Internal Revenue Bulletin 2009-43 (PDF rendition): IRS Announcements

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Bulletin No. 200
9-43
October 26, 2009
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
SPECIAL ANNOUNCEMENT
Announcement 2009–77, page 567.
The Twenty-Second Annual Institute on Current Issues in Inter-
national Taxation, jointly sponsored by the Internal Revenue Ser-
vice and the George Washington University Law School, will be
held on December 10 and 11, 2009, at the J.W. Marriott Hotel
in Washington, D.C.
INCOME TAX
T.D. 9458, page 547.
REG–139068–08, page 558.
Temporary and proposed regulations under section 1502 of
the Code provide for an election under which a consolidated
group can avoid immediately taking into account an intercom-
pany item after the liquidation of a target corporation. Pur-
suant to the election, the liquidation and recontribution will be
recharacterized as a cross-chain reorganization, rather than a
liquidation or an upstream reorganization followed by a drop of
assets.
T.D. 9465, page 542.
Final regulations under section 882 of the Code provide
guidance on interest allocation for foreign corporations to
coordinate with recent income tax treaties; provide guidance
on the adoption of a fixed ratio election and a 30–day pub-
lished LIBOR rate election in the allocation formula; modify the
liability reduction election under the branch profits tax; and
make miscellaneous technical corrections and clarifications.
T.D. 9466, page 551.
REG–108045–08, page 557.
Final, temporary, and proposed regulations under sections
6229(c)(2) and 6501(e) of the Code define an omission from
gross income for purposes of the six-year minimum period for
assessment of tax attributable to partnership items and the
six-year period for assessing tax.
REG–140492–02, page 559.
This document contains a withdrawal of proposed regula-
tions (REG–140492–02, 2004–1 C.B. 1031) under section
142(a)(6) of the Code, which defined solid waste disposal
facilities. This document also reissues the withdrawn pro-
posed regulations and updates the definition of solid waste
disposal facilities for purposes of section 142(a)(6). Generally,
interest on a state or local bond is excluded from gross
income. However, the exclusion does not apply to a private
activity bond unless the bond is a qualified bond. A qualified
bond includes an exempt facility bond that meets certain
requirements. Exempt facility bonds include bonds for solid
waste disposal facilities. The proposed regulations define
solid waste disposal facilities for purposes of exempt facility
bonds. A public hearing is scheduled for January 5, 2010.
EMPLOYEE PLANS
Notice 2009–76, page 554.
Weighted average interest rate update; corporate bond
indices; 30–year Treasury securities; segment rates.
This notice contains updates for the corporate bond weighted
average interest rate for plan years beginning in October
2009; the 24–month average segment rates; the funding
transitional segment rates applicable for October 2009; and
the minimum present value transitional rates for September
2009.
Fi
nding Lists begin on page ii.
Index for July through October begins on page iv.

The IRS Mission
Provide Americ
a’s taxpayers top quality service by helping them
understand an
d meet their tax responsibilities and by applying
the tax law with
integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Secre-
tary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
October 26, 20092009–43 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 882.—
Tax on
Income of Fore
ign
Corporations Connected
With United States Business
26 CFR 1.882–5: Determination of interest deduc-
tion.
T.D. 9465
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Determination of Interest
Expense Deduction of Foreign
Corporations
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations and removal
of temporary regulations.
SUMMARY: This document contains fi-
nal regulations under section 882(c) of the
Internal Revenue Code (Code) concerning
the determination of the interest expense
deduction of foreign corporations engaged
in a trade or business within the United
States. These final regulations conform
the interest expense rules to recent U.S.
Income Tax Treaty agreements and adopt
other changes to improve compliance.
DATES: These final regulations are effec-
tive September 28, 2009.
FOR FURTHER INFORMATION
CONTACT: Anthony J. Marra, (202)
622–3870 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The c
ollection of information con-
tain
ed in these final regulations has been
revi
ewed and approved by the Office of
Mana
gement and Budget in accordance
with
the Paperwork Reduction Act of
1995
(44 U.S.C. 3507(d)) under control
num
ber 1545–2030. Responses to this
col
lection of information are mandatory.
The collectio
n of information in these final
regulations i
s in §1.884–1(e)(3)(iv). This
information i
srequiredbytheIRStoallow
a taxpayer to
reduce U.S. liabilities to the
extent neces
sary to prevent the recognition
of a dividend
equivalent amount.
An agency may
not conduct or sponsor,
and a person i
s not required to respond
to, a collect
ion of information unless the
collection
of information displays a valid
control num
ber.
Books and re
cords relating to a collec-
tion of info
rmation must be retained as
long as thei
r contents may become mate-
rial in the a
dministration of any internal
revenue la
w. Generally, tax returns and tax
return inf
ormation are confidential, as re-
quired by 2
6 U.S.C. 6103.
Backgrou
nd
On August
17, 2006, the Treasury De-
partment
and the IRS published T.D. 9281
(71 FR 474
43–01, 2006–2 C.B. 517)
(the temp
orary regulations) under section
882(c) o
f the Internal Revenue Code
regardi
ng the determination of a foreign
corpora
tion’s interest expense allocable
to incom
e effectively connected with the
conduc
t of a trade or business within the
United
States. On the same day, a notice of
propos
ed rulemaking (REG–120509–06,
71 FR 47
459, 2006–2 C.B. 570) was
publis
hed by cross-reference to the
tempo
rary regulations in theFederal
Regis
ter. See §601.601(d)(2)(ii)(b).
Secti
on 1.882–5 generally requires a
forei
gn corporation to use a three-step cal-
culat
ion to determine the amount of inter-
est ex
pense that is allocable under section
882(c
) to income effectively connected (or
trea
ted as effectively connected) with the
fore
ign corporation’s conduct of a trade or
busi
ness within the United States. The no-
tice
of proposed rulemaking (the proposed
regu
lations) provided for certain changes
in th
e three-step calculation. First, the
pro
posed regulations revised the election
to u
se fair market value rather than ad-
jus
ted basis in valuing U.S. assets in Step
1. T
hat revision required the taxpayer to
use
fair market valuations for both Step 1
pu
rposes and the entire determination of
th
e actual ratio in Step 2. The proposed
regulations a
lso revised the Step 2 elec-
tive fixed rat
io for foreign banks, allow-
ing a 95 percen
tfixedratiotobeusedin
lieu of the ac
tual ratio. In Step 3, the pro-
posed regula
tions allowed a foreign bank
with excess U
.S.-connected liabilities over
U.S.-booked
liabilities under the adjusted
U.S. booked
liabilities (AUSBL) method
to elect to u
se the 30-day London Inter-
bank Offeri
ng Rate (LIBOR) to calculate
interest on
the excess U.S.-connected lia-
bilities.
In addition
to the changes in the
three-ste
p calculation, the proposed reg-
ulations i
mplemented guidance provided
in Notice 2
005–53, 2005–2 C.B. 263, re-
garding th
e interaction of §1.882–5 and
U.S. incom
e tax treaties in recognition
that rece
nt treaties expressly permit tax-
payers to
determine attribution of business
profits t
o a permanent establishment by
analogy t
o the 1995 Organisation for Eco-
nomic Co-
operation and Development
Transfe
r Pricing Guidelines (Authorized
OECD App
roach). For purposes of apply-
ing the b
ranch profits tax, the proposed
regulat
ions expanded the election under
§1.884
–1 to allow a taxpayer to reduce
U.S. li
abilities to the extent necessary
to prev
ent the recognition of a dividend
equiva
lent amount, but not below zero.
Finall
y, the proposed regulations clarified
the ap
plication of the 1996 final regu-
latio
ns under §1.882–5 with respect to
certa
in direct interest allocations, the def-
initi
on of U.S.-booked liabilities, and the
treat
ment of certain currency gain and loss
for p
urposes of §1.882–5. The preamble
of T.
D. 9281 includes background infor-
mati
on with respect to the proposed regu-
lati
ons and a further explanation of these
prov
isions. See §601.601(d)(2)(ii)(b).
The I
RS received written comments in
resp
onse to the proposed regulations. No
requ
ests to speak at a public hearing were
rec
eived and no hearing was held. After
con
sideration of the comments received,
the
proposed regulations are adopted with-
out
substantive change by this Treasury
dec
ision, and the corresponding tempo-
ra
ry regulations are removed. To relieve
ta
xpayers of the burden of duplicative
re
porting, these final regulations coordi-
na
te the various elections provided in the
2009–43 I.R.B.542October 26, 2009

three-step formula with the filing of tax-
payer’s Schedule I (Form 1120–F). Tax-
payers filing protective tax returns under
§1.882–4(a)(3)(vi) may make §1.882–5
protective elections byattaching Schedule
I to a timely filed return (including exten-
sions). Taxpayers must separately attach
to the Form 1120–F, any election to re-
duce U.S. liabilities for branch profits tax
purposes as permitted by §1.884–1(e)(3).
A taxpayer’s Schedule I must reflect the
cumulative amount of all U.S. liability
reductions.
Many of the comments received raised
issues specific to certain financial trans-
actions that require broader considera-
tions than the interaction of §1.882–5 and
those financial transactions. The Trea-
sury Department and the IRS received
a number of comments requesting that
the 1996 proposed hedging regulations
(INTL–0054–95, 1996–1 C.B. 844) be
finalized and expanded, in certain cases,
to cover interbranch activities (including
currency gains and losses). Since those
regulations were proposed, the increase in
interdesk and interbranch hedging (in both
dealer and nondealer operations) has given
rise to special considerations other than
the familiar limitations associated with
capital and ordinary income distinctions.
In this regard, the proposed 1998 global
dealing regulations, for example, require
special considerations as to the appropri-
ate treatment of risk transfer agreements in
similar circumstances. In light of the need
for a broader consideration of these issues,
the Treasury Department and the IRS are
not adopting the suggestions outlined in
the comments received at this time. See
§601.601(d)(2)(ii)(b).
Commentators also suggested that the
regulations adopt special rules that would
govern the treatment of certain integrated
financial transactions such as effectively
connected sale-repurchase agreements
and securities lending transactions. The
commentators suggested the adoption of
a direct tracing rule that would, in effect,
give zero risk weighting to such assets,
especially in defined dealer books con-
sisting of sale-repurchase transactions and
securities loans involving U.S. Treasuries
and other governmentsecurities. The sug-
gested rule would scale back the amount
of capital that is imputed to such port-
folios under either the actual ratio or the
fixed ratio to reflect the economic reality
that such assets are entirely debt-financed.
Commentators also suggested that “net-
ting” rules apply for offsetting notional
principal contracts within discrete port-
folios. Finally, commentators suggested
revisions to the definition of U.S.-booked
liabilities that would exclude certain con-
duit interbranch lending arrangements.
The Treasury Department and the IRS
are not adopting these suggestions at this
time but continue to consider the issues
raised in this context and intend to coordi-
nate these issues, where appropriate, with
similar issues in analogous contexts, such
as global dealing operations and section
864(e). See Notice 2001–59, 2001–2 C.B.
315. See §601.601(d)(2)(ii)(b).
Section 861(a)(1)(C), as amended by
the American Jobs Creation Act of 2004
provides a special source rule for in-
terest on obligations of certain foreign
partnerships and may require coordinat-
ing changes to the branch-level inter-
est tax rules under §1.884–4. Specifi-
cally, a foreign corporate partner is not
treated as paying branch interest under
§1.884–4(b)(1)(i)(A) and therefore may
be liable for tax on excess interest even if
that foreign partner has U.S. book interest
paid with respect to its distributive share
of U.S. booked liabilities under §1.882–5.
Accordingly, the Treasury Department
and the IRS are currently considering how
best to coordinate the U.S. booked liability
rules with the determination of partnership
branch interest so that foreign corporate
partners of partnerships described in sec-
tion 861(a)(1)(C) are provided similar
treatment under §1.884–4 with respect to
their distributive shares of interest expense
as foreign corporations directly engaged
in a trade or business within the United
States.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It also has been deter-
mined that section 553(b) of the Admin-
istrative Procedure Act (5 U.S.C. chapter
5) does not apply to these regulations. It is
hereby certified that the collection of in-
formation contained in these regulations
will not have a significant economic im-
pact on a substantial number of small en-
tities. Accordingly, a regulatory flexibil-
ity analysis under the Regulatory Flexibil-
ity Act (5 U.S.C. chapter 6) is not required.
The collection of information requirement
in these regulations generally only affects
large foreign banks. Thus, the number of
affected small entities will not be substan-
tial and any economic impacts on those en-
tities in complying with the collection of
information would be minimal. Pursuant
to section 7805(f) of the Code, these reg-
ulations have been submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on its
impact on small business.
Drafting Information
The principal author of these regula-
tions is Anthony J. Marra of the Office of
Associate Chief Counsel (International).
However, other persons from the Office
of Associate Chief Counsel (International)
and the Treasury Department have partici-
pated in their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.882–0 is amended by:
1.Revising the entries for
§1.882–5(a)(1), (a)(1)(i), (a)(1)(ii),
(a)(1)(ii)(A), (a)(1)(ii)(B), (a)(2), (a)(7),
(a)(7)(i), (a)(7)(ii), (b)(2)(ii)(A), (b)(3),
(c)(2)(iv), (c)(4), (d)(2)(iii)(A), and
(d)(5)(ii).
2. Adding entries for §1.882–5
(a)(7)(iii),(b)(3)(i),(b)(3)(ii),
(d)(5)(ii)(A), and (d)(5)(ii)(B).
3. Removing the entries for §1.882–5T.
The revisions and additions read as fol-
lows:
§1.882–0 Table of contents.
*****
§1.882–5 Determination of interest
deduction.
(a)(1) Overview.
October 26, 20095432009–43 I.R.B.

(i) In general.
(ii) Direct allocations.
(A) In general.
(B) Partnership interests.
(2) Coordination with tax treaties.
*****
(7) Elections under §1.882–5.
(i) In general.
(ii) Failure to make the proper election.
(iii) Step 2 special election for banks.
*****
(b)(2)(ii)(A) In general.
*****
(3) Computation of total value of U.S.
assets.
(i) General rule.
(ii) Adjustment to basis of financial in-
struments.
*****
(c)(2)(iv) Determination of value of
worldwide assets.
*****
(4) Elective fixed ratio method of deter-
mining U.S. liabilities.
*****
(d)(2)(iii)(A) In general.
*****
(5)(ii) Interest rate on excess U.S.-con-
nected liabilities.
(A) General rule.
(B) Annual published rate election.
*****
Par. 3. Section 1.882–5 is amended by:
1.Revising paragraphs (a)(1),
(a)(2), (a)(7), (a)(7)(i), (a)(7)(ii),
(a)(7)(iii), (b)(2)(ii)(A), (b)(3), (c)(2)(iv),
(c)(4), (d)(2)(ii)(B)(2), (d)(2)(ii)(B)(3),
(d)(2)(iii)(A), (d)(5)(ii), (d)(6)Example 5
and (f)(1).
The revisions read as follows:
§1.882–5 Determination of interest
deduction.
(a)(1)Overview—(i)In general.The
amount of interest expense of a foreign
corporation that is allocable under section
882(c) to income which is (or is treated
as) effectively connected with the conduct
of a trade or business within the United
States (ECI) is the sum of the interest al-
locable by the foreigncorporation under
the three-step process set forth in para-
graphs (b), (c), and (d) of this section and
the specially allocated interest expense de-
termined under paragraph (a)(1)(ii) of this
section. The provisions of this section
provide the exclusive rules for allocating
interest expense to the ECI of a foreign
corporation under section 882(c). Under
the three-step process, the total value of
the U.S. assets of a foreign corporation
is first determined under paragraph (b) of
this section (Step 1). Next, the amount
of U.S.-connected liabilities is determined
under paragraph (c) of this section (Step 2).
Finally, the amount of interest paid or ac-
crued on U.S.-booked liabilities, as deter-
mined under paragraph (d)(2) of this sec-
tion, is adjusted for interest expense attrib-
utable to the difference between U.S.-con-
nected liabilities and U.S.-booked liabili-
ties (Step 3). Alternatively, a foreign cor-
poration may elect to determine its interest
rate on U.S.-connected liabilities by refer-
ence to its U.S. assets, using the separate
currency pools method described in para-
graph (e) of this section.
(ii)Direct allocations—(A)In gen-
eral. A foreign corporation that has a
U.S. asset and indebtedness that meet the
requirements of §1.861–10T (b) or (c),
as limited by §1.861–10T(d)(1), shall di-
rectly allocate interest expense from such
indebtedness to income from such asset
in the manner and to the extent provided
in §1.861–10T. For purposes of paragraph
(b)(1) or (c)(2) of this section, a foreign
corporation that allocates its interest ex-
pense under the direct allocation rule of
this paragraph (a)(1)(ii)(A) shall reduce
the basis of the asset that meets the re-
quirements of §1.861–10T (b) or (c) by the
principal amount of the indebtedness that
meets the requirements of §1.861–10T
(b)or(c). Theforeigncorporationshall
also disregard any indebtedness that meets
the requirements of §1.861–10T (b) or (c)
in determining the amount of the foreign
corporation’s liabilities under paragraphs
(c)(2) and (d)(2) of this section and shall
not take into account any interest expense
paid or accrued with respect to such a lia-
bilityforpurposesofparagraph(d)or(e)
of this section.
(B)Partnership interest.Aforeigncor-
poration that is a partner in a partnership
that has a U.S. asset and indebtedness that
meet the requirements of §1.861–10T (b)
or (c), as limited by §1.861–10T(d)(1),
shall directly allocate its distributive share
of interest expense from that indebtedness
to its distributive share of income from
that asset in the manner and to the extent
provided in §1.861–10T. A foreign corpo-
ration that allocates its distributive share of
interest expense under the direct allocation
rule of this paragraph (a)(1)(ii)(B) shall
disregard any partnership indebtedness
that meets the requirements of §1.861–10T
(b) or (c) in determining the amount of
its distributive share of partnership lia-
bilities for purposes of paragraphs (b)(1),
(c)(2)(vi), and (d)(2)(vii) or (e)(1)(ii) of
this section, and shallnot take into account
any partnership interest expense paid or
accrued with respect to such a liability
forpurposesofparagraph(d)or(e)of
this section. For purposes of paragraph
(b)(1) of this section, a foreign corporation
that directly allocates its distributive share
of interest expense under this paragraph
(a)(1)(ii)(B) shall—
(1) Reduce the partnership’s basis in
such asset by the amount of such indebt-
edness in allocating its basis in the partner-
ship under §1.884–1(d)(3)(ii); or
(2) Reduce the partnership’s income
from such asset by the partnership’s inter-
est expense from such indebtedness under
§1.884–1(d)(3)(iii).
(2)Coordination with tax treaties.Ex-
cept as expressly provided by or pursuant
to a U.S. income tax treaty or accompa-
nying documents (such as an exchange
of notes), the provisions of this section
provide the exclusive rules for determin-
ing the interest expense attributable to the
business profits of a permanent establish-
ment under a U.S. income tax treaty.
*****
(7)Elections under §1.882–5—(i)In
general. A corporation must make each
election provided in this section on the
corporation’s original timely filed Federal
income tax return for the first taxable year
it is subject to the rules of this section.
An amended return does not qualify for
this purpose, nor shall the provisions of
§301.9100–1 of this chapter and any guid-
ance promulgated thereunder apply. Ex-
cept as provided elsewhere in this section,
each election under thissection, whether
an election for the first taxable year or a
subsequent change of election, shall be
made by indicating the method used on
Schedule I (Form 1120–F) attached to
the corporation’s timely filed return. An
elected method (other than the fair market
2009–43 I.R.B.544October 26, 2009

