Internal Revenue Bulletin 2013-35 (PDF rendition): IRS Announcements

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

Bulletin No. 201
3-35
August 26, 2013
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
T.D. 9627, page 156.
Temporary regulations explain how to account for unrealized
gain or loss on a position held prior to establishing an identified
mixed straddle.
REG–112815–12, page 162.
Proposed regulations explain how to account for unrealized
gain or loss on a position held prior to establishing an identified
mixed straddle. Comments requested by October 31, 2013.
A public hearing is scheduled for December 4, 2013.
REG–114122–12, page 163.
These regulations propose revisions to examples that illustrate
the controlled group rules related to regulated investment com-
panies (RICs) to resolve an issue with how the controlled group
rules should be applied in connection with the RIC “asset diver-
sification” test. A public hearing is scheduled for December 9,
2013.
Announcement 2013–39, page 167.
This announcement contains corrections to final regulations
and removal of temporary regulations (TD 9622) that were pub-
lished in the Federal Register on July 3, 2013 (78 FR 39984).
The final regulations provide necessary guidance regarding the
accelerated inclusion of deferred discharge of indebtedness
(also known as cancellation of debt (COD)) income (deferred
COD income) and the accelerated deduction of deferred orig-
inal issue discount (OID) (deferred OID deductions) under sec-
tion 108(i)(5)(D) (acceleration rules), and the calculation of earn-
ings and profits as a result of an election under section 108(i).
In addition, these regulations provide rules applicable to all tax-
payers regarding deferred OID deductions under section 108(i)
as a result of a reacquisition of an applicable debt instrument
by an issuer or related party.
EMPLOYEE PLANS
Notice 2013–52, page 159.
This notice contains updates for the corporate bond weighted
average interest rate for plan years beginning in August 2013;
the 24-month average segment rates; the funding segment
rates applicable for August 2013; and the minimum present
value rates for July 2013. The rates in this notice reflect certain
changes implemented by the Moving Ahead for Progress in the
21st Century Act, Public Law 112–141 (MAP–21).
Fi
nding Lists begin on page ii.
Index for July through August begins on page iv.

The IRS Mission
Provide Americ
a’s taxpayers top-quality service by helping
them understa
nd and meet their tax responsibilities and en-
force the law wi
th integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly.
It is the poli
cy of the Service to publish in the Bulletin all sub-
stantive ru
lings necessary to promote a uniform application of
the tax laws
, including all rulings that supersede, revoke, mod-
ify, or amen
d any of those previously published in the Bulletin.
All publish
ed rulings apply retroactively unless otherwise indi-
cated. Pro
cedures relating solely to matters of internal man-
agement ar
e 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.—1986 Code.
This part includes rulings and decisions based on provisions of
the Internal 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 part includes notices of proposed rulemakings, disbar-
ment and 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 cont
ents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
August 26, 20132013–35 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 1092.
—Straddles
T.D. 9627
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Mixed Straddles;
Straddle-by-Straddle
Identification Under Section
1092(b)(2)(A)(i)(I)
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Temporary regulations.
SUMMARY: This document contains
guidance for those taxpayers electing to
establish a mixed straddle using strad-
dle-by-straddle identification. These tem-
porary regulations explain how to account
for unrealized gain or loss on a position
held by a taxpayer prior to the time the tax-
payer establishes a mixed straddle using
straddle-by-straddle identification. The
text of these temporary regulations also
serves as the text of the proposed regula-
tions (REG–112815–12) set forth in this
issue of the Bulletin.
DATES:Effective Date:These regulations
are effective on August 1, 2013.
Applicability Date:For the date of ap-
plicability, see §1.1092(b)–6T(c).
FOR FURTHER INFORMATION
CONTACT: Elizabeth M. Bouzis or
Robert B. Williams at (202) 622–3950
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
T
he Tax Reform Act of 1984 (Public
L
aw 98–369, 98 Stat. 494) amended sec-
t
ion 1092(b) of the Internal Revenue Code
(
Code) to add, among other items, an elec-
tion to establish a mixed straddle using
straddle-by-
straddle identification (a sec-
tion 1092(b)(
2) identified mixed straddle).
On January 24,
1985, the Treasury De-
partment and t
he IRS published a notice of
proposed rule
making by cross-reference
to temporary
regulations (50 FR 3351,
January 24, 1
985). Included in the tempo-
rary regulat
ions was §1.1092(b)–3T (TD
8008, 1985–1
C.B. 276), which describes
how to accou
nt for a section 1092(b)(2)
identified
mixed straddle. In particular,
§1.1092(b)
–3T(b)(6) currently requires
that unreal
ized gain or loss on a posi-
tion that b
ecomes a position in a section
1092(b)(2
) identified mixed straddle be
recognize
d on the day prior to establishing
the sectio
n 1092(b)(2) identified mixed
straddle.
After filing of these tempo-
rary regu
lations in theFederal Register,
§1.1092(
b)–3T(b)(6) will apply to only
those sec
tion 1092(b)(2) identified mixed
straddle
s established on or before August
1, 2013.
Theappro
achtakenin
§1.1092(
b)–3T(b)(6) is suggested by
the legi
slative history of section 1092,
butitha
s come to the attention of the
Treasur
y Department and the IRS that
this par
agraph arguably permits taxpay-
ers to s
electively recognize gains and
losses
in inappropriate circumstances
and wit
hout market constraints. Thus,
for exa
mple, a taxpayer could seek to
use the
identified mixed straddle rules in
§1.10
92(b)–3T(b)(6)to accelerate a loss
on a po
sition that could not be marked
to mar
ket or easily disposed of. When
taxpa
yers use the section 1092(b)(2)
ident
ified mixed straddle rules to serve
as an
alternative to selling or otherwise
disp
osing of a position, the general
rule
sgoverningwhengainandlossare
reco
gnized are undermined. The Treasury
Depa
rtment and the IRS believe that it
is ap
propriate to act promptly to prevent
the
se types of transactions because they
rep
resent a use of section 1092 that was
not
intended. Accordingly, these tempo-
rar
y regulations add a new §1.1092(b)–6T
and
limit the application of §1.1092(b)–3T
as
described in this preamble. Section
1.
1092(b)–6T will apply to all section
10
92(b)(2) identified mixed straddles
es
tablished after August 1, 2013.
Section 1.109
2(b)–6T provides that
unrealized ga
in or loss on a position held
prior to estab
lishing a section 1092(b)(2)
identified m
ixed straddle is taken into
account at th
e time, and has the char-
acter, provi
ded by provisions of the
Code that wou
ld apply if the section
1092(b)(2)
identified mixed straddle
had not been
established, rather than on
the day prio
r to establishing the section
1092(b)(2)
identified mixed straddle as is
required by
§1.1092(b)–3T(b)(6). Section
1.1092(b)
–6T does not, however, override
other prov
isions that require the recogni-
tion of gai
n or loss. Thus, for example, if a
taxpayer e
nters into a transaction that cre-
ates a con
structive saleunder section 1259,
the rules
of section 1259 continue to ap-
ply. Unde
r §1.1092(b)–6T, the provisions
of §1.109
2(b)–3T, with the exception of
§1.1092(
b)–3T(b)(6), willalso continue to
apply to
changes in the value of a position
held aft
er a section 1092(b)(2) identified
mixed st
raddle is established. As a result,
pre-str
addle gain or loss will be accounted
for und
er other provisions of the Code,
while g
ain or loss incurred while the strad-
dle is i
n place will be accounted for using
the str
addle rules in section 1092. Under
§1.109
2(b)–6T, the holding period of a
positi
on held prior to establishing a section
1092(
b)(2) identified mixed straddle will
conti
nue to be determined using the rules
in §1.
1092(b)–2T.
It is i
mportant to account for pre-strad-
dle ga
in and loss separately from gain and
loss o
n positions while a straddle is in
plac
e. Therefore, §1.1092(b)–6T will con-
tinu
e to require the segregation of pre-
stra
ddle and straddle period gain and loss,
but i
t will do so without requiring current
reco
gnition of unrealized gain and loss.
Sect
ion 1.1092(b)–6T will apply to all
sect
ion 1092(b)(2) identified mixed strad-
dles
established after August 1, 2013, re-
gar
dless of when any position that is a
com
ponent of the section 1092(b)(2) iden-
tif
ied mixed straddle was purchased or oth-
erw
ise acquired.
Sp
ecial Analyses
It
has been determined that this Trea-
su
ry decision is not a significant regula-
2013–35 I.R.B.156August 26, 2013

