Internal Revenue Bulletin 2008-38 (PDF rendition): IRS Revenue Rulings

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Bulletin No. 200
8-38
September 22, 20
08
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Rev. Rul. 2008–48, page 713.
Fringe benefits aircraft valuation formula.The Standard
Industry Fare Level (SIFL) cents-per-mile rates and terminal
charge in effect for the second half of 2008 are set forth for
purposes of determining the value of noncommercial flights
on employer-provided aircraft under section 1.61–21(g) of the
regulations.
REG–155087–05, page 726.
Proposed regulations under section 40 of the Code provide
guidance relating to credits and payments for alcohol mixtures,
biodiesel mixtures, renewable diesel mixtures, alternative fuel
mixtures, and alternative fuel sold for use or used as a fuel.
The regulations also provide guidance relating to the definition
of gasoline and diesel fuel.
REG–102822–08, page 744.
Proposed regulations under section 108 of the Code provide
guidance on the manner in which an S corporation reduces its
tax attributes under section 108(b) for taxable years in which
the S corporation has discharge of indebtedness income that
is excluded from gross income under section 108(a). A public
hearing is scheduled for December 8, 2008.
Notice 2008–74, page 718.
This notice delays the effective date of Rev. Rul. 2006–57.
Rev. Rul. 2006–57 provides guidance to employers on the
use of smartcards, debit or credit cards, or other electronic
media to provide qualified transportation fringes under sections
132(a)(5) and (f) of the Code. This guidance is intended to
provide relief to mass transit providers that are currently finding
it difficult to update their present systems in order to comply
with the Rev. Rul. guidelines prior to the current effective date
of January 1, 2009. The effective date of Rev. Rul. 2006–57
is further delayed until January 1, 2010. Rev. Rul. 2006–57
modified.
Rev. Proc. 2008–54, page 722.
This procedure provides guidance on the increased amount of
IRC section 179 expensing and the 50% additional first year
depreciation provided by sections 102 and 103, respectively,
of the Economic Stimulus Act of 2008. Rev. Proc. 2007–66
modified and superseded. Notice 2007–36 clarified, modified,
and amplified.
Announcement 2008–84, page 748.
This announcement modifies the transition rules in the effective
date provisions of Rev. Proc. 2008–52, 2008–36 I.R.B. 1, in
general, to allow taxpayers to elect to apply the procedures of
Rev. Proc. 2002–9 for applications to change a method of ac-
counting filed on or after August 18, 2008, through September
15, 2008, subject to certain limitations. Rev. Proc. 2008–52
modified.
EMPLOYEE PLANS
T.D. 9418, page 713.
Final regulations under section 408A of the Code provide guid-
ance concerning the tax consequences of converting a non-
Roth IRA annuity to a Roth IRA.
(Continued on the next page)
Announcement of Declaratory Judgment Proceedings Under Section 7428 begins on page 749.
Finding Lists begin on page ii.

Notice 2008–73, page 717.
This notice expands the availability of the transition relief for
certain small pension plans that was originally provided in No-
tice 2008–21, 2008–7 I.R.B. 431. This expanded transition
relief is needed because technical corrections to the Pension
Protection Act of 2006 (PPA) have not yet been enacted. This
guidance will expand the transition relief provided in Notice
2008–21 to apply to plans with end-of-year valuation dates
for 2006 and 2007, regardless of the valuation date used for
2008.
Notice 2008–75, page 719.
Weighted average interest rate update; corporate bond
indices; 30-year Treasury securities; segment rates.
This notice contains updates for the corporate bond weighted
average interest rate for plan years beginning in September
2008; the 24-month average segment rates; the funding
transitional segment rates applicable for September 2008;
and the minimum present value transitional rates for August
2008.
EXCISE TAX
REG–155087–05, page 726.
Proposed regulations under section 40 of the Code provide
guidance relating to credits and payments for alcohol mixtures,
biodiesel mixtures, renewable diesel mixtures, alternative fuel
mixtures, and alternative fuel sold for use or used as a fuel.
The regulations also provide guidance relating to the definition
of gasoline and diesel fuel.
September 22, 20082008–38 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.
2008–38 I.R.B.September 22, 2008

September 22, 20082008–38 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 40.—Alcohol
Used as Fuel
A proposed regulation relates to credits and pay-
ments for alcohol mixtures, biodiesel mixtures, re-
newable diesel mixtures, alternative fuel mixtures,
andalternativefuelsoldforuseorusedasafuel,as
well as relating to the definition of gasoline and diesel
fuel. See REG-155087-05, page 726.
Section 4
0A.—Biodiesel
and Renew
able Diesel
Used as F
uel
A propos
ed regulation relates to credits and pay-
ments fo
r alcohol mixtures, biodiesel mixtures, re-
newable
diesel mixtures, alternative fuel mixtures,
and alte
rnative fuel sold for use or used as a fuel, as
well as r
elating to the definition of gasoline and diesel
fuel. S
ee REG-155087-05, page 726.
Section 61.—Gross Income
Defined
26 CFR 1.61–21: Taxation of fringe benefits.
Fringe ben
efits aircraft valuation for-
mula.The
Standard Industry Fare Level
(SIFL) ce
nts-per-mile rates and terminal
charge in
effect for the second half of 2008
are set fo
rth for purposes of determining
the value
of noncommercial flights on
employe
r-provided aircraft under section
1.61–21
(g) of the regulations.
Rev. Rul. 2008–48
For purposes of the taxation of fringe
benefits under section 61 of the Inter-
nal Revenue Code, section 1.61–21(g) of
the Income Tax Regulations provides a
rule for valuing noncommercial flights
on employer-provided aircraft. Section
1.61–21(g)(5) provides an aircraft valua-
tion formula to determine the value of such
flights. The value of a flight is determined
under the base aircraft valuation formula
(also known as the Standard Industry Fare
Level formula or SIFL) by multiplying
the SIFL cents-per-mile rates applicable
for the period during which the flight was
taken by the appropriate aircraft multiple
provided in section 1.61–21(g)(7) and then
adding the applicable terminal charge. The
SIFL cents-per-mile rates in the formula
and the terminal charge are calculated by
the Department of Transportation and are
reviewed semi-annually.
The following chart sets forth the termi-
nal charge and SIFL mileage rates:
Period During Which
the Flight Is Taken
Terminal
Charge
SIFL Mileage
Rates
7/1/08 - 12/31/08
$42.
26
Up to 500 miles
= $.2312 per mile
501–
1500 miles
=$.1
763 per mile
Over 1500 miles
= $.1695 per mile
DRAFTING INFORMATION
The principal author of this revenue
ruling is Kathleen Edmondson of the
Office of Division Counsel/Associate
Chief Counsel (Tax Exempt/Govern-
ment Entities). For further information
regarding this revenue ruling, contact
Ms. Edmondson at (202) 622–0047 (not a
toll-free call).
Section 168.—Accelerated
Cost Recovery System
A revenue ruling provides guidance regarding the
increased amount of section 179 expensing and the
50% additional first year depreciation provided by
sections 102 and 103, respectively, of the Economic
Stimulus Act of 2008. See Rev. Proc. 2008-54, page
722.
Section 179.—Election
to Expense Certain
Depreciable Business
Assets
A revenue ruling provides guidance regarding the
increased amount of section 179 expensing and the
50% additional first year depreciation provided by
sections 102 and 103, respectively, of the Economic
Stimulus Act of 2008. See Rev. Proc. 2008-54, page
722.
Section 408A.—Roth IRAs
26 CFR 1.408A–4: Converting amounts to Roth IRAs.
T.D. 9418
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Converting an IRA Annuity to
aRothIRA
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final Regulations.
SUMMARY: This document contains fi-
nal regulations under section 408A of the
Internal Revenue Code (Code). These fi-
nal regulations provide guidance concern-
2008–38 I.R.B.713September 22, 2008

ing the tax consequences of converting
a non-Roth IRA annuity to a Roth IRA.
These final regulations affect individuals
establishing Roth IRAs, beneficiaries un-
der Roth IRAs, and trustees, custodians
and issuers of Roth IRAs.
DATES:Effective date:These final regu-
lations are effective July 29, 2008.
Applicability date:These regulations
are applicable to any Roth IRA conversion
where an annuity contract is distributed
or treated as distributed from a traditional
IRA on or after August 19, 2005.
FOR FURTHER INFORMATION
CONTACT: William D. Gibbs at
202–622–6060 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
Roth IRAs and Conversions
This document contains final regula-
tions that amend the Income Tax Regula-
tions (26 CFR Part 1) under section 408A
of the Code relating to Roth IRAs. Section
408A of the Code, which was added by
section 302 of the Taxpayer Relief Act of
1997, Public Law 105–34 (111 Stat. 788),
establishes the Roth IRA as a type of in-
dividual retirement plan, effective for tax-
able years beginning on or after January 1,
1998.
The identifying characteristic of Roth
IRAs is that all contributions to Roth IRAs
are after-tax contributions (that is, an IRA
owner cannot take a deduction for a con-
tribution made to a Roth IRA) but quali-
fied distributions are tax-free. A qualified
distribution from a Roth IRA is a distri-
bution that is made: (1) at least 5 years
after the account owner (or the account
owner’s spouse) made a Roth IRA contri-
bution, and (2) after age 59
1
/2, after death,
on account of disability, or for a first-time
home purchase.
A taxpayer whose modified adjusted
gross income for a year does not ex-
ceed $100,000 (and who, if married, files
jointly)
1
mayconvertanamountheldina
non-Roth IRA (that is, a traditional IRA or
SIMPLE IRA) to an amount held in a Roth
IRA. If a taxpayer converts an amount
held in a non-Roth IRA to a Roth IRA,
the taxpayer must include the value of the
non-Roth IRA being converted in gross
income (to the extent the conversion is
not a conversion of basis in the non-Roth
IRA).
A conversion may be accomplished
by means of a rollover, trustee-to-trustee
transfer, or account redesignation. Re-
gardless of the means used to convert, any
amount converted from a non-Roth IRA
to a Roth IRA is treated as distributed
from the non-Roth IRA and rolled over to
the Roth IRA. In the case of a conversion
involving property, the conversion amount
generally is the fair market value of the
property on the date of distribution or the
date the property is treated as distributed
from the traditional IRA.
Final regulations regarding Roth IRAs
were published in theFederal Register
on February 4, 1999 (T.D. 8816, 1999–1
C.B. 518 [64 FR 5597]). On August 19,
2005, the IRS issued temporary regu-
lations under section 408A (T.D. 9220,
2005–2 C.B. 596 [70 FR 48868]) relat-
ing to conversions involving annuities.
These temporary regulations were also
issued in identical form as proposed reg-
ulations (REG–122857–05, 2005–2 C.B.
609 [70 FR 48924]).
Rev. Proc. 2006–13, 2006–1 C.B. 315,
which was issued on January 17, 2006,
in response to several comments received
on the temporary and proposed regula-
tions, provided interim guidance with
respect to the temporary regulations. See
§601.601(d)(2)(ii)(b). After consideration
of all comments received on the proposed
regulations, these final regulations adopt
the provisions of the proposed regulations
with certain modifications described in the
Explanation of Provisions.
Explanation of Provisions
Like the proposed regulations, these fi-
nal regulations clarify that when a non-
Roth individual retirement annuity is con-
verted to a Roth IRA, the amount that is
treated as distributed is the fair market
value of the annuity contract on the date
the annuity contract is converted. Simi-
larly, when a non-Roth individual retire-
ment account holds an annuity contract as
an account asset and the account is con-
verted to a Roth IRA, the amount that is
treated as distributed with respect to the
annuity contract is the fair market value of
the annuity contract on the date the annu-
ity contract is converted (that is distributed
or treated as distributed from the non-Roth
IRA).
One commentator suggested that the fi-
nal regulations should clarify that where
a conversion is made by surrendering an
annuity without retaining or transferring
rights, the amount converted, and hence
the amount that must be included in in-
come as a result of the conversion, is lim-
ited to the surrendered cash value (the ac-
tual proceeds to be deposited into the Roth
IRA). Rev. Proc. 2006–13 provided that,
in such a case, the valuation methods in the
temporary regulations do not apply.
The final regulations adopt this sugges-
tion. Thus, to the extent an individual
retirement annuity oran annuity contract
held by an individual retirement account
is surrendered with no retained or trans-
ferred rights, the amount treated as a dis-
tribution is limited to the surrendered cash
value (the actual proceeds available to be
deposited into the Roth IRA).
The proposed regulations used a
methodology from the gift tax regulations
(§25.2512–6) to determine fair market
value of an annuity contract. Those rules
depend on how soon after purchase the
contract was converted and whether future
premiums were to be paid. The different
time periods were “soon after” the contract
was sold and after the contract “has been
in force for some time.” A commentator
stated that these terms are not defined and
do not lend themselves to clear or uniform
interpretation.
In response to these comments, the fi-
nal regulations modify the application of
the valuation rules taken from the gift tax
regulations (collectively referred to under
these regulations asthe gift tax method).
The applicability of one valuation rule
within the gift tax method is based upon
whether the company which sold the ini-
tial contract sells comparable annuities. If
there is such a comparable contract cur-
rently being sold, the fair market value of
the contract is determined as the price of
the comparable contract. For example, as-
sumeataxpayerwhoisage60atthetime
of the conversion had purchased from an
insurance company a contract at an earlier
1
These limitations are removed for taxableyears beginning after December 31, 2009.
September 22, 20087142008–38 I.R.B.

age which will pay him $500 per month
for life beginning at age 70. If the insur-
ance company is selling contracts that will
provide a taxpayer who is age 60 $500
per month for life at age 70, then the fair
market value of the taxpayer’s contract,
for purposes of determining the amount
converted, is the current price of the sim-
ilar contract. (If the conversion occurs
soon after the annuity was sold, the com-
parable contract is the annuity itself and,
thus, the fair market value of the annuity
is established by the actual premiums paid
for such contract.) This comparable con-
tract valuation rule subsumes the first two
methods under the proposed regulations.
The gift tax method under the final
regulations includes a second alternative
for situations where there is no compara-
ble contract. If no comparable contract
is available to make a comparison, the
fair market value is established through
an approximation that is based on the
interpolated terminal reserve at the date
of the conversion, plus the proportionate
part of the gross premium paid before the
date of the conversion which covers the
period extending beyond that date. This
reserve alternative is the same as the third
method under the proposed regulations,
except that it applies whenever there is no
comparable contract.
Rev. Proc. 2006–13 provided an al-
ternativetothevaluationmethodinthe
proposed regulations based on the accu-
mulation of premiums and this alternative
is included in the final regulations. Un-
der this “accumulation method”, the fair
market value of an annuity contract is per-
mitted to be determined using the method-
ology provided in §1.401(a)(9)–6, A–12,
with the following modifications. First,
all front-end loads and other non-recurring
charges assessed in the twelve months im-
mediately preceding the conversion must
be added to the account value. Second, fu-
ture distributions are not to be assumed in
the determination of the actuarial present
value of additional benefits. Finally, the
exclusions provided under §1.401(a)(9)–6,
A–12(c)(1) and (c)(2), are not to be taken
into account.
These final regulations also provide au-
thority for the Commissioner to issue ad-
ditional guidance regarding the fair mar-
ket value of an individual retirement annu-
ity,includingformulastobeusedforde-
termining fair market value.
Effective Date
These regulations are applicable to any
Roth IRA conversion where an annuity
contract is distributed or treated as dis-
tributed from a traditional IRA on or af-
ter August 19, 2005. However, taxpay-
ers may instead apply the valuation meth-
ods in the temporary regulations and Rev.
Proc. 2006–13 for annuity contracts dis-
tributed or treated as distributed from a tra-
ditional IRA on or before December 31,
2008. See §601.601(d)(2)(ii)(b). Thus, for
example, the adoption of these final regu-
lations does not eliminate the special rule
for 2005 conversions set forth in section 4
of Rev. Proc. 2006–13.
Special Analyses
It has been determined that these fi-
nal regulations are not a significant regu-
latory 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 final regulations and be-
cause these regulations do not impose a
collection of information on small entities,
the Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Pursuant to sec-
tion 7805(f) of the Code, the proposed reg-
ulations preceding these final regulations
were submitted to the Chief Counsel for
Advocacy of the Small Business Admin-
istration for comment on their impact on
small business.
Drafting Information
The principal authors of these regu-
lations are William Douglas Gibbs and
Cathy V. Pastor of the Office of the Di-
vision Counsel/Associate Chief Counsel
(Tax Exempt and Government Entities).
However, other personnel from the IRS
and Treasury Department participated in
the development of these regulations.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
Part 1 continues to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.408A–4T is removed.
§1.408A–4T [Removed].
Par. 3. Section 1.408A–4 is amended
by revising Q–14 and A–14 to read as fol-
lows:
§1.408A–4 Converting amounts to Roth
IRAs.
*****
Q–14. What is the amount that is
treated as a distribution, for purposes of
determining income inclusion, when a
conversion involves an annuity contract?
A–14. (a)In general—(1)Distribution
of Fair Market Value Upon Conversion.
Notwithstanding §1.408–4(e), when part
or all of a traditional IRA that is an individ-
ual retirement annuity described in section
408(b) is converted to a Roth IRA, for pur-
poses of determining the amount includi-
ble in gross income as a distribution under
§1.408A–4, A–7, the amount that is treated
as distributed is the fair market value of
the annuity contract on the date the annu-
ity contract is converted. Similarly, when a
traditional IRA that is an individual retire-
ment account described in section 408(a)
holds an annuity contract as an account as-
set and the traditional IRA is converted to
a Roth IRA, for purposes of determining
the amount includible in gross income as
a distribution under §1.408A–4, A–7, the
amount that is treated as distributed with
respect to the annuity contract is the fair
market value of the annuity contract on
the date that the annuity contract is dis-
tributed or treated as distributed from the
traditional IRA. The rules in this A–14 also
applytoconversionsfromSIMPLEIRAs.
(2)Annuity contract surrendered. Para-
graph (a)(1) of this paragraph A–14 does
not apply to a conversion of a traditional
IRA to the extent the conversion is ac-
complished by the complete surrender of
an annuity contract for its cash value and
the reinvestment of the cash proceeds in
a Roth IRA, but only if the surrender ex-
tinguishes all benefits and other character-
istics of the contract. In such a case, the
cash from the surrendered contract is the
amount reinvested in the Roth IRA.
2008–38 I.R.B.715September 22, 2008

(3)Definitions. The definitions set
forth in §1.408A–8 apply for purposes of
this paragraph A–14.
(b)Determination of fair market
value—(1)Overview—(i)Use of alterna-
tive methods. This paragraph (b) sets forth
methods which may be used to determine
the fair market value of an individual re-
tirement annuity for purposes of paragraph
(a)(1) of this paragraph A–14. However,
if, because of the unusual nature of the
contract, the value determined under one
of these methods does not reflect the full
value of the contract, that method may not
be used.
(ii)Additional guidance. Additional
guidance regarding the fair market value
of an individual retirement annuity, in-
cluding formulas to be used for deter-
mining fair market value, may be issued
by the Commissioner in revenue rul-
ings, notices, or other guidance published
in the Internal Revenue Bulletin (see
§601.601(d)(2)(ii)(b)).
(2)Gift tax method—(i)Cost of con-
tract or comparable contract.If with re-
spect to an annuity, there is a compara-
ble contract issued by the company which
sold the annuity, the fair market value of
the annuity may be established by the price
of the comparable contract. If the conver-
sion occurs soon after the annuity was sold,
the comparable contract may be the annu-
ity itself, and thus, the fair market value of
the annuity may be established through the
sale of the particular contract by the com-
pany (that is, the actual premiums paid for
such contract).
(ii)Use of reserves where no compa-
rable contract available. If with respect
to an annuity, there is no comparable con-
tract available in order to make the com-
parison described in paragraph (b)(2)(i) of
this paragraph A–14, the fair market value
may be established through an approxima-
tion that is based on the interpolated ter-
minal reserve at the date of the conversion,
plus the proportionate part of the gross pre-
mium last paid before the date of the con-
version which covers the period extending
beyond that date.
(3)Accumulation method.As an alter-
native to the gift tax method described in
paragraph (b)(2) of this paragraph A–14,
this paragraph (b)(3) provides a method
that may be used for an annuity contract
which has not been annuitized. The fair
market value of such an annuity contract
is permitted to be determined using the
methodology provided in §1.401(a)(9)–6,
A–12, with the following modifications:
(i) All front-end loads and other non-
recurring charges assessed in the twelve
months immediately preceding the conver-
sion must be added to the account value.
(ii) Future distributions are not to be as-
sumed in the determination of the actuarial
present value of additional benefits.
(iii) The exclusions provided under
§1.401(a)(9)–6, A–12(c)(1) and (c)(2), are
not to be taken into account.
(c)Effective/applicability date.The
provisions of this paragraph A–14 are
applicable to any conversion in which an
annuity contract is distributed or treated
as distributed from a traditional IRA on
or after August 19, 2005. However, for
annuity contracts distributed or treated as
distributed from a traditional IRA on or
before December 31, 2008, taxpayers may
instead apply the valuation methods in
§1.408A–4T (as it appeared in the April 1,
2008, edition of 26 CFR part 1) and Rev-
enue Procedure 2006–13, 2006–1 C.B.
315 (See §601.601(d)(2)(ii)(b)).
LindaE.Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved July 20, 2008.
Eric Solomon,
Assistant Secretary of
theTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on July 28, 2008,
8:45 a.m., and published in the issue of the Federal Register
for July 29, 2008, 73 F.R. 43860)
Section 6426.—Credit for
AlcoholFuel,Biodieseland
Alternative Fuel Mixtures
A proposed regulation relates to credits and pay-
ments for alcohol mixtures, biodiesel mixtures, re-
newable diesel mixtures, alternative fuel mixtures,
and alternative fuel sold for use or used as a fuel, as
well as relating to the definition of gasoline and diesel
fuel. See REG-155087-05, page 726.
Section 6427.—Fuels Not
Used for Taxable Purposes
A proposed regulation relates to credits and pay-
ments for alcohol mixtures, biodiesel mixtures, re-
newable diesel mixtures, alternative fuel mixtures,
and alternative fuel sold for use or used as a fuel, as
well as relating to the definition of gasoline and diesel
fuel. See REG-155087-05, page 726.
September 22, 20087162008–38 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Transition Guidance for
New Funding Rules and
Funding-Related Benefit
Limitations Under PPA ’06
Notice 2008–73
I. PURPOSE
This notice expands the availability of
the transition relief for certain small pen-
sion plans that was originally provided in
Notice 2008–21, 2008–7 I.R.B. 431.
II. BACKGROUND
Section 412 provides minimum fund-
ing requirements that generally apply for
defined benefit pension plans. Section
430,whichwasaddedbythePensionPro-
tection Act of 2006 (PPA), specifies the
minimum funding requirements that apply
to single employer pension plans (includ-
ing multiple employer plans) pursuant to
§ 412. Section 430 generally applies for
plan years beginning on or after January 1,
2008.
Section 430(f) provides for certain
funding balances referred to as the pre-
funding balance and the funding standard
carryover balance to be used to reduce the
otherwise applicable minimum required
contribution for a plan year. On August 31,
2007, proposed regulations under § 430(f)
were published in the Federal Register as
§ 1.430(f)–1 (REG–113891–07, 2007–42
I.R.B. 821 [72 FR 50544]).
Section 401(a)(29) requires that a de-
fined benefit plan (other than a multiem-
ployer plan) satisfythe requirements of
§ 436. Section 436 sets forth a series of
limitations on the accrual and payment
of benefits under an underfunded plan.
Section 436(b) places limitations on the
payment of plant shutdown benefits and
other unpredictable contingent event ben-
efits, § 436(c) placeslimitations on plan
amendments that increase liabilities for
benefits, § 436(d) places limitations on
the payment of accelerated benefit distri-
butions, and § 436(e) places limitations
on benefit accruals. These limitations are
applied based on the plan’s adjusted fund-
ing target attainment percentage (AFTAP)
for the plan year, as certified by the plan’s
enrolled actuary.
Section 436(j) provides definitions that
are used under § 436, including the defini-
tion of a plan’s AFTAP. In general, a plan’s
AFTAP is based on the plan’s funding tar-
get attainment percentage (FTAP) under
§ 430(d)(2) for the plan year. However, the
plan’s AFTAP is determined by adding the
aggregate amount of purchases of annu-
ities for employees other than highly com-
pensated employees (within the meaning
of § 414(q)) made by the plan during the
two preceding plan years to the numerator
and the denominator of the fraction used to
determine the FTAP.
Section 436(h) sets forth a series of
presumptions that apply during the portion
of the plan year that is before the plan’s
enrolled actuary has certified the plan’s
AFTAP for the year. Under § 436(h)(3), if
any of the § 436 limitations did not apply
to the plan for the preceding year, but the
AFTAP of the plan for the preceding year
was not more than 10 percentage points
greater than the percentage that would
have caused a limitation to apply to the
plan for the preceding year and, as of the
first day of the 4th month of the current
plan year, the enrolled actuary of the plan
has not certified the actual AFTAP for the
current plan year, then, until the enrolled
actuary certifies the plan’s actual AFTAP
for the current plan year, the plan’s AFTAP
for the current plan year is presumed to
be equal to 10 percentage points less than
the AFTAP of the plan for the preceding
plan year. Under § 436(h)(2), if the plan’s
enrolled actuary has not certified the plan’s
AFTAP by the first day of the 10th month
of the current plan year, the plan’s AFTAP
for the current plan year is conclusively
presumed to be less than 60 percent as of
that day.
Section 430(g)(1) provides that all de-
terminations made under § 430 for a plan
year (including the determination of a
plan’s FTAP and AFTAP) must be made
as of the plan’s valuation date. Section
430(g)(2) provides that, other than for
small plans with 100 or fewer participants
(determined as provided in § 430(g)(2)(B)
and (C)), the valuation date for a plan year
must be the first day of the plan year.
Section 436(k) provides that, for pur-
poses of § 436, in the case of plan years
beginning in 2008, the FTAP for the pre-
ceding plan year may be determined using
such methods of estimation as the Secre-
tary may provide.
The House of Representatives and the
Senate have both passed similar but not
identical bills containing technical correc-
tions to PPA (H.R. 6382, passed by the
House of Representatives on July 8, 2008,
and S. 1974, passed by the Senate on De-
cember 19, 2007). Both of these bills
would grant the Treasury Department au-
thority to develop special rules under § 436
with respect to plans with valuation dates
other than the first day of the plan year.
Proposed regulations under § 436 were
published as § 1.436–1 on August 31, 2007
(REG–113891–07, 2007–42 I.R.B. 821
[72 FR 50544]).
1
Section 1.436–1(j)(2)
and (3) of the proposed regulations would
provide rules for determining the FTAP
and AFTAP for purposes of applying
the § 436 benefit limitations. Section
1.436–1(j)(3)(iii)(B) provides that, for
purposes of determining the plan’s AFTAP
for the first year § 436 applies to the plan,
the adjusted funding target is equal to the
current liability determined pursuant to
§ 412(l)(7) as of the plan’s valuation date
for the plan year that precedes the first
plan year for which § 436 applies to the
plan, increased by the aggregate amount
of purchases of annuities for employees
other than highly compensated employees
(as defined in § 414(q)) which were made
by the plan during the preceding 2 plan
years.
Proposed § 1.436–1(j)(3)(iv) provides
that, in any case in which the plan’s en-
rolled actuary has not issued a certification
of the AFTAP of the plan for the plan year
preceding the plan year § 436 first applies
to the plan (the pre-effective plan year),
the AFTAP of the plan for the plan year
is presumed to be less than 60 percent un-
til the AFTAP of the plan for that pre-ef-
fective plan year has been certified. Under
the proposed regulations, this rule applies
for purposes of § 1.436–1(b) and (c) at the
beginning of the first plan year that § 436
applies to the plan and applies for purposes
of § 1.436–1(d) and (e) as of the first day of
1
A correction notice was published with respect to this notice of proposed rulemaking in the Federal Register dated November 9, 2007 (72 FR 63528).
2008–38 I.R.B.717September 22, 2008

