Internal Revenue Bulletin 2023-3 (PDF rendition): IRS Notices

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Bulletin No. 2023–3
January 17, 2023
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.
ADMINISTRATIVE
Notice 2023-10, page 403.
This notice provides that calendar year 2022 will be regarded
as a transition period for purposes of IRS enforcement and
administration of the modified de minimis exception for third
party settlement organizations (TPSO) and third party net-
work transactions. With respect to calendar years beginning
before January 1, 2023, a TPSO is not required to report
payments in settlement of third party network transactions
with respect to a participating payee unless the amount to be
reported exceeds $20,000 and the number of such transac-
tions with that participating payee exceeds 200.
EXCISE TAX
Notice 2023-2, page 374.
This notice announces forthcoming proposed regulations ad-
dressing the application of the stock repurchase excise tax
under section 4501 of the Internal Revenue Code, enacted
as part of Public Law 117-169, 136 Stat. 1818 (August 16,
2022), commonly referred to as the Inflation Reduction Act
of 2022. This notice describes certain rules and procedures
(i) clarifying the application of the excise tax to M&A transac-
tions and corporate liquidations, (ii) dictating when a corpora-
tion must take into account “accelerated stock repurchases”
of its stock, (iii) addressing compensatory stock awards and
stock contributions to employer-sponsored plans, (iv) pre-
venting inappropriate avoidance of the excise tax by certain
foreign corporations, and (v) on how to report and pay the
excise tax.
INCOME TAX
Announcement 2023-1, page 422.
This announcement notifies taxpayers of the applicable
reference standard required to be used to determine
the amount of the energy efficient commercial build-
ing property deduction allowed under § 179D of the
Internal Revenue Code, as amended by § 13303 of
Public Law 117-169, 136 Stat. 1818, 1947 (August
16, 2022), commonly known as the Inflation Reduction
Act of 2022 (IRA). This announcement identifies the
existing reference standard, affirms a new reference
standard, and clarifies when each of the two reference
standards will apply to taxpayers. The effective date of
this announcement is January 1, 2023.
Notice 2023-1, page 373.
This notice informs taxpayers that the Department of
the Treasury and the Internal Revenue Service (IRS) in-
tend to propose regulations addressing the definitions
of certain terms in respect of the credit available under
section 30D of the Code, and lays out the expected
content of those regulations. The proposed regulations
will include definitions of the following terms, which are
relevant for new clean vehicles placed in service after
December 31, 2022:
1. Final Assembly;
2. North America;
3. Manufacturer’s Suggested Retail Price;
4. Classifications for categories of vehicles, including
vans, sport utility vehicles, pickup trucks, and other
vehicles; and
5. Placed in service.
Notice 2023-3, page 388.
This notice provides the optional 2023 standard mile-
age rates for taxpayers to use in computing the de-
ductible costs of operating an automobile for business,
charitable, medical, or moving expense purposes. This
notice also provides the amount taxpayers must use
in calculating reductions to basis for depreciation tak-
en under the business standard mileage rate, and the
Finding Lists begin on page ii.

maximum standard automobile cost that may be used
in computing the allowance under a fixed and variable
rate plan. Additionally, this notice provides the maxi-
mum fair market value of employer-provided automo-
biles first made available to employees for personal
use in calendar year 2023 for which employers may
use the fleet-average valuation rule in § 1.61-21(d)(5)
(v) or the vehicle cents-per-mile valuation rule in § 1.61-
21(e).
Notice 2023-7, page 390.
This notice announces the intention of the Department
of the Treasury and the Internal Revenue Service to is-
sue proposed regulations addressing the application of
the corporate alternate minimum tax (CAMT), as added
to the Code by the Inflation Reduction Act of 2022. This
notice describes the rules intended to be included in
the forthcoming proposed regulations, including rules
relating to certain issues regarding subchapters C and
K of the Code, troubled corporations, groups of cor-
porations filing a consolidated Federal income tax re-
turn, the depreciation of section 168 property, and the
treatment of certain Federal income tax credits under
the CAMT. The notice also provides a simplified method
for determining whether a corporation is an “applica-
ble corporation” subject to the CAMT. Finally, the notice
provides a request for comments and the procedure for
submitting such comments.
Notice 2023-9, page 402.
This notice informs taxpayers that based on analysis
by the Department of Energy of representative qualified
commercial clean vehicles and comparable internal com-
bustion engine vehicles, the Department of the Treasury
and the Internal Revenue Service (IRS) have reviewed the
incremental cost for all vehicles manufactured primarily
for use on public streets (street vehicles) in calendar year
2023. This analysis shows that the incremental cost of
all street vehicles that have a gross vehicle weight rating
of less than 14,000 pounds will be greater than $7,500
in calendar year 2023. Accordingly, the incremental cost
will not limit the available credit amount under § 45W for
street vehicles that have a gross vehicle weight rating
of less than 14,000 pounds and are placed in service in
calendar year 2023. In addition, this analysis provides an
incremental cost for several different classes of street
vehicles with a gross vehicle weight rating of 14,000
pounds or more in calendar year 2023. The IRS will ac-
cept a taxpayer’s reliance on the incremental cost pub-
lished by the Department of Energy for the appropriate
class of street vehicle.
Notice 2023-11, page 404.
The Notice is intended to provide FATCA reporting relief
to Model 1 FFIs who have been unable to obtain US
TINs for their pre-existing accounts that are US report-
able accounts; as part of the relief, the FFIs will also
provide information that the IRS can analyze to deter-
mine why these TINs are missing. The publication has
been coordinated with Treasury and the Service.
REG-100442-22, page 423.
This Notice of Proposed Rule Making contains two
parts. The first part concerns section 892, which pro-
vides foreign governments a limited exemption from
taxation. These proposed regulations provide guidance
regarding the treatment of certain foreign government
entities, including qualified foreign pension funds, as
controlled commercial entities for purposes of section
892. The second part concerns section 897, which gen-
erally taxes a foreign person’s gain on the sale of real
property located in the United States (“United States
Real Property Interest”). A United States Real Property
Interest includes interests in certain domestic corpo-
rations when a large portion of their assets comprise
United States Real Property Interests; however, inter-
ests in domestically controlled REITs and certain RICs
(Qualified Investment Entities) are not United States
Real Property Interests. These proposed regulations
describe how to determine when a Qualified Investment
Entity is domestically controlled, particularly when the
foreign person indirectly owns shares of the underlying
Qualified Investment Entity through partnerships or cor-
porations, and when the Qualified Investment Entity’s
shares are held by a qualified foreign pension fund.
REG-146537-06, page 436.
The Department of the Treasury and the IRS are reopen-
ing the comment period for REG-146537-06, relating
to the exemption from taxation afforded to foreign gov-
ernments under section 892.
Rev. Proc. 2023-8, page 407.
This revenue procedure modifies Rev. Proc. 2022-14,
2022-7 I.R.B. 502, to provide procedures under § 446
of the Internal Revenue Code and § 1.446-1(e) of the
Income Tax Regulations to obtain automatic consent of
the Commissioner of Internal Revenue to change meth-
ods of accounting for specified research or experimen-
tal expenditures to comply with § 174 of the Code, as
amended by § 13206 of Public Law 115-97, 131 Stat.
2054 (December 22, 2017), commonly referred to as
the Tax Cuts and Jobs Act.

Rev. Proc. 2023-10, page 411.
This revenue procedure prescribes the loss payment
patterns for the 2022 determination year and the
discount factors for the 2022 accident year for use
by insurance companies in computing discounted un-
paid losses under § 846 of the Internal Revenue Code
and discounted estimated salvage recoverable under
§ 832.
Rev. Proc. 2023-11, page 417.
This revenue procedure modifies and supersedes Rev.
Proc. 2023-8. This revenue procedure contains guid-
ance similar to Rev. Proc. 2023-8, but modifies the au-
dit protection terms to make clear that taxpayers do
not receive audit protection with respect to the treat-
ment of § 174 expenditures incurred prior to making
the change in the method of accounting if the year of
change is the year immediately subsequent to the first
taxable year in which § 174 becomes effective.
TD 9771, page 346.
Generally, a foreign person is taxed on the gain on the
sale of real property located in the United States (“Unit-
ed States Real Property Interests”). In addition, one
who purchases a United States Real Property Interest
from a foreign person is generally required to withhold
on the proceeds of the sale, unless an exception ap-
plies. Certain foreign pension funds (“qualified foreign
pension funds”) are not subject to tax on their sale of a
United States Real Property Interest, and similarly, the
purchaser of the real property from such a foreign pen-
sion fund is not subject to the withholding requirement.
The final regulation describes which foreign pension
funds are exempt from the tax on the sale of a Unit-
ed States Real Property Interest. The final regulation
also describes how a purchaser of a United States Real
Property Interest may ascertain that the seller is a qual-
ified foreign pension fund, so that the purchaser is not
required to withhold on the proceeds of the sale.

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Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing of-
ficial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, 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 sub-
stantive 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 inter-
nal management are not published; however, statements of
internal practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service
on the application of the law to the pivotal facts stated in
the revenue ruling. In those based on positions taken in rul-
ings to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation 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
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (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.
January 17, 2023 Bulletin No. 2023–3

Part I
26 CFR 1.897(l)-1, 26 CFR 1.1441-3,
26 CFR 1.1445-2, 26 CFR 1.1445-5, 26
CFR 1.1445-8, 26 CFR 1.1446-7
T.D. 9971
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Exception for Interests Held
by Foreign Pension Funds
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains fi-
nal regulations regarding gain or loss of
a qualified foreign pension fund attribut-
able to certain interests in United States
real property. The final regulations also
include rules for certifying that a quali-
fied foreign pension fund is not subject
to withholding on certain dispositions
of, and distributions with respect to, cer-
tain interests in United States real prop-
erty. The final regulations affect certain
holders of interests in United States real
property and withholding agents that are
required to withhold tax on dispositions
of, and distributions with respect to, such
property.
DATES: Effective Date: These regulations
are effective on December 29, 2022.
Applicability dates: For dates of applica-
bility, see §§1.897(l)-1(g), 1.1441-3(c)(4)
(iii), 1.1445-2(e), 1.1445-5(h), 1.1445-
8(j), 1.1446-7.
FOR FURTHER INFORMATION CON-
TACT: Arielle M. Borsos or Milton
Cahn at (202) 317-6937 (not a toll-free
number).
SUPPLEMENTARY INFORMATION:
Background
Section 897(l) was added to the Inter-
nal Revenue Code (the “Code”) by section
323(a) of the Protecting Americans from
Tax Hikes Act of 2015, Pub. L. 114-113,
div. Q (the “PATH Act”), and amended by
section 101(q) of the Tax Technical Cor-
rections Act of 2018, Pub. L. 115-141, div.
U. In the preamble to the updated section
1445 regulations that were published in
the Federal Register (81 FR 8398-01, as
corrected at 81 FR 24484-01) on Febru-
ary 19, 2016, the Department of the Trea-
sury (the “Treasury Department”) and the
IRS requested comments regarding what
regulations, if any, should be issued pur-
suant to section 897(l)(3). The Treasury
Department and the IRS considered all
of the comments received in response to
this request and, on June 7, 2019, pub-
lished proposed regulations under sec-
tions 897(l), 1441, 1445 and 1446 in the
Federal Register (84 FR 26605) (the
“proposed regulations”). The proposed
regulations contained rules relating to
the qualification for the exemption under
section 897(l), as well as rules relating to
withholding requirements under sections
1441, 1445 and 1446, for dispositions of
United States real property interests (“US-
RPIs”) by foreign pension funds and their
subsidiaries and distributions described in
section 897(h).
This Treasury decision finalizes the
proposed regulations, after taking into ac-
count and addressing comments received
by the Treasury Department and the IRS
with respect to the proposed regulations.
Terms used but not defined in this pream-
ble have the meaning provided in the final
regulations.
Comments outside the scope of this
rulemaking are generally not addressed
but may be considered in connection with
future regulations. All written comments
received in response to the proposed reg-
ulations are available at www.regulations.
gov or upon request.
Summary of Comments and
Explanation of Revisions
The final regulations retain the gener-
al approach and structure of the proposed
regulations, with certain revisions. This
Summary of Comments and Explanation
of Revisions section discusses the revi-
sions as well as comments received in re-
sponse to the solicitation of comments in
the proposed regulations.
I. Comments and Revisions Related to the
Scope of the Exception
A. Qualified controlled entities
Under the proposed regulations, and
consistent with section 897(l), gain or
loss of a qualified foreign pension fund
(“QFPF”) or a qualified controlled entity
(“QCE”) (under the proposed regulations,
each generally a “qualified holder”) from
the disposition of a USRPI is not subject
to section 897(a). Prop. §1.897(l)-1(b)(1).
The proposed regulations defined a QCE
as a trust or corporation organized under
the laws of a foreign country,
1
all of the
interests of which are held directly by
one or more QFPFs or indirectly through
one or more QCEs or partnerships. Prop.
§1.897(l)-1(d)(9).
1. Ownership by Non-QFPFs
Several comments received in response
to the proposed regulations addressed the
ownership requirement with respect to
QCEs. The proposed regulations did not
permit ownership of a QCE by a per-
son other than a QFPF or another QCE,
declining to adopt a comment received
before the publication of the proposed
regulations requesting that de minimis
ownership of a QCE by other persons be
disregarded under certain circumstances,
such as when de minimis ownership by
managers or directors is required by cor-
porate law in certain jurisdictions. The
Treasury Department and the IRS deter-
mined that permitting a person other than
1
For consistency with other guidance, the final regulations adopt the term “foreign jurisdiction” instead of “foreign country.” See §1.897(l)-1(e)(4). See also Part II.C. of this Summary of
Comments and Explanation of Revisions for a description of how the final regulations treat subnational tax regimes.
January 17, 2023 346 Bulletin No. 2023–3

a QFPF or another QCE to own an interest
in a QCE would impermissibly expand the
scope of the exception in section 897(l) by
allowing investors other than QFPFs to
avoid tax under section 897(a). However,
under the proposed regulations, a QFPF
could invest in USRPIs with non-QFPFs
through a partnership and still qualify for
the exemption under section 897(l).
Comments received in response to the
proposed regulations similarly requested
that the final regulations allow a de mini-
mis exception for the ownership of a QCE
by other persons. One comment reiterated
that de minimis ownership, including by
managers or directors, may be required
by corporate law in certain jurisdictions
and suggested that the final regulations in-
clude a rule that would permit an entity to
be treated as a QCE if a small amount (for
example, five percent) of the entity is held
by a non-QFPF. The comment also sug-
gested that, in order to prevent non-QFPF
entities from inappropriately accessing the
exemption under section 897(l), a non-QF-
PF de minimis owner of a QCE could be
required to recognize gain or loss on any
disposition of a USRPI held through the
QCE under section 897(a). The comment
asserted that there is no policy reason to
differentiate between entities with QFPF
and non-QFPF owners/beneficiaries be-
cause the entity is a corporation or trust
rather than a partnership, and that permit-
ting de minimis non-QFPF ownership of a
QCE would allow QFPFs flexibility with
regard to the form of entity chosen for in-
vestment purposes.
Another comment asserted that a de
minimis exception should be allowed be-
cause certain jurisdictions may require or
otherwise allow investment arrangements
in which foreign pension funds pool in-
vestments with non-QFPFs. The comment
argued that such investment arrangements
should not be precluded from qualifying
for the exception under section 897(l), es-
pecially if those arrangements are allowed
or required by local law and are consistent
with generally accepted investment prac-
tice. The comment suggested that the final
regulations permit a non-QFPF to have a
de minimis level of ownership (for exam-
ple, five percent) in a QCE. If a de minimis
exception were not adopted, the comment
suggested several alternatives to prevent
minority investors from tainting the QFPF
status for the majority QFPF investors,
including that the final regulations allow
QFPFs to qualify for the exception under
section 897(l) on their share of income
or gains distributed by an investment ve-
hicle, provided the investment vehicle is
majority owned by QFPFs. The comment
also suggested that the QCE ownership
requirement be modified to permit an el-
igible fund that is a non-QFPF solely be-
cause it has a single qualified recipient
with a right to more than five percent of
the assets or income of the eligible fund
to be an owner of a QCE. The comment
requested that, in that circumstance, the fi-
nal regulations look through to the owners
of the non-QFPF and apply the prohibi-
tion on a single five-percent beneficiary or
participant by reference to the would-be
QCE rather than the non-QFPF.
An additional comment suggested
that a QFPF should be able to claim the
section 897(l) exemption with respect to
gains derived by an entity in which the
QFPF is an investor where the entity is
not a partnership and also is not a QCE
because it is not wholly owned by QFPFs.
The comment noted that, in certain for-
eign government facilitated arrangements
involving a partnership formed under lo-
cal law through which multiple foreign
government entities jointly invest, the in-
vestment entity may be a per se corpora-
tion under §301.7701-2(b)(6) that would
not qualify as a QCE if not all of the gov-
ernment investors were QFPFs. The com-
ment asserted that, in such circumstance,
investors would be forced to include a
non-government partner so that the in-
vestment entity could be treated as a part-
nership for U.S. federal tax purposes. To
address this concern, the comment recom-
mended that the final regulations provide
that, if an entity is treated as a partnership
under the law of the country in which the
QFPF is formed, the QFPF should be able
to treat its distributive share of partnership
Foreign Investment in Real Property Tax
Act (“FIRPTA”) gains as exempt under
section 897(l).
The Treasury Department and the IRS
continue to believe that allowing any ex-
ception with respect to the ownership of
a QCE would impermissibly expand the
scope of the exception in section 897(l)
by allowing investors other than QFPFs
to avoid tax under section 897. Section
897(l)(1) expressly provides that an enti-
ty must be wholly owned by a QFPF to
constitute a QCE and qualify for the
exception under section 897(l). Accord-
ingly, the final regulations do not provide
a de minimis exception to the ownership
of a QCE. For the same reasons, the final
regulations do not adopt other suggested
approaches that would permit an entity
to be a QCE despite limited non-QFPF
ownership, such as a tracing approach
that would require non-QFPF owners of
an entity to be subject to section 897(a)
and allow only QFPF owners to benefit
from the section 897(l) exemption, or a
look-through approach that would allow a
non-QFPF that cannot qualify as a QFPF
because it violates the rule against having
a single five-percent beneficiary or partic-
ipant to own an interest in a QCE.
The final regulations also do not adopt
the recommendation to permit a QFPF to
benefit from the section 897(l) exemption
with respect to interests in an entity that is
classified as a corporation for U.S. federal
tax purposes but that does not qualify as
a QCE due to ownership by non-QFPFs
by treating the entity as a partnership in
accordance with its treatment under appli-
cable foreign law. In addition to expand-
ing the definition of a QCE to permit own-
ership by non-QFPFs, such a rule would
contradict the classification of the entity
for U.S. federal tax purposes.
2. Investment Arrangements with QFPFs
The proposed regulations permitted
multiple QFPFs to wholly own a QCE, ei-
ther directly or indirectly through one or
more other QCEs, in recognition that it is
common for QFPFs to pool their invest-
ments.
One comment discussed the interac-
tion between the requirement that QCEs
must be wholly owned by QFPFs and
the various requirements that an eligi-
ble fund must meet to maintain its status
as a QFPF. The comment stated that a
QFPF that invests with other QFPFs in a
QCE might fail to qualify for the section
897(l) exemption solely because one of
its co-investors fails to qualify as a QFPF
in any given year. The comment noted
that QFPFs would be required to negoti-
ate complex protections to shield against
another co-investor from tainting the
Bulletin No. 2023–3 347 January 17, 2023

January 17, 2023 348 Bulletin No. 2023–3
QCE’s status. The comment further not-
ed that investing through a partnership
(which would allow the QFPF to invest
with other non-QFPFs) may not be fea-
sible because a foreign jurisdiction may
have regulatory restrictions regarding the
types of legal entities in which pension
funds may invest or the entity may be
wholly owned by QFPFs that form part
of a single government (and thus may be
a per se corporation under §301.7701-
2(b)(6)). The comment therefore recom-
mended that the final regulations provide
a rule that a QCE that inadvertently fails
to constitute a qualified holder because
one of its owners ceases to be treated as
a QFPF be permitted, for a limited time,
to partially benefit from section 897(l) to
the extent that it continues to be owned
by QFPFs.
The final regulations do not provide an
exception to the requirement that a QCE
be wholly owned by a QFPF to insulate
QFPF investors from the risk of losing
QCE status in investment arrangements
with other QFPFs. As with a de minimis
exception to the ownership of a QCE, the
Treasury Department and the IRS believe
that any such rule would impermissibly
expand the scope of the section 897(l)
exception to allow investors other than
QFPFs to avoid tax under section 897.
The Treasury Department and the IRS
also believe that the changes to the final
regulations described in Parts II.A.2 and
II.A.3 of this Summary of Comments and
Explanation of Revisions will appropri-
ately alleviate concerns with respect to the
risk that a QFPF may inadvertently fail
to satisfy the requirements to constitute a
QFPF.
3. Non-economic Ownership
As referenced in the preamble to the
proposed regulations, given the absence
of an express provision to the contrary,
the definition of an “interest” for purpos-
es of determining whether an entity is a
QCE is determined in accordance with
§1.897-1(d)(5), which provides that an
interest in an entity means an interest in
such entity other than an interest solely
as a creditor. Section 1.897-1(d)(3) pro-
vides that an interest in an entity other
than solely as a creditor is: (A) stock of
a corporation; (B) an interest in a part-
nership as a partner within the meaning
of section 761(b) and the regulations
thereunder; (C) an interest in a trust or
estate as a beneficiary within the mean-
ing of section 643(c) and the regulations
thereunder or an ownership interest in
any portion of a trust as provided in sec-
tions 671 through 679 and the regulations
thereunder; (D) an interest which is, in
whole or in part, a direct or indirect right
to share in the appreciation in value of an
interest in an entity described in subdi-
vision (A), (B), or (C) of §1.897-1(d)(3)
(i) or a direct or indirect right to share in
the appreciation in value of assets of, or
gross or net proceeds or profits derived
by, the entity; or (E) a right (whether or
not presently exercisable) directly or in-
directly to acquire, by purchase, conver-
sion, exchange, or in any other manner,
an interest described in subdivision (A),
(B), (C), or (D) of §1.897-1(d)(3)(i).
One comment requested that the final
regulations clarify that non-economic in-
terests in an entity are not taken into ac-
count in determining whether an entity
is a QCE. The comment noted that such
a situation might arise when a foreign
partnership that elects to be treated as a
corporation for U.S. federal income tax
purposes has a general partner that holds
no economic interest in the entity. The
comment recommended that the final reg-
ulations provide that interests in a QCE
that do not entitle the holders to share in
the income or assets of the QCE should be
ignored in determining whether the QCE
is a qualified holder, noting that such ful-
ly non-economic interests do not present
potential for abuse and that disregarding
those interests would be consistent with
congressional intent to accommodate a
variety of foreign pension fund structures
under section 897(l).
The Treasury Department and the IRS
do not believe that additional guidance
is necessary regarding the ownership in-
terests taken into account in determin-
ing whether an entity constitutes a QCE.
Thus, an “interest” for purposes of deter-
mining whether an entity is a QCE is de-
termined under §1.897-1(d)(3). Whether
an interest in an entity constitutes one of
the interests listed under §1.897-1(d)(3) or
is instead disregarded is determined based
on the facts, taking into account general
tax principles.
B. Qualified holder rule
The proposed regulations provided that
a qualified holder does not include any
entity or governmental unit that, at any
time during the testing period, determined
without regard to this limitation, was
not a QFPF, a part of a QFPF, or a QCE
(the “qualified holder rule”). See Prop.
§1.897(l)-1(d)(11)(ii). For this purpose,
the proposed regulations provided that
the testing period is the shortest of (i) the
period beginning on the date that section
897(l) became effective (December 18,
2015), and ending on the date of a dispo-
sition described in section 897(a) or a dis-
tribution described in section 897(h); (ii)
the ten-year period ending on the date of
the disposition or the distribution; or (iii)
the period during which the entity (or its
predecessor) was in existence. See Prop.
§1.897(l)-1(d)(14). Under the proposed
regulations, the qualified holder rule does
not apply to an entity or governmental unit
that did not own a USRPI as of the date it
became a QCE, a QFPF, or part of a QFPF.
The preamble to the proposed regulations
explained that the qualified holder rule
is necessary to prevent the inappropriate
avoidance of section 897(a) through QF-
PFs indirectly acquiring USRPIs held by
foreign corporations that would not have
otherwise qualified for the exception un-
der section 897(l).
Comments recommended that the final
regulations either modify the qualified
holder rule or implement one of several
alternatives. Comments agreed that the
QFPF exception should not apply to ex-
empt gain that would otherwise have been
subject to tax under section 897. Howev-
er, the comments argued that the qualified
holder rule in the proposed regulations
was overbroad because it could apply to
any failure to qualify as a QFPF or QCE
in the testing period, even if the failure
was unintentional or had no potential for
abuse.
One comment requested that the final
regulations provide a tolling period if
there is an inadvertent failure to qualify
as a QFPF and that failure is remedied
in the following year. Another comment
requested that the final regulations pro-
vide an exception to the qualified holder
rule to exclude the situation in which a
QFPF does not qualify solely because it

Bulletin No. 2023–3 349 January 17, 2023
fails to meet the requirements in proposed
§1.897(l)-1(c)(2) (relating to the require-
ments an eligible fund must satisfy to be
treated as a QFPF). The comment further
recommended allowing a mark-to-market
approach, whereby an election to recog-
nize any net built-in gain at the time a
QFPF acquires a non-QFPF that owns a
USRPI could be made so that the non-QF-
PF could then be treated as a QCE with
respect to any future disposition of its
USRPI (similar to §1.337(d)-7(a) for the
conversion of certain corporations to reg-
ulated investment companies (“RIC”) or
real estate investment trusts (“REIT”)). In
addition, the comment requested that the
qualified holder rule be limited to apply
only to USRPIs held by non-QFPFs when
such non-QFPFs are acquired by a QFPF,
resulting in a tracing approach that would
prevent section 897(l) from applying only
to a disposition of those specific USRP-
Is. The comment also recommended that
the final regulations shorten the maximum
testing period from ten to five years, which
is consistent with the five-year maximum
testing period for a RIC or REIT to be a
domestically controlled qualified invest-
ment entity under section 897(h)(4).
As alternatives to the qualified holder
rule, one comment requested that the Trea-
sury Department and the IRS either allow
a mark-to-market approach at the taxpay-
er’s election (similar to that suggested by
other comments), under which the entity
acquired by the QFPF would account for
the gain when the entity is acquired by
the QFPF, or require tracing the unreal-
ized gain when the entity is acquired by a
QFPF or QCE so that section 897(a) can
apply to the pre-acquisition gain upon a
subsequent sale or exchange.
Under the final regulations, the sub-
stance of the qualified holder rule is the
same as it was in the proposed regulations;
however, for greater clarity, the final regu-
lations identify the qualified holder rule as
a separate requirement to qualify for the
section 897(l) exemption rather than as
part of the definitions. §1.897(l)-1(d). To
be a qualified holder, a QFPF or a QCE
must satisfy one of two alternative tests at
the time of the disposition of the USRPI
or the distribution described in section
897(h). §1.897(l)-1(d)(1). Under the first
test, a QFPF or a QCE is a qualified hold-
er if it owned no USRPIs as of the ear-
liest date during an uninterrupted period
ending on the date of the disposition or
distribution during which it qualified as a
QFPF or a QCE. §1.897(l)-1(d)(2). Alter-
natively, if a QFPF or a QCE held USRPIs
as of the earliest date during the period
described in the preceding sentence, it
can be a qualified holder only if it satisfies
the applicable testing period requirement,
which is unchanged from the proposed
regulations. §1.897(l)-1(d)(3).
The final regulations also include two
transition rules. First, with respect to any
period from December 18, 2015, to the
date when the requirements of section
1.897(l)-1(c)(2) or (e)(9) first apply to a
QFPF or QCE, as applicable (but in any
event no later than December 29, 2022,
in the case of section 1.897(l)-1(c)(2),
and no later than June 6, 2019, in the case
of section 1.897(l)-1(e)(9)), the QFPF
or QCE is deemed to satisfy the require-
ments of section 1.897(l)-1(c)(2) and (e)
(9), as applicable, for purposes of section
1.897(l)-1(d)(2) and (3) if the QFPF or
QCE satisfies the requirements of section
897(l)(2) based on a reasonable interpre-
tation of those requirements (including
determining any applicable valuations
using a consistent method). Second, in
determining whether a QCE is a qualified
holder, solely with respect to the two tests
in section 1.897(l)-1(d)(2) and (3), the
final regulations allow the QCE to disre-
gard a de minimis interest owned by any
person that provides services to the QCE
from December 18, 2015 to February 27,
2023 (the “transition period”). §1.897(l)-
1(d)(4)(ii). This second transition rule
does not apply for purposes of determin-
ing QCE status under section 1.897(l)-
1(e)(9) at the time of any disposition or
distribution involving a USRPI. Thus, its
application is limited to cases in which a
trust or corporation failed to qualify as a
QCE (and, therefore, as a qualified holder)
during the transition period solely because
of a de minimis interest owned by any
person that provides services to the QCE
(such as a manager or director). In that
case, the transition rule allows the trust or
corporation to eliminate the service pro-
vider’s ownership within the transition pe-
riod and thereby avoid having to apply the
tests for qualified holder status under sec-
tion 1.897(l)-1(d)(2) or (3) by reference to
the date that the service provider’s interest
is eliminated. This may, for example, pre-
vent the restarting of a ten-year testing pe-
riod on the date that the service provider’s
interest is eliminated. Any disposition of
USRPIs during the period when the trust
or corporation had the service provider as
an interest holder still would not qualify
for the section 897(l) exemption.
The Treasury Department and the IRS
agree that the application of the qualified
holder rule to an inadvertent failure to
qualify as a QFPF could produce inap-
propriate results, particularly in the case
where an eligible fund fails to meet the
requirements in §1.897(l)-1(c)(2)(ii)(B)
(2) because it unexpectedly projects that
it will provide less than 85 percent re-
tirement and pension benefits. Although
the final regulations ultimately adopt the
qualified holder rule without the changes
recommended by the comments, the final
regulations provide relief in the following
ways:
• adding an alternative calculation to
the requirements in §1.897(l)-1(c)
(2)(ii)(B)(2) and (3) based on the
average of the present values of
the future benefits expected to be
provided, as determined in the 48
months preceding (and including) the
most recent valuation (the “48-month
alternative calculation,” described
further in Part II.A.2 of this Summary
of Comments and Explanation of
Revisions);
• adding a definition of retirement and
pension benefits;
• clarifying the scope of ancillary
benefits; and
• allowing an eligible fund to provide
a de minimis amount of non-ancillary
benefits (described further in Part
II.A.3 of this Summary of Comments
and Explanation of Revisions).
Together, these changes provide relief to
eligible funds that would otherwise un-
expectedly fail to qualify as a QFPF in
any given year and alleviate the underly-
ing concerns regarding the breadth of the
qualified holder rule.
In light of the changes described in
the preceding paragraph, the final regula-
tions do not adopt the recommendation to
allow a tolling period to remedy the loss
of QFPF status. For the same reasons, the
final regulations also do not adopt the rec-
ommendation to provide an exception to

January 17, 2023 350 Bulletin No. 2023–3
the qualified holder rule for any failure to
meet the requirements in §1.897(l)-1(c)
(2) or to have the qualified holder rule
apply only to USRPIs owned by non-QF-
PFs when such non-QFPFs are acquired
by a QFPF. The section 897(l) exception
provides a substantial benefit to inves-
tors, and it is appropriate to require an
eligible fund to meet the requirements in
the final regulations for a ten-year maxi-
mum testing period before obtaining tax-
free treatment to ensure the exception is
not claimed inappropriately. Cf. section
877 (requiring taxpayer to be subject to
potential additional U.S. taxation for ten
years after relinquishing U.S. citizenship);
§§1400Z-2 (allowing taxpayer to receive
a step-up in basis of property equal to its
fair market value if held for ten years);
1.937-2(f) (requiring individual to be
bona fide resident of a territory for 10
years before sale of property is sourced to
territory and receives beneficial tax rate).
Accordingly, the final regulations also do
not adopt a maximum testing period that is
shorter than ten years.
With respect to the suggested alter-
natives to the qualified holder rule, the
preamble to the proposed regulations
explained that the mark-to-market and
tracing approaches both imposed greater
compliance and administrative costs rela-
tive to the testing-period approach with-
out providing any accompanying general
economic benefit. Even if the investor is
given the option to elect a mark-to-market
approach, it would still present compli-
ance and administrative barriers because
fair market valuations of real property
are not readily available. The tracing ap-
proach would similarly impose compli-
ance and administrative burdens, as such
an approach would require obtaining a fair
market valuation of real property when an
entity became a QCE, as well as tracking
the USRPIs that were acquired before the
entity became a QCE so that the pre-ac-
quisition built-in gain could be recognized
upon a later disposition. Accordingly, the
final regulations do not adopt the mark-to-
market or tracing alternatives.
C. Qualified segregated accounts
The proposed regulations provided that
a qualified holder is exempt from section
897(a) only with respect to gain or loss
that is attributable to one or more quali-
fied segregated accounts maintained by
the qualified holder. Prop. §1.897(l)-1(b)
(2). The proposed regulations defined a
qualified segregated account as an iden-
tifiable pool of assets maintained for the
sole purpose of funding qualified benefits
(that is, retirement, pension, or ancillary
benefits) to qualified recipients (generally,
plan participants and beneficiaries). See
Prop. §1.897(l)-1(d)(13)(i). The proposed
regulations provided separate standards
for determining whether an identifiable
pool of assets is maintained for the sole
purpose of funding qualified benefits de-
pending on whether the pool of assets is
maintained by an eligible fund (including
an eligible fund that satisfies the require-
ments to be treated as a QFPF) or a QCE.
See Prop. §1.897(l)-1(d)(13)(ii); Prop.
§1.897(l)-1(d)(13)(iii).
Comments requested that the final reg-
ulations clarify the standards that apply
for determining whether an identifiable
pool of assets is maintained for the sole
purpose of funding qualified benefits,
and one comment recommended remov-
ing the standards altogether. Specifically,
comments identified several situations in
which qualified segregated accounts are
maintained for the sole purpose of fund-
ing qualified benefits to qualified recip-
ients, but where the funds could never-
theless be disbursed for other purposes or
to non-qualified recipients. For example,
one comment noted that an eligible fund
could rebate an overfunded amount by a
foreign defined benefit pension fund to an
employer. Another comment noted that
assets might not be disbursed to qualified
recipients or used to pay reasonable plan
expenses if a potential change in foreign
law impacts how fund assets can be used.
One comment highlighted that assets
might revert to sponsoring employers if
employees cease participating in the plan
before their benefits have vested. Another
comment cited the possibility that upon
a dissolution of the eligible fund, assets
could revert to the employer after satisfy-
ing its obligations to qualified recipients
and creditors. In each such situation, the
comments recommended that the final
regulations clarify that a pool of assets
would not fail to qualify as a qualified
segregated account. One comment further
recommended that the final regulations
eliminate the requirement that all income
and assets maintained in a qualified segre-
gated account of an eligible fund be used
to fund the provision of qualified benefits
to qualified recipients because such a pro-
vision is unnecessary to ensure that in-
come and assets of an eligible fund do not
inure to inappropriate recipients.
The Treasury Department and the IRS
agree that in certain situations the rever-
sion of funds to a governmental unit or an
employer, after satisfaction of liabilities to
creditors and qualified recipients, should
not disqualify the account from being
treated as maintained for the sole purpose
of funding qualified benefits to be provid-
ed to qualified recipients. Accordingly,
the final regulations clarify that a quali-
fied segregated account that is held by an
eligible fund is treated as maintained for
the sole purpose of funding qualified ben-
efits to be provided to qualified recipients
notwithstanding that funds may revert
(such as upon dissolution or the benefits
failing to vest) to the governmental unit
or employer in accordance with applica-
ble foreign law so long as contributions to
the plan are not more than what is reason-
ably necessary to fund the qualified bene-
fits to be provided to qualified recipients.
§1.897(l)-1(e)(13)(i). This requirement
ensures that a governmental unit or em-
ployer does not qualify for benefits under
section 897(l) to the extent it inappropri-
ately overfunds the plan.
One comment further recommended
that the final regulations treat an eligible
fund’s interest in a corporation as a qual-
ified segregated account. This recommen-
dation was made to resolve the issue, de-
scribed in Part I.A.1 of this Summary of
Comments and Explanation of Revisions,
that arises when multiple foreign govern-
ment entities, some of which are QFPFs
and some of which are not, jointly invest
in USRPIs through a foreign partnership
that is treated as a per se corporation for
U.S. federal tax purposes (pursuant to
§301.7701-2(b)(6)), but cannot qualify as
a QCE because not all of the investors are
QFPFs.
The final regulations do not adopt
this recommendation for several reasons.
First, the suggestion contemplates a situ-
ation that is contrary to the requirement
in section 897(l)(1) that requires an entity
to be wholly owned by a QFPF in order

Bulletin No. 2023–3 351 January 17, 2023
to qualify for the exception under section
897(l). Thus, the recommendation poten-
tially allows the exemption from taxation
under section 897(a) to inure to non-QF-
PFs. Second, the issue described in the
comment ultimately arises because of the
rule under §301.7701-2(b)(6) rather than
the final regulations, and therefore a mod-
ification to the final regulations is not the
appropriate resolution. Third, the recom-
mendation does not ensure that the assets
or income of the corporation are used only
for the purpose of providing benefits to
qualified recipients, a key purpose of the
qualified segregated account rules.
II. Comments and Revisions Relating to
Requirements Applicable to a QFPF
A. Established to provide retirement and
pension benefits
The proposed regulations allowed pen-
sion funds established by one or more em-
ployers and government-sponsored public
pension funds to be considered QFPFs.
Specifically, the proposed regulations pro-
vided that an eligible fund must be estab-
lished by either (i) the foreign country in
which it is created or organized to provide
retirement or pension benefits to partici-
pants or beneficiaries that are current or
former employees or persons designated
by such employees as a result of services
rendered by such employees to their em-
ployers (“government-established fund”),
or (ii) one or more employers to provide
retirement or pension benefits to partici-
pants or beneficiaries that are current or
former employees or persons designated
by such employees in consideration for
services rendered by such employees to
such employers (“employer fund”). Prop.
§1.897(l)-1(c)(2)(ii)(A). The language in
proposed §1.897(l)-1(c)(2)(ii)(A) general-
ly reflected the statutory language in sec-
tion 897(l)(2)(B).
1. Pension Funds Eligible for Section
897(l)(2)(B)
a. “Established by” requirement
One comment requested that the final
regulations clarify the requirement that
an eligible fund be “established by” a
foreign government in the case of a gov-
ernment-established fund. The comment
expressed concern that the “established
by” requirement in the proposed regula-
tions could exclude the national pension
systems of certain countries under which
accounts in the names of individual partic-
ipants are maintained by private entities.
The comment explained that some foreign
countries have pension systems in which
all employees (or employees working in a
certain sector of the economy) are required
by law to establish a pension account held
and managed by a private pension ad-
ministrator. Although the arrangement is
created by government mandate and sub-
ject to government regulation, the private
pension administrators form the invest-
ment vehicles, select the investment ad-
visors, and receive, invest, and disburse
the funds. The extent of additional gov-
ernment involvement varies, but could
include the government being the conduit
through which contributions by employers
and employees are funneled into the plans
or benefits are disbursed. The comment
asserted that such an arrangement should
be treated as “established by” the foreign
government for purposes of qualifying as
a government-established fund and that
each private pension administrator, the
investment vehicles that it establishes,
and any government office that is with-
in the flow of funds should be treated as
part of an “arrangement” that maintains
qualified segregated accounts. According
to the comment, if participation in the
pension system is mandatory, a foreign
government should meet the “established
by” requirement for a government-estab-
lished fund even if the government does
not actually receive contributions and dis-
burse benefits or hold or invest the funds.
The comment recommended that the final
regulations clarify that an arrangement
created pursuant to a foreign government
mandate, but in which private investment
managers hold and invest contributions,
should be treated as “established by” the
foreign government.
The Treasury Department and the IRS
recognize that eligible funds in foreign
countries may be established and admin-
istered in numerous ways. The Treasury
Department and the IRS also continue to
believe that the purpose of section 897(l)
is best served by permitting a broad range
of structures to be treated as a QFPF. Ac-
cordingly, the final regulations clarify that
an eligible fund may be established by, or
at the direction of, a foreign jurisdiction
for purposes of qualifying as a govern-
ment-established fund. §1.897(l)-1(c)(2)
(ii)(A)(1)(i). If an eligible fund is estab-
lished at the direction of a foreign jurisdic-
tion to provide benefits to the establishing
entity’s employees in consideration for
services rendered to the establishing en-
tity, the final regulations clarify that the
fund will be considered an employer fund
only. §1.897(l)-1(c)(2)(ii)(A)(2). Finally,
the final regulations clarify that an eligible
fund is treated as being established by a
foreign jurisdiction or an employer not-
withstanding that one or more persons that
are not the foreign jurisdiction or employ-
er administers the eligible fund. §1.897(l)-
1(c)(2)(ii)(A)(3). Thus, an arrangement
created pursuant to a foreign government
mandate in which private investment
managers hold and invest contributions
is treated as “established by” the foreign
government.
b. Employer fund established by foreign
government
One comment indicated that, under the
proposed regulations, it was not clear that
a QFPF could include pension arrange-
ments established by governmental units
in their function as employers, while also
noting that such funds could potentially
qualify as both a government-established
fund and an employer fund. The comment
recommended clarifying that an otherwise
qualifying pension fund can be established
by government employers.
The final regulations clarify that an el-
igible fund can be established by a gov-
ernmental unit acting in its capacity as an
employer, and specify that such a fund
constitutes an employer fund. §1.897(l)-
1(c)(2)(ii)(A).
2. Purpose of Eligible Fund
Proposed §1.897(l)-1(c)(2)(ii)(B) re-
quired that all of the benefits that an eli-
gible fund provides are qualified benefits
to qualified recipients (the “100 percent
threshold”), and that at least 85 percent of
the present value of the qualified benefits
that the eligible fund reasonably expects
to provide in the future are retirement or

January 17, 2023 352 Bulletin No. 2023–3
pension benefits (the “85 percent thresh-
old”). For this purpose, qualified benefits
were defined as retirement, pension, or
ancillary benefits. Prop. §1.897(l)-1(d)(8).
As discussed in the preamble to the pro-
posed regulations, the Treasury Depart-
ment and the IRS adopted the 85 percent
threshold because it was more admin-
istrable and provided more certainty to
taxpayers than a subjective standard. The
preamble to the proposed regulations indi-
cated that the calculation of the 85 percent
threshold would be made on an annual ba-
sis, but the proposed regulations did not
explicitly identify a period for making this
determination.
a. Comments received
Several comments stated that a strict
numerical threshold created a cliff effect
and caused uncertainty as to whether an
eligible fund would qualify as a QFPF
on a consistent basis over several years.
Particular concern was expressed by one
comment that an annual test may cause
disqualification as a QFPF for reasons
not entirely within the eligible fund’s
control, such as when the population
of qualified recipients changes. Other
comments stated that the present value
calculation in the proposed regulations
was vague, and one comment stated that
the proposed regulations did not clearly
identify the frequency with which the
reasonable expectation of present value
should be calculated.
Based on these observations, several
comments suggested that the objective 85
percent threshold should be replaced with
a subjective test assessing the fund’s pur-
pose. These comments suggested that in-
stead of the 85 percent threshold, a fund’s
purpose should be determined, consider-
ing all the facts and circumstances, by as-
sessing whether the fund was established
to provide retirement and pension bene-
fits. Comments also suggested that the 85
percent threshold could be used as a safe
harbor; a fund that does not meet that re-
quirement would then have to show that it
was established to provide retirement and
pension benefits given all the facts and
circumstances. One comment suggested
another safe harbor whereby any fund
that did not meet the 85 percent threshold
could still qualify as a QFPF on a propor-
tionate basis by comparing the present
value of the retirement and pension ben-
efits the fund reasonably expects to pay to
the present value of all benefits it reason-
ably expects to pay.
Several comments stated that if the 85
percent threshold were retained, the fi-
nal regulations should provide guidance
on the assumptions that may be made in
making the present value calculation, in-
cluding the frequency of the calculation.
One comment suggested that forecasts of
anticipated future benefits that are already
prepared by the eligible fund should be
considered reasonable if they are based
on data that the fund prepares for general
business purposes in accordance with in-
ternal procedures. Another comment sug-
gested that reasonable actuarial standards
applied in good faith could be a basis for
this calculation.
In addition, several comments request-
ed that the final regulations provide relief
if a fund does not qualify as a QFPF in
a particular year. These comments sug-
gested that a look-back rule allow eligible
funds to calculate compliance with the 85
percent threshold over a multi-year period,
such as three years, rather than on an an-
nual basis. One comment suggested other
alternatives, such as providing a grace
period during which a fund could regain
compliance as a QFPF without losing its
exempt status or the granting of propor-
tionate eligibility as a QFPF.
b. 85 percent threshold
The Treasury Department and the IRS
continue to believe that the 85 percent
threshold is more administrable and pro-
vides more certainty than a subjective
standard for determining whether an eli-
gible fund is established to provide retire-
ment and pension benefits. The Treasury
Department and the IRS also continue to
believe that this threshold allows an appro-
priate margin for nonconforming benefits.
Accordingly, the final regulations retain
the 100 percent threshold and 85 percent
threshold, and do not adopt a subjective
standard. §1.897(l)-1(c)(2)(ii)(B). How-
ever, several other comments suggesting
further clarity or relief with respect to
the 85 percent threshold are incorporat-
ed in the final regulations, as described in
paragraphs II.A.2.c. and II.A.2.d. of this
Summary of Comments and Explanation
of Revisions.
c. Clarifications regarding present
valuation
The Treasury Department and the IRS
believe that further guidance with respect
to determining the present value of ben-
efits that an eligible fund reasonably ex-
pects to provide is appropriate. To clarify
what this calculation is intended to value,
the final regulations state that the eligible
fund must measure the present value of
benefits to be provided during the entire
period during which the fund is expected
to be in existence. §1.897(l)-1(c)(2)(ii)
(C)(1). Comments articulated different,
though potentially overlapping, bench-
marks for determining what valuation
methods would be considered reason-
able—for example, making the determi-
nation based on data prepared for gener-
al business purposes in accordance with
internal procedures or based on actuarial
standards applied in good faith. As a re-
sult, the Treasury Department and the IRS
have decided to use a broad standard that
would accommodate all such suggestions
by providing that an eligible fund may
utilize any reasonable method for deter-
mining present value. Id. Although the
final regulations are intended to provide
flexibility as to the method used for deter-
mining present value, the Commissioner
may determine that the present valuation
requirement is not satisfied if the relevant
facts and circumstances indicate that the
method used was unreasonable (for ex-
ample, it may be relevant that the method
used results in a percentage calculation of
retirement and pension benefits that dif-
fers materially from the actual percentage
of the retirement and pension benefits pro-
vided before the most recent present valu-
ation date). See also §1.897(l)-1(c)(3)(iii)
for the requirement that an eligible fund
maintain records to show it meets the re-
quirements of §1.897(l)-1(c)(2), which is
discussed in Part III.B. of this Summary of
Comments and Explanation of Revisions.
The Treasury Department and the IRS
believe that further guidance is also appro-
priate with respect to the frequency with
which the valuation needs to be made. The
final regulations state that such a determi-
nation must be made on at least an annual

Bulletin No. 2023–3 353 January 17, 2023
basis. §1.897(l)-1(c)(2)(ii)(C)(1). Thus,
for example, if an eligible fund changes its
taxable year and has a short taxable year,
the eligible fund may make its present val-
ue determination for the short taxable year
provided that it makes another present val-
ue determination within one year. Consis-
tent with the above, the final regulations
clarify that an eligible fund must use its
most recent present value determination
(or its most recent 48-month alternative
calculation, described in Part II. A.2.d. of
this Summary of Comments and Explana-
tion of Revisions) with respect to disposi-
tions of USRPIs or distributions described
in section 897(h) that occur during the
twelve months that succeed such present
value determination (or 48-month alter-
native calculation), or until a new present
value determination is made, whichever
occurs first. §1.897(l)-1(c)(2)(ii)(C)(3).
d. 48-month average alternative
Finally, the Treasury Department and
the IRS agree that because unanticipat-
ed events may cause a fund to fail the
85 percent threshold in any one year, the
fund should still qualify as a QFPF if it
shows that is has consistently qualified as
such over an extended period. The final
regulations therefore adopt a 48-month
alternative calculation test as another
means to satisfy the 85 percent threshold.
§1.897(l)-1(c)(2)(ii)(C)(2). The 48-month
alternative calculation test is satisfied if
the average of the present values of the re-
tirement and pension benefits the eligible
fund reasonably expected to provide over
its life, as determined by the valuations
performed over the 48 months preceding
(and including) the most recent present
valuation, satisfies the 85 percent thresh-
old.
2
The determination of such average is
based on the values (not percentages) of
the qualified benefits the eligible fund rea-
sonably expected to provide. In addition,
the 48-month alternative calculation must
be determined using a weighted average
whereby values are adjusted, if neces-
sary, when the length of valuation peri-
ods differs.
3
If an eligible fund has been
in existence for less than 48 months, the
48-month alternative calculation is ap-
plied to the period the eligible fund has
been in existence. The 48-month alter-
native calculation may be satisfied based
on any reasonable determination of the
present valuation for any period that starts
before the date that the valuation require-
ments first apply to an organization or ar-
rangement and ends on or before Decem-
ber 29, 2022.
While the comments and related chang-
es to the final regulations described above
apply to the 85 percent threshold, similar
rules have also been added for consisten-
cy with respect to the new category of
non-ancillary benefits added to the final
regulations and further described in Part
II.A.3.b of this Summary of Comments
and Explanation of Revisions.
3. Qualified Benefits
a. Retirement and pension benefits
The proposed regulations did not pro-
vide a definition of retirement and pension
benefits. Rather, in the preamble to the
proposed regulations, the Treasury De-
partment and the IRS requested comments
on whether the regulations should define
retirement and pension benefits (for ex-
ample, with reference to whether there are
penalties for early withdrawals).
Although one comment suggested that
the term retirement and pension benefits
was clear and did not require a definition,
most comments requested that the final
regulations provide a definition of retire-
ment and pension benefits. Comments
recommended several sources that the fi-
nal regulations might refer to in defining
retirement and pension benefits, including
the Employee Retirement Income Secu-
rity Act of 1974 (“ERISA”), U.S. federal
income tax law principles (for example,
Chapter 1, Subchapter D of the Code and
corresponding Treasury Regulations), and
income tax treaties. One comment sug-
gested that the final regulations provide
separate definitions of retirement and pen-
sion benefits based in part on these sourc-
es of U.S. tax law. This comment general-
ly proposed defining retirement benefits as
those benefits that are paid after reaching
a predetermined retirement age that are
provided in return for services rendered
or contributions made. The comment gen-
erally proposed defining pension benefits
as those benefits paid after the participant
retires due to a proven disability before
having reached a predetermined retire-
ment age or paid to surviving beneficiaries
if the participant dies before reaching the
predetermined retirement age and that are
provided in return for services rendered or
contributions made.
In response to these comments and
to provide greater clarity, the final regu-
lations provide a definition of retirement
and pension benefits. Furthermore, the fi-
nal regulations adopt a broad definition of
retirement and pension benefits to ensure
that a wide variety of pension funds and
foreign laws are accommodated. Thus, the
final regulations provide that retirement
and pension benefits mean benefits pay-
able to qualified recipients after reaching
retirement age under the terms of the eligi-
ble fund, or after an event in which the el-
igible fund recognizes that a qualified re-
cipient is permanently unable to work, and
including any such distribution made to a
surviving beneficiary of the qualified re-
cipient. §1.897(l)-1(e)(14). The inclusion
of payments of accrued benefits after a
specified event that results in a permanent
disability (such that the qualified recipient
is unable to work) or survivor benefits in
the definition of retirement and pension
benefits is intended to resolve concerns
expressed in comments regarding the po-
tential overlap of such benefits with the
benefits listed in the definition of ancillary
benefits in proposed §1.897(l)-1(d)(1) (for
example, the proposed definition of ancil-
lary benefits included death and disabili-
ty benefits). To provide additional clarity
regarding the factors that would indicate
whether a benefit is a retirement and pen-
sion benefit, as well as the distinction be-
tween retirement and pension benefits and
ancillary benefits, the final regulations
also provide that retirement and pension
benefits are generally based on contribu-
tions and investment performance, as well
as factors such as years of service with
2
The Commissioner may determine that the 48-month alternative calculation is not satisfied if, as discussed in Part II.A.2.c of this Summary of Comments and Explanation of Revisions, the
relevant facts and circumstances indicate that the method used to determine present value was unreasonable.
3
The length of the valuation periods may differ if the eligible fund performs valuations more than once a year.

January 17, 2023 354 Bulletin No. 2023–3
an employer and compensation received
by the qualified recipient. Id. The final
regulations do not require retirement and
pension benefits to be paid in a particular
manner (that is, an annuity versus a lump-
sum).
b. Ancillary and non-ancillary benefits
The proposed regulations defined an-
cillary benefits to mean benefits payable
upon the diagnosis of a terminal illness,
death benefits, disability benefits, medical
benefits, unemployment benefits, or simi-
lar benefits. Prop. §1.897(l)-1(d)(1).
As discussed in Part II.A.2 of this Sum-
mary of Comments and Explanation of
Revisions, numerous comments requested
that the final regulations provide clarifica-
tions and incorporate flexibility into the
definition of ancillary benefits in light of
the cliff effect caused by the use of the 100
percent and 85 percent thresholds to de-
termine whether an eligible fund qualifies
as a QFPF. Comments highlighted that
the funds may be allowed, or required, to
provide certain benefits to its participants
or beneficiaries that are not enumerated in
the definition of ancillary benefits, such as
limited withdrawals to fund a first home.
Comments expressed concern that the pro-
vision of such a benefit would disqualify
the plan from the exemption under section
897(l) because such a benefit is not listed
in the definition of ancillary benefits, it is
not certain whether such benefit is a “sim-
ilar benefit,” and the numerical thresholds
do not allow for the provision of any ben-
efits other than retirement and pension or
ancillary benefits. The comments argued
that the provision of such benefits should
not disqualify the plan from the exemp-
tion under section 897(l) because, general-
ly, the provision of such benefits is not the
main purpose of the plan and represents
only a small portion of the benefits paid
out by the plan.
Comments suggested clarifying the
scope of the term “similar benefits” in
the definition of ancillary benefits and ex-
panding the definition of ancillary benefits
to include any benefits that are allowed or
required to be paid under the laws of the
foreign jurisdiction in which the fund is
created or organized. Comments also ar-
gued that a broad category of ancillary or
other benefits tied to the benefits allowed
under foreign law is needed to accom-
modate potential changes to the type of
benefits allowed under foreign pension
regimes. One comment recommended
that such a rule also apply where pension
plans and non-qualifying plans providing
for other types of benefits are required by
foreign law to be pooled into one fund or
arrangement, which might otherwise pre-
clude an eligible entity from being a QFPF
even though it is predominantly a pension
fund.
Several comments recommended that
the final regulations allow for a fund to
provide a de minimis amount of benefits
that are neither retirement and pension
benefits nor any of the benefits listed un-
der the definition of ancillary benefits in
the proposed regulations. One comment
recommended permitting a de minimis
percentage of the total benefits provided
by a fund (for example, up to five percent)
to be any benefits that are not retirement
and pension benefits or specifically listed
in the definition of ancillary benefits, pro-
vided the benefits are required or allowed
to be paid under the laws of the foreign
jurisdiction where the fund is created or
organized. Another comment, citing the
broad range of foreign pension arrange-
ments and the lack of clear guidance in
certain jurisdictions regarding the poten-
tial benefits that can be provided by pen-
sion arrangements, suggested a de mini-
mis amount (for example, three percent)
of total benefits be allowed for non-ordi-
nary benefits that fall outside the scope of
the definition of ancillary benefits.
Several comments also noted that cer-
tain of the benefits enumerated in the defi-
nition of ancillary benefits in the proposed
regulations may be more closely related
to the payment of retirement and pension
benefits. For example, one comment noted
that a participant or beneficiary may be el-
igible to make withdrawals of their retire-
ment and pension benefits before reaching
retirement age upon permanent disability
or diagnosis of a terminal illness. These
and other types of similar benefits, such
as survivor benefits (that is, payments of
the beneficiary or participant’s retirement
and pension benefits to a surviving desig-
nee upon the death of the beneficiary or
participant), are paid in recognition of past
service or because the plan participant is
unable to continue working or care for
their dependents. In such cases, the bene-
fit is effectively being paid as a retirement
and pension benefit, but such benefit could
improperly be considered an ancillary
benefit under the definition in proposed
§1.897(l)-1(d)(1). Another comment sim-
ilarly noted that ancillary benefits should
not refer to annuities payable to surviving
beneficiaries or on early retirement be-
cause of a disability and suggested that the
definition of ancillary benefits be modified
to refer only to certain one-time payments
made in connection with disability, termi-
nal illness, or death. One comment noted
that many benefits that otherwise might
be ancillary benefits, such as medical and
disability benefits, are often available
principally to retirees. Thus, comments
recommended that the definition of ancil-
lary benefits be clarified such that benefits
that are more appropriately characterized
as retirement and pension benefits are not
inappropriately treated as ancillary bene-
fits.
In response to the comments, the final
regulations provide additional clarity with
respect to the types of benefits permitted
to be provided by a QFPF.
First, as discussed in Part II.A.3.a of
this Summary of Comments and Explana-
tion of Revisions, the final regulations pro-
vide a definition of retirement and pension
benefits, which is intended to clarify that
certain benefits that may have potential-
ly been categorized as ancillary benefits
under the proposed regulations are retire-
ment and pension benefits. This definition
should assist in distinguishing retirement
and pension benefits from ancillary bene-
fits and, because more benefits should be
characterized as retirement and pension
benefits, should lessen the concern that the
provision of ancillary benefits will jeopar-
dize qualification as a QFPF.
Second, the final regulations modi-
fy the definition of ancillary benefits by
providing a more detailed list of specif-
ic types of benefits that meet the ancil-
lary benefits definition. §1.897(l)-1(e)
(1). The revised definition clarifies that,
in addition to benefits payable upon the
diagnosis of a terminal illness, medical
benefits, or unemployment benefits, an-
cillary benefits also include incidental
death benefits (for example, funeral ex-
penses), short-term disability benefits,
life insurance benefits, and shutdown or

Bulletin No. 2023–3 355 January 17, 2023
layoff benefits. To distinguish between
unemployment, shutdown, or layoff ben-
efits that might also be considered retire-
ment and pension benefits, the final reg-
ulations state that those types of benefits
will be considered ancillary benefits only
if they do not continue past retirement
age and do not affect the payment of ac-
crued retirement and pension benefits.
§1.897(l)-1(e)(1)(i)(B). In addition, the
final regulations clarify what benefits
are considered similar to the specifically
identified ancillary benefits by indicating
that such similar benefits should also be
either health-related or unemployment
benefits. §1.897(l)-1(e)(1)(i)(C). Last-
ly, for the avoidance of doubt, the final
regulations resolve any potential overlap
between the definitions of retirement and
pension benefits and ancillary benefits by
providing that if any benefits fall within
both definitions, they are only consid-
ered to be retirement and pension bene-
fits. §1.897(l)-1(e)(1)(ii). The Treasury
Department and the IRS intend for this
rule to have limited application given
the definitions of retirement and pension
benefits and ancillary benefits provided
in the final regulations.
Third, the Treasury Department and the
IRS have determined that it is appropriate
to permit a limited amount of benefits that
are outside the scope of retirement and
pension benefits and ancillary benefits.
The final regulations therefore allow an el-
igible fund to provide a limited amount of
non-ancillary benefits, which the final reg-
ulations define as any benefits provided by
the eligible fund as permitted or required
under the laws of the foreign jurisdiction
in which the fund is established or oper-
ates that do not otherwise fall within the
definition of retirement and pension ben-
efits or ancillary benefits. §1.897(l)-1(e)
(6). The final regulations provide that no
more than five percent of the present value
of the qualified benefits the eligible fund
reasonably expects to provide to qualified
recipients during the entire period during
which the eligible fund is expected to be
in existence can be non-ancillary benefits.
§1.897(l)-1(c)(2)(ii)(B)(3). This measure-
ment of non-ancillary benefits is deter-
mined under the same rules that apply to
the present valuation of retirement and
pension benefits for purposes of the 85
percent threshold, which are described in
Part II.A.2 of this Summary of Comments
and Explanation of Revisions.
The final regulations incorporate the
allowance for non-ancillary benefits into
the 100 percent threshold by revising
the definition of “qualified benefits” in
the proposed regulations. Specifically,
non-ancillary benefits and ancillary ben-
efits, together with the new definition of
retirement and pension benefits, comprise
the “qualified benefits” that an eligible
fund must provide to meet the 100 percent
threshold. §1.897(l)-1(e)(8).
c. Other distributions and early
withdrawals
The proposed regulations did not ex-
plicitly address how early withdrawals
from a QFPF should be treated for pur-
poses of determining the amount of retire-
ment or other benefits paid by the QFPF.
Specifically, the proposed regulations did
not discuss how to treat withdrawals made
from one retirement plan and rolled over
into a different retirement plan, early with-
drawals that certain plans may permit in
accordance with country-specific laws,
or loans made by an eligible fund. One
comment suggested that rollover distribu-
tions should not be considered as benefits
paid by a plan and thus should be exclud-
ed when determining an eligible fund’s
eligibility as a QFPF. The comment also
recommended that in-service plan with-
drawals or loans should not be taken into
account in calculating the benefits paid by
an eligible fund provided that in-service
withdrawals before retirement age are per-
missible under the plan terms or relevant
law.
The Treasury Department and the IRS
have considered these recommendations
and generally agree that the types of
withdrawals described above should not
be taken into account when calculating
the 100 percent threshold, the 85 percent
threshold, or the limitation on non-ancil-
lary benefits. As a result, the final regula-
tions add three categories of distributions
that are excluded when making these de-
terminations. §1.897(l)-1(c)(2)(ii)(D).
The first category is a loan to a qual-
ified recipient pursuant to terms set by
the eligible fund. Because there is an
expectation of repayment, these types of
loans should not be included when mak-
ing threshold benefit determinations. This
category, however, excludes a loan that a
qualified recipient is not required to re-
pay, in full or in part, upon default (which
would generally constitute the provision
of a non-ancillary benefit), unless such a
default is subject to tax and penalty in a
foreign jurisdiction.
The second category is a distribution
permitted under the laws of the foreign ju-
risdiction in which the eligible fund is es-
tablished or operates and made before the
participant or beneficiary reaches the re-
tirement age as determined under relevant
foreign laws, but only if the distribution
is to a qualified holder or other retirement
or pension arrangement subject to similar
distribution or tax rules under the laws
of the foreign jurisdiction. Such rollover
distributions are simply shifting funds
between one eligible fund and another
similar fund (even if such fund does not
qualify as a QFPF) and thus should also
be excluded when making the 100 percent
and 85 percent threshold determinations.
The third category is a withdrawal of
funds before the participant or beneficiary
reaches retirement age to satisfy a finan-
cial need under principles similar to the
U.S. hardship distribution rules permitted
under the laws of the foreign jurisdiction
in which the eligible fund is established
or operates, provided the distribution (or
at least the portion of the distribution ex-
ceeding basis) is subject to tax and penalty
in such foreign jurisdiction. Because the
qualified recipient bears some or all of the
financial burden with regard to such hard-
ship withdrawals, they are excluded when
making threshold benefit determinations.
4. Qualified Recipient
Proposed §1.897(l)-1(c)(2)(ii)(B)(1)
required that all the benefits that an eli-
gible fund provides be qualified benefits
to qualified recipients. With respect to a
government-established fund, proposed
§1.897(l)-1(d)(12)(i)(A) defined a qual-
ified recipient as any person eligible to
be treated as a participant or beneficiary
of such eligible fund and any person des-
ignated by such person to receive quali-
fied benefits. Thus, the determination of
whether a person was a qualified recipi-
ent of a government-established fund was
made without regard to an individual’s

January 17, 2023 356 Bulletin No. 2023–3
status as a current or former employee.
With respect to an employer fund, pro-
posed §1.897(l)-1(d)(12)(i)(B) defined a
qualified recipient as a current or former
employee or any person designated by
such current or former employee to re-
ceive qualified benefits.
Several comments stated that the pro-
posed regulations were too restrictive be-
cause they did not allow for the possible
participation of individuals in an employ-
er fund if they were neither current nor
former employees, as allowed in some
countries. The comments noted, however,
that individuals who have never been em-
ployees represent only a minority of mem-
bers in any fund. One comment suggested
that the definition of qualified recipient be
expanded accordingly to include any in-
dividual allowed to participate in an eli-
gible fund under the laws of the foreign
jurisdiction in which the fund is created
or organized. Another comment requested
that the definition of qualified recipient in-
clude a de minimis threshold for members
of an eligible fund that are neither current
nor former employees. For example, an
eligible fund could qualify for the sec-
tion 897(l) exemption (assuming all oth-
er requirements were met) if more than
70 percent of its members were current
or former employees measured annual-
ly. The comment also recommended that
spouses of eligible participants or bene-
ficiaries should be explicitly identified as
qualified recipients as defined in proposed
§1.897(l)-1(d)(12).
Another comment stated that, as to
government-established funds, the term
qualified recipient could potentially be
read as encompassing a broad group of
participants in other types of government
programs beyond just pension funds. The
comment requested that the final regu-
lations make explicit that a recipient (or
person designating the recipient) must
both have been employed and be receiv-
ing benefits by reason of his or her em-
ployment. Finally, one comment noted
that the proposed regulations appropri-
ately treated a self-employed individual
as both an employer and an employee.
Prop. §1.897(l)-1(c)(2)(ii)(C). The com-
ment requested that proposed §1.897(l)-
1(e), example 1, be altered to clarify that
the retirement benefits provided under the
facts of the example were provided as a
result of citizens’ services as employed or
self-employed individuals.
The Treasury Department and the IRS
agree that the proposed regulations may
unnecessarily restrict arrangements, per-
mitted in certain countries, that allow for
the participation of individuals who were
never employees in an employer fund.
Further, the Treasury Department and the
IRS understand that such individuals rep-
resent only a minority of members in any
fund. The Treasury Department and the
IRS believe that unlimited or significant
participation by individuals who were
never employees or their designees would
be inappropriate. The final regulations
therefore allow individuals who were
never employees to constitute up to five
percent of participants in plans established
by employers (and therefore to be treated
as qualified recipients). §1.897(l)-1(e)(12)
(i)(C). The final regulations also include
spouses of current or former employees
in the definition of qualified recipients.
§1.897(l)-1(e)(12)(i)(B).
The Treasury Department and the
IRS do not believe that further changes
are necessary to (1) make explicit that a
qualified recipient (or person designating
the recipient) with respect to a govern-
ment-established fund must both have
been employed and be receiving benefits
by reason of his or her employment, or
(2) to modify proposed §1.897(l)-1(e), ex-
ample 1, to state that the retirement and
pension benefits provided by the govern-
ment-established fund were provided as
a result of citizens’ services as employed
or self-employed individuals. As provid-
ed in the proposed regulations, a govern-
ment-established fund must be established
to provide retirement or pension benefits
to participants or beneficiaries that are
current or former employees or persons
designated by such employees as a result
of services rendered by such employees to
their employers, but may include partici-
pants on a basis broader than an employ-
ee relationship. The comments seeking to
narrow the scope of qualified recipients
for government-established funds are in-
consistent with the request to broaden the
definition of a qualified recipient with
respect to an employer fund to include
(within limits) individuals who were nev-
er employees. At the same time, the Trea-
sury Department and the IRS believe that
an explicit connection between the work
of an employee and the qualified benefits
provided by an eligible fund is reflected
in the final regulations through the defi-
nition of a government-established fund,
as well as the requirement that all eligible
funds must reasonably expect to provide
85 percent retirement and pension bene-
fits, which are defined in the final regula-
tions at §1.897(l)-1(e)(14). These require-
ments provide an appropriate safeguard to
ensure that government programs other
than retirement and pension programs do
not form the basis for exemption from tax
under section 897(l). Finally, the Treasury
Department and the IRS believe that the
rule reflected in §1.897(l)-1(c)(2)(ii)(E)
(1) (previously at proposed §1.897(l)-1(c)
(2)(ii)(C)(1)), which explicitly states that
a self-employed individual is considered
both an employer and employee, makes
adding a reference to self-employed indi-
viduals in proposed §1.897(l)-1(e), exam-
ple 1, unnecessary.
B. Regulation and information reporting
The proposed regulations provided that
an eligible fund satisfies the information
reporting requirement in section 897(l)
(2)(D) only if the eligible fund annually
provides to the relevant tax authorities
in the foreign country in which the fund
is established or operates the amount of
qualified benefits provided to each quali-
fied recipient by the eligible fund (if any),
or such information is otherwise available
to those authorities. Prop. §1.897(l)-1(c)
(iv)(B). An eligible fund is not treated as
failing to satisfy such requirement if the
eligible fund is not required to provide in-
formation to the relevant tax authorities in
a year in which no qualified benefits are
provided to qualified recipients. Id. An
eligible fund is also treated as satisfying
the information reporting requirement in
section 897(l)(2)(D) only if the eligible
fund is required to provide the informa-
tion required by proposed §1.897(l)-1(c)
(iv)(B), or such information is otherwise
available, to one or more governmental
units. Prop. §1.897(l)-1(c)(iv)(C).
One comment highlighted that the
rules in the proposed regulations are in-
advertently inconsistent when an eligible
fund is required by foreign law to provide
information to a governmental unit (satis-