tory action as defined in Executive Order
12866, as supplemented by Executive Or-
der 13563. Therefore, a regulatory assess-
ment is not required. It has also 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
to the cross-reference notice of proposed
rulemaking published in this issue of the
Bulletin. Pursuant to section 7805(f) of
the Code, these regulations have been sub-
mitted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on their impact on small busi-
ness.
Drafting Information
The principal author of these regu-
lations is Elizabeth M. Bouzis, Office
of Associate ChiefCounsel (Financial
Institutions and Products). However,
other personnel from the Treasury
Department and the IRS participated in
their development.
*****
Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding entries in nu-
merical order to read as follows:
Authority: 26 U.S.C. 7805* * *
Section 1.1092(b)–6T also issued under
26 U.S.C. 1092(b)(1).
Section 1.1092(b)–6T also issued under
26 U.S.C. 1092(b)(2).* * *
Par. 2. Section 1.1092(b)–3T is
amended by:
1. Revising the paragraph heading of
paragraph (b)(6).
2. Adding a new first sentence to para-
graph (b)(6).
The revision and addition read as fol-
lows:
§1.1092(b)–3T Mixed straddles;
straddle-by-straddle identification under
section 1092(b)(2)(A)(i)(I) (Temporary).
*****
(b)(6)Accrued gain and loss with re-
spect to positions of a section 1092(b)(2)
identified mixed straddle established on
or before August 1, 2013.Therulesof
this paragraph (b)(6) apply to all section
1092(b)(2) identified mixed straddles es-
tablished on or before August 1, 2013;
see §1.1092(b)–6T for section 1092(b)(2)
identified mixed straddles established after
August 1, 2013.* * *
*****
Par. 3. Section 1.1092(b)–6T is added
to read as follows:
§1.1092(b)–
6T Mixed straddles;
accrued gain
and loss associated with a
position tha
t becomes part of a section
1092(b)(2)
identified mixed straddle
that is esta
blished after August 1, 2013
(Temporary
).
(a)In general. Except as otherwise
provided, if one or more positions of a
section 1092(b)(2) identified mixed strad-
dle were held by the taxpayer on the day
prior to the day the section 1092(b)(2)
identified mixed straddle is established,
any unrealized gain or loss on the day
prior to the day the section 1092(b)(2)
identified mixed straddle is established
with respect to such position or positions
is taken into account at the time, and has
the character, provided by the provisions
of the Internal Revenue Code that would
apply to the gain or loss if the section
1092(b)(2) identifiedmixed straddle were
not established. Unrealized gain or loss
is the difference between the fair market
value of the position or positions on the
day before a section 1092(b)(2) identi-
fied mixed straddle is established and the
taxpayer’s basis in that position or posi-
tions. See §1.1092(b)–2T for treatment
of holding periods with respect to such
positions. Changes in value of the position
or positions that occur after the section
1092(b)(2) identified mixed straddle is
established are accounted for under the
other provisions of §1.1092(b)–3T.
(b)Examples. Paragraph (a) of this sec-
tion may be illustrated by the following
examples. It is assumed in each exam-
ple that the positions are the only positions
held directly or indirectly (through a re-
lated person or flowthrough entity) by an
individual calendar year taxpayer during
the taxable year and no section 1256 con-
tract is substantially identical to an offset-
ting non-section 1256 contract. It is also
assumed that any gain or loss recognized
on disposition of any position in the strad-
dle would be capital gain or loss.
Example 1. On August 13, 2013, A enters into a
section 1256 contract. As of the close of the day on
August 15, 2013, there is $500 of unrealized loss on
the section 1256 contract. On August 16, 2013, A en-
ters into an offsetting non-section 1256 position and
makes a valid election to treat the straddle as a section
1092(b)(2) identified mixed straddle. A continues to
hold both positions of the section 1092(b)(2) identi-
fied mixed straddle on January 1, 2014. Under these
circumstances, A will recognize the $500 loss on the
section 1256 contract that existed prior to establish-
ing the section 1092(b)(2) identified mixed straddle
on the last business day of 2013 because the section
1256 contract would be treated as sold on December
31, 2013, (the last business day of the taxable year)
under section 1256(a). The loss recognized in 2013
will be treated as 60% long-term capital loss and 40%
short-term capital loss. All gains and losses occurring
after the section 1092(b)(2) identified mixed straddle
is established are accounted for under the applicable
provisions in §1.1092(b)–3T.
Example 2. On September 3, 2012, A enters into
a non-section 1256 position. As of the close of the
day on August 22, 2013, there is $400 of unrealized
short-term capital gain on the non-section 1256 po-
sition. On August 23, 2013, A enters into an off-
setting section 1256 contract and makes a valid elec-
tion to treat the straddle as a section 1092(b)(2) iden-
tified mixed straddle. On September 10, 2013, A
closes out the section 1256 contract at a $500 loss
anddisposesofthenon-section1256position,real-
izing an $875 gain. Under these circumstances, A
has $400 of short-term capital gain attributable to the
non-section 1256 position prior to the day the section
1092(b)(2) identified mixed straddle was established.
The $400 unrealized gain earned on the non-section
1256 position will be recognized on September 10,
2013, when the non-section 1256 position is disposed
of. The gain will be short-term capital gain because,
if the non-section 1256 position had been disposed
of prior to establishing the section 1092(b)(2) iden-
tified mixed straddle, the gain would not have been
long-term capital gain. See §1.1092(b)–2T for rules
concerning holding period. On September 10, 2013,
the gain of $875 on the non-section 1256 position will
be reduced to $475 to take into account the $400 of
unrealized gain when the section 1092(b)(2) identi-
fied mixed straddle was established. The $475 gain
on the non-section 1256 position will be offset by
the $500 loss on the section 1256 contract. The net
loss of $25 from the straddle will be treated as 60%
long-term capital loss and 40% short-term capital loss
because it is attributable to the section 1256 contract.
(c)Effective/applicability date.The
rules of this section apply to all section
1092(b)(2) identified mixed straddles es-
tablished after August 1, 2013.
(d)Expiration date. The applicability
of this section expires on August 1, 2016.
Beth Tucker,
Deputy Commissioner for
Operations Support.
August 26, 20131572013–35 I.R.B.

