Internal Revenue Bulletin 2013-46 (PDF rendition): IRS Notices

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

# Internal Revenue bulletin

## HIGHLIGHTS OF THIS ISSUE

These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.

## INCOME TAX

### Rev. Rul. 2013-22, page 496.

Federal rates; adjusted federal rates; adjusted federal long-
term rate and the long-term exempt rate. For purposes of
sections 382, 642, 1274, 1288, and other sections of the
Code, tables set forth the rates for November 2013.

### T.D. 9638, page 487.

These final regulations under section 382 of the Code provide
relief in certain situations from the segregation rules for public
groups of shareholders in determining owner shifts and own-
ership changes.

### Notice 2013-68, page 501.

This notice updates interim guidance contained in Notice
2006-40, relating to the credit under § 45J of the Code for
production of electricity at advanced nuclear power facilities.
Specifically, this notice prescribes the application process by
which taxpayers may request an allocation of the national
megawatt capacity limitation, describes the consultation be-
tween the IRS and the Department of Energy concerning these
applications, and specifies the method that will be used to
allocate the national megawatt capacity limitation that limits the
allowable credit. This notice modifies and supersedes Notice
2006-40.

### Notice 2013-69, page 503.

This Notice provides guidance to foreign financial institutions
(FFIs) entering into an FFI agreement with the Internal Revenue
Service (IRS) under section 1471(b) of the Code and
§ 1.1471-4 of the Treasury Regulations (the FFI agreement) to
be treated as participating FFIs. This notice also provides
guidance to FFIs and branches of FFIs treated as reporting
financial institutions under an applicable Model 2 intergovern-
mental agreement (IGA) (reporting Model 2 FFIs) on complying
with the terms of an FFI agreement, as modified by the IGA.

This Notice provides a draft copy of the FFI agreement, which
will be finalized before December 31, 2013.

#### Announcement 2013-43, page 524.

Announcement of the Results of the 2012-2013 Phase III
Allocation Round of the Qualifying Advanced Coal Project Pro-
gram. This announcement discloses the results of the
2012-13 allocation round under the qualifying advanced coal
project program of § 48A of the Code.

## EMPLOYEE PLANS

### Notice 2013-66, page 498.

This notice contains updates for the corporate bond weighted
average interest rate for plan years beginning in October
2013; the 24-month average segment rates; the funding seg-
ment rates applicable for October 2013; and the minimum
present value rates for September 2013. The rates in this
notice reflect certain changes implemented by the Moving
Ahead for Progress in the 21st Century Act, Public Law 112-
141 (MAP-21).

Finding Lists begin on page ii.

Department of the Treasury
Internal Revenue Service

## The IRS Mission

Provide America's taxpayers top-quality service by helping
them understand and meet their tax responsibilities and en-
force the law with integrity and fairness to all.

## Introduction

The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly.

It is the policy of the Service to publish in the Bulletin all
substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of internal
management are not published; however, statements of inter-
nal 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, identify-
ing details and information of a confidential nature are deleted
to prevent unwarranted invasions of privacy and to comply with
statutory requirements.

Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned

against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

### Part I .- 1986 Code.

This part includes rulings and decisions based on provisions of
the Internal Revenue Code of 1986.

### Part II .- Treaties and Tax Legislation.

This part is divided into two subparts as follows: Subpart A, Tax
Conventions and Other Related Items, and Subpart B, Legisla-
tion 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 Sec-
retary (Enforcement).

### Part IV .- Items of General Interest.

This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative index for
the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

## Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

### Section 42 .- Low-Income Housing Credit

The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of November 2013. See Rev. Rul. 2013-22, page
496.

### Section 280G .- Golden Parachute Payments

Federal short-term, mid-term, and long-term
rates are set forth for the month of November 2013.
See Rev. Rul. 2013-22, page 496.

Section 382 .- Limitation
on Net Operating Loss
Carryforwards and Certain
Built-In Losses Following
Ownership Change

T.D. 9638

DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1

### Application of the Segregation Rules to Small Shareholders

AGENCY: Internal Revenue Service
(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains fi-
nal regulations under section 382 of the
Internal Revenue Code (Code). These reg-
ulations provide guidance regarding the
application of the segregation rules to
public groups of shareholders in determin-
ing owner shifts and ownership changes
under section 382 of the Code. These reg-
ulations affect corporations.

DATES: Effective Date: These regula-
tions are effective on October 22, 2013.

Applicability Date: For dates of appli-
cability, see §1.382-3(j)(17).

FOR FURTHER INFORMATION
CONTACT: Stephen R. Cleary, (202)
622-7750, or Marie C. Milnes-Vasquez,
(202) 622-7530 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

#### Background

Section 382 imposes a limitation on a
corporation's use of net operating loss
carryovers and certain other attributes fol-
lowing a change in ownership of the cor-
poration (loss corporation). A loss corpo-
ration has an ownership change if the
percentage of stock of a loss corporation
that is owned by one or more 5-percent
shareholders has increased by more than
50 percentage points over the lowest per-
centage of stock of the loss corporation
owned by such shareholders at any time
during the testing period (generally, a
three-year period). Pursuant to section
382(g)(4)(A), individual shareholders
who own less than five percent of a loss
corporation are aggregated and treated as
a single 5-percent shareholder (a public
group).

The regulations extend the public
group concept to situations in which a loss
corporation is owned by one or more en-
tities, as defined in §1.382-3(a) (gener-
ally, partnerships, corporations, estates,
and trusts). If an entity directly or indi-
rectly owns five percent or more of the
loss corporation, that entity has its own
public group if its owners who are not
5-percent shareholders own, in the aggre-
gate, five percent or more of the loss cor-
poration. An entity that owns a five-
percent or more direct interest in a loss
corporation at any time during a testing
period is a "first tier entity," and a
"higher-tier entity" is any entity owning a
five-percent or more direct interest in a
first tier entity or any other higher tier
entity at any time during a testing period.
(Such entities are referred to as 5-Percent
Entities in this preamble.)

The application of the segregation
rules results in the creation of a new pub-
lic group in addition to the one (or more)
that existed previously. That new group is
treated as a new 5-percent shareholder

that increases its ownership interest in the
loss corporation.

The segregation rules apply to transfers
of loss corporation stock by an individual
5-percent shareholder to public sharehold-
ers and a 5-Percent Entity's transfer of
loss corporation stock to public sharehold-
ers. In addition, the current segregation
rules, subject to the cash issuance and
small issuance exceptions (described in
this preamble), treat issuances of stock
under section 1032, redemptions, and
redemption-like transactions as segrega-
tion events.

Generally, the small issuance excep-
tion exempts the total amount of stock
issued during a taxable year to the extent
it does not exceed 10 percent of the total
value of the corporation's outstanding
stock at the beginning of the taxable year
or 10 percent of the class of stock issued
and outstanding at the beginning of the
taxable year (the 10-percent limitation).
However, the small issuance exception
does not apply to any issuance of stock
that, by itself, exceeds the 10-percent lim-
itation. If stock is issued solely for cash,
the cash issuance exception exempts a
percentage of the total stock issued equal
to 50 percent of the aggregate percentage
ownership interest of the public groups of
the corporation immediately before the is-
suance. If the small issuance exception
excludes only a portion of a stock issu-
ance, the cash issuance exception may
apply to the portion not excluded under
the small issuance exception.

Notice 2010-49, 2010-27 I.R.B .. 10,
invited public comment relating to possi-
ble modifications to the regulations under
section 382 regarding the treatment of
shareholders who are not 5-percent share-
holders (Small Shareholders). See
§601.601(d)(2)(ii)(b). On November 23,
2011, the IRS and the Treasury Depart-
ment published a notice of proposed rule-
making in the Federal Register (REG-
149625-10, 2012-2 I.R.B. 279; 76 FR
72362-01) containing proposed regula-
tions (proposed regulations) that, if final-
ized, would provide relief in certain cases
from the segregation rules of the current
regulations under section 382.

#### Summary of Proposed Regulations

The proposed regulations provide ex-
ceptions, in addition to those in the current
regulations, that would exempt from the
segregation rules certain transactions in-
volving the stock of loss corporations and
5-Percent Entities. The preamble to the
proposed regulations explains that these
additional exceptions are intended to re-
duce tax administration and compliance
burdens with respect to transactions that
do not bear indicia of loss trafficking, and
thus do not implicate the policies under-
lying section 382.

##### A. Secondary Transfer Exception

The proposed regulations generally
would render the segregation rules inop-
erative with respect to transfers of loss
corporation stock to Small Shareholders
by 5-Percent Entities or individuals who
are 5-percent shareholders. In these cases,
the stock transferred will be treated as
being acquired proportionately by the
public groups existing at the time of the
transfer. This rule also applies to transfers
of ownership interests in 5-Percent Enti-
ties to public owners and to 5-percent
owners who are not 5-percent sharehold-
ers.

##### B. Small Redemption Exception

The proposed regulations provide an
exception that would exempt small re-
demptions of the stock of a loss corpora-
tion from the segregation rules (small re-
demption exception) that is based upon
the 10-percent limitation of the small is-
suance exception in the current regula-
tions. The small redemption exception
would annually exempt from the segrega-
tion rules, at the loss corporation's option,
either redemptions of loss corporation
stock equal to 10 percent of the total value
of the loss corporation's stock at the be-
ginning of the taxable year, or redemp-
tions of loss corporation stock of up to 10
percent of the number of shares of the
redeemed class of loss corporation stock
outstanding at the beginning of the taxable
year. Pursuant to this exception, each pub-
lic group existing immediately before the
redemption would be treated as redeeming
its proportionate share of exempted stock.

##### C. General Exception to Segregation Rules for 5-Percent Entities

Under the proposed regulations, the
segregation rules would not apply to cer-
tain transactions involving a 5-Percent
Entity (general exception). Under the gen-
eral exception, the segregation rules
would not apply if, on the date of the
transaction at issue, (i) the 5-Percent En-
tity owns 10 percent or less (by value) of
all the outstanding stock of the loss cor-
poration (ownership limitation), and (ii)
the direct or indirect investment in the
stock of the loss corporation does not ex-
ceed 25 percent of the 5-Percent Entity's
gross assets (asset threshold). For pur-
poses of the asset threshold, the 5-Percent
Entity's cash and cash items within the
meaning of section 382(h)(3)(B)(ii) would
not be taken into account.

The preamble to the proposed regula-
tions describes the purpose of the general
exception:

The IRS and the Treasury Department
believe that the proposal strikes an ap-
propriate balance between reducing
complexity and safeguarding section
382 policies. The proposal will enable
loss corporations to disregard indirect
changes in its ownership that may, un-
der the current regulations, require bur-
densome information gathering and
may unnecessarily impede the loss cor-
poration's ability to reorganize its af-
fairs. At the same time, however, the
proposal imposes criteria that protect
the government's interests. The asset
threshold makes it unlikely that the
loss corporation's attributes motivate
transactions in the equity of 5-Percent
Entities. Additionally, like the small
issuance exception and the relief for
redemptions that appears elsewhere in
this proposal, the ownership limitation
makes it unlikely that transactions
among Small Shareholders one or
more tiers removed from the loss cor-
poration implicate loss trafficking con-
cerns. * * *

#### Summary of Comments and Explanation of Provisions

Comments were received in response
to the proposed regulations. A public
hearing was not requested, and none was
held. The comments generally supported

the provisions of the proposed regulations,
but requested a number of revisions. After
consideration of all the comments, the
proposed regulations are adopted as
amended by this Treasury decision. In
general, the final regulations follow the
approach of the proposed regulations,
with some revisions. The more significant
comments and revisions are discussed in
this section.

##### A. Secondary Transfer Segregation Rule

The proposed regulations contain a
clarification of the application of §1.382-
2T(j)(3) of the current regulations (sec-
ondary transfer segregation rule). Under
the secondary transfer segregation rule, in
general, the segregation rules apply to sec-
ondary public transfers of loss corporation
stock (that is, transfers of loss corporation
stock from 5-percent shareholders or first
tier entities to public shareholders). Sec-
tion 1.382-2T(j)(3) of the current regula-
tions further provides that the "principles"
of the foregoing rule apply to "transac-
tions in which an ownership interest in a
higher tier entity that owns five percent or
more of the loss corporation (determined
without regard to [§1.382-2T(h)(i)(A)])
or a first tier entity is transferred to a
public owner or a 5-percent owner who is
not a 5-percent shareholder." The IRS and
the Treasury Department became aware
that it is unclear whether the secondary
transfer segregation rule applies to trans-
fers of higher tier entity stock by a trans-
feror that does not indirectly own five
percent or more in the relevant loss cor-
poration. New §1.382-3(i) of the pro-
posed regulations would clarify that the
secondary transfer segregation rule ap-
plies to a transfer of higher tier entity
stock only if the seller indirectly owns five
percent or more of the loss corporation.

After further considering the interac-
tion between §1.382-3(i) and the second-
ary transfer exception of §1.382-
3(j)(13) of the proposed regulations, the
IRS and the Treasury Department have
concluded that it is not necessary to retain
a stand-alone rule clarifying the operation
of the secondary transfer segregation rule
in the final regulations because the sec-
ondary transfer exception eliminates all of
the segregation rules of §1.382-
2T(j)(3) with respect to all secondary

transfers occurring after the regulations
are published as final regulations. How-
ever, the substance of the clarification
contained in §1.382-3(i) of the proposed
regulations has been incorporated into the
final version of the secondary transfer ex-
ception of §1.382-3(j)(13) to confirm that
the segregation rules, and therefore the
secondary transfer exception, apply to
secondary transfers of stock of a loss cor-
poration or 5-Percent Entity only if the
transferor indirectly owns 5 percent of the
loss corporation. In addition, the IRS will
not challenge application of the clarifica-
tion contained in §1.382-3(i) of the pro-
posed regulations to transfers occurring
on dates before October 22, 2013.

##### B. Small Redemption Exception

Two commenters requested that the
small redemption exception be expanded
to exempt redemptions of up to 25 percent
of the total value of stock or number of
shares of a class of stock. The commenters
argued that, because redemptions do not
inject new capital into a loss corporation
but rather contract the corporation's cap-
ital, the regulations should allow a more
generous exemption from the segregation
rules for redemptions than for stock issu-
ances.

After consideration of the comments,
the IRS and the Treasury Department
have determined that the ceiling on the
small redemption exception should re-
main at 10 percent. As discussed in
greater detail in the preamble to the pro-
posed regulations, the provisions of the
proposed regulations were intended to re-
duce tax administration and compliance
burdens with respect to transactions that
do not implicate the policies of section
382. To that end, occasional redemptions
of stock, which, in the aggregate, repre-
sent a small percentage of the issuer's
equity, are unlikely to be used as a device
to shift the ownership of a loss corpora-
tion. Accordingly, relief from application
of the segregation rules is appropriate.
Raising the ceiling on the size of redemp-
tions to which the small redemption ex-
ception applies to 25 percent could be
used to effectuate significant shifts in
ownership contrary to the policies of sec-
tion 382.

###### C. Application of Small Issuance and Small Redemption Exceptions to 5- Percent Entities

Commenters requested that the small
redemption exception be extended to ex-
empt redemptions of the stock of
5-Percent Entities from the segregation
rules. These commenters noted that the
secondary transfer exception provided in
the proposed regulations exempts certain
transfers of the stock of 5-Percent Entities
from the segregation rules, as does the
small issuance exception in the current
regulations. Additionally, one commenter
noted that if the small redemption excep-
tion were extended to redemptions by
5-Percent Entities, guidance should be
provided to supply the baseline against
which to measure the 10-percent limita-
tion of the small redemption exception in
such cases. Specifically, the commenter
asked for clarification regarding whether
the limitation would be calculated by ref-
erence to the stock of the redeeming cor-
poration, or, alternatively, by reference to
the stock of the loss corporation.

In response to these comments, the fi-
nal regulations extend the small redemp-
tion exception to exempt redemptions of
the stock of 5-Percent Entities from the
segregation rules. Further, the IRS and the
Treasury Department have concluded that
the 10-percent limitation of the small re-
demption exception should be measured
by reference to the stock of the entity
engaging in the redemption. Calculating
the 10-percent limitation by reference to
the stock of the redeeming entity will en-
sure that this exception, consistent with its
intended purpose, applies only to redemp-
tions that are "small." For example, as-
sume that a first tier entity, the stock of
which has a value of $150, owns an 8-
percent stake in a loss corporation, the
stock of which has an aggregate value of
$750. If the 10-percent limitation were
applied by reference to the value of the
loss corporation's stock, then the first tier
entity would be permitted to redeem an
amount of stock equal to 50 percent of its
pre-existing stock (that is, 10 percent of
$750 ($75)/$150) without application of
the segregation rules. This result is inap-
propriate. Accordingly, these final regula-
tions provide that the 10-percent limita-
tion of the small redemption exception

applies by reference to the value of the
entity (or to the classes of stock of the
entity, as the case may be) that is engaging
in the redemption.

In the preamble to the proposed regu-
lations, the IRS and the Treasury Depart-
ment requested comments as to whether
further refinement of the small issuance
exception in the current regulations might
be warranted in the context of any poten-
tial expansion of the additional exceptions
proposed therein. As discussed, these final
regulations expand the small redemption
exception to apply to redemptions of the
stock of 5-Percent Entities, and provide
that the stock of the 5-Percent Entity en-
gaging in the redemption is the appropri-
ate baseline for computing the 10-percent
limitation for the small redemption excep-
tion in such cases. In comments received
in response to the proposed regulations,
one commenter noted that the small issu-
ance exception in the current regulations
applies to issuances of stock of 5-Percent
Entities and contains a parallel 10-percent
limitation on the amount of stock issued
that qualifies for this exception. Further,
the commenter pointed out that the same
question of the appropriate baseline for
applying the 10-percent limitation exists
with regard to the small issuance redemp-
tion. The commenter requested that these
final regulations supply clarification with
regard to the appropriate baseline for ap-
plying the small issuance exception to is-
suances of stock of 5-Percent Entities.

After consideration of this comment,
the IRS and the Treasury Department
have determined that the same policy con-
siderations discussed with regard to the
application of the small redemption ex-
ception to 5-Percent Entities exist with
regard to the application of the small is-
suance exception to 5-Percent Entities.
Thus, these final regulations provide that
the 10-percent limitation of the small is-
suance exception in the current regula-
tions is calculated by reference to the
same baseline used for the small redemp-
tion exception. Accordingly, these final
regulations provide that the 10-percent
limitation for the application of the small
issuance exception to issuances of stock
by a 5-Percent Entity is calculated by ref-
erence to the value of the stock of the
issuing entity (or to the classes of stock of
that entity, as the case may be).

###### D. General Exception to Segregation Rules for 5-Percent Entities

Some commenters proposed increasing
the ownership limitation for the general
exception from 10 percent to a higher
percentage (between 15 and 30 percent) to
increase the number of 5-Percent Entities
that would qualify for the general excep-
tion to the segregation rules. After consid-
eration of these comments, the IRS and
the Treasury Department have concluded
that it is appropriate for the ownership
limitation of the general exception to re-
main at 10 percent in the final regulations.
The IRS and the Treasury Department be-
lieve that maintaining the ownership lim-
itation at 10 percent represents an appro-
priate balance between reducing
administrative and compliance burdens
while protecting against transactions that
may raise loss trafficking concerns. Ac-
cordingly, the final regulations retain the
10-percent ownership limitation.

Several commenters expressed concern
that loss corporations would not be able to
verify that a 5-Percent Entity's ownership
of loss corporation stock does not exceed
the 25-percent asset threshold. Although
the loss corporation could request such
information from the 5-Percent Entity,
there is no requirement that the 5-Percent
Entity provide it (and it may be legally
obliged not to provide such information).
In response to that concern, some com-
menters suggested that a loss corporation
should be able to apply the general excep-
tion if it determines in good faith that it
has satisfied a duty of inquiry with regard
to satisfaction of the asset threshold by a
particular 5-Percent Entity. In addition,
questions were raised whether the asset
threshold could be replaced with an anti-
avoidance rule designed to frustrate
abuses that could arise in the absence of
the asset threshold.

The preamble to the proposed regula-
tions explains that the asset threshold was
created to ensure that the segregation rules
would continue to apply to transactions in
the stock of 5-Percent Entities that were
motivated by attempts to exploit the attri-
butes of the loss corporation. In effect, the
IRS and the Treasury Department im-
posed the combination of the ownership
limitation and the asset threshold as the
equivalent of an anti-avoidance rule,

though formulated as an objective test.
However, the comments received indicate
that the asset threshold, as presented in the
proposed regulations, would prevent the
general exception to the segregation rules
from achieving the goal of reducing com-
plexity while safeguarding section 382
policies.

After consideration of the comments,
the IRS and the Treasury Department
have decided to replace the asset threshold
test with an anti-avoidance rule. The anti-
avoidance rule provides that the general
exception to the segregation rules does not
apply to a transaction involving an own-
ership interest in a 5-Percent Entity if the
loss corporation, directly or through one
or more persons, has participated in plan-
ning or structuring the transaction with a
view to avoid the application of the seg-
regation rules. This anti-avoidance rule
will more directly address the tax avoid-
ance concerns underlying the asset thresh-
old included in the proposed regulations
while reducing tax compliance burdens
with regard to transactions with low tax
avoidance potential. The existence of the
10-percent ownership limitation will en-
sure that the general exception applies
only with regard to transactions involving
holders who have relatively small owner-
ship interests in the loss corporation and,
therefore, are unlikely to be vehicles for
avoidance planning. In addition, this anti-
avoidance rule would not be violated in
the common situation in which the loss
corporation seeks and obtains (or seeks
and cannot obtain) information about a
proposed transaction that would change
the ownership of a 5-Percent Entity, but
the loss corporation does not take part in
planning or structuring the transaction.

###### E. Correction of General Exception Example

Commenters pointed out a technical
error in one general exception example
(Example 11 in §1.382-3(j)(16) of the
proposed regulations) and requested its
correction. The commenters pointed out
that the example mistakenly treats an en-
tity as a first tier entity although its only
interest in the loss corporation is preferred
stock meeting the requirements of section
1504(a)(4). The IRS and the Treasury De-
partment agree that the example is techni-

cally flawed because section 1504(a)(4)
stock is disregarded for purposes of deter-
mining ownership shifts. We note that Ex-
ample 11 assumes a modified version of
the facts of Example 10. Therefore, in
order to correct the illustration of the gen-
eral exception by Example 11, these final
regulations contain modifications to Ex-
amples 10 and 11, which provide that, in
addition to the preferred stock, the share-
holder entity owns sufficient common
stock at the outset of the example to be
tracked as a first tier entity.

##### F. Effective Dates

The proposed regulations provide that
the proposed exceptions to the segregation
rules would apply to testing dates occur-
ring on or after the date the regulations are
published as final regulations in the Fed-
eral Register (the Publication Date).
Commenters have requested that the reg-
ulations should allow taxpayers to apply
the proposed regulations retroactively.
One commenter suggested that taxpayers
should be permitted to apply the proposed
regulations retroactively, regardless of
whether such application would reverse a
prior ownership change either in a closed
or an open year, provided that taxpayers
were required to revise carryforward
schedules consistently with any such
change. (For example, if application of the
proposed regulations in a closed year
would reverse an ownership change, the
taxpayer would be required to adjust its
carryforward schedule to the extent net
operating losses would have been ab-
sorbed in one or more closed years.) This
commenter pointed to the small issuance
and cash issuance exceptions as provi-
sions with a similar effective date. An-
other commenter pointed out that the pro-
posed effective date would create
inconsistencies in the treatment of Small
Shareholders on testing dates within a sin-
gle testing period when the Publication
Date occurs during the testing period. This
comment proposed three alternatives that
would allow a loss corporation to consis-
tently apply the new rules to (a) testing
dates on or after the Publication Date; (b)
all testing dates within a testing period
that includes the Publication Date; or (c)
testing periods for which all of the testing
dates occur after the Publication Date.

After consideration of the comments,
the final regulations do not permit taxpay-
ers to apply the final regulations to a test-
ing date before October 22, 2013 if the
application of the final regulations would
result in an ownership change that did not
occur, or would reverse an ownership
change that did occur, on a date before
October 22, 2013 under the regulations
then in effect. The IRS and the Treasury
Department believe that, in general, own-
ership change determinations from prior
periods should remain fixed, and that the
interests of tax administration are not
served by permitting taxpayers to choose
whether it is more advantageous to retain
an ownership change result from a prior
period or to reverse that result through the
application of new regulations. For this
reason, the final regulations retain the gen-
eral effective date of the proposed regula-
tions. The final regulations do, however,
permit taxpayers to apply the provisions
of the final regulations in their entirety to
all testing dates that are included in a
testing period beginning before and end-
ing on or after October 22, 2013, subject
to the limitations that (1) the final regula-
tions may not be applied to any date on or
before the date of any ownership change
that occurred on a date before October 22,
2013 under the regulations in effect before
October 22, 2013, and (2) they may not be
applied if their application would result in
an ownership change occurring on a date
before October 22, 2013 that did not occur
under the regulations in effect before Oc-
tober 22, 2013.

For example, assume that a loss corpo-
ration experienced an ownership change
on October 1, 2012, and the current test-
ing period began on October 2, 2012. Fol-
lowing the publication of the final regula-
tions on October 22, 2013, the loss
corporation wishes to permissively apply
the regulations to all dates of its testing
period that begins before and ends on or
after October 22, 2013. The regulations
may be permissively applied beginning on
October 2, 2012, but only if such applica-
tion does not result in an ownership
change occurring on a date before October
22, 2013 that did not occur under the
regulations in effect during the period be-
fore October 22, 2013. Because the final
regulations may not be applied to any date
on or before the date of any ownership

change that occurred before October 22,
2013 under the regulations in effect before
that date, the final regulations may not be
permissively applied to October 1, 2012,
or any earlier date.

###### G. Revisions to the Small Issuance and Cash Issuance Exceptions

The preamble to the proposed regula-
tions requested comments as to whether
further refinement of either or both of the
small issuance or cash issuance excep-
tions might be warranted in the context of
any potential expansion of the exceptions
contained in the proposed regulations. Af-
ter consideration of the comments re-
ceived, the IRS and the Treasury Depart-
ment believe that no changes to the small
issuance or cash issuance exceptions
should be made, other than the clarifica-
tion regarding the calculation of the 10-
percent limitation for the small issuance
exception.

