Internal Revenue Bulletin 2009-36 (PDF rendition): IRS Revenue Rulings

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing. Whole bulletin rendition: numbered items are identified below; other legal material and publisher context remain included. This is not a new standalone advance release.

Bulletin No. 200
9-36
September 8, 200
9
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. 2009–24, page 306.
Section 1256 contracts marked to market.This ruling
holds that ICE Futures Canada, Inc., which is a regulated ex-
change of Canada, is a qualified board or exchange within the
meaning of section 1256(g)(7)(C) of the Code.
Notice 2009–64, page 307.
This notice proposes a revenue ruling that would hold that tan-
gible assets used in converting corn to fuel grade ethanol are
properly included in asset class 49.5 of Rev. Proc. 87–56 for
depreciation purposes. Comments are requested by Novem-
ber 23, 2009.
Rev. Proc. 2009–37, page 309.
This procedure provides guidance to taxpayers on electing to
defer recognizing cancellation of indebtedness income under
section 108(i) of the Code and section 1231 of the American
Recovery and Reinvestment Tax Act of 2009.
EXEMPT ORGANIZATIONS
Announcement 2009–64, page 319.
The IRS has revoked its determination that HFZ Charitable
Supporting Organization of Santa Barbara, CA; Main Homes
Community Development Corporation of Columbus, OH; North
American Housing Foundation of Spokane, WA; and The
Valcarce Foundation of Bountiful, UT, qualify as organizations
described in sections 501(c)(3) and 170(c)(2) of the Code.
Announcements of Disbarments and Suspensions begin on page 319.
Finding Lists begin on page ii.

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.
September 8, 20092009–36 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 1256.
—Section
1256 Contract
sMarked
to Market
(Also: §§ 446, 481, 7805; 1.446–1, 301.7805–1.)
Section 1256 contracts marked to
market.This ruling holds that ICE Fu-
tures Canada, Inc., which is a regulated
exchange of Canada, is a qualified board
or exchange within the meaning of section
1256(g)(7)(C) of the Code.
Rev. Rul. 2009–24
ISSUE
Is ICE Futures Canada, Inc., which
is a commodity futures exchange and
a self-regulatory organization of Mani-
toba, Canada, a qualified board or ex-
change within the meaning of section
1256(g)(7)(C) of the Internal Revenue
Code?
LAW AND ANALYSIS
Section 12
56(g)(7) provides that the
term “qual
ified board or exchange” means:
(A) a natio
nal securities exchange
which is re
gistered with the Securities and
Exchange C
ommission,
(B) a domestic
board of trade desig-
nated as a cont
ract market by the Com-
modity Future
s Trading Commission, or
(C) any other e
xchange, board of trade,
or other marke
t which the Secretary deter-
mines has rul
es adequate to carry out the
purposes of s
ection 1256.
HOLDING
The Internal
Revenue Service deter-
mines that IC
E Futures Canada, Inc.,
which is a re
gulated exchange of Canada,
is a qualifi
ed board or exchange within the
meaning of s
ection 1256(g)(7)(C).
EFFECTIVE D
ATE
Under the au
thority of section
7805(b)(8)
of the Code, this revenue rul-
ing is effec
tive for ICE Futures Canada
Contracts
(commodity futures contracts
and future
s contract options) entered into
on or after
October 1, 2009.
CHANGE IN M
ETHOD OF
ACCOUNTIN
G
A change in
the treatment of ICE Fu-
tures Cana
da Contracts to comply with
this reve
nue ruling is a change in method
of accoun
ting within the meaning of sec-
tions 446 and 4
81 and the regulations
thereunder. T
he Commissioner grants
consent to tax
payers to change to the
section 1256
mark to market method for
the first tax
able year during which the
taxpayer hol
ds an ICE Futures Canada
Contract tha
twasenteredintoonorafter
October 1, 2
009. Such a taxpayer need not
file a Form 3
115,Application for Change
in Accounti
ng Method, and ICE Futures
Canada Cont
racts that were entered into
before Octo
ber 1, 2009 will not be cov-
ered by the
change in method for which
consent is
granted. Because the change
is being ma
de on a “cut-off” basis, there
is no poten
tial omission or duplication of
income or
deductions, and therefore no
adjustme
nt under section 481 is required.
DRAFTING
INFORMATION
The princ
ipal author of this revenue rul-
ing is And
rea Hoffenson of the Office of
Associat
e Chief Counsel (Financial Insti-
tutions &
Products). For further informa-
tion reg
arding this revenue ruling, contact
Andrea H
offenson at (202) 622–3930 (not
atoll-f
ree call).
2009–36 I.R.B.306September 8, 2009

Part III. Administrative, Procedural, and Miscellaneous
Proposed Revenue Ruling
Regarding Depreciation of
Ethanol Plants
Notice 2009–64
This notice provides a proposed rev-
enue ruling concerningthe depreciation of
tangible assets that are used in converting
corn to fuel grade ethanol.
The proposed revenue ruling concludes
that the appropriate depreciation classifi-
cation for these assets is asset class 49.5,
Waste Reduction and Resource Recov-
ery Plants, of Rev. Proc. 87–56, 1987–2
C.B. 674, as clarified and modified by
Rev. Proc. 88–22, 1988–1 C.B. 785, for
purposes of determining depreciation un-
der § 168 of the Internal Revenue Code.
This conclusion is based on the asset class
description, the applicable definition of
biomass, and the fact that conversion of
biomass into a liquid fuel is the primary
business activity and use of the facility.
It is expected that this depreciation clas-
sification would apply to assets placed in
service on or after the publication of a final
revenue ruling. Consequently, the Internal
Revenue Service will not require taxpay-
ers to adopt this depreciation classification
for tangible assets used in converting
biomass to a liquid fuel such as fuel grade
ethanol that are placed in service prior to
the publication of a final revenue ruling.
The Service and Treasury Department
request public comments regarding the
proposed revenue ruling. A final rev-
enue ruling will not be issued until the
comments have been considered. All
comments will be available for public in-
spection and copying.
Comments must be submitted in writ-
ing on or before November 23, 2009,
and should include a reference to Notice
2009–64. Submissions should be sent to:
Internal Revenue Service
Attn: CC:PA:LPD:PR
(Notice 2009–64), Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044
Submissions also may be hand de-
livered Monday through Friday be-
tween the hours of 8 a.m. and 4 p.m.
to: CC:PA:LPD:PR (Notice 2009–64),
Courier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, N.W., Wash-
ington, DC. Alternatively, comments may
be submitted electronically directly to the
Service via the following e-mail address:
Notice.comments@irscounsel.treas.gov.
Please include “Notice 2009–64” in the
subject line of any electronic communica-
tion.
PROPOSED REVENUE RULING
Rev.
Rul. [XXXX–XX]
ISSUE
What is the proper asset class under
Rev. Proc. 87–56, 1987–2 C.B. 674,
as clarified and modified by Rev. Proc.
88–22, 1988–1 C.B. 785, for the deprecia-
tion of tangible assets that are used in con-
vertingcorntofuelgradeethanol?
FAC
TS
Taxpayer owns a facility operated pri-
marily to produce fuel grade ethanol.
Ethanol is a colorless, flammable liquid
that is an organic chemical, and a high
octane alternative fuel source. Taxpayer
produces ethanol by fermenting starch
from corn.
Taxpayer uses a dry milling process
to produce fuel grade ethanol. Taxpayer
grinds the corn into flour, mixes the re-
sulting corn flour with water, increases the
temperature, and adds enzymes to convert
the starch in the solution to simple sugars.
Taxpayer feeds the resulting mash (water,
sugars and non-convertible solids) into
fermentation tanks where yeast is added.
Over a period of several days the yeast
metabolizes the sugars into ethanol and
carbon dioxide (CO
2
). The CO
2
produced
during fermentation may be collected,
compressed, and sold as a by-product.
Taxpayer then sends the solution to dis-
tillation columns to separate the ethanol
from the solids and water. After distilla-
tion, part of the output is further processed
by dehydration to increase alcohol content
by using molecular sieves that separate
the remaining water molecules from the
ethanol. Once the dehydration is complete,
the fuel grade ethanol is blended with 2 to
5 percent denaturant (such as natural gaso-
line or unleaded gasoline) and sent to stor-
age pending sale.
Taxpayer also processes the solids and
other liquids derived from the distillation
to produce and sell distillers grains, an an-
imal feed supplement. More than 50 per-
cent of the economic output at Taxpayer’s
facility is from fuel grade ethanol produc-
tion.
LAW
Statutory Scheme
Section 167(a) of the Internal Revenue
Code provides that there shall be allowed
as a depreciation deduction a reasonable
allowance for the exhaustion and wear and
tear of property used in a trade or business
or held for the production of income.
The depreciation deduction provided by
§ 167(a) for tangible property placed in
service after 1986 generally is determined
under § 168, which prescribes two meth-
ods of accounting for determining depre-
ciation allowances: (1) the general depre-
ciation system in § 168(a); and (2) the al-
ternative depreciation system in § 168(g).
Under either depreciation system, the de-
preciation deduction is computed by using
a prescribed depreciation method, recov-
ery period, and convention.
The applicable recovery period for pur-
poses of either § 168(a) or § 168(g) is de-
termined by reference to class life or by
statute. Section 168(i)(1) provides that the
term “class life” means the class life (if
any) that would apply to any property as
of January 1, 1986, under former § 167(m)
as if it were in effect and the taxpayer had
made an election under that section. Prior
to its revocation, § 167(m) provided that
if a taxpayer elected the asset depreciation
range system of depreciation, the depreci-
ation deduction would be computed based
on the class life prescribed by the Secre-
tary that reasonably reflected the antici-
pated useful life of that class of property
to the industry or other group.
Primary Use Test
Section 1.167(a)–11(b)(4)(iii)(b)ofthe
Income Tax Regulations provides rules
for classifying property under former
§ 167(m) and, under these rules, property
September 8, 20093072009–36 I.R.B.

