Internal Revenue Bulletin 2019-40 (PDF rendition): IRS Revenue Rulings

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Bulletin No. 2019–40
September 30, 2019
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.
EXEMPT ORGANIZATIONS
REG-102508-16, page 777.
This document contains proposed regulations that would up-
date information reporting regulations under section 6033
that are generally applicable to organizations exempt from
tax under section 501(a) to reflect statutory amendments
and certain grants of reporting relief announced through sub-
regulatory guidance that have been made since the current
regulations were adopted, particularly with respect to tax-ex-
empt organizations required to file an annual Form 990 or
990-EZ information return.
INCOME TAX
REG-125710-18, page 785.
These proposed regulations provide guidance under section
382(h) regarding the calculation of built-in gains and losses
that are attributable to the period preceding a corporation’s
ownership change. Built-in gains and losses affect the amount
of losses and deductions that a corporation can claim after
an ownership change. The proposed regulations (i) simplify
the application of section 382 and provide more certainty
to taxpayers in determining built-in gains and losses for sec-
tion 382(h) purposes, and (ii) ensure that difficult questions
regarding the application of Tax Cuts and Jobs Act of 2017
provisions do not unnecessarily complicate application of
section 382(h). In particular, the proposed regulations pro-
vide general rules and definitions regarding the calculation
of net unrealized built-in gains and loss and identification of
items that constitute recognized built-in gain or loss.
REV RUL 2019-22, page 776.
Fringe benefits aircraft valuation formula. For purposes of
section 1.61-21(g) of the Income Tax Regulations, relating to
the rule for valuing non-commercial flights on employer-pro-
vided aircraft, the Standard Industry Fare Level (SIFL) cents-
per-mile rates and terminal charge in effect for the second
half of 2019 are set forth.
Finding Lists begin on page ii.

The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and en-
force the law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing of-
ficial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of inter-
nal management are not published; however, statements of
internal practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service
on the application of the law to the pivotal facts stated in
the revenue ruling. In those based on positions taken in rul-
ings to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
September 30, 2019 Bulletin No. 2019–40

Part I
Section 61. Gross Income
Defined
26 CFR 1.61-21: Taxation of fringe benefits.
Rev. Rul. 2019-22
For purposes of the taxation of fringe
benefits under section 61 of the Internal Rev-
enue Code, section 1.61-21(g) of the Income
Tax Regulations provides a rule for valuing
noncommercial flights on employer-provid-
ed aircraft. Section 1.61-21(g)(5) provides
an aircraft valuation formula to determine
the value of such flights. The value of a
flight is determined under the base aircraft
valuation formula (also known as the Stan-
dard Industry Fare Level formula or SIFL)
by multiplying the SIFL cents-per-mile rates
applicable for the period during which the
flight was taken by the appropriate aircraft
multiple provided in section 1.61-21(g)(7)
and then adding the applicable terminal
charge. The SIFL cents-per-mile rates in the
formula and the terminal charge are calcu-
lated by the Department of Transportation
and are reviewed semi-annually.
The following chart sets forth the ter-
minal charge and SIFL mileage rates:
Period During Which
the Flight Is Taken
Terminal
Charge
SIFL Mileage
Rates
7/1/19 - 12/31/19$42.46Up to 500 miles
= $.2322 per mile
501-1500 miles
= $.1771 per mile
Over 1500 miles
= $.1702 per mile
DRAFTING INFORMATION
The principal author of this revenue
ruling is Kathleen Edmondson of the Of-
fice of Associate Chief Counsel (Employ-
ee Benefits, Exempt Organizations and
Employment Taxes). For further informa-
tion regarding this revenue ruling, contact
Ms. Edmondson at (202) 317-6798 (not a
toll-free number).
September 30, 2019 776 Bulletin No. 2019–40

Part IV
Notice of Proposed
Rulemaking
Guidance Under Section
6033 Regarding the
Reporting Requirements of
Exempt Organizations
REG-102508-16
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing.
SUMMARY: This document contains
proposed regulations that would update
information reporting regulations under
section 6033 that are generally applicable
to organizations exempt from tax under
section 501(a) to reflect statutory amend-
ments and certain grants of reporting re-
lief announced through subregulatory
guidance that have been made since the
current regulations were adopted, particu-
larly with respect to tax-exempt organiza-
tions required to file an annual Form 990
or 990-EZ information return.
DATES: Written or electronic comments
and requests for a public hearing must be
received by December 9, 2019.
ADDRESSES: Submit electronic sub-
missions via the Federal eRulemaking
Portal at http://www.regulations.gov/ (in-
dicate IRS REG-102508-16) by follow-
ing the online instructions for submitting
comments. Once submitted to the Federal
eRulemaking Portal, comments cannot be
edited or withdrawn. The Department of
the Treasury (Treasury Department) and
the IRS will publish for public availabil-
ity any comment submitted to its public
docket, whether submitted electronically
or in hard copy. Send hard copy submis-
sions to: CC:PA:LPD:PR (REG-102508-
16), Room 5203, Internal Revenue Ser-
vice, P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may
be hand-delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m. to
CC:PA:LPD:PR (REG-102508-16), Cou-
rier’s Desk, Internal Revenue Service,
1111 Constitution Avenue NW, Washing-
ton, DC, 20224.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Office of the Associate Chief
Counsel (Employee Benefits, Exempt Or-
ganizations, and Employment Taxes) at
(202) 317-3150; concerning submissions
of comments and requests for a public
hearing, Regina Johnson at (202) 317-
6901 (not toll-free numbers), fdms.data-
base@irscounsel.treas.gov.
SUPPLEMENTARY INFORMATION:
Background
The paragraphs of section 6033 of the
Internal Revenue Code (Code) outline var-
ious requirements for an annual informa-
tion return to be filed by organizations that
are exempt from tax under section 501(a)
or described in section 527, including ex-
ceptions to the filing requirement. Section
6033(a)(1) requires certain organizations
that are exempt from tax under section
501(a) (“tax-exempt organizations”) to
file annual information returns that in-
clude gross income, receipts and disburse-
ments, and “such other information for the
purpose of carrying out the internal reve-
nue laws as the Secretary may by forms
or regulations prescribe.” The annual in-
formation returns required under section
6033 are Forms 990, “Return of Organiza-
tion Exempt From Income Tax;” 990-EZ,
“Short Form Return of Organization Ex-
empt From Income Tax;” 990-PF, “Return
of Private Foundation;” and 990-BL, “In-
formation and Initial Excise Tax Return
for Black Lung Benefit Trusts and Certain
Related Persons.” Annual returns filed by
tax-exempt organizations, tax-exempt po-
litical organizations described in section
527(e) (“section 527 organizations”), and
nonexempt private foundations described
in section 6033(d) and section 4947(a)(1)
trusts (which are both treated as section
501(c)(3) organizations for this purpose)
are information returns intended to help
ensure that the filing organizations com-
ply with applicable federal tax laws. Addi-
tionally, most information on these annual
returns under section 6104 of the Code is
available for public inspection.
Section 6033(a)(3) provides a list of
organizations that are excepted from the
filing requirements imposed under section
6033(a)(1). Specifically, section 6033(a)
(3)(A)(ii) provides that section 6033(a)(1)
shall not apply to any organization (other
than a private foundation) that is described
in section 6033(a)(3)(C) whose gross re-
ceipts are not normally more than $5,000
annually. The list of organizations pro-
vided in section 6033(a)(3)(C) includes
certain fraternal beneficiary societies, or-
ders or associations described in section
501(c)(8); certain organizations described
in section 501(c)(3) (such as religious or-
ganizations and educational organizations
described in section 170(b)(1)(A)(ii)); and
organizations described in section 501(c)
(1) that are corporations wholly owned by
the United States or any agency or instru-
mentality thereof or wholly-owned sub-
sidiaries of such corporations.
Section 6033(a)(3)(B) provides dis-
cretionary authority to the Secretary to
relieve any organization required to file
under section 6033(a)(1) (other than sup-
porting organizations described in section
509(a)(3)) from filing an information re-
turn where he determines that such filing
is “not necessary to the efficient adminis-
tration of the internal revenue laws.”
Section 6033(b) provides a list of items
that are required to be furnished annu-
ally by organizations described in sec-
tion 501(c)(3), “at such time and in such
manner as the Secretary may by forms or
regulations prescribe.” The statutory list
of items required to be furnished annual-
ly has been amended by Congress from
time to time to account for additional re-
quirements of organizations described in
section 501(c)(3). Section 6033(b) was
updated by the Taxpayer Bill of Rights 2,
Public Law 104-168, in 1996 to include
items in sections 6033(b)(10) (relating to
taxes imposed on certain lobbying and po-
litical expenditures by organizations de-
scribed in sections 501(c)(3)) and 6033(b)
(11) (relating to taxes imposed with re-
spect to an organization, an organization
Bulletin No. 2019–40 777 September 30, 2019

September 30, 2019 778 Bulletin No. 2019–40
manager, or any disqualified person under
section 4958).
Section 6033(g)(2) provides that a
political organization (as defined by sec-
tion 527(e)(1)) that has gross receipts of
$25,000 or more for a taxable year
1
shall
file an annual return containing the infor-
mation required by section 6033(a)(1) for
organizations exempt from taxation under
section 501(a). The statute authorizes the
Secretary to modify the information re-
quired to be reported to require only in-
formation that is necessary for purposes
of carrying out section 527 and such other
information as the Secretary deems neces-
sary to carry out the provisions of section
6033(g).
Section 6033(h) provides additional
reporting requirements for controlling
organizations, within the meaning of sec-
tion 512(b)(13). Section 6033(h) requires
controlling organizations to include on
their returns any (1) interest, annuities,
royalties, or rents received from each
controlled entity (within the meaning of
section 512(b)(13)), (2) any loans made
to each such controlled entity, and (3)
any transfers of funds between such con-
trolling organization and each such con-
trolled entity.
Section 6033(k) provides additional re-
porting requirements for sponsoring orga-
nizations described in section 4966(d)(1).
Section 6033(k) requires each such orga-
nization to report on its annual return (1)
the total number of donor advised funds
(as defined in section 4966(d)(2)) it owns
at the end of such taxable year, (2) the ag-
gregate value of assets held in such funds
at the end of such taxable year, and (3)
the aggregate contributions to and grants
made from such funds during such taxable
year.
Section 6033(l) provides additional re-
porting requirements for supporting orga-
nizations described in section 509(a)(3).
Section 6033(l) requires each supporting
organization to report on its annual re-
turn (1) the supported organizations (as
defined in section 509(f)(3)) with respect
to which such organization provides sup-
port; (2) whether the organization meets
the requirements of clause (i), (ii), or (iii)
of section 509(a)(3)(B); and (3) a certifi-
cation that the organization meets the re-
quirements of section 509(a)(3)(C).
The general rule of confidentiality of
returns is found in section 6103, which
states that returns and return information
shall be confidential, and, except as autho-
rized by this title, no person having access
to this information shall disclose any re-
turn or return information obtained by him
in any manner.
One of the exceptions to the gener-
al rule of confidentiality can be found in
section 6104. In general, under section
6104(b), the Secretary must make the
annual returns filed under section 6033
available to the public. However, the
Secretary is not authorized to disclose
to the public the name or address of any
contributor to any tax-exempt organiza-
tion other than a private foundation (as
defined in section 509(a), including trusts
described in section 4947(a)(1) that are
treated as private foundations) or a section
527 organization. Section 301.6104(b)-
1(b)(2) provides that although the names
and addresses are not to be disclosed, the
amounts of contributions to an organiza-
tion shall be made available for public
inspection unless the disclosure of such
information can reasonably be expected to
identify any contributor.
In addition to the required disclosure
by the Secretary, section 6104(d) and
§301.6104(d)-1 require certain tax-ex-
empt organizations to provide their annu-
al information returns upon request by a
member of the public. Similar to the re-
strictions on disclosing contributor infor-
mation placed on the Secretary by section
6104(b), an organization, other than a pri-
vate foundation or a section 527 organiza-
tion, is not required to disclose the names
and addresses of its contributors under
section 6104(d)(3)(A).
The current Treasury Regulations (“fi-
nal regulations”) reflect many of the statu-
tory requirements of section 6033. Consis-
tent with section 6033(a)(1), §1.6033-2(a)
(1) of the final regulations states that
“except as provided in section 6033(a)(3)
and paragraph (g) [of §1.6033-2], every
organization exempt from taxation under
section 501(a) shall file an annual infor-
mation return specifically setting forth its
items of gross income, gross receipts and
disbursements, and such other informa-
tion as may be prescribed in the instruc-
tions, issued with respect to the return.”
Although the information to be report-
ed for any particular year is set forth in the
form and instructions, the final regulations
under section 6033 provide a list of “infor-
mation generally required to be furnished
by an organization exempt under section
501(a)” on the annual return. The list pro-
vided in §1.6033-2(a)(2)(ii) of the final
regulations generally tracks the list set
forth for section 501(c)(3) organizations
in section 6033(b), though not all items
in section 6033(b) are currently included
in the regulations because the statute has
been amended following the original issu-
ance of the regulations, and not all statu-
tory changes were subsequently reflected
in the regulations. The list in the regula-
tions includes, but is not limited to, gross
income for the year; dues and assessments
from members and affiliates for the year;
expenses incurred within the year attribut-
able to gross income; disbursements (in-
cluding prior years’ accumulations) made
within the year for the purposes for which
it is exempt; a balance sheet showing its
assets, liabilities, and net worth as of the
beginning and end of such year; the to-
tal of the contributions, gifts, grants and
similar amounts received by it during the
taxable year; the names and addresses of
all officers, directors, or trustees (or any
person having responsibilities or powers
similar to those of officers, directors or
trustees) of the organization; and certain
compensation and payment information.
As relevant here, §1.6033-2(a)(2)(ii)
(f) provides that organizations required to
file an annual information return general-
ly must provide the names and addresses
of persons who contribute $5,000 or more
during the taxable year. This provision
is more expansive than section 6033(b)
(5), which applies specifically to organi-
zations described in section 501(c)(3). In
addition, §1.6033-2(a)(2)(iii)(d) provides
that organizations described in section
501(c)(7) (social clubs), section 501(c)(8)
(fraternal beneficiary societies), or section
501(c)(10) (domestic fraternal societies)
generally must report the name of each
1
In the case of a qualified State or local political organization described in section 527(e)(5), $25,000 is replaced by $100,000.

