

SECTION 1. QUALIFYINGGASIFICATION PROJECT PROGRAM

On December 29, 2014, the InternalRevenue Service (“Service”) publishedNotice 2014–81, 2014–53 I.R.B. 1001(“the Notice”), to announce the beginningof the § 48B Phase III allocation roundunder the qualifying gasification projectprogram (the “Phase III program”).

The Notice provides that the credit fora taxable year under the Phase III programis an amount equal to 20 percent of thequalified investment (as defined in§ 48B(b)) for that taxable year in qualify-

ing gasification projects (as defined in§ 48B(c)(1)) for which the credit is allo-cated under § 48B(d)(1)(A).

Section 48A(d)(5) provides that theSecretary shall, upon making a certifica-tion under § 48B(d), publicly disclose theidentity of the applicant and the amount ofthe credit certified with respect to suchapplicant. Section 9.01 of the Notice fur-ther provides that the Service intends topublish the results of Phase III allocationround, and disclose the following returninformation in the event the Phase IIIcredit is allocated to the taxpayer’s proj-ect: (a) the name of the taxpayer and (b)the amount of the Phase III credit allo-cated to the project.

Accordingly, the results of the PhaseIII allocation round of the qualifying gas-ification program provided by § 48B areas follows:


Program Taxpayer Credit Allocated Total Credit Allocated

Phase III Clean Energy Resources, LLC $130,000,000

Lake Charles Resources, LLC $130,000,000

$260,000,000

Additionally, § 48B(d)(2) provides thatcertificates of eligibility for credit award-ees may be issued under the § 48B pro-gram only during the 10-year period be-ginning on October 1, 2005. As a result,the Service may only reallocate as PhaseIII credits any available § 48B creditsprior to October 1, 2015. Accordingly, theService will not conduct additional allo-cations under Phase III of the qualifyinggasification program.


The principal author of this announce-ment is Jennifer C. Bernardini of the Of-fice of Associate Chief Counsel (Pass-throughs & Special Industries). Forfurther information regarding this an-nouncement contact Jennifer C. Bernar-dini at (202) 317-5118 (not a toll-freenumber).

Section 7428(c) Validationof Certain ContributionsMade During Pendency ofDeclaratory JudgmentProceedings


This announcement serves notice topotential donors that the organizationlisted below has recently filed a timelydeclaratory judgment suit under section7428 of the Code, challenging revocationof its status as an eligible donee undersection 170(c)(2).

Protection under section 7428(c) of theCode begins on the date that the notice ofrevocation is published in the InternalRevenue Bulletin and ends on the date onwhich a court first determines that an or-ganization is not described in section

170(c)(2), as more particularly set forth insection 7428(c)(1).

In the case of individual contributors, themaximum amount of contributions pro-tected during this period is limited to$1,000.00, with a husband and wife beingtreated as one contributor. This protection isnot extended to any individual who wasresponsible, in whole or in part, for the actsor omissions of the organization that werethe basis for the revocation. This protectionalso applies (but without limitation as toamount) to organizations described in sec-tion 170(c)(2) which are exempt from taxunder section 501(a). If the organization ul-timately prevails in its declaratory judgmentsuit, deductibility of contributions would besubject to the normal limitations set forthunder section 170.

Name of Organization Date Suit Filed Effective Date of Revocation Location

Faith’s Hope Foundation 8/26/2016 7/1/2010 Fullerton, CA

Modest Needs Foundation 4/13/2016 1/1/2011 New York NY

Notice of Disposition ofDeclaratory JudgmentProceedings under Section7428


This announcement serves notice todonors that on February 1, 2016, theUnited States Tax Court entered a stipu-lated decision that, effective January 15,2016, the organization listed below is notqualified as an organization described insection 501(c)(3), is not exempt from tax-ation under section 501(a), and is not an

organization described in section170(c)(2).

Foundation for Harmony and Happi-ness

Santa Barbara, CA

Notice of Disposition ofDeclaratory JudgmentProceedings under Section7428Announcement 2016–37

This announcement serves notice todonors that on April 21, 2016, the United

States Tax Court entered a stipulated de-cision that, effective August 21, 2014, theorganization listed below is not qualifiedas an organization described in section501(c)(3) and is not exempt from taxationunder section 501(a).

