Internal Revenue Bulletin 2008-15 (PDF rendition): IRS Revenue Rulings

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Bulletin No. 200
8-15
April 14, 2008
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.
SPECIAL ANNOUNCEMENT
Announcement 2008–27, page 751.
This document contains the annual report to the public con-
cerning Advance Pricing Agreements (APAs) and the experi-
ence of the APA Program during calendar year 2007. This
document does not provide guidance regarding the application
of the arm’s length standard. Instead, it reports on the struc-
ture and activities of the APA Program.
INCOME TAX
Rev. Rul. 2008–21, page 734.
Low-income housing credit; satisfactory bond; “bond
factor” amounts for the period January through June
2008.This ruling provides the monthly bond factor amounts
to be used by taxpayers who dispose of qualified low-income
buildings or interests therein during the period January through
June 2008.
T.D. 9383, page 738.
REG–137573–07, page 750.
Final, temporary, and proposed regulations amend regulations
section 1.1502–13(c)(6)(ii)(C), which relates to the redetermi-
nation of intercompany gain as excluded from gross income.
T.D. 9385, page 735.
Final regulations under section 817(h) of the Code make
changes to the regulations concerning diversification re-
quirements. The changes expand the list of holders whose
beneficial interests in an investment company, partnership, or
trust do not prevent a segregated asset account from looking
through to the assets of the investment company, partnership,
or trust, to satisfy the requirements of section 817(h). The
regulations also remove the sentence in regulations section
1.817–5(a)(2) that provides that the payment required to
remedy an inadvertent diversification failure must be based on
the tax that would have been owed by the policyholders if they
were treated as receiving the income on the contract.
Notice 2008–41, page 742.
This notice clarifies, amends, supplements, and supersedes
Notice 2008–27, 2008–10 I.R.B. 543, which modified certain
special reissuance standards for “qualified tender bonds” un-
der IRS Notice 88–130, 1988–2 C.B. 543, and modified cer-
tain aspects of the application of regulations section 1.1001–3
as they apply to tax-exempt bonds. This notice retains the ba-
sic rule framework outlined in Notice 2008–27 except that it
makes certain technical changes and extends, temporarily, the
period of time, from 90 days to 180 days, during which an
issuer may hold qualified tender bonds prior to their remar-
keting without causing such bonds to be treated as retired.
This notice also introduces a temporary rule which allows a
governmental issuer to purchase and hold its own tax-exempt
auction rate bonds for 180 days without causing a retirement
or extinguishment of the debt represented by the purchased
tax-exempt bonds. Notice 2008–27 clarified, amended, sup-
plemented, and superseded.
Notice 2008–42, page 747.
This notice provides that a modification of a life insurance
split-dollar arrangement that does not include any change to
the life insurance contract underlying the arrangement will not
be treated as a material change in the life insurance contract
underlying the arrangement.
(Continued on the next page)
Finding Lists begin on page ii.

ADMINISTRATIVE
Notice 2008–43, page 748.
This notice provides interim rules for contingent fees under
section 10.27(b)(2) of Circular 230. Specifically, this notice
provides (1) A clarification that the “within 120 days of the tax-
payer receiving a written notice of the examination of, or a
written challenge to the original tax return” language in section
10.27(b)(2)(ii) does not require the IRS to furnish the written no-
tice of examination to a taxpayer as a prerequisite to a practi-
tioner charging a contingent fee and (2) A new exception under
section 10.27 that allows practitioners to charge a contingent
fee with respect to whistleblower claims under section 7623(b)
of the Code. The IRS will apply the interim rules under section
10.27(b)(2) in the notice until the Treasury Department and the
IRS amend the regulations.
Announcement 2008–29, page 786.
This document contains corrections to final and temporary reg-
ulations (T.D. 9368, 2008–6 I.R.B. 382) regarding the reduc-
tion of the number of separate foreign tax credit limitation cat-
egories under section 904(d) of the Code. The regulations af-
fect taxpayers claiming foreign tax credits and provide guid-
ance needed to comply with the statutory changes made by
the American Jobs Creation Act of 2004 (AJCA).
Announcement 2008–31, page 787.
This document cancels a public hearing on proposed regula-
tions (REG–141399–07, 2008–8 I.R.B. 470) providing guid-
ance relating to the recapture of overall foreign and domestic
losses.
April 14, 20082008–15 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.
2008–15 I.R.B.April 14, 2008

April 14, 20082008–15 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 42.—L
ow-Income
Housing Credi
t
Low-income ho
using credit; satisfac-
tory bond; “bo
nd factor” amounts for
the period Ja
nuary through June 2008.
This ruling p
rovides the monthly bond fac-
tor amounts t
obeusedbytaxpayerswho
dispose of qu
alified low-income buildings
or interest
s therein during the period Jan-
uary throug
h June 2008.
Rev. Rul. 20
08–21
In Rev. Rul.
90–60, 1990–2 C.B.
3, the Inter
nal Revenue Service provided
guidance to ta
xpayers concerning the gen-
eral methodol
ogy used by the Treasury
Department in
computing the bond factor
amounts used
in calculating the amount of
bond conside
red satisfactory by the Secre-
tary under § 4
2(j)(6) of the Internal Rev-
enue Code. It
further announced that the
Secretary w
ould publish in the Internal
Revenue Bul
letin a table of bond factor
amounts for
dispositions occurring during
each calend
ar month.
Rev. Proc. 9
9–11, 1999–1 C.B. 275,
establishe
d a collateral program as an al-
ternative
to providing a surety bond for
taxpayers
to avoid or defer recapture of
the low-incom
e housing tax credits under
§ 42(j)(6). Un
der this program, taxpayers
may establish
a Treasury Direct Account
and pledge ce
rtain United States Treasury
securities t
o the Internal Revenue Service
as security.
This revenue
ruling provides in Table
1 the bond fac
tor amounts for calculating
the amount of
bond considered satisfactory
under § 42(j
)(6) or the amount of United
States Trea
sury securities to pledge in a
Treasury Di
rect Account under Rev. Proc.
99–11 for di
spositions of qualified low-in-
come build
ings or interests therein during
the period
January through June 2008.
Table 1
Rev. Rul. 2008–21
Monthly Bond Factor Amounts for Dispositions Expressed
As a Percentage of Total Credits
Calendar Year Building Placed in Service
or, if Section 42(f)(1) Election Was Made,
the Succeeding Calendar Year
Month of
Disposition
1994
1995
199619971998199920002001200220032004
Jan ’0816.4130.7043.23
54.19
63.81
65.4267.35
69.6372.1474.7977.33
Feb ’0816.4130.7043.23
54.19
63.81
65.27
67.1969.4671.96
74.59
77.11
Mar ’0816.4130.7043.23
54.19
63.81
65.12
67.0469.2971.7874.3976.89
Apr ’08
15.52
29.0440.88
51.2460.35
60.8662.0263.47
65.09
66.7968.34
May ’08
15.52
29.0440.88
51.2460.35
60.7361.8963.33
64.95
66.6368.17
Jun ’08
15.52
29.0440.88
51.2460.35
60.6061.7663.1964.8066.4768.01
Table 1 (cont’d)
Rev. Rul. 2008–21
Monthly Bond Factor Amounts for Dispositions Expressed
As a Percentage of Total Credits
Calendar Year Building Placed in Service
or, if Section 42(f)(1) Election Was Made,
the Succeeding Calendar Year
Month of
Disposition
2005
200620072008
Jan ’08
79.5681.5783.59
83.98
Feb ’0879.3181.3083.2783.98
Mar ’0879.07
81.05
82.9983.98
Apr ’08
69.59
70.6471.69
72.55
May ’0869.4170.47
71.5372.55
Jun ’08
69.25
70.3171.39
72.55
2008–15 I.R.B.734April 14, 2008

For a list of bond factor amounts ap-
plicable to dispositions occurring during
other calendar years, see: Rev. Rul. 98–3,
1998–1 C.B. 248; Rev. Rul. 2001–2,
2001–1 C.B. 255; Rev. Rul. 2001–53,
2001–2 C.B. 488; Rev. Rul. 2002–72,
2002–2 C.B. 759; Rev. Rul. 2003–117,
2003–2 C.B. 1051; Rev. Rul. 2004–100,
2004–2 C.B. 718; Rev. Rul. 2005–67,
2005–2 C.B. 771; Rev. Rul. 2006–51,
2006–2 C.B. 632; and Rev. Rul. 2007–62,
2007–41 I.R.B. 767.
DRAFTING INFORMATION
The principal author of this revenue
ruling is David McDonnell of the Office
of Associate Chief Counsel (Passthroughs
and Special Industries). For further in-
formation regarding this revenue ruling,
contact Mr. McDonnell at (202) 622–3040
(not a toll-free call).
Section 101.—Certain
Death Benefits
A notice provides guidance regarding the applica-
tion of §§ 101(j) and 264(f) of the Internal Revenue
Code (Code) to life insurance contracts that are sub-
ject to split-dollar life insurance arrangements. See
Notice 2008-42, page 747.
Section 264 .—Certain
Amounts Paid in Connection
With Insurance Contracts
A notice provides guidance regarding the applica-
tion of §§ 101(j) and 264(f) of the Internal Revenue
Code (Code) to life insurance contracts that are sub-
ject to split-dollar life insurance arrangements. See
Notice 2008-42, page 747.
Section 817.—Treatment
of Variable Contracts
26 CFR 1.817–5: Diversification requirements for
variable annuity, endowment, and life insurance con-
tracts.
T.D. 9385
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Diversification Requirements
for Variable Annuity,
Endowment, and Life
Insurance Contracts
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains fi-
nal regulations concerning the diversifica-
tion requirements of section 817(h) of the
Internal Revenue Code (Code). The reg-
ulations expand the list of holders whose
beneficial interests in an investment com-
pany, partnership, or trust do not prevent
a segregated asset account from looking
through to the assets of the investment
company, partnership, or trust, to satisfy
the requirements of section 817(h). The
regulations also remove the sentence in
§1.817–5(a)(2) that provides that the pay-
ment required to remedy an inadvertent di-
versification failure must be based on the
tax that would have been owed by the pol-
icyholders if they were treated as receiving
the income on the contract. The regula-
tions affect insurance companies that issue
variable contracts and affect policyholders
who purchase such contracts.
DATES:Effective/applicability date:
These regulations are effective as of March
7, 2008.
FOR FURTHER INFORMATION
CONTACT: James Polfer, (202) 622–3970
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
Section 817(d) defines a variable con-
tract for purposes of part I of subchapter L
of the Code (sections 801–818). For a con-
tract to be a variable contract, it must pro-
vide for the allocation of all or a part of the
amounts received under the contract to an
account that, pursuant to state law or reg-
ulation, is segregatedfrom the general as-
set accounts of the issuing insurance com-
pany. In addition, for a life insurance con-
tract to be a variable contract, it must qual-
ify as a life insurance contract for Federal
income tax purposes, and the amount of the
death benefits (or the period of coverage)
must be adjusted on the basis of the invest-
ment return and the market value of the
segregated asset account; for an annuity
contract to be a variable contract, it must
provide for the payment of annuities, and
the amounts paid in, or the amount paid
out, must reflect the investment return and
the market value of the segregated asset ac-
count; for a contract that provides funding
of insurance on retired lives to be a vari-
able contract, the amounts paid in, or the
amounts paid out, must reflect the invest-
ment return and the market value of the
segregated asset account.
Section 817(h)(1) provides that a vari-
able contract that is based on a segregated
asset account is not treated as an annu-
ity, endowment, or life insurance contract
unless the segregated asset account is ade-
quately diversified in accordance with reg-
ulations prescribed by the Secretary. If a
segregated asset account is not adequately
diversified for a calendar quarter, then
the contracts supported by that segregated
asset account are not treated as annuity,
endowment, or life insurance contracts for
that period and subsequent periods, even if
the segregated asset account is adequately
diversified in those subsequent periods.
Under §1.817–5(a), if a segregated as-
set account is not adequately diversified,
income earned by that segregated asset
account is treated as ordinary income re-
ceived or accrued by the policyholders.
Section 1.817–5(a)(2) provides conditions
an issuer of a variable contract must satisfy
in order to correct an inadvertent failure to
diversify. Rev. Proc. 92–25, 1992–1 C.B.
741, see §601.601(d)(2) of this chapter,
sets forth in more detail the procedure
bywhichanissuermayrequesttherelief
described in §1.817–5(a)(2).
Congress enacted the diversification
requirements of section 817(h) to “discour-
age the use of tax-preferred variable an-
nuity and variable life insurance primarily
as investment vehicles.” H.R. Conf. Rep.
No. 98–861, at 1055 (1984). In section
817(h)(1), Congress granted the Secretary
broad regulatory authority to develop rules
to carry out this intent. Congress directed
that these standards be imposed because
“by limiting a customer’s ability to select
specific investments underlying a vari-
able contract, [adequate diversification]
will help ensure that a customer’s primary
motivation in purchasing the contract is
more likely to be the traditional economic
protections provided by annuities and life
insurance.” S. Prt. 98–169, Vol. I at 546
April 14, 20087352008–15 I.R.B.

(1984). A primary directive from Con-
gress to Treasury in enacting the standards
was to “deny annuity or life insurance
treatment for investments that are publicly
available to investors.” H.R. Conf. Rep.
No. 98–861, at 1055 (1984).
Section 817(h)(4) provides a
look-through rule under which taxpayers
do not treat the interest in a regulated
investment company (RIC) or trust as a
single asset of the segregated asset account
but rather apply the diversification tests by
taking into account the assets of the RIC or
trust. Section 817(h) further provides that
the look-through rule applies only if all of
the beneficial interests in a RIC or trust are
held by one or more insurance companies
(or affiliated companies) in their general
account or segregated asset accounts, or
by fund managers (or affiliated compa-
nies) in connection with the creation or
management of the RIC or trust.
Under §1.817–5(f)(1), if look-through
treatment is available, a beneficial inter-
est in a RIC, real estate investment trust,
partnership, or trust that is treated under
sections 671 through 679 as owned by
the grantor or another person (“invest-
ment company, partnership or trust”) is
not treated as a single investment of a
segregated asset account for purposes of
testing diversification. Instead, apro rata
portion of each asset of the investment
company, partnership, or trust is treated
as an asset of the segregated asset ac-
count. Section 1.817–5(f)(2)(i) provides
that the look-through rule applies to any
investment company, partnership, or trust
if (1) all the beneficial interests in the
investment company, partnership, or trust
are held by one or more segregated as-
set accounts of one or more insurance
companies; and (2) public access to the in-
vestment company, partnership, or trust is
available exclusively through the purchase
of a variable contract (except as otherwise
permitted in §1.817–5(f)(3)).
Under §1.817–5(f)(3), look-through
treatment is not prevented by reason of
beneficial interests in an investment com-
pany, partnership, or trust that are
(1) Held by the general account of a
life insurance company or a corporation re-
lated to a life insurance company, but only
ifthereturnonsuchinterests is computed
in the same manner as the return on an in-
terest held by a segregated asset account
is computed, there is no intent to sell such
interests to the public, and a segregated as-
set account of such life insurance company
also holds or will hold a beneficial interest
in the investment company, partnership, or
trust;
(2) Held by the manager, or a corpora-
tion related to the manager, of the invest-
ment company, partnership or trust, but
only if the holding of the interests is in con-
nection with the creation or management
of the investment company, partnership or
trust, the return on such interest is com-
puted in the same manner as the return on
an interest held by a segregated asset ac-
count is computed, andthere is no intent
to sell such interests to the public;
(3) Held by the trustee of a qualified
pension or retirement plan; or
(4) Held by the public, or treated as
owned by the policyholders pursuant to
Rev. Rul. 81–225, see §601.601(d)(2)
of this chapter, but only if (A) the invest-
ment company, partnership or trust was
closed to the public in accordance with
Rev. Rul. 82–55, 1982–1 C.B. 12, see
§601.601(d)(2) of this chapter, or (B) all
the assets of the segregated asset account
are attributable to premium payments
made by policyholders before September
26, 1981, to premium payments made in
connection with a qualified pension or
retirement plan, or to any combination of
such premium payments.
On July 31, 2007, the Treasury Depart-
ment and the IRS published a notice of
proposed rulemaking (REG–118719–07,
2007–37 I.R.B. 593) under section 817 in
theFederal Register(72 FR 41651). The
proposed regulations would expand the
list of holders whose beneficial interests
in an investment company, partnership,
or trust do not prevent a segregated as-
set account from looking through to the
assets of the investment company, partner-
ship, or trust, to satisfy the requirements
of section 817(h). The proposed regu-
lations also would remove the sentence
in §1.817–5(a)(2) that provides that the
paymentrequiredtoremedyaninadver-
tent diversification failure must be based
on the tax that would have been owed by
the policyholders if they were treated as
receiving the income on the contract. One
written comment was received in response
to the notice of proposed rulemaking, and
no public hearing was requested or held.
After consideration of the comment, the
proposed regulations are adopted as final
regulations with the change discussed be-
low.
Summary of Comment and Explanation
of Revisions
Comment on the Proposed Regulation
A.Amendment to §1.817–5(a)(2) (remedy
for inadvertent nondiversification).
The regulations remove the sentence in
§1.817–5(a)(2) that provides that the pay-
ment required to remedy an inadvertent di-
versification failure must be based on the
tax that would have been owed by the pol-
icyholders if they were treated as receiving
the income on the contract.
The commentator supports the removal
of the sentence. The commentator also
suggested that the correction procedures
under section 817(h) should be modified
to (1) provide flexibility to more appro-
priately address various fact patterns, (2)
encourage taxpayersto establish compli-
ance practices and procedures, (3) promote
compliance by providing limited fees for
voluntary corrections, (4) provide for fees
and sanctions in graduated steps to ensure
that there is always an incentive for prompt
correction, and (5) provide for sanctions
that are reasonable in light of the nature,
extent, and severity of the violation. The
Treasury Department and the IRS will con-
sider these comments in the course of eval-
uating what steps, if any, to take in re-
sponse to submissions received concern-
ing correction procedures more generally
under Notice 2007–15, 2007–7 I.R.B. 503
(February 12, 2007).
B.Expansion of list of permitted investors
under §1.817–5(f)(3)
The regulations expand the list of per-
mitted investors in §1.817–5(f)(3) to in-
clude (i) qualified tuition programs as de-
fined in section 529, (ii) trustees of pension
or retirement plans established and main-
tained outside of the United States primar-
ily for the benefit of individuals substan-
tially all of whom are nonresident aliens,
and (iii) an account which, pursuant to
Puerto Rican law or regulation, is segre-
gated from the general asset accounts of
the life insurance company that owns the
account, provided the requirements of sec-
tion 817(d) and (h) are satisfied.
2008–15 I.R.B.736April 14, 2008

The commentator supports such an ex-
pansion of the list of permitted investors
and urged that the list be further expanded
to include segregated asset accounts of any
foreign insurer that makes an election un-
der section 953(d) to be treated as a do-
mestic corporation for U.S. tax purposes.
A general rule to this effect would be be-
yond the scope of the proposed regulations
and may require a more specific examina-
tion of the manner in which such accounts
are segregated under the applicable foreign
law. Accordingly, such an expansion is not
provided in these regulations, but the Trea-
sury Department and IRS will consider the
issue for possible future published guid-
ance.
The commentator also urged that guid-
ance is needed concerning (1) what steps
must be taken to verify that an entity is a
permitted investor, and (2) what happens
if, despite verification efforts, the entity in
question was never a permitted investor or
subsequently loses its status as such. The
Treasury Department and IRS are aware
of this issue, but have concluded it is be-
yond the scope of the proposed regulations
and at this time might better be addressed
by Internal Revenue Bulletin guidance or
by letter ruling. Accordingly, the issue
is not addressed in these final regulations,
but the Treasury Department and IRS will
consider the issue for possible future pub-
lished guidance.
Finally, the commentator suggested
that the language of the amendment that
expands the list of permitted investors
to include certain Puerto Rican accounts
should be clarified to eliminate confusion.
Specifically, in the notice of proposed
rulemaking, theprovisoclause of the
amendment stated that such an account
will be a permitted investor “provided the
requirements of section 817(d) and (h) are
satisfied.” The commentator expressed
concern that the language of the amend-
ment as written in the notice of proposed
rulemaking could be read to present an is-
sue of circularity (that is, to be a permitted
investor, the account must satisfy section
817(h), but to satisfy section 817(h), the
account must be a permitted investor.)
To eliminate this potential confusion,
the final regulations state that, solely for
purposes of §1.817–5(f)(3)(vi), the re-
quirement under section 817(d)(1) that the
account be segregated pursuant to State
law or regulation shall be disregarded and
§1.817–5(f)(1) shall be applied without
regard to the Puerto Rican segregated asset
account.
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 section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does
not apply to these regulations, and because
the regulations do not impose a collection
of information on small entities, the Regu-
latory Flexibility Act (5 U.S.C. chapter 6)
does not apply. Pursuant to section 7805(f)
of the Internal Revenue Code, the notice of
proposed rulemaking preceding this regu-
lation was submitted to the Chief Counsel
for Advocacy of the Small Business Ad-
ministration for comment on its impact on
small business.
Drafting Information
The principal author of these final regu-
lations is James Polfer, Office of the Asso-
ciate Chief Counsel (Financial Institutions
and Products), Internal Revenue Service.
However, personnel from other offices of
the Treasury Department and the IRS par-
ticipated in their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAX
Paragraph 1. The authority citation for
part 1 is amended by adding an entry in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.817–5 also issued under
26 U.S.C. 817(h).
Par. 2. Section 1.817–5 is amended as
follows:
1. The last sentence of paragraph
(a)(2)(iii) is removed.
2. Paragraph (f)(3)(iii) is revised.
3. Paragraph (f)(3)(iv) is redesignated
as paragraph (f)(3)(vii).
4. New paragraphs (f)(3)(iv) through
(vi) are added.
The revisions and additions read as fol-
lows:
§1.817–5 Diversification requirements
for variable annuity, endowment, and life
insurance contracts.
*****
(f) * * *
(3) * * *
(iii) Held by the trustee of a qualified
pension or retirement plan;
(iv) Held by a qualified tuition program
as defined in section 529;
(v) Held by the trustee of a pension
plan established and maintained outside
of the United States, as defined in sec-
tion 7701(a)(9), primarily for the benefit of
individuals substantially all of whom are
nonresident aliens, as defined in section
7701(b)(1)(B);
(vi) Held by an account which, pursuant
to Puerto Rican law or regulation, is seg-
regated from the general asset accounts of
the life insurance company that owns the
account, provided the requirements of sec-
tion 817(d) and (h) are satisfied. Solely for
purposes of this paragraph (f)(3)(vi), the
requirement under section 817(d)(1) that
the account be segregated pursuant to State
law or regulation shall be disregarded and
§1.817–5(f)(1) shall be applied without re-
gard to the Puerto Rican segregated asset
account; or
*****
LindaE.Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved February 29, 2008.
Eric Solomon,
Assistant Secretary of
theTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on March 6, 2008,
8:45 a.m., and published in the issue of the Federal Register
for March 7, 2008, 73 F.R. 12263)
April 14, 20087372008–15 I.R.B.