the fourth month of the first plan year that
§ 436 applies to the plan. The guidance
set forth in the proposed § 436 regulations
with respect to application of these pre-
sumptions does not address how the rules
of § 436(h) apply to a plan with a valua-
tion date that is not the first day of the plan
year. See proposed § 1.436–1(h)(5).
On December 31, 2007, proposed reg-
ulations under §§ 430(d), 430(g), 430(h),
and 430(i) were published in the Federal
Register (REG–139236–07, 2008–9 I.R.B.
491 [72 FR 74215]). Those regulations are
proposed to apply to plan years beginning
on or after January 1, 2009.
On April 15, 2008, proposed regula-
tions under §§ 430(a), 430(c), 430(e), and
430(j) were published in the Federal Reg-
ister (REG–108508–08, 2008–19 I.R.B.
923 [73 FR 20203]). Those regulations are
proposed to apply to plan years beginning
on or after January 1, 2009.
On February 19, 2008, the Service pub-
lished Notice 2008–21. Part III.B of No-
tice 2008–21 provides a transition rule for
application of § 436 benefit limitations by
small plans with end of the plan year val-
uation dates. Under this transition rule,
in the case of a plan that has a valuation
date that is the last day of the plan year for
each of the plan years beginning in 2006,
2007, and 2008, for purposes of applying
the benefit limitations of § 436 for the plan
year beginning during 2008, a certifica-
tion of the plan’s AFTAP for the prior plan
year (the 2007 plan year) is permitted to
be made by determining the FTAP for the
2007 plan year as follows:
•The FTAP for the 2007 plan year is
equal to a fraction (expressed as a per-
centage), the numerator of which is the
value of net plan assets, and the de-
nominator of which is the plan’s cur-
rent liability determined pursuant to
§ 412(l)(7) on the valuation date for
the second plan year that begins before
2008 (the 2006 plan year), including
the increase in current liability for the
2006 plan year.
•For purposes of determining the FTAP
for the 2007 plan year, the value of net
plan assets is determined as the value
of plan assets under § 412(c)(2) as in
effect for the 2006 plan year, adjusted
as follows: (1) contributions made
for the 2006 plan year are taken into
account, regardless of whether those
contributions are made during the plan
year or after the end of the plan year
and within the period specified under
§ 412(c)(10); (2) the value of plan as-
sets taking into account the amount of
contributions made for the 2006 plan
year is increased or decreased, as nec-
essary, so that it is neither less than 90
percent of the fair market value of plan
assets nor greater than 110 percent of
the fair market value of plan assets on
the valuation date for the 2006 plan
year (taking into account assets attrib-
utable to contributions for the 2006
plan year); and (3) the plan’s funding
standard account credit balance as of
the end of the 2006 plan year is sub-
tracted (unless the value of plan assets
is greater than or equal to 90 percent of
the plan’s current liability determined
under § 412(l)(7) on the valuation date
for the 2006 plan year).
Section IV of Notice 2008–21 describes
rules that the Service and the Treasury De-
partment are considering with respect to
end-of-year valuation dates in the event
that technical corrections are enacted.
Additional transition relief
Because technical corrections to PPA
have not yet been enacted, many small
plans that would have otherwise retained
end-of-year valuation dates will adopt
beginning-of-year valuation dates for the
2008 plan year. This change will make
those plans ineligible for the transition
relief set forth in Section III.B of Notice
2008–21. Accordingly, these plans may
have difficulty in complying with the tim-
ing requirements for certifying the plan’s
AFTAP. To address these difficulties, the
transition relief of Section III.B of Notice
2008–21 is expanded to apply with respect
to any plan that had an end-of-year val-
uation date for both the 2006 and 2007
plan years, regardless of the plan’s val-
uation date for 2008. The Service and
the Treasury Department are considering
the extent to which automatic approval
to change valuation dates and to make
other funding method changes should be
granted for the 2009 plan year.
DRAFTING INFORMATION
The principal authors of this no-
tice are David Ziegler of the Employee
Plans, Tax Exempt and Government En-
tities Division, and Lauson C. Green
and Linda S. F. Marshall of the Office
of the Division Counsel/Associate
Chief Counsel (Tax Exempt and
Government Entities).For further
information regarding this notice,
contact Mr. Ziegler via e-mail at
RetirementPlanQuestions@irs.gov,and
contact Mr. Green and Ms. Marshall at
(202) 622–6090 (not a toll-free number).
Qualified Transportation
Fringes
Notice 2008–74
The purpose of this notice is to de-
lay the effective date of Revenue Ruling
2006–57, 2006–2 C.B. 911. Revenue Rul-
ing 2006–57 provides guidance to employ-
ers on the use of smartcards, debit or credit
cards, or other electronic media to pro-
vide qualified transportation fringes under
Internal Revenue Code §§ 132(a)(5) and
132(f). The ruling’s effective date was
set for January 1, 2008. In 2007, how-
ever, Treasury and the IRS became aware
that certain transit systems needed addi-
tional time to modify their technology and
make it compatible with the requirements
for vouchers set forth in Revenue Ruling
2006–57. Consequently, Treasury and the
IRS delayed the effective date of Revenue
Ruling 2006–57 until January 1, 2009. See
Notice 2007–76, 2007–40 I.R.B. 735. Cer-
tain transit systems continue to experience
technology barriers to achieving compati-
bility with the requirements for vouchers.
Therefore, the ruling’s effective date is fur-
ther delayed until January 1, 2010. Nev-
ertheless, employers and employees may
rely on Revenue Ruling 2006–57 with re-
spect to transactions occurring prior to Jan-
uary 1, 2010. The principal author of this
notice is Don M. Parkinson of the Of-
fice of Associate Chief Counsel (Tax Ex-
empt & Government Entities). For further
information regarding this notice, contact
Don M. Parkinson at (202) 622–6040 (not
a toll-free call).
September 22, 20087182008–38 I.R.B.

Update for Weighted Average
Interest Rates, Yield Curves,
and Segment Rates
Notice 2008–75
This notice provides guidance as to the
corporate bond weighted average interest
rate and the permissible range of interest
rates specified under § 412(b)(5)(B)(ii)(II)
of the Internal Revenue Code as in ef-
fect for plan years beginning before 2008.
It also provides guidance on the corpo-
rate bond monthly yield curve (and the
corresponding spot segment rates), the
24-month average segment rates, and
the funding transitional segment rates
under § 430(h)(2). In addition, this no-
tice provides guidance as to the interest
rate on 30-year Treasury securities un-
der § 417(e)(3)(A)(ii)(II) as in effect for
plan years beginning before 2008, the
30-year Treasury weighted average rate
under § 431(c)(6)(E)(ii)(I), and the min-
imum present value segment rates under
§ 417(e)(3)(D) as in effect for plan years
beginning after 2007.
CORPORATE BOND WEIGHTED
AVERAGE INTEREST RATE
Sections412(b)(5)(B)(ii)and
412(l)(7)(C)(i), as amended by the Pen-
sion Funding Equity Act of 2004 and by
the Pension Protection Act of 2006 (PPA),
provide that the interest rates used to cal-
culate current liability and to determine
the required contribution under § 412(l)
for plan years beginning in 2004 through
2007 must be within a permissible range
based on the weighted average of the rates
of interest on amounts invested conser-
vatively in long term investment grade
corporate bonds during the 4-year period
ending on the last day before the beginning
of the plan year.
Notice 2004–34, 2004–1 C.B. 848, pro-
vides guidelines for determining the cor-
porate bond weighted average interest rate
and the resulting permissible range of in-
terest rates used to calculate current liabil-
ity. That notice establishes that the corpo-
rate bond weighted average is based on the
monthly composite corporate bond rate de-
rived from designated corporate bond in-
dices. The methodology for determining
the monthly composite corporate bond rate
as set forth in Notice 2004–34 continues to
apply in determining that rate. See Notice
2006–75, 2006–2 C.B. 366.
The composite corporate bond rate for
August 2008 is 6.76 percent. Pursuant
to Notice 2004–34, the Service has de-
termined this rate as the average of the
monthly yields for the included corporate
bond indices for that month.
The following corporate bond weighted
average interest rate was determined for
plan years beginning in the month shown
below.
For Plan Years
Beginning inPermissible Range
MonthYear
Corporate
Bond Weighted
Average90%to100%
September20086.10
5.49
6.10
YIELD CURVE AND SEGMENT
RATES
Generally for plan years beginning
after 2007 (except for delayed effective
dates for certain plans under sections 104,
105, and 106 of PPA), § 430 of the Code
specifies the minimum funding require-
ments that apply to single employer plans
pursuant to § 412. Section 430(h)(2) spec-
ifies the interest rates that must be used
to determine a plan’s target normal cost
and funding target. Under this provision,
present value is generally determined us-
ing three 24-month average interest rates
(“segment rates”), each of which applies
to cash flows during specified periods.
However, an election may be made under
§ 430(h)(2)(D)(ii) to use the monthly yield
curve in place of the segment rates. For
plan years beginning in 2008 and 2009, a
transitional rule under § 430(h)(2)(G) pro-
vides that the segment rates are blended
with the corporate bond weighted average
as specified above. An election may be
made under § 430(h)(2)(G)(iv) to use the
segment rates without applying the transi-
tional rule.
Notice 2007–81, 2007–44 I.R.B. 899,
provides guidelines for determining the
monthly corporate bond yield curve, the
24-month average corporate bond seg-
ment rates, and the funding transitional
segment rates used to compute the tar-
get normal cost and the funding target.
Pursuant to Notice 2007–81, the monthly
corporate bond yield curve derived from
August 2008 data is in Table I at the end
of this notice. The spot first, second, and
third segment rates for the month of Au-
gust 2008 are, respectively, 5.21, 6.87,
and 6.91. The three 24-month average
corporate bond segment rates applicable
for September 2008 under the election of
§ 430(h)(2)(G)(iv) are as follows:
First
Segment
Second
Segment
Third
Segment
5.07
6.09
6.56
The transitional segment rates under
§ 430(h)(2)(G) applicable for September
2008, taking into account the corporate
bond weighted average of 6.10 stated
above, are as follows:
2008–38 I.R.B.719September 22, 2008

For Plan Years
Beginning in
First
Segment
Second
Segment
Third
Segment
2008
5.76
6.10
6.25
2009
5.41
6.096.41
30-YEAR TREASURY SECURITIES
INTEREST RATES
Section 417(e)(3)(A)(ii)(II) (prior to
amendment by PPA) defines the appli-
cable interest rate, which must be used
for purposes of determining the minimum
present value of a participant’s benefit
under § 417(e)(1) and (2), as the annual
rate of interest on 30-year Treasury se-
curities for the month before the date
of distribution or such other time as the
Secretary may by regulations prescribe.
Section 1.417(e)–1(d)(3) of the Income
Tax Regulations provides that the applica-
ble interest rate for a month is the annual
rate of interest on 30-year Treasury secu-
rities as specified by the Commissioner
for that month in revenue rulings, notices
or other guidance published in the Internal
Revenue Bulletin.
The rate of interest on 30-year Treasury
securities for August 2008 is 4.50 percent.
The Service has determined this rate as the
average of the yield on the 30-year Trea-
sury bond maturing in February 2038 de-
termined each day through August 6, 2008,
and the yield on the 30-year Treasury bond
maturing in May 2038 determined each
day for the balance of the month.
Generally for plan years beginning
after 2007, § 431 specifies the mini-
mum funding requirements that apply to
multiemployer plans pursuant to § 412.
Section 431(c)(6)(B) specifies a mini-
mum amount for the full-funding limi-
tation described in section 431(c)(6)(A),
based on the plan’s current liability.
Section 431(c)(6)(E)(ii)(I) provides that
the interest rate used to calculate cur-
rent liability for this purpose must be
no more than 5 percent above and no
more than 10 percent below the weighted
average of the rates of interest on 30-year
Treasury securities during the four-year
period ending on the last day before the
beginning of the plan year. Notice 88–73,
1988–2 C.B. 383, provides guidelines for
determining the weighted average interest
rate. The following rates were determined
for plan years beginning in the month
shown below.
For Plan Years
Beginning inPermissible Range
MonthYear
30-Year
Treasury
Weighted
Average
90%to
105%
September20084.724.24
4.95
MINIMUM PRE
SENT VALUE
SEGMENT RAT
ES
Generally
for plan years beginning
after Dece
mber 31, 2007, the applicable
interest r
ates under § 417(e)(3)(D) are
segment r
ates computed without regard to
a 24-month a
verage. For plan years begin-
ning in 2008
through 2011, the applicable
interest r
ate is the monthly spot segment
rate blend
ed with the applicable rate under
§ 417(e)(3
)(A)(ii)(II) as in effect for plan
years begi
nning in 2007. Notice 2007–81
provides
guidelines for determining the
minimum pre
sent value segment rates.
Pursuant to
that notice, the minimum
present va
lue transitional segment rates
determine
d for August 2008, taking into
account th
e August 2008 30-year Treasury
rate of 4.5
0 stated above, are as follows:
For Plan Years
Beginning in
First
Segment
Second
Segment
Third
Segment
20084.644.974.98
20094.78
5.455.46
DRAFTING INFORMATION
The principal author of this notice is
Tony Montanaro of the Employee Plans,
Tax Exempt and Government Entities Di-
vision. Mr. Montanaro may be e-mailed at
RetirementPlanQuestions@irs.gov.
September 22, 20087202008–38 I.R.B.

Table I
Monthly Yield Curve for August 2008
Maturity YieldMaturity YieldMaturity YieldMaturity YieldMaturity Yield
0.5
3.79
20.5
7.02
40.5
6.90
60.5
6.86
80.5
6.84
1.04.2721.07.0241.0
6.89
61.06.8681.06.84
1.5
4.69
21.5
7.01
41.5
6.89
61.5
6.86
81.5
6.84
2.0
5.04
22.07.0042.0
6.89
62.06.8682.06.84
2.55.3122.5
7.00
42.5
6.89
62.5
6.86
82.5
6.84
3.0
5.51
23.0
6.99
43.0
6.89
63.06.8683.06.84
3.55.6723.5
6.98
43.5
6.89
63.5
6.86
83.5
6.84
4.05.8124.0
6.98
44.0
6.89
64.06.8684.06.84
4.5
5.93
24.5
6.97
44.5
6.89
64.5
6.86
84.5
6.84
5.0
6.04
25.0
6.97
45.0
6.89
65.0
6.86
85.0
6.84
5.56.1525.5
6.96
45.5
6.88
65.5
6.86
85.5
6.84
6.0
6.25
26.0
6.96
46.06.8866.06.8686.06.84
6.5
6.34
26.5
6.95
46.5
6.88
66.56.8586.5
6.84
7.06.4327.06.9547.06.8867.06.8587.06.84
7.56.5227.5
6.95
47.5
6.88
67.56.8587.5
6.84
8.06.6028.0
6.94
48.06.8868.0
6.85
88.06.84
8.5
6.67
28.5
6.94
48.5
6.88
68.56.8588.5
6.84
9.0
6.74
29.06.9449.0
6.88
69.0
6.85
89.0
6.84
9.56.8029.5
6.94
49.56.8869.5
6.85
89.56.84
10.06.8530.0
6.93
50.06.88 70.06.85
90.0
6.84
10.5
6.90
30.5
6.93
50.5
6.88
70.56.85
90.56.84
11.0
6.94
31.0
6.93
51.0
6.8771.0
6.85
91.0
6.84
11.5
6.97
31.5
6.93
51.5
6.87
71.56.85
91.56.84
12.07.0032.0
6.92
52.0
6.8772.0
6.85
92.0
6.84
12.5
7.02
32.5
6.92
52.5
6.87
72.56.85
92.56.84
13.07.0433.0
6.92
53.06.87 73.06.85
93.0
6.84
13.5
7.06
33.5
6.92
53.5
6.87
73.56.85
93.56.84
14.07.0734.0
6.92
54.0
6.8774.0
6.85
94.0
6.84
14.5
7.07
34.5
6.91
54.5
6.87
74.56.85
94.56.84
15.0
7.08
35.0
6.91
55.0
6.87
75.06.85
95.06.84
15
.57.08
35
.5
6.91
55
.56.87
75
.5
6.
8595.56.84
16
.0
7.
08
36
.06.91
56.06.
87
76
.0
6.85
96.0
6.
84
16.5
7.07
36.5
6.
91
56.5
6.87
76.56.85
96.56.83
17.07.0737.0
6.91
57.0
6.8777.0
6.85
97.0
6.83
17.5
7.06
37.5
6.90
57.5
6.86
77.56.85
97.56.83
18.07.0638.0
6.90
58.0
6.8678.0
6.85
98.0
6.83
1
8.5
7
.05
3
8.5
6.90
5
8.56.86
7
8.5
6
.8598.56.83
19.0
7.05
39.06.9059.0
6
.8679.0
6
.8499.0
6
.83
19.57.0439.5
6.90
59.56.8679.56.8499.56.83
20.07.0340.0
6.90
60.06.8680.06.84100.06.83
2008–38 I.R.B.721September 22, 2008

26 CFR 1.179–1: Election to expense certain depre-
ciable assets.
(Also: §§ 168, 179; 1.168(k)–1.)
Rev. Proc. 2008–54
SECTION 1. PURPOSE
This revenue procedure provides guid-
ance under §§ 102 and 103 of the Eco-
nomic Stimulus Act of 2008, Pub. L.
No. 110–185, 122 Stat. 613 (February
13, 2008) (Stimulus Act). Section 102
of the Stimulus Act amends § 179 of the
Internal Revenue Code by increasing the
dollar limitations that apply to taxpayers
who elect to expense certain depreciable
assets under § 179 for taxable years begin-
ning in 2008 (Stimulus § 179 deduction).
Section 103 of the Stimulus Act amends
§ 168(k) of the Code to allow a 50-percent
additional first year depreciation for cer-
tain new property acquired and placed in
service during 2008 (Stimulus additional
first year depreciation deduction). This
revenue procedure also announces that the
Internal Revenue Service and the Treasury
Department intend to amend § 1.179–5(c)
of the Income Tax Regulations to permit
taxpayers to make an election under § 179
without the consent of the Commissioner
of Internal Revenue on an amended return
for taxable years beginning after 2007.
SECTION 2. BACKGROUND
.01 Section 179(a) allows a taxpayer to
elect to treat as an expense the cost of any
§ 179 property that is not chargeable to
capital account. Section 179(b) prescribes
a dollar limitation on the aggregate cost
of § 179 property that can be treated as
an expense. The dollar limitation is the
amount under § 179(b)(1) ($125,000 for
any taxable year beginning after 2006 and
before 2011), reduced by the amount un-
der § 179(b)(2) (the amount by which the
cost of § 179 property placed in service
during the taxable year exceeds $500,000
for any taxable year beginning after 2006
and before 2011), with both amounts ad-
justed annually for inflation. For taxable
years beginning in 2008, section 3.20 of
Rev. Proc. 2007–66, 2007–45 I.R.B. 970,
975, provides that the amounts provided in
§ 179(b)(1) and (2), adjusted for inflation,
are $128,000 and $510,000, respectively.
Section 102(a) of the Stimulus Act
added § 179(b)(7) to the Code. For
any taxable year beginning in 2008,
§ 179(b)(7) changes the amount provided
in § 179(b)(1) to $250,000 and the amount
provided in § 179(b)(2) to $800,000. Sec-
tion 179(b)(7) also provides that these
amounts will not be adjusted for inflation.
This revenue procedure modifies Rev.
Proc. 2007–66 to reflect these statutory
changes to § 179 (see section 3 of this
revenue procedure).
.02 Under § 179(d)(8), the limitations
of § 179(b) apply to a partnership and to
each partner, and in similar fashion ap-
ply to an S corporation and each of its
shareholders. In the case of a partner-
ship, § 1.179–2(b)(3)(iv) provides that the
partner’s distributive share of the partner-
ship’s § 179 expenses for the partnership’s
taxable year is taken into account in the
partnership’s taxable year that ends with
or within the partner’s taxable year. Sim-
ilar rules apply in the case of S corpo-
rations and their shareholders. Section
1.179–2(b)(4). Thus, when the taxable
years of a partnership (or an S corpora-
tion) and a partner (or an S corporation
shareholder) do not coincide, each will be
subject to a different dollar limitation un-
der § 179(b)(1) and (2). This revenue
procedure clarifies the application of the
§ 179(b)(1) limitation of $250,000 for the
Stimulus § 179 deduction to partners (or
S corporation shareholders) that are cal-
endar-year taxpayers and have interests in
partnerships (or S corporations) with tax-
able years beginning in 2008 and ending
in 2009 (see section 4 of this revenue pro-
cedure).
.03 Prior to the enactment of the Stim-
ulus Act, § 168(k)(1) provided a 30-per-
cent additional first year depreciation de-
duction for qualified property acquired af-
ter September 10, 2001, and before Jan-
uary 1, 2005. Section 103 of the Stimulus
Act amends § 168(k) to allow a taxpayer to
claim the Stimulus additional first year de-
preciation deduction for certain new prop-
erty acquired by the taxpayer after 2007
and placed in service by the taxpayer be-
fore 2009 (before 2010 in the case of prop-
erty described in § 168(k)(2)(B) or (C)).
Section 103 of the Stimulus Act also pro-
vides that the amount of the Stimulus addi-
tional first year depreciation allowance is
50 percent. With the exception of the in-
creased amounts and the revised dates, the
rules for determining whether depreciable
property is eligible for the Stimulus addi-
tional first year depreciation deduction are
the same as the rules in § 168(k) in effect
before the enactment of the Stimulus Act.
This revenue procedure clarifies the appli-
cation of the revised rules (see section 5 of
this revenue procedure).
.04 Section 1400N(d) provides a
50-percent additional first year deprecia-
tion deduction (GO Zone additional first
year depreciation deduction) for qualified
Gulf Opportunity Zone property placed
in service by the taxpayer on or before
December 31, 2007 (December 31, 2008,
in the case of nonresidential real property
and residential rental property) (GO Zone
property). Section 1400N(d)(6) provides
that in the case of any specified GO Zone
extension property (GO Zone extension
property), the placed-in-service date is
extended to December 31, 2010. Section
103(c)(10) of the Stimulus Act amends
§ 1400N(d)(6) by providing that GO Zone
extension property shall not include any
property to which § 168(k) applies.
Section 1400N(e)(1) provides that, for
purposes of § 179, the dollar amount in ef-
fect under § 179(b)(1) for the taxable year
is increased by the lesser of $100,000, or
the cost of qualified § 179 Gulf Opportu-
nity Zone property (§ 179 GO Zone prop-
erty) placed in service during the taxable
year, and the dollar amount in effect un-
der § 179(b)(2) for the taxable year is in-
creased by the lesser of $600,000, or the
cost of § 179 GO Zone property placed in
service during the taxable year.
Section 15345 of the Food, Conserva-
tion, and Energy Act of 2008, Pub. L.
No. 110–246, 122 Stat. 1651 (June 18,
2008) (Farm Bill) provides a 50-percent
additional first year depreciation deduc-
tion for certain property substantially
used in the Kansas disaster area. Section
15345 of the Farm Bill also extends the in-
creased § 179 amounts provided for § 179
GO Zone property to certain property
substantially used in the Kansas disaster
area.
.05 This revenue procedure clarifies:
(1) how the Stimulus § 179 deduction
interacts with the increased § 179 amounts
provided under § 1400N(e) for certain
§ 179 GO Zone property placed in service
during 2008 (see section 6.01(1) of this
revenue procedure);
September 22, 20087222008–38 I.R.B.