Approved June 16, 2013.Mark J. Mazur,
Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on August 1,
2013, 8:45 a.m., and published in the issue of the Federal
Register for August 2, 2013, 78 F.R. 46807)
2013–35 I.R.B.158August 26, 2013

Part III. Administrative, Procedural, and Miscellaneous
Update for Weighted Average
Interest Rates, Yield Curves,
and Segment Rates
Notice 2013–52
This notice provides guidance on the
corporate bond monthly yield curve (and
the corresponding spot segment rates), and
the 24-month average segment rates under
§ 430(h)(2) of the Internal Revenue Code.
In addition, this notice provides guidance
as to the interest rate on 30-year Trea-
sury securities under § 417(e)(3)(A)(ii)(II)
as in effect for plan years beginning be-
fore 2008, the 30-year Treasury weighted
average rate under § 431(c)(6)(E)(ii)(I),
and the minimum present value segment
rates under § 417(e)(3)(D) as in effect for
plan years beginning after 2007. These
rates reflect certain changes implemented
by the Moving Ahead for Progress in the
21st Century Act, Public Law 112–141
(MAP–21). MAP–21 provides that for
purposes of § 430(h)(2), the segment rates
are limited by the applicable maximum
percentage or the applicable minimum per-
centage based on the average of segment
rates over a 25 year period.
YIELD CURVE AND SEGMENT
RATES
Generally, except for certain plans
under sections 104 and 105 of the Pen-
sion Protection Act of 2006, § 430 of
the Code specifies the minimum funding
requirements that apply to single em-
ployer plans pursuant to § 412. Section
430(h)(2) specifies 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 using three 24-month average
interest rates (“segment rates”), each of
which applies to cash flows during speci-
fied periods. To the extent provided under
§ 430(h)(2)(C)(iv), these segment rates are
adjusted by the applicable percentage of
the 25-year average segment rates for the
period ending September 30 of the year
preceding the calendar year in which the
plan year begins. However, an election
may be made under § 430(h)(2)(D)(ii) to
use the monthly yield curve in place of the
segment rates.
Notice 2007–81, 2007–44 I.R.B. 899,
provides guidelines for determining the
monthly corporate bond yield curve, and
the 24-month average corporate bond
segment rates used to compute the tar-
get normal cost and the funding target.
Pursuant to Notice 2007–81, the monthly
corporate bond yield curve derived from
July 2013 data is in Table I at the end
of this notice. The spot first, second,
and third segment rates for the month of
July 2013 are, respectively, 1.34, 4.45,
and 5.44. For plan years beginning on
or after January 1, 2012, the 24-month
average segment rates determined under
§ 430(h)(2)(C)(iv) must be adjusted by
the applicable percentage of the corre-
sponding 25-year average segment rates.
The 25-year average segment rates for
plan years beginning in 2012 and for plan
years beginning in 2013 were published
in Notice 2012–55, 2012–36 I.R.B. 332
and Notice 2013–11, 2013–11 I.R.B. 610,
respectively. The three 24-month average
corporate bond segment rates applicable
for August 2013 without adjustment, and
the adjusted 24-month average segment
rates taking into account the applicable
percentages of the corresponding 25-year
average segment rates, are as follows:
24-Month Average Segment Rates
Not Adjusted
Adjusted 24-Month Average
Segment Rates, Based on Applicable
Percentage of 25-Year Average Rates
For Plan
Years
Beginning
In
Applicable
Month
First
Segment
Second
Segment
Third
Segment
First
Segment
Second
Segment
Third
Segment
2012August20131.39
4.055.085.546.857.52
2013August20131.39
4.055.08
4.94
6.15
6.76
30-YEAR TREASURY SECURITIES
INTEREST RATES
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
during the four-year period ending on the
last day before the beginning of the plan
year. Notice 88–73, 1988–2 C.B. 383,
provides guidelines for determining the
weighted average interest rate. The rate
of interest on 30-year Treasury securities
for July 2013 is 3.61 percent. The Service
has determined this rate as the average
of the daily determinations of yield on
the 30-year Treasury bond maturing in
May 2043. The following rates were de-
termined for plan years beginning in the
month shown below.
August 26, 20131592013–35 I.R.B.

For Plan Years
Beginning inPermissible Ran
ge
MonthYear
30-Year
Treasury
Weighted
Average90%to105%
August20133.433.093.60
MINIMUM PRESENT
VALUE
SEGMENT RATES
In general, the
applicable interest rates
under § 417(e)(
3)(D) are segment rates
computed withou
t regard to a 24-month
average. Notic
e 2007–81 provides guide-
lines for deter
mining the minimum present
value segment r
ates. Pursuant to that no-
tice, the minim
um present value segment
rates determine
d for July 2013 are as fol-
lows:
First
Segment
Second
Segment
Third
Segment
1.34
4.455.44
DRAFTING INFORMATION
The principal author of this notice is
Tony Montanaro of the Employee Plans,
Tax Exempt and Government Entities
Division. Mr. Montanaro may be e-mailed
atRetirementPlanQuestions@irs.gov.
2013–35 I.R.B.160August 26, 2013

Table I
Monthly Yield Curve for July 2013
Derived from July 2013 Data
Maturity YieldMaturity YieldMaturity YieldMaturity YieldMaturity Yield
0.5
0.32
20.55.2440.55.4660.55.5580.55.59
1.0
0.55
21.0
5.25
41.0
5.47
61.0
5.55
81.0
5.59
1.5
0.77
21.55.2641.55.4761.55.5581.55.59
2.01.0022.0
5.27
42.0
5.47
62.0
5.55
82.0
5.60
2.5
1.22
22.55.2742.55.4862.55.5682.55.60
3.01.4523.05.2843.05.4863.05.5683.05.60
3.5
1.67
23.55.2943.55.4863.55.5683.55.60
4.01.9024.0
5.30
44.0
5.48
64.0
5.56
84.0
5.60
4.5
2.13
24.55.3044.55.4964.55.5684.55.60
5.02.3525.05.3145.05.4965.05.5685.05.60
5.52.5725.55.3245.55.4965.55.5685.55.60
6.02.7926.05.3246.05.4966.05.5686.05.60
6.5
3.01
26.55.3346.55.5066.55.5786.55.60
7.03.2127.0
5.34
47.0
5.50
67.0
5.57
87.0
5.60
7.5
3.41
27.55.3447.55.5067.55.5787.55.60
8.03.6028.0
5.35
48.0
5.50
68.0
5.57
88.0
5.60
8.5
3.94
28.55.3548.55.5168.55.5788.55.61
9.04.0929.05.3649.05.5169.05.5789.05.61
9.5
4.23
29.55.3749.55.5169.55.5789.55.61
10.0
4.35
30.0
5.3750.05.51
70.0
5.57
90.0
5.61
10.5
4.47
30.55.3850.55.5270.55.5790.55.61
11.0
4.57
31.0
5.3851.05.52
71.0
5.58
91.0
5.61
11.5
4.66
31.55.3951.55.5271.55.5891.55.61
12.04.7432.05.3952.05.5272.05.5892.05.61
12.5
4.10
32.55.4052.55.5272.55.5892.55.61
13.04.8133.0
5.4053.05.53
73.0
5.58
93.0
5.61
13.5
4.88
33.55.4153.55.5373.55.5893.55.61
14.04.9334.0
5.4154.05.53
74.0
5.58
94.0
5.61
14.5
4.98
34.55.4254.55.5374.55.5894.55.61
15.05.0235.05.4255.05.5375.05.5895.05.61
15.55.0635.55.4355.55.5375.55.5895.55.61
16.0
5.09
36.0
5.4356.05.54
76.0
5.59
96.0
5.61
16.55.1136.55.4456.55.5476.55.5996.55.62
17.0
5.14
37.0
5.4457.05.54
77.0
5.59
97.0
5.62
17.55.1637.55.4457.55.5477.55.5997.55.62
18.05.1838.05.4558.05.5478.05.5998.05.62
18.55.1938.55.4558.55.5478.55.5998.55.62
19.0
5.21
39.0
5.4559.05.55
79.0
5.59
99.0
5.62
19.55.2239.55.4659.55.5579.55.5999.55.62
20.0
5.23
40.0
5.46
60.0
5.55
80.0
5.59
100.0
5.62
August 26, 20131612013–35 I.R.B.