Section 1502.—Regulations
26 CFR 1.1502–13: Intercompany transactions.
T.D. 9383
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Guidance Under Section 1502;
Amendment of Matching Rule
for Certain Gains on Member
Stock
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
SUMMARY: This document contains fi-
nal and temporary regulations concerning
the treatment of certain intercompany
gain with respect to consolidated group
member stock. These regulations revise
§1.1502–13(c)(6)(ii)(C) to provide for the
redetermination of an intercompany gain
as excluded from gross income in certain
member stock transactions. These regu-
lations affect corporations filing consoli-
dated returns. The text of these temporary
regulations also serves as the text of the
proposed regulations (REG–137573–07)
set forth in the notice of proposed rule-
making on this subject in this issue of the
Bulletin.
DATES:Effective Date:These regulations
are effective on March 7, 2008.
Applicability Date:For dates of appli-
cability, see §1.1502–13T(c)(6)(ii)(C)(2)
and (f)(7)(ii).
FOR FURTHER INFORMATION
CONTACT: John F. Tarrant or
Ross E. Poulsen, (202) 622–7790 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Background
Section 1.1502–13 provides rules gov-
erning the timing andcharacterization of
items resulting from transactions between
consolidated group members. Section
1.1502–13(c) provides general rules under
which the timing and character of such
items can be deferred or recharacterized to
clearly reflect the taxable income (and tax
liability) of the group as a whole. These
rules generally apply a “matching” princi-
ple under which, in a property transaction,
the seller’s (S) timing is linked to the
buyer’s (B) use of its basis in the property
and S and B’s characterizations are subject
to redetermination in order to effectuate
single entity principles.
Section 1.1502–13(c)(6)(i) provides
a general rule that S’s intercompany
item might be redetermined under
§1.1502–13(c)(1)(i) to be excluded from
gross income or treated as a noncap-
ital, nondeductible amount where B’s
corresponding item is excluded or nonde-
ductible. However, §1.1502–13(c)(6)(ii)
provides that, notwithstanding the general
rule in paragraph (c)(1)(i), S’s intercom-
pany income or gain is redetermined to
be excluded from gross income only to
the extent it involves one of three specific
situations. S’s intercompany income or
gain is redetermined to be excluded from
gross income to the extent B’s correspond-
ing item is a deduction or loss and, in
the taxable year the item is taken into ac-
count under §1.1502–13, it is permanently
and explicitly disallowed under another
provision of the Internal Revenue Code
or regulations. §1.1502–13(c)(6)(ii)(A).
For this purpose, an amount is not per-
manently and explicitly disallowed to the
extent that, among other things, the Inter-
nal Revenue Code or regulations provide
that the amount is not recognized (for
example, a loss that is realized but not
recognized under section 332 or section
355(c)). §1.1502–13(c)(6)(ii)(A)(1). S’s
intercompany income or gain is redeter-
mined to be excluded from gross income
to the extent B’s corresponding item is
a loss that is realized but not recognized
under section 311(a) on a distribution to
a nonmember. §1.1502–13(c)(6)(ii)(B).
Finally, S’s intercompany item of income
or gain is redetermined to be excluded
from gross income to the extent “[t]he
Commissioner determines that treating S’s
intercompany item as excluded from gross
income is consistent with the purposes of
[§1.1502–13] and other provisions of the
Internal Revenue Code and regulations.”
§1.1502–13(c)(6)(ii)(C).
The IRS has received ruling requests
asking the Commissioner to determine
that S’s gain with respect to mem-
ber stock should be redetermined as
excluded from gross income, as de-
scribed in §1.1502–13(c)(6)(ii)(C). In
considering these requests, the IRS has
concluded that the principles set out in
§1.1502–13(c)(6)(ii)(C) guiding the Com-
missioner’s exercise of discretion are not
clear enough to justify the redetermination
of such gain as excludible. In the context
of gain with respect to member stock,
the intercompany transaction regulations,
and the consolidated return regulations
in general, reflect a balancing of single
and separate entity concerns. Gain with
respect to member stock is often deriva-
tive and duplicative of potential gain with
respect to the member’s underlying as-
sets. The consolidated return regulations
permit but do not require the mitigation
of this duplication. In many instances,
the allowed mitigation is tailored very
narrowly to protect against any possible
implication of other consolidated return
policies. See §§1.1502–13(c)(6)(ii)(A),
1.1502–13(f)(5), and 1.1502–13(f)(6).
Thus,for example,although
§1.1502–13(a) provides that the purpose
of the intercompany transaction rules is
to clearly reflect the taxable income of
the group as a whole (which includes
the elimination of duplicated gain),
§1.1502–13(c)(6)(ii)(A)(1)explicitly
contemplates possible gain duplication
where S’s intercompany item is taken into
account due to a section 332 or section
355(c) transaction. Accordingly, the IRS
generally does not foresee situations in
which it would exercise its discretion
to redetermine intercompany gain on
member stock to be excludible under
§1.1502–13(c)(6)(ii)(C).
The IRS and Treasury Depart-
ment also do not foresee situations in
which it should be necessary to invoke
§1.1502–13(c)(6)(ii)(C) (the “Commis-
sioner’s Discretionary Rule”) with respect
to intercompany gain on property other
than stock. Nevertheless, in this issue of
the Bulletin (REG–137573–07), the IRS
and Treasury Department request com-
ments on whether any such situations
are not appropriately addressed by other
provisions of §1.1502–13. The Commis-
sioner’s Discretionary Rule will be re-
tained while the IRS and Treasury Depart-
ment consider such comments. However,
absent compelling comments, the IRS and
2008–15 I.R.B.738April 14, 2008

Treasury Department anticipate ultimately
eliminating the Commissioner’s Discre-
tionary Rule.
The IRS and Treasury Department,
however, have identified one additional
situation in which it would be appropriate
to allow the exclusion of intercompany
gain with respect to member stock. Ac-
cordingly, these temporary regulations re-
designate current §1.1502–13(c)(6)(ii)(C)
as §1.1502–13(c)(6)(ii)(D) and add a new
specific exception to the rule limiting re-
determination of intercompany income or
gain in §1.1502–13(c)(6)(ii). This new
rule has the advantage of clarity, and
avoids requiring the IRS to exercise its
discretion on anad hocbasis.
Explanation of Provisions
These temporary regulations provide
a rule under which, notwithstanding
§1.1502–13(c)(6)(ii)(A)(1), an intercom-
pany gain with respect to member stock
is redetermined to be excluded from gross
income to the extent that (1) such gain is
the common parent’s (P) intercompany
item, (2) immediately before the inter-
company gain is taken into account, P
holds the member stock with respect to
which the intercompany gain was real-
ized, (3) P’s basis in such member stock
that reflects the intercompany gain that is
taken into account is eliminated without
the recognition of gain or loss (and that
basis is not further reflected in the basis of
any successor asset), (4) the group has not
and will not derive any Federal income tax
benefit from the intercompany transaction
that gave rise to such intercompany gain or
the redeterminationof the intercompany
gain (including any adjustment to basis
in member stock under §1.1502–32), and
(5) the effects of the intercompany trans-
action have not previously been reflected,
directly or indirectly, on the group’s con-
solidated return. For this purpose, the
redetermination of P’s intercompany gain
is not in and of itself a Federal income tax
benefit that would preclude redetermina-
tion under this rule.
The purpose of the provision is to
prevent the effective duplication of gain
within a consolidated group that would re-
sult from taking an intercompany gain into
account without any corresponding tax
basis (or other resulting tax benefit). The
provision’s five requirements are intended
to ensure that any intercompany gain with
respect to member stock may only be
redetermined to be excluded from gross
income to the extent that it is not reflected
in basis after the transaction (or does not
result in some other tax benefit). Accord-
ingly, where some tax benefit has been de-
rived from the intercompany transaction, a
portion of the intercompany gain may still
be redetermined to be excluded from gross
income to the extent that no additional tax
benefits were or would be derived and the
provision’s other requirements are satis-
fied. See §1.1502–13T(f)(7)(i)Example
8.
For this purpose, the term “Federal in-
come tax benefit” is intended to be con-
strued broadly. For example, the term in-
cludes, but is not limited to, the reduction
of an excess loss account that would oth-
erwise be taken into account in the trans-
action. The effects of the intercompany
transaction may be reflected on the group’s
consolidated return, for example, to the ex-
tent that any increase in the basis of the
member’s stock as a result of the intercom-
pany transaction is taken into account and
alters the reduction of any member’s at-
tributes under sections 108 and 1017 and
§1.1502–28.
In this issue of the Bulletin
(REG–137573–07), the IRS and Treasury
Department are requesting comments as
to whether the rule should be broadened to
apply to additional situations that would
result in the effective duplication of gain.
Forexample,shouldtherulebebroadened
to apply to other transactions involving
member stock, or similar transactions
involving nonmember stock?
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 has been determined,
pursuant to 5 U.S.C. 553(b)(B), that good
cause exists for dispensing with the notice
and public comment procedures and that,
pursuant to 5 U.S.C. 553(d)(3), good cause
exists to dispense with a delayed effec-
tive date. The regulations are necessary to
provide immediate guidance and relief to
taxpayers regarding certain intercompany
gains with respect to member stock. For
the applicability of the Regulatory Flexi-
bility Act refer to the Special Analyses sec-
tion of the preamble to the cross-reference
notice of proposed rulemaking published
in this issue of the Bulletin. Pursuant to
section 7805(f) of the Internal Revenue
Code, these regulations have been submit-
ted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on their impact on small busi-
ness.
Drafting Information
The principal author of these regula-
tions is John F. Tarrant, Office of Asso-
ciate Chief Counsel (Corporate). How-
ever, other personnel from the IRS and
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 is amended by adding an entry in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.1502–13T also issued under
26 U.S.C. 1502. * * *
Par. 2. Section 1.1502–13 is amended
as follows:
1. Paragraph (c)(6)(ii)(C) is redesig-
nated as (c)(6)(ii)(D).
2. Paragraph (c)(6)(ii)(C) is added.
3. Paragraph (f)(7) is redesignated as
paragraph (f)(7)(i) and a new paragraph
heading is added.
4.Newly-designated paragraph
(f)(7)(i)Examples 7and8, and paragraph
(f)(7)(ii) are added.
The revisions and additions read as fol-
lows:
§1.1502–13 Intercompany transactions.
*****
(c) * * *
(6) * * *
(ii) * * *
(C) [Reserved]. For further guidance,
see §1.1502–13T(c)(6)(ii)(C).
*****
(f) * * *
(7)Examples—(i)In general.***
April 14, 20087392008–15 I.R.B.

*****
Example 7[Reserved]. For further
guidance, see §1.1502–13T(f)(7)(i)Exam-
ple 7.
Example 8[Reserved]. For further
guidance, see §1.1502–13T(f)(7)(i)Exam-
ple 8.
(ii) [Reserved]. For further guidance,
see §1.1502–13T(f)(7)(ii).
Par. 3. Section 1.1502–13T is added to
read as follows:
§1.1502–13T Intercompany transactions
(temporary).
(a) through (c)(6)(ii)(B) [Reserved].
For further guidance, see §1.1502–13(a)
through (c)(6)(ii)(B).
(C)Certain intercompany gains on
member stock—(1)In general. Notwith-
standing paragraph (c)(6)(ii)(A)(1), in-
tercompany gain with respect to member
stock is redetermined to be excluded from
gross income to the extent that—
(i) The gain is the common parent’s (P)
intercompany item;
(ii) Immediately before the intercom-
pany gain is taken into account, P holds the
member stock with respect to which the in-
tercompany gain was realized;
(iii) P’s basis in such member stock
that reflects the intercompany gain that is
taken into account is eliminated without
the recognition of gain or loss (and such
eliminated basis is notfurther reflected in
the basis of any successor asset);
(iv) The group has not and will not de-
rive any Federal income tax benefit from
the intercompany transaction that gave rise
to such intercompany gain or the rede-
termination of the intercompany gain (in-
cluding any adjustment to basis in member
stock under §1.1502–32); and
(v) The effects of the intercompany
transaction have not previously been
reflected, directly or indirectly, on the
group’s consolidated return. For this pur-
pose, the redetermination of the intercom-
pany gain is not in and of itself considered
a Federal income tax benefit.
(2)Effective/applicability date—(i)In
general. This paragraph (c)(6)(ii)(C) ap-
plies with respect to items taken into ac-
count on or after March 7, 2008.
(ii)Expiration date. The applicability
of this paragraph (c)(6)(ii)(C) will expire
on March 4, 2011.
(c)(6)(ii)(D) through (f)(7)(i)Example
6[Reserved]. For further guidance, see
§1.1502–13(c)(6)(ii)(D) through (f)(7)(i)
Example 6.
Example 7.Intercompany stock sale followed
by section 332 liquidation into common parent.(i)
Facts. P owns all of the stock of S, S owns all the
stock of T, and T owns all of the stock of T1. On
January 1 of Year 1, S distributes all of the T stock to
P in a distribution to which section 301 applies. At
the time of this distribution, the value of the T stock
is $100 and S has a $40 basis in the T stock. Under
section 311(b), S recognizes a $60 gain. Under sec-
tion 301(d), P’s basis in the T stock is $100. S will
take its $60 gain into account under the matching
rule in paragraph (c) of this section. On January 1 of
Year 4, in an independent transaction, S distributes
all of its assets to P in a complete liquidation to which
section 332 applies, and, under paragraph (j)(2) of
this section, P succeeds to S’s $60 gain. On January
1 of Year 7, T distributes all of its T1 stock to P in a
transaction to which section 355 applies. At the time
of this distribution, P has a basis in the T stock of
$100, the value of the T stock (without regard to T1)
is $75, and the value of the T1 stock is $25. Under
section 358, P allocates $25 of its $100 basis in the
T stock to the T1 stock, and, under paragraph (j)(1)
of this section, the T1 stock becomes a successor
assettotheTstock. OnJanuary1ofYear9,in
an independent transaction, when T’s assets have a
value of $75, T distributes all of its assets to P in a
complete liquidation to which section 332 applies.
(ii)Analysis. Under paragraphs (b)(1) and (f)(2)
of this section, S’s distribution of the T stock to P is
an intercompany transaction, S is the selling member,
and P is the buying member. In Year 9 when T liq-
uidates, P has $0 of unrecognized gain or loss under
section 332 because P has a $75 basis in the stock of
T and receives a $75 distribution with respect to its T
stock. Under paragraph (b)(3)(ii) of this section, P’s
$0 of unrecognized gain or loss with respect to the
T stock under section 332 is a corresponding item. P
takes $45 of its intercompany gain into account under
the matching rule in Year 9 to reflect the difference
between P’s $0 of unrecognized gain and P’s $45 of
recomputed unrecognizedgain. (If P and S were divi-
sions of a single corporation, P would have had a $40
basis in the T stock, and, after the Year 7 distribution
of the T1 stock, would have held the T stock with a
$30 basis.) Paragraph (c)(6) of this section does not
prevent the redetermination of P’s intercompany gain
as excluded from gross income to the extent that the
gain is P’s intercompany item, P holds the T stock
with respect to which this portion of the intercom-
pany gain was realized, P’s basis in the T stock that
reflects the $45 intercompany gain taken into account
is eliminated without the recognition of gain or loss
(and this eliminated basis is not further reflected in
the basis of any successor asset), the group has not
derived any Federal income tax benefit from the basis
in the T stock and will not derive any Federal income
tax benefit from a redetermination of this portion of
the gain, and the effects of the intercompany trans-
action have not previouslybeen reflected, directly or
indirectly, on the P group’s consolidated return. (See
paragraph (c)(6)(ii)(C) of this section). Accordingly,
under paragraph (c)(6)(ii)(C) of this section, the $45
intercompany gain that P takes into account is rede-
termined to be excluded from gross income.
Example 8.Intercompany stock sale followed by
section 355 distribution by the common parent.(i)
Facts. The facts are the same asExample 7, except
that T does not distribute the stock of T1, instead, in
Year 7, T makes a distribution of $50 to P in a transac-
tion to which section 301 applies. Under §1.1502–32,
P’s basis in its T stock is reduced by $50 and, un-
der paragraph (f)(2)(ii) of this section, the intercom-
pany distribution is excluded from P’s gross income.
Further, in Year 9, instead of liquidating T, P dis-
tributes the T stock to its shareholders in a transaction
to which section 355 applies.
(ii)Analysis. On the distribution of the T stock,
P has $0 of unrecognized gain under section 355(c)
because P has a $50 basis in the stock of T which has
a value of $50. Under paragraph (b)(3)(ii) of this sec-
tion, P’s $0 of unrecognized gain or loss with respect
to the T stock under section 355(c) is a corresponding
item. P takes its $60 intercompany gain into account
under the matching rule in Year 9 to reflect the dif-
ference between P’s $0 of unrecognized gain and P’s
$60 of recomputed gain ($50 unrecognized gain and
$10 recognized gain). (If P and S were divisions of a
single corporation, P would have had a $40 basis in
the T stock, and, after the Year 7 distribution, would
have held the T stock with a $10 excess loss account.)
Paragraph (c)(6) of this section does not prevent the
redetermination of P’s intercompany gain as excluded
from gross income to the extent that the gain is P’s in-
tercompany gain, P holds the T stock with respect to
which this portion of the intercompany gain was re-
alized, P’s basis in the T stock that reflects the $60
intercompany gain taken into account is eliminated
without the recognition of gain or loss (and this elim-
inated basis is not further reflected in any successor
asset), the group has not derived any Federal income
tax benefit from the basis in the T stock and will not
derive any Federal income tax benefit from a redeter-
mination of this portion of the gain, and the effects
of the intercompany transaction have not previously
been reflected, directly or indirectly, on the P group’s
consolidated return. (See paragraph (c)(6)(ii)(C) of
this section). The intercompany transaction with re-
spect to the T stock resulted in an increase in the ba-
sis of the T stock, and this increase in the basis of the
T stock prevented P from holding the T stock with a
$10 excess loss account (as a result of the Year 7 dis-
tribution) at the time of the section 355 distribution.
Accordingly, the group derived a Federal income tax
benefit from the intercompany transaction to the ex-
tent of $10. As such, under paragraph (c)(6)(ii)(C) of
this section, only $50 of the $60 intercompany gain
that P takes into account is redetermined to be ex-
cluded from gross income.
(iii)Application of section 355(e).Ifitwasdeter-
mined that section 355(e) applied to P’s distribution
of the T stock, P would recognize $0 of gain and de-
rive a Federal income tax benefit to the extent of the
full $60 increase in the basis of the T stock. There-
fore, no portion of P’s intercompany gain would be
redetermined to be excluded from gross income un-
der paragraph (c)(6)(ii)(C) of this section.
(ii)Effective/applicability date—(A)In
general. Paragraph (f)(7)(i)Examples 7
and8of this section apply with respect to
2008–15 I.R.B.740April 14, 2008

items taken into account on or after March
7, 2008.
(B)Expiration date. The applicability
of paragraph (f)(7)(i)Examples 7and8of
this section will expire on March 4, 2011.
(g) through (m) [Reserved]. For further
guidance, see §1.1502–13(g) through (m).
Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved March 3, 2008.
Eric Solomon,
Assistant Secretary of
theTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on March 6, 2008,
8:45 a.m., and published in the issue of the Federal Register
for March 7, 2008, 73 F.R. 12265)
April 14, 20087412008–15 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Reissuance Standards for
State and Local Bonds
Notice 2008–41
SECTION 1. Purpose
This notice clarifies, amends, supple-
ments, and supersedes Notice 2008–27,
2008–10 I.R.B. 543 (March 10, 2008), re-
garding reissuance standards for tax-ex-
empt bonds. The Internal Revenue Ser-
vice (“IRS”) and the Treasury Department
expect to issue regulations under § 150
of the Internal Revenue Code of 1986,
as amended (“Code”) to modify and clar-
ify the determination of when tax-exempt
bonds are treated as reissued or retired
solely for purposes of § 103 and §§ 141
through 150. (Except as noted, section ref-
erences in this notice are to the Code and
the Income Tax Regulations). This notice
provides interim guidance until the pro-
mulgation of such regulations. In part, this
notice is intended to provide greater cer-
tainty and flexibility to address certain po-
tential Federal tax issues that have arisen
in the tax-exempt bond market as a result
of recent rating agency downgrades of ma-
jor municipal bond insurers and failures of
auctions in the auction rate bond sector of
the tax-exempt bond market.
In general, this notice clarifies, amends,
supplements, and supersedes Notice
2008–27, which modified certain special
reissuance standards for “qualified tender
bonds” under IRS Notice 88–130, 1988–2
C.B. 543, for purposes of § 103 and §§ 141
through 150, and modified certain aspects
of the application of § 1.1001–3 of the
Income Tax Regulations as they apply to
tax-exempt bonds.
The following discussion summarizes
the changes and clarifications to Notice
2008–27 made in this notice:
Qualified Tender Bond Rules.Withre-
spect to the qualified tender bond provi-
sions, this notice does the following: (1) it
clarifies that the determination of whether
a bond is a “qualified tender bond” is gen-
erally applied on a bond-by-bond basis, ex-
cept to the extent that such test requires
a determination of the weighted average
maturity of the entire issue; (2) it adds
qualified inflation rates and qualified in-
verse floating rates under § 1.1275–5(c) as
eligible interest rates for qualified tender
bonds; and (3) it clarifies how the 90-day
remarketing requirement in the definition
of a qualified tender right operates but also
provides a temporary 180-day remarketing
requirement.
New Temporary Rule Allowing Gov-
ernmental Issuers to Purchase Their Own
Auction Rate Bonds. In order to facilitate
liquidity in the tax-exempt market in light
of current market conditions, this notice
introduces a temporary rule which allows
a governmental issuer to purchase its own
tax-exempt auction rate bonds on a tem-
porary basis without causing a retirement
or extinguishment of the debt represented
by the purchased tax-exempt bonds.
Certain Arbitrage Rules. This notice
also adds several rules which address the
consequences of certain actions for pur-
poses of the arbitrage investment restric-
tions under § 148, including actions taken
pursuant to this notice relating to qualified
hedges, purchases of tax-exempt bonds by
conduit borrowers, and sales of bonds at
a market premium pursuant to a qualified
interest rate mode change under this no-
tice. This notice supplements the arbi-
trage rule on the treatment of minor mod-
ifications of qualified hedges from No-
tice 2008–27 with a rule which provides
that a deemed termination of an otherwise
qualified hedge under § 1.148–4(h) will
notresultfrombondsbeingheldbyor
on behalf of a governmental issuer during
the 90-day permitted holding period or the
temporary 180-day permitted holding pe-
riod for remarketing pursuant to a quali-
fied tender right or during the 180-day per-
mitted holding period for temporary pur-
chases of auction rate bonds. With re-
spect to a conduit borrower’s purchase of
tax-exempt bonds, the notice adds a spe-
cial rule which provides that such a pur-
chase will not cause a violation of a techni-
cal arbitrage restriction against purchases
of tax-exempt bonds by conduit borrow-
ers under the “program investment” defi-
nition in § 1.148–1(b) in certain circum-
stances. Further, with respect to certain
permitted resales of bonds at a market pre-
mium upon a conversion of the interest rate
to a fixed interest rate to maturity, this no-
tice provides that, solely for arbitrage pur-
poses, any premium properly received by
an issuer pursuant to a qualified interest
rate mode change is treated as additional
sale proceeds (as defined in § 1.148–1(b)).
Certain Special Rules. Finally, with
respect to two special rules from Notice
2008–27 which address certain temporary
waivers of interest rate caps and certain
nonrecourse debt, this notice continues
those rules and extends the period during
which interest rate caps may be waived
without resulting in a significant modifi-
cation under § 1.1001–3 until October 1,
2008.
Changes to Examples
This notice removes certain language
from Example 2 of Notice 2008–27, be-
cause that language has proven confusing.
No other inference should be drawn with
respect to the transaction. In addition, this
notice contains an additional example il-
lustrating the temporary 180-day qualified
tender bond remarketing requirement.
Scope and Effective Date. This notice
applies solely for purposes of § 103 and
§§ 141 through 150. No inference should
be drawn regarding whether a debt mod-
ification described in this notice would
constitute an exchange for purposes of
§ 1001. In addition, no inference should
be drawn about whether similar conse-
quences would obtain if a transaction falls
outside the scope of this notice.
This notice is effective as of March 25,
2008. For the scope of application of this
notice, see section 8 of this notice.
This notice invites public comment on
the guidance provided herein.
SECTION 2. Background
Reissuance
Reissuance of a tax-exempt bond for
purposes of the tax-exempt bond provi-
sions triggers retesting of all the various
program requirements for new issues of
tax-exempt bonds. A reissuance of an
issue of tax-exempt bonds may result in
various negative consequences to a bond
issuer, including, among other things,
changes in yield for purposes of the arbi-
trage investment restrictions, acceleration
of arbitrage rebate payment obligations,
deemed terminations of integrated interest
rate swaps under the qualified hedge rules
for arbitrage purposes, new public ap-
2008–15 I.R.B.742April 14, 2008

