Internal Revenue Bulletin 2012-30 (PDF rendition): IRS Notices

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Bulletin No. 201
2-30
July 23, 2012
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. 9595, page 71.
Final regulations under section 904 of the Code provide rules
concerning the treatment of overall foreign and domestic
losses, as well as separate limitation losses, under sections
904(f) and (g).
EMPLOYEE PLANS
Notice 2012–46, page 86.
This notice provides guidance in the form of questions and
answers with respect to the notice requirements of section
101(j) of the Employee Retirement Income Security Act of 1974
(ERISA), which requires that notice be provided to participants
and beneficiaries relating to certain limitations on benefits in
pension plans imposed under section 206(g) of ERISA.
EXCISE TAX
T.D. 9596, page 84.
REG–125570–11, page 93.
Final, temporary, and proposed regulations under section
7701 of the Code provide that qualified subchapter S sub-
sidiaries and single-owner eligible entities that are treated as
disregarded entities for federal tax purposes are treated as
separate entities for purposes of the indoor tanning services
excise tax imposed by section 5000B.
ADMINISTRATIVE
T.D. 9596, page 84.
REG–125570–11, page 93.
Final, temporary, and proposed regulations under section
7701 of the Code provide that qualified subchapter S sub-
sidiaries and single-owner eligible entities that are treated as
disregarded entities for federal tax purposes are treated as
separate entities for purposes of the indoor tanning services
excise tax imposed by section 5000B.
Finding Lists begin on page ii.

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 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.
July 23, 20122012–30 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 904.—
Limitations
on Credit
26 CFR 1.9040(j)–1: Overall foreign loss and the
overall foreign loss account.
T.D. 9595
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Treatment of Overall Foreign
and Domestic Losses
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION:
Final regulations and removal
of tempo
rary regulations.
SUMMARY: This document contains final
regulations with respect to a provision of
the Internal Revenue Code (Code) relating
to the recapture of overall domestic losses
that was enacted as part of the American
Jobs Creation Act of 2004 (AJCA). These
regulations provide guidance regarding
these changes, as well as updated guidance
with respect to overall foreign losses and
separate limitation losses, and affect indi-
viduals and corporations claiming foreign
tax credits.
DATES:Effective Date:These regulations
are effective on June 22, 2012.
Applicability Dates:For dates of
applicability,see §§1.904(f)–1(g),
1.904(f)–2(e),1.904(f)–7(f),
1.904(f)–8(c),1.904(g)–1(f),
1.904(g)–2(d), 1.904(g)–3(k), and
1.1502–9(e).
FOR FURTHER INFORMATION
CONTACT: Jeffrey L. Parry, (202)
622–3850 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
O
n December 21, 2007, a notice of pro-
p
osed rulemaking by cross-reference to
temporary reg
ulations (REG–141399–07,
2008–1 C.B. 47
0) under section 904
of the Code and
temporary regulations
(T.D. 9371, 2
008–1 C.B. 447) (2007
temporary re
gulations) were published in
theFederal R
egisterat [72 FR 72645]
and [72 FR 725
92], respectively. No
written com
ments were received. A public
hearing was
not requested and none was
held. This T
reasury decision adopts the
proposed re
gulation with the changes
discussed i
n this preamble.
Explanation of Changes
I. Dispositions of Property under Section
904(f)(3)
Section 90
4(f)(3) provides that if a tax-
payer disp
oses of certain property used
or held for
use predominantly without the
United Sta
tes in a trade or business, gain is
recogniz
ed on that disposition and treated
as foreig
n source income, regardless of
whether t
he gain would otherwise be rec-
ognized,
to the extent of any overall for-
eign los
s account in the separate category
of forei
gn source taxable income gener-
ated by t
he property. Section 1.904(f)–2(d)
provide
s separate rules for dispositions in
which ga
in is recognized irrespective of
sectio
n 904(f)(3) and dispositions in which
the gai
n would not otherwise be recog-
nized.
Aquest
ion has arisen regarding dis-
positi
ons in which gain is recognized
irresp
ective of section 904(f)(3) and the
recogn
ized gain is otherwise treated as
U.S. s
ource income under the Code. The
Treas
ury Department and the IRS believe
that t
he language of section 904(f)(3)(A)
is cle
ar that gain on such dispositions
is rec
haracterized as foreign source in-
come o
nly to the extent of the applicable
sect
ion 904(f)(3) recapture amount. Con-
sist
ent with the statutory language, the
regu
lations clarify that this limit on rechar-
acte
rization applies. The amount of gain
rech
aracterized as foreign source is equal
to t
he lesser of the total recognized gain
or t
he balance in the overall foreign loss
acc
ount remaining after any other overall
for
eign loss recapture pursuant to section
904
(f)(1) has been made.
II.Adjustmen
ts for capital gains and
losses and qua
lified dividend income
The 2007 tempo
rary regulations pro-
vide rules coo
rdinating the application
of section 90
4(b), which addresses the
effect of cap
ital gains and losses on the
foreign tax c
redit limitation, and section
904(g), whic
h addresses overall domestic
losses and t
he recapture of such losses.
Section 1.9
04(g)–1T(c)(2), which defines
the term dom
estic loss, provides that if a
taxpayer ha
s any capital gains or losses,
the amount
of the domestic loss is deter-
mined by ta
king into account adjustments
under sect
ion 904(b)(2) and §1.904(b)–1.
If the taxp
ayer has capital gains or losses,
§1.904(g)
–1T(d)(3) provides that the
amount by
whichanoveralldomesticloss
reduces f
oreign source income in a tax-
able year
is determined in accordance with
§1.904(b
)–1(h)(1)(i) and (h)(1)(iii).
The 2007 t
emporary regulations fol-
lowed the
approach of the coordination
rules in §
1.904(b)–1(h), which generally
provide
that adjustments under section
904(b) t
o capital gains and losses and
qualifi
ed dividend income (section 904(b)
adjustm
ents) are taken into account first
before a
pplying the overall foreign loss
provis
ions of section 904(f). These final
regula
tions retain that basic approach;
howeve
r, they revise several provisions of
the 200
7 temporary regulations and add
new pro
visions to implement the mechan-
ics of
this coordination rule.
First,
§1.904(g)–1(c)(2) and (d)(3) are
revis
ed regarding the calculation of an
overa
ll domestic loss. These revisions
refle
ct the fact that the regulations under
secti
on 904(b) do not provide specific ad-
justm
ents to determine U.S. source loss on
asta
nd-alone basis, but rather define the
amou
nt of U.S. source loss that offsets for-
eign
source taxable income under section
904(
f)(5)(D) as adjusted foreign taxable
inco
me, less adjusted worldwide taxable
inc
ome. The calculation of the overall
dom
estic loss is therefore expressly coor-
din
ated with the calculation of the section
904
(f)(5)(D) amount as determined under
§1.
904(b)–1(h)(1)(iii).
Sec
ond, §1.904(g)–2(b) is revised to
cla
rify that section 904(b) adjustments
2012–30 I.R.B.71July 23, 2012

must be made for capital gains and losses
and qualified dividend income before de-
termining how much U.S. source taxable
income is available to recapture an overall
domestic loss account. Because the regu-
lations under section 904(b) do not provide
specific adjustments to determine U.S.
source taxable income on a stand-alone
basis, §1.904(g)–2(b) provides that U.S.
source taxable income available to recap-
ture an overall domestic loss account is
determined following the principles of
§1.904(b)–1(h)(1)(i), which provides rules
on making the section 904(b) adjustments
in determining foreign source taxable in-
come.
Third, a new step is added to the or-
dering rules in §1.904(g)–3 to provide that
any section 904(b) adjustments for cap-
ital gains and losses and qualified divi-
dend income are made after determining
the amount of net operating loss carryover,
if any, in Step One, but before allocating
losses or recapturing loss accounts in steps
3 through 7.
Finally, the regulations have been re-
visedtoclarifythatcoordinationwiththe
section 904(b) provisions requires adjust-
ments not only to capital gains and losses
but to qualified dividend income as well.
III. Miscellaneous revisions
Other revisions have been made to
the 2007 temporary regulations that have
no intended substantive effect beyond
improving the readability of the provi-
sions. These include clarifying the term
“section 904(f)(1) recapture amount” in
§1.904(f)–2)(c)(1) and simplifying the
definitions of “separate limitation loss”
and “separate limitation loss account”
in §1.904(f)–7(b)(3) and (c). The ex-
planation for the taxable year in which
an overall domestic loss is sustained in
§1.904(g)–1(a)(2) is clarified as well.
Section 1.904(g)–3(i) is reserved. The
Treasury Department and the IRS will pro-
mulgate guidance addressing adjustments
required under section 904(f)(3) with re-
spect to disposition of property.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It has also been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does
not apply to these regulations, and because
the regulations do not impose a collection
of information on small entities, the Regu-
latory Flexibility Act (5 U.S.C. chapter 6)
does not apply. Pursuant to section 7805(f)
of the Code, the notice of proposed rule-
making preceding this regulation was sub-
mitted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on its impact on small business.
Drafting Information
The principal author of these regula-
tions is Jeffrey L. Parry of the Office of
Chief Counsel (International). However,
other personnel from the Treasury
Department and the IRS participated in
their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.904(g)–3 also issued under
26 U.S.C. 904(g)(4). * * *
Par. 2. Section 1.904(f)–0 is amended
as follows:
1. In §1.904(f)–1, entries for para-
graphs (a)(2), (d)(4) and (g) are added.
2. In §1.904(f)–2, entries for para-
graphs (c), (c)(1), (d)(3)(i), (d)(3)(ii) and
(e) are added.
3. In §§1.904(f)–7 and 1.904(f)–8,
paragraph entries are added.
The additions and revisions read as fol-
lows:
§1.904(f)–0 Outline of regulation
provisions.
*****
§1.904(f)–1 Overall foreign loss and the
overall foreign loss account.
(a) * * *
(2) Application to post–1986 taxable
years.
*****
(d) * * *
(4) Adjustments for capital gains and
losses.
*****
(g) Effective/applicability date.
§1.904(f)–2 Recapture of overall foreign
losses.
*****
(c) Section 904(f)(1) recapture.
(1) In general.
*****
(d) * * *
(3) * * *
(i) Foreign source gain.
(ii) U.S. source gain.
*****
(e) Effective/applicability.
§1.904(f)–7 Separate limitation loss and
the separate limitation loss account.
(a) Overview of regulations.
(b) Definitions.
(1) Separate category.
(2) Separate limitation income.
(3) Separate limitation loss.
(c) Separate limitation loss account.
(d) Additions to separate limitation loss
accounts.
(1) General rule.
(2) Separate limitation losses of another
taxpayer.
(3) Additions to separate limitation loss
account created by loss carryovers.
(e) Reductions of separate limitation
loss accounts.
(1) Pre-recapture reduction for amounts
allocated to other taxpayers.
(2) Reduction for offsetting loss ac-
counts.
(3) Reduction for amounts recaptured.
(f) Effective/applicability date.
§1.904(f)–8 Recapture of separate
limitation loss accounts.
(a) In general.
(b) Effect of recharacterization of sepa-
rate limitation income on associated taxes.
(c) Effective/applicability date.
Par. 3. Section 1.904(f)–0T is removed.
Par. 4. In §1.904(f)–1, paragraphs
(a)(2), (d)(4), and (g) are revised to read
as follows:
July 23, 2012722012–30 I.R.B.

§1.904(f)–1 Overall foreign loss and the
overall foreign loss account.
(a) * * *
(2)Application to post–1986 taxable
years. The principles of §§1.904(f)–1
through 1.904(f)–5 shall apply to any
overall foreign loss sustained in taxable
years beginning after December 31, 1986,
modified so as to take into account the
effect of statutory amendments.
*****
(d) * * *
(4)Adjustments for capital gains and
losses and qualified dividend income.If
a taxpayer has capital gains or losses or
qualified dividend income, as defined
in section 1(h)(11), the taxpayer shall
make adjustments to such capital gains
and losses and qualified dividend in-
come to the extent required under section
904(b)(2) and §1.904(b)–1 before apply-
ing the provisions of §1.904(f)–1. See
§1.904(b)–1(h).
*****
(g)Effective/applicability date. Para-
graphs (a)(2) and (d)(4) of this section
shall apply to taxable years beginning
on or after January 1, 2012. Taxpayers
may choose to apply paragraphs (a)(2)
and (d)(4) of this section to other taxable
years beginning after December 21, 2007,
includingperiodscoveredby26CFR
§1.904(f)–1T (revised as of April 1, 2010).
Par. 5. Section 1.904(f)–1T is removed.
Par. 6. In §1.904(f)–2, paragraphs
(c)(1), (c)(5)Example 4, (d)(1), (d)(3) and
(e) are revised to read as follows:
§1.904(f)–2 Recapture of overall foreign
losses.
*****
(c) * * * (1)In general.Inataxable
year in which a taxpayer elects the benefits
of section 901 or section 30A, the section
904(f)(1) recapture amount is the amount
of foreign source taxable income subject
to recharacterization in a taxable year in
which recapture of an overall foreign loss
is required under paragraph (a) of this
section. The section904(f)(1) recapture
amount equals the lesser of the aggregate
amount of maximum potential recapture
in all overall foreign loss accounts or fifty
percent of the taxpayer’s total foreign
source taxable income. If the aggregate
amount of maximum potential recapture
in all overall foreign loss accounts exceeds
fifty percent of the taxpayer’s total foreign
source taxable income, foreign source
taxable income in each separate category
with an overall foreign loss account is
recharacterized in an amount equal to the
section 904(f)(1) recapture amount, multi-
plied by the maximum potential recapture
in the overall foreign loss account, divided
by the aggregate amount of maximum
potential recapture in all overall foreign
loss accounts. The maximum potential re-
capture in an overall foreign loss account
in a separate category is the lesser of the
balance in that overall foreign loss account
or the foreign source taxable income for
the year in the same separate category as
the loss account. If, in any taxable year,
in accordance with sections 164(a) and
275(a)(4)(A), a taxpayer deducts rather
than credits its foreign taxes, recapture is
applied to the extent of the lesser of—
(i) The balance in the overall foreign
loss account in each separate category; or
(ii) Foreign source taxable income (net
of foreign taxes) in each separate category.
*****
(5) * * *
Example 4. Y Corporation is a domestic corpo-
ration that does business in the United States and
abroad. On December 31, 2007, the balance in Y’s
general category overall foreign loss account is $500,
all of which is attributable to a loss incurred in 2007.
Y has no other loss accounts subject to recapture. For
2008, Y has U.S. source taxable income of $400 and
foreign source taxable income of $300 in the general
category and $900 in the passive category. Under
paragraph (c)(1) of this section, the amount of Y’s
general category income subject to recharacterization
is the lesser of the aggregate maximum potential re-
capture or 50% of the total foreign source taxable in-
come. In this case, Y’s aggregate maximum poten-
tial recapture is $300 (the lesser of the $500 balance
in the general category overall foreign loss account
or $300 foreign source income in the general cate-
gory for the year), which is less than 50% of Y’s to-
tal foreign source taxable income ($1200 x 50% =
$600). Therefore, pursuant to paragraph (c) of this
section, $300 of foreign source income in the general
category is recharacterized as U.S. source income.
The balance in Y’s general category overall foreign
loss account is reduced to $200 in accordance with
§1.904(f)–1(e)(2).
*****
(d) * * *
(1)In general. If a taxpayer disposes
of property used or held for use predomi-
nantly without the United States in a trade
or business during a taxable year and that
property generates foreign source taxable
income subject to a separate limitation to
which paragraph (a) of this section applies,
the applicable overall foreign loss account
shall be recaptured as provided in para-
graphs (d)(2), (d)(3), and (d)(4) of this sec-
tion. See paragraph (d)(5) of this section
for definitions. See the ordering rules un-
der §1.904(g)–3(f) and (i) for coordina-
tion with other loss recapture under section
904(f) and (g).
*****
(3)Dispositions where gain is recog-
nized irrespective of section 904 (f)(3)—(i)
Foreign source gain. If a taxpayer recog-
nizes foreign source gain in a separate cat-
egory on the disposition of property de-
scribed in paragraph (d)(1) of this section,
and there is a balance in a taxpayer’s over-
all foreign loss account that is attributable
to a loss in such separate category after ap-
plying paragraph (c) of this section, an ad-
ditional portion of such balance shall be re-
captured in accordance with paragraphs (a)
and (b) of this section. The amount recap-
tured shall be the lesser of such balance or
the full amount of the foreign source gain
recognized on the disposition that was not
previously recharacterized.
(ii)U.S. source gain. If a taxpayer rec-
ognizes U.S. source gain on the disposition
of property described in paragraph (d)(1)
of this section, and there is a balance in
a taxpayer’s overall foreign loss account
that is attributable to a loss in the separate
category to which the income generated
by such property is assigned after applying
paragraph (c) of this section, an amount of
the gain shall be treated as foreign source
and an additional portion of such balance
equal to that amount shall be recaptured in
accordance with paragraphs (a) and (b) of
this section. The amount of gain treated as
foreign source and the amount of overall
foreign loss recaptured shall be the lesser
of the balance in the overall foreign loss
account or the full amount of the gain rec-
ognized on the disposition.
*****
(e)Effective/applicability date. Para-
graphs (c)(1), (c)(5)Example 4,(d)(1)
and (d)(3) of this section shall apply
to taxable years beginning on or after
January 1, 2012. Taxpayers may choose
to apply paragraphs (c)(1), (c)(5)Example
4, (d)(1), and (d)(3) of this section
to other taxable years beginning after
December 21, 2007, including periods
2012–30 I.R.B.73July 23, 2012

