Internal Revenue Bulletin 2008-46 (PDF rendition): IRS Announcements

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Bulletin No. 200
8-46
November 17, 200
8
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
T.D. 9416, page 1142.
REG–156779–06, page 1160.
Final, temporary, and proposed regulations under section 901
of the Code provide guidance relating to the determination of
the amount of taxes paid for purposes of the foreign tax credit.
The regulations affect taxpayers that claim direct and indirect
foreign tax credits. A public hearing on the proposed regula-
tions is scheduled for December 11, 2008.
REG–164370–05, page 1157.
Proposed regulations under section 108(e)(8) of the Code pro-
vide guidance in determining the discharge of indebtedness in-
come of a partnership that transfers a partnership interest to
a creditor in satisfaction of the partnership’s indebtedness. In
particular, the regulations address how the fair market value of
a partnership interest transferred by the debtor partnership to
the creditor in satisfaction of the partnership’s indebtedness is
determined. The regulations also provide that section 721 gen-
erally applies to a contribution of a partnership’s indebtedness
by a creditor to the partnership in exchange for an interest in
the partnership. A public hearing is scheduled for February 19,
2009.
EMPLOYEE PLANS
Announcement 2008–107, page 1162.
This document solicits comments as to what should be in-
cluded in implementing regulations (REG–123829–08) under
the Genetic Information Nondiscrimination Act of 2008. Com-
ments must be submitted on or before December 9, 2008.
EMPLOYMENT TAX
Notice 2008–103, page 1156.
2009 social security contribution and benefit base; do-
mestic employee coverage threshold.The Commissioner
of the Social Security Administration has announced (1) the
OASDI contribution and benefit base for remuneration paid in
2009 and self-employment income earned in taxable years
beginning in 2009, and (2) the domestic employee coverage
threshold amount for 2009.
EXCISE TAX
Announcement 2008–103, page 1161.
This announcement provides guidance to domestic coal pro-
ducers and exporters regarding the submission of claims for
refund of the coal excise tax paid under section 4121 on coal
exported on or after October 1, 1990, and on or before Octo-
ber 3, 2008. Claims must be filed by November 3, 2008.
Announcement 2008–107, page 1162.
This document solicits comments as to what should be in-
cluded in implementing regulations (REG–123829–08) under
the Genetic Information Nondiscrimination Act of 2008. Com-
ments must be submitted on or before December 9, 2008.
(Continued on the next page)
Announcement of Declaratory Judgment Proceedings Under Section 7428 begins on page 1166.
Finding Lists begin on page ii.

ADMINISTRATIVE
T.D. 9426, page 1153.
Final regulations under section 7804 of the Code amend
26 CFR 801 to clarify when quantity measures, which are
not tax enforcement results, may be used in measuring
organizational and employee performance.
Announcement 2008–108, page 1165.
This document provides notice of a public hearing on proposed
regulations (REG–115457–08, 2008–33 I.R.B. 390) by cross-
reference to temporary regulations relating to the simplification
of procedures for automatic extensions of time to file certain
returns. These simplified procedures are aimed at reducing
overall taxpayer burden. The public hearing is scheduled for
January 13, 2009.
November 17, 20082008–46 I.R.B.

The IRS Mission
Provide Americ
a’s taxpayers top quality service by helping them
understand an
d meet their tax responsibilities and by applying
the tax law with
integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
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
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Secre-
tary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents 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.
2008–46 I.R.B.November 17, 2008

November 17, 20082008–46 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 901.—
Taxes
of Foreign Cou
ntries
and of Possessions of
United States
26 CFR 1.901–1: Allowance of credit for taxes.
T.D. 9416
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Determining the Amount of
Taxes Paid for Purposes of
Section 901
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
SUMMARY: This document contains fi-
nal and temporary regulations under sec-
tion 901 of the Internal Revenue Code
providing guidance relating to the deter-
mination of the amount of taxes paid for
purposes of the foreign tax credit. The
regulations affect taxpayers that claim di-
rect and indirect foreign tax credits. The
text of these temporary regulations also
serves as the text of the proposed regula-
tions (REG–156779–06) published in this
issue of the Bulletin.
DATES:Effective Date:These regulations
are effective on July 16, 2008.
Applicability Dates:For dates of
applicability, see §1.901–1T(j) and
§1.901–2T(h)(2).
FOR FURTHER INFORMATION
CONTACT: Michael Gilman, (202)
622–3850 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On M
arch 30, 2007, theFederal Reg-
ist
erpublished proposed amendments
(REG–156779–
06, 2007–17 I.R.B. 1015
[72 FR 15081])
to the Income Tax Regula-
tions (26 CFR p
art I) under section 901 of
the Internal
Revenue Code (Code) relating
to the amount
of taxes paid for purposes
of the foreig
n tax credit (the “2007 pro-
posed regula
tions”). The 2007 proposed
regulation
s would revise §1.901–2(e)(5)
in two ways.
First, for purposes of
§1.901–2(e
)(5), the 2007 proposed reg-
ulations wo
uld treat as a single taxpayer
all foreign
entities in which the same U.S.
person has
a direct or indirect interest of
80 percent
or more (a “U.S.-owned for-
eign group
”). Second, the 2007 proposed
regulatio
ns would treat amounts paid to a
foreign t
axing authority as noncompulsory
payments
if those amounts are attributable
to certai
n structured passive investment
arrangem
ents. The 2007 proposed regu-
lations p
rovide that the regulations will
be effec
tive for foreign taxes paid or ac-
crued du
ring taxable years of the taxpayer
ending o
n or after the date on which the
regulat
ions are finalized.
The IRS a
nd Treasury Department
receive
d written comments on the 2007
propos
ed regulations, which are discussed
in this
preamble. A public hearing was
held on
July 30, 2007. In response to
writte
n comments, the IRS and Trea-
sury De
partment determined that the
propo
sed change to §1.901–2(e)(5) relat-
ing to
U.S.-owned foreign groups may
lead t
o inappropriate results in certain
cases
. Accordingly, on November 19,
2007,
the IRS and Treasury Department
issu
ed Notice 2007–95, 2007–49 I.R.B.
1091
(see §601.601(d)(2)(ii)(b)). Notice
2007
–95 provided that the proposed rule
for U
.S.-owned foreign groups would be
seve
red from the portion of the 2007 pro-
pose
d regulations addressing the treatment
of f
oreign payments attributable to certain
str
uctured passive investment arrange-
men
ts. Notice 2007–95 further provided
tha
t the proposed rules for U.S.-owned
gro
ups would be effective for taxable
yea
rs beginning after final regulations are
pu
blished in theFederal Register.
In
light of comments, the IRS and
th
e Treasury Department believe that
it
is appropriate to issue new proposed
an
d temporary regulations addressing the
treatment of f
oreign payments attribut-
able to struct
ured passive investment ar-
rangements. T
hese new regulations make
several chan
ges to the 2007 proposed reg-
ulations to t
ake into account comments
received, wh
ile adopting without amend-
ment substan
tial portions of the 2007
proposed re
gulations. The new temporary
and propose
d regulations will permit the
IRS to enfor
ce the rules relating to struc-
tured passi
ve investment arrangements,
while also a
llowing taxpayers a further
opportuni
ty for comment. The significant
comments a
nd revisions are described in
this pream
ble.
Explanati
on of Provisions
The tempor
ary regulations address the
applicati
on of §1.901–2(e)(5) in cases
in which a
person claiming foreign tax
credits i
s a party to a structured passive
investme
nt arrangement. These complex
arrangem
ents are intentionally structured
to create
a foreign tax liability when, re-
moved fr
om the elaborately engineered
structu
re, the basic underlying business
transac
tion generally would result in sig-
nifican
tly less, or even no, foreign taxes.
The part
ies use these arrangements to ex-
ploit d
ifferences between U.S. and foreign
law in o
rder to permit a person to claim
aforei
gn tax credit for the purported for-
eign ta
x payments while also allowing the
counte
rparty to claim a duplicative foreign
tax be
nefit. The person claiming foreign
tax cr
edits and the counterparty share the
cost o
f the purported foreign tax payments
throu
gh the pricing of the arrangement.
The te
mporary regulations treat foreign
payme
nts attributable to such arrange-
ments
as noncompulsory payments under
§1.9
01–2(e)(5) and, thus, disallow foreign
tax c
redits for such amounts. For periods
prio
r to the effective date of the temporary
regu
lations, the IRS will continue to uti-
lize
all available tools under current law
to c
hallenge the U.S. tax results claimed
in c
onnection with these and other similar
abu
sive arrangements, including the sub-
sta
nce over form doctrine, the economic
sub
stance doctrine, debt-equity principles,
tax
ownership principles, other provisions
2008–46 I.R.B.1142November 17, 2008

of §1.901–2, section 269, and the partner-
ship anti-abuse rules of §1.701–2.
The temporary regulations retain the
general rule in the existing regulations that
a taxpayer need not alter its form of doing
business or the form of any transaction
in order to reduce its foreign tax liabil-
ity. However, §1.901–2T(e)(5)(iv)(A)
provides that, notwithstanding the gen-
eral rule, an amount paid to a foreign
country (a “foreign payment”) is not a
compulsory payment, and thus is not an
amount of tax paid, if the foreign pay-
ment is attributable to a structured passive
investment arrangement. For this pur-
pose, §1.901–2T(e)(5)(iv)(B) defines a
structured passive investment arrange-
ment as an arrangement that satisfies six
conditions. The six conditions consist of
features that are common to arrangements
that are intentionally structured to gener-
ate the foreign payment.
A.Section 1.901–2T(e)(5)(iv)(B)(1):
Special Purpose Vehicle
The first condition provided in the 2007
proposed regulations is that the arrange-
ment utilizes an entity that meets two re-
quirements (an “SPV”). The first require-
ment is that substantially all of the gross
income (for United States tax purposes) of
the entity, if any, is attributable to passive
investment income and substantially all of
the assets of the entity are assets held to
produce such passive investment income.
The second requirement is that there is a
purported foreign tax payment attributable
to income of the entity. The purported
foreigntaxmaybepaidbytheentityit-
self, by the owner(s) of the entity (if the
entity is treated as a pass-through entity
under foreign law) or by a lower-tier en-
tity (if the lower-tier entity is treated as a
pass-through entity under U.S. law).
For purposes of the first requirement,
§1.901–2(e)(5)(iv)(C)(4) of the 2007 pro-
posed regulations defines passive invest-
ment income as income described in sec-
tion 954(c), with two modifications. The
first modification excludes income of a
holding company attributable to qualify-
ing equity interests in lower-tier entities
that are predominantly engaged in the ac-
tive conduct of a trade or business (or that
are themselves holding companies). The
second modification is that passive invest-
ment income is determined by disregard-
ing sections 954(c)(3) and 954(c)(6) and
by treating income attributable to transac-
tions with a counterparty as ineligible for
the exclusions under sections 954(h) and
954(i).
One commentator recommended, in
lieu of the holding company rules in
the 2007 proposed regulations, applying
look-through rules to income and assets
of lower-tier entities similar to the rules
of section 1297(c), under which a foreign
corporation, if it owns at least 25 percent
of the stock of another corporation, is
treated as owning its proportionate share
of the assets of the other corporation and
receiving its proportionate share of the
income of the other corporation. Alter-
natively, the commentator recommended
that the holding company rules in the 2007
proposed regulations be modified to elim-
inate the requirement that substantially all
of the assets of the tested entity must con-
sist of qualified equity interests; to permit
income other than dividends (for exam-
ple, interest and royalties) received from
a lower-tier entity that is predominantly
engaged in an active business to qualify
as active income; and to treat a lower-tier
entity as an operating company if more
than 50 percent of either its assets or its
income meet the active business test. In
addition, commentators suggested elimi-
nating the requirement that the U.S. party
and the counterparty must share the oppor-
tunity of gain or loss with respect to the
lower-tier entity, or replacing it with a rule
disqualifying the equity interest if contrac-
tual restrictions limit the counterparty’s
recourse against thelower-tier entity’s
income or assets. Finally, commentators
suggested that preferred stock should be
treated as a qualifying equity interest.
These comments were not adopted.
The holding company exception is in-
tended only to clarify that a joint venture
arrangement is not treated as a structured
passive investment arrangement solely
because it is conducted through a hold-
ing company structure, not to liberalize
the definition of structured passive in-
vestment arrangements. The requirement
that the parties share the opportunity for
gain and risk of loss with respect to the
holding company’s assets is intended to
ensure that the arrangement between the
partiesisabona fidejoint venture. In
this regard, a commentator recommended
that the regulations be clarified to pro-
vide that the holding company exception
is not satisfied if either the U.S. party
or the counterparty is solely a creditor
with respect to the entity because it ei-
ther owns a hybrid instrument that is debt
for U.S. tax purposes or purchases stock
subject to an obligation to sell the stock
back. This modification is reflected in
§1.901–2T(e)(5)(iv)(C)(5)(ii)ofthetem-
porary regulations. In addition,Example 2
of §1.901–2T(e)(5)(iv)(D) is modified to
clarify that the holding company exception
is not met if the counterparty’s interest is
acquired in a sale-repurchase transaction.
The IRS and Treasury Department rec-
ognize that under the regulations an entity
conducting business through an active for-
eign subsidiary may fail to meet the hold-
ing company exception, even though the
entity would not be treated as an SPV un-
der the “substantially all” test if it operated
the subsidiary’s business directly through
a branch operation. The IRS and Treasury
Department believe this result is appropri-
ate because the segregation of active busi-
ness income and assets in a lower-tier en-
tity may facilitate the use of an upper-tier
entity to conduct a structured passive in-
vestment arrangement.
The IRS and Treasury Department re-
main concerned that taxpayers may con-
tinue to enter into structured passive in-
vestment arrangements designed to gen-
erate foreign tax credits through entities
that meet the technical requirements of
the holding company exception. The IRS
and Treasury Department intend to mon-
itor the use of holding companies to fa-
cilitate abusive foreign tax credit arrange-
ments, utilize all available tools under cur-
rent law to challenge the U.S. tax results
claimedinconnectionwithsucharrange-
ments (including the substance over form
doctrine, the economic substance doctrine,
debt-equity principles, tax ownership prin-
ciples, other provisions of §1.901–2, sec-
tion 269, and the partnership anti-abuse
rules of §1.701–2) in appropriate cases,
and to issue additional regulations modi-
fying or eliminating the holding company
exception if necessary to prevent abuse.
The second modification in the 2007
proposed regulations is that passive in-
vestment income is determined by disre-
garding sections 954(c)(3) and 954(c)(6)
and by treating income attributable to
transactions with a counterparty as inel-
igible for the exclusions under sections
November 17, 200811432008–46 I.R.B.

954(h) and 954(i). The IRS and Trea-
sury Department received a number of
comments suggesting that the definition
of passive investment income should be
narrowed by excluding income that would
be treated as non-subpart F income under
section 954(c)(3) or 954(c)(6), exclud-
ing income from unrelated persons other
than the counterparty, or eliminating the
requirement in section 954(h) that the
tested entity’s activity be conducted in
the entity’s “home country.” Other com-
mentators suggested substituting other
tests for the active financing exception in
section 954(h), such as exempting finan-
cial services income as defined in section
904(d), with or without modification. For
example, commentators suggested various
modifications, such as excluding income
derived from unrelated persons or from
direct activities of employees of the tested
entity; exempting any income derived
from or related to transactions with cus-
tomers; exempting income that would be
considered attributable to an active foreign
trade or business under the principles of
section 864 and §1.367(a)–2T(b); or ex-
empting income other than income from
“tainted” assets such as cash or cash equiv-
alents, stock or notes of persons related to
the U.S. party or counterparty, or assets
giving rise to U.S. source income. One
commentator suggested that payments
describedinsection954(c)(3)shouldnot
be treated as passive investment income
to the extent the payment was deductible
under foreign law and the corresponding
income inclusion by the tested entity did
not result in a net increase in foreign taxes
paid. This commentator suggested that
the result in the U.S. borrower transaction
described inExample 2of the 2007 pro-
posed regulations was inappropriate since
theforeigntaxpaidbytheSPVwasoffset
by a reduction in tax paid by the CFC
borrower.
The IRS and Treasury Department
carefully considered these suggestions but
ultimately determined that none of the
suggested approaches has significant ad-
vantages over relying on section 954(h) to
determine whether income from financ-
ing activities is sufficiently active that it
should be excluded from passive invest-
ment income for purposes of these regu-
lations. Section 954(h) includes detailed
requirements that ensure that the entity
is predominantly engaged in the active
conduct of a banking, financing or similar
business and conducts substantial activity
with respect to such business. In addition,
the IRS and Treasury Department continue
to believe it is not appropriate to exclude
income described in sections 954(c)(3)
and 954(c)(6) from passive investment
income, because financing arrangements
between related parties that are engaged
in the active conduct of a trade or business
are commonly used in the structured trans-
actions that are the target of these regula-
tions. The IRS and Treasury Department
also do not believe that U.S. borrower
transactions should not be considered to
result in a net increase in foreign tax, since
in the absence of the structured passive in-
vestment arrangement the CFC borrower
would still reduce its foreign tax by reason
of the interest expense deduction but the
U.S. party would not claim foreign tax
credits for foreign payments attributable
to income in the SPV that is in substance
the foreign lender’s interest income. Ac-
cordingly, §1.901–2T(e)(5)(iv)(C)(5)(i)
generally retains the definition of passive
investment income in the 2007 proposed
regulations.
However, the temporary regulations
include two modifications in response to
comments. First, the IRS and Treasury
Department agree it is appropriate to re-
quire the entity’s activities to be conducted
directly by its own employees rather than
by employees of affiliates, because the
purpose of the SPV condition is to dis-
tinguish between active entities and those
with largely passive income, and it is rea-
sonable to require an entity engaged in an
active business to conduct that business
through its own employees. Accordingly,
§1.901–2T(e)(5)(iv)(C)(5)(i) provides that
section 954(h)(3)(E) shall not apply, and
that the entity must conduct substantial
activity through its own employees.
Second, the IRS and Treasury Depart-
ment agree that the requirement that ac-
tivities be conducted in the entity’s “home
country” reflects a subpart F policy that
is more restrictive than necessary for pur-
poses of these regulations. Accordingly,
§1.901–2T(e)(5)(iv)(C)(5)(i) provides that
for purposes of these regulations the term
home countrymeans any foreign country.
Concerning the requirement in
§1.901–2(e)(5)(iv)(B)(1)(i)ofthe2007
proposed regulations that substantially all
of the gross income of the entity be pas-
sive investment income and substantially
all of the entity’s assets are assets held to
produce such passive investment income,
one commentator recommended that the
regulations provide examples illustrating
situations in which such requirement is
met. The IRS and Treasury Department
did not adopt this comment because the
“substantially all” test requires evaluation
of all the facts and circumstances and can-
not be satisfied by reference to a specific
percentage benchmark.
Several commentators requested
that the regulations clarify the time
at which the six conditions must be
met to result in a structured pas-
sive investment arrangement. Section
1.901–2T(e)(5)(iv)(B)(1)(ii)ofthetempo-
rary regulations is revised to clarify that
the foreign payment must be made with
respect to a U.S. tax year in which sub-
stantially all of the gross income (for U.S.
tax purposes) of the entity, if any, is attrib-
utable to passive investment income and
substantially all of the assets of the entity
are assets held to produce such passive
investment income. This clarification is
intended to ensure that foreign tax credits
are disallowed for foreign payments that
relate primarily to passive investment in-
come, but not for taxes that relate to active
business income earned in an earlier or
later year when the entity is not treated as
an SPV. The regulations do not, however,
require all six conditions to be met in the
same tax year. For example, the regula-
tions disallow credits for foreign payments
with respect to income of an SPV even
if the U.S. party acquires its interest, or a
hybrid instrument is issued to the counter-
party, after the foreign payments are made.
Other commentators recommended that
the regulations eliminate the SPV condi-
tion and treat as noncompulsory payments
only those foreign payments that directly
relate to passive investment income, or
with respect to which duplicative tax bene-
fits are claimed. The IRS and Treasury De-
partment did not adopt such an approach
in the temporary regulations because of
the administrative difficulty of tracing spe-
cific foreign payments to specific income
or to the duplicative tax benefits. Accord-
ingly, the temporary regulations retain the
SPV condition and theapproach of treat-
ing all foreign payments attributable to a
structured passive investment arrangement
as noncompulsory. However, the IRS and
2008–46 I.R.B.1144November 17, 2008