(2) how the Stimulus additional first
year depreciation deduction interacts with
the GO Zone additional first year depre-
ciation deduction for GO Zone property,
including GO Zone extension property,
placed in service during 2008 (see section
6.01(2) of this revenue procedure);
(3) how the Stimulus § 179 deduction
interacts with the increased § 179 amounts
applicable to the Kansas disaster area (see
section 6.02(1) of this revenue procedure);
and
(4) how the Stimulus additional first
year depreciation deduction interacts with
the 50-percent additional first year depre-
ciation deduction applicable to the Kansas
disaster area (see section 6.02(2) of this
revenue procedure).
.06 Section 179(c) provides the rules for
making and revoking elections under § 179
(§ 179 election). Pursuant to § 179(c)(1),
a § 179 election is made in the manner
prescribed by regulations. Prior to 2006,
§ 179(c)(2) provided that a § 179 elec-
tion for taxable years beginning after 2002
and before 2008 may be revoked by the
taxpayer with respect to any § 179 prop-
erty. Section 1.179–5(c)(1) provides that
for any taxable year beginning after 2002
and before 2008, a taxpayer is permitted
to make or revoke a § 179 election with-
out the consent of the Commissioner on an
amended federal tax return for that taxable
year.
Section 101 of the Tax Increase Pre-
vention and Reconciliation Act of 2005,
Pub. L. No. 109–222, 120 Stat. 345
(2006) and § 8212(a) of the Small Busi-
ness and Work Opportunity Tax Act of
2007, Pub. L. No. 110–28, 121 Stat. 112
(2007) amended § 179(c)(2) by extending
from “2008” to “2011” the rules for revok-
ing a § 179 election. Section 1.179–5(c)
was promulgated in2005 and has not been
amended to reflect the extension to 2011.
Therefore, some taxpayers are uncertain
about whether a § 179 election for taxable
years beginning after 2007 may be made
on an amended federal tax return. This
revenue procedure provides the rules for
making such a § 179 election (see section
7 of this revenue procedure).
SECTION 3. MODIFICATION OF
SECTION 3.20 OF REV. PROC. 2007–66
To reflect the statutory changes made to
§ 179 by § 102 of the Stimulus Act, section
3.20 of Rev. Proc. 2007–66 is modified to
read as follows:
.20Election to Expense Certain Depre-
ciable Assets.For any taxable year begin-
ning in 2008, under § 179(b)(1) the aggre-
gate cost of any § 179 property a taxpayer
may elect to treat as an expense cannot
exceed $250,000. Under § 179(b)(2) the
$250,000 limitation is reduced (but not be-
low zero) by the amount by which the cost
of § 179 property placed in service during
the 2008 taxable year exceeds $800,000.
SECTION 4. APPLICATION OF
§ 179(b)(1) STIMULUS ACT
LIMITATION WHEN TAXABLE
YEARS OF PASSTHROUGH
ENTITY AND ITS PARTNERS
OR SHAREHOLDERS DO NOT
COINCIDE
.01In General. For any taxable year
beginning in 2008, the § 179(b)(1) limita-
tion under the Stimulus Act is $250,000.
For taxable years beginning in 2009, the
§ 179(b)(1) limitation will be $125,000
plus an additional amount determined in
accordance with the inflation adjustment
provision of § 179(b)(5) (2009 § 179(b)(1)
dollar limitation).
.02Application of § 179(b)(1) Limi-
tation in Taxable Years 2008 and 2009
to Passthrough Entity and Its Partners or
Shareholders with Different Taxable Years.
(1)Partnership or S corporation.
A partnership or an S corporation
(passthrough entity) with a taxable year
beginning in 2007 and ending in 2008 is
subject to the § 179(b)(1) limitation of
$125,000 for § 179 property placed in ser-
vice by the passthrough entity during that
taxable year. A passthrough entity with a
taxable year beginning in 2008 and ending
in 2009 is subject to the § 179(b)(1) limi-
tation under the Stimulus Act of $250,000
for § 179 property placed in service by
the passthrough entity during that taxable
year.
(2)Partner or S corporation share-
holder. Pursuant to § 1.179–2(b)(3)(iv),
a partner or a S corporation shareholder
that is a calendar-year taxpayer is subject
to the § 179(b)(1) limitation under the
Stimulus Act of $250,000 for (a) § 179
property placed in service by the partner
or the S corporation shareholder during
2008 and (b) its allocable share of the
§ 179 deduction from any partnership or
S corporation with a taxable year ending
in 2008. Similarly, a partner or S corpo-
ration shareholder that is a calendar-year
taxpayer is subject to the 2009 § 179(b)(1)
dollar limitation for (a) § 179 property
placed in service by the partner or S cor-
poration shareholder during 2009 and (b)
its allocable share of the § 179 deduction
from any partnership or S corporation with
a taxable year ending in 2009.
(3)Example. The following example
illustrates the provisions of this section 4.
Example. XY, an S corporation, has a taxable
year beginning April 1, 2008, and ending March 31,
2009. X, a calendar-year taxpayer, is the sole share-
holder of XY. X is engaged in the active conduct of
XY’s trade or business. X does not own any interests
in any other partnerships or S corporations. Further,
X is not engaged in the active conduct of any other
trades or businesses. XY purchases only one item
of § 179 property, costing $250,000, during its tax-
able year beginning April 1, 2008, and ending March
31, 2009, and places this §179 property in service on
April 18, 2008. For its taxable year beginning April
1, 2008, and ending March 31, 2009, XY elects under
§ 179 to expense the $250,000 cost of that § 179 prop-
erty and allocates its § 179 deduction of $250,000 to
X. Because XY’s taxable year ends within X’s 2009
taxable year, X cannot claim its share of the $250,000
attributable to XY’s § 179 deduction until X’s 2009
taxable year. As a result, X is subject to the 2009
§ 179(b)(1) dollar limitation, instead of the Stimulus
Act limitation of $250,000, for its taxable year begin-
ning in 2009.
SECTION 5. STIMULUS ADDITIONAL
FIRST YEAR DEPRECIATION
DEDUCTION
.01Application of § 1.168(k)–1.For
purposes of the Stimulus additional first
year depreciation deduction, rules sim-
ilar to the rules in § 1.168(k)–1 for
“qualified property” or for “30-percent
additional first year depreciation de-
duction” apply. However, in applying
§ 1.168(k)–1(d)(1)(i), the computation
of the allowable Stimulus additional first
year depreciation deduction is made in
accordance with the rules for 50-percent
bonus depreciation property.
.02Certain Aircraft. For aircraft
described in § 168(k)(2)(C), the non-
refundable deposit requirement in
§ 168(k)(2)(C)(iii) is satisfied if the pur-
chaser, at the time of the purchase contract,
has made a nonrefundable deposit of at
2008–38 I.R.B.723September 22, 2008

least the lesser of 10 percent of the cost of
the aircraft or $100,000.
SECTION 6. INTERACTION OF THE
STIMULUS ACT WITH CERTAIN TAX
INCENTIVES FOR GO ZONE AND
KANSAS DISASTER AREA
.01Stimulus Act and GO Zone.
(1)Section 179.
(a)In general. Section 1400N(e)(1)
provides that, for purposes of § 179, the
dollar amount in effect under § 179(b)(1)
for the taxable year is increased by the
lesser of $100,000, or the cost of § 179
GO Zone property placedin service during
the taxable year, and the dollar amount in
effect under § 179(b)(2) for the taxable
year is increased by the lesser of $600,000,
or the cost of § 179 GO Zone property
placed in service during the taxable year.
(b)Section 179 GO Zone property sub-
stantially used in specified portions of the
GO Zone. For any taxable year beginning
in 2008, the only § 179 GO Zone property
eligible for the increased § 179 amounts
under § 1400N(e)(1) is § 179 GO Zone
property substantially all of the use
of which is in one or more specified
portions of the GO Zone (as defined in
§ 1400N(d)(6) and section 3 of Notice
2007–36, 2007–17 I.R.B. 1000) and
placed in service by the taxpayer on or
before December 31, 2008. For all such
§ 179 GO Zone property, the § 179(b)(1)
dollar amount for any taxable year
beginning in 2008 is $250,000, increased
by the lesser of $100,000, or the cost of
that property placed in service during that
taxable year, and the § 179(b)(2) dollar
amount for any taxable year beginning
in 2008 is $800,000, increased by the
lesser of $600,000, or the cost of that
property placed in service during that
taxable year. Accordingly, for all § 179
GO Zone property described in this section
6.01(1)(b), the maximum § 179(b)(1)
and § 179(b)(2) amounts available for
any taxable year beginning in 2008 are
$350,000 and $1,400,000, respectively.
(c)Other § 179 GO Zone property.For
all § 179 GO Zone property (other than the
propertydescribedinsection6.01(1)(b)
of this revenue procedure) placed in ser-
vice by the taxpayer during any taxable
year beginning in 2008, the maximum
§ 179(b)(1) and § 179(b)(2) amounts avail-
able for that taxable year are $250,000
and $800,000, respectively. For all § 179
GO Zone property placed in service by
the taxpayer during any taxable year be-
ginning in 2007 and ending in 2008, the
§ 179(b)(1) dollar amount is $125,000,
increased by the lesser of $100,000, or the
cost of that property placed in service dur-
ing that taxable year, and the § 179(b)(2)
dollar amount is $500,000, increased by
the lesser of $600,000, or the cost of that
property placed in service during that
taxable year. Accordingly, for all § 179
GO Zone property placed in service by
the taxpayer during any taxable year be-
ginning in 2007 and ending in 2008, the
maximum § 179(b)(1) and § 179(b)(2)
amounts available for that taxable year are
$225,000 and $1,100,000, respectively.
(2)Additional first year depreciation
deduction.
(a)Nonresidential real property or
residentialrentalproperty. Except for
qualified leasehold improvement prop-
erty (as defined in § 168(k)(3) and
§ 1.168(k)–1(c)), the Stimulus additional
first year depreciation deduction does not
apply to nonresidential real property or
residential rental property. Accordingly,
in the case of nonresidential real prop-
erty or residential rental property (other
than qualified leasehold improvement
property) that is GO Zone property or
GO Zone extension property, the rules
under § 1400N(d) apply (including the
self-constructed property rules under
§ 1400N(d)(3), as amendedbytheStimu-
lus Act).
(b)Other property.
(i)GO Zone extension property.For
the taxable year beginning after 2007, the
only property to which both §§ 168(k)
and 1400N(d) apply is GO Zone ex-
tension property that is described in
§ 1400N(d)(6)(B)(ii)(II), is new prop-
erty, is acquired by the taxpayer after
2007, and is placed in service by the tax-
payer before 2009. For such property, the
rules under § 168(k) apply. For all other
GO Zone extension property described in
§ 1400N(d)(6)(B)(ii)(II) (including used
property), the rules under § 1400N(d)
apply.
(ii)GO Zone property other than
GO Zone extension property. Because
the GO Zone additional first year
depreciation deduction has expired
for GO Zone property described in
§ 1400N(d)(2)(A)(i)(I) (other than
GO Zone extension property), the rules
under § 168(k) apply to such property.
.02Stimulus Act and Kansas Disaster
Area.
(1)Section 179 property.
(a)In general. Sections 15345(a)(2)
and (d)(2) of the Farm Bill increased the
dollar amounts under § 179(b)(1) and
(b)(2) that are available to taxpayers for
qualified § 179 Recovery Assistance prop-
erty (§ 179 RA property) placed in service
by the taxpayer on or before December
31, 2008. Section 179 RA property is
§ 179 property (as defined in § 179(d)
and § 1.179–4(a)) that is qualified Re-
covery Assistance property (as defined
in § 1400N(d)(2) and in sections 2.02
and 2.03 of Notice 2008–67, 2008–32
I.R.B. 307 (August 11, 2008)).See
§ 1400N(e)(2)(A). Section 15345(d)(2)
provides that, with the exception of newly
revised dates for determining the eligi-
bility of § 179 RA property, the rules
for determining the eligibility of the in-
creased dollar amountsunder § 179(b)(1)
and (b)(2) that are available to taxpayers
for § 179 RA property will be deter-
mined by following § 1400N(e) (other
than§1400N(e)(2)(B)). Accordingly, for
purposes of § 179, the dollar amount in
effect under § 179(b)(1) for the taxable
year is increased by the lesser of $100,000,
or the cost of § 179 RA property placed
in service during the taxable year, and the
dollar amount in effect under § 179(b)(2)
for the taxable year is increased by the
lesser of $600,000, or the cost of § 179
RA property placed in service during the
taxable year.
(b)Section 179 RA property placed in
service during any taxable year begin-
ning in 2008. For all § 179 RA property
placed in service by a taxpayer during
any taxable year beginning in 2008, the
§ 179(b)(1) dollar amount is $250,000,
increased by the lesser of $100,000, or the
cost of that property placed in service dur-
ing that taxable year, and the § 179(b)(2)
dollar amount is $800,000, increased by
the lesser of $600,000, or the cost of that
property placed in service during that
taxable year. Accordingly, for all § 179
RA property described in this section
6.01(2)(b), the maximum § 179(b)(1) and
§ 179(b)(2) amounts available for any tax-
able year beginning in 2008 are $350,000
and $1,400,000, respectively.
September 22, 20087242008–38 I.R.B.

(c)Other § 179 RA property.Forall
§ 179 RA property placed in service by
the taxpayer during any taxable year be-
ginning in 2007 and ending in 2008, the
§ 179(b)(1) dollar amount is $125,000,
increased by the lesser of $100,000, or
the cost of that property placed in ser-
vice during that taxable year, and the
§ 179(b)(2) dollar amount is $500,000,
increased by the lesser of $600,000, or
the cost of that property placed in service
during that taxable year. Accordingly, for
all § 179 RA property placed in service
by the taxpayer during any taxable year
beginning in 2007 and ending in 2008,
the maximum § 179(b)(1) and § 179(b)(2)
amounts available for that taxable year are
$225,000 and $1,100,000, respectively.
(2)Additional first year depreciation
deduction.
(a)In general. Sections 15345(a)(1)
and (d)(1) of the Farm Bill allow a 50-per-
cent additional first year depreciation
deduction (Kansas additional first year
depreciation deduction) for qualified Re-
covery Assistance property (RA property)
acquired by the taxpayer after May 4,
2007, and placed in service by the taxpayer
before 2009 (2010, in the case of qualified
nonresidential real property and residen-
tial rental property).Section 15345(d)(1)
provides that, with the exception of newly
revised dates for determining the eligi-
bility of the Kansas additional first year
depreciation deduction for RA property,
the rules for determining the eligibility of
the Kansas additional first year depreci-
ation deduction for RA property will be
determined by following § 1400N(d)(1)
through (5). For more details about the
Kansas additional first year depreciation
deduction, see Notice 2008–67, 2008–32
I.R.B. 307 (August 11, 2008).
(b)Nonresidential real property or
residential rental property. Except for
qualified leasehold improvement prop-
erty (as defined in § 168(k)(3) and
§1.168(k)–1(c)), the Stimulus additional
first year depreciation deduction does
not apply to nonresidential real property
or residential rental property. Accord-
ingly, in the case of nonresidential real
property or residential rental property
(other than qualified leasehold improve-
ment property) that is RA property, the
rules under § 1400N(d) apply (including
the self-constructed property rules under
§ 1400N(d)(3), as amendedbytheStimu-
lus Act).
(c)Other RA property. If property
qualifies for both the Kansas additional
first year depreciation deduction and the
Stimulus additional first year depreciation
deduction, only one additional first year
depreciation deduction is allowable for
that property. For a taxable year beginning
after 2007, the only property to which
§ 15345(a)(1) and (d)(1) of the Farm Bill
and § 168(k) apply is RA property that
is described in § 1400N(d)(2)(A)(i)(I),
is new property, is acquired by the tax-
payer after 2007, and is placed in service
by the taxpayer before 2009. For such
property, the rules under § 168(k) apply.
For all other RA property described in
§ 1400N(d)(2)(A)(i)(I) (including used
property), the rules under § 1400N(d) ap-
ply.
SECTION 7. MAKING SECTION
179 ELECTIONS BY AMENDED
RETURNS FOR TAXABLE YEARS
BEGINNING AFTER 2007
For any taxable year beginning after
2007 and before the last year provided in
§ 179(c)(2) for revoking a § 179 election
by a taxpayer with respect to any § 179
property, the taxpayer will be permitted to
make a § 179 election without the Com-
missioner’s consent on an amended federal
tax return for that taxable year. Currently,
the last year provided in § 179(c)(2) is
2011. The Internal Revenue Service and
the Treasury Department intend to amend
§ 1.179–5(c) to incorporate the guid-
ance set forth under this section 7. Until
§ 1.179–5(c) is amended, taxpayers may
rely on the guidance set forth in this sec-
tion 7.
SECTION 8. EFFECT ON OTHER
DOCUMENTS
.01 Section 3.20 of Rev. Proc. 2007–66
is modified and superseded.
.02 Section 4.01(4)(b) of Notice
2007–36, 2007–17 C.B. 1000, is clarified,
modified, and amplified as provided in
section 6.01(2)(b)(i) of this notice.
SECTION 9. EFFECTIVE DATE
This revenue procedure is effective for
(1) § 179 property placed in service by
the taxpayer in its taxable year beginning
in 2007 or 2008, and (2) property eligi-
ble for the Stimulus additional first year
depreciation deduction that is acquired by
the taxpayer after 2007 and placed in ser-
vice by the taxpayer before 2009 (before
2010 in the case of property described in
§ 168(k)(2)(B) or (C)).
SECTION 10. DRAFTING
INFORMATION
The principal authors of this revenue
procedure are Winston H. Douglas and
Douglas Kim of the Office of Associate
Chief Counsel (Income Tax & Account-
ing). For further information regarding
the Stimulus, GO Zone, or Kansas addi-
tional first year depreciation deduction,
contact Mr. Kim at (202) 622–4930 (not
a toll-free call). For further information
regarding § 179, contact Mr. Douglas at
(202) 622–4930 (not a toll-free call).
2008–38 I.R.B.725September 22, 2008

Part IV. Items o
fGeneralInterest
Notice of Prop
osed
Rulemaking
Alcohol Fuel a
nd Biodiesel;
Renewable Die
sel; Alternative
Fuel; Diesel
-Water Fuel
Emulsion; Ta
xable Fuel
Definition
s; Excise Tax
Returns
REG–155087–05
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Noti
ce of proposed rulemaking.
SUMMARY: This document contains pro-
posed regulations relating to credits and
payments for alcohol mixtures, biodiesel
mixtures, renewable diesel mixtures, al-
ternative fuel mixtures, and alternative
fuel sold for use or used as a fuel, as
well as proposed regulations relating to
the definition of gasoline and diesel fuel.
These regulations reflect changes made by
the American Jobs Creation Act of 2004,
the Energy Policy Act of 2005, the Safe,
Accountable, Flexible, Efficient Trans-
portation Equity Act: A Legacy for Users,
and the Tax Technical Corrections Act of
2007. These regulations affect produc-
ers of alcohol, biodiesel, and renewable
diesel; producers of alcohol, biodiesel,
renewable diesel, and alternative fuel mix-
tures; sellers and users of alternative fuel;
and certain persons liable for the tax on
removals, entries, or sales of gasoline or
diesel fuel.
DATES: Written or electronic comments
and requests for a public hearing must be
received by October 27, 2008.
ADDRESS
ES: Send submissions to
CC:PA:L
PD:PR (REG–155087–05), room
5203, In
ternal Revenue Service, PO Box
7604, B
en Franklin Station, Washing-
ton, DC
20044. Submissions may be
hand de
livered Monday through Friday
betwee
n the hours of 8 a.m. and 4 p.m.
to CC:P
A:LPD:PR (REG–155087–05),
Couri
er’s Desk, Internal Revenue Ser-
vice,
1111 Constitution Avenue, NW,
Washington, D
C, or sent electroni-
cally, via the
Federal eRulemaking Por-
tal athttp:/w
ww.regulations.gov(IRS
REG–155087–0
5).
FOR FURTHER IN
FORMATION
CONTACT: Conc
erning the pro-
posed regula
tions, Stephanie Bland,
Taylor Cortr
ight, or DeAnn Malone, all of
whom can be re
ached at (202) 622–3130
(not a toll-f
ree call); concerning the
submission
of comments or requests for a
public hear
ing, Oluwafunmilayo Taylor at
(202) 622–7
180 (not a toll-free call).
SUPPLEMENT
ARY INFORMATION:
Paperwork R
eduction Act
The collect
ions of information con-
tained in th
is notice of proposed rulemak-
ing have be
en submitted to the Office of
Managemen
t and Budget for review in
accordanc
e with the Paperwork Reduc-
tion Act of
1995 (44 U.S.C. 3507(d)).
Comments o
n the collection of infor-
mation sh
ould be sent to theOffice of
Manageme
nt and Budget,Attn: Desk
Officer f
or the Department of the Trea-
sury, Off
ice of Information and Regulatory
Affairs
, Washington, DC 20503, with
copies t
o the Internal Revenue Service,
Attn: IR
S Reports Clearance Officer,
SE:W:CA
R:MP:T:T:SP, Washington, DC
20224. C
omments on the collection of in-
format
ion should be received by Septem-
ber 29,
2008. Comments are specifically
reques
ted concerning:
Whethe
r the proposed collection of in-
format
ion is necessary for the proper per-
forman
ce of the functions of the Internal
Revenu
e Service, including whether the
infor
mation will have practical utility;
The acc
uracy of the estimated burden
assoc
iated with the proposed collection of
infor
mation;
How th
e quality, utility, and clarity of
the in
formation to be collected may be en-
hance
d;
How th
e burden of complying with the
propo
sed collection of information may be
minim
ized, including through the appli-
catio
n of automated collection techniques
or ot
her forms of information technology;
and
Estimates of c
apital or start-up costs
and costs of op
eration, maintenance, and
purchase of se
rvice to provide information.
The collectio
n of information in this
proposed regu
lation is in §48.6426–3(e),
describing th
e certificate the biodiesel
producer must
give to the claimant of a
biodiesel mi
xture credit or biodiesel credit;
§48.6426–3(
f), describing the statement a
biodiesel re
seller must give to the claimant
of a biodiese
l mixture credit or biodiesel
credit; §48
.6426–4(e), describing the cer-
tificate th
e renewable diesel producer must
give to the c
laimant of a renewable diesel
mixture cre
dit or renewable diesel credit;
§48.6426–
4(f), describing the statement
a renewabl
e diesel reseller must give to
the claima
nt of a renewable diesel mix-
ture credi
t or renewable diesel credit; and
§48.6426–
6(c), describing the statement
given to a
seller of liquefied natural gas.
This info
rmation is required to obtain a
tax benef
it. This information will be used
by the IRS
to substantiate claims for the
tax bene
fits. The likely recordkeepers are
busines
s or other for-profit institutions and
small bu
sinesses or organizations.
Estimat
ed total annual reporting bur-
den: 17,
710 hours.
Estimat
ed average annual burden hours
per resp
ondent varies from 2.5 hours to
25 hours
, depending on individual circum-
stance
s, with an estimated average of 22
hours.
Estima
ted number of respondents: 756.
Estimat
ed annual frequency of re-
sponse
s: On occasion.
An agenc
y may not conduct or sponsor,
and a pe
rson is not required to respond to, a
collec
tion of information unless it displays
avalid
control number assigned by the Of-
fice of
Management and Budget.
Books o
r records relating to a collection
of info
rmation must be retained as long
as thei
r contents may become material in
the ad
ministration of any internal revenue
law. G
enerally, tax returns and tax return
infor
mation are confidential, as required
by 26 U
.S.C. 6103.
Backg
round
The In
ternal Revenue Code (Code)
provi
des incentives for certain renewable
and a
lternative fuels. Before January 1,
2005
, a reduced rate of tax applied to most
September 22, 20087262008–38 I.R.B.