Bulletin No. 2023–3 357 January 17, 2023
fying proposed §1.897(l)-1(c)(iv)(C)), but
does not actually provide such informa-
tion (not fulfilling proposed §1.897(l)-1(c)
(iv)(B)), and requested that the final reg-
ulations clarify how these provisions are
intended to work.
Proposed §1.897(l)-1(c)(iv)(B) and
proposed §1.897(l)-1(c)(iv)(C) were
not intended to function as two separate
conditions that were required to be met.
Rather, the provisions were intended to
provide flexibility to eligible funds that
provided the relevant information to tax
authorities or other governmental units.
To clarify this intent, the final regulations
combine the two separate provisions into
a single provision (§1.897(l)-1(c)(iv)(A)).
Thus, the information reporting require-
ment in section 897(l)(2)(D) is satisfied
if a fund annually provides information
about the amount of qualified benefits
provided to qualified recipients to the
relevant tax authorities or other relevant
governmental units, or such information
is otherwise available to the relevant tax
authorities or other relevant governmental
units. §1.897(l)-1(c)(iv)(A). A fund will
not fail to satisfy such requirement if it is
not required to provide information to the
relevant tax authorities or other relevant
governmental units in a year in which no
qualified benefits are provided to qualified
recipients. Id.
C. Subnational tax regime
For purposes of the requirement that a
QFPF be subject to preferential tax treat-
ment, the proposed regulations provided
that, for purposes of section 897(l)(2)(E),
references to a foreign country do not in-
clude references to a state, province, or
political subdivision of a foreign country.
The preamble to the proposed regulations
explained that subnational taxes generally
constitute a minor component of an enti-
ty’s overall tax burden in a foreign juris-
diction and therefore should not satisfy
the requirement of section 897(l)(2)(E)
when such preference had only a minimal
impact on reducing the fund’s overall tax
burden.
Upon further consideration, the Trea-
sury Department and the IRS have deter-
mined that, to the extent the subnational
tax law is covered under an income tax
treaty with the United States, it should
constitute a sufficient component of the
foreign jurisdiction’s taxation regime to
be able to satisfy the requirement of sec-
tion 897(l)(2)(E). Accordingly, the final
regulations maintain the approach that
subnational taxes generally do not satisfy
the requirement of section 897(l)(2)(E),
but provide that those taxes can satisfy the
requirement of section 897(l)(2)(E) if they
are covered taxes under an income tax
treaty between that foreign jurisdiction
and the United States. See §1.897(l)-1(c)
(2)(v)(E).
III. Other Comments and Revisions
A. Withholding rules
1. Withholding on foreign partnerships
Comments requested that the final reg-
ulations allow QFPFs that hold interests
in USRPIs through foreign partnerships,
which are not qualified holders under
proposed §1.897(l)-1(d)(11) because they
cannot be QCEs, to avoid withholding by
providing a certification of non-foreign
status (including on a Form W-8EXP).
The comments highlighted the difference
in withholding when a QFPF invests
through a foreign partnership, which
would result in withholding (even if the
foreign partnership was wholly owned
by QFPFs), as opposed to through a for-
eign corporation that constitutes a QCE or
a domestic partnership, neither of which
would result in withholding under section
1445. One comment recommended that,
for purposes of withholding under section
1445, the final regulations should imple-
ment rules similar to the regulations that
implement the withholding regime under
section 1446(f), which includes a form
of look-through rule. Another comment
recommended that the final regulations
provide that a foreign partnership that is
wholly owned by QFPFs either be treated
as a QCE, and therefore a qualified holder,
or otherwise be excluded from the defi-
nition of a foreign person under section
1445 such that a foreign partnership could
certify its non-foreign status to a transfer-
ee.
The Treasury Department and the IRS
agree that a foreign partnership that is held
entirely by qualified holders should not be
subject to withholding under section 1445
because the ultimate owners should qual-
ify in full for the exemption under section
897(l). Accordingly, the final regulations
provide that a qualified holder (under
§1.897(l)-1(d)) and a foreign partnership
all of the interests of which are held by
qualified holders, including through one
or more partnerships, may certify its sta-
tus as a withholding qualified holder that
is not treated as a foreign person for pur-
poses of withholding under section 1445
(and section 1446, as relevant). §1.1445-
1(g)(11). To the extent any non-qualified
holders hold interests in a foreign part-
nership, such foreign partnership does not
qualify as a withholding qualified holder.
However, qualified holders who hold in-
terests in USRPIs through a foreign part-
nership that is not a withholding qualified
holder would still be eligible for the sec-
tion 897(l) exemption on their distributive
share of FIRPTA gains. Under the existing
regulations in §1.1445-3, a transferor may,
in appropriate cases, reduce withholding
by obtaining a withholding certificate
from the IRS.
2. Documentation requirements
The proposed regulations permitted a
qualified holder to certify that it is exempt
from withholding under section 1445 by
providing a certification of non-foreign
status. The proposed regulations also stat-
ed that the IRS intended to revise Form
W-8EXP, “Certificate of Foreign Gov-
ernment or Other Foreign Organization
for United States Tax Withholding or Re-
porting,” to permit qualified holders to be
exempt from withholding under section
1445 by establishing their status under
section 897(l). Prop. §§1.1445-2(b)(2),
1.1445-2(b)(v), 1.1445-5(b)(3)(ii), and
1.1445-8(e).
Under the final regulations, a with-
holding qualified holder may submit a
certification of non-foreign status to es-
tablish withholding qualified holder status
for purposes of section 1445(a) pursuant
to §1.1445-2(b)(2)(i), with certain modi-
fications. Specifically, the requirements
under §1.1445-2(b)(2)(i) are modified to
require the transferor to state that it is not
treated as a foreign person because it is a
withholding qualified holder, and to per-
mit the transferor to provide its foreign
taxpayer identification number if it does

January 17, 2023 358 Bulletin No. 2023–3
not have a U.S. taxpayer identification
number. The final regulations also clari-
fy that a Form W-8EXP is a type of cer-
tification of non-foreign status within the
meaning of §1.1445-2(b)(2)(i). Accord-
ingly, the Form W-8EXP is subject to the
general rules pertaining to certifications
of non-foreign status, such as the period
for retaining the certification in §1.1445-
2(b)(3) and the rules pertaining to liability
of agents in §1.1445-4. Because the final
regulations require a transferor to repre-
sent its status as a withholding qualified
holder on the certification of non-foreign
status, the final regulations do not permit
a transferor to submit a Form W-9, “Re-
quest for Taxpayer Identification Number
and Certification,” to establish its status
as a withholding qualified holder. See
§1.1445-2(b)(2)(vi). Before the release of
revised Form W-8EXP, a certification of
non-foreign status described in §1.1445-
2(b)(2)(i) (but not a Form W-9) should be
used by a transferor to establish its sta-
tus as a withholding qualified holder for
purposes of section 1445. Once revised, a
withholding qualified holder may certify
its non-foreign status with either a certi-
fication of non-foreign status described in
§1.1445-2(b)(2)(i) (but not a Form W-9)
or a Form W-8EXP.
The final regulations provide simi-
lar rules for certifications of non-foreign
status that establish withholding quali-
fied holder status for purposes of section
1445(e) withholding. See §§1.1445-5(b)
(3)(ii) and 1.1445-8(e).
3. Coordination with 1441 and 1442
The proposed regulations provided that
distributions made by a United States real
property holding company (“USRPHC”)
or qualified investment entity (“QIE”) to
a qualified holder are not subject to the
coordination rules under §1.1441-3(c)(4)
and are instead subject only to the require-
ments of section 1441. Prop. §1.1441-
3(c)(4)(iii). Because a qualified holder is
treated as a foreign person for purposes
of section 1441, but not for purposes of
1445, the proposed rule was intended to
subject a distribution to a qualified holder
exclusively to the rules in section 1441 to
determine if withholding applies.
The Treasury Department and the IRS
have determined that, for greater clarity,
certain changes should be made to pro-
posed §1.1441-3(c)(4) to reach the result
intended by the proposed regulations.
Rather than provide that the coordination
rules under §1.1441-3(c)(4) do not apply
to qualified holders, the final regulations
amend the coordination rules to provide
that withholding qualified holders are not
subject to section 1445 on distributions
from USRPHCs that are not treated as div-
idends (for example, a distribution that is
treated as gain from the sale or exchange
of property under section 301(c)(3)) and
on distributions from REITs or other QIEs
that are capital gain dividends that are
treated as gain attributable to the sale or
exchange of USRPIs. §1.1441-3(c)(4)(i)
(B)(2), §1.1441-3(c)(4)(i)(C). Dividends
from USRPHCs and dividends from RE-
ITs or other QIEs that are not capital gain
dividends continue to be subject to with-
holding under section 1441. §1.1441-3(c)
(4)(i)(A), §1.1441-3(c)(4)(i)(C). Section
1.1441-3(c)(4)(i) is also clarified to pro-
vide that a USRPHC (other than a REIT
or other QIE) satisfies its obligations un-
der sections 1441 and 1445 by following
either §1.1441-3(c)(4)(i)(A) or §1.1441-
3(c)(4)(i)(B), but a USRPHC that is a
REIT or other QIE must follow the coor-
dination provision in §1.1441-3(c)(4)(i)
(C). The final regulations also clarify that,
to the extent a capital gain dividend from
a REIT or other QIE is excluded from
withholding under section 1445 because it
is made with respect to stock that is reg-
ularly traded on an established securities
market in the United States to an individ-
ual or corporation that did not own more
than 5 percent of the stock (see the second
sentence of section 897(h)(1)), withhold-
ing will apply under section 1441. See
sections 852(b)(3)(E) and 857(b)(3)(E);
§1.1441-3(c)(4)(i)(C).
B. Additional requests regarding
qualification under section 897(l) and
recordkeeping
Comments recommended that the
Treasury Department and the IRS allow
foreign entities that believe they are QF-
PFs or QCEs to apply for letter rulings on
their qualifications under section 897(l).
While the comment acknowledged the
need for administrable standards, it noted
that, in light of the wide range of possible
arrangements under foreign law, certain
funds that a “reasonable observer” would
consider a QFPF could be excluded. An-
other comment recommended that the
Treasury Department and the IRS adopt a
“white list” regime (similar to the United
Kingdom’s Qualifying Recognized Over-
seas Pension Scheme) whereby pension
plan regimes regulated in a list of coun-
tries could automatically be treated as
QFPFs or be subject to a reduced set of
qualifying requirements.
The final regulations do not adopt ei-
ther of these recommendations. The Trea-
sury Department and the IRS do not be-
lieve that a private letter ruling program
specific to QFPF qualification or a “white
list” regime is necessary, as the final reg-
ulations provide flexible standards such
that a wide variety of funds can constitute
eligible funds.
Another comment requested that the fi-
nal regulations provide that, to the extent
life insurance companies or other invest-
ment companies hold and invest assets of
one or more QFPFs, those life insurance
companies or investment companies them-
selves should qualify as QFPFs. To quali-
fy as a QFPF, an eligible fund must satisfy
all of the requirements in §1.897(l)-1(c)
(2), and the final regulations do not adopt
any special rule for life insurance compa-
nies or investment companies, including
whether such assets are held as part of an
arrangement comprising a QFPF.
In addition, the final regulations re-
quire an eligible fund to maintain records
consistent with section 6001 to show that
it is eligible for the exemption under sec-
tion 897(l) and which the Commissioner
may request upon examination. The re-
cordkeeping requirement is consistent
with general recordkeeping requirements
for U.S. taxpayers and is appropriate in
light of the flexible standards provided in
the final regulations.
C. Clarification with respect to the
applicability of the section 897(l)
regulations
These regulations reflect the particular
policies and objectives underlying section
897(l) (as opposed to other areas of tax
law that relate to pension funds). To clar-
ify this, §1.897(l)-1(a) provides that the
definitions and requirements in §1.897(l)-

Bulletin No. 2023–3 359 January 17, 2023
1 apply only for purposes of the regula-
tions themselves, including applicable
cross-references from other sections, and
that no inference is to be drawn with re-
spect to the definitions and requirements
in §1.897(l)-1, including with respect to
the meaning of a pension fund, for any
other purpose.
IV. Applicability Dates
The final regulations apply with respect
to dispositions of USRPIs and distribu-
tions described in section 897(h) occur-
ring on or after December 29, 2022. How-
ever, in accordance with the applicability
date incorporated in §1.897(l)-1(g)(2),
the rule in §1.897(l)-1(b)(1), the qualified
holder rule in §1.897(l)-1(d) (previous-
ly proposed §1.897(l)-1(d)(11)), as well
as the definitions of governmental unit
(§1.897(l)-1(e)(5)) and QCE (§1.897(l)-
1(e)(9)) apply with respect to dispositions
of USRPIs and distributions described in
section 897(h) occurring on or after June
6, 2019, the date the proposed regulations
were filed with the Federal Register. See
section 7805(b)(1)(B). An eligible fund
may choose to apply the final regulations
with respect to dispositions and distribu-
tions occurring on or after December 18,
2015, and before the applicability date of
the final regulations, if the eligible fund,
and all persons bearing a relationship
to the eligible fund described in section
267(b) or 707(b), consistently apply the
rules in the final regulations in their en-
tirety for all relevant years. An eligible
fund that chooses to apply the final reg-
ulations before their applicability date
must apply the principles of §1.897(l)-
1(d)(4)(i) to any valuation requirements
with respect to dates preceding December
18, 2015.
Special Analyses
I. Regulatory Planning and Review –
Economic Analysis
These regulations are not subject to re-
view under section 6(b) of Executive Or-
der 12866 pursuant to the Memorandum
of Agreement (April 11, 2018) between
the Treasury Department and the Office
of Management and Budget regarding re-
view of tax regulations.
II. Paperwork Reduction Act
In accordance with the Paperwork
Reduction Act, 44 U.S.C. 3501 et seq.
(“PRA”), information collection re-
quirements contained in these final reg-
ulations are in §§1.1441-3, 1.1445-2,
1.1445-5, 1.1445-8, and 1.1446-1. These
collections of information retain the
collections of information in the pro-
posed regulations, with a refinement to
§1.1441-3(c)(4) to clarify that the por-
tions of distributions made by a USR-
PHC or QIE to a withholding qualified
holder (as defined in §1.1445-1(g)(11))
that are attributable to the disposition of
USRPIs are not subject to section 1445
and that the portions of distributions
made by a USRPHC or QIE to a with-
holding qualified holder that are not at-
tributable to the disposition of a USRPI
are subject to section 1441. No written
comments regarding the information
collection requirements were received in
response to the solicitation of comments
in the proposed regulations.
A. Information collections contained in
§1.1441-3(c)(4)(iii)
The final regulations provide that div-
idends from a USRPHC and dividends
from REITs and other QIEs that are not
capital gain dividends to a withholding
qualified holder are subject only to the re-
quirements of section 1441. §1.1441-3(c)
(4)(i), §1.1441-3(c)(4)(i)(B)(2), §1.1441-
3(c)(4)(i)(C). The final regulations fur-
ther provide that withholding qualified
holders are not subject to section 1445
on distributions from USRPHCs that are
not treated as dividends (for example, a
distribution that is treated as gain from
the sale or exchange of property under
section 301(c)(3)) and on distributions
from REITs or QIEs that are capital gain
dividends that are treated as gain attribut-
able to the sale or exchange of USRPIs.
§1.1441-3(c)(4)(i)(B)(2), §1.1441-3(c)
(4)(i)(C).
A USRPHC or QIE making a distri-
bution to a qualified holder would be re-
quired to report the distribution on Form
1042-S, “Foreign Person’s U.S. Source
Income Subject to Withholding,” and file
Form 1042, “Annual Withholding Tax
Return for U.S. Source Income of For-
eign Persons.” For purposes of reporting
the portion of the distributions that are
exempt from section 1445 withholding,
the IRS revised Form 1042-S to include
an exemption code designating payments
that are exempt under section 897(l). No
revisions are being made to Form 1042 in
connection with payments that are exempt
under section 897(l).
For purposes of the PRA, the report-
ing burden associated with §1.1441-3(c)
(4) will be reflected in the PRA submis-
sions for Form 1042 (OMB control num-
bers 1545-0123 for business filers and
1545-0096 for all other Form 1042 filers)
and Form 1042-S (OMB control number
1545-0096).
B. Information collections in §§1.1445-2,
1.1445-5, 1.1445-8, and 1.1446-1
Sections 1.1445-2, 1.1445-5, 1.1445-
8, and 1.1446-1 would require a qualified
holder wishing to claim an exemption un-
der section 897(l) to provide a withhold-
ing agent with either a Form W-8EXP or a
certificate of non-foreign status containing
similar information to the Form W-8EXP.
The IRS plans to revise Form W-8EXP for
use by qualified holders. For purposes of
the PRA, the reporting burden associated
with §§1.1445-2, 1.1445-5, 1.1445-8, and
1.1446-1, will be reflected in the PRA sub-
mission for Form W-8EXP (OMB control
number 1545-1621).
The reporting burdens associated with
the information collections in the final
regulations are included in the aggregate
burden estimates for OMB control num-
bers 1545-0096 (which represents a to-
tal estimated burden time for all forms
and schedules of 6.46 million hours) and
1545-1621 (which represents a total esti-
mated burden time, including all other re-
lated forms and schedules for other filers,
of 30.5 million hours). The overall burden
estimates for the OMB control numbers
are aggregate amounts that relate to the
entire package of forms associated with
the applicable OMB control number and
will in the future include, but not isolate,
the estimated burden of the tax forms that
will be or have been revised as a result
of the information collections in the final
regulations. These numbers are therefore
unrelated to the future calculations needed
to assess the burden imposed by the final

January 17, 2023 360 Bulletin No. 2023–3
regulations. These burdens have been re-
ported for other regulations related to the
taxation of cross-border income, and the
Treasury Department and the IRS urge
readers to recognize that these numbers
are duplicates and to guard against over-
counting the burden that international tax
provisions impose.
An agency may not conduct or sponsor
and a person is not required to respond to
a collection of information unless it dis-
plays a valid OMB control number.
III. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility
Act (5 U.S.C. chapter 6), it is hereby cer-
tified that this rulemaking will not have a
significant economic impact on a substan-
tial number of small entities within the
meaning of section 601(6) of the Regu-
latory Flexibility Act. This certification is
based on the fact that the final regulations
affect foreign pension funds, including
sovereign funds, which are entities that
are created or organized outside of the
United States, with no place of business
in the United States, and which operate
primarily outside of the United States.
Accordingly, the entities affected by the
final regulations are not considered small
entities, and a regulatory flexibility analy-
sis under the Regulatory Flexibility Act is
not required.
IV. Section 7805(f)
Pursuant to section 7805(f) of the Code,
the proposed regulations (REG-109826-
17) preceding these final regulations were
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administration
for comment on the impact on small busi-
nesses and no comments were received.
V. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 requires that agencies
assess anticipated costs and benefits and
take certain other actions before issuing a
final rule that includes any Federal man-
date that may result in expenditures in any
one year by a state, local, or tribal govern-
ment, in the aggregate, or by the private
sector, of $100 million in 1995 dollars,
updated annually for inflation. The final
regulations do not include any Federal
mandate that may result in expenditures
by state, local, or tribal governments,
or by the private sector in excess of that
threshold.
VI. Executive Order 13132: Federalism
Executive Order 13132 (entitled
“Federalism”) prohibits an agency from
publishing any rule that has federalism
implications if the rule either imposes
substantial, direct compliance costs on
state and local governments, and is not
required by statute, or preempts state
law, unless the agency meets the consul-
tation and funding requirements of sec-
tion 6 of the Executive order. The final
regulations do not have federalism im-
plications, do not impose substantial di-
rect compliance costs on state and local
governments, and do not preempt state
law within the meaning of the Executive
order.
Statement of Availability of IRS
Documents
IRS Revenue Procedures, Revenue
Rulings, Notices, and other guidance cit-
ed in this document are published in the
Internal Revenue Bulletin or Cumulative
Bulletin and are available from the Su-
perintendent of Documents, U.S. Govern-
ment Publishing Office, Washington, DC
20402, or by visiting the IRS website at
www.irs.gov.
Drafting Information
The principal authors of these final
regulations are Arielle Borsos and Milton
Cahn, Office of Associate Chief Counsel
(International). However, other personnel
from the Treasury Department and the
IRS participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amend-
ed as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.897(l)-1 also issued under 26
U.S.C. 897(l).
* * * * *
Par. 2. Section 1.897(l)-1 is added to
read as follows:
§1.897(l)-1 Exception for interests held
by foreign pension funds.
(a) Scope and overview. This section
provides rules regarding the exception
from section 897 for qualified hold-
ers. The definitions and requirements in
this section apply only for purposes of
this section (including as applicable by
cross-reference from other sections), and
no inference is to be drawn with respect
to the definitions and requirements in
this section, including with respect to the
meaning of a pension fund, for any oth-
er purpose. Paragraph (b) of this section
provides the general rule excepting qual-
ified holders from section 897. Paragraph
(c) of this section provides the require-
ments that an eligible fund must satisfy
to be treated as a qualified foreign pen-
sion fund. Paragraph (d) of this section
provides the requirements that a qualified
foreign pension fund or a qualified con-
trolled entity must satisfy to be treated as
a qualified holder. Paragraph (e) of this
section provides definitions. Paragraph
(f) of this section provides examples il-
lustrating the application of the rules of
this section. Paragraph (g) of this section
provides applicability dates. For rules
applicable to a qualified foreign pension
fund or qualified controlled entity claim-
ing an exemption from withholding un-
der chapter 3, see generally §§1.1441-3,
1.1445-2, 1.1445-5, 1.1445-8, 1.1446-1,
and 1.1446-2.
(b) Exception from section 897—(1) In
general. Gain or loss of a qualified hold-
er from the disposition of a United States
real property interest, including gain from
a distribution described in section 897(h),
is not subject to section 897(a).
(2) Limitation. Paragraph (b)(1) of this
section applies solely with respect to gain

Bulletin No. 2023–3 361 January 17, 2023
or loss that is attributable to one or more
qualified segregated accounts maintained
by a qualified holder.
(c) Qualified foreign pension fund re-
quirements—(1) In general. An eligible
fund is a qualified foreign pension fund if
it satisfies the requirements of this para-
graph (c). Paragraph (c)(2) of this section
provides rules regarding the application
of the requirements of section 897(l)(2) to
an eligible fund. Paragraph (c)(3) of this
section provides rules on the application
of the requirements in paragraph (c)(2)
of this section, including rules regarding
the application of those requirements to
an eligible fund that is an organization or
arrangement and rules regarding record-
keeping.
(2) Applicable requirements—(i) Cre-
ated or organized. An eligible fund must
be created, organized, or established un-
der the laws of a foreign jurisdiction. For
purposes of this paragraph (c)(2)(i), a
governmental unit is treated as created or
organized in the foreign jurisdiction with
respect to which it is, or is a part of, the
foreign government.
(ii) Establishment of eligible fund—
(A) General requirement—(1) Purpose of
and parties establishing eligible fund. An
eligible fund must be established —
(i) By, or at the direction of, the foreign
jurisdiction in which it is created or orga-
nized to provide retirement and pension
benefits to participants or beneficiaries
that are current or former employees or
persons designated by such employees as
a result of services rendered by such em-
ployees to their employers; or
(ii) By one or more employers (in-
cluding a governmental unit in its capac-
ity as an employer) to provide retirement
and pension benefits to participants or
beneficiaries that are current or former
employees or persons designated by such
employees in consideration for services
rendered by such employees to such em-
ployers.
(2) Identification of type of eligible
fund. An eligible fund that is described in
both paragraphs (c)(2)(ii)(A)(1)(i) and (ii)
of this section shall be treated solely as de-
scribed in the latter paragraph.
(3) Role of parties other than the for-
eign jurisdiction or employer. For pur-
poses of paragraph (c)(2)(ii)(A)(1) of this
section, the determination of whether an
eligible fund is established by, or at the
direction of, a foreign jurisdiction or es-
tablished by an employer is made without
regard to whether one or more persons
that are not the foreign jurisdiction or em-
ployer administer or otherwise provide
services with regard to the eligible fund
(including holding assets in a qualified
segregated account as part of or on behalf
of the eligible fund).
(B) Established to provide retirement
or pension benefits. An eligible fund is
established to provide retirement or pen-
sion benefits for purposes of the general
requirement in paragraph (c)(2)(ii)(A) of
this section if—
(1) All of the benefits that an eligible
fund provides are qualified benefits pro-
vided to qualified recipients;
(2) At least 85 percent of the present
value of the qualified benefits that the el-
igible fund reasonably expects to provide
to qualified recipients in the future are re-
tirement and pension benefits; and
(3) No more than five percent of the
present value of the qualified benefits the
eligible fund reasonably expects to pro-
vide to qualified recipients in the future
are non-ancillary benefits.
(C) Present valuation.—(1) In gener-
al. For purposes of satisfying the require-
ments in paragraphs (c)(2)(ii)(B)(2) and
(3) of this section, an eligible fund must
determine, on at least an annual basis,
the present value of the qualified benefits
that the eligible fund reasonably expects
to provide to qualified recipients during
the entire period during which the eligi-
ble fund is expected to be in existence. An
eligible fund may utilize any reasonable
method for performing the present valu-
ation.
(2) 48-month average alternative cal-
culation. An eligible fund that does not
satisfy the requirements of paragraph (c)
(2)(ii)(B)(2) or (3) of this section based
on the present value determination under
paragraph (c)(2)(ii)(C)(1) of this section
may satisfy the requirements of paragraph
(c)(2)(ii)(B)(2) or (3) of this section based
on the alternative calculation in this para-
graph (c)(2)(ii)(C)(2). The alternative
calculation in this paragraph is satisfied if
the average of the present values of the
future qualified benefits that the eligible
fund reasonably expected to provide, as
determined during the 48-month period
preceding (and including) the most recent
present valuation determination, satisfies
the requirements of paragraph (c)(2)(ii)
(B)(2) or (3) of this section, respectively.
The determination of such average must
be based on the valuations described in
paragraph (c)(2)(ii)(C)(1) of this section
that were carried out during the 48-month
period preceding (and including) the most
recent present value determination, and
must use the values (not percentages) of
the qualified benefits the eligible fund
reasonably expected to provide. The de-
termination described in this paragraph
must be calculated using a weighted av-
erage whereby values are adjusted if the
relevant valuations are applicable for dif-
ferent periods (as described in paragraph
(c)(2)(ii)(C)(3) of this section) because an
eligible fund performs valulations more
frequently than on an annual basis. If an
eligible fund has been in existence for
less than 48 months, this paragraph (c)(2)
(ii)(C)(2) is applied to the period that the
eligible fund has been in existence. The
alternative calculation in this paragraph
(c)(2)(ii)(C)(2) may be satisfied based on
any reasonable determination of the pres-
ent valuation described in paragraph (c)
(2)(ii)(C)(1) of this section for any period
that starts before the date that the require-
ments of paragraph (c)(2)(ii)(C) of this
section first apply to an organization or
arrangement and ends on or before De-
cember 29, 2022.
(3) Application of present valuation.
An eligible fund must use the present
value determination made as of the most
recent valuation under paragraph (c)(2)(ii)
(C)(1) of this section or the alternative cal-
culation provided in paragraph (c)(2)(ii)
(C)(2) of this section (to the extent the eli-
gible fund did not satisfy the requirements
of paragraphs (c)(2)(ii)(B)(2) and (3) of
this section in the most recent valuation)
for purposes of meeting the requirements
in paragraphs (c)(2)(ii)(B)(2) and (3) of
this section with respect to dispositions
of United States real property interests or
distributions described in section 897(h)
occurring in the twelve months succeed-
ing the most recent valuation, or until a
new present value determination is made,
whichever occurs first.
(D) Certain distributions from eligible
funds. The following distributions are not
taken into account for purposes of deter-

January 17, 2023 362 Bulletin No. 2023–3
mining whether an eligible fund satisfies
the requirements of paragraph (c)(2)(ii)
(B) of this section—
(1) A loan to a qualified recipient pur-
suant to terms set by the eligible fund
(other than a loan with respect to which
a qualified recipient defaults and is not
required to repay in whole or part, unless
the default is subject to tax and penalty in
such foreign jurisdiction);
(2) A distribution (as permitted by the
laws of the foreign jurisdiction in which
the eligible fund is established or oper-
ates) made before the participant or ben-
eficiary reaches the retirement age (as de-
termined under the relevant foreign laws),
provided that the distribution is to a desig-
nee that is a qualified holder or to another
arrangement subject to similar distribution
or tax rules under the laws of the foreign
jurisdiction; and
(3) A withdrawal of funds before the
participant or beneficiary reaches the re-
tirement age (as determined under the rel-
evant foreign laws) to satisfy a financial
need (under principles similar to the U.S.
hardship distribution rules, see §1.401(k)-
1(d)(3)) as permitted under the laws of the
foreign jurisdiction in which the eligible
fund is established or operates, provided
the distribution (or at least the portion of
the distribution exceeding basis) is subject
to tax and penalty in such foreign jurisdic-
tion.
(E) Certain employers and employees.
For purposes of this section, the following
rules apply—
(1) A self-employed individual is treat-
ed as both an employer and an employee;
(2) Employees of an individual, trust,
corporation, or partnership that is a mem-
ber of an employer group are treated as
employees of each member of the em-
ployer group that includes the individual,
trust, corporation, or partnership; and
(3) An eligible fund established by a
trade union, professional association, or
similar group, either alone or in combi-
nation with the employer or group of em-
ployers, is treated as established by any
employer that funds, in whole or in part,
the eligible fund.
(iii) Single participant or beneficiary—
(A) In general. An eligible fund may not
have a single qualified recipient that has a
right to more than five percent of the as-
sets or income of the eligible fund.
(B) Constructive ownership. For pur-
poses of paragraph (c)(2)(iii)(A) of this
section, an individual is considered to
have a right to the assets or income of an
eligible fund to which any person who
bears a relationship to the individual de-
scribed in section 267(b) or 707(b) has a
right.
(iv) Regulation and information re-
porting—(A) In general. The eligible
fund must be subject to government regu-
lation and annually provide to the relevant
tax authorities (or other relevant govern-
mental units) in the foreign jurisdiction in
which the eligible fund is established or
operates information about the amount
of qualified benefits (if any) provided to
each qualified recipient by the eligible
fund, or such information must otherwise
be available to the relevant tax authorities
(or other relevant governmental units). An
eligible fund is not treated as failing to sat-
isfy the requirement of this paragraph (c)
(2)(iv)(A) as a result of the eligible fund
not being required to provide information
to the relevant tax authorities (or other
relevant governmental units) in a year in
which no qualified benefits are provided
to qualified recipients.
(B) Treatment of certain eligible funds
established by foreign jurisdictions. An
eligible fund that is described in para-
graph (c)(2)(ii)(A)(1)(i) of this section
is deemed to satisfy the requirements of
paragraph (c)(2)(iv)(A) of this section.
(v) Tax treatment—(A) In general.
The tax laws of the foreign jurisdiction in
which the eligible fund is established or
operates must provide that, due to the sta-
tus of the eligible fund as a retirement or
pension fund, either—
(1) Contributions to the eligible fund
that would otherwise be subject to tax un-
der such laws are deductible or excluded
from the gross income of the eligible fund
or taxed at a reduced rate; or
(2) Taxation of any investment income
of the eligible fund is deferred or excluded
from the gross income of the eligible fund
or such income is taxed at a reduced rate.
(B) Income subject to preferential tax
treatment. An eligible fund is treated as
satisfying the requirement of paragraph
(c)(2)(v)(A) of this section in a taxable
year if, under the tax laws of the foreign
jurisdiction in which the eligible fund is
established or operates—
(1) At least 85 percent of the contribu-
tions to the eligible fund are subject to the
tax treatment described in paragraph (c)
(2)(v)(A)(1) of this section, or
(2) At least 85 percent of the invest-
ment income of the eligible fund is subject
to the tax treatment described in paragraph
(c)(2)(v)(A)(2) of this section.
(C) Income not subject to tax. An eli-
gible fund is treated as satisfying the re-
quirement of paragraph (c)(2)(v)(A) of
this section if the eligible fund is exempt
from the income tax of the foreign juris-
diction in which it is established or oper-
ates or the foreign jurisdiction in which it
is established or operates has no income
tax.
(D) Other preferential tax regimes. An
eligible fund that does not receive the tax
treatment described in either paragraph
(c)(2)(v)(A)(1) or (2) of this section is
nonetheless treated as satisfying the re-
quirement of paragraph (c)(2)(v)(A) of
this section if the eligible fund establishes
that each of the conditions described in
paragraphs (c)(2)(v)(D)(1) and (2) of this
section is satisfied:
(1) Under the tax laws of the foreign
jurisdiction in which the eligible fund is
established or operates, the eligible fund is
subject to a preferential tax regime due to
its status as a retirement or pension fund;
and
(2) The preferential tax regime de-
scribed in paragraph (c)(2)(v)(D)(1) of
this section has a substantially similar
effect as the tax treatment described in
paragraphs (c)(2)(v)(A)(1) or (2) of this
section.
(E) Tax law of subnational jurisdic-
tions. Solely for purposes of this para-
graph (c)(2)(v), a reference to the tax law
of a foreign jurisdiction includes the tax
law of a political subdivision or other
local authority of a foreign jurisdiction,
provided that income taxes imposed un-
der the subnational tax law are treated as
covered taxes under an income tax treaty
between that foreign jurisdiction and the
United States.
(3) Operating rules—(i) Rules on the
application of the requirements in para-
graph (c)(2) of this section—(A) Organi-
zations or arrangements. An organization
or arrangement is treated as a single entity
for purposes of determining whether the
requirements of paragraph (c)(2) of this

Bulletin No. 2023–3 363 January 17, 2023
section are satisfied, except that each per-
son or governmental unit that is part of or
party to an organization or arrangement
must satisfy the requirement of paragraph
(c)(2)(i) of this section.
(B) Relevant income, assets, and func-
tions. The determination of whether an
eligible fund satisfies the requirements of
paragraph (c)(2) of this section is made
solely with respect to the assets and in-
come of the eligible fund held in one or
more qualified segregated accounts, the
qualified benefits funded by the qualified
segregated accounts, the information re-
porting and regulation related to the quali-
fied segregated accounts, and the qualified
recipients whose benefits are funded by
the qualified segregated accounts. For this
purpose, all assets held by an eligible fund
in qualified segregated accounts (within
the meaning of paragraph (e)(13)(ii) of
this section) are treated as a single qual-
ified segregated account.
(ii) Aggregate approach to partner-
ships. For purposes of this section, assets
held by a partnership shall be treated as
held proportionately by its partners, and
activities conducted by a partnership shall
be treated as conducted by its partners.
(iii) Recordkeeping. An eligible fund
that claims the exemption under section
897(l) must have records sufficient to es-
tablish that it satisfies the requirements
of paragraph (c)(2) of this section. See
section 6001 and §1.6001-1, requiring re-
cords to be maintained.
(d) Qualified holder requirements—
(1) In general. With respect to a dispo-
sition described in section 897(a) or a
distribution described in section 897(h),
a qualified foreign pension fund (includ-
ing a part of a qualified foreign pension
fund) or a qualified controlled entity is
a qualified holder only if it satisfies the
requirement of paragraph (d)(2) or (3) of
this section.
(2) Qualified holders that did not hold
U.S. real property interests. The require-
ment of this paragraph (d)(2) is satisfied
if the qualified foreign pension fund or
qualified controlled entity owned no Unit-
ed States real property interests as of the
earliest date during an uninterrupted peri-
od, ending on the date of the disposition or
distribution, in which the qualified foreign
pension fund or qualified controlled entity
satisfied the requirements of paragraph (c)
(2) of this section or paragraph (e)(9) of
this section, as applicable.
(3) Qualified holders that satisfy the
testing period—(i) In general. The re-
quirement of this paragraph (d)(3) is sat-
isfied if the qualified foreign pension fund
or qualified controlled entity continuously
satisfies the requirements of paragraph (c)
(2) of this section or paragraph (e)(9) of
this section, as applicable, for the duration
of the testing period.
(ii) Testing Period. The term testing
period means whichever of the following
periods is the shortest:
(A) The period beginning on December
18, 2015, and ending on the date of the
disposition or the distribution;
(B) The ten-year period ending on the
date of the disposition or the distribution;
and,
(C) The period beginning on the date
the entity (or its predecessor) was created
or organized and ending on the date of the
disposition or the distribution.
(4) Transition Rules—(i) Qualified for-
eign pension fund or qualified controlled
entity requirements. With respect to any
period from December 18, 2015, to the
date when the requirements of paragraph
(c)(2) or (e)(9) of this section first apply to
a qualified foreign pension fund or quali-
fied controlled entity under paragraph (g)
of this section, as applicable (but in any
event no later than December 29, 2022,
in the case of paragraph (c)(2) of this sec-
tion, and no later than June 6, 2019, in
the case of paragraph (e)(9) of this sec-
tion), the qualified foreign pension fund
or qualified controlled entity is deemed to
satisfy the requirements of paragraphs (c)
(2) and (e)(9) of this section, as applica-
ble, for purposes of paragraphs (d)(2) and
(3) of this section if the qualified foreign
pension fund or qualified controlled entity
satisfies the requirements of section 897(l)
(2) based on a reasonable interpretation of
those requirements (including determin-
ing any applicable valuations using a con-
sistent method).
(ii) Ownership of qualified controlled
entity by service providers. Solely for
purposes of paragraphs (d)(2) and (3) of
this section, the determination of whether
a corporation or trust is a qualified con-
trolled entity will not include stock or in-
terests held directly or indirectly by any
person that provides services to such cor-
poration or trust, provided that such stock
or interests are, in the aggregate, no more
than five percent (by vote or value) of the
stock or interests of such corporation or
trust. This paragraph (d)(4)(ii) applies to
interests held from December 18, 2015
until February 27, 2023.
(e) Definitions. The following defini-
tions apply for purposes of this section.
(1) Ancillary benefits—(i) In general.
The term ancillary benefits means—
(A) Benefits payable upon the diagno-
sis of a terminal illness, incidental death
benefits (for example, funeral expenses),
short-term disability benefits, life insur-
ance benefits, and medical benefits;
(B) Unemployment, shutdown, or lay-
off benefits that do not continue past re-
tirement age and do not affect the payment
of accrued retirement and pension bene-
fits; and
(C) Other health-related or unemploy-
ment benefits that are similar to the bene-
fits described in paragraphs (e)(1)(i) and
(ii) of this section.
(ii) Overlap with retirement and pen-
sion benefits. Ancillary benefits do not
include any benefits that could also be
defined as retirement and pension benefits
within the meaning of paragraph (e)(14)
of this section.
(2) Eligible fund. The term eligible
fund means a trust, corporation, or other
organization or arrangement that main-
tains one or more qualified segregated
accounts.
(3) Employer group. The term employ-
er group means all individuals, trusts,
partnerships, and corporations with a rela-
tionship to each other specified in section
267(b) or section 707(b).
(4) Foreign jurisdiction. The term
foreign jurisdiction means a jurisdiction
other than the United States, including a
country, a state, province, or political sub-
division of a foreign country, and a territo-
ry of the United States.
(5) Governmental unit. The term gov-
ernmental unit means any foreign govern-
ment or part thereof, including any per-
son, body, group of persons, organization,
agency, bureau, fund, or instrumentality,
however designated, of a foreign govern-
ment.
(6) Non-ancillary benefits. The term
non-ancillary benefits means benefits that
are neither ancillary benefits (within the

January 17, 2023 364 Bulletin No. 2023–3
meaning of paragraph (e)(1) of this sec-
tion) nor retirement and pension benefits
(within the meaning of paragraph (e)(14)
of this section), and are provided by the
eligible fund as permitted or required un-
der the laws of the foreign jurisdiction in
which the eligible fund is established or
operates.
(7) Organization or arrangement. The
term organization or arrangement means
one or more trusts, corporations, govern-
mental units, or employers.
(8) Qualified benefits. The term quali-
fied benefits means retirement and pension
benefits, ancillary benefits and non-an-
cillary benefits. However, the portions of
qualified benefits consisting of ancillary
benefits and non-ancillary benefits provid-
ed by a qualified foreign pension fund are
limited as provided in paragraph (c)(2)(ii)
(B) of this section.
(9) Qualified controlled entity. The
term qualified controlled entity means a
trust or corporation created or organized
under the laws of a foreign jurisdiction all
of the interests of which are held by one
or more qualified foreign pension funds
directly or indirectly through one or more
qualified controlled entities.
(10) Qualified foreign pension fund.
The term qualified foreign pension fund
means an eligible fund that satisfies the
requirements of paragraph (c) of this sec-
tion.
(11) Qualified holder. The term quali-
fied holder means a qualified foreign pen-
sion fund or qualified controlled entity that
satisfies the requirements of paragraph (d)
of this section.
(12) Qualified recipient—(i) In gener-
al. The term qualified recipient means—
(A) With respect to an eligible fund
described in paragraph (c)(2)(ii)(A)(1)(i)
of this section, any person eligible to be
treated as a participant or beneficiary of
such eligible fund and any person desig-
nated by such participant or beneficiary to
receive qualified benefits, and
(B) With respect to an eligible fund de-
scribed in paragraph (c)(2)(ii)(A)(1)(ii) of
this section, a current or former employee,
a spouse of a current or former employee,
and any person designated by such partic-
ipants or beneficiaries to receive qualified
benefits.
(C) To the extent not already described
in paragraph (e)(12)(i)(B) of this section,
with respect to an eligible fund described
in paragraph (c)(2)(ii)(A)(1)(ii) of this
section, any person eligible to be treated
as a participant or beneficiary of such fund
and any person designated by such partic-
ipant or beneficiary to receive qualified
benefits, so long as such recipients do not
exceed five percent of the eligible fund’s
total qualified recipients or have a right to
more than five percent of the assets or in-
come of the eligible fund. An eligible fund
must make a determination for purposes
of this paragraph (e)(12)(i)(C) on at least
an annual basis and may utilize any rea-
sonable method in doing so. An eligible
fund must use its most recent determina-
tion under this paragraph with respect to
dispositions of United States real prop-
erty interests or distributions described
in section 897(h) occurring in the twelve
months succeeding such determination, or
until a new determination is made, which-
ever occurs first.
(ii) Special rule regarding automatic
designation. For purposes of paragraph
(e)(12)(i) of this section, a person is treat-
ed as designating another person to re-
ceive qualified benefits if the other person
is, by reason of such person’s relationship
or other status with respect to the first per-
son, entitled to receive benefits pursuant
to the terms applicable to the eligible fund
or pursuant to the laws of the foreign ju-
risdiction in which the eligible fund is cre-
ated or organized, whether or not the first
person expressly designated such person
as a beneficiary.
(13) Qualified segregated account—(i)
In general. The term qualified segregat-
ed account means an identifiable pool of
assets maintained by an eligible fund or a
qualified controlled entity for the sole pur-
pose of funding and providing qualified
benefits to qualified recipients.
(ii) Assets held by eligible funds. For
purposes of paragraph (e)(13)(i) of this
section, an identifiable pool of assets of
an eligible fund is treated as maintained
for the sole purpose of funding qualified
benefits to qualified recipients, and hence
as a qualified segregated account, only if
the terms applicable to the eligible fund
or the laws of the foreign jurisdiction in
which the eligible fund is established or
operates require that all the assets in the
pool, and all the income earned with re-
spect to such assets, be used exclusively
to fund the provision of qualified benefits
to qualified recipients or to satisfy neces-
sary reasonable expenses of the eligible
fund, and that such assets or income may
not inure to the benefit of a person other
than a qualified recipient. For purposes
of this paragraph (e)(13)(ii), the fact that
assets or income may inure to the benefit
of a governmental unit by operation of es-
cheat or similar laws, or may revert (such
as upon plan termination or dissolution
(after all obligations to qualified recipi-
ents and creditors have been satisfied) or
the qualified recipients’ benefits failing to
vest) to the governmental unit or employ-
er in accordance with applicable foreign
law is ignored, so long as contributions to
the plan are not more than reasonably nec-
essary to fund the qualified benefits to be
provided to qualified recipients.
(iii) Assets held by qualified controlled
entities. For purposes of paragraph (e)(13)
(i) of this section, the assets of a qualified
controlled entity are treated as an iden-
tifiable pool of assets maintained for the
sole purpose of funding qualified benefits
to qualified recipients only if both of the
following requirements are satisfied:
(A) All of the net earnings of the qual-
ified controlled entity are credited to its
own account or to the qualified segregat-
ed account of a qualified foreign pension
fund or another qualified controlled entity,
with no portion of the net earnings of the
qualified controlled entity inuring to the
benefit of a person other than a qualified
recipient; and
(B) Upon dissolution, all of the assets
of the qualified controlled entity, after sat-
isfaction of liabilities to persons having
interests in the entity solely as creditors,
vest in a qualified segregated account of a
qualified foreign pension fund or another
qualified controlled entity.
(14) Retirement and pension benefits.
The term retirement and pension benefits
means distributions to qualified recipients
that are made after the qualified recipient
reaches retirement age as determined un-
der or in accordance with the laws in the
foreign jurisdiction in which the eligible
fund is established or operates (including
a benefit paid to a qualified recipient who
retires on or after a stated early retirement
age), or after a specified event that results
in a qualified recipient being permanent-
ly unable to work, and includes any such

Bulletin No. 2023–3 365 January 17, 2023
distribution made to a surviving beneficia-
ry of the qualifying recipient. Retirement
and pension benefits may be based on one
or more of the following factors: contri-
butions, investment performance, years
of service with an employer, or compen-
sation received by the qualified recipient.
(f) Examples. This paragraph (f) pro-
vides examples that illustrate the rules of
this section. The examples do not illustrate
the application of the applicable withhold-
ing rules, including sections 1445 and
1446 and the regulations thereunder. It is
assumed that no person is entitled to more
than five percent of any eligible fund’s
assets or income, taking into account the
constructive ownership rules in paragraph
(c)(2)(iii)(B) of this section, and that the
eligible fund owns no United States real
property interests other than as described.
(1) Example 1: No legal entity—(i) Facts. On
January 1, 2023, Country A establishes Retirement
Plan for the sole purpose of providing retirement
and pension benefits to citizens of Country A aged
65 or older. Retirement Plan is composed of Asset
Pool and Agency. Asset Pool is a group of accounts
maintained on the balance sheet of the government
of Country A. Pursuant to the laws of Country A, in-
come and gain earned by Asset Pool is used solely
to support the provision of retirement and pension
benefits by Retirement Plan. Agency is a Country
A agency that administers the provision of benefits
by Retirement Plan and manages Asset Pool’s in-
vestments. Under the laws of Country A, investment
income earned by Retirement Plan is not subject to
Country A’s income tax. At the end of each calendar
year, Retirement Plan performs a present valuation
of the retirement and pension benefits it reasonably
expects to provide in the future, and all of the bene-
fits that Retirement Plan reasonably expects to pro-
vide are retirement and pension benefits. On January
1, 2024, Agency purchases Property, which is an
interest in real property located in the United States
owned by Asset Pool. On June 1, 2026, Agency sells
Property, realizing $100x of gain with respect to
Property that would be subject to tax under section
897(a) unless paragraph (b) of this section applies
with respect to the gain.
(ii) Analysis. (A) Retirement Plan, which is
composed of Asset Pool and Agency, includes one
or more governmental units described in paragraph
(e)(5) of this section. Accordingly, Retirement Plan
is an organization or arrangement described in para-
graph (e)(7) of this section. Furthermore, Retirement
Plan maintains a qualified segregated account in
the form of Asset Pool, an identifiable pool of as-
sets maintained for the sole purpose of funding re-
tirement and pension benefits to beneficiaries of the
Retirement Fund (qualified recipients as defined in
paragraph (e)(12)(i)(A) of this section). Therefore,
Retirement Plan is an eligible fund within the mean-
ing of paragraph (e)(2) of this section.
(B) Paragraph (c)(3)(i) of this section applies for
purposes of determining whether Retirement Plan
is an eligible fund that satisfies the requirements of
paragraph (c)(2) of this section and would therefore
be treated as a qualified foreign pension fund. Ac-
cordingly, the activities of Asset Pool and Agency
are integrated and treated as undertaken by a sin-
gle entity to determine whether the requirements of
paragraph (c)(2) of this section are met. However,
Asset Pool and Agency must independently satisfy
the requirement of paragraph (c)(2)(i) of this section.
(C) Retirement Plan is composed of Asset Pool
and Agency, each of which is a governmental unit
and treated as created or organized under the laws
of Country A for purposes of paragraph (c)(2)(i) of
this section. Accordingly, Retirement Plan satisfies
the requirement of paragraph (c)(2)(i) of this section.
(D) Retirement Plan is established by Country
A as an eligible fund described in paragraph (c)(2)
(ii)(A)(1)(i) of this section to provide retirement and
pension benefits, which are qualified benefits de-
scribed in paragraph (e)(8) of this section, to citizens
of Country A, who are qualified recipients described
in paragraph (e)(12)(i)(A) of this section because
they are eligible to be participants or beneficiaries
of Retirement Plan. Accordingly, all of the benefits
that Retirement Plan provides are qualified benefits
provided to qualified recipients. In addition, Retire-
ment Plan satisfies the requirements of the present
valuation test as described in paragraphs (c)(2)(ii)
(B) and (C) of this section. Accordingly, Retirement
Plan satisfies the requirement of paragraph (c)(2)(ii)
of this section.
(E) Retirement Plan provides retirement and
pension benefits to citizens of Country A aged 65
or older, with no citizen entitled to more than five
percent of Retirement Fund’s assets or to more than
five percent of the income of the eligible fund. Ac-
cordingly, Retirement Plan satisfies the requirement
of paragraph (c)(2)(iii) of this section.
(F) Retirement Plan is composed solely of gov-
ernmental units within the meaning of paragraph (e)
(5) of this section. Accordingly, under paragraph (c)
(2)(iv)(B) of this section, Retirement Plan is treated
as satisfying the requirements of paragraph (c)(2)(iv)
(A) of this section.
(G) Investment income earned by Retirement
Plan is not subject to income tax in Country A. Ac-
cordingly, Retirement Plan satisfies the requirement
of paragraph (c)(2)(v) of this section.
(H) Because Retirement Plan satisfies the re-
quirements of paragraph (c)(2) of this section, Re-
tirement Plan is a qualified foreign pension fund.
Because Retirement Plan held no United States real
property interests as of January 1, 2023, the earli-
est date during an uninterrupted period ending on
June 1, 2026, the date of the disposition, in which
it satisfied the requirements of paragraph (c)(2) of
this section, Retirement Plan is a qualified holder
under paragraph (d)(2) of this section. Retirement
Plan’s gain with respect to Property is attributable
solely to Asset Pool, a qualified segregated account
maintained by Retirement Plan. Accordingly, under
paragraph (b) of this section, the $100x gain realized
by Retirement Plan attributable to the disposition of
Property is not subject to section 897(a).
(2) Example 2: Fund established by an employ-
er—(i) Facts. Employer, a corporation organized in
Country B, establishes Fund to provide retirement
and pension benefits to current and former employ-
ees of Employer and S1, a Country B corporation
that is wholly owned by Employer. On January 1,
2023, Fund is established as a trust under the laws of
Country B, and Employer retains discretion to invest
assets and to administer benefits on Fund’s behalf.
Fund receives contributions from Employer and S1
and contributions from employees of Employer and
S1 who are beneficiaries of Fund. All contributions
to Fund and all of Fund’s earnings are separate-
ly accounted for on Fund’s books and records and
are required by Fund’s organizational documents to
exclusively fund the provision of benefits to Fund’s
beneficiaries, except as necessary to satisfy reason-
able expenses of Fund. Fund currently has over 100
beneficiaries, a number that is reasonably expected
to grow as Employer expands. Fund will pay bene-
fits to employees upon retirement based on years of
service and employee contributions, but, if a bene-
ficiary dies before retirement, Fund will pay an in-
cidental death benefit in addition to payment of any
accrued retirement and pension benefits to the bene-
ficiary’s designee (or deemed designee under local
laws if the beneficiary fails to identify a designee).
Fund annually performs a present valuation of the
benefits it reasonably expects to provide to Fund’s
beneficiaries, and the valuation concludes that more
than 85 percent of the present value of the total ben-
efits it reasonably expects to pay to its beneficiaries
in the future are retirement and pension benefits. In
addition, it is reasonably expected that the inciden-
tal death benefits paid by Fund will account for less
than fifteen percent of the present value of the total
benefits that Fund expects to provide in the future,
and Fund does not reasonably expect to pay any
other types of benefits to its beneficiaries in the fu-
ture. Fund annually provides to the tax authorities of
Country B the amount of benefits distributed to each
participant (or designee). Country B’s tax authorities
prescribe rules and regulations governing Fund’s
operations. Under the laws of Country B, Fund is
not taxed on its investment income. On January 1,
2024, Fund purchases Property, which is an interest
in real property located in the United States. On June
1, 2026, Fund sells Property, realizing $100x of gain
with respect to Property that would be subject to tax
under section 897(a) unless paragraph (b) of this sec-
tion applies with respect to the gain.
(ii) Analysis. (A) Fund is a trust that maintains
an identifiable pool of assets for the sole purpose of
funding retirement and pension benefits and ancil-
lary benefits to current and former employees of the
employer group (within the meaning of paragraph
(e)(3) of this section) that includes Employer and
S1 (current and former employees of Employer and
S1 constitute qualified recipients, as defined in para-
graph (e)(12)(i)(B) of this section). All assets held
by Fund and all income earned by Fund are used to
provide such benefits. Therefore, Fund is a trust that
maintains a qualified segregated account within the
meaning of paragraph (e)(13) of this section. Ac-
cordingly, Fund is an eligible fund within the mean-
ing of paragraph (e)(2) of this section.
(B) Because Fund is created or organized under
the laws of Country B, Fund satisfies the requirement
of paragraph (c)(2)(i) of this section.
(C) The only benefits that Fund provides are re-
tirement and pension benefits described in paragraph
(e)(14) of this section and ancillary benefits (that is,

January 17, 2023 366 Bulletin No. 2023–3
the incidental death benefits) described in paragraph
(e)(1) of this section, both of which constitute quali-
fied benefits described in paragraph (e)(8) of this sec-
tion, to qualified recipients, described in paragraph
(e)(12)(i)(B) of this section. Furthermore, Fund sat-
isfies the requirements of the present valuation test
as described in paragraphs (c)(2)(ii)(B) and (C) of
this section. Accordingly, Fund is established by Em-
ployer to provide retirement and pension benefits to
qualified recipients in consideration for services ren-
dered by such qualified recipients to Employer and
S1, and Fund satisfies the requirement of paragraph
(c)(2)(ii) of this section.
(D) No single qualified recipient has a right to
more than five percent of the assets or income of
the eligible fund. Accordingly, Fund satisfies the
requirement of paragraph (c)(2)(iii) of this section.
(E) Fund is regulated and annually provides to
the relevant tax authorities in the foreign jurisdiction
in which it is established or operates the amount of
qualified benefits provided to each qualified recipient
by the eligible fund. Accordingly, Fund satisfies the
requirements of paragraph (c)(2)(iv) of this section.
(F) Fund is not subject to income tax on its in-
vestment income. Accordingly, Fund satisfies the
requirement of paragraph (c)(2)(v) of this section.
(G) Because Fund meets the requirements of
paragraph (c)(2) of this section, Fund is treated as a
qualified foreign pension fund. Furthermore, because
Fund held no United States real property interests as
of January 1, 2023, the earliest date during an unin-
terrupted period ending on June 1, 2026, the date of
the disposition, in which it satisfied the requirements
of paragraph (c)(2) of this section, Fund is a quali-
fied holder under paragraph (d)(2) of this section. All
of Fund’s assets are held in a qualified segregated
account within the meaning of paragraph (e)(13) of
this section. Accordingly, under paragraph (b) of this
section, the $100x gain attributable to the disposition
of Property is not subject to section 897(a).
(3) Example 3: Fund established by an employer
at the direction of a foreign jurisdiction—(i) Facts.
The facts are the same as in paragraph (f)(2) of this
section (Example 2), except that Fund was estab-
lished by Employer at the direction of Country B and,
in addition to being established to provide retirement
and pension benefits to current and former employ-
ees of Employer and S1, Fund was also established
to provide retirement and pension benefits to other
employees. All employees that are beneficiaries pro-
vide contributions to Fund. Fund makes a determi-
nation on at least an annual basis using a reasonable
method to measure the number of participants in the
Fund who are not current and former employees of
Employer and S1. Each time such a determination is
made, Fund finds that such employees constitute less
than five percent of Fund’s total qualified recipients
and do not have a right to more than five percent of
the assets or income of Fund.
(ii) Analysis. Fund satisfies the requirements of
paragraph (c)(2)(ii)(A)(1)(i) of this section because
it was established by, or at the direction of, Country
B to provide retirement and pension benefits to par-
ticipants or beneficiaries that are current or former
employees or persons designated by such employees
as a result of services rendered by such employees
to their employers. Fund also satisfies the require-
ments of paragraph (c)(2)(ii)(A)(1)(ii) of this section
because it was established by Employer to provide
retirement and pension benefits to participants or
beneficiaries that are current or former employees or
persons designated by such employees in consider-
ation for services rendered by such employees to Em-
ployer and S1. Because it satisfies the requirements
of both such provisions, under paragraph (c)(2)(ii)
(A)(2) of this section, Fund will be treated solely
as an eligible fund under paragraph (c)(2)(ii)(A)(1)
(ii) of this section. As a result, Fund must meet the
reporting requirements described in paragraph (c)(2)
(iv)(A) of this section and must apply the definition
of qualified recipient described in paragraphs (e)(12)
(i)(B) and (C) of this section. Because Fund makes
a determination on at least an annual basis using a
reasonable method to measure the number of partic-
ipants in the Fund who are not current and former
employees of Employer and S1, finding that such
employees constitute less than five percent of Fund’s
total qualified recipients and do not have a right to
more than five percent of the assets or income of
Fund, the requirement of paragraph (c)(2)(ii)(B)(1)
of this section, requiring that all of the benefits that
an eligible fund provides are provided to qualified re-
cipients, is considered satisfied. Because Fund meets
the requirements of paragraph (c)(2) of this section,
Fund is treated as a qualified foreign pension fund
under paragraph (b) of this section. Accordingly, the
$100x gain attributable to the disposition of Property
is not subject to section 897(a).
(4) Example 4: Employer controlled organization
or arrangement—(i) Facts. The facts are the same as
in paragraph (f)(2) of this section (Example 2), ex-
cept that S2, a Country B corporation that is wholly
owned by Employer, performs all tax compliance
functions for Employer, S1, and S2, including infor-
mation reporting with respect to Fund participants.
(ii) Analysis. For purposes of the requirements
of paragraph (c)(2) of this section, Fund and S2 are
an organization or arrangement that is treated as a
single entity under paragraph (c)(3)(i)(A) of this
section and an eligible fund under paragraph (e)(2)
of this section with respect to the qualified segregat-
ed account held by Fund. Because the eligible fund
composed of Fund and S2 satisfies the requirements
of paragraph (c)(2) of this section (including the rule
under paragraph (c)(3)(i)(A) of this section that each
entity satisfy the foreign organization requirement
of paragraph (c)(2)(i) of this section) with respect to
the qualified benefits provided to the qualified recip-
ients out of the eligible fund’s qualified segregated
account (determined in accordance with paragraph
(c)(3)(i)(B) of this section), the eligible fund that
is composed of Fund and S2 constitutes a qualified
foreign pension fund. Furthermore, the requirements
for qualified holder status are satisfied, as described
in paragraph (f)(2) of this section. Thus, under para-
graph (b) of this section, the $100x gain attributable
to the disposition of Property is not subject to section
897(a).
(5) Example 5: Third-party assumption of pen-
sion liabilities—(i) Facts. The facts are the same as
in paragraph (f)(2) of this section (Example 2), ex-
cept that Fund does not purchase Property on Janu-
ary 1, 2024. In addition, Fund anticipates $100x of
qualified benefits will be paid each year beginning on
January 1, 2028. Fund enters into an agreement with
Guarantor, a privately held Country B corporation,
which provides that Fund will, on January 30, 2023,
cede a portion of its assets to Guarantor in exchange
for annual payments of $100x beginning on January
1, 2028 and continuing until one or more previously
identified participants (and their designees) ceases to
be eligible to receive benefits. Guarantor has discre-
tion to invest the ceded assets as it chooses, subject
to certain agreed upon investment restrictions. Pur-
suant to its agreement with Fund, Guarantor must
maintain Segregated Pool, a pool of assets securing
its obligations under its agreement with Fund. The
value of Segregated Pool must exceed a specified
amount (determined based on an agreed upon for-
mula) until Guarantor’s payment obligations are
completed, and any remaining assets in Segregated
Pool (that is, assets exceeding the required payments
to Fund) are retained by Guarantor. Guarantor bears
all investment risk with respect to Segregated Pool.
Accordingly, Guarantor is required to make annual
payments of $100x to Fund regardless of the per-
formance of Segregated Pool. On January 1, 2024,
Guarantor purchases stock in Company A, a United
States real property holding company that is a United
States real property interest, and holds the Company
A stock in Segregated Pool. On June 1, 2027, Guar-
antor sells the stock in Company A, realizing a gain
of $100x.
(ii) Analysis. The Segregated Pool is not a quali-
fied segregated account, because it is not maintained
for the sole purpose of funding qualified benefits to
qualified recipients, and because income attributable
to assets in the Segregated Pool (including the Com-
pany A stock) may inure to Guarantor, which is not
a qualified recipient. Accordingly, Fund and Guaran-
tor do not qualify as an organization or arrangement
that is an eligible fund with respect to the Company
A stock. Therefore, Guarantor is not exempt under
paragraph (b) of this section with respect to the
$100x of gain realized in connection with the sale of
its shares in Company A.
(6) Example 6: Asset manager—(i) Facts. The
facts are the same as in paragraph (f)(5) of this sec-
tion (Example 5) except that instead of ceding legal
ownership of a portion of its assets to Guarantor,
Fund transfers the assets into Trust with respect to
which Fund is the sole beneficiary on January 30,
2023, and Trust purchases stock in Company A on
January 1, 2024. Guarantor has exclusive manage-
ment authority over the Trust assets and is entitled
to a reasonable fixed management fee which it with-
draws annually from Trust’s assets. On June 1, 2027,
Trust sells the stock in Company A, realizing a gain
of $100x.
(ii) Analysis. For purposes of testing the require-
ments of paragraph (c)(2) of this section, Fund and
Trust are an organization or arrangement that is treat-
ed as a single entity under paragraph (c)(3)(i)(A) of
this section and an eligible fund under paragraph (e)
(2) of this section. Assets held by Trust are held in
a qualified segregated account, and those assets are
the assets that are relevant for purposes of determin-
ing whether the eligible fund composed of Fund and
Trust meets the requirements of paragraph (c)(2) of
this section. The eligible fund that is composed of
Fund and Trust is treated as established by Employer
notwithstanding that Guarantor provides manage-
ment services. See paragraph (c)(2)(ii)(A)(3) of this
section. Paragraph (e)(13)(ii) of this section provides