value method under paragraph (b)(2)(ii) of
this section, or the annual 30-day London
Interbank Offered Rate (LIBOR) election
in paragraph (d)(5)(ii) of this section)
must be used for a minimum period of
five years before the taxpayer may elect a
different method. To change an election
before the end of the requisite five-year
period, a taxpayer must obtain the consent
of the Commissioner or his delegate. The
Commissioner or his delegate will gen-
erally consent to a taxpayer’s request to
change its election only in rare and un-
usual circumstances. After the five-year
minimum period, an elected method may
be changed for any subsequent year on the
foreign corporation’s original timely filed
tax return for the first year to which the
changed election applies.
(ii)Failure to make the proper election.
If a taxpayer, for any reason, fails to make
an election provided in this section in a
timely fashion, the Director of Field Oper-
ations may make any or all of the elections
provided in this section on behalf of the
taxpayer, and such elections shall be bind-
ingasifmadebythetaxpayer.
(iii)Step 2 special election for banks.
For the first taxable year for which an orig-
inal income tax return is due (including ex-
tensions) after August 17, 2006, in which
a taxpayer that is a bank as described in
paragraph (c)(4) of this section is subject
to the requirements of this section, a tax-
payer may make a new election to use the
fixed ratio on an original timely filed re-
turn. A new fixed ratio election may be
made in any subsequent year subject to the
timely filing and five-year minimum pe-
riod requirements of paragraph (a)(7)(i) of
this section. A new fixed ratio election
under this paragraph (a)(7)(iii) is subject
to the adjusted basis or fair market value
conforming election requirements of para-
graph (b)(2)(ii)(A)(2) of this section and
may not be made if a taxpayer elects or
maintains a fair market value election for
purposes of paragraph (b) of this section.
Taxpayers that already use the fixed ra-
tiomethodunderanexistingelectionmay
continue to use the new fixed ratio at the
higher percentage without having to make
a new five-year election in the first year
that the higher percentage is effective.
*****
(b) * * *
(2) * * *
(ii) * * *
(A)In general—(1)Fair market value
conformity requirement. A taxpayer may
elect to value all of its U.S. assets on the
basis of fair market value, subject to the
requirements of §1.861–9T(g)(1)(iii), and
provided the taxpayer is eligible and uses
the actual ratio method under paragraph
(c)(2) of this section and the methodology
prescribed in §1.861–9T(h). Once elected,
the fair market value must be used by the
taxpayer for both Step 1 and Step 2 de-
scribed in paragraphs (b) and (c) of this
section, and must be used in all subsequent
taxable years unless the Commissioner or
his delegate consents to a change.
(2)Conforming election requirement.
Taxpayers that as of the effective date
of this paragraph (b)(2)(ii)(A)(2)have
elected and currently use both the fair
market value method for purposes of para-
graph (b) of this section and a fixed ratio
for purposes of paragraph (c)(4) of this
section must conform either the adjusted
basis or fair market value methods in Step
1 and Step 2 of the allocation formula by
making an adjusted basis election for para-
graph (b) of this section purposes while
continuing the fixed ratio for Step 2, or
by making an actual ratio election under
paragraph (c)(2) of this section while re-
maining on the fair market value method
under paragraph (b) of this section. Tax-
payers who elect to conform Step 1 and
Step 2 of the formula to the adjusted basis
method must remain on both methods for
the minimum five-year period in accor-
dance with the provisions of paragraph
(a)(7) of this section. Taxpayers that elect
toconformStep1andStep2ofthefor-
mula to the fair market value method must
remain on the actual ratio method until the
consent of the Commissioner or his dele-
gate is obtained to switch to the adjusted
basis method. If consent to use the ad-
justed basis method in Step 1 is granted in
a later year, the taxpayer must remain on
the actual ratio method for the minimum
five-year period unless consent to use the
fixed ratio is independently obtained un-
der the requirements of paragraph (a)(7) of
this section. For the first taxable year for
which an original income tax return is due
(including extensions) after August 17,
2006, taxpayers that are required to make a
conforming election under this paragraph
(b)(2)(ii)(A)(2),maydosoonanorigi-
nal timely filed return. If a conforming
election is not made within the timeframe
provided in this paragraph, the Director of
Field Operations or his delegate may make
the conforming elections in accordance
with the provisions of paragraph (a)(7)(ii)
of this section.
*****
(3)Computation of total value of U.S.
assets—(i)General rule. The total value
of U.S. assets for the taxable year is the
average of the sums of the values (deter-
mined under paragraph (b)(2) of this sec-
tion) of U.S. assets. For each U.S. asset,
value shall be computed at the most fre-
quent regular intervals for which data are
reasonably available. In no event shall
the value of any U.S. asset be computed
less frequently than monthly (beginning of
taxable year and monthly thereafter) by a
large bank (as defined in section 585(c)(2))
or a dealer in securities (within the mean-
ing of section 475) and semi-annually (be-
ginning, middle and end of taxable year)
by any other taxpayer.
(ii)Adjustment to basis of financial in-
struments. For purposes of determining
the total average value of U.S. assets in
this paragraph (b)(3), the value of a se-
curity or contract that is marked to mar-
ket pursuant to section 475 or section 1256
shall be determined as if each determina-
tion date is the most frequent regular inter-
val for which data are reasonably available
that reflects the taxpayer’s consistent busi-
ness practices for reflecting mark-to-mar-
ket valuations on its books and records.
*****
(c) * * *
(2) * * *
(iv)Determination of value of world-
wide assets. The value of an asset must be
determined consistently from year to year
and must be substantially in accordance
with U.S. tax principles. To be substan-
tially in accordance with U.S. tax princi-
ples, the principles used to determine the
value of an asset must not differ from U.S.
tax principles to a degree that will ma-
terially affect the value of the taxpayer’s
worldwide assets or the taxpayer’s actual
ratio. The value of an asset is the adjusted
basis of that asset for determining the gain
or loss from the sale or other disposition of
that asset, adjusted in the same manner as
the basis of U.S. assets are adjusted under
paragraphs (b)(2) (ii) through (iv) of this
section. The rules of paragraph (b)(3) of
October 26, 20095452009–43 I.R.B.

this section apply in determining the total
value of applicable worldwide assets for
the taxable year, except that the minimum
number of determination dates are those
stated in paragraph (c)(2)(i) of this section.
*****
(4)Elective fixed ratio method of deter-
mining U.S. liabilities. A taxpayer that is
a bank as defined in section 585(a)(2)(B)
(without regard to the second sentence
thereof or whether any such activities are
effectively connected with a trade or busi-
ness within the United States) may elect to
use a fixed ratio of 95 percent in lieu of the
actual ratio. A taxpayer that is neither a
bank nor an insurance company may elect
to use a fixed ratio of 50 percent in lieu of
the actual ratio.
*****
(d) * * *
(2) * * *
(ii) * * *
(B)(2) The foreign corporation enters
the liability on a set of books reasonably
contemporaneously with the time at which
the liability is incurred and the liability re-
lates to an activity that produces ECI.
(3) The foreign corporation maintains a
set of books and records relating to an ac-
tivity that produces ECI and the Director of
Field Operations determines that there is a
direct connection or relationship between
the liability and that activity. Whether
there is a direct connection between the li-
ability and an activity that produces ECI
depends on the facts and circumstances of
each case.
*****
(iii) * * *
(A)In general. A liability, whether
interest bearing or non-interest bearing,
is properly reflected on the books of the
U.S. trade or business of a foreign corpo-
ration that is a bank as described in section
585(a)(2)(B) (without regard to the second
sentence thereof) if—
(1) The bank enters the liability on a
set of books before the close of the day
on which the liability is incurred, and the
liability relates to an activity that produces
ECI; and
(2) There is a direct connection or rela-
tionship between the liability and that ac-
tivity. Whether there is a direct connec-
tion between the liability and an activity
that produces ECI depends on the facts
and circumstances of each case. For ex-
ample, a liability that is used to fund an
interbranch or other asset that produces
non-ECI may have a direct connection to
an ECI producing activity and may consti-
tute a U.S.-booked liability if both the in-
terbranch or non-ECI activity is the same
type of activity in which ECI assets are
also reflected on the set of books (for ex-
ample, lending or money market interbank
placements), and such ECI activities are
notde minimis. Such U.S. booked lia-
bilities may still be subject to paragraph
(d)(2)(v) of this section.
*****
(5) * * *
(ii)Interest rate on excess U.S.-con-
nected liabilities—(A)General rule.
The applicable interest rate on excess
U.S.-connected liabilities is determined by
dividing the total interest expense paid or
accrued for the taxable year on U.S.-dollar
liabilities that are not U.S.-booked liabili-
ties (as defined in paragraph (d)(2) of this
section) and that are shown on the books
of the offices or branches of the foreign
corporation outside the United States by
the average U.S.-dollar denominated lia-
bilities (whether interest-bearing or not)
that are not U.S.-booked liabilities and
that are shown on the books of the offices
or branches of the foreign corporation out-
side the United States for the taxable year.
(B)Annual published rate election.For
each taxable year beginning with the first
year end for which the original tax re-
turn due date (including extensions) is af-
ter August 17, 2006, in which a taxpayer
is a bank within the meaning of section
585(a)(2)(B) (without regard to the sec-
ond sentence thereof or whether any such
activities are effectively connected with a
trade or business within the United States),
such taxpayer may elect to compute its ex-
cess interest by reference to a published
average 30-day London Interbank Offer-
ing Rate (LIBOR) for the year. The elec-
tion may be made for any eligible year
by indicating the rate used on Schedule I
(Form 1120–F) attached to the timely filed
return. Once selected, the rate may not
be changed by the taxpayer. If a taxpayer
that is eligible to make the 30-day LIBOR
election either does not file a timely re-
turn or files a calculation that allocates in-
terest expense under the scaling ratio in
paragraph (d)(4) of this section and it is
determined by the Director of Field Oper-
ations that the taxpayer’s U.S.-connected
liabilities exceed its U.S.-booked liabili-
ties, then the Director of Field Operations,
and not the taxpayer, may choose whether
to determine the taxpayer’s excess interest
rate under paragraph (d)(5)(ii)(A) or (B) of
this section and may select the published
30-day LIBOR rate.
(6) * * *
Example 5.U.S. booked liabilities — direct
relationship.(i)Facts. Bank A, a resident of Coun-
try X maintains a banking office in the U.S. that
records transactions on three sets of books for State
A, an International Banking Facility (IBF) for its
bank regulatory approved international transactions,
andashellbranchlicensedoperationinCountry
C. Bank A records substantial ECI assets from its
bank lending and placement activities and a mix of
interbranch and non-ECI producing assets from the
same or similar activities on the books of State A
branch and on its IBF. Bank A’s Country C branch
borrows substantially from third parties, as well as
from its home office, and lends all of its funding
to its State A branch and IBF to fund the mix of
ECI, interbranch and non-ECI activities on those two
books. The consolidated books of State A branch
and IBF indicate that a substantial amount of the total
book assets constitute U.S. assets under paragraph
(b) of this section. Some of the third-party borrow-
ings on the books of the State A branch are used to
lend directly to Bank A’s home office in Country X.
These borrowings reflect the average borrowing rate
of the State A branch, IBF and Country C branches
as a whole. All third-party borrowings reflected on
the books of State A branch, the IBF and Country C
branch were recorded on such books before the close
of business on the day the liabilities were acquired
by Bank A.
(ii)U.S. booked liabilities. The facts demonstrate
that the separate State A branch, IBF and Country C
branch books taken together, constitute a set of books
within the meaning of paragraph (d)(2)(iii)(A)(1)of
this section. Such set of books as a whole has a di-
rect relationship to an ECI activity under paragraph
(d)(2)(iii)(A)(2) of this section even though the Coun-
try C branch books standing alone would not. The
third-party liabilities recorded on the books of Coun-
try C constitute U.S. booked liabilities because they
were timely recorded and the overall set of books on
which they were reflected has a direct relationship
to a bank lending and interbank placement ECI pro-
ducing activity. The third-party liabilities that were
recorded on the books of State A branch that were
used to lend funds to Bank A’s home office also con-
stitute U.S. booked liabilities because the interbranch
activity the funds were used for is a lending activity
of a type that also gives rise to a substantial amount
of ECI that is properly reflected on the same set of
books as the interbranch loans. Accordingly, the lia-
bilities are not traced to their specific interbranch use
but to the overall activity of bank lending and inter-
bank placements which gives rise to substantial ECI.
The facts show that the liabilities were not acquired
to increase artificially the interest expense of Bank
2009–43 I.R.B.546October 26, 2009

A’s U.S. booked liabilities as a whole under para-
graph (d)(2)(v) of this section. The third-party lia-
bilities also constitute U.S. booked liabilities for pur-
poses of determining Bank A’s branch interest under
§1.884–4(b)(1)(i)(A) regardless of whether Bank A
uses the Adjusted U.S. booked liability method, or
the Separate Currency Pool method to allocate its in-
terest expense under paragraph 5(e) of this section.
*****
(f)(1)Effective/applicability date—(1)
General rule. This section is applicable for
taxable years ending on or after August 15,
2009. A taxpayer, however, may choose
to apply §1.882–5T, rather than applying
the final regulations, for any taxable year
beginning on or after August 16, 2008 but
before August 15, 2009.
§1.882–5T [Removed]
Par. 4. Section 1.882–5T is removed.
Par. 5. Section 1.884–1 is amended
by revising the entries for paragraphs
(e)(3)(ii), (e)(3)(iv) and (e)(5)Example 2.
§1.884–1 Branch profits tax.
*****
(e) * * *
(3) * * *
(ii)Limitation. For any taxable year,
a foreign corporation may elect to reduce
the amount of its liabilities determined un-
der paragraph (e)(1) of this section by an
amount that does not exceed the lesser of
the amount of U.S. liabilities as of the de-
termination date, or the amount of U.S. li-
ability reduction needed to reduce a divi-
dend equivalent amount as of the determi-
nation date to zero.
*****
(iv)Method of election. A foreign cor-
poration that elects the benefits of this
paragraph (e)(3) for a taxable year shall
attach a statement to its return for the tax-
able year that it has elected to reduce its
liabilities for the taxable year under this
paragraph (e)(3) and that it has reduced
the amount of its U.S.-connected liabilities
as provided in paragraph (e)(3)(iii) of this
section and shall indicate the amount of
such reductions on such attachment. The
cumulative amount of all U.S. liability
reductions is shown on Schedule I (Form
1120–F) in addition to the separate elec-
tions attached to the timely filed return. An
election under this paragraph (e)(3) must
be made before the due date (including
extensions) for the foreign corporation’s
income tax return for the taxable year.
*****
(5) * * *
Example 2.Election made to reduce liabilities.
(i) As of the close of 2007, foreign corporation A, a
real estate company, owns U.S. assets with an E&P
basis of $1000. A has $800 of liabilities under para-
graph (e)(1) of this section. A has accumulated ECEP
of $500 and in 2008, A has $60 of ECEP that it in-
tends to retain for future expansion of its U.S. trade
or business. A elects under paragraph (e)(3) of this
section to reduce its liabilities by $60 from $800 to
$740. As a result of the election, assuming A’s U.S.
assets and U.S. liabilities would otherwise have re-
mained constant, A’s U.S. net equity as of the close
of 1994 will increase by the amount of the decrease
in liabilities ($60) from $200 to $260 and its ECEP
will be reduced to zero. Under paragraph (e)(3)(iii)
of this section, A’s interest expense for the taxable
year is reduced by the amount of interest attributable
to $60 of liabilities and A’s excess interest is reduced
by the same amount. A’s taxable income and ECEP
are increased by the amount of the reduction in inter-
est expense attributable to the liabilities, and A may
make an election under paragraph (e)(3) of this sec-
tion to further reduce its liabilities, thus increasing its
U.S. net equity and reducing the amount of additional
ECEP created for the election.
(ii) In 2009, assuming A again has $60 of ECEP,
A may again make the election under paragraph (e)(3)
to reduce its liabilities. However, assuming A’s U.S.
assets and liabilities under paragraph (e)(1) of this
section remain constant, A will need to make an elec-
tion to reduce its liabilities by $120 to reduce to zero
its ECEP in 2009 and to continue to retain for expan-
sion (without the payment of the branch profits tax)
the $60 of ECEP earned in 2008. Without an election
to reduce liabilities, A’s dividend equivalent amount
for 2009 would be $120 ($60 of ECEP plus the $60
reduction in U.S. net equity from $260 to $200). If A
makes the election to reduce liabilities by $120 (from
$800 to $680), A’s U.S. net equity will increase by
$60 (from $260 at the end of the previous year to
$320), the amount necessary to reduce its ECEP to $0.
However, the reduction of liabilities will itself create
additional ECEP subject to section 884 because of the
reduction in interest expense attributable to the $120
of liabilities. A can make the election to reduce liabil-
ities by $120 without exceeding the limitation on the
election provided in paragraph (e)(3)(ii) of this sec-
tion because the $120 reduction does not exceed the
amount needed to treat the 2009 and 2008 ECEP as
reinvested in the net equity of the trade or business
within the United States.
(iii) If A terminates its U.S. trade or business in
2009 in accordance with the rules in §1.884–2T(a), A
would not be subject to the branch profits tax on the
$60 of ECEP earned in that year. Under paragraph
(e)(3)(v) of this section, however, it would be subject
to the branch profits tax on the portion of the $60 of
ECEP that it earned in 2008 that became accumulated
ECEP because of an election to reduce liabilities.
*****
§1.884–1T [Removed]
Par. 6. Section 1.884–1T is removed.
Par. 7. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 8. In §602.101, paragraph (b)
is amended by removing the entry for
“§1.882–5T” from the table.
LindaE.Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved September 15, 2009.
Michael Mundaca,
(Acting) Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on September
25, 2009, 8:45 a.m., and published in the issue of the Federal
Register for September 28, 2009, 74 F.R. 49315)
Section 1502.—Regulations
26 CFR 1.1502–13: Intercompany transactions.
T.D. 9458
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Modification to Consolidated
Return Regulation Permitting
an Election to Treat a
Liquidation of a Target,
Followed by a Recontribution
to a New Target, as a
Cross-Chain Reorganization
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Temporary regulations.
SUMMARY: This document contains tem-
porary regulations under section 1502 of
the Internal Revenue Code (Code). The
change to the consolidated return regu-
lations is necessary in light of the reg-
ulations under section 368 that were is-
sued in October 2007 addressing transfers
of assets or stock following a reorgani-
zation. The temporary regulations mod-
ify the election under which a consoli-
October 26, 20095472009–43 I.R.B.