alcohol-blended fuels. The American
Jobs Creation Act of 2004 (Public Law
108–357) replaced the reduced rate of tax
for alcohol-blended fuels with credits or
payments for alcohol and alcohol mixtures
that are sold for use or used as a fuel. The
Act also added credits and payments for
biodiesel and biodiesel mixtures sold for
use or used as a fuel. Credit and payment
provisions for renewable diesel, renewable
diesel mixtures, alternative fuel, alterna-
tive fuel mixtures, and diesel-water fuel
emulsions were added to the Code by
the Energy Policy Act of 2005 (Public
Law 109–58) and the Safe, Accountable,
Flexible, Efficient Transportation Equity
Act: A Legacy for Users (Public Law
109–59) (SAFETEA). Technical correc-
tions to SAFETEA were made by the Tax
Technical Corrections Act of 2007 (Public
Law 110–172).
The incentives include a credit under
section 6426 for alcohol fuel mixtures,
biodiesel mixtures, renewable diesel mix-
tures (incorporatedinto section 6426 by
section 40A(f)), and alternative fuel mix-
tures sold for use or used as a fuel and
alternative fuel sold for use or used as
a fuel in a motor vehicle or motorboat.
The credit under section 6426 is allowed
against the claimant’s fuel tax liability.
The incentives for these fuels also include
a payment under section 6427(e) and a
refundable income tax credit under section
34. The amount allowed as a payment or
credit under these provisions is reduced by
the claimant’s excise tax liability against
which a credit is allowed under section
6426. Section 40 provides a nonrefund-
able income tax credit for alcohol fuel
mixtures, alcohol that is sold for use or
used as a fuel, and for the production of
alcohol by certain small ethanol produc-
ers; section 40A provides similar rules
relating to biodiesel and renewable diesel.
The Code includes coordination rules that
limit the maximum incentive that may
be claimed for any particular gallon of
alcohol, biodiesel, renewable diesel, and
alternative fuel. Generally, for alcohol
that is ethanol, the benefit is $0.51 per
gallon; for biodiesel, the incentive is $0.50
per gallon ($1.00 per gallon in the case
of agri-biodiesel); for renewable diesel,
the incentive is $1.00 per gallon; and, for
alternative fuel, the incentive is $0.50 per
gallon. In the case of small ethanol pro-
ducers and small agri-biodiesel producers,
however, the Code allows an additional
income tax credit of $0.10 per gallon.
Notice 2005–4, 2005–1 C.B. 289, de-
scribes the alcohol and biodiesel credits
and payments and provides general guid-
ance for these incentives. Comments
received after the publication of Notice
2005–4 requested additional guidance
with regard to the biodiesel producer cer-
tificates in the case of resale, commingled
biodiesel, the definition of agri-biodiesel,
and the definition of a biodiesel mix-
ture. Guidance on these issues was pro-
vided in Notice 2005–62, 2005–2 C.B.
443. Notice 2005–80, 2005–2 C.B. 953,
describes the registration requirements
related to diesel-water fuel emulsions. No-
tice 2006–92, 2006–2 C.B. 774, describes
the alternative fuel credits and payments.
Notice 2007–37, 2007–17 I.R.B. 1002,
provides guidance on renewable diesel.
Notice 2007–97, 2007–49 I.R.B. 1092,
provides guidance on liquid hydrocarbons
for purposes of the definition of alternative
fuel. Comments were received in response
to these notices and have been considered
in the development of this notice of pro-
posed rulemaking.
Renewable and alternative fuels; currently
applicable rules.
The IRS has received numerous in-
quiries about the proper steps that must be
takentocomplywiththetaxlawsandto
take full advantage of the tax incentives
for certain renewable and alternative fu-
els. The following are general rules that
are currently applicable and would not be
changed by these proposed regulations.
Registration.
Registration by the IRS is required
for each person that produces alcohol,
biodiesel, renewable diesel, or blended
taxable fuel or claims credits or payments
with respect to alternative fuel.
Application for registration is made on
Form 637,“Application for Registration
(For Certain Excise Tax Activities).”Aper-
son generally may not engage in an activity
for which registration is required until the
IRS has approved the person’s registration
with respect to the activity.
Imposition of tax.
Tax is imposed on the removal of a
biodiesel mixture that is diesel fuel from
the terminal at the terminal rack. In the
case of blended taxable fuel, tax is im-
posed on a blender’s sale or removal of the
fuel and the blender is liable for the tax.
Blended taxable fuel includes diesel fuel
or gasoline produced outside of the bulk
transfer/terminal system by mixing an un-
taxed liquid, such as biodiesel or alcohol,
with a taxable fuel, such as diesel fuel or
gasoline, that has been previously taxed
(even if only at the Leaking Underground
Storage Tank Trust Fund financing rate).
Thus, for example, if a person produces,
outside the bulk transfer/terminal system,
a biodiesel mixture that is diesel fuel, that
person is liable for tax on its removal or
sale of the mixture. Further, tax generally
is imposed on the delivery of fuel that has
not been taxed into the fuel supply tank of a
motor vehicle or diesel-powered train and
on the delivery of alternative fuel (liquid
fuel other than gas oil, fuel oil, or taxable
fuel) into the fuel supply tank of a motor-
boat unless the delivery of the fuel or alter-
native fuel is for a nontaxable purpose.
Liability for these excise taxes is re-
ported on Form 720,“Quarterly Federal
Excise Tax Return.”Persons that are liable
for excise taxes may also be required to
make semi-monthly deposits. See Form
720 for more information on deposits.
Tax incentives for mixtures.
The excise tax credits for mixtures
containing alcohol, biodiesel, renewable
diesel, or alternative fuel must be claimed
on Form 720, Schedule C. These credits
are allowed to the extent of certain fuel tax
liability. The credits are claimed by the
person producing the mixture.
The mixture producer may also claim
payments (or refundable income tax cred-
its) for incentives that exceed tax liability;
that is, for the amount by which the maxi-
mum incentive allowable for the mixture
exceeds the credit allowed on the Form
720. Notice 2005–62 contains guidance
on the computation of payment limitations.
Claims for payment are made either on
Form 8849,“Claim for Refund of Excise
Taxes,”or Schedule C, Form 720,“Quar-
terly Federal Excise Tax Return.”(Thus,
claims on Form 720 may be for both an
2008–38 I.R.B.727September 22, 2008

excise tax credit and a payment.) Claims
for the refundable income tax credit are
made on Form 4136,“Credit for Federal
TaxPaidonFuels,”which is attached to
the claimant’s income tax return.
Tax incentives for neat fuels.
A nonrefundable general business
tax credit may be claimed for alcohol,
biodiesel, and renewable diesel fuels that
are not in a mixture and are used as a fuel.
This is the only credit or payment allowed
with respect to the use of these neat fuels
as a fuel. Claims for the credit are made
by the person using the renewable fuel
in a trade or business or by the person
that sold the fuel at retail and delivered
it into a vehicle. The small ethanol pro-
ducer credit and the small agri-biodiesel
producer credit are also nonrefundable
general business credits. Claims for non-
refundable general business credits are
made on Form 6478,“Credit for Alcohol
Used as Fuel,”and Form 8864,“Biodiesel
and Renewable Diesel Fuels Credit,”at-
tached to the claimant’s income tax return.
An excise tax credit may be claimed
for alternative fuel that is not in a mix-
ture and is used as a fuel. The excise tax
credit is claimed on Form 720, Schedule C.
The credit is allowed to the extent of cer-
tain fuel excise tax liability. The credit is
claimed by the alternative fueler (unmixed
fuel). If the incentive for unmixed alter-
native fuel exceeds theapplicable excise
tax liability the excess may be claimed as a
payment on Form 8849 or as a refundable
income tax credit on Form 4136.
Explanation of Provisions
The proposed regulations add provi-
sions relating to registration requirements
and excise tax credits or payments for
alcohol, biodiesel, renewable diesel and
alternative fuel mixtures and for alterna-
tive fuel and diesel-water fuel emulsions.
The regulations provide definitions and
prescribe rules for claiming a credit or
payment. Specifically, the regulations
prescribe the conditions to allowance of a
credit or payment, the content of claims
for credit or payment, and the form of
applicable certificates. The proposed reg-
ulations also remove obsolete regulations
relating to gasohol and other alcohol fuels.
The proposed regulations gener-
ally adopt the rules of Notices 2005–4,
2005–62, 2005–80, 2006–92, 2007–37,
and 2007–97. Differences between the
notices and the proposed regulations are
described in this preamble.
Biodiesel mixtures and liability for tax.
Notice 2005–62 provides thatbiodiesel
mixturemeans a mixture of biodiesel and
diesel fuel that contains at least 0.1 percent
(by volume) of diesel fuel. That rule is
unchanged by these proposed regulations.
Under existing regulations, diesel
fuel does not include “excluded liquid”;
biodiesel mixtures with a high concentra-
tion of biodiesel typically are classified
as an excluded liquid.The definition of
“excluded liquid” predates the biodiesel
incentives and was intended to ensure that
the diesel fuel tax was not imposed on cer-
tain liquids typically not used as fuel. The
proposed regulations revise the definition
of “excluded liquid” so that all biodiesel
mixtures, which are generally used as a
substitute for diesel fuel, will be classified
as diesel fuel for tax purposes. As a re-
sult, under the proposed regulations, tax is
imposed on a biodiesel mixture when it is
removed from the bulktransfer/terminal
system. If a biodiesel mixture is produced
outside the bulk transfer/terminal system,
tax is imposed on the sale or removal of
the mixture by the mixture producer. The
mixture producer is liable for the tax and
must be registered as a blender of taxable
fuel. The tax incentive for the biodiesel
mixture generally must be taken as a credit
against the producer’sfuel tax liability and
any excess over the fuel tax liability is al-
lowable as either a payment or an income
tax credit.
Also, thede minimisexception to the
definition of “blended taxable fuel” is re-
moved. Under this exception, a mixture is
not blended fuel if the person creating the
mixture adds less than 400 gallons of un-
taxed liquid to previously taxed fuel during
the quarter and the operator of the vehicle
using the mixture is liable for the tax on the
untaxed liquid. Thus, in cases in which the
untaxed liquid is alcohol, biodiesel, or al-
ternative fuel, the exception prevents the
credit for which the mixture producer is
eligible from being used to offset the tax.
With the removal of this exception, the
same person (the producer of the mixture)
will be liable for the tax and eligible for the
credit that can be used to offset the tax.
Biodiesel and EPA registration
requirements.
TheCodedefinesbiodieselas
monoalkyl esters of long chain fatty acids
derived from plant or animal matter that
meet (1) the registration requirements
of the Environmental Protection Agency
(EPA) for fuel and fuel additives and,
(2) ASTM D6751. Under the proposed
regulations, a product meets the EPA reg-
istration requirements if the EPA does not
require the product to be registered. Thus,
for example, if a biodiesel mixture is to
be sold only at a marina for use in boats,
the biodiesel in the mixture meets the EPA
registration requirement because EPA reg-
istration requirements do not apply to fuels
or fuel additives sold for use in boats.
Biodiesel certificates.
The Code provides that a claim relating
to a biodiesel mixture is not allowed un-
less, among other conditions, the claimant
obtains the prescribed certificate from the
biodiesel producer. Under existing rules,
as well as the proposed regulations, this
certificate must be attached to the claim
that is filed with the IRS. However, the
proposed regulations do not require a sep-
arate certificate toaccompany the claim
filed by a mixture producer that is also
the producer of the biodiesel in the mix-
ture. Further, the proposed regulations re-
quire, as a condition to allowance of an
excise tax credit or a payment, that the
claimant obtain the certificate from a regis-
tered biodiesel producer. If the claim is for
a nonrefundable general business credit,
the certificate may be from the registered
producer or importer.
Erroneous biodiesel certificates.
Under the Code, a claim relating to a
biodiesel mixture is not allowed if the mix-
ture does not actually contain biodiesel.
Guidance was requested on whether a
claim would be allowed if the claimant
attached a certificate for biodiesel and the
information on the certificate proved to be
incorrect. The proposed regulations make
clear that such a claim is not allowed even
if the claim is based on a biodiesel cer-
tificate that the claimant accepted in good
faith. In such a case, however, the pro-
posed regulations generally provide that
reliance on the certificate will be treated
September 22, 20087282008–38 I.R.B.

as reasonable cause for purposes of the
penalties imposed by sections 6651 (relat-
ingtofailuretopay)and6675(relatingto
excessive claims).
Alternative fuel.
The Code allows a credit or payment
for alternative fuel that is not in a mix-
ture if the alternative fuel is sold for use
or used as a fuel in a motor vehicle or
motorboat. If the claim is based on a
sale, the claimant must deliver the fuel
into the fuel supply tank of the motor ve-
hicle or motorboat or, in the case of a
bulk sale, obtain thestatement described
in §48.4041–5(a)(2), §48.4041–21(b), or
proposed §48.6426–6(c).
Registration of alternative fuelers.
A person must be registered by the IRS
before claiming the alternative fuel or al-
ternative fuel mixture credit or payment.
Section 34 allows a refundable income tax
credit with respect to alternative fuel or
an alternative fuel mixture. This credit
is claimed on Form 4136 filed with the
claimant’s Federal income tax return. Be-
cause partnerships do not file federal in-
come tax returns, the refundable income
tax credit allowable with respect to a part-
nership’s sale or use of alternative fuel is
made by its partners. The partners may file
Form 4136 with their income tax returns
to claim a credit based on the information
provided them on the partnership’s Sched-
ule K–1.
The proposed regulations provide that a
partner in a partnership is treated as a reg-
istered alternative fueler for purposes of
claims on Form 4136 if the partnership is
registered for purposes of claims for an ex-
cise tax credit or payment. A partner that
is treated as registered under this rule is to
provide the partnership’s registration num-
ber on Form 4136. These rules also apply
for purposes of ultimate vendor claims by
partners in partnerships that are ultimate
vendors of diesel fuel or kerosene.
Small ethanol producer credit.
Section 40(a)(3) provides an income
tax credit for ethanol produced by eligi-
ble small ethanol producers. The amount
of ethanol that is eligible for the credit
during any taxable year cannot exceed
15,000,000 gallons for any producer. A
small ethanol producer generally means
a person whose productive capacity for
all alcohol, including alcohol for which
a credit is not allowable under section
40, does not exceed 60,000,000 gallons
at any time during the taxable year. Sec-
tion 40(g)(5) authorizes the Secretary to
prescribe regulationsto prevent the credit
from benefiting a person that directly or
indirectly has a productive capacity for
alcohol in excess of 60,000,000 gallons
and to prevent any person from directly or
indirectly benefiting with respect to more
than 15,000,000 gallons during the taxable
year. Section 40A provides similar rules
with respect to the small agri-biodiesel
producer credit.
The proposed regulations provide that
producermeans the person that has title to
the ethanol immediately after the ethanol
is created. Also, the producer must use
a feedstock other than ethanol to produce
the ethanol. The proposed regulations do
not allow the credit for ethanol produced
at the facilities of a contract manufacturer
if the contract manufacturer has a direct or
indirect productivecapacity of more than
60,000,000 gallons of alcohol during the
taxable year. Similarly, if the manufac-
turer does not have a productive capac-
ity of more than 60,000,000 gallons but
more than 15,000,000 gallons of ethanol
is produced at the manufacturer’s facili-
ties during the taxable year, the proposed
regulations allow the credit with respect to
only the first 15,000,000 gallons of ethanol
produced at the facilities during the tax-
able year. These rules apply to small agri-
biodiesel producers also.
Gasoline and gasoline blends.
The Code defines gasoline as includ-
ing gasoline blends. The proposed regula-
tions generally define a gasoline blend as
any liquid that contains at least 0.1 percent
(by volume) of finished gasoline and that is
suitable for use as a fuel in a motor vehicle
or motorboat. Thus, for example, E–85 (a
mixture of 85 percent ethanol made from
corn or other agricultural products and 15
percent gasoline) is treated as a gasoline
blend. Tax is imposed on the gasoline
blend when it is removed from the bulk
transfer/terminal system or, if it is blended
taxable fuel, when it is sold or removed
by the blender. The proposed regulations
also classify leaded gasoline as gasoline.
Thus, for example, gasoline products that
are sold as “racing gasoline” generally are
treated as gasoline even though their lead
content make them unsuitable for highway
use.
Excise tax returns.
The privilege to file consolidated re-
turns under section 1501 applies only
to income tax returns and not to excise
tax returns. The proposed regulations
note this rule and also reflect the rules of
§301.7701–2(c)(2)(v), which was added
by T.D. 9356, 2007–39 I.R.B. 675 (72 FR
45891, August 16, 2007), relating to the
excise tax treatment of certain business
entities that are treated as separate from
their owner for income tax purposes.
Proposed effective/applicability date.
The amendments to the regulations gen-
erally are proposed to be effective on the
date they are published as final regulations
in theFederal Register.
Future regulations projects.
Future proposed regulations will ad-
dress other fuel-related provisions in the
American Jobs Creation Act, the Energy
Policy Act, and SAFETEA. These include
provisions related to kerosene used in avi-
ation, the Leaking Underground Storage
Tank Trust Fund tax, the tax on alternative
fuel, and two-party exchanges.
Availability of IRS documents.
IRS notices cited in this preamble are
published in the Internal Revenue Bulletin
or Cumulative Bulletin and are available at
IRS.gov.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory
assessment is not required. It also has
been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these proposed
regulations. It is hereby certified that
this regulation will not have a significant
economic impact on a substantial num-
ber of small entities. This certification is
based on IRS estimates that less than 700
2008–38 I.R.B.729September 22, 2008

small entities will be required to provide
certificates each year, such certificates
will be provided only on occasion, and
the average annual burden per respondent
will be 22 hours. The economic impact of
the collection of information is limited to
completing a certificate in the form pre-
scribed by the regulations. The certificate
can be completed by filling in a small
number of fields with information that is
readily available to the taxpayer, and com-
pletion of a certificate should generally
take less than 15 minutes. Accordingly,
the time and resources required to prepare
and provide these certificates is minimal
and will not have a significant effect on
those entities providing them. Therefore,
an analysis under the Regulatory Flexibil-
ity Act (5 U.S.C. chapter 6) is not required.
Pursuant to section 7805(f) of the Internal
Revenue Code, this notice of proposed
rulemaking has been submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written (a signed origi-
nal and eight (8) copies) or electronic com-
ments that are submitted timely to the IRS.
The IRS and the Treasury Department re-
quest comments on the clarity of the pro-
posed regulations and how they may be
made easier to understand. All comments
will be available for public inspection and
copying. A public hearing will be sched-
uled if requested in writing by any person
that timely submits written comments. If
a public hearing is scheduled, notice of the
date, time, and place for the hearing will
be published in theFederal Register.
Drafting Information
The principal authors of these reg-
ulations are Taylor Cortright and
Frank Boland, Office of Associate Chief
Counsel (Passthroughs and Special
Industries). However, other personnel
from the IRS and the Treasury Department
participated in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR parts 1, 40, and
48 are proposed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part1isamendedbyaddingentriesinnu-
merical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.40–2 also issued under
26 U.S.C. 40(g)(5);
Section 1.40A–1 also issued under
26 U.S.C. 40A(e)(5); * * *
Par. 2. Section 1.40–1 is revised to read
as follows:
§1.40–1 Alcohol used as a fuel.
For the definition of “alcohol” for pur-
poses of the credits allowed by section 40,
see §48.6426–1(c) of this chapter.
Par. 3. Sections 1.40–2 and 1.40A–1
are added to read as follows:
§1.40–2 Small ethanol producer credit.
(a)In general. Section40provides
a small ethanol producer credit for each
gallon of qualified ethanol production of
an eligible small ethanol producer. Sec-
tion 40(b)(4)(B) defines “qualified ethanol
production”. Section 40(g)(1) defines “el-
igible small ethanolproducer”. Section
40(g)(5) provides authority to prescribe
such regulations as may be necessary to
prevent the credit from directly or indi-
rectly benefiting anypersonwithadirect
or indirect productive capacity of more
than 60 million gallons of alcohol during
the taxable year. A person has produced
ethanol if the person has title to the ethanol
immediately after it is created.
(b)Qualified ethanol production. Sec-
tion 40(b)(4)(B) limits qualified ethanol
production to ethanol that is produced
by an eligible small ethanol producer.
Ethanol is “produced” for this purpose
only when a feedstock other than ethanol
is transformed into ethanol.
(c)Denial of credit for ethanol pro-
duced at certain facilities. The person
at whose facilities ethanol is produced is
treated for purposes of section 40(g)(5) as
an indirect beneficiary of any credit al-
lowed with respect to the ethanol. Accord-
ingly, the small ethanol producer credit is
not allowed with respect to ethanol that
is produced at the facilities of a contract
manufacturer or other person if such con-
tract manufacturer or other person has a
direct or indirect productive capacity of
more than 60 million gallons of alcohol
during the taxable year. Similarly, if the
manufacturer does not have a productive
capacity of more than 60 million gallons
but more than 15 million gallons of ethanol
is produced at the manufacturer’s facilities
during the taxable year, the small ethanol
producer credit is allowed with respect to
only the first 15 million gallons of ethanol
produced at the facilities during the taxable
year.
(d)Examples. The following examples
illustrate the application of this section:
Example 1. X purchases hydrous ethanol and pro-
cesses it into anhydrous ethanol. X is not the producer
of the ethanol because X does not transform a feed-
stock other than ethanol into ethanol.
Example 2. Y arranges with contract manufac-
turer Z to produce 10 million gallons of ethanol. Y
is not related to Z. Y provides the raw materials and
retains title to them and to the finished ethanol. Z has
the capacity to produce 100 million gallons of alco-
hol per year. The small producer credit is not allowed
with respect to the 10 million gallons of ethanol be-
cause it is produced at the facilities of a contract man-
ufacturer that has a productive capacity of more than
60 million gallons of alcohol during the taxable year.
(e)Effective/applicability date.This
section is applicable on and after the date
of publication of these regulations in the
Federal Registeras final regulations.
§1.40A–1 Biodiesel.
(a)In general. Rules similar to the rules
of §1.40–2 apply for purposes of the small
agri-biodiesel producer credit allowed by
section 40A.
(b)Definitions. For the definitions of
“biodiesel” and “renewable diesel” for
purposes of the credits allowed by section
40A, see §48.6426–1(b) of this chapter.
(c)Effective/applicability date.This
section is applicable on and after the date
of publication of these regulations in the
Federal Registeras final regulations.
PART 40—EXCISE TAX
PROCEDURAL REGULATIONS
Par. 4. The authority citation for part
40 is amended by removing the entry for
section 40.6071(a)–3 to read in part as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
September 22, 20087302008–38 I.R.B.