Part IV. Items o
fGeneralInterest
Notice of Prop
osed
Rulemaking an
dNoticeof
Public Hearin
g
Mixed Straddl
es;
Straddle-by
-Straddle
Identificat
ion Under Section
1092(b)(2)
(A)(i)(I)
REG–112815
–12
AGENCY: Int
ernal Revenue Service
(IRS), Trea
sury.
ACTION: Not
ice of proposed rulemaking
by cross-re
ference to temporary regula-
tions and no
tice of public hearing.
SUMMARY: In
this issue of the Bulletin,
the Treasur
y Department and the IRS are
issuing te
mporary regulations that ex-
plain how t
o account for unrealized gain
or loss on a
position held by a taxpayer
prior to th
e time the taxpayer establishes a
mixed stra
ddle using straddle-by-straddle
identifi
cation. The text of the temporary
regulati
ons also serves as the text of these
proposed
regulations. This document also
provides
notice of a public hearing on
these pro
posed regulations.
DATES: Co
mments must be received by
October
31, 2013. Requests to speak and
outline
s of topics to be discussed at the
public h
earing scheduled for December 4,
2013, at
10 a.m. must be received by Oc-
tober 31
, 2013.
ADDRESS
ES: Send submissions to:
CC:PA:L
PD:PR(REG–112815–12),
room 52
05, Internal Revenue Ser-
vice, P
O Box 7604, Ben Franklin Sta-
tion, W
ashington, DC 20044. Submis-
sions m
ay be hand-delivered Monday
throug
h Friday between the hours of 8
a.m. a
nd4p.m. toCC:PA:LPD:PR
(REG–
112815–12), Courier’s Desk, Inter-
nal Re
venue Service, 1111 Constitution
Avenu
e, NW., Washington, DC, or sent
elect
ronically via the Federal eRulemak-
ing Po
rtal atwww.regulations.gov(IRS
REG–
112815–12).
FOR F
URTHER INFORMATION
CONT
ACT: Concerning the proposed
regulations,
Elizabeth M. Bouzis or
Robert B. Will
iams at (202) 622–3950;
concerning su
bmissions of comments,
the hearing, a
nd/or to be placed on the
building acce
ss list to attend the hearing,
Oluwafunmil
ayo Taylor, (202) 622–7180
(not toll-fr
ee numbers).
SUPPLEMENTA
RY INFORMATION:
Background a
nd Explanation of
Provisions
Temporary r
egulations in this issue
of the Bulle
tin amend the Income Tax
Regulation
s (26 CFR part 1) relating
to section 1
092(b). First, the tempo-
rary regula
tions limit the application of
§1.1092(b)
–3T(b)(6) to section 1092(b)(2)
identifie
d mixed straddles established on
or before A
ugust 1, 2013. Second, a
new §1.109
2(b)–6T provides that unre-
alized gai
n and loss on a position held
prior to e
stablishing a section 1092(b)(2)
identifi
ed mixed straddle is taken into
account a
t the time and has the charac-
ter provi
ded by provisions of the Internal
Revenue
Code (Code) that would ap-
ply if th
e section 1092(b)(2) identified
mixed st
raddle had not been established.
Section
1.1092(b)–6T applies to section
1092(b)
(2) identified mixed straddles es-
tablis
hed after August 1, 2013. The text
of the t
emporary regulations also serves as
the tex
t of these proposed regulations.
Specia
l Analyses
It has b
een determined that this notice
of prop
osed rulemaking is not a signifi-
cant re
gulatory action as defined in Ex-
ecuti
ve Order 12866, as supplemented by
13563
. Therefore, a regulatory assessment
is not
required. It also has been deter-
mined
that section 553(b) of the Adminis-
trati
ve Procedure Act (5 U.S.C. chapter 5)
does
not apply to these regulations, and be-
caus
e the regulations do not impose a col-
lect
ion of information on small entities, the
Regu
latory Flexibility Act (5 U.S.C. chap-
ter 6
) does not apply. Pursuant to section
7805
(f) of the Internal Revenue Code, this
not
ice of proposed rulemaking has been
sub
mitted to the Chief Counsel for Advo-
cac
y of the Small Business Administration
for comment on
its impact on small busi-
nesses.
Comments and P
ublic Hearing
Before these p
roposed regulations are
adopted as fin
al regulations, consideration
will be given t
o any comments that are sub-
mitted timel
y to the IRS as prescribed in
the preamble
under the “Addresses” head-
ing. The Trea
sury Department and the IRS
welcome comm
ents on this proposed reg-
ulation. All
comments will be available at
www.regula
tions.gov
or upon request.
A public hea
ring has been scheduled for
December 4,
2013, beginning at 10 a.m.
in the Audit
orium of the Internal Revenue
Service Bui
lding, 1111 Constitution Av-
enue,NW.,W
ashington, DC. Due to build-
ing securi
ty procedures, visitors must enter
at the Cons
titution Avenue entrance. In ad-
dition, al
l visitors must present photo iden-
tificatio
n to enter the building. Because
of access
restrictions, visitors will not be
admitted
beyond the immediate entrance
area more
than 30 minutes before the hear-
ing start
s. For information about having
your name
placed on the building access
list to a
ttend the hearing, see the “FOR
FURTHER
INFORMATION CONTACT”
section
of this preamble.
The rule
s of 26 CFR 601.601(a)(3) ap-
plytoth
ehearing. Personswhowishto
present
oral comments at the hearing must
submit w
ritten comments and an outline of
the top
ics to be discussed and the time to be
devote
d to each topic by October 31, 2013.
Submit
a signed paper original and eight
(8) cop
ies or an electronic copy. A pe-
riod of
10 minutes will be allotted to each
perso
n for making comments. An agenda
showi
ng the scheduling of the speakers
will b
e prepared after the deadline for re-
ceivi
ng outlines has passed. Copies of the
agend
awillbeavailablefreeofchargeat
the h
earing.
Draf
ting Information
The p
rincipal author of these regu-
lati
ons is Elizabeth M. Bouzis, Office
of As
sociate Chief Counsel (Financial
Inst
itutions and Products). However,
othe
r personnel from the Treasury
Depa
rtment and the IRS participated in
the
ir development.
2013–35 I.R.B.162August 26, 2013