dated group can avoid immediately tak-
ing into account an intercompany item af-
ter the liquidation of a target corporation.
The temporary regulations apply to cor-
porations filing consolidated returns. The
text of these temporary regulations also
serves as the text of the proposed regu-
lations (REG–139068–08) set forth in the
notice of proposed rulemaking on this sub-
ject in this issue of the Bulletin.
DATES:Effective Date:These regulations
are effective on September 4, 2009.
Applicability Date:The changes re-
flected in these temporary regulations
(§1.1502–13T(f)(5)(ii)(B)(1)and(2))
generally apply to transactions in which
T’s liquidation into B occurs on or af-
ter the effective date of the §1.368–2(k)
regulations, October 25, 2007. For
transactions in which T’s liquidation
into B occurs before October 25, 2007,
§1.1502–13(f)(5)(ii)(B)(1)and(2)inef-
fect prior to October 25, 2007 as contained
in 26 CFR part 1, revised April 1, 2009,
continue to apply.
FOR FURTHER INFORMATION
CONTACT: Concerning the tempo-
rary regulations, Mary W. Lyons,
(202) 622–7930; concerning submis-
sion of comments and the hearing,
Oluwafunmilayo (Funmi) Taylor, (202)
622–7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
These temporary regulations are being
issued without prior notice and public
procedure pursuant to the Administra-
tive Procedure Act (5 U.S.C. 553). For
this reason, the collection of information
contained in these regulations has been
reviewed and, pending receipt and eval-
uation of public comments, approved by
the Office of Management and Budget
under control number 1545–1433. Re-
sponses to this collection of information
are required in order for the parent of a
consolidated group to make the election
found in §1.1502–13T(f)(5)(ii)(B).
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
control number.
For further information concerning this
collection of information, and where to
submit comments on the collection of in-
formation and the accuracy of the esti-
mated burden, and suggestions for reduc-
ing this burden, please refer to the pream-
ble to the cross-referencing notice of pro-
posed rulemaking on this subject in this is-
sue of the Bulletin.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
Background and Explanation of
Provisions
Section 1.1502–13(f)(5) provides that
S’s (the selling member in an intercom-
pany transaction) intercompany item from
a transfer to B (the buying member in an
intercompany transaction) of the stock
of another corporation (T) is taken into
account in certain circumstances even
though the T stock is never held by a non-
member of the consolidated group after
the intercompany transaction. For exam-
ple, if S sells all of T’s stock to B at a
gain, and T subsequently liquidates into B
in a separate transaction to which section
332 applies, S’s gain is taken into account
under the matching rule. This result would
also be obtained in other transactions in
whichB’sbasisinitsTstockisperma-
nently eliminated in a nonrecognition
transaction, including a merger of B into
T under section 368(a), a distribution by B
of its T stock in a transaction described in
section 355, and a deemed liquidation of
T resulting from an election under section
338(h)(10). However, an election to apply
§1.1502–13(f)(5)(ii)(B) is available that
allows a taxpayer whose intercompany
gain on subsidiary (T) stock was taken
into account upon the subsidiary’s liqui-
dation to reincorporate the subsidiary to
prevent the intercompany gain from be-
ing taken account at such time. Section
1.1502–13(f)(5)(ii)(B) provides:
If section 332 applies to T’s liquida-
tion into B, and B transfers T’s assets
to a new member (new T) in a transac-
tion not otherwise pursuant to the same
plan or arrangement as the liquidation,
the transfer is nevertheless treated for
all Federal income tax purposes as pur-
suant to the same plan or arrangement
as the liquidation. For example, if T
liquidates into B, but B forms new T
by transferring substantially all of T’s
former assets to new T, S’s intercom-
pany gain or loss generally is not taken
into account solely as a result of the
liquidation if the liquidation and trans-
fer would qualify as a reorganization
described in section 368(a). (Under
[§1.1502–13(j)(1)], B’s stock in new T
would be a successor asset to B’s stock
in T, and S’s gain would be taken into
account based on the new T stock.)
1.Results Prior to the Issuance of
§1.368–2(k) Regulations.
Prior to the issuance of the regulations
under §1.368–2(k) (the –2(k) regulations)
in October 2007, the election to apply
§1.1502–13(f)(5)(ii)(B) triggered the ap-
plication of the step transaction doctrine.
Under the step transaction doctrine, the
liquidation of a corporation followed by a
contribution of substantially all its assets
to a new corporation generally is recharac-
terized as a cross-chain reorganization. In
a cross-chain reorganization, B’s basis in
the new T stock is determined by reference
to its basis in the old T stock. Therefore,
under §1.1502–13(j), the new T stock is a
successor asset to the old T stock, and S’s
gain on the old T stock is not taken into
account upon the liquidation of old T, but
instead is taken into account by reference
to the new T stock. By not immediately
taking the gain into account, the purpose
of §1.1502–13, that is, to provide rules that
clearly reflect the income and tax liability
of the group by preventing intercompany
transactions from creating, accelerating,
avoiding, or deferring consolidated tax-
able income or consolidated tax liability,
is accomplished. See §1.1502–13(a)(1).
2.Results After the Issuance of
§1.368–2(k) Regulations.
The issuance of the –2(k) regula-
tions created a conflict with the lan-
guage of §1.1502–13(f)(5)(ii)(B). Section
1.368–2(k) provides, in general, that a
transaction otherwise qualifying as a re-
organization under section 368(a) shall
not be disqualified or recharacterized
as a result of one or more subsequent
2009–43 I.R.B.548October 26, 2009

transfers (or successive transfers) of as-
sets or stock, provided that the require-
ments of §1.368–1(d) are satisfied and
the transfer(s) are described in either
§1.368–2(k)(1)(i) or(ii). Under the –2(k)
regulations, which are generally effective
for transactions occurring on or after Oc-
tober 25, 2007, the liquidation of old T
followed by the contribution of substan-
tially all the old T assets to new T would
now be characterized as an upstream C
reorganization (if it so qualifies) followed
by a section 368(a)(2)(C) drop of assets,
and could no longer be recharacterized as
a cross-chain reorganization. Thus, B’s
basis in its new T stock would not be de-
termined by reference to B’s basis in the
old T stock, but by reference to the basis
of old T’s assets.
3.Reason for Change.
Section 1.1502–13(j)(1) provides that
an asset is a successor asset if its basis is
determined by reference to the basis of the
first asset. In a cross-chain reorganization,
the result prior to the issuance of the –2(k)
regulations, B’s basis in the new T stock
would be determined by reference to the
basis of the old T stock, thus the new T
stock would clearly fall within the mean-
ing of successor asset in §1.1502–13(j)(1).
However, in an upstream reorganization
followed by a drop of the assets to new
T,theresultaftertheissuanceofthe–2(k)
regulations, B’s basis in new T would be
determined by reference to the basis of the
old T assets, not the old T stock. Thus, the
new T stock would not be a successor asset
to the old T stock in an upstream reorgani-
zation.
Permitting an election to apply
§1.1502–13(f)(5)(ii)(B) while treating
the transaction as an upstream reorga-
nization would be inconsistent with the
purposes of §1.1502–13. For example,
assume S sells its stock in T to B for
$1,000,000 and T has a basis in its assets
of $3,000,000. T then liquidates into B,
which recontributes the assets to new T.
If the transaction is treated as an upstream
reorganization under section 368(a)(1)(C),
followed by a drop of the assets under
section 368(a)(2)(C), B would receive a
basis in T’s assets of $3,000,000 under
section 362(b), and, on the drop of the as-
sets to new T, would receive a basis in its
new T stock of $3,000,000 under section
358(a). This increase in basis in the new
T stock over the basis of the old T stock is
inconsistent with allowing S’s continued
deferral of the gain on the old T stock and
the purposes of §1.1502–13.
Therefore, in order to satisfy the pur-
poses of §1.1502–13, these regulations
provide that if the election to apply
§1.1502–13T(f)(5)(ii)(B) is made for a
transaction in which old T liquidates into
B on or after the effective date of the –2(k)
regulations, followed by B’s transfer of
substantially all of old T’s assets to new T,
then, for all Federal income tax purposes,
old T’s liquidation into B and B’s transfer
of substantially all of old T’s assets to
new T will be disregarded and, instead,
the transaction will be treated as if old T
transferred substantially all of its assets to
new T in exchange for new T stock in a
reorganization described in section 368(a).
This election is available only if a direct
transfer of the old T assets to new T would
qualify as a reorganization. Thus, S’s gain
from the sale of the T stock to B is not
taken into account upon the liquidation of
T but instead is taken into account with
respect to the new T stock, the successor
asset to the old T stock.
4.Previous Intercompany Transaction
With Respect to the T Stock.
Under current §1.1502–13(f)(5) and
these regulations, the election so described
is available only if the old T stock had
previously been transferred in an inter-
company transaction. Comments are
requested on whether the election should
be available even when there has not been
a previous intercompany transaction with
respect to the old T stock.
5.Effective/Applicability Date.
Thechangesreflectedin
thesetemporaryregulations
(§1.1502–13T(f)(5)(ii)(B)(1)and(2))
generally apply to transactions in which
T’s liquidation into B occurs on or
after the effective date of the –2(k)
regulations, October 25, 2007. For
transactions in which T’s liquidation
into B occurs before October 25, 2007,
§1.1502–13(f)(5)(ii)(B)(1)and(2)in
effect prior to October 25, 2007 as con-
tained in 26 CFR part 1, revised April
1, 2009, continue to apply. Generally,
pursuant to §1.1502–13T(f)(5)(ii)(B)(2)
and §1.1502–13(f)(5)(ii)(E), the election
described in these temporary regula-
tions is made by entering into a written
plan to transfer the T assets from B to
new T on or before the due date of the
consolidated tax return for the tax year
that includes the date of the liquidation
and including the statement described in
§1.1502–13(f)(5)(ii)(E) on or with such
timely filed return. However, consolidated
groups for which the liquidation of the
target corporation occurred on or after
October 25, 2007, and whose tax return
for the year of liquidation was filed before
November 3, 2009 may make this election
by entering into the written plan on or
before November 3, 2009 and including
the statement on or with an original tax
return or an amended tax return for the
tax year that includes the liquidation filed
before November 3, 2009. In either case,
the transfer of substantially all of T’s
assets to new T must be made within 12
months of the filing of such original or
amended return.
Special Analyses
It has been determined that this tempo-
rary regulation is not a significant regu-
latory action as defined in Executive Or-
der 12866. Therefore, a regulatory assess-
ment is not required. It also has been de-
termined that section 553(b) of the Admin-
istrative Procedure Act (5 U.S.C. chapter
5) does not apply to these regulations. It
is hereby certified that these regulations
will not have a significant impact on a sub-
stantial number of small entities. This cer-
tification is based on the fact that these
regulations do not have a substantial eco-
nomic impact because they merely provide
for an election in the context of a taxpayer
that has triggered deferred gain on sub-
sidiary stock upon the liquidation of the
subsidiary. Moreover, the regulations ap-
ply only to transactions involving consoli-
dated groups which tend to be larger busi-
nesses. Accordingly a Regulatory Flexi-
bility Analysis under the Regulatory Flex-
ibility Act (5 U.S.C. chapter 6) is not re-
quired. Pursuant to section 7805(f) of the
Code, these regulations have been submit-
ted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on their impact on small busi-
ness.
October 26, 20095492009–43 I.R.B.

Drafting Information
The principal author of these temporary
regulations is Mary W. Lyons of the Of-
fice of Associate Chief Counsel (Corpo-
rate). However, other personnel from the
IRS and Treasury Department participated
in their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.1502–13T also issued under
26U.S.C.1502***
Par. 2. Section 1.1502–13 is amended
by revising paragraph (f)(5)(ii)(B) to read
as follows:
§1.1502–13 Intercompany transactions.
*****
(f) * * *
(5) * * *
(ii) * * *
(B)(1) [Reserved]. For further guid-
ance, see §1.1502–13T(f)(5)(ii)(B)(1).
(2) [Reserved]. For further guidance,
see §1.1502–13T(f)(5)(ii)(B)(2).
Par. 3. Section 1.1502–13T is amended
by:
1. Revising paragraphs (f)(5)(ii)(B)(1),
and (B)(2).
2. Adding paragraph (f)(5)(ii)(F).
The revisions and addition read as fol-
lows:
§1.1502–13T Intercompany transactions
(temporary).
*****
(c)(6)(ii)(D) through (f)(5)(ii)(A)
[Reserved].For further guidance,
see §1.1502–13(c)(6)(ii)(D) through
(f)(5)(ii)(A).
(B)Section 332—(1)In general. If sec-
tion 332 would otherwise apply to T’s (old
T’s) liquidation into B, and B transfers sub-
stantially all of old T’s assets to a new
member (new T), and if a direct transfer
of substantially all of old T’s assets to new
T would qualify as a reorganization de-
scribed in section 368(a), then, for all Fed-
eral income tax purposes, T’s liquidation
into B and B’s transfer of substantially all
of old T’s assets to new T will be disre-
garded and instead, the transaction will be
treated as if old T transferred substantially
all of its assets to new T in exchange for
new T stock and the assumption of T’s li-
abilities in a reorganization described in
section 368(a). (Under §1.1502–13(j)(1),
B’s stock in new T would be a successor
assettoB’sstockinoldT,andS’sgain
would be taken into account based on the
new T stock.)
(2)Time limitation and adjustments.
The transfer of old T’s assets to new T
qualifies under paragraph (f)(5)(ii)(B)(1)
of this section only if B has entered into
a written plan, on or before the due date
of the group’s consolidated income tax
return (including extensions), to transfer
the T assets to new T, and the statement
described in paragraph (f)(5)(ii)(E) of this
section is included on or with a timely
filed consolidated tax return for the tax
year that includes the date of the liquida-
tion (including extensions). However, see
paragraph (f)(5)(ii)(F) of this section for
certain situations in which the plan may
be entered into after the due date of the
return and the statement described in para-
graph (f)(5)(ii)(E) of this section may be
included on either an original tax return or
an amended tax return filed after the due
date of the return. In either case, the trans-
fer of substantially all of T’s assets to new
T must be completed within 12 months
of the filing of the return. Appropriate
adjustments are made to reflect any events
occurring before the formation of new T
and to reflect any assets not transferred to
new T, or liabilities not assumed by new T.
Forexample,ifBretainsanassetofoldT,
the asset is treated under §1.1502–13(f)(3)
asacquiredbynewTbutdistributedtoB
immediately after the reorganization.
(f)(5)(ii)(B)(3) through (f)(5)(ii)(E)
[Reserved].For further guidance,
see §1.1502–13(f)(5)(ii)(B)(3) through
(f)(5)(ii)(E).
(F)Effective/Applicability date—(1)
General rule. Paragraphs (f)(5)(ii)(B)(1)
and (2) of this section apply to transactions
in which old T’s liquidation into B occurs
on or after October 25, 2007.
(2)Prior periods. For transactions
in which old T’s liquidation into B
occurs before October 25, 2007, see
§1.1502–13(f)(5)(ii)(B)(1)and(2)inef-
fect prior to October 25, 2007 as contained
in 26 CFR part 1, revised April 1, 2009.
(3)Special rule for tax returns filed
before November 3, 2009. In the case of a
liquidation on or after October 25, 2007,
by a taxpayer whose original tax return
for the year of liquidation was filed on or
before November 3, 2009, then, notwith-
standing paragraph (f)(5)(ii)(B)(2)ofthis
section and §1.1502–13(f)(5)(ii)(E), the
election to apply paragraph (f)(5)(ii)(B) of
this section may be made by entering into
the written plan described in paragraph
(f)(5)(ii)(B) of this section on or before
November 3, 2009, including the state-
ment described in §1.1502–13(f)(5)(ii)(E)
on or with an original tax return or an
amended tax return for the tax year that
includes the liquidation filed on or before
November 3, 2009, and transferring sub-
stantially all of T’s assets to new T within
12 months of the filing of such original or
amended return.
(f)(6) through (f)(7)(i)Example 6
[Reserved]. For further guidance, see
§1.1502–13(f)(6) through (f)(7)(i)Exam-
ple 6.
*****
Part 602—OMB CONTROL NUMBERS
UNDER THE PAPERWORK
REDUCTION ACT
Par. 4. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 5. In §602.101, paragraph (b) is
amended by adding the following entry in
numerical order to the table to read as fol-
lows:
§602.101 OMB Control numbers.
*****
(b) * * *
2009–43 I.R.B.550October 26, 2009

CFR part or section where
identified and described
Current OMB
control No.
*****
1.1502–13
...........................................................
1545–1433
*****
Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved August 27, 2009.
Michael Mundaca,
(Acting) Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on September
3, 2009, 8:45 a.m., and published in the issue of the Federal
Register for September 4, 2009, 74 F.R. 45757)
Section 6229.—Period
of Limitations for Making
Assessments
26 CFR 301.6229(c)(2)–1T: Substantial omission of
income (temporary).
T.D. 9466
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 301
Definition of Omission from
Gross Income
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regulation.
SUMMARY: This document contains
temporary regulations(replacing an exist-
ing final regulation) defining an omission
from gross income for purposes of the
six-year minimum period for assessment
of tax attributable to partnership items and
the six-year period for assessing tax. The
temporary regulations resolve a continu-
ing issue as to whether an overstatement
of basis in a sold asset results in an omis-
sion from gross income. The regulations
will affect any taxpayer who overstates
basis in a sold asset creating an omission
from gross income exceeding twenty-five
percent of the income stated in the return.
The text of these temporary regulations
also serves as the text of the proposed reg-
ulations set forth in the notice of proposed
rulemaking on this subject in this issue of
the Bulletin.
DATES:Effective date:These regulations
are effective on September 24, 2009.
Applicability date:The rules of this
section apply to taxable years with respect
to which the applicable period for assess-
ing tax did not expire before September 24,
2009.
FOR FURTHER INFORMATION
CONTACT: William A. Heard, III at (202)
622–4570 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
These temporary regulations amend
the Procedure and Administration Reg-
ulations (26 CFR part 301) relating to
sections 6229(c)(2) and 6501(e). Section
6229(c)(2) provides that if a partnership
“omits from gross income an amount
properly includible therein which is in ex-
cess of 25 percent of the amount of gross
income stated” in its return, the minimum
period for assessing tax attributable to
its partnership items is extended to six
years. The quoted language is identical
to language used in section 6501(e). An
omission from gross income is not further
defined in section 6229(c) as it is in sec-
tion 6501(e)(1)(A). But, as noted by the
courts, section 6229(c) merely serves to
extend the section 6501 period for each
separate partner to a minimum expiration
date computed from the date the part-
nership return is filed or due to be filed,
whichever is later. See section 6501(n)(2).
In extending each partner’s section 6501
period under section 6229, Congress is
presumed to give the language in section
6229, which is identical to language in
section 6501, identical meaning. Having
defined a phrase in section 6501, Congress
need not redefine the same phrase when
it is later used to extend that same statute
of limitations. Ascribing a different in-
terpretation to an identical phrase would
result in partners being treated differently
based on the happenstance of whether the
transaction is reported on a partnership
return rather than on a partner’s return.
For instance, in Son of Boss transactions
described in Notice 2000–44, 2000–2 C.B.
255 (Sept. 5, 2000), gross income can be
generated by the partnership when it sells
an inflated basis asset, or directly by the
partner if the asset is first distributed to the
partner before being sold. Thus, section
6501(e)(1)(A) defines an omission from
gross income both for purposes of section
6501 and for any extension of section
6501 under section 6229. The temporary
regulations confirm this point. Further,
in light of the different interpretations
given by courts to the meaning of section
6501(e)(1)(A), the temporary regulations
clarify the meaning of this section. See
§601.601(d)(2)(ii)(b).
Section 6501(e)(1)(A) provides that if
the taxpayer omits from gross income an
amount properly includible therein that is
in excess of 25 percent of the amount of
gross income stated in the return, the tax
may be assessed, or a proceeding in court
for the collection of such tax may be begun
without assessment, at any time within 6
years after the return was filed. Subsection
(i) of this provision provides that, in the
case of a trade or business, the termgross
incomemeans the total of the amounts re-
ceived or accrued from the sale of goods
or services (if such amounts are required
to be shown on the return) prior to diminu-
tion by the cost of such sales or services.
These temporary regulations clarify
that, outside of the trade or business con-
text, gross income for purposes of sections
6501(e)(1)(A) and 6229(c)(2) has the
same meaning as gross income as defined
in section 61(a). Under section 61(a),
October 26, 20095512009–43 I.R.B.