proval requirements for qualified private
activity bonds, and change in law risk.
In general, the standard for determin-
ing whether tax-exempt bonds are reis-
sued, retired, or otherwise modified sig-
nificantly enough to trigger a retesting of
the program requirements for new issues
of tax-exempt bonds under the tax-exempt
bond provisions of the Code is based on
the general Federal tax standards for debt
exchanges under § 1001 and regulations
thereunder.
In general, § 1.1001–3 employs a
significant modification standard to de-
termine whether modifications to a debt
instrument in any form are sufficiently
significant to cause the debt instrument
to be treated as reissued or exchanged for
purposes of § 1001. Section 1.1001–3
applies to modifications in the form of
amendments to the terms of an existing
debt instrument and to modifications in the
form of actual exchanges of existing debt
instruments for different debt instruments.
The determination of whether a resulting
debt instrument is treated as a reissued
new debt instrument or a continuation of
the original debt instrument depends on
whether the result represents a “significant
modification” of the original debt instru-
ment, as defined in § 1.1001–3.
Notice 88–130 provides certain special
reissuance rules for certain eligible tax-
exempt bonds that are “qualified tender
bonds,” as defined therein. Notice 88–130
provides that qualified tender bonds will
not be treated as reissued for purposes of
§ 103 and §§ 141 through 150 as a result
of certain tender rights and certain changes
in interest rate modes and other terms of
bonds that are covered specifically by the
detailed rules and limitations set forth in
Notice 88–130.
Debt Extinguishment
Subject to limited exceptions, a debt in-
strument generally is treated as retired or
extinguished when, among other circum-
stances, an issuer acquires its own debt be-
cause a merger of the interests of the issuer
and the holder occurs. Notice 88–130 re-
flects this debt extinguishment principle in
§ 2.2(d) thereof, which generally treats a
tax-exempt qualified tender bond as retired
if it is purchased or otherwise acquired by
or on behalf of an issuer which is a govern-
mental unit or an agency or instrumentality
thereof. If tax-exempt bonds treated as re-
tired as a result of a debt extinguishment
upon a governmental issuer’s purchase of
the tax-exempt bonds, that treatment may
have different consequences depending on
whether it is retired with the proceeds of
another debt instrument or whether it is re-
tired from equity or other non-borrowed
funds.
A borrowing, whether taxable or tax-
exempt, that is treated as retiring or reis-
suing a separate borrowing, generally con-
stitutes an issue of refunding bonds which
are viewed as financing the same govern-
mental purpose or project as the original
bonds (or “stepping into the shoes” of the
original bonds) and trigger consequences
involving the need to retest certain tax-ex-
empt bond program requirements.
Tax-exempt bonds that are treated as
retired through a debt extinguishment
without a link to another borrowing, such
as potentially an issuer’s purchase of its
own tax-exempt bonds using equity or
other non-borrowed funds, may trigger
additional consequences, including the
potential adverse consequence of gener-
ally limiting the ability to refinance those
extinguished bonds later with tax-exempt
refunding bonds for the same governmen-
tal purpose as the original bonds.
Interest Rate Modes—Tender Option
Modes and Auction Rate Modes
Issuers may issue fixed rate tax-exempt
bonds that bear interest at fixed rates to
maturity or variable rate bonds that bear in-
terest at variable rates which float period-
ically in accordance with various market-
based interest-rate setting mechanisms. Is-
suers often include multi-modal interest
rate features in the preauthorized terms of
the bond documents which provide issuers
with the flexibility to change interest rate
modes under parameters set forth in the
bond documents.
One common interest rate mode em-
ployed with tax-exempt bonds is a ten-
der option mode. “Tender option bonds”
are also referred to commonly as “variable
rate demand bonds.” Tender option bonds
have short-term interest features tied to
current market rates necessary to remar-
ket the bonds at par. Tender option bonds
have ongoing tender options or put op-
tions associated with the interest rate-set-
ting mechanism whichallow bondholders
to tender their bonds for purchase at par at
specified intervals, typically every seven
days. Tender option bonds generally have
creditworthy third-party liquidity facilities
from banks or other liquidity providers to
support the tender options and may have
credit enhancement from bond insurers or
other providers. Tender option bonds also
may have interest mode conversion op-
tions which grant to the issuer or a con-
duit borrower an option to change the in-
terest rate mode on the bonds from a ten-
der option mode to another short-term in-
terest rate mode or to a fixed interest rate
to maturity. At the time of a conversion
to another interest rate mode, tender option
bonds typically are subject to a mandatory
tender for purchase but a bondholder may
be allowed to elect to retain the bonds.
Upon the exercise of ongoing tender op-
tions associated with the short-term inter-
est rate-setting mechanism for tender op-
tion bonds and upon any mandatory or op-
tional tender upon conversion of the inter-
est rate on the bonds to another interest rate
mode, a remarketing agent or a liquidity
provider typically will acquire the bonds
subject to the tender at par and resell the
bonds either to the same bondholders or to
others willing to purchase such bonds. In
general, Notice 88–130 provides guidance
for when the tenders associated with ten-
der option bonds will not constitute reis-
suances if they meet the specific detailed
eligibility requirements for “qualified ten-
der bonds,” as defined in Notice 88–130.
Another interest rate mode used with
tax-exempt bonds is an auction rate mode.
The interest rate on auction rate bonds is
reset at predetermined intervals (generally
under one year) using a modified Dutch
auction process. Auction rate bonds gen-
erally trade at par and are callable at par on
any interest payment date at the option of
the issuer. Unlike bonds in a tender option
mode, however, bonds in an auction rate
mode have no ongoing tender options or
put options to support the interest rate-set-
ting process. Thus, auction rate bonds
are viewed as long-term investments with
a short-term interest rate-setting process.
Auction rate bonds generally have maxi-
mum rates based on state law restrictions
or certain formulas, such as a multiple of a
tax-exempt or taxable index. Auction rate
bonds may have credit enhancement from
bond insurers or other providers. Auction
rate bonds also may have interest mode
April 14, 20087432008–15 I.R.B.

conversion options similar to tender option
bonds which grant to the issuer or a con-
duit borrower an option to change the in-
terest rate mode on the bonds from an auc-
tion rate mode to another short-term inter-
est rate mode or to a fixed interest rate to
maturity. At the time of a conversion to an-
other interest rate mode, auction rate bonds
typically are subject to a mandatory tender
for purchase in a process similar to manda-
tory tenders on conversions of interest rate
modes used with tender option bonds.
Questions have arisen regarding
whether or to what extent auction rate
bonds can be treatedas qualified tender
bonds for purposes of Notice 88–130. In
addition, in light of recent guidance by
the Securities and Exchanges Commission
which authorizes issuers of tax-exempt
bonds to bid on and acquire their own
auction rate bonds in an auction in certain
circumstances, additional questions have
arisen regarding the tax consequences of
such acquisitions in various circumstances
and whether such acquisitions would re-
sult in a retirement or extinguishment of
such bonds.
SECTION 3. Reissuance Standards for
State and Local Bonds
3.1.Scope and General Rules.The
IRS and the Treasury Department expect
to promulgate regulations under § 150 to
provide guidance on whether tax-exempt
bonds are treated as reissued or retired
solely for purposes of § 103 and §§ 141
through 150. Specifically, for purposes
of § 103 and §§ 141 through 150 only,
in the case of a qualified tender bond (as
defined herein), any qualified interest rate
mode change (as defined herein) and any
qualified tender right (as defined herein)
will not be treated as a modification un-
der § 1.1001–3. Therefore, for these pur-
poses, a qualified tender bond will not
be treated as reissued or retired solely as
a result of a qualified interest rate mode
change or the existence or exercise of any
qualified tender right. Further, in apply-
ing § 1.1001–3 to modifications of tax-ex-
empt bonds, any interest rate variance di-
rectly resulting from a qualified interest
rate mode change will not be treated as a
modification under § 1.1001–3, and thus
such interest rate variances need not be
tested under the change in yield rule for
determining significant modifications un-
der § 1.1001–3(e)(2). Except as otherwise
specifically provided in this notice, the de-
termination of whether any modification
to an issue of tax-exempt bonds causes a
reissuance or retirement of the tax-exempt
bonds for purposes of § 103 and §§ 141
through 150 is based on whether the mod-
ifications are significant modifications un-
der § 1.1001–3.
Except as expressly provided herein
in the special rules for the treatment of
“qualified interestrate mode changes”
and “qualified tender rights” on “qualified
tender bonds” (all as redefined herein)
under § 3 of this notice, the special tem-
porary rule allowing governmental issuers
to purchase their own tax-exempt auction
rate bonds for a limited holding period
under § 4 of this notice, the special arbi-
trage rules under § 5 of this notice, and
the other special rules under § 6 of this
notice, a tax-exempt bond generally is
treated as reissued or retired on the first
date on which: (1) a significant modifica-
tion to the terms of the bond occurs under
§ 1.1001–3 or a disposition of the bond
otherwise occurs under section 1001; (2)
the bond is purchased or otherwise ac-
quired by or on behalf of a governmental
issuer (as defined herein); or (3) the bond
is otherwise retired or redeemed.
For purposes of determining whether a
bond is purchased or otherwise acquired
by or on behalf of a governmental issuer,
except as otherwise expressly provided in
§ 3.2(3) and § 4 of this notice, a bond
is treated as purchased or otherwise ac-
quired by or on behalf of a person if the
bond is purchased or otherwise acquired
by that person in a manner that liquidates
the bondholder’s investment.
A purchase of a tax-exempt bond by a
third-party guarantor or third-party liquid-
ity facility provider pursuant to the terms
of a third-party guarantee or third-party
liquidity facility is not treated as a pur-
chase or other acquisition by or on behalf
of a governmental issuer. Similarly, a pur-
chase of a tax-exempt bond by a conduit
borrower that is not a governmental issuer
is not treated as a purchase or other acqui-
sition by or on behalf of the governmental
issuer.
3.2.Definitions and Operating Rules.
The following definitions and special op-
erating rules apply for purposes of this no-
tice only:
(1).Qualified Tender Bond.Theterm
“qualified tender bond” means a tax-ex-
empt bond that has all of the following
features: (a) for each interest rate mode
that is preauthorized under the terms of the
bond considered separately, the bond bears
interest during the allowable term of that
interest rate mode at either a fixed inter-
est rate, a variable interest rate that con-
stitutes a qualified floating rate on a vari-
able rate debt instrument for a tax-exempt
bond under § 1.1275–5(b) (e.g., various in-
terest rate indexes and rate-setting mech-
anisms that reasonably can be expected
to measure contemporaneous variations in
the cost of newly-borrowed funds, includ-
ing, without limitation, interest rates de-
termined by reference to eligible interest
rate indexes(e.g., the SIFMA index), ten-
der option-based interest rate measures, or
a Dutch auction process), or a variable in-
terest rate that constitutes an eligible ob-
jective rate for a variable rate debt in-
strument that is a tax-exempt bond under
§ 1.1275–5(c)(5) (i.e., a qualified inflation
rate or a qualified inverse floating rate);
(b) interest on the bond is unconditionally
payable at periodic intervals at least annu-
ally; (c) the final maturity date of the bond
is no longer than the lesser of 40 years af-
ter the issue date of the bond or the lat-
est date that is reasonably expected as of
the issue date of the issue of which the
bond is a part to be necessary to carry out
the governmental purpose of the issue of
which the bond is a part (with the 120 per-
cent weighted average economic life of fi-
nanced facilities testunder Section 147(b)
with respect to the issue of which the bond
is a part being treated as a safe harbor for
this purpose); and (d) the bond is subject
to an optional tender right or a manda-
tory tender requirement which allows or
requires a bondholder to tender the bond
for purchase in one or more prescribed cir-
cumstances under the terms of the bond.
(2).Qualified Interest Rate Mode
Change. In general, a “qualified inter-
est rate mode change” is a change in the
interest rate mode on a bond that is au-
thorized under the terms of the bond upon
its original issuance. Further, in order to
be a qualified interest rate mode change,
the terms of the bond must require that the
bond be purchased and resold at a price
equal to par upon conversion to a new
interest rate mode, except only that, upon
a conversion to an interest rate mode that
2008–15 I.R.B.744April 14, 2008

is a fixed interest rate for the remaining
term of the bond to maturity, the bond may
be resold at a market premium or a market
discount from the stated principal amount
of that bond.
(3).Qualified Tender Right.
(a)In General. A “qualified tender
right” is a tender right for the purchase of
a bond (regardless of whether the purchase
is by or on behalf of a governmental issuer)
that is authorized under the terms of a bond
upon its original issuance and that meets
all of the requirements of this § 3.2(3)(a).
The tender right must involve either an op-
tional tender right or a mandatory tender
requirement which allows or requires the
bondholder to tender the bond for purchase
on at least one tender date before the final
stated maturity date. The tender right must
entitle a tendering bondholder to receive a
purchase price equal to par (which may in-
clude any accrued interest). The terms of
the tender right must require the issuer or
its remarketing agent to use at least best ef-
forts to remarket a bond upon a purchase
pursuant to the tender right.
(b)Operating Rules for Purchases Pur-
suant to a Qualified Tender Right. A bond
purchasedbyoronbehalfofagovern-
mental issuer pursuant to a qualified ten-
der right is treated as not retired pursuant to
and as a result of the qualified tender right
until not later than the end of the 90-day
period from and after the date of such pur-
chase, and subsequent to the end of this
90-day period, a governmental issuer gen-
erally may not hold its own bond with-
out causing a retirement of such bond un-
der the general rules in § 3.1 of this no-
tice. This 90-day period is extended to
180-days, however, with respect to any
purchase by or on behalf of a governmental
issuer pursuant to a qualified tender right
as long as such purchase occurs before Oc-
tober 1, 2008.
Thus, with respect to such bonds pur-
chased before October 1, 2008, during this
180-day period, a governmental issuer or
its agent may hold the bond under the
terms of the bond without causing a retire-
ment of the bond. In addition, recognizing
that the bond is treated as outstanding dur-
ing this 180-day period, the governmental
issuer may refund the bond with a refund-
ing bond during this period upon a failed
remarketing.
By contrast, third-party guarantors,
third-party liquidity facility providers, and
conduit borrowers (other than a conduit
borrower that is a governmental issuer)
are not treated as purchasers by or on be-
half of a governmental issuer under the
general rules in § 3.1 of this notice, and,
accordingly, any such person may hold a
bond purchased pursuant to the exercise
of a qualified tender right for an unlimited
holding period without causing a retire-
ment of such bond. Further, for example, a
governmental issuer may hold a bond pur-
chased before October1,2008,pursuantto
the exercise of a qualified tender right for
a holding period of 179 days while using
best efforts under the terms of the bonds
to remarket the bond and then resell the
bond to a third-party guarantor, third-party
liquidity facility provider, or other inde-
pendent third party before the expiration
of the 180-day period in compliance with
the operating rules in this § 3.2(3)(b).
(4).Governmental issuer.A “govern-
mental issuer” is an issuer of a tax-ex-
empt bond that is a governmental unit or
an agency or instrumentality thereof.
SECTION 4. Temporary Rule Allowing
Governmental Issuers to Purchase
Their Own Auction Rate Bonds
Solely for purposes of § 103 and §§ 141
through 150, a governmental issuer may
purchase its own tax-exempt auction rate
bond on a temporary basis without result-
ing in a reissuance or retirement of the
purchased tax-exempt bond if it meets the
following requirements: (1) the govern-
mental issuer holds the bond for not more
than a 180-day period from and after the
date of purchase; and (2) the governmen-
tal issuer purchases the bond before Oc-
tober 1, 2008. Similar to the treatment
of a bond purchased pursuant to a quali-
fied tender right under the operating rule
in § 3.2(3)(b) of this notice, an auction rate
bond purchased by a governmental issuer
pursuant to this § 4 is treated as not re-
tired pursuant to and as a result of this spe-
cial rule until not later than the end of this
180-day period, and, subsequent to the end
of this 180-day period, a governmental is-
suer generally may not hold its own bond
without causing a retirement of such bond
under the general rules in § 3.1 of this no-
tice.
Thus, recognizing that the bond is
treated as not retired during this 180-day
period, the governmental issuer may re-
fund the bond with a refunding bond,
tender the bond for purchase in a qualified
tender right in its capacity as a bondholder,
or otherwise resell the bond during this
180-day period. After the end of this
180-day period, however, a governmen-
tal issuer generally may not hold its own
bond without causing a retirement of such
bond under the general rules in § 3.1 of
this notice.
SECTION 5. Arbitrage Provisions
5.1.Certain Special Rules on Qualified
Hedges for Arbitrage Purposes.Solely
for purposes of the arbitrage investment
restrictions (including, without limitation,
both yield restriction and rebate) under
§ 148, in determining whether a modifica-
tion of a qualified hedge results in a ter-
mination of the hedge under § 1.148–4(h),
such a modification is not treated as a ter-
mination of the hedge if both: (1) the mod-
ification is not reasonably expected as of
the date of the modification to change the
yield on the affected hedged bonds over
the remaining term of the hedged bonds
by more than one quarter of one percent
(.25 percent or twenty-five basis points)
per annum; and (2) the payments and re-
ceipts on the qualifiedhedge, as modified,
are fully taken into account as adjustments
to the yield on those hedged bonds for ar-
bitrage purposes under § 148. Further, for
arbitrage purposes under § 148, a qualified
hedge with respect to bonds is not deemed
terminated under § 1.148–4(h) as a result
of the governmental issuer’s holding of
the hedged bonds during either the 90-day
permitted holding period or the 180-day
temporary permitted holding period under
§ 3.2(3), or the 180-day permitted hold-
ing period under § 4 of this notice during
which the governmental issuer is permit-
ted to hold such bonds without resulting in
a reissuance or retirement of such bonds.
5.2.Special Rule for Certain Purchases
by Conduit Borrowers. In applying the
special arbitrage rule for “program invest-
ments” under § 1.148–1(b) which restricts
a conduit borrower’s purchase of tax-ex-
empt bonds for a governmental program in
an amount “related” to the amount of its
purpose investment financed by the pro-
gram, a conduit borrower’s purchase of a
tax-exempt auction rate bond that financed
its loan to facilitate liquidity under adverse
April 14, 20087452008–15 I.R.B.

market conditions is treated as not being so
“related” for this purpose.
5.3.Treatment of Certain Premiums as
Proceeds for Arbitrage Purposes.Solely
for purposes of the arbitrage investment
restrictions under § 148, any premium
received by an issuer pursuant to a con-
version of the interest rate on a qualified
tender bond to a fixed interest rate for the
remainingtermofthebondtomaturity
in a qualified interest rate mode change
under § 3.2(2) of this notice is treated as
additional sale proceeds (as defined in
§ 1.148–1(b)) of such bonds.
SECTION 6. Special Rules
6.1.Special Rule for Nonrecourse
Debt. Solely for purposes of § 103
and §§ 141 through 150, in applying
§ 1.1001–3(e)(4)(iv)(B) to determine
whether a modification of the security
or credit enhancement on a tax-exempt
bond that is a nonrecourse debt instru-
ment is a significant modification, such
a modification is treated as a significant
modification only if the modification re-
sults in a change in payment expectations
under § 1.1001–3(e)(4)(vi).
6.2.Special Temporary Relief for Cer-
tain Waivers of Interest Rate Caps on Auc-
tion Rate Bonds. Solely for purposes of
§ 103 and §§ 141 through 150, in apply-
ing § 1.1001–3(e)(2) to determine whether
amodificationtotheyieldontax-exempt
bonds that bear interest based on an auc-
tion rate constitutes a significant modifi-
cation, a temporary waiver, in whole or in
part, of the terms of a cap on the maximum
interest rate on such auction rate bonds is
disregarded to the extent that any agree-
ment to waive such a cap and the period
during which such a waiver is in effect both
are within the period between November
1, 2007 and October 1, 2008. Except for
the special relief provided in this section,
a waiver of a cap on an interest rate on a
tax-exempt bond generally is required to
be tested for whether it causes a significant
modification under § 1.1001–3.
SECTION 7. Examples
The following examples illustrate the
application of certainprinciples in this no-
tice and § 1.1001–3 as they apply to tax-ex-
empt bonds for purposes of this notice.
Example 1.Insignificant Change in Credit En-
hancement and Impact on Floating Interest Rate.On
July 1, 2007, a municipality (the “Issuer”) issued
$1 million in tax-exempt bonds that bear interest at
an auction interest rate and that mature in 40 years
(the “Bonds”). The Bonds are recourse obligations
that are secured by the issuer’s underlying primary
A-rated investment grade credit. The Bonds are
secured further by credit enhancement under a bond
insurance policy provided by a AAA-rated bond in-
surer. Pursuant to the terms of the Bonds, the auction
interest rate on the Bonds resets every 7 days. The
terms of the Bonds grant the issuer the option to
convert the interest rate mode on the Bonds from an
auction rate mode to either a 7-day tender option rate
mode or to a long-term fixed interest rate to maturity,
subject to a mandatory tender of the Bonds upon
such a conversion. The Bonds are qualified tender
bonds under § 3.2 of this notice.
On January 3, 2008, the auction interest rate
on the Bonds is set at 10% as a consequence of a
downgrade in the bond insurer’s credit rating from
a AAA rating to a AA rating and associated market
disruption. On January 10, 2008, the issuer amended
the terms of the Bonds to replace the now AA-rated
bond insurance with a AAA-rated bank letter of
credit as credit enhancement, but otherwise made no
other changes to the terms of the Bonds. On January
10, 2008, the auction rate on the Bonds floated down
to 3% primarily as a result of the change in credit
enhancement on the Bonds.
The amendment to the terms of the Bonds to
change the credit enhancement is a modification to
a recourse debt instrument that must be tested for
significance under the change in security or credit
enhancement rule in § 1.1001–3(e)(4)(iv). Because
the change in security or credit enhancement did not
cause a change in payment expectations on the Bonds
(i.e., the Bonds had an investment grade payment
expectation before and after the change in credit
enhancement), this change in credit enhancement is
not a significant modification of the Bonds under
§ 1.1001–3 and thus does not cause a reissuance
of the Bonds under § 103 and §§ 141 through 150.
Further, the fact that the market impact of the change
in credit enhancement caused the floating interest
rate on the Bonds to float down from 10% to 3%
is not required to be tested under the 25-basis point
change in yield rule for significant modifications
under § 1.1001–3(e)(2) because the Issuer has made
no change to the interest rate-setting mechanism
under the terms of the Bonds.
Example 2.Exchange of Bonds to Remove Bond
Insurance.
Assume the same facts as inExample 1above,
except that, instead of amending the terms of the
existing Bonds (the “Old Bonds”) to change the
credit enhancement, on January 10, 2008, the Issuer
issued new bonds with new Cusip numbers (the
“New Bonds”) and did an actual exchange of the
New Bonds for the Old Bonds. The New Bonds are
not backed by any bond insurance or other credit
enhancement. The New Bonds without the bond
insurance have an A credit rating. There are no other
differences between the New Bonds and the Old
Bonds. The result would be the same as inExample 1
and no reissuance of the Bonds would occur. Section
1.1001–3 applies the same significant modification
standard to amendments to the terms of an existing
debt instrument and to actual exchanges of an exist-
ing debt instruments for a different debt instrument.
Example 3.Impact of Authorized Changes in In-
terest Rate Modes and Associated Mandatory Tenders
and Effect of Serialization.
(i) Assume the same facts as inExample 1above,
except that, on January 10, 2008, the Issuer also exer-
cised its option under the terms of the Bonds to con-
vert the interest rate mode on the Bonds from an auc-
tion rate mode to a fixed interest rate of 5% for the
remaining term of the Bonds. The terms of the Bonds
also required a mandatory tender and remarketing of
the Bonds in connection with this interest rate mode
change. The mandatory tender is a qualified tender
right and the change in the interest rate mode is a qual-
ified interest rate mode change. Thus, the Bonds are
qualified tender bonds, as defined in § 3.2 of the no-
tice, the conversion of the interest rate on the Bonds
from an auction rate mode to a fixed interest rate is
pursuant to a qualified interest rate mode change” and
the associated tender is a qualified tender right, all as
defined in § 3.2 of the notice. Thus, under § 3.1 of
the notice, in determining whether the Bonds are reis-
sued for purposes of the tax-exempt bond provisions
of the Code, the qualified interest rate mode change
and the qualified tender right are not treated as modi-
fications under § 1.1001–3. Furthermore, the interest
rate change on the Bonds from a floating auction rate
of 10% to a fixed interest rate of 5% directly resulted
from the qualified interest rate mode change and, un-
der § 3.1 of the notice, also is not treated as a modi-
fication under § 1.1001–3. Finally, as inExample 1,
no reissuance of the Bonds occurred for purposes of
§ 103 and §§ 141 through 150 as a result of the change
in credit enhancement.
(ii) Assume the same facts as paragraph (i) above
except that the Issuer also amended the terms of the
Bonds to modify a term Bond which had a prescribed
mandatory sinking fund redemption schedule with al-
ternative Bonds with “serial” maturities instead of the
sinkingfundredemptionschedule. This “serializa-
tion” of the term Bond does not directly result from
the qualified interest rate mode change. Subject to
the particular terms of the Bonds, the serialization of
the term Bond generally would be a modification un-
der § 1.1001–3 which would be required to be ana-
lyzed for significance under the change in yield rule
in § 1.1001–3(e)(2) and the change in the timing of
payments rule in § 1.1001–3(e)(3).
Example 4.Impact of Unauthorized Changes.
Assume the same facts as inExample 1, except that
the terms of the Bonds do not provide for any conver-
sions of the interest rate modes. On January 7, 2008,
Issuer amends the Bond documents to allow the Is-
suer to convert the interest rate mode on the Bonds
from an auction rate mode to either a 7-day tender op-
tion rate mode or to a long-term fixed interest rate to
maturity, subject to a mandatory tender of the Bonds
upon such a conversion. On January 10, 2008, Issuer
exercised its option underthe amended terms of the
Bonds to convert the interest rate mode on the Bonds
from an auction rate mode to a fixed interest rate of
5% for the remaining term of the Bonds. The Issuer
also required a mandatory tender and remarketing of
the Bonds in connection with this interest rate mode
change. Because the change in interest rate mode is
not pursuant to the terms of the Bonds when origi-
nally issued, it is not a qualified interest rate mode
change within the meaning of this notice. Similarly,
the tender of the Bonds on January 10, 2008 was not
pursuant to the terms of the Bond as originally issued
2008–15 I.R.B.746April 14, 2008