Bulletin No. 2019–40 779 September 30, 2019
person who contributes more than $1,000
to be used exclusively for religious, char-
itable, scientific, literary, or educational
purposes, or for the prevention of cruelty
to children or animals.
Incorporating section 6033(a)(3),
§1.6033-2(g)(1) provides a list of organi-
zations that are not required to file an annu-
al return under section 6033(a)(1). Within
that list, §1.6033-2(g)(1)(iii) provides that
organizations described in section 6033(a)
(3)(C) whose gross receipts are general-
ly not more than $5,000 annually are not
required to file the return required under
section 6033(a)(1). Further, §1.6033-2(g)
(6) provides that the Commissioner may
relieve any organization or class of orga-
nizations (other than a supporting orga-
nization described in section 509(a)(3))
from filing, in whole or in part, the annual
return required under section 6033 where
the Commissioner “determines that such
returns are not necessary for the efficient
administration of the internal revenue
laws.”
Accordingly, other than with regard
to supporting organizations, section 6033
and the final regulations in this part issued
under section 6033 provide the Commis-
sioner with broad discretionary authority
to determine what information is report-
ed and to grant relief, in whole or in part,
from the annual filing requirements of
tax-exempt organizations if it is deter-
mined that the information is not neces-
sary for the efficient administration of the
internal revenue laws.
For decades, the Commissioner has
exercised the discretion under section
6033(a)(3)(B) and §1.6033-2(g)(6) to re-
lieve organizations of filing requirements
in section 6033 through subregulatory
guidance such as revenue procedures and
annual information return instructions (for
example, Rev. Proc. 95-48, 1995-2 C.B.
418, and Rev. Proc. 96-10, 1996-1 C.B.
577). Revenue Procedure 83-23, 1983-1
C.B. 687, represents one such exercise of
this discretion. In that revenue procedure,
the Commissioner increased to $25,000
the minimum amount of gross receipts
normally required to be received in a year
by an organization exempt under section
501(a) to trigger a filing requirement un-
der section 6033(a). That revenue proce-
dure also expanded the group of tax-ex-
empt organizations not required to file an
annual information return due to a gross
receipts threshold beyond those listed in
section 6033(a)(3)(C). Revenue Proce-
dure 2011-15, 2011-3 I.R.B. 322, further
increased this gross receipts threshold
amount to $50,000 for most organizations
exempt under section 501(a).
2
Revenue
Procedure 2011-15 also relieved most
foreign organizations and organizations
formed in a United States possession
from a filing requirement under section
6033(a) if their gross receipts from sourc-
es within the United States do not exceed
the $50,000 threshold and if they have no
significant activity (including lobbying
and political activity and the operation of
a trade or business, but excluding invest-
ment activity) in the United States.
Similarly, consistent with past exercis-
es of authority under section 6033 and the
implementing regulations, the Treasury
Department and the IRS issued Rev. Proc.
2018-38, 2018-31 I.R.B. 280, granting
tax-exempt organizations required to file
the Form 990 or Form 990–EZ, other than
those described in section 501(c)(3), relief
from reporting the names and addresses of
contributors on Schedules B, “Schedule
of Contributors,” filed with Form 990 or
990-EZ (or completing the similar por-
tions of Part IV of the Form 990–BL).
Revenue Procedure 2018-38 also provides
that organizations described in sections
501(c)(7), (8), or (10) need not provide,
on their annual information returns re-
quired under section 6033, the names
and addresses of persons who contribut-
ed more than $1,000 during the taxable
year to be used for exclusively charitable
purposes. Revenue Procedure 2018-38
does not affect the information required
to be reported on Forms 990, 990-EZ, or
990-PF by organizations described in sec-
tion 501(c)(3) (which for purposes of sec-
tion 6033 include nonexempt charitable
trusts described in section 4947(a)(1) and
nonexempt private foundations described
in section 6033(d)) or section 527 organi-
zations.
On July 30, 2019, the United States
District Court for the District of Montana
released its decision in the case of Bullock,
et al. v. IRS, No. 4:18-cv-00103-BMM (D.
Mont. Jul. 30, 2019). The court noted that
“the substance of [the Commissioner’s]
ultimate decision [on reporting the names
and addresses of contributors] remains
subject to the Commissioner’s discretion,”
but set aside Rev. Proc. 2018-38 and held
that the IRS should have followed the no-
tice and comment procedures of the APA
in providing the reporting relief set forth
in Rev. Proc. 2018-38.
Explanation of Provisions
The proposed regulations contained in
this notice of proposed rulemaking modify
the final regulations under section 6033 to
align them with certain statutory amend-
ments to section 6033 that have not previ-
ously been reflected in the regulations and
to update the regulations to encompass
certain instances in which the Commis-
sioner has previously exercised discretion
under the statute and regulations to relieve
organizations, in whole or in part, from
the filing requirements set forth in section
6033 or the regulations in this part issued
under section 6033. The Code provides
discretion to the Secretary, and his or her
delegate,
3
to determine what information
is necessary for the efficient adminis-
tration of the federal tax laws involving
tax-exempt organizations. The Secretary
has previously exercised that discretion
through various forms or guidance. These
proposed regulations would incorporate
certain past exercises of discretion into a
single location for ease of use. These pro-
posed changes are also intended to update
the regulations so that they more fully
present the current reporting requirements
for most tax-exempt organizations.
Specifically, as further discussed later
in this preamble, these changes include
the following: (1) Adding items listed in
section 6033(b)(10) and (11), as applica-
ble, to the list of items generally required
to be reported; (2) adding other statutory
reporting requirements for controlling
organizations, sponsoring organizations,
2
An organization that is not required to file an annual return by virtue of Rev. Proc. 2011-15 must submit a Form 990-N e-Postcard annually in electronic format as described in section 6033(i)
(1). Rev. Proc. 2011-15, section 3.03.
3
Section 7701(a)(11)(B) provides that the term “Secretary” means the Secretary of the Treasury or his delegate, which may include the Commissioner.

September 30, 2019 780 Bulletin No. 2019–40
and supporting organizations; (3) amend-
ing the gross receipts threshold (with an
additional requirement for foreign organi-
zations and United States possession or-
ganizations) that triggers a filing require-
ment under section 6033 for organizations
exempt under section 501(a) (other than
private foundations and supporting orga-
nizations); (4) clarifying that section 527
organizations with gross receipts great-
er than $25,000 generally are subject to
the reporting requirements under section
6033(a)(1) as if they were exempt from
taxes under section 501(a); and (5) spec-
ifying that only organizations described
in section 501(c)(3) and section 527 orga-
nizations generally would continue to be
required to provide names and addresses
of contributors on their Forms 990, Forms
990-EZ, and Forms 990-PF.
The Treasury Department and the IRS
request comments on any other grants of
section 6033 related reporting relief an-
nounced pursuant to past exercises of the
Commissioner’s discretion that should
be incorporated into the regulations or
any other clarifications to reflect statuto-
ry changes. For example, these proposed
regulations do not incorporate Rev. Proc.
96-10, 1996-1 C.B. 138, which relieves
from a filing requirement under section
6033(a) certain organizations that are op-
erated, controlled, or supervised by one or
more churches, integrated auxiliaries, or
conventions or associations of churches
because it is unclear whether Rev. Proc.
96-10 currently has practical application.
The relevant language provided indicates
that these types of organizations are like-
ly supporting organizations under section
509(a)(3). Section 509(a)(3) provides pub-
lic charity status to organizations, known
as supporting organizations, that are op-
erated, supervised, or controlled by, or in
connection with, one or more specified
organizations described in section 509(a)
(1) or (2), which includes churches, con-
ventions or associations of churches, and
some integrated auxiliaries of churches.
The Pension Protection Act of 2006,
Public Law 109-280, modified the Sec-
retary’s general discretion under section
6033(a)(3)(B) so that the Secretary is no
longer permitted to relieve a supporting
organization of its filing requirements. The
Treasury Department and the IRS expect
that few, if any, organizations meeting the
requirements of Rev. Proc. 96-10 may still
rely on this revenue procedure given the
2006 statutory change; thus, incorporating
the provisions of Rev. Proc. 96-10 into
regulations is unnecessary. However, the
Treasury Department and the IRS request
comments on the continued usefulness of
Rev. Proc. 96-10.
In addition, Rev. Proc. 95-48 grants re-
porting relief for governmental units and
affiliates of governmental units. The Trea-
sury Department and the IRS are consid-
ering whether the reporting relief in this
revenue procedure should be updated and
whether such relief should be incorporat-
ed into the regulations under section 6033
and request comments on the relief pro-
vided in this revenue procedure, as well as
whether any other reporting relief should
be specified or added.
ITEMS REQUIRED IN ANNUAL
INFORMATION RETURNS
Section 6033(a)(1) provides that the
Secretary, or his or her delegate, may by
forms or regulations prescribe “other in-
formation for the purpose of carrying out
the internal revenue laws” to be reported
on an annual return required under sec-
tion 6033. This authority is reflected in
§1.6033-2(a)(1). Consistent with these
grants of discretion, §1.6033-2(a)(2)(ii)
provides a general list of items that a
tax-exempt organization may expect to
provide on its annual information return
required by section 6033.
As previously stated in this preamble,
the Treasury Department and the IRS have
determined that the regulations should be
updated to reflect certain additional items
listed in section 6033(b) for organizations
described in section 501(c)(3).
Therefore, these proposed regulations
would amend §1.6033-2(a)(2)(ii) by add-
ing two new provisions to reflect items
that have been added to section 6033(b)
but that have not yet been added to the list
in the regulations of items generally re-
quired to be reported on an organization’s
annual information return. These items are
those found in section 6033(b)(10) (relat-
ing to taxes imposed on certain lobbying
and political expenditures by organiza-
tions described in section 501(c)(3)) and
6033(b)(11) (relating to taxes imposed
with respect to an organization, an organi-
zation manager, or any disqualified person
on any excess benefit transaction under
section 4958). In addition, a cross-refer-
ence to §1.6033-2(a)(1) has been added to
the introductory sentence of §1.6033-2(a)
(2)(ii).
In an effort to further increase the
ability of a taxpayer generally to find its
reporting requirements in one place, the
Treasury Department and the IRS are also
incorporating into the regulations the stat-
utory reporting requirements found in sec-
tion 6033(h) for controlling organizations
(as defined in section 512(b)(13)), section
6033(k) for sponsoring organizations (as
defined in section 4966(d)(1)), and section
6033(l) for supporting organizations (as
defined in section 509(a)(3)).
While these amendments to the regu-
lations are part of an effort to further in-
crease the ability of a taxpayer generally
to find its reporting requirements in one
place, tax-exempt organizations will con-
tinue to find their current annual return
reporting requirements in the forms and
instructions found at irs.gov. The Treasury
Department and the IRS request com-
ments on any other requirements in sec-
tion 6033 that should be incorporated into
§1.6033-2.
GROSS RECEIPTS FILING
THRESHOLD
Section 6033(a)(1)(B) grants the Sec-
retary, or his or her delegate, discretion to
relieve any organization (except an orga-
nization described in section 509(a)(3))
from the requirement to file a return if the
Secretary determines that the filing is not
necessary to the efficient administration
of the internal revenue laws and §1.6033-
2(g)(6) specifies that this relief from filing
may be granted in whole or in part.
The Treasury Department and the IRS
have previously determined that the effi-
cient administration of the tax laws does
not require the filing of returns by orga-
nizations that are exempt under section
501(a) (other than private foundations and
supporting organizations) that normally
have less than $50,000 in gross receipts
annually, except for foreign organizations
and organizations formed in a United
States possession that have significant ac-
tivity (including lobbying and political ac-
tivity and the operation of a trade or busi-

