Internal Revenue Bulletin 2025-8 (PDF rendition): IRS Revenue Procedures

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Bulletin No. 2025–8
February 18, 2025
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.
EMPLOYEE PLANS
REG-100669-24, page 819.
These proposed regulations would provide guidance regard-
ing a change made by the SECURE 2.0 Act that requires
certain retirement plans to automatically enroll eligible
employees beginning in 2025. Among other exceptions,
this requirement does not apply to plans established before
December 29, 2022. These proposed regulations also would
amend the rules regarding notice requirements for plans that
include eligible automatic contributions arrangements to
reflect changes made by the SECURE 2.0 Act. The proposed
regulations would affect participants in, beneficiaries of,
employers maintaining, and administrators of these plans.
EMPLOYEE PLANS, EXCISE TAX
Notice 2025-12, page 813.
This notice provides the indexing factors to be used by group
health plans and health insurance issuers to calculate the
qualifying payment amount (QPA) for items or services pro-
vided on or after January 1, 2025, and before January 1,
2026. The QPA is the basis for determining individual cost
sharing for items and services covered by the balance-billing
protections in the NSA, under certain circumstances. The
QPA for a given calendar year is based on information regard-
ing median rates for certain items and services from prior
years and is indexed based on changes in the consumer
price index. In addition to providing the indexing factor for
adjusting 2024 amounts for 2025, the notice also provides
cumulative adjustments for prior years.
EMPLOYEE PLANS, INCOME TAX
REG-101268-24, page 836.
These proposed regulations would provide guidance for retire-
ment plans that permit participants who have attained age 50
to make additional elective deferrals (catch-up contributions)
under section 414(v) of the Code. Specifically, these proposed
regulations would amend the regulations under sections
414(v), 401(k), and 403(b) to reflect statutory changes made
by section 603 of the SECURE 2.0 Act of 2022 (SECURE 2.0
Act), which require that catch-up contributions made by cer-
tain catch-up eligible participants be designated Roth contri-
butions. These proposed regulations also would amend the
regulations under section 414(v) of the Code to reflect the
statutory changes made by sections 109 and 117 of the
SECURE 2.0 Act, which increase the catch-up contribution lim-
its under section 414(v) of the Code in certain cases.
REG-118988-22, page 869.
Section 162(m)(1) generally limits to $1,000,000 the allow-
able deduction for a taxable year for applicable employee
remuneration paid by any publicly held corporation with
respect to a covered employee. Section 9708 of the American
Rescue Plan Act of 2021 (ARP) (Pub. L. 117-2, 135 Stat. 206
(2021)) amended the definition of “covered employee.” In addi-
tion to the principal executive officer, principal financial officer,
and the three other highest compensated executive officers
for the taxable year or any previous taxable year, ARP added
§162(m)(3)(C) to expand the definition of “covered employee”
to include any other employee who is among the five highest
compensated employees for the taxable year. This amend-
ment is effective for taxable years beginning after December
31, 2026. The proposed regulations propose guidance on the
application of §162(m) as amended by section 9708 of ARP.
INCOME TAX
Notice 2025-6, page 799.
This notice requests comments on any potential implications
if the characterization rules currently contained in §§1.861-
18 and 1.861-19, as amended and added, respectively, by
Treasury Decision 10022, were to apply to all provisions of
the Internal Revenue Code, including the need for additional
guidance, and seeks specific comments on the possible
Finding Lists begin on page ii.

impacts and guidance that may be necessary with respect to
certain identified provisions.
Notice 2025-8, page 800.
This notice contains modifications to Notice 2023-38, 2023-
22 I.R.B. 872, that are similar to the modifications contained in
section 3 of Notice 2024-41, 2024-24 I.R.B. 1615. For elect-
ing Applicable Projects, this notice modifies and supersedes
Notice 2024-41 by expanding the elective safe harbor cost
table in Notice 2024-41 for Solar Photovoltaic (PV) facilities
to include updated cost percentages, providing new cost per-
centages for PV modules that incorporate crystalline silicon
PV cells and wafers that are manufactured in the U.S., renam-
ing, redefining, reclassifying, and removing certain solar PV
components, and expanding and clarifying the type of facilities
eligible to qualify as a representative type of solar PV facility.
This notice further modifies and supersedes Notice 2024-41
by renaming certain components for the Land-Based Wind
Table; renaming, redefining, and reclassifying certain Battery
Electric Storage System (BESS) Table components; providing
updated cost percentages for these BESS components; and
permitting taxpayers that are eligible to claim a Domestic Con-
tent Bonus Credit by virtue of the 80/20 Rule to elect to use
the safe harbor cost tables in this notice, or the safe harbor in
Notice 2024-41, before Notice 2024-41 is superseded.
REG-107420-24, page 854.
This document contains proposed rules for determining the
source of income from cloud transactions for purposes of
the international provisions of the Internal Revenue Code.
These proposed rules would generally affect taxpayers who
earn gross income from engaging in cloud transactions.
REG-116085-23, page 865.
These proposed regulations would require multi-year tax
reporting for corporate separations and related transac-
tions. The information to be reported under these proposed
regulations would establish the taxpayer’s position that the
corporate separation and related transactions qualify for
nonrecognition treatment under subchapter C of the Internal
Revenue Code.
Rev. Proc. 2025-13, page 816.
The revenue procedure provides a streamlined method by
which taxpayers who have elected the application of the
alternative tax under section 831(b) may obtain automatic
consent of the Secretary to revoke such election by making
certain representations.
T.D. 10022, page 773.
This document contains final regulations modifying the rules
for classifying transactions involving computer programs,
including by applying the rules to transfers of digital content.
These final regulations also provide rules for the classifica-
tion of cloud transactions. These rules apply for purposes of
the international provisions of the Internal Revenue Code and
generally affect taxpayers engaging in transactions involving
digital content or cloud transactions.

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Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
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stantive rulings necessary to promote a uniform application
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modify, or amend any of those previously published in the
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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
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identifying details and information of a confidential nature are
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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
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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.
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To the extent practicable, pertinent cross references to these
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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.
February 18, 2025 Bulletin No. 2025–8

Part I
Treasury Regulation Section 1.861-18 and Treasury
Regulation Section 1.861-19
TD 10022
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Classification of Digital
Content Transactions and
Cloud Transactions
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations modifying the rules for
classifying transactions involving com-
puter programs, including by applying the
rules to transfers of digital content. These
final regulations also provide rules for the
classification of cloud transactions. These
rules apply for purposes of the interna-
tional provisions of the Internal Reve-
nue Code and generally affect taxpayers
engaging in transactions involving digital
content or cloud transactions.
DATES: Effective Date: These regula-
tions are effective on January 14, 2025.
Applicability Date: For dates of applica-
bility, see §§1.861-18(i) and 1.861-19(e).
FOR FURTHER INFORMATION
CONTACT: Christopher E. Fulle, (202)
317-5367, or Michelle L. Ng, (202) 317-
6989 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Authority
These final regulations are issued under
the express delegation of authority under
section 7805 of the Internal Revenue
Code (Code). Section 7805(a) directs the
Secretary of the Treasury or her delegate
to prescribe all needful rules and regula-
tions for the enforcement of that section
and others in the Code, including all rules
and regulations as may be necessary by
reason of any alteration of law in relation
to internal revenue.
Background
On August 14, 2019, the Department
of the Treasury (Treasury Department)
and the Internal Revenue Service (IRS)
published proposed regulations (REG-
130700-14) under section 861 of the Code
in the Federal Register (84 FR 40317)
(the proposed regulations). The Treasury
Department and the IRS received written
comments on the proposed regulations,
and a public hearing was held on February
11, 2020. All written comments received
in response to the proposed regulations
are available at www.regulations.gov or
upon request. Terms used but not defined
in this preamble have the meaning pro-
vided in these final regulations.
These regulations (the final regula-
tions) extend the classification rules in
existing §1.861-18 to transfers of digital
content other than computer programs
and clarify the source of income for cer-
tain transfers of digital content. The final
regulations also clarify the classification
of transactions involving on-demand net-
work access to computing and other sim-
ilar resources.
The final regulations retain the over-
all approach of the proposed regulations,
with certain revisions discussed in the
preamble. The preamble also discusses
comments received in response to the
solicitation of comments in the notice of
proposed rulemaking.
Summary of Comments and
Explanation of Revisions
I. General Classification Issues
A. Replacement of de minimis rule with a
predominant character rule
Section 1.861-18(b)(1), as in effect
before this Treasury decision, described
four transactions involving computer pro-
grams: the transfer of a copyright right,
the transfer of a copyrighted article, the
provision of services for the development
or modification of a computer program,
and the provision of know-how relating to
the development of a computer program.
Section 1.861-18(b)(2) required any trans-
action that consisted of more than one of
the transactions described in §1.861-18(b)
(1) to be treated as separate transactions,
unless a transaction was de minimis, in
which case it would be treated as part of
another transaction. The proposed regu-
lations generally retained the four types
of transactions (with the expansions
described in Part II.A of this Summary of
Comments and Explanation of Revisions)
and preserved the de minimis rule, but for
clarification purposes, §1.861-18(b)(2)
was proposed to be modified by introduc-
ing the term “arrangement” and providing
that multiple transactions in an arrange-
ment generally must be characterized sep-
arately.
Proposed §1.861-19(b) defined a cloud
transaction as a transaction through which
a person obtains on-demand network
access to computer hardware, digital con-
tent (as defined in proposed §1.861-18(a)
(3)), or other similar resources, other
than on-demand network access that is
de minimis taking into account the over-
all arrangement and the surrounding facts
and circumstances. Similar to proposed
§1.861-18(b)(2), proposed §1.861-19(c)
(3) required separate classification of
each transaction comprising an arrange-
ment, except that any transaction that was
de minimis would be treated as part of
another transaction rather than being clas-
sified separately.
Comments recommended replacing
these rules in proposed §§1.861-18(b)
(1) and (b)(2), and 1.861-19(c)(3), with
a predominant character rule, such that a
transaction consisting of more than one
category of transactions described in pro-
posed §1.861-18(b)(1), or a transaction
consisting of one or more categories of
transactions described in both proposed
§§1.861-18(b)(1) and 1.861-19(b), would
be characterized as only one of those cate-
gories of digital content transactions or as
a cloud transaction in accordance with the
predominant character of that transaction.
As an example of a mixed transaction that
Bulletin No. 2025–8 773 February 18, 2025

would be difficult to characterize under the
proposed regulations, comments pointed
to video game business models where the
customer purchases a copy of the game
but primarily plays the video game online
with other players. As another example,
comments pointed to software antivirus
programs that include code that executes
on the user’s equipment as well as code
that is deployed in the cloud to detect
and capture viruses before they reach the
user’s equipment. The comments argued
that the predominant character rule would
avoid the difficult and burdensome task
of determining whether an element is
de minimis in the context of the overall
transaction and allocating income from
the transaction among the non-de minimis
categories as if they were separate trans-
actions. The comments also argued that a
de minimis standard is imprecise, and a
predominant character rule that compares
components of a transaction to determine
which component is predominant would
be much more administrable. Further-
more, one comment suggested that a pre-
dominant character standard would better
align with existing Treasury regulations
and other authorities, for instance, §1.954-
1(e)(3), which provides for a predominant
character approach in the subpart F con-
text. Finally, the comments noted con-
fusion arising from the use of the term
“transaction” to mean two different things
in the same provision under proposed
§1.861-18(b)(2), and also recommended
removing the term “arrangement” on the
grounds that the term was unclear, particu-
larly because it was not defined and rarely
appears in other tax rules.
The comments recommended that the
predominant character of a transaction be
determined based on the facts and circum-
stances. Comments suggested that the rel-
evant facts may include the overall com-
mercial purpose, the taxpayer’s treatment
for non-tax purposes, the relative cost of
each component (including the cost of
maintaining online and offline compo-
nents), and a comparison of unit prices for
components sold separately. Comments
suggested that the facts and circumstances
should provide at least a reasonable basis
for determining the predominant character
of the transaction.
Further, the comments suggested defin-
ing a transaction based on the facts and
circumstances or as an agreement entered
into in the ordinary course. Several com-
ments suggested that relevant factors for
determining the scope of a transaction
could include the availability of separate
pricing, the use of separate stock keeping
units (“SKUs”), and the taxpayer’s defini-
tion for non-tax purposes.
The final regulations adopt these com-
ments, in part. The final regulations replace
the de minimis rule and the concept of an
arrangement with a predominant character
rule, which applies to both digital content
transactions and cloud transactions. The
Treasury Department and the IRS agree
that, for purposes of the final regulations,
a transaction with multiple elements
(including de minimis elements) should
be characterized based on the predomi-
nant character of the transaction. Predom-
inant character rules also exist in other
regulations for international provisions of
the Code, such as foreign-derived intan-
gible income and subpart F, and thus are
familiar to taxpayers. See §§1.250(b)-3(d)
and 1.954-1(e)(3). Further, in many busi-
ness models that include both online and
offline functionality it may be difficult to
bifurcate a single transaction into a digi-
tal content transaction and a cloud trans-
action. The Treasury Department and the
IRS expect that bifurcation will remain
difficult and may increase in difficulty as
business models and technology evolve.
Therefore, §1.861-18(b)(2) of the final
regulations provides that, taking into
account the overall transaction and the
surrounding facts and circumstances, a
transaction that has multiple elements, one
or more of which would be a digital con-
tent transaction if considered separately, is
classified in its entirety as a digital content
transaction under one of the categories
described in §1.861-18(b)(1) if the pre-
dominant character of the transaction is
described in one of the categories in that
paragraph. Section 1.861-19(c)(2) of the
final regulations provides a corresponding
rule for transactions that have multiple
elements, one or more of which is a cloud
transaction. Further, the references to “de
minimis” and “arrangement” are also
removed in §1.861-19(a) of the final regu
-
lations so that the final regulations define a
cloud transaction as a transaction through
which a person obtains on-demand net-
work access to computer hardware, digital
content (as defined in §1.861-18(a)(2)), or
other similar resources.
The final regulations define a digital
content transaction as a transaction that
constitutes a transfer of digital content or
the provision of modification or devel-
opment services or of know-how with
respect to digital content. See §1.861-
18(b)(1). The final regulations do not,
however, define the term transaction.
The Treasury Department and the IRS
have concluded that it is not necessary to
introduce a specialized definition in these
regulations because the concept is already
well-established under general tax princi-
ples, case law, and existing administrative
guidance.
Section 1.861-18(b)(3) of the final reg-
ulations (cross-referenced in §1.861-19(c)
(2)) provides a general rule and a special
rule for determining the predominant
character of a transaction that contains
multiple elements, one or more of which
would be a digital content transaction or a
cloud transaction if considered separately.
Under the general rule, the predominant
character is determined by the primary
benefit or value received by the customer.
If that information is not reasonably ascer-
tainable, the special rule provides that the
predominant character is determined by
the primary benefit or value received by
a typical customer in a substantially sim-
ilar transaction, which is determined by
data on how a typical customer uses or
accesses the digital content. If data on
how a typical customer uses or accesses
the digital content is not available, then all
factors indicative of the primary benefit or
value received by a typical customer must
be examined, including how the transac-
tion is marketed, the relative development
costs of each element of the transaction,
and the relative price paid in an uncon-
trolled transaction for one or more ele-
ments compared to the total contract price
of the transaction in question.
B. Distinction between temporary
downloads and streaming
One comment requested guidance
on “streaming” and “temporary down-
loading” transactions. The comment
expressed the view that whether a cus-
tomer can download digital content
should not determine whether a trans-
February 18, 2025 774 Bulletin No. 2025–8

Bulletin No. 2025–8 775 February 18, 2025
action is characterized as a service or a
lease. The comment noted that when a
customer’s rights are limited to down-
loading and viewing a discrete item
of digital content, such as a movie, for
a limited time, the transaction would
be treated as a lease of digital content.
However, if the customer can access and
download as many movies as desired
from a catalog of thousands of movies
for a monthly fee, and once the subscrip-
tion ends access to the downloaded mov-
ies ends, the transaction would be treated
as a cloud transaction and classified as a
service according to the comment. The
comment suggested that the characteriza-
tion of these two transactions should not
depend on whether the content is actually
downloaded by any particular customer.
Another comment asserted that on-de-
mand access to digital content should
not be treated differently than temporary
downloads of digital content because the
two transactions are functionally equiva-
lent in that both provide temporary access
to digital content. The comment observed
that the decision to provide on-demand
access or temporary downloads of digital
content is typically driven by the nature
of the technology involved (for example,
the memory capacity of a user’s computer
or the download speeds available), and
generally has no bearing on the economic
substance of the transaction.
Where the provider chooses whether
to offer either temporary downloads or
streaming the Treasury Department and
the IRS disagree that these two types of
transactions should be treated the same. A
fundamental requirement of a digital con-
tent transaction, unlike a cloud transaction
involving digital content, is that there must
be a transfer of digital content to the cus-
tomer. This distinction between property
and services transactions has been in place
since the original issuance of §1.861-18 in
1998 and applying it consistently provides
a degree of certainty for an otherwise fac-
tual case-by-case determination.
When a customer downloads digital
content, there is a transfer of a copy of
that digital content to the customer and the
customer must use its own device to host
the copy of content for viewing or listen-
ing, for example. In contrast, when a cus-
tomer streams digital content, there is no
transfer of digital content. Instead, the cus-
tomer receives access to the digital content
through the provider’s servers. Especially
for large file-size content, performing the
hosting function in order to allow the cus-
tomer continuous access places a higher
burden on the provider. Similarly, for a
temporary download, the customer must
have sufficient storage on its device for
the temporary download that is not neces-
sary in a streaming transaction. There are
also differences in how the customer may
experience the digital content. For exam-
ple, once a customer downloads digital
content, the customer is able to access the
content regardless of whether the customer
is connected to the Internet and could thus
watch a downloaded movie or read a down-
loaded book when the customer is unable
to connect to the Internet. In these ways,
there are fundamental differences in char-
acter between a temporary download and
streaming that warrant different charac-
terization and sourcing rules for each type
of transaction. Where the customer may
choose whether to temporarily download
or stream content, the predominant charac-
ter rule in the final regulations would apply
to characterize the transaction. See §1.861-
19(d)(7) (Example 7) and (d)(9) (Example
9) of the final regulations.
II. Transactions Involving Digital
Content
A. Definition of digital content
Section 1.861-18, as in effect before
this Treasury decision, applied only to
computer programs. The proposed regu-
lations expanded the scope of §1.861-18
to apply to transactions involving “digital
content,” defined as “a computer program
or any other content in digital format that
is either protected by copyright law or no
longer protected by copyright law solely
due to the passage of time.”
Several comments recommended
broadening the definition of digital con-
tent to encompass content not protected
by copyright law that is transferred elec-
tronically and is similar to copyrightable
content, such as consumer or user data,
text files of recipes, government-produced
documents, and sets of font and typefaces.
One comment suggested expansion to
any property in digital format in which
a person has a right or interest, includ-
ing any property bought and sold in real
marketplaces, in virtual marketplaces and
in in-game economies. These comments
generally suggested that transfers of this
non-copyrightable digital property are
economically and functionally equivalent
to the transfer of digital content and that
characterization of the transfers should be
treated the same. One comment asserted
that such content may be subject to other
forms of intellectual property protec-
tion such as contractual restrictions and
non-disclosure agreements, such that
transfers of that content are functionally
similar to transfers of digital content.
The final regulations do not broaden the
definition of digital content beyond con-
tent protectable by copyright law. Section
1.861-18, as in effect before this Treasury
decision, generally followed copyright
law, and the Treasury Department and the
IRS are of the view that it is appropriate to
continue to apply this longstanding copy-
right law framework. This framework is
not workable for non-copyrightable con-
tent given that the legal rights associated
with such content generally are not the
same as those associated with content pro-
tectable by copyright law. For example,
in a digital transfer of property that is not
protected by copyright law, the transferee
may (unless otherwise restricted, such as
by contract) have the unfettered ability to
make and distribute copies to the public,
to prepare derivative works, or to publicly
display or publicly perform the property.
As a result, if the framework of §1.861-
18 were applied to the transaction, such
a transfer would generally be character-
ized as a license or sale of a copyright
right, regardless of whether the trans-
feree intends to exploit those abilities or
whether those powers have any value or
relevance in the context of the transac-
tion. Therefore, the existing framework
could result in a classification at odds with
the economics and reality of the transac-
tion. Further, where non-copyrightable
digital property is transferred subject to
contractual or other restrictions, those
restrictions may not fit cleanly within the
existing framework and may require a
different analysis to determine the correct
characterization. Accordingly, including
non-copyrightable content would require
a different set of rules that are beyond the
scope of §1.861-18.

February 18, 2025 776 Bulletin No. 2025–8
One comment noted that under the
proposed regulations, an online database
that allows customers on-demand access
to a collection of non-copyrightable con-
tent such as recipes or court opinions is
a cloud transaction. See §1.861-19(d)(8)
(Example 8). This is because the defini-
tion of a cloud transaction in proposed
§1.861-19(b) refers to on-demand net-
work access to computer hardware, digital
content, or “other similar resources.” The
comment suggested that the inclusion of
“other similar resources” in the definition
of cloud transaction may provide a road
map for expanding the definition of dig-
ital content in proposed §1.861-18. The
Treasury Department and the IRS dis-
agree. The cloud transaction definition
includes access to non-copyrightable con-
tent because curation of such content is a
common business model that, unlike the
framework of §1.861-18, does not depend
on whether the content is copyrightable
because there is no transfer to the cus-
tomer.
The final regulations therefore do not
adopt these comments and continue to
characterize digital content transactions
based on the distinction between a trans-
fer of a copyrighted article and a transfer
of copyright rights, which depends on
whether the customer receives copyright
rights as part of the transfer. The Treasury
Department and the IRS may, however,
consider these comments for possible
future guidance specific to types of digital
property that are not protectable by copy-
right law. The final regulations do provide,
however, that digital content includes con-
tent that is not protected by copyright law
solely because the creator dedicated the
content to the public domain. The regu-
lations include this refinement because
monetization of such content generally
also involves digital content that is pro-
tected by copyright law and therefore fits
within the framework of §1.861-18. See
§1.861-18(a)(2).
B. Provision of know-how relating to
development of digital content
Section 1.861-18(b)(1)(iv), as in effect
before this Treasury decision, provided
that one of the categories of transactions
relating to computer programs was “[t]he
provision of know-how relating to com-
puter programming techniques.” Section
1.861-18(e) provided that the provision of
information with respect to computer pro-
grams will be treated as the provision of
know-how for purposes of §1.861-18 only
if the information (1) relates to computer
programming techniques; (2) is furnished
under conditions preventing unauthorized
disclosure, specifically contracted for
between the parties; and (3) is considered
property subject to trade secret protection.
The proposed regulations would modify
§1.861-18(b)(1)(iv) and (e)(1) by replac-
ing “computer programming techniques”
with “development of digital content,” but
would not otherwise change §1.861-18(b)
(1)(iv) and (e)(1).
One comment asked for confirmation
that the changes to §1.861-18(b)(1)(iv)
and (e)(1) would not change the scope
of §1.861-18(b)(1)(iv), and that §1.861-
18(b)(1)(iv) in the final regulations
describes only know-how transferred
under terms that constitute a license for
United States Federal tax purposes. The
Treasury Department and the IRS con-
firm that §1.861-18(b)(1)(iv) in the pro-
posed and final regulations is intended to
describe the same type of know-how cov-
ered by §1.861-18(b)(1)(iv) as in effect
before this Treasury decision, except that
know-how may relate to any development
of digital content and not merely com-
puter programming techniques. The Trea-
sury Department and the IRS have deter-
mined that §1.861-18(b)(1)(iv) and (e)(1)
are sufficiently clear in this regard and
that additional guidance on the treatment
of such know-how is unnecessary.
C. Rights to prepare derivative digital
content
Section 1.861-18(c)(2)(ii), as in effect
before this Treasury decision, provided
that one of the copyright rights referred
to in that paragraph was the right to pre-
pare derivative computer programs based
upon a copyrighted computer program.
The proposed regulations would replace
the references to computer programs with
references to digital content but would
not otherwise change §1.861-18(c)(2)(ii).
One comment recommended that the right
to prepare derivative digital content based
upon digital content should be treated as
a copyright right only if it is coupled with
the right to distribute the derivative dig-
ital content to the public. The comment
expressed the belief that this change would
be consistent with one of the underlying
policies of these regulations, which is to
treat as a license a transaction in which
the transferee exercises a copyright right
to exploit the rights in the market, and
to treat as a sale or lease a transaction in
which the transferee consumes the digital
content. The comment also suggested that
this change would address the ambiguity
in copyright law as to what modifications
of a copyrighted work are necessary to
create a derivative work, and whether, for
example, rights to modify software during
installation or customization would con-
stitute rights to create a derivative work.
The final regulations do not adopt this
comment. The preamble to Treasury Deci-
sion 8785 (which promulgated §1.861-18
in 1998) stated in response to similar com-
ments to the proposed regulations (REG-
251520-96) that were finalized in Trea-
sury Decision 8785 that the right to make
copies (which must be coupled with the
right to distribute the copies to the pub-
lic to constitute a copyright right under
the regulations, despite such a require-
ment not being present under copyright
law) is treated differently from the other
copyright rights in the context of the reg-
ulations because of the unique character-
istics of computer programs, including
the ease with which computer programs
can be copied. However, as explained in
that preamble, it is generally consistent
with copyright law to treat as a copyright
right a non-de minimis right to make a
derivative work, regardless of whether it
is coupled with the right to distribute to
the public, and there is no sufficiently
unique aspect of digital content that would
compel a different result for purposes of
§1.861-18. The Treasury Department and
the IRS continue to be of the view that that
the right to make a derivative work with-
out further rights to distribute to the public
should be treated as a copyright right and
that the unique characteristics of digital
content do not compel a different result.
However, the predominant character rule
in §1.861-18(b)(2) and (3) of the final
regulations (discussed in Part I.A of this
Summary of Comments and Explanation
of Revisions) should alleviate concerns
about minor customization rights caus-

Bulletin No. 2025–8 777 February 18, 2025
ing what would otherwise be a transfer of
digital content to be treated as a license of
a copyright right. See §1.861-18(h)(18)
(Example 18) of the final regulations.
D. Right to make a public performance
or public display for purposes of adver-
tising
Section 1.861-18(c)(2), as in effect
before this Treasury decision, designated
as copyright rights the right to make a pub-
lic performance of a computer program
and the right to display a computer pro-
gram to the public. The proposed regula-
tions would replace the references to com-
puter programs with references to digital
content, and also provide exceptions for
the right to publicly perform or publicly
display digital content for the purpose of
advertising the sale of the digital content
performed or displayed. Proposed §1.861-
18(c)(2)(iii) and (iv). The preamble to the
proposed regulations used an example of
rights provided to a video game retailer
that allow the retailer to display screen-
shots of a video game on television com-
mercials promoting the game, and noted
that these rights, on their own, would not
be significant. Two comments agreed with
the addition of the regulatory language
and one of the comments suggested that
the preamble example be included in the
regulatory text.
The final regulations retain the excep-
tions for the public performance or public
display of digital content for the purpose
of advertising the sale of the digital con-
tent performed or displayed. See §1.861-
18(c)(2)(iii) and (iv). The Treasury
Department and the IRS have determined,
however, that the language of the regula-
tion is sufficiently clear without an exam-
ple and therefore the final regulations do
not include the example in the regulatory
text.
E. Copyright rights related to digital
content used for cloud transactions
One comment questioned whether the
transfer of the right to use software or
other digital content for a cloud transac-
tion should be treated as the transfer of a
copyright right. The comment included an
example wherein A, a domestic corpora-
tion, transfers computer software to B, a
foreign affiliate. B also gets the right to
use the software to provide software-as-
a-service transactions, but does not get
the right to sell copies of the software
or make derivative works. The comment
stated that it appears that a copyright right
has been transferred in this scenario, but
that it is not clear which of the enumerated
copyright rights is transferred. The com-
ment recommend that the final regulations
allow taxpayers to elect to characterize
this type of transaction as a transfer of a
copyright right.
The Treasury Department and the IRS
agree that a transfer of digital content
accompanied by the right to use the digital
content to provide a cloud transaction will
generally result in the transfer of the right
to either publicly display or publicly per-
form the digital content, depending on the
type of digital content and specific rights
transferred. To display a work means to
show a copy of it, either directly or by
means of a film, slide, television image,
or any other device or process or, in the
case of a motion picture or other audio-
visual work, to show individual images
nonsequentially. 17 U.S.C. 101. To per-
form a work means to recite, render, play,
dance, or act it, either directly or by means
of any device or process or, in the case
of a motion picture or other audiovisual
work, to show its images in any sequence
or to make the sounds accompanying it
more audible. Id. Further, 17 U.S.C. 101
includes a “transmit clause” that provides
that to publicly display or perform a work
means, in relevant part, to transmit or oth-
erwise communicate a performance or dis-
play of the work to the public, by means of
any device or process, whether the mem-
bers of the public capable of receiving the
performance or display receive it in the
same place or in separate places and at the
same time or at different times. Reading
these provisions of 17 U.S.C. 101, the
Treasury Department and the IRS have
concluded that the use of digital content
to provide a cloud transaction should be
treated as the exercise of a copyright right
under both copyright law and the final
regulations. See American Broadcasting
Companies, Inc. v. Aereo, Inc., 573 U.S.
431 (2014) (holding that capture of broad-
cast copyrighted content and retransmis-
sion to subscribers who stream the con-
tent to their personal devices was a public
performance of a copyrighted work under
the transmit clause of 17 U.S.C. 101).
However, whether the transferred right is
a right to display or a right to perform will
depend on the type of digital content, the
type of copyright obtained, and the man-
ner in which the digital content is used in
the cloud transaction. Due to the factual
nature of these issues and the important
role of copyright law in those determina-
tions, the final regulations do not specify
which copyright right has been transferred
when digital content is transferred for use
in a cloud transaction.
F. Examples illustrating §1.861-18
Several comments requested new
examples describing common business
models or modifications to examples
provided in the proposed regulations.
In response to these comments, the final
regulations contain several new exam-
ples and make certain modifications to
the examples in the proposed regulations.
In addition, pre-existing examples that
were in effect before the issuance of this
Treasury decision have been modified to
follow the same analytical structure as the
examples added by the final regulations.
One comment requested an example of
a wholesaler of computer software buying
and selling a limited number of product
keys. A product key is a specific soft-
ware-based key for a computer program
that certifies the copy of the program is
original. Instead of using physical media
such as a CD or DVD to install soft-
ware onto a computer or other electronic
device, a user can enter a product key to
download the software and then install it
from their computer’s hard drive. A cus-
tomer that purchases software through
electronic channels often receives a link
to download and a product key to acti-
vate the software. The comment asserted
that an underlying principle of these reg-
ulations is to treat economically similar
income equally, regardless of whether the
income is earned through electronic means
or through more conventional channels
of commerce, and therefore the income
earned by a wholesaler of product keys for
software should be treated the same as a
wholesaler of physical copies of software.
The Treasury Department and the IRS
agree that §1.861-18 does not character-
ize otherwise similar transactions differ-
ently solely because one transaction was

February 18, 2025 778 Bulletin No. 2025–8
effected through electronic means and the
other was not. See §1.861-18(g)(2) of the
final regulations. In response to the com-
ment, a new example added in the final
regulations, §1.861-18(h)(24) (Example
24), addresses a business model in which
a video game copyright owner transfers
product keys to retailers, and then the
retailers transfer those keys to customers.
Based on the facts in the example, the
transfer of product keys to the retailers is
characterized as a sale of copyrighted arti-
cles, and the transfer of product keys from
the retailers to customers is also classified
as the sale of copyrighted articles.
Two comments asked for an example
addressing a business model in which an
operator of a platform offers for download
digital content (for example, video games
or electronic books) as an agent of the
digital content developers. The platform
operator receives the copyright right to
make and sell digital copies of the digi-
tal content, but this right is granted only
so that the platform operator can act in
its capacity as an agent facilitating sales
of the digital content between digital con-
tent developers and customers. As such,
the comments asserted that the transaction
between the platform operator and digital
content developers should not be treated
as the transfer of copyright rights. One of
these comments also suggested several
clarifying changes to proposed §1.861-
18(h)(19) (Example 19) to distinguish the
business model described in that example,
which involves a licensed reseller that uti-
lizes an online platform, from the agency
platform operator described in the com-
ment.
The Treasury Department and the IRS
recognize that an agency platform oper-
ator business model exists, and therefore
the final regulations include a new exam-
ple at §1.861-18(h)(20) (Example 20) that
describes a scenario in which a platform
operator offers applications for sale as
an agent of the application developers.
The facts in Example 20 assume that the
platform operator acts as an agent of the
application developers under general tax
principles and concludes that the charac-
terization of the transaction between the
platform operator and application devel-
opers is not a digital content transaction
nor a cloud transaction. Whether a tax-
payer is acting as an agent on behalf of
another taxpayer is determined under
general tax principles and that determi-
nation is outside the scope of these final
regulations. Additionally, §1.861-18(h)
(19) (Example 19) of the final regulations
contains certain changes to the facts in the
proposed regulations that are intended to
distinguish the licensed reseller platform
operator business model described in
that example from the agency platform
operator model described in Example 20,
namely that the primary benefit or value
that the distributor (Corp A) receives in
the transaction in Example 19 is the right
to reproduce and distribute an unlimited
number of copies of the book.
One comment recommended adding an
example describing a business model in
which a video game that can be played on
a particular game console or a computer
is sold in physical copies through retail-
ers, or digitally through the game con-
sole’s store or through an Internet store
for a one-time fee. The game’s core func-
tionality is accessed online and, if played
on the game console, requires paying an
annual or monthly subscription fee to the
console maker which grants the customer
access to the online functionality of the
console, thereby allowing the customer
to play the online component of the video
game (and all other video games) on the
console. This fee is charged by the con-
sole maker for purposes of using the con-
sole online, so if the game is played on
a computer, there is no additional fee to
access the online content. The example
in the comment concluded that the pur-
chase of the console version of the video
game, whether from a retailer, the game
console store, or the Internet store, is a
cloud transaction because most customers
purchase the game primarily to enjoy the
online functionality. This comment also
recommended another similar example,
except the core functionality of the video
game is offline content, and therefore the
purchase of the video game is the sale of a
copyrighted article.
The comment underscores the fact
that there are many different business
models and types of transactions in the
video game industry. The determination
of the character of each transaction will
necessarily be fact-specific based on the
rights obtained by the customer and, if
relevant, the predominant character of the
transaction. However, to address certain
aspects of these scenarios, a new example
at §1.861-18(h)(24) (Example 24) of the
final regulations describes the purchase of
a video game for a one-time fee that has
online and offline functionality, and that
does not require paying a periodic sub-
scription fee that is specific to that game to
access the online content. Additionally, a
new example at §1.861-19(d)(11) (Exam-
ple 11) of the final regulations describes
the purchase of a video game for a one-
time fee whose primary functionality is
online and requires paying a monthly fee
to the game developer to access the online
content specific to the game. The exam-
ples conclude in both cases that, under
the facts presented, a customer’s purchase
of a game has the predominant character
of a sale of a copyrighted article. Neither
example introduces additional complexity
by describing a separate subscription fee
that the customer must pay to a console
maker to enable the online functionality of
the console for all games played on that
console. The Treasury Department and the
IRS have concluded that such a fee would
not be relevant to determining the char-
acter of transactions specific to the game
itself under the final regulations. Such a
fee is more akin to the monthly amount
that a customer may pay to an Internet
service provider for Internet access to play
games online in general, because the fee
is not specific to the game and is instead
required to enable online functionality on
a device that has other functions.
One comment recommended changes
to the facts in §1.861-18(h)(19) through
(21) (Examples 19 through 21) of the
proposed regulations, which contained
a restriction on the transfer of the digital
content by limiting the number of devices
onto which the customer could download
the content. Specifically, the comment
recommended modernizing these exam-
ples by replacing the “limited number of
devices” restriction with more general
background that explains that the user
agreement and the conditions and features
of the provider’s website and applications
adequately restrict the end-user’s ability
to lend or otherwise transfer the digital
content. In §1.861-18(h)(19) and (21)
(Examples 19 and 21) of the final regu-
lations, the restriction on the number of
devices is removed, and facts were added

Bulletin No. 2025–8 779 February 18, 2025
to make clear that no copyright rights
were granted. Proposed §1.861-18(h)(20)
(Example 20), which discussed a business
that offered end-users membership to a
catalog of copyrighted music and required
the end-users to download the songs,
was removed from the final regulations
because the Treasury Department and the
IRS determined the facts described in the
example were unrealistic.
III. Cloud Transactions
A. Classification of cloud transactions
Proposed §1.861-19(c)(1) would pro-
vide that a cloud transaction is classified
solely as either a lease of property or the
provision of services, based on all rele-
vant factors. Proposed §1.861-19(c)(2)
would enumerate a non-exhaustive list of
potentially relevant factors, most of which
come from section 7701(e) of the Code.
The preamble to the proposed regulations
requested comments as to whether the
classification as either a lease or a service
was correct, or whether cloud transactions
are more properly classified in another
category of income. The preamble also
requested comments on realistic examples
of cloud transactions that would be treated
as leases under proposed §1.861-19.
Several comments recommended that
all cloud transactions be classified as ser-
vices because the commentators could not
identify any realistic cloud transaction
that could be classified as a lease. One
comment requested that the final regula-
tions include an example of a cloud trans-
action that would be treated as a lease,
but did not suggest a scenario in which a
cloud transaction would be a lease. Alter-
natively, the comments recommended that
the final regulations include a rebuttable
presumption that all cloud transactions are
classified as services.
In the absence of a rule stating all
cloud transactions are services, several
comments expressed concerns with, and
suggested modifications to, certain factors
listed in proposed §1.861-19(c)(2). For
example, some comments suggested that
certain factors were not relevant for cloud
transactions, or would generally weigh
towards a lease characterization, but that
overall, a cloud transaction should still
be classified as the provision of services.
Comments also recommended clarifying
the treatment as services of related party
data hosting transactions that involve
cost-plus payments from a company under
common control with the hosting com-
pany.
One comment suggested adding an
example that commonly exists in practice
that is similar to proposed §1.861-19(d)
(2) (Example 2), involving the provision
of designated servers to the customer, but
with a shifted focus to analyze the access
that a remote user may have to data and
software on those servers.
Two comments expressed concerns
that the proposed regulations may be used
to characterize transactions of infrastruc-
ture providers, such as real estate invest-
ment trusts, who lease and otherwise make
available real property and other infra-
structure to cloud providers and similar
tenants. These comments were concerned
that the proposed regulations referenced
the section 7701(e) factors to determine
whether a cloud transaction was a service
or a lease, and that these interpretations
could affect the interpretation of the sec-
tion 7701(e) factors in the context of non-
cloud transactions.
The final regulations treat all cloud
transactions solely as the provision of ser-
vices and remove the section 7701(e) and
other factors listed in the proposed regu-
lations. Like the comments, the Treasury
Department and the IRS could not identify
a transaction that satisfies the definition of
a cloud transaction that would be properly
classified as a lease. Further, the Treasury
Department and the IRS would expect
future business models that meet the defi-
nition of a cloud transaction to constitute
services rather than leases or other types
of transactions. The services classification
is appropriate because in a typical busi-
ness model that includes a cloud transac-
tion, the cloud provider retains economic
control and possession over the relevant
property (such as servers, software, or
digital content, depending on the transac-
tion) and the cloud transaction meets other
hallmarks of a service transaction such as
the provider having the ability to deter-
mine the specific property used to pro-
vide the cloud transaction and to replace
such property with similar property.
Note, however, that business models may
include transactions involving computer
hardware, such as a server, that is located
at the customer’s premises, and such a
transaction may fall outside the defini-
tion of a cloud transaction (for example,
because there is no on-demand network
access provided in that transaction) and
would therefore be classified under sec-
tion 7701(e) and general tax principles.
The Treasury Department and the IRS
have also concluded that a more definite
rule for characterization based on the defi-
nition of a cloud transaction will allow
for better compliance and tax administra-
tion than the factors test in the proposed
regulations. Because the final regulations
classify all cloud transactions as the pro-
vision of services, examples applying the
factors from the proposed regulations to
determine whether a cloud transaction is
a service or a lease have been removed
(and no example concluding that the cloud
transaction is a lease has been added).
Finally, one comment recommended
expanding the characterization of cloud
transactions to include licenses for trans-
actions in which non-de minimis copy-
right rights are transferred. The comment
described an example where an owner
of digital content (a movie) streams that
digital content to a movie theater and
grants the movie theater the right to show
the streamed content to customers. The
comment concluded that the transac-
tion between the content owner and the
movie theater is a license. The comment
expressed the belief that the manner in
which digital content and accompanying
public display or performance rights are
delivered should not alone change the
character of a transaction from a license to
a service or lease.
The final regulations do not adopt this
comment. In the scenario posited by the
comment, the movie theater would be
much more likely to download or other-
wise obtain a copy of the movie than to
stream the movie simultaneously with dis-
playing the movie to customers, given the
possibility of buffering or other technol-
ogy issues that might occur while stream-
ing and negatively impact the movie the-
ater’s customers. However, a somewhat
similar scenario could occur if a bar or
similar establishment streams music,
sporting events, or other content as enter-
tainment for customers eating or drinking
at the establishment. While the agreement

February 18, 2025 780 Bulletin No. 2025–8
with the streaming service may grant the
bar the right to perform or to display the
streamed content to its customers, if there
is no transfer of digital content (that is, no
option to download of digital content), the
transaction falls outside the digital con-
tent rules in §1.861-18 and may be prop-
erly characterized as a cloud transaction.
Whether there is a transfer of a copyright
right that is not described in §1.861-18(c)
(2) would depend on copyright law. As
described in Part I.B of this Summary of
Comments and Explanation of Revisions,
a fundamental requirement for a digital
content transaction such as a license of
copyright rights, as opposed to a cloud
transaction involving digital content, is
that the former involves a transfer of the
digital content to the customer. If, how-
ever, the theater or the bar has the choice
to download or stream the content, then
§1.861-18, including the predominant
character rule, would apply to the trans-
action.
B. Inclusion of common cloud business
models
One comment suggested that the final
regulations explicitly include as cloud
transactions certain common cloud-based
business models, namely: (1) advertising
models where customers obtain “free”
services and advertisers pay for access
to those customers; (2) marketplace sites
and apps that function as sales agents; (3)
gig-economy sites and apps that put ser-
vice providers and customers together; (4)
job recruiting sites and apps that find can-
didates for employers; (5) travel sites and
apps that act like sales agents for hotels,
flights, etc.; and (6) game sites that allow
users access to a range of games for a sub-
scription price.
The final regulations do not adopt this
comment, though some similar examples
are included in §1.861-18(h). Although
each of the comment’s suggested scenar-
ios include services or goods accessed
through the Internet, whether each sce-
nario is a cloud transaction (as defined
by §1.861-19(b)) is fact-specific and
cannot be determined solely on the basis
of the type of offering provided. Section
1.861-19(b) defines a cloud transaction
as a transaction through which a person
obtains on-demand network access to
computer hardware, digital content (as
defined in §1.861-18(a)(2)), or other sim-
ilar resources. The first scenario, involv-
ing customers’ “free” access to content
that is funded by advertising, is similar
to §1.861-18(h)(22) (Example 22) of the
final regulations. The example addresses
the transfer of content to the platform by
content creators (a digital content transac-
tion) and the access to the content by cus-
tomers (a cloud transaction). However, the
example does not address the transaction
between the advertisers and the platform
because while the ads are viewable online,
the advertising services are likely not
cloud transactions because there is likely
no on-demand network access to com-
puter hardware, digital content, or similar
resources provided by the platform to the
advertisers (though specific fact patterns
may differ). The second scenario, involv-
ing marketplace sites and apps that func-
tion as sales agents, may result in a trans-
action that has a digital content transaction
element and a cloud transaction element
if the marketplace site or app is used to
transfer digital content to customers. See
§1.861-18(h)(20) (Example 20). Simi-
larly, the sixth scenario, involving game
sites allowing access to a range of games
for a subscription price, may require a pre-
dominant character analysis to determine
whether the primary benefit to the cus-
tomer (or a typical customer) is the down-
load of games or access to play the games
online. See §1.861-18(h)(24) (Example
24). In the remaining scenarios proposed
by the comment, the website or app may
provide a service, but it is likely that the
service would not be a cloud transaction
because the recipient of the service does
not receive on-demand network access
to computer hardware, digital content, or
similar resources. The framework of the
final regulations should be applied to the
facts of each specific transaction rather
than making generalizations about broad
categories of content offerings.
C. Examples illustrating §1.861-19
Many comments requested modifica-
tions to the examples provided in proposed
§1.861-19, or new examples describing
common business models. In response
to these comments, the final regulations
contain several new examples and make
certain modifications to the pre-exist-
ing examples. The final regulations also
remove examples illustrating the proposed
regulations’ application of factors to dis-
tinguish between the characterization of
a cloud transaction as a service or a lease
because the final regulations characterize
all cloud transactions as services.
Proposed §1.861-19(d)(11) (Example
11) would describe a scenario in which
a taxpayer operates an online database of
industry-specific materials that utilizes a
proprietary search engine. Certain mate-
rials in the database constitute digital
content. The example concluded that the
taxpayer’s provision of on-demand access
to its computer hardware and software is a
cloud transaction. One comment requested
clarification that the characterization of
this transaction would not be different if
the online database contained no copy-
rightable materials. In the final regula-
tions, the analysis of this example (which
has been redesignated §1.861-19(d)
(8) (Example 8)) explains that the cloud
transaction is access to the search engine
and online database, rather than online
access to the digital content, and there-
fore the conclusion that the transaction is
a cloud transaction would not change if
none of the content in the database was
copyrightable. This conclusion is consis-
tent with §1.861-19(b)’s definition of a
cloud transaction as a transaction through
which a person obtains on-demand net-
work access to computer hardware, digital
content (as defined in §1.861-18(a)(2)), or
other similar resources. In this case, the
content accessed would be an “other sim-
ilar resource.”
Two comments expressed concern that
certain jurisdictions around the world treat
income earned by a reseller of services,
such as software-as-a-service, as royalties
subject to withholding. These comments
asked for an example in the final regula-
tions addressing a reseller of services that
concludes the reseller’s income is services
income. In response to these comments,
section 1.861-19(d)(10) (Example 10) of
the final regulations addresses a reseller
of software-as-a-service and concludes
the transaction between the reseller and its
customers is a cloud transaction classified
as the provision of services.
Proposed §1.861-19(d)(9) (Example
9) would describe a scenario in which a

Bulletin No. 2025–8 781 February 18, 2025
taxpayer maintains a catalogue of videos
and music that it streams to customers
in exchange for a monthly fee. To better
reflect current and developing business
practices, comments recommended adding
a fact to this example that customers have
the ability to download the digital content
for offline viewing, and that such ability
is de minimis in the context of the over-
all transaction. Proposed §1.861-19(d)(9)
(Example 9) is redesignated §1.861-19(d)
(7) (Example 7) of the final regulations,
and the ability to download the digital
content has been added to the facts in the
example. As discussed in Part I.A of this
Summary of Comments and Explanation
of Revisions, a predominant character rule
in the final regulations replaced the de
minimis rule in the proposed regulations.
Under the facts described in Example 7
of the final regulations, the predominant
character of the transaction is a cloud
transaction.
IV. Sourcing Rules
A. Source rule for sales of copyrighted
articles transferred through an electronic
medium
1. In General
Section 1.861-18(f)(2), as in effect
before this Treasury decision, provided
that income from sales of copyrighted arti-
cles is sourced under sections 861(a)(6),
862(a)(6), 863, 865(a), (b), (c), or (e), as
appropriate. Proposed §1.861-18(f)(2)(ii)
would provide that when a copyrighted
article is sold and transferred through an
electronic medium, the sale is deemed to
have occurred at the location of download
or installation onto the end-user’s device
used to access the digital content for pur-
poses of §1.861-7(c). If information about
the location of download or installation
was not available, proposed §1.861-18(f)
(2)(ii) would provide that the sale is
deemed to have occurred at the location of
the customer, as determined based on the
taxpayer’s recorded sales data for busi-
ness or financial reporting purposes.
Comments observed practical chal-
lenges with applying a rule based on
the location of download or installation,
including that: (i) data privacy laws may
prevent taxpayers from collecting or
retaining this information, (ii) Internet
Protocol (IP) addresses may be unreli-
able because virtual private networks may
obscure an end-user’s IP address, (iii) it
would be burdensome and expensive for
taxpayers to collect new data on the loca-
tion of download or installation, (iv) there
may be difficulties in determining the
location of download or installation onto
an end-user’s device when software is
sold through multi-level distribution chan-
nels, and (v) it may be difficult to identify
the end-user. One comment suggested that
the final regulations provide examples that
illustrate the application of the download
test in various circumstances.
Instead of endorsing the proposed rule,
most comments addressing this topic
recommended a rule that uses the billing
address of the first unrelated purchaser
to determine the location of the sale.
Some comments observed that the billing
address of the purchaser is information
sellers already collect and is a more reli-
able indicator of where the purchaser will
use the digital content. Several comments
suggested that taxpayers be permitted to
elect to use the location of download or
installation instead of the billing address
of the purchaser if the taxpayer has access
to that information. Some comments rec-
ommended permitting taxpayers to elect
to use the location of actual use of the
digital content, such as when an employer
purchases digital content that is used by an
employee not located in the same jurisdic-
tion as the employer.
Finally, another comment recom-
mended that the rule in §1.861-7(c) (which
provides that the place of sale is the place
where the rights, title, and interest of the
seller in the property are transferred to
the buyer (the title passage rule)) should
be retained for purposes of sourcing sales
of copyrighted articles transferred through
an electronic medium.
The final regulations adopt these com-
ments in part. Consistent with the pro-
posed regulations, §1.861-18(f)(2)(ii) of
the final regulations moves away from
the “title passage” rule for sales of copy-
righted articles transferred through an
electronic medium. One reason for the
change is that the title passage rule allowed
taxpayers to artificially elect the source of
income from sales of copyrighted arti-
cles through an electronic medium using
contractual terms that had no real-world
impact due to the nature of digital content.
A digital download is an almost instan-
taneous transfer that occurs with limited
risk of loss; even when a file is corrupted
in the download or installation process,
a noncorrupted copy can be provided to
the customer at virtually no cost to the
seller, and the precise location of the cor-
ruption is typically not relevant. In con-
trast, a contractual agreement as to when
and where title passes for physical prop-
erty moved through physical distribution
chains has real-world impact because the
property may be lost or become damaged
in transit and the location of title passage
determines whether the seller or buyer
bears the burden of that loss. Because the
nature of the supply chain means that the
seller retains risk of loss until a success-
ful download, §1.861-18(f)(2)(ii) treats
the sale as having occurred at the custom-
er’s location, using the customer’s billing
address as a proxy. The Treasury Depart-
ment and IRS generally agree that a bill-
ing address is more administrable than the
location of download or installation as a
suitable proxy for the place of sale of elec-
tronically transferred copyrighted articles
(subject to the anti-abuse rule discussed
below).
The Treasury Department and IRS dis-
agree, however, that the billing address
of a subsequent unrelated purchaser of
the same copyrighted article should be
the general rule for sales between related
parties, given the focus of the statutory
sourcing provisions on place of sale. See
sections 861 through 865. It would also
be complex and potentially inaccurate to
attempt to determine whether every sale
is intended for a related or unrelated pur-
chaser. Therefore, §1.861-18(f)(2)(ii) of
the final regulations provides that when a
copyrighted article is sold and transferred
through an electronic medium, the sale is
deemed to have occurred at the location
of the billing address of the purchaser for
purposes of §1.861-7(c), regardless of
whether that purchaser is a related or unre-
lated party. This billing address rule also
resolves the issue raised by comments
regarding who the end-user is in certain
transactions because the sourcing rule is
based on the immediate purchaser in the
transaction. See §1.861-18(h)(25) (Exam-
ple 25).

February 18, 2025 782 Bulletin No. 2025–8
The final regulations also do not pro-
vide for an election to treat the sale of a
copyrighted article as occurring at the
location of download or installation. As
noted earlier in this part, one of the reasons
for moving away from “title passage” for
sales of copyrighted articles transferred
through an electronic medium was that
it allowed sellers the ability to artificially
elect the source of the income. Consistent
with this concern about electivity, the final
regulations provide a single, administra-
ble rule that applies to all sales (subject to
the anti-abuse rule).
The final regulations also add a new
anti-abuse rule for any case in which the
sales transaction is arranged in a particu-
lar manner for a principal purpose of tax
avoidance. See §1.861-18(f)(2)(ii) and
(h)(26) (Example 26). In such cases, the
foregoing billing address rule will not
be applied, and instead all relevant facts
and circumstances of the transaction will
be considered to treat the sale as hav-
ing occurred where the substance of the
transaction occurred. This anti-abuse rule
replaces the anti-abuse rule in §1.861-7(c)
with respect to sales of copyrighted arti-
cles sold and transferred through an elec-
tronic medium.
Finally, several comments asked for
clarification that this source rule applies
solely for purposes of the title passage rule
of §1.861-7(c). The Treasury Department
and the IRS have concluded that these
comments were already addressed in pro-
posed §1.861-18(f)(2)(ii) by the language
that limited application of the rule “for
purposes of §1.861-7(c),” and the final
regulations retain this language.
2. Coordination with Section 863(b)
Some comments recommended allow-
ing taxpayers to elect to apply a billing
address source rule for sales of digital
content where section 863(b) may other-
wise apply. Section 863(b) provides, in
part, that the gains, profits, and income
from the sale or exchange of inventory
property produced (in whole or in part)
by the taxpayer within the United States
and sold or exchanged without the United
States, or produced (in whole or in part)
by the taxpayer without the United States
and sold or exchanged within the United
States, shall be allocated and apportioned
between sources within and without the
United States solely on the basis of the
production activities with respect to the
property.
The final regulations do not adopt the
comment recommending allowing tax-
payers to elect to apply a billing address
source rule for sales of digital content
where section 863(b) would apply. When
section 863(b) applies, property produced
and sold by a taxpayer must be sourced
“solely on the basis of the production
activities with respect to the property.”
There is nothing to suggest that the bill-
ing address of the customer is relevant to
this statutory rule based on place of pro-
duction, and so the final regulations do not
adopt this comment.
3. Interaction with Rules for Sourcing
Leases and Licenses of Digital Content
One comment supported the location
of download or installation rule for deter-
mining the place of sale for copyrighted
articles, and recommended the final reg-
ulations explicitly adopt a uniform rule
for sourcing income from sales, leases,
and licenses of digital content based on
the location of the end-user. The comment
also recommended allowing taxpayers to
rely on recorded sales data to determine
the location of the end-user for purposes
of determining place of use for leases and
licenses of digital content.
The final regulations do not adopt this
comment. Section 1.861-18(f)(2)(ii) clar-
ifies how the place of sale of digital con-
tent is determined for purposes of sections
861 through 865. Those sections contain
different rules for determining the source
of income from leases and licenses, for
which the place of transfer is not the rele-
vant statutory rule (generally, the determi-
nation is based on where the property sub-
ject to the lease or license is used, or where
the possessor of the interest has the right
to use the property). See sections 861(a)
(4), 862(a)(4). Section 1.861-18(f)(2)(ii)
looks to the customer’s billing address
for purposes of determining the place of
sale for purposes of §1.861-7(c). While
that may sometimes also be the location
in which the digital content is used, that
is not necessarily the case. For example,
where copyright rights are transferred in
a transaction that is classified as a license,
the copyright rights may be used in multi-
ple locations, and not just the location of
the customer’s billing address. Similarly,
not all income from sales is sourced to the
place where the sale occurred. In those
cases, the statute provides the relevant
determination, such as the place of pro-
duction in section 863(b) or the residence
of the seller in section 865(a). The loca-
tion of download or installation is not nec-
essarily indicative of any of those things,
and the Treasury Department and the IRS
only intend for the rule in §1.861-18(f)
(2)(ii) to be used to determine the place
where the sale occurred for purposes of
statutory sourcing rules that rely on that
determination. Therefore, §1.861-18(f)(2)
(ii) of the final regulations is not extended
to provide a sourcing rule for all sales,
licenses, and leases of digital content.
Finally, a comment suggested that the
regulations clarify that a license of copy-
right rights from a copyright owner to a
distributor is sourced under section 861(a)
(4) or 862(a)(4). Because §1.861-18(f)(2),
as in effect before this Treasury decision,
already provides that income derived from
licensing copyright rights is sourced under
section 861(a)(4) or 862(a)(4), no changes
have been made in response to this com-
ment.
B. Source rule for gross income from a
cloud transaction
Proposed §1.861-19 would not pro-
vide a source rule for cloud transactions.
As such, the proposed regulations indi-
cated that existing law, regulations, and
IRS guidance regarding sourcing services
and leases would apply to sourcing cloud
transactions. Numerous comments were
received regarding whether a specific
source rule for cloud transactions would
be appropriate and several of these com-
ments included suggestions for such a
rule.
The Treasury Department and the IRS
are of the view that that there would be
benefits for taxpayer compliance and
administrability if gross income from
cloud transactions were sourced using a
uniform rule. Thus, the Treasury Depart-
ment and the IRS are issuing proposed
regulations (REG-107420-24) published
elsewhere in this same issue of the Fed-
eral Register (90 FR 3075) that provide

Bulletin No. 2025–8 783 February 18, 2025
rules for determining the source of gross
income from a cloud transaction.
C. Removal of Example 5 from §1.937-
3(e)
The proposed regulations would have
removed Examples 4 and 5 from §1.937-
3(e). Section 937 provides residence and
source rules involving territories. Exam-
ples 4 and 5 of §1.937-3(e) relate to the
sourcing of income from digital con-
tent transactions and cloud transactions,
respectively. One comment suggested
that the proposal to remove Example 5
was premature because the proposed reg-
ulations did not include a source rule for
cloud transactions. The final regulations
do not accept this comment. As discussed
in Part IV.B of this Summary of Comments
and Explanation of Revisions, the Trea-
sury Department and the IRS are issuing
a companion notice of proposed rulemak-
ing addressing the source of income from
cloud transactions concurrent with these
final regulations. Therefore, to avoid
potentially inconsistent inferences, the
final regulations remove both Examples 4
and 5 of §1.937-3(e).
V. Comments Outside the Scope of this
Treasury Decision
The preamble to Treasury Decision
8785, which promulgated §1.861-18 in
1998, stated that the Treasury Department
and the IRS were considering whether to
issue guidance regarding whether trans-
actions in copyrighted articles are trans-
actions in tangible property, and whether
transactions in copyright rights are trans-
actions in intangible property, in each case
for purposes of section 482. The proposed
regulations did not contain further guid-
ance on this topic.
One comment to the proposed regu-
lations recommended that the Treasury
Department and the IRS reconsider this
matter and issue guidance on this topic
because the characterization of a transfer
of digital content as tangible or intangible
property is important for purposes of sec-
tions 250, 367(d), and 482. The Treasury
Department and IRS have determined that
guidance on whether the categories of
transactions in §1.861-18 are considered
tangible or intangible property for pur-
poses of such Code sections is outside the
scope of these regulations.
One comment suggested that section
904 should be amended as it relates to cer-
tain sales income earned by U.S. residents
to prevent “cross-crediting” of high-taxed
income and zero- or low-taxed income
within the same foreign tax credit basket
under section 904(d)(1). The comment
noted that such “cross-crediting” results
in the U.S. partially or fully bearing the
cost of the high tax rates in some foreign
jurisdictions because a credit related to
the high-taxed income may offset U.S. tax
on the income from low-tax jurisdictions.
Amendments to section 904 are outside
the scope of this Treasury Decision.
Two comments suggested changes to
the regulations under section 250 pertain-
ing to foreign-derived intangible income
(FDII). One comment requested that the
Treasury Department and the IRS intro-
duce a rule under §1.250(b)-4 stating that
intangible property used in providing a
service that is a cloud transaction within
the meaning of §1.861-19 is, for pur-
poses of section 250, used at the location
of the employees engaged in, and tangi-
ble property used in, providing the cloud
transaction service. That comment also
suggested adding a de minimis rule under
§1.250(b)-4 providing that any de minimis
use of intangible property is disregarded
in a cloud transaction. A second comment
noted that the characterization of a cloud
transaction would impact whether income
is eligible for the FDII deduction because
there are different rules for establishing
“foreign use” for services and lease trans-
actions. That comment also suggested
that the “foreign use” rule for intangible
property should replicate the rule govern-
ing foreign use of general property. These
comments are outside the scope of this
Treasury Decision, but were considered in
finalizing the section 250 regulations. See
T.D. 9901 (85 FR 43042, July 15, 2020).
VI. Final Regulations Apply Only for
Certain International Provisions of the
Code
Section 1.861-18, as in effect before
this Treasury decision, applied only to cer-
tain listed international provisions of the
Code. When §1.861-18 was promulgated
in 1998, the preamble stated that the Trea-
sury Department and the IRS were consid-
ering whether the principles of §1.861-18
should apply to other provisions of the
Code. The proposed regulations retained
the scope of §1.861-18 by applying only
to certain listed international provisions
of the Code, although additional sections
of the Code were added to the scope of
the proposed regulations due to changes
in law between 1998 and the date of the
proposed regulations. Proposed §1.861-19
would also apply only to the same listed
international provisions of the Code.
The Treasury Department and the
IRS received comments recommending
expanding the scope of the final regula-
tions to apply for all purposes of the Code,
particularly with respect to §1.861-18
for which all comments received on this
topic recommended expansion to all pur-
poses of the Code. Multiple comments
expressed that the framework of the pro-
posed regulations provides sensible rules
and certainty with respect to transactions
involving digital content. One comment
also expressed concern that limiting the
scope of the final regulations to only inter-
national provisions of the Code could lead
to the same transaction being character-
ized differently depending on which Code
section was applied. Another comment
expressed the belief that both taxpayers
and the IRS will utilize the guidance in
the final regulations by analogy even if
the final regulations apply only to interna-
tional provisions of the Code, and that it
would be better to make it clear that the
final regulations apply to all provisions
of the Code so that taxpayers and the IRS
will not have to go through the rigors of
trying to convince the other party that the
final regulations are relevant in a particu-
lar case.
Unlike §1.861-18, some comments rec-
ommended that §1.861-19 not be applied
beyond the scope provided in the proposed
regulations. These comments expressed
concern that the preamble to §1.861-19
referenced section 7701(e) (pertaining to
the treatment of certain contracts as leases
rather than service contracts), and recom-
mended against any guidance providing
that section 7701(e) could apply through-
out the Code, including Subchapter M.
One comment explained that the extent
to which the provision of services affects
the definition of “rents from real prop-

February 18, 2025 784 Bulletin No. 2025–8
erty” for real estate investment trust pur-
poses is addressed not only in Subchap-
ter M and the regulations thereunder, but
also in numerous items of IRS sub-regu-
latory guidance and private letter rulings
specifically interpreting Subchapter M.
The comments recommended adding an
explicit disclaimer in the preamble and
the text of the final regulations that any
purported interpretation and application of
section 7701(e) principles in the final reg-
ulations do not apply outside the intended
scope of the final regulations, and there-
fore do not apply to lease-versus-service
determinations under other provisions of
chapter 1 of the Code. As discussed under
Part III.A of this Summary of Comments
and Explanation of Revisions, the final
regulations treat all cloud transactions as
the provision of services, and accordingly
remove the section 7701(e) factors from
the regulatory text.
More broadly, the Treasury Depart-
ment and the IRS continue to study issues
related to applying the final regulations to
all provisions of the Code. Concurrently
with the issuance of the final regulations,
the Treasury Department and the IRS are
issuing a Notice (Notice 2025-6) request-
ing comments regarding issues to consider
in deciding whether to apply the charac-
terization rules in §§1.861-18 and 1.861-
19, as amended and added, respectively,
by the final regulations to all provisions of
the Code.
VII. Change in Method of Accounting
The proposed regulations would treat
a change in method of accounting that a
taxpayer made in order to comply with the
proposed regulations as a change initiated
by the taxpayer. Accordingly, the change
in method of accounting would have to be
implemented under the rules of §1.446-
1(e) and the applicable administrative
procedures that govern voluntary changes
in method of accounting under section
446(e).
Two comments suggested that if a tax-
payer must change its method of account-
ing in order to comply with the final
regulations, then such change should be
eligible for automatic consent.
The final regulations do not adopt these
comments. The Treasury Department and
the IRS generally do not anticipate tax-
payers needing to change methods of
accounting as a result of the final regula-
tions. Additionally, in light of the afore-
mentioned Notice requesting comments
on applying the characterization rules in
§§1.861-18 and 1.861-19, as amended
and added, respectively, by the final reg-
ulations for all purposes of the Code, the
Treasury Department and IRS have deter-
mined that it is important to ensure that
any accounting method changes due to
these regulations are consistent with the
appropriate treatment of the transactions
at issue under all appropriate Code or reg-
ulation sections.
VIII. Applicability Date
The proposed regulations were pro-
posed to apply to transactions entered into
pursuant to contracts entered into in tax-
able years beginning on or after the date of
publication of final regulations.
Comments recommended the final reg-
ulations apply to transactions entered into
in taxable years beginning on or after the
date that final regulations are published,
regardless of the date of the contracts
pursuant to which such transactions were
entered into. One comment noted that it
would be difficult to trace particular trans-
actions to contracts that were entered into
in taxable years that begin on or after the
date of publication of final regulations.
Other comments noted that the proposed
applicability date may result in different
rules applying to similar transactions of
the same taxpayer long after these regula-
tions are finalized.
One comment suggested allowing tax-
payers to elect application of the final reg-
ulations to taxable years ending after the
date of publication of the proposed regu-
lations. Another comment recommended
that taxpayers be allowed to elect to apply
the final regulations to transactions taking
place before the effective date of the final
regulations.
In response to these comments, the
final regulations generally apply to tax-
able years beginning on or after the date
of publication of this Treasury decision in
the Federal Register. However, taxpayers
may elect to apply all of the rules of the
final regulations to taxable years begin-
ning on or after August 14, 2019 and all
subsequent taxable years as long as all
related persons (within the meaning of
sections 267(b) and 707(b)) also apply
all of the rules of the final regulations to
taxable years beginning on or after August
14, 2019 and all subsequent taxable years,
the period of limitations on assessment
for each taxable year of the taxpayer and
all related parties (within the meaning of
sections 267(b) and 707(b)) is open under
section 6501, and the taxpayer would not
be required under this section to change its
method of accounting as a result of such
election.
Special Analyses
I. Regulatory Planning and Review—
Economic Analysis
Pursuant to the Memorandum of
Agreement, Review of Treasury Regula-
tions under Executive Order 12866 (June
9, 2023), tax regulatory actions issued by
the IRS are not subject to the requirements
of section 6 of Executive Order 12866, as
amended. Therefore, a regulatory impact
assessment is not required.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(44 U.S.C. 3501-3520) (PRA) generally
requires that a Federal agency obtain the
approval of the Office of Management
and Budget (OMB) before collecting
information from the public, whether such
collection of information is mandatory,
voluntary, or required to obtain or retain
a benefit. An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a valid control number
assigned by the Office of Management
and Budget.
The collections of information in these
final regulations contain reporting and
recordkeeping requirements that are nec-
essary to ensure the correct classification
of digital content transactions and cloud
transactions. The collections will be used
by the IRS for tax compliance purposes.
The final regulation mentions a report-
ing requirement where a taxpayer may be
required to change its method of account-
ing. For PRA purposes, Form 3115, Appli-
cation for Change in Accounting Method,
is already approved by OMB under Con-

Bulletin No. 2025–8 785 February 18, 2025
trol Numbers 1545-0047 for tax-exempt
entities, 1545-0074 for individuals, 1545-
0123 for business filers and 1545-0092 for
trust and estate filers.
The recordkeeping requirements
include that entities keep records of their
transactions to substantiate the transac-
tion classification. These recordkeeping
requirements are considered general tax
records under §1.6001-1(e). For PRA
purposes, general tax records are already
approved by OMB under 1545-0047 for
tax-exempt entities, 1545-0074 for indi-
viduals, 1545-0123 for business filers and
1545-0092 for trust and estate filers.
These final regulations are not creating
new information collections or changing
information collections already approved
by OMB.
III. Regulatory Flexibility Act
The Regulatory Flexibility Act requires
consideration of the regulatory impact on
small businesses. It is hereby certified that
these final regulations will not have a sig-
nificant economic impact on a substantial
number of small entities within the mean-
ing of section 601(6) of the Regulatory
Flexibility Act (5 U.S.C. chapter 6).
Although data are not readily avail-
able to estimate the number of small enti-
ties that would be affected by the final
regulations, the Treasury Department and
the IRS project that any economic impact
of the regulations would be minimal for
businesses regardless of size. These final
regulations generally provide clarifica-
tion of definitions regarding how trans-
actions are classified, and thus are not
expected to have an impact on burden for
large or small businesses. The Treasury
Department and the IRS project that any
economic impact would be small because
current industry practice is generally
consistent with the principles underlying
the final regulations.
IV. Section 7805(f)
Pursuant to section 7805(f) of the Code,
the proposed regulations (REG-130700-
14) 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
government, 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 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 statutes, or preempts State law, unless
the agency meets the consultation and
funding requirements of section 6 of the
Executive order. The final 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.
Drafting Information
The principal authors of these final
regulations are Christopher E. Fulle and
Michelle L. Ng of the Office of the Asso-
ciate Chief Counsel (International). How-
ever, 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, the Treasury Department
and the IRS amend 26 CFR part 1 as fol-
lows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read in part as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.861-7 is amended by
revising paragraph (c) to read as follows:
§1.861-7 Sale of personal property.
* * * * *
(c) Country in which sold. For purposes
of part I (section 861 and following), sub-
chapter N, chapter 1 of the Code, and the
regulations thereunder, a sale of personal
property is consummated at the time when,
and the place where, the rights, title, and
interest of the seller in the property are
transferred to the buyer. Where bare legal
title is retained by the seller, the sale shall
be deemed to have occurred at the time
and place of passage to the buyer of bene-
ficial ownership and the risk of loss. How-
ever, in any case in which the sales trans-
action is arranged in a particular manner
for the primary purpose of tax avoidance,
the foregoing rules will not be applied. In
such cases, all factors of the transaction,
such as negotiations, the execution of the
agreement, the location of the property,
and the place of payment, will be consid-
ered, and the sale will be treated as having
been consummated at the place where the
substance of the sale occurred. For deter-
mining the place of sale of copyrighted
articles transferred through an electronic
medium, see §1.861-18(f)(2)(ii).
* * * * *
Par. 3. Section 1.861-18 is amended
by:
a. Revising the section heading;
b. Revising paragraphs (a), (b), (c)(1),
(c)(2)(i) through (iv), (c)(3), (d), (e), (f)(1)
through (3), (g)(2), (g)(3)(i) and (ii), and
(h) through (j); and
c. Removing paragraph (k).
The revisions read as follows:
§1.861-18 Classification of, and source
of gross income from, digital content
transactions.
(a) General—(1) Scope. This section
provides rules for classifying digital con-
tent transactions (as defined in paragraph
(b)(1) of this section) for purposes of

February 18, 2025 786 Bulletin No. 2025–8
subchapter N of chapter 1 of the Internal
Revenue Code, sections 59A, 245A, 250,
267A, 367, 404A, 482, 679, 1059A, chap-
ters 3 and 4, sections 842 and 845 (to the
extent involving a foreign person), and
transfers to foreign trusts not covered by
section 679.
(2) Digital content—(i) Digital content
defined. For purposes of this section, dig-
ital content means a computer program or
any other content, such as books, movies,
and music, in digital format that is—
(A) Protected by copyright law; or
(B) Not protected by copyright law
solely—
(1) Due to the passage of time; or
(2) Because the creator dedicated the
content to the public domain.
(ii) Computer program defined. For
purposes of this section, a computer pro-
gram is a set of statements or instructions
to be used directly or indirectly in a com-
puter in order to bring about a certain
result and includes any media, user man-
uals, documentation, data base, or similar
item if the media, user manuals, documen-
tation, data base, or other similar item is
incidental to the operation of the computer
program.
(b) Categories of transactions—(1)
General. A transaction that constitutes a
transfer of digital content, or the provision
of services or of know-how with respect
to digital content (each a digital content
transaction), is treated as being solely one
of the following—
(i) A transfer of a copyright right in the
digital content;
(ii) A transfer of a copy of the digital
content (a copyrighted article);
(iii) The provision of services for the
development or modification of the digital
content; or
(iv) The provision of know-how relat-
ing to development of digital content.
(2) Transaction with multiple elements.
Taking into account the overall transac-
tion and the surrounding facts and circum-
stances, a transaction that has multiple
elements, one or more of which would be
a digital content transaction if considered
separately, is classified in its entirety as a
digital content transaction under one of
the categories described in paragraph (b)
(1) of this section if the predominant char-
acter of the transaction is described in one
of the categories in that paragraph.
(3) Determination of predominant char-
acter—(i) General rule. For purposes of
paragraph (b)(2) of this section and §1.861-
19(c)(2), the predominant character of a
transaction is determined by ascertaining
the primary benefit or value received by the
customer in the transaction.
(ii) Special rule. If the primary benefit
or value received by the customer in the
transaction is not reasonably ascertainable,
the predominant character of a transac-
tion is instead determined by ascertaining
the primary benefit or value received by a
typical customer in a substantially similar
transaction as determined under paragraphs
(b)(3)(ii)(A) and (B) of this section.
(A) The primary benefit or value received
by a typical customer is determined by data
on how a typical customer uses or accesses
the digital content. See paragraph (h)(17) of
this section (Example 17).
(B) If data described in paragraph (b)
(3)(ii)(A) of this section is not available,
then the predominant character of a trans-
action subject to the special rule in para-
graph (b)(3)(ii) of this section is deter-
mined by examining other factors that are
indicative of the primary benefit or value
received by a typical customer, including
the following—
(1) How the transferor or provider mar-
kets the transaction;
(2) The relative development costs to
the transferor or provider of each element
of the transaction; and
(3) The relative price paid in an uncon-
trolled transaction for one or more ele-
ments compared to the total contract price
of the transaction in question.
(iii) Identification and development of
data. A transferor or provider must use rea-
sonable efforts to identify the data specified
in paragraphs (b)(3)(i) and (ii)(A) of this
section, or if necessary, to apply the factors
relevant to paragraph (b)(3)(ii)(B) of this
section. However, a transferor or provider
is not required to develop any of the data
specified in those paragraphs that it does
not develop in the course of business.
(c) * * *
(1) Transfers involving transfers of
copyright rights. A digital content trans-
action involves a transfer of a copyright
right if, as a result of the transaction, a
person acquires one or more of the rights
described in paragraphs (c)(2)(i) through
(iv) of this section.
(2) * * *
(i) The right to make copies of the dig-
ital content for purposes of distribution to
the public by sale or other transfer of own-
ership, or by rental, lease or lending;
(ii) The right to prepare derivative dig-
ital content based upon the digital content;
(iii) The right to make a public perfor-
mance of digital content, other than a right
to publicly perform digital content for the
purpose of advertising the sale of the digi-
tal content performed; or
(iv) The right to publicly display dig-
ital content, other than a right to publicly
display digital content for the purpose of
advertising the sale of the digital content
displayed.
(3) Copyrighted articles. A copyrighted
article includes a copy of digital content
from which the work can be perceived,
reproduced, or otherwise communicated,
either directly or with the aid of a machine
or device. The copy of the digital content
may be fixed in any medium.
(d) Provision of services. The determi-
nation of whether a transaction involving
newly developed or modified digital con-
tent involves the provision of services
described in paragraph (b)(1) of this sec-
tion is based on all the facts and circum-
stances of the transaction, including, as
appropriate, the intent of the parties (as
evidenced by their agreement and con-
duct) as to which party is to own the copy-
right rights in the digital content and how
the risks of loss are allocated between the
parties. See paragraph (h)(15) of this sec-
tion (Example 15).
(e) Provision of know-how. The provi-
sion of information with respect to digital
content involves the provision of know-
how for purposes of this section only if
the information is—
(1) Information relating to the develop-
ment of digital content;
(2) Furnished under conditions pre-
venting unauthorized disclosure, specif-
ically contracted for between the parties;
and
(3) Considered property subject to
trade secret protection.
(f) * * *
(1) Transfers of copyright rights. The
determination of whether a transfer of a
copyright right is a sale or exchange of
property is made on the basis of whether,
taking into account all facts and circum-

Bulletin No. 2025–8 787 February 18, 2025
stances, there has been a transfer of all
substantial rights in the copyright. A
transfer of a copyright right that does not
constitute a sale or exchange because not
all substantial rights have been transferred
will be classified as a license. For this
purpose, the principles of sections 1222
and 1235 apply. Income derived from the
sale or exchange of a copyright right will
be sourced under section 865(a), (c), (d),
(e), or (h), as appropriate. Income derived
from the licensing of a copyright right
will be sourced under section 861(a)(4) or
862(a)(4), as appropriate.
(2) Transfers of copyrighted articles—
(i) Classification. The determination of
whether a transfer of a copyrighted arti-
cle is a sale or exchange is made on the
basis of whether, taking into account all
facts and circumstances, the benefits and
burdens of ownership have been trans-
ferred. A transfer of a copyrighted article
that does not constitute a sale or exchange
because insufficient benefits and burdens
of ownership of the copyrighted article
have been transferred, such that a per-
son other than the transferee is properly
treated as the owner of the copyrighted
article, will be classified as a lease.
(ii) Source. Income from transactions
that are classified as sales or exchanges
of copyrighted articles will be sourced
under section 861(a)(6), 862(a)(6), 863, or
865(a), (b), (c), or (e), as appropriate. When
a copyrighted article is sold and transferred
through an electronic medium, the sale is
deemed to have occurred at the location of
the billing address of the purchaser for pur-
poses of §1.861-7(c). However, in any case
in which the sales transaction is arranged
in a particular manner for a principal pur-
pose of tax avoidance, the foregoing rules
will not be applied. In such a case, all of
the facts and circumstances relevant to the
transaction, such as the place where the
copyrighted article will be used, the place
where negotiations and the execution of the
agreement occurred, and the terms of the
agreement, will be considered, and the sale
will be treated as having occurred where
the substance of the sale occurred. Income
derived from leasing a copyrighted article
will be sourced under section 861(a)(4) or
862(a)(4), as appropriate.
(3) Special circumstances of digital
content. In connection with determinations
under this paragraph (f), consideration must
be given as appropriate to the special char-
acteristics of digital content in transactions
that take advantage of these characteristics
(such as the ability to make perfect copies
at minimal cost). For example, a transaction
in which a person acquires a copy of digital
content on a disk subject to a requirement
that the disk be destroyed after a specified
period is generally the equivalent of a trans-
action subject to a requirement that the disk
be returned after such period. Similarly, a
transaction in which the digital content
deactivates itself after a specified period
is generally the equivalent of a transaction
subject to a requirement that the disk be
returned after a specified period.
(g) * * *
(2) Means of transfer not to be taken
into account. The rules of this section
shall be applied irrespective of the phys-
ical or electronic or other medium used to
effectuate a digital content transaction.
(3) * * *
(i) In general. For purposes of para-
graph (c)(2)(i) of this section, a transferee
of digital content shall not be considered
to have the right to distribute copies of the
digital content to the public if it is permit-
ted to distribute copies of the digital con-
tent to only either a related person, or to
identified persons who may be identified
by either name or by legal relationship
to the original transferee. For purposes
of this subparagraph, a related person is
a person who bears a relationship to the
transferee specified in section 267(b)(3),
(10), (11), or (12), or section 707(b)(1)
(B). In applying section 267(b), 267(f),
707(b)(1)(B), or 1563(a), “10 percent”
shall be substituted for “50 percent.”
(ii) Use by individuals. The number of
employees of a transferee of digital con-
tent who are permitted to use the digital
content in connection with their employ-
ment is not relevant for purposes of this
paragraph (g)(3). In addition, the number
of individuals with a contractual agree-
ment to provide services to the transferee
of digital content who are permitted to use
the digital content in connection with the
performance of those services is not rele-
vant for purposes of this paragraph (g)(3).
(h) Examples. The examples in this
paragraph (h) illustrate the provisions of
this section. Unless otherwise specified,
assume that Corp A is a domestic corpora-
tion, the digital content described in each
example does not contain any online func-
tionality, and all facts in each example
occur as part of a single transaction.
(1) Example 1: Sale of a computer program
on a disk—(i) Facts. Corp A owns the copyright
in a computer program, Program X. It copies Pro-
gram X onto disks. The disks are placed in boxes
covered with a wrapper on which is printed what
is generally referred to as a shrink-wrap license.
The license is stated to be perpetual. Under the
license no reverse engineering, decompilation, or
disassembly of the computer program is permitted.
The transferee receives, first, the right to use the
program on two of its own computers (for exam-
ple, a laptop and a desktop) provided that only
one copy is in use at any one time, and second,
the right to make one copy of the program on each
machine as an essential step in the utilization of
the program. The transferee is permitted by the
shrink-wrap license to sell the copy so long as it
destroys any other copies it has made and imposes
the same terms and conditions of the license on the
purchaser of its copy. These disks are made avail-
able for sale to the general public in Country Z. In
return for valuable consideration, P, a Country Z
resident, receives one such disk.
(ii) Analysis. (A) Under paragraph (b)(1) of this
section, the transfer of a disk containing a copy of
Program X from Corp A to P is a digital content
transaction with one element, which is the transfer
of a copy of Program X. Therefore, the transaction
is treated solely as a transfer of a copyrighted arti-
cle under paragraph (b)(1)(ii) of this section. Under
paragraph (g)(1) of this section, the label license is
not determinative.
(B) Taking into account all of the facts and cir-
cumstances, P is properly treated as the owner of a
copyrighted article. Therefore, under paragraph (f)
(2) of this section, there has been a sale of a copy-
righted article rather than the grant of a lease.
(2) Example 2: Sale of a computer program via
download from the Internet—(i) Facts. The facts are
the same as those in paragraph (h)(1) of this section
(Example 1), except that instead of selling disks,
Corp A decides to make Program X available, for a
fee, on a World Wide Web home page on the Inter-
net. P, the Country Z resident, in return for payment
made to Corp A, downloads Program X (via modem)
onto the hard drive of his computer. As part of the
electronic communication, P signifies his assent to
a license agreement with terms identical to those in
Example 1, except that in this case P may make a
back-up copy of the program on to a disk.
(ii) Analysis. (A) Under paragraph (b)(1) of this
section, the digital transfer of a copy of Program X
from Corp A to P is a digital content transaction with
one element, which is the transfer of a copy of Pro-
gram X. Therefore, the transaction is treated solely
as a transfer of a copyrighted article under paragraph
(b)(1)(ii) of this section. Although P did not buy a
physical copy of the disk with the program on it,
paragraph (g)(2) of this section provides that the
means of transferring the program is irrelevant.
(B) As in paragraph (h)(1) of this section (Exam-
ple 1), P is properly treated as the owner of a copy-
righted article. Therefore, under paragraph (f)(2) of
this section, there has been a sale of a copyrighted
article rather than the grant of a lease.