*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding entries in nu-
merical order to read as follows:
Authority: 26 U.S.C. 7805* * *
Section 1.1092(b)–6 also issued under
26 U.S.C. 1092(b)(1).
Section 1.1092(b)–6 also issued under
26 U.S.C. 1092(b)(2).* * *
Par. 2. Section 1.1092(b)–3 is added to
read as follows:
§1.1092(b)–3 Mixed straddles;
straddle-by-straddle identification
under section 1092(b)(2)(A)(i)(I).
[The text of the proposed amend-
ments to §1.1092(b)–3(b)(6) is the
same as the text for the amendments to
§1.1092(b)–3T(b)(6) published elsewhere
in this issue of the Bulletin].
Par. 3. Section 1.1092(b)–6 is added to
read as follows:
§1.1092(b)–6 Mixed straddles; accrued
gain and loss associated with a
position that becomes part of a section
1092(b)(2) identified mixed straddle that
is established after August 1, 2013.
[The text of §1.1092(b)–6 is the same
as the text for §1.1092(b)–6T published
elsewhere in this issue of the Bulletin].
Beth Tucker,
Deputy Commissioner for
Operations Support.
(Filed by the Office of the Federal Register on August 1,
2013, 8:45 a.m., and published in the issue of the Federal
Register for August 2, 2013, 78 F.R. 46854)
Notice of Proposed
Rulemaking and Notice of
Public Hearing
Controlled Group Regulation
Examples
REG–114122–12
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
SUMMARY: This document proposes re-
visionstoexamplesthatillustratethecon-
trolled group rules related to regulated in-
vestment companies (RICs). These pro-
posed revisions resolve an issue with how
the controlled group rules should be ap-
plied in connection with the RIC “asset
diversification” test. This document also
provides notice of a public hearing on the
proposed regulations.
DATES: Written or electronic comments
must be received by October 31, 2013. Re-
quests to speak and outlines of topics to be
discussed at the public hearing scheduled
for December 9, 2013, at 10 a.m., must be
received by October 31, 2013.
ADDRESSES: Send submissions to
CC:PA:LPD:PR (REG–114122–12), room
5203, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may be
hand delivered Monday through Friday
betweenthehoursof8a.m. and4p.m.
to CC:PA:LPD:PR (REG–114122–12),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, N.W.,
Washington, DC, or sent electronically,
via the Federal eRulemaking Portal at
www.regulations.gov(indicate IRS and
REG–114122–12). The public hearing
will be held in the Auditorium, beginning
at 10 a.m., at the Internal Revenue
Service, 1111 Constitution Avenue, N.W.,
Washington, DC 20224.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed reg-
ulation, Julanne Allen at (202) 622–3920;
concerning submissions of comments, the
public hearing, and/or to be placed on the
building access list to attend the public
hearing, Oluwafunmilayo (Funmi) Taylor
at (202) 622–7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed
amendments to the Income Tax Regu-
lations (26 CFR part 1) relating to the
application of the “controlled group” rules
found in section 851(c) of the Internal Rev-
enue Code of 1986, as amended (Code).
Section 851(b)(3)(B) provides that, to
qualify as a RIC, a taxpayer must meet an
asset diversification test pursuant to which
not more than 25 percent of the value of the
taxpayer’s total assets may be invested in
(i) the securities (other than Government
securities or the securities of other regu-
lated investment companies) of any one is-
suer, (ii) the securities (other than the secu-
rities of other regulated investment compa-
nies) of two or more issuers which the tax-
payer controls and which are determined,
under regulations prescribed by the Sec-
retary,tobeengagedinthesameorsim-
ilar trades or businesses or related trades
or businesses, or (iii) the securities of one
or more qualified publicly traded partner-
ships (as defined in section 851(h)).
The controlled group rules in section
851(c) provide that, when ascertaining the
value of a taxpayer’s investment in the se-
curities of a particular issuer for purposes
of determining whether the asset diversifi-
cation test has been met, the proportion of
any investment in the securities of such is-
suer by a member of the taxpayer’s “con-
trolled group” should be aggregated with
the taxpayer’s investment in such issuer,
as determined under regulations. Section
851(c)(3) defines a controlled group as one
or more chains of corporations connected
through stock ownership with the taxpayer
if—(i) 20 percent or more of the total com-
bined voting power of all classes of stock
entitled to vote of each of the corporations
(except the taxpayer) is owned directly by
one or more of the other corporations; and
(ii) the taxpayer owns directly at least 20
percent or more of the total combined vot-
ing power of all classes of stock entitled
to vote of at least one of the other cor-
porations. Clarification is needed regard-
ing whether a RIC and its controlled sub-
sidiary are a controlled group if the sub-
sidiary does not control (within the mean-
August 26, 20131632013–35 I.R.B.

ing of section 851(c)(2)) at least one other
corporation.
The definition of a controlled group for
purposes of the RIC rules was first enacted
in 1942 and appears to have been modeled
on the definition of an “affiliated group” in
the predecessor to current section 1504(a).
The predecessor to current section 1504(a)
used language nearly identical, save for
different ownership thresholds, to the def-
inition of controlled group for purposes of
the RIC rules.SeeHR Rep. No. 2333,
77
th
Cong., 2
nd
Sess. 122 (1942), 1942–2
C.B. 372, 462–63;see alsoThe Revenue
Act of 1928, ch. 852,sec. 141(d), 45 Stat.
791, 831 (1928) (enacting the predecessor
to section 1504(a)). The current regula-
tions under section 851 include a series of
examples, two of which reproduce, nearly
verbatim, examples contained in the 1942
legislative history. See §1.851–5,Exam-
ples 3and4. Some practitioners have in-
terpreted section 851(c)(3) to require the
presence of two levels of controlled en-
tities for a controlled group to exist, and
have relied on certain of the examples in
the regulations, and the 1942 legislative
history, to support this interpretation. The
IRS and the Treasury Department believe
that this interpretation is unwarranted. Ac-
cordingly, through revisions to the exist-
ing examples, these proposed regulations
clarify that two corporations constitute a
controlled group if the ownership require-
ments of section 851(c)(3) are met.
The IRS and the Treasury Depart-
ment believe that the interpretation of
the controlled group rules reflected in
these proposed regulations is consistent
both with the statutory language of sec-
tion 851(c)(3) and the interpretation of
analogous Code provisions. For example,
for purposes of the consolidated return
rules, the IRS has consistently treated a
parent and its directly owned subsidiary
as “affiliated” within the meaning of sec-
tion 1504(a)(1) regardless of whether the
subsidiary controlled another subsidiary.
Likewise, in limiting certain tax benefits
for affiliated corporations, the IRS treats a
parent and its subsidiary as a “controlled
group” under section 1563, which uses
language similar to section 1504(a), re-
gardless of whether the subsidiary controls
another entity.Seesection 1563(a)(1)
and §1.1563–1(a)(2)(ii), Example 1. The
interpretation reflected in these proposed
regulations is also consistent with the
purpose of section 851(c)(3), which is
to aggregate the investments of related
corporations for purposes of the asset di-
versification test.
The IRS and the Treasury Department
believe that the language in the examples
in the existing regulations and in the 1942
legislative history was intended merely to
simplify the description of certain fact pat-
terns, and not to articulate a legal inter-
pretation that is inconsistent with the con-
struction of substantially similar language
elsewhere in the Code and that is unsup-
ported by practical or policy considera-
tions grounded in the statutory scheme.
Explanation of Provisions
The proposed regulations update exam-
ples in existing §1.851–5. The controlled
group rules of section 851(c) prevent a RIC
from exceeding the limitations set forth in
section 851(b)(3) by indirectly investing in
the securities of an issuer through a sub-
sidiary. This update clarifies the controlled
group rules and confirms that they are ap-
plied in a manner consistent with sections
1504 and 1563.
First, the proposed changes to the regu-
lations clarify the two examples that have
caused confusion. In Example 1, addi-
tional language would clarify which en-
tities in the example are members of a
controlled group. Currently, the example
states that none of the subsidiaries of the
RIC in the example is a member of a con-
trolled group. The IRS and the Treasury
Department believe that this statement was
intended merely to indicate that none of
the wholly owned subsidiaries in the ex-
ample controlled another subsidiary. Con-
sistent with the statutory language of sec-
tion 851(c)(3), the proposed regulations
would clarify that each of the RIC’s wholly
owned subsidiaries is a member of a con-
trolled group with the RIC.
Example 4, which is derived from the
legislative history of section 851(c)(3), is
revised to remove references to ownership
by controlled group members of greater
than 20 percent interests in an issuer. The
existing language has sometimes been
misinterpreted to mean that in order for
a subsidiary’s holdings in an issuer to be
aggregated with the holdings of the parent
RIC, the subsidiary must have a control-
ling interest in the issuer. The proposed
revision to Example 4 would ensure that
Example 4 is applied in a manner consis-
tent with the statutory language of section
851(c)(3).
Second, the proposed changes would
add a new example to illustrate both
the mechanics of the controlled group
rules as applied to wholly owned sub-
sidiaries and the application of section
851(b)(3)(B)(iii)’s rule with respect to
securities of qualified publicly traded part-
nerships.
Third, the proposed changes would up-
date the dates used in the examples (1955)
to the current year (2013 or 2014, where
appropriate) and would update references
from section 851(b)(4) to refer instead to
section 851(b)(3). Section 1271(b)(1) of
The Taxpayer Relief Act of 1997, Public
Law 105–34 (111 Stat. 788, 1063 (1997)),
redesignated section 851(b)(4) as section
851(b)(3).
Finally, for additional clarity, these pro-
posed regulations would add citations to
section 851(d)(1) inExamples 5and6.
Proposed Effective Date
The proposed changes apply to quarters
that begin at least 90 days after the date of
publication in theFederal Registerof a
Treasury decision adopting these rules as
final 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, as supplemented by Execu-
tive Order 13563. Therefore, a regulatory
assessment 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 this regulation,
and because the regulation does not im-
pose a collection of information on small
entitles, the Regulatory Flexibility Act (5
U.S.C. chapter 6) does not apply. Pursuant
to section 7805(f) of the Code, this no-
tice of proposed rulemaking has been sub-
mitted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on its impact on small business.
Comments and Public Hearing
Before this proposed regulation is
adopted as a final regulation, considera-
tion will be given to any written (a signed
2013–35 I.R.B.164August 26, 2013

