Internal Revenue Bulletin 2005-9 (PDF rendition): IRS Revenue Rulings

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

Bulletin No. 200
5-9
February 28, 200
5
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Rev. Rul. 2005–12, page 628.
LIFO; price indexes; department stores.The December
2004 Bureau of Labor Statistics price indexes are accepted
for use by department stores employing the retail inventory
and last-in, first-out inventory methods for valuing inventories
for tax years ended on, or with reference to, December 31,
2004.
T.D. 9174
, page 629.
Final regu
lations under section 6661 of the Code remove reg-
ulations
sections 1.6661–1 through 1.6661–6 relating to an
addition
to tax in the case of a substantial understatement of
income ta
x liability made pursuant to section 6661. In addition,
this regu
lation corrects a reference to section 6661(b)(2)(C)(ii)
in regula
tions section 1.448–1T(b)(1)(iii) to clarify that the def-
inition
of “tax shelter” is now found in section 6662(d)(2)(C).
Notice 2005–13, page 630.
Tax-exempt leasing involving defeasance.This notice
disallows tax benefits claimed by taxpayers who enter into
sale-in, lease-out (SILO) transactions and identifies SILOs as
listed transactions.
Notice 2005–20, page 635.
This notice addresses several questions of statutory interpre-
tation arising under section 172(f)(1)(B) of the Code prior to its
amendment by section 3004(a) of the Tax and Trade Relief Ex-
tension Act of 1998.
EMPLOYEE PLANS
REG–152914–04, page 650.
Proposed regulations under section 417 of the Code would
revise final regulations (T.D. 9099, 2004–2 I.R.B. 255) under
section 417(a)(3) concerning content requirements applicable
to explanations of qualified joint and survivor annuities and qual-
ified preretirement survivor annuities payable under certain re-
tirement plans.
Notice 20
05–19, page 634.
Weighted a
verage interest rate update; corporate bond
indices;
30-year Treasury securities.The weighted aver-
age inter
est rate for February 2005 and the resulting permis-
sible ran
ge of interest rates used to calculate current liability
and to det
ermine the required contribution are set forth.
EXEMPT ORGANIZATIONS
Announcement 2005–18, page 660.
A Better Way Credit Counseling, Inc., of Greenacres, FL, and
Allen’s Pre-School and Day Care, Inc., of Murray, UT, no longer
qualify as organizations to which contributions are deductible
under section 170 of the Code.
(Continued on the next page)
A
nnouncements of Disbarments and Suspensions begin on page 654.
Finding Lists begin on page ii.
Index for January through February begins on page iv.

ADMINISTRATIVE
REG–148867–03, page 646.
Proposed regulations under section 6103(n) of the Code de-
scribe the circumstances under which officers and employees
of the Treasury Department, a state tax agency, the Social Se-
curity Administration, or the Department of Justice may dis-
close returns and return information to any person to obtain
property or services for tax administration purposes. The pro-
posed regulations clarify the existing regulations with respect
to redisclosures of returns or return information by contrac-
tors, especially with regard to redisclosures by contractors to
agents or subcontractors, and clarify that the civil and crimi-
nal penalties for the unauthorized inspection or disclosure of
returns or return information apply to the agents or subcon-
tractors.
Notice 2005
–18, page 634.
The differe
ntial earnings rate for 2004 is tentatively determined
for use by mu
tual life insurance companies to compute their
income tax l
iability for 2004.
Rev. Proc. 2005–15, page 638.
This procedure provides issuers of qualified mortgage bonds
and qualified mortgage credit certificates with average area
purchase price safe-harbors for statistical areas in the United
States and with a nationwide average purchase price for resi-
dences in the United States for purposes of the mortgage rev-
enue bond rules under section 143 of the Code (and the mort-
gage credit certificate rules under section 25). Rev. Proc.
2004–18 obsoleted in part.
Announcement 2005–14, page 653.
This document contains corrections and clarifications to
Publication 1220,Specifications for Filing Forms 1098,
1099, 5498, and W–2G Electronically or Magnetically(revised
9–2004).
February 28, 20052005–9 I.R.B.

The IRS Mission
Provide America’s taxpayers top quality service by helping
them understand and meet their tax responsibilities and by
applying the tax law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Sec-
retary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
2005–9 I.R.B.February 28, 2005

Place missing child here.
February 28, 20052005–9 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 472.—Last-in,
First-out Inventories
26 CFR 1.472–1: Last-in, first-out inventories.
LIFO; price indexes; department
stores.The December 2004 Bureau of
Labor Statistics price indexes are accepted
for use by department stores employing
the retail inventory and last-in, first-out
inventory methods for valuing inventories
for tax years ended on, or with reference
to, December 31, 2004.
Rev. Rul. 2005–12
The following Department Store In-
ventory Price Indexes for December 2004
were issued by the Bureau of Labor Statis-
tics. The indexes are accepted by the Inter-
nal Revenue Service, under § 1.472–1(k)
of the Income Tax Regulations and Rev.
Proc. 86–46, 1986–2 C.B. 739, for ap-
propriate application to inventories of
department stores employing the retail
inventory and last-in, first-out inventory
methods for tax years ended on, or with
reference to, December 31, 2004.
The Department Store Inventory Price
Indexes are prepared on a national basis
and include (a) 23 major groups of depart-
ments, (b) three special combinations of
the major groups — soft goods, durable
goods, and miscellaneous goods, and (c) a
store total, which covers all departments,
including some not listed separately, ex-
cept for the following: candy, food, liquor,
tobacco, and contract departments.
BUREAU OF
LABOR STATISTICS, DEPARTMENT STORE
INVENTOR
Y PRICE INDEXES BY DEPARTMENT GROUPS
(January
1941 = 100, unless otherwise noted)
GroupsDec. 2003Dec. 2004
Percent Change
from Dec. 2003
to Dec. 2004
1
1. PieceGoods .............................................473.7495.24.5
2. DomesticsandDraperies..................................543.9527.4-3.0
3. Women’s
andChildren’sShoes ............................
629.7650.73.3
4. Men’sShoes.............................................847.8841.5-0.7
5. Infants’Wear ............................................586.4577.4-1.5
6. Women’
sUnderwear......................................
509.6517.21.5
7. Women’sHosiery ........................................344.1339.2-1.4
8. Women’sandGirls’Accessories ...........................551.3565.62.6
9. Women’
sOuterwearandGirls’Wear .......................
362.7352.5-2.8
10. Men’sClothing ..........................................535.1535.80.1
11. Men’sFurnishings........................................583.4569.9-2.3
12. Boys’
ClothingandFurnishings............................
429.0414.2-3.4
13. Jewelry..................................................848.0866.22.1
14. Notions .................................................799.6792.2-0.9
15. Toil
etArticlesandDrugs..................................
976.5992.11.6
16. FurnitureandBedding ....................................612.9602.0-1.8
17. FloorCoverings..........................................595.1592.5-0.4
18. Hou
sewares..............................................
710.6708.0-0.4
19. MajorAppliances.........................................206.8199.9-3.3
20. RadioandTelevision......................................43.840.3-8.0
21
.
Re
creation and Education
2
.................................
81.578.3-3.9
22. Home Improvements
2
.....................................125.4131.75.0
23. Automotive Accessories
2
..................................112.1112.90.7
Groups1–15:SoftGoods .......................................555.8552.5-0.6
Groups16–20:DurableGoods...................................386.8378.5-2.1
Groups 21–23: Misc. Goods
2
....................................93.592.2-1.4
Store Total
3
..............................................495.1490.1-1.0
1
Absence of a minus sign before the percentage change in this column signifies a price increase.
2
Indexes on a January 1986 = 100 base.
3
The store total index covers all departments, including some not listed separately, except for the following: candy, food, liquor,
tobacco and contract departments.
2005–9 I.R.B.628February 28, 2005

DRAFTING INFORMATION
The principal author of this revenue
ruling is Michael Burkom of the Office
of Associate Chief Counsel (Income Tax
and Accounting). For further informa-
tion regarding this revenue ruling, contact
Mr. Burkom at (202) 622–7924 (not a
toll-free call).
Section 6661.—Substantial
Understatement of Liability
26 CFR 1.448–1T: Limitation on the use of the cash
receipts and disbursements method of accounting
(temporary).
T.D. 9174
DEPARTMENT OF
THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Substantial Understatement of
Income Tax Liability
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document removes reg-
ulations relating to the addition to tax in
the case of a substantial understatement of
income tax liability and corrects an obso-
lete cross reference. The Internal Revenue
Code (Code) provision imposing the addi-
tion to tax and cited in the cross reference
was repealed in 1989. The changes made
by this document will not affect taxpayers
because the addition to tax does not apply
to returns with a due date after December
31, 1989 (determined without regard to ex-
tensions).
DATES: The changes made by this docu-
ment are effective January 5, 2005.
FOR FURTHER INFORMATION
CONTACT: Audra M. Dineen, (202)
622–4940 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
Section 6661 of the Code, as in effect
before its repeal in 1989, imposed an ad-
dition to tax equal to 25 percent of the
amount of the underpayment of tax attrib-
utable to any substantial understatement of
income tax liability for a taxable year. Sec-
tions 1.6661–1 through 1.6661–6 of the
Income Tax Regulations (26 CFR Part 1)
provided rules for determining whether an
addition to tax should be imposed and for
computing the amount of any such addi-
tion.
The Omnibus Budget Reconciliation
Act of 1989, Public Law 101–239 (103
Stat. 2106), repealed section 6661 effec-
tive for tax returns due after December
31, 1989 (determined without regard to
extensions) and substituted, in section
6662, an accuracy-related penalty applica-
ble to those returns. The repeal of section
6661 has rendered §§1.6661–1 through
1.6661–6 obsolete. This Treasury deci-
sion removes those provisions and corrects
an obsolete cross reference to section 6661
in the regulations under section 448 (relat-
ing to the limitation on the use of the cash
method of accounting).
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It also has been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does
not apply to these regulations. In addition,
because these regulations do not impose a
collection of information on small entities,
the Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Pursuant to sec-
tion 7805(f) of the Code, this document has
been submitted to the Small Business Ad-
ministration for comment on its impact on
small business.
Drafting Information
The principal author of this document
isAudraM.DineenoftheOfficeofAs-
sociate Chief Counsel, Procedure and
Administration (Administrative Provi-
sions and Judicial Practice Division).
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. In §1.448–1T, paragraph
(b)(1)(iii) is revised to read as follows:
§1.448–1T Limitation on the use of the
cash receipts and disbursements method
of accounting (temporary).
*****
(b) * * *
(1) * * *
(iii) Tax shelter within the meaning of
section 6662(d)(2)(C).
*****
§§1.6661–1 through 1.6661–6
[Removed]
Par. 3. Sections 1.6661–1 through
1.6661–6 are removed.
Part 602—OMB CONTROL NUMBERS
UNDER THE PAPERWORK
REDUCTION ACT
Par. 4. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 5. In §602.101, paragraph (b)
is amended by removing the entries for
“1.6661–3” and “1.6661–4” from the ta-
ble.
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
Approved December 9, 2004.
Gregory F. Jenner,
Acting Assistant Secretary of the
Treasury (Tax Policy).
(Filed by the Office of the Federal Register on January 4,
2005, 8:45 a.m., and published in the issue of the Federal
Register for January 5, 2005, 70 F.R. 704)
February 28, 20056292005–9 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Tax-Exempt Leasing Involving
Defeasance
Notice 2005–13
The Internal Revenue Service and the
Treasury Department are aware of types of
transactions, described below, in which a
taxpayer enters into a purported sale-lease-
back arrangement with a tax-indifferent
person in which substantially all of the
tax-indifferent person’s payment obliga-
tions are economically defeased and the
taxpayer’s risk of loss from a decline, and
opportunity for profit from an increase, in
the value of the leased property are lim-
ited. This notice alerts taxpayers and their
representatives that these transactions are
tax avoidance transactions and identifies
these transactions, and substantially sim-
ilar transactions, aslisted transactions for
purposes of § 1.6011–4(b)(2) of the In-
come Tax Regulations and §§ 6111 and
6112 of the Internal Revenue Code. This
notice also alerts parties involved with
these transactions of certain responsibili-
ties that may arise from their involvement
with these transactions.
FACTS
X is a U.S. taxpayer. FP is a tax-in-
different person that owns and uses cer-
tain property.
1
BK1, BK2, BK3, and BK4
are banks. None of these parties is related
to any other party, unless otherwise indi-
cated.
Situation 1
On the closing date of January 1, 2003
(“Closing Date”), X and FP enter into a
purported sale-leaseback transaction un-
der which FP sells the property to X, and
X immediately leases the property back
to FP under a lease (“Lease”). The pur-
chase and sale agreement and the Lease
are nominally separate legal documents.
Both agreements, however, are executed
pursuant to a comprehensive participation
agreement, which provides that the par-
ties’ rights and obligations under any of the
agreements are not enforceable before the
execution of all transaction documents.
The Lease requires FP to make rental
payments over the term of the Lease
(“Lease Term”). As described below, the
Lease also provides that under certain
conditions, X has the option (“Service
Contract Option”) to require FP to identify
a party (“Service Recipient”) willing to
enter into a contract with X to receive ser-
vices provided using the leased property
(“Service Contract”) that commences im-
mediately after the expiration of the Lease
Term. The Service Recipient must meet
certain financial qualifications, including
credit rating and netcapital requirements,
and provide defeasance or other credit
support to satisfy certain of its obligations
under the Service Contract. If FP cannot
locate a qualified third party to enter into
the Service Contract, FP or an affiliate of
FP must enter into the Service Contract.
The aggregate of the Lease Term plus the
term of the Service Contract (“Service
Contract Term”) is less than 80 percent of
the assumed remaining useful life of the
property.
On the Closing Date, the property has a
fair market value of $105x and X makes a
single payment of $105x to FP. To fund the
$105x payment, X provides $15x in equity
and borrows $81x from BK1 and $9x from
BK2. Both loans are nonrecourse and pro-
vide for payments during the Lease Term.
Accrued but unpaid interest is capitalized
as additional principal. As of the Closing
Date, the documents reflect that the sum
of the outstanding principal on the loans at
any given time will be less than the pro-
jected fair market value of the property at
that time. The amount and timing of the
debt service payments closely match the
amount and timing of the Lease payments
due during the Lease Term.
FP intends to utilize only a small por-
tion of the proceeds of the purported sale-
leaseback for operational expenses or to fi-
nance or refinance the acquisition of new
assets. Upon receiving the $105x purchase
price payment, FP sets aside substantially
all of the $105x to satisfy its lease obli-
gations. FP deposits $81x with BK3 and
$9xwithBK4.BK3maybeanaffiliateof
BK1,andBK4maybeanaffiliateofBK2.
The deposits with BK3 and BK4 earn in-
terest sufficient to fund FP’s rent obliga-
tions as described below. BK3 pays annual
amounts equal to 90 percent of FP’s an-
nual rent obligation under the Lease (that
is, amounts sufficient to satisfy X’s debt
service obligation to BK1). Although FP
directs BK3 to pay those amounts to BK1,
the parties treat theseamountsashaving
been paid from BK3 to FP, then from FP
to X as rental payments, and finally from
X to BK1 as debt service payments. In ad-
dition, FP pledges the deposit with BK3
to X as security for FP’s obligations un-
der the Lease, while X, in turn, pledges
its interest in FP’s pledge to BK1 as secu-
rity for X’s obligations under the loan from
BK1. Similarly, BK4 pays annual amounts
equal to 10 percent of FP’s rent obliga-
tion under the Lease (that is, amounts suf-
ficient to satisfy X’s debt service obliga-
tion to BK2). Although FP directs BK4 to
pay these amounts to BK2, the parties treat
these amounts as having been paid from
BK4 to FP, then from FP to X as rental pay-
ments, and finally from X to BK2 as debt
service payments. Although FP’s deposit
with BK4 is not pledged, the parties ex-
pect that the amounts deposited with BK4
will remain available to pay the remaining
10 percent of FP’s annual rent obligation
under the Lease. FP may incur economic
costs, such as an early withdrawal penalty,
in accessing the BK4 deposit.
FP is not legally released from its rent
obligations. X’s exposure to the risk that
FP will not make the rent payments, how-
ever, is substantially limited by the ar-
rangements with BK3 and BK4. In the
case of the loan from BK1, X’s economic
risk is remote due to the deposit arrange-
ment with BK3. In the case of the loan
from BK2, X’s economic risk is substan-
tially reduced through the deposit arrange-
ment with BK4. X’s obligation to make
debt service payments on the loans from
BK1andBK2iscompletelyoffsetbyX’s
right to receive Lease rentals from FP. As a
1
In some instances, FP meets the definition of a tax-exempt entity under section 168(h)(2). In other instances, FP does not meet that definition but possesses attributes, such as net operating
losses, that render FP tax indifferent.
2005–9 I.R.B.630February 28, 2005

result, neither bank bears a significant risk
of nonpayment.
2
FP has an option (“Purchase Option”)
to purchase the property from X on the last
day of the Lease Term (“Exercise Date”).
Exercise of the Purchase Option allows FP
to repurchase the property for a fixed ex-
ercise price (“Exercise Price”) that, on the
Closing Date, exceeds the projected fair
market value of the property on the Exer-
cise Date. The Purchase Option price is
sufficient to repay X’s entire loan balances
and X’s initial equity investment plus pro-
vide X with a predetermined after-tax rate
of return on its equity investment.
At the inception of the transaction, X re-
quires FP to invest $9x of the $105x pay-
ment in highly rated debt securities (“Eq-
uity Collateral”), and to pledge the Eq-
uity Collateral to X to satisfy a portion
of FP’s obligations under the lease.
3
Al-
though the Equity Collateral is pledged to
X, it is not among the items of collateral
pledged to BK1 or BK2 in support of the
nonrecourse loans to X. The Equity Col-
lateral upon maturity, when combined with
the balance of the deposits made with BK3
and BK4 and the interest on those deposits,
fully funds the amount due if FP exer-
cises the Purchase Option. This arrange-
ment ensures that FP is able to make the
payment under the Purchase Option with-
out an independent source of funds. Hav-
ing economically defeased both its rental
obligations under the Lease and its pay-
ment obligations under the Purchase Op-
tion, FP keeps the remaining $6x, subject
to its obligation to pay the Termination
Value (described below) upon the happen-
ing of certain events specified under the
Lease.
If FP does not exercise the Purchase
Option, X may elect to (1) take back the
property, or (2) exercise the Service Con-
tract Option and compel FP either to (a)
identify a qualified Service Recipient, or
(b) enter (or compel an affiliate of FP to en-
ter) into the Service Contract as the Service
Recipient for the Service Contract Term. If
X exercises the Service Contract Option,
the Service Recipient must pay X prede-
termined minimum capacity payments suf-
ficient to provide X with a minimum af-
ter-taxrateofreturnonitsequityinvest-
ment. The Service Recipient also must re-
imburse X for X’s operating and mainte-
nance costs for providing the services.
As a practical matter, the Purchase Op-
tion and the Service Contract Option col-
lar X’s exposure to changes in the value
of the property. If the value of the prop-
erty is at least equal to the Purchase Option
Exercise Price, FP likely will exercise the
Purchase Option. Likewise, FP likely will
exercise the Purchase Option if FP con-
cludes that the costs of the Service Con-
tract Option exceed the costs of the Pur-
chase Option. Moreover, FP may exercise
the Purchase Option even if the fair market
value of the property is less than the Pur-
chase Option Exercise Price because the
Purchase Option is fully funded, and the
excess of the Exercise Price over the pro-
jected value may not fully reflect the costs
to FP of modifying, interrupting, or relo-
cating its operations. If the Purchase Op-
tion is exercised, X will recover its equity
investment plus a predetermined after-tax
rate of return. Conversely, if the Purchase
Option is not exercised, X may compel FP
to locate a Service Recipient to enter into
the Service Contract in return for payments
sufficient to provide X with a minimum af-
ter-taxrateofreturnonitsequityinvest-
ment, regardless of the value of the prop-
erty.
Throughout the Lease Term, X has sev-
eral remedies in the event of a default by
FP, including a right to (1) take possession
of the property or (2) cause FP to pay X
specified damages (“Termination Value”).
Likewise, throughout the Service Contract
Term, X has similar remedies in the event
of a default by the Service Recipient. On
the Closing Date, the amount of the Ter-
mination Value is slightly greater than the
purchase price of the property. The Ter-
mination Value fluctuates over the Lease
Term and Service Contract Term, but at all
times is sufficient to repay X’s entire loan
balances and X’s initial equity investment
plus a predetermined after-tax rate of re-
turn. The BK3 deposit, the BK4 deposit
and the Equity Collateral are available to
satisfy the Termination Value during the
Lease Term. If the sum of the deposits plus
the Equity Collateral is less than the Termi-
nation Value, X may require FP to main-
tain a letter of credit. During the Service
Contract Term, the Service Recipient will
be required to provide defeasance or other
credit support that would be available to
satisfy the Termination Value. As a result,
X in almost all events will recover its in-
vestment plus a pre-tax rate of return.
For tax purposes, X claims deductions
for interest on the loans and for depre-
ciation on the property. X does not in-
clude the optional Service Contract Term
in the lease term for purposes of calculat-
ing the property’s recovery period under
§§ 168(g)(3)(A) and 168(i)(3). X includes
in gross income the rents received on the
Lease. If the Purchase Option is exercised,
X also includes the Exercise Price in cal-
culating its gain or loss realized on dispo-
sition of the property.
The form of the sale from FP to X may
be a head lease for a term in excess of the
assumed remaining useful life of the prop-
erty and an option for X to purchase the
property for a nominal amount at the con-
clusion of the head lease term. In some
variations of this transaction, the partic-
ipation agreement provides that if X re-
finances the nonrecourse loans, FP has a
right to participate in the savings attribut-
able to the reduced financing costs by al-
lowing FP to renegotiate certain terms of
the transaction, including the Lease rents
and the Purchase Option price.
Situation 2
ThefactsarethesameasinSituation1
except for the following.
The Lease does not provide a Service
Contract Option. In lieu of the Purchase
Option described in Situation 1, FP has
an option (“Early Termination Option”) to
purchase the property from X on the date
(“ETO Exercise Date”) that is 30 months
before the end of the Lease Term. Exer-
cise of the Early Termination Option al-
lows FP to terminate the Lease and re-
purchase the property for a fixed exercise
price (“ETO Exercise Price”) that on the
Closing Date, exceeds the projected fair
market value of the property on the ETO
2
The arrangement by which FP sets aside the funds necessary to meet its obligations under the Lease may take a varietyof forms other than a deposit arrangement involving BK3 and BK4.
These arrangements include a loan by FP to X, BK1 or BK2; a letter of credit collateralized with cash or cash equivalents; a payment undertaking agreement; prepaid rent (regardless of
whether X finances a portion of the purchase price by borrowing from BK1 or BK2); a sinking fund arrangement; a guaranteed investment contract; or financial guaranty insurance.
3
The arrangement by which the return of X’s equity investment plus a predetermined after-tax return onsuch investment is provided may take a variety offorms other than an investment by
FP in highly rated debt securities. For example, FP may be required to obtain apayment undertaking agreement from an entity having a specified minimumcredit rating.
February 28, 20056312005–9 I.R.B.