February 18, 2025 788 Bulletin No. 2025–8
(3) Example 3: Lease of a computer program with
requirement to return disk—(i) Facts. The facts are
the same as those in paragraph (h)(1) of this section
(Example 1), except that Corp A only allows P, the
Country Z resident, to use Program X for one week.
At the end of that week, P must return the disk with
Program X on it to Corp A. P must also destroy any
copies made of Program X. If P wishes to use Pro-
gram X for a further period he must enter into a new
agreement to use the program for an additional charge.
(ii) Analysis. (A) Under paragraph (b)(1) of this
section, the transfer of a disk with a copy of Program
X from Corp A to P is a digital content transaction
with one element, which is the transfer of a copy
of Program X. Therefore, the transaction is treated
solely as a transfer of a copyrighted article under
paragraph (b)(1)(ii) of this section.
(B) Taking into account all of the facts and cir-
cumstances, P is not properly treated as the owner of
a copyrighted article. Therefore, under paragraph (f)
(2) of this section, there has been a lease of a copy-
righted article rather than a sale. Taking into account
the special characteristics of digital content as pro-
vided in paragraph (f)(3) of this section, the result
would be the same if P were required to destroy the
disk at the end of the one-week period instead of
returning it since Corp A can make additional copies
of the program at minimal cost.
(4) Example 4: Lease of a computer program with
electronic lock—(i) Facts. The facts are the same as
those in paragraph (h)(2) of this section (Example 2),
where P, the Country Z resident, receives Program X
from Corp A’s home page on the Internet, except that
P may only use Program X for a period of one week
at the end of which an electronic lock is activated and
the program can no longer be accessed. Thereafter,
if P wishes to use Program X, it must return to the
home page and pay Corp A to send an electronic key
to reactivate the program for another week.
(ii) Analysis. (A) Under paragraph (b)(1) of this
section, the digital transfer of a copy of Program X
from Corp A to P is a digital content transaction with
one element, which is the transfer of a copy of Pro-
gram X. Therefore, the transaction is treated solely
as a transfer of a copyrighted article under paragraph
(b)(1)(ii) of this section.
(B) As in paragraph (h)(3) of this section (Example
3), P is not properly treated as the owner of a copy-
righted article. Therefore, under paragraph (f)(2) of this
section, there has been a lease of a copyrighted article
rather than a sale. While P does retain Program X on
its computer at the end of the one-week period, as a
legal matter P no longer has the right to use the program
(without further payment) and, indeed, cannot use the
program without the electronic key. Functionally, Pro-
gram X is no longer on the hard drive of P’s computer.
Instead, the hard drive contains only a series of num-
bers which no longer perform the function of Program
X. Although in Example 3, P was required to physically
return the disk, taking into account the special charac-
teristics of digital content as provided in paragraph (f)
(3) of this section, the result in this paragraph (h)(4)
(Example 4) is the same as in Example 3.
(5) Example 5: Sale of copyright rights to a com-
puter program—(i) Facts. Corp A transfers a disk
containing Program X to Corp B, a Country Z corpo-
ration, and grants Corp B an exclusive license for the
remaining term of the copyright to copy and distrib-
ute an unlimited number of copies of Program X in
the geographic area of Country Z, prepare derivative
works based upon Program X, make public perfor-
mances of Program X, and publicly display Program
X. Corp B will pay Corp A a royalty of $y a year
for three years, which is the expected period during
which Program X will have commercially exploit-
able value (a period shorter than the copyright term).
Corp A has ascertained that the primary benefit or
value from the transaction to Corp B is derived from
the four legal rights obtained in Program X from
Corp A and not from the receipt of a copy of Program
X. The transfer of a copy of Program X is merely the
means by which Corp A provides Corp B access to
Program X in order to exercise its copyright rights.
(ii) Analysis. (A) The transaction between Corp
A and Corp B has multiple elements. One element
is the transfer of a disk with a copy of Program X,
which would be a digital content transaction described
under paragraph (b)(1)(ii) of this section (transfer of a
copyrighted article) if considered separately. Another
element is the grant of the right to make an unlimited
number of copies of Program X and distribute those
copies to the public, the right to prepare derivative
works based upon Program X, the right to make public
performances of Program X, and the right to publicly
display Program X, which would be described under
paragraphs (b)(1)(i) and (c)(2) of this section (transfer
of a copyright right) if considered separately.
(B) Because the transaction has multiple ele-
ments, one or more of which would be a digital con-
tent transaction if considered separately, paragraph
(b)(2) of this section provides that the transaction is
classified within a single category under paragraph
(b)(1) of this section if its predominant character is
described in that paragraph. Pursuant to paragraph
(b)(3)(i) of this section, the predominant character
of the transaction is based on the primary benefit or
value of the transaction to the customer, if it is rea-
sonably ascertainable. The predominant character of
this transaction is therefore the transfer of copyright
rights because the primary benefit or value received
by Corp B from the transaction is the ability to exer-
cise the copyright rights described in paragraph (c)
(2) of this section. Therefore, this transaction is
classified solely as a transfer of copyright rights
described in paragraph (b)(1)(i) of this section.
(C) Applying the all substantial rights test under
paragraph (f)(1) of this section, Corp A will be treated
as having sold copyright rights to Corp B. Corp B
has acquired all of the copyright rights in Program X,
has received the right to use them exclusively within
Country Z, and has received the rights for the remain-
ing life of the copyright in Program X. The fact that
the payments cease before the copyright term expires
is not controlling. Under paragraph (g)(1) of this sec-
tion, the fact that the agreement is labelled a license is
not controlling nor is the fact that Corp A receives a
sum labelled a royalty. (The result in this case would
be the same if the copy of Program X to be used for
the purposes of reproduction were transmitted elec-
tronically to Corp B, as a result of the application of
the rule of paragraph (g)(2) of this section.)
(6) Example 6: License of copyright right to
make copies of a computer program and distribute
to the public—(i) Facts. Corp A transfers a disk
containing Program X to Corp B, a Country Z cor-
poration, and grants Corp B the non-exclusive right
to reproduce and distribute for sale to the public an
unlimited number of disks containing Program X
at its factory in Country Z in return for a payment
related to the number of disks copied and sold. The
term of the agreement is two years, which is less
than the remaining life of the copyright. Corp A has
ascertained that the primary benefit or value from
the transaction to Corp B is derived from the right
to reproduce and distribute Program X and not from
the receipt of a copy of Program X. The transfer of
a copy of Program X is merely the means by which
Corp A provides Corp B access to Program X in
order to exercise its copyright rights.
(ii) Analysis. (A) The transaction between Corp
A and Corp B has multiple elements. One element
is the transfer of a disk with a copy of Program X,
which would be described under paragraph (b)(1)(ii)
of this section (transfer of a copyrighted article) if
considered separately. Another element is the grant
of the right to reproduce and distribute for sale to
the public an unlimited number of disks containing
Program X, which would be described under para-
graphs (b)(1)(i) and (c)(2)(i) of this section (transfer
of a copyright right) if considered separately.
(B) Because the transaction has multiple ele-
ments, one or more of which would be a digital con-
tent transaction if considered separately, paragraph
(b)(2) of this section provides that the transaction is
classified within a single category under paragraph
(b)(1) of this section if its predominant character is
described in that paragraph. Pursuant to paragraph
(b)(3) of this section, the predominant character
of the transaction is based on the primary benefit
or value of the transaction to the customer, if it is
reasonably ascertainable. The predominant charac-
ter of this transaction is therefore the transfer of a
copyright right because the primary benefit or value
received by Corp B is the right to reproduce and dis-
tribute for sale to the public copies of Program X.
Therefore, this transaction is classified solely as a
transfer of copyright rights described in paragraph
(b)(1)(i) of this section.
(C) Taking into account all of the facts and cir-
cumstances, there has been a license of Program X
to Corp B. Under paragraph (f)(1) of this section,
there has not been a transfer of all substantial rights
in the copyright to Program X because Corp A has
the right to enter into other licenses with respect to
the copyright of Program X, including licenses in
Country Z (or even to sell that copyright, subject to
Corp B’s interest). Corp B has acquired no right itself
to license the copyright rights in Program X. Finally,
the term of the license is for less than the remaining
life of the copyright in Program X.
(7) Example 7: Sale of disks containing copies
of a computer program to a distributor—(i) Facts.
Corp C, a distributor, enters into an agreement with
Corp A to purchase as many copies of Program X
on disk as it may from time-to-time request. Corp C
will then sell these disks to retailers. The disks are
shipped in boxes covered by shrink-wrap licenses
(identical to the license described in paragraph (h)(1)
of this section (Example 1)).
(ii) Analysis. (A) Under paragraph (b)(1) of this
section, the transfers of disks with copies of Program
X from Corp A to Corp C are digital content trans-
actions with one element, which is the transfer of
copies of Program X. Therefore, the transactions are

Bulletin No. 2025–8 789 February 18, 2025
classified solely as the transfer of copyrighted arti-
cles under paragraph (b)(1)(ii) of this section. The
use of the term license is not dispositive under para-
graph (g)(1) of this section.
(B) Taking into account all of the facts and cir-
cumstances, Corp C is properly treated as the owner
of copyrighted articles. Therefore, under paragraph
(f)(2) of this section, there has been a sale of copy-
righted articles.
(8) Example 8: License to a computer manufac-
turer of copyright rights to make and load copies of
a computer program onto the hard drive of comput-
ers—(i) Facts. Corp A transfers a disk containing
Program X to Corp D, a foreign corporation engaged
in the manufacture and sale of personal computers
in Country Z. Corp A grants Corp D the non-exclu-
sive right to copy Program X onto the hard drive of
an unlimited number of computers, which Corp D
manufactures, and to distribute those copies (on the
hard drive) to the public. The term of the agreement
is two years, which is less than the remaining life of
the copyright in Program X. Corp D pays Corp A an
amount based on the number of copies of Program
X it loads on to computers. Corp A has ascertained
that the primary benefit or value from the transac-
tion to Corp D is the ability to copy and distribute
Program X onto computers manufactured by Corp
D, not from the receipt of a copy of Program X. The
transfer of a copy of Program X is merely the means
by which Corp A provides Corp D access to Program
X in order to exercise its right to make and distribute
copies.
(ii) Analysis. (A) The transaction between Corp
A and Corp D has multiple elements. One element
is the transfer of a disk with a copy of Program X,
which would be described in paragraph (b)(1)(ii) of
this section (transfer of a copyrighted article) if con-
sidered separately. Another element is the grant of
the non-exclusive right to copy Program X onto the
hard drive of an unlimited number of computers and
distribute those copies (on the hard drive) to the pub-
lic, which would be described in paragraphs (b)(1)(i)
and (c)(2)(i) of this section (transfer of a copyright
right) if considered separately.
(B) Because the transaction has multiple ele-
ments, one or more of which would be a digital con-
tent transaction if considered separately, paragraph
(b)(2) of this section provides that the transaction is
classified within a single category under paragraph
(b)(1) of this section if its predominant character is
described in that paragraph. Pursuant to paragraph
(b)(3) of this section, the predominant character of
the transaction is based on the primary benefit or
value of the transaction to the customer, if it is rea-
sonably ascertainable. The predominant character of
this transaction is therefore the transfer of copyright
rights because the primary benefit or value received
by Corp D is the right to copy Program X onto the
hard drive of an unlimited number of computers and
sell those copies (on the hard drive) to the public.
Therefore, this transaction is classified solely as a
transfer of copyright rights described in paragraph
(b)(1)(i) of this section.
(C) Taking into account all of the facts and cir-
cumstances, there has been a license of Program X to
Corp D. Under paragraph (f)(1) of this section, there
has not been a transfer of all substantial rights in
the copyright to Program X because Corp A has the
right to enter into other licenses with respect to the
copyright of Program X, including licenses in Coun-
try Z (or even to sell that copyright, subject to Corp
D’s interest). Corp D has acquired no right itself to
license the copyright rights in Program X. Finally,
the term of the license is for less than the remaining
life of the copyright in Program X. The result would
be the same if Corp D included with the computers it
sells a copy of Program X on a disk.
(9) Example 9: Sale of disks containing a copy
of computer program to a computer manufacturer—
(i) Facts. The facts are the same as those in para-
graph (h)(8) of this section (Example 8), except that
Corp D, the Country Z corporation, receives phys-
ical disks. The disks are shipped in boxes covered
by shrink-wrap licenses (identical to the licenses
described in paragraph (h)(1) of this section (Exam-
ple 1)). The terms of these licenses do not permit
Corp D to make additional copies of Program X.
Corp D uses each individual disk only once to load
a single copy of Program X onto each separate com-
puter. Corp D transfers the disk with the computer
when it is sold.
(ii) Analysis. (A) Under paragraph (b)(1) of this
section, the transfers of disks with copies of Program
X from Corp A to Corp D are digital content trans-
actions with one element, which is the transfer of
copies of Program X. Therefore, the transaction is
classified solely as the transfer of copyrighted arti-
cles under paragraph (b)(1)(ii) of this section. Corp
D acquires the disks without the right to reproduce
and distribute publicly further copies of Program X.
(B) Taking into account all of the facts and cir-
cumstances, Corp D is properly treated as the owner
of copyrighted articles. Therefore, under paragraph
(f)(2) of this section, the transaction is classified as
the sale of a copyrighted article. The result would
be the same if Corp D used a single physical disk
to copy Program X onto each computer, and trans-
ferred an unopened box containing Program X with
each computer, if Corp D were not permitted to copy
Program X onto more computers than the number of
individual copies purchased.
(10) Example 10: Sale of a computer program
with right to load onto multiple employee worksta-
tions—(i) Facts. Corp A transfers a disk containing
Program X to Corp E and grants Corp E the right
to load Program X onto 50 individual workstations
for use only by Corp E employees at one location in
return for a one-time per-user fee (generally referred
to as a site license or enterprise license). If additional
workstations are subsequently introduced, Program
X may be loaded onto those machines for additional
one-time per-user fees. The license which grants the
rights to operate Program X on 50 workstations also
prohibits Corp E from selling the disk (or any of the
50 copies) or reverse engineering the program. The
term of the license is stated to be perpetual.
(ii) Analysis. (A) It must be determined whether
the transfer from Corp A to Corp E of a disk contain-
ing a copy of Program X and the right to load Pro-
gram X onto 50 individual workstations is a trans-
action with multiple elements. There is at least one
element, which is the transfer of a disk containing a
copy of Program X, which either is a digital content
transaction under paragraph (b)(1) of this section or
would be a digital content transaction if considered
separately. If there is no additional element, then
the transaction is classified as a transfer of a copy-
righted article pursuant to paragraph (b)(1)(ii) of this
section. If there is a second element, then paragraph
(b)(2) of this section applies and the transaction is
classified within a single category under paragraph
(b)(1) of this section if its predominant character is
described in that paragraph. The grant of a right to
copy, unaccompanied by the right to distribute those
copies to the public, is not the transfer of a copyright
right described in paragraph (c)(2) of this section.
Therefore, there is no second element in this transac-
tion and it is classified solely as the transfer of copy-
righted articles (50 copies of Program X).
(B) Taking into account all of the facts and cir-
cumstances, Corp E is properly treated as the owner
of copyrighted articles. Therefore, under paragraph
(f)(2) of this section, there has been a sale of copy-
righted articles rather than the grant of a lease. Not-
withstanding the restriction on sale, other factors
such as, for example, the risk of loss and the right
to use the copies in perpetuity outweigh, in this case,
the restrictions placed on the right of alienation.
(C) The result would be the same if Corp E were
permitted to copy Program X onto an unlimited
number of workstations used by employees of either
Corp E or other persons that had a relationship to
Corp E specified in paragraph (g)(3) of this section.
(11) Example 11: Sale of a computer program
with right to make available to multiple employees
via local area network—(i) Facts. The facts are
the same as those in paragraph (h)(10) of this sec-
tion (Example 10), except that Corp E, the Country
Z corporation, acquires the right to make Program
X available to workstation users who are Corp E
employees by way of a local area network (LAN).
The number of users that can use Program X on the
LAN at any one time is limited to 50. Corp E pays a
one-time fee for the right to have up to 50 employees
use the program at the same time.
(ii) Analysis. Under paragraph (g)(2) of this sec-
tion the mode of utilization is irrelevant. Therefore,
as in paragraph (h)(10) of this section (Example 10),
this is a digital content transaction with a single
element that is classified as the transfer of a copy-
righted article pursuant to paragraph (b)(1)(ii) of this
section. Under the benefits and burdens test of para-
graph (f)(2) of this section, this transaction is a sale
of copyrighted articles. The result would be the same
if an unlimited number of Corp E employees were
permitted to use Program X on the LAN or if Corp E
were permitted to copy Program X onto LANs main-
tained by persons that had a relationship to Corp E
specified in paragraph (g)(3) of this section.
(12) Example 12: Lease of a computer program
with right to receive upgrades and technical support
services—(i) Facts. The facts are the same as in para-
graph (h)(11) of this section (Example 11), except
that instead of paying a one-time fee, Corp E pays
a monthly fee to Corp A calculated with reference to
the permitted maximum number of users (which can
be changed) and the computing power of Corp E’s
server. In return for this monthly fee, Corp E receives
the right to receive upgrades of Program X when
they become available. The agreement may be termi-
nated by either party at the end of any month. When
the disk containing the upgrade is received, Corp E
must return the disk containing the earlier version of
Program X to Corp A. If the contract is terminated,

February 18, 2025 790 Bulletin No. 2025–8
Corp E must delete (or otherwise destroy) all cop-
ies made of the current version of Program X. The
agreement also requires Corp A to provide technical
support in the form of troubleshooting and configu-
ration assistance to Corp E, but the agreement does
not allocate the monthly fee between the right to use
Program X, the right to receive upgrades of Program
X, and the technical support services. The amount of
technical support that Corp A will provide to Corp E
is not foreseeable when the contract is entered into
but is expected to be minimal. Corp A has ascer-
tained that the primary benefit or value to Corp E
from the transaction is the right to use Program X on
the LAN (without the ability to exercise any of the
rights described in paragraphs (c)(2)(i) through (iv)
of this section), not the receipt of technical support
services with respect to Program X.
(ii) Analysis. (A) The transaction between Corp
A and Corp E has multiple elements. One element
is the transfer of a disk with a copy of Program X,
which would be described in paragraph (b)(1)(ii) of
this section (transfer of a copyrighted article) if con-
sidered separately. Another element is the provision
of technical support services, which are not services
for the development or modification of Program X
described in paragraph (d) of this section because
Corp E has received no copyright rights with respect
to Program X. Thus, the technical support services
would not be described in any of the categories in
paragraph (b)(1) of this section if considered sepa-
rately.
(B) Because the transaction has multiple ele-
ments, one or more of which would be a digital con-
tent transaction if considered separately, paragraph
(b)(2) of this section provides that the transaction is
classified within a single category under paragraph
(b)(1) of this section if its predominant character is
described in that paragraph. Pursuant to paragraph
(b)(3) of this section, the predominant character of
the transaction is based on the primary benefit or
value of the transaction to the customer. The predom-
inant character of this transaction is therefore the
transfer of a copyrighted article because the primary
benefit or value received by Corp E is the right to use
Program X. Accordingly, this transaction is classified
solely as a transfer of a copyrighted article described
in paragraph (b)(1)(ii) of this section.
(C) Taking into account all facts and circum-
stances, under the benefits and burdens test Corp
E is not properly treated as the owner of the copy-
righted article. Corp E does not receive the right to
use Program X in perpetuity, but only for so long
as it continues to make payments. Corp E does not
have the right to purchase Program X on advanta-
geous (or, indeed, any) terms once a certain amount
of money has been paid to Corp A or a certain period
has elapsed (which might indicate a sale). Once the
agreement is terminated, Corp E will no longer pos-
sess any copies of Program X, current or superseded.
Therefore, under paragraph (f)(2) of this section
there has been a lease of a copyrighted article.
(13) Example 13: Sale of a computer program
along with right to receive upgrades—(i) Facts. The
facts are the same as those in paragraph (h)(12) of
this section (Example 12), except that, while Corp
E must return copies of Program X as new upgrades
are received, if the agreement terminates, Corp E
may keep the latest version of Program X (although
Corp E is still prohibited from selling or otherwise
transferring any copy of Program X).
(ii) Analysis. For the reasons stated in paragraph
(h)(10)(ii)(B) of this section (Example 10), the trans-
fer of the program will be treated as a sale of a copy-
righted article rather than as a lease.
(14) Example 14: Sale of a modified computer
program—(i) Facts. Corp G enters into a contract
with Corp A for Corp A to modify Program X so
that it can be used at Corp G’s facility in Country Z.
Under the contract, Corp G is to acquire one copy of
the program on a disk and the right to use the pro-
gram on 5,000 workstations. The contract requires
Corp A to rewrite elements of Program X so that it
will conform to Country Z accounting standards and
states that Corp A retains all copyright rights in the
modified Program X. The agreement between Corp
A and Corp G is otherwise identical as to rights and
payment terms as the agreement described in para-
graph (h)(10) of this section (Example 10).
(ii) Analysis. (A) It must be determined whether
the transfer of disks with modified copies of Pro-
gram X from Corp A to Corp G is a transaction with
multiple elements. There is at least one element, the
transfer of copies of Program X, which either is a
digital content transaction under paragraph (b)(1) of
this section or would be a digital content transaction
if considered separately. If there is no additional ele-
ment, then the transaction is classified as a transfer
of a copyrighted article pursuant to paragraph (b)(1)
(ii) of this section. If there is a second element, then
paragraph (b)(2) of this section applies and the trans-
action is classified within a single category under
paragraph (b)(1) of this section if its predominant
character is described in that paragraph. Pursuant
to paragraph (d) of this section, the modifications
made by Corp A before transferring Program X to
Corp G do not constitute the provision of services
for the development or modification of digital con-
tent because Corp A retains all copyright rights with
respect to the modified software. Therefore, there is
no second element in this transaction and it is clas-
sified solely as the transfer of copyrighted articles.
(B) Taking into account all facts and circum-
stances, Corp G is properly treated as the owner of
copyrighted articles. Therefore, under paragraph (f)
(2) of this section, there has been the sale of a copy-
righted article rather than the grant of a lease.
(15) Example 15: Provision of services for devel-
opment of a computer program—(i) Facts. Corp H
enters into a license agreement for a new computer
program. Program Q is to be written by Corp A. Corp
A and Corp H agree that Corp A is writing Program Q
for Corp H and that, when Program Q is completed, the
copyright in Program Q will belong to Corp H. Corp
H gives instructions to Corp A programmers regarding
program specifications. Corp H agrees to pay Corp A
a fixed monthly sum during development of the pro-
gram. If Corp H is dissatisfied with the development
of the program, it may cancel the contract at the end
of any month. In the event of termination, Corp A will
retain all payments, while any procedures, techniques
or copyrightable interests will be the property of Corp
H. All of the payments are labelled royalties. There
is no provision in the agreement for any continuing
relationship between Corp A and Corp H, such as the
furnishing of updates of the program, after completion
of the modification work.
(ii) Analysis. Under paragraph (b)(1) of this
section, the provision of computer program devel-
opment services by Corp A to Corp H is a digital
content transaction with one element, which is the
provision of services for the development or modifi-
cation of digital content. Under paragraph (d) of this
section, the transaction between Corp A and Corp H
involves the provision of services for the develop-
ment of a computer program because Corp H bears
all of the risks of loss associated with the develop-
ment of Program Q and is the owner of all copyright
rights in Program Q. Taking into account all of the
facts and circumstances, Corp A is treated as pro-
viding services to Corp H described in paragraph
(b)(1)(iii) of this section. Under paragraph (g)(1) of
this section, the fact that the agreement is labelled a
license is not controlling (nor is the fact that Corp A
receives a sum labelled a royalty).
(16) Example 16: Provision of know-how by
computer programmers—(i) Facts. Corp A and Corp
I, a Country Z corporation, agree that a development
engineer employed by Corp A will travel to Country
Z to provide know-how relating to certain techniques
not generally known to computer programmers,
which will enable Corp I to more efficiently create
computer programs. These techniques represent the
product of experience gained by Corp A from work-
ing on many computer programming projects, and
are furnished to Corp I under nondisclosure condi-
tions. Such information is property subject to trade
secret protection.
(ii) Analysis. The provision of know-how with
respect to computer programming techniques
by Corp A’s development engineer to Corp I is
described in paragraph (e) of this section. Therefore,
the transaction is a digital content transaction with
one element, which is the provision of know-how.
The transaction is classified solely as the provision
of know-how pursuant to paragraph (b)(1)(iv) of this
section.
(17) Example 17: Sale of development program
in transaction with multiple elements—(i) Facts.
Corp A transfers a disk containing Program Y to Corp
E in exchange for a single fixed payment. Program
Y is a computer program development program,
which is used to create other computer programs,
consisting of several components, including libraries
of reusable software components that serve as gen-
eral building blocks in new software applications.
Because a computer program created with the use of
Program Y will not operate unless the libraries are
also present, the license agreement between Corp A
and Corp E grants Corp E the right to distribute cop-
ies of the libraries with any program developed using
Program Y. The license agreement is otherwise iden-
tical to the license agreement in paragraph (h)(1) of
this section (Example 1). Corp A cannot reasonably
ascertain the primary benefit or value of the transac-
tion to Corp E. A customer like Corp E derives two
benefits from this or a substantially similar transac-
tion, the first of which is the ability to use Program Y
to develop new software and the second of which is
the right to utilize the libraries and reusable software
components in Program Y in distributed programs.
Corp A possesses data arising from market research
and customer surveys indicating that customers uti-
lize Program Y primarily for its computer program
development features and do not make significant

Bulletin No. 2025–8 791 February 18, 2025
use of the libraries of reusable software components.
The libraries and reusable software components are
not significant components of any overall new pro-
gram created by using Program Y.
(ii) Analysis. (A) The transaction between Corp
A and Corp E has multiple elements. One element
is the transfer of a disk with a copy of Program Y,
which would be described in paragraph (b)(1)(ii) of
this section (transfer of a copyrighted article) if con-
sidered separately. Another element is the grant of the
right to distribute copies of the libraries of reusable
software components with any program developed
using Program Y, which would be described in para-
graphs (b)(1)(i) and (c)(2)(i) of this section (transfer
of a copyright right) if considered separately.
(B) Because the transaction has multiple ele-
ments, one or more of which would be a digital con-
tent transaction if considered separately, paragraph
(b)(2) of this section provides that the transaction is
classified within a single category under paragraph
(b)(1) of this section if its predominant character is
described in that paragraph. Pursuant to paragraph
(b)(3)(i) of this section, the predominant character
of a transaction is generally based on the primary
benefit or value of the transaction to the customer. If
the primary benefit or value is not reasonably ascer-
tainable, paragraph (b)(3)(ii) of this section provides
that the predominant character of a transaction may
be determined based on the primary benefit or value
to a typical customer of a substantially similar trans-
action. This primary benefit or value to a typical cus-
tomer can be identified through actual data about use
or access pursuant to paragraph (b)(3)(ii)(A) of this
section, or if that data is not available, by other evi-
dence indicative of the primary benefit or value to a
typical customer pursuant to paragraph (b)(3)(ii)(B)
of this section. Although there are two benefits in this
type of transaction, Corp A possesses data indicat-
ing that a typical customer primarily uses Program
Y because of its computer program development fea-
tures, rather than the right to distribute reusable com-
ponents. This is reinforced by the fact that programs
created using Program Y do not contain libraries of
reusable software components as significant compo-
nents. These facts indicate that the primary benefit
or value to a typical customer arises from the ability
to use Program Y, rather than the right to distribute
reusable components. Therefore, the predominant
character of this transaction is the transfer of a copy
of Program Y, and this transaction is thus classi-
fied solely as the transfer of a copyrighted article
described in paragraph (b)(1)(ii) of this section.
(C) Taking into account all the facts and circum-
stances, Corp E is properly treated as the owner of
a copyrighted article. Therefore, under paragraph (f)
(2) of this section, there has been the sale of a copy-
righted article rather than the grant of a lease.
(18) Example 18: Sale of a computer program
with right to make modifications—(i) Facts. Corp
A transfers a disk containing Program X to Corp E.
The disk contains both the object code and the source
code to Program X, and the license agreement grants
Corp E the right to modify the source code to correct
minor errors and make minor adaptations to Program
X so it will function on Corp E’s computer; as well as
the right to recompile the modified source code. The
license does not grant Corp E the right to distribute
the modified Program X to the public. The license is
otherwise identical to the license agreement in para-
graph (h)(1) of this section (Example 1). Corp A has
ascertained that the primary benefit or value received
by Corp E from the transaction is the core function-
ality of Program X rather than the limited rights to
modify the source code.
(ii) Analysis. (A) The transaction between Corp
A and Corp E has multiple elements. One element
is the transfer of a disk with a copy of Program X,
which would be described in paragraph (b)(1)(ii)
of this section (transfer of a copyrighted article) if
considered separately. Another element is the grant
of the right to modify the source code to Program
X and recompile the modified source code to create
new code to correct minor errors, and to make minor
adaptations to Program X, which would be described
in paragraphs (b)(1)(i) and (c)(2)(ii) of this section
(transfer of a copyright right) if considered sepa-
rately.
(B) Because the transaction has multiple ele-
ments, one or more of which would be a digital con-
tent transaction if considered separately, paragraph
(b)(2) of this section provides that the transaction is
classified within a single category under the catego-
ries described under paragraph (b)(1) of this section
if its predominant character is described in that para-
graph. Pursuant to paragraph (b)(3) of this section,
the predominant character of the transaction is based
on the primary benefit or value of the transaction to
the customer, if it is reasonably ascertainable. Since
the primary benefit or value received by Corp E is
the core functionality of Program X, rather than the
limited rights to modify the source code, the predom-
inant character of this transaction is the transfer of
a copyrighted article. Therefore, this transaction is
classified solely as a transfer of a copyrighted article
under paragraph (b)(1)(ii) of this section.
(C) Taking into account all the facts and circum-
stances, Corp E is properly treated as the owner of
a copyrighted article. Therefore, under paragraph (f)
(2) of this section, there has been the sale of a copy-
righted article rather than the grant of a lease.
(19) Example 19: License to website opera-
tor to make and sell copies of electronic books via
download—(i) Facts. Corp A operates a website that
offers electronic books for download onto custom-
ers’ computers or other electronic devices. The books
offered are protected by copyright law. In a trans-
action between Corp A and a content owner, Corp
A receives from the content owner a digital master
copy of a book, which Corp A downloads onto its
server. Corp A receives the non-exclusive right to
reproduce an unlimited number of copies of the book
for purposes of distribution and sale to the public.
Corp A pays the content owner a specified amount
for each copy sold to a customer. Corp A may not
transfer any of the rights it receives from the content
owner. The term of the agreement Corp A has with
the content owner is shorter than the remaining life
of the copyright. The content owner has ascertained
that the primary benefit or value Corp A receives in
the transaction is the right to reproduce and distrib-
ute an unlimited number of copies of the book and
not the transfer of a copy of the book. In a separate
transaction, Corp A charges a customer a fixed fee
for each book purchased. When purchasing a book
from Corp A on Corp A’s website, the customer must
acknowledge the terms of a license agreement with
the content owner that states that the customer may
download and view the electronic book in perpetuity
but may not reproduce, distribute, or sell copies of it.
Once the customer downloads the book from Corp
A’s server onto a device, the customer may access
and view the book from that device, which does not
need to be connected to the Internet for the customer
to view the book. The customer owes no additional
payment to Corp A for the ability to view the book
in the future.
(ii) Analysis. (A) Notwithstanding the license
agreement between each customer and the content
owner granting the customer rights to use the book,
the relevant transactions are the transfer of a mas-
ter copy of the book along with the grant from the
content owners to Corp A of the right to reproduce
and sell to the public copies of the books, and the
transfers of copies of the books by Corp A to cus-
tomers. Although the content owner is identified as
a party to the license agreement memorializing the
customer’s rights with respect to the book, each cus-
tomer obtains those rights directly from Corp A, not
from the content owner. Under paragraph (b)(1) of
this section, the download of a copy of a book by
a customer is a digital content transaction with one
element, which is the transfer of a digital copy of a
book. Therefore, the transaction is treated solely as a
transfer of a copyrighted article under paragraph (b)
(1)(ii) of this section. Under the benefits and burdens
test of paragraph (f)(2) of this section, the transac-
tion is classified as a sale and not a lease, because
the customer receives the right to view the book in
perpetuity on its device.
(B) The transaction between the content owner
and Corp A has multiple elements. One element is the
transfer of a master copy of the book, which would
be described in paragraph (b)(1)(ii) of this section
(transfer of a copyrighted article) if considered sep-
arately. Another element is the grant of the right to
reproduce and sell an unlimited number of copies to
customers, which would be described in paragraphs
(b)(1)(i) and (c)(2)(i) of this section (transfer of a
copyright right) if considered separately. Because
the transaction has multiple elements, one or more of
which would be a digital content transaction if con-
sidered separately, paragraph (b)(2) of this section
provides that the transaction is classified within a
single category under the categories described under
paragraph (b)(1) of this section if its predominant
character is described in that paragraph. Pursuant
to paragraph (b)(3) of this section, the predominant
character of the transaction is based on the primary
benefit or value of the transaction to the customer,
if it is reasonably ascertainable. Since the primary
benefit or value Corp A receives in the transaction
is the right to reproduce and distribute an unlimited
number of copies, the predominant character of this
transaction is the transfer of a copyright right. There-
fore, this transaction is classified solely as a transfer
of copyright rights described in paragraph (b)(1)(i)
of this section.
(C) Taking into account all of the facts and cir-
cumstances, there has been a license of books to
Corp A. Under paragraph (f)(1) of this section, there
has not been a transfer of all substantial rights in the
copyright rights to the books because each content
owner has the right to enter into other licenses with
respect to the copyright of their book. Corp A has

February 18, 2025 792 Bulletin No. 2025–8
acquired no right itself to license the copyrights in
the books. Finally, the terms of the licenses are for
less than the remaining lives of the copyrights in the
books.
(20) Example 20: Internet platform operator as
agent for application developers—(i) Facts. Corp
A operates a platform on the Internet that offers
applications for download onto a customer’s mobile
phone. Under general tax principles, Corp A and an
application developer establish an agency relationship
whereby Corp A acts as the agent to offer the applica-
tion for sale to customers on behalf of the application
developer. The applications are protected by copy-
right law. Under the agreement between Corp A and
the application developer, Corp A agrees to provide
the application developer with platform and agency
services to facilitate the sale of the application to cus-
tomers. Corp A also provides the application devel-
oper with hosting services to host the application on
Corp A’s servers for download by the customers. Corp
A receives a digital master copy of the application
along with a non-exclusive right to make copies of the
application and allow customers to download copies
of the application from Corp A’s platform. Corp A
has ascertained that the primary benefit or value from
the transaction received by the application developer
is the platform and agency services that Corp A pro-
vides. Corp A receives the right to make copies of the
application merely to perform its activities as an agent
on behalf of the application developer. When purchas-
ing an application on Corp A’s platform, the customer
must acknowledge the terms of a license agreement
with the application developer that states that the cus-
tomer may use the application but may not reproduce
or distribute copies of it. In addition, the agreement
provides that the customer may download the applica-
tion onto only one mobile phone at a time. A customer
does not need to be connected to the Internet to access
the application. The customer owes no additional
payment to Corp A or the application developer for
the ability to use the application in perpetuity. Corp
A retains a fixed percentage of each purchase price of
the application and remits the remaining balance to
the application developer.
(ii) Analysis. (A) The transaction between Corp
A and the application developer has multiple ele-
ments. One element is the transfer of a master copy
of an application by the application developer to
Corp A, which would be described in paragraph (b)
(1)(ii) of this section (transfer of a copyrighted arti-
cle) if considered separately. Another element is the
transfer of the right to make and distribute copies of
the application by the application developer to Corp
A, which would be described in paragraphs (b)(1)
(i) and (c)(2) of this section (transfer of a copyright
right) if considered separately. A third element is
the platform and agency services provided by Corp
A to the application developer, which would not be
described in this section if considered separately. A
fourth element is the hosting services provided by
Corp A to the application developer, which would
be described in §1.861-19 if considered separately.
Under the facts and circumstances, although Corp A
receives a copy of the application and the right to
make and distribute copies of the application, Corp
A receives this copy and right merely to facilitate
the sale of applications on behalf of the application
developer.
(B) Because the transaction has multiple ele-
ments, one or more of which would be a digital con-
tent transaction if considered separately, paragraph
(b)(2) of this section provides that the transaction is
classified within a single category under the catego-
ries described under paragraph (b)(1) of this section
if its predominant character is described in that para-
graph. Pursuant to paragraph (b)(3) of this section,
the predominant character of the transaction is based
on the primary benefit or value of the transaction to
the customer, if it is reasonably ascertainable. Since
the primary benefit or value the application devel-
oper receives in the transaction is the platform and
agency services, the predominant character of this
transaction is the platform and agency services and
not a digital content transaction nor a cloud trans-
action.
(C) The transfer of a copy of an application from
the application developer to a customer is a digital
content transaction with one element, which is the
transfer of a copy of a digital program. Therefore,
the transaction is treated solely as a transfer of a
copyrighted article under paragraph (b)(1)(ii) of this
section. Under the benefits and burdens test of para-
graph (f)(2) of this section, this transaction is a sale
of a copyrighted article because a customer has the
right to use the application in perpetuity.
(21) Example 21: Movies and TV shows avail-
able for stream, rent, or purchase—(i) Facts. Corp
A offers a catalog of movies and TV shows, all of
which are subject to copyright protection. Corp
A gives customers several options for viewing
the content, each of which has a separate price. A
“streaming” option allows a customer to view the
video, which is hosted on Corp A’s servers, while
connected to the Internet for as many times as the
customer wants during a limited period. A “rent”
option allows a customer to download the video to its
computer or other electronic device (which does not
need to be connected to the Internet for viewing) and
watch the video as many times as the customer wants
for a limited period, after which an electronic lock
is activated and the customer may no longer view
the content. A “purchase” option allows a customer
to download the video and view it as many times as
the customer chooses with no end date. Under all
three options, the customer may view the video but
may not reproduce or distribute copies of it, prepare
derivative works based on it, or publicly display it.
(ii) Analysis. (A) With respect to the “rent”
option, under paragraph (b)(1) of this section the
download of a video by a customer is a digital content
transaction with one element, which is the transfer
of a copy of the video. Therefore, the transaction is
treated solely as the transfer of a copyrighted article
under paragraph (b)(1)(ii) of this section. Although
a customer will retain a copy of the content at the
end of the payment term, the customer cannot access
the content after the electronic lock is activated. The
activation of the electronic lock is the equivalent of
having to return the copy. Therefore, the transaction
is classified as a lease of a copyrighted article under
paragraph (f)(2) of this section because the custom-
er’s right to view the videos is for a limited period.
(B) With respect to the “purchase” option, under
paragraph (b)(1) of this section the download of a
video by a customer is a digital content transaction
with one element, which is the transfer of a copy
of the video. Therefore, the transaction is treated
solely as the transfer of a copyrighted article under
paragraph (b)(1)(ii) of this section. The transac-
tion is classified as a sale of a copyrighted article
under paragraph (f)(2) of this section because the
customer receives the right to view the videos in
perpetuity.
(C) With respect to the “streaming” option, the
transaction is Corp A’s grant of the right to its cus-
tomers to view the movies or shows while connected
to the Internet for a limited period. There is no trans-
fer of any copyright rights described in paragraph (c)
(2) of this section. There is also no transfer of a copy-
righted article because the content is not downloaded
by a customer, but rather, is accessed through an
on-demand network. The transaction also does not
constitute the provision of services for the develop-
ment of digital content or the provision of know-how
under paragraph (b)(1) of this section. Therefore,
the transaction is not a digital content transaction
described in paragraph (b)(1) of this section. Instead,
the transaction is a cloud transaction that is classified
under §1.861-19. See §1.861-19(b).
(22) Example 22: Website offering third-party
videos via stream—(i) Facts. Corp A operates a web-
site that allows customers to stream videos that third-
party content creators upload to Corp A’s website.
Corp A has advertising contracts with third-party
advertisers pursuant to which Corp A earns advertis-
ing revenue when a customer views a video. Custom-
ers can either stream videos for free with advertise-
ments or can pay a subscription fee to stream videos
without advertisements. Under the contract between
Corp A and content creators, content creators retain
all ownership rights in their videos and must own or
have the necessary rights to publish their videos. The
contract also states that content creators grant Corp A
a non-exclusive license to use, reproduce, distribute,
and display their videos in connection with Corp A’s
website, and grant customers a non-exclusive license
to view the videos. These licenses terminate within a
commercially reasonable time after a content creator
removes or deletes a video from Corp A’s website.
Content creators have ascertained that the primary
benefit or value Corp A receives from transactions
with content creators is the right to use, reproduce,
distribute, and display their videos. Corp A pays
content creators a percentage of advertising revenue
generated from the videos and a percentage of sub-
scription fees.
(ii) Analysis. (A) The transaction between Corp
A and the content creators has multiple elements.
One element is the uploading of a video by a content
creator, which would be described in paragraph (b)
(1)(ii) of this section (transfer of a copyrighted arti-
cle) if considered separately. Another element is the
grant by content creators to Corp A of the right to
use, reproduce, distribute, and display their videos,
which would be described in paragraph (b)(1)(i) of
this section (transfer of a copyright right) if consid-
ered separately. Content creators are not providing
content development services to Corp A under para-
graph (d) of this section because content creators
own the copyright rights in the videos.
(B) Because the transaction has multiple ele-
ments, one or more of which would be a digital con-
tent transaction if considered separately, paragraph
(b)(2) of this section provides that the transaction

Bulletin No. 2025–8 793 February 18, 2025
is classified within a single category under the cat-
egories described under paragraph (b)(1) of this
section if its predominant character is described in
that paragraph. Pursuant to paragraph (b)(3) of this
section, the predominant character of the transaction
is based on the primary benefit or value of the trans-
action to the customer. The predominant character of
the transaction is therefore the transfer of copyright
rights because the primary benefit or value received
by Corp A is the right to use, reproduce, distribute,
and display videos. Accordingly, this transaction is
characterized solely as a transfer of a copyright right
as described in paragraphs (b)(1)(i) of this section.
(C) Taking into account all of the facts and cir-
cumstances, there has been a license of videos to
Corp A. Under paragraph (f)(1) of this section, there
has not been a transfer of all substantial rights in the
copyright rights to the videos because each content
owner has the right to enter into other licenses with
respect to the copyright of their videos. Corp A has
acquired no right itself to license the copyrights in
the videos. Finally, the terms of the licenses are for
less than the remaining lives of the copyrights in the
videos.
(D) For both the free streaming and subscription
streaming transactions between Corp A and cus-
tomers, there is no transfer of any copyright rights
described in paragraph (c)(2) of this section. There
is also no transfer of a copyrighted article, because
the content is not downloaded by a customer, but
rather is accessed through an on-demand network.
The transactions also do not constitute the provision
of services for the development of digital content or
the provision of know-how under paragraph (b)(1)
of this section. Therefore, paragraph (b)(1) of this
section does not apply to such transactions. Instead,
both transactions are cloud transactions that are clas-
sified under §1.861-19. See §1.861-19(b).
(23) Example 23: Sale of computer programs
electronically through a reseller—(i) Facts. Corp A
owns the copyright to software (Program S). Corp A
hosts Program S on its servers. Corp A grants Corp
B, a foreign corporation wholly owned by Corp A,
the right to distribute copies of Program S (without
the right to reproduce copies of Program S) to Corp
B’s customers that are located in Corp B’s country.
Under the agreement between Corp A and Corp
B, Corp B pays Corp A a fixed fee for each copy
of Program S that Corp A delivers to a customer. In
separate transactions, customers pay Corp B for the
right to receive digital copies of Program S that they
may then use in perpetuity without further payment.
Corp B is responsible for managing the purchase/
sale interaction with Corp B’s customers, including
invoicing and collections. Corp A is responsible for
creating and delivering the digital copies of Program
S to Corp B’s customers from Corp A’s servers. Corp
B does not perform any functions to provide access
to Program S.
(ii) Analysis. (A) Although there is a single
contract between Corp A and Corp B that grants
a legal right to Corp B with respect to Program S,
that right (the right to distribute) is not a copyright
right described in paragraphs (b)(1)(i) and (c)(2) of
this section. Instead, the transactions between Corp
A and Corp B and then Corp B and its customers
are functionally and economically equivalent to
back-to-back transfers of copyrighted articles. The
transfers are only superficially different from those
described in paragraph (h)(24) of this section (Exam-
ple 24) where the reseller acquires product keys and
sells them on to customers. Therefore, each sale of a
copy of Program S by Corp B to a customer should
be viewed as a transfer of a copyrighted article from
Corp A to Corp B and then from Corp B to the cus-
tomer.
(B) The transaction between Corp A and Corp B
is a digital content transaction with a single element
that is classified as a transfer of a copyrighted arti-
cle described in paragraph (b)(1)(ii) of this section.
There are no additional elements because Corp B’s
receipt of the right to distribute copies of Program S
(without the right to make copies) is not a copyright
right described in paragraph (c)(2) of this section.
Under the benefits and burdens test of paragraph (f)
(2) of this section, the transfer is classified as the sale
of a copyrighted article.
(C) The transaction between Corp B and a cus-
tomer is a digital content transaction with a single
element that is classified as a transfer of a copy-
righted article described in paragraph (b)(1)(ii) of
this section. Under the benefits and burdens test of
paragraph (f)(2) of this section, this transaction is a
sale of a copyrighted article because the customer
has the right to use the application in perpetuity.
(24) Example 24: Sale of video games with online
and offline functionality through retailers using dig-
ital keys—(i) Facts. Corp A owns the copyright in a
computer program (Program Y). Corp A creates dig-
ital keys that allow for the download of one copy of
Program Y from Corp A’s website. Corp A sells these
digital keys to retailers for a one-time fee per key,
and the retailers do not use Program Y, but instead
sell them in separate transactions to customers for a
one-time fee per key. Corp A ascertains that the pri-
mary benefit or value to retailers from the purchase
of digital keys from Corp A is the right to further
transfer the digital keys to customers. The retailers
cannot reasonably ascertain the primary benefit or
value that their specific customers derive from Pro-
gram Y, nor is there data available to the retailers
about how their customers typically use Program Y.
Program Y is a video game that contains online and
offline features, both of which can be played without
paying an additional game-specific cost after paying
the one-time fee to purchase a key. The offline feature
is comprised of a single-player story that does not
require any Internet connection to play. The online
feature is comprised of the ability to play competi-
tive matches against other players that are hosted on
servers owned by Corp A. The competitive matches
require an ongoing connection to the Internet to play.
Neither the customers nor the retailer receives any
copyright rights described in paragraph (c)(2) of this
section with respect to Program Y. Customers can
use Program Y in perpetuity. Program Y is primarily
marketed as a single-player game in television and
online advertising, with only brief mentions of the
multiplayer mode in print advertising. The develop-
ment cost for Program Y was allocated 40% to devel-
oping the single-player content, 20% to developing
the multiplayer content, and 40% to developing con-
tent that is used by both types of content (e.g., cost of
developing the game engine).
(ii) Analysis. (A) The transaction between Corp
A and a retailer has multiple elements. One element
is the transfer of a key with the right to download
a copy of Program Y for use to play the offline
story, which would be a digital content transaction
described in paragraph (b)(1)(ii) of this section
(transfer of a copyrighted article) if considered sep-
arately. Another element is the transfer of the same
key with a copy of Program Y providing on-demand
network access to digital content in the form of com-
petitive multiplayer functionality, which would be a
cloud transaction described in §1.861-19(b) if con-
sidered separately.
(B) Because the transaction has multiple ele-
ments, one of which would be a digital content trans-
action if considered separately and one of which
would be a cloud transaction if considered sepa-
rately, paragraph (b)(2) of this section provides that
the transaction is classified within a single category
under paragraph (b)(1) of this section if its predom-
inant character is described in that paragraph, or the
transaction is classified solely as a cloud transaction
if its predominant character is a cloud transaction
pursuant to §1.861-19(c)(2). Pursuant to paragraph
(b)(3)(i) of this section, the predominant character
of the transaction is based on the primary benefit
or value of the transaction to the customer, if it is
reasonably ascertainable. The predominant character
of this transaction is therefore the transfer of copy-
righted articles because the primary benefit or value
received by a retailer is the right to further transfer
the same copyrighted articles to customers in the
form of digital keys. The retailers do not have any
intent to utilize the cloud functionality of the digital
keys, although they do have the right to do so. There-
fore, this transaction is classified solely as a transfer
of copyrighted articles described in paragraph (b)(1)
(ii) of this section.
(C) Under the benefits and burdens test of para-
graph (f)(2) of this section, the transfer between
Corp A and a retailer is classified as the sale of a
copyrighted article because the retailer has the right
to use, or sell, Program Y in perpetuity without fur-
ther payment.
(D) The transfer of a key (with the right to down-
load a copy of Program Y) by a retailer to a cus-
tomer also contains the same two elements as each
transaction between Corp A and a retailer. However,
a retailer cannot reasonably ascertain the primary
benefit or value derived by a specific customer from
Program Y. In such situations, paragraph (b)(3)(ii) of
this section provides that the predominant character
of a transaction may be determined based on the pri-
mary benefit or value to a typical customer of a sub-
stantially similar transaction. This primary benefit or
value to a typical customer can be identified through
actual data about use or access pursuant to paragraph
(b)(3)(ii)(A) of this section, or if that data is not
available, by using other evidence indicative of the
primary benefit or value to a typical customer pursu-
ant to paragraph (b)(3)(ii)(B) of this section. Because
the retailers do not have available data about how
customers use Program Y, they may use the mar-
keting with respect to Program Y to determine that
its predominant character is that of a transfer of a
copyrighted article described in paragraph (b)(1)(ii)
of this section. The relative development costs of the
offline and online components of the game could
also be used if they are known to a retailer. There-
fore, the transfer between a retailer and a customer

February 18, 2025 794 Bulletin No. 2025–8
of a digital key containing the right to download a
copy of Program Y is classified solely as a transfer of
a copyrighted article.
(E) Under the benefits and burdens test of para-
graph (f)(2) of this section, the transfer between a
retailer and a customer is classified as the sale of
a copyrighted article because the customer has the
right to use Program Y in perpetuity without further
payment.
(25) Example 25: Source of income from the
sale of a copyrighted article transferred through
an electronic medium—(i) Facts. Corp A is the par-
ent company of a world-wide group of affiliated
companies. Corp B is a foreign corporation wholly
owned by Corp A. In the ordinary course of busi-
ness, Corp B acts as a procurement hub for Corp
A’s affiliated companies. In this role, Corp B reg-
ularly purchases products that will be distributed
amongst Corp A’s affiliated companies to be used
by them in their respective businesses. Corp B pur-
chases digital copies of a computer program (Pro-
gram Y) from Corp C, an unrelated company. Corp
B may use Program Y in perpetuity without further
payment. Corp B receives no copyright rights in
Program Y. Corp B does not use Program Y, and
instead distributes all of its copies of Program Y
to various affiliates. Corp C sources income from
the sale of Program Y using sections 861(a)(6) and
862(a)(6).
(ii) Analysis. (A) Under paragraph (b)(1) of this
section, the transfer of Program Y from Corp C to
Corp B is a digital content transaction with one ele-
ment, which is the transfer of a copy of Program Y.
Therefore, the transaction is treated solely as a trans-
fer of a copyrighted article under paragraph (b)(1)(ii)
of this section. Taking into account all of the facts
and circumstances, there have been sales of copies
of Program Y to Corp B under paragraph (f)(2) of
this section.
(B) Income from the sale of Program Y by Corp
C is sourced pursuant to sections 861(a)(6) and
862(a)(6) to the place where the sale occurred. Pur-
suant to paragraph (f)(2)(ii) of this section, a trans-
fer of a copyrighted article through an electronic
medium is treated as occurring at the billing address
of the purchaser, in this case Corp B, unless the sales
transaction is arranged for a principal purpose of tax
avoidance. In this case, the sale is treated as occur-
ring at the billing address of Corp B, and Corp C’s
income is foreign source, even though Corp B will
not use Program Y, because Corp B regularly pur-
chases products that will be distributed amongst its
affiliates to be used in their respective businesses,
and therefore there is no evidence that Corp B was
used by Corp A to purchase Program Y with a princi-
pal purpose of tax avoidance.
(26) Example 26: Application of anti-abuse rule
for sale of a copyrighted article transferred through
an electronic medium—(i) Facts. Corp A is the par-
ent company of a world-wide group of affiliated
companies. Corp B is a foreign affiliate of Corp A.
In the ordinary course of business, Corp B does not
act as a procurement hub regularly purchasing prod-
ucts for use by Corp A’s affiliated companies. Corp
A negotiates an agreement with Corp C, an unrelated
company, to purchase digital copies of a computer
program (Program Y) for use in Corp A’s business.
The agreement grants Corp A the right to use Pro-
gram Y in perpetuity for a one-time payment. Corp
C requests that Corp B be the purchaser of the copies
of Program Y even though Corp B will not use Pro-
gram Y and is not otherwise involved in the trans-
action between Corp A and Corp C for a principal
purpose of tax avoidance. Corp A agrees, and Corp B
purchases the copies of Program Y and subsequently
distributes them to Corp A. Corp C sources income
from the sale of Program Y using sections 861(a)(6)
and 862(a)(6).
(ii) Analysis. (A) Under paragraph (b)(1) of this
section, the transfer of Program Y from Corp C to
Corp B is a digital content transaction with one ele-
ment, which is the transfer of a copy of Program
Y. Therefore, the transaction is classified solely as
a transfer of a copyrighted article under paragraph
(b)(1)(ii) of this section. Taking into account all of
the facts and circumstances, there have been sales of
copies of Program Y to Corp B under paragraph (f)
(2) of this section.
(B) Income from the sale of Program Y by Corp
C is sourced pursuant to sections 861(a)(6) and
862(a)(6) to the place where the sale occurred. Pur-
suant to paragraph (f)(2)(ii) of this section, a trans-
fer of a copyrighted article through an electronic
medium is treated as occurring at the billing address
of the purchaser, in this case Corp B, unless the sales
transaction is arranged for a principal purpose of tax
avoidance. In this case, Corp B does not regularly
purchase products that will be used by other compa-
nies within Corp A’s group of affiliated companies,
and Corp B was instead used as the purchaser of Pro-
gram Y on behalf of Corp A with a principal purpose
of tax avoidance. Therefore, the place where the sale
occurred must be determined based on all relevant
facts and circumstances. Corp A negotiated the pur-
chase, and the software will be used by Corp A in
its business. As a result, under paragraph (f)(2)(ii)
of this section, the sale is treated as occurring at the
location of Corp A and the income derived by Corp
C from the sale is U.S. source.
(C) The same result would apply if, instead of
using Corp B for the purchase, Corp A made the pur-
chase but rented a P.O. Box outside the United States
to serve as the billing address for the transaction with
a principal purpose of tax avoidance.
(i) Applicability date—(1) In gen-
eral. This section applies to taxable years
beginning on or after January 14, 2025.
(2) Early application. A taxpayer can
apply this section to taxable years begin-
ning on or after August 14, 2019 and all
subsequent taxable years not described
in paragraph (i)(1) of this section (early
application years) if—
(i) The taxpayer also applies §1.861-19
to the early application years;
(ii) This section and §1.861-19 are
applied to the early application years by all
persons related to the taxpayer (within the
meaning of sections 267(b) and 707(b));
(iii) The period of limitations on assess-
ment for each early application year of the
taxpayer and all related parties (within the
meaning of sections 267(b) and 707(b)) is
open under section 6501; and
(iv) The taxpayer would not be required
under this section to change its method of
accounting as a result of such election.
(j) Change in method of accounting
required by this section. In order to com-
ply with this section, a taxpayer may be
required to change its method of account-
ing. If so required, the taxpayer must
secure the consent of the Commissioner
in accordance with the requirements of
§1.446-1(e) and the applicable admin-
istrative procedures for obtaining the
Commissioner’s consent under section
446(e) for voluntary changes in methods
of accounting.
Par. 4. Section 1.861-19 is added to
read as follows:
§1.861-19 Classification of cloud
transactions.
(a) In general. This section provides
rules for classifying cloud transactions (as
defined in paragraph (b) of this section).
The rules of this section apply for pur-
poses of Internal Revenue Code sections
59A, 245A, 250, 267A, 367, 404A, 482,
679, and 1059A; subchapter N of chapter
1; chapters 3 and 4; and sections 842 and
845 (to the extent involving a foreign per-
son), and apply with respect to transfers to
foreign trusts not covered by section 679.
(b) Cloud transaction defined. A cloud
transaction is a transaction through which
a person obtains on-demand network
access to computer hardware, digital con-
tent (as defined in §1.861-18(a)(2)), or
other similar resources. A cloud transac-
tion does not include network access to
download digital content for storage and
use on a person’s computer or other elec-
tronic device.
(c) Classification of cloud transac-
tions—(1) In general. A cloud transaction
is classified as the provision of services.
(2) Transaction with multiple elements.
Taking into account the overall transac-
tion and the surrounding facts and circum-
stances, a transaction that has multiple
elements, one or more of which would
be a cloud transaction if considered sepa-
rately, is classified in its entirety as a cloud
transaction if the predominant character
of the transaction as determined under
§1.861-18(b)(3) is a cloud transaction.