Treasury Department recognize that an el-
ement of the arrangements intended to be
covered by the regulations is that they are
designed to generate duplicative tax bene-
fits, and that some connection between the
counterparty’s foreign tax benefit and the
U.S. party’s share of the foreign payments
should be a pre-condition to the finding
of a structured passive investment arrange-
ment. Accordingly, as described in sec-
tion D of this preamble, the foreign tax
benefit condition is revised to provide that
the counterparty’s foreign tax benefit must
correspond to 10 percent or more of the
U.S. party’s share of the foreign payments
or the U.S. party’s share (under U.S. tax
principles) of the foreign tax base used to
compute such payments.
B.Section 1.901–2T(e)(5)(iv)(B)(2): U.S.
Party
Section 1.901–2T(e)(5)(iv)(B)(2)of
the temporary regulations adopts without
change the second overall condition of the
2007 proposed regulations that a person (a
“U.S. party”) would be eligible to claim
a credit under section 901(a) (including a
credit for foreign taxes deemed paid under
section 902 or 960) for all or a portion of
the foreign payment if such payment were
an amount of tax paid.
One commentator requested that the
regulations be amended to clarify that the
“U.S. party” condition must be met at the
same time as the other five conditions. The
temporary regulations do not include this
condition because the IRS and Treasury
Department believe it is inappropriate to
exempt arrangements that are structured
so that the U.S. party claims a credit in a
taxable year or period that is not the same
taxable year or period in which the coun-
terparty is entitled to a foreign tax benefit.
In addition, the IRS and Treasury Depart-
ment are concerned that this modification
would allow a person to acquire an interest
in an SPV and claim credits with respect to
purported foreign taxes paid in an earlier
period by the SPV in connection with an
arrangement that met the other five condi-
tions of the regulations.
C.Section 1.901–2T(e)(5)(iv)(B)(3):
Direct Investment
The third overall condition provided in
the 2007 proposed regulations is that the
foreign payment or payments are (or are
expected to be) substantially greater than
the amount of credits, if any, that the U.S.
party would reasonably expect to be eligi-
ble to claim under section 901(a) if such
U.S. party directly owned its proportion-
ate share of the assets owned by the SPV,
other than through a branch, a permanent
establishment or any other arrangement
(such as an agency arrangement) that
would subject the income generated by its
share of the assets to a net basis foreign
tax. Commentators recommended several
changes to the direct investment condi-
tion, several of which are adopted in the
temporary regulations. First, in order to
reach appropriate results in cases where
more than one person owns an equity in-
terest in the SPV for U.S. tax purposes,
the temporary regulations amend the di-
rect investment test to compare the U.S.
party’s proportionate share of the foreign
payment made by the SPV to the amount
of foreign tax the U.S. party would be
eligible to credit if the U.S. party directly
owned its proportionate share of the assets.
Second, the temporary regulations clarify
that a dual resident corporation that is an
SPV meets the direct investment condition
since its ownership of the passive assets
is treated the same as ownership through
a branch operation. Third, a commentator
suggested that the direct investment test
of the 2007 proposed regulations could be
avoided by entering into a sale-repurchase
transaction using an SPV that acquires
passive assets subject to foreign withhold-
ing tax. This commentator recommended
that the direct investment condition be
revised to reduce the value of the U.S.
party’s interest by any amount advanced
by the foreign counterparty that is treated
as debt for U.S. tax purposes but as equity
for foreign tax purposes. The IRS and
Treasury Department agree that situations
where the SPV’s income is subject to gross
basis foreign taxes raise the same foreign
tax credit policy concerns as situations
where the SPV’s income is subject to net
basis foreign taxes. The IRS and Trea-
sury Department, however, believe the
commentator’s recommended solution is
incomplete, since the other conditions of
the regulations can be met by structures
employing techniques other than sale-re-
purchase agreements. Accordingly, the
temporary regulations provide that the
U.S. party’s proportionate share of the
SPV’s assets does not include any assets
that produce income subject to gross basis
withholding tax.
Several commentators recommended
that the regulations include an excep-
tion for certain transactions in which the
amount of the foreign payments attrib-
utable to income of an SPV does not
substantially exceed the amount of foreign
taxes that would have been paid by a con-
trolled foreign corporation that owns the
SPV in the absence of the arrangement.
The commentators suggested that such
foreign payments should not be treated
as noncompulsory payments because they
effectively substitute for taxes that would
have been imposed on the controlled for-
eign corporation in the absence of the
arrangement.
These comments raise the fundamental
question as to the appropriate baseline to
which such transactions should be com-
pared to determine if there has been a sig-
nificant increase in the total amount of for-
eign taxes paid. Although the IRS and
Treasury Department carefully considered
an exception from the definition of struc-
tured passive investment arrangements for
such transactions, the IRS and Treasury
Department have been unable to develop
an exception that can be administered by
the IRS and that does not exclude abusive
cases. Accordingly, the temporary regula-
tions do not include this exception.
D.Section 1.901–2T(e)(5)(iv)(B)(4):
Foreign Tax Benefit
The fourth condition provided in the
2007 proposed regulations is that the ar-
rangement is structured in such a man-
ner that it results in a foreign tax benefit
(such as a credit, deduction, loss, exemp-
tion or a similar tax benefit) for a coun-
terparty or for a person that is related to
the counterparty, but not related to the U.S.
party. In response to comments, to re-
lieve administrative burdens these regula-
tions clarify that while the benefit must be
reasonably expected, there is no require-
ment to show that the benefit be intended
or actually realized. The temporary regu-
lations also provide that the ability to sur-
render the use of a tax loss to another per-
son is a foreign tax benefit because a for-
eign tax benefit need only be made avail-
able to a counterparty. SeeExample 9of
§1.901–2T(e)(5)(iv)(D).
November 17, 200811452008–46 I.R.B.

Several commentators recommended
that the regulations be revised to require a
causal relationship between one or more
of the six conditions. For example, one
commentator recommended adding a re-
quirement that the foreign tax benefit
either relate to the foreign tax paid by
the SPV or result from the counterparty
being treated for foreign but not U.S. tax
purposes as owning an equity interest in
the SPV or a portion of the SPV’s assets.
Another commentator suggested requiring
that the inconsistent aspect of the arrange-
ment be created or used to achieve the
foreign tax benefit. Another commentator
recommended requiring that the foreign
tax benefit would not have been allowed
or allowable “but for” the existence of one
or more of the other conditions.
In response to the comments, the tem-
porary regulations revise the “foreign
tax benefit” condition to provide that the
credit, deduction, loss, exemption, exclu-
sion or other tax benefit must correspond
to 10 percent or more of the U.S. party’s
share (for U.S. tax purposes) of the for-
eign payment or 10 percent or more of the
foreign tax base with respect to which the
U.S. party’s share of the foreign payment
is imposed. The revisions are intended to
clarify that a joint venture that does not
involve any duplication of tax benefits
is not covered by the temporary regula-
tions. At the same time, the temporary
regulations provide that the duplication
need not be direct. For example, while
the U.S. party generally seeks to claim
foreign tax credits in the United States for
foreign payments attributable to income
of the SPV, the counterparty’s foreign tax
benefit may consist of tax-exempt income
corresponding to the SPV’s income with
respect to which foreign payments claimed
as credits by the U.S. party were made
and deductions or losses attributable to
payments of corresponding amounts to
the SPV or U.S. party. SeeExample 3of
§1.901–2T(e)(5)(iv)(D).
E.Section 1.901–2T(e)(5)(iv)(B)(5):
Counterparty
The 2007 proposed regulations define
a counterparty as a person (other than the
SPV) that is unrelated to the U.S. party and
that (i) directly or indirectly owns 10 per-
cent or more of the equity of the SPV under
the tax laws of a foreign country in which
such person is subject to tax on the basis
of place of management, place of incor-
poration or similar criterion or otherwise
subject to a net basis foreign tax or (ii) ac-
quires 20 percent or more of the assets of
the SPV under the tax laws of a foreign
country in which such person is subject to
tax on the basis of place of management,
place of incorporation or similar criterion
or otherwise subject to a net basis foreign
tax.
Commentators proposed that the coun-
terparty factor be amended to include
certain related parties. Commentators
noted that structured transactions engaged
in by related persons under common
foreign ownership present the same tax
policy concerns as transactions between
unrelated persons. However, these same
commentators noted that structured trans-
actions engaged in by related parties that
are under common U.S. ownership do not
pose the same tax policy concerns be-
cause the reduction in foreign tax liability
obtained by the U.S.-controlled foreign
counterparty will result in a corresponding
increase in U.S. taxes when the foreign
counterparty repatriates its earnings to
the United States. The IRS and Treasury
Department agree with these comments.
Consequently, the temporary regulations
amend the definition of a counterparty
to include related persons, but excluding
cases where the U.S. party is a U.S. corpo-
ration or individual that owns (directly or
indirectly) at least 80 percent of the value
of the potential counterparty and cases
where at least 80 percent of the value of
the U.S. party and the potential counter-
party are owned (directly or indirectly) by
the same U.S. corporation or individual.
Several commentators also suggested
that the requirement that the counterparty
own at least 10 percent (directly or indi-
rectly) of the equity of the SPV or acquire
at least 20 percent of the assets of the SPV
should be revised. Some commentators
proposed these thresholds be increased to
50 percent. Other commentators proposed
that the ownership of all foreign parties de-
riving a foreign tax benefit should be ag-
gregated to determine whether the thresh-
olds are met. The IRS and Treasury De-
partment agree that the regulatory condi-
tions should be revised to better reflect
that the counterparty is entitled to more
than a nominal foreign tax benefit. Ac-
cordingly, the temporary regulations elim-
inate the percentage ownership thresholds
from the counterparty definition, and mod-
ify the definition of a foreign tax benefit in
§1.901–2T(e)(5)(iv)(B)(4), as described in
section D of this preamble.
F.Section 1.901–2T(e)(5)(iv)(B)(6):
Inconsistent Treatment
The sixth condition in the 2007 pro-
posed regulations is that the U.S. and
an applicable foreign country treat the
arrangement differently under their re-
spective tax systems. For this purpose, an
applicable foreign country is any foreign
country in which either the counterparty,
a person related to the counterparty or the
SPV is subject to net basis tax. To provide
clarity and limit the scope of this factor,
the 2007 proposed regulations provide
that the arrangement must be subject to
one of four specified types of inconsistent
treatment. Specifically, the U.S. and the
foreign country (or countries) must treat
one or more of the following aspects of
the arrangement differently, and the U.S.
treatment of the inconsistent aspect must
materially affect the amount of foreign
tax credits claimed, or the amount of in-
come recognized, by the U.S. party to
the arrangement: (i) the classification of
an entity as a corporation or other entity
subject to an entity-level tax, a partner-
ship or other flow-through entity or an
entity that is disregarded for tax purposes;
(ii) the characterization as debt, equity or
an instrument that is disregarded for tax
purposes of an instrument issued in the
transaction; (iii) theproportion of the eq-
uity of the SPV (or an entity that directly
or indirectly owns the SPV) that is consid-
ered to be owned directly or indirectly by
the U.S. party and the counterparty; or (iv)
the amount of taxable income of the SPV
for one or more tax years during which the
arrangement is in effect.
Commentators recommended that this
condition be clarified so that the U.S.
treatment of the inconsistent aspect must
materially increase the amount of the U.S.
party’s foreign tax credits or materially
decrease the U.S. party’s income for U.S.
tax purposes. The temporary regulations
reflect this clarification. In addition, com-
mentators requested that this factor be
limited to instances when the inconsistent
treatment is reasonably expected to re-
sult in a permanent difference in the U.S.
2008–46 I.R.B.1146November 17, 2008

party’s income or foreign tax credits. The
IRS and Treasury Department believe that
the revisions to the foreign tax benefit
condition described in Section D of this
preamble are sufficient to establish the
appropriate linkage between the inconsis-
tent U.S. and foreign law treatment and
the duplicative tax benefits. Accordingly,
the temporary regulations retain the in-
consistent treatment factor without further
changes.
One commentator also recommended
that the inconsistent treatment condition
be narrowed to instances where the incon-
sistent treatment under U.S. and foreign
law related to definitions of ownership and
the amount of the SPV’s taxable income.
The IRS and Treasury Department have
not adopted this recommendation because
it would cause certain types of abusive
arrangements to fall outside the scope of
the regulations and because differences in
entity classification are features common
to structured passive investment arrange-
ments.
G.Other Comments
Commentators also made suggestions
that did not relate to any single factor. For
example, commentators also requested
clarification that the foreign payments
treated as noncompulsory amounts under
the regulation may be deductible payments
under sections 162 and 212 and reduce a
foreign corporation’s earnings and profits
for purposes of subpart F. The IRS and
Treasury Department believe that pro-
viding guidance regarding sections 162,
212, and 964 is beyond the scope of this
regulation project. The usual rules for
determining the deductibility of a payment
and determining the earnings and profits
of a foreign corporation for subpart F pur-
poses apply.
In addition, commentators requested
that foreign payments attributable to a
structured passive investment arrange-
ment be excluded from the scope of the
regulations if the arrangement has a valid
business purpose. Other commentators
suggested that the regulations adopt a
broad anti-abuse rule that would deny
a foreign tax credit in any case where
allowance of the credit would be incon-
sistent with the purpose of the foreign
tax credit regime. The IRS and Treasury
Department are concerned that these ap-
proaches would create uncertainty for both
taxpayers and the IRS. The IRS and Trea-
sury Department have concluded that, at
this time, a targeted rule denying foreign
tax credits in arrangements described in
the temporary regulations is more appro-
priate.
H.Other Examples
In response to comments, the tempo-
rary regulations include more examples
illustrating additional variations of the
structured passive investment arrange-
ments that are covered by the regulations.
For example, newExample 3illustrates
a U.S. borrower transaction in which a
foreign lender acquires assets instead of
an equity interest in the SPV and new
Example 10illustrates a joint venture in
which the counterparty’s foreign tax ben-
efits do not correspond to the U.S. party’s
share of the base with respect to which
the foreign payment is imposed. Modifi-
cations to examples in the 2007 proposed
regulations were also necessary to reflect
comments received and other changes to
the regulations.
I.Effective/Applicability Dates
The 2007 proposed regulations were
proposed to be effective for foreign taxes
paid or accrued during taxable years of
the taxpayer ending on or after the date on
which the final regulations are published
in theFederal Register. A commentator
observed that the final regulations would
potentially be retroactively effective be-
cause the regulations would apply, for
example, to calendar year taxpayers as of
January 1 of the year in which the final
regulations are published in theFederal
Registerand to taxpayers that participated
in structured passive investment arrange-
ments involving entities with taxable years
that differ from the U.S. taxpayers’ taxable
years. Commentators also requested clar-
ification of whether the relevant taxable
year for purposes of the effective date is the
taxable year of the SPV in which it pays or
accrues the purported foreign taxes, or the
taxable year of the U.S. taxpayer in which
it claims a credit. For example, commen-
tators observed that if the taxable year
of the U.S. taxpayer in which it claims a
credit is the relevant taxable year, the final
regulations would apply to U.S. share-
holders of controlled foreign corporations
where the shareholder claims a deemed
paid credit under section 902 with respect
to foreign taxes paid by the foreign corpo-
ration in years prior to the effective date
of the regulations. These commentators
recommended that the regulations provide
that the relevant taxable year is the SPV’s
taxable year. Commentators also recom-
mended that the final regulations apply
only to foreign taxes paid or accrued in
taxable years beginning after the date the
final regulations are published, or only to
foreign taxes paid or accrued with respect
to income accrued after the date the final
regulations are published.
The IRS and Treasury Department have
not adopted the recommendation to delay
the effective date of these regulations to
apply only in tax years beginning after the
regulations are published. The IRS and
Treasury Department generally believe the
regulations should apply to disallow cred-
its for foreign payments that would other-
wise be eligible to be claimed as credits in
taxable years ending after the regulations
are published. The IRS and Treasury De-
partment agree, however, that the regula-
tions should not apply to foreign taxes paid
or accrued by a foreign corporation in a
U.S. taxable year of the foreign corpora-
tion ending prior to the effective date of the
regulations, provided that such year ends
prior to the first taxable year of the domes-
tic corporate shareholder for which these
regulations are first applicable.
Accordingly, the effective date for these
regulations is July 16, 2008. The regula-
tions generally apply to foreign payments
that, if they were an amount of tax paid,
would be considered paid or accrued by a
U.S. or foreign entity in taxable years end-
ing on or after July 16, 2008. In the case
of foreign payments by a foreign corpora-
tion that has a domestic corporate share-
holder, the regulations also apply to such
payments that would be considered paid or
accrued in the foreign corporation’s U.S.
taxable years ending with or within taxable
years of its domestic corporate shareholder
ending on or after July 16, 2008. Finally, in
the case of foreign payments by a partner-
ship, trust or estate for which any partner
or beneficiary would otherwise be eligible
to claim a foreign tax credit, the regula-
tions also apply to payments that would be
considered paid or accrued in taxable years
ending with or within taxable years of such
November 17, 200811472008–46 I.R.B.