gross income includes “gains derived from
dealings in property” and the regulations
under section 61(a) further explain that
gain equals “the excess of the amount re-
alized over the unrecovered cost or other
basis for the property sold or exchanged.”
Accordingly, outside the context of a trade
or business, any basis overstatement that
leads to an understatement of gross in-
come under section 61(a) constitutes an
omission from gross income for purposes
of sections 6501(e)(1)(A) and 6229(c)(2).
Relying on the Supreme Court’s opin-
ion inColony v. Commissioner, 357 U.S.
28 (1958), which dealt with an omission
from gross income in the context of a trade
or business, the United States Courts of
Appeals for the Ninth Circuit and Fed-
eral Circuit recently construed section
6501(e)(1)(A) in cases outside the trade
or business context contrary to the in-
terpretation provided in these temporary
regulations, holding that an “omission”
does not occur by an overstatement of
basis.Bakersfield Energy Partners v.
Commissioner, 568 F.3d 767 (9
th
Cir.
2009);Salman Ranch Ltd v. United States,
573 F.3d 1362 (Fed. Cir. 2009). The Trea-
sury Department and the Internal Revenue
Service disagree with these courts that the
Supreme Court’s reading of the predeces-
sor to section 6501(e) inColonyapplies
to sections 6501(e)(1)(A) and 6229(c)(2).
When Congress enacted the 1954 Internal
Revenue Code, it was aware of the dis-
agreement among the courts that existed
at the time regarding the proper scope of
section 275(c) of the 1939 Internal Rev-
enue Code. The changes that Congress
enacted as part of the 1954 Internal Rev-
enue Code predated theSupremeCourt’s
opinion inColonyand were intended to
resolve the matter for the future. There-
fore, by amending the Internal Revenue
Code, including the addition of a special
definition of “gross income” with respect
to a trade or business, Congress effectively
limited what ultimately became the hold-
ing inColony, to cases subject to section
275(c) of the 1939 Internal Revenue Code.
Moreover, under section 6501(e)(1)(A) of
the 1954 Internal Revenue Code, which
remains in effect under the 1986 Inter-
nal Revenue Code, when outside of the
trade or business context, the definition of
“gross income” in section 61 applies. In
this regard, the Treasury Department and
the Internal Revenue Service agree with
the opinions inHome Concrete & Supply,
LLC v. United States, 599 F.Supp.2d 678,
690 (E.D.N.C. 2008) (overstatement of ba-
sis can constitute an omission from gross
income for purposes of the six-year period
of limitations) andBrandon Ridge Part-
ners v. United States, 2007–2 U.S.T.C.
(CCH) ¶50,573, 100 A.F.T.R.2d (RIA)
5347, 5351–53 (M.D. Fla. 2007) (same).
Consistent with the Ninth Circuit’s
suggestion inBakersfield, these tempo-
rary regulations clarify what constitutes
an “omission from gross income” under
sections 6501(e)(1)(A) and 6229(c)(2),
as amended in connection with the en-
actment of the 1954 Internal Revenue
Code and continuing in effect under the
1986 Internal Revenue Code. The rea-
sonable interpretation of the provisions
of sections 6501(e)(1)(A) and 6229(c)(2)
provided in these temporary regulations,
acknowledged by both the Ninth and Fed-
eral Circuits to be ambiguous, is entitled
to deference even if the agency’s inter-
pretation may run contrary to the opin-
ions inBakersfieldandSalman Ranch.
SeeNat’l Cable & Telecomms. Ass’n v.
Brand X Internet Servs., 545 U.S. 967,
982–83 (2005);Swallows Holding, Ltd.
v. Commissioner, 515 F.3d 162, 170 (3
rd
Cir. 2008). Becausethese temporary
regulations are a clarification of the pe-
riod of limitations provided in sections
6501(e)(1)(A) and 6229(c)(2) and are con-
sistent with the Secretary’s application of
those provisions both with respect to a
trade or business (that is, gross income
means gross receipts), as well as outside
of the trade or business context (that is,
section 61 definition of gross income ap-
plies), they are applicable to all cases with
respect to which the period for assessing
tax under the applicable provisions has not
expired before the date of filing of these
regulations with theFederal Register.
Although these temporary regulations
do not provide guidance on this issue,
section 6501(e)(1)(A)(ii) additionally pro-
vides that the amount omitted from gross
income does not include any amount dis-
closed on the return, or in a statement
attached to the return, in a manner ad-
equate to apprise the Internal Revenue
Service of the nature and amount of the
item. This adequate disclosure exception
to the six-year statute of limitations applies
to omissions from gross income resulting
from basis overstatements (as provided for
in these temporary regulations) in the same
manner as it applies to other omissions
from gross income. Accordingly, taxpay-
ers who adequately disclose the nature
and amount of the omissions from gross
income resulting from dealings in property
will not be subject to the extended six-year
statute of limitations.
Special Analyses
It has been determined that these tem-
porary regulations are not a significant reg-
ulatory action as defined in Executive Or-
der 12866. Therefore, a regulatory assess-
ment is not required. It also has been de-
termined that section 553(b) of the Admin-
istrative Procedure Act (5 U.S.C. chapter
5) does not apply to these regulations. For
the applicability of the Regulatory Flexi-
bility Act (5 U.S.C. chapter 6) refer to the
Special Analyses section of the preamble
of the cross-reference notice of proposed
rulemaking published in this issue of the
Bulletin. Pursuant to section 7805(f) of the
Internal Revenue Code, these regulations
have been submitted to the Chief Counsel
for Advocacy of the Small Business Ad-
ministration for comment on their impact
on small business.
Drafting Information
The principal author of these regula-
tions is William A. Heard III of the Office
of the Associate Chief Counsel (Procedure
and Administration).
*****
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 is amended by adding the entry in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 301.6229(c)(2)–1T is also is-
sued under 26 U.S.C. §6230(k). * * *
Par. 2. Section 301.6229(c)(2)–1T is
added to read as follows:
2009–43 I.R.B.552October 26, 2009

§301.6229(c)(2)–1T Substantial omission
of income (temporary).
(a)Partnership return—(1)General
rule. (i) If any partnership omits from
the gross income stated in its return an
amount properly includible therein that is
in excess of 25 percent of the amount of
gross income stated in its return, subsec-
tion (a) of section 6229 shall be applied by
substituting “6 years” for “3 years.”
(ii) For purposes of paragraph (a)(1)(i)
of this section, the termgross income,as
it relates to a trade or business, means the
total of the amounts received or accrued
from the sale of goods or services, to the
extent required to be shown on the re-
turn, without reduction for the cost of those
goods or services.
(iii) For purposes of paragraph (a)(1)(i)
of this section, the termgross income,as
it relates to any income other than from
the sale of goods or services in a trade or
business, has the same meaning as pro-
vided under section 61(a), and includes the
total of the amounts received or accrued,
to the extent required to be shown on the
return. In the case of amounts received
or accrued that relate to the disposition of
property, and except as provided in para-
graph (a)(1)(ii) of this section, gross in-
come means the excess of the amount re-
alized from the disposition of the property
over the unrecovered cost or other basis
of the property. Consequently, except as
provided in paragraph (a)(1)(ii) of this sec-
tion, an understated amount of gross in-
come resulting from an overstatement of
unrecovered cost or other basis constitutes
an omission from gross income for pur-
poses of section 6229(c)(2).
(iv) An amount shall not be considered
as omitted from gross income if informa-
tion sufficient to apprise the Commissioner
of the nature and amount of the item is dis-
closed in the return, including any sched-
ule or statement attached to the return.
(2) [Reserved].
(b)Effective/applicability date.The
rules of this section apply to taxable years
with respect to which the applicable pe-
riod for assessing tax did not expire before
September 24, 2009.
(c)Expiration date. The applicabil-
ity of this section expires on or before
September 24, 2012.
§301.6501(e)–1 [Removed].
Par. 3. Section 301.6501(e)–1 is re-
moved.
Par. 4. Section 301.6501(e)–1T is
added to read as follows:
§301.6501(e)–1T Omission from return
(temporary).
(a)Income taxes—(1)General rule.(i)
If the taxpayer omits from the gross in-
come stated in the return of a tax imposed
by subtitle A of the Internal Revenue Code
an amount properly includible therein that
is in excess of 25 percent of the gross in-
come so stated, the tax may be assessed, or
a proceeding in court for the collection of
that tax may be begun without assessment,
at any time within 6 years after the return
was filed.
(ii) For purposes of paragraph (a)(1)(i)
of this section, the termgross income,as
it relates to a trade or business, means the
total of the amounts received or accrued
from the sale of goods or services, to the
extent required to be shown on the re-
turn, without reduction for the cost of those
goods or services.
(iii) For purposes of paragraph (a)(1)(i)
of this section, the termgross income,as
it relates to any income other than from
the sale of goods or services in a trade or
business, has the same meaning as pro-
vided under section 61(a), and includes the
total of the amounts received or accrued,
to the extent required to be shown on the
return. In the case of amounts received
or accrued that relate to the disposition of
property, and except as provided in para-
graph (a)(1)(ii) of this section,gross in-
comemeans the excess of the amount re-
alized from the disposition of the property
over the unrecovered cost or other basis
of the property. Consequently, except as
provided in paragraph (a)(1)(ii) of this sec-
tion, an understated amount of gross in-
come resulting from an overstatement of
unrecovered cost or other basis constitutes
an omission from gross income for pur-
poses of section 6501(e)(1)(A).
(iv) An amount shall not be considered
as omitted from gross income if informa-
tion sufficient to apprise the Commissioner
of the nature and amount of the item is dis-
closed in the return, including any sched-
ule or statement attached to the return.
(2) [Reserved].
(b)Effective/applicability date.The
rules of this section apply to taxable years
with respect to which the applicable pe-
riod for assessing tax did not expire before
September 24, 2009.
(c)Expiration date. The applicabil-
ity of this section expires on or before
September 24, 2012.
LindaE.Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved August 27, 2009.
Michael Mundaca,
(Acting) Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on September
3, 2009, 8:45 a.m., and published in the issue of the Federal
Register for September 4, 2009, 74 F.R. 45757)
October 26, 20095532009–43 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Update for Weighted Average
Interest Rates, Yield Curves,
and Segment Rates
Notice 2009–76
This notice provides guidance as to the
corporate bond weighted average interest
rate and the permissible range of interest
rates specified under § 412(b)(5)(B)(ii)(II)
of the Internal Revenue Code as in ef-
fect for plan years beginning before 2008.
It also provides guidance on the corpo-
rate bond monthly yield curve (and the
corresponding spot segment rates), the
24-month average segment rates, and
the funding transitional segment rates
under § 430(h)(2). In addition, this no-
tice provides guidance as to the interest
rate on 30-year Treasury securities un-
der § 417(e)(3)(A)(ii)(II) as in effect for
plan years beginning before 2008, the
30-year Treasury weighted average rate
under § 431(c)(6)(E)(ii)(I), and the min-
imum present value segment rates under
§ 417(e)(3)(D) as in effect for plan years
beginning after 2007.
CORPORATE BOND WEIGHTED
AVERAGE INTEREST RATE
Sections412(b)(5)(B)(ii)and
412(l)(7)(C)(i), as amended by the Pen-
sion Funding Equity Act of 2004 and by
the Pension Protection Act of 2006 (PPA),
provide that the interest rates used to cal-
culate current liability and to determine
the required contribution under § 412(l)
for plan years beginning in 2004 through
2007 must be within a permissible range
based on the weighted average of the rates
of interest on amounts invested conser-
vatively in long term investment grade
corporate bonds during the 4-year period
ending on the last day before the beginning
of the plan year.
Notice 2004–34, 2004–1 C.B. 848, pro-
vides guidelines for determining the cor-
porate bond weighted average interest rate
and the resulting permissible range of in-
terest rates used to calculate current liabil-
ity. That notice establishes that the corpo-
rate bond weighted average is based on the
monthly composite corporate bond rate de-
rived from designated corporate bond in-
dices. The methodology for determining
the monthly composite corporate bond rate
as set forth in Notice 2004–34 continues to
apply in determining that rate. See Notice
2006–75, 2006–2 C.B. 366.
The composite corporate bond rate for
September 2009 is 5.79 percent. Pursuant
to Notice 2004–34, the Service has de-
termined this rate as the average of the
monthly yields for the included corporate
bond indices for that month.
The following corporate bond weighted
average interest rate was determined for
plan years beginning in the month shown
below.
For Plan Years
Beginning inPermissible Range
MonthYear
Corporate
Bond Weighted
Average90%to100%
October20096.46
5.82
6.46
YIELD CURVE AND SEGMENT
RATES
Generally for plan years beginning
after 2007 (except for delayed effective
dates for certain plans under sections 104,
105, and 106 of PPA), § 430 of the Code
specifies the minimum funding require-
ments that apply to single employer plans
pursuant to § 412. Section 430(h)(2) spec-
ifies the interest rates that must be used
to determine a plan’s target normal cost
and funding target. Under this provision,
present value is generally determined us-
ing three 24-month average interest rates
(“segment rates”), each of which applies
to cash flows during specified periods.
However, an election may be made under
§ 430(h)(2)(D)(ii) to use the monthly yield
curve in place of the segment rates. For
plan years beginning in 2008 and 2009, a
transitional rule under § 430(h)(2)(G) pro-
vides that the segment rates are blended
with the corporate bond weighted average
as specified above. An election may be
made under § 430(h)(2)(G)(iv) to use the
segment rates without applying the transi-
tional rule.
Notice 2007–81, 2007–2 C.B. 899,
provides guidelines for determining the
monthly corporate bond yield curve, the
24-month average corporate bond segment
rates, and the funding transitional segment
rates used to compute the target normal
cost and the funding target. Pursuant to
Notice 2007–81, the monthly corporate
bond yield curve derived from September
2009 data is in Table I at the end of this
notice. The spot first, second, and third
segment rates for the month of Septem-
ber 2009 are, respectively, 2.73, 5.63,
and 6.07. The three 24-month average
corporate bond segment rates applicable
for October 2009 under the election of
§ 430(h)(2)(G)(iv) are as follows:
First
Segment
Second
Segment
Third
Segment
4.926.716.80
2009–43 I.R.B.554October 26, 2009

The transitional segment rates under
§ 430(h)(2)(G) applicable for October
2009, taking intoaccount the corporate
bond weighted average of 6.46 stated
above, are as follows:
For Plan Years
Beginning in
First
Segment
Second
Segment
Third
Segment
2008
5.956.546.57
2009
5.43
6.636.69
The transitional rule of § 430(h)(2)(G)
does not apply to plan years starting in
2010. Therefore, for a plan year starting
in 2010 with a lookback month to Octo-
ber 2009, the funding segment rates are
the three 24-month average corporate bond
segment rates applicable for October 2009,
listed above without blending for the tran-
sitional period.
30-YEAR TREASURY SECURITIES
INTEREST RATES
Section 417(e)(3)(A)(ii)(II) (prior to
amendment by PPA) defines the appli-
cable interest rate, which must be used
for purposes of determining the minimum
present value of a participant’s benefit
under § 417(e)(1) and (2), as the annual
rate of interest on 30-year Treasury se-
curities for the month before the date
of distribution or such other time as the
Secretary may by regulations prescribe.
Section 1.417(e)–1(d)(3) of the Income
Tax Regulations provides that the applica-
bleinterestrateforamonthistheannual
rate of interest on 30-year Treasury secu-
rities as specified by the Commissioner
for that month in revenue rulings, notices
or other guidance published in the Internal
Revenue Bulletin.
The rate of interest on 30-year Treasury
securities for September 2009 is 4.19 per-
cent. The Service has determined this rate
as the average of the daily determinations
of yield on the 30-year Treasury bond ma-
turing in August 2039.
Generally for plan years beginning
after 2007, § 431 specifies the mini-
mum funding requirements that apply to
multiemployer plans pursuant to § 412.
Section 431(c)(6)(B) specifies a minimum
amount for the full-funding limitation
described in section 431(c)(6)(A), based
on the plan’s current liability. Section
431(c)(6)(E)(ii)(I) provides that the inter-
est rate used to calculate current liability
for this purpose must be no more than 5
percent above and no more than 10 percent
below the weighted average of the rates of
interest on 30-year Treasury securities dur-
ing the four-year period ending on the last
day before the beginning of the plan year.
Notice 88–73, 1988–2 C.B. 383, provides
guidelines for determining the weighted
average interest rate. The following rates
were determined for plan years beginning
in the month shown below.
For Plan Years
Beginning inPermissible Range
MonthYear
30-Year
Treasury
Weighted
Average
90%to
105%
October20094.383.94
4.59
MINIMUM PR
ESENT VALUE
SEGMENT R
ATES
Generall
y for plan years beginning
after Dec
ember 31, 2007, the applicable
interest
rates under § 417(e)(3)(D) are
segment
rates computed without regard
to a 24-mon
th average. For plan years
beginnin
g in 2008 through 2011, the ap-
plicable
interest rates are the monthly spot
segment r
ates blended with the applica-
blerateu
nder § 417(e)(3)(A)(ii)(II) as in
effect fo
r plan years beginning in 2007.
Notice 2
007–81 provides guidelines for
determini
ng the minimum present value
segment r
ates. Pursuant to that notice,
the minim
um present value transitional
segment r
ates determined for September
2009, tak
ing into account the September
2009 30-y
ear Treasury rate of 4.19 stated
above, a
re as follows:
For Plan Years
Beginning in
First
Segment
Second
Segment
Third
Segment
20083.904.48
4.57
20093.614.774.94
20103.31
5.055.32
DRAFTIN
G INFORMATION
The prin
cipal author of this notice is
Tony Mon
tanaro of the Employee Plans,
Tax Exem
pt and Government Entities Di-
vision.
Mr. Montanaro may be e-mailed at
Retire
mentPlanQuestions@irs.gov.
October 26, 20095552009–43 I.R.B.

Table I
Monthly Yield Cu
rve for September 2009
Maturity YieldMaturity YieldMaturity YieldMaturity YieldMaturity Yield
0.5
1.24
20.5
6.06
40.5
6.08
60.5
6.09
80.5
6.10
1.01.6021.06.0641.06.0861.0
6.09
81.06.10
1.5
1.96
21.5
6.06
41.5
6.08
61.5
6.09
81.5
6.10
2.02.3122.06.0642.06.0862.0
6.09
82.06.10
2.5
2.64
22.5
6.06
42.5
6.08
62.5
6.09
82.5
6.10
3.02.9523.06.0643.06.0863.0
6.09
83.06.10
3.53.2523.5
6.06
43.5
6.08
63.5
6.09
83.5
6.10
4.0
3.52
24.06.0644.06.0864.0
6.09
84.06.10
4.5
3.78
24.5
6.06
44.5
6.08
64.5
6.09
84.5
6.10
5.0
4.02
25.0
6.06
45.0
6.08
65.0
6.09
85.0
6.10
5.5
4.24
25.5
6.06
45.5
6.08
65.5
6.09
85.5
6.10
6.04.4426.06.0646.06.0866.0
6.09
86.06.10
6.5
4.63
26.5
6.06
46.5
6.08
66.5
6.09
86.5
6.10
7.04.8027.06.0647.06.0867.0
6.09
87.06.10
7.5
4.96
27.5
6.06
47.5
6.08
67.5
6.09
87.5
6.10
8.0
5.10
28.06.0648.06.0868.0
6.09
88.06.10
8.55.2328.5
6.06
48.5
6.08
68.5
6.09
88.5
6.10
9.0
5.34
29.0
6.06
49.0
6.08
69.06.0989.0
6.10
9.5
5.45
29.56.0649.56.0869.56.0989.56.10
10.0
5.54
30.06.06
50.0
6.0870.0
6.0990.0
6.10
10.55.6230.5
6.06
50.5
6.08
70.5
6.09
90.56.10
11.05.6931.06.06
51.0
6.0871.0
6.0991.0
6.10
11.55.7631.5
6.06
51.5
6.08
71.5
6.09
91.56.10
12.05.8132.06.0652.06.0872.0
6.0992.0
6.10
12.55.8632.5
6.07
52.5
6.08
72.5
6.0992.56.10
13.05.9033.06.07
53.0
6.0873.0
6.0993.0
6.10
13.5
5.94
33.5
6.07
53.5
6.09
73.5
6.09
93.56.10
14.05.9634.06.07
54.0
6.09
74.0
6.0994.0
6.10
14.5
5.99
34.5
6.07
54.5
6.09
74.5
6.09
94.56.10
15.06.0135.06.0755.0
6.09
75.0
6.09
95.06.10
15.5
6.02
35.5
6.07
55.5
6.09
75.5
6.0995.56.10
16.06.0336.06.07
56.0
6.09
76.0
6.0996.0
6.10
16.5
6.04
36.5
6.07
56.5
6.09
76.5
6.09
96.56.10
17.0
6.05
37.06.07
57.0
6.09
77.0
6.0997.0
6.10
17.5
6.06
37.5
6.07
57.5
6.09
77.5
6.09
97.56.10
18.06.0638.06.0758.0
6.09
78.0
6.0998.0
6.10
18.5
6.06
38.5
6.07
58.5
6.09
78.5
6.1098.56.10
19.0
6.06
39.0
6.0759.0
6.0979.0
6.10
99.0
6.10
19.56.0639.56.0759.5
6.09
79.56.1099.56.10
20.06.0640.06.0760.0
6.09
80.06.10100.06.10
2009–43 I.R.B.556October 26, 2009

Part IV. Items o
fGeneralInterest
Notice of Proposed
Rulemaking by
Cross-Reference to
Temporary Regulations
Definition of Omission from
Gross Income
REG–108045–08
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
by cross-reference to temporary regula-
tions.
SUMMARY: This document contains pro-
posed regulations defining an omission
from gross income for purposes of the
six-year minimum period for assessment
of tax attributable to partnership items and
the six-year period for assessing tax. The
regulations resolve a continuing issue as
to whether an overstatement of basis in
a sold asset results in an omission from
gross income. The regulations will affect
any taxpayer who overstates basis in a
sold asset creating an omission from gross
income exceeding twenty-five percent of
the income stated in the return. The text
of the temporary regulations (T.D. 9466)
published in this issue of the Bulletin also
serves as the text of these proposed regula-
tions. This document also provides notice
of a public hearing on these proposed and
temporary regulations.
DATES: Written or electronic comments
and requests for a public hearing must be
received by December 28, 2009.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–108045–08), room
5205, Internal Revenue Service, P.O. Box
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may be
hand delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to: CC:PA:LPD:PR (REG–108045–08),
Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue, NW,
Washington, DC, or sent electronically
via the Federal eRulemaking Portal
athttp://www.regulations.gov(IRS
REG–108045–08).
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, William A. Heard, III
at (202) 622–4570;concerning
submissions of comments and
requests for a public hearing,
Richard.A.Hurst@irscounsel.treas.gov,
(202) 622–7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
Temporary regulations in this issue
of the Bulletin amend the Procedure and
Administration Regulations (26 CFR part
301) relating to sections 6229(c)(2) and
6501(e). The text of those regulations also
serves as the text of these proposed reg-
ulations. The preamble to the temporary
regulations explains the amendments.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory
assessment is not required. It also has
been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regu-
lations and because these regulations do
not impose a collection of information
on small entities, the Regulatory Flexi-
bility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the
Internal Revenue Code, these regulations
have been submitted to the Chief Counsel
for Advocacy of the Small Business
Administration for comment on their
impact on small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written (a signed origi-
nal and eight (8) copies) or electronic com-
ments that are submitted timely to the IRS.
The IRS and the Treasury Department re-
quest comments on the substance of the
proposed regulations, as well as on the
clarity of the proposed rules and how they
can be made easier to understand. All pub-
lic comments will be made available for
public inspection and copying. A public
hearing will be scheduled if requested in
writing by any person that timely submits
comments. If a public hearing is sched-
uled, notice of the date, time, and place for
the public hearing will be published in the
Federal Register.
Drafting Information
The principal author of these regula-
tions is William A. Heard III of the Office
of the Associate Chief Counsel (Procedure
and Administration).
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR Part 301 is pro-
posed to be amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 is amended by adding the entry in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 301.6229(c)(2)–1 is also issued
under 26 U.S.C. §6230(k). * * *
Par. 2. Section 301.6229(c)(2)–1 is
added to read as follows:
§
301.6229(c)(2)–1 Substantial omission
o
f income.
[The text of §301.6229(c)(2)–1 is the
same as the text of §301.6229(c)(2)–1T
published elsewhere in the Bulletin].
Par. 3. Section 301.6501(e)–1 is added
to read as follows:
§301.6501(e)–1 Omission from return.
[The text of §301.6501(e)–1 is the same
as the text of §301.6501(e)–1T published
elsewhere in the Bulletin].
LindaE.Stiff,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on September
24, 2009, 4:15 p.m., and published in the issue of the Feder
al
Register for September 28, 2009, 74 F.R. 46345)
October 26, 20095572009–43 I.R.B.

