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Bulletin No.

2006-36
September 5, 2006

HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.

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

Rev. Rul. 2006–36, page 353. Notice 2006–72, page 363.


Health reimbursement arrangements. This ruling holds This notice contains questions and answers that provide guid-
that amounts that may be paid as medical benefits to a ance on the information reporting requirements for qualified tu-
designated beneficiary (other than an employee’s spouse ition and related expenses under section 6050S of the Code.
or an employee’s dependent) are not excludable from the
employee’s gross income under section 105(b) of the Code. Announcement 2006–61, page 390.
Notice 2002–45 and Rev. Ruls. 2002–41 and 2005–24 This announcement provides an opportunity for small busi-
amplified. ness/self employed taxpayers to use Fast Track Settlement
(FTS) to expedite case resolution within the IRS’s Small Busi-
Rev. Rul. 2006–44, page 361. ness/Self Employed (SB/SE) organization. The SB/SE FTS will
Federal rates; adjusted federal rates; adjusted federal enable SB/SE taxpayers that currently have unagreed issues
long-term rate and the long-term exempt rate. For pur- in at least one open year under examination to work together
poses of sections 382, 642, 1274, 1288, and other sections with SB/SE and the Office of Appeals to resolve outstanding
of the Code, tables set forth the rates for September 2006. disputed issues while the case is still in SB/SE jurisdiction.

T.D. 9279, page 355.


REG–125071–06, page 375. EMPLOYEE PLANS
Final, temporary, and proposed regulations under section 671
of the Code amend regulations section 1.671–5, reporting
rules for widely held fixed investment trusts (WHFITs), to clar- Notice 2006–75, page 366.
ify and simplify the application of those rules to non-mortgage Weighted average interest rate modifications; corporate
widely held fixed investment trusts (NMWHFITs). The proposed bond weighted average. This notice extends the use of the
regulations also include a requirement that trustees of WHFITs corporate bond weighted average interest rate for sections
file an information return with the IRS and provide for the IRS 412(c)(7)(E) and 412(l) of the Code and sections 302(c)(7)(E)
to create a directory of NMWHFITs and trustees of widely held and 302(d) of the Employee Retirement Income Security Act of
mortgage trusts (WHMTs). The proposed regulations clarify the 1974 as provided in section 301 of the Pension Protection Act
market discount reporting rules under the NMWHFIT safe har- of 2006.
bor and solicit comments on the WHMT safe harbor.

REG–124152–06, page 368.


Proposed regulations provide guidance relating to the determi-
nation of who is considered to pay a foreign tax for purposes of

(Continued on the next page)

Announcements of Disbarments and Suspensions begin on page 379.


Finding Lists begin on page ii.
EXEMPT ORGANIZATIONS

Announcement 2006–60, page 389.


Aylesi M. Bobo Charitable Foundation of Independence, MO, no
longer qualifies as an organization to which contributions are
deductible under section 170 of the Code.

ADMINISTRATIVE

Notice 2006–72, page 363.


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

Announcement 2006–58, page 388.


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

Announcement 2006–59, page 388.


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

Announcement 2006–61, page 390.


This announcement provides an opportunity for small busi-
ness/self employed taxpayers to use Fast Track Settlement
(FTS) to expedite case resolution within the IRS’s Small Busi-
ness/Self Employed (SB/SE) organization. The SB/SE FTS will
enable SB/SE taxpayers that currently have unagreed issues
in at least one open year under examination to work together
with SB/SE and the Office of Appeals to resolve outstanding
disputed issues while the case is still in SB/SE jurisdiction.

September 5, 2006 2006–36 I.R.B.


The IRS Mission
Provide America’s taxpayers top quality service by helping applying the tax law with integrity and fairness to all.
them understand and meet their tax responsibilities and by

Introduction
The Internal Revenue Bulletin is the authoritative instrument of court decisions, rulings, and procedures must be considered,
the Commissioner of Internal Revenue for announcing official and Service personnel and others concerned are cautioned
rulings and procedures of the Internal Revenue Service and for against reaching the same conclusions in other cases unless
publishing Treasury Decisions, Executive Orders, Tax Conven- the facts and circumstances are substantially the same.
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
The Bulletin is divided into four parts as follows:
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis. Part I.—1986 Code.
This part includes rulings and decisions based on provisions of
It is the policy of the Service to publish in the Bulletin all sub- the Internal Revenue Code of 1986.
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod- Part II.—Treaties and Tax Legislation.
ify, or amend any of those previously published in the Bulletin. This part is divided into two subparts as follows: Subpart A,
All published rulings apply retroactively unless otherwise indi- Tax Conventions and Other Related Items, and Subpart B, Leg-
cated. Procedures relating solely to matters of internal man- islation and Related Committee Reports.
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published. Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
Revenue rulings represent the conclusions of the Service on the included in this part are Bank Secrecy Act Administrative Rul-
application of the law to the pivotal facts stated in the revenue ings. Bank Secrecy Act Administrative Rulings are issued by
ruling. In those based on positions taken in rulings to taxpayers the Department of the Treasury’s Office of the Assistant Sec-
or technical advice to Service field offices, identifying details retary (Enforcement).
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements. Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be The last Bulletin for each month includes a cumulative index
relied on, used, or cited as precedents by Service personnel in for the matters published during the preceding months. These
the disposition of other cases. In applying published rulings and monthly indexes are cumulated on a semiannual basis, and are
procedures, the effect of subsequent legislation, regulations, published in the last Bulletin of each semiannual period.

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

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

2006–36 I.R.B. September 5, 2006


Place missing child here.

September 5, 2006 2006–36 I.R.B.


Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 42.—Low-Income former employees (including retired em- Section 106 provides that the gross in-
Housing Credit ployees), their spouses and dependents (as come of an employee does not include em-
defined in § 152, determined without re- ployer-provided coverage under an acci-
The adjusted applicable federal short-term, mid-
gard to § 152(b)(1), (b)(2), and (d)(1)(B)). dent or health plan. Section 1.106–1 of
term, and long-term rates are set forth for the month
of September 2006. See Rev. Rul. 2006-44, page
The Plan also reimburses the substantiated the regulations provides that the gross in-
361. medical care expenses of the surviving come of an employee does not include con-
spouse and dependents of a deceased em- tributions which the employee’s employer
ployee. Upon the death of the deceased makes to an accident or health plan for
Section 105.—Amounts employee’s surviving spouse and last de- compensation (through insurance or other-
Received Under Accident pendent, or upon the death of the employee wise) for personal injuries or sickness to
and Health Plans if there is no surviving spouse or depen- the employee or the employee’s spouse or
dents, any unused reimbursement amount dependents.
Health reimbursement arrange- is paid as reimbursement of substantiated Section 105(a) provides that, except as
ments. This ruling holds that amounts medical care expenses of a beneficiary otherwise provided in § 105, amounts re-
that may be paid as medical benefits to designated by the employee. The Plan ceived by an employee through accident
a designated beneficiary (other than an does not include the fair market value of or health insurance for personal injuries
employee’s spouse or an employee’s de- the coverage for the designated benefi- or sickness shall be included in gross in-
pendent) are not excludable from the ciary in the gross income of the employee. come to the extent such amounts (1) are at-
employee’s gross income under section The Plan treats the reimbursement as tax- tributable to contributions by the employer
105(b) of the Code. Notice 2002–45 and able to the designated beneficiary. which were not includible in the gross in-
Rev. Ruls. 2002–41 and 2005–24 ampli- The Plan is paid for solely by Employer come of the employee, or (2) are paid by
fied. and is not provided pursuant to a salary-re- the employer.
duction election or otherwise under a § 125 Section 105(b) states that except in the
Rev. Rul. 2006–36 cafeteria plan. Neither the employee nor case of amounts attributable to (and not in
any other person has the right, currently or excess of) deductions allowed under § 213
ISSUE for any future year, to receive any benefit (relating to medical expenses) for any prior
other than the reimbursement of substan- taxable year, gross income does not in-
Are amounts paid to an employee under tiated medical care expenses incurred by clude amounts referred to in § 105(a) if
a reimbursement plan excludable from the the employee, his or her spouse and depen- such amounts are paid, directly or indi-
employee’s gross income under § 105(b) dents or the employee’s designated benefi- rectly, to the taxpayer to reimburse the tax-
of the Internal Revenue Code (the Code) ciary. payer for expenses incurred by the tax-
if the plan provides that amounts may be payer for the medical care (as defined in
paid as § 213(d) medical benefits to a des- LAW AND ANALYSIS § 213(d)) of the taxpayer or the taxpayer’s
ignated beneficiary (other than the em- spouse or dependents (as defined in § 152,
Section 61(a)(1) provides that, ex-
ployee’s spouse or dependents or an em- determined without regard to § 152(b)(1),
cept as otherwise provided in Subtitle A,
ployee)? (b)(2), and (d)(1)(B)).
gross income includes compensation for
Section 1.105–2 of the Income Tax
services, including fees, commissions,
FACTS Regulations provides that only amounts
fringe benefits, and similar items. Section
that are paid specifically to reimburse
1.61–21(a)(3) and (4) of the Income Tax
Employer sponsors a reimbursement the taxpayer for expenses incurred by the
Regulations states that a fringe benefit
plan (the Plan) that reimburses an em- taxpayer, spouse or dependents for the pre-
provided in connection with the perfor-
ployee solely for substantiated medical scribed medical care are excludable from
mance of services shall be considered to
care expenses (as defined in § 213(d)). gross income. Section 1.105–2 further
have been provided as compensation to the
The Plan provides reimbursements up to provides that payments to or on behalf
person performing such services. Thus, a
an annual maximum dollar amount for of the taxpayer’s spouse or dependents
fringe benefit may be taxable to a person
the coverage period and reimburses med- shall constitute indirect payment to the
even though that person did not actually
ical expenses only to the extent that the taxpayer. Section 1.105–2 also states that
receive the fringe benefit. If a fringe ben-
expenses have not been reimbursed from “. . . section 105(b) does not apply to
efit is furnished to someone other than the
any other plan. Under the Plan, each em- amounts which the taxpayer would be en-
service provider, such benefit is consid-
ployee’s unused reimbursement amount titled to receive irrespective of whether or
ered as furnished to the service provider
available at the end of each plan year is not he incurs expenses for medical care.”
and use by the other person is considered
carried forward for use in later plan years. Thus, if an employee has the opportunity to
use by the service provider.
The Plan reimburses the substantiated receive a payment irrespective of whether
medical care expenses of both current and any medical expenses have been incurred

2006–36 I.R.B. 353 September 5, 2006


by the employee or the employee’s spouse ical expenses incurred by a non-spouse stating that upon the death of a deceased
or dependents, the payment is not exclud- or non-dependent. Nevertheless, the rul- employee’s surviving spouse and last
able from gross income under § 105(b) ing also states that it applies to any pur- dependent, or upon the death of the em-
even if the employee (or his or her spouse ported employer-provided medical reim- ployee, if there is no surviving spouse or
or dependents) incurred medical expenses bursement arrangement that provides for dependents, any unused reimbursement
during the year. the receipt by the employee or any other amount will be paid as a reimbursement
Notice 2002–45, 2002–2 C.B. 93, de- person of cash or any other taxable or non- of substantiated medical care expenses of
scribes the tax treatment of health reim- taxable benefit other than the reimburse- a beneficiary designated by the employee,
bursement arrangements (HRAs) exclud- ment of medical care expenses of employ- this revenue ruling is effective with respect
able under § 105(b). The notice explains ees and their spouses and dependents. This to that provision for plan years beginning
that an HRA is an arrangement that is paid principle applies to amounts paid for re- after December 31, 2008.
for solely by the employer and not pur- imbursement of medical expenses to des-
suant to a salary reduction election or oth- ignated beneficiaries other than the em- DRAFTING INFORMATION
erwise under a § 125 cafeteria plan. An ployee’s spouse or dependents.
HRA reimburses the employee for medi- The Plan described in this ruling does The principal author of this revenue
cal care expenses (as defined in § 213(d)) not meet the requirements of § 105(b) and ruling is Shoshanna Tanner of the Of-
incurred by the employee or by the em- § 1.105–2. Because a beneficiary who is fice of Division Counsel/Associate Chief
ployee’s spouse or dependents, and pro- not the employee’s spouse or dependent Counsel (Tax Exempt and Government
vides reimbursements up to a maximum may receive some or all of the medical Entities). For further information re-
dollar amount with any unused portion of reimbursements under the Plan, amounts garding this revenue ruling, contact
that amount at the end of the coverage pe- paid under the Plan are not excludable un- Elizabeth Purcell at (202) 622–6080 (not
riod carried forward to subsequent cover- der § 105(b) even if those amounts are paid a toll-free call).
age periods. to reimburse the medical expenses of the
Notice 2002–45 also states that to qual- employee or the employee’s spouse or de-
ify for the exclusion from gross income un- pendents. Because the benefit is provided Section 280G.—Golden
der § 105(b), an HRA may only provide in connection with the performance of ser- Parachute Payments
benefits that reimburse expenses for med- vices by the employee, the benefit is con-
ical care as defined in § 213(d). An HRA sidered provided to the employee and must Federal short-term, mid-term, and long-term rates
are set forth for the month of September 2006. See
does not qualify for the exclusion under be included in the employee’s gross in-
Rev. Rul. 2006-44, page 361.
§ 105(b) if any person has the right to re- come. See § 1.61–21(a)(3) and (4).
ceive cash or any other taxable or non-tax-
able benefit under the arrangement other HOLDING Section 382.—Limitation
than the reimbursement of medical care
Amounts paid to an employee under the
on Net Operating Loss
expenses. If any person has such a right, Carryforwards and Certain
currently or for any future year, all pay- reimbursement plan described in this rul-
ing are not excludable from gross income Built-In Losses Following
ments to all persons made from the ar- Ownership Change
rangement in the current year are included under § 105(b) if the plan permits amounts
in gross income, even amounts paid to re- to be paid as § 213(d) medical benefits The adjusted applicable federal long-term rate is
imburse medical care expenses of the em- to a designated beneficiary (other than the set forth for the month of September 2006. See Rev.
ployee, spouse or dependents. employee’s spouse or dependents of the Rul. 2006-44, page 361.
Situation 3 of Rev. Rul. 2005–24, employee). None of the payments made
2005–1 C.B. 892, describes a plan that, from the reimbursement plan during the
after the death of an employee and the plan year to any person, including amounts Section 412.—Minimum
employee’s surviving spouse and depen- paid to reimburse the medical expenses of Funding Standards
dents, pays all or a portion of the unused an employee or the employee’s spouse or
The adjusted applicable federal short-term, mid-
reimbursement amount in cash to a bene- dependents, is excludable from the gross term, and long-term rates are set forth for the month
ficiary or beneficiaries designated by the income. of September 2006. See Rev. Rul. 2006-44, page
employee, and if no beneficiary is des- 361.
EFFECT ON OTHER DOCUMENTS
ignated, to the deceased employee’s es-
tate. Rev. Rul. 2005–24 holds that an
amount (including an amount paid to re-
Rev. Rul. 2005–24, 2005–1 C.B. 892, Section 467.—Certain
imburse medical expenses) paid from a
Rev. Rul. 2002–41, 2002–2 C.B. 75, and Payments for the Use of
Notice 2002–45, 2002–2 C.B. 93 are am- Property or Services
plan that provides for the payment of the plified.
unused reimbursement amount in cash or The adjusted applicable federal short-term, mid-
other benefits is not excludable from the EFFECTIVE DATE term, and long-term rates are set forth for the month
employee’s gross income under § 105(b). of September 2006. See Rev. Rul. 2006-44, page
Rev. Rul. 2005–24 does not specifically For reimbursement plans containing a 361.
address reimbursement of § 213(d) med- provision on or before August 14, 2006

September 5, 2006 354 2006–36 I.R.B.


Section 468.—Special SUMMARY: This document contains fi- as their contents might become material in
Rules for Mining and Solid nal and temporary regulations amending the administration of any internal revenue
Waste Reclamation and §1.671–5, a provision which provides law. Generally, tax returns and tax return
Closing Costs reporting rules for widely held fixed in- information are confidential, as required
vestment trusts (WHFITs). These reg- by 26 U.S.C. 6103.
The adjusted applicable federal short-term, mid- ulations clarify and simplify reporting
term, and long-term rates are set forth for the month Background
for trustees and middlemen of non-mort-
of September 2006. See Rev. Rul. 2006-44, page
361.
gage widely held fixed investment trusts
(NMWHFITs). The text of these final and This document contains amendments
temporary regulations also serves, in part, to 26 CFR part 1. On January 24, 2006,
Section 482.—Allocation as the text of the proposed regulations set the Internal Revenue Service (IRS) and
of Income and Deductions forth in the notice of proposed rulemaking the Treasury Department published final
Among Taxpayers (REG–125071–06) on this subject in this regulations (T.D. 9241, 2006–7 I.R.B.
issue of the Bulletin. 427) (final regulations) under §1.671–5
Federal short-term, mid-term, and long-term rates in the Federal Register (71 FR 4002)
are set forth for the month of September 2006. See providing reporting rules for WHFITs.
Rev. Rul. 2006-44, page 361. DATES: Effective Date: These regulations
are effective July 28, 2006. On February 23, 2006, in response to
Applicability Date: For dates of appli- comments received subsequent to the pub-
Section 483.—Interest on cability, see §1.671–5(m). lication of the final regulations, the IRS
Certain Deferred Payments and the Treasury Department issued No-
FOR FURTHER INFORMATION tice 2006–29, 2006–12 I.R.B. 644. Notice
The adjusted applicable federal short-term, mid-
CONTACT: Faith Colson, 202–622–3060 2006–29 informed trustees and middle-
term, and long-term rates are set forth for the month
of September 2006. See Rev. Rul. 2006-44, page (not a toll-free number). men of NMWHFITs that §1.671–5 would
361. be amended to extend the availability of
SUPPLEMENTARY INFORMATION: the qualified NMWHFIT exception (dis-
cussed in section I) beyond February 23,
Section 642.—Special Paperwork Reduction Act 2006, the cut-off date provided in the final
Rules for Credits and regulations for funding a NMWHFIT that
Deductions These final and temporary regulations satisfied the exception, and to clarify the
Federal short-term, mid-term, and long-term rates amend §1.671–5. The collection of in- application of certain provisions in the
are set forth for the month of September 2006. See formation contained in these regulations final regulations to NMWHFITs. On May
Rev. Rul. 2006-44, page 361. is in §1.671–5 and has been previously 25, 2006, the IRS and Treasury Depart-
reviewed and approved by the Office of ment issued Notice 2006–30, 2006–24
Management and Budget in accordance I.R.B. 1044, stating that the IRS and the
Section 671.—Trust with the Paperwork Reduction Act of 1995 Treasury Department expected to issue
Income, Deductions, and (44 U.S.C. 3507) under control number the additional guidance under §1.671–5
Credits Attributable to 1545–1540. Response to this collection of discussed in Notice 2006–29 in the near
Grantors and Others as information is mandatory. This informa- future but that such guidance would not
Substantial Owners tion is required to be reported to beneficial be issued prior to the expiration of the
26 CFR 1.671–5: Reporting for widely held fixed in- owners of trust interests to enable them extended cut-off date for the qualified
vestment trusts. to correctly report their share of the items NMWHFIT exception in Notice 2006–29.
of income, deduction, and credit of the Accordingly, Notice 2006–30 extended
T.D. 9279 WHFIT in which they have invested. This the cut-off date for the availability of the
information is also required to be reported qualified NMWHFIT exception in No-
DEPARTMENT OF to the IRS to enable the IRS to verify that tice 2006–29 for an additional 60 days.
THE TREASURY trustees and middlemen are accurately re- These temporary regulations extend the
Internal Revenue Service porting information to beneficial owners availability of the qualified NMWHFIT
26 CFR Part 1 of trust interests and that beneficial owners exception to the dates provided in No-
are properly reporting their ownership of tice 2006–30 and clarify the NMWHFIT
Reporting Rules for Widely a trust interest. reporting rules as described in Notice
An agency may not conduct or sponsor, 2006–29. These temporary regulations
Held Fixed Investment Trusts
and a person is not required to respond to, a also simplify the application of §1.671–5
AGENCY: Internal Revenue Service collection of information unless it displays as it applies to NMWHFIT sales and dis-
(IRS), Treasury. a valid control number assigned by the Of- positions as well as sales or redemptions
fice of Management and Budget. of trust interests in an equity trust (a trust,
ACTION: Final and Temporary regula- Books or records relating to a collection substantially all of whose income is com-
tions of information must be retained as long prised of dividends).

2006–36 I.R.B. 355 September 5, 2006


Summary and Explanation of Revisions in a manner that enables a trust interest III. Simplified Reporting of Sales and
holder to reasonably accurately report the Redemptions of Trust Interests for Equity
I. The Qualified NMWHFIT Exception items of income, deduction, and credit Trusts
of the trust on the trust interest holder’s
In general, under the final regulations, own federal income tax return. Section Section 1.671–5(c)(2)(v) requires
trustees and middlemen of NMWHFITs 1.671–5(f)(1)(i) provides that if substan- trustees and middlemen to provide in-
are required to report information regard- tially all of a NMWHFIT’s income is from formation regarding the income that is
ing market discount, bond premium, sales dividends (as defined in section 6042(b) attributable to a redeeming, selling or pur-
and dispositions of trust assets, redemp- and the regulations thereunder) or inter- chasing beneficial owner up to the date
tions, and sales of trust interests. Trustees est (as defined in section 6049(b) and of the sale or redemption of a trust inter-
and middlemen of NMWHFITs that sat- the regulations thereunder) and all trust est. Section 1.671–5(c)(2)(v)(C) provides
isfy the qualified NMWHFIT exception interests have identical value and rights, an exception to this rule for NMWHFITs
in §1.671–5(c)(2)(iv)(E) are, however, a NMWHFIT may report under the safe if substantially all their income is com-
excepted from reporting market discount harbor in §1.671–5(f). Commentators prised of dividends (equity trusts) and the
and bond premium and are permitted have expressed concern that, if a trustee NMWHFIT is required by its governing
to use the simplified reporting rules for of a NMWHFIT must sell or dispose of document to distribute income at least
sales and dispositions of trust assets in a significant number of trust assets and monthly. Commentators reported that
§1.671–5(c)(2)(iv)(B) and the simplified trust sales proceeds are included in the some equity trusts do not receive signif-
reporting rules for sales or redemptions determination of whether “substantially icant dividend income and that it would
of trust interests in §1.671–5(c)(2)(v)(C). all” of a trust’s income is from inter- not be feasible for these trusts to make
As provided in Notice 2006–29 and sub- est or dividends, the NMWHFIT will monthly distributions. These commenta-
sequently modified in Notice 2006–30, be ineligible for the safe harbor report- tors suggested that there be a de minimis
§1.671–5T(c)(2)(iv)(E) of these final and ing rules in §1.671–5(f). To address this exception to the requirement that the trust
temporary regulations provides that the concern, §1.671–5T(f)(1)(i) of the final make monthly distributions.
qualified NMWHFIT exception is satis- and temporary regulations provides that Accordingly, §1.671–5T(c)(2)(v)(C)
fied if the calendar year for which the trust sales proceeds are to be ignored in provides that a NMWHFIT will be consid-
trustee is reporting begins before January determining whether a NMWHFIT is eli- ered to have satisfied the requirement that
1, 2011, and the NMWHFIT meets any gible to report under the NMWHFIT safe it make monthly distributions notwith-
of the following requirements: (1) the harbor in §1.671–5(f). Accordingly, a standing the fact that, although the gov-
NMWHFIT has a start-up date as defined NMWHFIT may be eligible to report un- erning document requires monthly dis-
in §1.671–5(b)(19) before February 23, der the NMWHFIT safe harbor even if it tributions, the governing document of
2006; (2) the registration statement for the has significant trust sales proceeds from the NMWHFIT also permits the trustee
NMWHFIT becomes effective under the the sale or disposition of trust assets. to forego making its normally required
Securities Act of 1933 (15 U.S.C. 77a) Commentators also noted that monthly distribution if the cash held for
(Securities Act of 1933) and trust interests §1.671–5(f)(1)(i)(1) refers to section distribution is less than 0.1% of the net as-
are offered for sale to the public before 6049(b) and the definition of interest set value of the trust (aggregate fair market
February 23, 2006; or (3) the registration in section 6049(b) does not include inter- value of the trust’s assets less the trust’s
statement of the NMWHFIT becomes ef- est that is exempt from tax under section liabilities) as of the date that the amount
fective under the Securities Act of 1933 103 of the Internal Revenue Code. These of the monthly distribution is required
and trust interests are offered for sale to commentators were concerned that if a to be determined. Commentators sug-
the public on or after February 23 and NMWHFIT’s income is from tax-exempt gested various other modifications to the
before July 31, 2006, and the NMWHFIT interest, the NMWHFIT would not be §1.675(c)(2)(v)(C) exception; however,
is fully funded before October 1, 2006. eligible to report under the NMWHFIT the IRS and Treasury Department believe
The IRS and the Treasury Department safe harbor reporting rules. To address that the modification adopted above ad-
have also received comments suggesting this concern, §1.671–5T(f)(1)(i)(A)(1) of dresses the majority of the commentators’
that the January 1, 2011 cut-off date be the final and temporary regulations does concerns while maintaining the integrity
extended or eliminated. The IRS and the not refer to sections 6042(b) and 6049(b) of the reporting information to be provided
Treasury Department are not adopting that and the regulations thereunder. Accord- under §1.671–5.
suggestion. ingly, NMWHFITs whose income is from Similar to the “substantially all” test
tax-exempt interest, may be eligible to for eligibility to use the NMWHFIT safe
II. Availability of the NMWHFIT Safe report under the NMWHFIT safe harbor harbor discussed in section II above,
Harbor reporting rules. commentators have expressed concern
that if a NMWHFIT has significant
Section 1.671–5(f) provides a reporting sales and dispositions and trust sales
safe harbor for NMWHFITs. If trustees proceeds are included for the purpose
and middlemen report consistently with of determining if “substantially all” of
the safe harbor, trustees and middlemen the NMWHFIT’s income is from div-
are deemed to have provided information idends, then the NMWHFIT will not