partners or beneficiaries ending on or after
July 16, 2008.
No inference is intended regarding the
U.S. tax consequences of structured pas-
sive investment arrangements prior to the
effective date of the regulations.
For periods after the effective date
of the temporary regulations, the IRS
and Treasury Department will continue
to scrutinize other arrangements that are
not covered by the regulations but are
inconsistent with the purpose of the for-
eign tax credit. Such arrangements may
include arrangements that are similar to
arrangements described in the temporary
regulations, but that do not meet all of
the conditions included in the temporary
regulations. The IRS will continue to
challenge the claimed U.S. tax results in
appropriate cases. In addition, the IRS and
Treasury Department may issue additional
regulations in the future in order to address
such other arrangements.
J.Miscellaneous Amendments
The temporary regulations also amend
§1.901–1(a) and (b) to reflect statutory
changes made by the Foreign Investors
Tax Act of 1966 (Public Law 89–809
(80 Stat. 1539), section 106(b)), the Tax
Reform Act of 1976 (Public Law 94–455
(90 Stat. 1520), section 1901(a)(114)),
and the American Jobs Creation Act of
2004 (Public Law 108–357 (118 Stat.
1418–20), section 405(b)).
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Or-
der 12866. Therefore, a regulatory assess-
ment is not required. For applicability of
the Regulatory Flexibility Act, please re-
fer to the cross-referenced notice of pro-
posed rulemaking published elsewhere in
this issue of the Bulletin. Pursuant to sec-
tion 7805(f) of the Internal Revenue Code,
this regulation has been submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small businesses.
Drafting Information
The principal author of these regula-
tions is Michael I. Gilman, Office of Asso-
ciate Chief Counsel (International). How-
ever, other personnel from the IRS and the
Treasury Department participated in their
development.
*****
Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.901–1 is amended by
revising paragraphs (a) and (b) to read as
follows:
§1.901–1 Allowance of credit for taxes.
(a) and (b). [Reserved]. For further
guidance, see §1.901–1T(a) and (b).
*****
Par. 3. Section 1.901–1T is added to
read as follows:
§1.901–1T Allowance of credit for taxes
(temporary).
(a)In general. Citizens of the United
States, domestic corporations, and cer-
tain aliens resident in the United States or
Puerto Rico may choose to claim a credit,
as provided in section 901, against the tax
imposed by chapter 1 of the Code for taxes
paid or accrued to foreign countries and
possessions of the United States, subject
to the conditions prescribed in paragraphs
(a)(1) through (a)(3) and paragraph (b) of
this section.
(1)Citizen of the United States. A citi-
zen of the United States, whether resident
or nonresident, may claim a credit for—
(i) The amount of any income, war prof-
its, and excess profits taxes paid or ac-
crued during the taxable year to any for-
eign country or to any possession of the
United States; and
(ii) His share of any such taxes of a part-
nership of which he is a member, or of an
estate or trust of which he is a beneficiary.
(2)Domestic corporation.Adomestic
corporation may claim a credit for—
(i) The amount of any income, war prof-
its, and excess profits taxes paid or ac-
crued during the taxable year to any for-
eign country or to any possession of the
United States;
(ii) Its share of any such taxes of a part-
nership of which it is a member, or of an
estate or trust of which it is a beneficiary;
and
(iii) The taxes deemed to have been paid
under section 902 or 960.
(3)Alien resident of the United States
or Puerto Rico. Except as provided in
a Presidential proclamation described in
section 901(c), an alien resident of the
United States, or an alien individual who is
abona fideresident of Puerto Rico during
the entire taxable year, may claim a credit
for—
(i) The amount of any income, war prof-
its, and excess profits taxes paid or ac-
crued during the taxable year to any for-
eign country or to any possession of the
United States; and
(ii) His share of any such taxes of a part-
nership of which he is a member, or of an
estate or trust of which he is a beneficiary.
(b)Limitations. Certain Code sections,
including sections 814, 901(e) through (l),
906, 907, 908, 911, 999, and 6038, limit
the credit against the tax imposed by chap-
ter 1 of the Code for certain foreign taxes.
(c) through (i) [Reserved]. For further
guidance, see §1.901–1(c) through (i).
(j)Effective/applicability date.This
section applies to taxable years beginning
after July 16, 2008.
(k)Expiration date. The applicability
of this section expires on July 15, 2011.
Par. 4. Section 1.901–2 is amended by
adding paragraphs (e)(5)(iii) and (e)(5)(iv)
and revising paragraph (h) to read as fol-
lows:
§1.901–2 Income, war profits, or excess
profits tax paid or accrued.
*****
(e) * * *
(5) * * *
(iii) and (iv) [Reserved]. For further
guidance, see §1.901–2T(e)(5)(iii) and
(iv).
*****
(h)Effective/applicability date—(1)In
general. This section and §§1.901–2A and
1.903–1 apply to taxable years beginning
after November 14, 1983.
(2) [Reserved]. For further guidance,
see §1.901–2T(h)(2).
Par. 5. Section 1.901–2T is added to
read as follows:
2008–46 I.R.B.1148November 17, 2008

§1.901–2T Income, war profits, or excess
profits tax paid or accrued (temporary).
(a) through (e)(5)(ii) [Reserved]. For
further guidance, see §1.901–2(a) through
(e)(5)(ii).
(e)(5)(iii) [Reserved].
(iv)Structured passive investment ar-
rangements—(A)In general. Notwith-
standing §1.901–2(e)(5)(i), an amount
paid to a foreign country (a “foreign pay-
ment”) is not a compulsory payment, and
thus is not an amount of tax paid, if the
foreign payment is attributable (within the
meaning of paragraph (e)(5)(iv)(B)(1)(ii)
of this section) to a structured passive
investment arrangement (as described in
paragraph (e)(5)(iv)(B) of this section).
(B)Conditions. An arrangement is a
structured passive investment arrangement
if all of the following conditions are satis-
fied:
(1)Special purpose vehicle (SPV).An
entity that is part of the arrangement meets
the following requirements:
(i) Substantially all of the gross income
(for U.S. tax purposes) of the entity, if
any, is passive investment income, and
substantially all of the assets of the entity
are assets held to produce such passive
investment income. As provided in para-
graph (e)(5)(iv)(C)(5)(ii) of this section,
passive investment income generally does
not include income of a holding com-
pany from qualified equity interests in
lower-tier entities that are predominantly
engaged in the active conduct of a trade
or business. Thus, except as provided in
paragraph (e)(5)(iv)(C)(5)(ii) of this sec-
tion, qualified equity interests of a holding
company in such lower-tier entities are
not held to produce passive investment
income and the ownership of such inter-
ests will not cause the holding company
to meet the requirements of this paragraph
(e)(5)(iv)(B)(1)(i).
(ii) There is a foreign payment attribut-
able to income of the entity (as determined
under the laws of the foreign country to
which such foreign payment is made),
including the entity’s share of income
of a lower-tier entity that is a branch or
pass-through entity under the laws of such
foreign country, that, if the foreign pay-
ment were an amount of tax paid, would
be paid or accrued in a U.S. taxable year
in which the entity meets the requirements
of paragraph (e)(5)(iv)(B)(1)(i)ofthis
section. A foreign payment attributable
to income of an entity includes a foreign
payment attributable to income that is
required to be taken into account by an
owner of the entity, if the entity is a branch
or pass-through entity under the laws of
such foreign country. A foreign payment
attributable to income of an entity also
includes a foreign payment attributable
to income of a lower-tier entity that is a
branch or pass-through entity for U.S. tax
purposes. A foreign payment attributable
to income of the entity does not include
a withholding tax (within the meaning of
section 901(k)(1)(B)) imposed on a dis-
tribution or payment from the entity to a
U.S. party.
(2)U.S. party. A person would be
eligible to claim a credit under section
901(a) (including a credit for foreign taxes
deemed paid under section 902 or 960) for
all or a portion of the foreign payment de-
scribed in paragraph (e)(5)(iv)(B)(1)(ii)of
this section if the foreign payment were an
amount of tax paid.
(3)Direct investment. The U.S. party’s
proportionate share of the foreign pay-
ment or payments described in paragraph
(e)(5)(iv)(B)(1)(ii)ofthissectionis(or
is expected to be) substantially greater
than the amount of credits, if any, that the
U.S. party reasonably would expect to be
eligible to claim under section 901(a) for
foreign taxes attributable to income gen-
erated by the U.S. party’s proportionate
share of the assets owned by the SPV if
the U.S. party directly owned such assets.
For this purpose, direct ownership shall
not include ownership through a branch,
a permanent establishment or any other
arrangement (such as an agency arrange-
ment or dual resident status) that would
result in the income generated by the U.S.
party’s proportionate share of the assets
being subject to tax on a net basis in the
foreign country to which the payment is
made. A U.S. party’s proportionate share
of the assets of the SPV shall be deter-
mined by reference to such U.S. party’s
proportionate share of the total value of all
of the outstanding interests in the SPV that
are held by its equity owners and credi-
tors. A U.S. party’s proportionate share of
the assets of the SPV, however, shall not
include any assets that produce income
subject to gross basis withholding tax.
(4)Foreign tax benefit. The arrange-
ment is reasonably expected to result in a
credit, deduction, loss, exemption, exclu-
sion or other tax benefit under the laws of a
foreign country that is available to a coun-
terparty or to a person that is related to the
counterparty (determined under the princi-
ples of paragraph (e)(5)(iv)(C)(7)ofthis
section by applying the tax laws of a for-
eign country in which the counterparty is
subject to tax on a net basis). However,
a foreign tax benefit is described in this
paragraph (e)(5)(iv)(B)(4) only if any such
credit corresponds to 10 percent or more
of the U.S. party’s share (for U.S. tax pur-
poses) of the foreign payment referred to in
paragraph (e)(5)(iv)(B)(1)(ii)ofthissec-
tion or if any such deduction, loss, exemp-
tion, exclusion or other tax benefit corre-
sponds to 10 percent or more of the foreign
base with respect to which the U.S. party’s
share (for U.S. tax purposes) of the foreign
payment is imposed.
(5)Counterparty. The arrangement in-
volves a counterparty. A counterparty is a
person that, under the tax laws of a foreign
country in which the person is subject to
tax on the basis of place of management,
place of incorporation or similar criterion
or otherwise subject to a net basis tax, di-
rectly or indirectly owns or acquires equity
interests in, or assets of, the SPV. However,
a counterparty does not include the SPV or
a person with respect to which for U.S. tax
purposes the same domestic corporation,
U.S. citizen or resident alien individual di-
rectly or indirectly owns more than 80 per-
cent of the total value of the stock (or eq-
uity interests) of each of the U.S. party and
such person. In addition, a counterparty
does not include a person with respect to
which for U.S. tax purposes the U.S. party
directly or indirectly owns more than 80
percent of the total value of the stock (or
equity interests), but only if the U.S. party
is a domestic corporation, a U.S. citizen or
a resident alien individual.
(6)Inconsistent treatment.TheUnited
States and an applicable foreign country
treat one or more of the following aspects
of the arrangement differently under their
respective tax systems, and for one or more
tax years when the arrangement is in effect
either the amount of income recognized by
the SPV, the U.S. party, and persons re-
lated to the U.S. party for U.S. tax purposes
is materially less than the amount of in-
come that would be recognized if the for-
eign tax treatment controlled for U.S. tax
purposes, or the amount of credits claimed
November 17, 200811492008–46 I.R.B.

by the U.S. party (if the foreign payment
described in paragraph (e)(5)(iv)(B)(1)(ii)
ofthissectionwereanamountoftaxpaid)
is materially greater than it would be if the
foreign tax treatment controlled for U.S.
tax purposes:
(i) The classification of the SPV (or an
entity that has a direct or indirect owner-
ship interest in the SPV) as a corporation or
other entity subject to an entity-level tax,
a partnership or other flow-through entity
or an entity that is disregarded for tax pur-
poses.
(ii) The characterization as debt, equity
or an instrument that is disregarded for tax
purposes of an instrument issued by the
SPV (or an entity that has a direct or indi-
rect ownership interest in the SPV) to the
U.S. party, the counterparty or a person re-
latedtotheU.S.partyorthecounterparty.
(iii) The proportion of the equity of the
SPV (or an entity that directly or indirectly
owns the SPV) that is considered to be
owned directly or indirectly by the U.S.
party and the counterparty.
(iv) The amount of taxable income of
the SPV for one or more tax years during
which the arrangement is in effect.
(C)Definitions. The following defi-
nitions apply for purposes of paragraph
(e)(5)(iv) of this section.
(1)Applicable foreign country.Anap-
plicable foreign countrymeans each for-
eign country to which a foreign payment
described in paragraph (e)(5)(iv)(B)(1)(ii)
of this section is made or which confers a
foreign tax benefit described in paragraph
(e)(5)(iv)(B)(4)ofthissection.
(2)Counterparty.Thetermcounter-
partymeans a person described in para-
graph (e)(5)(iv)(B)(5)ofthissection.
(3)Entity.Thetermentityin-
cludes a corporation, trust, partner-
ship or disregarded entity described in
§301.7701–2(c)(2)(i) of this chapter.
(4)Indirect ownership. Indirect own-
ership of stock or another equity interest
(suchasaninterestinapartnership)shall
be determined in accordance with the prin-
ciples of section 958(a)(2), regardless of
whether the interest is owned by a U.S. or
foreign entity.
(5)Passive investment income—(i)
In general.Thetermpassive invest-
ment incomemeans income described in
section 954(c), as modified by this para-
graph (e)(5)(iv)(C)(5)(i) and paragraph
(e)(5)(iv)(C)(5)(ii) of this section. In de-
termining whether income is described
in section 954(c), paragraphs (c)(3) and
(c)(6) of that section shall be disregarded,
and sections 954(h) and 954(i) shall be
taken into account by applying those pro-
visions at the entity level as if the entity
were a controlled foreign corporation (as
defined in section 957(a)). For purposes of
the preceding sentence, any income of an
entity attributable to transactions that, as-
suming the entity is an SPV, are with a per-
son that is a counterparty, or with persons
that are related to a counterparty within
the meaning of paragraph (e)(5)(iv)(B)(4)
of this section, shall not be treated as
qualified banking or financing income or
as qualified insurance income, and shall
not be taken into account in applying sec-
tions 954(h) and 954(i) for purposes of
determining whether other income of the
entity is excluded from section 954(c)(1)
under section 954(h) or 954(i), but only
ifanysuchperson(orapersonthatis
related to such person within the meaning
of paragraph (e)(5)(iv)(B)(4)ofthissec-
tion) is eligible for a foreign tax benefit
described in paragraph (e)(5)(iv)(B)(4)of
this section. In addition, in applying sec-
tion 954(h) for purposes of this paragraph
(e)(5)(iv)(C)(5)(i), section 954(h)(3)(E)
shall not apply, section 954(h)(2)(A)(ii)
shall be satisfied only if the entity con-
ducts substantial activity with respect to its
business through its own employees, and
the term “any foreign country” shall be
substituted for “homecountry” wherever
it appears in section 954(h).
(ii)Holding company exception.
Except as provided in this paragraph
(e)(5)(iv)(C)(5)(ii), income of an entity
that is attributable to an equity interest in
a lower-tier entity is passive investment
income. If the entity is a holding com-
pany and directly owns a qualified equity
interest in another entity (a “lower-tier
entity”) that is engaged in the active con-
duct of a trade or business and that derives
more than 50 percent of its gross income
from such trade or business, then none of
the entity’s income attributable to such
interest is passive investment income, pro-
vided that substantially all of the entity’s
opportunity for gain and risk of loss with
respect to such interest in the lower-tier
entityissharedbytheU.S.partyorpar-
ties (or persons that are related to a U.S.
party) and, assuming the entity is an SPV,
a counterparty or counterparties (or per-
sons that are relatedto a counterparty).
For purposes of the preceding sentence, an
entity is a holding company, and is consid-
ered to be engaged in the active conduct
of a trade or business and to derive more
than 50 percent of its gross income from
such trade or business, if substantially all
of its assets consist of qualified equity
interests in one or more entities, each of
which is engaged in the active conduct of
a trade or business and derives more than
50 percent of its gross income from such
trade or business and with respect to which
substantially all of the entity’s opportunity
for gain and risk of loss with respect to
each such interest in a lower-tier entity
is shared (directly orindirectly) by the
U.S. party or parties (or persons that are
related to a U.S. party) and, assuming the
entity is an SPV, a counterparty or coun-
terparties (or persons that are related to a
counterparty). A person is not considered
to share in the entity’s opportunity for gain
and risk of loss if its equity interest in the
entity was acquired in a sale-repurchase
transaction, if its interest is treated as debt
for U.S. tax purposes, or if substantially
all of the entity’s opportunity for gain and
risk of loss with respect to its interest in
any lower-tier entity is borne (directly or
indirectly) by the U.S. party or parties (or
persons that are related to a U.S. party)
or, assuming the entity is an SPV, a coun-
terparty or counterparties (or persons that
are related to a counterparty), but not both
parties. For purposes of this paragraph
(e)(5)(iv)(C)(5)(ii), a lower-tier entity that
is engaged in a banking, financing, or sim-
ilar business shall not be considered to be
engaged in the active conduct of a trade
or business unless the income derived
by such entity would be excluded from
section 954(c)(1) under section 954(h)
or 954(i), determined by applying those
provisions at the lower-tier entity level
as if the entity were a controlled foreign
corporation (as defined in section 957(a)).
In addition, for purposes of the preceding
sentence, any income of an entity attrib-
utable to transactions that, assuming the
entity is an SPV, are with a person that is
a counterparty, or with other persons that
are related to a counterparty within the
meaning of paragraph (e)(5)(iv)(B)(4)of
this section, shall not be treated as qual-
ified banking or financing income or as
qualified insurance income, and shall not
be taken into account in applying sections
2008–46 I.R.B.1150November 17, 2008

