Internal Revenue Bulletin 2011-41 (PDF rendition): IRS Revenue Rulings

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Bulletin No. 201
1-41
October 11, 2011
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. 2011–22, page 489.
Federal rates; adjusted federal rates; adjusted federal
long-termrateandthelong-termexemptrate.For pur-
poses of sections 382, 642, 1274, 1288, and other sections
of the Code, tables set forth the rates for October 2011.
Rev. Rul. 2011–24, page 485.
Telecommunications services under section 199.This
ruling determines in certain situations whether a taxpayer pro-
viding telecommunications services is deriving gross receipts
from services, leasing or renting property, or some combina-
tion thereof for purposes of the domestic production activities
deduction under section 199 of the Code.
Notice 2011–74, page 496.
This notice provides for the suspension of certain requirements
under section 42 of the Code for low-income housing credit
projects in order to provide emergency housing relief needed
as a result of the devastation caused by Tropical Storm Irene
in Vermont beginning on August 27, 2011.
Notice 2011–79, page 498.
Extension of replacement period for livestock sold on
account of drought.This notice explains the circumstances
under which the 4-year replacement period under section
1033(e)(2) of the Code is extended for livestock sold on
account of drought. The Appendix to this notice contains a
list of the counties that experienced exceptional, extreme, or
severe drought during the preceding 12-month period ending
August 31, 2011. Taxpayers may use this list to determine if
an extension is available.
EXEMPT ORGANIZATIONS
Announcement 2011–63, page 503.
The IRS has revoked its determination that Allied Veterans of the
World, Inc., & Affiliates of Charlotte, NC; Metropolitan Financial
Management Corporation of Roseville, MN; Saint Rest No. 2
Missionary Baptist Church of Chicago, IL; American Homebuy-
ers Foundation, Inc., of Conyers, GA; Bundle of Joy Daycare,
Inc., of Long Beach, CA; Columbia Basin Animal Rescue and
Protection Agency of Kennewick, WA; Handicap Interests Inter-
national and World Religions of Saranac Lake, NY; Holographic
Ecology, Inc., of Santa Barbara, CA; Mattie’s Maternity Homes
of Palmdale, CA; Monytek Human Services, Inc., of Pendleton,
OR; and Community Day Care Center of Abbeyville, LA, qualify
as organizations described in sections 501(c)(3) and 170(c)(2)
of the Code.
EMPLOYMENT TAX
Announcement 2011–64, page 503.
This announcement provides notice and details regarding the
new Voluntary Classification Settlement Program (VCSP). The
VCSP will allow eligible taxpayers to obtain similar relief to
that obtained in the current Classification Settlement Program
(CSP), which is only available to taxpayers under IRS exami-
nation. The VCSP is optional and provides taxpayers with an
opportunity to voluntarily reclassify their workers as employ-
ees for future tax periods with limited federal employment tax
liability for the past nonemployee treatment. To participate,
taxpayers must meet certain eligibility requirements, apply to
participate in VCSP, and enter into a closing agreement with
the IRS.
(Continued on the next page)
Finding Lists begin on page ii.

ADMINISTRATIVE
T.D. 9545, page 490.
Final regulations under section 6404 of the Code relate to the
suspension of interest, penalties, additions to tax, or additional
amounts under section 6404(g). Notice 2007–93 obsoleted.
Notice 2011–78, page 497.
This notice provides relief to insurance companies administer-
ing certain self-insurance arrangements on behalf of an em-
ployer or other entity from any information reporting obligations
under section 6050W of the Code. Insurance companies may
rely on this notice until the regulations under section 6050W
are amended.
October 11, 20112011–41 I.R.B.

The IRS Mission
Provide Americ
a’s taxpayers top-quality service by helping
them understa
nd and meet their tax responsibilities and en-
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th 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.
2011–41 I.R.B.October 11, 2011

October 11, 20112011–41 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 42.—L
ow-Income
Housing Credi
t
The adjusted a
pplicable federal short-term, mid-
term, and long
-term rates are set forth for the month
of October 201
1. See Rev. Rul. 2011-22, page 489.
Section 199.—Income
Attributable to Domestic
Production Activities
26 CFR 1.199–3: Domestic production gross re-
ceipts.
(Also: § 7701.)
Telecommunications services under
section 199.This ruling determines in
certain situations whether a taxpayer pro-
viding telecommunications services is de-
riving gross receipts from services, leasing
or renting property, or some combination
thereof for purposes of the domestic pro-
duction activities deduction under section
199 of the Code.
Rev. Rul. 2011–24
ISSUE
In the situations described below, does a
taxpayer that provides telecommunication
services derive gross receipts from ser-
vices to customers, leasing or renting prop-
erty to customers, or some combination
thereof for purposes of the domestic pro-
duction activities deduction under § 199 of
the Internal Revenue Code?
FACTS
Situ
ation 1.Zcorporation is in the busi-
ness
of providing telecommunication ser-
vice
s, including the transmission of voice,
data
, and video communications.Zcon-
trac
ts withA, a corporation that is not in the
tel
ecommunications industry, to transmit
A’s
telecommunications.Ahas multiple
bus
iness locations. The contract requiresZ
to t
ransmitA’s telecommunications atA’s
des
ired times, toA’s desired destinations,
and
at a certain speed. IfZcannot transmit
A’
s telecommunications according to the
te
rms of the contract, then the contract re-
qu
iresZto provideAwith a service credit.
Th
e contract requiresAto make payments
toZfor transm
ittingA’s telecommunica-
tions.
Z’s optical an
d digital transmission
equipment, us
ually a Synchronous Optical
Network (SONE
T) ring, and the associ-
ated Public S
witched Telephone Network
(PSTN) are us
ed to transmitA’s telecom-
munications
.Z’s SONET ring is deployed
in a ring topo
logy and interconnects mul-
tiple busin
ess locations designated byA
so that tele
communications can be trans-
mitted betw
eenA’s business locations
without bei
ng transmitted toZ’s PSTN.
The SONET r
ing also connects with
Z’s
central of
fice, switching center, or remote
terminal s
o that telecommunications can
be transmi
tted to and fromZ’s PSTN.
The PSTN is
comprised primarily of
fiber opti
c cable and copper cable that
connects
switching centers with each other
and conne
cts switching centers to remote
terminal
s. The PSTN is owned byZand
is not ded
icated toAor to any ofZ’s other
customer
s.Z’s PSTN provides a multitude
of differ
ent pathways to transmit telecom-
municat
ions to and fromA’s business
locatio
ns. The SONET ring and PSTN
assets u
sedtotransmitA’s telecommuni-
cations
include: (1) network electronics,
such as
multiplexers, switches, routers,
digita
l cross connects, optical and digital
transm
ission equipment; (2) fiber optic
cable a
nd/or copper cable; (3) network
facili
ties such as a central office; and (4)
softw
are.
Aowns s
ome telecommunications
equip
ment that connects with the SONET
ring t
o allow transmission ofA’s telecom-
munic
ations betweenA’s business loca-
tions
or to the PSTN, and transmission of
other
s’ telecommunications toAfrom the
PSTN
.A’s telecommunications equipment
is lo
cated solely onA’s side of the de-
marc
ation point (point of interconnection)
as th
at term is used in 47 C.F.R. Part 68.
A’s t
elecommunications equipment typi-
call
y includes a router, a channel service
uni
t/data service unit, and diagnostics mo-
dem
(collectively the “customer premises
equ
ipment”). The contract does not re-
qui
reZto provide any services related to
A’s
customer premises equipment.
Zow
ns, installs, operates, and main-
tai
ns the SONET ring and PSTN.Zwill
replace any SO
NET ring and PSTN as-
sets when repa
irs or upgrades are required.
The contract r
equires thatAgrantZrea-
sonable acce
ss toA’s premises for the pur-
pose of insta
lling, inspecting, testing, rear-
ranging, mai
ntaining, repairing, or remov-
ing any of the
SONET ring assets located
onA’s premi
ses.Zmaintains and repairs
the SONET ri
ng and PSTN at no additional
charge toA.
Ais prohibited from installing,
inspecting
, testing, rearranging, maintain-
ing, repair
ing, or removing any component
of the SONE
Tringand/orPSTN.
Situation
2. The facts and circum-
stances ar
ethesameasinSituation 1,
exceptAdo
es not have multiple business
locations
andZ’s dedicated circuit, instead
of a SONET r
ing, is used to transmitA’s
telecomm
unications to the PSTN and oth-
ers’ tele
communications from the PSTN.
All telec
ommunications transmitted to
or fromAm
ust be transmitted using the
PSTN.Z’s
dedicated circuit, also referred
to as the
“local loop” or “last mile,” is
compris
ed ofZ’s equipment (copper or
fiber op
tic cable, point of presence equip-
ment, an
d dedicated or shared equipment).
Zgenera
lly does not notifyAif
Zrepairs
the dedi
cated circuit or PSTN.Zmay no-
tifyAi
fZupgrades the dedicated circuit or
PSTN.A
cannot stopZfrom making any
necess
ary repairs or upgrades to the dedi-
cated c
ircuit or PSTN.
Situat
ion 3. The facts are the same as
Situat
ion 2except thatAdoes not own the
custom
er premises equipment required to
conne
ct with the dedicated circuit to al-
low tr
ansmission ofA’s telecommunica-
tions
. As part of the contract forZto trans-
mitA’
s telecommunications,Zalso pro-
vides
the customer premises equipment,
and p
rovides support services toAin re-
lati
on to managing the customer premises
equi
pment. The contract provides that it
is a l
ease of the customer premises equip-
ment
toA, but does not separately state the
leas
e amount.
Zdel
ivers and installs the customer
prem
ises equipment onA’s premises.Z,
if n
ecessary, helps maintain the customer
pre
mises equipment by providing tele-
pho
ne support services toA’s designated
emp
loyees related to diagnosing problems
and
repairing and replacing the customer
2011–41 I.R.B.485October 11, 2011

premises equipment.Zcan also remotely
perform certain maintenance or diagnostic
tasks.A’s designated employees complete
any required repair or replacement.Ais
liable for any repair charges or the re-
placement cost of the customer premises
equipment if it is damaged or lost.Acan
relocate or modify the customer premises
equipment, and may attach it to non-Z
equipment withZ’s written authorization,
which may not be unreasonably withheld.
When the contract terminates, ifAdoes
not return the customer premises equip-
ment or make it available for removal by
Z,thenAis liable toZfor the customer
premises equipment’s then current market
value.Ais liable for costs of any restora-
tion of the customer premises equipment
beyond ordinary wear and tear.
LAW AND ANALYSIS
Section 199(a)(1) allows a deduction
equal to 9 percent (3 percent in the case of
taxable years beginning in 2005 or 2006,
and 6 percent in the case of taxable years
beginning in 2007, 2008, or 2009) of the
lesser of (A) the qualified production ac-
tivities income (QPAI) of the taxpayer for
the taxable year, or (B) taxable income (de-
termined without regard to § 199) for the
taxable year (or, in the case of an individ-
ual, adjusted gross income).
Sections 199(b)(1) and (b)(2) limit the
amount of the deduction allowable under
§ 199(a) to 50 percent of the W–2 wages
of the taxpayer for the taxable year that
are allocable to domestic production gross
receipts (DPGR).
Section 199(c)(1) defines QPAI for any
taxable year as an amount equal to the ex-
cess (if any) of (A) the taxpayer’s DPGR
for such taxable year, over (B) the sum of
(i) the cost of goods sold that are allocable
to such receipts; and (ii) other expenses,
losses, or deductions (other than the deduc-
tion under § 199) that are properly alloca-
ble to such receipts.
Section 199(c)(4)(A)(i)(I) provides that
the term DPGR means the taxpayer’s gross
receipts that are derived from any lease,
rental, license, sale, exchange, or other dis-
position of qualifying production property
that was manufactured, produced, grown,
or extracted by the taxpayer in whole or in
significant part within the United States.
Section 1.199–3(i)(1) of the Income
Tax Regulations provides that applica-
ble Federal income tax principles apply
to determine whether a transaction is, in
substance, a lease, rental, license, sale, ex-
change, or other disposition, whether it is
a service, or whether it is some combina-
tion thereof. Section 1.199–3(i)(4)(i)(A)
provides that gross receipts derived from
the performance of services generally do
not qualify as DPGR.
Section 1.199–3(i)(6)(ii) provides that
gross receipts derived from customer and
technical support, telephone and other
telecommunication services, online ser-
vices (such as Internet access services,
online banking services, providing access
to online electronic books, newspapers,
and journals), and other similar services do
not constitute gross receipts derived from
a lease, rental, license, sale, exchange, or
other disposition of computer software.
Example 3of § 1.199–3(i)(6)(v) concludes
that gross receipts derived from telephone
and related telecommunication services
run by computer software produced by
the taxpayer are attributable to a service
and do not constitute gross receipts de-
rived from a lease, rental, license, sale,
exchange, or other disposition of computer
software.
Rev. Rul. 68–109, 1968–1 C.B. 10,
holds that switchboards or dial switching
apparatus installed by the taxpayer, a reg-
ulated communications utility, at a cus-
tomer location and used to furnish com-
munications servicesto tax-exempt orga-
nizations or governmental units were eli-
gible for the investment tax credit because
the equipment installed was not owned or
leased by the tax-exempt organizations or
governmental units. The taxpayer retained
all ownership in, and possession and con-
trol over, the equipment. The agreement
entered into between the taxpayer and the
customer was not a sale or lease but a ser-
vice contract. The services furnished by
the taxpayer and the manner in which they
must be furnished were described in tariffs
(which did not include provisions that au-
thorized the taxpayer to sell or lease any
of the property in question) on file with
the Federal Communications Commission,
and with the pertinent state public utility
regulatory agencies.
Rev. Rul. 72–407, 1972–2 C.B. 10,
holds that fully serviced vehicles that were
furnished on a daily basis to a department
of the United States Government were in-
eligible property for purposes of the in-
vestment tax credit because the vehicles
were provided under a lease arrangement
rather than a service contract. The rul-
ing reasons that the provision of vehicles
was more analogous to the facts under Rev.
Rul. 71–397, 1971–2 C.B. 63 (in which
an owner-manufacturer’s machines placed
with and for the use of tax-exempt orga-
nizations and governmental units were not
eligible for the investment tax credit be-
cause the manufacturer did not have pos-
session and use of the machines), than to
the facts under Rev. Rul. 68–109. The rul-
ing reasons that, because the vehicles were
not part of an integrated network and no
government regulations prohibited a lease
of the vehicles, provision of the vehicles
was fundamentally different from the pro-
vision of communications services consid-
ered in Rev. Rul. 68–109. The vehicles
were provided to the governmental unit by
the taxpayer; however, the taxpayer did
not use them to render services to the gov-
ernmental unit. Instead, the placement of
the vehicles with the governmental unit
allowed the governmental unit to provide
services to itself.
In addition, case law addresses whether
a contract is a lease or a service contract.
For example, inXerox Corporation v.
United States, 656 F.2d 659 (Ct. Cl. 1981),
the court held that machines were eligible
for the investment tax credit because the
machines were not leased but supplied
as an integral part of service. The court,
after citing Rev. Rul. 68–109 and other
rulings, focused the service-versus-lease
analysis on the possessory interest a tax-
payer retains in the property and whether
thepropertyispartofanintegratedoper-
ation. The court described four factors to
use when analyzing the possessory inter-
est: (1) retention of property ownership
by taxpayer (seeRev. Rul. 68–109); (2)
retention of possession and control of
the property by taxpayer (seeRev. Rul.
68–109 and Rev. Rul. 71–397); (3) re-
tention of risk of loss by the taxpayer (see
Rev. Rul. 68–109); and (4) reservation
of the right to remove the property, and
replace it with comparable property.
InSmith v. Commissioner,T.C.Memo.
1989–318, in determining whether the tax-
payer was eligible for the investment tax
credit, the court listed four factors for dis-
tinguishing leases from service contracts:
(1) which party has the use and posses-
sion or control of the equipment; (2) which
October 11, 20114862011–41 I.R.B.