Bulletin No. 2023–3 367 January 17, 2023
that the assets held by an eligible fund in a qualified
segregated account may be used to satisfy reasonable
expenses of the eligible fund, such that the reason-
able fixed management fee paid to Guarantor does
not cause the assets held in Trust to fail to be treated
as held in a qualified segregated account. All of the
other requirements for qualified foreign pension fund
status are satisfied by the eligible fund that is com-
posed of Fund and Trust, as described in paragraph
(f)(2) of this section. The eligible fund that is com-
posed of Fund and Trust is a qualified holder under
paragraph (d)(2) of this section because it held no
United States real property interests on January 1,
2023, the earliest date during an uninterrupted period
ending on June 1, 2027, the date of the disposition of
Company A stock, in which it satisfied the require-
ments of paragraph (c)(2) of this section. The eligible
fund that is composed of Fund and Trust is there-
fore exempt under paragraph (b) of this section with
respect to the $100x of gain realized in connection
with the sale by Trust of the shares in Company A.
(7) Example 7: Partnership—(i) Facts. The facts
are the same as in paragraph (f)(5) of this section (Ex-
ample 5) except that instead of ceding legal owner-
ship of the assets to Guarantor, Fund contributes the
assets to a partnership (PRS) formed with Guarantor
and PRS purchases stock in Company A on January
30, 2023. Guarantor receives a profits interest in the
partnership that is reasonable in light of Guarantor’s
management activity. Guarantor has no direct or in-
direct ownership in PRS assets, and the partnership
agreement provides that upon dissolution, PRS as-
sets would be distributed to Fund. Guarantor serves
as the general partner of PRS and has discretionary
authority to buy and sell PRS assets without approval
from Fund. On June 1, 2027, PRS sells the stock in
Company A, realizing a gain of $100x.
(ii) Analysis. All of Fund’s assets, including the
assets held by PRS that are treated as held propor-
tionately by Fund under paragraph (c)(3)(ii) of this
section, are held in a qualified segregated account
within the meaning of paragraph (e)(13) of this sec-
tion. See paragraph (f)(2)(ii)(A) of this section (Ex-
ample 2). The eligible fund that is composed of Fund
is treated as established by Employer notwithstand-
ing that Guarantor provides management services
to PRS. See paragraphs (c)(2)(ii)(A)(3) and (c)(3)
(ii) of this section. All of the other requirements for
qualified foreign pension fund status are satisfied by
Fund as described in paragraphs (f)(2)(ii)(B) through
(F) of this section, and Fund is a qualified holder as
described in paragraph (f)(2)(ii)(G) of this section.
Accordingly, Fund is exempt under paragraph (b) of
this section with respect to its allocable share of the
$100x of gain realized in connection with the sale by
PRS of the shares in Company A. Guarantor is not
exempt under paragraph (b) of this section with re-
spect to its allocable share of the $100x of gain real-
ized in connection with the sale by PRS of the shares
in Company A because Guarantor is neither part of
the organization or arrangement that forms Fund nor
a qualified holder under paragraph (d) of this section
that maintains qualified segregated accounts.
(8) Example 8: Not a qualified holder—(i) Facts.
Fund is a qualified foreign pension fund organized in
Country C that meets the requirements of paragraph
(c)(2) of this section. Fund owns all the outstanding
stock of OpCo, a manufacturing corporation orga-
nized in Country C, in a qualified segregated account
maintained by Fund. OpCo was originally formed by
a person other than Fund on January 1, 2023. Fund
purchased all of the stock of OpCo on November 1,
2023 for the purpose of conducting the manufactur-
ing business and utilizing the business profits to fund
pension liabilities. During the period from January
1, 2023, through October 31, 2023, OpCo was not a
qualified foreign pension fund, a part of a qualified
foreign pension fund, or a qualified controlled entity.
On January 30, 2023, OpCo purchased Property A, a
United States real property interest, from a third par-
ty. For all periods after Fund acquired OpCo, OpCo
must either retain or distribute to Fund all of its net
earnings, and upon dissolution, must distribute all of
its assets to its stockholder (that is, Fund) after satis-
faction of liabilities to its creditors. On June 1, 2024,
OpCo realizes $100x of gain on the disposition of
Property A.
(ii) Analysis. (A) A qualified controlled entity de-
scribed in paragraph (e)(9) of this section includes
any corporation organized under the laws of a foreign
jurisdiction all the interests of which are owned by
one or more qualified foreign pension funds direct-
ly or indirectly through one or more qualified con-
trolled entities. Fund is a qualified foreign pension
fund that wholly owns OpCo. Accordingly, OpCo is
a qualified controlled entity for the period when it
is owned by Fund beginning on November 1, 2023.
(B) Under paragraph (d)(1) of this section, a
qualified controlled entity is a qualified holder only
if either, under paragraph (d)(2) of this section, the
qualified controlled entity owned no United States
real property interests as of the earliest date during
an uninterrupted period ending on the date of the dis-
position or distribution in which the qualified con-
trolled entity satisfied the requirements of paragraph
(e)(9) of this section, or, under paragraph (d)(3) of
this section, the qualified controlled entity satisfies
the requirements of paragraph (e)(9) of this section
throughout the entire testing period. Because OpCo
owned a United States real property interest as of
November 1, 2023, the earliest date during an unin-
terrupted period ending on the date of the disposition
during which it satisfied the requirements of para-
graph (e)(9) of this section, OpCo cannot satisfy the
requirements of paragraph (d)(2) of this section and
must instead satisfy the requirements of paragraph
(d)(3) of this section to be a qualified holder. Under
paragraph (d)(3) of this section, a qualified holder
does not include any entity that was not a qualified
foreign pension fund, a part of a qualified foreign
pension fund, or a qualified controlled entity at any
time during the testing period. The testing period
with respect to OpCo is the period from January 1,
2023 (the date of OpCo’s formation), to June 1, 2024
(the date of the disposition). Because OpCo was not
a qualified foreign pension fund, a part of a qualified
foreign pension fund, or a qualified controlled entity
from January 1, 2023, to October 31, 2023, OpCo
was not a qualified foreign pension fund, a part of
a qualified foreign pension fund, or a qualified con-
trolled entity at all times during the testing period.
Accordingly, OpCo is not a qualified holder with re-
spect to the disposition of Property A, and the $100x
of gain recognized by OpCo is not exempt from tax
under section 897(l), regardless of the amount of un-
realized gain in Property A as of November 1, 2023.
(9) Example 9: 48-month alternative test—(i)
Facts. Fund is a qualified foreign pension fund or-
ganized in Country C that, except as otherwise not-
ed, meets the requirements of paragraph (c)(2) of
this section. Fund owns all the outstanding stock
of OpCo, a manufacturing corporation organized in
Country C and formed by Fund on January 1, 2023,
in a qualified segregated account maintained by
Fund. On January 30, 2023, OpCo purchased Prop-
erty A, a United States real property interest, from a
third party. OpCo either retains or distributes to Fund
all of its net earnings, and upon dissolution, must
distribute all of its assets to its stockholder (that is,
Fund) after satisfaction of liabilities to its creditors.
On June 1, 2027, OpCo realizes $100x of gain on the
disposition of Property A. Fund reasonably expected
to provide $90x of retirement and pension benefits
and $100x of qualified benefits for the valuations
that it performed pursuant to paragraph (c)(2)(ii)(C)
(1) of this section on December 31, 2023, December
31, 2024, and December 31, 2025. Fund reasonably
expected to provide $160x of retirement and pension
benefits and $200x of qualified benefits for the valua-
tion that it performed pursuant to paragraph (c)(2)(ii)
(C)(1) of this section on December 31, 2026.
(ii) Analysis. In each of the years ending on
December 31, 2023, December 31, 2024, and De-
cember 31, 2025, the valuation performed pursuant
to paragraph (c)(2)(ii)(C)(1) of this section demon-
strates that that the requirements of paragraph (c)
(2)(ii)(B)(2) of this section have been met because
$90x of retirement and pension benefits constitutes
90 percent of the total $100x of qualified benefits.
For the year ending on December 31, 2026, the val-
uation performed pursuant to paragraph (c)(2)(ii)(C)
(1) of this section does not demonstrate that that the
requirements of paragraph (c)(2)(ii)(B)(2) of this
section have been met because $160x of retirement
and pension benefits constitutes only 80 percent of
the total $200x of qualified benefits. Thus, Fund does
not meet the requirements of paragraph (c)(2)(ii)(C)
(1) of this section for the year ending on December
31, 2026. However, under the 48-month alternative
calculation in paragraph (c)(2)(ii)(C)(2) of this sec-
tion, Fund satisfies the requirement that it reasonably
expects to provide 85 percent retirement and pension
benefits to qualified recipients as of December 31,
2026. This is because when averaging the values
(not percentages) of the qualified benefits and re-
tirement and pension benefits that Fund reasonably
expected to provide from the valuations performed
over the preceding 48 months (including the most
recent valuation), Fund divides the total retirement
and pension benefits of $430x ($90x + $90x + $90x
+ $160x) by the total qualified benefits that it reason-
ably expected to provide of $500x ($100x + $100x +
$100x + $200x) for an average of 86 percent. Under
paragraph (c)(2)(ii)(C)(3) of this section, Fund may
rely on either the most recent present valuation de-
scribed in paragraph (c)(2)(ii)(C)(1) of this section
or the alternative calculation in paragraph (c)(2)(ii)
(C)(2) of this section, both of which are determined
as of December 31, 2026. Because Fund satisfies the
requirements of paragraph (c)(2)(ii)(B)(2) of this
section under the test in paragraph (c)(2)(ii)(C)(2) of
this section, even though it does not do so under the
test in paragraph (c)(2)(ii)(C)(1) of this section, Fund
is a qualified foreign pension fund with respect to the

January 17, 2023 368 Bulletin No. 2023–3
disposition on June 1, 2027. Because OpCo is held
by a qualified foreign pension fund as of the date of
the disposition, OpCo is a qualified controlled en-
tity within the meaning of paragraph (e)(9) of this
section. Accordingly, the $100x of gain realized by
OpCo is exempt from tax under section 897(l).
(10) Example 10: 48-month alternative test with
multiple valuations in the same year—(i) Facts.
The facts are the same as in paragraph (f)(9) of this
section (Example 9), except that in the year ending
December 31, 2023, Fund carried out two valuations
pursuant to paragraph (c)(2)(ii)(C)(1) of this section,
one on June 30, 2023 and the second on December
31, 2023. For each valuation, Fund reasonably ex-
pected to provide $90x of retirement and pension
benefits and $100x of qualified benefits. In addition,
in the year ending on December 31, 2026, pursuant
to a valuation carried out under paragraph (c)(2)(ii)
(C)(1) of this section, Fund reasonably expected to
provide $150x retirement and pension benefits and
$200x of qualified benefits.
(ii) Analysis. In each of the years ending on De-
cember 31, 2023, December 31, 2024, and December
31, 2025 (including the two valuations performed in
2023), the valuation performed pursuant to para-
graph (c)(2)(ii)(C)(1) of this section demonstrates
that the requirements of paragraph (c)(2)(ii)(B)(2)
of this section have been met because $90x of re-
tirement and pension benefits constitutes 90 percent
of the total $100x of qualified benefits. For the year
ending on December 31, 2026, the valuation per-
formed pursuant to paragraph (c)(2)(ii)(C)(1) of this
section does not demonstrate that the requirements
of paragraph (c)(2)(ii)(B)(2) of this section have
been met because $150x of retirement and pension
benefits constitutes 75 percent of the total $200x of
qualified benefits. Thus, Fund does not meet the re-
quirements of paragraph (c)(2)(ii)(C)(1) of this sec-
tion for the year ending on December 31, 2026. Un-
der the 48-month alternative calculation in paragraph
(c)(2)(ii)(C)(2) of this section, Fund also does not
satisfy the requirement that it reasonably expects to
provide 85 percent retirement and pension benefits to
qualified recipients as of December 31, 2026. This is
because when averaging the values (not percentages)
of the qualified benefits and retirement and pension
benefits that Fund reasonably expected to provide
from the valuations performed over the preceding 48
months (including the most recent valuation), Fund
must use a weighted average whereby values are ad-
justed when the length of valuation periods differs.
In this case, each of the two valuations in 2023 must
be divided by two for a total weighted average for
each valuation of $45x retirement and pension ben-
efits and $50x of qualified benefits. When Fund then
divides the total retirement and pension benefits that
it reasonably expected to provide of $420x ($45x +
$45x + $90x + $90x + $150x) by the total qualified
benefits that it reasonably expected to provide of
$500x ($50x + $50x + $100x + $100x + $200x), the
average is 84 percent. Because Fund does not satisfy
the requirements of paragraph (c)(2)(ii)(B)(2) of this
section under the test in paragraph (c)(2)(ii)(C)(2) of
this section or the test in paragraph (c)(2)(ii)(C)(1) of
this section, Fund is not a qualified foreign pension
fund with respect to the disposition on June 1, 2027.
Because OpCo is not held by a qualified foreign pen-
sion fund as of the date of the disposition, OpCo is
not a qualified controlled entity within the meaning
of paragraph (e)(9) of this section. Accordingly, the
$100x of gain realized by OpCo is not exempt from
tax under section 897(l).
(11) Example 11: Qualified foreign pension fund
as qualified holder—(i) Facts. The facts are the same
as in paragraph (f)(10) of this section (Example 10),
except that OpCo does not dispose of Property A on
June 1, 2027 and Fund reasonably expects to pro-
vide 85 percent of retirement and pension benefits
to qualified recipients in the future in each of the
annual present valuations it performs as of Decem-
ber 31, 2027 through December 31, 2033. Fund also
satisfies the other requirements of paragraph (c)(2)
of this section during this period. On April 1, 2029,
Fund purchases Property B, a United States real
property interest, and holds it in a qualified segre-
gated account. On June 1, 2034, Fund realizes $100x
of gain on the disposition of Property B and OpCo
realizes $100x of gain on the disposition of Property
A. At least 85 percent and no more than five percent
of the actual value of the aggregate benefits provided
by Fund before December 31, 2033, the most recent
present value determination, were retirement and
pension benefits and non-ancillary benefits, respec-
tively.
(ii) Analysis. (A) Because Fund reasonably ex-
pected to provide 85 percent of retirement and pen-
sion benefits to qualified recipients as of the valu-
ation performed on December 31, 2033, and it met
the other requirements of paragraph (c)(2) of this
section, Fund is a qualified foreign pension fund un-
der paragraph (c)(2)(ii)(C)(3) of this section for the
twelve months succeeding the most recent valuation,
which includes June 1, 2034, the date of the disposi-
tion of Property A and Property B.
(B) Fund is a qualified holder under paragraph
(d)(2) of this section because Fund did not own any
United States real property interests as of December
31, 2027, the earliest date during the uninterrupted
period ending on the date of the disposition, June 1,
2034, during which it satisfied the requirements of
paragraph (c)(2) of this section and therefore quali-
fied as a qualified foreign pension fund. Fund is el-
igible for the exemption under section 897(l) with
respect to the disposition of Property B because it
held Property B in a qualified segregated account.
Thus, the $100x of gain realized by Fund on the
disposition of Property B is exempt from tax under
section 897(l).
(C) Because OpCo owned Property A, a Unit-
ed States real property interest, as of December 31,
2027, the earliest date during an uninterrupted period
ending on the date of the disposition, June 1, 2034,
during which it was a qualified controlled entity,
OpCo cannot satisfy the requirements of paragraph
(d)(2) of this section and must instead satisfy the re-
quirements of paragraph (d)(3) of this section to be
a qualified holder. The testing period with respect to
OpCo, determined under paragraph (d)(3)(ii) of this
section, ends on June 1, 2034 (the date of the dispo-
sition) and begins on June 1, 2024 (the date that is
ten years before the disposition date). Because Fund
failed to qualify as a qualified foreign pension fund
as of December 31, 2026, OpCo was not continuous-
ly owned by a qualified foreign pension fund for the
duration of the testing period, and thus did not quali-
fy as a qualified foreign pension fund, part of a qual-
ified foreign pension fund, or a qualified controlled
entity for the duration of the testing period. As a re-
sult, OpCo is not a qualified holder under paragraph
(d)(3) of this section. Accordingly, the $100x of gain
recognized by OpCo on the disposition of Property A
is not exempt from tax under section 897(l).
(12) Example 12: Qualified controlled entity as
qualified holder—(i) Facts. Fund is a qualified for-
eign pension fund organized in Country C that meets
the requirements of paragraph (c)(2) of this section
as of December 31, 2022 and December 31, 2023.
Fund purchases an interest in Company A, a Unit-
ed States real property holding company, on June 1,
2024. As of December 31, 2024, Fund fails to satisfy
the present valuation requirement of paragraph (c)(2)
(ii)(B)(2) of this section and does not satisfy the al-
ternative calculation under paragraph (c)(2)(ii)(C)(2)
of this section. From December 31, 2025, through
December 31, 2030, Fund satisfies the present val-
uation requirement of paragraph (c)(2)(ii)(B)(2) of
this section and meets all other requirements in para-
graph (c)(2) of this section to be treated as a qualified
foreign pension fund. On June 1, 2026, Fund pur-
chases all of the stock of Company B, a Country C
corporation that owns no United States real property
interests and is not a qualified foreign pension fund, a
part of a qualified foreign pension fund, or a qualified
controlled entity. On January 1, 2027, Company B
purchases Property D, a United States real property
interest. Company B retains or distributes to Fund
all of its net earnings, and upon dissolution, must
distribute all of its assets to its stockholders (that is,
Fund) after satisfaction of liabilities to its creditors.
On June 1, 2031, Fund realizes $100x of gain on the
disposition of stock in Company A, and Company B
realizes $100x of gain on the disposition of Property
D.
(ii) Analysis. (A) Fund owned Company A, a
United States real property holding company, as of
December 31, 2025, the earliest date during an un-
interrupted period ending on the date of the dispo-
sition, June 1, 2031, during which Fund satisfied the
requirements of paragraph (c)(2) of this section. Ac-
cordingly, to be a qualified holder, Fund must satisfy
the requirements of paragraph (d)(3) of this section.
The testing period with respect to Fund, determined
under paragraph (d)(3) of this section, ends on June
1, 2031 (the date of disposition) and begins on June
1, 2021 (the date that is ten years before the disposi-
tion date). Fund is not a qualified holder because it
failed to satisfy the requirements of paragraph (c)(2)
of this section as of December 31, 2024 and, thus,
has not satisfied the requirements of paragraph (c)(2)
of this section continuously for the duration of the
testing period. Accordingly, the $100x of gain real-
ized by Fund on the disposition of the stock of Com-
pany A is not exempt from tax under section 897(l).
(B) Although Fund is not a qualified holder as
of June 1, 2031, the date of Company B’s disposi-
tion of Property D, Fund is still a qualified foreign
pension fund because it satisfies the requirements
of paragraph (c)(2) of this section. Company B is
therefore a qualified controlled entity within the
meaning of paragraph (e)(9) of this section as of
June 1, 2031, because it is wholly owned by Fund,
a qualified foreign pension fund. Notwithstanding
that Fund is not a qualified holder under either
paragraph (d)(2) or (3) of this section, Company B

Bulletin No. 2023–3 369 January 17, 2023
is a qualified holder under paragraph (d)(2) of this
section because Company B did not own a United
States real property interest as of June 1, 2026, the
earliest date during an uninterrupted period ending
on June 1, 2031 (the date of the disposition) during
which Company B was a qualified controlled en-
tity. Lastly, all of Company B’s assets constitute
a qualified segregated account. Accordingly, the
$100x of gain realized by Company B on the dis-
position of Property D is exempt from tax under
section 897(l).
(g) Applicability date—(1) In gener-
al. Except as otherwise provided in para-
graph (g)(2) of this section, this section
applies to dispositions of United States
real property interests and distributions
described in section 897(h) occurring on
or after December 29, 2022.
(2) Certain provisions. Paragraphs (b)
(1), (d), (e)(5) and (e)(9) of this section
apply with respect to dispositions of Unit-
ed States real property interests and distri-
butions described in section 897(h) occur-
ring on or after June 6, 2019.
(3) Early application. An eligible
fund may choose to apply this section
with respect to dispositions and distri-
butions occurring on or after December
18, 2015, and before December 29, 2022,
provided that the eligible fund, and all
persons bearing a relationship to the el-
igible fund described in section 267(b)
or 707(b), consistently apply the rules
in this section for all relevant years. An
eligible fund that chooses to apply this
section pursuant to this paragraph (g)(3)
must apply the principles of paragraph
(d)(4)(i) of this section to any valuation
requirements with respect to dates pre-
ceding December 18, 2015.
Par. 3. Section 1.1441-3 is amended by
revising paragraphs (c)(4)(i) introductory
text, (c)(4)(i)(B)(2), and (c)(4)(i)(C) and
adding paragraph (c)(4)(iii) to read as fol-
lows:
§1.1441-3 Determination of amounts to
be withheld.
* * * * *
(c) * * *
(4) * * *
(i) In general. A distribution from a
U.S. Real Property Holding Corporation
(USRPHC) (or from a corporation that
was a USRPHC at any time during the
five-year period ending on the date of
distribution) with respect to stock that is
a U.S. real property interest under section
897(c) or from a Real Estate Investment
Trust (REIT) or other entity that is a quali-
fied investment entity (QIE) under section
897(h)(4) with respect to its stock is sub-
ject to the withholding provisions under
section 1441 (or section 1442 or 1443)
and section 1445. A USRPHC (other than
a REIT or other entity that is a QIE) mak-
ing a distribution shall be treated as sat-
isfying its withholding obligations under
both sections if it withholds in accordance
with one of the procedures described in
either paragraph (c)(4)(i)(A) or (B) of this
section. A USRPHC must apply the same
withholding procedure to all the distribu-
tions made during the taxable year. How-
ever, the USRPHC may change the appli-
cable withholding procedure from year
to year. For rules regarding distributions
by REITs and other entities that are QIEs,
see paragraph (c)(4)(i)(C) of this section.
To the extent withholding under sections
1441, 1442, or 1443 applies under this
paragraph (c)(4)(i) to any portion of a
distribution that is a withholdable pay-
ment, see paragraph (a)(2) of this section
for rules coordinating withholding under
chapter 4.
* * * * *
(B) * * *
(2) Withhold under section 1445(e)(3)
and §1.1445-5(e) on the remainder of the
distribution (except for any portion paid to
a withholding qualified holder (as defined
in §1.1445-1(g)(11)) or on such smaller
portion based on a withholding certificate
obtained in accordance with §1.1445-5(e)
(3)(iv).
(C) Coordination with REIT/QIE with-
holding. In the case of a distribution from
a REIT or other entity that is a QIE, with-
holding is required as described in para-
graph (c)(4)(i)(C)(1) and (2) of this sec-
tion.
(1) Withholding is required under sec-
tion 1441 (or 1442 or 1443) on—
(i) The portion of the distribution that
is not designated (for REITs) or reported
(for regulated investment companies that
are QIEs) as a capital gain dividend, a re-
turn of basis, or a distribution in excess of
a shareholder’s adjusted basis in the stock
of the REIT or QIE that is treated as a cap-
ital gain under section 301(c)(3); and
(ii) Any portion of a capital gain div-
idend from a REIT or other entity that is
a QIE that is not treated as gain attribut-
able to the sale or exchange of a U.S. real
property interest pursuant to the second
sentence of section 897(h)(1)).
(2) Withholding is required under sec-
tion 1445 with respect to—
(i) A distribution in excess of a share-
holder’s adjusted basis in the stock of the
REIT or QIE is, unless the interest in the
REIT or QIE is not a U.S. real property
interest (for example, an interest in a do-
mestically controlled REIT or QIE under
section 897(h)(2)) or the distribution is
paid to a withholding qualified holder (as
defined in §1.1445-1(g)(11)); and
(ii) Any portion of a capital gain divi-
dend that is attributable to the sale or ex-
change of a U.S. real property interest un-
der section 897(h)(1), unless it is paid to a
withholding qualified holder (as defined in
§1.1445-1(g)(11)). See §1.1445-8.
* * * * *
(iii) Applicability date. Paragraphs (c)
(4)(i), (c)(4)(i)(B)(2), and (c)(4)(i)(C) of
this section apply to distributions made by
a USRPHC or a QIE occurring on or af-
ter December 29, 2022. For distributions
made by a USRPHC or a QIE occurring
before December 29, 2022, see §1.1441-
3(c)(4)(i), (c)(4)(i)(B)(2), and (c)(4)(i)(C),
as contained in 26 CFR part 1, revised as
of April 1, 2021.
* * * * *
Par. 4. Section 1.1445-1 is amended by
adding paragraph (g)(11) to read as fol-
lows:
§1.1445-1 Withholding on dispositions
of U.S. real property interests by foreign
persons: In general.
* * * * *
(g) * * *
(11) Withholding qualified holder.
A withholding qualified holder means a
qualified holder (under §1.897(l)-1(d)),
and a foreign partnership all of the inter-
ests of which are held by qualified holders
(under §1.897(l)-1(d)), including through
one or more partnerships.
* * * * *
Par. 5. Section 1.1445-2 is amended by:
1. Revising paragraph (b)(2)(i);
2. Adding paragraph (b)(2)(vi); and
3. Adding two sentences at the end of
paragraph (e).
The revisions and addition read as fol-
lows:

January 17, 2023 370 Bulletin No. 2023–3
§1.1445-2 Situations in which
withholding is not required under
section 1445(a).
* * * * *
(b) * * *
(2) * * *
(i) In general. The rules in this para-
graph (b)(2)(i) apply for purposes of the
transferor’s certification of non-foreign
status (including a certification of non-for-
eign status provided by a withholding
qualified holder (as defined in §1.1445-
1(g)(11)).
(A) A transferee of a U.S. real property
interest is not required to withhold under
section 1445(a) if, before or at the time of
the transfer, the transferor furnishes to the
transferee a certification that is signed un-
der penalties of perjury and –
(1) States that the transferor is not a
foreign person; and
(2) Sets forth the transferor’s name,
identifying number and home address (in
the case of an individual) or office address
(in the case of an entity).
(B) For purposes of paragraph (b)(2)
(i)(A) of this section, a foreign person is
a nonresident alien individual, foreign
corporation, foreign partnership, foreign
trust, or foreign estate, except that a with-
holding qualified holder (as defined in
§1.1445-1(g)(11)) is not a foreign person.
Additionally, a foreign corporation that
has made a valid election under section
897(i) is generally not treated as a for-
eign person for purposes of section 1445.
In this regard, see §1.1445-7. Pursuant to
§1.897-1(p), an individual’s identifying
number is the individual’s Social Security
number and any other person’s identifying
number is its U.S. employer identification
number (EIN), or, if the transferor is a
withholding qualified holder (as defined
in §1.1445-1(g)(11)) that does not have
a U.S. taxpayer identification number, a
foreign tax identification number issued
by its jurisdiction of residence. A certifi-
cation pursuant to this paragraph (b) must
be verified as true and signed under pen-
alties of perjury by a responsible officer
in the case of a corporation, by a general
partner in the case of a partnership, and
by a trustee, executor, or equivalent fidu-
ciary in the case of a trust or estate. No
particular form is needed for a certifica-
tion pursuant to this paragraph (b), nor is
any particular language required, so long
as the document meets the requirements
of this paragraph (b)(2)(i), except that,
with respect to a certification submitted
by a withholding qualified holder (as de-
fined in §1.1445-1(g)(11)), the transferor
must state on the certification that it is
treated as a non-foreign person because it
is a withholding qualified holder and must
further specify whether it qualifies as a
withholding qualified holder because it is
a qualified holder under §1.897(l)-1(d) or
a foreign partnership that satisfies the re-
quirements of §1.1445-1(g)(11). Samples
of acceptable certifications are provided in
paragraph (b)(2)(iv) of this section.
* * * * *
(vi) Form W-8EXP. A certification
of non-foreign status may be made by
a withholding qualified holder (as de-
fined under §1.1445-1(g)(11)) as provid-
ed in paragraph (b)(2)(i) of this section
to certify its qualified holder status. A
certification of non-foreign status under
paragraph (b)(2)(i) of this section also
includes a certification made on a Form
W-8EXP (or its successor) that states
that the transferor is treated as a non-for-
eign person because it is a withholding
qualified holder and must further speci-
fy whether it qualifies as a withholding
qualified holder because it is a qualified
holder under §1.897(l)-1(d) or a foreign
partnership that satisfies the requirements
of §1.1445-1(g)(11). The certification
must also meet all of the other require-
ments for a valid Form W-8EXP (or its
successor) as provided on the form and
the instructions to the form. A qualified
holder may not provide a certification of
non-foreign status on a Form W-9 (or its
successor) as permitted in paragraph (b)
(2)(v) of this section.
* * * * *
(e) * * * Paragraphs (b)(2)(i) and (b)
(2)(vi) of this section, apply with respect
to dispositions of U.S. real property inter-
ests and distributions described in section
897(h) occurring on or after December 29,
2022. For dispositions of U.S. real proper-
ty interests and distributions described in
section 897(h) occurring before Decem-
ber 29, 2022, see §1.1445-2(b)(2)(i) and
(b)(2)(vi), as contained in 26 CFR part 1,
revised as of April 1, 2021.
Par. 6. Section 1.1445-5 is amended by
revising paragraphs (b)(3)(ii)(A), (B), and
(D) and adding two sentences at the end of
paragraph (h) to read as follows:
§1.1445-5 Special rules concerning
distributions and other transactions by
corporations, partnerships, trusts, and
estates.
* * * * *
(b) * * *
(3) * * *
(ii) * * *
(A) In general. For purposes of this
section, an entity or fiduciary may treat
any holder of an interest in the entity as
a U.S. person if that interest-holder fur-
nishes to the entity or fiduciary a certifica-
tion stating that the interest-holder is not
a foreign person, in accordance with the
provisions of paragraph (b)(3)(ii)(B) of
this section. In general, a foreign person
is a nonresident alien individual, foreign
corporation, foreign partnership, foreign
trust, or foreign estate, except that a with-
holding qualified holder (as defined in
§1.1445-1(g)(11)) is not a foreign person
for purposes of this section.
(B) Procedural rules. The rules in this
paragraph (b)(3)(ii)(B) apply for purpos-
es of the interest-holder’s certification of
non-foreign status (including a certifica-
tion of non-foreign status provided by a
withholding qualified holder (as defined
in §1.1445-1(g)(11)).
(1) An interest-holder’s certification of
non-foreign status must be signed under
penalties of perjury and must state –
(i) That the interest-holder is not a for-
eign person; and
(ii) The interest-holder’s name, identi-
fying number, home address (in the case
of an individual), or office address (in the
case of an entity), and place of incorpora-
tion (in the case of a corporation).
(2) For purposes of paragraph (b)(3)(ii)
(B)(1) of this section, an individual’s iden-
tifying number is the individual’s Social
Security number and any other person’s
identifying number is its U.S. employer
identification number (see § 1.897-1(p)),
or, if the interest-holder is a withholding
qualified holder (as defined in §1.1445-
1(g)(11)) that does not have a U.S. tax-
payer identification number, a foreign
tax identification number issued by its
jurisdiction of residence. The certification
must be signed by a responsible officer

Bulletin No. 2023–3 371 January 17, 2023
in the case of a corporation, by a general
partner in the case of a partnership, and
by a trustee, executor, or equivalent fidu-
ciary in the case of a trust or estate. No
particular form is needed for a certifica-
tion pursuant to this paragraph (b)(3)(ii),
nor is any particular language required, so
long as the document meets the require-
ments of this paragraph, except that, with
respect to certification submitted by a
withholding qualified holder (as defined
in §1.1445-1(g)(11)), the transferor must
state on the certification that it is treat-
ed as a non-foreign person because it is
a withholding qualified holder and must
further specify whether it qualifies as a
withholding qualified holder because it is
a qualified holder under §1.897(l)-1(d) or
a foreign partnership that satisfies the re-
quirements of §1.1445-1(g)(11). Samples
of acceptable certifications are provided in
paragraph (b)(3)(ii)(E) of this section.
(3) An entity may rely upon a certifi-
cation pursuant to this paragraph (b)(3)
(ii)(B) for a period of two calendar years
following the close of the calendar year in
which the certification was given. If an in-
terest holder becomes a foreign person (or
no longer is treated as a withholding qual-
ified holder (as defined in §1.1445-1(g)
(11)) and therefore is no longer treated as
a non-foreign person for purposes of with-
holding under section 1445 within the pe-
riod described in the preceding sentence,
the interest-holder must notify the entity
before any further dispositions or distribu-
tions and upon receipt of such notice (or
any other notification of the foreign status
of the interest-holder) the entity may no
longer rely upon the prior certification. An
entity that obtains and relies upon a certi-
fication must retain that certification with
its books and records for a period of three
calendar years following the close of the
last calendar year in which the entity re-
lied upon the certification.
* * * * *
(D) Form W-8EXP. A certification
of non-foreign status can be made by a
withholding qualified holder (as defined
in §1.1445-1(g)(11)) as provided in this
paragraph (b)(3)(ii) to certify its qualified
holder status. A certification of non-for-
eign status under this paragraph (b)(3)
(ii) also includes a certification made on
a Form W-8EXP that states that the inter-
est-holder is treated as a non-foreign per-
son because it is a withholding qualified
holder and must further specify whether it
qualifies as a withholding qualified hold-
er because it is a qualified holder under
§1.897(l)-1(d) or a foreign partnership that
satisfies the requirements of §1.1445-1(g)
(11). The certification must also meet all
of the other requirements for a valid Form
W-8EXP as provided on the form and the
instructions to the form. A qualified holder
may not provide a certification of non-for-
eign status on a Form W-9, as described in
paragraph (b)(3)(iv) of this section.
* * * * *
(h) * * * Paragraph (b)(3)(ii)(A) of
this section applies with respect to dispo-
sitions of U.S. real property interests and
distributions described in section 897(h)
occurring on or after December 29, 2022.
For dispositions of U.S. real property in-
terests and distributions described in sec-
tion 897(h) occurring before December
29, 2022, see §1.1445-5(b)(3)(ii)(A), as
contained in 26 CFR part 1, revised as of
April 1, 2021.
Par. 7. Section 1.1445-8 is amended
by revising paragraph (e) and adding two
sentences after the first sentence in para-
graph (j) to read as follows:
§1.1445-8 Special rules regarding
publicly traded partnerships, publicly
traded trusts and real estate investment
trusts (REITs).
* * * * *
(e) Determination of non-foreign status
by withholding agent. A withholding agent
may rely on a certification of non-foreign
status pursuant to §1.1445-5(b)(3)(ii) to
determine whether an interest holder is
not a foreign person. Reliance on these
documents will excuse the withholding
agent from liability imposed under section
1445(e)(1) in the absence of actual knowl-
edge that the interest holder is a foreign
person. A withholding agent may also
employ other means to determine the sta-
tus of an interest holder, but, if the agent
relies on such other means and the inter-
est holder proves, in fact, to be a foreign
person (or, is not a withholding qualified
holder (as defined in §1.1445-1(g)(11))
and therefore is not treated as a non-for-
eign person for purposes of withholding
under section 1445), then the withholding
agent is subject to any liability imposed
pursuant to section 1445 and the regula-
tions thereunder for failure to withhold.
See also §1.1445-5(b)(3)(ii)(B)(3) for the
period during which a withholding agent
may rely on a certification of non-foreign
status submitted by a withholding quali-
fied holder (as defined in §1.1445-1(g)
(11)), which applies under this paragraph
(e).
* * * * *
(j) * * * Paragraph (e) of this section
applies with respect to distributions made
on or after December 29, 2022. For distri-
butions made before December 29, 2022,
see §1.1445-8(e) as contained in 26 CFR
part 1, as revised April 1, 2021.* * *
Par. 8. Section 1.1446-1 is amended by
revising the second sentence of paragraph
(c)(2)(ii)(G) and by revising paragraph (c)
(2)(ii)(H) to read as follows:
§1.1446-1 Withholding tax on foreign
partners’ share of effectively connected
taxable income.
* * * * *
(c) * * *
(2) * * *
(ii) * * *
(G) * * * However, except as set forth
in §1.1446-2(b)(4)(iii) (regarding with-
holding qualified holders (as defined in
§1.1445-1(g)(11)) and §1.1446-3(c)(3)
(regarding certain tax-exempt organiza-
tions described in section 501(c)), the sub-
mission of Form W-8EXP (or successor)
will have no effect on whether there is a
1446 tax due with respect to such partner’s
allocable share of partnership ECTI. * * *
(H) Foreign corporations, certain for-
eign trusts, and foreign estates. Consistent
with the rules of this paragraph (c)(2) and
paragraph (c)(3) of this section, a foreign
corporation, a foreign trust (other than a
foreign grantor trust described in para-
graph (c)(2)(ii)(E) of this section), or a
foreign estate may generally submit any
appropriate Form W-8 (for example, Form
W-8BEN-E or Form W-8IMY) to the part-
nership to establish its foreign status for
purposes of section 1446. In addition, a
foreign entity may also submit a certifi-
cation of non-foreign status (including a
Form W-8EXP) described in §1.1445-5(b)
(3)(ii) for purposes of documenting itself
as a withholding qualified holder (as de-
fined in §1.1445-1(g)(11)).

January 17, 2023 372 Bulletin No. 2023–3
* * * * *
Par. 9. Section 1.1446-2 is amended
by adding paragraph (b)(4)(iii) to read as
follows:
§1.1446-2 Determining a partnership‘s
effectively connected taxable income
allocable to foreign partners under
section 704.
* * * * *
(b) * * *
(4) * * *
(iii) Special rule for qualified holders.
With respect to a foreign partner that is a
withholding qualified holder (as defined
in §1.1445-1(g)(11)), the foreign part-
ner’s allocable share of partnership ECTI
does not include gain or loss that is not
taken into account under §1.897(l)-1(b)
and that is not otherwise treated as effec-
tively connected with a trade or business
in the United States. The partnership
must have received from the partner a
valid certificate of non-foreign status
(including a Form W-8EXP) described
in §1.1445-2(b)(2)(i) or §1.1445-5(b)(3)
(ii). See §1.1446-1(c)(2)(ii)(G) and (H)
regarding documentation of withholding
qualified holders.
* * * * *
Par. 10. Section 1.1446-7 is amended
by adding two sentences at the end to read
as follows:
§1.1446-7 Applicability dates.
* * * Sections 1.1446-1(c)(2)(ii)(G)
and (H) and 1.1446-2(b)(4)(iii) apply
with respect to dispositions of U.S. real
property interests and distributions de-
scribed in section 897(h) occurring on
or after December 29, 2022. For dispo-
sitions of U.S. real property interests and
distributions described in section 897(h)
occurring before December 29, 2022,
see §§1.1446-1(c)(2)(ii)(G) and (H), as
contained in 26 CFR part 1, revised as of
April 1, 2021.
Melanie R. Krause,
Acting Deputy Commissioner for
Services and Enforcement.
Approved: December 9, 2022
Lily Batchelder,
Assistant Secretary of the Treasury
(Tax Policy).
(Filed by the Office of the Federal Register on De-
cember 28, 2022, 8:45 a.m., and published in the is-
sue of the Federal Register for December 29, 2022,
87 FR 80042)

Bulletin No. 2023–3 373 January 17, 2023
Part III
Certain Definitions of
Terms in Section 30D
Clean Vehicle Credit
Notice 2023-1
SECTION 1. PURPOSE
This notice informs taxpayers that the
Department of the Treasury (Treasury De-
partment) and the Internal Revenue Ser-
vice (IRS) intend to propose regulations
under § 30D of the Internal Revenue Code
(Code) (forthcoming proposed regula-
tions) addressing the definitions of certain
terms relevant to the requirements of the
clean vehicle credit available under § 30D
(§ 30D credit).
1

SECTION 2. BACKGROUND
Section 13401 of Public Law 117-169,
136 Stat. 1818 (August 16, 2022), com-
monly known as the Inflation Reduction
Act of 2022 (IRA), amended § 30D.
In general, the amendments made by
§ 13401 of the IRA to § 30D apply to vehi-
cles placed in service after December 31,
2022, except as provided in § 13401(k)(2)
through (5) of the IRA.
As amended by § 13401(b) of the IRA,
§ 30D(d)(1)(G) requires, as of August 17,
2022, any vehicle eligible for the § 30D
credit to undergo final assembly in North
America. Section 30D(d)(5) defines “final
assembly” as the process by which a man-
ufacturer produces a new clean vehicle
at, or through the use of, a plant, factory,
or other place from which the vehicle is
delivered to a dealer or importer with all
component parts necessary for the me-
chanical operation of the vehicle included
with the vehicle, whether or not the com-
ponent parts are permanently installed in
or on the vehicle.
New § 30D(f)(10)(A) provides that no
§ 30D credit is allowed for any taxable
year if (i) the lesser of (I) the modified
adjusted gross income of the taxpayer
for such taxable year, or (II) the modified
adjusted gross income of the taxpayer
for the preceding taxable year, exceeds
(ii) the threshold amount. New § 30D(f)
(10)(B) provides that the threshold
amount shall be (i) in the case of a joint
return or a surviving spouse (as defined
in § 2(a)), $300,000, (ii) in the case of a
head of household (as defined in § 2(b)),
$225,000, and (iii) in the case of any other
taxpayer, $150,000. New § 30D(f)(10)(C)
defines “modified adjusted gross income”
as adjusted gross income increased by any
amount excluded from gross income un-
der § 911, 931, or 933.
New § 30D(f)(11)(A) provides that
no § 30D credit is allowed for a vehicle
with a manufacturer’s suggested retail
price in excess of the applicable limita-
tion. New § 30D(f)(11)(B) provides that
the applicable limitation for each vehicle
classification is as follows: in the case of a
van, $80,000; in the case of a sport utility
vehicle, $80,000; in the case of a pickup
truck, $80,000; and in the case of any oth-
er vehicle, $55,000. New § 30D(f)(11)(C)
authorizes the Secretary of the Treasury or
her delegate (Secretary) to prescribe such
regulations or other guidance as the Sec-
retary determines necessary to determine
vehicle classifications using criteria simi-
lar to that employed by the Environmental
Protection Agency and the Department of
the Energy to determine size and class of
vehicles.
SECTION 3. GUIDANCE TO BE
ISSUED
The Treasury Department and the IRS
intend to issue the forthcoming proposed
regulations to address the amendments
made to § 30D by the IRA. The forthcom-
ing proposed regulations will include defi-
nitions of the following terms, which are
relevant for new clean vehicles placed in
service after December 31, 2022:
1. Final Assembly
2. North America
3. Manufacturer’s Suggested Retail
Price
4. Vehicle Classifications for vans, sport
utility vehicles, pickup trucks, and
other vehicles
5. Placed in service
In addition, the forthcoming proposed
regulations will provide guidance regard-
ing the critical mineral and battery com-
ponent requirements under § 30D(e).
2
The
remainder of this section 3 describes a
subset of the expected content of the forth-
coming proposed regulations.
.01 Final Assembly
For purposes of § 30D(d)(5), “final
assembly” means the process by which a
manufacturer produces a new clean vehi-
cle at, or through the use of, a plant, facto-
ry, or other place from which the vehicle
is delivered to a dealer or importer with
all component parts necessary for the me-
chanical operation of the vehicle included
with the vehicle, whether or not the com-
ponent parts are permanently installed in
or on the vehicle.
To establish where final assembly of a
new clean vehicle occurred, the taxpayer
may rely on the following information:
(1) the vehicle’s plant of manufacture as
reported in the vehicle identification num-
ber pursuant to 49 CFR 565; or (2) the fi-
nal assembly point reported on the label
affixed to the vehicle as described in 49
CFR 583.5(a)(3).
.02 North America
For purposes of § 30D(d)(1)(G), “North
America” means the territory of the Unit-
ed States, Canada, and Mexico as defined
in 19 C.F.R. part 182, Appendix A, § 1(1).
.03 Manufacturer’s Suggested Retail
Price
For purposes of § 30D(f)(11)(A),
“manufacturer’s suggested retail price”
means the sum of: (A) the retail price of
the automobile suggested by the manufac-
turer as described in 15 U.S.C. 1232(f)(1);
and (B) the retail delivered price suggest-
1
Unless otherwise specified, all “section” or “§” references are to sections of the Code.
2
Section 4 of this notice confirms that the publication of this notice is not the publication of proposed guidance with respect to the critical mineral and battery component requirements under
§ 30D(e).

January 17, 2023 374 Bulletin No. 2023–3
ed by the manufacturer for each accessory
or item of optional equipment, physically
attached to such automobile at the time of
its delivery to the dealer, which is not in-
cluded within the price of such automobile
as stated pursuant to 15 U.S.C. 1232(f)(1),
as described in 15 U.S.C. 1232(f)(2). This
information is reported on the label that is
affixed to the windshield or side window
of the vehicle, as described in 15 U.S.C.
1232.
.04 Vehicle Classifications
For purposes of § 30D(f)(11)(B), the
applicable limitation for each vehicle clas-
sification is as follows: (A) in the case of
a van, $80,000; (B) in the case of a sport
utility vehicle, $80,000; (C) in the case of
a pickup truck, $80,000; and (D) in the
case of any other vehicle, $55,000.
For purposes of § 30D(f)(11)(B), a
vehicle’s vehicle classification is to be
determined consistent with the rules and
definitions provided in 40 CFR 600.002
for vans, sport utility vehicles, and
pickup trucks. A vehicle described in
§ 30D(f)(11)(B)(iv) is a vehicle that is
not considered a van, sport utility vehi-
cle, or pickup truck consistent with the
rules and definitions provided in 40 CFR
600.002.
.05 Placed in Service
For purposes of the § 30D credit, a new
clean vehicle is considered to be placed in
service on the date the taxpayer takes pos-
session of the vehicle.
SECTION 4. PROPOSED
GUIDANCE FOR CRITICAL
MINERAL AND BATTERY
COMPONENT REQUIREMENTS
For purposes of § 30D(e)(3)(B), the
publication of this notice is not the publi-
cation of proposed guidance with respect
to the critical mineral and battery com-
ponent requirements under § 30D(e) and
does not trigger the applicability of the
requirements. The Treasury Department
and the IRS will explicitly identify when
they have published proposed guidance
with respect to the critical mineral and
battery component requirements under
§ 30D(e).
SECTION 5. DRAFTING
INFORMATION
The principal author of this notice
is the Office of Associate Chief Coun-
sel (Passthroughs & Special Industries).
However, other personnel from the Trea-
sury Department and the IRS participated
in its development. For further informa-
tion regarding this notice, call the energy
security guidance contact number at (202)
317-5254 (not a toll-free number).
Initial Guidance Regarding
the Application of the
Excise Tax on Repurchases
of Corporate Stock under
Section 4501 of the
Internal Revenue Code
Notice 2023-2
SECTION 1. OVERVIEW
This notice announces that the Depart-
ment of the Treasury (Treasury Depart-
ment) and the Internal Revenue Service
(IRS) intend to issue proposed regulations
(forthcoming proposed regulations) ad-
dressing the application of the new excise
tax on repurchases of corporate stock un-
der § 4501 of the Internal Revenue Code
(Code).
1
Section 4501 was added to a new
chapter 37 of the Code by the enactment
of Public Law 117-169, 136 Stat. 1818
(August 16, 2022), commonly referred
to as the Inflation Reduction Act of 2022
(IRA). To provide taxpayers with interim
guidance until publication of the forth-
coming proposed regulations, this notice
describes certain rules and procedures that
the Treasury Department and the IRS in-
tend to include in those regulations. Until
the issuance of the forthcoming proposed
regulations, taxpayers may rely on the
rules described in section 3 of this notice.
Section 2 of this notice provides a
summary of relevant law underlying the
guidance set forth in section 3 of this no-
tice. Section 3 of this notice describes
certain operating rules for purposes of
the excise tax imposed by § 4501, includ-
ing rules setting forth an exclusive list
of transactions that are repurchases and
rules for determining the fair market val-
ue of stock repurchased in such transac-
tions, that the Treasury Department and
the IRS intend to include in the forthcom-
ing proposed regulations. Section 4 of
this notice describes the anticipated rules
for reporting and paying any liability for
the excise tax imposed by § 4501. Sec-
tion 5 of this notice describes the antici-
pated applicability date for the forthcom-
ing proposed regulations. Section 6 of
this notice requests comments on issues
addressed in this notice as well as specif-
ic issues not so addressed. Section 7 of
this notice provides drafting and contact
information.
SECTION 2. BACKGROUND
.01 Overview.
(1) Excise tax imposed. Section 4501
imposes on each covered corporation (as
defined in § 4501(b)) an excise tax (stock
repurchase excise tax) equal to 1 percent
of the fair market value of any stock of the
corporation that is repurchased (as defined
in § 4501(c)(1)) by the corporation during
the taxable year. Section 4501(a).
(2) Covered corporation. For purpos-
es of the stock repurchase excise tax, the
term covered corporation means any do-
mestic corporation the stock of which is
traded on an established securities market
(within the meaning of § 7704(b)(1)). Sec-
tion 4501(b).
(3) No deductions allowed. No de-
duction is allowed for the payment of the
stock repurchase excise tax. See § 275(a)
(6) (as amended by § 10201(b) of the IRA
to add a reference to chapter 37 of the
Code, which contains § 4501).
.02 Repurchase.
(1) Statutory scope. Section 4501(c)
(1) expressly mandates that repurchases
of stock of a covered corporation to which
the stock repurchase excise tax may apply
include the following two types of trans-
actions:
1
Unless otherwise specified, all “section” or “§” references are to sections of the Code or the Income Tax Regulations (26 CFR part 1).

Bulletin No. 2023–3 375 January 17, 2023
(a) Section 317(b) redemptions. The
term repurchase means a redemption
within the meaning of § 317(b) with re-
gard to the stock of a covered corporation
(§ 317(b) redemption). Section 4501(c)(1)
(A).
(b) Transactions economically similar
to § 317(b) redemptions. In addition, the
term repurchase means any transaction
determined by the Secretary of the Trea-
sury or her delegate (Secretary) to be eco-
nomically similar to a § 317(b) redemp-
tion (economically similar transaction).
Section 4501(c)(1)(B).
(2) Specified affiliates of covered cor-
porations. Section 4501(c)(2) provides a
special rule that treats certain acquisitions
of the stock of a covered corporation by its
“specified affiliates” as repurchases during
the taxable year with respect to which the
stock repurchase excise tax may be im-
posed on the covered corporation.
(a) Specified affiliate. For purposes of
the stock repurchase excise tax, the term
specified affiliate means, with regard to
any corporation, (i) any corporation more
than 50 percent of the stock of which is
owned (by vote or by value), directly or
indirectly, by the corporation, and (ii) any
partnership more than 50 percent of the
capital interests or profits interests of
which is held, directly or indirectly, by the
corporation. Section 4501(c)(2)(B).
(b) Deemed repurchase rule. The ac-
quisition of any stock of a covered cor-
poration by a specified affiliate of the
covered corporation, from a person who
is not the covered corporation or a speci-
fied affiliate of the covered corporation, is
treated as a repurchase of the stock of the
covered corporation by the covered corpo-
ration for purposes of the stock repurchase
excise tax. Section 4501(c)(2)(A).
.03 Adjustment to amount taken into
account under § 4501(a).
(1) Overview. The stock repurchase ex-
cise tax is applied to the fair market value
of any repurchases of stock by a covered
corporation during its taxable year. The
amount of these repurchases is reduced
by (i) the fair market value of any repur-
chases excluded by an exception listed in
§ 4501(e), and (ii) the fair market value of
any issuances of the covered corporation’s
stock during its taxable year that, under
§ 4501(c)(3), offset the amount of any
repurchases of the covered corporation’s
stock (netting rule).
(2) Netting rule. The netting rule pro-
vides that the amount taken into account
under § 4501(a) with respect to any stock
repurchased by a covered corporation is
reduced by the fair market value of any
stock issued by the covered corporation
during the taxable year, including the fair
market value of any stock issued or pro-
vided to employees of the covered corpo-
ration or employees of a specified affili-
ate of the covered corporation during the
taxable year (whether or not the stock is
issued or provided in response to the ex-
ercise of an option to purchase the stock).
.04 Special rules for acquisitions of
stock of certain foreign corporations.
(1) Overview. Section 4501(d) provides
special rules for acquisitions of stock of
applicable foreign corporations and cov-
ered surrogate foreign corporations.
(2) Defined terms for special rules. For
purposes of § 4501(d):
(a) Applicable foreign corporation.
The term applicable foreign corporation
means any foreign corporation the stock
of which is traded on an established secu-
rities market. Section 4501(d)(3)(A).
(b) Covered surrogate foreign corpo-
ration. The term covered surrogate for-
eign corporation means any surrogate
foreign corporation (as determined under
§ 7874(a)(2)(B) by substituting “Septem-
ber 20, 2021” for “March 4, 2003” each
place it appears) the stock of which is
traded on an established securities market,
but only with respect to taxable years that
include any portion of the applicable peri-
od with respect to such corporation under
§ 7874(d)(1). Section 4501(d)(3)(B).
(c) Expatriated entity. The term expa-
triated entity has the meaning given the
term by § 7874(a)(2)(A).
(3) Acquisition of stock of applicable
foreign corporations.
(a) Scope. Section 4501(d)(1) applies
in the case of an acquisition of stock of an
applicable foreign corporation by a speci-
fied affiliate of the corporation (other than
a foreign corporation or a foreign partner-
ship (unless the partnership has a domestic
entity as a direct or indirect partner)) from
a person that is not the applicable foreign
corporation or a specified affiliate of the
applicable foreign corporation.
(b) Operative rule. If § 4501(d)(1) ap-
plies, then for purposes of the stock repur-
chase excise tax—
(i) the specified affiliate is treated as
a covered corporation with respect to the
acquisition,
(ii) the acquisition is treated as a repur-
chase of stock of a covered corporation by
the covered corporation, and
(iii) the adjustment under § 4501(c)
(3) (that is, the netting rule) is determined
only with respect to stock issued or pro-
vided by the specified affiliate to employ-
ees of the specified affiliate.
(4) Repurchase of stock of covered sur-
rogate foreign corporations.
(a) Scope. Section 4501(d)(2) applies
in the case of—
(i) a repurchase of stock of a covered
surrogate foreign corporation by the cov-
ered surrogate foreign corporation, or
(ii) an acquisition of stock of a covered
surrogate foreign corporation by a speci-
fied affiliate of such corporation.
(b) Operative rule. If § 4501(d)(2) ap-
plies, then for purposes of the stock repur-
chase excise tax—
(i) the expatriated entity with respect to
the covered surrogate foreign corporation
is treated as a covered corporation with re-
spect to the repurchase or acquisition,
(ii) the repurchase or acquisition is
treated as a repurchase of stock of a cov-
ered corporation by the covered corpora-
tion, and
(iii) the adjustment under § 4501(c)(3)
is determined only with respect to stock
issued or provided by the expatriated en-
tity to employees of the expatriated entity.
.05 Statutory exceptions to the applica-
tion of § 4501(a).
(1) Overview. Section 4501(e) lists
transactions that are statutorily excepted,
in whole or in part, from the application
of § 4501(a) (each, a statutory exception).
(2) Excepted transaction list. As a re-
sult of the statutory exceptions, § 4501(a)
does not apply to a repurchase of a cov-
ered corporation’s stock—
(a) to the extent that the repurchase
is part of a reorganization (within the
meaning of § 368(a)) and no gain or loss
is recognized on the repurchase by the
shareholder under chapter 1 of the Code
by reason of the reorganization (§ 4501(e)
(1)),

January 17, 2023 376 Bulletin No. 2023–3
(b) in any case in which the stock re-
purchased is, or an amount of stock equal
to the value of the stock repurchased is,
contributed to an employer-sponsored re-
tirement plan, employee stock ownership
plan, or similar plan (§ 4501(e)(2)),
(c) in any case in which the total val-
ue of the stock repurchased during the
taxable year does not exceed $1,000,000
(§ 4501(e)(3)),
(d) under regulations prescribed by the
Secretary, in cases in which the repurchase
is by a dealer in securities in the ordinary
course of business (§ 4501(e)(4)),
(e) to repurchases by a regulated in-
vestment company (RIC), as defined in
§ 851, or by a real estate investment trust
(REIT), as defined in § 856(a) (§ 4501(e)
(5)), or
(f) to the extent that the repurchase is
treated as a dividend for purposes of the
Code (§ 4501(e)(6)).
.06 Regulations and other guidance.
(1) In general. Under § 4501(f), the
Secretary is authorized to prescribe such
regulations and other guidance as are nec-
essary or appropriate to carry out, and to
prevent the avoidance of, the purposes of
the stock repurchase excise tax.
(2) Enumerated examples. Regulations
or other guidance described in § 4501(f)
may include guidance—
(a) to prevent the abuse of the statutory
exceptions,
(b) to address special classes of stock
and preferred stock, and
(c) for the application of the special
rules for acquisitions of stock of certain
foreign corporations under § 4501(d).
.07 Applicability of stock repurchase
excise tax provisions.
(1) Repurchases. Except to the extent
that a statutory exception applies, the
stock repurchase excise tax applies to re-
purchases after December 31, 2022 (cov-
ered repurchases), subject to the netting
rule. See § 10201(d) of the IRA.
(2) Netting rule. In contrast to the De-
cember 31, 2022, effective date expressly
provided by § 10201(d) of the IRA with
regard to covered repurchases, the netting
rule expressly takes into account any is-
suances by a covered corporation during
the entirety of its taxable year. See gen-
erally § 4501(c)(3). Specifically, under
the netting rule, the amount taken into
account under § 4501(a) with respect to
any covered repurchases is “reduced by
the fair market value of any stock issued
by the covered corporation during the tax-
able year.” Section 4501(c)(3) (emphasis
added). Therefore, solely in the case of
a covered corporation that has a taxable
year that both begins before January 1,
2023, and ends after December 31, 2022,
that covered corporation may, solely with
regard to any covered repurchases during
that taxable year to which the stock repur-
chase excise tax applies, apply the netting
rule to reduce the fair market value of
the covered corporation’s covered repur-
chases during that taxable year by the fair
market value of all issuances of its stock
during the entirety of that taxable year.
SECTION 3. INTERIM GUIDANCE
REGARDING THE APPLICATION
OF § 4501
.01 Purpose. The Treasury Department
and the IRS anticipate that the forthcom-
ing proposed regulations will be consis-
tent with the guidance provided in this
section 3. The Treasury Department and
the IRS are issuing this interim guidance
to provide clarity as to the calculation of
the stock repurchase excise tax and the
application of § 4501 to certain transac-
tions and other events occurring prior to
the issuance of the forthcoming proposed
regulations.
.02 Defined Terms. For purposes of this
notice:
(1) Acquisitive reorganization. The
term acquisitive reorganization means a
transaction that qualifies as a reorganiza-
tion under § 368(a)(1)(A) (A reorganiza-
tion) (including by reason of § 368(a)(2)
(D) or § 368(a)(2)(E)), § 368(a)(1)(C),
or § 368(a)(1)(D) (D reorganization) (if
the D reorganization satisfies the require-
ments of § 354(b)(1)).
(2) Applicable acquiror. The term ap-
plicable acquiror means—
(a) a specified affiliate of a covered
corporation with regard to an acquisition
described in § 4501(c)(2),
(b) an applicable specified affiliate of
an applicable foreign corporation with
regard to an acquisition described in
§ 4501(d)(1),
(c) a covered surrogate foreign cor-
poration with regard to a repurchase de-
scribed in § 4501(d)(2), or
(d) a specified affiliate of a covered sur-
rogate foreign corporation with regard to
an acquisition described in § 4501(d)(2).
(3) Applicable foreign corporation.
The term applicable foreign corporation
has the meaning given the term in section
2.04(2)(a) of this notice.
(4) Applicable specified affiliate. The
term applicable specified affiliate means a
specified affiliate of an applicable foreign
corporation, other than a foreign corpora-
tion or a foreign partnership (unless the
partnership has a domestic entity as a di-
rect or indirect partner).
(5) Controlled corporation. The term
controlled corporation has the meaning
given the term in § 355(a)(1)(A).
(6) Covered corporation. The term cov-
ered corporation has the meaning given
the term in section 2.01(2) of this notice.
(7) Covered surrogate foreign corpora-
tion. The term covered surrogate foreign
corporation has the meaning given the
term in section 2.04(2)(b) of this notice.
(8) De minimis exception. The term de
minimis exception has the meaning given
the term in section 3.03(2) of this notice.
(9) Distributing corporation. The term
distributing corporation has the meaning
given the term in § 355(a)(1)(A).
(10) Economically similar transaction.
The term economically similar transac-
tion has the meaning given the term in
section 2.02(1)(b) of this notice, as imple-
mented in accordance with section 3.04 of
this notice.
(11) Employee. The term employee
means an employee as defined in § 3401(c)
and § 31.3401(c)-1 of the Collection of In-
come Tax at Source Regulations (26 CFR
part 31), or a former employee, of the cov-
ered corporation or specified affiliate, as
applicable.
(12) Employer-sponsored retirement
plan. The term employer-sponsored re-
tirement plan means a retirement plan
maintained by a covered corporation that
is qualified under § 401(a), including an
employee stock ownership plan described
in § 4975(e)(7).
(13) Established securities market. The
term established securities market has the
meaning given the term in § 1.7704-1(b).
(14) Expatriated entity. The term ex-
patriated entity has the meaning given
the term in section 2.04(2)(c) of this no-
tice.

Bulletin No. 2023–3 377 January 17, 2023
(15) Netting rule. The term netting rule
has the meaning given the term in section
2.03(1) of this notice, as implemented in
accordance with section 3.08 of this notice.
(16) Qualifying property exception.
The term qualifying property exception
has the meaning given the term in section
3.07(2) of this notice.
(17) Qualifying property repurchase.
The term qualifying property repurchase
has the meaning given the term in section
3.07(2) of this notice.
(18) REIT. The term REIT has the
meaning given the term in section 2.05(2)
(e) of this notice.
(19) Repurchase. The term repurchase
has the meaning given the term in section
2.02(1) of this notice, as implemented in
accordance with section 3.04 of this no-
tice.
(20) RIC. The term RIC has the mean-
ing given the term in section 2.05(2)(e) of
this notice.
(21) Section 317(b) redemption. The
term § 317(b) redemption has the meaning
given the term in section 2.02(1)(a) of this
notice.
(22) Specified affiliate. The term spec-
ified affiliate has the meaning given the
term in section 2.02(2)(a) of this notice.
(23) Split-off. The term split-off means
a distribution qualifying under § 355 (and
so much of § 356 as relates to § 355) by a
distributing corporation pursuant to which
the shareholders of the distributing corpo-
ration exchange stock of the distributing
corporation for stock of the controlled
corporation and, if applicable, other prop-
erty (including securities of the controlled
corporation) or money.
(24) Statutory exception. The term stat-
utory exception has the meaning given the
term in section 2.05(1) of this notice, as
implemented in accordance with section
3.07 of this notice.
(25) Stock. The term stock means any
instrument issued by a corporation that is
stock or that is treated as stock for Fed-
eral tax purposes at the time of issuance,
regardless of whether the instrument is
traded on an established securities market.
(26) Stock repurchase excise tax. The
term stock repurchase excise tax has the
meaning given the term in section 2.01(1)
of this notice.
(27) Stock repurchase excise tax base.
The term stock repurchase excise tax base
has the meaning given the term in section
3.03(3)(a) of this notice.
(28) Taxable year. The term taxable
year has the meaning given the term in
§ 7701(a)(23) and may include a fiscal
year (as defined in § 7701(a)(24)). See
§ 7701(a)(23) and (24); see also §§ 441(b)
and 443.
.03 Computation of excise tax liability.
(1) Imposition of tax. Except as provid-
ed in section 3.03(2) of this notice (regard-
ing the de minimis exception), the amount
of stock repurchase excise tax imposed on
a covered corporation equals the product
obtained by multiplying—
(a) one percent, by
(b) the stock repurchase excise tax base
of the covered corporation determined in
accordance with section 3.03(3) of this
notice.
(2) De minimis exception.
(a) In general. A covered corporation
is not subject to the stock repurchase ex-
cise tax with regard to a taxable year if,
during that taxable year, the aggregate fair
market value of the covered corporation’s
repurchases of its stock does not exceed
$1,000,000 (de minimis exception).
(b) Determination. A determination of
whether the de minimis exception applies
with regard to a taxable year is made be-
fore applying—
(i) any statutory exception under sec-
tion 3.07 of this notice, and
(ii) any adjustments under the netting
rule under section 3.08 of this notice.
(3) Stock repurchase excise tax base.
(a) In general. With regard to a covered
corporation, the term stock repurchase ex-
cise tax base means an amount (not less
than zero) that is obtained by:
(i) Determining the aggregate fair
market value of all repurchases (as deter-
mined under sections 3.04 through 3.06 of
this notice) of the covered corporation’s
stock by the covered corporation during
its taxable year,
(ii) Reducing the amount determined
under section 3.03(3)(a)(i) of this notice
by the fair market value of stock of the
covered corporation repurchased during
its taxable year to the extent any statutory
exceptions apply in accordance with sec-
tion 3.07 of this notice, and then
(iii) Reducing the amount determined
under section 3.03(3)(a)(ii) of this notice
by the aggregate fair market value of stock
of the covered corporation issued or pro-
vided by the covered corporation during
its taxable year under the netting rule in
accordance with section 3.08 of this no-
tice.
(b) Repurchases before January 1,
2023. Repurchases by a covered corpora-
tion before January 1, 2023, as determined
under section 3.06(1) of this notice, are
not included in the covered corporation’s
stock repurchase excise tax base.
(c) Taxable year determination. The
determinations under section 3.03(3)(a)
of this notice are made separately to each
covered corporation and to each taxable
year of the covered corporation. Reduc-
tions under section 3.03(3)(a)(ii) or (iii) of
this notice in excess of the amount deter-
mined under section 3.03(3)(a)(i) of this
notice are not carried forward or back-
ward to preceding or succeeding taxable
years of a covered corporation.
.04 Redemptions and Economically
Similar Transactions.
(1) Overview. This section 3.04 pro-
vides rules for determining whether a
transaction is a repurchase for purposes
of the stock repurchase excise tax. Section
3.04(2) of this notice provides a general
rule regarding the scope of the term “re-
purchase.” Section 3.04(3) of this notice
provides an exclusive list of transactions
that are treated as a § 317(b) redemption
but are not repurchases. Section 3.04(4) of
this notice provides (i) an exclusive list of
transactions that are economically similar
transactions, and (ii) a nonexclusive list
of transactions that are not economically
similar transactions.
(2) Scope of repurchase. For purposes
of the stock repurchase excise tax, a repur-
chase means solely—
(a) a § 317(b) redemption, except as
provided in section 3.04(3) of this notice,
or
(b) an economically similar transaction
described in section 3.04(4) of this notice.
(3) Certain § 317(b) redemptions not
repurchases. This section 3.04(3) pro-
vides an exclusive list of transactions that
are § 317(b) redemptions but are not re-
purchases.
(a) Section 304(a)(1) transactions.
(i) Rule regarding deemed distribu-
tions. If § 304(a)(1) applies to an acquisi-
tion of stock by an acquiring corporation
(within the meaning of § 304(a)(1)), the

January 17, 2023 378 Bulletin No. 2023–3
acquiring corporation’s deemed distribu-
tion in redemption of its stock (resulting
from the application of § 304(a)(1)) is not
a repurchase.
(ii) Scope of rule. The rule described
in section 3.04(3)(a)(i) of this notice ap-
plies to a transaction described in that
section regardless of whether § 302(a) or
(d) applies to the acquiring corporation’s
deemed distribution in redemption of its
stock.
(iii) Rule regarding deemed issuances.
For the rule addressing the treatment of
any stock deemed to be issued by the ac-
quiring corporation as a result of the appli-
cation of § 304(a)(1), see section 3.08(4)
(e) of this notice.
(b) Payment by covered corporation of
cash in lieu of fractional shares. A pay-
ment by a covered corporation of cash in
lieu of a fractional share is not a repur-
chase if—
(i) the payment is carried out as part
of a transaction that qualifies as a reorga-
nization under § 368(a) or as a distribu-
tion to which § 355 applies, or pursuant
to the settlement of an option or similar
financial instrument (for example, a con-
vertible bond or convertible preferred
share),
(ii) the cash received by the shareholder
entitled to the fractional share is not sepa-
rately bargained-for consideration (that is,
the cash paid by the covered corporation
in lieu of the fractional share represents a
mere rounding off of the shares issued in
the exchange or settlement),
(iii) the payment is carried out sole-
ly for administrative convenience (and,
therefore, solely for non-tax reasons), and
(iv) the amount of cash paid to the
shareholder in lieu of a fractional share
does not exceed the value of one full share
of the stock of the covered corporation.
(4) Economically similar transactions.
Section 3.04(4)(a) of this notice provides
an exclusive list of transactions that are
economically similar transactions. Section
3.04(4)(b) of this notice provides a nonex-
clusive list of specific transactions that are
not economically similar transactions.
(a) Transactions that are economically
similar transactions.
(i) Acquisitive reorganizations. In the
case of an acquisition of a target corpo-
ration that is a covered corporation or a
covered surrogate foreign corporation
(as appropriate) in an acquisitive reorga-
nization, the exchange by the target cor-
poration shareholders of their target cor-
poration stock as part of the acquisitive
reorganization is a repurchase by the tar-
get corporation.
(ii) Reorganizations under § 368(a)(1)
(E). In the case of a recapitalization of a
covered corporation or a covered surro-
gate foreign corporation (each, a recap-
italizing corporation) that qualifies as a
reorganization under § 368(a)(1)(E) (E re-
organization), an exchange by the recapi-
talizing corporation shareholders of their
recapitalizing corporation stock as part of
the E reorganization is a repurchase by the
recapitalizing corporation.
(iii) Reorganizations under § 368(a)(1)
(F). In the case of a transaction that qual-
ifies as a reorganization under § 368(a)(1)
(F) (F reorganization) in which the trans-
feror corporation (as defined in § 1.368-
2(m)(1)) is a covered corporation or a
covered surrogate foreign corporation (as
appropriate), the exchange by the trans-
feror corporation shareholders of their
transferor corporation stock as part of the
F reorganization is a repurchase by the
transferor corporation.
(iv) Split-offs. In the case of a split-off
by a distributing corporation that is a cov-
ered corporation or a covered surrogate
foreign corporation (as appropriate), the
exchange by the distributing corporation
shareholders of their distributing corpo-
ration stock for controlled corporation
stock and, if applicable, other property
(including securities of the controlled cor-
poration) or money is a repurchase by the
distributing corporation.
(v) Complete liquidations to which
both §§ 331 and 332 apply. In the case of
a complete liquidation of a covered cor-
poration or a covered surrogate foreign
corporation (as appropriate) to which
§§ 331 and 332(a) respectively apply to
component distributions of the complete
liquidation—
(A) each distribution to which § 331
applies is a repurchase by the covered cor-
poration or the covered surrogate foreign
corporation, and
(B) the distribution to which § 332(a)
applies is not a repurchase by the covered
corporation or the covered surrogate for-
eign corporation. See section 3.04(4)(b)(i)
of this notice.
(b) Transactions that are not economi-
cally similar transactions.
(i) Complete liquidations.
(A) General rule. Except as provided
in section 3.04(4)(a)(v) of this notice, a
distribution in complete liquidation of a
covered corporation or a covered surro-
gate foreign corporation (as appropriate)
to which § 331 or § 332(a) applies is not
a repurchase by the covered corporation
or the covered surrogate foreign corpo-
ration.
(B) Distributions during taxable year
of complete liquidation and dissolution.
If a covered corporation or a covered sur-
rogate foreign corporation (as appropri-
ate) completely liquidates and dissolves
(within the meaning of § 1.331-1(d)(1)
(ii)) during a taxable year (that is, has a
final distribution in complete liquidation
to which § 331 applies during that tax-
able year), no distribution by that covered
corporation or covered surrogate foreign
corporation during that taxable year is a
repurchase.
(ii) Divisive transactions under § 355
other than split-offs. A distribution by a
distributing corporation of stock of a con-
trolled corporation qualifying under § 355
that is not a split-off is not a repurchase.
.05 Acquisitions by Specified Affiliates,
Applicable Specified Affiliates, or Covered
Surrogate Foreign Corporations.
(1) Acquisitions of stock of a covered
corporation by a specified affiliate. If a
specified affiliate of a covered corporation
acquires stock of the covered corporation
from a person that is not the covered cor-
poration or another specified affiliate of
the covered corporation, the acquisition is
treated as a repurchase of the stock of the
covered corporation by the covered corpo-
ration.
(2) Certain acquisitions of foreign cor-
poration stock.
(a) Acquisitions of applicable foreign
corporation stock.
(i) In general. If an applicable specified
affiliate of an applicable foreign corpora-
tion acquires stock of the applicable for-
eign corporation from a person that is not
the applicable foreign corporation or an-
other specified affiliate of such applicable
foreign corporation—
(A) the applicable specified affiliate is
treated as a covered corporation with re-
gard to the acquisition, and