954(h) and 954(i) for purposes of deter-
mining whether other income of the entity
is excluded from section 954(c)(1) under
section 954(h) or 954(i), but only if any
such person (or a person that is related to
such person within the meaning of para-
graph (e)(5)(iv)(B)(4) of this section) is el-
igible for a foreign taxbenefit described in
paragraph (e)(5)(iv)(B)(4)ofthissection.
In applying section 954(h) for purposes
of this paragraph (e)(5)(iv)(C)(5)(ii), sec-
tion 954(h)(3)(E) shall not apply, section
954(h)(2)(A)(ii) shall be satisfied only
if the entity conducts substantial activity
with respect to its business through its
own employees, and the term “any foreign
country” shall be substituted for “home
country” wherever it appears in section
954(h).
(6)Qualified equity interest.Withre-
spect to an interest in a corporation, the
termqualified equity interestmeans stock
representing 10 percent or more of the to-
tal combined voting power of all classes
of stock entitled to vote and 10 percent or
more of the total value of the stock of the
corporation or disregarded entity, but does
not include any preferred stock (as defined
in section 351(g)(3)). Similar rules shall
apply to determine whether an interest in
an entity other than a corporation is a qual-
ified equity interest.
(7)Related person. Two persons are
related if—
(i) One person directly or indirectly
owns stock (or an equity interest) possess-
ing more than 50 percent of the total value
of the other person; or
(ii) The same person directly or indi-
rectly owns stock (or an equity interest)
possessingmorethan50percentoftheto-
tal value of both persons.
(8)Special purpose vehicle (SPV).The
termSPVmeans the entity described in
paragraph (e)(5)(iv)(B)(1) of this section.
(9)U.S. party.ThetermU.S. party
means a person described in paragraph
(e)(5)(iv)(B)(2)ofthissection.
(D)Examples. The following examples
illustrate the rules of paragraph (e)(5)(iv)
of this section. No inference is intended
as to whether a taxpayer would be eligible
to claim a credit under section 901(a) if
a foreign payment were an amount of tax
paid.
Example 1.U.S. borrower transaction.(i)Facts.
A domestic corporation (USP) forms a country M
corporation (Newco), contributing $1.5 billion in
exchange for 100 percent of the stock of Newco.
Newco, in turn, loans the $1.5 billion to a second
country M corporation (FSub) wholly owned by
USP. USP then sells its entire interest in Newco to a
country M corporation (FP) for the original purchase
price of $1.5 billion, subject to an obligation to re-
purchase the interest in five years for $1.5 billion.
The sale has the effect of transferring ownership of
the Newco stock to FP for country M tax purposes.
The sale-repurchase transaction is structured in a
way that qualifies as a collateralized loan for U.S. tax
purposes. Therefore, USP remains the owner of the
Newco stock for U.S. tax purposes. In year 1, FSub
pays Newco $120 million of interest. Newco pays
$36 million to country M with respect to such interest
income and distributes the remaining $84 million to
FP. Under country M law, the $84 million distribu-
tion is excluded from FP’s income. None of FP’s
stock is owned, directly or indirectly, by USP or any
shareholders of USP that are domestic corporations,
U.S. citizens, or resident alien individuals. Under an
income tax treaty between country M and the United
States, country M does not impose country M tax on
interest received by U.S. residents from sources in
country M.
(ii)Result. The $36 million payment by Newco
to country M is not a compulsory payment, and thus
is not an amount of tax paid because the foreign pay-
ment is attributable to a structured passive investment
arrangement. First, Newco is an SPV because all of
Newco’s income is passive investment income de-
scribed in paragraph (e)(5)(iv)(C)(5)ofthissection;
Newco’s only asset, a note, is held to produce such
income; the payment to country M is attributable to
such income; and if the payment were an amount of
tax paid it would be paid or accrued in a U.S. tax-
able year in which Newco meets the requirements of
paragraph (e)(5)(iv)(B)(1)(i) of this section. Second,
if the foreign payment were treated as an amount of
tax paid, USP would be deemed to pay the foreign
payment under section 902(a) and, therefore, would
be eligible to claim a credit for such payment under
section 901(a). Third, USP would not pay any coun-
try M tax if it directly owned Newco’s loan receiv-
able. Fourth, the distribution from Newco to FP is
exempt from tax under country M law, and the ex-
empt amount corresponds to more than 10 percent of
the foreign base with respect to which USP’s share
(which is 100 percent under U.S. tax law) of the for-
eign payment was imposed. Fifth, FP is a counter-
party because FP owns stock of Newco under coun-
try M law and none of FP’s stock is owned by USP or
shareholders of USP that are domestic corporations,
U.S. citizens, or resident alien individuals. Sixth,
FP is the owner of 100 percent of Newco’s stock
for country M tax purposes, while USP is the owner
of 100 percent of Newco’s stock for U.S. tax pur-
poses, and the amount of credits claimed by USP if
the payment to country M were an amount of tax
paid is materially greater than it would be if, for U.S.
tax purposes, FP and not USP were treated as own-
ing 100 percent of Newco’s stock. Because the pay-
ment to country M is not an amount of tax paid, USP
is not deemed to pay any country M tax under sec-
tion 902(a). USP has dividend income of $84 mil-
lion and also has interest expense of $84 million.
FSub’s post–1986 undistributed earnings are reduced
by $120 million of interest expense.
Example 2.U.S. borrower transaction.(i)Facts.
The facts are the same as inExample 1, except that
FSub is a wholly-owned subsidiary of Newco. In
addition, assume FSub is engaged in the active con-
duct of manufacturing and selling widgets and de-
rives more than 50 percent of its gross income from
such business.
(ii)Result. The results are the same as inExam-
ple 1. Although Newco wholly owns FSub, which
is engaged in the active conduct of manufacturing
and selling widgets and derives more than 50 percent
of its income from such business, Newco’s income
that is attributable to Newco’s equity interest in FSub
is passive investment incomebecause the sale-repur-
chase transaction limits FP’s interest in Newco and
its assets to that of a creditor, so that substantially
all of Newco’s opportunity for gain and risk of loss
with respect to its stock in FSub is borne by USP.
See paragraph (e)(5)(iv)(C)(5)(ii) of this section. Ac-
cordingly, Newco’s stock in FSub is held to produce
passive investment income. Thus, Newco is an SPV
because all of Newco’s income is passive investment
income described in paragraph (e)(5)(iv)(C)(
5)ofthis
section, Newco’s assets are held to produce such in-
come, the payment to country M is attributable to
such income, and if the payment were an amount of
tax paid it would be paid or accrued in a U.S. taxable
year in which Newco meets the requirements of para-
graph (e)(5)(iv)(B)(1)(i)ofthissection.
Example 3.U.S. borrower transaction.(i)Facts.
(A) A domestic corporation (USP) loans $750 mil-
lion to its wholly-owned domestic subsidiary (Sub).
USP and Sub form a country M partnership (Partner-
ship) to which each contributes $750 million. Part-
nership loans all of its $1.5 billion of capital to Issuer,
a wholly-owned country M affiliate of USP, in ex-
change for a note and coupons providing for the pay-
ment of interest at a fixed rate over a five-year term.
Partnership sells all of the coupons to Coupon Pur-
chaser, a country N partnership owned by a country
M corporation (Foreign Bank) and a wholly-owned
country M subsidiary of Foreign Bank, for $300 mil-
lion. At the time of the coupon sale, the fair market
value of the coupons sold is $290 million and, pur-
suant to section 1286(b)(3), Partnership’s basis allo-
cated to the coupons sold is $290 million. Several
months later and prior to any interest payments on the
note, Foreign Bank and its subsidiary sell all of their
interests in Coupon Purchaser to an unrelated coun-
try O corporation for $280 million. None of Foreign
Bank’s stock or its subsidiary’s stock is owned, di-
rectly or indirectly, by USP or Sub or by any share-
holders of USP or Sub that are domestic corporations,
U.S. citizens, or resident alien individuals.
(B) Assume that both the United States and coun-
try M respect the sale of the coupons for tax law pur-
poses. In the year of the coupon sale, for country
M tax purposes USP’s and Sub’s shares of Partner-
ship’s profits total $300 million, a payment of $60
million to country M is made with respect to those
profits, and Foreign Bank and its subsidiary, as part-
ners of Coupon Purchaser, are entitled to deduct the
$300 million purchase price of the coupons from their
taxable income. For U.S. tax purposes, USP and Sub
recognize their distributive shares of the $10 million
premium income and claim a direct foreign tax credit
for their distributive shares of the $60 million pay-
ment to country M. Country M imposes no additional
tax when Foreign Bank and its subsidiary sell their
November 17, 200811512008–46 I.R.B.

interests in Coupon Purchaser. Country M also does
not impose country M tax on interest received by U.S.
residents from sources in country M.
(ii)Result. The payment to country M is not a
compulsory payment, and thus is not an amount of
tax paid, because the foreign payment is attributable
to a structured passive investment arrangement. First,
Partnership is an SPV because all of Partnership’s in-
come is passive investment income described in para-
graph (e)(5)(iv)(C)(5) of this section; Partnership’s
only asset, Issuer’s note, is held to produce such in-
come; the payment to country M is attributable to
such income; and if the payment were an amount of
tax paid, it would be paid or accrued in a U.S. taxable
year in which Partnership meets the requirements of
paragraph (e)(5)(iv)(B)(1)(i) of this section. Second,
if the foreign payment were an amount of tax paid,
USP and Sub would be eligible to claim a credit for
such payment under section 901(a). Third, USP and
Sub would not pay any country M tax if they directly
owned Issuer’s note. Fourth, for country M tax pur-
poses, Foreign Bank and its subsidiary deduct the
$300 million purchase price of the coupons and are
exempt from country M tax on the $280 million re-
ceived upon the sale of Coupon Purchaser, and the
deduction and exemption correspond to more than 10
percent of the $300 million base with respect to which
USP’s and Sub’s 100% share of the foreign payments
was imposed. Fifth, Foreign Bank and its subsidiary
are counterparties because they indirectly acquired
assets of Partnership, the interest coupons on Issuer’s
note, and are not directly or indirectly owned by USP
or Sub or shareholders of USP or Sub that are do-
mestic corporations, U.S. citizens, or resident alien
individuals. Sixth, the amount of taxable income of
Partnership for one or more years is different for U.S.
and country M tax purposes, and the amount of in-
come recognized by USP and Sub for U.S. tax pur-
poses is materially less than the amount of income
they would recognize if the country M tax treatment
of the coupon sale controlled for U.S. tax purposes.
Because the payment to country M is not an amount
of tax paid, USP and Sub are not considered to pay
tax under section 901. USP and Sub have income of
$10 million in the year of the coupon sale.
Example 4.Active business; no SPV.(i)Facts.A,
a domestic corporation, wholly owns B, a country X
corporation engaged in the manufacture and sale of
widgets. On January 1, year 1, C, also a country X
corporation, loans $400 million to B in exchange for
an instrument that is debt for U.S. tax purposes and
equity in B for country X tax purposes. As a result,
C is considered to own stock of B for country X tax
purposes. B loans $55 million to D, a country Y cor-
poration wholly owned by A. In year 1, B has $166
million of net income attributable to its sales of wid-
gets and $3.3 million of interest income attributable
to the loan to D. Country Y does not impose tax on
interest paid to nonresidents. B makes a payment of
$50.8 million to country X with respect to B’s net in-
come. Country X does not impose tax on dividend
payments between country X corporations. None of
C’s stock is owned, directly or indirectly, by A or by
any shareholders of A that are domestic corporations,
U.S. citizens, or resident alien individuals.
(ii)Result. B is not an SPV within the meaning of
paragraph (e)(5)(iv)(B)(1) of this section because the
amount of interest income received from D does not
constitute substantially all of B’s income and the $55
million note from D does not constitute substantially
all of B’s assets. Accordingly, the $50.8 million pay-
ment to country X is not attributable to a structured
passive investment arrangement.
Example 5.U.S. lender transaction.(i)Facts.
(A) A country X corporation (Foreign Bank) con-
tributes $2 billion to a newly-formed country X com-
pany (Newco) in exchange for all of the common
stock of Newco and securities that are treated as debt
of Newco for U.S. tax purposes and preferred stock
of Newco for country X tax purposes. A domestic
corporation (USP) contributes $1 billion to Newco in
exchange for securities that are treated as preferred
stock of Newco for U.S. tax purposes and debt of
Newco for country X tax purposes. Newco loans the
$3 billion to a wholly-owned, country X subsidiary
of Foreign Bank (FSub) in return for a $3 billion,
seven-year note paying interest currently. The Newco
securities held by USP entitle the holder to fixed dis-
tributions of $4 million per year, and the Newco se-
curities held by Foreign Bank entitle the holder to re-
ceive $82 million per year, payable only on maturity
of the $3 billion FSub note in year 7. At the end of
year 5, pursuant to a prearranged plan, Foreign Bank
acquires USP’s Newco securities for a prearranged
price of $1 billion. Country X does not impose tax
on dividends received by one country X corporation
from a second country X corporation. Under an in-
come tax treaty between country X and the United
States, country X does not impose country X tax on
interest received by U.S. residents from sources in
country X. None of Foreign Bank’s stock is owned,
directly or indirectly, by USP or any shareholders of
USP that are domestic corporations, U.S. citizens, or
resident alien individuals.
(B) In each of years 1 through 7, FSub pays
Newco $124 million of interest on the $3 billion
note. Newco distributes $4 million to USP in each of
years 1 through 5. The distributions are deductible
for country X tax purposes, and Newco pays country
X $36 million with respect to $120 million of tax-
able income from the FSub note in each year. For
U.S. tax purposes, in each year Newco’s post–1986
undistributed earnings are increased by $124 million
of interest income and reduced by accrued interest
expense with respect to the Newco securities held by
Foreign Bank.
(ii)Result. The $36 million payment to coun-
try X is not a compulsory payment, and thus is not
an amount of tax paid, because the foreign payment
is attributable to a structured passive investment ar-
rangement. First, Newco is an SPV because all of
Newco’s income is passive investment income de-
scribed in paragraph (e)(5)(iv)(C)(5)ofthissection;
Newco’s only asset, a note of FSub, is held to pro-
duce such income; the payment to country X is at-
tributable to such income; and if the payment were an
amount of tax paid it would be paid or accrued in a
U.S. taxable year in which Newco meets the require-
ments of paragraph (e)(5)(iv)(B)(1)(i) of this section.
Second, if the foreign payment were an amount of
tax paid, USP would be deemed to pay itspro rata
share of the foreign payment under section 902(a) in
each of years 1 through 5 and, therefore, would be el-
igible to claim a credit under section 901(a). Third,
USP would not pay any country X tax if it directly
owned its proportionate share of Newco’s assets, a
note of FSub. Fourth, for country X tax purposes,
Foreign Bank is eligible to receive a tax-free distri-
bution of $82 million attributable to each of years
1 through 5, and that amount corresponds to more
than 10 percent of the foreign base with respect to
which USP’s share of the foreign payment was im-
posed. Fifth, Foreign Bank is a counterparty because
it owns stock of Newco for country X tax purposes
and none of Foreign Bank’s stock is owned, directly
or indirectly, by USP or shareholders of USP that are
domestic corporations, U.S. citizens, or resident alien
individuals. Sixth, the United States and country X
treat various aspects of the arrangement differently,
including whether the Newco securities held by For-
eign Bank and USP are debt or equity. The amount
of credits claimed by USP if the payment to country
X were an amount of tax paid is materially greater
than it would be if, for U.S. tax purposes, the securi-
ties held by USP were treated as debt or the securities
held by Foreign Bank were treated as equity, and the
amount of income recognized by Newco for U.S. tax
purposes is materially less than the amount of income
recognized for country X tax purposes. Because the
payment to country X is not an amount of tax paid,
USP is not deemed to pay any country X tax under
section 902(a). USP has dividend income of $4 mil-
lionineachofyears1through5.
Example 6.Holding company; no SPV.(i)Facts.
A, a country X corporation, and B, a domestic corpo-
ration, each contribute $1 billion to a newly-formed
country X entity (C) in exchange for stock of C. C is
treated as a corporation for country X purposes and
a partnership for U.S. tax purposes. C contributes
$1.95 billion to a newly-formed country X corpora-
tion (D) in exchange for 100 percent of D’s stock. C
loans its remaining $50 million to D. Accordingly,
C’s sole assets are stock and debt of D. D uses the
entire $2 billion to engage in the business of manu-
facturing and selling widgets. In year 1, D derives
$300 million of income from its widget business and
derives $2 million of interest income. Also in year 1,
C has dividend income of $200 million and interest
income of $3.2 million with respect to its investment
in D. Country X does not impose tax on dividends
received by one country X corporation from a sec-
ond country X corporation. C makes a payment of
$960,000 to country X with respect to C’s net income.
(ii)Result. C’s dividend income is not passive
investment income, and C’s stock in D is not held to
produce such income, because C owns at least 10 per-
cent of D and D derives more than 50 percent of its
income from the active conduct of its widget busi-
ness. See paragraph (e)(5)(iv)(C)(5)(ii)ofthissec-
tion. As a result, less than substantially all of C’s in-
come is passive investment income and less than sub-
stantially all of C’s assets are held to produce passive
investment income. Accordingly, C is not an SPV
within the meaning of paragraph (e)(5)(iv)(B)(1)of
this section, and the $960,000 payment to country X
is not attributable to a structured passive investment
arrangement.
Example 7.Holding company; no SPV.(i)Facts.
The facts are the same as inExample 6, except that
instead of loaning $50 million to D, C contributes the
$50 million to E in exchange for 10 percent of the
stock of E. E is a country Y corporation that is not
engaged in the active conduct of a trade or business.
Also in year 1, D pays no dividends to C, E pays $3.2
million in dividends to C, and C makes a payment of
$960,000 to country X with respect to C’s net income.
2008–46 I.R.B.1152November 17, 2008

(ii)Result. C’s dividend income attributable to
its stock in E is passive investment income, and C’s
stock in E is held to produce such income. C’s stock
in D is not held to produce passive investment in-
come because C owns at least 10 percent of D and
D derives more than 50 percent of its income from
the active conduct of its widget business. See para-
graph (e)(5)(iv)(C)(5)(ii) of this section. As a result,
less than substantially all of C’s assets are held to pro-
duce passive investment income. Accordingly, C is
not an SPV because it does not meet the requirements
of paragraph (e)(5)(iv)(B)(1) of this section, and the
$960,000 payment to country X is not attributable to
a structured passive investment arrangement.
Example 8.Asset holding transaction.(i)Facts.
(A) A domestic corporation (USP) contributes $6 bil-
lion of country Z debt obligations to a country Z en-
tity (DE) in exchange for all of the class A and class
B stock of DE. A corporation unrelated to USP and
organized in country Z (FC) contributes $1.5 billion
to DE in exchange for all of the class C stock of DE.
DE uses the $1.5 billion contributed by FC to redeem
USP’s class B stock. The class C stock is entitled to
“all” income from DE. However, FC is obligated im-
mediately to contribute back to DE all distributions
on the class C stock. USP and FC enter into—
(1) A contract under which USP agrees to buy
after five years the class C stock for $1.5 billion; and
(2) An agreement under which USP agrees to pay
FC periodic payments on $1.5 billion.
(B) The transaction is structured in such a way
that, for U.S. tax purposes, there is a loan of $1.5 bil-
lion from FC to USP, and USP is the owner of the
class C stock and the class A stock. DE is a disre-
garded entity for U.S. tax purposes and a corporation
for country Z tax purposes. In year 1, DE earns $400
million of interest income on the country Z debt obli-
gations. DE makes a payment to country Z of $100
million with respect to such income and distributes
the remaining $300 million to FC. FC contributes
the $300 million back to DE. None of FC’s stock is
owned, directly or indirectly, by USP or shareholders
of USP that are domestic corporations, U.S. citizens,
or resident alien individuals. Country Z does not im-
pose tax on interest income derived by U.S. residents.
(C) Country Z treats FC as the owner of the class
C stock. Pursuant to country Z tax law, FC is required
to report the $400 million of income with respect to
the $300 million distribution from DE, but is allowed
to claim credits for DE’s $100 million payment to
country Z. For country Z tax purposes, FC is entitled
to current deductions equal to the $300 million con-
tributed back to DE.
(ii)Result. The payment to country Z is not a
compulsory payment, and thus is not an amount of tax
paid because the payment isattributable to a struc-
tured passive investment arrangement. First, DE is
an SPV because all of DE’s income is passive invest-
ment income described in paragraph (e)(5)(iv)(C)(5)
of this section; all of DE’s assets are held to produce
such income; the payment to country Z is attributable
to such income; and if the payment were an amount of
tax paid it would be paid or accrued in a U.S. taxable
year in which DE meets the requirements of para-
graph (e)(5)(iv)(B)(1)(i) of this section. Second, if
the payment were an amount of tax paid, USP would
be eligible to claim a credit for such amount under
section 901(a). Third, USP would not pay any coun-
try Z tax if it directly owned DE’s assets. Fourth, FC
is entitled to claim a credit under country Z tax law
for the payment and recognizes a deduction for the
$300 million contributed to DE under country Z law.
The credit claimed by FC corresponds to more than
10 percent of USP’s share (for U.S. tax purposes) of
the foreign payment and the deductions claimed by
FC correspond to more than 10 percent of the base
with respect to which USP’s share of the foreign pay-
ment was imposed. Fifth, FC is a counterparty be-
cause FC is considered to own equity of DE under
country Z law and none of FC’s stock is owned, di-
rectly or indirectly, by USP or shareholders of USP
that are domestic corporations, U.S. citizens, or res-
ident alien individuals. Sixth, the United States and
country X treat certain aspects of the transaction dif-
ferently and the amount of credits claimed by USP if
the country Z payment were an amount of tax paid is
materially greater than it would be if FC, rather than
USP, owned the class C stock for U.S. tax purposes.
Because the payment to country Z is not an amount of
tax paid, USP is not considered to pay tax under sec-
tion 901. USP has $400 million of interest income.
Example 9.Loss surrender.(i)
Facts. The facts
are the same as inExample 8, except that the deduc-
tions attributable to the arrangement contribute to a
loss recognized by FC for country Z tax purposes,
and pursuant to a group relief regime in country Z FC
elects to surrender the loss to its country Z subsidiary.
(ii)Result. The results are the same as inExample
8. The surrender of the loss to a related party is a
foreign tax benefit that corresponds to the base with
respect to which USP’s share of the foreign payment
was imposed.
Example 10.Joint venture; no foreign tax bene-
fit.(i)Facts. FC, a country X corporation, and USC,
a domestic corporation, each contribute $1 billion to
a newly-formed country X entity (C) in exchange for
stock of C. FC and USC are entitled to equal 50%
shares of C’s income, gain, expense and loss. C is
treated as a corporation forcountry X purposes and a
partnership for U.S. tax purposes. In year 1, C earns
$200 million of passive investment income, makes a
payment to country X of $60 million with respect to
that income, and distributes $70 million to each of
FC and USC. Country X does not impose tax on div-
idends received by one country X corporation from a
second country X corporation.
(ii)Result. FC’s tax-exempt receipt of $70
million, or its 50% share of C’s profits, is not a
foreign tax benefit within the meaning of paragraph
(e)(5)(iv)(B)(4) of this section, because it does not
correspond to any part of the foreign base with re-
spect to which USC’s share of the foreign payment
was imposed. Accordingly, the $60 million payment
to country X is not attributable to a structured passive
investment arrangement.
(f) through (h)(1) [Reserved]. For fur-
ther guidance, see §1.901–2(f) through
(h)(1).
(h)(2) This section applies to foreign
payments that, if such payments were an
amount of tax paid, would be considered
paid or accrued under §1.901–2(f) by a
U.S. or foreign person in taxable years
ending on or after July 16, 2008. In the
case of foreign payments by a foreign
corporation that has a domestic corpo-
rate shareholder, this section also applies
to such payments that, if such payments
were an amount of tax paid, would be
considered paid or accrued in the foreign
corporation’s U.S. taxable years ending
with or within taxable years of its domes-
tic corporate shareholder ending on or
after July 16, 2008. In the case of foreign
payments by a partnership, trust or estate
with respect to which any person would
be eligible to claim a credit under section
901(b) if the payment were an amount of
tax paid, this section also applies to such
payments that would be considered paid
or accrued in U.S. taxable years of the
partnership, trust or estate ending with
or within taxable years of such eligible
persons ending on or after July 16, 2008.
(3)Expiration date. The applicability
of this section expires on July 15, 2011.
LindaE.Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved June 30, 2008.
Eric Solomon,
Assistant Secretary of the
Treasury (Tax Policy).
(Filed by the Office of the Federal Register on July 15, 2008,
8:45 a.m., and published in the issue of the Federal Register
for July 16, 2008, 73 F.R. 40727)
Section 7804.—Other
Personnel
26 CFR 801.1: Balanced performance measurement
system; in general.
T.D. 9426
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 801
Balanced System for
Measuring Organizational
and Employee Performance
Within the Internal Revenue
Service
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final Regulations.
November 17, 200811532008–46 I.R.B.