party operates the machine; (3) whether
the tax-exempt organization pays for the
use of the machine for some duration, or,
instead pays based upon the number of
procedures executed; and (4) whether the
equipment is part of a broader, integrated
system of equipment and services.
Applicable Federal income tax prin-
ciples relevant to determining whether a
taxpayer’s gross receipts are derived from
providing telecommunication services or
from a lease or rental of property include
the factors described in § 7701(e)(1). Sec-
tion 7701(e)(1) provides that for purposes
of chapter 1, of which § 199 is a part, a
contract that purports to be a service con-
tract shall be treated as a lease of property
if such contract is properly treated as a
lease of property taking into account all
relevant factors, including whether or not
(A) the service recipient is in physical
possession of the property, (B) the service
recipient controls theproperty, (C) the ser-
vice recipient has a significant economic
or possessory interest in the property, (D)
the service provider does not bear any
risk of substantially diminished receipts
or substantially increased expenditures if
there is nonperformance under the con-
tract, (E) the service provider does not
use the property concurrently to provide
significant services toentities unrelated
to the service recipient, and (F) the total
contract price does not substantially ex-
ceed the rental value of the property for
the contract period.
Although authorities on Federal income
tax principles such as those summarized
above demonstrate that Federal income tax
principles are generally used to determine
a single character for a given transaction,
§ 1.199–3(i)(1) provides that, solely for
purposes of § 199, a single transaction
may, depending on applicable Federal in-
come tax principles, have both a services
element and a lease element. Accordingly,
the application of Federal income tax prin-
ciples described in § 1.199–3(i)(1) requires
an analysis of relevant factors taken from
Federal income tax principles, but does not
require a determination of a single charac-
ter. However, analysis of the relevant fac-
tors may lead to a determination that the
transaction has only asingle character ele-
ment for purposes of § 199.
InSituation 1, under the applicable
Federal income tax principles described
above,Zis using its SONET ring and
PSTN to provide telecommunication ser-
vices toA, not providing a combination of
telecommunication services with a lease
or rental ofZ’s SONET ring or PSTN to
A. Although a determination for § 199
purposes that a transaction constitutes ex-
clusively the provision of services requires
thorough consideration of all relevant facts
and circumstances, several significant fac-
tors inSituation 1support this conclusion.
For instance,Zmaintains control of the
SONET ring and PSTN that are necessary
forZto fulfill the conditions of its contract
withA. To fulfill the contract terms,Zmust
transmitA’s telecommunications atA’s de-
sired times, toA’s desired destinations, and
at a certain speed.Acontracts withZfor
the quantity and quality of telecommuni-
cation services, but does not control how
ZusestheSONETringandPSTNtopro-
vide the services.
Further,Adoes not have a possessory
interest in the SONET ring and PSTN that
Zuses to complete the transmissions.Z
must operate the SONET ring and PSTN
because, ifAmakes the payments due un-
der the contract toZ,Zis required to trans-
mitA’s telecommunications.Adoes not
operate, maintain, repair or upgrade the
SONET ring and PSTN.AgrantsZrea-
sonable access toA’s premises for the pur-
pose of installing, inspecting, testing, re-
arranging, maintaining, repairing, or re-
moving any of the SONET ring assets lo-
cated onA’s premises.Zoperates, main-
tains, repairs, and upgrades the SONET
ring and PSTN at no additional charge to
A.Ais prohibited from installing, inspect-
ing, testing, rearranging, maintaining, re-
pairing, or removing any component of
the SONET ring or PSTN.Z
is the party
with a possessory interest in the SONET
ring and PSTN.Zmust be able to oper-
ate the SONET ring and PSTN because,
ifZcannot transmitA’s telecommunica-
tions according to the terms of the contract
(i.e.,A’s desired times, destinations, and
speed), thenZis required to provide a ser-
vice credit.
In addition, the SONET ring and PSTN
are part ofZ’s broader integrated opera-
tion of transmitting telecommunications.
While the SONET ring allowsZto trans-
mitA’s telecommunications betweenA’s
designated business locations without ac-
cessingZ’s PSTN, the SONET ring also
connects withZ’s central office, switching
center, or remote terminal so that telecom-
munications can be transmitted to and
fromZ’s PSTN. The PSTN is owned by
Zand is not dedicated toAor to any of
Z’s other customers. The PSTN provides
a multitude of different pathways to trans-
mit telecommunications to and fromA’s
business locations.
In this situation,Acontracts withZfor
reliable telecommunication services andZ
provides those services using its SONET
ring and PSTN subject to the contract
terms governing the quantity and quality
of services thatZmust provide. Accord-
ingly,Z’s gross receipts derived from
transmittingA’s telecommunications are
derived from the performance of services
without the lease or rental ofZ’s SONET
ring and PSTN toAfor purposes of § 199.
InSituation 2, under the applicable
Federal income tax principles described
above,Zis using the dedicated circuit and
PSTN to provide telecommunication ser-
vices toA, not providing a combination of
telecommunication services with a lease
or rental ofZ’s dedicated circuit or PSTN
toA. Although a determination for § 199
purposes that a transaction constitutes ex-
clusively the provision of services requires
thorough consideration of all relevant facts
and circumstances, several significant fac-
tors inSituation 2support this conclusion.
For instance,Adoes not control the ded-
icated circuit or PSTN asZmaintains the
same control asZhas over the SONET
ring and PSTN inSituation 1.Further,A
does not have a possessory interest in the
dedicated circuit and PSTN thatZuses to
complete the transmissions.Z, in fact, has
broader access to a dedicated circuit than
a SONET ring. Also, the dedicated cir-
cuit is part ofZ’s broader integrated oper-
ation. The dedicated circuit must connect
withZ’s PSTN to transmit telecommunica-
tions to and fromA’s business location.
In this situationAcontracts withZfor
reliable telecommunication services andZ
provides those services using its dedicated
circuit and PSTN subject to the contract
terms governing the quantity and quality of
services thatZmust provide. Accordingly,
Z’s gross receipts derived from transmit-
tingA’s telecommunications are derived
from the performance of services without
the lease or rental ofZ’s dedicated circuit
or PSTN toAfor purposes of § 199.
InSituation 3, under the applicable
Federal income tax principles described
above,Zis providing a combination of
2011–41 I.R.B.487October 11, 2011

telecommunication services using its ded-
icated circuit and PSTN and a lease or
rental ofZ’s customer premises equipment
toA. Although a determination for § 199
purposes that a transaction constitutes a
combination of services and a lease or
rental requires thorough consideration
of all relevant facts and circumstances,
several significant factors inSituation 3
support this conclusion.
With respect to the dedicated circuit and
PSTN,thesameanalysisappliestoSitu-
ation 3as applied inSituation 2.Inthis
situation,A’s contract withZalso includes
the provision of customer premises equip-
ment. The customer premises equipment
is necessary to allowAto connect with
the dedicated circuit so thatZcan transmit
telecommunications to and fromA’s busi-
ness location.
Acontrols the customer premises
equipment in generally the same man-
ner as inSituation 2whereAowns the
customer premises equipment. However,
in this case,Zowns, provides necessary
telephone support services for, and can
perform certain remote maintenance and
diagnostic tasks on the customer premises
equipment. Nevertheless,Ahas a pos-
sessory interest in the customer premises
equipment.Zmust operate the dedicated
circuit and PSTN, but just as inSitua-
tion 2,Aoperates the customer premises
equipment.Adesignates employees to
perform equipment replacement and re-
pair of the customer premises equipment.
Zprovides telephone assistance, but only
if necessary.Acan relocate or modify
the customer premises equipment, and
may attach it to non-Zequipment with
Z’s written authorization, which may not
be unreasonably withheld.Ais liable for
any repair charges or the replacement cost
of the equipment if it is damaged or lost.
When the contract terminates, ifAdoes not
return the customer premises equipment
or make it available for removal byZ,then
Ais liable toZfor the customer premises
equipment’s then current market value. If
Adoes return it and the customer premises
equipment has more than ordinary wear
and tear, thenAis liable for those restora-
tion costs. The facts demonstrate in this
situation thatAhas a possessory interest
in the customer premises equipment.
BecauseAis ultimately the party re-
sponsible for ensuring that the customer
premises equipment is available to connect
with the dedicated circuit to allowZto
transmit telecommunications to and from
A’s business location using
Z’s dedicated
circuit and PSTN, the customer premises
equipment should not be considered part of
Z’s broader integrated network.
In this situationAcontracts withZfor
reliable telecommunication services andZ
provides those services using its dedicated
circuit and PSTN subject to the contract
terms governing the quantity and quality
of services thatZmust provide, butAalso
contracts for the lease or rental of cus-
tomer premises equipment. Accordingly,
Z’s gross receipts derived from transmit-
tingA’s telecommunications are derived
from a combination of services using its
dedicated circuit and PSTN and a lease or
rental of the customer premises equipment
toA.
The terms “lease” and “rent” are used
interchangeably throughout the Code, and
for purposes of this analysis a distinction
is unnecessary. The characterization of a
transaction as a combination of services
and a lease as opposed to a combination
of services and a rental has no effect under
§ 199.
HOLDINGS
InSituation 1,Z’s gross receipts are de-
rived from the performance of telecommu-
nication services without the lease or rental
ofZ’s SONET ring and PSTN toAfor
purposes of § 199 and do not constitute
DPGR.
InSituation 2,Z’s gross receipts are de-
rived from the performance of telecommu-
nication services without the lease or rental
ofZ’s dedicated circuit and PSTN toAfor
purposes of § 199 and do not constitute
DPGR.
InSituation 3,Z’s gross receipts are de-
rived from a combination of the perfor-
mance of telecommunication services us-
ing its dedicated circuit and PSTN and a
lease or rental of the customer premises
equipment described above toAfor pur-
poses of § 199.Z’s gross receipts de-
rived from the performance of services do
not constitute DPGR andZ’s gross receipts
derived from the lease or rental of the
customer premises equipment only qual-
ify as DPGR ifZmeets the other require-
ments of § 199 with respect to the customer
premises equipment.
DRAFTING INFORMATION
The principal author of this revenue
ruling is James A. Holmes of the Office
of Associate Chief Counsel (Passthroughs
& Special Industries).For further
information regarding this revenue ruling,
contact Mr. Holmes at (202) 622–3040
(not a toll-free call).
Section 280G.—Golden
Parachute Payments
Federal short-term, mid-term, and long-term rates
are set forth for the month of October 2011. See Rev.
Rul. 2011-22, page 489.
Section 382.—Limitation
on Net Operating Loss
Carryforwards and Certain
Built-In Losses Following
Ownership Change
The adjusted applicable federal long-term rate is
set forth for the month of October 2011. See Rev.
Rul. 2011-22, page 489.
Section 412.—Minimum
Funding Standards
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 2011. See Rev. Rul. 2011-22, page 489.
Section 467.—Certain
Payments for the Use of
Property or Services
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 2011. See Rev. Rul. 2011-22, page 489.
Section 468.—Special
Rules for Mining and Solid
Waste Reclamation and
Closing Costs
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 2011. See Rev. Rul. 2011-22, page 489.
October 11, 20114882011–41 I.R.B.