is included in the asset class for the ac-
tivity for which the property is primarily
used (the “primary use” test). Property
is classified according to its primary use
even though the activity for which the
property is primarily used is insubstantial
in relation to all the activities of the tax-
payer.
Recent appellate decisions discuss the
“primary use” standard for asset classi-
fication under § 1.167(a)–11(b)(4)(iii)(b).
See,e.g.,Clajon Gas Co, L.P. v. Com-
missioner, 354 F.3d 786 (8
th
Cir. 2004).
Courts have concluded that the actual pur-
pose and function of an asset determines
its asset class (a use-driven functional stan-
dard) rather than the terminology used to
describe an asset by its owners or others.
Asset Classes
Rev. Proc. 87–56 sets forth the class
lives of property that are necessary to
compute the depreciation allowance under
§ 168. This revenue procedure establishes
two broad categories of depreciable as-
sets: (1) asset classes 00.11 through 00.4,
which consist of specific assets used in
all business activities (asset categories);
and (2) asset classes 01.1 through 80.0,
which consist of assets used in specific
business activities (activity categories).
The same item of depreciable property
maybeclassifiedinbothanassetcategory
and an activity category, in which case
the item is generally classified in the asset
category.See Norwest Corporation &
Subsidiaries v. Commissioner,111T.C.
105, 162 (1998).
Asset class 49.5 of Rev. Proc. 87–56,
Waste Reduction and Resource Recovery
Plants, includes assets used in the con-
version of refuse or other solid waste or
biomass to heat or to a solid, liquid, or
gaseous fuel. This asset class also includes
all process plant equipment and structures
at the site used to (1) receive, handle, col-
lect, and process refuse or other solid waste
or biomass to a solid, liquid, or gaseous
fuel or (2) handle and burn refuse or other
solid waste or biomass in a waterwall com-
bustion system, oil or gas pyrolysis sys-
tem, or refuse derived fuel system to create
hot water, gas, steam, or electricity. Asset
class 49.5 also includes material recovery
and support assets used in refuse or solid
refuse or solid waste receiving, collecting,
handling, sorting, shredding, classifying,
and separation systems. Asset class 49.5
does not include any package boilers, or
electric generators and related assets such
as electricity, hot water, steam and man-
ufactured gas production plants classified
in classes 00.4, 49.13, 49.221 and 49.4 of
Rev. Proc. 87–56. Asset class 49.5 in-
cludes, however, all other utilities such as
water supply and treatment facilities, ash
handling and other related land improve-
ments of a waste reduction and resource
recovery plant. Assets in class 49.5 have
a recovery period of 7 years for purposes
of § 168(a) and 10 years for purposes of
§ 168(g).
Asset class 28.0 of Rev. Proc. 87–56,
Manufacture of Chemicals and Allied
Products, includes assets used to manu-
facture basic organic and inorganic chem-
icals; chemical products to be used in
further manufacture,such as synthetic
fibers and plastics materials; and finished
chemical products. This asset class also
includes, among other things, all land
improvements associated with plant site
or production processes, such as effluent
ponds and canals, provided such land im-
provements are depreciable but does not
include buildings and structural compo-
nents as defined in § 1.48–1(e). Asset
class 28.0 does not include assets used in
the manufacture of finished rubber and
plastic products or in the production of
natural gas products, butane, propane,
and by-products of natural gas produc-
tion plants. Assets in class 28.0 have a
recovery period of 5 years for purposes
of § 168(a) and 9.5 years for purposes of
§ 168(g).
Rev. Rul. 77–63, 1977–1 C.B. 60,
addresses the question of whether assets
used to produce alumina are classified in
asset class 33.2, Manufacture of Primary
Nonferrous Metals, despite the fact that
production used chemical processes. The
chemical processes were part of the tax-
payer’s overall process of producing semi-
finished and finished aluminum products
from bauxite ore that the taxpayer mined.
Asset class 33.2 includes assets used in the
smelting, refining, and electrolysis of non-
ferrous metals from ore. Rev. Rul. 77–63
concludes that the chemical processes used
to produce the alumina were an integral
part of refining of the nonferrous metal and
further concludes that all of the assets used
in the processing of the bauxite ore into
primary aluminum (basic metal), includ-
ing those used in the chemical processes
to produce alumina, are classified in asset
class 33.2. However, the revenue ruling
provides that assets used to process the alu-
mina for use in activities other than those
required to produce the basic metal should
be classified in other asset classes.
ANALYSIS
Asset class 49.5 specifically applies to
assets used in the conversion of biomass to
a liquid fuel. For purposes of asset class
49.5, the term “biomass” means any or-
ganic substance other than oil, natural gas,
or coal, or product of oil or natural gas or
coal. This definition of biomass is consis-
tent with the definition in the energy credit
provisions that were enacted near the time
asset class 49.5 was first established in
1979 by Rev. Proc. 79–26, 1979–1 C.B.
566.See§ 48(l)(15)(B)(i), (l)(3)(B) as in
effect on the day before the date of enact-
ment [11/5/90] of the Revenue Reconcili-
ation Act of 1990, Pub. L. 101–508. The
depreciation and the energy credit provi-
sions are both based on cost recovery con-
cepts.
The corn used in Taxpayer’s facility
is biomass, that is, an organic substance
other than oil, natural gas, coal, or a
product thereof. Likewise, the fuel grade
ethanol produced from corn (biomass) at
Taxpayer’s facility is liquid fuel for pur-
poses of asset class 49.5.
Asset class 28.0 of Rev. Proc. 87–56,
which includes assets used to manufacture
basic chemicals, is not the appropriate as-
set class for Taxpayer’s depreciable tangi-
ble assets that are used in converting corn
to fuel grade ethanol, even though ethanol
is an organic chemical. The individual, in-
termediate processes within Taxpayer’s fa-
cility, particularly distillation and dehydra-
tion, may be similar or identical to the pro-
cessing steps that take place in the manu-
facture of chemicals. However, the mere
use of a chemical process in the produc-
tion of a product does not require an activ-
ity to be classified as chemical manufac-
turing. In Rev. Rul. 77–63, producing
alumina by a chemical reaction as a step
in the nonferrous metal refining process
did not preclude classification in the asset
class that specifically applies to manufac-
turing primary nonferrous metals. Simi-
larly, converting corn, a biomass, to fuel
grade ethanol, a liquid fuel, by chemical
2009–36 I.R.B.308September 8, 2009

processes does not preclude classification
in the asset class that specifically applies
to the conversion of biomass to fuel.
Further, Taxpayer is primarily en-
gaged in producing fuel grade ethanol
(liquid fuel) from corn (biomass) at this
facility. Under the “primary use” test of
§ 1.167(a)–11(b)(4)(iii)(b), Taxpayer’s
activity is described in asset class 49.5.
HOLDING
The proper asset class under Rev. Proc.
87–56 for depreciation of tangible as-
sets used in converting corn to fuel grade
ethanol is asset class 49.5 (other than
§ 1250 property not described in asset
class 49.5 and assets classified in asset
classes 00.11 through 00.4 of Rev. Proc.
87–56).
PROSPECTIVE APPLICATION
Pursuant to § 7805(b)(8), the Internal
Revenue Service will not apply the hold-
ing in this revenue ruling to tangible assets
that are used in converting biomass to a liq-
uid fuel such as fuel grade ethanol that a
taxpayer places in service before [INSERT
PUBLICATION DATE OF FINAL REV-
ENUE RULING].
DRAFTING INFORMATION
The principal author of this notice is
Ruba Nasrallah of the Office of the As-
sociate Chief Counsel (Income Tax & Ac-
counting). For further information regard-
ing this notice, contact Ms. Nasrallah at
(202) 622–4930 (not a toll-free call).
26 CFR 601.105: Examination of returns and claims
for refund, credit or abatement; determination of cor-
rect tax liability.
(AlsoPartI,§108.)
Rev. Proc. 2009–37
SECTION 1. PURPOSE
.01 This revenue procedure provides
the exclusive procedures for taxpayers to
make an election to defer recognizing dis-
charge of indebtedness income (“COD in-
come”) under § 108(i)of the Internal Rev-
enue Code.
.02 This revenue procedure also re-
quires taxpayers making the § 108(i)
election to provide additional information
on returns beginning with the taxable year
following the taxable year for which the
taxpayer makes the election. This revenue
procedure describes the time and manner
of providing this additional information.
.03 The Internal Revenue Service and
Treasury Department intend to issue ad-
ditional guidance under § 108(i) that may
include regulations addressing matters in
this revenue procedure. Taxpayers should
be aware that these regulations may be
retroactive. See § 7805(b)(2). This rev-
enue procedure may be modified to pro-
vide procedures consistent with additional
guidance.
SECTION 2. BACKGROUND
.01Section 108(i), Generally.Sec-
tion 108(i) was added to the Code by
§ 1231 of the American Recovery and
Reinvestment Tax Act of 2009, Pub. L.
No. 111–5, 123 Stat. 338. In general,
§ 108(i) provides that, at the election
of a taxpayer, COD income realized in
connection with a reacquisition after
December 31, 2008, and before January
1, 2011, of an applicable debt instrument
is includible in gross income ratably
over a 5-taxable-year inclusion period,
beginning with the taxpayer’s fourth or
fifth taxable year following the taxable
year of the reacquisition. Generally, if a
taxpayer makes a § 108(i) election and
reacquires (or is treated as reacquiring) the
applicable debt instrument generating the
COD income for a new debt instrument
with original issue discount (“OID”),
then interest deductions for this OID also
are deferred, as provided in § 108(i)(2).
The OID deferral rule, however, does
not apply if the amount of OID is less
than ade minimisamount, as determined
under § 1273(a)(3) and § 1.1273–1(d) of
the Income Tax Regulations. The OID
deferral rule in § 108(i)(2) applies at the
entity level for a pass-through entity. For
example, a partnership (and therefore its
partners) may not deduct currently the OID
described in § 108(i)(2)(A)(i). A taxpayer
must take into account any item of income
or deduction deferred under § 108(i),
and not previously taken into account,
in the taxable year in which certain
events occur (suchas the liquidation
of the taxpayer and upon other events
specified in administrative guidance).
See § 108(i)(5)(D). The rule regarding
acceleration of deferred COD income and
OID deductions also applies in the case
of certain dispositions by persons holding
ownership interests in pass-through
entities. Section 108(i)(5)(D)(ii). For
purposes of § 108(i), regulated investment
companies (as defined in § 851(a)) and
real estate investment trusts (as defined in
§ 856(a)) are not pass-through entities.
.02Applicable Debt Instrument.Sec-
tion 108(i)(3)(A) defines the term “appli-
cable debt instrument” to mean any debt
instrument issued by a C corporation or
by any other person in connection with
the conduct of a trade or business by that
person. The term “debt instrument” means
any bond, debenture,note, certificate,
or any other instrument or contractual
arrangement constituting indebtedness
within the meaning of § 1275(a)(1). Sec-
tion 108(i)(3)(B). For purposes of § 108(i),
in the case of an intercompany obligation
(as defined in § 1.1502–13(g)(2)(ii)), an
applicable debt instrument includes only
an instrument for which COD income is
realized upon the instrument’s deemed
satisfaction under § 1.1502–13(g)(5).
.03Reacquisition.Section 108(i)(4)(A)
defines the term “reacquisition” to mean,
with respect to any applicable debt instru-
ment, any acquisition of the debt instru-
ment by the debtor that issued (or is oth-
erwise the obligor under) the debt instru-
ment, or a person related to the debtor
under § 108(e)(4). The term “acquisi-
tion” includes an acquisition of the debt
instrument for cash or other property, the
exchange of the debt instrument for an-
other debt instrument (including an ex-
change resulting from a modification of
the debt instrument), the exchange of the
debt instrument for corporate stock or a
partnership interest, the contribution of the
debt instrument to capital, and the com-
plete forgiveness of the indebtedness by
the holder of the debt instrument. See
§ 108(i)(4)(B). The term “acquisition” also
includes an indirect acquisition within the
meaning of § 1.108–2(c) if a direct acqui-
sition of the debt instrument would qual-
ify for an election under § 108(i). For ex-
ample, if a corporation acquires debt of a
partnership that the partnership issued in
connection with its trade or business, and
the partnership and corporation become re-
lated within six months of the corpora-
tion’s acquisition of the debt, the indirect
September 8, 20093092009–36 I.R.B.