Exercise Date. The Early Termination Op-
tion price is sufficient to repay X’s entire
loan balances and X’s initial equity invest-
ment plus a predetermined after-tax rate
of return on its equity investment. The
balance of the Equity Collateral combined
with the balance of the deposits made with
BK3 and BK4 and the interest on those de-
posits fully fund the amount due under the
Early Termination Option.
If FP does not exercise the Early Ter-
mination Option, FP is required to obtain
residual value insurance for the benefit of
X, pay rents for the remaining Lease Term,
and return the property to X at the end of
the Lease Term (“Return Option”). The
residual value insurance must be issued by
a third party having a specified minimum
credit rating and must provide that if the
actual residual value of the property is less
than a fixed amount (“Residual Value In-
surance Amount”) at the end of the Lease
Term, the insurer will pay X the short-
fall. On the Closing Date, the Residual
Value Insurance Amount is less than the
projected fair market value of the property
at the end of the Lease Term. If FP does
not maintain the residual value insurance
coverage for the entire Lease Term remain-
ing after the ETO Exercise Date, FP will
default and be obligated to pay X the Ter-
mination Value. If FP does not exercise
the Early Termination Option, the rents for
the remaining Lease Term plus the Resid-
ual Value Insurance Amount are sufficient
to provide X with a minimum after-tax rate
of return on the property, regardless of the
value of the property. As a practical matter,
the Early Termination Option and the Re-
turn Option collar X’s exposure to changes
in the value of the property. At the end of
the Lease Term, FP also may have the op-
tion to purchase the property for the greater
of its fair market value or the Residual
Value Insurance Amount.
For tax purposes, X claims deduc-
tions for interest on the loans and for
depreciation on the property. X treats
a portion of the property as qualified
technological equipment within the mean-
ing of § 168(i)(2). X depreciates that
portion of the property over five years
under § 168(g)(3)(C). X treats a portion
of the property as software. X depreciates
that portion of the property over 36 months
under § 167(f)(1)(A).
X includes in gross income the rents re-
ceived on the Lease. If the Early Termina-
tion Option is exercised, X also includes
the ETO Exercise Price in calculating its
gain or loss realized on disposition of the
property.
In some variations of this transaction,
if the Early Termination Option is not ex-
ercised, the Lease rents payable to X may
increase for the portion of the Lease Term
remaining after the ETO Exercise Date.
ANALYSIS
The substance of a transaction, not its
form, governs its tax treatment.Gregory v.
Helvering, 293 U.S. 465 (1935). InFrank
LyonCo.v.UnitedStates, 435 U.S. 561,
573 (1978), the Supreme Court stated that
“[i]n applying the doctrine of substance
over form, the Court has looked to the ob-
jective economic realities of a transaction
rather than to the particular form the par-
ties employed.” The Court evaluated the
substance of the particular transaction in
Frank Lyonto determine that it should be
treated as a sale-leaseback rather than a fi-
nancing arrangement. The Supreme Court
described the transaction inFrank Lyonas
“a genuine multiple-party transaction with
economic substance which is compelled or
encouraged by business or regulatory real-
ities, is imbued with tax-independent con-
siderations, and is not shaped solely by
tax-avoidance features that have meaning-
less labels attached.”Frank Lyon,435U.S.
at 584. The Court subsequently relied on
its approach inFrank Lyonto recharacter-
ize a sale and repurchase of federal secu-
rities as a loan, finding that the economic
realities of the transaction did not support
the form chosen by the taxpayer.Nebraska
Dep’t of Revenue v. Loewenstein,513U.S.
123 (1994).
A sale-leaseback will not be respected
unless the owner/lessor acquires and re-
tains “significant and genuine attributes”
of a traditional owner, including “the ben-
efits and burdens of ownership.”Coleman
v. Commissioner,16F.3d821,826(7
th
Cir. 1994) (citingFrank Lyon,435U.S.
at 582–84). Considering the totality of the
facts and circumstances in the transactions
described in Situations 1 and 2, X does not
acquire the benefits and burdens of own-
ership and consequently cannot claim tax
benefits as the owner of the property. The
transactions described above are, in sub-
stance, fundamentally different from the
sale-leaseback transaction respected by the
Court inFrank Lyon.
First, inFrank Lyon, the sales proceeds
were used to construct the lessee’s new
headquarters. In contrast, in the transac-
tions described above, substantially all of
the $105x sales proceeds are immediately
set aside by FP to satisfy its obligations un-
der the Lease and to fund FP’s exercise of
the Purchase Option or the Early Termina-
tion Option. As a condition to engaging in
the transactions, FP economically defeases
substantially all of its rent payment obliga-
tions and the amounts due under the Pur-
chase Option or the Early Termination Op-
tion by establishing and pledging the de-
positwithBK3andtheEquity Collateral.
Moreover, even though FP may not pledge
the deposit with BK4, FP fully funds its
remaining rent obligations with the BK4
deposit and may have limited rights to ac-
cess the funds held in that deposit. Conse-
quently, the only capital retained by FP is
the remaining $6x portion of the sales pro-
ceeds that represents FP’s fee for engaging
in the transaction.
Second, inFrank Lyon, the taxpayer
bore the risk of the lessee’s nonpayment
of rent, which could have forced the tax-
payer to default on its recourse debt. The
Court concluded that the taxpayer exposed
its business well-being to a real and sub-
stantial risk of nonpayment and that the
long-term debt affected its financial posi-
tion.Frank Lyon, 435 U.S. at 577. In con-
trast, in the transactions described above,
economic defeasance renders the risk to X
of FP’s failure to pay rent remote. More-
over, because of the economic defeasance,
X’s right to receive the Equity Collateral
upon the exercise of the Purchase Option,
and FP’s obligation with respect to the Ter-
mination Value, a failure by FP to satisfy
its lease obligations does not leave X at
risk for repaying the loan balances or for-
feiting its equity investment.
Third, inFrank Lyon, the taxpayer’s re-
turn was dependent on the property’s value
and the taxpayer’s equity investment was
at risk if the property declined in value.
The economic burden of any decline in the
value of the property is integral to the de-
termination of tax ownership.See,e.g.,
Swift Dodge v. Commissioner,692F.2d
651 (9
th
Cir. 1982). In the transactions de-
scribed above, X bears insufficient risk of
a decline in the value of the property to be
treated as its owner for tax purposes. In
2005–9 I.R.B.632February 28, 2005

Situation 1, regardless of a decline in the
value of the property, X can recover its en-
tire investment, repay both loans, and ob-
tain a minimum after-tax rate of return on
its equity investment by exercising the Ser-
vice Contract Option. Similarly, in Situa-
tion 2, a decline in the value of the prop-
erty will not prevent X from recovering its
entire investment, repaying both loans and
obtaining a minimum after-tax rate of re-
turn on its equity investment through the
rents for the remaining Lease Term plus
the Residual Value Insurance Amount un-
der the Return Option. The failure of FP
to satisfy its obligations under the Service
Contract Option in Situation 1 or the Re-
turn Option in Situation 2 results in default
and obligates FP to pay X the Termina-
tion Value. In both Situation 1 and Situa-
tion 2, the BK3 and BK4 deposits and Eq-
uity Collateral are available to fund FP’s
obligations upon termination of the Lease.
Thus, in both situations, X has substan-
tially limited its risk of loss regardless of
the value of the property upon termination
of the Lease.
Fourth, the combination of FP’s Pur-
chase Option and X’s Service Contract
Option in Situation 1, and FP’s Early Ter-
mination Option and continued rent and
residual value insurance obligations un-
der the Return Option in Situation 2, sig-
nificantly increase the likelihood that FP
will exercise its Purchase Option in Situ-
ation 1 and its Early Termination Option
in Situation 2 even ifthe fair market value
of the property is less than the Purchase
Option Exercise Price or ETO Exercise
Price, respectively, because both options
are fully funded and the excess of the ex-
ercise price over the leased property’s fair
market value may not fully reflect the costs
to FP of modifying, interrupting, or relo-
cating its operations.See Kwiat v. Com-
missioner, T.C. Memo. 1992–433 (osten-
sible lessor did not possess the benefits
and burdens of ownership because recip-
rocal put and call options limited the risk
of economic depreciation and the benefit
of possible appreciation);see also Ader-
holt Specialty Co. v. Commissioner,T.C.
Memo. 1985–491; Rev. Rul. 72–543,
1972–2 C.B. 87. In contrast, inFrank
Lyon, the lessee’s decision regarding the
exercise of its purchase option was not
constrained by a lessor’s right to exercise
a reciprocal option similar to the Service
Contract Option or the Return Option de-
scribed in Situations 1 and 2, respectively.
Similarly, X’s opportunity to recognize a
return through refinancing the BK1 and
BK2 loans is also limited in those cases
in which FP has a right to participate in
any savings attributable to reduced financ-
ing costs, such as through renegotiation of
the Lease rents and the Purchase Option
price.See Hilton v. Commissioner,74
T.C. 305 (1980),aff’d, 671 F.2d 316 (9
th
Cir. 1982) (arrangement whereby lessor
and lessee shared the savings from any re-
financing of lessor’s nonrecourse debt was
a factor supporting holding to disregard
form of sale-leaseback transaction).
In the transactions described above, X
does not have a meaningful interest in the
risks and rewards of the property. Thus,
X does not acquire the benefits and bur-
dens of ownership of the property and does
not become the owner of the property for
U.S. federal income tax purposes. In sub-
stance, the transactions described above
are merely a transfer of tax benefits to X,
coupled with X’s investment of the Eq-
uity Collateral for a predetermined after-
tax rate of return.
Furthermore, in appropriate cases, the
Service may challenge the purported tax
benefits from these transactions on addi-
tional grounds, including (1) that the sub-
stance over form doctrine requires rechar-
acterization of the arrangement as a financ-
ing arrangement, or (2) that the loans from
BK1 and BK2, in substance, do not involve
the use or forbearance of money, do not
constitute valid indebtedness for tax pur-
poses, and that any interest nominally paid
or accrued on the loans is not deductible.
Cf. Rev. Rul. 2002–69, 2002–2 C.B.
760 (disregarded offsetting obligations in
a LILO arrangement gave the taxpayer, at
most, a future interest in the property).
The American Jobs Creation Act of
2004, P.L. 108–357, 118 Stat. 1418 (the
“Act”), was enacted on October 22, 2004.
Section 847 of the Act amended §§ 167
and 168 to provide that service contracts
that follow a lease must be included in
the lease term and to modify the recovery
period for qualified technological equip-
ment and computer software subject to a
lease with a tax-exempt entity. Section
848 of the Act added new § 470, which
suspends losses for certain leases of prop-
erty to tax-exempt entities.SeeH.R. Rep.
No. 755, 108th Cong., 2d Sess., at 660,
662–663 (2004). These amendments gen-
erally are effective for leases entered into
after March 12, 2004.
4
Transactions that are the same as, or
substantially similar to, the transactions
described in this notice are identified
as “listed transactions” for purposes of
§ 1.6011–4(b)(2) and §§ 6111 and 6112
effective February 11, 2005, the date this
notice is released to the public. Indepen-
dent of their classification as “listed trans-
actions,” transactions that are the same
as, or substantially similar to, the transac-
tions described in this notice may already
be subject to the requirements of § 6011,
§ 6111, or § 6112, or the regulations there-
under. Persons required to disclose these
transactions under § 1.6011–4 who fail to
do so may be subject to the penalty under
§ 6707A.
5
Persons required to disclose or
register these transactions under § 6111
whohavefailedtodosomaybesubject
to the penalty under § 6707(a). Persons
required to maintain lists of investors un-
der § 6112 who have failed to do so (or
who fail to provide such lists when re-
quested by the Service) may be subject
to the penalty under § 6708(a). In addi-
tion, the Service may impose penalties
on parties involved in these transactions
or substantially similar transactions, in-
cluding accuracy-related penalties under
§ 6662 or § 6662A.
The Service and the Treasury Depart-
ment recognize that some taxpayers may
have filed tax returns taking the position
that they were entitled to the purported tax
benefits of the types of transactions de-
scribed in this notice. These taxpayers
should consult with a tax advisor to ensure
that their transactions are disclosed prop-
erly and to take appropriate corrective ac-
tion.
DRAFTING INFORMATION
For further information regarding this
notice, contact John Aramburu at (202)
622–4960 (not a toll-free call).
4
Leases or purported leases of Qualified Transportation Property described in section 849(b) of the Act are not identified as listed transactions subject to the terms of this notice.
5
Section 6707A applies to returns and statements due afterOctober 22, 2004. See Notice 2005–11, 2005–7 I.R.B. 493.
February 28, 20056332005–9 I.R.B.

Differential Earnings Rate
for Mutual Life Insurance
Companies
Notice 2005–18
This notice publishes a tentative de-
termination under § 809 of the Internal
Revenue Code of the “differential earnings
rate” for 2004. This rate is used by mu-
tual life insurance companies to calculate
their federal income tax liability for tax-
able years beginning in 2004.
The Job Creation and Worker Assis-
tance Act of 2002, Pub. L. 107–147, § 611,
amended § 809 by adding new paragraph
(j). As amended, § 809(j) provides that the
differential earnings rate shall be treated
as zero for purposes of computing both
the differential earnings amount and the re-
computed differential earnings amount for
a mutual life insurance company’s taxable
years beginning in 2001, 2002, or 2003.
SeeNotice 2002–33, 2002–1 C.B. 989.
Because of § 809(j), there is no need to de-
termine a tentative recomputed differential
earnings rate for 2003. The final recom-
puted differential earnings rate for 2003
is already determined to be zero. Subse-
quently, the Pension Funding Equity Act
of 2004, Pub. L. 108–218, § 205, repealed
§ 809 of the Code for taxable years begin-
ning after December 31, 2004. Therefore,
the Internal Revenue Service is required to
determine a tentative differential earnings
rate for 2004.
The final recomputed differential earn-
ings rate for 2003 is : 0
The tentative determination of the rates
is set forth in Table 1.
Notice 2005–18 Table 1
Tentative Determination of Rates To Be Used For Taxable Years Beginning in 2004
Differentialearningsratefor2004 .........................0
Imputedearningsratefor2004 ............................4.449
Baseperiodstockearningsrate ............................18.221
Currentstockearningsratefor2004........................4.913
Stockearningsratefor2001...............................2.354
Stockearningsratefor2002...............................-1.876
Stockearningsratefor2003...............................14.261
Averagemutualearningsratefor2002......................5.570
For additional background concerning
the tentative differential earnings rate, see
Notice 2002–19, 2002–1 C.B. 619.
DRAFTING INFORMATION
The principal author of this notice is
KatherineA.HossofskyoftheOfficeof
the Associate Chief Counsel (Financial In-
stitutions and Products). For further in-
formation regarding this notice, contact
Ms. Hossofsky at (202) 622–8435 (not a
toll-free call).
Weighted Average Interest
Rates Update
Notice 2005–19
This notice provides guidance as to the
corporate bond weighted average interest
rate and the permissible range of interest
rates specified under § 412(b)(5)(B)(ii)(II)
of the Internal Revenue Code. In ad-
dition, it provides guidance as to the
interest rate on 30-year Treasury securi-
ties under § 417(e)(3)(A)(ii)(II), and the
weighted average interest rate and permis-
sible ranges of interest rates based on the
30-year Treasury securities rate.
CORPORATE BOND WEIGHTED
AVERAGE INTEREST RATE
Sections 412(b)(5)(B)(ii) and 412(l)
(7)(C)(i), as amended by the Pension
Funding Equity Act of 2004, provide that
the interest rates used to calculate current
liability and to determine the required
contribution under § 412(l) for plan years
beginning in 2004 or 2005 must be within
a permissible range based on the weighted
average of the rates of interest on amounts
invested conservatively in long term in-
vestment grade corporate bonds during the
4-year period ending on the last day before
the beginning of the plan year.
Notice 2004–34, 2004–18 I.R.B. 848,
provides guidelines for determining the
corporate bond weighted average interest
rate and the resulting permissible range
of interest rates used to calculate current
liability. That notice establishes that the
corporate bond weighted average is based
on the monthly composite corporate bond
rate derived from designated corporate
bond indices.
The composite corporate bond rate for
January 2005 is 5.48 percent. Pursuant
to Notice 2004–34, the Service has de-
termined this rate as the average of the
monthly yields for the included corporate
bond indices for that month.
The following corporate bond weighted
average interest rate was determined for
plan years beginning in the month shown
below.
2005–9 I.R.B.634February 28, 2005

For Plan Years
Corporate
Bond90% to 100%
Beginning in:WeightedPermissible
MonthYearAverageRange
February20056.075.46 to 6.07
30-YEAR TREASURY SECURITIES
WEIGHTED AVERAGE INTEREST
RATE
Section 417(e)(3)(A)(ii)(II) defines
the applicable interest rate, which must
be used for purposes of determining the
minimum present value of a participant’s
benefit under § 417(e)(1) and (2), as the
annual rate of interest on 30-year Treasury
securities for the month before the date
of distribution or such other time as the
Secretary may by regulations prescribe.
Section 1.417(e)–1(d)(3) of the Income
Tax Regulations provides that the applica-
bleinterestrateforamonthistheannual
interest rate on 30-year Treasury securi-
ties as specified by the Commissioner for
that month in revenue rulings, notices or
other guidance published in the Internal
Revenue Bulletin.
Section 404(a)(1) of the Code, as
amended by the Pension Funding Eq-
uity Act of 2004, permits an employer
to elect to disregard subclause (II) of
§ 412(b)(5)(B)(ii) to determine the max-
imum amount of the deduction allowed
under § 404(a)(1).
The rate of interest on 30-year Treasury
securities for January 2005 is 4.73 percent.
Pursuant to Notice 2002–26, 2002–1 C.B.
743, the Service has determined this rate
as the monthly average of the daily deter-
mination of yield on the 30-year Treasury
bond maturing in February 2031.
The following 30-year Treasury rates
were determined for the plan years begin-
ning in the month shown below.
For Plan Years
30-Year
Treasury90% to 105%90% to 110%
Beginning in:WeightedPermissiblePermissible
MonthYearAverageRangeRange
February20055.084.57 to 5.334.57 to 5.59
Drafting Information
The principal authors of this notice
are Paul Stern and Tony Montanaro of
the Employee Plans, Tax Exempt and
Government Entities Division. For fur-
ther information regarding this notice,
please contact the Employee Plans’ tax-
payer assistance telephone service at
1–877–829–5500 (a toll-free number),
between the hours of 8:00 a.m. and
6:30 p.m. Eastern time, Monday through
Friday. Mr. Stern may be reached at
1–202–283–9703. Mr. Montanaro may
be reached at 1–202–283–9714. The tele-
phone numbers in the preceding sentences
are not toll-free.
Specified Liability Losses
Notice 2005–20
PURPOSE
This notice addresses several questions
of statutory interpretation arising under
§ 172(f)(1)(B) of the Internal Revenue
Code prior to its amendment by § 3004(a)
of the Tax and Trade Relief Extension
Act of 1998 (former § 172(f)(1)(B)). The
amendment to former § 172(f)(1)(B) is
effective for net operating losses (NOLs)
arising in taxable years ending after Octo-
ber 21, 1998.
BACKGROUND
The Statute
Section 172(b)(1)(C) provides that the
portion of any NOL that qualifies as a
specified liability loss may be carried back
to each of the 10 taxable years preceding
the taxable year of the loss. For NOLs aris-
ing in taxable years ending prior to Octo-
ber 22, 1998, former § 172(f)(1)(B) treats
as a specified liability loss the portion of
the NOL generated by:
(B) [a]ny amount [other than product
liability expenses and certain expenses
related thereto] allowable as a deduc-
tion under [chapter 1 of the Internal
Revenue Code] with respect to a liabil-
ity which arises under a Federal or State
law or out of any tort of the taxpayer
if—
(i) in the case of a liability arising
outofaFederalorStatelaw,theact
(or failure to act) giving rise to such
liability occurs at least 3 years before
the beginning of the taxable year, or
(ii) in the case of a liability arising
out of a tort, such liability arises out of a
series of actions (or failures to act) over
an extended period of time a substantial
portion of which occurs at least 3 years
before the beginning of the taxable year.
For this purpose, a liability is not taken
into account unless the taxpayer used an
accrual method of accounting throughout
the period or periods during which the acts
or failures to act giving rise to the liability
occurred.
The Sealy Decisions
InSealy Corp. v. Commissioner,107
T. C. 177 (1996),aff’d, 171 F.3d 655 (9
th
Cir. 1999), the Tax Court held that the
portion of NOLs generated by deductions
for the following liabilities did not result
in former § 172(f)(1)(B)specified liability
losses:
(1) professional fees incurred to comply
with current reporting, filing, and disclo-
sure requirements imposed by the Securi-
ties and Exchange Act of 1934;
February 28, 20056352005–9 I.R.B.