September 5, 2006 356 2006–36 I.R.B.


qualify for this exception even though the Commentators indicated that, under the 2. Pro-rata sale exception
NMWHFIT only holds assets that produce final regulations, a significant number of
dividend income. To address this con- NMWHFITs do not qualify for the re- Commentators also requested that pro-
cern, §1.671–5T(c)(2)(v)(C) of the final duced reporting in §1.671–5(c)(2)(iv)(B) rata sales of trust assets be excepted from
and temporary regulations provides that and that as a result, many investors will reporting. The commentators contended
proceeds received by a NMWHFIT from be provided with more information than that trustees generally sell a redeeming
the sale or disposition of trust assets are to they can accurately process and trustees trust interest holder’s pro-rata share of the
be ignored for the purpose of determining and middlemen will be subject to the trust assets to effect a redemption so that
whether an equity trust is eligible to report significant reporting costs of supplying there is no change in the investments of
under that paragraph. this information. These commentators the non-redeeming trust interest holders
requested that the final regulations be and therefore little or no compliance bene-
IV. Simplified Reporting for Certain amended to provide for reduced reporting fit of reporting to the non-redeeming trust
NMWHFIT Sales and Dispositions for other situations in which it will have interest holders. Accordingly, the com-
little or no compliance impact. In response mentators requested that pro-rata sales of
In addition to the qualified NMWHFIT to these comments, the IRS and the Trea- trust assets to effect redemptions be ex-
exception, the final regulations pro- sury Department provide the following cepted from the reporting requirements of
vide that the trustees of NMWHFITs modifications to the sales and disposition §1.671–5(c)(2)(iv).
that meet the general de minimis test reporting rules for NMWHFITs in the final In response to this request,
in §1.671–5(c)(2)(iv)(D)(1) are only re- regulations: §1.671–5T(c)(2)(iv)(G) of the final
quired, under §1.671–5(c)(2)(iv)(B), to and temporary regulations provides that
provide information regarding the amount 1. NMWHFIT final calendar year a pro-rata sale of a trust asset to effect a
of trust sales proceeds distributed to a trust exception redemption is not required to be reported
interest holder. The reason for the de min- under §1.671–5. A pro-rata sale of a
imis exception, as stated in the preamble Commentators requested that the IRS trust asset occurs when (1) a trust interest
to the final regulations, is that the IRS and Treasury Department extend the sim- holder tenders one or more trust interests
and the Treasury Department believe that plified reporting in §1.671–5(c)(2)(iv)(B) for redemption; (2) the trustee sells the
if a NMWHFIT only sells or disposes of to the final calendar year of a NMWHFIT pro-rata share of a trust asset that is
assets infrequently, although there will be regardless of whether the de minimis test deemed to be owned by the trust interest
some deferral of gains and losses if sales or the qualified NMWHFIT exception is holder as a result of the trust interest
and dispositions are not fully reported, satisfied. The commentators reported that holder’s ownership of the trust interest
the deferral is acceptable, in light of the for a significant number of NMWHFITs, or interests tendered for redemption; (3)
burden of fully, accurately reporting the 95% of a trustee’s sales of assets to ef- the trustee engages in the sale solely to
sales and dispositions. fect redemptions occur during the last obtain cash that is immediately distributed
Commentators reported that trustees of three months of the NMWHFIT. The to the redeeming trust interest holder as
NMWHFITs frequently have to sell trust commentators asserted that there would a result of the redemption; and (4) the
assets to obtain cash to effect redemp- not be significant deferral of gains or redemption is reported as required under
tions. These commentators indicated that losses on sales or dispositions of assets by §1.671–5(c)(2)(v).
because of certain securities laws, trustees NMWHFITs in their final calendar year if Commentators strongly urged the IRS
of many NMWHFITs must redeem trust information regarding the sales and dis- and the Treasury Department to ex-
interests every time an interest is tendered positions of trust assets during these final cept NMWHFITs with a duration of no
for redemption. Trustees have no control months were not communicated to non-re- more than 15 months and that span no
over the number of trust interests tendered deeming trust interest holders because more than two calendar years (short-term
for redemption and as a result, have no the non-redeeming trust interest holders NMWHFITs) from all reporting of sales
control over the number of corresponding would be cashing out their investment and dispositions of trust assets. The IRS
sales of trust assets to obtain cash for these during that calendar year. Accordingly, and the Treasury Department believe
redemptions. Because of these sales to ef- §1.671–5T(c)(2)(iv)(F) of the final and that the NMWHFIT final year exception,
fect redemptions, many NMWHFITs will temporary regulations provide that all discussed in section IV(1) above, ade-
also not be able to meet the general de min- NMWHFITs qualify for the simplified quately provides reporting relief for most
imis test in §1.671–5(c)(2)(iv)(D)(1). If a reporting in §1.671–5T(c)(2)(iv)(B) in the short-term NMWHFITs for the sales and
NMWHFIT does not meet the general de final calendar year of the NMWHFIT, re- dispositions of trust assets to effect re-
minimis test, trustees and middlemen must gardless of whether the NMWHFIT has demptions that a trustee must make during
provide information regarding the amount otherwise satisfied the de minimis test, the final three months of the NMWHFIT.
of trust sales proceeds that are attributable provided that a trust interest holder cannot Further, §1.671–5T(b)(21) provides an
to a trust interest holder, and information roll-over its investment in the NMWHFIT amended definition of trust sales proceeds
that will enable a trust interest holder to to another WHFIT. excluding the gross proceeds paid to a
allocate with reasonable accuracy a por- NMWHFIT for a pro-rata sale of a trust
tion of its basis and a portion of its market asset to effect a redemption from the def-
discount or premium to the assets sold. inition of trust sales proceeds. The effect

2006–36 I.R.B. 357 September 5, 2006


of this change in the definition of trust and received comments regarding the ap- *****
sales proceeds is to exclude the proceeds plication of §1.671–5 from trustees and (8) [Reserved.] For further guidance,
from a pro-rata sale of a trust asset to middlemen of NMWHFITs. Accordingly, see §1.671–5T(b)(8).
effect a redemption when determining good cause is found for dispensing with *****
whether a trust has met the de minimis notice and public comment pursuant to (21) [Reserved.] For further guidance,
test. Since only the proceeds from non 5 U.S.C. 553(b)(B)(3). The final and tem- see §1.671–5T(b)(21).
pro-rata sales of trust assets are consid- porary regulations are applicable more
ered for purposes of determining whether than 30 days after they are published in *****
a NMWHFIT meets the de minimis test, the Federal Register and accordingly, (c) * * *
more trusts will meet the de minimis test no exemption is required under 5 U.S.C. (2) * * *
and qualify for the reduced reporting 553(d). For the applicability of the Reg- (iv) [Reserved.] For further guidance,
in §1.671–5T(c)(2)(iv)(B). The IRS and ulatory Flexibility Act (5 U.S.C. chapter see §1.671–5T(c)(2)(iv).
the Treasury Department believe that the 6) refer to the Special Analysis section (v) * * *
combined application of the pro-rata sales of the preamble to the cross-referenced (C) [Reserved.] For further guidance,
exception, the revised definition of trust notice of proposed rulemaking published see §1.671–5T(c)(2)(v)(C).
sales proceeds, and the de minimis test in this issue of the Bulletin. Pursuant sec- (vi) [Reserved.] For further guidance,
adequately address the commentators’ tion 7805(f) of the Code, these final and see §1.671–5T(c)(2)(vi).
concerns regarding sales and dispositions temporary regulations will be submitted to (vii) [Reserved.] For further guidance,
of trust assets by trustees of short-term the Chief Counsel for Advocacy of Small see §1.671–5T(c)(2)(vii).
NMWHFITs during the first year of the Business Administration for comment on *****
trust. its impact on small business. (f) * * *
Commentators also suggested that there (1) * * *
be a reporting exception for when a trustee Drafting Information (i) * * *
engages in a non pro-rata sale of a trust (A) [Reserved.] For further guidance,
asset because the redeeming trust inter- The principal author of these regula-
see §1.671–5T(f)(1)(i)(A).
est holder is only deemed to own a frac- tions is Faith Colson, Office of Associate
Chief Counsel (Passthroughs & Special In- *****
tional share of a trust asset or because
dustries). However, other personnel from (viii) * * *
market conditions or restrictions prevent a
the IRS and the Treasury Department par- (A) [Reserved.] For further guidance,
pro-rata sale of a trust asset. The IRS and
ticipated in their development. see §1.671–5T(f)(1)(viii).
the Treasury Department believe that this
Par. 3. Section 1.671–5T is added to
issue is also adequately addressed by the ***** read as follows:
combined application of the pro-rata sale
exception, the revised definition of trust Amendments to the Regulations §1.671–5T Reporting for widely held fixed
sales proceeds and the de minimis test. investment trusts (temporary).
Accordingly, 26 CFR part 1 is amended
Effective Date as follows: (a) through (b)(4) [Reserved.] For fur-
ther guidance, see §1.671–5(a) through
These amendments are effective July PART 1—INCOME TAXES
(b)(4).
28, 2006. The amendments are applicable
Paragraph 1. The authority citation for (5) The cash held for distribution is the
to the reporting required under §1.671–5
part 1 continues to read, in part, as follows: cash held by the WHFIT (other than trust
as of January 1, 2007 (see §1.671–5(m))
Authority: 26 U.S.C. 7805 * * * sales proceeds and proceeds from sales de-
and will be applied as though these amend-
Par. 2. Section 1.671–5 is amended by: scribed in paragraph (c)(2)(iv)(G) of this
ments were included in T.D. 9241.
1. Revising paragraphs (b)(5), (b)(8), section) less reasonably required reserve
Special Analysis and (b)(21). funds as of the date that the amount of a
2. Revising paragraphs (c)(2)(iv), distribution is required to be determined
These regulations are necessary to (v)(C), (vi), and (vii). under the WHFIT’s governing document.
provide trustees and middlemen of 3. Revising paragraphs (f)(1)(i)(A) and (b)(6) and (b)(7) [Reserved.] For fur-
NMWHFITs with immediate guidance (viii)(A). ther guidance, see §1.671–5(b)(6) and
on the application of the final regulations The revisions read as follows: (b)(7).
so they can take measures necessary to (8) An in-kind redemption is a redemp-
be able to comply with the final regula- §1.671–5 Reporting for widely held fixed tion in which a beneficial owner receives
tions on their January 1, 2007, effective investment trusts. a pro-rata share of each of the assets of
date. Additionally, the IRS and the Trea- the WHFIT that the beneficial owner is
sury Department have published Notice ***** deemed to own under section 671. For
2006–29 and Notice 2006–30 indicat- (b) * * * example, for purposes of this paragraph
ing that §1.671–5 would be amended as (5) [Reserved.] For further guidance, (b)(8), if beneficial owner A owns a one
provided in these temporary regulations see §1.671–5T(b)(5). percent interest in a WHFIT that holds 100

September 5, 2006 358 2006–36 I.R.B.


shares of X corporation stock, so that A is beneficial owner as a result of each sale or WHMT de minimis test in this paragraph
considered to own a one percent interest in disposition; and (c)(2)(iv)(D)(2) if trust sales proceeds for
each of the 100 shares, A’s pro-rata share (3) Information that enables a beneficial the calendar year are not more than five
of the X corporation stock for this purpose owner to allocate, with reasonable accu- percent of the aggregate outstanding prin-
is one share of X corporation stock. racy, a portion of the owner’s basis in its cipal balance of the WHMT (as defined in
(b)(9) through (b)(20) [Reserved.] trust interest to each sale or disposition. §1.671–5(g)(1)(iii)(D)) as of the later of
For further guidance, see §1.671–5(b)(9) (B) Exception for certain NMWHFITs. January 1 of that year or the trust’s start-up
through (b)(20). If a NMWHFIT meets either the gen- date. For purposes of applying the spe-
(21) Trust sales proceeds equal the eral WHFIT de minimis test of paragraph cial WHMT de minimis test in this para-
amount paid to a WHFIT for the sale or (c)(2)(iv)(D)(1) of this section for a cal- graph (c)(2)(iv)(D)(2), amounts that result
disposition of an asset held by the WHFIT, endar year, the qualified NMWHFIT ex- from the complete or partial payment of
including principal payments received by ception of paragraph (c)(2)(iv)(E) of this the outstanding principal balance of the
the WHFIT that completely retire a debt section, or the NMWHFIT final calendar mortgages held by the trust are not in-
instrument (other than a final scheduled year exception of paragraph (c)(2)(iv)(F) cluded in the amount of trust sales pro-
principal payment) and pro-rata partial of this section, the trustee is not required ceeds.
principal prepayments described under to report under paragraph (c)(2)(iv)(A) (3) Effect of clean-up call. If a WHFIT
§1.1275–2(f)(2). Trust sales proceeds do of this section. Instead, the trustee must fails to meet either de minimis test de-
not include amounts paid for any interest report sufficient information to enable a scribed in this paragraph (c)(2)(iv)(D)
income that would be required to be re- requesting person to determine the amount solely as the result of a clean-up call, as
ported under §1.6045–1(d)(3). Trust sales of trust sales proceeds distributed to a defined in §1.671–5(b)(6), the WHFIT
proceeds also do not include amounts paid beneficial owner during the calendar year will be treated as having met the de min-
to a NMWHFIT as the result of a pro-rata with respect to each sale or disposition of imis test.
sales of trust assets to effect a redemption a trust asset. The trustee also must pro- (E) Qualified NMWHFIT exception.
described in paragraph (c)(2)(iv)(G) of vide requesting persons with a statement The qualified NMWHFIT exception is
this section. that the NMWHFIT is permitted to report satisfied if the calendar year for which the
(b)(22) through (c)(2)(iii) [Reserved.] under this paragraph (c)(2)(iv)(B). trustee is reporting begins before January
For further guidance, see §1.671–5(b)(22) (C) Exception for certain WHMTs. If 1, 2011 and —
through (c)(2)(iii). a WHMT meets either of the de minimis (1) The NMWHFIT has a start-up date
(iv) Asset sales and dispositions. The tests of paragraph (c)(2)(iv)(D) of this (as defined in §1.671–5(b)(19)) before
trustee must report information regarding section for the calendar year, the trustee February 23, 2006;
sales and dispositions of WHFIT assets is not required to report under paragraph (2) The registration statement of the
as required in this paragraph (c)(2)(iv). (c)(2)(iv)(A) of this section. Instead, the NMWHFIT becomes effective under
For purposes of this paragraph (c)(2)(iv), trustee must report information to enable a the Securities Act of 1933, as amended
a payment (other than a final scheduled requesting person to determine the amount (15 U.S.C. 77a, et. seq.) and trust interests
payment) that completely retires a debt in- of trust sales proceeds attributable to a are offered for sale to the public before
strument (including a mortgage held by a beneficial owner as a result of the sale or February 23, 2006; or
WHMT) or a pro-rata prepayment on a disposition. The trustee also must provide (3) The registration statement of the
debt instrument (see §1.1275–2(f)(2)) held requesting persons with a statement that NMWHFIT become effective under the
by a WHFIT must be reported as a full or the WHMT is permitted to report under Securities Act of 1933 and trust interests
partial sale or disposition of the debt in- this paragraph (c)(2)(iv)(C). are offered for sale to the public on or af-
strument. A pro-rata sale of a trust asset (D) De minimis tests—(1) General ter February 23, 2006, and before July 31,
to effect a redemption, as defined in para- WHFIT de minimis test. The general 2006, and the NMWHFIT is fully funded
graph (c)(2)(iv)(G) of this section, is not WHFIT de minimis test applies to a before October 1, 2006.
reported as a sale or disposition under this NMWHFIT or to a WHMT that does (F) NMWHFIT final calendar year ex-
paragraph (c)(2)(iv). not meet the requirements for the spe- ception. The NMWHFIT final calendar
(A) General rule. Except as provided cial WHMT de minimis test in paragraph year exception is satisfied if—
in paragraph (c)(2)(iv)(B) of this sec- (c)(2)(iv)(D)(2) of this section. The gen- (1) The NMWHFIT terminates on or
tion (regarding the exception for certain eral WHFIT de minimis test is satisfied before December 31 of the year for which
NMWHFITs) or paragraph (c)(2)(iv)(C) if trust sales proceeds for the calendar the trustee is reporting;
(regarding the exception for certain year are not more than five percent of the (2) A trust interest holder may not roll-
WHMTs) of this section, the trustee must net asset value of the trust (aggregate fair over its investment in the NMWHFIT to
report with respect to each sale or disposi- market value of the trust’s assets less the another WHFIT; and
tion of a WHFIT asset— trust’s liabilities) as of the later of January (3) The trustee makes reasonable efforts
(1) The date of each sale or disposition; 1 of that year or the trust’s start-up date to engage in pro-rata sales of trust assets to
(2) Information that enables a request- (as defined in §1.671–5(b)(19)). effect redemptions.
ing person to determine the amount of trust (2) Special WHMT de minimis test. A (G) Pro-rata sales of trust assets to ef-
sales proceeds (as defined in paragraph WHMT that meets the asset requirement of fect a redemption—(1) Definition. A pro-
(b)(21) of this section) attributable to a §1.671–5(g)(1)(ii)(E) satisfies the special rata sale of a trust asset to effect a redemp-

2006–36 I.R.B. 359 September 5, 2006


tion is not required to be reported under paragraph (c)(2)(v)(C)(2) of this section qualified NMWHFIT exception of para-
this paragraph (c)(2)(iv). A pro-rata sale is not required to report the informa- graph (c)(2)(iv)(E) of this section, or the
of a trust asset to effect a redemption oc- tion described in §1.671–5(c)(2)(v)(A) NMWHFIT final calendar year exception
curs when a— (regarding redemptions) or (c)(2)(v)(B) of paragraph (c)(2)(iv)(F) of this section,
(i) A trust interest holder tenders one or (regarding sales). However, the trustee the trustee of such NMWHFIT is not re-
more trust interests for redemption; must report to requesting persons, for each quired to report information regarding
(ii) The trustee sells the pro-rata share date on which the amount of redemption bond premium.
of the trust asset that is deemed to be proceeds to be paid for the redemption (vii) Information regarding market
owned by the trust interest holder un- of a trust interest is determined, informa- discount. The trustee generally must
der section 671 as a result of the trust tion that will enable requesting persons report information that enables a benefi-
interest holder’s ownership of the trust to determine the redemption proceeds per cial owner to determine, in any manner
interest or interests tendered for redemp- trust interest on that date. The trustee also reasonably consistent with section 1276
tion (See paragraph (b)(8) of this section must provide requesting persons with a (including section 1276(a)(3)), the amount
for a description of how pro-rata is to statement that this paragraph applies to the of market discount that has accrued dur-
be applied for purposes of this paragraph NMWHFIT. ing the calendar year. However, if a
(c)(2)(iv)(G)) ; (2) NMWHFITs that qualify for the NMWHFIT meets the general de min-
(iii) The trustee engages in the sale exception. This paragraph (c)(2)(v)(C) imis test of paragraph (c)(2)(iv)(D)(1) of
solely to obtain cash that is immediately applies to a NMWHFIT if substantially this section, the qualified NMWHFIT ex-
distributed to the redeeming trust interest all the income of the NMWHFIT con- ception of paragraph (c)(2)(iv)(E) of this
holder as a result of the redemption; and sists of dividends (as defined in section section, NMWHFIT final calendar year
(iv) The redemption is reported as re- 6042(b) and the regulations thereunder) exception of paragraph (c)(2)(iv)(F) of this
quired under §1.671–5(c)(2)(v) by the and the NMWHFIT satisfies either para- section, the trustee of such NMWHFIT is
trustee. graph (c)(2)(v)(C)(2)(i) or (ii) of this not required to provide information re-
(2) Example. The following example section. Trust sales proceeds and gross garding market discount.
illustrates the definition of a pro-rata sale proceeds from a sale described in para- (c)(3) through (f)(1)(i) [Reserved.]
of a trust asset to effect a redemption: graph (c)(2)(iv)(G) of this section are For further guidance, see §1.671–5(c)(3)
Example: Trust has two hundred trust interests ignored for the purpose of determining if through (e)(4).
and all interests have equal value and rights. Trust substantially all of a NMWHFITs income (f) Safe harbor for providing informa-
owns two hundred shares of stock in corporation X,
two hundred shares of stock in corporation Y, and one
consists of dividends. tion for certain NMWHFITs—(1) Safe
hundred shares of stock in corporation Z. C owns one (i) The trustee is required by the gov- harbor for trustee reporting of NMWHFIT
trust interest and tenders it for redemption. To ob- erning document of the NMWHFIT to information. The trustee of a NMWHFIT
tain cash for the redemption, the trustee of Trust sells determine and distribute all cash held that meets the requirements of paragraph
one share of each of the X and Y stock and one share for distribution (as defined in paragraph (f)(1)(i) of this section is deemed to satisfy
of Z stock. Trustee immediately distributes the pro-
ceeds from the sale of the X and the Y stock, as well
(b)(5) of this section) no less frequently paragraph (c)(1)(i) of this section, if the
as 50% of the proceeds from the sale of the Z stock than monthly. A NMWHFIT will be con- trustee calculates and provides WHFIT
to C as redemption proceeds. Trustee will report the sidered to have satisfied this paragraph information in the manner described in
redemption under §1.671–5(c)(2)(v). The sale of the (c)(2)(v)(C)(2)(i) notwithstanding that the this paragraph (f) and provides a statement
share of X stock and the sale of the share of Y stock governing document of the NMWHFIT to a requesting person giving notice that
are each a pro-rata sale of a trust asset to effect a
redemption and are not required to be reported un-
permits the trustee to forego making a information has been calculated in accor-
der this paragraph (c)(2)(iv)(G). The proceeds from required monthly or more frequent distri- dance with this paragraph (f)(1).
the sale of the X stock and the Y stock are not trust bution, if the cash held for distribution is (i) In general—(A) Eligibility to report
sales proceeds under paragraph (b)(21) of this section less than 0.1% of the aggregate net asset under this safe harbor. Only NMWHFITs
and are not included for the purpose of determining value of the trust as of the date specified that meet the requirements set forth in
whether Trust meets the de minimis test. The sale of
the Z stock, because it was not a sale of the pro-rata
in the governing document for calculating paragraphs (f)(1)(i)(A)(1) and (2) of this
share of the trust asset that is treated as owned by C the amount of the monthly distribution. section may report under this safe har-
is not a pro-rata sale of a trust asset to effect a re- (ii) The qualified NMWHFIT exception bor. For purposes of determining whether
demption and is required to be reported as provided of paragraph (c)(2)(iv)(E) of this section is paragraph (f)(1)(i)(A)(1) is met, trust sales
under paragraph (c)(2)(iv)(A) or (B) of this section, satisfied. proceeds and gross proceeds from sales
whichever is applicable. The proceeds from the sale
of the Z stock are trust sales proceeds under paragraph
(vi) Information regarding bond pre- described in paragraph (c)(2)(iv)(G) of
(b)(21) of this section and included for the purpose of mium. The trustee generally must re- this section are ignored.
determining whether Trust meets the de minimis test port information that enables a beneficial (1) Substantially all of the
in paragraph (c)(2)(iv)(D)(1) of this section. owner to determine, in any manner that is NMWHFIT’s income is from divi-
(c)(2)(v)(A) and (B) [Re- reasonably consistent with section 171, the dends or interest; and
served.] For further guidance, see amount of the beneficial owner’s amor- (2) All trust interests have identical
§1.671–5(c)(2)(v)(A) and (B). tizable bond premium, if any, for each value and rights.
(C) Exception for certain NMWHFITs calendar year. However, if a NMWHFIT (f)(1)(i)(B) through (f)(vii) [Re-
with dividend income—(1) In general. meets the general de minimis test of para- served.] For further guidance, see
The trustee of a NMWHFIT described in graph (c)(2)(iv)(D)(1) of this section, the §1.671–5(f)(1)(i)(B) through (f)(vii).