Section 482.—Allocation
of Income and Deductions
Among Taxpayers
Federal short-term, mid-term, and long-term rates
are set forth for the month of October 2011. See Rev.
Rul. 2011-22, page 489.
Section 483.—Interest on
Certain Deferred Payments
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 2011. See Rev. Rul. 2011-22, page 489.
Section 642.—
Special
Rules for Credits and
Deductions
Federal short-term, mid-term, and long-term rates
are set forth for the month of October 2011. See Rev.
Rul. 2011-22, page 489.
Section 807.—Rules for
Certain Reserves
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 2011. See Rev. Rul. 2011-22, page 489.
Section 846.—Discounted
Unpaid Loses Defined
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 2011. See Rev. Rul. 2011-22, page 489.
Section 1274.—Determi-
nation of Issue Price in the
Case of Certain Debt Instru-
ments Issued for Property
(Also Sections 42, 280G, 382, 412, 467, 468, 482,
483, 642, 807, 846, 1288, 7520, 7872.)
Federal rates; adjusted federal rates;
adjusted federal long-term rate and the
long-term exempt rate.For purposes of
sections 382, 642, 1274, 1288, and other
sections of the Code, tables set forth the
rates for October 2011.
Rev. Rul. 2011–22
This revenue ru
ling provides various
prescribed ra
tes for federal income tax
purposes for O
ctober 2011 (the current
month). Table
1 contains the short-term,
mid-term, and
long-term applicable fed-
eral rates (A
FR) for the current month
for purposes of section 1274(d) of the
Internal Revenue Code. Table 2 contains
the short-term, mid-term, and long-term
adjusted applicable federal rates (ad-
justed AFR) for the current month for
purposes of section 1288(b). Table 3 sets
forth the adjusted federal long-term rate
and the long-term tax-exempt rate de-
scribed in section 382(f). Table 4 contains
the appropriate percentages for deter-
mining the low-income housing credit
described in section 42(b)(1) for build-
ings placed in service during the current
month. However, under section 42(b)(2),
the applicable percentage for non-feder-
ally subsidized new buildings placed in
service after July 30, 2008, and before
December 31, 2013, shall not be less than
9%. Finally, Table 5 contains the federal
rate for determining the present value of
an annuity, an interest for life or for a term
of years, or a remainder or a reversionary
interest for purposes of section 7520.
REV. RUL. 2011–22 TABLE 1
Applicable Federal Rates (AFR) for October 2011
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
AFR.16%.16%.16%.16%
110% AFR.18%.18%.18%.18%
120% AFR.19%.19%.19%.19%
130% AFR.21%.21%.21%.21%
Mid-term
AFR1.19%1.19%1.19%1.19%
110% AFR1.31%1.31%1.31%1.31%
120% AFR1.44%1.43%1.43%1.43%
130% AFR
1.56%1.55%1.55%1.55%
150% AFR
1.80%1.79%1.79%1.78%
175% AFR
2.09%2.08%2.07%2.07%
Long-term
AFR
2.95%
2.93%2.92%2.91%
110% AFR
3.25%
3.22%3.21%3.20%
120% AFR
3.55%3.52%3.50%
3.49%
130% AFR
3.85%
3.81%3.79%3.78%
2011–41 I.R.B.489October 11, 2011

REV. RUL. 2011–22 TABLE 2
Adjusted AFR for October 2011
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term adj
usted
AFR
.32%.32%.32%.32%
Mid-term adjusted AFR1.27%1.27%1.27%1.27%
Long-term adjusted
AFR
3.51%
3.48%3.46%3.46%
REV. RUL. 2011–22 TABLE 3
Rates Under Section 382 for October 2011
Adjusted federal long-term rate for the current month
3.51%
Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted
federal long-term rates for the current month and the prior two months.)3.82%
REV. RUL. 2011–22 TABLE 4
Appropriate Percentages Under Section 42(b)(1) for October 2011
Note: Under Section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after
July 30, 2008, and before December 31, 2013, shall not be less than 9%.
Appropriate percentage for the 70% present value low-income housing credit7.48%
Appropriate percentage for the 30% present value low-income housing credit3.20%
REV. RUL. 2011–22 TABLE 5
Rate Under Section 7520 for October 2011
Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,
or a remainder or reversionary interest1.4%
S
ection 1288.—Treatment
o
f Original Issue Discount
on Tax-Exempt Obligations
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 2011. See Rev. Rul. 2011-22, page 489.
Section 6404.—Abate-
ments
26 CFR 301.6404–4: Suspension of interest and cer-
tain penalties when the Internal Revenue Service does
not timely contact the taxpayer.
T.D. 9545
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 301
Interest and Penalty
Suspension Provisions Under
Section 6404(g) of the Internal
Revenue Code
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations and removal
of temporary regulations.
SUMMARY: This document contains fi-
nal regulations regarding the suspension of
interest, penalties, additions to tax, or ad-
ditional amounts under section 6404(g) of
the Internal Revenue Code. The final reg-
ulations explain the general rules for sus-
pension and exceptions to those general
rules, and incorporate a special rule from
October 11, 20114902011–41 I.R.B.

Notice 2007–93, 2007–2 C.B. 1072, re-
garding the effective date of the changes to
section 6404(g) made by the Small Busi-
ness and Work Opportunity Tax Act of
2007. The final regulations affect taxpay-
ers who file timely individual income tax
returns and who fail to receive notifica-
tion from the IRS of additional tax liability
within the time period prescribed by sec-
tion 6404(g).
DATES:Effective Date:These regulations
are effective on August 22, 2011.
Applicability Date:Section
301.6404–4(a)(5) applies to notices under
section 6404(g)(1)(A) that are provided
by the IRS on or after November 26,
2007, and that relate to individual Federal
income tax returns that were timely filed
before that date.
FOR FURTHER INFORMATION
CONTACT: Nathan Rosen, (202)
622–3630 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document amends the Procedure
and Administration Regulations (26 CFR
part 301) by adding rules relating to the
suspension of interest, penalties, addi-
tions to tax, or additional amounts under
section 6404(g). Section 6404(g) was
added to the Code by section 3305 of
the Internal Revenue Service Restruc-
turing and Reform Act of 1998, Public
Law 105–206 (112 Stat. 685, 743) (RRA
98), effective for taxable years ending
after July 22, 1998. Section 6404(g) was
amended by section 903(c) of the Amer-
ican Jobs Creation Act of 2004, Public
Law 108–357 (118 Stat. 1418, 1652)
(AJCA), enacted on October 22, 2004, and
by section 303 of the Gulf Opportunity
Zone Act of 2005, Public Law 109–135
(119 Stat. 2577, 2608–09) (GOZA),
enacted on December 21, 2005. Section
8242 of the Small Business and Work
Opportunity Tax Act of 2007, Public Law
110–28 (121 Stat. 190, 200), extended the
eighteen-month period within which the
IRS can, without suspension of interest,
contact a taxpayer regarding possible
adjustments to the taxpayer’s liability to
thirty-six months, effective for notices
provided after November 25, 2007.
On June 21, 2007, the Treasury
Department and the IRS published in
theFederal Registera notice of pro-
posed rulemaking and notice of pub-
lic hearing (REG–149036–04, 2007–2
C.B. 411 [72 FR 34199]), corrected
at (72 FR 41045) (July 26, 2007),
under section 6404(g). The proposed
regulations provided guidance regarding
the suspension of interest, penalties,
additions to tax, or additional amounts
under section 6404(g). No comments
were received in response to the notice
of proposed rulemaking and no public
hearing was requested or held. Therefore,
the proposed regulations are adopted as
amended by this Treasury decision. The
revisions are discussed in this preamble.
On June 21, 2007, the Treasury De-
partment and the IRS also published a
separate set of temporary regulations
(T.D. 9333, 2007–2 C.B. 350 [72 FR
34176]), corrected at 72 FR 41022, and
a notice of proposed rulemaking by
cross-reference to temporary regulations
(REG–149036–04, 2007–2 C.B. 365
[72 FR 34204]), corrected at 72 FR 41045,
under section 6404(g) concerning the
suspension of interest, penalties, additions
to tax, or additional amounts with respect
to listed transactions or undisclosed
reportable transactions. Those temporary
and proposed regulations are not the
subject of this Treasury decision, and
were published as final regulations on
June 16, 2010 (T.D. 9488, 2010–28 I.R.B.
51 [75 FR 33992]).
Explanation of Revisions
The final regulations include new
§301.6404–4(a)(5) to address the matters
that were the subject of Notice 2007–93.
In general, section 6404(g) provides that
if an individual taxpayer files a Federal
income tax return on or before the due
date for that return (including extensions),
and if the IRS does not timely provide a
notice to that taxpayerspecifically stating
the taxpayer’s liability and the basis for
that liability, then the IRS must suspend
any interest, penalty, addition to tax, or
additional amount with respect to any fail-
ure relating to the return that is computed
by reference to the period of time the
failure continues and that is properly allo-
cable to the suspension period. A notice
is timely if provided before the close of
the 18-month period (36-month period, in
the case of notices provided after Novem-
ber 25, 2007, subject to the provisions of
§301.6404–4(a)(5)) beginning on the later
of the date on which the return is filed or
the due date of the return without regard to
extensions. The suspension period begins
on the day after the close of the 18-month
period (or 36-month period) and ends 21
days after the IRS provides the notice.
This suspension rule applies separately
with respect to each item or adjustment.
Notice 2007–93 set forth a special rule
for notices under section 6404(g)(1) that
(i) are provided by the IRS on or after
November 26, 2007, and (ii) relate to in-
dividual Federal income tax returns that
were timely filed before that date. Under
the special rule:
1. If, as of November 25, 2007, the
18-month notification deadline had passed
and the IRS had not provided notice to
the taxpayer, the suspension described in
section 6404(g)(1)(A) would begin on the
day after the close of the 18-month period.
Thesuspensionwouldend21daysafter
the date on which the notice was provided.
2. In all other cases, the suspension
would begin on the day after the close of
the 36-month notification period described
in section 6404(g)(1)(A) and end 21 days
after the date on which the notice was pro-
vided.
The final regulations incorporate sub-
stantially without change the special rule
of Notice 2007–93 at §301.6404–4(a)(5).
In addition, §301.6404–4(b)(2) was re-
vised to remove the reference to section
6501(c)(1) and the meaning of fraud, as
fraud is not defined in section 6501(c)(1)
but is instead generally described under
case law and other guidance. Thus, fraud
for purposes of §301.6404–4(b)(2) has the
same meaning as that provided in case law
and other guidance.
Finally, minor editorial changes were
made to clarify the terms of section
6404(g)andtomodifyareferencetooffi-
cial IRS forms.
Effect on Other Documents
The following publication is obsolete as
of August 22, 2011:
Notice 2007–93, 2007–2 C.B. 1072.
2011–41 I.R.B.491October 11, 2011

Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It has also been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does
not apply to these regulations, and because
these regulations do not impose a collec-
tion of information on small entities, the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6) does not apply.
Pursuant to section 7805(f) of the Code,
the notice of proposed rulemaking preced-
ing these regulations was submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
Drafting Information
The principal author of these regula-
tions is Nathan Rosen of the Office of As-
sociate Chief Counsel (Procedure and Ad-
ministration).
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 301 is
amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read in part as fol-
lows:
Authority: 26 U.S.C. 7805. * * *
Par. 2. Section 301.6404–0 is amended
as follows:
1. Revise the introductory text.
2. Revise entries for §301.6404–4(a)
and (b)(1) through (b)(4).
3. Revise entries for §301.6404–4(c)
and (d).
The revisions read as follows:
§301.6404–0 Table of conte
nts.
This section lists the paragraphs
contained in §§301.6404–1 through
301.6404–4.
*****
§301.6404–4 Suspension of interest
and certain penalties when the Internal
Revenue Service does not timely contact
the taxpayer.
(a) Suspension.
(1) In general.
(2) Treatment of amended returns and
other documents.
(i) Amended returns filed on or after
December 21, 2005, that show an increase
in tax liability.
(ii) Amended returns that show a de-
crease in tax liability.
(iii) Amended returns and other docu-
ments as notice.
(iv) Joint return after filing separate re-
turn.
(3) Separate application.
(4) Duration of suspension period.
(5) Certain notices provided on or after
November 26, 2007.
(i) Eighteen-month period has closed.
(ii) All other cases.
(6) Examples.
(7) Notice of liability and the basis for
the liability.
(i) In general.
(ii) Tax attributable to TEFRA partner-
ship items.
(iii) Examples.
(8) Providing notice.
(i) In general.
(ii) Providing notice in TEFRA partner-
ship proceedings.
(b) Exceptions.
(1) Failure to file tax return or to pay
tax.
(2) Fraud.
(3) Tax shown on return.
(4) Gross misstatement.
(i) Description.
(ii) Effect of gross misstatement.
*****
(c) Special rules.
(1) Tentative carryback and refund ad-
justments.
(2) Election under section 183(e).
(i) In general.
(ii) Example.
(d) Effective/applicability date.
§301.6404–0T[Removed]
Par. 3. Section 301.6404–0T is re-
moved.
Par. 4. Section 301.6404–4 is amended
as follows:
1. Add paragraphs (a) and (b)(1)
through (b)(4).
2. Add paragraph (c).
3. Paragraph (d) is amended by adding
a second sentence.
The additions and revisions read as fol-
lows:
§301.6404–4 Suspension of interest
and certain penalties when the Internal
Revenue Service does not timely contact
the taxpayer.
(a)Suspension.—(1)In general.Ex-
cept as provided in paragraph (b) of this
section, if an individual taxpayer files a
return of tax imposed by subtitle A on
or before the due date for the return (in-
cluding extensions) and the Internal Rev-
enue Service does not timely provide the
taxpayer with a notice specifically stating
the amount of any increased liability and
the basis for that liability, then the IRS
must suspend the imposition of any inter-
est, penalty, addition to tax, or additional
amount, with respect to any failure relating
to the return that is computed by reference
to the period of time the failure continues
to exist and that is properly allocable to the
suspension period. The notice described
in this paragraph (a) is timely if provided
before the close of the 18-month period
(36-month period in the case of notices
provided after November 25, 2007, subject
to the provisions of paragraph (a)(5)) be-
ginning on the later of the date on which
the return is filed or the due date of the re-
turn without regard to extensions.
(2)Treatment of amended returns and
other documents.—(i)Amended returns
filed on or after December 21, 2005, that
show an increase in tax liability.Ifa
taxpayer, on or after December 21, 2005,
provides to the IRS an amended return or
one or more other signed written docu-
ments showing an increase in tax liability,
the date on which the return was filed will,
for purposes of this paragraph (a), be the
date on which the last of the documents
was provided. Documents described in
this paragraph (a)(2)(i) are provided on
the date that they are received by the IRS.
(ii)Amended returns that show a de-
crease in tax liability. If a taxpayer pro-
vides to the IRS an amended return or
other signed written document that shows
a decrease in tax liability, any interest,
penalty, addition to tax, or additional
October 11, 20114922011–41 I.R.B.