Bulletin No. 2025–8 795 February 18, 2025
(d) Examples. The examples in this
paragraph (d) illustrate the provisions of
this section. Unless otherwise specified,
assume that Corp A is a domestic corpo-
ration, no rights described in §1.861-18(c)
(2) (copyright rights) are transferred as
part of the transactions described, and all
facts in each example occur as part of a
single transaction.
(1) Example 1: Computing capacity—(i) Facts.
Corp A operates data centers on its premises in var-
ious locations. Corp A provides Corp B comput-
ing capacity on Corp A’s servers in exchange for
a monthly fee based on the amount of computing
power made available to Corp B. Corp B provides its
own software to run on Corp A’s servers.
(ii) Analysis. The provision of on-demand net-
work computing capacity by Corp A to Corp B is a
cloud transaction with one element. Therefore, the
transaction is treated solely as a cloud transaction
under paragraph (b) of this section and is classified
as the provision of services under paragraph (c)(1)
of this section.
(2) Example 2: Computing capacity on dedicated
on-premises servers—(i) Facts. The facts are the
same as in paragraph (d)(1)(i) of this section (the
facts in Example 1), except that, in order to offer
more security to Corp B, Corp A provides Corp B
computing capacity exclusively through designated
servers, which are owned and operated by Corp A
and located at Corp B’s facilities. Corp A agrees not
to use the designated server for any other customer
for the duration of its arrangement with Corp B.
Although the server is located at Corp B’s facilities,
Corp B accesses the server through Corp A’s network
and the monthly fee is based on the amount of com-
puting power made available to Corp B.
(ii) Analysis. As in paragraph (d)(1) of this sec-
tion (Example 1), the transaction between Corp A
and Corp B is the provision of on-demand network
computing capacity and is therefore a cloud transac-
tion with one element. Therefore, the transaction is
treated solely as a cloud transaction under paragraph
(b) of this section and is classified as the provision
of services under paragraph (c)(1) of this section. If
the transaction between Corp A and Corp B involved
only the provision of a server by Corp A for use by
Corp B, and not on-demand network access to com-
puting capacity, the transaction would not be a cloud
transaction and this section would not apply.
(3) Example 3: Access to software development
platform and website hosting—(i) Facts. Corp A
provides Corp B a software platform that Corp B
uses to develop and deploy websites with a range of
features, including blogs, message boards, and other
collaborative knowledge bases. The software devel-
opment platform consists of an operating system,
web server software, scripting languages, libraries,
tools, and back-end relational database software and
allows Corp B to use in its websites certain visual
elements subject to copyrights held by Corp A. The
software development platform is hosted on servers
owned by Corp A and located at Corp A’s facilities.
Corp B’s finished websites are also hosted on Corp
A’s servers. Corp B accesses the software develop-
ment platform via a standard web browser. Corp
B has no ability to alter the software code. A small
amount of copyrighted scripting code is downloaded
onto Corp B’s computers to facilitate secure logins
and access to the software development platform.
All other functions of the software development plat-
form execute on Corp A’s servers, and no portion of
the core software code is ever downloaded by Corp
B or Corp B’s customers. Corp A has ascertained that
the primary benefit or value to Corp B from the trans-
action is the right to use the software development
platform. Corp B pays Corp A a monthly fee for the
platform and website hosting.
(ii) Analysis. (A) There is one transaction with
multiple elements between Corp A and Corp B. One
element is Corp A’s provision to Corp B of on-de-
mand network access to the software platform,
which would be a cloud transaction described in
paragraph (b) of this section if considered separately.
Another element is Corp A’s hosting of Corp B’s fin-
ished websites, which would be a cloud transaction
described in paragraph (b) of this section if consid-
ered separately. A third element is the grant by Corp
A to Corp B of the right to use in Corp B’s websites
certain visual elements subject to copyrights held
by Corp A, which would be a transfer of copyright
rights under §1.861-18(b)(1)(i) if considered sepa-
rately. A fourth element is the download of script-
ing code by Corp B, which would be a transfer of a
copyrighted article under §1.861-18(b)(1)(ii) if con-
sidered separately.
(B) Because the transaction has multiple ele-
ments, one or more of which would be a cloud trans-
action if considered separately, paragraph (c)(2) of
this section provides that the transaction is classified
as a cloud transaction if its predominant character
is a cloud transaction. Pursuant to §1.861-18(b)(3),
the predominant character of the transaction is based
on the primary benefit or value of the transaction to
the customer, if it is reasonably ascertainable. The
predominant character of this transaction is there-
fore a cloud transaction because the primary benefit
or value received by Corp B is the right to use the
software development platform. Accordingly, this
transaction is classified solely as a cloud transaction
described in paragraph (b) of this section and is clas-
sified as the provision of services under paragraph
(c)(1) of this section.
(4) Example 4: Access to online software via
an application—(i) Facts. Corp A provides Corp B
word processing, spreadsheet, and presentation soft-
ware and allows employees of Corp B to access the
software over the Internet through a web browser or
an application (“app”) that can be downloaded from
Corp A’s servers onto a computer or mobile device.
Corp B’s employees usually download Corp A’s app
onto their mobile devices. To access the full func-
tionality of the app, the device must be connected
to the Internet. Only a limited number of features on
the app are available without an Internet connection.
Corp B has no ability to alter the software code. The
software is hosted on servers owned by Corp A and
located at Corp A’s facilities and is used concurrently
by other Corp A customers in addition to Corp B.
Corp B pays a monthly fee based on the number of
employees with access to the software. Users have
the option to save files either online using the stor-
age provided by Corp B, or offline on their own
hard drives. Corp B’s employees can also down-
load updates to the app as part of the monthly fee
arrangement. Upon termination of the arrangement,
Corp A activates an electronic lock preventing Corp
B’s employees from further utilizing the app, and
Corp B’s employees are no longer able to access the
software via a web browser. Corp A has ascertained
that the primary benefit or value to Corp B from the
transaction is the right to access Corp A’s software
over the Internet, whether via web browser or after
downloading the app.
(ii) Analysis. (A) There is one transaction with
multiple elements between Corp A and Corp B. One
element is Corp A’s provision to Corp B of on-de-
mand network access to Corp A’s computer hardware
and software resources for the purpose of fully utiliz-
ing Corp A’s software, which would be a cloud trans-
action described in paragraph (b) of this section if
considered separately. Another element is the down-
load of Corp A’s app by Corp B employees, which
would be a transfer of a copyrighted article under
§1.861-18(b)(1)(ii) if considered separately.
(B) Because the transaction has multiple ele-
ments, one or more of which would be a cloud trans-
action if considered separately, paragraph (c)(2) of
this section provides that the transaction is classified
as a cloud transaction if its predominant character
is a cloud transaction. Pursuant to §1.861-18(b)(3),
the predominant character of the transaction is based
on the primary benefit or value of the transaction to
the customer, if it is reasonably ascertainable. The
predominant character of this transaction is therefore
a cloud transaction because the primary benefit or
value received by Corp B is the right to access Corp
A’s software over the Internet. Accordingly, this
transaction is classified solely as a cloud transaction
described in paragraph (b) of this section and is clas-
sified as the provision of services under paragraph
(c)(1) of this section.
(5) Example 5: Access to offline software with
limited online functions—(i) Facts. Corp A provides
Corp B word processing, spreadsheet, and presenta-
tion software that is functionally similar to the soft-
ware in paragraph (d)(4) of this section (Example
4). The software is made available for access over
the Internet but only to download the software from
servers owned by Corp A onto a computer or mobile
device in the form of an app. The downloaded soft-
ware contains all the core functions of the software.
Employees of Corp B can use the software on their
computers or mobile devices regardless of whether
their computer or mobile device is online. When
online, the software provides a few ancillary func-
tions that are not available offline, such as access to
document templates and data collection for diagnos-
ing problems with the software. Whether working
online or offline, Corp B employees can store their
files only on their own computer or mobile device,
and not on Corp A’s data storage servers. Corp B’s
employees can also download updates to the soft-
ware as part of the monthly fee arrangement. Upon
termination of the arrangement, an electronic lock
is activated so that the software can no longer be
accessed. Corp A has ascertained that the primary
benefit or value to Corp B from the transaction is the
right to download and use Corp A’s software offline.
(ii) Analysis. (A) The transaction between Corp
A and Corp B contains multiple elements. One
element is the transfer of a copy of Corp A’s soft-
ware via download, which would be a transfer of

February 18, 2025 796 Bulletin No. 2025–8
a copyrighted article described under §1.861-18(b)
(1)(ii) if considered separately. Another element is
the provision of online ancillary functionality of
the software, which would be a cloud transaction
described in paragraph (b) of this section if consid-
ered separately.
(B) Because the transaction has multiple ele-
ments, one or more of which would be a cloud trans-
action if considered separately, paragraph (c)(2) of
this section provides that the transaction is classified
as a cloud transaction if its predominant character
is a cloud transaction. Pursuant to §1.861-18(b)(3),
the predominant character of the transaction is based
on the primary benefit or value of the transaction to
the customer, if it is reasonably ascertainable. The
predominant character of this transaction is there-
fore the transfer of a copyrighted article because the
primary benefit or value received by Corp B is the
right to download and use Corp A’s software offline.
Accordingly, this transaction is classified solely as a
transfer of a copyrighted article described in §1.861-
18(b)(1)(ii). The provision of the software consti-
tutes a lease of a copyrighted article under §1.861-
18 because access to the app is terminated when the
monthly fee is no longer paid, even though Corp B
employees retain the locked files on their devices.
See §1.861-18(h)(4).
(6) Example 6: Data storage, separate from
access to offline software—(i) Facts. The facts are
the same as in paragraph (d)(5)(i) of this section (the
facts in Example 5), except that Corp A also provides
on-demand network data storage to Corp B on Corp
A’s servers in exchange for a monthly fee based on
the amount of data storage used by Corp B. Under
the data storage terms, Corp B employees may store
files created by Corp B employees using Corp A’s
software or other software. Although Corp A’s word
processing software is compatible with Corp A’s
data storage systems, the core functionality of Corp
A’s software is not dependent on Corp B’s purchase
of the storage plan. Corp A’s provision of software
and data storage capacity constitute separate trans-
actions.
(ii) Analysis. (A) As explained in paragraph (d)
(5)(ii) of this section, Corp B’s download of fully
functional software, along with on-demand network
access to certain limited online features, does not
constitute a cloud transaction, but rather constitutes
a lease of a copyrighted article under §1.861-18.
(B) The provision of on-demand network data
storage by Corp A to Corp B is a cloud transac-
tion with one element. Therefore, the transaction is
treated solely as a cloud transaction under paragraph
(b) of this section and is classified as the provision of
services under paragraph (c)(1) of this section.
(7) Example 7: Streaming and temporary down-
load of digital content using third-party servers—(i)
Facts. Corp A offers via stream or temporary down-
load digital content in the form of videos and music
to customers from servers located in data centers
owned and operated by Data Center Operator. Each
customer uses a computer or other electronic device
to access unlimited streaming or temporary down-
loads of video and music in exchange for payment
of a flat monthly fee to Corp A. The customer may
select from among the available content the partic-
ular video or song to be streamed or downloaded.
Corp A continually updates its content catalog,
replacing content with higher quality versions and
adding new content at no additional charge to the
customer. It also provides additional functionality
such as various methods of filtering and sorting the
library, a watchlist, and recommendations based on a
customer’s preferences. Content that is streamed to
the customer is not stored locally on the customer’s
computer or other electronic device and therefore
can be played only while the customer’s computer or
other electronic device is connected to the Internet.
Content that is temporarily downloaded is stored on
the customer’s computer or other electronic device
for 1 week and therefore can be played while the
customer’s computer or other electronic device is not
connected to the Internet. Corp A cannot reasonably
ascertain the primary benefit or value that its specific
customers derive from accessing Corp A’s catalog of
digital content. Data collected by Corp A indicates
that the vast majority of customers stream digital
content rather than temporarily download the con-
tent. Corp A pays Data Center Operator a fee based
on the amount of data storage used and computing
power made available in connection with Corp A’s
content offerings.
(ii) Analysis. (A) The provision of data storage
and computing power by Data Center Operator
to Corp A is a cloud transaction with one element.
Therefore, the transaction is treated solely as a cloud
transaction under paragraph (b) of this section, and
is classified as the provision of services under para-
graph (c)(1) of this section.
(B) A transaction between Corp A and a cus-
tomer has two elements. One element is streaming
access to a curated and routinely updated library
of digital content, which would be a cloud trans-
action described in paragraph (b) of this section
if considered separately. Another element is the
transfer of a copy of digital content via temporary
download, which would be a transfer of a copy-
righted article under §1.861-18(b)(1)(ii) if consid-
ered separately.
(C) Because the transaction has multiple ele-
ments, one or more of which would be a cloud
transaction if considered separately, paragraph (c)
(2) of this section provides that the transaction is
classified as a cloud transaction if its predomi-
nant character is a cloud transaction. Pursuant to
§1.861-18(b)(3), the predominant character of the
transaction is based on the primary benefit or value
of the transaction to the customer if it is reasonably
ascertainable. However, Corp A cannot reason-
ably ascertain the primary benefit or value derived
by a specific customer from Corp A’s offering. In
such situations, §1.861-18(b)(3)(ii) provides that
the predominant character of a transaction may be
determined based on the primary benefit or value
to a typical customer of a substantially similar
transaction. This primary benefit or value to a typ-
ical customer can be identified through actual data
about use or access pursuant to §1.861-18(b)(3)(ii)
(A), or if that data is not available, by using other
evidence indicative of the primary benefit or value
to a typical customer pursuant to §1.861-18(b)(3)
(ii)(B). Because Corp A has data that shows the
typical customer streams digital content rather than
temporarily downloading it, the primary benefit or
value received by a typical customer is streaming
access to digital content. Therefore, the predomi-
nant character of the transaction is a cloud trans-
action. Under paragraph (c)(1) of this section, the
cloud transaction is classified as the provision of
services.
(8) Example 8: Access to online database—(i)
Facts. Corp A offers an online database of indus-
try-specific materials. Customers access the mate-
rials through Corp A’s website, which aggregates
and organizes information topically and hosts a
proprietary search engine. Corp A hosts the website
and database on its own servers and provides mul-
tiple customers access to the website and database
concurrently. Most materials in Corp A’s database
are publicly available by other means, but Corp A’s
website offers an efficient way to locate and obtain
the information on demand. Certain materials in
Corp A’s database constitute digital content within
the meaning of §1.861-18(a)(2), and Corp A pays
the copyright owners a license fee for using them.
Each customer may download any of the materials
to its own computer and keep such materials with-
out further payment. The customer pays Corp A a
fee based on the number of searches or the amount
of time spent on the website, and such fee is not
dependent on the amount of materials the customer
downloads. The fee that the customer pays is sub-
stantially higher than the stand-alone charge for
accessing the same digital content outside of Corp
A’s system. Corp A cannot reasonably ascertain the
primary benefit or value that a specific customer
derives from accessing Corp A’s database. Corp A
does not have data indicating whether the typical
customer downloads materials from the database.
Corp A markets its website and online database as
user-friendly and an efficient way to find relevant
materials because of its proprietary search engine.
Developing the proprietary search engine was the
largest cost Corp A incurred in creating its website
and online database.
(ii) Analysis. (A) The transaction between Corp
A and a customer has multiple elements. One ele-
ment is Corp A’s provision to a customer of access
to Corp A’s website and online database, which is a
cloud transaction described in paragraph (b) of this
section if considered separately. Another element is
the transfer of digital content via download, which is
the transfer of a copyrighted article under §1.861-18
if considered separately.
(B) Because the transaction has multiple ele-
ments, one or more of which would be a cloud
transaction if considered separately, paragraph (c)
(2) of this section provides that the transaction is
classified as a cloud transaction if its predominant
character is a cloud transaction. Pursuant to §1.861-
18(b)(3), the predominant character of the trans-
action is based on the primary benefit or value of
the transaction to the customer, if it is reasonably
ascertainable. However, Corp A cannot reasonably
ascertain the primary benefit or value derived by a
specific customer from access to Corp A’s database.
In such situations, §1.861-18(b)(3)(ii) provides that
the predominant character of a transaction may be
determined based on the primary benefit or value to
a typical customer of a substantially similar transac-
tion. This primary benefit or value to a typical cus-
tomer can be identified through actual data about
use or access pursuant to §1.861-18(b)(3)(ii)(A),
or if that data is not available, by using other evi-

Bulletin No. 2025–8 797 February 18, 2025
dence indicative of the primary benefit or value to
a typical customer pursuant to §1.861-18(b)(3)(ii)
(B). That Corp A focuses on its proprietary search
engine when marketing its website and database, as
well as the facts that the search engine was the most
expensive cost incurred by Corp A in creating its
website and database, and that customers pay a sub-
stantially higher fee to access Corp A’s system than
they would otherwise pay to access the content out-
side of Corp A’s system, indicates that the primary
benefit or value received by a typical customer is
the right to use the search engine. Therefore, under
paragraph (c)(2) of this section, the predominant
character of the transaction between Corp A and a
customer is a cloud transaction. Under paragraph
(c)(1) of this section the cloud transaction is classi-
fied as the provision of services.
(9) Example 9: Temporary or perpetual access
to a single movie via stream or download—(i)
Facts. Corp A hosts movies on its website and
allows customers to view a single movie for a lim-
ited period or perpetually for a one-time fee, with
perpetual viewing rights costing a higher fee. Corp
A does not charge customers a separate fee for
access to the website. In addition, Corp A’s web-
site provides recommendations for movies based
on a customer’s search for a particular title and/or
the customer’s purchase history. Customers have
no ability to alter the servers, website, or mov-
ies available on the website. The movies in Corp
A’s database constitute digital content within the
meaning of §1.861-18(a)(2), and Corp A pays the
copyright owners a license fee for using them.
Corp A allows customers to view the movies by
either streaming the movies from Corp A’s servers,
or by downloading the movies onto the customer’s
computer or other electronic device. The file size
of movies offered by Corp A is generally large and
so customers may be expected to download movies
only in certain situations such as when traveling
without Internet access. Upon the expiration of the
rental period, customers will no longer have access
to stream the movies, and any movie that was
downloaded onto a customer’s computer or other
electronic device will auto-delete from the custom-
er’s computer or other electronic device. Whether
a customer chooses to view the movie via stream or
download, Corp A charges the same one-time fee.
Corp A cannot reasonably ascertain the primary
benefit or value that a specific customer derives
from accessing Corp A’s website. Corp A maintains
aggregate data on whether a given movie is viewed
via stream or download, and this data shows that
most movies are viewed by streaming, even in the
case where a customer pays for the right to view a
movie in perpetuity.
(ii) Analysis. (A) A transaction between Corp A
and a customer contains multiple elements. One ele-
ment is Corp A’s provision to a customer of access to
Corp A’s website in order to view a movie via stream,
which is a cloud transaction described in paragraph
(b) of this section if considered separately. Another
element is Corp A’s provision to a customer of access
to Corp A’s website in order to download a movie,
which is the transfer of a copyrighted article under
§1.861-18 if considered separately.
(B) Because the transaction has multiple ele-
ments, one or more of which would be a cloud
transaction if considered separately, paragraph (c)
(2) of this section provides that the transaction is
classified as a cloud transaction if its predominant
character is a cloud transaction. Pursuant to §1.861-
18(b)(3), the predominant character of the trans-
action is based on the primary benefit or value of
the transaction to the customer, if it is reasonably
ascertainable. However, Corp A cannot reasonably
ascertain the primary benefit or value derived by a
specific customer from access to Corp A’s database.
In such situations, §1.861-18(b)(3)(ii) provides that
the predominant character of a transaction may be
determined based on the primary benefit or value
to a typical customer of a substantially similar
transaction. This primary benefit or value to a typ-
ical customer can be identified through actual data
about use or access pursuant to §1.861-18(b)(3)(ii)
(A), or if that data is not available, by using other
evidence indicative of the primary benefit or value
to a typical customer pursuant to §1.861-18(b)(3)
(ii)(B). Corp A has data that shows that the typi-
cal customer views movies by streaming rather
than download. Accordingly, under paragraph (c)
(2) of this section, the predominant character of the
transaction is a cloud transaction because the pri-
mary benefit or value a typical customer receives is
access to stream movies on Corp A’s website. Under
paragraph (c)(1) of this section, the cloud transac-
tion is classified as the provision of services.
(10) Example 10: Reseller of software as a ser-
vice—(i) Facts. Corp A owns the copyright to soft-
ware (Program S). Corp A hosts Program S on its
servers. Customers access Program S only through
an Internet connection. Corp A grants Corp B, a
foreign corporation wholly owned by Corp A, the
right to sell access to Program S to Corp B’s cus-
tomers that are located in Corp B’s country. Corp B
is responsible for managing the purchase/sale inter-
action with Corp B’s customers, including invoicing
and collections. Corp A is responsible for providing
customers with access to Program S. Corp B does
not perform any functions to provide access to Pro-
gram S.
(ii) Analysis. (A) The transaction between Corp
A and Corp B is treated as Corp A providing on-de-
mand access to Program S to Corp B even though
Corp B resells that access. This transaction is a cloud
transaction with one element. Under paragraph (c)
(1) of this section, the cloud transaction is classified
as the provision of services. The transaction does not
involve the transfer of any copyright rights described
in §1.861-18(c)(2), and therefore is governed solely
by this section.
(B) The transaction between Corp B and its cus-
tomers is the provision of on-demand access to Pro-
gram S by Corp B, which is a cloud transaction with
one element. Under paragraph (c)(1) of this section,
the cloud transaction is classified as the provision of
services. The transaction does not involve the trans-
fer of any copyright rights described in §1.861-18(c)
(2), and therefore is governed solely by this section.
(11) Example 11: Computer game with online
functionality and in-game purchases—(i) Facts.
Corp A owns the copyright to a computer game
(Game X). Customers can purchase Game X for
a one-time fee and download it onto their com-
puters. A customer may play certain aspects of
Game X while not connected to the Internet, but
most of the core functionality of Game X is avail-
able only when the customer is connected to the
Internet, including the ability to play with other
customers. In order to access the additional online
functionality specific to Game X, customers must
pay a monthly fee to Corp A. The additional func-
tionality of Game X is hosted on servers owned by
Corp A. Customers may also pay a one-time fee to
access an in-game item that can be utilized only
when playing Game X online.
(ii) Analysis. (A) There are three transactions
between Corp A and a customer. The first transaction
is the transfer of a copy of Game X, which is a dig-
ital content transaction with one element because a
customer receives from Corp A access only to offline
content in exchange for purchasing a copy of the
game. Therefore, this transaction is treated solely as
a transfer of a copyrighted article under §1.861-18.
(B) The second transaction between Corp A and
a customer is the payment of a monthly fee to play
Game X online on Corp A’s servers, which is a cloud
transaction with one element. Therefore, this trans-
action is treated solely as a cloud transaction, and
is classified as the provision of services under para-
graph (c)(1) of this section.
(C) The third transaction between Corp A and
a customer is the payment of a one-time fee in
exchange for an in-game item. Because a customer
can utilize the item only when playing Game X
through an Internet connection, the transaction is a
cloud transaction with one element. Therefore, this
transaction is treated solely as a cloud transaction,
and is classified as the provision of services under
paragraph (c)(1) of this section.
(e) Applicability date—(1) In gen-
eral. This section applies to taxable years
beginning on or after January 14, 2025.
(2) Early application. A taxpayer can
apply this section to taxable years begin-
ning on or after August 14, 2019 and all
subsequent taxable years not described in
paragraph (e)(1) (early application years)
if—
(i) The taxpayer also applies §1.861-18
to the early application years;
(ii) This section and §1.861-18 are
applied to the early application years by all
persons related to the taxpayer (within the
meaning of sections 267(b) and 707(b));
(iii) The period of limitations on assess-
ment for each early application year of the
taxpayer and all related parties (within the
meaning of sections 267(b) and 707(b)) is
open under section 6501; and
(iv) The taxpayer would not be required
under this section to change its method of
accounting as a result of such election.
(f) Change in method of accounting
required by this section. In order to com-
ply with this section, a taxpayer may be
required to change its method of account-
ing. If so required, the taxpayer must
secure the consent of the Commissioner

February 18, 2025 798 Bulletin No. 2025–8
in accordance with the requirements of
§1.446-1(e) and the applicable admin-
istrative procedures for obtaining the
Commissioner’s consent under section
446(e) for voluntary changes in methods
of accounting.
§1.937-3 [Amended]
Par. 5. Section 1.937-3 is amended by
removing Examples 4 and 5 from para-
graph (e).
Douglas W. O’Donnell,
Deputy Commissioner.
Approved: December 18, 2024.
Aviva R. Aron-Dine,
Deputy Assistant Secretary of the
Treasury (Tax Policy).
(Filed by the Office of the Federal Register January
10, 2025, 8:45 a.m., and published in the issue of the
Federal Register for January 14, 2025, 90 FR 2977)

Bulletin No. 2025–8 799 February 18, 2025
Part III
Request for Comments
on Applying the
Characterization Rules in
§§1.861-18 and 1.861-
19 to All Provisions of the
Internal Revenue Code
Notice 2025-6
SECTION 1. PURPOSE
The Department of the Treasury
(Treasury Department) and the Internal
Revenue Service (IRS) have published
Treasury Decision 10022 containing
final regulations (2025 final regulations)
that provide rules for characterizing dig-
ital content and cloud transactions. [T.D.
10022, 90 FR 2977 (January 14, 2025).]
The 2025 final regulations apply solely
to certain enumerated international pro-
visions of the Internal Revenue Code (the
Code).
1
This notice requests comments
on any potential implications if the char-
acterization rules currently contained in
§§1.861-18 and 1.861-19, as amended and
added, respectively, by the 2025 final reg-
ulations, were to apply to all provisions of
the Code, including the need for additional
guidance, and seeks specific comments on
the possible impacts and guidance that
may be necessary with respect to certain
identified provisions. Comments received
in response to this notice will help inform
the Treasury Department and the IRS’s
decision regarding whether to apply the
characterization rules currently contained
in §§1.861-18 and 1.861-19 to all provi-
sions of the Code and what further guid-
ance, if any, should be issued if the regula-
tions were revised in this manner.
SECTION 2. BACKGROUND
In 1998, in response to rapid techno-
logical advances including the growth of
transactions in digitized information,
2
the
Treasury Department and the IRS pub-
lished Treasury Decision 8785, which
contains the original final regulations in
§1.861-18 (1998 final regulations) that set
forth a framework for characterizing trans-
actions involving computer programs.
T.D. 8785, 63 FR 52971 (Oct. 2, 1998).
This framework is based on copyright law,
but takes into account the unique features
of digitized information. REG-251520-
96, 61 FR 58152, 58153 (Nov. 13, 1996)
(“Although the proposed regulations are
guided by copyright law principles in
determining whether a copyright right or
a copyrighted article has been transferred,
the regulations depart in some cases from
a strict reliance on copyright law in order
to take into account the special nature of
computer programs and to treat function-
ally equivalent transactions in the same
way.”). The 1998 final regulations broadly
group computer program transactions into
one of the following categories: transfers
of copyright rights, transfers of a copy of
the program (a copyrighted article), ser-
vices for the development or modification
of the program, or the provision of know-
how relating to computer programming
techniques.
The 1998 final regulations focus on
the distinction between transfers of the
copyright itself and transfers of a copy-
righted article with a substance-over-form
characterization approach that looks to
the underlying rights granted to the trans-
feree. Where a transfer conveys a com-
mercial exploitation right included in the
list of enumerated copyright rights (such
as the right to make copies of the program
for purposes of distribution to the public),
the transaction is treated as a transfer of
copyright rights. However, if a copy of
a program is transferred without one of
the enumerated copyright rights (merely
granting a right to the transferee to use the
copy on its own computer, for example),
the transaction is treated as a transfer of a
copyrighted article.
The 1998 final regulations further char-
acterize transfers of copyright rights and
copyrighted articles as complete or par-
tial transfers. For a transfer of a copyright
right, if all substantial rights to the under-
lying copyright right are transferred, the
transfer is classified as a sale or exchange
of the copyright right under the principles
of §§1222 and 1235. If less than all sub-
stantial rights are transferred, the transac-
tion is classified as a license. For a transfer
of a copyrighted article, if the benefits and
burdens of ownership have been trans-
ferred, the transaction is classified as a sale
of the copyrighted article. If insufficient
benefits and burdens of ownership of the
copyrighted article have been transferred,
the transaction is classified as a lease.
See, e.g., Grodt & McKay Realty, Inc. v.
Comm’r, 77 T.C. 1221, 1237–38 (1981);
Torres v. Comm’r, 88 T.C. 702, 720–27
(1987); Estate of Thomas v. Comm’r, 84
T.C. 412, 431–40 (1985).
The 1998 final regulations apply solely
for purposes of subchapter N of chapter
1 of the Code, §§367, 404A, 482, 551,
679, 1059A, chapter 3, chapter 5, §§842
and 845 (to the extent involving a foreign
person), and transfers to foreign trusts not
covered by §679. The preamble to the
1998 final regulations states that while
such regulations apply only to cross-bor-
der transactions involving computer pro-
grams, the Treasury Department and the
IRS may consider whether to apply the
principles of the regulations to all transac-
tions in digitized information as part of a
separate guidance project.
In general, the 2025 final regulations
maintain the basic framework from the
1998 final regulations for characterizing
transfers of content as primarily copy-
right rights or copyrighted articles (and
subcategorizing as sales or licenses of
copyright rights, or sales or leases of
copyrighted articles). The 2025 final
regulations extend the characterization
framework of the 1998 final regulations
to transactions involving digital content,
which is generally defined as a computer
program or any other content protected
by copyright law, not just transactions
involving computer programs. The 2025
1
Unless otherwise specified, all “section” or “§” references are to sections of the Code or the Income Tax Regulations (26 CFR part 1).
2
See Treasury Department, “Selected Tax Policy Implications of Global Electronic Commerce,” Nov. 1996, at 27-28.

February 18, 2025 800 Bulletin No. 2025–8
final regulations also include §1.861-
19, which provides that cloud transac-
tions (generally defined as transactions
through which a person obtains on-de-
mand network access to computer hard-
ware, digital content, or other similar
resources) are characterized as the provi-
sion of services. Further, the 2025 final
regulations implement a predominant
character rule for characterizing digital
content and cloud transactions.
The 2025 final regulations continue to
apply only to certain listed international
Code provisions, with updates to elim-
inate references to repealed §551 and
chapter 5, and to add references to §§59A,
245A, 250, and 267A, and chapter 4. The
2025 final regulations retain this limited
scope although the Treasury Department
and the IRS received several comments
recommending that the regulations apply
to all provisions of the Code in response
to the proposed regulations preceding the
2025 final regulations. As noted in the
preamble to the 2025 final regulations,
however, the Treasury Department and
the IRS continue to study whether the
characterization rules currently contained
in §§1.861-18 and 1.861-19 should apply
to all provisions of the Code. To inform
their consideration of and decision on
the issue, section 3 of this notice solicits
comments.
SECTION 3. REQUEST FOR
COMMENTS
The Treasury Department and the IRS
request comments regarding any conse-
quences or interactions that would result
if the characterization rules currently
contained in §§1.861-18 and 1.861-19,
as amended and added, respectively, by
the 2025 final regulations, were to apply
to all provisions of the Code. Comments
are requested on any specific areas that
would be affected, with examples where
appropriate. Comments are also requested
on any guidance that would be needed,
including what approach such guidance
should take. In addition to general com-
ments, the Treasury Department and the
IRS request comments, with examples,
regarding the desirability and effects, if
any, of applying the characterization rules
currently contained in §§1.861-18 and
1.861-19 on the rules in the following
areas, including whether further guidance
in these areas would be necessary and,
if so, what the approach of the guidance
should be:
• Section 167(f)
• Section 168(g)(1)(B)
• Section 178
• Section 197
• Section 263
• Section 451
• Sections 263A and 471
• Sections 856 through 859
• Sections 1001 and 1011
• Sections 1221 and 1222
• Section 1241
SECTION 4. SUBMISSION OF
COMMENTS
.01 Written comments should be sub-
mitted by [INSERT DATE 90 DAYS
AFTER PUBLICATION OF THIS
DOCUMENT IN THE INTERNAL
REVENUE BULLETIN]. Consider-
ation will be given, however, to any writ-
ten comment submitted after [INSERT
DATE 90 DAYS AFTER PUBLICA-
TION OF THIS DOCUMENT IN THE
INTERNAL REVENUE BULLETIN],
if such consideration will not delay the
issuance of guidance. The subject line for
the comments should include a reference
to Notice 2025-6. Comments may be sub-
mitted in one of two ways:
(1) Electronically via the Federal
eRulemaking Portal at www.regulations.
gov (type IRS-2025-6 in the search field
on the regulations.gov homepage to find
this notice and submit comments). Once
submitted to the Federal eRulemaking
Portal, comments cannot be edited or
withdrawn.
(2) Alternatively, by mail to: Internal
Revenue Service, CC:PA:01:PR (Notice
2025-6, Room 5203, P.O. Box 7604,
Ben Franklin Station, Washington, D.C.,
20044.
.02 All commenters are strongly
encouraged to submit comments electron-
ically. The Treasury Department and the
IRS will publish for public availability
any comment submitted electronically
and on paper to its public docket on www.
regulations.gov.
SECTION 5. DRAFTING AND
CONTACT INFORMATION
The principal author of this notice is
Michelle L. Ng of the Office of the Asso-
ciate Chief Counsel (International). Other
personnel from the Treasury Department
and the IRS participated in its develop-
ment. For further information regarding
this notice, call the contact number at
(202) 317-6989 (not a toll-free number).
Domestic Content Bonus
Credit Amounts under the
Inflation Reduction Act
of 2022: First Updated
Elective Safe Harbor
modifying Notice 2024-41
Notice 2025-08
SECTION 1. PURPOSE
This notice provides an updated elec-
tive safe harbor for the domestic content
bonus credit (First Updated Elective Safe
Harbor) that modifies the safe harbor
provided in IRS Notice 2024-41, 2024-
24 I.R.B. 1615 (Notice 2024-41), includ-
ing the table provided in section 4.04(1)-
(3) (Table 1), in the five ways described
below in section 3 of this notice. Table
1 provided the Assigned Cost Percent-
ages for each Manufactured Product
and Manufactured Product Component
to provide taxpayers clarity in apply-
ing the new elective safe harbor (New
Elective Safe Harbor) outlined in Notice
2024-41. Taxpayers, including entities
that make elective payment elections
under § 6417 of the Internal Revenue
Code (Code),
1
may elect to use the First
Updated Elective Safe Harbor in lieu of
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. 2025–8 801 February 18, 2025
the Domestic Manufactured Products
and Components Cost and Total Man-
ufactured Products Cost provisions of
the Adjusted Percentage Rule in section
3.03(2)(b) and (c) of Notice 2023-38,
2023-22 I.R.B. 872 (Notice 2023-38),
which require taxpayers to use the manu-
facturer’s direct costs of producing Man-
ufactured Products and Manufactured
Product Components in an Applicable
Project.
2
Taxpayers who elect to use the
First Updated Elective Safe Harbor for
any Applicable Project must use one of
the respective tables provided below in
sections 5-7 of this notice subject to the
conditions described in section 8 of this
notice, also provided below.
SECTION 2. BACKGROUND
Public Law 117-169, 136 Stat. 1818
(August 16, 2022), commonly known
as the Inflation Reduction Act of 2022
(IRA), amended §§ 45 and 48 to provide
a domestic content bonus credit amount
for certain qualified facilities or energy
projects placed in service after December
31, 2022, and added new §§ 45Y and 48E,
which include a domestic content bonus
credit amount for certain investments in
qualified facilities or energy storage tech-
nologies placed in service after December
31, 2024.
.01 Notice 2023-38. On May 12, 2023,
the Treasury Department and the IRS
released Notice 2023-38, which states
that the Treasury Department and the
IRS intend to propose regulations for
rules that taxpayers must satisfy to qual-
ify for the domestic content bonus credit
amounts under §§ 45, 45Y, 48, and 48E.
Notice 2023-38 also describes a safe har-
bor regarding the classification of certain
Applicable Project Components in rep-
resentative types of qualified facilities,
energy projects, or energy storage tech-
nologies.
.02 Notice 2024-41. On May 24, 2024,
the Treasury Department and the IRS
released Notice 2024-41, which, among
other things, modified the existing domes-
tic content safe harbor in Notice 2023-38
by (i) expanding the non-exclusive list
of Applicable Projects in “Table 2--Cat-
egorization of Applicable Project Com-
ponents” from Notice 2023-38 to include
hydropower and pumped hydropower
storage facilities; (ii) replacing “Utility
scale photovoltaic system” with “Ground-
mount and rooftop photovoltaic system”;
and (iii) including certain Manufactured
Product Components for previously listed
Applicable Projects.
Notice 2024-41 further provided an
elective safe harbor in Table 1 of section
4.04(1)-(3) that taxpayers may use to
classify the identified Applicable Project
Components. Table 1 also provided the
Assigned Cost Percentages for each of
the identified Manufactured Products and
Manufactured Product Components that
may be found in the identified Applicable
Projects, which include solar photovol-
taic (PV) systems, land-based wind facil-
ities, and battery energy storage tech-
nologies. The Assigned Cost Percentage
for each of the identified Manufactured
Products and Manufactured Product
Components in Table 1 was obtained
from DOE for purposes of calculating
the Domestic Cost Percentage and satis-
fying the Adjusted Percentage Rule and
will be accepted by the IRS for those
Manufactured Products and Manufac-
tured Product Components for taxpayers
that are eligible to rely on Notice 2024-
41. Finally, Notice 2024-41 provided
requirements for taxpayers that elect
to use the New Elective Safe Harbor to
classify the identified Applicable Project
Components listed in Table 1 and to cal-
culate the Domestic Cost Percentage.
SECTION 3. OVERVIEW
OF MODIFICATIONS TO
NOTICE 2024-41
The First Updated Elective Safe Har-
bor modifies Notice 2024-41 in five ways.
First, section 5 of this notice provides
several modifications to Notice 2024-41,
including expanding the Solar PV Table
of Table 1 into two distinct tables, one for
Photovoltaic (PV) Ground-mount (Track-
ing and Fixed) Applicable Projects and
one for PV Rooftop (MLPE and String)
Applicable Projects, and providing
updated associated cost percentages for
each table (Updated Assigned Cost Per-
centages for PV Solar)
3
, including those
within the new columns in each table that
provide a second set of associated cost
percentages for employing PV modules
that incorporate crystalline silicon pho-
tovoltaic (c-Si PV) cells and wafers that
are manufactured in the United States.
See sections 5.05 and 5.06 of this notice.
The Updated Assigned Cost Percentages
for PV Solar provided in the new col-
umns specific to projects that use c-Si PV
cells made with domestically produced
wafers increase accuracy beyond Table
1 by accounting for the expected signifi-
cant cost premium this type of cell would
carry. There are no additional associ-
ated cost percentages for other types of
PV cells because DOE assesses that the
existing cost percentages, as updated in
this notice, adequately capture the costs
of other types of PV cells.
Second, section 6 of this notice mod-
ifies the Land-Based Wind Table from
Table 1 by renaming the term (i) “Steel or
iron rebar in foundation,” which is listed as
an Applicable Project Component in Table
1, to “Steel or iron reinforcing products in
foundation,” and (ii) the term “Material,”
which is listed as a Manufactured Prod-
uct Component in Table 1, to “Preform.”
Regarding the associated cost percent-
ages for land-based wind components,
the First Updated Elective Safe Harbor’s
values (Updated Assigned Cost Percent-
ages for Land-Based Wind) are the same
values as the Assigned Cost Percentages
for the Land-Based Wind Table in Table 1.
This notice uses the same values because
DOE, using analysis from the national
laboratories, found only minor changes
in the component cost data underlying the
Assigned Cost Percentages for the Land-
Based Wind Table in Table 1. For this rea-
son, DOE did not independently publish
updates to this data.
2
Unless otherwise specified, capitalized terms used throughout this notice are defined in Notice 2023-38 and Notice 2024-41. The term “Applicable Project” includes a qualified facility
described in § 45Y(b)(1)(C) or § 48E(b)(3)(B)(i).
3
For purposes of the First Updated Elective Safe Harbor, the Updated Assigned Cost Percentages for PV Solar, defined in section 3 of this notice, the associated cost percentages for the
Land-Based Wind, which are the same cost values as the Assigned Cost Percentages provided in Notice 2024-41, and the Updated Assigned Cost Percentages for BESS, defined in section 7
below, are collectively defined as the Updated Assigned Cost Percentages.

February 18, 2025 802 Bulletin No. 2025–8
Third, section 7 of this notice provides
several modifications to Notice 2024-41,
including providing updated assigned
cost percentages for the Manufactured
Products and Manufactured Product
Components relating to the Battery Elec-
tric Storage System (BESS) (Updated
Assigned Cost Percentages for BESS),
which Table 1 provided as the Assigned
Cost Percentages for the (3) Battery Elec-
tric Storage System (BESS). Like the
Assigned Cost Percentages, the Updated
Assigned Cost Percentages apply to both
grid-scale BESS and distributed BESS
Applicable Projects.
Fourth, section 4 of the First Updated
Elective Safe Harbor provides that a
taxpayer with a qualified facility under
§ 45 or energy project under § 48 that
is placed in service after December 31,
2022, and that meets the 80/20 Rule, or a
qualified facility under §§ 45Y or 48E or
energy storage technology under § 48E
that is placed in service after December
31, 2024, and that meets the 80/20 Rule,
may use the classifications and cost per-
centages in Table 1 or the First Updated
Elective Safe Harbor (as applicable) to
qualify for the domestic content bonus
credit amount.
Fifth, the First Updated Elective Safe
Harbor provides updated definitions for
representative types of Applicable Proj-
ects and definitions for certain Applicable
Project Components and Manufactured
Product Components.
SECTION 4. CLARIFICATION ON
APPLICATION OF TABLES
A taxpayer may elect to use the
classifications and cost percentages in
Table 1 of Notice 2024-41 or the First
Updated Elective Safe Harbor (as appli-
cable) to qualify for the domestic con-
tent bonus credit amount for Applicable
Projects of the specific types identified
in Table 1 or the First Updated Elective
Safe Harbor that are eligible for a credit
under sections 45, 45Y, 48, or 48E by
virtue of the 80/20 Rule. For example,
as provided for in Notice 2023-38, an
Applicable Project that is eligible for
a credit under sections 45, 45Y, 48, or
48E by virtue of the 80/20 Rule is eligi-
ble for a domestic content bonus credit
amount if the new property in the Appli-
cable Project meets the Domestic Con-
tent Requirement and the taxpayer com-
plies with the requirements described in
the notice. To determine the Domestic
Cost Percentage for such an Applicable
Project, the taxpayer may use the classi-
fications and cost percentages in Table
1 or the First Updated Elective Safe
Harbor (as applicable). Only new U.S.
Manufactured Products and U.S. Com-
ponents of the Applicable Project that
are listed in Table 1 of Notice 2024-41
or of this First Updated Elective Safe
Harbor (as applicable) would be con-
sidered in the calculation of the Domes-
tic Cost Percentage (with no changes
to those tables’ percentages). All other
Manufactured Products or Manufac-
tured Product Components, including
the used property in an Applicable Proj-
ect that qualifies as originally placed
in service by virtue of the 80/20 Rule,
will be treated as foreign-sourced Man-
ufactured Products or Manufactured
Product Components solely for pur-
poses of calculating the Domestic Cost
Percentage when applying the New
Elective Safe Harbor in Notice 2024-
41, and for applying the First Updated
Elective Safe Harbor in this notice, and
must take a zero value consistent with
section 4.03(3) in Notice 2024-41 and
section 8.03(3) of this notice. In such
cases, new property may be consid-
ered in the calculation of the Domestic
Content Percentage if it meets the defi-
nition of a U.S. Manufactured Product
(as defined in section 3.03(1) of Notice
2023-38, including being produced in
the United States), or a U.S. Compo-
nent (as defined in section 3.03(2)(b) in
Notice 2023-38, including being mined,
produced, or manufactured in the
United States). Furthermore, to meet
the Domestic Content Requirement,
such Applicable Projects must also sat-
isfy the Steel or Iron Requirement with
respect to only new Applicable Project
Components that are specified as sub-
ject to the Steel or Iron Requirement in
Table 1 of Notice 2024-41 or this First
Updated Elective Safe Harbor (as appli-
cable).
The modification to Notice 2024-41
described in this section does not extend
a taxpayer’s ability to rely on Notice
2024-41, as described in section 11 of this
notice.
SECTION 5. MODIFICATIONS
TO TABLE 1 FOR SOLAR PV;
GROUND-MOUNT AND ROOFTOP
.01 Modifications to Table 1 for Solar
PV; Expanded Tables. The First Updated
Elective Safe Harbor modifies Table 1
for Solar PV in section 4.04(1) of Notice
2024-41 by expanding it into two distinct
tables to provide the Updated Assigned
Cost Percentages for PV Solar for both
types of ground-mount photovoltaic sys-
tems and both types of rooftop photovol-
taic systems. See tables in sections 5.05
and 5.06 of this notice. DOE calculated
the Updated Assigned Cost Percentages
for PV Solar using its new ground-mount
and rooftop PV component costs for 2024,
which DOE derived from cost data from
a variety of sources, including datasets of
system characteristics, price indices, U.S.
survey data from the government (for
example, the U.S. Bureau of Labor Sta-
tistics, Department of Labor) and private
sector, public filings from corporations,
and comprehensive interviews of manu-
facturers, installers, developers, and own-
ers of the representative technologies. In
addition, DOE used data collected from
three different national laboratories to
generate the Updated Assigned Cost Per-
centages for PV Solar, rather than a sin-
gle national laboratory survey that DOE
relied upon for the methodology used to
generate the Assigned Cost Percentages in
Table 1.
.02 Addition of New Columns. The
First Updated Elective Safe Harbor further
modifies Table 1 for Solar PV in section
4.04(1) of Notice 2024-41 by adding a
new column with a second set of Updated
Assigned Cost Percentages for each type
of ground-mount PV system and each type
of rooftop PV system. This alternative set
of Updated Assigned Cost Percentages can
be used if a PV system has PV modules
that incorporate c-Si PV cells and wafers
manufactured within the United States.
These additional Updated Assigned Cost
Percentages were incorporated to reflect
the significant cost premium this type of
cell would carry relative to other types
of domestic cells, such as those with for-
eign wafers or domestic thin-film cells.
These new columns include values based
on DOE’s estimates of underlying direct
costs for a domestically produced mod-

Bulletin No. 2025–8 803 February 18, 2025
ule containing c-Si PV cells made from
domestically produced c-Si wafers. The
Updated Assigned Cost Percentages for
PV Solar are from DOE’s Quarterly Solar
Industry Update (publication pending),
which are derived from a DOE-led effort
that uses data collected from national lab-
oratories.
The Treasury Department and the IRS,
in consultation with DOE, implemented
the updates described after review of the
comments received in response to the
request for comments made in Notice
2024-41, which highlighted the expected
cost premium incurred from procuring
domestically produced c-Si PV cells
made with domestically produced sil-
icon wafers. Based on this review and
consultation with DOE, the Treasury
Department and the IRS concluded that,
due to the expected cost premium associ-
ated with domestically produced silicon
wafers, Table 1 could misrepresent the
expected costs of domestically produced
c-Si PV cells made with these wafers,
thereby reducing Table 1’s accuracy. This
inaccuracy could risk under-crediting a
component whose value is, to a signifi-
cant extent, created domestically, while
over-crediting other components within
the table.
Given these considerations, the Trea-
sury Department and the IRS, in consul-
tation with DOE, have determined that
it is appropriate to provide taxpayers the
option of using a cost safe harbor that
more specifically reflects the cost of c-Si
PV cells produced with domestically pro-
duced wafers.
.03 Renaming of Certain Components.
The First Updated Elective Safe Harbor
further modifies Table 1 for Solar PV in
section 4.04(1) of Notice 2024-41 by
renaming the following Applicable Proj-
ect Components and Manufactured Prod-
uct Components. With respect Applicable
Project Components: (i) “Pile or ground
screw” is renamed “Steel pile or steel
ground screw” for consistency with the
description of other items categorized as
a steel/iron product, and (ii) “Steel or iron
rebar in foundation” is renamed “Steel or
iron reinforcing products in foundation”
to better reflect its function and to clarify
that non-rebar steel or iron reinforcement
is also covered.
With respect to Manufactured Prod-
uct Components: (i) “Climate Control” is
renamed “Thermal Management System”;
(ii) “Enclosure” is renamed “Enclosure &
Skids” for the Inverter Applicable Proj-
ect Component of both types of ground-
mount photovoltaic systems; (iii) “Fas-
teners” is renamed “Structural Fasteners”;
(iv) “Slew Drive” is renamed “Drive Sys-
tem”; and (v) “Motor” is renamed “Actu-
ator” to better reflect each Manufactured
Product Component’s function by provid-
ing specificity.
.04 Redefining, Recategorizing, and
Reclassifying Certain Components. The
following changes were made after con-
sultation with DOE and review of stake-
holder feedback: First, the First Updated
Elective Safe Harbor revises the definition
of: (i) “Ground-mounted PV (fixed-tilt)”
to clarify that it includes canopy steel
racking structures and structures floating
on a body of water; (ii) “Ground-mounted
PV (tracker)” to clarify that it includes
structures floating on a body of water; and
(iii) “Rooftop PV (MLPE)” to clarify that
it refers to a system where the microin-
verters or DC-optimizers regulate the DC
electricity from each of its solar PV mod-
ules independently before the electricity is
converted into alternating current electric-
ity.
Second, the First Updated Elective Safe
Harbor clarifies that the Manufactured
Product Component “Electrical Parts”
for ground-mount PV systems includes
the following components that are not on
printed circuit board (PCB) assemblies:
control transformers, capacitors, induc-
tors, bus/cables, circuit protection.
Third, as provided in the table in sec-
tion 5.06 of this notice, the First Updated
Elective Safe Harbor removes “Electri-
cal Parts for rooftop PV systems,” and
adds their costs to “Printed Circuit Board
Assemblies” (DC-DC) and “Printed Cir-
cuit Board Assemblies” (DC-AC).
4

Fourth, for “Solar PV Rooftop”, the
First Updated Elective Safe Harbor
categorizes DC-to-DC and DC-to-AC
“Printed Circuit Board Assemblies” as
separate Manufactured Products Compo-
nents, and the domestic “Printed Circuit
Board Assemblies” that perform both
functions (that is, convert both DC to DC
and DC to AC) can get credit for each cost
percentage.
5

Fifth, “Adhesives,” which is listed as a
Manufactured Product Component for PV
Solar in Table 1, is removed from the First
Updated Elective Safe Harbor to avoid
redundancy and confusion because “Pot-
tants” and “Edge Seals,” which are listed
as Manufactured Product Components
within the First Updated Elected Safe
Harbor, are also adhesives. As such, to
reflect the removal of “Adhesives” within
the Updated Assigned Cost Percentages
for PV Solar, the Treasury Department
and the IRS, in consultation with DOE,
increased the associated cost percentage
for both “Pottants” and “Edge Seals”.
See tables in section 5.05 and 5.06 of this
notice.
.05 Updated Table for Solar PV
Ground-Mount
4
The abbreviated terms “DC” and “AC” are generally industry accepted terms meaning “Direct Current” and “Alternating Current,” respectively.
5
Larger inverters, such as those in most ground-mount applications, have fundamentally different architectures than smaller inverters. As such, DOE assessed that a similar change would
not improve the accuracy of the cost percentages for ground-mount PV systems.

February 18, 2025 804 Bulletin No. 2025–8
APCMPCGround-
mount
(Tracking)
Ground- mount
(Tracking) with
Domestic c-Si PV
Cells & Domestic
Wafers
Ground-
mount
(Fixed)
Ground- mount
(Fixed) with
Domestic c-Si PV
Cells & Domestic
Wafers
PV module
Cells38.051.653.266.6
Frame/Backrail6.04.78.56.1
Front Glass6.04.78.46.1
Encapsulant3.83.05.43.8
Backsheet/Backglass3.83.05.43.8
Junction Box1.00.81.41.0
Edge Seals0.30.20.40.3
Pottants0.30.20.40.3
Bus Ribbons1.51.22.11.5
Bypass Diodes0.40.30.60.4
Production
6
4.7
7
3.7
7
6.7
7
4.8
7
Inverter
Printed Circuit Board Assemblies2.41.73.12.2
Electrical Parts0.80.61.10.8
Thermal Management System0.50.40.70.5
Enclosure & Skids0.60.50.90.6
Production1.2
7
0.9
7
1.7
7
1.2
7
PV Tracker
Torque tube11.08.6--
Structural Fasteners0.40.3--
Drive System1.91.5--
Dampers0.50.4--
Actuator2.82.2--
Controller0.70.6--
Rails2.01.6--
Production9.4
7
7.3
7
--
Steel photovoltaic
module racking
---Steel/Iron
Product
Steel/Iron Product
Steel pile or Steel
ground screw
-Steel/Iron
Product
Steel/Iron ProductSteel/Iron
Product
Steel/Iron Product
Steel or Iron
reinforcing
products in
foundation
-Steel/Iron
Product
Steel/Iron ProductSteel/Iron
Product
Steel/Iron Product
Total
-
100100100
100
6
Although “Production” is listed under the column for Manufactured Product Components (MPCs), it is not an MPC. “Production” refers to the production cost of the relevant Applicable
Project Component (APC) that is a Manufactured Product and can only be included in the Domestic Cost Percentage if all of the Manufactured Product Components of that Manufactured
Product APC are domestically produced. See section 3.03(2) of Notice 2023-38.
7
Consistent with Notice 2023-38, the direct cost of producing a Manufactured Product counts toward the Domestic Cost Percentage only if all its Manufactured Product Components are
domestically produced.

Bulletin No. 2025–8 805 February 18, 2025
.06 Updated Table for Solar PV Rooftop
APCMPCRooftop
(MLPE)
Rooftop (MLPE)
with Domestic
c-Si PV cells &
Domestic Wafers
Rooftop
(String)
Rooftop (String)
with Domestic
c-Si PV cells &
Domestic Wafers
PV module
Cells31.143.938.552.1
Frame/Backrail4.94.06.14.8
Front Glass4.94.06.14.7
Encapsulant3.12.53.93.0
Backsheet/Backglass3.12.53.93.0
Junction Box0.80.61.00.8
Edge Seals0.20.20.30.2
Pottants0.20.20.30.2
Bus Ribbons1.21.01.51.2
Bypass Diodes0.30.30.40.3
Production5.8
8
4.7
8
7.2
8
5.6
8
Inverter
9
Printed Circuit Board Assemblies
(DC-DC)
10
7.86.41.61.3
Printed Circuit Board Assemblies
(DC-AC)
10
11.89.52.41.9
Thermal Management System -- 0.50.4
Enclosure 4.33.51.31.0
Production0.9
8
0.7
8
0.5
8
0.4
8
Non-Steel
Roof Racking
Structural Fasteners3.52.94.43.4
Rails15.012.218.714.6
Production1.1
8
0.9
8
1.4
8
1.1
8
Total
-
100100
100100
.07 Definitions.
(1) Actuator. Actuator means the com-
ponent that produces the force, torque,
and displacement.
(2) Backrail. Backrail means the com-
ponent that secures the module laminate
to its support structure. A Backrail can be
used for the same purposes and in place
of a Frame.
(3) Backsheet/Backglass. Backsheet/
Backglass means the sheet or piece of
glass on the back of solar modules that
acts as an electric insulator and protects
the inner components of such module
from the surrounding environment.
(4) Cells. Cells in a PV module means
the smallest semiconductor element of a
solar module which performs the immedi-
ate conversion of light into electricity.
(5) Controller. Controller means
the component that transmits operating
instructions to the actuator.
(6) Crystalline silicon cells. Crystal-
line silicon cells, also referred to as c-Si
cells, means a cell in a PV module, as
defined in section 5.05(4) of this notice,
that is made of silicon atoms connected to
form a lattice.
(7) Drive system. Drive system means
the components that transmit force,
torque, or displacement from the actuator
to the torque tube.
(8) Electrical parts. Electrical parts
mean the components consisting of only
control transformers, capacitors, induc-
tors, bus/cables, and circuit protection not
on printed circuit board (PCB) assemblies.
(9) Encapsulant. Encapsulant means
the material used to adhere the cell strings
between the front and rear glass (or back-
sheet) for the purpose of protecting against
environmental stress.
(10) Enclosure: Enclosure means the
protective structure that houses, that is,
encloses, the other inverter components.
(11) Frame. Frame means the compo-
nent that secures the module laminate to
its support structure.
(12) Front glass: Front glass means
the transparent, protective, structural front
layer of a PV module.
8
Consistent with Notice 2023-38, the direct cost of producing a Manufactured Product counts toward the Domestic Cost Percentage only if all its Manufactured Product Components are
domestically produced.
9
For purposes of this table, module-level power electronics inverter systems, including either microinverters or direct current (DC) optimizers, are considered an inverter product.
10
In instances in which a U.S. Component meets the criteria of more than one listed manufactured product component, it can claim all relevant Updated Assigned Cost Percentages.

February 18, 2025 806 Bulletin No. 2025–8
(13) Ground-mounted PV (fixed-tilt).
Ground-mount PV (fixed-tilt) refers to an
energy system using photovoltaic solar
modules to generate electricity, mounted
to a non-building structure, including can-
opy steel racking structures, or floating on
a body of water, where the PV modules are
mounted at a fixed angle and orientation.
(14) Ground-mounted PV (tracker).
Ground-mount PV (tracker) refers to an
energy system using photovoltaic solar
modules to generate electricity, mounted
to a non-building structure, or floating on
a body of water, which integrates a solar
tracker to rotate the solar modules.
(15) Junction box. Junction box means
the component that connects PV cell
strings and keeps power flowing in one
direction.
(16) Printed circuit board assemblies.
Printed circuit board assemblies means
finished, fully functional printed circuit
boards that have all necessary subcompo-
nents soldered and installed on to them.
(17) Rails. Rails, including the compo-
nents known as purlins, means the compo-
nents that attach modules to torque tubes.
(18) Rooftop PV (MLPE). Rooftop
PV (MLPE) refers to an energy system
using photovoltaic solar modules to gen-
erate electricity, mounted to a building
structure, which integrates one or more
microinverters or uses a DC-optimized
inverter system such that the rooftop
PV system (with its microinverter(s)
or DC-optimized inverter system) reg-
ulates the DC electricity from each of
its modules independently before that
electricity is converted into alternating
current electricity.
(19) Rooftop PV (string inverter).
Rooftop PV (string inverter) refers to an
energy system using photovoltaic solar
modules to generate electricity, mounted
to a building structure, which integrates
one or more inverters to convert direct
current electricity from a string of solar
panels into alternating current electricity.
(20) Skid. Skid means that component
upon which the enclosure sits.
(21) Structural Fasteners. Structural
Fasteners for use in ground-mount PV
applications means a component that is
used to connect the mechanical and drive
system components of a solar tracker to
the foundation of the solar tracker, to
connect torque tubes to drive assemblies,
or to connect segments of torque tubes to
one another. Structural Fasteners for use
in rooftop PV applications means a com-
ponent that connects the rails, modules,
and MLPE (if applicable) to one another.
(22) Thermal management system. Ther-
mal management system means the system
consisting of the heat sinks, heat pipes, fans
and/or the liquid cooling systems.
(23) Torque tubes. For purposes of
the Manufactured Product Components
provided within the table under section
5.05 of this notice, Torque tubes means
a structural support element, including
longitudinal purlins that: (i) is part of a
solar tracker; (ii) is of any cross-sectional
shape; (iii) may be assembled from indi-
vidually manufactured segments; (iv)
spans longitudinally between foundation
posts; (v) supports solar panels and is con-
nected to a mounting attachment for solar
panels (with or without separate mod-
ule interface rails); (vi) and is rotated by
means of a drive system.
(24) Wafer. Wafer means a thin slice,
sheet or layer of crystalline silicon semicon-
ductor material that comprises the substrate
or absorber layer of one or more photovol-
taic cells. It is manufactured by forming
an ingot from molten polysilicon and then
slicing it into wafers, or by depositing a thin-
film semiconductor photon absorber into a
sheet or layer, that is, a thin-film deposition.
SECTION 6. MODIFICATIONS TO
TABLE 1 FOR LAND-BASED WIND
.01 Modifications to Table 1 for Land-
Based Wind. The First Updated Elective
Safe Harbor modifies Table 1 for Land-
based Wind of section 4.04(2) of Notice
2024-41 by renaming “Steel or iron rebar
in foundation,” the Applicable Project
Component for wind turbine foundation
steel, to “Steel or iron reinforcing prod-
ucts in foundation,” and further renaming
“Material,” the Manufactured Product
Component for wind tower flanges, to
“Preform.” This first modification is made
to better reflect the Applicable Project
Component’s function and to clarify that
non-rebar steel or iron reinforcement is
also covered. The second modification is
made to better reflect the manufacturing
process and supply chain.
.02 Updated Table for Land-Based
Wind.
APCMPCValue
Wind Turbine
Blades31.2
Rotor Hub9.9
Nacelle47.5
Power Converter8.9
Production0.9
11
Wind Tower Flanges
Preform
12
0.8
Production0.8
11
Tower
-Steel/Iron Product
Steel or iron reinforcing products in foundation
-Steel/Iron Product
Total-100
11
Consistent with Notice 2023-38, the direct cost of producing a Manufactured Product counts toward the Domestic Cost Percentage only if all its Manufactured Product Components are
domestically produced.
12
Flanges are typically made from single pieces of steel bar or pre-formed steel ingot; therefore the only component of a flange would be the preform.

Bulletin No. 2025–8 807 February 18, 2025
.03 Definitions.
(1) Blades. Blades means the air-
foil-shaped blade that is responsible for
converting wind energy to low-speed rota-
tional energy.
(2) Land-based wind. Land-based
wind means an energy system using wind
turbines to generate electricity on land.
(3) Nacelle. Nacelle means the assem-
bly of the drivetrain and other tower-top
parts of a wind turbine (with the excep-
tion of the blades, rotor hub, and power
converter, if located atop the tower) within
their cover housing.
(4) Power converter. Power converter
means the component that translates the
electrical energy generated by the genera-
tor within the nacelle into a frequency and
voltage compatible with use or export to
the grid.
(5) Preform. Preform means the rough-
formed forged metal component from
which a wind tower flange is rolled and
machined.
(6) Rotor hub. Rotor hub means the
component to which the blades of a wind
turbine are attached, which controls the
pitch angle of the blades with respect to
the wind and is connected to and transfers
its rotation to the drivetrain within the
nacelle.
SECTION 7. MODIFICATIONS TO
TABLE 1 FOR BATTERY ENERGY
STORAGE SYSTEMS
.01 Modifications to Table 1 for Battery
Energy Storage Systems (BESS).
The First Updated Elective Safe Har-
bor modifies Table 1 for BESS in section
4.04(3) of Notice 2024-41 by providing
the Updated Assigned Cost Percentages
for BESS, which DOE sourced from its
new BESS component costs for 2024.
DOE derived the Updated Assigned Cost
Percentages for BESS from cost data from
a variety of sources, including datasets
of system characteristics, price indices,
U.S. survey data from the government
(for example, the U.S. Bureau of Labor
Statistics, Department of Labor) and pri-
vate sector, public filings from corpora-
tions, and comprehensive interviews of
manufacturers, installers, developers, and
owners of the representative technolo-
gies. In addition, DOE used data collected
from three different national laboratories
to generate the Updated Assigned Cost
Percentages for BESS, rather than a sin-
gle national laboratory survey that DOE
relied upon for the methodology it used
to generate the Assigned Cost Percentages
in Table 1. The Updated Assigned Cost
Percentages for BESS more closely reflect
the direct cost methodology outlined in
Notice 2023-38.
The First Updated Elective Safe Har-
bor further modifies the BESS table from
Table 1 by: (i) renaming the following
Applicable Project Components: (1) “Bat-
tery Pack” to “Battery Pack/Module,” (2)
“Inverter” to “Inverter/Converter,” and
(3) “Steel or iron rebar in foundation” to
“Steel or iron reinforcing product foun-
dation”; (ii) renaming the Manufactured
Product Components “Enclosure,” within
the Inverter/Converter row, to “Enclosure
& Skids,” and “Climate Control,” within
the Inverter/Converter row, to “Thermal
Management System for Inverter”; (iii)
recategorizing the following Manufac-
tured Product Components: (1) “Ther-
mal Management System” and “Battery
Management System” are recategorized
from the Applicable Project Component
row of “Battery Pack,” in Table 1, to the
Applicable Project Component row of
“Battery Container/Housing”, and (2)
“Battery Racks” and “Metal Enclosures”
are recategorized as “Enclosures” within
the Applicable Project Component row
of “Battery Container/Housing”; and (iv)
removing the cost values for “Electrical
Parts and Thermal Management System
for Inverter” (within the Inverter/Con-
verter Applicable Project Component)
from the Distributed BESS column and
adding them to the Printed Circuit Board
Assemblies within the same column.
The modifications described above are
made for purposes of the First Updated
Elective Safe Harbor to better represent
the variety of the Manufactured Product
Components that are used for particular
functions within Applicable Project Com-
ponents. Additionally, “Steel or iron rein-
forcing product foundation” is renamed
to better reflect its function, and to clarify
that non-rebar steel and iron reinforce-
ment are also covered.
With respect to the Thermal Manage-
ment Systems and Battery Management
Systems referenced above, the DOE has
advised that most of these systems are
located in the container outside of the
battery pack/module. For this reason, and
because DOE’s published cost analysis
is based on extensive industry feedback,
updating the placement of these items
within the tables provided in this notice
more accurately represents the Manufac-
tured Product Components for Battery
Packs/Modules and for Battery Con-
tainer/Housing. Updating the placement
of these items is also more consistent
with the cost breakdown within DOE’s
cost analysis. As such, the reclassifica-
tion further improves the accuracy of the
associated cost percentages provided in
this notice.
.02 Updated Table for Battery Energy
Storage System (BESS).

February 18, 2025 808 Bulletin No. 2025–8
APCMPCGrid-scale BESSDistributed BESS
Battery Pack/
Module
Cells52.026.9
Packaging5.613.4
Production8.0
13
2.9
13
Inverter/
Converter
Printed Circuit Board Assemblies1.45.4
Thermal Management System for Inverter0.4-
Electrical Parts0.5-
Enclosure & Skids0.41.0
Production1.9
13
4.3
13
Battery Container/
Housing
Enclosure14.822.8
Battery Management System7.410.1
Thermal Management System for Battery Container/
Housing
5.610.1
Production2.0
13
3.1
13
Steel or iron reinforcing
products in foundation
-Steel/Iron Product-
Total-100100
13
Consistent with Notice 2023-38, the direct cost of producing a Manufactured Product counts toward the Domestic Cost Percentage only if all its Manufactured Product Components are
domestically produced.
.03 Definitions.
(1) Battery pack/module. Battery pack/
module means the packaged unit of bat-
tery cells that are configured electrically,
in series or parallel, and is ready for
installation in the battery container/hous-
ing without an additional manufacturing
process.
(2) Inverter/converter. Inverter/con-
verter means an end product that is suit-
able to convert between direct current and
alternating current or direct current and
direct current electricity to enable battery
charge and discharge.
(3) Battery container/housing. Battery
container/housing means a superstructure
that houses, protects, and manages a sys-
tem of multiple battery packs/modules.
(4) Battery Management System. Bat-
tery Management System means a com-
bined system of electrical and electronic
parts that serves to monitor (and may also
control) the condition of the battery pack/
module.
(5) Cells. Cells in a battery pack means
an electrochemical cell comprised of one
or more positive electrodes and one or
more negative electrodes.
(6) Distributed BESS. Distributed
BESS means an energy storage system for
electricity generation using battery cells
and battery modules, which has a name-
plate capacity not greater than 1 mega-
watt-hour.
(7) Electrical parts. Electrical parts
mean the components consisting of only
control transformers, capacitors, induc-
tors, bus/cables, and circuit protection not
on printed circuit board (PCB) assemblies.
(8) Enclosure. Enclosure means a struc-
ture that houses and protects other equip-
ment and may provide structural support
to other products and components.
(9) Grid-scale BESS. Grid-scale BESS
means an energy storage system for elec-
tricity generation using battery cells and
battery modules, which has a nameplate
capacity greater than 1 megawatt-hour.
(10) Packaging. Packaging means the
materials that surround battery cells to
create a battery pack/module.
(11) Printed circuit board assemblies.
Printed circuit board assemblies means
finished, fully functional printed circuit
boards that have all necessary subcompo-
nents soldered and installed on to them.
(12) Thermal Management System for
Inverter. Thermal management System for
Inverter means the primary cooling unit to
optimize operation and safety, external to
and/or within the Inverter/Converter (in
which it is a Manufactured Product Com-
ponent of the Inverter/Converter).
(13) Thermal Management System
for Battery Container/Housing. Thermal
Management System for Battery Con-
tainer/Housing means the primary cooling
unit to optimize operation and safety of
the BESS (in which it is a Manufactured
Product Component of the Battery Con-
tainer/Housing).
SECTION 8. CONDITIONS FOR
USE OF THE FIRST UPDATED
ELECTIVE SAFE HARBOR
.01 In General. The First Updated
Elective Safe Harbor applies to both the
Steel or Iron Requirement and the Man-
ufactured Products Requirement of the
Domestic Content Requirement for each
Applicable Project for which a taxpayer
elects to have the First Updated Elec-
tive Safe Harbor apply. Notice 2023-38
requires that costs that are included in
the numerator and denominator for pur-
poses of calculating the Domestic Cost
Percentage are the direct materials and
direct labor costs that are paid or incurred
by the manufacturer of the Manufactured
Product. Taxpayers are further required
to calculate the direct costs of any U.S.

Bulletin No. 2025–8 809 February 18, 2025
Components that may have been incorpo-
rated into Non-U.S. Manufactured Prod-
ucts. The Treasury Department and the
IRS are aware that obtaining a manufac-
turer’s direct costs of manufacturing may
require the taxpayer to gather cost data
from multiple suppliers and manufactur-
ers, including foreign manufacturers, and
may present challenges for substantiation
and verification.
.02 First Updated Elective Safe Harbor.
Unless otherwise provided in this notice, a
taxpayer electing to use the First Updated
Elective Safe Harbor for an Applicable
Project must use the Applicable Project
Components, the Manufactured Product
Components, and the Updated Assigned
Cost Percentages listed in a table pro-
vided in sections 5-7 of this notice as the
exclusive and exhaustive set of Applicable
Project Components, Manufactured Prod-
uct Components and Updated Assigned
Cost Percentages for purposes of deter-
mining compliance with the Domestic
Content Requirement for each Applicable
Project for which the taxpayer makes this
election. The requirements in the previ-
ous sentence apply regardless of whether
property listed in a table provided in sec-
tions 5-7 of this notice is fully or fraction-
ally owned or shared. The classifications
and cost percentages provided in a tables
provided in sections 5-7 of this notice will
be accepted by the IRS for the identified
Manufactured Products and Manufac-
tured Product Components for purposes
of determining compliance with the Steel
or Iron Requirement and calculating the
Domestic Cost Percentage if all other
requirements in this notice and Notice
2023-38 are met.
To be eligible for the First Updated
Elective Safe Harbor, Applicable Proj-
ects are not required to be made of all the
Applicable Project Components provided
in a table provided in sections 5-7 of this
notice, and each Applicable Project Com-
ponent listed is not required to be made
of the full list of Manufactured Product
Components provided in a table provided
in sections 5-7 of this notice. Taxpayers
may still elect to use the First Updated
Elective Safe Harbor even if entries in a
table of this notice are not used as inputs
to their Applicable Projects or Manufac-
tured Products, or if the Applicable Proj-
ect contains additional inputs not listed
in a table provided in sections 5-7 of this
notice.
Any Applicable Project Component
or Manufactured Product Component
listed in a table provided in sections 5-7
of this notice that is not used as an input
to the Applicable Project must be treated
by the electing taxpayer as having a zero
value in calculating the Domestic Cost
Percentage. An Applicable Project Com-
ponent or Manufactured Product Compo-
nent contained in a taxpayer’s Applicable
Project but not listed in a table provided
in sections 5-7 of this notice will not dis-
qualify the taxpayer from using the First
Updated Elective Safe Harbor. However,
such unlisted items may not count toward
satisfying the Adjusted Percentage Rule.
The absence of a Manufactured Product
or Manufactured Product Component that
is listed in a table provided in sections 5-7
of this notice, or the presence of a Manu-
factured Product or Manufactured Product
Component that is not listed in sections
a table provided in 5-7 of this notice, in
an Applicable Project does not affect the
Assigned Cost Percentages listed in sec-
tions 5-7 for purposes of the First Updated
Elective Safe Harbor.
.03 First Updated Elective Safe Harbor
Requirements.
(1) In general. Unless otherwise pro-
vided, all other provisions of Notice 2023-
38 apply in determining whether an Appli-
cable Project meets the Domestic Content
Requirement. For example, the Applica-
ble Project Components that are specified
as subject to the Steel or Iron Requirement
in sections 5-7 of this notice must satisfy
the Steel or Iron Requirement described in
section 3.02 of Notice 2023-38. See sec-
tions 8.03(8) and 10 of this notice for the
First Updated Elective Safe Harbor’s elec-
tion and certification requirements.
(2) No Partial Safe Harbor Reliance.
Taxpayers that elect to use the First
Updated Elective Safe Harbor must apply
in its entirety the section of this notice that
is specific to the Applicable Project for
which the taxpayer makes such election.
For example, if a taxpayer’s Applicable
Project is a land-based wind facility, the
taxpayer must use the classifications for
Applicable Project Components and Man-
ufactured Product Components in section
6.02 of this notice with respect to land-
based wind and must use the Updated
Assigned Cost Percentages for all the
Manufactured Products and Manufac-
tured Product Components (for example,
Blades, Rotor Hub, Nacelle, and Power
Converter) provided in section 6.02 of
this notice that are used in the taxpayer’s
Applicable Project without substitution.
(3) Determining Domestic Cost Per-
centage. To determine the Domestic Cost
Percentage using the First Updated Elec-
tive Safe Harbor, a taxpayer must refer to
the section of this notice that describes
the taxpayer’s Applicable Project and add
up the Updated Assigned Cost Percent-
ages for each listed U.S. Manufactured
Product (as defined in section 3.03(1) of
Notice 2023-38) and U.S. Component (as
described in section 3.03(2)(b) of Notice
2023-38) of the taxpayer’s Applicable
Project. This total value is the Domestic
Cost Percentage for purposes of the First
Updated Elective Safe Harbor. Any Man-
ufactured Product or Manufactured Prod-
uct Component listed in a table provided
in sections 5-7 of this notice that is not a
part of the taxpayer’s Applicable Project
must take a zero value for the Updated
Assigned Cost Percentage under the First
Updated Elective Safe Harbor for such
Manufactured Product or Manufactured
Product Component, with all Updated
Assigned Cost Percentages shown in
sections 5-7 of this notice remaining
unchanged. Any Manufactured Product
or Manufactured Product Component not
listed in a table provided in sections 5-7
of this notice must be disregarded for pur-
poses of determining the Domestic Cost
Percentage using the First Updated Elec-
tive Safe Harbor.
(4) Solar PV systems with Domes-
tic C-Si PV Cells and Domestic Wafers.
Taxpayers with ground-mount (tracking),
ground-mount (fixed), rooftop (MLPE),
or rooftop (string) solar PV systems may
elect to use the associated cost percentages
for ground-mount (tracking) with domes-
tic c-Si PV cells and domestic wafers,
ground-mount (fixed) with domestic
c-Si PV cells and domestic wafers, roof-
top (MLPE) with domestic c-Si PV cells
and domestic wafers, or rooftop (string)
with domestic c-Si PV cells and domes-
tic wafers if all, or a portion of, the PV
modules in the Applicable Project use
domestically manufactured c-Si PV cells
that exclusively use domestically manu-

February 18, 2025 810 Bulletin No. 2025–8
factured wafers, as the terms are defined
in section 5.07 of this notice and subject
to the guidance in section 8.03(5) of this
notice below.
(5) Foreign- and Domestic-Sourced
Manufactured Products and/or Manufac-
tured Product Components. Taxpayers
who source the same type of Manufac-
tured Product or Manufactured Product
Component (that is, they are listed in the
same row of a particular table in sections
5-7 of this notice) from both foreign and
domestic sources (Mixed Source Item or
MSI) in a particular Applicable Project
described in sections 5-7 of this notice
may use the First Updated Elective Safe
Harbor to determine a single Updated
Assigned Cost Percentage for each sep-
arate type of Mixed Source Item in the
Applicable Project.
Taxpayers that elect to use the associated
cost percentages for solar PV with domes-
tic c-Si PV cells and domestic wafers where
only a portion of the Applicable Project’s
PV cells are domestic c-Si PV cells that
exclusively use domestically manufactured
wafers must treat any domestically manu-
factured PV cells that do not exclusively use
domestic wafers as though such PV cells are
foreign sourced for purposes of using the
cost percentages in this notice, and may not
include the “Production” cost percentage for
PV modules containing such cells that oth-
erwise meet the definition of a U.S. Manu-
factured Product in section 3.03(2) of Notice
2023-38. Furthermore, taxpayers that elect
to use the associated cost percentages for
ground-mount (tracking) with domestic
c-Si PV cells and domestic wafers, ground-
mount (fixed) with domestic c-Si PV cells
and domestic wafers, rooftop (MLPE) with
domestic c-Si PV cells and domestic wafers,
or rooftop (string) with domestic c-Si PV
cells and domestic wafers must use the
corresponding Updated Assigned Cost Per-
centages for all the Manufactured Products
and Manufactured Product Components in
the Applicable Project for purposes of deter-
mining the Domestic Cost Percentage.
For Mixed Source Items (MSI), that have
a nameplate capacity, the following weighted
average formula may be used to determine
the Updated Assigned Cost Percentage attrib-
utable to each type of Mixed Source Item:
DCP
Domestic MSI
x Nameplate Capacity
Domestic MSI
Nameplate Capacity
MSI
For purposes of this formula:
(a) DCP
Domestic MSI
means the Updated
Assigned Cost Percentage derived from
the tables in this notice of the Mixed
Source Item.
(b) Nameplate Capacity
DomesticMSI
means
the nameplate capacity of the Mixed
Source Items of the same type in the
Applicable Project that is produced in the
United States.
(c) Nameplate Capacity
MSI
means the
total nameplate capacity of the Mixed
Source Items of the same type in the
Applicable Project.
For Mixed Source Items without name-
plate capacities, the portion of cost per-
centage provided in sections 5-7 of this
notice that may count toward the Domes-
tic Cost Percentage must be calculated
by using the weighted average formula
described above, modified by replac-
ing the nameplate capacity of the Mixed
Source Items with the nameplate capac-
ities of the associated Applicable Proj-
ect Components with which the Mixed
Source Item is directly integrated. For
this purpose, Mixed Source Items without
nameplate capacities must apply: the total
nameplate capacity of the associated PV
module(s) for the Solar PV Table; the total
nameplate capacity of the associated wind
turbine for land-based wind; or the total
nameplate capacity of the battery pack(s)
for BESS. If a type of Mixed Source Item
without nameplate capacity has multiple
units that are both foreign- and domes-
tic-sourced associated and directly inte-
grated with the same Applicable Project
Component with nameplate capacity,
then all such Mixed Source Items must be
treated as foreign-sourced.
(6) Production Costs. The tables in
sections 5-7 of this notice contain a line
item for “Production,” which, although
listed under the column for Manufac-
tured Product Components, is not a Man-
ufactured Product Component. With the
exception noted in section 8.03(5) of this
notice, above, “Production” refers to the
production cost of the relevant Manufac-
tured Product and can be included in the
total Domestic Cost Percentage only if all
the Manufactured Product Components of
a Manufactured Product are domestically
produced. See Notice 2023-38, section
3.03(2). The Updated Assigned Cost Per-
centage attributable to production costs for
a particular Manufactured Product may be
used if such Manufactured Product con-
tains Manufactured Product Components
not listed in a table provided in sections
5-7 of this notice or if entries in a table
provided in sections 5-7 of this notice are
not a part of such Manufactured Product,
so long as the remainder of the Manufac-
tured Product Components in sections 5-7
that are a part of such Manufactured Prod-
uct are mined, produced, or manufactured
in the United States.
(7) Exclusive Safe Harbor. A taxpayer
that elects to use the First Updated Elec-
tive Safe Harbor with respect to an Appli-
cable Project must consider the steel or
iron products, Manufactured Products,
and Manufactured Product Components
that are identified in a table provided in
sections 5-7 of this notice as an exclu-
sive and exhaustive set of steel or iron
products, Manufactured Products, and
Manufactured Product Components for
purposes of determining compliance with
the Domestic Content Requirement for
that Applicable Project. The First Updated
Elective Safe Harbor may still be used in
instances in which a taxpayer’s Applica-
ble Project does not contain every item
identified in a table in sections 5-7 of this
notice, or in which a taxpayer’s Applica-
ble Project contains additional items not
identified in a table provided in sections
5-7 of this notice, provided the taxpayer
applies the requirements for determining
Domestic Cost Percentage described in
section 8.03(3)-(7) of this notice.
(8) Certification. Taxpayers must affir-
matively elect to rely on the First Updated
Elective Safe Harbor in sections 5-7 of
this notice and must notify the IRS of this
election by providing information on the

Bulletin No. 2025–8 811 February 18, 2025
Domestic Content Certification Statement
as described in section 10 of this notice.
.04 Examples
(1) Example 1.
(a) In its taxable year beginning in June 2025,
Taxpayer purchases a 100-megawatt direct current
(MWdc) ground-mounted PV (tracker) (Applicable
Project A) from Contractor under an EPC contract,
places the project in service, and makes a valid elec-
tion to use the First Updated Elective Safe Harbor to
qualify for the domestic content bonus credit amount
under § 48. Applicable Project A is an energy project
for purposes of § 48 that is comprised of five catego-
ries of Applicable Project Components identified in the
table in section 5.05 in this notice for a ground-mounted
PV (tracker): PV modules, inverters, PV trackers, steel
piles, and steel reinforcing products in foundation. For
purposes of the Adjusted Percentage Rule, the adjusted
percentage is 40 percent for energy projects that are not
offshore wind facilities. See § 48(a)(12)(B).
(b) In accordance with the table in section 5.05
of this notice, taxpayer identifies the steel piles and
steel reinforcing products in foundation as steel or
iron products and the PV modules, inverters, and PV
trackers as Manufactured Products.
(c) All of the steel piles and steel reinforcing prod-
ucts in foundation are manufactured in the United
States and meet the Steel or Iron Requirement.
(d) Two sets of PV modules are used in the Appli-
cable Project A. One set has a capacity of 60 MWdc
and are PV modules manufactured in the United States
that incorporate c-Si PV cells and wafers that are
manufactured in the United States, with the modules’
remaining Manufactured Product Components, as
identified in accordance with the table in section 5.05
of this notice, also manufactured in the United States.
The remaining set has a capacity of 40 MWdc and are
PV modules that are not manufactured in the United
States and that have no U.S. Components. None of
Applicable Project A’s PV inverters are manufactured
in the United States or have any U.S. Components.
(e) The PV trackers used in Applicable Project
A are manufactured in the United States and have
seven categories of Manufactured Product Com-
ponents (torque tubes, structural fasteners, drive
system, dampers, actuator, controllers, and rails) of
which a portion of the torque tubes are manufactured
in the United States. The PV trackers are associated
and directly integrated with all the PV modules used
in Applicable Project A. The torque tubes manufac-
tured in the United States are the only torque tubes
associated and directly integrated with 80 MWdc of
Applicable Project A’s PV modules. The remainder
of torque tubes and other PV tracker components are
not manufactured in the United States. The PV track-
ers are Non-U.S. Manufactured Products because
some of their Manufactured Product Components
are not produced in the United States.
(f) Applicable Project A’s steel or iron products
identified in the table in section 5.05 of this notice
meet the Steel or Iron Requirement. The Taxpayer
makes a valid election to use the associated cost per-
centages for ground-mount (tracking) with domestic
c-Si PV cells & domestic wafers. The Taxpayer is
able to do so because a portion of the PV modules
in the Applicable Project use domestically manu-
factured crystalline silicon cells that exclusively
use domestically manufactured wafers. The table in
section 5.05 of this notice identifies the torque tube
Manufactured Product Component of a PV tracker
of a PV system as constituting 8.6% of the total cost
of Manufactured Products for this type of Applica-
ble Project. The table in section 5.05 of this notice
identifies the Manufactured Product Components of
a PV module as constituting 69.7% (51.6% + 4.7% +
4.7% + 3.0% + 3.0% + 0.8% + 0.2% + 0.2% + 1.2%
+ 0.3%) of the total cost of Manufactured Products
for an Applicable Project that is a ground-mounted
PV (tracker) with domestic c-Si PV cells & domestic
wafers. In addition to these costs, the table in section
5.05 of this notice provides that the cost to produce
PV modules for such an Applicable Project consti-
tutes 3.7% of the total cost of Manufactured Products
for such an Applicable Project. Based on a nameplate
capacity weighted average of Applicable Project
Component categories and Manufactured Product
Component categories identified in the table in sec-
tion 5.05 of this notice, the total Updated Assigned
Cost Percentage attributable to the PV modules of
Applicable Project A would be calculated as: (69.7%
+ 3.7%) x 60 / 100 = 44.0%. Based on a nameplate
capacity weighted average (using the capacities of
the Applicable Project Components associated with
the torque tubes),the Updated Assigned Cost Per-
centage attributable to the torque tubes of Applicable
Project A would be calculated as: 8.6% x 80 / 100 =
6.9%. Applicable Project A’s overall Domestic Cost
Percentage is: 44.0% + 6.9% = 50.9%. Applicable
Project A satisfies the Adjusted Percentage Rule
because its Domestic Cost Percentage of 50.9%
exceeds the adjusted percentage that applies to
Applicable Project A (40%).
(2) Example 2.
(a) Assume the same facts as in Example 1,
except that the second set of PV modules used in
Applicable Project A, with a capacity of 40 MWdc,
are manufactured in the United States with domesti-
cally produced PV cells using foreign wafers though
none of those modules’ other components are pro-
duced in the United States. The taxpayer makes a
valid election to use the associated cost percentages
for ground-mount (tracking) with domestic c-Si PV
cells & domestic wafers. The Taxpayer is able to do
so because a portion of the PV modules in Applica-
ble Project A use domestically manufactured c-Si
cells that exclusively use domestically manufactured
wafers. Consistent with section 8.03(5) of this notice,
the 40 MW of PV modules using foreign wafers must
be treated as having foreign cells and the PV mod-
ules also are Non-U.S. Manufactured Products. In
this case, the Domestic Cost Percentage would be
the same as in Example 1, or 50.9%, even though the
second set of PV modules are manufactured in the
United States and contain domestically produced PV
cells. When a taxpayer elects to use the associated
cost percentages for PV systems with domestic c-Si
cells and domestic wafers it must treat any domesti-
cally-produced PV cells that do not exclusively use
domestic wafers as not being U.S. Components, and
hence must treat the modules in which those cells are
used as Non-U.S. Manufactured Products for pur-
poses of using such cost percentages.
(3) Example 3.
(a) Assume the same facts as in Example 2,
except that the taxpayer does not elect to use the
associated cost percentages for ground-mount (track-
ing) with domestic c-Si PV cells & domestic wafers.
(b) Applicable Project A’s steel or iron products
identified in the table in section 5.05 of this notice
meet the Steel or Iron Requirement. The table in
section 5.05 of this notice identifies the torque tube
Manufactured Product Component of a PV tracker
of a PV system that does not contain domestic c-Si
cells and wafers as constituting 11.0% of the total
cost of Manufactured Products for this type of Appli-
cable Project.
The table in section 5.05 of this notice identi-
fies the Manufactured Product Components of a
PV module as constituting 61.1% (38.0% + 6.0% +
6.0% + 3.8% + 3.8% + 1.0% + 0.3% + 0.3% + 1.5%
+ 0.4%) of the total cost of Manufactured Products
for an Applicable Project that is a ground-mounted
PV (tracker). In addition to these costs, the table in
section 5.05 of this notice provides that the cost to
produce PV modules for such an Applicable Project
constitutes 4.7% of the total cost of Manufactured
Products for such an Applicable Project. Based on
a nameplate capacity weighted average of Appli-
cable Project Component categories and Manu-
factured Product Component categories identified
in the table in section 5.05 of this notice, the total
Updated Assigned Cost Percentage attributable to
the first set of PV modules of Applicable Project A
would be calculated as: (61.1% + 4.7%) x 60 / 100
= 39.5%. Based on a nameplate capacity weighted
average of Applicable Project Component categories
and Manufactured Product Component categories
identified in the table in section 5.05 of this notice,
the total Updated Assigned Cost Percentage attribut-
able to the second set of PV modules of Applicable
Project A would be calculated as: (38.0%) x 40 / 100
= 15.2%. Based on a nameplate capacity weighted
average (using the capacities of the Applicable Proj-
ect Components associated with the torque tubes),
the Updated Assigned Cost Percentage attributable
to the torque tubes of Applicable Project A would be
calculated as: 11.0% x 80 / 100 = 8.8%. Applicable
Project A’s overall Domestic Cost Percentage is:
39.5% + 15.2% + 8.8% = 63.5%. Applicable Proj-
ect A satisfies the Adjusted Percentage Rule because
its Domestic Cost Percentage of 63.5% exceeds the
adjusted percentage that applies to Applicable Proj-
ect A (40%).
(4) Example 4.
(a) In its taxable year beginning June 2025,
Taxpayer purchases a 100-megawatt direct current
(MWdc) ground-mounted PV (tracker) (Applicable
Project B) from Contractor under an EPC contract,
places the project in service, and makes a valid elec-
tion to use the First Updated Elective Safe Harbor to
qualify for the domestic content bonus credit amount
under § 48. Applicable Project B is an energy project
for purposes of § 48 that is comprised of five catego-
ries of Applicable Project Components identified in
the table in section 5.05 in this notice for a ground-
mounted PV (tracker): PV modules, inverters, PV
trackers, steel piles, and steel reinforcing products
in foundation. For purposes of the Adjusted Percent-
age Rule, the adjusted percentage is 40 percent for
energy projects that are not offshore wind facilities.
See § 48(a)(12)(B).
(b) In accordance with the table in section 5.05
of this notice, taxpayer identifies the steel piles and
steel reinforcing products in foundation as steel or
iron products and the PV modules, inverters, and PV
trackers as Manufactured Products.