and therefore was not a qualified tender right within
the meaning of this notice.Accordingly, the provi-
sions of this notice are not applicable either to the in-
terest rate mode change on the Bonds or to the ten-
der of the Bonds. Thus, to determine whether these
modifications cause a reissuance or retirement of the
Bonds for purposes of § 103 and §§ 141 through 150,
the impact of these modifications must be analyzed
under § 1.1001–3 to determine whether a significant
modification of the terms of the Bonds occurred.
Example 5.Operation of the 180-Day Temporary
Rule for Qualified Tender Rights.
(i) On July 1, 2007, a municipality (the “Issuer”)
issued $1 million in tax-exempt bonds that bear in-
terest initially at a variable rate demand rate and that
mature in 40 years (the “Bonds”). The interest rate on
the Bonds resets every 7 days at the minimum inter-
est rate necessary to remarket the Bonds at par. The
Bonds have seven-day tender options exercisable by
the holders while the Bonds are in the variable rate de-
mand interest rate mode. The Bonds give the Issuer
an option to convert the interest rate on the Bonds to
other interest rate modes. The Bonds have a manda-
tory tender requirement upon an interest rate mode
conversion. The Bonds are secured by a third-party
liquidity facility in the form of a letter of credit (the
“Liquidity Facility”) from a bank (the “Bank”). The
Bonds are further secured by a third-party guarantee
in the form of a bond insurance policy from a bond
insurer (the “Bond Insurer”). An investment bank
serves as a remarketing agent (“Remarketing Agent”)
for the Issuer with respect to the Bonds. The terms of
the remarketing arrangement require the Remarket-
ing Agent to use at least its best efforts to remarket
tendered Bonds. On May 1, 2008, the Issuer exercises
its option to convert the interest rate on the Bonds
to a fixed interest rate to maturity and the Bonds are
subject to mandatory tender by the Bondholders. The
Bonds are qualified tender bonds which have a qual-
ified tender right and a qualified interest rate mode
change within the meaning of § 3.2 of this notice.
During the 180-day period after the date of purchase
of the bonds pursuant to the qualified tender right, as a
result of difficult market conditions and despite best
efforts required pursuant to the terms of the Bonds,
the Issuer and the Remarketing Agent are unsuccess-
ful in remarketing the Bonds. The particular terms of
the Liquidity Facility require that the qualified ten-
der right be funded by the Bank under the Liquidity
Facility, but that the Bank not hold the Bonds upon
a draw on the Liquidity Facility. Instead, the Bank
merely receives a pledge of the Bonds as collateral
for the draw on the Liquidity Facility and the Issuer
holds the Bonds upon a draw on the Liquidity Facil-
ity. During this 180-day period, the Bonds are treated
as outstanding under the operating rules for qualified
tender rights in § 3.2(3)(b) even if the Bonds are
held by or on behalf of the Issuer. Thus, during this
180-day period, the Issuer may hold the Bonds under
the terms of the Bonds without causing a retirement
of the Bonds. In addition, recognizing that the Bonds
are treated as outstanding during this 180-day period,
the Issuer may refund the Bonds with proceeds from
refunding bonds during this period or resell the bonds
to a third party.
(ii) Assume the same facts as in paragraph (i),
but further assume that the Issuer retains the Bonds
beyond the 180-day permitted holding period for a
governmental issuer under § 3.2(3)(b) of this notice.
The Bonds are treated as retired as of the end of the
180
th
day from and after the date of the purchase of
the Bonds pursuant to the exercise of the qualified
tender right. Thus, the count of the 180-day permitted
holding period for the Issuer starts on the date of the
purchase pursuant to the qualified tender right (here,
starting May 1, 2008) and ends at the end of the 180
th
day from and after the date of purchase (here, ending
at the end of the day on October 27, 2008).
(iii) Assume the same facts as in paragraph (i), but
further assume that the terms of the Liquidity Facil-
ity provide that the Bank will hold the Bonds upon a
draw on the Liquidity Facility, rather than merely re-
ceive a pledge of the Bonds as collateral while the
Issuer or its agent holds the Bonds. Here, since a
third-party liquidity facility provider is not treated as
a purchaser by or on behalf of a governmental issuer
under the general rules in § 3.1 of this notice, the Bank
may hold the Bonds during and beyond the 180-day
period after the date of the purchase pursuant to the
qualified tender right without causing a retirement of
the Bonds.
(iv) Assume the same facts as in paragraph (i),
but further assume that the Issuer holds the Bonds for
179 days after purchase of the Bonds pursuant to the
exercise of a qualified tender right while using best
efforts under the terms of the Bonds to remarket the
Bonds, and then sells the Bonds to the Bank pursuant
to the Liquidity Facility. This transaction complies
with the operating rules for qualified tender rights in
§ 3.2(3)(b) of this notice and does not result in a re-
tirement of the Bonds.
SECTION 8. Interim Guidance and
Reliance
Theeffectivedateofthisnoticeis
March 25, 2008. This notice provides
interim guidance. Issuers of tax-exempt
bonds may apply and rely on this notice for
any actions taken with respect to tax-ex-
empt bonds on or after November 1, 2007
and before the effective date of any future
regulation under § 150 that implement the
guidance with respect to any particular
applicable provision in this notice or other
public guidance that withdraws or super-
sedes any particular applicable provision
in this notice. Issuers also may continue to
rely on Notice 88–130 until the effective
date of such future regulations. Notice
2008–27 is superseded and may not be
relied upon after the effective date of this
notice. The IRS and the Treasury De-
partment may amend or supplement the
guidance in this notice as circumstances
warrant.
SECTION 9. Request for Comments
Before any notice of proposed rulemak-
ing is issued with respect to the guidance
provided in this notice, consideration will
be given to any written public comments
on this notice that are submitted timely by
May 19, 2008, and a signed original and
eight (8) copies of such comments should
be sent to the IRS. Send submissions to:
CC:PA:LPD:PR (NOT–2008–41), room
5203, IRS, P.O. Box 7604, Ben Franklin
Station, Washington, DC 20044. Sub-
missions may be sent electronically, via
the IRS Internet site atwww.irs.gov/regs
or via the Federal eRulemaking Portal at
www.regulations.gov(indicate IRS and
REG–118788–06). All comments will be
available for public inspection and copy-
ing.
SECTION 10. Drafting Information
The principal author of this notice
is Aviva M. Roth, Office of the Chief
Counsel (Financial Institutions and Prod-
ucts). However, other personnel from the
IRS and the Treasury Department par-
ticipated in its development. For further
information regarding this notice, contact
Aviva M. Roth at (202) 622–3980 (not a
toll-free call).
Modifications of Split-Dollar
Life Insurance Arrangements
Notice 2008–42
SECTION 1. PURPOSE
This notice provides guidance regard-
ing the application of §§ 101(j) and 264(f)
of the Internal Revenue Code (Code) to life
insurance contracts that are subject to split-
dollar life insurance arrangements. Specif-
ically, this notice provides that a modifica-
tion of a split-dollar life insurance arrange-
ment that does not entail any change to the
life insurance contract underlying the ar-
rangement will not be treated as a mate-
rial change in the life insurance contract
for purposes of §§ 101(j) and 264(f).
SECTION 2. BACKGROUND
Split dollar life insurance arrangements
In general, a split-dollar life insurance
arrangement is an arrangement between
two or more parties to allocate the policy
benefits and, in some cases, the costs of a
life insurance contract. Sections 1.61–22,
1.301–1(q), and 1.7872–15 of the Income
April 14, 20087472008–15 I.R.B.

Tax Regulations provide rules for the tax-
ation of participants in a split-dollar life
insurance arrangement. Those regulations
generally apply to any split-dollar life
insurance arrangement entered into after
September 17, 2003. For this purpose,
if an arrangement entered into on or be-
fore September 17, 2003, is materially
modified after September 17, 2003, the ar-
rangement is treated as a new arrangement
entered into on the date of the modifica-
tion. Section 1.61–22(j)(2)(ii) sets forth a
non-exclusive list of changes that are not
treated as material modifications for this
purpose.
Section 101(j)
Section 101(j) was added to the Code
by § 863(a) of the Pension Protection Act
of 2006, Public Law 109–280. Section
101(j)(1) generally provides that in the
case of an employer-owned life insurance
contract, the amount of death benefits ex-
cluded from gross income of an applicable
policyholder under § 101(a)(1) shall not
exceed an amount equal to the sum of the
premiums and other amounts paid by the
policyholder for the contract. For this pur-
pose, an employer-owned life insurance
contract is a life insurance contract that (i)
isownedbyapersonengagedinatradeor
businessandunderwhichsuchpersonis
directly or indirectly a beneficiary under
the contract, and (ii) covers the life of an
insured who is an employee with respect
to the trade or business on the date the con-
tract is issued. An applicable policyholder
isgenerallyapersonwhoownsanem-
ployer-owned life insurance contract, or a
related person as described in § 101(j)(3).
Section 101(j)(2) provides exceptions
to the general rule of § 101(j)(1) in the
case of certain employer-owned life insur-
ance contracts with respect to which cer-
tain notice and consent requirements are
met. Those exceptions are based either
on (i) the insured’s status as an employee
within 12 months of death or as a direc-
tor, a highly compensated employee or a
highly compensated individual; or (ii) the
extent to which death benefits are paid to a
family member, trust, or estate of the in-
sured employee, or are used to purchase
an equity interest in the applicable policy-
holder from a family member, trust or es-
tate.
Section 101(j) applies to life insurance
contracts issued after August 17, 2006, ex-
cept for a contract issued after that date
pursuant to a § 1035 exchange for a con-
tract issued on or before that date. For this
purpose, a material increase in the death
benefit or other material change generally
causes the contract to be treated as a new
contract. Other thanas described above,
contracts issued on or before August 17,
2006, are grandfathered and not subject to
the requirements of § 101(j).SeePub. L.
No. 109–280, § 863(d).
Section 264(f)
Section 264(f) was added to the Code
by § 1084(c) of the Taxpayer Relief Act
of 1997, Pub. L. No. 105–34. Sec-
tion 264(f)(1) provides that “[n]o deduc-
tion shall be allowed for that portion of
the taxpayer’s interest expense which is al-
locable to unborrowed policy cash value”
with respect to a life insurance policy or
an annuity or endowment contract. Sec-
tion 264(f)(4) identifies those policies and
contracts that are excepted from the rule of
§ 264(f)(1).
Section 264(f) applies to contracts is-
sued after June 8, 1997, in taxable years
ending after such date; any material in-
crease in the death benefit or other ma-
terial change in the contract is treated as
a new contract for this purpose. Other
than as described above, contracts issued
on or before June 8, 1997, are grandfa-
thered and not subject to the requirements
of § 264(f).SeePub. L. No. 105–34,
§ 1084(d) (as amended by Pub. L. No.
105–206, § 6010).
SECTION 3. APPLICATION OF
SECTIONS 101(j) AND 264(f) TO
CONTRACTS THAT ARE SUBJECT
TO SPLIT-DOLLAR LIFE INSURANCE
ARRANGEMENTS
Both §§ 101(j) and 264(f) apply to “life
insurance contracts,” which are defined in
§ 7702 for all purposes of the Internal Rev-
enue Code as any contract that is a life in-
surance contract under the applicable law,
but only if such a contract either meets the
cash value accumulation test of § 7702(b),
or both meets the guideline premium re-
quirements of § 7702(c) and falls within
the cash value corridor of § 7702(d). Un-
der § 7702, the term “life insurance con-
tract” generally does not encompass the
terms of an arrangement, such as a split-
dollar arrangement, of which the contract
is a part. Accordingly, if the parties to
a split-dollar life insurance arrangement
modify the terms of the arrangement but
do not modify the terms of the life insur-
ance contract underlying the arrangement,
the modification will not be treated as a
material change in the life insurance con-
tract for purposes of §§ 101(j) and 264(f),
even if the modification is treated as a ma-
terial modification of the split-dollar ar-
rangement for purposes of § 1.61–22(j).
DRAFTING INFORMATION
The principal author of this notice is
Linda K. Boyd of the Office of Associate
Chief Counsel (Financial Institutions and
Products). For furtherinformation regard-
ing this notice, contact Ms. Boyd at (202)
622–3970 (not a toll-free call).
Contingent Fees Under
Circular 230
Notice 2008–43
This notice provides guidance to prac-
titioners concerning contingent fees un-
der Treasury Department Circular No.
230, 31 C.F.R. part 10 (Circular 230).
Specifically, this notice provides interim
guidance clarifying when a practitioner
may charge a contingent fee under section
10.27(b)(2) of Circular 230 for services
rendered in connection with any matter
before the Internal Revenue Service.
The Treasury Department and the IRS
intend to revise section 10.27 to reflect the
clarifications described in this notice. The
IRS will follow the interim rules in this
notice for purposes of enforcing section
10.27 until further guidance is provided.
BACKGROUND
In general, 31 U.S.C. section 330 autho-
rizes the Secretary to regulate attorneys,
certified public accountants, enrolled
agents, enrolled actuaries, and others who
practice before the Service. Regulations
under section 330 are promulgated in
31 C.F.R. part 10 and are reprinted as
Treasury Department Circular No. 230.
On September 26, 2007, the Treasury
Department and the IRS published final
regulations (T.D. 9359, 2007–45 I.R.B.
2008–15 I.R.B.748April 14, 2008

931) in theFederal Register(72 FR
54540) modifying rules governing the gen-
eral standards of practice before the IRS.
These final regulations generally preclude
a practitioner from charging a contingent
fee for services rendered in connection
with any matter before the Internal Rev-
enue Service, including the preparation or
filing of a tax return, amended tax return
or claim for refund or credit.
The final regulations, however, permit
a practitioner to charge a contingent fee
for services rendered in connection with
the IRS examination of, or challenge to, (i)
an original tax return, or (ii) an amended
return or claim for refund or credit when
the amended return or claim for refund or
credit was filed within 120 days of the tax-
payer receiving a written notice of the ex-
amination of, or a written challenge to, the
original tax return. Contingent fees are
also permitted for interest and penalty re-
views and for services rendered in connec-
tion with a judicial proceeding arising un-
der the Internal Revenue Code. The final
amendments to section 10.27 made by the
final regulations apply to fee arrangements
enteredintoafterMarch26,2008.
Section 406 of the Tax Relief and
Health Care Act of 2006, Pub. L. No.
109–432 (120 Stat. 2958) (the Act),
which was enacted on December 20, 2006,
amended section 7623 of the Internal
Revenue Code concerning the payment
of awards to certain persons who detect
underpayments of tax. Prior statutory au-
thority to pay awards at the discretion of
the Secretary was re-designated as section
7623(a), and a new section 7623(b) was
added to the Code. Additional off-Code
provisions in section 406 of the Act es-
tablished a Whistleblower Office within
the IRS and addressed reward program
administration issues.SeeNotice 2008–4,
2008–2 I.R.B. 253, for interim guidance
applicable to award claims submitted un-
der the authority of section 7623(b).
INTERIM GUIDANCE
Several practitioners have contacted the
Treasury Department and the IRS to re-
quest a clarification of the exception in
section 10.27(b)(2)(ii) of Circular 230 per-
mitting a practitioner to charge a contin-
gent fee for services rendered in connec-
tion with an IRS examination of, or chal-
lenge to, an amended return or claim for
refund or credit when the amended return
or claim for refund or credit was filed
within 120 days of the taxpayer receiv-
ing a written notice of the examination of,
or a written challenge to, the original tax
return. Specifically, the practitioners are
concerned that the “within 120 days of the
taxpayer receiving a written notice of the
examination of, or a written challenge to
the original tax return” language in sec-
tion 10.27(b)(2)(ii) requires the IRS to fur-
nish the written notice of examination to a
taxpayer as a prerequisite to a practitioner
charging a contingent fee. Other prac-
titioners contacted the Treasury Depart-
ment and the IRS to discuss whether sec-
tion 10.27 permits practitioners to charge
a contingent fee with respect to whistle-
blower claims under section 7623.
In response to these requests, the Trea-
sury Department and the IRS have deter-
mined that section 10.27(b)(2) should be
clarified and amended. Accordingly, the
IRS will apply the following interim rules
as revised below under section 10.27(b)(2)
until the Treasury Department and the IRS
amend the regulations:
§ 10.27 Fees.
*****
(b) * * *
(2) A practitioner may charge a contin-
gent fee for services rendered in connec-
tion with the Service’s examination of, or
challenge to—
(i) An original tax return; or
(ii) An amended return or claim for re-
fund or credit filed before the taxpayer re-
ceived a written notice of examination of,
or a written challenge to, the original tax
return; or filed no later than 120 days after
the receipt of such written notice or writ-
ten challenge. The 120 days is computed
from the earlier of a written notice of the
examination, if any, or a written challenge
to the original return.
(3) A practitioner may charge a contin-
gent fee for services rendered in connec-
tion with a claim for credit or refund filed
solely in connection with the determina-
tion of statutory interest or penalties as-
sessed by the Internal Revenue Service.
(4) A practitioner may charge a contin-
gent fee for services rendered in connec-
tion with a claim under section 7623 of the
Internal Revenue Code.
(5) A practitioner may charge a contin-
gent fee for services rendered in connec-
tion with any judicial proceeding arising
under the Internal Revenue Code.
*****
EFFECTIVEDATEFORINTERIM
GUIDANCE
These interim rules regarding contin-
gent fees are applicable to fee arrange-
ments entered into after March 26, 2008.
DRAFTING INFORMATION
The principal author of this notice
is Matthew S. Cooper of the Office of
the Associate ChiefCounsel (Procedure
and Administration). For further infor-
mation regarding this notice, contact
Matthew S. Cooper at 202–622–4940 (not
a toll-free call).
April 14, 20087492008–15 I.R.B.

Part IV. Items o
fGeneralInterest
Notice of Proposed
Rulemaking by
Cross-Reference to
Temporary Regulations
Guidance Under Section 1502;
Amendment of Matching Rule
for Certain Gains on Member
Stock
REG–137573–07
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
by cross-reference to temporary regula-
tions.
SUMMARY: In this issue of the Bulletin,
the IRS is issuing temporary regulations
(T.D. 9383) concerning the treatment of
certain intercompany gains with respect to
member stock within a consolidated group.
The text of those regulations also serves
as the text of these proposed regulations.
These regulations affect corporations fil-
ing consolidated returns.
DATES: Written or electronic comments
and requests for a public hearing must be
received by June 5, 2008.
ADDRESSES: Send submissions to
CC:PA:LPD:PR (REG–137573–07), room
5203, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may be
hand-delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to CC:PA:LPD:PR (REG–137573–07),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW,
Washington, DC 20224, or sent elec-
tronically via the Federal eRulemak-
ing Portal atwww.regulations.gov(IRS
REG–137573–07).
FOR FURTHER INFORMATION
CONTACT: Concerning the pro-
posed regulations, John F. Tarrant or
Ross E. Poulsen, (202) 622–7790;
concerning submission of comments
and/or requests for a public hearing,
Kelly Banks, (202) 622–0932 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
Tempora
ry regulations in this issue of
the Bull
etin amend the Income Tax Regu-
lation
s (26 CFR part 1) under section 1502
relati
ng to the filing of consolidated re-
turns.
The temporary regulations revise
§1.150
2–13(c)(6)(ii)(C) to provide for the
redet
ermination of an intercompany gain
as exc
luded from gross income in certain
membe
r stock transactions. The text of
those
regulations also serves as the text of
these
proposed regulations. The preamble
to th
e temporary regulations explains the
amen
dments.
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 as-
sessment is not required. It also has been
determined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C. chap-
ter 5) does not apply to these regulations.
It is hereby certified that these regulations
will not have a significant economic im-
pact on a substantial number of small enti-
ties. This certification is based on the fact
that these regulations primarily affect af-
filiated groups of corporations, which tend
to be larger businesses. Moreover, the
number of taxpayers affected is minimal
and the regulations provide relief in certain
narrow circumstances. Therefore, a Regu-
latory Flexibility Analysis under the Reg-
ulatory Flexibility Act (5 U.S.C. chapter 6)
is not required. Pursuant to section 7805(f)
of the Internal Revenue Code, these reg-
ulations have been submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on their
impact on small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any written (a signed
original and eight (8) copies) or electronic
comments that are submitted timely to the
IRS. The IRS and Treasury Department
request comments on the clarity of the
proposed rules and how they can be made
easier to understand. In particular, the IRS
and Treasury Department do not foresee
situations in which it should be necessary
to invoke §1.1502–13(c)(6)(ii)(C) (the
“Commissioner’s Discretionary Rule”)
with respect to intercompany gain on
property other than stock. Nevertheless,
the IRS and Treasury Department request
comments on whether any such situations
are not appropriately addressed by other
provisions of §1.1502–13. The Commis-
sioner’s Discretionary Rule will be re-
tained while the IRS and Treasury Depart-
ment consider such comments. However,
absent compelling comments, the IRS
and Treasury Department anticipate ulti-
mately eliminating the Commissioner’s
Discretionary Rule. All comments will be
available for public inspection and copy-
ing. A public hearing will be scheduled
ifrequestedinwritingbyanypersonthat
timely submits written comments. If a
public hearing is scheduled, notice of the
date, time, and place for the public hearing
will be published in theFederal Register.
Drafting Information
The principal author of these regula-
tions is John F. Tarrant, Office of Asso-
ciate Chief Counsel (Corporate). How-
ever, other personnel from the IRS and
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 is amended by adding an entry in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.1502–13also issued under
26 U.S.C. 1502. * * *
Par. 2. Section 1.1502–13 is amended
by revising paragraphs (c)(6)(ii)(C),
(f)(7)(i) and (f)(7)(ii)(A) to read as fol-
lows:
2008–15 I.R.B.750April 14, 2008

§1.1502–13 Intercompany transactions.
(c) * * *
(6) * * *
(ii) * * *
(C) [The text of proposed
§1.1502–13(c)(6)(ii)(C) is the same as
the text of §1.1502–13T(c)(6)(ii)(C)
published elsewhere in this issue of the
Bulletin].
(1) [The text of proposed
§1.1502–13(c)(6)(ii)(C)(1) is the same as
the text of §1.1502–13T(c)(6)(ii)(C)(1)
published elsewhere in this issue of the
Bulletin].
(C)(2) [The text of proposed
§1.1502–13(c)(6)(ii)(C)(2) is the same as
the text of §1.1502–13T(c)(6)(ii)(C)(2)
published elsewhere in this issue of the
Bulletin].
(C)(2)(i) [The text of pro-
posed§1.1502–13(c)(6)(ii)(C)(2)(i)
is the same as the text of
§1.1502–13T(c)(6)(ii)(C)(2)(i) published
elsewhere in this issue of the Bulletin].
*****
(f) * * *
(7) [The text of proposed
§1.1502–13(f)(7) is the same as the text of
§1.1502–13T(f)(7) published elsewhere
in this issue of the Bulletin].
(i)[Thetextofproposed
§1.1502–13(f)(7)(i) is the same as the
text of §1.1502–13T(f)(7)(i) published
elsewhere in this issue of the Bulletin].
(ii) [The text of proposed
§1.1502–13(f)(7)(ii) is the same as the
text of §1.1502–13T(f)(7)(ii) published
elsewhere in this issue of the Bulletin].
(A)[Thetextofproposed
§1.1502–13(f)(7)(ii)(A) is the same as
the text of §1.1502–13T(f)(7)(ii)(A)
published elsewhere in this issue of the
Bulletin].
*****
LindaE.Stiff,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on March 6, 2008,
8:45 a.m., and published in the issue of the Federal Register
for March 7, 2008, 73 F.R. 12312)
Announcement and Report Concerning Advance Pricing Agreements
Announcement 2008–27
March 27, 2008
This Announcement is issued pursuant to § 521(b) of Pub. L. 106–170, the Ticket to Work and Work Incentives Improvement Act
of 1999, which requires the Secretary of the Treasury to report annually to the public concerning Advance Pricing Agreements
(APAs) and the APA Program. The first report covered calendar years 1991 through 1999. Subsequent reports covered separately
each calendar year 2000 through 2006. This ninth report describes the experience, structure and activities of the APA Program
during calendar year 2007. It does not provide guidance regarding the application of the arm’s length standard.
Matthew W. Frank
Director, Advance Pricing Agreement Program
Background
Internal Revenue Code (IRC) § 482 providesthat the Secretary may distribute, apportion, or allocate gross income, deductions,
credits, or allowances between or among two or more commonly controlled businesses if necessary to reflect clearly the income
of such businesses. Under the § 482 regulations, the standard to beapplied in determining the true taxable income of a controlled
business is that of a business dealing at arm’s length with an unrelated business. The arm’s length standard has also been
adopted by the international community and is incorporated intothe transfer pricing guidelines issued by the Organization for
Economic Cooperation and Development (OECD). OECD,TRANSFER PRICING GUIDELINES FOR MULTINATIONAL
ENTERPRISES AND TAX ADMINISTRATORS (1995). Transfer pricing issues by their nature are highly factual and have
traditionally been one of the largest issues identified by the IRS in its audits of multinational corporations. The APA Program
is designed to resolve actual or potential transfer pricing disputes in a principled, cooperative manner, as an alternative to the
traditional examination process. An APA is a binding contract between the IRS and a taxpayer by which the IRS agrees not to
seek a transfer pricing adjustment under IRC § 482 for a covered transaction if the taxpayer files its tax return for a covered
year consistent with the agreed transfer pricing method (TPM). In 2007, the IRS and taxpayers executed 81 APAs and amended
eight APAs.
April 14, 20087512008–15 I.R.B.