September 5, 2006 360 2006–36 I.R.B.


(viii) Reporting market discount in- (Filed by the Office of the Federal Register on July 28, 2006, sections 382, 642, 1274, 1288, and other
4:15 p.m., and published in the issue of the Federal Register
formation under the safe harbor—(A) In for August 3, 2006, 71 F.R. 43968)
sections of the Code, tables set forth the
general. If the trustee of a NMWHFIT rates for September 2006.
is required to provide information re-
garding market discount under paragraph Section 807.—Rules for Rev. Rul. 2006–44
(c)(2)(vii) of this section, the trustee must Certain Reserves This revenue ruling provides various
provide the information required under
§1.671–5(f)(1)(iv)(A)(1)(iii) of this sec- The adjusted applicable federal short-term, mid- prescribed rates for federal income tax
tion. If the trustee is not required to term, and long-term rates are set forth for the month purposes for September 2006 (the current
of September 2006. See Rev. Rul. 2006-44, page month). Table 1 contains the short-term,
provide market discount information un-
361. mid-term, and long-term applicable fed-
der paragraph (c)(2)(vii) of this section
(because paragraph (c)(2)(iv) of this sec- eral rates (AFR) for the current month
tion applies to the NMWHFIT), the trustee Section 846.—Discounted for purposes of section 1274(d) of the
is not required under this paragraph (f) to Unpaid Losses Defined Internal Revenue Code. Table 2 contains
provide any information regarding market the short-term, mid-term, and long-term
The adjusted applicable federal short-term, mid- adjusted applicable federal rates (adjusted
discount. term, and long-term rates are set forth for the month
(f)(1)(viii)(B) through (m) [Re- AFR) for the current month for purposes
of September 2006. See Rev. Rul. 2006-44, page
served.] For further guidance, see of section 1288(b). Table 3 sets forth the
361.
§1.671–5(f)(1)(viii)(B) through (m). adjusted federal long-term rate and the
long-term tax-exempt rate described in
Mark E. Matthews, Section 1274.—Determi- section 382(f). Table 4 contains the ap-
Deputy Commissioner for nation of Issue Price in the propriate percentages for determining the
Services and Enforcement. Case of Certain Debt Instru- low-income housing credit described in
ments Issued for Property section 42(b)(2) for buildings placed in
Approved July 28, 2006. service during the current month. Finally,
(Also Sections 42, 280G, 382, 412, 467, 468, 482,
483, 642, 807, 846, 1288, 7520, 7872.) Table 5 contains the federal rate for deter-
Eric Solomon,
mining the present value of an annuity, an
Acting Deputy Assistant
Federal rates; adjusted federal rates; interest for life or for a term of years, or
Secretary (Tax Policy).
adjusted federal long-term rate and the a remainder or a reversionary interest for
long-term exempt rate. For purposes of purposes of section 7520.

REV. RUL. 2006–44 TABLE 1


Applicable Federal Rates (AFR) for September 2006
Period for Compounding
Annual Semiannual Quarterly Monthly
Short-term
AFR 5.13% 5.07% 5.04% 5.02%
110% AFR 5.66% 5.58% 5.54% 5.52%
120% AFR 6.17% 6.08% 6.03% 6.00%
130% AFR 6.70% 6.59% 6.54% 6.50%

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

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

2006–36 I.R.B. 361 September 5, 2006


REV. RUL. 2006–44 TABLE 2
Adjusted AFR for September 2006
Period for Compounding
Annual Semiannual Quarterly Monthly
Short-term adjusted 3.65% 3.62% 3.60% 3.59%
AFR
Mid-term adjusted AFR 3.83% 3.79% 3.77% 3.76%
Long-term adjusted 4.41% 4.36% 4.34% 4.32%
AFR

REV. RUL. 2006–44 TABLE 3


Rates Under Section 382 for September 2006
Adjusted federal long-term rate for the current month 4.41%
Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted
federal long-term rates for the current month and the prior two months.) 4.52%

REV. RUL. 2006–44 TABLE 4


Appropriate Percentages Under Section 42(b)(2) for September 2006
Appropriate percentage for the 70% present value low-income housing credit 8.19%
Appropriate percentage for the 30% present value low-income housing credit 3.51%

REV. RUL. 2006–44 TABLE 5


Rate Under Section 7520 for September 2006
Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,
or a remainder or reversionary interest 6.0%

Section 7520.—Valuation Section 7872.—Treatment


Tables of Loans With Below-Market
Section 1288.—Treatment Interest Rates
of Original Issue Discount The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
on Tax-Exempt Obligations of September 2006. See Rev. Rul. 2006-44, page
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
The adjusted applicable federal short-term, mid- 361. of September 2006. See Rev. Rul. 2006-44, page
term, and long-term rates are set forth for the month 361.
of September 2006. See Rev. Rul. 2006-44, page
361.

September 5, 2006 362 2006–36 I.R.B.


Part III. Administrative, Procedural, and Miscellaneous
Information Reporting for addition, institutions must report the ag- (3) The amount of payments received
Qualified Tuition and Related gregate amount of scholarships or grants (Box 1), or the amount billed (Box 2),
Expenses for the payment of a student’s costs of at- for qualified expenses during the calendar
tendance that the institution administered year;
Notice 2006–72 and processed during the calendar year. (4) An indication whether an institution
Institutions must separately report reduc- has changed its method of reporting (Box
This notice contains questions and an- tions made during the calendar year to the 3);
swers that provide guidance on the infor- amount of scholarships or grants that the (5) The amount of any reimbursements
mation reporting requirements for quali- institution reported for a prior calendar or refunds of qualified expenses made dur-
fied tuition and related expenses under sec- year. ing the calendar year that relate to pay-
tion 6050S of the Internal Revenue Code On December 19, 2002, the Treasury ments received for qualified expenses that
(Code). Department and the Service issued final the institution reported for a prior calen-
regulations under section 6050S describ- dar year, or the amount of any reductions
BACKGROUND ing the information reporting requirements in charges made during the calendar year
for institutions. See T.D. 9029, 2003–1 that relate to amounts billed for qualified
The Taxpayer Relief Act of 1997 (Pub- C.B. 403 [67 FR 77678] (Dec. 19, 2002). expenses that the institution reported for a
lic Law 105–34 (111 Stat. 788)) added sec- The final regulations are applicable for in- prior calendar year (Box 4);
tion 6050S to the Code. In general, section formation returns required to be filed with (6) The amount of any scholarships or
6050S requires any eligible educational the Service, and information statements re- grants that the institution administered and
institution (institution) to file information quired to be furnished to students, after De- processed during the calendar year (Box
returns and to furnish information state- cember 31, 2003. For prior years, institu- 5);
ments to assist taxpayers and the Service tions were not required to include dollar (7) The amount of any reductions to
in determining the amount of qualified amounts relating to qualified expenses or scholarships or grants that the institution
tuition and related expenses (qualified ex- scholarships and grants on information re- reported for a prior calendar year (Box 6);
penses) for which an education tax credit turns and information statements. (8) An indication whether any amounts
is allowable under section 25A (as well as Section 1.6050S–1(b)(2)(iii) of the billed, or payments received, for qualified
other tax benefits for higher education ex- Income Tax Regulations (regulations) expenses reported for the calendar year re-
penses). Congress amended section 6050S provides that the amount of payments late to an academic period that begins dur-
in the Internal Revenue Service Restruc- received for qualified expenses is deter- ing the first three months of the following
turing and Reform Act of 1998 (Public mined by netting the amount of payments calendar year (Box 7);
Law 105–206 (112 Stat. 685)) and Public received for qualified expenses during (9) An indication whether the student
Law 107–131 (115 Stat. 2410) (simplifi- the calendar year against any reimburse- was enrolled at least half-time for at least
cation of reporting requirements relating ments or refunds of qualified expenses one academic period that began during the
to higher education tuition and related made during the calendar year that re- calendar year (Box 8); and
expenses). As amended for calendar years late to payments received for qualified (10) An indication whether the student
beginning after December 31, 2002, sec- expenses during the same calendar year. was enrolled in a graduate-level degree
tion 6050S requires institutions to report Section 1.6050S–1(b)(3)(iii) provides that program during the calendar year (Box 9).
either the aggregate amount of payments the amount billed for qualified expenses For rules on when a student may
received, or the aggregate amount billed, is determined by netting the amount billed claim an education tax credit, see sec-
for qualified tuition and related expenses for qualified expenses during the calendar tion 1.25A–5(e).
(qualified expenses) during the calendar year against any reductions in charges for
year with respect to each individual en- qualified expenses made during the cal- DISCUSSION
rolled (a student) for any academic period. endar year that relate to amounts billed
See Rev. Proc. 2005–50, 2005–32 I.R.B. for qualified expenses during the same Q–1. Must an institution report
272 (consent to change method of report- calendar year. amounts billed, or payments received,
ing payments received or amounts billed). Institutions are required to report the for a student who is not enrolled for an
Institutions must separately report adjust- following information on Form 1098–T, academic period during the calendar year
ments (i.e., refunds or reimbursements “Tuition Statement,” for calendar years when the institution bills the student, or
of payments if an institution elects to re- 2006 and after: receives payment, for qualified expenses,
port payments received, or reductions in (1) The name, address, and taxpayer if the student will be enrolled for the first
charges if an institution elects to report identification number (TIN) of the institu- time for an academic period during the
amounts billed) made during the calendar tion; following calendar year?
year with respect to a student that relate (2) The name, address, and TIN of the A–1. No. Section 6050S(b)(2)(A) of
to payments received, or amounts billed, student; the Code provides that institutions shall
for qualified expenses that the institu- report only for students who are enrolled
tion reported for a prior calendar year. In for an academic period beginning during

2006–36 I.R.B. 363 September 5, 2006


the calendar year (or enrolled for an aca- dent enrolled for an academic period in a Q–7. The regulations provide an ex-
demic period in a prior calendar year) and prior year (or enrolled for an academic pe- ception to reporting if a student’s qualified
for whom a transaction which is required riod beginning during the calendar year) expenses are covered by a “formal billing
to be reported is made during the calen- for whom an adjustment as described in arrangement.” What is a formal billing ar-
dar year. This rule applies whether the sections 1.6050S–1(b)(2)(ii)(F) or (G) or rangement, and who may be a payor under
institution elects to report amounts billed 1.6050S–1(b)(3)(ii)(F) or (G) is made dur- a formal billing arrangement?
(see section 1.6050S–1(b)(3) of the regula- ing the calendar year. Accordingly, for A–7. Section 1.6050S–1(a)(2)(iv)(B)
tions) or elects to report payments received calendar year 2006, Institution X must re- of the regulations provides that a formal
(see section 1.6050S–1(b)(2)). port in Box 4 the $200 adjustment made billing arrangement is an arrangement in
Section 1.6050S–1(d)(1) of the regula- to amounts reported in Box 2 for calendar which the institution: (1) bills only an em-
tions permits an institution to determine year 2005, even though Student A is not ployer or a governmental entity for educa-
the enrollment status of a student for each enrolled for an academic period during cal- tion that the institution furnishes to a stu-
academic period under its own rules and endar year 2006. dent and (2) does not maintain a separate
policies, or as of any of the following Q–4. If an institution is not required to financial account for the student. Where
dates: report because an exception to reporting an employer is billed for a student’s quali-
(1) 30 days after the first day of the under 1.6050S–1(a)(2) of the regulations fied expenses, the student must be an em-
academic period; applies to a category of students, may an ployee of the employer. Similar agree-
(2) A date during the academic period institution nevertheless choose to report? ments with other institutional third party
on which enrollment data must be col- A–4. Yes. An institution that is not payors will also qualify as formal billing
lected for purposes of the Integrated Post required to report because an exception arrangements if the Service so determines
Secondary Education Data System admin- to reporting applies to a category of stu- in further published guidance or in a ruling
istered by the Department of Education; or dents may nevertheless choose to report. or determination issued to the participants.
(3) A date during the academic period Section 1.6050S–1(a)(1) of the regulations Q–8. What amounts must an institution
on which the institution must report en- does not preclude optional reporting. report in Box 5 as scholarships or grants?
rollment data to the State, the institution’s Q–5. Must an institution report if the A–8. Section 6050S(b)(2)(B)(ii) of the
governing body, or some other external regulations provide an exception to report- Code provides that an institution must re-
governing body. ing for a category of students (other than port the amount of any grants that the in-
Q–2. Must an institution report for high non-resident alien individuals) and a stu- stitution administered and processed dur-
school students attending classes at the dent within that category requests the in- ing the calendar year for the payment of the
institution prior to graduation from high stitution to report for a calendar year? student’s costs of attendance. A student’s
school? A–5. No. An institution is not re- costs of attendance may include both qual-
A–2. An institution must report for any quired to report if an exception under sec- ified expenses (such as tuition and required
student if the institution considers the stu- tion 1.6050S–1(a)(2)(ii)-(iv) of the regula- fees) and non-qualified expenses (such as
dent to be enrolled and a transaction for tions applies to a category of students and room and board). The institution should
which reporting is required is made during a student within that category requests that report these amounts in Box 5. A quali-
the year with respect to the student. the institution report for a calendar year. fied tuition reduction described in section
Q–3. Must an institution report if a stu- Q–6. In what circumstances must an 117(d) of the Code is not a scholarship or
dent is not enrolled for an academic period institution report with respect to a student grant, and accordingly, should not be re-
during the calendar year in which the in- who is a non-resident alien individual? ported in Box 5; but such a reduction is
stitution makes an adjustment to amounts A–6. Section 1.6050S–1(a)(2)(i) of the relevant in determining the net amount re-
that the institution reported for a prior year regulations provides that no reporting is re- ported in Box 2 if the institution elects to
in which the student was enrolled? For ex- quired for non-resident alien individuals, report amounts billed.
ample, Student A was enrolled for an aca- unless the non-resident alien individual re- Whether an institution reported schol-
demic period during calendar year 2005. quests the institution to report for a calen- arship or grant amounts in Box 5 is not
During 2005, Institution X bills Student A dar year. If a student who is a non-resi- considered in determining amounts to be
$3,000 for qualified expenses and reports dent alien individual requests that the insti- reported as payments received (Box 1) or
these amounts in Box 2. In 2005, after the tution report for a calendar year, the insti- as amounts billed (Box 2) for qualified
tuition bill is sent, Student A reduces his tution must report with respect to that stu- expenses. An institution that elects to
courseload. During calendar year 2006, dent, unless another exception under sec- report payments received for qualified ex-
Institution X credits Student A’s account tion 1.6050S–1(a)(2) applies. If a non-res- penses generally must include the amount
with $200, reflecting a $200 reduction in ident alien individual falls within a cate- of scholarships and grants in Box 1, ex-
charges for 2005. Student A is not enrolled gory of students covered by an exception cept any scholarship or grant that by its
for any academic period during calendar under section 1.6050S–1(a)(2)(ii)-(iv) of terms must be applied to expenses other
year 2006. the regulations for the calendar year, the than qualified expenses, such as room and
A–3. Yes. Section 6050S(b)(2)(A) institution is not required to report, even if board (see section 1.6050S–1(b)(2)(v) of
of the Code and section 1.6050S–1(b)(2) the student requests the institution to report the regulations). An institution that elects
and (b)(3) of the regulations provide that for the calendar year. See Q&A–5, above. to report amounts billed for qualified
an institution must report for each stu-

September 5, 2006 364 2006–36 I.R.B.


expenses may not reduce the amount re- year. Section 1.6050S–1(b)(3)(ii)(c) of the scholarship relates to amounts billed
ported in Box 2 by scholarships or grants. the regulations provides that an institution during calendar year 2005 for the same
Q–9. The regulations require an insti- that elects to report amounts billed for academic period. In addition, because
tution to report separately any reimburse- qualified expenses must report the amount scholarships or grants are not reductions
ments or refunds of qualified expenses (if billed for qualified expenses with respect in charges, they are not included in the
an institution reports payments received) to the student during the calendar year. amount reported in Box 4 as adjustments
or any reductions in charges (if the insti- Accordingly, for calendar year 2005, the to amounts reported in Box 2 for calendar
tution reports amounts billed), and any re- institution must report $1,050 in Box 2. year 2005.
ductions to scholarships, made during the For calendar year 2006, the institution Q–14. Should an institution include any
calendar year that relate to amounts the in- must aggregate the $200 billed for the negative numbers on Form 1098–T?
stitution reported for a prior calendar year. 2006 Spring term and the $1,000 billed for A–14. No. Section 1.6050S–1(b)(1)
Does “a prior calendar year” refer to any the 2006 Fall term and report $1,200 in of the regulations provides that, for pur-
prior calendar year for which reporting Box 2. In addition, as provided in section poses of section 1.6050S–1(b)(2), an
was required, or only the immediately pre- 1.6050S–1(b)(3)(iv), the institution must adjustment to payments received means
ceding calendar year for which reporting separately report in Box 3 the $10 reduc- a reimbursement or refund. In addition,
was required? tion in charges made during calendar year section 1.6050S–1(b)(1) provides that,
A–9. The separate reporting require- 2006 that relates to amounts previously for purposes of section 1.6050S–1(b)(3),
ment in section 6050S(b)(2)(B)(iii) of the reported in Box 2 for calendar year 2005. an adjustment to amounts billed means a
Code applies to any prior calendar year Q–12. If an institution elects to report reduction in charges. Any adjustments to
for which reporting was required, and not payments received for qualified expenses, amounts billed or payments received (as
only to the immediately preceding calen- must an institution report payments for applicable) reported for a prior year, and
dar year. qualified expenses that it receives with re- any reductions to scholarships or grants
Q–10. Must an institution that volun- spect to a student during the calendar year reported for a prior year, reflect down-
tarily reported dollar amounts for calendar if the payment relates to an academic pe- ward adjustments. These adjustments are
years before 2003 report with respect to riod that began during a prior calendar reported as positive numbers in Box 4 or
adjustments in a later calendar year that re- year? Box 6, respectively.
late to qualified expenses and scholarships A–12. Yes. Under section 1.6050S– Q–15. Must an institution report adjust-
or grants reported for calendar years before 1(b)(2) of the regulations, the institution ments made during a calendar year if the
2003? must report all payments of qualified ex- adjustment relates to amounts not reported
A–10. The reporting of adjustments in penses received during the calendar year, for a prior calendar year because an excep-
a later calendar year that relate to quali- even if one or more of the payments relate tion to reporting applied for the prior cal-
fied expenses and scholarships or grants to an academic period that began during a endar year?
reported for calendar years before 2003 is prior calendar year. A–15. No. Under section 6050S(b)
voluntary, as was the original reporting. Q–13. If an institution elects to report (2)(B)(iii) of the Code, an institution must
Q–11. If an institution elects to report amounts billed for qualified expenses, how report adjustments made during a calen-
amounts billed, how must the institution must the institution report amounts billed dar year that relate to amounts that were
report increases in certain charges and re- for qualified expenses during one calendar reported for a prior calendar year. If an
ductions in other charges for the calendar year if the institution administers and pro- amount was not reported for a prior calen-
year if the increases and reductions relate cesses a scholarship or grant in the follow- dar year because an exception to reporting
to amounts reported for a prior calendar ing calendar year for the same qualified ex- applied for the prior calendar year, a re-
year? For example, in December 2005, penses? For example, an institution bills lated adjustment need not be reported un-
an institution bills $1,000 for tuition and $1,000 for qualified expenses for the 2006 der this section.
$50 for required fees for the 2006 Spring Spring term in December 2005. In January Q–16. Can an adjustment made during
term that will begin in January 2006. In 2006, the institution administers and pro- a calendar year exceed the amounts billed
January 2006, the institution bills an addi- cesses a scholarship for the same qualified or payments received (as applicable) for
tional $200 for tuition for the 2006 Spring expenses for the 2006 Spring term. qualified expenses that an institution re-
term and reduces the charges for the pre- A–13. Section 6050S of the Code ported for the immediately preceding cal-
viously billed required fees by $10 for the requires reporting based on transac- endar year?
2006 Spring term. In August 2006, the tions that occur during a calendar year. A–16. Adjustments made during a
institution bills $1,000 for tuition for the For calendar year 2005, under section calendar year may relate to amounts previ-
2006 Fall term. How must the institution 1.6050S–1(b)(3)(i) of the regulations, the ously reported for multiple prior calendar
report for calendar year 2005 and calendar institution must report in Box 2 the $1,000 years. In this situation, the adjustments
year 2006? billed during the calendar year in Box may exceed the amount reported for the
A–11. Section 6050S of the Code 2. For calendar year 2006, under sec- immediately preceding calendar year. For
requires reporting based on transactions tion 1.6050S–1(b)(3)(ii)(E), the institution example, an institution reported $5,000
that occur during a calendar year. This must report in Box 5 the scholarship it billed for qualified expenses for calendar
includes transactions which may relate to administered and processed during 2006 year 2004 and $4,000 billed for calendar
an academic period in a prior calendar for the 2006 Spring term, even though year 2005. In calendar year 2006, the in-

2006–36 I.R.B. 365 September 5, 2006


stitution reduces the charges for 2004 by itoring compliance with respect to a stu- Weighted Average Interest
$2,000 and reduces the charges for 2005 dent’s eligibility for the Hope Scholarship Rate Modification
by $3,000. In this situation, for calen- Credit or the Lifetime Learning Credit. If
dar year 2006, the institution must report Box 9 is checked, the Service is alerted to Notice 2006–75
$5,000 in Box 4 as adjustments made dur- the fact that the Hope Scholarship Credit
ing the calendar year that relate to amounts is not allowable for the student’s qualified This notice provides guidance as to the
reported for prior calendar years, which expenses because the student is beyond the determination of the weighted average in-
exceeds the amount reported as billed in first two years of post-secondary education terest rate and the resulting permissible
the preceding calendar year. and that the Lifetime Learning Credit may range of interest rates used to calculate cur-
Q–17. Why does Form 1098–T include be allowable. rent liability for the purpose of the addi-
Box 8, the “half-time indicator?” Q–21. When should an institution tional funding requirements under § 412(l)
A–17. Section 25A of the Code check Box 9? of the Internal Revenue Code (Code) and
provides, among other things, that the A–21. An institution should check Box the minimum full funding limitation of
Hope Scholarship Credit is allowable for 9 if the student was enrolled as a graduate § 412(c)(7)(E), and the corresponding re-
amounts paid for qualified expenses only student during the calendar year. quirements and limitation under sections
for students enrolled at least half-time for Q–22. Should an institution check Box 302(c)(7)(E) and 302(d) of the Employee
one academic period that begins during 9 if a student is not a graduate student dur- Retirement Income Security Act of 1974
the calendar year. Box 8 provides the ing the calendar year when the institution (ERISA), as in effect for plan years begin-
Service with an indication that the Hope bills, or receives payment, for qualified ex- ning in 2006 and 2007. This notice imple-
Scholarship Credit may be allowable for penses, but the student will be a gradu- ments changes to the rules regarding those
the student’s qualified expenses. ate student during the following calendar interest rates that were enacted by § 301 of
Q–18. When should an institution year? the Pension Protection Act of 2006, Pub.
check Box 8? A–22. No. The institution should not L. No. 109–280 (PPA ’06).
A–18. An institution should check check Box 9 unless the student is enrolled
Box 8 if for at least one academic period as a graduate student for at least one aca- BACKGROUND
that began during the calendar year the demic period during the calendar year for
Section 412 of the Code, and the cor-
student was enrolled for at least one-half which reporting is required.
responding requirements of section 302 of
of the normal full-time work load for the Q–23. What telephone number must
ERISA, set forth minimum funding stan-
course of study the student is pursuing. an institution include on the information
dards that apply to certain plans. Title I
The standard for what is half of the normal statement furnished to the student?
of PPA ’06, enacted on August 17, 2006,
full-time work load is determined by each A–23. Section 1.6050S–1(c)(1)(iii)(G)
makes extensive changes to the rules of
institution, but the standard may not be of the regulations requires institutions to
§ 412 of the Code and section 302 of
lower than the standard established by the include the telephone number of the infor-
ERISA, generally applicable to plan years
U.S. Department of Education. See sec- mation contact of the institution (i.e., not
beginning on or after January 1, 2008. In
tion 1.25A–3(d)(1)(ii) of the regulations. the institution’s general telephone num-
addition, section 301 of PPA ’06 makes
Q–19. Should an institution check Box ber). The institution information contact
certain changes to the minimum funding
8 if a student is not enrolled at least half- must be an individual, or a department,
rules that apply to earlier plan years. For
time during the calendar year when the in- that can answer questions about the infor-
purposes of this notice, all references to
stitution bills, or receives payments, for mation statement. The institution may not
§ 412 refer to § 412 of the Code without
qualified expenses, but the student will be list only the institution’s general telephone
regard to the amendments made by Title I
enrolled at least-half time in the following number. In addition, an institution may in-
of PPA ’06.
calendar year? clude information of a third-party service
A–19. No. If a student is not enrolled provider who may also answer questions PRIOR LAW
at least half-time for at least one academic about the information statement.
period that begins during the calendar year Under § 412(b)(5)(A), the funding stan-
for which reporting is required, the institu- DRAFTING INFORMATION dard account (and items therein) must be
tion should not check Box 8. charged or credited with interest at the ap-
The principal author of this notice is
Q–20. Why does Form 1098–T include propriate rate consistent with the rate or
Karen E. Briscoe of the Office of Associate
Box 9, the “graduate-level indicator?” rates of interest used under the plan to de-
Chief Counsel (Procedure & Administra-
A–20. Section 25A of the Code pro- termine costs.
tion). For further information regarding
vides, among other things, that the Hope Section 412(b)(5)(B) provides special
this notice, contact Mrs. Briscoe at (202)
Scholarship Credit is allowable only for rules for the interest rate that is used to
622–4910 (not a toll-free call).
qualified expenses of a student who has not determine a plan’s current liability for
completed the first two years of post-sec- purposes of § 412(l) and for purposes of
ondary education; however, the Lifetime the minimum full funding limitation under
Learning Credit is available beyond the § 412(c)(7)(E). In general, that interest
first two years of post-secondary educa- rate must fall within a specified corridor
tion. Box 9 assists the Service in mon- based on the weighted average of the rates