covered by 26 CFR §1.904(f)–2T (revised
as of April 1, 2010).
Par. 7. Section 1.904(f)–2T is removed.
Par. 8. Section 1.904(f)–7 is revised to
read as follows:
§1.904(f)–7 Separate limitation loss and
the separate limitation loss account.
(a)Overview of regulations.This
section provides rules for determining a
taxpayer’s separate limitation losses, for
establishing separate limitation loss ac-
counts, and for making additions to and
reducing such accounts for purposes of
section 904(f). Section 1.904(f)–8 pro-
vides rules for recharacterizing the balance
in any separate limitation loss account
under the general recharacterization rule
of section 904(f)(5)(C).
(b)Definitions. The definitions in para-
graphs (b)(1) through (b)(4) of this sec-
tion apply for purposes of this section and
§§1.904(f)–8 and 1.904(g)–3.
(1)Separate categorymeans each sep-
arate category of income described in sec-
tion 904(d) and any other category of in-
come described in §1.904–4(m). For ex-
ample, income subject to section 901(j) or
section 904(h)(10) is income in a separate
category.
(2)Separate limitation incomemeans,
with respect to any separate category, the
taxable income from sources outside the
United States, separately computed for
that category for the taxable year. Sepa-
rate limitation income shall be determined
by taking into account any adjustments
for capital gains and losses and qualified
dividend income, as defined in section
1(h)(11), under section 904(b)(2) and
§1.904(b)–1. See §1.904(b)–1(h)(1)(i).
(3)Separate limitation lossmeans,
with respect to any separate category, the
amount by which the foreign source gross
income in that category is exceeded by the
sum of expenses, losses and other deduc-
tions (not including any net operating loss
deduction under section 172(a) or any ex-
propriation loss or casualty loss described
in section 907(c)(4)(D)(iii)) properly ap-
portioned or allocated to that separate
category for the taxable year. Separate
limitation losses shall be determined by
taking into account any adjustments for
capital gains and losses and qualified div-
idend income under section 904(b)(2) and
§1.904(b)–1. See §1.904(b)–1(h)(1)(i).
(c)Separate limitation loss account.
Any taxpayer that sustains a separate
limitation loss that is allocated to reduce
separate limitation income in one or more
other separate categories of the taxpayer
under the rules of §1.904(g)–3 must es-
tablish a separate limitation loss account
for the loss with respect to each such other
separate category. The balance in any
separate limitation loss account represents
the amount of such separate limitation
loss that is subject to recapture in a given
taxable year pursuant to §1.904(f)–8 and
section 904(f)(5)(F). From year to year,
amounts may be added to or subtracted
from the balance in such loss accounts, as
provided in paragraphs (d) and (e) of this
section.
(d)Additions to separate limitation loss
accounts—(1)General rule. A taxpayer’s
separate limitation loss as defined in para-
graph (b)(3) of this section shall be added
to the applicable separate limitation loss
accounts at the end of its taxable year to
the extent that the separate limitation loss
reduces separate limitation income in one
or more other separate categories in that
taxable year or in a year to which the
loss has been carried back. For rules with
respect to net operating loss carryovers,
see paragraph (d)(3) of this section and
§1.904(g)–3.
(2)Separate limitation losses of an-
other taxpayer. If any portion of any
separate limitation loss account of another
taxpayer is allocated to the taxpayer in
accordance with §1.1502–9 (relating to
consolidated separate limitation losses)
the taxpayer shall add such amount to
its applicable separate limitation loss ac-
count.
(3)Additions to separate limitation loss
account created by loss carryovers.The
taxpayer shall add to each separate limi-
tation loss account all net operating loss
carryovers to the current taxable year to
the extent that separate limitation losses in-
cluded in the net operating loss carryovers
reduced foreign source income in one or
more other separate categories for the tax-
able year.
(e)Reductions of separate limitation
loss accounts. The taxpayer shall subtract
the following amounts from its separate
limitation loss accounts at the end of its
taxable year in the following order as ap-
plicable:
(1)Pre-recapture reduction for
amounts allocated to other taxpayers.A
separate limitation loss account is reduced
by the amount of any separate limitation
loss account that is allocated to another
taxpayer in accordance with §1.1502–9
(relating to consolidated separate limita-
tion losses).
(2)Reduction for offsetting loss ac-
counts. A separate limitation loss account
is reduced to take into account any netting
of separate limitation loss accounts under
§1.904(g)–3(d)(1).
(3)Reduction for amounts recaptured.
A separate limitation loss account is re-
duced by the amount of any separate lim-
itation income that is earned in the same
separate category as the separate limita-
tion loss and that is recharacterized in ac-
cordance with §1.904(f)–8 (relating to re-
capture of separate limitation losses) or
section 904(f)(5)(F)(relating to recapture
of separate limitation loss accounts out of
gain realized from certain dispositions).
(f)Effective/applicability date.This
section applies to taxpayers that sustain
separate limitation losses in taxable years
beginning on or after January 1, 2012.
Taxpayers may choose to apply this sec-
tion to separate limitation losses sustained
in other taxable years beginning after De-
cember 21, 2007, including periods cov-
ered by 26 CFR §1.904(f)–7T (revised as
of April 1, 2010). For rules relating to tax-
able years beginning after December 31,
1986, and on or before December 21, 2007,
see section 904(f)(5).
Par. 8. Section 1.904(f)–7T is removed.
Par. 9. Section 1.904(f)–8 is revised to
read as follows:
§1.904(f)–8 Recapture of separate
limitation loss accounts.
(a)In general. A taxpayer shall re-
capture a separate limitation loss account
as provided in this section. If the tax-
payer has a separate limitation loss ac-
count or accounts in any separate cate-
gory (the “loss category”) and the loss cat-
egory has income in a subsequent taxable
year, the income shall be recharacterized
as income in that other category or cate-
gories. The amount of income recharac-
terized shall not exceed the aggregate bal-
ance in all separate limitation loss accounts
for the loss category as determined under
§1.904(f)–7. If the taxpayer has more than
July 23, 2012742012–30 I.R.B.

one separate limitation loss account in a
loss category, and there is not enough in-
come in the loss category to recapture all of
the loss accounts, then separate limitation
income in the loss category shall be rechar-
acterized as separate limitation income in
the other separate categories on a propor-
tionate basis. This is determined by multi-
plying the total separate limitation income
subject to recharacterization by a fraction,
the numerator of which is the amount in a
particular separate limitation loss account
and the denominator of which is the total
amount in all separate limitation loss ac-
counts for the loss category.
(b)Effect of recharacterization of sepa-
rate limitation income on associated taxes.
Recharacterization of income under para-
graph (a) of this section shall not result
in the recharacterization of any tax. The
rules of §1.904–6, including the rules that
the taxes are allocated on an annual basis
and that foreign taxes paid on U.S. source
income shall be allocated to the separate
category that includes that U.S. source in-
come (see §1.904–6(a)), shall apply for
purposes of allocating taxes to separate
categories. Allocation of taxes pursuant
to §1.904–6 shall be made before the re-
capture of any separate limitation loss ac-
counts of the taxpayer pursuant to the rules
of this section.
(c)Effective/applicability date.This
section applies to taxpayers that sustain
separate limitation losses in taxable years
beginning on or after January 1, 2012.
Taxpayers may choose to apply this sec-
tion to separate limitation losses sustained
in other taxable years beginning after De-
cember 21, 2007, including periods cov-
ered by 26 CFR §1.904(f)–8T (revised as
of April 1, 2010). For rules relating to tax-
able years beginning after December 31,
1986, and on or before December 21, 2007,
see section 904(f)(5).
Par. 10. Section 1.904(f)–8T is re-
moved.
Par. 11. Section 1.904(g)–0 is amended
by adding the entries for §§1.904(g)–1,
1.904(g)–2, and 1.904(g)–3 to read as fol-
lows:
§1.904(g)–0 Outline of regulation
provisions.
*****
§1.904(g)–1 Overall domestic loss and
the overall domestic loss account.
(a) Overview of regulations.
(b) Overall domestic loss accounts.
(1) In general.
(2) Taxable year in which overall do-
mestic loss is sustained.
(c) Determination of a taxpayer’s over-
all domestic loss.
(1) Overall domestic loss defined.
(2) Domestic loss defined.
(3) Qualified taxable year defined.
(4) Method of allocation and apportion-
ment of deductions.
(d) Additions to overall domestic loss
accounts.
(1) General rule.
(2) Overall domestic loss of another
taxpayer.
(3) Adjustments for capital gains and
losses.
(e) Reductions of overall domestic loss
accounts.
(1) Pre-recapture reduction for amounts
allocated to other taxpayers.
(2) Reduction for amounts recaptured.
(f) Effective/applicability date.
§1.904(g)–2 Recapture of overall
domestic losses.
(a) In general.
(b) Determination of U.S. source tax-
able income for purposes of recapture.
(c) Section 904(g)(1) recapture.
(d) Effective/applicability date.
§1.904(g)–3 Ordering rules for the
allocation of net operating losses, net
capital losses, U.S. source losses, and
separate limitation losses, and for the
recapture of separate limitation losses,
overall foreign losses, and overall
domestic losses.
(a) In general.
(b) Step One: Allocation of net operat-
ing loss and net capital loss carryovers.
(1) In general.
(2) Full net operating loss carryover.
(3) Partial net operating loss carryover.
(4) Net capital loss carryovers.
(c) Step Two: Section 904(b) adjust-
ments.
(d) Step Three: Allocation of separate
limitation losses.
(e) Step Four: Allocation of U.S. source
losses.
(f) Step Five: Recapture of overall for-
eign loss accounts.
(g) Step Six: Recapture of separate lim-
itation loss accounts.
(h) Step Seven: Recapture of overall
domestic loss accounts.
(i) [Reserved].
(j) Examples.
(k) Effective/applicability date.
Par. 12. Section 1.904(g)–0T is re-
moved.
Par. 13. Section 1.904(g)–1 is revised
to read as follows:
§1.904(g)–1 Overall domestic loss and
the overall domestic loss account.
(a)Overview of regulations.This
section provides rules for determining a
taxpayer’s overall domestic losses, for
establishing overall domestic loss ac-
counts, and for making additions to and
reducing such accounts for purposes of
section 904(g). Section 1.904(g)–2 pro-
vides rules for recapturing the balance
in any overall domestic loss account un-
der the general recharacterization rule of
section 904(g)(1). Section 1.904(g)–3
provides ordering rules for the allocation
of net operating losses, net capital losses,
U.S. source losses, and separate limitation
losses, and the recapture of separate lim-
itation losses, overall foreign losses and
overall domestic losses.
(b)Overall domestic loss ac-
counts—(1)In general. Any taxpayer that
sustains an overall domestic loss under
paragraph (c) of this section must establish
an overall domestic loss account for such
loss with respect to each separate category,
as defined in §1.904(f)–7(b)(1), of the
taxpayer in which foreign source income
isoffsetbythedomesticloss. Thebal-
ance in each overall domestic loss account
represents the amount of such overall do-
mestic loss subject to recapture in a given
taxable year. From year to year, amounts
may be added to or subtracted from the
balances in such loss accounts as provided
in paragraphs (d) and (e) of this section.
(2)Taxable year in which overall do-
mestic loss is sustained.Whenadomes-
tic loss is carried back or carried forward
as part of a net operating loss, and off-
sets foreign source income in a carryover
year, the resulting overall domestic loss is
treated as sustained in the later of the year
in which the domestic loss was incurred
2012–30 I.R.B.75July 23, 2012

or the year to which the loss was carried.
Accordingly, when a taxpayer incurs a do-
mestic loss that is carried back as part of a
net operating loss to offset foreign source
income in a qualified taxable year, as de-
fined in paragraph (c)(3) of this section, the
resulting overall domestic loss is treated
as sustained in the later year in which the
domestic loss was incurred and not in the
earlier year in which the loss offset for-
eign source income. In addition, when a
taxpayer incurs a domestic loss that is car-
ried forward as part of a net operating loss
and applied to offset foreign source income
in a later taxable year, the resulting over-
all domestic loss is treated as sustained in
the later year in which the domestic loss
offsets foreign source income and not in
the earlier year in which the loss was in-
curred. For example, if a taxpayer incurs
a domestic loss in the 2007 taxable year
that is carried back to the 2006 qualified
taxable year and offsets foreign source in-
come in 2006, the resulting overall domes-
tic loss is treated as sustained in the 2007
taxable year. If a taxpayer incurs a do-
mestic loss in a pre–2007 taxable year that
is carried forward to a post–2006 quali-
fied taxable year and offsets foreign source
income in the post–2006 year, the result-
ing overall domestic loss is treated as sus-
tained in the post–2006 year. An overall
domestic loss account isestablished, or in-
creased under paragraph (d) of this sec-
tion, at the end of the taxable year in which
the overall domestic loss is treated as sus-
tained and will be recaptured from U.S.
source income arising in subsequent tax-
able years.
(c)Determination of a taxpayer’s over-
all domestic loss—(1)Overall domestic
loss defined. For taxable years beginning
after December 31, 2006, a taxpayer sus-
tains an overall domestic loss—
(i) In any qualified taxable year in
which its domestic loss for such taxable
year offsets foreign source taxable income
for the taxable year or for any preceding
qualified taxable year by reason of a car-
ryback; and
(ii) In any other taxable year in which
the domestic loss for such taxable year off-
sets foreign source taxable income for any
preceding qualified taxable year by reason
of a carryback.
(2)Domestic loss defined. For pur-
poses of this section and §§1.904(g)–2 and
1.904(g)–3, the termdomestic lossmeans
the amount by which the U.S. source gross
income for the taxable year is exceeded by
the sum of the expenses, losses, and other
deductions properly apportioned or allo-
cated to such income, taking into account
any net operating loss carried forward
from a prior taxable year, but not any loss
carried back. If a taxpayer has any cap-
ital gains or losses or qualified dividend
income, as defined in section 1(h)(11),
the amount of the taxpayer’s domestic
loss that offsets foreign source income
must be determined taking into account
adjustments under section 904(b)(2). See
§1.904(g)–1(d)(3) for further guidance.
(3)Qualified taxable year defined.For
purposes of this section and §§1.904(g)–2
and 1.904(g)–3, the termqualified taxable
yearmeans any taxable year for which the
taxpayer chooses the benefits of section
901.
(4)Method of allocation and apportion-
ment of deductions. In determining its
overall domestic loss, a taxpayer shall al-
locate and apportion expenses, losses, and
other deductions to U.S. source gross in-
come in accordance with sections 861(b)
and 865 and the regulations thereunder, in-
cluding §§1.861–8 through 1.861–14T.
(d)Additions to overall domestic loss
accounts—(1)General rule. A taxpayer’s
overall domestic loss as determined under
paragraph (c) of this section shall be added
to the applicable overall domestic loss ac-
count at the end of its taxable year to the
extent that the overall domestic loss either
reduces foreign source income for the year
(but only if such year is a qualified taxable
year) or reduces foreign source income for
a qualified taxable year to which the loss
has been carried back.
(2)Overall domestic loss of another
taxpayer. If any portion of any overall
domestic loss of another taxpayer is allo-
cated to the taxpayer in accordance with
§1.1502–9 (relating to consolidated over-
all domestic losses) the taxpayer shall add
such amount to its applicable overall do-
mestic loss account.
(3)Adjustments for capital gains and
losses. If the taxpayer has capital gains or
losses or qualified dividend income, the
amount by which a domestic loss is con-
sidered to reduce foreign source income
in a taxable year shall equal the section
904(f)(5)(D) amount determined under
§1.904(b)–1(h)(1)(iii), regardless of the
amount of domestic loss that was deter-
mined before taking any section 904(b)(2)
adjustments into account.
(e)Reductions of overall domestic loss
accounts. The taxpayer shall subtract the
following amounts from its overall domes-
tic loss accounts at the end of its taxable
year in the following order, as applicable:
(1)Pre-recapture reduction for
amounts allocated to other taxpayers.An
overall domestic loss account is reduced
by the amount of any overall domestic
loss which is allocated to another taxpayer
in accordance with §1.1502–9 (relating to
consolidated overall domestic losses).
(2)Reduction for amounts recaptured.
An overall domestic loss account is re-
duced by the amount of any U.S. source in-
come that is recharacterized in accordance
with §1.904(g)–2(c) (relating to recapture
under section 904(g)(1)).
(f)Effective/applicability date.This
section applies to taxpayers that sustain
an overall domestic loss for a taxable year
beginning on or after January 1, 2012.
Taxpayers may choose to apply this sec-
tion to overall domestic losses sustained
in other taxable years beginning after
December 31, 2006, including periods
covered by 26 CFR §1.904(g)–1T (revised
as of April 1, 2010).
Par. 14. Section 1.904(g)–1T is re-
moved.
Par. 15. Section 1.904(g)–2 is revised
to read as follows:
§1.904(g)–2 Recapture of overall
domestic losses.
(a)In general. A taxpayer shall re-
capture an overall domestic loss as pro-
vided in this section. Recapture is ac-
complished by treating a portion of the
taxpayer’s U.S. source taxable income as
foreign source income. The recharacter-
ized income is allocated among and in-
creases foreign source income in separate
categories in proportion to the balances of
the overall domestic loss accounts with re-
spect to those separate categories. As a re-
sult, if the taxpayer chooses the benefits
of section 901, the taxpayer’s foreign tax
credit limitation is increased. As provided
in §1.904(g)–1(e)(2), the balance in a tax-
payer’s overall domestic loss account with
respect to a separate category is reduced at
the end of each taxable year by the amount
of loss recaptured during that taxable year.
Recapture continuesuntil the amount of
July 23, 2012762012–30 I.R.B.