Comments generally requested in-
creasing the 10-percent limitation of the
small issuance exception. Because the fi-
nal regulations do not increase the 10-
percent limitation for the small redemp-
tion exception, the IRS and the Treasury
Department have determined that the 10-
percent limitation of the small issuance
exception should also not be increased in
order to maintain parity with the small
redemption exception. Furthermore, as
discussed in the preamble to the proposed
regulations, the IRS and the Treasury De-
partment remain concerned that transac-
tions infusing new capital into a loss cor-
poration implicate section 382 policies
because the capital infusion can accelerate
the use of tax attributes. This is the case
even if the new investors are Small Share-
holders, especially in light of the dilutive
effect of the cash issuance exception on
owner shifts attributable to capital-raising
transactions. Accordingly, the final regu-
lations do not expand the 10-percent lim-
itation of the small issuance exception.

Comments also suggested that the cash
issuance exception should apply to issu-
ances of stock for non-cash property, in-
cluding debt. One commenter requested
that the IRS and the Treasury Department
consider expanding the definition of a
"cash issuance" to include loss corpora-
tion stock issued in connection with the

conversion of a convertible debt instru-
ment issued by the loss corporation in
exchange for cash. The commenter as-
serted that no meaningful distinction ex-
isted between loss corporation stock ac-
quired by a Small Shareholder directly
from the loss corporation in exchange for
cash and loss corporation stock acquired
as a result of the conversion of a debt
instrument that was issued by the loss
corporation in exchange for cash.

In general, the cash issuance exception
is based upon an assumption that there is
overlapping ownership between existing
public shareholders and those sharehold-
ers who purchase additional stock of a
loss corporation. In recognition of the fact
that a loss corporation cannot establish
this overlapping ownership in many cases,
the cash issuance exception mitigates the
owner shift that otherwise would result if
the segregation rules were to apply in a
manner that disregards the overlapping
ownership that likely exists.

The IRS and the Treasury Department
believe that the assumption of overlapping
ownership does not necessarily extend to
existing public shareholders and purchas-
ers of convertible debt or transferors of
non-cash property for stock. Stated differ-
ently, persons who lend money to a loss
corporation or persons who transfer non-
cash property for stock in many cases may
be different from public shareholders of
the loss corporation. Furthermore, be-
cause infusions of capital into the loss
corporation directly implicate the policies
of section 382, the IRS and the Treasury
Department believe that the cash issuance
exception should retain its current scope.
Accordingly, these final regulations do not
adopt the commenter's proposal.

###### H. Coordinated Acquisition Rule

The preamble to the proposed regula-
tions requested comments as to the scope
of §1.382-3(a), which provides, in part,
that a group of persons making a coordi-
nated acquisition of stock can constitute
an entity for purposes of section 382.

Comments were received requesting
guidance that would identify specific sit-
uations in which stock purchases would
not be treated as a coordinated acquisition.
For example, one commenter asked for
guidance to provide that a loss corporation

may rely on the presence or absence of a
filing with the Securities and Exchange
Commission as a "group" to establish the
presence or absence of a coordinated ac-
quisition. After considering these com-
ments, the IRS and the Treasury Depart-
ment believe that further study of this
issue is required, and that the development
of a companion notice of proposed rule-
making to address this issue would signif-
icantly delay issuance of these final regu-
lations. Accordingly, the coordinated
acquisition rule is not addressed contem-
poraneously with these final regulations,
but may be addressed in future guidance.

###### Special Analyses

It has been determined that this Trea-
sury decision is not a significant 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 is hereby certified
that these regulations will not have a sig-
nificant economic impact on a substantial
number of small entities. The certification
is based on the fact that this rule would
not impose new burdens on small entities
and, in fact, may reduce the recordkeeping
burden on small entities. Therefore, a
Regulatory Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. Pursuant to
section 7805(f) of the Code, the notice of
proposed rulemaking that preceded this
final regulation was submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on its
impact on small business, and no com-
ments were received.

###### Drafting Information

The principal author of these regula-
tions is Stephen R. Cleary of the Office of
Associate Chief Counsel (Corporate).
However, other personnel from the IRS
and the Treasury Department participated
in their development.

* * * * *

###### Adoptions 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 1.382-3 also issued under 26
U.S.C. 382(g)(4)(C) and 26 U.S.C.
382(m). * * *

Par. 2. Section 1.382-3 is amended as
follows:

1\. Revising the heading of paragraph (j)
and introductory text.

2\. Revising paragraph (j)(11).

3\. Redesignating paragraph (j)(13) and
(j)(14) as (j)(16) and (j)(17).

4\. Adding new paragraphs (j)(13),
(j)(14) and (j)(15).

5\. Adding new Examples 5, 6, 7, 8, 9,
10, 11, 12, and 13 to newly redesig-
nated paragraph (j)(16).

6\. Revising newly redesignated para-
graph (j)(17).

The revisions and additions read as fol-
lows:

§1.382-3 Definitions and rules relating
to a 5-percent shareholder.

* * * * *

(j) Modification of the segregation
rules of §1.382-2T(j)(2)(iii) and (3)-(1)
Introduction. This paragraph (j) exempts,
in whole or in part, certain transfers of
stock from the segregation rules of
§1.382-2T(j)(2)(iii) and (3). Terms and
nomenclature used in this paragraph (j),
and not otherwise defined herein, have the
same meanings as in section 382 and the
regulations issued under section 382.

* * * * *

(11) Application to first tier and
higher tier entities-(i) In general. The
principles of paragraphs (j)(1) through
(j)(10) and paragraph (j)(12) apply to
issuances of stock by a first tier entity or
a higher tier entity that owns 5 percent
or more of the loss corporation's stock
(determined without regard to §1.382-
2T(h)(2)(1)(A)).

(ii) Small issuance limitation. In apply-
ing paragraph (j)(2) of this section to any
issuance of stock by a first tier or higher
tier entity, the small issuance limitations
of paragraph (j)(2)(iii)(A) and (B) of this
section are computed by reference to the

stock value and the stock classes of the
issuing corporation.

* * * * *

(13) Secondary transfer exception. The
segregation rules of §1.382-2T(j)(3)(i) will
not apply to the transfer of a direct own-
ership interest in the loss corporation by a
first tier entity or an individual that owns
five percent or more of the loss corpora-
tion to public shareholders. Instead, each
public group existing at the time of the
transfer will be treated under §1.382-
2T(j)(3)(i) as acquiring its proportionate
share of the stock exempted from the ap-
plication of §1.382-2T(j)(3)(i). The seg-
regation rules also will not apply if an
ownership interest in an entity that owns
five percent or more of the loss corpora-
tion (determined without regard to the ap-
plication of §1.382-2T(h)(2)(i)(A)) is
transferred to a public owner or a
5-percent owner who is not a 5-percent
shareholder of the loss corporation. In-
stead, provided that the transferor is either
a 5-percent owner that is a 5-percent
shareholder of the loss corporation or a
higher tier entity owning five percent or
more of the loss corporation (determined
without regard to the application of sec-
tion 1.382-2T(h)(2)(i)(A)), each public
group of the entity existing at the time of
the transfer is treated under §1.382-
2T(j)(3)(i) as acquiring its proportionate
share of the transferred ownership inter-
est. With regard to a transferor that is
neither a 5-percent shareholder of the loss
corporation nor a higher tier entity owning
five percent or more of the loss corpora-
tion (determined without regard to the ap-
plication of §1.382-2T(h)(2)(i)(A)), see
generally §1.382-2T(e)(1)(ii) (disregard-
ing these transactions if the transferee is
not a 5-percent shareholder).

(14) Small redemption exception-(i)
In general. Section 1.382-2T(j)(2)(iii)(C)
does not apply to a small redemption (as
defined in paragraph (j)(14)(ii) of this sec-
tion), except to the extent that the total
amount of stock redeemed in that redemp-
tion and all other small redemptions pre-
viously made in the same taxable year
(determined in each case on redemption)
exceeds the small redemption limitation.
This paragraph (j)(14) does not apply to a
redemption of stock that, by itself, ex-
ceeds the small redemption limitation.

(ii) Small redemption defined. Small
redemption means a redemption of public
shareholders by the loss corporation of an
amount of stock not exceeding the small
redemption limitation.

(iii) Small redemption limitation-(A)
In general. For each taxable year, the loss
corporation may, at its option, apply this
paragraph (j)(14)-

(1) On a corporation-wide basis, in
which case the small redemption limita-
tion is 10 percent of the total value of the
loss corporation's stock outstanding at the
beginning of the taxable year (excluding
the value of stock described in section
1504(a)(4)); or

(2) On a class-by-class basis, in which
case the small redemption limitation is 10
percent of the number of shares of the
class redeemed that are outstanding at the
beginning of the taxable year.

(B) Class of stock defined. For pur-
poses of this paragraph (j)(14)(iii), a class
of stock includes all stock with the same
material terms.

(C) Adjustments for stock splits and
similar transactions. Appropriate adjust-
ments to the number of shares of a class
outstanding at the beginning of a taxable
year must be made to take into account
any stock split, reverse stock split, stock
dividend to which section 305(a) applies,
recapitalization, or similar transaction oc-
curring during the taxable year.

(D) Exception. The loss corporation
may not apply this paragraph (j)(14)(iii)
on a class-by-class basis if, during the
taxable year, more than one class of stock
is redeemed in a single redemption (or in
two or more redemptions that are treated
as a single redemption under paragraph
(j)(14)(v) of this section).

(E) Short taxable years. In the case of a
taxable year that is less than 365 days, the
small redemption limitation is reduced by
multiplying it by a fraction, the numerator of
which is the number of days in the taxable
year, and the denominator of which is 365.

(iv) Proportionate redemption of ex-
empted stock-(A) In general. Each direct
public group that exists immediately be-
fore a redemption to which this paragraph
(j)(14) applies is treated as having been
redeemed of its proportionate share of the
amount of stock exempted from the appli-
cation of §1.382-2T(j)(2)(iii)(C) under
this paragraph (j)(14).

(B) Actual knowledge of greater redemp-
tion. Under the last sentence of §1.382-
2T(k)(2), the loss corporation may treat di-
rect public groups existing immediately
before a redemption to which this paragraph
(j)(14) applies as having been redeemed of
more stock than the amount determined un-
der paragraph (j)(14)(iv)(A) of this section,
but only if the loss corporation actually
knows that the amount redeemed from those
groups in the redemption exceeds the
amount so determined.

(v) Certain related redemptions. For
purposes of this paragraph (j)(14), two or
more redemptions (including redemptions
of stock by first tier or higher tier entities)
are treated as a single redemption if-

(A) The redemptions occur at approx-
imately the same time pursuant to the
same plan or arrangement; or

(B) A principal purpose of redeeming
the stock in separate redemptions rather
than in a single redemption is to minimize
or avoid an owner shift under the rules of
this paragraph (j)(14).

(vi) Certain non-stock ownership inter-
ests. As the context may require, a non-
stock ownership interest in an entity other
than a corporation is treated as stock for
purposes of this paragraph (j)(14).

(vii) Application to first tier and higher
tier entities-(A) In general. The principles
of this paragraph (j)(14) apply to redemp-
tions of stock by a first tier entity or a higher
tier entity that owns 5 percent of the loss
corporation stock (determined without re-
gard to §1.382-2T(h)(2)(i)(A)).

(B) Small redemption limitation. In ap-
plying this paragraph (j)(14) to any re-
demption of stock by a first tier or a higher
tier entity, the small redemption limita-
tions of paragraph (j)(14)(iii)(A) of this
section are computed by reference to the
stock value and the stock classes of the
redeeming corporation.

(15) Exception for first tier and higher
tier entities-(i) In general. The segregation
rules of §1.382-2T(j)(3)(iii) will not apply
to a transaction involving stock in a first tier
or a higher tier entity if, after taking into
account the results of such transaction and
all other transactions occurring on that date,
the first tier or higher tier entity owns 10
percent or less (by value) of all the outstand-
ing stock (without regard to §1.382-
2(a)(3)) of the loss corporation.

(ii) Anti-avoidance rule. The rules of
paragraph (j)(15)(i) of this section do not
apply to a transaction involving an own-
ership interest in a first tier or higher tier
entity if the loss corporation, directly or
through one or more persons, has partici-
pated in planning or structuring the trans-
action with a view to avoiding the appli-
cation of the segregation rules. For this
purpose, a transaction includes any event
that would result in segregation under
§1.382-2T(j)(3)(iii), absent the applica-
tion of this paragraph (j)(15), and any
event (for example, the formation of a
holding company) occurring as part of the
same plan that includes the event that
would result in segregation (without the
application of this paragraph (j)(15)).
Other anti-avoidance rules continue to be
applicable. See, for example, §1.382-
2T(k)(4) and §1.382-3(a)(1).

(iii) Special rules. If application of para-
graph (j)(15)(i) of this section results in the
combination of public groups, then-

(A) The amount of increase in the per-
centage of stock ownership of the continu-
ing public group will be the sum of its
increase and a proportionate amount of
any increase by any public group that is
combined with the continuing public
group (the former public group); and

(B) The continuing public group's low-
est percentage ownership will be the sum
of its lowest percentage ownership and a
proportionate amount of the former public
group's lowest percentage ownership.

(iv) Ownership of the loss corporation.
In making the determination under para-
graph (j)(15)(i) of this section-

(A) The rules of §1.382-2T(h)(2) will
not apply;

(B) The entity will be treated as own-
ing the loss corporation stock that it actu-
ally owns, and any other loss corporation
stock if that other stock would be attrib-
uted to the entity under section 318(a)
(without regard to paragraph (4) thereof)
unless an option is treated as exercised
under §1.382-4(d)); and

(v) Operating rules. Subject to the
principles of §1.382-2T(k)(4), a loss cor-
poration may establish the ownership lim-
itation of paragraph (j)(15)(i) of this sec-
tion through either-

(A) Actual knowledge; or

(B) Absent actual knowledge to the
contrary, the presumptions regarding
stock ownership in §1.382-2T(k)(1).

(16) Examples. * * *

* * * * *

Example 5. Secondary transfer exception to segre-
gation rules - no new public group. (i) Facts. L is
owned 60 percent by one public group (Public L1) and
40 percent by another public group (Public L2). On
July 1, 2014, individual A acquires 10 percent of L's
stock over a public stock exchange. On December 31,
2014, A sells all of his L stock over a public stock
exchange. No individual or entity acquires as much as
five percent of L's stock as a result of A's disposition
of his L stock. On January 3, 2015, individual B ac-
quires 10 percent of L's stock over a public stock
exchange. On June 30, 2015, B sells all of her L stock
over a public stock exchange. No individual or entity
acquires as much as five percent of L's stock as a result
of B's disposition of her L stock.

(ii) Analysis. The dispositions of the L stock by
A and B are not transactions that cause the segrega-
tion of L's direct public groups that exist immedi-
ately before the transaction (Public L1 and Public
L2). When A and B sell their shares to public share-
holders over the public stock exchange, the shares
are treated as being reacquired by Public L1 and
Public L2. As a result, Public Ll's ownership inter-
est is treated as increasing from 54 percent to 60
percent during the testing period, and Public L2's
ownership interest is treated as increasing from 36
percent to 40 percent during the testing period.

Example 6. Secondary transfer exception - first
tier entity. (i) Facts. L has a single class of common
stock outstanding that is owned 60 percent by a
direct public group (Public L) and 40 percent by P.
P is owned 20 percent by individual A and 80 percent
by a direct public group (Public P). On October 6,
2014, A sells 50 percent of his interest in P to B, an
individual who is, and remains, a member of Public P.

(ii) Analysis. P is an entity that owns five percent
or more of L. A is a 5-percent owner of P that is a
5-percent shareholder of L. Because A's sale of the
P stock is to a member of Public P, the disposition of
the P stock by A is not a transaction that causes the
segregation of P's direct public group that exists
immediately before the transaction (Public P). See
paragraph (j)(13) of this section. When A sells his
shares to B, the shares are treated as being acquired
by Public P. As a result, Public P's ownership inter-
est in L is treated as increasing from 32 percent to 36
percent during the testing period.

Example 7. Small redemption exception. (i)
Facts. L is a calendar year taxpayer. On January 1,
2014, L has 1,060 shares of a single class of common
stock outstanding, all of which are owned by a single
direct public group (Public L). On July 1, 2014, L
acquires 60 shares of its stock for cash. On Decem-
ber 31, 2014, in an unrelated redemption, L acquires
90 more shares of its stock for cash. Following each
redemption, L's stock is owned entirely by public
shareholders. No other changes in the ownership of
L's stock occur prior to December 31, 2014.

(ii) Analysis - (A) July redemption. The July
redemption is a small redemption because the num-
ber of shares redeemed (60) does not exceed 106, the
small redemption limitation (10 percent of the num-

ber of common shares outstanding on January 1,
2014). Under paragraph (j)(14) of this section, the
segregation rules of §1.382-2T(j)(2)(iii)(C) do not
apply to the July redemption. Under paragraph
(j)(14)(iv) of this section, Public L is treated as
having all 60 shares redeemed.

(B) December redemption. The December redemp-
tion is a small redemption because the number of
shares redeemed (90) does not exceed 106, the small
redemption limitation (10 percent of the number of
common shares outstanding on January 1, 2014). How-
ever, under paragraph (j)(14)(i) of this section, only 46
of the 90 shares redeemed are exempted from the
segregation rules of §1.382-2T(j)(2)(iii)(C) because
the total number of shares of common stock redeemed
in the July and December redemptions exceeds 106, the
small redemption limitation, by 44. Accordingly, under
paragraph (j)(14)(iv) of this section, Public L is treated
as having 46 shares redeemed in the December re-
demption. Section 1.382-2T(j)(2)(iii)(C) applies to the
remaining 44 shares redeemed. Accordingly, Public L
is segregated into two different public groups immedi-
ately before the transaction (and thereafter) so that the
redeemed interests (Public RL) are treated as part of a
public group that is separate from the ownership inter-
ests that are not redeemed (Public CL). Therefore, as a
result of the December redemption, Public CL's inter-
est in L increases by 4.4 percentage points (from 95.6
percent (956/1,000) to 100 percent (910/910)) on the
December 31, 2014 testing date. For purposes of de-
termining whether an ownership change occurs on any
subsequent testing date having a testing period that
includes the December redemption, Public CL is
treated as a 5-percent shareholder whose percentage
ownership interests in L increased by 4.4 percentage
points as a result of such redemption.

Example 8. Segregation rules inapplicable - pro-
portionate amount. (i) Facts. P1 is a corporation that
owns 8 percent of the stock of L. The remaining L
stock (92 percent) is owned by Public L. P1 is entirely
owned by Public P1. P2 is a corporation owned 90
percent by individual A and 10 percent by a public
group (Public P2). On May 22, 2014, P1 merges into
P2 with the shareholders of P1 receiving an amount of
P2 stock equal to 25 percent of the value of P2 imme-
diately after the reorganization. L was owned 92 per-
cent by Public L and 8 percent by P1 throughout the
testing period ending on the date of the merger.

(ii) Analysis. Assuming L can establish that P2
owns 10 percent or less (by value) of L on May 22,
2014 pursuant to the operating rules of paragraph
(j)(15)(v) of this section, the segregation rules of
§1.382-2T(j)(3)(iii) will not apply to segregate Pl's
direct public group (Public P1) immediately before
the merger from P2's direct public group (Public
P2). Thus, following the merger, P2 is owned 67.5
percent (90 percent x 75 percent) by A and 32.5
percent (25 percent + (10 percent x 75 percent)) by
Public P2. Pursuant to paragraph (j)(15)(iii)(B) of
this section, Public P2's lowest percentage of own-
ership is the sum of its lowest percentage of owner-
ship (zero) and a proportionate amount of former
Public PI's lowest ownership percentage of L of 2.6
percent (32.5 percent x 8 percent). P2 will be treated
as having one public group whose ownership interest
in L was 2.6 percent before the merger and remains
2.6 percent after the merger. Because Public P2
owns less than 5 percent of L, Public P2 is treated as

part of Public L. See §1.382-2T(j)(1)(iv). Thus, pur-
suant to paragraph (j)(15)(iii)(B) of this section, Pub-
lic L's lowest ownership percentage of L during the
testing period is 94.6 percent.

Example 9. Segregation rules inapplicable -
prior increase in ownership by former public group
during testing period. (i) Facts. The facts are the
same as Example 8, except that P1 acquired its 8-
percent interest in L during the testing period that
includes the merger.

(ii) Analysis. Pursuant to the rules of paragraph
(j)(15)(iii)(A) of this section, the amount of increase
in the percentage of stock ownership by Public P2 is
the sum of its increase (zero) and a proportionate
amount of the increase by former Public P1 of 2.6
percent (32.5 percent x 8 percent). Pursuant to para-
graph (j)(15)(iii)(B) of this section, Public P2's low-
est percentage of ownership is zero, because both
former Public P1 and Public P2 owned no L stock at
the beginning of the testing period. Accordingly,
Public P2, the continuing public group, is treated as
having increased its ownership interest by 2.6 per-
cent. Because Public P2 is treated as part of Public L,
Public L is treated as increasing its ownership inter-
est by 2.6 percent.

Example 10. Ownership limitation based upon
fair market value. (i) Facts. L has one class of
common stock and one class of preferred stock out-
standing. The preferred stock is stock within the
meaning of §1.382-2(a)(3). Before December 23,
2014, a direct public group (Public L) owns all of the
common stock of L. On December 23, 2014, P
purchases all of the preferred stock of L and a
portion of the common stock of L. On the date of
purchase, the value of the L common stock held by
P was greater than 5 percent of the value of L, and
the total value of L common and L preferred stock
held by P was less than 10 percent of the value of all
stock of L. P has one class of common stock out-
standing, all of which is owned by a direct public
group (Public P). On October 7, 2015, P redeems 30
percent of its single outstanding class of common
stock. On the redemption date of the P stock, due to
a decline in the relative value of the common stock
of L, the preferred stock of L owned by P represents
40 percent of the value of all the outstanding stock of
L. No ownership change of L occurs between De-
cember 23, 2014, and October 7, 2015.

(ii) Analysis. The rules of paragraph (j)(15) of this
section do not apply to the redemption because P owns
more than 10 percent of L (by value) on that date.

Example 11. Ownership limitation - fair market
value includes preferred stock. The facts are the same
as in Example 10, except that the preferred stock is not
stock within the meaning of §1.382-2(a)(3). Although
the preferred stock is not stock for the purpose of
determining owner shifts, the value of that stock is
taken into account in computing the 10-percent limita-
tion of paragraph (j)(15)(i) of this section. Therefore,
the results are the same as in Example 10.

Example 12. Ownership limitation - application
of attribution rules. (i) Facts. Individual A owns all
the outstanding stock of X. A also owns preferred
stock in Y that is not stock within the meaning
§1.382-2(a)(3), which represents 50 percent of the
value of Y. All the Y common stock is owned by
public owners. Each of X and Y own 6 percent of the

single class of L stock outstanding. On October 6,
2014, Y redeems 15 percent of its common stock.

(ii) Analysis. In determining satisfaction of the
ownership limitation of paragraph (j)(15)(i) of this
section, the attribution rules of section 318(a) apply.
Pursuant to section 318(a)(2), A is treated as owning
the L stock owned by X. Pursuant to section
318(a)(3), Y is treated as owning the L stock that A
indirectly owns. Because Y's ownership of L ex-
ceeds the 10-percent ownership limitation of para-
graph (j)(15)(i) of this section, the rules of paragraph
(j)(15) of this section do not apply.

Example 13. Anti-avoidance rule. (i) Facts. P1 is
a corporation that owns 10 percent of the stock of L.
P1 is owned entirely by a direct public group (Public
P). L has had owner shifts of 45 percentage points in
its current testing period. P1 is planning to merge
into P2, a corporation which has a public group.
Advisers to L, upon learning of the proposed merger,
asked the management of P1 for details of the pro-
posed merger, including the stock ownership of P2
after P1 merges into P2. After finding out that infor-
mation, L or L's advisers did not request any
changes in the planned transaction.

(ii) Analysis. The anti-avoidance rule of paragraph
(j)(15)(ii) of this section does not apply because L did
not participate in planning or structuring the transac-
tion. Pursuant to paragraph (j)(15)(i) of this section,
§1.382-2T(j)(3)(iii) does not apply to cause the segre-
gation of P1's public group from P2's public group.

(17) Effective/applicability date. This
paragraph (j) generally applies to issu-
ances or deemed issuances of stock in
taxable years beginning on or after No-
vember 4, 1992. However, paragraphs
(j)(11)(ii) and (j)(13) through (j)(15) of
this section and Examples 5 through 13 of

paragraph (j)(16) of this section apply to
testing dates occurring on or after October
22, 2013. Taxpayers may apply para-
graphs (j)(11)(ii) and (j)(13) through
(j)(15) of this section and Examples 5
through 13 of paragraph (j)(16) of this
section in their entirety to all testing dates
that are included in a testing period begin-
ning before and ending on or after Octo-
ber 22, 2013. However, the provisions
described in the preceding sentence may
not be applied to any date on or before the
date of any ownership change that oc-
curred before October 22, 2013 under the
regulations in effect before October 22,
2013, and they may not be applied as
described in the preceding sentence if
such application would result in an own-
ership change occurring on a date before
October 22, 2013 that did not occur under
the regulations in effect before October
22, 2013. See §1.382-3(j)(14)(ii) and (iii),
as contained in 26 CFR part 1 revised as
of April 1, 1994, for the application of
paragraph (j)(10) to stock issued on the

exercise of certain options exercised on or
after November 4, 1992 and for an elec-
tion to apply paragraphs (j)(1) through
(12) retroactively to certain issuances and
deemed issuances of stock occurring in
taxable years prior to November 4, 1992.

Beth Tucker,
Deputy Commissioner for
Operations Support.

Approved August 19, 2013

Mark J. Mazur,
Assistant Secretary of the
Treasury (Tax Policy).

(Filed by the Office of the Federal Register on October 21,
2013, 8:45 a.m., and published in the issue of the Federal
Register for October 22, 2013, 78 F.R. 62418)

## Section 382 .- Limitation on Net Operating Loss Carryforwards and Certain Built-In Losses Following Ownership Change

The adjusted applicable federal long-term rate is
set forth for the month of November 2013. See Rev.
Rul. 2013-22, page 496.

## Section 412 .- Minimum Funding Standards

The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month of
November 2013. See Rev. Rul. 2013-22, page 496.