SUMMARY: This document contains fi-
nal regulations relating to the modification
of regulations governing the IRS Balanced
System for Measuring Organizational and
Employee Performance. These regula-
tions affect internal operations of the IRS
and the systems that the agency employs to
evaluate the performance of organizations
within the IRS and individuals employed
by the IRS.
DATES:Effective Date:These regulations
are effective on October 14, 2008.
Applicability Date:For dates of appli-
cability, see §801.8.
FOR FURTHER INFORMATION:
Neil Worden, (202) 927–0900.
SUPPLEMENTARY INFORMATION:
Background
On October 17, 2005, the IRS pub-
lished in theFederal Registerproposed
regulations (REG–114444–05, 2005–2
C.B. 934) at 70 FR 60256 and final and
temporary regulations (T.D. 9227, 2005–2
C.B. 924) at 70 FR 60214 amending
26 CFR part 801. One written comment
was received. No public hearing was
requested. This document adopts, without
modification, the proposed regulations as
final regulations.
Summary of Comments
The commentator suggested that modi-
fication of the regulation was not needed.
The commentator further suggested that
the Quantity measure “number of cases
closed” should never be used to evalu-
ate IRS employees or suggest goals. The
amendment of Part 801 retains the absolute
prohibition on the use of quantity data to
evaluate non-supervisory employees who
exercise judgment with respect to tax en-
forcement results. The amendment allows
communicating the quantity goals of an or-
ganizational unit with employees, includ-
ing quantity expectations, such as the av-
erage number of case closures needed to
meet the unit’s goal. These communica-
tions must recognize that the facts and cir-
cumstances of each case will affect an em-
ployee’s actual closures, and that the em-
ployee is not being given a quota which
must be met. Accordingly, the commen-
tator’s suggestion was not adopted.
In addition, the inclusion of some out-
come-neutral production data as examples
of quantity measures (for example, cycle
time and number or percentage of over-
age cases) (§801.6(c)) does not preclude
an organizational unit’s use of this or other
outcome-neutral production data as quality
measures.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It also has been determined
that the section 553(b) of the Administra-
tive Procedure Act (5 U.S.C. chapter 5)
does not apply to these regulations, and
because the regulation does not impose a
collection of information on small entities,
the Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Pursuant to sec-
tion 7805(f) of the Internal Revenue Code,
the notice of proposed rulemaking preced-
ing these regulations was submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
Drafting Information
The principal author of these regula-
tions is Karen F. Keller, Office of Asso-
ciate Chief Counsel (General Legal Ser-
vices). However, other personnel from the
IRS participated in their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR Part 801 is
amended as follows:
Paragraph 1. The authority citation for
Part 801 continues to read in part as fol-
lows:
Authority:5U.S.C.9501***
PART 801—BALANCED
SYSTEM FOR MEASURING
ORGANIZATIONAL AND
EMPLOYEE PERFORMANCE
WITHIN THE INTERNAL REVENUE
SERVICE
§§801.1 through 801.7 [Removed]
Par. 2. The center heading and §§801.1,
801.2, 801.3, 801.4, 801.5, 801.6, and
801.7 are removed.
§§801.1T through 801.8T [Redesignated
as §§801.1 through 801.8]
Par. 3. The center heading preceding
§801.1T is removed.
Par. 4. Sections 801.1T, 801.2T,
801.3T, 801.4T, 801.5T, 801.6T, 801.7T,
and 801.8T are redesignated as §§801.1,
801.2, 801.3, 801.4, 801.5, 801.6, 801.7,
and 801.8 and the language “T” following
the section number and “(temporary)” is
removed from each section heading, re-
spectively.
§801.1 [Amended]
Par. 5. Newly designated §801.1(a)
is amended by removing the language
“(Pub. L. 105–106, 112 Stat. 685,
715–716, 722)” and adding the language
“(Public Law 105–106, 112 Stat. 685,
715–716, 722)” in its place.
§801.2 [Amended]
Par. 6. Newly designated §801.2
is amended by removing the language
“Pub. L. 104–106, 110 Stat. 186,
679); the Government Performance and
Results Act of 1993 (Pub. L. 103–62,
107 Stat. 285); and the Chief Financial
Officers Act of 1990 (Pub. L. 101–576,
108 Stat.2838)” and adding the
language “(Public Law 104–106, 110
Stat.186, 679); the Government
Performance and Results Act of 1993
(Public Law 103–62, 107 Stat. 285); and
the Chief Financial Officers Act of 1990
(Public Law 101–576, 108 Stat. 2838)” in
its place.
§801.3 [Amended]
Par. 7. Newly designated §801.3(e)(1)
and (e)(3) is amended by removing the
language “§801.6T” in each location and
adding the language “801.6” in its place.
2008–46 I.R.B.1154November 17, 2008

§801.7 [Amended]
Par. 8. Newly designated §801.7(a)
introductory text is amended by remov-
ing the language “§801.3T” and adding the
language “§801.3” in its place.
Par. 9. New designated §801.8 is re-
vised to read as follows:
§801.8 Effective/applicability dates.
The provisions of §§801.1 through
801.7 apply on or after October 17, 2005.
Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved October 7, 2008.
Eric Solomon,
Assistant Secretary of
theTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on October 10,
2008, 8:45 a.m., and published in the issue of the Federal
Register for October 14, 2008, 73 F.R. 60627)
November 17, 200811552008–46 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Social Security Contribution
and Benefit Base for 2009
Notice 2008–103
Under authority contained in the So-
cial Security Act (“the Act”), the Commis-
sioner, Social Security Administration, has
determined and announced (73 F.R. 64651,
dated October 30, 2008) that the contri-
bution and benefit base for remuneration
paid in 2009, and self-employment income
earned in taxable years beginning in 2009
is $106,800.
“Old-Law” Contribution and Benefit
Base
General
The “old-law” contribution and bene-
fit base for 2009 is $79,200. This is the
base that would have been effective under
the Act without the enactment of the 1977
amendments.
The “old-law” contribution and benefit
base is used by:
(a) The Railroad Retirement program
to determine certain tax liabilities and tier
II benefits payable under that program to
supplement the tier I payments which cor-
respond to basic Social Security benefits,
(b) the Pension Benefit Guaranty
Corporation to determine the maximum
amount of pension guaranteed under the
Employee Retirement Income Security
Act (section 230(d) of the Act),
(c) Social Security to determine a year
of coverage in computing the special min-
imum benefit, as described earlier, and
(d) Social Security to determine a year
of coverage (acquired whenever earnings
equal or exceed 25 percent of the “old-
law” base for this purpose only) in comput-
ing benefits for persons who are also eligi-
ble to receive pensions based on employ-
ment not covered under section 210 of the
Act.
Domestic Employee Coverage
Threshold
General
The minimum amount a domestic
worker must earn so that such earnings are
covered under Social Security or Medicare
is the domestic employee coverage thresh-
old. For 2009, this threshold is $1,700.
Section 3121(x) of the Internal Revenue
Code provides the formula for increasing
the threshold.
Computation
Under the formula, the domestic em-
ployee coverage threshold amount for
2009 shall be equal to the 1995 amount
of $1,000 multiplied by the ratio of the
national average wage index for 2007 to
that for 1993. If the resulting amount is
not a multiple of $100, it shall be rounded
to the next lower multiple of $100.
Domestic Employee Coverage Threshold
Amount
Multiplying the 1995 domestic em-
ployee coverage threshold amount
($1,000) by the ratio of the national av-
erage wage index for 2007 ($40,405.48)
to that for 1993 ($23,132.67) produces
the amount of $1,746.68. We then round
this amount to $1,700. Accordingly, the
domestic employee coverage threshold
amount is $1,700 for 2009.
(Filed by the Office of the Federal Register on October 29,
2008, 8:45 a.m., and published in the issue of the Federal
Register for October 30, 2008, 73 F.R. 64651)
2008–46 I.R.B.1156November 17, 2008

Part IV. Items o
fGeneralInterest
Notice of Prop
osed
Rulemaking an
dNoticeof
Public Hearin
g
Section 108(e
)(8) Application
to Partnersh
ips
REG–164370–
05
AGENCY: Inte
rnal Revenue Service
(IRS), Treas
ury.
ACTION: Noti
ce of proposed rulemaking
and notice o
f public hearing.
SUMMARY: Th
is document contains
proposed re
gulations relating to the appli-
cation of se
ction 108(e)(8) of the Internal
Revenue Cod
e (Code) to partnerships and
their partn
ers. These regulations provide
guidance r
egarding the determination of
discharge
of indebtedness income of a
partnersh
ip that transfers a partnership
interest t
o a creditor in satisfaction of the
partners
hip’s indebtedness (debt-for-eq-
uity exch
ange). The proposed regulations
also prov
ide that section 721 applies to a
contribu
tion of a partnership’s recourse or
nonrecou
se indebtedness by a creditor to
the part
nership in exchange for a capital
or profi
ts interest in the partnership. This
documen
t also provides notice of a public
hearing
on these proposed regulations.
DATES: W
ritten or electronic comments
must be r
eceived by January 29, 2009.
Outlin
es of topics to be discussed at the
public
hearing scheduled for February 19,
2009, m
ust be received by January 27,
2009.
ADDRES
SES: Send submissions to:
CC:PA:
LPD:PR(REG–164370–05),
Room 5
203, Internal Revenue Service,
PO Box
7604, Ben Franklin Station,
Washi
ngton, DC 20044. Submissions may
be han
d-delivered Monday through Friday
betwe
en the hours of 8 a.m. and 4 p.m.
to CC
:PA:LPD:PR (REG–164370–05),
Cour
ier’s Desk, Internal Revenue
Serv
ice, 1111 Constitution Avenue, NW,
Wash
ington, DC, or sent electronically,
via t
he Federal eRulemaking Portal
atht
tp://www.regulations.gov(IRS
REG
–164370–05). The public hearing
wil
l be held in the IRS Auditorium,
Internal Reve
nue Building, 1111
Constitution
Avenue, NW, Washington,
DC.
FOR FURTHER IN
FORMATION
CONTACT: Conc
erning the proposed reg-
ulations, Meg
an A. Stoner, Office of As-
sociate Chie
f Counsel (Passthroughs and
Special Indu
stries), (202) 622–3070; con-
cerning subm
ission of comments, the hear-
ing, and/or p
laced on the building access
list to atte
nd the hearing, Richard Hurst,
(202) 622–2
949 (TDD Telephone) (not
toll-free n
umbers) and his e-mail address
isRichard.
A.Hurst@irscounsel.treas.gov.
SUPPLEMENT
ARY INFORMATION:
Background
This docume
nt contains proposed
amendment
sto26CFRPart1undersec-
tions 108 a
nd 721 of the Code relating
to the appl
ication of section 108(e)(8) to
partnersh
ips.
Section 10
8(e)(8) was amended by
section 89
6 of the American Jobs Cre-
ation Act
of 2004, Public Law 108–357
(118 Stat
. 1648), to include discharges
of partne
rship indebtedness occurring
on or afte
r October 22, 2004. Prior
to the ame
ndment, section 108(e)(8)
only app
lied to discharges of corporate
indebte
dness. Section 108(e)(8), as
amended
, provides that for purposes of
determi
ning income of a debtor from
dischar
ge of indebtedness (COD income),
if a deb
tor corporation transfers stock or
adebto
r partnership transfers a capital
or prof
its interest in such partnership to
acredi
tor in satisfaction of its recourse
or nonr
ecourse indebtedness, such
corpo
ration or partnership shall be treated
as hav
ing satisfied the indebtedness with
an amo
unt of money equal to the fair
marke
t value of the stock or interest. In
the ca
se of a partnership, any COD income
reco
gnized under section 108(e)(8) shall
be in
cluded in the distributive shares of the
part
ners in the partnership immediately
befo
re such discharge.
Explanation o
fProvisions
1.Valuation of
Partnership Interest
Transferred in
Satisfaction of Partnership
Debt
Section 108(e)
(8) provides that for pur-
poses of deter
mining COD income of a
debtor partne
rship, the partnership shall be
treated as hav
ing satisfied the indebtedness
with an amount
of money equal to the fair
market value o
f the interest transferred to
the creditor
. The amount by which the in-
debtedness e
xceeds the fair market value
of the partne
rship interest transferred is the
amount of COD
income required to be in-
cluded in th
e distributive shares of the part-
ners in the d
ebtor partnership immediately
before the d
ischarge.
The IRS and t
he Treasury Department
believe tha
t provided certain requirements
are satisfi
ed, it is appropriate to allow
the partne
rship and the creditor to value
the partne
rship interest transferred to the
creditor i
n a debt-for-equity exchange
(debt-for
-equity interest) based on liqui-
dation val
ue. For this purpose, liquidation
value equ
als the amount of cash that the
creditor
would receive with respect to the
debt-for
-equity interest if, immediately
after the
transfer, the partnership sold all
of its ass
ets (including goodwill, going
concern
value, and any other intangibles
associa
ted with the partnership’s opera-
tions) f
or cash equal to the fair market
value of
those assets, and then liquidated.
If a part
nership maintains capital accounts
in acco
rdance with the capital accounting
rules o
f §1.704–1(b)(2)(iv), the amount
by whic
h the creditor’s capital account is
increa
sed as a result of the debt-for-eq-
uity ex
change will equal the fair market
value
of the indebtedness exchanged. See
§1.70
4–1(b)(2)(iv)(b)and(d).
Accor
dingly, the proposed regulations
provi
de that for purposes of applying sec-
tion 1
08(e)(8), the fair market value of a
debt-
for-equity interest is the liquidation
value
of that debt-for-equity interest, if
(i) t
he debtor partnership determines and
main
tains capital accounts of its partners
in ac
cordance with thecapital accounting
rule
s of §1.704–1(b)(2)(iv), (ii) the cred-
itor
, debtor partnership, and its partners
trea
t the fair market value of the indebt-
edn
ess as being equal to the liquidation
November 17, 200811572008–46 I.R.B.