acquisition is an acquisition for which an
election under § 108(i) may be made.
.04General Requirements for the Sec-
tion 108(i) Election.Section 108(i)(5)(B)
provides, in general, that a taxpayer makes
the § 108(i) election by including a state-
ment that clearly identifies the applicable
debt instrument with the return of tax im-
posed for the taxable year in which the
reacquisition of the instrument occurs.
(For purposes of this revenue procedure, a
return of tax or income tax return includes
an information return, and a taxpayer in-
cludes a person that files an information
return.) The statement must include the
amount of income to which § 108(i)(1)
applies and other information the Service
may prescribe. Once made, a § 108(i) elec-
tion is irrevocable and, except as provided
in section 7 of this revenue procedure,
may not be modified.
.05Section 108(i) Elections Made by
Pass-through Entities.In the case of COD
income realized by a pass-through entity
from the reacquisition of an applicable
debt instrument, the pass-through en-
tity makes the § 108(i) election. Section
108(i)(5)(B)(iii).
.06Additional Information on Subse-
quent Years’ Returns.Section 108(i)(7)
authorizes the Service to issue guidance
necessary or appropriate for applying
§ 108(i), including requiring reporting the
election and other information on returns
of tax for subsequent taxable years.
.07Exclusivity.Section 108(i)(5)(C)
provides that if a taxpayer elects to ap-
ply § 108(i) to an applicable debt instru-
ment, § 108(a)(1)(A), (B), (C), and (D) do
not apply to COD income deferred under
§ 108(i).
.08Allocation of Deferred COD In-
come on Partnership Indebtedness.Sec-
tion 4.04(3) of this revenue procedure
describes how a partnership may elect un-
der § 108(i) to defer a portion of the COD
income realized from the reacquisition of
an applicable debt instrument. If a part-
nership elects to defer all or any portion of
COD income realized from the reacquisi-
tion of an applicable debt instrument, all of
the COD income with respect to that debt
instrument, without regard to § 108(i), is
allocated to the partners in the partnership
immediately before the reacquisition in
themannerinwhichtheincomewouldbe
included in the distributive shares of these
partners under § 704 and the regulations
thereunder, including § 1.704–1(b)(2)(iii).
Each partner’s share of this COD income is
the partner’s COD income amount (“COD
income amount”). The partner’s COD
income amount that is deferred under
§ 108(i) is the partner’s deferred amount
(“deferred amount”). The partner’s COD
income amount that is not deferred and
is included in the partner’s distributive
share of partnership income for the taxable
year of the partnership in which the reac-
quisition occurs is the partner’s included
amount (“included amount”).
.09Partner’s Deferred § 752 Amount.
A decrease in a partner’s share of a partner-
ship liability resulting from the reacquisi-
tion of an applicable debt instrument that
is not treated as a current distribution of
money to the partner under § 752 by rea-
son of § 108(i)(6) is the partner’s deferred
§ 752 amount (“deferred § 752 amount”).
A partner’s deferred § 752 amount may not
exceed the lesser of (i) the partner’s de-
ferred amount or (ii) gain that the partner
would recognize in the year of reacquisi-
tion under § 731 as a result of the reac-
quisition absent § 108(i)(6). To determine
the amount of gain the partner would rec-
ognize under clause (ii) of the preceding
sentence, the amount of any deemed distri-
bution of money under § 752(b) resulting
from the decrease in the partner’s share of a
reacquired applicable debt instrument that
is treated as an advance or draw of money
under § 1.731–1(a)(1)(ii) is determined as
if no COD income resulting from the reac-
quisition of the applicable debt instrument
is deferred under § 108(i). See Rev. Rul.
92–97, 1992–2 C.B. 124, and Rev. Rul.
94–4, 1994–1 C.B. 195. A partner’s de-
ferred § 752 amount is treated as a distri-
bution of money to the partner under § 752
at the same time, and to the extent remain-
ing in the same amount, as the partner rec-
ognizes the COD income deferred under
§ 108(i).
.10Allocation of Deferred COD In-
come on S Corporation Indebtedness.
For purposes of § 108(i), an S corpo-
ration’s COD income deferred under
§ 108(i) is sharedpro rataonly among
those shareholders that are shareholders of
the S corporation immediately before the
reacquisition transaction.
.11Deferred COD Income, Earnings
and Profits, and Alternative Minimum Tax-
able Income.
(1)In general.The Service and Trea-
sury Department intend to issue regu-
lations regarding the computation of a
corporation’s earnings and profits with re-
spect to COD income and OID deductions
that are deferred under § 108(i). These
regulations generally will provide that
deferred COD income increases earnings
and profits in the taxable year that it is
realized and not in the taxable year or
years that the deferred COD income is
includible in gross income. OID deduc-
tions deferred under § 108(i) generally
will decrease earnings and profits in the
taxable year or years in which the de-
duction would be allowed without regard
to § 108(i). COD income and OID de-
ductions that are deferred increase or
decrease adjusted current earnings under
§ 56(g)(4) in the taxable year or years that
the income or deduction is includible or
deductible in determining taxable income.
See § 1.56(g)–1(c)(1).
(2)Exceptions for certain special sta-
tus corporations.The Service and Trea-
sury Department intend to issue regula-
tions providing that in the case of regulated
investment companies and real estate in-
vestment trusts, COD income deferred un-
der § 108(i) generally increases earnings
and profits in the taxable year or years in
which the deferred COD income is includi-
ble in gross income and not in the year that
the deferred COD income is realized. OID
deductions deferred under § 108(i) gener-
ally decrease earnings and profits in the
taxable year or years that the deferred OID
deductions are deductible.
.12Extension of Time to Make Elec-
tion. Under § 301.9100–1 of the Proce-
dure and Administration Regulations, the
Service may grant an extension of time to
make a regulatory election. An election
is a regulatory election if the due date is
prescribed by regulation or other published
guidance of general applicability. Sec-
tion 301.9100–2(a) provides an automatic
12-month extension from the due date for
making certain regulatory elections.
SECTION 3. SCOPE
This revenue procedure applies to tax-
payers that realize COD income from a
reacquisition after December 31, 2008,
and before January 1, 2011, of an ap-
plicable debt instrument, as provided in
§ 108(i).
2009–36 I.R.B.310September 8, 2009

SECTION 4. ELECTION
PROCEDURES
.01In General.
(1) A taxpayer within the scope of this
revenue procedure makes the § 108(i) elec-
tion by—
(a) Attaching a statement meeting the
requirements of section 4.05 of this rev-
enue procedure to the taxpayer’s timely
filed (including extensions) original fed-
eral income tax return for the taxable year
in which the reacquisition of the applicable
debt instrument occurs, and
(b) If applicable, satisfying the addi-
tional requirements of section 4.07, 4.08,
4.09, or 4.10 of this revenue procedure.
(2) The Service grants an automatic ex-
tension of 12 months from the due date
prescribed in section 4.01(1)(a) of this rev-
enue procedure for making the § 108(i)
election. The rules that apply to an auto-
matic extension under § 301.9100–2(a) ap-
ply to this automatic extension.
.02Section 108(i) Elections Made
by Members of Consolidated Groups.
The common parent of a consolidated
group makes the § 108(i) election on be-
half of all members of the group. See
§ 1.1502–77(a).
.03Aggregation Rule. A taxpayer
within the scope of this revenue procedure
may treat two or more applicable debt
instruments that are part of the same issue
and that are reacquired during the same
taxable year as one applicable debt instru-
ment for purposes of this revenue proce-
dure. A pass-through entity may not treat
two or more applicable debt instruments
as one applicable debt instrument under
this section 4.03 if the owners and their
ownership interests in the pass-through
entity immediately prior to the reacquisi-
tion of each applicable debt instrument are
not identical.
.04Partial Elections.
(1) A taxpayer within the scope of this
revenue procedure may make an election
for any portion of COD income realized
from the reacquisition of any applicable
debt instrument. Thus, for example, if a
taxpayer realizes $100 of COD income
from the reacquisition of an applicable
debt instrument, the taxpayer may elect
under § 108(i)(1) to defer only $40 of the
$100 of COD income. The taxpayer may
exclude from income the portion of COD
income that the taxpayer does not elect to
defer under § 108(i) ($60 in this example)
under § 108(a)(1)(A), (B), (C), or (D), if
applicable.
(2) A taxpayer is not required to make
an election for the same portion of COD in-
come arising from each applicable debt in-
strument that it reacquires, but may make
an election for different portions of COD
income arising from different applicable
debt instruments (whether or not part of the
same issue). Thus, for example, if a tax-
payer realizes $100 of COD income from
the reacquisition of an applicable debt in-
strument (Instrument A) and $100 of COD
income from the reacquisition of a differ-
ent applicable debt instrument (Instrument
B), the taxpayer may elect to defer all or
a portion of the COD income associated
with Instrument A and none or a differ-
ent portion of the COD income associated
with Instrument B.
(3) A partnership that elects to defer
less than all of the COD income realized
from the reacquisition of an applicable
debt instrument may determine, in any
manner, the portion, if any, of a partner’s
COD income amount that is the partner’s
deferred amount and the portion, if any,
of a partner’s COD income amount that is
the partner’s included amount. Thus, for
example, one partner’s deferred amount
may be zero while another partner’s de-
ferred amount may equal that partner’s
COD income amount (or any portion
thereof). A partner may exclude from in-
come the partner’sincluded amount under
§108(a)(1)(A),(B),(C),or(D),ifapplica-
ble. The provisions of this section 4.04(3)
apply for purposes of § 108(i) only and
are not intended as an interpretation of or
achangetoexistinglawunder§704.
.05Contents of Election Statement.A
statement meets the requirements of this
section 4.05 if the statement—
(1)Label. States “Section 108(i) Elec-
tion” across the top.
(2)Required information. Provides, for
each applicable debt instrument the reac-
quisition of which generates COD income
that the taxpayer is electing to defer under
§108(i)—
(a) The name and taxpayer identifica-
tion numbers, if any, of the issuer or issuers
of the applicable debt instrument;
(b) A general description of the appli-
cable debt instrument (including the issue
and maturity dates) and, in the case of any
person other than a C corporation, a gen-
eral description of the person’s trade or
business to which the applicable debt in-
strument is connected;
(c) A general description of the reacqui-
sition transaction or transactions generat-
ing the COD income (including the date(s)
of the transaction(s));
(d) The total amount of COD income
for the applicable debt instrument that re-
sults from the reacquisition (in the case of
a partnership, the aggregate of the part-
ners’ COD income amounts) and a gen-
eral description of the manner in which this
amount is calculated;
(e) The amount of COD income for
the applicable debt instrument that the tax-
payer is electing to defer under § 108(i);
(f) In the case of a partnership, a list
of partners that have a deferred amount,
their identifying information and each
partner’s deferred amount; and in the case
of an S corporation, a list of shareholders
with COD income deferred under § 108(i),
their identifying information and each
shareholder’s share of the S corporation’s
deferred COD income; and
(g) In cases in which a new debt in-
strument is issued or deemed issued in ex-
change for the applicable debt instrument
(including exchanges under § 108(e)(4),
§ 108(i)(2)(B), and § 1.1001–3), the is-
suer’s name, the issuer’s taxpayer identifi-
cation number, if any, a general description
of the new debt instrument and whether the
new debt instrument has OID, and if the
new debt instrument has OID, a schedule
of the OID that the issuer expects to accrue
each taxable year on the instrument and the
amount of OID that the issuer expects to
defer under § 108(i)(2) each taxable year.
.06Supplemental information.The
statement described in section 4.05 of this
revenue procedure may specify for each
applicable debt instrument an amount
greater than the amount identified in sec-
tion 4.05(2)(e) of this revenue procedure
that the taxpayer elects to defer under
§ 108(i) in the event the Service sub-
sequently concludes that the taxpayer
understated the amount of COD income
described in section 4.05(2)(d) of this rev-
enue procedure. This additional amount of
COD income the taxpayer elects to defer
may be described as the entire additional
COD income, or as a percentage of any
additional COD income. If the taxpayer is
a partnership, the partnership must specify
each partner’s share of the partnership’s
September 8, 20093112009–36 I.R.B.