Par. 5. Section 40.0–1 is amended by
revising paragraph (d) and adding para-
graph (e) to read as follows:
§40.0–1 Introduction.
*****
(d)Person. For purposes of this part,
each business unit that has, or is required
to have, a separate employer identifica-
tion number is treated as a separate person.
Thus, business units (for example, a parent
corporation and a subsidiary corporation,
a proprietorship and a related partnership,
or the various members of a consolidated
group), each of which has a different em-
ployer identification number, are separate
persons.
(e)Effective/applicability date.This
part is effective for returns and deposits
that relate to calendar quarters beginning
after September 30, 2008. For rules appli-
cable to returns and deposits that relate to
prior periods, see 26 CFR part 40 (revised
as of April 1, 2008).
§40.6302(c)–1 [Amended]
Par. 6. Section 40.6302(c)–1 is
amended as follows:
1. Paragraph (e)(1)(ii) is amended by
removing the language “components);”
and adding “components); and” in its
place.
2. Paragraph (e)(1)(iii) is amended by
removing the language “chemicals); and”
and adding “chemicals).” in its place.
3. Paragraph (e)(1)(iv) is removed.
PART 48—MANUFACTURERS AND
RETAILERS EXCISE TAXES
Par. 7. The authority citation for part
48 is amended by removing the entries
for §§48.4081–6, 48.6427–8, 48.6427–9,
48.6427–10, and 48.6427–11 and adding
entries in numerical order to read in part
as follows:
Authority: 26 U.S.C. 7805 * * *
Section 48.6426–3 also issued under
26 U.S.C. 6426(c).
Section 48.6426–4 also issued under
26 U.S.C. 6426(c).
Section 48.6427–8 also issued under
26 U.S.C. 6427(n).
Section 48.6427–9 also issued under
26 U.S.C. 6427(n).
Section 48.6427–10 also issued under
26 U.S.C. 6427(n).
Section 48.6427–11 also issued under
26 U.S.C. 6427(n).
Section 48.6427–12 also issued under
26 U.S.C. 6427(n).
§48.0–1 [Amended]
Par. 8. Section 48.0–1 is amended as
follows:
1. In the second sentence, “and related
credits, refunds, and payments” is added
after “Code”.
2. In the third sentence, “certain luxury
items,” is removed.
3. In the fourth sentence, “aviation
fuel,” is removed.
Par. 9. Section 48.0–4 is added to read
as follows:
§48.0–4 Forms.
Any reference to a form in this part is
also a reference to any other form desig-
nated for the same use by the Commis-
sioner after the date these regulations are
published in theFederal Registeras final
regulations. All such forms must be com-
pleted in accordance with the instructions
for the forms and contain any additional in-
formation required by this part.
§48.4041–0 [Amended]
Par. 10. Section 48.4041–0 is amended
as follows:
1. In the first sentence, the language
“sales or uses of diesel fuel” is removed
and “any liquid (other than biodiesel) that
is sold for use or used as a fuel in a diesel-
powered highway vehicle or diesel-pow-
ered train” is added in its place.
2. In the second sentence, the language
“diesel fuel tax” is removed and “tax with
respect to these liquids” is added in its
place.
§48.4041–18 [Removed and Reserved]
Par. 11. Section 48.4041–18 is re-
moved and reserved.
Par. 12. Section 48.4041–19 is revised
to read as follows:
§48.4041–19 Reduction in tax for
qualified methanol or ethanol fuel and
partially exempt methanol or ethanol fuel.
(a)In general. Section 4041(b)(2) pro-
vides a reduced rate of tax under sections
4041(a)(2) and (d) for qualified methanol
or ethanol fuel. Section 4041(m) pro-
vides a reduced rate of tax under section
4041(a)(2) for partially exempt methanol
or ethanol fuel.
(b)Qualified methanol or ethanol fuel
and partially exempt methanol or ethanol
fuel defined. For purposes of section
4041(b)(2) and this section, qualified
methanol or ethanol fuel is liquid motor
fuel, at least 85 percent of which (by vol-
ume) consists of alcohol produced from
coal (including peat). For purposes of
section 4041(m) and this section, partially
exempt methanol or ethanol fuel is a liquid
motor fuel, at least 85 percent of which
(by volume) consists of alcohol produced
from natural gas (including ethanol pro-
duced through the process of thermally
cracking ethane that is a constituent of
natural gas). The actual gallonage of each
component of the mixture (without ad-
justment for temperature) shall be used
in determining whether, at the time of
the taxable sale or use, the applicable 85
percent alcohol requirement has been met.
A mixture containing less than 85 per-
cent alcohol produced from coal (or less
than 85 percent alcohol produced from
natural gas) may be treated as satisfying
the applicable percentage requirement. In
determining whether a particular mixture
should be so treated, the Commissioner
shall take into account the existence of any
facts and circumstancesestablishing that,
but for the commercial and operational
realities of the blending process, it may
reasonably be concluded that the mixture
would have contained at least 85 percent
alcohol from the appropriate source. The
necessary facts and circumstances will not
be found to exist if over a period of time
the mixtures blended by a blender show a
consistent pattern of failing to contain at
least 85 percent alcohol from the appro-
priate source.
(c)Effective/applicablity date.This
section is applicable on and after the date
of publication of these regulations in the
Federal Registeras final regulations. For
provisions applicable to prior periods, see
26 CFR §48.4041–19 (revised as of April
1, 2008).
§48.4041–20 [Removed and Reserved]
Par. 13. Section 48.4041–20 is re-
moved and reserved.
2008–38 I.R.B.731September 22, 2008

Par. 14. Section 48.4081–1 is amended
as follows:
1. Paragraph (b) is amended by:
a. Revising the definition of Blender.
b. Adding the definition of Diesel-wa-
ter fuel emulsion in alphabetical order.
c. Adding the language “(other than
a mixture as defined in §48.6426–1(b))”
after “any liquid” in the introductory text
of the definition of Excluded liquid.
d. Revising the definition of Finished
gasoline.
e. Revising the definition of Gasoline.
f. Adding the definition of Gasoline
blend in alphabetical order.
g. Revising the definition of Refinery.
h. Removing the language “effective
January 2, 1998,” from the last sentence in
the definition of Terminal.
2. Paragraph (c) is amended by:
a. In paragraph (c)(1)(i), removing
the language “paragraphs (c)(1)(ii) and
(c)(1)(iii)” in the introductory phrase and
adding “paragraph (c)(1)(ii)” in its place.
b. In paragraph (c)(1)(ii), removing the
language “A mixture” and adding “In cal-
endar quarters beginning before the date of
publication of these regulations in theFed-
eral Registeras final regulations, a mix-
ture” in its place.
c. Removing paragraph (c)(1)(iii).
d. In paragraph (c)(2)(i), first sentence,
adding the language“any of the following:
a mixture (as defined in §48.6426–1(b))
that contains diesel fuel; renewable diesel
as defined in section 40A(f)(3); transmix
(as defined in section 4083(a)(3)(B)); and”
after “diesel fuelmeans”.
e. In paragraph (c)(2)(ii), first sentence,
adding the language “biodiesel, alternative
fuel (as defined in section 6426(d)(2)),
qualified methanol or ethanol fuel (as
defined in section 4041(b)(2)(B)), par-
tially exempt methanol or ethanol fuel
(as defined in section 4041(m)(2)),” after
“kerosene,”.
f. In paragraph (c)(3)(i)(V) remov-
ing the language “gasoline;” and adding
“gasoline; and” in its place.
g. In paragraph (c)(3)(i)(W), removing
the language “Toluene; and” and adding
“Toluene.” in its place.
h. Removing paragraph (c)(3)(i)(X).
3. Paragraph (e) is amended by remov-
ing the language “48.4081–6(b),” and by
adding the language “48.6426–1(b)” after
“48.4101–1(b),”.
4. Revising paragraph (f).
The revisions and additions read as fol-
lows:
§48.4081–1 Taxable fuel; definitions.
*****
(b) * * *
Blendermeans the person that has title
to blended taxable fuel immediately after
it is created.
*****
Diesel-water fuel emulsionmeans
diesel fuel at least 14 percent of which
is water and with respect to which the
emulsion additive is registered by a United
States manufacturer with the Environmen-
tal Protection Agency pursuant to section
211 of the Clean Air Act (as in effect on
March 31, 2003).
*****
Finished gasolinemeans all prod-
ucts that are commonly or commercially
known or sold as gasoline and are suitable
for use as a motor fuel, other than—
(1) Products that have an ASTM octane
number of less than 75 as determined by
the motor method; and
(2) Alternative fuel as defined in section
6426(d)(2).
Gasolinemeans aviation gasoline, fin-
ished gasoline, gasoline blends, gasoline
blendstocks, and leaded gasoline.
Gasoline blendincludes any liquid
(other than finished gasoline) that contains
at least 0.1 percent (by volume) of fin-
ished gasoline and that is suitable for use
as a fuel in a motor vehicle or motorboat.
However, the term does not include qual-
ified methanol or ethanol fuel (as defined
in section 4041(b)(2)(B)), partially ex-
empt methanol or ethanol fuel (as defined
in section 4041(m)(2)), or alcohol that is
denatured under a formula approved by
the Secretary.
*****
Refinerymeans a facility used to pro-
duce taxable fuel and from which taxable
fuel may be removed by pipeline, by ves-
sel, or at a rack. However, the term does
not include a facility where only blended
taxable fuel, and no other type of taxable
fuel, is produced.
*****
(f)Effective/applicability date.This
section is applicable on and after the date
of publication of these regulations in the
Federal Registeras final regulations. For
provisions applicable to prior periods, see
26 CFR §48.4081–1 (revised as of April 1,
2008).
48.4081–2 [Amended]
Par. 15. Section 48.4081–2 is amended
by removing the last sentence of paragraph
(d).
48.4081–3 [Amended]
Par. 16. Section 48.4081–3 is amended
as follows:
1. Paragraph (b)(1)(iii) is removed.
2. Removing the last sentence in para-
graphs (g)(1) and (h).
§48.4081–6 [Removed and Reserved]
Par. 17. Section 48.4081–6 is removed
and reserved.
§48.4082–4 [Amended]
Par. 18. Section 48.4082–4, is
amended by adding the language “or
biodiesel” after “taxable fuel” in para-
graphs (a)(1)(iii) and (b)(1)(iii).
Par. 19. Section 48.4101–1 is amended
as follows:
1. Paragraph (a)(1) is amended by
removing the language “4081 and” and
adding “4081, for certain producers and
importers of alcohol, biodiesel, and re-
newable diesel, and alternative fuelers
under sections 6426 and 6427, and for
purposes of” in its place.
2.Revising paragraphs (a)(2),
(c)(1)(vi), (c)(1)(vii), and adding para-
graph (c)(1)(viii).
3. Paragraphs (a)(3) and (b)(3) are re-
moved and reserved.
4. Paragraph (b)(9) is amended by
removing the language “48.4081–6(b),
48.4082–5(b), 48.4082–6(b), 48.4082–
7(b)” and adding “48.4082–5(b), 48.4082–
7(b), 48.6426–1(b),” in its place.
5. Revising paragraph (d)(2) and
adding paragraph (d)(7).
6. Paragraph (d)(5) is amended by,
removing the language “vendor; or” and
adding “vendor;” in its place.
7. Paragraph (d)(6) is amended by re-
moving the language “pump).” and adding
“pump); or” in its place.
8. Paragraph (f)(1)(i) is amended by
removing from the heading the language
“and vessel operators.” and adding “vessel
operators, alternative fuelers, producers or
September 22, 20087322008–38 I.R.B.

importers of alcohol, biodiesel, or renew-
able diesel, and diesel-water fuel emulsion
producers.” in its place.
9. Paragraph (f)(1)(ii) is amended by
removing the language in the heading “and
vessel operators” and adding “vessel oper-
ators, alternative fuelers, producers or im-
porters of alcohol, biodiesel, or renewable
diesel, and diesel-water fuel emulsion pro-
ducers” in its place.
10. Paragraph (f)(1)(ii) is amended by
removing the language in the introductory
text “or vessel operator” and adding “ves-
sel operator, alternative fueler, producer or
importer of alcohol, biodiesel, or renew-
able diesel, or diesel-water fuel emulsion
producer” in its place.
11. Paragraph (f)(1)(ii)(B) is amended
by adding the language “reporting,” after
“payment,”.
12. Paragraph (f)(4)(ii)(A) is amended
by removing the language in the intro-
ductory text “district director” and adding
“Commissioner” in its place.
13.Paragraph (f)(4)(ii)(A)(1)is
amended by removing the language “dis-
trict director);” and adding “Commis-
sioner); and” in its place.
14.Paragraph (f)(4)(ii)(A)(2)is
amended by removing the language “dis-
trict director); and”andadding“Commis-
sioner.” in its place.
15.Removing paragraph
(f)(4)(i)(A)(3).
16. Paragraph (f)(4)(iii) is amended by
removing the language “deposit, and pay-
ment” and adding “deposit, payment, re-
porting, and claim” in its place.
17. Revising paragraph (h)(2)(iii).
18. Paragraph (j)(2) is amended by re-
moving the language in the introductory
text “district director” and adding “Com-
missioner” in its place.
19. Paragraph (j)(2)(i), is amended by
removing the language “district director);”
and adding “Commissioner); and” in its
place.
20. Paragraph (j)(2)(ii) is amended by
removing the language “district director);
and” and adding “Commissioner).” in its
place.
21. Removing paragraph (j)(2)(iii).
22. Paragraph (k) is amended by adding
a new sentence between the existing sec-
ond and third sentences.
23. Paragraph (l)(5) is added.
The revisions and additions read as fol-
lows:
§48.4101–1 Taxable fuel; registration.
(a) * * *
(2) A person is registered under sec-
tion 4101 only if the Commissioner has is-
sued a registration letter to the person and
the registration hasnot been revoked or
suspended or the person is treated under
this paragraph (a)(2) as registered under
section 4101. The following persons are
treated as registered under section 4101:
(i) The United States is treated as regis-
tered under section 4101 for all purposes.
(ii) A partner in a partnership is treated
as registered under section 4101 for pur-
poses of claims filed under section 34 if
the partnership is registered under section
4101 for purposes of filing claims under
section 6426 or 6427.
(iii) A taxable fuel registrant is treated
as registered under section 4101 as a
diesel-water fuel emulsion producer.
(iv) A foreign person is treated as regis-
tered under section 4101 as a producer of
alcohol, biodiesel, or renewable diesel if—
(A) The person produces alcohol,
biodiesel, or renewable diesel outside the
United States and does not produce alco-
hol, biodiesel, or renewable diesel within
the United States; and
(B) The alcohol, biodiesel, or renew-
able diesel is imported into the United
States by a person registered under section
4101 as a producer or importer of alcohol,
biodiesel, or renewable diesel.
*****
(c) * * *
(1) * * *
(vi) A terminal operator;
(vii) A vessel operator; or
(viii) A producer or importer of alcohol,
biodiesel, or renewable diesel.
*****
(d) * * *
(2) An alternative fueler;
*****
(7) A diesel-water fuel emulsion pro-
ducer.
*****
(h) * * *
(2) * * *
(iii) Make any false statement on, or
violate the terms of, any certificate given
to another person to support—
(A) Any claim for credit, refund, or
payment; or
(B) An exemption from, or reduced rate
of, tax imposed by section 4081; or
*****
(k) * * * For rules relating to claims
with respect to alcohol, biodiesel, re-
newable diesel and alternative fuel, see
§§48.6426–1 through 48.6426–7. * * *
(l) * * *
(5) References in this section to
biodiesel and alcohol are applicable after
December 31, 2004. References in this
section to renewable diesel and diesel-wa-
ter fuel emulsion are applicable after
December 31, 2005. References in this
section to alternative fuel are applicable
after September 30, 2006.
Par. 20. Sections 48.6426–1 through
48.6426–7 are added to read as follows:
§48.6426–1 Renewable and alternative
fuels; explanation of terms.
(a)Overview. This section provides
an explanation of terms for purposes of
the credits allowed by sections 34 and
6426 and the payments allowed by section
6427(e). The definition ofalcoholin para-
graph (c) of this section is also applicable
for purposes of the credits allowed by sec-
tion 40. The definitions ofbiodieseland
renewable dieselin paragraph (b) of this
section are also applicable for purposes of
the credits allowed by section 40A.
(b)
Explanation of terms.
Agri-biodieselmeans biodiesel derived
solely from virgin oils. Virgin oils include
virgin vegetable oils from the sources
listed in section 40A(d)(2), as well as vir-
gin oils not listed, such as palm oil and fish
oil. Biodiesel produced from a feedstock
that includes any recycled oils (such as
recycled cooking oils) is not agri-biodiesel
because it is not derived solely from virgin
oils.
Alcoholis defined in paragraph (c) of
this section.
Alcohol fuel mixturemeans a mixture
of alcohol and taxable fuel that contains
at least 0.1 percent (by volume) of taxable
fuel.
Alternative fuelmeans, except as oth-
erwise provided in the following sentence,
liquefied petroleum gas, P Series Fuels (as
definedbytheSecretaryofEnergyunder
42 U.S.C. 13211(2)), compressed or lique-
fied natural gas, liquefied hydrogen, any
liquid fuel derived from coal (including
peat) through the Fischer-Tropsch process,
2008–38 I.R.B.733September 22, 2008

and liquid fuel derived from biomass
(as defined in section 45K(c)(3)). The
term does not include ethanol, methanol,
biodiesel, or renewable diesel.
Alternative fuel mixturemeans a mix-
ture of alternative fuel and taxable fuel that
contains at least 0.1 percent (by volume) of
taxable fuel.
Alternative fuelermeans a person
that—
(1) Is an alternative fueler (unmixed
fuel); or
(2) Produces alternative fuel mixtures
for sale or use in its trade or business.
Alternative fueler (unmixed fuel)with
respect to any alternative fuel that is sold
for use or used as a fuel in a motor vehicle
or motorboat is—
(1) In the case of alternative fuel on
which tax is imposed by section 4041(a)(2)
or (3), the person liable for such tax (de-
termined in the case of compressed natural
gas after the application of §48.4041–21
and in the case of any other alternative fuel
after the application of rules similar to the
rules of §§48.4041–3 and 48.4041–5);
(2) In the case of alternative fuel that
is not described in paragraph (1) or (3) of
this definition, the person that would be
so liable for such tax but for the applica-
tion of an exemption provided by section
4041(a)(3)(B), (b), (f), (g), or (h); and
(3) In the case of liquefied natural gas
(LNG) that is sold in bulk for the exclu-
sive use of a State that provides the written
waiver described in §48.6426–6(c)(4) and
is delivered into a bulk supply tank that can
only fuel motor vehicles and motorboats of
the State, the person that sells the alterna-
tive fuel to the State.
Biodieselmeans biodiesel as defined in
section 40A(d)(1). Biodiesel may be pro-
duced either within or outside the United
States. Fuel meets the Environmental Pro-
tection Agency (EPA) registration require-
ments described in section 40A(d)(1)(A) if
the EPA does not require the fuel to be reg-
istered.
Biodiesel mixturemeans a mixture of
biodiesel and diesel fuel that contains at
least at least 0.1 percent (by volume) of
diesel fuel. The kerosene in a biodiesel
mixture is not included in either the overall
volume of the mixture or the volume of
diesel fuel in the mixture for purposes of
determining whether the biodiesel mixture
satisfies the 0.1 percent requirement. The
diesel fuel in a biodiesel mixture may be
dyed or undyed. See, however, section
6715 for the penalty for willful alteration
of the strength or composition of any dye
in dyed fuel and §48.6715–1 for related
rules.
Commingled biodieselmeans biodiesel
that is held by—
(1) Its producer in a storage tank at a
time when the tank is used only for the
storage of biodiesel and is used to store
both biodiesel (other than agri-biodiesel)
and agri-biodiesel; or
(2) A person other than its producer in
a storage tank at a time when the tank is
used only for the storage of biodiesel and is
used to store biodiesel to which more than
asingleCertificatefor Biodiesel applies.
Commingled renewable dieselmeans
renewable diesel held by a person other
than its producer in a storage tank at a
time when the tank is used only for the
storage of renewable diesel and is used to
store renewable diesel to which more than
asingleCertificateforRenewableDiesel
applies.
Mixturemeans an alcohol fuel mixture,
a biodiesel mixture, a renewable diesel
mixture, or an alternative fuel mixture.
Mixture produceris the person that has
title to the mixture immediately after it is
created.
Motor vehiclehas the meaning given
to the term by §48.4041–8(c). Thus, for
example, the term includes forklift trucks
used to carry loads at industrial plants and
warehouses.
Producermeans the person that pro-
duces alcohol, biodiesel, or renewable
diesel.
Registered biodiesel producermeans a
biodiesel producer that is registered under
section 4101 as a producer of biodiesel.
Registered renewable diesel producer
means a renewable diesel producer that
is registered under section 4101 as a pro-
ducer of renewable diesel.
Renewable dieselmeans renewable
diesel as defined in section 40A(f)(3).
For this purpose, a fuel meets the En-
vironmental Protection Agency’s (EPA)
registration requirements described in sec-
tion 40A(f)(3)(A) if the EPA does not
require the fuel to be registered or if diesel
fuel coproduced from renewable diesel
and petroleum feedstocks is registered.
Renewable diesel may be produced either
within or outside the United States.
Renewable diesel mixtureis defined in
paragraph (d) of this section.
Resellermeans, with respect to any
biodiesel or renewable diesel, a person
that buys and subsequently sells such
fuel without using the fuel to produce a
biodiesel or renewable diesel mixture.
Thermal depolymerization process
means, for purposes of the definition of
renewable dieselin section 40A(f)(3), a
process for the reduction of complex or-
ganic materials through the use of pressure
and heat to decompose long chain poly-
mers of hydrogen, oxygen, and carbon into
short-chain petroleum hydrocarbons with
a maximum length of around 18 carbons.
A process may qualify as thermal depoly-
merization even if catalysts are used in the
process.
Use as a fuelis defined in paragraph (e)
of this section.
(c)Alcohol; definition—(1)In general.
Except as otherwise provided in this para-
graph (c),alcoholmeans any alcohol, in-
cluding methanol and ethanol, that is not
a derivative product of petroleum, natural
gas, or coal (including peat). Thus, for ex-
ample, the term does not include an ethanol
by-product produced from a derivative of
petroleum or natural gas. However, the
term does include alcohol made from re-
newable resources, such as agricultural or
forestry products. The term also includes
alcohol made from urban wastes, such as
methanol made from methane gas formed
at waste disposal sites.
(2)Source of the alcohol. Alcohol may
be produced either within or outside the
United States.
(3)Proof and denaturants. Except for
purposes of section 40, alcohol does not
include alcohol with a proof of less than
190 degrees (determined without regard to
added denaturants). For purposes of sec-
tion 40, alcohol does not include alcohol
with a proof of less than 150 degrees (de-
termined without regard to added denatu-
rants). If alcohol includes impurities or de-
naturants, the volume of alcohol is deter-
mined under the following rules:
(i) Except for purposes of section 40,
the volume of alcohol includes the volume
of any impurities (other than added denat-
urants and any fuel with which the alcohol
is mixed) that reduce the purity of the alco-
hol to not less than 190 proof (determined
without regard to added denaturants and
any fuel with which the alcohol is mixed).
September 22, 20087342008–38 I.R.B.

(ii) For purposes of section 40, the vol-
ume of alcohol includes the volume of any
impurities (other than added denaturants
and any fuel with which the alcohol is
mixed) that reduce the purity of the alco-
hol to not less than 150 proof (determined
without regard to added denaturants and
any fuel with which the alcohol is mixed).
(iii) The volume of alcohol includes the
volume of any approved denaturants that
reduce the purity of the alcohol, but only to
the extent that the volume of the approved
denaturants does not exceed five percent of
the unadjusted volume of the alcohol. The
unadjusted volume of the alcohol is deter-
mined for this purpose by including in un-
adjusted volume the approved denaturants
and the impurities included in volume un-
der paragraph (c)(3)(i) or (ii) of this sec-
tion. If the volume of the approved de-
naturants exceeds five percent of the un-
adjusted volume of the alcohol, the excess
over five percent is not considered alcohol.
(iv) For purposes of this paragraph
(c)(3), approved denaturants are any de-
naturants (including gasoline and other
nonalcohol fuel denaturants) that reduce
the purity of the alcohol and are added to
such alcohol under a formula approved by
the Secretary.
(4)ETBE. Ethyl tertiary butyl ether
(ETBE) and other ethers produced from
alcohol are treated as alcohol. The ether
is treated as alcohol of the same type as
the alcohol used to produce the ether and
the volume of alcohol resulting from such
treatment is the volume of alcohol of such
type with an energy content equal to the
energy content of the ether.
(d)Renewable diesel mixture; defini-
tion—(1)In general.Renewable diesel
mixturemeans—
(i) A mixture of renewable diesel and
diesel fuel (other than renewable diesel)
that contains at least 0.1 percent (by vol-
ume) of diesel fuel (other than renewable
diesel); and
(ii) Fuel produced from biomass (as de-
fined in section 45K(c)(3)) and petroleum
feedstocks using a thermal depolyermiza-
tion process if such fuel has been reg-
istered by the Environmental Protection
Agency (EPA) under section 211 of the
Clean Air Act (42 U.S.C. 7545) and meets
the requirements of ASTM D975 or D396.
(2)Special rules. The kerosene in a
renewable diesel mixture is not included
in either the overall volume of the mixture
or the volume of diesel fuel in the mixture
for purposes of determining whether the
renewable diesel mixture satisfies the 0.1
percent requirement. The diesel fuel in
the renewable diesel mixture may be dyed
or undyed. See, however, section 6715
for the penalty for willful alteration of the
strength or composition of any dye in dyed
fuel and §48.6715–1 for related rules. For
availability for ASTM specifications, see
§48.4081–1(d).
(e)Use as a fuel; definitions—(1) A
mixture isused as a fuelwhen it is con-
sumed in the production of energy. Thus,
for example, a mixture is used as a fuel
when it is consumed in an internal com-
bustion engine to power a vehicle or in a
furnace to produce heat. However, a mix-
ture that is destroyed in a fire or other ca-
sualty loss is not used as a fuel.
(2) A mixture issold for use as a fuelif
the producer sells the fuel and has reason
to believe that the mixture will be used as a
fuel by either the producer’s buyer or any
later buyer of the mixture.
(3) Alternative fuel (not in a mixture) is
sold for use or used as a fuel in a motor
vehicle or motorboat when the alternative
fueler (unmixed fuel) with respect to the
fuel delivers it into the fuel supply tank of
a motor vehicle or motor boat or sells it
in bulk for use by the buyer as a fuel in a
motor vehicle or motorboat.
(f)Other definitions. For the defini-
tions of taxable fuel and diesel fuel, see
§48.4081–1.
(g)Effective/applicability date.This
section is applicable on and after the date
these regulations are published as final
regulations in theFederal Register.
§48.6426–2 Alcohol fuel mixtures.
(a)Overview. This section provides
rules under which an alcohol fuel mixture
producer may claim an excise tax credit
under section 6426, a payment under sec-
tion 6427, or an income tax credit under
section 34. These claims relate to the mix-
ture producer’s sale or use of an alcohol
fuel mixture and are based on the amount
of alcohol used to produce the alcohol fuel
mixture. For the applicable claim rate, see
section 6426.
(b)Conditions to allowance—(1)Ex-
cise tax credit. A claim for the alcohol fuel
mixture credit with respect to an alcohol
fuel mixture is allowed under section 6426
only if each of the following conditions is
satisfied:
(i) The claimant produced the alcohol
fuel mixture for sale or use in the trade or
business of the claimant.
(ii) The claimant sold the alcohol fuel
mixture for use as a fuel or used the alcohol
fuel mixture as a fuel.
(iii) The claimant has made no other
claim with respect to the alcohol in the
mixture or, if another claim has been made,
such other claim is disregarded under this
paragraph (b)(1)(iii). A claim is disre-
garded under this paragraph (b)(1)(iii) if it
is—
(A) A claim for the small ethanol pro-
ducer credit under section 40; or
(B) An erroneous claim under section
6427 and either the claim has been disal-
lowed or the claimant has repaid the gov-
ernment the amount received under section
6427 with interest.
(iv) The claimant has filed a timely
claim on Form 720,“Quarterly Federal
Excise Tax Return,”that contains all the
information required in paragraph (c) of
this section.
(2)Payment or income tax credit.A
claim for an alcohol fuel mixture payment
under section 6427 or an income tax credit
under section 34 is allowed only if—
(i) The conditions of paragraphs
(b)(1)(i) and (ii) of this section are met;
and
(ii) The claimant has filed a timely
claim for payment on Form 720 or Form
8849,“Claim for Refund of Excise Taxes,”
or for a credit on Form 4136,“Credit for
Federal Tax Paid on Fuels,”that contains
all the information required by paragraph
(c)ofthissection.
(3)ETBE; sold for use or used as a fuel.
An alcohol fuel mixture that is produced at
a refinery and that includes ethyl tertiary
butyl ether or other ethers produced from
alcohol is treated as meeting the require-
ment of paragraph (b)(1)(ii) of this section
when the mixture is removed from the re-
finery and any subsequent sale or use of the
mixture is disregarded for purposes of this
section.
(4)Overall limitations on credits and
payments. See §48.6426–7(a) for over-
all limitations on credits and payments al-
lowed with respect to mixtures under sec-
tions 34, 6426, and 6427.
(c)Contentofclaim. Each claim for
an alcohol fuel mixture credit or payment
2008–38 I.R.B.735September 22, 2008