Bulletin No. 2023–3 379 January 17, 2023
(B) the acquisition is treated as a repur-
chase of stock of a covered corporation by
the covered corporation.
(ii) Acquisitions and repurchases fund-
ed by applicable specified affiliates.
(A) General rule. For purposes of ap-
plying § 4501(d)(1), an applicable speci-
fied affiliate is treated as acquiring stock
of an applicable foreign corporation if the
applicable specified affiliate funds by any
means (including through distributions,
debt, or capital contributions) the acquisi-
tion or repurchase of stock of the applica-
ble foreign corporation by the applicable
foreign corporation or a specified affiliate
that is not also an applicable specified af-
filiate, and such funding is undertaken for
a principal purpose of avoiding the stock
repurchase excise tax. For purposes of the
preceding sentence, the fair market value
of stock treated as acquired by the appli-
cable specified affiliate is limited to the
amount funded by the applicable specified
affiliate.
(B) Per se rule. A principal purpose de-
scribed in section 3.05(2)(a)(ii)(A) of this
notice is deemed to exist if the applicable
specified affiliate funds by any means,
other than through distributions, the ap-
plicable foreign corporation or a speci-
fied affiliate that is not also an applicable
specified affiliate, and such funded entity
acquires or repurchases stock of the appli-
cable foreign corporation within two years
of the funding.
(b) Repurchases or acquisitions of cov-
ered surrogate foreign corporation stock.
If a covered surrogate foreign corporation
repurchases its stock, or if a specified af-
filiate of the covered surrogate foreign
corporation acquires stock of the covered
surrogate foreign corporation—
(i) the expatriated entity with respect to
the covered surrogate foreign corporation
is treated as a covered corporation with re-
spect to the repurchase or acquisition, and
(ii) the repurchase or acquisition is
treated as a repurchase of stock of a cov-
ered corporation by the covered corpora-
tion.
.06 Timing and Fair Market Value of
Repurchased Stock.
(1) Time of repurchase.
(a) General rule. Stock is treated as re-
purchased at the time at which, for Feder-
al income tax purposes, ownership of the
stock transfers to the covered corporation
or to the applicable acquiror (as appropri-
ate).
(b) Repurchase pursuant to certain
economically similar transactions. Stock
repurchased in an economically similar
transaction described in section 3.04(4)
(a) of this notice is treated as repurchased
at the time the shareholders of the cov-
ered corporation or covered surrogate
foreign corporation (as appropriate) ex-
change their stock in the covered corpo-
ration or covered surrogate foreign cor-
poration.
(2) Fair market value of repurchased
stock. The fair market value of repur-
chased stock is the market price of the
stock on the date the stock is repurchased.
That is, if the price at which the repur-
chased stock is purchased differs from the
market price of the stock on the date the
stock is repurchased, the fair market value
of the stock is the market price on the date
the stock is repurchased.
(a) Stock traded on an established se-
curities market. If repurchased stock is
traded on an established securities market,
the taxpayer must determine the market
price of the repurchased stock by apply-
ing one of the methods provided in section
3.06(2)(a)(i) of this notice. For purposes
of this section 3.06(2), repurchased stock
is treated as traded on an established secu-
rities market if any stock of the same class
and issue of stock is so traded, regardless
of whether the shares repurchased are so
traded.
(i) Acceptable methods. The following
are acceptable methods for determining
the market price of repurchased stock
traded on an established securities market:
(A) The daily volume-weighted aver-
age price as determined on the date the
stock is repurchased;
(B) The closing price on the date the
stock is repurchased;
(C) The average of the high and low
prices on the date the stock is repurchased;
or
(D) The trading price at the time the
stock is repurchased.
(ii) Date of repurchase not a trading
day. For purposes of each method provid-
ed in section 3.06(2)(a)(i) of this notice,
if the date the stock is repurchased is not
a trading day, the date on which the mar-
ket price is determined is the immediately
preceding trading day.
(iii) Consistency requirement. The
market price of repurchased stock that is
traded on an established securities market
must be determined by consistently ap-
plying one (but not more than one) of the
methods provided in section 3.06(2)(a)(i)
of this notice to all repurchases through-
out the covered corporation’s taxable
year. That same method also must be con-
sistently applied to determine the market
price of all stock issued under the netting
rule throughout the covered corporation’s
taxable year, other than stock issued to
employees. See section 3.08(5)(a)(iii) of
this notice.
(b) Stock not traded on an established
securities market. If repurchased stock
is not traded on an established securities
market, the market price of the stock is
determined as of the date of repurchase
under the principles of § 1.409A-1(b)(5)
(iv)(B)(1).
(c) Market price of stock denominated
in non-U.S. currency. The market price of
any stock that is denominated in a curren-
cy other than the United States dollar is
converted into United States dollars at the
spot rate (as defined in § 1.988-1(d)(1)) on
the date that the stock is repurchased.
.07 Statutory Exceptions.
(1) Reduction of covered corporation’s
stock repurchase excise tax base. The fair
market value of stock repurchased by a
covered corporation in a repurchase de-
scribed in this section 3.07 is a reduction
for purposes of computing the covered cor-
poration’s stock repurchase excise tax base.
See section 3.03(3)(a)(ii) of this notice.
(2) Qualifying property exception. The
fair market value of stock repurchased by
a covered corporation in a repurchase de-
scribed in section 3.07(2)(a) through (d)
of this notice is a reduction for purposes
of computing the covered corporation’s
stock repurchase excise tax base to the
extent that such repurchase is for property
permitted by § 354 or § 355 to be received
without the recognition of gain or loss
(each, a qualifying property repurchase):
(a) A repurchase by a target corporation
as part of an acquisitive reorganization;
(b) A repurchase by a covered corpo-
ration or a covered surrogate foreign cor-
poration (as appropriate) as part of an E
reorganization;
(c) A repurchase by a transferor corpo-
ration as part of an F reorganization; and

January 17, 2023 380 Bulletin No. 2023–3
(d) A repurchase by a distributing cor-
poration as part of a split-off (whether or
not part of a D reorganization).
(3) Stock contributions to an employ-
er-sponsored retirement plan.
(a) In general. The fair market value of
stock repurchased by a covered corpora-
tion is a reduction for purposes of com-
puting the covered corporation’s stock
repurchase excise tax base if the stock
that is repurchased, or an amount of stock
equal to the fair market value of the stock
repurchased, is contributed to an employ-
er-sponsored retirement plan.
(b) Classes of stock contributed to an
employer-sponsored retirement plan. This
section 3.07(3) applies to a covered corpo-
ration’s contribution to an employer-spon-
sored retirement plan of a class of stock
that is the same class of stock that was
repurchased or a different class than the
class of stock that was repurchased.
(c) Determination of the amount of the
reduction to the stock repurchase excise
tax base. The amount of the reduction
under section 3.07(3)(a) of this notice is
determined as follows:
(i) Same class of stock repurchased
and contributed. If a covered corporation
repurchases stock and contributes to an
employer-sponsored retirement plan stock
of the same class, then the amount of the
reduction under section 3.07(3)(a) of this
notice is equal to the aggregate fair mar-
ket value of the stock repurchased during
the taxable year (as determined under sec-
tion 3.06(2) of this notice) divided by the
number of shares repurchased multiplied
by the number of shares contributed, but
not in excess of the aggregate fair market
value of the stock of the same class that
was repurchased during the taxable year.
(ii) Different class of stock repurchased
and contributed. If a covered corporation
contributes to an employer-sponsored
retirement plan stock of a different class
than the class of stock that was repur-
chased, then the amount of the reduction
under section 3.07(3)(a) of this notice is
equal to the fair market value of the stock
at the time that the stock is contributed to
the employer-sponsored retirement plan.
However, the amount of the reduction un-
der section 3.07(3)(a) of this notice must
not exceed the aggregate fair market value
of stock of a different class repurchased
during the taxable year.
(d) Timing of contributions. The re-
duction in the stock repurchase excise
tax base, in accordance with section
3.07(3)(a) of this notice, for a taxable
year applies for stock contributions made
by a covered corporation to an employ-
er-sponsored retirement plan during or on
account of the covered corporation’s tax-
able year. For purposes of the reduction
in the stock repurchase excise tax base, a
covered corporation may treat stock con-
tributions to an employer-sponsored re-
tirement plan as having been contributed
in the prior taxable year if contributed by
the filing deadline for the IRS Form 720,
Quarterly Federal Excise Tax Return that
is due for the first full quarter after the
close of the taxpayer’s taxable year (see
section 4 of this notice) and on account
of that taxable year within the meaning
of § 404(a)(6). However, stock contri-
butions that are treated as having been
contributed in the taxable year to which
the Form 720 applies cannot be treated
as having been contributed for any other
taxable year.
(e) Interaction with netting rule. Stock
contributions to an employer-sponsored
retirement plan under this section 3.07(3)
are not treated as issued or provided to
employees of the covered corporation or
a specified affiliate under section 3.08 of
this notice.
(4) Repurchases by a dealer in securi-
ties in the ordinary course of business.
(a) In general. Subject to section
3.07(4)(b) of this notice, the fair market
value of stock repurchased by a covered
corporation or an applicable acquiror (as
appropriate) that is a dealer in securities
(within the meaning of § 475(c)(1)) is a
reduction for purposes of computing the
covered corporation’s stock repurchase
excise tax base to the extent the stock
is acquired in the ordinary course of the
dealer’s business of dealing in securities.
(b) Applicability. The reduction de-
scribed in section 3.07(4)(a) of this notice
applies solely to the extent that—
(i) the dealer accounts for the stock as
securities held primarily for sale to cus-
tomers in the dealer’s ordinary course of
business;
(ii) the dealer disposes of the stock
within a period of time that is consistent
with the holding of the stock for sale to
customers in the dealer’s ordinary course
of business, taking into account the terms
of the stock and the conditions and prac-
tices prevailing in the markets for similar
stock during the period in which the stock
is held; and
(iii) the dealer (if it is a covered corpo-
ration) does not sell or otherwise transfer
the stock to an applicable acquiror, or the
dealer (if it is an applicable acquiror) does
not sell or otherwise transfer the stock to
the covered corporation or another ap-
plicable acquiror, other than in a sale or
transfer to a dealer that also satisfies the
requirements of this section 3.07(4).
(5) Repurchases by a RIC or REIT. A
repurchase by a covered corporation that
is a RIC or a REIT is a reduction for pur-
poses of computing the covered corpora-
tion’s stock repurchase excise tax base.
(6) Repurchase treated as a dividend.
(a) General rule. In accordance with
section 3.07(6)(b) of this notice, the fair
market value of stock repurchased by a
covered corporation is a reduction for
purposes of computing the covered corpo-
ration’s stock repurchase excise tax base
to the extent the repurchase is treated as a
distribution of a dividend under § 301(c)
(1) or § 356(a)(2).
(b) Rebuttable presumption of no divi-
dend equivalence.
(i) Presumption. Subject to section
3.07(6)(b)(ii) of this notice, a repur-
chase to which § 302 or § 356(a) applies
is presumed to be subject to § 302(a) or
§ 356(a)(1), respectively (and, therefore,
is presumed ineligible for the exception in
section 3.07(6)(a) of this notice).
(ii) Condition to rebut presumption. A
covered corporation may rebut the pre-
sumption described in section 3.07(6)(b)
(i) of this notice with regard to a specific
shareholder solely by establishing with
sufficient evidence that the shareholder
treats the repurchase as a dividend on the
shareholder’s Federal income tax return.
(iii) Sufficient evidence requirement.
A covered corporation provides sufficient
evidence under section 3.07(6)(b)(ii) of
this notice to establish that the shareholder
treats the repurchase as a dividend on the
shareholder’s Federal income tax return if
the covered corporation—
(A) provides information reporting, as
applicable, to the redeemed shareholder,
providing that the repurchase constitutes
a dividend;

Bulletin No. 2023–3 381 January 17, 2023
(B) obtains certification from the share-
holder that the repurchase constitutes a
redemption treated as a § 301 distribution
under § 302(d), or that the repurchase has
the effect of the distribution of a dividend
under § 356(a)(2), including evidence that
applicable withholding occurred if re-
quired;
(C) has no knowledge of facts that
would indicate that the certification is in-
correct; and
(D) demonstrates that the covered cor-
poration has sufficient earnings and profits
to treat either the § 301 distribution, or the
receipt of money or other property under
§ 356, as a dividend.
.08 Netting Rule.
(1) In general. The stock repurchase
excise tax base with regard to a taxable
year of a covered corporation is reduced
by the aggregate fair market value of stock
of the covered corporation—
(a) issued or provided to employees of
the covered corporation or employees of a
specified affiliate during the covered cor-
poration’s taxable year, and
(b) issued by the covered corporation
to persons other than persons described in
section 3.08(1)(a) of this notice during the
covered corporation’s taxable year.
(2) Time of issuance. Stock is treated
as issued or provided by a covered cor-
poration at the time at which, for Feder-
al income tax purposes, ownership of the
stock transfers to the recipient. See section
3.08(3)(b) of this notice for additional
rules regarding the time when stock is
considered issued or provided to an em-
ployee.
(3) Stock issued or provided to employ-
ees.
(a) Arrangements that provide stock to
an employee.
(i) In general. This section 3.08(3)
applies to any arrangement under which
stock is issued or provided to an employ-
ee of a covered corporation or of a speci-
fied affiliate as compensation for services
performed as an employee. Such arrange-
ments include transfers of stock in con-
nection with the performance of services
described in § 83, including pursuant to a
nonqualified stock option, or pursuant to a
stock option described in § 421.
(ii) Stock withholding. Stock withheld
by a covered corporation or a specified
affiliate to satisfy an employer’s income
tax withholding obligation described in
§ 3402, or an employer’s withholding ob-
ligation described in § 3102, is not treated
as stock issued or provided to an employ-
ee by the covered corporation or specified
affiliate.
(iii) Net exercise. Stock withheld by a
covered corporation or a specified affiliate
to satisfy the exercise price of a stock op-
tion is not treated as stock issued or pro-
vided by the covered corporation or speci-
fied affiliate to an employee.
(iv) Sell-to-cover transactions. If a
third party advances to an employee an
amount equal to the exercise price of a
stock option or pays the exercise price of
the stock option on behalf of the employ-
ee, any stock transferred by the covered
corporation or specified affiliate to the
employee or the third party upon exercise
of the option is treated as stock issued or
provided to the employee. Similarly, if a
third party advances to the employee an
amount equal to the withholding obliga-
tion described in § 3402 or § 3102 or pays
an amount equal to that withholding obli-
gation to the covered corporation or speci-
fied affiliate on behalf of an employee, any
stock transferred by the covered corpora-
tion or specified affiliate to the employee
or the third party is treated as stock issued
or provided to the employee.
(b) Time when stock is considered is-
sued or provided to an employee.
(i) In general. Stock is issued or pro-
vided by a covered corporation or a spec-
ified affiliate to an employee as of the
date that the employee is treated as the
beneficial owner of the stock for Federal
income tax purposes. In general, an em-
ployee is treated as the beneficial owner of
the stock when the stock is transferred by
the covered corporation (or the specified
affiliate) to the employee and the stock is
substantially vested within the meaning of
§ 1.83-1(b). Thus, stock transferred pur-
suant to a vested stock award or restricted
stock unit is issued or provided when the
covered corporation or specified affiliate
initiates payment of the stock. Stock trans-
ferred that is not substantially vested with-
in the meaning of § 1.83-3(b) is not issued
or provided to the employee until it vests,
except as provided in section 3.08(3)(b)
(iii) of this notice.
(ii) Stock options and stock appreci-
ation rights. Stock transferred to an em-
ployee pursuant to an option described in
§ 1.83-7 or § 421 or a stock appreciation
right is issued or provided to the employee
as of the date the employee exercises the
option or stock appreciation right.
(iii) Stock on which a § 83(b) election
is made. Stock that is transferred to an
employee that is not substantially vested
within the meaning of § 1.83-3(b) but on
which the employee makes a valid elec-
tion under § 83(b) is treated as issued or
provided to the employee as of the transfer
date.
(c) Fair market value of stock issued or
provided to an employee. The fair market
value of stock issued or provided to an
employee is the fair market value of the
stock, as determined under § 83, as of the
date the stock is issued or provided to the
employee, as described in section 3.08(3)
(b) of this notice.
(4) Issuances that are disregarded for
purposes of applying the netting rule.
(a) Overview. This section 3.08(4) lists
the sole circumstances in which an issu-
ance of stock is disregarded for purposes
of the netting rule.
(b) Distributions by a covered corpo-
ration of its own stock. Stock of a covered
corporation distributed by the covered
corporation to its shareholders with re-
spect to its stock is not treated as issued.
(c) Issuances to a specified affiliate.
Stock issued by a covered corporation to a
specified affiliate of the covered corpora-
tion is not treated as issued.
(d) No double benefit for issuances
that are part of a transaction to which
the qualifying property exception applies.
Stock issued as part of a transaction qual-
ifying as a reorganization under § 368(a)
or a distribution under § 355 is not treated
as issued by the issuing corporation if—
(i) the stock constitutes property per-
mitted to be received under § 354 or § 355
without the recognition of gain,
(ii) the stock is used by a covered cor-
poration to repurchase its stock in a trans-
action that is a repurchase under section
3.04(4)(a)(i), (ii), (iii), or (iv) of this no-
tice, and
(iii) the repurchase is not included in
the covered corporation’s stock repur-
chase excise tax base because that repur-
chase is a qualifying property repurchase.
(e) Deemed issuances under § 304(a)
(1). Any stock treated as issued by the ac-

January 17, 2023 382 Bulletin No. 2023–3
quiring corporation by reason of the appli-
cation of § 304(a)(1) to a transaction (as
more fully described in section 3.04(3)(a)
of this notice) is not treated as issued.
(f) Deemed issuance of a fractional
share. Any fractional share deemed to be
issued for Federal income tax purposes (in
a payment described in section 3.04(3)(b)
of this notice) is not treated as issued.
(g) Issuance by a covered corporation
that is a dealer in securities. Any stock
issued by a covered corporation that is a
dealer in securities is not treated as issued
to the extent the stock is issued, or other-
wise is used to satisfy obligations to cus-
tomers arising, in the ordinary course of
the dealer’s (or an applicable acquiror’s)
business of dealing in securities.
(h) Issuance by the target corporation
in a transaction qualifying under § 368(a)
(2)(E). Any target corporation stock that
is issued by the target corporation to the
merged corporation (within the meaning
of § 368(a)(2)(E)) in exchange for consid-
eration that includes the stock of the con-
trolling corporation (within the meaning
of § 368(a)(2)(E)) in a transaction quali-
fying as an A reorganization by reason of
§ 368(a)(2)(E) is not treated as issued.
(5) Fair market value of issued stock.
With respect to the issuance of stock that
is not subject to section 3.08(3)(c) of this
notice, the fair market value of stock is-
sued is the market price of the stock on the
date the stock is issued.
(a) Stock traded on an established se-
curities market. If stock issued is traded
on an established securities market, the
taxpayer must determine the market price
of the issued stock by applying one of the
methods provided in section 3.08(5)(a)(i)
of this notice.
(i) Acceptable methods. The following
are acceptable methods for determining
the market price of stock issued that is
traded on an established securities market:
(A) The daily volume-weighted aver-
age price as determined on the date the
stock is issued;
(B) The closing price on the date the
stock is issued;
(C) The average of the high and low
prices on the date the stock is issued; or
(D) The trading price at the time the
stock is issued.
(ii) Date of issuance not a trading day.
For purposes of each method provided in
section 3.08(5)(a)(i) of this notice, if the
date the stock is issued is not a trading
day, the date on which the market price is
determined is the immediately preceding
trading day.
(iii) Consistency requirement. The mar-
ket price of stock issued that is traded on
an established securities market must be
determined by consistently applying one
(but not more than one) of the methods
provided in section 3.08(5)(a)(i) of this
notice to all stock issued throughout the
covered corporation’s taxable year. That
same method also must be consistently
applied to determine the market price of
all stock repurchased throughout the cov-
ered corporation’s taxable year. See sec-
tion 3.06(2)(a)(iii) of this notice.
(b) Stock not traded on an established
securities market. If stock issued is not
traded on an established securities market,
the market price of the stock is determined
as of the date the stock is issued under the
principles of § 1.409A-1(b)(5)(iv)(B)(1).
(c) Market price of stock denominated
in non-U.S. currency. The market price of
any stock that is denominated in a curren-
cy other than the United States dollar is
converted into United States dollars at the
spot rate (as defined in § 1.988-1(d)(1)) on
the date that the stock is issued.
.09 Examples. The following examples
illustrate the application of this section 3.
For purposes of the following examples,
unless otherwise stated: Each of Corpora-
tion X and unrelated Target is a covered
corporation that is organized in State A
and is a calendar-year taxpayer; Corpo-
ration X’s and Target’s only outstanding
stock is a single class of common stock
that is traded on an established securities
market; any shareholder whose stock is
redeemed in a § 317(b) redemption qual-
ifies for sale or exchange treatment under
§ 302(a); and the receipt of money or other
property by any shareholder whose stock
is repurchased in an acquisitive reorgani-
zation or an E reorganization is not treated
as having the effect of a distribution of a
dividend under § 356(a)(2).
(1) Example 1: Redemption of preferred stock—
(a) Facts. Corporation X has outstanding common
stock that is traded on an established securities mar-
ket, as well as mandatorily redeemable preferred
stock that is not traded on an established securities
market. The preferred stock is stock for Federal tax
purposes. On January 1, 2023, Corporation X re-
deems the preferred stock pursuant to its terms.
(b) Analysis. The redemption by Corporation X
of its mandatorily redeemable preferred stock is a
repurchase because (i) Corporation X redeemed an
instrument that is stock for Federal tax purposes (that
is, mandatorily redeemable preferred stock issued by
Corporation X), and (ii) the redemption by Corpora-
tion X is a § 317(b) redemption. See section 3.04(2)
(a) of this notice.
(2) Example 2: Valuation of repurchase—(a)
Facts. On April 15, 2023, when Corporation X’s
common stock is trading at $0.70x per share, Corpo-
ration X purchases 50x shares of its common stock
for $35x from one of its shareholders.
(b) Analysis. Corporation X’s purchase of 50x
shares of Corporation X common stock is a re-
purchase because the transaction is a § 317(b) re-
demption. See section 3.04(2)(a) of this notice. For
purposes of calculating Corporation X’s stock repur-
chase excise tax base, the fair market value of the
50x shares of common stock repurchased on April
15, 2023, is the aggregate market price of those
shares on that repurchase date, or $35x ($0.70x per
share x 50x shares = $35x). See section 3.06(2)(a) of
this notice. Accordingly, the repurchase by Corpora-
tion X increases its stock repurchase excise tax base
for the 2023 taxable year by $35x.
(c) Application of netting rule. The facts are
the same as in section 3.09(2)(a) of this notice (this
Example 2), except that, on August 1, 2023, Corpo-
ration X issues 20x shares of its common stock to
an unrelated party, at which time ownership of the
stock transfers to the unrelated party for Federal in-
come tax purposes. On that date, the common stock
of Corporation X is trading at $0.50x per share. For
purposes of calculating Corporation X’s stock repur-
chase excise tax base, Corporation X is treated as
issuing its 20x shares of common stock on August
1, 2023 (the date on which ownership of the stock
transfers to the recipient for Federal income tax pur-
poses). See section 3.08(2) of this notice. In addition,
the fair market value of that issued stock is its aggre-
gate market price on the date of issuance by Corpo-
ration X, or $50x ($0.50x per share x 20x shares =
$10x). See sections 3.03(3)(a) and 3.08(5)(a) of this
notice. Accordingly, the net increase in Corporation
X’s stock repurchase excise tax base for its 2023 tax-
able year is $25x ($35x repurchase - $10x issuance =
$25x). See section 3.08(1) of this notice.
(3) Example 3: Acquisition partially funded by
the target corporation—(a) Facts. On May 30, 2023,
Corporation X acquires all of Target’s outstanding
stock (Target Stock Acquisition). To effectuate the
Target Stock Acquisition, Corporation X causes the
following transaction steps to occur: (i) Corporation
X contributes $40x to a newly formed corporation
(Merger Sub); and (ii) Merger Sub merges into Tar-
get, with Target surviving the merger (Subsidiary
Merger). At the time of the Subsidiary Merger, the
stock of Target has an aggregate fair market value of
$100x. In the Subsidiary Merger, Target’s sharehold-
ers exchange all their Target stock for $100x of cash,
of which $60x is funded by Target and $40x is fund-
ed by Corporation X. For Federal income tax pur-
poses, the transitory existence of Merger Sub is dis-
regarded, and Target is treated as if Target redeemed
60% of its outstanding stock for $60x as part of the
Subsidiary Merger. (This treatment results from the
fact that Target funded $60x of the consideration re-

Bulletin No. 2023–3 383 January 17, 2023
ceived by Target’s shareholders in exchange for their
Target stock.)
(b) Analysis. Target’s redemption of 60% of its
outstanding stock is a § 317(b) redemption. In addi-
tion, Target’s redemption is not included in the ex-
clusive list of transactions under section 3.04(3) of
this notice that are treated as a § 317(b) redemption
but are not a repurchase. Accordingly, the redemp-
tion is a repurchase. See section 3.04(2)(a) of this
notice. Therefore, as a result of the Target Stock Ac-
quisition, Target’s stock repurchase excise tax base
for its 2023 taxable year is increased by $60x. See
section 3.03(3)(a) of this notice.
(4) Example 4: Leveraged buyout—(a) Facts.
The facts are the same as in section 3.09(3)(a) of this
notice (Example 3), except that $60x of the consider-
ation received by Target’s shareholders in exchange
for their Target stock is funded by a $60x loan to
Merger Sub from an unrelated lender (Loan). In the
Subsidiary Merger, Target assumes Merger Sub’s
obligation on the $60x Loan. As a result of the disre-
garded transitory existence of Merger Sub, the Target
Stock Acquisition is treated for Federal income tax
purposes as though Target (i) directly borrowed $60x
from the unrelated lender, and then (ii) used the Loan
proceeds to redeem $60x of its stock from the Target
shareholders.
(b) Analysis. The analysis and Federal income
tax consequences are the same as in Example 3.
(5) Example 5: Pro rata stock split—(a) Facts.
On October 1, 2023, Corporation X distributes three
shares of Corporation X common stock with respect
to each existing share of its outstanding common
stock (Corporation X Stock Split).
(b) Analysis. The common stock distributed by
Corporation X to its shareholders through the Cor-
poration X Stock Split is not an issuance because
Corporation X distributed the stock to its sharehold-
ers with respect to its outstanding common stock.
See section 3.08(4)(b) of this notice. Therefore, the
stock distributed by Corporation X is not taken into
account for purposes of the netting rule. See section
3.08(4)(a) of this notice (disregarding such types of
issuances). Accordingly, Corporation X’s stock re-
purchase excise tax base for its 2023 taxable year is
not reduced by the Corporation X Stock Split.
(6) Example 6: Acquisition of a target corpora-
tion in an acquisitive reorganization—(a) Facts. On
October 1, 2023, Target merges into Corporation X
(Target Merger). The Target Merger qualifies as an
A reorganization. On the date of the Target Merger,
the fair market value of Target’s outstanding stock is
$100x. In the Target Merger, Target’s shareholders
exchange $60x of their Target stock for Corporation
X common stock, and $40x of their Target stock for
$40x of cash.
(b) Analysis regarding repurchase treatment,
timing, and amount. The exchange by the Target
shareholders of their Target stock for the consider-
ation received in the Target Merger is a repurchase
by Target because that exchange is an economically
similar transaction. See section 3.04(4)(a)(i) of this
notice. This repurchase occurs on October 1, 2023
(that is, the date on which the Target shareholders ex-
change their Target shares as part of the Target Merg-
er). See section 3.06(1)(b) of this notice. The amount
of this repurchase by Target is $100x, which equals
the aggregate fair market value of the Target stock at
the time that stock is exchanged by the Target share-
holders as part of the Target Merger (that is, October
1, 2023). See section 3.06(2)(a) of this notice.
(c) Analysis regarding impact of Target Merger
on Target’s stock repurchase excise tax base. Tar-
get’s stock repurchase excise tax base for its 2023
taxable year is initially increased by $100x on ac-
count of the Target Merger. Under the qualifying
property exception, the fair market value of the Tar-
get stock exchanged by the Target shareholders for
Corporation X stock in the Target Merger (that is,
$60x of Target stock) is a qualifying property repur-
chase that reduces Target’s stock repurchase excise
tax base. See sections 3.03(3)(a) and 3.07(2)(a) of
this notice (regarding acquisitive reorganizations).
However, the fair market value of the Target stock
exchanged by the Target shareholders for the $40x
of cash in the Target Merger does not qualify for the
qualifying property exception. See sections 3.03(3)
(a) and 3.07(2)(a) of this notice. Therefore, Target’s
stock repurchase excise tax base for its 2023 tax-
able year is increased by $40x ($100x repurchase
- $60x exception = $40x).
(d) Analysis regarding Corporation X’s stock re-
purchase excise tax base. Corporation X’s transfer of
Corporation X stock to Target in the Target Merger
is not an issuance for purposes of the netting rule be-
cause Corporation X’s issuance of that stock is part
of a transaction to which the qualifying property ex-
ception applies. See generally section 3.08(4)(d) of
this notice. Specifically, Corporation X’s transfer of
Corporation X stock to Target is not an issuance for
purposes of the netting rule because (i) the Corpo-
ration X stock constitutes property permitted to be
received under § 354 without the recognition of gain,
(ii) the Corporation X stock is used by a covered cor-
poration (that is, Target) to repurchase its stock in a
transaction that is a repurchase under section 3.04(4)
(a)(i) of this notice, and (iii) the repurchase by Target
is not included in Target’s stock repurchase excise
tax base because it is a qualifying property repur-
chase. See section 3.08(4)(d) of this notice. There-
fore, Corporation X does not take into account any
of the $60x of its stock transferred to Target in the
Target Merger to reduce its stock repurchase excise
tax base for Corporation X’s 2023 taxable year. See
section 3.08(4)(a) of this notice (disregarding such
types of issuances).
(7) Example 7: Cash paid in lieu of fractional
shares—(a) Facts. The facts are the same as in sec-
tion 3.09(6)(a) of this notice (Example 6). Addition-
ally, the exchange ratio in the Target Merger is 1.25
shares of Corporation X stock for each share of Tar-
get stock. As part of the Target Merger, Shareholder
A, who owns two shares of Target stock, receives two
shares of Corporation X stock as well as additional
cash in lieu of a 0.5 fractional share in Corporation
X. The payment by Corporation X to Shareholder A
of cash in lieu of a fractional share of Corporation
X stock (i) was not separately bargained-for consid-
eration (that is, the cash paid by Corporation X in
lieu of a fractional Corporation X share represented
a mere rounding off of the two Corporation X shares
issued in the exchange), (ii) was carried out solely
due to administrative necessity (and therefore, solely
for non-tax reasons), and (iii) was for an amount of
cash with regard to a fractional share of Corporation
X stock that did not exceed the value of one share.
(b) Analysis. The payment by Corporation X of
cash to Shareholder A in lieu of a fractional share
of Corporation X stock is treated for Federal income
tax purposes as though the 0.5 fractional share were
(i) distributed by Corporation X to Shareholder A as
part of the Target Merger, and then (ii) redeemed by
Corporation X for cash. Corporation X’s deemed re-
demption of the fractional share treated as received
by Shareholder A in the Target Merger is not a re-
purchase because, in addition to the facts described
in section 3.09(7)(a) of this notice (this Example 7),
the payment of cash by Corporation X is carried out
as part of a transaction that qualifies as an acquisi-
tive reorganization (that is, the Target Merger). See
section 3.04(3)(b) of this notice. In addition, Corpo-
ration X’s deemed issuance of the fractional share
to Shareholder A is not taken into account for pur-
poses of the netting rule. See section 3.08(4)(f) of
this notice.
(8) Example 8: Two-step asset acquisition—(a)
Facts. Corporation X acquires the assets of Target
through the following transactions, each of which
occurs pursuant to an integrated plan to effect the ac-
quisition. First, on September 30, 2023, Corporation
X contributes $60x of Corporation X stock and $40x
of cash to a newly formed subsidiary (Merger Sub).
Second, on October 1, 2023, Merger Sub merges into
Target in a statutory merger, with Target surviving
(Reverse Merger). Third, on October 15, 2023, Tar-
get merges into Corporation X in a statutory merg-
er (Upstream Merger). On the date of the Reverse
Merger, the fair market value of Target’s outstand-
ing stock is $100x. In the Reverse Merger, $60x of
Target stock is exchanged for Corporation X stock,
and $40x of Target stock is exchanged for $40x of
cash. For Federal income tax purposes, the Reverse
Merger and the Upstream Merger are integrated into
a single statutory merger of Target into Acquiring
that qualifies as an A reorganization.
(b) Analysis. The analysis is the same as in sec-
tion 3.09(6) of this notice (Example 6).
(9) Example 9: E reorganization—(a) Facts. On
November 1, 2023, Corporation X issues new com-
mon stock, with an aggregate fair market value of
$100x (New Common Stock), to Corporation X’s
shareholders in exchange for their outstanding com-
mon stock in Corporation X (Old Common Stock).
The exchange (Recapitalization) qualifies as an E re-
organization. At the time of the Recapitalization, the
fair market value of Corporation X’s outstanding
common stock is $100x.
(b) Analysis regarding repurchase treatment,
timing, and amount. The exchange by the Corpo-
ration X shareholders of their Corporation X stock
(that is, the Old Common Stock) for New Common
Stock is a repurchase by Corporation X because that
exchange is an economically similar transaction. See
section 3.04(4)(a)(ii) of this notice. This repurchase
occurs on November 1, 2023 (that is, the date on
which the Target shareholders exchange their Old
Common Stock as part of the Recapitalization). See
section 3.06(1)(b) of this notice. The amount of this
repurchase by Corporation X is $100x, which equals
the aggregate fair market value of the Old Common
Stock at the time that stock is exchanged by the Cor-
poration X shareholders as part of the Recapitaliza-
tion (that is, November 1, 2023). See section 3.06(2)
of this notice.

January 17, 2023 384 Bulletin No. 2023–3
(c) Analysis regarding impact of repurchase of
Old Common Stock on Corporation X’s stock re-
purchase excise tax base. Corporation X’s stock
repurchase excise tax base for its 2023 taxable year
is initially increased by $100x on account of the Re-
capitalization. Under the qualifying property excep-
tion, the fair market value of the Old Common Stock
exchanged by the Corporation X shareholders for
New Common Stock in the Recapitalization (that is,
$100x of Old Common Stock) is a qualifying prop-
erty repurchase that reduces Corporation X’s stock
repurchase excise tax base. See sections 3.03(3)
(a) and 3.07(2)(b) of this notice (regarding E re-
organizations). Consequently, because all the Old
Common Stock was exchanged by the Corporation
X shareholders for New Common Stock, the Recap-
italization does not increase Corporation X’s stock
repurchase excise tax base for its 2023 taxable year
($100x repurchase - $100x exception = $0).
(d) Analysis regarding impact of issuance of New
Common Stock on Corporation X’s stock repurchase
excise tax base. Corporation X’s issuance of the New
Common Stock is not an issuance for purposes of the
netting rule because Corporation X’s issuance of that
stock is part of a transaction to which the qualify-
ing property exception applies. See generally section
3.08(4)(d) of this notice. Specifically, Corporation
X’s issuance of its New Common Stock to Corpora-
tion X’s shareholders is not an issuance for purpos-
es of the netting rule because (i) the New Common
Stock constitutes property permitted to be received
under § 354 without the recognition of gain, (ii) the
New Common Stock is used by a covered corpora-
tion (that is, Corporation X) to repurchase its stock
in a transaction that is a repurchase under section
3.04(4)(a)(ii) of this notice, and (iii) the repurchase
by Corporation X is not included in Corporation X’s
stock repurchase excise tax base for its 2023 taxable
year because it is a qualifying property repurchase.
See section 3.08(4)(d) of this notice. Therefore,
Corporation X does not take into account any of the
$100x of New Common Stock issued to Corporation
X’s shareholders to reduce its stock repurchase ex-
cise tax base for Corporation X’s 2023 taxable year.
See section 3.08(4)(a) of this notice (disregarding
such types of issuances).
(10) Example 10: F reorganization—(a) Facts.
In order to reorganize under the laws of State B, on
November 15, 2023, Corporation X forms Corpora-
tion Y, a State B corporation, and merges into Corpo-
ration Y (Corporation X Merger). The Corporation X
Merger qualifies as an F Reorganization. On the date
of the Corporation X Merger, the fair market value
of Corporation X’s stock is $100x. Shareholder A
owns $25x of Corporation X’s outstanding stock. In
the Corporation X Merger, Shareholder A transfers
its $25x of Corporation X stock to Corporation X
in exchange for $25x of cash, which is treated for
Federal income tax purposes as an unrelated, sepa-
rate transaction from the F Reorganization to which
§ 302(a) applies (Shareholder A Redemption). See
§ 1.368-2(m)(3)(iii). The remaining Corporation X
shareholders exchange their Corporation X stock for
Corporation Y stock as part of the F Reorganization.
(b) Analysis regarding repurchase treatment,
timing, and amount. The exchange by Shareholder
A of their Corporation X stock is a repurchase by
Corporation X in the amount of $25x because it is a
§ 317(b) redemption. See section 3.04(2)(a) of this
notice. In addition, the exchange by Corporation X’s
other shareholders of their Corporation X stock for
Corporation Y stock is a repurchase by Corporation
X in the amount of $75x because that exchange is an
economically similar transaction. See section 3.04(4)
(a)(iii) of this notice. These repurchases occur on No-
vember 15, 2023 (that is, the date on which the Cor-
poration X shareholders transfer their Corporation X
stock to Corporation X as part of the Corporation X
Merger). See section 3.06(1)(a) and (b) of this notice.
The total amount of these repurchases by Corpora-
tion X is $100x, which equals the sum of (i) the fair
market value of the Corporation X stock redeemed
in the Shareholder A Redemption on the date of the
redemption, and (ii) the aggregate fair market val-
ue of the Corporation X stock at the time that stock
is exchanged by the Corporation X shareholders as
part of the F Reorganization (that is, November 15,
2023). See section 3.06(2)(a) of this notice.
(c) Analysis regarding impact of Shareholder A
Redemption and F Reorganization on Corporation
X’s stock repurchase excise tax base. Corporation
X’s stock repurchase excise tax base for its 2023
taxable year is initially increased by $100x on ac-
count of the Shareholder A Redemption and F Reor-
ganization. Under the qualifying property exception,
the fair market value of the Corporation X stock
exchanged by the Corporation X shareholders for
Corporation Y stock in the F Reorganization (that is,
$75x of Corporation X stock) is a qualifying prop-
erty repurchase that reduces Corporation X’s stock
repurchase excise tax base. See sections 3.03(3)(a)
and 3.07(2)(c) of this notice. Accordingly, Corpora-
tion X’s stock repurchase excise tax base for its 2023
taxable year is increased by $25x ($25x repurchase +
($75x repurchase - $75x exception) = $25x).
(d) Analysis regarding Corporation Y’s stock re-
purchase excise tax base. Corporation Y’s transfer of
the $75x of its stock to Corporation X in the Cor-
poration X Merger is not an issuance for purposes
of the netting rule because Corporation Y’s issuance
of that stock is part of a transaction to which the
qualifying property exception applies. See generally
section 3.08(4)(d) of this notice. Specifically, Corpo-
ration Y’s transfer of its stock to Corporation X is not
an issuance for purposes of the netting rule because
(i) the Corporation Y stock constitutes property per-
mitted to be received under § 354 without the recog-
nition of gain, (ii) the Corporation Y stock is used
by a covered corporation (that is, Corporation X) to
repurchase its stock in a transaction that is a repur-
chase under section 3.04(4)(a)(iii) of this notice, and
(iii) the repurchase by Corporation X is not included
in Corporation X’s stock repurchase excise tax base
for its 2023 taxable year because it is a qualifying
property repurchase. See section 3.08(4)(d) of this
notice. Therefore, Corporation Y does not take into
account any of the $75x of its stock transferred to
Corporation X to reduce its stock repurchase excise
tax base for Corporation Y’s 2023 taxable year. See
section 3.08(4)(a) of this notice (disregarding such
types of issuances).
(11) Example 11: Section 355 split-off—(a)
Facts. A covered corporation (Distributing) has out-
standing common stock that is traded on an estab-
lished securities market. Distributing owns all the
stock of a preexisting subsidiary (Controlled). On
December 1, 2023, Distributing distributes all the
stock of Controlled and $20x of cash to certain of
its shareholders (Participating Shareholders) in ex-
change for $100x of Distributing stock in a split-off
(Participating Shareholders Split-Off). On the date of
the Participating Shareholders Split-Off, the Distrib-
uting stock has a fair market value of $100x.
(b) Analysis regarding repurchase treatment,
timing, and amount. The exchange by the Partici-
pating Shareholders of their Distributing stock for
the $80x of Controlled stock and $20x of cash in the
Participating Shareholders Split-Off is a repurchase
by Distributing because that exchange is an econom-
ically similar transaction. See section 3.04(4)(a)(iv)
of this notice. This repurchase occurs on December
1, 2023 (that is, the date on which the Participating
Shareholders exchange their Distributing shares as
part of the Participating Shareholders Split-Off). See
section 3.06(1)(b) of this notice. The amount of this
repurchase by Distributing is $100x, which equals
the aggregate fair market value of the Distributing
stock at the time that stock is exchanged by the Par-
ticipating Shareholders in the Participating Share-
holders Split-Off (that is, December 1, 2023). See
section 3.06(2)(a) of this notice.
(c) Analysis regarding impact of Distribution
on Distributing’s stock repurchase excise tax base.
Distributing’s stock repurchase excise tax base for
its 2023 taxable year is initially $100x on account
of the Participating Shareholders Split-Off. Howev-
er, under the qualifying property exception, the fair
market value of the Distributing stock exchanged by
the Participating Shareholders for Controlled stock
in the Participating Shareholders Split-Off (that is,
$80x of Distributing Stock) is a qualifying property
repurchase that reduces Distributing’s stock repur-
chase excise tax base. See sections 3.03(3)(a) and
3.07(2)(d) of this notice. However, the fair market
value of the Distributing stock exchanged by the Par-
ticipating Shareholders for the $20x of cash in the
Participating Shareholders Split-Off does not qualify
for the qualifying property exception. See sections
3.03(3)(a) and 3.07(2)(d) of this notice. Therefore,
Distributing’s stock repurchase excise tax base for its
2023 taxable year is increased by $20x.
(12) Example 12: Section 355 split-off as part
of a D reorganization—(a) Facts. The facts are the
same as in section 3.09(11)(a) of this notice (Exam-
ple 11), except that the Participating Shareholders
Split-Off is carried out as part of a transaction qual-
ifying as a D reorganization in which Distributing
transfers assets to Controlled.
(b) General analysis. Except as provided in
section 3.09(12)(c) of this notice, the analysis and
Federal income tax consequences are the same as in
section 3.09(11) of this notice (Example 11).
(c) Analysis regarding Controlled’s stock repur-
chase excise tax base. Controlled’s transfer of the
$80x of its stock to Distributing in the Participating
Shareholders Split-Off is not an issuance for purpos-
es of the netting rule because Controlled’s issuance
of that stock is part of a transaction to which the
qualifying property exception applies. See generally
section 3.08(4)(d) of this notice. Specifically, Con-
trolled’s transfer of its stock to Distributing is not an
issuance for purposes of the netting rule because (i)
the Controlled stock constitutes property permitted
to be received under § 355 without the recognition

Bulletin No. 2023–3 385 January 17, 2023
of gain, (ii) the Controlled stock is used by a cov-
ered corporation (that is, Distributing) to repurchase
its stock in a transaction that is a repurchase under
section 3.04(4)(a)(iv) of this notice, and (iii) the
repurchase by Distributing is not included in Dis-
tributing’s stock repurchase excise tax base for its
2023 taxable year because it is a qualifying proper-
ty repurchase. See section 3.08(4)(d) of this notice.
Therefore, Controlled does not take into account any
of the $80x of its stock transferred to Distributing
to reduce Controlled’s stock repurchase excise tax
base for Controlled’s 2023 taxable year. See section
3.08(4)(a) of this notice (disregarding such types of
issuances).
(13) Example 13: Spin-off—(a) Facts. The facts
are the same as in section 3.09(11)(a) of this notice
(Example 11), except that Distributing distributes the
Controlled stock to its shareholders pro rata without
the shareholders exchanging any Distributing stock
(Spin-Off).
(b) Analysis. The Spin-Off is not an economical-
ly similar transaction. See section 3.04(4)(b)(ii) of
this notice. Therefore, the Spin-Off is not a repur-
chase by Distributing.
(14) Example 14: Section 355 spin-off as part
of a D reorganization—(a) Facts. The facts are the
same as in section 3.09(13)(a) of this notice (Exam-
ple 13), except that the Spin-Off is carried out as part
of a transaction qualifying as a D reorganization.
(b) Analysis. The analysis and Federal income
tax consequences are the same as in section 3.09(13)
of this notice (Example 13).
(15) Example 15: Repurchase pursuant to an
accelerated share repurchase agreement—(a) Facts.
On October 10, 2022, Corporation X entered into an
accelerated share repurchase (ASR) agreement with
an investment bank (Bank). Under the terms of the
ASR agreement, Bank agrees to deliver a number
of shares of Corporation X stock to Corporation X
during the term of the ASR, in an amount determined
by reference to the price of Corporation X stock on
specified days during the term of the ASR. Pursuant
to the terms of the ASR agreement, Corporation X
paid Bank a prepayment amount. Bank borrowed 80x
shares of Corporation X stock on the open market.
Pursuant to the terms of the ASR agreement, Bank
then delivered 80x shares of Corporation X stock to
Corporation X on October 12, 2022. On final settle-
ment of the ASR, Bank may be required to deliver
additional shares of Corporation X stock to Corpora-
tion X or Corporation X may be required to make a
payment to Bank. The terms of the ASR agreement
and the facts and circumstances cause ownership of
the 80x shares to transfer from Bank to Corporation
X for Federal income tax purposes at the time of de-
livery (that is, October 12, 2022). The agreement will
settle in 2023. On February 1, 2023, Bank delivers an
additional 20x shares to Corporation X in final settle-
ment of the ASR agreement. For Federal income tax
purposes, ownership of those 20x shares is treated as
transferring from Bank to Corporation X at the time
of delivery (that is, February 1, 2023).
(b) Analysis. Corporation X is treated as repur-
chasing 80x shares of Corporation X stock on Oc-
tober 12, 2022 (that is, the date on which ownership
of the 80x shares delivered by Bank transferred from
Bank to Corporation X for Federal income tax pur-
poses). See section 3.06(1)(a) of this notice. Howev-
er, the repurchase by Corporation X of the 80x shares
of Corporation X stock does not increase Corpora-
tion X’s stock repurchase excise tax base for its 2023
taxable year because the repurchase occurred prior
to January 1, 2023. See section 3.03(3)(b) of this no-
tice; see also § 10201(d) of the IRA (providing that
the stock repurchase excise tax applies to repurchas-
es after December 31, 2022). The delivery by Bank
to Corporation X of 20x shares of Corporation X
stock on February 1, 2023, constitutes a repurchase
because, for Federal income tax purposes, the terms
of the ASR agreement and the facts and circum-
stances cause ownership of those shares to transfer
from Bank to Corporation X on that date. See section
3.06(1)(a) of this notice. Therefore, the repurchase
by Corporation X of those 20x shares of Corporation
X stock increases Corporation X’s stock repurchase
excise tax base for its 2023 taxable year.
(16) Example 16: Distribution in complete liqui-
dation of a covered corporation—(a) Facts. Corpo-
ration X adopts a plan of complete liquidation that
becomes effective on March 1, 2023 (Corporation X
Liquidation). Corporation X has 100x shares of com-
mon stock outstanding. On April 1, 2023, all share-
holders of Corporation X receive a liquidating dis-
tribution by Corporation X in full payment for their
Corporation X common stock. At the time at which
Corporation X distributes all of its corporate assets
to its shareholders in complete liquidation (that is,
April 1, 2023), Corporation X stock trades at $1x per
share. Each distribution in complete liquidation is
subject to § 331.
(b) Analysis. A distribution in complete liquida-
tion of a covered corporation (that is, Corporation X)
to which § 331 (but not § 332(a)) applies is not a
repurchase by the covered corporation. See section
3.04(4)(b)(i) of this notice. Therefore, none of the
distributions by Corporation X in complete liquida-
tion is a repurchase by Corporation X, and Corpo-
ration X’s stock repurchase excise tax for its 2023
taxable year is not increased as a result of the Corpo-
ration X Liquidation.
(17) Example 17: Complete liquidation of a cov-
ered corporation to which both §§ 331 and 332(a)
apply—(a) Facts. The facts are the same as in section
3.09(16)(a) of this notice (Example 16), except that
one of Corporation X’s shareholders is a corporation
(Corporation Z). As of the date of adoption of the
plan of liquidation of Corporation X (that is March 1,
2023), Corporation Z has continued to be at all times
until the receipt of the Corporation X liquidating dis-
tribution the owner of 80x shares of Corporation X
common stock. In other words, Corporation Z has
continued to be at all times until the receipt of the
Corporation X liquidating distribution the owner of
stock in Corporation X meeting the requirements of
§ 1504(a)(2) (that is, Corporation Z is an 80-percent
distributee within the meaning of § 337(c)). There-
fore, the liquidating distribution by Corporation X to
Corporation Z as part of the Corporation X Liquida-
tion qualifies as a liquidation under § 332(a). The liq-
uidating distributions by Corporation X to the other
shareholders described in section 3.09(16)(a) of this
notice (Example 16) are distributions in liquidation
subject to § 331.
(b) Analysis. In the case of a complete liquida-
tion of a covered corporation, if §§ 331 and 332(a),
respectively, apply to component distributions of
the complete liquidation, (i) a distribution to which
§ 331 applies is a repurchase by the covered corpo-
ration, and (ii) the distribution to which § 332(a)
applies is not a repurchase by the covered corpo-
ration. See section 3.04(4)(a)(v) of this notice.
Therefore, as a result of the component liquidating
distributions of the Corporation X Liquidation to
which § 331 applies, Corporation X repurchased
20x shares of its stock on April 1, 2023. According-
ly, the Corporation X Liquidation results in a $20x
increase in Corporation X’s stock repurchase excise
tax base for its 2023 taxable year because the fair
market value of Corporation X’s stock at the time of
repurchase (that is, April 1, 2023) was $1x per share
(20x shares x $1x = $20x). See section 3.06(2)(a)
of this notice.
(18) Example 18: Acquisition by disregarded en-
tity—(a) Facts. Corporation X owns all the interests
in LLC, a domestic limited liability company that
is disregarded as an entity separate from its owner
for Federal tax purposes (disregarded entity) under
§ 301.7701-3 of the Procedure and Administration
Regulations (26 CFR part 301). On May 31, 2023,
LLC purchases shares of Corporation X’s stock for
cash from an unrelated shareholder.
(b) Analysis. Because LLC is a disregarded en-
tity, the May 31, 2023, acquisition of Corporation X
stock is treated as an acquisition by Corporation X.
Accordingly, the acquisition is a § 317(b) redemption
and is therefore a repurchase. See section 3.04(2) of
this notice. Section 301.7701-2(c)(2)(v) (treating
disregarded entities as corporations for purposes of
certain excise taxes) does not apply to treat LLC
as a corporation because § 4501 is not described in
§ 301.7701-2(c)(2)(v)(A).
(19) Example 19: Acquisitive reorganization
qualifying under § 368(a)(2)(E)—(a) Facts. On Oc-
tober 1, 2023, Corporation X acquires all of Target’s
outstanding stock (Target Stock Acquisition). To ef-
fectuate the Target Stock Acquisition, Corporation X
causes the following transaction steps to occur: (i)
Corporation X contributes $80x of Corporation X
common stock and $20x of cash (Merger Consider-
ation) to a newly formed corporation (Merger Sub);
and (ii) Merger Sub merges into Target in a statutory
merger, with Target surviving (Reverse Merger). The
Reverse Merger qualifies as an A reorganization by
reason of § 368(a)(2)(E). On the date of the Reverse
Merger, the fair market value of Target’s outstanding
stock is $100x. In the Reverse Merger, $80x of Tar-
get stock is exchanged for Corporation X stock, and
$20x of Target stock is exchanged for $20x of cash.
(b) Analysis regarding repurchase treatment,
timing, and amount. The exchange by the Target
shareholders of their Target stock for the consider-
ation received in the Reverse Merger is a repurchase
by Target because that exchange is an economically
similar transaction. See section 3.04(4)(a)(i) of this
notice. This repurchase occurs on October 1, 2023
(that is, the date on which the Target shareholders
exchange their Target shares as part of the Reverse
Merger). See section 3.06(1)(b) of this notice. The
amount of this repurchase by Target is $100x, which
equals the aggregate fair market value of the Target
stock at the time that stock is exchanged by the Tar-
get shareholders as part of the Reverse Merger (that
is, October 1, 2023). See section 3.06(2)(a) of this
notice.

January 17, 2023 386 Bulletin No. 2023–3
(c) Analysis regarding impact of Reverse Merger
on Target’s stock repurchase excise tax base. Target’s
stock repurchase excise tax base for its 2023 taxable
year is initially increased by $100x on account of
the Reverse Merger. Under the qualifying property
exception, the fair market value of the Target stock
exchanged by the Target shareholders for Corpora-
tion X stock in the Reverse Merger (that is, $80x of
Target stock) is a qualifying property repurchase that
reduces Target’s stock repurchase excise tax base.
See sections 3.03(3)(a) and 3.07(2)(a) of this notice
(regarding acquisitive reorganizations). However,
the fair market value of the Target stock exchanged
by the Target shareholders for the $20x of cash in
the Reverse Merger does not qualify for the quali-
fying property exception. See sections 3.03(3)(a)
and 3.07(2)(a) of this notice. In addition, any Target
stock that is deemed to be issued by Target to Merg-
er Sub in exchange for the Merger Consideration is
not treated as issued for purposes of computing Tar-
get’s stock repurchase excise tax base. See section
3.08(4)(h) of this notice. Therefore, Target’s stock
repurchase excise tax base for its 2023 taxable year
is increased by $20x ($100x repurchase - $80x ex-
ception = $20x).
(d) Analysis regarding Corporation X’s stock re-
purchase excise tax base. Corporation X’s issuance
of Corporation X stock in the Reverse Merger is not
an issuance for purposes of the netting rule because
Corporation X’s issuance of that stock is part of a
transaction to which the qualifying property excep-
tion applies. See generally section 3.08(4)(d) of this
notice. Specifically, Corporation X’s issuance of
Corporation X stock is not an issuance for purpos-
es of the netting rule because (i) the Corporation X
stock constitutes property permitted to be received
under § 354 without the recognition of gain, (ii) the
Corporation X stock is used by a covered corporation
(that is, Target) to repurchase its stock in a transac-
tion that is a repurchase under section 3.04(4)(a)(i)
of this notice, and (iii) the repurchase by Target is
not included in Target’s stock repurchase excise tax
base because it is a qualifying property repurchase.
See section 3.08(4)(d) of this notice. Therefore, Cor-
poration X does not take into account any of the $80x
of its stock issued in the Reverse Merger to reduce
its stock repurchase excise tax base for Corporation
X’s 2023 taxable year. See section 3.08(4)(a) of this
notice (disregarding such types of issuances).
(20) Example 20: Multiple repurchases and
contributions of same class of stock—(a) Facts. On
January 15, 2023, Corporation X repurchases 100x
shares of its Class A stock that have an aggregate
fair market value of $1,000x. Corporation X repur-
chases 50x shares of its Class A stock on September
15, 2023, that have an aggregate fair market value
of $200x. Corporation X contributes to its employee
stock ownership plan 75x shares of its Class A stock
on March 15, 2023, and 75x shares of its Class A
stock on October 15, 2023.
(b) Analysis. The amount of the reduction to
Corporation X’s stock repurchase excise tax base
is determined by dividing the aggregate fair market
value of shares of Class A stock repurchased by the
number of shares repurchased ($1,200x/150x shares
= $8/share) and multiplying the number of shares
contributed by the average price of repurchased
shares (150x shares x $8/share = $1,200x). See sec-
tion 3.07(3)(c)(i) of this notice. Therefore, Corpora-
tion X’s stock repurchase excise tax base for its 2023
taxable year is $0 ($1,200x repurchase - $1,200x
exception = $0).
(21) Example 21: Multiple repurchases and
contributions of different class from repurchased
shares—(a) Facts. On January 15, 2023, Corporation
X repurchases 100x shares of its Class A stock that
have an aggregate fair market value of $1,000x. Cor-
poration X repurchases 50x shares of its Class A stock
on September 15, 2023, that have an aggregate fair
market value of $200x. Corporation X contributes to
its employee stock ownership plan 75x shares of its
Class B stock on October 15, 2023, that have an ag-
gregate fair market value of $1,000x. Corporation X
contributes to its employee stock ownership plan 25x
shares of its Class B stock on December 15, 2023, that
have an aggregate fair market value of $500x.
(b) Analysis. The amount of the reduction to
Corporation X’s stock repurchase excise tax base is
equal to the sum of the fair market values of the dif-
ferent class of stock at the time that the stock is con-
tributed to the employer-sponsored retirement plan
($1,000x + $500x = $1,500x). However, the amount
of the reduction must not exceed the aggregate fair
market value of stock of a different class repurchased
during the taxable year by Corporation X (that is,
$1,200x). See section 3.07(3)(c)(ii) of this notice.
Therefore, Corporation X’s stock repurchase excise
tax base for its 2023 taxable year is $0 ($1,200x re-
purchase - $1,200x exception = $0).
(22) Example 22: Restricted stock provided to
employee—(a) Facts. Employee M is an employ-
ee of Corporation X. In 2024, as compensation for
Employee M’s services, Corporation X transfers to
Employee M 100x shares of Corporation X restricted
stock, when the fair market value of each share is
$50x. The shares vest in 2027. Employee M does not
make an election under § 83(b). In 2027, when the
shares vest, the shares have a fair market value of
$70x per share. In 2027, Corporation X withholds
from Employee M’s other wages amounts that are
required to pay its income tax and employment tax
withholding obligations arising from the stock trans-
fer.
(b) Analysis. 100x shares of Corporation X stock
are treated as issued or provided to Employee M
when they become substantially vested in 2027. See
section 3.08(3)(b)(i) of this notice. Therefore, Cor-
poration X’s stock repurchase excise tax base for
its 2027 taxable year is reduced by $7,000x (100x
shares x $70x per share = $7,000x).
(23) Example 23: Restricted stock provided to
employee with § 83(b) election—(a) Facts. The facts
are the same as in section 3.09(22) of this notice
(Example 22), except that Employee M elects under
§ 83(b) to include the fair market value of the shares
of restricted stock in gross income when the shares
are transferred.
(b) Analysis. 100x shares of Corporation X stock
are treated as issued or provided to Employee M
when the shares are transferred in 2024. See section
3.08(3)(b)(iii) of this notice. Therefore, Corporation
X’s stock repurchase excise tax base for its 2024 tax-
able year is reduced by $5,000x (100x shares x $50x
per share = $5,000x). No shares of Corporation X
stock are treated as issued or provided to Employee
M when the shares vest in 2027.
(24) Example 24: Vested stock provided to an
employee with share withholding—(a) Facts. Em-
ployee N is an employee of Corporation X. In 2024,
as compensation for Employee N’s services, Corpo-
ration X grants Employee N 100x restricted stock
units (RSUs). Pursuant to the RSUs, if Employee
N remains employed by Corporation X through De-
cember 31, 2026, Corporation X will transfer 100x
shares of Corporation X stock to Employee N in Jan-
uary 2027. Employee N remains employed by Cor-
poration X through December 31, 2026. In January
2027, when the shares have a fair market value of
$50x per share, Corporation X initiates the transfer
of 60x shares of Corporation X stock to Employee
N and withholds 40x shares to satisfy its income tax
and employment tax withholding obligations.
(b) Analysis. 60x shares of Corporation X stock
are treated as issued or provided to Employee N
when the shares are transferred in 2027. See section
3.08(3)(a)(ii) of this notice. Therefore, Corporation
X’s stock repurchase excise tax base for its 2027 tax-
able year is reduced by $3,000x (60x shares x $50x
per share = $3,000x).
(25) Example 25: Stock option net exercise—(a)
Facts. Employee O is an employee of Corporation X.
In 2024, Corporation X transfers to Employee O op-
tions to purchase 100x shares of Corporation X stock
with an exercise price of $40x per share. The options
are described in § 1.83-7 and do not have a readily
ascertainable fair market value. Employee O exercis-
es the option to purchase 100x shares in 2025 when
the fair market value is $50x per share. Corporation
X withholds 80x shares to pay the exercise price.
(b) Analysis. 20x shares of Corporation X stock
are treated as issued or provided to Employee O
when the options are exercised in 2025. See section
3.08(3)(a)(iii) of this notice. Therefore, Corporation
X’s stock repurchase excise tax base for its 2025 tax-
able year is reduced by $1,000x (20x shares x $50x
per share = $1,000x).
(26) Example 26: Broker-assisted net exercise—
(a) Facts. The facts are the same as section 3.09(25)
of this notice (Example 25), except that instead of
Corporation X withholding shares to pay the exer-
cise price, a third-party broker pays an amount equal
to the exercise price to Corporation X. Corporation
X transfers 100x shares of Corporation X stock to
the third-party broker, who then deposits the 100x
shares into Employee O’s account. The third-party
broker then immediately sells 80x shares to recover
the exercise price paid to Corporation X.
(b) Analysis. 100x shares of Corporation X stock
are treated as issued or provided to Employee O
when the shares are transferred to the broker in 2025.
See section 3.08(3)(a)(iv) of this notice. Therefore,
Corporation X’s stock repurchase excise tax base for
its 2025 taxable year is reduced by $5,000x (100x
shares x $50x per share = $5,000x).
SECTION 4. REPORTING
AND PAYMENT OF STOCK
REPURCHASE EXCISE TAX
The Treasury Department and the IRS
anticipate that the forthcoming proposed
regulations will provide that the stock re-
purchase excise tax must be reported on

Bulletin No. 2023–3 387 January 17, 2023
IRS Form 720, Quarterly Federal Excise
Tax Return. To facilitate the computation
of the stock repurchase excise tax, the IRS
also intends to issue an additional form
that taxpayers will be required to attach to
the Form 720.
Although the Form 720 is filed quarter-
ly, the Treasury Department and the IRS
expect the forthcoming proposed regula-
tions to provide that the stock repurchase
excise tax will be reported once per tax-
able year on the Form 720 that is due for
the first full quarter after the close of the
taxpayer’s taxable year. For example, a
taxpayer with a taxable year ending on
December 31, 2023, would report its stock
repurchase excise tax on the Form 720 for
the first quarter of 2024, due on April 30,
2024. The Treasury Department and the
IRS expect the forthcoming proposed
regulations to provide that the deadline
for payment of the stock repurchase ex-
cise tax is the same as the filing deadline,
and that no extensions are permitted for
reporting or paying the stock repurchase
excise tax owed.
SECTION 5. APPLICABILITY
DATES
.01 In general. It is anticipated that the
forthcoming proposed regulations will
provide that rules consistent with the rules
described in section 3 of this notice gen-
erally apply to repurchases of stock of a
covered corporation made after December
31, 2022, and to issuances of stock made
during a taxable year ending after Decem-
ber 31, 2022.
.02 Funded Purchases. It is anticipated
that the forthcoming proposed regulations
will provide that rules consistent with the
rules described in section 3.05(2)(a)(ii) of
this notice apply to repurchases and acqui-
sitions of stock made after December 31,
2022, that are funded on or after Decem-
ber 27, 2022.
.03 Reliance. Until the date of issuance
of the forthcoming proposed regulations,
a taxpayer may rely on the rules set forth
in section 3 of this notice.
SECTION 6. REQUEST FOR
COMMENTS
.01 Comments regarding rules includ-
ed in notice. The Treasury Department
and the IRS request comments on the rules
described in this notice. In particular, the
Treasury Department and the IRS request
comments that address the following spe-
cific questions:
(1) Are there circumstances under
which special rules should be provided
for redeemable preferred stock or other
special classes of stock or debt (includ-
ing debt with features that allow the debt,
whether by the issuer, the holder, or oth-
erwise, to be converted into stock)? If so,
please provide objectively verifiable crite-
ria that such special rules should incorpo-
rate to provide certainty for taxpayers and
the IRS.
(2) Should the fair market value of
stock repurchased be an amount other
than the market price of such stock in de-
termining the amount of a covered corpo-
ration’s repurchases?
(3) For purposes of the netting rule,
should the fair market value of stock is-
sued or provided be an amount other than
the market price of such stock in deter-
mining the amount of a covered corpora-
tion’s issuances?
(4) Should the definition of an em-
ployer-sponsored retirement plan include
plans other than plans that are qualified
under § 401(a)?
(5) With regard to contributions of
repurchased stock by a covered corpora-
tion to an employer-sponsored retirement
plan, what additional provisions (if any)
would be helpful to address fact patterns
in which multiple classes of stock are both
repurchased and contributed by that cov-
ered corporation?
(6) Should a method be provided for
determining the market price of stock that
is traded on multiple established securities
markets? If so, what modifications to the
rules in sections 3.06(2)(a)(i) and 3.08(5)
(a)(i) of this notice would be required?
(7) Should there be additional methods
to rebut the presumption in section 3.07(6)
(b)(i) of this notice? If so, what modifica-
tions to section 3.07(6)(b) of this notice
would be required?
.02 Comments regarding rules not in-
cluded in notice. The Treasury Depart-
ment and the IRS request comments on
other questions arising under § 4501 that
should be addressed in guidance. Com-
menters are encouraged to specify the
issues on which guidance is needed most
quickly as well as the most important is-
sues on which guidance is needed. In
addition to general comments regarding
§ 4501, the Treasury Department and the
IRS request comments that address the
following questions that are anticipated to
be addressed in the forthcoming proposed
regulations:
(1) What factors should the Treasury
Department and the IRS consider in de-
veloping guidance regarding indirect
ownership for purposes of determining
whether a corporation or a partnership is
a specified affiliate?
(2) When should a corporation be treat-
ed as becoming or ceasing to be a covered
corporation, and how should repurchases
and issuances by a corporation during a
taxable year that are prior to the date the
corporation becomes a covered corpora-
tion or after the date the corporation ceas-
es to be a covered corporation be treated?
(3) Should special rules be provided
for bankrupt or troubled companies? For
example, should a § 317(b) redemption
occurring as part of a restructuring of a
bankrupt or troubled company be exclud-
ed from the definition of “repurchase”?
(4) Should any additional rules with
regard to financial arrangements, such as
options or other similar financial instru-
ments, be added to prevent avoidance of
the stock repurchase excise tax? If so,
please describe how such additional rules
should apply consistently for purposes of
determining a covered corporation’s re-
purchases and issuances.
(5) How should the stock repurchase
excise tax be allocated among expatriat-
ed entities if there are multiple expatriated
entities treated as a covered corporation
with respect to a covered surrogate for-
eign corporation? Are other special rules
necessary or appropriate in such a case?
(6) If the applicable specified affiliate is
a foreign partnership that has a domestic
entity as a direct or indirect partner and is
treated as a covered corporation:
(a) Should the foreign partnership or
its domestic entity partner, or both, be re-
quired to file Form 720?
(b) Should the foreign partnership or its
domestic entity partner be required to pay
the stock repurchase excise tax? If the for-
eign partnership is required to pay the tax,
should special rules or procedures apply
to collect the tax?