additional COD income that would be
deferred (the partner’s additional deferred
amount), which the partnership may de-
scribe for each partner as the partner’s
entire share of the partnership’s additional
COD income or as a percentage of the
partner’s share of the partnership’s ad-
ditional COD income. If the taxpayer
is an S corporation, the S corporation
must specify each shareholder’s share
of the S corporation’s additional COD
income that would be deferred, which
the S corporation may describe for each
shareholder as the shareholder’s entire
share of the S corporation’s additional
COD income or as a percentage of the
shareholder’s share of the S corporation’s
additional COD income. In the case
of partnerships and S corporations, the
additional COD income and the portion
of additional COD income that would
be deferred are allocated or determined
as provided in sections 2.08, 2.10 and,
if applicable, 4.04(3) of this revenue
procedure, respectively, as if the additional
COD income was realized.
.07Additional Requirements for Cer-
tain Partnerships Making a § 108(i) Elec-
tion. The rules of this section 4.07 apply
to partnerships other than partnerships de-
scribed in section 4.10 of this revenue pro-
cedure.
(1)Information filing on Schedule K–1
(Form 1065 and Form 1065–B).Forthe
taxable year in which the § 108(i) elec-
tion is made, the partnership must report
on the Schedule K–1 (Form 1065 or Form
1065–B),Partner’s Share of Income, De-
ductions, Credits, etc., in the manner spec-
ified in the instructions to the forms, for
each partner § 108(i) information on an
aggregate basis for all applicable debt in-
struments for which a § 108(i) election
is made. Partnerships reporting § 108(i)
information on the 2008 Schedule K–1
(Form 1065 or Form 1065–B) must report
for each partner on an aggregate basis for
all applicable debt instruments for which a
§ 108(i) election is made:
(a) The partner’s deferred amount that
the partner must include in income in the
current taxable yearunder § 108(i)(1) or
§ 108(i)(5)(D)(i) or (ii), in box 11 (“other
income”) using code F for Schedule K–1
(Form 1065) or in box 9 (“other”) using
code U for Schedule K–1 (Form 1065–B);
(b) The partner’s share of the part-
nership’s OID deduction deferred under
§ 108(i)(2)(A)(i) that is allowable as a de-
duction in the current taxable year under
§ 108(i)(2)(A)(ii) or § 108(i)(5)(D)(i) or
(ii), in box 13 (“other deductions”) using
code W for Schedule K–1 (Form 1065)
or in box 9 (“other”) using code U for
Schedule K–1 (Form 1065–B);
(c) The partner’s deferred amount that
has not been included in income in the
current or prior taxable years, in box 20
(“other information”) using code X for
Schedule K–1 (Form 1065) or in box 9
(“other”) using code U for Schedule K–1
(Form 1065–B);
(d) The partner’s share of the part-
nership’s OID deduction deferred under
§ 108(i)(2)(A)(i) that has not been de-
ducted in the current or prior taxable years,
in box 20 (“other information”) using code
X for Schedule K–1 (Form 1065) or in
box 9 (“other”) using code U for Schedule
K–1 (Form 1065–B);
(e) The partner’s deferred § 752 amount
that is treated as a distribution of money to
the partner under § 752 in the current tax-
able year, in box 20 (“other information”)
using code X for Schedule K–1 (Form
1065) or in box 9 (“other”) using code U
for Schedule K–1 (Form 1065–B); and
(f) The partner’s deferred § 752 amount
remaining as of the end of the current tax-
able year, in box 20 (“other information”)
using code X for Schedule K–1 (Form
1065) or in box 9 (“other”) using code U
for Schedule K–1 (Form 1065–B).
(2)Election information statement pro-
vided to partners.The partnership must
attach to the Schedule K–1 (Form 1065
or Form 1065–B) provided to each partner
for the taxable year in which the § 108(i)
election is made a statement satisfying the
requirements of this section 4.07(2). The
partnership should not attach these state-
ments to the Schedules K–1 that are filed
with the Service, but must retain these
statements, and each partner must retain
that partner’s statement, in their respective
books and records. A statement meets the
requirements of this section 4.07(2) if the
statement—
(a)Label. States “Section 108(i) Elec-
tion Information Statement for Partners”
across the top.
(b)Required information. Clearly iden-
tifies for each applicable debt instrument
to which an election under § 108(i) ap-
plies—
(i) The partner’s COD income amount,
the partner’s deferred amount, and the
partner’s included amount;
(ii) The partner’s deferred amount
that the partner must include in in-
come in the current taxable year under
§ 108(i)(5)(D)(i) or (ii);
(iii) The partner’s share of the part-
nership’s OID deduction deferred under
§ 108(i)(2)(A)(i) in the current taxable
year;
(iv) The partner’s share of the part-
nership’s OID deduction deferred under
§ 108(i)(2)(A)(i) that is allowable as a de-
duction in the current taxable year under
§ 108(i)(5)(D)(i) or (ii);
(v) The partner’s share of each liabil-
ity of the partnership described in section
4.05(2)(g) of this revenue procedure;
(vi) The partner’s share of the decrease
in the partnership liability that results from
the reacquisition of the applicable debt in-
strument;
(vii) The partner’s share of the decrease
in the partnership liability that results from
the reacquisition of the applicable debt in-
strument that is treated as a distribution of
money to the partner under § 752 in the
current taxable year;
(viii) The partner’s deferred § 752
amount as described in section 2.09 of this
revenue procedure;
(ix) The partner’s additional deferred
amount as described in section 4.06 of this
revenue procedure; and
(x) The date of the reacquisition trans-
action generating the COD income.
(c) If a partner fails to provide the writ-
ten statement required by section 4.07(3)
of this revenue procedure, the partnership
must indicate that theamounts described
in section 4.07(2)(b)(vii) and (viii) of
this revenue procedure cannot be calcu-
lated because the partner did not provide
the information necessary to report these
amounts.
(3)Partner reporting requirements.
The partnership must make reasonable
efforts prior to making a § 108(i) elec-
tion to secure from each partner with a
deferred amount for which it does not
have the information necessary to com-
pute the partner’s basis in its partnership
interest (and its deferred § 752 amount as
described in section 2.09 of this revenue
procedure) a written statement signed un-
der penalties of perjury that includes this
information. Each partner with a deferred
2009–36 I.R.B.312September 8, 2009

amount must provide this written state-
ment to the partnership within 30 days
of the date of request by the partnership.
A partner’s failure to comply with this
reporting requirement does not invalidate
the partnership’s election under § 108(i)
for an applicable debt instrument only
if the partnership makes reasonable ef-
forts before making the § 108(i) election
to obtain the written statement from the
partner and otherwise complies with the
requirements of section 4 of this revenue
procedure. If a partnerprovides its written
statement under this section 4.07(3) after
the partnership has provided to the partner
the Section 108(i) Election Information
Statement for Partners, the partnership
must provide to the partner a revised Sec-
tion 108(i) Election Information Statement
for Partners reporting the information re-
quired under section 4.07(2)(b)(vii) and
(viii) of this revenue procedure and report
the partner’s deferred § 752 amount on
the partner’s Schedule K–1 (Form 1065
or Form 1065–B) in subsequent taxable
years.
.08Additional Requirements for an
S Corporation Making a § 108(i) Election.
(1)Information filing on Schedule K–1
(Form 1120S). For the taxable year in
which the § 108(i) election is made, the
S corporation must report on the Schedule
K–1 (Form 1120S),Shareholder’s Share
of Income, Deductions, Credits, etc.,in
the manner specified in the instructions to
the forms, for each shareholder § 108(i)
informationonanaggregatebasisforall
applicable debt instruments for which a
§ 108(i) election is made. S corporations
reporting § 108(i) information on the 2008
Schedule K–1 (Form 1120S) must report
for each shareholder, on an aggregate
basis for all applicable debt instruments
for which a § 108(i) election is made, the
shareholder’s share of the S corporation’s:
(a) COD income deferred under
§ 108(i) that the shareholder must include
in income in the current taxable year under
§ 108(i)(1) or § 108(i)(5)(D)(i) or (ii), in
box 10 (“other income”) using code E;
(b) OID deduction deferred under
§ 108(i)(2)(A)(i) that is allowable as a de-
duction in the current taxable year under
§ 108(i)(2)(A)(ii), or § 108(i)(5)(D)(i) or
(ii), in box 12 (“other deductions”) using
code S;
(c) COD income deferred under
§ 108(i) that has not been included in in-
come in the current or prior taxable years,
in box 17 (“other information”) using code
T; and
(d) OID deduction deferred under
§ 108(i)(2)(A)(i) that has not been de-
ducted in the current or prior taxable years,
in box 17 (“other information”) using code
T.
(2)Election information statement pro-
vided to shareholders.The S corporation
must attach to the Schedule K–1 (Form
1120S) provided to each shareholder for
the taxable year in which the § 108(i)
election is made, a statement satisfying
the requirements of this section 4.08(2).
The S corporation should not attach these
statements to the Schedules K–1 that are
filed with the Service, but must retain
these statements, and each shareholder
must retain that shareholder’s statement,
in their respective books and records. A
statement meets the requirements of this
section 4.08(2) if the statement—
(a)Label. States “Section 108(i) Elec-
tion Information Statement for Sharehold-
ers” across the top.
(b)Required information. Clearly iden-
tifies for each applicable debt instrument
to which an election under § 108(i) applies,
the shareholder’s share of the S corpora-
tion’s—
(i) COD income that the S corporation
elects to defer under § 108(i);
(ii) COD income deferred under
§ 108(i) that the shareholder must include
in income in the current taxable year under
§ 108(i)(5)(D)(i) or (ii);
(iii) OID deduction deferred under
§ 108(i)(2)(A)(i) in the current taxable
year;
(iv) OID deduction deferred under
§ 108(i)(2)(A)(i) that is allowable as a de-
duction in the current taxable year under
§ 108(i)(5)(D)(i) or (ii); and
(v) Additional COD income that would
be deferred as described in section 4.06 of
this revenue procedure.
.09Section 108(i) Elections Made on
Behalf of Certain Foreign Corporations.
The controlling domestic shareholder(s)
(or common parent of the controlling
domestic shareholder(s), if applicable)
of a controlled foreign corporation or a
noncontrolled § 902 corporation not oth-
erwise required to file a return of tax may
make the § 108(i) election on behalf of the
foreign corporation by satisfying the re-
quirements of § 1.964–1(c)(3). Each con-
trolling domestic shareholder must attach
a statement identifying the foreign corpo-
ration and satisfying the requirements of
section 4.05 of this revenue procedure and,
if applicable, section 4.06 of this revenue
procedure, to its federal income tax return
for the taxable year ending within or with
the taxable year of the foreign corporation
for which the § 108(i) election is made.
.10Section 108(i) Elections Made By
Certain Foreign Partnerships.The rules of
thissection4.10applytoaforeignpartner-
ship making a § 108(i) election that is not
otherwise required to file a federal part-
nership return (“nonfiling foreign partner-
ship”). See § 1.6031(a)–1(b).
(1) A nonfiling foreign partnership
making the election must attach a state-
ment satisfying the requirements of section
4.05 of this revenue procedure and, if ap-
plicable, section 4.06 of this revenue pro-
cedure, to a partnership return satisfying
the requirements of § 1.6031(a)–1(b)(5)
it files with the Service. In addition, a
nonfiling foreign partnership must include
in the information required in section
4.05(2)(d) and (e) of this revenue proce-
dure the aggregate amounts for all partners
as well as the aggregate amounts for all
U.S. persons (as defined in § 7701(a)(30))
and controlled foreign corporation(s) that
are partners with deferred amounts in the
nonfiling foreign partnership (“affected
partners”).
(2) The nonfiling foreign partnership
must make the election, in accordance with
§ 1.6031(a)–1(b)(5), by the date provided
in section 4.01(1)(a) of this revenue proce-
dure, as if it had a filing obligation for the
taxable year in which the reacquisition of
the applicable debt instrument occurs.
(3) For each affected partner, the part-
nership must file with the Service a Sched-
ule K–1 (Form 1065) and report on the
Schedule K–1 (Form 1065) for the affected
partner as provided in section 4.07(1) of
this revenue procedure. Except for this
§ 108(i) information, the partnership need
not complete Part III of the Schedule K–1
(Form 1065). The partnership must pro-
vide a copy of the respective Schedule
K–1 (Form 1065) to each affected part-
ner and must also attach to the Sched-
ule K–1 (Form 1065)provided to each af-
fected partner a statement satisfying the re-
quirements of section 4.07(2) of this rev-
enue procedure by the date provided in
section 4.01(1)(a) of this revenue proce-
September 8, 20093132009–36 I.R.B.