original and eight (8) copies) or electronic
comments that are submitted to the IRS.
The IRS and the Treasury Department
request comments on all aspects of the
proposed examples. All comments will be
available for publicinspection and copy-
ing.
A public hearing has been scheduled for
December 9, 2013, beginning at 10:00 a.m.
in the IRS Auditorium, Internal Revenue
Service, 1111 Constitution Avenue, N.W.,
Washington, DC 20224. Due to building
security procedures, visitors must enter at
the Constitution Avenue entrance. In addi-
tion, all visitors must present photo iden-
tification to enter the building. Because
of access restrictions, visitors will not be
admitted beyond the immediate entrance
area more than 15 minutes before the hear-
ing starts. For information about having
your name placed on the building access
list to attend the hearing, see the “FOR
FURTHER INFORMATION 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 written or electronic com-
ments by October 31, 2013 and an out-
line of the topics to be discussed and the
time to be devoted to each topic (signed
original and eight (8) copies) by October
31, 2013. 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 this notice is
Julanne Allen of the Office of Associate
Chief Counsel (Financial Institutions
& Products). For further information
regarding this notice contact Julanne Allen
at (202) 622–3920 (not a toll-free call).
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.851–5 also issued under 26
U.S.C. 851(c)
Par. 2. Section 1.851–5 is revised to
read as follows:
§1.851—5 Examples.—The provisions
of section 851 may be illustrated by the
following examples:
(a)Example 1.Investment Company W at the
close of its first quarter of its taxable year has its as-
sets invested as follows:
Percent
Cash
5
Government securities10
Securities of regulated investment companies20
Securities of Corporation A10
Securities of Corporation B
15
Securities of Corporation C20
Securities of various corporations (not exceeding 5 percent of its assets in any one company)
2
0
Total100
Investment Company W owns all of the voting
stock of Corporations A and B, 15 percent of the vot-
ing stock of Corporation C, and less than 10 percent of
the voting stock of regulated investment companies
and various other corporations. Neither Corporation
A nor Corporation B owns (i) 20 percent or more of
the voting stock of any other corporation, (ii) securi-
ties issued by Corporation C, or (iii) securities issued
by any of the regulated investment companies or var-
ious corporations whose securities are owned by In-
vestment Company W. Except for Corporation A and
Corporation B, none of the corporations (including
the regulated investment companies) is a member of
a controlled group with Investment Company W.
Investment Company W meets the requirements
under section 851(b)(3) at the end of its first quar-
ter. It complies with subparagraph (A) of section
851(b)(3) because it has 55 percent of its assets in-
vested as provided in that subparagraph. It complies
with subparagraph (B) of section 851(b)(3) because
it does not have more than 25 percent of its assets in-
vested in the securities of any one issuer, of two or
more issuers that it controls, or of one or more qual-
ified publicly traded partnerships (as defined in sec-
tion 851(h)).
Example 2.Investment Company V at the close
of a particular quarter of the taxable year has its assets
invested as follows:
Percent
Cash10
Government securities
35
Securities of Corporation A
7
Securities of Corporation B12
Securities of Corporation C
15
Securities of Corporation D2
1
Total100
Investment Company V fails to meet the require-
ments of subparagraph (A) of section 851(b)(3) since
its assets invested in Corporations A, B, C, and D ex-
ceed in each case 5 percent of the value of the total
assets of the company at the close of the particular
quarter.
Example 3. Investment Company X at the close
of the particular quarter of the taxable year has its
assets invested as follows:
August 26, 20131652013–35 I.R.B.

Percent
Cash and Government securities20
Securities of Corporation A
5
Securities of Corporation B10
Securities of Corporation C
25
Securities of various corporations (not exceeding 5 percent of its assets in any one company)
4
0
Total100
Investment Company X owns more than 20 per-
cent of the voting power of Corporations B and C
and less than 10 percent of the voting power of all
of the other corporations. Corporation B manufac-
tures radios and Corporation C acts as its distributor
and also distributes radios for other companies. In-
vestment Company X fails to meet the requirements
of subparagraph (B) of section 851(b)(3) since it has
35 percent of its assets invested in the securities of
two issuers which it controls and which are engaged
in related trades or businesses.
Example 4.Investment Company Y at the close
of a particular quarter of its taxable year has its assets
invested as follows:
Percent
Cash and Government securities
15
Securities of Corporation K (a regulated investment company)30
Securities of Corporation A10
Securities of Corporation B20
Securities of various corporations (not exceeding 5 percent of its assets in any one company)2
5
Total100
Corporation K has 20 percent of its assets in-
vested in Corporation L, and Corporation L has 40
percent of its assets invested in Corporation B. Cor-
poration A also has 30 percent of its assets invested
in Corporation B. Investment Company Y owns more
than 20 percent of the voting power of Corporations
A and K. Corporation K owns more than 20 percent
of the voting power of Corporation L.
At the end of that quarter, Investment Company Y
is disqualified under subparagraph (B)(i) of section
851(b)(3) because, after applying section 851(c)(1),
more than 25 percent of the value of Investment Com-
pany Y’s total assets is invested in the securities of
Corporation B. This result is shown by the following
calculation:
Percent
Percentage of assets invested directly in Corporation B20.0
Percentage invested through K and L (30% x 20% x 40%)2.4
Percentage invested indirectly through A (10% x 30%)3
.0
Total percentage of assets of Investment Company Y invested in Corporation B
25.4
Example 5.Investment Company Z, which keeps
its books and makes its returns on the basis of the cal-
endar year, at the close of the first quarter of 2013
meets the requirements of section 851(b)(3) and has
20 percent of its assets invested in Corporation A.
Later during the taxable year it makes distributions
to its shareholders and because of such distributions,
it finds at the close of the taxable year that it has more
than 25 percent of its remaining assets invested in
Corporation A. Investment Company Z does not lose
its status as a regulated investment company for the
taxable year 2013 because of such distributions, nor
will it lose its status as a regulated investment com-
pany for 2014 or any subsequent year solely as a re-
sult of such distributions. See section 851(d)(1).
Example 6.Investment Company Q, which keeps
its books and makes its returns on the basis of a cal-
endar year, at the close of the first quarter of 2013,
meets the requirements of section 851(b)(3) and has
20 percent of its assets invested in Corporation P. At
the close of the taxable year 2013, it finds that it has
more than 25 percent of its assets invested in Corpo-
ration P. This situation results entirely from fluctua-
tions in the market values of the securities in Invest-
ment Company Q’s portfolio and is not due in whole
or in part to the acquisition of any security or other
property. Corporation Q does not lose its status as
a regulated investment company for the taxable year
2013 because of such fluctuations in the market val-
ues of the securities in its portfolio, nor will it lose its
status as a regulated investment company for 2014 or
any subsequent year solely as a result of such market
value fluctuations. See section 851(d)(1).
Example 7.Investment Company T at the close
of a particular quarter of its taxable year has its assets
invested as follows:
Percent
Cash and Government securities40
Securities of Corporation A20
Securities of various qualified publicly traded partnerships (within the meaning of sections 851(b)(3) and 851(h))15
Securities of various corporations (not exceeding 5 percent of its assets in any one company)2
5
Total100
Investment Company T owns more than 20 per-
cent of the voting power of Corporation A and less
than 10 percent of the voting power of all of the other
corporations. Corporation A has 80 percent of its as-
sets invested in qualified publicly traded partnerships.
Investment Company T is disqualified under sub-
paragraph (B)(iii) of section 851(b)(3), because, af-
ter applying section 851(c)(1), more than 25 percent
of the value of Investment Company T’s total assets
is invested in the securities of one or more qualified
publicly traded partnerships. This result is shown by
the following calculation:
2013–35 I.R.B.166August 26, 2013