## Section 467 .- Certain Payments for the Use of Property or Services

The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month of
November 2013. See Rev. Rul. 2013-22, page 496.

## Section 468 .- Special Rules for Mining and Solid Waste Reclamation and Closing Costs

The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month of
November 2013. See Rev. Rul. 2013-22, page 496.

## Section 482 .- Allocation of Income and Deductions Among Taxpayers

Federal short-term, mid-term, and long-term
rates are set forth for the month of November 2013.
See Rev. Rul. 2013-22, page 496.

## Section 483 .- Interest on Certain Deferred Payments

The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month of
November 2013. See Rev. Rul. 2013-22, page 496.

## Section 642 .- Special Rules for Credits and Deductions

Federal short-term, mid-term, and long-term
rates are set forth for the month of November 2013.
See Rev. Rul. 2013-22, page 496.

## Section 807 .- Rules for Certain Reserves

The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month of
November 2013. See Rev. Rul. 2013-22, page 496.

## Section 846 .- Discounted Unpaid Losses Defined

The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month of
November 2013. See Rev. Rul. 2013-22, page 496.

Section 1274 .- Determina-
tion of Issue Price in the
Case of Certain Debt
Instruments Issued for
Property

(Also Sections 42, 280G, 382, 412, 467, 468, 482,
483, 642, 807, 846, 1288, 7520, 7872.)

Federal rates; adjusted federal rates;
adjusted federal long-term rate and the
long-term exempt rate. For purposes of

sections 382, 642, 1274, 1288, and other
sections of the Code, tables set forth the
rates for November 2013.

## Rev. Rul. 2013-22

This revenue ruling provides various
prescribed rates for federal income tax
purposes for November 2013 (the current
month). Table 1 contains the short-term,
mid-term, and long-term applicable fed-
eral rates (AFR) for the current month for

purposes of section 1274(d) of the Internal
Revenue Code. Table 2 contains the short-
term, mid-term, and long-term adjusted
applicable federal rates (adjusted AFR)
for the current month for purposes of sec-
tion 1288(b). Table 3 sets forth the ad-
justed federal long-term rate and the long-
term tax-exempt rate described in section
382(f). Table 4 contains the appropriate
percentages for determining the low-
income housing credit described in sec-
tion 42(b)(1) for buildings placed in ser-
vice during the current month. However,

under section 42(b)(2), the applicable per-
centage for non-federally subsidized new
buildings placed in service after July 30,
2008, with respect to housing credit dollar
amount allocations made before January
1, 2014, shall not be less than 9%. Finally,
Table 5 contains the federal rate for de-
termining the present value of an annuity,
an interest for life or for a term of years, or
a remainder or a reversionary interest for
purposes of section 7520.

REV. RUL. 2013-22 TABLE 1 Applicable Federal Rates (AFR) for November 2013

Annual

Period for Compounding Semiannual

Quarterly

Monthly

Short-term

AFR

.27%

110% AFR

.30%

120% AFR

.32%

130% AFR

.35%

Mid-term

AFR

1.73%

1.72%

1.71%

110% AFR

1.90%

1.89%

1.88%

120% AFR

2.07%

2.06%

2.05%

130% AFR

2.25%

2.24%

2.23%

150% AFR

2.60%

2.58%

2.57%

175% AFR

3.03%

3.01%

3.00%

2.99%

Long-term

AFR

3.37%

3.34%

3.33%

3.32%

110% AFR

3.70%

3.67%

3.65%

3.64%

120% AFR

4.05%

4.01%

3.99%

3.98%

130% AFR

4.39%

4.34%

4.32%

4.30%

REV. RUL. 2013-22 TABLE 2 Adjusted AFR for November 2013 Period for Compounding

Annual

Semiannual

Quarterly

Monthly

Short-term adjusted AFR

.27%

Mid-term adjusted AFR

1.73%

1.72%

1.71%

Long-term adjusted AFR

3.37%

3.34%

3.33%

3.32%

# REV. RUL. 2013-22 TABLE 3 Rates Under Section 382 for November 2013

Adjusted federal long-term rate for the current month
3.37%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted
federal long-term rates for the current month and the prior two months.)

3.50%

## REV. RUL. 2013-22 TABLE 4 Appropriate Percentages Under Section 42(b)(1) for November 2013

Note: Under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July
30, 2008, with respect to housing credit dollar amount allocations made before January 1, 2014, shall not be less than 9%.
Appropriate percentage for the 70% present value low-income housing credit
7.59%

Appropriate percentage for the 30% present value low-income housing credit

3.25%

## REV. RUL. 2013-22 TABLE 5

Rate Under Section 7520 for November 2013

Applicable federal rate for determining the present value of an annuity, an interest for life or a
term of years, or a remainder or reversionary interest

2.0%

## Section 1288 .- Treatment of Original Issue Discount on Tax-Exempt Obligations

The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month of
November 2013. See Rev. Rul. 2013-22, page 496.

Section 7520 .- Valuation
Tables

The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month of
November 2013. See Rev. Rul. 2013-22, page 496.

## Section 7872 .- Treatment of Loans With Below- Market Interest Rates

The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month of
November 2013. See Rev. Rul. 2013-22, page 496.

# Part III. Administrative, Procedural, and Miscellaneous

## Update for Weighted Average Interest Rates, Yield Curves, and Segment Rates

Notice 2013-66

This notice provides guidance on the cor-
porate bond monthly yield curve (and the
corresponding spot segment rates), and the
24-month average segment rates under
§ 430(h)(2) of the Internal Revenue Code.
In addition, this notice provides guidance as
to the interest rate on 30-year Treasury se-
curities under § 417(e)(3)(A)(ii)(II) as in
effect for plan years beginning before 2008,
the 30-year Treasury weighted average rate
under § 431(c)(6)(E)(ii)(I), and the mini-
mum present value segment rates under
§ 417(e)(3)(D) as in effect for plan years
beginning after 2007. These rates reflect
certain changes implemented by the Moving
Ahead for Progress in the 21st Century Act,
Public Law 112-141 (MAP-21). MAP-21
provides that for purposes of § 430(h)(2),
the segment rates are limited by the appli-
cable maximum percentage or the applica-
ble minimum percentage based on the aver-
age of segment rates over a 25-year period.

YIELD CURVE AND SEGMENT
RATES

Generally, except for certain plans
under sections 104 and 105 of the Pen-
sion Protection Act of 2006, § 430 of the
Code specifies the minimum funding re-
quirements that apply to single em-
ployer plans pursuant to § 412. Section
430(h)(2) specifies the interest rates that
must be used to determine a plan's tar-
get normal cost and funding target. Un-
der this provision, present value is gen-
erally determined using three 24-month
average interest rates ("segment rates"),
each of which applies to cash flows dur-
ing specified periods. To the extent pro-
vided under § 430(h)(2)(C)(iv), these
segment rates are adjusted by the appli-
cable percentage of the 25-year average
segment rates for the period ending Sep-
tember 30 of the year preceding the cal-
endar year in which the plan year be-
gins. However, an election may be made
under § 430(h)(2)(D)(ii) to use the
monthly yield curve in place of the seg-
ment rates.

Notice 2007-81, 2007-44 I.R.B. 899,
provides guidelines for determining the
monthly corporate bond yield curve, and

the 24-month average corporate bond seg-
ment rates used to compute the target nor-
mal cost and the funding target. Pursuant
to Notice 2007-81, the monthly corporate
bond yield curve derived from September
2013 data is in Table I at the end of this
notice. The spot first, second, and third
segment rates for the month of September
2013 are, respectively, 1.40, 4.66, and
5.62. For plan years beginning on or after
January 1, 2012, the 24-month average
segment rates determined under
§ 430(h)(2)(C)(iv) must be adjusted by the
applicable percentage of the correspond-
ing 25-year average segment rates. The
25-year average segment rates for plan
years beginning in 2012, 2013, and 2014
were published in Notice 2012-55,
2012-36 I.R.B. 332, Notice 2013-11,
2013-11 I.R.B. 610, and Notice 2013-58,
2013-40 I.R.B. 294, respectively. The
three 24-month average corporate bond
segment rates applicable for October 2013
without adjustment, and the adjusted 24-
month average segment rates taking into
account the applicable percentages of the
corresponding 25-year average segment
rates, are as follows:

For Plan Years Beginning In

24-Month Average Segment Rates Not Adjusted

Adjusted 24-Month Average Segment Rates, Based on Applicable Percentage of 25-Year Average Rates

Applicable Month

First Segment

Second Segment

Third Segment

First Segment

Second Segment

Third Segment

2012

October

2013

1.35

4.05

5.05

5.54

6.85

7.52

2013

October

2013

1.35

4.05

5.05

4.94

6.15

6.76

2014

October

2013

1.35

4.05

5.05

4.43

5.62

6.22

## 30-YEAR TREASURY SECURITIES INTEREST RATES

Generally for plan years beginning af-
ter 2007, § 431 specifies the minimum
funding requirements that apply to mul-
tiemployer plans pursuant to § 412. Sec-
tion 431(c)(6)(B) specifies a minimum
amount for the full-funding limitation de-
scribed in section 431(c)(6)(A), based on
the plan's current liability. Section

431(c)(6)(E)(ii)(I) provides that the inter-
est rate used to calculate current liability
for this purpose must be no more than 5
percent above and no more than 10 per-
cent below the weighted average of the
rates of interest on 30-year Treasury se-
curities during the four-year period ending
on the last day before the beginning of the
plan year. Notice 88-73, 1988-2 C.B.
383, provides guidelines for determining

the weighted average interest rate. The
rate of interest on 30-year Treasury secu-
rities for September 2013 is 3.79 percent.
The Service has determined this rate as
the average of the daily determinations of
yield on the 30-year Treasury bond ma-
turing in August 2043. The following
rates were determined for plan years be-
ginning in the month shown below.

For Plan Years Beginning in

30-Year Treasury Weighted Average

Permissible Range

Month

Year

90%

105%

October

2013

3.44

3.10

3.62

## MINIMUM PRESENT VALUE SEGMENT RATES

In general, the applicable interest rates
under § 417(e)(3)(D) are segment rates

computed without regard to a 24-month
average. Notice 2007-81 provides guide-
lines for determining the minimum pres-
ent value segment rates. Pursuant to that

notice, the minimum present value seg-
ment rates determined for September
2013 are as follows:

First Segment

Second Segment

Third Segment

1.40

4.66

5.62

### DRAFTING INFORMATION

The principal author of this notice is
Tony Montanaro of the Employee Plans,

Tax Exempt and Government Entities Di-
vision. Mr. Montanaro may be e-mailed at

RetirementPlanQuestions@irs.gov.

Table I Monthly Yield Curve for September 2013 Derived from September 2013 Data

Maturity

Yield

Maturity

Yield

Maturity

Yield

Maturity

Yield

Maturity

Yield

0.5

0.31

20.5

5.42

40.5

5.65

60.5

5.73

80.5

5.77

1.0

0.53

21.0

5.43

41.0

5.65

61.0

5.73

81.0

5.78

1.5

0.76

21.5

5.44

41.5

5.65

61.5

5.73

81.5

5.78

2.0

1.00

22.0

5.45

42.0

5.65

62.0

5.74

82.0

5.78

2.5

1.25

22.5

5.46

42.5

5.66

62.5

5.74

82.5

5.78

3.0

1.52

23.0

5.46

43.0

5.66

63.0

5.74

83.0

5.78

3.5

1.78

23.5

5.47

43.5

5.66

63.5

5.74

83.5

5.78

4.0

2.04

24.0

5.48

44.0

5.67

64.0

5.74

84.0

5.78

4.5

2.30

24.5

5.48

44.5

5.67

64.5

5.74

84.5

5.78

5.0

2.55

25.0

5.49

45.0

5.67

65.0

5.74

85.0

5.78

5.5

2.80

25.5

5.50

45.5

5.67

65.5

5.74

85.5

5.78

6.0

3.03

26.0

5.50

46.0

5.68

66.0

5.75

86.0

5.78

6.5

3.25

26.5

5.51

46.5

5.68

66.5

5.75

86.5

5.78

7.0

3.46

27.0

5.52

47.0

5.68

67.0

5.75

87.0

5.78

7.5

3.65

27.5

5.52

47.5

5.68

67.5

5.75

87.5

5.78

8.0

3.84

28.0

5.53

48.0

5.69

68.0

5.75

88.0

5.79

8.5

4.01

28.5

5.54

48.5

5.69

68.5

5.75

88.5

5.79

9.0

4.17

29.0

5.54

49.0

5.69

69.0

5.75

89.0

5.79

9.5

4.31

29.5

5.55

49.5

5.69

69.5

5.75

89.5

5.79

10.0

4.45

30.0

5.55

50.0

5.69

70.0

5.75

90.0

5.79

10.5

4.57

30.5

5.56

50.5

5.70

70.5

5.76

90.5

5.79

11.0

4.67

31.0

5.57

51.0

5.70

71.0

5.76

91.0

5.79

11.5

4.77

31.5

5.57

51.5

5.70

71.5

5.76

91.5

5.79

12.0

4.86

32.0

5.58

52.0

5.70

72.0

5.76

92.0

5.79

12.5

4.94

32.5

5.58

52.5

5.70

72.5

5.76

92.5

5.79

13.0

5.01

33.0

5.59

53.0

5.71

73.0

5.76

93.0

5.79

13.5

5.07

33.5

5.59

53.5

5.71

73.5

5.76

93.5

5.79

14.0

5.12

34.0

5.60

54.0

5.71

74.0

5.76

94.0

5.79

14.5

5.16

34.5

5.60

54.5

5.71

74.5

5.76

94.5

5.79

15.0

5.20

35.0

5.60

55.0

5.71

75.0

5.76

95.0

5.79

15.5

5.24

35.5

5.61

55.5

5.72

75.5

5.77

95.5

5.79

16.0

5.27

36.0

5.61

56.0

5.72

76.0

5.77

96.0

5.80

16.5

5.30

36.5

5.62

56.5

5.72

76.5

5.77

96.5

5.80

17.0

5.32

37.0

5.62

57.0

5.72

77.0

5.77

97.0

5.80

17.5

5.34

37.5

5.62

57.5

5.72

77.5

5.77

97.5

5.80

18.0

5.36

38.0

5.63

58.0

5.72

78.0

5.77

98.0

5.80

18.5

5.37

38.5

5.63

58.5

5.73

78.5

5.77

98.5

5.80

19.0

5.39

39.0

5.64

59.0

5.73

79.0

5.77

99.0

5.80

19.5

5.40

39.5

5.64

59.5

5.73

79.5

5.77

99.5

5.80

20.0

5.41

40.0

5.64

60.0

5.73

80.0

5.77

100.0

5.80

# Credit for Production from Advanced Nuclear Facilities

Notice 2013-68

## SECTION 1. PURPOSE

This Notice sets forth guidance relating
to the credit under § 45J of the Internal
Revenue Code for production of electric-
ity at advanced nuclear power facilities.
On May 1, 2006, the Internal Revenue
Service (Service) and the Treasury De-
partment published Notice 2006-40,
2006-1 C.B. 855, which specifies the
method that will be used to allocate the
national megawatt capacity limitation on
the allowable credit and prescribes the
application process by which taxpayers
may request an allocation of the national
megawatt capacity limitation. Notice
2006-40 also provides guidance on the
requirement that the electricity be sold to
an unrelated person and on the effect of
grants, tax-exempt bonds, subsidized en-
ergy financing, and other credits. This No-
tice supersedes Notice 2006-40 by repub-
lishing the guidance contained in that
notice with the following modifications:
(1) the application process is streamlined
so that the applicant submits the applica-
tion only to the Service and the Service
will obtain necessary certification from
the U.S. Department of Energy (DOE);
(2) the guidance is modified to provide
allocation rules for facilities that are di-
rectly or indirectly owned by more than
one person; and (3) additional guidance is
provided concerning the time for filing an
application with the Nuclear Regulatory
Commission.

## SECTION 2. BACKGROUND

.01 Section 45J was enacted by section
1306 of the Energy Policy Act of 2005,
Pub. L. No. 109-58 (199 Stat. 594). Sec-
tion 45J permits a taxpayer to claim a
credit for electricity that the taxpayer (1)
produces at an advanced nuclear power
facility during the eight-year period be-
ginning when the facility is placed in ser-
vice and (2) sells to an unrelated person
(qualifying electricity).

.02 Under § 45J(d), an advanced nu-
clear power facility is a nuclear facility
that meets all of the following require-
ments:

(1) The facility consists of a nuclear
power reactor that uses nuclear energy to
produce electricity. For purposes of this
Notice, each nuclear power reactor lo-
cated on a multi-reactor site is a separate
facility.

(2) The facility is owned by the tax-
payer.

(3) The reactor design for the facility is
approved by the Nuclear Regulatory
Commission after December 31, 1993
(and such design or a substantially similar
design of comparable capacity was not
approved on or before that date).

(4) The facility is placed in service
before January 1, 2021.

.03 Under § 45J(b)(1), a taxpayer may
claim a credit for qualifying electricity
produced at an advanced nuclear power
facility only if part of the national mega-
watt capacity limitation has been allocated
to the facility (the facility limitation). See
Section 4.04(3), (4), and (5) of this Notice
for allocation rules in the case of a facility
owned by more than one taxpayer, or
owned by a partnership or an S corpora-
tion.

## SECTION 3. COMPUTATION OF CREDIT

Under § 45J(b)(1) and (c), the credit
allowed for a taxable year with respect to
the qualified electricity produced at an
advanced nuclear power facility is com-
puted under the following rules:

(1) A tentative credit for the taxable
year is computed for the facility. The fa-
cility's tentative credit for the taxable year
is equal to 1.8 cents multiplied by the
kilowatt hours of qualified electricity pro-
duced at the facility and sold during the
taxable year to an unrelated person.

(2) The credit percentage is computed
for each taxpayer that has been allocated
all or part of the facility limitation. Each
taxpayer's credit percentage is determined
by dividing the facility limitation that is
allocated to the taxpayer under Section
4.04(3), (4), or (5) of this Notice by the
nameplate capacity of the facility.

(3) The credit allowed to a taxpayer is
the lesser of (a) the tentative credit for the
facility multiplied by the taxpayer's credit

percentage, or (b) $125,000,000 per 1000
megawatts of the facility limitation that is
allocated to the taxpayer.

## SECTION 4. ALLOCATION OF NATIONAL MEGAWATT CAPACITY LIMITATION

.01 In General. Section 45J(b)(2) pro-
vides that the national megawatt capacity
limitation is 6,000 megawatts. Section
45J(b)(3) requires the Secretary to allo-
cate this national megawatt capacity lim-
itation in such manner as the Secretary
may prescribe. Section 45J(b)(4) requires
the Secretary to provide a certification
process under which the Secretary, after
consultation with the Secretary of Energy,
shall approve and allocate the national
megawatt capacity limitation.

.02 Allocation Limited to Qualifying
Facilities. The Service will allocate the
national megawatt capacity limitation
only to advanced nuclear facilities (within
the meaning of § 45J(d)(2)) that satisfy
the requirements of this Section 4.02
(qualifying facilities). An advanced nu-
clear facility is a qualifying facility only if
each of the following requirements is sat-
isfied:

(1) Construction on the facility begins
before January 1, 2014. For this purpose,
construction begins when a person who
has applied for or been granted a construc-
tion permit or a combined license from the
Nuclear Regulatory Commission for an
advanced nuclear facility initiates the
pouring of safety-related concrete for the
reactor building.

(2) The DOE provides a certification to
the Service that the facility qualifies as an
advanced nuclear facility. See Section
4.05 of this Notice.

.03 Application Required.

The Service will allocate the national
megawatt capacity limitation only to qual-
ifying facilities for which the applications
are submitted in accordance with Section
5 of this Notice.

.04 Allocation Method.

The national megawatt capacity limita-
tion will be allocated as follows:

(1) If the total nameplate capacity of all
qualifying facilities for which applications
are submitted does not exceed the national
megawatt capacity limitation, each of
those facilities will be allocated an

amount of national megawatt capacity
limitation equal to its nameplate capacity.

(2) If the total nameplate capacity of all
qualifying facilities for which applications
are submitted exceeds the national mega-
watt capacity limitation, the national
megawatt capacity limitation will be allo-
cated among the facilities in proportion to
their nameplate capacities.

(3) If only one taxpayer owns a direct
interest in a facility, the entire facility
limitation is allocated to such taxpayer. If
more than one taxpayer owns a direct in-
terest in a facility, each taxpayer's undi-
vided ownership share in the facility will
be treated for purposes of this Notice as a
separate facility owned by such taxpayer.
In such cases, a taxpayer's application
must identify the portion of the total
nameplate capacity of the facility that is
equal to its undivided ownership share in
the facility.

(4) Except as provided in Section 4.04(5)
of this Notice, if a facility is owned by a
partnership or S corporation, then the part-
nership or S corporation, and not the part-
ners or shareholders, will be treated as the
taxpayer that owns the facility for the pur-
poses of this Notice. In such cases, the § 45J
credit must be allocated to the partners or
shareholders in accordance with either
§ 1.704-1(b)(4)(ii), in the case of partner-
ships, or § 1.1366-1(a)(2)(v), in the case of
S corporations.

(5) If a facility is owned through an or-
ganization that has made a valid § 761(a)
election, each member's undivided owner-
ship share in the facility will be treated for
purposes of this Notice as a separate facility
owned by such member. In such cases, a
member's application must identify the por-
tion of the total nameplate capacity of the
facility that is equal to its undivided owner-
ship share in the facility.

.05 Service Action.

Upon receipt of the taxpayer's applica-
tion, the Service will determine whether
the application satisfies the provisions of
Section 5 of this Notice. If the application
does not satisfy that Section, the Service
may advise the applicant regarding how to
perfect the application and may request
additional information necessary to com-
plete the application. Once an application
satisfies Section 5 of this Notice, the Ser-
vice will forward the application to the
DOE for the certification described in

Section 4.02(2) of this Notice. Upon re-
ceipt of a certification by the DOE that the
facility qualifies as an advanced nuclear
facility, the Service will accept or reject
the taxpayer's application and will notify
the taxpayer, by letter, of its decision. If
the taxpayer's application is accepted, the
acceptance letter will state the facility lim-
itation and the amount of the facility lim-
itation allocated to the taxpayer.

## SECTION 5. APPLICATIONS FOR ALLOCATION OF NATIONAL MEGAWATT CAPACITY LIMITATION

.01 A taxpayer must submit (in dupli-
cate), for each facility for which an allo-
cation of the national megawatt capacity
limitation is requested, an application to
the Service for an allocation under
§ 45J(b) ("application for § 45J alloca-
tion").

.02 Multiple taxpayers owning (or
treated as owning) a direct interest in a
facility (as described in section 4.04(3) or
4.04(5) of this Notice) may file separate
applications for a § 45J allocation with
respect to a single facility. See Section
5.05 and Section 5.06 of this Notice.

.03 Applications for § 45J allocation
must be filed before February 1, 2014.

.04 The application for § 45J allocation
must include all of the following:

(1) The name and taxpayer identifica-
tion number of the taxpayer who will
place the facility in service;

(2) The name and location of the facility;

(3) The nameplate capacity of the fa-
cility;

(4) The date on which the application
for a construction permit or a combined
license for the facility was filed with the
Nuclear Regulatory Commission;

(5) A statement demonstrating that the
facility is an "advanced nuclear facility"
within the meaning of § 45J(d)(2); such
statement should include when the reactor
design for the facility was approved by the
Nuclear Regulatory Commission, as well
as a detailed explanation demonstrating
that such design (or a substantially similar
design of comparable capacity) had not
been approved on or before December 31,
1993; and

(6) The date on which construction on
the facility, as defined in Section 4.02(1)
of this Notice, began.

.05 If a taxpayer's application relates to
a facility in which more than one person
owns (or is treated as owning) a direct
interest (as described in section 4.04(3) or
4.04(5) of this Notice), the taxpayer must
submit documentation of its undivided
ownership share in the facility.

.06 If the facility is owned by an organi-
zation that has made a valid § 761(a) elec-
tion, then, in addition to the documentation
described in Section 5.05, any application
pertaining to the facility must contain a copy
of the valid § 761(a) election.

.07 Applications for § 45J allocation
should be marked: SECTION 45J APPLI-
CATION FOR ALLOCATION. There is
no user fee for the § 45J application.

(1) The § 45J application should be
sent to the following address:

Internal Revenue Service
Attn: CC:PSI:6, Room 5114
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044

If a private delivery service is used, the
address is:

Internal Revenue Service
Attn: CC:PSI:6, Room 5114
1111 Constitution Ave., N.W.
Washington, DC 20224

(2) The § 45J applications may also be
hand delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m. to:

Courier's Desk
Internal Revenue Service
Attn: CC:PSI:6, Room 5114
1111 Constitution Avenue N.W.
Washington, DC 20224

## SECTION 6. REALLOCATION OF NATIONAL MEGAWATT CAPACITY LIMITATION IN CERTAIN CASES

If an amount of national megawatt ca-
pacity limitation is allocated to a facility
and the facility is not placed in service
before January 1, 2021, or the DOE in-
forms the Service that the DOE certifica-
tion for the facility has been withdrawn,
the amount of the national megawatt ca-
pacity limitation allocated to that facility
will be withdrawn and the national mega-
watt capacity limitation will be reallo-
cated under the rules of Section 4.04 of

this Notice among the remaining qualify-
ing facilities.

## SECTION 7. ADDITIONAL ISSUES

.01 Sale to Unrelated Person. The
credit under § 45J is allowed only for
electricity that the taxpayer produces and
sells to an unrelated person. Electricity
will be treated as sold to an unrelated
person for this purpose if the ultimate
purchaser of the electricity is not related
to the person that produces the electricity.
For purposes of § 45J only, the require-
ment of a sale to an unrelated person will
be treated as satisfied in these circum-
stances even if the producer sells the elec-
tricity to a related person for resale by the
related person to a person that is not re-
lated to the producer. For rules for deter-
mining whether a person is related to the
producer of the electricity, see § 45(e)(4).

.02 Effect of Grants, Tax-Exempt
Bonds, Subsidized Energy Financing, and
Other Credits. The amount of the credit
under § 45J is not reduced on account of
any grants, tax-exempt bonds, subsidized
energy financing, or other credits de-
scribed in § 45(b)(3).