dure. The partnership should not attach
any statement described in section 4.07(2)
of this revenue procedure to the Sched-
ules K–1 that are filed with the Service.
However, the partnership must retain the
statements provided to the affected part-
ners, and each affected partner must retain
that partner’s statement, in their respective
books and records.
(4) The partnership and each affected
partner must satisfy the requirements of
section 4.07(3) of this revenue procedure.
.11Protective § 108(i) Election.
(1)In general. A taxpayer may make
a protective election under § 108(i) for
an applicable debt instrument if the tax-
payer concludes that a particular transac-
tion does not result in the realization of
COD income, reports the transaction on
its federal income tax return in a manner
consistent with the taxpayer’s conclusion,
and would be within the scope of this rev-
enue procedure if the taxpayer’s conclu-
sion were incorrect. If the Service at any
time determines the taxpayer’s conclusion
that the particular transaction does not re-
sult in the realization of COD income is in-
correct, the taxpayer’sprotective election
is treated as a valid, irrevocable election
under § 108(i). Thus, if a taxpayer makes
a protective election, the Service subse-
quently may require the taxpayer to report
COD income deferred pursuant to the valid
and irrevocable protective election even if
the statute of limitations has expired for
the year in which the COD income was
realized and the protective election was
made. A taxpayer makes a protective elec-
tion by attaching a statement satisfying the
requirements of this section 4.11(1) to the
taxpayer’s original federal income tax re-
turn within the period described in section
4.01(1)(a) of this revenue procedure. The
taxpayer also must attach the election to its
federal income tax return in each of the 8
or 9 taxable years, as applicable, following
the taxable year of the election. A state-
ment meets the requirements of this sec-
tion 4.11(1) if the statement—
(a) States “Section 108(i) Protective
Election” across the top;
(b) Provides the information required
under section 4.05(2)(a), (b), and (c) of this
revenue procedure;
(c) Provides that the amounts described
in sections 4.05(2)(d) and (e) of this rev-
enue procedure are zero; and
(d) Provides the information described
in section 4.06 of this revenue procedure.
(2)Statements provided to shareholders
and partners.
(a) For each applicable debt instrument,
a partnership or S corporation that makes
a protective election must attach to the
Schedule K–1 (Form 1065, Form 1065–B,
or Form 1120S) it provides each of its part-
ners or shareholders, as the case may be,
for the taxable year in which the protec-
tive election is made a statement contain-
ing the information described in section
4.11(1)(b) of this revenue procedure (an
S corporation need not provide its share-
holders with the date(s) of the transac-
tion(s) that would constitute the reacqui-
sition transaction or transactions) and the
partner’s or shareholder’s share of the ad-
ditional COD income that would be de-
ferred as described in section 4.11(1)(d) of
this revenue procedure.
(b) The partnership or S corporation
should not attach the statements described
in this section 4.11(2) to the Schedules
K–1 that are filed with the Service but must
retain these statements, and each partner
and shareholder must retain that partner’s
or shareholder’s statement, in their respec-
tive books and records.
.12Election-Year Reporting by Tiered
Pass-Through Entities.
(1) A partnership required to file a
U.S. partnership return other than under
§ 1.6031(a)–1(b)(5), or an S corpora-
tion, that receives a Schedule K–1 (Form
1065 or Form 1065–B) reflecting its share
of any items listed in section 4.07(1) of
this revenue procedure, must report on
the Schedules K–1 (Form 1065, Form
1065–B, or Form 1120S) to its partners
or shareholders, as the case may be, each
partner’s or shareholder’s share of those
items (an S corporation only reports to its
shareholders the items described in sec-
tion 4.07(1)(a) through (d) of this revenue
procedure).
(2) If a partnership described in sec-
tion 4.12(1) of this revenue procedure re-
ceives a statement described in sections
4.07(2) or 4.10(3) of this revenue proce-
dure or this section 4.12(2), it must pro-
vide each of its partners a statement con-
taining the partner’s share of each of the
items listed on each statement received by
the partnership, including the information
described in section 4.07(2)(b)(x) of this
revenue procedure. If an S corporation
receives a statement described in sections
4.07(2) or 4.10(3) of this revenue proce-
dure or this section 4.12(2), it must provide
each of its shareholders a statement con-
taining the shareholder’s share of each of
the items listed on each statement received
by the S corporation that are described in
section 4.07(2)(b)(i), (ii), (iii), (iv) and (ix)
of this revenue procedure. The partnership
or S corporation must attach this statement
or statements to the Schedule K–1 (Form
1065, Form 1065–B, or Form 1120S) that
it provides to each of its partners or share-
holders, as the case may be, for the tax-
able year of the partnership or S corpo-
ration. The partnership or S corporation
should not attach these statements to the
Schedules K–1 that are filed with the Ser-
vice but must retain these statements, and
each partner and shareholder must retain
that partner’s or shareholder’s statement,
in their respective books and records.
(3) A partnership that receives a state-
ment described in this section 4 identifying
its COD income amount with respect to an
applicable debt instrument must allocate
its COD income amount, without regard
to § 108(i), to the partners in the partner-
ship immediately before the reacquisition
transaction in the manner in which the
income would be included in the distribu-
tive shares of these partners under § 704
and the regulations thereunder, including
§ 1.704–1(b)(2)(iii). The partnership may
determine in any manner the portion, if
any, of a partner’s COD income amount
that is the partner’s deferred amount and
the portion, if any, of a partner’s COD
income amount that is the partner’s in-
cluded amount. No partner’s deferred
amount with respect to an applicable debt
instrument may exceed its COD income
amount with respect to the applicable debt
instrument, and the aggregate of deferred
amounts of its partners with respect to an
applicable debt instrument must equal the
partnership’s deferred amount with respect
to the applicable debt instrument. The
partnership allocates amounts described in
section 4.06 of this revenue procedure un-
der this section 4.12(3) as if the additional
COD income was realized.
(4) The deferred § 752 amount for part-
ners in a partnership making a § 108(i)
election is calculated only for the partner-
ship’s direct partners. No further adjust-
ment to the deferred § 752 amount is made
to reflect the basis or other attributes of
2009–36 I.R.B.314September 8, 2009