amount will not be suspended if the IRS
at any time proposes to adjust the changed
item or items on the amended return or
other signed written document.
(iii)Amended returns and other doc-
uments as notice.—(A) As to the items
reported, an amended return or one or
more other signed written documents
showing that the taxpayer owes an addi-
tional amount of tax for the taxable year
serves as the notice described in paragraph
(a)(1) of this section with respect to the
items reported on the amended return.
(B)Example. An individual taxpayer timely files
a Federal income tax return for taxable year 2008 on
April 15, 2009. On January 19, 2010, the taxpayer
mails to the IRS an amended return reporting an ad-
ditional item of income and an increased tax liability
for taxable year 2008. The IRS receives the amended
return on January 21, 2010. The amended return will
be treated for purposes of this paragraph (a) as filed
on January 21, 2010, the date the IRS received it.
Pursuant to paragraph (a)(2)(iii) of this section, the
amended return serves as the notice described in para-
graph (a)(1) of this section with respect to the item re-
ported on the amended return. Accordingly, because
the filing of the amended return and the provision of
notice occur simultaneously, no suspension of any in-
terest, penalty, addition to tax or additional amount
will occur under this paragraph (a) with respect to the
item reported on the amended return.
(iv)Joint return after filing separate
return. A joint return filed under sec-
tion 6013(b) is subject to the rules for
amended returns described in this para-
graph (a)(2). The IRS will not suspend any
interest, penalty, addition to tax, or addi-
tional amount on a joint return filed under
section 6013(b) after the filing of a sep-
arate return unless each spouse’s separate
return, if required to be filed, was timely.
(3)Separate application. This para-
graph (a) shall be applied separately with
respect to each item or adjustment.
(4)Duration of suspension period.The
suspension period described in paragraph
(a)(1) of this section begins the day af-
ter the close of the 18-month period (36-
month period, in the case of notices pro-
vided after November 25, 2007, subject
to the provisions of paragraph (a)(5)) be-
ginning on the later of the date on which
the return is filed or the due date of the
return without regard to extensions. The
suspension period ends 21 days after the
earlier of the date on which the IRS mails
the required notice to the taxpayer’s last
known address, the date on which the re-
quired notice is hand-delivered to the tax-
payer, or the date on which the IRS re-
ceives an amended return or other signed
written document showing an increased
tax liability.
(5)Certain notices provided on or after
November 26, 2007. If the IRS provides
the notice described in paragraph (a)(1)
of this section to a taxpayer on or after
November 26, 2007, and the notice relates
to an individual Federal income tax return
that was timely filed before that date, the
following rules will apply:
(i)Eighteen-month period has closed.
If, as of November 25, 2007, the 18-month
period described in paragraph (a)(1) of this
section has closed and the IRS has not
provided the taxpayer with the notice de-
scribed in that paragraph (a)(1), the sus-
pension described in paragraph (a)(1) of
this section will begin on the day after the
close of the 18-month period. The suspen-
sion will end on the date that is 21 days
after the notice is provided.
(ii)All other cases. In all other cases,
the suspension described in paragraph
(a)(1) of this section will begin on the
day after the close of the 36-month period
described in that paragraph (a)(1) and end
on the date that is 21 days after the notice
described in paragraph (a)(1) of this sec-
tion is provided.
(6)Examples. The following examples,
which assume that no exceptions in section
6404(g)(2) to the general rule of suspen-
sion apply, illustrate the rules of this para-
graph (a).
Example 1. An individual taxpayer timely files
a Federal income tax return for taxable year 2005
on April 17, 2006. On December 11, 2007, the tax-
payer mails to the IRS an amended return reporting
an additional item of income and an increased tax
liability for taxable year 2005. The IRS receives
the amended return on December 13, 2007. On
January 16, 2008, the IRS provides the taxpayer with
a notice stating that the taxpayer has an additional
tax liability based on the disallowance of a deduction
the taxpayer claimed on his original return and did
not change on his amended return. The date the
amended return was received substitutes for the date
that the original return was filed with respect to
the additional item of tax liability reported on the
amended return. Thus, the IRS will not suspend any
interest, penalty, addition to tax, or additional amount
with respect to the additional item of income and
the increased tax liability reported on the amended
return. The suspension period for the additional
tax liability based on the IRS’s disallowance of the
deduction begins on October 17, 2007, so the IRS
will suspend any interest, penalty, addition to tax,
and additional amount with respect to the disallowed
deduction and additional tax liability from that date
throughFebruary6,2008,whichis21daysafterthe
IRS provided notice of the additional tax liability and
the basis for that liability. The suspension period in
this example begins 18 months after filing the return
(not 36 months) because, as of November 25, 2007,
the 18-month period beginning on the date the return
was filed had closed without the IRS giving notice
of the additional liability. Thus, under the rules
in paragraph (a)(5) of this section, the suspension
period begins 18 months from the April 17, 2006
return filing date.
Example 2. An individual taxpayer files a Federal
income tax return for taxable year 2008 on April 15,
2009. The taxpayer consents to extend the time
withinwhichtheIRSmayassessanytaxdueonthe
return until June 30, 2013. On December 20, 2012,
the IRS provides a notice to the taxpayer specifically
stating the taxpayer’s liability and the basis for the
liability. The suspension period for the liability
identified by the IRS begins on April 15, 2012, so
the IRS will suspend any interest, penalty, addition
to tax, and additional amount with respect to that
liability from that date through January 10, 2013,
which is 21 days after the IRS provided notice of the
additional tax liability and the basis for that liability.
(7)Notice of liability and the basis for
the liability.—(i)In general. Notice to the
taxpayer must be in writing and specifi-
cally state the amount of the liability and
the basis for the liability. The notice must
provide the taxpayer with sufficient infor-
mationtoidentifywhichitemsofincome,
deduction, loss, or credit the IRS has ad-
justed or proposes to adjust, and the reason
for that adjustment. Notice of the reason
for the adjustment does not require a de-
tailed explanation or a citation to any In-
ternal Revenue Code section or other le-
gal authority. The IRS need not incorpo-
rate all of the information necessary to sat-
isfy the notice requirement within a sin-
gle document or provide all of the infor-
mation at the same time. Documents that
may contain information sufficient to con-
stitute notice, either alone or in conjunc-
tion with other documents, include, but
are not limited to, statutory notices of de-
ficiency; examination reports (for exam-
ple, Form 4549,Income Tax Examination
Changesor Form 886–A,Explanation of
Items); Form 870,Waiver of Restriction on
Assessments and Collection of Deficiency
in Tax and Acceptance of Overassessment;
notices of proposed deficiency that allow
the taxpayer an opportunity for review in
the Office of Appeals (30-day letters); no-
tices pursuant to section 6213(b) (mathe-
matical or clerical errors); and notice and
demand for payment of a jeopardy assess-
ment under section 6861.
(ii)TaxattributabletoTEFRApartner-
ship items. Notice to the partner or the
tax matters partner (TMP) of a partnership
subject to the unified audit and litigation
2011–41 I.R.B.493October 11, 2011

procedures of subchapter C of chapter 63
of subtitle F of the Internal Revenue Code
(TEFRA partnership procedures) that pro-
vides specific information about the basis
for the adjustments to partnership items is
sufficient notice if a partner could reason-
ably compute the specific tax attributable
to the partnership item based on the pro-
posed adjustments as applied to the part-
ner’s individual tax situation. Documents
provided by the IRS during a TEFRA part-
nership proceeding that may contain infor-
mation sufficient to satisfy the notice re-
quirements include, but are not limited to,
a Notice of Final Partnership Administra-
tive Adjustment (FPAA); examination re-
ports (for example, Form 4605–A or Form
886–A); or a letter that allows the partners
an opportunity for review in the Office of
Appeals (60-day letter).
(iii)Examples. The following examples
illustrate the rules of this paragraph (a)(7).
Example 1. During an audit of Taxpayer A’s 2005
taxable year return, the IRS questions a charitable de-
duction claimed on the return. The IRS provides A
with a 30-day letter that proposes to disallow the char-
itable contribution deduction resulting in a deficiency
of $1,000 and informs A that A may file a written
protest of the proposed disallowance with the Office
of Appeals within 30 days. The letter includes as an
attachment a copy of the revenue agent’s report that
states, “It has not been established that the amount
shown on your return as a charitable contribution was
paid during the tax year. Therefore, this deduction is
not allowable.” The information in the 30-day letter
and attachment provides A with notice of the specific
amount of the liability and the basis for that liability
as described in this paragraph (a)(7).
Example 2. Taxpayer B is a partner in partner-
ship P, a TEFRA partnership for taxable year 2005. B
claims a distributive share of partnership income on
B’s Federal income tax return for 2005 timely filed
on April 17, 2006. On October 1, 2007, during the
course of a partnership audit of P for taxable year
2005, the IRS provides P’s TMP with a 60-day let-
ter proposing to adjust P’s income by $10,000. The
IRS previously had provided the TMP with a copy of
the examination report explaining that the adjustment
was based on $10,000 of unreported net income. On
October 31, 2007, P’s TMP informs B of the proposed
adjustment as required by §301.6223(g)–1(b). By
accounting for B’s distributive share of the $10,000
of unreported income from P with B’s other income
tax items, B can determine B’s tax attributable to the
$10,000 partnership adjustment. The information in
the 60-day letter and the examination report allows
B to compute the specific amount of the liability at-
tributable to the adjustment to the partnership item
and the basis for that adjustment and therefore satis-
fies the notice requirement of paragraph (a). Because
the IRS provided that notice to the TMP, B’s agent
under the TEFRA partnership provisions, within 18
months of the April 17, 2006 filing date of B’s return,
any interest, penalty, addition to tax, or additional
amount with respect to B’s tax liability attributable
to B’s distributive share of the $10,000 of unreported
partnership income will not be suspended under sec-
tion 6404(g).
(8)Providing notice.—(i)In general.
The IRS may provide notice by mail or
in person to the taxpayer or the taxpayer’s
representative. If the IRS mails the no-
tice, it must be sent to the taxpayer’s last
known address under rules similar to sec-
tion 6212(b), except that certified or regis-
tered mail is not required. Notice is con-
sidered provided as of the date of mailing
or delivery in person.
(ii)Providing notice in TEFRA partner-
ship proceedings. In the case of TEFRA
partnership proceedings, the IRS must
provide notice of final partnership admin-
istrative adjustments (FPAA) by mail to
those partners specified in section 6223.
Within 60 days of an FPAA being mailed,
the TMP is required to forward notice of
the FPAA to those partners not entitled to
direct notice from the IRS under section
6223. Certain partners with small inter-
ests in partnerships with more than 100
partners may form a Notice Group and
designate a partner to receive the FPAA
on their behalf. The IRS may provide
other information after the beginning of
the partnership administrative proceeding
to the TMP who, in turn, must provide that
information to the partners specified in
§301.6223(g)–1 within 30 days of receipt.
Pass-thru partners who receive notices and
other information from the IRS or the TMP
must forward that notice or information
within 30 days to those holding an interest
through the pass-thru partner. Information
provided by the IRS to the TMP is deemed
to be notice for purposes of this section to
those partners specified in §301.6223(g)–1
as of the date the IRS provides that notice
to the TMP. A similar rule applies to no-
tice provided to the designated partner of
a Notice Group, and to notice provided to
a pass-thru partner. In the foregoing situ-
ations, the TMP, designated partner, and
pass-thru partner are agents for direct and
indirect partners. Consequently, notice to
these agents is deemed to be notice to the
partners for whom they act.
(b)Exceptions.—(1)Failure to file tax
return or to pay tax. Paragraph (a) of this
section does not apply to any penalty im-
posedbysection6651.
(2)Fraud. Paragraph (a) of this sec-
tion does not apply to any interest, penalty,
addition to tax, or additional amount for
a year involving a false or fraudulent re-
turn. If a taxpayer files a fraudulent return
for a particular year, paragraph (a) of this
section may apply to any other tax year of
the taxpayer that does not involve fraud.
Fraud affecting a particular item on a re-
turn precludes paragraph (a) of this section
from applying to any other items on that re-
turn.
(3)Tax shown on return. Paragraph (a)
of this section does not apply to any inter-
est, penalty, addition to tax, or additional
amount with respect to any tax liability
shownonareturn.
(4)Gross misstatement.—(i)Descrip-
tion. Paragraph (a) of this section does not
apply to any interest, penalty, addition to
tax, or additional amount with respect to a
gross misstatement. Agross misstatement
for purposes of this paragraph (b) means:
(A) a substantial omission of income as
described in section 6501(e)(1) or section
6229(c)(2);
(B) a gross valuation misstate-
ment within the meaning of section
6662(h)(2)(A) and (B); or
(C) a misstatement to which the penalty
under section 6702(a) applies.
(ii)Effect of gross misstatement.If
a gross misstatement occurs, then para-
graph (a) of this section does not apply
to any interest, penalty, addition to tax,
or additional amountwith respect to any
items of income omitted from the return
and with respect to overstated deductions,
even though one or more of the omitted
items would not constitute a substantial
omission, gross valuation misstatement, or
misstatement to which section 6702(a) ap-
plies.
*****
(c)Special rules.—(1)Tentative carry-
back and refund adjustments. If an amount
applied, credited or refunded under section
6411 exceeds the overassessment properly
attributable to a tentative carryback or re-
fund adjustment, any interest, penalty, ad-
dition to tax, or additional amount with re-
spect to the excess will not be suspended.
(2)Election under section 183(e).—(i)
In general. If a taxpayer elects under sec-
tion 183(e) to defer the determination of
whether the presumption that an activity is
engaged in for profit applies, the 18-month
(or 36-month) notification period de-
scribed in paragraph (a)(1) of this section
will be tolled for the period to which
the election applies. If the 18-month (or
October 11, 20114942011–41 I.R.B.