U.S. source income recharacterized as for-
eign source income equals the amount in
the overall domestic loss account.
(b)Determination of U.S. source tax-
able income for purposes of recapture.
For purposes of determining the amount
of an overall domestic loss subject to re-
capture, the taxpayer’s taxable income
from U.S. sources shall be computed in
accordance with the rules set forth in
§1.904(g)–1(c)(4). U.S. source taxable
income shall be determined by taking into
account adjustments for capital gains and
losses and qualified dividend income in a
similar manner to the adjustments made to
foreign source taxable income under sec-
tion 904(b)(2) and §1.904(b)–1, following
the principles of §1.904(b)–1(h)(1)(i).
(c)Section 904(g)(1) recapture.The
amount of any U.S. source taxable income
subject to recharacterization in a taxable
year in which paragraph (a) of this sec-
tion applies is the lesser of the aggregate
balance of the taxpayer’s overall domes-
tic loss accounts or 50 percent of the tax-
payer’s U.S. source taxable income (as de-
termined under paragraph (b) of this sec-
tion).
(d)Effective/applicability date.This
section applies to taxpayers that sustain
an overall domestic loss for a taxable year
beginning on or after January 1, 2012.
Taxpayers may choose to apply this sec-
tion to overall domestic losses sustained
in other taxable years beginning after
December 31, 2006, including periods
covered by 26 CFR §1.904(g)–2T (revised
as of April 1, 2010).
Par. 16. Section 1.904(g)–2T is re-
moved.
Par. 17. Section 1.904(g)–3 is revised
to read as follows:
§1.904(g)–3 Ordering rules for the
allocation of net operating losses, net
capital losses, U.S. source losses, and
separate limitation losses, and for the
recapture of separate limitation losses,
overall foreign losses, and overall
domestic losses.
(a)In general. This section provides
ordering rules for the allocation of net
operating losses, net capital losses, U.S.
source losses, and separate limitation
losses, and for the recapture of separate
limitation losses, overall foreign losses,
and overall domestic losses. The rules
must be applied in the order set forth in
paragraphs (b) through (i) of this section.
(b)Step One: Allocation of net op-
erating loss and net capital loss carry-
overs—(1)In general. Net operating
losses from a current taxable year are
carried forward or back to a taxable year
in the following manner. Net operating
losses that are carried forward pursuant
to section 172 are combined with income
or loss in the carryover year in the man-
ner described in this paragraph (b). The
combined amounts arethen subject to the
ordering rules provided in paragraphs (c)
through (i) of this section. Net operat-
ing losses that are carried back to a prior
taxable year pursuant to section 172 are al-
located to income in the carryback year in
the manner set forth in paragraphs (b)(2),
(b)(3), (c), (d), and (e) of this section. The
income in the carryback year to which
the net operating loss is allocated is the
foreign source income in each separate
category and the U.S. source income af-
ter the application of sections 904(f) and
904(g) to income and loss in that previous
year, including as a result of net operating
loss carryovers or carrybacks from taxable
years prior to the current taxable year.
(2)Full net operating loss carryover.If
the full net operating loss (that remains af-
ter carryovers to other taxable years) is less
than or equal to the taxable income in a par-
ticular taxable year (carryover year), and
so can be carried forward in its entirety to
such carryover year, U.S. source losses and
foreign source losses in separate categories
that are part of a net operating loss from a
particular taxable year that is carried for-
ward in its entirety shall be combined with
the U.S. source income or loss and the for-
eign source income or loss in the same sep-
arate categories in the carryover year.
(3)Partial net operating loss carryover.
If the full net operating loss (that remains
after carryovers to other taxable years) ex-
ceeds the taxable income in a carryover
year, and so cannot be carried forward in
its entirety to such carryover year, the fol-
lowing rules apply:
(i) Any U.S. source loss (not to ex-
ceed the net operating loss carryover) shall
be carried over to the extent of any U.S.
source income in the carryover year.
(ii) If the net operating loss carryover
exceeds the U.S. source loss carryover de-
termined under paragraph (b)(3)(i) of this
section, then separate limitation losses that
are part of the net operating loss shall be
tentatively carried over to the extent of
separate limitation income in the same sep-
arate category in the carryover year. If
the sum of the potential separate limita-
tion loss carryovers determined under the
preceding sentence exceeds the amount of
the net operating loss carryover reduced
by any U.S. source loss carried over un-
der paragraph (b)(3)(i) of this section, then
the potential separate limitation loss carry-
overs shall be reducedpro rataso that their
sum equals such amount.
(iii) If the net operating loss carryover
exceeds the sum of the U.S. and separate
limitation loss carryovers determined un-
der paragraphs (b)(3)(i) and (b)(3)(ii) of
this section, then a proportionate part of
the remaining loss from each separate cat-
egory shall be carriedover to the extent of
such excess and combined with the foreign
source loss, if any, in the same separate cat-
egories in the carryover year.
(iv) If the net operating loss carryover
exceeds the sum of all the loss carryovers
determined under paragraphs (b)(3)(i),
(b)(3)(ii), and (b)(3)(iii) of this section,
then any U.S. source loss not carried over
under paragraph (b)(3)(i) of this section
shall be carried over to the extent of such
excess and combined with the U.S. source
loss, if any, in the carryover year.
(4)Net capital loss carryovers.Rules
similar to the rules of paragraphs (b)(1)
through (3) of this section apply for pur-
poses of determining the components of a
net capital loss carryover to a taxable year.
(c)Step Two: Section 904(b) adjust-
ments. The taxpayer shall make any re-
quired adjustments to capital gains and
losses and qualified dividend income un-
der section 904(b)(2).
(d)Step Three: Allocation of separate
limitation losses. The taxpayer shall al-
locate separate limitation losses sustained
during the taxable year (increased, if ap-
propriate, by any losses carried over under
paragraph (b) of this section), in the fol-
lowing manner—
(1) The taxpayer shall allocate its sep-
arate limitation losses for the taxable year
to reduce its separate limitation income in
other separate categories on a proportion-
ate basis, and increase its separate limita-
tion loss accounts appropriately. To the ex-
tent a separate limitation loss in one sep-
arate category is allocated to reduce sep-
arate limitation income in a second sepa-
2012–30 I.R.B.77July 23, 2012

rate category, and the second category has
a separate limitation loss account from a
prior taxable year with respect to the first
category, the two separate limitation loss
accounts shall be netted against each other.
(2)Ifthetaxpayer’sseparate limitation
losses for the taxable year exceed the tax-
payer’s separate limitation income for the
year, so that the taxpayer has separate lim-
itation losses remaining after the applica-
tion of paragraph (d)(1) of this section, the
taxpayer shall allocate those losses to its
U.S. source income for the taxable year,
to the extent thereof, and shall increase its
overall foreign loss accounts to that extent
in accordance with§1.904(f)–1.
(e)Step Four: Allocation of U.S. source
losses. The taxpayer shall allocate U.S.
source losses sustained during the taxable
year (increased, if appropriate, by any
losses carried over under paragraph (b) of
this section) to separate limitation income
on a proportionate basis, and shall increase
its overall domestic loss accounts to the
extent of such allocation in accordance
with §1.904(g)–1.
(f)Step Five: Recapture of overall for-
eign loss accounts. If the taxpayer’s sepa-
rate limitation income for the taxable year
(reduced by any losses carried over under
paragraph (b) of this section) exceeds the
sum of the taxpayer’s U.S. source loss and
separate limitation losses for the year, so
that the taxpayer has separate limitation
income remaining after the application of
paragraphs (d)(1) and (e) of this section,
then the taxpayer shall recapture prior year
overall foreign losses, if any, and reduce
overall foreign loss accounts in accordance
with §1.904(f)–2.
(g)Step Six: Recapture of separate lim-
itation loss accounts.Totheextentthe
taxpayer has remaining separate limitation
income for the year after the application
of paragraph (f) of this section, then the
taxpayer shall recapture prior year sepa-
rate limitation losses, if any, in accordance
with §1.904(f)–8 and reduce separate lim-
itation loss accounts in accordance with
§1.904(f)–7.
(h)Step Seven: Recapture of overall
domestic loss accounts. If the taxpayer’s
U.S. source income for the year (reduced
by any losses carried over under paragraph
(b) of this section or allocated under para-
graph (d) of this section, but not increased
by any recapture of overall foreign loss ac-
counts under paragraph (f) of this section)
exceeds the taxpayer’s separate limitation
losses for the year, so that the taxpayer has
U.S. source income remaining after the ap-
plication of paragraph (d)(2) of this sec-
tion, then the taxpayer shall recapture its
prior year overall domestic losses, if any,
and reduce overall domestic loss accounts
in accordance with §1.904(g)–2.
(i) [Reserved]
(j)Examples. The following examples
illustrate the rules of this section. Unless
otherwise noted, all corporations use the
calendar year as the U.S. taxable year.
Example 1.(i)Facts. (A) Z Corporation is a do-
mestic corporation with foreign branch operations in
Country B. For 2009, Z has a net operating loss of
($500), determined as follows:
G
eneralPassiveUS
($300)$0($200)
(B) For 2008, Z had the following taxable income
and losses after application of section 904(f) and (g)
to income and loss in 2008:
G
eneralPassiveUS
$400$200$110
(ii)Net operating loss allocation. Because Z’s
taxable income for 2008 exceeds its total net operat-
ing loss for 2009, the full net operating loss is carried
back. Under Step 1, each component of the net oper-
ating loss is carried back and combined with its same
category in 2008. See paragraph (b)(2) of this sec-
tion. After allocation of the net operating loss, Z has
the following taxable income and losses for 2008:
G
eneralPassiveUS
$100$200($90)
(iii)Loss allocation. Under Step 4, the ($90) of
U.S. loss is allocated proportionately to reduce the
general category and passive category income. Ac-
cordingly, $30 ($90 × $100/$300) of the U.S. loss is
allocated to general category income and $60 ($90
× $200/$300) of the U.S. loss is allocated to passive
category income, with a corresponding creation or in-
crease to Z’s overall domestic loss accounts.
Example 2.(i)Facts. (A) X Corporation is a
domestic corporation with foreign branch operations
in Country C. As of January 1, 2007, X has no loss
accounts subject to recapture. For 2007, X has a net
operating loss of ($1400), determined as follows:
G
eneralPassiveUS
($400)($200)($800)
(B) X has no taxable income in 2005 or 2006
available for offset by a net operating loss carryback.
For 2008, X has the following taxable income and
losses:
July 23, 2012782012–30 I.R.B.

GeneralPassiveUS
$500($100)$1200
(ii)Net operating loss allocation. Under Step 1,
because X’s total taxable income for 2008 of $1600
($1200 + $500 - $100) exceeds the total 2007 net
operating loss, the full $1400 net operating loss is
carried forward. Under paragraph (b)(2) of this sec-
tion, each component of the net operating loss is car-
ried forward and combined with its same category in
2008. After allocation of the net operating loss, X has
the following taxable income and losses:
G
eneralPassiveUS
$100($300)$400
(iii)Loss allocation. Under Step 3, $100 of the
passive category loss offsets the $100 of general cate-
gory income, resulting in a passive category separate
limitation loss account with respect to general cate-
gory income, and the other $200 of passive category
loss offsets $200 of the U.S. source taxable income,
resultinginthecreationofanoverallforeignlossac-
count in the passive category.
Example 3.(i)Facts. Assume the same facts as in
Example 2, except that in 2008, X had the following
taxable income and losses:
G
eneralPassiveUS
$200($100)$1200
(ii)Net operating loss allocation.UnderStep
1, because the total net operating loss for 2007 of
($1400) exceeds total taxable income for 2008 of
$1300 ($1200 + $200 - $100), X has a partial net
operating loss carryover to 2008 of $1300. Under
paragraph (b)(3)(i) of this section, first, the $800
U.S. source component of the net operating loss is
allocated to U.S. income for 2008. The tentative gen-
eral category carryover under paragraph (b)(3)(ii) of
this section ($200) does not exceed the remaining net
operating loss carryover amount ($500). Therefore,
$200 of the general category component of the net
operating loss is next allocated to the general cate-
gory income for 2008. Under paragraph (b)(3)(iii)
of this section, the remaining $300 of net operating
loss carryover ($1300 - $800 - $200) is carried over
proportionally from the remaining net operating
loss components in the general category ($200, or
$400 total general category loss -$200 general cat-
egory loss already allocated) and passive category
($200). Therefore, $150 ($300 × $200/$400) of the
remaining net operating loss carryover is carried over
from the general category for 2007 and combined
with the general category for 2008, and $150 ($300
× $200/$400) of the remaining net operating loss
carryover is carried over from the passive category
for 2007 and combined with the passive category
for 2008. After allocation of the net operating loss
carryover from 2007 to the appropriate categories for
2008, X has the following taxable income and losses:
G
eneralPassiveUS
($150)($250)$400
(iii)Loss allocation. Under Step 3, the losses in
the general and passive categories fully offset the U.S.
source income, resultingin the creation of general
category and passive category overall foreign loss ac-
counts.
Example 4.(i)Facts. Assume the same facts as in
Example 2, except that in 2008, X has the following
taxable income and losses:
G
eneralPassiveUS
$200$200($200)
(ii)Net operating loss allocation. Under Step 1,
because the total net operating loss of ($1400) ex-
ceeds total taxable income for 2008 of $200 ($200 +
$200 - $200), X has a partial net operating loss carry-
over to 2008 of $200. Because X has no U.S. source
income in 2008, under paragraph (b)(3)(i) of this sec-
tion no portion of the U.S. source component of the
net operating loss is initially carried into 2008. Be-
cause the total tentative carryover under paragraph
(b)(3)(ii) of this section of $400 ($200 in each of
the general and passive categories) exceeds the net
operating loss carryover amount, the tentative carry-
over from each separate category is reduced propor-
tionately by $100 ($200 × $200/$400). Accordingly,
$100 ($200 - $100) of the general category compo-
nent of the net operating loss is carried forward and
$100 ($200 - $100) of the passive category compo-
nent of the net operating loss is carried forward and
combined with income in the same respective cate-
gories for 2008. After allocation of the net operating
loss carryover from 2007, X has the following taxable
income and losses:
G
eneralPassiveUS
$100$100($200)
(iii)Loss allocation. Under Step 4, the $200 U.S.
source loss offsets the remaining $100 of general cat-
egory income and $100 of passive category income,
resulting in the creation of overall domestic loss ac-
counts with respect to the general and passive cate-
gories.
Example 5.(i)Facts. Assume the same facts as in
Example 2, except that in 2008, X has the following
taxable income and losses:
2012–30 I.R.B.79July 23, 2012