(2) professional fees incurred to com-
ply with current ERISA reporting require-
ments; and
(3) professional fees incurred in con-
nection with an income tax audit by the
Service for a prior taxable year.
The Tax Court gave three reasons for
its conclusion that these liabilities did not
arise under a federal orstate law within the
meaningofformer§172(f)(1)(B).First,
the federal laws cited by the taxpayers
did not establish their liability to pay the
amounts at issue. Instead, the taxpayers’
liabilities did not arise until the services
were contracted for and received and the
taxpayers’ choice of the means of com-
pliance, rather than the cited provisions,
determined the nature and amount of their
costs.Sealyat 184. Second, Congress
intended former §172(f)(1)(B) to apply
only to liabilities for which a deduction
is deferred because of the economic per-
formance requirement of § 461(h). The
economic performance requirement did
not delay the taxpayers’ accrual of the de-
ductions at issue.Sealyat 185–86. Third,
invoking the statutory construction rule of
ejusdem generis, the court concluded that
Congress intended the 10-year carryback
to apply to a relatively narrow class of li-
abilities similar to other liabilities referred
to in former § 172(f).Sealyat 186.
In affirming the Tax Court’s judgment,
the Ninth Circuit stated that the acts giving
rise to the liabilities at issue inSealywere
contractual acts by which Sealy engaged
lawyers or accountants and did not occur
at least 3 years before the beginning of the
taxable year of the related deductions as
required by former § 172(f)(1)(B)(i).
The Host Marriot and Intermet Decisions
InHost Marriott Corp. v. United
States, 113 F. Supp. 2d 790 (D. Md.
2000),aff’d, 267 F.3d 363 (4
th
Cir. 2001),
the district court concluded that interest
liabilities on federal tax deficiencies arise
under federal law within the meaning of
former §172(f)(1)(B). The court pointed
out that § 6601(a) imposes interest on due
but unpaid federal taxes. The court noted
that, in contrast to the situation inSealy,
the interest liabilities were set by federal
law, not by the taxpayer’s choice.
InIntermet Corp. v. Commissioner,
117 T.C. 133 (2001), the Tax Court cited
Host Marriotand concluded that liabilities
for state tax deficiencies, interest on state
tax deficiencies, and interest on a federal
income tax deficiency arise under federal
or state law within the meaning of former
§ 172(f)(1)(B). In distinguishingSealy,the
Tax Court only referred to the first reason
(i.e., federal law did not establish the lia-
bility to pay the amounts at issue) that it
gave inSealyfor concluding that the pro-
fessional fee liabilities at issue in that case
did not arise under federal or state law.
In addition, in bothHost Marriotand
Intermet, the courts concluded that the fil-
ing of an erroneous tax return, resulting in
the initial failure to timely pay the entire
amount of tax due, constitutes the act giv-
ing rise to the entire compound interest li-
ability on unpaid tax.
The Major Paint Decision
InMajor Paint Co. v. United States,
334 F.3d 1042 (Fed. Cir. 2003),aff’g
Standard Brands Liquidating Creditor
Trust v. United States,53Fed. Cl. 25
(2002), the Federal Circuit held that lia-
bilities for capitalized legal, accounting,
and other professional fees and expenses
incurred pursuant to a reorganization
bankruptcy under Chapter 11 of Title 11
of the United States Code did not arise
under federal law for purposes of former
§ 172(f)(1)(B). The fees included those in-
curred by the taxpayer on its own behalf as
well as fees incurred on behalf of the un-
secured creditors’ committee but required
to be paid from the bankruptcy estate. The
taxpayer capitalized a portion of the fees
incurred as a result of the reorganization
bankruptcy and later deducted the capi-
talized fees upon a subsequent voluntary
liquidating bankruptcy.
The Bankruptcy Code requires the
appointment of an unsecured creditors’
committee and allows the committee,
with court approval, to employ various
professionals to perform services for the
committee. The Bankruptcy Code also
requires the bankruptcy court to approve
the employment of the professionals,
the terms of their employment, and the
amounts paid to them. InMajor Paint,
a local court rule required the bankrupt
taxpayer to employ counsel.
The Federal Circuit analyzed the opin-
ions inSealy,Host Marriot,andIntermet,
from which it concluded two principles
could be derived. First, “‘arising out of
a federal law’ means more than just that
the liability is incurred with respect to an
obligation under a federal law.” 334 F.3d at
1046. Second, “the nature and amount of
the liability must betraceable to a specific
law and cannot be the result of choices
made by the taxpayer or others.”Id.Asin
Sealy, the statutory provisions did not es-
tablish a liability to pay the amounts at is-
sue. Rather, the decisions of the taxpayer
and the creditors’ committee, subject to fi-
nal approval by the bankruptcy judge, as
to the means of compliance determined the
nature and amount of the costs. The court
concluded that the connection between the
Bankruptcy Code and the liabilities for the
fees was “too attenuated to meet the level
of ‘arise under’ necessary to qualify as a
specified liability loss.”Id. at 1047.
QUESTIONS AND ANSWERS
The “Arises Under a Federal or State
Law” Requirement
Q–1. What tests must a liability satisfy
to arise under federal or state law within
the meaning of former § 172(f)(1)(B)?
A–1. To arise under federal or state law
the liability must be directly imposed by
federal or state law and must not be the
result of decisions made by the taxpayer or
others.See SealyandMajor Paint.
Q–2. May a tort liability satisfy the
requirements of former § 172(f)(1)(B)(i)?
A–2. Yes. A tort liability may be di-
rectly imposed under either federal or state
law. If the act or failure to act giving rise
to the tort liability occurs at least 3 years
before the beginning of the taxable year of
the liability’s deduction, the requirements
of former § 172(f)(1)(B)(i) are satisfied.
Multiple Act Torts
Q–3. What is a tort liability that arises
out of a series of actions (or failures to act)
over an extended period of time?
A–3. A tort liability that arises out of a
series of actions (or failures to act) over an
extended period of time within the mean-
ing of former § 172(f)(1)(B)(ii) is a lia-
bility that arises only from multiple acts
or failures to act over an extended period
of time. An example is a tort liability for
causing someone to develop a disease be-
cause of repeated exposures to chemicals
or other toxic substances. This liability
would be a tort liability within the meaning
2005–9 I.R.B.636February 28, 2005

of former § 172(f)(1)(B)(ii) if a substan-
tial portion of the exposures occur at least
3 years before the beginning of the taxable
year of the liability’s deduction.
On the other hand, what may appear to
be a tort liability involving multiple acts,
such as a tort liability arising from a con-
tinuing trespass, is actually a number of
separate liabilities, each arising from sepa-
rate acts or failures to act resulting in sep-
arate causes of action. The Internal Rev-
enue Service will not treat this type of lia-
bility as a multiple act or failure to act lia-
bility that satisfies the requirements of for-
mer § 172(f)(1)(B)(ii). Instead, to generate
a specified liability loss, the separate liabil-
ities must independently satisfy the 3-year
act or failure to act requirement of former
§ 172(f)(1)(B)(i).
The “Act or Failure to Act” Requirement
Q–4. Which act in the chain of causa-
tion leading to the creation of a liability
constitutes “the act orfailure to act” giv-
ing rise to that liability within the meaning
of former § 172(f)(1)(B)(i)?
A–4. The act or failure to act resulting
in the establishment of a legal liability con-
stitutes the act or failure to act within the
meaning of former § 172(f)(1)(B)(i). For
example, in the case of a trespass, the act of
trespassing constitutes the relevant act for
purposes of former § 172(f)(1)(B)(i), not
the judgment of a court.
In the case of interest on unpaid federal
or state taxes, the Service continues to be-
lieve that a taxpayer’s use of the govern-
ment’s money over discrete periods, such
as days, months or portions of a month, is
an essential element that creates the liabil-
ity. Therefore, the Service believes that the
courts inHost MarriottandIntermetincor-
rectly concluded that the initial failure to
pay the taxes when due constituted the act
or failure to act giving rise to any interest
that economically accrued during the tax-
able year such interest was deductible and
the 3-year period prior to the beginning of
that taxable year. Consequently, the Ser-
vice will continue to assert that interest that
economically accrues on a liability for un-
paid taxes in the taxable year such interest
is deductible and the 3-year period prior to
the beginning of that taxable year does not
satisfy the 3-year act or failure to act re-
quirement of former § 172(f)(1)(B)(i).
The “With Respect To” Requirement
Q–5.For purposes of former
§ 172(f)(1)(B), does a deduction allow-
able “with respect to” a liability include
other items, such as legal and professional
fees to contest the liability or court costs
incurred to litigate the liability?
A–5. A deduction allowable with re-
spect to a liability includes only a deduc-
tion for the liability itself. Therefore, legal
fees, court costs, and similar items do not
generate a former § 172(f)(1)(B) specified
liability loss even if the liabilities are in-
curred in determining the amount of a lia-
bility that does satisfy the requirements of
former § 172(f)(1)(B).
InSealy, the Tax Court and Ninth Cir-
cuit held that deductions for accounting
and legal fees incurred in connection with
a federal income tax audit did not gener-
ate a specified liability loss under former
§ 172(f)(1)(B). Federal law directly im-
posed only the federal income tax liabil-
ity and did not impose the taxpayer’s li-
ability for the accounting and legal fees.
The taxpayer’s liabilities for the account-
ing and legal fees arose as a result of de-
cisions made by the taxpayer, and such li-
abilities were incurred when the services
were contracted for and performed. Im-
plicit in the Tax Court’s holding is the con-
clusion that the deduction for the legal and
professional fees was not, within the mean-
ing of § 172(f)(1)(B), allowable “with re-
spect to” the federal tax liability that was
the subject of the audit.
Depreciation Deductions
Q–6. For purposes of § 172(f)(1)(B),
are depreciation deductions allowable with
respect to the liability giving rise to the
depreciable basis of a depreciable asset?
A–6. Depreciation deductions are not
allowable with respect to the liability giv-
ing rise to the depreciable basis of a depre-
ciable asset. Depreciation deductions may
be allowable with respect to liabilities sat-
isfied through the use of the depreciable
asset.
Liabilities arising under federal or state
law may be treated as part of the cost ba-
sis of property if the liabilities are prop-
erly chargeable to a capital account. For
example, § 164(a) requires sales taxes im-
posed on the purchase of equipment used
in a taxpayer’s trade or business to be capi-
talized into the cost basis of the equipment.
If an NOL is incurred for a taxable year
and the sales tax liability was incurred at
least 3 years before the beginning of that
taxable year, some taxpayers have asserted
that any portion of the NOL generated by
depreciation deductions for the portion of
the property’s depreciable basis attribut-
able to the capitalized sales tax constitutes
a former § 172(f)(1)(B) specified liabil-
ity loss irrespective of how the property
is used. Likewise, taxpayers may be re-
quired to place certain equipment into ser-
vice to comply with requirements of fed-
eral or state law, for example, clean water
standards. Some of these taxpayers have
asserted that if the equipment was acquired
by the taxpayer at least 3 years prior to
the beginning of the taxable year, the por-
tion of any NOL generated for the taxable
year by depreciation deductions attribut-
able to the equipment qualifies as a former
§ 172(f)(1)(B) specified liability loss. The
Service disagrees with both of these asser-
tions.
Section 167(a) allows a depreciation
deduction only for property that is either
used in a trade or business or held for
the production of income. Whether a de-
preciation deduction is allowable “with
respect to” a liability depends upon the
property’s actual use. For example, if a
taxpayer uses equipment to satisfy an en-
vironmental cleanup liability imposed by
federal law, the portion of the equipment’s
depreciation allocable to satisfying the en-
vironmental cleanup liability is allowable
with respect to the environmental cleanup
liability. If the environmental cleanup lia-
bility arose as a result of a chemical spill
that occurred at least 3 years before the
beginning of the taxable year and the en-
vironmental cleanup liability is otherwise
deductible, the depreciation deductions
may generate a specified liability loss.
However, if a taxpayer uses equipment to
satisfy environmental cleanup liabilities
that arise during the same taxable year the
depreciation deductions are allowable, for
example, by preventing the discharge of
pollutants resulting from manufacturing
activities during the current taxable year,
the act giving rise to the taxpayer’s envi-
ronmental cleanup liability will not satisfy
the 3-year act or failureto act requirement
of former § 172(f)(1)(B)(i), irrespective
of when the taxpayer placed the cleanup
equipment in service.
February 28, 20056372005–9 I.R.B.

DRAFTING INFORMATION
The principal a
uthorofthisnotice
is Forest Boone
of the Office of Asso-
ciate Chief Cou
nsel (Income Tax and
Accounting).
For further information re-
garding this n
otice, contact Mr. Boone at
202–622–4960
(not a toll-free call).
26 CFR 601.201: Rulings and determination letters.
(Also: Part I, §§ 25, 103, 143.)
Rev. Proc. 2005–15
SECTION 1. PU
RPOSE
This revenue procedure provides is-
suers of qualified mortgage bonds, as
defined in section 143(a) of the Internal
Revenue Code, and issuers of mortgage
credit certificates, as defined in section
25(c), with (1) the nationwide average
purchase price for residences located in
the United States, and (2) average area
purchase price safe harbors for residences
located in statistical areas in each state,
the District of Columbia, Puerto Rico,
the Northern Mariana Islands, American
Samoa, the Virgin Islands, and Guam.
SECTION 2. BACKGROUND
.01 Section 103(a) provides that, except
as provided in section 103(b), gross in-
come does not include interest on any state
or local bond. Section 103(b)(1) provides
that section 103(a) shall not apply to any
private activity bond that is not a “qualified
bond” within the meaning of section 141.
Section 141(e) provides, in part, that the
term “qualified bond” means any private
activity bond if such bond (1) is a quali-
fied mortgage bond under section 143, (2)
meets the volume cap requirements under
section 146, and (3) meets the applicable
requirements under section 147.
.02 Section 143(a)(1) provides that the
term “qualified mortgage bond” means a
bond that is issued as part of a qualified
mortgage issue. Section 143(a)(2)(A) pro-
vides that the term “qualified mortgage is-
sue” means an issue of one or more bonds
by a state or political subdivision thereof,
but only if: (i) all proceeds of the issue (ex-
clusive of issuance costs and a reasonably
required reserve) are to be used to finance
owner-occupied residences; (ii) the issue
meets the requirements of subsections (c),
(d), (e), (f), (g), (h), (i), and (m)(7) of sec-
tion 143; (iii) the issue does not meet the
private business tests of paragraphs (1) and
(2) of section 141(b); and (iv) with respect
to amounts received more than 10 years
after the date of issuance, repayments of
$250,000 or more of principal on mortgage
financing provided by the issue are used by
the close of the first semiannual period be-
ginning after the date the prepayment (or
complete repayment) is received to redeem
bonds that are part of the issue.
Average Area Purchase Price
.03 Section 143(e)(1) provides that an
issue of bonds meets the purchase price
requirements of section 143(e) if the ac-
quisition cost of each residence financed
by the issue does not exceed 90 percent of
the average area purchase price applicable
to such residence. Section 143(e)(5) pro-
vides that, in the case of a targeted area res-
idence (as defined in section 143(j)), sec-
tion 143(e)(1) shall be applied by substi-
tuting 110 percent for 90 percent.
.04 Section 143(e)(2) provides that the
term “average area purchase price” means,
with respect to any residence, the average
purchase price of single-family residences
(in the statistical area in which the resi-
dence is located) that were purchased dur-
ing the most recent 12-month period for
which sufficient statistical information is
available. Under sections 143(e)(3) and
(4), respectively, separate determinations
are to be made for new and existing resi-
dences, and for two-, three-, and four-fam-
ily residences.
.05 Section 143(e)(2) provides that the
determination of the average area purchase
price for a statistical area shall be made as
of the date on which the commitment to
provide the financing is made or, if earlier,
the date of the purchase of the residence.
.06 Section 143(k)(2)(A) provides that
the term “statistical area” means (i) a
metropolitan statistical area (MSA), and
(ii) any county (or the portion thereof)
that is not within an MSA. Section
143(k)(2)(C) further provides that if suf-
ficient recent statistical information with
respect to a county (or portion thereof)
is unavailable, the Secretary may sub-
stitute another area for which there is
sufficient recent statistical information for
such county (or portion thereof). In the
case of any portion of a State which is
not within a county, section 143(k)(2)(D)
provides that the Secretary may designate
as a county any area that is the equivalent
of a county. Section 6a.103A–1(b)(4)(i)
of the Temporary Income Tax Regulations
(issued under section 103A of the Internal
Revenue Code of 1954, the predecessor of
section 143) provides that the term “State”
includes a possession of the United States
and the District of Columbia.
.07 Section 6a.103A–2(f)(5)(i) pro-
vides that an issuer may rely upon the av-
erage area purchase price safe harbors pub-
lished by the Department of the Treasury
for the statistical area in which a residence
is located. Section 6a.103A–2(f)(5)(i)
further provides that an issuer may use
an average area purchase price limitation
different from the published safe harbor if
the issuer has more accurate and compre-
hensive data for the statistical area.
Qualified Mortgage Credit Certificate
Program
.08 Section 25(c) permits a state or
political subdivision to establish a quali-
fied mortgage credit certificate program.
In general, a qualified mortgage credit
certificate program is a program under
which the issuing authority elects not to
issue an amount of private activity bonds
that it may otherwise issue during the
calendar year under section 146, and in
their place, issues mortgage credit certifi-
cates to taxpayers in connection with the
acquisition of their principal residences.
Section 25(a)(1) provides, in general, that
the holder of a mortgage credit certificate
may claim a federal income tax credit
equal to the product of the credit rate
specified in the certificate and the interest
paid or accrued during the tax year on the
remaining principal of the indebtedness
incurred to acquire the residence. Section
25(c)(2)(A)(iii)(III) generally provides
that residences acquired in connection
with the issuance of mortgage credit cer-
tificates must meet the purchase price
requirements of section 143(e).
Income Limitations for Qualified
Mortgage Bonds and Mortgage Credit
Certificates
.09 Section 143(f) imposes limitations
on the income of mortgagors for whom
2005–9 I.R.B.638February 28, 2005