September 5, 2006 366 2006–36 I.R.B.


of interest on 30-year Treasury constant permissible range, indices and methodol- of the corporate bond weighted average
maturities during the 4-year period end- ogy used to determine the average rate for plan years beginning in 2006 and
ing on the last day before the beginning publicly available. 2007. Section 412(l)(7)(C)(i)(IV) is also
of the plan year, as published monthly in Section 412(l)(7)(C)(i)(II) generally amended by extending the use of the cor-
the Internal Revenue Bulletin. See No- provides that, for plan years beginning porate bond weighted average for plan
tice 88–73, 1988–2 C.B. 383, and Notice after 1999, the interest rate used to de- years beginning in 2006 and 2007. Cor-
2006–8, 2006–5 I.R.B. 386. termine the deficit reduction contribu- responding changes were made to the
Section 412(b)(5)(B)(ii) provides a spe- tion must be not more than 105% of the parallel ERISA provisions.
cial rule that applies for plan years begin- weighted average interest rate (or 120% This notice provides the composite cor-
ning in 2004 and 2005. Under that spe- of the weighted average interest rate for porate bond rates from December, 2005
cial rule, the interest rate used to deter- plan yeas beginning in 2002 and 2003). through July, 2006, and the resulting cor-
mine current liability must not be above Section 412(l)(7)(C)(i)(IV) provided that, porate bond weighted averages for plan
and must not be more than 10 percent for plan years beginning in 2004 and 2005, years beginning in the months from Jan-
below the weighted average of the rates the interest rate used to determine current uary, 2006 through August, 2006. These
of interest on amounts invested conserva- liability for purposes of determining the interest rates have been computed in accor-
tively in long-term investment-grade cor- deficit reduction contribution must be the dance with the methodology and using the
porate bonds during the 4-year period end- same as the rate used under § 412(b)(5). indices set forth in Notice 2004–34.
ing on the last day before the beginning of
the plan year. In Notice 2004–34, 2004–1 PENSION PROTECTION ACT OF 2006
C.B. 848, the Treasury Department pre-
scribed the method for periodically deter- Section 301(b) of PPA ’06 amends
mining the corporate rates, and made the § 412(b)(5)(B)(ii)(II) to extend the use

Composite Corporate
For Plan Years Corporate Bond
Beginning in: Bond Weighted Permissible Range
Month Year Rate Average 90% 100%
December 2005 5.72

January 2006 5.65 5.77 5.19 5.77


February 2006 5.73 5.75 5.18 5.75
March 2006 5.89 5.75 5.17 5.75

April 2006 6.18 5.74 5.17 5.74


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

July 2006 6.30 5.77 5.19 5.77


August 2006 5.78 5.20 5.78

DRAFTING INFORMATION vision. For further information regarding 4:30 p.m. Eastern time, Monday through
this notice, please contact the Employee Friday. Mr. Montanaro may be reached at
The principal author of this notice is Plans’ taxpayer assistance telephone ser- 1–202–283–9714 (not a toll-free number).
Tony Montanaro of the Employee Plans, vice at 1–877–829–5500 (a toll-free num-
Tax Exempt and Government Entities Di- ber), between the hours of 8:30 a.m. and

2006–36 I.R.B. 367 September 5, 2006


Part IV. Items of General Interest
Notice of Proposed SUPPLEMENTARY INFORMATION: Norwest Corp v. Commissioner, 69 F.3d
Rulemaking and Notice of 1404 (8th Cir. 1995), cert. denied, 517
Background U.S. 1203 (1996), Riggs National Corp.
Public Hearing
& Subs. v. Commissioner, 107 T.C. 301,
Section 901 of the Internal Revenue
rev’d and rem’d on another issue, 163
Definition of Taxpayer for Code (Code) permits taxpayers to claim a
F.3d 1363 (D.C. Cir. 1999) (all holding
Purposes of Section 901 and credit for income, war profits, and excess
that U.S. lenders had legal liability for
profits taxes paid or accrued during the
Related Matters tax imposed on their interest income from
taxable year to any foreign country or to
Brazilian borrowers, notwithstanding that
any possession of the United States. Sec-
REG–124152–06 under Brazilian law the tax could only
tion 903 of the Code permits taxpayers to
be collected from the borrowers) with
AGENCY: Internal Revenue Service claim a credit for a tax paid in lieu of an
Guardian Industries Corp. & Subs. v.
(IRS), Treasury. income tax.
United States, 65 Fed. Cl. 50 (2005), ap-
Section 1.901–2(f)(1) of the current fi-
peal docketed, No. 2006–5058 (Fed. Cir.
ACTION: Notice of proposed rulemaking nal regulations provides that the person
December 19, 2005) (concluding that the
and notice of public hearing. by whom tax is considered paid for pur-
subsidiary corporations in a Luxembourg
poses of sections 901 and 903 is the person
SUMMARY: These proposed regulations consolidated group had no legal liability
on whom foreign law imposes legal liabil-
provide guidance relating to the determi- for tax imposed on their income, because
ity for such tax. This legal liability rule
nation of who is considered to pay a for- under Luxembourg law the parent corpo-
applies even if another person, such as a
eign tax for purposes of sections 901 and ration was solely liable to pay the tax).
withholding agent, remits the tax. Section
903. The proposed regulations affect tax- Questions have also arisen regarding
1.901–2(f)(3) provides that if foreign in-
payers that claim direct and indirect for- the application of the legal liability rule
come tax is imposed on the combined in-
eign tax credits. to entities that have different classifica-
come of two or more related persons (for
tions for U.S. and foreign tax law pur-
example, a husband and wife or a corpo-
DATES: Written or electronic comments poses (e.g., hybrid entities and reverse hy-
ration and one or more of its subsidiaries)
must be received by October 3, 2006. Out- brids). This is particularly the case fol-
and they are jointly and severally liable
lines of topics to be discussed at the public lowing the promulgation of §§301.7701–1
for the tax under foreign law, foreign law
hearing scheduled for October 13, 2006, through –3 (the check the box regulations)
is considered to impose legal liability on
must be received by October 3, 2006. in 1997. A hybrid entity is an entity that
each such person for the amount of the for-
is treated as a taxable entity (e.g., a cor-
ADDRESSES: Send submissions to eign income tax that is attributable to its
poration) under foreign law and as a part-
CC:PA:LPD:PR (REG–124152–06), portion of the base of the tax, regardless of
nership or disregarded entity for U.S. tax
Room 5203, Internal Revenue Ser- which person actually pays the tax.
purposes. For purposes of these regula-
vice, P.O. Box 7604, Ben Franklin Sta- The existing final regulations were pub-
tions, a reverse hybrid is an entity that is
tion, Washington, DC 20044. Submis- lished in 1983. Since that time, numerous
a corporation for U.S. tax purposes but is
sions may be sent electronically via the questions have arisen regarding the ap-
treated as a pass-through entity for for-
IRS Internet site at www.irs.gov/regs plication of the legal liability rule to fact
eign tax purposes (i.e., income of the en-
or via the Federal eRulemaking Por- patterns not specifically addressed in the
tity is taxed under foreign law at the owner
tal at www.regulations.gov (IRS and regulations or the case law. These include
level). Current §1.901–2(f) does not ex-
REG–124152–06). The public hearing situations in which the members of a for-
plicitly address how to determine the per-
will be held in the Auditorium, Internal eign consolidated group may not have in
son that is considered to pay foreign tax
Revenue Service, New Carrollton Build- the U.S. sense the full equivalent of joint
imposed on the income of hybrid entities
ing, 5000 Ellin Road, Lanham, MD 20706. and several liability for the group’s con-
or reverse hybrids.
solidated tax liability, and cases in which
The IRS and the Treasury Depart-
FOR FURTHER INFORMATION the person whose income is included in
ment have determined that the regulations
CONTACT: Concerning submission the foreign tax base is not the person who
should be updated to clarify the appli-
of comments, the hearing, and/or to is obligated to remit the tax. Courts have
cation of the legal liability rule in these
be placed on the building access list reached inconsistent conclusions on these
situations, and request comments on addi-
to attend the hearing, Kelly Banks matters. Compare Nissho Iwai American
tional matters that should be addressed in
(Kelly.D.Banks@irscounsel.treas.gov); Corp. v. Commissioner, 89 T.C. 765,
published guidance.
concerning the regulations, Bethany A. 773–74 (1987), Continental Illinois Corp.
Ingwalson, (202) 622–3850 (not a toll-free v. Commissioner, 998 F.2d 513 (7th Cir.
number). 1993), cert. denied, 510 U.S. 1041 (1994),

September 5, 2006 368 2006–36 I.R.B.


Explanation of Provisions ance in determining the relative amounts under foreign law to earn the income on
of net income. which the foreign tax is imposed has legal
A. Overview Second, the proposed regulations liability for the tax, even if the foreign tax
would revise §1.901–2(f) to provide that cannot be collected from such person.
The IRS and Treasury Department have
a reverse hybrid is considered to have le- The IRS and Treasury Department
received substantial comments as to mat-
gal liability under foreign law for foreign request comments on whether the regu-
ters that may be addressed under the le-
taxes imposed on an owner of the reverse lations should provide a special rule on
gal liability rule of §1.901–2(f). These
hybrid in respect of the owner’s share of where legal liability resides in the case of
matters include rules relating to the treat-
income of the reverse hybrid. The reverse withholding taxes imposed on an amount
ment of foreign consolidated groups, re-
hybrid’s foreign tax liability would be received by one person on behalf of the
verse hybrids, hybrid entities, hybrid in-
determined based on the portion of the beneficial owner of such amount. In cer-
struments and payments, and other issues.
owner’s taxable income (as computed un- tain cases, a foreign country may consider
The proposed regulations would provide
der foreign law) that is attributable to the the recipient to earn income (or be the
guidance on foreign consolidated groups,
owner’s share of the income of the reverse owner of the tax base) while the United
reverse hybrids, and hybrid entities. How-
hybrid. States considers the recipient to be a nomi-
ever, the proposed regulations reserve on
Third, the proposed regulations would nee receiving the payment on behalf of the
issues relating to hybrid instruments and
clarify that a hybrid entity that is treated as beneficial owner. Comments should focus
payments, specifically on the question of
a partnership for U.S. income tax purposes on how a special rule for such nominee
who is considered to pay tax imposed on
is legally liable under foreign law for for- arrangements could be narrowly drawn
income attributable to amounts paid or ac-
eign income tax imposed on the income of to prevent opportunities for abuse while
crued between related parties under a hy-
the entity, and that the owner of an entity maintaining the administrative advantages
brid instrument or payments that are disre-
that is disregarded for U.S. income tax pur- of the legal liability rule, which generally
garded for U.S. tax purposes. These and
poses is considered to have legal liability operates to classify as the taxpayer the
other issues will be addressed in a subse-
for such tax. person who is in the best position to prove
quent guidance project.
These provisions are discussed in more the tax was required to be, and actually
The proposed regulations would retain
detail below. was, paid.
the general principle that tax is considered
paid by the person who has legal liabil- B. Legal Liability under Foreign Law C. Taxes Imposed on Combined Income
ity under foreign law for the tax. How-
ever, the proposed regulations would fur- Section 1.901–2(f)(1)(i) of the pro- 1. Foreign Consolidated Groups
ther clarify application of the legal liabil- posed regulations clarifies that, except for
ity rule in situations where foreign law im- income attributable to related party hybrid The IRS and Treasury Department be-
poses tax on the income of one person but payments described in §1.901–2(f)(4), lieve that §1.901–2(f)(1) of the current
requires another person to remit the tax. foreign law is considered to impose le- final regulations requires allocation of
The proposed regulations make clear that gal liability for income tax on the person foreign consolidated tax liability among
foreign law is considered to impose le- who is required to take such income into the members of a foreign consolidated
gal liability for income tax on the person account for foreign tax purposes. This group pro rata based on each member’s
who is required to take such income into paragraph of the proposed regulations fur- share of the consolidated taxable income
account for foreign tax purposes even if ther clarifies that such person has legal included in the foreign tax base. In ad-
another person has the sole obligation to liability for the tax even if another person dition, the IRS and Treasury Department
remit the tax (subject to the above-refer- is obligated to remit the tax, another per- believe that §1.901–2(f)(3) confirms this
enced reservation for hybrid instruments son actually remits the tax, or the foreign rule in situations in which foreign con-
and payments). country (defined in §1.901–2(g) to include solidated regimes impose joint and sev-
The proposed regulations would pro- political subdivisions and U.S. posses- eral liability for the group’s tax on each
vide detailed guidance regarding how to sions) can proceed against another person member. With respect to a foreign con-
treat taxes paid on the combined income to collect the tax in the event the tax is not solidated-type regime where the members
of two or more persons. First, the pro- paid. do not have the full equivalent of joint
posed regulations would clarify the appli- Similarly, §1.902–1(f)(1)(ii) of the pro- and several liability in the U.S. sense,
cation of §1.901–2(f) to foreign consoli- posed regulations clarifies that, in the case or where the income of the consolidated
dated-type regimes where the members are of a tax imposed with respect to a base group members is attributed to the parent
not jointly and severally liable in the U.S. other than income, foreign law is consid- corporation in computing the consolidated
sense for the group’s tax. The proposed ered to impose legal liability for the tax on taxable income, the current regulations do
regulations would make clear that the for- the person who is the owner of the tax base not include a specific illustration of how
eign tax must be apportioned among all for foreign tax purposes. Thus, in the case the consolidated tax should be allocated
the members pro rata based on the rela- of a gross basis withholding tax that qual- among the members of the group for for-
tive amounts of net income of each mem- ifies as a tax in lieu of an income tax un- eign tax credit purposes.
ber as computed under foreign law. The der §1.903–1(a), the proposed regulations Thus, the IRS and Treasury Department
proposed regulations would provide guid- provide that the person that is considered believe that §1.901–2(f)(1) of the current

2006–36 I.R.B. 369 September 5, 2006


final regulations requires as a general rule rule would apply regardless of which per- on foreign tax reporting of separate tax-
pro rata allocation of foreign tax among son is obligated to remit the tax, which able income or books maintained for that
the members of a foreign consolidated person actually remits the tax, and which purpose. The regulations provide that pay-
group, and that §1.901–2(f)(3) illustrates person the foreign country could proceed ments between group members that result
the application of the general rule in cases against to collect the tax in the event all in a deduction under both U.S. and foreign
where the group members are jointly and or a portion of the tax is not paid. Under tax law will be given effect in determin-
severally liable for that consolidated tax. §1.902–1(f)(2)(i), person for this purpose ing each person’s share of the combined
Failure to allocate appropriately the con- includes a disregarded entity. income, but, as noted above, explicitly
solidated tax among the members of the reserve with respect to the effect of hybrid
group may result in a separation of foreign 2. Reverse Hybrid Entities instruments and disregarded payments
tax from the income on which the tax is between related parties (to be dealt with
The proposed regulations would revise
imposed. This type of splitting of foreign in a separate guidance project). Special
§1.901–2(f) to provide that a reverse hy-
tax and income is contrary to the general rules address the effect of dividends (and
brid is considered to have legal liability
purpose of the foreign tax credit to relieve deemed dividends) and net losses of group
under foreign law for foreign taxes im-
double taxation of foreign-source income. members on the determination of separate
posed on the owners of the reverse hybrid
Accordingly, §1.901–2(f)(2) of the pro- taxable income.
in respect of each owner’s share of the re-
posed regulations would explicitly cover Once an amount of foreign tax is deter-
verse hybrid’s income. Proposed regula-
all foreign consolidated-type regimes, mined to be paid by a consolidated group
tion §1.902–1(f)(2)(iii). This rule is nec-
including those in which the regime im- member or reverse hybrid under the com-
essary to prevent the inappropriate sepa-
poses joint and several liability in the U.S. bined income rule, applicable provisions
ration of foreign tax from the related in-
sense, those in which the regime treats of the Code would determine the specific
come and to prevent dissimilar treatment
subsidiaries as branches of the parent cor- U.S. tax consequences of that treatment.
of foreign consolidated groups and foreign
poration (or otherwise attributes income For example, a parent corporation’s pay-
groups containing reverse hybrids, which
of subsidiaries to the parent corporation), ment of tax on its subsidiary’s share of
are treated identically for U.S. tax pur-
and those in which some of the group consolidated taxable income, or the pay-
poses. Under the proposed rule, the re-
members have limited obligations, or even ment of tax by the owner of a reverse hy-
verse hybrid’s foreign tax liability would
no obligation, to pay the consolidated tax. brid with respect to its share of the income
be determined based on the portion of the
Several significant commentators recom- of the reverse hybrid, ordinarily would re-
owner’s taxable income (as computed un-
mended that the regulations be clarified in sult in a capital contribution to the sub-
der foreign law) that is attributable to the
this manner. sidiary or reverse hybrid. Further, under
owner’s share of the reverse hybrid’s in-
The proposed regulations would define sections 902 and 960, domestic corporate
come. Thus, for example, if an owner of
combined income to include cases where owners that own 10 percent or more of a
a reverse hybrid has no other income on
the foreign country initially recognizes the foreign corporation’s voting stock are eli-
which tax is imposed by the foreign coun-
subsidiaries as separate taxable entities, gible to claim indirect credits. Thus, do-
try, then the entire amount of foreign tax
but pursuant to the applicable consolidated mestic corporations that are considered to
that is imposed on the owner is treated as
tax regime treats subsidiaries as branches own 10 percent or more of a reverse hy-
attributable to the reverse hybrid for U.S.
of the parent, requires or treats all income brid’s voting stock would be able to claim
income tax purposes and, accordingly, is
as distributed to the parent, or otherwise at- indirect credits for the taxes attributable to
tax for which the reverse hybrid has le-
tributes all income to the parent. This ap- the earnings of the reverse hybrid that are
gal liability. This rule would apply irre-
proach will minimize the need for exten- distributed as dividends or otherwise in-
spective of whether the owner and the re-
sive analysis of the intricacies of the rel- cluded in the owner’s income for U.S. tax
verse hybrid are located in the same for-
evant foreign consolidated tax regime, by purposes.
eign country. If the owner pays tax to more
treating a foreign subsidiary as legally li-
than one foreign country with respect to in-
able for its share of the consolidated tax D. Hybrid Entities
come of the reverse hybrid, tax paid to each
without regard to the precise mechanics of
foreign country would be separately appor-
the foreign consolidated regime. This ap- Section 1.901–2(f)(3) of the proposed
tioned on the basis of the income included
proach will not only reduce inappropriate regulations would also clarify the treat-
in that country’s tax base. The treatment
foreign tax credit splitting but will also re- ment of hybrid entities. In the case of an
of reverse hybrids in the proposed regula-
duce administrative burdens on taxpayers entity that is a partnership for U.S. income
tions is consistent with the treatment rec-
and the IRS. tax purposes but taxable under foreign law
ommended by a significant commentator.
Section 1.902–1(f)(2) of the proposed as an entity, foreign law is considered to
regulations retains the general principle 3. Apportionment of Tax on Combined impose legal liability for the tax on the en-
that the foreign tax must be apportioned Income tity. This is the case even if the owners
among the persons whose income is in- of the entity also have a secondary obli-
cluded in the combined base pro rata Section 1.901–2(f)(2)(iv) of the pro- gation to pay the tax. Sections 702, 704,
based on the relative amounts of net in- posed regulations includes rules for deter- and 901(b)(5) and the Treasury regulations
come of each person as computed under mining each person’s share of the com- thereunder apply for purposes of allocat-
foreign law. As under current law, this bined income tax base, generally relying ing the foreign tax among the owners of a

September 5, 2006 370 2006–36 I.R.B.