36-month) notification period has passed
as of the date the section 183(e) election
is made, the suspension period described
in paragraph (a)(4) of this section will be
tolled for the period to which the election
applies and will resume the day after the
tolling period ends. Tolling will begin on
the date the election is made and end on
the later of the date the return for the last
taxable year to which the election applies
is filed or is due without regard to exten-
sions.
(ii)Example. In taxable year 2007, tax-
payer begins training and showing horses.
On January 4, 2011, the taxpayer elects
under section 183(e) to defer the determi-
nation of whether the horse-related activity
will be presumed (under section 183(d))
to be engaged in for profit. Accordingly,
under section 183(e)(1), a determination
of whether the section 183(d) presumption
applies will not occur before the close
of the 2013 taxable year. Assume that
in 2014, the IRS is considering issuing
a notice of deficiency for taxable year
2009 regarding tax deductions claimed
for the horse-related activity. Pursuant
to paragraph (c)(2)(i) of this section, the
36-month notification period under para-
graph (a)(1) of this section will be tolled
with respect to taxable year 2009 for the
period to which the section 183(e) election
applies. This tolling of the notification
period begins on January 4, 2011 (the
date the taxpayer made the section 183(e)
election) and ends on the later of April 15,
2014, or the date the taxpayer’s return for
taxable year 2013 is filed.
(d)Effective/applicability date.***
Paragraphs (a), (b)(1) through (b)(4), and
(c) are effective on August 22, 2011.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
Approved July 15, 2011.
Emily S. McMahon,
Acting Assistant Secretary of
theTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on August 19,
2011, 8:45 a.m., and published in the issue of the Federal
Register for August 22, 2011, 76 F.R. 52259)
Section 7520.—Valuation
Tables
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 2011. See Rev. Rul. 2011-22, page 489.
Section 7872.—Treatment
of Loans With Below-Market
Interest Rates
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 2011. See Rev. Rul. 2011-22, page 489.
2011–41 I.R.B.495October 11, 2011

Part III. Administrative, Procedural, and Miscellaneous
Vermont Low-Income Housing
Credit Disaster Relief
Notice 2011–74
The Internal Revenue Service is sus-
pending certain requirements under § 42 of
the Internal Revenue Code for low-income
housing credit projects to provide emer-
gency housing relief needed as a result of
the devastation caused by Tropical Storm
Irene in Vermont beginning on August 27,
2011. This relief is being granted pursuant
to the Service’s authority under § 42(n) and
§ 1.42–13(a) of the Income Tax Regula-
tions.
BACKGROUND
On September 1, 2011, the President
declared a major disaster for the State
of Vermont. This declaration was made
under the Robert T. Stafford Disaster
Relief and Emergency Assistance Act,
42 U.S.C. 5121et seq. Subsequently,
the Federal Emergency Management
Agency (FEMA) designated jurisdictions
for Individual Assistance. The State of
Vermont has requested that the Service
allow owners of low-income housing
credit projects to provide temporary
housing in vacant units to individuals
who resided in jurisdictions designated
for Individual Assistance in Vermont and
who have been displaced because their
residences were destroyed or damaged
as a result of the devastation caused by
Tropical Storm Irene. Based upon this
request and because of the widespread
damage to housing caused by Tropical
Storm Irene, the Service has determined
that the Vermont Housing Finance Agency
(Agency) may provide approval to project
owners to provide temporary emergency
housing for displaced individuals in
accordance with this notice.
I. SUSPENSION OF INCOME
LIMITATIONS
The Service has determined that it is
appropriate to temporarily suspend certain
income limitation requirements under § 42
for certain qualified low-income projects.
The suspension will apply to low-income
housing projects approved by the Agency,
in which vacant units are rented to dis-
placed individuals. The Agency will de-
termine the appropriate period of tempo-
rary housing for each project, not to ex-
tend beyond September 30, 2012 (tempo-
rary housing period).
II. STATUS OF UNITS
A. Units in the first year of the credit
period
A displaced individual temporarily
occupying a unit during the first year of
the credit period under § 42(f)(1) will be
deemed a qualified low-income tenant
for purposes of determining the project’s
qualified basis under § 42(c)(1), and for
meeting the project’s 20–50 test or 40–60
test as elected by the project owner under
§ 42(g)(1). After the end of the temporary
housing period established by the Agency
(not to extend beyond September 30,
2012), a displaced individual will no
longer be deemed a qualified low-income
tenant.
B. Vacant units after the first year of the
credit period
During the temporary housing period
established by the Agency, the status of a
vacant unit (that is, market-rate or low-in-
come for purposes of § 42 or never previ-
ously occupied) after the first year of the
credit period that becomes temporarily oc-
cupied by a displaced individual remains
the same as the unit’s status before the
displaced individual moves in. Displaced
individuals temporarily occupying vacant
units will not be treated as low-income
tenants under § 42(i)(3)(A)(ii). However,
even if it houses a displaced individual, a
low-income or market rate unit that was
vacant before the effective date of this no-
tice will continue to be treated as a va-
cant low-income or market rate unit. Sim-
ilarly, a unit that was never previously oc-
cupied before the effective date of this no-
tice will continue to be treated as a unit
that has never been previously occupied
even if it houses a displaced individual.
Thus, the fact that a vacant unit becomes
occupied by a displaced individual will
not affect the building’s applicable frac-
tion under § 42(c)(1)(B) for purposes of
determining the building’s qualified basis,
nor will it affect the 20–50 test or 40–60
test of § 42(g)(1). If the income of oc-
cupants in low-income units exceeds 140
percent of the applicable income limita-
tion, the temporary occupancy of a unit by
a displaced individual will not cause ap-
plication of the available unit rule under
§ 42(g)(2)(D)(ii). In addition, the project
owner is not required during the temporary
housing period to make attempts to rent
to low-income individuals the low-income
units that house displaced individuals.
III. SUSPENSION OF
NON-TRANSIENT REQUIREMENTS
The non-transient use requirement of
§ 42(i)(3)(B)(i) shall not apply to any
unit providing temporary housing to a
displaced individual during the temporary
housing period determined by the Agency
in accordance with section I of this notice.
IV. OTHER REQUIREMENTS
All other rules and requirements of
§ 42 will continue to apply during the
temporary housing period established
by the Agency. After the end of the
temporary housing period, the appli-
cable income limitations contained in
§ 42(g)(1), the available unit rule un-
der § 42(g)(2)(D)(ii), the nontransient
requirement of § 42(i)(3)(B)(i), and the
requirement to make reasonable attempts
to rent vacant units to low-income individ-
uals shall resume. If a project owner offers
to rent a unit to a displaced individual after
the end of the temporary housing period,
the displaced individual must be certified
under the requirements of § 42(i)(3)(A)(ii)
and § 1.42–5(b) and (c) to be a qualified
low-income tenant. To qualify for the re-
lief in this notice, the project owner must
additionally meet all of the following re-
quirements:
(1) Major Disaster Area
The displaced individual must have
resided in a Vermont jurisdiction desig-
nated for Individual Assistance by FEMA
as a result of the devastation caused by
Tropical Storm Irene in Vermont begin-
ning on August 27, 2011.
October 11, 20114962011–41 I.R.B.

(2) Approval of the Vermont Housing
Finance Agency
The project owner must obtain approval
from the Agency for the relief described
in this notice. The Agency will determine
the appropriate period of temporary hous-
ing for each project, not to extend beyond
September 30, 2012.
(3) Certificationsand Recordkeeping
To comply with the requirements of
§ 1.42–5, project owners are required to
maintain and certify certain information
concerning each displaced individual tem-
porarily housed in the project, specifically
the following: name, address of damaged
residence, social security number, and a
statement signed under penalties of perjury
by the displaced individual that, because
of damage to the individual’s residence in
a Vermont jurisdiction designated for Indi-
vidual Assistance by FEMA as a result of
the devastation caused by Tropical Storm
Irene in Vermont beginning on August 27,
2011, the individual requires temporary
housing. The owner must notify the
Agency that vacant units are available for
rent to displaced individuals.
The owner must also certify the date the
displaced individual began temporary oc-
cupancy and the date the project will dis-
continue providing temporary housing as
established by the Agency. The certifica-
tions and recordkeeping for displaced in-
dividuals must be maintained as part of
the annual compliance monitoring process
with the Agency.
(4) Rent Restrictions
Rents for the low-income units that
house displaced individuals must not ex-
ceed the existing rent-restricted rates for
the low-income units established under
§ 42(g)(2).
(5) Protection of Existing Tenants
Existing tenants in occupied low-in-
come units cannot be evicted or have their
tenancy terminated as a result of efforts to
provide temporary housing for displaced
individuals.
EFFECTIVE DATE
This notice is effective September 1,
2011 (the date of the President’s major dis-
aster declaration as a result of the devasta-
tion caused by Tropical Storm Irene in Ver-
mont beginning on August 27, 2011).
PAPERWORK REDUCTION ACT
The collection of information contained
in this notice has been reviewed and ap-
proved by the Office of Management and
Budget in accordance with the Paperwork
Reduction Act (44 U.S.C. 3507) under
control number 1545–2217.
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 no-
tice is in the section titled “OTHER RE-
QUIREMENTS” under “(3) Certifications
and Recordkeeping.” This information is
required to enable the Service to verify
whether individuals are displaced as a re-
sult of the devastation caused by Tropi-
cal Storm Irene in Vermont beginning on
August 27, 2011, and thus warrant tempo-
rary housing in vacant low-income hous-
ing units. The collection of information is
required to obtain a benefit. The likely re-
spondents are individuals and businesses.
The estimated total annual recordkeep-
ing burden is 150 hours.
The estimated annual burden per
recordkeeper is approximately 15 minutes.
The estimated number of recordkeepers is
600.
Books or records relating to a collection
of information must be retained as long
as their contents may become material to
the administration of the internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
DRAFTING INFORMATION
The principal author of this notice is
David Selig of the Office of Associate
Chief Counsel (Passthroughs & Special
Industries). For further information
regarding this notice, contact Mr. Selig at
(202) 622–3040 (not a toll-free call).
Nonapplication of Section
6050W to Insurance
Companies that Administer
Certain Insurance
Arrangements
Notice 2011–78
PURPOSE AND BACKGROUND
Section 6050W of the Internal Rev-
enue Code requires information returns to
be made for each calendar year by mer-
chant acquiring entities and third party
settlement organizations with respect to
payments made in settlement of payment
card transactions and third party network
transactions occurring in that calendar
year. The requirement to make informa-
tion returns applies to returns for calendar
years beginning after December 31, 2010.
In August 2010, the Treasury Depart-
ment and the Internal Revenue Service
published final regulations providing guid-
ance to assist persons required to report
payment card and third party network
transactions to payees of those transac-
tions. T.D. 9496, 2010–43 I.R.B. 484,
75 F.R. 49821 (August 16, 2010). Under
the final regulations, a healthcare network
generally is outside the scope of section
6050W because a healthcare network
does not enable the transfer of funds
from buyers to sellers. §1.6050W–1(e)
(Example 17). The preamble to the final
regulations acknowledges a comment
to the effect that a self-insurance
arrangement likewise should be treated
as outside the scope of section 6050W.
75 F.R. at 49823; 2010–43 I.R.B. at
486. Although the final regulations
do not address this issue directly, the
preamble states that the suggestion was
not adopted “becausethis arrangement
could create a third party payment network
of which the health insurance entity is
the third party settlement organization
to the extent that the health insurance
entity effectively enables buyers (the
self-insuring companies) to transfer funds
to sellers of healthcare goods or services.”
DISCUSSION
Upon further consideration, the Trea-
sury Department and the Internal Revenue
Service have decided to amend the exist-
ing regulations under section 6050W to
2011–41 I.R.B.497October 11, 2011