February 18, 2025 812 Bulletin No. 2025–8
(c) All of the steel piles and steel reinforcing
products in foundation are manufactured in the
United States and meet the Steel or Iron Require-
ment.
(d) Two sets of PV modules are used in the Appli-
cable Project B. One set has a capacity of 60 MWdc
and are PV modules manufactured in the United States
that incorporate c-Si PV cells and wafers that are
manufactured in the United States, with the modules’
remaining Manufactured Product Components, as
identified in accordance with the table in section 5.05
of this notice, also manufactured in the United States.
The remaining set, with a capacity of 40 MWdc, is
manufactured in the United States with domestically
produced PV cells using foreign wafers and domesti-
cally produced front glass. None of the remaining set
of modules’ other Manufactured Product Components
are produced in the United States. None of Applica-
ble Project B’s PV inverters are manufactured in the
United States or have any U.S. Components.
(e) The PV trackers used in Applicable Project
B are manufactured in the United States and have
seven categories of Manufactured Product Com-
ponents (torque tubes, structural fasteners, drive
system, dampers, actuator, controllers, and rails) of
which a portion of the torque tubes are manufactured
in the United States. The PV trackers are associated
and directly integrated with all the PV modules used
in Applicable Project B. The torque tubes manufac-
tured in the United States are the only torque tubes
associated and directly integrated with 80 MWdc of
Applicable Project B’s PV modules. The remainder
of torque tubes and other PV tracker components are
not manufactured in the United States. The PV track-
ers are Non-U.S. Manufactured Products because
some of their Manufactured Product Components
are not produced in the United States.
(f) Applicable Project B’s steel or iron
products identified in the table in section
5.05 of this notice meet the Steel or Iron
Requirement. The Taxpayer makes a valid
election to use the associated cost percent-
ages for ground-mount (tracking) with
domestic c-Si PV cells & domestic wafers.
The Taxpayer is able to do so because a
portion of the PV modules in the Applica-
ble Project use domestically manufactured
crystalline silicon cells that exclusively
use domestically manufactured wafers.
The table in section 5.05 of this notice
identifies the torque tube Manufactured
Product Component of a PV tracker of
a PV system as constituting 8.6% of the
total cost of Manufactured Products for
this type of Applicable Project. The table
in section 5.05 of this notice identifies the
Manufactured Product Components of a
PV module as constituting 69.7% (51.6%
+ 4.7% + 4.7% + 3.0% + 3.0% + 0.8%
+ 0.2% + 0.2% + 1.2% + 0.3%) of the
total cost of Manufactured Products for
an Applicable Project that is a ground-
mounted PV (tracker) with domestic c-Si
PV cells & domestic wafers, of which
front glass accounts for 4.7 percentage
points. In addition to these costs, the table
in section 5.05 of this notice provides that
the cost to produce PV modules for such
an Applicable Project constitutes 3.7% of
the total cost of Manufactured Products
for such an Applicable Project.
Based on a nameplate capacity weighted
average of Applicable Project Component
categories and Manufactured Product Com-
ponent categories identified in the table in
section 5.05 of this notice, the total Updated
Assigned Cost Percentage attributable to
the PV modules of Applicable Project B
would be calculated as: [(69.7% + 3.7%)
x 60 / 100] + [(4.7%) x 40 / 100] = 45.9%.
Based on a nameplate capacity weighted
average (using the capacities of the Appli-
cable Project Components associated with
torque tubes), the Updated Assigned Cost
Percentage attributable to the torque tubes
of Applicable Project B would be calcu-
lated as: 8.6% x 80 / 100 = 6.9%. Appli-
cable Project B’s overall Domestic Cost
Percentage is: 45.9% + 6.9% = 52.8%.
Applicable Project B satisfies the Adjusted
Percentage Rule because its Domestic Cost
Percentage of 52.8% exceeds the adjusted
percentage that applies to Applicable Proj-
ect B (40%).
SECTION 9. CERTIFICATION
An Applicable Project is eligible for
a domestic content bonus credit amount
if the Applicable Project satisfies the
Domestic Content Requirement and the
taxpayer timely submits to the IRS the
certification described in section 5 of
Notice 2023-38. To affirmatively elect to
rely on the New Elective Safe Harbor, a
taxpayer must provide on the Domestic
Content Certification Statement described
in section 5.01(2)(c) of Notice 2023-38 a
statement that the taxpayer is relying on
the First Updated Elective Safe Harbor. As
provided in section 5.01(2)(b) of Notice
2023-38, the Domestic Content Certifica-
tion Statement must be attached to Form
8835, Renewable Electricity Production
Credit; Form 3468, Investment Credit;
or other applicable form for reporting
domestic content bonus credit amounts
under §§ 45, 45Y, 48, or 48E filed with the
taxpayer’s annual return submitted to the
IRS for the first taxable year in which the
taxpayer reports a domestic content bonus
credit amount for such Applicable Project.
SECTION 10. SUBSTANTIATION
A taxpayer reporting a domestic con-
tent bonus credit amount for meeting the
Domestic Content Requirement must
meet the general recordkeeping require-
ments under § 6001 to substantiate that
the Domestic Content Requirement has
been met. Section 6001 provides that
every person liable for any tax imposed
by the Code, or for the collection thereof,
must keep such records as the Secretary
of the Treasury or her delegate may from
time to time prescribe. Section 1.6001-
1(a) provides that any person subject to
income tax must keep such permanent
books of account or records as are suf-
ficient to establish the amount of gross
income, deductions, credits, or other mat-
ters required to be shown by such person
in any return of such tax. Section 1.6001-
1(e) provides that the books and records
required by § 1.6001-1 must be retained so
long as the contents thereof may become
material in the administration of any inter-
nal revenue law. See also §§ 45(b)(12),
48(a)(16), 48E(a)(3)(B) (by cross-refer-
ence to § 48(a)(12)), and 45Y(f).
SECTION 11. TAXPAYER
RELIANCE
To the extent reliance statements in
Notice 2023-38 and Notice 2024-41 con-
flict with this notice, the reliance state-
ments described below shall control.
Taxpayers may rely on the rules
described in sections 3 through 6 of Notice
2023-38 for the domestic content bonus
credit requirements for any Applicable
Project, the construction of which begins
before the date that is 90 days after the
date of publication in the Federal Register
of proposed regulations on the domestic
content bonus credit requirements.
Taxpayers may rely on the two mod-
ifications
14
of Table 2 in Notice 2024-41
for any Applicable Project the construc-
14
The two modifications of Table 2 in Notice 2024-41 are (1) adding the Applicable Project “Hydropower Facility, or Pumped Hydropower Storage Facility” and its associated list of Appli-
cable Project Components and categorizations and (2) replacing “Utility-scale photovoltaic system” with “Ground-mount and rooftop photovoltaic system.”

Bulletin No. 2025–8 813 February 18, 2025
tion of which begins before the date that
is 90 days after the date of publication in
the Federal Register of proposed regula-
tions on the domestic content bonus credit
requirements.
Taxpayers may rely on Notice 2024-41,
in its entirety and as modified by section
4 of this notice, for the domestic content
bonus credit requirements for any Appli-
cable Project, the construction of which
begins before the date that is 90 days after
the effective date of this notice.
Effective January 16, 2025, taxpayers
may rely on the First Updated Elective
Safe Harbor and the guidance provided in
this notice for the domestic content bonus
credit requirements for any Applicable
Project the construction of which begins
before the date that is 90 days after any
future modification, update, or withdrawal
of the First Updated Elective Safe Harbor.
Where taxpayers may rely on either
the New Elective Safe Harbor of Notice
2024-41 or the First Updated Elective
Safe Harbor in this notice, a taxpayer may
apply only one of the above-referenced
safe harbors, and its associated cost per-
centages, and use it exclusively.
Taxpayers may treat the classifications
of any Applicable Project Components or
Manufactured Product Components that
are listed within the tables provided in
sections 5-7 of this notice as also being
listed in Table 2 of Notice 2023-38. To
the extent Table 2 of Notice 2023-38 and
the tables provided in sections 5-7 of this
notice are inconsistent regarding the clas-
sification of Applicable Project Compo-
nents or Manufactured Product Compo-
nents, the taxpayer may elect which set of
classifications to use and must consistently
apply the related classifications to all the
other Applicable Project Components or
Manufactured Product Components of the
Applicable Project.
SECTION 12. PAPERWORK
REDUCTION ACT
Any collection burden associated with
this notice is accounted for in Office of
Management and Budget (OMB) con-
trol numbers 1545-0123 and 1545-0047.
The reporting requirements from sec-
tion 9 of this notice and the recordkeep-
ing requirements from section 10 of this
notice are associated with the IRA-related
changes to Form 3468 and Form 8835 that
were approved, and will continue to be
approved, under OMB control numbers
1545-0123 and 1545-0047. This notice
does not alter any previously approved
information collection requirements and
does not create new collection require-
ments not already approved by OMB.
SECTION 13. EFFECT ON OTHER
DOCUMENTS
Notice 2023-38 and Notice 2024-41 are
both modified as provided in this notice.
SECTION 14. DRAFTING
INFORMATION
The principal author of this notice is
the Office of Associate Chief Counsel
(Energy, Credits, and Excise Tax). How-
ever, other personnel from the Treasury
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 call).
Calculating the qualifying
payment amount in 2025
Notice 2025–12
SECTION 1. PURPOSE AND SCOPE
Pursuant to Treas. Reg.
§ 54.9816-6T(c), 29 CFR 2590.716-6(c),
and 45 CFR 149.140(c), this notice pro-
vides the percentage increase for calcu-
lating the qualifying payment amounts
(QPAs) for items and services furnished
during 2025 for purposes of sections
9816 and 9817 of the Internal Revenue
Code (Code), sections 716 and 717 of
the Employee Retirement Income Secu-
rity Act of 1974 (ERISA), and sections
2799A–1 and 2799A–2 of the Public
Health Service Act (PHS Act). These pro-
visions, added by the No Surprises Act,
1

provide protections against surprise med-
ical bills in certain circumstances. This
notice was drafted in consultation with
the Departments of Labor and Health and
Human Services. Similar guidance for
items and services furnished during 2022,
2023 and 2024 was published in Reve-
nue Procedure 2022–11, Notice 2022–11,
Notice 2023–4 and Notice 2024–1.
2

SECTION 2. BACKGROUND
The QPA serves as the basis for cal-
culating patient cost sharing for items or
services subject to the surprise billing pro-
visions of the No Surprises Act in certain
circumstances. The QPA is also one of the
factors considered by a certified indepen-
dent dispute resolution (IDR) entity to
determine which of two offers submitted
by parties to a payment dispute in the Fed-
eral IDR process best represents the value
of a qualified IDR item or service as the
out-of-network rate.
The QPA is generally the median of the
contracted rates recognized by the plan or
issuer on January 31, 2019, for the same or
similar item or service that is provided by
a provider in the same or similar specialty
or a facility of the same or similar facil-
ity type and provided in the geographic
region in which the item or service is fur-
nished, increased for inflation. Pursuant
to Treas. Reg. § 54.9816-6T(c), 29 CFR
2590.716-6(c), and 45 CFR 149.140(c),
plans and issuers were first required to
calculate the QPA for items and services
furnished during 2022. Thus, 2019 gener-
ally is the base year for items and services
furnished in 2022, increased for all subse-
quent years. The median contracted rate is
determined with respect to all plans of the
plan sponsor or all coverage offered by the
issuer that are offered in the same insur-
ance market. In general, for years after
2022, the plan or issuer must calculate the
QPA by increasing the QPA determined
for an item or service furnished in the
immediately preceding year by the per-
centage increase, as published in annual
guidance. QPAs determined based on later
years (for example, QPAs for group health
plans or health insurance issuers not offer-
ing coverage in 2019 or items or services
not covered in 2019) are adjusted based on
1
The No Surprises Act was enacted as Title I of Division BB of the Consolidated Appropriations Act, 2021, Pub. L. 116-260, 134 Stat. 1182 (2020).
2
Revenue Procedure 2022-11, 2022-3 IRB 449; Notice 2022-11, 2022-14 IRB 939, Notice 2023-4, 2023-2 IRB 321, and Notice 2024-1, 2023-2 IRB 314.

February 18, 2025 814 Bulletin No. 2025–8
the year for which the QPA is first deter-
mined.
In general
Under Treas. Reg. § 54.9816-6T(c)
(1)(i), 29 CFR 2590.716-6(c)(1)(i), and
45 CFR 149.140(c)(1)(i), for an item or
service furnished during 2022, plans and
issuers must calculate the QPA by increas-
ing the median contracted rate (as deter-
mined in accordance with Treas. Reg.
§ 54.9816-6T(b), 29 CFR 2590.716-6(b),
and 45 CFR 149.140(b))
3,4
for the same
or similar item or service under such plan
or coverage on January 31, 2019, by the
combined percentage increase as pub-
lished by the Department of the Treasury
(Treasury Department) and the Internal
Revenue Service (IRS) to reflect the per-
centage increase in the Consumer Price
Index for All Urban Consumers (U.S. city
average) (CPI-U) over 2019, the percent-
age increase over 2020, and the percentage
increase over 2021.
5
Pursuant to Revenue
Procedure 2022–11, for items and services
provided on or after January 1, 2022, and
before January 1, 2023, the combined per-
centage increase to adjust the median con-
tracted rate for the same or similar item
or service under such plan or coverage, on
January 31, 2019, is 1.0648523983.
Pursuant to Treas. Reg. § 54.9816-6T(c)
(1)(ii), 29 CFR 2590.716-6(c)(1)(ii), and
45 CFR 149.140(c)(1)(ii), for an item
or service furnished during 2023 or a
subsequent year, the plan or issuer must
calculate the QPA by increasing the QPA
determined for such an item or service fur-
nished in the immediately preceding year,
by the percentage increase as published by
the Treasury Department and the IRS.
New plans and coverage
Under Treas. Reg. § 54.9816-6T(c)(2),
29 CFR 2590.716-6(c)(2), and 45 CFR
149.140(c)(2), with respect to a spon-
sor of a plan or issuer offering group or
individual health insurance coverage in a
geographic region in which the sponsor or
issuer did not offer any group health plan
or health insurance coverage in 2019, for
the first year in which the group health
plan or group or individual health insur-
ance coverage is offered in the region, if
the plan or issuer does not have sufficient
information to calculate the median of the
contracted rates for an item or service pro-
vided in the geographic region, the plan
or issuer must determine the QPA pursu-
ant to Treas. Reg. § 54.9816-6T(c)(3)(i),
29 CFR 2590.716-6(c)(3)(i), and 45 CFR
149.140(c)(3)(i) for an item or service
furnished in 2022 (or the first coverage
year for the item or service with respect
to the plan or coverage). For each subse-
quent year the group health plan or group
or individual health insurance coverage
is offered in the region, the plan or issuer
must calculate the QPA by increasing the
QPA determined for items or services pro-
vided in the immediately preceding year
by the percentage increase in the CPI-U
over the preceding year.
6
Insufficient information; newly cov-
ered items and services
Pursuant to Treas. Reg. § 54.9816-6T(c)
(3)(i), 29 CFR 2590.716-6(c)(3)(i), and 45
CFR 149.140(c)(3)(i), for an item or ser-
vice furnished during 2022 (or, in the case
of a newly covered item or service, during
the first coverage year for the item or ser-
vice with respect to the plan or coverage),
a plan or issuer that does not have suffi-
cient information to calculate the median
of the contracted rates in 2019 for the same
or similar item or service provided in a
geographic region must calculate the QPA
by first identifying the rate that is equal
to the median of the in-network allowed
amounts for the same or similar item or
service provided in the geographic region
in 2021, determined by the plan or issuer
through use of any eligible database, and
then increasing that rate by the percentage
increase in the CPI-U over 2021. Simi-
larly, in the case of a newly covered item
or service furnished during the first cov-
erage year, when a plan or issuer does not
have sufficient information to calculate
the median of the contracted rates in the
first coverage year for the item or service,
the plan or issuer must calculate the QPA
by using an eligible database to determine
the rate that is equal to the median of the
in-network allowed amounts for the same
or similar item or service provided in the
geographic region in the year immediately
preceding the first coverage year, and then
increasing that rate by the percentage
increase in the CPI-U over the preceding
year.
Under Treas. Reg. § 54.9816-6T(c)
(3)(ii), 29 CFR 2590.716-6(c)(3)(ii), and
45 CFR 149.140(c)(3)(ii), for an item or
service furnished in a subsequent year
(before the first sufficient information
year for the item or service with respect
to the plan or coverage), the plan or issuer
must calculate the QPA by increasing the
QPA determined for the item or service for
the year immediately preceding the subse-
quent year, by the percentage increase in
the CPI-U over the preceding year.
The percentage increase in the CPI-U
for items and services provided in 2022
over the preceding year is the average
CPI-U for 2021 over the average CPI-U
for 2020. Pursuant to Notice 2022–11, the
percentage increase from 2021 to 2022 is
1.0299772040. The percentage increase in
the CPI-U for items and services provided
in 2023 over the preceding year is the
average CPI-U for 2022 over the average
CPI-U for 2021. Pursuant to Notice 2023–
4, the percentage increase from 2022 to
2023 is 1.0768582128. The percentage
increase in the CPI-U for items and ser-
3
As modified by the August 24, 2023, opinion and order in Texas Medical Association et al. v. United States Department of Health and Human Services et al., Case No. 6:22-cv-450-JDK
(E.D. Tex.), and the October 30, 2024, Fifth Circuit opinion and order in Tex. Medical Ass’n, et al. v. U.S. Dep’t of Health & Human Servs et al., Case No. 23-40605 (5th Cir.), that partially
reversed the district court’s order. The Departments of Labor, Health and Human Services, and Treasury, and the Office of Personnel Management are reviewing the Fifth Circuit’s decision
and intend to issue further enforcement guidance in the near future.
4
5 U.S.C. 8902(p) requires that contracts with carriers under the Federal Employees Health Benefits (FEHB) Act comply with the protections against surprise billing. Accordingly, the guid-
ance provided in this notice applies to FEHB carriers to the extent consistent with their contracts. See 5 CFR 890.114.
5
The calculations of the QPAs for anesthesia services, air ambulance services, and certain other items or services furnished during 2022 for which a plan or issuer has sufficient information
to calculate the median of the contracted rates in 2019 differ slightly, but all use the same formula for increasing a base rate by the combined percentage increase as published by the Treasury
Department and the IRS to reflect the percentage increase in the CPI-U over 2019 and subsequent years. See Treas. Reg. § 54.9816-6T(c)(1)(iii)-(vii), 29 CFR 2590.716-6(c)(1)(iii)-(vii), and
45 CFR 149.140(c)(1)(iii)-(vii).
6
The calculations of the QPAs for anesthesia services, air ambulance services, and certain other items or services furnished in a subsequent year differ slightly, but all use the same formula
for increasing the indexed median contracted rate determined for the item or service in the immediately preceding year by the percentage increase. See Treas. Reg. § 54.9816-6T(c)(2)(ii), 29
CFR 2590.716-6(c)(2)(ii), and 45 CFR 149.140(c)(2)(ii).

Bulletin No. 2025–8 815 February 18, 2025
vices provided in 2024 over the preceding
year is the average CPI-U for 2023 over
the average CPI-U for 2022. Pursuant to
Notice 2024–1, the percentage increase
from 2023 to 2024 is 1.0543149339.
New service codes
In the case of a plan or issuer that does
not have sufficient information to calculate
the median of the contracted rates for the
same or similar item or service provided
in a geographic region and determine the
QPA in accordance with the previously
described methodology because the item
or service is billed under a new service
code, for items or services furnished in
2022 (or for newly covered items and
services, during the first coverage year
for the item or service), the plan or issuer
must identify a reasonably related service
code that existed in the immediately pre-
ceding year and calculate the QPA pursu-
ant to Treas. Reg. § 54.9816-6T(c)(4)(i),
29 CFR 2590.716-6(c)(4)(i), and 45 CFR
149.140(c)(4)(i).
Under Treas. Reg. § 54.9816-6T(c)
(4)(ii), 29 CFR 2590.716-6(c)(4)(ii), and
45 CFR 149.140(c)(4)(ii), for an item or
service furnished in a subsequent year
(before the first sufficient information
year for the item or service with respect
to such plan or coverage or before the
first year for which an eligible database
has sufficient information to calculate a
rate under Treas. Reg. § 54.9816-6T(c)(3)
(i), 29 CFR 2590.716-6(c)(3)(i), and 45
CFR 149.140(c)(3)(i) in the immediately
preceding year), the plan or issuer must
calculate the QPA by increasing the QPA
determined for the item or service for the
year immediately preceding the subse-
quent year by the percentage increase in
the CPI-U over the preceding year.
SECTION 3. GUIDANCE
The percentage increase in the CPI-U
over a preceding year is calculated by
dividing the average CPI-U for the pre-
ceding year by the average CPI-U for the
year immediately prior to the preceding
year. For this purpose, the average CPI-U
for a year is the average of the monthly
CPI-Us published by the Bureau of Labor
Statistics of the Department of Labor for
the 12-month period ending on August 31
of each year, rounded to 10 decimal places.
The percentage increase in the CPI-U
for items and services provided in 2025
over the preceding year is the average
CPI-U for 2024 over the average CPI-U
for 2023. Pursuant to this calculation, the
percentage increase from 2024 to 2025 is
1.0317904930. Further, pursuant to prior
notices, plans and issuers may round any
resulting QPAs to the nearest dollar.
To calculate the adjusted QPA, the
prior year’s adjusted QPA is multiplied
by the percentage increase for the most
recent year. To simplify this calculation,
this notice provides cumulative percent-
age increases. To calculate the adjusted
QPA for items and services furnished
in 2025 using the cumulative percent-
age increase, the “base year” QPA is
multiplied by the cumulative percent-
age increase for the year the base QPA
originated. A plan or issuer may choose
whether to use the cumulative percentage
increase or the percentage increase, but
the selected method must be applied con-
sistently for all QPAs calculated for items
and services furnished during 2025. A
plan or issuer is not permitted to use one
method for certain QPAs and a different
method for other QPAs.
BASE YEAR OF
QPA ORIGINATION
CUMULATIVE
PERCENTAGE INCREASE
FOR QPA FROM BASE
YEAR TO 2024
PERCENTAGE INCREASE
FOR QPA FROM 2024 TO
2025
CUMULATIVE
PERCENTAGE
INCREASE FOR QPA FROM
BASE YEAR TO 2025
20191.20897771651.03179049301.2474117141
20211.16938224501.03179049301.2065574831
20221.13534769551.03179049301.1714409585
20231.05431493391.03179049301.0878321254
20241.00000000001.03179049301.0317904930
Consult Notice 2024–1 regarding the
application of these percentage increases.
SECTION 4. EFFECTIVE DATE
The effective date of this notice is Jan-
uary 1, 2025.
SECTION 5. DRAFTING
INFORMATION
The principal author of this notice is
Regan Rusher of the Office of Associ-
ate Chief Counsel (Employee Benefits,
Exempt Organizations, and Employ-
ment Taxes). For further information
regarding this notice, contact Regan
Rusher at 202–317–5500 (not a toll-
free number).

February 18, 2025 816 Bulletin No. 2025–8
26 CFR 601.201: Rulings and determination letters
(Also Part 1, § 831)
Rev. Proc. 2025-13
SECTION 1. PURPOSE
This revenue procedure provides a
streamlined procedure for a taxpayer that
has elected the application of the alterna-
tive tax for certain insurance companies
under § 831(b) of the Internal Revenue
Code (Code)
1
to obtain the automatic
consent of the Secretary of the Treasury
or her delegate (Secretary) to revoke such
election.
SECTION 2. BACKGROUND
.01 Section 831(a) imposes a tax for
each taxable year on the taxable income
of every insurance company other than a
life insurance company (non-life insur-
ance company). Section 831(b) provides
an alternative tax to the tax imposed by
§ 831(a) for certain non-life insurance
companies (alternative tax). The alterna-
tive tax for these non-life insurance com-
panies is a tax computed for each taxable
year by multiplying the taxable invest-
ment income (as defined in § 834(a)) of
the company for the taxable year by the
rates in § 11(b).
.02 Section 831(b)(2)(A) provides that
the alternative tax applies to every non-life
insurance company if (1) the company’s
net written premiums (or, if greater, direct
written premiums) for the taxable year do
not exceed $2,200,000 (adjusted for infla-
tion
2
), (2) the company meets the diver-
sification requirements in § 831(b)(2)(B),
and (3) the company makes an election to
apply the alternative tax (§ 831(b) Elec-
tion) for the taxable year.
.03 Pursuant to § 301.9100-8(a)(2), the
non-life insurance company must make a
§ 831(b) Election by the due date (taking
into account any extensions of time to
file obtained by the taxpayer) of the tax
return for the first taxable year for which
the election is effective. In general, under
§ 301.9100-8(a)(3), a § 831(b) Election is
made by attaching a statement to the tax
return for the first taxable year for which
the election is to be effective.
.04 Section 1010(f)(1) of the Technical
and Miscellaneous Revenue Act of 1988,
Pub. L. No. 100-647, 102 Stat. 3342, 3454
(1988), added flush language to § 831(b)
(2)(A). The flush language provides that
a § 831(b) Election applies to the taxable
year for which it is made and for all subse-
quent taxable years for which the require-
ments of § 831(b)(2)(A)(i) and (ii) are met
and that a § 831(b) Election, once made,
may be revoked only with the consent
of the Secretary. The legislative history
explains that “[t]his clarification reflects
Congress’s intent that the [§ 831(b)] elec-
tion not be used as a means of eliminating
tax liability (e.g., by making the election
only for the years the taxpayer does not
have net operating losses).” S. Rep. No.
445, at 127 (1988).
.05 To secure the Secretary’s con-
sent, a taxpayer seeking revocation of its
§ 831(b) Election has been required to
submit a request for a letter ruling under
the procedures set forth in Rev. Proc.
2025-1, 2025-1 I.R.B. 1 (Dec. 30, 2024)
(or successor) and pay a user fee.
.06 The Department of the Treasury
and the Internal Revenue Service (IRS)
published proposed regulations that
would designate certain micro-captive
transactions as listed transactions and cer-
tain other micro-captive transactions as
transactions of interest in a notice of pro-
posed rulemaking published in the Fed-
eral Register (88 FR 21547) on April 11,
2023 (proposed regulations). Comments
on the proposed regulations requested
a streamlined process by which the IRS
will approve requests for revocation of a
§ 831(b) Election.
.07 In response to the comments
received on the proposed regulations, this
revenue procedure provides a streamlined
procedure for a taxpayer that has made a
§ 831(b) Election to obtain the automatic
consent of the Secretary to revoke such
election effective for the taxable year for
which consent is sought (revocation year),
which may be the taxable year in which
consent is sought or the first preceding
taxable year provided the taxpayer timely
submits the revocation request described
in section 4.02 of this revenue procedure.
SECTION 3. SCOPE
This revenue procedure applies to a
taxpayer that has made a § 831(b) Election
that has not been revoked and has no net
operating losses arising in a taxable year
to which the § 831(b) Election applied that
can be carried over to the revocation year.
SECTION 4. PROCEDURE
.01 A taxpayer within the scope of
section 3 of this revenue procedure may
obtain the automatic consent of the Sec-
retary to revoke its § 831(b) Election
by submitting the revocation request
described in section 4.02 of this revenue
procedure. A user fee is not required for
a revocation request submitted under this
revenue procedure. The IRS will not send
an acknowledgement of receipt for a revo-
cation request submitted under this reve-
nue procedure.
.02 A revocation request is described
in this section 4.02 if the requirements of
sections 4.02(1) through (4) are met. See
section 5 of this revenue procedure for a
model revocation request letter.
(1) The request identifies the tax-
payer and contains the taxpayer’s tax-
payer identification number, address,
and telephone number; states that the
taxpayer requests automatic consent to
revocation of its § 831(b) Election under
this revenue procedure; and identifies
the revocation year. The revocation year
may be the taxable year in which the
taxpayer submits the revocation request
described in section 4.02 of this revenue
procedure, or the first preceding taxable
year provided the taxpayer submits the
revocation request described in section
4.02 of this revenue procedure no later
than the date on which the taxpayer files
its timely-filed (including extensions)
Federal income tax return for such
taxable year. For example, a calendar
1
Unless otherwise specified, all “Section” or “§” references are to sections of the Code or the Procedure and Administration Regulations (26 CFR part 301).
2
See § 831(b)(2)(E). For taxable years beginning in 2025, the limit on net written premiums or direct written premiums (whichever is greater) is $2,850,000. See section 2.36 of Rev. Proc.
2024-40, 2024-45 I.R.B. 1100, 1107 (Nov. 4, 2024).

Bulletin No. 2025–8 817 February 18, 2025
year taxpayer that submits a revocation
request during calendar year 2025 may
request that 2025 be the revocation year.
Alternatively, the taxpayer may request
that calendar year 2024 be the revoca-
tion year provided the taxpayer submits
the revocation request described in sec-
tion 4.02 of this revenue procedure no
later than the date on which the taxpayer
files its timely-filed (including exten-
sions) Federal income tax return for cal-
endar year 2024.
(2) The request includes representa-
tions that the taxpayer (a) has made a
§ 831(b) Election that is in effect as of the
date of filing the request; (b) has no net
operating losses arising in a taxable year
that was prior to the revocation year to
which the § 831(b) Election applied that
can be carried over to the revocation year;
(c) is timely submitting the request (as
provided in section 4.02(3) of this revenue
procedure) no later than the date on which
it files its timely-filed (including exten-
sions) Federal income tax return for the
revocation year; and (d) will not make a
§ 831(b) Election for the five taxable years
following the revocation year.
(3) The request is signed in accordance
with section 7.01(13) of Rev. Proc. 2025-1
(or successor), dated, and submitted (as
described in section 4.02(3)(a) or (b) of
this revenue procedure) no later than the
date on which the taxpayer files its time-
ly-filed (including extensions) Federal
income tax return for the revocation year.
Requests submitted by an authorized rep-
resentative of the taxpayer must adhere to
the authorized representative requirements
set forth in section 7.01(14) of Rev. Proc.
2025-1 (or successor), and the request
must be accompanied by a duly executed
Form 2848, Power of Attorney and Dec-
laration of Representative, in accordance
with section 7.01(15) of Rev. Proc. 2025-1
(or successor).
(a) A request submitted on paper must
be sent to the Commissioner of Internal
Revenue, Attn: CC:FIP:4, Room 3547,
1111 Constitution Avenue, NW, Washing-
ton, DC 20224. The principles of § 7502
apply to determine whether a mailed state-
ment is submitted timely.
(b) A request submitted by facsimile
(fax) must be sent to the Commissioner
of Internal Revenue, Attn: CC:FIP:4, to
(855) 574-9026.
(4) The request must be accompanied by
the following declaration, which is signed
in accordance with section 7.01(16)(b) of
Rev. Proc. 2025-1 (or successor): “Under
penalties of perjury, I declare that I
have examined this request, including
the representations set forth herein and
any accompanying documents, and, to
the best of my knowledge and belief, the
request contains all the relevant facts
relating to the request, and such facts
are true, correct, and complete.”
.03 A taxpayer within the scope of
section 3 of this revenue procedure may
choose not to seek the automatic consent
of the Secretary to revoke its § 831(b)
Election under this revenue procedure and
instead submit a request for a letter ruling
granting consent to revoke its § 831(b)
Election under the procedures set forth in
Rev. Proc. 2025-1 (or successor) and pay
the applicable user fee.
SECTION 5. MODEL REVOCATION
REQUEST LETTER
[Insert date]
Automatic Revocation Request under
Rev. Proc. 2025-13
Commissioner of Internal Revenue
Associate Chief Counsel (Financial Insti-
tutions & Products)
Attn: CC:FIP:4
Room 3547
1111 Constitution Ave, N.W.
Washington, D.C. 20224
(F) (855) 574-9026
Dear IRS Representative:
[Insert Taxpayer name, address, and
EIN number] (Taxpayer) submits to the
Internal Revenue Service (IRS) this revo-
cation request in accordance with Rev.
Proc. 2025-13, 2025-8 I.R.B. 816. We
request the IRS’s automatic consent to
revocation of the section 831(b) election
made by Taxpayer, such revocation to be
effective for the taxable year beginning
[Insert date] (revocation year).
In support of this request, Taxpayer
makes the following representations:
(1) Taxpayer elected the alternative tax
under section 831(b) of the Internal
Revenue Code, and the election is in
effect as of the date of this request;
(2) Taxpayer has no net operating losses
arising in a taxable year to which the
section 831(b) election applied that
can be carried over to the revocation
year;
(3) Taxpayer is timely submitting this
request (as provided in section
4.02(3) of Rev. Proc. 2025-13) no
later than the date on which it files
its timely-filed (including extensions)
Federal income tax return for the
revocation year; and
(4) Taxpayer will not make a section
831(b) election for the five taxable
years following the revocation year.
[Insert signature and title of authorized
signatory]
Penalties of Perjury Statement
Under penalties of perjury, I declare that I
have examined this request, including the
representations set forth herein and any
accompanying documents, and, to the best
of my knowledge and belief, the request
contains all the relevant facts relating to
the request, and such facts are true, cor-
rect, and complete.
[Insert Taxpayer Name]
By: ______________________________
[Insert Name of Authorized Signatory]
Title: _____________________________
Date: _____________________________
SECTION 6. AREAS NOT
COVERED BY THIS REVENUE
PROCEDURE
The Secretary’s grant of automatic
consent to revoke a taxpayer’s § 831(b)
Election obtained under this revenue
procedure does not constitute an opin-
ion, express or implied, concerning the
tax consequences of any aspect of tax-
payer’s business, including, but not lim-
ited to, whether any part of taxpayer’s
business constitutes insurance for Fed-
eral income tax purposes, whether tax-
payer qualified as an insurance company
for any taxable year, or whether tax-
payer was properly taxed under § 831(b)
for any taxable year.

February 18, 2025 818 Bulletin No. 2025–8
SECTION 7. EFFECTIVE DATE
.01 This revenue procedure applies to a
request to revoke a § 831(b) Election sub-
mitted on or after January 13, 2025.
.02 If, before January 13, 2025, a tax-
payer submitted a request for a letter rul-
ing to revoke its § 831(b) Election, and the
request is pending with the national office
on January 13, 2025, the taxpayer may
choose to seek the automatic consent of the
Secretary to revoke its § 831(b) Election
under this revenue procedure by notifying
the national office contact person assigned
to the letter ruling request before Febru-
ary 12, 2025, that the taxpayer chooses to
convert the request for a letter ruling to a
request for automatic consent under this
revenue procedure. This notification must
make the representations set forth in sec-
tion 4.02(2) of this revenue procedure;
identify the revocation year for which
automatic consent is requested, which may
be the taxable year for which revocation
was requested in the pending letter rul-
ing request or a later taxable year; and be
accompanied by the declaration described
in section 4.02(4) of this revenue proce-
dure. If the taxpayer timely notifies the
national office that it chooses to convert the
request for a letter ruling to a request for
automatic consent under this revenue pro-
cedure, the national office will send a letter
to the taxpayer acknowledging its request
and will return the user fee submitted with
the request for a letter ruling.
SECTION 8. PAPERWORK
REDUCTION ACT
The collection(s) of information in this
revenue procedure have been reviewed
and, pending receipt and evaluation of
public comments, approved by the Office
of Management and Budget in accordance
with the Paperwork Reduction Act (44
U.S.C. 3507) under control number 1545-
1522.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
The collection(s) of information in
this revenue procedure are in section 4.
This information is required to determine
whether a taxpayer qualifies for automatic
consent under this revenue procedure. The
collection of information is required to
obtain a benefit. The likely respondents
are non-life insurance companies that
have made a § 831(b) Election.
The estimated total annual reporting
and/or recordkeeping burden for Rev.
Proc. 2025-1 is 316,020 hours.
For Rev. Proc. 2025-1, the estimated
annual burden per respondent/record-
keeper varies from 1 to 200 hours, depend-
ing on individual circumstances, with an
estimated annual average burden of 80
hours. The estimated number of respon-
dents and/or recordkeepers for Rev. Proc.
2025-1 is 3,956.
The estimated total annual reporting
and/or recordkeeping burden for this reve-
nue procedure adds 46 hours to the burden
imposed by Rev. Proc. 2025-1.
The estimated annual burden per
respondent/recordkeeper for this reve-
nue procedure varies from 1 to 3 hours,
depending on individual circumstances,
with an estimated average burden of 2
hours. The estimated number of addi-
tional respondents and/or recordkeep-
ers added to Rev. Proc. 2025-1 by this
revenue procedure is 20, increasing the
estimated number of respondents and/
or recordkeepers to Rev. Proc. 2025-1 to
3,976.
The estimated annual frequency of
responses is on occasion.
Books and records relating to a collec-
tion of information must be retained as
long as their contents may become mate-
rial in the administration of any internal
revenue law. Generally, tax returns and
return information are confidential, as
required by § 6103.
SECTION 9. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Elizabeth M. Hill of the
Office of Associate Chief Counsel (Finan-
cial Institutions & Products). For further
information regarding this revenue pro-
cedure, contact Elizabeth M. Hill on 202-
317-6995 (not a toll-free number).

Bulletin No. 2025–8 819 February 18, 2025
Part IV
Notice of Proposed
Rulemaking
Automatic Enrollment
Requirements Under
Section 414A
REG-100669-24
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing and notice of public hearing.
SUMMARY: This document sets forth
proposed regulations that would provide
guidance with respect to the automatic
enrollment requirements that apply to
certain retirement plans. The proposed
regulations reflect statutory changes made
by the SECURE 2.0 Act of 2022 requir-
ing that certain cash or deferred arrange-
ments and salary reduction agreements be
eligible automatic contribution arrange-
ments that satisfy additional specified
requirements. The proposed regulations
would affect participants in, beneficiaries
of, employers maintaining, and admin-
istrators of certain retirement plans that
include cash or deferred arrangements or
annuity contracts purchased under salary
reduction agreements and other retirement
plans that include eligible automatic con-
tribution arrangements. This document
also provides notice of a public hearing.
DATES: Written or electronic comments
must be received by March 17, 2025. A
public hearing on this proposed regulation
has been scheduled for April 8, 2025, at
10 a.m. ET. Requests to speak and outlines
of topics to be discussed at the public hear-
ing must be received by March 17, 2025.
If no outlines are received by March 17,
2025, the public hearing will be cancelled.
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-100669-24) by following the online
instructions for submitting comments.
Requests for a public hearing must be
submitted as prescribed in the “Comments
and Public Hearing” section. Once sub-
mitted to the Federal eRulemaking Portal,
comments cannot be edited or withdrawn.
The Department of the Treasury (Trea-
sury Department) and the IRS will pub-
lish for public availability any comment
submitted electronically or on paper to
its public docket on www.regulations.gov.
Send paper submissions to: CC:PA:01:PR
(REG-100669-24), Room 5203, Internal
Revenue Service, P.O. Box 7604, Ben
Franklin Station, Washington, DC 20044.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, call Christina M. Cerasale at
(202) 317-4102 or Kara M. Soderstrom at
(202) 317-6799; concerning submission
of comments, the hearing, and the access
code to attend the hearing by telephone,
call the Publications and Regulations Sec-
tion at (202) 317-6901 (not toll-free num-
bers) or email publichearings@irs.gov
(preferred).
SUPPLEMENTARY INFORMATION:
Authority
These proposed regulations are pro-
mulgated under section 7805(a) of the
Internal Revenue Code (Code), which
provides that “the Secretary shall pre-
scribe all needful rules and regulations for
the enforcement of [the Code], including
all rules and regulations as may be nec-
essary by reason of any alteration of law
in relation to internal revenue.” In addi-
tion, section 341 of the SECURE 2.0 Act
of 2022 (SECURE 2.0 Act), enacted on
December 29, 2022, as Division T of the
Consolidated Appropriations Act, 2023,
Public Law 117-328, 136 Stat. 4459
(2022), instructs the Secretaries of the
Treasury and Labor (or their delegates)
to adopt regulations related to the con-
solidation of notices required for defined
contribution plans under the Code and the
Employee Retirement Income Security
Act of 1974, Public Law 93-406, 88 Stat.
829, as amended (ERISA).
Background
This notice of proposed rulemaking
sets forth a proposed regulation under
section 414A of the Code that would be
added to the Income Tax Regulations
(26 CFR part 1). Section 414A, which was
added to the Code by section 101 of the
SECURE 2.0 Act, provides that certain
retirement plans must automatically enroll
employees.
In addition to adding a new regula-
tion under section 414A of the Code, this
notice of proposed rulemaking sets forth
proposed amendments to the regulations
under section 414(w). These amendments
to §1.414(w)-1 would reflect the appli-
cation of section 414A and the exception
to the notice requirements for unenrolled
participants set forth in section 414(bb), as
added to the Code by section 320 of the
SECURE 2.0 Act. The proposed amend-
ments to §1.414(w)-1 also would address
section 402A(e)(5)(C) of the Code, which
was added to the Code by section 127 of the
SECURE 2.0 Act, as well as section 341
of the SECURE 2.0 Act. Section 402A(e)
(5)(C) of the Code and section 341 of the
SECURE 2.0 Act permit the consolidation
of certain notices required under the Code
and ERISA.
I. In General
A. Cash or deferred arrangements and
salary reduction agreements
Section 401(k)(1) provides that a prof-
it-sharing, stock bonus, pre-ERISA money
purchase, or rural cooperative plan will
not fail to qualify under section 401(a)
merely because it includes a cash or
deferred arrangement (CODA)
1
that is a
1
Under §1.401(k)-1(a)(2)(i), a CODA generally is an arrangement providing for an election by an employee to have the employer provide either contributions to a plan described in sec-
tion 401(a) or payments directly in cash.

February 18, 2025 820 Bulletin No. 2025–8
qualified CODA. Under section 401(k)(2),
a CODA is a qualified CODA only if
it satisfies certain requirements. These
requirements include that elective contri-
butions under the CODA are subject to the
section 401(k)(2)(B) restriction on when
distributions may be made, and that the
arrangement satisfies the actual deferral
percentage (ADP) test in section 401(k)
(3)(A)(ii).
2
Section 403(b)(1) of the Code pro-
vides for an exclusion from gross income
of certain contributions that are used to
purchase an annuity contract, including
contributions that are made under a salary
reduction agreement. Although there is no
direct definition of salary reduction agree-
ment in section 403(b), several provisions
of the Code set forth rules that apply to the
use of a salary reduction agreement to pur-
chase an annuity contract described in sec-
tion 403(b). For example, section 403(b)
(11) provides distribution restrictions that
apply to “contributions made pursuant to a
salary reduction agreement.”
B. Automatic enrollment
Section 902 of the Pension Protection
Act of 2006, Public Law 109-280, 120 Stat.
780 (PPA ‘06), added sections 401(k)(13)
and 414(w) to the Code to facilitate auto-
matic contribution arrangements (also
referred to as automatic enrollment) in
qualified CODAs under section 401(k).
Section 414(w) also applies to automatic
contribution arrangements under sec-
tion 403(b) plans; section 457(b) plans
maintained by governmental employers
described in section 457(e)(1)(A); sim-
plified employee pensions, the terms
of which provide for a salary reduction
arrangement described in section 408(k)
(6); and SIMPLE individual retirement
accounts described in section 408(p). An
automatic contribution arrangement is a
CODA or other similar arrangement pro-
viding for elections on the part of eligible
employees that includes a default elec-
tion under which an eligible employee is
treated as having elected to have a speci-
fied contribution made on the employee’s
behalf under the plan while permitting the
employee to make an affirmative election
to have contributions made in a different
amount on the employee’s behalf (includ-
ing no contributions).
3
1. Qualified automatic contribution
arrangements under section 401(k)(13)
Section 401(k)(13) provides a
design-based safe harbor for a CODA
that provides for automatic enrollment
at a specified level and meets certain
employer contribution, notice, and other
requirements. A CODA that satisfies
these requirements, referred to as a qual-
ified automatic contribution arrangement
(QACA), is treated as satisfying the ADP
test.
Section 401(k)(13)(C)(ii) provides that
the default election in a QACA ceases
to apply to any eligible employee if the
employee makes an affirmative election
to not have any elective contributions
made on the employee’s behalf or to have
elective contributions made in a specified
amount or percentage of compensation
on the employee’s behalf. Reflecting that
provision, §1.401(k)-3(j)(1)(ii) provides
that the default election ceases to apply
with respect to an eligible employee for
periods of time with respect to which
the employee has an affirmative election
that is currently in effect to have elective
contributions made in a different amount
on the employee’s behalf (in a specified
amount or percentage of compensation) or
not have any elective contributions made
on the employee’s behalf.
Section 401(k)(13)(C)(iii) sets forth
a series of minimum default contribu-
tion percentages (based on the plan year
that the arrangement first applies to an
employee) that an automatic contribution
arrangement must satisfy to be a QACA
and requires that the default contribu-
tion percentages apply uniformly. Under
§1.401(k)-3(j)(2)(iii), a plan does not fail
to satisfy this uniform percentage require-
ment merely because: (1) the percentage
varies based on the number of years or
portions of years an eligible employee
has participated in the automatic contribu-
tion arrangement intended to be a QACA;
(2) the rate of elective contributions under
a cash or deferred election that is in effect
immediately prior to the effective date of
the default percentage under the QACA is
not reduced; (3) the rate of elective con-
tributions is limited so as not to exceed
the limits of sections 401(a)(17), 402(g)
(determined with or without catch-up
contributions), and 415; or (4) the default
election is not applied during the period
an employee is not permitted to make
elective contributions pursuant to sec-
tion 414(u)(12)(B)(ii).
Section 401(k)(13)(C)(iv) provides
an exception from the application of the
default election under a QACA for eligible
employees who were eligible to participate
in the CODA (or a predecessor CODA)
immediately before the effective date of
the QACA and who have an election in
effect on that effective date. Reflecting that
provision, §1.401(k)-3(j)(1)(iii) provides
that an automatic contribution arrange-
ment does not fail to be a QACA merely
because the default election is not applied
to an employee who was eligible under
the CODA (or a predecessor arrangement)
immediately prior to the effective date of
the QACA and on that effective date had an
affirmative election in effect (that remains
in effect) to have elective contributions
made on the employee’s behalf (in a spec-
ified amount or percentage of compen-
sation) or not have elective contributions
made on the employee’s behalf.
Section 1.401(k)-3(j)(2)(iv) provides
that minimum percentages in a QACA are
determined without regard to whether an
employee has continued to be eligible to
make contributions under the plan. How-
ever, §1.401(k)-3(j)(2)(iv) provides that
a plan is permitted to treat an employee
who for an entire plan year did not have
contributions made pursuant to a default
election under a QACA as if the employee
also had not had such contributions for
any prior plan year.
2
The ADP test in section 401(k)(3)(A)(ii) compares the average deferral percentage for highly compensated employees with the average deferral percentage for non-highly compensated
employees. As an alternative to satisfying the annual ADP test, a plan may satisfy the provisions of section 401(k)(11), (12), (13), or (16).
3
Section 902 of PPA ’06 also added a new section 514(e) to ERISA, which broadly provides that, notwithstanding any other provision of section 514, title I of ERISA supersedes State laws
that would directly or indirectly prohibit or restrict the inclusion of an automatic contribution arrangement in a plan.

Bulletin No. 2025–8 821 February 18, 2025
2. Eligible automatic contribution
arrangements under section 414(w)
Section 414(w) facilitates automatic
enrollment by providing relief from the dis-
tribution restrictions under section 401(k)
(2)(B), 403(b)(7), 403(b)(11), or 457(d)
(1)(A) in the case of an eligible automatic
contribution arrangement (EACA). Under
this relief, a plan may permit an employee
who was automatically enrolled under an
EACA to take a distribution within a lim-
ited period after the initial default elective
contribution with respect to the employee
was made.
Under section 414(w)(1) and (2), an
applicable employer plan
4
that contains an
EACA is permitted to allow employees to
elect to receive a distribution, called a per-
missive withdrawal, equal to the amount
of default elective contributions (and
attributable earnings) made with respect
to the employee beginning with the first
payroll period to which the EACA applies
to the employee and ending with the effec-
tive date of the election. The election must
be made within 90 days after the date of
the first default elective contribution with
respect to the employee under the arrange-
ment.
5
Section 414(w)(3) defines an EACA
as an arrangement under which: (1) a par-
ticipant may elect to have the employer
make payments as contributions under
the plan on behalf of the participant, or
to the participant directly in cash; (2) the
participant is treated as having elected
to have the employer make such contri-
butions in an amount equal to a uniform
percentage of compensation provided
under the plan until the participant spe-
cifically elects not to have such contribu-
tions made (or specifically elects to have
such contributions made at a different
percentage); and (3) participants are pro-
vided a notice that satisfies the require-
ments of section 414(w)(4).
Section 414(w)(4) provides that the
administrator of a plan that includes an
EACA must, within a reasonable period
before each plan year, provide each
employee to whom the arrangement
applies for the plan year written notice
of the employee’s rights and obligations
under the arrangement that is sufficiently
accurate and comprehensive to apprise
the employee of the employee’s rights
and obligations. Section 414(w)(4)(A)
(ii) requires that the notice be written in a
manner calculated to be understood by the
average employee to whom the arrange-
ment applies. Section 414(w)(4)(B) pro-
vides that the notice must explain: (1) the
employee’s rights under the arrangement
to elect not to have elective contributions
made on the employee’s behalf (or to
elect to have contributions made at a dif-
ferent percentage), and (2) how contribu-
tions made under the arrangement will be
invested in the absence of any investment
decision by the employee. In addition,
the employee must be given a reasonable
period of time after receipt of the notice
and before the first elective contribution is
made to make an election described in the
notice.
The Treasury Department and the IRS
issued a regulation under section 414(w)
on February 24, 2009 (TD 9447, 74 FR
8200). Section 1.414(w)-1(b)(2) includes
rules that address the uniform percent-
age requirement of section 414(w)(3)(B),
including rules that incorporate the excep-
tions to the uniform percentage require-
ment for a default elective contribution for
a QACA set forth in §1.401(k)-3(j)(2)(iii).
II. New Automatic Enrollment
Requirements and Other Changes
Regarding EACAs Under the SECURE
2.0 Act
A. Section 101 of the SECURE 2.0 Act
Section 101 of the SECURE 2.0 Act
adds section 414A to the Code. Under sec-
tion 101(c) of the SECURE 2.0 Act, the
amendments made by section 101 apply to
plan years beginning after December 31,
2024.
Section 414A(a)(1) of the Code gen-
erally provides that a CODA will not be
treated as a qualified CODA described
in section 401(k) unless the CODA sat-
isfies the automatic enrollment require-
ments of section 414A(b). Similarly, sec-
tion 414A(a)(2) generally provides that
an annuity contract otherwise described
in section 403(b) that is purchased under
a salary reduction agreement will not be
treated as described in section 403(b)
unless the salary reduction agreement
satisfies the automatic enrollment require-
ments of section 414A(b).
Under section 414A(b)(1), a CODA
or salary reduction agreement satisfies
the automatic enrollment requirements
of section 414A(b) if the CODA or sal-
ary reduction agreement is an EACA
(as defined in section 414(w)(3)) that
satisfies the additional requirements of
section 414A(b)(2) through (4). Sec-
tion 414A(b)(2) requires the EACA to
allow employees to make permissible
withdrawals (as defined in section 414(w)
(2)). Under section 414A(b)(3)(A)(i), the
minimum initial default contribution per-
centage under the EACA must be at least
3 percent (but not more than 10 percent),
and under section 414A(b)(3)(A)(ii), the
default contribution percentage must
increase by one percentage point for each
plan year beginning after each completed
year of participation under the EACA,
up to a maximum default contribution
percentage of at least 10 percent (but not
more than 15 percent).
6
Section 414A(b)
(4) provides that amounts contributed
pursuant to the EACA for which no
investment is elected by a participant
must be invested in accordance with the
requirements of 29 CFR 2550.404c-5
7
(or
any successor regulations).
Section 414A(c) sets forth certain
exceptions to the requirements of sec-
tion 414A(a). In general, section 414A(a)
does not apply to any: (1) SIMPLE
4
Section 414(w)(5) defines an applicable employer plan for purposes of section 414(w) as a trust described in section 401(a) that is exempt from tax under section 501(a), a plan described in
section 403(b), a section 457(b) plan that is maintained by a governmental employer described in section 457(e)(1)(A), a simplified employee pension the terms of which provide for a salary
reduction arrangement described in section 408(k)(6), or a SIMPLE individual retirement account described in section 408(p).
5
Section 414(w)(1)(A) and (B) provides that the amount of the distribution is includible in the gross income of the employee for the taxable year in which the distribution is made but is not
subject to the additional income tax on early distributions under section 72(t).
6
Section 414A(b)(3)(B) provides a reduced maximum default contribution percentage of 10 percent for certain plans with respect to certain plan years.
7
The requirements of 29 CFR 2550.404c-5 relate to investments in qualified default investment alternatives.

February 18, 2025 822 Bulletin No. 2025–8
401(k) plan described in section 401(k)
(11); (2) qualified CODA established
before December 29, 2022 (the date of
enactment of the SECURE 2.0 Act);
(3) section 403(b) plan established before
December 29, 2022; (4) governmental plan
described in section 414(d); (5) church
plan described in section 414(e); (6) plan
maintained by a new business as described
in section 414A(c)(4)(A); or (7) plan main-
tained by a small business as described in
section 414A(c)(4)(B).
Certain of the exceptions in sec-
tion 414A(c) include special rules for plans
maintained by more than one employer.
Section 414A(c)(2)(B) provides rules
that apply in the case of an employer that,
after December 29, 2022, adopts a plan
maintained by more than one employer.
Under that provision, the exception to
section 414A(a) for a qualified CODA or
403(b) plan established before December
29, 2022, will not apply to that adopting
employer, and the rules of section 414A(a)
will apply with respect to that employer as
if the plan were a single plan. In addition,
under section 414A(c)(4)(C), the new
business and small business exceptions
to section 414A(a) are applied separately
to each participating employer in a plan
maintained by more than one employer,
and all participating employers to which
section 414A(a) applies (after the applica-
tion of the new business exception in sec-
tion 414A(c)(4)(A) and the small business
exception in section 414A(c)(4)(B)) are
treated as maintaining a separate plan for
purposes of section 414A.
On December 20, 2023, the Trea-
sury Department and the IRS released
Notice 2024-2, 2024-2 IRB 316, which
provides initial guidance on certain pro-
visions of the SECURE 2.0 Act. Sec-
tion II.A of Notice 2024-2 provides initial
guidance in the form of questions and
answers regarding certain issues related
to section 414A of the Code that primar-
ily addresses the scope of the exceptions
under section 414A(c)(2) to the require-
ments of section 414A.
Q&A A-1 of Notice 2024-2 provides
that, for purposes of section 414A(c)(2)
(A)(i) (the exception to section 414A(a)
for a qualified CODA established before
December 29, 2022), a qualified CODA
is established on the date plan terms pro-
viding for the CODA are adopted initially,
even if the plan terms providing for the
CODA are effective after the adoption
date.
Q&A A-2 of Notice 2024-2 provides
rules that apply in the case of a merger of a
plan maintained by a single employer that
includes a qualified CODA established
before December 29, 2022 (a pre-enact-
ment qualified CODA), with another plan
that includes a pre-enactment qualified
CODA. Under Q&A A-2, the treatment
of the qualified CODA included in the
ongoing plan as a pre-enactment qualified
CODA is unaffected by the merger (with-
out regard to whether the ongoing plan is
maintained by a single employer or more
than one employer).
Q&A A-3 of Notice 2024-2 provides
that if a plan that includes a qualified
CODA that was not established before
December 29, 2022, is merged with a
plan that includes a pre-enactment qual-
ified CODA, then, after the merger, the
qualified CODA included in the ongo-
ing plan generally will not be treated
as a pre-enactment qualified CODA.
However, if, in connection with a dispo-
sition, acquisition, or other transaction
described in section 410(b)(6)(C), a plan
maintained by a single employer that
includes a qualified CODA that was not
established before December 29, 2022, is
merged with another plan maintained by
a single employer that includes a pre-en-
actment qualified CODA, and the plan
that includes the pre-enactment qualified
CODA is designated as the ongoing plan,
then the qualified CODA included in the
ongoing plan continues to be treated as a
pre-enactment qualified CODA after the
merger, provided that the merger occurs
by the end of the section 410(b)(6)(C)
transition period.
Q&A A-3 also provides that if a
plan maintained by a single employer
includes a qualified CODA that was not
established before December 29, 2022,
and is merged into a plan maintained by
more than one employer that includes a
pre-enactment qualified CODA, then the
qualified CODA included in the ongoing
plan would not be treated as a pre-en-
actment qualified CODA with respect
to that employer. However, in that case,
the merger would not affect whether the
qualified CODA is treated as a pre-en-
actment qualified CODA with respect to
other employers that participate in the
ongoing plan.
Q&A A-4 of Notice 2024-2 pro-
vides that if a plan that includes a qual-
ified CODA is spun off from a plan
that includes a pre-enactment qualified
CODA, the qualified CODA included in
the new spun-off plan generally is also
treated as being a pre-enactment qualified
CODA. However, if the plan from which
the new plan was spun off was a plan
maintained by more than one employer
that was established before December 29,
2022, then the qualified CODA included
in the spun-off plan is treated as a pre-en-
actment qualified CODA only if the qual-
ified CODA in the plan maintained by
more than one employer was treated as
a pre-enactment qualified CODA with
respect to the employer sponsoring the
spun-off plan.
Q&A A-5 of Notice 2024-2 provides
that, in general, the rules of section 414A
that apply to qualified CODAs also
apply to section 403(b) plans. However,
the exception to section 414A(a) for a
section 403(b) plan established before
December 29, 2022, applies without
regard to the date of adoption of plan
terms that provide for salary reduction
agreements.
Q&A A-6 of Notice 2024-2 explains
that, unless an exception set forth in sec-
tion 414A(c) applies (for example, the
exception for a new or small business),
section 414A(a) applies to a starter 401(k)
deferral-only arrangement described in
section 401(k)(16)(B), or to a safe har-
bor deferral-only plan described in sec-
tion 403(b)(16)(B), for plan years begin-
ning after December 31, 2024.
The Treasury Department and the
IRS received 12 written comments in
response to Notice 2024-2 that address the
guidance provided in Section II.A of the
notice. The Treasury Department and the
IRS reviewed all 12 comments, and this
preamble addresses those that are relevant
and within scope for this notice of pro-
posed rulemaking. All written comments
responding to Notice 2024-2 are avail-
able for public inspection and copying at
www.regulations.gov, and certain of those
comments that address Section II.A of
Notice 2024-2 are discussed in the Expla-
nation of Provisions portion of this pream-
ble.

Bulletin No. 2025–8 823 February 18, 2025
B. SECURE 2.0 Act changes regarding
EACA notices
1. Notice requirements for unenrolled
participants
Section 320(b) of the SECURE 2.0 Act
adds section 414(bb) to the Code, effective
for plan years beginning after December
31, 2022. Section 414(bb)(1) provides that,
with respect to any defined contribution
plan, no disclosure, notice, or other plan
document is required to be furnished under
the Code to any unenrolled participant if the
unenrolled participant is furnished: (1) an
annual reminder notice (as defined in sec-
tion 414(bb)(3)) of the participant’s eligibil-
ity to participate in the plan and any appli-
cable election deadlines under the plan, and
(2) any document requested by the partic-
ipant that the participant would be entitled
to receive notwithstanding section 414(bb).
Section 414(bb)(2) defines an unen-
rolled participant as an employee who:
(1) is eligible to participate in a defined
contribution plan, (2) has been furnished
the summary plan description pursuant to
section 104(b) of ERISA for the plan and
any other notices related to eligibility under
the plan and required to be furnished under
the Code or ERISA in connection with the
participant’s initial eligibility to participate
in the plan, (3) is not participating in the
defined contribution plan, and (4) satisfies
any other criteria as the Secretary of the
Treasury may determine appropriate, as
prescribed in guidance issued in consulta-
tion with the Secretary of Labor. The last
sentence of section 414(bb)(2) of the Code
provides that any eligibility to participate
in the plan following any period for which
the employee was not eligible to participate
is to be treated as initial eligibility.
Section 414(bb)(3) provides that the
annual reminder notice required under
section 414(bb)(1) is the notice described
in section 111(c) of ERISA (as added by
section 320(a) of the SECURE 2.0 Act).
2. Combining EACA notices with other
notices
Section 127 of the SECURE 2.0 Act
provides for the creation of pension-linked
emergency savings accounts (PLE-
SAs) effective for plan years beginning
after December 31, 2023. Among other
changes, section 127 of the SECURE
2.0 Act redesignates section 402A(e) of
the Code as section 402A(f) and adds a
new section 402A(e) regarding PLESAs.
8

Section 402A(e)(5)(A) requires the plan
administrator of a plan with a PLESA fea-
ture to furnish initial and annual notices
to participants describing certain infor-
mation regarding the PLESA that meet
the requirements of section 402A(e)(5)
(B). Section 402A(e)(5)(C) permits the
initial and annual notices required under
section 402A(e)(5)(A) to be included with
any other notice under ERISA, including
under section 404(c)(5)(B) or 514(e)(3) of
ERISA, or under section 401(k)(13)(E) or
414(w)(4) of the Code, if the other notice
is provided to the participant at the time
required for that notice.
The Department of Labor has provided
frequently asked questions regarding
PLESAs, including with respect to the
permitted consolidation of notices under
section 801(d)(3)(C) of ERISA (which
is a parallel provision to section 402A(e)
(5)(C) of the Code). See Q&A-18 of
“FAQs: Pension-Linked Emergency
Savings Accounts,” available at www.
dol.gov/agencies/ebsa/about-ebsa/
our -activities/resource-center/faqs/pen-
sion-linked-emergency-savings-accounts.
Section 341 of the SECURE 2.0 Act
permits a plan (as defined in section 3 of
ERISA) to consolidate two or more of the
notices required under sections 404(c)
(5)(B) and 514(e)(3) of ERISA and sec-
tions 401(k)(12)(D), 401(k)(13)(E), and
414(w)(4) of the Code into a single notice,
provided that the combined notice satis-
fies certain requirements. Section 341 of
the SECURE 2.0 Act does not prevent
the consolidation of any other notices
required under ERISA or the Code to the
extent otherwise permitted by the Secre-
tary of Labor or the Secretary of the Trea-
sury (or their delegates), as applicable.
On October 24, 2007, the Department
of Labor published in the Federal Regis-
ter (72 FR 60452) a final regulation, 29
CFR 2550.404c-5, providing relief from
certain fiduciary responsibilities under
ERISA for investments made on behalf
of participants or beneficiaries who fail
to direct the investment of assets in their
individual accounts. The preamble to that
final regulation indicates that the Depart-
ment of Labor anticipates that the notice
requirements of sections 404(c)(5)(B) and
514(e)(3) of ERISA and sections 401(k)
(13)(E) and 414(w)(4) of the Code could
be satisfied in a single disclosure docu-
ment. See 72 FR 60455 (regarding the
notice requirements under section 404(c)
(5)(B) of ERISA and sections 401(k)(13)
(E) and 414(w)(4) of the Code) and 72 FR
60466 (regarding the notice requirements
under sections 404(c)(5)(B) and 514(e)(3)
of ERISA).
To aid plan sponsors for the 2008 plan
year (the first plan year that a plan could
have included a QACA or EACA), the IRS
coordinated with the Department of Labor
to post a sample “Automatic Enrollment
Notice,” available at www.irs.gov/pub/
irs-tege/sample_notice.pdf. This sample
notice is intended to satisfy the notice
requirements of sections 404(c)(5)(B) and
514(e)(3) of ERISA and sections 401(k)
(13)(E) and 414(w)(4) of the Code.
On April 29, 2008, the Department
of Labor issued Field Assistance Bulle-
tin 2008-03. Q&A-10 of Field Assistance
Bulletin 2008-03 explains that the notice
required under section 401(k)(12)(D) also
may be combined with the notice required
under section 404(c)(5)(B) of ERISA.
Q&A-18 of “FAQs: Pension-Linked
Emergency Savings Accounts” explains
that, with respect to section 341 of the
SECURE 2.0 Act, the Department of
Labor retains its position regarding the
consolidation of notices required under
sections 404(c)(5)(B) and 514(e)(3)
of ERISA and sections 401(k)(12)(D),
401(k)(13)(E), and 414(w)(4) of the Code.
Q&A-18 also explains that, under sec-
tion 801(d)(3)(C) of ERISA, the initial and
annual notices that must be furnished to
PLESA participants may be included with
any other notice under ERISA, including
under section 404(c)(5)(B) or 514(e)(3)
of ERISA, or under section 401(k)(13)
(E) or 414(w)(4) of the Code, if such other
notice is provided to the participant at the
time required for such notice.
8
On January 12, 2024, the Treasury Department and the IRS released Notice 2024-22, 2024-6 IRB 662, which provides initial guidance regarding anti-abuse rules under section 402A(e)
(12) of the Code, as added by section 127 of the SECURE 2.0 Act, and also addresses whether Rev. Rul. 74-55, 1974-1 CB 89, and Rev. Rul. 74-56, 1974-1 CB 90, are applicable to PLESAs.