Notice of Proposed
Rulemaking by
Cross-Reference to
Temporary Regulations
Modification to Consolidated
Return Regulation Permitting
an Election to Treat a
Liquidation of a Target,
Followed by a Recontribution
to a New Target, as a
Cross-Chain Reorganization
REG–139068–08
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
by cross-reference to temporary regula-
tions.
SUMMARY: In this issue of the Bulletin,
the IRS is issuing temporary regulations
(T.D. 9458) under section 1502 of the In-
ternalRevenueCode(Code). Thetempo-
rary regulations modify the election under
which a consolidated group can avoid im-
mediately taking into account an intercom-
pany item after the liquidation of a target
corporation. This modification was made
necessary in light of the regulations un-
der section 368 that were issued in October
2007 addressing transfers of assets or stock
following a reorganization. The tempo-
rary regulations apply to corporations fil-
ing consolidated returns. The text of those
temporary regulations also serves as the
text of these proposed regulations.
DATES: Written comments and requests
for a public hearing must be received by
December 2, 2009.
ADDRESSES: Send submissions to
CC:PA:LPD:PR(REG–139068–08),
room 5203, Internal Revenue Service,
P.O. Box 7604, Ben Franklin Sta-
tion, Washington, DC 20044. Sub-
missions may be hand-delivered Mon-
day through Friday to CC:PA:LPD:PR
(REG–139068–08), Courier’s Desk, In-
ternal Revenue Service, 1111 Constitution
Avenue, NW, Washington, DC, or sent
electronically via the Federal eRulemak-
ing Portal atwww.regulations.gov(IRS
REG–139068–08).
FOR FURTHER INFORMATION
CONTACT: Concerning the regulations,
Mary W. Lyons, (202) 622–7930; con-
cerning submission of comments and the
hearing, Oluwafunmilayo (Funmi) Taylor,
(202) 622–7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained
in this notice of proposed rulemaking has
been submitted to the Office of Manage-
ment and Budget for review in accordance
with the Paperwork Reduction Act of 1995
(44 U.S.C. 3507(d)). Comments on the
collection of information should be sent
to theOffice of Management and Bud-
get, Attn: Desk Officer for the Depart-
ment of the Treasury, Office of Informa-
tion and Regulatory Affairs, Washington,
DC 20503, with copies to the Internal Rev-
enue Service, Attn: IRS Reports Clearance
Officer, SE:W:CAR:MP:T:T:SP, Washing-
ton, DC 20224. Comments on the collec-
tion of information should be received by
December 3, 2009. Comments are specif-
ically requested concerning:
Whether the proposed collection of in-
formation is necessary for the proper per-
formance of the functions of the Internal
Revenue Service, including whether the
information will have practical utility;
The accuracy of the estimated burden
associated with the proposed collection of
information (see below);
How the quality, utility, and clarity of
the information to be collected may be en-
hanced;
How the burden of complying with the
proposed collections of information may
be minimized, including through the appli-
cation of automated collection techniques
or other forms of information technology;
and
Estimates of capital or start-up costs of
operation, maintenance, and purchase of
service to provide information.
The collection of information
in this proposed regulation is in
§1.1502–13(f)(5)(ii)(E) as contained in
26 CFR part 1, revised April 1, 2009,
and proposed §1.1502–13(f)(5)(ii)(B)(2).
This information is required by the IRS
to allow certain parties to make an elec-
tion to apply §1.1502–13(f)(5)(ii)(B). The
likely recordkeepers are corporations fil-
ing consolidated income tax returns. No
additional burden is anticipated with re-
spect to these proposed regulations over
that already required in the regulations
currently in effect (CO–11–91 Final and
CO–24–95 Final).
Estimated total annual reporting bur-
den: 100 hours.
Estimated average annual burden hours
per respondent: 2 hours.
Estimated number of respondents: 50.
Estimated annual frequency of re-
sponses: Once.
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
control number assigned by the Office of
Management and Budget.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
Background
The temporary regulations published in
this issue of the Bulletin amend the In-
come Tax Regulations (26 CFR part 1) un-
der section 1502. The temporary regu-
lations provide that if the election to ap-
ply §1.1502–13(f)(5)(ii)(B) is made for a
transaction in which old T liquidates into B
on or after the effective date of the regula-
tions under §1.368–2(k), issued in October
2007, followed by B’s transfer of substan-
tially all of old T’s assets to new T, then,
for all Federal income tax purposes, old
T’s liquidation into B and B’s transfer of
substantially all of old T’s assets to new T
will be disregarded and, instead, the trans-
action will be treated as if old T transferred
substantially all of its assets to new T in
exchange for new T stock in a reorganiza-
tion described in section 368(a). This elec-
tion is available only if a direct transfer of
the old T assets to new T would qualify as
a reorganization. Thus, S’s gain from the
sale of the T stock to B is not taken into
account upon the liquidation of T but in-
stead is taken into account with respect to
the new T stock, the successor asset to the
old T stock.
The text of those temporary regulations
also serves as the text of these proposed
2009–43 I.R.B.558October 26, 2009

regulations. The preamble to the tempo-
rary regulations explains the reasons for
the modifications to the final regulations
contained in the temporary regulations.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory
assessment is not required. Further, it
is hereby certified that these proposed
regulations will not have a significant
economic impact on a substantial num-
ber of small entities. This certification
is based on the fact that these regula-
tions do not have a substantial economic
impact because they merely provide for
an election in the context of a taxpayer
that has triggered deferred gain on sub-
sidiary stock upon the liquidation of the
subsidiary. Moreover, the regulations
apply only to transactions involving con-
solidated groups which tend to be larger
businesses. Accordingly, a Regulatory
Flexibility Analysis under the Regulatory
Flexibility Act (5 U.S.C. chapter 6) is not
required. Pursuant to section 7805(f) of
the Code, this notice of proposed rule-
making has been submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on its
impact on small business.
Comments and Requests for Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written comments
(a signed original and eight (8) copies)
or electronic comments that are submit-
ted timely to the IRS. In addition to the
specific requests for comments made else-
where in this preamble or the preamble
to the temporary regulations, the IRS and
Treasury Department request comments
on the clarity of the proposed rules and
how they can be made easier to under-
stand. All comments will be available for
public inspection and copying. A public
hearing may be scheduled if requested in
writing by any person who timely submits
written comments. If a public hearing is
scheduled, notice of the date, time and
place of the hearing will be published in
theFederal Register.
Drafting Information
The principal author of these proposed
regulations is Mary W. Lyons of the Of-
fice of Associate Chief Counsel (Corpo-
rate). However, other personnel from the
IRS and Treasury Department participated
in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.1502–13 also issued under
26U.S.C.1502***
Par. 2. Section 1.1502–13 is amended
by revising paragraphs (f)(5)(ii)(B) and
adding paragraph (f)(5)(ii)(F) to read as
follows:
§1.1502–13 Intercompany transactions.
*****
(f) * * *
(5) * * *
(ii) * * *
(B)(1) [The text of the proposed
amendments to §1.1502–13(f)(5)(ii)(B)(1)
is the same as the text of
§1.1502–13T(f)(5)(ii)(B)(1)published
elsewhere in this issue of the Bulletin].
(2) [The text of the proposed amend-
ments to §1.1502–13(f)(5)(ii)(B)(2)
is the same as the text of
§1.1502–13T(f)(5)(ii)(B)(2)published
elsewhere in this issue of the Bulletin].
*****
(F) [The text of the proposed
amendments to §1.1502–13(f)(5)(ii)(F)
is the same as the text of
§1.1502–13T(f)(5)(ii)(F) published else-
whereinthisissueoftheBulletin].
*****
Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on September
3, 2009, 8:45 a.m., and published in the issue of the Federal
Register for September 4, 2009, F.R. 45789)
Definition of Solid Waste
Disposal Facilities for
Tax-exempt Bond Purposes
REG–140492–02
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Withdrawal of notice of pro-
posed rulemaking; Notice of proposed
rulemaking; Notice of public hearing on
proposed rulemaking.
SUMMARY: This document contains
proposed regulations on the definition
of solid waste disposal facilities for pur-
poses of the rules applicable to tax-exempt
bonds issued by State and local gov-
ernments. These proposed regulations
provide guidance to State and local gov-
ernments that issue tax-exempt bonds
to finance solid waste disposal facilities
and to taxpayers that use those facilities.
This document also withdraws the notice
of proposed rulemaking that was pub-
lished in theFederal Registeron May
10, 2004 (REG–140492–02, 2004–1 C.B.
1031 [69 FR 25856]), proposes to remove
certain existing regulations that provide
rules for determining whether a facility is a
solid waste disposal facility, and contains a
notice of public hearing on these proposed
regulations.
DATES: Written or electronic comments
must be received by December 15, 2009.
Outlines of topics to be discussed at the
public hearing scheduled for January 5,
2010 must be received by December 17,
2009.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–140492–02), room
5203, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may be
hand delivered to: CC:PA:LPD:PR Mon-
day through Friday between the hours of
8a.m.and4p.m.toCC:PA:LPD:PR
(REG–140492–02), Courier’s Desk, In-
ternal Revenue Service, 1111 Constitution
Avenue, NW, Washington, DC, or sent
electronically via the Federal eRulemak-
ing Portal atwww.regulations.gov(IRS
REG–140492–02). The public hearing
will be held in room 2615 at the Internal
Revenue Building, 1111 Constitution Av-
enue, NW, Washington, DC.
October 26, 20095592009–43 I.R.B.

FOR FURTHER INFORMATION
CONTACT: Concerning the proposed reg-
ulations, Aviva Roth at (202) 622–3980;
concerning submissions of comments, the
hearing, and/or to beplaced on the build-
ing access list to attend the hearing, e-mail
Richard.A.Hurst@irscousel.treas.gov.
SUPPLEMENTARY INFORMATION:
Background
This document proposes to amend the
Income Tax Regulations (26 CFR part 1)
under section 142 of the Internal Revenue
Code (Code) to provide rules for determin-
ing whether a facility is a solid waste dis-
posal facility under section 142(a)(6). This
document also proposes to remove certain
existing regulations that provide rules for
determining whether a facility is a solid
waste disposal facility and contains a no-
tice of public hearing on these proposed
regulations. On May 10, 2004, the IRS
published a notice of proposed rulemaking
(REG–140492–02) in theFederal Regis-
ter(69 FR 25856) regarding when a facil-
ity qualifies as a solid waste disposal fa-
cility under section 142 (2004 Proposed
Regulations). The 2004 Proposed Regu-
lations proposed a new §1.142(a)(6)–1 of
the Income Tax Regulations and would
have removed existing §1.103–8(f)(2) and
§17.1 of the temporary Income Tax Regu-
lations on this subject (together, the Exist-
ing Regulations). Comments on the 2004
Proposed Regulationswere received and a
hearing was held on August 11, 2004. Af-
ter consideration of the public comments,
the IRS and the Treasury Department pro-
pose extensive changes to the 2004 Pro-
posed Regulations. In order to allow the
public an opportunity to comment with re-
spect to these extensive changes, we are is-
suing these proposed regulations and hold-
ing a public hearing on these proposed reg-
ulations.
Explanation of Provisions
1.Introduction and Existing Regulations.
In general, interest on State or local
bonds is excludable from gross income un-
der section 103(a). Under section 103(b),
however, interest on private activity bond
is excludable from gross income under
section 103 only if the bond meets the
requirements for a qualified bond under
section 141(e) and other applicable re-
quirements under section 103. Section
141(e) defines a qualified bond to include
an exempt facility bond that meets certain
requirements. Section 142(a) defines an
exempt facility bond to mean any bond
that is issued as part of an issue 95 percent
or more of the net proceeds of which are
to be used to provide an exempt facil-
ity specified in section 142(a). Section
142(a)(6) includes a solid waste disposal
facility as one specified type of qualified
exempt facility.
Section 1.103–8(f)(2)(ii)(a) of the Ex-
isting Regulations generally defines solid
waste disposal facilities to mean any prop-
erty or portion thereof used for the col-
lection, storage, treatment, utilization, pro-
cessing, or final disposal of solid waste.
Section 1.103–8(f)(2)(ii)(b) of the Existing
Regulations provides that the term solid
waste has the same meaning as in for-
mer section 203(4) of the Solid Waste Dis-
posal Act (42 U.S.C. 3252(4)), as quoted
in §1.103–8(f)(2)(ii)(b), except that mate-
rial will not qualify as solid waste unless,
on the date of issue of the obligations is-
sued to provide the facility to dispose of
the waste material, it is property that is use-
less, unused, unwanted, or discarded solid
material that has no market or other value
at the place where the property is located
(No-Value Test). Thus, under the Existing
Regulations, if any person is willing to pur-
chase property at any price, the property
fails to constitute waste. By contrast, un-
der §1.103–8(f)(ii)(B) of the Existing Reg-
ulations, if any person is willing to remove
the property at his own expense but is un-
willing to purchase it at any price, the ma-
terial is waste.
Former section 203(4) of the Solid
Waste Disposal Act, as quoted in
§1.103–8(f)(2)(ii)(b)oftheExistingReg-
ulations, provides that the term solid waste
means:
garbage, refuse, and other discarded
solid materials, including solid-waste
materials resulting from industrial,
commercial, and agricultural opera-
tions, and from community activities,
but does not include solids or dis-
solved material in domestic sewage
or other significant pollutants in water
resources, such as silt, dissolved or sus-
pended solids in industrial waste water
effluents, dissolved materials in irri-
gation return flows or other common
water pollutants.
Section 1.103–8(f)(2)(ii)(c) of the Ex-
isting Regulations provides that a facility
that disposes of solid waste by reconstitut-
ing, converting, or otherwise recycling it
into material that is not waste also qualifies
as a solid waste disposal facility if solid
waste constitutes at least 65 percent, by
weight or volume, of the total materials in-
troduced into the recycling process. Such
a recycling facility does not fail to qualify
as a solid waste disposal facility under the
Existing Regulations solely because it op-
erates at a profit.
Section 17.1(a) of the Existing Regula-
tions generally provides that, for mixed-
use facilities that serve a solid waste dis-
posal function and other functions, only
the portion of the cost of the property al-
locable to the function of solid waste dis-
posal qualifies as an eligible cost of a solid
waste disposal facility. Section 17.1(a)
of the Existing Regulations further pro-
vides that a facility that otherwise qualifies
as a solid waste disposal facility will not
be treated as having a function other than
solid waste disposal merely because mate-
rial or heat that has utility or value is recov-
ered or results from the disposal process.
Section 17.1(a) of the Existing Regulations
provides that, when materials or heat are
recovered, the waste disposal function in-
cludes the processing of those materials or
heat that occurs in order to put them into
the form in which the materials or heat are
in fact sold or used, but does not include
further processing that converts the mate-
rials or heat into other products.
Section 17.1(b) of the Existing Reg-
ulations provides that the portion of the
cost of property allocable to solid waste
disposal is determined by allocating the
cost of the property between the property’s
solid waste disposal function and any other
functions by any method that reasonably
reflects a separation of costs for each func-
tion of the property, based on the facts and
circumstances.
2.The 2004 Proposed Regulations.
In light of the changes that have oc-
curred in the waste recycling industry
since the Existing Regulations were issued
in the 1970’s, the IRS and the Treasury De-
partment issued Notice 2002–51, 2002–2
2009–43 I.R.B.560October 26, 2009