value of the debt-for-equity interest for
purposes of determining the tax conse-
quences of the debt-for-equity exchange,
(iii) the debt-for-equity exchange is an
arm’s-length transaction, and (iv) sub-
sequent to the debt-for-equity exchange,
neither the partnership redeems nor any
person related to the partnership purchases
the debt-for-equity interest as part of a plan
at the time of the debt-for-equity exchange
which has as a principal purpose the avoid-
ance of COD income by the partnership.
If these conditions are not satisfied, all of
the facts and circumstances are considered
in determining the fair market value of
the debt-for-equity interest for purposes of
applying section 108(e)(8).
2.Application of Section 721 to
Debt-for-Equity Exchanges
Generally, when property is transferred
as payment on indebtedness (or in satis-
faction thereof), gain or loss on the prop-
erty is recognized. The IRS and the Trea-
sury Department, however, believe that in
the case of a debt-for-equity exchange, the
nonrecognition rule of section 721 gener-
ally should apply to the creditor’s contri-
bution of partnership indebtedness (other
than unpaid interest or accrued original
issue discount) to the partnership in ex-
change for the partnership interest. Such
a rule is consistent with the policies under-
lying section 721 to defer the recognition
of gain or loss where persons join together
to conduct joint business (including invest-
ment). Accordingly, the proposed regula-
tions provide that with certain exceptions,
section 721 applies to debt-for-equity ex-
changes.
The proposed regulations provide that
section 721 does not apply to the trans-
fer of a partnership interest to a creditor
in satisfaction of a partnership’s indebt-
edness for unpaid rent, royalties, or in-
terest on indebtedness (including accrued
original issue discount). Moreover, these
proposed regulations do not supersede the
rules under section 453B relating to dispo-
sitions of installment obligations. A sep-
arate guidance project addresses the appli-
cation of section 721 to a partnership inter-
est transferred in connection with the per-
formance of services. See proposed reg-
ulations regarding partnership equity for
services (REG–105346–03, 2005–1 C.B.
1244 [70 FR 29675]) (May 24, 2005).
3.Creditor’s Basis in Partnership Interest
Because the proposedregulations pro-
vide that section 721 applies to a debt-for-
equity exchange, the basis of the creditor’s
interest in the partnership is determined
under section 722. Section 722 provides
that the basis of an interest in a partnership
acquired by a contribution of property, in-
cluding money, to the partnership shall be
the amount of such money and the adjusted
basis of such property to the contributing
partner at the time of the contribution, in-
creased by the amount (if any) of gain rec-
ognized under section 721(b) to the con-
tributing partner at such time.
The IRS and the Treasury Department
believe that a creditor should not recognize
a loss in a debt-for-equity exchange sub-
ject to section 721 in which the liquidation
value of the debt-for-equity interest is less
than the outstanding principal balance of
the indebtedness. Rather, the creditor’s ba-
sis in the debt-for-equity interest received
in the debt-for-equity exchange that is sub-
ject to section 721 will be increased by the
adjusted basis of the indebtedness. The
IRS and the Treasury Department request
comments on alternative approaches.
4.Creditor’s Holding Period in
Partnership Interest
Section 1223(1) provides, in general,
that in determining the period for which
the taxpayer has held property received
in an exchange, there shall be included
the period for which the taxpayer held the
property exchanged, if the property has,
for the purpose of determining gain or loss
from a sale or exchange, the same basis in
whole or in part in the taxpayer’s hands as
the property exchanged. Because the basis
in the debt-for-equityinterest received in
a debt-for-equity exchange that is subject
to section 721 is the same as the creditor’s
basis in the debt under section 722, the
debt-for-equity interest includes the cred-
itor’s holding period in the indebtedness
under section 1223(1).
5.Request for Comments
The IRS and the Treasury Department
realize that there are other issues relating
to debt-for-equity exchanges that are not
addressed in these proposed regulations.
One issue not addressed is whether any
special allocation rules of COD income
should apply where partnership indebted-
ness owed to a preexisting partner is satis-
fied with the transfer of a partnership inter-
est. Another issue is whether COD income
arising from a debt-for-equity exchange
should be treated as a first-tier item under
§1.704–2(f)(6) for purposes of the mini-
mum gain chargeback rules. A third issue
is how the rules in the noncompensatory
partnership options regulations relating to
convertible debt interact with the rules in
these proposed regulations under section
108(e)(8). The IRS and the Treasury De-
partment request comments on these issues
as well as other issues not addressed in
these proposed regulations.
Proposed Effective Date
These regulations are proposed to apply
to debt-for-equity exchanges occurring on
or after the date these regulations are pub-
lished as final regulations in theFederal
Register.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory
assessment is not required. It also has
been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these reg-
ulations, and because the regulations do
not impose a collection of information on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply.
Pursuant to section 7805(f) of the Code,
these regulations have been submitted
to the Chief Counsel for Advocacy of
the Small Business Administration for
comment on its impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written (a signed origi-
nal and eight (8) copies)orelectroniccom-
ments that are submitted timely to the IRS.
The IRS and the Treasury Department re-
quest comments on the clarity of the pro-
posed rules and how they can be made eas-
ier to understand. All comments will be
available for public inspection and copy-
ing.
2008–46 I.R.B.1158November 17, 2008

A public hearing has been sched-
uled for February 19, 2009, beginning at
10:00 a.m. in the IRS Auditorium, Internal
Revenue Building, 1111 Constitution
Avenue, NW, Washington, DC. Due to
building security procedures, all visitors
must enter at the Constitution Avenue
entrance. In addition,all visitors must
present photo identification to enter the
building. Because of access restrictions,
visitors will not be admitted beyond the
immediateentranceareamorethan30
minutes before the hearing starts. For
information about having your name
placed on the building access list to attend
the hearing, see the “FOR FURTHER
INFORMATION CONTACT” section of
this preamble.
The rules of 26 CFR 601.601(a)(3) ap-
ply to the hearing. Persons who wish to
present oral comments at the hearing must
submit written or electronic comments by
January 27, 2009. Outline of the topics to
be discussed and the time to be devoted
to each topic (signed original and eight (8)
copies) by January 27, 2009. A period of
10 minutes will be allotted to each person
for making comments. An agenda show-
ing the schedule of speakers will be pre-
pared after the deadline for receiving out-
lines has passed. Copies of the agenda will
be available free of charge at the hearing.
Drafting Information
The principal author of these regu-
lations is Megan A. Stoner of the Of-
fice of the Associate Chief Counsel
(Passthroughs and Special Industries).
However, other personnel from the IRS
and the Treasury Department participated
in their development.
*****
Proposed Amendment to the
Regulations
Accor
dingly, 26 CFR part 1 is proposed
to be a
mended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.108–8 is added to read
as follows:
§1.108–8 Indebtedness satisfied by
partnership interest.
(a)In general. For purposes of deter-
mining income of a debtor from discharge
of indebtedness (COD income), if a debtor
partnership transfers a capital or profits in-
terest in the partnership to a creditor in sat-
isfaction of its recourse or nonrecourse in-
debtedness (a debt-for-equity exchange),
the partnership is treated as having satis-
fied the indebtedness with an amount of
money equal to the fair market value of the
partnership interest.
(b)Determination of fair market
value—(1)In general. For purposes of
paragraph (a) of this section, the fair mar-
ket value of a partnership interest trans-
ferred by a debtor partnership to a creditor
in satisfaction of the debtor partnership’s
indebtedness (debt-for-equity interest) is
the liquidation value of the debt-for-equity
interest, where liquidation value equals
the amount of cash that the creditor would
receive with respect tothe debt-for-equity
interest if, immediately after the transfer,
the partnership sold all of its assets (in-
cluding goodwill, going concern value,
and any other intangibles associated with
the partnership’s operations) for cash equal
to the fair market value of those assets and
then liquidated, if—
(i) The debtor partnership determines
and maintains the capital accounts of its
partners in accordance with the capital ac-
counting rules of §1.704–1(b)(2)(iv);
(ii) The creditor, debtor partnership,
and its partners treat the fair market value
of the indebtedness as being equal to the
liquidation value of the debt-for-equity
interest for purposes of determining the
tax consequences of the debt-for-equity
exchange;
(iii) The debt-for-equity exchange is an
arm’s-length transaction; and
(iv) Subsequent to the debt-for-equity
exchange, neither the partnership redeems
nor any person related to the partnership
purchases the debt-for-equity interest as
part of a plan at the time of the debt-for-eq-
uity exchange which has as a principal pur-
pose the avoidance of COD income by the
partnership.
(2)Exception. If the requirements in
paragraph (b)(1) of this section are not sat-
isfied, all the facts and circumstances will
be considered in determining the fair mar-
ket value of a debt-for-equity interest for
purposes of paragraph (a) of this section.
(c)Example. The following example
illustrates the provisions of this section:
Example. (i) AB partnership has $1,000 of out-
standing indebtedness owed to C. In an arm’s-length
transaction, C agrees to cancel the $1,000 indebt-
edness in exchange (debt-for-equity exchange)
for an interest (debt-for-equity interest) in AB.
AB’s partnership agreement provides that its part-
ners’ capital accounts will be determined and
maintained in accordance with the capital account-
ing rules in §1.704–1(b)(2)(iv). The fair mar-
ket value of the $1,000 indebtedness is $700 at
the time of the debt-for-equity exchange. Under
§1.704–1(b)(2)(iv)(b), C’s capital account is in-
creased by $700 as a result of the debt-for-equity
exchange. This amount equals the liquidation value
of C’s debt-for-equity interest, which is the amount
of cash that C would receive with respect to that in-
terest if AB partnership sold all of its assets for cash
equal to the fair market value of those assets and then
liquidated. C, AB partnership, and its partners treat
the fair market value of the indebtedness as being
equal to the liquidation value of C’s debt-for-equity
interest ($700) for purposes of determining the tax
consequences of the debt-for-equity exchange. Sub-
sequent to the debt-for-equity exchange, neither AB
partnership redeems nor any person related to AB
partnership purchases C’s debt-for-equity interest
as part of a plan at the time of the debt-for-equity
exchange which has as a principal purpose the avoid-
ance of COD income by AB partnership.
(ii) Because the requirements in paragraph (b)(1)
of this section are satisfied, the fair market value of
C’s debt-for-equity interest in AB partnership for pur-
poses of determining AB partnership’s COD income
is the liquidation value of C’s debt-for-equity inter-
est, or $700. Accordingly, AB partnership is treated
as satisfying the $1,000 indebtedness with $700 un-
der section 108(e)(8).
(d)Effective/applicability date.This
section applies to debt-for-equity ex-
changes occurring on or after the date that
these regulations are published as final
regulations in theFederal Register.
Par. 3. Section 1.721–1 is amended by
adding paragraph (d) to read as follows:
§1.721–1 Nonrecognition of gain or loss
on contribution.
*****
(d)Debt-for-equity exchange—(1)In
general. Except as otherwise provided
in section 721 and the regulations un-
der section 721, and notwithstanding
§1.108–8(a), section 721 applies to a con-
tribution of a partnership’s recourse or
nonrecourse indebtedness by a creditor to
the debtor partnership in exchange for a
capital or profits interest in the partner-
ship.
November 17, 200811592008–46 I.R.B.

(2)Exception. Section 721 does not ap-
ply to the transfer of a partnership inter-
est to a creditor in satisfaction of a part-
nership’s recourse or nonrecourse indebt-
edness for unpaid rent, royalties, or interest
on indebtedness (including accrued origi-
nal issue discount). For rules applicable to
a determination of whether a partnership
interest transferred to a creditor is treated
as payment of interest or accrued origi-
nal issue discount, see §§1.446–2(e) and
1.1275–2(a), respectively.
(3)Effective/applicability date.This
paragraph (d) applies to debt-for-equity
exchanges occurring on or after the date
that these regulations are published as fi-
nal regulations in theFederal Register.
Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on October 30,
2008, 8:45 a.m., and published in the issue of the Federal
Register for October 31, 2008, 73 F.R. 64903)
Notice of Proposed
Rulemaking by
Cross-Reference to
Temporary Regulations
and Notice of Public Hearing
Determining the Amount of
Taxes Paid for Purposes of
Section 901
REG–156779–06
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
by cross-reference to temporary regula-
tions and notice of public hearing.
SUMMARY: In this issue of the Bulletin,
the IRS is issuing temporary regulations
(T.D. 9416) that provide guidance relating
to the determination of the amount of taxes
paid for purposes of the foreign tax credit.
The regulations affect taxpayers that claim
direct and indirect foreign tax credits. The
text of those temporary regulations also
serves as the text of these proposed regula-
tions. This document also provides notice
of a public hearing on these proposed reg-
ulations.
DATES: Written or electronic comments
must be received by October 14, 2008.
Outlines of topics to be discussed at the
public hearing scheduled for December 11,
2008, at 10 a.m. must be received by
November 20, 2008.
ADDRESSES: Send submissions to
CC:PA:LPD:PR (REG–156779–06), room
5203, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may be
hand delivered Monday through Friday
betweenthehoursof8a.m. and4p.m.
to CC:PA:LPD:PR (REG–156779–06),
Courier’s desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, N.W.,
Washington, DC 20224, or sent elec-
tronically via the Federal eRulemak-
ing Portal atwww.regulations.gov(IRS
REG–156779–06). The public hearing
will be held in the Auditorium, Internal
Revenue Building, 1111 Constitution Av-
enue, N.W., Washington, DC.
FOR FURTHER INFORMATION
CONTACT: Concerning the regulations,
Michael I. Gilman, (202) 622–3850;
concerning submissions of comments,
the hearing, and/or to be placed on the
building access list to attend the hearing,
Regina Johnson, (202) 622–7180 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
Temporary regulations in this issue of
the Bulletin contain amendments to the In-
come Tax Regulations (26 CFR Part 1)
which provide rules relating to the deter-
mination of the amount of taxes paid for
purposes of the foreign tax credit. The text
of those regulations also serves as the text
of these proposed regulations. The pream-
ble to the temporary regulations explains
the temporary regulations and these pro-
posed regulations. The regulations affect
individuals and corporations claiming for-
eign tax credits.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Exec-
utive Order 12866. Therefore, a regula-
tory assessment is not required. It also has
been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these reg-
ulations, and because the regulations do
not impose a collection of information on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6), does not apply.
Pursuant to section 7805(f) of the Inter-
nal Revenue Code, this regulation has been
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administration
for comment on its impact on small busi-
nesses.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written (a signed origi-
nal and eight (8) copies)orelectroniccom-
ments that are submitted timely to the IRS.
In particular, the IRS and Treasury De-
partment continue to study arrangements
in which the foreign payments attribut-
able to income of a special purpose vehi-
cle (SPV) do not substantially exceed the
foreign taxes that would have been paid
by a controlled foreign corporation that
owns the SPV in the absence of the ar-
rangement. The IRS and Treasury Depart-
ment seek additional comments on how to
overcome the administrative challenges of
determining the amount of foreign taxes
that would have been paid but for such ar-
rangement. The IRS and Treasury Depart-
ment also request comments on whether
the regulations should contain additional
guidance on the extent to which activities
are conducted by an entity’s employees or
on the treatment of employees of affili-
ates that are seconded to, or supervised by
employees of, the tested entity. Finally,
the IRS and Treasury Department request
comments on the clarity of the proposed
regulations and how they can be made eas-
ier to understand. All comments will be
available for public inspection and copy-
ing.
A public hearing has been scheduled for
December 11, 2008, at 10 a.m. in the Au-
ditorium, Internal Revenue Building, 1111
2008–46 I.R.B.1160November 17, 2008

Constitution Avenue, N.W., Washington,
D.C. Due to building security procedures,
visitors must enter at the Constitution Av-
enue entrance. In addition, all visitors
must present photo identification to enter
the building. Because of access restric-
tions, visitors will not be admitted beyond
the immediate entrance more than 30 min-
utes before the hearing starts. For infor-
mation about having your name placed on
the building access list to attend the hear-
ing, see theFOR FURTHER INFOR-
MATION CONTACTsection of this pre-
amble.
The rules of 26 CFR 601.601(a)(3) ap-
ply to the hearing. Persons who wish to
present oral comments must submit elec-
tronic or written comments by October 14,
2008, and an outline of the topics to be dis-
cussed and time to be devoted to each topic
(a signed original and eight (8) copies) by
November 20, 2008. A period of 10 min-
utes will be allotted to each person for
making comments. An agenda showing
the scheduling of the speakers will be pre-
pared after the deadline for receiving out-
lines has passed. Copies of the agenda will
be available free of charge at the hearing.
Drafting Information
The principal author of these regula-
tions is Michael I. Gilman, Office of Asso-
ciate Chief Counsel (International). How-
ever, other personnel from the IRS and the
Treasury Department participated in their
development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.901–1 is amended by
revising paragraphs (a) and (b) to read as
follows:
§1.901–1 Allowance of credit for taxes.
(a) and (b) [The text of proposed
§1.901–2(a) and (b) is the same as the
text of §1.901–1T(a) and (b) published
elsewhere in this issue of the Bulletin.]
*****
Par. 3. Section 1.901–2 is amended by
revising paragraphs (e)(5)(iii), (e)(5)(iv),
and (h)(2) to read as follows:
§1.901–2 Income, war profits, or excess
profits tax paid or accrued.
*****
(e) * * *
(5) * * *
(iii) and (iv) [The text of proposed
§1.901–2(e)(5)(iii) and (iv) is the same as
the text of §1.901–2T(e)(5)(iii) and (iv)
published elsewhere in this issue of the
Bulletin.]
*****
(h) * * *
(2) [The text of proposed
§1.901–2(h)(2) is the same as the text of
§1.901–2T(h)(2) published elsewhere in
this issue of the Bulletin.]
Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on July 15, 2008,
8:45 a.m., and published in the issue of the Federal Register
for July 16, 2008, 73 F.R. 40792)
Exported Coal Tax Refund
Announcement 2008–103
SECTION 1. PURPOSE
This announ
cement provides guidance
to domesti
c coal producers and exporters
regarding
the submission of claims for re-
fund of the
coal excise tax pursuant to sec-
tion 114 of
the Energy Improvement and
Extension
Act of 2008 (Act section 114).
Act secti
on 114 provides criteria for re-
funds of t
he coal excise tax paid under
§4121onc
oal exported on or after October
1, 1990, a
nd on or before October 3, 2008.
These cla
ims must be filed by November
3, 2008.
SECTION 2. DEFINITIONS
(a) The terms c
oalproducerand ex-
porterhave the meanings set forth in sub-
section (d) of Act section 114.
(b) E
xportincludes the shipment of coal
to a possession of the United States.
(c) P
roofofexportationmeans evidence
that the coal was exported. Acceptable ev-
idence that coal was exported includes—
(1) A copy of the export bill of lading
issued by the delivering carrier;
(2) A certificate signed by the agent or
representative of the export carrier show-
ing actual exportation of the coal;
(3) A certificate of landing signed by a
customs officer of the foreign country to
which the coal is exported; or
(4) In a case in which the foreign coun-
try has no customs administration, a state-
ment of the foreign consignee showing re-
ceipt of the coal.
(d) For purposes of subsection (a)(2)(B)
of Act section 114, t
axreturnmeans any
return with respect to an internal revenue
tax.
SECTION 3. FORM FOR CLAIM
The following rules apply to all claims
for a refund under Act section 114:
(a) Claims must be filed on a paper
Form 8849,Claim for Refund of Excise
Taxes, Schedule 6,Other Claims, in accor-
dance with the instructions for this form.
These claims may not be filed electroni-
cally.
(b) “Exported Coal Claim” must be
written at the top of Form 8849.
(c) Claims must be mailed to: In-
ternal Revenue Service, Cincinnati, OH
45999–0002.
(d) Claims must be filed no later than
November 3, 2008.
SECTION 4. INFORMATION TO
BE SUBMITTED; CLAIMS BY
PRODUCER
Each claim by a coal producer under
Act section 114 must contain the following
information with respect to the coal cov-
ered by the claim:
(a) A statement that this is a Producer
claim and that the CRN (Credit Reference
Number) is 382.
(b) The quarter and year for which the
tax on the coal was reported on Form 720,
Quarterly Federal Excise Tax Return.
(c) The IRS No. listed on Form 720
(IRS No. 36, 37, 38, or 39) on which the
tax was reported.
(d) The amount of tax paid.
(e) The date the tax was paid.
(f) The amount of the payment allow-
able under subsection (a)(1) of Act section
November 17, 200811612008–46 I.R.B.