February 18, 2025 824 Bulletin No. 2025–8
Explanation of Provisions
I. Proposed §1.414A-1
A. General rule
In accordance with section 414A(a)(1),
the proposed regulation generally would
provide that a CODA will not be treated
as a qualified CODA unless the plan that
includes the CODA provides that any cash
or deferred election under the CODA must
satisfy the automatic enrollment require-
ments of section 414A. The proposed
regulation would clarify that the determi-
nation of whether a CODA fails to satisfy
these automatic enrollment requirements
(and, therefore, fails to be a qualified
CODA) is made on a plan-year basis.
Similarly, in accordance with sec-
tion 414A(a)(2), the proposed regulation
generally would provide that an annuity
contract described in section 403(b) that is
purchased pursuant to a salary reduction
agreement will not be treated as purchased
under a section 403(b) plan for a plan year
unless the plan provides that any salary
reduction agreement under the plan must
satisfy the automatic enrollment require-
ments of section 414A.
B. Automatic enrollment requirements
1. In general
As described in section II.A of the
Background portion of this preamble, sec-
tion 414A(a) generally requires a qualified
CODA, or an annuity contract described
in section 403(b) that is purchased under
a salary reduction agreement, to satisfy
the automatic enrollment requirements of
section 414A(b), which require the CODA
or salary reduction agreement to be an
EACA, as described in section 414(w)(3),
that meets the requirements of section
414A(b)(2) through (4). Section 414A(c)
sets forth exceptions to the requirements
of section 414A(a) for certain plans.
The Treasury Department and the
IRS received comments in response to
Notice 2024-2 requesting that the guidance
provide that certain categories of employ-
ees need not be covered by an EACA for
section 414A(b) to be satisfied. However,
although section 414A(c) provides several
exceptions to the requirements of sec-
tion 414A(a) for certain types of plans,
there is no provision in section 414A (or
in section 101(c) of the SECURE 2.0 Act)
that excludes any category of employee
from the automatic enrollment require-
ments of section 414A(b) of the Code
if the plan is subject to section 414A(a).
Accordingly, the proposed regulation
would clarify that a CODA or salary
reduction agreement under a plan satisfies
the automatic enrollment requirements of
section 414A only if the plan provides for
an EACA that covers all employees in the
plan who are eligible to elect to have con-
tributions made on their behalf under the
CODA or pursuant to the salary reduction
agreement (including long-term, part-time
employees described in section 401(k)(15)
of the Code or section 202(c) of ERISA).
Commenters also requested guidance
on whether an employee must be automat-
ically enrolled if the employee was eligible
to participate in a CODA or salary reduc-
tion agreement included in a plan before
the CODA or salary reduction agreement
became subject to the automatic enroll-
ment requirements of section 414A(b). In
response to these comments, the proposed
regulation would provide an exception to
automatic enrollment for certain employees
who are eligible to make a cash or deferred
election under a CODA or to enter into a
salary reduction agreement that is compa-
rable to the exception for certain current
employees under a QACA, as set forth
in §1.401(k)-3(j)(1)(iii). Specifically, the
proposed regulation would clarify that an
EACA will not fail to satisfy section 414A
merely because the default election under
the EACA does not apply to an employee
who, on the date the plan is first required
to satisfy the automatic enrollment require-
ments of the proposed regulation, had an
affirmative election in effect (that remains
in effect) to have contributions made on the
employee’s behalf under a cash or deferred
election or a salary reduction agreement (in
a specified amount or percentage of com-
pensation) or not have contributions made
on the employee’s behalf under a cash or
deferred election or a salary reduction
agreement.
2. Permissive withdrawals
In accordance with section 414A(b)(2),
the proposed regulation would provide that
an EACA satisfies the automatic enroll-
ment requirements of section 414A only if
the plan that includes the EACA provides
that any employee who has default elec-
tive contributions made under the EACA
may elect to make a permissible with-
drawal, as defined in section 414(w)(2)
and described in §1.414(w)-1(c) (that is,
a withdrawal of default elective contri-
butions and earnings that satisfies certain
timing and amount requirements).
3. Contribution requirements
To reflect the minimum contribu-
tion percentage requirements of sec-
tion 414A(b)(3), the proposed regulation
would provide that an EACA satisfies
the automatic enrollment requirements of
section 414A only if the default election
made on behalf of an employee under the
EACA is equal to a uniform percentage of
the employee’s compensation that is sub-
ject to a cash or deferred election or sal-
ary reduction arrangement under the plan.
The default election would not apply if
the employee affirmatively elects to have
contributions made in a different amount
on the employee’s behalf (in a specified
amount or percentage of compensation)
or not have any contributions made on
the employee’s behalf, under a cash or
deferred election or a salary reduction
agreement.
In accordance with section 414A(b)
(3)(A)(i), the proposed regulation would
provide that the contribution percent-
age under the default election for each
employee’s initial period must be a uni-
form percentage that is not less than 3 per-
cent and not more than 10 percent. The
proposed regulation would clarify that
an employee’s initial period (that is, the
employee’s “first year of participation”
under section 414A(b)(3)(A)(i)) would
begin when the employee is first eligible
to elect to have contributions made on
the employee’s behalf under the plan (or
if later, when the plan is first required to
satisfy the automatic enrollment require-
ments of section 414A), and the employ-
ee’s initial period would end on the last
day of the following plan year.
As described in section II.A of the
Background portion of this preamble, sec-
tion 414A(b)(3)(A)(ii) generally requires
automatic increases of one percentage

Bulletin No. 2025–8 825 February 18, 2025
point to an employee’s minimum default
contribution percentage for each plan
year beginning after each completed year
of participation under the EACA, up to a
maximum default contribution percentage
of at least 10 percent (but not more than 15
percent). The proposed regulation would
provide that, for each plan year begin-
ning after an employee’s initial period, the
percentage contribution under the default
election must be increased by one percent-
age point until the percentage is at least
10 percent. The proposed regulation also
would provide that the percentage may not
exceed 15 percent (or the lower percent-
age specified in section 414A(b)(3)(B),
if applicable).
For purposes of satisfying the uni-
form percentage requirement of sec-
tion 414A(b)(3)(A), the proposed regu-
lation would adopt the exceptions from
the uniform percentage requirement of
section 414(w)(3)(B), which are based on
the similar exceptions from the uniform
percentage requirement for a QACA
under §1.401(k)-3(j)(2)(iii). Specifically,
the proposed regulation would clarify
that an EACA does not fail to satisfy the
uniform percentage requirement merely
because: (1) the percentage used for the
default election varies based on the num-
ber of years (or portions of years) since
the beginning of the initial period for an
employee, (2) the rate of contributions
under a cash or deferred election or sal-
ary reduction agreement that is in effect
for an employee immediately prior to the
date that the default election under the
proposed regulation first applies to the
employee is not reduced, (3) the rate of
contributions under a cash or deferred
election or salary reduction agreement is
limited so as not to exceed certain appli-
cable limits under the Code, or (4) the
default election is not applied during the
period an employee is not permitted to
have contributions made on the employ-
ee’s behalf under a cash or deferred
election or salary reduction agreement
under section 414(u)(12)(B)(ii), which
provides for a six-month suspension of
elective deferrals (and employee contri-
butions) if an individual elects to receive
a distribution by reason of the individ-
ual being treated as having been severed
from employment while performing mil-
itary service.
The proposed regulation would pro-
vide rules, based on the rules for a QACA
under §1.401(k)-3(j)(2)(iv), that would
address the default percentage that would
apply for an employee who did not have
default elective contributions made for an
entire plan year. The proposed regulation
would provide different rules that could be
used depending on whether the employee
was not eligible to have contributions
made on the employee’s behalf under a
CODA or salary reduction agreement or
had made an affirmative election to have
contributions made in a different amount
(including an election not to have contri-
butions made).
Specifically, the proposed regulation
would permit a plan to provide that if,
after an employee’s initial period began,
the employee did not have default elec-
tive contributions made for an entire plan
year, then the employee’s initial period is
redetermined. If no default elective con-
tributions were made solely because the
employee was not eligible to elect to have
contributions made on the employee’s
behalf under a cash or deferred election or
salary reduction agreement for that entire
plan year, then a plan would be permit-
ted to provide that the employee’s initial
period would be redetermined so that it
begins on the date the employee is again
eligible to elect to have contributions
made on the employee’s behalf under the
plan. An employer would likely adopt this
provision to determine the default contri-
bution rate that applies to an employee
who was rehired more than one plan year
after the employee terminated employ-
ment.
However, if no default elective con-
tributions were made solely because the
employee made an affirmative election to
have contributions made on the employ-
ee’s behalf under a cash or deferred elec-
tion or salary reduction agreement in a
different amount (including an election
not to have contributions made), then a
plan would be permitted to provide that
the employee’s initial period would be
redetermined so that it begins on any date
specified under the plan that is later than
the date the employee’s original initial
period ended. For example, a plan is per-
mitted to be amended to provide that, as
of a specific date, the default election will
apply to all employees who previously
made an affirmative election that has been
in effect for a period of at least one plan
year to have contributions made on behalf
of the employees under the plan at a rate
that is below the uniform percentage that
applies during an initial period (so that the
uniform percentage that applies during
the initial period will apply unless the
employee makes a new affirmative elec-
tion). An employer might adopt such an
amendment to facilitate an increase in the
rate of contributions made on behalf of its
employees.
4. Investment requirements
In accordance with the investment
requirements of section 414A(b)(4), the
proposed regulation would provide that
an EACA satisfies the automatic enroll-
ment requirements of section 414A only
if amounts contributed pursuant to the
EACA, and for which no investment is
elected by the employee, are invested
in accordance with the requirements of
29 CFR 2550.404c-5 (or any successor
regulations).
C. Exceptions for certain types of plans
and businesses
1. SIMPLE 401(k) plans
In accordance with section 414A(c)(1),
the proposed regulation would provide
that the automatic enrollment require-
ments of section 414A do not apply to any
SIMPLE 401(k) plan (as described in sec-
tion 401(k)(11) and §1.401(k)-4).
2. Governmental and church plans
In accordance with section 414A(c)(3),
the proposed regulation would provide
that the automatic enrollment require-
ments of section 414A do not apply to any
governmental plan (within the meaning of
section 414(d)) or any church plan (within
the meaning of section 414(e)).
3. New and small businesses
Section 414A(c)(4)(A) provides that
the automatic enrollment requirements of
section 414A(a) do not apply to any qual-
ified CODA, or any annuity contract pur-
chased under a plan, while the employer

February 18, 2025 826 Bulletin No. 2025–8
maintaining the plan (and any predecessor
employer) has been in existence for less
than 3 years. However, section 414A does
not specify the date as of which a plan
must satisfy the automatic enrollment
requirements of section 414A(b) if the
exception for new businesses under sec-
tion 414A(c)(4)(A) ceases to apply to the
plan.
In response to Notice 2024-2, the Trea-
sury Department and the IRS received
a comment requesting clarification that
a plan will not fail to satisfy the auto-
matic enrollment requirements of sec-
tion 414A(b) if the plan includes an
EACA no later than the first plan year that
begins on or after the third anniversary of
the employer’s existence. The Treasury
Department and the IRS agree that a plan
should not be required to implement an
EACA in the middle of a plan year. There-
fore, the proposed regulation would clar-
ify that the automatic enrollment require-
ments of section 414A do not apply to a
plan for a plan year if, as of the beginning
of the plan year, the employer maintaining
the plan (aggregated with any predecessor
employer) has been in existence for less
than 3 years.
Section 414A(c)(4)(B) provides that
the automatic enrollment requirements of
section 414A(a) do not apply to any qual-
ified CODA, or any annuity contract pur-
chased under a plan, earlier than the date
that is 1 year after the close of the first tax-
able year of the employer maintaining the
plan with respect to which that employer
normally employed more than 10 employ-
ees. However, section 414A(c)(4)(B) does
not specify any method for counting the
number of employees for this purpose.
In response to Notice 2024-2, the Trea-
sury Department and the IRS received
comments requesting clarification regard-
ing the method for counting employees
for purposes of the small business excep-
tion under section 414A(c)(4)(B). One
commenter raised the issue of how to
count employees for this purpose but did
not suggest a specific method. Another
commenter recommended that the Trea-
sury Department and the IRS adopt a
monthly averaging approach, which the
commenter explained would be similar
to the approach used for purposes of sec-
tion 4980H. However, section 4980H does
not use the phrase “normally employed”;
instead, that phrase is used in sec-
tion 4980B(d)(1). Therefore, the proposed
regulation would clarify that the number
of employees that the employer normally
employs for a taxable year is determined
using the rules of Q&A-5 of §54.4980B-2.
Similar to the clarification provided
in the proposed regulation for new busi-
nesses, the proposed regulation would
clarify that the automatic enrollment
requirements of section 414A do not apply
to any qualified CODA, or any annuity
contract purchased under a section 403(b)
plan, before the first plan year that begins
at least 12 months after the close of the
first taxable year of the employer main-
taining the plan with respect to which that
employer normally employed more than
10 employees.
As described in section II.A of the
Background portion of this preamble, sec-
tion 414A(c)(4)(C) provides special rules
for the new and small business exceptions
in the case of “a plan maintained by more
than 1 employer.” The proposed regula-
tion would clarify that the phrase “a plan
maintained by more than 1 employer”
means a multiple employer plan.
9
Accord-
ingly, the proposed regulation would
reflect the provisions of section 414A(c)
(4)(C) by providing that, in the case of a
multiple employer plan, the exceptions
for new and small businesses apply on
an employer-by-employer basis. Thus, if
an employer participating in a multiple
employer plan is a new or small business,
it would be exempt from the automatic
enrollment requirements of section 414A,
but that exemption would have no impact
on whether section 414A applies to the
employees of the other participating
employers.
D. Exceptions for plans established
before the enactment of section 414A
1. In general
As described in section II.A of the
Background portion of this preamble, sec-
tion 414A(c)(2)(A) provides an exception
from the requirements of section 414A(a)
in the case of a qualified CODA, or sec-
tion 403(b) plan, that is established before
December 29, 2022, and Q&A A-1 and
Q&A A-5 of Notice 2024-2 provide guid-
ance with respect to the date that a quali-
fied CODA or section 403(b) plan is estab-
lished for purposes of section 414A(c)(2)
(A). Notice 2024-2 refers to a qualified
CODA or section 403(b) plan that is eli-
gible for the exception under section
414A(c)(2)(A) as a pre-enactment qual-
ified CODA or pre-enactment section
403(b) plan, and this Explanation of Pro-
visions uses the term pre-enactment plan
to encompass both pre-enactment quali-
fied CODAs and pre-enactment section
403(b) plans.
The proposed regulation would reflect
the provisions of section 414A(c)(2)(A)(i)
and incorporate the guidance provided in
Q&A A-1 of Notice 2024-2 by generally
providing that the automatic enrollment
requirements of section 414A do not
apply to any plan that includes a qualified
CODA if the plan terms providing for the
qualified CODA were adopted initially
before December 29, 2022, even if the
plan terms providing for the CODA are
effective after that date. The proposed reg-
ulation also would reflect the provisions
of section 414A(c)(2)(A)(ii) and incor-
porate the guidance provided in Q&A
A-5 of Notice 2024-2 by providing that
the automatic enrollment requirements
of section 414A do not apply to any sec-
tion 403(b) plan adopted initially before
December 29, 2022, without regard to the
date of adoption of plan terms providing
for salary reduction agreements.
2. Merger of plans established before the
enactment of section 414A
With respect to the merger of two
pre-enactment plans (neither of which is
a multiple employer plan) or the merger
of a pre-enactment plan that is not a mul-
tiple employer plan with a pre-enactment
multiple employer plan, the proposed reg-
ulation would incorporate the guidance
provided in Q&A A-2 of Notice 2024-2
(which, under Q&A A-5 of Notice 2024-2,
also applies to section 403(b) plans). Thus,
9
This interpretation is consistent with the heading of section 414A(c)(4)(C) (“Treatment of multiple employer plans”) and the interpretation in §1.413-2(a)(2) and (3) of the substantially
identical language in section 413(c) (“a plan maintained by more than one employer”).

Bulletin No. 2025–8 827 February 18, 2025
the plan after the merger will be treated as
a pre-enactment plan.
The proposed regulation generally
would extend the guidance provided in
Q&A A-2 of Notice 2024-2 to the merger
of two pre-enactment multiple employer
plans. However, the proposed regulation
would clarify that a merger involving a
multiple employer plan will not affect
whether the merged plan is treated as a
pre-enactment plan with respect to any
employer that maintained the multiple
employer plan prior to the merger.
3. Merger of plan established on or after
the enactment of section 414A with a
plan established before the enactment of
section 414A
With respect to the merger of a plan
that is not a pre-enactment plan and a
pre-enactment plan (neither of which is
a multiple employer plan), the proposed
regulation generally would incorpo-
rate the guidance provided in Q&A A-3
of Notice 2024-2 (which, under Q&A
A-5 of Notice 2024-2, also applies to
section 403(b) plans). With respect to
the guidance provided in Q&A A-3 of
Notice 2024-2 regarding a plan merger in
connection with a transaction described
in section 410(b)(6)(C), the proposed
regulation generally would incorporate
that guidance by providing that a pre-en-
actment plan will continue to be treated
as a pre-enactment plan after a merger
with a plan that is not a pre-enactment
plan if there is a transaction described in
§1.410(b)-2(f), the pre-merger pre-enact-
ment plan is designated as the ongoing
plan, and the plan merger occurs within
the transition period described in sec-
tion 410(b)(6)(C)(ii). In addition, the pro-
posed regulation would expand the rule in
Q&A A-3 of Notice 2024-2 to address cer-
tain situations in which a plan maintained
by a single employer that is not a pre-en-
actment plan is merged into a multiple
employer plan. Under this expansion, the
multiple employer plan would be treated
as a pre-enactment plan with respect to the
employer that sponsored the merged-in
plan if, with respect to the participating
employer that engaged in the transaction,
the multiple employer plan was treated as a
pre-enactment plan before the transaction.
As is the case of any merger involving a
multiple employer plan, the merger would
not affect whether the multiple employer
plan is treated as a pre-enactment plan
with respect to any other employer.
Under section 410(b)(6)(C)(ii), the
transition period begins on the date of the
change in members of a controlled group
(as described in section 414(b), (c), (m),
or (o)) and ends on the last day of the first
plan year beginning after the date of that
change. In response to Notice 2024-2,
one commenter requested that the guid-
ance provided in Q&A A-3 be modified to
extend the time period for a plan merger
until the end of the first plan year that
begins after the end of the section 410(b)
(6)(C) transition period. The proposed reg-
ulation would not extend the time period
set forth in Q&A A-3 of Notice 2024-2
because that is the time period specified
in the Code for an employer to implement
changes to its plans that may be needed
following a transaction described in sec-
tion 410(b)(6)(C).
With respect to a merger of a multiple
employer plan that is a pre-enactment plan
with a multiple employer plan that is not a
pre-enactment plan, the proposed regula-
tion would clarify the guidance provided
in Q&A A-3 of Notice 2024-2 by provid-
ing that the merger will not affect whether
the merged plan is treated as a pre-enact-
ment plan with respect to any employer
that maintained either multiple employer
plan prior to the merger.
4. Treatment of adoption of, or merger
with, a multiple employer plan
As described in section II.A of the
Background portion of this preamble, sec-
tion 414A(c)(2)(B) provides special rules
that apply in the case of an employer that
adopts, after December 29, 2022, a plan
maintained by more than one employer.
Consistent with the interpretation of the
statutory phrase “a plan maintained by
more than 1 employer” in section 414A(c)
(4)(C), as described in section I.C.3 of
this Explanation of Provisions, the pro-
posed regulation would clarify that the
phrase “a plan maintained by more than
one employer” in section 414A(c)(2)(B)
means a multiple employer plan. Thus,
the proposed regulation would provide
that if an employer adopts a multiple
employer plan after December 29, 2022,
then, with respect to that employer, the
multiple employer plan will not be treated
as a pre-enactment plan. However, this
treatment would not affect employers who
adopted the multiple employer plan on or
before December 29, 2022.
With respect to the merger of a plan
(other than a multiple employer plan) with
a multiple employer plan after December
29, 2022, the proposed regulation gen-
erally would incorporate the guidance
provided in Q&A A-2 and Q&A A-3 of
Notice 2024-2 (which, under Q&A A-5
of Notice 2024-2, also applies to sec-
tion 403(b) plans). Thus, for example, if
an employer merged a plan that was not
a pre-enactment plan into a pre-enactment
multiple employer plan after December
29, 2022, the multiple employer plan gen-
erally would not be treated as a pre-enact-
ment plan with respect to that employer
after the merger.
In response to Notice 2024-2, the Trea-
sury Department and the IRS received a
number of comments expressing concern
that, in the case of an employer maintain-
ing a pre-enactment plan that is merged
into a multiple employer plan that was
established after December 29, 2022,
the multiple employer plan would not
be treated as a pre-enactment plan with
respect to that employer after the merger.
The comments requested guidance pro-
viding that if a pre-enactment plan is
merged into a multiple employer plan,
then the merged-in plan does not lose its
pre-enactment status with respect to the
employer that maintained the merged-in
plan regardless of whether the multiple
employer plan was established before or
after December 29, 2022. In response to
these comments, the proposed regulation
would provide that, if an employer main-
tains a pre-enactment plan that is merged
into a multiple employer plan after
December 29, 2022, then the post-merger
multiple employer plan will be treated as
a pre-enactment plan with respect to that
employer. This rule would apply regard-
less of the date of establishment of the
multiple employer plan.
The proposed regulation also would
clarify that the special rule set forth in sec-
tion 414A(c)(2)(B) regarding the adoption
of a multiple employer plan after Decem-
ber 29, 2022, applies on an employ-
er-by-employer basis. Thus, under the

February 18, 2025 828 Bulletin No. 2025–8
proposed regulation, neither an employ-
er’s adoption of a multiple employer plan
nor a merger of an employer’s plan into
a multiple employer plan after Decem-
ber 29, 2022, would affect whether the
multiple employer plan is treated as a
pre-enactment plan with respect to any
other employer maintaining the plan.
5. Plan spin-off
The proposed regulation would incor-
porate the guidance provided in Q&A A-4
of Notice 2024-2 by providing that if a
portion of a pre-enactment plan is spun off
from that plan, the resulting spun-off plan
will be treated as a pre-enactment plan if
either the plan from which the spin-off
occurred was not a multiple employer
plan, or the plan from which the spin-off
occurred was a multiple employer plan
that was treated as a pre-enactment plan
with respect to the employer maintaining
the spun-off plan.
6. Other plan amendments
In response to Notice 2024-2, the Trea-
sury Department and the IRS received
comments requesting guidance on whether
changes to a plan’s design or other plan
amendments would affect the date the
plan was established for purposes of sec-
tion 414A(c)(2)(A). In response to these
comments, the proposed regulation would
clarify that a plan will not fail to be a pre-en-
actment plan merely because the plan is
amended, provided that the amendment
is not an amendment relating to an adop-
tion of a multiple employer plan or a plan
merger. This rule would apply even if the
plan amendment expands eligibility to par-
ticipate in the CODA (or to enter into a sal-
ary reduction agreement) to other employ-
ees of the employer that maintains the plan
or to employees of another employer in
the employer’s controlled group. The pro-
posed regulation also would clarify that if
a pre-enactment plan is merged with a plan
that does not include a CODA or permit
any salary reduction agreements, then the
merged plan will continue to be a pre-en-
actment plan after the merger.
In response to Notice 2024-2, the
Treasury Department and the IRS also
received comments requesting guidance
on whether a change in a plan’s service
provider would affect the date the plan
was established for purposes of sec-
tion 414A(c)(2)(A). Generally, a mere
change in a plan’s recordkeeper would
not necessitate an amendment to the plan.
However, if a plan’s change of record-
keeper or any similar change required a
plan amendment that does not relate to the
adoption of a multiple employer plan or a
plan merger, then, under the proposed reg-
ulation, the amendment would not cause
the plan to fail to be a pre-enactment plan.
E. Applicability date
1. Statutory applicability date
In accordance with section 101(c) of
the SECURE 2.0 Act, the proposed reg-
ulation would provide that section 414A
applies to plan years beginning after
December 31, 2024.
2. Regulatory applicability date
The proposed regulation would apply
to plan years that begin more than 6
months after the date that final regula-
tions under section 414A are issued. For
earlier plan years, a plan would be treated
as having complied with section 414A if
the plan complies with a reasonable, good
faith interpretation of section 414A.
As explained in section I.B.1 of this
Explanation of Provisions, the proposed
regulation would require an EACA to
cover all employees in the plan who are
eligible to elect to have contributions
made on their behalf for the automatic
enrollment requirements of the proposed
regulation to be satisfied. If a CODA or
section 403(b) plan that provides for sal-
ary reduction agreements becomes subject
to the requirements of section 414A(a)
as of the first day of the plan year begin-
ning after December 31, 2024 (2025 plan
year), but employees who became eligi-
ble to participate in the CODA or to enter
into a salary reduction agreement before
the first day of the 2025 plan year (and
who do not have affirmative elections in
effect on that date) are not covered under
the EACA, then those employees would
have to be covered under the EACA on the
first day of the first plan year that the final
regulations apply to the CODA or to the
section 403(b) plan that provides for sal-
ary reduction agreements (first applicable
plan year).
As a result, under the proposed regula-
tion, unless employees who became eligible
to participate in the CODA or to enter into a
salary reduction agreement before the first
day of the 2025 plan year have affirmative
elections in effect on the first day of the
first applicable plan year, those employees
would need to be automatically enrolled as
of that date in order for the requirements of
the regulation to be satisfied. In that case,
the default contribution percentage would
be the percentage that would apply under
the EACA for the first applicable plan year
had those employees been automatically
enrolled starting on the first day of the 2025
plan year. As an alternative, the plan terms
could reflect the provision in the proposed
regulation permitting the redetermina-
tion of the initial period in the case of an
employee who did not have default elective
contributions made for an entire plan year
(so that the plan would be permitted to pro-
vide that the initial contribution percentage
that applies to those employees is the per-
centage that would apply under the EACA
had the initial period for those employees
started on the first day of the first applicable
plan year).
F. Other matters
1. Multiemployer plans
As described in section I.D.4 of this
Explanation of provisions, the proposed
regulation would clarify that, for purposes
of section 414A(c)(2)(B), the phrase
“a plan maintained by more than one
employer” means “a multiple employer
plan.” Thus, the phrase “a plan maintained
by more than one employer” would not be
interpreted to include a multiemployer
plan or a plan maintained by members
of a controlled group. As a result, under
the proposed regulation, a pre-enactment
multiemployer plan would continue to
be treated as a pre-enactment plan with
respect to an employer that adopts the plan
after December 29, 2022, or with respect
to an employer that maintains a plan that is
merged into the multiemployer plan after
December 29, 2022 (regardless of the date
the merged-in plan was established). Sim-
ilarly, a pre-enactment plan would con-
tinue to be treated as a pre-enactment plan

Bulletin No. 2025–8 829 February 18, 2025
with respect to additional members of an
employer’s controlled group if eligibil-
ity to participate in the plan is expanded
to include employees of those employers
after December 29, 2022.
2. PLESAs
The Department of Labor published
a request for information soliciting pub-
lic feedback on several sections of the
SECURE 2.0 Act in the Federal Register
(88 FR 54511). In response to comments
received, this preamble addresses the
interaction of the rules for a PLESA and
the automatic enrollment requirements of
section 414A.
If a plan with a qualified CODA
includes a PLESA, then the PLESA is
part of the CODA. Thus, an affirmative
election to contribute to a PLESA is an
affirmative election to contribute to the
CODA. If the plan is subject to the auto-
matic enrollment requirements of sec-
tion 414A, then an affirmative election to
contribute to a PLESA would be an affir-
mative election under the CODA for pur-
poses of the proposed regulation.
If an employee is automatically enrolled
to contribute to a PLESA, the investment
requirements of section 414A(b)(4) and
proposed §1.414A-1(c)(4) (which refer-
ence the Department of Labor’s rules for
qualified default investment alternatives
under 29 CFR 2550.404c-5) generally
would not be satisfied with respect to the
automatic contributions to the PLESA.
10

Thus, automatic contributions to the
PLESA would not be able to be used to
satisfy the automatic enrollment require-
ments under section 414A.
II. Section 1.414(w)-1
A. Employees covered by the EACA
As explained in section I.B.1 of this
Explanation of Provisions, proposed
§1.414A-1 would clarify that, in order for
a CODA or salary reduction agreement
under section 403(b) to satisfy the auto-
matic enrollment requirements of sec-
tion 414A, all employees in the plan who
are eligible to elect to have contributions
made on their behalf under the CODA or
pursuant to a salary reduction agreement
must be covered by the EACA. Sec-
tion 1.414(w)-1(b)(1) currently provides
that an EACA need not cover all employ-
ees who are eligible to elect to have con-
tributions made on their behalf under the
applicable employer plan. For consistency
with proposed §1.414A-1, this notice
of proposed rulemaking would amend
§1.414(w)-1(b)(1) to clarify that the sec-
tion 414A requirement to be covered by
an EACA overrides the existing rule in the
EACA regulations.
B. Special rules relating to notices
1. Unenrolled participants
As described in section II.B of the
Background portion of this preamble, sec-
tion 320 of the SECURE 2.0 Act adds new
section 414(bb) to the Code. This notice of
proposed rulemaking would reflect section
414(bb) by amending §1.414(w)-1 to add a
new paragraph under which, if the require-
ments of section 414(bb)(1) are satisfied
with respect to an unenrolled participant
(as defined in section 414(bb)(2)),
11
then
the requirement to give the section 414(w)
(4) notice of an employee’s rights and obli-
gations does not apply to the participant.
Thus, an unenrolled participant does not
need to be given the annual EACA notice,
provided that the participant is furnished
(1) annual reminder notices under sec-
tion 414(bb)(1)(A), and (2) any document
requested by the participant (if the partici-
pant would be entitled to receive the docu-
ment in the absence of section 414(bb) and
section 111 of ERISA).
2. Consolidation of notices
As described in section II.B of the
Background portion of this preamble,
section 402A(e)(5)(C) of the Code (as
added by section 127 of the SECURE 2.0
Act) permits the initial and annual notices
required under section 402A(e)(5)(A) of
the Code to be included with any other
notice under ERISA, including under sec-
tion 404(c)(5)(B) or 514(e)(3) of ERISA, or
under section 401(k)(13)(E) or 414(w)(4)
of the Code, if the other notice is provided
to the participant at the time required for
that notice. In addition, section 341 of the
SECURE 2.0 Act permits a plan to consol-
idate two or more of the notices required
under sections 404(c)(5)(B) and 514(e)(3)
of ERISA and sections 401(k)(12)(D),
401(k)(13)(E), and 414(w)(4) of the Code
into a single notice, provided that the
combined notice satisfies certain require-
ments.
The proposed amendment to
§1.414(w)-1 would address sec-
tion 402A(e)(5)(C) of the Code and
section 341 of the SECURE 2.0 Act by
adding a new paragraph that provides
that the EACA notice required under
§1.414(w)-1(b)(3) generally may be com-
bined with one or more of the notices
required under section 404(c)(5)(B),
514(e)(3), or 801(d)(3)(A) of ERISA and
section 401(k)(12)(D) or 401(k)(13)(E)
of the Code. Consistent with section 341
of the SECURE 2.0 Act, the proposed
regulation would require that the com-
bined notice include the required con-
tent, clearly identify the issues addressed
therein, be furnished at the time and with
the frequency required for each notice, be
presented in a manner that is reasonably
calculated to be understood by the aver-
age plan participant, and not obscure or
fail to highlight the primary information
required for each notice.
Proposed Applicability Date
Section 1.414A-1 and the amendments
to §1.414(w)-1 are proposed to apply to
plan years that begin more than 6 months
after the date that final regulations under
section 414A are issued. For a plan year
10
The Department of Labor published frequently asked questions online providing general compliance information under ERISA regarding PLESAs providing that, generally, the investment
option designated for PLESAs cannot be the same as a plan’s qualified default investment alternative under 29 CFR 2550.404c-5(e)(4)(i). However, Q&A-15 does indicate that a PLESA’s
investment option could meet the requirements for a qualified default investment alternative for a short period of time.
11
Section 414(bb)(2) defines an unenrolled participant as an employee who: (1) is eligible to participate in a defined contribution plan, (2) has been furnished the summary plan description
pursuant to section 104(b) of ERISA for the plan and any other notices related to eligibility under the plan and required to be furnished under the Code or ERISA in connection with the par-
ticipant’s initial eligibility to participate in the plan, (3) is not participating in the defined contribution plan, and (4) satisfies any other criteria as the Secretary of the Treasury may determine
appropriate, as prescribed in guidance issued in consultation with the Secretary of Labor.

February 18, 2025 830 Bulletin No. 2025–8
beginning after December 31, 2024, but
before the applicability date of those final
regulations, a plan is treated as having
complied with section 414A if the plan
complies with a reasonable, good faith
interpretation of section 414A.
Special Analyses
I. Regulatory Planning and Review
Pursuant to the Memorandum of
Agreement, Review of Treasury Regula-
tions under Executive Order 12866 (June
9, 2023), tax regulatory actions issued by
the IRS are not subject to the requirements
of section 6 of Executive Order 12866, as
amended. Therefore, a regulatory impact
assessment is not required.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(44 U.S.C. 3501 - 3520) (PRA) requires
that a Federal agency obtain the approval
of the Office of Management and Bud-
get (OMB) before collecting information
from the public, whether such collection
of information is mandatory, voluntary,
or required to obtain or retain a benefit. A
Federal agency may not conduct or spon-
sor, and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
control number.
The collections of information in these
proposed regulations contain third-party
disclosure requirements that are necessary
to comply with the statutory requirement
under section 414A of the Code (which
requires certain CODAs or salary reduc-
tion agreements to be EACAs) and that are
necessary if a plan applies section 414(bb)
(which eliminates certain disclosure and
notice requirements for unenrolled partic-
ipants if an annual notice is provided to
the unenrolled participants). These collec-
tions of information generally would be
provided by businesses or other for-profit
institutions, nonprofit institutions, orga-
nizations, and state or local governments
that sponsor retirement plans that include
EACAs to individuals in order to meet the
statutory notice requirements for EACAs
under section 414(w)(4).
The collection of information under
proposed §1.414(w)-1(b)(4) related to
unenrolled participants is required in order
for a plan to apply section 414(bb). Sec-
tion 414(bb) provides that no disclosure,
notice, or other plan document is required
to be furnished under the Code to an unen-
rolled participant if the unenrolled par-
ticipant is furnished an annual reminder
notice of the unenrolled participant’s eli-
gibility to participate in the plan and any
applicable election deadlines under the
plan. In accordance with section 414(bb),
the proposed regulation would allow
unenrolled participants to be furnished
an annual reminder notice instead of the
annual notice required for EACAs under
section 414(w)(4) and §1.414(w)-1(b)(3).
The burden is as follows:
Estimated number of respondents:
90,000 – 140,000 plans.
Estimated frequency of responses: Var-
ies*.
*The notice would only need to be fur-
nished to unenrolled participants once
per year, however, plans have multiple
unenrolled participants within a given
year. For calculation purposes, IRS is
estimating that each employer plan has
35 unenrolled participants that could
receive the annual notice.
Estimated average annual burden per
respondent: 1 hour*, to draft the notice
and provide it to unenrolled participants.
*The IRS estimates that the reporting
burden per response would not be bur-
densome because the notice does not
need to be customized per participant.
Estimated total annual reporting bur-
den: 90,000 – 140,000 hours.
The collections of information in
these proposed regulations also contain
third-party disclosure requirements that
are necessary to comply with the statutory
rule under section 414A, which requires
certain CODAs and salary reduction agree-
ments to be EACAs (as defined in sec-
tion 414(w)(3)). Under §1.414(w)-1(b)(3),
initial and annual written notices must
be given to each employee to whom the
EACA applies of the employee’s rights
and obligations under the EACA. Pro-
posed §1.414A-1 would not change the
notice requirements for an EACA under
§1.414(w)-1 but would subject certain
CODAs and salary reduction agreements
to the notice requirements for an EACA by
requiring those CODAs and salary reduc-
tion agreements to be EACAs (as required
by section 414A). This requirement to
be an EACA would not affect pre-enact-
ment plans. IRS anticipates about 16,000
new plans could be established within a
given year that would not otherwise be
EACAs except for the requirements of
section 414A.
Estimated number of respondents:
16,000.
Estimated frequency of responses: Var-
ies*.
*Notice would need to be given to eli-
gible employees once per year. For
calculation purposes, IRS is estimating
that each employer plan has 60 eligi-
ble employees that would receive the
annual notice.
Estimated average annual burden per
respondent: 1 hour*, to draft the notice
and provide it to eligible employees.
*The IRS estimates that the reporting
burden per response would not be bur-
densome because the notice does not
need to be customized per participant.
Estimated total annual reporting bur-
den: 16,000 hours.
IRS is soliciting feedback on these
third-party disclosure requirements and
their associated burden. The third-party
disclosure requirements contained in this
notice of proposed rulemaking have been
submitted to OMB for review in accor-
dance with the Paperwork Reduction Act
under OMB Control Number 1545-2135.
Commenters are strongly encouraged to
submit public comments electronically.
Written comments and recommendations
for the proposed information collection
should be sent to www.reginfo.gov/public/
do/PRAMain, with copies to the Inter-
nal Revenue Service. Find this particular
information collection by using the search
function at www.reginfo.gov/public/do/
PRAMain. Submit electronic submissions
for the proposed information collection to
the IRS via email at pra.comments@irs.
gov (indicate REG-100669-24 on the Sub-
ject line). Comments on the collection of
information should be received by March

Bulletin No. 2025–8 831 February 18, 2025
17, 2025. Comments are specifically
requested concerning:
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the IRS,
including whether the information will
have practical utility;
The accuracy of the estimated burden
associated with the proposed collection of
information;
How the quality, utility, and clarity of
the information to be collected may be
enhanced;
How the burden of complying with
the proposed collection of information
may be minimized, including through the
application of automated collection tech-
niques or other forms of information tech-
nology; and
Estimates of capital or start-up costs
and costs of operation, maintenance, and
purchase of services to provide informa-
tion.
III. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility
Act (5 U.S.C. chapter 6), it is hereby cer-
tified that these proposed regulations will
not have a significant economic impact
on a substantial number of small enti-
ties. Although section 414A provides an
exception from the automatic enrollment
requirements for some small entities, other
small entities that sponsor section 401(k) or
403(b) plans that are established on or after
December 29, 2022, may need to provide
for automatic enrollment in the plans and
default cash or deferred or salary reduction
elections for employees who are otherwise
eligible to participate in the plans. Auto-
matic enrollment and default elections, and
the resulting additional contributions to a
plan, apply to compensation that employees
would have otherwise received and do not
require additional amounts to be paid. Sec-
tion 414A does not require plans to provide
for nonelective contributions or matching
contributions. Before the enactment of
section 101 of the SECURE 2.0 Act, plans
were permitted, but not required, to provide
for automatic enrollment. Accordingly, any
additional recordkeeping or administrative
costs resulting from the automatic enroll-
ment requirements that apply to certain
section 401(k) and 403(b) plans sponsored
by small entities are not expected to be sig-
nificant. Therefore, a regulatory flexibility
analysis under the Regulatory Flexibility
Act is not required.
The Treasury Department and the IRS
invite comments on the impacts these
proposed regulations may have on small
entities. Pursuant to section 7805(f) of the
Code, these proposed regulations will be
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administra-
tion for comment on their impact on small
businesses.
IV. 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
government, in the aggregate, or by the
private sector, of $100 million in 1995
dollars, updated annually for inflation.
The proposed regulations do not propose
any rule that would 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.
V. Executive Order 13132: Federalism
Executive Order 13132 (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 gov-
ernments, 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
propose rules that would have federalism
implications, impose substantial direct
compliance costs on State and local gov-
ernments that are not required by statute,
or preempt State law within the meaning
of the Executive order. This is because
section 414A, by its terms, does not apply
to governmental plans.
Comments and Public Hearing
Before final regulations are adopted to
implement section 414A of the Code, or to
revise the regulations under section 414(w)
to reflect changes made by sections 101,
320, and 341 of the SECURE 2.0 Act,
consideration will be given to comments
regarding the notice of proposed rulemak-
ing that are submitted timely to the IRS
as prescribed in this preamble under the
ADDRESSES section. The Treasury
Department and the IRS request comments
on all aspects of the proposed regulations.
Comments specifically are requested on
whether guidance is needed to define the
term “predecessor employer” as used in
section 414A(c)(4)(A) of the Code and on
the criteria that should apply for an individ-
ual to be an unenrolled participant under
section 414(bb)(2). All comments will be
made available at www.regulations.gov.
Once submitted to the Federal eRulemak-
ing Portal, comments cannot be edited or
withdrawn.
A public hearing has been scheduled
for April 8, 2025, beginning at 10 a.m. ET
in the Auditorium of the Internal Revenue
Building, 1111 Constitution Avenue NW,
Washington, DC. Due to building security
procedures, visitors must enter at the Con-
stitution Avenue entrance. In addition, all
visitors must present photo identification
to enter the building. Because of access
restrictions, visitors will not be admitted
beyond the immediate entrance area more
than 30 minutes before the hearing starts.
Participants may alternatively attend the
public hearing by telephone.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing. Persons who wish to
present oral comments must submit an out-
line of the topics to be addressed and the
time to be devoted to each topic by March
17, 2025, as prescribed in the preamble
under the DATES section. A period of 10
minutes will be allocated to each person for
making comments. An agenda showing the
scheduling of the speakers will be prepared
after the deadline for receiving outlines
has passed. Copies of the agenda will be
available free of charge at the hearing. If
no outline of the topics to be discussed at
the hearing is received by March 17, 2025,
the public hearing will be cancelled. If the
public hearing is cancelled, a notice of can-
cellation of the public hearing will be pub-
lished in the Federal Register.
Individuals who want to testify in
person at the public hearing must send
an email to publichearings@irs.gov to

February 18, 2025 832 Bulletin No. 2025–8
have their names added to the building
access list. The subject line of the email
must contain the regulation number
REG-100669-24 and the language TES-
TIFY In Person. For example, the subject
line may say: Request to TESTIFY In Per-
son at Hearing for REG-100669-24.
Individuals who want to testify by tele-
phone at the public hearing must send
an email to publichearings@irs.gov to
receive the telephone number and access
code for the hearing. The subject line of the
email must contain the regulation number
REG-100669-24 and the language TES-
TIFY Telephonically. For example, the sub-
ject line may say: Request to TESTIFY Tele-
phonically at Hearing for REG-100669-24.
Individuals who want to attend the
public hearing in person without testify-
ing must also send an email to publichear-
ings@irs.gov to have their names added to
the building access list. The subject line
of the email must contain the regulation
number REG-100669-24 and the language
ATTEND In Person. For example, the
subject line may say: Request to ATTEND
Hearing In Person for REG-100669-24.
Requests to attend the public hearing must
be received by 5 p.m. ET on April 4, 2025.
Individuals who want to attend the pub-
lic hearing by telephone without testifying
must also send an email to publichear-
ings@irs.gov to receive the telephone
number and access code for the hearing.
The subject line of the email must contain
the regulation number REG-100669-24
and the language ATTEND Hearing Tele-
phonically. For example, the subject line
may say: Request to ATTEND Hear-
ing Telephonically for REG-100669-24.
Requests to attend the public hearing must
be received by 5 p.m. ET on April 4, 2025.
Hearings will be made accessible to
people with disabilities. To request special
assistance during the hearing, please contact
the Publications and Regulations Branch of
the Office of Associate Chief Counsel (Pro-
cedure and Administration) by sending an
email to publichearings@irs.gov (preferred)
or by telephone at (202) 317-6901 (not a
toll-free number) by April 3, 2025.
Statement of Availability of IRS
Documents
IRS Revenue Procedures, Revenue
Rulings notices, and other guidance cited
in this document are published in the
Internal Revenue Bulletin (or Cumula-
tive Bulletin) and are available from the
Superintendent of Documents, U.S. Gov-
ernment Publishing Office, Washington,
DC 20402, or by visiting the IRS website
at www.irs.gov.
Drafting Information
The principal authors of these proposed
regulations are Christina M. Cerasale and
Kara M. Soderstrom, of the Office of the
Associate Chief Counsel (Employee Ben-
efits, Exempt Organizations, and Employ-
ment Taxes (EEE)). However, other per-
sonnel from the Treasury Department and
the IRS participated in the development of
the proposed regulations.
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 continues to read, in part, as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Par. 2. Section 1.414(w)-1 is amended
by:
a. Revising the second sentence of
paragraph (b)(1); and
b. Adding paragraph (b)(4).
The revision and addition read as fol-
lows:
§1.414(w)-1 Permissible withdrawals
from eligible automatic contribution
arrangements.
* * * * *
(b) Eligible automatic contribution
arrangement—(1) In general. * * *
Except to the extent required under sec-
tion 414A (which applies to plan years
beginning after December 31, 2024), an
eligible automatic contribution arrange-
ment need not cover all employees who
are eligible to elect to have contributions
made on their behalf under the applicable
employer plan.
* * * * *
(4) Special rules—(i) No require-
ment to provide notice to unenrolled
participant. If the requirements of sec-
tion 414(bb)(1) are satisfied with respect
to an unenrolled participant described in
section 414(bb)(2), then the requirement
to give the notice of an employee’s rights
and obligations set forth in paragraph
(b)(3) of this section does not apply to the
participant.
(ii) Consolidation of notices. The
notice described in paragraph (b)(3) of
this section may be combined with one
or more of the notices required under sec-
tion 404(c)(5)(B), 514(e)(3), or 801(d)
(3)(A) of the Employee Retirement
Income Security Act of 1974 (Public Law
93-406, 88 Stat. 829), as amended, and
any notice required under section 401(k)
(12)(D) or (13)(E), provided that the
combined notice—
(A) Includes the required content,
(B) Clearly identifies the issues
addressed therein,
(C) Is furnished at the time and with the
frequency required for each notice,
(D) Is presented in a manner that is rea-
sonably calculated to be understood by the
average plan participant, and
(E) Does not obscure or fail to high-
light the primary information required for
each notice.
* * * * *
Par. 3. Section 1.414A-1 is added to
read as follows:
§1.414A-1 Automatic enrollment
requirements under section 414A.
(a) Overview. This section provides
rules regarding the automatic enroll-
ment requirements under section 414A.
Paragraph (b) of this section provides
that a plan that includes a qualified cash
or deferred arrangement under sec-
tion 401(k) or a salary reduction agree-
ment under section 403(b) is required to
satisfy the automatic enrollment require-
ments of paragraph (c) of this section
unless an exception described in para-
graph (d) of this section (for certain types

Bulletin No. 2025–8 833 February 18, 2025
of plans and businesses) or paragraph
(e) of this section (for a cash or deferred
arrangement or section 403(b) plan
established before December 29, 2022)
applies to the plan. The applicability date
of section 414A and the applicability date
of this section are set forth in paragraph
(f) of this section.
(b) General rule—(1) Qualified cash
or deferred arrangements. Except as pro-
vided in paragraph (d) or (e) of this section,
a cash or deferred arrangement will not
be treated as a qualified cash or deferred
arrangement described in §1.401(k)-1(a)
(4)(i) for a plan year unless the plan that
includes the arrangement provides that
any cash or deferred election under the
arrangement must satisfy the automatic
enrollment requirements of paragraph (c)
of this section.
(2) Section 403(b) plans with salary
reduction agreements. Except as pro-
vided in paragraph (d) or (e) of this sec-
tion, an annuity contract described in sec-
tion 403(b) that is purchased pursuant to
a salary reduction agreement described in
§31.3121(a)(5)-2(a)(1) (that is, an elec-
tion to reduce compensation pursuant to
a cash or deferred election as defined in
§1.401(k)-1(a)(3)) will not be treated as
purchased under a section 403(b) plan for
a plan year unless the plan provides that
any salary reduction agreement under the
plan must satisfy the automatic enrollment
requirements of paragraph (c) of this sec-
tion.
(c) Automatic enrollment require-
ments—(1) In general—(i) Arrangement
must be an eligible automatic contribution
arrangement. A cash or deferred arrange-
ment or salary reduction agreement under
a plan satisfies the automatic enrollment
requirements of this paragraph (c) only if
the plan provides for an eligible automatic
contribution arrangement (as defined in
section 414(w)(3)) that—
(A) Covers the employees described in
paragraph (c)(1)(ii) of this section, and
(B) Satisfies the additional require-
ments of paragraphs (c)(2) through (4) of
this section.
(ii) Employees covered under the eligi-
ble automatic contribution arrangement.
The employees who must be covered
by the eligible automatic contribution
arrangement are all employees in the plan
who are eligible to elect to have contribu-
tions made on their behalf under a cash or
deferred arrangement or pursuant to a sal-
ary reduction agreement.
(iii) Exception to default election
for employees with an affirmative elec-
tion. An eligible automatic contribu-
tion arrangement will not fail to satisfy
the requirements of this paragraph (c)
merely because the default election under
the arrangement does not apply to an
employee who, on the date paragraph (b)
of this section first applies to the plan that
includes the cash or deferred arrange-
ment or salary reduction agreement, had
an affirmative election in effect (that
remains in effect) to—
(A) Have contributions made on the
employee’s behalf under a cash or deferred
election or a salary reduction agreement
(in a specified amount or percentage of
compensation); or
(B) Not have contributions made on the
employee’s behalf under a cash or deferred
election or a salary reduction agreement.
(2) Arrangement must permit permis-
sive withdrawals. An eligible automatic
contribution arrangement satisfies the
requirements of this paragraph (c)(2)
only if the plan that includes the arrange-
ment provides that any employee who
has default elective contributions made
under the arrangement may elect to make
a permissible withdrawal (as defined
in section 414(w)(2) and described in
§1.414(w)-1(c)).
(3) Contribution requirements—(i)
Default election. An eligible automatic
contribution arrangement under a plan sat-
isfies the requirements of this paragraph
(c)(3) only if, under the arrangement,
the default election made on behalf of an
employee is equal to a uniform percent-
age, as described in paragraph (c)(3)(ii) of
this section, of the employee’s compensa-
tion that is subject to a cash or deferred
election or salary reduction arrangement
under the plan, unless the employee affir-
matively elects to—
(A) Have contributions made in a dif-
ferent amount on the employee’s behalf
under a cash or deferred election or a sal-
ary reduction agreement (in a specified
amount or percentage of compensation);
or
(B) Not have contributions made on the
employee’s behalf under a cash or deferred
election or a salary reduction agreement.
(ii) Uniform percentage—(A) Initial
period—(1) Initial percentage. The con-
tribution percentage under the default
election for each employee’s initial period
must be a uniform percentage that is not
less than 3 percent and not more than 10
percent.
(2) Beginning of initial period. An
employee’s initial period begins when the
employee is first eligible to elect to have
contributions made on the employee’s
behalf under the plan (or if later, when
section 414A first applies to the plan).
(3) End of initial period. The employ-
ee’s initial period ends on the last day of
the plan year that follows the plan year
that includes the date the initial period
begins.
(B) Subsequent plan years. For each
plan year beginning after an employee’s
initial period under the arrangement, the
percentage contribution under the default
election must be increased by 1 percent-
age point until the percentage is at least 10
percent. However, the percentage may not
exceed 15 percent (or the lower percent-
age specified in section 414A(b)(3)(B), if
applicable).
(iii) Exception to uniform percentage
requirement. An eligible automatic contri-
bution arrangement does not fail to satisfy
the uniform percentage requirement of
paragraph (c)(3)(ii) of this section merely
because—
(A) The percentage used for the
default election varies based on the num-
ber of years (or portions of years) since
the beginning of the initial period for an
employee;
(B) The rate of contributions under a
cash or deferred election or salary reduc-
tion agreement that is in effect for an
employee immediately prior to the date
that the default election under paragraph
(c) of this section first applies to the
employee is not reduced;
(C) The rate of contributions under
a cash or deferred election or salary
reduction agreement is limited so as not
to exceed the applicable limits of sec-
tions 401(a)(17), 401(k)(16), 402(g)
(determined with or without catch-up con-
tributions), 403(b)(16), and 415; or
(D) The default election provided
under paragraph (c)(3)(i) of this section is
not applied during the period an employee
is not permitted to have contributions

February 18, 2025 834 Bulletin No. 2025–8
made on the employee’s behalf under a
cash or deferred election or salary reduc-
tion agreement in order for the plan to
satisfy the requirements of section 414(u)
(12)(B)(ii).
(iv) Treatment of periods without
default contributions—(A) Permis-
sive redetermination of initial period
in certain situations. The uniform per-
centages described in paragraph (c)
(3)(ii) of this section are based on the
date an employee’s initial period begins.
However, if, after the employee’s ini-
tial period began, the employee did not
have default elective contributions made
for an entire plan year, then the plan is
permitted to provide that the employ-
ee’s initial period is redetermined as
described in paragraph (c)(3)(iv)(B) or
(C) of this section.
(B) Redetermination for employee who
became ineligible. If, for an entire plan
year, no default elective contributions
were made solely because the employee
was not eligible to elect to have contri-
butions made on the employee’s behalf
under a cash or deferred election or sal-
ary reduction agreement for that plan
year, then the plan is permitted to provide
that the employee’s initial period is rede-
termined so that it begins on the date the
employee is again eligible to elect to have
contributions made on the employee’s
behalf under the plan.
(C) Redetermination for employee who
remained eligible and made an affirma-
tive election. If, for an entire plan year,
no default elective contributions were
made solely because the employee made
an affirmative election to have contri-
butions made on the employee’s behalf
under a cash or deferred election or salary
reduction agreement in a different amount
(including an election not to have contri-
butions made), then the plan is permitted
to provide that the initial period is redeter-
mined so that it begins on any date spec-
ified under the plan that is later than the
date specified in paragraph (c)(3)(ii)(A)(3)
of this section.
(4) Investment requirements. An eligi-
ble automatic contribution arrangement
satisfies the requirements of this paragraph
(c)(4) only if amounts contributed pursu-
ant to the arrangement, and for which no
investment is elected by the employee, are
invested in accordance with the require-
ments of 29 CFR 2550.404c-5 (or any
successor regulations).
(d) Exceptions for certain types of
plans and businesses—(1) SIMPLE
401(k) plans. Paragraph (b) of this section
does not apply to any SIMPLE 401(k)
plan (as described in section 401(k)(11)
and §1.401(k)-4).
(2) Governmental plans. Paragraph
(b) of this section does not apply to any
governmental plan (within the meaning of
section 414(d)).
(3) Church plans. Paragraph (b) of this
section does not apply to any church plan
(within the meaning of section 414(e)).
(4) New and small businesses—(i)
New businesses. Paragraph (b) of this sec-
tion does not apply to any qualified cash
or deferred arrangement, or any annuity
contract purchased under a section 403(b)
plan, for a plan year if, as of the beginning
of the plan year, the employer maintaining
the plan (aggregated with any predecessor
employer) has been in existence for less
than 3 years.
(ii) Small businesses. Paragraph (b) of
this section does not apply to any quali-
fied cash or deferred arrangement, or
any annuity contract purchased under
a section 403(b) plan, before the first
plan year that begins at least 12 months
after the close of the first taxable year of
the employer maintaining the plan with
respect to which that employer normally
employed more than 10 employees. For
this purpose, the number of employees
that the employer normally employs for a
taxable year is determined using the rules
of Q&A-5 of §54.4980B-2 of this chapter.
(iii) Applicability to multiple employer
plans. In the case of a multiple employer
plan, the exceptions provided in para-
graphs (d)(4)(i) and (ii) of this section
apply on an employer-by-employer basis.
(iv) Example—(A) Facts. Employer Q has been
in existence since July 1, 2026, and does not have a
predecessor employer. Employer Q maintains Plan
X, which has a plan year that is the calendar year and
includes a cash or deferred arrangement. Plan X was
effective on January 1, 2027, and provides that a cash
or deferred election must be an affirmative election.
Employee M, who became eligible to elect to have
contributions made on Employee M’s behalf under
Plan X on January 1, 2027, made an affirmative
election not to have elective contributions made on
Employee M’s behalf and that affirmative election is
in effect on January 1, 2030. Employee N, who also
became eligible to elect to have contributions made
on Employee N’s behalf under Plan X on January
1, 2027, has not made any election to have (or not
have) contributions made on Employee N’s behalf
under Plan X. Effective January 1, 2030, Plan X is
amended to include an eligible automatic contribu-
tion arrangement that satisfies the requirements of
paragraphs (c)(2) through (4) of this section. The
amendment provides that an employee who has a
cash or deferred election that is an affirmative elec-
tion and is in effect on January 1, 2030, is not subject
to the default election under the eligible automatic
contribution arrangement that is included in Plan X.
(B) Analysis and Conclusion. Because the excep-
tion for new businesses set forth in paragraph (d)(4)(i)
of this section ceases to apply to Plan X for plan years
beginning on or after January 1, 2030, paragraph (b)
of this section first applies to Plan X as of that date.
Pursuant to paragraph (c)(1)(iii) of this section, the
eligible automatic contribution arrangement required
to be included in Plan X for plan years beginning on
January 1, 2030, does not fail to satisfy the require-
ments of paragraph (c) of this section merely because
the default election under the arrangement does not
apply to Employee M as a result of Employee M’s
affirmative election. However, Plan X does not satisfy
the requirements of section 414A unless the default
election in paragraph (c)(3) of this section applies to
Employee N because of the absence of an affirmative
election made by Employee N to have elective contri-
butions made on Employee N’s behalf in a different
amount (or to not have elective contributions made on
Employee N’s behalf).
(e) Exception for plans established
before the enactment of section 414A—(1)
In general. Subject to the rules of appli-
cation in paragraphs (e)(2) through (6) of
this section, paragraph (b) of this section
does not apply to—
(i) Any plan that includes a qualified
cash or deferred arrangement if the plan
terms providing for the qualified cash or
deferred arrangement were adopted ini-
tially before December 29, 2022 (the date
of the enactment of section 414A), even
if the plan terms providing for the cash or
deferred arrangement are effective after
that date, or
(ii) Any section 403(b) plan adopted
initially before December 29, 2022,
without regard to the date of adoption of
plan terms providing for salary reduction
agreements.
(2) Merger of plans established before
the enactment of section 414A—(i) Gen-
eral rule. If two plans described in para-
graph (e)(1)(i) of this section are merged,
then the merged plan will be treated as
a plan described in paragraph (e)(1)(i)
of this section. Similarly, if two sec-
tion 403(b) plans described in paragraph
(e)(1)(ii) of this section are merged, then
the merged plan will be treated as a sec-
tion 403(b) plan described in paragraph
(e)(1)(ii) of this section.

Bulletin No. 2025–8 835 February 18, 2025
(ii) Effect of merger of multiple
employer plans on participating employ-
ers. If either of the plans described in para-
graph (e)(2)(i) of this section are multiple
employer plans, then the merger will not
affect whether the merged plan is treated
as a plan described in paragraph (e)(1) of
this section with respect to any employer
that maintained the multiple employer
plan prior to the merger.
(3) Merger of a plan established on or
after the enactment of section 414A with
a plan established before the enactment
of section 414A—(i) General rule—(A)
Section 401(k) plans. Except as provided
in paragraphs (e)(3)(ii), (iii), and (4)(ii)
of this section, if a plan that includes a
cash or deferred arrangement and that is
not described in paragraph (e)(1)(i) of this
section is merged with a plan described in
paragraph (e)(1)(i) of this section, then the
merged plan will not be treated as a plan
described in paragraph (e)(1)(i) of this
section.
(B) Section 403(b) plans. Except as
provided in paragraphs (e)(3)(ii), (iii), and
(4)(ii) of this section, if a section 403(b)
plan that is not described in paragraph (e)
(1)(ii) of this section is merged with a plan
described in paragraph (e)(1)(ii) of this
section, then the merged plan will not be
treated as a plan described in paragraph
(e)(1)(ii) of this section.
(ii) Exception for certain transac-
tions. A plan that is maintained by a sin-
gle employer and described in paragraph
(e)(1) of this section will continue to be
treated as described in paragraph (e)(1)
of this section after a merger described in
paragraph (e)(3)(i) of this section, if—
(A) There is a transaction described in
§1.410(b)-2(f),
(B) The plan described in paragraph
(e)(1) of this section is designated as the
ongoing plan, and
(C) The plan merger occurs within
the transition period described in sec-
tion 410(b)(6)(C)(ii).
(iii) Applicability to multiple employer
plans—(A) Applicability of exception for
certain transactions involving a merger
into a multiple employer plan. In the case
of a merger of a plan that is not a multiple
employer plan and not described in para-
graph (e)(1) of this section into a multiple
employer plan that is designated as the ongo-
ing plan, paragraph (e)(3)(ii) of this section
applies even though the ongoing plan is a
multiple employer plan and without regard
to whether that plan is a plan described in
paragraph (e)(1) of this section, provided
that prior to the transaction described in
paragraph (e)(3)(ii)(A) of this section, the
multiple employer plan was treated as a
plan described in paragraph (e)(1) of this
section with respect to the employer that
maintained the multiple employer plan and
engaged in the transaction.
(B) Merger of multiple employer plans.
If both of the plans described in para-
graph (e)(3)(i) of this section are multi-
ple employer plans, then the exception in
paragraph (e)(3)(ii) of this section does not
apply. In such a case, the merger will not
affect whether the merged plan is treated
as a plan described in paragraph (e)(1) of
this section with respect to any employer
that maintained either multiple employer
plan prior to the merger.
(4) Treatment of adoption of, or merger
with, a multiple employer plan—(i) In
general. If, after December 29, 2022, an
employer adopts a multiple employer plan,
then, with respect to that employer, the mul-
tiple employer plan will not be treated as a
plan described in paragraph (e)(1) of this
section. The same treatment will apply if
the employer maintains a plan other than a
multiple employer plan that is merged with
a multiple employer plan after December
29, 2022, unless the merger is described in
paragraph (e)(3)(iii) of this section.
(ii) Exception for mergers involving
plans established before the enactment of
section 414A. Paragraph (e)(4)(i) of this
section does not apply if the plan that is
merged into the multiple employer plan is
a plan described in paragraph (e)(1) of this
section. Thus, if the employer maintains a
plan described in paragraph (e)(1) of this
section that is merged into the multiple
employer plan after December 29, 2022,
then the multiple employer plan will be
treated as a plan described in paragraph
(e)(1) of this section with respect to that
employer.
(iii) Effect on other participating
employers. Neither an adoption nor a
merger described in paragraph (e)(4)(i)
or (ii) of this section affects whether the
multiple employer plan is treated as a plan
described in paragraph (e)(1) of this sec-
tion with respect to any other employer
maintaining the plan.
(5) Plan spin-off. If a portion of a plan
described in paragraph (e)(1) of this sec-
tion is spun off from that plan, the result-
ing spun-off plan will be treated as a plan
described in paragraph (e)(1) of this sec-
tion if either—
(i) The plan from which the spin-off
occurred was not a multiple employer
plan, or
(ii) The plan from which the spin-off
occurred was a multiple employer plan
that was treated as described in paragraph
(e)(1) of this section with respect to the
employer maintaining the spun-off plan.
(6) Other plan amendments—(i) Treat-
ment of amendments to a plan established
before the enactment of section 414A. A plan
described in paragraph (e)(1) of this section
will not fail to be described in paragraph
(e)(1) of this section merely because the
plan is amended, provided that the amend-
ment is not an amendment relating to an
action described in paragraph (e)(2), (3), or
(4) of this section. The preceding sentence
applies even if the amendment expands eli-
gibility to participate in the cash or deferred
arrangement, or to enter into a salary
reduction agreement, to other employees
of the employer that maintains the plan or
to employees of another employer that is
aggregated with the employer that maintains
the plan under section 414(b), (c), or (m).
(ii) Mergers with plans that do not
include cash or deferred arrangements
or salary reduction agreements. If an
employer maintains a plan that is described
in paragraph (e)(1) of this section and that
plan is merged with a plan that does not
include a cash or deferred arrangement or
permit a salary reduction agreement, then
the merged plan will continue to be a plan
described in paragraph (e)(1) of this sec-
tion after the merger.
(7) Examples. The following examples
illustrate the application of this paragraph
(e). For purposes of the examples, each
plan is maintained on a calendar-year basis,
includes a cash or deferred arrangement
that was adopted on the same date that the
plan was adopted, and is not a SIMPLE
401(k) plan, governmental plan, or church
plan. These examples assume that this sec-
tion applies for plan years beginning on or
after January 1, 2026, and, unless otherwise
specifically provided, any plan merger does
not occur in connection with a transaction
described in §1.410(b)-2(f).

February 18, 2025 836 Bulletin No. 2025–8
(i) Example 1—(A) Facts. Plan A, which is
maintained by a single employer, Employer R,
was adopted on January 1, 2021. Plan B, which is
maintained by a single employer, Employer S, was
adopted on January 1, 2025. On July 1, 2026, Plan
A is merged with Plan B, and Plan A is the surviving
plan in the merger.
(B) Analysis and Conclusion. The merger is a
merger of a plan described in paragraph (e)(1)(i)
of this section with a plan that is not described
in paragraph (e)(1)(i) of this section and is not a
merger described in paragraph (e)(3)(ii) or (4) of
this section. Under paragraph (e)(3)(i)(A) of this
section, Plan A will no longer be a plan described in
paragraph (e)(1)(i) of this section and will be sub-
ject to paragraph (b) of this section after the merger
(unless an exception described in paragraph (d)(4)
of this section, relating to new or small businesses,
applies to Employer R).
(ii) Example 2—(A) Facts. The facts are the
same as in paragraph (e)(7)(i) of this section (Exam-
ple 1), except that there is an acquisition described
in §1.410(b)-2(f), and the plan merger occurs within
the transition period described in section 410(b)(6)
(C)(ii).
(B) Analysis and Conclusion. The merger satis-
fies the requirements of paragraph (e)(3)(ii) of this
section. Accordingly, Plan A will continue to be
excepted from paragraph (b) of this section as a plan
described in paragraph (e)(1)(i) of this section after
the merger.
(iii) Example 3—(A) Facts. Plan C, a multiple
employer plan, was established on January 1, 2021.
Plan D, a plan maintained by Employer T that is not
a multiple employer plan, was adopted on January
1, 2024. Plan D merges with Plan C on Decem-
ber 31, 2024.
(B) Analysis and Conclusion. The merger
is described in paragraph (e)(4)(i) of this sec-
tion and because Plan D is not a plan described
in paragraph (e)(1)(i) of this section, the merger
is not excepted under paragraph (e)(4)(ii) of this
section. Similarly, because there was no transac-
tion described in §1.410(b)-2(f), the merger is not
described in paragraph (e)(3)(iii) of this section.
Accordingly, with respect to Employer T, Plan C
will not be a plan described in paragraph (e)(1)(i)
of this section and will be subject to paragraph (b)
of this section after the merger (unless an excep-
tion described in paragraph (d)(4) of this section,
relating to new or small businesses, continues to
apply to Employer T). However, under paragraph
(e)(4)(iii) of this section, the merger does not
affect whether Plan C is treated as a plan described
in paragraph (e)(1)(i) of this section with respect
to any other employers.
(iv) Example 4—(A) Facts. Plan E, a plan main-
tained by Employer U that is not a multiple employer
plan, was adopted on January 1, 2021. Plan F, a mul-
tiple employer plan, was established on January 1,
2024. Plan E merges with Plan F on December 31,
2024.
(B) Analysis and Conclusion. Under paragraph
(e)(4)(ii) of this section, the portion of Plan F that
applies with respect to Employer U will continue
to be excepted from paragraph (b) of this section as
a plan described in paragraph (e)(1)(i) of this sec-
tion after the merger. However, under paragraph (e)
(4)(iii) of this section, the merger does not affect
whether Plan F is treated as a plan described in para-
graph (e)(1)(i) of this section with respect to any
other employers.
(v) Example 5—(A) Facts. Plan G, a plan main-
tained by Employer V that is not a multiple employer
plan, was adopted on January 1, 2021. Plan G is
amended, effective January 1, 2026, to add an addi-
tional participating employer, a subsidiary that is 100
percent owned by Employer V.
(B) Analysis and Conclusion. Because the
expansion of eligibility is not an amendment relat-
ing to an action described in paragraph (e)(2), (3),
or (4) of this section, Plan G will continue to be
excepted from paragraph (b) of this section as a
plan described in paragraph (e)(1)(i) of this section
after the amendment pursuant to paragraph (e)(6)(i)
of this section.
(vi) Example 6—(A) Facts. Plan J, a multiple
employer plan, was established on January 1, 2021.
Employer W adopts Plan J on January 1, 2022.
Effective January 1, 2026, the assets and account
balances attributable to the employees of Employer
W are spun off to form a new plan, Plan K, main-
tained solely by Employer W.
(B) Analysis and Conclusion. Under paragraph
(e)(5)(ii) of this section, Plan K will be excepted
from paragraph (b) of this section as a plan described
in paragraph (e)(1)(i) of this section.
(f) Applicability dates—(1) Statutory
applicability date. Section 414A applies
to plan years beginning after December
31, 2024.
(2) Regulatory applicability date. This
section applies to plan years beginning
after [DATE SIX MONTHS AFTER
DATE OF PUBLICATION OF FINAL
RULE]. For earlier plan years, a plan
is treated as having complied with sec-
tion 414A if the plan complies with a rea-
sonable, good faith interpretation of sec-
tion 414A.
Douglas W. O’Donnell,
Deputy Commissioner.
(Filed by the Office of the Federal Register January
10, 2025, 8:45 a.m., and published in the issue of the
Federal Register for January 14, 2025, 90 FR 3092)
Notice of Proposed
Rulemaking
Catch-Up Contributions
REG-101268-24
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing and notice of public hearing.
SUMMARY: This document sets forth
proposed regulations that would provide
guidance for retirement plans that permit
participants who have attained age 50 to
make additional elective deferrals that
are catch-up contributions. The proposed
regulations reflect statutory changes made
by the SECURE 2.0 Act of 2022, includ-
ing the requirement that catch-up contri-
butions made by certain catch-up eligi-
ble participants must be designated Roth
contributions. The proposed regulations
would affect participants in, beneficiaries
of, employers maintaining, and adminis-
trators of certain retirement plans. This
document also provides notice of a public
hearing.
DATES: Written or electronic comments
must be received by March 14, 2025. A
public hearing on this proposed regulation
has been scheduled for April 7, 2025, at 10
a.m. ET. Requests to speak and outlines of
topics to be discussed at the public hear-
ing must be received by March 14, 2025.
If no outlines are received by March 14,
2025, the public hearing will be cancelled.
Requests to attend the public hearing must
be received by 5 p.m. on April 3, 2025.
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically via the Federal eRulemak-
ing Portal at www.regulations.gov (indi-
cate IRS and REG-101268-24) by follow-
ing the online instructions for submitting
comments. Requests for a public hearing
must be submitted as prescribed in the
“Comments and Public Hearing” section.
Once submitted to the Federal eRulemak-
ing Portal, comments cannot be edited or
withdrawn. The Department of the Trea-
sury (Treasury Department) and the IRS
will publish for public availability any
comment submitted electronically or on
paper to its public docket on www.regu-
lations.gov. Send paper submissions to:
CC:PA:01:PR (REG-101268-24), Room
5203, Internal Revenue Service, P.O. Box
7604, Ben Franklin Station, Washington,
DC 20044.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed

Bulletin No. 2025–8 837 February 18, 2025
regulations, call Jessica S. Weinberger
at (202) 317-6349 or Jason E. Levine at
(202) 317-4117; concerning submission
of comments, the hearing, and the access
code to attend the hearing by telephone,
call the Publications and Regulations Sec-
tion at (202) 317-6901 (not toll-free num-
bers) or email publichearings@irs.gov
(preferred).
SUPPLEMENTARY INFORMATION:
Authority
This notice of proposed rulemaking sets
forth proposed amendments to the Income
Tax Regulations (26 CFR part 1) under
sections 401(k), 403(b), and 414(v) of the
Internal Revenue Code (Code) relating to
catch-up contributions. These proposed
regulations are issued by the Secretary of
the Treasury or the Secretary’s delegate
(Secretary) under the express delegations
of authority in sections 401(m)(9), 414(v)
(7)(D), and 7805(a) of the Code.
Section 401(m)(9) provides, in part,
that “[t]he Secretary shall prescribe such
regulations as may be necessary to carry
out the purposes of this subsection and
subsection (k).” Section 414(v)(7)(D)
provides a specific delegation of authority
with respect to the requirements of section
414(v)(7)(A), stating, “[t]he Secretary
may provide by regulations that an eli-
gible participant may elect to change the
participant’s election to make additional
elective deferrals if the participant’s com-
pensation is determined to exceed the lim-
itation under subparagraph (A) after the
election is made.” Section 7805(a) pro-
vides that “the Secretary shall prescribe
all needful rules and regulations for the
enforcement of [the Code], including all
rules and regulations as may be necessary
by reason of any alteration of law in rela-
tion to internal revenue.”
Background
This notice of proposed rulemaking
sets forth proposed amendments to the
Income Tax Regulations under section
414(v) of the Code. Section 414(v) per-
mits a plan to allow catch-up eligible
participants to make additional elective
deferrals that are catch-up contributions
and sets forth requirements relating to
those contributions. These proposed reg-
ulations would amend the regulations
under section 414(v) to reflect changes
to the catch-up contribution requirements
for certain catch-up eligible participants
pursuant to sections 109, 117, and 603 of
Division T of the Consolidated Appropria-
tions Act, 2023, Public Law 117-328, 136
Stat. 4459 (2022), known as the SECURE
2.0 Act of 2022 (SECURE 2.0 Act).
This document also proposes conform-
ing amendments to the regulations under
sections 401(k) and 403(b) of the Code
that reflect section 603 of the SECURE
2.0 Act.
I. Statutory and Regulatory Framework
Section 414(v)(1) of the Code pro-
vides that an applicable employer plan
will not be treated as failing to meet any
requirement of the Code solely because
it permits an eligible participant to make
additional elective deferrals (as defined
in section 414(v)(6)(B)) in any plan year.
“Applicable employer plan” is defined in
section 414(v)(6)(A) to mean a qualified
plan under section 401(a) (qualified plan),
a plan under which amounts are con-
tributed by an individual’s employer for
an annuity contract described in section
403(b) (section 403(b) plan), an eligible
deferred compensation plan under section
457 of an eligible employer described in
section 457(e)(1)(A) (eligible governmen-
tal 457(b) plan),
1
an arrangement meeting
the requirements of section 408(k) (SEP
arrangement), or an arrangement meeting
the requirements of section 408(p) (SIM-
PLE IRA plan). Under section 414(v)
(5), an eligible participant is a participant
who is generally eligible to make elective
deferrals under an applicable employer
plan and who would attain age 50 by the
end of the taxable year, with respect to
whom no further elective deferrals may
(without regard to section 414(v)) be
made to the plan for the plan year (or other
applicable year) by reason of a limitation
or restriction listed in section 414(v)(3)
or a comparable limitation or restriction
included in the terms of the plan.
Under section 414(v)(2)(A), the
amount of additional elective deferrals
that a plan may permit a participant to
make pursuant to section 414(v)(1) for a
taxable year is limited to the lesser of: (1)
the applicable dollar amount under section
414(v)(2)(B) (referred to as the applicable
dollar catch-up limit), and (2) the excess
(if any) of the participant’s compensation
(as defined in section 415(c)(3)) for the
year over any other elective deferrals of
the participant for such year that are made
without regard to section 414(v). Section
414(v)(2)(B)(i) provides the applicable
dollar catch-up limit for an applicable
employer plan other than a plan described
in section 401(k)(11) (SIMPLE 401(k)
plan) or a SIMPLE IRA plan. Section
414(v)(2)(B)(ii) provides the applicable
dollar catch-up limit for a SIMPLE 401(k)
plan or a SIMPLE IRA plan (collectively
referred to as SIMPLE plans). Section
414(v)(2)(C) provides that the applica-
ble dollar catch-up limits under section
414(v)(2)(B)(i) and (ii) are subject to
annual adjustment based on changes in the
cost of living. Section 414(v)(2)(D) pro-
vides that, for purposes of section 414(v)
(2), all applicable employer plans, other
than eligible governmental 457(b) plans,
that are maintained by the same employer
(as determined under section 414(b), (c),
(m), or (o)) are treated as a single plan,
and all eligible governmental 457(b) plans
that are maintained by the same employer
are treated as a single plan.
Under section 414(v)(3)(A)(i), a
catch-up contribution is not, with respect
to the year in which the contribution is
made, subject to certain otherwise applica-
ble limitations, including those contained
in section 401(a)(30) (limiting a partici-
pant’s elective deferrals during a calendar
year to the amount permitted under sec-
tion 402(g)), section 403(b) (including
the requirement under section 403(b)(1)
(E) that a contract purchased under a sal-
ary reduction agreement must meet the
requirements of section 401(a)(30)), and
section 457(b)(2) (limiting a participant’s
1
Section 414(v)(6)(C) provides that section 414(v) does not apply to a participant in an eligible governmental 457(b) plan for any year for which a higher limitation applies to the participant
under section 457(b)(3).

February 18, 2025 838 Bulletin No. 2025–8
elective deferrals for a taxable year, deter-
mined without regard to any increase to
the limitation under section 457(b)(3), to
the applicable dollar amount in section
457(e)(15)). Under section 414(v)(3)(B),
catch-up contributions are excluded from
consideration for purposes of certain non-
discrimination tests.
Section 414(v)(4) provides that an
applicable employer plan is treated as
failing to meet the nondiscrimination
requirements under section 401(a)(4) with
respect to benefits, rights, and features
unless the plan allows all catch-up eligi-
ble participants to make the same election
with respect to catch-up contributions. For
purposes of section 414(v)(4), all plans
maintained by employers who are treated
as a single employer under section 414(b),
(c), (m), or (o) are treated as one plan
(with the exception of a plan described in
section 410(b)(6)(C)(i) for the duration of
the transition period described in section
410(b)(6)(C)(ii) with respect to that plan).
Section 414(v) was added to the Code
by section 631 of the Economic Growth
and Tax Relief Reconciliation Act of
2001, Public Law 107-16, 115 Stat. 38,
and the Treasury Department and the IRS
issued comprehensive regulations under
section 414(v) in 2003 (TD 9072, 68 FR
40510). Subsequently, provisions relating
to catch-up contributions under section
414(v) were incorporated into regulations
under sections 401(k), 403(b), and 457(b).
II. SECURE 2.0 Act Changes to Section
414(v)
A. Section 109 of the SECURE 2.0 Act
For a taxable year beginning after
December 31, 2024, section 109 of the
SECURE 2.0 Act amends section 414(v)
(2) of the Code to increase the applicable
dollar catch-up limit under section 414(v)
(2)(B)(i) and (ii) in the case of a catch-up
eligible participant who attains age 60, 61,
62, or 63 during the taxable year. For such
a participant in an applicable employer
plan other than a SIMPLE plan, the
increased applicable dollar catch-up limit
is 150 percent of the otherwise applicable
dollar catch-up limit under section 414(v)
(2)(B)(i) in effect for 2024. For such a par-
ticipant in a SIMPLE plan, the increased
applicable dollar catch-up limit is 150
percent of the otherwise applicable dollar
catch-up limit under section 414(v)(2)(B)
(ii) in effect for 2025. In either case, for a
year beginning after December 31, 2025,
the increased applicable dollar catch-up
limit is subject to adjustment to reflect
changes in the cost of living, in accor-
dance with the last sentence of section
414(v)(2)(C).
B. Section 117 of the SECURE 2.0 Act
A SIMPLE plan is an alternative plan
design under which employees of an eligi-
ble employer as defined in section 408(p)
(2)(C)(i) (that is, generally, an employer
that had no more than 100 employees who
received at least $5,000 of compensation
from the employer for the preceding cal-
endar year) are permitted to elect to have
salary reduction contributions (or elective
contributions, in the case of a SIMPLE
401(k) plan) made on their behalf.
2
Among
other things, section 117 of the SECURE
2.0 Act amends section 414(v)(2) of the
Code to increase the applicable dollar
catch-up limit under section 414(v)(2)(B)
(ii) for SIMPLE plans sponsored by cer-
tain eligible employers who are described
in section 408(p)(2)(E)(iv).
3
The increased
applicable dollar catch-up limit is available
automatically to a SIMPLE plan sponsored
by an eligible employer described in sec-
tion 408(p)(2)(E)(iv) that had no more than
25 employees who received at least $5,000
of compensation from the employer for
the preceding calendar year. Other eligi-
ble employers described in section 408(p)
(2)(E)(iv) may make an election for the
increased applicable dollar catch-up limit
to apply and, if the election is made, the
employer must make additional matching
or nonelective contributions.
The increased applicable dollar
catch-up limit, which applies to taxable
years beginning after December 31, 2023,
is 110 percent of the otherwise applicable
dollar catch-up limit under section 414(v)
(2)(B)(ii) for calendar year 2024. For a
year beginning after December 31, 2024,
the increased applicable dollar catch-up
limit is subject to adjustment to reflect
changes in the cost of living, in accor-
dance with section 414(v)(2)(C)(ii).
C. Section 603 of the SECURE 2.0 Act
Section 603(a) of the SECURE 2.0 Act
amends section 414(v) of the Code to add
section 414(v)(7). Section 414(v)(7)(A)
sets forth the requirement that catch-up
contributions made by certain catch-up
eligible participants must be designated
Roth contributions (the Roth catch-up
requirement). Specifically, under section
414(v)(7)(A), in the case of a catch-up eli-
gible participant whose wages as defined
in section 3121(a) (that is, wages for pur-
poses of the Federal Insurance Contribu-
tions Act (FICA), codified at subtitle C,
chapter 21 of the Code, or FICA wages)
for the preceding calendar year from the
employer sponsoring the plan exceeded
$145,000, section 414(v)(1) applies only
if any catch-up contributions made by the
participant are designated Roth contribu-
tions (as defined in section 402A(c)(1)).
Section 414(v)(7)(B) provides that, in
the case of an applicable employer plan
with respect to which section 414(v)(7)
(A) applies to any participant for a plan
year, section 414(v)(1) does not apply to
the plan unless the plan provides that any
catch-up eligible participant may make
catch-up contributions as designated Roth
contributions.
Section 414(v)(7)(C) provides that
section 414(v)(7)(A) does not apply to
SEP arrangements or SIMPLE IRA plans.
Under section 414(v)(7)(D), regulations
may provide that a catch-up eligible par-
ticipant may elect to change the partici-
pant’s election to make catch-up contribu-
tions if the participant’s compensation is
determined to exceed the wage limitation
under section 414(v)(7)(A) (Roth catch-up
2
The annual limit on salary reduction contributions or elective contributions is lower for SIMPLE plans than for other types of plans. However, SIMPLE plans are not subject to nondiscrim-
ination testing, and the employer must make certain contributions.
3
An eligible employer is described in section 408(p)(2)(E)(iv) if, during the three-taxable-year period preceding the first year that the employer maintained the SIMPLE plan, the employer
(including any member of the employer’s controlled group or any predecessor of the employer or member of its controlled group) has not established or maintained a qualified plan, a section
403(a) annuity plan, or a section 403(b) plan under which contributions were made or benefits were accrued for substantially the same employees as are eligible to participate in the SIMPLE
plan. See Q&A E-1 in Notice 2024-2, 2024-2 IRB 316.