## SECTION 8. PAPERWORK REDUCTION ACT

The collection of information con-
tained in this Notice has been reviewed
and approved by the Office of Manage-
ment and Budget in accordance with the
Paperwork Reduction Act (44 U.S.C.
3507) under control number 1545-2000.

An agency may not conduct or spon-
sor, and a person is not required to re-
spond to, a collection of information un-
less the collection of information displays
a valid OMB control number.

The collections of information in this
Notice are in Section 5. This information
is required to be collected and retained in
order for taxpayers to claim the credit for
the production of electricity from ad-
vanced nuclear power facilities under
§ 45J. The information will be used to
determine the portion of the national
megawatt capacity limitation to which a
taxpayer is entitled. The collection of in-
formation is required to obtain a benefit.

The likely respondents are corporations
and partnerships.

The estimated total annual reporting
burden is 600 hours.

The estimated annual burden per re-
spondent varies from 10 to 60 hours, de-
pending on individual circumstances, with
an estimated average of 40 hours. The
estimated number of respondents is 15.

The estimated frequency of responses
is on occasion.

Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mate-
rial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by section 6103.

## SECTION 9. DISCLOSURE OF INFORMATION

.01 In general. An application for an
allocation of the national megawatt capac-
ity limitation, any documentation submit-
ted by the taxpayer in support of that
application, and any documentation gen-
erated by the Service as part of this pro-
cess are return information subject to
§ 6103. This material remains the appli-
cant's confidential return information,
which is exempt from disclosure under the
Freedom of Information Act (FOIA), 5
USC § 552(b)(3), in conjunction with
§ 6103. Other FOIA exemptions may also
apply.

.02 FOIA Requests. Anyone interested in
submitting a request for records under the
FOIA with respect to the national megawatt
capacity program under § 45J should direct
a request that conforms to the agency's
FOIA regulations, found at 26 C.F.R.
§ 601.702, to the following address:

IRS FOIA Request
Baltimore Disclosure Office
Room 940
31 Hopkins Plaza
Baltimore, MD 21201

.03 Consultation with DOE. Section
45J(b)(4) requires that the Secretary con-
sult with the Secretary of Energy prior to
allocating the national megawatt capacity
limitation. As stated in Section 4.05 of this

Notice, the Service intends to forward ap-
plications for an allocation of the national
megawatt capacity limitation to the DOE so
that DOE may certify whether the facility is
an advanced nuclear power facility.

## SECTION 10. EFFECT ON OTHER DOCUMENTS

Notice 2006-40, 2006-1 C.B. 855, is
superseded.

## SECTION 11. DRAFTING INFORMATION

The principal author of this Notice is
Patrick S. Kirwan of the Office of Asso-
ciate Chief Counsel (Passthroughs & Spe-
cial Industries). For further information
regarding this Notice contact Mr. Kirwan
at (202) 622-3110 (not a toll-free call).

## FFI agreement for Participating FFI and Reporting Model 2 FFI Notice 2013-69

### SECTION I. Purpose.

This notice provides guidance to for-
eign financial institutions (FFIs) entering
into an FFI agreement with the Internal
Revenue Service (IRS) under section
1471(b) of the Internal Revenue Code and
§ 1.1471-4 of the Treasury Regulations1
(the FFI agreement) to be treated as par-
ticipating FFIs. This notice also provides
guidance to FFIs and branches of FFIs
treated as reporting financial institutions
under an applicable Model 2 intergovern-
mental agreement (IGA) (reporting Model
2 FFIs) on complying with the terms of an
FFI agreement, as modified by the IGA.

Section II of this notice provides back-
ground on the statutory and regulatory
requirements for FFIs to be exempt from
withholding under chapter 4 of the Inter-
nal Revenue Code (Code). Section III of
this notice provides a description of the
general responsibilities of participating
FFIs and reporting Model 2 FFIs and
some of the intended updates to the regu-
lations under chapters 4 and 61 and re-
lated forms. Section IV of this notice de-

scribes the procedures for FFIs to register
for participating FFI or reporting Model 2
FFI status.

Section V of this notice provides the
draft FFI agreement, which substantially
incorporates the provisions set forth in
§1.1471-4. The FFI agreement will be
finalized by December 31, 2013.

### SECTION II. Background and Scope.

.01 Background. On March 18, 2010,
the Hiring Incentives to Restore Employ-
ment Act of 2010, Pub. L. 111-147 (H.R.
2847) (the Act) was enacted into law.
Section 501(a) of the Act added chapter 4
(sections 1471-1474) to Subtitle A of the
Code. Section 1471(a) generally requires
a withholding agent to deduct and with-
hold a tax equal to 30 percent on any
withholdable payment made to an FFI,
unless the FFI has an agreement requiring
such FFI to satisfy the obligations speci-
fied in section 1471(b). An FFI that has
entered into, and has in effect with the
IRS, an FFI agreement is treated as a
participating FFI and is not subject to
withholding under section 1471.

On January 28, 2013, the Treasury De-
partment and the IRS issued final regula-
tions under chapter 4 (sections 1471-
1474) in T.D. 9610 (78 FR 5874). The
general requirements of an FFI agreement
are described in §1.1471-4, which pro-
vides the substantive requirements appli-
cable to a participating FFI under the FFI
agreement. The withholding, due dili-
gence, reporting of U.S. accounts, and ex-
panded affiliate group requirements of a
participating FFI are described in
§1.1471-4(a) through (e). A participating
FFI's procedures for complying with the
FFI agreement, remediating an event of
default, addressing legal prohibitions
against reporting U.S. accounts or with-
holding, and filing refund claims for ac-
count holders are described in §1.1471-
4(f) through (i). The draft FFI agreement
provided in section V of this notice incor-
porates the requirements in §1.1471-4.

In cases in which foreign law would
prevent an FFI from complying with the
terms of an FFI agreement, the Treasury
Department has collaborated with other
governments to develop two alternative
model intergovernmental agreements
(IGAs) that facilitate FATCA implemen-
tation and further reduce burdens on FFIs

in partner jurisdictions. Under a Model 1
IGA, reporting financial institutions under
an applicable Model 1 IGA (reporting
Model 1 FFIs) would satisfy their chapter
4 requirements by reporting specified in-
formation about U.S. accounts to their
government, followed by the automatic
exchange of that information on a
government-to-government basis with the
United States. Under a Model 2 IGA, re-
porting Model 2 FFIs would report spec-
ified information about U.S. accounts di-
rectly to the IRS in a manner consistent
with the final regulations (as modified by
the applicable Model 2 IGA), supple-
mented by a government-to-government
exchange of information on request. Ac-
cordingly, an FFI, or branch of an FFI,
that is a reporting Model 2 FFI will apply
§1.1471-4, as well as the terms of the FFI
agreement, as modified by the applicable
Model 2 IGA.

.02 Covered Entities. An FFI that has
one or more branches (including its home
office or a U.S. branch) that can comply
with the terms of the FFI agreement is
eligible to enter into an FFI agreement. A
branch of such an FFI that cannot, under
the laws of the jurisdiction in which such
branch is located, satisfy all of the terms
of the FFI agreement will be treated as a
limited branch (as defined in the FFI
agreement) and will be subject to with-
holding under section 1471 as a nonpar-
ticipating FFI. A reporting Model 1 or 2
FFI that has a branch located outside of a
Model 1 or 2 IGA jurisdiction may enter
into an FFI agreement with respect to such
branch in order for the branch to be
treated as a participating FFI.

A reporting Model 2 FFI that registers
with the IRS to obtain a global intermedi-
ary identification number (GIIN) and
complies with the terms of the FFI agree-
ment, as modified by the applicable Model
2 IGA, will be treated as complying with
the requirements of, and not subject to
withholding under, section 1471. The FFI
agreement provided in section V of this
notice incorporates the modifications to
the terms of the FFI agreement that are
applicable to a reporting Model 2 FFI.

The qualified intermediary (QI), with-
holding foreign partnership (WP), and
withholding foreign trust (WT) agree-
ments are being modified to address new
requirements under chapter 4 in addition

to chapter 3, and these requirements will
be incorporated into all QI, WP, and WT
agreements that are in effect on or after
June 30, 2014. The updated QI agreement
will incorporate by reference the require-
ments of the FFI agreement (including the
modifications to the terms of the FFI
agreement that are applicable to a report-
ing Model 2 FFI) and shall apply to any
foreign branch of the QI that is treated as
a participating FFI or reporting Model 2
FFI. In the case of an FFI that is a partic-
ipating FFI or reporting Model 2 FFI and
is also a WP or WT, the updated WP or
WT agreement, as applicable, will incor-
porate by reference the requirements of
the FFI agreement (including the modifi-
cations to the terms of the FFI agreement
that are applicable to a reporting Model 2
FFI).

In general, the FFI agreement does not
apply to a reporting Model 1 FFI, or any
branch of such an FFI, unless the report-
ing Model 1 FFI has a branch located
outside of a Model 1 IGA jurisdiction that
is treated as a participating FFI or report-
ing Model 2 FFI. In such a case, the terms
of an FFI agreement apply to the opera-
tions of the branch treated as a participat-
ing FFI or reporting Model 2 FFI.

### SECTION III. General Responsibilities and Related Updates to Regulations and Forms.

#### .01 General Responsibilities.

(A) Participating FFIs. A participat-
ing FFI agrees to satisfy the obligations as
generally described in this section III(01)
and as further described in the FFI agree-
ment. Pursuant to section 1471(b) and
§1.1471-4, a participating FFI must com-
ply with certain due diligence, reporting,
and other requirements with respect to its
financial accounts. It must also withhold
and deposit tax with respect to withhold-
able payments made to recalcitrant ac-
count holders (as defined in § 1.1471-
5(g)) and nonparticipating FFIs (as
defined in § 1.1471-1(b)(75)). A partici-
pating FFI is also required to verify its
compliance with the requirements of the
FFI agreement by periodically certifying
to the IRS about its satisfaction of the
requirements. For an FFI to maintain its
status as a participating FFI, the FFI
agreement requires that each member of
the FFI group other than an exempt ben-

eficial owner maintains one of the follow-
ing chapter 4 statuses: participating FFI
(including a reporting Model 2 FFI), lim-
ited FFI, registered deemed-compliant
FFI (including a reporting Model 1 FFI),
or nonreporting Model 1 or 2 FFI.

(B) Reporting Model 2 FFIs. Unless
modified by the terms of an applicable
Model 2 IGA, a reporting Model 2 FFI
must comply with the terms of the FFI
agreement by fulfilling the responsibilities
of a participating FFI provided in the FFI
agreement (as generally described in section
III(01)(A) of this notice), which includes,
for example, the requirement to withhold on
withholdable payments made to recalcitrant
account holders and nonparticipating FFIs.
The FFI agreement incorporates into each
relevant section of the FFI agreement the
modifications that apply to a reporting
Model 2 FFI under the applicable Model 2
IGA, which include, for example, the sus-
pension of withholding on non-consenting
U.S. accounts. Therefore, in the absence of
any modification to the terms of the FFI
agreement for a reporting Model 2 FFI, a
reporting Model 2 FFI may substitute "re-
porting Model 2 FFI" with the term "partic-
ipating FFI" to determine its requirements to
comply with the FFI agreement.

.02 Related Updates to Regulations.

(A) Coordination with Chapter 61
(Form 1099 Reporting). The Treasury De-
partment and the IRS intend to issue regu-
lations under chapter 61 to provide that a
payor other than a U.S. payor or U.S. mid-
dleman as defined in §1.6049-5(c)(5) (i.e.,
a non-U.S. payor) that is a participating FFI
(including a reporting Model 2 FFI) or re-
porting Model 1 FFI will satisfy its report-
ing obligations under chapter 61 with re-
spect to a U.S. payee (or presumed U.S.
payee) that is a non-exempt recipient if such
FFI reports such account holder pursuant to
the FFI agreement or the applicable Model 1
IGA (including if the FFI reports an ac-
count, such as a depository account with a
balance or value that does not exceed
$50,000, as a U.S. account). Notwithstand-
ing the preceding sentence, an FFI is re-
quired to report on Form 1099 to the extent
the FFI is required to apply backup with-
holding to the payment.

(B) Coordination with Section 3406
(Backup Withholding). The Treasury
Department and the IRS intend to issue
regulations to provide that withholding

under section 3406 (backup withholding)
will not apply to a reportable payment if a
participating FFI (including a reporting
Model 2 FFI) has withheld on the pay-
ment under §1.1471-4(b). A reportable
payment that is not subject to withholding
under chapter 4 remains subject to with-
holding under section 3406. Alternatively,
a participating FFI may elect to satisfy its
withholding obligations under §1.1471-
4(b) with respect to accounts held by re-
calcitrant account holders that are known
U.S. persons by withholding pursuant to
section 3406 at the backup withholding
rate. For example, Custodian A, a report-
ing Model 2 FFI that is also a nonqualified
intermediary and non-U.S. payor, receives
a reportable payment subject to backup
withholding under section 3406 as an in-
termediary on behalf of its account holder,
X. The reportable payment is also a with-
holdable payment under chapter 4. X, a
known U.S. person, refuses to provide
consent for Custodian A to report the ac-
count as a specified U.S. account. There-
fore, Custodian A reports X's account as a
non-consenting U.S. account and does not
have to withhold on the account pursuant
to the terms of the applicable Model 2
IGA. Even though Custodian A is not
required to withhold on the withholdable
payment made to the account under
§1.1471-4(b) as modified by the applica-
ble Model 2 IGA, Custodian A must,
however, provide its withholding agent
with sufficient information for such agent
to backup withhold and report on the re-
portable payment to the extent required
under §31.3406(g)-1(e). If, later, the con-
ditions under the applicable Model 2 IGA
for suspending withholding are not met,
and Custodian A is required to start with-
holding on withholdable payments made
to X as a recalcitrant account holder, Cus-
todian A may elect to continue to backup
withhold on reportable payments made to
X. Such backup withholding will satisfy
the obligation that Custodian A would
otherwise have to withhold on withhold-
able payments at the 30-percent rate under
§1.1471-4(b), as modified by the applica-
ble Model 2 IGA. If Custodian A does not
elect to apply section 3406 backup with-
holding, it must withhold on withholdable
payments made to X under §1.1471-
4(b) as modified under the applicable
Model 2 IGA, and such withholding will

satisfy its obligations to backup withhold
under section 3406 with respect to such
payments. Custodian A is still required to
backup withhold under section 3406, how-
ever, to the extent a reportable payment that
is not a withholdable payment (for example,
broker proceeds paid inside the U.S. by a
non-U.S. payor) is made to X.

(C) Transitional Reporting of For-
eign Reportable Amounts Paid to Non-
participating FFIs. The Treasury Depart-
ment and the IRS intend to modify the
transitional reporting requirements under
the chapter 4 regulations for calendar
years 2015 and 2016 with respect to pay-
ments of foreign reportable amounts made
to nonparticipating FFIs. The current rules
provide that a participating FFI is required
to report the aggregate amount of foreign
reportable amounts paid to each payee
that is a nonparticipating FFI, even where
such payments are not associated with a
financial account. The modified rules will
provide that a participating FFI is only
required to report foreign reportable
amounts paid with respect to a financial
account that it maintains for a nonpartic-
ipating FFI. Such reporting will be re-
quired on Form 8966 instead of Form
1042-S. Additionally, a participating FFI
will be permitted to report all payments
made to the account if it does not want to
distinguish foreign reportable amounts
from other amounts paid to the account.
The modified rules will further provide
that if the participating FFI is prohibited
under domestic law from reporting on a
specific payee basis without consent from
the nonparticipating FFI account holder,
and the participating FFI is unable to ob-
tain consent, the participating FFI may
report the aggregate number of accounts
held by all such nonparticipating FFIs and
the aggregate amount of foreign report-
able amounts paid to such accounts.

(D) Direct Reporting NFFEs or
Sponsored Direct Reporting NFFEs.
The Treasury Department and the IRS in-
tend to issue regulations under chapter 4
to provide that a passive nonfinancial for-
eign entity (NFFE) will not include an
NFFE that is a direct reporting NFFE or
sponsored direct reporting NFFE. A direct
reporting NFFE will mean an NFFE that
elects to report on Form 8966 directly to
the IRS certain information about its di-
rect or indirect substantial U.S. owners, in

lieu of providing such information to
withholding agents or participating FFIs
with which the NFFE holds a financial
account. The chapter 4 regulations will be
modified to provide that a direct reporting
NFFE will be treated as an excepted
NFFE. A direct reporting NFFE will be
required to register with the IRS to obtain
a GIIN and to agree to comply with the
provisions to be provided in the modified
chapter 4 regulations on reporting infor-
mation about its substantial U.S. owners
directly to the IRS on Form 8966. Instruc-
tions to the FATCA registration website
will be modified to provide instructions to
direct reporting NFFEs on how to register.
In general, withholding agents and partic-
ipating FFIs will identify and document a
direct reporting NFFE in a manner similar
to how withholding agents and participat-
ing FFIs will document a participating
FFI, including by verifying that the GIIN of
the direct reporting NFFE is listed on the
IRS FFI List. Notwithstanding that a direct
reporting NFFE will document itself to
withholding agents and participating FFIs in
a manner similar to a participating FFI, it
will not be treated as a participating FFI and
will not enter into an FFI agreement. There-
fore, since the definition of a passive NFFE
will be updated to exclude a direct reporting
NFFE, an account held by a direct reporting
NFFE will not be treated as a U.S. account
and will not be reported by a participating
FFI with which the direct reporting NFFE
has a financial account to the IRS. The Trea-
sury Department and the IRS intend to mod-
ify the regulations under chapter 4 to allow
an entity to sponsor one or more direct re-
porting NFFEs (sponsored direct reporting
NFFEs), which will require the sponsoring
entity to report on Form 8966 directly to the
IRS (on the sponsored direct reporting
NFFE's behalf) information about each
sponsored direct reporting NFFE's direct or
indirect substantial U.S. owners.

(E) NFFEs that are QIs, WPs, and
WTs. The Treasury Department and the
IRS intend to modify the chapter 4 regu-
lations to provide that a passive NFFE
does not include an NFFE that is acting as
a QI or that is a WP or WT. An NFFE that
is acting as a QI and receiving a withhold-
able payment on behalf of a passive NFFE
will be required pursuant to the updated
QI agreement to report directly to the IRS
information about the passive NFFE and

its substantial U.S. owners, in addition to
the QI's other obligations as a withhold-
ing agent under chapters 3 and 4. An
NFFE that is a WP or WT will be required
pursuant to the updated WP or WT agree-
ment, as applicable, to report directly to
the IRS information about its direct or
indirect substantial U.S. owners, in addi-
tion to its other obligations as a withhold-
ing agent under chapters 3 and 4.

(F) Section 953(d) Entities. The Trea-
sury Department and the IRS intend to mod-
ify the definition of U.S. person in the chapter
4 regulations to include a foreign insurance
company that is not a specified insurance
company and that elects pursuant to section
953(d) to be subject to U.S. income tax as if
it were a U.S. insurance company.

.03 Update to Relevant Forms. The IRS
intends to update all relevant IRS forms to
the extent necessary to incorporate and im-
plement the changes described above in this
section III. This includes, for example,
Form W-8BEN-E which has been posted as
a draft on the IRS.gov website and does not
currently include a chapter 4 status for direct
reporting NFFEs.

### SECTION IV. Registration for Participating FFIs and Reporting Model 2 FFIs.

.01 In General. An FFI may register on
Form 8957, Foreign Account Tax Compli-
ance Act (FATCA) Registration, via the
FATCA registration website available at
http://www.irs.gov/fatca to enter into an FFI
agreement on behalf of its branches (includ-
ing its home office) so that each of such
branches may be treated as a participating
FFI. A reporting Model 2 FFI may also
register on the FATCA registration website,
on behalf of one or more of its branches
(including its home office), to obtain a GIIN
and to agree to comply with the terms of an
FFI agreement, as modified by an applicable
Model 2 IGA. See the FATCA registration
user guide for more information about the
FATCA registration process. Each branch
of a participating FFI or reporting Model 2
FFI that is registered, other than a limited
branch, will be issued a GIIN to be used in
connection with complying with the FFI
agreement and to identify itself to withhold-
ing agents.

.02 Registration for Sponsoring Enti-
ties. An entity that agrees to perform the
due diligence, withholding, and reporting

obligations of one or more FFIs pursuant
to §1.1471-5(f)(1)(i)(F) or §1.1471-
5(f)(2)(iii) may register with the IRS via
the FATCA registration website to be
treated as a sponsoring entity. If a spon-
soring entity also seeks to obtain status as
a participating FFI or reporting Model 2
FFI, the entity must separately register for
participating FFI or reporting Model 2 FFI
status and may do so via the FATCA
registration website. The IRS intends to
update the FATCA registration user guide
to the FATCA registration website to pro-
vide information on the registration pro-
cess for sponsored entities.

### SECTION V. Draft FFI Agreement.

The text of the draft FFI agreement is
set forth below. The IRS will not provide
signed copies of the FFI agreement.

Section 1. PURPOSE AND SCOPE

Section 2. DEFINITIONS

Section 3. DUE DILIGENCE REQUIRE-
MENTS FOR DOCUMENTATION
AND IDENTIFICATION OF AC-
COUNT HOLDERS AND NONPAR-
TICIPATING FFI PAYEES

Section 4. WITHHOLDING REQUIRE-
MENTS

Section 5. DEPOSIT REQUIREMENTS

Section 6. INFORMATION REPORTING
AND TAX RETURN OBLIGATIONS

Section 7. LEGAL PROHIBITIONS ON
REPORTING U.S. ACCOUNTS AND
ON WITHOLDING

Section 8. COMPLIANCE PROCEDURES

Section 9. PARTICIPATING FFI WITH-
HOLDING CERTIFICATE

Section 10. ADJUSTMENTS FOR
OVERWITHHOLDING AND UNDER-
WITHHOLDING AND REFUNDS

Section 11. FFI GROUP

Section 12. EXPIRATION, MODIFICA-
TION, TERMINATION, DEFAULT AND
RENEWAL OF AGREEMENT

Section 13. MISCELLLANEOUS PRO-
VISIONS

### Section 1. PURPOSE AND SCOPE.

.01 Purpose. THIS AGREEMENT is
made under, and in pursuance of, section
1471(b) and §1.1471-4:

WHEREAS, an FFI has completed
and submitted a FATCA registration form
in accordance with its instructions, which
registration indicated that one or more of
its branches seeks to be treated as a par-
ticipating FFI, and has represented that
such branches are eligible to, and will
comply with, the terms of the FFI agree-
ment;

WHEREAS, this agreement estab-
lishes the FFI's due diligence, withhold-
ing, information reporting, tax return fil-
ing, and other obligations as a
participating FFI under sections 1471
through 1474 and §§1.1471-1 through
1.1474-6;

NOW THEREFORE, the terms of
this agreement are as follows:

.02 General Obligations. An FFI that
agrees to comply with the terms of this
agreement applicable to one or more of its
branches will be treated as a participating
FFI with respect to such branches, and
such participating FFI branches will not
be subject to withholding under section
1471. An FFI (or branch of an FFI) must
act in its capacity as a participating FFI
with respect to all the accounts that it
maintains for purposes of reporting such
accounts and must act as a withholding
agent to the extent required under this
agreement. A branch of an FFI that cannot
satisfy all of the terms of this agreement
under the laws of the jurisdiction in which
such branch is located will be treated as a
limited branch (as defined in this agree-
ment) and will be subject to withholding
under section 1471 as a nonparticipating
FFI.

### Section 2. DEFINITIONS

#### 01. Scope of Definitions.

(A) In General. Unless specifically
modified in this agreement, all terms used
in this agreement have the same meaning
as provided in sections 1471 through
1474, including the final regulations there-
under. See § 1.1471-1(b) for a compre-

hensive list of chapter 4 terms and defini-
tions.

(B) Reporting Model 2 FFIs. A re-
porting Model 2 FFI must use the defini-
tions set forth in the applicable Model 2
IGA with respect to the accounts that it
maintains in the Model 2 IGA jurisdiction,
unless the Model 2 IGA jurisdiction per-
mits the use of a definition provided in
this agreement or §1.1471-1(b) in lieu of
a definition set forth in the applicable
Model 2 IGA, and such application does
not frustrate the purposes of the Model 2
IGA.

.02 Account/Financial account. "Ac-
count" or "financial account" means a fi-
nancial account described in §1.1471-
5(b).

.03 Account holder. "Account holder"
means the person who holds an account,
as determined under §1.1471-5(a)(3).

.04 Account maintained by a participat-
ing FFI. "Account maintained by a par-
ticipating FFI" means an account that a
participating FFI is treated as maintaining
under §1.1471-5(b)(5).

.05 Active NFFE. In the case of a report-
ing Model 2 FFI, "active NFFE" means an
active NFFE as defined in the applicable
Model 2 IGA.

.06 Backup withholding. "Backup with-
holding" means the withholding required
under section 3406.

.07 Branch. "Branch" means a unit, busi-
ness, or office of an FFI that is treated as
a branch under the regulatory regime of a
jurisdiction or that is otherwise regulated
under the laws of a jurisdiction as separate
from other offices, units, or branches of
the FFI, and includes a disregarded entity
of an FFI. The term "branch" also means
a unit, business, or office of an FFI that is
located in a jurisdiction in which it is a
resident, and a unit, business, or office in
the jurisdiction in which it is created or
organized. All units, businesses, and of-
fices of a participating FFI in a single
jurisdiction must be treated as a single
branch.

.08 Branch that maintains the account.
A branch maintains an account if the
rights and obligations of the participating
FFI and the account holder with regard to
such account (including any assets held in
the account) are governed by the laws of
the jurisdiction in which the branch is

located. See §1.1471-5(b)(5) for when an
FFI is treated as maintaining an account.

.09 Certified deemed-compliant FFI.
"Certified deemed-compliant FFI" means
an FFI described in §1.1471-5(f)(2) and
includes a nonreporting FFI under a
Model 1 IGA and a nonreporting FFI
treated as a certified deemed-compliant
FFI under a Model 2 IGA.

.10 Chapter 4 reportable amount.
"Chapter 4 reportable amount" means an
amount described in §1.1474-1(d)(2)(i).
.11 Chapter 4 status. "Chapter 4 status"
means the status of a person as a U.S.
person, a specified U.S. person, an indi-
vidual that is a foreign person, a partici-
pating FFI, a certified or registered
deemed-compliant FFI, a restricted dis-
tributor, an exempt beneficial owner, a
nonparticipating FFI, a territory financial
institution, an excepted NFFE (or, in the
case of a reporting Model 2 FFI, an active
NFFE), a direct reporting NFFE, a spon-
sored direct reporting NFFE, or a passive
NFFE.