expressly provide that an insurance com-
pany or an affiliate administering a self-in-
sured arrangement on behalf of an em-
ployer or other entity on a cost-plus ba-
sis, or under an Administrative Services
Only (ASO) plan or an Administrative Ser-
vices Contract (ASC) plan, will not be
treated as a third party settlement organi-
zation. Insurance companies and their af-
filiates may rely on the interim guidance
provided in this notice until the regulations
are amended.
Before amending the existing regula-
tions, the Treasury Department and the In-
ternal Revenue Service invite comments
from the public regarding the contents of
this notice. Comments should be submit-
ted by November 3, 2011 to:
Internal Revenue Service
Attn: CC:PA:LPD:PR
(Notice 2011–78)
Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044
or hand deliver comments Monday
through Friday between the hours of
8a.m.and4p.m.to:
Courier’s Desk
Internal Revenue Service
Attn: CC:PA:LPD:PR
(Notice 2011–78)
1111 Constitution Avenue, N.W.
Washington, D.C. 20224
Alternatively, persons may sub-
mit comments electronically via
e-mail to the following address:
Notice.Comments@irscounsel.treas.gov.
Persons should include “Notice 2011–78”
in the subject line. All comments
submitted by the public will be available
for public inspection and copying in their
entirety.
DRAFTING INFORMATION
The principal author of this no-
tice is Girish Prasad of the Office of
Associate Chief Counsel (Procedure and
Administration). For further information
regarding this notice, contact Mr. Prasad
at (202) 622–4910 (not a toll-free call).
Extension of Replacement
Period for Livestock Sold
on Account of Drought in
Specified Counties
Notice 2011–79
SECTION 1. PURPOSE
This notice provides guidance regard-
ing an extension of the replacement pe-
riod under § 1033(e) of the Internal Rev-
enue Code for livestock sold on account of
drought in specified counties.
SECTION 2. BACKGROUND
.01Nonrecognition of Gain on Invol-
untary Conversion of Livestock. Section
1033(a) generally provides for nonrecog-
nition of gain when property is involuntar-
ily converted and replaced with property
that is similar or related in service or use.
Section 1033(e)(1) provides that a sale or
exchange of livestock(other than poultry)
held by a taxpayer for draft, breeding, or
dairy purposes in excess of the number
that would be sold following the taxpayer’s
usual business practices is treated as an
involuntary conversion if the livestock is
sold or exchanged solely on account of
drought, flood, or other weather-related
conditions.
.02Replacement Period. Section
1033(a)(2)(A) generally provides that gain
from an involuntary conversion is rec-
ognized only to the extent the amount
realized on the conversion exceeds the
cost of replacement property purchased
during the replacement period. If a sale
or exchange of livestock is treated as an
involuntary conversion under § 1033(e)(1)
and is solely on account of drought, flood,
or other weather-related conditions that re-
sult in the area being designated as eligible
for assistance by the federal government,
§ 1033(e)(2)(A) provides that the replace-
ment period ends four years after the close
of the first taxable year in which any part
of the gain from the conversion is realized.
Section 1033(e)(2)(B) provides that the
Secretary may extend this replacement pe-
riod on a regional basis for such additional
time as the Secretary determines appro-
priate if the weather-related conditions
that resulted in the area being designated
as eligible for assistance by the federal
government continue for more than three
years. Section 1033(e)(2) is effective for
any taxable year withrespect to which the
due date (without regard to extensions) for
a taxpayer’s return is after December 31,
2002.
SECTION 3. EXTENSION OF
REPLACEMENT PERIOD UNDER
§ 1033(e)(2)(B)
Notice 2006–82, 2006–2 C.B. 529, pro-
vides for extensions of the replacement pe-
riod under § 1033(e)(2)(B). If a sale or ex-
change of livestock is treated as an invol-
untary conversion on account of drought
and the taxpayer’s replacement period is
determined under § 1033(e)(2)(A), the re-
placement period will be extended under
§ 1033(e)(2)(B) and Notice 2006–82 until
the end of the taxpayer’s first taxable year
ending after the first drought-free year for
the applicable region. For this purpose, the
first drought-free year for the applicable
region is the first 12-month period that (1)
ends August 31; (2) ends in or after the last
year of the taxpayer’s 4-year replacement
period determined under § 1033(e)(2)(A);
and (3) does not include any weekly period
for which exceptional, extreme, or severe
drought is reported for any location in the
applicable region. The applicable region
is the county that experienced the drought
conditions on account of which the live-
stock was sold or exchanged and all coun-
ties that are contiguous to that county.
A taxpayer may determine whether
exceptional, extreme,or severe drought
isreportedforanylocationintheap-
plicable region by reference to U.S.
Drought Monitor maps that are pro-
duced on a weekly basis by the Na-
tional Drought Mitigation Center. U.S.
Drought Monitor maps are archived at
www.drought.unl.edu/dm/archive.html.
In addition, Notice 2006–82 provides
that the Internal Revenue Service will
publish in September of each year a list
of counties, districts, cities, or parishes
(hereinafter “counties”) for which excep-
tional, extreme, or severe drought was
reported during the preceding 12 months.
Taxpayers may use this list instead of
U.S. Drought Monitor maps to determine
whether exceptional, extreme, or severe
drought has been reported for any location
in the applicable region.
October 11, 20114982011–41 I.R.B.

The Appendix to this notice contains
the list of counties for which exceptional,
extreme, or severe drought was reported
during the 12-month period ending Au-
gust 31, 2011. Under Notice 2006–82,
the 12-month period ending on August 31,
2011, is not a drought-free year for an ap-
plicable region that includes any county on
this list. Accordingly, for a taxpayer who
qualified for a four-year replacement pe-
riod for livestock sold or exchanged on ac-
count of drought and whose replacement
period is scheduled to expire at the end of
2011 (or, in the case of a fiscal year tax-
payer, at the end of the taxable year that in-
cludes August 31, 2011), the replacement
period will be extended under § 1033(e)(2)
and Notice 2006–82 if the applicable re-
gion includes any county on this list. This
extension will continue until the end of the
taxpayer’s first taxable year ending after a
drought-free year for the applicable region.
SECTION 4. DRAFTING
INFORMATION
The principal author of this notice is
Sue-Jean Kim of the Office of Associate
Chief Counsel (Income Tax & Account-
ing). For further information regarding
this notice, contact Ms. Kim at (202)
622–4960 (not a toll-free call).
APPENDIX
Alabama
Counties of Autauga, Baldwin, Barbour, Bibb, Blount, Bullock, Butler, Calhoun, Chambers, Cherokee, Chilton, Choctaw,
Clarke, Clay, Cleburne, Coffee, Conecuh, Coosa, Covington,Crenshaw, Cullman, Dale, Dallas, DeKalb, Elmore, Escambia,
Etowah, Fayette, Geneva, Greene, Hale, Henry, Houston, Jackson, Jefferson, Lee, Lowndes, Macon, Madison, Marengo, Marion,
Marshall, Mobile, Monroe, Montgomery, Perry, Pike, Randolph, Russell, Saint Clair, Shelby, Talladega, Tallapoosa, Tuscaloosa,
Walker, Washington, Wilcox, Winston.
Arizona
Counties of Apache, Cochise, Coconino, Gila, Graham, Greenlee, Maricopa, Navajo,Pima,Pinal,SantaCruz.
Arkansas
Counties of Arkansas, Ashley, Baxter, Benton, Boone, Bradley, Calhoun, Carroll, Chicot, Clark, Clay, Cleburne, Cleveland,
Columbia, Conway, Craighead, Crawford, Crittenden, Cross, Dallas, Desha, Drew, Faulkner, Franklin, Fulton, Garland, Grant,
Greene, Hempstead, Hot Spring, Howard, Independence, Izard, Jackson, Jefferson, Johnson, Lafayette, Lawrence, Lee, Lincoln,
Little River, Logan, Lonoke, Madison, Marion, Miller, Mississippi, Monroe, Montgomery, Nevada, Newton, Ouachita, Perry,
Phillips, Pike, Poinsett, Polk, Pope, Prairie, Pulaski, Randolph, Saint Francis, Saline, Scott, Searcy, Sebastian, Sevier, Sharp,
Stone, Union, Van Buren, Washington, White, Woodruff, Yell.
California
Counties of Modoc, Siskiyou.
Colorado
Counties of Adams, Alamosa, Arapahoe, Archuleta, Baca, Bent, Boulder, Broomfield, Cheyenne, Clear Creek, Conejos, Costilla,
Crowley, Custer, Denver, Douglas, El Paso, Elbert, Fremont, Gilpin, Huerfano, Jefferson, Kiowa, Kit Carson, Larimer, Las
Animas, Lincoln, Logan, Mineral, Morgan,Otero, Park, Phillips, Prowers, Pueblo, Rio Grande, Saguache, Sedgwick, Teller,
Washington, Weld.
Delaware
County of Sussex.
Florida
Counties of Alachua, Baker, Bay, Bradford, Brevard, Broward, Calhoun, Charlotte, Citrus, Clay, Collier, Columbia, DeSoto,
Dixie, Duval, Escambia, Flagler, Franklin, Gadsden, Gilchrist, Glades, Gulf, Hamilton, Hendry, Hernando, Highlands,
Hillsborough, Holmes, Indian River, Jackson, Jefferson, Lafayette, Lake, Lee, Leon, Levy, Liberty, Madison, Marion, Martin,
Miami-Dade, Monroe, Nassau, Okaloosa, Okeechobee, Orange, Osceola, Palm Beach, Pasco, Pinellas, Polk, Putnam, Saint Johns,
Saint Lucie, Santa Rosa, Seminole, Sumter, Suwannee, Taylor, Union, Volusia, Wakulla, Walton, Washington.
2011–41 I.R.B.499October 11, 2011

Georgia
Counties of Appling, Atkinson, Bacon, Baker, Baldwin, Banks,Barrow, Bartow, Ben Hill, Berrien, Bibb, Bleckley, Brantley,
Brooks, Bryan, Bulloch, Burke, Butts, Calhoun, Camden, Candler, Carroll, Catoosa, Charlton, Chatham, Chattahoochee,
Chattooga, Cherokee, Clarke, Clay, Clayton, Clinch, Cobb, Coffee, Colquitt, Columbia, Cook, Coweta, Crawford, Crisp, Dade,
Decatur, DeKalb, Dodge, Dooly, Dougherty, Douglas, Early, Echols, Effingham, Elbert, Emanuel, Evans, Fayette, Floyd,
Franklin, Fulton, Gilmer, Glascock, Glynn, Gordon, Grady, Greene, Gwinnett, Habersham, Hall, Hancock, Haralson, Harris,
Hart, Heard, Henry, Houston, Irwin, Jackson, Jasper, Jeff Davis, Jefferson, Jenkins, Johnson, Jones, Lamar, Lanier, Laurens,
Lee, Liberty, Lincoln, Long, Lowndes, Macon, Madison, Marion, McDuffie, McIntosh, Meriwether, Miller, Mitchell, Monroe,
Montgomery, Morgan, Murray, Muscogee, Newton, Oconee, Oglethorpe, Paulding, Peach, Pickens, Pierce, Pike, Polk, Pulaski,
Putnam, Quitman, Randolph, Richmond, Rockdale, Schley, Screven, Seminole, Spalding, Stephens, Stewart, Sumter, Talbot,
Taliaferro, Tattnall, Taylor, Telfair, Terrell, Thomas, Tift, Toombs, Treutlen, Troup, Turner, Twiggs, Upson, Walker, Walton, Ware,
Warren, Washington, Wayne, Webster, Wheeler, Whitfield, Wilcox, Wilkes, Wilkinson, Worth.
Hawaii
Counties of Hawaii, Honolulu, Kalawao, Kauai, Maui.
Illinois
Counties of Adams, Alexander, Brown, Cass, Champaign, Christian, Clark, Coles, De Witt, Douglas, Edgar, Edwards, Fulton,
Gallatin, Greene, Hancock, Hardin, Henderson, Knox, Lawrence, Logan, Macon, Macoupin, Mason, Massac, McDonough,
McLean, Menard, Mercer, Montgomery, Morgan, Moultrie, Peoria, Piatt, Pike, Pope, Sangamon, Schuyler, Scott, Shelby,
Tazewell, Wabash, Warren, White.
Indiana
Counties of Bartholomew, Boone, Brown, Clark, Clay, Crawford, Daviess,Dearborn, Decatur, Dubois,Fayette, Floyd, Franklin,
Gibson, Greene, Hamilton, Hancock, Harrison, Hendricks, Henry, Jackson, Jefferson, Jennings, Johnson, Knox, Lawrence,
Madison, Marion, Martin, Monroe, Montgomery, Morgan, Ohio, Orange, Owen, Parke, Perry, Pike, Posey, Putnam, Randolph,
Ripley, Rush, Scott, Shelby, Spencer, Sullivan, Switzerland, Union, Vanderburgh, Vermillion, Vigo, Warrick, Washington, Wayne.
Iowa
Counties of Appanoose, Davis, Des Moines, Henry, Jefferson, Johnson, Keokuk, Lee, Louisa, Mahaska, Monroe, Muscatine,
Poweshiek, Van Buren, Wapello, Washington.
Kansas
Counties of Allen, Anderson, Barber, Barton, Bourbon, Butler, Chase, Chautauqua, Cherokee, Clark, Coffey, Comanche, Cowley,
Crawford, Dickinson, Edwards, Elk, Ellis, Ellsworth, Finney, Ford, Gove, Grant, Gray, Greeley, Greenwood, Hamilton, Harper,
Harvey, Haskell, Hodgeman, Kearny, Kingman, Kiowa, Labette, Lane, Lincoln, Linn, Logan, Lyon, Marion, McPherson, Meade,
Montgomery, Morris, Morton, Neosho, Ness, Osage, Osborne, Ottawa, Pawnee, Pratt, Reno, Rice, Rooks, Rush, Russell, Saline,
Scott, Sedgwick, Seward, Stafford,Stanton, Stevens, Sumner, Trego, Wallace, Wichita, Wilson, Woodson.
Kentucky
Counties of Adair, Anderson, Ballard, Boone, Bourbon, Bracken, Breckinridge, Bullitt, Butler, Caldwell, Calloway, Campbell,
Carlisle,Carroll,Casey,Christian,Clinton,Crittenden,Cumberland, Daviess, Edmonson, Fayette, Fleming, Franklin, Fulton,
Gallatin, Grant, Graves, Grayson, Green, Hancock, Hardin, Harrison, Hart, Henderson, Henry, Hickman, Hopkins, Jefferson,
Jessamine, Kenton, Larue, Lincoln, Livingston, Logan, Lyon, Marion, Marshall, Mason, McCracken, McLean, Meade, Mercer,
Metcalfe, Muhlenberg, Nelson, Nicholas, Ohio, Oldham, Owen, Pendleton, Pulaski, Robertson, Russell, Scott, Shelby, Simpson,
Spencer, Taylor, Todd, Trigg, Trimble, Union, Warren, Washington, Wayne, Webster, Woodford.
Louisiana
Parishes of Acadia, Allen, Ascension, Assumption, Avoyelles, Beauregard, Bienville, Bossier, Caddo, Calcasieu, Caldwell,
Cameron, Catahoula, Claiborne, Concordia, De Soto, East Baton Rouge, East Carroll, East Feliciana, Evangeline, Franklin, Grant,
Iberia, Iberville, Jackson, Jefferson Davis, Jefferson, La Salle, Lafayette, Lafourche, Lincoln, Livingston, Madison, Morehouse,
Natchitoches, Orleans, Ouachita, Plaquemines, Pointe Coupee, Rapides, Red River, Richland, Sabine, Saint Bernard, Saint
Charles, Saint Helena, Saint James, SaintJohn the Baptist, Saint Landry, Saint Martin, Saint Mary, Saint Tammany, Tangipahoa,
Tensas, Terrebonne, Union, Vermilion, Vernon, Washington, Webster, West Baton Rouge, West Carroll, West Feliciana, Winn.
Maryland
Counties of Allegany, Dorchester, Frederick, Garrett, Saint Mary’s, Somerset, Washington, Wicomico, Worcester.
October 11, 20115002011–41 I.R.B.