Since 1991, with the issuance of Rev. Proc. 91–22, 1991–1 C.B. 526, the IRS has offered taxpayers, through the APA Program,
the opportunity to reach an agreement in advance of filing a tax return on the appropriate TPM to be applied to related party
transactions. In 1996, the IRS issued internal procedures for processing APA requests. Chief Counsel Directives Manual
(CCDM), ¶¶ 42.10.10 — 42.10.16 (November 15, 1996).
1
Also in 1996, the IRS updated Rev. Proc. 91–22 with the release of
Rev. Proc. 96–53, 1996–2 C.B. 375.
2
In 1998, the IRS published Notice 98–65, 1998–2 C.B. 803,
3
which set forth streamlined
APA procedures for small business taxpayers. Then on July 1, 2004, the IRS updated and superseded both Rev. Proc. 96–53 and
Notice 98–65 by issuing Rev. Proc. 2004–40, 2004–2 I.R.B. 50,
4
effective for all APA requests filed on or after August 19, 2004.
On December 19, 2005, the IRS again updatedthe procedural rules for processing and administering APAs with the release of
Rev. Proc. 2006–9, 2006–1 C.B. 278.
5
Rev. Proc. 2006–9 supersedes Rev. Proc. 2004–40 and is effective for all APA requests
filed on or after February 1, 2006.
Advance Pricing Agreements
An APA generally combines an agreement between a taxpayer andthe IRS on an appropriate TPM for the transactions at issue
(Covered Transactions) with an agreement between the U.S. andone or more foreign tax authorities (under the authority of the
mutual agreement process of our income tax treaties) that the TPM is correct. With such a“bilateral” APA, the taxpayer ordinarily
is assured that the income associated with the Covered Transactions will not be subject to double taxation by both the U.S. and
the foreign jurisdiction. It is the policy of the United States, as reflected in §§2.08 and 7 of Rev. Proc. 2006–9, to encourage
taxpayers that enter the APA Program to seek bilateral or multilateral APAs when competent authority procedures are available
with respect to the foreign country or countries involved. However, the IRS may execute an APA with a taxpayer without
reaching a competent authority agreement (a “unilateral” APA).
A unilateral APA is an agreement between a taxpayer and the IRS establishing an approved TPM for U.S. tax purposes. A
unilateral APA binds the taxpayer and the IRS, but does not prevent foreign tax administrations fromtaking different positions on
the appropriate TPM for a transaction. As stated in § 7.07 of Rev. Proc. 2006–9, should a transaction covered by a unilateral
APA be subject to double taxation as the result of an adjustment by a foreign tax administration, the taxpayer may seek relief
by requesting that the U.S. Competent Authority consider initiating a mutual agreement proceeding pursuant to an applicable
income tax treaty (if any).
When a unilateral APA involves taxpayers operating in a country that is a treaty partner, information relevant to the APA
(including a copy of the APA and APA annual reports) may be provided to the treaty partner under normal rules and principles
governing the exchange of information under income tax treaties.
The APA Program
An IRS team headed by an APA team leader is responsible for the consideration of each APA. As of December 31, 2007, the
APA Program had 19 team leaders. The team leader is responsible for organizing the IRS APA team. The IRS APA team leader
arranges meetings with the taxpayer, secures whatever informationis necessary from the taxpayer to analyze the taxpayer’s related
party transactions and the available facts under the arm’s lengthstandard of IRC § 482 and the regulations thereunder, and leads
the discussions with the taxpayer.
The APA team generally includes an economist, an internationalexaminer, LMSB field counsel, and, in a bilateral case, a U.S.
Competent Authority analyst who leads the discussions with the treaty partner. The economist may be from the APA Program or
the IRS field organization. As of December 31, 2007, the APAProgram had seven economists. The APA team may also include
an LMSB International Technical Advisor, other LMSB exam personnel, and an Appeals Officer.
The APA Process
The APA process is voluntary. Taxpayers submit an application for an APA, together with a user fee as set forth in Rev. Proc.
2006–9, § 4.12. The APA process can be broken into five phases: (1)application; (2) due diligence; (3) analysis; (4) discussion
and agreement; and (5) drafting, review, and execution.
1
Current CCDM provisions regardingAPA procedures are available athttp://www.irs.gov/irm/part32/ch04s01.html
2
Available athttp://www.irs.gov/pub/irs-irbs/irb96–49.pdf
3
Available athttp://www.irs.gov/pub/irs-irbs/irb98–52.pdf
4
Available athttp://www.irs.gov/pub/irs-irbs/irb04–29.pdf
5
Available athttp://www.irs.gov/irb/2006–02_IRB/ar12.html
2008–15 I.R.B.752April 14, 2008

(1)Application
In many APA cases, the taxpayer’s application is preceded by a pre-file conference with the APA staff in which the taxpayer
can solicit the informal views of the APA Program. Pre-file conferences can occur on an anonymous basis, although a taxpayer
must disclose its identity when it applies for an APA. Taxpayersmust file the appropriate user fee on or before the due date,
including extensions, of the tax return for the first taxable year that the taxpayer proposes to be covered by the APA. (If the
taxpayer receives an extension to file its taxreturn, it must file its user fee no later than the actual filing date of the return.) Many
taxpayers file a user fee first and then follow up with a full application later. The procedures for pre-file conferences, user fees,
and applications can be found in §§ 3 and 4 of Rev. Proc. 2006–9.
The APA application can be a relatively modest document for small businesses. Section 9 of Rev. Proc. 2006–9 describes
the special APA procedures for small business taxpayers. For most taxpayers, however, the APA application is a substantial
document filling several binders. APA applications must be accompanied by a declaration, signed by an authorized corporate
officer, attesting to the accuracy and completeness of the information presented.
The application is assigned to an APA team leader who is responsible for the case. The APA team leader’s first responsibility
is to organize the APA team. This involves contacting the appropriate LMSB International Territory Manager to secure the
assignment of an international examiner to the APA case and the LMSB Counsel’s office to secure a field counsel lawyer. In a
bilateral case, the U.S. Competent Authority will assign a U.S. Competent Authority analyst to the team. In a large APA case, the
international examiner may invite his or her manager and other LMSB personnel familiar with the taxpayer to join the team. If
the APA may affect taxable years in Appeals,the appropriate appellate conferee will be invited to join the team. In appropriate
cases, the APA team leader contacts the Manager, LMSB International Technical Advisors, to determine whether to include a
technical advisor on the team. The IRS APA team will generallyinclude a technical advisor if the APA request concerns cost
sharing, or a complex intangibles or services transaction. The APA team leader then distributes copies of the APA application to
all team members and sets up an opening conference with the taxpayer. The APA office strives to hold this opening conference
within 45 days of the assignment of the case to a team leader. At the opening conference, the APA team leader proposes a case
plan designed, if feasible, to complete a unilateral APA or, inthe case of a bilateral APA, the recommended U.S. negotiating
position within 12 months from the date the full application is filed. The actual median and average times for completing
unilateral APAs, recommended negotiating positions for bilateral APAs, and APAs for small business taxpayers are shown below
in Tables 2, 5, and 10, respectively.
(2)D
ueDiligence
The APA team must satisfy itself that the relevant facts submittedby the taxpayer are complete and accurate. This due diligence
aspect of the APA is vital to the process.It is because of this due diligence that the IRS can reachadvance agreements with
taxpayers in the highly factual setting of transfer pricing.Due diligence can proceed in a number of ways. Typically, the APA
team leader will submit in advance of the opening conference a list of questions to the taxpayer for discussion at the conference.
The opening conference may result in additional questions and an agreement to meet one or more times in the future. These
questions and meetings are not an audit and are focused on the transfer pricing issues associated with the transactions in the
taxpayer’s application, or other transactionsthat the taxpayer and the IRS may agree to add.
(3)A
nalysis
A significant part of the analytical work associated with anAPA is done typically by the APA economist and/or an IRS field
economist assigned to the case. The analysis may result in the need for additional information. Once the IRS APA team has
completed its due diligence and analysis, it begins discussions with the taxpayer over the various aspects of the APA including the
covered transactions, the TPM, the selection of comparable transactions, asset intensity and otheradjustments, the appropriate
critical assumptions, the APA term, and other key issues. The APA team leader will discuss particularly difficult issues with his or
her managers, but generally the APA teamleader is empowered to negotiate the APA.
(4)D
iscussionandAgreement
The discussion and agreement phase differs for bilateral and unilateral cases. In a bilateral case, the discussions proceed in two
parts and involve two IRS offices — the APA Program and the U.S. Competent Authority. In thefirst part, the APA team will
attempt to reach a consensus with the taxpayer regarding the recommended position that the U.S.Competent Authority should
take in negotiations with its treaty partner. This recommended U.S. negotiating position is a paper drafted by the APA team
leader and signed by the APA Director that provides the APA Program’s view of the best TPM for the Covered Transaction,
taking into account IRC § 482 and the regulations thereunder,the relevant tax treaty, and theU.S. Competent Authority’s
experience with the treaty partner.
April 14, 20087532008–15 I.R.B.

The experience of the APA office and the U.S. Competent Authority is that APA negotiations are likely to proceed more rapidly
with a foreign competent authority if the U.S. negotiating position is fully supported by the taxpayer. Consequently, the APA
office works together with the taxpayer in developing the recommended U.S. negotiating position. On occasion, the APA team
will agree to disagree with a taxpayer. In these cases, the APA office will send a recommended U.S. negotiating position to the
U.S. Competent Authority thatincludes elements with which the taxpayer does not agree. This disagreement is noted in the
paper. The APA team leader also solicits the views of the field members of the APA team, and, in the vast majority of APA
cases, the international examiner, LMSB field counsel, and other IRS field team members concur in the position prepared by
the APA team leader.
Once the APA Program completes the recommended U.S. negotiating position, the APA process shifts from the APA Program
to the U.S. Competent Authority. The U.S. Competent Authority analyst assigned to the APA takes the recommended U.S.
negotiating position and prepares the final U.S. negotiating position, which is then transmitted to the foreign competent authority.
The negotiations with the foreign competent authority are conducted by the U.S. Competent Authority analyst, most often in
face-to-face negotiating sessions conducted periodically throughout the year. At the request of the U.S. Competent Authority
analyst, the APA team leader may continue to assist the negotiations.
In unilateral APA cases, the discussions proceed solely betweenthe APA Program and the taxpayer. In a unilateral case, the
taxpayer and the APA Program must reachagreement to conclude an APA. As in bilateral cases, the APA team leader almost
always will achieve a consensus with the IRS field personnelassigned to the APA team regarding the final APA. Under APA
Program procedures, the IRS field personnel are solicited formally for their concurrence in the final APA. This concurrence, or
any item in disagreement, is noted in amemorandum prepared by the APA team leader that accompanies the final APA sent
forward for review and execution.
(5)D
rafting,Review,andExecution
Once the IRS and the taxpayer reach agreement, the final APA is drafted. The APA Program has developed standard language
that is incorporated into every APA. Thecurrent version of this language is found in Attachment A. APAs are reviewed by the
APA Branch Chief and the APA Director. In addition, the teamleader prepares a summary memorandum for approval by the
Associate Chief Counsel (International) (ACC(I)). On March 1, 2001, the ACC(I) delegated to the APA Director the authority
to execute APAs on behalf of the IRS.SeeChief Counsel Notice CC–2001–016. The APA is executed for the taxpayer by an
appropriate corporate officer.
Model APA at Attachment A
[§ 521(b)(2)(B)]
Attachment A contains the current version of the model APA language.
The Current APA Office Structure, Composition, and Operation
In 2007, the APA office consisted of four branches, with Branches 1 and 3 staffed with APA team leaders and Branch 2 staffed
with economists. Branch 4, the APA West Coast branch, is headquartered in Laguna Niguel, California, with an additional office
in San Francisco, and is staffed with both team leaders and economists.
Overall, the APA staff decreased from 40 at the end of 2006 to37 at the end of 2007. The decrease of three resulted from the
departure of a team leader, an economist, and a special counsel.
2008–15 I.R.B.754April 14, 2008

As of December 31, 2007, the APA staff was as follows:
Notwithstanding the decrease in the number of persons on staff from the end of 2006 to the end of 2007, total staffing measured
by hours rose three percent in 2007 over the prior year due to the full-year presence of several persons hired in mid–2006. The
change in APA staffing levels over the lastsix years is reflected in the table below.
Hours of APA attorneys, economists, and paralegal staff by year (excluding holiday and leave)
APAIssue/IndustryCoordinationTeams
In May 2005, the IRS Chief Counsel announced a series of initiatives to improve APA Program performance. One initiative was
to increase specialization within the office by creating teams of select individuals to handle all cases of a particular type. The
purpose was to increase efficiency, quality, and consistency.
The APA Program selected five categories of cases for specialization — cases involving cost sharing arrangements, financial
products, the semiconductor industry, the automotive industry, and the pharmaceutical industry. These categories were selected
because they each had a sufficient number of cases and commonality of issues to warrant their assignment to teams. Cases falling
within these five categories have historically accounted for about 40 percent of the APA Program’s case load and more than half
of its total case time. At the end of 2007, cases within these five categories account for 43 of the 105 cases pending in the office
that were either unilateral APAs or bilateral APAs that had not yet been forwarded to Competent Authority.
April 14, 20087552008–15 I.R.B.

Staffing of the coordination teams at the end of 2007 is indicated below.
The APA
Program is mindful that the purpose of the coordination effort is not to impose the same transfer pricing method on all
taxpay
ers in an industry. The appropriate transfer pricing method remains a case-by-case determination, influenced by numerous
factor
s that are not common to all companies operating in a particular industry. While the coordination effort may result in the
APA Pro
gram promoting a common approach on some issues where appropriate, theProgram expects that the greater industry
famili
arity developed through the coordination effort will also allow it to develop a more sophisticated understanding of issues
that w
ill permit more tailored approaches, thereby promoting more (appropriately) varied results than might otherwise be the case.
A
PATr
aining
In 200
7, the APA office continued its training activities. Training sessions addressed APA-related current developments,
regul
atory developments, new APA office practices and procedures, and international taxlaw issues. APA economists
also r
eceived training on a new spreadsheet model that performscalculations in a Comparable Profits Method (“CPM”)
analy
sis. This model was built by APA economists and is now routinely used by the APA office when performing
CPM an
alyses. The training materials used for new hires are available to the public through the APA internet site at
http
://www.irs.gov/businesses/corporations/article/0,,id=96221,00.html.
6
These materials do not constitute guidance on the
appl
ication of the arm’s length standard and are not to be relied upon or cited as precedent.
6
Copies of the spreadsheet model referenced in the text are available from the APA Program by calling 202–435–5220 (not a toll-free number) or by writingtoOfficeofAssociateChief
Counsel (International), Advance Pricing Agreement Program, Attn: CC:INTL:APA, MA2–266, 1111 Constitution Ave., NW, Washington DC 20224.
2008–15 I.R.B.756April 14, 2008

APA Program Statistical Data
[§ 521(b)(2)(C) and (E)]
The statistical information required under § 521(b)(2)(C) is contained in Tables 1 and 10 below; the information required
under § 521(b)(2)(E) is contained in Tables 2 and 3 below:
TABLE 1: APA APPLICATIONS, EXECUTED APAs, AND PENDING APAs
UnilateralBilateralMultilateral
Year
Total
Cumulative
Total
APA applications filed during year
2007
2864921129
All APAs executed
7
Year 200726
54
181773
1991–2006324
359
9692
APA renewals executed during year
2007
131629209
APAs revised or amended during
year 2007
62841
Pending requests for APAs40209249
Pending requests for new
APAs
29141170
Pending requests for renewal
APAs
116879
APAs canceled or revoked3038
APAs withdrawn0
55
126
TABLE 2: MONTHS TO COMPLETE APAS
Months to Complete Advance Pricing Agreements in Year 2007
All NewAll RenewalsAll Combined
Average38.2Average
25.5
Average33.7
Median
35.9
Median26.6Median31.2
Unilateral
New
Unilateral
Renewals
Unilateral
Combined
Average18.7Average13.3Average16.0
Median16.7Median12.2Median14.6
Bilateral/Multilateral
New
Bilateral/Multilateral
Renewals
Bilateral/Multilateral
Combined
Average44.7Average
35.4
Average42.0
Median42.3Median38.3Median40.4
7
All APAs executed include APA renewals but not APAs revised or amended.
April 14, 20087572008–15 I.R.B.

TABLE 3: APA COMPLETION TIME – MONTHS PER APA
Months
Number
of APAsMonths
Number
of APAsMonths
Number
of APAsMonths
Number
of APAs
123
1
45
1
67
2
22446
1
68
1
3254769
426
1
4870
5
27
2
49
1
71
628
1
50
1
72
7
29
3
51
2
73
83052
3
74
9
2
31
2
53
275
10
2
325476
1
11
3
33
355177
12
2
3456
1
78
13
2
35
1571
79
14
2
36
1
5880
15
2
37
1
5981–90
16
3
38
2
6091–100
17
4
39
2
61
1
101–110
18
3
40
2
62111–120
19
1
4163121–130
1
20
2
42
4
64131–140
21
2
43
1
65141–150
22
1
44
2
66
1
151–160
TABLE 4: RECOMMENDED NEGOTIATING POSITIONS
Recommended Negotiating Positions Completed in Year 200762
TABLE 5: MONTHS TO COMPLETE RECOMMENDED NEGOTIATING POSITIONS
NewRenewal
Combined
Average17.0Average17.8Average17.4
Median14.7Median
15.7
Median14.7
2008–15 I.R.B.758April 14, 2008

TABLE 6: RECOMMENDED NEGOTIATING POSITIONS COMPLETION TIME – MONTHS PER APA
MonthsNumberMonthsNumberMonthsNumberMonthsNumber
112
2
2334
2
213
8
2435
314
9
2536
41552637
1
5
16
8
2738
2
617
2
2839
71
18
2
29
2
40
8
3
193041
9
2
20
2
3142
10
3
21
4
3243
11
1
22
1
33
1
44
1
Tables 7 and 8 below show how long each APA request pending at the end of 2007 has been in the system as measured from
the filing date of the APA submission. The numbers for pending unilateral and bilateral cases differ from the numbers in
Table 1 because Tables 7 and 8 reflect only cases for which submissions have been received while Table 1 includes any case
for which a user fee has been paid.
TABLE 7: UNILATERAL APAs – TIME IN INVENTORY – MONTHS PER APA
Months
Number
of APAsMonths
Number
of APAsMonths
Number
of APAsMonths
Number
of APAs
15
71
13
1
19
4
2
2
81420
1
39
1
1521
4
1
10
3
16
1
22
51
11
1
1723
2
6
1
1218
1
24
TABLE 8: BILATERAL APAs – TIME IN INVENTORY – MONTHS PER APA
Months
Number
of APAsMonths
Number
of APAsMonths
Number
of APAsMonths
Number
of APAs
1
11
2755379
1
2
2
28
2
5480
3
7
29
455
81
4
2
30
2
56
1
82
54
31
157
83
1
April 14, 20087592008–15 I.R.B.

Months
Number
of APAsMonths
Number
of APAsMonths
Number
of APAsMonths
Number
of APAs
6
8
32
1
5884
74
33
3
59
1
85
8534
3
6086
9
11
35
4
61
2
87
10
2
36
6
6288
11
9
37
1
63
1
89
12
4
38
1
6490
13
2
39
4
6591
14406692
15
2
41
2
67
3
93
16
7
42
1
6894
17
7
43
2
6995
18
4
44
2
70
1
96
19545
1
71
1
97
20
6
46
4
7298
215477399
22
1
48
1
74100
23549
175
101
2
24
4
50
1
76102
25
4
51
77
103
26
4
5278104
Of the 217 cases in the APA Program’s inventory shown in Tables 7 and 8, 112 cases (all of which are reflected in Table 8) are
bilateral cases that have been forwarded to the Competent Authority office for discussion with a treaty partner. This leaves 105
cases in the APA Program’s active inventory at the end of 2007 thatare either unilateral APAs (26 cases) or bilateral APAs for
which the APA Program has not yet completed a recommended negotiating position (79 cases).
The table below shows the average age (in months) of the 105 active cases in inventory at the end of 2007, along with a
comparison of the number of active cases and their average ageat year-end for each year back to 2003. The table also shows the
same information for cases that were at least 6 months old or 1 year old (the latter being a subset of the former) at the end of
each year to allow comparison without potential distortions caused by year-to-year variations in the number of cases received in
the latter half or during the course of the year.
TABLE 9: NUMBER AND AVERAGE AGE OF ACTIVE CASES IN INVENTORY AT YEAR-END
20032004200520062007
Active cases106130133110
105
Average age (months)
15.115.2
13.210.69.1
Active cases 6+ months78106878166
2008–15 I.R.B.760April 14, 2008

20032004200520062007
Average age (months)19.417.8
18.5
13.013.0
Active cases 1+ year4660
55
3227
Average age (months)26.824.223.319.4
18.5
TABLE 10: SMALL BUSINESS TAXPAYER APAs
Small Business Taxpayer APAs Completed in Year 200711
New6
Renewals
5
Unilateral8
Bilateral3
TABLE 11: MONTHS TO COMPLETE SMALL BUSINESS TAXPAYER APAs
Months to Complete Small Business Taxpayer APAs in Year 2007
NewRenewal
Combined
Average
23.5
Average17.8Average20.9
Median17.8Median13.3Median14.1
TABLE 12: INDUSTRIES COVERED
8
Industry Involved – NAICS Codes
Number
Wholesale trade, durable goods – 42116–18
Computer and electronic product manufacturing – 33410–12
Miscellaneous manufacturing – 33910–12
Electronic equipment, appliance and component manufacturing – 335
7–9
Transportation equipment manufacturing – 3364–6
Chemical manufacturing – 325
4–6
Professional, scientificand technical services – 545
4–6
Food manufacturing – 3111–3
Securities, commodity contracts and other intermediary and related activities – 523
1–3
Motor vehicle and parts dealers – 4411–3
General merchandise stores – 452
1–3
Beverage and tobacco manufacturing – 3121–3
Apparel manufacturing – 315
1–3
Air transportation – 4811–3
8
The categories in this table are drawn from the North American Industry Classification System (NAICS), which has replaced the U.S. Standard Industrial Classification (SIC) system. NAICS
was developed jointly by the U.S., Canada, and Mexico to provide new comparability in statistics about business activity across North America.
April 14, 20087612008–15 I.R.B.

Industry Involved – NAICS Codes — Continued
Number
Machinery manufacturing – 3331–3
Plastics and rubber products manufacturing – 3261–3
Health and personal care stores – 4461–3
Oil and gas extraction – 2121–3
Accommodation – 7211–3
Trades or Businesses
[§ 521(b)(2)(D)(i)]
The nature of the relationships between the related organizations, trades, or businesses covered by APAs executed in 2007 is
set forth in Table 13 below:
TABLE 13: NATURE OF RELATIONSHIPS BETWEEN RELATED ENTITIES
RelationshipNumber of APAs
Foreign Parent – U.S. Subsidiary (-ies)
52
Unilateral21
Bilateral31
U.S. Parent – Foreign Subsidiary (-ies)28
Unilateral5
Bilateral23
Foreign Company and U.S. branch(es)≤3
Unilateral0
Bilateral≤3
U.S. Company and non-U.S. branch(es)0
Unilateral0
Bilateral0
Partnership0
Unilateral0
Bilateral0
Covered Transactions
[§ 521(b)(2)(D)(ii)]
The controlled transactions covered by APAs executed in 2007 are set forth in Table 14 and Table 15 below:
TABLE 14: TYPES OF COVERED TRANSACTIONS
Transaction Type
Number
Sale of tangible property into the U.S.47
Performance of services by U.S. entity33
Sale of tangible property from the U.S.20
2008–15 I.R.B.762April 14, 2008

Transaction Type — Continued
Number
Performance of services by Non-U.S. entity17
Use of intangible property by Non-U.S. entity14
Use of intangible property by U.S. entity14
R&D cost sharing – Non-U.S. parent
5
Financial products – U.S. branch of foreign company≤3
R&D cost sharing – U.S. parent≤3
Sale of intangible property from the U.S.≤3
TABLE 15: TYPES OF SERVICES INCLUDED IN COVERED TRANSACTIONS
Intercompany Services Involved in the Covered Transactions
Number
Marketing20
Distribution20
Technical support services17
Sales support12
Administrative11
Management9
Contract research & development9
Product support8
Research and development7
Logistical support7
Assembly7
Headquarters costs6
Accounting
5
Communication service
5
Purchasing
5
Legal4
“Destination services” – hotel & reservations4
Manufacturing services4
Billing services≤3
Warranty services≤3
License administration services≤3
Consulting≤3
Testing and installation services≤3
April 14, 20087632008–15 I.R.B.