partners that are indirect partners in the
partnership.
(5) If an S corporation receives a state-
ment described in this section 4 identifying
its COD income amount, deferred amount,
included amount or additional COD in-
come that would be deferred with respect
to an applicable debt instrument, these
amounts are sharedpro rataonly among
those shareholders that are shareholders in
the S corporation immediately before the
reacquisition transaction.
(6) This paragraph 4.12(6) provides the
rules for Category 1 and Category 2 fil-
ers of Form 8865,Return of U.S. Persons
With Respect to Certain Foreign Partner-
ships, as defined in the instructions for
Form 8865, if the foreign partnership, for
whichtheCategory1orCategory2filer
has a filing requirement, receives a Sched-
ule K–1 (Form 1065 or Form 1065–B)
reflecting the partnership’s share of any
items listed in section 4.07(1) of this rev-
enue procedure, or a statement described
in sections 4.07(2) or 4.10(3) of this rev-
enue procedure (because the foreign part-
nership owns an interest directly or indi-
rectly in another partnership in which an
election was made under § 108(i) with re-
spect to that foreign partnership’s distribu-
tive share from the other entity).
(a) For each partner for whom the Cat-
egory 1 filer is required to complete a
Schedule K–1 (Form 8865) (which in-
cludes the Category 1 filer itself), the
Category 1 filer must:
(i) Include the information described in
section 4.07(1) of this revenue procedure
in the Schedule K–1 (Form 8865) that the
Category 1 filer files with the Service and
completes for the partner;
(ii) Produce a statement containing the
partner’s share of the items listed on each
statement received by the partnership; and
(iii) Attach the statement described in
section 4.12(6)(a)(ii) of this revenue pro-
cedure to each Schedule K–1 (Form 8865)
that it is required to provide to a partner of
the foreign partnership.
(b) A Category 2 filer must include its
share of the information described in sec-
tion 4.07(1) on the Schedule K–1 (Form
8865) that it is required to complete. Cat-
egory 2 filers also must complete a state-
ment containing their share of the items
listed on each statement received by the
partnership.
(c) The Category 1 and Category 2 filers
should not attach the statements described
in sections 4.12(6)(a)(ii) and 4.12(6)(b) of
this revenue procedure, respectively, to the
Schedules K–1 that are filed with the Ser-
vice. However, Category 1 filers must re-
tain the statements they complete and each
partner must retain its own statement, in
their respective books and records.
(7) If as a result of § 108(i)(5)(D)(ii), a
partner of a partnership described in sec-
tion 4.12(1) of this revenue procedure or a
shareholder of an S corporation described
in section 4.12(1) of this revenue proce-
dure must recognize items deferred un-
der § 108(i), the partnership or S corpora-
tion must report these items on the Sched-
ule K–1 (Form 1065, Form 1065–B, or
Form 1120S) and statements provided to
the partner or shareholder pursuant to sec-
tion 4.12(1) and (2) of this revenue proce-
dure. Similar rules apply to Category 1 and
Category 2 filers (Form 8865) described in
section 4.12(6) of this revenue procedure.
(8) The provisions of section 4.12(2),
(3), (5) and (6) of this revenue procedure
also apply to a statement received that is
described in section 4.11(2) of this revenue
procedure, except that the information that
must be provided are those items described
in section 4.11(1)(b) of this revenue proce-
dure (an S corporation need not provide its
shareholders with the date(s) of the trans-
action(s) that would constitute the reacqui-
sition transaction or transactions) and the
share of the partner or shareholder in the
amounts described in section 4.11(1)(d) of
this revenue procedure.
SECTION 5. REQUIRED
INFORMATION STATEMENT
.01Annual Information Statements.
Pursuant to § 108(i)(7)(B), a taxpayer that
makes an election under § 108(i) (except
for a protective election under section
4.11(1) of this revenue procedure) must at-
tach a statement meeting the requirements
of section 5.02 of this revenue procedure
to its federal income tax return for each
taxable year beginning with the taxable
year following the taxable year for which
the taxpayer makes the election and end-
ing with the first taxable year in which all
items deferred under § 108(i) have been
recognized.
.02Contents of Statement. A statement
meets the requirementsof this section 5.02
if the statement—
(1)Label.States “Section 108(i) Infor-
mation Statement” across the top;
(2)Required information.Clearly iden-
tifies for each applicable debt instrument
to which an election under § 108(i) ap-
plies—
(a) COD income deferred under
§ 108(i) that is included in income in the
current taxable yearunder § 108(i)(1);
(b) COD income deferred under
§ 108(i) that is included in income in the
current taxable year under § 108(i)(5)(D),
including a description and date of
the acceleration event described in
§ 108(i)(5)(D);
(c) COD income deferred under
§ 108(i) that has not been included in in-
come in the current orprior taxable years
(in the case of a partnership, the aggregate
of the partners’ deferred amounts that have
not been included in income in the current
or prior taxable years, and in the case of
an S corporation, the S corporation’s COD
income deferred under § 108(i) that has
not been included in income in the current
or prior taxable years);
(d) OID deduction deferred under
§ 108(i)(2)(A)(i) that is allowable as a de-
duction in the current taxable year under
§ 108(i)(2)(A)(ii);
(e) OID deduction deferred under
§ 108(i)(2)(A)(i) that is allowable as a de-
duction in the current taxable year under
§ 108(i)(5)(D); and
(f) OID deduction deferred under
§ 108(i)(2)(A)(i) that has not been de-
ducted in the current or prior taxable years.
(3)Election attached.Includes a copy
of the election statement described in sec-
tion 4.05 of this revenue procedure.
.03Additional Annual Reporting Re-
quirements for Certain Partnerships.The
rules of this section 5.03 apply to partner-
ships other than partnerships described in
section 5.05 of this revenue procedure.
(1)In general. A partnership that
makes an election under § 108(i) (except
for a protective election under section
4.11(1) of this revenue procedure) must
attach to its federal income tax returns the
statements required under section 5.01 of
this revenue procedure. In addition, for
each taxable year in which a statement is
required under section 5.01 of this revenue
procedure, the partnership must report on
September 8, 20093152009–36 I.R.B.

the Schedule K–1 (Form 1065 or Form
1065–B) for each partner § 108(i) infor-
mation in the manner described in section
4.07(1) of this revenue procedure.
(2)Annual information statements
provided to partners. The partnership
must attach to the Schedule K–1 (Form
1065) provided to each partner for each
taxable year in which a statement is re-
quired under section 5.01 of this revenue
procedure, a statement meeting the re-
quirements of this section 5.03(2). The
partnership should not attach these state-
ments to the Schedules K–1 that are filed
with the Service, but must retain these
statements, and each partner must retain
that partner’s statement, in their respective
books and records. A statement meets the
requirements of this section 5.03(2) if the
statement—
(a)Label. States “Section 108(i) An-
nual Information Statement for Partners”
across the top of the statement.
(b)Required information. Clearly iden-
tifies for each applicable debt instrument
to which a § 108(i) election applies—
(i) The partner’s deferred amount that
has not been included in income as of the
end of the prior taxable year;
(ii) The partner’s deferred amount that
the partner must include in income in the
current taxable yearunder § 108(i)(1);
(iii) The partner’s deferred amount
that the partner must include in in-
come in the current taxable year under
§ 108(i)(5)(D)(i) or (ii);
(iv) The partner’s deferred amount that
has not been included in income in the cur-
rent or prior taxable years;
(v) The partner’s share of the part-
nership’s OID deduction deferred under
§ 108(i)(2)(A)(i) in the current taxable
year;
(vi) The partner’s share of the part-
nership’s OID deduction deferred under
§ 108(i)(2)(A)(i) that is allowable as a de-
duction in the current taxable year under
§ 108(i)(2)(A)(ii);
(vii) The partner’s share of the part-
nership’s OID deduction deferred under
§ 108(i)(2)(A)(i) that is allowable as a de-
duction in the current taxable year under
§ 108(i)(5)(D)(i) or (ii);
(viii) The partner’s share of the part-
nership’s OID deduction deferred under
§ 108(i)(2)(A)(i) that has not been de-
ducted in the current or prior taxable years;
and
(ix) The partner’s deferred § 752
amount that is treated as a distribution
of money to the partner under § 752 in
the current taxable year and any remain-
ing deferred § 752 amount. If a partner
fails to provide the written statement re-
quired by section 4.07(3) of this revenue
procedure, the partnership must indicate
that the amounts described in this sec-
tion 5.03(2)(b)(ix) cannot be calculated
because the partner did not provide the
information necessary to report these
amounts.
.04Additional Annual Reporting Re-
quirements for an S Corporation.
(1)In general. An S corporation that
makes an election under § 108(i) (except
for a protective election under section
4.11(1) of this revenue procedure) must
attach to its federal income tax returns the
statements required under section 5.01 of
this revenue procedure. In addition, for
each taxable year in which a statement is
required under section 5.01 of this revenue
procedure, the S corporation must report
on the Schedule K–1 (Form 1120S) for
each shareholder § 108(i) information in
the manner described in section 4.08(1) of
this revenue procedure.
(2)Annual information statements pro-
vided to shareholders. The S corporation
must attach to the Schedule K–1 (Form
1120S) provided to each shareholder for
each taxable year in which a statement
is required under section 5.01 of this
revenue procedure astatement meeting
the requirements of this section 5.04(2).
The S corporation should not attach these
statements to the Schedules K–1 that are
filed with the Service, but must retain
these statements, and each shareholder
must retain that shareholder’s statement,
in their respective books and records. A
statement meets the requirements of this
section 5.04(2) if the statement—
(a)Label. States “Section 108(i) An-
nual Information Statement for Sharehold-
ers” across the top;
(b)Required information. Clearly iden-
tifies for each applicable debt instrument
to which an election under § 108(i) applies,
the shareholder’s share of the S corpora-
tion’s—
(i) COD income deferred under § 108(i)
that has not been included in income as of
the end of the prior taxable year;
(ii) COD income deferred under
§ 108(i) that the shareholder must include
in income in the current taxable year under
§ 108(i)(1);
(iii) COD income deferred under
§ 108(i) that the shareholder must include
in income in the current taxable year under
§ 108(i)(5)(D)(i) or (ii);
(iv) COD income deferred under
§ 108(i) that has not been included in in-
come in the current or prior taxable years;
(v) OID deduction deferred under
§ 108(i)(2)(A)(i) in the current taxable
year;
(vi) OID deduction deferred under
§ 108(i)(2)(A)(i) that is allowable as a de-
duction in the current taxable year under
§ 108(i)(2)(A)(ii);
(vii) OID deduction deferred under
§ 108(i)(2)(A)(i) that is allowable as a de-
duction in the current taxable year under
§ 108(i)(5)(D)(i) or (ii); and
(viii) OID deduction deferred under
§ 108(i)(2)(A)(i) that has not been de-
ducted in the current or prior taxable years.
.05Additional Annual Reporting Re-
quirements for Certain Foreign Partner-
ships.
(1) The rules of this section 5.05 apply
to nonfiling foreign partnerships.
(2) A nonfiling foreign partnership that
makes an election under § 108(i) (except
for a protective election under section
4.11(1) of this revenue procedure) must
file federal income tax returns with the
Service containing the information under
§ 1.6031(a)–1(b)(5) for each taxable year
in which a statement is required by section
5.01 of this revenue procedure.
(3) The nonfiling foreign partnership
must attach to its federal income tax re-
turns the statements required under section
5.01 of this revenue procedure, but only for
that portion of the COD income allocated
to affected partners.
(4) For each taxable year in which a
statement is required under section 5.01
of this revenue procedure, the nonfiling
foreign partnership must provide each
affected partner a Schedule K–1 (Form
1065) reporting § 108(i) information in
the manner described in section 4.07(1)
of this revenue procedure. Except for
this § 108(i) information, the partnership
need not complete Part III of the Schedule
K–1 (Form 1065). The partnership must
provide each affected partner with a copy
of the Schedule K–1 (Form 1065) by the
date provided in § 1.6031(b)–1T(b). The
partnership must attach the Schedules K–1
2009–36 I.R.B.316September 8, 2009