financing may be provided by qualified
mortgage bonds. In addition, section
25(c)(2)(A)(iii)(IV)provides that holders
of mortgage credit certificates must meet
the income requirement of section 143(f).
Generally, under sections 143(f)(1) and
25(c)(2)(A)(iii)(IV), the income require-
ment is met only if all owner-financing
under a qualified mortgage bond and all
mortgage credit certificates issued under a
qualified mortgage credit certificate pro-
gram are provided to mortgagors whose
family income is 115 percent or less of the
applicable median family income. Section
143(f)(5), however, generally provides
for an upward adjustment to the percent-
age limitation in high housing cost areas.
High housing cost areas are defined in
section 143(f)(5)(C) as any statistical area
for which the housing cost/income ratio is
greater than 1.2.
.10 Under section 143(f)(5)(D), the
housing cost/income ratio with respect to
any statistical area is determined by divid-
ing (a) the applicable housing price ratio
for such area by (b) the ratio that the area
median gross income for such area bears
to the median gross income for the United
States. The applicable housing price ratio
is the new housing price ratio (new hous-
ing average area purchase price divided by
the new housing average purchase price
for the United States) or the existing hous-
ing price ratio (existing housing average
area purchase price divided by the existing
housing average purchase price for the
United States), whichever results in the
housing cost/income ratio being closer to
1.
Average Area and Nationwide Purchase
Price Limitations
.11 Average area purchase price safe
harbors for each state, the District of Co-
lumbia, Puerto Rico, the Northern Mari-
ana Islands, American Samoa, the Virgin
Islands, and Guam were last published in
Rev. Proc. 2004–18, 2004–9 I.R.B. 529.
.12 The nationwideaverage purchase
price limitation was last published in
section 5.02 of Rev. Proc. 2004–18.
Guidance with respect to the United States
and area median grossincome figures that
aretobeusedincomputingthehousing
cost/income ratio described in section
143(f)(5) was last published in Rev. Proc.
2004–24, 2004–16 I.R.B. 790.
.13 This revenue procedure uses FHA
loan limits for a given statistical area to
calculate the average area purchase price
safe harbor for that area. FHA sets lim-
its on the dollar value of loans it will in-
sure based on median home prices and
conforming loan limits established by the
Federal Home Loan Mortgage Corpora-
tion. In particular, FHA sets an area’s
loan limit at 95 percent of the median home
sales price for the area, subject to certain
floors and caps measured against conform-
ingloanlimits.
.14 To calculate the average area pur-
chase price safe harbors in this revenue
procedure, the FHA loan limits are ad-
justed to take into account the differences
between average and median purchase
prices. Because FHA loan limits do not
differentiate between new and existing
residences, this revenue procedure con-
tains a single average area purchase price
safe harbor for both new and existing
residences in a statistical area. The Trea-
sury Department and the Internal Revenue
Service have determined that FHA loan
limits provide a reasonable basis for de-
termining average area purchase price
safe harbors. If the Treasury Department
and the Internal Revenue Service become
aware of other sources of average purchase
price data, including data that differentiate
between new and existing residences, con-
sideration will be given as to whether such
data provide a more accurate method for
calculating average area purchase price
safe harbors.
.15 The average area purchase price
safeharborslistedinsection4.01ofthis
revenue procedure are based on FHA loan
limits released January 3, 2005. FHA loan
limits are available for statistical areas in
each state, the District of Columbia, Puerto
Rico, the Northern Mariana Islands, Amer-
ican Samoa, the Virgin Islands, and Guam.
See section 3.03 of this revenue procedure
with respect to FHA loan limits revised af-
ter January 3, 2005.
.16 OMB Bulletin No. 03–04, dated
and effective June 6, 2003, revised the def-
initions of the nation’s metropolitan areas
and recognized 49 new metropolitan sta-
tistical areas. The OMB bulletin no longer
includes primary metropolitan statistical
areas.
SECTION 3. APPLICATION
Average Area Purchase Price Safe
Harbors
.01 Average area purchase price safe
harbors for statistical areas in each state,
the District of Columbia, Puerto Rico,
the Northern Mariana Islands, American
Samoa, the Virgin Islands, and Guam are
set forth in section 4.01 of this revenue
procedure. Average area purchase price
safe harbors are provided for single-fam-
ily and two to four-family residences. For
each type of residence, section 4.01 of this
revenue procedure contains a single safe
harbor that may be used for both new and
existing residences. Issuers of qualified
mortgage bonds and issuers of mortgage
credit certificates may rely on these safe
harbors to satisfy the requirements of sec-
tions 143(e) and (f). Section 4.01 of this
revenue procedure provides safe harbors
for MSAs and for certain counties and
county equivalents. If no purchase price
safe harbor is available for a statistical
area, the safe harbor for “ALL OTHER
AREAS” may be used for that statistical
area (except for Alaska, for which a sepa-
rate safe harbor is provided for statistical
areas not listed).
.02IfaresidenceisinanMSA,thesafe
harbor applicable to it is the limitation of
that MSA. If an MSA falls in more than
one state, the MSA is listed in section 4.01
of this revenue procedure under each state.
.03 If the FHA revises the FHA loan
limit for any statistical area after January
3, 2005, an issuer of qualified mortgage
bonds or mortgage credit certificates may
use the revised FHA loan limit for that
statistical area to compute (as provided in
the next sentence) a revised average area
purchase price safe harbor for the statisti-
cal area provided that the issuer maintains
records evidencing the revised FHA loan
limit. The revised average area purchase
price safe harbor for that statistical area
is computed by dividing the revised FHA
loan limit by .76.
.04 If, pursuant to section
6a.103A–2(f)(5)(i), an issuer uses
more accurate and comprehensive data
to determine the average area purchase
price for a statistical area, the issuer must
make separate average area purchase price
determinations for new and existing resi-
dences. Moreover, when computing the
February 28, 20056392005–9 I.R.B.

average area purchase price for a statistical
area that is an MSA, as defined in OMB
Bulletin No. 03–04, the issuer must make
the computation for the entire applicable
MSA. When computing the average area
purchase price for a statistical area that
is not an MSA, the issuer must make the
computation for the entire statistical area
and may not combine statistical areas.
Thus, for example, the issuer may not
combine two or more counties.
.05 If an issuer receives a ruling permit-
ting it to rely on an average area purchase
price limitation that is higher than the
applicable safe harbor in this revenue
procedure, the issuer may rely on that
higher limitation for the purpose of satis-
fying the requirements of section 143(e)
and (f) for bonds sold, and mortgage
credit certificates issued, not more than 30
months following the termination date of
the12-monthperiodusedbytheissuerto
compute the limitation.
Nationwide Average Purchase Price
.06 Section 4.02 of this revenue proce-
dure sets forth a single nationwide average
purchase price for purposes of computing
the housing cost/income ratio under sec-
tion 143(f)(5).
.07 Issuers must use the nationwide av-
erage purchase price set forth in section
4.02 of this revenue procedure when com-
puting the housing cost/income ratio un-
der section 143(f)(5) regardless of whether
they are relying on the average area pur-
chase price safe harbors contained in this
revenue procedure or using more accurate
and comprehensive data to determine av-
erage area purchase prices for new and ex-
isting residences for a statistical area that
are different from the published safe har-
bors in this revenue procedure.
.08 If, pursuant to section 6.02 of this
revenue procedure, an issuer relies on the
average area purchase price safe harbors
contained in Rev. Proc. 2004–18, the is-
suer must use the nationwide average pur-
chase price set forth in section 5.02 of Rev.
Proc. 2004–18 in computing the housing
cost/income ratio under section 143(f)(5).
Likewise, if, pursuant to section 6.05 of
this revenue procedure, an issuer relies
on the nationwide average purchase price
published in Rev. Proc. 2004–18, the is-
suer may not rely on the average area pur-
chase price safe harbors published in this
revenue procedure.
SECTION 4. AVERAGE AREA AND
NATIONWIDE AVERAGE PURCHASE
PRICES
.01 Average area purchase prices for
single-family and two to four-family res-
idences in MSAs, and for certain counties
and county equivalents are set forth below.
The safe harbor for “ALL OTHER AR-
EAS” (found at the end of the table below)
may be used for a statistical area that is not
listed below (except for Alaska, for which
a separate safe harbor is provided for sta-
tistical areas not listed).
Area Name1 Family 2 Family 3 Family 4 Family
ALASKA
ANCHORAGE, AK (MSA)301,250339,303412,237475,658
DENALI BOROUGH, AK316,137404,668489,126607,879
JUNEAU CITY and BOROUGH, AK289,342325,921395,987456,908
YAKUTAT CITY AND BOROUGH, AK316,137404,668489,126607,879
All other areas in Alaska250,000290,779351,474436,800
ARIZONA
FLAGSTAFF, AZ (MSA)268,750302,697367,763436,800
MOHAVE COUNTY, AZ321,842362,500440,461508,224
CALIFORNIA
AMADOR COUNTY, CA320,000360,421437,895505,263
BAKERSFIELD, CA (MSA)237,375290,779351,474436,800
INYO COUNTY, CA381,999436,447530,263611,842
CALVERAS COUNTY, CA350,000394,211478,947552,632
CHICO, CA (MSA)310,000349,158424,211489,474
HUMBOLDT COUNTY, CA294,342331,521402,829464,803
FRESNO, CA (MSA)295,000332,263403,684465,789
LOS ANGELES-LONG BEACH-SANTA ANA, CA (MSA)411,704527,037637,046791,700
MADERA, CA (MSA)268,750302,697367,763436,800
MARIPOSA COUNTY, CA246,842290,779351,474436,800
MERCED, CA (MSA)312,500351,974427,632493,421
MODESTO, CA (MSA)362,500408,289496,053572,368
MONO COUNTY, CA381,999488,975591,028734,521
NAPA, CA (MSA)411,704527,037637,046791,700
OXNARD-THOUSAND OAKS-VENTURA, CA (MSA)411,704527,037637,046791,700
TUOLUMNE COUNTY, CA326,842368,158447,303516,118
REDDING, CA (MSA)293,750330,855401,974463,816
RIVERSIDE-SAN BERNARDINO-ONTARIO, CA (MSA)389,605438,818533,143615,166
SACRAMENTO-ARDEN-ARCADE-ROSEVILLE, CA (MSA)411,704488,580591,028700,658
SALINAS, CA (MSA)411,704527,037637,046791,700
SAN DIEGO-CARLSBAD-SAN MARCOS, CA (MSA)411,704527,037637,046791,700
2005–9 I.R.B.640February 28, 2005

Area Name1 Family 2 Family 3 Family 4 Family
SAN FRANCISCO-OAKLAND-FREMONT, CA (MSA)411,704527,037637,046791,700
SAN JOSE-SUNNYVALE-SANTA CLARA, CA (MSA)411,704527,037637,046791,700
SAN LUIS OBISPO-PASO ROBLES, CA (MSA)411,704527,037637,046791,700
SANTA BARBARA-SANTA MARIA-GOLETA, CA (MSA)411,704527,037637,046791,700
SANTA CRUZ-WATSONVILLE, CA (MSA)411,704527,037637,046791,700
SANTA ROSA-PETALUMA, CA (MSA)411,704527,037637,046791,700
STOCKTON, CA (MSA)399,938450,457547,283631,480
NEVADA COUNTY, CA381,999475,868578,158667,105
MENDOCINO COUNTY, CA373,750420,961511,447590,132
VALLEJO-FAIRFIELD, CA (MSA)411,704520,921632,895730,263
VISALIA-PORTERVILLE, CA (MSA)233,125290,779351,474436,800
YUBA CITY, CA (MSA)330,000371,684451,579521,053
COLORADO
ARCHULETA COUNTY, CO263,487296,768360,561436,800
BOULDER, CO (MSA)381,999471,645573,026661,184
COLORADO SPRINGS, CO (MSA)272,103306,472372,350436,800
DENVER-AURORA, CO (MSA)344,222440,609532,532631,579
LA PLATA COUNTY, CO303,750342,118415,658479,605
EAGLE COUNTY, CO344,222440,609532,532661,829
LAKE COUNTY, CO344,222440,609532,532661,829
FORT COLLINS-LOVELAND, CO (MSA)280,000315,368383,158442,105
GARFIELD COUNTY, CO292,293329,214399,980461,517
GRAND COUNTY, CO293,750330,855401,974463,816
GREELEY, CO (MSA)286,875323,112392,566452,961
GUNNISON COUNTY, CO259,938292,772355,704436,800
OURAY COUNTY, CO262,500295,658359,211436,800
PITKIN COUNTY, CO381,999488,975591,028734,521
ROUTT COUNTY, CO270,000304,105369,474436,800
SAN MIGUEL COUNTY, CO344,222401,250487,500562,500
SUMMIT COUNTY, CO380,000428,000520,000600,000
CONNECTICUT
BRIDGEPORT-STAMFORD-NORWALK, CT (MSA)411,704527,037637,046791,700
HARTFORD-WEST HARTFORD-EAST HARTFORD, CT (MSA)335,000377,316458,421528,947
NEW HAVEN-MILFORD, CT (MSA)381,999435,039528,553609,868
NORWICH-NEW LONDON, CT (MSA)293,750330,855401,974463,816
LITCHFIELD COUNTY, CT255,000290,779351,474436,800
DISTRICT OF COLUMBIA
WASHINGTON-ARLINGTON-ALEXANDRIA, DC-VA-MD-WV (MSA) 411,704516,697627,763724,342
DELAWARE
DOVER, DE (MSA)246,875290,779351,474436,800
PHILADELPHIA-CAMDEN-WILMINGTON, PA-NJ-DE-MD (MSA)312,500351,974427,632493,421
FLORIDA
CAPE CORAL-FORT MYERS, FL (MSA)248,750290,779351,474436,800
JACKSONVILLE, FL (MSA)275,000309,737376,316436,800
MONROE COUNTY, FL381,999488,975591,028734,521
MIAMI-FORT LAUDERDALE-MIAMI BEACH, FL (MSA)368,421414,958504,154581,717
NAPLES-MARCO ISLAND, FL (MSA)393,750443,487538,816621,711
ORLANDO, FL (MSA)235,000290,779351,474436,800
PORT ST. LUCIE-FORT PIERCE, FL (MSA)311,842351,250426,776492,434
SARASOTA-BRADENTON-VENICE, FL (MSA)338,026380,724462,562533,725
GEORGIA
ATHENS-CLARKE COUNTY, GA (MSA)232,375290,779351,474436,800
ATLANTA-SANDY SPRINGS-MARIETTA, GA (MSA)299,875337,754410,355473,487
BRUNSWICK, GA (MSA)232,375290,779351,474436,800
February 28, 20056412005–9 I.R.B.

Area Name1 Family 2 Family 3 Family 4 Family
HAWAII
HAWAII COUNTY, HI278,750313,961381,447440,132
HONOLULU, HI (MSA)617,558695,564845,079975,091
MAUI COUNTY, HI381,250429,408521,711601,974
KALAWAO COUNTY, HI239,400306,379370,326460,232
KAUAI COUNTY, HI531,250598,355726,974838,816
IDAHO
BLAIN COUNTY, ID336,250378,724460,132530,921
TETON COUNTY, ID369,407438,453532,699614,653
ILLINOIS
CHICAGO-NAPERVILLE-JOLIET, IL-IN-WI (MSA)362,105407,845495,512571,745
ST. LOUIS, MO-IL (MSA)281,250316,776384,868444,079
INDIANA
CINCINNATI-MIDDLETOWN, OH-KY-IN (MSA)235,646290,779351,474436,800
CHICAGO-NAPERVILLE-JOLIET, IL-IN-WI (MSA)362,105407,845495,512571,745
INDIANAPOLIS, IN (MSA)231,250290,779351,474436,800
LOUISVILLE, KY-IN (MSA)237,375290,779351,474436,800
SCOTT COUNTY, IN237,375290,779351,474436,800
KANSAS
KANSAS CITY, MO-KS (MSA)265,313298,826363,059436,800
KENTUCKY
CINCINNATI-MIDDLETOWN, OH-KY-IN (MSA)235,646290,779351,474436,800
LOUISVILLE, KY-IN (MSA)237,375290,779351,474436,800
MARYLAND
BALTIMORE-TOWSON, MD (MSA)344,222389,557473,292546,107
HAGERSTOWN-MARTINSBURG, MD-WV (MSA)355,000399,842485,789560,526
WASHINGTON COUNTY, MD268,750302,697367,763436,800
WASHINGTON-ARLINGTON-ALEXANDRIA, DC-VA-MD-WV (MSA) 411,704516,697627,763724,342
PHILADELPHIA-CAMDEN-WILMINGTON, PA-NJ-DE-MD (MSA)312,500351,974427,632493,421
MAINE
PORTLAND-SOUTH PORTLAND-BIDDEFORD, ME (MSA)327,500368,868448,158517,105
MASSACHUSETTS
BARNSTABLE TOWN, MA (MSA)411,704527,037637,046761,842
BOSTON-CAMBRIDGE-QUINCY, MA-NH (MSA)411,704527,037637,046787,396
DUKES COUNTY, MA344,222440,609532,532661,829
NANTUCKET COUNTY, MA344,222440,609532,532661,829
PITTSFIELD, MA (MSA)237,500290,779351,474436,800
PROVIDENCE-NEW BEDFORD-FALL RIVER, RI-MA (MSA)369,407472,891571,567710,309
SPRINGFIELD, MA (MSA)237,500290,779351,474436,800
WORCESTER, MA (MSA)381,999488,975591,028734,521
MICHIGAN
LENAWEE COUNTY, MI297,500335,079407,105469,737
ANN ARBOR, MI (MSA)297,500335,079407,105469,737
DETROIT-WARREN-LIVONIA, MI (MSA)297,500335,079407,105469,737
HOLLAND-GRAND HAVEN, MI (MSA)236,250290,779351,474436,800
LANSING-EAST LANSING, MI (MSA)250,000290,779351,474436,800
MONROE, MI (MSA)297,500335,079407,105469,737
MINNESOTA
MINNEAPOLIS-ST. PAUL-BLOOMINGTON, MN-WI (MSA)306,250344,934419,079483,553
ROCHESTER, MN (MSA)238,125290,779351,474436,800
MISSOURI
KANSAS CITY, MO-KS (MSA)265,313298,826363,059436,800
ST. LOUIS, MO-IL (MSA)281,250316,776384,868444,079
MONTANA
MISSOULA, MT (MSA)243,750290,779351,474436,800
2005–9 I.R.B.642February 28, 2005

Area Name1 Family 2 Family 3 Family 4 Family
NEW HAMPSHIRE
MANCHESTER-NASHUA, NH (MSA)381,999488,975591,028734,521
BOSTON-CAMBRIDGE-QUINCY, MA-NH (MSA)411,704527,037637,046787,396
NEW JERSEY
ALLENTOWN-BETHLEHEM-EASTON, PA-NJ (MSA)369,407459,255557,974643,816
ATLANTIC CITY, NJ (MSA)306,250344,934419,079483,553
PHILADELPHIA-CAMDEN-WILMINGTON, PA-NJ-DE-MD (MSA)312,500351,974427,632493,421
NEW YORK-NEWARK-EDISON, NY-NJ-PA (MSA)411,704527,037637,046791,700
OCEAN CITY, NJ (MSA)411,704483,574587,520677,908
TRENTON-EWING, NJ (MSA)381,250429,408521,711601,974
NEW MEXICO
LOS ALAMOS COUNTY, NM318,750359,013436,184503,289
SANTA FE, NM (MSA)381,999449,471546,086630,099
NEVADA
CARSON CITY, NV (MSA)333,750375,908456,711526,974
DOUGLAS COUNTY, NV381,999446,250542,237625,658
LAS VEGAS-PARADISE, NV (MSA)353,947398,655484,349558,863
LYON COUNTY, NV237,368290,779351,474436,800
NYE COUNTY, NV321,842362,500440,461508,224
RENO-SPARKS, NV (MSA)373,947421,182511,717590,442
NEW YORK
BUFFALO-NIAGARA FALLS, NY (MSA)237,500290,779351,474436,800
KINGSTON, NY (MSA)293,750330,855401,974463,816
NEW YORK-NEWARK-EDISON, NY-NJ-PA (MSA)411,704527,037637,046791,700
POUGHKEEPSIE-NEWBURGH-MIDDLETOWN, NY (MSA)356,250401,250487,500562,500
ROCHESTER, NY (MSA)243,750290,779351,474436,800
NORTH CAROLINA
CHARLOTTE-GASTONIA-CONCORD, NC-SC (MSA)233,125290,779351,474436,800
DURHAM, NC (MSA)230,000290,779351,474436,800
JACKSONVILLE, NC (MSA)306,250344,934419,079483,553
RALEIGH-CARY, NC (MSA)231,053290,779351,474436,800
VIRGINIA BEACH-NORFOLK-NEWPORT NEWS, VA-NC (MSA)375,122422,507513,325592,299
OHIO
AKRON, OH (MSA)250,054290,779351,474436,800
ASHTABULA COUNTY, OH290,797327,530397,933459,154
CINCINNATI-MIDDLETOWN, OH-KY-IN (MSA)235,646290,779351,474436,800
CLEVELAND-ELYRIA-MENTOR, OH (MSA)290,797327,530397,933459,154
COLUMBUS, OH (MSA)274,738309,441375,957436,800
DAYTON, OH (MSA)239,072290,779351,474436,800
OREGON
BEND, OR (MSA)285,875321,986391,197451,382
CORVALLIS, OR (MSA)292,375329,307400,092461,645
EUGENE-SPRINGFIELD, OR (MSA)227,500290,779351,474436,800
JOSEPHINE COUNTY, OR268,750302,697367,763436,800
MEDFORD, OR (MSA)312,500351,974427,632493,421
PORTLAND-VANCOUVER-BEAVERTON, OR-WA (MSA)281,250316,776384,868444,079
PENNSYLVANIA
ALLENTOWN-BETHLEHEM-EASTON, PA-NJ (MSA)369,407459,255557,974643,816
NEW YORK-NEWARK-EDISON, NY-NJ-PA (MSA)411,704527,037637,046791,700
PHILADELPHIA-CAMDEN-WILMINGTON, PA-NJ-DE-MD (MSA)312,500351,974427,632493,421
PITTSBURGH, PA (MSA)240,000290,779351,474436,800
YORK-HANOVER, PA (MSA)240,000290,779351,474436,800
RHODE ISLAND
PROVIDENCE-NEW BEDFORD-FALL RIVER, RI-MA (MSA)369,407472,891571,567710,309
February 28, 20056432005–9 I.R.B.