Bulletin No. 2019–40 781 September 30, 2019
ness, but excluding investment activity)
in the United States. Rev. Proc. 2011-15.
This threshold seeks to balance the effi-
cient use of resources for both tax-exempt
organizations and the IRS with ensuring
compliance with the tax laws by tax-ex-
empt organizations, particularly since
such organizations must continue to file
Form 990-N under section 6033(i). This
notice of proposed rulemaking proposes
to amend §1.6033-2(g)(1)(iii) to reflect
the $50,000 gross receipts filing threshold
currently in effect, rather than the $5,000
gross receipts threshold found in section
6033(a)(3)(A)(ii), and the application of
the $50,000 threshold to organizations
other than those listed in section 6033(a)
(3)(C). Thus, the proposed regulations
would provide that the gross receipts
threshold for all organizations (other than
private foundations and supporting or-
ganizations) formed in the United States
would be $50,000. The notice of proposed
rulemaking also proposes simply to in-
corporate the previously granted relief
from the filing requirement under section
6033(a) for foreign organizations and
organizations formed in a United States
possession (other than private foundations
and supporting organizations) that is cur-
rently found in Rev. Proc. 2011-15.
The proposed regulations will also
specify that the Commissioner retains
discretion to provide possible further
increases in this amount pursuant to
§1.6033-2(g)(6). Therefore, the Treasury
Department and the IRS also propose
amending §1.6033-2(g)(6) to clarify that
the Commissioner has authority to further
provide relief through forms, instructions
to forms, or guidance published in the In-
ternal Revenue Bulletin.
CLARIFYING THE TREATMENT OF
SECTION 527 ORGANIZATIONS
Section 6033(g)(2) provides that sec-
tion 527 organizations shall file an annual
return containing the information required
by section 6033(a)(1) for tax-exempt or-
ganizations. As noted previously in this
preamble, the Treasury Department and
the IRS have determined that the regula-
tions should more fully reflect the require-
ments of section 6033 for tax-exempt or-
ganizations. The Treasury Department and
the IRS propose to add §1.6033-2(a)(5) to
state the current requirement that section
527 organizations, subject to the filing
exceptions provided by section 6033(g)
(3) or as permitted under section 6033(g)
(4), follow the reporting requirements un-
der section 6033(a)(1) in the same man-
ner as tax-exempt organizations, except
when the Commissioner revises those
requirements as appropriate to carry out
the purposes of section 527. The proposed
§1.6033-2(a)(5) would also state the cur-
rent requirement that section 527 organi-
zations, like organizations described in
section 501(c)(3), must continue to report
the names and addresses of contributors
on the section 527 organizations’ annual
Forms 990 or Forms 990-EZ. The addition
of §1.6033-2(a)(5) does not affect the cur-
rent reporting requirements of section 527
organizations.
The Treasury Department and the IRS
request comments on the proposed clarifi-
cation of the treatment of section 527 or-
ganizations found in §1.6033-2(a)(5).
REPORTING OF NAMES AND
ADDRESSES OF CONTRIBUTORS
Section 6033 does not specify that
the names and addresses of contributors
to tax-exempt organizations, other than
those described in section 501(c)(3), be
reported on annual information returns.
Consistent with the Secretary’s broad dis-
cretion under section 6033(a) to set forth
information reporting requirements “for
the purpose of carrying out the internal
revenue laws ... by forms or regulations,”
§1.6033-2(a)(2)(ii) of the final regulations
provides a list of items that are general-
ly required to be included in the annual
filings of organizations exempt under
section 501(a). The proposed regulations
would amend the final regulations to clar-
ify that the need to provide the names and
addresses of substantial contributors will
generally apply only to tax-exempt orga-
nizations described in section 501(c)(3).
This clarification is consistent with the
limited application of the requirement in
section 6033(b)(5). As discussed in the
prior section of this preamble, section 527
organizations must also continue to report
the names and addresses of substantial
contributors.
In exercising this discretion, the Trea-
sury Department and the IRS seek to bal-
ance the IRS’s need for the information
against the costs and risks associated with
reporting of the information. The IRS
does not need the names and addresses
of substantial contributors to tax-exempt
organizations not described in section
501(c)(3) to be reported annually on
Schedule B of Form 990 or Form 990-EZ
in order to carry out the internal revenue
laws, including provisions dealing with
transfer taxes. A requirement to annual-
ly report such information—rather than
providing it to the IRS as required upon
examination—increases compliance costs
for affected tax-exempt organizations and
consumes IRS resources in connection
with the redaction of such information as
required in section 6104(b). Some have
expressed concern regarding the potential
use of the names and addresses of substan-
tial contributors when evaluating possible
private benefit or inurement. Tax-exempt
organizations continue to be required
to file Schedule L of Form 990 or Form
990-EZ identifying transactions between
the exempt organization and interested
persons (including substantial contribu-
tors), which may indicate possible risks
of private benefit or inurement. The pri-
mary utility of the names and addresses of
substantial contributors, however, arises
during examination of a tax-exempt orga-
nization, at which point such information
may be collected from the relevant tax-ex-
empt organization. Under the proposed
rule, tax-exempt organizations are still
required to report the amounts of contri-
butions from each substantial contributor
as required by the Schedule B of the Form
990 and 990-EZ as well as maintain the
names and addresses of substantial con-
tributors should the IRS need this infor-
mation on a case-by-case basis, which the
Treasury Department and the IRS have
concluded is sufficient for the efficient ad-
ministration of the Code.
The Treasury Department and the IRS
are also concerned that the requirement
to report the names and addresses of sub-
stantial contributors poses a risk of inad-
vertent disclosure of information that is
not open to public inspection because this
information on Schedule B generally must
be redacted from an otherwise disclosable
information return. The IRS has experi-
enced incidents of inadvertent disclosure
and has taken other steps to reduce future

September 30, 2019 782 Bulletin No. 2019–40
occurrences of such disclosures. By reduc-
ing the number of organizations providing
the names and addresses of contributors
on Schedule B, the potential for inadver-
tent disclosure of names and addresses
can be decreased further.
Finally, the Treasury Department and
the IRS note that the change in annu-
al reporting to the IRS of the names and
addresses of substantial contributors will
have no effect on information current-
ly available to the public. Sections 6103
and 6104 prohibit the IRS from publicly
disclosing the names and addresses of
contributors to tax-exempt organizations
(other than private foundations). With re-
spect to such tax-exempt organizations,
any names and addresses of substantial
contributors on Schedule B are not made
public and disclosure restrictions prohibit
making such information available for use
by other agencies for enforcement purpos-
es, unless a specific exception applies.
4

The Treasury Department and the IRS are
aware of concerns raised regarding cam-
paign finance laws; however, Congress
has not tasked the IRS with the enforce-
ment of campaign finance laws. Further-
more, the Code generally prohibits the
IRS from disclosing any names and ad-
dresses of such organizations’ substantial
contributors to federal agencies for non-
tax investigations, including campaign
finance matters, except in narrowly pre-
scribed circumstances.
5
Accordingly, the Treasury Depart-
ment and the IRS are proposing to mod-
ify the regulations to no longer specify
that tax-exempt organizations (other than
organizations described in section 501(c)
(3)) are generally required to report the
names and addresses of their substantial
contributors on their annual information
returns. However, as noted previously in
this preamble, tax-exempt organizations
must continue to report the amounts of
contributions from each substantial con-
tributor as well as maintain the names
and addresses of their substantial con-
tributors in their books and records in ac-
cordance with section 6001 and §1.6001-
1(a) and (c) in order to permit the IRS
to efficiently administer the internal rev-
enue laws through examinations of spe-
cific taxpayers. The records retained will
enable organizations to substantiate upon
examination the number of certain con-
tributors and the amounts of their contri-
butions and to facilitate the reporting of
information on certain financial transac-
tions between organizations and certain
contributors. The Treasury Department
and the IRS request comments on con-
cerns regarding the efficient adminis-
tration of the Code without the annual
reporting of the names and addresses of
substantial contributors for tax-exempt
organizations other than those described
in section 501(c)(3) and section 527 or-
ganizations.
The Treasury Department and the IRS
propose to revise §1.6033-2(a)(2)(ii)(f) to
provide that organizations described in
section 501(c)(3) generally would be re-
quired to continue to provide names and
addresses of contributors of more than
$5,000 on their Forms 990, 990-EZ, and
990-PF. Similarly, §1.6033-2(a)(2)(iii)
(d) would be revised to remove reference
to the provision of names of contributors
who contribute over $1,000 for a specif-
ic charitable purpose to organizations
described in sections 501(c)(7), (8), and
(10).
Proposed Effective/Applicability Date
These regulations are proposed to be
effective as of the date of publication
of the Treasury decision adopting these
rules as final regulations in the Federal
Register. While these regulations are not
effective until these rules are adopted as
final in the Federal Register, under sec-
tion 7805(b)(7), a tax-exempt organiza-
tion may choose to apply the final regu-
lations to returns filed after September 6,
2019. After issuing the final regulations,
the Treasury Department and the IRS will
withdraw any revenue procedures super-
seded by the final regulations.
Special Analyses
This regulation is not subject to review
under section 6(b) of Executive Order
12866 pursuant to the Memorandum of
Agreement (April 11, 2018) between the
Department of the Treasury and the Office
of Management and Budget regarding re-
view of tax regulations.
PAPERWORK REDUCTION ACT
The collection of information con-
tained in this notice is reflected in the col-
lection of information for Forms 990 and
990-EZ that have been reviewed and ap-
proved by the Office of Management and
Budget in accordance with the Paperwork
Reduction Act (44 U.S.C. 3507(c)) under
control numbers 1545-0047 and 1545-
1150, respectively. To the extent there is
a decrease in burden as a result of this
change, the decrease in burden will be re-
flected in the updated burden estimates for
the Forms 990 and 990-EZ. The require-
ment to maintain records to substantiate
information on the Form 990 or 990-EZ is
already contained in the burden associated
with the control numbers for those forms
and remains unchanged.
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.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mate-
rial in the administration of any internal
revenue law. Generally, tax returns and
return information are confidential, as re-
quired by 26 U.S.C. 6103.
4
The confidentiality and disclosure of tax returns and return information in both tax and non-tax investigations is governed by section 6103. Section 6103 contains several provisions authoriz-
ing the disclosure of returns and return information to Federal law enforcement agencies under prescribed circumstances after meeting specified procedural requirements. For example, these
include disclosures to the Department of Justice (DOJ) for the investigation and prosecution of non-tax Federal crimes via an ex parte court order or via a request from the highest ranking
official of a Federal agency or the highest officials within DOJ and in the course of an investigation after referral to and approval by DOJ as a Grand Jury Tax Investigation.

In the context of states, sections 6103 and 6104 authorize disclosure of certain returns and return information to the states for specified purposes. Generally, section 6103(d) authorizes
disclosure to state tax agencies for state tax administration, while section 6104(c) permits disclosure of return information, in the case of organizations other than those described in section
501(c)(1) or (3), to an appropriate state officer to the extent necessary in administering state laws relating to the solicitation or administration of charitable funds or charitable assets of such
organizations. Some states may also independently obtain donor information from the organizations.
5
See note 4.

Bulletin No. 2019–40 783 September 30, 2019
REGULATORY FLEXIBILITY ACT
It is hereby certified that these final
regulations will not have a significant eco-
nomic impact on a substantial number of
small entities. This certification is based
on the fact that these regulations reflect
statutory requirements and reporting relief
previously announced through forms, in-
structions to forms, or guidance published
in the Internal Revenue Bulletin. The col-
lection of information contained in these
proposed regulations instead maintains a
current recordkeeping obligation while
removing a filing burden. Accordingly, a
Regulatory Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6) is not required. Pursuant to section
7805(f), this regulation has been submit-
ted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on its impact on small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any comments that are
submitted timely to the IRS as prescribed
in this preamble under the ADDRESSES
heading. The Treasury Department and
the IRS request comments on all aspects
of the proposed regulations. All comments
will be available for public inspection and
copying. A public hearing may be sched-
uled if requested in writing by any person
that timely submits written comments. If a
public hearing is scheduled, notice of the
date, time, and place for the hearing will
be published in the Federal Register.
Drafting Information
The principal authors of these regu-
lations are personnel from the Office of
the Associate Chief Counsel (Employee
Benefits, Exempt Organizations, and Em-
ployment Taxes). However, other person-
nel from the Treasury Department and the
IRS participated in their development.
Statement of Availability of IRS
Documents
IRS Revenue Procedures, Revenue
Rulings, Notices, and other guidance cit-
ed in this document are published in the
Internal Revenue Bulletin (or Cumulative
Bulletin) and are available from the Su-
perintendent of Documents, U.S. Govern-
ment Publishing Office, Washington, DC
20402, or by visiting the IRS website at
http://www.irs.gov.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read in part as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.6033-2 is amended
by:
1. Revising the section heading;
2. In paragraph (a)(2)(ii) introducto-
ry text, removing “The” and adding
“Subject to paragraph (a)(1) of this
section, the” in its place;
3. In paragraph (a)(2)(ii)(f), revising the
first sentence and removing “subdi-
vision (iii) of this subparagraph” and
adding “paragraph (a)(2)(iii) of this
section” in its place;
4. Redesignating paragraphs (a)(2)(ii)
(k) and (l) as paragraphs (a)(2)(ii)(m)
and (n);
5. Adding new paragraphs (a)(2)(ii)(k)
and (l);
6. Revising the first sentence of para-
graph (a)(2)(iii)(d)(1);
7. Adding paragraphs (a)(5), (6), (7),
and (8);
8. Revising paragraph (g)(1)(iii);
9. Removing the “or” at the end of para-
graph (g)(1)(vi);
10. Removing the period at the end of
paragraph (g)(1)(vii) and adding “;
or” in its place;
11. Adding paragraph (g)(1)(viii);
12. Revising paragraph (g)(3);
13. Adding paragraph (g)(5) and a sen-
tence at the end of paragraph (g)(6);
14. Redesignating paragraph (k) as para-
graph (l);
15. Adding a new paragraph (k); and
16. Adding paragraph (l)(5).
The revisions and additions read as fol-
lows:
§1.6033-2 Returns by exempt orga-
nizations and returns by certain nonex-
empt organizations.
(a) * * *
(2) * * *
(ii) * * *
(f) The total of the contributions, gifts,
grants and similar amounts received by it
during the taxable year, and, in the case
of an organization described in section
501(c)(3), the names and addresses of all
persons that contributed, bequeathed, or
devised $5,000 or more (in money or oth-
er property) during the taxable year. * * *
* * * * *
(k) In the case of organizations de-
scribed in section 501(c)(3), the respec-
tive amounts (if any) of the taxes imposed
on the organization, or any organization
manager of the organization, during the
taxable year under any of the following
provisions (and the respective amounts
(if any) of reimbursements paid by the
organization during the taxable year with
respect to taxes imposed on any such or-
ganization manager under any of such
provisions):
(1) Section 4911 (relating to tax on ex-
cess expenditures to influence legislation);
(2) Section 4912 (relating to tax on dis-
qualifying lobbying expenditures of cer-
tain organizations); and
(3) Section 4955 (relating to taxes on
political expenditures of section 501(c)(3)
organizations), except to the extent that,
by reason of section 4962, the taxes im-
posed under such section are not required
to be paid or are credited or refunded.
(l) In the case of organizations de-
scribed in section 501(c)(3), (4), or (29),
the respective amounts (if any) of—
(1) The taxes imposed with respect to
the organization on any organization man-
ager, or any disqualified person, during
the taxable year under section 4958 (re-
lating to taxes on excess benefit transac-
tions); and
(2) Reimbursements paid by the orga-
nization during the taxable year with re-
spect to taxes imposed under such section,
except to the extent that, by reason of sec-