January 17, 2023 388 Bulletin No. 2023–3
(c) Should other special rules or proce-
dures apply in this case, including if there
are multiple domestic entities that are di-
rect or indirect partners?
(7) What factors should the Treasury
Department and the IRS consider in de-
termining whether a domestic entity is an
indirect partner in a foreign partnership?
(8) For purposes of the special netting
rules in § 4501(d):
(a) Should stock issued or provided to
any employees of the foreign partnership
be taken into account, or should the net-
ting rule be limited to stock issued or pro-
vided only to employees of the domestic
entity that is a direct or indirect partner,
in cases of a foreign partnership that is the
applicable specified affiliate?
(b) Are there any circumstances in
which stock of the applicable specified
affiliate or expatriated entity, as relevant,
should be taken into account in addition
to, or in lieu of, stock of the applicable
foreign corporation or covered surrogate
foreign corporation, respectively?
(9) Should the definition of “estab-
lished securities market” be revised to
clarify which regulatory requirements un-
der the Securities Exchange Act of 1934
are most relevant to the determination
of whether a foreign securities market is
treated as an established securities mar-
ket? If so, what type of U.S. securities
exchange (including which tier of an ex-
change with multiple tiers) should be the
baseline for comparison?
(10) How should the trading of stock
through depository receipts be treated for
purposes of determining whether a corpo-
ration is a covered corporation, or whether
repurchased stock is traded on an estab-
lished securities market?
.03 Procedures for submitting comments.
(1) Deadline. Written comments
should be submitted by March 20, 2023.
Consideration will also be given to any
written comment submitted after March
20, 2023, though such comments may not
be considered in the development of the
forthcoming proposed regulations if such
consideration would delay the issuance of
the forthcoming proposed regulations
(2) Form and manner. The subject line
for the comments should include a refer-
ence to Notice 2023-2. All commenters
are strongly encouraged to submit com-
ments electronically. Comments may be
submitted in one of two ways:
(a) Electronically via the Federal
eRulemaking Portal at www.regulations.
gov (type IRS-2023-0002 in the search
field on the www.regulations.gov home-
page to find this notice and submit com-
ments); or
(b) By mail to: Internal Revenue Ser-
vice, CC:PA:LPD:PR (Notice 2023-2),
Room 5203, P.O. Box 7604, Ben Franklin
Station, Washington, D.C., 20044.
(3) Publication of comments. The Trea-
sury Department and the IRS will publish
for public availability any comment sub-
mitted electronically and on paper to its
public docket on www.regulations.gov.
SECTION 7. DRAFTING AND
CONTACT INFORMATION
The principal author of this notice is
Samuel G. Trammell of the Office of the
Associate Chief Counsel (Corporate).
However, other personnel from the Trea-
sury Department and the IRS participated
in its development. For further informa-
tion on rules concerning stock issued or
provided to employees under § 4501(c)
(3), please contact William L. McNally
of the Office the Associate Chief Counsel
(Employee Benefits, Exempt Organiza-
tions, and Employment Taxes) at (202)
317-5600 (not a toll-free number). For
further information on rules concern-
ing § 4501(d), please contact Arielle M.
Borsos of the Office the Associate Chief
Counsel (International) at (202) 317-6937
(not a toll-free number). For further infor-
mation on rules concerning § 4501(e)(2),
please contact Naomi Lehr of the Office
the Associate Chief Counsel (Employee
Benefits, Exempt Organizations, and Em-
ployment Taxes) at (202) 317-4102 (not
a toll-free number). For further informa-
tion on rules concerning § 4501(e)(4) and
(5), please contact Jonathan A. LaPlante
of the Office the Associate Chief Coun-
sel (Financial Institutions & Products) at
(202) 317-5102 (not a toll-free number).
For further information on all other rules,
please contact Mr. Trammell at (202) 317-
5024 (not a toll-free number).
2023 Standard Mileage
Rates
Notice 2023-3
SECTION 1. PURPOSE
This notice provides the optional 2023
standard mileage rates for taxpayers to
use in computing the deductible costs
of operating an automobile for business,
charitable, medical, or moving expense
purposes. This notice also provides the
amount taxpayers must use in calculating
reductions to basis for depreciation tak-
en under the business standard mileage
rate, and the maximum standard automo-
bile cost that may be used in computing
the allowance under a fixed and variable
rate (FAVR) plan. Additionally, this notice
provides the maximum fair market value
(FMV) of employer-provided automobiles
first made available to employees for per-
sonal use in calendar year 2023 for which
employers may use the fleet-average val-
uation rule in § 1.61-21(d)(5)(v) or the
vehicle cents-per-mile valuation rule in
§ 1.61-21(e).
1
SECTION 2. BACKGROUND
Rev. Proc. 2019-46, 2019-49 I.R.B.
1301, provides rules for computing the
deductible costs of operating an automo-
bile for business, charitable, medical, or
moving expense purposes, and for sub-
stantiating, under § 274(d) and § 1.274-
5, the amount of ordinary and necessary
business expenses of local transportation
or travel away from home. Taxpayers
using the standard mileage rates must
comply with Rev. Proc. 2019-46. How-
ever, a taxpayer is not required to use
the substantiation methods described
in Rev. Proc. 2019-46, but instead may
substantiate using actual allowable ex-
pense amounts if the taxpayer maintains
adequate records or other sufficient evi-
dence.
An independent contractor conducts
an annual study for the Internal Revenue
Service of the fixed and variable costs of
operating an automobile to determine the
standard mileage rates for business, med-
1
Unless otherwise specified, all “section” or “§” references are to sections of the Internal Revenue Code (Code) or the Income Tax Regulations (26 CFR part 1).

Bulletin No. 2023–3 389 January 17, 2023
ical, and moving use reflected in this no-
tice. The standard mileage rate for charita-
ble use is set by § 170(i).
Longstanding regulations under § 61
provide special valuation rules for em-
ployer-provided automobiles. The amount
that must be included in the employee’s
income and wages for the personal use of
an employer-provided automobile gener-
ally is determined by reference to the au-
tomobile’s FMV. If an employer chooses
to use a special valuation rule, the special
value is treated as the FMV of the benefit
for income tax and employment tax pur-
poses. Section 1.61-21(b)(4). Two such
special valuation rules, the fleet-average
valuation rule and the vehicle cents-per-
mile valuation rule, are set forth in § 1.61-
21(d)(5)(v) and § 1.61-21(e), respective-
ly. These two special valuation rules are
subject to limitations, including that they
may be used only in connection with auto-
mobiles having values that do not exceed
a maximum amount set forth in the regu-
lations.
SECTION 3. STANDARD MILEAGE
RATES
The standard mileage rate for trans-
portation or travel expenses is 65.5 cents
per mile for all miles of business use
(business standard mileage rate). See
section 4 of Rev. Proc. 2019-46. Howev-
er, § 11045 of Public Law 115-97, 131.
Stat. 2054 (December 22, 2017), com-
monly known as the Tax Cuts and Jobs
Act (TCJA) suspends all miscellaneous
itemized deductions that are subject to
the two-percent of adjusted gross in-
come floor under § 67, including unre-
imbursed employee travel expenses, for
taxable years beginning after December
31, 2017, and before January 1, 2026.
Thus, the business standard mileage rate
provided in this notice cannot be used to
claim an itemized deduction for unreim-
bursed employee travel expenses during
the suspension. Notwithstanding the
foregoing suspension of miscellaneous
itemized deductions, deductions for ex-
penses that are deductible in determining
adjusted gross income are not suspended.
For example, members of a reserve com-
ponent of the Armed Forces of the Unit-
ed States (Armed Forces), state or local
government officials paid on a fee basis,
and certain performing artists are entitled
to deduct unreimbursed employee travel
expenses as an adjustment to total in-
come on line 12 of Schedule 1 of Form
1040 (2022), U.S. Individual Income Tax
Return, not as an itemized deduction on
Schedule A of Form 1040 (2022), and
therefore may continue to use the busi-
ness standard mileage rate.
The standard mileage rate is 14 cents
per mile for use of an automobile in ren-
dering gratuitous services to a charitable
organization under § 170. See section 5 of
Rev. Proc. 2019-46.
The standard mileage rate is 22 cents
per mile for use of an automobile: (1)
for medical care described in § 213; or
(2) as part of a move for which the ex-
penses are deductible under § 217(g).
See section 5 of Rev. Proc. 2019-46.
Section 11049 of the TCJA suspends
the deduction for moving expenses for
taxable years beginning after December
31, 2017, and before January 1, 2026.
However, the suspension does not ap-
ply to members of the Armed Forces
on active duty who move pursuant to a
military order and incident to a perma-
nent change of station. Thus, except for
taxpayers to whom § 217(g) applies, the
standard mileage rate provided in this
notice is not applicable for the use of an
automobile as part of a move occurring
during the suspension.
SECTION 4. BASIS REDUCTION
AMOUNT
For automobiles a taxpayer uses for
business purposes, the portion of the busi-
ness standard mileage rate treated as de-
preciation is 26 cents per mile for 2019, 27
cents per mile for 2020, 26 cents per mile
for 2021, 26 cents per mile for 2022, and
28 cents per mile for 2023. See section
4.04 of Rev. Proc. 2019-46.
SECTION 5. MAXIMUM
STANDARD AUTOMOBILE COST
For purposes of computing the allow-
ance under a FAVR plan, the standard au-
tomobile cost may not exceed $60,800 for
automobiles (including trucks and vans).
See section 6.02(6) of Rev. Proc. 2019-46.
SECTION 6. MAXIMUM VALUE
OF EMPLOYER-PROVIDED
AUTOMOBILES
For purposes of the fleet-average val-
uation rule in § 1.61-21(d)(5)(v) and the
vehicle cents-per-mile valuation rule in
§ 1.61-21(e), the maximum FMV of au-
tomobiles (including trucks and vans) first
made available to employees in calendar
year 2023 is $60,800.
SECTION 7. EFFECTIVE DATE
This notice is effective for: (1) de-
ductible transportation expenses paid
or incurred on or after January 1, 2023;
(2) mileage allowances or reimburse-
ments paid to a charitable volunteer or
a member of the Armed Forces to whom
§ 217(g) applies: (a) on or after January
1, 2023, and (b) for transportation ex-
penses the charitable volunteer or such
member of the Armed Forces pays or
incurs on or after January 1, 2023; and
(3) for purposes of the maximum FMV
of employer-provided automobiles for
which employers may use the fleet-av-
erage valuation rule in § 1.61-21(d)(5)
(v) or the vehicle cents-per-mile rule
in § 1.61-21(e), automobiles first made
available to employees for personal use
on or after January 1, 2023.
SECTION 8. EFFECT ON OTHER
DOCUMENTS
Notice 2022-03 is superseded.
DRAFTING INFORMATION
The principal author of this notice is
Christian Lagorio of the Office of As-
sociate Chief Counsel (Income Tax and
Accounting). For further information on
this notice regarding the use of an em-
ployee-provided automobile, contact Mr.
Lagorio at (202) 317-7005 (not a toll-free
number). For further information on this
notice regarding the use of an employ-
er-provided automobile, contact Stepha-
nie Caden of the Office of Associate Chief
Counsel (Employee Benefits, Exempt Or-
ganizations, and Employment Taxes), at
(202) 317-4774 (not a toll-free number).

January 17, 2023 390 Bulletin No. 2023–3
Initial Guidance Regarding
the Application of the
Corporate Alternative
Minimum Tax under
Sections 55, 56A, and 59
of the Internal Revenue
Code
Notice 2023-7
SECTION 1. OVERVIEW
This notice announces that the Depart-
ment of the Treasury (Treasury Depart-
ment) and the Internal Revenue Service
(IRS) intend to issue proposed regulations
(forthcoming proposed regulations) ad-
dressing the application of the new cor-
porate alternative minimum tax (CAMT),
as added to the Internal Revenue Code
(Code)
1
by the enactment of § 10101 of
Public Law 117-169, 136 Stat. 1818,
1818-1828 (August 16, 2022), common-
ly referred to as the Inflation Reduction
Act of 2022 (IRA). Sections 3 through 7
of this notice provide interim guidance
regarding certain time-sensitive issues in-
tended to be addressed by the forthcoming
proposed regulations. Taxpayers may rely
on the guidance provided in sections 3
through 7 of this notice until the issuance
of the forthcoming proposed regulations.
In addition, the Treasury Department
and the IRS intend to issue additional in-
terim guidance to address other CAMT
issues prior to the issuance of the forth-
coming proposed regulations. Such addi-
tional interim guidance is expected to ad-
dress, among other issues, certain issues
related to the treatment under the CAMT
of items that are marked-to-market for fi-
nancial statement purposes (such as life
insurance company separate account as-
sets and certain financial products), the
treatment of certain items reported in oth-
er comprehensive income (OCI), and the
treatment of embedded derivatives arising
from certain reinsurance contracts. This
additional interim guidance would be in-
tended to help avoid substantial unintend-
ed adverse consequences to the insurance
industry and certain other industries. See
section 9.02 of this notice, which requests
comments on these as well as other issues
under the CAMT not addressed by this
notice but that will be addressed in forth-
coming proposed regulations.
Section 2 of this notice provides a sum-
mary of relevant law underlying the rules
described in sections 3 through 7 of this
notice. Section 3 of this notice describes
rules that address certain issues under
the CAMT regarding (i) subchapter C of
chapter 1 of the Code (subchapter C) and
subchapter K of chapter 1 of the Code
(subchapter K), (ii) troubled corporations,
and (iii) affiliated groups of corporations
that join in filing (or that are required to
join in filing) a consolidated return for
Federal income tax purposes (tax consoli-
dated groups). Section 4 of this notice de-
scribes rules that address certain CAMT
issues with respect to the depreciation of
property to which § 168 applies. Section 5
of this notice describes a safe harbor meth-
od for determining whether a corporation
is an “applicable corporation” subject to
the CAMT. Section 6 of this notice de-
scribes rules that address issues regarding
the treatment of certain Federal income
tax credits under the CAMT. Section 7 of
this notice describes rules that address the
determination of applicable corporation
status in circumstances involving certain
partnerships.
Section 8 of this notice describes the
anticipated applicability dates of the forth-
coming proposed regulations. Section 9
of this notice requests comments on the
issues addressed in this notice as well as
specific issues not so addressed. Section
10 of this notice provides drafting and
contact information.
SECTION 2. BACKGROUND
.01 CAMT Under the Inflation Reduc-
tion Act
(1) Overview. Section 10101 of the IRA
amended § 55 to impose the new CAMT
based on the “adjusted financial statement
income” (AFSI) of an applicable corpora-
tion for taxable years beginning after De-
cember 31, 2022. In general, a corporation
is an applicable corporation subject to the
CAMT for a taxable year if it meets an
average annual AFSI test for one or more
taxable years that (i) are before that tax-
able year and (ii) end after December 31,
2021. See section 2.01(4) of this notice.
(2) Imposition of CAMT. Section 55(a)
provides that, for the taxable year of an
applicable corporation, the amount of
CAMT imposed by § 55 equals the excess
(if any) of (i) the tentative minimum tax
for the taxable year, over (ii) the sum of
the regular income tax imposed for the
taxable year plus the tax imposed under
§ 59A (commonly referred to as the base
erosion and anti-abuse tax, or BEAT).
Section 55(b)(2)(A) provides that, in the
case of an applicable corporation, the ten-
tative minimum tax for the taxable year is
the excess of (i) 15 percent of AFSI for the
taxable year (as determined under § 56A),
over (ii) the CAMT foreign tax credit for
the taxable year. See § 59(l). In the case of
any corporation that is not an applicable
corporation, § 55(b)(2)(B) provides that
the tentative minimum tax for the taxable
year is zero.
(3) AFSI under § 56A.
(a) General definition of AFSI. For pur-
poses of §§ 55 through 59, the term AFSI
means, with respect to any corporation for
any taxable year, the net income or loss
of the taxpayer set forth on the taxpayer’s
applicable financial statement (AFS) for
that taxable year, adjusted as provided in
§ 56A. See § 56A(a).
(b) General definition of AFS. For pur-
poses of § 56A, the term AFS means, with
respect to any taxable year, an AFS, as de-
fined in § 451(b)(3) or as specified by the
Secretary of the Treasury or her delegate
(Secretary) in regulations or other guid-
ance, that covers that taxable year. See
§ 56A(b).
(c) General adjustments to AFSI.
(i) Special rule regarding consolidated
financial statements. Section 56A(c)(2)
(A) provides that, if the financial results
of a taxpayer are reported on the AFS for
a group of entities (AFS Group), rules
similar to the rules of § 451(b)(5) apply.
Section 451(b)(5) provides that in such
a situation the AFS of the AFS Group is
the AFS of the taxpayer. Section 1.451-
3(h)(1) through (3) provide rules under
§ 451(b)(5), including rules for determin-
ing the extent to which amounts reflected
on the AFS of the AFS Group and the un-
1
Unless otherwise specified, all “section” or “§” references are to sections of the Code or the Income Tax Regulations (26 CFR part 1).

Bulletin No. 2023–3 391 January 17, 2023
derlying source documents are allocable
to the taxpayer for purposes of applying
the rules under § 451(b). For purposes of
this notice, the term AFS Group also in-
cludes a single entity with an AFS that
does not consolidate the financial results
of such entity with the financial results of
any other entity.
(ii) Special rule regarding consolidat-
ed returns. Section 56A(c)(2)(B) provides
a general rule that, if the taxpayer is part
of a tax consolidated group for any tax-
able year, AFSI for that group for that
taxable year must take into account items
on the group’s AFS that are properly allo-
cable to members of that group. Howev-
er, § 56A(c)(2)(B) provides the Secretary
with authority to prescribe by regulation
exceptions to that general rule.
(iii) AFSI of partners and partnerships.
Section 56A(c)(2)(D)(i) provides that, ex-
cept as provided by the Secretary, if the
taxpayer is a partner in a partnership, the
taxpayer’s AFSI with respect to such part-
nership is adjusted to take into account
only the taxpayer’s distributive share of
such partnership’s AFSI. Section 56A(c)
(2)(D)(ii) provides that, for purposes of
§§ 55 through 59, the AFSI of a partner-
ship is the partnership’s net income or loss
set forth on that partnership’s AFS (adjust-
ed under rules similar to the rules set forth
in § 56A).
(iv) Adjustments with respect to cer-
tain Federal income tax credits. Section
56A(c)(9) requires AFSI to be appropri-
ately adjusted to disregard any amount
treated as a payment against the tax im-
posed by subtitle A of the Code pursuant
to an election under §§ 48D(d) or 6417
and included in the net income or loss set
forth on the taxpayer’s AFS. However,
if such amount is otherwise disregarded
under the adjustment rule in § 56A(c)(5)
(regarding AFSI adjustments for certain
taxes), the adjustment in § 56A(c)(9) does
not apply. See § 56A(c)(9).
(v) Adjustments with regard to Federal
income tax depreciation. Section 56A(c)
(13)(A) requires AFSI to be reduced by
depreciation deductions allowed under
§ 167 with respect to property to which
§ 168 applies, to the extent of the amount
allowed as deductions in computing tax-
able income for the taxable year. In addi-
tion, § 56A(c)(13)(B)(i) requires appro-
priate adjustments to AFSI to disregard
any amount of depreciation expense that is
taken into account on the taxpayer’s AFS
with respect to property to which § 168
applies. Lastly, § 56A(c)(13)(B)(ii) pro-
vides that AFSI is appropriately adjusted
to take into account any other item spec-
ified by the Secretary in order to provide
that the property to which § 168 applies is
accounted for in the same manner as that
property is accounted for under chapter 1
of the Code.
(d) Authority of the Secretary to provide
necessary adjustments. Section 56A(c)
(15) authorizes the Secretary to issue reg-
ulations or other guidance to provide for
such adjustments to AFSI as the Secretary
determines necessary to carry out the pur-
poses of § 56A, including adjustments to
AFSI (i) to prevent the omission or dupli-
cation of any item, and (ii) to carry out the
principles of part II of subchapter C (re-
lating to corporate liquidations), part III
of subchapter C (relating to corporate or-
ganizations and reorganizations), and part
II of subchapter K (relating to partnership
contributions and distributions).
(e) General authority of the Secretary.
Section 56A(e) authorizes the Secretary
to provide such regulations and other
guidance as necessary to carry out the
purposes of § 56A, including regulations
and other guidance relating to the effect of
the rules of § 56A on partnerships with in-
come taken into account by an applicable
corporation.
(4) Qualification as an applicable cor-
poration under § 59(k).
(a) Overview. Section 59(k)(1)(A) pro-
vides that, for purposes of §§ 55 through
59, the term applicable corporation
means, with respect to any taxable year,
any corporation (other than an S corpora-
tion (as defined in § 1361(a)(1)), a regu-
lated investment company (as defined in
§ 851), or a real estate investment trust (as
defined in § 856)) that meets one of the
average annual AFSI tests under § 59(k)
(1)(B) (each, an AFSI test) for one or more
taxable years that (i) are prior to that tax-
able year and (ii) end after December 31,
2021.
(b) AFSI tests.
(i) Overview. Section 59(k)(1)(B) pro-
vides two sets of rules for determining
whether a corporation meets an AFSI
test. First, under § 59(k)(1)(B)(i), a cor-
poration meets the AFSI test for a taxable
year if the average annual AFSI of that
corporation (determined without regard
to the adjustment under § 56A(d) for fi-
nancial statement net operating losses)
for the three-taxable-year period ending
with that taxable year (Three-Taxable-
Year Period) exceeds $1,000,000,000
(general AFSI test). Second, in the case
of a corporation that is a member of a
foreign-parented multinational group (as
defined in § 59(k)(2)(B)) for any taxable
year, that corporation meets the AFSI test
for that taxable year under § 59(k)(1)(B)
(ii) if (i) that corporation meets the gen-
eral AFSI test (determined after applying
the special foreign-parented multination-
al group rule in § 59(k)(2)), and (ii) the
average annual AFSI of that corporation
(determined without regard to the special
foreign-parented multinational group rule
in § 59(k)(2) and without regard to the
adjustment described in § 56A(d) for fi-
nancial statement net operating losses) for
the Three-Taxable-Year Period is at least
$100,000,000 (foreign-parented multina-
tional group AFSI test).
(ii) Special aggregation rules and
AFSI rules for determining applicable
corporation status. Solely for purposes
of determining whether a corporation is
an applicable corporation under § 59(k)
(1), § 59(k)(1)(D) requires that all AFSI
of persons treated as a single employer
with that corporation under § 52(a) or (b)
is treated as AFSI of that corporation. Sec-
tion 59(k)(1)(D) also provides that, sole-
ly for purposes of determining whether a
corporation is an applicable corporation,
the AFSI of such corporation must be de-
termined without regard to the distributive
share adjustment under § 56A(c)(2)(D)
(i) (see section 2.01(3)(c)(iii) of this no-
tice) and the adjustments under § 56A(c)
(11) pertaining to covered benefit plans
(as defined in § 56A(c)(11)(B)). In ad-
dition, § 59(k)(2)(A) provides a special
foreign-parented multinational group rule
pursuant to which, solely for purposes of
determining whether a corporation that
is a member of a foreign-parented mul-
tinational group meets the general AFSI
test, (i) the AFSI of such corporation must
include the AFSI of all members of such
group, and (ii) AFSI is determined without
regard to the partnership distributive share
adjustment under § 56A(c)(2)(D)(i) (see
section 2.01(3)(c)(iii) of this notice), the

January 17, 2023 392 Bulletin No. 2023–3
foreign income pro rata share adjustment
under § 56A(c)(3), the effectively con-
nected income adjustment under § 56A(c)
(4), and the adjustments under § 56A(c)
(11) pertaining to covered benefit plans
(as defined in § 56A(c)(11)(B)).
(c) Special rules regarding AFSI and
the AFSI tests. Section 59(k)(1)(E) pro-
vides additional special rules for purposes
of determining whether a corporation is an
applicable corporation.
(i) AFSI calculation for short taxable
years. With regard to a corporation with
AFSI for any taxable year of less than 12
months, the AFSI of that corporation (in-
cluding any predecessor) is annualized by
multiplying the AFSI for the short period
by 12 and dividing the result by the num-
ber of months composing the short period.
See §§ 59(k)(1)(E)(ii) and (iii).
(ii) AFSI tests for corporations in exis-
tence for less than three taxable years. If a
corporation has been in existence for less
than three taxable years, the AFSI tests are
applied to that corporation on the basis
of the period during which that corpora-
tion was in existence. See § 59(k)(1)(E)
(i). Section 59(k)(1)(E)(iii) provides that
a reference in § 59(k)(1)(E) to a corpo-
ration includes a reference to any prede-
cessor of such corporation. Accordingly,
for purposes of this section 2.01(4)(c)(ii),
whether a corporation was in existence for
less than three taxable years and, if so, the
period on the basis of which the AFSI tests
are applied to that corporation include the
period(s) of existence of any predeces-
sor(s) of such corporation. See § 59(k)(1)
(E)(i) and (iii).
(d) Corporations excluded from appli-
cable corporation status. Section 59(k)
(1)(C) excludes corporations from the
definition of applicable corporation if the
following requirements are satisfied. First,
the corporation must have either (i) a
change in ownership, or (ii) a specified
number of consecutive taxable years (as
determined by the Secretary, taking into
account the taxpayer’s facts and circum-
stances), including the most recent taxable
year, in which the corporation does not
meet an AFSI test. See § 59(k)(1)(C)(i).
Second, the Secretary must determine that
it would not be appropriate to continue
to treat that corporation as an applicable
corporation (appropriateness determina-
tion). See § 59(k)(1)(C)(ii). However, as
provided in the last sentence of § 59(k)(1)
(C), a corporation that satisfies these two
requirements for exclusion from applica-
ble corporation status nonetheless will be
treated as an applicable corporation if that
corporation subsequently meets an AFSI
test for any taxable year beginning after
the first taxable year for which an appro-
priateness determination applies.
(e) Regulations and other guidance to
carry out statutory applicable corpora-
tion rules. Section 59(k)(3) authorizes the
Secretary to provide regulations or other
guidance for the purposes of carrying out
§ 59(k), including regulations or other
guidance (i) to provide a simplified meth-
od for determining whether a corporation
meets the requirements to qualify as an
applicable corporation, and (ii) to address
the application of § 59(k) to a corporation
that experiences a change in ownership.
.02 Cancellation of Indebtedness
(COD) Income.
(1) Overview. Section 61(a)(11) pro-
vides that, except as otherwise provided
in subtitle A of the Code, gross income
includes income from the discharge of
indebtedness. Section 108(a)(1) provides
that gross income does not include any
amount that otherwise would be includible
in gross income by reason of the discharge
(in whole or in part) of indebtedness of
the taxpayer, if the discharge occurs un-
der circumstances specified in § 108(a)(1)
(A) through (E), including: (i) in a title 11
case, (ii) when the taxpayer is insolvent,
or (iii) with respect to qualified farm in-
debtedness (excluded COD income). See
§ 108(a)(1)(A), (B), and (C), respective-
ly. In the case of a discharge to which the
insolvency exclusion of § 108(a)(1)(B)
applies, the amount of excluded COD in-
come is limited under § 108(a)(3) to the
amount by which the taxpayer is insol-
vent.
(2) Reduction of tax attributes.
(a) In general. Section 108(b)(1) pro-
vides that the amount of excluded COD
income is applied to reduce the tax at-
tributes of the taxpayer as provided in
§ 108(b)(2), subject to the special rules of
§ 108(g) for discharges of qualified farm
indebtedness.
(b) Order in which attributes are re-
duced. Section 108(b)(2) provides that,
except as provided in § 108(b)(5), the
following tax attributes are reduced in
the following order: (i) any net operat-
ing loss (NOL) for the taxable year of the
discharge, and any NOL carryover to that
taxable year; (ii) any amounts carried to
or from the taxable year of the discharge
for purposes of determining the amount
allowable as a general business credit
under § 38; (iii) the amount of the mini-
mum tax credit available under § 53(b) as
of the beginning of the taxable year im-
mediately following the taxable year of
the discharge; (iv) any net capital loss for
the taxable year of the discharge, and any
capital loss carryover to that taxable year
under § 1212; (v) the basis of the property
of the taxpayer (see § 1017 for provisions
for making this reduction); (vi) any pas-
sive activity loss or credit carryover of the
taxpayer under § 469(b) from the taxable
year of the discharge; and (vii) any car-
ryover to or from the taxable year of the
discharge for purposes of determining the
amount of the foreign tax credit allowable
under § 27.
(c) Election to reduce basis before
other attributes. In lieu of applying the
rules of § 108(b)(2) to reduce a taxpay-
er’s attributes by the amount referred to
in § 108(b)(1), a taxpayer may elect un-
der § 108(b)(5) to reduce under § 1017
the basis of the taxpayer’s depreciable
property by that amount, to the extent of
the aggregate adjusted bases of the depre-
ciable property held by the taxpayer as of
the beginning of the taxable year follow-
ing the taxable year in which the discharge
occurs. Section 108(b)(2) does not apply
to any amount to which an election under
§ 108(b)(5) applies.
(3) Exclusion of remaining amounts.
Any amount of debt discharge that re-
mains after attribute reduction is not in-
cludible in income. See H.R. Rep. 96-833
at 11 (1980); S. Rep. No. 96-1035 at 12
(1980). This type of excluded COD in-
come is commonly referred to as “black
hole excluded COD income.”
.03 Consolidated Return Regulations.
Section 1502 authorizes the Secretary to
prescribe regulations to clearly reflect the
Federal income tax liability of a tax con-
solidated group, and to prevent avoidance
of such tax liability. See § 1.1502-1(h)
(defining the term consolidated group for
Federal income tax purposes). For purpos-
es of carrying out those objectives, § 1502
also permits the Secretary to prescribe

Bulletin No. 2023–3 393 January 17, 2023
rules that may be different from the provi-
sions of chapter 1 of the Code that would
apply if the corporations composing the
tax consolidated group filed separate re-
turns.
.04 Treatment of Certain Credits in
Computing Taxable Income.
(1) Elective payments under § 6417.
Section 6417(a) applies to an applicable
entity (as defined in § 6417(d)(1)) that
makes an election under § 6417 with re-
gard to any applicable credit (as defined
in § 6417(b)) determined with regard to
that applicable entity. If § 6417(a) applies,
that entity is treated as making a payment
against the tax imposed by subtitle A of
the Code (for the taxable year with re-
spect to which that applicable credit was
determined) equal to the amount of that
applicable credit. See § 6417(a). Section
6417(c) provides, in part, that, in the case
of any facility or property held directly by
a partnership, any election under § 6417(a)
must be made by such partnership. If such
partnership makes the election under
§ 6417(a), the Secretary is authorized to
make a payment to such partnership equal
to the amount of such credit, and the pay-
ment is treated as tax-exempt income for
purposes of § 705. See § 6417(c)(1). The
Treasury Department and the IRS intend
to provide guidance regarding how and
when an election under § 6417 may be
made.
(2) Elective transfers under § 6418.
Section 6418(a) applies to an eligible
taxpayer (as defined in § 6418(f)(2)) that
elects to transfer all (or any portion spec-
ified in the election) of an eligible credit
(as defined in § 6418(f)(1)) determined
with regard to that taxpayer for any tax-
able year to another taxpayer (transferee
taxpayer) that is not related (within the
meaning of §§ 267(b) or 707(b)(1)) to
the eligible taxpayer. The transferee tax-
payer specified in that election is treated
as the taxpayer for purposes of the Code
with regard to that credit (or such por-
tion thereof). See § 6418(a). Pursuant to
§ 6418(b)(2), any amount received from
the transfer of an eligible credit is ex-
cluded from gross income of the eligible
taxpayer. Section 6418(c)(1) provides, in
part, that, in the case of any eligible credit
determined with respect to any facility or
property held directly by a partnership, if
such partnership makes an election under
§ 6418(a) with respect to such credit, any
amount received from the transfer of the
credit is treated as tax-exempt income for
purposes of § 705. The Treasury Depart-
ment and the IRS intend to provide guid-
ance regarding how and when an election
under § 6418 may be made.
(3) Advanced Manufacturing Invest-
ment Credit under § 48D. Section 48D(a)
provides that, for purposes of § 46 (which
provides rules for determining the amount
of the investment tax credit for purposes
of the general business tax credit under
§ 38), the advanced manufacturing invest-
ment credit under § 48D (§ 48D credit)
for any taxable year is an amount equal
to 25 percent of the qualified investment
(as defined in § 48D(b)) for such taxable
year with respect to any advanced manu-
facturing facility (as defined in § 48D(b)
(3)) of an eligible taxpayer (as defined in
§ 48D(c)). Section 48D(d)(1) provides
that, in the case of a taxpayer (other than
a partnership or S corporation) making an
election with respect to the § 48D credit
determined with respect to such taxpayer,
such taxpayer is treated as making a pay-
ment against the tax imposed by subtitle A
(for the taxable year with respect to which
such credit was determined) equal to the
amount of such credit. Section 48D(d)(2)
(A)(i) provides, in part, that, in the case
of the § 48D credit determined with re-
spect to any property held directly by a
partnership, any election under § 48D(d)
(1) must be made by such partnership. If
such partnership makes the election under
§ 48D(d)(1), the Secretary is authorized to
make a payment to such partnership equal
to the amount of such credit, and the pay-
ment is treated as tax-exempt income for
purposes of § 705. See § 48D(d)(2)(A)(i).
The Treasury Department and the IRS in-
tend to provide guidance regarding how
and when an election under § 48D(d) may
be made.
SECTION 3. AFSI AND
APPLICABLE CORPORATION
STATUS RESULTING FROM
CERTAIN TRANSACTIONS; TAX
CONSOLIDATED GROUPS
.01 Purpose. The Treasury Department
and the IRS anticipate that the forthcom-
ing proposed regulations will be consis-
tent with the guidance provided in this
section 3. The Treasury Department and
the IRS are providing this interim guid-
ance to facilitate the ability for taxpayers
to apply the CAMT to certain corporate
transactions and other situations occurring
prior to the issuance of the forthcoming
proposed regulations.
.02 Defined Terms. For purposes of this
section 3:
(1) Accounting Standards Codification.
The term Accounting Standards Codifica-
tion means the single source of authorita-
tive nongovernmental U.S. generally ac-
cepted accounting principles (that is, U.S.
GAAP).
(2) Common Parent Corporation. The
term Common Parent Corporation means
the parent corporation of a group of enti-
ties whose activities are consolidated for
financial accounting purposes.
(3) Acquirer AFS Group. The term Ac-
quirer AFS Group means a corporation or
one or more chains of entities connected
through ownership with a Common Parent
Corporation that—
(a) composes or compose an AFS
Group,
(b) is or are a Party to a Covered Trans-
action, and
(c) is or are treated on its AFS as ac-
quiring a Target or Target AFS Group (or
the assets thereof).
(4) Controlled. The term Controlled
means one corporation, or one or more
chains of entities connected through own-
ership with a Common Parent Corpora-
tion, that—
(a) composes or compose a portion of
a Distributing AFS Group (as defined in
section 3.02(8) of this notice),
(b) is or are a Party to a Covered Trans-
action, and
(c) is or are treated as the corporation
the stock of which is distributed by a Dis-
tributing AFS Group on the AFS of the
Distributing AFS Group (for example, a
spinnee under the Accounting Standards
Codification).
(5) Covered Nonrecognition Transac-
tion.
(a) In general. The term Covered Non-
recognition Transaction means a transac-
tion that, solely with regard to a corpo-
ration or a partnership (as appropriate),
qualifies for nonrecognition treatment
for Federal income tax purposes, under
§§ 332, 337, 351, 354, 355, 357, 361, 368,

January 17, 2023 394 Bulletin No. 2023–3
721, 731, or 1032, or a combination there-
of, and is not treated as resulting in any
amount of gain or loss for Federal income
tax purposes (that is, solely with regard to
the corporation or partnership, as appro-
priate).
(b) Qualification of each component
transaction determined separately. For
purposes of section 3.02(5)(a) of this no-
tice, each component transaction of a larg-
er transaction is examined separately for
qualification as a Covered Nonrecognition
Transaction (for example, nonrecognition
treatment of a liability assumption compo-
nent under § 357 and a transfer component
under § 361(c)(3) are evaluated separate-
ly for determining qualification of each
component as a Covered Nonrecognition
Transaction, notwithstanding that each
component could be a component trans-
action of a larger transaction that includes
Covered Nonrecognition Transactions
under §§ 368(a)(1)(D) and 355). Because
Covered Nonrecognition Transaction sta-
tus requires nonrecognition treatment for
Federal income tax purposes, the treat-
ment of a component transaction as a Cov-
ered Nonrecognition Transaction may be
affected by the Federal income tax conse-
quences of any other component transac-
tion of the larger transaction as well as all
other component transactions of the larger
transaction (for example, taking into ac-
count all relevant provisions of the Code
and general principles of tax law, includ-
ing the step transaction doctrine).
(6) Covered Recognition Transaction.
(a) In general. The term Covered Rec-
ognition Transaction means a transfer,
sale, contribution, distribution, or other
disposition of property treated as result-
ing in gain or loss for Federal income tax
purposes (that is, a transfer, sale, contri-
bution, distribution, or other disposition of
property that does not qualify as a Cov-
ered Nonrecognition Transaction).
(b) Qualification of each component
transaction determined separately. For
purposes of section 3.02(6)(a) of this
notice, each component transaction of
a larger transaction is examined sep-
arately for qualification as a Covered
Recognition Transaction (for example,
recognition treatment of a liability as-
sumption component under § 357 and
a transfer component under § 361(c)(3)
are evaluated separately for determin-
ing qualification of each component as
a Covered Recognition Transaction, not-
withstanding that each component could
be a component transaction of a larger
transaction that includes Covered Non-
recognition Transactions under §§ 368(a)
(1)(D) and 355). Because Covered Rec-
ognition Transaction status requires rec-
ognition treatment for Federal income
tax purposes, the treatment of a compo-
nent transaction as a Covered Recogni-
tion Transaction may be affected by the
Federal income tax consequences of any
other component transaction of the larger
transaction as well as all other compo-
nent transactions of the larger transaction
(for example, taking into account all rel-
evant provisions of the Code and general
principles of tax law, including the step
transaction doctrine). See section 3.03(3)
(e) of this notice (Example 5).
(7) Covered Transaction. The term
Covered Transaction means a Covered
Recognition Transaction or a Covered
Nonrecognition Transaction (as appropri-
ate).
(8) Distributing AFS Group. The term
Distributing AFS Group means one or
more chains of entities connected through
ownership with a Common Parent Corpo-
ration that—
(a) composes or compose an AFS
Group,
(b) is or are a Party to a Covered Trans-
action, and
(c) is or are treated on its AFS as the
distributor of the stock of Controlled (for
example, a spinnor under the Accounting
Standards Codification).
(9) Party. The term Party means, with
regard to a Covered Transaction—
(a) a Controlled,
(b) a Distributing AFS Group,
(c) a partnership,
(d) a corporate partner transferring to,
or receiving property from, a partnership
in a Covered Transaction,
(e) a Target,
(f) a Target AFS Group, or
(g) an Acquirer AFS Group.
(10) Section 108(b) Reduction Amount.
The term Section 108(b) Reduction
Amount means the amount of excluded
COD income that results in a reduction of
tax attributes under § 108(b) or § 1.1502-
28 (that is, the total amount of excluded
COD income, minus the “black hole ex-
cluded COD income” described in section
2.02(3) of this notice).
(11) Target. The term Target means one
corporation, or one or more chains of en-
tities connected through ownership with a
Common Parent Corporation, that—
(a) composes or compose a portion of
a Target AFS Group (as defined in section
3.02(12) of this notice), and
(b) is or are treated as the Party that is
acquired on the AFS of the Target AFS
Group (for example, an acquiree under the
Accounting Standards Codification).
(12) Target AFS Group. The term Tar-
get AFS Group means a corporation, or
one or more chains of entities connected
through ownership with a Common Parent
Corporation, that—
(a) composes or compose an AFS
Group, and
(b) is or are treated as—
(i) the Party that is acquired on the AFS
of the Target AFS Group (for example, an
acquiree under the Accounting Standards
Codification), or
(ii) the AFS Group from which a Target
is acquired on the AFS of the Target AFS
Group.
(13) Test Group. The term Test Group
means, as appropriate—
(a) all persons treated as a single em-
ployer under § 52(a) (as defined, with
certain modifications, by § 1563(a)) or
§ 52(b) or the Treasury regulations under
§ 52(b), or
(b) all entities included in a foreign-par-
ented multinational group, as defined in
§ 59(k)(2)(B).
(14) Three-Taxable-Year Period. The
term Three-Taxable-Year Period has the
meaning given the term in section 2.01(4)
(b)(i) of this notice.
.03 AFSI Consequences of Covered
Nonrecognition Transactions. For purpos-
es of calculating AFSI, if there is a Cov-
ered Nonrecognition Transaction:
(1) Adjustment of financial accounting
gain or loss.
(a) Financial accounting treatment
conforms to Federal income tax treat-
ment. Any financial accounting gain or
loss resulting from the application of the
accounting standards used to prepare the
AFS of a Party to the Covered Nonrec-
ognition Transaction is not taken into ac-
count solely for purposes of calculating
the AFSI of the Party for the one or more

Bulletin No. 2023–3 395 January 17, 2023
taxable years in which the AFS of the Par-
ty takes into account the Covered Nonrec-
ognition Transaction.
(b) Scope of rule. The rule set forth in
section 3.03(1)(a) of this notice applies
solely to the AFSI consequences that re-
sult directly from the Covered Nonrecog-
nition Transaction for the Party’s taxable
year in which the AFS of the Party takes
into account that transaction. For general
rules regarding the AFSI consequences of
Covered Transactions (including Covered
Nonrecognition Transactions and Covered
Recognition Transactions) with regard to
each Party’s Three-Taxable-Year Period,
see section 3.04 of this notice.
(2) Corresponding adjustments to basis
of transferred property on an AFS. With
regard to any property transferred to a
Party as part of a Covered Nonrecognition
Transaction described in section 3.03(1)
(a) of this notice, any increase or decrease
in the financial accounting basis of that
property on the AFS of the Party resulting
from that Covered Nonrecognition Trans-
action is not taken into account solely for
purposes of computing the AFSI of the
Party receiving the transferred property
with regard to any taxable year of that
Party.
(3) Examples. The following examples
illustrate the rules set forth in sections
3.03(1) and (2) of this notice. Each Par-
ty to a Covered Transaction described in
these examples uses the Accounting Stan-
dards Codification (that is, U.S. GAAP)
for purposes of preparing the Party’s AFS.
In addition, the AFS of each Party takes
into account each Covered Transaction
described in these examples in the taxable
year in which the transaction occurs. Last-
ly, each Party’s taxable year and account-
ing period is based on the calendar year.
(a) Example 1 – Covered Nonrecognition Trans-
action Involving Acquirer AFS Group, Target AFS
Group, and Target—(i) Facts. Acquirer AFS Group
and Target AFS Group, of which Target is a mem-
ber, are unrelated. In the 2022 taxable year of Ac-
quirer AFS Group and Target AFS Group, Acquirer
AFS Group acquires Target solely in exchange for
stock through a merger of Target into a member of
Acquirer AFS Group that qualifies as a reorganiza-
tion described in § 368(a)(1)(A) (Target Merger).
On the AFS of Target AFS Group and the AFS of
Acquirer AFS Group for the 2022 taxable year, the
Target Merger results in financial accounting gain
and corresponding increases in the financial account-
ing basis of the assets received by each Party (that
is, Acquirer AFS Group and Target AFS Group) in
the transaction.
(ii) Analysis. To determine AFSI, neither Target
AFS Group nor Acquirer AFS Group take into ac-
count the financial accounting gain (that otherwise
would have resulted from the application of the ac-
counting standards used to prepare each AFS Group’s
AFS) to the Target Merger for the 2022 taxable year.
See section 3.03(1)(a) and (b) of this notice. This
adjustment to financial accounting gain results from
the Target Merger’s qualification as a Covered Non-
recognition Transaction. See section 3.03(1)(a) of
this notice. Each increase in financial accounting ba-
sis of the assets received by Target AFS Group and
Acquirer AFS Group in the Target Merger (that oth-
erwise would have resulted from the application of
the accounting standards used to prepare each AFS
Group’s AFS) is not taken into account for AFSI pur-
poses. See section 3.03(2) of this notice.
(b) Example 2 – Disposition of Assets Acquired
in Covered Nonrecognition Transaction—(i) Facts.
The facts are the same as in section 3.03(3)(a) of this
notice (Example 1), except for the following. During
Acquirer AFS Group’s 2023 taxable year, a portion
of the assets that Acquirer AFS Group received from
Target AFS Group (Target Assets) in the Target
Merger is sold by Acquirer AFS Group (Target As-
set Sale). In the absence of the application of section
3.03(2) of this notice, the basis of those Target Assets
would have been increased to fair market value on
the AFS of Acquirer AFS Group as a result of the
Target Merger.
(ii) Analysis. To determine the AFSI of Acquirer
AFS Group for the 2023 taxable year, Acquirer AFS
Group must treat its financial accounting basis in the
Target Assets as equal to the financial accounting ba-
sis of those assets held by the transferor member of
Target AFS Group immediately prior to the Target
Merger (that is, a transferred financial accounting ba-
sis). See section 3.03(2) of this notice; cf. § 362(b).
Therefore, solely for purposes of determining the
AFSI of Acquirer AFS Group for the 2023 taxable
year, Acquirer AFS Group must treat the Target
Asset Sale as resulting in financial accounting gain
equal to the difference between the financial ac-
counting value of the Target Assets on the date of the
sale and the transferred financial accounting basis of
those assets (as adjusted for events subsequent to the
Target Merger and any other relevant AFSI adjust-
ments, such as those described in section 4.07 of this
notice).
(c) Example 3 – Covered Nonrecognition Trans-
action Involving Distributing AFS Group and Con-
trolled—(i) Facts. On January 1, 2022, the parent
corporation of Distributing AFS Group (Distributing)
contributes property to a newly formed Controlled in
exchange for Controlled stock, Controlled’s assump-
tion of certain Distributing liabilities (Controlled Li-
ability Assumption), Controlled cash, and Controlled
securities (collectively, the Contribution). Pursuant
to a plan of reorganization that includes the Contri-
bution, Distributing distributes Controlled stock to
certain shareholders of Distributing throughout the
year in exchange for Distributing stock (collectively,
the Staggered Split-Off Distribution). The Contribu-
tion and Staggered Split-Off Distribution, together,
qualify for nonrecognition treatment (i) for Distrib-
uting under §§ 368(a)(1)(D) and 355, 357, and 361,
and (ii) for Controlled under § 1032(a). Pursuant to
that plan of reorganization, Distributing transfers the
Controlled cash and Controlled securities to Distrib-
uting’s creditors (Cash for Debt Exchange and Debt
for Debt Exchange, respectively) in transactions that
qualify Distributing for nonrecognition treatment un-
der §§ 361(b)(3) and (c)(3), respectively (collective-
ly, the Deleveraging Transactions). On the AFS of
Distributing AFS Group and Controlled, each of the
transactions described in this section 3.03(3)(c)(i)
results in financial accounting gain and correspond-
ing increases in the financial accounting basis of the
assets received by Controlled, respectively.
(ii) Analysis. In determining AFSI, Distributing
does not take into account any financial accounting
gain that otherwise would result from the applica-
tion of the accounting standards used to prepare the
Distributing AFS Group’s AFS to any of the Contri-
bution, Controlled Liability Assumption, Staggered
Split-Off Distribution,
2
or Deleveraging Transac-
tions (together, the Controlled Split-Off) for the 2022
taxable year. See section 3.03(1)(a) and (b) of this
notice. This adjustment to financial accounting gain
results from the qualification of each of those trans-
actions as a Covered Nonrecognition Transaction.
See section 3.03(1)(a) of this notice. The analysis
in this section 3.03(3)(c) would not be affected if a
creditor of Distributing were to recognize any gain
for Federal income tax purposes in the Controlled
Split-Off.
(d) Example 4 – Covered Recognition Transac-
tion Involving Distributing AFS Group—(i) Facts.
The facts are the same as in section 3.03(3)(c) of
this notice (Example 3), except for the following.
During Distributing AFS Group’s 2022 taxable year,
Distributing fails to transfer the Controlled securi-
ties to Distributing’s creditors in a transaction that
qualifies Distributing for nonrecognition treatment
under § 361(c)(3). Accordingly, the Debt for Debt
Exchange is a Covered Recognition Transaction for
the 2022 taxable year.
(ii) Analysis. In determining AFSI, Distributing
does not take into account any financial accounting
gain that otherwise would result from the applica-
tion of the accounting standards used to prepare the
Distributing AFS Group’s AFS to any of the Con-
tribution, Controlled Liability Assumption, Cash for
Debt Exchange, or Staggered Split-Off Distribution
for the 2022 taxable year. See section 3.03(1)(a) and
(b) of this notice. This adjustment to financial ac-
counting gain results from the qualification of each
of those transactions as a Covered Nonrecognition
Transaction (which are component transactions of
the Controlled Split-Off). See section 3.03(1)(a) of
this notice. However, Distributing AFS Group must
take into account, for the 2022 taxable year, any fi-
nancial accounting gain that would result from ap-
plying the accounting standards used to prepare the
2
A “split-off” generally consists of a non-pro rata distribution by Distributing of stock of a Controlled in which Distributing shareholders surrender some or all of their stock in Distributing
in exchange for that Controlled stock. In contrast, a “spin-off” generally consists of a pro rata distribution of Controlled stock by Distributing to its shareholders with respect to their stock
in Distributing.

January 17, 2023 396 Bulletin No. 2023–3
Distributing AFS Group’s AFS to the Debt for Debt
Exchange because that transaction is a Covered Rec-
ognition Transaction. See section 3.03(1)(a) and (b)
of this notice. Accordingly, for purposes of determin-
ing AFSI, the financial accounting basis of the assets
of Controlled are increased (on the AFS of Con-
trolled) by an amount corresponding to the financial
accounting gain that resulted from the Debt for Debt
Exchange (in other words, section 3.03(2) does not
apply to the Debt for Debt Exchange). See section
3.03(1)(a) of this notice.
(e) Example 5 – Covered Recognition Trans-
action under Subchapter K—(i) Facts. Partner A
contributes property to existing Partnership in a
transaction purporting to qualify for nonrecognition
treatment under § 721 (Contribution). Following the
Contribution, Partnership distributes cash to Partner
A in a transaction purporting to qualify for nonrecog-
nition treatment under § 731 (Distribution). Section
707(a)(2)(B) and § 1.707-3 apply to the Contribution
and Distribution to treat those transactions together
as a part sale, part contribution of the property by
Partner A to Partnership.
(ii) Analysis. The Contribution by Partner A and
the Distribution by Partnership result in the recogni-
tion of gain or loss for Federal income tax purposes
due to the application of § 707(a)(2)(B) and § 1.707-
3. Qualification of the Contribution and the Distri-
bution (each, a component transaction of a larger
transaction) as a Covered Nonrecognition Transac-
tion is determined based on the Federal income tax
consequences of all other component transactions of
the larger transaction. See section 3.02(5)(b) of this
notice. In other words, the application of § 707(a)(2)
(B) and § 1.707-3 to both component transactions of
the larger transaction, which treats them together as
a part taxable exchange under § 1001 and a part non-
taxable contribution, results in the Contribution and
Distribution being treated as a Covered Recognition
Transaction. See section 9.01(1)(b) of this notice for
a request for comments regarding Covered Transac-
tions in which, for Federal income tax purposes, gain
or loss is recognized in part.
.04 Consequences of All Covered
Transactions. For purposes of determin-
ing the AFSI of a Party for the Three-Tax-
able-Year Period:
(1) Covered Transactions Involving
Solely an Acquirer AFS Group and a Tar-
get AFS Group. If an Acquirer AFS Group
acquires a Target AFS Group through a
Covered Transaction that creates a Test
Group comprising the Target AFS Group
(or the assets thereof) and the Acquirer
AFS Group—
(a) the applicable corporation status (if
that status existed immediately prior to the
Covered Transaction) of the Target AFS
Group terminates, and
(b) the AFSI of the Target AFS Group
for each year of the Target AFS Group’s
Three-Taxable-Year Period is combined
with the AFSI of the Acquirer AFS Group
for each year of the Acquirer AFS Group’s
Three-Taxable-Year Period.
(2) Covered Transactions Involving
Solely an Acquirer AFS Group and a Tar-
get. If an Acquirer AFS Group acquires a
Target in a Covered Transaction that cre-
ates a Test Group comprising the Target
(or the assets thereof) and the Acquirer
AFS Group—
(a) the applicable corporation status (if
that status existed immediately prior to the
Covered Transaction) of the Target termi-
nates,
(b) the AFSI of the Target for the
Three-Taxable-Year Period of the Target
is determined based on the Target’s allo-
cated portion of the Target AFS Group’s
total AFSI, determined based on any rea-
sonable allocation method of the Target
AFS Group until the issuance of the forth-
coming proposed regulations, which will
provide a required allocation method (see
section 9.01(1)(e) of this notice),
(c) the AFSI of the Target for each year
of the Target’s Three-Taxable-Year Period
is combined with the AFSI of the Acquirer
AFS Group for each year of the Acquirer
AFS Group’s Three-Taxable-Year Period,
and
(d) the AFSI of the Target AFS Group
for each year of the Target AFS Group’s
Three-Taxable-Year Period is not reduced
by the allocation of AFSI to the Target
(as required by section 3.04(2)(b) of this
notice), or otherwise affected by the Ac-
quirer AFS Group’s acquisition of Target
through the Covered Transaction.
(3) Covered Transactions Involving
Distributing AFS Group and Controlled.
If a Distributing AFS Group distributes
the stock of Controlled to the sharehold-
ers of the Distributing AFS Group’s parent
corporation in a Covered Transaction—
(a) the applicable corporation status (if
that status existed immediately prior to the
Covered Transaction) of Controlled termi-
nates,
(b) the AFSI of Controlled for the
Three-Taxable-Year Period of Controlled
is determined based on Controlled’s al-
located portion of the Distributing AFS
Group’s total AFSI, determined based on
any reasonable allocation method of the
Distributing AFS Group until the issuance
of the forthcoming proposed regulations,
which will provide a required allocation
method (see section 9.01(1)(f) of this no-
tice), and
(c) the AFSI of the Distributing AFS
Group for each year of the Distributing
AFS Group’s Three-Taxable-Year Period
is not reduced by the allocation of AFSI to
Controlled (as required by section 3.04(3)
(b) of this notice), or otherwise affected
by the Distributing AFS Group’s distribu-
tion of the stock of Controlled through the
Covered Transaction.
(4) Examples. The following exam-
ples illustrate the rules set forth in sec-
tions 3.04(1) through (3) of this notice.
Each Party to a Covered Transaction de-
scribed in these examples uses the Ac-
counting Standards Codification (that is,
U.S. GAAP) for purposes of preparing the
Party’s AFS. In addition, the AFS of each
Party takes into account each Covered
Transaction described in these examples
in the taxable year in which such transac-
tion occurs. Lastly, each Party’s taxable
year and accounting period is based on the
calendar year.
(a) Example 6 – Covered Nonrecognition Trans-
action Involving Acquirer AFS Group and Tar-
get—(i) Facts. The facts are the same as in section
3.03(3)(a) of this notice (Example 1), except for the
following. For taxable years 2020, 2021, and 2022,
Target AFS Group has AFSI of $1.3 billion, $1.2
billion, and $1.1 billion, respectively. For those tax-
able years, Acquirer AFS Group has AFSI of $800
million, $900 million, and $1 billion, respectively.
Pursuant to a reasonable allocation method, Target
AFS Group allocates to Target $50 million, $100
million, and $200 million of AFSI for taxable years
2020, 2021, and 2022, respectively. See section
3.04(2)(b) of this notice. As a result of the Target
Merger, Acquirer AFS Group and Target compose
a Test Group.
(ii) Analysis. As a result of the Target Merger, Ac-
quirer AFS Group (which, as a result, includes Target)
is an applicable corporation for Acquirer AFS Group’s
2023 taxable year. Specifically, for purposes of apply-
ing the general AFSI test to Acquirer AFS Group for
Acquirer AFS Group’s 2022 taxable year, Target’s al-
located AFSI is combined with Acquirer AFS Group’s
AFSI. As a result, Acquirer AFS Group has an average
AFSI in excess of $1 billion. Specifically, the Acquir-
er AFS Group has an average AFSI of $1.017 billion,
which equals $3.05 billion (that is, $850 million ($800
million + $50 million) for taxable year 2020, $1 bil-
lion ($900 million + $100 million) for taxable year
2021, and $1.2 billion ($1 billion + $200 million) for
taxable year 2022) ÷ 3 years. See section 3.04(2)(c)
of this notice. Target AFS Group also is an applica-
ble corporation for its 2023 taxable year because its
allocation of AFSI to Target, and any other aspect of
the Target Merger, does not affect the AFSI of Target
AFS Group prior to its 2023 taxable year. See section
3.04(2)(d) of this notice.

Bulletin No. 2023–3 397 January 17, 2023
(b) Example 7 – Covered Transactions Involving
Distributing AFS Group and Controlled—(i) Facts.
The facts are the same as in section 3.03(3)(c) of this
notice (Example 3), except for the following. For
taxable years 2020, 2021, and 2022, Distributing
AFS Group has AFSI of $2.1 billion, $2.0 billion,
and $1.9 billion, respectively. Pursuant to a reason-
able allocation method, Distributing AFS Group al-
locates to Controlled $950 million, $1.2 billion, and
$1 billion of AFSI for taxable years 2020, 2021, and
2022, respectively. See section 3.04(3)(b) of this no-
tice. In addition to the amount of AFSI allocated to
Controlled for 2022, Controlled has standalone AFSI
of $300 million in 2022.
(ii) Analysis. As a result of the Controlled Split-
Off, Controlled is an applicable corporation for
Controlled’s 2023 taxable year. For purposes of ap-
plying the general AFSI test to Controlled for Con-
trolled’s 2022 taxable year, Controlled’s allocated
AFSI results in Controlled having an average AFSI
in excess of $1 billion. Specifically, the Controlled
AFS Group has an average AFSI of $1.15 billion,
which equals $3.45 billion (that is, $950 million
for taxable year 2020, $1.2 billion for taxable year
2021, and $1.3 billion ($1 billion + $300 million)
for taxable year 2022) ÷ 3 years. See section 3.04(3)
(b) of this notice. Distributing AFS Group also is
an applicable corporation for its 2023 taxable year
because its allocation of AFSI to Controlled, and
any other aspect of the Controlled Split-Off, does
not affect the AFSI of Distributing AFS Group prior
to its 2023 taxable year. See section 3.04(3)(c) of
this notice.
.05 Treatment of Tax Consolidated
Groups for Purposes of the CAMT. A tax
consolidated group is treated as a single
entity for purposes of calculating AFSI for
determining applicable corporation status
and for purposes of calculating AFSI for
CAMT liability.
.06 AFSI Consequences of Excluded
COD Income. To the extent that a dis-
charge of indebtedness results in excluded
COD income to an AFS Group for Federal
income tax purposes, but results in gain
to the AFS Group on the AFS of the AFS
Group:
(1) Adjustment of financial accounting
gain. The financial accounting gain re-
sulting from application of the accounting
standards used to prepare the AFS of the
AFS Group to the discharge of indebted-
ness that is equal to the amount of exclud-
ed COD income (for Federal income tax
purposes) of the AFS Group is not taken
into account for purposes of calculating
the AFSI of that AFS Group for the tax-
able year in which the discharge of indebt-
edness occurs.
(2) Corresponding adjustments to
CAMT attributes of AFS Group. If fi-
nancial accounting gain resulting from
a discharge of indebtedness is not tak-
en into account under section 3.06(1) of
this notice for purposes of calculating the
AFSI of an AFS Group, the AFS Group’s
CAMT attributes must be reduced to the
extent of the Section 108(b) Reduction
Amount under the principles of, including
taking into account the ordering provided
by, § 108(b) and § 1017.
(3) Example 8 – Excluded COD of tax consoli-
dated group—(a) Facts. Parent is the common par-
ent of a tax consolidated group (Parent Tax Consol-
idated Group), which also is an AFS Group (Parent
AFS Group). There is no member of Parent AFS
Group other than members of Parent Tax Consoli-
dated Group. During its 2022 taxable year, Parent
AFS Group emerges from bankruptcy. All members
of Parent AFS Group were under the jurisdiction of
the bankruptcy court. As a result of the bankruptcy
reorganization, $1,000x of Parent AFS Group debt
is discharged, the entire amount of which results in
excluded COD. However, the Section 108(b) Reduc-
tion Amount of Parent AFS Group is $850x. A group
of former creditors of Parent AFS Group owns 100
percent of the outstanding stock of Parent. None of
the shareholders of Parent controls Parent for pur-
poses of preparing the shareholders’ respective AFS.
Therefore, Parent AFS Group is not consolidated into
any other AFS Group following Parent AFS Group’s
emergence from bankruptcy. On Parent AFS Group’s
AFS, all $1,000x of the excluded COD is taken into
account as financial accounting gain.
(b) Analysis. For purposes of determining AFSI
for the 2022 taxable year, Parent AFS Group does
not take into account any financial accounting gain
that otherwise would result from the application of
the accounting standards used to prepare the Parent
AFS Group’s AFS to any of the $1,000x of excluded
COD. See section 3.06(1) of this notice. The CAMT
attributes of Parent AFS Group must be reduced by an
amount equal to the amount of Parent AFS Group’s
Section 108(b) Reduction Amount (that is, $850x).
See section 3.06(2) of this notice. Parent AFS Group
must reduce those CAMT attributes under the prin-
ciples of, including taking into account the ordering
provided by, § 108(b) and § 1017. See id.
.07 AFSI Consequences of Emergence
from Bankruptcy. To the extent that the
emergence from bankruptcy of an AFS
Group results in gain or loss to the AFS
Group on its AFS:
(1) Adjustment of financial accounting
gain or loss. The financial accounting gain
or loss resulting from application of the
accounting standards used to prepare the
AFS of the AFS Group to the emergence
from bankruptcy by the AFS Group is not
taken into account for purposes of calcu-
lating the AFSI of that AFS Group for the
taxable year in which the emergence from
bankruptcy occurs.
(2) Corresponding adjustments to basis
of transferred property on an AFS. With
regard to any property of a Party emerg-
ing from bankruptcy in a transaction de-
scribed in section 3.07(1) of this notice,
any increase or decrease in the financial
accounting basis of that property on the
AFS of the Party resulting from that emer-
gence from bankruptcy (other than as a
result of the excluded COD income re-
duction under the principles of, including
taking into account the ordering provid-
ed by, § 108(b) and § 1017) is not taken
into account for purposes of computing
AFSI with regard to any taxable year of
that Party. That is, to determine the AFSI
of an AFS Group described in this section
3.07(2), financial accounting basis of a
Party (that is a member of that AFS Group)
emerging from a bankruptcy equals the fi-
nancial accounting basis of those assets of
the Party immediately prior to the Party’s
emergence from bankruptcy, as adjusted
under section 3.06(2) of this notice.
SECTION 4. DEPRECIATION
ADJUSTMENTS
.01 Purpose. The Treasury Department
and the IRS anticipate that the forthcom-
ing proposed regulations will be consistent
with the guidance provided in this section
4. The Treasury Department and the IRS
are providing this interim guidance to fa-
cilitate the application of the depreciation
adjustment rules in § 56A(c)(13) prior to
the issuance of the forthcoming proposed
regulations.
.02 Defined Terms. For purposes of this
section 4:
(1) Covered Book COGS Depreciation.
The term Covered Book COGS Deprecia-
tion means depreciation expense, impair-
ment loss, or impairment loss reversal that
is taken into account as cost of goods sold
in the net income or loss set forth on the
taxpayer’s AFS with respect to Section
168 Property (as defined in section 4.02(5)
of this notice).
(2) Covered Book Depreciation Ex-
pense. The term Covered Book Deprecia-
tion Expense means depreciation expense,
impairment loss, or impairment loss re-
versal other than Covered Book COGS
Depreciation that is taken into account in
the net income or loss set forth on the tax-
payer’s AFS with respect to Section 168
Property (as defined in section 4.02(5) of
this notice).