Bulletin No. 2025–8 839 February 18, 2025
wage threshold) after the election is made.
Under section 414(v)(7)(E), for tax-
able years beginning after December 31,
2024, the Roth catch-up wage threshold is
adjusted for changes in the cost of living.
Section 603(b) of the SECURE 2.0 Act
includes conforming amendments with
respect to section 603(a). Section 603(b)
(1) of the SECURE 2.0 Act strikes section
402(g)(1)(C) of the Code. Prior to its elimi-
nation, section 402(g)(1)(C) provided that a
catch-up eligible participant’s gross income
did not include elective deferrals in excess
of the applicable dollar amount under sec-
tion 402(g)(1)(B) to the extent that the
amount of those elective deferrals did not
exceed the applicable dollar catch-up limit
under section 414(v)(2)(B)(i) for the tax-
able year (without regard to the treatment
of the elective deferrals by an applicable
employer plan under section 414(v)).
Section 603(b)(2) of the SECURE 2.0
Act amends section 457(e)(18)(A)(ii) of
the Code and, pursuant to this amendment,
a portion of the catch-up contributions
made to an eligible governmental 457(b)
plan in accordance with section 457(b)
(3) and (e)(18) by a catch-up eligible indi-
vidual for the last three taxable years end-
ing before the individual attains normal
retirement age must be designated Roth
contributions. The portion that is subject
to this Roth requirement is the amount by
which the applicable dollar catch-up limit
under section 414(v)(2)(B)(i) exceeds the
maximum permitted contribution set forth
in section 457(b)(3) (determined without
regard to section 457(e)(18)).
Under section 603(c) of the SECURE
2.0 Act, the amendments made by section
603 of the SECURE 2.0 Act apply to tax-
able years beginning after December 31,
2023.
III. Notice 2023-62
In August 2023, the Treasury Depart-
ment and the IRS issued Notice 2023-62,
2023-37 IRB 817. Notice 2023-62 clar-
ifies that, despite the elimination of sec-
tion 402(g)(1)(C) of the Code under sec-
tion 603(b)(1) of the SECURE 2.0 Act,
applicable employer plans may, for tax-
able years beginning after December 31,
2023, continue to permit catch-up eligible
participants to make elective deferrals
that exceed the applicable dollar amount
under section 402(g)(1)(B) of the Code
(or deferrals that exceed the applicable
dollar amount under section 457(e)(15)) if
those contributions in excess of the appli-
cable dollar amount satisfy the require-
ments for catch-up contributions under
section 414(v). In addition, pursuant to
Notice 2023-62, the first two taxable years
beginning after December 31, 2023, are
regarded as an administrative transition
period with respect to the Roth catch-up
requirement. During the administrative
transition period, catch-up contributions
made by a participant who is subject to the
Roth catch-up requirement will be treated
as satisfying the requirements of section
414(v)(7)(A), even if the contributions are
not designated Roth contributions.
Notice 2023-62 also summarizes antic-
ipated guidance from the Treasury Depart-
ment and the IRS with respect to the imple-
mentation of section 603 of the SECURE
2.0 Act as follows: (1) the Roth catch-up
requirement would not apply in the case of
a catch-up eligible participant who did not
have FICA wages for the preceding cal-
endar year from the employer sponsoring
the plan; (2) in the case of a catch-up eligi-
ble participant who is subject to the Roth
catch-up requirement, a plan administra-
tor and an employer would be permitted to
treat an election by the participant to make
catch-up contributions on a pre-tax basis
as an election by the participant to make
catch-up contributions that are designated
Roth contributions; and (3) a catch-up
eligible participant’s FICA wages for
the preceding calendar year from one
participating employer in an applicable
employer plan that is maintained by more
than one employer (including a multiem-
ployer plan) would not be aggregated with
the participant’s FICA wages for the pre-
ceding calendar year from another partic-
ipating employer in the plan for purposes
of determining whether the participant’s
FICA wages for that year exceeded the
Roth catch-up wage threshold. The notice
requested comments with respect to the
anticipated guidance summarized in the
notice, additional matters under consid-
eration relating to a plan without a quali-
fied Roth contribution program, and, more
generally, the provisions of section 603 of
the SECURE 2.0 Act.
Explanation of Provisions
I. Amendments to Regulations Under
Sections 401(k) and 403(b) – Deemed
Roth Catch-up Election
Section 414(v)(7)(A) of the Code pro-
vides that in the case of a participant who
is subject to the Roth catch-up require-
ment, section 414(v)(1) applies only if any
catch-up contributions made by the partic-
ipant are designated Roth contributions
made pursuant to the participant’s elec-
tion. Notice 2023-62 requested comments
on anticipated future guidance expected to
permit plan administrators and employ-
ers to treat an election by a participant
to make catch-up contributions on a pre-
tax basis as an election to make catch-up
contributions as designated Roth contri-
butions if the participant is subject to the
Roth catch-up requirement. All comments
received were in favor of this approach.
Accordingly, proposed §1.401(k)-1(f)
(5)(iii) would permit a plan to provide, for
taxable years beginning after December
31, 2023, that a participant who is sub-
ject to the Roth catch-up requirement is
deemed to have irrevocably designated
any catch-up contributions as designated
Roth contributions in accordance with
the requirements of §1.401(k)-1(f)(1)(i).
Under the proposed regulation, a plan that
provides for such a deemed Roth catch-up
election would be required, as is the case
for any other designated Roth contribu-
tion, to: (1) treat catch-up contributions
subject to the deemed Roth catch-up
election as not excludible from the par-
ticipant’s gross income, and (2) maintain
the catch-up contributions in a designated
Roth account. A plan would be permitted
to provide for a deemed Roth catch-up
election without regard to whether it
requires separate elections for elective
deferrals that are not catch-up contribu-
tions and for additional elective deferrals
that are catch-up contributions or uses a
spillover design.
4
However, in accordance
4
Under a spillover design, a participant who would attain age 50 by the end of the taxable year makes one election with respect to elective deferrals for a plan year and, after the participant’s
elective deferrals reach a Code or plan limitation on elective deferrals that are not catch-up contributions, additional elective deferrals automatically begin counting toward the applicable
dollar catch-up limit under section 414(v)(2).

February 18, 2025 840 Bulletin No. 2025–8
with section 414(v)(7)(D), the application
of a deemed Roth catch-up election to a
participant would be conditioned, under
proposed §1.401(k)-1(f)(5)(iv), on the
participant having an effective opportu-
nity (determined based on all of the rel-
evant facts and circumstances, in accor-
dance with §1.401(k)-1(e)(2)(ii)) to make
a new election that is different than the
deemed election. For example, under the
proposed regulation, a plan would need to
permit a participant subject to a deemed
Roth catch-up election to elect to cease
making additional elective deferrals.
The proposed amendments to
§1.403(b)-3(c)(1) would incorporate pro-
posed §1.401(k)-1(f)(5)(iii) and (iv), so
that a section 403(b) plan would be per-
mitted to include a deemed Roth catch-up
election, subject to the requirement to
provide a participant subject to a deemed
catch-up election with the effective oppor-
tunity to make a different election. This
amendment would be part of a broader
incorporation of all of §1.401(k)-1(f)(3)
and (5) into the rules relating to designated
Roth contributions under section 403(b)
plans; the incorporation of §1.401(k)-1(f)
(3), (f)(5)(i), and (f)(5)(ii) is not a substan-
tive legal change, as these provisions were
previously applicable with respect to sec-
tion 403(b) plans.
5
II. Proposed Revisions to §1.414(v)-1
A. Overview
The proposed revisions and additions to
§1.414(v)-1 would mainly reflect changes
made by sections 109 and 117 of the
SECURE 2.0 Act. In particular, the revi-
sions to §1.414(v)-1 would: (1) reflect the
increased applicable dollar catch-up limits
permitted under sections 109 and 117 of
the SECURE 2.0 Act (along with updated
cost-of-living adjustments), and (2) clar-
ify the application of the universal avail-
ability requirement under Code section
414(v)(4) to an applicable employer plan
that permits certain catch-up eligible par-
ticipants to make catch-up contributions
in an amount equal to the increased appli-
cable dollar catch-up limit for participants
attaining age 60 through 63. In addition,
a provision would be added to the gen-
eral rules under §1.414(v)-1(a) indicating
that the rules relating to the Roth catch-up
requirement under section 414(v)(7) can
be found in proposed §1.414(v)-2.
B. Increased applicable dollar catch-up
limit during the year of attainment of age
60 through 63 under section 109 of the
SECURE 2.0 Act
Current §1.414(v)-1(c)(2)(i) sets forth
the applicable dollar catch-up limit that
applies to all catch-up eligible participants
in an applicable employer plan that is not
a SIMPLE plan. The proposed regulations
would retain that rule (other than the pro-
visions applicable to taxable years begin-
ning in calendar years before 2006) and
would note the existence of a higher limit
for individuals attaining age 60 through 63
set forth in proposed §1.414(v)-1(c)(2)(i)
(B). Specifically, proposed §1.414(v)-1(c)
(2)(i)(B) sets forth the increased applica-
ble dollar catch-up limit that would apply
for a taxable year beginning after 2024
with respect to a catch-up eligible partici-
pant in an applicable employer plan other
than a SIMPLE plan who would attain
age 60, 61, 62, or 63 on the participant’s
birthday occurring during the taxable year.
The increased applicable dollar catch-up
limit under proposed §1.414(v)-1(c)(2)(i)
(B) is 150 percent of the applicable dollar
catch-up limit that applies during a taxable
year beginning in 2024 (that is, $11,250,
which is 150 percent of $7,500), adjusted
for changes in the cost of living.
Similarly, current §1.414(v)-1(c)(2)(ii)
sets forth the applicable dollar catch-up
limit that applies to all catch-up eligi-
ble participants in a SIMPLE plan. The
proposed regulations would retain those
provisions (other than the provisions
applicable to taxable years beginning in
calendar years before 2006) and would
note the existence of a higher limit for
individuals attaining age 60 through 63
set forth in proposed §1.414(v)-1(c)(2)
(ii)(B) (and a higher limit for partici-
pants in certain SIMPLE plans set forth
in proposed §1.414(v)-1(c)(2)(ii)(C)).
Specifically, proposed §1.414(v)-1(c)(2)
(ii)(B) sets forth the increased applicable
dollar catch-up limit that would apply for
a taxable year beginning after 2024, with
respect to a catch-up eligible participant
in a SIMPLE plan who would attain age
60, 61, 62, or 63 on the participant’s birth-
day occurring during the taxable year.
The increased applicable dollar catch-up
limit under proposed §1.414(v)-1(c)(2)
(ii)(B) is 150 percent of the applicable
dollar catch-up limit that applies during
a taxable year beginning in 2025 (that is,
$5,250, which is 150 percent of $3,500),
adjusted for changes in the cost of living.
Current §1.414(v)-1(c)(2)(iii) provides
for cost-of-living adjustments to the appli-
cable dollar catch-up limits that apply
under current §1.414(v)-1(c)(2)(i) and (ii).
The proposed regulations would retain
that provision and would also set forth the
cost-of-living adjustments to the increased
applicable dollar catch-up limits for indi-
viduals attaining age 60 through 63.
C. Increased applicable dollar catch-up
limit for certain SIMPLE plans under
section 117 of the SECURE 2.0 Act
In accordance with section 117
of the SECURE 2.0 Act, proposed
§1.414(v)-1(c)(2)(ii)(C) would set forth
an increased applicable dollar catch-up
limit that would apply for a taxable year
beginning in 2024 under a SIMPLE plan
that is sponsored by an eligible employer
described in Code section 408(p)(2)(E)
(iv) and for which the increased appli-
cable dollar catch-up limit under section
414(v)(2)(B)(iii) applies automatically
or by election. The increased applicable
dollar catch-up limit is 110 percent of
the applicable dollar catch-up limit that
applies during a taxable year beginning in
2024 (that is, $3,850, which is 110 percent
of $3,500), adjusted for changes in the
cost of living. For taxable years beginning
5
This Notice of Proposed Rulemaking (NPRM) does not propose to incorporate proposed §1.401(k)-1(f)(5)(iii) and (iv) into the regulations relating to eligible governmental 457(b) plans
because those regulations do not currently provide for the inclusion of a qualified Roth contribution program in an eligible governmental 457(b) plan. On June 22, 2016, proposed regulations
relating to the inclusion of a qualified Roth contribution program in an eligible governmental 457(b) plan were published in the Federal Register (81 FR 40548) and those proposed regulations
have not been finalized.

Bulletin No. 2025–8 841 February 18, 2025
after 2024, proposed §1.414(v)-1(c)(2)
(iii)(C) would set forth the cost-of-living
adjustments to this increased applicable
dollar catch-up limit.
D. Different applicable dollar catch-up
limits and universal availability
In accordance with the universal avail-
ability requirement in section 414(v)(4),
existing §1.414(v)-1(e)(1)(i) sets forth a
general rule that an applicable employer
plan that offers catch-up contributions and
that is otherwise subject to section 401(a)
(4) (including a plan that is subject to sec-
tion 401(a)(4) pursuant to section 403(b)
(12)) will not satisfy the requirements of
section 401(a)(4) unless all catch-up eligi-
ble participants who participate under any
applicable employer plan maintained by
the employer are provided with an effec-
tive opportunity to make the same dollar
amount of catch-up contributions.
The Treasury Department and the IRS
do not believe that a plan should fail to
satisfy the universal availability require-
ment merely because the plan utilizes the
increased limit for catch-up eligible par-
ticipants attaining age 60 through 63 that
is permitted under the Code pursuant to
section 414(v)(2)(E). Thus, a new provi-
sion would be added to §1.414(v)-1(e)(1)
setting forth an exception to the general
rule in §1.414(v)-1(e)(1)(i) for a plan that
permits each catch-up eligible participant
to make elective deferrals up to the statu-
tory maximum dollar amount of catch-up
contributions permitted with respect to
the participant. Under this new exception,
an applicable employer plan would not
fail to satisfy the requirements of section
401(a)(4) merely because the plan allows
catch-up eligible participants who are
subject to the increased applicable dollar
catch-up limit for participants attaining
age 60 through 63 under section 414(v)
(2)(E) to make catch-up contributions up
to that increased limit, while permitting
other catch-up eligible participants to
make catch-up contributions only up to
the applicable dollar catch-up limit that
applies generally under section 414(v)(2)
(B)(i) or (ii), as applicable.
6

Similarly, an applicable employer
plan that covers employees in both the
United States and Puerto Rico would not
fail to satisfy the requirements of section
401(a)(4) merely because the plan allows
catch-up eligible participants whose
catch-up contributions are subject to the
limit set forth in section 1081.01(d)(7) of
the Puerto Rico Internal Revenue Code
of 2011 (13 L.P.R.A. section 30391(d)
(7)), as amended (Puerto Rico Code), to
make catch-up contributions only up to
the amount of that limit.
7
The Treasury
Department and the IRS request comments
on the application of the limits in the case
of an employee who performs service for
an employer both in Puerto Rico and the
United States in the same year.
III. Proposed §1.414(v)-2
A. General rules relating to the
requirements of section 414(v)(7)
1. Roth catch-up requirement under
section 414(v)(7)(A)
Proposed §1.414(v)-2(a) would set
forth general rules relating to the Roth
catch-up requirement under section 414(v)
(7)(A). Under proposed §1.414(v)-2(a)
(2), if a catch-up eligible participant in
an applicable employer plan had FICA
wages for the preceding calendar year
from the employer sponsoring the plan
(as defined in proposed §1.414(v)-2(b)
(3)) that exceeded $145,000, then sec-
tion 414(v)(1) would apply with respect
to the participant’s elective deferrals that
are catch-up contributions only if they are
designated Roth contributions (as defined
in section 402A(c)(1)). Under proposed
§1.414(v)-2(a)(3), the $145,000 Roth
catch-up wage threshold would be subject
to cost-of-living adjustments, in accor-
dance with section 414(v)(7)(E).
8
Under
proposed §1.414(v)-2(a)(4), the Roth
catch-up requirement would not apply
to a participant in a SEP arrangement or
a SIMPLE IRA plan, in accordance with
section 414(v)(7)(C).
Consistent with section 414(v)(7)
(A) and the description of anticipated
guidance in Notice 2023-62, proposed
§1.414(v)-2(a)(2) would provide that a
participant who did not have FICA wages
exceeding $145,000 (as adjusted) from
the employer sponsoring the plan for the
preceding calendar year would not be
subject to the Roth catch-up requirement
under the plan for the current year. Pro-
posed §1.414(v)-2(a)(2) would define
FICA wages by reference to the FICA
taxes imposed by sections 3101(a) and
3111(a), not sections 3101(b) and 3111(b),
and notes that the wages are taken into
account for this purpose in the same year
that they are taken into account for FICA
tax purposes. Accordingly, an individual
who did not have any FICA wages from
the employer sponsoring the plan for the
preceding calendar year (for example, a
partner who had only self-employment
income; an individual who had wages
under section 3231(e) that are subject to
taxation under the Railroad Retirement
Tax Act, codified at title 45, chapter 9 of
the United States Code, rather than FICA;
or a State or local government employee
whose services were excluded from the
definition of employment under section
3121(b)(7) without regard to section
3121(u)) would not be subject to the Roth
catch-up requirement under the plan in
the current year. Similarly, an individual
who received cash compensation from
the employer sponsoring the plan in the
preceding calendar year but neverthe-
less did not have any FICA wages from
the employer for that year (for example,
because the compensation was taxed in an
earlier year pursuant to section 3121(v)
(2)) would not be subject to the Roth
catch-up requirement under the plan in the
current year.
Further, proposed §1.414(v)-2 would
not require that the Roth catch-up wage
threshold be prorated for the first year
of hire. Thus, a participant who worked
for the employer sponsoring the plan for
6
The higher applicable dollar catch-up limit for participants attaining age 60 through 63 may, but is not required to be, included in an applicable employer plan. Thus, an applicable employer
plan may also be designed to limit the catch-up contributions for those participants to the same applicable dollar catch-up limit that applies for all other catch-up eligible participants.
7
For taxable years beginning in 2024, the limit on catch-up contributions that can be made by a participant who is eligible to make catch-up contributions under the Puerto Rico Code is $1,500.
8
The Roth catch-up wage threshold of $145,000 would be applied to a catch-up eligible participant’s 2023 FICA wages to determine whether the Roth catch-up requirement applies to the
participant’s catch-up contributions made for 2024. In accordance with Notice 2024-80, 2024-47 IRB 1120, the Roth catch-up wage threshold that would be applied to a catch-up eligible
participant’s 2024 FICA wages to determine whether the Roth catch-up requirement applies to the participant’s catch-up contributions made for 2025 remains $145,000.

February 18, 2025 842 Bulletin No. 2025–8
only part of the preceding calendar year
would be subject to the Roth catch-up
requirement in the current year only if the
participant had wages exceeding the full
Roth catch-up wage threshold from the
employer for the preceding calendar year.
2. Availability of Roth catch-up
contributions under section 414(v)(7)(B)
Section 414(v)(7)(B) provides that, in
the case of an applicable employer plan
with respect to which section 414(v)(7)
(A) applies to any participant for a plan
year, section 414(v)(1) shall not apply to
the plan unless the plan provides that any
catch-up eligible participant may make
catch-up contributions as designated Roth
contributions. In accordance with section
414(v)(7)(B), proposed §1.414(v)-2(a)
(5)(i) would provide that if any catch-up
eligible participant who is subject to the
Roth catch-up requirement is permitted to
make catch-up contributions as designated
Roth contributions under an applicable
employer plan for a plan year, then the
plan would be required to allow all other
catch-up eligible participants to also make
catch-up contributions as designated Roth
contributions for the plan year.
9

Proposed §1.414(v)-2(a)(5)(ii) sets
forth a rule that would address the applica-
tion of section 414(v)(7)(B) to a plan that
is subject to the qualification requirements
of both section 401(a) and section 1081.01
of the Puerto Rico Code (dual-qualified
plan).
10
If a dual-qualified plan that cov-
ers both employees in the United States
and employees in Puerto Rico permits
any catch-up eligible participant who is
subject to the Roth catch-up requirement
to make catch-up contributions as desig-
nated Roth contributions for a plan year,
then, in accordance with section 414(v)
(7)(B), the plan is generally required to
permit all catch-up eligible participants
to make catch-up contributions as desig-
nated Roth contributions for the plan year.
The Puerto Rico Code does not provide
for designated Roth contributions, but it
does allow plans to offer the opportunity
to make after-tax contributions. Accord-
ingly, in the case of a dual-qualified plan
that permits Roth catch-up contributions
for participants in the United States, pro-
posed §1.414(v)-2(a)(5)(ii) would treat
the requirements of section 414(v)(7)
(B) as satisfied with respect to a catch-up
eligible participant who is subject to sec-
tion 1081.01 of the Puerto Rico Code if
the plan permits the participant to make
catch-up contributions as after-tax con-
tributions within the meaning of section
1081.01(a)(15) of the Puerto Rico Code.
B. Rules of operation for implementing
the Roth catch-up requirement
1. Designated Roth contributions that
are treated as catch-up contributions
for purposes of the Roth catch-up
requirement
The Treasury Department and the IRS
received comments in response to Notice
2023-62 requesting clarification that
designated Roth contributions made at
any point within a year may be counted
towards satisfaction of the Roth catch-up
requirement, even if the designated Roth
contributions are made earlier than the
contributions that are determined to be
catch-up contributions (that is, before the
participant is considered to have reached
an applicable limit on elective deferrals
for the year).
In general, under existing
§1.414(v)-1(b)(2)(i)(A) and (c)(3), the
amount of a participant’s elective defer-
rals in excess of an applicable limit is
determined as of the end of a plan year (or
limitation year, in the case of the section
415(c) limit) by comparing the partici-
pant’s total elective deferrals for the plan
year (or total annual additions for the lim-
itation year) with the applicable limit for
the plan year (or limitation year). How-
ever, under §1.414(v)-1(c)(3), in the case
of an applicable limit that is applied on the
basis of a year other than the plan year or
limitation year (for example, the calen-
dar-year limit on elective deferrals under
section 401(a)(30)), the determination
of whether elective deferrals are treated
as catch-up contributions is made at the
time they are deferred. Thus, if the tim-
ing rule in §1.414(v)-1(c)(3) that applies
for purposes of determining whether an
elective deferral is a catch-up contribution
also applies for purposes of determining
whether a designated Roth contribution is
a catch-up contribution that satisfies the
Roth catch-up requirement, then, in the
case of elective deferrals that are catch-up
contributions because they exceed a calen-
dar-year limit (such as the section 401(a)
(30) limit), only elective deferrals that are
made after reaching that limit would be
taken into account in satisfying the Roth
catch-up requirement.
Commenters suggested that limiting the
designated Roth contributions that may be
taken into account in satisfying the Roth
catch-up requirement in this manner is not
an appropriate approach. For example, a
commenter noted that if this approach is
used, then a catch-up eligible participant
who would like to make elective deferrals
for a calendar year in an amount equal to
the sum of the section 401(a)(30) limit on
elective deferrals and the applicable dollar
catch-up limit would be required to make
the elective deferrals as designated Roth
contributions during the latter part of the
year (or after the section 401(a)(30) limit
is reached). This would be required even
if the participant would prefer to have des-
ignated Roth contributions made through-
out the year or even if the participant had
already frontloaded the designated Roth
contributions by making elective deferrals
in an amount equal to the applicable dollar
catch-up limit as designated Roth contri-
butions during the earlier part of the year.
To address commenters’ concerns, pro-
vide maximum flexibility for participants,
and alleviate administrative burdens, pro-
posed §1.414(v)-2(b)(1) would take into
account designated Roth contributions
that are made prior to an applicable limit
being reached for purposes of determining
whether the Roth catch-up requirement is
satisfied. Under proposed §1.414(v)-2(b)
9
By contrast, if none of the participants who are subject to the Roth catch-up requirement are permitted to make catch-up contributions under a plan for a plan year (for example, if a plan
does not include a qualified Roth contribution program), then section 414(v)(7)(A) would not be considered to apply to any catch-up eligible participant in the plan for the plan year (and the
requirement of section 414(v)(7)(B) would not apply to the plan). This interpretation of section 414(v)(7)(B) is consistent with the Joint Committee on Taxation general explanation of the
provision. See JCS-1-23 (December 2023).
10
For purposes of this NPRM, a dual-qualified plan includes a plan for which an election under section 1022(i)(2) of the Employee Retirement Income Security Act of 1974 (Public Law
93-406, 88 Stat. 829), as amended (ERISA), has been made.

Bulletin No. 2025–8 843 February 18, 2025
(1), an elective deferral that is determined
to be a catch-up contribution at the time
of contribution under the timing rules
in §1.414(v)-1(c)(3) (for example, on
account of exceeding the section 401(a)
(30) limit) would be required to be made
as a designated Roth contribution by a
participant who is subject to the Roth
catch-up requirement only to the extent
the participant has not previously made
elective deferrals as designated Roth
contributions during the calendar year or
taxable year equal to the applicable dollar
catch-up limit. Thus, if a catch-up eligible
participant’s total elective deferrals that
are designated Roth contributions over the
course of a calendar year or taxable year
equal or exceed the total elective deferrals
that are determined to be catch-up contri-
butions, then the participant would satisfy
the Roth catch-up requirement.
11

2. Plans that do not include a qualified
Roth contribution program
In accordance with section 402A(a), an
applicable employer plan may, but is not
required to, include a qualified Roth con-
tribution program within the meaning of
section 402A(b). However, in the case of
a catch-up eligible participant who is sub-
ject to the Roth catch-up requirement, sec-
tion 414(v)(1) applies only if any catch-up
contributions made by the participant are
designated Roth contributions. Therefore,
if an applicable employer plan does not
include a qualified Roth contribution pro-
gram, then a participant who is subject to
the Roth catch-up requirement would be
prohibited from making catch-up contri-
butions under the plan.
The proposed regulations would not
require an applicable employer plan to
include a qualified Roth contribution
program. Thus, under the proposed regu-
lations, an applicable employer plan that
does not have a qualified Roth contribu-
tion program would be allowed to permit
catch-up eligible participants who are
not subject to the Roth catch-up require-
ment to make catch-up contributions even
though catch-up eligible participants who
are subject to the Roth catch-up require-
ment would not be permitted to make
catch-up contributions.
However, the universal availability
requirement under existing §1.414(v)-1(e)
provides that an applicable employer plan
will be treated as failing to meet the non-
discrimination requirements under sec-
tion 401(a)(4) with respect to benefits,
rights, and features unless all catch-up
eligible participants under the plan are
provided with an effective opportunity to
make the same dollar amount of catch-up
contributions. Proposed §1.414(v)-1(e)
(1)(iii) would add a rule providing that
an applicable employer plan would not
violate the universal availability require-
ment merely because the plan permits
each catch-up eligible participant to make
elective deferrals up to the maximum dol-
lar amount of catch-up contributions per-
mitted under applicable law with respect
to that participant. If a plan does not
include a qualified Roth contribution pro-
gram, then the maximum dollar amount of
catch-up contributions permitted based on
applicable law with respect to a catch-up
eligible participant in the plan who is
subject to the Roth catch-up requirement
is $0. Proposed §1.414(v)-2(b)(2) would
address this situation by providing that
an applicable employer plan that does not
include a qualified Roth contribution pro-
gram does not fail to satisfy the universal
availability requirement merely because
the plan (or another applicable employer
plan maintained by the employer that
does not include a qualified Roth contri-
bution program) does not permit catch-up
eligible participants who are subject to
the Roth catch-up requirement to make
catch-up contributions.
Generally, under §1.414(v)-1(d)(4), an
applicable employer plan does not violate
§1.401(a)(4)-4 merely because the group
of employees for whom catch-up con-
tributions are currently available is not
a group of employees that would satisfy
the minimum coverage requirements of
section 410(b). Under the proposed regu-
lations, §1.414(v)-1(d)(4) would not apply
to an applicable employer plan that does
not include a qualified Roth contribution
program and permits only catch-up eli-
gible participants who are not subject to
the Roth catch-up requirement to make
catch-up contributions. The reason the
proposed regulations would provide that
§1.414(v)-1(d)(4) does not apply to such
a plan is that not all catch-up eligible
employees under the plan will be able to
make catch-up contributions.
Because the Roth catch-up wage
threshold is slightly lower than the wage
threshold used in the definition of highly
compensated employee (HCE) under sec-
tion 414(q)(1)(B), some non-HCEs may
be subject to the Roth catch-up require-
ment.
12
Thus, if a plan that does not include
a qualified Roth contribution program pro-
hibits catch-up eligible participants who
are subject to the Roth catch-up require-
ment from making catch-up contributions,
while permitting other catch-up eligible
participants to make catch-up contribu-
tions, then the outcome of the nondiscrim-
ination test with respect to the availabil-
ity of catch-up contributions performed
under §1.401(a)(4)-4 may be affected.
Accordingly, proposed §1.414(v)-2(b)
(2) would permit such a plan to also pre-
clude one or more catch-up eligible par-
ticipants who are HCEs and who are not
subject to the Roth catch-up requirement
(for example, because they did not receive
FICA wages for the preceding year) from
making catch-up contributions if doing so
facilitates satisfaction of §1.401(a)(4)-4
with respect to the availability of catch-up
contributions.
3. Determination of employer sponsoring
the plan
The determination as to whether the
Roth catch-up requirement applies to a
catch-up eligible participant is based on the
amount of the participant’s FICA wages
for the preceding year “from the employer
sponsoring the plan,” but that phrase
is not defined in section 414(v)(7). For
purposes of determining an individual’s
FICA wages, the term “employer” gener-
ally means the person for whom the indi-
11
This is also the case with respect to elective deferrals that are determined to be catch-up contributions because the plan would fail the actual deferral percentage (ADP) test under section
401(k)(3) if it did not correct under section 401(k)(8). The determination of elective deferrals that are catch-up contributions because they are in excess of this ADP limit in §1.414(v)-1(b)(1)
(iii) occurs in the plan year following the plan year for which the elective deferrals are made.
12
This is particularly true if an employer makes the top-paid group election under section 414(q)(1)(B)(ii).

February 18, 2025 844 Bulletin No. 2025–8
vidual performs service as an employee
under the common law standards that
apply under §31.3121(d)-1(c). Thus, for
purposes of determining the individual’s
FICA wages, the term “employer” gener-
ally refers solely to an individual’s com-
mon law employer.
13
Because the phrase
“from the employer sponsoring the plan”
modifies the reference to FICA wages in
section 414(v)(7)(A), the determination
of whether the Roth catch-up requirement
applies to a participant would generally
follow the FICA rules and be based on the
FICA wages from the participant’s com-
mon law employer.
Thus, proposed §1.414(v)-2(b)(3)
would provide that, with respect to each
catch-up eligible participant who is sub-
ject to the Roth catch-up requirement,
the term “employer sponsoring the plan”
only refers to the participant’s common
law employer contributing to the plan.
14

Under the proposed regulation, the
“employer sponsoring the plan” would
not include other entities that are treated
as a single employer with a catch-up
eligible participant’s common law
employer under section 414(b), (c), (m),
or (o). For example, if there are multiple
employers participating in a plan that are
treated as a single employer under the
controlled group rules, each of the partic-
ipating employers that is a common law
employer would be a separate employer
sponsoring the plan.
Similarly, in the context of catch-up
contributions made to a multiple employer
plan or multiemployer plan by a catch-up
eligible participant subject to the Roth
catch-up requirement, the “employer
sponsoring the plan” means the partici-
pant’s common law employer that is the
source of the participant’s FICA wages
and contributions to the plan. Some com-
menters have suggested that the Roth
catch-up requirement does not apply to
a multiemployer plan because section
3(16)(B) of ERISA defines the “plan
sponsor” of a multiemployer plan as the
joint board of trustees rather than the con-
tributing employers. Under the interpre-
tation of section 414(v)(7)(A) suggested
by the commenters, the employer that is
the source of the employee’s FICA wages
would be a signatory of the collective
bargaining agreement pursuant to which
the employer’s employees participate in
the multiemployer plan and a contrib-
utor to that plan, but would not be the
“employer sponsoring the plan” for pur-
poses of section 414(v)(7)(A).
15
The Trea-
sury Department and the IRS do not agree
that this is a reasonable interpretation of
section 414(v)(7)(A) because ERISA is a
separate statute from the Code and does
not include any provisions that directly
apply, or are even parallel, to the Code’s
catch-up contribution rules. Rather, in the
context of the Roth catch-up requirement,
the “employer sponsoring the plan” is the
common law employer that is the source
of the participant’s FICA wages and con-
tributions to the multiemployer plan.
The Treasury Department and the IRS
understand from comments received that
multiemployer plans and other plans main-
tained pursuant to a collective bargaining
agreement would benefit from an extended
applicability date for the Roth catch-up
requirement so that the terms of any appli-
cable collective bargaining agreement
can be conformed to that requirement.
In response to these comments, proposed
§1.414(v)-2(e)(2)(ii) would provide that
proposed §1.414(v)-2 does not apply to a
plan maintained pursuant to one or more
collective bargaining agreements until the
first taxable year beginning more than 6
months after the date that final regula-
tions adding §1.414(v)-2 to the Code of
Federal Regulations are issued, or, if later,
the first taxable year beginning after the
date on which the last collective bargain-
ing agreement related to the plan that is in
effect on December 31, 2025, terminates
(determined without regard to any exten-
sion of those collective bargaining agree-
ments).
4. Plans with more than one employer
sponsoring the plan
Consistent with the treatment of the
term “employer sponsoring the plan” as
referring to a catch-up eligible partici-
pant’s common law employer without
aggregation with other employers under
section 414(b), (c), (m), or (o), proposed
§1.414(v)-2(b)(4) would apply the Roth
catch-up requirement on the basis of FICA
wages (if any) for the preceding calendar
year solely from a participant’s common
law employer without aggregating those
wages with the FICA wages from other
employers, including employers that
participate in the same plan or employ-
ers that are treated as a single employer
together with the common law employer
under section 414(b), (c), (m), or (o).
Thus, a catch-up eligible participant who
had FICA wages exceeding $145,000
(as adjusted) in the preceding calendar
year from any employer other than the
employer sponsoring the plan (as defined
with respect to the participant in accor-
dance with proposed §1.414(v)-2(b)(3))
would not be subject to the Roth catch-up
requirement under the plan in the current
year if the participant did not also have
more than $145,000 (as adjusted) of FICA
wages for the preceding year from the
employer sponsoring the plan. This is con-
sistent with the description of anticipated
guidance that was included in Notice
2023-62.
C. Treatment of pre-tax catch-up
contributions that are required to be
designated Roth contributions under
section 414(v)(7)
1. Correcting a violation of the section
414(v)(7) Roth catch-up requirement
Section 414(v)(7)(A) provides that
section 414(v)(1) applies to catch-up
contributions made by a participant who
is subject to the Roth catch-up require-
13
In general, FICA wages are determined separately by related employers. See §31.3121(a)(1)-1(a)(3) (“If during a calendar year the employee receives remuneration from more than one
employer, the annual wage limitation does not apply to the aggregate remuneration received from all of such employers, but instead applies to the remuneration received during such calendar
year from each employer.”). See also §31.3121(s)-1(a) (“For purposes of section...3121(a)(1), except as otherwise provided..., when two or more related corporations concurrently employ
the same individual and compensate that individual..., each of the corporations is considered to have paid only the remuneration it actually disburses to that individual.”).
14
This rule applies even if responsibilities under chapter 21 of the Code are imposed on a third party, such as a section 3401(d) statutory employer, a section 3504 agent, a section 3121(s)
common paymaster, a section 3511 certified PEO, or a section 3512 motion picture project employer.
15
This would not be the case with respect to an employee of the joint board of trustees who participates in the plan. In that case, the joint board of trustees would be both the “sponsor” within
the meaning of section 3(16)(B) of ERISA and the common law employer.

Bulletin No. 2025–8 845 February 18, 2025
ment only if the catch-up contributions
are designated Roth contributions. If a
participant who is subject to the Roth
catch-up requirement makes a pre-tax
elective deferral in excess of an applica-
ble limit, then section 414(v)(1) will not
apply to that elective deferral and the plan
will fail to be qualified unless the plan
corrects the failure. A plan is permitted to
correct this type of error by distributing
the additional elective deferrals that are
not catch-up contributions under section
414(v)(1) from the plan in accordance
with a permitted correction method spe-
cific to the limit on elective deferrals that
the additional elective deferrals exceeded
(for example, the correction method
in §1.402(g)-1(e) for elective deferrals
that exceeded the section 401(a)(30)
limit, the correction method in section
6.06(1) and (2) of Revenue Procedure
2021-30, 2021-31 IRB 172, for elective
deferrals that resulted in the participant’s
annual additions exceeding the section
415(c) limit, or the correction method in
§1.401(k)-2(b)(2) or Appendix B, section
2.01, of Revenue Procedure 2021-30 for
elective deferrals that exceeded the ADP
limit).
In response to Notice 2023-62,
the Treasury Department and the IRS
received several comments requesting
guidance that would permit a pre-tax
elective deferral that exceeds an appli-
cable limit to be treated as a designated
Roth contribution in order to satisfy the
Roth catch-up requirement (as an alter-
native to distribution of these elective
deferrals from the plan). Commenters
requested this guidance with respect to
elective deferrals that were intended to
be catch-up contributions at the time
amounts were contributed (because the
contributions exceeded plan or statu-
tory limits) but which were not made as
Roth contributions because of an error.
Commenters also raised specific con-
cerns relating to elective deferrals that
are catch-up contributions because they
exceed the ADP limit. This concern arises
because the determination of whether an
elective deferral exceeds the ADP limit
(and, therefore, could be a catch-up con-
tribution) cannot be made until after the
close of the plan year (that is, after the
elective deferral is made).
The Treasury Department and the
IRS agree that a correction procedure
by which a plan can correct a section
414(v)(7) failure (that is, a failure to
satisfy the Roth catch-up requirement),
other than through distribution from the
plan of elective deferrals in excess of
an applicable limit which fail to comply
with section 414(v)(7)(A), is warranted.
Thus, proposed §1.414(v)-2(c) would set
forth additional permissible methods and
related rules for correcting a pre-tax elec-
tive deferral that exceeds an applicable
limit in order to comply with the Roth
catch-up requirement, which are dis-
cussed in the next section of this Expla-
nation of Provisions.
16

2. Additional permissible correction
methods for elective deferrals that exceed
an applicable limit
Proposed §1.414(v)-2(c)(2) sets forth
two new methods that a plan would be
permitted to use to correct a failure of the
Roth catch-up requirement as it applies to
elective deferrals that exceed an applica-
ble limit. Under proposed §1.414(v)-2(c)
(2)(i), a plan would be permitted to pro-
vide for either correction method but,
with respect to a plan year, the plan would
be required to apply the same correction
method for all participants with elective
deferrals in excess of the same applicable
limit.
a. Form W-2 correction method
Under the correction method set forth
in proposed §1.414(v)-2(c)(2)(ii), a plan
would be permitted to correct a partici-
pant’s pre-tax catch-up contribution that
was required to be a designated Roth
contribution by transferring the elec-
tive deferral (adjusted for allocable gain
or loss) from the participant’s pre-tax
account to the participant’s designated
Roth account and reporting the contribu-
tion (not adjusted for allocable gain or
loss) as a designated Roth contribution
on the participant’s Form W-2 (Wage and
Tax Statement) for the year of the deferral
(that is, reporting the contribution as if it
had been correctly made as a designated
Roth contribution). Under this correction
method, the contribution (not adjusted for
allocable gain or loss) would be includible
in the participant’s gross income for the
year of the deferral as if the contribution
had been correctly made as a designated
Roth contribution. However, this method
would not be permitted to be used if the
participant’s Form W-2 for that year has
already been filed or furnished to the par-
ticipant.
17
b. In-plan Roth rollover correction
method
Under proposed §1.414(v)-2(c)(2)
(iii), a plan would be permitted to correct
a participant’s pre-tax catch-up contribu-
tion that was required to be a designated
Roth contribution through an in-plan
Roth rollover in accordance with sec-
tion 402A(c)(4)(E). Under this method,
a plan would directly roll over the elec-
tive deferral (adjusted for allocable gain
or loss) from the participant’s pre-tax
account to the participant’s designated
Roth account and report the amount
of the in-plan Roth rollover on Form
1099-R (Distributions From Pensions,
Annuities, Retirement or Profit-Sharing
Plans, IRAs, Insurance Contracts, etc.)
for the year of rollover. The provisions
of Notice 2010-84, 2010-51 IRB 872,
and Notice 2013-74, 2013-52 IRB 819,
would generally apply to an in-plan Roth
rollover used to correct a section 414(v)
(7) failure. Thus, the amount directly
16
Commenters also suggested that a plan be permitted to avoid having to correct section 414(v)(7) failures by requiring that all catch-up contributions be made as designated Roth contribu-
tions. The Treasury Department and the IRS have considered that suggestion and concluded that, for a participant who is not subject to the Roth catch-up requirement, allowing a plan design
that requires all participants’ catch-up contributions to be designated Roth contributions would be inconsistent with the language of section 402A(b)(1), which provides that a designated Roth
contribution must be elected by an employee “in lieu of all or a portion of elective deferrals the employee is otherwise eligible to make.”
17
This method would generally not be available with respect to an elective deferral that is a catch-up contribution because it exceeds the ADP limit under a plan with a calendar year plan year.
This is because a participant’s Form W-2 for a year is generally filed and furnished to the participant prior to determination of any catch-up contributions made by the participant because the
elective deferrals exceed the ADP limit for such a plan year.

February 18, 2025 846 Bulletin No. 2025–8
rolled over to the participant’s designated
Roth account would be the same as the
amount reported on Form 1099-R, and
the contribution (adjusted for allocable
gain or loss) would be includible in the
participant’s gross income for the year of
the rollover.
3. General correction requirements and
deadlines to correct
a. Prerequisite to correct certain section
414(v)(7) failures under the new
correction methods
Under proposed §1.414(v)-2(c)(3)(i),
a plan would be eligible to use a new
correction method with respect to pre-
tax elective deferrals that exceed a stat-
utory limit described in §1.414(v)-1(b)
(1)(i) (such as contributions that exceed
the section 401(a)(30) limit or that result
in the participant’s annual additions
exceeding the section 415(c) limit) only
if the plan sponsor or plan administra-
tor has in place practices and procedures
designed to result in compliance with
section 414(v)(7) at the time an elective
deferral is made.
18
A plan would not meet
this requirement unless the plan provides
for a deemed Roth catch-up election in
accordance with proposed §1.401(k)-1(f)
(5)(iii) and (iv). Under the deemed Roth
catch-up election approach, if a partici-
pant who is subject to the Roth catch-up
requirement has made pre-tax elective
deferrals for a calendar year that equal
the section 401(a)(30) limit for the tax-
able year that begins in the calendar
year, then subsequent elective deferrals
made by the participant in the calendar
year would automatically be made as
designated Roth contributions, even if
the participant has not made an affirma-
tive election to make catch-up contribu-
tions as designated Roth contributions.
Similarly, if such a participant has made
pre-tax elective deferrals for a limitation
year that result in the participant’s annual
additions for the limitation year exceed-
ing the section 415(c) limit, then sub-
sequent elective deferrals made by the
participant in the limitation year would
automatically be made as designated
Roth contributions.
If a plan does not provide for a
deemed Roth catch-up election and the
plan accepts a pre-tax elective deferral
that would be a catch-up contribution on
account of exceeding a statutory limit
described in §1.414(v)-1(b)(1)(i) and
the elective deferral is required to be a
designated Roth contribution in accor-
dance with the Roth catch-up require-
ment, then the plan would not be eligible
to use a correction method described in
§1.414(v)-2(c)(2) and, therefore, would
have to use an otherwise-applicable cor-
rection method to distribute the elective
deferral (for example, the correction
method in §1.402(g)-1(e) relating to an
elective deferral that exceeds the section
401(a)(30) limit).
19

A plan would not fail to meet the
requirement to have in place practices
and procedures that are designed to result
in compliance with the Roth catch-up
requirement at the time an elective defer-
ral is made merely because the plan
determines the applicability of the Roth
catch-up requirement to a participant
solely on the basis of the participant’s
FICA wages from the employer spon-
soring the plan for the preceding cal-
endar year as reported on a timely-filed
Form W-2 with respect to the participant.
However, if the amount of a participant’s
FICA wages for the preceding calendar
year that is timely reported on a Form
W-2 is later determined to be incorrect,
a plan would have to correct any pre-tax
catch-up contributions that should have
been designated Roth contributions on
the basis of the adjusted FICA wages for
the preceding calendar year.
20

b. Deadline to correct section 414(v)(7)
failures
Proposed §1.414(v)-2(c)(3)(iii) pro-
vides the deadlines that would apply for
correction of a pre-tax catch-up contri-
bution under the new correction methods
for a section 414(v)(7) failure. Under the
proposed regulation, the deadline to cor-
rect a section 414(v)(7) failure would
depend on which limit is the basis for the
pre-tax elective deferral being designated
a catch-up contribution.
21

If the elective deferral is a catch-up
contribution because it exceeds the section
401(a)(30) limit on elective deferrals, then
§1.414(v)-2(c)(3)(iii)(A) would provide
that the deadline to complete the correc-
tive steps under proposed §1.414(v)-2(c)
(2) is April 15 of the calendar year fol-
lowing the calendar year for which the
elective deferral was made. This is con-
sistent with the deadline that applies for
correcting excess deferrals above the sec-
tion 401(a)(30) limit by distribution under
§1.402(g)-1(e).
If the elective deferral is a catch-up
contribution because it results in the par-
ticipant’s annual additions for a limita-
tion year exceeding the section 415(c)
limit, then §1.414(v)-2(c)(3)(iii)(B)
would provide that the deadline to com-
plete the corrective steps under proposed
§1.414(v)-2(c)(2) is the deadline that
applies under §1.415(c)-1(b)(6) for allo-
cating amounts to the limitation year for
which the elective deferral was made.
Under proposed §1.414(v)-2(c)(3)
(iii)(C), the deadline to correct a pre-
tax catch-up contribution that exceeds
the ADP limit under the new correction
methods would be the date that is 2½
18
A plan would not be required under proposed §1.414(v)-2(c)(3)(i) to have such practices and procedures in place in order to correct a pre-tax catch-up contribution that is a catch-up contri-
bution because it exceeds an employer-provided limit as described in §1.414(v)-1(b)(1)(ii). A plan would also not be required to have such practices and procedures in place in order to correct
a pre-tax elective deferral that is a catch-up contribution because it exceeds the ADP limit as described in §1.414(v)-1(b)(1)(iii). This is because these elective deferrals are not determined to
be catch-up contributions under §1.414(v)-1(c)(3) until the last day of the plan year of deferral or in the following plan year.
19
In the case of a plan that does not provide for a deemed Roth catch-up election, if the plan provides that it will not accept an elective deferral that exceeds an applicable limit on elective
deferrals unless the elective deferral is a catch-up contribution, then the plan may be designed to automatically stop elective deferrals for a catch-up eligible participant who is subject to the
Roth catch-up requirement after the participant’s elective deferrals reach an applicable limit (unless the participant has designated the additional elective deferrals as Roth contributions).
20
The Treasury Department and the IRS invite comments on whether there are scenarios in which it would not be appropriate to require correction of pre-tax catch-up contributions that are
required to be designated Roth contributions on the basis of a subsequent determination that the amount of FICA wages reported on the Form W-2 was incorrect.
21
If the applicable deadline for a new correction method under the proposed regulations is not satisfied, then a section 414(v)(7) failure would need to be corrected by a distribution from the
plan in accordance with the correction principles set forth in section 6 of Revenue Procedure 2021-30.

Bulletin No. 2025–8 847 February 18, 2025
months (6 months, in the case of plans
that include an eligible automatic con-
tribution arrangement within the mean-
ing of section 414(w)) after the close of
the plan year for which the excess con-
tribution was made. This is consistent
with the deadline under §1.401(k)-2(b)
(5) for distributing excess contributions
above the ADP limit in order to avoid a
10 percent excise tax on the excess con-
tributions. Under the proposed regula-
tions, this would also be the deadline to
correct a pre-tax catch-up contribution
that is a catch-up contribution because
it exceeds an employer-provided limit
(because the determination of catch-up
contributions, which are disregarded
for purposes of the ADP test, needs to
be made before the performance of the
ADP test).
Proposed Applicability Date
The amendments to §1.414(v)-1 are
proposed to apply with respect to con-
tributions in taxable years that begin
more than 6 months after the date that
final regulations amending §1.414(v)-1
are issued. However, the proposed regu-
lations would permit a taxpayer to elect
to apply: (1) proposed §1.414(v)-1(c)
(2)(ii)(C) and (c)(2)(iii)(C) (relating
to the higher catch-up limit for certain
newly-established SIMPLE plans) with
respect to taxable years beginning after
December 31, 2023, and (2) proposed
§1.414(v)-1(c)(2)(i)(B), (c)(2)(ii)(B),
and (c)(2)(iii)(B) (relating to the higher
catch-up limit applicable during the tax-
able year of attainment of age 60 through
63) with respect to taxable years begin-
ning after December 31, 2024.
For a plan that is not maintained pur-
suant to a collective bargaining agree-
ment, proposed §1.414(v)-2 and the
proposed amendments to §§1.401(k)-1
and 1.403(b)-3 are proposed to apply
with respect to contributions in taxable
years beginning more than 6 months
after the date that final regulations
adding §1.414(v)-2 to the Code of
Federal Regulations are issued. For a
plan that is maintained pursuant to one
or more collective bargaining agree-
ments, proposed §1.414(v)-2 and the
proposed amendments to §§1.401(k)-1
and 1.403(b)-3 are proposed to apply
with respect to contributions in tax-
able years beginning after the later of
the first taxable year described in the
preceding sentence, or the first taxable
year that begins after the date on which
the last collective bargaining agreement
related to the plan that is in effect on
December 31, 2025, terminates (deter-
mined without regard to any extension
of those agreements). However, under
the proposed regulations, a plan would
be permitted to apply §1.414(v)-2 and
the amendments to §§1.401(k)-1 and
1.403(b)-3 with respect to contribu-
tions in taxable years beginning after
December 31, 2023.
Special Analyses
I. Regulatory Planning and Review
Pursuant to the Memorandum of
Agreement, Review of Treasury Regula-
tions under Executive Order 12866 (June
9, 2023), tax regulatory actions issued by
the IRS are not subject to the requirements
of section 6 of Executive Order 12866, as
amended. Therefore, a regulatory impact
assessment is not required.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(44 U.S.C. 3501 - 3520) requires that a
Federal agency obtain the approval of
the Office of Management and Budget
(OMB) before collecting information
from the public, whether such collection
of information is mandatory, voluntary,
or required to obtain or retain a benefit. A
Federal agency may not conduct or spon-
sor, and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
control number.
These proposed regulations con-
tain reporting requirements, contained
in §1.414(v)-2(c), that relate to correc-
tions of pre-tax elective deferrals that
are catch-up contributions subject to the
requirement under section 414(v)(7)(A)
of the Code to be designated Roth contri-
butions. These collections of information
generally would be used by the IRS for
tax compliance purposes and may involve
submission of a Form 1099-R to the IRS.
This form and its associated burden are
approved by the OMB under 1545-0119.
The proposed regulation is not changing
the reporting procedures already estab-
lished for this form.
The proposed regulations also contain
a recordkeeping requirement that plan
administrators maintain written practices
and procedures designed to result in real-
time compliance with certain require-
ments of section 414(v)(7)(A). These
recordkeeping requirements are expected
to be usual and customary business prac-
tices that would impose no additional
burden on respondents. Therefore, the
recordkeeping requirement would not
require OMB approval under 5 CFR
1320.3(b)(2).
III. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility
Act (5 U.S.C. chapter 6), it is hereby cer-
tified that these proposed regulations will
not have a significant economic impact
on a substantial number of small entities.
These proposed regulations would affect
individuals and businesses, some of which
may be small entities.
Even if a substantial number of small
entities would be affected, the economic
impact of these proposed regulations is not
expected to be significant. As discussed
in the Paperwork Reduction Act section
of this preamble, these proposed regula-
tions may involve reporting and ordinary
recordkeeping but are not expected to
result in an increase in estimated burden.
Any additional recordkeeping or admin-
istrative costs resulting from the changes
relating to catch-up contributions that
apply to certain section 401(k) plans,
403(b) plans, and eligible governmental
457(b) plans sponsored by small entities
are consistent with existing procedures
and are not expected to be significant.
Therefore, a regulatory flexibility analysis
under the Regulatory Flexibility Act is not
required.
The Treasury Department and the IRS
invite comments on the impacts these
proposed regulations may have on small
entities. Pursuant to section 7805(f) of the
Code, these proposed regulations will be
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administra-
tion for comment on their impact on small
businesses.

February 18, 2025 848 Bulletin No. 2025–8
IV. 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
government, in the aggregate, or by the
private sector, of $100 million in 1995
dollars, updated annually for inflation.
The proposed regulations do not propose
any rule that would 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.
V. Executive Order 13132: Federalism
Executive Order 13132 (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 gov-
ernments, and is not required by statute,
or preempts State law, unless the agency
meets the consultation and funding
requirements of section 6 of the Exec-
utive order. The proposed regulations
do not propose rules that would have
federalism implications, impose sub-
stantial direct compliance costs on State
and local governments, or preempt State
law within the meaning of the Executive
order.
Comments and Public Hearing
Before these proposed regulations
and proposed amendments to the regu-
lations are adopted as final regulations,
consideration will be given to com-
ments regarding the notice of proposed
rulemaking that are submitted timely to
the IRS as prescribed in the preamble
under the ADDRESSES section. The
Treasury Department and the IRS request
comments on all aspects of the proposed
regulations. All comments will be made
available at www.regulations.gov. Once
submitted to the Federal eRulemaking
Portal, comments cannot be edited or
withdrawn.
A public hearing has been scheduled
for April 7, 2025, beginning at 10 a.m.
EST in the Auditorium of the Internal
Revenue Building, 1111 Constitution
Avenue NW, Washington, DC. Due to
building security procedures, visitors
must enter at the Constitution Avenue
entrance. In addition, all visitors must
present photo identification to enter the
building. Because of access restrictions,
visitors will not be admitted beyond the
immediate entrance area more than 30
minutes before the hearing starts. Partici-
pants may alternatively attend the public
hearing by telephone.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing. Persons who wish
to present oral comments must submit
an outline of the topics to be addressed
and the time to be devoted to each topic
by March 14, 2025, as prescribed in the
preamble under the DATES section. A
period of 10 minutes will be allocated
to each person for making comments.
An agenda showing the scheduling
of the speakers will be prepared after
the deadline for receiving outlines has
passed. Copies of the agenda will be
available free of charge at the hear-
ing. If no outline of the topics to be
discussed at the hearing is received
by March 14, 2025, the public hearing
will be cancelled. If the public hearing
is cancelled, a notice of cancellation of
the public hearing will be published in
the Federal Register.
Individuals who want to testify in per-
son at the public hearing must send an
email to publichearings@irs.gov to have
your name added to the building access
list. The subject line of the email must con-
tain the regulation number REG-101268-
24 and the language TESTIFY In Person.
For example, the subject line may say:
Request to TESTIFY In Person at Hearing
for REG-101268-24.
Individuals who want to testify by
telephone at the public hearing must send
an email to publichearings@irs.gov to
receive the telephone number and access
code for the hearing. The subject line
of the email must contain the regulation
number REG-101268-24 and the language
TESTIFY Telephonically. For exam-
ple, the subject line may say: Request to
TESTIFY Telephonically at Hearing for
REG-101268-24.
Individuals who want to attend the
public hearing in person without testify-
ing must also send an email to publichear-
ings@irs.gov to have your name added to
the building access list. The subject line
of the email must contain the regulation
number REG-101268-24 and the language
ATTEND In Person. For example, the
subject line may say: Request to ATTEND
Hearing In Person for REG-101268-24.
Requests to attend the public hearing must
be received by 5 p.m. EST on April 3,
2025.
Individuals who want to attend the pub-
lic hearing by telephone without testifying
must also send an email to publichear-
ings@irs.gov to receive the telephone
number and access code for the hearing.
The subject line of the email must contain
the regulation number REG-101268-24
and the language ATTEND Hearing Tele-
phonically. For example, the subject line
may say: Request to ATTEND Hear-
ing Telephonically for REG-101268-24.
Requests to attend the public hearing must
be received by 5 p.m. EST on April 3,
2025.
Hearings will be made accessible to
people with disabilities. To request spe-
cial assistance during the hearing, please
contact the Publications and Regulations
Branch of the Office of Associate Chief
Counsel (Procedure and Administration)
by sending an email to publichearings@
irs.gov (preferred) or by telephone at
(202) 317-6901 (not a toll-free number)
by April 2, 2025.
Statement of Availability of IRS
Documents
IRS Revenue Procedures, Revenue
Rulings notices, and other guidance cited
in this document are published in the
Internal Revenue Bulletin (or Cumula-
tive Bulletin) and are available from the
Superintendent of Documents, U.S. Gov-
ernment Publishing Office, Washington,
DC 20402, or by visiting the IRS website
at http://www.irs.gov.
Drafting Information
The principal authors of these proposed
regulations are Jessica S. Weinberger and
Jason E. Levine, of the Office of the Asso-
ciate Chief Counsel (Employee Benefits,
Exempt Organizations, and Employment
Taxes (EEE)). However, other personnel

Bulletin No. 2025–8 849 February 18, 2025
from the Treasury Department and the
IRS participated in the development of the
proposed regulations.
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 entries,
in numerical order, for §§1.401(k)-1 and
1.414(v)-2 to read in part, as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.401(k)-1 also issued under
26 U.S.C. 401(m)(9).
* * * * *
Section 1.414(v)-2 also issued under
26 U.S.C. 414(v)(7)(D).
* * * * *
Par. 2. Section 1.401(k)-1 is amended
by adding paragraphs (f)(5)(iii) and (iv) to
read as follows:
§1.401(k)-1 Certain cash or deferred
arrangements.
* * * * *
(f) * * *
(5) * * *
(iii) Deemed Roth catch-up contribu-
tion elections. For taxable years begin-
ning after December 31, 2023, a plan
that satisfies the requirements of para-
graph (f)(5)(iv) of this section may pro-
vide that an employee who is subject to
the requirement under section 414(v)(7)
to make any catch-up contributions as
designated Roth contributions is deemed
to have irrevocably designated any elec-
tive deferrals that are catch-up contribu-
tions as designated Roth contributions in
accordance with paragraph (f)(1)(i) of
this section. In such a case, the elective
deferrals must be--
(A) Treated by the employer as not
excludible from the employee’s gross
income, in accordance with paragraph (f)
(2) of this section; and
(B) Maintained by the plan in a sep-
arate account, in accordance with para-
graph (f)(3) of this section.
(iv) Election for employees subject to
section 414(v)(7)(A). A plan satisfies the
requirements of this paragraph (f)(5)(iv)
only if it provides to an employee who
is described in paragraph (f)(5)(iii) of
this section an effective opportunity (as
determined under paragraph (e)(2)(ii)
of this section) to make a new election
that is different than the deemed election
described in paragraph (f)(5)(iii) of this
section.
* * * * *
§1.403(b)-3 [Amended]
Par. 3. Section 1.403(b)-3 is amended
in paragraph (c)(1) by:
a. Removing the reference
“§1.401(k)-1(f)(1) and (2)” and adding, in
its place, the reference Ҥ1.401(k)-1(f)(1),
(2), (3), and (5)”;
b. Adding the language “(or is deemed
to be so irrevocably designated in accor-
dance with §1.401(k)-1(f)(5)(iii))” imme-
diately following the language “otherwise
eligible to make under the plan”; and
c. Removing the language “(within the
meaning of §1.401(k)-1(f)(2))” and add-
ing, in its place, the language “(within the
meaning of §1.401(k)-1(f)(3))”.
Par. 4. Section 1.414(v)-1 is amended
by:
a. In the last sentence of paragraph
(a)(1), removing the language “this sec-
tion and §1.402(g)-2” and adding, in its
place, the language “this section, and
§§1.414(v)-2 and 1.402(g)-2”;
b. Adding paragraph (a)(4);
c. Revising and republishing paragraph
(c)(2);
d. Adding paragraph (e)(1)(iii); and
e. Revising and republishing paragraph
(i).
The additions and revisions read as fol-
lows:
§1.414(v)-1 Catch-up contributions.
(a) * * *
(4) Catch-up contributions must be
designated Roth contributions for certain
participants. For provisions relating to the
requirement under section 414(v)(7) that
catch-up contributions made by certain
catch-up eligible participants must be des-
ignated Roth contributions, see §1.414(v)-
2.
* * * * *
(c) * * *
(2) Applicable dollar catch-up limit—
(i) Plans other than SIMPLE Plans—(A)
In general. Except as provided in para-
graph (c)(2)(i)(B) of this section, the appli-
cable dollar catch-up limit that applies
under an applicable employer plan, other
than a SIMPLE 401(k) plan described in
section 401(k)(11) or a SIMPLE IRA plan
described in section 408(p), for a taxable
year is $5,000, as adjusted for changes in
the cost of living under paragraph (c)(2)
(iii)(A) of this section.
(B) Higher limit applicable during
the taxable year of attainment of age 60
through 63. For a taxable year beginning
after 2024, with respect to a catch-up eli-
gible participant who would attain age 60,
61, 62, or 63 during the taxable year, the
applicable dollar catch-up limit for the
taxable year under an applicable employer
plan described in paragraph (c)(2)(i)(A) of
this section is $11,250 (which is 150 per-
cent of the applicable dollar catch-up limit
described in paragraph (c)(2)(i)(A) of this
section for a taxable year beginning in
2024), as adjusted for changes in the cost
of living under paragraph (c)(2)(iii)(B) of
this section.
(ii) SIMPLE plans—(A) In general.
Except as provided in paragraph (c)(2)(ii)
(B) or (C) of this section, the applicable
dollar catch-up limit that applies under
a SIMPLE 401(k) plan described in sec-
tion 401(k)(11) or a SIMPLE IRA plan
described in section 408(p) for a taxable
year is $2,500, as adjusted for changes in
the cost of living under paragraph (c)(2)
(iii)(A) of this section.
(B) Higher limit applicable during
the taxable year of attainment of age 60
through 63. For a taxable year beginning
after 2024, with respect to a catch-up eli-
gible participant who would attain age 60,
61, 62, or 63 during the taxable year, the
applicable dollar catch-up limit for the
taxable year under an applicable employer
plan described in paragraph (c)(2)(ii)(A)
of this section is $5,250 (which is 150
percent of the applicable dollar catch-up
limit under paragraph (c)(2)(ii)(A) of this

February 18, 2025 850 Bulletin No. 2025–8
section for a taxable year beginning in
2025), as adjusted for changes in the cost
of living under paragraph (c)(2)(iii)(B) of
this section.
(C) Higher limit for certain SIMPLE
plans. For a taxable year beginning after
2023, the applicable dollar catch-up
limit under an applicable employer plan
described in paragraph (c)(2)(ii)(A) of
this section that is maintained by an eligi-
ble employer meeting the requirements in
section 408(p)(2)(E)(iv) is $3,850 (which
is 110 percent of the applicable dollar
catch-up limit in effect under paragraph
(c)(2)(ii)(A) of this section for a taxable
year beginning in 2024), as adjusted for
changes in the cost of living under para-
graph (c)(2)(iii)(C) of this section. The
preceding sentence applies with respect
to a taxable year only if the taxable year
begins in a calendar year for which the
eligible employer is described in section
408(p)(2)(E)(i)(I) or makes the election
described in section 408(p)(2)(E)(i)(II).
(iii) Cost-of-living adjustments—(A)
In general. For a taxable year beginning
after 2006, the applicable dollar catch-up
limit under paragraph (c)(2)(i)(A) or (c)(2)
(ii)(A) of this section (whichever applies
to the plan) is the initial amount ($5,000
or $2,500, respectively), increased for
changes in the cost of living. The increase
is made at the same time and in the same
manner as adjustments under section
415(d), except that the base period is the
calendar quarter beginning July 1, 2005,
and any increase that is not a multiple of
$500 is rounded to the next lower multiple
of $500.
(B) Adjustments to higher limit appli-
cable during the taxable year of attain-
ment of age 60 through 63. For a taxable
year beginning after 2025, the applicable
dollar catch-up limit under paragraph (c)
(2)(i)(B) or (c)(2)(ii)(B) of this section
(whichever applies to the plan) is the
initial amount ($11,250 in the case of
paragraph (c)(2)(i)(B) of this section and
$5,250 in the case of paragraph (c)(2)(ii)
(B) of this section), increased for changes
in the cost of living. The increase is made
at the same time and in the same manner as
adjustments under section 415(d), except
that the base period is the calendar quarter
beginning July 1, 2024, and any increase
that is not a multiple of $500 is rounded to
the next lower multiple of $500.
(C) Adjustments to higher limit for
certain SIMPLE plans. For a taxable
year beginning after 2024, the applica-
ble dollar catch-up limit under paragraph
(c)(2)(ii)(C) of this section is the initial
amount ($3,850), increased for changes
in the cost of living. The increase is made
at the same time and in the same man-
ner as adjustments under section 415(d),
except that the base period is the calen-
dar quarter beginning July 1, 2023, and
any increase that is not a multiple of $500
is rounded to the next lower multiple of
$500.
* * * * *
(e) * * *
(1) * * *
(iii) Plans providing the statutory
maximum catch-up contributions. An
applicable employer plan does not fail
to satisfy the universal availability
requirement of this paragraph (e) merely
because of differences among catch-up
eligible participants as to the dollar
amount of catch-up contributions they
are permitted to make, provided that each
catch-up eligible participant who partici-
pates under any applicable employer plan
maintained by the employer is provided
with an effective opportunity to make the
maximum amount of catch-up contribu-
tions permitted for that participant under
section 414(v) or, if applicable, section
1081.01(d)(7) of the Puerto Rico Inter-
nal Revenue Code of 2011 (13 L.P.R.A.
section 30391(d)(7)), as amended. For
example, an applicable employer plan
does not fail to satisfy the universal avail-
ability requirement of this paragraph (e)
merely because the plan permits catch-up
eligible participants who would attain
age 60, 61, 62, or 63 during a taxable
year to make catch-up contributions up to
the increased applicable dollar catch-up
limit in section 414(v)(2)(E) while only
permitting other catch-up eligible partic-
ipants to make catch-up contributions up
to the applicable dollar catch-up limit in
section 414(v)(2)(B) without regard to
section 414(v)(2)(E).
* * * * *
(i) Applicability dates—(1) In general.
Except as described in paragraph (i)(2)
of this section or §1.414(v)-2(e), section
414(v) applies to contributions in taxable
years beginning on or after January 1,
2002. Except as provided in paragraph (i)
(2) of this section, paragraphs (a) through
(h) of this section apply to contributions
in taxable years beginning on or after Jan-
uary 1, 2004.
(2) Increases in applicable dollar
catch-up limit under section 414(v)(2)—
(i) Higher limit during the taxable year
of attainment of age 60 through 63. The
amendments to section 414(v)(2) made
by section 109 of Division T of the Con-
solidated Appropriations Act, 2023, Pub-
lic Law 117-328, 136 Stat. 4459 (2022),
known as the SECURE 2.0 Act of 2022
(SECURE 2.0 Act) to provide for a
higher applicable dollar catch-up limit
for individuals who attain age 60, 61,
62, or 63 during the taxable year apply to
contributions in taxable years beginning
after December 31, 2024. Paragraphs (c)
(2)(i)(B), (c)(2)(ii)(B), and (c)(2)(iii)(B)
of this section apply to contributions in
taxable years beginning after [DATE SIX
MONTHS AFTER DATE OF PUBLICA-
TION OF FINAL RULE] (or, at the elec-
tion of the taxpayer, taxable years begin-
ning after December 31, 2024). Except
as provided in paragraph (i)(2)(ii) of this
section, for taxable years beginning on
or before December 31, 2024, the appli-
cable dollar catch-up limit is determined
under §1.414(v)-1(c)(2) as it appeared in
the April 1, 2024, edition of 26 CFR part
1.
(ii) Higher limit for certain SIMPLE
plans. The amendments to section 414(v)
(2) made by section 117 of the SECURE
2.0 Act to provide for a higher applicable
dollar catch-up limit for certain SIMPLE
plans apply to contributions in taxable
years beginning after December 31, 2023.
Paragraphs (c)(2)(ii)(C) and (c)(2)(iii)
(C) of this section apply to contributions
in taxable years beginning after [DATE
SIX MONTHS AFTER DATE OF PUB-
LICATION OF FINAL RULE] (or, at the
election of the taxpayer, taxable years
beginning after December 31, 2023).
For taxable years beginning on or before
December 31, 2023, the applicable dollar
catch-up limit for a SIMPLE 401(k) plan
described in section 401(k)(11) or a SIM-
PLE IRA plan described in section 408(p)
is determined under §1.414(v)-1(c)(2)(ii)
as it appeared in the April 1, 2024, edition
of 26 CFR part 1.
Par. 5. Section 1.414(v)-2 is added to
read as follows:

Bulletin No. 2025–8 851 February 18, 2025
§1.414(v)-2 Catch-up contributions
required to be designated Roth
contributions under section 414(v)(7).
(a) Section 414(v)(7) Roth catch-up
contribution requirement—(1) Organi-
zation of this section. Paragraphs (a)(2)
through (5) of this section provide gen-
eral rules relating to the requirements of
section 414(v)(7). Paragraph (b) of this
section provides certain rules of operation
for implementing the requirements of sec-
tion 414(v)(7) addressed in this paragraph
(a). Paragraph (c) of this section provides
rules relating to the treatment of pre-tax
catch-up contributions that were required
to be designated Roth contributions under
section 414(v)(7). Paragraph (d) of this
section provides examples illustrating the
application of the rules of this section.
Paragraph (e) of this section sets forth the
statutory and regulatory effective dates
relating to the section 414(v)(7) Roth
catch-up requirement.
(2) Roth catch-up contribution
requirement in general. For a taxable
year beginning on or after January 1,
2024, if, for the calendar year preceding
the calendar year in which the taxable
year begins, a catch-up eligible partici-
pant in an applicable employer plan had
wages (as defined in section 3121(a) for
purposes of the taxes imposed by sec-
tions 3101(a) and 3111(a), for the year
the wages are required to be taken into
account for purposes of chapter 21 of
the Code) from the employer sponsoring
the plan (as determined under paragraph
(b)(3) of this section) that exceeded the
applicable Roth catch-up wage thresh-
old, then §1.414(v)-1(a)(1) applies only
if that participant’s catch-up contribu-
tions (as described in §1.414(v)-1(a)(1))
under the plan are designated Roth con-
tributions (as defined in section 402A(c)
(1)). The Roth catch-up wage thresh-
old that applies for a calendar year is
$145,000, as adjusted for changes in the
cost of living under paragraph (a)(3) of
this section.
(3) Cost-of-living adjustment. For a
calendar year beginning after December
31, 2024, the applicable Roth catch-up
wage threshold in paragraph (a)(2) of this
section is the initial amount ($145,000),
increased for changes in the cost of living.
The increase is made at the same time and
in the same manner as adjustments under
section 415(d), except that the base period
is the calendar quarter beginning July 1,
2023, and any increase that is not a multi-
ple of $5,000 is rounded to the next lower
multiple of $5,000.
(4) Certain plans not subject to section
414(v)(7). Paragraph (a)(2) of this section
does not apply to a plan described in sec-
tion 408(k) or (p).
(5) Availability of designated Roth
catch-up contributions—(i) In general.
Except as provided in paragraph (a)(5)
(ii) of this section, if, under an applica-
ble employer plan, any catch-up eligible
participant who is subject to the Roth
catch-up requirement under paragraph (a)
(2) of this section is permitted to make
catch-up contributions as designated Roth
contributions for a plan year, then all
catch-up eligible participants in the plan
must be permitted to make catch-up con-
tributions as designated Roth contribu-
tions for the plan year.
(ii) Special rule for participants sub-
ject to the Puerto Rico Code. In the case
of a catch-up eligible participant who is
subject to the Roth catch-up requirement
under paragraph (a)(2) of this section and
is subject to section 1081.01 of the Puerto
Rico Internal Revenue Code of 2011 (13
L.P.R.A. section 30391), as amended
(Puerto Rico Code), paragraph (a)(5)(i) of
this section is treated as satisfied if, under
the applicable employer plan, that partic-
ipant is permitted to make catch-up con-
tributions as after-tax contributions within
the meaning of section 1081.01(a)(15) of
the Puerto Rico Code.
(b) Rules of operation—(1) Determi-
nation of catch-up contributions subject
to section 414(v)(7) Roth requirement.
For a participant who is subject to the
Roth catch-up requirement under para-
graph (a)(2) of this section for a plan
year, an elective deferral that, in accor-
dance with §1.414(v)-1(c)(3), is treated
as a catch-up contribution at the time
of deferral (for example, an elective
deferral that is a catch-up contribution
because it exceeds the section 401(a)(30)
limit on elective deferrals) is required to
be a designated Roth contribution only
to the extent the participant has not pre-
viously made elective deferrals that are
designated Roth contributions during the
calendar year or taxable year equal to the
applicable dollar catch-up limit under
§1.414(v)-1(c)(2). Thus, for example, if
a participant who is subject to the Roth
catch-up requirement under paragraph
(a)(2) of this section has already made
elective deferrals that are designated
Roth contributions during the calendar
year that equal or exceed the applicable
dollar catch-up limit at the time the par-
ticipant’s elective deferrals reach the sec-
tion 401(a)(30) limit on elective defer-
rals, section 414(v)(7) would not require
the participant’s subsequent elective
deferrals for the calendar year to be des-
ignated Roth contributions even though
they are treated as catch-up contributions
under §1.414(v)-1(c)(3).
(2) Treatment of plans without quali-
fied Roth contribution programs—(i) In
general. For purposes of §1.414(v)-1(e)
(1)(iii), if an applicable employer plan
does not include a qualified Roth con-
tribution program (within the meaning
of section 402A(b)), then, for a catch-up
eligible participant who is subject to the
Roth catch-up requirement under para-
graph (a)(2) of this section, the maximum
amount of catch-up contributions permit-
ted under section 414(v) is $0. Such a
plan does not fail to satisfy the universal
availability requirement of §1.414(v)-1(e)
merely because the plan (or another appli-
cable employer plan maintained by the
employer that does not include a quali-
fied Roth contribution program) does not
permit catch-up contributions for partici-
pants who are subject to the Roth catch-up
requirement under paragraph (a)(2) of this
section.
(ii) Application of nondiscrimination
requirements. If an applicable employer
plan is described in paragraph (b)(2)(i) of
this section, then §1.414(v)-1(d)(4) does
not apply to the plan. As a result, a plan
that has one or more highly compensated
employees (as defined in section 414(q))
who are not subject to the Roth catch-up
requirement under paragraph (a)(2) may
need to preclude one or more of those
highly compensated employees from
making catch-up contributions to facilitate
satisfaction of §1.401(a)(4)-4 with respect
to the availability of catch-up contribu-
tions. In such a case, the plan is not treated
as failing to satisfy the universal availabil-
ity requirement of §1.414(v)-1(e) merely
because of that preclusion.