September 30, 2019 784 Bulletin No. 2019–40
tion 4962, the taxes imposed under such
section are not required to be paid or are
credited or refunded.
* * * * *
(iii) * * *
(d)(1) Organizations described in
section 501(c)(7), (8), or (10) that re-
ceive contributions or bequests to be
used exclusively for purposes described
in section 170(c)(4), 2055(a)(3), or
2522(a)(3), must attach a schedule with
respect to all gifts that aggregate more
than $1,000 from any one person show-
ing the total amount of the contributions
or bequests from each such person, the
specific purpose or purposes for which
such amount was received, and the spe-
cific use or uses to which such amount
was put. * * *
* * * * *
(5) Political organizations, as defined
by section 527(e)(1), that have gross re-
ceipts of $25,000 or more for the taxable
year (or in the case of a qualified State or
local political organization, as defined in
section 527(e)(5), that has gross receipts
of $100,000 or more for the taxable year)
generally must comply with the require-
ments of section 6033 and this section in
the same manner as organizations exempt
from tax under section 501(a), except to
the extent that the Commissioner may
modify such requirements through forms,
instructions to forms, or guidance pub-
lished in the Internal Revenue Bulletin as
appropriate for carrying out the purposes
of section 527. For the purposes of this
section, all references to organizations ex-
empt from tax under section 501(a) shall
include political organizations referred
to in section 6033(g), other than those
referred to in section 6033(g)(3) and ex-
cept to the extent the Commissioner exer-
cises discretion under section 6033(g)(4).
This discretion may be exercised through
forms, instructions to forms, or guidance
published in the Internal Revenue Bulle-
tin. In addition to the reporting require-
ments applicable to organizations exempt
under section 501(a), such political orga-
nizations generally must report the names
and addresses of all persons that contrib-
uted, bequeathed, or devised $5,000 or
more (in money or other property) during
the taxable year.
(6) Each controlling organization
(within the meaning of section 512(b)
(13)) that is subject to the requirements of
section 6033(a) shall include on its annual
return such information required by that
return regarding –
(i) Any interest, annuities, royalties, or
rents received from each controlled enti-
ty (within the meaning of section 512(b)
(13));
(ii) Any loans made to each such con-
trolled entity; and
(iii) Any transfers of funds between
such controlling organization and each
such controlled entity.
(7) Every organization described in
section 4966(d)(1) shall, on its annual re-
turn for the taxable year—
(i) List the total number of donor ad-
vised funds (as defined in section 4966(d)
(2)) it owns at the end of such taxable year;
(ii) Report the aggregate value of assets
held in such funds at the end of such tax-
able year; and
(iii) Report the aggregate contribu-
tions to and grants made from such funds
during such taxable year.
(8) Every organization described in
section 509(a)(3) shall, on its annual re-
turn—
(i) List the supported organizations (as
defined in section 509(f)(3)) with respect
to which such organization provides sup-
port;
(ii) Specify whether the organization
meets the requirements of clause (i), (ii),
or (iii) of section 509(a)(3)(B); and
(iii) Certify that the organization meets
the requirements of section 509(a)(3)(C).
* * * * *
(g) * * *
(1) * * *
(iii) Except as provided in paragraph
(g)(1)(viii) of this section, an organization
described in section 501(c) (other than a
private foundation or a supporting orga-
nization described in section 509(a)(3))
the gross receipts of which in each taxable
year are normally not more than $50,000
(as described in paragraph (g)(3) of this
section);
* * * * *
(viii) A foreign organization (described
in paragraph (k)(1) of this section) or a
United States possession organization (de-
scribed in paragraph (k)(2) of this section)
(other than a private foundation or a sup-
porting organization described in section
509(a)(3)) –
(A) The gross receipts of which in each
taxable year from sources within the Unit-
ed States (as determined under paragraph
(k)(3) of this section) are normally not
more than $50,000 (as described in para-
graph (g)(3) of this section); and
(B) That has no significant activity
(including lobbying and political activity
and the operation of a trade or business,
but excluding investment activity) in the
United States.
* * * * *
(3) For purposes of paragraphs (g)(1)
(iii) and (viii) of this section, the gross
receipts (as defined in paragraph (g)(4) of
this section) of an organization are nor-
mally not more than $50,000 if:
(i) In the case of an organization that
has been in existence for 1 year or less, the
organization has received, or donors have
pledged to give, gross receipts of $75,000
or less during the first taxable year of the
organization;
(ii) In the case of an organization which
has been in existence for more than one
but less than 3 years, the average of the
gross receipts received by the organiza-
tion in its first 2 taxable years is $60,000
or less; and
(iii) In the case of an organization
which has been in existence for 3 years
or more, the average of the gross receipts
received by the organization in the imme-
diately preceding 3 taxable years, includ-
ing the year for which the return would be
required to be filed, is $50,000 or less.
* * * * *
(5) An organization that is not required
to file an annual return by virtue of para-
graphs (g)(1)(iii) and (viii) of this section
must submit an annual electronic notifica-
tion as described in section 6033(i). See
§1.6033-6.
(6) * * * This discretion may be exer-
cised through forms, instructions to forms,
or guidance published in the Internal Rev-
enue Bulletin.
* * * * *
(k) Foreign organizations and Unit-
ed States possession organizations—(1)
Foreign organization. For purposes of
this section, a “foreign organization” is
any organization not described in section
170(c)(2)(A).
(2) United States possession organiza-
tion. For purposes of this section, a “Unit-
ed States possession organization” is any

Bulletin No. 2019–40 785 September 30, 2019
organization created or organized in a pos-
session of the United States.
(3) Source of funds. For purposes of
paragraph (g)(1)(viii) of this section, the
source of an organization’s gross receipts
from gifts, grants, contributions or mem-
bership fees is determined by applying
the rules found in §53.4948-1(b) of this
chapter. For purposes of paragraph (g)(1)
(viii) of this section, the source of an orga-
nization’s gross receipts other than gifts,
grants, contributions, and membership
fees is determined by applying the rules in
sections 861 through 865 and the regula-
tions in this part issued under section 861
through 865. For purposes of applying this
paragraph (k)(3) regarding United States
possession organizations, a United States
person does not include individuals who
are bona fide residents of a United States
possession.
(l) * * *
(5) Paragraphs (a)(2)(ii)(f), (a)(2)(iii)
(d)(1), (g)(1)(iii) and (viii), and (g)(3) of
this section apply to annual information
returns filed after [DATE OF PUBLICA-
TION OF FINAL REGULATIONS IN
THE FEDERAL REGISTER]. Under
section 7805(b)(7) an organization may
choose to apply the paragraphs listed in
this paragraph (l)(5) to returns filed after
September 6, 2019.
Kirsten Wielobob
Deputy Commissioner for Services
and Enforcement.
(Filed by the Office of the Federal Register on Sep-
tember 6, 2019, 11:15 a.m., and published in the is-
sue of the Federal Register for September 10, 2019,
84 F.R. 47447)

Notice of Proposed
Rulemaking
Regulations under Section
382(h) Related to Built-in
Gain and Loss
REG-125710-18
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains
proposed regulations regarding the items
of income and deduction which are in-
cluded in the calculation of built-in gains
and losses under section 382 of the Inter-
nal Revenue Code (Code), and reflecting
numerous changes made to the Code by
the enactment of recent tax legislation.
These proposed regulations would affect
corporations that experience an ownership
change for purposes of section 382. This
document also proposes to withdraw the
following IRS notices and incorporate
their subject matter, as appropriate, into
these proposed regulations under section
382: Notice 87-79, Notice 90-27, Notice
2003-65, and Notice 2018-30.
DATES: Written or electronic comments
must be received by November 12, 2019.
Written or electronic requests for a public
hearing and outlines of topics to be dis-
cussed at the public hearing must be re-
ceived by November 12, 2019.
ADDRESSES: Submit electronic submis-
sions via the Federal eRulemaking Portal
at www.regulations.gov (indicate IRS and
REG-125710-18) by following the online
instructions for submitting comments.
Once submitted to the Federal eRulemak-
ing Portal, comments cannot be edited or
withdrawn. The Department of the Trea-
sury (Treasury Department) and the IRS
will publish for public availability any
comment received to its public docket,
whether submitted electronically or in
hard copy. Send hard copy submissions
to: Internal Revenue Service, CC:PA:LP-
D:PR (REG-125710-18), Room 5203,
Post Office Box 7604, Ben Franklin Sta-
tion, Washington, DC 20044. Submissions
may be hand-delivered Monday through
Friday between the hours of 8 a.m. and 4
p.m. to CC:PA:LPD:PR (indicate REG-
125710-18), Courier’s Desk, Internal
Revenue Service, 1111 Constitution Ave-
nue, NW., Washington, DC 20224.
FOR FURTHER INFORMATION CON-
TACT: Concerning proposed regulations,
Kevin M. Jacobs at (202) 317-5332 or
Marie C. Milnes-Vasquez at (202) 317-
7700; concerning submissions of com-
ments or requests for a public hearing,
Regina L. Johnson at (202) 317-6901 (not
toll free numbers).
SUPPLEMENTARY INFORMATION:
Background
I. Overview
This document contains proposed
amendments to the Income Tax Regula-
tions (26 CFR part 1) under section 382
of the Code.
A. Section 382 Generally
Section 382 imposes a value-based
limitation (section 382 limitation) on the
ability of a “loss corporation” to offset its
taxable income in periods subsequent to
an “ownership change” with losses attrib-
utable to periods prior to that ownership
change. A loss corporation is defined un-
der section 382 as a corporation that has
one or more of the following tax items:
(i) certain carryovers (including net oper-
ating loss (NOL), capital loss, disallowed
business interest under section 163(j), and
certain credit carryovers), (ii) certain attri-
butes (including an NOL, net capital loss,
and certain credits) for the taxable year
during which an ownership change occurs,
or (iii) a net unrealized built-in loss (NU-
BIL) as of the ownership change. (Any
recognized built-in loss (RBIL) associated
with a NUBIL, as well as each of the items
in (i) and (ii) is referred to herein as a pre-
change loss.) For purposes of section 382,
an ownership change occurs if the percent-
age of the loss corporation’s stock owned
by any “5-percent shareholders” (that is, a
shareholder that owns at least five percent
of the loss corporation’s stock) increases
by more than 50 percentage points during
a specified testing period. The section
382 limitation imposed on a loss corpo-
ration’s use of pre-change losses for each
year subsequent to an ownership change
generally equals the fair market value of
the loss corporation immediately before
the ownership change, multiplied by the
applicable long-term tax-exempt rate as
defined in section 382(f).
Section 382(m) requires the Secretary
to prescribe such regulations as may be
necessary or appropriate to carry out the
purposes of section 382 (as well as section

September 30, 2019 786 Bulletin No. 2019–40
383, which limits the use of certain credits
after an ownership change).
The existing regulations under section
382, which have developed over the past
three decades, provide detailed guidance
on numerous (but not all) aspects of the
relatively detailed statutory rules set forth
in section 382. However, in some cases,
the Treasury Department and the IRS have
found it appropriate to provide guidance
to the public through the issuance of notic-
es or other sub-regulatory guidance.
B. Built-in Gains and Losses Generally
Section 382(h) provides rules relating
to the determination of a loss corpora-
tion’s built-in gains and losses as of the
date of the ownership change (change
date). In general, built-in gains recog-
nized during the five-year period begin-
ning on the change date (recognition pe-
riod) allow a loss corporation to increase
its section 382 limitation, whereas built-
in losses recognized during the recogni-
tion period are subject to the loss cor-
poration’s section 382 limitation. These
rules exist to implement the “neutrality
principle” underlying the statute, which
is discussed in more detail in part II.B.2.
of the Explanation of Provisions. Under
this principle, the built-in gains and loss-
es of a loss corporation, if recognized
during the recognition period, generally
are to be treated in the same manner as
if they had been recognized before the
ownership change.
Specifically, section 382(h)(1)(A) pro-
vides that, if a loss corporation has a net
unrealized built-in gain (NUBIG), the
section 382 limitation for any taxable year
ending during the recognition period is
increased by the recognized built-in gain
(RBIG) for the taxable year, with cumu-
lative increases limited to the amount of
the NUBIG. Section 382(h)(3)(A) defines
NUBIG with respect to a loss corporation
as the amount by which the fair market
value of its assets immediately before an
ownership change exceeds the aggregate
adjusted basis of such assets at such time.
Section 382(h)(2)(A) defines RBIG as any
gain recognized during the recognition pe-
riod on the disposition of any asset of the
loss corporation, to the extent the loss cor-
poration establishes that (i) the loss corpo-
ration held the asset on the change date,
and (ii) such gain does not exceed the
asset’s built-in gain on the change date.
Section 382(h)(6)(A) also treats as RBIG
“[a]ny item of income which is properly
taken into account during the recognition
period ... but which is attributable to pe-
riods before the change date.” Because
RBIG can increase the section 382 limita-
tion only up to the amount of NUBIG, sec-
tion 382(h)(6)(C) provides that NUBIG is
increased to reflect amounts that would
be treated as RBIG under section 382(h)
(6)(A) if such amounts were taken into
account during the recognition period.
This adjustment can cause (i) an increase
in NUBIG, (ii) a decrease in NUBIL, or
even (iii) a change from NUBIL to NU-
BIG status.
Section 382(h)(1)(B) provides that, if
a loss corporation has a NUBIL, the use
of any RBIL recognized during the recog-
nition period is subject to the section 382
limitation. Section 382(h)(3)(A) defines
NUBIL with respect to a loss corporation
as the amount by which the aggregate ad-
justed basis of the loss corporation’s assets
immediately before an ownership change
exceeds the fair market value of such as-
sets at such time. Section 382(h)(2)(B) de-
fines RBIL as any loss recognized during
the recognition period on the disposition
of any asset of the loss corporation, ex-
cept to the extent the loss corporation es-
tablishes that (i) the loss corporation did
not hold the asset on the change date, or
(ii) such loss exceeds the asset’s built-in
loss on the change date. Section 382(h)
(6)(B) also treats as RBIL “[a]ny amount
which is allowable as a deduction during
the recognition period (determined with-
out regard to any carryover) but which is
attributable to periods before the change
date.” In addition, section 382(h)(6)(C)
provides that a loss corporation’s NUBIL
is properly adjusted for amounts which
would be treated as RBIL under section
382(h)(6)(B) if such amounts were prop-
erly allowable as a deduction during the
recognition period.
Finally, section 382(h)(3)(B) provides
that if a loss corporation’s NUBIG or NU-
BIL is not greater than the lesser of (i) 15
percent of the fair market value of the loss
corporation’s assets immediately before
the ownership change, or (ii) $10,000,000,
then the loss corporation’s NUBIG or NU-
BIL is zero.
II. Notice 2003-65
The rules for identifying RBIG and
RBIL under sections 382(h)(6)(A) and
382(h)(6)(B) are sufficient for determi-
nations regarding dispositions of assets.
Sections 382(h)(6)(A) and (B) provide
that income and deduction items that con-
stitute RBIG and RBIL are those tax items
that are “attributable to periods before the
change date,” but are not taken into ac-
count for tax purposes until a later time.
However, taxpayers historically have
expressed uncertainty regarding how to
integrate into their RBIG/RBIL and cor-
responding NUBIG/NUBIL calculations
the effects of (i) discharge of indebtedness
income, (ii) contingent liabilities, (iii)
bad debt deductions, and (iv) cost-recov-
ery deductions. In many instances, the
fact-specific characteristics of those items
have presented significant complications
for such taxpayers in determining wheth-
er those items were attributable to periods
before the change date. The Treasury De-
partment and the IRS agree with taxpay-
ers that sections 382(h)(6)(A) and 382(h)
(6)(B) do not provide sufficient guidance
regarding identification of other items of
RBIG and RBIL.
To provide interim guidance regarding
the identification of those built-in gains
and losses under section 382(h), the IRS
published Notice 2003-65 (2003-2 C.B.
747). This notice permits taxpayers to rely
on safe harbor approaches for applying
section 382(h) to an ownership change
“prior to the effective date of temporary
or final regulations under section 382(h).”
Notice 2003-65, section V. In addition, the
IRS announced its intent in the notice to
publish proposed regulations to “provid[e]
a single set of rules for identifying built-
in items for purposes of section 382(h).”
Id., section VII. In particular, the notice
requested comments regarding “wheth-
er one of the two approaches described
in th[e] notice should be adopted and to
what extent, if any, the approaches should
be combined or modified to produce a set
of rules that is both reflective of statutory
intent and administrable.” Id.
Notice 2003-65 provides, among other
things, a single safe harbor for computing
the NUBIG or NUBIL of a loss corpora-
tion, which (i) is based on principles un-
derlying the calculation of net recognized