January 17, 2023 398 Bulletin No. 2023–3
(3) Covered Book Expense. The term
Covered Book Expense means an amount,
other than Covered Book COGS Depre-
ciation and Covered Book Depreciation
Expense, that is—
(a) recognized as an expense or loss in
the net income or loss set forth on the tax-
payer’s AFS, and
(b) reflected in the unadjusted depre-
ciable basis, as defined in § 1.168(b)-1(a)
(3), of Section 168 Property (as defined in
section 4.02(5) of this notice) for Federal
income tax purposes.
(4) Deductible Tax Depreciation. The
term Deductible Tax Depreciation means
Tax Depreciation (as defined in section
4.02(7) of this notice) that is allowed as
a deduction in computing taxable income.
(5) Section 168 Property. The term
Section 168 Property means property to
which § 168 applies, as described in sec-
tion 4.04 of this notice.
(6) Tax COGS Depreciation. The term
Tax COGS Depreciation means Tax De-
preciation (as defined in section 4.02(7) of
this notice) that is capitalized to inventory
under § 263A and recovered as part of cost
of goods sold in computing gross income
under § 61.
(7) Tax Depreciation. The term Tax De-
preciation means depreciation deductions
allowed under § 167, with respect to Sec-
tion 168 Property.
.03 Adjustments for Depreciation (In-
cluding Depreciation Capitalized to In-
ventory). For purposes of § 56A(c)(13),
AFSI is—
(1) reduced by Tax COGS Deprecia-
tion, but only to the extent of the amount
recovered as part of cost of goods sold in
computing taxable income for the taxable
year,
(2) reduced by Deductible Tax De-
preciation, but only to the extent of the
amount allowed as a deduction in comput-
ing taxable income for the taxable year,
(3) adjusted to disregard Covered Book
COGS Depreciation, Covered Book De-
preciation Expense, and Covered Book
Expense, and
(4) adjusted for other items as provid-
ed in guidance published in the Internal
Revenue Bulletin (see § 601.601(d) of the
Statement of Procedural Rules (26 CFR
part 601)).
.04 Property to Which § 168 Applies
(Section 168 Property).
(1) In general. For purposes of
§ 56A(c)(13), property to which § 168 ap-
plies consists of the following:
(a) MACRS property, as defined in
§ 1.168(b)-1(a)(2), that is depreciated un-
der § 168;
(b) Computer software that is qualified
property as defined in §§ 1.168(k)-1(b)(1)
or 1.168(k)-2(b)(1), as applicable, and de-
preciated under § 168; and
(c) Other property depreciated under
§ 168 that is (i) qualified property as de-
fined in § 1.168(k)-2(b)(1) and that is (ii)
described in § 1.168(k)-2(b)(2)(i)(E), (F),
or (G).
(2) Section 56A(c)(13) applies only
to portion depreciated under §§ 167
and 168. For purposes of § 56A(c)(13),
property to which § 168 applies includes
only the portion of the cost of property
described in section 4.04(1) of this notice
that is depreciated under §§ 167 and 168.
For example, if a portion of the cost of a
property described in section 4.04(1)(c)
of this notice is deducted under § 181,
and the remainder of the cost of the prop-
erty is depreciated under §§ 167 and 168,
only the portion of the cost of property
depreciated under §§ 167 and 168 is con-
sidered property to which § 168 applies
for purposes of § 56A(c)(13). Further, if a
taxpayer does not depreciate any portion
of a property under § 168, the property
is not property to which § 168 applies
for purposes of § 56A(c)(13), and thus,
not subject to adjustment under § 56A(c)
(13). For example, if the taxpayer elects
out of the additional first year deprecia-
tion deduction under § 168(k) for prop-
erty described in section 4.04(1)(b) or (c)
of this notice, then AFSI is not adjusted
under § 56A(c)(13) with respect to such
property because § 168 does not apply to
such property.
.05 Repair deductions. Section 56A(c)
(13) applies only to Section 168 Property.
For example, if a taxpayer deducts an ex-
penditure as a repair for Federal income
tax purposes but capitalizes the expendi-
ture as an improvement for AFS purpos-
es, § 56A(c)(13) does not apply because
the expenditure does not give rise to Sec-
tion 168 Property. For purposes of deter-
mining the appropriate asset in order to
ascertain if there is Section 168 Property,
the unit of property determination under
§ 1.263(a)-3(e) does not apply. Instead,
taxpayers should follow § 168 and the
regulations under § 168. See § 1.168(i)-
8(c)(4).
.06 Property placed in service in tax-
able years beginning before January 1,
2023. Section 56A(c)(13) applies to Sec-
tion 168 Property placed in service in any
taxable year, including taxable years be-
ginning before January 1, 2023.
.07 AFSI adjustments for dispositions.
If a taxpayer disposes of Section 168
Property, the taxpayer must adjust AFSI
to redetermine any gain or loss taken into
account in the net income or loss set forth
on the taxpayer’s AFS with respect to such
disposition (including a gain or loss of
zero) by adjusting the AFS basis of such
property to take into account all current
and prior § 56A(c)(13) adjustments, in-
cluding those that would have been made
in taxable years prior to the effective date
of the CAMT had the CAMT applied in
those years.
.08 Example. The following example
illustrates the rules set forth in sections
4.06 and 4.07 of this notice.
(1) Facts. Taxpayer is an applicable corporation
for the calendar year ending December 31, 2023. On
January 1, 2018, Taxpayer purchased and placed in
service Property A, a Section 168 Property, at a cost
of $1,000x. Property A qualified for, and Taxpayer
claimed, the 100-percent additional first year depre-
ciation deduction allowable under § 168(k) for its
taxable year ending December 31, 2018. For AFS
purposes, Taxpayer depreciates Property A over
40 years on a straight-line method and recognized
$25x ($1,000x cost / 40 years) of Covered Book
Depreciation Expense in 2018 and each year there-
after until it sold Property A on January 1, 2024 for
$900x. For 2024, Taxpayer takes into account $50x
of net gain for the sale of Property A in the net in-
come or loss set forth on its AFS ($900x proceeds
- $850x of AFS basis ($1,000x cost - $150x accu-
mulated Covered Book Depreciation Expense as of
January 1, 2024)).
(2) Analysis for taxable year 2023. In determin-
ing AFSI for the taxable year ending December 31,
2023, Taxpayer does not have any Deductible Tax
Depreciation or Tax COGS Depreciation in comput-
ing taxable income with respect to Property A, and
thus, the adjustment under section 4.03(1) and (2)
of this notice would be zero. In addition, Taxpayer
would adjust AFSI under section 4.03(3) of this no-
tice to disregard the $25x of Covered Book Depreci-
ation Expense with respect to Property A.
(3) Analysis for taxable year 2024. To determine
the AFSI adjustment for the gain or loss from the
sale of Property A under section 4.07 of this notice,
Taxpayer must adjust the AFS basis to take into
account the cumulative § 56A(c)(13) adjustments,
starting from the date Property A was placed-in-ser-
vice. Accordingly, the adjusted basis of Property A
for AFSI purposes is zero ($850x AFS basis + $150x

Bulletin No. 2023–3 399 January 17, 2023
accumulated Covered Book Depreciation Expense
- $1,000x of accumulated Tax Depreciation). Thus,
the redetermined gain on the sale of Property A for
AFSI purposes is $900x ($900x proceeds - $0 adjust-
ed AFSI basis).
SECTION 5. SAFE HARBOR
METHOD FOR DETERMINING
APPLICABLE CORPORATION
STATUS
.01 Purpose. The Treasury Department
and the IRS anticipate that the forthcom-
ing proposed regulations will be consis-
tent with the guidance provided in this
section 5. The Treasury Department and
the IRS are providing this interim guid-
ance to provide corporations with a safe
harbor method for determining whether
they are an applicable corporation for the
first taxable year beginning after Decem-
ber 31, 2022.
.02 Definition of AFS Consolidation
Entries. For purposes of this section 5, the
term AFS Consolidation Entries means
the financial accounting journal entries
that are made for AFS purposes in order
to present the financial results of an AFS
Group (as defined in section 2.01(3)(c)(i)
of this notice) as though all members of
the AFS Group were a single company, in-
cluding journal entries to eliminate trans-
actions between members of such group.
.03 Simplified method for determining
applicable corporation status.
(1) In general. For the first taxable year
beginning after December 31, 2022, a cor-
poration may choose to apply the safe har-
bor method described in section 5.03(2) of
this notice (simplified method) in lieu of
the rules in §§ 59(k)(1) and (2) for purpos-
es of determining whether it is an applica-
ble corporation under § 59(k)(1).
(2) Simplified method. Under the sim-
plified method, a corporation determines
whether it is an applicable corporation by
applying the rules in § 59(k)(1) and (2)
with the following modifications:
(a) The AFSI test in § 59(k)(1)(B)
(i) (including for purposes of § 59(k)
(1)(B)(ii)(I)) is applied by substituting
“$500,000,000” for “$1,000,000,000.”
(b) The AFSI test in § 59(k)(1)(B)(ii)(II)
is applied by substituting “$50,000,000”
for “$100,000,000.”
(c) AFSI is determined –
(i) except as provided in section 5.03(2)
(c)(ii) of this notice, without regard to the
adjustments set forth in § 56A(c) and (d)
other than those set forth in § 56A(c)(2)
(A), (c)(2)(B), and (c)(5), except that in
applying § 59(k)(1)(B)(ii)(II), the adjust-
ment in § 56A(c)(4) also applies, and
(ii) after taking into account AFS Con-
solidation Entries except those that elim-
inate transactions between persons not
treated as a single employer under § 52(a)
or (b).
(d) For a corporation that has an AFS
that covers a period (AFS year) that differs
from its taxable year—
(i) Section 59(k)(1)(B)(i) and (ii)(I) are
applied by substituting “3-AFS-year pe-
riod ending during such taxable year” for
“3-taxable-year period ending with such
taxable year” in each place those phrases
appear, and
(ii) Section 59(k)(1)(E) is applied by
substituting “AFS year” for “taxable year”
and “3-AFS years” for “3-taxable years”
in each place those phrases appear.
(3) Examples. The following exam-
ples illustrate the rules set forth in section
5.03(2)(c) and (d) of this notice.
(a) Example 1 – AFS Consolidation Entries ex-
ample. The following example illustrates the rule set
forth in section 5.03(2)(c) of this notice.
(i) Facts. Corporations A, B, and C are U.S. Cor-
porations that are members of an AFS Group (ABC
group). A and B (but not C) are treated as a single
employer under § 52(a). A, B, and C choose to apply
the simplified method described in section 5.03(2) of
this notice. During the 2022 taxable year, A provides
services to B and C. For purposes of the 2022 AFS
for the ABC group, AFS Consolidation Entries are
made to eliminate income and expense from the pro-
vision of service transactions between A and B, and
between A and C.
(ii) Analysis. Pursuant to section 5.03(2)(c) of
this notice and for purposes of applying the simpli-
fied method described in section 5.03(2) of this no-
tice, the AFSI of A and B for the 2022 taxable year is
determined by taking into account the AFS Consoli-
dation Entries that eliminate the income and expense
from the transactions between A and B. However,
the AFS Consolidation Entries that eliminate income
and expense from the provision of service transac-
tions between A and C are not taken into account for
purposes of determining the AFSI of A, B, and C be-
cause A and C are not treated as a single employer
under § 52(a).
(b) Example 2 – Mismatched tax and AFS year
example. The following example illustrates the rule
set forth in section 5.03(2)(d) of this notice.
(i) Facts. Corporation uses the calendar year as
its taxable year and has a fiscal AFS year that ends
on September 30. Corporation has been in existence
since before calendar year 2020 and has never had
a short taxable year or short AFS year. Corporation
chooses to use the simplified method described in
section 5.03(2) of this notice.
(ii) Analysis. In determining whether Corpora-
tion is an applicable corporation for its taxable year
ending December 31, 2023, Corporation applies
§ 59(k)(1)(B) (as modified by section 5.03(2) of this
notice) by using the AFSI (as determined under sec-
tion 5.03(2)(c) of this notice) for the 3-AFS-year pe-
riod ending during its taxable year ending December
31, 2022. That is, Corporation uses AFSI from the
AFS years that ended September 30, 2020, Septem-
ber 30, 2021, and September 30, 2022.
(4) Effect of not meeting the safe har-
bor. If a corporation applies the simplified
method described in section 5.03(2) of this
notice for its first taxable year beginning
after December 31, 2022, and determines
that its AFSI (as determined under section
5.03(2) of this notice) exceeds the relevant
simplified method thresholds set forth in
section 5.03(2)(a) and (b) of this notice,
for example, because it has AFSI in ex-
cess of $500 million and is not described
in § 59(k)(2), then the corporation will be
an applicable corporation for such year
only if it is determined to be an applicable
corporation under § 59(k)(1) (determined
without regard to the modifications de-
scribed in section 5.03(2) of this notice).
SECTION 6. AFSI ADJUSTMENTS
WITH RESPECT TO CERTAIN
CREDITS
.01 Purpose. The Treasury Department
and the IRS anticipate that the forthcom-
ing proposed regulations will be consistent
with the guidance provided in this section
6. The Treasury Department and the IRS
are providing this interim guidance to fa-
cilitate the ability of taxpayers to deter-
mine AFSI with respect to certain credits
described in §§ 48D, 6417, and 6418.
.02 Proceeds from certain credits ex-
cluded from AFSI. AFSI is appropriately
adjusted to disregard—
(1) any amount treated as a payment
against the tax imposed by subtitle A pur-
suant to an election under §§ 48D(d) or
6417, provided that such amount (or por-
tion thereof) is not otherwise disregarded
under § 56A(c)(5),
(2) any amount received from the
transfer of an eligible credit, as defined
in § 6418(f)(1)(A), that is not includible
in the gross income of the taxpayer by
application of § 6418(b) or is treated as
tax-exempt income under § 6418(c)(1)
(A), provided that such amount (or por-
tion thereof) is not otherwise disregarded
under § 56A(c)(5), and

January 17, 2023 400 Bulletin No. 2023–3
(3) any amount received pursuant to an
election under §§ 48D(d)(2) or 6417(c)
that is treated as tax-exempt income under
§§ 48D(d)(2)(A)(i)(III) or 6417(c)(1)(C),
provided that such amount is not other-
wise disregarded under § 56A(c)(5).
SECTION 7. APPLICATION OF
§ 56A(c)(2)(D)(i) FOR PURPOSES
OF DETERMINING APPLICABLE
CORPORATION STATUS
.01 Purpose. The Treasury Department
and the IRS anticipate that the forthcom-
ing proposed regulations will be consis-
tent with the guidance provided in this
section 7. The Treasury Department and
the IRS are providing this interim guid-
ance to facilitate the ability of taxpayers to
determine whether they are an applicable
corporation under § 59(k)(1).
.02 Adjustment to AFSI in § 56A(c)(2)
(D)(i) is inapplicable in all circumstances
for purposes of calculating AFSI in de-
termining applicable corporation status.
The Treasury Department and the IRS un-
derstand there may be uncertainty among
taxpayers as to whether the adjustment
to AFSI in § 56A(c)(2)(D)(i) applies for
purposes of determining whether a cor-
poration that is a partner in a partnership
(whether directly or indirectly) is an appli-
cable corporation if such corporation and
such partnership are not treated as a sin-
gle employer under § 52(a) or (b). Section
59(k)(1)(D) provides that solely for pur-
poses of determining whether a corpora-
tion is an applicable corporation, the AFSI
of such corporation is determined without
regard to § 56A(c)(2)(D)(i). Accordingly,
the adjustment to AFSI under § 56A(c)(2)
(D)(i) is inapplicable in all circumstanc-
es in determining applicable corporation
status.
SECTION 8. APPLICABILITY
DATES
It is anticipated that the forthcoming
proposed regulations will provide that
rules consistent with the rules described in
sections 3 through 7 of this notice apply
for taxable years beginning after Decem-
ber 31, 2022. Prior to the issuance of the
proposed regulations, taxpayers may rely
on the guidance provided in sections 3
through 7 of this notice.
SECTION 9. REQUEST FOR
COMMENTS
.01 Comments Regarding Guidance
Provided in this Notice. The Treasury
Department and the IRS request com-
ments on any questions arising from the
interim guidance set forth in this notice.
Commenters are encouraged to specify
the issues on which additional guidance
(including additional interim guidance) is
needed most quickly, as well as the most
important issues on which guidance is
needed. In addition to general comments
regarding the provisions of this notice, the
Treasury Department and the IRS request
comments to address the following specif-
ic questions:
(1) AFSI and applicable corporation
status resulting from certain transactions;
tax consolidated groups (section 3 of this
notice).
(a) Should the definition of Covered
Nonrecognition Transaction be expanded
to include additional transactions? If so,
to what extent should the AFSI conse-
quences of each additional transaction be
consistent with the rules addressing AFSI
consequences of Covered Nonrecognition
Transactions set forth in section 3.03 of
this notice?
(b) How should Covered Transactions
in which, for Federal income tax purposes,
gain or loss is recognized in part be treat-
ed? Also, are there any AFSI consequenc-
es of Covered Transactions (in addition to
the AFSI consequences addressed under
section 3.03 of this notice) that also should
be addressed by the forthcoming proposed
regulations or additional interim guidance
(for example, the receipt of cash or other
property in acquisitive reorganizations)?
For example, are there any circumstanc-
es in which attributes, in addition to basis,
should be adjusted under these rules? See
section 3.03(2) of this notice.
(c) Should any adjustments to AFS gain
or loss be made to Covered Recognition
Transactions carried out solely between or
among members of a single AFS Group?
(d) In the case of an acquisitive Cov-
ered Recognition Transaction between
two or more separate AFS Groups, what
resulting adjustments to AFS gain or loss
should be made to each AFS Group?
(e) How should a Target’s allocated
portion of the Target AFS Group’s total
AFSI be calculated for purposes of de-
termining the AFSI of an Acquirer AFS
Group that acquires the Target in a Cov-
ered Transaction? See section 3.04(2)(b)
of this notice.
(f) Is there any reason why a Con-
trolled’s allocated portion of the Distrib-
uting AFS Group’s total AFSI should be
calculated differently for purposes of de-
termining the AFSI of the Controlled? See
section 3.04(3)(b) of this notice.
(g) With regard to the rules provided in
sections 3.06 and 3.07 of this notice that
address the AFSI consequences of exclud-
ed COD income and an emergence from
bankruptcy:
(i) What are the CAMT attributes that
should be adjusted?
(ii) What methodology should be used
to adjust the CAMT attributes (including
the order in which those attributes should
be adjusted)?
(iii) Are any transition rules necessary?
(h) Should the treatment of bankruptcy
reorganizations for purposes of calculating
AFSI depend on whether the bankruptcy
reorganization is a recognition event for
Federal income tax purposes? If so, what
should be the methodology for calculating
such AFSI?
(i) Should the rules addressing AFSI
consequences of excluded COD income
in section 3.06 of this notice be revised (1)
to exclude all AFS gain associated with a
cancellation of indebtedness when there
is excluded COD income for the cancel-
lation of indebtedness, and (2) to reduce
CAMT attributes to the extent of such
gain exclusion?
(j) Are there AFS consequences to
bankruptcy reorganizations that should be
addressed by the forthcoming proposed
regulations or additional interim guidance
that are not addressed by section 3.06 or
3.07 of this notice?
(2) Depreciation adjustments (section
4 of this notice).
(a) How should a taxpayer with Tax
COGS Depreciation make the adjustments
described in section 4.03 of this notice to
ensure that—
(i) AFSI is reduced by only the amount
of Tax COGS Depreciation that is recov-
ered as part of cost of goods sold in comput-
ing taxable income for the taxable year, and
(ii) Covered Book COGS Depreciation
is appropriately disregarded in determin-

Bulletin No. 2023–3 401 January 17, 2023
ing AFSI for the year in which it is recov-
ered as part of cost of goods sold?
(b) With respect to the issue described
in section 9.01(2)(a) of this notice, should
the taxpayer be permitted to make ap-
propriate adjustments by applying the
method(s) of accounting under § 263A
that it uses for regular tax purposes?
.02 Comments Regarding Rules Not
Included in this Notice. The Treasury
Department and the IRS request com-
ments on the CAMT generally and the
issues that should be addressed in future
guidance with respect to the CAMT. The
Treasury Department and the IRS addi-
tionally request comments on the follow-
ing specific CAMT issues not addressed
by this notice:
(1) What, if any, additional guidance
is needed regarding the scope of the ex-
ception in § 59(k)(1)(D) to the distributive
share rule in § 56A(c)(2)(D)(i) applicable
for purposes of determining applicable
corporation status?
(2) How should the term “distributive
share” of a partnership’s AFSI in § 56A(c)
(2)(D)(i) be interpreted? Should the term
be based on financial accounting princi-
ples or tax principles or both? How should
a corporate partner’s distributive share be
calculated for purposes of the CAMT?
(3) What, if any, other adjustments to
AFSI should be made to carry out the prin-
ciples of part II of subchapter K of chapter
1 of the Code? Should any exceptions ap-
ply to the Covered Nonrecognition Trans-
action rule for partnership transactions? If
so, what are those exceptions?
(4) What transactions should be treat-
ed as a “change in ownership” (within the
meaning of § 59(k)(1)(C)(i)(I))?
(5) What facts and circumstances
should be considered relevant for deter-
mining whether a taxpayer remains an
applicable corporation after a change in
ownership?
(6) What duration (if any) should be
required under § 59(k)(1)(C)(i)(II) before
an applicable corporation should be treat-
ed as no longer an applicable corporation?
(7) In addition to a potential duration
described in section 9.02(6) of this notice,
what additional facts and circumstances
should be considered relevant in deter-
mining whether an applicable corporation
should continue to be treated as an appli-
cable corporation?
(8) Are there situations in which
AFSI is duplicated or omitted as a result
of the application of § 52(a) and (b) un-
der § 59(k)(1)(D)? If so, what are those
situations and what guidance is needed
to prevent the duplication or omission of
AFSI in determining whether a corpora-
tion is an applicable corporation under
§ 59(k)(1)?
(9) What entities should be treated as
predecessors of a taxpayer for purposes of
§ 59(k)(1)(E)?
(10) To what extent (if any) are prede-
cessor concepts applicable to other areas
of the CAMT (in addition to § 59(k)(1)(E)
(iii))?
(11) What rules would be appropriate
under new § 59(k)(2)(D)(i) regarding for-
eign-parented multinational groups?
(12) In the case of a financial decon-
solidation of a member of an AFS Group,
what adjustments to AFSI would be ap-
propriate?
(13) Should principles provided in
§ 1.1502-21(c), or §§ 382 and 383 and
§ 1.1502-15, apply to limit the availability
of CAMT attributes for purposes of calcu-
lating the tentative minimum tax? If so, to
what extent?
(14) How should CAMT liability, fi-
nancial statement net operating losses (as
defined in § 56A(d)), and CAMT credits
(under § 53) be allocated and used among
members of a tax consolidated group?
(15) How should the CAMT attributes
described in section 9.02(13) of this notice
be allocated to departing members of a tax
consolidated group?
(16) To what extent (if any) should
items included in OCI in a taxpayer’s AFS
be included in AFSI?
(17) The Treasury Department and the
IRS understand that, for certain types of
reinsurance contracts (those with embed-
ded derivatives), there may be a mismatch
between the treatment of investment as-
sets and related liabilities for AFSI pur-
poses. How and to what extent should ad-
justments be made to AFSI to address any
such mismatch?
(18) To what extent should guidance
provide adjustments to AFSI to disregard
mark to market unrealized gains and loss-
es that are otherwise included in AFSI?
Should this depend on the extent to which
the taxpayer marks to market the item for
regular tax purposes?
(19) To what extent should guidance
provide adjustments to include in AFSI
mark to market unrealized gains and
losses that are not otherwise included in
AFSI? Should this depend on the extent
to which the taxpayer marks to market the
item for regular tax purposes?
(20) Should the rules under § 451(b)(5)
be modified for purposes of determining
the AFSI of a corporation included in an
AFS Group? See § 56A(c)(2)(A).
.03 Procedures for Submitting Com-
ments.
(1) Deadline. Written comments
should be submitted by March 20, 2023.
Consideration will also be given to any
written comment submitted after March
20, 2023, though such comments may not
be considered in the development of the
forthcoming proposed regulations if such
consideration would delay the issuance of
the forthcoming proposed regulations.
(2) Form and manner. The subject line
for the comments should include a refer-
ence to Notice 2023-7. All commenters
are strongly encouraged to submit com-
ments electronically. However, comments
may be submitted in one of two ways:
(a) Electronically via the Federal
eRulemaking Portal at www.regulations.
gov (type IRS-2023-0001 in the search
field on the regulations.gov homepage to
find this notice and submit comments); or
(b) By mail to: Internal Revenue Ser-
vice, CC:PA:LPD:PR (Notice 2023-7),
Room 5203, P.O. Box 7604, Ben Franklin
Station, Washington, D.C., 20044.
(3) Publication of comments. The Trea-
sury Department and the IRS will publish
for public availability any comment sub-
mitted electronically and on paper to its
public docket on regulations.gov.
SECTION 10. DRAFTING AND
CONTACT INFORMATION
The principal authors of this notice
are John M. Aramburu and James Yu of
the Office of the Associate Chief Counsel
(Income Tax & Accounting); William W.
Burhop, Jeremy Aron-Dine, and John B.
Lovelace of the Office of the Associate
Chief Counsel (Corporate); and Yosef M.
Koppel of the Office of the Associate Chief
Counsel (Passthroughs and Special Indus-
tries). Other personnel from the Treasury
Department and the IRS participated in

January 17, 2023 402 Bulletin No. 2023–3
its development. For further information
regarding section 3 of this notice, please
contact Mr. Aron-Dine or Mr. Lovelace at
(202) 317-6848, or Mr. Burhop at (202)
317-5363; or Mr. Koppel at (202) 317-
6850 (not toll-free numbers). For further
information regarding new § 59(k)(2)
(regarding foreign-parented multinational
groups), please contact Taylor M. Kiessig
of the Office of Associate Chief Counsel
(International) at (202) 317-3800 (not a
toll-free number). For further information
regarding the remaining sections of this
notice, please contact Mr. Aramburu at
(202) 317-7006 or Mr. Yu at (202) 317-
4718 (not toll-free numbers).
Section 45W Commercial
Clean Vehicles and
Incremental Cost for 2023
Notice 2023-9
SECTION 1. PURPOSE
This notice provides a safe harbor
regarding the incremental cost of cer-
tain qualified commercial clean vehicles
placed in service in calendar year 2023 for
purposes of the new credit for qualified
commercial clean vehicles under § 45W
of the Internal Revenue Code (Code).
1
SECTION 2. BACKGROUND
Section 13403(a) of Public Law 117-
169, 136 Stat. 1818 (August 16, 2022),
commonly known as the Inflation Re-
duction Act of 2022, added new § 45W
to the Code to allow a credit for qualified
commercial clean vehicles (§ 45W credit),
which is effective for vehicles acquired
after December 31, 2022, and before Jan-
uary 1, 2033.
For purposes of § 38, § 45W(a) allows
a taxpayer a § 45W credit for the purchase
of each qualified commercial clean ve-
hicle, as defined in § 45W(c), placed in
service by the taxpayer during the taxable
year. The amount of the § 45W credit for
each qualified commercial clean vehicle is
the lesser of (1) 30 percent of the taxpay-
er’s basis in the vehicle in the case of a ve-
hicle not powered by a gasoline or diesel
internal combustion engine (15 percent
in any other case), or (2) the incremen-
tal cost of the vehicle. See § 45W(b)(1).
Under § 45W(b)(4), the maximum credit
allowed is $7,500 in the case of a qualified
commercial clean vehicle that has a gross
vehicle weight rating of less than 14,000
pounds, and $40,000 for all other vehicles.
Section 45W(b)(2) provides that the in-
cremental cost of a qualified commercial
clean vehicle is the excess of the purchase
price of such vehicle over the price of a
comparable vehicle. A comparable vehicle
with respect to any qualified commercial
clean vehicle is any vehicle that is pow-
ered solely by a gasoline or diesel internal
combustion engine and is comparable in
size and use to such qualified commercial
clean vehicle. See § 45W(b)(3).
A qualified commercial clean vehicle
under § 45W(c) includes (1) a vehicle that
is treated as a motor vehicle for purpos-
es of title II of the Clean Air Act and is
manufactured primarily for use on public
streets, roads, and highways, not includ-
ing a vehicle operated exclusively on a rail
or rails (street vehicle) and (2) mobile ma-
chinery as defined in § 4053(8).
The Department of the Treasury (Trea-
sury Department) has reviewed an incre-
mental cost analysis of current costs by
the Department of Energy (DOE) across
classes of street vehicles (DOE Analysis).
2

The DOE Analysis modeled the costs of
representative commercial clean vehicles
and comparable internal combustion en-
gine vehicles. Results of the DOE Anal-
ysis show that the modeled incremental
cost of all street vehicles, other than com-
pact car PHEVs,
3
that have a gross vehicle
weight rating of less than 14,000 pounds
will be greater than $7,500 in calendar
year 2023.
SECTION 3. SAFE HARBOR
The DOE Analysis calculated the in-
cremental cost for compact car PHEVs,
which include minicompact and subcom-
pact cars, to be less than $7,500. The Trea-
sury Department and the Internal Revenue
Service (IRS) will accept a taxpayer’s
use of the incremental cost published in
the DOE Analysis to calculate the § 45W
credit amount for compact car PHEVs
placed in service during calendar year
2023.
In addition, the DOE Analysis provides
an incremental cost analysis of current
costs for several representative classes of
street vehicles with a gross vehicle weight
rating of 14,000 pounds or more in calen-
dar year 2023. The Treasury Department
and the IRS will accept a taxpayer’s use
of the incremental cost published in the
DOE Analysis for the appropriate class of
street vehicle to calculate the § 45W cred-
it amount for vehicles placed in service
during calendar year 2023.
For all street vehicles (other than com-
pact car PHEVs) with a gross vehicle
weight rating of less than 14,000 pounds,
the DOE Analysis provides that incre-
mental cost will not limit the available
§ 45W credit amount for vehicles placed
in service in calendar year 2023. Accord-
ingly, the Treasury Department and IRS
will accept a taxpayer’s use of $7,500 as
the incremental cost for all street vehicles
(other than compact car PHEVs) with a
gross vehicle weight rating of less than
14,000 pounds to calculate the § 45W
credit amount for vehicles placed in ser-
vice during calendar year 2023.
SECTION 4. DRAFTING
INFORMATION
The principal author of this notice
is the Office of Associate Chief Coun-
sel (Passthroughs & Special Industries).
However, other personnel from the Trea-
sury Department and the IRS participated
in its development. For further informa-
1
Unless otherwise specified, all “section” or “§” references are to sections of the Code.
2
www.energy.gov/node/4825009/
3
Compact cars are defined as those with an interior volume index of less than 110 cubic feet, and for the purpose of the DOE analysis also include minicompact cars, subcompact cars, and
compact cars as described in 40 CFR 600.315-08(a)(1)(ii), (iii), and (iv). PHEVs are defined as commercial clean vehicles that use a gasoline or diesel internal combustion engine and are
propelled to a significant extent by an electric motor that draws electricity from a battery that has a capacity of not less than 7 kilowatt hours (15 kilowatt hours in the case of a vehicle with a
gross vehicle weight rating of 14,000 pounds or more) and are capable of being recharged from an external source of electricity. See § 45W(b)(1) and (c).

Bulletin No. 2023–3 403 January 17, 2023
tion regarding this notice contact Chief
Counsel on (202) 317-5254 (not a toll-free
number).
Revised Timeline
Regarding Implementation
of Amended Section
6050W(e)
Notice 2023-10
SECTION 1. PURPOSE
This notice announces that calendar
year 2022 will be regarded as a transition
period for purposes of Internal Revenue
Service (IRS) enforcement and adminis-
tration with respect to the implementation
of the amendments made to the de minimis
exception for third party settlement orga-
nizations (TPSO) under section 6050W(e)
of the Internal Revenue Code (Code) by
the American Rescue Plan Act of 2021
(ARP), Pub. L. 117-2, 135 Stat. 4 (March
11, 2021), for returns for calendar years
beginning after December 31, 2021.
1
The
transition period described in this notice is
intended to facilitate an orderly transition
for TPSO compliance with section 6050W
and participating payee compliance with
income tax reporting.
SECTION 2. BACKGROUND
.01 Section 6050W
Section 6050W, added to the Code by
§ 3091 of the Housing Assistance Tax
Act of 2008, Div. C of Pub. L. 110-289,
122 Stat. 2654, 2908, requires payment
settlement entities to file an information
return for each calendar year with re-
spect to payments made in settlement of
certain reportable payment transactions.
Under § 6050W(a), the annual informa-
tion return must set forth (1) the name,
address, and taxpayer identification num-
ber (TIN) of the participating payee to
whom payments were made and (2) the
gross amount of the reportable payment
transactions with respect to that payee.
Section 1.6050W-1(a)(6) defines “gross
amount” to mean the total dollar amount
of the aggregate reportable payment
transactions for each participating pay-
ee, without regard to any adjustments
for credits, cash equivalents, discount
amounts, fees, refunded amounts, or any
other amounts. Taxpayers required to
make returns under section 6050W do
so by filing Form 1099-K, Payment Card
and Third Party Network Transactions.
Returns must be furnished to the partic-
ipating payees on or before January 31st
of the year following the calendar year
for which the return was made and must
be filed with the IRS on or before Febru-
ary 28th (March 31st if filing electroni-
cally) of the year following the calendar
year for which the return was made. See
§ 6050W(f); § 1.6050W-1(g).
Section 6050W covers two types of
reportable payment transactions: (1) pay-
ment card transactions and (2) third party
network transactions. See § 6050W(c). A
payment settlement entity in the payment
card context is a merchant acquiring enti-
ty; in the third party network context, it is
a TPSO. § 6050W(b)(1).
A TPSO is the central organization that
has the contractual obligation to make
payment to the participating payees of
third party network transactions. Sec-
tion 6050W(b)(3). A third party network
transaction is any transaction that is set-
tled through a third party payment net-
work. Section 6050W(c)(3). A central or-
ganization has a reporting obligation as a
TPSO if it provides a third party payment
network that allows purchasers to transfer
funds to providers of goods and services.
Section 1.6050W-1(c)(2).
A third party payment network is any
agreement or arrangement that (i) involves
the establishment of accounts with a cen-
tral organization by a substantial number
of providers of goods or services who are
unrelated to the central organization and
who have agreed to settle transactions
for the provision of goods and services
with purchasers according to the terms of
agreements; (ii) provides standards and
mechanisms for settling such transactions;
and (iii) guarantees payments to the pro-
viders of goods and services in settlement
of transactions with the purchasers. Sec-
tion 6050W(d)(3).
A participating payee, in the case of
a third party network transaction, is any
person who accepts payment from a TPSO
in settlement of such transaction. Sec-
tion 6050W(d)(1)(A)(ii).
As originally enacted, section
6050W(e) provided that a TPSO is not
required to report third party network
transactions with respect to a participating
payee unless the gross amount that would
otherwise be reported exceeds $20,000
and the number of such transactions with
that participating payee exceeds 200.
02. Section 3406
Section 3406(a) requires certain pay-
ers to perform backup withholding by
deducting and withholding income tax
from a reportable payment when, among
other circumstances, the payee fails to
furnish his TIN to the payer or the IRS
has notified the payer that the TIN fur-
nished by the payee is incorrect. A re-
portable payment includes payments
made by a TPSO that are required to be
shown on a return under § 6050W. Sec-
tion 3406(b)(3)(F). A payer is required
to report the amount of deducted and
withheld Federal income tax amounts on
the information return filed with the IRS
and furnished to the payee. In the case of
the Form 1099-K, withheld income tax
is reported in box 4. The payee may then
claim credit for the amount of income
tax withheld on the payee’s Federal in-
come tax return.
.03 Sections 6721 and 6722
Section 6721 imposes a penalty for any
failure to file an information return on or
before the required filing date, and for any
failure to include all of the information
required to be shown on the return or the
inclusion of incorrect information.
Section 6722 imposes a penalty for
failure to furnish a payee statement on
or before the require furnishing date to
the person to whom such statement is re-
quired to be furnished, and for any failure
to include all of the information required
to be shown on a payee statement or the
inclusion of incorrect information.
1
Unless otherwise specified, all “section” or “§” references are to sections of the Code or the Income Tax Regulations (26 CFR part 1).

January 17, 2023 404 Bulletin No. 2023–3
.04 American Rescue Plan Act of 2021
Section 9674(a) of the ARP amended
section 6050W(e) to provide that, for re-
turns for calendar years beginning after
December 31, 2021, a TPSO is required
to report payments in settlement of third
party network transactions with respect to
any participating payee that exceed a min-
imum threshold of $600 in aggregate pay-
ments, regardless of the aggregate number
of such transactions.
SECTION 3. TRANSITION
PERIOD FOR ENFORCEMENT
AND ADMINISTRATION OF
COMPLIANCE
Calendar year 2022 will be regarded
as a transition period for purposes of IRS
enforcement and administration of the
modified de minimis exception for TP-
SOs and third party network transactions
as provided in this section. With respect
to returns for calendar years beginning
before January 1, 2023, a TPSO is not
required to report payments in settlement
of third party network transactions with
respect to a participating payee unless
the gross amount of aggregate payments
to be reported exceeds $20,000 and the
number of such transactions with that
participating payee exceeds 200. The IRS
will not assert penalties under § 6721 or
§ 6722 for TPSOs failing to file or fail-
ing to furnish Forms 1099-K unless the
gross amount of aggregate payments
to be reported exceeds $20,000 and the
number of transactions exceeds 200. For
returns for calendar years beginning after
December 31, 2022, a TPSO is required
to report payments in settlement of third
party network transactions with any par-
ticipating payee that exceed a minimum
threshold of $600 in aggregate payments,
regardless of the number of such trans-
actions.
The IRS will not regard calendar year
2022 as a transition period with respect
to the requirements of section 6050W
that were not modified by § 9674(a) of
the ARP. In addition, those payers that
have performed backup withholding un-
der § 3406(a) during calendar year 2022
must file a Form 1099-K with the IRS and
furnish a copy to the payee if total pay-
ments to and withholding from the payee
exceeded $600 for the calendar year.
SECTION 4. EFFECTIVE DATE
This notice is effective for returns for
calendar years beginning before January
1, 2023.
SECTION 5. DRAFTING
INFORMATION
The principal author of this notice is
the Office of Associate Chief Counsel
(Procedure and Administration).
Foreign Financial Institution
Temporary U.S. Taxpayer
Identification Number
Relief
Notice 2023-11
SECTION 1. PURPOSE
This notice provides temporary relief
procedures for certain foreign financial
institutions (FFIs) required to report U.S.
taxpayer identification numbers (U.S.
TINs) for certain preexisting accounts as
defined in an applicable Model 1 inter-
governmental agreement (IGA). If an FFI
in an eligible Model 1 IGA jurisdiction
(as further defined in section 3.05 of this
notice) complies with the procedures de-
scribed in this notice, then the U.S. Com-
petent Authority will not determine there
is significant non-compliance (described
in Article 5(2) or 5(3) of the relevant IGA)
with the reporting Model 1 FFI’s obliga-
tions under the IGA solely as a result of its
failure to report U.S. TINs associated with
its preexisting accounts.
The relief described in this notice is
intended to enable the Internal Revenue
Service (IRS) to collect and analyze ad-
ditional information for accounts without
U.S. TINs. To obtain the relief provided
by this notice, the reporting Model 1 FFI
must, as part of its requirements under
this notice, use certain codes provided by
the IRS that identify features of these ac-
counts that may explain why the reporting
Model 1 FFI does not report a U.S. TIN.
The Department of the Treasury (Trea-
sury Department) and the IRS intend to
use this data to enhance IRS compliance
procedures and to inform potential future
options for reporting Model 1 FFIs who
continue to be unable to obtain and re-
port the U.S. TIN for certain accounts. If
permanent relief is granted in the future,
it is anticipated that the scope of the ac-
counts for which an FFI may obtain such
relief will be narrower than the scope of
accounts for which relief is given under
this notice.
SECTION 2. BACKGROUND
On March 18, 2010, the Hiring In-
centives to Restore Employment Act of
2010, Pub. L. No. 111-147, 124 Stat. 71
(2010) (HIRE Act), added chapter 4 of
Subtitle A (chapter 4), comprising sec-
tions 1471 through 1474, to the Internal
Revenue Code (Code). Chapter 4 (com-
monly known as the Foreign Account Tax
Compliance Act, or FATCA) addresses
non-compliance by U.S. taxpayers hold-
ing foreign financial accounts or assets.
FATCA requires certain FFIs to report to
the IRS information about financial ac-
counts held by U.S. taxpayers or foreign
entities in which U.S. taxpayers hold cer-
tain ownership interests. FATCA general-
ly requires withholding agents to withhold
30 percent tax on certain U.S. source pay-
ments to FFIs that do not agree to report
information to the IRS about their U.S.
accounts. FATCA was enacted to ensure
compliance with U.S. taxpayers’ tax ob-
ligations.
In order to facilitate the exchange of
information on financial accounts held by
U.S. taxpayers, the Treasury Department
collaborated with foreign governments
to develop two alternative model IGAs
(Model 1 IGAs and Model 2 IGAs) that
are intended to provide an effective and
efficient means for complying with FAT-
CA while reducing the burden FATCA
compliance imposes on financial institu-
tions. The Model 1 IGA provides that a
reporting Model 1 FFI will report certain
information on U.S. reportable accounts
maintained by the FFI to the Model 1 IGA
jurisdiction tax authority, which will auto-
matically exchange such information with
the U.S. Competent Authority.
Each Model 1 IGA provides that a re-
porting Model 1 FFI shall be treated as
complying with, and not subject to with-

Bulletin No. 2023–3 405 January 17, 2023
holding under, section 1471 of the Code
if the Model 1 IGA jurisdiction complies
with its obligations under the IGA with re-
spect to the FFI and the FFI complies with
its reporting and registration obligations
in accordance with the IGA. Under Model
1 IGAs, a reporting Model 1 FFI that does
not satisfy those obligations shall not be
subject to withholding under section 1471
of the Code unless the FFI is treated by
the IRS as a nonparticipating financial in-
stitution under the procedures described
below. Each Model 1 IGA also provides
that the United States shall not require a
reporting Model 1 FFI to withhold tax un-
der section 1471 or 1472 of the Code with
respect to an account held by a recalcitrant
account holder or to close such account if
the U.S. Competent Authority receives
certain information specified in the Model
1 IGA with respect to such account.
The information required to be report-
ed by a reporting Model 1 FFI includes
the U.S. TIN of each specified U.S. per-
son that is an account holder and, in the
case of a non-U.S. entity with one or more
specified U.S. persons who are controlling
persons, the U.S. TIN of each controlling
person for its U.S. reportable accounts
(required U.S. TINs). The U.S. TIN of a
U.S. citizen is the individual’s U.S. Social
Security number (SSN). Notwithstanding
this reporting requirement, before 2017, a
reporting Model 1 FFI was not required
to report a required U.S. TIN for an ac-
count maintained as of the determination
date specified in the applicable Model 1
IGA (preexisting account) that is a U.S.
reportable account if the U.S. TIN was not
in the reporting Model 1 FFI’s records. In
such cases, a reporting Model 1 FFI was
required to report the date of birth of the
relevant person, but only if the date of
birth was in the reporting Model 1 FFI’s
records. Model 1 IGA jurisdictions com-
mitted to establish rules for 2017 and sub-
sequent years requiring reporting Model 1
FFIs to obtain and report the required U.S.
TINs for such accounts.
Each Model 1 IGA requires that the
Model 1 IGA jurisdiction obtain and ex-
change the information specified in the
Model 1 IGA (including each required
U.S. TIN) with respect to each U.S. re-
portable account. The suspension of with-
holding under sections 1471 and 1472 of
the Code pursuant to each Model 1 IGA
is conditioned on adequate reporting and
exchange of information. If a reporting
Model 1 FFI fails to report required U.S.
TINs, the U.S. Competent Authority may
notify the Model 1 IGA jurisdiction com-
petent authority that there is significant
non-compliance with respect to the report-
ing Model 1 FFI, in accordance with the
Model 1 IGA. During the 18 months fol-
lowing the notification, the U.S. Compe-
tent Authority would work with the Model
1 IGA jurisdiction competent authority to
address the non-compliance. If the report-
ing Model 1 FFI remains non-compliant
for 18 months after the notification, un-
der the relevant Model 1 IGA, the United
States may treat the reporting Model 1 FFI
as a nonparticipating financial institution
that is subject to withholding under sec-
tion 1471 of the Code.
On September 25, 2017, the Treasury
Department and the IRS released Notice
2017-46, 2017-41 I.R.B. 275, which pro-
vided relief and guidance for reporting
Model 1 FFIs that were unable to obtain
and report required U.S. TINs for preex-
isting accounts. If a reporting Model 1 FFI
complied with the conditions in Notice
2017-46, the U.S. Competent Authority
would not determine that there had been
significant non-compliance with the obli-
gations under an applicable Model 1 IGA
solely because of a reporting Model 1
FFI’s failure to obtain and report each re-
quired U.S. TIN for a preexisting account.
In order to qualify for the relief in Notice
2017-46, a reporting Model 1 FFI was re-
quired to: (1) obtain and report the date of
birth of each account holder, and of each
controlling person, whose U.S. TIN is not
reported; (2) request annually from each
account holder any missing required U.S.
TIN; and (3) before reporting information
that relates to calendar year 2017 to the
Model 1 IGA jurisdiction, search elec-
tronically searchable data maintained by
the reporting Model 1 FFI for any missing
required U.S. TINs. The relief in Notice
2017-46 was limited to reporting for cal-
endar years 2017, 2018, and 2019, and
was intended to provide reporting Model
1 FFIs additional time to implement prac-
tices and procedures to obtain and report
required U.S. TINs.
Pursuant to the Model 1 IGAs and
Notice 2017-46, reporting Model 1 FFIs
had up to six years to obtain required U.S.
TINs and could report information on such
accounts without the U.S. TINs without
being treated as in significant non-compli-
ance with the obligations under an appli-
cable Model 1 IGA. Consequently, U.S.
citizens who reside abroad also had up to
six years to obtain (if necessary) and pro-
vide an SSN or renounce their U.S. citi-
zenship before facing consequences from
their financial institutions (if any).
In addition, in 2019, the IRS issued
relief procedures for certain persons who
have relinquished, or intend to relinquish,
their U.S. citizenship in order to ease the
tax obligations that are part of the U.S.
expatriation process. The procedures are
available to U.S. citizens with a net worth
of less than $2 million and an aggregate
tax liability of $25,000 or less for the tax-
able year of expatriation and the five pri-
or years. An applicant for the relief is not
required to obtain an SSN for purposes of
using the procedures and may use his or
her best efforts in computing his or her to-
tal tax for each year. The relief procedures
are available at https://www.irs.gov/indi-
viduals/international-taxpayers/relief-pro-
cedures-for-certain-former-citizens.
Notwithstanding the years of relief the
Treasury Department and the IRS have
provided to reporting Model 1 FFIs that
have not been reporting required U.S.
TINs for preexisting accounts, the IRS
continues to receive reporting from Model
1 IGA jurisdictions that does not include
required U.S. TINs for all preexisting ac-
counts that are U.S. reportable accounts.
Obtaining U.S. TINs from U.S. taxpayers
connected to accounts at FFIs, including
accounts located in the taxpayer’s country
of residence, is crucial to ensuring that the
IRS has the necessary information to de-
termine whether U.S. taxpayers are com-
plying with their U.S. tax obligations. To
better understand the issues that FFIs were
facing in obtaining required U.S. TINs,
the IRS developed a series of codes (TIN
Codes) a reporting Model 1 FFI could use
to populate the TIN field for 2020 data.
The IRS shared the TIN Codes with each
Model 1 IGA jurisdiction in early 2021
and then issued the TIN Codes in an FAQ
on IRS.gov on May 13, 2021, available at
https://www.irs.gov/businesses/corpora-
tions/frequently-asked-questions-faqs-fat-
ca-compliance-legal. These TIN Codes
indicated that a required U.S. TIN had not

January 17, 2023 406 Bulletin No. 2023–3
been obtained in specified scenarios. The
use of TIN Codes was not mandatory and
did not affect the obligations of a reporting
Model 1 FFI to collect and report required
U.S. TINs.
The Treasury Department and the
IRS have received communications from
Model 1 IGA jurisdictions, FFIs, and U.S.
citizens expressing concern that FFIs are
closing or may close bank accounts of
U.S. citizens who have failed to provide a
required U.S. TIN, including accounts of
U.S. citizens resident outside the United
States. FFIs have indicated that these clo-
sures are based on concerns about being
treated as in significant non-compliance
with their obligations under a Model 1
IGA. Model 1 IGA jurisdictions have also
indicated that FFIs are unable to close cer-
tain accounts, which may increase the risk
that the FFI is found to be in significant
non-compliance with its obligations.
The Treasury Department and the
IRS also have received communications
expressing concern that some FFIs are
refusing to provide accounts to U.S. citi-
zens resident in the FFI’s jurisdiction, or
otherwise providing access to accounts on
less favorable terms than apply to other
account holders, even if the U.S. citizen
provides a U.S. TIN.
The Treasury Department and the IRS
have determined that merely providing
additional time for reporting Model 1 FFIs
to implement practices and procedures to
obtain and report required U.S. TINs for
preexisting accounts will not address the
concerns described above. Section 3 of
this notice sets forth interim measures
intended to address the concerns of FFIs
and Model 1 IGA jurisdictions while pro-
viding the IRS additional information to
enhance compliance procedures and ad-
dressing other concerns described above.
SECTION 3. U.S. TIN REPORTING
BY REPORTING MODEL 1 FFIS
.01 In general
In order for the Treasury Department
and the IRS to determine an appropriate
permanent solution to the concerns ex-
pressed above, the IRS needs to collect
additional information from reporting
Model 1 FFIs explaining why they have
not provided all required U.S. TINs. Ac-
cordingly, as an interim measure, sections
3.02, 3.03 and 3.04 of this notice provide
that reporting Model 1 FFIs that follow
specified procedures will not be treated as
in significant non-compliance with their
obligations under an applicable Model 1
IGA solely because of the failure to report
a required U.S. TIN with respect to a pre-
existing account. Section 3.05 of this no-
tice limits this relief to reporting Model 1
FFIs that are in a Model 1 IGA jurisdiction
that makes good faith efforts to increase
the likelihood that U.S. citizens residing
in that jurisdiction will report their U.S.
TINs to the FFIs and that takes other steps
specified in section 3.05.
.02 Relief for reporting on certain pre-
existing accounts that are U.S. reportable
accounts
For reporting on calendar years 2022
(due by September 30, 2023), 2023 (due
by September 30, 2024), and 2024 (due by
September 30, 2025), the U.S. Competent
Authority will not determine that there is
significant non-compliance with the obli-
gations of a reporting Model 1 FFI under
an applicable Model 1 IGA with respect
to reporting required U.S. TINs for preex-
isting accounts solely because of a failure
to obtain and report each required U.S.
TIN for such accounts, provided that the
reporting Model 1 FFI complies with the
conditions set forth in sections 3.03 and
3.04 of this notice and is in a Model 1 IGA
jurisdiction that satisfies the requirements
of section 3.05 of this notice.
This relief is limited to reporting on
preexisting accounts. It does not apply
to U.S. reportable accounts opened after
the determination date specified in the
applicable Model 1 IGA (new accounts),
including new accounts held by account
holders of preexisting accounts.
Nothing in this notice prevents the U.S.
Competent Authority from finding signif-
icant non-compliance for a failure to sat-
isfy any obligation under the applicable
Model 1 IGA other than a failure to obtain
and report each required U.S. TIN for pre-
existing accounts. Furthermore, nothing
in this notice affects a reporting Model 1
FFI’s obligations under chapter 3 or chap-
ter 61 with respect to a reportable amount
or reportable payment.
.03 Requirements for reporting Model
1 FFIs
A reporting Model 1 FFI is eligible for
the relief described in section 3.02 of this
notice only if, for each U.S. reportable
account (including new accounts) with
a missing required U.S. TIN, the report-
ing Model 1 FFI: (1) obtains and reports
the date of birth of each account holder
that is an individual and controlling per-
son whose U.S. TIN is not reported; (2)
starting in calendar year 2023, annually
requests from each account holder any
missing required U.S. TIN, as described
in further detail in section 3.04 below; (3)
starting in calendar year 2023, annually
searches electronically searchable data
maintained by the reporting Model 1 FFI
for any missing required U.S. TINs; and
(4) reports an accurate TIN Code for each
account that is missing a required U.S.
TIN. For reporting on calendar year 2022,
the fourth condition may be satisfied by a
reporting Model 1 FFI by using either the
TIN Codes issued by the IRS in May 2021
or updated TIN Codes issued by the IRS
in early 2023. For reporting on calendar
years 2023 and 2024, the fourth condition
must be satisfied by a reporting Model 1
FFI by using the most recent TIN Codes
issued by the IRS.
.04 Annual request for missing re-
quired U.S. TINs
To satisfy the requirement to make an
annual request from each account holder
for missing required U.S. TINs, reporting
Model 1 FFIs must use the method of com-
munication that is, in the FFI’s reasonable
judgment, most likely to reach the account
holder. In addition, the communication
must include either of the following:
• the web address of the State
Department’s Joint FATCA FAQs
(https://travel.state.gov/content/
travel/en/international-travel/while-
abroad/Joint-Foreign-Account-Tax-
Compliance-FATCA-FAQ.html),
1
or
• (i) a copy of the FAQs described in
the preceding bullet and (ii) either
◦ a copy of the relief procedures
provided by the IRS for certain
former citizens, or
1
The Joint FATCA FAQs provide information on how to obtain an SSN, how to renounce U.S. citizenship, and relevant U.S. tax consequences (including a link to the IRS’s relief procedures
for certain former U.S. citizens).

Bulletin No. 2023–3 407 January 17, 2023
◦ the web address for such
procedures (https://www.irs.
gov/individuals/international-
taxpayers/relief-procedures-for-
certain-former-citizens).
An FFI must retain records of the poli-
cies and procedures adopted to satisfy this
requirement and documentation that those
policies and procedures were followed to
establish its compliance with the require-
ments of this section 3.04 until the end of
calendar year 2028.
.05 Eligible Model 1 IGA jurisdictions
For a reporting Model 1 FFI to be
eligible for the relief described in this
section with respect to reporting for a
particular calendar year or other appro-
priate reporting period, the applicable
Model 1 IGA jurisdiction must make
good faith efforts, by the date that is nine
months after the end of the calendar year
to which the information relates, to do
the following:
(1) Encourage U.S. citizens resident in
the jurisdiction to provide U.S. TINs to
FFIs when requested;
(2) Take measures to enforce compli-
ance by reporting Model 1 FFIs identified
by the U.S. Competent Authority to the
Model 1 IGA jurisdiction as potentially
non-compliant;
(3) Encourage FFIs located in a Mod-
el 1 IGA jurisdiction to not discriminate
against U.S. citizens that do provide a
U.S. TIN; and
(4) If notified by the U.S. Competent
Authority, take steps to conclude Compe-
tent Authority Arrangements with the U.S.
Competent Authority, to implement an
IGA, amend an Annex II to an IGA, or ex-
change country-by-country information.
In order to provide a transition period
for the satisfaction of these conditions,
section 3.05 will be deemed to have been
satisfied for reporting on calendar year
2022.
SECTION 4. DRAFTING
INFORMATION
The principal author of this notice
is Sarah Stein of the Office of Associate
Chief Counsel (International). For further
information regarding this notice, contact
Sarah Stein at (202) 317-4917 (not a toll-
free number).
Administrative, Procedural, and Miscellaneous
26 CFR 601.204: Changes in accounting periods
and in methods of accounting.
(Also, Part 1, §§ 174, 446, 1.446-1.)
Rev. Proc. 2023-8
SECTION 1. PURPOSE
This revenue procedure modifies
Rev. Proc. 2022-14, 2022-7 I.R.B. 502,
to provide procedures under § 446 of
the Internal Revenue Code (Code) and
§ 1.446-1(e) of the Income Tax Regu-
lations to obtain automatic consent of
the Commissioner of Internal Revenue
(Commissioner) to change methods
of accounting for specified research or
experimental expenditures to comply
with § 174 of the Code, as amended by
§ 13206 of Public Law 115-97, 131 Stat.
2054 (December 22, 2017), commonly
referred to as the Tax Cuts and Jobs Act
(TCJA). References in this revenue pro-
cedure to “former § 174” refer to § 174
as in effect for research or experimental
expenditures paid or incurred in taxable
years beginning before the effective date
of the amendments made to § 174 by
§ 13206(a) of the TCJA, and all follow-
ing references to “§ 174” in this revenue
procedure refer to § 174 as amended by
the TCJA.
SECTION 2. BACKGROUND
.01 Former § 174.
(1) Former § 174(a)(1) provided that
a taxpayer may treat research or exper-
imental expenditures which are paid or
incurred by the taxpayer during the tax-
able year in connection with the taxpay-
er’s trade or business as expenses which
are not chargeable to capital account. The
expenditures so treated were allowed as a
deduction. Under former § 174(a)(2)(A),
a taxpayer could, without the consent
of the Secretary of the Treasury or her
delegate (Secretary), adopt the method
provided in former § 174(a) for the tax-
payer’s first taxable year for which ex-
penditures described in former § 174(a)
(1) were paid or incurred. Under former
§ 174(a)(2)(B), a taxpayer could, with
the consent of the Secretary, adopt at
any time the method provided in former
§ 174(a).
(2) Under former § 174(b)(1), at the
election of the taxpayer, made in accor-
dance with regulations prescribed by the
Secretary, research or experimental ex-
penditures could be treated as deferred
expenses if such expenditures were: 1)
paid or incurred by the taxpayer in con-
nection with the taxpayer’s trade or busi-
ness, 2) not treated as expenses under for-
mer § 174(a), and 3) chargeable to capital
account but not chargeable to property of
a character which is subject to the allow-
ance under § 167 of the Code (relating to
allowance for depreciation, etc.) or § 611
of the Code (relating to allowance for de-
pletion).
(3) Former § 174(b)(1) provided that in
computing taxable income, such deferred
expenses were allowed as a deduction rat-
ably over such period of not less than 60
months as may be selected by the taxpay-
er (beginning with the month in which the
taxpayer first realizes benefits from such
expenditures). Such deferred expenses
were expenditures properly chargeable to
capital account for purposes of § 1016(a)
(1) of the Code (relating to adjustments to
basis of property).
(4) Under former § 174(b)(2), the
election provided by former § 174(b)
(1) could be made for any taxable year,
but only if made not later than the time
prescribed by law for filing the return for
such taxable year (including extensions
thereof). The method so elected, and the
period selected by the taxpayer, were
required to be adhered to in computing
taxable income for the taxable year for
which the election was made and for all
subsequent taxable years unless, with the
approval of the Secretary, a change to a
different method (or to a different peri-
od) was authorized with respect to part
or all of such expenditures. The election
did not apply to any expenditure paid or
incurred during any taxable year before
the taxable year for which the taxpayer
made the election.
(5) Under § 1.174-1, which applies to
research or experimental expenditures
paid or incurred in taxable years begin-
ning before December 31, 2021 (the ef-
fective date of the amendments to § 174
under § 13206 of the TCJA), research or
experimental expenditures which are nei-
ther treated as expenses nor deferred and

January 17, 2023 408 Bulletin No. 2023–3
amortized under § 174 must be charged to
capital account.
1
.02 TCJA amendments.
(1) As amended by § 13206(a) of the
TCJA, § 174(a)(1) provides that in the
case of a taxpayer’s specified research or
experimental expenditures for any taxable
year, except as provided in § 174(a)(2),
no deduction is allowed for such expendi-
tures. Section 174(a)(2) provides that the
taxpayer must charge such expenditures to
capital account
2
and is allowed an amor-
tization deduction of such expenditures
ratably over the 5-year period (15-year pe-
riod in the case of any specified research
or experimental expenditures which are
attributable to foreign research within the
meaning of § 41(d)(4)(F) of the Code) be-
ginning with the midpoint of the taxable
year in which such expenditures are paid
or incurred. The method of accounting de-
scribed in this section 2.02(1) is referred
to as the “required § 174 method” in this
revenue procedure.
(2) Under § 174(b) the term “specified
research or experimental expenditures”
means, with respect to any taxable year,
research or experimental expenditures
which are paid or incurred by the taxpay-
er during such taxable year in connection
with the taxpayer’s trade or business.
(3) Section 174(c)(1) provides that the
required § 174 method does not apply to
any expenditure for the acquisition or im-
provement of land, or for the acquisition
or improvement of property to be used in
connection with the research or experi-
mentation and of a character which is sub-
ject to the allowance under § 167 (relating
to allowance of depreciation, etc.) or § 611
(relating to allowance for depletion); but
for purposes of § 174, allowances under
§ 167 and allowances under § 611 are con-
sidered as expenditures.
(4) Section 174(c)(2) provides that the
required § 174 method does not apply to
any expenditure paid or incurred for the
purpose of ascertaining the existence, lo-
cation, extent, or quality of any deposit
of ore or other mineral (including oil and
gas).
(5) Section 174(c)(3) provides that for
purposes of § 174, any amount paid or in-
curred in connection with the development
of any software is treated as a research or
experimental expenditure accounted for
under the required § 174 method.
(6) Under § 174(d), if any property
with respect to which specified research
or experimental expenditures are paid or
incurred is disposed, retired, or abandoned
during the period which such expenditures
are allowed as an amortization deduction
under the required § 174 method, no de-
duction is allowed with respect to such
expenditures on account of such disposi-
tion, retirement, or abandonment and such
amortization deduction will continue with
respect to such expenditures.
(7) Section 13206(b) of the TCJA
provides that the amendments made by
§ 13206(a) of the TCJA to former § 174
“shall be treated as a change in method of
accounting for purposes of section 481”
and that “(1) such change shall be treat-
ed as initiated by the taxpayer, (2) such
change shall be treated as made with the
consent of the Secretary, and (3) such
change shall be applied only on a cut-off
basis for any research or experimental
expenditures paid or incurred in taxable
years beginning after December 31, 2021,
and no adjustments under section 481(a)
shall be made.”
(8) Section 13206(e) of the TCJA
provides that the amendments made by
§ 13206(a) of the TCJA to former § 174
apply to research or experimental expen-
ditures paid or incurred in taxable years
beginning after December 31, 2021.
.03 Section 446(e).
(1) Except as otherwise expressly
provided in the Code and the regulations
thereunder, §§ 446(e) and 1.446-1(e)(2)
require a taxpayer to secure the consent
of the Commissioner before changing
a method of accounting for Federal in-
come tax purposes. Section 1.446-1(e)(3)
(i) states, in part, that except as otherwise
provided under the authority of § 1.446-
1(e)(3)(ii), to secure the Commissioner’s
consent to a taxpayer’s change in method
of accounting the taxpayer generally must
file an application on Form 3115, Appli-
cation for Change in Accounting Method,
with the Commissioner during the tax-
able year in which the taxpayer desires to
make the change in method of accounting.
Section 1.446-1(e)(3)(ii) authorizes the
Commissioner to prescribe administrative
procedures under which taxpayers will be
permitted to change their method of ac-
counting. The administrative procedures
will prescribe those terms and conditions
necessary to obtain the Commissioner’s
consent to effect the change and to pre-
vent amounts from being duplicated or
omitted.
(2) Rev. Proc. 2015-13, 2015-5 I.R.B.
419, as clarified and modified by Rev.
Proc. 2015-33, 2015-24 I.R.B. 1067, and
as modified by Rev. Proc. 2017-59, 2017-
48 I.R.B. 543, and Rev. Proc. 2021-34,
2021-35 I.R.B. 337, and as updated by
Rev. Proc. 2021-26, 2021-22 I.R.B. 1163,
sets forth the general procedures by which
a taxpayer may obtain the automatic con-
sent of the Commissioner to change a
method of accounting described in the List
of Automatic Changes. Rev. Proc. 2022-
14 contains the current List of Automatic
Changes.
(3) A change in a taxpayer’s treatment
of specified research or experimental ex-
penditures paid or incurred in taxable
years beginning after December 31, 2021,
to comply with § 174 is a change in meth-
od of accounting to which §§ 446(e) and
481, and the corresponding regulations,
apply. A taxpayer changing the treatment
of specified research or experimental ex-
penditures paid or incurred to the method
of accounting that complies with § 174
must use the accounting method change
procedures in Rev. Proc. 2015-13, or its
successor. Section 3 of this revenue pro-
cedure modifies Rev. Proc. 2022-14 to al-
low taxpayers to obtain automatic consent
to change their method of accounting to
comply with § 174 for taxable years be-
ginning after December 31, 2021.
(4) As discussed in section 2.02(7)
of this revenue procedure, § 13206(b)
of the TCJA provides that the amend-
ments made by § 13206(a) of the TCJA
to former § 174 are treated as a change
in method of accounting for purposes
of § 481 that is initiated by the taxpayer
and made with the consent of the Com-
missioner, and that “such change shall
be applied only on a cut-off basis for any
research or experimental expenditures
1
The term “capital account” in § 1.174-1 includes capital asset accounts, including, but not limited to, inventory and depreciable property.
2
The term “capital account” in § 174(a)(2) does not mean the capital account described in § 1.174-1. The term means a separate specified research or experimental capital account.

Bulletin No. 2023–3 409 January 17, 2023
paid or incurred in taxable years begin-
ning after December 31, 2021, and no
adjustments under section 481(a) shall be
made.” Pursuant to section 2.07 of Rev.
Proc. 2015-13, when a change in method
of accounting is made without a § 481(a)
adjustment (for example, on a cut-off
basis), in general, only the items arising
on or after the beginning of the year of
change, or other operative date, are ac-
counted for under the method of account-
ing for which consent is granted. Any
items arising before the year of change,
or other operative date, continue to be ac-
counted for under the taxpayer’s former
method of accounting. When a change in
method of accounting is made on a cut-
off basis, no amounts are duplicated or
omitted, and therefore, a § 481(a) adjust-
ment is not necessary or permitted.
(5) In accordance with § 13206(b) of
the TCJA, a change in a taxpayer’s meth-
od of accounting to the required § 174
method for the first taxable year that the
amendments made by § 13206(a) of the
TCJA are effective must be made only on
a cut-off basis. The required § 174 method
applies only to specified research or ex-
perimental expenditures paid or incurred
in taxable years beginning after December
31, 2021. The procedures in section 3 of
this revenue procedure provide an auto-
matic change in method of accounting to
the required § 174 method to comply with
§ 174 by filing a statement with the tax-
payer’s original Federal income tax return
for the first taxable year in which § 174
becomes effective in lieu of a Form 3115.
If a change to the required § 174 method
to comply with § 174 for some or all of
the taxpayer’s specified research or ex-
perimental expenditures is made for a tax-
able year subsequent to the taxable year
of the taxpayer in which § 174 becomes
effective, the change to the required § 174
method to comply with § 174 is made
by filing a Form 3115, with a modified
§ 481(a) adjustment that takes into ac-
count only specified research or experi-
mental expenditures paid or incurred in
taxable years beginning after December
31, 2021.
(6) Additionally, section 3 of this rev-
enue procedure provides a transition rule
for taxpayers who filed a Federal tax re-
turn on or before this revenue procedure is
published in the Internal Revenue Bulletin
for a taxable year beginning after Decem-
ber 31, 2021. The transition rule provides
that such taxpayer is deemed to have
complied with the § 446 method change
procedures and section 7.02 of Rev. Proc.
2022-14, as modified by section 3 of this
revenue procedure, if the taxpayer prop-
erly reported the amount of specified re-
search or experimental expenditures on
Part VI of Form 4562, Depreciation and
Amortization, filed with the Federal tax
return, and properly capitalized and amor-
tized such specified research or experi-
mental expenditures in accordance with
the required § 174 method.
(7) A taxpayer that changes its meth-
od of accounting for specified research or
experimental expenditures under section
7.02 of Rev. Proc. 2022-14, as modified
by section 3 of this revenue procedure,
will receive limited audit protection un-
der section 8.01 of Rev. Proc. 2015-13.
Specifically, audit protection will not ap-
ply for expenditures paid or incurred in
taxable years beginning before January
1, 2022. Additionally, notwithstanding
the audit protection rules under section
8.01 of Rev. Proc. 2015-13, the IRS may
change the characterization or classifica-
tion of expenditures as specified research
or experimental expenditures as defined in
§ 174(b) in order to apply § 174 as well
as the change under section 7.02 of Rev.
Proc. 2022-14, as modified by section 3
of this revenue procedure, to the proper
amount of expenditures paid or incurred
in each taxable year beginning after De-
cember 31, 2021.
SECTION 3. AUTOMATIC METHOD
CHANGE TO REQUIRED § 174
METHOD
.01 Modification of Section 7 of Rev.
Proc. 2022-14. Section 7 of Rev. Proc.
2022-14 is modified to add new section
7.02 to read as follows.
.02 Specified Research or Experimen-
tal Expenditures.
(1) Description of change.
(a) This change applies to a taxpayer
that changes its method of accounting for
specified research or experimental expen-
ditures (as defined under § 174(b)) to the
required § 174 method (as defined in sec-
tion 7.02(1)(b) of this revenue procedure)
to comply with § 174. Unless otherwise
stated, references to “§ 174” in this sec-
tion 7.02 refer to § 174 as amended by
§ 13206(a) of the TCJA. Section 13206(e)
of the TCJA provides that the amendments
made by § 13206 of the TCJA apply to
amounts paid or incurred in taxable years
beginning after December 31, 2021.
(b) Section 174(a)(1) provides that in
the case of a taxpayer’s specified research
or experimental expenditures for any tax-
able year, except as provided in § 174(a)
(2), no deduction is allowed for such ex-
penditures. Section 174(a)(2) provides
that the taxpayer must charge such expen-
ditures to capital account and is allowed
an amortization deduction of such expen-
ditures ratably over the 5-year period (15-
year period in the case of any specified
research or experimental expenditures
which are attributable to foreign research
within the meaning of § 41(d)(4)(f) of the
Code) beginning with the midpoint of the
taxable year in which such expenditures
are paid or incurred. The method of ac-
counting described in this section 7.02(1)
(b) is referred to as the “required § 174
method” in this section 7.02.
(2) Applicability. This change to the re-
quired § 174 method applies to specified
research or experimental expenditures (as
defined in § 174(b)) paid or incurred in
taxable years beginning after December
31, 2021.
(3) Inapplicability. This change does
not apply to:
(a) a change in the treatment of ac-
quired, leased, or licensed computer soft-
ware under Rev. Proc. 2000-50, 2000-52
I.R.B. 601, as modified by Rev. Proc.
2007-16, 2007-1 C.B. 358 (see section
9.01 of this revenue procedure); or
(b) a change in the treatment of re-
search or experimental expenditures under
former § 174, or software development
expenditures, paid or incurred in taxable
years beginning before January 1, 2022
(see sections 7.01 and 9.01 of this revenue
procedure).
(4) Manner of making change.
(a) First taxable year beginning after
December 31, 2021.
(i) Cut-off basis. The change under
section 7.02 of this revenue procedure for
specified research or experimental expen-
ditures paid or incurred in the first taxable
year beginning after December 31, 2021,
is implemented on a cut-off basis.