must contain the following information
with respect to the mixture covered by the
claim:
(1) The amount of alcohol in the alcohol
fuel mixture.
(2) A statement that the conditions to
allowance described in paragraph (b) of
this section have been met.
(3) A statement that the claimant ei-
ther—
(i) Produced the alcohol it used in the
mixture; or
(ii) Has in its possession a record of
the name, address, and employer identifi-
cation number of the person(s) that sold the
alcohol to the claimant and the date of pur-
chase.
(d)Effective/applicability date.This
section is applicableon and after the date
these regulations are published as final
regulations in theFederal Register.
§48.6426–3 Biodiesel mixtures.
(a)Overview. This section provides
rules under which a biodiesel mixture pro-
ducer may claim an excise tax credit un-
der section 6426, a payment under section
6427, or an income tax credit under section
34. These claims relate to the mixture pro-
ducer’s sale or use of a biodiesel mixture
and are based on the amount of biodiesel
used to produce the biodiesel mixture. For
the applicable claim rate, see section 6426.
(b)Conditions to allowance—(1)Ex-
cise tax credit. A claim for the biodiesel
mixture credit with respect to a biodiesel
mixture is allowed under section 6426 only
if each of the following conditions is satis-
fied:
(i) The claimant produced the biodiesel
mixture for sale or use in the trade or busi-
ness of the claimant.
(ii) The claimant sold the biodiesel mix-
ture for use as a fuel or used the biodiesel
mixture as a fuel.
(iii) The claimant—
(A) Produced the biodiesel in the mix-
ture; or
(B) Has obtained a certificate from the
registered biodiesel producer as described
in paragraph (e) of this section and, if ap-
plicable, a statement described in para-
graph (f) of this section, for such biodiesel
and has no reason to believe any informa-
tion in the certificate and statement is false.
(iv) The claimant has made no other
claim with respect to the biodiesel in the
mixture or, if another claim has been made,
such other claim is disregarded under this
paragraph (b)(1)(iv). A claim is disre-
garded under this paragraph (b)(1)(iv) if it
is—
(A) A claim for the small agri-biodiesel
producer credit under section 40A; or
(B) An erroneous claim under section
6427 and either the claim has been disal-
lowed or the claimant has repaid the gov-
ernment the amount received under section
6427 with interest.
(v) The claimant has filed a timely
claim on Form 720,“Quarterly Federal
Excise Tax Return,”that contains all the
information required in paragraph (c) of
this section.
(2)Payment or income tax credit.A
claim for a biodiesel mixture payment un-
der section 6427 or an income tax credit
under section 34 is allowed only if—
(i) The conditions of paragraphs
(b)(1)(i), (ii), and (iii) of this section are
met; and
(ii) The claimant has filed a timely
claim for payment on Form 720 or Form
8849,“Claim for Refund of Excise Taxes,”
or for a credit on Form 4136,“Credit for
Federal Tax Paid on Fuels,”that contains
all the information required by paragraph
(c)ofthissection.
(3)Overall limitations on credits and
payments. See §48.6426–7(a) for over-
all limitations on credits and payments al-
lowed with respect to mixtures under sec-
tions 34, 6426, and 6427.
(c)Contentofclaim. Each claim for a
biodiesel mixture credit or payment must
contain the following information with re-
spect to the mixture covered by the claim:
(1) The amount of agri-biodiesel and
biodiesel other than agri-biodiesel in the
biodiesel mixture.
(2) Unless the claimant is the producer
of the biodiesel in the biodiesel mixture,
a copy of the applicable Certificate for
Biodiesel described in paragraph (e) of this
section and Statement(s) of Biodiesel Re-
seller described in paragraph (f) of this sec-
tion. In the case of a certificate and state-
ment that support a claim made on more
than one claim form, the certificate and
statement are to be included with the first
claim and the claimant is to provide infor-
mation related to the certificate and state-
ment on any subsequent claim in accor-
dance with the instructions applicable to
the claim form.
(3) A statement that the conditions to
allowance described in paragraph (b) of
this section have been met.
(4) A statement that the claimant ei-
ther—
(i) Is a registered biodiesel producer and
produced the biodiesel it used in the mix-
ture; or
(ii) Has in its possession a record of
the name, address, and employer identifi-
cation number of the person(s) that sold the
biodiesel to the claimant and the date of
purchase.
(d)Commingled biodiesel; account-
ing method. For purposes of determining
the certificate applicable to commingled
biodiesel, a person that holds commingled
biodiesel may identify the biodiesel it sells
or uses by any reasonable method, includ-
ing the first-in, first-out method applied
either on a tank-by-tank basis or on an ag-
gregate basis to all commingled biodiesel
the person holds.
(e)Certificate for Biodiesel
—(1)In
general. The certificate to be obtained by
the claimant is a statement that is signed
under penalties of perjury by a person with
authority to bind the registered biodiesel
producer, is in substantially the same form
as the model certificate in paragraph (e)(4)
of this section, and contains all the infor-
mation necessary to complete such model
certificate.
(2)Certificate identification number.
The certificate identification number is
determined by the producer and must be
unique to each certificate.
(3)Multiple certificates for single sale.
A registered biodiesel producer may, with
respect to a particular sale of biodiesel,
provide multiple separate certificates, each
applicable to a portion of the total volume
of biodiesel sold. Thus, for example, a
biodiesel producer that sells 5,000 gallons
of biodiesel may provide its buyer with
five certificates for 1,000 gallons each.
The multiple certificates may be provided
either to the buyer at or after the time of
sale or to a reseller in the circumstances de-
scribed in paragraph (f)(2) of this section.
(4)Model certificate.
September 22, 20087362008–38 I.R.B.

CERTIFICATE FOR BIODIESEL
Certificate Identification Number:
(To support a claim related to biodiesel or a biodiesel mixture under the Internal Revenue Code)
The undersigned biodiesel producer (“Producer”) herebycertifies the following under penalties of perjury:
1.
Producer’s name, address, and employer identification number
2.
Name, address, and employer identification number of person buying the biodiesel from Producer
3.
Date and location of sale to buyer
4. This certificate applies to
gallons of biodiesel.
5. Producer certifies that the biodieselto which this certificate relates is:
% Agri-biodiesel (derived solely from virgin oils)
% Biodiesel other than agri-biodiesel
6. This certificate applies to the following sale:
Invoice or delivery ticket number
Total number of gallons of biodiesel sold under that invoice or delivery ticket number (including biodiesel not covered by
this certificate)
7.
Total number of certificates issued for that invoice or delivery ticket number
8.
Name, address, and employer identification number of reseller to whom certificate is issued (only in the case of certificates
reissued to a reseller after the return of the original certificate)
9.
Original Certificate Identification Number (only in the case of certificates reissued to a reseller after return
of the original certificate)
10. Producer is registered as a biodiesel producer with registration number
. Producer’s registration has not
been suspended or revoked by the Internal Revenue Service.
Producer certifies that the biodiesel to which this certificate relates ismonoalkyl esters of long chain fatty acids derived from
plant or animal matter and that it meets the requirements of the American Society of Testing and Materials D6751 and the registra-
tion requirements for fuels and fuel additives established by EPA under section 211 of the Clean Air Act (42 U.S.C. 7545).
Producer understands that the fraudulent use of this certificate may subject Producer and all parties making any fraudulent use
of this certificate to a fine or imprisonment, orboth, together with the costs of prosecution.
Printed or typed name of person signing this certificate
Title of person signing
Signature and date signed
(f)Statement of Biodiesel Reseller—(1)
In general. A person that receives a Cer-
tificate for Biodiesel, and subsequently
sells the biodiesel without producing a
biodiesel mixture, is to give the certifi-
cate and a statement that satisfies the
requirements of this paragraph (f) to its
buyer. The statement must contain all of
the information necessary to complete the
model statement in paragraph (f)(4) of this
section and be attached to the Certificate
for Biodiesel. A reseller cannot make mul-
2008–38 I.R.B.737September 22, 2008

tiple copies of a Certificate for Biodiesel
to divide the certificate between multiple
buyers.
(2)Multiple resales. If a single Certifi-
cate for Biodiesel applies to biodiesel that
a reseller expects to sell to multiple buy-
ers, the reseller should return the certificate
(together with any statements provided by
intervening resellers) to the producer who
may reissue to the reseller multiple Certifi-
cates for Biodiesel in the appropriate vol-
umes. The reissued certificates must in-
clude the Certificate Identification Num-
ber from the certificate that has been re-
turned.
(3)Withdrawal of the right to provide
a certificate. The Internal Revenue Ser-
vice may withdraw the right of a reseller
of biodiesel to providethe certificate and
a statement under this section if the Inter-
nal Revenue Service cannot verify the ac-
curacy of the reseller’s statements. The
Internal Revenue Service may notify any
person to whom the buyer has provided a
statement that the reseller’s right to pro-
vide the certificate and a statement has
been withdrawn.
(4)Model statement of biodiesel re-
seller.
STATEMENT OF BIODIESEL RESELLER
(To support a claim related to biodiesel or a biodiesel mixture under the Internal Revenue Code)
The undersigned biodiesel reseller (“Reseller”) hereby certifies the following under penalties of perjury:
1.
Reseller’s name, address, and employer identification number
2.
Name, address, and employer identification number of Reseller’s buyer
3.
Date and location of sale to buyer
4.
Volume of biodiesel sold
5.
Certificate Identification Number on the Certificate for Biodiesel
Reseller has bought the biodiesel described in the accompanying Certificate for Biodiesel and Reseller has no reason to believe
that any information in the certificate is false.
Reseller has not been notified by the Internal Revenue Service that its right to provide a certificate and a statement has been
withdrawn.
Reseller understands that the fraudulent use of this statementmay subject Reseller and all parties making any fraudulent use of
this statement to a fine or imprisonment, or both, together with the costs of prosecution.
Printed or typed name of person signing this certificate
Title of person signing
Signature and date signed
(g)Erroneous certificates; reasonable
cause. If a claim for credit or payment
described in this section is based on er-
roneous information in a certificate or
statement describedin paragraph (e)(4)
or (f)(4) of this section, the claim is not
allowed. Thus, for example, if a producer
identifies a product asagri-biodiesel on a
Certificate for Biodiesel and the product
does not meet the registration require-
ments established by EPA, a claim for
a biodiesel mixture credit based on the
certificate is not allowed. However, if the
claimant has met the conditions of para-
graph (b)(1)(iii)(B) of this section with
respect to the certificate or statement, re-
liance on the certificate or statement will
be treated as reasonable cause for pur-
poses of the penalties imposed by sections
6651 (relating to failure to pay) and 6675
(relating to excessive claims).
(h)Effective/applicability date.This
section is applicable on and after the date
of publication of these regulations as final
regulations in theFederal Register.
§48.6426–4 Renewable diesel mixtures.
(a)Overview. This section provides
rules under which a renewable diesel mix-
ture producer may claim an excise tax
credit under section 6426, a payment un-
September 22, 20087382008–38 I.R.B.

der section 6427, or an income tax credit
under section 34. These claims relate to
the mixture producer’s sale or use of a
renewable diesel mixture and are based
on the amount of renewable diesel used
to produce the renewable diesel mixture.
For the applicable claim rate, see section
40A(f)(2).
(b)Conditions to allowance—(1)Ex-
cise tax credit. A claim for the renewable
diesel mixture credit with respect to a re-
newable diesel mixture is allowed under
section 6426 only if each of the following
conditions is satisfied:
(i) The claimant produced the renew-
able diesel mixture for sale or use in the
trade or business of the claimant.
(ii) The claimant sold the renewable
diesel mixture for use as a fuel or used the
renewable diesel mixture as a fuel.
(iii) The claimant—
(A) Produced the renewable diesel in
the mixture; or
(B) Has obtained a certificate from the
registered renewable diesel producer as
described in paragraph (e) of this section
and, if applicable, astatement described
in paragraph (f) of this section, for such
renewable diesel and has no reason to be-
lieve any information in the certificate and
statement is false.
(iv) The claimant has made no other
claim with respect to the renewable diesel
in the mixture or, if another claim has been
made, such other claim is disregarded un-
der this paragraph (b)(1)(iv). A claim is
disregarded under thisparagraph (b)(1)(iv)
if it is an erroneous claim under section
6427 and either the claim has been disal-
lowed or the claimant has repaid the gov-
ernment the amount received under section
6427 with interest.
(v) The claimant has filed a timely
claim on Form 720,“Quarterly Federal
Excise Tax Return,”that contains all the
information required in paragraph (c) of
this section.
(2)Payment or income tax credit.A
claim for a renewable diesel mixture pay-
ment under section 6427 or an income tax
credit under section 34 is allowed only if—
(i) The conditions of paragraphs
(b)(1)(i), (ii), and (iii) of this section are
met; and
(ii) The claimant has filed a timely
claim for payment on Form 720 or Form
8849,“Claim for Refund of Excise Taxes,”
or for a credit on Form 4136,“Credit for
Federal Tax Paid on Fuels,”that contains
all the information required by paragraph
(c)ofthissection.
(3)Overall limitations on credits and
payments. See §48.6426–7(a) for over-
all limitations on credits and payments al-
lowed with respect to mixtures under sec-
tions 34, 6426, and 6427.
(c)Contentofclaim. Each claim for
a renewable diesel mixture credit or pay-
ment must contain the following informa-
tion with respect to the mixture covered by
the claim:
(1) The amount of renewable diesel in
the renewable diesel mixture.
(2) Unless the claimant is the producer
of the renewable diesel in the renewable
diesel mixture, a copy of the applicable
Certificate for Renewable Diesel de-
scribed in paragraph (e) of this section
and Statement(s) of Renewable Diesel
Reseller described in paragraph (f) of this
section. In the case of a certificate and
statement that support a claim made on
more than one claim form, the certificate
and statement are to be included with the
first claim and the claimant is to provide
information related to the certificate and
statement on any subsequent claim in ac-
cordance with the instructions applicable
to the claim form.
(3) A statement that the conditions to
allowance described in paragraph (b) of
this section have been met.
(4) A statement that the claimant ei-
ther—
(i) Is a registered renewable diesel pro-
ducer and produced the renewable diesel it
used in the mixture; or
(ii) Has in its possession a record of
the name, address, and employer identifi-
cation number of the person(s) that sold the
renewable diesel to the claimant and the
date of purchase.
(d)Commingled renewable diesel; ac-
counting method. For purposes of deter-
mining the certificate applicable to com-
mingled renewable diesel, a person that
holds commingled renewable diesel may
identify the renewablediesel it sells or uses
by any reasonable method, including the
first-in, first-out method applied either on
a tank-by-tank basis or on an aggregate ba-
sis to all commingled renewable diesel the
person holds.
(e)Certificate for Renewable
Diesel—(1)In general. The certificate
to be obtained by the claimant is a state-
ment that is signed under penalties of
perjury by a person with authority to bind
the registered renewable diesel producer,
is substantially in the same form as the
model certificate in paragraph (e)(4) of
this section, and contains all the informa-
tion necessary to complete such model
certificate.
(2)Certificate identification number.
The certificate identification number is
determined by the producer and must be
unique to each certificate.
(3)Multiple certificates for single sale.
A registered renewable diesel producer
may, with respect to a particular sale of re-
newable diesel, provide multiple separate
certificates, each applicable to a portion of
the total volume of renewable diesel sold.
Thus, for example, a renewable diesel
producer that sells 5,000 gallons of re-
newable diesel may provide its buyer with
five certificates for 1,000 gallons each.
The multiple certificates may be provided
either to the buyer at or after the time of
sale or to a reseller in the circumstances
described in paragraph (f)(2) of this sec-
tion.
(4)Model certificate.
2008–38 I.R.B.739September 22, 2008

CERTIFICATE FOR RENEWABLE DIESEL
Certificate Identification Number:
(To support a claim related to renewable diesel or a renewable diesel mixture under the Internal Revenue Code)
The undersigned renewable diesel producer (“Producer”) hereby certifies the following under penalties of perjury:
1.
Producer’s name, address, and employer identification number
2.
Name, address, and employer identification number of person buying the renewable diesel from Producer
3.
Date and location of sale to buyer
4. This certificate applies to
gallons of renewable diesel.
5. This certificate applies to the following sale:
Invoice or delivery ticket number
Total number of gallons of renewable diesel sold under that invoice or delivery ticket number (including renew-
able diesel not covered by this certificate)
6.
Total number of certificates issued for that invoice or delivery ticket number
7.
Name, address, and employer identification number of reseller to whom certificate is issued (only in the case of certificates
reissued to a reseller after the return of the original certificate)
8.
Original Certificate Identification Number (only in the case of certificates reissued to a reseller after return
of the original certificate)
9. Producer is registered as a renewable diesel producer with registration number
. Producer’s registration has not
been suspended or revoked by the Internal Revenue Service.
Producer certifies that the renewable diesel to which this certificate relates isdiesel fuel derived from biomass (as defined in
section 45K(c)(3) of the Internal Revenue Code) using a thermaldepolymerization process and that it meets the requirements of the
American Society of Testing and Materials D975 or D396 and the registration requirements for fuels and fuel additives established
by EPA under section 211 of the Clean Air Act (42 U.S.C. 7545).
Producer understands that the fraudulent use of this certificate may subject Producer and all parties making any fraudulent use
of this certificate to a fine or imprisonment, orboth, together with the costs of prosecution.
Printed or typed name of person signing this certificate
Title of person signing
Signature and date signed
(f)Statement of Renewable Diesel Re-
seller—(1)In general. A person that
receives a Certificate for Renewable
Diesel, and subsequently sells the renew-
able diesel without producing a renewable
diesel mixture, is togive the certificate
and a statement that satisfies the require-
ments of this paragraph (f) to its buyer.
The statement must contain all of the
information necessary to complete the
model statement in paragraph (f)(4) of this
section and be attached to the Certificate
for Renewable Diesel. A reseller cannot
make multiple copies of a Certificate for
Renewable Diesel to divide the certificate
between multiple buyers.
(2)Multiple resales. If a single Cer-
tificate for Renewable Diesel applies to
renewable diesel that a reseller expects
to sell to multiple buyers, the reseller
should return the certificate (together with
any statements provided by intervening
resellers) to the producer who may reis-
sue to the reseller multiple Certificates
for Renewable Diesel in the appropri-
ate volumes. The reissued certificates
must include the Certificate Identification
Number from the certificate that has been
returned.
September 22, 20087402008–38 I.R.B.

(3)Withdrawal of the right to provide
a certificate. The Internal Revenue Ser-
vice may withdraw the right of a reseller
of renewable diesel to provide the certifi-
cate and a statement under this section if
the Internal Revenue Service cannot verify
the accuracy of the reseller’s statements.
The Internal Revenue Service may notify
any person to whom the buyer has pro-
vided a statement that the reseller’s right
to provide the certificate and a statement
has been withdrawn.
(4)Model statement of renewable diesel
reseller.
STATEMENT OF RENEWABLE DIESEL RESELLER
(To support a claim related to renewable diesel or a renewable diesel mixture under the Internal Revenue Code)
The undersigned renewable diesel reseller (“Reseller”) hereby certifies the following under penalties of perjury:
1.
Reseller’s name, address, and employer identification number
2.
________
Name, address, and employer identification number of Reseller’s buyer
3.
Date and location of sale to buyer
4.
Volume of renewable diesel sold
5.
Certificate Identification Number on the Certificate for Renewable Diesel
Reseller has bought the renewable diesel described in the accompanying Certificate for Renewable Diesel and Reseller has no
reason to believe that any information in the certificate is false.
Reseller has not been notified by the Internal Revenue Service that its right to provide a certificate and a statement has been
withdrawn.
Reseller understands that the fraudulent use of this statementmay subject Reseller and all parties making any fraudulent use of
this statement to a fine or imprisonment, or both, together with the costs of prosecution.
Printed or typed name of person signing this certificate
Title of person signing
Signature and date signed
(g)Erroneous certificates; reasonable
cause. If a claim for credit or payment
described in this section is based on er-
roneous information in a certificate or
statement describedin paragraph (e)(4)
or (f)(4) of this section, the claim is not
allowed. Thus, for example, if a producer
identifies a product as renewable diesel
onaCertificateforRenewableDieseland
the product does not meet the registration
requirements established by EPA, a claim
for a renewable diesel mixture credit based
on the certificate isnot allowed. However,
if the claimant has met the conditions of
paragraph (b)(1)(iii)(B) of this section
with respect to the certificate or statement,
reliance on the certificate or statement will
be treated as reasonable cause for pur-
poses of the penalties imposed by sections
6651 (relating to failure to pay) and 6675
(relating to excessive claims).
(h)Effective/applicability date.This
section is applicable on and after the date
these regulations are published as final
regulations in theFederal Register.
§48.6426–5 Alternative fuel mixtures.
(a)Overview. This section provides
rules under which an alternative fueler that
produces an alternative fuel mixture may
claim an excise tax credit under section
6426, a payment under section 6427, or an
income tax credit under section 34. These
claims relate to the mixture producer’s sale
or use of an alternative fuel mixture and
are based on the amount of alternative fuel
used to produce the alternative fuel mix-
2008–38 I.R.B.741September 22, 2008

ture. For the applicable claim rate, see sec-
tion 6426.
(b)Conditions to allowance—(1)Ex-
cise tax credit. A claim for the alternative
fuel mixture credit with respect to an alter-
native fuel mixture is allowed under sec-
tion 6426 only if each of the following con-
ditions is satisfied:
(i) The claimant produced the alterna-
tive fuel mixture for sale or use in the trade
or business of the claimant.
(ii) The claimant sold the alternative
fuel mixture for use as a fuel or used the
alternative fuel mixture as a fuel.
(iii) The claimant is registered under
section 4101 as an alternative fueler.
(iv) The claimant has made no other
claim with respect to the alternative fuel in
the mixture or, if another claim has been
made, such other claim is disregarded un-
der this paragraph (b)(1)(iv). A claim is
disregarded under thisparagraph (b)(1)(iv)
if it is an erroneous claim under section
6427 and either the claim has been disal-
lowed or the claimant has repaid the gov-
ernment the amount received under section
6427 with interest.
(v) The claimant has filed a timely
claim on Form 720,“Quarterly Federal
Excise Tax Return,”that contains all the
information required by the claim form
described in paragraph (c) of this section.
(2)Payment or income tax credit.A
claim for an alternative fuel mixture pay-
ment under section 6427 or an alternative
fuel mixture credit under sections 34 and
6427 is allowed only if—
(i) The conditions of paragraphs
(b)(1)(i), (ii), and (iii) of this section are
met; and
(ii) The claimant has filed a timely
claim for payment on Form 720 or Form
8849,“Claim for Refund of Excise Taxes,”
or for a credit on Form 4136,“Credit for
Federal Tax Paid on Fuels,”that contains
all the information required by the claim
form described in paragraph (c) of this
section.
(3)Overall limitations on credits and
payments. See §48.6426–7(a) for over-
all limitations on credits and payments al-
lowed with respect to mixtures under sec-
tions 34, 6426, and 6427.
(c)Contentofclaim. Each claim for
an alternative fuel mixture credit or pay-
ment must contain the following informa-
tion with respect to the mixture covered by
the claim:
(1) The amount of alternative fuel in the
alternative fuel mixture.
(2) A statement that the conditions to
allowance described in paragraph (b) of
this section have been met.
(3) A statement that the claimant ei-
ther—
(i) Produced the alternative fuel it used
in the mixture; or
(ii) Has in its possession—
(A) A record of the name, address, and
employer identification number of the per-
son(s) that sold the alternative fuel to the
claimant and the date of purchase; and
(B) An invoice or other purchase docu-
mentation identifying the alternative fuel.
(d)Effective/applicability date.This
section is applicable on and after the date
these regulations are published as final
regulations in theFederal Register.
§48.6426–6 Alternative fuel.
(a)Overview. This section provides
rules under which an alternative fueler (un-
mixed fuel) may claim an excise tax credit
under section 6426, a payment under sec-
tion 6427, or an income tax credit under
section 34. These claims are based on the
amount of alternative fuel sold or used.
For the applicable claim rate, see section
6426.
(b)Conditions to allowance—(1)Ex-
cise tax credit. A claim for the alternative
fuel excise tax credit with respect to alter-
native fuel sold for use or used as a fuel
in a motor vehicle or motorboat is allowed
under section 6426 only if each of the fol-
lowing conditions is satisfied:
(i) The claimant is the alternative fueler
(unmixed fuel) with respect to the fuel.
(ii) The claimant is registered under
section 4101 as an alternative fueler (un-
mixed fuel).
(iii) The claimant has made no other
claim with respect tothe alternative fuel
or, if another claim has been made, such
other claim is disregarded under this para-
graph (b)(1)(iii). A claim is disregarded
under this paragraph (b)(1)(iii) if it is an
erroneous claim under section 6427 and
either the claim has been disallowed or
the claimant has repaid the government the
amount received under section 6427 with
interest.
(iv) The claimant has filed a timely
claim on Form 720,“Quarterly Federal
Excise Tax Return,”that contains all the
information required by the claim form
described in paragraph (c) of this section.
(2)Payment or income tax credit.A
claim for an alternative fuel payment under
section 6427 or an income tax credit under
section 34 is allowed only if—
(i) The conditions of paragraphs
(b)(1)(i) and (ii) of this section are met;
(ii) The sale or use is in the claimant’s
trade or business; and
(iii) The claimant has filed a timely
claim for payment on Form 8849,“Claim
for Refund of Excise Taxes,”or for a credit
on Form 4136,“Credit for Federal Tax
Paid on Fuels,”that contains all the infor-
mation required by paragraph (c) of this
section.
(3)Overall limitations on credits and
payments. See §48.6426–7(b) for over-
all limitations on credits and payments al-
lowed with respect to alternative fuel un-
der sections 34, 6426, and 6427.
(c)Contentofclaim. Each claim for
an alternative fuel credit or payment must
contain the following information with re-
spect to the alternative fuel covered by the
claim:
(1) The amount of alternative fuel sold
or used.
(2) A statement that the conditions to
allowance described in paragraph (b) of
this section have been met.
(3) A statement that the claimant ei-
ther—
(i) Produced the alternative fuel it sold
or used; or
(ii) Has in its possession—
(A) A record of the name, address, and
employer identification number of the per-
son(s) that sold the alternative fuel to the
claimant and the date of purchase; and
(B) An invoice or other purchase docu-
mentation identifying the alternative fuel.
(4) In the case of liquefied natural gas
(LNG) that the claimant sold in bulk for
the exclusive use of the State and deliv-
ered into a bulk supply tank that can only
fuel motor vehicles or motorboats of the
State, a statement that the claimant has in
its possession a written waiver, signed un-
der penalties of perjury by a person with
authority to bind the State, stating that the
LNG is delivered in bulk for the exclusive
use of the State in a motor vehicle or mo-
torboat and that the State gives up its right
to claim any alternative fuel credit for such
LNG.
September 22, 20087422008–38 I.R.B.