114, determined after application of the
limitations in subsections (b), (c), (g)(1),
and (h) of that section.
(g) A statement that—
(1) The claimant has proof of exporta-
tion for the coal covered by the claim; or
(2) The claimant has a favorable judg-
ment of a court of competent jurisdiction
within the United States that relates to the
constitutionalityofanytaxpaidonex-
ported coal under § 4121.
(h) If a producer has a judgment de-
scribed in paragraph (g)(2) of this section,
a statement that includes the caption of the
case, the case docket number, the court
that rendered the judgment, the date of the
judgment, and a statement of the amount
paid pursuant to the judgment.
(i) A statement that the claimant has
no knowledge of any other entity claiming
and/or receiving a credit or refund of the
taxpaidontheexportedcoal.
SECTION 5. INFORMATION TO BE
SUBMITTED; CLAIMS BY EXPORTER
Each claim by an exporter under Act
section 114 must contain the following in-
formation with respect to the coal covered
by the claim:
(a) A statement that this is an Exporter
claim and that the CRN (Credit Reference
Number) is 385.
(b) The calendar quarter and year in
which the coal was exported.
(c) The amount of coal exported in each
quarter.
(d) The amount of the payment allow-
able under subsection (a)(2) of Act section
114, determined after application of the
limitations in subsections (b), (c), (g)(2),
and (h) of that section.
(e) A statement that the exporter had no
contract or other arrangement with the pro-
ducer or seller of the coal to export the coal
to a third party on behalf of the producer or
seller.
(f) A statement that the exporter has
proof of exportation for the coal that is the
subject of the claim.
(g) Proof that exporter filed a tax return
on or after October 1, 1990, and on or
before October 3, 2008.
(h) A statement that the exporter has
no knowledge of any other entity claiming
and/or receiving a credit or refund of the
taxpaidontheexportedcoal.
SECTION 6. EFFECT OF
ADDITIONAL GUIDANCE
If additional guidance is issued under
Act section 114, taxpayers will be per-
mitted to amend timely filed claims. If
the amendment occurs within the period
specified in such additional guidance, the
amended claim will be treated as a timely
filed claim.
SECTION 7. PAPERWORK
REDUCTION ACT
The collections of information con-
tained in this announcement have been
reviewed and approved by the Office
of Management and Budget in accor-
dance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545–2121.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
The collections of information in this
notice are in sections 4 and 5. This infor-
mation is required to support payments re-
lated to the coal tax. The collections of in-
formationarerequiredtoobtainataxbene-
fit. The likely respondents are businesses.
The estimated total annual reporting
burden is 600 hours.
The estimated annual burden per re-
spondent is 60 hours.
The estimated number of respondents is
100.
The estimated frequency of responses is
once.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
SECTION 8. DRAFTING
INFORMATION
The principal author of this announce-
mentisCeliaGabryshoftheOfficeof
Associate Chief Counsel (Passthroughs &
Special Industries). For further informa-
tion regarding this announcement, contact
Dennis Caranna at (601) 292–4747 (not a
toll-free call).
Request for Information
Regarding Sections 101
Through 104 of the Genetic
Information Nondiscrimination
Act of 2008
Announcement 2008–107
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 54
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
29 CFR Part 2590
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Centers for Medicare & Medicaid
Services
CMS–4137–NC
45 CFR Parts 144, 146, and 148
AGENCIES:Internal Revenue Service,
Department of the Treasury; Employee
Benefits Security Administration, Depart-
ment of Labor; Centers for Medicare &
Medicaid Services, Department of Health
and Human Services.
ACTION:Request for Information.
SUMMARY:This document is a request
for comments regarding issues under sec-
tions 101 through 104 of the Genetic
Information Nondiscrimination Act of
2008 (GINA). The Departments of Labor,
Health and Human Services (HHS), and
the Treasury (collectively, the Depart-
ments) have received inquiries from the
public on a number of issues under these
provisions and are welcoming public com-
ments in advance of future rulemaking
(REG–123829–08).
DATES: Comments must be submitted on
or before December 9, 2008.
ADDRESSES:Written comments may be
submitted to any of the addresses specified
below. Any comment that is submitted to
any Department will be shared with the
other Departments. Please do not submit
duplicates.
Department of Labor. Comments to the
Department of Labor by one of the follow-
ing methods:
2008–46 I.R.B.1162November 17, 2008

•FederaleRulemakingPortal:
http://www.regulations.gov.Follow
the instructions for submitting com-
ments.
•Email:E-OHPSCA.EBSA@dol.gov.
•Mail or Hand Delivery:Officeof
Health Plan Standards and Compliance
Assistance, Employee Benefits Secu-
rity Administration, Room N–5653,
U.S. Department of Labor, 200 Consti-
tution Avenue, NW, Washington, DC
20210,Attention: GINA Comments.
Comments received by the Depart-
ment of Labor will be posted with-
out change towww.regulations.govand
www.dol.gov/ebsa, and available for pub-
lic inspection at the Public Disclosure
Room, N–1513, Employee Benefits Se-
curity Administration, 200 Constitution
Avenue, NW, Washington, DC 20210,
including any personal information pro-
vided.
DepartmentofHHS. Comments to
the Department of HHS, identified by
CMS–4137–NC, by one of the following
methods:
•FederaleRulemakingPortal:
http://www.regulations.gov.Follow
the instructions for submitting com-
ments.
•Mail: Centers for Medicare & Med-
icaid Services, Department of Health
and Human Services, Attention:
CMS–4137–NC, P.O. Box 8017, Bal-
timore, MD 21244–8010.
•Hand or courier delivery. Comments
may be delivered to either 7500 Se-
curity Boulevard, Baltimore, MD
21244–1850 or Room 445–G, Hubert
H. Humphrey Building, 200 Indepen-
dence Avenue, SW, Washington, DC
20201. For delivery to Baltimore,
please call telephone number (410)
786–7195 in advance to schedule your
arrival with one of our staff members.
For delivery to Washington, because
access to the interior of the HHH
Building is not readily available to
persons without Federal Government
identification, commenters are encour-
aged to leave their comments in the
CMS drop slots located in the main
lobby of the building. A stamp-in
clock is available for persons wishing
to retain proof of filing by stamping
in and retaining an extra copy of the
comments being filed.
All submissions submitted to HHS will
be available for public inspection as they
are received, generally beginning approx-
imately three weeks after publication of a
document, at the headquarters for the Cen-
ters for Medicare & Medicaid Services,
7500 Security Boulevard, Baltimore, MD
21244, Monday through Friday of each
week from 8:30 a.m. to 4 p.m. To schedule
an appointment to view public comments,
phone (410) 786–7195.
Internal Revenue Service. Comments
to the IRS, identified by REG–123829–08,
by one of the following methods:
•FederaleRulemakingPortal:
http://www.regulations.gov. Follow
the instructions for submitting com-
ments.
•Mail:CC:PA:LPD:PR (REG–
123829–08), Room 5205, Internal
Revenue Service, P.O. Box 7604, Ben
Franklin Station, Washington, DC
20044.
•Hand or courier delivery: Monday
through Friday between the hours of
8a.m.and4p.m.to:CC:PA:LPD:PR
(REG–123829–08), Courier’s Desk,
Internal Revenue Service, 1111
Constitution Avenue, NW, Washington
DC 20224.
All submissions to the IRS will be open
to public inspection and copying in room
1621, 1111 Constitution Avenue, NW,
Washington, DC from 9 a.m. to 4 p.m.
FOR FURTHER INFORMATION
CONTACT:Amy Turner, Employee
Benefits Security Administration, De-
partment of Labor, at (202) 693–8335;
Russ Weinheimer, Internal Revenue
Service, Department of the Treasury, at
(202) 622–6080; Adam Shaw, Centers
for Medicare & Medicaid Services,
Department of Health and Human
Services, at (877) 267–2323 extension
61091.
CUSTOMER SERVICE INFORMA-
TION:Individuals interested in obtaining
information from the Department of
Labor concerning employment-based
health coverage laws, including the
nondiscrimination protections, may
call the EBSA Toll-Free Hotline at
1–866–444–EBSA (3272) or visit
the Department of Labor’s website
(http://www.dol.gov/ebsa). In addition,
individuals may request a copy of CMS’s
publication entitled “Protecting Your
Health Insurance Coverage” by calling
1–800–633–4227.
SUPPLEMENTARY INFORMATION:
I. Background
The Genetic Information Nondiscrim-
ination Act of 2008 (GINA) was enacted
on May 21, 2008 (Public Law 110–233).
Title I of GINA amends the Employee
Retirement Income Security Act of 1974
(ERISA), the Public Health Service Act
(PHS Act), the Internal Revenue Code
of 1986 (Code), and the Social Security
Act (SSA) to prohibit discrimination in
health coverage based on genetic informa-
tion. Sections 101 through 104 of GINA
apply to employment-based health cover-
age, individual market health insurance,
and Medicare supplemental (MedSupp
or Medigap) coverage. The new require-
ments were added to Part 7 of Subtitle B of
TitleIofERISA,TitleXXVIIofthePHS
Act, Subtitle K of the Code, and section
1882 of the SSA.
GINA prohibits group health plans and
health insurance issuers (that is, insurance
companies or health maintenance orga-
nizations (HMOs)) in the group market
from using genetic information to adjust
premium or contribution amounts for the
group covered under the plan. Plans and
issuers in the group market are still al-
lowed to increase the premium rate for
an employer based on the manifestation
of a disease or disorder of an individual
enrolled in the plan, but they are prohib-
ited from using the manifested disease
or disorder of one individual as genetic
information about other group members to
further increase the premium.
In the individual market, health insur-
ance issuers are prohibited from using ge-
netic information to determine individual
eligibility or premium rates, although they
are allowed (to the extent consistent with
otherprovisionsoflaw)touseinformation
about a manifestation of a disease or dis-
order to determine eligibility or premium
rates for an individual who is covered or
would be covered by a policy. Individ-
ual market health insurance issuers are also
November 17, 200811632008–46 I.R.B.

prohibited from using genetic information
in imposing a preexisting condition exclu-
sion, although a manifestation of a disease
or disorder in an individual can be the ba-
sis for an exclusion. In the MedSupp mar-
ket, GINA prohibits issuers from denying
or conditioning the issuance or effective-
ness of a policy (including the imposition
of any exclusion of benefits based on a
preexisting condition) or discriminating in
the pricing of the policy based on an in-
dividual’s genetic condition. However, if
otherwise permitted under section 1882 of
the Social Security Act, the issuer can still
impose such limitations based on a mani-
fested disease of an individual who is cov-
ered or would be covered under the policy.
GINA also prohibits group health plans
and health insurance issuers in the group,
individual, and MedSupp markets from re-
questing or requiring an individual or fam-
ily member of an individual to undergo a
genetic test. Plans and issuers are not pre-
cluded from obtaining and using the results
of a genetic test to make a determination
regarding payment, but they may only use
the minimum amount of information nec-
essary.
GINA includes a research exception un-
der which a group health plan or a health
insurance issuer in the group, individual,
or MedSupp market may request (but not
require) a participant or beneficiary to un-
dergo a genetic test if the following five
conditions are met:
•The request is made in writing pur-
suant to research that complies with
45 CFR Part 46, or equivalent Federal
regulations, and any applicable State
or local law or regulations for the
protection of human subjects in
research.
•The plan or issuer clearly indicates
to each participant or beneficiary to
whom the request is made that compli-
ance is voluntary and non-compliance
will have no effect on enrollment sta-
tus or premium contribution amounts.
•None of the genetic information col-
lected can be used for underwriting
purposes.
•The plan or issuer notifies the appro-
priate Secretary in writing that it is
conducting such research activities, in-
cluding a description of the activities
conducted.
•The plan or issuer complies with such
other conditions as may be required by
regulations for such activities.
Group health plans and health insur-
ance issuers in the group, individual,
and MedSupp markets are prohibited
from requesting, requiring, or purchasing
genetic information for underwriting
purposes or prior to an individual’s
enrollment under a plan or policy. Plans
and issuers are still allowed to collect
(that is, to request, require, or purchase)
health information that relates to the
manifestation of a disease or disorder
of an individual enrolled in a plan or
who is covered by or would be covered
by a policy issued in the individual or
MedSupp market, and use it for permitted
underwriting purposes with respect to that
individual. Furthermore, an exception to
the prohibition on requesting, requiring, or
purchasing genetic information is included
for collection of genetic information which
is incidental to the request, requirement, or
purchase of other information concerning
an individual, provided it is not used for
underwriting purposes.
GINA defines genetic information with
respect to any individual as information
about that individual’s genetic tests, the
genetic tests of family members of the in-
dividual, and the manifestation of a dis-
ease or disorder in family members of the
individual. The term genetic information
also includes an individual’s request for, or
receipt of, genetic services, but does not
include information about the sex or age
of any individual. Genetic services are
further defined as a genetic test, genetic
counseling (which includes obtaining, in-
terpreting, or assessing genetic informa-
tion), or genetic education. A genetic test
is defined for purposes of Title I of GINA
as an analysis of human DNA, RNA, chro-
mosomes, proteins, or metabolites that de-
tects genotypes, mutations, or chromoso-
mal changes. The term is not meant to in-
clude an analysis of proteins or metabolites
that does not detect genotypes, mutations,
or chromosomal changes, or an analysis of
proteins or metabolites that is directly re-
lated to a manifested disease, disorder, or
pathological condition that a health care
professional with appropriate training and
expertise could reasonably detect. Defi-
nitions of family member and underwrit-
ing purposes are also included, as well as
provisions clarifying that references to ge-
netic information concerning an individual
include the genetic information of a fetus
carried by a pregnant woman and of an em-
bryo legally held by an individual utilizing
an assisted reproductive technology.
The provisions of GINA are effective
with respect to group health plans and
health insurance issuers in the group mar-
ket for plan years beginning after May
21, 2009. For health insurance issuers in
the individual market, the provisions are
effective with respect to health insurance
coverage sold, issued, renewed, in effect,
or operated in the individual market after
May 21, 2009. For MedSupp coverage,
States must incorporate the GINA provi-
sions into their regulatory programs no
later than July 1, 2009.
II. Solicitation of Comments
A. Comments Regarding Economic
Analysis, Paperwork Reduction Act, and
Regulatory Flexibility Act
Executive Order 12866 requires an as-
sessment of the costs and benefits of a sig-
nificant rulemaking action and the alterna-
tives considered, using the guidance pro-
vided by the Office of Management and
Budget. These costs and benefits are not
limited to the Federal government, but per-
tain to the affected public as a whole. Un-
der Executive Order 12866, a determina-
tion must be made whether implementa-
tion of GINA sections 101 through 104
will be economically significant. A rule
that has an annual effect on the economy
of $100 million or more is considered eco-
nomically significant.
In addition, the Regulatory Flexibility
Act may require the preparation of an anal-
ysis of the economic impact on small en-
tities of proposed rules and regulatory al-
ternatives. An analysis under the Regu-
latory Flexibility Act must generally in-
clude, among other things, an estimate of
the number of small entities subject to the
regulations (for this purpose, plans, em-
ployers, and issuers and, in some contexts
small governmental entities), the expense
of the reporting and other compliance re-
quirements (including the expense of us-
ing professional expertise), and a descrip-
tion of any significant regulatory alterna-
tives considered that would accomplish the
stated objectives ofthe statute and min-
2008–46 I.R.B.1164November 17, 2008

imize the impact on small entities. The
Departments seek additional information
from small entities regarding any special
problems they might encounter in imple-
menting the requirements of sections 101
through 104 of GINA and any regulatory
guidance that might minimize those prob-
lems.
The Paperwork Reduction Act requires
an estimate of how many “respondents”
will be required to comply with any “col-
lection of information” aspects of the regu-
lations and how much time and cost will be
incurred as a result. A collection of infor-
mation includes record-keeping, reporting
to governmental agencies, and third-party
disclosures.
The Departments are requesting com-
ments that may contribute to the analyses
that will be performed under these require-
ments, both generally and with respect to
the following specific areas:
(i) What policies, procedures, or prac-
tices of group health plans and health in-
surance issuers may be impacted by regu-
lations under GINA? What direct or indi-
rect costs would result? What direct or in-
direct benefits would result? Which stake-
holders will be impacted by such benefits
and costs?
(ii) Are there unique costs and benefits
for small employers or small plans? What
special consideration,if any, is needed for
small employers or small plans?
B. Comments Regarding Regulatory
Guidance
The Departments are seeking com-
ments to aid in the development of reg-
ulations regarding sections 101 through
104 of GINA. To assist interested parties
in responding, this request for informa-
tion describes specific areas in which the
Departments are particularly interested;
however, the Departments also request
comments and suggestions concerning any
area or issue pertinent to the development
of regulations.
Specific Areas in Which the Departments
Are Interested Include the Following:
1. To what extent do group health plans
and health insurance issuers currently use
genetic information, such as family med-
ical history, and for what purposes? For
example, is genetic information currently
used for group rating purposes, or for pur-
poses of a wellness program that otherwise
complies with HIPAA’s nondiscrimination
requirements?
2. How do plans and issuers currently
obtain genetic information (for example,
through health risk assessments, the Med-
ical Information Bureau, or other entities
under common control)?
3. Under what circumstances do plans
or issuers currently request or require an
individual to take a genetic test?
4. Under what circumstances do plans
or issuers currently ask for the results of
a genetic test in order to make a deter-
mination regarding payment of benefits?
What is the minimum amount of informa-
tion necessary for a plan or issuer to make a
determination under such circumstances?
5. What types of research do plans or
issuers currently conduct or support using
genetic tests?
6. Would a model notice be helpful
to facilitate disclosure to plan participants
and beneficiaries regarding a plan’s or is-
suer’s use of the research exception? In
this regard, what information would be
most helpful to participants and beneficia-
ries?
7. Similarly, would a model form be
helpful for reporting to the Departments by
a plan or issuer claiming the research ex-
ception? In this regard, what information
should plans and issuers report?
8. When might genetic information be
collected incidentally?
9. What terms or provisions (such
as genetic information, genetic test, ge-
netic services, or underwriting) would
require additional clarification to facilitate
compliance? What specific clarifications
would be helpful?
Signed at Washington, DC this 4th day of
June, 2008.
Alan Tawshunsky,
Deputy Division Counsel/
Deputy Associate Chief Counsel,
Tax Exempt and Government Entities,
Internal Revenue Service,
Department of the Treasury.
Signed at Washington, DC this 5th day of
June, 2008.
W. Thomas Reeder,
Benefits Tax Counsel,
Department of the Treasury.
Signed at Washington, DC this 2nd day of
October, 2008.
Bradford P. Campbell,
Assistant Secretary,
Employee Benefits
Security Administration,
U.S. Department of Labor.
Dated June 30, 2008.
Kerry Weems,
Acting Administrator,
Centers for Medicare &
Medicaid Services.
(Filed by the Office of the Federal Register on October 9,
2008, 8:45 a.m., and published in the issue of the Federal
Register for October 10, 2008, 73 F.R. 60208)
Extension of Time for Filing
Returns; Hearing
Announcement 2008–108
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of public hearing on pro-
posed rulemaking.
SUMMARY: This document provides no-
tice of a public hearing on proposed regu-
lations (REG–115457–08, 2008–33 I.R.B.
390) by cross-reference to temporary regu-
lations relating to the simplification of pro-
cedures for automatic extensions of time to
file certain returns. These simplified pro-
cedures are aimed at reducing overall tax-
payer burden.
DATES: The public hearing is being held
on Tuesday, January 13, 2009, at 10 a.m.
The IRS must receive outlines of the topics
November 17, 200811652008–46 I.R.B.

to be discussed at the public hearing by
Tuesday, December 9, 2008.
ADDRESSES: The public hearing is be-
ing held in the IRS Auditorium, Internal
Revenue Service Building, 1111 Constitu-
tion Avenue, NW, Washington, DC 20224.
Send submissions to CC:PA:LPD:PR
(REG–115457–08), Room 5205, Internal
Revenue Service, P.O. Box 7604, Ben
Franklin Station, Washington, DC 20044.
Submissions may be hand-delivered Mon-
day through Friday to CC:PA:LPD:PR
(REG–115457–08), Courier’s Desk, In-
ternal Revenue Service, 1111 Constitu-
tion Avenue, NW, Washington, DC, or
sent electronically via the Federal eRule-
making Portal atwww.regulations.gov
(IRS-REG–115457–08).
FOR FURTHER INFORMATION
CONTACT: Concerning the regulations,
Matthew P. Howard (202) 622–4910;
concerning submissions of comments,
the hearing and/or to be placed on the
building access list to attend the hear-
ing, Oluwafunmilayo Taylor at (202)
622–7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
The subject of the public hearing is
the notice of proposed rulemaking by
cross-reference to temporary regulations
(REG–115457–08) that was published in
theFederal Registeron Tuesday, July 1,
2008 (73 FR 37389).
The rules of 26 CFR 601.601(a)(3) ap-
ply to the hearing. Persons who wish to
present oral comments at the hearing that
submitted written comments must submit
an outline of the topics to be addressed and
the amount of time to be denoted to each
topic (Signed original and eight (8) copies)
by December 9, 2008.
A period of 10 minutes is allotted to
each person for presenting oral comments.
After the deadline for receiving out-
lines has passed, the IRS will prepare an
agenda containing the schedule of speak-
ers. Copies of the agenda will be made
available, free of charge, at the hearing or
in the Freedom of Information Reading
Room (FOIA RR) (Room 1621) which
is located at the 11th and Pennsylvania
Avenue, NW, entrance, 1111 Constitution
Avenue, NW, Washington, DC.
Because of access restrictions, the IRS
will not admit visitors beyond the imme-
diate entrance area more than 30 minutes
before the hearing starts. For informa-
tion about having your name placed on
the building access list to attend the hear-
ing, see the “FOR FURTHER INFORMA-
TION CONTACT” section of this docu-
ment.
LaNita Van Dyke,
Chief, Publications and
Regulations Branch,
Legal Processing Division,
Associate Chief Counsel
(Procedure and Administration).
(Filed by the Office of the Federal Register on October 27,
2008, 8:45 a.m., and published in the issue of the Federal
Register for October 28, 2008, 73 F.R. 63913)
Notice of Disposition of
Declaratory Judgment
Proceedings Under Section
7428
Announcement 2008–109
This announcement serves notice to
donors that on October 17, 2008, the
United States Tax Court entered a stipu-
lated decision that the organization listed
below is recognized as an organization
described in section 501(c)(3), is exempt
from tax under section 501(a), and is an or-
ganization described in section 170(c)(2).
Chaim Ministries, Inc.
Los Alamitos, CA
2008–46 I.R.B.1166November 17, 2008

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cases
in litigation, or the outcome of a Service
study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
November 17, 2008i2008–46 I.R.B.