hybrid entity that is a partnership for U.S. decided not to exercise this authority in will be given to any written (a signed origi-
tax purposes. In the case of tax imposed these regulations. The proposed regula- nal and eight (8) copies) or electronic com-
on an entity that is disregarded as separate tions reserve on the effect given to hybrid ments that are submitted timely to the IRS.
from its owner for U.S. income tax pur- payments and disregarded payments in The IRS and Treasury Department request
poses, foreign law is considered to impose determining the person whose income is comments on the clarity of the proposed
legal liability for the tax on the owner. subject to foreign tax. The IRS and Trea- regulations and how they can be made eas-
sury Department are continuing to study ier to understand. All comments will be
E. Effective Date certain transactions employing hybrid in- available for public inspection and copy-
struments and other transactions designed ing.
The regulations are proposed to be ef- to generate inappropriate foreign tax credit A public hearing has been scheduled for
fective for foreign taxes paid or accrued results. These include the use of hybrid October 13, 2006, beginning at 10:00 a.m.
during taxable years beginning on or after instruments that accrue income for foreign in the Auditorium, Internal Revenue Ser-
January 1, 2007. Comments are requested tax purposes, but not U.S. tax purposes, vice, New Carrollton Building, 5000 Ellin
as to how to determine which person paid a to accelerate the payment of creditable Road, Lanham, MD 20706. In addition, all
foreign tax in cases where a foreign taxable foreign taxes before the related income is visitors must present photo identification
year ends, and foreign tax accrues, within subject to U.S. tax. These also include the to enter the building. Because of access
a post-effective date U.S. taxable year of use of disregarded payments to shift for- restrictions, visitors will not be admitted
a reverse hybrid and a pre-effective date eign tax liabilities away from the person beyond the immediate entrance area more
U.S. taxable year of its owner. that is considered to earn the associated than 30 minutes before the hearing starts.
taxable income for U.S. tax purposes. It For information about having your name
F. Request for Additional Comments is contemplated that some or all of these placed on the building access list to attend
issues will be addressed in a separate guid- the hearing, see the “FOR FURTHER IN-
As indicated above, in developing these ance project, and that any such regulations FORMATION CONTACT” section of this
proposed regulations, the IRS and Trea- may also be effective for taxable years preamble.
sury Department considered comments on beginning on or after January 1, 2007. The rules of 26 CFR 601.601(a)(3) ap-
the proper scope and content of the regula- The IRS and Treasury Department re- ply to the hearing. Persons who wish to
tions. Commentators generally agreed that quest additional comments regarding the present oral comments must submit elec-
amendments to clarify that foreign tax is appropriate application of the legal liabil- tronic or written comments and an outline
properly apportioned among the members ity rule to hybrid instruments and pay- of the topics to be discussed and time to
of a foreign consolidated group were ap- ments that are disregarded for U.S. tax pur- be devoted to each topic (a signed orig-
propriate. Commentators also agreed that poses. They also request comments on inal and eight (8) copies) by October 3,
the regulations should clarify that tax im- other issues that might be incorporated into 2006. A period of 10 minutes will be
posed on a disregarded entity is considered final regulations. allotted to each person for making com-
paid by its owner, and that tax imposed ments. An agenda showing the scheduling
on a hybrid partnership should be allo- Special Analyses of the speakers will be prepared after the
cated under the rules of sections 702, 704, deadline for receiving outlines has passed.
It has been determined that this notice
and 901(b)(5). Some comments strongly Copies of the agenda will be available free
of proposed rulemaking is not a signifi-
stated that the IRS and Treasury Depart- of charge at the hearing.
cant regulatory action as defined in Exec-
ment have authority to extend the scope
utive Order 12866. Therefore, a regula- Drafting Information
of the regulations to require the attribu-
tory assessment is not required. It also has
tion of foreign tax to reverse hybrids. One
been determined that section 553(b) of the The principal author of these regula-
comment, however, suggested that the IRS
Administrative Procedure Act (5 U.S.C. tions is Bethany A. Ingwalson, Office of
and Treasury Department may lack such
chapter 5) does not apply to these reg- Associate Chief Counsel (International).
authority. The IRS and Treasury Depart-
ulations, and because the regulations do However, other personnel from the IRS
ment considered these comments and con-
not impose a collection of information on and the Treasury Department participated
cluded that the proposed regulations are
small entities, the Regulatory Flexibility in their development.
well within applicable regulatory authority
Act (5 U.S.C. chapter 6), does not apply.
and fully consistent with the case law, in- *****
Pursuant to section 7805(f) of the Internal
cluding Biddle v. Commissioner, 302 U.S.
Revenue Code, these proposed regulations Proposed Amendments to the
573 (1938).
will be submitted to the Chief Counsel for Regulations
Comments also suggested that the IRS
Advocacy of the Small Business Admin-
and Treasury Department should extend
istration for comment on their impact on Accordingly, 26 CFR part 1 is proposed
the scope of the regulations to ensure that
small businesses. to be amended as follows:
hybrid instruments and hybrid entities
could not be used effectively to sepa- Comments and Public Hearing PART 1 — INCOME TAXES
rate foreign tax from the related foreign
income. As indicated above, however, Before these proposed regulations are Paragraph 1. The authority citation for
the IRS and Treasury Department have adopted as final regulations, consideration part 1 continues to read in part as follows:

2006–36 I.R.B. 371 September 5, 2006


Authority: 26 U.S.C. 7805 * * * considered to have legal liability for, and considered to be imposed on the combined
Par. 2. In §1.706–1, paragraph (c)(6) is thus to have paid, a tax in lieu of an income income of two or more persons solely be-
added to read as follows: tax (within the meaning of §1.903–1(a)). cause foreign law —
Accordingly, foreign law is considered to (A) Permits one person to surrender a
§1.706–1 Taxable years of partner and impose legal liability for any such tax on net loss to another person pursuant to a
partnership. the person who is the owner of the base group relief or similar regime;
on which the tax is imposed for foreign tax (B) Requires a shareholder of a corpo-
***** purposes. ration to include in income amounts at-
(c) * * * (2) Taxes on combined income of two or tributable to taxes imposed on the corpo-
(6) Foreign taxes. For rules relat- more persons—(i) In general. If foreign ration with respect to distributed earnings,
ing to the treatment of foreign taxes tax is imposed on the combined income of pursuant to an integrated tax system that
paid or accrued by a partnership, see two or more persons (for example, a hus- allows the shareholder a credit for such
§1.901–2(f)(3)(i) and (ii). band and wife or a corporation and one taxes; or
***** or more of its subsidiaries), foreign law (C) Requires a shareholder to include,
Par. 3. In §1.901–2, paragraphs (f) and is considered to impose legal liability on pursuant to an anti-deferral regime (sim-
(h) are revised to read as follows: each such person for the amount of the tax ilar to subpart F of the Internal Revenue
that is attributable to such person’s portion Code (sections 951 through 965)), income
§1.901–2 Income, war profits, or excess of the base of the tax. Therefore, if foreign attributable to the shareholder’s interest in
profits tax paid or accrued. tax is imposed on the combined income of the corporation.
two or more persons, such tax shall be allo- (iii) Reverse hybrid entities. For pur-
***** cated among, and considered paid by, such poses of this paragraph (f)(2), if an entity is
(f) Taxpayer—(1) In general—(i) In- persons on a pro rata basis. For this pur- a corporation for U.S. income tax purposes
come taxes. Income tax (within the mean- pose, the term pro rata means in propor- and a person is required to take all or a part
ing of paragraphs (a) through (c) of this tion to each person’s portion of the com- of the income of one or more such enti-
section) is considered paid for U.S. income bined income, as determined under para- ties into account under foreign law because
tax purposes by the person on whom for- graph (f)(2)(iv) of this section and, gener- the entity is treated as a branch or a pass-
eign law imposes legal liability for such ally, under foreign law. The rules of this through entity under foreign law (a re-
tax. In general, foreign law is considered paragraph (f)(2) apply regardless of which verse hybrid), tax imposed on the person’s
to impose legal liability for tax on income person is obligated to remit the tax, which share of income from each reverse hybrid
on the person who is required to take the person actually remits the tax, or which and tax imposed by the foreign country on
income into account for foreign income person the foreign country could proceed other income of the person, if any, is con-
tax purposes (paragraph (f)(4) of this sec- against to collect the tax in the event all sidered to be imposed on the combined in-
tion reserves with respect to certain related or a portion of the tax is not paid. For come of the person and each reverse hy-
party hybrid payments). This rule applies purposes of this paragraph (f)(2), the term brid. Therefore, under paragraph (f)(2)(i)
even if under foreign law another person is person shall include a disregarded entity of this section, foreign tax imposed on the
obligated to remit the tax, another person described in §301.7701–2(c)(2)(i) of this combined income of the person and each
(e.g., a withholding agent) actually remits chapter. In determining the amount of tax reverse hybrid shall be allocated between
the tax, or foreign law permits the foreign paid by an owner of a hybrid partnership or the person and the reverse hybrid on a pro
country to proceed against another person disregarded entity (as defined in paragraph rata basis. For this purpose, the term pro
to collect the tax in the event the tax is not (f)(3) of this section), this paragraph (f)(2) rata means in proportion to the portion of
paid. However, see section 905(b) and the shall first apply to determine the amount of the combined income included in the for-
regulations thereunder for rules relating to tax paid by the hybrid partnership or dis- eign tax base that is attributable to the per-
proof of payment. Except as provided in regarded entity, and then paragraph (f)(3) son’s share of income from each reverse
paragraph (f)(2)(i) of this section, for pur- of this section shall apply to allocate the hybrid and the portion of the combined in-
poses of this section the term person has amount of such tax to the owner. come that is attributable to the other in-
the meaning set forth in section 7701(a)(1), (ii) Combined income. For purposes come of the person (including income re-
and so includes an entity treated as a cor- of this paragraph (f)(2), foreign tax is ceived from a reverse hybrid other than in
poration, trust, estate or partnership for imposed on the combined income of two the owner’s capacity as an owner). If the
U.S. tax purposes, but not a disregarded or more persons if such persons compute person has a share of income from the re-
entity described in §301.7701–2(c)(2)(i) of their taxable income on a combined basis verse hybrid but no other income on which
this chapter. The person on whom foreign under foreign law. Foreign tax is con- tax is imposed by the foreign country, the
law imposes legal liability is referred to as sidered to be imposed on the combined entire amount of foreign tax is allocated to
the “taxpayer” for purposes of this section, income of two or more persons even if and considered paid by the reverse hybrid.
§1.901–2A, and §1.903–1. the combined income is computed under (iv) Portion of combined income—(A)
(ii) Taxes in lieu of income taxes. The foreign law by attributing to one such per- In general. Except with respect to in-
principles of paragraph (f)(1)(i) and para- son (e.g., the foreign parent of a foreign come attributable to related party hybrid
graphs (f)(2) through (f)(5) of this section consolidated group) the income of other payments or accrued amounts described in
shall apply to determine the person who is such persons. However, foreign tax is not paragraph (f)(4) of this section, each per-

September 5, 2006 372 2006–36 I.R.B.


son’s portion of the combined income shall mandatory rules for allocating the net loss, for the foreign taxable year that are attrib-
be determined by reference to any return, the net loss shall be allocated among all utable to the period ending on and the pe-
schedule or other document that must be other such persons pro rata based on the riod ending after the last day of the ter-
filed or maintained with respect to a person amount of each person’s income, as deter- minating partnership’s U.S. taxable year.
showing such person’s income for foreign mined under paragraphs (f)(2)(iv)(A) and The principles of the preceding sentence
tax purposes, as properly amended or ad- (B) of this section. For purposes of this shall also apply if the hybrid partnership’s
justed for foreign tax purposes. If no such paragraph (f)(2)(iv)(C), foreign law shall U.S. taxable year closes with respect to
return, schedule or document must be filed not be considered to provide mandatory one or more, but less than all, partners
or maintained with respect to a person for rules for allocating a loss solely because or, except as otherwise provided in section
foreign tax purposes, then, for purposes of such loss is attributed from one person to a 706(d)(2) or (d)(3) (relating to certain cash
this paragraph (f)(2), such person’s income second person for purposes of computing basis items of the partnership), there is a
shall be determined from the books of ac- combined income, as described in para- change in any partner’s interest in the part-
count regularly maintained by or on behalf graph (f)(2)(ii) of this section. nership during the partnership’s U.S. tax-
of the person for purposes of computing its (v) Collateral consequences. U.S. tax able year. If, as a result of a change in own-
taxable income under foreign law. principles shall apply to determine the tax ership during a hybrid partnership’s for-
(B) Effect of certain payments. Each consequences if one person remits a tax eign taxable year, the hybrid partnership
person’s portion of the combined income that is the legal liability of, and thus is becomes a disregarded entity and the en-
shall be determined by giving effect to considered paid by, another person. For tity’s foreign taxable year does not close,
payments and accrued amounts of interest, example, a payment of tax for which a foreign tax paid or accrued by the disre-
rents, royalties, and other amounts to the corporation has legal liability by a share- garded entity with respect to the foreign
extent such payments or accrued amounts holder of that corporation (including an taxable year shall be allocated between the
are taken into account in computing the owner of a reverse hybrid) will ordinar- hybrid partnership and the owner of the
separate taxable income of such person ily result in a deemed capital contribution disregarded entity under the principles of
both under foreign law and under U.S. tax and deemed payment of tax by the corpo- this paragraph (f)(3)(i).
principles. With respect to certain related ration. If the corporation reimburses the (ii) Disregarded entities. If foreign
party hybrid payments, see the reservation shareholder for the tax payment, such re- tax is imposed at the entity level on
in paragraph (f)(4) of this section. Thus, imbursement would ordinarily be treated the income of an entity described in
for example, interest paid by a reverse hy- as a distribution for U.S. tax purposes. §301.7701–2(c)(2)(i) of this chapter (a
brid to one of its owners with respect to (3) Taxes on income of hybrid partner- disregarded entity), foreign law is consid-
an instrument that is treated as debt for ships and disregarded entities—(i) Hybrid ered to impose legal liability for the tax on
both U.S. and foreign tax purposes would partnerships. If foreign law imposes tax at the person who is treated as owning the
be considered income of the owner and the entity level on the income of an entity assets of the disregarded entity for U.S.
would reduce the taxable income of the re- that is treated as a partnership for U.S. in- income tax purposes. Such person shall be
verse hybrid. However, each person’s por- come tax purposes (a hybrid partnership), considered to pay the tax for U.S. income
tion of the combined income shall be de- the hybrid partnership is considered to be tax purposes. If there is a change in the
termined without taking into account any legally liable for such tax under foreign ownership of such disregarded entity dur-
payments from other persons whose in- law. Therefore, the hybrid partnership is ing the entity’s foreign taxable year and
come is included in the combined base that considered to pay the tax for U.S. income such change does not result in a closing
are treated as dividends under foreign law, tax purposes. See §1.704–1(b)(4)(viii) for of the disregarded entity’s foreign taxable
and without taking into account deemed rules relating to the allocation of such tax year, foreign tax paid or accrued with re-
dividends or any similar attribution of in- among the partners of the partnership. If spect to such foreign taxable year shall be
come made for purposes of computing the the hybrid partnership’s U.S. taxable year allocated between the old owner and the
combined income under foreign law. This closes for all partners due to a termina- new owner. The allocation shall be made
rule applies regardless of whether any such tion of the partnership under section 708 under the principles of §1.1502–76(b)
dividend, deemed dividend or attribution and the regulations thereunder (other than based on the respective portions of the
of income results in a deduction or inclu- in the case of a termination under section taxable income of the disregarded entity
sion under foreign law. 708(b)(1)(A)) and the foreign taxable year (as determined under foreign law) for the
(C) Net losses. If tax is considered to of the partnership does not close, then for- foreign taxable year that are attributable to
be imposed on the combined income of eign tax paid or accrued by the partnership the period ending on the date of the own-
three or more persons and one or more of with respect to the foreign taxable year ership change and the period ending after
such persons has a net loss for the taxable that ends with or within the new partner- such date. If, as a result of a change in
year for foreign tax purposes, the follow- ship’s first U.S. taxable year shall be al- ownership, the disregarded entity becomes
ing rules apply. If foreign law provides located between the terminating partner- a hybrid partnership and the entity’s for-
mandatory rules for allocating the net loss ship and the new partnership. The allo- eign taxable year does not close, foreign
among the other persons, then the rules that cation shall be made under the principles tax paid or accrued by the hybrid partner-
apply for foreign tax purposes shall apply of §1.1502–76(b) based on the respective ship with respect to the foreign taxable
for purposes of paragraph (f)(2)(iv) of this portions of the taxable income of the part- year shall be allocated between the old
section. If foreign law does not provide nership (as determined under foreign law) owner and the hybrid partnership under

2006–36 I.R.B. 373 September 5, 2006


the principles of this paragraph (f)(3)(ii). (ii) Result. Under paragraph (f)(1)(ii) of this sec- U.S. income tax purposes, B only recognizes interest
If the person who owns a disregarded tion, legal liability for the tax is considered to be im- that accrues on the bond on and after July 1, 2007. No
entity is a partnership for U.S. income posed on C, not B (C’s nominee or agent). Thus, C portion of the country Y tax is considered to be paid
is the taxpayer with respect to the country X tax im- by A even though, for U.S. income tax purposes, A
tax purposes, see §1.704–1(b)(4)(viii) for posed on C’s interest income from C’s loan to A. Ac- recognizes interest on the bond that accrues prior to
rules relating to the allocation of such tax cordingly, C’s interest income for U.S. income tax July 1, 2007.
among the partners of the partnership. purposes includes the amount of country X tax that Example 5. (i) Facts. A, a United States person
(4) Tax on income attributable to re- is imposed on C with respect to such interest income and resident of country X, is an employee of B, a
lated party payments or accrued amounts and that is paid on C’s behalf by A pursuant to the corporation organized in country X. Under the laws of
loan agreement. Under paragraph (f)(1)(ii) of this country X, B is required to withhold from A’s wages
that are deductible for foreign (or U.S.) tax section, such tax is considered for U.S. income tax and pay over to country X foreign social security tax
law purposes and that are nondeductible purposes to be paid by C. No such tax is considered of a type described in paragraph (a)(2)(ii)(C) of this
for U.S. (or foreign) tax law purposes or paid by B. section, and it is established that this tax is an income
that are disregarded for U.S. tax law pur- Example 3. (i) Facts. A, a U.S. person, owns a tax described in paragraph (a)(1) of this section.
poses. [Reserved]. bond issued by C, a resident of country X. On January (ii) Result. Under paragraph (f)(1)(i) of this sec-
1, 2008, A and B enter into a transaction in which A, tion, A is considered legally liable for the country X
(5) Party undertaking tax obligation as in form, sells the bond to B, also a U.S. person. As tax because such tax is imposed on A’s wages. There-
part of transaction. Tax is considered paid part of the transaction, A and B agree that A will re- fore, for U.S. income tax purposes, A is considered to
by the taxpayer even if another party to a purchase the bond from B on December 31, 2013 for pay the country X tax.
direct or indirect transaction with the tax- the same amount. In addition, B agrees to make pay- Example 6. (i) Facts. A, a United States person,
payer agrees, as a part of the transaction, to ments to A equal to the amount of interest B receives owns 100 percent of B, an entity organized in country
from C. As a result of the arrangement, legal title to X. B is a corporation for country X tax purposes, and
assume the taxpayer’s foreign tax liability. the bond is transferred to B. The transfer of legal title a disregarded entity for U.S. income tax purposes. B
The rules of the foregoing sentence apply has the effect of transferring ownership of the bond to owns 100 percent of corporation C and corporation D,
notwithstanding anything to the contrary B for country X tax purposes. A remains the owner both of which are also organized in country X. B, C
in paragraph (e)(3) of this section. See of the bond for U.S. income tax purposes. Country X and D use the “u” as their functional currency and file
§1.901–2A for additional rules regarding imposes a 10 percent tax on the gross amount of in- on a combined basis for country X income tax pur-
terest income received by nonresidents of country X poses. Country X imposes an income tax described in
dual capacity taxpayers. from sources in country X, and it is established that paragraph (a)(1) of this section at the rate of 30 per-
(6) Examples. The following exam- this tax is a tax in lieu of an income tax within the cent on the taxable income of corporations organized
ples illustrate the rules of paragraphs (f)(1) meaning of §1.903–1(a). Under the law of country in country X. Under the country X combined report-
through (f)(5) of this section. X this tax is imposed on the interest income of the ing regime, income (or loss) of C and D is attributed
Example 1. (i) Facts. Under a loan agreement nonresident recipient, and any resident of country X to, and treated as income (or loss) of, B. B has the sole
between A, a resident of country X, and B, a United that pays such interest to a nonresident is required to obligation to pay country X income tax imposed with
States person, A agrees to pay B a certain amount of withhold and pay over to country X 10 percent of the respect to income of B and income of C and D that is
interest net of any tax that country X may impose on amount of such interest. On December 31, 2008, C attributed to, and treated as income of, B. Under the
B with respect to its interest income. Country X im- pays B interest on the bond and withholds 10 percent law of country X, country X may proceed against B,
poses a 10 percent tax on the gross amount of interest of country X tax. but not C or D, if B fails to pay over to country X all
income received by nonresidents of country X from (ii) Result. Under paragraph (f)(1)(ii) of this sec- or any portion of the country X income tax imposed
sources in country X, and it is established that this tax tion, B is considered legally liable for the country X with respect to such income. In year 1, B has taxable
is a tax in lieu of an income tax within the meaning of tax because B is the owner of the interest income for income of 100u, C has taxable income of 200u, and
§1.903–1(a). Under the law of country X this tax is country X tax purposes, even though A and not B D has a net loss of (60u). Under the law of country X,
imposed on the interest income of the nonresident re- recognizes the interest income for U.S. tax purposes. B is considered to have 240u of taxable income with
cipient, and any resident of country X that pays such The result would be the same if the transaction had respect to which 72u of country X income tax is im-
interest to a nonresident is required to withhold and the effect of transferring ownership of the bond to B posed. Country X does not provide mandatory rules
pay over to country X 10 percent of the amount of for U.S. income tax purposes. for allocating D’s loss.
such interest. Under the law of country X, the coun- Example 4. (i) Facts. On January 1, 2007, A, a (ii) Result. Under paragraph (f)(2)(ii) of this sec-
try X taxing authority may proceed against A, but not United States person, purchases a bond issued by X, tion, the 72u of country X tax is considered to be
B, if A fails to withhold and pay over the tax to coun- a foreign person resident in country Y. A accrues in- imposed on the combined income of B, C, and D.
try X. terest income on the bond for U.S. tax purposes from Because country X law does not provide mandatory
(ii) Result. Under paragraph (f)(1)(ii) of this sec- January 1, 2007, until A sells the bond to B, another rules for allocating D’s loss between B and C, under
tion, B is considered legally liable for the country X United States person, on July 1, 2007. On December paragraph (f)(2)(iv)(C) of this section D’s (60u) loss
tax because such tax is imposed on B’s interest in- 31, 2007, X pays interest on the bond that accrued for is allocated pro rata: 20u to B ((100u/300u) x 60u)
come. Therefore, for U.S. income tax purposes, B is the entire year to B. Country Y imposes a 10 percent and 40u to C ((200u/300u) x 60u). Under paragraph
considered to pay the country X tax, and B’s interest tax on the gross amount of interest income received (f)(2)(i) of this section, the 72u of country X tax must
income includes the amount of country X tax that is by nonresidents of country Y from sources in coun- be allocated pro rata among B, C, and D. Because D
imposed with respect to such interest income and paid try Y, and it is established that this tax is a tax in lieu has no income for country X tax purposes, no coun-
on B’s behalf by A. No portion of such tax is consid- of an income tax within the meaning of §1.903–1(a). try X tax is allocated to D. Accordingly, 24u (72u x
ered paid by A. Under the law of country Y this tax is imposed on (80u/240u)) of the country X tax is allocated to B,
Example 2. (i) Facts. The facts are the same as the interest income of the nonresident recipient, and and 48u (72u x (160u/240u)) of such tax is allocated
in Example 1, except that in collecting and receiving any resident of country Y that pays such interest to to C. Under paragraph (f)(3)(ii) of this section, A is
the interest B is acting as a nominee for, or agent of, a nonresident is required to withhold and pay over considered to have legal liability for the 24u of coun-
C, who is a United States person. Accordingly, C, not to country Y 10 percent of the amount of such inter- try X tax allocated to B under paragraph (f)(2) of this
B, is the beneficial owner of the interest for U.S. in- est. Pursuant to the law of country Y, X withholds tax section.
come tax purposes. Country X law also recognizes from the interest paid to B. Example 7. (i) Facts. A, a domestic corporation,
the nominee or agency arrangement and, thus, con- (ii) Result. Under paragraph (f)(1)(ii) of this sec- owns 95 percent of the voting power and value of C,
siders C to be the beneficial owner of the interest in- tion, legal liability for the tax is considered to be im- an entity organized in country Z that uses the “u” as
come. posed on B. Thus, B is the taxpayer with respect to the its functional currency. B, a domestic corporation,
entire amount of the country Y tax even though, for owns the remaining 5 percent of the voting power

September 5, 2006 374 2006–36 I.R.B.