(d)Effective/applicability date.This
section is applicableon and after the date
these regulations are published as final
regulations in theFederal Register.
§48.6426–7 Overall limitations on credits
and payments.
(a)Limitations applicable to mixtures.
In the case of mixtures, the following lim-
itations apply:
(1) The aggregate amount that, but for
the coordination rules in sections 6426(g)
and 6427(e)(3), would be allowable to a
claimant either as a credit under section
6426 or a payment under section 6427 with
respect to sales and uses of mixtures dur-
ing a calendar quarter is allowed only as a
credit under section 6426 to the extent such
amount does not exceed the claimant’s tax
liability under section 4081 for the calen-
dar quarter.
(2) The aggregate amount allowed to a
claimant as a payment under section 6427
or an income tax credit under section 34
with respect to sales and uses of mixtures
during a calendar quarter shall not exceed
the amount that, but for the coordination
rules in sections 6426(g) and 6427(e)(3),
would be allowable to the claimant with
respect to such sales and uses reduced by
the claimant’s tax liability under section
4081 for the calendar quarter.
(b)Limitations applicable to alterna-
tive fuel. In the case of alternative fuel, the
following limitations apply:
(1) The aggregate amount that, but for
the coordination rules in sections 6426(g)
and 6427(e)(3), would be allowable to a
claimant either as a credit under section
6426 or a payment under section 6427
with respect to sales and uses of alternative
fuel during a calendar quarter is allowed
only as a credit under section 6426 to the
extent such amount does not exceed the
claimant’s tax liability under section 4041
for the calendar quarter.
(2) The aggregate amount allowed to
a claimant as a payment under section
6427 or an income tax credit under sec-
tion 34 with respect to sales and uses of
alternative fuel during a calendar quarter
shall not exceed the amount that, but for
the coordination rules in sections 6426(g)
and 6427(e)(3), would be allowable to the
claimant with respect to such sales and
uses reduced by the claimant’s tax liability
under section 4041 for the calendar quar-
ter.
(c)Effective/applicability dates.This
section is applicable on and after the date
of publication of these regulations as final
regulations in theFederal Register.
Par. 21. Section 48.6427–8 is amended
as follows:
1. Revising paragraphs (b)(1)(v) and
adding (b)(1)(vii)(E).
2. Paragraph (b)(1)(vii)(C) is amended
by removing the language “vehicle; or”
and adding “vehicle;” in its place.
3. Paragraph (b)(1)(vii)(D) is amended
by removing the language “6427(b)(3)).”
and adding “6427(b)(3)); or” in its place.
4. Paragraph (f) is amended by remov-
ing the language from the first sentence
“1994.” and adding “1994, and paragraph
(b)(1)(vii)(E), which is applicable after the
date these regulations are published as fi-
nal regulations in theFederal Register.”
in its place.
The revision and addition read as fol-
lows:
§48.6427–8 Diesel fuel and kerosene;
claims by ultimate purchasers.
*****
(b) * * *
(1) * * *
(v) The diesel fuel or kerosene was
not used on a farm for farming purposes
(as defined in §48.6420–4) or, except in
the case of fuel described in paragraph
(b)(1)(vii)(E) of the section, by a State;
*****
(vii)***
(E) For the exclusive use, in the case of
blended taxable fuel that is produced by a
State and is both diesel fuel and a mixture
(as defined in §48.6426–1(b)), of the State
that produced the blended taxable fuel.
*****
Par. 22. Section 48.6427–12 is added
to read as follows:
§48.6427–12 Alcohol, Alternative Fuel,
Biodiesel, and Renewable Diesel.
(a)In general. This section con-
tains special rules for payments related
to fuels containing alcohol, alternative
fuel, biodiesel, and renewable diesel.
Other rules for these payments are in
§§48.6426–1 through 48.6426–7.
(b)Coordination with excise tax credit.
If the aggregate amount a person receives
as a payment under section 6427(e) with
respect to sales and uses of mixtures dur-
ing a calendar quarter exceeds the amount
allowed under §48.6426–7(a), the excess
constitutes an excessive amount for pur-
poses of section 6206 and such amount,
as well as the civil penalty under section
6675, may be assessed as if it were a tax
imposed by section 4081. If the exces-
sive amount is repaid to the government,
with interest from the date of the payment
(section 6602), on or before the due date
of the Form 720,“Quarterly Federal Ex-
cise Tax Return,”for the calendar quarter,
the claim for the excessive amount will be
treated as due to reasonable cause and the
penalty under section 6675 will not be im-
posed with respect to the claim. If a per-
son claims an income tax credit under sec-
tion 34 in lieu of a payment under sec-
tion 6427(e) with respect to sales and uses
of mixtures during a calendar quarter and
the aggregate amount claimed as an in-
come tax credit with respect to such sales
and uses exceeds the amount allowed un-
der §48.6426–7(a)(2), the income tax rules
related to assessing an underpayment of in-
come tax liability apply. The section 6675
penalty for excessive claims with respect
to fuels does not apply in the case of sec-
tion 34 income tax credits. Similar rules
apply to excessive claims under sections
34 or 6427 with respect to sales and uses
of alternative fuel.
(c)Payment computation for certain
blenders—(1)In general. This paragraph
(c) applies to a blender for any calendar
quarter in which the blender’s entire tax
liability under section 4081 is based solely
on the volume of alcohol in alcohol fuel
mixtures, biodiesel in biodiesel mixtures,
renewable diesel in renewable diesel mix-
tures, or alternative fuel in alternative fuel
mixtures. If this paragraph (c) applies for
a calendar quarter, the blender may use
the following procedure to determine the
amount it may claim as an income tax
credit under section 34 or a payment under
section 6427(e) with respect to each mix-
ture that it sells or uses during the quarter:
(i) First, determinethe amount allowed
under section 6426 as a credit on Form 720
by multiplying the volume of untaxed liq-
uid used to produce the mixture by the tax
imposed per gallon on the untaxed liquid.
2008–38 I.R.B.743September 22, 2008

(ii) Then, determinethe total credit and
payment allowable by multiplying the vol-
ume of untaxed liquid used to produce the
mixture by the tax credit rate per gallon.
(iii) Then, subtract the amount de-
termined in paragraph (c)(1)(i) of this
section (the section 6426 credit amount)
from the amount determined in paragraph
(c)(1)(ii) of this section. This difference is
the amount of the payment or income tax
credit that may be claimed with respect to
that mixture.
(2)Example. The following example
illustrates the provisions of this paragraph
(c):
(i) P is a biodiesel mixture producer. P pro-
duces blended taxable fuel outside of the bulk
transfer/terminal system by adding biodiesel
that is agri-biodiesel to taxed diesel fuel. See
§§48.4081–1(c)(1) and 48.4081–3(g). P has no
§4081 liability other than its liability as a blender on
its sale of the biodiesel mixture. During the period
August 1 through August 10 (at which time the tax
rate on diesel fuel is $0.244 per gallon and the claim
amount on agri-biodiesel is $1.00 per gallon), P uses
5,000 gallons of agri-biodiesel to produce a biodiesel
mixture. P determines that it may claim $3,780 as a
payment under section 6427(e) with respect to this
mixture. P computes this amount by—
(A) Multiplying 5,000 (gallons of agri-biodiesel)
x $0.244 (tax imposed per gallon) = $1,220;
(B) Multiplying 5,000 (gallons of agri-biodiesel)
x $1.00 (tax credit rate per gallon) = $5,000; and
(C) Subtracting $1,220 from $5,000 = $3,780.
(ii) On August 11, P files Form 8849 for the pe-
riod August 1 — August 10. To avoid an excessive
claim, P limits the claim on Form 8849 to $3,780 re-
porting 3,780 gallons of agri-biodiesel.
(iii) On Form 720 P reports liability for IRS No.
60(c) of $1,220 (5,000 gallons x $.244) and claims a
credit on Schedule C for $1,220 for period August 1
— August 10, reporting on Schedule C 1,220 gallons
of agri-biodiesel.
(d)Effective/applicability date.This
section is applicableon and after the date
these regulations are published as final
regulations in theFederal Register.
Kevin M. Brown,
Deputy Commissioner for Services
and Enforcement.
(Filed by the Office of the Federal Register on July 28, 2008,
8:45 a.m., and published in the issue of the Federal Register
for July 29, 2008, 73 F.R. 43890)
Notice of Proposed
Rulemaking and Notice of
Public Hearing
Section 108 Reduction of Tax
Attributes for S Corporations
REG–102822–08
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
SUMMARY: This document contains pro-
posed regulations that provide guidance
on the manner in which an S corpora-
tion reduces its tax attributes under sec-
tion 108(b) for taxable years in which the
S corporation has discharge of indebted-
ness income that is excluded from gross
income under section 108(a). In partic-
ular, the regulations address situations in
which the aggregate amount of the share-
holders’ disallowed section 1366(d) losses
and deductions that are treated as a net op-
erating loss tax attribute of the S corpora-
tion exceeds the amount of the S corpora-
tion’s excluded discharge of indebtedness
income. The proposed regulations will af-
fect S corporations and their shareholders.
This document also provides notice of a
public hearing on these proposed regula-
tions.
DATES: Written and electronic comments
must be received by November 4, 2008.
Outlines of topics to be discussed at the
public hearing scheduled for December 8,
2008, must be received by November 4,
2008.
ADDRESSES: Send submissions to
CC:PA:LPD:PR(REG–102822–08),
Room 5203, Internal Revenue Service,
PO Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may
be hand-delivered Monday through Friday
betweenthehoursof8a.m. and4p.m.
to CC:PA:LPD:PR (REG–102822–08),
Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue, NW,
Washington, DC, or sent electronically
via the Federal eRulemaking Portal
atwww.regulations.gov/(IRS
REG–102822–08). The public hearing
will be held in the IRS Auditorium,
Internal Revenue Building, 1111
Constitution Avenue, NW, Washington,
DC.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Jennifer N. Keeney, (202)
622–3060; concerning submissions of
comments, the hearing, or to be placed
on the building access list to attend the
hearing, Funmi Taylor, (202) 622–7180
(not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information con-
tained in this notice of proposed rulemak-
ing have been submitted to the Office of
Management and Budget for review in
accordance with the Paperwork Reduc-
tion Act of 1995 (44 U.S.C. 3507(d)).
Comments on the collections of infor-
mation should be sent to theOffice of
Management and Budget,Attn: Desk
Officer for the Department of the Trea-
sury, Office of Information and Regulatory
Affairs, Washington, DC 20503, with
copies to theInternal Revenue Service,
Attn: IRS Reports Clearance Officer,
SE:W:CAR:MP:T:T:SP, Washington, DC
20224. Comments on the collection of
information should be received by Novem-
ber 4, 2008. Comments are specifically
requested concerning:
Whether the proposed collection of in-
formation is necessary for the proper per-
formance of the functions of the Internal
Revenue Service, including whether the
information will have practical utility;
The accuracy of the estimated burden
associated with the proposed collection of
information;
How the quality, utility, and clarity of
the information to be collected may be en-
hanced;
How the burden of complying with the
proposed collections of information may
be minimized, including through the appli-
cation of automated collection techniques
or other forms of information technology;
and
Estimates of capital or start-up costs
and costs of operation, maintenance, and
purchase of service to provide information.
The collection of information in these
proposed regulations is in §1.108–7(d)(4).
Thisinformationmustbeprovidedbyboth
September 22, 20087442008–38 I.R.B.

the S corporations that exclude discharge
of indebtedness income from gross income
under section 108(a) and the shareholders
of those S corporations. The information
will be used by the S corporation to prop-
erly reduce its tax attributes under section
108(b), and the information will be used
by the shareholders of S corporations to
calculate their taxable income in succeed-
ing taxable years. The respondents will be
S corporations and their shareholders.
Estimated total annual reporting bur-
den: 1,000 hours.
Estimated average annual burden hours
per respondent: 1 hour.
Estimated number of respondents:
1,000.
Estimated annual frequency of re-
sponses: On occasion.
An agency may not conduct or sponsor,
and a person is not required to respond to, a
collection of information unless it displays
a valid control number assigned by the Of-
fice of Management and Budget.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and return in-
formation are confidential, as required by
26 U.S.C. 6103.
Background
This document contains proposed
amendments to 26 CFR part 1 under sec-
tion 108 of the Internal Revenue Code
(Code). Section 61(a) provides thatgross
incomemeans all income from whatever
source derived, including (but not limited
to) income from discharge of indebted-
ness, also known as cancellation of debt
(COD income). Section 108(a) provides
an exclusion from gross income for COD
income if the discharge occurs while the
taxpayer is bankrupt or insolvent, or if
the indebtedness discharged is qualified
farm indebtedness, certain qualified real
property business indebtedness, or certain
qualified principal residence indebtedness.
In the case of a discharge of indebtedness
during insolvency, the exclusion from in-
come is limited to the amount by which
the taxpayer is insolvent. Section 108(b)
provides that the taxpayer must reduce
certain specified tax attributes to the extent
COD income is excluded under section
108(a)(1)(A),(B),or(C).Section108(b)
also provides the order in which these tax
attributes must be reduced. Unless the
taxpayer makes an election under section
108(b)(5) to first reduce the basis of de-
preciable property, section 108(b)(2)(A)
provides that the first tax attribute to be
reduced is any net operating loss for the
taxable year of the discharge, and any net
operating loss carryover to such taxable
year.
Explanation of Provisions
A. Allocation of Excess Losses and
Deductions After Section 108(b) Tax
Attribute Reduction
Section 108 provides special rules for
an S corporation that has COD income.
Section 108(d)(7)(A), as amended by the
Job Creation and Worker Assistance Act
of 2002, Public Law 107–147, provides, in
part, that the rules under section 108(a) for
the exclusion of COD income and under
section 108(b) for the reduction of tax at-
tributes are applied at the corporate level,
including by not taking into account un-
der section 1366(a) any amount excluded
under section 108(a). Therefore, if an
S corporation excludes COD income from
its gross income under section 108(a), the
amount excluded is applied to reduce the
S corporation’s tax attributes under section
108(b)(2). Under section 108(b)(4)(A),
the reduction of tax attributes occurs
after the S corporation’s items of income,
loss, deduction and credit for the taxable
year of the discharge pass through to its
shareholders under section 1366(a). Under
section 1366(d)(1), the aggregate amount
of losses and deductions a shareholder
can take into accountunder section
1366(a) cannot exceed the shareholder’s
adjusted basis in the shareholder’s stock
in the S corporation and the shareholder’s
adjusted basis of any indebtedness of the
S corporation to the shareholder. For
purposes of the tax attribute reduction
rule under section 108(b)(2), any loss
or deduction that is disallowed for the
taxable year of the discharge under
section 1366(d)(1) is treated as a net
operating loss of the S corporation under
section 108(d)(7)(B) (deemed NOL).
The proposed regulations clarify that the
S corporation’s deemed NOL includes all
losses and deductions disallowed under
section 1366(d)(1) for the taxable year of
the discharge, including disallowed losses
and deductions of a shareholder that had
transferred all of the shareholder’s stock
in the S corporation during such year.
If the amount of the S corporation’s
deemed NOL exceeds the amount of
excluded COD income, the proposed
regulations provide that the S corpora-
tion’s excess deemed NOL is allocated
to the shareholder or shareholders of
the S corporation as losses and deduc-
tions disallowed under section 1366(d)(1)
for the taxable year of the discharge.
If an S corporation has more than one
shareholder during the taxable year of
the discharge, the proposed regulations
provide a rule for determining the amount
of excess deemed NOL allocated to
each shareholder. The allocation rule
in the proposed regulations takes into
account the amount of each shareholder’s
disallowed losses or deductions under
section 1366(d)(1) (before the tax attribute
reduction under section 108(b)(2)) and
the amount of excluded COD income that
would have been taken into account by
each shareholder under section 1366(a)
had the COD income not been excluded
under section 108(a). This allocation
method alleviates, within the parameters
of section 108(d)(7)(B), the disparate
treatment that could occur where the
shareholders’ respective disallowed losses
or deductions under section 1366(d)(1)
that are treated as the S corporation’s
deemed NOL are disproportionate to
the shareholders’ respective ownership
interests. The IRS and the Treasury
Department recognize that shareholders
may be disproportionately impacted
where the shareholders’ respective
disallowed losses or deductions are
disproportionate to their respective
ownership interests. The IRS and the
Treasury Department request comments
on alternative mechanisms that could
address such disproportionate economic
effects and on the collateral consequences
of such mechanisms.
The proposed regulations also provide
that any amount of the S corporation’s ex-
cess deemed NOL that is allocated un-
der this allocation method to a shareholder
that had transferred all of the shareholder’s
stockintheScorporationduringtheyear
of the discharge is treated as a disallowed
loss or deduction that is permanently dis-
allowed under §1.1366–2(a)(5) of the In-
2008–38 I.R.B.745September 22, 2008

come Tax Regulations, unless the transfer
is described in section 1041(a).
B. Character of Excess Deemed NOL
Allocated to a Shareholder
A shareholder’s losses or deductions
disallowed under section 1366(d)(1) con-
sist of apro ratashare of the total losses
and deductions allocated to the share-
holder under section 1366(a) during the
corporation’s taxable year (including
losses and deductions disallowed under
section 1366(d)(1) for prior years that are
treated as current year losses and deduc-
tions with respect to the shareholder under
section 1366(d)(2)).The character of any
item included in a shareholder’spro rata
share under section 1366(a) is determined
as if such item were realized directly from
the source from which it was realized by
the S corporation, orincurred in the same
manner as incurred bythe corporation.
The items of income, loss, or deduction
that pass through to a shareholder, and that
comprise a shareholder’s suspended loss
or deduction under section 1366(d)(1), re-
tain their character (for example, ordinary
deduction, long-term capital loss).
Section 108(d)(7)(B) does not address
potential character differences that may
exist in a shareholder’s disallowed losses
or deductions under section 1366(d)(1)
that are included in the S corporation’s
deemed NOL. Under the general rules of
section 108(b)(2), a taxpayer’s net op-
erating loss is reduced before any other
tax attributes, such as capital loss carry-
overs. Therefore, to be consistent with
the ordering rule in section 108(b)(2),
the proposed regulations provide that in
determining the character of the amount
of the S corporation’s excess deemed
NOL that is allocated to a shareholder,
any ordinary loss or deduction that was
disallowed under section 1366(d)(1) and
that was included in the S corporation’s
deemed NOL is treated as reduced before
any capital loss that was disallowed under
section 1366(d)(1) and that was included
in the S corporation’s deemed NOL. With
respect to section 1231 losses, where it is
uncertain whether the loss ultimately will
be characterized as ordinary or capital,
the proposed regulations provide that any
section 1231 loss or deduction that was
disallowed under section 1366(d)(1) and
that was included in the S corporation’s
deemed NOL is treated as reduced after
any ordinary loss and before any capital
loss.
C. Information Sharing Requirements
An S corporation shareholder deter-
mines the amount of any suspended loss
or deduction under section 1366(d)(1) for
a taxable year. If the shareholder has a
suspended loss or deduction under section
1366(d)(1), the shareholder maintains a
record of the carryover loss or deduction
amount. Because any suspended loss or
deduction under section 1366(d)(1) is
treated as a net operating loss of the S cor-
poration for purposes of the tax attribute
reduction rule under section 108(b)(2),
the S corporation will need to know the
amount of each shareholder’s suspended
loss or deduction under section 1366(d)(1).
The proposed regulations require share-
holders of an S corporation that excludes
COD income from its gross income in a
taxable year to provide this information
to the S corporation.In addition, because
each shareholder will need to know the
amount of the shareholder’s disallowed
losses or deductions remaining after the
tax attribute reduction, the proposed regu-
lations require the S corporation to provide
to its shareholders the amount of any ex-
cess deemed NOL that is allocated to a
shareholder after the tax attribute reduc-
tion, even if such amount is zero. The IRS
and the Treasury Department request com-
ments on whether the information sharing
requirements in the proposed regulations
are necessary or overly burdensome and
on whether special rules are needed if
shareholders fail to provide the required
information to the S corporation.
Proposed Effective Date
These regulations are proposed to apply
to discharges of indebtedness occurring on
or after the date these regulations are pub-
lished as final regulations in theFederal
Register.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory 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 the collection of
information contained in these regulations
will not have a significant economic im-
pact on a substantial number of small en-
tities. This certification is based on the
fact that the collection burden imposed
on S corporations and their shareholders
is minimal in that it requires S corpora-
tions and their shareholder(s) to share in-
formation that shareholders already main-
tain to determine their respective tax lia-
bility. Moreover, it should take an S cor-
poration or a shareholder no more than
one hour to satisfy the information shar-
ing requirements in these regulations. Fi-
nally, the collection burden imposed ap-
plies only to S corporations that are re-
quired to reduce their tax attributes under
section 108(b) of the Code – a group esti-
mated to be less than 1 percent of all ex-
isting S corporations. Therefore, a regula-
tory flexibility analysis under the Regula-
tory Flexibility Act (5 U.S.C. chapter 6) is
not required. Pursuant to section 7805(f)
of the Code, this regulation has been sub-
mitted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on its impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written (a signed origi-
nal and eight (8) copies)orelectroniccom-
ments that are submitted timely to the IRS.
The IRS and the Treasury Department re-
quest comments on the clarity of the pro-
posed rules and how they can be made eas-
ier to understand. All comments will be
available for public inspection and copy-
ing.
A public hearing has been scheduled for
December 8, 2008, beginning at 10 a.m.
in the auditorium of the Internal Revenue
Building, 1111 Constitution Avenue, NW,
Washington, DC. Due to building security
procedures, visitors must enter at the Con-
stitution Avenue entrance. In addition, all
visitors must present photo identification
to enter the building. Because of access re-
strictions, visitors will not be admitted be-
yond the Internal Revenue Building lobby
more than 30 minutes before the hearing
starts. For information about having your
September 22, 20087462008–38 I.R.B.