America Housing FoundationAmarillo, TX


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

Amplified describes a situation whereno change is being made in a prior pub-lished position, but the prior position isbeing extended to apply to a variation ofthe fact situation set forth therein. Thus, ifan earlier ruling held that a principle ap-plied to A, and the new ruling holds thatthe same principle also applies to B, theearlier ruling is amplified. (Compare withmodified, below).

Clarified is used in those instanceswhere the language in a prior ruling isbeing made clear because the languagehas caused, or may cause, some confu-sion. It is not used where a position in aprior ruling 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 thanrestate the substance and situation of apreviously published ruling (or rulings).Thus, the term is used to republish underthe 1986 Code and regulations the sameposition published under the 1939 Codeand regulations. The term is also usedwhen it is desired to republish in a singleruling a series of situations, names, etc.,that were previously published over a pe-riod of time in separate rulings. If the newruling does more than restate the sub-

stance of a prior ruling, a combination ofterms is used. For example, modified andsuperseded 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 isself contained. In this case, the previouslypublished ruling is first modified and then,as modified, 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 namesin subsequent rulings. After the originalruling has been supplemented severaltimes, a new ruling may be published thatincludes the list in the original ruling andthe additions, and supersedes all prior rul-ings in the 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 ofcases in litigation, or the outcome of aService study.

AbbreviationsThe following abbreviations in currentuse and formerly used will appear in ma-terial published in the Bulletin.

A—Individual.Acq.—Acquiescence.B—Individual.BE—Beneficiary.BK—Bank.B.T.A.—Board of Tax Appeals.C—Individual.C.B.—Cumulative Bulletin.CFR—Code of Federal Regulations.CI—City.COOP—Cooperative.Ct.D.—Court Decision.CY—County.D—Decedent.DC—Dummy Corporation.DE—Donee.Del. Order—Delegation Order.DISC—Domestic International Sales Corporation.DR—Donor.E—Estate.EE—Employee.E.O.—Executive Order.ER—Employer.

ERISA—Employee Retirement Income Security Act.EX—Executor.F—Fiduciary.FC—Foreign Country.FICA—Federal Insurance Contributions Act.FISC—Foreign International Sales Company.FPH—Foreign Personal Holding Company.F.R.—Federal Register.FUTA—Federal Unemployment Tax Act.FX—Foreign corporation.G.C.M.—Chief Counsel’s Memorandum.GE—Grantee.GP—General Partner.GR—Grantor.IC—Insurance Company.I.R.B.—Internal Revenue Bulletin.LE—Lessee.LP—Limited Partner.LR—Lessor.M—Minor.Nonacq.—Nonacquiescence.O—Organization.P—Parent Corporation.PHC—Personal Holding Company.PO—Possession of the U.S.PR—Partner.PRS—Partnership.

PTE—Prohibited Transaction Exemption.Pub. L.—Public Law.REIT—Real Estate Investment Trust.Rev. Proc.—Revenue Procedure.Rev. Rul.—Revenue Ruling.S—Subsidiary.S.P.R.—Statement of Procedural Rules.Stat.—Statutes at Large.T—Target Corporation.T.C.—Tax Court.T.D.—Treasury Decision.TFE—Transferee.TFR—Transferor.T.I.R.—Technical Information Release.TP—Taxpayer.TR—Trust.TT—Trustee.U.S.C.—United States Code.X—Corporation.Y—Corporation.Z—Corporation.

Bulletin No. 2016–39 September 26, 2016i

Numerical Finding List1

Bulletin 2016–27 through 2016–39

Action on Decision:

2016-01, 2016-16 I.R.B. 5802016-02, 2016-31 I.R.B. 193

Announcements:

2016-21, 2016-27 I.R.B. 82016-23, 2016-27 I.R.B. 102016-24, 2016-30 I.R.B. 1702016-25, 2016-31 I.R.B. 2052016-26, 2016-38 I.R.B. 3892016-27, 2016-33 I.R.B. 2382016-28, 2016-34 I.R.B. 2722016-29, 2016-34 I.R.B. 2722016-30, 2016-37 I.R.B. 3552016-31, 2016-38 I.R.B. 3922016-33, 2016-39 I.R.B. 4222016-34, 2016-39 I.R.B. 4222016-35, 2016-39 I.R.B. 4232016-36, 2016-39 I.R.B. 4232016-37, 2016-39 I.R.B. 423

Notices:

2016-40, 2016-27 I.R.B. 42016-41, 2016-27 I.R.B. 52016-42, 2016-29 I.R.B. 672016-43, 2016-29 I.R.B. 1322016-44, 2016-29 I.R.B. 1322016-45, 2016-29 I.R.B. 1352016-47, 2016-35 I.R.B. 2762016-46, 2016-31 I.R.B. 2022016-48, 2016-33 I.R.B. 2352016-49, 2016-34 I.R.B. 2652016-50, 2016-38 I.R.B. 3842016-51, 2016-37 I.R.B. 3442016-53, 2016-39 I.R.B. 421

Proposed Regulations:

REG-101689-16, 2016-30 I.R.B. 170REG-102516-15, 2016-32 I.R.B. 231REG-103058-16, 2016-33 I.R.B. 238REG-105005-16, 2016-38 I.R.B. 393REG-108792-16, 2016-36 I.R.B. 320REG-109086-15, 2016-30 I.R.B. 171REG-123854-12, 2016-28 I.R.B. 15REG-131418-14, 2016-33 I.R.B. 248REG-134016-15, 2016-31 I.R.B. 205REG-147196-07, 2016-29 I.R.B. 32REG-163113-02, 2016-36 I.R.B. 329

Revenue Procedures:

2016-37, 2016-29 I.R.B. 1362016-39, 2016-30 I.R.B. 1642016-40, 2016-32 I.R.B. 228

Revenue Procedures:—Continued

2016-41, 2016-30 I.R.B. 1652016-42, 2016-34 I.R.B. 2692016-43, 2016-36 I.R.B. 3162016-44, 2016-36 I.R.B. 3162016-45, 2016-37 I.R.B. 3442016-46, 2016-37 I.R.B. 3452016-47, 2016-37 I.R.B. 3462016-48, 2016-37 I.R.B. 348

Revenue Rulings:

2016-17, 2016-27 I.R.B. 12016-18, 2016-31 I.R.B. 1942016-19, 2016-35 I.R.B. 2732016-20, 2016-36 I.R.B. 2792016-23, 2016-39 I.R.B. 3822016-24, 2016-39 I.R.B. 395

Treasury Decisions:

9773, 2016-29 I.R.B. 569774, 2016-30 I.R.B. 1519775, 2016-30 I.R.B. 1599776, 2016-32 I.R.B. 2229777, 2016-36 I.R.B. 2829778, 2016-31 I.R.B. 1969779, 2016-33 I.R.B. 2339780, 2016-38 I.R.B. 3579781, 2016-35 I.R.B. 2749782, 2016-36 I.R.B. 3019783, 2016-39 I.R.B.3969784, 2016-38 I.R.B. 4029785, 2016-38 I.R.B. 375

1A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2016–01 through 2016–26 is in Internal Revenue Bulletin2016–26, dated June 27, 2016.

September 26, 2016 Bulletin No. 2016–39ii

Finding List of Current Actions onPreviously Published Items1

Bulletin 2016–27 through 2016–39

Notices:

2009-89Modified byNotice 2016-51, 2016-37 I.R.B. 344

2012-54Obsoleted byNotice 2016-51, 2016-37 I.R.B. 344


2013-1Superseded byNotice 2016-41, 2016-27 I.R.B. 5


Revenue Procedures:

2003-16Modified byRev. Proc. 2016-47, 2016-37 I.R.B. 346

2007-44Clarified byRev. Proc. 2016-37, 2016-29 I.R.B. 136


2007-44Superseded byRev. Proc. 2016-37, 2016-29 I.R.B. 136





Revenue Procedures:—Continued


Treasury Decisions:

2013-17Obsoleted byT.D. 9785 2016-38 I.R.B. 375

2014-12Modified byT.D. 9776 2016-32 I.R.B. 222

1A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2016–01 through 2016–26 is in Internal Revenue Bulletin2016–26, dated June 27, 2016.

Bulletin No. 2016–39 September 26, 2016iii

INTERNAL REVENUE BULLETINThe Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue

Bulletins are available at www.irs.gov/irb/.

We Welcome Comments About the Internal Revenue BulletinIf you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we

would be pleased to hear from you. You can email us your suggestions or comments through the IRS Internet Home Page(www.irs.gov) or write to the Internal Revenue Service, Publishing Division, IRB Publishing Program Desk, 1111 Constitution Ave.NW, IR-6230 Washington, DC 20224.

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