Bulletin No. 2019–40 787 September 30, 2019
built-in gain under section 1374 for pur-
poses of the tax imposed on C corpora-
tions that elect to be S corporations, and
(ii) analyzes a hypothetical sale or ex-
change of all assets of the loss corporation
to a third party who assumed all of the
loss corporation’s liabilities. In addition,
Notice 2003-65 provides two safe harbors
for the computation of a loss corporation’s
RBIG or RBIL: the 1374 approach and the
338 approach. These safe harbors specifi-
cally inform the identification of built-in
income and deduction items under section
382(h)(6)(A) and (B), and the adjustments
to NUBIG or NUBIL that would result un-
der section 382(h)(6)(C).
The 1374 approach identifies RBIG
and RBIL at the time of the disposition of
a loss corporation’s assets during the rec-
ognition period. Generally, this approach
relies on accrual method of accounting
principles to identify built-in income and
deduction items at the time of the owner-
ship change, with certain exceptions. In
contrast, the 338 approach identifies items
of RBIG and RBIL generally by compar-
ing the loss corporation’s actual items of
income, gain, deduction, and loss recog-
nized during the recognition period with
those that would have been recognized
if an election under section 338 (section
338 election) had been made with respect
to a hypothetical purchase of all of the
outstanding stock of the loss corporation
on the change date. Section V. of Notice
2003-65 provides that taxpayers may rely
on either the 338 approach or the 1374 ap-
proach until the Treasury Department and
the IRS issue temporary or final regula-
tions under section 382(h).
Prior to the issuance of Notice 2003-
65, the Treasury Department and the IRS
issued Notice 87-79 (1987-2 C.B. 387)
and Notice 90-29 (1990-1 C.B. 336),
which provided much more limited guid-
ance regarding the determination of built-
in gains and losses. Notice 87-79, which
Notice 2003-65 modified, discussed antic-
ipated regulations regarding the interplay
of section 382(h) and discharge of indebt-
edness income. Notice 90-29 set forth an
approach that Notice 2003-65 adopted as
part of its section 1374 safe harbor, and
similarly discussed anticipated regula-
tions (regarding the application of section
382(h) to gains reported using the install-
ment method under section 453). As dis-
cussed in more detail in part I.B.2 of this
Explanation of Provisions, the Treasury
Department and the IRS published Notice
2018-30 (2018-21 I.R.B. 610) following
“An Act to provide for reconciliation pur-
suant to titles II and V of the concurrent
resolution on the budget for fiscal year
2018,” Public Law 115-97, 131 Stat. 2054
(2017), commonly referred to as the Tax
Cuts and Jobs Act (TCJA). Specifically,
Notice 2018-30 makes the section 338
safe harbor of Notice 2003-65 unavailable
when computing items arising from bonus
depreciation under section 168(k).
III. Response to Notice 2003-65
Over the past fifteen years, the Treasury
Department and the IRS have received
thoughtful formal and informal commen-
tary highlighting numerous shortcomings
of the interim guidance set forth in Notice
2003-65. Examples of these shortcomings
include: (i) the overstatement of NUBIG
(or understatement of NUBIL) that occurs
when a loss corporation has excluded dis-
charge or cancellation of indebtedness in-
come (COD income), (ii) the asymmetry
that occurs if certain amounts are included
in the NUBIG/NUBIL computation when
those amounts cannot be treated as RBIG
or RBIL (such as contingent liabilities un-
der the 1374 approach), which appears to
contravene section 382(h)(6)(C), and (iii)
taxpayer uncertainty and tax administra-
tion challenges that arise from a lack of
definitive guidance under section 382(h).
Commenters and commentators (collec-
tively, commentators) generally have em-
phasized the simplicity, objectivity, and
administrability of the accrual-based 1374
approach, as well as that approach’s close
adherence to a plain reading of the stat-
utory text of section 382(h) and section
382(h)’s legislative history. With regard
to the 338 approach, commentators gen-
erally have appreciated that approach’s
attempt to quantify and capture items that
were economically built-in at the time of
the ownership change, rather than simply
accrued under tax accounting principles.
Commentators have also noted that the
338 approach will reduce the impact of the
recognition period’s limited duration, by
not requiring taxpayers to dispose of cer-
tain assets within such period to be treated
as RBIG. In sum, commentators have ac-
knowledged merits, as well as weakness-
es, unique to each of the 1374 and 338 ap-
proaches but have not reached consensus
favoring a universal application of either
approach during the 15 years since the
IRS published Notice 2003-65.
IV. Enactment of the TCJA
On December 22, 2017, Congress en-
acted the TCJA, which introduced sub-
stantial changes to the Code. These chang-
es have generated significant, additional
uncertainty regarding the application of
section 382 in general, and Notice 2003-
65 in particular. As described in greater
detail in part II. of the Explanation of Pro-
visions, the changes to various provisions
of the Code made by the TCJA have ex-
acerbated longstanding, unresolved issues
regarding the application of section 382(h)
and created new areas of complexity and
ambiguity for taxpayers and the IRS. In
particular, the Treasury Department and
the IRS have identified numerous issues
that would arise from the interaction of the
338 approach with various provisions of
the Code following the TCJA’s enactment.
See Explanation of Provisions, part I.B.2.
Consequently, the Treasury Depart-
ment and the IRS are issuing these pro-
posed regulations to provide clearer and
more comprehensive guidance for tax-
payers in applying section 382(h) than
that currently provided by notice. The
Treasury Department and the IRS have
determined that the proposed regulations
would (i) simplify the application of sec-
tion 382, (ii) provide more certainty to
taxpayers in determining built-in gains
and losses for section 382(h) purposes,
and (iii) ensure that difficult questions
regarding the application of the TCJA do
not further complicate the application of
section 382(h). The Treasury Department
and the IRS note that, as provided in Sec-
tion V. of Notice 2003-65, taxpayers may
rely on the approaches set forth in Notice
2003-65 for purposes of applying sec-
tion 382(h) to an ownership change that
occurred prior to the issuance of Notice
2003-65 or on or after the issuance of
the notice and prior to the effective date
of temporary or final regulations under
section 382(h). After consideration of all
comments regarding the proposed regu-
lations set forth in this notice of proposed

September 30, 2019 788 Bulletin No. 2019–40
rulemaking, the Treasury Department and
the IRS expect to issue final regulations
to adopt the proposed regulations, which
may include modifications in response to
those comments. It is further expected
that the Treasury decision adopting these
proposed regulations as final regulations
will withdraw and obsolete Notice 2003-
65 and other administrative guidance as-
sociated with section 382(h) set forth in
the Effect on Other Documents section of
this notice of proposed rulemaking.
Explanation of Provisions
I. Proposed Adoption of NUBIG/NUBIL
Safe Harbor and 1374 Approach
A. Overview
With regard to the computation of NU-
BIG and NUBIL, these proposed regula-
tions would adopt as mandatory the safe
harbor computation provided in Notice
2003-65 based on the principles of section
1374, with modifications described in part
II.B. of this Explanation of Provisions.
Regarding the identification of RBIG and
RBIL, based on study and taxpayer input,
and as discussed further in part I.A. and
part I.B. of this Explanation of Provisions,
the Treasury Department and the IRS
have concluded that the 1374 approach is
more consistent with the text and the pur-
pose of section 382 than the 338 approach
and would simplify tax administration.
Accordingly, these proposed regulations
would adopt as mandatory the 1374 ap-
proach with certain modifications also de-
scribed in part II.C. of this Explanation of
Provisions.
As previously highlighted, the Trea-
sury Department and the IRS, along with
numerous commentators, view favorably
the simplicity, objectivity, and adminis-
trability of the 1374 approach. The ac-
crual-based 1374 approach to be used in
determining RBIG and RBIL is simpler
to apply than the 338 approach because,
among other reasons, corporate taxpayers
and their advisors are familiar with the ac-
crual method of accounting. Indeed, a siz-
able volume of case law, Code provisions,
and regulations govern the accrual method
(for example, Schlude v. Commissioner,
372 U.S. 128 (1963), Brown v. Helvering,
291 U.S. 193 (1934), and United States v.
Anderson, 269 U.S. 422 (1926); sections
446, 451, and 461; and the regulations un-
der those Code provisions). In addition,
the accrual-based 1374 approach avoids
many facts-and-circumstance inquiries
by avoiding tracing, valuation uncertain-
ties, and presumptions regarding whether
items of income are realized for Federal
income tax purposes.
The Treasury Department and the IRS
have determined that the certainty provid-
ed by the 1374 approach would streamline
(i) the calculation of built-in gains and
losses for taxpayers, as well as (ii) the
administration of this area for the IRS.
The 1374 approach turns on an accrual
analysis of the loss corporation’s actual
transactions and circumstances, and con-
sequently minimizes the importation of
new issues arising from changes made by
the TCJA, particularly those issues de-
scribed in detail later in part I.B.2. of this
Explanation of Provisions. The Treasury
Department and the IRS welcome public
comment on the proposed adoption of a
modified 1374 approach for determining
RBIG and RBIL.
B. Consideration and Proposed
Elimination of the 338 Approach
After study, and based on taxpayer
input, the Treasury Department and the
IRS have decided not to incorporate the
338 approach into these proposed regu-
lations. As described in part I.B.1. of this
Explanation of Provisions, the Treasury
Department and the IRS have conclud-
ed that the 338 approach lacks sufficient
grounding in the statutory text of section
382(h). Further, the Treasury Department
and the IRS have determined that the me-
chanics underlying the 338 approach (i)
are inherently more complex than the ac-
crual-based 1374 approach, (ii) can result
in overstatements of RBIG and RBIL, and
(iii) as a result of the TCJA, would require
substantial modifications to eliminate
increased uncertainty and ensure appro-
priate results. By eliminating the 338 ap-
proach, the Treasury Department and the
IRS have determined that these proposed
regulations would significantly reduce
current and future complexity of section
382(h) computations for taxpayers and the
IRS alike. The Treasury Department and
the IRS welcome public comment on this
proposed elimination of the 338 approach
for determining RBIG and RBIL.
1. Historical Weaknesses of the 338
Approach
The 338 approach originated in sub-
regulatory guidance set forth in Notice
2003-65, and possesses significantly less
grounding in the statutory text of section
382(h) than the 1374 approach. The com-
paratively tenuous connection between
the 338 approach and the plain meaning
of the statutory text of section 382(h) is
exemplified by the method by which the
338 approach identifies RBIG. Under the
338 approach, depreciation deductions
on certain built-in gain assets give rise to
RBIG, even though no actual recognition
of gain or income has occurred. However,
sections 382(h)(2)(A) and 382(h)(6)(A)
do not authorize RBIG treatment in the
absence of actual gain or income recog-
nized by the loss corporation.
Further, commentators have noted that
difficult questions arise regarding deemed
tiered section 338 elections when the 338
approach is applied to a loss corporation
that is the parent of other corporations. For
example, there are often significant differ-
ences between the basis of stock held by
a loss corporation in subsidiaries and the
basis of the assets held by the subsidiar-
ies, and those differences create disparate
outcomes. Tiered section 338 elections,
including with respect to controlled for-
eign corporations, could have significant
impacts on the outcomes produced under
this approach.
2. Additional Complications of the 338
Approach Following the TCJA
The Treasury Department and the IRS
introduced the 338 approach in 2003 af-
ter substantial review of the manner in
which then-applicable Code provisions
would apply to a section 338 election. In
the pre-TCJA environment, provisions of
the Code largely would have applied to
the taxpayer in the same manner under a
hypothetical sale resulting from a section
338 election as those provisions would
have applied to the taxpayer without that
hypothetical-sale treatment. However,
certain important changes under the TCJA
have caused the treatment of newly pur-