January 17, 2023 410 Bulletin No. 2023–3
(ii) Statement in lieu of a Form 3115
for first taxable year beginning after De-
cember 31, 2021. Except as otherwise
provided in section 7.02(5) of this revenue
procedure, the requirement of § 1.446-
1(e)(3)(i) to file a Form 3115, Applica-
tion for Change in Accounting Method, is
waived and a statement in lieu of a Form
3115 is authorized for the change in meth-
od of accounting under section 7.02 of this
revenue procedure for which the year of
change is the first taxable year beginning
after December 31, 2021. Notwithstanding
the definition of Form 3115 in section 3.07
of Rev. Proc. 2015-13, 2015-5 I.R.B. 419,
the statement in lieu of a Form 3115 that is
permitted under this section 7.02(4)(a)(ii)
is considered a Form 3115 for purposes of
the automatic consent procedures of Rev.
Proc. 2015-13. The requirement to file the
duplicate copy, under section 6.03(1)(a) of
Rev. Proc. 2015-13, is waived. The state-
ment must include the following informa-
tion for each applicant:
(A) the name and employer identifica-
tion number or social security number, as
applicable, of the applicant that has paid
or incurred specified research or experi-
mental expenditures after December 31,
2021;
(B) the beginning and ending dates of
the first taxable year in which the change
to the required § 174 method takes effect
for the applicant (year of change);
(C) the designated automatic account-
ing method change number for this change
(see section 7.02(8) of this revenue proce-
dure);
(D) a description of the type of expen-
ditures included as specified research or
experimental expenditures;
(E) the amount of specified research
or experimental expenditures paid or in-
curred by the applicant during the year of
change; and
(F) a declaration that the applicant is
changing the method of accounting for
specified research or experimental expen-
ditures to capitalize such expenditures to
a specified research or experimental cap-
ital account, and amortize such amount
over either a 5-year period for domestic
research or 15-year period for foreign re-
search (as applicable) beginning with the
mid-point of the taxable year in which
such expenditures are paid or incurred in
accordance with the method permitted un-
der § 174 for the year of change. Also, the
declaration must state that the applicant is
making the change on a cut-off basis.
(b) Year of change later than the first
taxable year beginning after December
31, 2021.
(i) Modified § 481(a) adjustment. The
change under section 7.02 of this revenue
procedure for a year of change later than
the first taxable year beginning after De-
cember 31, 2021, is made with a modified
§ 481(a) adjustment, and should take into
account only specified research or exper-
imental expenditures paid or incurred in
taxable years beginning after December
31, 2021.
(ii) Form 3115. In completing a Form
3115, Application for Change in Account-
ing Method, to make the change in meth-
od of accounting under section 7.02 of
this revenue procedure with respect to any
year of change later than the first taxable
year beginning after December 31, 2021,
a taxpayer must include on an attachment
to Form 3115:
(A) a description of the type of expen-
ditures included as specified research or
experimental expenditures;
(B) the taxable year(s) in which the
specified research or experimental expen-
ditures subject to the change were paid or
incurred by the applicant; and
(C) a declaration that the applicant is
changing its method of accounting for
specified research or experimental expen-
ditures to capitalize such expenditures to
a specified research or experimental cap-
ital account, and amortize such amount
over either a 5-year period for domestic
research or 15-year period for foreign re-
search (as applicable) beginning with the
mid-point of the taxable year in which
such expenditures are paid or incurred
in accordance with the method permitted
under § 174 for the year of change. Also,
the declaration must state that the appli-
cant is making the change with a modi-
fied § 481(a) adjustment that takes into
account only specified research or exper-
imental expenditures paid or incurred in
taxable years beginning after December
31, 2021.
(5) Transition rule. A taxpayer who
filed a Federal tax return on or before Jan-
uary 17, 2023, for a taxable year begin-
ning after December 31, 2021, is deemed
to have complied with the § 446 method
change procedures and section 7.02 of this
revenue procedure to change its method
of accounting for specified research or ex-
perimental expenditures paid or incurred
in the first taxable year beginning after
December 31, 2021, to the required § 174
method to comply with § 174 if the tax-
payer:
(a) reported the amount of specified re-
search or experimental expenditures paid
or incurred for such taxable year on Part
VI of Form 4562, Depreciation and Amor-
tization, filed with the Federal tax return,
and
(b) properly capitalized and amortized
such specified research or experimental
expenditures in accordance with the re-
quired § 174 method for such taxable year.
(6) Certain eligibility rule temporar-
ily inapplicable. The eligibility rule in
section 5.01(1)(f) of Rev. Proc. 2015-
13, 2015-5 I.R.B. 419, does not apply to
changes to the required § 174 method for
the taxpayer’s first taxable year beginning
after December 31, 2021.
(7) No audit protection for expendi-
tures paid or incurred in taxable years
prior to the first taxable year in which
§ 174 becomes effective. A taxpayer does
not receive audit protection under sec-
tion 8.01 of Rev. Proc. 2015-13 for the
change under section 7.02 of this revenue
procedure with respect to expenditures
paid or incurred in taxable years begin-
ning on or before December 31, 2021. See
section 8.02(2) of Rev. Proc. 2015-13.
(8) Designated automatic accounting
method change number. The designat-
ed automatic accounting method change
number for a change under section 7.02 of
this revenue procedure is “265.”
(9) No inference relating to expendi-
tures paid or incurred in taxable years pri-
or to the first taxable year in which § 174
becomes effective. No inference may be
drawn from section 7.02 of this revenue
procedure regarding the treatment of re-
search or experimental expenditures paid
or incurred in, and changes in methods of
accounting for, taxable years in which for-
mer § 174 was in effect, including issues
relating to the application of §§ 1.174-1,
1.174-3, and 1.174-4 of the Income Tax
Regulations for taxable years in which
former § 174 was in effect.
(10) Contact information. For further
information regarding a change under this

Bulletin No. 2023–3 411 January 17, 2023
section, contact Martha M. Garcia at (202)
317-6853 (not a toll-free number).
SECTION 4. EFFECT ON OTHER
DOCUMENTS
This revenue procedure modifies sec-
tion 7 of Rev. Proc. 2022-14.
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective for
specified research or experimental expen-
ditures paid or incurred in taxable years
beginning after December 31, 2021, in
which § 174 is in effect.
SECTION 6. PAPERWORK
REDUCTION ACT
The collection of information con-
tained in this revenue procedure has been
reviewed and approved by the Office of
Management and Budget under OMB
control numbers 1545-0074 for individ-
ual filers and 1545-0123 for business
filers, in accordance with the Paperwork
Reduction Act (44 U.S.C. 3507(d)). An
agency may not conduct or sponsor, and
a person is not required to respond to, a
collection of information unless the col-
lection of information displays a valid
OMB control number. The collection of
information in this revenue procedure is
in section 3, which adds sections 7.02(4)
(a)(ii) and 7.02(4)(b)(ii) to Rev. Proc.
2022-14. This information is necessary
and will be used to determine whether the
taxpayer properly changed to a permitted
method of accounting. The collections of
information are required for the taxpayer
to obtain consent to change its method of
accounting.
SECTION 7. DRAFTING
INFORMATION
The principal authors of this revenue
procedure are Martha M. Garcia and
John M. Deininger of the Office of As-
sociate Chief Counsel (Passthroughs &
Special Industries). For further informa-
tion regarding this revenue procedure
contact Martha M. Garcia or John M.
Deininger at (202) 317-6853 (not a toll-
free number).
26 CFR 601.201: Rulings and determination letters.
(Also: Part I, Sections 832, 846; 1.832-4, 1.846-1.)
Rev. Proc. 2023-10
SECTION 1. PURPOSE
This revenue procedure prescribes
the loss payment patterns for the 2022
determination year and the discount fac-
tors for the 2022 accident year for use
by insurance companies in computing
discounted unpaid losses under § 846 of
the Internal Revenue Code and discount-
ed estimated salvage recoverable under
§ 832. This revenue procedure also pro-
vides, for convenience, discount factors
for losses incurred in the 2022 accident
year and earlier accident years for use
in taxable years beginning in 2022. The
discount factors for accident years before
2022 were prescribed in earlier revenue
procedures. See, e.g., Rev. Proc. 2021-
54, 2021-52 I.R.B. 903.
SECTION 2. BACKGROUND
.01 Section 846 provides that discount-
ed unpaid losses must be separately deter-
mined for each accident year of each line
of business by applying an interest rate
determined under § 846(c) and the appro-
priate loss payment pattern to the amount
of unpaid losses as measured at the end of
the tax year.
.02 Section 846(c) provides for the use
of an annual rate of interest determined on
the basis of the corporate bond yield curve
(as defined in § 430(h)(2)(D)(i), deter-
mined by substituting “60-month period”
for “24-month period” therein). Section
1.846-1(c) of the Income Tax Regulations
further provides that the annual rate for
any calendar year is determined on the
basis of a yield curve that reflects the av-
erage, for the most recent 60-month pe-
riod ending before the beginning of the
calendar year, of monthly yields on cor-
porate bonds described in section 430(h)
(2)(D)(i). The annual rate is the average of
that yield curve’s monthly spot rates with
times to maturity from four and one-half
years to ten years.
.03 The applicable interest rate for
2022 under § 846(c) and § 1.846-1(c), is
2.67 percent, determined using semiannu-
al compounding.
.04 Section 846(d) directs the Secre-
tary to use the most recent aggregate loss
payment data of property and casualty in-
surance companies to determine and pub-
lish a loss payment pattern for each line
of business every five years. This payment
pattern is used to discount unpaid losses
for the accident year ending with a de-
termination year and for each of the four
succeeding accident years. See § 846(d)
(1). Pursuant to § 1.846-1(d)(2), the Sec-
retary may adjust the loss payment pattern
for any line of business using a method-
ology described by the Secretary in other
published guidance if necessary to avoid
negative payment amounts and otherwise
produce a stable pattern of positive dis-
count factors less than one. The pream-
ble to proposed regulations under § 846
(REG-103163-18) published in the Feder-
al Register (83 FR 55646) on November
7, 2018 (Proposed Regulations) described
a proposed methodology for adjusting the
loss payment pattern for any line of busi-
ness. Commenters on the Proposed Regu-
lations expressed support for the smooth-
ing adjustments described in the preamble
to the Proposed Regulations, and § 1.846-
1(d)(2) of the Proposed Regulations was
adopted as proposed in final regulations
under § 846 (T.D. 9863, 84 FR 27947)
published on June 17, 2019.
.05 Pursuant to § 846(d) and § 1.846-
1(d)(2), the Secretary has determined a
loss payment pattern for each proper-
ty and casualty line of business for the
2022 determination year that, pursuant
to § 846(d)(1), must be applied through
the 2026 accident year. The loss payment
patterns for the 2022 determination year
are based, initially, on the aggregate loss
payment information reported on the 2020
annual statements of property and casu-
alty insurance companies and compiled
by A.M. Best and Co. The lines of busi-
ness for the 2022 determination year are
the same as the lines of business for the
2017 determination year. See Rev. Proc.
2019-31, 2019-33 I.R.B. 643, and Rev.
Proc. 2019-06, 2019-02 I.R.B. 284, for
background concerning the loss payment
patterns and application of the discount
factors. Losses are reported on the annual
statement net of losses on reinsurance ced-
ed but include losses on assumed propor-
tional reinsurance. Losses with respect to
assumed non-proportional reinsurance are

January 17, 2023 412 Bulletin No. 2023–3
reported in three separate lines of business
(for property, liability, and financial rein-
surance). The loss data include defense,
cost containment, adjusting, and other loss
expenses, but are not reduced for salvage
and subrogation receipts. For the 2022 de-
termination year, only one line of business
requires adjustments under § 1.846-1(d)
(2). That line of business is Products Lia-
bility – Claims Made. The initial payment
pattern for that line of business results in
a negative payment amount for the fifth
year after the accident year. Therefore, the
payment amounts for the fourth through
the sixth year after the accident year are
adjusted following the steps listed in the
preamble to the Proposed Regulations.
See 83 FR 55646, 55651.
SECTION 3. SCOPE
This revenue procedure applies to any
insurance company that is required to
discount unpaid losses under § 846 for a
line of business using the discount factors
published by the Secretary. This revenue
procedure also applies to any insurance
company that is required to discount es-
timated salvage recoverable under § 832.
SECTION 4. DISCOUNT FACTORS
FOR THE 2022 ACCIDENT YEAR
.01 The tables in this section 4 pres-
ent separately for each line of business
the discount factors for losses incurred
in the 2022 accident year for use by
insurance companies in computing dis-
counted unpaid losses under § 846 and
estimated salvage recoverable under
§ 832. The discount factors presented
in this section are generally determined
by using the applicable interest rate for
2022 under § 846(c) and § 1.846-1(c),
which is 2.67 percent, determined using
semiannual compounding. The excep-
tions are the discount factors for long-
tail lines of business determined using
the composite method described in sec-
tion V of Notice 88-100, 1988-2 C.B.
439. These discount factors are to be
used in taxable years beginning in 2032
for losses incurred in accident years not
separately reported on the annual state-
ment for 2032. For taxable years begin-
ning after 2032, the discount factors to
be used for losses incurred in the 2022
accident year will be those determined
using the composite method for later ac-
cident years. These discount factors will
be published in later years. All discount
factors are determined by assuming all
loss payments occur in the middle of the
calendar year.
.02 Section V of Notice 88-100, 1988-2
C.B. 439, sets forth a composite method
for computing discounted unpaid losses
for accident years that are not separately
reported on the annual statement. Tables 1
and 2 separately provide discount factors
for insurance companies that have elect-
ed to use the composite method of Notice
88-100. See Rev. Proc. 2002-74, 2002-2
C.B. 980. The discount factors computed
using the composite method are unrelated
to the composite discount factors referred
to in § 1.846-1(b)(1)(ii) and (4), which ap-
ply to lines of business for which the Sec-
retary has not published discount factors.
The composite discount factors for use
with respect to such lines of business are
labelled “Short-Tail Composite” (in Ta-
ble 1, part B) and “Long-Tail Composite”
(in Table 2, part B). The “Miscellaneous
Casualty” discount factors referenced in
§ 1.846-1(b)(2) are not set forth in tables
but are equivalent to the “Short-Tail Com-
posite” discount factors.
Table 1 (part A)
Discount Factors Under Section 846 (percent)
For Losses Incurred in Accident Year 2022 in Short-Tail Lines of Business
Taxable Year
Beginning in
Auto Physical
DamageFidelity/Surety
Financial Guaranty/
Mortgage GuarantyInternationalOther*
202298.508796.074195.615396.200397.2283
202397.391197.391197.391197.391197.3911
Taxpayer Not Using Composite Method
Years after 202398.682698.682698.682698.682698.6826
Taxpayer Using the Composite Method
202498.682698.682698.682698.682698.6826
Years after 2024Use composite method discount factors published for the relevant accident year.**
* For the Accident and Health line of business (other than disability income or credit disability insurance), the discount
factor for taxable year 2022 is 98.6826 percent. This is also the discount factor used in later taxable years for taxpayers
not using the composite method. For taxpayers using the composite method, the discount factor for losses incurred in 2022
is the discount factor published for Accident and Health lines of business for losses incurred in the accident year coincid-
ing with the taxable year.
**The relevant accident year is the accident year that is two years prior to the specified taxable year.

Bulletin No. 2023–3 413 January 17, 2023
Table 1 (part B)
Discount Factors Under Section 846 (percent)
For Losses Incurred in Accident Year 2022 in Short-Tail Lines of Business
Taxable Year
Beginning in
Reinsurance -
Nonproportional
Assumed
Financial Lines
Reinsurance -
Nonproportional
Assumed
Liability
Reinsurance -
Nonproportional
Assumed
Property
Special Property
(Fire, Allied Lines,
Inland Marine,
Earthquake,
Burglary & Theft)Warranty
Short-Tail
Composite
202296.175595.314996.502397.779398.501097.4381
202397.391197.391197.391197.391197.391197.3911
Taxpayer Not Using Composite Method
Years after 202398.682698.682698.682698.682698.682698.6826
Taxpayer Using the Composite Method
202498.682698.682698.682698.682698.682698.6826
Years after 2024Use composite method discount factors published for the relevant accident year.**
**The relevant accident year is the accident year that is two years prior to the specified taxable year.
Table 2 (part A)
Discount Factors Under Section 846 (percent)
For Losses Incurred in Accident Year 2022 in Long-Tail Lines of Business
Taxable Year
Beginning in
Commercial
Auto/Truck
Liability/Medical
Medical
Professional
Liability -
Claims-Made
Medical
Professional
Liability -
Occurrence
Multiple
Peril Lines
Other
Liability -
Claims-Made
Other
Liability -
Occurrence
202294.512792.314687.830095.779992.053490.7411
202395.067993.316889.604194.330092.925391.5404
202495.579993.616690.900694.361392.966792.1947
202595.862094.409692.174894.301693.160192.5186
202695.770994.253892.921594.105293.101092.7994
202795.340394.840793.283094.344493.144991.8641
202895.361794.449393.642394.422492.824191.8523
202995.800695.252393.522696.040294.379192.5452
203096.688696.469695.196296.804296.688793.4680
203198.391997.815796.741298.129997.230895.1537
Taxpayer Not Using Composite Method
203298.682698.682697.929398.682698.473996.3804
203398.682698.682698.682698.682698.682697.5988
Years after 203398.682698.682698.682698.682698.682698.6826
Taxpayer Using the Composite Method
203298.682698.682697.929397.969198.500797.0865
Years after 2032Use composite method discount factors published for the relevant accident year.**
**The relevant accident year is the accident year that is ten years prior to the specified taxable year.

January 17, 2023 414 Bulletin No. 2023–3
Table 2 (part B)
Discount Factors Under Section 846 (percent)
For Losses Incurred in Accident Year 2022 in Long-Tail Lines of Business
Taxable
Year Beginning in
Private
Passenger
Auto Liability/
Medical
Products
Liability -
Claims-Made
Products
Liability -
Occurrence
Workers'
Compensation
Long-Tail
Composite
202296.170189.963389.363089.730493.8901
202395.858991.188390.639688.356693.2372
202495.933391.416191.670887.816193.0141
202595.857690.553092.207987.380692.4240
202695.032091.935092.512587.658392.1521
202794.464193.407092.949787.105891.7300
202894.989595.005093.801687.662291.9589
202995.126895.410794.074389.045293.1631
203095.819096.563795.020290.357294.4061
203197.799098.094996.870491.213195.5892
Taxpayer Not Using Composite Method
203298.682698.682698.061092.394496.8119
203398.682698.682698.682693.596098.0004
203498.682698.682698.682694.818098.6826
203598.682698.682698.682696.060298.6826
203698.682698.682698.682697.320698.6826
203798.682698.682698.682698.588798.6826
Years after 203798.682698.682698.682698.682698.6826
Taxpayer Using the Composite Method
203298.682695.751597.806292.097396.1839
Years after 2032Use composite method discount factors published for the relevant accident year.**
**The relevant accident year is the accident year that is ten years prior to the specified taxable year.
SECTION 5. DISCOUNT FACTORS
FOR TAXABLE YEARS BEGINNING
IN 2022
.01 The tables in this section 5 pres-
ent separately for each line of business
discount factors for losses incurred in the
2022 accident year and earlier accident
years for use by insurance companies in
computing discounted unpaid losses under
§ 846 and estimated salvage recoverable
under § 832 in taxable years beginning in
2022.
.02 Tables 3 and 4 separately pro-
vide discount factors for insurance
companies that have elected to use the
composite method of Notice 88-100.
See Rev. Proc. 2002-74. The discount
factors computed using the composite
method are unrelated to the composite
discount factors referred to in § 1.846-
1(b)(1)(ii) and (4), which apply to lines
of business for which the Secretary has
not published discount factors. The
composite discount factors for use with
respect to such lines of business are la-
belled “Short-Tail Composite” (in Table
3, part B) and “Long-Tail Composite”
(in Table 4, part B). The “Miscellaneous
Casualty” discount factors referenced in
§ 1.846-1(b)(2) are not set forth in ta-
bles but are equivalent to the “Short-Tail
Composite” discount factors.

Bulletin No. 2023–3 415 January 17, 2023
Table 3 (part A)
Discount Factors Under Section 846 (percent)
For Taxable Year(s) Beginning in 2022
Short-Tail Lines of Business
Accident Year
Auto Physical
DamageFidelity/Surety
Financial Guaranty/
Mortgage GuarantyInternationalOther*
202298.508796.074195.615396.200397.2283
202197.229097.229097.229097.229097.2290
Taxpayer Not Using Composite Method
202098.483498.483498.483498.483498.4834
201998.478598.478598.478598.478598.4785
Years before 201998.551398.551398.551398.551398.5513
Taxpayer Using the Composite Method
Years before 202198.483498.483498.483498.483498.4834
*For the Accident and Health line of business (other than disability income or credit disability insurance), the discount
factor for taxable year 2022 is 98.6826 percent.
Table 3 (part B)
Discount Factors Under Section 846 (percent)
For Taxable Year(s) Beginning in 2022
Short-Tail Lines of Business
Accident Year
Reinsurance -
Nonproportional
Assumed
Financial Lines
Reinsurance -
Nonproportional
Assumed
Liability
Reinsurance -
Nonproportional
Assumed
Property
Special Property
(Fire,
Allied Lines,
Inland Marine,
Earthquake,
Burglary & Theft)Warranty
Short-Tail
Composite
202296.175595.314996.502397.779398.501097.4381
202197.229097.229097.229097.229097.229097.2290
Taxpayer Not Using Composite Method
202098.483498.483498.483498.483498.483498.4834
201998.478598.478598.478598.478598.478598.4785
Years before 201998.551398.551398.551398.551398.551398.5513
Taxpayer Using the Composite Method
Years before 202198.483498.483498.483498.483498.483498.4834

January 17, 2023 416 Bulletin No. 2023–3
Table 4 (part A)
Discount Factors Under Section 846 (percent)
For Taxable Year(s) Beginning in 2022
Long-Tail Lines of Business
Accident Year
Commercial
Auto/Truck
Liability/Medical
Medical
Professional
Liability -
Claims-Made
Medical
Professional
Liability -
Occurrence
Multiple
Peril Lines
Other
Liability -
Claims-Made
Other
Liability -
Occurrence
202294.512792.314687.830095.779992.053490.7411
202194.929792.871789.297993.872591.955090.5083
202095.069492.542190.064193.700491.857790.3548
201995.094592.813091.432392.886491.876490.4989
201895.202493.280592.766491.406492.097690.6836
201795.049893.303593.506991.603992.604090.7542
201695.326094.242394.318991.315493.077090.7788
201594.980495.129194.999391.017793.837891.9830
201496.410296.016096.122093.520094.926492.6228
201398.358597.750397.790294.853096.687694.4974
Taxpayer Not Using the Composite Method
201298.551398.551398.551396.189598.003395.8511
201198.551398.551398.551397.504598.551397.2176
Years before 201198.551398.551398.551398.551398.551398.5513
Taxpayer Using the Composite Method
Years before 201398.551398.551398.551396.918598.092096.7300
Table 4 (part B)
Discount Factors Under Section 846 (percent)
For Taxable Year(s) Beginning in 2022
Long-Tail Lines of Business
Accident Year
Private
Passenger
Auto Liability/
Medical
Products
Liability -
Claims-Made
Products
Liability -
Occurrence
Workers'
Compensation
Long-Tail
Composite
202296.170189.963389.363089.730493.8901
202195.443886.767989.476286.931991.9840
202095.039187.648089.451284.865191.0823
201994.647283.083690.785483.272189.8512
201894.232585.088989.881083.412988.7546
201794.282486.418489.930982.890588.6421
201694.520587.804090.852783.256788.6258
201595.055089.038891.807284.103689.1661
201495.647390.296992.199284.715090.3858
201397.728291.578594.413386.594692.1457

Bulletin No. 2023–3 417 January 17, 2023
Taxpayer Not Using the Composite Method
201298.551392.883895.773987.806593.4541
201198.551394.212497.157189.041494.7812
201098.551395.562998.551390.299596.1195
200998.551396.929998.551391.581397.4421
200898.551398.286898.551392.886798.5513
200798.551398.551398.551394.215498.5513
200698.551398.551398.551395.566198.5513
200598.551398.551398.551396.933498.5513
200498.551398.551398.551398.291398.5513
Years before 200498.551398.551398.551398.551398.5513
Taxpayer Using the Composite Method
Years before 201398.551394.728896.690391.257995.0968
SECTION 6. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Allan H. Sakaue of the Office
of Associate Chief Counsel (Financial In-
stitutions & Products). For further infor-
mation regarding this revenue procedure
contact Mr. Sakaue at (202) 317-6995 (not
a toll-free number).
Administrative, Procedural, and Miscellaneous
26 CFR 601.204: Changes in accounting periods
and in methods of accounting.
(Also, Part 1, §§ 174, 446, 1.446-1.)
Rev. Proc. 2023-11
SECTION 1. PURPOSE
This revenue procedure modifies and
supersedes Rev. Proc. 2023-8, 2023-3
I.R.B. 407, which modified Rev. Proc.
2022-14, 2022-7 I.R.B. 502, to provide
procedures under § 446 of the Internal
Revenue Code (Code) and § 1.446-1(e)
of the Income Tax Regulations to obtain
automatic consent of the Commissioner
of Internal Revenue (Commissioner) to
change methods of accounting for spec-
ified research or experimental expendi-
tures to comply with § 174 of the Code,
as amended by § 13206 of Public Law
115-97, 131 Stat. 2054 (December 22,
2017), commonly referred to as the Tax
Cuts and Jobs Act (TCJA). References in
this revenue procedure to “former § 174”
refer to § 174 as in effect for research or
experimental expenditures paid or in-
curred in taxable years beginning before
the effective date of the amendments made
to § 174 by § 13206(a) of the TCJA, and
all following references to “§ 174” in
this revenue procedure refer to § 174 as
amended by the TCJA.
SECTION 2. BACKGROUND
.01 Former § 174.
(1) Former § 174(a)(1) provided that
a taxpayer may treat research or exper-
imental expenditures which are paid or
incurred by the taxpayer during the tax-
able year in connection with the taxpay-
er’s trade or business as expenses which
are not chargeable to capital account. The
expenditures so treated were allowed as a
deduction. Under former § 174(a)(2)(A),
a taxpayer could, without the consent of
the Secretary of the Treasury or her del-
egate (Secretary), adopt the method pro-
vided in former § 174(a) for the taxpayer’s
first taxable year for which expenditures
described in former § 174(a)(1) were paid
or incurred. Under former § 174(a)(2)(B),
a taxpayer could, with the consent of the
Secretary, adopt at any time the method
provided in former § 174(a).
(2) Under former § 174(b)(1), at the
election of the taxpayer, made in accor-
dance with regulations prescribed by the
Secretary, research or experimental ex-
penditures could be treated as deferred
expenses if such expenditures were: 1)
paid or incurred by the taxpayer in con-
nection with the taxpayer’s trade or busi-
ness, 2) not treated as expenses under for-
mer § 174(a), and 3) chargeable to capital
account but not chargeable to property of
a character which is subject to the allow-
ance under § 167 of the Code (relating to
allowance for depreciation, etc.) or § 611
of the Code (relating to allowance for de-
pletion).
(3) Former § 174(b)(1) provided that in
computing taxable income, such deferred
expenses were allowed as a deduction rat-
ably over such period of not less than 60
months as may be selected by the taxpay-
er (beginning with the month in which the
taxpayer first realizes benefits from such
expenditures). Such deferred expenses
were expenditures properly chargeable to
capital account for purposes of § 1016(a)
(1) of the Code (relating to adjustments to
basis of property).
(4) Under former § 174(b)(2), the elec-
tion provided by former § 174(b)(1) could
be made for any taxable year, but only if
made not later than the time prescribed by
law for filing the return for such taxable
year (including extensions thereof). The
method so elected, and the period select-
ed by the taxpayer, were required to be
adhered to in computing taxable income
for the taxable year for which the election
was made and for all subsequent taxable
years unless, with the approval of the Sec-
retary, a change to a different method (or
to a different period) was authorized with
respect to part or all of such expenditures.
The election did not apply to any expen-
diture paid or incurred during any taxable

January 17, 2023 418 Bulletin No. 2023–3
year before the taxable year for which the
taxpayer made the election.
(5) Under § 1.174-1, which applies to
research or experimental expenditures
paid or incurred in taxable years begin-
ning before December 31, 2021 (the ef-
fective date of the amendments to § 174
under § 13206 of the TCJA), research or
experimental expenditures which are nei-
ther treated as expenses nor deferred and
amortized under § 174 must be charged to
capital account.
1
.02 TCJA amendments.
(1) As amended by § 13206(a) of the
TCJA, § 174(a)(1) provides that in the
case of a taxpayer’s specified research or
experimental expenditures for any taxable
year, except as provided in § 174(a)(2),
no deduction is allowed for such expendi-
tures. Section 174(a)(2) provides that the
taxpayer must charge such expenditures to
capital account
2
and is allowed an amor-
tization deduction of such expenditures
ratably over the 5-year period (15-year pe-
riod in the case of any specified research
or experimental expenditures which are
attributable to foreign research within the
meaning of § 41(d)(4)(F) of the Code) be-
ginning with the midpoint of the taxable
year in which such expenditures are paid
or incurred. The method of accounting de-
scribed in this section 2.02(1) is referred
to as the “required § 174 method” in this
revenue procedure.
(2) Under § 174(b) the term “specified
research or experimental expenditures”
means, with respect to any taxable year,
research or experimental expenditures
which are paid or incurred by the taxpay-
er during such taxable year in connection
with the taxpayer’s trade or business.
(3) Section 174(c)(1) provides that the
required § 174 method does not apply to
any expenditure for the acquisition or im-
provement of land, or for the acquisition
or improvement of property to be used in
connection with the research or experi-
mentation and of a character which is sub-
ject to the allowance under § 167 (relating
to allowance of depreciation, etc.) or § 611
(relating to allowance for depletion); but
for purposes of § 174, allowances under
§ 167 and allowances under § 611 are con-
sidered as expenditures.
(4) Section 174(c)(2) provides that the
required § 174 method does not apply to
any expenditure paid or incurred for the
purpose of ascertaining the existence, lo-
cation, extent, or quality of any deposit
of ore or other mineral (including oil and
gas).
(5) Section 174(c)(3) provides that for
purposes of § 174, any amount paid or in-
curred in connection with the development
of any software is treated as a research or
experimental expenditure accounted for
under the required § 174 method.
(6) Under § 174(d), if any property
with respect to which specified research
or experimental expenditures are paid or
incurred is disposed, retired, or abandoned
during the period which such expenditures
are allowed as an amortization deduction
under the required § 174 method, no de-
duction is allowed with respect to such
expenditures on account of such disposi-
tion, retirement, or abandonment and such
amortization deduction will continue with
respect to such expenditures.
(7) Section 13206(b) of the TCJA
provides that the amendments made by
§ 13206(a) of the TCJA to former § 174
“shall be treated as a change in method of
accounting for purposes of section 481”
and that “(1) such change shall be treat-
ed as initiated by the taxpayer, (2) such
change shall be treated as made with the
consent of the Secretary, and (3) such
change shall be applied only on a cut-off
basis for any research or experimental
expenditures paid or incurred in taxable
years beginning after December 31, 2021,
and no adjustments under section 481(a)
shall be made.”
(8) Section 13206(e) of the TCJA
provides that the amendments made by
§ 13206(a) of the TCJA to former § 174
apply to research or experimental expen-
ditures paid or incurred in taxable years
beginning after December 31, 2021.
.03 Section 446(e).
(1) Except as otherwise expressly
provided in the Code and the regulations
thereunder, §§ 446(e) and 1.446-1(e)(2)
require a taxpayer to secure the consent
of the Commissioner before changing
a method of accounting for Federal in-
come tax purposes. Section 1.446-1(e)(3)
(i) states, in part, that except as otherwise
provided under the authority of § 1.446-
1(e)(3)(ii), to secure the Commissioner’s
consent to a taxpayer’s change in method
of accounting the taxpayer generally must
file an application on Form 3115, Appli-
cation for Change in Accounting Method,
with the Commissioner during the tax-
able year in which the taxpayer desires to
make the change in method of accounting.
Section 1.446-1(e)(3)(ii) authorizes the
Commissioner to prescribe administrative
procedures under which taxpayers will be
permitted to change their method of ac-
counting. The administrative procedures
will prescribe those terms and conditions
necessary to obtain the Commissioner’s
consent to effect the change and to pre-
vent amounts from being duplicated or
omitted.
(2) Rev. Proc. 2015-13, 2015-5 I.R.B.
419, as clarified and modified by Rev.
Proc. 2015-33, 2015-24 I.R.B. 1067, and
as modified by Rev. Proc. 2017-59, 2017-
48 I.R.B. 543, and Rev. Proc. 2021-34,
2021-35 I.R.B. 337, and as updated by
Rev. Proc. 2021-26, 2021-22 I.R.B. 1163,
sets forth the general procedures by which
a taxpayer may obtain the automatic con-
sent of the Commissioner to change a
method of accounting described in the
List of Automatic Changes. Rev. Proc.
2022-14, as modified by Rev. Proc. 2023-
8, contains the current List of Automatic
Changes.
(3) A change in a taxpayer’s treatment
of specified research or experimental ex-
penditures paid or incurred in taxable
years beginning after December 31, 2021,
to comply with § 174 is a change in meth-
od of accounting to which §§ 446(e) and
481, and the corresponding regulations,
apply. A taxpayer changing the treatment
of specified research or experimental ex-
penditures paid or incurred to the method
of accounting that complies with § 174
must use the accounting method change
procedures in Rev. Proc. 2015-13, or its
successor. Section 3 of this revenue pro-
cedure modifies Rev. Proc. 2022-14, as
modified by Rev. Proc. 2023-8, and mod-
ifies and supersedes Rev. Proc. 2023-8, to
allow taxpayers to obtain automatic con-
sent to change their method of accounting
1
The term “capital account” in § 1.174-1 includes capital asset accounts, including, but not limited to, inventory and depreciable property.
2
The term “capital account” in § 174(a)(2) does not mean the capital account described in § 1.174-1. The term means a separate specified research or experimental capital account.

Bulletin No. 2023–3 419 January 17, 2023
to comply with § 174 for taxable years be-
ginning after December 31, 2021.
(4) As discussed in section 2.02(7) of
this revenue procedure, § 13206(b) of the
TCJA provides that the amendments made
by § 13206(a) of the TCJA to former
§ 174 are treated as a change in method
of accounting for purposes of § 481 that
is initiated by the taxpayer and made with
the consent of the Commissioner, and
that “such change shall be applied only
on a cut-off basis for any research or ex-
perimental expenditures paid or incurred
in taxable years beginning after Decem-
ber 31, 2021, and no adjustments under
section 481(a) shall be made.” Pursuant to
section 2.07 of Rev. Proc. 2015-13, when
a change in method of accounting is made
without a § 481(a) adjustment (for exam-
ple, on a cut-off basis), in general, only
the items arising on or after the beginning
of the year of change, or other operative
date, are accounted for under the method
of accounting for which consent is grant-
ed. Any items arising before the year of
change, or other operative date, continue
to be accounted for under the taxpayer’s
former method of accounting. When a
change in method of accounting is made
on a cut-off basis, no amounts are dupli-
cated or omitted, and therefore, a § 481(a)
adjustment is not necessary or permitted.
(5) In accordance with § 13206(b) of
the TCJA, a change in a taxpayer’s meth-
od of accounting to the required § 174
method for the first taxable year that the
amendments made by § 13206(a) of the
TCJA are effective must be made only on
a cut-off basis. The required § 174 method
applies only to specified research or ex-
perimental expenditures paid or incurred
in taxable years beginning after December
31, 2021. The procedures in section 3 of
this revenue procedure provide an auto-
matic change in method of accounting to
the required § 174 method to comply with
§ 174 by filing a statement with the tax-
payer’s original Federal income tax return
for the first taxable year in which § 174
becomes effective in lieu of a Form 3115.
If a change to the required § 174 method
to comply with § 174 for some or all of
the taxpayer’s specified research or ex-
perimental expenditures is made for a tax-
able year subsequent to the taxable year
of the taxpayer in which § 174 becomes
effective, the change to the required § 174
method to comply with § 174 is made
by filing a Form 3115, with a modified
§ 481(a) adjustment that takes into ac-
count only specified research or experi-
mental expenditures paid or incurred in
taxable years beginning after December
31, 2021.
(6) Additionally, section 3 of this rev-
enue procedure provides a transition rule
for taxpayers who filed a Federal tax re-
turn on or before this revenue procedure is
published in the Internal Revenue Bulletin
for a taxable year beginning after Decem-
ber 31, 2021. The transition rule provides
that such taxpayer is deemed to have com-
plied with the § 446 method change proce-
dures and section 7.02 of Rev. Proc. 2022-
14, as modified by Rev. Proc. 2023-8, and
further modified by section 3 of this reve-
nue procedure, if the taxpayer properly re-
ported the amount of specified research or
experimental expenditures on Part VI of
Form 4562, Depreciation and Amortiza-
tion, filed with the Federal tax return, and
properly capitalized and amortized such
specified research or experimental expen-
ditures in accordance with the required
§ 174 method.
(7) A taxpayer that changes its meth-
od of accounting for specified research or
experimental expenditures under section
7.02 of Rev. Proc. 2022-14, as modified
by Rev. Proc. 2023-8, and further mod-
ified by section 3 of this revenue proce-
dure, will receive limited audit protection
under section 8.01 of Rev. Proc. 2015-13.
Specifically, audit protection will not ap-
ply for expenditures paid or incurred in
taxable years beginning before January 1,
2022. Audit protection also will not apply
for expenditures paid or incurred in tax-
able years beginning after December 31,
2021, if a change in method is made for
the taxable year immediately subsequent
to the first taxable year in which § 174
becomes effective. Additionally, notwith-
standing the audit protection rules under
section 8.01 of Rev. Proc. 2015-13, the
IRS may change the characterization or
classification of expenditures as specified
research or experimental expenditures as
defined in § 174(b) in order to apply § 174
as well as the change under section 7.02
of Rev. Proc. 2022-14, as modified by
Rev. Proc. 2023-8, and further modified
by section 3 of this revenue procedure, to
the proper amount of expenditures paid or
incurred in each taxable year beginning
after December 31, 2021.
SECTION 3. AUTOMATIC METHOD
CHANGE TO REQUIRED § 174
METHOD
.01 Modification of Section 7 of Rev.
Proc. 2022-14. Section 7 of Rev. Proc.
2022-14, as modified by Rev. Proc. 2023-
8, is further modified to revise section
7.02 to read as follows.
.02 Specified Research or Experimen-
tal Expenditures.
(1) Description of change.
(a) This change applies to a taxpayer
that changes its method of accounting for
specified research or experimental expen-
ditures (as defined under § 174(b)) to the
required § 174 method (as defined in sec-
tion 7.02(1)(b) of this revenue procedure)
to comply with § 174. Unless otherwise
stated, references to “§ 174” in this sec-
tion 7.02 refer to § 174 as amended by
§ 13206(a) of the TCJA. Section 13206(e)
of the TCJA provides that the amendments
made by § 13206 of the TCJA apply to
amounts paid or incurred in taxable years
beginning after December 31, 2021.
(b) Section 174(a)(1) provides that in
the case of a taxpayer’s specified research
or experimental expenditures for any tax-
able year, except as provided in § 174(a)
(2), no deduction is allowed for such ex-
penditures. Section 174(a)(2) provides
that the taxpayer must charge such expen-
ditures to capital account and is allowed
an amortization deduction of such expen-
ditures ratably over the 5-year period (15-
year period in the case of any specified
research or experimental expenditures
which are attributable to foreign research
within the meaning of § 41(d)(4)(f) of the
Code) beginning with the midpoint of the
taxable year in which such expenditures
are paid or incurred. The method of ac-
counting described in this section 7.02(1)
(b) is referred to as the “required § 174
method” in this section 7.02.
(2) Applicability. This change to the re-
quired § 174 method applies to specified
research or experimental expenditures (as
defined in § 174(b)) paid or incurred in
taxable years beginning after December
31, 2021.
(3) Inapplicability. This change does
not apply to:

January 17, 2023 420 Bulletin No. 2023–3
(a) a change in the treatment of ac-
quired, leased, or licensed computer soft-
ware under Rev. Proc. 2000-50, 2000-52
I.R.B. 601, as modified by Rev. Proc.
2007-16, 2007-1 C.B. 358 (see section
9.01 of this revenue procedure); or
(b) a change in the treatment of re-
search or experimental expenditures under
former § 174, or software development
expenditures, paid or incurred in taxable
years beginning before January 1, 2022
(see sections 7.01 and 9.01 of this revenue
procedure).
(4) Manner of making change.
(a) First taxable year beginning after
December 31, 2021.
(i) Cut-off basis. The change under
section 7.02 of this revenue procedure for
specified research or experimental expen-
ditures paid or incurred in the first taxable
year beginning after December 31, 2021,
is implemented on a cut-off basis.
(ii) Statement in lieu of a Form 3115 for
first taxable year beginning after Decem-
ber 31, 2021. Except as otherwise provid-
ed in section 7.02(5) of this revenue pro-
cedure, the requirement of § 1.446-1(e)
(3)(i) to file a Form 3115, Application for
Change in Accounting Method, is waived
and a statement in lieu of a Form 3115 is
authorized for the change in method of ac-
counting under section 7.02 of this revenue
procedure for which the year of change is
the first taxable year beginning after De-
cember 31, 2021. Notwithstanding the
definition of Form 3115 in section 3.07
of Rev. Proc. 2015-13, 2015-5 I.R.B. 419,
the statement in lieu of a Form 3115 that is
permitted under this section 7.02(4)(a)(ii)
is considered a Form 3115 for purposes of
the automatic consent procedures of Rev.
Proc. 2015-13. The requirement to file the
duplicate copy, under section 6.03(1)(a) of
Rev. Proc. 2015-13, is waived. The state-
ment must include the following informa-
tion for each applicant:
(A) the name and employer identifica-
tion number or social security number, as
applicable, of the applicant that has paid
or incurred specified research or experi-
mental expenditures after December 31,
2021;
(B) the beginning and ending dates of
the first taxable year in which the change
to the required § 174 method takes effect
for the applicant (year of change);
(C) the designated automatic account-
ing method change number for this change
(see section 7.02(8) of this revenue proce-
dure);
(D) a description of the type of expen-
ditures included as specified research or
experimental expenditures;
(E) the amount of specified research
or experimental expenditures paid or in-
curred by the applicant during the year of
change; and
(F) a declaration that the applicant
is changing the method of accounting
for specified research or experimental
expenditures to capitalize such expen-
ditures to a specified research or exper-
imental capital account, and amortize
such amount over either a 5-year period
for domestic research or 15-year period
for foreign research (as applicable) be-
ginning with the mid-point of the taxable
year in which such expenditures are paid
or incurred in accordance with the meth-
od permitted under § 174 for the year of
change. Also, the declaration must state
that the applicant is making the change
on a cut-off basis.
(b) Year of change later than the first
taxable year beginning after December
31, 2021.
(i) Modified § 481(a) adjustment. The
change under section 7.02 of this revenue
procedure for a year of change later than
the first taxable year beginning after De-
cember 31, 2021, is made with a modified
§ 481(a) adjustment, and should take into
account only specified research or exper-
imental expenditures paid or incurred in
taxable years beginning after December
31, 2021.
(ii) Form 3115. In completing a Form
3115, Application for Change in Account-
ing Method, to make the change in meth-
od of accounting under section 7.02 of
this revenue procedure with respect to any
year of change later than the first taxable
year beginning after December 31, 2021,
a taxpayer must include on an attachment
to Form 3115:
(A) a description of the type of expen-
ditures included as specified research or
experimental expenditures;
(B) the taxable year(s) in which the
specified research or experimental expen-
ditures subject to the change were paid or
incurred by the applicant; and
(C) a declaration that the applicant is
changing its method of accounting for
specified research or experimental expen-
ditures to capitalize such expenditures to
a specified research or experimental cap-
ital account, and amortize such amount
over either a 5-year period for domestic
research or 15-year period for foreign re-
search (as applicable) beginning with the
mid-point of the taxable year in which
such expenditures are paid or incurred
in accordance with the method permitted
under § 174 for the year of change. Also,
the declaration must state that the appli-
cant is making the change with a modi-
fied § 481(a) adjustment that takes into
account only specified research or exper-
imental expenditures paid or incurred in
taxable years beginning after December
31, 2021.
(5) Transition rule. A taxpayer who
filed a Federal tax return on or before Jan-
uary 17, 2023, for a taxable year begin-
ning after December 31, 2021, is deemed
to have complied with the § 446 method
change procedures and section 7.02 of this
revenue procedure to change its method
of accounting for specified research or ex-
perimental expenditures paid or incurred
in the first taxable year beginning after
December 31, 2021, to the required § 174
method to comply with § 174 if the tax-
payer:
(a) reported the amount of specified re-
search or experimental expenditures paid
or incurred for such taxable year on Part
VI of Form 4562, Depreciation and Amor-
tization, filed with the Federal tax return,
and
(b) properly capitalized and amortized
such specified research or experimental
expenditures in accordance with the re-
quired § 174 method for such taxable year.
(6) Certain eligibility rule temporar-
ily inapplicable. The eligibility rule in
section 5.01(1)(f) of Rev. Proc. 2015-
13, 2015-5 I.R.B. 419, does not apply to
changes to the required § 174 method for
the taxpayer’s first taxable year beginning
after December 31, 2021.
(7) No audit protection for expendi-
tures paid or incurred in taxable years
prior to the first taxable year in which
§ 174 becomes effective or for a year of
change that is the taxable year immediate-
ly subsequent to the first taxable year in

Bulletin No. 2023–3 421 January 17, 2023
which § 174 becomes effective. A taxpay-
er does not receive audit protection under
section 8.01 of Rev. Proc. 2015-13 for the
change under section 7.02 of this revenue
procedure with respect to expenditures
paid or incurred in taxable years begin-
ning on or before December 31, 2021.
Additionally, a taxpayer does not receive
audit protection under section 8.01 of Rev.
Proc. 2015-13 for the change under sec-
tion 7.02 of this revenue procedure with
respect to expenditures paid or incurred
in taxable years beginning after Decem-
ber 31, 2021, if such change is made for
the taxable year immediately subsequent
to the first taxable year in which § 174
becomes effective. See section 8.02(2) of
Rev. Proc. 2015-13.
(8) Designated automatic accounting
method change number. The designat-
ed automatic accounting method change
number for a change under section 7.02 of
this revenue procedure is “265.”
(9) No inference relating to expendi-
tures paid or incurred in taxable years pri-
or to the first taxable year in which § 174
becomes effective. No inference may be
drawn from section 7.02 of this revenue
procedure regarding the treatment of re-
search or experimental expenditures paid
or incurred in, and changes in methods of
accounting for, taxable years in which for-
mer § 174 was in effect, including issues
relating to the application of §§ 1.174-1,
1.174-3, and 1.174-4 of the Income Tax
Regulations for taxable years in which
former § 174 was in effect.
(10) Contact information. For further
information regarding a change under this
section, contact Martha M. Garcia at (202)
317-6853 (not a toll-free number).
SECTION 4. EFFECT ON OTHER
DOCUMENTS
This revenue procedure modifies sec-
tion 7 of Rev. Proc. 2022-14, as modified
by Rev. Proc. 2023-8, and modifies and
supersedes Rev. Proc. 2023-8.
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective for
specified research or experimental expen-
ditures paid or incurred in taxable years
beginning after December 31, 2021, in
which § 174 is in effect.
SECTION 6. PAPERWORK
REDUCTION ACT
The collection of information con-
tained in this revenue procedure has been
reviewed and approved by the Office of
Management and Budget under OMB
control numbers 1545-0074 for individ-
ual filers and 1545-0123 for business
filers, in accordance with the Paperwork
Reduction Act (44 U.S.C. 3507(d)). An
agency may not conduct or sponsor, and
a person is not required to respond to, a
collection of information unless the col-
lection of information displays a valid
OMB control number. The collection of
information in this revenue procedure is
in section 3, which adds sections 7.02(4)
(a)(ii) and 7.02(4)(b)(ii) to Rev. Proc.
2022-14. This information is necessary
and will be used to determine whether the
taxpayer properly changed to a permitted
method of accounting. The collections of
information are required for the taxpayer
to obtain consent to change its method of
accounting.
SECTION 7. DRAFTING
INFORMATION
The principal authors of this revenue
procedure are Martha M. Garcia and John
M. Deininger of the Office of Associate
Chief Counsel (Passthroughs & Special
Industries). For further information re-
garding this revenue procedure contact
Martha M. Garcia or John M. Deininger at
(202) 317-6853 (not a toll-free number).

January 17, 2023 422 Bulletin No. 2023–3
Part IV
Announcement 2023-1
This announcement notifies taxpayers
of the applicable reference standard re-
quired to be used to determine the amount
of the energy efficient commercial build-
ing (EECB) property deduction allowed
under § 179D of the Internal Revenue
Code (§ 179D deduction) as amended
by § 13303 of Public Law 117-169, 136
Stat. 1818, 1947 (August 16, 2022), com-
monly known as the Inflation Reduction
Act of 2022 (IRA).
1
This announcement
identifies the existing reference standard,
affirms a new reference standard, and clar-
ifies when each of the two reference stan-
dards will apply to taxpayers. The effec-
tive date of this announcement is January
1, 2023.
The Treasury Department (Treasury)
and the Internal Revenue Service (IRS)
plan to publish additional guidance to
address IRA amendments to § 179D in-
cluding, but not limited to, procedures for
measuring energy use intensity to calcu-
late the alternative deduction for energy
efficient building retrofit property.
In general, a taxpayer who owns or
leases a commercial building that is both
located in the United States and within the
scope of the applicable reference standard
may be allowed a § 179D deduction equal
to a portion of the cost of EECB property
that the taxpayer places in service during
the taxable year. Property with respect to
which depreciation (or amortization in
lieu of depreciation) is allowable is EECB
property if it is certified to be installed on
or in the building as part of one or more
of three of the building’s systems: (1) in-
terior lighting systems, (2) heating, cool-
ing, ventilation, and hot-water systems,
and (3) the building’s envelope. For the
installation of the property on or in the
building to be considered certified, the
property must be certified in the manner
and method prescribed by the Secretary of
the Treasury or her delegate (Secretary) as
being installed as part of a plan designed
to reduce the total annual energy and pow-
er costs with respect to the interior light-
ing systems, heating, cooling, ventilation,
and hot water systems of the building by
25 percent (50 percent for taxable years
beginning before January 1, 2023) or
more, in comparison to a reference build-
ing that meets the minimum requirements
of the applicable reference standard using
certain methods of calculation.
Since § 179D was enacted in 2005, the
applicable reference standard for EECB
property has been identified in § 179D(c)
(2) as a version of Reference Standard
90.1 as published by the American So-
ciety of Heating, Refrigerating, and Air
Conditioning Engineers (ASHRAE) and
the Illuminating Engineering Society of
North America (IES) (Reference Standard
90.1). For EECB property placed in ser-
vice before January 1, 2015, Reference
Standard 90.1-2001 applied. For EECB
property placed in service after Decem-
ber 31, 2014, and before January 1, 2021,
Reference Standard 90.1-2007 applied.
For EECB property placed in service af-
ter December 31, 2020, § 179D(c)(2), as
amended by the Taxpayer Certainty and
Disaster Tax Relief Act of 2020, defined
“Reference Standard 90.1” to mean with
respect to any property, the most recent
Standard 90.1 published by the ASHRAE
and the IES that has been affirmed by the
Secretary, after consultation with the Sec-
retary of Energy, for purposes of § 179D
not later than the date that is 2 years be-
fore the date that construction of such
property begins. Importantly, this statuto-
ry amendment changed the reference date
for application of the Reference Standard
90.1 from placed in service to beginning
of construction.
Section 13303 of the IRA amended
§ 179D for taxable years beginning after
December 31, 2022. This amendment re-
turned the reference date for application
of the Reference Standard 90.1 to the date
the property is placed in service. Effective
January 1, 2023, § 179D(c)(2) defines the
term “Reference Standard 90.1” to mean,
with respect to any property, the more re-
cent of:
(1) Standard 90.1-2007 published by the
ASHRAE and the IES, or
(2) The most recent Standard 90.1
published by the ASHRAE and the IES
for which the Department of Energy
has issued a final determination
and which has been affirmed by the
Secretary, after consultation with the
Secretary of Energy, not later than the
date that is 4 years before the date
such property is placed in service.
On July 28, 2021, the Department of
Energy determined the updated edition
ASHRAE Reference Standard 90.1-2019
2

would improve energy efficiency in com-
mercial buildings. Upon publication of
this affirmative determination, each State
was required to review the provisions of
their commercial building code regarding
energy efficiency, and, as necessary, up-
date their codes to meet or exceed Refer-
ence Standard 90.1-2019 not later than 2
years from July 28, 2021.
The Secretary, after consultation with
the Secretary of Energy, hereby affirms
ASHRAE Reference Standard 90.1-2019
as the applicable Reference Standard
90.1 for purposes of calculating the an-
nual energy and power consumption and
costs with respect to the interior lighting
systems, heating, cooling, ventilation,
and hot water systems of the reference
building as follows: In the case of proper-
ty the construction of which begins after
December 31, 2022, ASHRAE 90.1-2019
will be the applicable standard for prop-
erty that is placed in service after De-
cember 31, 2026. Taxpayers who already
began or will begin construction by De-
cember 31, 2022, or who already placed
property in service or will place property
in service by December 31, 2026, are not
1
Section 179D was added to Internal Revenue Code by § 1331(a) of the Energy Tax Incentives Act of 2005, Public Law 109-58, 119 Stat. 594, 1020 (August 8, 2005) as a temporary provision
and was temporarily extended in 2006, 2008, 2014, 2015, 2018, and 2019. Section 179D was made permanent by § 102(a) of the Taxpayer Certainty and Disaster Tax Relief Act of 2020,
enacted as Division EE of the Consolidated Appropriations Act, 2021, Public Law 116-260, 134 Stat. 1182, 3039 (December 27, 2020).
2
Final Determination Regarding Energy Efficiency Improvements in ANSI/ ASHRAE/IES Standard 90.1–2019, 86 FR 40543-44 (July 28, 2021).

Bulletin No. 2023–3 423 January 17, 2023
subject to the updated Reference Stan-
dard 90.1-2019. For such property, the
applicable Reference Standard 90.1 is
Reference Standard 90.1-2007. The table
below reflects the applicable Reference
Standard 90.1.
Date Placed In ServiceApplicable Reference Standard 90.1
Before 1/1/2015Reference Standard 90.1-2001
After 12/31/2014 and before 1/1/2027*Reference Standard 90.1-2007
After 12/31/2026*Reference Standard 90.1-2019
* Taxpayers who begin construction before 1/1/2023 may apply Reference Standard 90.1-2007 regardless of when the building is placed in service.
The principal author of this announce-
ment is Rika Valdman of the Office of
Associate Chief Counsel (Passthroughs &
Special Industries). For further informa-
tion regarding this announcement contact
Ms. Valdman at 202-317-6853 (not a toll-
free number).
Notice of Proposed
Rulemaking
Guidance on the Foreign
Government Income
Exemption and the
Definition of Domestically
Controlled Qualified
Investment Entities
REG-100442-22
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing.
SUMMARY: This document contains
proposed regulations regarding the treat-
ment of certain entities, including quali-
fied foreign pension funds, for purposes
of the exemption from taxation afforded
to foreign governments (the “proposed
regulations”). The proposed regulations
also address the determination of whether
a qualified investment entity is domesti-
cally controlled, including the treatment
of qualified foreign pension funds for this
purpose.
DATES: Written or electronic comments
and requests for a public hearing must be
received by February 27, 2023.
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically. Submit electronic submis-
sions via the Federal eRulemaking Portal
at www.regulations.gov (indicate IRS and
REG-100442-22) by following the online
instructions for submitting comments.
Once submitted to the Federal eRulemak-
ing Portal, comments cannot be edited or
withdrawn. The Department of the Trea-
sury and the IRS will publish for public
availability any comments submitted elec-
tronically and comments submitted on pa-
per to its public docket. Send hard copy
submissions to: CC:PA:LPD:PR (REG-
100442-22), Room 5203, Internal Reve-
nue Service, P.O. Box 7604, Ben Franklin
Station, Washington, DC 20044.
FOR FURTHER INFORMATION CON-
TACT: Concerning §1.892-5, Joel Deuth
at (202) 317-6938; concerning §1.897-1,
Arielle Borsos at (202) 317-6937; con-
cerning submissions of comments or
requests for a public hearing, Regina
Johnson at (202) 317-5177 (not toll-free
numbers) or publichearings@irs.gov.
SUPPLEMENTARY INFORMATION:
Background
I. Section 892
Section 892(a)(1) of the Internal Rev-
enue Code (the “Code”) exempts from
U.S. taxation certain income derived by
a foreign government. This exemption,
however, does not apply to income that
is (1) derived from the conduct of a com-
mercial activity (whether within or out-
side the United States), (2) received by a
controlled commercial entity or received
(directly or indirectly) from a controlled
commercial entity, or (3) derived from the
disposition of an interest in a controlled
commercial entity. Section 892(a)(2)(A).
Section 892(a)(2)(B) provides that for
purposes of section 892(a)(2)(A), a con-
trolled commercial entity is any entity en-
gaged in commercial activities (whether
within or outside the United States) and
in which a foreign government holds (di-
rectly or indirectly) interests according to
specified thresholds. The term “entity” in
section 892(a)(2)(B) means a corporation,
a partnership, a trust, and an estate. See
§1.892-5(a)(3).
A United States real property holding
corporation (“USRPHC”), as defined in
section 897(c)(2), or a foreign corpora-
tion that would be a USRPHC if it was a
United States corporation, is treated as en-
gaged in commercial activity and, there-
fore, is a controlled commercial entity if
a foreign government meets certain own-
ership or control thresholds with respect
to that USRPHC or foreign corporation.
§1.892-5T(b)(1).
II. Section 897
Section 897(a)(1) provides that gain or
loss of a nonresident alien individual or
foreign corporation from the disposition
of a United States real property interest
(“USRPI”) is taken into account under
section 871(b)(1) or 882(a)(1), as applica-
ble, as if the nonresident alien individual
or foreign corporation were engaged in a
trade or business within the United States
during the taxable year and such gain or
loss were effectively connected with that
trade or business.

January 17, 2023 424 Bulletin No. 2023–3
Subject to certain exceptions, section
897(c)(1)(A) defines a USRPI as an inter-
est in real property (including an interest
in a mine, well, or other natural deposit)
located in the United States or the Virgin
Islands, and any interest (other than sole-
ly as a creditor) in any domestic corpora-
tion unless the taxpayer establishes that
such corporation was at no time a USR-
PHC during the period set forth in section
897(c)(1)(A)(ii) (generally, the five-year
period ending on the date of the disposi-
tion of the interest). Under section 897(c)
(2), a USRPHC is generally any corpora-
tion if the fair market value of its USRPIs
equals or exceeds 50 percent of the aggre-
gate fair market value of its USRPIs, its
interests in real property located outside
the United States, plus any other of its as-
sets that are used or held for use in a trade
or business.
Section 897(h)(1) provides that any
distribution by a qualified investment en-
tity (“QIE”) to a nonresident alien individ-
ual, a foreign corporation, or other QIE, to
the extent attributable to gain from sales
or exchanges by the QIE of USRPIs, is
treated as gain recognized by such nonres-
ident alien individual, foreign corporation,
or other QIE from the sale or exchange of
a USRPI, subject to certain exceptions.
Section 897(h)(4)(A) defines a QIE as any
(i) real estate investment trust (“REIT”),
and (ii) any regulated investment compa-
ny (“RIC”) which is a USRPHC or which
would be a USRPHC if the exceptions in
section 897(c)(3) and 897(h)(2) did not
apply to interests in any REIT or RIC.
Section 897(h)(2) provides that a US-
RPI does not include an interest in a do-
mestically controlled QIE (“DC-QIE ex-
ception”). Accordingly, gain or loss on the
disposition of stock in a domestically con-
trolled QIE is not subject to section 897(a)
(other than to the extent provided in sec-
tion 897(h)(1)). Section 897(h)(4)(B) pro-
vides that a QIE is domestically controlled
if less than 50 percent of the value of its
stock is held directly or indirectly by for-
eign persons at all times during the testing
period prescribed in section 897(h)(4)(D)
(generally, the five-year period ending on
the date of the disposition). The legisla-
tive history accompanying the enactment
of section 897 indicates that Congress in-
tended for the DC-QIE exception to apply
to entities controlled by United States per-
sons. See H.R. Conf. Rep. No. 96-1479, at
188 (1980) (“In the case of REITs which
are controlled by U.S. persons, sales of
the REIT shares by foreign shareholders
would not be subject to tax (other than in
the case of distribution by the REIT).”).
Section 1.897-9T(c) defines “foreign
person” for purposes of section 897 as a
nonresident alien individual (including
an individual subject to the provisions
of section 877), a foreign corporation (as
defined in §1.897-1(l)), a foreign partner-
ship, a foreign trust, or a foreign estate,
as such persons are defined respectively
by §1.871-2 and by section 7701 and the
regulations thereunder.
1
Under §1.897-
1(l), the term “foreign corporation” gen-
erally has the meaning ascribed to it in
section 7701(a)(3) and 7701(a)(5) and
§301.7701-5.
Section 897(h)(3) provides that in the
case of a domestically controlled QIE,
rules similar to those in section 897(d)
(which prescribes rules requiring the rec-
ognition of gain on the distribution of a
USRPI by a foreign corporation) apply to
the foreign ownership percentage of any
gain. Section 897(h)(4)(C) provides that
the term “foreign ownership percentage”
means the percentage of QIE stock that
was held (directly or indirectly) by for-
eign persons at the time during the test-
ing period (as defined in section 897(h)(4)
(D)) during which the direct and indirect
ownership of stock by foreign persons
was greatest.
Section 1.897-1(c)(2)(i), which was is-
sued when section 897(h) addressed only
domestically controlled REITs, defines
domestically controlled REITs (rather
than QIEs) and otherwise restates the rule
in section 897(h)(2).
2
Section 1.897-1(c)
(2)(i) does not address the determination
of whether stock of a REIT is considered
“held directly or indirectly by foreign
persons” under section 897(h)(4)(B) and
provides only that, for purposes of deter-
mining the ownership of the REIT’s stock,
actual ownership under §1.857-8 must be
taken into account. Section 1.857-8(b)
states that the actual owner of stock of a
REIT is the person who is required to in-
clude in gross income in his return the div-
idends received on the stock and is gener-
ally the shareholder of record of the REIT.
Section 897(h)(4)(E), which was add-
ed to the Code in section 322(b)(1)(A) of
the Protecting Americans from Tax Hikes
Act of 2015, Pub. L. 114-113, div. Q (the
“PATH Act”), provides special owner-
ship rules for determining the holder of
QIE stock under section 897(h)(4)(B)
and 897(h)(4)(C). Section 897(h)(4)(E)
(i) states that, in the case of any class of
stock of the QIE that is regularly traded
on an established securities market in the
United States (“U.S. publicly traded QIE
stock”), a person holding less than five
percent of such class of stock at all times
during the testing period is treated as a
United States person unless the QIE has
actual knowledge that such person is not
a United States person. Section 897(h)(4)
(E)(ii) provides that any stock in the QIE
held by another QIE (i) any class of stock
of which is regularly traded on an estab-
lished securities market, or (ii) which is
a RIC that issues redeemable securities
within the meaning of section 2 of the In-
vestment Company Act of 1940 (an entity
described in (i) or (ii), a “public QIE”) is
treated as held by a foreign person, except
that if the public QIE is domestically con-
trolled (determined after the application of
section 897(h)(4)(E)), such stock is treated
as held by a United States person. Finally,
section 897(h)(4)(E)(iii) provides that any
stock in the QIE held by a QIE that is not
a public QIE (“non-public QIE”) is only
treated as held by a United States person
in proportion to the stock of the non-pub-
lic QIE that is (or is treated under section
897(h)(4)(E)(ii) or 897(h)(4)(E)(iii) as)
held by a United States person.
Section 897(l) provides an exception to
the application of section 897(a) for cer-
tain foreign pension funds and their whol-
ly owned subsidiaries. Section 897(l) was
added to the Code in section 323(a) of the
PATH Act. As originally enacted, section
897(l)(1) provided that section 897 does
not apply to any USRPI held directly (or
1
Section 1.897-9T(a) provides that §1.897-9T(c) (the definition of “foreign person”) would appear as §1.897-1(k) if and when §1.897-9T is adopted as a final regulation.
2
Section 897(h) did not apply to RICs when the regulations were finalized. Section 411 of the American Jobs Creation Act of 2004, Public Law 108-357 (2004), amended section 897(h) to
apply to certain RICs in addition to REITs and introduced the term QIE to include such entities.

Bulletin No. 2023–3 425 January 17, 2023
indirectly through one or more partner-
ships) by, or to any distribution received
from a REIT by, a qualified foreign pen-
sion fund (“QFPF”) or any entity all of
the interests of which are held by a QFPF.
Congress later made several technical
amendments to section 897(l) in section
101(q) of the Tax Technical Corrections
Act of 2018, Pub. L. 115-141, div. U (the
“Technical Corrections Act”). As amend-
ed in the Technical Corrections Act, sec-
tion 897(l) provides that neither a QFPF
nor an entity all the interests of which are
held by a QFPF is treated as a nonresident
alien individual or foreign corporation for
purposes of section 897. Section 897(l)(3)
provides the Secretary with the authority
to “prescribe such regulations as may be
necessary or appropriate to carry out the
purposes of this subsection.”
On June 7, 2019, the Department of the
Treasury (“Treasury Department”) and
the IRS published proposed regulations
in the Federal Register (84 FR 26605)
(the “2019 proposed regulations”) under
sections 897(l), 1441, 1445 and 1446. The
2019 proposed regulations contained rules
relating to qualification for the exception
under section 897(l), as well as rules re-
lating to withholding requirements under
sections 1441, 1445 and 1446, for disposi-
tions of USRPIs by, and distributions de-
scribed in section 897(h) received by, QF-
PFs and entities that are wholly owned by
one or more QFPFs (“qualified controlled
entities,” or “QCEs”). The 2019 proposed
regulations are finalized in the Final Rules
section of this issue of the Federal Reg-
ister.
Explanation of Provisions
I. Coordination of Exemption Under
Section 897(l) with Section 892
The exemption from U.S. taxation pro-
vided to foreign governments by section
892 does not apply to income derived
from the conduct of a commercial activ-
ity, or income received by a controlled
commercial entity or received (directly
or indirectly) from a controlled commer-
cial entity. Section 1.892-4T(a). Section
1.892-5T(b)(1) treats a USRPHC (or a
foreign corporation that would be a USR-
PHC if it was a United States corporation)
as engaged in commercial activity and,
therefore, a controlled commercial entity
if it is controlled by a foreign government
pursuant to §1.892-5T(a).
A QFPF would be a controlled com-
mercial entity for section 892 purposes
if it qualified as a USRPHC within the
meaning of §1.892-5T(b)(1) and if it were
controlled by a foreign government pursu-
ant to §1.892-5T(a). In such case, none of
the income, including, for example, from
investments in the United States in stocks
or securities, received by the foreign gov-
ernment from that QFPF would be eligi-
ble for the section 892 exemption. A com-
ment to the 2019 proposed regulations
noted that §1.892-5T(b)(1) incentivizes
a government-controlled QFPF to reduce
its USRPIs to preserve the exemption
provided by section 892. In addition, the
comment noted that §1.892-5T(b)(1) may
necessitate that such a QFPF monitor its
USRPIs for section 892 purposes despite
being exempt from the application of sec-
tion 897(a). The comment recommended
that a QFPF and a QCE be excluded from
the application of §1.892-5T(b)(1) or that
§1.892-5T(b)(1) be withdrawn.
Although these proposed regulations
do not withdraw the rule entirely, the
Treasury Department and the IRS agree
that the rule in §1.892-5T(b)(1) should
not apply to a QFPF or a QCE, and these
proposed regulations therefore adopt that
recommendation. Proposed §1.892-5(b)
(1)(ii)(A). In addition, the proposed reg-
ulations exclude certain other USRPHCs
from the application of §1.892-5T(b)(1).
Proposed §1.892-5(b)(1)(ii)(B). Exclud-
ing certain other USRPHCs from the ap-
plication of §1.892-5T(b)(1) is consistent
with the policy of section 892 with respect
to deemed commercial activities. For ex-
ample, in general, a foreign government
under section 892 currently is not treated
as engaging in commercial activities by
reason of investing in stocks, bonds, and
other securities. §1.892-4T(c)(1)(i).
3
The
proposed regulations add another cate-
gory by excluding from the application
of §1.892-5T(b)(1) a corporation that is a
USRPHC solely by reason of its direct or
indirect ownership interest in one or more
other corporations that are not controlled
by the foreign government. Thus, for ex-
ample, if a foreign government controls a
USRPHC whose only assets are minority
interests in REITs, the proposed regula-
tions would not treat that corporation as a
controlled commercial entity pursuant to
§1.892-5T(b)(1). The changes to §1.892-
5T(b)(1) made by the proposed regula-
tions do not affect the analysis of whether
the income itself is exempt from U.S. tax-
ation under section 892.
4
The proposed regulations also clarify
§1.892-5T(b)(1) by replacing the phrase
“or a foreign corporation that would be a
United States real property holding cor-
poration if it was a United States corpo-
ration” with “which may include a foreign
corporation” when referencing section
897(c)(2) to define a USRPHC. Proposed
§1.892-5(b)(1)(i). Section 897(c)(2) de-
fines a USRPHC as including “any cor-
poration”, whether domestic or foreign.
5

Thus, the phrase “or a foreign corporation
that would be a United States real proper-
ty holding corporation if it was a United
States corporation” when referencing the
definition in section 897(c)(2) is unneces-
sary.
II. Effect of Section 897(l) on DC-QIE
Exception
A comment received in response to the
2019 proposed regulations recommend-
ed that regulations clarify that a QFPF is
treated as a domestic person for purposes
of the DC-QIE exception. The comment
3
Regulations proposed under section 892 in 2011 would also extend the policy embodied by §1.892-4T(c)(1)(i) with respect to deemed commercial activities by providing that investments
in financial instruments will not be treated as commercial activities for purposes of section 892, irrespective of whether such financial instruments are held in the execution of governmental
financial or monetary policy. See proposed §1.892-4(e)(1)(i). See also proposed §§1.892-4(e)(1)(iv) and 1.892-5(d)(5)(iii), which provide relief from being treated as engaged in certain
deemed commercial activities.
4
See, for example, proposed §1.892-4(e)(1)(iv), which provides that gain derived from a disposition of a USRPI defined in section 897(c)(1)(A)(i) will not qualify for exemption from taxation
under section 892 even though a disposition (including a deemed disposition under section 897(h)(1)) of a USRPI, by itself, does not constitute the conduct of a commercial activity.
5
In contrast, section 897(c)(1)(A)(ii) defines a USRPI by reference to an interest in a USRPHC that is a domestic corporation.