(Form 1065) to the federal income tax
returns filed with the Service pursuant to
section 5.05(2) of this revenue procedure.
(5) For each taxable year for which a
statement is required under section 5.01
of this revenue procedure, the nonfiling
foreign partnership must attach to each
affected partner’s Schedule K–1 (Form
1065) a statement meeting the require-
ments of section 5.03(2) of this revenue
procedure. The partnership should not
attach these statements to the Schedules
K–1thatarefiledwiththeService,but
must retain the statements, and each part-
ner must retain that partner’s statement, in
their respective books and records.
.06Information Statements Made on
Behalf of Certain Foreign Corporations.
Each controlling domestic shareholder
must attach a statement identifying the
foreign corporation and meeting the re-
quirements of section 5.02 of this revenue
procedure to the shareholder’s federal in-
come tax return for each taxable year for
which a statement is required under sec-
tion 5.01 of this revenue procedure.
.07Additional Annual Reporting Re-
quirements for Tiered Pass-Through Enti-
ties.
(1) A partnership required to file a
U.S. partnership return other than under
§ 1.6031(a)–1(b)(5), or an S corporation,
that receives a Schedule K–1 (Form 1065
or Form 1065–B) described in the sec-
ond sentence of section 5.03(1) of this
revenue procedure reflecting its share of
any § 108(i) information must report on
the Schedules K–1 (Form 1065, Form
1065–B, or Form 1120S) to its partners
or shareholders, as the case may be, each
partner’s or shareholder’s share of those
items (an S corporation only reports to its
shareholders the items described in sec-
tion 4.07(1)(a) through (d) of this revenue
procedure).
(2) If a partnership described in section
5.07(1) of this revenue procedure receives
a statement described in sections 5.03(2)
or 5.05(5) of this revenue procedure or
this section 5.07(2), it must provide each
of its partners a statement containing the
partner’s share of each of the items listed
on each statement received by the part-
nership. If an S corporation receives a
statement described in sections 5.03(2)
or 5.05(5) of this revenue procedure or
this section 5.07(2), it must provide each
of its shareholders a statement contain-
ing the shareholder’s share of each of the
items listed on each statement received
by the S corporation that are described
in section 5.03(2)(b)(i) through (viii) of
this revenue procedure. The partnership
or S corporation must attach the statement
or statements to the Schedule K–1 (Form
1065 or Form 1065–B) or Schedule K–1
(Form 1120S) that is provided to each of
its partners or shareholders, as the case
may be, for the taxable year of the part-
nership or S corporation. The partnership
or S corporation should not attach these
statements to the Schedules K–1 that are
filed with the Service, but must retain
these statements, and each partner and
shareholder must retain that partner’s or
shareholder’s statement, in their respective
books and records.
(3) This paragraph 5.07(3) provides
the rules for persons described in section
4.12(6) of this revenue procedure if the
foreign partnership, for which the Cate-
gory 1 or 2 filer has a filing requirement,
receives a Schedule K–1 (Form 1065 or
Form 1065–B) reflecting the partnership’s
share of any items described in the second
sentence of section 5.03(1) of this revenue
procedure, or a statement described in
sections 5.03(2) or 5.05(5) of this revenue
procedure (because the foreign partner-
ship owns an interest directly or indirectly
in another partnership in which an elec-
tion was made under § 108(i) with respect
to that foreign partnership’s distributive
share from the other entity).
(a) For each partner for whom the Cat-
egory 1 filer is required to complete a
Schedule K–1 (Form 8865) (which in-
cludes the Category 1 filer itself), the
Category 1 filer must:
(i) Include the information described in
section 4.07(1) of this revenue procedure
in the Schedule K–1 (Form 8865) that the
Category 1 filer files with the Service and
completes for the partner;
(ii) Produce a statement containing the
partner’s share of the items listed on each
statement received by the partnership; and
(iii) Attach the statement described in
section 5.07(3)(a)(ii) of this revenue pro-
cedure to each Schedule K–1 (Form 8865)
that it is required to provide to a partner of
the foreign partnership.
(b) A Category 2 filer must include its
share of the information described in sec-
tion 4.07(1) on the Schedule K–1 (Form
8865) that it is required to complete. Cat-
egory 2 filers also must complete a state-
ment containing their share of the items
listed on each statement received by the
partnership.
(c) The Category 1 and Category 2 filers
should not attach the statements described
in sections 5.07(3)(a)(ii) and 5.07(3)(b) of
this revenue procedure, respectively, to the
Schedules K–1 that are filed with the Ser-
vice. However, Category 1 filers must re-
tain the statements they complete and each
partner must retain its own statement, in
their respective books and records.
(4) If as a result of § 108(i)(5)(D)(ii), a
partner of a partnership described in sec-
tion 5.07(1) of this revenue procedure or a
shareholder of an S corporation described
in section 5.07(1) of this revenue proce-
dure must recognizeitems deferred un-
der § 108(i), the partnership or S corpora-
tion must report these items on the Sched-
ule K–1 (Form 1065, Form 1065–B, or
Form 1120S) and statements provided to
the partner or shareholder pursuant to sec-
tion 5.07(1) and (2) of this revenue proce-
dure. Similar rules apply to Category 1 and
Category 2 filers (Form 8865) described in
section 4.12(6) of this revenue procedure.
SECTION 6. EFFECTIVE DATE
This revenue procedure is effective
for reacquisitions of applicable debt in-
struments in taxable years ending after
December 31, 2008.
SECTION 7. TRANSITION RULE
.01Noncomplying Election. Except as
otherwise provided in this section 7.01, the
Service will treat a §108(i) election as ef-
fective if a taxpayer files an election with
the taxpayer’s federal income tax return
filed on or before September 16, 2009, us-
ing any reasonable procedure to make the
election. However, an election that does
not comply with section 4 of this revenue
procedure will not be effective unless the
taxpayer on or before November 16, 2009,
files an amended return for the taxable year
of the election and complies with the re-
quirements of section 4 of this revenue
procedure.
.02Modification of Election.Atax-
payer that files a § 108(i) election on or
before September 16, 2009, may modify
thatelectionbyfilinganamendedreturn
on or before November 16, 2009 (for ex-
September 8, 20093172009–36 I.R.B.

ample, to modify the amount of COD in-
come the taxpayer elects to defer). To be
effective, a modification of an election de-
scribed in the preceding sentence must sat-
isfy the requirements for an election de-
scribed in section 4 of this revenue proce-
dure.
.03Notations. A taxpayer that files
the amended return on paper must write
“Section 108(i) Election” on the top of
the first page. A taxpayer that files the
amended return electronically should indi-
cate “Section 108(i) Election” on the re-
turn. See Publication 4163,Modernized
e-File (MeF) Information for Authorized
IRS e-file Providers for Business Returns
Tax Year 2008for more details.
SECTION 8. PAPERWORK
REDUCTION ACT
The collection of information con-
tained in this revenue procedure has been
reviewed and approved by the Office
of Management and Budget in accor-
dance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545–2147.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
The collection of information in this
revenue procedure is in sections 4, 5 and
7. This information is required to deter-
mine the amount of income and deduc-
tions a taxpayer elects to defer and to track
those amounts until the taxpayer has re-
ported all deferred income and deductions
on the taxpayer’s tax return. This infor-
mation will be used during examination
to verify that a taxpayer has correctly de-
ferred income and deductions. The col-
lection of information is required to ob-
tain a benefit. The likely respondents are
C corporations, shareholders of S corpo-
rations, partners of partnerships, and other
individuals engaged in a trade or business,
that reacquire applicable debt instruments
in 2009 or 2010.
The estimated total annual reporting
burden is 300,000 hours. The estimated
annual burden per respondent varies from
1 to 8 hours, depending on individual cir-
cumstances, with an estimated average of
6 hours. The estimated number of respon-
dents is 50,000.
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
§ 6103.
DRAFTING INFORMATION
The principal authors of this rev-
enue procedure are Megan A. Stoner of
the Office of Associate Chief Counsel
(Passthroughs & Special Industries)
andCraigWojayoftheOfficeof
Associate Chief Counsel (Income Tax
& Accounting). For further information
regarding this revenue procedure, contact
Megan A. Stoner at (202) 622–3070
for questions involving partnerships and
S corporations, William E. Blanchard at
(202) 622–3950 for questions involving
OID, Ronald M. Gootzeit at (202)
622–3860 for questions involving foreign
entities, Robert Rhyne at (202) 622–7790
for questions involving earnings and
profits and consolidated groups, and
Craig Wojay at (202) 622–4920 for
questions on § 108(i) generally (not
toll-free calls).
2009–36 I.R.B.318September 8, 2009

Part IV. Items o
fGeneralInterest
Deletions From Cumulative
List of Organizations
Contributions to Which
are Deductible Under Section
170 of the Code
Announcement 2009–64
The Internal Revenue Service has re-
voked its determination that the organi-
zations listed below qualify as organiza-
tions described in sections 501(c)(3) and
170(c)(2) of the Internal Revenue Code of
1986.
Generally, the Service will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the Service is not
precluded from disallowing a deduction
for any contributions made after an or-
ganization ceases to qualify under section
170(c)(2) if the organization has not timely
filed a suit for declaratory judgment under
section 7428 and if the contributor (1) had
knowledge of the revocation of the ruling
or determination letter, (2) was aware that
such revocation was imminent, or (3) was
in part responsible for or was aware of the
activities or omissions of the organization
that brought about this revocation.
If on the other hand a suit for declara-
tory judgment has been timely filed, con-
tributions from individuals and organiza-
tions described in section 170(c)(2) that
are otherwise allowable will continue to
be deductible. Protection under section
7428(c) would begin on September 8, 2009
andwouldendonthedatethecourtfirst
determines that the organization is not de-
scribed in section 170(c)(2) as more partic-
ularly set forth in section 7428(c)(1). For
individual contributors, the maximum de-
duction protected is $1,000, with a hus-
band and wife treated as one contributor.
This benefit is not extended to any indi-
vidual, in whole or in part, for the acts or
omissions of the organization that were the
basis for revocation.
HFZ Charitable Supporting Organization
Santa Barbara, CA
Main Homes Community Development
Corporation
Columbus, OH
North American Housing Foundation
Spokane, WA
The Valcarce Foundation
Bountiful, UT
Announcement of Disciplinary Sanctions From the Office
of Professional Responsibility
Announcement 2009-65
TheOfficeofProfessionalResponsi-
bility (OPR) announcesrecent disciplinary
sanctions involving attorneys, certified
public accountants, enrolled agents, en-
rolled actuaries, enrolled retirement plan
agents, and appraisers. These individuals
are subject to the regulations governing
practice before the Internal Revenue Ser-
vice (IRS), which are set out in Title 31,
Code of Federal Regulations, Part 10, and
which are published in pamphlet form as
Treasury Department Circular No. 230.
The regulations prescribe the duties and
restrictions relating to such practice and
prescribe the disciplinary sanctions for
violating the regulations.
The disciplinary sanctions to be im-
posed for violation of the regulations are:
Disbarred from practice before the
IRS—An individual who is disbarred is
not eligible to represent taxpayers before
the IRS.
Suspended from practice before the
IRS—An individual who is suspended is
not eligible to represent taxpayers before
the IRS during the term of the suspension.
Censured in practice before the
IRS—Censure is a public reprimand. Un-
like disbarment or suspension, censure
does not affect an individual’s eligibility
to represent taxpayers before the IRS, but
OPR may subject the individual’s future
representations to conditions designed to
promote high standards of conduct.
Monetary penalty—A monetary
penalty may be imposed on an individual
who engages in conduct subject to sanc-
tion or on an employer, firm, or entity
if the individual was acting on its behalf
and if it knew, or reasonably should have
known, of the individual’s conduct.
Disqualification of appraiser—An
appraiser who is disqualified is barred
from presenting evidence or testimony in
any administrative proceeding before the
Department of the Treasury or the IRS.
Under the regulations, attorneys, cer-
tified public accountants, enrolled agents,
enrolled actuaries, and enrolled retirement
plan agents may not assist, or accept assis-
tance from, individuals who are suspended
or disbarred with respect to matters consti-
tuting practice (i.e., representation) before
theIRS,andtheymaynotaidorabetsus-
pended or disbarred individuals to practice
before the IRS.
Disciplinary sanctions are described in
these terms:
Disbarred by decision after hearing,
Suspended by decision after hearing,
Censured by decision after hearing,
Monetary penalty imposed after hear-
ing, and Disqualified after hearing—An
administrative law judge (ALJ) conducted
an evidentiary hearing upon OPR’s com-
plaint alleging violation of the regulations
and issued a decision imposing one of
these sanctions. After 30 days from the
issuance of the decision, in the absence of
an appeal, the ALJ’s decision became the
final agency decision.
Disbarred by default decision, Sus-
pended by default decision, Censured by
default decision, Monetary penalty im-
posed by default decision, and Disqual-
ified by default decision—An ALJ, after
finding that no answer to OPR’s complaint
had been filed, granted OPR’s motion for a
default judgment and issued a decision im-
posing one of these sanctions.
September 8, 20093192009–36 I.R.B.