chased assets to diverge from the treat-
ment of historic assets, thus potentially
compromising the mechanics of the 338
approach.
For example, the Treasury Department
and the IRS have observed that TCJA
amendments to section 168(k) invalidate
the key assumption underlying applica-
tion of the 338 approach to depreciable
(“wasting”) assets, which is to reflect an
estimate of income or expense generat-
ed by an asset during a particular peri-
od. Consequently, to prevent unintended
collateral consequences of the additional
first-year depreciation available under
amended section 168(k), the Treasury De-
partment and the IRS published Notice
2018-30 (2018-21 I.R.B. 610). Without
the additional guidance set forth in Notice
2018-30, the Treasury Department and the
IRS concluded that the 338 approach’s
hypothetical cost recovery deduction re-
sulting from a hypothetical application
of additional first-year depreciation under
section 168(k) would fail to provide a rea-
sonable estimate of the income or expense
produced by a built-in gain or loss asset
during the recognition period.
Moreover, the Treasury Department
and the IRS have identified additional is-
sues that would arise from the interaction
of the 338 approach with other provisions
of the TCJA, each of which would require
extensive study and potentially the issu-
ance of additional guidance. For example,
the limitation on a loss corporation’s in-
terest deduction under amended section
163(j) and the modifications to the NOL
deduction rules under amended section
172 are each based on variants of taxable
income. However, a hypothetical sale of
a loss corporation’s assets under section
338 upon an ownership change would re-
sult in different taxable income computa-
tions than before the TCJA. Unanswered
questions related to sections 163(j) and
172 would further complicate application
of the 338 approach. Further, income in-
clusions under section 951A may increase
existing concerns (including as a result of
potential changes in hypothetical QBAI
basis from deemed tiered section 338
elections) arising under the 338 approach.
Taken as a whole, the Treasury Depart-
ment and the IRS have determined that
the continued application of the 338 ap-
proach likely would not be tenable after
the changes to the Code enacted by the
TCJA. The Treasury Department and the
IRS request public comment on the pro-
posed elimination of the 338 approach for
determining RBIG and RBIL, including
detailed comments with regard to whether
it would be appropriate within the limits
of the statute to consider special rules for
insolvent or bankrupt loss corporations,
and whether a redefinition of the date
on which the recognition period begins
would increase simplification.
II. Description of Proposed NUBIG/
NUBIL Safe Harbor and Proposed 1374
Approach
A. Overview
The proposed approach described in
this part II incorporates certain modifica-
tions to the NUBIG/NUBIL safe harbor
and the 1374 approach to ensure greater
consistency between (i) amounts that are
included in the NUBIG/NUBIL compu-
tation and (ii) items that could become
RBIG or RBIL during the recognition
period. These modifications would better
implement the requirements of section
382(h)(6)(C). As described in this part II,
the RBIG and RBIL rules remain closely
based upon the 1374 approach set forth in
Notice 2003-65. However, these proposed
regulations would make the modifications
described in this part II to improve accu-
racy, particularly with regard to COD in-
come and deductions for the payment of
contingent liabilities.
B. Proposed Rules for Computation of
NUBIG or NUBIL
1. In General
The proposed rules regarding the com-
putation of NUBIG/NUBIL set forth in
these proposed regulations would capture
a range of items that closely tracks the
NUBIG/NUBIL safe harbor computa-
tion under Notice 2003-65. However, the
proposed regulations would enhance the
transparency and clarity of that computa-
tion by making its component steps more
explicit. Specifically, the proposed NU-
BIG/NUBIL computation first takes into
account the aggregate amount that would
be realized in a hypothetical disposition of
all of the loss corporation’s assets in two
steps treated as taking place immediately
before the ownership change. In the first
step, the loss corporation is treated as
satisfying any inadequately secured non-
recourse liability by surrendering to each
creditor the assets securing such debt.
In the second step, the loss corporation
is treated as selling all remaining assets
pertinent to the NUBIG/NUBIL computa-
tion in a sale to an unrelated third party,
with the hypothetical buyer assuming no
amount of the seller’s liabilities. That total
hypothetical amount realized by the loss
corporation pursuant to steps one and two
is then decreased by the sum of the loss
corporation’s deductible liabilities (both
fixed and contingent), and also decreased
by the loss corporation’s basis in its assets.
Finally, the decreased hypothetical total is
then increased or decreased, as applicable,
by the following: (1) the net amount of the
total RBIG and RBIL income and deduc-
tion items that could be recognized during
the recognition period (excluding COD
income); and (2) the net amount of posi-
tive and negative section 481 adjustments
that would be required to be included on
the previously-described hypothetical dis-
posal of all of the loss corporation’s assets.
The Treasury Department and the IRS
welcome public comment on all aspects of
these proposed rules regarding the compu-
tation of NUBIG and NUBIL.
2. Proposed Adjustments to Account for
Built-in COD Income
Section 61(a)(12) of the Code provides
that gross income includes COD income,
except as provided by law. Section 108(a)
provides, in part, that gross income of a C
corporation does not include COD income
of the taxpayer if the discharge occurs in a
title 11 case, or the discharge occurs when
the taxpayer is insolvent, but only to the
extent of the insolvency (excluded COD
income).
If a taxpayer has excluded COD in-
come, section 108(b)(1) requires the tax-
payer to reduce its tax attributes by the
amount excluded. In general, pursuant to
section 108(b)(2), tax attributes are re-
duced in the following order: NOLs and
NOL carryovers, general business credits
under section 38, minimum tax credits
under section 53(b), net capital losses and
Bulletin No. 2019–40 789 September 30, 2019

September 30, 2019 790 Bulletin No. 2019–40
capital loss carryovers, asset basis, passive
activity loss and credit carryovers under
section 469(b), and foreign tax credits and
foreign tax credit carryovers. Any amount
of debt discharge that remains after attri-
bute reduction is not includible in income.
See H.R. Rep. No. 96-833 at 11 (1980); S.
Rep. No. 96-1035 at 13 (1980).
These provisions are designed to “pre-
serve the debtor’s ‘fresh start’ after bank-
ruptcy.” H.R. Rep. No. 96-833 at 9 (1980);
see S. Rep. No. 96-1035 at 10 (1980). In
addition, they are intended to “carry out
the Congressional intent of deferring, but
eventually collecting within a reasonable
period, tax on ordinary income realized
from debt discharge.” H.R. Rep. No. 96-
833 at 9 (1980); see S. Rep. No. 96-1035
at 10 (1980). By making attributes un-
available to offset income in later years,
the provisions offer the debtor a tempo-
rary, rather than a permanent, deferral of
tax.
As discussed in part II of the Back-
ground section, significant uncertainty has
existed with regard to administering the
built-in gain and loss framework of sec-
tion 382(h). However, in administering
this area, the Treasury Department and the
IRS have always sought to implement a
guiding principle discussed in the section
382 legislative history, which is common-
ly referred to as the “neutrality principle.”
Under this principle, the built-in gains and
losses of a loss corporation, once recog-
nized after an ownership change, gener-
ally are to be treated in the same manner
as if they had been recognized before the
ownership change. For example, it is the
neutrality principle that causes RBIL to be
limited in the same manner as a pre-change
NOL carryforward or net capital loss car-
ryforward. Similarly, in the built-in gain
context, the neutrality principle dictates
that section 382-limited losses be freely
usable against RBIG because, had the gain
been taken into account before the own-
ership change, use of the loss would not
have been subject to (that is, limited by)
section 382. Under section 382(h), RBIG
results in a dollar-for-dollar increase in the
loss corporation’s section 382 limit in or-
der to replicate this pre-ownership change
treatment. See S. Rep. No. 99-313 at 235;
H.R. Rep. No 99-426 at 261.
In Notice 2003-65, the Treasury De-
partment and the IRS attempted to provide
guidance integrating into the NUBIG/NU-
BIL computation the amount of insolven-
cy of the loss corporation (the amount by
which its liabilities exceed the value of its
assets) and, therefore, the maximum pos-
sible amount of “built-in” COD income,
as of the change date. However, Notice
2003-65 does not distinguish between the
eventual excluded or included nature of
COD income actually recognized by the
loss corporation during the recognition
period. After administrative experience
under Notice 2003-65 and as highlight-
ed by commentators, the Treasury De-
partment and the IRS have determined
that this failure to distinguish between
includable and excludable COD income
results in the overstatement of RBIG (or
understatement of RBIL) in contravention
of section 382(h)(6)(C). This failure also
effectively provides for a duplicated ben-
efit under the section 382(h) RBIG rules
in certain cases. The Treasury Department
and the IRS interpret section 382(h)(6)(C)
as requiring inclusion in the NUBIG/NU-
BIL computation only the amounts that
would be treated as RBIG or RBIL if those
amounts were properly taken into account
during the recognition period.
Further, the Treasury Department and
the IRS have determined that the treatment
of COD income under Notice 2003-65 vi-
olates the neutrality principle previously
discussed. The Treasury Department and
the IRS have determined that RBIG treat-
ment (as well as the ancillary increase in
NUBIG or decrease in NUBIL) should be
available only to the extent that the neu-
trality principle requires an increase in the
loss corporation’s section 382 limitation.
The application of the attribute reduc-
tion rules of section 108(b) to excluded
COD income complicates the RBIG and
NUBIG calculation. The Treasury Depart-
ment and the IRS understand that most
excluded COD income is offset under
section 108(b) by reducing tax attributes
of the loss corporation that are treated as
pre-change losses under section 382. To
the extent that pre-change losses have al-
ready been used to offset this pre-change
income, the neutrality principle prohibits
an increase in the section 382 limitation.
Indeed, such an increase could make ex-
cluded COD income more attractive than
included COD income (or any other built-
in gain item) for purposes of section 382.
For this reason, the Treasury Department
and the IRS have determined that the rec-
ognition of such excluded COD income
should not generate RBIG. Because NU-
BIG functions as a ceiling on the amount
of RBIG that may be claimed (and the cor-
responding amount of increase in the sec-
tion 382 limitation), there does not appear
to be a policy need nor a statutory basis
for adjusting the NUBIG/NUBIL compu-
tation if there is no need to increase the
section 382 limitation.
Inclusion of excludable COD income
in the calculation of NUBIG/NUBIL
would be particularly distortive if a loss
corporation deconsolidates from a group
as a result of its ownership change, and
recognizes excludable COD income on
the change date. Under the consolidated
return regulations, any excludable COD
income recognized on the date of decon-
solidation is treated as attributable to the
taxable year of the transferor group (rather
than post-change, in the loss corporation’s
separate taxable year). Therefore, such
excludable COD income should not be
treated as RBIG (pre-change income rec-
ognized in the post-change period).
Accordingly, these proposed regula-
tions generally would not allow COD
income to be included in the calculation
of NUBIG/NUBIL, but would provide
certain exceptions. Includable COD by its
nature is not complicated by the interac-
tion of section 108(b). Therefore, to sat-
isfy the neutrality principle, all includable
COD income of the loss corporation that
is recognized on recourse debt during the
12-month period following the change
date would be eligible for inclusion in
the NUBIG/NUBIL computation, subject
to limitations discussed in part II.C.2 of
this Explanation of Provisions. However,
these proposed regulations would permit
excluded COD income items to be treated
as RBIG (and thus affect NUBIG/NUBIL
calculation) only to the extent described in
part II.C of this Explanation of Provisions.
The Treasury Department and the IRS
welcome public comment on the proposed
regulations’ approach regarding exclu-
dible and includible COD income in cal-
culating NUBIG and NUBIL, including
comments with regard to whether it would
be appropriate within the limits of the stat-
ute to consider special rules for insolvent
or bankrupt loss corporations. Comments