Numerical Finding List
1
Bulletins 2008–27 through 2008–46
Announcements:
2008-62, 2008-27 I.R.B.74
2008-63, 2008-28 I.R.B.114
2008-64, 2008-28 I.R.B.114
2008-65, 2008-31 I.R.B.279
2008-66, 2008-29 I.R.B.164
2008-67, 2008-29 I.R.B.164
2008-68, 2008-30 I.R.B.244
2008-69, 2008-32 I.R.B.318
2008-70, 2008-32 I.R.B.318
2008-71, 2008-32 I.R.B.321
2008-72, 2008-32 I.R.B.321
2008-73, 2008-33 I.R.B.391
2008-74, 2008-33 I.R.B.392
2008-75, 2008-33 I.R.B.392
2008-76, 2008-33 I.R.B.393
2008-77, 2008-33 I.R.B.394
2008-78, 2008-34 I.R.B.453
2008-79, 2008-35 I.R.B.568
2008-80, 2008-37 I.R.B.706
2008-81, 2008-37 I.R.B.706
2008-82, 2008-37 I.R.B.708
2008-83, 2008-37 I.R.B.709
2008-84, 2008-38 I.R.B.748
2008-85, 2008-38 I.R.B.749
2008-86, 2008-40 I.R.B.843
2008-87, 2008-40 I.R.B.843
2008-88, 2008-40 I.R.B.843
2008-89, 2008-40 I.R.B.844
2008-90, 2008-41 I.R.B.896
2008-91, 2008-42 I.R.B.963
2008-92, 2008-42 I.R.B.963
2008-93, 2008-41 I.R.B.896
2008-94, 2008-42 I.R.B.964
2008-95, 2008-42 I.R.B.964
2008-96, 2008-43 I.R.B.1010
2008-97, 2008-43 I.R.B.1010
2008-98, 2008-44 I.R.B.1087
2008-99, 2008-44 I.R.B.1089
2008-100, 2008-44 I.R.B.1090
2008-101, 2008-44 I.R.B.1090
2008-102, 2008-43 I.R.B.1011
2008-103, 2008-46 I.R.B.1161
2008-104, 2008-45 I.R.B.1136
2008-106, 2008-45 I.R.B.1137
2008-107, 2008-46 I.R.B.1162
2008-108, 2008-46 I.R.B.1165
2008-109, 2008-46 I.R.B.1166
Court Decisions:
2087, 2008-41 I.R.B.845
Notices:
2008-55, 2008-27 I.R.B.11
2008-56, 2008-28 I.R.B.79
2008-57, 2008-28 I.R.B.80
2008-58, 2008-28 I.R.B.81
2008-59, 2008-29 I.R.B.123
2008-60, 2008-30 I.R.B.178
2008-61, 2008-30 I.R.B.180
2008-62, 2008-29 I.R.B.130
2008-63, 2008-31 I.R.B.261
2008-64, 2008-31 I.R.B.268
2008-65, 2008-30 I.R.B.182
2008-66, 2008-31 I.R.B.270
2008-67, 2008-32 I.R.B.307
2008-68, 2008-34 I.R.B.418
2008-69, 2008-34 I.R.B.419
2008-70, 2008-36 I.R.B.575
2008-71, 2008-35 I.R.B.462
2008-72, 2008-43 I.R.B.998
2008-73, 2008-38 I.R.B.717
2008-74, 2008-38 I.R.B.718
2008-75, 2008-38 I.R.B.719
2008-76, 2008-39 I.R.B.768
2008-77, 2008-40 I.R.B.814
2008-78, 2008-41 I.R.B.851
2008-79, 2008-40 I.R.B.815
2008-80, 2008-40 I.R.B.820
2008-81, 2008-41 I.R.B.852
2008-82, 2008-41 I.R.B.853
2008-83, 2008-42 I.R.B.905
2008-84, 2008-41 I.R.B.855
2008-85, 2008-42 I.R.B.905
2008-86, 2008-42 I.R.B.925
2008-87, 2008-42 I.R.B.930
2008-88, 2008-42 I.R.B.933
2008-89, 2008-43 I.R.B.999
2008-90, 2008-43 I.R.B.1000
2008-91, 2008-43 I.R.B.1001
2008-92, 2008-43 I.R.B.1001
2008-93, 2008-43 I.R.B.1002
2008-94, 2008-44 I.R.B.1070
2008-95, 2008-44 I.R.B.1076
2008-96, 2008-44 I.R.B.1077
2008-97, 2008-44 I.R.B.1080
2008-98, 2008-44 I.R.B.1080
2008-100, 2008-44 I.R.B.1081
2008-101, 2008-44 I.R.B.1082
2008-102, 2008-45 I.R.B.1106
2008-103, 2008-46 I.R.B.1156
Proposed Regulations:
REG-209006-89, 2008-41 I.R.B.867
REG-157711-02, 2008-44 I.R.B.1087
REG-143544-04, 2008-42 I.R.B.947
REG-160868-04, 2008-45 I.R.B.1115
Proposed Regulations— Continued:
REG-161695-04, 2008-37 I.R.B.699
REG-164965-04, 2008-34 I.R.B.450
REG-142339-05, 2008-45 I.R.B.1116
REG-143453-05, 2008-32 I.R.B.310
REG-146895-05, 2008-37 I.R.B.700
REG-155087-05, 2008-38 I.R.B.726
REG-164370-05, 2008-46 I.R.B.1157
REG-142680-06, 2008-35 I.R.B.565
REG-156779-06, 2008-46 I.R.B.1160
REG-120476-07, 2008-36 I.R.B.679
REG-120844-07, 2008-39 I.R.B.770
REG-128841-07, 2008-45 I.R.B.1124
REG-129243-07, 2008-27 I.R.B.32
REG-138355-07, 2008-32 I.R.B.311
REG-140029-07, 2008-40 I.R.B.828
REG-142040-07, 2008-34 I.R.B.451
REG-142333-07, 2008-43 I.R.B.1008
REG-149404-07, 2008-40 I.R.B.839
REG-149405-07, 2008-27 I.R.B.73
REG-100464-08, 2008-32 I.R.B.313
REG-101258-08, 2008-28 I.R.B.111
REG-102122-08, 2008-31 I.R.B.278
REG-102822-08, 2008-38 I.R.B.744
REG-103146-08, 2008-37 I.R.B.701
REG-106251-08, 2008-39 I.R.B.774
REG-107318-08, 2008-45 I.R.B.1131
REG-115457-08, 2008-33 I.R.B.390
REG-121698-08, 2008-29 I.R.B.163
Revenue Procedures:
2008-32, 2008-28 I.R.B.82
2008-33, 2008-28 I.R.B.93
2008-34, 2008-27 I.R.B.13
2008-35, 2008-29 I.R.B.132
2008-36, 2008-33 I.R.B.340
2008-37, 2008-29 I.R.B.137
2008-38, 2008-29 I.R.B.139
2008-39, 2008-29 I.R.B.143
2008-40, 2008-29 I.R.B.151
2008-41, 2008-29 I.R.B.155
2008-42, 2008-29 I.R.B.160
2008-43, 2008-30 I.R.B.186
2008-44, 2008-30 I.R.B.187
2008-45, 2008-30 I.R.B.224
2008-46, 2008-30 I.R.B.238
2008-47, 2008-31 I.R.B.272
2008-48, 2008-36 I.R.B.586
2008-49, 2008-34 I.R.B.423
2008-50, 2008-35 I.R.B.464
2008-51, 2008-35 I.R.B.562
2008-52, 2008-36 I.R.B.587
2008-53, 2008-36 I.R.B.678
2008-54, 2008-38 I.R.B.722
2008-55, 2008-39 I.R.B.768
2008-56, 2008-40 I.R.B.826
1
A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2008–1 through 2008–26 is in Internal Revenue Bulletin
2008–26, dated June 30, 2008.
2008–46 I.R.B.iiNovember 17, 2008

Revenue Procedures— Continued:
2008-57, 2008-41 I.R.B.855
2008-58, 2008-41 I.R.B.856
2008-59, 2008-41 I.R.B.857
2008-60, 2008-43 I.R.B.1006
2008-61, 2008-42 I.R.B.934
2008-62, 2008-42 I.R.B.935
2008-63, 2008-42 I.R.B.946
2008-65, 2008-44 I.R.B.1082
2008-66, 2008-45 I.R.B.1107
Revenue Rulings:
2008-32, 2008-27 I.R.B.6
2008-33, 2008-27 I.R.B.8
2008-34, 2008-28 I.R.B.76
2008-35, 2008-29 I.R.B.116
2008-36, 2008-30 I.R.B.165
2008-37, 2008-28 I.R.B.77
2008-38, 2008-31 I.R.B.249
2008-39, 2008-31 I.R.B.252
2008-40, 2008-30 I.R.B.166
2008-41, 2008-30 I.R.B.170
2008-42, 2008-30 I.R.B.175
2008-43, 2008-31 I.R.B.258
2008-44, 2008-32 I.R.B.292
2008-45, 2008-34 I.R.B.403
2008-46, 2008-36 I.R.B.572
2008-47, 2008-39 I.R.B.760
2008-48, 2008-38 I.R.B.713
2008-49, 2008-40 I.R.B.811
2008-50, 2008-45 I.R.B.1098
Social Security Contribution and Benefit
Base; Domestic Employee Coverage
Threshold:
2008-103, 2008-46 I.R.B.1156
Treasury Decisions:
9401, 2008-27 I.R.B.1
9402, 2008-31 I.R.B.254
9403, 2008-32 I.R.B.285
9404, 2008-32 I.R.B.280
9405, 2008-32 I.R.B.293
9406, 2008-32 I.R.B.287
9407, 2008-33 I.R.B.330
9408, 2008-33 I.R.B.323
9409, 2008-29 I.R.B.118
9410, 2008-34 I.R.B.414
9411, 2008-34 I.R.B.398
9412, 2008-37 I.R.B.687
9413, 2008-34 I.R.B.404
9414, 2008-35 I.R.B.454
9415, 2008-36 I.R.B.570
9416, 2008-46 I.R.B.1142
9417, 2008-37 I.R.B.693
9418, 2008-38 I.R.B.713
9419, 2008-40 I.R.B.790
9420, 2008-39 I.R.B.750
9421, 2008-39 I.R.B.755
Treasury Decisions— Continued:
9422, 2008-42 I.R.B.898
9423, 2008-43 I.R.B.966
9424, 2008-44 I.R.B.1012
9425, 2008-45 I.R.B.1100
9426, 2008-46 I.R.B.1153
November 17, 2008iii2008–46 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2008–27 through 2008–46
Announcements:
2008-19
Superseded by
Ann. 2008-95, 2008-42 I.R.B.964
2008-64
Corrected by
Ann. 2008-71, 2008-32 I.R.B.321
2008-72
Corrected by
Ann. 2008-78, 2008-34 I.R.B.453
Notices:
88-80
Modified by
Notice 2008-79, 2008-40 I.R.B.815
99-48
Superseded by
Rev. Proc. 2008-40, 2008-29 I.R.B.151
2000-9
Obsoleted by
Rev. Proc. 2008-41, 2008-29 I.R.B.155
2004-2
Amplified by
Notice 2008-59, 2008-29 I.R.B.123
2004-50
Amplified by
Notice 2008-59, 2008-29 I.R.B.123
2005-11
Superseded by
T.D. 9425, 2008-45 I.R.B.1100
2005-91
Obsoleted by
T.D. 9422, 2008-42 I.R.B.898
2006-88
Modified and superseded by
Notice 2008-60, 2008-30 I.R.B.178
2007-22
Amplified by
Notice 2008-59, 2008-29 I.R.B.123
2007-36
Clarified, modified, and amplified by
Rev. Proc. 2008-54, 2008-38 I.R.B.722
2007-52
Updated and amplified by
Notice 2008-96, 2008-44 I.R.B.1077
2007-53
Updated by
Notice 2008-97, 2008-44 I.R.B.1080
Notices— Continued:
2008-41
Amended and supplemented by
Notice 2008-88, 2008-42 I.R.B.933
Proposed Regulations:
REG-161695-04
Corrected by
Ann. 2008-92, 2008-42 I.R.B.963
REG-143453-05
Hearing cancelled by
Ann. 2008-96, 2008-43 I.R.B.1010
REG-129243-07
Corrected by
Ann. 2008-75, 2008-33 I.R.B.392
REG-151135-07
Hearing scheduled by
Ann. 2008-64, 2008-28 I.R.B.114
REG-101258-08
Corrected by
Ann. 2008-73, 2008-33 I.R.B.391
REG-103146-08
Hearing scheduled by
Ann. 2008-102, 2008-43 I.R.B.1011
REG-115457-08
Hearing scheduled by
Ann. 2008-108, 2008-46 I.R.B.1165
Revenue Procedures:
92-25
Superseded by
Rev. Proc. 2008-41, 2008-29 I.R.B.155
92-83
Obsoleted by
Rev. Proc. 2008-37, 2008-29 I.R.B.137
2001-10
Section 6.02(1)(a) modified and amplified by
Rev. Proc. 2008-52, 2008-36 I.R.B.587
2001-42
Superseded by
Rev. Proc. 2008-39, 2008-29 I.R.B.143
2002-9
Clarified, modified, amplified, and superseded by
Rev. Proc. 2008-52, 2008-36 I.R.B.587
Modified and amplified by
Rev. Proc. 2008-43, 2008-30 I.R.B.186
2002-28
Section 7.02(1)(a) modified and amplified by
Rev. Proc. 2008-52, 2008-36 I.R.B.587
2002-64
Superseded by
Rev. Proc. 2008-55, 2008-39 I.R.B.768
Revenue Procedures— Continued:
2005-29
Superseded by
Rev. Proc. 2008-49, 2008-34 I.R.B.423
2006-27
Modified and superseded by
Rev. Proc. 2008-50, 2008-35 I.R.B.464
2006-29
Superseded by
Rev. Proc. 2008-34, 2008-27 I.R.B.13
2006-34
Superseded by
Rev. Proc. 2008-44, 2008-30 I.R.B.187
2007-14
Superseded by
Rev. Proc. 2008-52, 2008-36 I.R.B.587
2007-19
Superseded by
Rev. Proc. 2008-39, 2008-29 I.R.B.143
2007-37
Updated by
Rev. Proc. 2008-62, 2008-42 I.R.B.935
2007-42
Superseded by
Rev. Proc. 2008-32, 2008-28 I.R.B.82
2007-43
Superseded by
Rev. Proc. 2008-33, 2008-28 I.R.B.93
2007-44
Modified by
Rev. Proc. 2008-56, 2008-40 I.R.B.826
2007-49
Section 3 modified and superseded by
Rev. Proc. 2008-50, 2008-35 I.R.B.464
2007-50
Superseded by
Rev. Proc. 2008-36, 2008-33 I.R.B.340
2007-63
Superseded by
Rev. Proc. 2008-59, 2008-41 I.R.B.857
2007-66
Modified and superseded by
Rev. Proc. 2008-54, 2008-38 I.R.B.722
2007-70
Modified by
Ann. 2008-63, 2008-28 I.R.B.114
2007-72
Amplified and superseded by
Rev. Proc. 2008-47, 2008-31 I.R.B.272
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2008–1 through 2008–26 is in Internal Revenue Bulletin 2008–26, dated June 30, 2008.
2008–46 I.R.B.ivNovember 17, 2008

Revenue Procedures— Continued:
2008-3
Modified and amplified by
Rev. Proc. 2008-61, 2008-42 I.R.B.934
2008-12
Modified and superseded by
Rev. Proc. 2008-35, 2008-29 I.R.B.132
2008-43
Modified by
Rev. Proc. 2008-52, 2008-36 I.R.B.587
2008-52
Modified by
Ann. 2008-84, 2008-38 I.R.B.748
Revenue Rulings:
67-213
Amplified by
Rev. Rul. 2008-40, 2008-30 I.R.B.166
71-234
Modified by
Rev. Proc. 2008-43, 2008-30 I.R.B.186
76-273
Obsoleted by
T.D. 9414, 2008-35 I.R.B.454
77-480
Modified by
Rev. Proc. 2008-43, 2008-30 I.R.B.186
82-105
Obsoleted by
T.D. 9414, 2008-35 I.R.B.454
91-17
Amplified by
Rev. Proc. 2008-41, 2008-29 I.R.B.155
Rev. Proc. 2008-42, 2008-29 I.R.B.160
Superseded in part by
Rev. Proc. 2008-40, 2008-29 I.R.B.151
2005-6
Amplified by
Rev. Proc. 2008-38, 2008-29 I.R.B.139
2006-57
Modified by
Notice 2008-74, 2008-38 I.R.B.718
2008-12
Amplified by
Rev. Rul. 2008-38, 2008-31 I.R.B.249
Clarified by
Ann. 2008-65, 2008-31 I.R.B.279
Treasury Decisions:
8073
Corrected by
Ann. 2008-99, 2008-44 I.R.B.1089
Treasury Decisions— Continued:
9391
Corrected by
Ann. 2008-74, 2008-33 I.R.B.392
9417
Corrected by
Ann. 2008-91, 2008-42 I.R.B.963
November 17, 2008v2008–46 I.R.B.

INTERNAL REVENUE BULLETIN
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