January 17, 2023 426 Bulletin No. 2023–3
reasoned that section 897(l)(1) states that a
QFPF shall not be treated as a nonresident
alien individual or foreign corporation for
purposes of all of section 897, which in-
cludes the DC-QIE exception. The com-
ment also noted that such a rule would
be easily administrable for open-ended
investment funds and would provide cer-
tainty to such funds and their investors
that section 897(a) would not apply to
the disposition of interests in open-ended
investment funds which have QFPFs as
significant investors. Another comment,
however, stated that it is not clear that the
intent behind section 897(l) was to pro-
vide that a QIE is domestically controlled
if it is majority owned by QFPFs, as there
was no indication that Congress intended
that result. The comment recommended
that regulations provide how QFPFs are to
be treated for purposes of the DC-QIE ex-
ception but did not recommend a specific
result.
Section 897(a) generally applies with
respect to the gain or loss of “a nonresident
alien individual or a foreign corporation.”
In addition, section 897(h)(1) applies to
any distribution by a QIE to a nonresident
alien individual or a foreign corporation
(or other QIE). Section 897(l) provides
that, for purposes of section 897, a QFPF
shall not be treated as “a nonresident alien
individual or a foreign corporation.” The
reference to “a nonresident alien individ-
ual or a foreign corporation” in section
897(l) therefore is consistent with the
same class of persons subject to tax un-
der section 897(a) and 897(h)(1). Thus,
under the statute, when a QFPF disposes
of a USRPI, section 897(a) does not apply
to any gain or loss from the disposition
because section 897(l) treats the QFPF as
neither a nonresident alien individual nor
a foreign corporation. Similarly, when a
QFPF receives a distribution from a QIE
that is attributable to gain from the sale or
exchange of a USRPI, the look-through
rule under section 897(h)(1), and the gen-
eral rule under section 897(a) do not apply
because section 897(l) treats the QFPF as
neither a nonresident alien individual nor
a foreign corporation.
In contrast, the ownership test in sec-
tion 897(h)(4)(B) for the DC-QIE ex-
ception (which predates the enactment
of section 897(l)) uses the term “for-
eign persons” and not “nonresident in-
dividuals or foreign corporations.” The
DC-QIE exception applies to scenarios
where a nonresident alien individual or
foreign corporation disposes of stock in
a QIE, but because the QIE is less than
50 percent owned by “foreign persons,”
the stock disposed of is not considered a
USRPI. Although section 897(l) provides
that a QFPF is not treated as a nonresident
alien individual or a foreign corporation
for purposes of section 897, it does not ex-
pressly provide that a QFPF or QCE is not
treated as a foreign person for purposes of
the separate ownership test of the DC-QIE
exception.
There is no indication that Congress
intended for section 897(l) to provide that
QFPFs and QCEs are not treated as for-
eign persons for purposes of applying the
DC-QIE exception to other foreign per-
sons that are neither QFPFs nor QCEs. As
originally enacted in the PATH Act, sec-
tion 897(l) provided that section 897 did
not apply to USRPIs held, and REIT dis-
tributions received, by a QFPF and a QCE
but did not alter the status of the QFPF or
QCE. As a result, as originally enacted
section 897(l) turned off the application of
section 897(a) to the QFPF or QCE.
In the same legislation, Congress also
amended the rules in the DC-QIE excep-
tion. See PATH Act secs. 133 and 322.
6

Certain amendments to the DC-QIE ex-
ception deem ownership in a QIE as
ownership by a United States or foreign
person depending on whether certain con-
ditions are met. See section 897(h)(4)(E)
(i), 897(h)(4)(E)(ii). These amendments
demonstrate that Congress knows how to
directly identify the deemed classification
of investors as foreign persons or United
States persons and did so in one part of
the PATH Act through amendments to the
DC-QIE exception. Congress could have
made a similar modification to the DC-
QIE exception for QFPFs and QCEs in the
same legislation but did not do so.
The Technical Corrections Act mod-
ified the language of section 897(l). In
particular, the modified language specifies
that a QFPF and a QCE are not treated as
nonresident alien individuals or foreign
corporations for purposes of section 897.
The Joint Committee on Taxation explana-
tion of the technical correction for section
897(l) states that the revised language was
merely intended to clarify the language
specifying which entities qualified for the
benefit provided by the new subsection.
See STAFF OF THE JOINT COMM.
ON TAX’N, General Explanation of Tax
Legislation Enacted in the 115
th
Congress
(JCS-2-19) (General Explanation) 145
(2019) (“2019 General Explanation”).
Although the 2019 General Explanation
does not specify the technical error with
the PATH Act language that was corrected
by the 2018 amendment, when comparing
the technical correction to the PATH Act
formulation, the correction clearly allows
a QFPF and QCE to jointly own a USRPI
and qualify for section 897(l) with respect
to their partial interests in it, whereas the
PATH Act formulation used “or” between
QFPF and QCE, which suggested that all
of the USRPI had to be owned by a single
entity. Additionally, the change clarified
that the exception applied to distributions
from all QIEs and not just REITs. Last-
ly, by shifting the focus of section 897(l)
from applying to the USRPI in the PATH
Act formulation (“[T]his section shall not
apply to any United States real property
interest held by...”) to instead applying to
the QFPF in the Technical Corrections Act
formulation (“[F]or purposes of this sec-
tion, a qualified foreign pension fund shall
not be treated as...”), the technical correc-
tion aligned the section 897(l) exception
with the operative provision in section
897(a), which modifies the tax treatment
of the entity receiving income via dispo-
sition or distribution (the QFPF or QCE),
not the tax treatment of the USRPI itself.
Ultimately, as a technical correction,
the modification to section 897(l) cannot
expand on the policy Congress intended
to enact in the PATH Act. A technical cor-
rection is a change that clarifies existing
law, such as through correcting errors,
rather than one that fundamentally or
substantively changes the law. See Fed.
Nat’l Mortgage Assoc. v. United States,
56 Fed. Cl. 228, 234, 237 (2003), rev’d
and remanded on other grounds, 379 F.3d
6
Those amendments did not relate to the new rules in section 897(l) and are described separately in the Joint Committee on Taxation’s General Explanation. See STAFF OF THE JOINT
COMM. ON TAX'N, General Explanation of Tax Legislation Enacted in 2015 (JCS-1-16) (General Explanation) 155, 280-83 (2016) (“PATH Act General Explanation”).

Bulletin No. 2023–3 427 January 17, 2023
1303 (Fed. Cir. 2004) (“Congress turns
to technical corrections when it wishes to
clarify existing law or repair a scrivener’s
error, rather than to change the substantive
meaning of the statute. . . . [A] technical
correction that merely restores the rule
Congress intended to enact cannot be con-
strued as a fundamental change in the op-
eration of the statute.”); STAFF OF THE
JOINT COMM. ON TAX’N, Overview
of Revenue Estimating Procedures and
Methodologies Used by the Staff of the
Joint Committee on Taxation (JCX-1-05)
33 (2005) (describing a technical correc-
tion as “legislation that is designed to cor-
rect errors in existing law in order to fully
implement the intended policies of previ-
ously enacted legislation” and a change
that “conforms to and does not alter the
intent” of the underlying legislation).
Both the PATH Act General Explanation
and the 2019 General Explanation make
clear that the intent of section 897(l), as
originally enacted and as corrected, was
to provide that “in determining the U.S.
income tax of a qualified foreign pension
fund, section 897 does not apply.” See
2019 General Explanation, at 145. This
intent was also clear in the original lan-
guage of section 897(l) and could not have
been expanded by the modifications in the
Technical Corrections Act. Additionally,
because section 897(l) already specifically
excludes QFPF and QCEs from the appli-
cation of section 897(a), treating them as
not being a foreign person for purposes of
the DC-QIE exception would serve only to
benefit other foreign investors in the same
QIE. Nothing in the statute or legislative
history indicates that majority ownership
of a QIE by a QFPF or QCE should allow
other investors to avoid section 897, and
such treatment does not follow from the
policy of either section 897(l) or the DC-
QIE exception as expressed in the legisla-
tive history of those provisions. Further, if
Congress had intended for a QFPF to not
be treated as a “foreign person,” which
is a different and broader characteriza-
tion beyond section 897(l)’s treatment as
not “a nonresident alien individual or a
foreign corporation,” which is needed to
turn off section 897(a) as to the QFPF or
QCE, Congress presumably would have
expressly provided for that result. Cf. sec-
tion 1445(f)(3)(B) (solely for purposes of
section 1445, providing that an entity that
is exempt under section 897(l) is not a for-
eign person) and section 897(h)(4)(E) (as
discussed, treating certain QIE investors
as foreign persons (even if in fact a do-
mestic corporation)).
Accordingly, proposed §1.897-1(c)(3)
(iv)(A) provides that a QFPF (including
any part of a QFPF) or a QCE is a foreign
person for purposes of the DC-QIE excep-
tion. See parts III and IV of this Explana-
tion of Provisions for a discussion of the
definition of domestically controlled QIE
in proposed §1.897-1(c)(3). The IRS may
challenge contrary positions before the is-
suance of any final regulations regarding
the treatment of a QFPF or QCE for pur-
poses of the DC-QIE exception.
The proposed regulations make relat-
ed changes to the definitions provided in
§1.897-1. Proposed §1.897-1(k) and (l)
revise the definition of “foreign person”
(as provided in §1.897-9T(c)) and “for-
eign corporation” to remove references
that are no longer applicable and to add
cross references to the rule in proposed
§1.897-1(c)(3)(iv)(A).
III. QIE Stock Held Directly or Indirectly
Under Section 897(h)(4)(B)
A. Overview
The proposed regulations provide
guidance for determining whether stock of
a QIE is considered “held directly or indi-
rectly” by foreign persons for determining
whether a QIE is domestically controlled
under section 897(h)(4)(B). The proposed
regulations define stock that is held “in-
directly” by taking into account stock of
the QIE held through certain entities un-
der a limited “look-through” approach.
The look-through approach balances the
policies of the DC-QIE exception with
the requirement in section 897(h)(4)(B)
to take into account “indirect” ownership
of QIE stock by foreign persons in de-
termining whether a QIE is domestically
controlled. It is also intended to prevent
the use of intermediary entities to achieve
results contrary to the purposes of the DC-
QIE exception.
Questions have arisen as to whether
the reference to stock held “indirectly” in
section 897(h)(4)(B) could be interpret-
ed to require looking through all entities,
including, for example, all domestic and
foreign corporations, to determine the
extent to which the ultimate individual
shareholders of a QIE are foreign or do-
mestic. In its broadest sense, the statute
refers to stock held “indirectly” by foreign
persons, which could encompass owner-
ship by a foreign individual through mul-
tiple tiers of entities of any type. Howev-
er, the Treasury Department and the IRS
have concluded that the term “indirectly”
should not be interpreted so broadly given
the policy underlying section 897(h)(4).
Section 897(h)(4)(B) indicates that the
determination of whether a QIE is domes-
tically controlled looks to ownership of
QIE stock by “foreign persons,” not just
individuals. In addition, such a broad in-
terpretation of “indirectly” mandating the
look-through of all entity types, including
through multiple tiers of entities, would
likely be difficult for taxpayers to comply
with, and for the IRS to administer, par-
ticularly with respect to publicly traded
entities.
Notwithstanding that a complete look-
through approach is inappropriate, the
Treasury Department and the IRS are issu-
ing proposed §1.897-1(c)(3) based on the
conclusion that a look-through approach
in determining “indirect” ownership of a
QIE should still apply in specified circum-
stances to QIE stock held by intermediary
entities. The proposed regulations thus ad-
dress the treatment of QIE stock held by
certain intermediary entities, such as do-
mestic partnerships. For example, assume
USR, a REIT, holds a USRPI as its sole
asset. Nonresident alien individuals hold
49 percent of USR’s single class of stock.
PRS, a domestic partnership 50 percent
of the interests of which are held by each
of two foreign corporations, holds the re-
maining 51 percent of the USR stock. If
USR stock is disposed of, taxpayers may
assert that the stock is not a USRPI under
the DC-QIE exception, and therefore not
subject to section 897(a), because PRS is
a United States person and, consequently,
foreign persons could be viewed as direct-
ly or indirectly holding less than 50 per-
cent of USR’s stock by value. Taxpayers
may assert this position even though, tak-
ing into account the USR stock held by the
foreign corporations through their inter-
ests in PRS, foreign persons hold direct-
ly or indirectly all of USR’s outstanding
stock. In support of this position, taxpay-

January 17, 2023 428 Bulletin No. 2023–3
ers may point to §1.897-1(c)(2)(i) and its
reference to §1.857-8 as suggesting that
the inclusion of the dividends received on
QIE stock in gross income on a domestic
partnership’s tax return, without regard to
stock held indirectly by another person,
establishes the partnership not only as the
actual owner of QIE stock but, as a result
of such actual ownership, as the only rel-
evant person for determining whether a
QIE is domestically controlled. Taxpayers
may take this position even though the de-
termination of actual ownership pursuant
to §1.857-8 is only intended to ensure the
beneficial owner of stock is taken into ac-
count when different from the shareholder
of record, and §1.897-1(c)(2)(i) does not
state or otherwise suggest that the actual
owners of QIE stock as determined under
§1.857-8 are the only relevant persons for
determining whether a QIE is domestical-
ly controlled or provide any guidance on
the meaning of “held directly or indirectly
by foreign persons.”
The Treasury Department and the IRS
have concluded that the interpretation of
the DC-QIE exception described in the
preceding paragraph is incorrect because
it would permit nonresident alien individ-
uals and foreign corporations to dispose
of USRPIs held indirectly through certain
intermediate entities, such as domestic
partnerships, to avoid taxation under sec-
tion 897(a). To prevent this result, entities
such as partnerships that are generally not
subject to U.S. Federal income tax should
not, subject to certain limited exceptions,
be treated as holders of QIE stock for pur-
poses of determining whether a QIE is do-
mestically controlled. This type of look-
through analysis is consistent with section
897(h)(4)(B), which references “indirect”
ownership in determining the sharehold-
ers of a QIE that should be taken into ac-
count in applying the DC-QIE exception.
B. General Look-Through Approach
Consistent with the reference to stock
held “indirectly” by foreign persons in
section 897(h)(4)(B), the determination of
whether a QIE is domestically controlled
under the proposed regulations generally
applies a “look-through” approach to stock
of a QIE that is held through certain enti-
ties. Thus, in determining whether a QIE
is domestically controlled, only a “non-
look-through person” is treated as holding
directly or indirectly stock of a QIE, and
stock of a QIE held by or through one or
more intervening “look-through persons”
is treated as held proportionately by the
look-through person’s ultimate owners
that are non-look-through persons. Pro-
posed §1.897-1(c)(3)(ii)(A) and (B).
Proposed §1.897-1(c)(3)(ii)(C) pro-
vides that stock of a QIE considered
held directly or indirectly by a non-look-
through person is not considered held di-
rectly or indirectly by any other person.
Under this rule, for example, if stock of
a QIE is held directly or indirectly by a
domestic C corporation (that is not a for-
eign-owned domestic corporation), it is
treated as held directly or indirectly only
by that domestic C corporation and is
not treated as held directly or indirectly
by non-look-through shareholders of the
domestic C corporation (or any other per-
son).
Subject to a special look-through rule
for foreign-owned domestic corporations
and the special ownership rules in section
897(h)(4)(E), discussed in parts III.C and
III.D of this Explanation of Provisions, re-
spectively, the proposed regulations define
a “non-look-through person” to include
persons such as individuals, “domestic C
corporations” (defined as a domestic cor-
poration other than an S corporation, a
REIT or a RIC) and foreign corporations
(including, for the avoidance of doubt,
foreign governments pursuant to section
892(a)(3)). Proposed §1.897-1(c)(3)(v)
(D). The definition of a non-look-through
person also includes “nontaxable holders”
(defined to include tax-exempt entities un-
der section 501(a) or the United States, a
State, a U.S. territory, an Indian tribal gov-
ernment or any subdivision of the forego-
ing) because they generally do not have
owners to which the look-through ap-
proach could apply. For the same reason,
the definition of a “non-look-through per-
son” includes international organizations
(as defined in section 7701(18)). In addi-
tion, a non-look-through person includes
publicly traded partnerships (domestic
or foreign) because it may be difficult to
look-through such entities and it is unlike-
ly that these entities could be affirmative-
ly used as intermediary entities to create
a domestically controlled QIE. Finally, a
non-look-through person includes a QFPF
(including any part of a QFPF) or QCE,
which ensures that such entities are taken
into account as foreign persons for pur-
poses of section 897(h)(4)(B) as provided
under proposed §1.897-1(c)(3)(iv)(A).
A “look-through person” is defined as
any person that is not a non-look-through
person and includes, for example, a REIT
or a RIC (subject to the special ownership
rule in proposed §1.897-1(c)(3)(iii)(C)),
an S corporation, a non-publicly traded
partnership (domestic or foreign), and
a trust (domestic or foreign). Proposed
§1.897-1(c)(3)(v)(C).
C. Special Look-Through Rule for
Foreign-Owned Domestic Corporations
Even though domestic C corporations
are generally treated as non-look-through
persons, the Treasury Department and the
IRS are issuing proposed §1.897-1(c)(3)
(iii)(B) based on the conclusion that a lim-
ited look-through approach should apply
to non-publicly traded domestic C corpo-
rations in which foreign persons hold a
meaningful ownership interest. This rule
would, for example, prevent the use of
intermediary domestic C corporations by
foreign investors to create domestically
controlled QIEs that could exempt from
the application of section 897 QIE stock
held directly by those or other foreign
investors. In such cases, the ownership
of the domestic C corporation by foreign
persons should be ascertainable and taken
into account in determining the “indirect”
ownership of the QIE by foreign persons
in applying section 897(h)(4)(B).
Accordingly, in determining wheth-
er a QIE is domestically controlled, the
proposed regulations treat a domestic C
corporation whose stock is not regularly
traded on an established securities market
(“non-public domestic C corporation”)
as a look-through person, but only if the
non-public domestic C corporation is
a foreign-owned domestic corporation.
Proposed §1.897-1(c)(3)(iii)(B). For this
purpose, a “foreign-owned domestic cor-
poration” is any non-public domestic C
corporation if foreign persons hold direct-
ly or indirectly 25 percent or more of the
fair market value of the corporation’s out-
standing stock. Proposed §1.897-1(c)(3)
(v)(B). Whether a non-public domestic C
corporation is a foreign-owned domestic

Bulletin No. 2023–3 429 January 17, 2023
corporation is determined by, in general,
applying the same look-through rules that
apply in determining whether a QIE is do-
mestically controlled. Thus, for example,
stock of the domestic corporation held by
look-through persons would be treated
as held directly or indirectly by the look-
through person’s shareholders, partners,
or beneficiaries for this purpose.
D. Special Ownership Rules in Section
897(h)(4)(E)
The proposed regulations incorpo-
rate the special ownership rules in sec-
tion 897(h)(4)(E)(i) and 897(h)(4)(E)
(ii). These rules treat a person that holds
stock in a QIE as a non-look-through per-
son to the extent required to ensure the
treatment of such person as a foreign or
United States person as prescribed un-
der section 897(h)(4)(E)(i) and 897(h)(4)
(E)(ii). Thus, a person holding less than
five percent of U.S. publicly traded QIE
stock that section 897(h)(4)(E)(i) deems
to be a United States person (absent actu-
al knowledge by the QIE that such person
is not a United States person) is treated
under the proposed regulations as a non-
look-through person with respect to that
stock. Proposed §1.897-1(c)(3)(iii)(A).
Stock of a QIE held by a public QIE that,
under section 897(h)(4)(E)(ii), is treated
as held by a foreign or United States per-
son based on whether the public QIE is a
domestically controlled QIE is similarly
treated under the proposed regulations as
held by a non-look-through person (even
though the general definition of a non-
look-through person excludes QIEs). Pro-
posed §1.897-1(c)(3)(iii)(C).
For QIE stock held by a non-public
QIE, whose ownership should be more
readily ascertainable, the general look-
through rules in the proposed regulations
are consistent with the approach in section
897(h)(4)(E)(iii) that looks to the propor-
tionate ownership of the non-public QIE
to determine the QIE stock held by United
States persons.
The rule in proposed §1.897-1(c)(3)(iii)
(A) regarding U.S. publicly traded QIE
stock applies notwithstanding any other
provision under proposed §1.897-1(c)(3)
(rules regarding domestically controlled
QIEs). Thus, for example, a QFPF that
holds less than five percent of U.S. public-
ly traded QIE stock at all times during the
testing period (and absent actual knowl-
edge that the person is not a United States
person), is treated as a United States
person that is a non-look through person
with respect to that stock even though the
QFPF would otherwise be treated as a for-
eign person under proposed §1.897-1(c)
(3)(iv)(A). The Treasury Department and
the IRS have determined that this priority
rule is appropriate due to the administra-
tive and compliance difficulties that could
result in determining whether other rules
would, absent the application of the U.S
publicly traded QIE rule, treat less-than-
five-percent holders of U.S. publicly trad-
ed QIE stock as foreign persons.
IV. QIE Stock Held Directly or Indirectly
Under Section 897(h)(4)(C)
As noted in the Background section of
this preamble, section 897(h)(4)(C) pro-
vides that the term “foreign ownership
percentage” means the percentage of QIE
stock that was held (directly or indirect-
ly) by foreign persons at the time during
the testing period during which the direct
and indirect ownership of stock by for-
eign persons was greatest. The Treasury
Department and the IRS have concluded
that the determination of QIE stock held
“directly or indirectly” in section 897(h)
(4)(C) should be interpreted in the same
manner as such phrase is interpreted in
the definition of a domestically controlled
QIE in section 897(h)(4)(2). Accordingly,
proposed §1.897-1(c)(4) provides that for
purposes of calculating the foreign owner-
ship percentage, the determination of the
QIE stock that was held directly or indi-
rectly by foreign persons is made under
the rules that apply for purposes of de-
termining whether a QIE is domestically
controlled.
V. Other Rules and Modifications
The proposed regulations treat interna-
tional organizations (as defined in section
7701(18)) as foreign persons for purposes
of determining whether a QIE is domesti-
cally controlled. Proposed §1.897-1(c)(3)
(iv)(B). Notwithstanding that international
organizations are generally not treated as
foreign persons for section 897 purposes
under §1.897-9T(e), the Treasury Depart-
ment and the IRS believe that, for reasons
similar to those described in part II of this
Explanation of Provisions regarding QF-
PFs and QCEs, and because international
organizations would not otherwise consti-
tute United States persons under section
7701(a)(30), international organizations
should be treated as foreign persons in ap-
plying the DC-QIE exception.
The proposed regulations do not retain
the reference to §1.857-8 in §1.897-1(c)
(2)(i), which is not necessary given the
rules provided in the proposed regulations
for determining whether stock of a QIE
is considered to be held directly or indi-
rectly. The look-through rules set forth in
proposed §1.897-1(c)(3) apply only with
respect to determining whether a QIE is
domestically controlled under section
897(h)(4)(B) and do not apply with re-
spect to any other provision, including
section 897(c)(3).
Finally, the proposed regulations re-
vise the definition of domestically con-
trolled REIT in §1.897-1(c)(2)(i) to reflect
amendments to section 897(h) made after
those regulations were issued that extend-
ed the application of section 897(h) to
certain RICs. Accordingly, the proposed
regulations replace the definition of “do-
mestically controlled REIT” in §1.897-
1(c)(2)(i) by defining a “domestically con-
trolled QIE” in proposed §1.897-1(c)(3).
Applicability Dates
The regulations under section 892 are
proposed to apply to taxable years ending
on or after December 28, 2022. Taxpay-
ers may rely on the proposed regulations
under section 892 until the date of publi-
cation of the Treasury decision adopting
the regulations as final in the Federal
Register.
Subject to a special rule for entity clas-
sification elections, the regulations under
section 897 are proposed to apply to trans-
actions occurring on or after the date these
regulations are published as final regula-
tions in the Federal Register; however,
rules applicable for determining whether
a QIE is domestically controlled may be
relevant for determining QIE ownership
during periods before the date these reg-
ulations are published as final regulations
in the Federal Register to the extent the
testing period related to a transaction that

January 17, 2023 430 Bulletin No. 2023–3
occurs after the date these regulations are
published as final regulations in the Fed-
eral Register includes periods before that
date. The IRS may challenge positions
contrary to proposed §1.897-1(c)(3) and
(4) before the issuance of final regulations
relating to the topics addressed in those
proposed rules.
Special Analyses
I. Regulatory Planning and Review –
Economic Analysis
The Administrator of the Office of In-
formation and Regulatory Affairs (OIRA),
Office of Management and Budget, has
determined that this proposed rule is not a
significant regulatory action, as that term
is defined in section 3(f) of Executive Or-
der 12866. Therefore, OIRA has not re-
viewed this proposed rule pursuant to sec-
tion 6(a)(3)(A) of Executive Order 12866
and the April 11, 2018, Memorandum of
Agreement between the Treasury Depart-
ment and the Office of Management and
Budget (“OMB”).
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(44 U.S.C. 3501–3520) generally requires
that a Federal agency obtain the approval
of the OMB before collecting information
from the public, whether such collection
of information is mandatory, voluntary,
or required to obtain or retain a benefit.
There are no additional information col-
lection requirements associated with these
proposed regulations.
III. Regulatory Flexibility Act
When an agency issues a rulemaking
proposal, the Regulatory Flexibility Act
(5 U.S.C. chapter 6) (“RFA”) requires the
agency “to prepare and make available
for public comment an initial regulatory
flexibility analysis” that will “describe the
impact of the proposed rule on small en-
tities.” See 5 U.S.C. 603(a). Section 605
of the RFA provides an exception to this
requirement if the agency certifies that the
proposed rulemaking will not have a sig-
nificant economic impact on a substantial
number of small entities. A small entity
is defined as a small business, small non-
profit organization, or small governmental
jurisdiction. See 5 U.S.C. 601(3) through
(6).
The Treasury Department and the IRS
do not expect that proposed §1.892-5(b)
(1) will have a significant economic im-
pact on a substantial number of small
entities within the meaning of sections
601(3) through 601(6) of the RFA. Pro-
posed §1.892-5(b)(1) provides guidance
regarding whether certain foreign govern-
ment-controlled entities may be treated as
controlled commercial entities within the
meaning of section 892. Proposed §1.892-
5(b)(1) does not impose any new costs on
these entities. Consequently, the Treasury
Department and the IRS do not expect that
proposed §1.892-5(b)(1) will have a sig-
nificant economic impact on a substantial
number of small entities.
Because there is a possibility, howev-
er, of significant economic impact on a
substantial number of small entities as a
result of the rules relating to the treatment
of QFPFs and QCEs for purposes of the
DC-QIE exception and the definition of
a domestically controlled QIE, an initial
regulatory flexibility analysis for the pro-
posed regulations is provided below. The
Treasury Department and the IRS request
comments from the public on the number
of small entities that may be impacted and
whether that impact will be economically
significant.
A. Reasons Why Action is Being
Considered
As discussed in part II of the Explana-
tion of Provisions, there may be some un-
certainty as to whether QFPFs and QCEs,
which are treated as not “nonresident alien
individuals or foreign corporations” for
purposes of section 897, are treated as for-
eign persons for purposes of the DC-QIE
exception. Treating QFPFs and QCEs as
non-foreign investors for purposes of the
DC-QIE exception has the potential to
expand the effect of section 897(l) to for-
eign investors who are neither QFPFs nor
QCEs (by exempting such investors from
tax under section 897(a). These regula-
tions eliminate any uncertainty that tax-
payers may have as to the proper classi-
fication of QFPFs and QCEs for purposes
of the DC-QIE exception by providing
that QFPFs and QCEs are treated as for-
eign persons for purposes of the DC-QIE
exception.
As discussed in part III of the Expla-
nation of Provisions, there is uncertainty
regarding the determination of whether
stock of a QIE is held “directly or indi-
rectly” by foreign persons for purposes of
the DC-QIE exception. These regulations
provide rules to clarify this determination.
B. Objectives of and Legal Basis for the
Proposed Regulations
These regulations clarify the treatment
of QFPFs and QCEs for two purposes:
the first is for purposes of the section
892 exemption from taxation for foreign
governments, and the second is the DC-
QIE exception. The rules are intended to
ensure the following: (1) foreign govern-
ment-controlled QFPFs (and QCEs) that
qualify for the exemption under section
897(l) (and certain other foreign govern-
ment entities) are not treated as controlled
commercial entities for section 892 pur-
poses by reason of qualifying as a USR-
PHC, and (2) the exemption under section
897(l) does not inappropriately inure to
non-QFPFs or non-QCEs by treating QF-
PFs and QCEs as domestic investors for
purposes of the DC-QIE exception. These
regulations also clarify whether stock of
a QIE is held “directly or indirectly” by
foreign persons in determining whether
the DC-QIE exception applies. The legal
basis for these regulations is contained in
sections 892(c), 897(l) and 7805.
C. Small Entities to Which These
Regulations Will Apply
The regulation relating to the treat-
ment of QFPFs and QCEs for purposes
of the DC-QIE exception affects other
foreign investors in QIEs. The regulation
defining a domestically controlled QIE
also affects foreign investors in QIEs.
Because an estimate of the number of
small businesses affected is not currently
feasible, this initial regulatory flexibility
analysis assumes that a substantial num-
ber of small businesses will be affected.
The Treasury Department and the IRS
do not expect that these regulations will
affect a substantial number of small non-
profit organizations or small governmen-
tal jurisdictions.

Bulletin No. 2023–3 431 January 17, 2023
D. Projected Reporting, Recordkeeping,
and Other Compliance Requirements
These regulations do not impose addi-
tional reporting or recordkeeping obliga-
tions.
E. Duplicate, Overlapping, or Relevant
Federal Rules
The Treasury Department and the IRS
are not aware of any Federal rules that
duplicate, overlap, or conflict with these
regulations.
F. Alternatives Considered
Section 897(a) applies to nonresident
alien individuals and foreign corpora-
tions, and neither the statute nor prior
regulations establish different rules for
small entities. Moreover, the DC-QIE
exception is measured based on the own-
ership interests in a QIE, regardless of
the size of the investor. Because the DC-
QIE exception takes into account all in-
vestors, regardless of size, the Treasury
Department and the IRS have concluded
that the DC-QIE exception should apply
uniformly to large and small business
entities. The Treasury Department and
the IRS did not consider any significant
alternative to the rule that provides for
the treatment of QFPFs and QCEs under
the DC-QIE exception, or for the rule re-
lating to QFPFs, QCEs, or certain other
foreign government entities under sec-
tion 892.
The Treasury Department and the IRS
did consider alternatives for the rule that
defines a domestically controlled QIE,
including one alternative that generally
would treat all domestic C corporations as
non-look through persons (that is, without
the special rule for foreign-owned domes-
tic corporations discussed in part III.C of
the Explanation of Provisions section of
this preamble). However, the Treasury
Department and the IRS concluded that
the look-through approach in the pro-
posed rules best serves the purposes of
the DC-QIE exception while also taking
into account “indirect” ownership of QIE
stock by foreign persons in determining
whether a QIE is domestically controlled
under section 897(h)(4)(B). As noted in
part III.C of the Explanation of Provisions
section of this preamble, the purpose of
the special rule for foreign-owned domes-
tic corporations is to prevent the use of
intermediary domestic C corporations by
foreign investors to create domestically
controlled QIEs that could exempt from
the application of section 897 QIE stock
held directly by those or other foreign in-
vestors.
The proposed rules address potential
uncertainty under current law and do not
impose an additional economic burden.
Consequently, the rules represent the ap-
proach with the least economic impact.
IV. Section 7805(f)
Pursuant to section 7805(f) of the
Code, the proposed regulations have been
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administra-
tion for comment on their impact on small
businesses.
V. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 requires that agencies
assess anticipated costs and benefits and
take certain other actions before issuing a
final rule that includes any Federal man-
date that may result in expenditures in any
one year by a State, local, or tribal gov-
ernment in the aggregate, or by the pri-
vate sector, of $100 million in 1995 dol-
lars, updated annually for inflation. The
proposed regulations do not include any
Federal mandate that may result in expen-
ditures by State, local, or tribal govern-
ments, or by the private sector in excess of
that threshold.
VI. Executive Order 13132: Federalism
Executive Order 13132 (entitled
“Federalism”) prohibits an agency from
publishing any rule that has federalism
implications if the rule either imposes sub-
stantial, direct compliance costs on State
and local governments, and is not required
by statute, or preempts State law, unless
the agency meets the consultation and
funding requirements of section 6 of the
Executive order. The proposed regulations
do not have federalism implications, do
not impose substantial direct compliance
costs on State and local governments, and
do not preempt State law within the mean-
ing of the Executive order.
Comments and Requests for Public
Hearing
Before the proposed amendments are
adopted as final regulations, consideration
will be given to any comments that are
submitted timely to the IRS as prescribed
in this preamble under the “ADDRESS-
ES” section. The Treasury Department
and the IRS request comments on all as-
pects of the proposed regulations, includ-
ing the definitions of look-through person
and non-look-through person, and wheth-
er special treatment for particular entities,
such as cooperatives, may be warranted.
Any electronic and paper comments sub-
mitted will be made available at www.reg-
ulations.gov or upon request.
A public hearing will be scheduled if
requested in writing by any person who
timely submits electronic or written com-
ments. Requests for a public hearing are
also encouraged to be made electronically.
If a public hearing is scheduled, notice of
the date and time for the public hearing
will be published in the Federal Regis-
ter. Announcement 2020-4, 2020-17 IRB
1, provides that until further notice, pub-
lic hearings conducted by the IRS will be
held telephonically. Any telephonic hear-
ing will be made accessible to people with
disabilities.
Statement of Availability of IRS
Documents
IRS Revenue Procedures, Revenue
Rulings, Notices, and other guidance cit-
ed in this document are published in the
Internal Revenue Bulletin or Cumulative
Bulletin and are available from the Su-
perintendent of Documents, U.S. Govern-
ment Publishing Office, Washington, DC
20402, or by visiting the IRS website at
www.irs.gov.
Drafting Information
The principal authors of these regula-
tions are Arielle Borsos and Joel Deuth
of the Office of Associate Chief Counsel
(International). However, other personnel
from the Treasury Department and the
IRS participated in their development.

January 17, 2023 432 Bulletin No. 2023–3
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
Proposed Amendments to the
Regulations
Accordingly, the Treasury Department
and the IRS propose to amend 26 CFR
part 1 as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry in
numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.897-1 also issued under 26
U.S.C. 897(l)(3).
* * * * *
Par. 2. Section 1.892-5, as proposed to
be amended in 76 FR 68119 (November
3, 2011), is further amended by revising
paragraphs (b) through (d) to read as fol-
lows:
§1.892-5 Controlled commercial entity.
* * * * *
(b) Entities treated as engaged in com-
mercial activity—(1) United States real
property holding corporations—(i) Gen-
eral rule. Except as provided in paragraph
(b)(1)(ii) of this section, a United States
real property holding corporation as de-
fined in section 897(c)(2), which may
include a foreign corporation, is treated
as engaged in commercial activity and,
therefore, is a controlled commercial en-
tity if the requirements of §1.892-5T(a)(1)
or (2) are satisfied.
(ii) Exceptions. Paragraph (b)(1)(i) of
this section does not apply to the follow-
ing—
(A) A foreign corporation that is a qual-
ified holder under §1.897(l)-1(d); or
(B) A corporation that is a United States
real property holding corporation, as de-
fined in section 897(c)(2), solely by reason
of its direct or indirect ownership interest in
one or more other corporations that are not
controlled by the foreign government (as
determined under §1.892-5T(a)).
(iii) Applicability date. This paragraph
(b)(1) applies to taxable years ending on
or after December 28, 2022. For rules that
apply to taxable years ending before De-
cember 28, 2022, see §1.892-5T(b)(1), as
contained in 26 CFR part 1, revised as of
April 1, 2022.
(b)(2) through (d)(4). For further guid-
ance, see §1.892-5T(b)(2) through (d)(4).
* * * * *
Par. 3. Section 1.892-5T is amended by
revising paragraph (b)(1) to read as fol-
lows:
§1.892-5T Controlled commercial entity
(temporary regulations).
* * * * *
(b) * * *
(1)(i) For further guidance, see §1.892-
5(b)(1)(i).
(ii) For further guidance, see §1.892-
5(b)(1)(ii).
* * * * *
Par 4. Section 1.897-1 is amended by:
a. Revising paragraph (a)(2);
b. Removing and reserving paragraph
(c)(2)(i);
c. Adding paragraphs (c)(3) and (4);
d. Adding paragraph (k);
e. Removing the language “or section
897(k) and §1.897-4” in the second sen-
tence and adding two sentences to the end
of paragraph (l); and
f. Adding paragraph (n).
The revision and additions read as fol-
lows:
§1.897-1 Taxation of foreign investment
in United States real property interests,
definition of terms.
(a) * * *
(2) Effective date. Except as otherwise
provided in this paragraph (a)(2), the reg-
ulations set forth in §§1.897-1 through
1.897-4 are effective for transactions oc-
curring after June 18, 1980. Paragraphs
(c)(3) and (4), (k), and (l) of this section
apply to transactions occurring on or after
[the date these regulations are published
as final regulations in the Federal Reg-
ister] and transactions occurring before
[the date these regulations are published
as final regulations in the Federal Reg-
ister] resulting from an entity classifica-
tion election under §301.7701-3 of this
chapter that was effective on or before
[the date these regulations are published
as final regulations in the Federal Regis-
ter] but was filed on or after [DATE OF
PUBLICATION OF FINAL RULE]. For
transactions occurring before [DATE OF
PUBLICATION OF FINAL RULE], see
paragraphs (c)(2)(i) and (l) of this section
and §1.897-9T(c) as in effect and con-
tained in 26 CFR part 1, as revised April
1, 2022.
* * * * *
(c) * * *
(3) Domestically controlled QIE—(i)
In general. An interest in a domestically
controlled QIE is not a United States real
property interest. A QIE is domestically
controlled if foreign persons hold direct-
ly or indirectly less than 50 percent of the
fair market value of the QIE’s outstanding
stock at all times during the testing period.
For rules that apply to distributions by a
QIE (including a domestically controlled
QIE) attributable to gain from the sale or
exchange of a United States real property
interest, see section 897(h)(1).
(ii) Look-through approach for deter-
mining QIE stock held directly or indirect-
ly. The following rules apply for purposes
of determining whether a QIE is domesti-
cally controlled:
(A) Non-look-through persons consid-
ered holders. Only a non-look-through
person is considered to hold directly or
indirectly stock of the QIE.
(B) Attribution from look-through
persons. Stock of a QIE that, but for
the application of paragraph (c)(3)(ii)
(A) of this section, would be considered
held by a look-through person, is instead
considered held directly or indirectly by
the look-through person’s shareholders,
partners, or beneficiaries, as applicable,
that are non-look-through persons based
on the non-look-through person’s pro-
portionate interest in the look-through
person. To the extent the shareholders,
partners, or beneficiaries, as applicable,
of the look-through person are also look-
through persons, this paragraph applies
to such shareholders, partners, or bene-
ficiaries as if they held, but for the appli-
cation of paragraph (c)(3)(ii)(A) of this
section, their proportionate share of the
stock of the QIE.
(C) No attribution from non-look-
through persons. Stock of a QIE consid-
ered held directly or indirectly by a non-
look-through person is not considered

Bulletin No. 2023–3 433 January 17, 2023
held directly or indirectly by any other
person.
(iii) Special rules for applying look-
through approach—(A) Certain holders of
U.S. publicly traded QIE stock. Notwith-
standing any other provision of paragraph
(c)(3) of this section, a person holding less
than five percent of U.S. publicly traded
QIE stock at all times during the testing
period, determined without regard to para-
graph (c)(3)(ii)(A) of this section, is treated
as a United States person that is a non-look-
through person with respect to that stock,
unless the QIE has actual knowledge that
such person is not a United States person.
For an example illustrating the application
of this paragraph (c)(3)(iii)(A), see para-
graph (c)(3)(vi)(C) of this section.
(B) Certain foreign-owned domestic
C corporations. A non-public domestic C
corporation is treated as a look-through-
person if it is a foreign-owned domestic
corporation. For an example illustrating
the application of this paragraph (c)(3)
(iii)(B), see paragraph (c)(3)(vi)(B) of this
section.
(C) Public QIEs. A public QIE is treat-
ed as a foreign person that is a non-look-
through person. The preceding sentence
does not apply, however, if the public QIE
is a domestically controlled QIE as de-
fined in paragraph (c)(3) of this section,
determined after the application of this
paragraph (c)(3)(iii)(C), in which case the
public QIE is treated as a United States
person that is a non-look-through person.
For an example illustrating the application
of this paragraph (c)(3)(iii)(C), see para-
graph (c)(3)(vi)(C) of this section (Exam-
ple 3).
(iv) Treatment of certain persons as
foreign persons—(A) Qualified foreign
pension fund or qualified controlled enti-
ty. For purposes of paragraph (c)(3) of this
section, a qualified foreign pension fund
(including any part of a qualified foreign
pension fund) or a qualified controlled en-
tity is treated as a foreign person, irrespec-
tive of whether the fund or entity qualifies
for the exception from section 897 provid-
ed in §1.897(l)-1(b)(1). For an example il-
lustrating the application of this paragraph
(c)(3)(iv)(A), see paragraph (c)(3)(vi)(A)
of this section (Example 1). See also para-
graph (k) of this section for a definition of
foreign person that applies for purposes of
sections 897, 1445, and 6039C.
(B) International organization. For
purposes of paragraph (c)(3) of this sec-
tion, an international organization (as
defined in section 7701(a)(18)) is treated
as a foreign person. See §1.897-9T(e) re-
garding the treatment of international or-
ganizations under sections 897, 1445, and
6039C, which provides that an interna-
tional organization is not a foreign person
with respect to United States real proper-
ty interests, and is not subject to sections
897, 1445, and 6039C on the disposition
of a United States real property interest.
(v) Definitions. The following defini-
tions apply for purposes of paragraph (c)
(3) of this section:
(A) A domestic C corporation is any
domestic corporation other than a reg-
ulated investment company (“RIC”) as
defined in section 851, a real estate invest-
ment trust (“REIT”) as defined in section
856, or an S corporation as defined in sec-
tion 1361.
(B) A foreign-owned domestic corpo-
ration is any non-public domestic C cor-
poration if foreign persons hold directly
or indirectly 25 percent or more of the
fair market value of the non-public do-
mestic C corporation’s outstanding stock.
For purposes of determining whether a
non-public domestic C corporation is a
foreign-owned domestic corporation, the
rules of paragraphs (c)(3)(ii)(A) through
(C) and (c)(3)(iii)(C) of this section apply
with the following modifications—
(1) In paragraphs (c)(3)(ii)(A) through
(C) of this section, treating references to
“QIE” as references to “non-public do-
mestic C corporation”; and
(2) A non-public domestic C corpo-
ration that is a foreign-owned domestic
corporation under paragraph (c)(3)(v)(B)
of this section is treated as a look-through
person for purposes of determining
whether any other non-public domestic C
corporation is a foreign-owned domestic
corporation.
(C) A look-through person is any per-
son other than a non-look-through person.
Thus, for example, a look-through person
includes a RIC, a REIT, an S corporation,
a non-publicly traded partnership (do-
mestic or foreign), and a trust (domestic
or foreign, whether or not the trust is de-
scribed in sections 671 through 679). For
a special rule that treats certain non-public
domestic C corporations as look-through
persons, see paragraph (c)(3)(iii)(B) of
this section.
(D) A non-look-through person is an
individual, a domestic C corporation (oth-
er than a foreign-owned domestic corpo-
ration), a nontaxable holder, a foreign cor-
poration (including a foreign government
pursuant to section 892(a)(3)), a publicly
traded partnership (domestic or foreign),
an estate (domestic or foreign), an interna-
tional organization (as defined in section
7701(a)(18)), a qualified foreign pension
fund (including any part of a qualified
foreign pension fund), or a qualified con-
trolled entity. For special rules that treat
certain holders of QIE stock as non-look-
through persons, see paragraphs (c)(3)(iii)
(A) and (C) of this section.
(E) A non-public domestic C corpora-
tion is any domestic C corporation that is
not a public domestic C corporation.
(F) A nontaxable holder is—
(1) Any organization that is exempt
from taxation by reason of section 501(a);
(2) The United States, any State (as de-
fined in section 7701(a)(10)), any territory
of the United States, or a political subdi-
vision of any State or any territory of the
United States; or
(3) Any Indian tribal government (as
defined in section 7701(a)(40)) or its sub-
division (determined in accordance with
section 7871(d)).
(G) A public domestic C corporation
is a domestic C corporation any class of
stock of which is regularly traded on an
established securities market within the
meaning of §§1.897-1(m) and 1.897-
9T(d).
(H) A public QIE is a QIE any class
of stock of which is regularly traded on
an established securities market within
the meaning of §§1.897-1(m) and 1.897-
9T(d), or that is a RIC that issues redeem-
able securities within the meaning of sec-
tion 2 of the Investment Company Act of
1940.
(I) A publicly traded partnership is a
partnership any class of interest of which
is regularly traded on an established se-
curities market within the meaning of
§§1.897-1(m) and 1.897-9T(d).
(J) A qualified controlled entity has the
meaning set forth in §1.897(l)-1(e)(9).
(K) A qualified foreign pension fund
has the meaning set forth in §1.897(l)-
1(c).

January 17, 2023 434 Bulletin No. 2023–3
(L) A QIE is a qualified investment en-
tity, as defined in section 897(h)(4)(A).
(M) Testing period has the meaning set
forth in section 897(h)(4)(D).
(N) U.S. publicly traded QIE stock is
any class of stock of a QIE that is regularly
traded on an established securities market
within the meaning of §§1.897-1(m) and
1.897-9T(d), but only if the established
securities market is in the United States.
(vi) Examples. The rules of this para-
graph (c)(3) are illustrated by the follow-
ing examples. It is presumed that each
entity has a single class of stock or other
ownership interests, that the ownership
described existed throughout the relevant
testing period and that, unless otherwise
stated, a QIE is not a public QIE as de-
fined under paragraph (c)(3)(v)(H) of this
section.
(A) Example 1: QIE stock held by public domes-
tic C corporation—(1) Facts. USR is a REIT, 51
percent of the stock of which is held by X, a public
domestic C corporation as defined in paragraph (c)
(3)(v)(G) of this section, and 49 percent of the stock
of which is held by nonresident alien individuals,
which are foreign persons as defined in paragraph
(k) of this section.
(2) Analysis. Under paragraph (c)(3)(v)(L) of
this section, USR is a QIE. X is a non-look-through
person as defined under paragraph (c)(3)(v)(D) of
this section. Thus, under paragraph (c)(3)(ii)(A) of
this section X is considered as holding directly or
indirectly stock of USR for purposes of determining
whether USR is a domestically controlled QIE. Un-
der paragraph (c)(3)(ii)(C) of this section, the USR
stock held directly or indirectly by X is not consid-
ered held directly or indirectly by any other person,
including the shareholders of X. Because X is not
a foreign person as defined in paragraph (k) of this
section and holds directly or indirectly 51 percent of
the single class of outstanding stock of USR, foreign
persons hold directly or indirectly less than 50 per-
cent of the fair market value of the stock of USR,
and USR therefore is a domestically controlled QIE
under paragraph (c)(3)(i) of this section.
(3) Alternative facts: QIE stock held by domestic
partnership. The facts are the same as in paragraph
(c)(3)(vi)(A)(1) of this section (Example 1), except
that, instead of being a public domestic C corpora-
tion, X is a domestic partnership that is not a pub-
licly traded partnership as defined in paragraph (c)
(3)(v)(I) of this section. In addition, FC1, a foreign
corporation, holds a 50 percent interest in X, and the
remaining interests in X are held by U.S. citizens. X
is a look-through person as defined in paragraph (c)
(3)(v)(C) of this section and, therefore, under para-
graph (c)(3)(ii)(A) of this section is not considered
as holding directly or indirectly stock of USR for
purposes of determining whether USR is a domes-
tically controlled QIE. Under paragraph (c)(3)(ii)(B)
of this section, the stock of USR that, but for para-
graph (c)(3)(ii)(A) of this section, is considered held
by X, a look-through person, is instead considered
held proportionately by X’s partners that are non-
look-through persons. Accordingly, because FC1 and
the U.S. citizen partners in X are non-look-through
persons as defined in paragraph (c)(3)(v)(D) of this
section, 25.5 percent of the stock of USR is consid-
ered as held directly or indirectly by FC1 (50% x
51%), a foreign person as defined in paragraph (k)
of this section, and 25.5 percent (in the aggregate)
of the stock of USR is considered as held directly
or indirectly by the U.S. citizen partners in X (50%
x 51%), who are not foreign persons as defined in
paragraph (k) of this section. Foreign persons there-
fore hold directly or indirectly 74.5 percent of the
stock of USR (49 percent of the stock of USR held
directly or indirectly by nonresident alien individu-
als, who are non-look-through persons as defined in
paragraph (c)(3)(v)(D) of this section, plus the 25.5
percent held directly or indirectly by FC1), and USR
is not a domestically controlled QIE under paragraph
(c)(3)(i) of this section. The result described in this
paragraph (c)(3)(vi)(A)(3) would be the same if, in-
stead of being a domestic partnership, X were a for-
eign partnership.
(4) Alternative facts: QIE stock held by a quali-
fied foreign pension fund. The facts are the same as
in paragraph (c)(3)(vi)(A)(3) of this section (Exam-
ple 1), except that, instead of being a foreign cor-
poration, FC1 is a qualified foreign pension fund.
The analysis is the same as in paragraph (c)(3)(vi)
(A)(3) of this section regarding the treatment of X
as a look-through person as defined in paragraph
(c)(3)(v)(C) of this section. FC1, a foreign person
under paragraph (c)(3)(iv)(A) of this section, is a
non-look-through person as defined in paragraph
(c)(3)(v)(D) of this section. Because FC1 and the
U.S. citizen partners in X are non-look-through per-
sons, 25.5 percent of the stock of USR is considered
as held directly or indirectly by FC1 (50% x 51%),
and 25.5 percent (in the aggregate) of the stock of
USR is considered as held directly or indirectly by
the U.S. citizen partners in X (50% x 51%). For-
eign persons therefore hold directly or indirectly
74.5 percent of the stock of USR (49 percent of the
stock of USR held directly or indirectly by nonresi-
dent alien individuals, who are foreign persons and
non-look-through persons as defined in paragraph
(c)(3)(v)(D) of this section, plus the 25.5 percent
held directly or indirectly by FC1), and USR is not
a domestically controlled QIE under paragraph (c)
(3)(i) of this section.
(B) Example 2: QIE stock held by non-public do-
mestic C corporation that is a foreign-owned domes-
tic corporation—(1) Facts. USR is a REIT, 51 per-
cent of the stock of which is held by X, a non-public
domestic C corporation as defined in paragraph (c)
(3)(v)(E) of this section, and 49 percent of the stock
of which is held by nonresident alien individuals,
which are foreign persons as defined in paragraph
(k) of this section. FC1, a foreign corporation, holds
20 percent of the stock of X, and Y, a nonresident
alien individual, holds 5 percent of the stock of X.
The remaining 75 percent of the stock of X is held
by U.S. citizens.
(2) Analysis. Under paragraph (c)(3)(v)(L) of
this section, USR is a QIE. X is a non-look-through
person as defined under paragraph (c)(3)(v)(D) of
this section, unless paragraph (c)(3)(iii)(B) of this
section applies to treat X as a look-through person
because X is a foreign-owned domestic corpora-
tion. FC1, Y, and the U.S. citizen shareholders of
X are non-look-through persons as defined under
paragraph (c)(3)(v)(D) of this section. Under para-
graph (c)(3)(v)(B)(1) of this section, FC1, Y, and
the U.S. citizen shareholders are all considered as
holding directly or indirectly stock of X for pur-
poses of determining whether X is a foreign-owned
domestic corporation. Under paragraph (c)(3)(v)
(B)(1) of this section, the stock held directly or in-
directly by FC1, Y, and the U.S. citizen sharehold-
ers is not considered held directly or indirectly by
any other person. Because FC1 and Y, both foreign
persons as defined in paragraph (k) of this section,
hold directly or indirectly 20 percent and 5 percent
of the stock of X, respectively, foreign persons hold
directly or indirectly 25 percent of the fair market
value of the stock of X, and X is a foreign-owned
domestic corporation under paragraph (c)(3)(v)
(B) of this section. Accordingly, under paragraph
(c)(3)(iii)(B) of this section, X is a look-through
person as defined in paragraph (c)(3)(v)(C) of this
section and, therefore, under paragraph (c)(3)(ii)
(A) of this section is not considered as holding di-
rectly or indirectly stock of USR for purposes of
determining whether USR is a domestically con-
trolled QIE. Under paragraph (c)(3)(ii)(B) of this
section, the stock of USR that, but for paragraph
(c)(3)(ii)(A) of this section, is considered held by
X, a look-through person, is instead considered
held proportionately by X’s shareholders that are
non-look-through persons. Accordingly, because
FC1, Y, and the U.S. citizen shareholders of X
are non-look-through persons, 10.2 percent of the
stock of USR is considered as held directly or in-
directly by FC1 (20% x 51%), 2.55 percent of the
stock of USR is considered as held directly or in-
directly by Y (50% x 51%), and 38.25 percent (in
the aggregate) of the stock of USR is considered
as held directly or indirectly by the U.S. citizen
shareholders (75% x 51%). Foreign persons there-
fore hold directly or indirectly 61.75 percent of the
stock of USR (49 percent of the stock of USR held
directly by nonresident alien individuals, who are
foreign persons and non-look-through persons as
defined in paragraph (c)(3)(v)(D) of this section,
plus the 10.2 percent and 2.55 percent held indi-
rectly by FC1 and Y, respectively), and USR is not
a domestically controlled QIE under paragraph (c)
(3)(i) of this section. The result described in this
paragraph (c)(3)(vi)(B)(2) would be different if Y
were a U.S. citizen instead of a nonresident alien
individual, in which case X would be a non-look-
through person because it is not a foreign-owned
domestic corporation under paragraph (c)(3)(v)(B)
of this section and, consequently, USR would be
a domestically controlled QIE under paragraph (c)
(3)(i) of this section.
(C) Example 3: QIE stock held by public QIE
that is a domestically controlled QIE—(1) Facts.
USR2 is a REIT, 51 percent of the stock of which
is held by USR1, a REIT that is a public QIE as de-
fined in paragraph (c)(3)(v)(H) of this section, and
49 percent of the stock of which is held by nonresi-
dent alien individuals, which are foreign persons as
defined in paragraph (k) of this section. The stock of
USR1 is U.S. publicly traded QIE stock as defined in
paragraph (c)(3)(v)(N) of this section. FC1 and FC2,

Bulletin No. 2023–3 435 January 17, 2023
both foreign corporations, each hold 20 percent of
the stock of USR1. The remaining 60 percent of the
stock of USR1 is held by persons that each hold less
than 5 percent of the stock of USR1 and with respect
to which USR1 has no actual knowledge that such
person is not a United States person (“USR1 small
public shareholders”).
(2) Analysis. Under paragraph (c)(3)(v)(L)
of this section, USR2 and USR1 are QIEs. Under
paragraph (c)(3)(iii)(A) of this section, each of the
USR1 small public shareholders is treated as a Unit-
ed States person that is a non-look-through person.
Consequently, under paragraph (c)(3)(i) of this sec-
tion USR1 is a domestically controlled QIE because
FC1 and FC2, each a foreign person as defined in
paragraph (k) of this section, together hold directly
or indirectly only 40 percent of the stock of USR1
and, thus, foreign persons hold directly or indirectly
less than 50 percent of the fair market value of the
stock of USR1. In addition, the USR2 stock held
by USR1 is treated as held directly or indirectly by
a United States person that is a non-look-through
person under paragraph (c)(3)(iii)(C) of this sec-
tion. Because USR1 holds directly or indirectly 51
percent of the stock of USR2, foreign persons hold
directly or indirectly less than 50 percent of the fair
market value of the stock of USR2, and USR2 is a
domestically controlled QIE under paragraph (c)(3)
(i) of this section.
(3) Alternative facts: QIE stock held by public
QIE that is not a domestically controlled QIE. The
facts are the same as in paragraph (c)(3)(vi)(C)(1)
of this section (Example 3), except that 25 percent
of the stock of USR1 is held by each of FC1 and
FC2, with the remaining 50 percent of the stock of
USR1 held by the USR1 small public shareholders.
Regardless of the treatment of the USR1 small pub-
lic shareholders, USR1 is not a domestically con-
trolled QIE under paragraph (c)(3)(i) of this section
because FC1 and FC2, each a foreign person as
defined in paragraph (k) of this section, together
hold directly or indirectly 50 percent of the stock
of USR1 and, thus, foreign persons do not hold di-
rectly or indirectly less than 50 percent of the fair
market value of the stock of USR1. In addition, the
USR2 stock held by USR1 is treated as held by a
foreign person that is a non-look-through person
under paragraph (c)(3)(iii)(C) of this section. Be-
cause USR1 holds directly or indirectly 51 percent
of the stock of USR2, foreign persons do not hold
directly or indirectly less than 50 percent of the fair
market value of the stock of USR2, and USR2 is not
a domestically controlled QIE under paragraph (c)
(3)(i) of this section.
(D) Example 4: QIE stock held by non-public
QIE—(1) Facts. USR2 is a REIT, 49 percent of the
stock of which is held by nonresident alien individ-
uals, and 51 percent of the stock of which is held
by USR1, a REIT. U.S. citizens hold 50 percent of
the stock of USR1. The remaining 50 percent of the
stock of USR1 is held by PRS, a domestic partner-
ship, 50 percent of the interests in which are held by
DC, a public domestic C corporation as defined in
paragraph (c)(3)(v)(G) of this section, and 50 percent
of the interests in which are held by nonresident alien
individuals.
(2) Analysis. Under paragraph (c)(3)(v)(L) of
this section, USR2 and USR1 are QIEs. USR1 is
not treated as a non-look-through person under
paragraph (c)(3)(iii)(C) of this section because
USR1 is not a public QIE as defined in paragraph
(c)(3)(v)(H) of this section. Each of USR1 and
PRS is a look-through person as defined in para-
graph (c)(3)(v)(C) of this section that is not treated
as holding directly or indirectly stock in USR2 for
purposes of determining whether USR2 is a do-
mestically controlled QIE under paragraph (c)(3)
(ii)(A) of this section. Under paragraph (c)(3)(ii)
(B) of this section, stock of a QIE that would be
considered held by a look-through person but for
the application of paragraph (c)(3)(ii)(A) of this
section is considered held directly or indirectly
proportionately by the look-through person’s di-
rect or indirect owners that are non-look-through
persons. Because the U.S. citizens who hold USR1
stock are non-look-through persons as defined in
paragraph (c)(3)(v)(D) of this section, those U.S.
citizens are treated as holding directly or indirect-
ly 25.5 percent of the stock of USR2 through their
USR1 stock interest (50% x 51%) in accordance
with paragraph (c)(3)(ii)(A) of this section. Sim-
ilarly, because DC and the nonresident alien part-
ners in PRS are non-look-through persons, each is
treated as holding directly or indirectly the stock
of USR2 through its interest in PRS and PRS’s
interest in USR1. Thus, DC is treated as holding
directly or indirectly 12.75 percent of the stock of
USR2 (50% x 50% x 51%) and the nonresident
alien individual partners, which are foreign per-
sons as defined in paragraph (k) of this section,
are treated as directly or indirectly holding a 12.75
percent aggregate interest in the stock of USR2
(50% x 50% x 51%). Foreign persons therefore
hold directly or indirectly 63.25 percent of the
stock of USR2 (the 49 percent stock in USR2 di-
rectly held by nonresident alien individuals, who
are foreign persons and non-look-through persons
as defined in paragraph (c)(3)(v)(D) of this sec-
tion, plus the 12.75 percent in stock indirectly
held by the nonresident alien individual partners in
PRS), and USR2 is not a domestically controlled
QIE under paragraph (c)(3)(i) of this section.
(4) Foreign ownership percentage. For
purposes of calculating the foreign own-
ership percentage under section 897(h)(4)
(C), the determination of the QIE stock
that was held directly or indirectly by for-
eign persons is made under the rules of
paragraphs (c)(3)(ii) through (vi) of this
section.
* * * * *
(k) Foreign person. The term foreign
person means a nonresident alien indi-
vidual (including an individual subject to
the provisions of section 877), a foreign
corporation as defined in paragraph (l) of
this section, a foreign partnership, a for-
eign trust or a foreign estate, as such per-
sons are defined by section 7701 and the
regulations in this chapter under section
7701. A resident alien individual, includ-
ing a nonresident alien individual with
respect to whom there is in effect an elec-
tion under section 6013(g) or 6013(h) to
be treated as United States resident, is not
a foreign person. With respect to the status
of foreign governments and international
organizations, see §1.897-9T(e). See para-
graph (c)(3)(iv)(A) of this section regard-
ing the treatment of qualified foreign pen-
sion funds and qualified controlled entities
as foreign persons for purposes of section
897(h)(4)(B).
(l) * * * For purposes of sections 897
and 6039C, however, the term does not
include a foreign corporation with re-
spect to which there is in effect an elec-
tion under section 897(i) and §1.897-3
to be treated as a domestic corporation.
For purposes of section 897, the term
does not include a qualified holder de-
scribed in §1.897(l)-1(d); see paragraph
(c)(3)(iv)(A) of this section regarding the
treatment of qualified foreign pension
funds and qualified controlled entities as
foreign persons for purposes of section
897(h)(4)(B).
* * * * *
(n) See §1.897-9T(d) for a definition of
regularly traded for purposes of sections
897, 1445, and 6039C.
* * * * *
Par. 5. Section 1.897-9T is amended by
removing and reserving paragraph (c) and
adding a sentence after the second sen-
tence of paragraph (e).
The addition reads as follows:
§1.897-9T Treatment of certain interest
in publicly traded corporations,
definition of foreign person, and
foreign governments and international
organizations (temporary).
* * * * *
(e) * * * See §1.897-1(c)(3)(iv)(B) re-
garding the treatment of international or-
ganizations as foreign persons for purpos-
es of section 897(h)(4)(B). * * *
* * * * *
Melanie R. Krause,
Acting Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register Decem-
ber 28, 2022, 8:45a.m., and published in the issue
of the Federal Register for December 29, 2022, 87
FR 80097)

January 17, 2023 436 Bulletin No. 2023–3
Notice of Proposed
Rulemaking
Income of Foreign
Governments and
International Organizations;
Comment Period
Reopening
REG-146537-06
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing; reopening of comment period.
SUMMARY: The Department of the
Treasury and the IRS are reopening the
comment period for REG-146537-06,
relating to the exemption from taxation
afforded to foreign governments under
section 892.
DATES: The comment period for REG-
146537-06, 76 FR 68119 (November 3,
2011), as corrected by 76 FR 72367 (No-
vember 23, 2011) (the “2011 proposed
regulations”), is reopened, and additional
written or electronic comments and re-
quests for a public hearing must be re-
ceived by February 27, 2023.
ADDRESSES: Commenters are strong-
ly encouraged to submit additional pub-
lic comments electronically. Submit
electronic submissions via the Federal
eRulemaking Portal at www.regulations.
gov (indicate IRS and REG-146537-06)
by following the online instructions for
submitting comments. Once submitted
to the Federal eRulemaking Portal, com-
ments cannot be edited or withdrawn. The
Department of the Treasury (the “Treasury
Department”) and the Internal Revenue
Service (the “IRS”) will publish for pub-
lic availability any comment submitted
electronically, and on paper, to its pub-
lic docket. Send hard copy submissions
to: CC:PA:LPD:PR (REG-146537-06),
Room 5203, Internal Revenue Service,
P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions
may be hand delivered Monday through
Friday between the hours of 8 a.m. and 4
p.m. to CC:PA:LPD:PR (REG-146537-
06), Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue, NW,
Washington, DC 20224.
FOR FURTHER INFORMATION CON-
TACT: Joel Deuth at (202) 317-6938;
concerning submissions of comments
or requests for a public hearing, Vivian
Hayes at (202) 317-5306 (not toll-free
numbers) or by sending an email to publi-
chearings@irs.gov (preferred).
SUPPLEMENTARY INFORMATION:
Generally, the 2011 proposed regulations
provide guidance relating to the exemp-
tion from taxation afforded to foreign
governments from qualified investments
in the United States under section 892 of
the Internal Revenue Code. The Treasury
Department and the IRS are considering
finalizing the 2011 proposed regulations
and, therefore, are reopening the comment
period with respect to the 2011 proposed
regulations for 60 days. Comments that
were previously submitted in accordance
with the 2011 proposed regulations will be
considered and do not need to be submit-
ted again in response to this reopening of
the comment period. The 2011 proposed
regulations may be finalized in conjunc-
tion with finalizing the proposed regula-
tions published in this issue of the Fed-
eral Register regarding the treatment of
certain entities for purposes of the section
892 exemption that relate in some respects
to certain provisions of the 2011 proposed
regulations.
REQUESTS FOR PUBLIC HEAR-
ING: A public hearing will be scheduled
if requested in writing by any person
who timely submits written comments.
Requests for a public hearing are en-
couraged to be made electronically. If a
public hearing is scheduled, notice of the
date and time for the public hearing will
be published in the Federal Register.
Announcement 2020-4, 2020-17 IRB
667, provides that until further notice,
public hearings conducted by the IRS
will be held telephonically. Any tele-
phonic hearing will be made accessible
to people with disabilities.
Oluwafunmilayo A. Taylor,
Chief,
Publications and Regulations Branch,
Legal Processing Division,
Associate Chief Counsel,
(Procedure and Administration).
(Filed by the Office of the Federal Register Decem-
ber 28, 2022, 8:45a.m., and published in the issue
of the Federal Register for December 29, 2022, 87
FR 80108)

Bulletin No. 2023–3 i January 17, 2023
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 be-
ing made clear because the language has
caused, or may cause, some confusion. It
is not used where a position in a prior rul-
ing 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 transactions.
This term is most commonly used in a ruling
that lists previously published rulings 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
period 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 previous-
ly 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 cas-
es in litigation, or the outcome of a Ser-
vice study.
Abbreviations
The following abbreviations in current
use and formerly used will appear in
material published in the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI
—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—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.
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.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
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.
X—Corporation.
Y—Corporation.
Z—Corporation.

January 17, 2023 ii Bulletin No. 2023–3
Numerical Finding List
1
Bulletin 2023–3
Announcements:
2023-2, 2023-2 I.R.B. 344
2023-1, 2023-3 I.R.B. 422
Notices:
2023-4, 2023-2 I.R.B. 321
2023-5, 2023-2 I.R.B. 324
2023-6, 2023-2 I.R.B. 328
2023-8, 2023-2 I.R.B. 341
2023-1, 2023-3 I.R.B. 373
2023-2, 2023-3 I.R.B. 374
2023-3, 2023-3 I.R.B. 388
2023-7, 2023-3 I.R.B. 390
2023-9, 2023-3 I.R.B. 402
2023-10, 2023-3 I.R.B. 403
2023-11, 2023-3 I.R.B. 404
Proposed Regulations:
REG-100442-22, 2023-3 I.R.B. 423
REG-146537-06, 2023-3 I.R.B. 436
Revenue Procedures:
2023-1, 2023-01 I.R.B. 1
2023-2, 2023-01 I.R.B. 120
2023-3, 2023-01 I.R.B. 144
2023-4, 2023-01 I.R.B. 162
2023-5, 2023-01 I.R.B. 265
2023-7, 2023-01 I.R.B. 305
2023-8, 2023-03 I.R.B. 407
2023-10, 2023-03 I.R.B. 411
2023-11, 2023-03 I.R.B. 417
Revenue Rulings:
2023-1, 2023-2 I.R.B. 309
Treasury Decisions:
9970, 2023-2 I.R.B. 311
9771, 2023-3 I.R.B. 346
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2022–27 through 2022–52 is in Internal Revenue Bulletin
2022–52, dated December 27, 2022.

Bulletin No. 2023–3 iii January 17, 2023
Finding List of Current Actions on
Previously Published Items
1
Bulletin 2023–3
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2022–27 through 2022–52 is in Internal Revenue Bulletin
2022–52, dated December 27, 2022.

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