C.B. 131, which invited comments on
issues concerning the application of sec-
tion 142 to solid waste disposal facilities,
including recycling facilities. After con-
sideration of the public comments on the
Notice, the IRS and the Treasury Depart-
ment issued the 2004 Proposed Regula-
tions. See §601.601(d)(2)(ii)(b).
The 2004 Proposed Regulations pro-
posed to eliminate the No-Value Test for
determining whether material is solid
waste. Instead, the 2004 Proposed Reg-
ulations, retaining the definition of solid
waste under former section 203(4) of
the Solid Waste Disposal Act, provided
that “garbage, refuse and other discarded
solid materials” meant material that is
solid and that is introduced into a final
disposal process, conversion process, re-
covery process, or transformation process
(as those terms were defined in the 2004
Proposed Regulations) unless such mate-
rial fell within one of several categories
of specifically excluded items. Included
within the categories of specifically ex-
cluded items under the 2004 Proposed
Regulations were: (1) fossil fuels or other
materials created for the principal pur-
pose of converting the materials to heat,
hot water, steam, or other useful energy,
introduced into a conversion process; (2)
precious metals introduced into a recovery
process; (3) hazardous materials subject
to final permit requirements under subtitle
CoftitleIIoftheSolidWasteDisposal
Act (as in effect on October, 22, 1986, the
date of enactment of the Tax Reform Act
of 1986); and (4) radioactive materials.
The 2004 Proposed Regulations pro-
vided that a facility is a solid waste dis-
posal facility to the extent that the facility
is: (1) used to perform a solid waste dis-
posal function, (2) used to perform a pre-
liminary function, or (3) functionally re-
lated and subordinate (within the meaning
of §1.103–8(a)(3)) to a facility that is used
to perform a solid waste disposal function
or a preliminary function.
The 2004 Proposed Regulations further
defined a solid waste disposal function as
the processing of solid waste in (1) a final
disposal process, (2) aconversion process,
(3) a recovery process, or (4) a transfor-
mation process. A final disposal process
was defined as the placement of material
in a landfill or the incineration of mate-
rial without any useful energy being cap-
tured. A conversion process was defined
as a process in which material is inciner-
ated and heat, hot water, or steam is cre-
ated and captured as useful energy begin-
ning with the incineration of material and
ending at the point at which the latest of
heat, hot water, or steam is created. A re-
covery process was defined as a process
that starts with the melting or re-pulping
of material to return the material to a form
in which the material previously existed
for use in the fabrication of an end prod-
uct and ends immediately before the ma-
terial is processed in the same or substan-
tially the same way that virgin material
is processed to fabricate the end product.
With respect to such definition of recov-
ery process, the 2004 Proposed Regula-
tions further provided that if an end prod-
uct is fabricated entirely from non-virgin
material, the recovery process ends imme-
diately before the non-virgin material is
processed in the same or substantially the
same way that virgin material is processed
in a comparable fabrication process that
uses only virgin material or a combination
of virgin and non-virgin material. Accord-
ing to the 2004 Proposed Regulations, re-
furbishing, repair, or similar activities are
not recovery processes. The IRS and Trea-
sury Department reserved on the definition
of transformation process.
The 2004 Proposed Regulations pro-
vided that a preliminary function is the
collection, separation, sorting, storage,
treatment, processing, disassembly, or
handling of solid material that is prelim-
inaryanddirectlyrelatedtoasolidwaste
disposal function unless for each year
while the issue is outstanding, more than
50 percent, by weight or volume, of the
total materials that result from the entire
activity (both the part that is preliminary
and directly related to a solid waste dis-
posalfunctionandthepartthatisnot
preliminary and directly related to a solid
waste disposal function) is solid waste.
The 2004 Proposed Regulations further
provided that if a facility is used to perform
both (1) a solid waste disposal function
or a preliminary function, and (2) another
function, then the costs of the facility allo-
cable to the solid waste disposal function
or the preliminary function are determined
using any reasonable method, based on
all the facts and circumstances. This rule
applies, for example, if a facility is used
(1) to process solid waste in a recovery
process, and (2) to perform another func-
tion that is neither a solid waste disposal
function (because it does not process solid
waste in a final disposal process, conver-
sion process, recovery process, or transfor-
mation process) nor a preliminary function
(because it is not preliminary and directly
related to a solid waste disposal function).
The 2004 Proposed Regulations also con-
tained a special rule to determine the por-
tion of the costs of property that are al-
locable to a solid waste disposal function
if the property is used to perform a final
disposal process, conversion process, re-
covery process, or transformation process
and the inputs to the process consist of
solid waste and material that is not solid
waste. Under this special rule, the portion
of the costs of property used to perform
such a process that are allocable to a solid
waste disposal function equals the lowest
percentage of solid waste processed in the
process in any year while the issue is out-
standing. The percentage of solid waste
processed in such a process for any year
is the percentage, by weight or volume, of
the total materials processed in the process
that constitute solid waste for that year. If,
however, for each year while the issue is
outstanding, solid waste constitutes at least
80 percent, by weight or volume, of the to-
tal materials processed in the process, all
of the costs of the property used to perform
the process are allocable to a solid waste
disposal function.
3.Comments on the 2004 Proposed
Regulations.
In response to the 2004 Proposed Reg-
ulation, comments were received with
respect to the definition of solid waste.
Some commentators criticized the elimi-
nation of the No-Value Test from the defi-
nition of solid waste in the 2004 Proposed
Regulations, while other commentators
agreed with the deletion of the No-Value
Test. Commentators suggested various
changes to the proposed definition of solid
waste. Other commentators suggested
clarification that community waste quali-
fies as solid waste.
Comments also were received with re-
spect to categories of items specifically
excluded from the definition of solid waste
under the 2004 Proposed Regulations.
Some commentators suggested that the
exclusion from solid waste for fossil fuels
that are introduced into an energy con-
October 26, 20095612009–43 I.R.B.

version process is too broad because it
excludes fossil fuels that are low-grade,
such as waste coal that is not grown, har-
vested, produced, mined, or otherwise
created for the principal purpose of con-
verting material to useful energy. Other
commentators suggested that solid waste
introduced into an energy conversion
process should include certain byproducts
of typical agricultural operations that are
not engaged in with the principal purpose
of growing, harvesting, producing, or oth-
erwise creating products to convert such
products into useful energy. Commen-
tators further suggested clarification of
the exclusion from the definition of solid
waste for precious metals introduced to
a recycling process. Still other commen-
tators further suggested the inclusion of
hazardous waste and radioactive waste as
solid waste.
Comments were received with respect
to the various solid waste disposal pro-
cesses. With respect to the final disposal
process, some commentators suggested the
inclusion of indefinite confinement of ma-
terial within a final disposal process. With
respect to the energy conversion process,
commentators suggested including meth-
ods of creating energy besides combustion
within an energy conversion process and
expanding the scope of an eligible energy
conversion process to include certain re-
lated processes. Another comment sug-
gested disregarding small amounts of oth-
erwise-ineligible fossil fuels and chemical
and other additives.
Comments also were received with
respect to mixed-input facilities that re-
ceive both solid waste material and other
types of input. Commentators suggested
an expansion of the scope of permitted
mixed-input facilities to include an al-
lowable amount of 35 percent or less of
material that is not solid waste to be intro-
duced to an energy conversion process or
a recycling process without disqualifying
those processes. Commentators also sug-
gested measuring the allowable amount of
non-solid waste input into a mixed-input
facility based on the average percentage
of inputs that are not solid waste over the
life of the issue.
The IRS and Treasury Department have
considered these comments, and the pro-
posed regulations contained in this docu-
ment implement a number of these recom-
mendations.
4.Regulations Proposed in This
Document.
A.Solid waste disposal facility.
The proposed regulations define a solid
waste disposal facility as any facility to
the extent that it (1) processes solid waste
in a qualified solid waste disposal process,
(2) performs a preliminary function, or
(3) is functionally related and subordinate
(within the meaning of §1.103–8(a)(3))
to a facility which either processes solid
waste in a qualified solid waste disposal
process or performs a preliminary func-
tion.
B.Definition of solid waste.
The proposed regulations eliminate the
No-Value Test, as did the 2004 Regula-
tions. The IRS and the Treasury Depart-
ment have determined that whether mate-
rial has value, or value apart from recy-
cling as one commentator suggested, is un-
administrable. However, in response to
the comments received with respect to the
2004 Proposed Regulations, the IRS and
the Treasury Department have determined
that a definition of solid waste is needed
that takes into account the material itself
and not only the process by which such
material is to be disposed or recycled. Ac-
cordingly, the proposed regulations define
solid waste as garbage, refuse, and other
solid material, derived from any agricul-
tural, commercial, consumer, or industrial
operation or activity that is either used ma-
terial or residual material and that is rea-
sonably expected by the person who pur-
chases or otherwise acquires such mate-
rial to be introduced within a reasonable
time after such purchase or acquisition in
a qualified solid waste disposal process.
While the type of disposal or recycling
process does not affect the treatment of
material as solid waste, the person acquir-
ing such material must intend to place such
materials into a qualified solid waste dis-
posal process within a reasonable time af-
ter acquisition. Material that the acquiring
party intends to store or resell to the gen-
eral public is not solid waste under the pro-
posed regulations.
Used material is defined in the pro-
posed regulations as any material that has
been used previouslyas an agricultural,
commercial, consumer, or industrial prod-
uct or as a component of any such prod-
uct. It is the intention of the IRS and
Treasury Department that this definition
be interpreted broadly to encompass popu-
larly understood uses of materials but that
such definition should not apply to smaller
products purchased by manufacturers and
incorporated by such manufacturer into a
larger product.
Residual material is defined in the pro-
posed regulations as any residual byprod-
uct or excess unused raw material that re-
mains from the production of any agricul-
tural, commercial, consumer, or industrial
product, provided that material qualifies as
residual material only to the extent that it
constitutes less than five percent of the to-
tal material introduced into the production
process and it has a fair market value that
is reasonably expected to be lower than
that of any product made in that produc-
tion process. This definition is intended to
encompass a wide range of products from
waste coal to byproducts of typical agricul-
tural operations, and is intended to further
encourage innovation in the full use of all
resources.
C.Specific exclusions from the definition
of solid waste.
The proposed regulations exclude from
the definition of solid waste the follow-
ing items: (1) virgin material; (2) solids
within liquids and liquid waste; (3) pre-
cious metals; (4) hazardous material; and
(5) radioactive material. The definition
of virgin material in the proposed regu-
lations encompasses all raw materials ex-
cept to the extent such material becomes
remainder material. The proposed regula-
tions further clarify that a material does not
cease to be virgin material until it has been
processed to a point where no further pro-
cessing is expected.
The proposed regulations specifically
exclude certain commonly-recognized
precious metals from the definition of
solid waste because recovery of these
metals generally would take place with or
without a recycling industry.
With respect to hazardous and radioac-
tive waste, the statute and legislative
history suggest that Congress intended
to exclude hazardous waste and radioac-
tive waste from solid waste. The statute
treats qualified hazardous waste facilities
separately as eligible exempt facilities
under section 142(a)(10) in addition to
2009–43 I.R.B.562October 26, 2009

solid waste disposal facilities under sec-
tion 142(a)(6). In addition, the legislative
history provides, in relevant part, that
“the conferees wish to clarify that solid
waste does not include most hazardous
waste (including radioactive waste).”
H.Rep. No. 99–841, 99
th
Cong. 2d. Sess
(September 18, 1986), 1986–3 C.B. Vol.
4, at II–704. Accordingly, such items are
specifically excludedfrom the definition
of solid waste.
D.Qualified solid waste disposal process.
The proposed regulations provide for
three eligible types of solid waste dis-
posal processes, including a final disposal
process, an energy conversion process, and
a recycling process. In order to provide
flexibility for future innovation, absent an
express restriction in the proposed reg-
ulations, a solid waste disposal function
may employ any biological, engineering,
industrial, or technological method.
Under the proposed regulations, a final
disposal process includes the placement of
solid waste in a landfill, the incineration
of solid waste without capturing any useful
energy, and the containment of solid waste
with the reasonable expectation that the
containment will continue indefinitely and
that the solid waste has no current or future
beneficial use.
To accommodate existing and new
technologies, the description of an energy
conversion process in the proposed reg-
ulations includes thermal, chemical, and
other processes used to create and capture
useful energy. The proposed regulations
also permit 35 percent or less of the ma-
terial introduced to an energy conversion
process to be material other than solid
waste to accommodate disposal processes
that require the introduction of materials
other than solid waste. In general, under
the proposed regulations, an energy con-
version process begins at the point of the
first application of a process to create and
capture useful energy and ends at the point
at which the useful energy is first created
or captured in the form of a first useful
product (for example, the conversion of
solid waste into useful steam energy).
The proposed regulations generally do not
include related processes in an energy con-
version process because these processes
are appropriately included in preliminary
facilities and functionally related and sub-
ordinate functions.
In response to public comment and in
further consideration of policy in support
of recycling, the proposed regulations
combine the concepts of recovery process
and transformation process introduced in
the 2004 Proposed Regulations into an
eligible recycling process, which means a
process for disposing of solid waste that
reconstitutes, transforms, or otherwise
processes the solid waste into a useful
product. The recycling process begins
at the point of the first application of a
process to reconstitute or transform the
solid waste into a useful product, such
as decontamination, melting, re-pulping,
shredding, or other processing of the solid
waste to accomplish this purpose. The
recycling process ends at the point of com-
pletion of production of the first useful
product from the solid waste.
E.First useful product principle.
The proposed regulations provide guid-
ance on the standard for determining the
first useful product for purposes of the
end point of an eligible energy conversion
process and recycling process. For this
purpose, the proposed regulations provide
that the term useful product means a prod-
uct that is useful for consumption in indi-
vidual, commercial, industrial, or agricul-
tural use and that could be sold for such
use, whether or not actually sold. For this
purpose, a useful product includes both a
product useful to an individual or commer-
cial consumer as an ultimate end-use prod-
uct and a product useful to an industrial
user as a material or input for processing in
some stage of a manufacturing or produc-
tion process to produce a different end-use
product. Further, for this purpose, in the
case of a continuous or integrated produc-
tion process, the determination of when a
useful product may result from such an in-
tegrated process may take into account op-
erational constraints that affect the point in
production when a useful product reason-
ably can be extracted or isolated and sold
independently.
F.Mixed-input facilities.
The proposed regulations expand the
scope of permitted mixed-input facilities
to include an allowable amount of 35 per-
cent or less of material that is not solid
waste to be introduced each year into an
energy conversion process or a recycling
process without disqualifying those pro-
cesses.
Proposed Effective Dates
In general, the proposed regulations
willapplytobondstowhichsection142
applies that are sold on or after the date that
is 60 days after the date of publication of
final regulations under section 142(a)(6)
in theFederal Register. Issuers may ap-
ply this section to bonds sold before the
date that is 60 days after publication of
final regulations in theFederal Register.
Special Analysis
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory as-
sessment is not required. It also has been
determined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C. chap-
ter 5) does not apply to these regulations,
and because the regulations do not im-
pose a collection of information on small
entities, the Regulatory Flexibility Act (5
U.S.C. chapter 6) does not apply. Pursuant
to section 7805(f) of the Code, the notice
of proposed rulemaking will be submitted
to the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on their impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written (a signed origi-
nal and eight (8) copies)orelectroniccom-
ments that are submitted timely to the IRS.
The IRS and Treasury Department request
comments on the clarity of the proposed
rules and how they can be made easier to
understand. All comments will be avail-
able for public inspection and copying.
A public hearing has been scheduled for
January 5, 2010 beginning at 10:00 a.m. in
room 2615 of the Internal Revenue Build-
ing, 1111 Constitution Avenue, NW, Wash-
ington, DC. Due to building security pro-
cedures, visitors must enter at the Consti-
tution Avenue entrance. In addition, all
visitors must present photo identification
to enter the building. Because of access
restrictions, visitors will not be admitted
October 26, 20095632009–43 I.R.B.

beyond the immediate entrance area more
than 30 minutes before the hearing starts.
For information about having your name
placed on the building access list to attend
the hearing, see the “FOR FURTHER IN-
FORMATION CONTACT” section of this
preamble.
The rules of 26 CFR 601.601(a)(3) ap-
ply to the hearing. Persons who wish to
present oral comments at the hearing must
submit electronic or written comments and
an outline of the topics to be discussed and
the time to be devoted to each topic (signed
original and eight (8) copies) by Decem-
ber 17, 2009. A period of 10 minutes will
be allotted to each person for making com-
ments. An agenda showing the scheduling
of the speakers will be prepared after the
deadline for receiving outlines has passed.
Copies of the agenda will be available free
of charge at the hearing.
Drafting Information
The principal author of these pro-
posed regulations are Aviva M. Roth and
Timothy L. Jones, Office of the Associate
Chief Counsel (Financial Institutions
and Products), Internal Revenue Service.
However, personnel from other offices
of the Treasury Department and the IRS
participated in their development.
Withdrawal of Previous Notice of
Proposed Rulemaking
Accordingly, under the authority of
26 U.S.C. 7805, the notice of proposed
rulemaking (REG–140492–02) that was
published in theFederal Registeron May
10, 2004 (69 FR 25856), is withdrawn as
of September 16, 2009.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.103–8 is amended by
removing paragraph (f)(2)(ii) and redesig-
nating paragraph (f)(2)(iii) as (f)(2)(ii)
§1.103–8[Amended].
Par. 3. Section 1.142(a)(6)–1 is added
to read as follows:
§1.142(a)(6)–1 Exempt facility bonds:
solid waste disposal facilities.
(a)In general. This section defines the
term solid waste disposal facility for pur-
poses of section 142(a)(6).
(b)Solid waste disposal facility.The
termsolid waste disposal facilitymeans a
facility to the extent that the facility—
(1) Processes solid waste (as defined in
paragraph (c) of this section) in a qualified
solid waste disposal process (as defined in
paragraph (d) of this section);
(2) Performs a preliminary function (as
defined in paragraph (f) of this section); or
(3) Is functionally related and
subordinate (within the meaning of
§1.103–8(a)(3)) to a facility described in
paragraph (1) or (2) of this section.
(c)Solid waste—(1)In general.Except
to the extent excluded under paragraph
(c)(2) of this section, for purposes of sec-
tion 142(a)(6), the termsolid wastemeans
garbage, refuse, and other solid material
derived from any agricultural, commer-
cial, consumer, or industrial operation or
activity if the material meets the require-
ments of both paragraph (c)(1)(i) and para-
graph (c)(1)(ii) of this section.
(i)Used material or residual material.
Material meets the requirements of this
paragraph (c)(1) if it is either used mate-
rial (as defined in paragraph (c)(1)(i)(A))
or residual material (as defined in para-
graph(c)(1)(i)(B)).
(A)Used material.Thetermused ma-
terialmeans any material that has been
used previously as an agricultural, com-
mercial, consumer or industrial product or
as a component of any such product.
(B)Residual material.Thetermresid-
ual materialmeans any residual byprod-
uct or excess unused raw material that re-
mains from the production of any agricul-
tural, commercial, consumer, or industrial
product, provided that material qualifies as
residual material only to the extent that it
constitutes less than five percent of the to-
tal material introduced into the production
process and it has a fair market value that
is reasonably expected to be lower than
that of any product made in that produc-
tion process.
(ii)Reasonably expected introduc-
tion into a qualified solid waste disposal
process. Material meets the requirements
of this paragraph (c)(1)(ii) if it is reason-
ably expected by the person who purchases
or otherwise acquires it to be introduced
within a reasonable time after such pur-
chase or acquisition into a qualified solid
waste disposal process described in para-
graph (d) of this section.
(2)Exclusions from solid waste.The
following materials do not constitute solid
waste:
(i)Virgin material. Solid waste ex-
cludes any virgin material except to the ex-
tent that it is a residual material. The term
virgin materialmeans material that has not
been processed into an agricultural, com-
mercial, consumer, or industrial product or
a component of any such product. Fur-
ther, for this purpose, material continues to
be virgin material after it has been grown,
harvested, mined, or otherwise extracted
from its naturally occurring location and
cleaned, divided into component elements,
modified, or enhanced as long as further
processing is required before it becomes
an agricultural, commercial, consumer, or
industrial product or a component of any
such product.
(ii)Solids within liquids and liquid
waste. Solid waste excludes any solid
or dissolved material in domestic sewage
or other significant pollutant in water
resources, such as silt, dissolved or sus-
pended solids in industrial waste water
effluents, dissolved materials in irrigation
return flows or other common water pol-
lutants, and liquid or gaseous waste.
(iii)Precious metals. Solid waste ex-
cludes gold, silver, ruthenium, rhodium,
palladium, osmium, iridium, platinum,
gallium, and rhenium.
(iv)Hazardous material.Solidwaste
excludes any hazardous material that is
disposed of at a facility that is subject to
final permit requirements under subtitle C
of title II of the Solid Waste Disposal Act
as in effect on the date of the enactment of
the Tax Reform Act of 1986 (which is Oc-
tober 22, 1986). See section 142(h)(1) of
the Internal Revenue Code.
(v)Radioactive material. Solid waste
excludes any radioactive material.
(d)Qualified solid waste disposal
process.Thetermqualified solid waste
disposal processmeans the processing of
solid waste in a final disposal process (as
2009–43 I.R.B.564October 26, 2009