GeneralPassiveUS
$800($100)$100
(ii)Net operating loss allocation.UnderStep
1, because X’s total net operating loss in 2007 of
($1400) exceeds its total taxable income for 2008 of
$800 ($100 + $800 - $100), X has a partial net operat-
ing loss carryover to 2008 of $800. Under paragraph
(b)(3)(i) of this section, $100 of the U.S. source com-
ponent of the net operating loss is allocated to U.S.
income for 2008. The tentative general category car-
ryover under paragraph (b)(3)(ii) of this section does
not exceed the remaining net operating loss carry-
over amount. Therefore,$400 of the general cate-
gory component of the net operating loss is allocated
to reduce general category income in 2008. Under
paragraph (b)(3)(iii) of this section, of the remaining
$300 of net operating loss carryover ($800 - $100 -
$400), $200 is carried forward from the passive cat-
egory component of the net operating loss and com-
bined with the passive category for 2008. Under para-
graph (b)(3)(iv) of this section, the remaining $100
($300 - $200) of net operating loss carryover is car-
ried forward from the U.S. source component of the
net operating loss and combined with the U.S. source
income (loss) for 2008. After allocation of the net op-
erating loss carryover from 2007, X has the following
taxable income and losses:
G
eneralPassiveUS
$400($300)($100)
(iii)Loss allocation. (A) Under Step 3, the $300
passive category loss offsets the $300 of income in the
general category, resulting in the creation of a passive
category separate limitation loss account with respect
to the general category.
(B) Under Step 4, the $100 U.S. source loss off-
sets the remaining $100 of the general category in-
come, resulting in the creation of an overall domestic
loss account with respect to the general category.
Example 6.(i)Facts. (A) Y Corporation is a do-
mestic corporation with foreign branch operations in
Country D. Y has no net operating losses and does
not make an election to recapture more than the re-
quired amount of overall foreign losses. As of Jan-
uary 1, 2007, Y has a ($200) general category over-
all foreign loss (OFL) account and a ($200) general
category separate limitation loss (SLL) account with
respect to the passive category. For 2007, Y has $400
of passive category income that is fully offset by a
($400) domestic loss in that taxable year, giving rise
to the creation of an overall domestic loss (ODL) ac-
count with respect to the passive category. As of Jan-
uary 1, 2008, Y has the following balances in its OFL,
SLL, and ODL accounts:
G
eneralUS
OFLSSL(Passive)ODL(Passive)
$200$200$400
(B) In 2008, Y has the following taxable income
and losses:
G
eneralPassiveUS
$400($100)$600
(ii)Loss allocation. Under Step 3, the $100 of
passive category loss offsets $100 of the general cat-
egory income, creating a passive category SLL ac-
count of $100 with respect to the general category.
Because there is an offsetting general category SLL
account of $200 with respect to the passive category
from a prior taxable year, the two accounts are netted
against each other so that all that remains is a $100
general category SLL account with respect to the pas-
sive category.
(iii)OFL account recapture. Under Step 5, 50%
of the remaining $300, or $150, of income in the gen-
eral category is subject to recharacterization as U.S.
source income as a recapture of part of the OFL ac-
count in the general category.
(iv)SLL account recapture. Under Step 6, $100
of the remaining $150 of income in the general cate-
gory is recharacterized as passive category income as
a recapture of the general category SLL account with
respect to the passive category.
(v)ODL account recapture. Under Step 7, 50% of
the $600, or $300, of U.S. source income is subject to
recharacterization as foreign source passive category
income as a recapture of a part of the ODL account
with respect to the passive category. None of the $150
of general category income that was recharacterized
as U.S. source income under Step 5 is included here
as income subject to recharacterization in connection
with recapture of the overall domestic loss account.
(vi)Results. (A) After the allocation of loss and
recapture of loss accounts, X has the following tax-
able income and losses for 2008:
July 23, 2012802012–30 I.R.B.

GeneralPassiveUS
$50$400$450
(B) As of January 1, 2009, Y has the following
balances in its OFL, SLL and ODL accounts:
G
eneralPassiveUS
OFLSSL(Passive)SSL(General)ODL(Passive)
$50$0$0$100
(k)Effective/applicability date.This
section applies to taxable years begin-
ning on or after January 1, 2012 . Tax-
payers may choose to apply this section
to other taxable years beginning after
December 31, 2006, including periods
covered by 26 CFR §1.904(g)–3T (revised
as of April 1, 2010).
Par. 18. Section 1.904(g)–3T is re-
moved.
Par. 19. Section 1.1502–9 is revised to
read as follows:
§1.1502–9 Consolidated overall foreign
losses, separate limitation losses, and
overall domestic losses.
(a)In general. This section provides
rules for applying section 904(f) and (g)
(including its definitions and nomencla-
ture) to a group and its members. Gener-
ally, section 904(f) concerns rules relating
to overall foreign losses (OFLs) and sepa-
rate limitation losses (SLLs) and the con-
sequences of such losses. Under section
904(f)(5), losses are computed separately
in each category of income described in
section 904(d)(1) or §1.904–4(m) (sepa-
rate category). Section 904(g) concerns
rules relating to overall domestic losses
(ODLs) and the consequences of such
losses. Paragraph (b) of this section de-
fines terms and provides computational
and accounting rules, including rules re-
garding recapture. Paragraph (c) of this
section provides rules that apply to OFLs,
SLLs, and ODLs when a member becomes
or ceases to be a member of a group.
Paragraph (d) of this section provides a
predecessor and successor rule. Paragraph
(e) of this section provides effective dates.
(b)Consolidated application of section
904(f) and (g). A group applies section
904(f) and (g) for a consolidated return
year in accordance with that section, sub-
ject to the following rules:
(1)Computation of CSLI or CSLL
and consolidated U.S.-source taxable in-
come or CDL. The group computes its
consolidated separate limitation income
(CSLI) or consolidated separate limitation
loss (CSLL) for each separate category
under the principles of §1.1502–11 by ag-
gregating each member’s foreign-source
taxable income or loss in such separate
category computed under the principles
of §1.1502–12, and taking into account
the foreign portion of the consolidated
items described in§1.1502–11(a)(2)
through (a)(8) for such separate cate-
gory. The group computes its consolidated
U.S.-source taxable income or consoli-
dated domestic loss (CDL) under similar
principles.
(2)Netting CSLLs, CSLIs, and consol-
idated U.S.-source taxable income.The
group applies section 904(f)(5) to deter-
mine the extent to which a CSLL for a
separate category reduces CSLI for an-
other separate category or consolidated
U.S.-source taxable income.
(3)NettingCDLandCSLI. The group
applies section 904(g)(2) to determine the
extent to which a CDL reduces CSLI.
(4)CSLL, COFL, and CODL accounts.
To the extent provided in section 904(f),
the amount by which a CSLL for a separate
category (the loss category) reduces CSLI
for another separate category (the income
category) will result in the creation of (or
addition to) a CSLL account for the loss
category with respect to the income cat-
egory. Likewise, the amount by which a
CSLL for a loss category reduces consoli-
dated U.S.-source taxable income will cre-
ate (or add to) a consolidated overall for-
eign loss account (a COFL account). To
the extent provided in section 904(g), the
amount by which a CDL reduces CSLI
will result in the creation of (or addition
to) a consolidated overall domestic loss
(CODL) account for the income category
reduced by the CDL.
(5)Recapture of COFL, CSLL, and
CODL accounts. In the case of a COFL ac-
count for a loss category, section 904(f)(1)
and section 904(f)(3) recharacterize some
or all of the foreign-source income in the
loss category as U.S.-source income. In
the case of a CSLL account for a loss
category with respect to an income cat-
egory, section 904(f)(5)(C) and section
904(f)(5)(F) recharacterize some or all
of the foreign-source income in the loss
category as foreign-source income in the
income category. In the case of a CODL
account, section 904(g)(3) recharacter-
izes some of the U.S.-source income as
foreign-source income in the separate cat-
egory that was offset by the CDL. The
COFL account, CSLL account, or CODL
account is reduced to the extent income
is recharacterized with respect to such
account.
(6)Intercompany transactions—(i)
Nonapplication of section 904(f) dispo-
sition rules. Neither section 904(f)(3)
(in the case of a COFL account) nor sec-
tion 904(f)(5)(F) (in the case of a CSLL
account) applies at the time of a disposi-
tion that is an intercompany transaction
to which §1.1502–13 applies. Instead,
section 904(f)(3) and section 904(f)(5)(F)
apply only at such time and only to the
extent that the group is required under
§1.1502–13 (without regard to section
904(f)(3) and section 904(f)(5)(F)) to take
into account any intercompany items re-
sulting from the disposition, based on the
COFL or CSLL account existing at the
end of the consolidated return year during
which the group takes the intercompany
items into account.
(ii)Examples. Paragraph (b)(6)(i) of
this section is illustrated by the follow-
ing examples. The identity of the par-
2012–30 I.R.B.81July 23, 2012

ties and the basic assumptions set forth
in §1.1502–13(c)(7)(i) apply to the exam-
ples. Except as otherwise stated, assume
further that the consolidated group recog-
nizes no foreign source income other than
as a result of the transactions described.
The examples are as follows:
Example 1. (i) On June 10, year 1, S transfers
nondepreciable property with a basis of $100 and a
fair market value of $250 to B in a transaction to
which section 351 applies. The property was pre-
dominantly used without the United States in a trade
or business within the meaning of section 904(f)(3).
B continues to use the property without the United
States. The group has a COFL account in the rele-
vant loss category of $120 as of December 31, year
1.
(ii) Because the contribution from S to B is an
intercompany transaction, section 904(f)(3) does not
apply to result in any gain recognition in year 1. See
paragraph (b)(5)(i) of this section.
(iii) On January 10, year 4, B ceases to be a mem-
ber of the group. Because S did not recognize gain
in year 1 under section 351, no gain is taken into ac-
count in year 4 under §1.1502–13. Thus, no portion
of the group’s COFL account is recaptured in year 4.
For rules requiring apportionment of a portion of the
COFL account to B, see paragraph (c)(2) of this sec-
tion.
Example 2. (i) The facts are the same as in para-
graph (i) ofExample 1. On January 10, year 4, B sells
the property to X for $300. As of December 31, year
4, the group’s COFL account is $40. (The COFL ac-
count was reduced between year 1 and year 4 due to
unrelated foreign-source income taken into account
by the group.)
(ii) B takes into account gain of $200 in year 4.
The $40 COFL account in year 4 recharacterizes $40
of the gain as U.S. source. See section 904(f)(3).
Example 3. (i) On June 10, year 1, S sells nonde-
preciable propertywith a basis of $100 and a fair mar-
ket value of $250 to B for $250 cash. The property
was predominantly used without the United States
in a trade or business within the meaning of section
904(f)(3). The group has a COFL account in the rele-
vant loss category of $120 as of December 31, year 1.
B predominantly uses the property in a trade or busi-
ness without the United States.
(ii) Because the sale is an intercompany transac-
tion, section 904(f)(3) does not require the group to
take into account any gain in year 1. Thus, under
paragraph (b)(5)(i) of this section, the COFL account
is not reduced in year 1.
(iii) On January 10, year 4, B sells the property to
X for $300. As of December 31, year 4, the group’s
COFL account is $60. (The COFL account was re-
duced between year 1 and year 4 due to unrelated for-
eign-source income taken into account by the group.)
(iv) In year 4, S’s $150 intercompany gain and
B’s $50 corresponding gain are taken into account to
produce the same effect on consolidated taxable in-
come as if S and B were divisions of a single corpora-
tion. See §1.1502–13(c). All of B’s $50 correspond-
ing gain is recharacterizedunder section 904(f)(3). If
S and B were divisions of a single corporation and
the intercompany sale were a transfer between the
divisions, B would succeed to S’s $100 basis in the
property and would have $200 of gain ($60 of which
would be recharacterized under section 904(f)(3)), in-
stead of a $50 gain. Consequently, S’s $150 inter-
company gain and B’s $50 corresponding gain are
taken into account, and $10 of S’s gain is recharacter-
ized under section 904(f)(3) as U.S. source income to
reflect the $10 difference between B’s $50 recharac-
terized gain and the $60 recomputed gain that would
have been recharacterized.
(c)Becoming or ceasing to be a mem-
ber of a group—(1)Adding separate ac-
counts on becoming a member. At the time
that a corporation becomes a member of a
group (a new member), the group adds to
the balance of its COFL, CSLL or CODL
account the balance of the new member’s
corresponding OFLaccount, SLL account
or ODL account. A new member’s OFL
account corresponds to a COFL account if
the account is for the same loss category. A
new member’s SLL account corresponds
to a CSLL account if the account is for the
same loss category and with respect to the
same income category. A new member’s
ODL account corresponds to a CODL ac-
count if the account is with respect to the
same income category. If the group does
not have a COFL, CSLL or CODL account
corresponding to the new member’s ac-
count, it creates a COFL, CSLL or CODL
account with a balance equal to the balance
of the member’s account.
(2)Apportionment of consolidated ac-
count to departing member—(i)In gen-
eral. A group apportions to a member that
ceases to be a member (a departing mem-
ber) a portion of each COFL, CSLL and
CODL account as of the end of the year
during which the member ceases to be a
member and after the group makes the ad-
ditions or reductions to such account re-
quired under paragraphs (b)(4), (b)(5) and
(c)(1) of this section (other than an addi-
tion under paragraph (c)(1) of this section
attributable to a member becoming a mem-
ber after the departing member ceases to be
a member). The group computes such por-
tion under paragraph (c)(2)(ii) of this sec-
tion, as limited by paragraph (c)(2)(iii) of
this section. The departing member carries
such portion to its first separate return year
after it ceases to be a member. Also, the
group reduces each account by such por-
tion and carries such reduced amount to its
first consolidated return year beginning af-
ter the year in which the member ceases
to be a member. If two or more mem-
bers cease to be members in the same year,
the group computes the portion allocable
to each such member (and reduces its ac-
counts by such portion) in the order that the
members cease to be members.
(ii)Departing member’s portion of
group’s account. A departing member’s
portion of a group’s COFL, CSLL or
CODL account for a loss category is com-
puted based upon the member’s share
of the group’s assets that generate in-
come subject to recapture at the time
that the member ceases to be a member.
Under the characterization principles of
§§1.861–9T(g)(3) and 1.861–12T, the
group identifies the assets of the departing
member and the remaining members that
generate U.S.-source income (domestic
assets) and foreign-source income (for-
eign assets) in each separate category.
The assets are characterized based upon
the income that the assets are reasonably
expected to generate after the member
ceases to be a member. The member’s
portion of a group’s COFL or CSLL ac-
count for a loss category is the group’s
COFL or CSLL account, respectively,
multiplied by a fraction, the numerator
of which is the value of the member’s
foreign assets for the loss category and
the denominator of which is the value of
the foreign assets of the group (including
the departing member) for the loss cate-
gory. The member’s portion of a group’s
CODL account for each income category
is the group’s CODL account multiplied
by a fraction, the numerator of which is
the value of the member’s domestic as-
sets and the denominator of which is the
value of the domestic assets of the group
(including the departing member). The
value of the domestic and foreign assets
is determined under the asset valuation
rules of §1.861–9T(g)(1) and (g)(2) using
either tax book value, fair market value,
or alternative tax book value under the
method chosen by the group for purposes
of interest apportionment as provided in
§1.861–9T(g)(1)(ii). For purposes of this
paragraph (c)(2)(ii),§1.861–9T(g)(2)(iv)
(assets in intercompany transactions) shall
apply, but §1.861–9T(g)(2)(iii) (adjust-
ments for directly allocated interest) shall
not apply. If the group uses the tax book
value method, the member’s portions of
COFL, CSLL, and CODL accounts are
limited by paragraph (c)(2)(iii) of this
section. In addition, for purposes of this
paragraph (c)(2)(ii), the tax book value of
assets transferred in intercompany trans-
actions shall be determined without regard
July 23, 2012822012–30 I.R.B.