name placed on the building access list to
attend the hearing, see the “FOR FUR-
THER INFORMATION CONTACT” sec-
tion of this preamble.
The rules of 26 CFR 601.601(a)(3) ap-
ply to the hearing. Persons who wish to
present oral comments at the hearing must
submit written or electronic comments by
November 4, 2008, and submit an outline
of the topics to be discussed and the time
to be devoted to each topic (signed origi-
nal and eight (8) copies) by November 4,
2008. A period of 10 minutes will be allot-
ted to each person for making comments.
An agenda showing the schedule of speak-
ers will be prepared after the deadline for
receiving outlines has passed. Copies of
the agenda will be available free of charge
at the hearing.
Drafting Information
The principal author of these regula-
tions is Jennifer N. Keeney, Office of the
Associate Chief Counsel (Passthroughs
and Special Industries). However, other
personnel from the IRS and the Treasury
Department participated in their develop-
ment.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.108–7 is amended by:
1. Redesignating paragraphs (d) and (e)
as paragraphs (e) and (f), respectively.
2. Adding new paragraph (d).
3. Adding paragraph (e)Example 5and
Example 6to newly-redesignated para-
graph (e).
4. Revising newly-redesignated para-
graph (f).
The additions and revision read as fol-
lows:
§1.108–7 Reduction of attributes.
*****
(d)Special rules for S corpora-
tions—(1)In general. If an S corporation
excludes COD income from gross income
under section 108(a)(1)(A), (B), or (C),
the amount excluded shall be applied to
reduce the S corporation’s tax attributes
under paragraph (a)(1) of this section.
For purposes of paragraph (a)(1)(i) of
this section, the aggregate amount of the
shareholders’ losses or deductions that
are disallowed for the taxable year of the
discharge under section 1366(d)(1), in-
cluding disallowed losses or deductions
of a shareholder that transfers all of the
shareholder’s stock in the S corporation
during the taxable year of the discharge,
is treated as the net operating loss tax at-
tribute (deemed NOL) of the S corporation
for the taxable year of the discharge.
(2)Allocation of excess losses or de-
ductions—(i)In general. If the amount of
an S corporation’s deemed NOL exceeds
the amount of the S corporation’s COD in-
come that is excluded from gross income
under section 108(a)(1)(A), (B), or (C),
the excess deemed NOL shall be allocated
to the shareholder or shareholders of the
S corporation as a loss or deduction that
is disallowed under section 1366(d) for the
taxable year of the discharge.
(ii)Multiple shareholders—(A)In gen-
eral. If an S corporation has multiple
shareholders, to determine the amount of
the S corporation’s excess deemed NOL
to be allocated to each shareholder under
paragraph (d)(2)(i) of this section, calcu-
late with respect to each shareholder the
shareholder’s excess amount. The share-
holder’s excess amount is the amount (if
any) by which the shareholder’s losses
or deductions disallowed under section
1366(d)(1) (before any reduction under
paragraph (a)(1) of this section) exceed
the amount of COD income that would
have been taken into account by that share-
holder under section 1366(a) had the COD
income not been excluded under section
108(a).
(B)Shareholders with a shareholder’s
excess amount. Each shareholder that has
a shareholder’s excess amount, as deter-
mined under paragraph (d)(2)(ii)(A) of this
section, is allocated an amount equal to
the S corporation’s excess deemed NOL
multiplied by a fraction, the numerator of
which is the shareholder’s excess amount
and the denominator of which is the sum
of all shareholders’ excess amounts.
(C)Shareholders with no shareholder’s
excess amount. If a shareholder does not
have a shareholder’s excess amount as de-
termined in paragraph (d)(2)(ii)(A) of this
section, none of the S corporation’s ex-
cess deemed NOL shall be allocated to that
shareholder.
(iii)Terminating shareholder.Any
amount of the S corporation’s excess
deemed NOL allocated under paragraph
(d)(2) of this section to a shareholder that
had transferred all of the shareholder’s
stockinthecorporationduringthetaxable
year of the discharge is permanently dis-
allowed under §1.1366–2(a)(5), unless the
transfer of stock is described in section
1041(a). If the transfer of stock is de-
scribed in section 1041(a), the amount of
the S corporation’s excess deemed NOL
allocated to the transferor under paragraph
(d)(2) of this section shall be treated as
a loss or deduction incurred by the cor-
poration in the succeeding taxable year
with respect to the transferee. See section
1366(d)(2)(B).
(3)Character of excess losses or de-
ductions allocated to a shareholder.In
determining the character of the amount of
the S corporation’s excess deemed NOL
allocated to a shareholder under para-
graph (d)(2) of this section, any ordinary
loss or deduction that was included in the
shareholder’s aggregate amount of disal-
lowed losses or deductions under section
1366(d)(1) is treated as reduced under
section 108(b) before any section 1231
loss that was included in the shareholder’s
aggregate amount of disallowed losses or
deductions under section 1366(d)(1), and
any section 1231 loss is treated as reduced
under section 108(b) before any capital
loss that was included in the shareholder’s
aggregate amount of disallowed losses or
deductions under section 1366(d)(1).
(4)Information requirements.Ifan
S corporation excludes COD income
from gross income under section 108(a)
for a taxable year, each shareholder of
the S corporation during the taxable
year of the discharge must provide to
the S corporation the amount of the
shareholder’s losses and deductions that
are disallowed for the taxable year of
the discharge under section 1366(d)(1).
The S corporation must provide to each
shareholder the amount of any of the
S corporation’s excess deemed NOL that
is allocated to that shareholder under
paragraph (d)(2) of this section, even if
that amount is zero.
2008–38 I.R.B.747September 22, 2008

(e) * * *
Example 5.(i)Facts. During the entire calen-
dar year 2008, A, B, and C each own equal shares
of stock in X, a calendar year S corporation. As of
December 31, 2008, A, B, and C each have a zero
stock basis and X does not have any indebtedness to
A, B, or C. For the 2008 taxable year, X excludes
from gross income $30,000 of COD income under
section 108(a)(1)(A). The COD income (had it not
been excluded) would have been allocated $10,000
to A, $10,000 to B, and $10,000 to C under section
1366(a). For the 2008 taxable year, X has $30,000 of
losses and deductions that X passes throughpro-rata
to A, B, and C in the amount of $10,000 each. The
losses and deductions that pass through to A, B, and
C are disallowed under section 1366(d)(1). In addi-
tion, B has $10,000 of section 1366(d) losses from
prior years and C has $20,000 from prior years. A’s
($10,000), B’s ($20,000) and C’s ($30,000) combined
$60,000 of disallowed losses and deductions for the
taxable year of the discharge are treated as a current
year net operating loss tax attribute for X under sec-
tion 108(d)(7)(B) (deemed NOL) for purposes of the
section 108(b) reduction of tax attributes.
(ii)Allocation. Under section 108(b)(2)(A),
X’s $30,000 of excluded COD income reduces this
$60,000 deemed NOL to $30,000. Therefore, X
has a $30,000 excess net operating loss (excess
deemed NOL) to allocate to the shareholders. Un-
der paragraph (d)(2)(ii)(C) of this section, none of
the $30,000 excess deemed NOL is allocated to A
because A’s section 1366(d) losses and deductions
immediately prior to the section 108(b)(2)(A) re-
duction ($10,000) do not exceed A’s share of the
excluded COD income for 2008 ($10,000). Thus,
A has no shareholder’s excess amount. Each of B’s
and C’s respective section 1366(d) losses and deduc-
tions immediately prior to the section 108(b)(2)(A)
reduction exceed each of B’s and C’s respective
shares of the excluded COD income for 2008. B’s
excess amount is $10,000 ($20,000 - $10,000) and
C’s excess amount is $20,000 ($30,000 - $10,000).
Therefore, the total of all shareholders’ excess
amounts is $30,000. Under paragraph (d)(2) of this
section, X will allocate $10,000 of the $30,000 excess
deemed NOL to B ($30,000 x $10,000 / $30,000)
and $20,000 of the $30,000 excess deemed NOL to
C ($30,000 x $20,000 / $30,000). These amounts are
treated as losses and deductions disallowed under
section 1366(d)(1) for the taxable year of the dis-
charge. Accordingly, at the beginning of 2009, A has
no section 1366(d)(2) carryovers, B has $10,000 of
carryovers, and C has $20,000 of carryovers.
(iii)Character. Immediately prior to the sec-
tion 108(b)(2)(A) reduction, B’s $20,000 of section
1366(d) losses and deductions consisted of $8,000
of long-term capital losses, $7,000 of section 1231
losses, and $5,000 of ordinary losses. After the sec-
tion 108(b)(2)(A) tax attribute reduction, X will al-
locate $10,000 of the excess deemed NOL to B. Un-
der paragraph (d)(3) of this section, the $5,000 of or-
dinary losses are treated as reduced first, followed
by $5,000 of section 1231 losses. Accordingly, the
$10,000 of losses allocated to B consist of the re-
maining $2,000 of section 1231 losses and $8,000 of
long-term capital losses. As a result, at the beginning
of 2009, B’s $10,000 of section 1366(d)(2) carryovers
include $2,000 of section 1231 losses and $8,000 of
long-term capital losses.
Example 6. (i) A and B each own 50 percent of
the shares of stock in X, a calendar year S corpora-
tion. On June 30, 2008, A sells all of her shares of
stock in X to C in a transfer not described in section
1041(a). For the 2008 taxable year, X excludes
from gross income $12,000 of COD income under
section 108(a)(1)(A). The COD income (had it not
been excluded) would have been allocated $3,000
to A, $6,000 to B, and $3,000 to C under section
1366(a). Prior to the section 108(b)(2)(A) reduction,
for the taxable year of the discharge the shareholders
have disallowed losses and deductions under section
1366(d) (including disallowed losses carried over
to the current year under section 1366(d)(2)) in
the following amounts: A- $9,000, B- $9,000, and
C- $2,000. These combined $20,000 of disallowed
losses and deductions for the taxable year of the
discharge are treated as a current year net operating
loss tax attribute for X under section 108(d)(7)(B)
(deemed NOL).
(ii) Under section 108(b)(2)(A), X’s $12,000 of
excluded COD income reduces the $20,000 deemed
NOL to $8,000. Therefore, X has an $8,000 excess
net operating loss (excess deemed NOL) to allocate
to the shareholders. Under paragraph (d)(2)(ii)(C)
of this section, none of the $8,000 excess deemed
NOL is allocated to C because C’s section 1366(d)
losses and deductions immediately prior to the sec-
tion 108(b)(2)(A) reduction ($2,000) do not exceed
C’s share of the excluded COD income for 2008
($3,000). However, each of A’s and B’s respective
section 1366(d) losses and deductions immediately
prior to the section 108(b)(2)(A) reduction exceed
each of A’s and B’s respective shares of the excluded
COD income for 2008. A’s excess amount is $6,000
($9,000 - $3,000) and B’s excess amount is $3,000
($9,000 - $6,000). Therefore, the total of all share-
holders’ excess amounts is $9,000. Under paragraph
(d)(2) of this section, X will allocate $5,333 of the
$8,000 excess deemed NOL to A ($8,000 x $6,000
/ $9,000) and $2,667 of the $8,000 excess deemed
NOL to B ($8,000 x $3,000 / $9,000). However,
because A transferred all of her shares of stock in X
in a transaction not described in section 1041(a), A’s
$5,333 of section 1366(d) losses and deductions are
permanently disallowed under paragraph (d)(2)(iii)
of this section. Accordingly, at the beginning of
2009, B has $2,667 of section 1366(d)(2) carryovers
and C has no section 1366(d)(2) carryovers.
(f)Effective/applicability date—(1)
Paragraphs (a), (b), (c), andExamples 1,
2,3,and4of paragraph (e) of this section
apply to discharges of indebtedness occur-
ring on or after May 10, 2004.
(2) Paragraph (d) andExamples 5and
6of paragraph (e) of this section apply
to discharges of indebtedness occurring on
or after the date that these regulations are
published as final regulations in theFed-
eral Register.
Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on August 5,
2008, 8:45 a.m., and published in the issue of the Federal
Register for August 6, 2008, 73 F.R. 45656)
Change in Method of
Accounting
Announcement 2008–84
On August 18, 2008, the Internal Rev-
enue Service (Service) released Rev. Proc.
2008–52, 2008–36 I.R.B. 587, relating
to the automatic consent procedures by
which taxpayers may obtain the Com-
missioner’s consent to make changes in
methods of accounting that are described
in the revenue procedure’s APPENDIX.
Rev. Proc. 2008–52 clarified, modified,
amplified, and superseded Rev. Proc.
2002–9, 2002–1 C.B. 327, as modified
and clarified by Announcement 2002–17,
2002–1 C.B. 561, modified and amplified
by Rev. Proc. 2002–19, 2002–1 C.B. 696,
and amplified, clarified, and modified by
Rev. Proc. 2002–54, 2002–2 C.B. 432.
The automatic consent procedures of
Rev. Proc. 2008–52 are generally effec-
tive as of August 18, 2008. Any applica-
tion to change a method of accounting sub-
ject to the automatic consent procedures
that is to be filed by a taxpayer on or af-
ter August 18, 2008, for a year of change
ending on or after December 31, 2007, is
required to be filed using the provisions of
Rev. Proc. 2008–52.
The Service recently became aware that
theAugust18,2008effectivedateofRev.
Proc. 2008–52 presented an administra-
tive burden to some taxpayers. In order
to ameliorate any burden, the Service has
determined that taxpayers should be al-
lowed to elect to apply the procedures of
Rev. Proc. 2002–9 through September 15,
2008, subject to certain limitations.
Accordingly, section 12.02 of Rev.
Proc. 2008–52 is modified by revising
the introductory language of section 12.02
and adding a new paragraph (3). These
changes read as follows:
.02Transition rules. The following
transition rules apply:
***
(3)No application filed by August 18,
2008.
(a)General rule.If, prior to August 18,
2008, a taxpayer has not filed an applica-
tion requesting consent to change a par-
September 22, 20087482008–38 I.R.B.

ticular method of accounting for its first
taxable year ending on or before July 31,
2008, the taxpayer may elect to apply the
provisions of Rev. Proc. 2002–9 with
respect to such method of accounting for
such taxable year. For taxpayers making
such election, the timely duplicate filing
requirement of section 6.02(3)(a) of Rev.
Proc. 2002–9 is modified to require the
copy of the application to be submitted to
theNationalOfficeonorbeforeSeptem-
ber 15, 2008.
(b)Exception for changes from a hybrid
method.As of August 18, 2008, a taxpayer
may not apply the provisions of Rev. Proc.
2002–9 with respect to a change described
in section 5.01 of the APPENDIX to Rev.
Proc. 2002–9 if such change is not also
described in either section 14.01 or 14.09
of the APPENDIX to this revenue proce-
dure. Notwithstanding section 5.01(1)(a)
of Rev. Proc. 97–27, the Service will treat
as timely filed under Rev. Proc. 97–27 any
Form 3115 requesting consent to a change
in method of accounting that is described
in section 5.01 of the APPENDIX to Rev.
Proc. 2002–9 but is not described in either
section 14.01 or 14.09 of the APPENDIX
to this revenue procedure for a taxpayer’s
first taxable year ending on or before July
31, 2008 if it is filed on or before Septem-
ber 15, 2008.
The final revenue procedure appears
in this Internal Revenue Bulletin as Rev.
Proc. 2008–52.
The authors of this announcement
are Kari Fisher, Karla Meola, and
Cheryl Oseekey of the Office of the
Associate Chief Counsel (Income Tax
& Accounting). For further information
regarding this announcement, contact
Ms. Fisher or Ms. Oseekey at (202)
622–4970 or Ms. Meola at (202)
622–4930.
Notice of Disposition of
Declaratory Judgment
Proceedings Under Section
7428
Announcement 2008–85
This announcement serves notice to
donors that on August 13, 2008, the United
States Tax Court entered a stipulated de-
cision that the organization listed below is
recognized as an organization described in
section 501(c)(3), is exempt from tax un-
der section 501(a), and is an organization
described in section 170(c)(2).
Families on the Move, Inc.
New Brunswick, NJ
2008–38 I.R.B.749September 22, 2008

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cases
in litigation, or the outcome of a Service
study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
September 22, 2008i2008–38 I.R.B.

Numerical Finding List
1
Bulletins 2008–27 through 2008–38
Announcements:
2008-62, 2008-27 I.R.B.74
2008-63, 2008-28 I.R.B.114
2008-64, 2008-28 I.R.B.114
2008-65, 2008-31 I.R.B.279
2008-66, 2008-29 I.R.B.164
2008-67, 2008-29 I.R.B.164
2008-68, 2008-30 I.R.B.244
2008-69, 2008-32 I.R.B.318
2008-70, 2008-32 I.R.B.318
2008-71, 2008-32 I.R.B.321
2008-72, 2008-32 I.R.B.321
2008-73, 2008-33 I.R.B.391
2008-74, 2008-33 I.R.B.392
2008-75, 2008-33 I.R.B.392
2008-76, 2008-33 I.R.B.393
2008-77, 2008-33 I.R.B.394
2008-78, 2008-34 I.R.B.453
2008-79, 2008-35 I.R.B.568
2008-80, 2008-37 I.R.B.706
2008-81, 2008-37 I.R.B.706
2008-82, 2008-37 I.R.B.708
2008-83, 2008-37 I.R.B.709
2008-84, 2008-38 I.R.B.748
2008-85, 2008-38 I.R.B.749
Notices:
2008-55, 2008-27 I.R.B.11
2008-56, 2008-28 I.R.B.79
2008-57, 2008-28 I.R.B.80
2008-58, 2008-28 I.R.B.81
2008-59, 2008-29 I.R.B.123
2008-60, 2008-30 I.R.B.178
2008-61, 2008-30 I.R.B.180
2008-62, 2008-29 I.R.B.130
2008-63, 2008-31 I.R.B.261
2008-64, 2008-31 I.R.B.268
2008-65, 2008-30 I.R.B.182
2008-66, 2008-31 I.R.B.270
2008-67, 2008-32 I.R.B.307
2008-68, 2008-34 I.R.B.418
2008-69, 2008-34 I.R.B.419
2008-70, 2008-36 I.R.B.575
2008-71, 2008-35 I.R.B.462
2008-73, 2008-38 I.R.B.717
2008-74, 2008-38 I.R.B.718
2008-75, 2008-38 I.R.B.719
Proposed Regulations:
REG-161695-04, 2008-37 I.R.B.699
REG-164965-04, 2008-34 I.R.B.450
REG-143453-05, 2008-32 I.R.B.310
Proposed Regulations— Continued:
REG-146895-05, 2008-37 I.R.B.700
REG-155087-05, 2008-38 I.R.B.726
REG-142680-06, 2008-35 I.R.B.565
REG-120476-07, 2008-36 I.R.B.679
REG-129243-07, 2008-27 I.R.B.32
REG-138355-07, 2008-32 I.R.B.311
REG-142040-07, 2008-34 I.R.B.451
REG-149405-07, 2008-27 I.R.B.73
REG-100464-08, 2008-32 I.R.B.313
REG-101258-08, 2008-28 I.R.B.111
REG-102122-08, 2008-31 I.R.B.278
REG-102822-08, 2008-38 I.R.B.744
REG-103146-08, 2008-37 I.R.B.701
REG-115457-08, 2008-33 I.R.B.390
REG-121698-08, 2008-29 I.R.B.163
Revenue Procedures:
2008-32, 2008-28 I.R.B.82
2008-33, 2008-28 I.R.B.93
2008-34, 2008-27 I.R.B.13
2008-35, 2008-29 I.R.B.132
2008-36, 2008-33 I.R.B.340
2008-37, 2008-29 I.R.B.137
2008-38, 2008-29 I.R.B.139
2008-39, 2008-29 I.R.B.143
2008-40, 2008-29 I.R.B.151
2008-41, 2008-29 I.R.B.155
2008-42, 2008-29 I.R.B.160
2008-43, 2008-30 I.R.B.186
2008-44, 2008-30 I.R.B.187
2008-45, 2008-30 I.R.B.224
2008-46, 2008-30 I.R.B.238
2008-47, 2008-31 I.R.B.272
2008-48, 2008-36 I.R.B.586
2008-49, 2008-34 I.R.B.423
2008-50, 2008-35 I.R.B.464
2008-51, 2008-35 I.R.B.562
2008-52, 2008-36 I.R.B.587
2008-53, 2008-36 I.R.B.678
2008-54, 2008-38 I.R.B.722
Revenue Rulings:
2008-32, 2008-27 I.R.B.6
2008-33, 2008-27 I.R.B.8
2008-34, 2008-28 I.R.B.76
2008-35, 2008-29 I.R.B.116
2008-36, 2008-30 I.R.B.165
2008-37, 2008-28 I.R.B.77
2008-38, 2008-31 I.R.B.249
2008-39, 2008-31 I.R.B.252
2008-40, 2008-30 I.R.B.166
2008-41, 2008-30 I.R.B.170
2008-42, 2008-30 I.R.B.175
2008-43, 2008-31 I.R.B.258
2008-44, 2008-32 I.R.B.292
Revenue Rulings— Continued:
2008-45, 2008-34 I.R.B.403
2008-46, 2008-36 I.R.B.572
2008-48, 2008-38 I.R.B.713
Treasury Decisions:
9401, 2008-27 I.R.B.1
9402, 2008-31 I.R.B.254
9403, 2008-32 I.R.B.285
9404, 2008-32 I.R.B.280
9405, 2008-32 I.R.B.293
9406, 2008-32 I.R.B.287
9407, 2008-33 I.R.B.330
9408, 2008-33 I.R.B.323
9409, 2008-29 I.R.B.118
9410, 2008-34 I.R.B.414
9411, 2008-34 I.R.B.398
9412, 2008-37 I.R.B.687
9413, 2008-34 I.R.B.404
9414, 2008-35 I.R.B.454
9415, 2008-36 I.R.B.570
9417, 2008-37 I.R.B.693
9418, 2008-38 I.R.B.713
1
A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2008–1 through 2008–26 is in Internal Revenue Bulletin
2008–26, dated June 30, 2008.
2008–38 I.R.B.iiSeptember 22, 2008

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2008–27 through 2008–38
Announcements:
2008-64
Corrected by
Ann. 2008-71, 2008-32 I.R.B.321
2008-72
Corrected by
Ann. 2008-78, 2008-34 I.R.B.453
Notices:
2007-36
Clarified, modified, and amplified by
Rev. Proc. 2008-54, 2008-38 I.R.B.722
99-48
Superseded by
Rev. Proc. 2008-40, 2008-29 I.R.B.151
2000-9
Obsoleted by
Rev. Proc. 2008-41, 2008-29 I.R.B.155
2004-2
Amplified by
Notice 2008-59, 2008-29 I.R.B.123
2004-50
Amplified by
Notice 2008-59, 2008-29 I.R.B.123
2006-88
Modified and superseded by
Notice 2008-60, 2008-30 I.R.B.178
2007-22
Amplified by
Notice 2008-59, 2008-29 I.R.B.123
Proposed Regulations:
REG-129243-07
Corrected by
Ann. 2008-75, 2008-33 I.R.B.392
REG-151135-07
Hearing scheduled by
Ann. 2008-64, 2008-28 I.R.B.114
REG-101258-08
Corrected by
Ann. 2008-73, 2008-33 I.R.B.391
Revenue Procedures:
92-25
Superseded by
Rev. Proc. 2008-41, 2008-29 I.R.B.155
92-83
Obsoleted by
Rev. Proc. 2008-37, 2008-29 I.R.B.137
Revenue Procedures— Continued:
2001-10
Section 6.02(1)(a) modified and amplified by
Rev. Proc. 2008-52, 2008-36 I.R.B.587
2001-42
Superseded by
Rev. Proc. 2008-39, 2008-29 I.R.B.143
2002-9
Clarified, modified, amplified, and superseded by
Rev. Proc. 2008-52, 2008-36 I.R.B.587
Modified and amplified by
Rev. Proc. 2008-43, 2008-30 I.R.B.186
2002-28
Section 7.02(1)(a) modified and amplified by
Rev. Proc. 2008-52, 2008-36 I.R.B.587
2005-29
Superseded by
Rev. Proc. 2008-49, 2008-34 I.R.B.423
2006-27
Modified and superseded by
Rev. Proc. 2008-50, 2008-35 I.R.B.464
2006-29
Superseded by
Rev. Proc. 2008-34, 2008-27 I.R.B.13
2006-34
Superseded by
Rev. Proc. 2008-44, 2008-30 I.R.B.187
2007-14
Superseded by
Rev. Proc. 2008-52, 2008-36 I.R.B.587
2007-19
Superseded by
Rev. Proc. 2008-39, 2008-29 I.R.B.143
2007-42
Superseded by
Rev. Proc. 2008-32, 2008-28 I.R.B.82
2007-43
Superseded by
Rev. Proc. 2008-33, 2008-28 I.R.B.93
2007-49
Section 3 modified and superseded by
Rev. Proc. 2008-50, 2008-35 I.R.B.464
2007-50
Superseded by
Rev. Proc. 2008-36, 2008-33 I.R.B.340
2007-66
Modified and superseded by
Rev. Proc. 2008-54, 2008-38 I.R.B.722
2007-70
Modified by
Ann. 2008-63, 2008-28 I.R.B.114
Revenue Procedures— Continued:
2007-72
Amplified and superseded by
Rev. Proc. 2008-47, 2008-31 I.R.B.272
2008-12
Modified and superseded by
Rev. Proc. 2008-35, 2008-29 I.R.B.132
2008-43
Modified by
Rev. Proc. 2008-52, 2008-36 I.R.B.587
2008-52
Modified by
Ann. 2008-84, 2008-38 I.R.B.748
Revenue Rulings:
67-213
Amplified by
Rev. Rul. 2008-40, 2008-30 I.R.B.166
71-234
Modified by
Rev. Proc. 2008-43, 2008-30 I.R.B.186
76-273
Obsoleted by
T.D. 9414, 2008-35 I.R.B.454
77-480
Modified by
Rev. Proc. 2008-43, 2008-30 I.R.B.186
82-105
Obsoleted by
T.D. 9414, 2008-35 I.R.B.454
91-17
Amplified by
Rev. Proc. 2008-41, 2008-29 I.R.B.155
Rev. Proc. 2008-42, 2008-29 I.R.B.160
Superseded in part by
Rev. Proc. 2008-40, 2008-29 I.R.B.151
2005-6
Amplified by
Rev. Proc. 2008-38, 2008-29 I.R.B.139
2006-57
Modified by
Notice 2008-74, 2008-38 I.R.B.718
2008-12
Amplified by
Rev. Rul. 2008-38, 2008-31 I.R.B.249
Clarified by
Ann. 2008-65, 2008-31 I.R.B.279
Treasury Decisions:
9391
Corrected by
Ann. 2008-74, 2008-33 I.R.B.392
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2008–1 through 2008–26 is in Internal Revenue Bulletin 2008–26, dated June 30, 2008.
September 22, 2008iii2008–38 I.R.B.

2008–38 I.R.B.September 22, 2008

September 22, 20082008–38 I.R.B.

INTERNAL REVENUE BULLETIN
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