Area Name1 Family 2 Family 3 Family 4 Family
SOUTH CAROLINA
CHARLESTON-NORTH CHARLESTON, SC (MSA)287,875324,238393,934454,539
CHARLOTTE-GASTONIA-CONCORD, NC-SC (MSA)233,125290,779351,474436,800
GEORGETOWN COUNTY, SC228,750290,779351,474436,800
BEAUFORT COUNTY, SC262,500295,658359,211436,800
TENNESSEE
NASHVILLE-DAVIDSON-MURFREESBORO, TN (MSA)297,500335,079407,105469,737
TEXAS
AUSTIN-ROUND ROCK, TX (MSA)233,750290,779351,474436,800
UTAH
WASATCH COUNTY, UT231,250290,779351,474436,800
KANE COUNTY, UT268,750302,697367,763436,800
PROVO-OREM, UT (MSA)231,250290,779351,474436,800
SALT LAKE CITY, UT (MSA)306,250344,934419,079483,553
ST. GEORGE, UT (MSA)237,375290,779351,474436,800
VERMONT
BURLINGTON-SOUTH BURLINGTON, VT (MSA)281,125316,636384,697443,882
VIRGINIA
CHARLOTTESVILLE, VA (MSA)278,625313,820381,276439,934
HARRISONBURG, VA (MSA)232,500290,779351,474436,800
CULPEPER COUNTY, VA381,999448,442544,837628,658
KING GEORGE COUNTY, VA381,999448,442544,837628,658
RICHMOND, VA (MSA)281,250316,776384,868444,079
VIRGINIA BEACH-NORFOLK-NEWPORT NEWS, VA-NC (MSA)375,122422,507513,325592,299
WASHINGTON-ARLINGTON-ALEXANDRIA, DC-VA-MD-WV (MSA) 411,704516,697627,763724,342
WINCHESTER, VA-WV (MSA)312,500351,974427,632493,421
WASHINGTON
BELLINGHAM, WA (MSA)265,938299,530363,914436,800
BREMERTON-SILVERDALE, WA (MSA)278,750313,961381,447440,132
MOUNT VERNON-ANACORTES, WA (MSA)256,250290,779351,474436,800
JEFFERSON COUNTY, WA236,250290,779351,474436,800
SAN JUAN COUNTY, WA381,999479,934583,092672,829
ISLAND COUNTY, WA366,842413,179502,039579,276
OLYMPIA, WA (MSA)243,625290,779351,474436,800
PORTLAND-VANCOUVER-BEAVERTON, OR-WA (MSA)281,250316,776384,868444,079
SEATTLE-TACOMA-BELLEVUE, WA (MSA)379,868427,851519,820599,792
WISCONSIN
CHICAGO-NAPERVILLE-JOLIET, IL-IN-WI (MSA)362,105407,845495,512571,745
MADISON, WI (MSA)267,368301,141365,872436,800
MILWAUKEE-WAUKESHA-WEST ALLIS, WI (MSA)256,316290,779351,474436,800
MINNEAPOLIS-ST. PAUL-BLOOMINGTON, MN-WI (MSA)306,250344,934419,079483,553
RACINE, WI (MSA)242,500290,779351,474436,800
WEST VIRGINIA
HAGERSTOWN-MARTINSBURG, MD-WV (MSA)355,000399,842485,789560,526
MORGANTOWN, WV (MSA)228,125290,779351,474436,800
WASHINGTON-ARLINGTON-ALEXANDRIA, DC-VA-MD-WV (MSA) 411,704516,697627,763724,342
WINCHESTER, VA-WV (MSA)312,500351,974427,632493,421
WYOMING
TETON COUNTY, WY369,407438,453532,699614,653
GUAM237,500290,779351,474436,800
PUERTO RICO
FAJARDO, PR (MSA)325,000366,053444,737513,158
SAN JUAN-CAGUAS-GUAYNABO, PR (MSA)325,000366,053444,737513,158
2005–9 I.R.B.644February 28, 2005

Area Name1 Family 2 Family 3 Family 4 Family
VIRGIN ISLANDS
ST. CROIX287,500323,816393,421453,947
ST. JOHN246,447290,779351,474436,800
ST. THOMAS318,750359,013436,184503,289
ALL OTHER AREAS
$227,147 $290,779 $351,474 $436,800
.02 The nationwideaverage purchase
price (for use in the housing cost/income
ratio for new and existing residences) is
$238,200.
SECTION 5. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 2004–18 is obsolete except
as provided in section 6 of this revenue
procedure.
SECTION 6. EFFECTIVE DATES
.01 Issuers may rely on this revenue
procedure to determine average area pur-
chase price safe harbors for commitments
to provide financing or issue mortgage
credit certificates that are made, or (if
the purchase precedes the commitment)
for residences that are purchased, in the
period that begins on February 10, 2005,
and ends on the date as of which the safe
harbors contained in section 4.01 of this
revenue procedure are rendered obsolete
by a new revenue procedure.
.02 Notwithstanding section 5 of this
revenue procedure, issuers may continue
to rely on the average area purchase price
safe harbors contained in Rev. Proc.
2004–18, with respect to bonds sold, or
for mortgage credit certificates issued with
respect to bond authority exchanged, be-
fore March 12, 2005, if the commitments
to provide financing or issue mortgage
credit certificates aremadeonorbefore
April 11, 2005.
.03 Except as provided in section 6.04,
issuers must use the nationwide average
purchase price limitation contained in
this revenue procedure for commitments
to provide financing or issue mortgage
credit certificates that are made, or (if the
purchase precedes the commitment) for
residences that are purchased, in the pe-
riod that begins on February 10, 2005, and
ends on the date when the nationwide av-
erage purchase price limitation is rendered
obsolete by a new revenue procedure.
.04 Notwithstanding sections 5 and
6.03 of this revenue procedure, issuers
may continue to rely on the nationwide
average purchase price set forth in Rev.
Proc. 2004–18 with respect to bonds
sold, or for mortgagecredit certificates
issued with respect to bond authority ex-
changed, before March 12, 2005, if the
commitments to provide financing or is-
sue mortgage credit certificates are made
on or before April 11, 2005.
SECTION 7. PAPERWORK
REDUCTION ACT
The collection of information con-
tained in this revenue procedure has been
reviewed and approved by the Office
of Management and Budget in accor-
dance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545–1877.
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.
This revenue procedure contains a col-
lection of information requirement in sec-
tion 3.03. The purpose of the collection
of information is to verify the applica-
ble FHA loan limit that issuers of quali-
fied mortgage bonds and qualified mort-
gage certificates have used to calculate the
average area purchase price for a given
metropolitan statistical area for purposes
of section 143(e) and 25(c). The collec-
tion of information is required to obtain
the benefit of using revisions to FHA loan
limits to determine average area purchase
prices. The likely respondents are state
and local governments.
The estimated total annual reporting
and/or recordkeeping burden is: 15 hours.
The estimated annual burden per re-
spondent and/or recordkeeper: 15 minutes.
The estimated number of respondents
and/or recordkeepers: 60.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
SECTION 8. DRAFTING
INFORMATION
The principal authors of this rev-
enue procedure are David E. White and
Timothy L. Jones of the Office of Di-
vision Counsel/Associate Chief Counsel
(Tax Exempt & Government Entities).
For further information regarding this rev-
enue procedure, contact David E. White at
(202) 622–3980 (not a toll-free call).
February 28, 20056452005–9 I.R.B.

Part IV. Items of General Interest
Notice of Proposed
Rulemaking
Disclosure of Returns and
Return Information in
ConnectionWithWritten
Contracts or Agreements
for the Acquisition of
Property and Services for
Tax Administration Purposes
REG–148867–03
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains pro-
posed regulations relating to the disclosure
of returns and return information pursuant
to section 6103(n) of the Internal Revenue
Code (Code). The proposed regulations
describe the circumstances under which
officers or employees of the Treasury De-
partment, a State tax agency, the Social Se-
curity Administration, or the Department
of Justice may disclose returns and return
information to obtain property or services
for tax administration purposes, pursuant
to a written contract or agreement. The
proposed regulations clarify the existing
regulations with respect to redisclosures
ofreturnsorreturninformationbycon-
tractors, especially with regard to redisclo-
sures by contractors to agents or subcon-
tractors, and clarify that the civil and crim-
inal penalties of sections 7431, 7213, and
7213A apply to the agents or subcontrac-
tors. The proposed regulations also clarify
that section 6103(n) applies to written con-
tracts or agreements that are entered into
to obtain property or services for purposes
of tax administration, including contracts
that are not awarded under the Federal Ac-
quisition Regulations (FAR), 48 CFR pts.
1–53.
The proposed regulations will affect of-
ficers and employees of the Treasury De-
partment, a State tax agency, the Social Se-
curity Administration, or the Department
of Justice who disclose returns or return
information in connection with a written
contract or agreement for the acquisition
of property or servicesfor tax administra-
tion purposes. The proposed regulations
will also affect any person, or officer, em-
ployee, agent, or subcontractor of the per-
son, or officer or employee of the agent or
subcontractor, who receives returns or re-
turn information in connection with a writ-
ten contract or agreement for the acquisi-
tion of property or services.
DATES: Written or electronic comments
and requests for a public hearing must be
received by April 12, 2005.
ADDRESSES: Send submissions to
CC:PA:LPD:PR (REG–148867–03), room
5203, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may be
hand-delivered Monday through Friday
betweenthehoursof8a.m. and4p.m.
to CC:PA:LPD:PR (REG–148867–03),
Courier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW, Wash-
ington, DC, or sent electronically, via the
IRS Internet site atwww.irs.gov/regsor
via the Federal eRulemaking Portal at
www.regulations.gov(indicate IRS and
REG–148867–03). The public hearing
will be held in the IRS Auditorium, Inter-
nal Revenue Building, 1111 Constitution
Avenue, NW, Washington, DC.
FOR FURTHER INFORMATION
CONTACT: Helene R. Newsome,
202–622–4570 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information con-
tained in this notice of proposed rulemak-
ing have been submitted to the Office of
Management and Budget for review in
accordance with the Paperwork Reduc-
tion Act of 1995 (44 U.S.C. 3507(d)).
Comments on the collections of infor-
mation should be sent to the Office of
Management and Budget, Attn: Desk Of-
ficer for the Department of the Treasury,
Office of Information and Regulatory
Affairs, Washington, DC 20503, with
copies to the Internal Revenue Service,
Attn: IRS Reports Clearance Officer,
SE:W:CAR:MP:T:T:SP, Washington, DC
20224. Comments on the collections of
information should be received by March
14, 2005. Comments are specifically re-
quested concerning:
Whether the proposed collections of in-
formation are necessary for the proper per-
formance of the functions of the Internal
Revenue Service, including whether the
information will have practical utility;
The accuracy of the estimated burden
associated with the proposed collections of
information (see below);
How the quality, utility, and clarity of
the information to be collected may be en-
hanced;
How the burden of complying with the
proposed collections of information may
be minimized, including through the appli-
cation of automated collection techniques
or other forms of information technology;
and
Estimates of capital or start-up costs
and costs of operation, maintenance, and
purchase of service to provide information.
The collections of informa-
tion in this proposed regulation
are in §§301.6103(n)–1(d) and
301.6103(n)–1(e)(3).This informa-
tion is required and will be used to ensure
compliance with the internal revenue laws
and regulations, and to protect the privacy
of American taxpayers. The collections
of information are required to obtain a
benefit. The likely respondents are state
or local governments, business or other
for-profit institutions, federal agencies,
and/or small businesses or organizations.
Estimated total annual reporting bur-
den: 250 hours. Estimated average annual
burden per respondent: 6 minutes.
Estimated number of respondents:
2500.
Estimated annual frequency of re-
sponses: Annually.
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 Of-
fice of Management and Budget.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and return in-
formation are confidential, as required by
26 U.S.C. 6103.
2005–9 I.R.B.646February 28, 2005

Background
Under section 6103(a), returns and re-
turn information are confidential unless
the Code authorizes disclosure. Section
6103(n) authorizes, pursuant to regula-
tions prescribed by the Secretary, returns
and return information to be disclosed
to any person, including any person de-
scribed in section 7513(a), for purposes of
tax administration, to the extent necessary
in connection with: (1) the processing,
storage, transmission, and reproduction
of returns and return information; (2) the
programming, maintenance, repair, test-
ing, and procurement of equipment; and
(3) the providing of other services.
Clarification is needed with respect to
whether the existing regulations permit re-
disclosures by persons authorized to re-
ceive the returns and return information to
theiragentsorsubcontractors, and if so,
whether certain penalty provisions, written
notification requirements, and safeguard
requirements are applicable to these agents
and subcontractors. The proposed regula-
tions make these clarifications. The exist-
ing regulations provide that any person, or
officer or employee of the person, who re-
ceives returns or return information under
the existing regulations, may redisclose
the returns or return information when au-
thorized in writing by the IRS. The pro-
posed regulations clarify that redisclosures
to agents or subcontractors are permissible
provided that the IRS authorizes the redis-
closures in writing. The proposed regula-
tions clarify that agents and subcontractors
are persons described in section 6103(n)
and, accordingly, are subject to the civil
and criminal penalty provisions of sections
7431, 7213, and 7213A for the unautho-
rized inspection or disclosure of returns
or return information. The proposed reg-
ulations clarify that agents and subcon-
tractors are required to comply with any
written notification requirements and safe-
guard restrictions that may be imposed by
the IRS.
Finally, the proposed regulations clarify
that section 6103(n) applies to written con-
tracts or agreements that are entered into to
obtain property or services for tax admin-
istration purposes, including contracts that
are not awarded under the FAR.
Explanation of Provisions
The structure of the proposed regula-
tions is very similar to that of the existing
regulations, with the exception of modifi-
cations to clarify: the redisclosure author-
ity of contractors, especially to agents or
subcontractors; the applicability to agents
and subcontractors of written notification
requirements, safeguard requirements, and
the civil and criminal penalty provisions
of sections 7431, 7213, and 7213A; and
the applicability of section 6103(n) to writ-
ten contracts or agreements for tax ad-
ministration purposes, including contracts
that are not awarded under the FAR. The
proposed regulations also elaborate on the
safeguard protections that the IRS may re-
quire. Finally, the proposed regulations
contain other minor changes for organiza-
tional and clarity purposes.
Redisclosures to Agents or Subcontractors
The proposed regulations, at
§301.6103(n)–1(a)(2)(ii), provide that
any person, or officer or employee of the
person, who receives returns or return in-
formation under the proposed regulations,
may further disclose the returns or return
information, when authorized in writing
by the IRS, to the extent necessary to carry
out the purposes of the written contract or
agreement. To eliminate any ambiguity
as to whether this provision applies to
agents and subcontractors, the proposed
regulation states that disclosures may in-
clude redisclosures to a person’s agent or
subcontractor, or officer or employee of
the agent or subcontractor. The proposed
regulations, at §301.6103(n)–1(a)(3), pro-
vide guidance applicable if agents or
subcontractors, or officers or employees
of the agents or subcontractors, who re-
ceive returns or return information under
§301.6103(n)–1(a)(2)(ii), are to exercise
the authority to redisclose the returns or
return information to another officer or
employee of the agent or subcontractor
whose duties or responsibilities require
the returns or return information for a
purpose described in the proposed reg-
ulations. The proposed regulations, at
§301.6103(n)–1(c), set forth the civil
and criminal penalties to which agents,
subcontractors, and their officers or em-
ployees, are subject for unauthorized in-
spection or disclosure of returns or return
information. The proposed regulations,
at §301.6103(n)–1(d), extend the written
notification requirements to agents and
subcontractors. In particular, agents or
subcontractors who receive returns or re-
turn information under the proposed regu-
lations must provide written notice to their
officers and employees of the purposes for
which returns or return information may
be used and of the potential civil and crim-
inal penalties for unauthorized inspections
or disclosures. The proposed regulations,
at §301.6103(n)–1(e), clarify that agents
or subcontractors who receive returns or
return information under the proposed
regulations are subject to all safeguard
requirements described in the proposed
regulations.
Section 6103(n) Applies to Written Tax
Administration Contracts or Agreements,
Including Contracts Not Awarded Under
the FAR
The proposed regulations clarify that
section 6103(n) applies to written con-
tracts or agreements that are entered into
to obtain property or services for pur-
poses of tax administration, including
contracts that are not awarded under the
FAR. The existing regulations use the term
contractual procurementto describe the
acquisition of property or services. Clari-
fication is needed as to whether this term
is limited to the acquisition of property
or services under the FAR or whether the
term refers more broadly to any written
contract or agreement to acquire property
or services relating to tax administration.
The FAR applies only to contracts involv-
ing acquisitions with appropriated funds.
FAR 1.104 and 2.101, 48 CFR 1.104 and
2.101. The existing and proposed regula-
tions under section 6103(n), however, are
intended to apply to any written contract
or agreement for tax administration that
creates obligations that are enforceable or
otherwise recognizable at law, regardless
of the form of the contract (e.g.,inter-
agency agreement, memorandum of un-
derstanding, purchase order), the statutory
or regulatory authority for the contract,
if any (e.g., the FAR, the Contract Dis-
putes Act, 41 U.S.C. 601 through 613,
the Economy Act, 31 U.S.C. § 1535), or
thenatureoftheconsideration exchanged
(monetary or non-monetary). Accord-
ingly, the proposed regulations replace
February 28, 20056472005–9 I.R.B.