to previously deferred gain or loss that is
taken into account by the group as a result
of the transaction in which the member
ceases to be a member. The assets should
be valued at the time the member ceases
to be a member, but values on other dates
may be used unless this creates substantial
distortions. For example, if a member
ceases to be a member in the middle of
the group’s consolidated return year, an
average of the values of assets at the be-
ginning and end of the year (as provided
in §1.861–9T(g)(2)) may be used or, if a
member ceases to be a member in the early
part of the group’s consolidated return
year, values at the beginning of the year
may be used, unless this creates substan-
tial distortions.
(iii)Limitation on member’s portion for
groups using tax book value method.Ifa
group uses the tax book value method of
valuing assets for purposes of paragraph
(c)(2)(ii) of this section and the aggre-
gate of a member’s portions of COFL and
CSLL accounts for a loss category (with
respect to one or more income categories)
determined under paragraph (c)(2)(ii) of
this section exceeds 150 percent of the ac-
tual fair market value of the member’s for-
eign assets in the loss category, the mem-
ber’s portion of the COFL or CSLL ac-
counts for the loss category shall be re-
duced (proportionately, in the case of mul-
tiple accounts) by such excess. In addition,
if the aggregate of a member’s portions
of CODL accounts (with respect to one or
more income categories) determined under
paragraph (c)(2)(ii) of this section exceeds
150 percent of the actual fair market value
of the member’s domestic assets, the mem-
ber’s portion of the CODL accounts shall
be reduced (proportionately, in the case of
multiple accounts) by such excess. This
rule does not apply in the case of COFL
or CSLL accounts if the departing mem-
ber and all other members that cease to be
members as part of the same transaction
own all (or substantially all) the foreign as-
sets in the loss category. In the case of
CODL accounts, this rule does not apply if
the departing member and all other mem-
bers that cease to be members as part of the
same transaction own all (or substantially
all) the domestic assets.
(iv)Determination of values of domes-
tic and foreign assets binding on depart-
ing member. The group’s determination of
the value of the member’s and the group’s
domestic and foreign assets for a loss cate-
gory is binding on the member, unless the
Commissioner concludes that the determi-
nation is not appropriate. The common
parent of the group must attach a statement
to the return for the taxable year that the
departing member ceases to be a member
of the group that sets forth the name and
taxpayer identification number of the de-
parting member, the amount of each COFL
and CSLL for each loss category and each
CODL that is apportioned to the depart-
ing member under this paragraph (c)(2),
the method used to determine the value
of the member’s and the group’s domestic
and foreign assets in each such loss cate-
gory, and the value of the member’s and
the group’s domestic and foreign assets in
each such loss category. The common par-
ent must also furnish a copy of the state-
ment to the departing member.
(v)Anti-abuse rule. If a corporation be-
comes a member and ceases to be a mem-
ber, and a principal purpose of the corpo-
ration becoming and ceasing to be a mem-
ber is to transfer the corporation’s OFL ac-
count, SLL account or ODL account to
the group or to transfer the group’s COFL,
CSLL or CODL account to the corpora-
tion, appropriate adjustments will be made
to eliminate the benefit of such a trans-
fer of accounts. Similarly, if any member
acquires assets or disposes of assets (in-
cluding a transfer of assets between mem-
bers of the group and the departing mem-
ber) with a principal purpose of affecting
the apportionment of accounts under para-
graph (c)(2)(i) of thissection, appropriate
adjustments will be made to eliminate the
benefit of such acquisition or disposition.
(vi)Examples. The following examples
illustrate the rules of this paragraph (c):
Example 1. (i) On November 6, year 1, S, a mem-
ber of the P group, a consolidated group with a calen-
dar consolidated return year, ceases to be a member
of the group. On December 31, year 1, the P group
has a $40 COFL account for the general category, a
$20 CSLL account for the general category (that is,
the loss category) with respect to the passive category
(that is, the income category), and a $10 CODL ac-
count with respect to the passive category (that is, the
income category). No member of the group has for-
eign-source income or loss in year 1. The group ap-
portions its interest expense according to the tax book
value method.
(ii) On November 6, year 1, the group identifies
S’s assets and the group’s assets (including S’s assets)
expected to produce foreign-source general category
income. Use of end-of-the-year values will not create
substantial distortions in determining the relative val-
ues of S’s and the group’s relevant assets on Novem-
ber 6, year 1. The group determines that S’s relevant
assets have a tax book value of $2,000 and a fair mar-
ket value of $2,200. Also, the group’s relevant assets
(including S’s assets) have a tax book value of $8,000.
On November 6, year 1, S has no assets expected to
produce U.S. source income.
(iii) Under paragraph (c)(2)(ii) of this section, S
takes a $10 COFL account for the general category
($40 x $2000/$8000) and a $5 CSLL account for the
general category with respect to the passive category
($20 x $2000/$8000). S does not take any portion of
the CODL account. The limitation described in para-
graph (c)(2)(iii) of this section does not apply because
the aggregate of the COFL and CSLL accounts for
the general category that are apportioned to S ($15)
is less than 150% of the actual fair market value of
S’s general category foreign assets ($2,200 x 150%).
Example 2. (i) Assume the same facts as inExam-
ple 1, except that the fair market value of S’s general
category foreign assets is $4 as of November 6, year
1.
(ii) Under paragraph (c)(2)(iii) of this section, S’s
COFL and CSLL accounts for the general category
must be reduced by $9, which is the excess of $15 (the
aggregate amount of the accounts apportioned under
paragraph (c)(2)(ii) of this section) over $6 (150% of
the $4 actual fair market value of S’s general category
foreign assets). S thus takes a $4 COFL account for
the general category ($10 - ($9 x $10/$15)) and a $2
CSLL account for the general category with respect
to the passive category ($5 - ($9 x $5/$15)).
Example 3. (i) Assume the same facts as inExam-
ple 1, except that S also has assets that are expected
to produce U.S. source income.
(ii) On November 6, year 1, the group identifies
S’s assets and the group’s assets (including S’s as-
sets) expected to produce U.S. source income. Use
of end-of-the-year values will not create substantial
distortions in determining the relative values of S’s
and the group’s relevant assets on November 6, year
1. The group determines that S’s relevant assets have
a tax book value of $3,000 and a fair market value of
$2,500. Also, the group’s relevant assets (including
S’s assets) have a tax book value of $6,000.
(iii) Under paragraph (c)(2)(ii) of this section, S
takes a $5 CODL account ($10 x $3,000/$6,000), in
addition to the COFL and CSLL accounts determined
inExample 1. The limitation described in paragraph
(c)(2)(iii) of this section does not apply because the
CODL account that is apportioned to S ($5) is less
than 150% of the actual fair market value of S’s U.S.
assets ($2,500 x 150%).
(d)Predecessor and successor.Aref-
erence to a member includes, as the con-
text may require, a reference to a prede-
cessor or successor of the member. See
§1.1502–1(f).
(e)Effective/applicability date.This
section applies to consolidated return
years beginning on or after January 1,
2012, for which the return is due (without
extensions) after June 22, 2012. Taxpay-
ers may choose to apply the provisions of
this section to other consolidated return
years beginning after December 31, 2006,
includingperiodscoveredby26CFR
2012–30 I.R.B.83July 23, 2012

§1.1502–9T (revised as of April 1, 2010).
For rules relating to overall foreign losses
and separate limitation losses in consoli-
dated return years beginning on or before
December 21, 2007, see 26 CFR 1.1502–9
(revised as of April 1, 2007).
Par. 20. Section 1.1502–9T is removed.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
Approved June 13, 2012.
Emily S. McMahon,
Acting Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on June 21, 2012,
8:45 a.m., and published in the issue of the Federal Register
for June 22, 2012, 77 F.R. 37576)
Section 7701.—Definitions
26 CFR 301.7701–2: Business entities; definitions.
T.D. 9596
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
Disregarded Entities and
the Indoor Tanning Services
Excise Tax
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
SUMMARY: This document contains final
and temporary regulations relating to dis-
regarded entities (including qualified sub-
chapter S subsidiaries) and the indoor tan-
ning services excise tax. These regula-
tions affect disregarded entities responsi-
ble for collecting the indoor tanning ser-
vices excise tax and owners of those dis-
regarded entities. The text of these tempo-
rary regulations serves as the text of pro-
posed regulations (REG–125570–11) pub-
lished in this issue of the Bulletin.
DATES:Effective Date:These regulations
are effective on June 25, 2012.
Applicability Date:For dates of ap-
plicability, see §§1.1361–4T(a)(8)(iii)(B)
and 301.7701–2T(e)(9)(i).
FOR FURTHER INFORMATION
CONTACT: Michael H. Beker, (202)
622–3130 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
This document contains amendments to
the Income Tax Regulations (26 CFR part
1) under section 1361 of the Internal Rev-
enue Code (Code) and the Procedure and
Administration Regulations (26 CFR part
301) under section 7701 of the Code.
Since January 1, 2008, §§1.1361–4(a)(8)
and 301.7701–2(c)(2)(v) have treated a
qualified subchapter S subsidiary (QSub)
and a single-owner eligible entity that is
disregarded as an entity separate from its
owner for any purpose under §301.7701–2
(collectively, a disregarded entity) as a
separate entity for purposes of excise taxes
imposed by Chapters 31, 32 (other than
section 4181), 33, 34, 35, 36 (other than
section 4461), and 38 of the Code, and
any floor stocks tax imposed on articles
subject to any of these taxes.
Effective July 1, 2010, section 10907
of the Patient Protection and Affordable
Care Act, Public Law 111–148 (124 Stat.
119 (2010)), added new Chapter 49 to the
Code, which imposes an excise tax on
amounts paid for indoor tanning services
under section 5000B.
Consistentwithexist-
ing§§1.1361–4(a)(8)and
301.7701–2(c)(2)(v), these temporary
regulations add Chapter 49 to the list
of excise taxes for which disregarded
entities are treated as separate entities.
Accordingly, effective for taxes imposed
on amounts paid on or after July 1,
2012, these temporary regulations treat
a disregarded entityas a separate entity
for purposes of the indoor tanning ser-
vices excise tax under section 5000B.
These temporary regulations also treat
a single-owner eligible entity that is
disregarded as an entity separate from its
owner for any purpose under §301.7701–2
as a corporation with respect to the indoor
tanning services excise tax.
The indoor tanning services excise tax
is reported on Form 720“Quarterly Fed-
eral Excise Tax Return”.As a result of
these temporary regulations, a Form 720
reporting indoor tanning services excise
taxes imposed on amounts paid on or af-
ter July 1, 2012, must be filed under the
name and employer identification number
(EIN) of the entity rather than under the
name and EIN of the disregarded entity’s
owner. Thus, this rule affects returns of
this tax that are due on or after October 31,
2012.
For taxes imposed under section 5000B
on amounts paid before July 1, 2012, the
IRS will treat payments made by a disre-
garded entity, or other actions taken by a
disregarded entity, with respect to the in-
door tanning servicesexcise tax as having
been made or taken by the owner of that
entity. Thus, for such periods, the owner of
a disregarded entity will be treated as sat-
isfying its obligations with respect to the
indoor tanning services excise tax if those
obligations are satisfied either: (i) by the
owneritselfor(ii)bythedisregardeden-
tity on behalf of the owner.
Special Analyses
It has been determined that this Trea-
sury decision is not asignificant regula-
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
applicability of the Regulatory Flexibility
Act (5 U.S.C. chapter 6), please refer to
the Special Analysessection of the pre-
amble to the cross-reference notice of pro-
posed rulemaking published elsewhere in
this issue of the Bulletin. Pursuant to sec-
tion 7805(f) of the Code, this regulation
has been submitted to the Chief Counsel
for Advocacy of the Small Business Ad-
ministration for comment on its impact on
small business.
Drafting Information
The principal author of these regula-
tions is Michael H. Beker, Office of the
Associate Chief Counsel (Passthroughs
and Special Industries).However,
other personnel from the IRS and the
Treasury Department participated in their
development.
July 23, 2012842012–30 I.R.B.

*****
Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 301
are amended as follows:
PART 1—INCOME TAX
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.1361–4 is amended
by adding paragraph (a)(8)(iii) to read as
follows:
§1.1361–4 Effect of QSub election.
(a) * * *
(8) * * *
(iii) [Reserved]. For further guidance,
see §1.1361–4T(a)(8)(iii).
*****
Par. 3. Section 1.1361–4T is added to
read as follows:
§1.1361–4T Effect of QSub election
(temporary).
(a)(1) through (a)(8)(ii) [Reserved].
For further guidance, see §1.1361–4(a)(1)
through (a)(8)(ii).
(iii)Rule for Chapter 49 tax liabili-
ties—(A)In general. A qualified subchap-
ter S subsidiary (QSub) is treated as a sep-
arate corporation for purposes of—
(1) Federal tax liabilities imposed by
Chapter 49 of the Internal Revenue Code;
(2) Collection of tax imposed by Chap-
ter 49 of the Internal Revenue Code; and
(3) Claims of a credit or refund related
to the tax imposed by Chapter 49 of the
Internal Revenue Code.
(B)Effective/applicability date for
Chapter 49 liabilities.Paragraph
(a)(8)(iii)(A) of this section applies to
taxes imposed on amounts paid on or after
July 1, 2012.
(C)Expiration date. The applicabil-
ity of paragraph (a)(8)(iii) of this section
expires on June 22, 2015 or such ear-
lier date as may be determined under
amendments to the regulations issued after
June 22, 2012.
(a)(9) through (d) [Reserved]. For
further guidance, see §1.1361–4(a)(9)
through (d).
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 4. The authority citation for part
301 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 5. Section 301.7701–2 is amended
by adding new paragraphs (c)(2)(vi) and
(e)(9), and adding and reserving paragraph
(e)(8), to read as follows:
§301.7701–2 Business entities;
definitions.
*****
(c) * * *
(2) * * *
(vi) [Reserved]. For further guidance,
see §301.7701–2T(c)(2)(vi).
*****
(e) * * *
(8) [Reserved]
(9) [Reserved]. For further guidance,
see §301.7701–2T(e)(9).
Par. 6. Section 301.7701–2T is
amended as follows:
1. Paragraphs (a) through (e)(4) are
revised.
2. Paragraph (e)(9) is added.
The revisions and addition read as fol-
lows:
§301.770
1–2T Business entities;
definiti
ons (temporary).
(a) through (c)(2)(v) [Reserved]. For
further guidance, see §301.7701–2(a)
through (c)(2)(v).
(vi)Tax liabilities with respect to
the indoor tanning services excise
tax—(A)In general. Notwithstanding
any other provision of §301.7701–2,
§301.7701–2(c)(2)(i) (relating to certain
wholly owned entities) does not apply for
purposes of—
(1) Federal tax liabilities imposed by
Chapter 49 of the Internal Revenue Code;
(2)CollectionoftaximposedbyChap-
ter 49 of the Internal Revenue Code; and
(3) Claims of a credit or refund related
to the tax imposed by Chapter 49 of the
Internal Revenue Code.
(B)Treatment of entity
. Anentitythat
is disregarded as an entity separate from its
owner for any purpose under §301.7701–2
is treated as a corporation with respect to
items described in paragraph (c)(2)(vi)(A)
of this section.
(d) through (e)(4) [Reserved]. For
further guidance, see §301.7701–2(d)
through (e)(4).
*****
(9)Indoor tanning services excise
tax—(i)Effective/applicability date. Para-
graph (c)(2)(vi) of this section applies to
taxes imposed on amounts paid on or after
July 1, 2012.
(ii)Expiration date. The applicability
of paragraph (c)(2)(vi) of this section ex-
pires on or before June 22, 2015 or such
earlier date as may be determined under
amendments to the regulations issued af-
ter June 22, 2012.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
Approved June 11, 2012.
Emily S. McMahon,
Acting Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on June 22, 2012,
8:45 a.m., and published in the issue of the Federal Register
for June 25, 2012, 77 F.R. 37806)
2012–30 I.R.B.85July 23, 2012