and value of C. Pursuant to an election made under sale of A’s interest does not close D’s taxable year Notice of Proposed
§301.7701–3(a), C is treated as a corporation for U.S. for country M tax purposes. D has 400u of taxable
income tax purposes, but as a partnership for country income for its 2008 foreign taxable year with respect
Rulemaking by
Z income tax purposes. Accordingly, under country to which country M imposes 120u equal to $120 of Cross-Reference to
Z law, A and B are required to take into account their income tax. Temporary Regulations
respective shares of the taxable income of C. Coun- (ii) Result. Under paragraph (f)(3)(i) of this sec-
try Z imposes an income tax described in paragraph tion, hybrid partnership D is legally liable for the
(a)(1) of this section at the rate of 30 percent on such $120 of country M income tax imposed on its net in- Reporting Rules for Widely
taxable income. For 2007, C has 500u of taxable in- come. Because D’s taxable year closes on September Held Fixed Investment Trusts
come for country Z tax purposes. A’s and B’s shares 30, 2008, for U.S. tax purposes, but does not close for
of such income are 475u and 25u, respectively. In ad- country M tax purposes, under paragraph (f)(3)(i) of
dition, A has 125u of taxable income attributable to this section the $120 of country M tax must be allo- REG–125071–06
a permanent establishment in country Z. Income of cated under the principles of §1.1502–76(b) between
nonresidents that is attributable to a permanent estab- the short U.S. taxable years of “old” D and new D. AGENCY: Internal Revenue Service
lishment in country Z is also subject to the country See §1.704–1(b)(4)(viii) for rules relating to the allo- (IRS), Treasury.
Z income tax at a rate of 30 percent. Accordingly, cation of “old” D’s country M taxes between A and
country Z imposes 180u of tax on A’s total taxable B and the allocation of new D’s country M taxes be- ACTION: Notice of proposed rulemaking
income of 600u (475u of income from C and 125u of tween B and C.
income from the permanent establishment). Country Example 9. (i) Facts. A, a United States per-
by cross-reference to temporary regula-
Z imposes 7.5u of tax on B’s 25u of taxable income son engaged in construction activities in country X, tions.
from C. is subject to the country X income tax. Country X
(ii) Result. Under paragraph (f)(2)(iii) of this sec- has contracted with A for A to construct a naval base. SUMMARY: In this issue of the Bulletin,
tion, the 180u of tax imposed on the taxable income A is a dual capacity taxpayer (as defined in paragraph the IRS and the Treasury Department are
of A is considered to be imposed on the combined in- (a)(2)(ii)(A) of this section) and, in accordance with issuing final and temporary regulations
come of A and C. Under paragraph (f)(2)(i) of this paragraphs (a)(1) and (c)(1) of §1.901–2A, A has es-
(T.D. 9279) amending §1.671–5 which
section, such tax must be allocated between A and C tablished that the country X income tax as applied to
on a pro rata basis. Accordingly, C is considered to dual capacity persons and the country X income tax provides reporting rules for widely held
be legally liable for the 142.5u (180u x (475u/600u)) as applied to persons other than dual capacity persons fixed investment trusts (WHFITs). The
of country Z tax imposed on A’s 475u share of C’s together constitute a single levy. A has also estab- final and temporary regulations clarify
income, and A is considered to be legally liable for lished that that levy is an income tax within the mean- and simplify reporting for trustees and
the 37.5u (180u x (125u/600u)) of the country Z tax ing of paragraph (a)(1) of this section. Pursuant to the
middlemen of non-mortgage widely held
imposed on A’s 125u of income from its permanent terms of the contract, country X has agreed to assume
establishment. Under paragraph (f)(2)(iii) of this sec- any country X income tax liability that A may incur fixed investment trusts (NMWHFITs).
tion, the 7.5u of tax imposed on the taxable income with respect to A’s income from the contract. The text of those final and temporary reg-
of B is considered to be imposed on the combined in- (ii) Result. For U.S. income tax purposes, A’s ulations serves, in part, as the text of these
come of B and C. Since B has no other income on income from the contract includes the amount of tax proposed regulations. In addition to the
which income tax is imposed by country Z, under that is imposed by country X on A with respect to
amendments to §1.671–5 included in the
paragraph (f)(2)(iii) of this section the entire amount its income from the contract and that is assumed by
of such tax is allocated to and considered paid by C. country X; and the amount of the tax liability assumed final and temporary regulations, these pro-
C’s post-1986 foreign income taxes include the U.S. by country X is considered to be paid by A. By reason posed regulations provide for the creation
dollar equivalent of 150u of country Z income tax C of paragraph (f)(5) of this section, country X is not of a directory of NMWHFITs and trustees
is considered to pay for U.S. income tax purposes. A, considered to provide a subsidy, within the meaning of widely held mortgage trusts (WHMTs).
but not B, is eligible to compute deemed-paid taxes of section 901(i) and paragraph (e)(3) of this section,
These regulations also clarify the report-
under section 902(a) in connection with dividends re- to A.
ceived from C. Under paragraph (f)(2)(v) of this sec- ing rules for market discount under the
tion, the payment by A or B of tax for which C is
***** NMWHFIT safe harbor for NMWHFITs
considered legally liable is treated as a capital contri- (h) Effective date. Paragraphs (a) that hold debt instruments with original
bution by A or B to C. through (e) and paragraph (g) of this sec- issue discount (OID). The preamble to
Example 8. (i) Facts. A, B, and C are U.S. per- tion, §1.901–2A and §1.903–1 apply to these regulations also solicits comments
sons that each use the calendar year as their taxable
taxable years beginning after November regarding the safe harbor for WHMTs.
year. A and B each own 50 percent of the capital and
profits of D, an entity organized in country M. D is
14, 1983. Paragraph (f) of this section is
a partnership for U.S. income tax purposes, but is a effective for foreign taxes paid or accrued DATES: Written or electronic comments
corporation for country M tax purposes. D uses the during taxable years of the taxpayer be- and requests for a public hearing must be
“u” as its functional currency and the calendar year as ginning on or after January 1, 2007. received by October 2, 2006.
its taxable year for both U.S. tax purposes and coun-
try M tax purposes. Country M imposes an income Mark E. Matthews, ADDRESSES: Send submissions to
tax described in paragraph (a)(1) of this section at a
Deputy Commissioner for CC:PA:LPD:PR (REG–125071–06), In-
rate of 30 percent at the entity level on the taxable
income of D. On September 30, 2008, A sells its 50 Services and Enforcement. ternal Revenue Service, PO Box 7604,
percent interest in D to C. A’s sale of its partnership
(Filed by the Office of the Federal Register on August 3,
Ben Franklin Station, Washington, DC
interest results in a termination of the partnership un- 2006, 8:45 a.m., and published in the issue of the Federal 20044, or send electronically, via the
der section 708(b) for U.S. tax purposes. As a result Register for August 4, 2006, 71 F.R. 44240)
IRS Internet site at www.irs.gov/regs
of the termination, “old” D’s taxable year closes on
September 30, 2008 for U.S. tax purposes. New D
or via the Federal eRulemaking Por-
also has a short U.S. taxable year, beginning on Octo- tal at http://www.regulations.gov/
ber 1, 2008, and ending on December 31, 2008. The (IRS–REG–125071–06).

2006–36 I.R.B. 375 September 5, 2006


FOR FURTHER INFORMATION Final and temporary regulations in this holding WHMT interests), and the format
CONTACT: Concerning the proposed issue of the Bulletin amend §1.671–5. of a directory that would be most help-
regulations, Faith Colson, (202) 622–3060 These amendments are intended to clarify ful. Trustees were also asked to comment
(not a toll-free number); concerning sub- and simplify the reporting required by regarding how the IRS could obtain the
mission of comments and/or requests for NMWHFITs under §1.671–5. The text trust information needed for the directory
a public hearing, Richard A. Hurst at of the final and temporary regulations from the trustees in the least burdensome
Richard.A.Hurst@irscounsel.treas.gov. also serves, in part, as the text of these manner.
proposed regulations. The preamble to Since the publication of the final reg-
SUPPLEMENTARY INFORMATION: final and temporary regulations explains ulations, the IRS has received additional
the final and temporary regulations and comments regarding the need for a direc-
Paperwork Reduction Act
those parts of these proposed regulations tory of WHFITs. Commentators indicated
These proposed regulations amend that are included in the final and tempo- that such a directory would significantly
§1.671–5. The collection of information rary regulations. These proposed regu- improve a middleman’s ability to comply
contained in these proposed regulations lations include proposed amendments to with §1.671–5 and suggested that the IRS
has been previously reviewed and ap- §1.671–5 in addition to those provided by provide a directory of WHMT trustees and
proved by the Office of Management and the final and temporary regulations. The NMWHFITs, with each WHMT trustee
Budget in accordance with the Paperwork proposed amendments to §1.671–5 that maintaining a list of the WHMTs for which
Reduction Act of 1995 (44 U.S.C. 3507) are not included in the final and temporary the trustee acts at an Internet website avail-
under control number 1545–1540. Re- regulations are discussed below. able to middlemen.
sponse to this collection of information In response to these comments, the
is mandatory. The collection of informa- I. Proposed Directory of WHMT Trustees IRS proposes to expand Publication 938,
tion in these proposed regulations is in and NMWHFITs and Requirement That “Real Estate Mortgage Investment Con-
§1.671–5. This information is required to WHMT trustees Provide a List of WHMTs duits (REMICs) Reporting Information
be reported to beneficial owners of trust for Which They act on an Internet Website. (And Other Collateralized Debt Obli-
interests to enable them to correctly report gations (CDOs)),” or create a separate
Prior to the publication of the final regu- publication to list WHMT trustees and
their share of the items of income, deduc-
lations under §1.671–5, commentators ex- NMWHFITs. The IRS currently intends
tion, and credit of the WHFIT in which
pressed concern that middlemen would not to list NMWHFITs in this directory by
they have invested. This information is
be able to identify a client’s investment as trustee (listed in alphabetical order) with
also required to be reported to the IRS
an investment in a WHFIT and suggested the NMWHFITs for which the trustee
to enable the IRS to verify that trustees
that the IRS publish a directory or list acts listed by CUSIP number, followed
and middlemen are accurately reporting
of WHFITs that would include the name by any NMWHFITs, listed in alphabet-
information to beneficial owners of trust
and CUSIP number of each WHFIT, along ical order by name which do not have
interests and that beneficial owners are
with the name, address and telephone num- CUSIP numbers. NMWHFIT trustees will
properly reporting their ownership of a
ber of the WHFIT’s representative. Com- be required to file Form 8811, “Informa-
trust interest.
mentators noted that a publicly available tion Return for Real Estate Investment
An agency may not conduct or sponsor,
directory or list would assist middlemen Conduits (REMICs) and Issuers of Collat-
and a person is not required to respond to, a
and brokers in identifying a client’s invest- eralized Debt Obligations,” or a similar
collection of information unless it displays
ment as an investment in a WHFIT and in form to provide the IRS with the infor-
a valid control number assigned by the Of-
locating the WHFIT’s representative. mation it needs to list NMWHFITs in the
fice of Management and Budget.
In response to these comments, the directory.
Books or records relating to a collection
final regulations require a trustee to iden- The directory will also alphabetically
of information must be retained as long
tify the WHFIT as either a WHMT or a list WHMT trustees and provide the ad-
as their contents might become material in
NMWHFIT when providing trust infor- dress of the Internet website that lists
the administration of any internal revenue
mation. The preamble to the final WHFIT the WHMTs for which the trustee acts.
law. Generally, tax returns and tax return
regulations provides that the IRS and the WHMT trustees will be required to file
information are confidential, as required
Treasury Department are studying whether Form 8811, or similar form, to identify
by 26 U.S.C. 6103.
a directory or list of WHFITs can be com- themselves to the IRS as a WHMT trustee
Background and Explanation of piled by the IRS and expressed concern and provide an Internet website that lists
Provisions that such a directory was not feasible be- the WHMTs for which the trustee acts.
cause of the large number of WHMTs. In The IRS and Treasury Department con-
On January 24, 2006, the Internal Rev- the preamble, the IRS and the Treasury tinue to request comments on the need for
enue Service (IRS) and the Treasury De- Department requested additional com- the directory and the format to be used
partment published final regulations (T.D. ments from middlemen regarding the type for the directory, as well as comments
9241, 2006–7 I.R.B. 427) under §1.671–5 of WHFITs that should be included in any regarding how to obtain information from
in the Federal Register (71 FR 4002) directory, the type of information needed trustees in the least burdensome manner.
providing reporting rules for WHFITs. by middlemen (especially middlemen

September 5, 2006 376 2006–36 I.R.B.


II. Clarification of Market Discount date of the final regulations, the proposed tions regarding the effective date of pro-
Information Required to be Reported regulations only apply this requirement posed paragraphs (c)(3) (requiring trustees
under the NMWHFIT Safe Harbor. to NMWHFITs with a start-up date (as to file an information return with the IRS
defined in §1.671–5(b)(19)) after January and requiring WHMT trustees to provide
Commentators also noted the need for 24, 2006. an Internet Website listing the WHMTs for
amendments to the information required which they act) and (c)(5) (providing for
to be reported under the NMWHFIT safe III. Request for comments on the middlemen to refer to a directory created
harbor with respect to market discount. If expansion of the WHMT safe harbor. by the IRS), that may require some lead
a NMWHFIT does not qualify for the re- time for their implementation.
duced reporting in §1.671–5(c)(2)(iv)(B), The final regulations include safe har-
§1.671–5(f)(1)(viii) requires the trustee to bor reporting rules for WHMTs. Section Special Analysis
provide information regarding the portion 1.671–5(g)(1)(ii)(B) provides that, to be
of the trust that the assets sold represented. eligible to report under the WHMT safe It has been determined that these pro-
Assuming that a trust interest holder pur- harbor, all interests in the WHMT must posed regulations are not a significant reg-
chased its interest at a discount, it was represent the right to receive an equal ulatory action as defined in Executive Or-
contemplated that the trust interest holder pro-rata share of both the income and der 12866. Therefore, a regulatory assess-
would allocate the same portion of its dis- the principal payments received by the ment is not required. It is hereby certified
count to the sale as the assets represented WHMT on the mortgages it holds and that these regulations will not have a sig-
to the NMWHFIT. The trust interest holder that, for example, a WHMT that holds nificant economic impact on a substantial
would then determine how much of the or issues trust interests that qualify as number of small entities. This certifica-
discount allocated to the sold assets had stripped interests under section 1286 may tion is based on the fact that the regulations
accrued since the trust interest holder pur- not report under the safe harbor. Further, will not to have a significant economic im-
chased its interest using either a ratable or a WHMT that holds an interest in another pact on small entities because the report-
constant interest method, as appropriate. WHFIT is not eligible to report under the ing burdens in these regulations will fall
After reviewing the comments received WHMT safe harbor. See §1.671–5(b)(11) primarily on large brokerage firms, large
after the publication of T.D. 9241, the IRS (limiting the definition of a mortgage to banks, and other large entities acting as
and the Treasury Department noted that exclude an interest in another WHFIT) trustees or middlemen, most of which are
the information required to be reported and §1.671–5(g)(1)(ii)(E)(1) (providing not small entities within the meaning of the
under the safe harbor is incomplete with that only WHMTs that directly hold mort- Regulatory Flexibility Act (5 U.S.C. chap-
respect to a NMWHFIT holding debt in- gages may use the safe harbor). Since ter 6). Thus, a substantial number of small
struments with original issue discount the publication of the final regulations, entities are not expected to be affected.
(OID). Under both the general provi- a commentator has requested that safe Therefore, a Regulatory Flexibility Anal-
sions (§1.671–5(c)(2)(ii)(A) and (vii)) harbor reporting rules be developed for ysis under the Regulatory Flexibility Act
and the safe harbor (§1.671–5(f)(1)(vii) WHMTs that hold or issue stripped inter- (5 U.S.C. chapter 6) is not required. Pur-
and (viii)), OID information is required ests and for WHMTs that hold interests in suant to section 7805(f) of the Code, these
to be calculated and provided separately other WHMTs. The IRS and the Treasury regulations will be submitted to the Chief
from market discount. Accordingly, to Department will consider this request in Counsel for Advocacy of the Small Busi-
enable trust interest holders to determine connection with further action on this pro- ness Administration for comment on their
the amount of market discount the interest posed regulation and request additional impact on small business.
holder is to allocate to a particular sale comments regarding the need for addi-
or disposition of debt instruments by the tional WHMT safe harbor reporting rules, Comments and Public Hearing
NMWHFIT, §1.671–5(f)(1)(viii)(A) is the nature of the arrangements for which
proposed to be amended with respect to the additional safe harbors are needed, the Before these proposed regulations are
NMWHFITs that hold debt instruments safe harbor reporting suggested and how adopted as final regulations, consideration
with OID, to include a requirement that such reporting is consistent with substan- will be given to any written (a signed origi-
trustees provide the aggregate adjusted tive law. nal and eight (8) copies) or electronic com-
issue price of the debt instruments held ments that are submitted timely to the IRS.
by the NMWHFIT per trust interest as Effective Date The IRS and the Treasury Department re-
of the start-up date as well as of Jan- quest comments on the clarity of the pro-
uary 1 of each subsequent year of the The IRS and the Treasury Depart- posed rules and how they can be made eas-
NMWHFIT. It is contemplated that trust ment expect to take prompt action to ier to understand. All comments will be
interest holders will use the January 1 ad- finalize the proposed regulations so that available for public inspection and copy-
justed issue price for the year in which the certain of the provisions that are only in- ing. A public hearing will be scheduled
trust interest holder purchased its interest cluded in the proposed regulations can be if requested in writing by any person that
to determine whether a trust interest was made effective as of January 1, 2007 (see timely submits written comments. If a
acquired with market discount. So as not §1.671–5(m)) as though the provisions public hearing is scheduled, notice of the
to require trustees to calculate information were included in T.D. 9241. The IRS and date, time, and place for the public hearing
for calendar years prior to the effective Treasury Department invite recommenda- will be published in the Federal Register.

2006–36 I.R.B. 377 September 5, 2006


Drafting Information (iv) [The text of proposed trustee and provide information with re-
§1.671–5(c)(2)(iv) is the same as the spect to the WHMTs for which the trustee
The principal author of these regula- text of §1.671–5T(c)(2)(iv) published acts, this method must be used.
tions is Faith Colson, Office of Associate elsewhere in this issue of the Bulletin]. *****
Chief Counsel (Passthroughs & Special In- (v) * * * (5) * * *
dustries). However, other personnel from (C) [The text of proposed (iv) Directory of WHMT trustees and
the IRS and the Treasury Department par- §1.671–5(c)(2)(v)(C) is the same as NMWHFITs. The IRS provides a directory
ticipated in their development. the text of §1.671–5T(c)(2)(v)(C) pub- of WHMT trustees and NMWHFITs, and
lished elsewhere in this issue of the WHMT trustees provide an Internet web-
***** Bulletin]. site at which the trustees list the WHMTs
(vi) [The text of proposed for which they act, to assist requesting
Proposed Amendments to the §1.671–5(c)(2)(vi) is the same as the
Regulations persons in locating a representative of a
text of §1.671–5T(c)(2)(vi) published WHFIT that will provide the information
elsewhere in this issue of the Bulletin]. specified in paragraph (c) of this section.
Accordingly, 26 CFR part 1 is amended (vii) [The text of proposed
as follows: A requesting person may report consistent
§1.671–5(c)(2)(vii) is the same as with this section for any arrangement iden-
the text of §1.671–5T(c)(2)(vii) published tified in the directory as a NMWHFIT or
PART 1 — INCOME TAXES
elsewhere in this issue of the Bulletin]. on a WHMT trustee’s Internet website as
Paragraph 1. The authority citation for ***** a WHMT provided that the requesting per-
part 1 continues to read, in part, as follows: (3) Requirement that trustees file an in- son does not have actual knowledge that
Authority: 26 U.S.C. 7805 * * * formation return and that WHMT trustees the arrangement is not a WHFIT.
Par. 2. Section 1.671–5 is amended by: list WHMTs on an Internet website—(i) In- (f) * * *
1. Revising paragraphs (b)(5), (b)(8), formation return identifying a NMWHFIT (1) * * *
and (b)(21). to the IRS. For each NMWHFIT for which (i) * * *
2. Revising paragraphs (c)(2)(iv), the trustee acts, the trustee of a NMWHFIT (A) [The text of proposed
(v)(C), (vi), and (vii). must file the form specified as the infor- §1.671–5(f)(1)(i)(A) is the same as
3. Revising paragraph (c)(3). mation return to be used for identifying a the text of §1.671–5T(f)(1)(i)(A) pub-
4. Adding paragraph (c)(5)(iv). NMWHFIT to the IRS. The form must be lished elsewhere in this issue of the
5. Revising paragraphs (f)(1)(i)(A) and filed by the due date provided by that form Bulletin].
(viii)(A). and must contain the information required *****
The revisions and addition read as fol- to be provided by the form. If, follow- (viii) Reporting market discount in-
lows: ing the publication of final regulations in formation under the safe harbor — (A)
the Federal Register, the IRS issues ad- In general — (1) Trustee is required to
§1.671–5 Reporting for widely held fixed ditional guidance that prescribes another provide market discount information. If
investment trusts. method to be used to identify and provide the trustee is required to provide infor-
information with respect to a NMWHFIT mation regarding market discount under
***** to the IRS, this method must be used. paragraph (c)(2)(vii) of this section, the
(b) * * * (ii) Information return for trustees of trustee must provide—
(5) [The text of proposed WHMTs and the requirement that the (i) The information required to be pro-
§1.671–5(b)(5) is the same as the text of trustee maintain an Internet website list- vided under paragraph (f)(1)(iv)(A)(1)(iii)
§1.671–5T(b)(5) published elsewhere in ing the CUSIP numbers and names of of this section; and
this issue of the Bulletin]. the WHMTs for which the trustee acts. (ii) If the NMWHFIT holds debt in-
The trustee of a NMWHFIT must file the struments with OID and the NMWHFIT
*****
form specified as the information return to has a start-up date on or after January 24,
(8) [The text of proposed
be used for identifying the trustee to the 2006, the aggregate adjusted issue price of
§1.671–5(b)(8) is the same as the text of
IRS. The form must be filed by the due the debt instruments per trust interest cal-
§1.671–5T(b)(8) published elsewhere in
date provided by that form and contain culated as of the start-up date and as of
this issue of the Bulletin].
the information required to be provided January 1 for each subsequent year of the
***** by the form. In addition, the trustee must NMWHFIT.
(21) [The text of proposed maintain a list of the WHMTs for which (2) Trustee is not required to pro-
§1.671–5(b)(21) is the same as the the trustee acts on the trustee’s Internet vide market discount information. If the
text of §1.671–5T(b)(21) published website (or another site designated by the trustee is not required to provide mar-
elsewhere in this issue of the Bulletin]. trustee for this purpose). If, following the ket discount information under paragraph
publication of final regulations in the Fed- (c)(2)(vii) of this section (because the
***** eral Register, the IRS issues additional NMWHFIT meets the de minimis test of
(c) * * * guidance that prescribes another method paragraph (c)(2)(iv)(D)(1) of this section,
(2) * * * to be used to identify a trustee as a WHMT the qualified NMWHFIT exception of

September 5, 2006 378 2006–36 I.R.B.


paragraph (c)(2)(iv)(E) of this section, ***** (Filed by the Office of the Federal Register on July 28, 2006,
4:15 p.m., and published in the issue of the Federal Register
or the NMWHFIT final year exception of for August 3, 2006, 71 F.R. 43998)
paragraph (c)(2)(iv)(F) of this section), the Mark E. Matthews,
trustee is not required under this paragraph Deputy Commissioner for
(f) to provide any information regarding Services and Enforcement.
market discount.

Announcement of Disciplinary Actions Involving


Attorneys, Certified Public Accountants, Enrolled Agents,
and Enrolled Actuaries — Suspensions, Censures,
Disbarments, and Resignations
Announcement 2006-57
Under Title 31, Code of Federal Regu- person to practice before the Internal Rev- their names, their city and state, their pro-
lations, Part 10, attorneys, certified public enue Service during a period of suspen- fessional designation, the effective date
accountants, enrolled agents, and enrolled sion, disbarment, or ineligibility of such of disciplinary action, and the period of
actuaries may not accept assistance from, other person. suspension. This announcement will ap-
or assist, any person who is under disbar- To enable attorneys, certified public pear in the weekly Bulletin at the earliest
ment or suspension from practice before accountants, enrolled agents, and enrolled practicable date after such action and will
the Internal Revenue Service if the assis- actuaries to identify persons to whom continue to appear in the weekly Bulletins
tance relates to a matter constituting prac- these restrictions apply, the Director, Of- for five successive weeks.
tice before the Internal Revenue Service fice of Professional Responsibility, will
and may not knowingly aid or abet another announce in the Internal Revenue Bulletin

Consent Suspensions From Practice Before the Internal


Revenue Service
Under Title 31, Code of Federal Regu- may offer his or her consent to suspension The following individuals have been
lations, Part 10, an attorney, certified pub- from such practice. The Director, Office placed under consent suspension from
lic accountant, enrolled agent, or enrolled of Professional Responsibility, in his dis- practice before the Internal Revenue Ser-
actuary, in order to avoid the institution cretion, may suspend an attorney, certified vice:
or conclusion of a proceeding for his or public accountant, enrolled agent, or en-
her disbarment or suspension from prac- rolled actuary in accordance with the con-
tice before the Internal Revenue Service, sent offered.