the termcontractual procurementwith the
phrase “written contract or agreement” in
all instances where the term appeared.
Other Changes to the Existing Regulations
The proposed regulations, at
§301.6103(n)–1(a)(4), clarify that any
person, or officer, employee, agent or
subcontractor of the person, or officer or
employee of the agent or subcontractor,
who receives returns or return information
under the proposed regulations, may re-
disclose the returns or return information
pursuant to §301.6103(p)(2)(B)–1 (con-
cerning disclosures by a Federal, State, or
local agency, or its agents or contractors,
for a purpose authorized, and subject to
all applicable conditions imposed, by sec-
tion 6103). The proposed regulations, at
§301.6103(n)–1(e), add the requirement
that any person, or agent or subcontractor
of the person, who may receive returns
or return information under the proposed
regulations, must agree, before the disclo-
sure of any returns or return information
to the person, agent, or subcontractor, to
an IRS inspection of his, her, or its site
or facilities. Finally, the proposed regu-
lations, at §301.6103(n)–1(e)(3), set forth
the condition that before the execution of a
contract or subcontract for the acquisition
of property or services under which returns
or return information will be disclosed in
accordance with the proposed regulations,
the contract must be made available to the
IRS.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory as-
sessment is not required. It also has been
determined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C. chap-
ter 5) does not apply to these regulations.
It is hereby certified that the collections of
information in these regulations will not
have a significant economic impact on a
substantial number of small entities. This
certification is based on the fact that any
burden on taxpayers is minimal in that the
estimated average burden per respondent
for complying with the collections of infor-
mation imposed by these regulations is 6
minutes. Therefore, a Regulatory Flexibil-
ity Analysis under the Regulatory Flexibil-
ity Act (5 U.S.C. chapter 6) is not required.
Pursuant to section 7805(f), this notice of
proposed rulemaking will be submitted to
the Chief Counsel of the Small Business
Administration for comment on its impact
on small businesses.
Comments and Request for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any electronic and writ-
ten comments (a signed original and eight
(8) copies) that are submitted timely to the
IRS. The IRS and Treasury Department re-
quest comments on the clarity of the pro-
posed rule and how it may be made eas-
ier to understand. All comments will be
available for public inspection and copy-
ing. A public hearing may be scheduled if
requested in writing by a person that timely
submits written comments. If a public
hearing is scheduled, notice of the date,
time, and place of the hearing will be pub-
lished in theFederal Register.
Drafting Information
The principal author of these regula-
tions is Helene R. Newsome, Office of
the Associate Chief Counsel (Procedure
& Administration), Disclosure & Privacy
Law Division.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 301 is pro-
posed to be amended as follows:
PART 301—PROCEDURE AND
ADMINSTRATION
Paragraph 1. The authority citation for
part 301 continues to read, in part, as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.6103(n)–1 is re-
vised to read as follows:
§301.6103(n)–1 Disclosure of returns and
return information in connection with
written contracts or agreements for the
acquisition of property and services for
tax administration purposes.
(a)General rule. (1) Pursuant to the
provisions of section 6103(n) of the Inter-
nal Revenue Code and subject to the condi-
tions of this section, officers and employ-
ees of the Treasury Department, a State
tax agency, the Social Security Adminis-
tration, or the Department of Justice, are
authorized to disclose returns and return
information (as defined in section 6103(b))
to any person (including, in the case of
the Treasury Department, any person de-
scribed in section 7513(a)), or to an offi-
cer or employee of the person, for purposes
of tax administration (as defined in section
6103(b)(4)), to the extent necessary in con-
nection with a written contract or agree-
ment for the acquisition of—
(i) Equipment or other property; or
(ii) Services relating to the processing,
storage, transmission, or reproduction of
returns or return information, the program-
ming, maintenance, repair, or testing of
equipment or other property, or the provid-
ing of other services.
(2) Any person, or officer or employee
of the person, who receives returns or re-
turn information under paragraph (a)(1) of
this section, may—
(i) Further disclose the returns or return
information to another officer or employee
of the person whose duties or responsibil-
ities require the returns or return informa-
tion for a purpose described in this para-
graph; or
(ii) Further disclose the returns or return
information, when authorized in writing by
the Internal Revenue Service (IRS), to the
extent necessary to carry out the purposes
described in this paragraph. Disclosures
may include disclosures to an agent or sub-
contractor of the person, or officer or em-
ployee of the agent or subcontractor.
(3) An agent or subcontractor, or officer
or employee of the agent or subcontractor,
who receives returns orreturn information
under paragraph (a)(2)(ii) of this section,
may further disclose the returns or return
information to another officer or employee
of the agent or subcontractor whose duties
or responsibilities require the returns or re-
turn information for a purpose described in
this paragraph (a).
(4) Any person, or officer, employee,
agent or subcontractor of the person,
or officer or employee of the agent
or subcontractor, who receives returns
or return information under this para-
graph, may, subject to the provisions of
§301.6103(p)(2)(B)–1 (concerning disclo-
sures by a Federal, State, or local agency,
2005–9 I.R.B.648February 28, 2005

or its agents or contractors), further dis-
close the returns or return information for
a purpose authorized, and subject to all
applicable conditions imposed, by section
6103.
(b)Limitations. (1) Disclosure of re-
turns or return information in connection
with a written contract or agreement for
the acquisition of property or services de-
scribed in paragraph (a) of this section will
be treated as necessary only if the perfor-
mance of the contract or agreement cannot
otherwise be reasonably, properly, or eco-
nomically carried out without the disclo-
sure.
(2) Disclosure of returns or return in-
formation in connection with a written
contract or agreement for the acquisition
of property or services described in para-
graph (a) of this section shall be made
only to the extent necessary to reason-
ably, properly, or economically perform
the contract. For example, disclosure of
returns or return information to employees
of a contractor for purposes of program-
ming, maintaining, repairing, or testing
computer equipment used by the IRS or a
State tax agency shall be made only if the
services cannot be reasonably, properly, or
economically performed without the dis-
closure. If it is determined that disclosure
of returns or return information is neces-
sary, and if the services can be reasonably,
properly, and economically performed
by disclosure of only parts or portions of
areturnorifdeletionoftaxpayeriden-
tity information (as defined in section
6103(b)(6)) reflected on a return would
not seriously impair the ability of the em-
ployees to perform the services, then only
the parts or portions of the return, or only
the return with taxpayer identity informa-
tion deleted, may be disclosed.
(c)Penalties. Any person, or officer,
employee, agent or subcontractor of the
person, or officer or employee of the agent
or subcontractor, whoreceives returns or
return information under paragraph (a) of
this section, is subject to the civil and crim-
inal provisions of sections 7431, 7213, and
7213A for the unauthorized inspection or
disclosure of the returns or return informa-
tion.
(d)Notification requirements. Any per-
son, or agent or subcontractor of the per-
son, who receives returns or return infor-
mation under paragraph (a) of this section
shall provide written notice to his, her, or
its officers and employees receiving the re-
turns or return information that—
(1) Returns or return information dis-
closed to the officer or employee may be
used only for a purpose and to the extent
authorized by paragraph (a) of this section;
(2) Further inspection of any returns
or return information for a purpose or to
an extent not authorized by paragraph (a)
of this section constitutes a misdemeanor,
punishable upon conviction by a fine of as
much as $1,000, or imprisonment for as
long as 1 year, or both, together with costs
of prosecution;
(3) Further disclosure of any returns or
return information for a purpose or to an
extent not authorized by paragraph (a) of
this section constitutes a felony, punish-
able upon conviction by a fine of as much
as $5,000, or imprisonment for as long as
5 years, or both, together with the costs of
prosecution;
(4) Further inspection or disclosure of
returns or return information by any per-
son who is not an officer or employee of
the United States for a purpose or to an
extent not authorized by paragraph (a) of
this section may also result in an award
of civil damages against that person in an
amount not less than $1,000 for each act
of unauthorized inspection or disclosure,
or the sum of actual damages sustained by
the plaintiff as a result of the unauthorized
inspection or disclosure plus, in the case
of a willful inspection or disclosure or an
inspection or disclosure that is the result of
gross negligence, punitive damages. In ad-
dition, costs and reasonable attorneys fees
may be awarded; and
(5) A conviction for an offense refer-
enced in paragraph (c)(2) or (3) of this sec-
tion shall, in addition to any other pun-
ishment, result in dismissal from office or
discharge from employment if the person
convicted is an officer or employee of the
United States.
(e)Safeguards. (1) Any person, or
agent or subcontractor of the person, who
may receive returns or return information
under paragraph (a) of this section, shall
agree, before disclosure of any returns or
return information to the person, agent, or
subcontractor, to permit an inspection by
the IRS of his, her, or its site or facilities.
(2) Any person, or officer, employee,
agent or subcontractorof the person, or of-
ficer or employee of the agent or subcon-
tractor, who receives returns or return in-
formation under paragraph (a) of this sec-
tion, shall comply with all applicable con-
ditions and requirements as the IRS may
prescribe from time to time (prescribed re-
quirements) for the purposes of protect-
ing the confidentiality of returns and return
information and preventing disclosures or
inspections of returns or return informa-
tion in a manner not authorized by this sec-
tion.
(3) The terms of any written contract
or agreement for the acquisition of prop-
erty or services as described in paragraph
(a) of this section shall provide, or shall
be amended to provide, that any person,
or officer, employee, agent or subcontrac-
tor of the person, or officer or employee
of the agent or subcontractor, who receives
returns or return information under para-
graph (a) of this section, shall comply with
the prescribed requirements. Any con-
tract or agreement shall be made avail-
able to the IRS before execution of the
contract or agreement. For purposes of
this paragraph (e)(3), a written contract
or agreement shall include any contract or
agreement between a person and an agent
or subcontractor of the person to provide
the property or services described in para-
graph (a) of this section.
(4) If the IRS determines that any per-
son, or officer, employee, agent or sub-
contractor of the person, or officer or em-
ployee of the agent or subcontractor, who
receives returns or return information un-
der paragraph (a) of this section, has failed
to, or does not, satisfy the prescribed re-
quirements, the IRS may take any actions
it deems necessary to ensure that the pre-
scribed requirements are or will be satis-
fied, including—
(i) Suspension of further disclosures of
returns or return information by the IRS to
the State tax agency, the Social Security
Administration, or the Department of Jus-
tice, until the IRS determines that the con-
ditions and requirements have been or will
be satisfied;
(ii) Suspension of further disclosures by
the Treasury Department otherwise autho-
rized by paragraph (a) of this section; and
(iii) Suspension or termination of any
duty or obligation arising under a contract
or agreement with the Treasury Depart-
ment.
(f)Definitions. For purposes of this sec-
tion—
February 28, 20056492005–9 I.R.B.

(1) The termTreasury Departmentin-
cludes the IRS, the Office of the Chief
Counsel for the IRS, and the Office of the
Treasury Inspector General for Tax Ad-
ministration;
(2) The termState tax agencymeans an
agency, body, or commission described in
section 6103(d); and
(3) The termDepartment of Justicein-
cludes offices of the United States Attor-
neys.
(g)Effective date.Thissectionisappli-
cable on or after the date final regulations
are published in theFederal Register.
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on January 11,
2005, 8:45 a.m., and published in the issue of the Federal
Register for January 12, 2005, 70 F.R. 2076)
Notice of Proposed
Rulemaking
Revised Regulations
Concerning Disclosure of
Relative Values of Optional
Forms of Benefit
REG–152914–04
AGENCY:Internal Revenue Service
(IRS), Treasury.
ACTION:Notice of proposed rulemak-
ing.
SUMMARY:This document contains
proposed regulations that would revise
final regulations that were issued on De-
cember 17, 2003, under section 417(a)(3)
of the Internal Revenue Code concerning
content requirements applicable to ex-
planations of qualified joint and survivor
annuities and qualified preretirement sur-
vivor annuities payable under certain
retirement plans. These regulations affect
plan sponsors and administrators, and par-
ticipants in and beneficiaries of, certain
retirement plans.
DATES:Written and electronic comments
and requests for a public hearing must be
received by April 28, 2005.
ADDRESSES:Send submissions to:
CC:PA:LPD:PR (REG–152914–04), room
5203, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may be
hand-delivered Monday through Friday
betweenthehoursof8a.m. and4p.m.
to: CC:PA:LPD:PR (REG–152914–04),
Courier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW, Wash-
ington, DC, or sent electronically, via the
IRS Internet site atwww.irs.gov/regsor
via the Federal eRulemaking Portal at
www.regulations.gov(indicate IRS and
REG–152914–04).
FOR FURTHER INFORMATION
CONTACT:Concerning the regulations,
Bruce Perlin at (202) 622–6090 (not a
toll-free number); concerning submissions
or hearing requests, LaNita Van Dyke,
(202) 622–7180 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained
in this notice of proposed rulemaking has
been previously reviewed and approved by
the Office of Management and Budget in
accordance with the Paperwork Reduction
Act of 1995 (44 U.S.C. 3507(d)) under
control number 1545–0928.
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 Of-
fice of Management and Budget.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
Background
Section 417(a) provides rules under
which a participant (with spousal consent)
may waive payment of the participant’s
benefit in the form of qualified joint
and survivor annuity (QJSA). Specifi-
cally, section 417(a)(3) provides that a
plan must provide to each participant,
within a reasonable period before the an-
nuity starting date, a written explanation
that includes the following information:
(1) the terms and conditions of the QJSA;
(2) the participant’s right to make an elec-
tion to waive the QJSA form of benefit;
(3) the effect of such an election; (4) the
rights of the participant’s spouse; and (5)
the right to revoke an election to waive the
QJSA form of benefit.
Section 205 of the Employee Re-
tirement Income Security Act of 1974
(ERISA), Public Law 93–406 (88 Stat.
829) as subsequently amended, provides
rules that are parallel to the rules of sec-
tions 401(a)(11) and 417 of the Internal
Revenue Code. In particular, section
205(c)(3) of ERISA provides a rule paral-
lel to the rule of section 417(a)(3) of the
Code.
Section 1.401(a)–20, which provides
rules governing the requirements for
a waiver of the QJSA, was published
in theFederal Registeron August
19, 1988 (T.D. 8219, 1988–2 C.B. 48
[53 FR 31837]). Section 1.401(a)–20,
Q&A–36, as published in 1988, set forth
requirements for the explanation that must
be provided under section 417(a)(3) as a
prerequisite to waiver of a QJSA. Under
those requirements, such a written expla-
nation must contain a general description
of the eligibility conditions and other ma-
terial features of the optional forms of
benefit and sufficient additional informa-
tion to explain the relative values of the
optional forms of benefit available under
the plan (e.g., the extent to which optional
forms are subsidized relative to the normal
form of benefit or the interest rates used to
calculate the optional forms). In addition,
§1.401(a)–20, Q&A–36, as published in
1988, provided that the written explana-
tion must comply with the requirements
set forth in §1.401(a)–11(c)(3). Section
1.401(a)–11(c)(3) was issued prior to the
enactment of section 417, and provides
rules relating to written explanations that
were required prior to a participant’s elec-
tion of a preretirement survivor annuity
or election to waive a joint and survivor
annuity. Section 1.401(a)–11(c)(3)(i)(C)
provides that such a written explanation
must contain a general explanation of the
relative financial effect of these elections
on a participant’s annuity.
For a married participant, the QJSA
must be at least as valuable as any other
optional form of benefit payable under the
plan at the same time. See §1.401(a)–20,
Q&A–16. Further, the anti-forfeiture rules
2005–9 I.R.B.650February 28, 2005

of section 411(a) prohibit a participant’s
benefit under a defined benefit plan from
being satisfied through payment of a form
of benefit that is actuarially less valuable
than the value of the participant’s accrued
benefit expressed in the form of an an-
nual benefit commencing at normal retire-
ment age. These determinations must be
made using reasonable actuarial assump-
tions. However, see section 417(e)(3) and
§1.417(e)–1(d) for actuarial assumptions
required for use in certain present value
calculations.
Final regulations under section
417(a)(3) regarding disclosure of the rela-
tive value and financial effect of optional
forms of benefit as part of QJSA expla-
nations provided to participants receiv-
ing qualified retirement plan distributions
were published in theFederal Registeron
December 17, 2003. See §1.417(a)(3)–1
(T.D. 9099, 2004–2 I.R.B. 255 [68 FR
70141]). The 2003 regulations are gen-
erally effective for QJSA explanations
provided with respect to annuity starting
dates beginning on or after October 1,
2004.
The 2003 regulations were issued
in response to concerns that, in certain
cases, the informationprovidedtopartic-
ipants under section 417(a)(3) regarding
available distribution forms pursuant to
§1.401(a)–20, Q&A–36, does not ade-
quately enable them to compare those
distribution forms without professional
advice. In particular, participants who
are eligible for early retirement benefits
in the form of both subsidized annuity
distributions and unsubsidized single-sum
distributions may be receiving explana-
tions that do not adequately disclose the
value of the subsidy that is foregone if the
single-sum distribution is elected. In such
a case, merely disclosing the amount of
the single-sum distribution and the amount
of the annuity payments would not ade-
quately enable a participant to make an
informed comparison of the relative val-
ues of those distribution forms. The 2003
regulations address this problem, as well
as the problem of disclosure in other cases
where there are significant differences
in value among optional forms, and also
clarify the rules regarding the disclosure
of the financial effect of benefit payments.
A number of commentators requested
that the effective date of the 2003 regula-
tions be postponed. Among the reasons
cited is the need in some plans for spon-
sors to complete an extensive review and
analysis of optional forms of benefit in
order to prepare proper comparisons of the
relative values of those optional forms to
the QJSA. They noted that recently pro-
posed regulations under section 411(d)(6)
would permit elimination of certain op-
tional forms of benefit and that many plan
sponsors can be expected to engage in
a thorough review of all of the optional
forms of benefit under their plans fol-
lowing publication of those regulations in
final form. See §1.411(d)–3, 69 FR 13769
(March 24, 2004) (REG–128309–03,
2004–16 I.R.B. 800). These commenta-
tors argued that it would be inefficient for
planstoberequiredtoincurthecostsof
two such extensive analyses in succession,
rather than a single analysis of optional
forms that might serve to some extent
for purposes of both the relative value
regulations and the section 411(d)(6) reg-
ulations. After consideration of these
comments, Treasury and the IRS issued
Announcement 2004–58, 2004–29 I.R.B.
66, which postponed the effective date of
the 2003 regulations under §1.417(a)(3)–1
for certain QJSA explanations.
Under section 101 of Reorganization
Plan No. 4 of 1978 (43 FR 47713), the
Secretary of the Treasury has interpretive
jurisdiction over ERISA provisions that
are parallel to the Code provisions ad-
dressed in these regulations. Therefore,
these proposed regulations would apply
for purposes of the parallel rules in section
205(c)(3) of ERISA, as well as for section
417(a)(3) of the Code.
Explanation of Provisions
Consistent with Announcement
2004–58, these proposed regulations
would modify the 2003 regulations to
provide that the 2003 regulations are gen-
erally effective for QJSA explanations
provided with respect to annuity starting
dates beginning on or after February 1,
2006. In the interim, plans that do not
comply with §1.417(a)(3)–1 would be
required to comply with the 1988 regula-
tions regarding disclosure of relative value
and financial effect.
However, the existing effective date un-
der §1.417(a)(3)–1 of the 2003 regulations
is retained for explanations with respect to
any optional form of benefit that is subject
to the requirements of section 417(e)(3)
(e.g., single sums, social security level in-
come options, distributions in the form of
partial single sums in combination with an-
nuities, or installment payment options) if
the actuarial present value of that optional
form is less than the actuarial present value
(as determined under section 417(e)(3))
of the QJSA. Thus, for example, a QJSA
explanation provided with respect to an
annuity starting date beginning on or af-
ter October 1, 2004, must comply with
§1.417(a)(3)–1 to the extent that the plan
provides for payment to that participant in
the form of a single sum that does not re-
flect an early retirement subsidy available
under the QJSA. Where the existing effec-
tive date is retained, the plan must disclose
the relative value of the QJSA for the par-
ticipant even if the plan provides a disclo-
sure of relative values that is not tailored
to the participant’s marital status. Accord-
ingly, if a plan provides a relative value
disclosure based on the single life annu-
ity (the QJSA for a single participant) to
a married participant, the plan must also
include a comparison of the value of the
QJSA to the value of the single life annu-
ity.
The proposed regulations include a spe-
cial rule that would enable a plan to use
the delayed effective date rule even if there
are minor differences between the value
of an optional form and the value of the
QJSA for a married participant that are
caused by the calculation of the amount of
the optional form of benefit based on the
life annuity rather than on the QJSA. Un-
der this special rule, solely for purposes of
the effective date provisions, the actuarial
present value of an optional form is treated
as not being less than the actuarial present
value of the QJSA if the following two
conditions are met. First, using the appli-
cable interest rate and applicable mortal-
ity table under §§1.417(e)–1(d)(2) and (3),
the actuarial present value of that optional
form is not less than the actuarial present
value of the QJSA for an unmarried partic-
ipant. Second, using reasonable actuarial
assumptions, the actuarial present value of
the QJSA for an unmarried participant is
not less than the actuarial present value of
the QJSA for a married participant.
These proposed regulations would also
modify the 2003 regulations in several
other respects. First, for purposes of dis-
closing the normal form of benefit as
February 28, 20056512005–9 I.R.B.