Part III. Administrative, Procedural, and Miscellaneous
Notice Requirements Under
Section 101(j) of ERISA for
Funding-Related Benefit
Limitations in Single-Employer
Defined Benefit Pension Plans
Notice 2012–46
I. Purpose
This notice provides guidance in the
form of questions and answers with respect
to the notice requirements of section 101(j)
of the Employee Retirement Income Secu-
rity Act of 1974 (ERISA), which requires
that notice be provided to participants and
beneficiaries relating to certain limitations
on benefits in pension plans imposed under
section206(g)ofERISA,
1
as added by the
Pension Protection Act of 2006 (PPA ’06),
P.L. 109–280, 120 Stat. 780.
II. Background
Section 101(j) of ERISA requires the
plan administrator of a single-employer
defined benefit plan to provide a written
notice to plan participants and beneficia-
ries, generally within 30 days after the
plan becomes subject to the benefit limita-
tionsofsection206(g)(1)or(3)ofERISA
(relating to unpredictable contingent event
benefits and prohibited payments). In
addition, in the case of a plan that be-
comes subject to the benefit limitations
of section 206(g)(4) of ERISA (relating
to the cessation of benefit accruals), the
section 101(j) notice must be provided
within 30 days after the earlier of the val-
uation date for the plan year for which the
plan’s adjusted funding target attainment
percentage (AFTAP) is less than 60% or
the date such percentage is presumed to be
less than 60% under the rules of section
206(g)(7) of ERISA. Section 502(c)(4)
of ERISA provides that the Secretary of
Labor may assess a civil penalty of not
more than $1,000 a day for each violation
by any person of the notice requirement
under section 101(j) of ERISA.
Section 101(c)(1)(A)(ii) of the Worker,
Retiree, and Employer Recovery Act of
2008, Public Law 110–458 (122 Stat.
5092) (WRERA), amended section 101(j)
of ERISA to authorize the Secretary of the
Treasury, in consultation with the Secre-
tary of Labor, to prescribe rules applicable
to the notice requirements under section
101(j) of ERISA.
Section 206 of ERISA (§ 436 of the
Code) provides benefit limitations that
depend on a plan’s funding level, which
is measured by the plan’s AFTAP, as
determined under section 206(g)(9)(B)
of ERISA (§ 436(j)(2) of the Code). In
general, a plan’s AFTAP is based on the
plan’s funding target attainment percent-
age (FTAP) under section 303(d)(2) of
ERISA (§ 430(d)(2) of the Code) for the
plan year. Generally, the plan’s FTAP for
a plan year is a fraction (expressed as a
percentage), the numerator of which is
the value of plan assets for the plan year
(after subtraction of the plan’s funding
balances), and the denominator of which
is the funding target of the plan for the
plan year. The plan’s AFTAP for a plan
year is determined by adding the aggregate
amount of purchases of annuities for em-
ployees (other than highly compensated
employees, within the meaning of Code
§ 414(q)) made by the plan during the two
preceding plan years to the numerator and
the denominator of the fraction used to
determine the FTAP.
Under section 206(g)(1) of ERISA
(§ 436(b) of the Code), a plan is required
to provide that, if a participant is enti-
tled to an unpredictable contingent event
benefit payable with respect to any event
occurring during a plan year, such benefit
may not be paid if the plan’s AFTAP for
the plan year is less than 60% or would be
less than 60% taking into account the oc-
currence of the unpredictable contingent
event benefit. Section 206(g)(1)(C) of
ERISA (§ 436(b)(3) of the Code) defines
an unpredictable contingent event benefit
as any benefit payable solely by reason
of a plant shutdown (or similar event, as
determined by the Secretary of the Trea-
sury) or an event other than the attainment
of any age, performance of any service,
receipt or derivation of any compensation,
or occurrence of death or disability.
Under section 206(g)(2) of ERISA
(§ 436(c) of the Code), a plan amendment
increasing the liabilities of the plan by
reason of an increase in benefits, establish-
ment of new benefits, changing the rate
of benefit accrual, or changing the rate at
which a benefit accrual becomes nonfor-
feitable generally cannot take effect in a
plan year if the plan’s AFTAP for the plan
year is less than 80% or would be less than
80% taking into account such amendment.
The notice requirements of section 101(j)
of ERISA do not apply as a result of an
amendment that causes the plan to become
subject to the benefit limitations in section
206(g)(2).
Section 206(g)(3) of ERISA (§ 436(d)
of the Code) restricts a plan’s ability to
make “prohibited payments” if the plan’s
AFTAP is below 80% or the plan spon-
sor is a debtor in bankruptcy. Section
206(g)(3)(B) of ERISA (§ 436(d)(5) of
the Code) provides that a “prohibited pay-
ment” is generally:
1. any payment in excess of the monthly
amount paid under a single life annu-
ity (plus any social security supple-
ments described in the last sentence
of section 204(b)(1)(G) of ERISA
(§ 411(a)(9) of the Code)) to a par-
ticipant or beneficiary whose annuity
starting date occurs during any pe-
riod that a limitation under section
206(g)(1)(A) or (B) of ERISA (or
§436(d)(1) or (2) of the Code) is in
effect;
2. any payment for the purchase of an
irrevocable commitment from an in-
surer to pay benefits; and
3. any other payment specified by the
Secretary of the Treasury by regula-
tions.
However, a prohibited payment does
not include a payment of a benefit
which under section 203(e) of ERISA
(§ 411(a)(11) of the Code) (relating to
benefits with a present value that does
not exceed $5,000) may be immediately
distributed without the consent of the par-
ticipant.
1
Section 436 of the Internal Revenue Code (Code) has provisions that are parallel to the provisions in section 206(g) of ERISA and which are identified in this notice in parentheses following
the parallel ERISA provision. Section 401(a)(29) of the Code provides that, in the case of a defined benefit plan (other than a multiemployer plan) to which the minimum funding requirements
of § 412 apply, the plan is not a qualified plan unless the plan meets the requirements of § 436.
July 23, 2012862012–30 I.R.B.

Undersection206(g)(3)(A)ofERISA
(§ 436(d)(1) of the Code), a plan is re-
quired to provide that the plan is not per-
mitted to make any prohibited payment
for a plan year after the valuation date
for the year if the plan’s AFTAP for the
plan year is less than 60%. Under sec-
tion 206(g)(3)(C) of ERISA (§ 436(d)(3)
of the Code), if a plan’s AFTAP is at least
60% but less than 80%, the plan must pro-
vide that the plan is not permitted to pay
any prohibited payment that is in excess
of 50% of the amount of the payment that
could be made but for the benefit limitation
(or, if less, the present value of the maxi-
mum guarantee with respect to the partic-
ipant under section 4022 of ERISA) (par-
tially prohibited payments).
Under section 206(g)(3)(B) of ERISA
(§ 436(d)(2) of the Code), a plan is re-
quired to provide that, if the plan spon-
sor is a debtor in a case under title 11 of
the United States Code (or similar Fed-
eral or State law), the plan is not permit-
ted to pay any prohibited payment until
the plan’s enrolled actuary certifies that the
plan’s AFTAP for the plan year is not less
than 100%.
The limitations on prohibited pay-
ments under section 206(g)(3) of ERISA
(§ 436(d) of the Code) do not apply to a
plan for any plan year if the terms of the
plan, as in effect for the period beginning
on September 1, 2005, and ending with
such plan year, provide for no benefit
accruals with respect to any participant
during that period.
Under section 206(g)(4) of ERISA
(§ 436(e) of the Code), a plan is required to
provide that, if the plan’s AFTAP is below
60% for a plan year, all benefit accruals
cease as of the valuation date for the plan
year.
Sections 206(g)(1)(B), 206(g)(4)(B),
and 206(g)(5) of ERISA (§§ 436(b)(2),
436(e)(2), and 436(f) of the Code) set forth
rules relating to special contributions that
are permitted to be made in order to avoid
benefit limitations (section 436 contribu-
tions). Under § 1.436–1(f)(2)(ii)(B) of the
Income Tax Regulations, a section 436
contribution must be designated as such
at the time it is contributed to the plan.
Under section 206(g)(5)(B) of ERISA
(§ 436(f)(2) of the Code), a section 436
contribution is an actual contribution that
is treated as separate from a minimum
required contribution under § 430 and is
disregarded in determining the maximum
addition to a prefunding balance under
§ 430(f)(6). See § 1.436–1(f)(2) generally
for rules relating to section 436 contribu-
tions. See also section 206(g)(5)(C) of
ERISA (§ 436(f)(3) of the Code), which
describes situations in which an employer
is deemed to have made an election under
section 303(f) of ERISA (§ 430(f)(5) of
the Code) to reduce the plan’s funding
standard carryover balance or prefunding
balance.
Under section 206(g)(7) of ERISA
(§ 436(h) of the Code), special presump-
tions apply in certain situations for pur-
poses of applying the benefit limitations
under section 206(g) of ERISA (§ 436 of
the Code). Under section 206(g)(7)(A)
of ERISA (§ 436(h)(1) of the Code), if a
benefit limitation has been applied in the
preceding plan year, then the AFTAP for
the current plan year is generally presumed
to be equal to the prior year’s AFTAP
until the plan’s enrolled actuary certifies
the actual AFTAP for the current plan
year. Further, under section 206(g)(7)(B)
of ERISA (§ 436(h)(2) of the Code), if no
certification is made before the first day
of the 10th month of the current plan year,
then, for purposes of applying these bene-
fit limitations, that day is deemed to be the
valuation date of the plan and the plan’s
AFTAPisconclusivelypresumedtobe
less than 60% as of that date. Under sec-
tion 206(g)(7)(C) of ERISA (§ 436(h)(3)
of the Code), if a benefit limitation did not
apply to a plan in the prior plan year but the
plan’s AFTAP for the prior plan year was
not more than 10 percentage points greater
than an AFTAP that would have caused
the plan to be subject to that benefit limita-
tion, and if the plan’s enrolled actuary has
not certified the plan’s actual AFTAP for
the current plan year before the first day
of the 4th month of the current plan year,
then, until the actuary so certifies, that day
is deemed to be the valuation date for the
current plan year and the plan’s AFTAP is
presumed to be equal to a percentage that
is 10 percentage points less than the plan’s
AFTAP for the preceding plan year.
Final regulations under § 436 were pub-
lished on October 15, 2009 in theFederal
Registerat 74 FR 53004. These regula-
tions also apply for purposes of the paral-
lel rules in section 206(g) of ERISA. The
regulations use the termsection 436 mea-
surement date(defined in § 1.436–1(j)(8))
to identify the dates on which a benefit lim-
itation under § 436 of the Code (section
206(g) of ERISA) may apply or cease to
apply. A section 436 measurement date
might occur due to a certification of the
plan’s AFTAP issued by the enrolled actu-
ary for the plan or due to the application of
a presumption. See § 1.436–1(a)(4)(ii)(B),
(c)(3), (d)(3)(ii)(A)(1), (d)(3)(ii)(C), and
(d)(6) for certain optional plan provisions
that are permitted with respect to § 436
(and the parallel rules in section 206(g) of
ERISA).
III. Questions and Answers
Q–1. What are the general timing re-
quirements for providing a section 101(j)
notice?
A–1. Section 101(j) of ERISA provides
that notice to participants is required to be
provided at the following times:
a. Within 30 days after the date on which
the plan has become subject to a lim-
itation on unpredictable contingent
event benefits undersection 206(g)(1)
of ERISA (§ 436(b) of the Code).
b. Within 30 days after the date on which
the plan has become subject to a lim-
itation on prohibited payments under
section 206(g)(3)(A), (B), or (C) of
ERISA (§ 436(d)(1), (2), or (3) of the
Code).
c. Within 30 days after the date benefit
accruals under the plan are required to
have ceased under section 206(g)(4)
of ERISA (§ 436(e) of the Code).
d. At such other time as may be deter-
mined by the Secretary of the Trea-
sury.
Q&A–2 through Q&A–6 of this notice
provide further guidance on these timing
requirements.
Q–2. For purposes of A–1(a) of this
notice, when does a plan with an AFTAP
of less than 60% become subject to a lim-
itation on unpredictable contingent event
benefits under section 206(g)(1) of ERISA
(§ 436(b) of the Code)?
A–2. For purposes of A–1(a) of this
notice, a plan becomes subject to a lim-
itation on unpredictable contingent event
benefits under section 206(g)(1) of ERISA
(§ 436(b) of the Code) on the first section
436 measurement date on which the plan’s
AFTAP is certified or presumed to be less
2012–30 I.R.B.87July 23, 2012

than 60% (if the plan provides for unpre-
dictable contingent event benefits that it
would not be permitted to pay). The sec-
tion 101(j) notice must be provided within
30 days after that section 436 measurement
date. The following example illustrates
this rule:
Example. Plan X, a calendar year plan, provides
for an unpredictable contingent event benefit upon
shutdown of a plant at a specified location. Plan X’s
AFTAP has always been at least 60%. On March 18,
2013, Plan X’s AFTAP is certified to be less than 60%
for the 2013 plan year. The section 101(j) notice must
be provided, with respect to the plan’s plant shutdown
benefit, by April 17, 2013, which is the 30th day fol-
lowing the March 18, 2013, section 436 measurement
date, even if the plant has not shut down and is not ex-
pected to be shut down.
Q–3. For purposes of A–1(a) of this
notice, when does a plan with an AFTAP
of 60% or more become subject to a lim-
itation on unpredictable contingent event
benefits under section 206(g)(1) of ERISA
(§436(b)oftheCode)?
A–3. For purposes of A–1(a) of this
notice, unless a plan’s AFTAP is already
certified or presumed to be less than 60%,
the plan becomes subject to a limitation
on unpredictable contingent event bene-
fits on the date of the occurrence of an
unpredictable contingent event that would
make the AFTAP less than 60% (aggregat-
ing benefits applicable to similarly situated
participants). In this case, a section 101(j)
notice must be provided, with respect to
any unpredictable contingent event bene-
fit, within 30 days after the occurrence of
the unpredictable contingent event (unless
Q&A–6(a) of this notice requires earlier
notice with respect to that unpredictable
contingent event).
Q–4. For purposes of A–1(b) of this
notice, when does a plan become subject to
a limitation on prohibited payments under
section 206(g)(3) of ERISA (§ 436(d) of
the Code)?
A–4. (a)General requirements relat-
ing to limitations on prohibited payments.
For purposes of A–1(b) of this notice, the
date on which a plan becomes subject to
a limitation on prohibited payments under
section 206(g)(3)(A), (B), or (C) of ERISA
(§ 436(d)(1), (2), or (3) of the Code) is the
first day on which the plan is required to
operate in accordance with the benefit lim-
itation. This date is determined without
regard to whether any participant or ben-
eficiary is eligible to elect or has actually
elected to receive payment in the form of
a prohibited payment. Thus, for example,
if a plan’s AFTAP is certified or presumed
to be less than 80% (but not less than 60%)
on a section 436 measurement date, so
that the plan becomes subject to a limita-
tion on prohibited payments under section
206(g)(3)(C) of ERISA (§ 436(d)(3) of the
Code) on that date, then a section 101(j)
notice must be provided within 30 days af-
ter that section 436 measurement date. If
the plan’s AFTAP is later certified or pre-
sumedtobelessthan60%onasection
436 measurement date, so that the plan be-
comes subject to a limitation on prohib-
ited payments under section 206(g)(3)(A)
of ERISA (§ 436(d)(1) of the Code) on that
date, then a section 101(j) notice must also
be provided within 30 days after that later
section 436 measurement date.
(b)Rules of application. (1) A–4(a) of
this notice applies separately to the benefit
limitations imposed by each of the follow-
ing provisions:
•Section 206(g)(3)(A) of ERISA
(§ 436(d)(1) of the Code) (relating to
a plan with an AFTAP that is less than
60%);
•Section 206(g)(3)(B) of ERISA
(§ 436(d)(2) of the Code) (relating to
the plan sponsor being a debtor in a
case under title 11 of the United States
Code or similar Federal or State law);
and
•Section 206(g)(3)(C) of ERISA
(§ 436(d)(3) of the Code) (relating to
limitedpaymentsforaplanwithan
AFTAP of less than 80% but not less
than 60%).
Thus, for example, if a plan’s AFTAP
was below 60% in a prior period and is
subsequently certified to be at least 60%
but less than 80% on a section 436 mea-
surement date (so that the plan is no longer
subject to the limitation on prohibited
payments under section 206(g)(3)(A) of
ERISA (§ 436(d)(1) of the Code) but be-
comes subject to the limitation on prohib-
ited payments under section 206(g)(3)(C)
of ERISA (§ 436(d)(3) of the Code), then
a section 101(j) notice describing the ben-
efit limitation under section 206(g)(3)(C)
of ERISA (§ 436(d)(3) of the Code) must
be provided within 30 days after that later
section 436 measurement date.
(2) Notwithstanding A–4(b)(1) of this
notice, if a section 101(j) notice was
required as a result of the plan becom-
ing subject to a limitation on prohibited
payments under one of either (i) section
206(g)(3)(A) of ERISA (§ 436(d)(1) of
the Code) or (ii) section 206(g)(3)(B) of
ERISA (§ 436(d)(2) of the Code), and the
plan also becomes subject to the other such
limitation, then no section 101(j) notice
isrequiredtobeprovideddescribingthat
other limitation. In addition, if the plan
subsequently ceases to be subject to one of
the limitations but remains subject to the
other limitation, then no additional section
101(j) notice is required to be provided
describing either limitation.
Q–5. For purposes of A–1(c) of this
notice, when does a plan become subject
to a limitation on benefit accruals under
section 206(g)(4) of ERISA (§ 436(e) of
the Code)?
A–5. For purposes of A–1(c) of this
notice, the date on which a plan becomes
subject to a limitation on benefit accru-
als under section 206(g)(4) is the first sec-
tion 436 measurement date on which the
AFTAP is less than 60% and, thus, the
date on which benefit accruals under the
plan are required to have ceased pursuant
to section 206(g)(4) of ERISA (§ 436(e)
of the Code). The date on which a section
101(j) notice must be provided is 30 days
after the first section 436 measurement
date on which benefit accruals under the
plan are required to have ceased pursuant
to section 206(g)(4) of ERISA (§ 436(e) of
the Code).
Q–6. Has the Secretary of the Treasury
(or his delegate) determined, pursuant to
section 101(j)(3) of ERISA, that a section
101(j) notice is required to be provided
at any times other than those described in
Q&A–2 through Q&A–5 of this notice?
A–6. (a)Special rule for the date on
which a limitation on unpredictable con-
tingent event benefits applies for plans
with an AFTAP of 60% or more.Yes.In
the case of a plan with an AFTAP of 60%
or more, A–3 of this notice generally pro-
vides that a section 101(j) notice with re-
spect to an unpredictable contingent event
benefit must be provided within 30 days
after the occurrence of the unpredictable
contingent event. The Commissioner has
determined that a section 101(j) notice
must also be provided with respect to the
unpredictable contingent event benefit
on or before the latest of the following
dates: (1) if the employer is covered by the
July 23, 2012882012–30 I.R.B.