Bulletin No. 2019–40 791 September 30, 2019
are also invited with regard to the possi-
bility of redefining the recognition period
to begin on the date after the ownership
change, and any issues that might be elim-
inated or created by such a redefinition.
C. Proposed Rules for Identification of
RBIG and RBIL Income and Deduction
Items
1. In General
These proposed regulations would ap-
ply a methodology for identifying RBIG
or RBIL that closely tracks the 1374 ap-
proach described in Notice 2003-65. This
approach is generally accrual based, with
specific exceptions. Many of the special
rules incorporated in these proposed regu-
lations originate in regulations underlying
section 1374. However, these proposed
regulations would make minor changes
to improve the computational accuracy
of the 1374 approach. For example, in re-
sponse to comments on Notice 2003-65,
these proposed regulations would provide
an improved methodology for computing
the amount of depreciation deductions
treated as RBIL during the recognition
period.
In addition, these proposed regulations
would significantly modify the 1374 ap-
proach set forth in Notice 2003-65 to in-
clude as RBIL the amount of any deduct-
ible contingent liabilities paid or accrued
during the recognition period, to the extent
of the estimated value of those liabilities
on the change date. Commentators noted
that Notice 2003-65 appeared to include
this estimated amount in its NUBIG/
NUBIL computation, but did not treat
deductible liability payments or accruals
as RBIL. That incongruity contravenes
section 382(h)(6)(C), which requires that
items be included in the NUBIG/NUBIL
computation if they would be treated as
RBIG or RBIL if properly taken into ac-
count during the recognition period.
Further, these proposed regulations
would add a rule clarifying that certain
items do not constitute RBIG. For exam-
ple, the proposed regulations provide that
dividends paid on stock during the rec-
ognition period are not RBIG, even if the
loss corporation has a NUBIG and there is
gain built into the pertinent stock immedi-
ately before the ownership change. On the
other hand, gain recognized on the dispo-
sition of stock generally would be treat-
ed as giving rise to RBIG. However, gain
taxable as a dividend under section 1248
would generally give rise to a deduction
under section 245A, with no net income
being generated. Because no losses would
be required to offset this item of income,
the Treasury Department and the IRS have
determined that this income item should
not give rise to RBIG.
The Treasury Department and the IRS
welcome public comment on the proposed
regulations’ identification of RBIG and
RBIL. In particular, the Treasury Depart-
ment and the IRS request comments re-
garding whether dividends paid on built-
in gain stock should constitute RBIG, and
whether final regulations should clarify
the eligibility of other, similar income
items for RBIG treatment.
2. Proposed Treatment of COD Income
as RBIG
These proposed regulations would pro-
vide limitations on the extent to which ex-
cluded COD income is treated as RBIG,
and thus would impact the calculation
of NUBIG/NUBIL. As discussed in part
II.B.2 of this Explanation of Provisions,
RBIG effectuates the neutrality principle
in the post-change period and therefore
COD income must be able to be taken into
account during the post-change period in
order to qualify for RBIG status. Thus,
COD income that is taken into account
during the pre-change period (for exam-
ple, excluded COD income recognized
by a consolidated group member on an
ownership change that causes the mem-
ber to deconsolidate) should not qualify
as RBIG. The proposed regulations also
provide that COD income recognized
during the post-change period generally
would not be treated as RBIG. However,
these proposed regulations would provide
taxpayers with the option to treat certain
COD income recognized during the first
12 months of the recognition period as
RBIG (and consequently to make corre-
sponding adjustments to the taxpayer’s
NUBIG/NUBIL computation). For ex-
ample, the proposed regulations provide
that COD income on recourse debt that
is included in a loss corporation’s taxable
income under section 61(a)(12) during the
first 12 months of the post-change period
would be treated as RBIG as described in
part II.B.2. of this Explanation of Provi-
sions. Therefore, the loss corporation’s
section 382 limitation would be increased
by the amount of such COD income,
and pre-change losses may be deducted
in the amount of the COD income. The
12-month limitation on RBIG treatment
is adopted from the 1374 approach under
Notice 2003-65.
Under the proposed regulations, ex-
cluded COD income recognized during
the post-change period generally would
not be treated as RBIG, in order to prevent
the duplication of section 382 benefits.
For example, if excluded COD income
recognized during the post-change period
(but not included in a loss corporation’s
income) is offset by pre-change losses, the
loss corporation would receive the same
benefit as a loss corporation that recog-
nized included COD income: the ability to
offset the COD income with pre-change
losses. Therefore, the Treasury Depart-
ment and the IRS have determined that
extending the additional benefit of RBIG
treatment (and the resulting increase in
NUBIG or decrease in NUBIL) to post-
change period excluded COD income
generally would result in a duplication of
section 382 benefits to the loss corpora-
tion.
However, these proposed regulations
would provide two exceptions to this
general rule to address cases in which ex-
cluded COD income recognized by a loss
corporation during the first 12 months of
its post-change period is offset by post-
change tax attributes under section 108(b)
or by basis reduction in assets held as of
the change date under section 1017. To the
extent that excluded COD income is off-
set by post-change tax attributes, the loss
corporation would not yet have used pre-
change loss equal to the amount of that
excluded COD income. Therefore, the ex-
cluded COD income would be treated as
RBIG, and the loss corporation’s NUBIG/
NUBIL would be adjusted according-
ly. Similarly, to the extent that excluded
COD income is offset by reduction in the
tax basis of assets held immediately be-
fore the ownership change, the loss cor-
poration would not have used pre-change
loss equal to that excluded COD income.
Under these proposed regulations (as un-

September 30, 2019 792 Bulletin No. 2019–40
der Notice 2003-65), that basis reduction
would be treated as occurring immediately
before the ownership change. As a result
of that basis reduction, the corresponding
amount of excluded COD income would
be included in the NUBIG/NUBIL com-
putation, and no further adjustment would
be necessary. Accordingly, the exclud-
ed COD income would not be treated as
RBIG, to avoid double-counting. Any ad-
ditional gain on the disposition of assets
during the recognition period resulting
from the basis adjustment would be treat-
ed as RBIG, to the extent of the NUBIG
limitation.
Different treatment is required, to the
extent that excluded COD is offset by re-
duction in the tax basis of assets that were
acquired after the ownership change. The
basis adjustments to those assets would
not result in an adjustment to NUBIG/
NUBIL, nor could any RBIG be produced
from those assets because assets not held
at the time of the ownership change are not
included in the NUBIG/NUBIL computa-
tion. Similarly, RBIG cannot be generated
on the sale of assets that were not held at
the time of the ownership change. There-
fore, the excluded COD income would be
treated as RBIG and the NUBIG/NUBIL
would be adjusted accordingly.
The Treasury Department and the IRS
welcome public comment on the proposed
regulations’ approach regarding the treat-
ment of excludible and includible COD
income as RBIG. Further, the Treasury
Department and the IRS request com-
ments regarding what rules should govern
the treatment of COD that is excluded un-
der section 108(a)(1)(C) and (D) (quali-
fied farm indebtedness and qualified real
estate business indebtedness).
3. Overall limitations on amount of RBIL
for COD on Recourse Debt
These proposed regulations set forth
two different RBIG ceilings with re-
gard to COD on recourse debt. The first
ceiling applies to taxpayers that are in
bankruptcy at the time of the ownership
change, and have COD income pursuant
to that bankruptcy action during the first
twelve months of the recognition period.
The maximum RBIG for those taxpayers
related to excluded COD income would
be the amount of indebtedness discharged
in that bankruptcy action. The second
ceiling applies to all other taxpayers who
recognize COD income during the first
twelve months of the recognition period.
The maximum RBIG for those taxpayers
is the excess of liabilities over asset value
immediately before the change date, with
certain adjustments. Adjustments must be
made to avoid double counting amounts
of excluded COD that are offset by reduc-
tions in asset basis under sections 108(b)
and 1017. The Treasury Department and
the IRS welcome public comment on
these two RBIG ceilings with regard to
COD income on recourse debt.
4. Special Rules for Nonrecourse Debt
RBIG status for COD income on non-
recourse debt recognized in the first 12
months of the recognition period is sub-
ject to rules similar to those previously
described. However, such COD income is
treated as built-in gain only to the extent
that the nonrecourse debt was under-se-
cured immediately before the ownership
change. Because a nonrecourse creditor
has a claim only on the assets securing the
indebtedness, the amount of the impair-
ment at the time of the ownership change
is the appropriate measure of built-in
COD in the nonrecourse debt. Further,
RBIG recognized on nonrecourse debt
during the recognition period does not re-
sult in an adjustment to NUBIG/NUBIL,
because the amount of the impairment to
the nonrecourse debt is already built into
the initial NUBIG/NUBIL computation
with regard to the deemed disposition
of assets. The Treasury Department and
the IRS welcome public comment on
the treatment of COD income on non-re-
course debt, including comments on the
treatment of accrued but unpaid interest.
D. Interactions between sections 163(j)
and 382
The addition of new section 163(j) un-
der the TCJA has created numerous issues
concerning the interaction of those inter-
est deduction limitations with section 382.
These proposed regulations attempt to
eliminate the possibility of duplication of
RBIL items, as well as to clarify the treat-
ment under section 382 of certain items
that are allocated from a partnership.
1. Elimination of Possible Duplicative
Recognized Built-in Loss
Proposed §1.382-7 addresses the possi-
ble duplicative application of section 382
to certain disallowed business interest ex-
pense carryforwards, including the portion
of any disallowed business interest expense
of the old loss corporation that is (i) paid
or accrued in the taxable year of the testing
date (as defined in §1.382-2(b)(4)), (ii) at-
tributable to the pre-change period, and
(iii) carried forward into later years (col-
lectively, a section 382 disallowed business
interest carryforward). Section 382 disal-
lowed business interest carryforwards are
subject to section 382 by virtue of section
382(d)(3), which treats any section 163(j)
(2) carryover from a pre-change period as
a pre-change loss. Additionally, such car-
ryforwards are potentially subject to the
section 382 limitation under section 382(h)
(6) as RBIL. Section 382(h)(6)(B) provides
that any amount allowable as a deduction
during the recognition period (within the
meaning of section 382(h)(7)), determined
without regard to any carryover, that is at-
tributable to periods before the change date
is treated as a RBIL for the taxable year for
which it is allowable as a deduction. Fur-
ther, section 382(h)(6)(C) provides that
the amount of NUBIG or NUBIL must be
properly adjusted for amounts that would
be treated as RBIG or RBIL under section
382(h)(6) if such amounts were properly
taken into account or allowable as a deduc-
tion during the recognition period.
Section 382 disallowed business inter-
est carryforwards should not be counted
twice for purposes of the application of
section 382. Subjecting the same section
382 disallowed business interest carryfor-
ward to the section 382 regime in two dif-
ferent ways could result in a double reduc-
tion of the annual section 382 limitation.
Moreover, because disallowed business
interest expense carryforwards would be
absorbed before NOL carryovers under
proposed §1.383-1(d), subjecting the same
disallowed business interest expense car-
ryforward to the section 382 regime twice
could preclude taxpayers from utilizing
their NOL carryovers or other attributes.
In addition, treatment of disallowed busi-
ness interest carryforwards as potential
RBIL would result in an unwarranted in-
crease in NUBIL (or decrease in NUBIG).

Bulletin No. 2019–40 793 September 30, 2019
Accordingly, proposed §1.382-7(d)(5)
would provide that section 382 disallowed
business interest carryforwards would not
be treated as RBIL under section 382(h)
(6)(B) if such amounts were allowable as
a deduction during the recognition period.
2. Treatment of Excess Business Interest
Expense of a Partnership
Proposed §1.382-7 addresses the appli-
cation of section 382(h) to excess business
interest expense of a partnership to the ex-
tent that the item was not suspended under
section 704(d) and is allocable to an old
loss corporation (as partner) with regard
to a period prior to an ownership change
(section 382 excess business interest ex-
pense). Section 382(h)(3)(A)(i) provides
that the amount of the old loss corpora-
tion’s NUBIG or NUBIL includes the
amount by which the aggregate fair mar-
ket value of certain assets is more or less
than the aggregate adjusted basis of such
assets. As provided in section 163(j)(4)
(B)(iii) and proposed §1.163-6(h)(3)(i), if
a partner disposes of all or substantially all
of its partnership interest, the adjusted ba-
sis of the partner in the partnership interest
would be increased immediately before
the disposition to reflect the partner’s sec-
tion 382 excess business interest expense
from the partnership, if any. Therefore,
proposed §1.382-7(c)(3)(iii)(E) would
provide that, for purposes of determining
RBIL under section 382(h)(2)(B)(ii), as
well as for computing NUBIG or NUBIL
under section 382(h)(3)(A), a loss corpo-
ration’s adjusted basis in a partnership in-
terest is adjusted as if the loss corporation
disposed of all or substantially all of its
partnership interests immediately before
the ownership change.
During the recognition period, a deduc-
tion or loss equal to the section 382 excess
business interest expense could be recog-
nized either when the loss corporation is
able to deduct the section 382 excess busi-
ness interest expense, or when it sells all
or substantially of its partnership interest.
In either case, such amount is properly
characterized as RBIL. However, in either
case, no adjustment to the loss corpora-
tion’s NUBIG or NUBIL computation
would be necessary, because the positive
adjustment to the basis of the partnership
interest ensures that an amount equal to
the section 382 excess business interest
expense is included in the computation.
A partner also can be allocated section
382 excess business interest expense that
is characterized as negative section 163(j)
expense. See §1.163(j)-6(h)(1) as pro-
posed in REG-106089-18 (83 FR 67490,
67556 (Dec. 28, 2018)). Negative section
163(j) expense does not reduce the part-
ner’s basis in the partnership and there-
fore would not be taken into account if
the partner sold all or substantially all of
its partnership interest. However, if the
loss corporation were able to deduct the
negative section 163(j) expense during
the recognition period, then such expense
presumably could be treated as RBIL pur-
suant to section 382(h)(6)(B). These pro-
posed regulations do not address whether
deductions resulting from negative section
163(j) allocations are RBIL.
The Treasury Department and the IRS
request comments as to whether a corpo-
rate partner’s section 382 excess business
interest expense and negative section
163(j) expense should be treated as a
built-in item under section 382(h)(6) or as
a section 382 disallowed business interest
carryforward, and therefore be treated as a
pre-change loss.
Applicability Dates
Section 7805(b)(1)(A) and (B) of the
Code generally provides that no tempo-
rary, proposed, or final regulation relating
to the internal revenue laws may apply to
any taxable period ending before the ear-
liest of (A) the date on which such regu-
lation is filed with the Federal Register,
or (B) in the case of a final regulation, the
date on which a proposed or temporary
regulation to which the final regulation re-
lates was filed with the Federal Register.
Except as otherwise provided in the
following sentence, these regulations are
proposed to be effective for ownership
changes occurring after the date the Trea-
sury decision adopting these proposed
regulations as final regulations is pub-
lished in the Federal Register. However,
taxpayers and their related parties, within
the meaning of sections 267(b) and 707(b)
(1), may apply these proposed regulations
to any ownership change occurring during
a taxable year with respect to which the
period described in section 6511(a) has not
expired, so long as the taxpayers and all
of their related parties consistently apply
the rules of these proposed regulations to
such ownership change and all subsequent
ownership changes that occur before the
applicability date of final regulations.
Effect on Other Documents
The following publications are pro-
posed to be withdrawn and obsoleted ef-
fective the day after the date the Treasury
decision adopting these proposed regula-
tions as final regulations is published in
the Federal Register:
Notice 87-79 (1987-2 C.B. 387)
Notice 90-27 (1990-1 C.B. 336)
Notice 2003-65 (2003-2 C.B. 747)
Notice 2018-30 (2018-21 I.R.B. 610)
Special Analyses
I. Regulatory Planning and Review –
Economic Analysis
Executive Orders 12866 and 13563 di-
rect agencies to assess costs and benefits
of available regulatory alternatives and, if
regulation is necessary, to select regulato-
ry approaches that maximize net benefits
(including (i) potential economic, envi-
ronmental, and public health and safety
effects, (ii) potential distributive impacts,
and (iii) equity). Executive Order 13563
emphasizes the importance of quantifying
both costs and benefits, reducing costs,
harmonizing rules, and promoting flexi-
bility.
These proposed regulations have been
designated as subject to review under
Executive Order 12866 pursuant to the
Memorandum of Agreement (April 11,
2018) (MOA) between the Treasury De-
partment and the Office of Management
and Budget (OMB) regarding review of
tax regulations. The Office of Information
and Regulatory Affairs has designated
these proposed regulations as significant
under section 1(b) of the MOA. Accord-
ingly, the OMB has reviewed these pro-
posed regulations.
A. Background
In general, section 382 limits the us-
age of a corporation’s tax attributes after
that corporation experiences an ownership