Minnesota
Counties of Cook, Lake, Saint Louis.
Mississippi
Counties of Adams, Amite, Attala, Bolivar, Calhoun, Carroll, Chickasaw, Choctaw, Claiborne, Clarke, Clay, Coahoma, Copiah,
Covington, DeSoto, Forrest, Franklin, George, Greene, Grenada, Hancock, Harrison, Hinds, Holmes, Humphreys, Issaquena,
Jackson, Jasper, Jefferson, Jefferson Davis, Jones, Kemper, Lafayette, Lamar, Lauderdale, Lawrence, Leake, Leflore, Lincoln,
Lowndes, Madison, Marion, Marshall, Monroe, Montgomery,Neshoba, Newton, Noxubee, Oktibbeha, Panola, Pearl River,
Perry, Pike, Quitman, Rankin, Scott, Sharkey, Simpson, Smith, Stone, Sunflower, Tallahatchie, Tate, Tunica, Walthall, Warren,
Washington, Wayne, Webster, Wilkinson, Winston, Yalobusha, Yazoo.
Missouri
Counties of Barry, Barton, Bollinger, Butler, Carter, Christian, Clark, Dade, Dunklin, Greene,Jasper, Knox, Lawrence, Lewis,
McDonald, Mississippi, New Madrid, Newton, Oregon, Ozark, Pemiscot, Ripley, Schuyler, Scotland, Scott, Shannon, Stoddard,
Stone, Taney, Vernon, Wayne.
Nebraska
County of Deuel.
New Jersey
Counties of Atlantic, Burlington, Hunterdon, Mercer, Middlesex, Monmouth, Ocean, Somerset.
New Mexico
Counties of Bernalillo, Catron, Chaves, Cibola, Colfax, Curry, DeBaca, Dona Ana, Eddy, Grant, Guadalupe, Harding, Hidalgo,
Lea, Lincoln, Los Alamos, Luna, McKinley, Mora, Otero, Quay, Rio Arriba, Roosevelt, San Juan, San Miguel, Sandoval,
Santa Fe, Sierra, Socorro, Taos, Torrance, Union, Valencia.
North Carolina
Counties of Alamance, Anson, Beaufort, Bertie, Bladen, Brunswick, Cabarrus, Camden, Carteret, Caswell, Chatham, Chowan,
Cleveland, Columbus, Craven, Cumberland,Currituck, Dare, Davidson, Duplin, Durham,Edgecombe, Franklin, Gates, Granville,
Greene, Guilford, Halifax, Harnett, Henderson, Hertford, Hoke, Hyde, Johnston, Jones, Lee, Lenoir, Martin, Mecklenburg,
Montgomery, Moore, Nash, New Hanover, Northampton, Onslow, Orange, Pamlico, Pasquotank, Pender, Perquimans, Person,
Pitt, Polk, Randolph, Richmond, Robeson, Rowan, Rutherford, Sampson, Scotland, Stanly, Tyrrell, Union, Vance, Wake,
Warren, Washington, Wayne, Wilson.
Ohio
Counties of Adams, Brown, Butler, Clermont, Clinton, Darke,Greene, Hamilton, Highland, Montgomery, Preble, Warren.
Oklahoma
Counties of Adair, Alfalfa, Atoka, Beaver, Beckham, Blaine, Bryan, Caddo, Canadian, Carter, Cherokee, Choctaw, Cimarron,
Cleveland, Coal, Comanche, Cotton, Craig, Creek, Custer, Delaware, Dewey, Ellis,Garfield, Garvin, Grady, Grant, Greer,
Harmon, Harper, Haskell, Hughes, Jackson, Jefferson, Johnston, Kay, Kingfisher, Kiowa, Latimer, Le Flore, Lincoln, Logan,
Love, Major, Marshall, Mayes, McClain, McCurtain, McIntosh, Murray, Muskogee, Noble, Nowata, Okfuskee, Oklahoma,
Okmulgee, Osage, Ottawa, Pawnee, Payne, Pittsburg, Pontotoc, Pottawatomie, Pushmataha, Roger Mills, Rogers, Seminole,
Sequoyah, Stephens, Texas, Tillman, Tulsa, Wagoner, Washington, Washita, Woods, Woodward.
Oregon
Counties of Klamath, Lake.
Pennsylvania
Counties of Bedford, Bucks, Fayette, Franklin, Fulton, Somerset.
South Carolina
Counties of Abbeville, Aiken, Allendale, Anderson, Bamberg, Barnwell, Beaufort, Berkeley,Calhoun, Charleston, Cherokee,
Chester, Chesterfield, Clarendon, Colleton, Darlington, Dillon, Dorchester, Edgefield, Fairfield, Florence, Georgetown,
Greenville, Greenwood, Hampton, Horry, Jasper, Kershaw, Lancaster, Laurens, Lee, Lexington, Marion, Marlboro, McCormick,
Newberry, Oconee, Orangeburg, Pickens, Richland, Saluda, Spartanburg, Sumter, Union, York.
2011–41 I.R.B.501October 11, 2011

Tennessee
Counties of Benton, Carroll, Cheatham, Chester, Crockett, Davidson, Decatur, Dickson, Dyer, Fayette, Gibson, Hardeman,
Haywood, Henderson, Henry, Hickman, Houston, Humphreys, Lake, Lauderdale, Madison, Montgomery, Obion, Perry,
Robertson, Shelby, Stewart, Tipton, Weakley, Williamson.
Texas
Counties of Anderson, Andrews, Angelina, Aransas, Archer, Armstrong, Atascosa, Austin, Bailey,Bandera, Bastrop, Baylor, Bee,
Bell, Bexar, Blanco, Borden, Bosque, Bowie, Brazoria, Brazos, Brewster, Briscoe, Brooks, Brown, Burleson, Burnet, Caldwell,
Calhoun, Callahan, Cameron, Camp, Carson, Cass, Castro, Chambers, Cherokee, Childress, Clay, Cochran, Coke, Coleman,
Collin, Collingsworth, Colorado, Comal, Comanche, Concho, Cooke, Coryell, Cottle, Crane, Crockett, Crosby, Culberson,
Dallam, Dallas, Dawson, Deaf Smith, Delta, Denton, DeWitt, Dickens, Dimmit, Donley, Duval, Eastland, Ector, Edwards, El Paso,
Ellis, Erath, Falls, Fannin, Fayette, Fisher, Floyd, Foard, Fort Bend, Franklin, Freestone, Frio, Gaines, Galveston, Garza, Gillespie,
Glasscock, Goliad, Gonzales, Gray, Grayson, Gregg, Grimes, Guadalupe, Hale, Hall, Hamilton, Hansford, Hardeman, Hardin,
Harris, Harrison, Hartley, Haskell, Hays, Hemphill, Henderson, Hidalgo, Hill, Hockley, Hood, Hopkins, Houston, Howard,
Hudspeth, Hunt, Hutchinson, Irion, Jack, Jackson, Jasper, Jeff Davis,Jefferson,JimHogg,JimWells,Johnson,Jones,Karnes,
Kaufman, Kendall, Kenedy, Kent, Kerr, Kimble, King, Kinney, Kleberg, Knox, La Salle, Lamar, Lamb, Lampasas, Lavaca, Lee,
Leon, Liberty, Limestone, Lipscomb, Live Oak, Llano, Loving, Lubbock, Lynn, Madison, Marion, Martin, Mason, Matagorda,
Maverick, McCulloch, McLennan, McMullen, Medina, Menard, Midland, Milam, Mills, Mitchell, Montague, Montgomery,
Moore, Morris, Motley, Nacogdoches, Navarro, Newton, Nolan,Nueces, Ochiltree, Oldham, Orange, Palo Pinto, Panola, Parker,
Parmer, Pecos, Polk, Potter, Presidio, Rains, Randall, Reagan, Real, Red River, Reeves, Refugio, Roberts, Robertson, Rockwall,
Runnels, Rusk, Sabine, San Augustine, SanJacinto, San Patricio, San Saba, Schleicher, Scurry, Shackelford, Shelby, Sherman,
Smith, Somervell, Starr, Stephens, Sterling, Stonewall, Sutton, Swisher, Tarrant, Taylor, Terrell, Terry, Throckmorton, Titus, Tom
Green, Travis, Trinity, Tyler, Upshur, Upton, Uvalde, Val Verde, Van Zandt, Victoria, Walker, Waller, Ward, Washington, Webb,
Wharton, Wheeler, Wichita, Wilbarger, Willacy, Williamson, Wilson, Winkler, Wise, Wood, Yoakum, Young, Zapata, Zavala.
Virginia
Cities of Charlottesville, Chesapeake, Colonial Heights, Emporia, Franklin, Hopewell, Petersburg, Richmond, Suffolk, Virginia
Beach, Williamsburg, Winchester. Counties of Albemarle, Amelia,Brunswick, Caroline, CharlesCity, Chesterfield, Clarke,
Culpeper, Cumberland, Dinwiddie, Essex, Fauquier, Fluvanna, Frederick, Gloucester, Goochland, Greene, Greensville,
Hanover, Henrico, Isle of Wight, James City, King and Queen, King William, Lancaster, Loudoun, Louisa, Madison, Mathews,
Mecklenburg, Middlesex, New Kent, Northumberland, Nottoway, Orange, Page, Powhatan, Prince George, Rappahannock,
Richmond, Rockingham, Shenandoah, Southampton, Spotsylvania, Surry, Sussex, Warren, Westmoreland, York.
West Virginia
Counties of Berkeley, Grant, Hampshire, Hardy, Jefferson, Mineral, Morgan, Preston, Tucker.
October 11, 20115022011–41 I.R.B.