.12 Compliance FI. "Compliance FI"
means a financial institution described in
§1.1471-4(f)(2)(ii)(A).

.13 Custodial institution. "Custodial in-
stitution" means an entity described in
§1.1471-5(e)(1)(ii).

.14 Deemed-compliant FFI. "Deemed-
compliant FFI" means an FFI that is
treated, pursuant to section 1471(b)(2) and
§1.1471-5(f), as meeting the requirements
of section 1471(b).

.15 Depository institution. "Depository
institution" means an entity described in
§1.1471-5(e)(1)(i).

.16 Effective date of the FFI agreement.
The effective date of the FFI agreement
with respect to an FFI or a branch of an
FFI that is a participating FFI is the date
on which the IRS issues a GIIN to the FFI
or branch. For a participating FFI that
receives a GIIN prior to June 30, 2014, the
effective date of the FFI agreement is June
30, 2014.

.17 Entity account. "Entity account"
means an account held by one or more
entities.

.18 Excepted NFFE. "Excepted NFFE"
means an NFFE that is described in
§1.1472-1(c)(1).

.19 Exempt beneficial owner. "Exempt
beneficial owner" means any person de-
scribed in §1.1471-6(b) through (g) and

includes any person treated as an exempt
beneficial owner under an applicable
Model 1 or Model 2 IGA.

.20 Exempt recipient. "Exempt recipi-
ent" means a person described in
§1.6049-5(c)(1)(ii) (for interest, divi-
dends, and royalties), a person described
in §1.6045-2(b)(2)(i) (for broker pro-
ceeds), and a person described in
§1.6041-3(q) (for rents, amounts paid on
notional principal contracts, and other
fixed or determinable income).

.21 Financial institution (FI). "Financial
institution" or "FI" means an entity de-
scribed in §1.1471-5(e)(1) and includes a
financial institution as defined in an appli-
cable Model 1 or Model 2 IGA.

.22 FFI group. "FFI group" means an
expanded affiliated group (as defined in
§1.1471-5(i)) that includes one or more
participating FFIs or, in the case of a
reporting Model 2 FFI, a group of related
entities as defined in an applicable Model
2 IGA.

.23 FFI member. "FFI member" means
an FFI that is a member of an FFI group.
.24 Foreign financial institution (FFI).
"Foreign financial institution" or "FFI"
means an entity described in §1.1471-
5(d).

.25 Foreign reportable amount. "For-
eign reportable amount" means a payment
of FDAP income as defined in §1.1473-
1(a)(2)(i)(A) that would be a withholdable
payment if paid by a U.S. person.

.26 Form 945. "Form 945" means IRS
Form 945, Annual Return of Withheld
Federal Income Tax.

.27 Form 1042. "Form 1042" means IRS
Form 1042, Annual Withholding Tax Re-
turn for U.S. Source Income of Foreign
Persons.

.28 Form 1042-S. "Form 1042-S" means
IRS Form 1042-S, Foreign Person's U.S.
Source Income Subject to Withholding.

.29 Form 1099. "Form 1099" means IRS
Form 1099-B, Proceeds From Broker and
Barter Exchange Transactions; IRS Form
1099-DIV, Dividends and Distributions;
IRS Form 1099-INT, Interest Income; IRS
Form 1099-MISC, Miscellaneous Income;
IRS Form 1099-OID, Original Issue Dis-
count, and any other form in the IRS Form
1099 series appropriate to the type of pay-
ment required to be reported.

.30 Form 8957. "Form 8957" means IRS
Form 8957, Foreign Account Tax Compli-

ance Act (FATCA) Registration, and in-
cludes the online version of the form on
the FATCA registration website available
at http://www.irs.gov/fatca.

.31 Form 8966. "Form 8966" means IRS
Form 8966, FATCA Report, and includes
the FATCA Report XML.

.32 Individual account. "Individual ac-
count" means an account held by one or
more individuals.

.33 Intergovernmental Agreement
(IGA). "Intergovernmental Agreement"
or "IGA" means any applicable Model 1
or Model 2 IGA.

(A) Model 1 IGA. "Model 1 IGA"
means an agreement or arrangement be-
tween the United States or the Treasury
Department and a foreign government or
one or more agencies thereof to imple-
ment FATCA through reporting by finan-
cial institutions to such foreign govern-
ment or agency thereof, followed by
automatic exchange of the reported infor-
mation with the IRS.

(B) Model 2 IGA. "Model 2 IGA"
means an agreement or arrangement be-
tween the United States or the Treasury
Department and a foreign government or
one or more agencies thereof to facilitate
the implementation of FATCA through
reporting by financial institutions directly
to the IRS in accordance with the terms of
this agreement, supplemented by the ex-
change of information between such for-
eign government or agency thereof and
the IRS.

.34 Lead FI. "Lead FI" means an FFI or
U.S. financial institution that is designated
by members of the FFI group to initiate
and manage FATCA registration via the
FATCA registration website for such FFI
members of the FFI group and that agrees
to the responsibilities described in section
11.02 of this agreement.

.35 Limited branch. "Limited branch"
means a branch of a participating FFI de-
scribed in §1.1471-4(e)(2)(iii) and sec-
tion 7.04 of this agreement. With respect
to a reporting Model 2 FFI, a limited
branch is another branch of the reporting
Model 2 FFI that operates in a jurisdiction
that prevents such branch from fulfilling
the requirements of a participating FFI or
deemed-compliant FFI, or that cannot ful-
fill the requirements of a participating FFI
or deemed-compliant FFI due to the expi-
ration of the transitional rule for limited

branches under §1.1471-4(e)(2)(v), and
for which the reporting Model 2 FFI
meets the terms of the applicable Model 2
IGA with respect to the branch.

.36 Limited FFI. "Limited FFI" means
an FFI described in §1.1471-4(e)(3)(ii). With
respect to a reporting Model 2 FFI, a
limited FFI is a related entity that operates
in a jurisdiction that prevents the entity
from fulfilling the requirements of a par-
ticipating FFI or deemed-compliant FFI or
that cannot fulfill the requirements of a
participating FFI or deemed-compliant
FFI due to the expiration of the transi-
tional rule for limited FFIs under
§1.1471-4(e)(3)(iv), and for which the re-
porting Model 2 FFI meets the require-
ments of the applicable Model 2 IGA with
respect to the entity.

.37 New account. "New account" means
an account other than a preexisting ac-
count.

.38 Non-consenting U.S. account. For
purposes of a reporting Model 2 FFI, a
"non-consenting U.S. account" has the
meaning that such term has under an ap-
plicable Model 2 IGA.

.39 Non-exempt recipient. "Non-exempt
recipient" means a person that is not an
exempt recipient.

.40 Non-financial foreign entity (NFFE).
"Non-financial foreign entity" or "NFFE"
means a foreign entity that is not a financial
institution (including a territory NFFE
as defined in §1.1471-1(b)(123)). The
term also means a foreign entity treated
as an NFFE under an applicable Model 1
or 2 IGA.

.41 Nonparticipating FFI. "Nonpartici-
pating FFI" means an FFI other than a
participating FFI, a deemed-compliant
FFI, or an exempt beneficial owner.

.42 Nonqualified intermediary (NQI).
"Nonqualified intermediary" or an "NQI"
means an entity described in §1.1441-
1(c)(14).

.43 Non-U.S. account. "Non-U.S. ac-
count" means an account that is not a U.S.
account and that does not have an account
holder that is a nonparticipating FFI or
recalcitrant account holder.

.44 Non-U.S. payor. "Non-U.S. payor"
means a payor other than a U.S. payor.
.45 Nonwithholding foreign partner-
ship (NWP). "Nonwithholding foreign
partnership" or "NWP" means a foreign

partnership other than a withholding for-
eign partnership.

.46 Nonwithholding foreign trust
(NWT). "Nonwithholding foreign trust"
or "NWT" means a foreign trust other
than a withholding foreign trust.

.47 Obligation. "Obligation" means an
account, instrument, contract, debt, or eq-
uity interest.

.48 Offshore obligation. "Offshore obli-
gation" means an obligation described in
§1.1471-1(b)(82).

.49 Owner-documented FFI. "Owner-
documented FFI" means an FFI described
in §1.1471-5(f)(3).

.50 Participating FFI. "Participating
FFI" means an FFI, or branch of an FFI,
that has registered with the IRS to comply
with the terms of, and to enter into, this
agreement with the IRS, and to obtain a
GIIN. See also the definition of reporting
Model 2 FFI.

.51 Passive NFFE. "Passive NFFE"
means an NFFE other than an excepted
NFFE (or, in the case of a reporting Model
2 FFI, an active NFFE), a qualified inter-
mediary, a withholding foreign partner-
ship, a withholding foreign trust, or an
exempt beneficial owner.

.52 Payee. "Payee" means a person de-
scribed in §1.1471-3(a).

.53 Preexisting account. "Preexisting ac-
count" means any account maintained by
the participating FFI that is outstanding on
or before the effective date of the FFI
agreement and includes an account de-
scribed in §1.1471-1(b)(98)(ii).

.54 Recalcitrant account holder. "Recal-
citrant account holder" means an account
holder described in §1.1471-5(g).

.55 Registered deemed-compliant FFI.
"Registered deemed-compliant FFI"
means an FFI described in §1.1471-
5(f)(1), and includes a reporting Model 1
FFI, a QI branch of a U.S. financial insti-
tution that is a reporting Model 1 FFI, and
a nonreporting FFI treated as a registered
deemed-compliant FFI under a Model 2
IGA.

.56 Reporting Model 1 FFI. "Reporting
Model 1 FFI" means an FFI or branch of
an FFI that is treated as a reporting finan-
cial institution under an applicable Model
1 IGA and that has registered with the IRS
to obtain a GIIN.

.57 Reporting Model 2 FFI. "Reporting
Model 2 FFI" means an FFI or branch of

an FFI treated as a reporting financial in-
stitution under an applicable Model 2 IGA
and that has registered with the IRS to
comply with the terms of this agreement,
as modified by an applicable Model 2
IGA, and to obtain a GIIN.

.58 Reportable payment. "Reportable
payment" means a payment of interest or
dividends (as defined in section
3406(b)(2)) and other reportable pay-
ments (as defined in section 3406(b)(3)).

.59 Responsible officer. "Responsible of-
ficer" means a person described in
§1.1471-1(b)(108).

.60 Specified insurance company.
"Specified insurance company" means an
insurance company described in §1.1471-
5(e)(1)(iv).

.61 Sponsoring entity. "Sponsoring en-
tity" means an entity that has registered
with the IRS and agrees to perform the
obligations of one or more sponsored en-
tities pursuant to §1.1471-5(f) or
§1.1472-1 and includes a sponsoring en-
tity described in an applicable Model 1 or
2 IGA.

.62 Territory FI. "Territory FI" means a
financial institution that is incorporated or
organized under the laws of any U.S. ter-
ritory, excluding a territory entity that is
an investment entity but is not a deposi-
tory institution, custodial institution, or
specified insurance company.

.63 U.S. account. "U.S. account" means
an account described in §1.1471-5(a).

.64 U.S. branch treated as a U.S. per-
son. "U.S. branch treated as a U.S. per-
son" means a U.S. branch of a participat-
ing FFI, reporting Model 1 or 2 FFI, or
registered deemed-compliant FFI that is
treated as a U.S. person under §1.1441-
1(b)(2)(iv)(A).

.65 U.S. source FDAP income. "U.S.
source FDAP income" means income de-
scribed in §1.1473-1(a)(2).

.66 U.S. payor. "U.S. payor" means a
U.S. payor or U.S. middleman as defined
in §1.6049-5(c)(5).

.67 Withholding agent. "Withholding
agent" means a person described in
§1.1473-1(d).

.68 Withholdable payment. "Withhold-
able payment" means a payment de-
scribed in §1.1473-1(a).

Section 3. DUE DILIGENCE
REQUIREMENTS FOR
DOCUMENTATION AND
IDENTIFICATION OF ACCOUNT
HOLDERS AND
NONPARTICIPATING FFI PAYEES

.01 In General. The due diligence proce-
dures described in this section 3 generally
apply to a participating FFI (other than a
U.S. branch treated as a U.S. person). The
participating FFI must perform the due
diligence procedures described in this sec-
tion 3 to determine which of the accounts
that it maintains are (i) U.S. accounts, (ii)
accounts held by recalcitrant account
holders, or (iii) accounts held by nonpar-
ticipating FFIs. If the participating FFI
makes a withholdable payment to a payee
other than an account holder, the partici-
pating FFI must also perform due dili-
gence procedures to determine if with-
holding is required under section 4 of this
agreement.

(A) Reporting Model 2 FFIs. A re-
porting Model 2 FFI must apply the due
diligence procedures described in Annex I
of the applicable Model 2 IGA with re-
spect to all accounts that such reporting
Model 2 FFI maintains within the Model 2
IGA jurisdiction unless the Model 2 IGA
jurisdiction permits the reporting Model 2
FFI to apply the due diligence procedures
of this agreement, as described in this
section 3. A reporting Model 2 FFI may
apply the due diligence procedures de-
scribed in section 3.02 of this agreement
separately for each section of Annex I (for
example, preexisting entity accounts) with
respect to all accounts or with respect to
any clearly identified group of accounts
(such as by line of business or the location
where the account is maintained). A re-
porting Model 2 FFI that applies the due
diligence procedures of section 3.02 of
this agreement must continue to apply
these procedures consistently in all subse-
quent years unless there has been a mate-
rial modification to section 3.02 of this
agreement or §1.1471-4(c). A reporting
Model 2 FFI must apply the due diligence
procedures of section 3.02(B) of this
agreement with respect to an entity payee
that is not an account holder and that is
receiving a withholdable payment.

(B) U.S. Branch of a Participating
FFI treated as a U.S. Person. A U.S.
branch of a participating FFI that is

treated as a U.S. person is required to
apply the due diligence requirements de-
scribed in §1.1471-3 to determine the
chapter 4 status of account holders and
entity payees and must apply the due dil-
igence requirements of chapter 3 or chap-
ter 61 (as applicable) with respect to indi-
vidual account holders. See section
4.02(C) of this agreement for special with-
holding rules and section 6 of this agree-
ment for special reporting rules applicable
to such U.S. branches.

.02 Due Diligence Procedures.

(A) Identification and Documenta-
tion of Account Holders. A participating
FFI is required to determine the chapter 4
status of each holder of an account main-
tained by the participating FFI and to
identify each account that is a U.S. ac-
count, non-U.S. account, account held by
a recalcitrant account holder, or account
held by a nonparticipating FFI. For this
purpose, the participating FFI is required
to apply the due diligence procedures for
accounts to the extent, and in the manner,
required under §1.1471-4(c) within the
applicable time periods described in
§1.1471-4(c)(3), (c)(4), and (c)(5). A par-
ticipating FFI that is unable to reliably
associate valid documentation with an ac-
count holder to determine the chapter 4
status of such account holder must apply
the presumption rules of section 3.04 of
this agreement. See §1.1471-4(d)(2) for
other account holders to which a partici-
pating FFI's due diligence requirements
apply.

(B) Identification and Documenta-
tion of Certain Payees other than Ac-
count Holders. For determining when
withholding is required under section 4 of
this agreement, the participating FFI is
required to reliably associate the payment
with documentation that meets the re-
quirements of section 3.03(B) of this
agreement when making a withholdable
payment to an entity payee with respect to
an obligation that is not an account. If an
account holder receives a withholdable
payment and is not treated as the payee of
the payment, in addition to documenting
the chapter 4 status of the account holder,
the participating FFI is also required to
establish the chapter 4 status of the payee
or payees to determine whether withhold-
ing is required. See, however, §1.1471-
3(e)(4)(vi) for when the participating FFI

may rely on the chapter 4 status determi-
nation of a payee provided by a partici-
pating FFI or registered deemed-
compliant FFI that is acting as an
intermediary or that is a flow-through en-
tity. A participating FFI must apply the
presumption rules of section 3.04 of this
agreement to determine the chapter 4 sta-
tus of a payee if, prior to the time of
payment, it cannot reliably associate the
payment with documentation meeting the
requirements of section 3.03(B) of this
agreement. See, however, §1.1471-
3(c)(7) for requirements that apply for
documentation received after the date of a
payment. With respect to a preexisting
account, a participating FFI must, to the
extent required under §1.1471-4(c), de-
termine the chapter 4 status of the payee
within the applicable time period de-
scribed in §1.1471-4(c)(3) or, if unable to
do so, must apply the presumption rules of
section 3.04 of this agreement to deter-
mine the chapter 4 status of a payee.

.03 Additional Requirements for Iden-
tification and Documentation of Ac-
count Holders and Payees.

(A) In General. To the extent that the
participating FFI is required to retain a
record of the documentation collected (or
otherwise maintained) to establish the
chapter 4 status of an account holder or
payee, the participating FFI must do so in
accordance with the requirements of
§1.1471-4(c)(2). The participating FFI
must also institute procedures that meet
the requirements of §1.1471-4(c)(2) to
ensure that any change in circumstances is
identified with respect to an account. For
the definition of a change in circum-
stances, see §1.1471-4(c)(2)(iii). In the
case of a reporting Model 2 FFI that ap-
plies the procedures of Annex I of the
applicable Model 2 IGA with respect to an
account, a change of circumstance has the
meaning that such term has under Annex I
of the applicable Model 2 IGA.

(B) Requirements for Documenta-
tion.

(1) In General. To the extent the par-
ticipating FFI obtains withholding certifi-
cates, substitute certification forms, writ-
ten statements, or documentary evidence,
such documentation must meet the re-
quirements set forth in §1.1471-3(c). Sec-
tions 1.1471-3(c)(3) through (5) provide
the requirements of valid withholding cer-

tificates, written statements, and docu-
mentary evidence. Section 1.1471-3(c)(6)
provides other applicable rules for with-
holding certificates, written statements,
and documentary evidence, including
their periods of validity and electronic
transmission requirements. Sections
1.1471-3(c)(8) and (9) provide require-
ments related to the sharing of documen-
tation and reliance by a participating FFI
on documentation collected by another
person. A participating FFI must obtain
the documentation specified in §1.1471-
3(d) to establish the chapter 4 status of an
entity account holder or an entity payee
other than an account holder. A participat-
ing FFI may rely on documentation that
meets the requirements of §1.1471-
3(c) until the expiration date of such doc-
umentation or until there is a change in
circumstances (as defined in §1.1471-
4(c)(2)(iii)) that affects the account holder
or payee's claim of chapter 4 status. If the
participating FFI is unable to obtain the
required documentation within 90 days of
the expiration date of the documentation
or a change in circumstances, the partici-
pating FFI must apply the presumption
rules of section 3.04 of this agreement
with respect to the account or payee until
valid documentation is obtained upon
which the FFI is permitted to rely.

(2) Requirements for Reporting
Model 2 FFIs. To the extent a reporting
Model 2 FFI applies the due diligence
procedures described in Annex I of the
applicable Model 2 IGA with respect to an
account, such documentation must meet
the requirements described in the applica-
ble Model 2 IGA, and the reporting Model
2 FFI may rely on such documentation
until the expiration date of such documen-
tation or until there is a change in circum-
stances (as defined in Annex I of the ap-
plicable Model 2 IGA) that affects the
account holder or payee's claim of chapter
4 status. Upon the expiration of the doc-
umentation or a change in circumstances,
the reporting Model 2 FFI must obtain
new or additional documentation or must
redetermine the status of the account in
accordance with the due diligence proce-
dures set forth in Annex I of the applica-
ble Model 2 IGA. If an account holder of
a new account (as defined in the applica-
ble Model 2 IGA) has a change in circum-
stances that would cause such account to

be treated as a U.S. account and the ac-
count holder refuses to provide consent
for such account to be reported, the report-
ing Model 2 FFI must report the account
as a non-consenting U.S. account as de-
scribed in section 6.03(B) of this agree-
ment.

04\. Presumption Rules in Absence of
Valid Documentation. If the participat-
ing FFI is required to, but is unable to,
obtain a record of the documentation that
meets the requirements of this section 3
within the applicable time period as refer-
enced in section 3.02 of this agreement, or
if the participating FFI knows or has rea-
son to know that documentation provided
for an account holder or payee is unreli-
able or incorrect (as determined applying
the standards of knowledge referenced in
§1.1471-4(c)(2), or as determined under
Annex I of the applicable Model 2 IGA in
the case of a reporting Model 2 FFI that
applies such procedures with respect to an
account), the FFI is required to apply the
presumption rules described in this sec-
tion 3.04 until valid documentation is pro-
vided for the account holder or payee
upon which the FFI is permitted to rely.
However, following a change in circum-
stances, a participating FFI may continue
to treat otherwise valid documentation
previously provided by an account holder
or payee as valid and rely on such docu-
mentation until the earlier of 30 days fol-
lowing the change in circumstances or the
date new documentation is obtained upon
which the participating FFI may rely to
document the chapter 4 status of the ac-
count holder or payee. Additionally, a par-
ticipating FFI may choose to escrow
amounts withheld (in lieu of depositing
such amounts as tax withheld) with re-
spect to an account holder or payee after
the date of a change in circumstances until
the earlier of the date that is 90 days after
the date the first withholdable payment is
made to the account following the change
in circumstances or the end of the calen-
dar year in which such withholdable pay-
ment is made.

(A) Payee or Account Held by an
Entity. With respect to a withholdable
payment made to a payee other than an
account holder, a participating FFI must
apply the presumption rules of §1.1471-
3(f) (as applicable to entities). The pre-
sumption rules of §1.1471-3(f) (as appli-

cable to entities) also apply to an account
held by an entity. However, in the case of
an account held by a passive NFFE that
provides the documentation described in
§1.1471-3(d)(12) to establish its status as
a passive NFFE but fails to provide the
information regarding its owners required
under §1.1471-3(d)(12)(iii), the partici-
pating FFI must treat the account as held
by a recalcitrant account holder in accor-
dance with §1.1471-5(g)(2)(iv).

(B) Account Held by an Individual.
With respect to an account held by an
individual, the participating FFI must treat
the account as held by a recalcitrant ac-
count holder in accordance with §1.1471-
5(g) and classify the type of recalcitrant
account holder in accordance with the
chapter 4 reporting pools described in
§1.1471-4(d)(6)(i).

(C) Presumption Rules for Report-
ing Model 2 FFIs. To the extent a report-
ing Model 2 FFI applies the due diligence
procedures described in Annex I of the
applicable Model 2 IGA, such FFI must
apply the procedures of the Annex I of the
applicable Model 2 IGA to treat the ac-
count as held by a nonparticipating FFI or
non-consenting U.S. account. A reporting
Model 2 FFI that applies the due diligence
procedures described in section 3.02 of
this agreement with respect to an account
must treat an account that would other-
wise be treated as held by a recalcitrant
account holder as a non-consenting U.S.
account to the extent required under the
applicable Model 2 IGA. With respect to a
withholdable payment made to a payee
other than an account holder, a reporting
Model 2 FFI must apply the presumption
rules of §1.1471-3(f) (as applicable to
entities).

## Section 4. WITHHOLDING REQUIREMENTS.

### .01 Withholding Requirements.

(A) In General. A participating FFI is
generally required to deduct and withhold
a tax equal to 30 percent of any withhold-
able payment made to an account main-
tained by such participating FFI that is
held by a recalcitrant account holder or a
nonparticipating FFI. A participating FFI
is also generally required to deduct and
withhold a tax equal to 30 percent of any
withholdable payment made to a payee
that is (or is presumed to be) a nonpartic-

ipating FFI with respect to an obligation
that is not an account. There is no require-
ment to withhold on foreign passthru pay-
ments for payments made before January
1, 2017 and, therefore, no such require-
ment is addressed in this agreement. See
section 7.03 of this agreement for the re-
quirements of a participating FFI that is
prohibited by law from withholding as
required under this section 4.02.

(B) Modification of Withholding Re-
quirements for a Reporting Model 2
FFI. Notwithstanding the withholding re-
quirements described in section 4.01(A)
of this agreement, a reporting Model 2 FFI
is not required to deduct and withhold tax
on any withholdable payment made to its
non-consenting U.S. accounts, provided
that the conditions under the applicable
Model 2 IGA regarding the suspension of
withholding relating to non-consenting
U.S. accounts are met. If such conditions
are not met, the reporting Model 2 FFI is
required to treat its non-consenting U.S.
accounts as held by recalcitrant account
holders and is required to deduct and
withhold a tax equal to 30 percent of any
withholdable payment made to such ac-
counts in accordance with section 4.02 of
this agreement. In addition, a reporting
Model 2 FFI is required to withhold in
accordance with section 4.02 of this
agreement on any withholdable payment
made to a nonparticipating FFI that is an
account holder or a payee other than an
account holder.

(C) Special Withholding Require-
ments of U.S. Branch of a Participating
FFI treated as a U.S. Person. A U.S.
branch of a participating FFI that is
treated as a U.S. person and that satisfies
its backup withholding obligations under
section 3406(a) with respect to accounts it
maintains that are held by U.S. non-
exempt recipients (or presumed U.S. non-
exempt recipients) will be treated as sat-
isfying its withholding requirements
under this section 4 and §1.1471-
4(b) with respect to such account holders.
For all other payees of a withholdable
payment, a U.S. branch of a participating
FFI must withhold to the extent required
under sections 1471(a) and 1472. See sec-
tion 3.01(B) of this agreement for special
due diligence rules and section 6 of this
agreement for special reporting rules ap-
plicable to such U.S. branches.

(D) Election to Withhold under Sec-
tion 3406 on Recalcitrant Account
Holders that are Known U.S. Persons.
With respect to recalcitrant account hold-
ers that are known U.S. persons and that
receive withholdable payments, to the ex-
tent that the payment also constitutes a
reportable payment, a participating FFI
(including its U.S. branch that is not
treated as a U.S. person) may elect to
satisfy its withholding obligation under
this section 4 and §1.1471-4(b) by apply-
ing backup withholding under section
3406 to such withholdable payments.
Nothing in this section 4 or §1.1471-
4(b) relieves a participating FFI of its re-
quirement to backup withhold under sec-
tion 3406 with respect to reportable
payments that are not also withholdable
payments. See section 4.04(D) of this
agreement for the coordination of backup
withholding for a participating FFI that
does not make the election described in
this section 4.01(D) and that withholds
under section 1471(b) with respect to a
withholdable payment that is also a re-
portable payment that is made to a recal-
citrant account holder that is a known U.S.
person.