Name Address Designation Date of Suspension

Crane, Stephen Palm Springs, CA Enrolled Agent May 4, 2006


to
August 3, 2007
Cohen, Ronald J. Newburgh, NY Attorney Indefinite
from
June 21, 2006
Layson, David A. Corydon, IN Attorney April 7, 2006
to
October 6, 2007
Brough, Donald L. Salem, IN CPA July 1, 2006
to
June 30, 2010

2006–36 I.R.B. 379 September 5, 2006


Name Address Designation Date of Suspension

Gulian, Yervant Great Neck, NY CPA April 17, 2006


to
December 16, 2007

Rivera-Smith, Dawn Brick, NJ CPA May 30, 2006


to
November 29, 2008

Eckstein, Matthew Woodbury, NY CPA June 15, 2006


to
March 14, 2007

Hecht, Jodee L. Clifton, VA CPA Indefinite


from
June 19, 2006

Finch, Phillip W. Yorktown, VA CPA Indefinite


from
June 22, 2006

Troese Jr., Henry A. Clarion, PA Enrolled Agent Indefinite


from
June 22, 2006

Robbins, Ronald E. Pittsford, VT CPA June 24, 2006


to
June 23, 2008

Shapiro, Sidney C. West Palm Beach, FL CPA Indefinite


from
July 1, 2006

Martini, Anthony Stamford, CT CPA June 18, 2006


to
December, 17, 2007

Cunningham, William Philadelphia, PA CPA July 1, 2006


to
March 31, 2007

Simontacchi, Joseph F. Morris Plains, NJ CPA Indefinite


from
July 1, 2006

Carroccio, Ronald P. Staten Island, NY CPA Indefinite


from
July 1, 2006

Miller, Walter P. Roanoke, VA CPA Indefinite


from
July 1, 2006

Aneji, Patrick Houston, TX CPA Indefinite


from
June 22, 2006

Rosenbloom, Mark L. Chicago, IL Attorney August 15, 2006


to
August 14, 2007

September 5, 2006 380 2006–36 I.R.B.


Name Address Designation Date of Suspension

Viener, Ira S. Fort Lee, NJ CPA Indefinite


from
August 1, 2006
Ganz, Sheldon M. Great Neck, NJ CPA Indefinite
from
August 1, 2006
Tomasulo, Maria Wantagh, NY CPA Indefinite
from
August 7, 2006
Galpern, Joel G. North Miami, FL CPA Indefinite
from
September 1, 2006

Expedited Suspensions From Practice Before the Internal


Revenue Service
Under Title 31, Code of Federal Regu- the expedited proceeding is instituted (1) The following individuals have been
lations, Part 10, the Director, Office of Pro- has had a license to practice as an attor- placed under suspension from practice be-
fessional Responsibility, is authorized to ney, certified public accountant, or actuary fore the Internal Revenue Service by virtue
immediately suspend from practice before suspended or revoked for cause or (2) has of the expedited proceeding provisions:
the Internal Revenue Service any practi- been convicted of certain crimes.
tioner who, within five years from the date

Name Address Designation Date of Suspension

Dolan Jr., John L. Memphis, TN Attorney Indefinite


from
April 3, 2006
St. Mary, Randall L. Snohomish, WA Attorney Indefinite
from
April 3, 2006
Theriault, Michael J. Bel Air, MD Attorney Indefinite
from
April 3, 2006
Smith, Bernard P. Marblehead, MA Attorney Indefinite
from
April 3, 2006
Bradley, Phillip M. West Point, VA Attorney Indefinite
from
April 3, 2006
Haefele, Richard J. Wayzata, MN Attorney Indefinite
from
April 3, 2006
Decker, William E. Mandeville, LA Attorney Indefinite
from
April 3, 2006

2006–36 I.R.B. 381 September 5, 2006


Name Address Designation Date of Suspension

Arbour, John J. Monroe, LA Attorney Indefinite


from
April 3, 2006

Keller, John S. Martin Kenner, LA Attorney Indefinite


from
April 3, 2006

Fallon, Charles D. Neptune, NJ Attorney Indefinite


from
April 3, 2006

Agresti, Thomas J. Centennial, CO Attorney Indefinite


from
April 3, 2006

Kirsch, Craig F. Pittsburgh, PA CPA Indefinite


from
April 3, 2006

Hall, Lenny G. McDowell, KY CPA Indefinite


from
April 11, 2006

Hultgren, Jerry R. Fresno, CA Attorney Indefinite


from
April 11, 2006

Loutos, Peter A. Chicago, IL Attorney Indefinite


from
April 11, 2006

Smith III, Frank L. Bushnell, FL Attorney Indefinite


from
April 11, 2006

Morley, Michael J. Springfield, PA CPA Indefinite


from
April 11, 2006

Waters, Richard W. Smithfield, UT CPA Indefinite


from
April 11, 2006

Hartgraves, Travis M. Abilene, TX Attorney Indefinite


from
April 14, 2006

Dunn, George T. Lockhart, TX Attorney Indefinite


from
April 14, 2006

Adkins, Thomas R. Houston, TX Attorney Indefinite


from
April 14, 2006

Hairston, John W. Sugar Land, TX Attorney Indefinite


from
April 26, 2006

September 5, 2006 382 2006–36 I.R.B.


Name Address Designation Date of Suspension

Marcone, Frank J. Upper Providence, PA Attorney Indefinite


from
May 1, 2006
Fraley, Donald J. Minneapolis, MN Attorney Indefinite
from
May 3, 2006
Tooke, S. Judd Shreveport, LA Attorney Indefinite
from
May 3, 2006
Reilly, Michael G. Council Bluffs, IA Attorney Indefinite
from
May 3, 2006
Faneuil, Robert A. Newton, MA Attorney Indefinite
from
May 3, 2006
Maignan, Peter R. Upper Marlboro, MD Attorney Indefinite
from
May 3, 2006
Son, David Phoenix, AZ Attorney Indefinite
from
May 5, 2006
Susman, Warren I. New York, NY Attorney Indefinite
from
May 8, 2006
Wurst, Jerome Arlington, TX Attorney Indefinite
from
May 8, 2006
O’Shea, Joseph G. Jackson Heights, NY Attorney Indefinite
from
May 8, 2006
Biegelson, Alan Brooklyn, NY Attorney Indefinite
from
May 8, 2006
Leonard, Robert K. Winston-Salem, NC Attorney Indefinite
from
May 8, 2006
Cassidy, Michael M. Madison, WI Attorney Indefinite
from
May 8, 2006
Dobkin, Daniel B. New Hyde Park, NY Attorney Indefinite
from
May 8, 2006
Nealy, Joseph L. Sugarland, TX Attorney Indefinite
from
May 16, 2006
Conmey, Edwin W. Oconomowoc, WI Attorney Indefinite
from
May 16, 2006

2006–36 I.R.B. 383 September 5, 2006


Name Address Designation Date of Suspension

Knott Jr., Robert T. Los Angeles, CA Attorney Indefinite


from
May 16, 2006
Diamond, Howard S. Mendham, NJ Attorney Indefinite
from
May 16, 2006
Fitzgerald, Bill L. Lubbock, TX Attorney Indefinite
from
May 16, 2006
Brubaker, Gregory A. San Francisco, CA Attorney Indefinite
from
May 18, 2006
Dodenbier, Robert F. Lehi, UT Attorney Indefinite
from
May 18, 2006
Young, Paul J. Taft, CA Attorney Indefinite
from
June 8, 2006
Dahodwala, Fatema Andover, MA Attorney Indefinite
from
June 8, 2006
Mendola, Joseph E. Monessen, PA CPA Indefinite
from
June 8, 2006
Rooney, Edward F. Minneapolis, MN Attorney Indefinite
from
June 8, 2006
Long, Rebecca L. Wichita, KS Attorney Indefinite
from
June 8, 2006
West, Clifton C. Fayetteville, NC Attorney Indefinite
from
June 8, 2006
Silva, Zoilo I. City Island, NY Attorney Indefinite
from
June 8, 2006
Tyler Jr., Earle S. Bangor, ME Attorney Indefinite
from
June 12, 2006
Horneber, Alice S. Sioux City, IA Attorney Indefinite
from
June 12, 2006
Donnelly, Christine M. Blue Springs, MO Attorney Indefinite
from
June 12, 2006
Driscoll Jr., Peter Columbia, MD Attorney Indefinite
from
June 12, 2006

September 5, 2006 384 2006–36 I.R.B.


Name Address Designation Date of Suspension

Souza, John C. Pocatello, ID Attorney Indefinite


from
June 12, 2006
Crockett, Kevin J. Midvale, UT Attorney Indefinite
from
June 12, 2006
White, Debra M. Wyatt Navasota, TX CPA Indefinite
from
June 12, 2006
Wilkins, Daniel J. Chelmsford, MA Attorney Indefinite
from
June 12, 2006
Merica, Chad L. Murray, UT CPA Indefinite
from
June 12, 2006
Wintroub, David S. Omaha, NE Attorney Indefinite
from
June 12, 2006
Smith, Roderick E. Kansas City, MO Attorney Indefinite
from
June 12, 2006
Guida, Joseph M. Aberdeen, MD Attorney Indefinite
from
June 12, 2006
Sonibare, Nash St. Paul, MN CPA Indefinite
from
June 12, 2006
Braun, Marc W. St. Louis, MO Attorney Indefinite
from
June 12, 2006
Coffey, John J. Rye, NH Attorney Indefinite
from
June 12, 2006
Whitehead, H. Allen New York, NY Attorney Indefinite
from
June 12, 2006
Lansky, Sidney Mattapoisett, MA Attorney Indefinite
from
June 12, 2006
Pazniokas, Paul M. Norwood, MA Attorney Indefinite
from
June 12, 2006
Bajgrowicz, James J. Santa Rosa, CA Attorney Indefinite
from
June 12, 2006
Davis, Bret J. Los Angeles, CA Attorney Indefinite
from
June 12, 2006

2006–36 I.R.B. 385 September 5, 2006


Name Address Designation Date of Suspension

McAvoy, Timothy Chicago, IL Attorney Indefinite


from
June 12, 2006

Loffadelli, Thomas C. Studio City, CA Attorney Indefinite


from
June 12, 2006

Emeziem, Kelechi C. Antioch, CA Attorney Indefinite


from
June 12, 2006

Pugh, William C. Wayzata, MN Attorney Indefinite


from
June 12, 2006

Lamanna, Eugene C. Reading, PA Attorney Indefinite


from
June 12, 2006

Bartels, John R. St. Paul, MN Attorney Indefinite


from
June 12, 2006

Shapiro, Kenneth S. Bala Cynwyd, PA CPA Indefinite


from
June 14, 2006

Stone, Jerry W. Austin, TX Attorney Indefinite


from
June 21, 2006

Vanriper, Philip E. Binghamton, NY Attorney Indefinite


from
June 21, 2006

Simuro, Valerie T. Gardiner, NY Attorney Indefinite


from
June 21, 2006

Simms, William K. Brooklyn, NY Attorney Indefinite


from
June 21, 2006

Weaver, Terring M. Clarksburg, WV CPA Indefinite


from
July 1, 2006

Norman, Clarence Brooklyn, NY Attorney Indefinite


from
August 3, 2006

Knight, John G. Winston-Salem, NC Attorney Indefinite


from
August 3, 2006

Kronegold, Sheldon H. Englewood, NJ Attorney Indefinite


from
August 3, 2006

September 5, 2006 386 2006–36 I.R.B.


Name Address Designation Date of Suspension

Foushee, Wayne H. Winston-Salem, NC Attorney Indefinite


from
August 3, 2006

Suspensions From Practice Before the Internal Revenue


Service After Notice and an Opportunity for a Proceeding
Under Title 31, Code of Federal Reg- ministrative law judge, the following indi- from practice before the Internal Revenue
ulations, Part 10, after notice and an op- viduals have been placed under suspension Service:
portunity for a proceeding before an ad-

Name Address Designation Effective Date

Kahn, Harold Hollis, NY CPA June 26, 2006


to
June 25, 2010

Disbarments From Practice Before the Internal Revenue


Service After Notice and an Opportunity for a Proceeding
Under Title 31, Code of Federal Regu- tunity for a proceeding before an adminis- als have been disbarred from practice be-
lations, Part 10, after notice and an oppor- trative law judge, the following individu- fore the Internal Revenue Service:

Name Address Designation Effective Date

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

Censure Issued by Consent


Under Title 31, Code of Federal Reg- or enrolled actuary, may offer his or her The following individuals have con-
ulations, Part 10, in lieu of a proceeding consent to the issuance of a censure. Cen- sented to the issuance of a Censure:
being instituted or continued, an attorney, sure is a public reprimand.
certified public accountant, enrolled agent,

Name Address Designation Date of Censure

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


Azan, Reinaldo L. Miami Beach, FL CPA July 24, 2006
Golub, Stephen B. Norwalk, CT CPA August 3, 2006

2006–36 I.R.B. 387 September 5, 2006


Revisions to Regulations alien individual or foreign corporation Revenue Code. This document also in-
Relating To Repeal of Tax would be held on Thursday, September vites comments from the public regarding
on Interest of Nonresident 7, 2006, beginning at 10 a.m. in the IRS this proposed standard.
Auditorium, 1111 Constitution Avenue,
Alien Individuals and Foreign NW, Washington, DC. DATES: Written or electronic comments
Corporations Received The date and location of the hearing must be submitted by November 7, 2006.
From Certain Portfolio Debt have changed. The hearing is rescheduled
for Friday, October 6, 2006, beginning at ADDRESSES: Send submissions to:
Investments; Hearing
10 a.m. in the IRS Auditorium, New Car- CC:PA:LPD:PR (REG–118788–06), room
5203, Internal Revenue Service, PO Box
Announcement 2006–58 rollton Federal Building, 5000 Ellin Road,
Lanham, Maryland 20706. 7604, Ben Franklin Station, Washington,
AGENCY: Internal Revenue Service, A period of 10 minutes is allotted to DC 20044. Submissions may be sent
Treasury. each person for presenting oral comments. electronically, via the IRS Internet site at
The IRS will prepare an agenda contain- www.irs.gov/regs or via the Federal eRule-
ACTION: Changes of date and location for ing the schedule of speakers. Copies of making Portal at www.regulations.gov
public hearing. the agenda will be made available, free of (indicate IRS and REG–118788–06).

SUMMARY: This document provides charge, at the hearing.


FOR FURTHER INFORMATION
changes of date and location for a pub- Guy R. Traynor, CONTACT: Concerning submissions,
lic hearing on proposed regulations Chief, Publications and Kelly Banks, (202) 927–1443; concern-
(REG–118775–06, 2006–28 I.R.B. 73) Regulations Branch, ing the proposed rules, Timothy L. Jones
under sections 871 and 881 of the Inter- Legal Processing Division, or Aviva M. Roth, (202) 622–4164 (not
nal Revenue Code (Code) relating to the Associate Chief Counsel toll-free numbers).
exclusion from gross income of portfolio (Procedure and Administration).
interest paid to a nonresident alien indi- SUPPLEMENTARY INFORMATION:
vidual or foreign corporation. (Filed by the Office of the Federal Register on August 8,
2006, 8:45 a.m., and published in the issue of the Federal
Register for August 9, 2006, 71 F.R. 45474)
Background
DATES: The public hearing originally
scheduled for Thursday, September 7, Section 7871(a)(4) of the Internal Rev-
2006, at 10 a.m. is rescheduled for Friday, enue Code of 1986 provides that an Indian
October 6, 2006, at 10 a.m. Outlines of
Definition of Essential tribal government is to be treated as a State
topics to be discussed at the public hearing Governmental Function Under “subject to subsection (c), for purposes
will be due by August 24, 2006. Section 7871 and Limitation of section 103 (relating to State and local
to Activities Customarily bonds)”. Section 7871(c)(1) provides that
ADDRESSES: The public hearing was “section 103(a) shall apply to any obliga-
originally being held in the IRS Audito- Performed by States and
tion (not described in paragraph (2)) issued
rium, Internal Revenue Building, 1111 Local Governments by an Indian tribal government (or subdi-
Constitution Avenue, NW, Washington vision thereof) only if such obligation is
DC. The hearing location has changed. Announcement 2006–59 part of an issue substantially all of the pro-
The public hearing will be held in the ceeds of which are to be used in the ex-
IRS Auditorium, New Carrollton Fed- AGENCY: Internal Revenue Service
(IRS), Treasury. ercise of any essential governmental func-
eral Building, 5000 Ellin Road, Lanham, tion”. Section 7871(e) provides that “[f]or
Maryland 20706. purposes of this section, the term ‘essen-
ACTION: Advance notice of proposed
rulemaking. tial governmental function’ shall not in-
FOR FURTHER INFORMATION
clude any function which is not customar-
CONTACT: Guy R. Traynor,
SUMMARY: This document applies to ily performed by State and local govern-
(301) 922–0539 (not a toll-free
Indian tribal governments and to State and ments with general taxing powers”.
number) or Richard Hurst at
local governments that issue bonds for Section 7871 was originally enacted in
Richard.A.Hurst@irscounsel.treas.gov.
the benefit of Indian tribal governments. 1982 by The Indian Tribal Government
SUPPLEMENTARY INFORMATION: This document describes rules that the IRS Tax Status Act, Pub. L. No. 97–473, 96
and the Treasury Department anticipate Stat. 2605 § 202 (1983). In the legisla-
A notice of proposed rulemak- proposing, in a notice of proposed rule- tive history to that Act, the Senate Finance
ing and notice of public hearing making (REG–118788–06), regarding the Committee indicated that tax-exempt bond
(REG–118775–06) appearing in the Fed- definition of an essential governmental financing was not intended to be available
eral Register on Tuesday, June 13, 2006 function under section 7871(c) of the In- to Indian tribal governments for “commer-
(71 FR 34047), announced that a public ternal Revenue Code and the limitation cial or industrial activities (or other ac-
hearing on proposed regulations relating of that term to activities customarily per- tivities other than essential governmental
to the exclusion from gross income of formed by State and local governments for functions).” S. Rep. No. 97–646, at 13–14
portfolio interest paid to a nonresident purposes of section 7871(e) of the Internal (1982).

September 5, 2006 388 2006–36 I.R.B.


Section 7871(e) was added to the statute the facility satisfies the ‘essential gov- to any written comments that are submit-
by The Omnibus Budget Reconciliation ernmental function’ standard (i.e., the ted timely (preferably a signed original and
Act of 1987, Pub. L. No. 100–203, 101 facility is comparable to facilities that eight (8) copies) to the IRS. All comments
Stat. 1330, § 10632(a) (1987). In the leg- are customarily acquired or constructed will be available for public inspection and
islative history to this provision, the House and operated by States and local gov- copying.
Ways and Means Committee criticized ernments). For example, a building
1984 Temporary Treasury Regulations in- used for offices for a tribal government Drafting Information
terpreting the term essential governmental itself would be comparable to State or
function in section 7871(c) for including local government office buildings, and The principal authors of this ad-
certain activities eligible for Federal fund- therefore, could be financed with tax- vance notice of proposed rulemaking
ing in that definition. The House Ways and exempt bonds. As another example, a are Aviva M. Roth and Timothy L. Jones,
Means Committee stated that the reason lodge owned and operated by a tribal Office of the Chief Counsel (Tax-Exempt
for this amendment was that the Com- government may be eligible for tax-ex- and Government Entities), however, other
mittee was concerned about reports that empt financing if it is comparable to personnel from the IRS and Treasury De-
Indian tribal governments were issuing lodges customarily owned and operated partment participated in its development.
tax-exempt bonds for interests in “com- by State park or recreation agencies.
Mark E. Matthews,
mercial and industrial enterprises”. The
Deputy Commissioner for
Committee further included the following H. R. Rep. No. 100–495, at 1012 n.5
Services and Enforcement.
statement about section 7871(e): (1987) (Conf. Rep.).
(Filed by the Office of the Federal Register on August 8,
2006, 8:45 a.m., and published in the issue of the Federal
The bill clarifies that, with respect to The IRS has become aware of an in- Register for August 9, 2006, 71 F.R. 45474)
bonds issued by Indian tribal govern- creasing number of instances in which tax-
ments, the term ‘essential governmen- payers have raised questions about the ap-
tal function’ does not include any gov- plication of section 7871(e). Accordingly, Deletions From Cumulative
ernmental function that is not customar- the Treasury Department and the IRS have
ily performed (and financed with gov- determined to seek public comment in ad-
List of Organizations
ernmental tax-exempt bonds) by State vance of issuing proposed regulations in Contributions to Which
and local governments with general tax- this area. are Deductible Under Section
ing powers. For example, issuance of 170 of the Code
bonds to finance commercial or indus- Explanation of Provisions
trial facilities (e.g., private rental hous-
The Treasury Department and the IRS Announcement 2006–60
ing, cement factories, or mirror facto-
anticipate that the proposed regulations
ries) which bonds technically may not The Internal Revenue Service has re-
will provide that for purposes of section
be private activity bonds is not included voked its determination that the organiza-
7871(c) and section 7871(e), an activity
within the scope of the essential govern- tion listed below qualifies as an organi-
will be considered an essential govern-
mental function exception. zation described in sections 501(c)(3) and
mental function that is customarily per-
170(c)(2) of the Internal Revenue Code of
formed by State and local governments
Additionally, the committee wishes to 1986.
if: (1) there are numerous State and local
stress that only those activities that are Generally, the Service will not disallow
governments with general taxing powers
customarily financed with governmen- deductions for contributions made to a
that have been conducting the activity and
tal bonds (e.g., schools, roads, govern- listed organization on or before the date
financing it with tax-exempt governmen-
mental buildings, etc.) are intended to of announcement in the Internal Revenue
tal bonds, (2) State and local governments
be within the scope of this exception, Bulletin that an organization no longer
with general taxing powers have been
notwithstanding that isolated instances qualifies. However, the Service is not
conducting the activity and financing it
of a State or local government issuing precluded from disallowing a deduction
with tax-exempt governmental bonds for
bonds for another activity may occur. for any contributions made after an or-
many years, and (3) the activity is not
ganization ceases to qualify under section
a commercial or industrial activity. The
H. R. Rep. No. 100–391, at 1139 (1987). 170(c)(2) if the organization has not timely
proposed regulations will further provide
filed a suit for declaratory judgment under
that examples of activities customarily
The 1987 Conference Committee adding section 7428 and if the contributor (1) had
performed by State and local governments
the limited manufacturing facility provi- knowledge of the revocation of the ruling
include, but are not limited to, public
sion of section 7871(c)(3)(A), noted that: or determination letter, (2) was aware that
works projects such as roads, schools, and
such revocation was imminent, or (3) was
government buildings.
A facility which does not qualify as a in part responsible for or was aware of the
manufacturing facility for purposes of Request for Comments activities or omissions of the organization
this provision may nonetheless be fi- that brought about this revocation.
nanced with tax-exempt bonds issued Before the notice of proposed rulemak- If on the other hand a suit for declara-
by a tribal government provided that ing is issued, consideration will be given tory judgment has been timely filed, con-