Worker Adjustment and Retraining Noti-
fication Act (WARN Act) (P.L. 100–379)
and the related unpredictable contingent
event is an event for which a WARN Act
notice must be provided, the date on which
the WARN Act notice is provided; (2) 60
days before the actual occurrence of the
related unpredictable contingent event;
and (3) 30 days after the date the employer
makes a decision to cause the related un-
predictable contingent event to occur (for
example, a decision to shut down a plant).
No additional section 101(j) notice is re-
quired with respect to the unpredictable
contingent event benefit under A–3 of this
notice if this A–6(a) requires a section
101(j) notice with respect to that unpre-
dictable contingentevent benefit earlier
than the date that a section 101(j) notice
would be required under A–3 of this no-
tice.
(b)Special rule requiring a section
101(j) notice for plans that permit new
annuity starting dates. In addition, if
(i) a plan becomes subject to a lim-
itation on prohibited payments under
section 206(g)(3)(A), 206(g)(3)(B), or
206(g)(3)(C) of ERISA (§ 436(d)(1),
436(d)(2), or 436(d)(3) of the Code), (ii)
that limitation subsequently ceases to
apply, and (iii) the plan permits those par-
ticipants or beneficiaries whose benefits
commenced during the period the limita-
tion applied to elect (after the limitation
ceases to apply) to receive their remain-
ing benefits in the form of a prohibited
payment (see § 1.436–1(a)(4)(ii)), then
a section 101(j) notice is required to be
provided within 30 days after the date on
which the limitation ceases to apply. For
rules addressing the content requirements
for a section 101(j) notice relating to new
annuity starting dates, see A–9(b) of this
notice.
Q–7. How do the notice requirements
under section 204(h) of ERISA (section
4980F of the Code) interact with the no-
tice requirements under section 101(j) of
ERISA?
A–7. If a plan that is subject to the
requirements of section 206(g) of ERISA
(§ 436 of the Code) is amended to cease
all benefit accruals independent of the
benefit limitations imposed under sec-
tion 206(g)(4) of ERISA (§ 436(e) of the
Code), a section 101(j) notice is not re-
quired to be provided to participants and
beneficiaries as a result of that amendment
(because no participants or beneficiaries
would be affected by the benefit limita-
tion under section 206(g)(4) of ERISA
(§ 436(e) of the Code)). However, a no-
tice is required under section 204(h) of
ERISA (§ 4980F of the Code) as a re-
sult of that amendment. Further, even
though accruals have ceased, a section
101(j) notice is nevertheless required un-
der A–2 of this notice if the plan is unable
to pay unpredictable contingent event ben-
efits under section 206(g)(1) of ERISA
(§ 436(b) of the Code) and is required
under A–4(a) of this notice if the plan is
unable to pay prohibited payments under
section 206(g)(3)(A) or (B) of ERISA
(§ 436(d)(2) or (3) of the Code). Similarly,
if a plan that ceases accruals pursuant to
section 206(g)(4) of ERISA (§ 436(e) of
the Code) is later amended to implement a
permanent freeze on accruals or otherwise
significantly reduce the rate of future ben-
efit accruals (so that the cessation would
remain in effect even if the benefit limi-
tation under section 206(g)(4) of ERISA
(§ 436(e) of the Code) no longer were
to apply, the plan would be required to
provide a notice of the amendment under
section 204(h) of ERISA (§ 4980F of the
Code). See § 54.4980F–1, A–9(g)(3)(i)
and (g)(3)(ii)(B) for special rules that
apply for purposes of section 204(h) of
ERISA and § 4980F of the Code with
respect to a plan amendment reflecting
section 206(g)(4) of ERISA (§ 436(e) of
the Code). See also A–8(c) of this notice
for a related rule.
The following example illustrates the
rulesinthisA–7:
Example. For the 2013 calendar plan year, Plan
X’s AFTAP is certified on May 15, 2013, to be less
than 60%. In accordance with section 206(g)(4) of
ERISA (§ 436(e) of the Code), the plan is required to
cease all benefit accruals as of May 15, 2013. Plan X
provides a section 101(j) notice to plan participants
on May 30, 2013 (within 30 days after the section
436 measurement date). On October 1, 2013, Plan
X is amended to freeze the plan permanently as of
January 1, 2014. With respect to the plan amendment,
a section 101(j) notice is not required. However, a
section 204(h) notice is required to be provided to
affected individuals within the period required under
§ 54.4980F–1, Q&A–9.
Q–8. Which persons must be provided
with a section 101(j) notice?
A–8. (a)General rule. A section 101(j)
notice is generally required to be provided
to each participant covered under the plan
and to each beneficiary entitled to benefits
under the plan on the first date that the plan
becomes subject to the applicable benefit
limitation or limitations. However, a no-
tice is not required to be provided to any
participant or beneficiary with respect to
whom it is reasonably anticipated that the
relevant limitation could not apply on or
after the date on which the limitation be-
comes applicable. The notice is only re-
quired to be provided to participants and
beneficiaries to whom the relevant limita-
tion applies or could apply. A limitation
applies or could apply to a participant or
beneficiary only if the participant or bene-
ficiary is or could be adversely affected by
the limitation, as described further in this
A–8(a).
(1)Limit on unpredictable contingent
event benefits. In the case of the limi-
tation on unpredictable contingent event
benefits under section 206(g)(1) of ERISA
(§ 436(b) of the Code), the limitation ap-
plies to any participant or beneficiary who
on the date the limitation becomes appli-
cable could be entitled to those benefits,
currently or at a future date, in the event
the contingency on which the benefits are
based were to occur.
The following example illustrates this
rule:
Example. Plan X provides for an unpredictable
contingent event benefit in the form of an early re-
tirement subsidy for participants whose employment
ends after age 55 but before normal retirement age
due to involuntary termination in connection with a
plant shutdown. For the 2013 calendar plan year, Plan
X’s AFTAP is certified on February 1, 2013, to be
less than 60%. In accordance with section 206(g)(1)
of ERISA (§ 436(b) of the Code), the plan is required
to provide that unpredictable contingent event bene-
fits may not be paid. A section 101(j) notice must
be provided to each participant who is employed at
that plant, other than employees who have attained
normal retirement age (and who thus could never be-
come eligible for the early retirement subsidy).
(2)Limit on prohibited payments.In
the case of a limitation on prohibited pay-
ments imposed under section 206(g)(3) of
ERISA (§ 436(d) of the Code), the limita-
tion applies to an individual who is a par-
ticipant or beneficiary on the date the lim-
itation becomes applicable and who could
be eligible to elect to receive a prohibited
payment under the plan (at any time on or
after the date the limitation becomes appli-
cable) if the limitation did not apply. Thus,
for example, a participant who is receiving
pension payments and who would not be
eligible to elect a prohibited payment even
if the plan were not subject to the limita-
tion is not adversely affected by the limi-
2012–30 I.R.B.89July 23, 2012

tation on prohibited payments. Therefore,
a section 101(j) notice is not required to be
provided to such a participant as a result of
a limitation on prohibited payments under
section 206(g)(3) of ERISA (§ 436(d) of
the Code). As another example, if a plan
does not offer payment in any form of pro-
hibited payment, then no section 101(j) no-
tice is required to be provided to any par-
ticipant or beneficiary as a result of a lim-
itation on prohibited payments under sec-
tion 206(g)(3) of ERISA (§ 436(d) of the
Code). Thus, if a plan only offers sin-
gle-sum payments when a participant’s or
beneficiary’s benefit has a present value
of less than the dollar amount for which
consent is required under section 203(e) of
ERISA (§ 411(a)(11) of the Code) (and if
participants and beneficiaries do not have
the right to elect distribution in any other
form of prohibited payment), then no sec-
tion 101(j) notice is required as a result
of section 206(g)(3) of ERISA (§ 436(d)
of the Code) applying to the plan. How-
ever, a limitation under section 206(g)(3)
of ERISA (§ 436(d) of the Code) applies
to any participant or beneficiary who could
be eligible to elect a prohibited payment at
any date on or after the limitation applies to
the plan (if he or she were to separate from
service after attaining any age or service
condition for eligibility to elect that form
of payment). Therefore, a section 101(j)
notice is required to be provided to such
participant or beneficiary.
(3)Limitation on benefit accruals.
With respect to the limitation under section
206(g)(4) of ERISA (§ 436(e) of the Code)
requiring accruals to cease, the limitation
applies to any participant who would oth-
erwise be benefiting under the plan, within
the meaning of § 1.410(b)–3(a), on the
date on which the limitation first applies to
the plan. Therefore, a section 101(j) notice
must be provided to each such participant,
but would not be required to be provided
to former employees or beneficiaries (as-
suming that they would not otherwise be
eligible to accrue benefits under the plan).
(b)Special rule for plans that permit
new annuity starting dates. A section
101(j) notice must be provided to each
participant or beneficiary described in
A–6(b) of this notice to whom an election
to receive a prohibited payment becomes
available as a result of the applicable limi-
tation ceasing to apply.
(c)Application to frozen plans.Inthe
case of a plan that provides for no benefit
accruals with respect to any participant,
whether or not section 206(g)(4) of ERISA
(§ 436(e) of the Code) applies to the plan,
a section 101(j) notice must nevertheless
be provided if the plan provides for any
unpredictable contingent event benefits or
any prohibited payments and the plan be-
comes subject to a limitation under section
206(g)(1) or (3) of ERISA (§ 436(b) or (d)
of the Code). If a frozen plan that does not
provide for any unpredictable contingent
event benefits or prohibited payments is
certified or presumed to have an AFTAP
that is less than 60%, no section 101(j)
notice is required to be provided because
there would be no participant who would
otherwise be benefiting under the plan
(as described in paragraph (a)(3) of this
A–8) and no participant who is or could be
affected by a limitation on unpredictable
contingent event benefits or prohibited
payments. However, if such a frozen plan
is subsequently amended to resume ben-
efit accruals and, at a later date, benefit
accruals are not permitted under the plan
because of section 206(g)(4) of ERISA
(§ 436(e) of the Code), then a section
101(j) notice would be required to be pro-
vided within 30 days after the first date
benefit accruals under the plan are required
to cease as a result of section 206(g)(4) of
ERISA (§ 436(e) of the Code).
(d)Special rule where limitation ceases
to apply before the latest date for provid-
ing a section 101(j) notice.Ifaplanbe-
comes subject to a benefit limitation and
then ceases to be subject to the benefit lim-
itation before the latest date for providing
a section 101(j) notice,the plan is required
to provide a section 101(j) notice only to
those participants and beneficiaries who
were affected by the benefit limitation dur-
ing the period after the plan becomes sub-
ject to the benefit limitation and before the
plan then ceases to be subject to the benefit
limitation. Thus, no section 101(j) notice
is required to be provided if there is no par-
ticipant or beneficiary who was affected
by the benefit limitation during that pe-
riod. For purposes of this A–8, the circum-
stances under which a participant or bene-
ficiary might not be affected by a benefit
limitation during a period include: (1) the
employer makes a section 436 contribution
before the section 101(j) notice is required
to be provided; (2) in the case of a limita-
tion on prohibited payments under section
206(g)(3)(C) of ERISA (§ 436(d)(3) of the
Code) relating to partially prohibited pay-
ments, either no participant or beneficiary
commences benefits during that period or
the plan permits any participant or bene-
ficiary whose benefits commenced during
that period to elect to receive his or her
remaining benefits in the form of a pro-
hibited payment promptly after the limita-
tion ceases to apply; and (3) benefits that
would have accrued during a cessation of
accruals under section 206(g)(4) of ERISA
(§436(e)oftheCode)arerestored(asde-
scribed in § 1.436–1(c)(2) or (3)) before
the section 101(j) notice is required to be
provided.
Q–9. What information is required to
be in a section 101(j) notice?
A–9. (a)General rule. In the case
of a section 101(j) notice required to be
provided because the plan has become
subject to a limitation described in sec-
tion 206(g)(1), 206(g)(3), or 206(g)(4) of
ERISA (§ 436(b), 436(d), or 436(e) of
the Code), the following information is
requiredtobeinthenotice:
(1) The name of the plan, the plan’s
employer identification number (EIN) as-
signed by the Internal Revenue Service,
and the plan number assigned by the plan
sponsor.
(2) A general description of the limi-
tation, such as (i) in the case of a lim-
itation on unpredictable contingent event
benefits or prohibited payments under sec-
tions 206(g)(1) and 206(g)(3) of ERISA
(§§ 436(b) and 436(d) of the Code), a de-
scription of the benefits that are not per-
mitted to be paid, and (ii) in the case of
the limitation under section 206(g)(4) of
ERISA (§ 436(e) of the Code), a statement
that benefit accruals have stopped.
(3) In the case of a limitation on unpre-
dictable contingentevent benefits under
section 206(g)(1) of ERISA (§ 436(b) of
the Code), a prohibited payment limita-
tion under section 206(g)(3)(A) or (C) of
ERISA (§ 436(d)(1) or (3) of the Code),
or benefit accruals having ceased under
section 206(g)(4) of ERISA (§ 436(e) of
the Code), a statement that the limitation
applies because of the level of the plan’s
AFTAP, which may be described as the
plan’s “funded percentage,” including
identification of thespecific percentage
that constitutes the plan’s AFTAP. The
notice must state whether the AFTAP that
July 23, 2012902012–30 I.R.B.