### .02 General Rules for Withholding.

(A) Withholding Determination in
General. A participating FFI is required
to determine whether withholding applies
at the time a withholdable payment is
made by such participating FFI by apply-
ing the requirements of §1.1471-4(b) for
determining the payee of the payment and
reliably associating the payment with
valid documentation for the payee. The
exceptions to withholding described in
§1.1471-2, including the exception for
payments made under a grandfathered ob-
ligation and payments made to certain ex-
cepted accounts apply for purposes of de-
termining whether withholding is required
under this section 4. A participating FFI is
not required to withhold on payments
made to an account holder of a preexisting
account until the expiration of the appli-
cable time period referenced in the due
diligence procedures of section 3.02(A) of
this agreement for identifying (or presum-
ing) the account as held by a nonpartici-
pating FFI or recalcitrant account holder.

(B) Withholding Requirements for a
Participating FFI that is an NQI, NWP,
or NWT. A participating FFI that is an

NQI, NWP, or NWT is generally not re-
quired to withhold with respect to a with-
holdable payment of U.S. source FDAP
income that it receives as an intermediary,
provided that it provides its withholding
agent with sufficient information for such
withholding agent to establish the portion
of the payment (if any) that is allocable to
recalcitrant account holders (in each of the
chapter 4 withholding rate pools described
in section 9.02(B) of this agreement), to
payees that are nonparticipating FFIs, and
to payees that are U.S. persons in accor-
dance with §1.1471-4(b)(3). If a partici-
pating FFI elects to withhold under sec-
tion 3406 with respect to recalcitrant
account holders that are known U.S. per-
sons as described in section 4.01(D) of
this agreement, the participating FFI must
provide its withholding agent with suffi-
cient information for such withholding
agent to establish the portion of the pay-
ment allocable to such account holders
and to apply backup withholding. See
§1.1471-3(c)(iii) and section 9 of this
agreement for the requirements applicable
to a participating FFI's withholding cer-
tificate, withholding statement, and asso-
ciated documentation. If the payment is
exempt from chapter 4 withholding, the
information provided by the participating
FFI to the withholding agent must also
include the payee's chapter 4 status when
specific payee information is required for
purposes of chapter 3. A participating FFI
must also provide the withholding agent
with information regarding any account
holders or payees of an intermediary or
flow-through entity that holds an account
with the participating FFI.

A participating FFI is required to with-
hold under §1.1471-4(b)(3) when it fails
to provide sufficient information to its
withholding agent or when it knows or has
reason to know that the withholding agent
has not withheld to the extent required
under §1.1471-2(a)(i) with respect to its
account holders. For example, if a partic-
ipating FFI provides the documentation
described in §1.1471-3(c)(3)(iii) to its
withholding agent and, based on the
amount of the payment that it receives
from the withholding agent, it knows or
has reason to know that the withholding
agent has underwithheld on the payment,
it is required to deduct and withhold tax
from the payment to the extent of the

underwithheld tax. A participating FFI is
also required to withhold when it applies
the dormant account procedures described
in section 5.02 of this agreement.

(C) Withholding Requirements with
Respect to Limited Branches and Lim-
ited FFIs. A participating FFI is required
to withhold on a withholdable payment it
makes to, or receives on behalf of, a lim-
ited branch or limited FFI to the extent
required under §1.1471-4(b)(5). A partic-
ipating FFI will have reason to know that
an FFI is a limited branch if it makes a
withholdable payment to an address in a
jurisdiction other than the jurisdiction of
the branch designated by the participating
FFI as the branch that will receive pay-
ment. For example, if a participating FFI
has designated Branch A, located in Juris-
diction A, as the branch that will be re-
ceiving a withholdable payment, and
USFI, the withholding agent, makes a
payment to Branch A at an address in
Jurisdiction B, then USFI will have reason
to know that the payment is made to an
FFI that is a limited branch. See §1.1471-
3(e)(3)(i).

.03 Liability for Failure to Withhold. A
participating FFI that fails to withhold any
tax under chapter 4 as required under sec-
tion 4.02 of this agreement is liable for the
amount of tax not withheld and any inter-
est, additions to tax, and penalties that
may apply under a relevant provision of
the Code.

### .04 Coordination with Other Withhold- ing Provisions.

(A) In General. A participating FFI is
a withholding agent for purposes of chap-
ter 4, a withholding agent under chapter 3
with respect to a payment subject to with-
holding under §1.1441-2(a) or under sec-
tions 1445 or 1446, and a payor for pur-
poses of withholding under section 3406.
Except to the extent provided in this sec-
tion 4.04, no provision of this agreement
otherwise limits the requirement of a par-
ticipating FFI to withhold as a withhold-
ing agent for purposes of chapters 3 and 4
or backup withhold as a payor for pur-
poses of section 3406 to the extent re-
quired.

(B) Coordination of Withholding un-
der Sections 1471(a) and 1472(a). A par-
ticipating FFI that complies with the with-
holding requirements of this agreement is
deemed to satisfy its chapter 4 withhold-

ing obligations under sections 1471(a) and
1472(a) with respect to its account holders
and payees that are nonparticipating FFIs.

(C) Coordination with Withholding
under Chapter 3. In the case of a with-
holdable payment that is also subject to
withholding under section 1441, 1442, or
1443, a participating FFI may credit the
tax withheld under section 4.02 of this
agreement against its liability under sec-
tion 1441, 1442, or 1443 as described in
§1.1474-6(b). In the case of a withhold-
able payment that is also subject to with-
holding under section 1445, withholding
under section 1445 applies to the payment
to the extent described under §1.1474-
4(6)(c), and withholding is not required
under section 4.02 of this agreement. In
the case of a withholdable payment that is
also subject to withholding under section
1446, withholding under section 1446 ap-
plies to the extent described under
§1.1474-6(d), and withholding is not re-
quired under section 4.02 of this agree-
ment.

(D) Coordination with Backup With-
holding. In the case of a withholdable
payment that is also a reportable payment
made by the participating FFI to a recal-
citrant account holder, withholding under
section 3406 will not apply to the report-
able payment if tax is withheld on the
payment under section 4.02 of this agree-
ment, unless the participating FFI elects to
apply backup withholding under section
3406 to known U.S. persons that are re-
calcitrant account holders as described in
section 4.01(D) of this agreement.

## Section 5. DEPOSIT REQUIREMENTS.

.01 In General. A participating FFI that
withholds tax as required under this agree-
ment must deposit amounts withheld
within the time provided in §1.1474-
1(b)(1). See §1.1471-2(a)(5)(ii) for an op-
tional escrow procedure if a withholding
agent is unable to determine at the time of
payment whether such payment is a with-
holdable payment.

.02 Dormant Accounts. If a participating
FFI receives a withholdable payment not
otherwise subject to backup withholding
under §31.3406(g)-1(e), or withholding
under §1.1441-2(a), on behalf of a dor-
mant account held by a recalcitrant ac-
count holder, the participating FFI may, in

lieu of depositing the tax withheld, set
aside the amount withheld in escrow until
the date that the account ceases to be a
dormant account. See section 6.05(C) of
this agreement for the reporting require-
ments and section 9 of this agreement for
the requirements of an FFI withholding
statement when the participating FFI ap-
plies the escrow rule for dormant accounts
described in this section 5.02. Sections
1.1471-4(d)(6)(ii) and (iii) provide the
rules for determining when the participat-
ing FFI must treat an account as dormant
and when an account will no longer be
treated as a dormant account.

## Section 6. INFORMATION REPORTING AND TAX RETURN OBLIGATIONS.

.01 In General. Under section 1471(c)
and §1.1471-4(d), a participating FFI is
required to report annually certain specific
payee information with respect to U.S.
accounts that it maintains. A participating
FFI is also required to report certain ag-
gregate account information described in
section 6.03 of this agreement with re-
spect to specified chapter 4 reporting
pools (as described in §1.1471-
4(d)(6)(i)) of its recalcitrant account hold-
ers and, in the case of a reporting Model 2
FFI, its non-consenting U.S. accounts. A
participating FFI has a transitional report-
ing obligation for payments of foreign re-
portable amounts made to account holders
that are nonparticipating FFIs as described
in section 6.04 of this agreement. A par-
ticipating FFI may also be required under
section 6.05 of this agreement to report
certain aggregate information with respect
to chapter 4 reportable amounts paid to its
recalcitrant account holders, payees that
are nonparticipating FFIs, and payees that
are U.S. persons. If a participating FFI is
required to file information returns under
section 6.05 of this agreement, the partic-
ipating FFI is also required under 6.06(A)
of this agreement to file Form 1042 to
report chapter 4 reportable amounts and
any tax withheld on such payments. A
participating FFI must file information
about its account holders or payees for
purposes of chapter 4 (Forms 8966, 1099,
1042-S) on magnetic media (as defined in
§301.1474-1(d)(1)). See section 6.06(B)
of this agreement for the income tax re-
turn filing requirements of a U.S. branch

of a participating FFI that makes with-
holdable payments. See also section 7 of
this agreement for the requirements of a
participating FFI that is prohibited by law
from reporting its U.S. accounts as re-
quired under this section 6. In the case of
a reporting Model 2 FFI, in applying this
section with respect to a passive NFFE,
the term "substantial U.S. owner" means a
"controlling person" as defined in the ap-
plicable model 2 IGA that is identified as
a specified U.S. person.

.02 U.S. Account Reporting.

(A) Accounts for which Reporting is
Required.

(1) In General. On a calendar-year
basis, a participating FFI must report each
U.S. account that it maintains in the man-
ner described in section 6.02(B) of this
agreement. The participating FFI is also
required to report accounts held by an FFI
that it has agreed to treat as an owner-
documented FFI under §1.1471-3(d)(6) to
the extent required under this section 6.02.

(2) Special Reporting of Account
Holders of Territory FIs. If a participat-
ing FFI maintains an account held by a
territory FI that acts as an intermediary
with respect to a withholdable payment,
and the territory FI does not agree to be
treated as a U.S. person with respect to the
payment, the participating FFI is required
to report each substantial U.S. owner of an
entity treated as a passive NFFE with re-
spect to which the territory FI acts as an
intermediary to the extent that the territory
FI provides the participating FFI with suf-
ficient information to report such account.
With respect to each entity treated as a
passive NFFE, the participating FFI must
report on Form 8966 the information de-
scribed in §1.1474-1(i)(2)(i) and the ac-
companying instructions to the form.

(3) Additional U.S. Account Report-
ing Requirement for a Trustee of a
Trustee-Documented Trust. In addition
to the accounts required to be reported
under section 6.02(A)(1) of this agree-
ment, a participating FFI that is the trustee
of a trustee-documented trust (as defined
in an applicable Model 1 or 2 IGA) must
report each U.S. account maintained by
the trust as if the participating FFI main-
tained the account.

(B) General Reporting Require-
ments of a Participating FFI (other
than its U.S. Branch treated as a U.S.

Person). A participating FFI (other than
its U.S. branch treated as a U.S. person)
may report its U.S. accounts on Form
8966 in the manner described in §1.1471-
4(d)(3). Alternatively, to the extent al-
lowed under §1.1471-4(d)(5), a partici-
pating FFI may elect to perform chapter
61 reporting as modified in section
4.02(C) of this agreement, in lieu of re-
porting in the manner described in
§1.1471-4(d)(3). A participating FFI may
elect to perform chapter 61 reporting with
respect to all its U.S. accounts or with
respect to any clearly identified group of
U.S. accounts (such as by line of business
or the location where the account is
maintained) in the manner described in
section 6.02(B)(1) of this agreement.
With respect to a cash value insurance
contract or annuity contract held by a
specified U.S. person, a participating
FFI may also elect to report under sec-
tion 6047(d) in the manner described in
§1.1471-4(d)(4)(i)(B).

(1) Modified Chapter 61 Reporting.
A participating FFI (including a U.S.
branch that is not treated as a U.S. person)
that elects to perform chapter 61 reporting
must report the information otherwise re-
quired to be reported under sections 6041,
6042, 6045, and 6049 and must report
payments made to an account subject to
reporting under the applicable section. A
participating FFI that is a non-U.S. payor,
however, must determine the payments
subject to reporting under the applicable
section by reporting as if it were a U.S.
payor.

A participating FFI that elects to perform
chapter 61 reporting must treat each ac-
count holder that is a specified U.S. per-
son, U.S .- owned foreign entity, or owner-
documented FFI as if it were an account
holder who is an individual and citizen of
the United States and must report each
such account regardless of whether the
account holder of such account qualifies
as a recipient exempt from reporting un-
der sections 6041, 6042, 6045, or 6049.
With respect to each account holder of a
U.S. account that is a specified U.S. per-
son, the participating FFI must report on
the appropriate Form 1099 the informa-
tion described in §1.1471-4(d)(5)(ii) and
the accompanying instructions to the
form. With respect to an account held by
an entity treated as a passive NFFE with

substantial U.S. owners or held by an
owner-documented FFI with specified
U.S. persons identified in §1.1471-
3(d)(6)(iv)(A)(1) and (2), the participating
FFI must report on Form 8966 the U.S.
owner information described in §1.1471-
4(d)(5)(ii) and (iii) and the accompanying
instructions to the form.

A participating FFI that reports an account
under this section 6.02(B)(1) must report
such account for the calendar year regard-
less of whether the participating FFI
makes a reportable payment to the ac-
count during the calendar year. In such a
case and with respect to a specified U.S.
person, the appropriate form is Form
1099-MISC, Miscellaneous Income. For
example, with respect to a custodial ac-
count, the participating FFI is required to
file a Form 1099-MISC even if no report-
able payments were paid or credited to the
account with respect to any financial in-
strument, investment, or contract held in
such account. A participating FFI that re-
ports accounts under this section
6.02(B)(1) may decide at a later time to
report the accounts in the manner de-
scribed in §1.1471-4(d)(3) beginning on
the first reporting date following the cal-
endar year for which it last reports an
account under this section 6.02(B)(1).

(2) Transitional Reporting Rules. For
calendar years 2014 and 2015, a partici-
pating FFI that reports under §1.1471-
4(d)(3) is only required to report the ac-
count information specified in §1.1471-
4(d)(7)(ii) for its U.S. accounts. For
calendar years 2014 and 2015, a partici-
pating FFI that reports under §1.1471-
4(d)(5) is only required to report the ac-
count information specified in §1.1471-
4(d)(7)(iii) with respect to its U.S.
accounts.

(3) Time and Manner of Filing. The
participating FFI must file Form 8966 or
Form 1099 on magnetic media with the
IRS on or before March 31 of the year
following the end of the calendar year to
which the form relates in accordance with
the requirements prescribed for such re-
porting on the form and its accompanying
instructions.

(C) Special Reporting Rules for U.S.
Branches treated as U.S. Persons. In the
case of a U.S. branch of a participating
FFI that is treated as a U.S. person, such
branch must report under chapter 61 with

respect to account holders that are U.S.
non-exempt recipients (or presumed U.S.
non-exempt recipients), including any ac-
count holders subject to backup withhold-
ing under section 3406, and under
§1.1474-1(i) with respect to entities
treated as passive NFFEs with substantial
U.S. owners and owner-documented FFIs
with specified U.S. persons identified in
§1.1471-3(d)(6)(iv)(A)(1) and (2).

.03 Recalcitrant Account Holders.

(A) In General. A participating FFI is
required to report certain aggregate infor-
mation regarding accounts held by recal-
citrant account holders on Form 8966 and
in the manner described in §1.1471-
4(d)(6). Such reporting is required regard-
less of whether the participating FFI
makes a withholdable payment to the ac-
count during the calendar year. The par-
ticipating FFI must file Form 8966 on
magnetic media with the IRS on or before
March 31 of the year following the end of
the calendar year to which the form relates
in accordance with the requirements pre-
scribed for such reporting on the form and
its accompanying instructions.

(B) Reporting Model 2 FFIs' Report-
ing of Non-Consenting U.S. Accounts.
Instead of the reporting described in sec-
tion 6.03(A) of this agreement, a reporting
Model 2 FFI is required to report on Form
8966 certain aggregate information re-
garding accounts treated as non-
consenting U.S. accounts as described in
§1.1471-4(d)(6) and the accompanying
instructions to the form. Such reporting is
required regardless of whether the report-
ing Model 2 FFI makes a withholdable
payment to the account during the calen-
dar year. A reporting Model 2 FFI must
file Form 8966 on magnetic media with
the IRS on or before March 31 of the year
following the end of the calendar year to
which the form relates (unless otherwise
specified in the applicable Model 2 IGA)
in accordance with the requirements pre-
scribed for such reporting on the form and
its accompanying instructions.

.04 Special Transitional Reporting of
Payments to Nonparticipating FFIs. For
calendar years 2015 and 2016, the partic-
ipating FFI must report on a specific
payee basis on Form 8966 the aggregate
amount of foreign reportable amounts
paid with respect to an account held by a
nonparticipating FFI (including a limited

branch and limited FFI treated as a non-
participating FFI) that the participating
FFI maintains. If, however, the participat-
ing FFI is prohibited under domestic law
from reporting on a specific payee basis
without consent from the account holder
and the participating FFI has not obtained
such consent (i.e., the account holder is a
non-consenting nonparticipating FFI), the
participating FFI may instead report the
aggregate number of accounts held by
such non-consenting nonparticipating
FFIs and the aggregate amount of foreign
reportable amounts paid to such non-
consenting nonparticipating FFIs. In ei-
ther case, the participating FFI may report
all income, gross proceeds, and redemp-
tions paid to the nonparticipating FFI's
account by the participating FFI during
the calendar year instead of reporting only
foreign reportable amounts. The partici-
pating FFI must file Form 8966 on mag-
netic media with the IRS on or before
March 31 of the year following the end of
the calendar year to which the form relates
in accordance with the requirements pre-
scribed for such reporting on the form and
its accompanying instructions.

### .05 Withholdable Payment Reporting and Reporting of Tax Withheld.

(A) In General. Except as otherwise
provided in this section 6.05(A) and sec-
tion 6.05(B) of this agreement, a partici-
pating FFI is required to report on Form
1042-S chapter 4 reportable amounts
made during the year to payees that are
recalcitrant account holders, nonpartici-
pating FFIs, and U.S. persons that hold a
U.S. account which is reported by the
participating FFI under section 6.02 of
this agreement. Forms 1042-S must iden-
tify the foreign branch of the FFI main-
taining the payee's account using the
GIIN assigned to such branch and the
employer identification number (EIN) of
the legal entity covered by this agreement.
A U.S. branch of a participating FFI is
required to file separate Forms 1042-S
using the EIN assigned to such U.S.
branch to report chapter 4 reportable
amounts that it paid to its account holders
and payees.

(1) Allowance for Specific Payee or
Pooled Reporting. A participating FFI
may report chapter 4 reportable amounts
made to a specific recipient in a chapter 4
reporting pool to the extent permitted or

required under section 6.05(A)(1)(i) of
this agreement. A chapter 4 reporting pool
is a chapter 4 withholding rate pool with
respect to the account holders and payees
described in section 6.05(A)(1)(i) of this
agreement of a payment that is within a
particular income code (as provided in the
instructions to Form 1042-S) and for
which a separate Form 1042-S is required
to be filed. Section 1.1474-1(d) provides
additional reporting requirements for
chapter 4 reportable amounts. A partici-
pating FFI that fails to file returns or fur-
nish statements required by this agree-
ment may be subject to penalties in
accordance with sections 6721 through
6724.

(i) Pooled Reporting. A participating
FFI may report with respect to chapter 4
reportable amounts paid to recalcitrant ac-
count holders and nonparticipating FFIs in
a chapter 4 reporting pool. With respect to
recalcitrant account holders, a separate
chapter 4 reporting pool is required for
each class of recalcitrant account holders
described in §1.1471-4(d)(6). Addition-
ally, a participating FFI must report pay-
ees of U.S. accounts that it reports under
section 6.02 of this agreement in a chapter
4 reporting pool. Section 1.1474-1(d)
provides additional reporting require-
ments for chapter 4 reportable amounts.
See also Form 1042-S and its accompany-
ing instructions for the chapter 4 reporting
pool codes for recipients and income
codes.

(ii) Pooled Reporting for Reporting
Model 2 FFI. In addition to the reporting
requirements described in section
6.05(A)(1)(i) of this agreement, for a re-
porting Model 2 FFI, the chapter 4 report-
ing pool of payees that are U.S. persons
also consists of account holders of non-
consenting U.S. accounts that are not sub-
ject to chapter 4 withholding under the
applicable Model 2 IGA but only to the
extent such account holders do not receive
payments subject to withholding under
chapter 3 and are not known U.S. persons
subject to backup withholding under sec-
tion 3406. A reporting Model 2 FFI must
report these non-consenting U.S. accounts
in accordance with the chapter 4 reporting
pools shown on Form 1042-S instructions.

(iii) Specific Recipient Reporting. As
an alternative to chapter 4 pooled report-
ing of chapter 4 reportable amounts paid

to recalcitrant account holders and non-
participating FFIs as described in section
6.05(A)(1)(i) of this agreement, a partici-
pating FFI may issue a Form 1042-S to a
recalcitrant account holder or a nonpartic-
ipating FFI on a specific payee basis when
withholding was applied to the payment.
Section 1.1474-1(d)(1)(i) specifies the in-
formation that is required to be included
on Form 1042-S. See also section 10.04 of
this agreement for the limitation on filing
a collective refund claim on behalf of ac-
count holders or payees that are reported
on a specific payee basis.

(2) Reporting Required when Elect-
ing to Withhold under Section 3406 on
Recalcitrant Account Holders that are
Known U.S. Persons. A participating FFI
that elects to satisfy its obligation to with-
hold on withholdable payments with re-
spect to recalcitrant account holders that
are known U.S. persons by backup with-
holding under section 3406 with respect to
such payments as described in section
4.01(D) of this agreement must report on
the applicable Form 1099 reportable
amounts made during the year to such
known U.S. persons. Forms 1099 must be
filed by the legal entity covered by this
agreement and must exclude payments
made by its U.S. branch, if any. A U.S.
branch of a participating FFI that has not
agreed to be treated as a U.S. person and
makes the election described in section
4.01(D) of this agreement is required to
file separate Forms 1099 using the EIN
assigned to such U.S. branch.

(3) U.S. Branch of a Participating
FFI. A U.S. branch of a participating FFI
(regardless of whether it is treated as a
U.S. person) must report separately on
Form 1042-S or 1099 with respect to
amounts paid or received by the U.S.
branch during the year on behalf of its
account holders. A U.S. branch of a par-
ticipating FFI that is not treated as a U.S.
person is only required to report on Form
1042-S or Form 1099, however, to the
extent described in section 6.05(B) of this
agreement. See section 6.06(B) of this
agreement for the requirement for a U.S.
branch to file a separate Form 1042 or
Form 945.

(B) Special Reporting Rules when
Withholding Agent Reports on Behalf
of Participating FFI. A participating FFI
is not required to report on Form 1042-S

or Form 1099 as described in section
6.05(A) of this agreement amounts that
the participating FFI receives on behalf of
a recalcitrant account holder, nonpartici-
pating FFI, or chapter 4 reporting pool of
payees that are U.S. persons to the extent
that its withholding agent has correctly
reported on a Form 1042-S or Form 1099
and withheld the correct amount of tax on
such amounts. The participating FFI is
required to report, however, when the par-
ticipating FFI knows, or has reason to
know, that the payment is not correctly
reported on Form 1042-S or Form 1099,
that less than the required amount has
been withheld on the payment, or that the
amount of tax withheld is not correctly
reported on Form 1042-S or Form 1099.
In such a case, the participating FFI must
report the payment on Form 1042-S or
Form 1099 to the extent required under
section 6.05(A) of this agreement. See
section 9 of this agreement for the infor-
mation that the participating FFI must in-
clude on its withholding statement to en-
able its withholding agent to report.

(C) Dormant Accounts. Notwith-
standing section 6.05(B) of this agree-
ment, a participating FFI is required to
report a chapter 4 reportable amount made
to a recalcitrant account holder that holds
a dormant account for which the partici-
pating FFI sets aside the amount withheld
in escrow, in lieu of depositing the tax
withheld. See section 5.02 of this agree-
ment for the requirements of the escrow
procedure for dormant accounts. See also
section 9 for the withholding statement
requirements with respect to dormant ac-
counts and the instructions to Form
1042-S for reporting under this procedure.

(D) U.S. Source FDAP Income Sub-
ject to Reporting under Chapter 3. In a
case in which a participating FFI reports
under section 6.05(A) of this agreement a
withholdable payment of U.S. source
FDAP income subject to withholding un-
der section 4 of this agreement, a separate
Form 1042-S is not required to be filed for
the same payment for chapter 3 reporting
purposes under §1.1461-1(c)(2). A partic-
ipating FFI that is reporting U.S. source
FDAP income that is a chapter 4 report-
able amount that is not subject to with-
holding under section 4 of this agreement
must include in its reporting an exemption
code for chapter 4 purposes to the extent

the participating FFI is required to report
the amount under §1.1461-1(c)(2).

(E) Reporting of Withholdable Pay-
ments to Limited Branches and Limited
FFIs. A participating FFI must report (or
provide sufficient information to its with-
holding agent, as described in section
6.05(B) of this agreement, to report) with-
holdable payments that it receives on be-
half of a limited branch or limited FFI.
See section 4.02(C) of this agreement for
the withholding requirements of a partic-
ipating FFI with respect to payments
made to a limited branch or limited FFI.
See Form 1042-S and its accompanying
instructions for the other information that
a participating FFI is required to report in
such a case.

(F) Time and Manner of Filing. A
participating FFI must file Forms 1042-S
on magnetic media with the IRS on or
before March 15 of the year following the
end of the calendar year to which the form
relates in accordance with the require-
ments prescribed for such reporting on the
form and its accompanying instructions. A
participating FFI must file the relevant
Forms 1099, if applicable, on magnetic
media with the IRS on or before March 31
of the year following the end of the cal-
endar year to which the form relates in
accordance with the requirements pre-
scribed for such reporting on the form and
its accompanying instructions.