February 18, 2025 852 Bulletin No. 2025–8
(3) Determination of employer spon-
soring the plan. For purposes of determin-
ing the employer sponsoring the plan with
respect to a catch-up eligible participant,
the employer is the participant’s com-
mon law employer. Thus, for purposes
of this section, the employer sponsoring
the plan does not include other entities
that are treated as a single employer with
a catch-up eligible participant’s common
law employer under section 414(b), (c),
(m), or (o).
(4) Plans with more than one
employer sponsoring the plan. If an
applicable employer plan has more than
one employer sponsoring the plan (that
is, the plan is sponsored by multiple
employers that are aggregated under
section 414(b), (c), (m), or (o), or is a
multiple employer plan or a multiem-
ployer plan), a catch-up eligible partici-
pant’s wages for the preceding calendar
year from one employer sponsoring the
plan are not aggregated with the wages
from another employer sponsoring
the plan for purposes of determining
whether the participant’s wages for the
preceding calendar year exceeded the
applicable Roth catch-up wage thresh-
old in paragraph (a)(2) of this section.
Furthermore, even if a catch-up eligible
participant’s wages for the preceding
calendar year from one employer spon-
soring the plan exceeded the applicable
Roth catch-up wage threshold in para-
graph (a)(2) of this section, elective
deferrals made from the participant’s
compensation from another employer
sponsoring the plan that are catch-up
contributions would not be required to
be designated Roth contributions unless
the participant’s wages for the preceding
calendar year from that other employer
also exceeded that wage threshold.
(c) Treatment of pre-tax catch-up con-
tributions that are required to be desig-
nated Roth contributions—(1) General
rule. Subject to paragraph (c)(3) of this
section, a pre-tax elective deferral in
excess of an applicable limit described
in §1.414(v)-1(b)(1) that, in accordance
with paragraph (a)(2) of this section, is a
catch-up contribution only if it is a des-
ignated Roth contribution does not cause
an applicable employer plan to fail to
satisfy any requirement of the Internal
Revenue Code if the failure to be a des-
ignated Roth contribution is corrected in
accordance with paragraph (c)(2) of this
section.
(2) Correction of section 414(v)(7) fail-
ures—(i) In general. For purposes of this
paragraph (c), if an elective deferral that
exceeds a statutory limit, employer-pro-
vided limit, or ADP limit (as such terms
are defined in §1.414(v)-1(b)(1)) fails to
be a catch-up contribution under section
414(v)(1) because the elective deferral is
not a designated Roth contribution, then
the failure to satisfy section 414(v)(7) is
referred to as a “section 414(v)(7) fail-
ure” and may be corrected in accordance
with this paragraph (c)(2). A plan may
provide for either of the correction meth-
ods described in paragraphs (c)(2)(ii) and
(iii) of this section, but with respect to a
plan year, the plan must apply the same
correction method for all participants with
elective deferrals in excess of the same
applicable limit.
(ii) Permitted correction on Form
W-2. A plan may correct a section 414(v)
(7) failure by transferring the catch-up
contribution (adjusted for earnings and
losses) from the participant’s pre-tax
account to the participant’s designated
Roth account and reporting the contribu-
tion (not adjusted for earnings and losses)
as an elective deferral that is a designated
Roth contribution on the participant’s
Form W-2 (Wage and Tax Statement) for
the year in which the elective deferral
was originally excluded from the partic-
ipant’s gross income. However, this cor-
rection method may be used only if the
participant’s Form W-2 for that year has
not been filed or furnished to the partic-
ipant.
(iii) Permitted correction by in-plan
Roth rollover. As an alternative to the
correction method permitted under para-
graph (c)(2)(ii) of this section, a plan
may correct a section 414(v)(7) failure
by directly rolling over the catch-up
contribution (adjusted for earnings and
losses) from the participant’s pre-tax
account to the participant’s designated
Roth account, in accordance with section
402A(c)(4)(E), and reporting the amount
of the in-plan Roth rollover on Form
1099-R (Distributions from Pensions,
Annuities, Retirement or Profit-Sharing
Plans, IRAs, Insurance Contracts, etc.)
for the year of the rollover.
(3) General correction require-
ments—(i) Practices and procedures. For
a plan to be eligible to use either of the
correction methods described under para-
graph (c)(2) of this section with respect
to an elective deferral that is a catch-up
contribution because it exceeds a statu-
tory limit described in §1.414(v)-1(b)
(1)(i), the plan sponsor or plan admin-
istrator must have in place practices and
procedures designed to result in compli-
ance with section 414(v)(7) at the time
the elective deferral is made. As part of
these practices and procedures, the plan
must provide that the elective deferrals of
a participant who is subject to the Roth
catch-up requirement under paragraph (a)
(2) of this section, but who has not made
an affirmative election to make catch-up
contributions as designated Roth contri-
butions nor made designated Roth con-
tributions equal to the applicable dollar
catch-up limit earlier in a calendar year,
are automatically treated as designated
Roth contributions after the participant’s
pre-tax elective deferrals made during
the calendar year equal the section 401(a)
(30) limit on elective deferrals for the tax-
able year that begins in the calendar year.
Similarly, the elective deferrals of such
a participant who has not made an affir-
mative election to make catch-up contri-
butions as designated Roth contributions
nor made designated Roth contributions
equal to the applicable dollar catch-up
limit earlier in the limitation year must be
automatically treated as designated Roth
contributions after the participant’s pre-
tax elective deferrals result in the partici-
pant’s annual additions for the limitation
year exceeding the section 415(c) limit
for the limitation year.
(ii) Reliance on Form W-2. A plan spon-
sor or plan administrator does not fail to
have in place practices and procedures in
accordance with paragraph (c)(3)(i) of this
section merely because a plan determines
the applicability of the section 414(v)(7)
(A) Roth catch-up requirement to a partic-
ipant on the basis of a timely-filed Form
W-2 with respect to the participant.
(iii) Deadlines for corrections of
section 414(v)(7) failures under para-
graph (c)(2) of this section—(A) Elec-
tive deferrals in excess of a statutory
limit. If the section 414(v)(7) failure
arises with respect to an elective deferral

Bulletin No. 2025–8 853 February 18, 2025
that is a catch-up contribution because
it exceeds the section 401(a)(30) limit
on elective deferrals, the deadline to
complete all corrective steps required
under paragraph (c)(2) of this section in
order to avoid a qualification failure is
April 15 of the calendar year following
the calendar year for which the elective
deferral was made. If the section 414(v)
(7) failure arises with respect to an elec-
tive deferral that is a catch-up contribu-
tion because it results in the participant’s
annual additions for the limitation year
exceeding the section 415(c) limit, the
deadline to complete the corrective steps
required under paragraph (c)(2) of this
section in order to avoid a qualification
failure is the deadline that applies under
§1.415(c)-1(b)(6) for allocating amounts
to the limitation year for which the elec-
tive deferral was made.
(B) Elective deferrals in excess of an
employer-provided limit. If the section
414(v)(7) failure arises with respect to
an elective deferral that is a catch-up
contribution because it exceeds an
employer-provided limit as described
in §1.414(v)-1(b)(1)(ii), the deadline to
complete the corrective steps required
under paragraph (c)(2) of this section in
order to avoid a qualification failure is the
date that is 2½ months (6 months, in the
case of an applicable employer plan that
includes an eligible automatic contribu-
tion arrangement within the meaning of
section 414(w)) after the close of the plan
year for which the catch-up contribution
was made.
(C) Elective deferrals in excess of the
ADP limit. If the section 414(v)(7) failure
arises with respect to an elective deferral
that is a catch-up contribution because it
exceeds the ADP limit, the deadline to
complete the corrective steps required
under paragraph (c)(2) of this section in
order to avoid a qualification failure is the
date that is 2½ months (6 months, in the
case of an applicable employer plan that
includes an eligible automatic contribu-
tion arrangement within the meaning of
section 414(w)) after the close of the plan
year for which the excess contribution
was made.
(d) Examples. The following examples
illustrate the application of this section. For
purposes of these examples, assume that
the participant’s elective deferrals under
all plans of the employer do not exceed
the participant’s section 415(c)(3) com-
pensation, the participant’s annual addi-
tions for a limitation year do not exceed
the section 415(c) limit, the taxable year
of the participant is the calendar year, the
plan includes a qualified Roth contribution
program, and the plan year is the calen-
dar year (except as specifically provided).
Assume further that this section applies to
contributions in taxable years beginning
in 2026, the section 401(a)(30) limit on
elective deferrals for 2026 is $24,000, the
applicable dollar catch-up limit for 2026
that is applicable to each participant in the
examples is $8,000, and the Roth catch-up
wage threshold to be applied to 2025 FICA
wages for determining applicability of the
Roth catch-up requirement under section
414(v)(7)(A) for a plan year beginning in
2026 is $150,000.
(1) Example 1: Application of Roth catch-up
wage threshold—(A) Facts. In January 2025, Par-
ticipant A became an employee of an accounting
firm that is structured as a partnership. Through
October 2025, A had $151,000 of FICA wages from
the accounting firm. In November 2025, Participant
A became a partner in the accounting firm, and, for
2025, Participant A had a $30,000 distributive share
of partnership income from the accounting firm, all
of which was self-employment income. Participant
A is a partner with the accounting firm for all of
2026.
(B) Analysis. Although Participant A is a partner
with the accounting firm for the last two months of
2025 and for all of 2026 (and thus has self-employ-
ment income rather than FICA wages for that period),
Participant A had more than $150,000 in FICA wages
from the accounting firm for 2025. Thus, Participant
A is subject to section 414(v)(7)(A) for 2026, and if
Participant A makes elective deferrals in excess of an
applicable limit for 2026 under a plan sponsored by
the accounting firm, those elective deferrals must be
designated Roth contributions.
(2) Example 2: Application of Roth catch-up
wage threshold—(A) Facts. The facts are the same
as in paragraph (d)(1) of this section (Example 1),
except that Participant A became a partner of the
accounting firm in May 2025, and had FICA wages
from the firm of $60,000 before becoming partner.
In addition, for 2025, Participant A had a $150,000
distributive share of partnership income from the
accounting firm, all of which was self-employment
income.
(B) Analysis. Although Participant A had total
compensation of $210,000 for the services Partici-
pant A performed for the accounting firm in 2025,
only $60,000 of that amount were FICA wages.
Because Participant A did not have more than
$150,000 of FICA wages from the accounting firm
for 2025, any elective deferrals in excess of an appli-
cable limit that Participant A makes for 2026 under
a plan sponsored by the accounting firm are not
required to be designated Roth contributions.
(3) Example 3: Application of section 414(v)(7)
(B) to a plan with a plan year other than the cal-
endar year—(A) Facts. Participant B participates in
an applicable employer plan sponsored by Employer
E. The plan year begins on July 1 and ends on June
30. Participant B had $155,000 in wages within the
meaning of section 3121(a) from Employer E for
calendar year 2025, and is a catch-up eligible partici-
pant for calendar year 2026. For the plan year begin-
ning July 1, 2026, and ending June 30, 2027, the
plan allows all catch-up eligible participants to make
catch-up contributions and requires that any elective
deferrals in excess of an applicable limit made by
catch-up eligible participants who are subject to the
requirements of section 414(v)(7)(A) be designated
Roth contributions.
(B) Analysis. Because Participant B’s FICA
wages from Employer E for calendar year 2025
exceeded $150,000, Participant B is subject to the
requirements of section 414(v)(7)(A) for the first
half of the plan year beginning July 1, 2026, and
any catch-up contributions that Participant B makes
under the plan during that period must be desig-
nated Roth contributions. Because Participant B is
permitted to make catch-up contributions that are
designated Roth contributions under the plan for
the plan year beginning July 1, 2026 (after Partic-
ipant B reaches an applicable limit (as defined in
§1.414(v)-1(b)(1)), all catch-up eligible participants
under the plan must be permitted to make catch-up
contributions that are designated Roth contributions
for the plan year.
(4) Example 4: Plans with more than one
employer sponsoring the plan—(A) Facts.
Employer F and Employer G are members of a con-
trolled group of corporations within the meaning of
section 414(b). Participant C was hired by Employer
F on January 1, 2025, and remained employed by
Employer F through October 31, 2025. Effective
November 1, 2025, Participant C transferred to
Employer G and was employed by Employer G for
the remainder of 2025. Participant C is employed
by Employer G for all of 2026, the year in which
Participant C attains age 55. Employer F reported
$155,000 of FICA wages on a Form W-2 for Par-
ticipant C for 2025. Employer G reported $35,000
of FICA wages on a Form W-2 for Participant C for
2025. Employers F and G are participating employ-
ers in a section 401(k) plan, Plan P. Participant C
becomes eligible to participate in Plan P on January
1, 2026, and all of Participant C’s elective defer-
rals for 2026 are made from compensation paid by
Employer G.
(B) Analysis. Employers F and G are common
law employers of Participant C during different por-
tions of 2025, and, under paragraph (b)(3) of this
section, they are both employers sponsoring the plan.
Because Participant C’s FICA wages from Employer
G in 2025 did not exceed $150,000, Participant C
is not subject to the requirements of section 414(v)
(7)(A) with respect to elective deferrals that are
made from compensation paid by Employer G in
2026. Accordingly, Participant C is not required to
designate any catch-up contributions made for 2026
under Plan P as designated Roth contributions. This
is the case even though Participant C had wages from
Employer F (an employer sponsoring the plan) that
exceeded $150,000 for 2025.

February 18, 2025 854 Bulletin No. 2025–8
(5) Example 5: Correction of section 414(v)(7)
failure—(A) Facts. Participant D, who attains age 55
in 2026, participates in a section 401(k) plan, Plan
Q, sponsored by Employer H. Plan Q does not limit
elective deferrals except as necessary to comply with
sections 401(a)(30) and 415(c). Plan Q does not pro-
vide catch-up eligible participants with a separate
election for elective deferrals that are in excess of the
section 401(a)(30) limit and provides that such a par-
ticipant is permitted to defer amounts in excess of the
section 401(a)(30) limit on elective deferrals up to
the applicable dollar catch-up limit for the year. For
2025, Participant D had $151,000 in wages (within
the meaning of section 3121(a)) from Employer H.
For 2026, Participant D elects to defer $1,250 into
Participant D’s account in Plan Q for each of 24 pay
periods. Employer H has in place practices and pro-
cedures that are designed to prevent section 414(v)
(7) failures and to result in compliance with the sec-
tion 414(v)(7) Roth catch-up requirement at the time
an elective deferral is made, and Plan Q provides
for a deemed Roth catch-up election as described
in paragraph (c)(3)(i) of this section. Nonetheless,
Employer H discovers that all of Participant D’s
elective deferrals under Plan Q during 2026 (a total
of $30,000) were pre-tax elective deferrals.
(B) Analysis. Because Participant D had over
$150,000 in wages from Employer H for 2025, under
section 414(v)(7)(A), Participant D’s catch-up con-
tributions under Plan Q for 2026 (that is, the elective
deferrals that exceed the section 401(a)(30) limit)
are required to be designated Roth contributions.
Thus, $6,000 of Participant D’s elective deferrals
for 2026 (that is, the elective deferrals in excess of
the section 401(a)(30) limit of $24,000) are required
to be designated Roth contributions. To keep these
contributions in the plan, Employer H must correct
the section 414(v)(7) failure with respect to $6,000
of Participant D’s pre-tax elective deferrals for 2026,
using one of the methods set forth under paragraph
(c)(2) of this section, by April 15, 2027 (the deadline
under paragraph (c)(3)(iii)(A) of this section).
(6) Example 6: Designated Roth contributions
that can satisfy the section 414(v)(7) Roth catch-up
requirement—(A) Facts. The facts are the same
as in paragraph (d)(5) of this section (Example 5),
except that the first $5,000 of the $30,000 total elec-
tive deferrals Participant D makes for 2026 are des-
ignated Roth contributions. (Thus, during each of
the first 4 pay periods in 2026, Participant D makes
$1,250 of elective deferrals that are designated Roth
contributions, and then subsequently makes $25,000
in pre-tax elective deferrals ratably over the remain-
ing 20 pay periods.) Participant D reaches the sec-
tion 401(a)(30) limit on elective deferrals during the
twentieth pay period of 2026 and does not make any
designated Roth contributions after reaching the sec-
tion 401(a)(30) limit on elective deferrals in 2026.
(B) Analysis. In accordance with paragraph (b)(1)
of this section, the $5,000 in elective deferrals that are
designated Roth contributions that Participant D made
at the beginning of 2026 can be taken into account for
purposes of satisfying Participant D’s Roth catch-up
requirement under section 414(v)(7). Thus, the por-
tion of Participant D’s pre-tax elective deferrals that
are required to be corrected is $1,000 ($6,000 of elec-
tive deferrals that are in excess of the section 401(a)
(30) limit, minus $5,000 of elective deferrals that
were made as designated Roth contributions within
the taxable year), and Employer H must correct the
section 414(v)(7) failure with respect to only $1,000
of Participant D’s pre-tax elective deferrals. To keep
the $1,000 in the plan, Employer H must correct the
section 414(v)(7) failure using one of the methods set
forth under paragraph (c)(2) of this section, by April
15, 2027 (the deadline under paragraph (c)(3)(iii)(A)
of this section).
(e) Applicability dates—(1) Statu-
tory applicability date. Section 414(v)(7)
applies to contributions in taxable years
beginning after December 31, 2023.
(2) Regulatory applicability dates—(i)
General rule. Except as provided in para-
graphs (e)(2)(ii) and (iii) of this section,
this section applies to contributions in
taxable years beginning after [DATE SIX
MONTHS AFTER DATE OF PUBLICA-
TION OF FINAL RULE].
(ii) Collectively bargained plans. In
the case of an applicable employer plan
maintained pursuant to one or more col-
lective bargaining agreements, paragraphs
(a) through (d) of this section shall not
apply until the first taxable year described
in paragraph (e)(2)(i) of this section, or, if
later, the first taxable year beginning after
the date on which the last collective bar-
gaining agreement related to the plan that
is in effect on December 31, 2025, termi-
nates (determined without regard to any
extension to those agreements).
(iii) Early implementation permitted.
A plan is permitted to apply the rules of
this section to contributions in any taxable
year beginning after December 31, 2023.
Douglas W. O’Donnell,
Deputy Commissioner.
(Filed by the Office of the Federal Register January
10, 2025, 8:45 a.m., and published in the issue of the
Federal Register for January 13, 2025, 90 FR 2645)
Notice of Proposed
Rulemaking
Source of Income from
Cloud Transactions
REG-107420-24
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing.
SUMMARY: This document contains
proposed rules for determining the source
of income from cloud transactions for pur-
poses of the international provisions of the
Internal Revenue Code. These proposed
rules would generally affect taxpayers
who earn gross income from engaging in
cloud transactions.
DATES: Written or electronic comments
and requests for a public hearing must be
received by April 14, 2025.
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically. Submit electronic sub-
missions via the Federal eRulemaking
Portal at www.regulations.gov (indicate
IRS and REG-107420-24) by following
the online instructions for submitting
comments. Requests for a public hear-
ing must be submitted as prescribed
in the “Comments and Requests for a
Public Hearing” section. Once submit-
ted to the Federal eRulemaking Portal,
comments cannot be edited or with-
drawn. The Department of the Treasury
(Treasury Department) and the IRS
will publish for public availability any
comment received to its public docket,
whether submitted electronically or in
hard copy. Send hard copy submissions
to: CC:PA:01:PR (REG-107420-24),
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:01:PR (REG-107420-
24), Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue NW,
Washington, DC 20224.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Christopher E. Fulle at (202)
317-5367 or Michelle L. Ng at (202)
317-6989 (not toll-free numbers); con-
cerning submissions of comments and
requests for a public hearing, contact the
Publications and Regulations branch at
(202) 317-6901 (not a toll-free number)
or by email to publichearings@irs.gov
(preferred).

Bulletin No. 2025–8 855 February 18, 2025
SUPPLEMENTARY INFORMATION:
Authority
The proposed regulations are issued
under the express delegation of authority
under section 7805 of the Internal Reve-
nue Code (Code). Section 7805(a) directs
the Secretary of the Treasury or her del-
egate to prescribe all needful rules and
regulations for the enforcement of that
section and others in the Code, including
all rules and regulations as may be neces-
sary by reason of any alteration of law in
relation to internal revenue.
Background
Proposed regulations published in the
Federal Register (84 FR 40317) in 2019
(REG-130700-14) (the 2019 proposed reg-
ulations) set forth proposed rules for iden-
tifying and classifying cloud transactions,
and the preamble to the 2019 proposed
regulations requested comments on rules
for sourcing income from cloud transac-
tions. Comments received addressed the
necessity of developing specific rules for
sourcing gross income from cloud trans-
actions and provided recommendations on
the content of such rules. This notice of
proposed rulemaking, which is being pub-
lished with the final regulations for iden-
tifying and classifying cloud transactions
(TD 10022) (the 2025 final regulations)
that are being published in the Final Rules
section of this same issue of the Federal
Register (90 FR 2977), proposes rules for
sourcing gross income from cloud trans-
actions.
Explanation of Provisions
I. Source of Gross Income from Cloud
Transactions
A. Overview of comments received
The Treasury Department and the IRS
received more than a dozen comments in
response to the request for comments on
administrable rules for sourcing income
from cloud transactions in a manner con-
sistent with sections 861 through 865.
Comments were split almost evenly with
regard to whether specific sourcing rules
are needed in this area, with a narrow
majority expressing support for such guid-
ance. Of this majority, several comments
recommended that services income from
cloud transactions be sourced accord-
ing to the location of the assets and per-
sonnel used in providing the service. A
number of these comments explained
that this approach would align with the
result in Piedras Negras Broadcasting
Co. v. Comm’r, 43 B.T.A. 297 (1941),
nonacq., 1941-2 C.B. 22, aff’d, 127 F. 2d.
260 (5th Cir. 1942), in which the income
of a radio broadcasting corporation was
determined to be foreign source because
its broadcasting facilities and employees
were located in Mexico, even though the
corporation broadcasted programs primar-
ily to listeners located in the United States
and received almost all of its income from
advertisers located in the United States.
Other comments voiced the need for spe-
cific rules for sourcing income from cloud
transactions, but did not recommend a
particular sourcing approach, with one
comment suggesting that the location of
the cloud service provider’s assets and
personnel and the location of the end-user
could be evaluated in developing the rules.
Another comment proposed that given the
challenges of sourcing cloud transactions
when the operations, employees, and cus-
tomers are dispersed, the sourcing rules
could provide taxpayers with the option
to source the income to the place where
the contract is executed. While almost half
of the comments received stated that reg-
ulations for sourcing income from cloud
transactions are unnecessary because
existing statutory, regulatory, and case
law provides sufficient guidance, an over-
whelming majority of those comments
recommended that if issued, the regula-
tions should take into account the location
of the assets and people that contribute to
the delivery of the cloud service.
Many of the comments discussed
whether the sourcing determination
should be made by taking into account
solely the assets and personnel of the tax-
payer that recognizes the income from
the performance of the cloud service
(the taxpayer-by-taxpayer approach), or
whether taxpayers should be required to
look through to the activities and person-
nel of other related legal entities that con-
tribute to the provision of the service (the
unitary approach). Nearly all comments
on this issue stated that income from
cloud transactions should be sourced on
a taxpayer-by-taxpayer basis. Comments
explained that the taxpayer-by-taxpayer
approach is administrable and supported
by the principles of Miller v. Comm’r, 73
T.C.M. 2319 (1997), aff’d without pub-
lished decision, 166 F.3d 1218 (9th Cir.
1998), in which income that a foreign cor-
poration received for performing research
and development services was held to be
foreign source notwithstanding that the
performance of those services was sub-
contracted to certain related and unrelated
entities, including a wholly-owned U.S.
subsidiary. One comment suggested that
a taxpayer-by-taxpayer rule for sourcing
services income from cloud transactions
could be supplemented with anti-abuse
provisions requiring the income to be
sourced on a look-through or unitary
basis in limited circumstances. However,
another comment asserted that sourcing
services income from cloud transactions
on a look-through or unitary basis should
be required, explaining that this approach
more accurately reflects the economic
realities of the transaction because it
accounts for the contributions made by
members of the multinational group to the
provision of the service. That comment
also expressed the concern that sourcing
on a taxpayer-by-taxpayer basis could
cause U.S. source income to be under-
stated with respect to commonly-used
structures in which the development,
enhancement, maintenance, protection,
and exploitation functions are performed
primarily by U.S. entities but the services
income is recorded by a foreign entity that
contracts directly with the end-users to
whom the cloud transaction is provided.
B. Need for proposed regulations
The development and advancement
of cloud technologies has transformed
both the value that businesses deliver to
customers and the way that value is deliv-
ered, giving rise to cloud-based business
models and cloud transactions. The 2025
final regulations classify a cloud trans-
action (within the definition of §1.861-
19(b)) as the provision of services. See
§1.861-19(c)(1). Under the source rules
of the Code, which were designed in the
context of more traditional modes of com-

February 18, 2025 856 Bulletin No. 2025–8
merce, gross income from the provision of
services is sourced to the place where the
service is performed. See sections 861(a)
(3) and 862(a)(3). The Code does not pro-
vide guidance on how to determine the
place of performance for specific types
of service transactions, including cloud
transactions. Further, while section 863(b)
(1) specifies that income from services
rendered partly within and partly with-
out the United States is treated as derived
partly from each source, there is no statu-
tory guidance prescribing how to source
the services income, including income
from cloud transactions, in such circum-
stances. The distinctive attributes of cloud
transactions, including the network-based
and increasingly automated nature of the
service delivery and the role of intangible
property (such as proprietary software and
other proprietary digital content) in ensur-
ing the functionality, reliability, and per-
formance of the service, raise questions
regarding how to determine the place of
performance of a cloud transaction.
The proposed regulations, which
would establish specific sourcing rules
that interpret the place of performance
in the context of a cloud transaction, are
therefore necessary to provide clarity and
certainty to both taxpayers and the IRS. To
determine the place of performance, the
proposed sourcing rules would take into
account the location of the employees and
assets, including both tangible and intan-
gible assets, that contribute to the provi-
sion of the cloud transaction. The Trea-
sury Department and the IRS are of the
view that, because of the technical nature
of a cloud transaction, the place of per-
formance for purposes of sourcing gross
income is the place where the resources
and personnel responsible for the devel-
opment, management, and delivery of the
service are located because this is where
the key activities in the provision of the
service occur, as opposed to ancillary
activities such as marketing, sales, and
contracting. This approach is consistent
with case law on the sourcing of income
involving analogous traditional business
models where services are provided from
a location that differs from the customers’
location, specifically, the Piedras Negras
case. See 43 BTA at 297, aff’d, 127 F.2d at
260. In line with the approach in Piedras
Negras, the proposed rules do not consider
the location of the customer or end-user,
as it merely reflects the place where the
service is consumed, not where the perfor-
mance actually takes place as prescribed
by sections 861(a)(3) and 862(a)(3). Sim-
ilarly, the location where a contract for a
cloud transaction is executed should not
dictate the source of the resulting gross
income because that location may not
bear any connection to where the service
is performed.
The proposed cloud transaction sourc-
ing rules would apply on a taxpayer-by-tax-
payer basis and therefore, in determining
the gross income of an entity that recog-
nizes the services income, would take into
account solely the assets and personnel
of the legal entity. The Treasury Depart-
ment and the IRS agree that this approach
is administrable and practical. By focus-
ing on the economic contributions that
the contracting entity makes to the per-
formance of the cloud transaction, the
taxpayer-by-taxpayer approach provides
a clear, straightforward way of determin-
ing the source of gross income from the
transaction, while allowing for appropri-
ate deductions from that gross income
in respect of amounts paid or accrued to
affiliated or unaffiliated contributors to the
provision of the cloud services, leading to
reduced complexity in tax compliance and
enforcement. This approach is also gener-
ally consistent with the current approach
for sourcing other categories of income,
including non-cloud services income such
as gross income from certain sales of
inventory that is sourced to the location
of production activity under §1.863-3(c)
(1)(ii). Further, this approach would not
impede the IRS’s ability to assert common
law principles, such as the economic sub-
stance doctrine, the step transaction doc-
trine, and the rules of agency, or existing
statutory and regulatory provisions, such
as the section 482 rules, to ensure that the
Federal income tax consequences more
properly reflect the economic realities of
the transaction, including the contribu-
tions to a cloud transaction made by affil-
iates of the taxpayer. Notwithstanding the
above, the Treasury Department and the
IRS will continue to study the implica-
tions of applying the taxpayer-by-taxpayer
approach in the context of sourcing gross
income from services generally, and may
refine or propose revisions to the approach
if they determine that this is necessary to
adequately account for the interdependen-
cies and collaboration across entities in a
multinational group, and consequently, to
ensure a fair and accurate representation
of where services are performed.
C. Explanation of proposed rules for
sourcing gross income from cloud
transactions
The proposed regulations state that
gross income from a cloud transaction is
sourced as services income under section
861(a)(3) or 862(a)(3), as appropriate,
according to where the service is per-
formed. Proposed §1.861-19(d)(1). The
place of performance of a cloud trans-
action is established through a formula
composed of a fraction that relies on three
factors: the intangible property factor, the
personnel factor, and the tangible prop-
erty factor (within the meaning of pro-
posed §1.861-19(d)(2), (d)(3), and (d)(4),
respectively). Id.
As discussed in detail in Parts I.C.1
through 3 of this Explanation of Provi-
sions, the intangible property factor is
intended to reflect the contribution of
intangible property to the provision of
the cloud transaction; the personnel factor
is intended to reflect the contribution of
certain employees to the provision of the
cloud transaction; and the tangible prop-
erty factor is intended to reflect the con-
tribution of tangible property to the provi-
sion of the cloud transaction. Each factor
is determined by taking into account cer-
tain worldwide expenses by the entity
that, in the view of the Treasury Depart-
ment and the IRS, properly represent the
contributions made by or through the rel-
evant personnel and assets to the perfor-
mance of the cloud transaction. Together,
these factors make up the denominator of
the fraction. The numerator of the fraction
is determined by summing up the portion
of each factor that is from sources within
the United States.
Under the proposed regulations, the
gross income from a cloud transaction
multiplied by the fraction yields the por-
tion of the gross income that is from
sources within the United States. Proposed
§1.861-19(d)(1). The portion of the gross
income that remains is gross income from
sources without the United States. Id.

Bulletin No. 2025–8 857 February 18, 2025
1. Intangible Property Factor
a. Determination of the intangible
property factor
The Treasury Department and the IRS
consider intangible property to be a sig-
nificant contributor to the performance of
cloud transactions. Intangible property,
such as software, algorithms, data pro-
cessing applications, and other proprietary
technologies, often plays a crucial role in
the performance of a cloud transaction,
including by shaping the unique features
of the service and ensuring the service’s
functionality, reliability, and delivery.
This role of intangible property is becom-
ing particularly important as cloud trans-
actions are becoming increasingly auto-
mated, requiring less and less contribution
from personnel and tangible property to
deliver value to customers. In such cases,
the intangible property itself may be the
main force that is effectively perform-
ing the service. It would be difficult and
burdensome, however, to ascertain the
precise value or contribution of an item
of intangible property to the performance
of a cloud transaction given the chal-
lenges inherent in isolating the specific
impact of various intangibles on the cloud
transaction’s overall performance. The
Treasury Department and the IRS are of
the view that certain research and exper-
imental expenses, amortization, and roy-
alties incurred during the taxable year in
which the cloud transaction is performed
could serve as an administrable proxy for
reflecting the contribution of intangible
property to the performance of the cloud
transaction. These expenses serve as the
foundation for the intangible property fac-
tor.
Specifically, the intangible property
factor is the sum of specified research or
experimental expenditures (as defined
under section 174(b)) incurred during the
taxable year that are associated with the
cloud transaction as well as royalty and
certain amortization expenses incurred
during the taxable year to the extent they
are for intangible property directly used to
provide the cloud transaction (collectively,
“intangible property costs”). Proposed
§1.861-19(d)(2)(i). Intangible property
costs include payments to third-party and
related-party research and experimenta-
tion providers. Because specified research
or experimental expenditures are used as a
proxy for current use of existing self-de-
veloped intangible property, those expen-
ditures are taken into account as they are
incurred, regardless of whether and when
they are deductible, in order to match the
timing of when compensation is paid to
employees performing research or exper-
imentation activities. As discussed in Part
I.C.1.b. of this Explanation of Provisions,
the intangible property factor is sourced
based on this compensation; therefore the
Treasury Department and the IRS are of
the view that taking the specified research
or experimental expenditures in the year
when incurred provides an administrable
rule that recognizes the economic con-
tribution of the intangible property and
avoids taxpayers having to trace section
174(a)(2)(B) amortization deductions
back to the year in which incurred. How-
ever, royalty and amortization expenses
are taken into account for the intangible
property factor when deductible because
that is the most administrable proxy for
measuring the economic contribution
existing licensed or acquired intangible
property makes to a cloud transaction.
In computing the intangible prop-
erty factor, the Treasury Department and
the IRS recognize that some specified
research or experimental expenditures
may not be directly traceable to a single
transaction because intangible property
developed through research and exper-
imentation conducted in a taxable year
may not be monetized in cloud transac-
tions until a future year. In light of this,
and consistent with the approach taken for
allocating and apportioning deductions
for such expenditures, the proposed regu-
lations provide that the specified research
or experimental expenditures to be taken
into account with respect to a cloud trans-
action from which the gross income is
being sourced are those associated with all
cloud transactions provided in that taxable
year that are in the same product line as
the cloud transaction. Id.; cf. §1.861-17(b)
(recognizing that research and experimen-
tation is an inherently speculative activity,
which when successful ultimately results
in the creation of intangible income, and
allocating expenditures for such activity
to gross intangible income earned in the
year of the expenditure). The Treasury
Department and the IRS are of the view
that the current-year approach in the pro-
posed rules serves as a workable, reliable,
and appropriate proxy for existing intan-
gible property in the same product line.
Under the proposed regulations, cloud
transactions are considered to be in the
same product line if they are within the
same Corresponding Index Entry under
a North American Industry Classification
System (NAICS) code number. Proposed
§1.861-19(d)(8). The proposed regula-
tions also include a consistency require-
ment to prevent taxpayers from changing
Corresponding Index Entry and NAICS
code numbers absent a change in facts.
Id. The intangible property factor focuses
on work done in the same product line as
the cloud transaction to balance between
specificity and practicality. The factor
aims to capture the contribution of intan-
gible property to the performance of a
cloud transaction, so a factual relationship
between the specified research or exper-
imentation expenditures and the cloud
transaction being tested needs to exist. At
the same time, the Treasury Department
and the IRS are aware that it is not neces-
sarily possible to precisely determine the
product or products that will benefit from
a research and experimentation process
at an early stage. To prevent duplication,
the proposed regulations require expenses
that would be included in the intangible
property factor for multiple cloud trans-
actions in a taxable year to be allocated
among those transactions (taking into
account the aggregation rule described in
Part I.C.4 of this Explanation of Provi-
sions) based on the relative gross income
earned from each transaction. Proposed
§1.861-19(d)(2)(i). Any intangible prop-
erty costs that support cloud transactions
in general but that do not relate to any spe-
cific cloud transaction should be allocated
in the same manner.
b. Determination of the portion of the
intangible property factor from U.S.
sources
Once the intangible property factor is
determined, the portion of this factor that
is attributable to sources within the United
States must be identified for inclusion in
the numerator. Given the non-physical
nature of intangible property, its location

February 18, 2025 858 Bulletin No. 2025–8
when used in providing a service may be
challenging to ascertain. Under the pro-
posed rules, the portion of the intangible
property factor that is from sources within
the United States is determined based on
the extent to which certain of the taxpay-
er’s employees perform services in the
United States, determined by leveraging
the principles of §1.861-4(b)(2)(ii)(E)
(relating to sourcing compensation from
labor or personal services on a time basis).
The employees considered for this pur-
pose are those whose primary function is
to perform research and experimentation
activities associated with cloud transac-
tions in the same product line as the cloud
transaction the gross income of which is
being sourced. Proposed §1.861-19(d)
(2)(ii). The proposed regulations provide
that the employee’s primary function is
the set of tasks to which they are assigned
to spend the majority of their working
time. Proposed §1.861-19(d)(5). In order
to account for amounts paid to third-party
research and experimentation providers,
amortization, and royalties, the fraction
determined by the compensation that has
been paid to the research and experimen-
tation personnel is applied to the total
research and experimental expense deter-
mined under §1.861-19(d)(2)(i). See pro-
posed §1.861-19(d)(2)(ii).
The Treasury Department and the IRS
are of the view that the location of research
and experimentation personnel is a logi-
cal and accurate proxy for the location of
intangible property that contributes to the
performance of a cloud transaction for a
number of reasons. First, the research and
experimentation personnel contribute to
the creation, design, and refinement of the
intangible property either through their
own efforts or by managing and facilitat-
ing research and experimentation work
carried out by third parties. Therefore,
the value of the intangible property used
to provide the cloud transaction depends
on their personal efforts and expertise.
Additionally, while intangible property
does not have a physical form that can be
easily located, the place where research
and experimentation personnel operate
is tangible and verifiable. Relatedly, tax-
payers generally know or should know the
location of their research and experimen-
tation personnel, and thus, relying on the
location of these personnel would avoid
a burdensome compliance process that
might otherwise be required to determine
the location of intangible property used
to provide cloud transactions. For simi-
lar reasons, in determining gross income
of a taxpayer, the rule does not look to
research and experimentation personnel
other than those of the taxpayer, and uses
the taxpayer’s own personnel as a proxy
for all research and experimentation per-
sonnel working on the relevant intangible
property.
The determination of which research
and experimentation employees should
be taken into account focuses on the
employees whose primary function is
the performance of research and experi-
mentation activities, without limiting the
analysis to nonmanagerial employees or
first-line managers who undertake these
activities. This is because research and
experimentation typically involves con-
tributions from personnel across vari-
ous levels of the organization, including
senior leadership and technical staff, as
an idea for a product or service moves
from concept to design, implementation,
and testing. Accordingly, focusing solely
on nonmanagerial employees or first-line
managers could result in missing key
contributors to the research and exper-
imentation activities associated with a
cloud transaction, including individuals
within the organizational structure who
oversee or engage in higher-level experi-
mentation efforts.
2. Personnel Factor
a. Determination of the personnel factor
and the portion from U.S. sources
The Treasury Department and the IRS
are of the view that while the underlying
technology and infrastructure are import-
ant in providing a cloud transaction to cus-
tomers, the employees who manage, oper-
ate, and maintain these systems are also
fundamental to the provision of the ser-
vice. Accordingly, the efforts of personnel
employed by the taxpayer who directly
contribute to the provision of the cloud
transaction must be taken into account
in sourcing gross income from that cloud
transaction. To properly reflect the contri-
bution of these personnel to the provision
of the cloud transaction, the personnel
factor is composed of the compensation
paid to the taxpayer’s employees whose
primary function is to directly contribute
to the provision of the cloud transaction.
See proposed §1.861-19(d)(3)(i). How-
ever, to avoid double counting income,
compensation that is paid to research and
experimentation personnel described in
proposed §1.861-19(d)(2) is excluded. Id.
As explained in Part I.C.1.b of this
Explanation of Provisions, an employ-
ee’s primary function is the set of tasks
to which they are assigned to spend the
majority of their working time. Proposed
§1.861-19(d)(5). The proposed regula-
tions provide a rule to account for situ-
ations in which an employee’s primary
function is to directly contribute to more
than one cloud transaction. In those cases,
all of the employee’s compensation must
be allocated among those cloud transac-
tions based on the relative amount of time
the employee spends contributing to each
transaction. Proposed §1.861-19(d)(3)
(i). To illustrate the application of these
rules, if an employee spends 30 percent
of their working time on Cloud Transac-
tion 1, 30 percent of their working time
on Cloud Transaction 2, and 40 percent of
their working time not on cloud transac-
tions, that employee’s primary function
would be working on cloud transactions
because a majority of their working time
(60 percent) is spent on cloud transac-
tions. Consequently, all of this employee’s
compensation would be allocated among
Cloud Transaction 1 and Cloud Transac-
tion 2 based on the relative amount of time
the employee spends contributing to each
of the two cloud transactions. However,
where an employee contributes to multiple
cloud transactions simultaneously, their
compensation must be allocated among
those transactions based on the relative
gross income earned from each transac-
tion because it would be impossible to use
a time-based allocation in such cases. Id.
Similar to the determination of the
numerator of the intangible property fac-
tor, which is the portion of that factor from
sources within the United States, the pro-
posed regulations provide the numerator
of the personnel factor, which is the por-
tion of that factor from sources within the
United States, is equal to the part of the
personnel factor that is paid for services
performed in the United States using the

Bulletin No. 2025–8 859 February 18, 2025
principles of §1.861-4(b)(2)(ii)(E). Pro-
posed §1.861-19(d)(3)(ii).
b. Direct contribution to the provision of
the cloud transaction
The proposed regulations set forth
rules that define which employees are
considered to directly contribute to the
provision of the cloud transaction and
which employees are not considered to do
so. Under proposed §1.861-19(d)(3)(iii),
personnel directly contribute to the pro-
vision of a cloud transaction to the extent
they personally perform technical or oper-
ational activities for the provision of the
cloud transaction, or to the extent they are
managers who directly support or imme-
diately supervise such technical or oper-
ational personnel. Proposed §1.861-19(d)
(3)(iii) provides a non-exhaustive list of
the functions that fall within the meaning
of “technical and operational activities.”
These functions are the conduct of scien-
tific, engineering, or technical activities
for the configuration, delivery, or main-
tenance of the cloud transaction; the pro-
vision of monitoring, diagnostics, or inci-
dent response with respect to the cloud
transaction’s performance, reliability,
efficiency, or security; the management of
the cloud transaction’s infrastructure; the
delivery of end-user support with respect
to the cloud transaction; and the conduct
of any similar functions. Id. Further, under
proposed §1.861-19(d)(3)(iv), personnel
are not considered to directly contribute
to the provision of the cloud transaction
to the extent they conduct business strat-
egy, leadership, legal or compliance, mar-
keting, communications, sales, business
development, finance, accounting, cler-
ical, human resources or administrative
duties, or similar functions.
Proposed §1.861-19(d)(3)(iii) and
(iv) are intended to identify the individ-
uals that generally have the hands-on,
day-to-day involvement in the software,
infrastructure, and processes that enable
the cloud transaction to be provided to
the customer and to function as intended.
The Treasury Department and the IRS are
of the view that the individuals who per-
sonally perform the technical and opera-
tional work and the immediate managers
who direct and supervise that work are
essential to the performance of the ser-
vice, and therefore, their contributions
must be included. By contrast, employees
in higher-level management or executive
positions who are responsible for setting
the strategic direction of the business and
making high-level decisions are too far
removed from the hands-on, day-to-day
work that ensures the delivery of any par-
ticular cloud transaction to the customer.
Therefore, while their roles are import-
ant to the overall business, they do not
directly contribute to the provision of the
transaction itself and are not accounted for
as part of the personnel factor. The Trea-
sury Department and the IRS are of the
view that this distinction properly inter-
prets the statutory requirement to source
gross income from a service to the place
where the service is performed.
3. Tangible Property Factor
a. Determination of the tangible property
factor and the portion from U.S. sources
Cloud transactions depend on physi-
cal infrastructure and hardware, such as
servers and networking equipment. For
this reason, the Treasury Department
and the IRS are of the view that tangible
property that directly supports the provi-
sion of a cloud transaction must be taken
into account in determining the source of
gross income from a cloud transaction.
Under the proposed regulations, the tan-
gible property factor, which is intended to
represent the contribution of the tangible
property to the performance of the cloud
transaction, is the sum of the depreciation
and rental expense for the taxable year
for tangible property owned or leased by
the taxpayer, to the extent the property is
directly used to provide the cloud transac-
tion. See proposed §1.861-19(d)(4)(i). To
eliminate double counting, the proposed
regulations require any depreciation or
rental expense that would be included in
the tangible property factor for multiple
cloud transactions in a taxable year to be
allocated among those transactions based
on the relative gross income earned from
each transaction. The portion of the tan-
gible property factor that is from sources
within the United States and comprises
the numerator is equal to the part of the
tangible property factor attributable to
property located within the United States.
b. Determination of the depreciation
expense
For purposes of computing the tangible
property factor, depreciation expense for
a taxable year is determined by dividing
the adjusted depreciable basis (as defined
in §1.168(b)-1(a)(4)) of the tangible prop-
erty by the applicable recovery period as
though the alternative depreciation system
in section 168(g)(2) applied for the entire
period the property has been in service.
Proposed §1.861-19(d)(4)(iii). The Trea-
sury Department and the IRS are of the
view that the determination must be made
without taking into account tax incentives
intended to accelerate the recovery of
costs in order to provide an allocation of
depreciation that more closely reflects the
asset’s actual economic life. Thus, the pro-
posed regulations explicitly state that the
depreciation expense is computed without
regard to the election to expense certain
depreciable property under section 179
and without regard to any additional first-
year depreciation provision (for example,
section 168(k)).
4. Aggregation Rule
The proposed regulations include an
aggregation rule, set forth in proposed
§1.861-19(d)(7), that is intended to
enhance the administrability of these reg-
ulations and to alleviate the compliance
burden on taxpayers associated with the
regulations. The rule allows a taxpayer
to aggregate substantially similar cloud
transactions and source the gross income
from those transactions as if they were one
transaction. However, the rule also pro-
hibits a taxpayer from aggregating sub-
stantially similar cloud transactions if the
taxpayer knows, or has reason to know,
that doing so would materially distort the
source of gross income from any cloud
transaction.
For example, assume a cloud provider
offers two distinct but substantially similar
cloud transactions, Service 1 and Service 2,
that are not in the same product line (within
the meaning of proposed §1.861-19(d)(8)).
Further, assume the cloud provider incurs
significantly more research and experimen-
tation costs associated with Service 2 as
compared to those incurred for Service 1,
and all of the research and experimentation

February 18, 2025 860 Bulletin No. 2025–8
personnel of the cloud provider are located
in the United States at all times. This leads
a significantly larger percentage of the
income from Service 2 to be sourced within
the United States as compared to that of
Service 1. Aggregating Service 1 and
Service 2 would cause a materially larger
amount of gross income from Service 1 to
be sourced within the United States than if
the income were sourced without aggre-
gating Service 1 with Service 2. Therefore,
under the proposed regulations, the cloud
provider cannot aggregate Service 1 and
Service 2 to source the gross income from
these transactions.
5. Anti-Abuse Rule
In order to prevent taxpayers from cir-
cumventing the purpose of the proposed
regulations – to attribute the source of
gross income from a cloud transaction
to the place where the transaction is per-
formed – the proposed regulations would
provide an anti-abuse rule. That anti-abuse
rule, included in proposed §1.861-19(d)
(9), would provide that if the taxpayer
has entered into or structured one or more
transactions with a principal purpose of
reducing its U.S. tax liability in a manner
inconsistent with the purpose of the pro-
posed regulations, appropriate adjustments
will be made so that the source of the tax-
payer’s gross income reflects the location
where the cloud transaction is performed.
II. Request for Comments
Comments are requested on all aspects
of the proposed regulations, including the
following topics:
(1) whether there are appropriate and
administrable ways to determine the
portion of the intangible property fac-
tor from sources within and without
the United States other than by rely-
ing on the location of research and
experimental personnel;
(2) whether and to what extent compa-
nies presently track specified research
or experimental expenditures by
product line;
(3) whether there is a practicable and
verifiable way to precisely link the
contribution of intangible property
developed in one year to a cloud
transaction provided in a later year;
(4) whether relative gross income is
an appropriate allocation method
in cases in which the same cost or
expense would be included in a factor
for multiple cloud transactions during
a taxable year;
(5) whether additional operating costs
incurred with respect to tangible
property directly used in the provi-
sion of the cloud transaction, such as
electricity costs associated with cloud
transactions, should be included in
the tangible property factor, and if so,
how to capture the costs that contrib-
ute to the performance of the cloud
transaction in an administrable man-
ner; and
(6) whether a special rule is needed to
source the gross income of resellers
of cloud transactions, for example,
whether assets and employees other
than those described in the proposed
regulations better reflect the reseller’s
role in the cloud transaction.
Proposed Applicability Date
The regulations are proposed to apply
to taxable years beginning on or after the
date of publication of the Treasury deci-
sion adopting these regulations as final
regulations in the Federal Register.
Special Analyses
I. Regulatory Planning and Review—
Economic Analysis
Pursuant to the Memorandum of
Agreement, Review of Treasury Regula-
tions under Executive Order 12866 (June
9, 2023), tax regulatory actions issued by
the IRS are not subject to the requirements
of section 6 of Executive Order 12866, as
amended. Therefore, a regulatory impact
assessment is not required.
II. Paperwork Reduction Act
This proposed rulemaking does not
impose or revise any information collec-
tions subject to 44 U.S.C. Chapter 35.
III. Regulatory Flexibility Act
The Regulatory Flexibility Act requires
consideration of the regulatory impact on
small businesses. It is hereby certified that
these proposed regulations, if adopted,
will not have a significant economic
impact on a substantial number of small
entities within the meaning of section
601(6) of the Regulatory Flexibility Act
(5 U.S.C. chapter 6).
These proposed regulations would set
forth specific rules for sourcing income
from cloud transactions. Specifically, the
proposed regulations provide guidance on
sourcing such income based on three fac-
tors that are broadly consistent with exist-
ing case law on sourcing income from
analogous transactions. Although data are
not readily available to estimate the eco-
nomic impact of the proposed regulations,
the Treasury Department and the IRS
project that any economic impact of the
proposed regulations would be minimal
for businesses regardless of size. This is
because the proposed regulations adopt an
approach that is broadly consistent with
the general principles of existing law and
reflect current industry practice. There-
fore, the proposed rules are not expected
to materially alter taxpayer behavior and
therefore the Treasury Department and the
IRS expect no material economic impact.
For the reasons stated, a regulatory
flexibility analysis under the Regulatory
Flexibility Act is not required. Notwith-
standing the above, the Treasury Depart-
ment and the IRS invite comments on the
impact the proposed rules would have on
small entities.
IV. Section 7805(f)
Pursuant to section 7805(f) of the
Code, this notice of proposed rulemaking
will be submitted to the Chief Counsel for
Advocacy of the Small Business Adminis-
tration for comment on its impact on small
business.
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-

Bulletin No. 2025–8 861 February 18, 2025
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 Fed-
eralism) prohibits an agency from publish-
ing any rule that has federalism implica-
tions if the rule either imposes substantial,
direct compliance costs on State and local
governments, and is not required by stat-
ute, or preempts State law, unless the
agency meets the consultation and fund-
ing requirements of section 6 of the Exec-
utive 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 a Public
Hearing
Before these proposed regulations
are adopted as final regulations, consid-
eration will be given to any comments
that are submitted timely to the IRS as
prescribed in this preamble under the
ADDRESSES heading. All comments
will be available at www.regulations.
gov.
A public hearing will be scheduled if
requested in writing by any person that
timely submits comments. Requests for
a public hearing are also encouraged
to be made electronically. If a public
hearing is scheduled, notice of the date,
time, and place for the public hearing
will be published in the Federal Reg-
ister.
Drafting Information
The principal authors of these pro-
posed regulations are Christopher E. Fulle
and Michelle L. Ng of the Office of the
Associate Chief Counsel (International).
However, other personnel from the Trea-
sury Department and the IRS participated
in their development.
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 IRS propose to amend 26 CFR part 1
as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read in part as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.861-19, as added in a
final rule published elsewhere in this issue
of the Federal Register, effective January
14, 2025, is amended as follows:
a. Revise the section heading and para-
graph (a);
b. Redesignate paragraphs (d), (e), and
(f) as paragraphs (e), (f), and (g), respec-
tively;
c. Add new paragraph (d);
d. For each paragraph listed in the fol-
lowing table, remove the language in the
“Remove” column and add in its place the
language in the “Add” column.
ParagraphRemoveAdd
newly redesignated (e), first sentenceparagraph (d)paragraph (e)
newly redesignated (e)(2)(i), first sentenceparagraph (d)(1)(i)paragraph (e)(1)(i)
newly redesignated (e)(2)(ii), first sentenceparagraph (d)(1)paragraph (e)(1)
newly redesignated (e)(5)(i), first sentenceparagraph (d)(4)paragraph (e)(4)
newly redesignated (e)(6)(i), first sentenceparagraph (d)(5)(i)paragraph (e)(5)(i)
newly redesignated (e)(6)(ii)(A), first sentenceparagraph (d)(5)(ii)paragraph (e)(5)(ii)
newly redesignated (g), first sentenceparagraph (e)paragraph (f)
e. Add paragraphs (e)(12) and (13); and
f. Revise newly redesignated paragraph
(f).
The revisions and additions read as fol-
lows:
§1.861-19 Classification of, and
source of gross income from, cloud
transactions.
(a) In general. This section provides
rules for classifying and sourcing gross
income from cloud transactions (as
defined in paragraph (b) of this section).
The rules of this section apply for pur-
poses of Internal Revenue Code sections
59A, 245A, 250, 267A, 367, 404A, 482,
679, and 1059A; subchapter N of chapter
1; chapters 3 and 4; and sections 842 and
845 (to the extent involving a foreign per-
son), and apply with respect to transfers to
foreign trusts not covered by section 679.
* * * * *
(d) Source of income from a cloud
transaction--(1) In general. Gross income
from a cloud transaction is sourced as
services income under section 861(a)(3)
or 862(a)(3), as appropriate, according to
where the service is performed. The place
of performance of the cloud transaction
is based on the intangible property fac-
tor described in paragraph (d)(2) of this
section, the personnel factor described in
paragraph (d)(3) of this section, and the
tangible property factor described in para-
graph (d)(4) of this section. To determine
gross income from a cloud transaction
from sources within the United States,
gross income from the cloud transaction is

February 18, 2025 862 Bulletin No. 2025–8
multiplied by a fraction, the numerator of
which is the sum of the portion of each of
the intangible property factor, personnel
factor, and tangible property factor that is
from sources within the United States as
calculated in paragraphs (d)(2)(ii), (3)(ii),
and (4)(ii) of this section, and the denomi-
nator of which is the sum of the intangible
property factor, personnel factor, and tan-
gible property factor as calculated in para-
graphs (d)(2)(i), (3)(i), and (4)(i) of this
section. See paragraph (e)(12) of this sec-
tion (Example 12). Any remaining gross
income from a cloud transaction is gross
income from sources without the United
States.
(2) Intangible property factor--(i)
Total. For purposes of paragraph (d)(1) of
this section, the intangible property factor
with respect to any cloud transaction per-
formed by the taxpayer in a taxable year is
equal to the sum of the taxpayer’s speci-
fied research or experimental expenditures
(as defined in section 174(b) and regard-
less of whether and when the expenses are
deductible) for that taxable year that are
associated with cloud transactions in the
same product line as the cloud transaction
performed and the taxpayer’s amortiza-
tion (other than amounts capitalized under
section 174(a)(2)(A) and amortized under
section 174(a)(2)(B)) and royalty expense
for intangible property for the taxable
year to the extent directly used to provide
the cloud transaction. If the same cost or
expense would be included by a taxpayer
in the intangible property factor for more
than one cloud transaction during a tax-
able year, such cost or expense is allocated
among each such cloud transaction based
on the relative gross income earned from
each cloud transaction.
(ii) Portion from sources within the
United States. With respect to a cloud
transaction provided in a taxable year, the
portion of the intangible property factor
from sources within the United States is
determined using a formula based on the
location of all of the taxpayer’s employ-
ees whose primary function is to perform
research and experimentation activities
associated with cloud transactions in the
same product line in that taxable year (the
research and experimentation personnel).
The formula is as follows: applying the
principles of §1.861-4(b)(2)(ii)(E) (relat-
ing to sourcing income from labor or per-
sonal services on a time basis), divide the
sum of the total compensation paid to the
research and experimentation personnel
for services performed within the United
States by the sum of the total compensa-
tion paid to the research and experimenta-
tion personnel, and multiply the resulting
quotient by the intangible property factor
described in paragraph (d)(2)(i) of this
section.
(3) Personnel factor--(i) Total. For
purposes of paragraph (d)(1) of this sec-
tion, the personnel factor with respect to
a cloud transaction performed in a tax-
able year is equal to the sum of the total
compensation paid to all of the taxpay-
er’s employees in that taxable year whose
primary function is to directly contribute
to the provision of the cloud transaction,
excluding compensation amounts that are
paid to research and experimentation per-
sonnel described in paragraph (d)(2) of
this section. If, however, an employee’s
primary function is to directly contrib-
ute to multiple cloud transactions, then
all of such employee’s compensation is
allocated among the cloud transactions
that the employee directly contributes to
as part of their primary function based on
the relative amount of time the employee
spends contributing to each cloud transac-
tion. If an employee contributes to mul-
tiple cloud transactions simultaneously,
then that employee’s compensation is
allocated among those cloud transactions
based on the relative gross income earned
from each cloud transaction.
(ii) Portion from sources within the
United States. With respect to a cloud
transaction, the portion of the personnel
factor described in paragraph (d)(3)(i) of
this section that is from sources within the
United States is equal to the part of that
factor paid for services performed in the
United States, as determined using the
principles of §1.861-4(b)(2)(ii)(E) (relat-
ing to sourcing income from labor or per-
sonal services on a time basis).
(iii) Personnel considered to directly
contribute to the provision of the cloud
transaction. Personnel are considered
to directly contribute to the provision of
the cloud transaction to the extent they
personally perform technical or opera-
tional activities for the provision of the
cloud transaction, or to the extent they
are a manager who directly supports or
immediately supervises such technical or
operational personnel. Such technical or
operational activities are the conduct of
scientific, engineering, or technical activ-
ities for the configuration, delivery, or
maintenance of the cloud transaction; the
provision of monitoring, diagnostics, or
incident response with respect to the cloud
transaction’s performance, reliability, effi-
ciency, or security; the management of
the cloud transaction’s infrastructure; the
delivery of end-user support with respect
to the cloud transaction; and the conduct
of any similar functions.
(iv) Personnel not considered to
directly contribute to the provision of the
cloud transaction. Personnel are not con-
sidered to directly contribute to the provi-
sion of the cloud transaction to the extent
they conduct business strategy, leadership,
legal or compliance, marketing, commu-
nications, sales, business development,
finance, accounting, clerical, human
resources or administrative duties, or sim-
ilar functions.
(4) Tangible property factor--(i) Total.
For purposes of paragraph (d)(1) of this
section, the tangible property factor with
respect to a cloud transaction performed
in a taxable year is equal to the sum of
the depreciation expense for that taxable
year for tangible property owned by the
taxpayer and rental expense for that tax-
able year for tangible property leased by
the taxpayer, in each case to the extent
directly used to provide the cloud transac-
tion. If any depreciation expense or rental
expense would be included in the tangible
property factor for more than one cloud
transaction during the taxable year, such
depreciation expense or rental expense is
allocated among the cloud transactions
based on relative gross income earned
from each cloud transaction.
(ii) Portion from sources within the
United States. The portion of the tangible
property factor described in paragraph (d)
(4)(i) of this section from sources within
the United States is equal to the part of
that factor attributable to property located
within the United States.
(iii) Determination of depreciation
expense. For purposes of paragraph (d)(4)
of this section, depreciation expense for a
taxable year is determined by dividing the
adjusted depreciable basis (as defined in
§1.168(b)-1(a)(4)) of the tangible prop-

Bulletin No. 2025–8 863 February 18, 2025
erty by the applicable recovery period as
though the alternative depreciation system
set forth in section 168(g)(2) applied for
the entire period that such property has
been in service, without regard to the elec-
tion to expense certain depreciable prop-
erty under section 179 and without regard
to any additional first-year depreciation
provision (for example, section 168(k)).
(5) Primary function. For purposes of
this section, an employee’s primary func-
tion is the set of tasks to which they are
assigned to spend the majority of their
working time.
(6) Employee. For purposes of this sec-
tion, the term employee has the meaning
given to it in §31.3121(d)-1(c).
(7) Aggregation rule. For purposes of
applying this paragraph (d), a taxpayer
may aggregate substantially similar cloud
transactions unless it knows or has reason
to know that doing so would materially
distort the source of gross income from
any cloud transaction.
(8) Product line. For purposes of this
section, a product line is defined as all
products within the same Correspond-
ing Index Entry under a North American
Industry Classification System (NAICS)
code number. Once a taxpayer selects a
Corresponding Index Entry and NAICS
code number for the first taxable year for
which this section applies, it must con-
tinue to use that Corresponding Index
Entry and NAICS code number in follow-
ing years unless the taxpayer establishes
to the satisfaction of the Commissioner
that, due to changes in the relevant facts, a
change in Corresponding Index Entry and
NAICS code number is appropriate.
(9) Anti-Abuse Rule. The purpose of
this paragraph (d) is to attribute the source
of the taxpayer’s gross income from a
cloud transaction to the location where
the cloud transaction is performed. There-
fore, if the taxpayer has entered into or
structured one or more transactions with
a principal purpose of reducing its U.S.
tax liability in a manner inconsistent with
the purpose of this paragraph (d), appro-
priate adjustments will be made so that
the source of the taxpayer’s gross income
reflects the location where the cloud trans-
action is performed.
(e) * * *
(12) Example 12: Sourcing gross income from
a cloud transaction--(i) Facts. (A) Corp A provides
customers on-demand network access to Program
Y in exchange for a monthly fee. All of the transac-
tions with customers are substantially similar to one
another. Customers must be connected to the Internet
to access the functionality of Program Y.
(B) Corp A has employees whose primary func-
tion (as determined under paragraph (d)(5) of this
section) is to conduct research and experimentation
associated with developing new versions of Pro-
gram Y and other products in the same product line
(as determined under paragraph (d)(8) of this sec-
tion). Corp A paid $160x in compensation to such
employees, of which $80x was paid for services
performed within the United States as determined
in accordance with the principles of §1.861-4(b)(2)
(ii)(E). Besides employee compensation, Corp A
spent an additional $200x for research and exper-
imentation costs associated with developing new
versions of Program Y and other products in the
same product line. Corp A did not take any amorti-
zation deductions with respect to intellectual prop-
erty used to provide Program Y.
(C) Corp A paid $400x in compensation to
employees whose primary function was to directly
contribute (as determined under paragraphs (d)(3)
(iii) and (iv) of this section) to Corp A’s provision
of Program Y to customers, of which $100x was
paid for services performed in the United States
as determined in accordance with the principles of
§1.861-4(b)(2)(ii)(E). None of these employees were
research and experimentation personnel (as defined
in paragraph (d)(2)(ii) of this section).
(D) Corp A hosts Program Y on servers it owns
that are located both within and without the United
States. These servers are used only to host Program
Y. Corp A deducted $140x for depreciation expense
attributable to these servers, $80x of which was
attributable to the servers located within the United
States, and $60x of which was attributable to the
servers located without the United States. These
depreciation deductions are in accordance with the
rules of section 168(g)(2).
(E) Corp A earned $800x of gross income from
providing customers access to Program Y. Corp A
does not know or have reason to know that any of the
costs, functions or assets described in this paragraph
are disproportionately allocated to certain trans-
actions or groups of transactions among all of the
transactions that generated $800x of gross income.
(ii) Analysis. (A) Under paragraph (b) of this
section, each transaction between Corp A and a
customer is a cloud transaction because Corp A
provides on-demand network access to Program Y.
Under paragraph (c)(1) of this section, each cloud
transaction is classified as the provision of services.
Under paragraph (d)(7) of this section, because all of
these transactions are substantially similar and Corp
A does not know or have reason to know that there
is any disproportionate allocation of costs, functions
or assets among them, all of the transactions may be
considered in the aggregate for purposes of applying
paragraph (d) of this section.
(B) Under paragraph (d)(1) of this section, the
source of Corp A’s $800x of gross income from
providing access to Program Y to customers is
determined based on the intangible property factor
described in paragraph (d)(2) of this section, the per-
sonnel factor described in paragraph (d)(3) of this
section, and the tangible property factor described in
paragraph (d)(4) of this section.
(C) Under paragraph (d)(2) of this section, the
intangible property factor is equal to $360x because
Corp A paid $160x in compensation to employees
whose primary function was to conduct research and
experimentation associated with developing new ver-
sions of Program Y and other products in the same
product line, and incurred $200x in other research
and experimentation costs associated with developing
new versions of Program Y and other products in the
same product line. $80x/$160x of such compensation,
or 50%, is paid to employees for research and experi-
mentation services performed with respect to Program
Y and other products in the same product line in the
United States. Corp A’s $360x intangible property fac-
tor is multiplied by the same quotient to determine that
$180x is from sources within the United States pursu-
ant to paragraph (d)(2)(ii) of this section.
(D) Under paragraph (d)(3) of this section, the
personnel factor is equal to $400x because Corp A
paid $400x in compensation to employees whose
primary function was to directly contribute to the
provision of Program Y to customers and none of
these employees were research and experimentation
personnel (as defined in paragraph (d)(2)(ii) of this
section). Pursuant to paragraph (d)(3)(ii) of this sec-
tion, $100x of the personnel factor is from sources
within the United States because Corp A paid $100x
in compensation to employees for services per-
formed in the United States that directly contributed
to the provision of Program Y to customers.
(E) Under paragraph (d)(4) of this section, the
tangible property factor is equal to $140x because
Corp A deducted $140x in depreciation expense for
tangible property directly used to provide Program
Y to customers under the method described in sec-
tion 168(g)(2). $80x of the tangible property factor
is from sources within the United States because this
amount of the $140x depreciation expense is attrib-
utable to tangible property located within the United
States.
(F) The sum of the intangible property factor
($360x), the personnel factor ($400x), and the tan-
gible property factor ($140x) is equal to $900x. The
sum of these factors from sources within the United
States is $360x ($180x with respect to the intangible
property factor, $100x with respect to the personnel
factor, and $80x with respect to the tangible prop-
erty factor). Accordingly, Corp A’s $800x of gross
income from providing Program Y to customers
for the taxable year is multiplied by the quotient of
$360x/$900x pursuant to paragraph (d)(1) of this
section to determine that $320x is from sources
within the United States. Pursuant to paragraph (d)
(1) of this section, the remaining $480x ($800x -
$320x) is from sources without the United States.
(13) Example 13: Sourcing gross income from
multiple cloud transactions--(i) Facts. (A) The facts
are the same as in paragraph (e)(12) of this section
(Example 12), except that Corp A also provides
customers on-demand network access to software
platform Z in exchange for a monthly fee, and Corp
A hosts software platform Z on the same servers it
uses to host Program Y (which generate more depre-
ciation than in Example 12). All of the transactions
for software platform Z customers are substantially
similar to one another. Customers must be connected

February 18, 2025 864 Bulletin No. 2025–8
to the Internet to access the functionality of software
platform Z.
(B) Corp A has employees whose primary func-
tion (as determined under paragraph (d)(5) of this
section) is to conduct research and experimentation
associated with developing new versions of software
platform Z and other products in the same product
line. The software platform Z product line is not
the same as the Program Y product line under the
definition in paragraph (d)(8) of this section. Corp
A paid $200x in compensation to such employees,
all of which was paid for services performed in the
United States as determined in accordance with the
principles of §1.861-4(b)(2)(ii)(E). Corp A also has
employees whose primary function as determined
under paragraph (d)(5) of this section is to conduct
research and experimentation associated with devel-
oping functionality for new versions of both Pro-
gram Y and software platform Z. Corp A paid $100x
in compensation to such employees, all of which
was paid for services performed in the United States
as determined in accordance with the principles of
§1.861-4(b)(2)(ii)(E). Corp A did not have any other
research and experimentation costs associated with
software platform Z.
(C) Corp A paid $100x in compensation to
employees whose primary function was to directly
contribute (as determined under paragraphs (d)
(3)(iii) and (iv) of this section) to Corp A’s provi-
sion of software platform Z to customers, and that
entire amount was paid for services performed in the
United States as determined in accordance with the
principles of §1.861-4(b)(2)(ii)(E). None of these
employees were research and experimentation per-
sonnel (as defined in paragraph (d)(2)(ii) of this
section). Corp A also paid $80x in compensation to
employees whose primary function was to directly
contribute (as determined under paragraphs (d)(3)
(iii) and (iv) of this section) to Corp A’s provision
of both Program Y and software platform Z to cus-
tomers, and that entire amount was paid for services
performed in the United States as determined in
accordance with the principles of §1.861-4(b)(2)(ii)
(E). These employees spent half their time contribut-
ing to software platform Z transactions and half their
time contributing to Program Y transactions. None of
these employees were research and experimentation
personnel (as defined in paragraph (d)(2)(ii) of this
section).
(D) Corp A hosts software platform Z on servers
it owns that are located both within and without the
United States. These servers are used to host both
Program Y and software platform Z. Corp A deducted
$180x for depreciation expense attributable to these
servers, $120x of which was attributable to the serv-
ers located within the United States, and $60x of
which was attributable to the servers located without
the United States. These depreciation deductions are
in accordance with the rules of section 168(g)(2).
(E) Corp A earned $800x of gross income from
providing customers access to software platform Z.
Corp A does not know or have reason to know that
any of the costs, functions or assets described in this
paragraph are disproportionately allocated to certain
transactions or groups of transactions among all of the
transactions that generated $800x of gross income.
(ii) Analysis. (A) Under paragraph (b) of this
section, each transaction between Corp A and a cus-
tomer for software platform Z is a cloud transaction
because Corp A provides on-demand network access
to software platform Z. Under paragraph (c)(1) of
this section, each cloud transaction is classified as
the provision of services. Under paragraph (d)(7) of
this section, because all of these software platform
Z transactions are substantially similar and Corp A
does not know or have reason to know that there is
any disproportionate allocation of costs, functions or
assets among them, all of the software platform Z
transactions may be considered in the aggregate for
purposes of applying paragraph (d) of this section.
(B) Under paragraph (d)(1) of this section, the
source of Corp A’s $800x of gross income from pro-
viding access to software platform Z to customers
is determined based on the intangible property fac-
tor described in paragraph (d)(2) of this section, the
personnel factor described in paragraph (d)(3) of this
section, and the tangible property factor described in
paragraph (d)(4) of this section.
(C) Under paragraph (d)(2) of this section, the
intangible property factor is equal to $250x. Corp
A paid $200x in compensation to employees whose
primary function was to conduct research and exper-
imentation associated with developing new versions
of software Platform Z and other products in the same
product line. Corp A also paid $100x in compensation
to employees whose primary function was to conduct
research and experimentation developing functional-
ity for new versions of both Program Y and software
platform Z, of which Corp A allocates $50x to soft-
ware Platform Z and $50x to Program Y based on
Corp A’s relative gross income from Program Y and
software platform Z transactions in the taxable year.
$250x/$250x of such compensation, or 100%, is paid
to employees for research and experimentation ser-
vices performed in the United States with respect to
software Platform Z and other products in the same
product line. Corp A’s $250x intangible property fac-
tor is multiplied by the same quotient to determine that
$250x is from sources within the United States pursu-
ant to paragraph (d)(2)(ii) of this section.
(D) Under paragraph (d)(3) of this section, the
personnel factor is equal to $140x. Corp A paid
$100x in compensation to employees whose primary
function was to directly contribute to the provision
of software platform Z to customers and none of
these employees were research and experimentation
personnel (as defined in paragraph (d)(2)(ii) of this
section). Corp A also paid $80x in compensation to
employees whose primary function was to directly
contribute to the provision of both Program Y and
software platform Z (and none of these employees
were research and experimentation personnel (as
defined in paragraph (d)(2)(ii) of this section)), and
Corp A allocated $40x to software platform Z and
$40x to Program Y based on the relative amount of
time these employees spent contributing to Program
Y and software platform Z transactions in the taxable
year. $140x/$140x of such compensation, or 100%,
is paid to employees for services performed in the
United States that directly contributed to the provi-
sion of software platform Z to customers.
(E) Under paragraph (d)(4) of this section, the tan-
gible property factor is equal to $90x. Corp A deducted
$180x in depreciation expense for tangible property
directly used to provide both Program Y and software
platform Z transactions under the method described
in section 168(g)(2), of which $120x is from sources
within the United States because this amount is attrib-
utable to tangible property located within the United
States. Based on Corp A’s relative gross income from
Program Y and software platform Z transactions in
the taxable year, Corp A reasonably allocates $90x to
software platform Z, of which $60x is from sources
within the United States and $90x to Program Y, of
which $60x is from sources within the United States.
(F) The sum of the intangible property factor
($250x), the personnel factor ($140x), and the tan-
gible property factor ($90x) is equal to $480x. The
sum of these factors from sources within the United
States is $450x ($250x with respect to the intangible
property factor, $140x with respect to the personnel
factor, and $60x with respect to the tangible prop-
erty factor). Accordingly, Corp A’s $800x of gross
income from providing software platform Z to cus-
tomers for the taxable year is multiplied by the quo-
tient of $450x/$480x pursuant to paragraph (d)(1) of
this section to determine that $750x is from sources
within the United States. Pursuant to paragraph (d)
(1) of this section, the remaining $50x ($800x -
$750x) is from sources without the United States.
(f) Applicability date--(1) In general.
Except as otherwise provided in this para-
graph (f), this section applies to taxable
years beginning on or after January 14, 2025.
Paragraphs (d), (e)(12) and (13) of this sec-
tion apply to taxable years beginning on or
after the date of publication of the Treasury
decision adopting those paragraphs as final
regulations in the Federal Register.
(2) Early application. Except for para-
graphs (d), (e)(12) and (13) of this section,
a taxpayer can apply this section to tax-
able years beginning on or after August
14, 2019 and all subsequent taxable years
not described in paragraph (f)(1) (early
application years) if--
(i) The taxpayer also applies §1.861-18
to the early application years;
(ii) This section and §1.861-18 are
applied to the early application years by all
persons related to the taxpayer (within the
meaning of sections 267(b) and 707(b));
(iii) The period of limitations on assess-
ment for each early application year of the
taxpayer and all related parties (within the
meaning of sections 267(b) and 707(b)) is
open under section 6501; and
(iv) The taxpayer would not be required
under this section to change its method of
accounting as a result of such election.
* * * * *
Douglas W. O’Donnell,
Deputy Commissioner.
(Filed by the Office of the Federal Register January
10, 2025, 8:45 a.m., and published in the issue of the
Federal Register for January 14, 2025, 90 FR 3075)