Business Functions Performed and Risks Assumed
[§ 521(b)(2)(D)(ii)]
The general descriptions of the business functions performed and risks assumed by the organizations, trades, or businesses whose
results are tested in the Covered Transactions in the APAs executed in 2007 are set forth in Tables 16 and 17 below:
TABLE 16: FUNCTIONS PERFORMED BY THE TESTED PARTY
Functions Performed
Number
Distribution functions71
Marketing functions37
Manufacturing33
Technical training and tech support for salesstaff (including sub-distributors)30
Managerial, legal, accounting, finance, personnel, and other support services
25
Transportation and warehousing23
Product assembly and/or packaging22
Research and development17
Product testing and quality control17
Product design and engineering16
Purchasing and materials management14
Product service (repairs, etc.)12
Process engineering10
Licensing of intangibles8
Consulting services
5
Telecom services≤3
Engineering and construction related services≤3
Trading and risk management of financial products≤3
TABLE 17: RISKS ASSUMED BY THE TESTED PARTY
Risks Assumed
Number
Market risks, including fluctuations incosts, demand, pricing, & inventory98
General business risks (e.g., related to ownership of PP&E)80
Credit and collection risks67
Financial risks, including interest rates & currency37
Product liability risks26
R&D risks14
2008–15 I.R.B.764April 14, 2008

Discussion
The majority of APAs have Covered Transactions that involve numerous business functions and risks. For instance, with respect
to functions, multinational groups that manufacture products typically conduct research and development, engage in product
design and engineering, manufacture the product, market and distribute the product, and perform support functions such as legal,
finance, and human resources services. Regarding risks, these groups are subject to market risks, R&D risks, financial risks,
credit and collection risks, product liability risks, and general business risks. In the APA evaluation process, a significant
amount of time and effort is devoted to understanding how the functions and risks are allocated among the controlled group of
companies that are party to the Covered Transactions.
In its APA submission, the taxpayer must provide a functional analysis. The functional analysis identifies the economic activities
performed, the assets employed, the economic costs incurred, and the risks assumed by each of the controlled parties. The
importance of the functional analysis derives from the economic theory positing that there is a positive relationship between risk
and expected return and that different functions provide different value and have different opportunity costs associated with them.
It is important that the functional analysis go beyond simply categorizing the tested party as, say, a distributor. It should provide
more specific information because, in the example of distributors, not all distributors undertake similar functions and risks.
The functional analysis is critical in determining the appropriate TPM (including the selection of comparables, tested party and
PLI). In conjunction with evaluating the functional analysis, the APA Program considerscontractual terms between the controlled
parties, the allocation of risk between the parties, the relevanteconomic conditions, and the type of property or services at issue.
In assessing contractual terms and risk allocations, the APA Program considers notonly written agreements between the parties,
but also the economic substance of the transactions as indicatedby the conduct of the parties over time, the financial capacity
of each party to fund losses arising from risks, and the managerial or operational control each party exercises over activities
giving rise to risk. Relevant economic conditions reviewed often include the geographic market and level of market in which the
functions are performed, and the business cycle or general economic condition of the industry under review.
The APA Program’s evaluation of the functional analysis also considers the assets or other resources employed by each controlled
party. In this evaluation, each party’s ownership or investment in valuable intangible assets is often an important consideration.
Related Organizations, Trades, or Businesses Whose Prices or Results are Tested to Determine
Compliance with APA Transfer Pricing Methods
[§ 521(b)(2)(D)(iii)]
The related organizations, trades, or businesses whose prices orresults are tested to determine compliance with TPMs prescribed
in APAs executed in 2007 are set forth in Table 18 below:
TABLE 18: RELATED ORGANIZATIONS, TRADES, OR BUSINESSES WHOSE PRICES OR RESULTS ARE TESTED
9
Type of Organization
Number
U.S. distributor41
U.S. provider of services22
U.S. manufacturer18
Multiple tested parties17
Non-U.S. distributor16
Non-U.S. provider of services
15
Non-U.S. manufacturer8
U.S. participant in cost sharing agreement4
U.S. licensee of intangible property≤3
U.S. licensor of intangible property≤3
Non-U.S. licensee of intangible property≤3
9
“Multiple tested parties” includes covered transactions that utilize profit splits, CUPs, and CUTs.
April 14, 20087652008–15 I.R.B.

Type of Organization — Continued
Number
Non-U.S. participant in cost sharing agreement≤3
Non-U.S. purchaser of intangible property≤3
Other≤3
Transfer Pricing Methods and the Circumstances Leading to the Use of Those Methods
[§ 521(b)(2)(D)(iv)]
The TPMs used in APAs executed in 2007 are set forth in Tables 19–20 below:
TABLE 19: TRANSFER PRICING METHODS USED FOR TRANSFERS OF
TANGIBLE AND INTANGIBLE PROPERTY
10
TPM UsedNumber
CPM: PLI is operating margin43
CPM: PLI is Berry ratio16
CPM: PLI is markup on total costs13
Residual profit split11
CPM: PLI is gross margin10
CUT (intangibles only)9
CPM: PLI is return on assets or capital employed
5
Comparable profit split≤3
Cost with no markup≤3
Cost Plus Method (tangibles only)≤3
Resale Price Method (tangibles only)≤3
CUP (tangibles only) – not based on published market data≤3
Other≤3
TABLE 20: TRANSFER PRICING METHODS USED FOR SERVICES
TPM UsedNumber
Cost plus a markup13
CPM: PLI is markup on total costs12
Comparable Uncontrolled Transaction6
CPM: PLI is Berry ratio
5
Cost with no markup4
CPM: PLI is operating margin≤3
CPM:PLIisreturnonassets≤3
Other≤3
10
Profit Level Indicators (PLIs) used with the Comparable Profit Method of Treas. Reg. § 1.482–5, and as used in these TPM tables, are as follows: (1) operating margin (ratio of operating
profit to sales); (2) Berry ratio (ratio of gross profit to operating expenses); (3) gross margin (ratio of gross profit to sales); (4) markup on total costs (percentage markup on total costs); and
(5) rate of return on assets or capital employed (ratio of operating profit to operating assets).
2008–15 I.R.B.766April 14, 2008

Discussion
The TPMs used in APAs completed during 2007 were based on the section 482 regulations. Under Treas. Reg. § 1.482–3, the
arm’s length amount for controlled transfers of tangible property may be determined using the Comparable Uncontrolled Price
(CUP) method, the Resale Price Method, the Cost Plus Method, the Comparable Profits Method (CPM), or the Profit Split
Method. Under Treas. Reg. § 1.482–4, the arm’s length amount for controlled transfers of intangible property may be determined
using the Comparable Uncontrolled Transaction (CUT) method, the CPM, or the Profit Split Method. An “Unspecified Method”
may be used for transfers of either tangible or intangible property if it provides a more reliable result than the enumerated
methods under the best method rule of Treas. Reg. § 1.482–1(c).
For transfers involving the provision of services, Treas. Reg. § 1.482–2(b) provided that services performed for the benefit of
another member of a controlled group should bear an arm’s length charge, either deemed to be equal to the cost of providing the
services or an amount that would have been charged between independent parties. Generally effective beginning 2007, Temp.
Reg. § 1.482–9T provides that the arm’s length charge for controlled services transactions may be determined under the Services
Cost Method, the Comparable Uncontrolled Services Price (CUSP) method, the Gross Services Margin method, the Cost of
Services Plus method, the CPM, the Profit Split Method, or an Unspecified Method. In addition, Treas. Reg. § 1.482–2(a)
provides rules concerning the proper treatment of loans or advances.
Treas. Reg. § 1.482–7 provides rules for qualified cost sharing arrangements under which the parties agree to share the costs of
developing intangibles in proportion to their shares of reasonably anticipated benefits. APAs involving cost sharing arrangements
generally address both the method of allocating costs among the parties as well as determining the appropriate amount of the
“buy-in” payment due for the transfer of pre-existing intangibles to the controlled participants. In 2007, the APA Program
completed four cost sharing and/or buy-in APAs, split between outbound and inbound transactions and unilateral and bilateral.
The APA Program also completed its recommendations on three or fewer additional bilateral cost sharing/buy-in cases and sent
those on to Competent Authority. The buy-in cases included both initial and subsequent buy-in/buy-out transactions. The
methods used in the completed and pending buy-in cases includedvaluations based on discounted cash flows and other types of
analyses. In addition, the Program is currently working on approximately half a dozen more cases involving cost sharing/buy-ins,
split evenly between bilateral and unilateral.
In reviewing the TPMs applicable to transfers of tangible and intangible property reflected in Table 19, the majority of the APAs
followed the specified methods. However,several points should be made. The section 482 regulations note that for transfers
of tangible property, the CUP method will generally be the most direct and reliable measure of an arm’s length price for the
controlled transaction if sufficiently reliable comparable transactions can be identified. Treas. Reg. § 1.482–3(b)(2)(ii)(A). It
was the experience of the APA Program in 2007, that in the cases that came into the APA Program, sufficiently reliable CUP
transactions were difficult to find.
Similar to the CUP method, for transfers of intangible property the CUT method will generally provide the most reliable measure
of an arm’s length result if sufficiently reliable comparablesmay be found. Treas. Reg. § 1.482–4(c)(2)(ii). It has generally been
difficult to identify external comparables, and APAs using the CUT method tend to rely on internal transactions between the
taxpayer and unrelated parties. In 2007, nine Covered Transactions utilized the CUT TPM.
The Cost Plus Method (tangibles only) and Resale Price Method were each applied in 2007 in three or fewer APAs. See Treas.
Reg. § 1.482–3(c), (d).
The CPM is frequently applied in APAs. That is because reliable public data on comparable business activities of independent
companies may be more readily available than potential CUP data, and comparability of resources employed, functions, risks, and
other relevant considerations are more likely to exist than comparability of product. The CPM also tends to be less sensitive than
other methods to differences in accounting practices between the tested party and comparable companies,e.g., classification of
expenses as cost of goods sold or operating expenses. Treas. Reg. §1.482–3(c)(3)(iii)(B) and –3(d)(3)(iii)(B). In addition, the
degree of functional comparability required to obtain a reliableresult under the CPM is generally less than that required under
the Resale Price or Cost Plus methods. Lesser functional comparability is required because differences in functions performed
often are reflected in operating expenses, and thus taxpayers performing different functions may have very different gross profit
margins but earn similar levels of operating profit. Treas. Reg. § 1.482–5(c)(2).
Table 19 reflects 87 uses of the CPM (with varying PLIs) in Covered Transactions involving tangible or intangible property. In
some APAs, the CPM was also used concurrently with other methods.
The CPM has proven to be versatile in partbecause of the various PLIs that can be used in connection with the method. Reaching
agreement on the appropriate PLI has beenthe subject of much discussion in many ofthe cases, and it depends heavily on the
facts and circumstances. Some APAs have called for different PLIs to apply to different parts of the Covered Transactions or
applied a secondary PLI as a check against the primary PLI.
April 14, 20087672008–15 I.R.B.

The CPM was also used regularly with services as the Covered Transactions in APAsexecuted in 2007. There were at least 19
services Covered Transactions using the CPM method with variousPLIs according to the specific facts of the taxpayers involved.
Table 20 reflects the methods used to determine the arm’s length results for APAs involving services transactions.
In 2007, 11 APAs involving tangible or intangible property used the Residual Profit Split Method. Treas. Reg. § 1.482–6(c)(3). In
residual profit split cases, routine contributions by the controlled parties are allocated routine market returns, and the residual
income is allocated among the controlled taxpayers based upon the relative value of their contributions of non-routine intangible
property to the relevant business activity.
Profit splits have also been used in a number of financial product APAs in which the primary income-producing functions
are performed in more than one jurisdiction.
Critical Assumptions
[§ 521(b)(2)(D)(v)]
Critical Assumptions used in APAs executed in 2007 are described in Table 21 below:
TABLE 21: CRIT
ICAL ASSUMPTIONS
Critical Assumptions involving the following:Number of APAs
Material changes to the business81
Material changes to tax and/or financial accounting practices81
Assets will remain substantially same9
Other financial ratio8
Catastrophic events4
Material sales fluctuations≤3
Minimum sales volume≤3
Currency fluctuations≤3
Major regulatory changes≤3
Major technological changes≤3
Changes in market shares≤3
Sales territories substantially same≤3
Inventory fluctuations≤3
Terms of business with related party that is not covered by APA≤3
Risks assumed will remain substantially the same≤3
Limit on royalties≤3
Other≤3
Discussion
APAs include critical assumptions upon which their respective TPMs depend. A critical assumption is any fact (whether or not
within the control of the taxpayer) related to the taxpayer, a third party, an industry, or business and economic conditions, the
continued existence of which is material to the taxpayer’s proposed TPM. Critical assumptions might include, for example, a
particular mode of conducting business operations, a particularcorporate or business structure, or a range of expected business
volume. Rev. Proc. 2006–9, § 4.05. Failure to meet a critical assumption may render an APA inappropriate or unworkable. Most
APAs contain only the standard criticalassumption language set forth in Appendix B of the Model APA (Attachment A to this
Announcement and Report). Where appropriate, additional critical assumption language may be added but the APA Program
generally seeks to limit additionalcritical assumption language to objective, measurable benchmarks.
2008–15 I.R.B.768April 14, 2008

A critical assumption may change or fail to materialize due to changes in economic circumstances, such as a fundamental and
dramatic change in the economic conditions of a particular industry. In addition,a critical assumption may change or fail to
materialize due to a taxpayer’s actions that are initiated for good faith business reasons, such as a change in business strategy,
mode of conducting operations, or the cessation or transfer of a business segment or entity covered by the APA.
If a critical assumption has not been met, the APA may be revisedby agreement of the parties. If such an agreement cannot be
achieved, the APA is canceled. If a critical assumption has not beenmet, the taxpayer must notify and discuss the APA terms with
the Service, and, in the case of a bilateral APA, competent authority consideration is initiated. Rev. Proc. 2006–9, § 11.05, 11.06.
Sources of Comparables, Selection Criteria, and the Nature of Adjustments to Comparables and Tested Parties
[§ 521(b)(2)(D)(v), (vi), and (vii)]
The sources of comparables, selection criteria, and rationale used in determining the selection criteria for APAs executed in
2007 are described in Tables 22 through 24 below. Various formulas for making adjustments to comparables are included as
Attachment B.
TABLE 22: SOURCES OF COMPARABLES
Comparable Sources
Number of Times This
Source Used
Compustat98
Disclosure32
Mergent14
Worldscope8
Japanese Accounts and Data on Enterprises (“JADE”)8
Internal CUTs6
Interpreter and OneSource
5
Taxpayer’s information on competition4
Amadeus≤3
Japan Company Handbook≤3
Teikoku Databank (TDB) database≤3
S&P’s GlobalVantage≤3
Tokyo Shoko Research≤3
Yuka Shoken Hokokusho (“Japanese SEC Report”)≤3
TABLE 23: COMPARABLES SELECTION CRITERIA
Selection Criteria Considered
Number of Times This
Criterion Used
Comparable functions121
Comparable risks102
Comparable industry94
Comparable intangibles
65
Comparable products
57
Comparable terms10
April 14, 20087692008–15 I.R.B.

TABLE 24: ADJUSTMENTS TO COMPARABLES OR TESTED PARTIES
AdjustmentNumber of Times Used
Balance sheet adjustments
Payables78
Inventory77
Receivables77
Property, plant, equipment7
Other≤3
Accounting adjustments
LIFO to FIFO inventory accounting34
Accounting reclassifications (e.g., from COGS to operating expenses)11
Stock option9
Reclassifying certain amortization≤3
Special items≤3
US GAAP to foreign GAAP≤3
Other≤3
Profit level indicator adjustments (used to “back into” one PLI from another)
Operating expense6
Other≤3
Miscellaneous adjustments
Goodwill value or amortization6
Foreign exchange≤3
Geographic adjustments≤3
Marketing allowance≤3
Other≤3
Discussion
At the core of most APAs are comparables. The APA Program works closely with taxpayers to find the best and most reliable
comparables for each Covered Transaction. In some cases, CUPs or CUTs can be identified. In other cases, profit data on
comparable business activities of independent companies areused in applying the CPM or a profit split method. Generally, in
the APA Program’s experience since 1991, CUPs and CUTs have been most often derived fromthe internal transactions of
the taxpayer.
For profit-based methods in which comparable business activities or functions of independent companies are sought, the APA
Program typically has selected them using a three-part process. First, a pool of companies with potentially comparable business
activities has been identified through broadsearches. From this pool, companies performing business activities that are clearly
not comparable to those of the tested party have been eliminatedthrough the use of quantitative and qualitative analyses,i.e.,
quantitative screens and review of business descriptions. Then,based on a review of available descriptive and financial data,
a set of comparable independent companies has been finalized. The comparability of the final set has then been enhanced by
adjusting their financial data.
2008–15 I.R.B.770April 14, 2008

SourcesofComparables
Comparables used in APAs can be U.S. or foreign, depending on the relevant market, the type of transaction being evaluated,
the availability of relevant data, and the results of the functional and risk analyses. In general, comparables have been located
by searching a variety of databases that provide data on U.S. publicly traded companies and on a combination of public and
private non-U.S. companies. Table 22 shows the various databases and other sources used in selecting comparables for
the APAs executed in 2007.
Although comparables were most often identified from the databases cited in Table 22, in some cases comparables were found
from other sources, such as comparables derived internally from taxpayer transactions with third parties.
S
electingComparables
Initial pools of potential comparables generally are derived from the databases using a combination of industry and keyword
identifiers. Then, the pool is refined using a variety of selection criteria specific to the transaction or business activity being
tested and the TPM being used.
The listed databases allow for searches byindustrial classification, by keywords, or by both. These searches can yield a number of
companies whose business activities may or may not be comparable to those of the entity being tested. Therefore, comparables
based solely on industry classification or keyword searches are rarely used in APAs. Instead, the pool of comparables is examined
closely, and companies are selected based on a combination of screens, business descriptions, and other information such as
that found in the companies’ Annual Reports to shareholders and filings with the U.S. Securities and Exchange Commission
(SEC), company websites, and investment analyst reports.
Business activities of independent companies generally mustmeet certain basic comparability criteria to be considered
comparable. The independent company’s functions, risks, and economic conditions, and the property (product or intangible) and
services associated with the company’s business activities, must be comparable to those involved in the Covered Transaction.
Determining comparability requires judgment — the goal has been touse comparability criteria restrictive enough to eliminate
business activities that are not comparable, but yet not so restrictive as to leave no comparables remaining. The APA Program
normally has begun with relatively strict comparability criteria and then has relaxed them slightly if necessary to derive a pool
of reliable comparables. A determination on the appropriate size of the comparables set, as well as the business activities that
comprise the set, is highly fact-specific anddepends on the reliability of the results.
In addition, the APA Program, consistent with the section 482 regulations, generally has looked at the results of comparables over
a multi-year period. Often thishas been a three-year or a five-year period, but other periods are sometimes used depending on the
circumstances of the controlled transaction. Using a shorter period might result in the inclusion of comparables in different stages
of economic development or use of atypical years of a comparable due to cyclical fluctuations in business conditions.
Many Covered Transactions have been tested with comparables that have been chosen using additional criteria and/or screens.
These include sales level criteria and testsfor financial distress and product comparability. These common selection criteria and
screens have been used to increase the overall comparability of a group of companies and as a basis for further research. The sales
level screen, for example, has been used to remove companies that,due to their smaller size, might face fundamentally different
economic conditions from those of the transaction or business activities being tested. In addition, APA analyses have incorporated
selection criteria designed to identify andremove companies experiencing “financial distress” because of concerns that companies
in financial distress face unusual circumstances and operational constraints that render them not comparable to the business
activity being tested. These “financial distress” criteria may include an unfavorable auditor’s opinion, bankruptcy, failure to
comply with financial obligations (e.g., debt covenants), and, in certain circumstances, operating losses in a given number of years.
An additional important class of selection criteria is the development and ownership of intangible property. Most often,
comparables are sought to test the results of a business activity that does not employ significant intangible assets or engage in
intangible development. Thus, for example, in some cases in which the tested business activity is manufacturing conducted by
a controlled entity that does not own significant manufacturing intangibles or conduct research and development (R&D),
several criteria have been used to ensure that the comparables similarly do not own significant intangibles or conduct R&D.
These selection criteria have included determining the importance of patents to a company or screening for R&D expenditures
as a percentage of sales. Similar selection criteria may be applied to ensure, where appropriate, that the comparables do not
own or develop significant marketing intangibles such as valuable trademarks. Again, quantitative screens related to identifying
comparables with significant intangible property generally have been used in conjunction with an understanding of the comparable
derived from publicly available business information.
April 14, 20087712008–15 I.R.B.

Selection criteria relating to asset comparability and operating expense comparability have also been used at times. A screen of
property, plant, and equipment (PP&E) as a percentage of sales or assets, combined with a reading of a company’s SEC filings,
has been used to help ensure that distributors (generally lower PP&E) were not compared with manufacturers (generally higher
PP&E), regardless of their industry classification. Similarly, a test involving the ratio of operating expenses to sales has helped to
determine whether a company undertakes a significant marketing and distribution function.
Table 25 shows the number of times various screens were used in APAs executed in 2007:
TABLE 25: COMPARABILITY SCREENS
Comparability/Financial Distress ScreenTimes Used
Comparability screens used
Sales
57
R&D/ sales
54
Foreign sales/ total sales26
SG&A/ sales24
Advertising/ sales10
Non-startup or start-up8
Inventory/ sales7
Operating expenses/ sales4
Sales to specific customer segment/ total sales4
Market value/ book value≤3
PP&E/ sales≤3
Specific type of segmented sales (e.g., parts)/ total sales≤3
Book value of intangibles/ total assets≤3
SG&A/ COGS≤3
Stock option compensation/ total compensation≤3
PP&E/ total assets≤3
Financial distress
Bankruptcy
54
Unfavorable auditor’s opinion37
Losses in one or more years33
AdjustingComparables
After the comparables have been selected, theregulations require that “[i]f there are material differences between the controlled
and uncontrolled transactions, adjustments must be made if the effect of such differences on prices or profits can be ascertained
with sufficient accuracy to improve the reliability of the results.” Treas. Reg. § 1.482–1(d)(2). In almost all cases involving
income-statement-based PLIs used in the CPM or the Residual Profit Split Method, certain “asset intensity” or “balance sheet”
adjustments for factors that have generallyagreed-upon effects on profits are calculated. In addition, in specific cases, additional
adjustments are performed to improve reliability.
The most common balance sheet adjustments used in APAs are adjustments for differences in accounts receivable, inventories,
and accounts payable. The APA Program generally has required adjustments for receivables, inventory, and payables based on the
principle that there is an opportunity cost for holding assets. For these assets, it is generally assumed that the cost is appropriately
measured by the interest rate on short-term debt.
2008–15 I.R.B.772April 14, 2008

To compare the profits of two business activities with different relative levels of receivables, inventory, or payables, the APA
Program estimates the carrying costs of eachitem and adjusts profits accordingly. Although different formulas have been used in
specific APA cases, Attachment B presents one set of formulas used in many APAs. Underlying these formulas are the notions
that (1) balance sheet items normally should be expressed as mid-year averages, (2) formulas should try to avoid using data items
that are being tested by the TPM (for example, if sales are controlled, then the denominator of the balance sheet ratio should not
be sales), (3) a short term interest rate should be used, and (4) an interest factor should recognize the average holding period of the
relevant asset. As in 2006, during the course of 2007 the APA Program used an interest rate equal to LIBOR (3 months) plus 200
basis points for purposes of calculatingadjustments for accounts receivable and accounts payable for U.S. companies in many
cases. In addition, the APA Program often used an interest rate equal to the Corporate Bonds (Moody’s) Baa rate for purposes
of calculating inventory adjustments for U.S. companies. However, the facts and circumstances surrounding a given case will
ultimately determine the reliability of making balance sheet adjustments and the selection of the most reliable interest rate.
The APA Program also requires that financial data be compared on a consistent accounting basis. For example, although financial
statements may be prepared on a first-in first-out (FIFO) basis, cross-company comparisons are less meaningful if one or more of
the comparables use last-in first-out (LIFO) inventory accounting methods. This adjustment directly affects costs of goods sold
and inventories, and therefore affects both profitability measures and inventory adjustments.
In some cases the APA Program has made an adjustment to account for differences in relative levels of PP&E between a tested
business activity and the comparables. Ideally, comparables and the business activity being tested will have fairly similar relative
levels of PP&E, since major differences can be a sign of fundamentally different functions and risks. Typically, the PP&E
adjustment is made using a medium term interest rate. During the course of 2007, the APA Program often used the Corporate
Bonds (Moody’s) Baa rate as the interest rate for purposes of calculating adjustments for inventory and PP&E for U.S. companies.
Again, however, the facts and circumstancessurrounding a given case will ultimately determine the reliability of making balance
sheet adjustments and the selection of the most reliable interest rate.
Additional adjustments used less frequently include those for differences in other balance sheet items, operating expenses, R&D,
or currency risk. Accounting adjustments, such as reclassifying items from cost of goods sold to operating expenses, are also
made when warranted to increase reliability. Often, data are not available for both the controlled and uncontrolled transactions
in sufficient detail to allow for these types of adjustments.
The adjustments made to comparables or tested parties inAPAsexecutedin2007arereflectedinTable24above.
Ranges, Targets, and Adjustment Mechanisms
[§ 521(b)(2)(D)(viii)–(ix)]
The types of ranges, targets, and adjustment mechanisms usedin APAs executed in 2007 are described in Table 26 and 27 below.
TABLE 26: RANGES AND TARGETS
11
Type of RangeNumber
Interquartile range87
Specific point (royalty)
15
Specific point within CPM range (not floor or ceiling)12
Specific point (CUP)8
Full range4
Specific Point (royalty) with PLI limitations≤3
Ceiling or Floor (i.e., result must be no more or no less than x)≤3
Residual profit split≤3
Range from one quartile to the median≤3
Specific point based on results of residual profit split TPM≤3
Financial products profit split≤3
Other≤3
11
The numbers do not include TPMs with cost or cost-plus methodologies.
April 14, 20087732008–15 I.R.B.