defined in paragraph (d)(1) of this section),
an energy conversion process (as defined
in paragraph (d)(2) of this section), or a
recycling process (as defined in paragraph
(d)(3) of this section). Absent an express
restriction to the contrary in this section,
a qualified solid waste disposal process
may employ any biological, engineering,
industrial, or technological method.
(1)Final disposal process.Theterm
finaldisposalprocessmeans either the
placement of solid waste in a landfill, the
incineration of solid waste without captur-
ing any useful energy, or the containment
of solid waste with a reasonable expec-
tation that the containment will continue
indefinitely and that the solid waste has no
current or future beneficial use.
(2)Energy conversion process.The
termenergy conversion processmeans a
thermal, chemical, or other process that is
applied to solid waste to create and cap-
ture synthesis gas, heat, hot water, steam,
or other useful energy. The energy con-
version process begins at the point of the
first application of such process. The en-
ergy conversion process ends at the point at
which the useful energy is first created or
captured in the form of a first useful prod-
uct (as defined in paragraph (e) of this sec-
tion), provided that, in all events, the en-
ergy conversion process ends before any
transfer or distribution of synthesis gas,
heat, hot water, steam, or other useful en-
ergy.
(3)Recycling process—(i)In general.
The termrecycling processmeans recon-
stituting, transforming, or otherwise pro-
cessing solid waste into a useful product.
The recycling process begins at the point
of the first application of a process to re-
constitute or transform the solid waste into
a useful product, such as decontamination,
melting, re-pulping, shredding, or other
processing of the solid waste to accom-
plish this purpose. The recycling process
ends at the point of completion of produc-
tion of the first useful product from the
solid waste.
(ii)Refurbishment, repair, or similar
activities. The term recycling process
does not include refurbishment, repair, or
similar activities. The termrefurbishment
means the breakdown and reassembly of a
product if such activity is done on a prod-
uct by product basis and if the finished
product contains more than 30 percent of
its original materials or components.
(e)First useful product.Thetermfirst
useful productmeans the first product pro-
duced from solid waste that is useful for
consumption in agricultural, consumer,
commercial, or industrial operation or ac-
tivity and that could be sold for such use,
whether or not actually sold. A useful
product includes both a product useful
to an individual consumer as an ultimate
end-use consumer product and a product
useful to an industrial user as a material
or input for processing in some stage of
a manufacturing or production process
to produce a different end-use consumer
product. In the case of a continuous or
integrated productionprocess, the deter-
mination of when a useful product may
result from such an integrated process may
take into account operational constraints
that affect the point in production when a
useful product reasonably can be extracted
or isolated and sold independently.
(f)Preliminary function. A prelimi-
nary function is a function to collect, sep-
arate, sort, store, treat, process, disassem-
ble, or handle solid waste that is prelimi-
nary to and directly related to a qualified
solid waste disposal process. A function
qualifies as a preliminary function only if
more than 50 percent of the total materials
that result from the function is solid waste
in each year that the issue is outstanding.
(g)Mixed-use facilities—(1)In gen-
eral. Except as otherwise provided in
paragraph (g)(2) of this section, if a facility
is used for both a qualified solid waste dis-
posal function (including a qualified solid
waste disposal process or a preliminary
function) and a nonqualified function, then
the costs of the facility allocable to the
qualified solid waste disposal function are
determined using any reasonable method,
based on all the facts and circumstances.
See §1.103–8(a)(1) for allocation rules on
amounts properly allocable to an exempt
facility.
(2)Mixed inputs—(i)In general.Ex-
cept as provided in paragraph (g)(2)(ii)
of this section, for each qualified solid
waste disposal process, the percentage of
the costs of the property used for such
process that are allocable to a qualified
solid waste disposalprocess equals the
average annual percentage of solid waste
processed in that process while the issue
is outstanding. The average percentage
of solid waste processed in such process
for any year is the average percentage, by
weight or volume, of the total materials
processed in that process that constitute
solid waste for that year.
(ii)Special rule for mixed-input pro-
cessesifatleast65percentofthemate-
rials processed are solid waste. For each
qualified solid waste disposal process, if
the annual percentage of solid waste used
in that process for each year that the issue
is outstanding equals at least 65 percent of
the materials used in that process, then all
of the costs of the property used for such
process are treated as allocable to a quali-
fied solid waste disposal process. The per-
centage of solid waste used in such process
for any year is the percentage, by weight or
volume, of the total materials used in that
process that constitute solid waste for that
year.
(h)Examples. The following examples
illustrate the application of this section:
Example 1.Nonqualified unused mate-
rial—cloth. Company A takes wool and weaves it
into cloth and then sells the cloth to a manufacturer
to manufacture clothing. The cloth is material that
has not been used previously as an agricultural,
commercial, consumer, or industrial product or as a
component of any such product. Accordingly, the
cloth is not solid waste.
Example 2.Residual material from refining of
crude Oil. Company B takes crude oil and refines
it into various products, including finished motor
gasoline, distillate fuel oil, and jet fuel. The bal-
ance of the crude oil remaining after this production
process is in the form of a nonhazardous material
which subsequently is used to make asphalt. This
nonhazardous material constitutes less than 5 percent
of the total crude oil that was introduced into the
production process and it has a fair market value that
is reasonably expected to be lower than that of any
product produced in that oil refining process. The
portion of the crude oil that remains after the refining
process as the nonhazardous material is residual ma-
terial within the meaning of paragraph (c)(1)(i)(B) of
this section that qualifies as solid waste. The portion
of the facility directly related to the production of
asphalt from such residual material may be treated
as a qualified solid waste disposal facility up to the
point of the production of a first useful product (here
asphalt) within the meaning of paragraph (e) of this
section from the residual material.
Example 3.Residual material—waste coal.
Company C mines coal. Less than 5 percent of ore
mined is low quality byproduct of coal mining known
as waste coal, which cannot be converted to energy
under a normal energy-production process because
the BTU content is too low. Waste coal has a lower
fair market value than any product produced in the
coal mining operation. Waste coal is solid waste
because it is residual material within the meaning of
paragraph (c)(1)(i)(B) of this section and Company C
reasonably expects to introduce the waste coal into a
solid waste disposal process. A facility that converts
this waste coal into energy may be treated as a solid
waste disposal facility.
October 26, 20095652009–43 I.R.B.

Example 4.Virgin material—logs. Company D
cuts down trees and sells the lumber to another com-
pany, which further processes the lumber into paper.
In order to facilitate shipping, Company D cuts the
trees into uniform logs. The trees are not solid waste
because they are virgin materials within the meaning
of paragraph (c)(2)(i) of this section. The division of
such trees into uniform logsdoes not change the sta-
tus of the trees as virgin material.
Example 5.Qualified solid waste disposal
process—Landfill. Company E plans to construct a
landfill. The landfill will not be subject to the final
permit requirements under subtitle C of title II of the
Solid Waste Disposal Act (as in effect on the date of
enactment of the Tax Reform Act of 1986). Company
E expects that the landfill will be filled entirely with
material that will qualify as solid waste within the
meaning of paragraph (c) of this section. Company E
does not expect that a significant portion of the ma-
terial placed in the landfill will be virgin materials or
precious metals. Placing solid waste into a landfill is
a qualified solid waste disposal process. The landfill
is a qualified solid waste disposal facility.
Example 6.Qualified solid waste disposal
process—Recycling Tires. Company F owns a fa-
cility that converts old, previously used tires into
roadbed material. The used tires are used material
within the meaning of paragraph (c)(1)(i)(A) of this
section that qualifies as solid waste. Between the
introduction of the old tires into the roadbed manu-
facturing process and the completion of the roadbed
material, the facility does not create any interim use-
ful products. The process for the manufacturing of
the roadbed material from the old tires is a qualified
solid waste disposal process as a recycling process
and the facility that converts the tires into roadbed
material is a qualified solid waste disposal facility.
This conclusion would be the same if the recycling
process took place at more than one plant.
Example 7.Nonqualified refurbishment. Com-
pany G purchases used cars and restores them. This
restoration process includes disassembly, cleaning,
and repairing of the cars. Parts that cannot be re-
paired are replaced. The restored cars contain at least
30 percent of the original pieces. While the cars are
solid waste, the refurbishing process is not a qualified
solid waste disposal process. Accordingly, Company
G’s facility is not a qualified solid waste disposal fa-
cility.
Example 8.Qualified solid waste disposal facil-
ity—first useful product rule—paper recycling. Com-
pany H employs an integrated process to re-pulp dis-
carded magazines, clean the pulp, and produce re-
tail paper towel products. Operational constraints on
Company H’s process do not allow for reasonable ex-
traction, isolation, and sale of the cleaned paper pulp
independently without degradation of the pulp. Com-
pany H further processes the paper pulp into large in-
dustrial-sized rolls of paper which are about 12 feet
in diameter. At this point in the process, Company
H could either sell such industrial-sized rolls of pa-
per to another company for further processing to pro-
duce retail paper products or it could produce those
retail products itself. In general, paper pulp is a use-
ful product that is bought and sold on the market as
a material for input into manufacturing or production
processes. The discarded magazines are solid waste
because they are used material within the meaning
of paragraph (c)(1)(i)(A) of this section. Company
H’s facility is engaged in a recycling process within
the meaning of paragraph (d)(3) of this section to the
extent that it repulps and cleans the discarded maga-
zines generally and furtherto the extent that it pro-
duces industrial-sized rolls of paper under the par-
ticular circumstances here. Specifically, taking into
account the operational constraints on Company H’s
facility that limit its ability reasonably to extract, iso-
late, and sell the paper pulp independently, the first
useful products within the meaning of paragraph (e)
of this section from Company H’s recycling process
are the industrial-sized rolls of paper. The portion of
Company H’s facility that produces industrial-sized
rolls of paper is a qualified solid waste disposal facil-
ity, and the portion of Company H’s facility that fur-
ther processes the industrial-sized rolls of paper into
retail paper towels is not a qualified solid waste facil-
ity. Further, if the operational characteristics of Com-
pany H’s facility allowed for reasonable extraction,
isolation, and sale of the paper pulp independently,
the first useful product would be the paper pulp and
the portion of Company H’s facility that cleans and
re-pulps the magazines before processing in the pa-
per machine to produce industrial-sized rolls of paper
would be a qualified solid waste disposal facility.
Example 9.First useful product rule—energy
conversion process. Company I receives solid waste
from a municipal garbage collector. Company I
burns that solid waste in an incinerator to remove
exhaust gas and to produce heat. Company I further
processes the heat in a heat exchanger to produce
steam. Company I further processes the steam to
generate electricity. The first useful product in this
process is the useful energy in the form of steam.
The facilities used to burn the solid waste and then
capture the steam as useful energy are qualified
solid waste disposal facilities because they process
solidwasteinanenergyconversionprocess. The
generating facilities used for further processing of
the steam to create electricity do not engage in the
energy conversion process and are not qualified solid
waste disposal facilities.
Example 10.Preliminary function. Company J
owns a paper mill. At the mill, logs from nearby
timber operations are processed through a machine
that removes bark. The stripped logs are used to
manufacture paper. The stripped bark represents less
than 5 percent of the logs processed into paper and
has a lower fair market value than any product pro-
duced from the paper mill. The stripped bark falls
onto a conveyor belt that transports the bark to a stor-
age bin that is used to store the bark briefly until
Company J feeds the bark into a boiler. The con-
veyor belt and storage bin are used only for these
purposes. The boiler is used only to create steam by
burning the bark, and the steam is used to generate
electricity. The stripped bark is solid waste because
it is residual material within the meaning of para-
graph (c)(1)(i)(B) of this section and because Com-
pany J expects to introduce the bark into a conver-
sion process within a reasonable period of time. The
creation of steam from the stripped bark is an energy
conversion process that starts with the incineration of
the stripped bark. The energy conversion process is a
qualified solid waste disposal process. The conveyor
belt performs a collection activity that is preliminary
and that is directly related to the solid waste disposal
function. The storage bin performs a storage func-
tion that is preliminary and that is directly related to
the solid waste disposal function. Thus, the conveyor
belt and storage bin are solid waste disposal facili-
ties. The bark removal process is not a preliminary
function because it is not directly related to the en-
ergy conversion process and it does not become so re-
lated merely because it results in material that is solid
waste.
Example 11.Mixed-input facility. Company K
owns an incinerator financed by an issue and uses the
incinerator exclusively to burn coal and solid mate-
rial to create steam that is used to generate electric-
ity. Each year while the issue is outstanding, 40 per-
cent by volume and 45 percent by weight of the solid
material that Company K processes in the conversion
process is coal. The remainder of the solid material
is either used material or residual material within the
meaning of paragraph (c)(1)(i) of this section. Sixty
percent of the costs of the property used to perform
the energy conversion process are allocable to a solid
waste disposal function.
Example 12.Mixed-function facility. Company
L owns and operates a facility financed by an issue
and uses the facility exclusively to sort damaged bot-
tles from undamaged bottles that may be re-used. The
damaged bottles are directly introduced into a process
that melts them for use in the fabrication of an end
product. The damaged bottles are solid waste within
the meaning of paragraph (b)(1) of this section, and
the melting process is a qualified solid waste disposal
process as a recycling process within the meaning of
paragraph (c)(3) of this section. Refilling the bottles
is not a qualified solid waste disposal process. Each
year while the issue is outstanding, more than 50 per-
cent, by weight or volume, of all of the bottles that
pass out of the sorting process are damaged bottles
that are processed in a recycling process. The sorting
facility performs a preliminary function, but it also
performs another function. The costs of the sorting
facility allocable to the preliminary function are de-
termined using any reasonable method, based on all
the facts and circumstances.
(i)Effective Dates—(1)In general.
This section applies to bonds to which
section 142 applies that are sold on or after
thedatethatis60daysafter publication of
final regulations in theFederal Register.
(2)Elective retroactive application.Is-
suers may apply this section to bonds sold
before the date that is 60 days after publi-
cation of final regulations in theFederal
Register.
PART 17—TEMPORARY INCOME
TAX REGULATIONS UNDER 26 U.S.C.
103C
Par. 4. The authority citation for part
17 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 5. Section 17.1 is removed.
§17.1 [Removed].
2009–43 I.R.B.566October 26, 2009

Linda M. Kroening,
(Acting) Deputy Commissioner
for Services and Enforcement.
(Filed by the Office of the Federal Register on September
15, 2009, 8:45 a.m., and published in the issue of the Federal
Register for September 16, 2009, 74 F.R. 47500)
IRS and the George
Washington University Law
School to Sponsor Institute on
International Tax Issues
Announcement 2009–77
The Internal Revenue Service an-
nounces the Twenty-Second Annual In-
stitute on Current Issues in International
Taxation, jointly sponsored by the In-
ternal Revenue Service and The George
Washington University Law School, to be
held on December 10 and 11, 2009, at the
J.W. Marriott Hotel in Washington, DC.
Registration is currently underway for the
Institute, which is intended for interna-
tional tax professionals.
The program will present a unique op-
portunity for top IRS and Treasury offi-
cials and tax experts, foreign government
tax authorities, and leading private sector
specialists, to address breaking issues and
present key perspectives on new develop-
ments.
The first day will also feature sessions
on:
•Competent Authority
•Permanent Establishment: When You
See It, When You Don’t
•Current Topics in Repatriation Plan-
ning
•Losses in a Down Economy: Interna-
tional Issues and Planning Responses
•Emerging Issues in Cross-Border
Workouts
•Offshore Tax Compliance in Today’s
Economy
The second day will focus on:
•Ethical Issues in International Tax
Practice
•Outbound Update
•Inbound Update
•Key Tax Issues in Contract Manufac-
turing Business Models
On the first day, Douglas H. Shulman,
Commissioner of the Internal Revenue
Service, will deliver the luncheon address.
On the second day, Michael F. Mundaca,
Acting Assistant Treasury Secretary for
Tax Policy of the Treasury, will deliver
the luncheon address. The second day
will also include an “Ask the IRS” panel
featuring senior officials from the Service.
Those interested in attending or ob-
taining more information should contact
The George Washington University Law
School, athttp://www.law.gwu.edu/ciit/.
October 26, 20095672009–43 I.R.B.

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cases
in litigation, or the outcome of a Service
study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
2009–43 I.R.B.iOctober 26, 2009

Numerical Finding List
1
Bulletins 2009–27 through 2009–43
Announcements:
2009-56, 2009-28 I.R.B.145
2009-57, 2009-29 I.R.B.158
2009-58, 2009-29 I.R.B.158
2009-59, 2009-29 I.R.B.158
2009-60, 2009-30 I.R.B.166
2009-61, 2009-33 I.R.B.246
2009-62, 2009-33 I.R.B.247
2009-63, 2009-33 I.R.B.248
2009-64, 2009-36 I.R.B.319
2009-65, 2009-36 I.R.B.319
2009-66, 2009-37 I.R.B.364
2009-67, 2009-38 I.R.B.388
2009-68, 2009-38 I.R.B.388
2009-69, 2009-40 I.R.B.475
2009-70, 2009-41 I.R.B.499
2009-71, 2009-40 I.R.B.475
2009-72, 2009-41 I.R.B.500
2009-73, 2009-41 I.R.B.500
2009-74, 2009-42 I.R.B.536
2009-75, 2009-42 I.R.B.536
2009-77, 2009-43 I.R.B.567
Notices:
2009-51, 2009-28 I.R.B.128
2009-55, 2009-31 I.R.B.170
2009-57, 2009-29 I.R.B.147
2009-58, 2009-30 I.R.B.163
2009-59, 2009-31 I.R.B.170
2009-60, 2009-32 I.R.B.181
2009-61, 2009-32 I.R.B.181
2009-62, 2009-35 I.R.B.260
2009-63, 2009-34 I.R.B.252
2009-64, 2009-36 I.R.B.307
2009-65, 2009-39 I.R.B.413
2009-66, 2009-39 I.R.B.418
2009-67, 2009-39 I.R.B.420
2009-68, 2009-39 I.R.B.423
2009-69, 2009-35 I.R.B.261
2009-70, 2009-34 I.R.B.255
2009-71, 2009-35 I.R.B.262
2009-72, 2009-37 I.R.B.325
2009-73, 2009-38 I.R.B.369
2009-74, 2009-38 I.R.B.370
2009-75, 2009-39 I.R.B.436
2009-76, 2009-43 I.R.B.554
2009-77, 2009-40 I.R.B.449
2009-78, 2009-40 I.R.B.452
2009-79, 2009-40 I.R.B.454
2009-81, 2009-40 I.R.B.455
2009-82, 2009-41 I.R.B.491
Proposed Regulations:
REG-140492-02, 2009-43 I.R.B.559
REG-152166-05, 2009-32 I.R.B.183
REG-112994-06, 2009-28 I.R.B.144
REG-127270-06, 2009-42 I.R.B.533
REG-136563-07, 2009-41 I.R.B.497
REG-108045-08, 2009-43 I.R.B.557
REG-113289-08, 2009-33 I.R.B.244
REG-116614-08, 2009-42 I.R.B.535
REG-130200-08, 2009-31 I.R.B.174
REG-139068-08, 2009-43 I.R.B.558
Revenue Procedures:
2009-30, 2009-27 I.R.B.27
2009-31, 2009-27 I.R.B.107
2009-32, 2009-28 I.R.B.142
2009-33, 2009-29 I.R.B.150
2009-34, 2009-34 I.R.B.258
2009-35, 2009-35 I.R.B.265
2009-36, 2009-35 I.R.B.304
2009-37, 2009-36 I.R.B.309
2009-38, 2009-37 I.R.B.362
2009-39, 2009-38 I.R.B.371
2009-40, 2009-39 I.R.B.438
2009-41, 2009-39 I.R.B.439
2009-42, 2009-40 I.R.B.459
2009-43, 2009-40 I.R.B.460
2009-44, 2009-40 I.R.B.462
2009-45, 2009-40 I.R.B.471
2009-46, 2009-42 I.R.B.506
2009-47, 2009-42 I.R.B.523
Revenue Rulings:
2009-18, 2009-27 I.R.B.1
2009-19, 2009-28 I.R.B.111
2009-20, 2009-28 I.R.B.112
2009-21, 2009-30 I.R.B.162
2009-22, 2009-31 I.R.B.167
2009-23, 2009-32 I.R.B.177
2009-24, 2009-36 I.R.B.306
2009-25, 2009-38 I.R.B.365
2009-26, 2009-38 I.R.B.366
2009-27, 2009-39 I.R.B.404
2009-28, 2009-39 I.R.B.391
2009-29, 2009-37 I.R.B.322
2009-30, 2009-39 I.R.B.391
2009-31, 2009-39 I.R.B.395
2009-32, 2009-39 I.R.B.398
2009-33, 2009-40 I.R.B.447
2009-34, 2009-42 I.R.B.502
Treasury Decisions:
9452, 2009-27 I.R.B.1
9453, 2009-28 I.R.B.114
9454, 2009-32 I.R.B.178
Treasury Decisions— Continued:
9455, 2009-33 I.R.B.239
9456, 2009-33 I.R.B.188
9457, 2009-41 I.R.B.482
9458, 2009-43 I.R.B.547
9459, 2009-41 I.R.B.480
9461, 2009-41 I.R.B.488
9462, 2009-42 I.R.B.504
9463, 2009-40 I.R.B.442
9465, 2009-43 I.R.B.542
9466, 2009-43 I.R.B.551
1
A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2009–1 through 2009–26 is in Internal Revenue Bulletin
2009–26, dated June 29, 2009.
October 26, 2009ii2009–43 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2009–27 through 2009–43
Announcements:
2006-93
Superseded by
Ann. 2009-62, 2009-33 I.R.B.247
Notices:
2002-3
Modified and superseded by
Notice 2009-68, 2009-39 I.R.B.423
2004-67
Supplemented and superseded by
Notice 2009-59, 2009-31 I.R.B.170
2006-70
Obsoleted by
T.D. 9453, 2009-28 I.R.B.114
2006-109
Superseded in part by
Rev. Proc. 2009-32, 2009-28 I.R.B.142
2007-7
Modified by
Notice 2009-82, 2009-41 I.R.B.491
2008-30
Amplified and clarified by
Notice 2009-75, 2009-39 I.R.B.436
2008-43
Obsoleted by
REG-113289-08, 2009-33 I.R.B.244
2009-28
Clarified by
Notice 2009-69, 2009-35 I.R.B.261
2009-31
Amplified by
Rev. Proc. 2009-43, 2009-40 I.R.B.460
2009-42
Amplified by
Rev. Proc. 2009-43, 2009-40 I.R.B.460
Revenue Procedures:
97-27
Clarified and modified by
Rev. Proc. 2009-39, 2009-38 I.R.B.371
97-49
Modified and superseded by
Rev. Proc. 2009-31, 2009-27 I.R.B.107
2002-44
Superseded by
Rev. Proc. 2009-44, 2009-40 I.R.B.462
Revenue Procedures— Continued:
2002-59
Superseded by
Rev. Proc. 2009-41, 2009-39 I.R.B.439
2005-63
Modified by
Rev. Proc. 2009-39, 2009-38 I.R.B.371
2007-44
Modified by
Rev. Proc. 2009-36, 2009-35 I.R.B.304
2007-65
Modified by
Ann. 2009-69, 2009-40 I.R.B.475
2008-34
Superseded by
Rev. Proc. 2009-46, 2009-42 I.R.B.506
2008-38
Superseded by
Rev. Proc. 2009-30, 2009-27 I.R.B.27
2008-44
Superseded by
Rev. Proc. 2009-35, 2009-35 I.R.B.265
2008-52
Amplified, clarified, and modified by
Rev. Proc. 2009-39, 2009-38 I.R.B.371
2008-59
Superseded by
Rev. Proc. 2009-47, 2009-42 I.R.B.523
2008-65
Modified by
Rev. Proc. 2009-33, 2009-29 I.R.B.150
2009-16
Modified by
Rev. Proc. 2009-33, 2009-29 I.R.B.150
2009-39
Modified by
Ann. 2009-67, 2009-38 I.R.B.388
Revenue Rulings:
74-346
Superseded by
Rev. Rul. 2009-34, 2009-42 I.R.B.502
75-190
Superseded by
Rev. Rul. 2009-34, 2009-42 I.R.B.502
75-398
Superseded by
Rev. Rul. 2009-34, 2009-42 I.R.B.502
75-526
Superseded by
Rev. Rul. 2009-34, 2009-42 I.R.B.502
Revenue Rulings— Continued:
2009-22
Corrected by
Ann. 2009-74, 2009-42 I.R.B.536
2009-29
Corrected by
Ann. 2009-74, 2009-42 I.R.B.536
Treasury Decisions:
9456
Corrected by
Ann. 2009-73, 2009-41 I.R.B.500
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2009–1 through 2009–26 is in Internal Revenue Bulletin 2009–26, dated June 29, 2009.
2009–43 I.R.B.iiiOctober 26, 2009