Bulletin No. 2025–8 865 February 18, 2025
Notice of Proposed
Rulemaking
Multi-Year Reporting
Requirements for
Corporate Separations and
Related Transactions
REG-116085-23
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing.
SUMMARY: This document contains
proposed regulations that would require
multi-year tax reporting for corporate
separations and related transactions. The
information to be reported under these
proposed regulations would establish the
taxpayer’s position that the corporate sep-
aration and related transactions qualify for
nonrecognition treatment under subchap-
ter C of the Internal Revenue Code. The
proposed regulations would affect corpo-
rations and their shareholders and security
holders. Proposed regulations regarding
certain matters relating to corporate sep-
arations, incorporations, and reorgani-
zations qualifying for nonrecognition of
gain or loss are published elsewhere in the
Proposed Rules section of this issue of the
Federal Register.
DATES: Written or electronic comments
and requests for a public hearing must be
received by March 17, 2025.
ADDRESSES: Commenters are strongly
encouraged to submit public comments on
these proposed regulations and the related
form and instructions electronically via
the Federal eRulemaking Portal at https://
www.regulations.gov (indicate IRS and
REG-116085-23) by following the online
instructions for submitting comments.
Requests for a public hearing must be
submitted as prescribed in the “Com-
ments and Requests for a Public Hearing”
section. Once submitted to the Federal
eRulemaking Portal, comments cannot be
edited or withdrawn. The Department of
the Treasury (Treasury Department) and
the IRS will publish for public availability
any comments to the IRS’s public docket.
Send paper submissions to CC:PA:01:PR
(REG-116085-23), Room 5203, Internal
Revenue Service, P.O. Box 7604, Ben
Franklin Station, Washington, DC 20044.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Barrett D. Cappadonna at
(202) 317-6975 (not a toll-free number);
concerning submissions of comments and
requests for a hearing, contact the Publica-
tions and Regulations branch at (202) 317-
6901 (not a toll-free number) or by email
to publichearings@irs.gov (preferred).
SUPPLEMENTARY INFORMATION:
Authority
This document contains proposed reg-
ulations under section 355 of the Internal
Revenue Code (Code) that would amend
the Income Tax Regulations (26 CFR part
1) by substantially revising the informa-
tion reporting requirements of §1.355-5
(proposed regulations). The proposed
regulations are issued under the express
delegation of section 7805(a) of the Code,
which authorizes the Secretary to “pre-
scribe all needful rules and regulations for
the enforcement of [the Code], including
all rules and regulations as may be neces-
sary by reason of any alteration of law in
relation to internal revenue.”
Background
I. Overview of Section 355
Section 355(a)(1) provides that, if
certain requirements are met, a distribu-
tion of stock, or stock and securities, of
one or more controlled corporations by a
distributing corporation to the distribut-
ing corporation’s shareholders, or to the
distributing corporation’s shareholders
and security holders, may be received by
the distributees without the distributees
recognizing gain or loss or including any
amount in income (section 355 transac-
tion). Section 355(c) generally provides
that no gain or loss is recognized to a dis-
tributing corporation upon a distribution
of qualified property that is not in pursu-
ance of a plan of reorganization (section
355(c) distribution). Section 355(c)(2)
(B) defines “qualified property” as any
stock or securities in a controlled corpo-
ration. If, in addition to the distribution
of qualified property, the distributing cor-
poration distributes other property in the
section 355 transaction and the fair mar-
ket value of that other property exceeds
the distributing corporation’s adjusted
basis in that other property, gain is rec-
ognized to the distributing corporation as
if the property were sold to the distribu-
tee at its fair market value. See section
355(c)(2)(A).
Taxpayers also may carry out a sec-
tion 355 transaction as part of a trans-
action that qualifies as a reorganization
under section 368(a)(1)(D) or (G) of the
Code and to which neither section 354 of
the Code nor so much of section 356 of
the Code as relates to section 354 applies
(divisive reorganization). A transfer by
a distributing corporation of part of its
assets to a controlled corporation is a divi-
sive reorganization if, immediately after
the transfer, one or more of the distribut-
ing corporation’s shareholders (including
persons who were shareholders imme-
diately before the transfer) have control
(as defined in section 368(c)) of the con-
trolled corporation and if, pursuant to the
plan of reorganization, stock or securities
of the controlled corporation are distrib-
uted in a transaction that qualifies under
section 355.
Section 361(c) of the Code generally
provides that no gain or loss is recognized
to a distributing corporation upon a distri-
bution of qualified property in pursuance
of a plan of reorganization. Section 361(c)
(2)(B) defines “qualified property” as (i)
any stock, right to acquire stock, or obli-
gation (including a security) of the distrib-
uting corporation, or (ii) any stock, right
to acquire stock, or obligation (including
a security) of a controlled corporation
received by the distributing corporation
as part of the divisive reorganization. If,
in addition to the distribution of qualified
property, the distributing corporation dis-
tributes other property as part of a divisive
reorganization and the fair market value
of that other property exceeds the distrib-
uting corporation’s adjusted basis in that
other property, gain is recognized to the
distributing corporation as if the property

February 18, 2025 866 Bulletin No. 2025–8
were sold to the distributee at its fair mar-
ket value. See section 361(c)(2)(A).
II. Current Reporting Requirements for
Section 355 Transactions
Section 1.355-5(a)(1) currently
requires the distributing corporation to
report a section 355 transaction to the
IRS by including a statement with the
distributing corporation’s Federal income
tax return for the year of the section 355
transaction (§1.355-5(a) statement). The
§1.355-5(a) statement must include: (i) the
name and employer identification number
(if any) of the controlled corporation; (ii)
the name and taxpayer identification num-
ber (if any) of every “significant distrib-
utee” (as defined in §1.355-5(c)(1)); (iii)
the date of the section 355 transaction;
(iv) the aggregate fair market value and
basis, determined immediately before the
section 355 transaction, of the stock, secu-
rities, or other property (including money)
distributed by the distributing corporation;
and (v) the date and control number of any
private letter ruling(s) issued by the IRS
in connection with the section 355 trans-
action.
If the distributing corporation is a
controlled foreign corporation within
the meaning of section 957 of the Code
(CFC), each United States shareholder
(within the meaning of section 951(b) of
the Code) with respect to the CFC must
include a §1.355-5(a) statement on or with
its return. See §1.355-5(a)(1). If the dis-
tributing corporation transfers assets to
a controlled corporation in a transaction
described in a divisive reorganization,
then the distributing corporation (or, if
the distributing corporation is a CFC,
each United States shareholder) also must
include the statement required by §1.368-
3(a) on or with its return for the year of
the section 355 transaction. See §1.355-
5(a)(2).
Section 1.355-5(b) currently imposes
requirements similar to those in §1.355-
5(a) upon significant distributees. More
specifically, §1.355-5(b)(1) requires
every significant distributee to include a
statement on or with the significant dis-
tributee’s return for the year in which
the section 355 transaction is received
(§1.355-5(b) statement). The §1.355-5(b)
statement must include: (i) the names
and employer identification numbers (if
any) of the distributing and controlled
corporations; (ii) the date of the section
355 transaction; (iii) the aggregate basis,
determined immediately before the sec-
tion 355 transaction, of any stock or
securities transferred by the significant
distributee in the transaction; and (iv) the
aggregate fair market value, determined
immediately before the section 355 trans-
action, of the stock, securities, or other
property (including money) received by
the significant distributee in the section
355 transaction. If a significant distributee
is a CFC, each United States shareholder
with respect to the CFC must include this
statement on or with the United States
shareholder’s return.
Section 1.355-5(d) currently imposes
substantiation requirements. More spe-
cifically, §1.355-5(d) requires taxpayers
to retain their permanent records (specif-
ically including information regarding the
amount, basis, and fair market value of all
property distributed or exchanged in the
section 355 transaction, and relevant facts
regarding any liabilities assumed or extin-
guished as part of the section 355 transac-
tion) and make those records available to
any authorized IRS officers and employ-
ees. See §1.6001-1(e).
Explanation of Provisions
The Treasury Department and the IRS
are of the view that enhancing the report-
ing requirements for section 355 transac-
tions would improve the IRS’s ability to
administer section 355 (and related pro-
visions of the Code) to ensure that trans-
actions intended to qualify under section
355 (and such related provisions) satisfy
the requirements for nonrecognition treat-
ment. Accordingly, these proposed regu-
lations would revise §1.355-5 to require
all covered filers, as defined in proposed
§1.355-5(b)(1), to file with the IRS an
annual report with regard to each section
355 transaction (Form 7216, Multi-Year
Reporting Related to Section 355 Trans-
actions) that would be attached to the cov-
ered filer’s Federal income tax return.
For purposes of the proposed regula-
tions, the term “section 355 transaction”
includes both divisive reorganizations
and section 355(c) distributions. The
term “covered filer” would include, with
regard to any section 355 transaction:
(i) a distributing corporation or a person
that, immediately before the first distri-
bution, was a United States shareholder
(within the meaning of section 951(b))
with respect to a controlled foreign cor-
poration (within the meaning of section
957 of the Code, but determined without
applying subparagraphs (A), (B), and (C)
of section 318(a)(3) of the Code) that is
the distributing corporation; (ii) a con-
trolled corporation or a person that, imme-
diately before the first distribution, was
a United States shareholder with respect
to a controlled foreign corporation that is
the controlled corporation; (iii) a signif-
icant distributee or a person that, imme-
diately before the first distribution, was
a United States shareholder with respect
to a controlled foreign corporation that is
a significant distributee; or (iv) any other
person required by the Commissioner of
Internal Revenue (Commissioner) to file
Form 7216 (or any successor form) in
instructions, guidance, or publications
published in the Internal Revenue Bulletin
(see §§601.601(d)(2) and 601.602 of this
chapter). The term “covered filer” also
would include any successor (within the
meaning of section 381(a) of the Code)
to an entity described in the preceding
sentence. The proposed regulations also
would revise the definition of a “signifi-
cant distributee” in current §1.355-5(c)(1)
(i) by raising the ownership threshold for
non-publicly traded stock from one per-
cent to five percent.
However, the term “covered filer”
would be defined to encompass solely
taxpayers required to file certain specified
Federal income tax returns. These returns
would be limited to: (i) Form 1040, U.S.
Individual Income Tax Return; (ii) Form
1040-NR, U.S Nonresident Alien Income
Tax Return; (iii) Form 1065, U.S. Return
of Partnership Income; (iv) Form 1120,
U.S. Corporation Income Tax Return; (v)
Form 1120-F, U.S. Income Tax Return of
a Foreign Corporation; (vi) Form 1120-
S, U.S. Income Tax Return for an S Cor-
poration; and (vii) any other form listed
in instructions, guidance, or publications
published in the Internal Revenue Bulle-
tin (see §§601.601(d)(2) and 601.602 of
this chapter). Accordingly, a taxpayer that
is not required to file one of these speci-
fied Federal income tax returns (such as

Bulletin No. 2025–8 867 February 18, 2025
an estate, a trust, or a regulated investment
company (as defined in section 851(a) of
the Code)) would not be required to file
Form 7216. The Treasury Department and
the IRS request comments as to whether
taxpayers required to file additional types
of Federal income tax returns should be
required to file Form 7216.
Each covered filer would be required
to file Form 7216 with regard to each
section 355 transaction for the required
reporting period. For this purpose, the
term “required reporting period” would
mean the period (i) beginning in the cov-
ered filer’s taxable year in which the first
distribution occurs, and (ii) ending in the
fifth taxable year of the covered filer after
the taxable year in which the control dis-
tribution occurs. The five-year required
reporting period would apply to a cov-
ered filer (or its successor) even in cases
where the covered filer (or its successor)
ceases to be a United States shareholder
with respect to a relevant corporation and
is no longer required to file Form 5471,
Information Return of U.S. Persons With
Respect To Certain Foreign Corporations,
with respect to such corporation.
Consistent with current §1.355-5(d),
the proposed regulations would require
that, under §1.6001-1(e), a covered filer
must retain its permanent books and
records and make those books and records
available for inspection by any authorized
IRS officers and employees. In addition,
the proposed regulations would provide
that, in connection with the section 355
transaction, the covered filer’s books and
records, as relevant to the section 355
transaction, will be considered to be com-
plete and accurate if they contain all infor-
mation necessary to document and sub-
stantiate satisfaction of the requirements
under section 355.
The proposed regulations would sig-
nificantly enhance the IRS’s ability to
identify section 355 transactions that
pose the highest risk of potential Federal
income tax noncompliance and abuse.
These proposed regulations also would
help effectuate a broader effort by the
Treasury Department and the IRS to close
the portion of the Federal tax gap (that is,
the difference between all Federal taxes
that are owed and those that are collected)
due to such potential noncompliance and
abuse.
Because the enhanced reporting
requirements in these proposed regula-
tions would augment the IRS’s ability to
identify section 355 transactions with the
highest risk of potential noncompliance
and abuse, the Treasury Department and
the IRS are of the view that additional
flexibility can be provided in the sub-
stantive rules applicable to section 355
transactions (for example, by affording
taxpayers additional time to carry out
a plan of distribution). Proposed reg-
ulations that would provide guidance
regarding certain matters relating to cor-
porate separations, incorporations, and
reorganizations qualifying, in whole or
in part, for nonrecognition of gain or loss
are published elsewhere in the Proposed
Rules section of this issue of the Federal
Register.
The proposed reporting requirements
would apply to all types of section 355
transactions with a covered filer. Specif-
ically, the proposed regulations would
apply to (i) section 355 transactions
within an affiliated group (as defined in
section 1504(a)(1) of the Code, with-
out regard to the exceptions in section
1504(b)) (internal section 355 transac-
tion), and (ii) section 355 transactions
in which stock or securities of a con-
trolled corporation are distributed to a
distributing corporation shareholder or
security holder that is not a member of
the distributing corporation’s affiliated
group (external section 355 transaction).
To reflect the differences between inter-
nal section 355 transactions and exter-
nal section 355 transactions (including
the different statutory requirements and
potential for Federal income tax noncom-
pliance or abuse), the proposed regula-
tions would impose, through the annual
Form 7216, different reporting require-
ments for each type of section 355 trans-
action.
These proposed regulations are consis-
tent with the recommendations set forth
in the Treasury Inspector General for Tax
Administration (TIGTA) report titled “A
Strategy Is Needed to Assess the Com-
pliance of Corporate Mergers and Acqui-
sitions With Federal Tax Requirements,”
Ref. No. 2019-30-050 (Sept. 5, 2019). In
that report, TIGTA recommended that the
Commissioner determine whether merger
and acquisition (M&A) tax forms, and
information provided on those forms,
could be used as a compliance tool within
a larger strategy to assess risk and ensure
that corporate M&A transactions are com-
pliant with the Code. These proposed reg-
ulations would enable the IRS to collect
information on section 355 transactions
from taxpayers engaging in those transac-
tions and utilize that information to iden-
tify potential noncompliance with section
355 and other related provisions of the
Code.
Special Analyses
I. Regulatory Planning and Review
Pursuant to the Memorandum of
Agreement, Review of Treasury Regula-
tions under Executive Order 12866 (June
9, 2023), tax regulatory actions issued by
the IRS are not subject to the requirements
of section 6 of Executive Order 12866, as
amended. Therefore, a regulatory impact
assessment is not required.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(44 U.S.C. 3501 - 3520) (PRA) requires
that a Federal agency obtain the approval
of the Office of Management and Bud-
get (OMB) before collecting information
from the public, whether such collection
of information is mandatory, voluntary,
or required to obtain or retain a benefit. A
Federal agency may not conduct or spon-
sor, and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
control number.
The collections of information in these
proposed regulations contain reporting
and recordkeeping requirements that are
necessary to identify potential noncom-
pliance with the requirements of section
355 and related sections of the Code.
These collections of information generally
would be used by the IRS for tax compli-
ance purposes and by taxpayers to facili-
tate proper reporting and compliance.
The recordkeeping requirements
within this proposed regulation are
considered general tax records under
§1.6001-1. These records are required for
the IRS to validate that taxpayers have
met the requirements under section 355

February 18, 2025 868 Bulletin No. 2025–8
and related sections of the Code. For PRA
purposes, general tax records are already
approved by OMB under control numbers
1545-0123 for business filers and 1545-
0074 for individual filers.
The reporting requirements outlined in
§1.355-5 will be covered within the form
and instructions for IRS Form 7216 (or
any successor form). This form will be
approved under 1545-0123 for business
filers and 1545-0074 for individual filers.
The IRS will be submitting the form to
OMB for approval under these OMB con-
trol numbers in accordance with the PRA
procedures in 5 CFR 1320.10.
III. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibil-
ity Act (5 U.S.C. chapter 6), it is hereby
certified that these proposed regulations
would not have a significant economic
impact on a substantial number of small
entities. This certification is based on the
fact that these proposed regulations pri-
marily would affect corporations that are
publicly traded corporations, which tend
to be larger businesses. Specifically, the
Research, Applied Analytics, and Sta-
tistics Division of the IRS estimates that
approximately 110 small businesses with
gross receipts under $25 million would
be subject to collection of information in
these regulations annually. In addition,
the collection of information in these
proposed regulations is an incremental,
additional obligation on small entities to
a currently existing collection of infor-
mation. Moreover, the economic impact
of these proposed regulations will not be
significant.
Therefore, these proposed regulations
would not create significant additional
obligations for, or impose any meaningful
economic impact on, a substantial number
of small entities. Accordingly, the Secre-
tary certifies that the proposed regulations
would not have a significant economic
impact on a substantial number of small
entities and a regulatory flexibility analy-
sis is not required.
Pursuant to section 7805(f) of the
Code, the proposed regulations have been
submitted to the Chief Counsel for the
Office of Advocacy of the Small Business
Administration for comment on its impact
on small business.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 (UMRA) requires
that agencies assess anticipated costs and
benefits and take certain other actions
before issuing a final rule that includes
any Federal mandate that may result in
expenditures in any one year by a State,
local, or Tribal government, in the aggre-
gate, or by the private sector, of $100
million in 1995 dollars, updated annually
for inflation. These proposed 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.
V. Executive Order 13132: Federalism
Executive Order 13132 (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 gov-
ernments, and is not required by statute,
or preempts State law, unless the agency
meets the consultation and funding
requirements of section 6 of the Execu-
tive order. This proposed rule does not
have federalism implications and does
not impose substantial direct compliance
costs on State and local governments or
preempt State law within the meaning of
the Executive order.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any comments that are
submitted timely to the IRS as prescribed
in the preamble under the ADDRESSES
heading. The Treasury Department and
the IRS request comments on all aspects
of the proposed regulations. All comment-
ers are strongly encouraged to submit
comments electronically. The Treasury
Department and the IRS will publish for
public availability any comment submit-
ted electronically or on paper to its public
docket on https://www.regulations.gov.
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 also
are 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 Register.
Drafting Information
The principal author of these proposed
regulations is Barrett D. Cappadonna of
the Office of Associate Chief Counsel
(Corporate). 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.
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 continues to read in part as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Par. 2. Section 1.355-5 is revised to
read as follows:
§1.355-5 Information reporting and
record retention requirements.
(a) Reporting of transaction informa-
tion—(1) Annual reporting form—(i)
In general. For each taxable year of the
required reporting period, a covered filer
must file annually with the IRS a com-
plete and accurate Form 7216, Multi-Year
Reporting Related to Section 355 Trans-
actions (or as provided in publications,
forms, instructions, or other guidance),
with regard to a section 355 transaction.
(ii) Manner of filing form. A covered
filer must file Form 7216 (or any succes-
sor form)—
(A) With the specified Federal income
tax return of the covered filer for the tax-
able year (see section 6011 of the Code
and §1.6011-1); and
(B) In the manner prescribed by the
Commissioner in instructions, guidance,

Bulletin No. 2025–8 869 February 18, 2025
or publications published in the Internal
Revenue Bulletin (see §§601.601(d)(2)
and 601.602 of this chapter).
(2) [Reserved]
(3) [Reserved]
(b) Definitions. The following defini-
tions apply for purposes of this section:
(1) Covered filer—(i) In general. The
term covered filer means a taxpayer that is
required to file a specified Federal income
tax return and that is—
(A) A distributing corporation or a per-
son that, immediately before the first dis-
tribution, was a United States shareholder
(within the meaning of section 951(b) of
the Code) with respect to a controlled for-
eign corporation (within the meaning of
section 957 of the Code, but determined
without applying subparagraphs (A), (B),
and (C) of section 318(a)(3)) that is the
distributing corporation;
(B) A controlled corporation or a per-
son that, immediately before the first
distribution, was a United States share-
holder with respect to a controlled for-
eign corporation that is the controlled
corporation;
(C) A significant distributee or a person
that, immediately before the first distribu-
tion, was a United States shareholder with
respect to a controlled foreign corporation
that is a significant distributee; or
(D) Any other person required by
the Commissioner to file Form 7216 (or
any successor form) in accordance with
instructions, guidance, or publications
published in the Internal Revenue Bulletin
(see §§601.601(d)(2) and 601.602 of this
chapter).
(ii) Successors. The term covered filer
includes any successor (within the mean-
ing of section 381(a) of the Code) to an
entity described in paragraph (b)(1)(i) of
this section.
(2) Required reporting period. The
term required reporting period means the
period—
(i) Beginning in the taxable year of the
covered filer during which the first distri-
bution occurs; and
(ii) Ending in the fifth taxable year of
the covered filer after the taxable year in
which the control distribution occurs.
(3) Significant distributee. The term
significant distributee means:
(i) A holder of stock of a distributing
corporation that—
(A) Receives stock of a controlled cor-
poration in a section 355 transaction; and
(B) Owned at least five percent (by vote
or value) of the total outstanding stock of
the distributing corporation immediately
before the first distribution.
(ii) A holder of securities of a distribut-
ing corporation that—
(A) Receives stock or securities of a
controlled corporation in a section 355
transaction; and
(B) Owned securities in the distrib-
uting corporation with a basis of at least
$1,000,000 immediately before the first
distribution.
(4) Specified Federal income tax
return. The term specified Federal income
tax return means—
(i) Form 1040, U.S. Individual Income
Tax Return;
(ii) Form 1040-NR, U.S. Nonresident
Alien Income Tax Return;
(iii) Form 1065, U.S. Return of Part-
nership Income;
(iv) Form 1120, U.S. Corporation
Income Tax Return;
(v) Form 1120-F, U.S. Income Tax
Return of a Foreign Corporation;
(vi) Form 1120-S, U.S. Income Tax
Return for an S Corporation; or
(vii) Any other form listed in instruc-
tions, guidance, or publications published
in the Internal Revenue Bulletin (see
§§601.601(d)(2) and 601.602 of this chap-
ter).
(c) Substantiation information. Under
§1.6001-1(e), a covered filer must retain
its permanent books and records and make
those books and records available for
inspection by any authorized IRS officers
and employees. In connection with the
section 355 transaction, the covered filer’s
books and records, as relevant to the sec-
tion 355 transaction, will be considered to
be complete and accurate if they contain
all information necessary to document and
substantiate satisfaction of the require-
ments under section 355.
(d) Applicability date—(1) In general.
Except as provided in paragraph (d)(2) of
this section, the rules of this section apply
to taxable years ending after [date of pub-
lication of final regulations in the Fed-
eral Register] with respect to section 355
transactions occurring after January 16,
2025. For rules applicable to prior taxable
years, see §1.355-5 as in effect and con-
tained in 26 CFR part 1, as revised April
1, 2024.
(2) [Reserved]
Douglas W. O’Donnell,
Deputy Commissioner.
(Filed by the Office of the Federal Register January
13, 2025, 4:15 p.m., and published in the issue of the
Federal Register for January 16, 2025, 90 FR 4687)
Notice of Proposed
Rulemaking
Certain Employee
Remuneration in Excess of
$1,000,000 under Internal
Revenue Code Section
162(m)
REG-118988-22
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing.
SUMMARY: This document sets forth
proposed regulations under section 162(m)
of the Internal Revenue Code, which limits
the deduction for certain employee remu-
neration in excess of $1,000,000 for Fed-
eral income tax purposes. These proposed
regulations implement the amendments
made to section 162(m) by the American
Rescue Plan Act of 2021. These proposed
regulations would affect publicly held
corporations.
DATES: Written or electronic comments
and requests for a public hearing must be
received by March 17, 2025.
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically. Submit electronic submis-
sions via the Federal eRulemaking Por-
tal at www.regulations.gov (indicate IRS
and REG-118988-22) by following the
online instructions for submitting com-
ments. Requests for a public hearing must
be submitted as prescribed in the “Com-

February 18, 2025 870 Bulletin No. 2025–8
ments and Requests for a Public Hearing”
section of this preamble. Once submitted
to the Federal eRulemaking Portal, com-
ments cannot be edited or withdrawn. The
Department of the Treasury (Treasury
Department) and the IRS will publish for
public availability any comments submit-
ted to the IRS’s public docket. Send paper
submissions to: CC:PA:01:PR (REG-
118988-22), room 5203, Internal Revenue
Service, PO Box 7604, Ben Franklin Sta-
tion, Washington, D.C. 20044.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Ilya Enkishev at (202) 317-
5600; concerning submissions of com-
ments and/or requests for a public hearing,
contact the Publications and Regulations
Section of the Office of Associate Chief
Counsel (Procedure and Administration)
by email at publichearings@irs.gov (pre-
ferred) or by telephone at (202) 317-6901
(not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Authority
These proposed regulations are issued
under the express delegation of authority
under section 7805 of the Code. Section
7805(a) directs the Secretary of the Trea-
sury or her delegate to prescribe all need-
ful rules and regulations for the enforce-
ment of the Code, including all rules and
regulations as may be necessary by reason
of any alteration of law in relation to inter-
nal revenue.
Background
This document sets forth proposed
amendments to the Income Tax Reg-
ulations (26 CFR part 1) under sec-
tion 162(m). Section 162(m)(1) disallows
a deduction by any publicly held corpo-
ration for applicable employee remuner-
ation that is otherwise deductible with
respect to any covered employee to the
extent that such remuneration for the tax-
able year exceeds $1,000,000.
1
Section
162(m) was added to the Internal Reve-
nue Code (Code) by section 13211(a) of
the Omnibus Budget Reconciliation Act
of 1993 (Pub. L. 103-66, 107 Stat. 312,
469). Proposed regulations under section
162(m) were published in the Federal
Register by the Treasury Department and
the IRS on December 20, 1993 (58 FR
66310) (1993 proposed regulations). On
December 2, 1994, the Treasury Depart-
ment and the IRS published in the Federal
Register amendments to the proposed reg-
ulations (59 FR 61884) (1994 proposed
regulations). On December 20, 1995, the
Treasury Department and the IRS pub-
lished in the Federal Register final reg-
ulations under section 162(m) (TD 8650)
(60 FR 65534) (1995 regulations).
In 2017, section 162(m) was amended
by section 13601 of the Tax Cuts and Jobs
Act (TCJA) (Pub. L. 115-97, 131 Stat.
2054, 2155 (2017)). Specifically, section
13601 of TCJA amended the definitions
of covered employee, publicly held cor-
poration, and applicable employee remu-
neration in section 162(m). On December
20, 2019, the Treasury Department and
the IRS published in the Federal Register
proposed regulations relating to the TCJA
amendments (84 FR 70356). On Decem-
ber 30, 2020, the Treasury Department
and the IRS published in the Federal Reg-
ister final regulations (TD 9932) relating
to the TCJA amendments (85 FR 86481)
(the current regulations).
Section 162(m)(3) provides the defini-
tion of “covered employee.” Specifically,
section 162(m)(3) defines the term “cov-
ered employee” as an “employee of the
taxpayer” if (1) the employee is the prin-
cipal executive officer (PEO) or principal
financial officer (PFO) of the taxpayer at
any time during the taxable year, or was
an individual acting in such a capacity, (2)
the total compensation of the employee
for the taxable year is required to be
reported to shareholders under the Secu-
rities Exchange Act of 1934 (Exchange
Act) by reason of the employee being
among the three highest compensated
officers for the taxable year (other than
the PEO and PFO), or (3) the individual
was a covered employee of the taxpayer
(or any predecessor) for any preceding
taxable year beginning after December
31, 2016. Section 162(m)(3) also contains
flush language providing that a covered
employee includes any employee of the
taxpayer whose total compensation for the
taxable year places the individual among
the three highest compensated officers for
the taxable year (other than any individual
who is the PEO or PFO of the taxpayer at
any time during the taxable year, or was
an individual acting in such a capacity)
even if the compensation of the officer is
not required to be reported to shareholders
under the Exchange Act.
In 2021, section 162(m) was amended
by section 9708 of the American Rescue
Plan Act of 2021 (ARP) (Pub. L. 117-2,
135 Stat. 4, 206) to expand the definition
of covered employee for taxable years
beginning after December 31, 2026. The
ARP amended the definition of “covered
employee” in section 162(m)(3) by add-
ing section 162(m)(3)(C),
2
which includes
any employee who is among the five high-
est compensated employees for the tax-
able year other than the PEO or PFO (as
identified in section 162(m)(3)(A)) or the
three highest compensated executive offi-
cers for the taxable year (as identified in
section 162(m)(3)(B)). This amendment
is effective for taxable years beginning
after December 31, 2026. These proposed
regulations (proposed regulations) would
provide guidance on this amendment.
Explanation of Provisions
I. Definition of Employee
These proposed regulations would
provide that, for purposes of determin-
ing whether an employee is one of the
five highest compensated employees as
defined in new section 162(m)(3)(C), the
term “employee” means an “employee”
as defined in section 3401(c). In general,
under section 3401(c) and the correspond-
ing regulations, the term “employee”
includes a common law employee and
an officer of a corporation. Accordingly,
for purposes of section 162(m)(3)(C), the
term “employee” would include, but not
be limited to, executive officers.
3
1
As a result, for example, such disallowed amounts generally may not be capitalized. See §§1.263(a)-1(b) and 1.263A-1(c)(2).
2
The addition of section 162(m)(3)(C) resulted in pre-ARP section 162(m)(3)(C) being redesignated as section 162(m)(3)(D).
3
This interpretation is consistent with the description of section 162(m)(3)(C) by the Joint Committee on Taxation in General Explanation of the Tax Legislation Enacted in the 117th Con-
gress. JCS-1-23, 129 (Dec. 2023).

Bulletin No. 2025–8 871 February 18, 2025
The text of section 162(m)(3)(C) does
not exclude an individual who is a covered
employee as defined in section 162(m)
(3)(D). Accordingly, these proposed reg-
ulations would provide that a covered
employee by reason of section 162(m)(3)
(C) includes an individual who is both one
of the five highest compensated employ-
ees for the current taxable year (regardless
of whether the individual is employed on
the last day of the taxable year) and also
a covered employee on the basis of being
a covered employee for a preceding tax-
able year (as provided in section 162(m)
(3)(D)).
II. Determination of the Five Highest
Compensated Employees
These proposed regulations would use
“compensation” as defined in paragraph
(c)(3) of the current regulations (that is,
compensation that would (but for section
162(m)) be allowable as a deduction) to
determine whether an employee is one of
the five highest compensated employees
as defined in new section 162(m)(3)(C).
The Treasury Department and the IRS
expect this approach to be easily admin-
istrable because taxpayers currently track
compensation to determine their tax liabil-
ity for the taxable year.
Because section 162(m)(3)(B) deter-
mines the three highest compensated
employees based on the total compen-
sation required to be disclosed under the
Exchange Act for executive officers, the
Treasury Department and the IRS consid-
ered using this approach to determine the
five highest compensated employees for
purposes of section 162(m)(3)(C). These
proposed regulations would not adopt this
approach because, unlike the statutory text
of section 162(m)(3)(B), section 162(m)
(3)(C) does not reference compensation
disclosure under the Exchange Act. Fur-
thermore, unlike the covered employees
defined in section 162(m)(3)(B), the five
highest compensated employees under
section 162(m)(3)(C) are not limited to
executive officers.
Like the 1995 regulations, §1.162-
33(c)(1)(ii) of the current regulations
defines the term “publicly held corpo-
ration” to include an affiliated group of
corporations, as defined in section 1504
(without regard to section 1504(b)) (affil-
iated group) that includes a corporation
that is a publicly held corporation.
4
This
definition was needed in the 1995 regu-
lations because, among other things, the
executive officers to whom section 162(m)
applied could include officers of subsid-
iaries,
5
and their remuneration could come
from subsidiaries, as well, so failure to
include members of the affiliated group
would have thwarted Congress’s intent to
deny a deduction for all compensation of a
covered employee in excess of $1 million
per year.
6
The definition also confirmed
that each member of the affiliated group is
potentially a “taxpayer” within the mean-
ing of section 162(m)(3).
The Treasury Department and the IRS
are now similarly concerned that a pub-
licly held corporation may employ many
of its highest compensated employees at
subsidiaries, and may even attempt to alter
the composition of its five highest com-
pensated employees (as defined in sec-
tion 162(m)(3)(C)) by transferring highly
compensated employees to a subsidiary
or by adopting a holding company struc-
ture, thereby thwarting Congress’s intent
to expand significantly the number of cov-
ered employees whose compensation is
subject to section 162(m).
7
Accordingly,
these proposed regulations would provide
that any employee of any corporation in
the affiliated group may be one of the five
highest compensated employees of the
publicly held corporation regardless of
whether the employee is an employee of
or performs services for the publicly held
corporation, as defined in §1.162-33(c)(1)
(i).
Consistent with the rule in the current
regulations for affiliated groups that con-
tain more than one publicly held corpo-
ration (as defined in §1.162-33(c)(1)(i)),
these proposed regulations would provide
that in such an affiliated group, each pub-
licly held corporation has its own set of
five highest compensated employees (as
defined in section 162(m)(3)(C)). Because,
as explained in the preceding paragraph,
those individuals may be employees of a
corporation in the affiliated group that is
not a publicly held corporation, the affil-
iated group is divided into smaller affili-
ated groups for this purpose, each con-
sisting of a publicly held corporation and
certain affiliated non-publicly held corpo-
rations, if any. These proposed regulations
provide rules for dividing up the affiliated
group for this purpose.
Similar to the current regulations, these
proposed regulations would provide that,
if an employee of a publicly held cor-
poration (as defined in §1.162-33(c)(1)
(i)) is paid compensation by more than
one member of an affiliated group, then
compensation paid to the employee by
each member of the affiliated group is
aggregated in determining whether the
employee is one of the five highest com-
pensated employees. These proposed reg-
ulations would provide rules similar to
the rules in the current regulations, but
reflecting the rules described in the pre-
ceding paragraphs, for situations in which
an individual performs services for mem-
bers of an affiliated group that contains
more than one publicly held corporation,
and might also contain one or more cor-
porations that are not publicly held cor-
porations. Specifically, these proposed
regulations would provide that whether
the individual is one of the five highest
compensated employees of a publicly held
corporation is determined separately with
respect to each publicly held corporation
in the group, excluding compensation
taken into account with respect to another
publicly held corporation of the affiliated
group. Section 1.162-33(c)(2)(i)(D)(4)
of the proposed regulations also explains
how that determination is made.
For purposes of section 162(m), an
affiliated group includes a foreign corpo-
ration. Pursuant to the 1995 regulations
and the current regulations, compensation
includes remuneration paid by a mem-
4
These proposed regulations take the same approach as the current regulations of using “publicly held corporation” to mean the affiliated group (as defined in §1.162-33(c)(1)(ii)) of which
the corporation that is a publicly held corporation (as defined in §1.162-33(c)(1)(i)) is a part, and distinguishing between the two only where necessary.
5
See 17 C.F.R. §229.402, Instructions to Item 402(a)(3).
6
See H.R. Conf. Rep. No. 103-213, at 585 (1993) (“Unless specifically excluded, the deduction limitation applies to all remuneration for services.”).
7
See, for example, the Joint Committee on Taxation estimate that the amendment would raise $7.8 billion through Fiscal Year 2031. JCX-14-21, 3 (March 9, 2021).

February 18, 2025 872 Bulletin No. 2025–8
ber of an affiliated group that is a foreign
corporation to the extent it is otherwise
allowable as a deduction under chapter
1 of the Code. Accordingly, such com-
pensation would be taken into account
under these proposed regulations, among
other things, to determine whether an
individual is one of the five highest com-
pensated employees. Compensation and
other expenses of a foreign corporation
normally may be taken as a deduction by
the foreign corporation in computing its
U.S. income tax, and thus may be actually
be disallowed by section 162(m), only
if they are incurred in connection with a
trade or business carried on in the United
States.
8
However, if the foreign corpora-
tion is a controlled foreign corporation as
defined in section 957,
9
a pro rata share
of certain types of income less associated
deductions may be taken into account by a
United States shareholder of the corpora-
tion under subpart F (sections 951 through
965). To assist taxpayers with compliance,
section 1.162-33(c)(3)(iii) of the proposed
regulations would add an explicit rule to
the definition of compensation regarding
remuneration paid by a controlled foreign
corporation that is a member of a pub-
licly held corporation’s affiliated group.
This rule is not a substantive change to
the 1995 regulations and the current reg-
ulations. Comments are requested on the
application of these proposed rules to con-
trolled foreign corporations, and whether
these proposed rules should apply to con-
trolled foreign corporations that are not
members of an affiliated group.
These proposed regulations would
also provide that an “employee” of a
publicly held corporation includes an
individual who, under section 3401(c),
is an “employee” of a person other than
the publicly held corporation (such as a
related but unaffiliated organization or
certified professional employer organi-
zation) but nevertheless functions as an
employee of the publicly held corporation
in that the individual performs substan-
tially all the individual’s services during
the taxable year for the publicly held cor-
poration. Consequently, these proposed
regulations would provide that, in such
circumstance, to the extent allowable as
a deduction to the publicly held corpo-
ration, amounts paid to the individual or
to a third party to obtain the services per-
formed by the individual are considered
“compensation.” Absent such a rule, the
adoption of the section 3401(c) definition
by these proposed regulations could per-
mit avoidance of section 162(m) through
the use of third-party payors, which is
not a concern under sections 162(m)
(3)(A) and (B) due to their inclusion of
all individuals acting as executive offi-
cers and the application of the executive
compensation disclosure rules under the
Exchange Act.
III. Amendment to the Current
Regulations
These proposed regulations also
include a technical correction that would
amend the reference to Example 22 in
the conclusion to the facts in Example 23
(section 1.162-33(c)(1)(vi)(W)(2)) in the
current regulations. The correct reference
is to Example 20 of the current regula-
tions. These proposed regulations would
make that correction.
Proposed Applicability Date
These regulations generally are pro-
posed to apply to compensation that is
otherwise deductible for taxable years
beginning after the later of December 31,
2026, or the date of publication of the
Treasury decision adopting these rules
as final regulations in the Federal Regis-
ter. The amendment to the conclusion of
Example 23 in section 1.162-33(c)(1)(vi)
(W)(2)) of the current regulations is pro-
posed to apply to taxable years ending on
or after January 16, 2025.
Statement of Availability of IRS
Documents
For copies of recently issued revenue
procedures, revenue rulings, notices and
other guidance published in the Internal
Revenue Bulletin, please visit the IRS
website at www.irs.gov or contact the
Superintendent of Documents, U.S. Gov-
ernment Publishing Office, Washington,
DC 20402.
Special Analyses
I. Regulatory Planning and Review
Pursuant to the Memorandum of
Agreement, Review of Treasury Regula-
tions under Executive Order 12866 (June
9, 2023), tax regulatory actions issued by
the IRS are not subject to the requirements
of section 6 of Executive Order 12866, as
amended. Therefore, a regulatory impact
assessment is not required.
II. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibil-
ity Act (RFA) (5 U.S.C. chapter 6), it is
hereby certified that these proposed reg-
ulations would not have a significant eco-
nomic impact on a substantial number of
small entities. This certification is based
on the fact that section 162(m)(1) applies
only to publicly held corporations (for
example, corporations that list securities
on a national securities exchange and are
rarely small entities) and only impacts
those publicly held corporations that com-
pensate certain employees in excess of
$1,000,000 in a taxable year.
III. Section 7805(f)
Pursuant to section 7805(f), this notice
of proposed rulemaking has been submit-
ted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on its impact on small business.
IV. 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
government, in the aggregate, or by the
private sector, of $100 million in 1995
8
See section 882(c)(1).
9
In relevant part, section 957(a) defines a controlled foreign corporation as a foreign corporation of which more than 50% (vote or value) is owned by United States shareholders as defined
in section 951(b). Publicly held corporations as defined in section 162(m)(2) can be treated as United States shareholders.

Bulletin No. 2025–8 873 February 18, 2025
dollars, updated annually for inflation.
This proposed rule does 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.
V. 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 consultation
and funding requirements of section 6 of
the Executive order. This proposed rule
does not have federalism implications,
does not impose substantial direct compli-
ance costs on State and local governments,
and does not preempt State law within the
meaning of the Executive order.
Comments and Requests for a Public
Hearing
Before these proposed amendments
to the regulations are adopted as final
regulations, consideration will be given
to comments that are submitted timely
to the IRS as prescribed in the preamble
under the “ADDRESSES” section. The
Treasury Department and the IRS request
comments on all aspects of the proposed
regulations. All comments submitted will
be made available at www.regulations.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
by sending an email to publichearings@
irs.gov. If a public hearing is scheduled,
notice of the date and time for the public
hearing will be published in the Federal
Register.
Drafting Information
The principal author of these regula-
tions is Ilya Enkishev, Office of Associ-
ate Chief Counsel (Employee Benefits,
Exempt Organizations, and Employment
Taxes). However, other personnel from
the Treasury Department and the IRS par-
ticipated in the development of these reg-
ulations.
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 continues to read in part as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Par. 2. Section 1.162-33 is amended
by:
a. Revising paragraphs (c)(1)(vi)(W)(2)
and (c)(2)(i)(C);
b. Adding paragraphs (c)(2)(i)(D) and
(c)(2)(vii)(CC) through (EE);
c. Redesignating paragraphs (c)(3)(iii)
and (iv) as paragraphs (c)(3)(v) and
(vi);
d. Adding new paragraphs (c)(3)(iii)
and (iv) and adding paragraphs (c)(3)
(vi)(D) and (E);
e. Revising paragraph (h)(2)(ii)(C); and
f. Adding paragraphs (h)(2)(ii)(F) and
G.
The revisions and additions read as fol-
lows:
§1.162-33 Certain employee
remuneration in excess of $1,000,000
not deductible for taxable years
beginning after December 31, 2017.
* * * * *
(c) * * *
(1) * * *
(vi) * * *
(W) * * *
(2) Conclusion. The result is the same
as in paragraph (c)(1)(vi)(T) of this sec-
tion (Example 20). Even though Corpora-
tions P, Q, and R each are publicly held
corporations, they comprise an affiliated
group. Because Employee C is a covered
employee of both Corporations P and Q,
the amount disallowed as a deduction is
prorated separately between Corporations
P and R and between Corporations Q and
R.
* * * * *
(2) * * *
(i) * * *
(C) Any individual who was a covered
employee of the publicly held corporation
(or any predecessor of a publicly held cor-
poration, within the meaning of paragraph
(c)(2)(ii) of this section) for any preceding
taxable year beginning after December 31,
2016, other than an individual who was a
covered employee in that year solely on
account of paragraph (c)(2)(i)(D) of this
section. For taxable years beginning prior
to January 1, 2018, covered employees are
identified in accordance with the rules in
§1.162-27(c)(2).
(D) The five highest compensated
employees of the publicly held corpo-
ration for the taxable year regardless of
whether the individual is serving at the
end of the publicly held corporation’s
taxable year, other than any individual
described in paragraph (c)(2)(i)(A) or
(B) of this section, determined in accor-
dance with the rules in this paragraph (c)
(2)(i)(D). See paragraph (c)(3)(iv) of this
section for a special rule treating certain
employees of a person other than the pub-
licly held corporation as employees of the
publicly held corporation.
(1) Compensation. The amount of
compensation used to identify the five
most highly compensated employees for
the taxable year for purposes of paragraph
(c)(2)(i)(D) of this section is the amount
of compensation as defined in paragraph
(c)(3) of this section, provided that, in
determining compensation for purposes of
applying this paragraph (c)(2)(i)(D), ref-
erences to “covered employee” or “cov-
ered employee (as defined in paragraphs
(c)(2)(i) through (v) of this section)” in
paragraph (c)(3) of this section shall be
replaced with references to “employee.”
(2) Employee. For purposes of this para-
graph (c)(2)(i)(D), the term “employee”
means an employee as defined in section
3401(c).
(3) Determining the employees eligible
to be the five highest compensated employ-
ees with respect to an affiliated group
with one publicly held corporation. In the

February 18, 2025 874 Bulletin No. 2025–8
case of an affiliated group (as defined in
paragraph (c)(1)(ii) of this section) that
includes one publicly held corporation (as
defined in paragraph (c)(1)(i) of this sec-
tion), an employee of any member of the
affiliated group is eligible to be one of the
five highest compensated employees of
the publicly held corporation regardless
of whether the individual is an employee
of the publicly held corporation itself or
performs services for the publicly held
corporation itself.
(4) Determining the employees eli-
gible to be the five highest compensated
employees with respect to an affiliated
group with more than one publicly held
corporation. In the case of an affiliated
group (as defined in paragraph (c)(1)(ii)
of this section) that includes more than
one publicly held corporation (as defined
in paragraph (c)(1)(i) of this section),
the group of employees eligible to be
the five highest compensated employees
is determined separately with respect to
the parent corporation (as defined below)
and each publicly held corporation (as
defined in paragraph (c)(1)(i) of this sec-
tion) that is not the parent corporation (an
additional publicly held corporation). For
this purpose, the parent corporation is the
highest corporation in the chain or chains
of includible corporations (that comprise
the affiliated group) that is a publicly
held corporation as defined in paragraph
(c)(1)(i) of this section. In the case of an
affiliated group in which more than one
member may be the parent corporation
(such as where a common parent that is
not publicly held owns multiple publicly
held corporations), the affiliated group
must choose which member to treat as the
parent corporation for the taxable year.
With respect to the parent corporation, an
employee of any member of the affiliated
group, excluding a member of an affili-
ated group of an additional publicly held
corporation (as defined below), is eligible
to be one of its five highest compensated
employees regardless of whether the indi-
vidual is an employee of the parent cor-
poration itself or performs services for
the parent corporation itself. Similarly,
with respect to an additional publicly
held corporation, any employee of the
affiliated group of the additional publicly
held corporation is eligible to be one of
its five highest compensated employees
regardless of whether the individual is an
employee of the additional publicly held
corporation itself or performs services for
the additional publicly held corporation
itself. For this purpose, an affiliated group
of an additional publicly held corporation
means, with respect to any corporation,
the affiliated group which would be deter-
mined under section 1504(a) if such cor-
poration were the common parent and if
section 1504(b) did not apply. These rules
similarly apply to all additional publicly
held corporations, beginning at the bot-
tom of each chain of corporations and
proceeding up until all members of the
affiliated group that may be so allocated
have been allocated to one (and only one)
affiliated group of an additional publicly
held corporation. If the affiliated group
includes only publicly held corporations
(as defined in paragraph (c)(1)(i) of this
section), the affiliated group used to deter-
mine the employees eligible to be each
publicly held corporation’s five highest
compensated employees is that publicly
held corporation itself.
(5) Determining the five highest com-
pensated employees in an affiliated group.
In determining whether an employee
is one of the five highest compensated
employees with respect to the parent cor-
poration (as defined in paragraph (c)(2)(i)
(D)(4) of this section) for the taxable year,
compensation paid by each member of the
affiliated group (as defined in paragraph
(c)(1)(ii) of this section) in the taxable
year, excluding any member of an affili-
ated group of an additional publicly held
corporation (as defined in paragraph (c)(2)
(i)(D)(4) of this section), is aggregated. In
determining whether an employee is one
of the five highest compensated employ-
ees with respect to a publicly held corpo-
ration (as defined in paragraph (c)(1)(i)
of this section) in an affiliated group of
an additional publicly held corporation,
compensation paid by each member of
the affiliated group of the additional pub-
licly held corporation in the taxable year
is aggregated.
(6) Application of proration rules. The
proration rules in paragraph (c)(1)(ii)(B)
of this section generally apply in the same
way to covered employees determined
under this paragraph (c)(2)(i)(D), except
that a publicly held corporation or pub-
licly held payor corporation refers to the
portion of the affiliated group of which
the publicly held corporation (as defined
in paragraph (c)(1)(i) of this section) is a
part, as determined under paragraph (c)(2)
(i)(D)(4) of this section.
* * * * *
(vii) * * *
(CC) Example 29 (Individual as one of the five
highest compensated employees of a publicly held
corporation that includes the affiliated group)--(1)
Facts. Corporation CO is a publicly held corporation
for its 2026 and 2027 taxable years. Corporation
CP is a foreign corporation and is a wholly-owned
subsidiary of Corporation CO. Corporation CP is a
controlled foreign corporation, but the only income
it has is effectively connected with a U.S. trade or
business. Corporation CO is a partner in Partner-
ship CQ (a partnership for Federal tax purposes).
Under the partnership agreement, Corporation CO
has a 50% distributive share of the partnership’s
income, gain, loss, deductions, and credits. These
allocations comply with section 704(b) and its regu-
lations. Employee EO is an employee of Corporation
CO. In 2026, Employee EO is a covered employee
of Corporation CO because Employee EO is one of
the three highest compensated executive officers of
Corporation CO. In 2027, Employee EO is not an
executive officer of Corporation CO but performs
services for and receives compensation from Cor-
poration CO for services as its employee. Further-
more, in 2027, Employee EO performs services for
and receives compensation from Corporation CP
and Partnership CQ (Employee EO is not a partner
of Partnership CQ). In 2027, the total compensation
paid to Employee EO is $3,600,000, of which Cor-
poration CO pays $1,500,000, Corporation CP pays
$900,000, and Partnership CQ pays $1,200,000. For
the 2027 taxable year, the total compensation paid
to any employee of Corporations CO and CP did not
exceed $2,500,000.
(2) Conclusion (Compensation paid by Corpora-
tion CO). The $1,500,000 in compensation paid by
Corporation CO is taken into account to determine
whether Employee EO is one of the five highest
compensated employees of Corporation CO for its
2027 taxable year.
(3) Conclusion (Compensation paid by Corpora-
tion CP). Corporations CO and CP are an affiliated
group as defined in paragraph (c)(1)(ii) of this sec-
tion. Therefore, the $900,000 in compensation paid
by Corporation CP is taken into account to determine
whether Employee EO is one of the five highest
compensated employees of Corporation CO for its
2027 taxable year. Because a publicly held corpo-
ration includes an affiliated group for purposes of
paragraph (c)(3) of this section, the result would be
the same even if there were intermediary privately
held subsidiaries between Corporations CO and CP
as long as all these corporations comprised an affil-
iated group.
(4) Conclusion (Compensation paid by Partner-
ship CQ). Under paragraph (c)(3)(ii) of this section,
Corporation CO’s $600,000 distributive share of
Partnership CQ’s deduction (50% of $1,200,000)
is compensation that is taken into account to deter-
mine whether Employee EO is one of the five highest
compensated employees of Corporation CO for its

Bulletin No. 2025–8 875 February 18, 2025
2027 taxable year. Because a publicly held corpo-
ration includes an affiliated group for purposes of
paragraph (c)(3) of this section, the result would be
the same even if there were an intermediary privately
held subsidiary between Corporation CO and Part-
nership CQ (so that, instead of Corporation CO, an
intermediary subsidiary was a partner in Partnership
CQ), as long as Corporation CO and the intermedi-
ary subsidiary comprised an affiliated group.
(5) Conclusion (Employee EO as a covered
employee). Because the aggregate compensation
taken into account with respect to Employee EO is
$3,000,000 ($1,500,000 + $900,000 + $600,000),
Employee EO is a covered employee of Corporation
CO for its 2027 taxable year by reason of being one
of its five highest compensated employees for the
taxable year as provided in paragraph (c)(2)(i)(D)
of this section (even though Employee EO is also a
covered employee of Corporation CO for its 2027
taxable year by reason of being a covered employee
for its 2026 taxable year (as provided in paragraph
(c)(2)(i)(C) of this section)).
(6) Conclusion (Amount disallowed as a deduc-
tion). Because the compensation paid by all affili-
ated group members is aggregated for purposes of
section 162(m)(1), the aggregate compensation of
$3,000,000 exceeds the limitation in section 162(m)
(1) and $2,000,000 of the compensation paid to
Employee EO is nondeductible. Corporations CO
and CP each are treated as paying a ratable portion
of the nondeductible compensation. Thus, two thirds
of each corporation’s payment will be nondeductible.
Taking into account Corporation CO’s $600,000
distributive share of the Partnership CQ’s deduc-
tion, Corporation CO has an otherwise allowable
deduction of $2,100,000 ($1,500,000 + $600,000).
Therefore, Corporation CO has a nondeductible
compensation expense of $1,400,000 ($2,100,000 x
$2,000,000/$3,000,000). Corporation CP has an oth-
erwise allowable deduction of $900,000, of which
$600,000 ($900,000 x $2,000,000/$3,000,000) is a
nondeductible compensation expense.
(DD) Example 30 (Individual as one of the five
highest compensated employees of a publicly held
corporation that includes the affiliated group and
affiliated groups of additional publicly held corpo-
rations)--(1) Facts. Corporations CR, CT, and CV
are publicly held corporations for their 2027 tax-
able years. Corporations CS and CU are privately
held for their 2027 taxable years. Corporation CT is
a subsidiary of Corporation CS, which is a subsid-
iary of Corporation CR. Corporation CV is a sub-
sidiary of Corporation CU, which is a subsidiary of
Corporation CT. Corporations CR, CS, CT, CU, and
CV are members of an affiliated group. Employee
EP is an employee of Corporations CR, CS, CU,
and CV. In 2027, Employee EP performs services
for and receives compensation from Corporations
CR, CS, CU, and CV. The total compensation paid
to Employee EP from the affiliated group members
is $7,000,000 for the taxable year, of which Corpo-
ration CR pays $1,200,000, Corporation CS pays
$1,800,000, Corporation CU pays $1,500,000, and
Corporation CV pays $2,500,000.
(2) Conclusion (Employee EP is eligible to be
a covered employee of Corporation CR). Because
Employee EP is an employee of Corporation CR,
Employee EP is eligible to be one of the five highest
compensated employees of Corporation CR. Even
though Corporations CR, CS, CT, CU, and CV com-
prise an affiliated group as defined in paragraph (c)
(1)(ii) of this section, because Corporations CT and
CV are additional publicly held corporations of the
affiliated group, the affiliated group contains affili-
ated groups of these additional publicly held corpo-
rations (as defined in paragraph (c)(2)(i)(D)(4) of this
section). Compensation paid by the affiliated groups
of these additional publicly held corporations is not
taken into account to determine whether Employee
EP is one of the five highest compensated employ-
ees of Corporation CR for its 2027 taxable year.
Accordingly, Corporations CT and CU comprise an
affiliated group of an additional publicly held corpo-
ration (Corporation CT), and compensation paid by
Corporation CU is not taken into account to deter-
mine whether Employee EP is one of the five highest
compensated employees of Corporation CR for its
2027 taxable year. Furthermore, Corporation CV is
an affiliated group of an additional publicly held cor-
poration (Corporation CV), and compensation paid
by Corporation CV is not taken into account to deter-
mine whether Employee EP is one of the five highest
compensated employees of Corporation CR for its
2027 taxable year. Therefore, only the $1,200,000
in compensation paid by Corporation CR and the
$1,800,000 paid by Corporation CS are taken into
account to determine whether Employee EP is one of
the five highest compensated employees of Corpora-
tion CR for its 2027 taxable year.
(3) Conclusion (Employee EP is eligible to be a
covered employee of Corporation CT). Because Cor-
poration CT is a publicly held corporation, Corpo-
rations CT and CU comprise an affiliated group of
an additional publicly held corporation (as defined
in paragraph (c)(2)(i)(D)(4) of this section). Because
an employee of any member of the affiliated group
is eligible to be one of the five highest compensated
employees of the publicly held corporation (regard-
less of whether the employee performs services for
the publicly held corporation), Employee EP is eli-
gible to be a covered employee of Corporation CT,
even though Employee EP does not perform services
for Corporation CT. Because only compensation
paid by a member of the affiliated group of the addi-
tional publicly held corporation in the taxable year is
taken into account to determine whether an individ-
ual is one of the five highest compensated employees
with respect to the additional publicly held corpora-
tion, only compensation paid by Corporation CU is
taken into account to determine whether Employee
EP is one of the five highest compensated employ-
ees of Corporation CT for its 2027 taxable year.
Accordingly, the $1,500,000 in compensation paid
by Corporation CU is taken into account to deter-
mine whether Employee EP is one of the five highest
compensated employees of Corporation CT for its
2027 taxable year.
(4) Conclusion (Employee EP is eligible to be
a covered employee of Corporation CV). Because
Employee EP is an employee of Corporation CV,
Employee EP is eligible to be one of the five high-
est compensated employees of Corporation CV.
Because Corporation CV is a publicly held corpora-
tion, Corporation CV comprises an affiliated group
of an additional publicly held corporation (as defined
in paragraph (c)(2)(i)(D)(4) of this section). Because
only compensation paid by a member of the affiliated
group of the additional publicly held corporation in
the taxable year is taken into account to determine
whether an individual is one of the five highest com-
pensated employees with respect to the additional
publicly held corporation, only compensation paid
by Corporation CV is taken into account to deter-
mine whether Employee EP is one of the five highest
compensated employees of Corporation CV for its
2027 taxable year. Accordingly, the $2,500,000 in
compensation paid by Corporation CV is taken into
account to determine whether Employee EP is one of
the five highest compensated employees of Corpora-
tion CV for its 2027 taxable year.
(5) Conclusion (Employee EP as covered
employee of Corporation CR). The $1,200,000
in compensation paid by Corporation CR and the
$1,800,000 in compensation paid by Corporation CS
are taken into account to determine whether Employee
EP is one of the five highest compensated employees
of Corporation CR for its 2027 taxable year. If, pursu-
ant to paragraph (c)(2)(i)(D) of this section, Employee
EP is a covered employee of Corporation CR, then
Corporation CR’s deduction for $1,200,000 and Cor-
poration CS’s deduction for $1,800,000 for the 2027
taxable year would be subject to the section 162(m)(1)
limit. Because the compensation paid by the affiliated
group members is aggregated for purposes of section
162(m)(1), the aggregate compensation of $3,000,000
exceeds the limitation in section 162(m)(1) and
$2,000,000 of the compensation paid to Employee
EP would be nondeductible. Corporations CR and CS
each are treated as paying a ratable portion of the non-
deductible compensation. Corporation CR has an oth-
erwise allowable deduction of $1,200,000, of which
$800,000 ($1,200,000 x $2,000,000/$3,000,000)
would be a nondeductible compensation expense.
Corporation CS has an otherwise allowable deduc-
tion of $1,800,000, of which $1,200,000 ($1,800,000
x $2,000,000/$3,000,000) would be a nondeductible
compensation expense.
(6) Conclusion (Employee EP as covered
employee of Corporation CT). The $1,500,000 in
compensation paid by Corporation CU is taken into
account to determine whether Employee EP is one
of the five highest compensated employees of Cor-
poration CT for its 2027 taxable year. If, pursuant to
paragraph (c)(2)(i)(D) of this section, Employee EP
is a covered employee of Corporation CT, then Cor-
poration CU’s deduction for $1,500,000 for the 2027
taxable year would be subject to the section 162(m)
(1) limit. Accordingly, pursuant to paragraph (c)(2)
(i)(D)(6) of this section, Corporation CU would have
a nondeductible compensation expense of $500,000.
(7) Conclusion (Employee EP as covered
employee of Corporation CV). The $2,500,000 in
compensation paid by Corporation CV is taken into
account to determine whether Employee EP is one
of the five highest compensated employees of Cor-
poration CV for its 2027 taxable year. If, pursuant to
paragraph (c)(2)(i)(D) of this section, Employee EP
is a covered employee of Corporation CV, then Cor-
poration CV’s deduction for $2,500,000 for the 2027
taxable year would be subject to the section 162(m)
(1) limit. Accordingly, Corporation CV would have a
nondeductible compensation expense of $1,500,000.
(EE) Example 31 (Individual as one of the five
highest compensated employees of a publicly held

February 18, 2025 876 Bulletin No. 2025–8
corporation that includes the affiliated group that
chooses a parent corporation)--(1) Facts. Corpora-
tions CX and CY are publicly held corporations for
their 2027 taxable years. Corporations CW and CZ
are privately held corporations for their 2027 taxable
years. Corporations CX and CY are subsidiaries of
Corporation CW. Corporations CX and CY each
directly own 50% (by vote and value) of Corpora-
tion CZ’s only class of stock. In 2027, Employee
EQ performs services for and receives compensation
from Corporations CW, CX, CY, and CZ. The total
compensation paid to Employee EQ from all corpo-
rations is $4,700,000 for the taxable year, of which
Corporation CW pays $1,500,000, Corporation CX
pays $900,000, Corporation CY pays $1,700,000,
and Corporation CZ pays $600,000.
(2) Conclusion (Employee EQ is eligible to be
a covered employee of Corporations CX and CY).
Because Employee EQ is an employee of Corpo-
rations CX and CY, Employee EQ is eligible to be
one of the five highest compensated employees of
these publicly held corporations. Because both Cor-
porations CX and CY are the highest publicly held
corporations in the chain of includible corporations
that comprise an affiliated group (composed of Cor-
porations CW, CX, CY, and CZ) as defined in para-
graph (c)(1)(ii) of this section, the affiliated group
may choose to treat either Corporation CX or CY
as the parent corporation for the 2027 taxable year.
If the affiliated group chooses to treat Corporation
CX as the parent corporation, then only compensa-
tion paid by Corporations CW, CX, and CZ is taken
into account to determine whether Employee EQ is
one of the five highest compensated employees of
Corporation CX for the 2027 taxable year. Because
Corporation CY is an affiliated group of the addi-
tional publicly held corporation composed of one
corporation (Corporation CY), only compensation
paid by Corporation CY is taken into account to
determine whether Employee EQ is one of the five
highest compensated employees of Corporation CY.
A similar analysis would apply if the affiliated group
chose to treat Corporation CY as the parent.
(3) Conclusion (Employee EQ as a covered
employee of Corporation CX). The $1,500,000 in
compensation paid by Corporation CW, the $900,000
paid by Corporation CX, and the $600,000 in com-
pensation paid by Corporation CZ (that is, aggregate
compensation of $3,000,000) are taken into account
to determine whether Employee EQ is one of the five
highest compensated employees of Corporation CX
for its 2027 taxable year. If, pursuant to paragraph (c)
(2)(i)(D) of this section, Employee EQ is a covered
employee of Corporation CX, then Corporation CW’s
deduction for $1,500,000, Corporation CX’s deduc-
tion for $900,000, and Corporation CZ’s deduction
for $600,000 for the 2027 taxable year would be
subject to the section 162(m)(1) limit. Because the
compensation paid by the affiliated group members
is aggregated for purposes of section 162(m)(1), the
aggregate compensation of $3,000,000 exceeds the
limitation in section 162(m)(1) and $2,000,000 of
the compensation paid to Employee EQ would be
nondeductible. Corporations CW, CX, and CZ each
are treated as paying a ratable portion of the non-
deductible compensation. Corporation CW would
have a nondeductible compensation expense of
$1,000,000 ($1,500,000 x $2,000,000/$3,000,000).
Corporation CX would have a nondeductible
compensation expense of $600,000 ($900,000 x
$2,000,000/$3,000,000). Corporation CZ would
have a nondeductible compensation expense of
$400,000 ($600,000 x $2,000,000/$3,000,000).
(4) Conclusion (Employee EQ as a covered
employee of Corporation CY). The $1,700,000 in
compensation paid by Corporation CY is taken into
account to determine whether Employee EQ is one
of the five highest compensated employees of Cor-
poration CY for its 2027 taxable year. If, pursuant to
paragraph (c)(2)(i)(D) of this section, Employee EQ
is a covered employee of Corporation CY, then Cor-
poration CY’s deduction for $1,700,000 for the 2027
taxable year would be subject to the section 162(m)
(1) limit. Accordingly, Corporation CY would have
a nondeductible compensation expense of $700,000.
(3) * * *
(iii) Compensation paid by a controlled
foreign corporation that is a member of an
affiliated group. For purposes of paragraph
(c)(3)(i) of this section, compensation
includes a publicly held corporation’s pro
rata share (as determined under the prin-
ciples of sections 951(a)(2) and 951A(e)
(1)) of the amounts that would be claimed
by a controlled foreign corporation (as
defined in section 957) that is a member
of an affiliated group (as defined in para-
graph (c)(1)(ii) of this section) as properly
allocable to gross income included under
sections 951(a)(1) and 951A(a) under sec-
tions 954(b)(5), 951A(c)(2)(A)(ii), and
similar provisions, determined without
regard to the disallowance of any such
expenses by reason of section 162(m)
and these regulations, for compensation
expenses attributable to the remuneration
paid by the controlled foreign corporation
to a covered employee of a publicly held
corporation for services performed by the
covered employee.
(iv) Amounts paid to individuals per-
forming substantially all their services
for a publicly held corporation. Notwith-
standing paragraph (c)(2)(i)(D)(2) of this
section, for purposes of paragraph (c)(2)
(i)(D) of this section, an employee of a
publicly held corporation includes an indi-
vidual who, pursuant to section 3401(c),
is an employee of a person other than the
publicly held corporation but performs
substantially all the individual’s services
during the relevant taxable year for the
publicly held corporation. Consequently,
for purposes of paragraph (c)(3) of this
section, compensation includes the aggre-
gate amount allowable as a deduction to
the publicly held corporation under chap-
ter 1 of the Internal Revenue Code for the
taxable year (determined without regard to
section 162(m)(1)) to obtain the services
performed by such individual, whether or
not the particular services that give rise to
the deduction were performed during the
relevant taxable year. This rule applies
regardless of how the amounts allowable
as a deduction are paid or denominated,
and regardless of whether the individual
is compensated directly or by a third-party
payor, including a related organization or
certified professional employer organiza-
tion under section 7705. The disallowance
under paragraph (b) of this section like-
wise is applied to those amounts, however
denominated, otherwise allowable as a
deduction to obtain those services. Noth-
ing in the previous sentence is intended
to imply that such amounts paid to a third
party for services by a covered employee,
however denominated, are not already
treated as remuneration for those services
and thus compensation for purposes of
paragraph (c)(3) of this section.
* * * * *
(D) Example 4--(1) Facts. Corporation U is a
publicly held corporation for its 2027 taxable year
and is not a member of an affiliated group. Corpora-
tion U has a services agreement with unrelated Cor-
poration V. In Corporation U’s 2027 taxable year, it
pays $1,500,000 to Corporation V pursuant to the
agreement in exchange for the services of an interim
chief accountant (Individual E) in the same year. The
$1,500,000 is otherwise deductible for Corporation
U’s 2027 taxable year. Individual E performs sub-
stantially all Individual E’s services in 2027 for Cor-
poration U.
(2) Conclusion. Pursuant to paragraph (c)(3)(iv)
of this section, Individual E is treated as an employee
of Corporation U for purposes of this section. The
$1,500,000 paid to Corporation V by Corporation
U in 2027 is compensation within the meaning of
paragraph (c)(3) of this section and is taken into
account to determine whether Individual E is a
covered employee as one of the five highest com-
pensated employees of Corporation U for its 2027
taxable year. If, pursuant to paragraph (c)(2)(i)(D) of
this section, Individual E is a covered employee of
Corporation U, then Corporation U’s deduction for
$1,500,000 for the 2027 taxable year is subject to
the section 162(m)(1) limit. Because a publicly held
corporation includes an affiliated group for purposes
of paragraph (c)(3) of this section, the result would
be the same even if Corporation U owned a privately
held subsidiary, and Individual E performed substan-
tially all Individual E’s services for the subsidiary. In
addition, the result would also be the same if Indi-
vidual E performed substantially all Individual E’s
services for both Corporation U and its subsidiary, as
long as Corporation U and its subsidiary comprised
an affiliated group (regardless of whether Corpora-
tion U or its subsidiary paid the $1,500,000 to Cor-
poration V). In such case, pursuant to paragraph (c)

Bulletin No. 2025–8 877 February 18, 2025
(1)(ii) of this section, the amount disallowed as a
deduction would be prorated between Corporation U
and its subsidiary. Furthermore, the result would be
the same even if Individual E were an employee of
Corporation U (regardless of whether Individual E
were also an employee of Corporation V).
(E) Example 5--(1) Facts. Corporation W is a
publicly held corporation for its 2027 taxable year
and is not a member of an affiliated group. Corpo-
ration W is a partner in Partnership X (a partnership
for Federal tax purposes), that owns all the stock
of Corporation Y. Under the partnership agree-
ment, Corporation W has a 50% distributive share
of the partnership’s income, gain, loss, deductions,
and credits. These allocations comply with section
704(b) and its regulations. Individual F is a partner
of Partnership X. In 2027, Individual F performs ser-
vices for the partnership, and the partnership pays
$1,000,000 to Individual F as a guaranteed payment
for these services. With respect to the $1,000,000
paid to Individual F, a deduction of $500,000 is allo-
cated to Corporation W. Corporation W’s $500,000
distributive share of the partnership’s deduction is
reported separately to Corporation W pursuant to
§1.702-1(a)(8)(iii). Individual F is also an employee
(within the meaning of section 3401(c)) of Corpo-
ration Y. In Corporation W’s 2027 taxable year, it
pays $8,000,000 to Corporation Y in exchange for
Individual F’s services. The $8,000,000 is other-
wise deductible for Corporation W’s 2027 taxable
year. Individual F performs substantially all Individ-
ual F’s services in 2027 for Corporation W.
(2) Conclusion. Pursuant to paragraph (c)(3)(iv)
of this section, Individual F is treated as an employee
of Corporation W for purposes of this section. The
entire $8,000,000 paid to Corporation Y by Corpora-
tion W in 2027 is compensation within the meaning
of paragraph (c)(3) of this section and is taken into
account to determine whether Individual F is one of
the five highest compensated employees of Corpora-
tion W for its 2027 taxable year. Because Corporation
W’s $500,000 distributive share of the partnership’s
deduction is attributable to the compensation paid by
the partnership for services performed by Individual
F (who is treated as an employee of Corporation W),
the $500,000 is compensation within the meaning
of paragraph (c)(3)(ii) of this section. Accordingly,
Corporation W’s $500,000 distributive share of the
partnership’s deduction is aggregated with Corpo-
ration W’s deduction for $8,000,0000 paid to Cor-
poration Y in determining whether Individual F is a
covered employee as one of the five highest com-
pensated employees of Corporation W for its 2027
taxable year. If, pursuant to paragraph (c)(2)(i)(D)
of this section, Individual F is a covered employee
of Corporation W, then Corporation W’s deduction
for $8,500,000 for its 2027 taxable year is subject to
the section 162(m)(1) limit. Because a publicly held
corporation includes an affiliated group for purposes
of paragraph (c)(3) of this section, the result would
be the same even if there were an intermediary pri-
vately held subsidiary between Corporation W and
Partnership X (so that, instead of Corporation W, an
intermediary subsidiary was a partner in Partnership
X), as long as Corporation W and the intermediary
subsidiary comprised an affiliated group, and as long
as Individual F performed substantially all Individ-
ual F’s services for the intermediary subsidiary. Fur-
thermore, the result would also be the same if Indi-
vidual F performed substantially all Individual F’s
services for both Corporation W and the intermedi-
ary subsidiary (regardless of whether Corporation W
or the intermediary subsidiary paid the $8,000,000 to
Corporation Y). In such case, pursuant to paragraph
(c)(1)(ii) of this section, the amount disallowed as a
deduction would be prorated between Corporation W
and the intermediary subsidiary.
* * * * *
(h) * * *
(2) * * *
(ii) * * *
(C) Definition of compensation. The
definition of compensation provided in
paragraph (c)(3)(ii) of this section (relat-
ing to distributive share of partnership
deductions for compensation paid) applies
to any deduction for compensation that is
paid after December 18, 2020. The defini-
tion of compensation in paragraph (c)(3)
(ii) of this section does not apply to com-
pensation paid pursuant to a written bind-
ing contract that is in effect on December
20, 2019, and that is not materially modi-
fied after that date. For purposes of para-
graph (h)(2)(C) of this section, written
binding contract and material modifica-
tion have the same meanings as provided
in paragraphs (g)(1) and (2) of this section.
The definition of compensation provided
in paragraphs (c)(3)(iii) and (iv) of this
section and the examples in paragraphs
(c)(3)(vi)(D) and (E) of this section apply
to any deduction for compensation that
is otherwise deductible for taxable years
beginning after the later of December 31,
2026, or the date of publication of the
Treasury decision adopting these rules as
final regulations in the Federal Register.
* * * * *
(F) Five highest compensated employ-
ees. Paragraph (c)(2)(i)(D) of this section
(describing the five highest compensated
employees of a publicly held corporation)
and the examples in paragraphs (c)(2)(vii)
(CC) through (EE) of this section apply to
taxable years beginning after the later of
December 31, 2026, or the date of publi-
cation of the Treasury decision adopting
these rules as final regulations in the Fed-
eral Register.
(G) Amendment to paragraph (c)(1)
(vi)(W)(2) of this section. The amendment
to paragraph (c)(1)(vi)(W)(2) of this sec-
tion (Example 23) to reference paragraph
(c)(1)(vi)(T) of this section (Example 20)
is proposed to apply to taxable years end-
ing on or after January 16, 2025.
Douglas W. O’Donnell,
Deputy Commissioner.
(Filed by the Office of the Federal Register January
14, 2025, 8:45 a.m., and published in the issue of the
Federal Register for January 16, 2025, 90 FR 4691)

Bulletin No. 2025–8 i February 18, 2025
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
applied to A, and the new ruling holds that
the same principle also applies to B, the
earlier ruling is amplified. (Compare with
modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguished describes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modified is used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
with amplified and clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future 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 previously
published ruling in a new ruling that is
self contained. In this case, the previously
published ruling is first modified and then,
as modified, is superseded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.
Suspended is used in rare situations
to show that the previous published rul-
ings will not be applied pending some
future action such as the issuance of new
or amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current
use and formerly used will appear in
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.

February 18, 2025 ii Bulletin No. 2025–8
Numerical Finding List
1
Bulletin 2025–8
Announcements:
2025-2, 2025-2 I.R.B. 305
2025-3, 2025-2 I.R.B. 306
2025-4, 2025-2 I.R.B. 306
2025-1, 2025-3 I.R.B. 431
2025-5, 2025-3 I.R.B. 433
2025-6, 2025-5 I.R.B. 526
Notices:
2025-1, 2025-3 I.R.B. 415
2025-2, 2025-3 I.R.B. 418
2025-4, 2025-3 I.R.B. 419
2025-5, 2025-3 I.R.B. 426
2025-3, 2025-4 I.R.B. 488
2025-7, 2025-5 I.R.B. 524
2025-9, 2025-6 I.R.B. 681
2025-10, 2025-6 I.R.B. 682
2025-11, 2025-6 I.R.B. 704
2025-13, 2025-6 I.R.B. 710
2025-6, 2025-8 I.R.B. 799
2025-8, 2025-8 I.R.B. 800
2025-12, 2025-8 I.R.B. 813
Proposed Regulations:
REG-117213-24, 2025-3 I.R.B. 433
REG-134420-10, 2025-4 I.R.B. 513
REG-105479-18, 2025-5 I.R.B. 527
REG-116610-20, 2025-5 I.R.B. 638
REG-115560-23, 2025-6 I.R.B. 716
REG-123525-23, 2025-6 I.R.B. 726
REG-124930-21, 2025-7 I.R.B. 772
REG-100669-24, 2025-8 I.R.B. 819
REG-101268-24, 2025-8 I.R.B. 836
REG-107420-24, 2025-8 I.R.B. 854
REG-116085-23, 2025-8 I.R.B. 865
REG-118988-22, 2025-8 I.R.B. 869
Revenue Procedures:
2025-1, 2025-1 I.R.B. 1
2025-2, 2025-1 I.R.B. 118
2025-3, 2025-1 I.R.B. 142
2025-4, 2025-1 I.R.B. 158
2025-5, 2025-1 I.R.B. 260
2025-7, 2025-1 I.R.B. 301
2025-8, 2025-3 I.R.B. 427
2025-9, 2025-4 I.R.B. 491
2025-10, 2025-4 I.R.B. 492
2025-11, 2025-4 I.R.B. 501
2025-12, 2025-4 I.R.B. 512
2025-6, 2025-6 I.R.B. 713
2025-14, 2025-7 I.R.B. 770
2025-13, 2025-8 I.R.B. 816
Revenue Rulings:
2025-1, 2025-3 I.R.B. 307
2025-2, 2025-3 I.R.B. 309
2025-3, 2025-4 I.R.B. 443
2025-4, 2025-7 I.R.B. 758
2025-5, 2025-7 I.R.B. 767
Treasury Decisions:
10016, 2025-3 I.R.B. 313
10020, 2025-3 I.R.B. 408
10018, 2025-4 I.R.B. 446
10019, 2025-4 I.R.B. 482
10017, 2025-5 I.R.B. 517
10028, 2025-6 I.R.B. 660
10022, 2025-8 I.R.B. 773
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2024–27 through 2024–52 is in Internal Revenue Bulletin
2024–52, dated December 23, 2024.

Bulletin No. 2025–8 iii February 18, 2025
Finding List of Current Actions on
Previously Published Items
1
Bulletin 2025–8
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2024–27 through 2024–52 is in Internal Revenue Bulletin
2024–52, dated December 23, 2024.

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