TABLE 27: ADJUSTMENT MECHANISMS
Adjustment mechanismNumber
Taxpayer makes an adjustment: to specified point or royalty rate38
Taxpayer makes an adjustment: to closest edge of multi-year average37
Taxpayer makes an adjustment: to median of current year26
Taxpayer makes an adjustment: to closest edge of single year22
Taxpayer makes an adjustment:to median of multi-year average
5
APA cancelled if results are beyond certain limits (i.e., not merely outside of the range)≤3
Other≤3
Discussion
Treas. Reg. § 1.482–1(e)(1)states that sometimes a pricing method will yield “asingle result that is the most reliable measure of
an arm’s length result.” Sometimes, however, a method may yield“a range of reliable results,” called the “arm’s length range.” A
taxpayer whose results fall within the arm’s length range will not be subject to adjustment.
Under Treas. Reg. § 1.482–1(e)(2)(i), such a range is normally derived by considering a set of more than one comparable
uncontrolled transaction of similar comparability and reliability. If these comparables are of very high quality, as defined in the
section 482 regulations, then under Treas. Reg. § 1.482–1(e)(2)(iii)(A), the arm’s length range includes the results of all of the
comparables (from the least to the greatest). However, the APA Program has only rarely identifiedcases meeting the requirements
for the full range. If the comparables are of lesser quality, then under Treas. Reg. § 1.482–1(e)(2)(iii)(B), “the reliability of the
analysis must be increased, when it is possible to do so, by adjusting the range through application of a valid statistical method to
the results of all of the uncontrolled comparables.” One such method, the “interquartile range,” is ordinarily acceptable, although
a different statistical method “may be applied if it provides a more reliable measure.” The “interquartile range” is defined as,
roughly, the range from the 25th to the 75th percentile of the comparables’ results. See Treas. Reg. § 1.482–1(e)(2)(iii)(C). The
interquartile range was used 87 times in 2007.
More than 36 Covered Transactions reflected on Table 26 were tested against a single, specific result. Some APAs — deliberately
infrequent — specify not a point or a range, but a “floor” or a “ceiling”. When a floor is used, the tested party’s result must be
greater than or equal to some particular value. When a ceiling is used, the tested party’s result must be less than or equal to some
particular value. Three or fewer APAs executed in 2007 used a floor or a ceiling.
Some APAs look to a tested party’s results over a period of years (multi-year averaging) to determine whether a taxpayer has
complied with the APA. In 2007, rolling multi-year averaging was used for seven Covered Transactions. Five of those used
three-year averages. Seven Covered Transactions used a cumulative multi-year average, while 40 Covered Transactions used
term averages and three or fewer Covered Transactions used partial term averages.
A
djustments
Where a taxpayer’s actual transactions do not produce results that conform to the TPM, a taxpayer must nonetheless report its
taxable income in an amount consistent with the TPM (an APA primary adjustment), as further discussed in § 11.02 of Rev.
Proc. 2006–9. When the TPM specifies an arm’s length range, an APA primary adjustment is necessary only if the taxpayer’s
actual transactional result falls outside the specified range.
Under Treas. Reg. § 1.482–1(e)(3), if a taxpayer’s results fall outside the arm’s length range, theService may adjust the result “to
any point within the arm’s length range.” Accordingly, an APA may permit or require a taxpayer to make an adjustment after the
year’s end to put the year’s results within the range, or at the point specified by the APA. Similarly, to enforce the terms of an
APA, the Service may make such an adjustment. When the APA specifies a range, the adjustment is sometimes to the closest
edge of the range, and sometimes to another point such as the median of the interquartile range. Depending on the facts of each
case, automatic adjustments are not always permitted. APAs mayspecify that in such a case there will be a negotiation between
the competent authorities involved to determine whether and to what extent an adjustment should be made. APAs may permit
automatic adjustments unless the result is far outside the range specified in the APA. Thus, APAs provide flexibility and efficiency,
permitting adjustments when normal business fluctuations and uncertainties push the result somewhat outside the range.
2008–15 I.R.B.774April 14, 2008

APA Term and Rollback Lengths
[§ 521(b)(2)(D)(x)]
The various term lengths for APAs executed in 2007 are set forth in Table 28 below:
TABLE 28: TERMS OF APAs
APA Term in YearsNumber of APAs
10
20
31
4
5
551
612
74
86
90
10 or more2
The number of rollback years to which an APA TPM was applied in 2007 is set forth in Table 29 below:
TABLE 29: NUMBER OF YEARS COVERED BY ROLLBACK OF APA TPM
Number of Rollback YearsNumber of APAs
14
23
36
44
5ormore
6
Nature of Documentation Required
[§ 521(b)(2)(D)(xi)]
APAs executed in 2007 required that taxpayers provide various documents with their annual reports. These documents are
described in Table 30 below:
TABLE 30: NATURE OF DOCUMENTATION REQUIRED
Documentation
Number of
Times
Required
Statement identifying all material differences between Taxpayer’s business operations during APA Year
and description of Taxpayer’s business operations contained in Taxpayer’s request for APA, or if there
have been no such material differences, a statement to that effect
81
April 14, 20087752008–15 I.R.B.

Documentation — Continued
Number of
Times
Required
Description of any failure to meet Critical Assumptions or, if there have been none, a statement to
that effect
81
Statement identifying all material changes in Taxpayer’s accounting methods and classifications,
and methods of estimation, from those described or used in Taxpayer’s request for APA, or if there
have been none, statement to that effect
81
Description of, reason for, and financial analysis of, any Compensating Adjustments with respect to
APA Year, including means by which any Compensating Adjustment has been or will be satisfied
81
Financial analysis demonstrating Taxpayer’s compliance with TPM81
Organizational chart81
Copy of the APA81
Financial statements as prepared in accordance with US GAAP
75
Certified public accountant’s opinion that financial statements present fairly financial position of
Taxpayer and the results of its operations, in accordance with US GAAP
75
Book to tax reconciliations
15
Financial statements as prepared in accordance with a foreign GAAP13
Certified public accountant’s opinion that financial statements present fairly financial position of
Taxpayer and the results of its operations, in accordance with a foreign GAAP
9
Various work papers
5
United States income tax return≤3
Changes in entity classifications≤3
Changes in Taxpayer notice information≤3
Officer’s opinion (substitute for outside CPA audit)≤3
Schedule of costs and expenses (e.g., intercompany allocations)≤3
Certified public accountant’s review of financial statements≤3
Pertinent intercompany agreements≤3
Reconciliation of foreign to US GAAP≤3
Other
5
Approaches for Sharing of Currency or Other Risks
[§ 521(b)(2)(D)(xii)]
During 2007, there were 37 tested parties that faced financial risks, including interest rate and currency risks. In appropriate cases,
APAs may provide specific approaches for dealing with currency risk, such as adjustment mechanisms and/or critical assumptions.
Efforts to Ensure Compliance with APAs
[§ 521(b)(2)(F)]
As described in Rev. Proc. 2006–9, § 11.01, APA taxpayers are required to file annual reports to demonstrate compliance with the
terms and conditions of the APA. The filing and review of annual reports is a critical part of the APA process. Through annual
report review, the APA Program monitors taxpayer compliance with the APA on a contemporaneous basis. Annual report review
provides current information on the success or problems associated with the various TPMs adopted in the APA process.
2008–15 I.R.B.776April 14, 2008

All reports received by the APA Program are tracked by one designated APA team leader who also has the primary responsibility
for many of the annual report reviews. Other annual report reviews are the primary responsibility of other APA team leaders.
Whenever possible, annual report reviews are assigned to the teamleader who negotiated the case, since that person will already
be familiar with the relevant facts and terms of the agreement. Other team leaders and economists may assist the assigned team
leader as well. Once received by the APA Program, the annual report is also sent to the field personnel with exam jurisdiction over
the taxpayer.
The statistics for the review of APA annual reports are reflected in Table 31 below. As of December 31, 2007, there were 222
pending annual reports. In 2007, 334 reports were closed.
TABLE 31: STATISTICS OF ANNUAL REPORTS
Number of APA annual reports pending as of December 31, 2007222
Number of APA annual reports closed in Year 2007334
Number of APA annual reports requiring adjustment in Year 200717
Number of taxpayers involved in adjustments
5
Number of APA annual report cases over one year old100
April 14, 20087772008–15 I.R.B.

Attachment A
Model APA — Based on Revenue Procedure 2006–9
ADVANCE PRICING AGREEMENT
between
[Insert Taxpayer’s Name]
and
THE INTERNAL REVENUE SERVICE
PARTIES
The Parties to this Advance Pricing Agreement (APA) are the Internal Revenue Service (IRS) and [Insert Taxpayer’s Name],
EIN
.
RECITALS
[Insert Taxpay
er Name] is the common parent of an affiliated group filing consolidated U.S. tax returns (collectively referred to
as “Taxpayer”)
, and is entering into this APA on behalf of itself and other members of its consolidated group.
Taxpayer’s pri
ncipal place of business is [City, State]. [Insert general description of taxpayer and other relevant parties].
This APA contai
ns the Parties’ agreement on the best method for determining arm’s-length prices of the Covered Transactions
under I.R.C. se
ction 482, any applicable tax treaties, and the Treasury Regulations.
{If renewal, add}[Taxpayer and IRS previously entered into an APA covering taxable years ending
to,
executed on
.]
AGREEMENT
The Parties agree as follows:
1.Covered Transactions.This APA applies to the Covered Transactions, as defined in Appendix A.
2.Transfer Pricing Method.Appendix A sets forth the Transfer Pricing Method (TPM) for the Covered Transactions.
3.Term. This APA applies to Taxpayer’s taxable years ending
through(APA Term).
4.Operation.
a. Revenue Procedure 2006–9 governs the interpretation, legal effect, and administration of this APA.
b. Nonfactual o
ral and written representations, within the meaning of sections 10.04 and 10.05 of Revenue Procedure 2006–9
(including any
proposals to use particular TPMs), made in conjunction with the APA Request constitute statements made in
compromise neg
otiations within the meaning of Rule 408 of the Federal Rules of Evidence.
5.Compliance.
a. Taxpayer must report its taxable income in an amount that isconsistent with Appendix A and all other requirements of this
APA on its timely filed U.S. Return. However, if Taxpayer’s timely filed U.S. Return for an APA Year is filed prior to, or no later
than 60 days after, the effective date of this APA, then Taxpayer must report its taxable income for that APA Year in an amount that
is consistent with Appendix A and all other requirements of this APA either on the original U.S. Return or on an amended U.S.
Return filed no later than 120 days after the effective date of this APA, or through such other means as may be specified herein.
b. {Insert when U.S. Group or Foreign Group contains more than one member.}[This APA addresses the arm’s-length
nature of prices charged or received in theaggregate between Taxpayer and ForeignParticipants with respect to the Covered
Transactions. Except as explicitly provided, this APA does notaddress and does not bind the IRS with respect to prices charged
or received, or the relative amounts of income or loss realized, by particular legal entities that are members of U.S. Group or
that are members of Foreign Group.]
c. For each taxable year covered by this APA (APA Year), if Taxpayer complies with the terms and conditions of this APA, then
the IRS will not make or propose any allocation or adjustment under I.R.C. section 482 to the amounts charged in the aggregate
between Taxpayer and Foreign Participant[s]with respect to the Covered Transactions.
2008–15 I.R.B.778April 14, 2008

d. If Taxpayer does not comply with the terms and conditions of this APA, then the IRS may:
i. enforce the terms and conditions of this APA and make or propose allocations or adjustments under I.R.C. section 482
consistent with this APA;
ii. cancel or revoke this APA under section 11.06 of Revenue Procedure 2006–9; or
iii. revise this APA, if the Parties agree.
e. Taxpayer must timely file an Annual Report (an original and four copies) for each APA Year in accordance with Appendix C
and section 11.01 of Revenue Procedure 2006–9. Taxpayer must file the Annual Report for all APA Years through the APA Year
ending [insert year] by [insert date]. Taxpayer must file the Annual Report for each subsequent APA Year by [insert month and
day] immediately following the close of that APA Year. (If any date falls on a weekend or holiday, the Annual Report shall be
due on the next date that is not a weekend or holiday.) The IRS may request additional information reasonably necessary to
clarify or complete the Annual Report. Taxpayer will provide such requested information within 30 days. Additional time may
be allowed for good cause.
f. The IRS will determine whether Taxpayer has complied with this APA based on Taxpayer’s U.S. Returns, Financial
Statements, and other APA Records, for the APA Term and any other year necessary to verifycompliance. For Taxpayer to
comply with this APA, an independent certified public accountant must{use the following or an alternative}render an opinion
that Taxpayer’s Financial Statements present fairly, in all material respects, Taxpayer’s financial position under U.S. GAAP.
g. In accordance with section 11.04 of Revenue Procedure 2006–9, Taxpayer will (1) maintain its APA Records, and (2) make
them available to the IRS in connection with an examination under section 11.03. Compliance with this subparagraph constitutes
compliance with the record-maintenanceprovisions of I.R.C. sections 6038A and 6038C for the Covered Transactions for any
taxable year during the APA Term.
h. The True Taxable Income within the meaning of Treasury Regulations sections 1.482–1(a)(1) and (i)(9) of a member of an
affiliated group filing a U.S. consolidated return will be determined under the I.R.C. section 1502 Treasury Regulations.
i.{Optional for US Parent Signatories}To the extent that Taxpayer’s compliance with this APA depends on certain acts of
Foreign Group members, Taxpayer will ensure thateach Foreign Group member will perform such acts.
6.Critical Assumptions.This APA’s critical assumptions, within the meaning of Revenue Procedure 2006–9, section 4.05, appear
in Appendix B. If any critical assumption has not been met, then Revenue Procedure 2006–9, section 11.06, governs.
7.Disclosure.This APA, and any background information related to this APA or the APA Request, are: (1) considered “return
information” under I.R.C. section 6103(b)(2)(C); and (2) not subject to public inspection as a “written determination” under I.R.C.
section 6110(b)(1). Section 521(b) of Pub. L. 106–170 provides that the Secretary of the Treasury must prepare a report for public
disclosure that includes certain specifically designated information concerning all APAs, including this APA, in a form that does
not reveal taxpayers’ identities, trade secrets, and proprietary or confidential business or financial information.
8.Disputes.If a dispute arises concerning the interpretation of this APA, the Parties will seek a resolution by the IRS Associate
Chief Counsel (International) to the extent reasonably practicable, before seeking alternative remedies.
9.Materiality.In this APA the terms “material” and “materially” will be interpreted consistently with the definition of “material
facts” in Revenue Procedure 2006–9, section 11.06(4).
10.Section Captions.This APA’s section captions, which appear initalics, are for convenience and reference only. The captions
do not affect in any way the interpretation or application of this APA.
11.Terms and Definitions. Unless otherwise specified, terms in the plural include the singular and vice versa. Appendix D
contains definitions for capitalized terms not elsewhere defined in this APA.
12.Entire Agreement and Severability.This APA is the complete statement of the Parties’ agreement. The Parties will sever,
delete, or reform any invalid or unenforceable provision in this APA to approximate the Parties’ intent as nearly as possible.
13.Successor in Interest.This APA binds, and inures to the benefitof, any successor in interest to Taxpayer.
14.Notice.Any notices required by this APA or Revenue Procedure 2006–9 must be in writing. Taxpayer will send notices to the
IRS at the address and in the manner set forth in Revenue Procedure 2006–9, section 4.11. The IRS will send notices to:
April 14, 20087792008–15 I.R.B.

Taxpayer Corporation
Attn: Jane Doe, Sr. Vice President (Taxes)
1000 Any Road
Any City, USA 10000
(phone:
)
15.Effective Date and Counterparts.This APA is effective starting on the date, or later date of the dates, upon which all Parties
execute this APA. The Parties may execute this APA in counterparts, with each counterpart constituting an original.
WITNESS,
The Parties have executed this APA on the dates below.
[Taxpayer Name in all caps]
By:
Date:,20
Jane Doe
Sr. Vice President (Taxes)
IRS
By:
Date:,20
Matthew W. Frank
Director, Advance Pricing Agreement Program
APPENDIX A
COVERED TRANSACTIONS AND TRANSFER PRICING METHOD (TPM)
1. Covered Transactions.
[Define the Covered Transactions.]
2. TPM.
{Note: If appropriate, adapt language from the following examples.}
[The Tested Party is.]
•CUP Method
The TPM is the comparable uncontrolled price (CUP) method. The Arm’s Length Range of the price charged for
is betweenandper unit.
•CUT Method
The TPM is the CU
T Method. The Arm’s Length Range of the royalty charged for the license ofis between
%and%of[Taxp
ayer’s, Foreign Participants’, or other specified party’s] Net Sales Revenue. [Insert definition of net
sales revenue
or other royalty base.]
•Resale Price Method (RPM)
The TPM is the resale price method (RPM). The Tested Party’s Gross Margin for any APA Year is defined as follows: the
Tested Party’s gross profit divided by its sales revenue (as those terms are defined in Treasury Regulations sections 1.482–5(d)(1)
and (2)) for that APA Year. The Arm’s Length Range is between
%and%, and the Median of the Arm’s Length
Range is
%.
2008–15 I.R.B.780April 14, 2008

•Cost Plus Method
The TPM is the cost plus method. The Tested Party’s Cost Plus Markup is defined as follows for any APA Year: the Tested
Party’s ratio of gross profit to production costs (as those terms are defined in Treasury Regulations sections 1.482–3(d)(1)
and (2)) for that APA Year. The Arm’s Length Range is between
%and%, and the Median of the Arm’s Length
Range is
%.
•CPM with Berry Ratio PLI
The TPM is the comparable profits method (CPM). The profit level indicator is a Berry Ratio. The Tested Party’s Berry
Ratio is defined as follows for any APA Year: the Tested Party’s gross profit divided by its operating expenses (as those terms are
defined in Treasury Regulations section 1.482–5(d)(2) and (3)) for that APA Year. The Arm’s Length Range is between
and, and the Median of the Arm’s Length Range is.
•CPM using an Operating Margin PLI
The TPM is the comparable profits method (CPM). The profit level indicator is an operating margin. The Tested Party’s
Operating Margin is defined as follows for any APA Year: the Tested Party’s operating profit divided by its sales revenue (as
those terms are defined in Treasury Regulations section 1.482–5(d)(1) and (4)) for that APA Year. The Arm’s Length Range is
between
%and%, and the Median of the Arm’s Length Range is%.
•CPM using a Three-year Rolling Average Operating Margin PLI
The TPM is the comparable profits method (CPM). The profit level indicator is an operating margin. The Tested Party’s
Three-Year Rolling Average operating margin is defined as follows for any APA Year: the sum of the Tested Party’s operating
profit (within the meaning of Treasury Regulations section 1.482–5(d)(4) for that APA Year and the two preceding years, divided
by the sum of its sales revenue (within the meaning of Treasury Regulations section 1.482–5(d)(1)) for that APA Year and the two
preceding years. The Arm’s Length Range is between
%and%, and the Median of the Arm’s Length Range is%.
•Residual Profit Split Method
The TPM is the residual profit split method. [Insert description of routine profit level determinations and residual
profit-split mechanism].
[Insert additional provisions as needed.]
3. Application of TPM.
For any APA Year, if the results of Taxpayer’s actual transactions produce a [price per unit, royalty rate for the Covered
Transactions] [or] [Gross Margin, Cost Plus Markup, Berry Ratio, Operating Margin, Three-Year Rolling Average Operating
Margin for the Tested Party] within the Arm’s Length Range, then the amounts reported on Taxpayer’s U.S. Return must
clearly reflect such results.
For any APA year, if the results of Taxpayer’s actual transactions produce a [price per unit, royalty rate] [or] [Gross Margin,
Cost Plus Markup, Berry Ratio, Operating Margin, Three-Year Rolling Average Operating Margin for the Tested Party] outside
the Arm’s Length Range, then amounts reported on Taxpayer’s U.S. Return must clearly reflect anadjustment that brings the
[price per unit, royalty rate] [or] [Tested Party’s Gross Margin, Cost Plus Markup, Berry Ratio, Operating Margin, Three-Year
Rolling Average Operating Margin] to the Median.
For purposes of this Appendix A, the “results of Taxpayer’s actual transactions” means the results reflected in Taxpayer’s and
Tested Party’s books and records as computed under U.S. GAAP [insert another relevant accounting standard if applicable], with
the following adjustments:
(a) [The fair value of stock-based compensation as disclosed in the Tested Party’s audited financial statements shall be treated as
an operating expense]; and
(b) To the extent that the results in any prior APA Year are relevant (for example, to compute a multi-year average), such results
shall be adjusted to reflect the amount of any adjustment made for that prior APA Year under this Appendix A.
4. APA Revenue Procedure Treatment
If Taxpayer makes a primary adjustment under the terms of this Appendix A, Taxpayer mayelect APA Revenue Procedure
Treatment in accordance with section 11.02(3) of Revenue Procedure 2006–9.
[Insert additional provisions as needed.]
April 14, 20087812008–15 I.R.B.

APPENDIX B
CRITICAL ASSUMPTIONS
This APA’s critical assumptions are:
1. The business activities, functions performed, risks assumed,assets employed, and financial and tax accounting methods and
classifications [and methods of estimation]of Taxpayer in relation to the Covered Transactions will remain materially the same as
described or used in Taxpayer’s APA Request. A mere change in business results will not be a material change.
[Insert additional provisions as needed.]
APPENDIX C
APA RECORDS AND ANNUAL REPORT
APA RECORDS
The APA Records will consist of:
1. All documents listed below for inclusion in the Annual Report,as well as all documents, notes, work papers, records, or other
writings that support the information provided in such documents.
ANNUAL REPORT
The Annual Report will include two copies of a properly completed APA Annual Report Summary in the form of Exhibit E to this
APA, one copy of the form bound with, and one copy bound separately from, the rest of the Annual Report. In addition, the
Annual Report will include a table of contents and the information and exhibits identified below, organized as follows.
1. Statements that fully identify,describe, analyze, and explain:
a. All material differences between any of the U.S. Entities’ business operations (including functions, risks assumed, markets,
contractual terms, economic conditions, property, services, and assets employed) during the APA Year and the description of
the business operations contained in the APA Request. If there have been no material differences, the Annual Report will
include a statement to that effect.
b. All material changes in the U.S. Entities’ accounting methods and classifications, and methods of estimation, from those
described or used in Taxpayer’s request for this APA. If any such change was made to conform to changes in U.S. GAAP (or
other relevant accounting standards), Taxpayer will specifically identify such change. If there has been no material change in
accounting methods and classifications or methods of estimation, the Annual Report will include a statement to that effect.
c. Any change to the Taxpayer notice information in section 14 of this APA.
d. Any failure to meet any critical assumption. If there hasbeen no failure, the Annual Report will include a statement
to that effect.
e. Any change to any entity classification for federal income taxpurposes (including any change that causes an entity to be
disregarded for federal income tax purposes) of any Worldwide Group member that is a party to the Covered Transactions or
is otherwise relevant to the TPM.
f. The amount, reason for, and financial analysis of any compensating adjustments under paragraph 4 of Appendix A and
Revenue Procedure 2006–9, section 11.02(3), for the APA Year, including but not limited to:
i. the amounts paid or received by each affected entity;
ii. the character (such as capital, ordinary, income, expense) and country source of the funds transferred, and the specific
affected line item(s) of any affected U.S. Return; and
iii. the date(s) and means by which the payments are or will be made.
g. The amounts, description, reason for,and financial analysis of any book-tax difference relevant to the TPM for the APA
Year, as reflected on Schedule M–1 or Schedule M–3 of the U.S. Return for the APA Year.
2. The Financial Statements, and any necessary account detailto show compliance with the TPM, with a copy of the independent
certified public accountant’s opinion required by paragraph 5(f) of this APA.
2008–15 I.R.B.782April 14, 2008

3. A financial analysis that reflects Taxpayer’s TPM calculations for the APA Year. The calculations must reconcile with and
reference the Financial Statements in sufficient account detail to allow the IRS to determine whether Taxpayer has complied
with the TPM.
4. An organizational chart for the Worldwide Group, revised annually to reflect all ownership or structural changes of entities
that are parties to the Covered Transactions or are otherwise relevant to the TPM.
5. A copy of the APA.
APPENDIX D
DEFINITIONS
The following definitions control for all purposes of this APA. The definitions appear alphabetically below:
TermDefinition
Annual ReportA report within the meaning of Revenue Procedure 2006–9, section 11.01.
APAThis Advance Pricing Agreement, which is an “advance pricing agreement” within the
meaning of Revenue Procedure 2006–9, section 2.04.
APA RecordsThe records specified in Appendix C.
APA RequestTaxpayer’s request for this APA dated, including any amendments or
supplemental or additional information thereto.
Covered Transaction(s)This term is defined in Appendix A.
Financial StatementsFinancial statements preparedin accordance with U.S. GAAP and stated in U.S. dollars.
Foreign GroupWorldwide Group members that are not U.S. persons.
Foreign Participants[namethe foreign entities involved in Covered Transactions].
I.R.C.The Internal Revenue Code of 1986, 26 U.S.C., as amended.
Pub. L. 106–170The Ticket to Work and Work Incentives Improvement Act of 1999.
Revenue Procedure 2006–9Rev. Proc. 2006–9, 2006–1 C.B. 278.
Transfer Pricing Method (TPM)Atransfer pricing method within the meaning of Treasury Regulations section 1.482–1(b)
and Revenue Procedure 2006–9, section 2.04.
U.S. GAAPU.S. generally-accepted accounting principles.
U.S. GroupWorldwide Group members that are U.S. persons.
U.S. ReturnFor each taxable year, the “returns with respect to income taxes under subtitle A” that
Taxpayer must “make” in accordance with I.R.C. section 6012. {Or substitute for
partnership:For each taxable year, the “return” that Taxpayer must “make” in accordance
with I.R.C. section 6031.}
Worldwide GroupTaxpayer and all organizations, trades, businesses, entities, or branches (whether or not
incorporated, organized in the United States,or affiliated) owned or controlled directly or
indirectly by the same interests.
April 14, 20087832008–15 I.R.B.