Part IV. Items o
fGeneralInterest
Deletions Fro
m Cumulative
List of Organi
zations
Contribution
stoWhich
are Deductib
le Under Section
170 of the Cod
e
Announceme
nt 2011–63
The Interna
l Revenue Service has re-
voked its de
termination that the organi-
zations lis
ted below qualify as organiza-
tions descr
ibed in sections 501(c)(3) and
170(c)(2) o
f the Internal Revenue Code of
1986.
Generally
, the Service will not disallow
deduction
s for contributions made to a
listed org
anization on or before the date
of announc
ement in the Internal Revenue
Bulletin t
hat an organization no longer
qualifie
s. However, the Service is not
preclude
d from disallowing a deduction
for any co
ntributions made after an or-
ganizati
on ceases to qualify under section
170(c)(
2) if the organization has not timely
filed a s
uit for declaratory judgment under
section
7428 and if the contributor (1) had
knowled
ge of the revocation of the ruling
or deter
mination letter, (2) was aware that
such re
vocation was imminent, or (3) was
in part
responsible for or was aware of the
activi
ties or omissions of the organization
that br
ought about this revocation.
If on th
e other hand a suit for declara-
tory ju
dgment has been timely filed, con-
tribut
ions from individuals and organiza-
tions
describedinsection170(c)(2)that
are ot
herwise allowable will continue to
be ded
uctible. Protection under section
7428(
c) would begin October 11, 2011,
and wo
uld end on the date the court first
dete
rmines that the organization is not de-
scri
bed in section 170(c)(2) as more partic-
ular
ly set forth in section 7428(c)(1). For
indi
vidual contributors, the maximum de-
duct
ion protected is $1,000, with a hus-
ban
d and wife treated as one contributor.
Thi
s benefit is not extended to any indi-
vid
ual, in whole or in part, for the acts or
omi
ssions of the organization that were the
bas
is for revocation.
All
ied Veterans of the World, Inc. &
Aff
iliates
Ch
arlotte, NC
American Home
buyers Foundation, Inc.
Conyers, GA
Bundle of Joy D
aycare, Inc.
Long Beach, CA
Columbia Basi
n Animal Rescue and
Protection Ag
ency
Kennewick, WA
Community Day
Care Center
Abbeville, LA
Handicap Inte
rests International and
World Religio
ns
Saranac Lake
,NY
Holographic E
cology, Inc.
Santa Barbar
a, CA
Mattie’s Mat
ernity Homes
Palmdale, CA
Metropolita
n Financial Management
Corporation
Roseville, M
N
Monytek Huma
n Service, Inc.
Pendleton, O
R
SaintRestNo
. 2 Missionary Baptist
Church
Chicago, IL
Voluntary Classification
Settlement Program
Announcement 2011–64
I. PURPOSE
The Inte
rnal Revenue Service (IRS)
has deve
loped a new program to permit
taxpaye
rs to voluntarily reclassify work-
ersase
mployees for federal employment
tax pur
poses. The Voluntary Classifica-
tion Se
ttlement Program (VCSP) allows
eligib
le taxpayers to voluntarily reclas-
sify th
eir workers for federal employment
tax pu
rposes and obtain relief similar to
that o
btained in the current Classification
Settl
ement Program (CSP). The VCSP is
optio
nal and provides taxpayers with an
oppor
tunity to voluntarily reclassify their
work
ers as employees for future tax peri-
ods w
ith limited federal employment tax
liab
ility for the past nonemployee treat-
ment
. To participate in the program, the
taxp
ayer must meet certain eligibility re-
quir
ements, apply to participate in VCSP,
and
enter into a closing agreement with
the
IRS.
II. BACKGROUN
D
Whether a work
er is performing ser-
vices as an emp
loyee or as an indepen-
dent contract
or depends upon the facts and
circumstance
s and is generally determined
under the comm
on law test of whether
the service r
ecipient has the right to di-
rect and cont
rol the worker as to how to
perform the s
ervices. In some factual sit-
uations, the
determination of the proper
worker clas
sification status under the com-
monlawmayn
ot be clear. For taxpayers
under IRS ex
amination, the current CSP
is availabl
e to resolve federal employment
tax issues
related to worker misclassifica-
tion, if ce
rtain criteria are met. The exami-
nation CSP
permits the prospective reclas-
sificatio
n of workers as employees, with
reduced fe
deral employment tax liabilities
for past n
onemployee treatment. The CSP
allows bu
siness and tax examiners to re-
solve the
worker classification issues as
early in t
he administrative process as pos-
sible, t
hereby reducing taxpayer burden
and prov
iding efficiencies for both the tax-
payer an
d the government.
In order
to facilitate voluntary resolu-
tion of w
orker classification issues and
achieve
the resulting benefits of increased
tax comp
liance and certainty for taxpay-
ers, wo
rkers and the government, the IRS
has det
ermined that it would be benefi-
cial to
provide taxpayers with a program
that al
lows for voluntary reclassification of
worker
s as employees outside of the ex-
amina
tion context and without the need to
go thr
ough normal administrative correc-
tion p
rocedures applicable to employment
taxes
.
III. E
LIGIBILITY
The VC
SP is available for taxpay-
ers wh
o want to voluntarily change the
prosp
ective classification of their workers.
The p
rogram applies to taxpayers who are
curr
ently treating their workers (or a class
or gr
oup of workers) as independent con-
trac
tors or other nonemployees and want
to pr
ospectively treat the workers as em-
plo
yees. To be eligible, a taxpayer must
hav
e consistently treated the workers as
non
employees, and must have filed all re-
qui
red Forms 1099 for the workers for the
pre
vious three years. The taxpayer cannot
2011–41 I.R.B.503October 11, 2011

currently be under audit by the IRS. Fur-
thermore, the taxpayer cannot be currently
under audit concerning the classification
of the workers by the Department of La-
bor or by a state government agency. A
taxpayer who was previously audited by
the IRS or the Department of Labor con-
cerning the classification of the workers
will only be eligible if the taxpayer has
complied with the results of that audit.
IV. EFFECT OF VCSP
A taxpayer who participates in the
VCSP will agree to prospectively treat the
class of workers as employees for future
tax periods. In exchange, the taxpayer
will pay 10 percent of the employment
tax liability that may have been due on
compensation paid to the workers for the
most recent tax year, determined under the
reduced rates of section 3509 of the Inter-
nal Revenue Code; will not be liable for
any interest and penalties on the liability;
and will not be subject to an employment
tax audit with respect to the worker clas-
sification of the workers for prior years.
Additionally, a taxpayer participating in
the VCSP will agree to extend the period
of limitations on assessment of employ-
ment taxes for three years for the first,
second and third calendar years beginning
after the date on which the taxpayer has
agreed under the VCSP closing agreement
to begin treating the workers as employ-
ees.
V. APPLICATION PROCESS
Eligible taxpayers who wish to partici-
pate in the VCSP must submit an applica-
tion for participation in the program. Infor-
mation about the VCSP and the application
will be available onwww.irs.gov.Along
with the application, the name of a con-
tact or an authorized representative with
a validPower of Attorney(Form 2848)
should be provided. The IRS will con-
tact the taxpayer or authorized represen-
tative to complete the process once it has
reviewed the application and verified the
taxpayer’s eligibility. The IRS retains dis-
cretion whether to accept a taxpayer’s ap-
plication for the VCSP. Taxpayers whose
application has been accepted will enter
into a closing agreement with the IRS to
finalize the terms of the VCSP and will si-
multaneously make full and complete pay-
ment of any amount due under the closing
agreement.
VI. DRAFTING INFORMATION
The principal author of this announce-
ment is Joseph Perera of the Office of the
Division Counsel/Associate Chief Coun-
sel (Tax Exempt & Government Entities).
For further information regarding this
announcement, contact Joseph Perera at
202–622–6040 (not a toll-free call).
October 11, 20115042011–41 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.
2011–41 I.R.B.iOctober 11, 2011

Numerical Finding List
1
Bulletins 2011–27 through 2011–41
Announcements:
2011-37, 2011-27 I.R.B.37
2011-38, 2011-28 I.R.B.45
2011-39, 2011-28 I.R.B.46
2011-40, 2011-29 I.R.B.56
2011-41, 2011-28 I.R.B.47
2011-42, 2011-32 I.R.B.138
2011-43, 2011-35 I.R.B.198
2011-44, 2011-33 I.R.B.164
2011-45, 2011-34 I.R.B.178
2011-46, 2011-34 I.R.B.178
2011-47, 2011-34 I.R.B.178
2011-48, 2011-36 I.R.B.227
2011-49, 2011-36 I.R.B.228
2011-50, 2011-38 I.R.B.409
2011-51, 2011-38 I.R.B.409
2011-52, 2011-38 I.R.B.409
2011-53, 2011-38 I.R.B.409
2011-54, 2011-38 I.R.B.409
2011-55, 2011-38 I.R.B.409
2011-56, 2011-38 I.R.B.409
2011-57, 2011-38 I.R.B.409
2011-58, 2011-38 I.R.B.410
2011-59, 2011-37 I.R.B.335
2011-61, 2011-39 I.R.B.453
2011-62, 2011-40 I.R.B.483
2011-63, 2011-41 I.R.B.503
2011-64, 2011-41 I.R.B.503
Notices:
2011-47, 2011-27 I.R.B.34
2011-50, 2011-27 I.R.B.35
2011-51, 2011-27 I.R.B.36
2011-52, 2011-30 I.R.B.60
2011-53, 2011-32 I.R.B.124
2011-54, 2011-29 I.R.B.53
2011-55, 2011-29 I.R.B.53
2011-56, 2011-29 I.R.B.54
2011-57, 2011-31 I.R.B.84
2011-58, 2011-31 I.R.B.85
2011-59, 2011-31 I.R.B.86
2011-60, 2011-31 I.R.B.90
2011-61, 2011-31 I.R.B.91
2011-62, 2011-32 I.R.B.126
2011-63, 2011-34 I.R.B.172
2011-64, 2011-37 I.R.B.231
2011-65, 2011-34 I.R.B.173
2011-66, 2011-35 I.R.B.184
2011-67, 2011-34 I.R.B.174
2011-68, 2011-36 I.R.B.205
2011-69, 2011-39 I.R.B.445
2011-70, 2011-32 I.R.B.135
Notices— Continued:
2011-71, 2011-37 I.R.B.233
2011-72, 2011-38 I.R.B.407
2011-73, 2011-40 I.R.B.474
2011-74, 2011-41 I.R.B.496
2011-75, 2011-40 I.R.B.475
2011-76, 2011-40 I.R.B.479
2011-78, 2011-41 I.R.B.497
2011-79, 2011-41 I.R.B.498
Proposed Regulations:
REG-137128-08, 2011-28 I.R.B.43
REG-112805-10, 2011-40 I.R.B.482
REG-120391-10, 2011-39 I.R.B.451
REG-125592-10, 2011-32 I.R.B.137
REG-131491-10, 2011-36 I.R.B.208
REG-101352-11, 2011-30 I.R.B.75
REG-109006-11, 2011-37 I.R.B.334
REG-118809-11, 2011-33 I.R.B.162
REG-122813-11, 2011-35 I.R.B.197
REG-126519-11, 2011-39 I.R.B.452
Revenue Procedures:
2011-38, 2011-30 I.R.B.66
2011-39, 2011-30 I.R.B.68
2011-40, 2011-37 I.R.B.235
2011-41, 2011-35 I.R.B.188
2011-42, 2011-37 I.R.B.318
2011-43, 2011-37 I.R.B.326
2011-44, 2011-39 I.R.B.446
2011-45, 2011-39 I.R.B.449
Revenue Rulings:
2011-14, 2011-27 I.R.B.31
2011-15, 2011-30 I.R.B.57
2011-16, 2011-32 I.R.B.93
2011-17, 2011-33 I.R.B.160
2011-18, 2011-39 I.R.B.428
2011-19, 2011-36 I.R.B.199
2011-20, 2011-36 I.R.B.202
2011-21, 2011-40 I.R.B.458
2011-22, 2011-41 I.R.B.489
2011-24, 2011-41 I.R.B.485
Treasury Decisions:
9527, 2011-27 I.R.B.1
9528, 2011-28 I.R.B.38
9529, 2011-30 I.R.B.57
9530, 2011-31 I.R.B.77
9531, 2011-31 I.R.B.79
9532, 2011-32 I.R.B.95
9533, 2011-33 I.R.B.139
9534, 2011-33 I.R.B.144
9535, 2011-39 I.R.B.415
9536, 2011-39 I.R.B.426
9537, 2011-35 I.R.B.181
Treasury Decisions— Continued:
9538, 2011-37 I.R.B.229
9539, 2011-35 I.R.B.179
9540, 2011-38 I.R.B.341
9541, 2011-39 I.R.B.438
9542, 2011-39 I.R.B.411
9543, 2011-40 I.R.B.470
9544, 2011-40 I.R.B.458
9545, 2011-41 I.R.B.490
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2011–1 through 2011–26 is in Internal Revenue Bulletin
2011–26, dated June 27, 2011.
October 11, 2011ii2011–41 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2011–27 through 2011–41
Announcements:
2007-47
Updated and superseded by
Ann. 2011-59, 2011-37 I.R.B.335
Notices:
2006-101
Amplified and superseded by
Notice 2011-64, 2011-37 I.R.B.231
2007-93
Obsoleted by
T.D. 9545, 2011-41 I.R.B.490
2010-23
Modified and supplemented by
Notice 2011-54, 2011-29 I.R.B.53
2010-81
Amended and supplemented by
Notice 2011-63, 2011-34 I.R.B.172
2010-88
Modified by
Ann. 2011-40, 2011-29 I.R.B.56
Proposed Regulations:
REG-118761-09
Hearing scheduled by
Ann. 2011-38, 2011-28 I.R.B.45
REG-151687-10
Hearing scheduled by
Ann. 2011-48, 2011-36 I.R.B.227
Revenue Procedures:
72-36
Amplified and modified by
Rev. Proc. 2011-42, 2011-37 I.R.B.318
2004-29
Amplified and modified by
Rev. Proc. 2011-42, 2011-37 I.R.B.318
2007-35
Amplified and modified by
Rev. Proc. 2011-42, 2011-37 I.R.B.318
2008-24
Modified and superseded by
Rev. Proc. 2011-38, 2011-30 I.R.B.66
2008-32
Superseded by
Rev. Proc. 2011-39, 2011-30 I.R.B.68
2011-4
Modified by
Rev. Proc. 2011-44, 2011-39 I.R.B.446
Revenue Procedures— Continued:
2011-14
Modified by
Rev. Proc. 2011-43, 2011-37 I.R.B.326
2011-35
Amplified and modified by
Rev. Proc. 2011-42, 2011-37 I.R.B.318
Revenue Rulings:
58-225
Obsoleted by
Rev. Rul. 2011-15, 2011-30 I.R.B.57
Treasury Decisions:
9527
Corrected by
Ann. 2011-49, 2011-36 I.R.B.228
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2011–1 through 2011–26 is in Internal Revenue Bulletin 2011–26, dated June 27, 2011.
2011–41 I.R.B.iiiOctober 11, 2011

October 11, 20112011–41 I.R.B.

2011–41 I.R.B.October 11, 2011

October 11, 20112011–41 I.R.B.

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