2006–36 I.R.B. 389 September 5, 2006


tributions from individuals and organiza- Texas; and St. Paul, Minnesota. By the • Issues are fully developed;
tions described in section 170(c)(2) that end of this six-month focused test, SB/SE
are otherwise allowable will continue to and Appeals will evaluate the program, • The taxpayer has stated a position in
be deductible. Protection under section consider necessary adjustments and deter- writing (or filed a small case request
7428(c) would begin on September 5, mine whether to continue testing SB/SE for cases in which the total amount for
2006, and would end on the date the court FTS for the remaining eighteen months any tax period is less than $25,000, as
first determines that the organization is of the test period. If continued, SB/SE described in Publication 5, Your Ap-
not described in section 170(c)(2) as more FTS will be available to taxpayers nation- peal Rights and How To Prepare a
particularly set forth in section 7428(c)(1). wide. Upon completion of the two-year Protest If You Don’t Agree); and
For individual contributors, the maximum test period, SB/SE and Appeals will again
deduction protected is $1,000, with a hus- evaluate the program, consider necessary
• There are a limited number of una-
greed issues.
band and wife treated as one contributor. adjustments, and determine whether to
This benefit is not extended to any indi- make the program permanent.
SB/SE FTS is not available for:
vidual, in whole or in part, for the acts or
RELIANCE ON AND DIFFERENCES
omissions of the organization that were
FROM LMSB FAST TRACK
• Collection Appeals Program, Collec-
the basis for revocation. tion Due Process, Offer-In-Compro-
SETTLEMENT
mise and Trust Fund Recovery cases,
Aylesi M. Bobo Charitable Foundation except as provided in any guidance is-
Independence, MO The procedures for using FTS for
SB/SE taxpayers rely on the provisions sued by the Service;
of Revenue Procedure 2003–40, 2003–1 • Correspondence examination cases
C.B. 1044, which implemented a Large worked solely in a Campus/Service
Fast Track Settlement for and Mid-Size Business Fast Track Set- Center site;
SB/SE Taxpayers tlement Dispute Resolution Program and
allows the use of Appeals settlement au- • Cases in which the taxpayer has failed
Announcement 2006–61 thority in SB/SE cases. See section 3.02 to respond to Service communications
of Rev. Proc. 2003–40. and no documentation has been previ-
DESCRIPTION OF SB/SE FAST During the two-year test period, SB/SE ously submitted for consideration by
TRACK SETTLEMENT FTS extends the provisions of the LMSB Compliance;
Fast Track program to SB/SE cases and
This announcement provides an oppor- provides for direct oversight of the pro- • Tax Equity & Fiscal Responsibility Act
tunity for small business/self employed gram by SB/SE and Appeals. SB/SE FTS (TEFRA) partnership cases;
taxpayers to use Fast Track Settlement therefore involves procedures almost iden-
(FTS) to expedite case resolution at the tical to the LMSB FTS procedures de- • Issues outside SB/SE jurisdiction, ex-
scribed in Rev. Proc. 2003–40. The key cept as provided below;
earliest opportunity within the IRS’s Small
Business/Self Employed organization differences between the LMSB and SB/SE • Issues designated for litigation;
(SB/SE). The purpose of SB/SE FTS is FTS procedures are as follows:
to enable SB/SE taxpayers that currently • Issues under consideration for designa-
have unagreed issues in at least one open • The SB/SE Group Manager or de- tion for litigation;
year under examination to work together signee fulfills the duties of the LMSB
with SB/SE and the Office of Appeals Team manager, as described in Rev. • Issues for which the taxpayer has sub-
(Appeals) to resolve outstanding disputed Proc. 2003–40; mitted a request for competent author-
issues while the case is still in SB/SE ju- ity assistance;
risdiction. SB/SE and Appeals will jointly
• SB/SE Group Managers and Appeals
administer the SB/SE FTS process. SB/SE
Team Managers select and manage • Issues for which the taxpayer has
cases eligible for SB/SE FTS; and requested the simultaneous Ap-
FTS will be used to resolve factual and le-
peal/Competent Authority procedure
gal issues and may be initiated at any time • The SB/SE FTS process is designed to described in section 8 of Rev. Proc.
after an issue has been fully developed, be completed within 60 days of accep- 2002–52, 2002–2 C.B. 242, or the cor-
preferably before the issuance of a 30-day tance of the SB/SE-Appeals FTS Ap- responding provision of any successor
letter or equivalent notice. plication. guidance;
SB/SE FTS will be available to taxpay-
ers for a test period of up to two years, CASE ELIGIBILITY AND • Frivolous issues, such as, but not lim-
beginning upon the date of publication of EXCLUSIONS ited to, those identified in Rev. Proc.
this announcement. Within this period, 2006–2, 2006–1 I.R.B. 89, or any suc-
there will be an initial focused test of six Subject to the limitations set forth be- cessor guidance;
months during which SB/SE FTS will low, SB/SE FTS is generally available for
only be available for taxpayers under ex- cases under the jurisdiction of the SB/SE • “Whipsaw” issues, i.e., issues for
amination in Chicago, Illinois; Houston, Division if: which resolution with respect to one

September 5, 2006 390 2006–36 I.R.B.


party might result in inconsistent treat- neering Lead sheets (the equivalent to a and establish ground rules. The FTS Ap-
ment in the absence of the participation Form 5701, Notice of Proposed Adjust- peals Official may modify the rules and
of another party; or ment) will be prepared by the SB/SE Com- procedures during the session to adapt to
pliance team, and a written response from changes in circumstances. The FTS Ses-
• Issues that have been identified in the taxpayer should be included with the sion may include conferences attended by
a Chief Counsel Notice, or equiva- SB/SE-Appeals FTS Application to com- all of the parties, separate meetings with
lent publication, as excluded from the plete the package for the parties to under- each party, or both as determined appro-
SB/SE FTS process. stand opposing views. priate in the sole judgment of the FTS
If the case is not accepted for inclu- Appeals Official.
If an issue is determined not to be eli- sion in SB/SE FTS, the SB/SE or Ap- The FTS Appeals Official will use a
gible for the SB/SE FTS program, all is- peals representative will inform the tax- FTS Session Report to assist in planning
sues in the case shall not be eligible for the payer of the basis for this decision and dis- the FTS Session and to report on develop-
SB/SE FTS program. cuss other dispute resolution opportunities ments during the FTS Session. The FTS
SB/SE FTS may not be the appropri- with the taxpayer, including 30-day letter Session Report will include a list of all is-
ate dispute resolution process for all cases procedures contained in IRS Publication 5, sues approved for the FTS program, a de-
involving SB/SE taxpayers. The SB/SE Your Appeal Rights and How To Prepare scription of the issues, the amounts in dis-
Group Manager or designee and the tax- a Protest If You Don’t Agree. The deci- pute, conference dates, a plan of action
payer will evaluate their individual cir- sion not to accept a case into the SB/SE for the FTS Session and other informa-
cumstances to determine if this process FTS program is not subject to administra- tion useful to the process as determined by
meets their needs. tive appeal or judicial review. the parties and the FTS Appeals Official.
SB/SE FTS may also be available for The FTS Appeals Official may also pre-
cases under the jurisdiction of the Tax Ex- SETTLEMENT PROCESS pare and update an Agenda, which guides
empt and Government Entities (TE/GE) the communication, sets the order of is-
Division, depending on the circumstances SB/SE FTS employs various alterna-
sue discussion, poses questions to clarify
and operational needs of the case. The use tive dispute resolution techniques to pro-
the issues and guides the meetings. Dur-
of SB/SE FTS procedures for such cases mote case resolution. An Appeals Officer,
ing the FTS Session, the FTS Appeals Of-
will require the consent of the taxpayer, trained in mediation, will serve as a neu-
ficial will provide decision makers from
the local Appeals Team Manager and the tral party (the FTS Appeals Official). The
both parties with copies of the Agenda and
TE/GE Field Manager, or equivalent. For FTS Appeals Official will not perform in
the FTS Session Report.
TE/GE cases approved for SB/SE FTS, a traditional Appeals role, but will use dis-
Generally, the FTS Appeals Official
the appropriate TE/GE Field Manager, or pute resolution techniques to facilitate set-
will consider only those issues outlined
equivalent, will carry out the responsibil- tlement between the parties.
in the FTS Session Report, except by
ities of the SB/SE Group Manager as set During SB/SE FTS, the taxpayer and
mutual agreement of the parties. If the
forth in this announcement. The applica- SB/SE representatives hold a conference
taxpayer presents information during the
tion process for TE/GE taxpayers wishing with the FTS Appeals Official (the FTS
FTS Session that the taxpayer had not
to use SB/SE FTS procedures may be mod- Session). The taxpayer and SB/SE rep-
previously presented during the audit,
ified by subsequent published guidance. resentatives at the FTS Session should
the FTS Appeals Official will adjust the
include individuals with decision-making
targeted completion date to give the ap-
APPLICATION PROCESS authority and the information and exper-
propriate Service officials time to evaluate
tise necessary to assist the parties and the
the information/documentation.
A taxpayer that is interested in partici- FTS Appeals Official during the settle-
During the FTS Session, the FTS Ap-
pating in SB/SE FTS, or that has questions ment process. The FTS Appeals Official
peals Official may propose settlement
about the program and its suitability for the may ask the parties to limit the number of
terms for any or all issues and may con-
taxpayer’s case, may contact the SB/SE participants at the FTS Session to facili-
sider settlement terms proposed by either
Group Manager for the year currently un- tate the process. A taxpayer is not required
party. If the taxpayer accepts the FTS
der examination. Either the taxpayer, Ex- to have a representative to participate in
Appeals Official’s settlement proposal,
amining Agent or the SB/SE Group Man- SB/SE FTS. If the taxpayer is represented
but the SB/SE Group Manager rejects it,
ager can initiate the process to take part in by a person engaged in practice before
the SB/SE Territory Manager must re-
the SB/SE FTS program at any time af- the Service, however, this individual must
view SB/SE’s rejection of the settlement
ter an issue has been fully developed but have a power of attorney from the tax-
proposal and either concur in writing, or
preferably before a 30-day or equivalent payer (Form 2848, Power of Attorney and
accept the settlement proposal on behalf
letter is issued. Declaration of Representative) in addition
of SB/SE. If the SB/SE Territory Manager
To apply for the SB/SE FTS program, to the FTS Agreement.
concurs with the Group Manager’s rejec-
the taxpayer and the SB/SE Group Man- The FTS Appeals Official will hold
tion of the settlement proposal, and an
ager should submit a SB/SE-Appeals FTS the FTS Session at the date and location
acceptable alternative settlement cannot
Application, attached as Exhibit 1, to the agreed to by both parties. Prior to the FTS
be reached, the issue will be closed out of
local Appeals Team Manager. A Sum- Session, the FTS Appeals Official will
the FTS program as unagreed.
mary of Issues or Examination Re-engi- advise the participants of the procedures

2006–36 I.R.B. 391 September 5, 2006


If the parties resolve any of the disputed nated in either the Technical Advisor Pro- For SB/SE FTS cases that are returned
issues at the conclusion of the FTS Ses- gram or the Appeals Technical Guidance for traditional Appeals consideration for
sion, the parties and the FTS Appeals Of- program, the proposed settlement of that any reason, ex parte restrictions will not
ficial shall sign the FTS Session Report issue is subject to established procedures, be imposed on intra-Appeals communica-
acknowledging acceptance of the terms of including submission of the proposed set- tions. Appeals management will take ap-
settlement for purposes of preparing com- tlement to the Appeals Coordinator for propriate measures to ensure these cases
putations. The signature of the parties on review and concurrence. are handled impartially.
the FTS Session Report does not constitute If the parties fail to resolve any issue
a final settlement, nor does it waive restric- in FTS, the taxpayer retains the option of DELEGATION OF AUTHORITY
tions on assessment, terminate consents to requesting that the issue be heard through
extend periods of limitation, start the run- the traditional Appeals process. This announcement constitutes a del-
ning of any periods of limitation, or con- Except as specifically provided above, egation by the Commissioner of Internal
stitute agreement to close the case. both parties retain the right to withdraw Revenue of settlement authority to Grade
The SB/SE FTS process is confidential. throughout the entire SB/SE FTS process. 14, 13 and 12 Appeals Officers who are
IRS employees involved in any way with A party wishing to withdraw should pro- assigned to be Appeals FTS Officials for
the SB/SE FTS process are subject to the vide written notice to the FTS Appeals Of- SB/SE FTS cases described in this an-
confidentiality and disclosure provisions ficial and the other party. nouncement. This delegation of settle-
of the Internal Revenue Code, including ment authority includes the responsibility
section 6103. By signing the FTS Agree- POST-SETTLEMENT PROCEDURE for arriving at the final disposition from
ment, attached as Exhibit 1, the taxpayer the Government’s perspective, approving
If the parties reach an agreement on all
consents, pursuant to section 6103(c), to the final settlement in accordance with the
or some issues through the SB/SE FTS
the disclosure of the taxpayer’s returns delegated authority, and executing the ap-
process, the SB/SE representative or FTS
and return information pertaining to the propriate closing documents. This author-
Appeals Official, as appropriate, will use
issues being considered in the SB/SE FTS ity may not be redelegated.
established issue or case closing proce-
process to those persons named on the
dures and applicable agreement forms, in-
Agreement as participants in the process. EFFECTIVE DATE
cluding preparation of a Form 906 specific
IRS employees, the taxpayer and persons
matters closing agreement, if appropriate.
invited to participate by the IRS or the SB/SE FTS is effective beginning
If applicable, the Service will report
taxpayer shall not voluntarily disclose in- September 5, 2006.
a proposed resolution reached as a result
formation regarding any communication
of SB/SE FTS to the Joint Committee on
made during the SB/SE FTS Session, ex- COMMENTS
Taxation in accordance with section 6405.
cept as provided by statute.
The taxpayer acknowledges that the Ser-
The prohibition against ex parte com- The IRS encourages interested persons
vice may reconsider a proposed settlement,
munications between Appeals Officers to comment on this program, including
as reflected in a signed FTS Session Re-
and other IRS employees provided by suggested changes to make the program
port, upon receipt of comments on the pro-
section 1001(a) of the Internal Revenue more useful and effective. Send submis-
posed settlement from the Joint Commit-
Service Restructuring and Reform Act of sions to:
tee on Taxation. If the taxpayer declines
1998 does not apply to the communica-
to agree with any changes by the Service
tions arising in the SB/SE FTS process Internal Revenue Service-Appeals
upon reconsideration, SB/SE will close the
because the Appeals personnel are facili- Attn: Nancy J. Talajkowski
case unagreed and the taxpayer will retain
tating an agreement between the taxpayer 160 Spear Street, Suite 800
all the usual rights to request Appeals con-
and SB/SE and are not acting in their tra- San Francisco, CA 94105
sideration of any unagreed issues.
ditional Appeals settlement role.
Any recommended settlement by the GENERAL PROVISIONS FURTHER INFORMATION
FTS Appeals Official of an issue in FTS
shall be subject to the procedures that A resolution reached by the parties For further information regard-
would be applicable if the issue were through the SB/SE FTS process will not ing this announcement, contact either:
being considered by Appeals, including bind the parties for taxable years or issues Thomas S. Ryan, SB/SE Program Analyst,
procedures in the Internal Revenue Man- not covered by the SB/SE-Appeals FTS at (757) 213–3810 (not a toll-free num-
ual and existing published guidance. FTS agreement, unless such taxable years or ber); or Nancy J. Talajkowski, Appeals
therefore creates no special authority for issues are expressly addressed in a formal Program Analyst, Tax Policy & Procedure
settlement by the FTS Appeals Official. closing agreement reached as part of the (Alternative Dispute Resolution) at (415)
For example, if the FTS issue is coordi- SB/SE FTS process. 227–5007 (not a toll-free number).

September 5, 2006 392 2006–36 I.R.B.


Exhibit 1: Application for SB/SE-Appeals Fast Track Settlement
To: Local Appeals Office
Date:
Is the case subject to Joint Committee review? No Yes

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

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

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

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

Taxpayer Date SB/SE Group Manager Date

Representative Date

Comments and Other Participants (attach additional sheets as necessary)


Name Position or Affiliation Phone

2006–36 I.R.B. 393 September 5, 2006


Definition of Terms
Revenue rulings and revenue procedures and B, the prior ruling is modified because of a prior ruling, a combination of terms
(hereinafter referred to as “rulings”) that it corrects a published position. (Compare is used. For example, modified and su-
have an effect on previous rulings use the with amplified and clarified, above). perseded describes a situation where the
following defined terms to describe the ef- Obsoleted describes a previously pub- substance of a previously published ruling
fect: lished ruling that is not considered deter- is being changed in part and is continued
Amplified describes a situation where minative with respect to future transac- without change in part and it is desired to
no change is being made in a prior pub- tions. This term is most commonly used in restate the valid portion of the previously
lished position, but the prior position is be- a ruling that lists previously published rul- published ruling in a new ruling that is self
ing extended to apply to a variation of the ings that are obsoleted because of changes contained. In this case, the previously pub-
fact situation set forth therein. Thus, if in laws or regulations. A ruling may also lished ruling is first modified and then, as
an earlier ruling held that a principle ap- be obsoleted because the substance has modified, is superseded.
plied to A, and the new ruling holds that the been included in regulations subsequently Supplemented is used in situations in
same principle also applies to B, the earlier adopted. which a list, such as a list of the names of
ruling is amplified. (Compare with modi- Revoked describes situations where the countries, is published in a ruling and that
fied, below). position in the previously published ruling list is expanded by adding further names in
Clarified is used in those instances is not correct and the correct position is subsequent rulings. After the original rul-
where the language in a prior ruling is be- being stated in a new ruling. ing has been supplemented several times, a
ing made clear because the language has Superseded describes a situation where new ruling may be published that includes
caused, or may cause, some confusion. the new ruling does nothing more than re- the list in the original ruling and the ad-
It is not used where a position in a prior state the substance and situation of a previ- ditions, and supersedes all prior rulings in
ruling is being changed. ously published ruling (or rulings). Thus, the series.
Distinguished describes a situation the term is used to republish under the Suspended is used in rare situations
where a ruling mentions a previously pub- 1986 Code and regulations the same po- to show that the previous published rul-
lished ruling and points out an essential sition published under the 1939 Code and ings will not be applied pending some
difference between them. regulations. The term is also used when future action such as the issuance of new
Modified is used where the substance it is desired to republish in a single rul- or amended regulations, the outcome of
of a previously published position is being ing a series of situations, names, etc., that cases in litigation, or the outcome of a
changed. Thus, if a prior ruling held that a were previously published over a period of Service study.
principle applied to A but not to B, and the time in separate rulings. If the new rul-
new ruling holds that it applies to both A ing does more than restate the substance

Abbreviations
The following abbreviations in current use ER—Employer. PRS—Partnership.
and formerly used will appear in material ERISA—Employee Retirement Income Security Act. PTE—Prohibited Transaction Exemption.
EX—Executor. Pub. L.—Public Law.
published in the Bulletin.
F—Fiduciary. REIT—Real Estate Investment Trust.
FC—Foreign Country. Rev. Proc.—Revenue Procedure.
A—Individual.
FICA—Federal Insurance Contributions Act. Rev. Rul.—Revenue Ruling.
Acq.—Acquiescence.
B—Individual. FISC—Foreign International Sales Company. S—Subsidiary.
FPH—Foreign Personal Holding Company. S.P.R.—Statement of Procedural Rules.
BE—Beneficiary.
F.R.—Federal Register. Stat.—Statutes at Large.
BK—Bank.
B.T.A.—Board of Tax Appeals. FUTA—Federal Unemployment Tax Act. T—Target Corporation.
FX—Foreign corporation. T.C.—Tax Court.
C—Individual.
G.C.M.—Chief Counsel’s Memorandum. T.D. —Treasury Decision.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations. GE—Grantee. TFE—Transferee.
GP—General Partner. TFR—Transferor.
CI—City.
GR—Grantor. T.I.R.—Technical Information Release.
COOP—Cooperative.
Ct.D.—Court Decision. IC—Insurance Company. TP—Taxpayer.
I.R.B.—Internal Revenue Bulletin. TR—Trust.
CY—County.
LE—Lessee. TT—Trustee.
D—Decedent.
DC—Dummy Corporation. LP—Limited Partner. U.S.C.—United States Code.
LR—Lessor. X—Corporation.
DE—Donee.
M—Minor. Y—Corporation.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation. Nonacq.—Nonacquiescence. Z —Corporation.
O—Organization.
DR—Donor.
P—Parent Corporation.
E—Estate.
PHC—Personal Holding Company.
EE—Employee.
PO—Possession of the U.S.
E.O.—Executive Order.
PR—Partner.

September 5, 2006 i 2006–36 I.R.B.


Numerical Finding List1 Proposed Regulations— Continued:

Bulletins 2006–27 through 2006–36 REG-118897-06, 2006-31 I.R.B. 120


REG-124152-06, 2006-36 I.R.B. 368
Announcements: REG-125071-06, 2006-36 I.R.B. 375

2006-42, 2006-27 I.R.B. 48 Revenue Procedures:


2006-43, 2006-27 I.R.B. 48
2006-44, 2006-27 I.R.B. 49 2006-29, 2006-27 I.R.B. 13
2006-45, 2006-31 I.R.B. 121 2006-30, 2006-31 I.R.B. 110
2006-46, 2006-28 I.R.B. 76 2006-31, 2006-27 I.R.B. 32
2006-47, 2006-28 I.R.B. 78 2006-32, 2006-28 I.R.B. 61
2006-48, 2006-31 I.R.B. 135 2006-33, 2006-32 I.R.B. 140
2006-49, 2006-29 I.R.B. 89 Revenue Rulings:
2006-50, 2006-34 I.R.B. 321
2006-51, 2006-32 I.R.B. 222 2006-35, 2006-28 I.R.B. 50
2006-52, 2006-33 I.R.B. 254 2006-36, 2006-36 I.R.B. 353
2006-53, 2006-33 I.R.B. 254 2006-37, 2006-30 I.R.B. 91
2006-54, 2006-33 I.R.B. 254 2006-38, 2006-29 I.R.B. 80
2006-55, 2006-35 I.R.B. 342 2006-39, 2006-32 I.R.B. 137
2006-56, 2006-35 I.R.B. 342 2006-40, 2006-32 I.R.B. 136
2006-57, 2006-35 I.R.B. 343 2006-41, 2006-35 I.R.B. 331
2006-58, 2006-36 I.R.B. 388 2006-42, 2006-35 I.R.B. 337
2006-59, 2006-36 I.R.B. 388 2006-43, 2006-35 I.R.B. 329
2006-60, 2006-36 I.R.B. 389 2006-44, 2006-36 I.R.B. 361
2006-61, 2006-36 I.R.B. 390 Treasury Decisions:
Notices:
9265, 2006-27 I.R.B. 1
2006-56, 2006-28 I.R.B. 58 9266, 2006-28 I.R.B. 52
2006-57, 2006-27 I.R.B. 13 9267, 2006-34 I.R.B. 313
2006-58, 2006-28 I.R.B. 59 9268, 2006-30 I.R.B. 94
2006-59, 2006-28 I.R.B. 60 9269, 2006-30 I.R.B. 92
2006-60, 2006-29 I.R.B. 82 9270, 2006-33 I.R.B. 237
2006-61, 2006-29 I.R.B. 85 9271, 2006-33 I.R.B. 224
2006-62, 2006-29 I.R.B. 86 9272, 2006-35 I.R.B. 332
2006-63, 2006-29 I.R.B. 87 9274, 2006-33 I.R.B. 244
2006-64, 2006-29 I.R.B. 88 9275, 2006-35 I.R.B. 327
2006-65, 2006-31 I.R.B. 102 9277, 2006-33 I.R.B. 226
2006-66, 2006-30 I.R.B. 99 9278, 2006-34 I.R.B. 256
2006-67, 2006-33 I.R.B. 248 9279, 2006-36 I.R.B. 355
2006-68, 2006-31 I.R.B. 105
2006-69, 2006-31 I.R.B. 107
2006-70, 2006-33 I.R.B. 252
2006-71, 2006-34 I.R.B. 316
2006-72, 2006-36 I.R.B. 363
2006-73, 2006-35 I.R.B. 339
2006-74, 2006-35 I.R.B. 339
2006-75, 2006-36 I.R.B. 366

Proposed Regulations:

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


REG-146893-02, 2006-34 I.R.B. 317
REG-159929-02, 2006-35 I.R.B. 341
REG-148864-03, 2006-34 I.R.B. 320
REG-109512-05, 2006-30 I.R.B. 100
REG-112994-06, 2006-27 I.R.B. 47
REG-118775-06, 2006-28 I.R.B. 73

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

2006–36 I.R.B. ii September 5, 2006


Finding List of Current Actions on Revenue Rulings— Continued:
Previously Published Items1 2005-24
Amplified by
Bulletins 2006–27 through 2006–36
Rev. Rul. 2006-36, 2006-36 I.R.B. 353
Announcements:
Treasury Decisions:
2005-59
9254
Updated and superseded by
Corrected by
Ann. 2006-45, 2006-31 I.R.B. 121
Ann. 2006-44, 2006-27 I.R.B. 49
Notices:
9258
2002-45 Corrected by
Amplified by Ann. 2006-46, 2006-28 I.R.B. 76
Rev. Rul. 2006-36, 2006-36 I.R.B. 353 9262
2006-20 Corrected by
Supplemented and modified by Ann. 2006-56, 2006-35 I.R.B. 342
Notice 2006-56, 2006-28 I.R.B. 58 9264
2006-53 Corrected by
Modified by Ann. 2006-46, 2006-28 I.R.B. 76
Notice 2006-71, 2006-34 I.R.B. 316

Proposed Regulations:

REG-134317-05
Corrected by
Ann. 2006-47, 2006-28 I.R.B. 78

Revenue Procedures:

2002-9
Modified and amplified by
Notice 2006-67, 2006-33 I.R.B. 248

2005-41
Superseded by
Rev. Proc. 2006-29, 2006-27 I.R.B. 13

2005-49
Superseded by
Rev. Proc. 2006-33, 2006-32 I.R.B. 140

Revenue Rulings:

81-35
Amplified and modified by
Rev. Rul. 2006-43, 2006-35 I.R.B. 329

81-36
Amplified and modified by
Rev. Rul. 2006-43, 2006-35 I.R.B. 329

87-10
Amplified and modified by
Rev. Rul. 2006-43, 2006-35 I.R.B. 329

2002-41
Amplified by
Rev. Rul. 2006-36, 2006-36 I.R.B. 353

2003-43
Amplified by
Notice 2006-69, 2006-31 I.R.B. 107

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

September 5, 2006 iii 2006–36 I.R.B.


2006–36 I.R.B. September 5, 2006
September 5, 2006 2006–36 I.R.B.
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