APPENDIX E
APA ANNUAL REPORT SUMMARY FORM
The APA Annual Report Summary on the next page is a required APA Record. The APA Team Leader has supplied some of
the information requested on the form. Taxpayer is to supply the remaining information requested by the form and submit the
form as part of its Annual Report.
APA Annual
Report
SUMMARY
Department of the Treasury—
Internal Revenue Service
Office of Associate Chief Counsel
(International)
Advance Pricing Agreement Program
APA no.
Team Leader
Economist
Intl Examiner
CA Analyst
Taxpayer Name:
Taxpayer EIN:NAICS:
APA Term: Taxable years endingto.
Original APA [ ] Renewal APA [ ]
Annual Report due dates:
,200for all APA Years through APA Year ending in 200; for each APA Year
thereafter, on
[month and day] immediately following the close of the APA Year.
Principal foreign country(ies) involved in covered transaction(s):
Type of APA: [ ] unilateral [ ] bilateral with
Tested party is [ ] US [ ] foreign [ ] both
Approximate dollar volume of covered transactions (on an annual basis) involving tangible goods
and services:
[ ] N/A [ ] <$50 million [ ] $50–100 million [ ] $100–250 million [ ] $250–500 million
[ ] >$500 million
APA tests on (check all that apply):
[]annualbasis[]multi-year basis [ ] term basis
APA provides (check all that apply) a:
[ ] range [ ] point [ ] floor only [ ] ceiling only [ ] other
APA Information
APA provides for adjustment (check all that apply) to:
[ ] nearest edge [ ] median [ ] other point
2008–15 I.R.B.784April 14, 2008

APA date executed:,200
This APA Annual Report Summary is for APA Year(s) ending in 200and was filed on,
200
Check here [ ] if Annual Report was filed after original due date but in accordance with extension.
Has this APA been amended or changed? [ ] yes [ ] noEffective Date:
Has Taxpayer complied with all APA terms and conditions? [ ] yes [ ] no
Were all the critical assumptions met? [ ] yes [ ] no
Has a Primary Compensating Adjustment been made in any APA Year covered by this Annual
Report?
[ ] yes [ ] noIf yes, which year(s): 200
Have any necessary Secondary Compensating Adjustments been made? [ ] yes [ ] no
Did Taxpayer elect APA Revenue Procedure treatment? [ ] yes [ ] no
Any change to the entity classification of a party to the APA? [ ] yes [ ] no
Taxpayer notice information contained in the APA remains unchanged? [ ] yes [ ] no
APA Annual
Report
Information
(to be completed
by the Taxpayer)
Taxpayer’s current US principalplace of business: (City, State)
Financial analysis reflecting TPM calculations[ ] yes [ ] no
Financial statements showing compliance with TPM(s)[ ] yes [ ] no
Schedule M–1 or M–3 book-tax differences[ ] yes [ ] no
Current organizational chart of relevant portion of world-wide group[ ] yes [ ] no
Attach copy of APA[ ] yes [ ] no
Other APA records and documents included:
[The information required in the following section should be tailored to the particular case]
[]yes[]no
[]yes[]no
[]yes[]no
[]yes[]no
APA Annual
Report
Checklist of
Key Contents
(to be completed
by the Taxpayer)
[]yes[]no
Authorized RepresentativePhoneNumberAffiliation and Address
Contact
Information
April 14, 20087852008–15 I.R.B.

ATTACHMENT B
EXAMPLE FORMULAS FOR BALANCE SHEET ADJUSTMENTS
The formulas below provide examples of the balance sheet adjustment formulas used in the APA Program’s CPM spreadsheet
model.
12
The formulas below are applicable to the operating margin profit level indicator. The APA Program’s calculations
measure balance sheet intensity by reference to the denominator of the profit level indicator (e.g., for the Berry ratio, the
denominator used is operating expenses). Therefore, the formulas vary for each profit level indicator.
D
efinitionsofVariables:
AP= average accounts payable
AR= average trade accounts receivable, net of allowance for bad debt
cogs= cost of goods sold
INV= average inventory, stated on FIFO basis
opex= operating expenses (general, sales, administrative, and depreciation expenses)
PPE= property, plant, and equipment,net of accumulated depreciation
sales= net sales
h= average accounts payable or trade accounts receivable holding period, stated as a fraction of a year
i= interest rate
t= entity being tested
c= comparable
Equations:
Example Assuming Profit Level Indicator is Operating Margin:
Receivables Adjustment (“RA”):RA = {[(AR
t
/ sales
t
)xsales
c
]-AR
c
}x{i/[1+(ixh
c
)]}
Payables Adjustment (“PA”):PA = {[(AP
t
/ sales
t
)xsales
c
]-AP
c
}x{i/[1+(ixh
c
)]}
Inventory Adjustment (“IA”):IA = {[(INV
t
/ sales
t
)xsales
c
]-INV
c
}xi
PP&E Adjustment (“PPEA”):PPEA = {[(PPE
t
/ sales
t
)xsales
c
] - PPE
c
}xi
Then Adjust Comparables as Follows:
adjusted sales
c
= sales
c
+RA
adjusted cogs
c
= cogs
c
+PA-IA
adjusted opex
c
= opex
c
- PPEA
Reduction of For
eign Tax
Credit Limitati
on Categories
Under Section 9
04(d);
Correction
Announcement 2008–29
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Correcting amendments.
SUMMARY: This document contains cor-
rections to final and temporary regulations
(T.D. 9368, 2008–6 I.R.B. 382) that were
published in theFederal Registeron Fri-
day, December 21, 2007 (72 FR 72582)
regarding the reduction of the number of
separate foreign tax credit limitation cate-
gories under section 904(d) of the Internal
Revenue Code. These regulations affect
taxpayers claiming foreign tax credits and
provide guidance needed to comply with
the statutory changes made by the Ameri-
can Jobs Creation Act of 2004 (AJCA).
DATES: The correction is effective March
21, 2008.
FOR FURTHER INFORMATION
CONTACT: Jeffrey L. Parry, (202)
622–3850 (not a toll-free number).
12
Copies of the APA Program’s CPM spreadsheet model are available from the APA Program by calling 202–435–5220 (not a toll-free number) or by writing to the Office of Associate Chief
Counsel (International), Advance Pricing Agreement Program, Attn: CC:INTL:APA, MA2–266, 1111 Constitution Ave., NW, Washington DC 20224.
2008–15 I.R.B.786April 14, 2008

SUPPLEMENTARY INFORMATION:
Background
The final and temporary regulations
(T.D. 9368) that are the subject of the
correction are undersection 904 of the
Internal Revenue Code.
Need for Correction
As published, final and temporary regu-
lations (T.D. 9368) contain errors that may
prove to be misleading and are in need of
clarification.
*****
Correction of Publication
Accordingly, 26 CFR part 1 is corrected
by making the following amendments:
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 1.904–4 is amended as
follows:
1. In paragraph (h)(4)Example 3,inthe
first sentence, the language “Example (3)”
is removed and the language “Example 2”
is added in its place.
2. In paragraph (i), in the last sentence,
the language “dividends received or ac-
crued by the taxpayer from each separate
noncontrolled section 902 corporation” is
removed and the language “income in each
separate category” is added in its place.
Par. 3. Section 1.904–7T(g) is
amended as follows:
3. In paragraph (2), in the last sentence,
the language “Similar rules shall apply to
characterize any deficits in the pre-2007
pools and previously-taxed earnings and
profits described in section 959(c)(1)(A)
that are attributable to earnings in the
pre-2007 pools.” is removed and the lan-
guage “Similar rules shall apply to char-
acterize any deficits in the pre-2007 pools
and previously-taxed earnings and profits
described in section 959(c)(1) and (2) that
are attributable to earnings in the pre-2007
pools.” is added in its place.
4. In paragraph (4), in the last sen-
tence, the language “Similar rules shall ap-
ply to characterize any deficits or previ-
ously-taxed earnings and profits described
in section 959(c)(1)(A) that are attribut-
able to pre-1987 accumulated profits.” is
removed and the language “Similar rules
shall apply to characterize any deficits or
previously-taxed earnings and profits de-
scribed in section 959(c)(1) and (2) that are
attributable to pre-1987 accumulated prof-
its.” is added in its place.
*****
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 March 20,
2008, 8:45 a.m., and published in the issue of the Federal
Register for March 21, 2008, 73 F.R. 15063)
Treatment of Overall Foreign
and Domestic Losses; Hearing
Announcement 2008–31
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Cancellation of notice of public
hearing on proposed rulemaking by cross-
reference to temporary regulations.
SUMMARY: This document cancels a
public hearing on proposed rulemaking
by cross-reference to temporary regula-
tions (REG–141399–07, 2008–8 I.R.B.
470) providing guidance relating to the
recapture of overall foreign and domestic
losses.
DATES: The public hearing, originally
scheduled for April 10, 2008, at 10 a.m.,
is cancelled.
FOR FURTHER INFORMATION
CONTACT: Richard A. Hurst of the Pub-
lications and Regulations Branch, Legal
Processing Division, Associate Chief
Counsel (Procedure and Administration),
atRichard.A.Hurst@irscounsel.treas.gov.
SUPPLEMENTARY INFORMATION:
A notice of public hearing that appeared
in theFederal Registeron Friday, Decem-
ber 21, 2007 (72 FR 72646), announced
that a public hearing was scheduled for
April 10, 2008, at 10 a.m., in the audi-
torium, Internal Revenue Building, 1111
Constitution Avenue, NW, Washington,
DC. The subject of the public hearing is
under section 904 of the Internal Revenue
Code.
The public comment period for these
regulations expired on March 20, 2008.
Outlines of topics to be discussed at the
hearing were due on March 20, 2008. The
notice of proposed rulemaking by cross-
reference to temporary regulations and no-
tice of public hearing instructed those in-
terested in testifying at the public hearing
to submit an outline of the topics to be ad-
dressed. As of Friday, March 21, 2008,
no one has requested to speak. Therefore,
the public hearing scheduled for April 10,
2008, is cancelled.
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 March 27,
2008, 8:45 a.m., and published in the issue of the Federal
Register for March 28, 2008, 73 F.R. 16611)
April 14, 20087872008–15 I.R.B.

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.
2008–15 I.R.B.iApril 14, 2008

Numerical Finding List
1
Bulletins 2008–1 through 2008–15
Announcements:
2008-1, 2008-1 I.R.B.246
2008-2, 2008-3 I.R.B.307
2008-3, 2008-2 I.R.B.269
2008-4, 2008-2 I.R.B.269
2008-5, 2008-4 I.R.B.333
2008-6, 2008-5 I.R.B.378
2008-7, 2008-5 I.R.B.379
2008-8, 2008-6 I.R.B.403
2008-9, 2008-7 I.R.B.444
2008-10, 2008-7 I.R.B.445
2008-11, 2008-7 I.R.B.445
2008-12, 2008-7 I.R.B.446
2008-13, 2008-8 I.R.B.480
2008-14, 2008-8 I.R.B.481
2008-15, 2008-9 I.R.B.511
2008-16, 2008-9 I.R.B.511
2008-17, 2008-9 I.R.B.512
2008-18, 2008-12 I.R.B.667
2008-19, 2008-11 I.R.B.624
2008-20, 2008-11 I.R.B.625
2008-21, 2008-13 I.R.B.691
2008-22, 2008-13 I.R.B.692
2008-23, 2008-14 I.R.B.731
2008-24, 2008-13 I.R.B.692
2008-25, 2008-14 I.R.B.732
2008-26, 2008-13 I.R.B.693
2008-27, 2008-15 I.R.B.751
2008-28, 2008-14 I.R.B.733
2008-29, 2008-15 I.R.B.786
2008-31, 2008-15 I.R.B.787
Notices:
2008-1, 2008-2 I.R.B.251
2008-2, 2008-2 I.R.B.252
2008-3, 2008-2 I.R.B.253
2008-4, 2008-2 I.R.B.253
2008-5, 2008-2 I.R.B.256
2008-6, 2008-3 I.R.B.275
2008-7, 2008-3 I.R.B.276
2008-8, 2008-3 I.R.B.276
2008-9, 2008-3 I.R.B.277
2008-10, 2008-3 I.R.B.277
2008-11, 2008-3 I.R.B.279
2008-12, 2008-3 I.R.B.280
2008-13, 2008-3 I.R.B.282
2008-14, 2008-4 I.R.B.310
2008-15, 2008-4 I.R.B.313
2008-16, 2008-4 I.R.B.315
2008-17, 2008-4 I.R.B.316
2008-18, 2008-5 I.R.B.363
2008-19, 2008-5 I.R.B.366
Notices— Continued:
2008-20, 2008-6 I.R.B.406
2008-21, 2008-7 I.R.B.431
2008-22, 2008-8 I.R.B.465
2008-23, 2008-7 I.R.B.433
2008-24, 2008-8 I.R.B.466
2008-25, 2008-9 I.R.B.484
2008-26, 2008-9 I.R.B.487
2008-27, 2008-10 I.R.B.543
2008-28, 2008-10 I.R.B.546
2008-29, 2008-12 I.R.B.637
2008-30, 2008-12 I.R.B.638
2008-31, 2008-11 I.R.B.592
2008-32, 2008-11 I.R.B.593
2008-33, 2008-12 I.R.B.642
2008-34, 2008-12 I.R.B.645
2008-35, 2008-12 I.R.B.647
2008-36, 2008-12 I.R.B.650
2008-37, 2008-12 I.R.B.654
2008-38, 2008-13 I.R.B.683
2008-39, 2008-13 I.R.B.684
2008-40, 2008-14 I.R.B.725
2008-41, 2008-15 I.R.B.742
2008-42, 2008-15 I.R.B.747
2008-43, 2008-15 I.R.B.748
Proposed Regulations:
REG-147290-05, 2008-10 I.R.B.576
REG-153589-06, 2008-14 I.R.B.730
REG-104713-07, 2008-6 I.R.B.409
REG-104946-07, 2008-11 I.R.B.596
REG-111583-07, 2008-4 I.R.B.319
REG-114126-07, 2008-6 I.R.B.410
REG-127391-07, 2008-13 I.R.B.689
REG-136701-07, 2008-11 I.R.B.616
REG-137573-07, 2008-15 I.R.B.750
REG-139236-07, 2008-9 I.R.B.491
REG-141399-07, 2008-8 I.R.B.470
REG-147832-07, 2008-8 I.R.B.472
REG-149475-07, 2008-9 I.R.B.510
Revenue Procedures:
2008-1, 2008-1 I.R.B.1
2008-2, 2008-1 I.R.B.90
2008-3, 2008-1 I.R.B.110
2008-4, 2008-1 I.R.B.121
2008-5, 2008-1 I.R.B.164
2008-6, 2008-1 I.R.B.192
2008-7, 2008-1 I.R.B.229
2008-8, 2008-1 I.R.B.233
2008-9, 2008-2 I.R.B.258
2008-10, 2008-3 I.R.B.290
2008-11, 2008-3 I.R.B.301
2008-12, 2008-5 I.R.B.368
2008-13, 2008-6 I.R.B.407
2008-14, 2008-7 I.R.B.435
Revenue Procedures— Continued:
2008-15, 2008-9 I.R.B.489
2008-16, 2008-10 I.R.B.547
2008-17, 2008-10 I.R.B.549
2008-18, 2008-10 I.R.B.573
2008-19, 2008-11 I.R.B.594
2008-21, 2008-12 I.R.B.657
2008-22, 2008-12 I.R.B.658
2008-23, 2008-12 I.R.B.664
2008-24, 2008-13 I.R.B.684
2008-25, 2008-13 I.R.B.686
Revenue Rulings:
2008-1, 2008-2 I.R.B.248
2008-2, 2008-2 I.R.B.247
2008-3, 2008-2 I.R.B.249
2008-4, 2008-3 I.R.B.272
2008-5, 2008-3 I.R.B.271
2008-6, 2008-3 I.R.B.271
2008-7, 2008-7 I.R.B.419
2008-8, 2008-5 I.R.B.340
2008-9, 2008-5 I.R.B.342
2008-10, 2008-13 I.R.B.676
2008-11, 2008-10 I.R.B.541
2008-12, 2008-10 I.R.B.520
2008-13, 2008-10 I.R.B.518
2008-14, 2008-11 I.R.B.578
2008-15, 2008-12 I.R.B.633
2008-16, 2008-11 I.R.B.585
2008-17, 2008-12 I.R.B.626
2008-18, 2008-13 I.R.B.674
2008-19, 2008-13 I.R.B.669
2008-20, 2008-14 I.R.B.716
2008-21, 2008-15 I.R.B.734
Tax Conventions:
2008-8, 2008-6 I.R.B.403
Treasury Decisions:
9368, 2008-6 I.R.B.382
9369, 2008-6 I.R.B.394
9370, 2008-7 I.R.B.428
9371, 2008-8 I.R.B.447
9372, 2008-8 I.R.B.462
9373, 2008-8 I.R.B.463
9374, 2008-10 I.R.B.521
9375, 2008-5 I.R.B.344
9376, 2008-11 I.R.B.587
9377, 2008-11 I.R.B.578
9378, 2008-14 I.R.B.720
9379, 2008-14 I.R.B.715
9380, 2008-14 I.R.B.718
9381, 2008-14 I.R.B.694
9382, 2008-9 I.R.B.482
9383, 2008-15 I.R.B.738
9385, 2008-15 I.R.B.735
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2007–27 through 2007–52 is in Internal Revenue Bulletin
2007–52, dated December 26, 2007.
April 14, 2008ii2008–15 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2008–1 through 2008–15
Announcements:
2006-88
Clarified and superseded by
Notice 2008-35, 2008-12 I.R.B.647
Notice 2008-36, 2008-12 I.R.B.650
2008-6
Superseded by
Ann. 2008-19, 2008-11 I.R.B.624
Notices:
2001-16
Modified by
Notice 2008-20, 2008-6 I.R.B.406
2001-60
Modified and superseded by
Notice 2008-31, 2008-11 I.R.B.592
2002-44
Superseded by
Notice 2008-39, 2008-13 I.R.B.684
2003-51
Superseded by
Rev. Proc. 2008-24, 2008-13 I.R.B.684
2006-27
Clarified and superseded by
Notice 2008-35, 2008-12 I.R.B.647
2006-28
Clarified and superseded by
Notice 2008-36, 2008-12 I.R.B.650
2006-52
Clarified and amplified by
Notice 2008-40, 2008-14 I.R.B.725
2006-77
Clarified and amplified by
Notice 2008-25, 2008-9 I.R.B.484
2006-107
Modified by
Notice 2008-7, 2008-3 I.R.B.276
2007-30
Modified and superseded by
Notice 2008-14, 2008-4 I.R.B.310
2007-54
Clarified by
Notice 2008-11, 2008-3 I.R.B.279
2008-27
Clarified, amended, supplemented, and superseded
by
Notice 2008-41, 2008-15 I.R.B.742
Proposed Regulations:
REG-209020-86
Corrected by
Ann. 2008-11, 2008-7 I.R.B.445
REG-107592-00
Partial withdrawal by
Ann. 2008-25, 2008-14 I.R.B.732
REG-149856-03
Hearing scheduled by
Ann. 2008-26, 2008-13 I.R.B.693
REG-113891-07
Hearing scheduled by
Ann. 2008-4, 2008-2 I.R.B.269
REG-127770-07
Hearing scheduled by
Ann. 2008-24, 2008-13 I.R.B.692
REG-141399-07
Hearing cancelled by
Ann. 2008-31, 2008-15 I.R.B.787
Revenue Procedures:
97-36
Modified by
Rev. Proc. 2008-23, 2008-12 I.R.B.664
2001-23
Modified by
Rev. Proc. 2008-23, 2008-12 I.R.B.664
2002-9
Modified by
Rev. Proc. 2008-18, 2008-10 I.R.B.573
Modified and amplified by
Rev. Proc. 2008-25, 2008-13 I.R.B.686
2007-1
Superseded by
Rev. Proc. 2008-1, 2008-1 I.R.B.1
2007-2
Superseded by
Rev. Proc. 2008-2, 2008-1 I.R.B.90
2007-3
Superseded by
Rev. Proc. 2008-3, 2008-1 I.R.B.110
2007-4
Superseded by
Rev. Proc. 2008-4, 2008-1 I.R.B.121
2007-5
Superseded by
Rev. Proc. 2008-5, 2008-1 I.R.B.164
2007-6
Superseded by
Rev. Proc. 2008-6, 2008-1 I.R.B.192
Revenue Procedures— Continued:
2007-7
Superseded by
Rev. Proc. 2008-7, 2008-1 I.R.B.229
2007-8
Superseded by
Rev. Proc. 2008-8, 2008-1 I.R.B.233
2007-26
Obsoleted in part by
Rev. Proc. 2008-17, 2008-10 I.R.B.549
2007-31
Obsoleted in part by
Rev. Proc. 2008-19, 2008-11 I.R.B.594
2007-39
Superseded by
Rev. Proc. 2008-3, 2008-1 I.R.B.110
2007-52
Superseded by
Rev. Proc. 2008-9, 2008-2 I.R.B.258
2008-13
Corrected by
Ann. 2008-15, 2008-9 I.R.B.511
Revenue Rulings:
58-612
Clarified and amplified by
Rev. Rul. 2008-15, 2008-12 I.R.B.633
64-250
Amplified by
Rev. Rul. 2008-18, 2008-13 I.R.B.674
89-42
Modified and superseded by
Rev. Rul. 2008-17, 2008-12 I.R.B.626
92-19
Supplemented in part by
Rev. Rul. 2008-19, 2008-13 I.R.B.669
97-31
Modified and superseded by
Rev. Rul. 2008-17, 2008-12 I.R.B.626
2001-48
Modified and superseded by
Rev. Rul. 2008-17, 2008-12 I.R.B.626
2007-4
Supplemented and superseded by
Rev. Rul. 2008-3, 2008-2 I.R.B.249
Treasury Decisions:
9362
Corrected by
Ann. 2008-9, 2008-7 I.R.B.444
Ann. 2008-12, 2008-7 I.R.B.446
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2007–27 through 2007–52 is in Internal Revenue Bulletin 2007–52, dated December 26,
2007.
2008–15 I.R.B.iiiApril 14, 2008

Treasury Decisions— Continued:
9363
Corrected by
Ann. 2008-10, 2008-7 I.R.B.445
9368
Corrected by
Ann. 2008-29, 2008-15 I.R.B.786
9375
Corrected by
Ann. 2008-16, 2008-9 I.R.B.511
April 14, 2008iv2008–15 I.R.B.

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