Disbarment by decision on appeal,
Suspended by decision on appeal, Cen-
sured by decision on appeal, Monetary
penalty imposed by decision on ap-
peal, and Disqualified by decision on
appeal—The decision of the ALJ was
appealed to the agency appeal authority,
acting as the delegate of the Secretary
of the Treasury, and the appeal authority
issued a decision imposing one of these
sanctions.
Disbarred by consent, Suspended by
consent, Censured by consent, Mone-
tary penalty imposed by consent, and
Disqualified by consent—In lieu of a
disciplinary proceeding being instituted
or continued, an individual offered a con-
sent to one of these sanctions and OPR
accepted the offer. Typically, an offer
of consent will provide for: suspension
for an indefinite term; conditions that the
individual must observe during the sus-
pension; and the individual’s opportunity,
after a stated number of months, to file
with OPR a petition for reinstatement af-
firming compliance with the terms of the
consent and affirming current eligibility
to practice (i.e., an active professional
license or active enrollment status). An
enrolled agent or an enrolled retirement
plan agent may also offer to resign in order
to avoid a disciplinary proceeding.
Suspended by decision in expedited
proceeding, Suspended by default de-
cision in expedited proceeding, Sus-
pended by consent in expedited pro-
ceeding—OPR instituted an expedited
proceeding for suspension (based on cer-
tain limited grounds, including loss of a
professional licenseand criminal convic-
tions).
OPR has authority to disclose the
grounds for disciplinary sanctions in these
situations: (1) an ALJ or the Secretary’s
delegate on appeal has issued a decision
on or after September 26, 2007, which was
theeffectivedateofamendmentstothe
regulations that permit making such deci-
sions publicly available; (2) the individual
has settled a disciplinary case by signing
OPR’s “consent to sanction” form, which
requires consenting individuals to admit to
one or more violations of the regulations
and to consent to the disclosure of the in-
dividual’s own return information related
to the admitted violations (for example,
failure to file Federal income tax returns);
or (3) OPR has issued a decision in an
expedited proceeding for suspension.
Announcements of disciplinary sanc-
tions appear in the Internal Revenue Bul-
letin at the earliest practicable date. The
sanctions announced below are alphabet-
ized first by the names of states and sec-
ond by the last names of individuals. Un-
less otherwise indicated, section numbers
(e.g., § 10.51) refer to the regulations.
City & StateNameProfessionalDisciplinary SanctionEffective Date(s)
Designation
Arizona
TucsonAlavez, Erin M.AttorneySuspended by default
decision in expedited
proceeding under § 10.82
(attorney disbarment)
Indefinite from
August 5, 2009
Florida
Coral SpringsSalomon, Scott A.AttorneySuspended by default
decision in expedited
proceeding under § 10.82
(attorney disbarment)
Indefinite from
August 11, 2009
Illinois
Homer GlenBujan, Jr., Frank M.CPADisbarred by ALJ default
decision for violation of
§ 10.51 (willful failure to
file several Federal tax
returns)
Indefinite from
July 1, 2009
Missouri
CassvilleDivers, Robert D.Enrolled AgentCensured by consent for
admitted violation of
§ 10.22 (failed to exercise
due diligence in preparing
a client’s Form 1040,
individual income tax
return)
Indefinite from
August 3, 2009
2009–36 I.R.B.320September 8, 2009

City & StateNameProfessionalDisciplinary SanctionEffective Date(s)
Designation
Missouri (Continued)
St. LouisSuits, Jennifer K.AttorneyDisbarred by ALJ default
decision for violation of
§ 10.51 (willful failure to
file several Federal tax
returns)
Indefinite from
July 1, 2009
Lake OzarkSutton, Elbert L.CPASuspended by ALJ default
decision for violation of
§ 10.51 (willful failure to
file several Federal tax
returns)
Indefinite from
June 30, 2009
New Jersey
Fort DixPfaff, Robert A.CPASuspended by decision
in expedited proceeding
under § 10.82 (conviction
under 26 U.S.C. § 7201,
tax evasion, and 18 U.S.C.
§ 2, tax evasion) in New
York
Indefinite from
August 5, 2009
New York
New YorkLarson, John M.AttorneySuspended by default
decision in expedited
proceeding under § 10.82
(conviction under
26 U.S.C. § 7201, tax
evasion, and 18 U.S.C.
§ 2, tax evasion)
Indefinite from
August 11, 2009
Pfaff, Robert A.,
See New Jersey
Texas
HoustonFunderburgh, LeeCPASuspended by default
decision in expedited
proceeding under
§ 10.82 (conviction
under 26 U.S.C. § 7206,
aiding and assisting
in the preparation and
presentation of false tax
returns)
Indefinite from
August 7, 2009
EarlyThomason,FrankJ.CPADisbarredbyALJdefault
decision for violation of
§ 10.51 (willful failure to
file several Federal tax
returns)
Indefinite from
June 30, 2009
September 8, 20093212009–36 I.R.B.

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cases
in litigation, or the outcome of a Service
study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
2009–36 I.R.B.iSeptember 8, 2009

Numerical Finding List
1
Bulletins 2009–27 through 2009–36
Announcements:
2009-56, 2009-28 I.R.B.145
2009-57, 2009-29 I.R.B.158
2009-58, 2009-29 I.R.B.158
2009-59, 2009-29 I.R.B.158
2009-60, 2009-30 I.R.B.166
2009-61, 2009-33 I.R.B.246
2009-62, 2009-33 I.R.B.247
2009-63, 2009-33 I.R.B.248
2009-64, 2009-36 I.R.B.319
2009-65, 2009-36 I.R.B.319
Notices:
2009-51, 2009-28 I.R.B.128
2009-55, 2009-31 I.R.B.170
2009-57, 2009-29 I.R.B.147
2009-58, 2009-30 I.R.B.163
2009-59, 2009-31 I.R.B.170
2009-60, 2009-32 I.R.B.181
2009-61, 2009-32 I.R.B.181
2009-62, 2009-35 I.R.B.260
2009-63, 2009-34 I.R.B.252
2009-64, 2009-36 I.R.B.307
2009-69, 2009-35 I.R.B.261
2009-70, 2009-34 I.R.B.255
2009-71, 2009-35 I.R.B.262
Proposed Regulations:
REG-152166-05, 2009-32 I.R.B.183
REG-112994-06, 2009-28 I.R.B.144
REG-113289-08, 2009-33 I.R.B.244
REG-130200-08, 2009-31 I.R.B.174
Revenue Procedures:
2009-30, 2009-27 I.R.B.27
2009-31, 2009-27 I.R.B.107
2009-32, 2009-28 I.R.B.142
2009-33, 2009-29 I.R.B.150
2009-34, 2009-34 I.R.B.258
2009-35, 2009-35 I.R.B.265
2009-36, 2009-35 I.R.B.304
2009-37, 2009-36 I.R.B.309
Revenue Rulings:
2009-18, 2009-27 I.R.B.1
2009-19, 2009-28 I.R.B.111
2009-20, 2009-28 I.R.B.112
2009-21, 2009-30 I.R.B.162
2009-22, 2009-31 I.R.B.167
2009-23, 2009-32 I.R.B.177
2009-24, 2009-36 I.R.B.306
Treasury Decisions:
9452, 2009-27 I.R.B.1
9453, 2009-28 I.R.B.114
9454, 2009-32 I.R.B.178
9455, 2009-33 I.R.B.239
9456, 2009-33 I.R.B.188
1
A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2009–1 through 2009–26 is in Internal Revenue Bulletin
2009–26, dated June 29, 2009.
September 8, 2009ii2009–36 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2009–27 through 2009–36
Announcements:
2006-93
Superseded by
Ann. 2009-62, 2009-33 I.R.B.247
Notices:
2004-67
Supplemented and superseded by
Notice 2009-59, 2009-31 I.R.B.170
2006-70
Obsoleted by
T.D. 9453, 2009-28 I.R.B.114
2006-109
Superseded in part by
Rev. Proc. 2009-32, 2009-28 I.R.B.142
2008-43
Obsoleted by
REG-113289-08, 2009-33 I.R.B.244
2009-28
Clarified by
Notice 2009-69, 2009-35 I.R.B.261
Revenue Procedures:
97-49
Modified and superseded by
Rev. Proc. 2009-31, 2009-27 I.R.B.107
2007-44
Modified by
Rev. Proc. 2009-36, 2009-35 I.R.B.304
2008-38
Superseded by
Rev. Proc. 2009-30, 2009-27 I.R.B.27
2008-44
Superseded by
Rev. Proc. 2009-35, 2009-35 I.R.B.265
2008-65
Modified by
Rev. Proc. 2009-33, 2009-29 I.R.B.150
2009-16
Modified by
Rev. Proc. 2009-33, 2009-29 I.R.B.150
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2009–1 through 2009–26 is in Internal Revenue Bulletin 2009–26, dated June 29, 2009.
2009–36 I.R.B.iiiSeptember 8, 2009

September 8, 20092009–36 I.R.B.

INTERNAL REVENUE BULLETIN
The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue
Bulletin is sold on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superin-
tendent of Documents when their subscriptions must be renewed.
CUMULATIVE BULLETINS
The contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are
sold on a single copy basis andare notincluded as part of the subscription to the Internal Revenue Bulletin. Subscribers to the weekly
Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of print
and are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from the
Superintendent of Documents.
ACCESS THE INTERNAL REVENUE BULLETIN ON THE INTERNET
You may view the Internal Revenue Bulletin on the Internet at www.irs.gov. Select Businesses. Under Businesses Topics, select
More Topics. Then select Internal Revenue Bulletins.
INTERNAL REVENUE BULLETINS ON CD-ROM
Internal Revenue Bulletins are available annually as part ofPublication 1796 (Tax Products CD-ROM). The CD-ROM can be
purchased from National Technical Information Service (NTIS) on the Internet at www.irs.gov/cdorders (discount for online orders)
or by calling 1-877-233-6767. The first release is available in mid-December and the final release is available in late January.
HOW TO ORDER
Check the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance,
detach entire page, and mail to the Superintendent of Documents, P.O. Box 371954, Pittsburgh PA, 15250–7954. Please allow two to
six weeks, plus mailing time, for delivery.
WE WELCOME COMMENTS ABOUT THE INTERNAL
REVENUE BULLETIN
If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we
would be pleased to hear from you. You can email us your suggestions or comments through the IRS Internet Home Page (www.irs.gov)
or write to the IRS Bulletin Unit, SE:W:CAR:MP:T:T:SP, Washington, DC 20224.
Internal Revenue Service
W
ashington,DC20224
Official Business
Penalty for Private Use, $300