applies at the time a benefit limitation
becomes applicable is a result of a
certification issued by the plan’s enrolled
actuary or is the result of application of
a presumption under section 206(g)(7) of
ERISA (§ 436(h) of the Code).
(4) In the case of a limitation imposed
under section 206(g)(3)(B) of ERISA
(§ 436(d)(2) of the Code) relating to
bankruptcy, a statement that the limita-
tion applies because of the relevant legal
process (under which the plan sponsor is
a debtor in a case under title 11, United
States Code, or similar Federal or State
law) and because the plan’s AFTAP has
not been certified to be at least 100%.
(5) In the case of a limitation on un-
predictable contingent event benefits un-
der section 206(g)(1) of ERISA (§ 436(b)
of the Code), a description of the unpre-
dictable contingent event benefits written
in sufficient detail so that the notice is cal-
culated to make evident the difference be-
tween the plan’s benefits that would be
payable if the limitation had not applied
and those that are payable after application
of the limitation.
(6) In the case of a limitation on prohib-
ited payments under section 206(g)(3) of
ERISA (§ 436(d) of the Code), a descrip-
tion of the prohibited payments written in
sufficient detail so that the notice describes
the difference between the plan’s benefits
that would be payable if the limitation did
not apply and those that are payable after
application of the limitation. If a limita-
tion on prohibited payments under section
206(g)(3) of ERISA (§ 436(d) of the Code)
applies with respect to forms of payment
that may be payable for the participant’s
lifetime (such as a social security leveling
option), the description is not required to
provide more detail than a statement that
benefits under any such form of payment
may be limited, depending on relevant fac-
tors. For example, in the case of a social
security leveling option, the information
provided must include an explanation that
a restriction is more likely to apply in cer-
tain cases in which the present value of the
increased benefits is more than half of the
present value of the total benefits payable.
(7) A description of the conditions un-
der which the limitation will cease to ap-
ply to the plan (such as “when the plan’s
funded percentage is at least 80%”) and a
description of plan provisions that are ap-
plicable after the limitation ceases to ap-
ply, such as a provision on how benefits
under the plan are restored after a benefit
limitation no longer applies. For plans that
provide new annuity starting dates as de-
scribed in A–6(b) of this notice, the notice
must state that any participant or benefi-
ciary to whom an election to receive a pro-
hibited payment becomes available as a re-
sult of the limitation ceasing to apply will
receive notice within 30 days after the date
that the limitation ceases to apply.
(8) The effective date of the limitation.
(9) The class of participants or benefi-
ciaries affected.
(10) The name, address, and telephone
number of the plan administrator, trustee,
or other contact person from whom more
information may be obtained.
(b)Special rule for plans that permit
new annuity starting dates. In the case of a
section 101(j) notice required under para-
graph A–6(b) of this notice, the following
information is required to be in the notice:
(1) The name of the plan, the plan’s
employer identification number (EIN) as-
signed by the Internal Revenue Service,
and the plan number assigned by the plan
sponsor.
(2) A statement that the limitation that
had been imposed on the form of distribu-
tion that constituted a prohibited payment
no longer applies.
(3) A statement that the participant or
beneficiary is eligible to elect the applica-
ble form of distribution that constituted a
prohibited payment, including any dead-
lines and application procedures that apply
for that purpose.
(4) The name, address, and telephone
number of the plan administrator, trustee,
or other contact person to obtain more in-
formation.
(c)Style and format. A section 101(j)
notice must be written in a manner calcu-
lated to be understood by the average plan
participant. In addition, a section 101(j)
notice must be written in such a manner
that the participant or beneficiary will un-
derstand the significance of the required
information in the notice relating to the
benefit limitation. While a section 101(j)
notice may include any additional infor-
mation that is necessary or helpful for re-
cipients to understand the required infor-
mation in the notice, the notice should not
have the effect of misleading or misin-
forming recipients or of distracting recip-
ients from the required information in the
notice. A single combined notice can be
provided if a plan is subject to more than
one limitation (for example, if the plan’s
AFTAP is certified to be below 60% or
is presumed to be below 60%, so that the
plan is subject to the limitations in sections
206(g)(1), 206(g)(3)(A), and 206(g)(4) of
ERISA (§§ 436(b), 436(d)(1), and 436(e)
of the Code)).
(d)Illustrative example.The following exam-
ple illustrates information that satisfies the require-
ments of paragraph (a) of this A–9 with respect to a
pension plan (Pension Plan A) with a valuation date
at the beginning of the plan year for which the AF-
TAP for the 2013 calendar plan year is certified, on
July 6, 2013, to be 75%. Pension Plan A is a sin-
gle-employer defined benefit plan to which section
206(g)(1) of ERISA (§ 436(b) of the Code) applies
andthetermsoftheplan,asineffectsinceSeptem-
ber 1, 2005, have provided for benefit accruals with
respect to one or more participants. Pension Plan
A allows commencement of benefits at any time be-
tween termination of employment and normal retire-
ment age (65). The plan generally permits payment
of a participant’s entire benefit in various life annu-
ities that do not constitute prohibited payments, plus
a single-sum payment form and a social security lev-
eling form. However, Pension Plan A requires pay-
ment to be made in an immediate single-sum distribu-
tion if the present value of the benefit does not exceed
$5,000. Pension Plan A provides that, if a limitation
under section 206(g)(3)(C) of ERISA (§ 436(d)(3) of
the Code) applies to the plan, participants and bene-
ficiaries who elect a single-sum payment or a social
security leveling form of payment for the maximum
amount permitted and who commence the remainder
of their benefits in a form of payment that is not a
prohibited payment can elect to convert that form of
payment to a single-sum payment or full social secu-
rity leveling form of payment within a specified pe-
riod after the limitation ceases to apply. The notice is
provided, by August 5, 2013, to all participants and
beneficiaries who have not commenced benefits be-
fore July 6, 2013.
2012–30 I.R.B.91July 23, 2012

NoticeRegarding[InsertNameofthePlan]
[Insert name of the plan, the plan’s employer
identification number (EIN) assigned by the Internal
Revenue Service, and the plan number assigned by
the plan sponsor.]
Federal law requires a change in the way
your benefits may be paid from your pension
plan. Beginning on July 6, 2013, the plan is
no longer permitted to offer full payment in
a lump-sum payment form for a participant
or beneficiary whose benefit is worth more
than $5,000. However, the plan is permitted to
pay up to half of the pension in the form of a
lump-sum payment. (A special limit may apply
to lump-sum payments that exceed a dollar
amount which is published by the government
athttp://www.pbgc.gov/practitioners/
miscellaneous-tables/pvmg.html.)
Beginning on July 6, 2013, the plan may also
be required to limit the amount paid in the social
security leveling form in certain specific cases
(where the value of the extra amount payable be-
fore your presumed social security retirement age
under the plan is more than half of the value of
the total benefits payable under the plan).
This limit on lump-sum payments and on
payments in the social security leveling form is
imposed under federal law because the plan’s
funded percentage for the current plan year (at
January 1, 2013) is 75%, as determined by the
plan’s actuary. The limit will cease to apply when
it has been determined that the plan’s funding
status has improved so that the funded percentage
is at least 80%.
This limit only applies if your total benefit is
worth more than $5,000 and does not place any
restriction on payment in the form of a life annu-
ity, so that each optional form of payment offered
under the plan other than the lump-sum or social
security leveling forms continues to be available.
If you retire or otherwise terminate employment
and are eligible to commence benefits, you may
choose among the following:
•Electpaymentofyourentirebenefitinanon-
acceleratedformofpayment. You can elect
to receive 100% of your pension in any life
annuity or other optional form of payment
offered under the plan other than a lump-sum
payment or social security leveling form.
•Electpaymentofhalfyourbenefitinalump-
sumpayment,withtheremainderinanon-
acceleratedform. You can elect to receive up
to 50% of your pension in the form of a lump-
sum payment, with the remaining 50% paid
in any other form of payment available under
the plan. Later, if the plan’s funding status
has improved so that the plan is permitted
to offer full lump-sum payments, you will be
notified of the change in status at that time
and then can elect to receive a lump-sum
payment for the remaining portion of your
benefit.
•Electpaymentofhalfyourbenefitinaso-
cialsecuritylevelingform,withtheremain-
derinanon-acceleratedform. You can elect
to receive up to 50% of your pension in in-
stallments until your presumed social secu-
rity retirement date under the plan, with the
remaining 50% paid in an immediate life an-
nuity or any other non-accelerated form of
payment available under the plan. If you
choose this payment option, you can elect to
receive the remaining portion of your bene-
fit in the social security leveling form if the
plan is again permitted to offer such pay-
ments in full. If you choose this half social se-
curity leveling form, you will be notified if the
plan’s funding status has improved enough
so that full payments in the form of social se-
curity leveling are permitted.
•Electtoreceiveyourbenefitlater. You can
defer receipt of your entire pension to any
later date (but not later than age 65), when
the limit might not apply.
If you are married, you cannot elect payment in
any form other than a joint and survivor annu-
ity with your spouse as the survivor, with at least
a 50% surviving spouse’s annuity, unless your
spouse consents.
If you have any questions, contact [insert
name, address, and telephone number for contact
information].
Q–10. What are the acceptable methods
of providing a section 101(j) notice?
A–10. A section 101(j) notice must be
in writing and may be furnished in any
paper or electronic form to the extent such
form is reasonably accessible to persons
to whom the notice is required to be pro-
vided. Permissible electronic methods
include those permitted under regulations
of the Department of Labor at 29 C.F.R.
§ 2520.104b–1(c) and those described at
§ 54.4980F–1, Q&A–13(c).
IV. Applicability Date
Thisnoticeiseffectiveon[
INSERT
DATETHATISTHEFIRSTDAYOF
THEFIRSTCALENDARMONTH
FOLLOWING90DAYSAFTERPUB-
LICATIONOFTHISDOCUMENT
INTHEINTERNALREVENUEBUL-
LETIN]. However, the plan administrator
may rely on the provisions in this notice
before that date. The plan administrator
may also apply a reasonable interpretation
of section 101(j) of ERISA before that
date.
V. Request for Comments
Comments are requested on whether a
section 101(j) notice should be required
to be provided at additional dates, such
as whenever a limitation ceases to ap-
ply. Similarly, comments are requested
on whether a section 101(j) notice should
be provided to individuals who become
participants or beneficiaries after the first
date the limitation applies or to partici-
pants and beneficiaries at later dates if the
limitation continues to apply to the plan,
such as on an annual or tri-annual basis.
DRAFTING INFORMATION
The principal author of this notice
is Diane Bloom of Employee Plans,
Tax Exempt and Government Entities
Division, with the participation of
personnel from other offices within
the Service and Treasury. For further
information regarding this notice, please
call the Employee Plans customer
assistance service Monday through
Friday between 8:30 a.m.and
4:30 p.m.Eastern time at (877)
829–5500 (a toll-free number) or e-mail
RetirementPlanQuestions@irs.gov.
July 23, 2012922012–30 I.R.B.

Part IV. Items o
fGeneralInterest
Notice of Prop
osed
Rulemaking by
Cross-Refere
nce to
Temporary Re
gulations
Disregarded
Entities and
the Indoor Ta
nning Services
Excise Tax
REG–125570–11
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. 9596) relating to disregarded enti-
ties (including qualified subchapter S sub-
sidiaries) and the indoor tanning services
excise tax. These regulations affect dis-
regarded entities responsible for collect-
ing the indoor tanning services excise tax
and owners of those disregarded entities.
The text of the temporary regulations also
serves as the text of the proposed regula-
tions.
DATES: Comments and requests for
a public hearing must be received by
September 24, 2012.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR(REG–125570–11),
room 5205, Internal Revenue Ser-
vice, PO Box 7604, Ben Franklin Sta-
tion, Washington, DC 20044. Sub-
missions may be hand-delivered to:
CC:PA:LPD:PR Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to: CC:PA:LPD:PR (REG–125570–11),
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–125570–11).
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Michael H. Beker, (202)
622–3130; concerning submissions of
comments and requests for a public
hearing, Oluw
afunmilayo Taylor, (202)
622–7180 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed
amendments to the Income Tax Regula-
tions (26 CFR part 1) under section 1361
of the Internal Revenue Code (Code) and
the Procedure and Administration Regu-
lations (26 CFR part 301) under section
7701 of the Code. The text of temporary
regulations published in this issue of the
Bulletin also serves as the text of these
proposed regulations. The preamble to
the temporary regulations explains the
temporary regulations and these proposed
regulations.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a sig-
nificant regulatory action as defined in
Executive Order 12866,as supplemented
by Executive Order 13563. Therefore,
a regulatory assessment is not required.
It has also been determined that section
553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) does not apply
to these regulations, and because these
regulations do not impose a collection of
information on small entities, the Regu-
latory Flexibility Act (5 U.S.C. chapter
6) does not apply. Pursuant to section
7805(f) of the Internal Revenue Code,
this regulation has been submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any comments that are sub-
mitted timely to the IRS as prescribed in
this preamble under the “Addresses” head-
ing. The IRS and the Treasury Depart-
ment request comments on all aspects of
the proposed rules. All comments will be
available atwww.regulations.govor upon
request. A public hearing will be sched-
uled if requested in writing by any person
that timely su
bmits written comments. If
apublicheari
ng is scheduled, notice of the
date, time, an
d place for the public hearing
will be publis
hedintheFederal Register.
Drafting Info
rmation
The principal
author of these regula-
tions is Mich
ael H. Beker, Office of the
Associate Ch
ief Counsel (Passthroughs
and Special I
ndustries).However,
other person
nel from the IRS and the
Treasury Dep
artment participated in their
developmen
t.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 301
are proposed to be amended as follows:
PART 1—INCOME TAX
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.1361–4 is amended
by adding paragraph (a)(8)(iii) to read as
follows:
§1.1361–4 Effect of QSub election.
(a) * * *
(8) * * *
(iii) [The text of proposed
§1.1361–4(a)(8)(iii) is the same as the
text of §1.1361–4T(a)(8)(iii)(A) and (B)
published elsewhere in this issue of the
Bulletin].
*****
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 3. The authority citation for part
301 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 4. Section 301.7701–2 is amended
by adding new paragraphs (c)(2)(vi) and
(e)(9) to read as follows:
§301.7701–2 Business entities;
definitions.
*****
(c) * * *
(2) * * *
2012–30 I.R.B.93July 23, 2012

(vi) [The text of proposed
§301.7701–2(c)(2)(vi) is the same as the
text of §301.7701–2T(c)(2)(vi) published
elsewhere in this issue of the Bulletin].
*****
(e) * * *
(9) [The text of proposed
§301.7701–2(e)(9) is the same as the
text of §301.7701–2T(e)(9)(i) published
elsewhere in this issue of the Bulletin].
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on June 22, 2012,
8:45 a.m., and published in the issue of the Federal Register
for June 25, 2012, 77 F.R. 37886)
July 23, 2012942012–30 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.
2012–30 I.R.B.iJuly 23, 2012

Numerical Finding List
1
Bulletins 2012–27 through 2012–30
Announcements:
2012-26, 2012-27 I.R.B.8
2012-27, 2012-27 I.R.B.10
2012-28, 2012-27 I.R.B.10
Notices:
2012-44, 2012-28 I.R.B.45
2012-45, 2012-29 I.R.B.59
2012-46, 2012-30 I.R.B.86
Proposed Regulations:
REG-134042-07, 2012-27 I.R.B.5
REG-153627-08, 2012-29 I.R.B.60
REG-125570-11, 2012-30 I.R.B.93
REG-134935-11, 2012-29 I.R.B.64
REG-141832-11, 2012-28 I.R.B.54
REG-107889-12, 2012-28 I.R.B.53
REG-113738-12, 2012-29 I.R.B.66
Revenue Procedures:
2012-28, 2012-27 I.R.B.4
2012-29, 2012-28 I.R.B.49
Revenue Rulings:
2012-19, 2012-28 I.R.B.16
2012-20, 2012-27 I.R.B.1
Treasury Decisions:
9591, 2012-28 I.R.B.32
9592, 2012-28 I.R.B.41
9593, 2012-28 I.R.B.17
9594, 2012-29 I.R.B.57
9595, 2012-30 I.R.B.71
9596, 2012-30 I.R.B.84
1
A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2012–1 through 2012–26 is in Internal Revenue Bulletin
2012–26, dated June 25, 2012.
July 23, 2012ii2012–30 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2012–27 through 2012–30
Proposed Regulations:
REG-100276-97
Withdrawn by
Ann. 2012-27, 2012-27 I.R.B.10
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2012–1 through 2012–26 is in Internal Revenue Bulletin 2012–26, dated June 25, 2012.
2012–30 I.R.B.iiiJuly 23, 2012

July 23, 20122012–30 I.R.B.

Internal Revenue Service
W
ashington,DC20224
Official Business
Penalty for Private Use, $300
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