INDEX
Internal Revenue Bulletin 2009–27 through
2009–43
The abbreviation and number in parenthesis following the index entry
refer to the specific item; numbers in roman and italic type following
the parenthesis refers to the Internal Revenue Bulletin in which the item
may be found and the page number on which it appears.
Key to Abbreviations:
AnnAnnouncement
CDCourt Decision
DODelegation Order
EOExecutive Order
PLPublic Law
PTEProhibited Transaction Exemption
RPRevenue Procedure
RRRevenue Ruling
SPRStatement of Procedural Rules
TCTax Convention
TDTreasury Decision
TDOTreasury Department Order
EMPLOYEE PLANS
Determination letters, staggered remedial amendment periods
(RP 36) 35,304
Full funding limitations, weighted average interest rates, seg-
ment rates for:
July 2009 (Notice 57) 29,147
August 2009 (Notice 63) 34,252
September 2009 (Notice 77) 40,449
October 2009 (Notice 76) 43,554
Multiemployer plans, funding, WRERA (RP 43) 40,460
Qualified plans:
Accumulated and unused paid time off (RR 31) 39,395
Automatic increases (RR 30) 39,391
Sample amendments for section 401(k) plan (Notice 65) 39,
418
Sample amendments for SIMPLE IRA plans (Notice 67) 39,
413
Under SIMPLE IRA plans (Notice 66) 39,420
Eligible combined plans (Notice 71) 35,262
Eligible rollover distributions, safe harbor explanations (No-
tice 68) 39,423
Post serverance contributions (RR 32) 39,398
Reasonable good faith interpretation of required minimum
distribution rules by governmental plans (TD 9459) 41,480
Required minimum distributions for 2009, waiver (Notice 82)
41,491
Regulations:
26 CFR 1.401(a)(9)–1, –6, amended; 1.403(b)–6, amended;
reasonable good faith interpretation of required minimum
distribution rules by governmental plans (TD 9459) 41,480
Roth IRA, eligible rollover distributions (Notice 75) 39,436
Tax sheltered annuity contracts (RR 18) 27,1
EMPLOYMENT TAX
Intangible property, allocation of income and deductions (TD
9456) 33,188
Regulations:
26 CFR 1.482–0, –0T, –1, –1T, –2, –2T, –4, –4T, –6, –8,
–8T, –9T, amended; 1.482–6T, removed; 1.482–9, added;
1.861–8, –8T, –9T, –10T, –11T, –12T, –14T, amended;
1.6038A–1, –3, amended; 1.6038A–3T, removed;
1.6662–6, amended; 1.6662–6T, removed; 31.3121(s)–1,
amended; 31.3121(s)–1T, removed; 602.101, amended;
treatment of services under section 482, allocation of
income and deductions from intangible property, appor-
tionment of stewardship expenses (REG–146893–02,
REG–115037–00, REG–138603–03) (TD 9456) 33,188
Section 482, controlled servicestransactions (TD 9456) 33,188
Stewardship expenses, apportionment under section 861 (TD
9456) 33,188
ESTATE TAX
Due date for filing return and paying tax under Chapter 15 (Gifts
and Bequests From Expatriates) (Ann 57) 29,158
Generation-skipping transfers (GST) section 6011 regula-
tions and amendments to the section 6112 regulations
(REG–136563–07) 41,497
Interest rates for 2009, farm real property, special use value (RR
21) 30,162
Proposed Regulations:
26 CFR 26.6011–4, added; 301.6111–3, amended;
301.6112–1, amended; generation-skipping transfers
(GST) section 6011 regulations and amendments to the
section 6112 regulations (REG–136563–07) 41,497
EXCISE TAX
Disregarded entities and excise taxes (TD 9462) 42,504;
(REG–116614–08) 42,536
Employer comparable contributions to Health Savings Accounts
under section 4980G and requirement of return for filing of the
excise tax under section 4980B, 4980D, 4980E, or 4980G (TD
9457) 41,482
Exempt aircraft supplies, reciprocating countries (RR 34) 42,502
Proposed Regulations:
26 CFR 301.7701–2, amended; disregarded entities and ex-
cise taxes (REG–116614–08) 42,536
Regulations:
26 CFR 54.4980B–0, –2, amended; 54.4980D–1, added;
54.4980E–1, added; 54.4980G–1, –3, –4, amended;
54.4980G–6, –7, added; 54.6011–2, added; 54.6061–1,
added; 54.6071–1, added; 54.6091–1, added; 54.6151–1,
added; employer comparable contributions to Health Sav-
ings Accounts under section 4980G and requirement of
return for filing of the excise tax under section 4980B,
4980D, 4980E, or 4980G (TD 9457) 41,482
26 CFR 301.7701–2, amended; 301.7701–2T, added; disre-
garded entities and excise taxes (TD 9462) 42,504
October 26, 2009iv2009–43 I.R.B.

EXEMPT ORGANIZATIONS
Annual electronic notification (e-Postcard) required by section
6033(i)(1) (TD 9454) 32,178
List of organizations classifiedas private foundations (Ann 58)
29,158
Regulations:
26 CFR 1.6033–6, added; 1.6033–6T, removed; notification
requirement for tax-exempt entities not currently required
to file (TD 9454) 32,178
Reliance criteria for supporting organizations and donor advised
funds making grants (RP 32) 28,142
Revocations (Ann 60) 30,166; (Ann 61) 33,246;(Ann64)36,
319; (Ann 66) 37,362; (Ann 72) 41,500
Section 509(a)(3) supporting organizations, procedures to
change public charity classification (Ann 62) 33,247
GIFT TAX
Due date for filing return and paying tax under Chapter 15 (Gifts
and Bequests From Expatriates) (Ann 57) 29,158
INCOME TAX
Annual electronic notification (e-Postcard) required by section
6033(i)(1) (TD 9454) 32,178
Appeals mediation procedure (RP 44) 40,462
Bonds, tribal economic development bonds (Notice 51) 28,128
Cancellation of indebtness income (RP 37) 36,309
Contingent fees under Circular 230 (REG–113289–08) 33,244
Corporations:
Private placements and public offerings relating to expatria-
tions of domestic entities (Notice 78) 40,452
Transfers by domestic corporations or partnerships to a for-
eign corporation (TD 9453) 28,114; (REG–112994–06) 28,
144
Cost-sharing payments received from the Forest Health Protec-
tion Program (FHPP) (RR 23) 32,177
Credits:
Election of reduced research credit under section 280C(c)(3)
(REG–130200–08) 31,174
Enhanced oil recovery credit, 2009 inflation adjustment (No-
tice 73) 38,369
Low-income housing credit, carryovers to qualified states,
2009 National Pool (RP 40) 39,438
Qualified plug-in electric vehicle under section 30 (Notice 58)
30,163
Section 48C tax credit for qualifying advanced energy project
credit program (Notice 72) 37,325
Work opportunity credit, disconnected youth, targeted groups
(Notice 69) 35,261
Definition of omission from gross income (TD 9466) 43,551;
(REG–108045–08) 43,557
Depreciation:
Asset class, ethanol plants (Notice 64) 36,307
Depreciation, election to forgoadditional first year deprecia-
tion deduction (RP 33) 29,150
INCOME TAX—Cont.
Determination of interest expense deduction of foreign corpora-
tions (TD 9465) 43,542
Disciplinary actionsinvolving attorneys,certified public accoun-
tants, enrolled agents, and enrolled actuaries (Ann 59) 29,158;
(Ann 63) 33,248; (Ann 65) 36,319; (Ann 68) 38,388;(Ann
71) 40,475; (Ann 75) 42,537
Earnings and profits, insurance contract payments (RR 25) 38,
365
Entities created in connection with the Public-Private Investment
Program (PPIP)/taxable mortgage pools (TMPs) (RP 38) 37,
360
Entity classification elections, extensions of time (Notice 65) 39,
413
Exclusion from income of damages for personal physical injury
or physical sickness (REG–127270–06) 42,534
Extension of replacement period for livestock sold on account of
drought (Notice 81) 40,455
FBAR filing requirements, Form TD F 90–22.1, request for com-
ments (Notice 62) 35,260
Foreign tax credit, application of section 904 to dividends paid
by a foreign corporation that is a noncontrolled section 902
corporation, rules under section 964 for a foreign corporation
(TD 9452) 27,1
Forms:
1042-S, Foreign Person’s U.S. Source Income Subject to
Withholding, specifications for filing electronically (RP
35) 35,265;
1098, 1099, 3921, 3922, 5498, 8935, and W-2G, requirements
for filing electronically, 2009 revision (RP 30) 27,27;cor-
rections (Ann 70) 41,499
8027, Employer’s Annual Information Return of Tip Income
and Allocated Tips, specifications for filling electronically
(RP 46) 42,507
Generation-skipping transfers (GST) section 6011 regula-
tions and amendments to the section 6112 regulations
(REG–136563–07) 41,497
Gross income, general welfare exclusion (RR 19) 28,111
Information reporting for discharges of indebtedness (TD 9461)
41,488
Institute on Current Issues in International Taxation (Ann 77) 43,
567
Insurance, effectively connected income (RP 34) 34,258
Intangible property, allocation of income and deductions (TD
9456) 33,188; corrections (Ann 73) 41,500
Interest:
Investment:
Federal short-term, mid-term, and long-term rates for:
July 2009 (RR 20) 28,112
August 2009 (RR 22) 31,167:correction(Ann74)42,
537
September 2009 (RR 29) 37,322: correction (Ann 74)
42,537
October 2009 (RR 33) 40,447
Rates:
Underpayments and overpayments, quarter beginning:
October 1, 2009 (RR 27) 39,404
2009–43 I.R.B.vOctober 26, 2009

INCOME TAX—Cont.
Investment trust, commercial mortgage loan modifications (No-
tice 79) 40,454
Marginal production rates, 2009 (Notice 74) 38,370
Method of accounting:
Automatic and non-automatic changes in method of account-
ing (RP 39) 38,371
Corrections, automatic and non-automatic changes in method
of accounting (Ann 67) 38,388
Section 1.1502–13(e)(3) consent letter rulings (RP 31) 27,107
Modifications of commercial mortgage loans held by certain se-
curitization vehicles (RP 45) 40,471
Modification to consolidated return regulation permitting an
election to treat a liquidation of a target, followed by a recon-
tribution to a new target, as a cross-chain reorganization (TD
9458) 43,547; (REG–139068–08) 43,558
Obligations of state and local governments solid waste disposal
facilities (REG–140492–02) 43,559
Partnerships:
Public-private investment partnerships (RP 42) 40,459
Section 704(c) layers relating to partnership mergers, divi-
sions, and tiered partnerships, request for comments (No-
tice 70) 34,255
Wind energy partnerships (Ann 69) 40,475
Per diem allowances, 2009-2010 (RP 47) 42,524
Period of limitations on assessment when a case is brought with
respect to a designated or related summons (TD 9455) 33,239
Private foundations, organizations now classified as (Ann 58) 29,
158
Proposed Regulation:
26 CFR 1.103–8, amended; 1.142(a)(6)–1, added; definition
of solid waste disposal facilities for tax exempt bond pur-
poses (REG–140492–02) 43,559
26 CFR 1.104–1, revised; damages received on ac-
count of personal physical injuries or physical sickness
(REG–127270–06) 42,534
26 CFR 26.6011–4, added; 301.6111–3, amended;
301.6112–1, amended; generation-skipping transfers
(GST) section 6011 regulations and amendments to the
section 6112 regulations (REG–136563–07) 41,497
26 CFR 1.280C–4, revised; election of reduced research credit
(REG–130200–08) 31,174
26 CFR 1.1502–13, amended; modification to consolidated
return regulation permitting an election to treat a liquidation
of a target, followed by a recontribution to a new target, as
a cross-chain reorganization (REG–139068–08) 43,558
26 CFR 1.7874–1, amended; 1.7874–2, added; guidance un-
der section 7874 regarding surrogate foreign corporations
(REG–112994–06) 28,144
26 CFR 301.6229(c)(2)–1, added; 301.6501(e)–1, added; def-
inition of omission from gross income (REG–108045–08)
43,557
26 CFR 301.7811–1, amended, Taxpayer Assistance Orders,
proposed regulations revised (REG–152166–05 ) 32,183
31 CFR 10.27, amended; contingent fees under circular 230
(REG–113289–08) 33,244
INCOME TAX—Cont.
Proposed security, privacy, and business standards for authorized
IRS e-file providers participating in online filing of individual
income tax returns (Ann 56) 28,145
Publications:
1187, Specifications for Filing Form 1042-S, Foreign Per-
son’s U.S. Source Income Subject to Withholding, Elec-
tronically, revised (RP 35) 35,265
1220, Specifications for Filing Forms 1098, 1099, 3921, 3922,
5498, 8935, and W-2G Electronically, 2009 revision (RP
30) 27,27; corrections (Ann 70) 41,499
1239, Specifications for Filing Form 8027, Employer’s An-
nual Information Return of TipIncome and Allocated Tips,
Electronically, revised (RP 46) 42,507
Real estate mortgage investment conduit (REMIC), commercial
mortgage loan modification (TD 9463) 40,442
Reasonable good faith interpretation of required minimum dis-
tribution rules by governmental plans (TD 9459) 41,480
Regulations:
26 CFR 1.401(a)(9)–1, –6, amended; 1.403(b)–6, amended;
reasonable good faith interpretation of required minimum
distribution rules by governmental plans (TD 9459) 41,480
26 CFR 1.482–0, –0T, –1, –1T, –2, –2T, –4, –4T, –6, –8,
–8T, –9T, amended; 1.482–6T, removed; 1.482–9, added;
1.861–8, –8T, –9T, –10T, –11T, –12T, –14T, amended;
1.6038A–1, –3, amended; 1.6038A–3T, removed;
1.6662–6, amended; 1.6662–6T, removed; 31.3121(s)–1,
amended; 31.3121(s)–1T, removed; 602.101, amended;
treatment of services under section 482, allocation of
income and deductions from intangible property, appor-
tionment of stewardship expenses (REG–146893–02,
REG–115037–00, REG–138603–03) (TD 9456) 33,188;
corrections (Ann 73) 41,500
26 CFR 1.860A–0, –1, amended; 1.860G–2, amended;
602.101, revised; modifications of commercial mortgage
loans held by a real estate mortgage investment conduit
(REMIC) (TD 9463) 40,442
26 CFR 1.861–9, –9T, –12T, revised; 1.861–12, added;
1.902–1, revised;1.902–1T, removed; 1.904–0, –2, –2T,
–4, –4T, –5, –5T, –7, –7T, revised; 1.904(f)–0, –12, –12T,
revised; 1.964–1, revised; 1.964–1T, removed; 1.989(b)–1,
revised; 602.101, revised; application of section 904 to
dividends paid by a foreign corporation that is a noncon-
trolled section 902 corporation (TD 9452) 27,1
26 CFR 1.882–0, –5,amended; 1.882–5T, removed; 1.884–1,
amended; 1.884–1T, removed; 602.101, amended; determi-
nation of interest expense deduction of foreign corporations
(TD 9465) 43,542
26 CFR1.1502–13, –13T, amended; 602.101, amended;
modification to consolidated return regulation permitting
an election to treat a liquidation of a target, followed by a
recontribution to a new target,as a cross-chain reorganiza-
tion (TD 9458) 43,547
26 CFR 1.6033–6, added; 1.6033–6T, removed; notification
requirement for tax-exempt entities not currently required
to file (TD 9454) 32,178
October 26, 2009vi2009–43 I.R.B.

INCOME TAX—Cont.
26 CFR 1.6050P–0, –1, amended; 1.6050P–1T, removed;
information reporting for discharges of indebtedness (TD
9461) 41,488
26 CFR 1.7874–1(e), revised; 1.7874–1T, added; 1.7874–2T,
revised; quidance under section 7874 regarding surrogate
foreign corporations (TD 9453) 28,114
26 CFR 301.6503(j)–1, added; suspension of running of pe-
riod of limitations during a proceeding to enforce or quash
a designated or related summons (TD 9455) 33,239
26 CFR 301.6229(c)(2)–1T, added; 301.6501(e)–1, removed;
301.6501(e)–1T, added; definition of omission from gross
income (TD 9466) 43,551
Revocation, exempt organizations (Ann 60) 30,166;(Ann61)
33,246;(Ann64)36,319; (Ann 66) 37,362;(Ann72)41,
500
Section 482, controlled services transactions (TD 9456) 33,188
Single-insured – reinsurance (RR 26) 38,366
Standards of conduct for the taxreturn preparer community, re-
quest for comments (Notice 60) 32,181
Standard Industry Fare Level (SIFL) formula (RR 28) 39,391
Stewardship expenses, apportionment under section 861 (TD
9456) 33,188
Tax shelters:
Listed transactions (Notice 59) 31,170
Transactions of interest (Notice 55) 31,170
Taxpayer Assistance Orders, proposed regulations revised
(REG–152166–05) 32,183
Treatment of Fails Charges for purposes of sections 871, 881,
1441, and 1442 (Notice 61) 32,181
2009–43 I.R.B.viiOctober 26, 2009

October 26, 20092009–43 I.R.B.

2009–43 I.R.B.October 26, 2009

October 26, 20092009–43 I.R.B.

INTERNAL REVENUE BULLETIN
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