### .06 Tax Return Filing Requirements.

(A) In General. If a participating FFI
is required to report on Form 1042-S
chapter 4 reportable amounts, it must also
file an income tax return on Form 1042 to
report the chapter 4 reportable amounts
paid to account holders and payees that
the participating FFI is required to report
on Form 1042-S. A participating FFI will
also be required to report on Form 1042
the amount of tax withheld and the
amount of tax deposited with respect to
such payments for the calendar year, in
addition to any other information required
by the form and its accompanying instruc-
tions. If a participating FFI applies backup
withholding, instead of withholding under
chapter 4, with respect to recalcitrant ac-
count holders that are known U.S. persons
as described in section 4.01(D) of this
agreement, the participating FFI must also
file an income tax return on Form 945 to
the extent the participating FFI withheld

tax on withholdable payments that are re-
portable amounts paid to its account hold-
ers. See section 6.05(B) of this agreement
for the rules on when Form 1042-S and
Form 1099 are required to be filed.

Form 1042 or Form 945 must be filed
by the legal entity covered by this agree-
ment, and it must exclude payments made
by any U.S. branch of such entity. With-
holding certificates and other statements
or information provided to the participat-
ing FFI should not be attached to the
return. With respect to Form 1042, the
information required for purposes of
chapter 4 is in addition to the information
required to be provided on Form 1042 for
purposes of chapter 3. A participating FFI
must file Form 1042 with the IRS on or
before March 15 of the year following the
calendar year to which the form relates. A
participating FFI must file Form 945 with
the IRS on or before January 31 of the
year following the calendar year to which
the form relates.

(B) U.S. Branch of a Participating
FFI. A U.S. branch of a participating FFI
that is required to report on Form 1042-S
chapter 4 reportable amounts must file a
separate Form 1042 to report the chapter 4
reportable amounts that it paid to account
holders and payees. Form 1042 should
include the information described in sec-
tion 6.06(A) of this agreement. A U.S.
branch of a participating FFI that is
treated as a U.S. person may also be re-
quired to file an income tax return on
Form 945 if such branch backup withheld
under section 3406(a) with respect to re-
portable amounts paid to accounts held by
U.S. non-exempt recipients (as defined
under chapter 61). See section 4.02(C) of
this agreement for the withholding re-
quirements of a U.S. branch of a partici-
pating FFI that is treated as a U.S. person.

.07 Coordination with Chapter 61
Reporting. A non-U.S. payor that is a
participating FFI will satisfy its reporting
obligations under chapter 61 (Form 1099
reporting) with respect to a payee that is a
non-exempt recipient (or presumed U.S.
non-exempt recipient) if such participat-
ing FFI reports such an account holder
pursuant to this section 6. Notwithstand-
ing the preceding sentence, a participating
FFI is required to report on Form 1099 to
the extent the participating FFI applies
backup withholding to the payment.

### .08 Retention Requirements.

(A) Account Statements. A participat-
ing FFI is required to retain information
that summarizes the account activity of its
U.S. accounts and accounts held by recal-
citrant account holders and nonparticipat-
ing FFIs to the extent required in
§1.1471-4(d).

(B) Forms 1042-S. A participating FFI
must retain a copy of each Form 1042-S
for the period of limitations on assessment
and collection applicable to the tax report-
able on the Form 1042 to which the Form
1042-S relates.

## Section 7. LEGAL PROHIBITIONS ON REPORTING U.S. ACCOUNTS AND ON WITHHOLDING.

.01 In General. If a participating FFI (or
branch thereof) is prohibited by law from
reporting its U.S. accounts as required un-
der section 6.02 of this agreement or from
withholding to the extent required under
section 4 of this agreement, the participat-
ing FFI (or branch thereof) must comply
with the requirements of section 7.02 or
7.03 of this agreement.

.02 Prohibitions on Reporting U.S. Ac-
counts. A participating FFI that is prohib-
ited under domestic law from reporting a
U.S. account as required under section
6.02 of this agreement must satisfy the
requirements of §1.1471-4(i)(2) to re-
quest a valid and effective waiver of such
law or otherwise close or transfer the ac-
count.

(A) Reporting Model 2 FFI. A report-
ing Model 2 FFI that is prohibited under
domestic law from reporting a preexisting
U.S. account as required under section
6.02 of this agreement must request con-
sent to report such account and, if consent
is not provided, must report certain aggre-
gate information about such account with
other non-consenting U.S. accounts in ac-
cordance with section 6.03 of this agree-
ment. With respect to a new account (as
defined in the applicable Model 2 IGA), a
reporting Model 2 FFI must obtain from
each account holder of a U.S. account, as
a condition of account opening, the con-
sent required under domestic law in order
for such reporting Model 2 FFI to report
the account as required under section 6.02
of this agreement. Additionally, a report-
ing Model 2 FFI must request the account
holder's consent to report, if required by

domestic law, after account opening for
any new account that is not identified as a
U.S. account at account opening and that
must subsequently be treated as a U.S.
account due to a change in circumstances.
If consent is not provided by the account
holder, the reporting Model 2 FFI must
treat the account as a non-consenting U.S.
account and report the account as de-
scribed in section 6.03(B) of this agree-
ment.

.03 Legal Prohibitions Preventing
Withholding with Respect to Recalci-
trant Account Holders and Nonpartici-
pating FFIs. To the extent a participating
FFI is prohibited under domestic law from
withholding with respect to recalcitrant
account holders and nonparticipating FFIs
as required under section 4 of this agree-
ment, the participating FFI is required to
satisfy the requirements of §1.1471-
4(i)(3) to block or transfer each account or
obligation held by such persons.

.04 Limited Branches.

(A) In General. If a participating FFI
maintains one or more limited branches,
the participating FFI must meet the re-
quirements described in §1.1471-
4(e)(2)(iii). Such requirements include
withholding on payments made or re-
ceived on behalf of a limited branch as
described in section 4.03(C) of this agree-
ment and reporting such payments as de-
scribed in section 6.05(E) of this agree-
ment. After the expiration of the
transitional rule for limited branches un-
der §1.1471-4(e)(2)(v), a participating
FFI with one or more limited branches
will cease to be a participating FFI. If a
limited branch maintained by a participat-
ing FFI is no longer prohibited from com-
plying with the requirements of this agree-
ment or otherwise being treated as a
deemed-compliant FFI, the participating
FFI must notify the IRS on the FATCA
registration website by the beginning of
the third calendar quarter following the
date that the branch ceases to be a limited
branch.

(B) Limited Branch of a Reporting
Model 2 FFI. If a reporting Model 2 FFI
maintains one or more limited branches,
the reporting Model 2 FFI must comply
with the requirements described in the ap-
plicable Model 2 IGA with respect to each
limited branch, which includes the re-
quirements to withhold on payments made

or received on behalf of such branch as
described in section 4.03(C) of this agree-
ment and to report such payments as de-
scribed in section 6.05(E) of this agree-
ment. If a branch maintained by the FFI is
no longer prohibited from complying with
the requirements of this agreement or oth-
erwise being treated as a deemed-
compliant FFI, a reporting Model 2 FFI
must notify the IRS on the FATCA regis-
tration website by the beginning of the
third calendar quarter following such date
that the branch will cease to be a limited
branch. A reporting Model 2 FFI with one
or more limited branches will continue to
be a reporting Model 2 FFI after the ex-
piration of the transitional rule for limited
branches under §1.1471-4(e)(2)(v), pro-
vided that the reporting Model 2 FFI con-
tinues to comply with the requirements of
the applicable Model 2 IGA with respect
to such branches.

## SECTION 8. COMPLIANCE PROCEDURES.

.01 In General. A participating FFI is
required to adopt a compliance program
under the authority of the responsible of-
ficer of the participating FFI or, in the case
of a participating FFI that adopts a con-
solidated compliance program under the
requirements of §1.1471-4(f)(2)(ii), un-
der the authority of the responsible officer
of a compliance FI. A participating FFI's
compliance program must include poli-
cies, procedures, and processes sufficient
for the participating FFI to satisfy the due
diligence, reporting, and withholding re-
quirements of this agreement. A partici-
pating FFI must also perform, or have
performed on its behalf, a review of its
compliance with this agreement for the
certification period (described in
§1.1471-4(f)(3)). The results of such re-
view must be considered by the responsi-
ble officer in making the periodic certifi-
cations described in section 8.03 of this
agreement. A participating FFI must also
comply with the IRS review of compli-
ance described in section 8.04 of this
agreement.

.02 Responsible Officer. A participating
FFI must appoint a responsible officer to
establish, or to appoint one or more des-
ignees to establish, a compliance program
that meets the requirements of section
8.01 of this agreement and to periodically

review the sufficiency of such compliance
program. The responsible officer must
make the certifications described in sec-
tion 8.03 of this agreement to the IRS
regarding the FFI's compliance with this
agreement.

.03 Certifications of Compliance by Re-
sponsible Officer.

(A) Certification Regarding the Due
Diligence Procedures. No later than 60
days following the date that is two years
after the effective date of this agreement,
the responsible officer of the participating
FFI must make the certification described
in §1.1471-4(c)(7) regarding the FFI's
completion of the due diligence proce-
dures for preexisting accounts required
under section 3 of this agreement and re-
garding the absence of any formal or in-
formal practices or procedures to assist
account holders in the avoidance of chap-
ter 4 as described in §1.1471-4(c)(7).

(B) Periodic Certification of Compli-
ance. On or before July 1 of the calendar
year following the certification period de-
fined in §1.1471-4(f)(3)(i), the responsi-
ble officer of the participating FFI must
make either the certification of effective
internal controls described in §1.1471-
4(f)(3)(ii) or, when required, make the
qualified certification under §1.1471-
4(f)(3)(iii). The responsible officer must
consider the results of the participating
FFI's periodic review in making the peri-
odic certification of compliance.

(C) Method of Making Certifica-
tions. The participating FFI (or the com-
pliance FI with respect to such FFI) must
make the certifications of compliance in
such manner as the IRS may prescribe in
future guidance or other instructions.

.04 Review of Compliance.

(A) General Inquiries of FFI and Ac-
count Holder Compliance. Based upon
the information reporting forms and tax
returns (Forms 945, 1042, 1042-S, 8966,
1099) filed with the IRS for each calendar
year, the IRS may request additional in-
formation with respect to the information
reported or required to be reported on
such forms or on the account statements
described in section 6.07 of this agree-
ment as described in §1.1471-4(f)(4)(i).

(B) Inquiries of Reporting Model 2
FFIs. In the case of a reporting Model 2
FFI, subject to the terms set forth in an
applicable competent authority arrange-

ment under the applicable Model 2 IGA,
the U.S. Competent Authority may make
an inquiry directly to a reporting Model 2
FFI regarding the information described
in section 8.04(A) of this agreement.
When the U.S. Competent Authority has
reason to believe that administrative er-
rors or other minor errors may have led to
incorrect or incomplete information re-
porting, the U.S. Competent Authority
may make such an inquiry directly to a
reporting Model 2 FFI. Additionally, if a
reporting Model 2 FFI reports aggregate
information regarding its non-consenting
U.S. accounts and accounts held by non-
participating FFIs as described in sections
6.03 and 6.04 of this agreement, the U.S.
Competent Authority, consistent with the
terms of the applicable competent author-
ity arrangement under the applicable
Model 2 IGA, may request information
regarding the accounts underlying the ag-
gregate information returns filed with re-
spect to such accounts.

(C) Inquiries regarding Substantial
Non-Compliance. Based on the informa-
tion reporting forms and tax returns
(Forms 945, 1042, 1042-S, 8966, 1099)
filed with the IRS for each calendar year,
the certifications made by the responsible
officer, or any other information related to
a participating FFI's compliance with this
agreement, the IRS may determine in its
discretion that the participating FFI may
not have substantially complied with the
requirements of this agreement. In such a
case, the IRS may request from the re-
sponsible officer (or designee) informa-
tion necessary to verify the participating
FFI's compliance with this agreement or
the performance of specified review pro-
cedures as described in §1.1471-
4(f)(4)(ii). If the IRS determines that a
participating FFI has failed to substan-
tially comply with the requirements of this
agreement, the IRS will notify the partic-
ipating FFI in accordance with section
12.06 of this agreement that an event of
default has occurred.

(D) Inquiries regarding Significant
Non-Compliance for Reporting Model
2 FFIs. Consistent with the terms of the
applicable competent authority arrange-
ment under the Model 2 IGA, the U.S.
Competent Authority may request infor-
mation necessary to verify a reporting
Model 2 FFI's compliance with this

agreement as described in §1.1471-
4(f)(4)(ii). If the U.S. Competent Author-
ity determines that a reporting Model 2
FFI has failed to significantly comply with
the requirements of this agreement, as
modified by the applicable Model 2 IGA,
the U.S. Competent Authority will notify
the Competent Authority of the jurisdic-
tion in which the reporting Model 2 FFI is
located, and will also notify the reporting
Model 2 FFI in accordance with section
12.06 of this agreement that an event of
default has occurred.

## SECTION 9. PARTICIPATING FFI WITHHOLDING CERTIFICATE.

.01. Participating FFI Withholding
Certificate. A participating FFI agrees to
furnish a valid withholding certificate to
each withholding agent from which it re-
ceives a withholdable payment and to
each participating FFI or deemed-
compliant FFI with whom the participat-
ing FFI holds an account. When a partic-
ipating FFI receives a withholdable
payment as a beneficial owner of the pay-
ment (as defined in §1.1471-1(b)(7)) or
otherwise holds an obligation or account
for its own benefit, the withholding certif-
icate to be furnished is a Form
W-8BEN-E (or acceptable substitute form
under §1.1471-3(c)(6)(v)) that certifies
that the participating FFI is the beneficial
owner and that includes the GIIN of the
participating FFI in its jurisdiction of res-
idence for tax purposes (or place or orga-
nization if the FFI has no such residence)
or otherwise identifies the branch of the
participating FFI that is receiving the pay-
ment and the branch's GIIN if the branch
receiving the payment operates in a juris-
diction other than the participating FFI's
jurisdiction of residence, and all of the
other information required by §1.1471-
3(c)(3)(ii), the form, and its accompany-
ing instructions. Alternatively, with re-
spect to a payment made prior to January
1, 2017, or made with respect to an off-
shore obligation, the participating FFI
may provide its GIIN or other documen-
tation as described in §1.1471-
3(d)(4)(ii) or (iii). In such a case, the par-
ticipating FFI will not be subject to
withholding and will not be reported as a
nonparticipating FFI for purposes of chap-
ter 4 with respect to withholdable pay-
ments it receives from a withholding

agent to whom the participating FFI pro-
vided such documentation. If, however,
the branch receiving the withholdable
payment is a limited branch, the partici-
pating FFI must identify itself as a non-
participating FFI on the Form W-8BEN-E
that it provides to the withholding agent,
and such payment will be subject to with-
holding and reporting for purposes of
chapter 4. See §1.1471-4(e)(2)(iv)(E) for
rules applicable to a limited branch of a
participating FFI.

When a participating FFI receives a with-
holdable payment of U.S. source FDAP
income as an intermediary, holds an ac-
count with a participating or registered
deemed-compliant FFI as an intermedi-
ary, or is a flow-through entity, the with-
holding certificate that the participating
FFI must furnish to the withholding agent
is a Form W-8IMY (or acceptable substi-
tute form under §1.1471-3(c)(6)(v)) that
certifies that the participating FFI is a
flow-through entity or is acting as an in-
termediary (as applicable) and that in-
cludes the GIIN of the participating FFI in
its jurisdiction of residence for tax pur-
poses (or place of organization if the FFI
has no such residence) or otherwise iden-
tifies the branch of the participating FFI
receiving the payment and its GIIN if the
branch receiving the payment operates in
a jurisdiction other than the participating
FFI's jurisdiction of residence, and in-
cludes all of the other information re-
quired by §1.1471-3(c)(3)(iii), section
4.03(B) of this agreement, the form, and
its accompanying instructions. Alterna-
tively, with respect to an offshore obliga-
tion, the participating FFI (or the branch
of the participating FFI receiving the pay-
ment) may provide the branch's GIIN and
the documentation described in §1.1471-
3(d)(4)(iii). In such a case, the participat-
ing FFI will not be subject to withholding
(or reporting as a nonparticipating FFI)
for purposes of chapter 4 that would oth-
erwise apply based on its status as a par-
ticipating FFI, though withholding for
purposes of chapter 3 with respect to pay-
ments of U.S. source FDAP income may
apply based on the status of persons for
whom the participating FFI receives the
payment. For the requirements of a with-
holding certificate provided by a foreign
partnership or foreign trust receiving a
chapter 3 reportable amount, see §1.1441-

5(c)(2) or §1.1441-5(e)(5), respectively.
For the requirements of a withholding cer-
tificate provided by a foreign intermediary
that receives a chapter 3 reportable
amount, see §1.1441-1(e)(3).

.02. Withholding Statement.

(A) In General. A participating FFI
agrees to provide an FFI withholding
statement that includes the information
described in section 9.02(B) of this agree-
ment to each withholding agent from
which it receives a withholdable payment
of U.S. source FDAP income on behalf of
its account holders or other persons (in-
cluding its partners, beneficiaries, or own-
ers for a participating FFI that is a flow-
through entity). See section §1.1471-
3(c)(iii)(B)(1) and (2) for the
requirements of an FFI withholding state-
ment. The withholding statement must be
updated as often as necessary for the par-
ticipating FFI to meet its withholding and
reporting obligations under sections 4 and
6 of this agreement.

(B) Allocation of Payment on With-
holding Statement. A participating FFI
must allocate a withholdable payment of
U.S. source FDAP income to each payee
of the payment on its withholding state-
ment. A participating FFI may include,
however, on the withholding statement in-
formation that indicates the portion of
such withholdable payment that is allo-
cated to each of its chapter 4 withholding
rate pools (consisting of separate pools for
classes of recalcitrant account holders,
nonparticipating FFIs, and U.S. payees).
If a participating FFI applies the escrow
procedure for dormant accounts described
in section 5.02 of this agreement, the par-
ticipating FFI must indicate the portion of
such payment allocated to a chapter 4
withholding rate pool of recalcitrant ac-
count holders that hold dormant accounts
that the participating FFI (and not the
withholding agent) will hold in escrow. A
participating FFI must identify its pools of
recalcitrant account holders in accordance
with the chapter 4 withholding rate pools
provided on Form 1042-S and its accom-
panying instructions. If, however, a par-
ticipating FFI elects to apply backup with-
holding instead of withholding under
chapter 4 with respect to recalcitrant ac-
count holders that are known U.S. persons
as described in section 4.01(D) of this
agreement, the withholding statement pro-

vided to the withholding agent must indi-
cate the portion of such payment subject
to backup withholding under section 3406
that is allocated to the chapter 4 withhold-
ing rate pool of recalcitrant account hold-
ers that are known U.S. persons. A chapter
4 withholding rate pool of U.S. payees
should include only those holders of U.S.
accounts that the participating FFI reports
under chapter 4. See Form 1042-S and its
accompanying instructions for informa-
tion on the chapter 4 withholding rate
pools applicable to recalcitrant account
holders, nonparticipating FFIs, and U.S.
payees.

If any portion of a withholdable payment
is attributable to payees not subject to
withholding or reporting under chapter 4,
but the payment is subject to withholding
or reporting under chapters 3 or 61, see
§§1.1441-1(e)(3)(iv), 1.1441-5(c)(3)(iv),
and 1.6049-5(d) for the applicable re-
quirements (including the requirements
applicable to the withholding statement
and the appropriate documentation to be
provided with respect to each such payee).
In addition to allocating the portion of the
payment to each such recipient, the with-
holding statement must include the infor-
mation necessary for the withholding
agent to report the payment on Form
1042-S or Form 1099.

If a participating FFI has an account
holder that is a participating FFI (includ-
ing a reporting Model 2 FFI), registered
deemed-compliant FFI (including a re-
porting Model 1 FFI), territory FI, or QI
(including a QI branch of a U.S. financial
institution) that is acting as an intermedi-
ary or is a flow-through entity and that has
provided the information described in
§1.1471-3(c)(2) necessary for the with-
holding agent to report on the payment,
the participating FFI must provide to its
withholding agent the account holder in-
formation or pool reporting information
provided to it by such other entity for
determining the amount of withholding or
the reporting required under chapter 4.
See §1.1471-3(e)(4)(vi)(B) providing that
the participating FFI may rely on the de-
termination of a payee's chapter 4 status
that is provided by another participating
FFI or registered deemed-compliant FFI
unless the first-mentioned participating
FFI knows or has reason to know that

such information is incorrect or unreli-
able.

(C) Allocation of Payment on With-
holding Statement for Reporting Model
2 FFIs. In addition to the information
described in section 9.02(B) of this agree-
ment, a withholding statement provided
by a reporting Model 2 FFI must include
in its chapter 4 withholding rate pool of
U.S. payees any account holder of a non-
consenting U.S. account that is not subject
to chapter 4 withholding under an appli-
cable Model 2 IGA (described in section
4.02(B)(2) of this agreement), but only to
the extent that the payment is not subject
to withholding under chapter 3 or backup
withholding under section 3406.

(D) Procedure for Specific Recipient
Reporting. For payments that a partici-
pating FFI receives as an intermediary and
that are subject to withholding under
chapter 4 or backup withholding under
section 3406 (described in section 4.01(D)
of this agreement), that participating FFI
may provide specific recipient informa-
tion instead of pooled chapter 4 withhold-
ing rate information on the withholding
statement regarding any (or all) recipients
that are recalcitrant account holders or
nonparticipating FFIs. In such a case, the
withholding statement must include the
information necessary to enable the with-
holding agent to report the payment in
accordance with the requirements de-
scribed in §1.1474-1(d) and the require-
ments of Form 1042-S or Form 1099 and
its accompanying instructions. The partic-
ipating FFI is not required to provide the
withholding agent with the withholding
certificate or other documentation for each
recipient.

## SECTION 10. ADJUSTMENTS FOR OVERWITHHOLDING AND UNDERWITHHOLDING AND REFUNDS.

.01 Adjustments for Overwithholding
by Withholding Agent. A participating
FFI may request a withholding agent to
make an adjustment for amounts paid to
the participating FFI on which the with-
holding agent has overwithheld (as de-
fined in §1.1474-2(a)(2)) under chapter 4
by applying either the reimbursement pro-
cedure or the set-off procedure described
in this section 10.01. Nothing in this sec-

tion 10 requires a withholding agent to
apply these procedures.

(A) Reimbursement Procedure. A
participating FFI may request a withhold-
ing agent to repay the participating FFI for
any amount overwithheld under chapter 4,
and for the withholding agent to reim-
burse itself under the reimbursement pro-
cedures under § 1.1474-2(a)(3), by mak-
ing a request to the withholding agent
prior to the earlier of the due date for
filing Form 1042 and Form 1042-S (with-
out regard to extensions), or the actual
filing of Form 1042-S, for the calendar
year of overwithholding. In such a case,
the participating FFI must provide the
withholding agent with sufficient informa-
tion to determine the correct amount of
withholding and to correctly report the
payment as required under §1.1474-
1(d)(4). See section 4.03 of this agreement
for the circumstances in which a with-
holding agent may withhold on behalf of
the participating FFI with respect to its
account holders or payees.

(B) Set-off Procedure. A participating
FFI may request a withholding agent re-
pay the participating FFI by applying the
amount overwithheld under chapter 4
against any amount which otherwise
would be required to be withheld under
chapter 3 or 4 from income paid by the
withholding agent to the participating FFI
under the set-off procedures of §1.1474-
2(a)(4). A participating FFI must make the
request before the earlier of the due date
for filing Form 1042-S (without regard to
extensions), or the actual filing of Form
1042-S, for the calendar year of overwith-
holding.

.02 Adjustments for Overwithholding
by Participating FFI. A participating FFI
may make an adjustment for amounts paid
to its account holders and payees for
which it has overwithheld tax under chap-
ter 4 (as defined in §1.1474-2(a)) by ap-
plying either the reimbursement proce-
dures or the set-off procedures described
in §1.1474-2(a)(3) or (4), respectively.
.03 Repayment of Backup Withholding.
If a U.S. branch of a participating FFI
treated as a U.S. person erroneously with-
holds (as defined in §31.6413(a)-3) an
amount under section 3406 from an ac-
count holder or payee, such branch may
refund to such person the amount errone-

ously withheld as provided in
§31.6413(a)-3.

.04 Collective Credit or Refund Proce-
dures for Overpayments. If there has
been an overpayment of tax with respect
to an account holder or a payee of a par-
ticipating FFI resulting from tax withheld
under chapter 4 on a payment made to
such account holder or payee during a
calendar year, and the amount withheld
has not been recovered under the reim-
bursement or set-off procedures described
under section 10.01 or 10.02 of this agree-
ment, the participating FFI may request a
credit or refund of the amount of tax over-
withheld to the extent permitted under
§1.1471-4(h). The participating FFI must
follow the procedures set forth under
§1.1471-4(h)(4) to request the credit or
refund on behalf of its account holders.
No credit or refund will be allowed after
the expiration of the statutory period of
limitations for refunds under section 6511
with regard to the account holder or payee
for whom refund or credit is sought.

.05 Adjustments for Underwithholding.
If a participating FFI knows that an
amount should have been withheld under
chapter 4 from a previous payment to an
account holder or a payee but was not
withheld, the participating FFI may either
withhold from future payments made pur-
suant to chapter 3 or chapter 4 to the same
account holder or payee or satisfy the tax
from property that it holds in custody for
such person or property of such person
over which it has control. The additional
withholding or satisfaction of the tax
owed may only be made before the due
date of Form 1042 (without regard to ex-
tensions) for the calendar year in which
the underwithholding occurred. A partici-
pating FFI's responsibilities will be met
under this section 10.05 if it informs the
withholding agent from whom the partic-
ipating FFI received the payment of the
underwithholding, and the withholding
agent satisfies the underwithholding.

.06 Underwithholding after Form 1042
Filed. If, after Form 1042 has been filed
for a calendar year (or the due date for
filing Form 1042 if no Form 1042 was
filed), a participating FFI or the IRS de-
termines that the participating FFI has un-
derwithheld tax for such year, the partic-
ipating FFI must file an amended Form
1042 (or original Form 1042 if no Form

1042 was filed) to report and pay the
underwithheld tax. A participating FFI
must pay the underwithheld tax, the inter-
est due on the underwithheld tax, and any
applicable penalties at the time of filing
such amended (or original) Form 1042. If
a participating FFI fails to file a return (if
required under section 6.06 of this agree-
ment or this section 10.06), the IRS will
make such return under section 6020 and
assess such tax under the procedures set
forth in the Code.