part of a disclosure made in the form of
generally applicable information, reason-
able estimates of the type permitted to
be used to disclose participant-specific
information may be used to determine the
normal form of benefit, but only if the
plan follows the requirements applicable
to reasonable estimates used in disclos-
ing participant-specific information (such
as offering a more precise calculation
upon request and revising previously of-
fered information consistent with the more
precise information). Second, a QJSA
explanation does not fail to satisfy the
requirements for QJSA explanations made
in the form of disclosures of generally
applicable information merely because
the QJSA explanation contains an item of
participant-specific information in place
of the corresponding generally applicable
information.
In addition, the proposed regulations
would modify §1.401(a)–20, Q&A–16, to
clarify the interaction of the rule prohibit-
ing a plan from providing an option to a
married individual that is worth more than
the QJSA with the requirement that certain
optional forms of benefit be calculated us-
ing specified actuarialassumptions. Under
that clarification, a plan would not fail to
satisfy the requirements of §1.401(a)–20,
Q&A–16, merely because the amount
payable under an optional form of benefit
that is subject to the minimum present
value requirement of section 417(e)(3) is
calculated using the applicable interest
rate (and, for periods when required, the
applicable mortality table) under section
417(e)(3).
Dates of Applicability
The changes to §1.401(a)–20, A–36,
and §1.417(a)(3)–1 are proposed to ap-
ply as if they had been included in T.D.
9099 (68 FR 70141). The change to
§1.401(a)–20, Q&A–16, is proposed to
apply as if it had been included in T.D.
8219 (53 FR 31837). Taxpayers may rely
on these proposed regulations for guidance
pending the issuance of final regulations.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore a regulatory as-
sessment is not required. It also has been
determined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C. chap-
ter 5) does not apply to these regulations,
and because the regulation does not im-
pose a collection of information on small
entities, the Regulatory Flexibility Act
(5 U.S.C. chapter 6) does not apply. Pur-
suant to section 7805(f) of the Code, this
notice of proposed rulemaking will be sub-
mitted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on its impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any electronic or writ-
ten comments (preferably a signed origi-
nal and eight (8) copies) that are submitted
timely to the IRS. In addition to the other
requests for comments set forth in this doc-
ument, the IRS and Treasury also request
comments on the clarity of the proposed
rule and how it may be made easier to un-
derstand. All comments will be available
for public inspection and copying. A pub-
lic hearing will be scheduled if one is re-
quested.
Drafting Information
The principal authors of these
regulations are Bruce Perlin and
Linda S.F. Marshall of the Office of the Di-
vision Counsel/Associate Chief Counsel
(Tax Exempt and Government Entities).
However, other personnel from the IRS
and Treasury participated in their devel-
opment.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PART 1—INCOME TAX; TAXABLE
YEARS BEGINNING AFTER
DECEMBER 31, 1986
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.401(a)–20 is amended
by:
1. Adding a sentence to the end of
Q&A–16.
2. Adding a sentence to the end of
Q&A–36.
The additions read as follows:
§1.401(a)–20 Requirements of qualified
joint and survivor annuity and qualified
preretirement survivor annuity.
*****
A–16 * * * A plan does not fail to
satisfy the requirements of this Q&A–16
merely because the amount payable under
an optional form of benefit that is subject
to the minimum present value requirement
of section 417(e)(3) is calculated using the
applicable interest rate (and, for periods
when required, the applicable mortality ta-
ble) under section 417(e)(3).
*****
A–36***However,therulesof
§1.401(a)–20, Q&A–36, as it appeared
in 26 CFR Part 1 revised April 1, 2003,
apply to the explanation of a QJSA under
section 417(a)(3) for an annuity starting
date prior to February 1, 2006.
*****
Par. 3. Section 1.417(a)(3)–1 is
amended by:
1. Removing the language “para-
graph (c)(3)(iii) of ” from paragraph
(c)(2)(ii)(A).
2. Adding a sentence to the end of para-
graph (d)(2)(ii).
3. Adding paragraph (d)(5).
4. Revising paragraph (f).
The additions and revision read as fol-
lows:
§1.417(a)(3)–1 Required explanation of
qualified joint and survivor annuity and
qualified preretirement survivor annuity.
*****
(d)*****
(2)*****
(ii)Actual benefit must be disclosed.
***Reasonableestimatesofthetypede-
scribed in paragraph (c)(3)(i) may be used
to determine the normal form of benefit for
purposes of this paragraph (d)(2)(ii) if the
requirements of paragraphs (c)(3)(ii) and
(iii) of this section are satisfied with re-
spect to those estimates.
*****
(5)Use of participant-specific informa-
tion in generalized notice. A QJSA expla-
nation does not fail to satisfy the require-
ments of this paragraph (d) merely because
2005–9 I.R.B.652February 28, 2005

it contains an item of participant-specific
information in place of the corresponding
generally applicable information.
*****
(f)Effective date—(1)General effective
date for QJSA explanations. Except as
provided in paragraph (f)(2) of this section,
this section applies to a QJSA explanation
with respect to any distribution with an an-
nuity starting date that is on or after Feb-
ruary 1, 2006.
(2)Special effective date for certain
QJSA explanations—(i)Application to
QJSA explanations with respect to cer-
tain optional forms that are less valuable
than the QJSA. This section also applies
to a QJSA explanation with respect to
any distribution with an annuity starting
date that is on or after October 1, 2004,
and before February 1, 2006, if the actu-
arial present value of any optional form of
benefit that is subject to the requirements
of section 417(e)(3) (e.g.,singlesums,
distributions in the form of partial sin-
gle sums in combination with annuities,
social security level income options, and
installment payment options) is less than
the actuarial present value (as determined
under §1.417(e)–1(d)) of the QJSA. For
purposes of this paragraph (f)(2)(i), the
actuarial present value of an optional form
is treated as not less than the actuarial
present value of the QJSA if—
(A) Using the applicable interest rate
and applicable mortality table under
§§1.417(e)–1(d)(2) and (3), the actuarial
present value of that optional form is not
less than the actuarial present value of the
QJSA for an unmarriedparticipant; and
(B) Using reasonable actuarial assump-
tions, the actuarial present value of the
QJSA for an unmarried participant is not
less than the actuarial present value of the
QJSA for a married participant.
(ii)Requirement to disclose differences
in value for certain optional forms.A
QJSA explanation with respect to any dis-
tribution with an annuity starting date that
is on or after October 1, 2004, and before
February 1, 2006, is only required to be
provided under this section with respect
to—
(A) An optional form of benefit that
is subject to the requirements of section
417(e)(3) and that has an actuarial present
value that is less than the actuarial present
value of the QJSA (as described in para-
graph (f)(2)(i) of this section); and
(B) The QJSA (determined without ap-
plication of paragraph (c)(2)(ii) of this sec-
tion).
(3)Annuity starting date. For purposes
of paragraphs (f)(1) and (2) of this section,
in the case of a retroactive annuity starting
date under section 417(a)(7), as described
in §1.417(e)–1(b)(3)(vi), the date of com-
mencement of the actual payments based
on the retroactive annuity starting date is
substituted for the annuity starting date.
(4)Effective date for QPSA explana-
tions. This section applies to any QPSA
explanation providedonorafterJuly1,
2004.
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on January 27,
2005, 8:45 a.m., and published in the issue of the Federal
Register for January 28, 2005, 70 F.R. 4058)
Corrected Information
for Publication 1220,
Specifications for Filing
Forms 1098, 1099, 5498
and W–2G, Electronically
or Magnetically; Revised
September 2004
Announcement 2005–14
The following announcement provides
corrected information for Publication
1220,Specifications for Filing Forms
1098, 1099, 5498 and W–2G, Electroni-
cally or Magnetically, revised September
2004.
•Part A, Sec. 2. Nature of Changes,
.02, (c), (3) should read “The title of
Amount Code2was changed to Ag-
gregate Amount Received.” This state-
ment refers to the Form 1099-CAP and
is correctly recorded in the Payer “A”
Record, Amount Codes in positions
28–41.
•Part A, Sec. 9. Due Dates, .03 and .05
references to postmarked dates should
read March 1,2005and December 1,
2005, respectively.
•In Part D, Standard Payee “B” Record
Format For All Types of Returns, Po-
sitions 1–543, Payment Amount 3, the
positions should be 79 –90.
•In Part D, Record Format Specifica-
tions and Record Layouts for Form
1099-B, Field Position 627–662, the
length of this field should be36posi-
tions.
•When making a correction for a payee
name only, use the one step correction
process found in Part A, Sec. 11.
Please make note of these changes
when submitting information returns for
Tax Year 2004 filing. If you have any
questions, call toll-free 1–866–455–7438.
February 28, 20056532005–9 I.R.B.

Announcement of Disciplinary Actions Involving
Attorneys, Certified Public Accountants, Enrolled Agents,
and Enrolled Actuaries — Suspensions, Censures,
Disbarments, and Resignations
Announcement 2005-15
Under Title 31, Code of Federal Regu-
lations, Part 10, attorneys, certified public
accountants, enrolled agents, and enrolled
actuaries may not accept assistance from,
or assist, any person who is under disbar-
ment or suspension from practice before
the Internal Revenue Service if the assis-
tance relates to a matter constituting prac-
tice before the Internal Revenue Service
and may not knowingly aid or abet another
person to practice before the Internal Rev-
enue Service during a period of suspen-
sion, disbarment, or ineligibility of such
other person.
To enable attorneys, certified public
accountants, enrolled agents, and enrolled
actuaries to identify persons to whom
these restrictions apply, the Director, Of-
fice of Professional Responsibility, will
announce in the Internal Revenue Bulletin
their names, their city and state, their pro-
fessional designation, the effective date
of disciplinary action, and the period of
suspension. This announcement will ap-
pear in the weekly Bulletin at the earliest
practicable date after such action and will
continue to appear in the weekly Bulletins
for five successive weeks.
Consent Disbarments From Practice Before the Internal
Revenue Service
Under Title 31, Code of Federal Regu-
lations, Part 10, an attorney, certified pub-
lic accountant, enrolled agent, or enrolled
actuary, in order to avoid institution or con-
clusion of a proceeding for his or her dis-
barment or suspension from practice be-
fore the Internal Revenue Service, may of-
fer his or her consent to disbarment from
such practice. The Director, Office of Pro-
fessional Responsibility, in his discretion,
may disbar an attorney, certified public ac-
countant, enrolled agent or enrolled actu-
ary in accordance with the consent offered.
The following individuals have been
placed under consent disbarment from
practice before the Internal Revenue Ser-
vice:
NameAddressDesignationDate of Disbarment
O’Connell, Anthony G.Revere, MACPAIndefinite
from
January 5, 2005
2005–9 I.R.B.654February 28, 2005

Suspensions From Practice Before the Internal Revenue
Service After Notice and an Opportunity for a Proceeding
Under Title 31, Code of Federal Reg-
ulations, Part 10, after notice and an op-
portunity for a proceeding before an ad-
ministrative law judge, the following indi-
viduals have been placed under suspension
from practice before the Internal Revenue
Service:
NameAddressDesignationEffective Date
McCarthy III, William P.Sacramento, CAEnrolled AgentSeptember 12, 2004
to
March 10, 2006
Deen, Mae T.Salinas, CAEnrolled AgentOctober 18, 2004
to
April 16, 2006
Adams Jr., Joseph T.Philadelphia,PAEnrolled AgentDecember 1, 2004
to
May 29, 2006
Consent Suspensions From Practice Before the Internal
Revenue Service
Under Title 31, Code of Federal Regu-
lations, Part 10, an attorney, certified pub-
lic accountant, enrolled agent, or enrolled
actuary, in order to avoid institution or con-
clusion of a proceeding for his or her dis-
barment or suspension from practice be-
fore the Internal Revenue Service, may of-
fer his or her consent to suspension from
such practice. The Director, Office of Pro-
fessional Responsibility, in his discretion,
may suspend an attorney, certified public
accountant, enrolled agent or enrolled ac-
tuary in accordance with the consent of-
fered.
The following individuals have been
placed under consent suspension from
practice before the Internal Revenue Ser-
vice:
NameAddressDesignationDate of Suspension
Cornelius, Gerald K.Ventura,CAEnrolled AgentIndefinite
from
September 15, 2004
Janus, Stephen E.Michigan City, INCPAIndefinite
from
October 25, 2004
Arotsky, Marvin A.New Haven, CTCPAIndefinite
from
December 1, 2004
Penta, RichardHamilton, MACPAIndefinite
from
January 1, 2005
February 28, 20056552005–9 I.R.B.

NameAddressDesignationDate of Suspension
Bedell, Michael F.Ridge, NYCPAIndefinite
from
January 7, 2005
Nussbaum, JerroldAnnapolis, MDAttorneyIndefinite
from
April 15, 2005
Expedited Suspensions From Practice Before the Internal
Revenue Service
Under Title 31, Code of Federal Regu-
lations, Part 10, the Director, Office of Pro-
fessional Responsibility, is authorized to
immediately suspend from practice before
the Internal RevenueService any practi-
tioner who, within five years from the date
the expedited proceeding is instituted (1)
has had a license to practice as an attor-
ney, certified public accountant, or actuary
suspended or revoked for cause or (2) has
been convicted of certain crimes.
The following individuals have been
placed under suspension from practice be-
fore the Internal Revenue Service by virtue
of the expedited proceeding provisions:
NameAddressDesignationDate of Suspension
Whitworth, Douglas D.Houston, TXCPAIndefinite
from
October 28, 2004
Lindberg, William D.Costa Mesa, CACPAIndefinite
from
November 4, 2004
Tompkins, Thomas M.Chickasaw, ALAttorneyIndefinite
from
November 4, 2004
Peterson Jr., Theodore ECharlotte, NCCPAIndefinite
from
November 4, 2004
Gassiott, William E.Cypress, TXCPAIndefinite
from
November 4, 2004
Wagar Jr., John E.Lafayette, LAAttorneyIndefinite
from
November 9, 2004
Fiore, Owen G.Kooskia, IDAttorneyIndefinite
from
November 30, 2004
O’Keefe, Michael H.Beaumont, TXAttorneyIndefinite
from
November 30, 2004
Ivker, Richard N.Waltham, MAAttorneyIndefinite
from
November 30, 2004
2005–9 I.R.B.656February 28, 2005

NameAddressDesignationDate of Suspension
Jones, Edwin A.Robards,KYAttorneyIndefinite
from
November 30, 2004
Landis, John C.Drexel Hill, PAAttorneyIndefinite
from
November 30, 2004
Cushman, Christopher A.Kansas City, MOAttorneyIndefinite
from
November 30, 2004
Weiner, Alan S.Rockville, MDAttorneyIndefinite
from
November 30, 2004
Virdone, Peter P.Kailua, HICPAIndefinite
from
November 30, 2004
Doherty, Paul M.N. Billerica, MAAttorneyIndefinite
from
December 3, 2004
Carney, Kevin F.Woburn, MAAttorneyIndefinite
from
December 3, 2004
Greiner, ThomasCleveland, OHAttorneyIndefinite
from
December 8, 2004
Wertis, Richard L.Garden City, NYAttorneyIndefinite
from
December 10, 2004
Southerland, Harry L.Raeford, NCAttorneyIndefinite
from
December 10, 2004
Chestnutt, A. JohnsonFayetteville, NCCPAIndefinite
from
December 13, 2004
Heald, Arthur A.Saint Albans, VTAttorneyIndefinite
from
December 10, 2004
Culliton, James M.Santa Clarita, CAAttorneyIndefinite
from
December 15, 2004
Juarez, Michael G.Douglas,AZAttorneyIndefinite
from
December 15, 2004
Clark, Carroll A.Mesa, AZAttorneyIndefinite
from
December 15, 2004
February 28, 20056572005–9 I.R.B.

NameAddressDesignationDate of Suspension
Creque, George AWillow Springs, CAAttorneyIndefinite
from
December 15, 2004
Younts, Roger W.Lexington, NCCPAIndefinite
from
December 15, 2004
Kluge, David R.Sheridan, ORAttorneyIndefinite
from
December 15, 2004
Fanaras, Andrew R.Haverhill, MAAttorneyIndefinite
from
December 15, 2004
Murphy, Patrick B.Alhambra, CAAttorneyIndefinite
from
December 20, 2004
Mills, Stuart B.Pender, NEAttorneyIndefinite
from
December 20, 2004
North, Gerald D.W.Chicago, ILAttorneyIndefinite
from
December 20, 2004
Nickel, Warren J.Tinley Park, ILAttorneyIndefinite
from
December 20, 2004
Gray, Douglas C.Dover, NHAttorneyIndefinite
from
December 20, 2004
Emmons, Kyle D.Columbia, MOAttorneyIndefinite
from
December 20, 2004
Velella, Guy J.Bronx, NYAttorneyIndefinite
from
December 30, 2004
Ginn, Jeffrey S.Lexington, KYCPAIndefinite
from
January 25, 2005
Grenrood Jr., BernardWest Monroe, LAAttorneyIndefinite
from
January 25, 2005
Tehin Jr., NikolaiSan Francisco, CAAttorneyIndefinite
from
January 25, 2005
Kemper, Morris B.Alameda, CAAttorneyIndefinite
from
January 25, 2005
Harrison, John S.Oakland, CAAttorneyIndefinite
from
January 25, 2005
2005–9 I.R.B.658February 28, 2005

NameAddressDesignationDate of Suspension
Mangurten, Irvin B.Buffalo Grove, ILCPAIndefinite
from
January 27, 2005
Zivin, Mitchell W.Long Grove, ILAttorneyIndefinite
from
February 7, 2005
Zdon, John N.Chicago, ILAttorneyIndefinite
from
February 7, 2005
Lokietz, David S.Mount Dora, FLCPAIndefinite
from
February 7, 2005
Heldrich Jr., Gerard C.Lincolnshire, ILAttorneyIndefinite
from
February 7, 2005
Whitaker, Paul M.Albany,NYAttorneyIndefinite
from
February 18, 2005
Blake, Linda D.Bellvale,NYAttorneyIndefinite
from
February 18, 2005
Smith, H. PaulSan Antonio, TXAttorneyIndefinite
from
February 18, 2005
Atwood, Adina A.Ardmore, OKAttorneyIndefinite
from
February 18, 2005
Sablone Jr., Francis R.Old Lyme, CTAttorneyIndefinite
from
February 18, 2005
Phelps, S. DonOlympia, WAAttorneyIndefinite
from
February 18, 2005
Davidson, FrazierBronx, NYAttorneyIndefinite
from
February 18, 2005
February 28, 20056592005–9 I.R.B.

Censure Issued by Consent
Under Title 31, Code of Federal Reg-
ulations, Part 10, in lieu of a proceeding
being instituted or continued, an attorney,
certified public accountant, enrolled agent,
or enrolled actuary, may offer his or her
consent to the issuance of a censure. Cen-
sure is a public reprimand.
The following individuals have con-
sented to the issuance of a Censure:
NameAddressDesignationDate of Censure
Dorris, Virginia A.Bradenton, FLEnrolled AgentDecember 14, 2004
Mackey, Glen N.Roanoke, VAAttorneyDecember 21, 2004
Deletions From Cumulative
List of Organizations
Contributions to Which
are Deductible Under Section
170 of the Code
Announcement 2005–18
The names of organizations that no
longer qualify as organizations described
in section 170(c)(2) of the Internal Rev-
enue Code of 1986 are listed below.
Generally, the Service will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the Service is not
precluded from disallowing a deduction
for any contributions made after an or-
ganization ceases to qualify under section
170(c)(2) if the organization has not timely
filed a suit for declaratory judgment under
section 7428 and if the contributor (1) had
knowledge of the revocation of the ruling
or determination letter, (2) was aware that
such revocation was imminent, or (3) was
in part responsible for or was aware of the
activities or omissions of the organization
that brought about this revocation.
If on the other hand a suit for declara-
tory judgment has been timely filed, con-
tributions from individuals and organiza-
tions described in section 170(c)(2) that
are otherwise allowable will continue to
be deductible. Protection under section
7428(c) would begin on March 18, 2002,
and would end on the date the court first
determines that the organization is not de-
scribed in section 170(c)(2) as more partic-
ularly set forth in section 7428(c)(1). For
individual contributors, the maximum de-
duction protected is $1,000, with a hus-
band and wife treated as one contributor.
This benefit is not extended to any indi-
vidual, in whole or in part, for the acts or
omissions of the organization that were the
basis for revocation.
A Better Way Credit Counseling, Inc.
Greenacres, FL
Allen’s Pre-School and Day Care, Inc.
Murray, UT
2005–9 I.R.B.660February 28, 2005

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations
to show that the previous published 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 fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
February 28, 2005i2005–9 I.R.B.