Percent
Percentage of assets invested directly in qualified publicly traded partnerships
15.0
Percentage invested in qualified publicly traded partnerships indirectly through A (20% x 80%)1
6.0
Total percentage of assets of Investment Company T invested in qualified publicly traded
partnerships
31.0
(b)Effective/applicability date.The
proposed revisions apply to quarters that
begin at least 90 days after the date of pub-
lication of the Treasury decision adopting
these rules as a final regulation in theFed-
eral Register.
Beth Tucker,
Deputy Commissioner for
Operations Support.
(Filed by the Office of the Federal Register on August 1,
2013, 8:45 a.m., and published in the issue of the Federal
Register for August 2, 2013, 78 F.R. 46851)
Guidance Regarding Deferred
Discharge of Indebtedness
Income of Corporations
and Deferred Original
Issue Discount Deductions;
Correction
Announcement 2013–39
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Correcting amendments.
SUMMARY: This document contains cor-
rections to final regulations and removal
of temporary regulations (TD 9622) that
were published in theFederal Regis-
teron Wednesday, July 3, 2013 (78 FR
39984). The final regulations provide
necessary guidance regarding the accel-
erated inclusion of deferred discharge of
indebtedness (also known as cancellation
of debt (COD)) income (deferred COD
income) and the accelerated deduction
of deferred originalissue discount (OID)
(deferred OID deductions) under section
108(i)(5)(D) (acceleration rules), and the
calculation of earnings and profits as a
result of an election under section 108(i).
In addition, these regulations provide
rules applicable to all taxpayers regarding
deferred OID deductions under section
108(i) as a result of a reacquisition of an
applicable debt instrument by an issuer or
related party.
DATES: This correction is effective on
August 9, 2013, and is applicable on or af-
ter July 2, 2013.
FOR FURTHER INFORMATION
CONTACT: Robert M. Rhyne, at (202)
622–7790 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The final regulations and removal of
temporary regulations (TD 9622) that are
the subject of this correction are under sec-
tion 108(i) of the Internal Revenue Code.
Need for Correction
As published, the final regulations and
removal of temporary regulations (TD
9622) contains errors that may prove to be
misleading and are in need of clarification.
*****
Correction of Publication
Accordingly, 26 CFR part 1 is cor-
rected by making the following correcting
amendments:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805***
Par. 2. Section1.108(i)–0isamended
by revising paragraph (b) to read as fol-
lows:
§ 1.108(i)–0 Definitions and
effective/applicability dates.
*****
(b)Effective/Applicability dates—(1)
In general. The rules of this section,
§ 1.108(i)–1, and § 1.108(i)–2, apply on
or after July 2, 2013, to reacquisitions
of applicable debt instruments in taxable
years ending afterDecember 31, 2008. In
addition, the rules of § 1.108(i)–3 apply on
or after July 2, 2013, to debt instruments
issued after December 31, 2008, in con-
nection with reacquisitions of applicable
debt instruments in taxable years ending
after December 31, 2008.
(2)Prior periods. For rules applying
before July 2, 2013, see § 1.108(i)–0T,
§ 1.108(i)–1T, § 1.108(i)–2T, and
§ 1.108(i)–3T, as contained in 26 CFR part
1, revised April 1, 2013.
Par. 3. Section 1.108(i)–1 is amended
by revising the third and fourth sentences
of paragraph (b)(2)(iii)(D), and the fifth
and seventh sentences of paragraph (c)Ex-
ample 3(ii) to read as follows:
§1.108(i)–1Deferreddischargeof
indebtedness income and deferred
original issue discount deductions of C
corporations.
*****
(b) * * *
(2) * * *
(iii) * * *
(D) * * * Appropriate adjustments must
be made to take into account any issuances
or redemptions of stock, or similar transac-
tions, occurring during the taxable year of
distribution or any of the preceding three
taxable years. If the electing corporation
has a short taxable year for the year of
the distribution or for any of the preceding
three taxable years,the amounts are deter-
mined on an annualized basis. * **
*****
(c) * * *
Example 3.***
(ii)***However,underparagraph(b)(2)(iii)(A)
of this section, S’s distribution to P is an impairment
transaction and the net value acceleration rule is ap-
plied with respect to the assets, liabilities, and de-
ferred items of P (S’s successor). Immediately fol-
lowing the distribution, P’s gross asset value of $100
is less than the net value floor of $220 [110% x ($60
+ $140)]. Accordingly, under the net value accel-
eration rule of paragraph (b)(2)(iii)(A) of this sec-
tion, S is required to take into account its $400 of
deferred COD income immediately before the distri-
bution, unless value is restored to P pursuant to para-
graph (b)(2)(iii)(C) of this section.
*****
August 26, 20131672013–35 I.R.B.

Martin V. Franks,
Chief,
Publications & Regulations Branch,
Legal Processing Division,
Associate Chief Counsel
(Procedure & Administration).
(Filed by the Office of the Federal Register on August 8,
2013, 8:45 a.m., and published in the issue of the Federal
Register for August 9, 2013, 78 F.R. 48606)
2013–35 I.R.B.168August 26, 2013

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.
August 26, 2013i2013–35 I.R.B.

Numerical Finding List
1
Bulletins 2013–27 through 2013–35
Announcements:
2013-35, 2013-27 I.R.B.46
2013-36, 2013-33 I.R.B.142
2013-37, 2013-34 I.R.B.155
2013-39, 2013-35 I.R.B.167
Notices:
2013-41, 2013-29 I.R.B.60
2013-42, 2013-29 I.R.B.61
2013-43, 2013-31 I.R.B.113
2013-44, 2013-29 I.R.B.62
2013-45, 2013-31 I.R.B.116
2013-46, 2013-31 I.R.B.117
2013-47, 2013-31 I.R.B.120
2013-48, 2013-31 I.R.B.120
2013-49, 2013-32 I.R.B.127
2013-50, 2013-32 I.R.B.133
2013-51, 2013-34 I.R.B.153
2013-52, 2013-35 I.R.B.159
Proposed Regulations:
REG-112815-12, 2013-35 I.R.B.162
REG-114122-12, 2013-35 I.R.B.163
REG-140789-12, 2013-32 I.R.B.136
Revenue Procedures:
2013-28, 2013-27 I.R.B.28
2013-29, 2013-33 I.R.B.141
2013-32, 2013-28 I.R.B.55
Revenue Rulings:
2013-13, 2013-32 I.R.B.124
2013-15, 2013-28 I.R.B.47
Treasury Decisions:
9620, 2013-27 I.R.B.1
9621, 2013-28 I.R.B.49
9622, 2013-30 I.R.B.64
9623, 2013-30 I.R.B.73
9624, 2013-31 I.R.B.86
9625, 2013-34 I.R.B.147
9626, 2013-34 I.R.B.149
9627, 2013-35 I.R.B.156
1
A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2013–1 through 2013–26 is in Internal Revenue Bulletin
2013–26, dated June 24, 2013.
2013–35 I.R.B.iiAugust 26, 2013