## SECTION 11. FFI GROUP.

### .01 FFI Group.

(A) In General. Each FFI that is a
member of an FFI group, other than an
exempt beneficial owner, must obtain its
chapter 4 status as a participating FFI,
registered deemed-compliant FFI, or lim-
ited FFI as a condition for any member of
such FFI group obtaining chapter 4 status
as a participating FFI, registered deemed-
compliant FFI, or limited FFI. In addition,
the participating FFI and each FFI that is
a member of the participating FFI's FFI
group must comply with the requirements
of a participating FFI, registered deemed-
compliant FFI, or limited FFI as a condi-
tion for the participating FFI maintaining
its chapter 4 status as a participating FFI.
If the participating FFI is a member of an
FFI group, the participating FFI will cease
to be a participating FFI after the expira-
tion of the transitional rule for limited
FFIs and limited branches under §1.1471-
4(e)(3)(iv), unless each limited FFI in the
group becomes a participating or regis-
tered deemed-compliant FFI and no mem-
ber of the FFI group (including the partic-
ipating FFI) maintains a limited branch.
An FFI and its FFI Group may register on
the FATCA registration website.

(B) Special Rule for a Reporting
Model 2 FFI. A reporting Model 2 FFI
that has a limited branch or is a member of
an expanded affiliated group that includes
a limited FFI or FFI member with a lim-
ited branch will not cease to be a reporting
Model 2 FFI solely due to the expiration
of the transitional rule for limited
branches or limited FFIs under §1.1471-
4(e)(2) or (3), respectively, provided that
the reporting Model 2 FFI continues to
comply with the requirements of the ap-
plicable Model 2 IGA with respect to such
limited branches and limited FFIs.

(C) Limited FFIs. A participating FFI
that is a member of an FFI group that
includes one or more limited FFIs must
treat such FFIs as nonparticipating FFIs
for withholding and reporting purposes.
See sections 4.03(C), 6.04, and 6.05(E) of
this agreement for the participating FFI's
requirements with respect to limited FFIs
under this agreement.

.02 Lead FI.

(A) Designation of the Lead FI. If the
participating FFI designates a lead FI to
initiate its FATCA registration, the partic-
ipating FFI must authorize the lead FI to
fulfill the responsibilities described in sec-
tion 11.02(B) of this agreement.

(B) Responsibilities of the Lead FI. A
participating FFI that is designated as the
lead FI by one or more FFIs that are
members of an FFI group agrees to meet
the following responsibilities with respect
to such FFIs in addition to its other obli-
gations under this agreement:

(1) Identify itself as the lead FI as part
of the registration process and to delete its
status as lead FI upon termination of such
status;

(2) Identify all FFIs that have desig-
nated the participating FFI as their lead FI
as part of the participating FFI's registra-
tion process;

(3) Monitor the FFI group information
by accessing the FATCA registration
website every six months to review the
information provided and, if needed, up-
date the information provided with respect
to any members of the FFI group;

(4) Inform the IRS within 90 days of an
acquisition or sale of a member of the FFI
group by updating the FFI group informa-
tion on the FATCA registration website to
add or delete such member;

(5) Inform the IRS within 90 days of a
change affecting the chapter 4 status of
any member of the FFI group, including
when any member of the FFI group ceases
to comply with (or that does not otherwise
comply with) the requirements of either a
participating FFI or a registered deemed
compliant FFI by updating the member
FFI's chapter 4 status on the FATCA reg-
istration website; and

(6) Inform the IRS within the time period
prescribed under §1.1471-4(e)(3)(iv) that a
member of the FFI group ceases to be a
limited FFI and designate on the FATCA

registration website the status for which
such FFI will register.

## SECTION 12. EXPIRATION, MODIFICATION, TERMINATION, DEFAULT, AND RENEWAL OF THIS AGREEMENT.

.01 Term of Agreement. This agreement
begins on its effective date and expires on
December 31, 2016, unless terminated un-
der section 12.03 of this agreement. This
agreement may be renewed as provided in
section 12.08 of this agreement.

.02 Modification. This agreement may be
modified by the IRS before the expiration
date indicated in section 12.01 of this
agreement. This agreement will only be
modified through published guidance.
Any such modification will in no event
become effective until the later of 120
days after the IRS issues published guid-
ance of such modification or the begin-
ning of the next calendar year following
such published guidance. In no event will
the IRS modify this agreement for any
year before 2017 to expand the class of
payments for which withholding or re-
porting is required under this agreement
or to include additional requirements for a
participating FFI.

.03 Termination of Agreement. This
agreement may be terminated by either
the IRS or the participating FFI prior to
the end of its term by delivery of a notice
of termination to the other party in accor-
dance with section 12.06 of this agree-
ment.

(A) In General. The IRS will not ter-
minate this agreement unless there has
been a significant change in circumstances
(as defined in section 12.04 of this agree-
ment) or an event of default (as defined in
section 12.05 of this agreement), and the
IRS determines, in its sole discretion, that
the significant change in circumstances or
the event of default warrants termination
of this agreement. The IRS will not termi-
nate this agreement in the event of default
if the participating FFI can establish to the
satisfaction of the IRS that all events of
default for which it has received a notice
(described in section 12.06 of this agree-
ment) have been cured within the speci-
fied time period agreed to with the IRS.

(B) Reporting Model 2 FFI. In the
case of a reporting Model 2 FFI, the re-
porting Model 2 FFI will not be treated as

a nonparticipating FFI unless the U.S.
Competent Authority has provided the
Competent Authority of a Model 2 IGA
jurisdiction in which the reporting Model
2 FFI is located notice of significant non-
compliance with the terms of this agree-
ment, as modified by the applicable Model
2 IGA, and the matter is not resolved
within the 12-month period following the
notice of significant non-compliance.

.04 Significant Change in Circum-
stances. For purposes of this agreement, a
significant change in circumstances
includes --

(A) An acquisition of all, or substan-
tially all, of a participating FFI's assets in
any transaction in which the participating
FFI is not the surviving legal entity;

(B) A change in U.S. federal law or
policy, or applicable foreign law or pol-
icy, that affects the validity of any provi-
sion of this agreement, materially affects
the provisions contained in this agree-
ment, or materially affects the participat-
ing FFI's ability to perform its obligations
under this agreement;

(D) A case in which a participating FFI
(other than a reporting Model 2 FFI)
maintains a limited branch that cannot ful-
fill the requirements for participating FFI
or deemed-compliant FFI status after the
expiration of the transitional rule for lim-
ited FFIs and limited branches under
§1.1471-4(e)(2)(v) or a participating FFI
(other than a reporting Model 2 FFI) is a
member of an expanded affiliated group
that includes a limited FFI after the expi-
ration of the transitional rule for limited
FFIs and limited branches under §1.1471-
4(e)(3)(iv); and

(E) A significant change in a partici-
pating FFI's business practices that mate-
rially affects the participating FFI's ability
to meet its obligations under this agree-
ment.

.05 Event of Default. For purposes of this
agreement, an event of default occurs if a
participating FFI fails to perform any ma-
terial duty or obligation required under
this agreement or if the IRS determines
that a participating FFI has failed to sub-
stantially comply with the requirements of
this agreement. In addition to the occur-
rences enumerated in §1.1471-4(g)(1), an

event of default also includes the occur-
rence of the following:

(A) The participating FFI fails to in-
form the IRS within 90 days of any sig-
nificant change in circumstances; or

(B) If the participating FFI is desig-
nated by one or more FFIs that are mem-
bers of an FFI group as a lead FI, the FFI
fails, without reasonable cause, to inform
the IRS within 90 days of an acquisition,
sale, or change affecting the chapter 4
status of an FFI in the FFI group for which
it is acting as lead FI, including that such
FFI ceases to comply with (or does not
otherwise comply with) the requirements
to maintain its status as a participating or
registered deemed-compliant FFI.

.06 Notice of Event of Default. Following
an event of default known by, or disclosed
to, the IRS, the IRS will deliver to the par-
ticipating FFI a notice of default specifying
the event of default and requesting that the
participating FFI remediate the event of de-
fault as described in §1.1471-4(g)(2). See
§1.1471-4(g)(3) for the remediation pro-
cess for an event of default.

### .07 Termination Procedures.

(A) Procedure to Appeal Notice of
Termination. If a participating FFI re-
ceives a notice of termination of this
agreement from the IRS, the participating
FFI may appeal the determination within
90 days by sending to the address speci-
fied in section 13.05 of this agreement a
written notice explaining why this agree-
ment should not be terminated. If a par-
ticipating FFI appeals the notice of termi-
nation, this agreement will not terminate
until the appeal is decided. If a participat-
ing FFI does not provide a notice of ap-
peal within 90 days, this agreement will
terminate on the date specified in the no-
tice of termination.

(B) Termination of Agreement. If the
participating FFI seeks to terminate this
agreement, it is required to provide notice
to the IRS through the FATCA registra-
tion website. If the FFI's status as a par-
ticipating FFI is terminated, the FFI must
send notice of the termination within 30
days after the date of termination to all
withholding agents and FFIs to which it
has provided a withholding certificate pur-
suant to section 9.01 of this agreement.
Shortly after receipt of the notice of ter-
mination, the IRS will remove the FFI

from the IRS FFI List (defined in
§1.1471-1(b)(87)).

(1) If a participating FFI seeks to ter-
minate its status as either a compliance FI
or lead FI, it is required to provide notice
of termination on the FATCA registration
website in accordance with its instructions
or in later published guidance. A lead
FFI's notice of termination of its lead FI
status will require members of the FFI
group to designate a new lead FI on the
FATCA registration website in accor-
dance with its instructions or in later pub-
lished guidance.

(2) A compliance FI that terminates its
status as a compliance FI will still be
required to serve as the point of contact
for the IRS with respect to the certification
periods (as defined in §1.1471-
4(f)(3)(i)) during which the FFI acted as a
compliance FI unless the FFI designates
another FI that will act as the compliance
FI for such periods and that has full access
to the information that relates to such pe-
riods.

.08 Renewal. If a participating FFI in-
tends to renew this agreement, it may do
so via the FATCA registration website
available at www.irs.gov/fatca in accor-
dance with its instructions or as otherwise
provided in later published guidance. This
agreement will be renewed only upon the
agreement of both the participating FFI
and the IRS and is subject to modifica-
tions to this agreement as the IRS pre-
scribes pursuant to procedures described
in section 12.02 of this agreement.

.09 Treatment of Reporting Model 2
FFIs. Notwithstanding anything to the
contrary in this agreement, a reporting
Model 2 FFI is not entering into a binding
agreement by agreeing to comply with the
terms of this agreement, except to the
extent that such an FFI is entering into an
agreement on behalf of one or more of its
branches in order for each such branch to
be treated as a participating FFI. For the
avoidance of doubt, compliance with the
terms of this agreement requires compli-
ance with the requirement to recertify on
the FATCA registration website that the
reporting Model 2 FFI shall comply with
the terms of any renewed agreement, in-
cluding any modified terms pursuant to
section 12.02 of this agreement.

## SECTION 13. MISCELLANEOUS PROVISIONS.

.01 Waiver. Any waiver of a provision of
this agreement is a waiver solely of that
provision. The waiver does not obligate
the IRS to waive other provisions of this
agreement or the same provision at a later
date.

.02 Governing Law. This agreement is
governed by the laws of the United States.
Any legal action brought under this agree-
ment will be brought only in a United
States court with jurisdiction to hear and
resolve matters under the internal revenue
laws of the United States. For this pur-
pose, the participating FFI agrees to sub-
mit to the jurisdiction of such United
States court.

.03 Notices. Except as otherwise provided
on the FATCA registration website, no-
tices provided under this agreement are to
be mailed via registered, first class air-
mail. All notices sent to the IRS must
include the participating FFI's name and
GIIN and the name of the participating
FFI's responsible officer. Such notices
should be directed as follows:

To the IRS:
Internal Revenue Service
Office of Foreign Payments
290 Broadway
New York, New York 10007

To the participating FFI:

The participating FFI's responsible officer
(or the responsible officer of the compli-

ance FI for issues related to the participat-
ing FFI's compliance with this agree-
ment). Such notices should be sent to the
address indicated in the FFI's registration
(as may be amended).

## SECTION VI. DRAFTING INFORMATION

The principal author of this notice is
Tara. N. Ferris of the Office of Associate
Chief Counsel (International). For further
information regarding this notice, contact
John J. Sweeney on (202) 622-3840 (not a
toll free call).

## Part IV. Items of General Interest

Announcement of the
Results of the 2012-2013
Phase III Allocation Round
of the Qualifying Advanced
Coal Project Program

### Announcement 2013-43

This announcement discloses the re-
sults of the 2012-13 allocation round un-
der the qualifying advanced coal project
program of § 48A of the Internal Revenue
Code.

### SECTION 1. QUALIFYING ADVANCED COAL PROJECT PROGRAM

Pursuant to § 48A(d)(4), on July 19,
2012, the Internal Revenue Service (the

"Service") issued Notice 2012-51,
2012-33 I.R.B. 150 (the "Notice") to es-
tablish the § 48A Phase III qualifying
advanced coal project program (the
"Phase III program") and to allocate
§ 48A credits (the "Phase III credits") in
the total amount of $658,500,000. The
Notice provides that the credit for a tax-
able year under the Phase III program is
an amount equal to 30 percent of the qual-
ified investment for that taxable year in a
qualifying advanced coal project that uses
integrated gasification combined cycle
technology or other advanced coal-based
generation technology. To receive an al-
location of the Phase III credits, a quali-
fying advanced coal project must include
equipment that separates and sequesters at
least 70 percent of such project's total
carbon dioxide emissions.

Section 48A(d)(5) provides that the
Secretary shall, upon making a certifica-
tion under § 48A(d) or § 48B(d), publicly
disclose the identity of the applicant and
the amount of the credit certified with
respect to such applicant. Section 10.01 of
the Notice further provides that the Ser-
vice intends to publish the results of the
Phase III allocation round, and disclose
the following information in the event the
Phase III credit is allocated to the taxpay-
er's project: (a) the name of the taxpayer
and (b) the amount of the Phase III credit
allocated to the project.

Accordingly, the results of the
2012-13 allocation round under the Phase
III program are as follows:

Program Phase III

Taxpayer

Amount of Credit Awarded

Total Credit Awarded

STCE Holdings, LLC

$324,000,000

SCS Energy California, LLC

$334,500,000

$658,500,000

The 2012-2013 allocation round is the
only allocation round under the Phase III
program.

### SECTION 2. DRAFTING INFORMATION

The principal author of this announce-
ment is Jennifer C. Bernardini of the Office

of Associate Chief Counsel (Passthroughs
& Special Industries). For further informa-
tion regarding this announcement, contact
Ms. Bernardini at (202) 622-3110 (not a
toll-free call).

# 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
effect:

Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the 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 with
modified, below).

Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.

Distinguished describes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.

Modified is 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
with amplified and clarified, above).

Obsoleted describes 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.

Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.

Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the new
ruling does more than restate the sub-

stance of a prior ruling, a combination of
terms is used. For example, modified and
superseded describes 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
published ruling is first modified and then,
as modified, is superseded.

Supplemented is 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
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.

Suspended is 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 following abbreviations in current
use and formerly used will appear in ma-
terial published in the Bulletin.

A-Individual.

Acq .- Acquiescence.

B-Individual.

BE-Beneficiary.

F.R .- Federal Register.

FUTA-Federal Unemployment Tax Act.

FX-Foreign corporation.

G.C.M .- Chief Counsel's Memorandum.

GE-Grantee.

GP-General Partner.

GR-Grantor.

COOP-Cooperative.

IC-Insurance Company.

Ct.D .- Court Decision.

I.R.B .- Internal Revenue Bulletin.

CY-County.

LE-Lessee.

D-Decedent.

LP-Limited Partner.

LR-Lessor.

M-Minor.

Nonacq .- Nonacquiescence.

O Organization.

P-Parent Corporation.

PHC-Personal Holding Company.

PO-Possession of the U.S.

PR-Partner.

PRS-Partnership.

PTE-Prohibited Transaction Exemption.
Pub. L .- Public Law.

REIT-Real Estate Investment Trust.

Rev. Proc .- Revenue Procedure.

Rev. Rul .- Revenue Ruling.

S-Subsidiary.

S.P.R .- Statement of Procedural Rules.

Stat .- Statutes at Large.

T-Target Corporation.

T.C .- Tax Court.

T.D .- Treasury Decision.

TFE-Transferee.

TFR-Transferor.

T.I.R .- Technical Information Release.

TP-Taxpayer.
TR-Trust.

TT-Trustee.

U.S.C .- United States Code.

DE-Donee.

Del. Order-Delegation Order.

DISC-Domestic International Sales Corporation.
DR-Donor.

E-Estate.

EE-Employee.

E.O .- Executive Order.

ER-Employer.

ERISA-Employee Retirement Income Security Act.
EX-Executor.

F-Fiduciary.

FC-Foreign Country.

FICA-Federal Insurance Contributions Act.

FISC-Foreign International Sales Company.

FPH-Foreign Personal Holding Company.

BK-Bank.

B.T.A .- Board of Tax Appeals.

C-Individual.

C.B .- Cumulative Bulletin.

CFR-Code of Federal Regulations.

CI-City.

DC-Dummy Corporation.

X-Corporation.

Y-Corporation.

Z-Corporation.

## Numerical Finding List1

Bulletins 2013-27 through 2013-46

### Announcements

2013-35, 2013-27 I.R.B. 46
2013-36, 2013-33 I.R.B. 142
2013-37, 2013-34 I.R.B. 155
2013-38, 2013-36 I.R.B. 185
2013-39, 2013-35 I.R.B. 167
2013-40, 2013-38 I.R.B. 226
2013-41, 2013-40 I.R.B. 322
2013-42, 2013-44 I.R.B. 464
2013-43, 2013-46 I.R.B. 524

### Notices

2013-41, 2013-29 I.R.B. 60
2013-42, 2013-29 I.R.B. 61
2013-43, 2013-31 I.R.B. 113
2013-44, 2013-29 I.R.B. 62
2013-45, 2013-31 I.R.B. 116
2013-46, 2013-31 I.R.B. 117
2013-47, 2013-31 I.R.B. 120
2013-48, 2013-31 I.R.B. 120
2013-49, 2013-32 I.R.B. 127
2013-50, 2013-32 I.R.B. 133
2013-51, 2013-34 I.R.B. 153
2013-52, 2013-35 I.R.B. 159
2013-53, 2013-36 I.R.B. 173
2013-54, 2013-40 I.R.B. 287
2013-55, 2013-38 I.R.B. 207
2013-56, 2013-39 I.R.B. 262
2013-57, 2013-40 I.R.B. 293
2013-58, 2013-40 I.R.B. 294
2013-59, 2013-40 I.R.B. 297
2013-60, 2013-44 I.R.B. 431
2013-61, 2013-44 I.R.B. 432
2013-62, 2013-45 I.R.B. 466
2013-63, 2013-44 I.R.B. 436
2013-64, 2013-44 I.R.B. 438
2013-65, 2013-44 I.R.B. 440
2013-66, 2013-46 I.R.B. 498
2013-67, 2013-45 I.R.B. 470
2013-68, 2013-46 I.R.B. 501
2013-69, 2013-46 I.R.B. 503

## Proposed Regulations

REG-124148-05, 2013-44 I.R.B. 444

REG-161948-05, 2013-44

I.R.B. 449

REG-148659-07, 2013-45

I.R.B. 473

REG-132251-11, 2013-37 I.R.B. 191

REG-148812-11, 2013-45

I.R.B. 484

REG-111753-12, 2013-40 I.R.B. 302

REG-112815-12, 2013-35

I.R.B. 162

REG-114122-12, 2013-35

I.R.B. 163

REG-136630-12, 2013-40

I.R.B. 303

REG-140789-12, 2013-32 I.R.B. 136

REG-144990-12, 2013-39 I.R.B. 264

REG-110732-13, 2013-43 I.R.B. 405

REG-111837-13, 2013-39

I.R.B. 266

REG-113792-13, 2013-38 I.R.B. 211

REG-115300-13, 2013-37 I.R.B. 197

## Revenue Procedures

2013-28, 2013-27 I.R.B. 28

2013-29, 2013-33 I.R.B. 141

2013-30, 2013-36

I.R.B. 173

2013-31, 2013-38

I.R.B. 208

2013-32, 2013-28

I.R.B. 55

2013-33, 2013-38 I.R.B. 209

2013-34, 2013-43 I.R.B. 398

## Revenue Rulings

2013-13, 2013-32 I.R.B. 124
2013-15, 2013-28 I.R.B. 47

2013-16, 2013-40 I.R.B. 275
2013-17, 2013-38 I.R.B. 201
2013-18, 2013-37 I.R.B. 186
2013-19, 2013-39 I.R.B. 240
2013-20, 2013-40 I.R.B. 272
2013-21, 2013-43 I.R.B. 396
2013-22, 2013-46 I.R.B. 496

## Treasury Decisions

9620, 2013-27 I.R.B. 1
9621, 2013-28 I.R.B. 49

9622, 2013-30 I.R.B. 64

9623, 2013-30 I.R.B. 73
9624, 2013-31 I.R.B. 86
9625, 2013-34 I.R.B. 147
9626, 2013-34 I.R.B. 149
9627, 2013-35 I.R.B. 156
9628, 2013-36 I.R.B. 169
9629, 2013-37 I.R.B. 188
9630, 2013-38 I.R.B. 199
9631, 2013-38 I.R.B. 205
9632, 2013-39 I.R.B. 241
9633, 2013-39 I.R.B. 227
9634, 2013-40 I.R.B. 272
9635, 2013-40 I.R.B. 273
9636, 2013-43 I.R.B. 331
9637, 2013-44 I.R.B. 427
9638, 2013-46 I.R.B. 487

1A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2013-1 through 2013-26 is in Internal Revenue Bulletin
2013-26, dated June 24, 2013.

Finding List of Current Actions on

90-52 Modified by Rev. Proc. 2013-32, 2013-28 I.R.B. 55

2003-61 Superseded by Rev. Proc. 2013-34, 2013-43 I.R.B. 398

Previously Published Items1

Bulletins 2013-27 through 2013-46

96-30

Revenue Rulings:

Notices:

Modified by

Rev. Proc. 2013-32, 2013-28 I.R.B. 55

58-66

2004-23

Amplified and clarified by

Clarified by

97-48

Rev. Rul. 2013-17, 2013-38 I.R.B. 201

Notice 2013-57, 2013-40 I.R.B. 293

Situation 1 superseded, Situation 2 obsoleted by Rev. Proc. 2013-30, 2013-36 I.R.B. 173

2013-17

2004-50

Supplemented by

Clarified by

2003-43

Notice 2013-61, 2013-44 I.R.B. 432

Notice 2013-57, 2013-40 I.R.B. 293

Modified and superseded by Rev. Proc. 2013-30, 2013-36 I.R.B. 173

Treasury Decisions:

2005-70

Obsoleted by

2003-48

9610

T.D. 9633 2013-39 I.R.B. 227

Obsoleted in part and superseded in part by Rev. Proc. 2013-32, 2013-28 I.R.B. 55

Corrected by Ann. 2013-41, 2013-40 I.R.B. 322

2006-40

Superseded by

2004-34

9612

Notice 2013-68, 2013-46 I.R.B. 501

Modified and clarified by Rev. Proc. 2013-29, 2013-33 I.R.B. 141

Corrected by Ann. 2013-35, 2013-27 I.R.B. 46

2012-74

9622

Obsoleted by

2004-48

Notice 2013-51, 2013-34 I.R.B. 153

Modified and superseded by Rev. Proc. 2013-30, 2013-36 I.R.B. 173

Corrected by Ann. 2013-39, 2013-35 I.R.B. 167

2013-16

Superseded by

2004-49 Sections 4.01 &amp; 4.02 modified and super-

Notice 2013-55, 2013-38 I.R.B. 207

seded, Section 4.03obsoleted by Rev. Proc. 2013-30, 2013-36 I.R.B. 173

2013-29

Clarified by

2007-44

Notice 2013-60, 2013-44 I.R.B. 431

Modified by Ann. 2013-37, 2013-34 I.R.B. 155

2013-36

Appendix updated by

2007-62

Notice 2013-55, 2013-38 I.R.B. 207

Modified and superseded by Rev. Proc. 2013-30, 2013-36 I.R.B. 173

Superseded by

Notice 2013-55, 2013-38 I.R.B. 207

2009-25

Pilot program discontinued by

2013-39

Rev. Proc. 2013-32, 2013-28 I.R.B. 55

Amplified by

Notice 2013-47, 2013-31 I.R.B. 120

2011-18

Modified and clarified by

2013-40

Rev. Proc. 2013-29, 2013-33 I.R.B. 141

Amplified by

Notice 2013-47, 2013-31 I.R.B. 120

2011-49

Modified by

Revenue Procedures:

Ann. 2013-37, 2013-34 I.R.B. 155

81-60

2012-25

Modified by

Obsoleted in part by

Rev. Proc. 2013-32, 2013-28 I.R.B. 55

Rev. Proc. 2013-28, 2013-27 I.R.B. 28

83-59

2013-1

Modified by

Amplified and modified by

Rev. Proc. 2013-32, 2013-28 I.R.B. 55

86-42

2013-3

Modified by

Amplified and modified by

Rev. Proc. 2013-32, 2013-28 I.R.B. 55

1A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2013-1 through 2013-26 is in Internal Revenue Bulletin 2013-26, dated June 24, 2013.

Official Business
Penalty for Private Use, $300

# INTERNAL REVENUE BULLETIN

The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue
Bulletins are available at www.irs.gov/irb/.

# CUMULATIVE BULLETINS

The contents of the weekly Bulletins were consolidated semiannually into permanent, indexed, Cumulative Bulletins through the
2008-2 edition.

# INTERNAL REVENUE BULLETINS ON CD-ROM

Internal Revenue Bulletins are available annually as part of Publication 1796 (Tax Products CD-ROM). The CD-ROM can be
purchased from National Technical Information Service (NTIS) on the Internet at www.irs.gov/cdorders (discount for online orders)
or by calling 1-877-233-6767. The first release is available in mid-December and the final release is available in late January.

# We Welcome Comments About the Internal Revenue Bulletin

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would be pleased to hear from you. You can email us your suggestions or comments through the IRS Internet Home Page (www.irs.gov)
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Internal Revenue Bulletin 2013-46 (PDF rendition): IRS Notices

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