Numerical Finding List
1
Bulletins 2005–1 through 2005–9
Announcements:
2005-1, 2005-1 I.R.B.257
2005-2, 2005-2 I.R.B.319
2005-3, 2005-2 I.R.B.270
2005-4, 2005-2 I.R.B.319
2005-5, 2005-3 I.R.B.353
2005-6, 2005-4 I.R.B.377
2005-7, 2005-4 I.R.B.377
2005-8, 2005-4 I.R.B.380
2005-9, 2005-4 I.R.B.380
2005-10, 2005-5 I.R.B.450
2005-11, 2005-5 I.R.B.451
2005-12, 2005-7 I.R.B.555
2005-13, 2005-8 I.R.B.627
2005-14, 2005-9 I.R.B.653
2005-15, 2005-9 I.R.B.654
2005-18, 2005-9 I.R.B.660
Notices:
2005-1, 2005-2 I.R.B.274
2005-2, 2005-3 I.R.B.337
2005-3, 2005-5 I.R.B.447
2005-4, 2005-2 I.R.B.289
2005-5, 2005-3 I.R.B.337
2005-6, 2005-5 I.R.B.448
2005-7, 2005-3 I.R.B.340
2005-8, 2005-4 I.R.B.368
2005-9, 2005-4 I.R.B.369
2005-10, 2005-6 I.R.B.474
2005-11, 2005-7 I.R.B.493
2005-12, 2005-7 I.R.B.494
2005-13, 2005-9 I.R.B.630
2005-14, 2005-7 I.R.B.498
2005-15, 2005-7 I.R.B.527
2005-16, 2005-8 I.R.B.605
2005-17, 2005-8 I.R.B.606
2005-18, 2005-9 I.R.B.634
2005-19, 2005-9 I.R.B.634
2005-20, 2005-9 I.R.B.635
Proposed Regulations:
REG-117969-00, 2005-7 I.R.B.533
REG-125628-01, 2005-7 I.R.B.536
REG-129709-03, 2005-3 I.R.B.351
REG-148867-03, 2005-9 I.R.B.646
REG-130370-04, 2005-8 I.R.B.608
REG-139683-04, 2005-4 I.R.B.371
REG-152914-04, 2005-9 I.R.B.650
REG-152945-04, 2005-6 I.R.B.484
REG-159824-04, 2005-4 I.R.B.372
Revenue Procedures:
2005-1, 2005-1 I.R.B.1
2005-2, 2005-1 I.R.B.86
2005-3, 2005-1 I.R.B.118
2005-4, 2005-1 I.R.B.128
2005-5, 2005-1 I.R.B.170
2005-6, 2005-1 I.R.B.200
2005-7, 2005-1 I.R.B.240
2005-8, 2005-1 I.R.B.243
2005-9, 2005-2 I.R.B.303
2005-10, 2005-3 I.R.B.341
2005-11, 2005-2 I.R.B.307
2005-12, 2005-2 I.R.B.311
2005-14, 2005-7 I.R.B.528
2005-15, 2005-9 I.R.B.638
Revenue Rulings:
2005-1, 2005-2 I.R.B.258
2005-2, 2005-2 I.R.B.259
2005-3, 2005-3 I.R.B.334
2005-4, 2005-4 I.R.B.366
2005-5, 2005-5 I.R.B.445
2005-6, 2005-6 I.R.B.471
2005-7, 2005-6 I.R.B.464
2005-8, 2005-6 I.R.B.466
2005-9, 2005-6 I.R.B.470
2005-10, 2005-7 I.R.B.492
2005-12, 2005-9 I.R.B.628
Tax Conventions:
2005-3, 2005-2 I.R.B.270
Treasury Decisions:
9164, 2005-3 I.R.B.320
9165, 2005-4 I.R.B.357
9166, 2005-8 I.R.B.558
9167, 2005-2 I.R.B.261
9168, 2005-4 I.R.B.354
9169, 2005-5 I.R.B.381
9170, 2005-4 I.R.B.363
9171, 2005-6 I.R.B.452
9172, 2005-6 I.R.B.468
9173, 2005-8 I.R.B.557
9174, 2005-9 I.R.B.629
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2004–27 through 2004–52 is in Internal Revenue Bulletin
2004–52, dated December 27, 2004.
2005–9 I.R.B.iiFebruary 28, 2005

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2005–1 through 2005–9
Notices:
88-30
Obsoleted by
Notice 2005-4, 2005-2 I.R.B.289
88-132
Obsoleted by
Notice 2005-4, 2005-2 I.R.B.289
89-29
Obsoleted by
Notice 2005-4, 2005-2 I.R.B.289
89-38
Obsoleted by
Notice 2005-4, 2005-2 I.R.B.289
2004-80
Updated by
Notice 2005-17, 2005-8 I.R.B.606
Proposed Regulations:
REG-149519-03
Corrected by
Ann. 2005-11, 2005-5 I.R.B.451
REG-114726-04
Corrected by
Ann. 2005-10, 2005-5 I.R.B.450
Revenue Procedures:
98-16
Modified and superseded by
Rev. Proc. 2005-11, 2005-2 I.R.B.307
2001-22
Superseded by
Rev. Proc. 2005-12, 2005-2 I.R.B.311
2002-9
Modified and amplified by
Rev. Proc. 2005-9, 2005-2 I.R.B.303
2004-1
Superseded by
Rev. Proc. 2005-1, 2005-1 I.R.B.1
2004-2
Superseded by
Rev. Proc. 2005-2, 2005-1 I.R.B.86
2004-3
Superseded by
Rev. Proc. 2005-3, 2005-1 I.R.B.118
2004-4
Superseded by
Rev. Proc. 2005-4, 2005-1 I.R.B.128
Revenue Procedures— Continued:
2004-5
Superseded by
Rev. Proc. 2005-5, 2005-1 I.R.B.170
2004-6
Superseded by
Rev. Proc. 2005-6, 2005-1 I.R.B.200
2004-7
Superseded by
Rev. Proc. 2005-7, 2005-1 I.R.B.240
2004-8
Superseded by
Rev. Proc. 2005-8, 2005-1 I.R.B.243
2004-18
Obsoleted in part by
Rev. Proc. 2005-15, 2005-9 I.R.B.638
2004-35
Corrected by
Ann. 2005-4, 2005-2 I.R.B.319
2004-60
Superseded by
Rev. Proc. 2005-10, 2005-3 I.R.B.341
Revenue Rulings:
92-63
Modified and superseded by
Rev. Rul. 2005-3, 2005-3 I.R.B.334
95-63
Modified and superseded by
Rev. Rul. 2005-3, 2005-3 I.R.B.334
2004-43
Revoked by
Rev. Rul. 2005-10, 2005-7 I.R.B.492
2004-103
Superseded by
Rev. Rul. 2005-3, 2005-3 I.R.B.334
Treasury Decisions:
9170
Corrected by
Ann. 2005-13, 2005-8 I.R.B.627
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2004–27 through 2004–52 is in Internal Revenue Bulletin 2004–52, dated December 27,
2004.
February 28, 2005iii2005–9 I.R.B.

INDEX
Internal Revenue Bulletins 2005–1 through
2005–9
The abbreviation and number in parenthesis following the index entry
refer to the specific item; numbers in roman and italic type following
the parentheses refer to the Internal Revenue Bulletin in which the item
may be found and the page number on which it appears.
Key to Abbreviations:
AnnAnnouncement
CDCourt Decision
DODelegation Order
EOExecutive Order
PLPublic Law
PTEProhibited Transaction Exemption
RPRevenue Procedure
RRRevenue Ruling
SPRStatement of Procedural Rules
TCTax Convention
TDTreasury Decision
TDOTreasury Department Order
EMPLOYEE PLANS
Corporations, prohibited allocations of securities in an S corpo-
ration (TD 9164) 3,320; (REG–129709–03) 3,351
Determination letters, issuing procedures (RP 6) 1,200
Full funding limitations, weighted average interest rate for:
January 2005 (Notice 9) 4,369
February 2005 (Notice 19) 9,634
Health Insurance Portability and Accountability Act of 1996
(HIPAA):
Interaction with FMLA (REG–130370–04) 8,608
Portability rules (TD 9166) 8,558
Letter rulings:
And determination letters, areas which will not be issued
from:
Associates Chief Counsel and Division Counsel (TE/GE)
(RP 3) 1,118
Associate Chief Counsel (International ) (RP 7) 1,240
And information letters, procedures (RP 4) 1,128
User fees, request for letter rulings (RP 8) 1,243
Nonqualified deferred compensation, new section 409A (Notice
1) 2,274
Proposed Regulations:
26 CFR 1.401(a)–20, amended; 1.417(a)(3)–1, amended;
disclosure of relative values of optional forms of benefit
(REG–152914–04) 9,650
26 CFR 1.409(p)–1, added; prohibited allocations of securi-
ties in an S corporation (REG–129709–03) 3,351
26 CFR 54.9801–1, –2, –4, –5, –6, amended; 54.9801–7,
added; 54.9831–1, amended; health coverage portability,
tolling certain time periods and interaction with the Fam-
ily and Medical Leave Act Under HIPAA Titles I & IV
(REG–130370–04) 8,608
EMPLOYEE PLANS—Cont.
Qualified retirement plans:
Automatic rollover, model language (Notice 5) 3,337
Benefits during phased retirement, REG–114726–04, hearing
(Ann 10) 5,450
Cash or deferred arrangements under section 401(k), match-
ing contributions or employee contributions under section
401(m) (TD 9169) 5,381
Disclosure of relative values of optional forms of benefit
(REG–152914–04) 9,650
Regulations:
26 CFR 1.401(k)–0, –1, revised; 1.401(k)–2 thru –6, added;
1.401(m)–0 thru –2, revised; 1.401(m)–3 thru –5, added;
1.410(b)–3, revised; 602.101, revised; cash or deferred ar-
rangements under section 401(k) and matching contribu-
tions or employee contributions under section 401(m) reg-
ulations (TD 9169) 5,381
26 CFR 1.409(p)–1T, revised; prohibited allocations of secu-
rities in an S corporation (TD 9164) 3,320
26 CFR 54.9801–1 thru –6, added; 54.9801–1T thru –6T,
removed; 54.9831–1, added; 54.9831–1T, removed;
54.9833–1, added; 54.9833–1T, removed; 602.101,
amended; health coverage portability for group health
plans and group health insurance issuers under HIPAA
Titles I & IV (TD 9166) 8,558
Technical advice to IRS employees (RP 5) 1,170
EMPLOYMENT TAX
Form W-2, 2005, new code Z, Box 12 (Ann 5) 3,353
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions (RP
1) 1,1
Partnership’s contributions to partner’s Health Savings Account
(HSA), S corporation’s contributions to HSAs of 2-percent
shareholder-employees (Notice 8) 4,368
Proposed Regulations:
26 CFR 31.3401(a)–1, –4, amended; 31.3402(g)–1, (j)–1,
amended; 31.3402(n)–1, revised; flat rate supplemental
wage withholding (REG–152945–04) 6,484
Regulations:
26 CFR 31.3121(b)(2)–1, revised; 31.3121(b)(10)–2,
amended; 31.3306(c)(10)–2, amended; student FICA
exception (TD 9167) 2,261
Student FICA exception:
Application under sections 3121(b)(10) and 3306(c)(10)(B)
(TD 9167) 2,261
Treatment of amounts paid by certain institutions of higher
education (RP 11) 2,307
Technical Advice Memoranda (TAMs) and Technical Expedited
Advice Memoranda (TEAMs) (RP 2) 1,86
Withholding, supplemental wages (REG–152945–04) 6,484
2005–9 I.R.B.ivFebruary 28, 2005

ESTATE TAX
Gross estate, election to value on alternate valuation date (TD
9172) 6,468
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions (RP
1) 1,1
Regulations:
26 CFR 20.2032–1, revised; 301.9100–6T, amended; gross
estate, election to value on alternate valuation date (TD
9172) 6,468
Technical Advice Memoranda (TAMs) and Technical Expedited
Advice Memoranda (TEAMs) (RP 2) 1,86
EXCISE TAX
Alcohol and biodiesel fuels, aviation grade kerosene, sales of
gasoline to state and local governments and nonprofit organi-
zations (Notice 4) 2,289
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions (RP
1) 1,1
Technical Advice Memoranda (TAMs) and Technical Expedited
Advice Memoranda (TEAMs) (RP 2) 1,86
EXEMPT ORGANIZATIONS
Annual notice to donors regarding pending and settled declara-
tory judgment suits (Ann 1) 1,257
Declaratory judgment suits (Ann 9) 4,380
Fees for copies of publicly available exempt organization mate-
rial (TD 9173) 8,557
Letter rulings:
And determination letters, areas which will not be issued
from, Associates Chief Counsel and Division Counsel
(TE/GE) (RP 3) 1,118
And information letters, procedures (RP 4) 1,128
User fees, request for letter rulings (RP 8) 1,243
List of organizations classified as private foundations (Ann 7) 4,
377
Regulations:
26 CFR 301.6104(a), (b), (d), amended; authority to charge
fees for furnishing copies of exempt organizations’ material
open to public inspection (TD 9173) 8,557
Revocations (Ann 8) 4,380;(Ann18)9,660
Technical advice to IRS employees (RP 5) 1,170
GIFT TAX
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions (RP
1) 1,1
Technical Advice Memoranda (TAMs) and Technical Expedited
Advice Memoranda (TEAMs) (RP 2) 1,86
INCOME TAX
Accounting methods, change to a method provided in sections
1.263(a)–4, 1.263(a)–5, and 1.167(a)–3(b) (RP 9) 2,303
Annual notice to donors regarding pending and settled declara-
tory judgment suits (Ann 1) 1,257
Archer MSAs, 2004 not a cut-off year (Ann 12) 7,555
Bankruptcy, definition of “pending” (RR 9) 6,470
Corporations:
Clarification of section 1374 effective dates, S corpora-
tions (TD 9170) 4,363;correction(Ann13)8,627;
(REG–139683–04) 4,371
Controlled foreign corporations, dividends received deduc-
tion under section 965 (Notice 10) 6,474
S corporation, relief for late shareholders, Rev. Proc.
2004–35, correction (Ann 4) 2,319
Statutory mergers and consolidations pursuant to for-
eign law involving one or more foreign corporations
(REG–125628–01) 7,536
Transfers of assets or stock following a reorganization
(REG–117969–00) 7,533
Credits:
Low-income housing credit:
2005 population figures used for calculation (Notice 16) 8,
605
Satisfactory bond, “bond factor” amounts for the period:
January through March 2005 (RR 1) 2,258
New markets tax credit (TD 9171) 6,452
Declaratory judgment suits (Ann 9) 4,380
Disciplinary actionsinvolving attorneys,certified public accoun-
tants, enrolled agents and enrolled actuaries (Ann 2) 2,319;
(Ann 15) 9,654
Disclosure of returns and return information, written contracts
or agreements, acquisition of property and services for tax ad-
ministration (REG–148867–03) 9,646
Disguised sales, section 707, REG–149519–03, correction (Ann
11) 5,451
Domestic production activities, income attributable to (Notice
14) 7,498
Form 656, Offer in Compromise, revision, check-the-box (Ann
6) 4,377
Income tax liability, substantial understatement, addition to tax
(TD 9174) 9,629
Information reporting for acquisitions (Notice 7) 3,340
Insurance companies, tentative differential earnings rate (Notice
18) 9,634
Insurance contract defined (RR 6) 6,471
Interest:
Investment:
Federal short-term, mid-term, and long-term rates for:
January 2005 (RR 2) 2,259
February 2005 (RR 8) 6,466
Suspension applicability toamended returns (RR 4) 4,366
Interim guidance under new amendments to sections 6111, 6112,
and 6708, extension of time in Notice 2004–80 (Notice 17) 8,
606
February 28, 2005v2005–9 I.R.B.

INCOME TAX—Cont.
Inventory:
LIFO, price indexes used by department stores for:
November 2004 (RR 5) 5,445
December 2004 (RR 12) 9,628
Letter rulings:
And determination letters, areas which will not be issued
from:
Associates Chief Counsel and Division Counsel (TE/GE)
(RP 3) 1,118
Associate Chief Counsel (International ) (RP 7) 1,240
And information letters issued by Associate Offices, determi-
nation letters issued by Operating Divisions (RP 1) 1,1
Like-kind exchange of a principal residence (RP 14) 7,528
Net operating losses (Notice 20) 9,635
Nonqualified deferred compensation, new section 409A (Notice
1) 2,274
Optional 10-year writeoff, rules governing the time and manner
for making and revoking an election under section 59(e) (TD
9168) 4,354
Partnerships:
Assets-over partnership merger, gain or loss (RR 10) 7,492
Partner’s distributive share, mergers (Notice 15) 7,527
Partnership’s contributions to partner’s Health Savings Ac-
count (HSA), S corporation’s contributions to HSAs of
2-percent shareholder-employees (Notice 8) 4,368
Per diem allowances updated, 2005 (RP 10) 3,341
Practice before the Internal Revenue Service:
Best practices (TD 9165) 4,357
State or local bond opinions (REG–159824–04) 4,372
Pre-Filing Agreement (PFA) (RP 12) 2,311
Presidentially declared disasters, like-kind exchanges affected by
(Notice 3) 5,447
Private foundations, organizations now classified as (Ann 7) 4,
377
Proposed Regulations:
26 CFR 1.358–1, –6, amended; 1.367(a)–3, –8, amended;
1.367(b)–1, –3, –4, –6, revised; 1.367(b)–13, added;
1.884–2, amended; 1.884–2T, revised; revision of income
tax regulations under sections 358, 367, and 884 dealing
with statutory mergers or consolidations under section
368(a)(1)(A) involving one or more foreign corporations
(REG–125628–01) 7,536
26 CFR 1.368–2(b), amended; statutory mergers and consol-
idations (REG–117969–00) 7,533
26 CFR 1.1374–8, –10, amended; section 1374 effective dates
(REG–139683–04) 4,371
26 CFR 301.6103(n)–1, revised; disclosure of returns and
return information in connection with written contracts or
agreements for the acquisition of property and services for
tax administration purposes (REG–148867–03) 9,646
31 CFR 10.35, amended; 10.36, 10.38, revised; 10.39, added;
10.52, revised; regulations governing practice before the
Internal Revenue Service (REG–159824–04) 4,372
Publication 1220, changes affecting tax year 2004 filing of infor-
mation returns (Ann 14) 9,653
INCOME TAX—Cont.
Qualified mortgage bonds and mortgage credit certificates, aver-
age area and nationwide housing purchase prices for 2005 (RP
15) 9,638
Regulated investment company, application of look-through rule
to ownership of shares by segregated asset accounts (RR 7) 6,
464
Regulations:
26 CFR 1.45D–1, added; 1.45D–1T, removed; 602.101, re-
vised; new markets tax credit (TD 9171) 6,452
26 CFR 1.59–1, added; 602.101, amended; optional 10-year
writeoff of certain tax preferences (TD 9168) 4,354
26 CFR 1.488–1T, revised; 1.6661–1 thru –6, removed;
602.101, amended; substantial understatement of income
tax liability (TD 9174) 9,629
26 CFR 1.1374–8, –10, amended; 1.1374–8T, –10T, added;
section 1374 effective dates (TD 9170) 4,363; correction
(Ann 13) 8,627
31 CFR 10.33, amended; 10.35 thru 10.38, added; 10.52,
amended; regulations governing practice before the Inter-
nal Revenue Service (TD 9165) 4,357
Reportable transaction understatement, penalty, special rule for
amended returns, disqualified tax advisor (Notice 12) 7,494
Revocations, exempt organizations (Ann 8) 4,380;(Ann18)9,
660
Section 901(j)(5) Presidential waiver, section 901(j)(1) no longer
applies to Libya (RR 3) 3,334
Stock, exchange of securities of foreign corporation, domestic
corporation (Notice 6) 5,448
Tax conventions, U.S. and Swiss pension plans for tax treaty ben-
efits, agreement (Ann 3) 2,270
Tax-exempt leasing involving defeasance (Notice 13) 9,630
Technical Advice Memoranda (TAMs) and Technical Expedited
Advice Memoranda (TEAMs) (RP 2) 1,86
Tonnage tax regime, election (Notice 2) 3,337
Undisclosed reportable transactions, assertion of penalty (Notice
11) 7,493
SELF-EMPLOYMENT TAX
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions (RP
1) 1,1
Partnership’s contributions to partner’s Health Savings Account
(HSA), S corporation’s contributions to HSAs of 2-percent
shareholder-employees (Notice 8) 4,368
Technical Advice Memoranda (TAMs) and Technical Expedited
Advice Memoranda (TEAMs) (RP 2) 1,86
2005–9 I.R.B.viFebruary 28, 2005

February 28, 20052005–9 I.R.B.

2005–9 I.R.B.February 28, 2005

February 28, 20052005–9 I.R.B.

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