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2013–27 through 2013–35
Notices:
2012-74
Obsoleted by
Notice 2013-51, 2013-34 I.R.B.
153
2013-39
Amplified by
Notice 2013-47, 2013-31 I.R.B.
120
2013-40
Amplified by
Notice 2013-47, 2013-31 I.R.B.
120
Revenue Procedures:
81-60
Modified by
Rev. Proc. 2013-32, 2013-28 I.R.B.
55
83-59
Modified by
Rev. Proc. 2013-32, 2013-28 I.R.B.
55
86-42
Modified by
Rev. Proc. 2013-32, 2013-28 I.R.B.
55
90-52
Modified by
Rev. Proc. 2013-32, 2013-28 I.R.B.
55
96-30
Modified by
Rev. Proc. 2013-32, 2013-28 I.R.B.
55
2003-48
Obsoleted in part and superseded in part by
Rev. Proc. 2013-32, 2013-28 I.R.B.
55
2004-34
Modified and clarified by
Rev. Proc. 2013-29, 2013-33 I.R.B.
141
2007-44
Modified by
Ann. 2013-37, 2013-34 I.R.B.
155
2009-25
Pilot program discontinued by
Rev. Proc. 2013-32, 2013-28 I.R.B.
55
2011-18
Modified and clarified by
Rev. Proc. 2013-29, 2013-33 I.R.B.
141
2011-49
Modified by
Ann. 2013-37, 2013-34 I.R.B.
155
2012-25
Obsoleted in part by
Rev. Proc. 2013-28, 2013-27 I.R.B.
28
Revenue Procedures— Continued:
2013-1
Amplified and modified by
Rev. Proc. 2013-32, 2013-28 I.R.B.
55
2013-3
Amplified and modified by
Rev. Proc. 2013-32, 2013-28 I.R.B.
55
Treasury Decisions:
9612
Corrected by
Ann. 2013-35, 2013-27 I.R.B.
46
9622
Corrected by
Ann. 2013-39, 2013-35 I.R.B.
167
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2013–1 through 2013–26 is in Internal Revenue Bulletin 2013–26, dated June 24, 2013.
August 26, 2013iii2013–35 I.R.B.

INDEX
Internal Revenue Bulletins 27 through 35
The abbreviation and number in parenthesis following the index entry
refer to the specific item; numbers in roman and italic type following
the parentheses refer 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
Accommodations for nonprofit organizations with religious ob-
jections to providing contraceptive services (TD 9624) 31,86
Exemption for religious employers from the requirement to pro-
vide coverage for contraceptive services (TD 9624) 31,86
Qualified plans, determination letters (Ann 37) 34,155
Qualified plans, mortality tables (Notice 49) 32,127
Regulations:
26 CFR 54.9815–2713, added (certain preventive services un-
der the ACA) (TD 9624) 31,86
26 CFR 54.9815–2713A, added (certain preventive services
under the ACA) (TD 9624) 31,86
Weighted average interest rates:
Segment rates for:
July 2013 (Notice 46) 31,117
August 2013 (Notice 52) 35,159
Wellness regulations related to rewards, plan design, and alter-
natives to avoid prohibited discrimination (TD 9620) 27,1
EXCISE TAX
Accommodations for nonprofit organizations with religious ob-
jections to providing contraceptive services (TD 9624) 31,86
Branded prescription drugs (Notice 51) 34,153
Exemption for religious employers from the requirement to pro-
vide coverage for contraceptive services (TD 9624) 31,86
Indoor tanning services; excise taxes (TD 9621) 28,49
Regulations:
26 CFR 40.0–1 (amended); 40.6302(c)–1 (amended) (indoor
tanning services) (TD 9621) 28,49
26 CFR 54.9815–2713, added (certain preventive services un-
der the ACA) (TD 9624) 31,86
26 CFR 54.9815–2713A, added (certain preventive services
under the ACA) (TD 9624) 31,86
EXCISE TAX—Cont.
Transition relief for2014 under sections6055, 6056, and 4980H
(information reporting and employer shared responsibility pro-
visions) (Notice 45) 31,116
Wellness regulations related to rewards, plan design, and alter-
natives to avoid prohibited discrimination (TD 9620) 27,1
INCOME TAX
Action on Decision (AOD):
Media Space v. Commissioner 32,
Wilson v. Commissioner 32,
Advance payments, taxableyear of inclusion (RP 29) 33,141
Application of section 108(i) to partnerships and S corporations
(TD 9623) 30,73
Average area purchase price safe-harbor guidance for 2013 (RP
28) 27,28
Certain transfers of property to Regulated Investment Companies
(RICs) and Real Estate Investment Trusts (REITs) (TD 9626)
34,149
Croatian per se entity (Notice 44) 29,62
Deferred discharge of indebtedness income of corporations (TD
9622) 30,64
Deferred original issue discount deductions (TD 9622) 30,64
Disallowance of deductions, exception for reimbursed expenses
(TD 9625) 34,147
Disciplinary actionsinvolving attorneys,certified public accoun-
tants, enrolled agents, and enrolled actuaries (Ann 36) 33,142
Gift cards (RP 29) 33,141
Guidance regarding deferred discharge of indebtedness income
of corporations and deferred original issue discount deduc-
tions; correcting TD 9622 (Ann 39) 35,167
Interest:
Investment:
Federal short-term, mid-term, and long-term rates for:
July 2013 (RR 15) 28,47
August 2013 (RR 13) 32,124
Letter rulings that address issues presented in transactions de-
scribed in sections 332, 351, 355, 368, and 1036 (RP 32) 28,
55
Low-income housing taxcredit (Notice 47) 31,120
Mixed straddles; straddle-by-straddle identification under sec-
tion 1092(b)(2)(A)(i)(I) (TD 9627) 35,156
Mixed straddles; straddle-by-straddle identification under sec-
tion 1092(b)(2)(A)(i)(I) (REG–112815–12) 35,162
Noncompensatory partnership options; correcting TD 9612 (Ann
35) 27,46
Premium tax credit (REG–140789–12) 32,136
Premium tax credit, minimum essential coverage (Notice 41) 29,
60
Proposed Regulations:
26 CFR 1.36B–0 amended (premium tax credit)
(REG–140789–12) 32,136
26 CFR 1.36B–5 amended (premium tax credit)
(REG–140789–12) 32,136
2013–35 I.R.B.ivAugust 26, 2013

INCOME TAX—Cont.
26 CFR 1.851–5, amended (Regulated Investment Company
controlled group regulation examples) (REG–114122–12)
35,163
26 CFR 1.1092(b)–6, added (mixed straddles; straddle-by-
straddle identification undersection 1092(b)(2)(A)(i)(I))
(REG–112815–12) 35,162
Qualified exempt facility bonds (Notice 47) 31,120
Qualified residential rental projects (Notice 47) 31,120
Regulated Investment Company controlled group regulation ex-
amples (REG–114122–12) 35,163
Regulations:
26 CFR 1.108(i)–0, 26 CFR 1.108(i)–1, and 26 CFR
1.108(i)–3 added (deferred discharge of indebtedness in-
come of corporations and deferred original issue discount
deductions) (TD 9622) 30,64
26 CFR 1.108(i)–2, added; 1.108(i)–2T, removed (application
of section 108(i) to partnerships and S corporations) (TD
9623) 30,73
26 CFR 1.1092(b)–6T, added (mixed straddles; straddle-by-
straddle identification undersection 1092(b)(2)(A)(i)(I))
(TD 9627) 35,156
Section 5000A transition relief for employees eligible to enroll
in non-calendar year health plans (Notice 42) 29,61
Timeline for implementation of the requirements under sections
1471–1474, commonly known as FATCA (Notice 43) 31,113
2013 section 43 inflation adjustment (Notice 50) 32,134
Wash sales, money market fund shares (Notice 48) 31,120
August 26, 2013v2013–35 I.R.B.

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