September 30, 2019 794 Bulletin No. 2019–40
change. Limited tax attributes include,
among other items, NOLs and built-in
losses. The limit equals the product ob-
tained by multiplying a prescribed inter-
est rate by the value of the stock of the
corporation (referred to as the “old loss
corporation”) on the change date. This
product represents a proxy for the amount
of income created by the assets held by
the corporation prior to the ownership
change. The section 382 limit reflects
Congress’s intent that, generally, NOLs
should not be more valuable to an acquir-
er than to the going concern that created
them. In the conference report to the Tax
Reform Act of 1986, Congress expressed
that the previously described formula “is
necessary to ensure that the value of NOL
carryforwards to the buying corporation is
not more than their value to the loss cor-
poration.” H.R. Rep. No. 99-841, at II-185
(1986).
Section 382(h) specifies the treatment
of gains and losses accrued by a corpora-
tion prior to a change in ownership. As ex-
plained in the legislative history, the rules
are intended to treat built-in gains and
losses that are recognized after the owner-
ship change the same as if they had been
recognized before the ownership change.
As described by Congress, “[i]f built-
in losses were not subject to limitations,
taxpayers could reduce or eliminate the
impact of the general rules by causing a
loss corporation (following an ownership
change) to recognize its built-in losses
free of the special limitations (and then
invest the proceeds in assets similar to the
assets sold).” Joint Committee on Tax’n,
General Explanation of the Tax Reform
Act of 1986 (Pub. L. 99-514) (May 4,
1987), JCS-10-87, at p. 298. The neutral
treatment of gains and losses recognized
before and after a change in ownership is
accomplished by allowing the recognition
of built in gain to increase the section 382
limitation whereas the recognition of built
in loss is subject to the section 382 lim-
itation.
The following example (Example 1) il-
lustrates this principle. Assume that a loss
corporation (LossCorp), as of the change
date, has $500 in NOL carryforwards and
holds only one asset (Asset A) with a fair
market value of $100 and a basis of $120.
If LossCorp disposed of Asset A immedi-
ately prior to the ownership change, a $20
loss would be recognized. Additionally,
assuming the taxpayer made a closing-of-
the-books election under §1.382-6(b), the
amount of the NOL carryforwards would
be $520. If instead, Asset A was disposed
of after the change date, then sections
382(h)(1) and 382(h)(2) recognize that the
$20 loss is attributable to the period pri-
or to the ownership change and therefore
subject it to a section 382 limitation in the
same manner as if it was an NOL carryfor-
ward (disregarding a de minimis threshold
rule set forth in section 382(h)(3)(B)). In
the language of section 382, the $20 loss
would be RBIL (that is, recognized built-
in loss). These rules operate to eliminate
the significance of the disposition’s timing
and preserve neutrality.
Alternatively, assume in this example
(Example 2) that Asset A’s fair market val-
ue on the change date were $150, and thus
LossCorp had a built-in gain on the asset.
If LossCorp disposed of Asset A prior to
the change date, assuming the taxpayer
made a closing-of-the-books election un-
der §1.382-6(b), then the $30 in income
would reduce its NOL carryforward to
$470. If instead Asset A were disposed of
after the change date, then sections 382(h)
(1) and 382(h)(2) recognize that the $30
gain is attributable to the period prior to
the ownership change and therefore in-
creases LossCorp’s section 382 limitation
for the year (disregarding the de minimis
threshold rule set forth in section 382(h)
(3)(B)), thereby allowing LossCorp to
freely use the pre-change NOLs to off-
set the $30 in income. In the language of
section 382, the $30 in income would be
RBIG (that is, recognized built-in gain).
In this fact pattern, the rules under section
382 would eliminate the significance of
the disposition’s timing and preserve neu-
trality by allowing the NOLs to be applied
following the ownership change with re-
spect to gain that was “built-in” prior to
the ownership change.
Under section 382(h), the total amount
of RBIL must not exceed NUBIL (that is,
net unrealized built-in loss) and the total
amount of RBIG must not exceed NUBIG
(that is, net unrealized built-in gain). More
precisely, at the change date, a loss cor-
poration must compute the difference be-
tween the aggregate fair market value and
aggregate basis of all of its assets. In gen-
eral, (i) to the extent that this difference
is positive, a NUBIG results; and (ii) to
the extent that the difference is negative,
a NUBIL results. Both NUBIG and NU-
BIL are adjusted by section 382(h)(6)(C),
as discussed below. NUBIG and NUBIL
act as limitations to the aggregate amount
of RBIG and RBIL recognized during the
recognition period. For illustration, if Ex-
ample 2 were modified so that LossCorp
owned additional assets such that it had
NUBIL, the disposition of Asset A would
not create RBIG.
These proposed regulations would
primarily address the subcomponents of
RBIL, RBIG, NUBIL, and NUBIG that
are provided for by section 382(h)(6).
Specifically, section 382(h)(6)(A) pro-
vides that income items that are “properly
taken into account during the recognition
period,” but which are “attributable to pe-
riods before the change date,” are treated
as RBIG. Section 382(h)(6)(B) provides
a similar rule for deductions to be treated
as RBIL. Section 382(h)(6)(C) provides
that the amount of potential income items
under section 382(h)(6)(A) increases
NUBIG (or reduces NUBIL), whether or
not the income items were actually taken
into account during the recognition pe-
riod. Analogously, section 382(h)(6)(C)
provides that the amount of potential de-
duction items under section 382(h)(6)(B)
increases NUBIL (or reduces NUBIG),
whether or not the deduction items were
actually allowable as a deduction during
the recognition period. The proposed reg-
ulations clarify the definition and calcula-
tion of these components.
As is the case for section 382(h) gen-
erally, the rules under section 382(h)(6)
are again intended to preserve neutrality
between pre- and post-change date trans-
actions. Income items recognized prior to
the change date may have been freely off-
set with pre-change NOLs; thus, if those
same income items were recognized after
the change date, the neutrality principle
requires that pre-change NOLs be allowed
to freely offset it. RBIG treatment accom-
plishes this effect. Similar logic applies
with respect to deduction items.
In response to substantial uncertainty
regarding which income and deduction
items qualify under section 382(h)(6), the
IRS issued Notice 2003-65. Generally,
Notice 2003-65 provides two safe har-
bors for computing these items. The first

Bulletin No. 2019–40 795 September 30, 2019
safe harbor, referred to as the “1374 ap-
proach” (named after section 1374, which
addresses tax consequences regarding
built-in gains of C corporations that be-
come S corporations), relies generally on
accrual method of accounting principles.
The second safe harbor, referred to as the
“338 approach,” compares actual amounts
of income and deductions to the amounts
that would have been realized had a sec-
tion 338 election been made with respect
to a hypothetical stock purchase on the
change date. Notice 2018-30 amended
Notice 2003-65 by reversing an unintend-
ed change to both safe harbors that re-
sulted from TCJA amendments to section
168(k).
Broadly, for reasons discussed below,
these proposed regulations would make
mandatory the 1374 approach with certain
adjustments. These adjustments include
technical fixes to calculations involv-
ing COD income (that is, cancellation
of indebtedness income), deductions for
contingent liabilities, and cost recovery
deductions. Additionally, these proposed
regulations clarify that carryovers of sec-
tion 163(j) disallowed business interest
are counted only once for the purpose of
section 382.
B. No-action Baseline
The Treasury Department and the IRS
have assessed the benefits and costs of the
proposed regulations relative to a no-ac-
tion baseline reflecting anticipated Feder-
al income tax-related behavior in the ab-
sence of these proposed regulations.
C. Economic Analysis of Proposed
Regulations
1. Framework
In evaluating the economic efficiency
of these proposed regulations, this anal-
ysis considers two main factors. The first
factor regards compliance and administra-
tion costs. Mergers and acquisitions can
be very complicated transactions; thus,
compliance with certain aspects of Feder-
al income tax law can be onerous for tax-
payers, and examination can be difficult
for the IRS. As discussed further below
the Treasury Department projects that the
proposed regulations will reduce compli-
ance and enforcement costs relative to the
baseline primarily by eliminating duplica-
tive and potentially complicated calcula-
tions required to apply the 338 approach.
Greater efficiencies will also be gained
under the proposed regulations by reduc-
ing taxpayer disputes with the IRS regard-
ing the application of the 1374 approach.
The second factor considered is wheth-
er changes in mergers and acquisitions
potentially induced by the proposed regu-
lations are likely to be efficiency-enhanc-
ing or efficiency-reducing. If a merger
increases value only because of increased
potential NOL usage, then that merger
would be economically inefficient (even
ignoring antitrust concerns). Section 382
attempts to ensure that the NOLs of the
loss corporation can be used to the same
extent whether or not the loss corporation
is acquired by another corporation, which
implies that no transaction would take
place solely to increase NOL use. How-
ever, currently issued guidance regarding
section 382 may not strike that balance
perfectly. It is the determination of the
Treasury Department and the IRS that, for
the reasons discussed below, the currently
issued guidance on section 382(h) allows
too much NOL usage relative to the neu-
tral baseline. These proposed regulations
would modestly restrict NOL usage by re-
ducing the amount that would qualify as
RBIG, reducing the incentive to engage
in inefficient, tax-motivated mergers and
acquisitions.
The Treasury Department and the IRS
have not quantified the expected gains to
the U.S. economy arising from the dis-
cretionary aspects of the proposed reg-
ulations but expect them to be less than
$100 million per year ($2019), a thresh-
old established by the MOA and Execu-
tive Order 12866. For reasons discussed
further in section C.2. of the analysis, the
Treasury Department and IRS project that
the effect of the proposed regulations on
the number of mergers and acquisitions
will be small. The Treasury Department
and the IRS additionally project that the
change (that is, reduction) in compliance
costs will also be modest. The Treasury
Department and the IRS solicit comments
on this conclusion and particularly solicit
comments that provide data, evidence, or
models that would enhance the rigor by
which the non-revenue economic effects
might be determined for the final regula-
tions.
2. Making the 1374 approach mandatory
The Treasury Department and the IRS
have determined that the 1374 approach
would be simpler for taxpayers to comply
with, and simpler for the IRS to admin-
ister. Under Notice 2003-65, as modified
by Notice 2018-30, taxpayers subject to
section 382 would typically compute esti-
mates of NUBIG/NUBIL and RBIG/RBIL
under both the 1374 and 338 approaches to
determine which approach would provide
the more favorable result. Such duplica-
tive compliance costs are inherently eco-
nomically wasteful, even if they may have
been privately optimal (in other words,
they generated expected tax savings for
the corporation in excess of compliance
costs). Under these proposed regulations,
taxpayers would make computations un-
der only one approach, thereby reducing
inefficient compliance burdens.
In addition, the 1374 approach has
lower compliance costs than the 338 ap-
proach. Under the 1374 approach, tax-
payers need only record items of income
and deductions that they already account
for under well-known accrual method of
accounting principles. Furthermore, the
IRS can easily verify such amounts during
an examination. Under the 338 approach,
taxpayers must consider a hypothetical
transaction involving deemed asset sales.
With respect to tiered corporate structures,
an ownership change of the corporate par-
ent would require the analysis of deemed
asset sales not only at the corporate-parent
level, but also an analysis of deemed asset
sales at every lower corporate level. The
338 approach would pose significant, iter-
ative complexity for corporate structures
with several tiers of subsidiaries.
The Treasury Department and the IRS
have determined that between 7,000 and
15,000 firms per year will be affected
by these proposed regulations, based on
the checkbox on Line 16 of Form 1120,
Schedule K and other tax attributes. These
firms will see a reduction in compliance
costs under the 1374 approach, if they
were using the 338 approach or perform-
ing calculations under both approaches
under the baseline. The Treasury Depart-
ment and the IRS request public comment

September 30, 2019 796 Bulletin No. 2019–40
on any anticipated changes in compliance
costs due to the proposed elimination of
the 338 approach.
The Treasury Department and the IRS
project that the adoption of the 1374 ap-
proach as the sole approach under section
382(h) will not have a large effect on the
number of mergers and acquisitions that
take place. Such adoption of the 1374
approach will make certain mergers and
acquisitions somewhat less attractive.
However, the Treasury Department and
the IRS have determined that, historically,
most acquiring corporations behave as if
section 382 will limit the ability to utilize
substantially all pre-change NOLs. This
heuristic behavior implies that firms will
not be highly responsive to the changes set
forth by these proposed regulations.
It is important to note that any merg-
er or acquisition dissuaded by these pro-
posed regulations would tend to have been
economically inefficient not have been
undertaken except for the purpose of re-
ducing tax liability. Recall from Part C.1
of this section that the goal of section 382
is to ensure that NOL usage is approxi-
mately unaffected when a loss corporation
is acquired by a profitable corporation.
The Treasury Department and the IRS
have determined that the ability to toggle
between the 338 approach and the 1374
approach allows more NOL usage in the
case of an acquisition than would be the
case if the loss corporation continued in-
dependently. By eliminating the 338 ap-
proach, these proposed regulations move
closer to a neutral, economically efficient
position.
In particular, the most notable feature of
the 338 approach is that assets with built-
in gains can generate RBIG even without
a realization event. This is generally ad-
vantageous for taxpayers. This treatment
follows from the logic that such built-in
gain assets would have generated income
in subsequent years; in the absence of an
acquisition, such income could have been
offset freely by the old loss corporation’s
NOLs. The 338 approach prescribes a
proxy for that excess income amount: the
extent to which cost recovery deductions
(disregarding bonus depreciation under
section 168(k), per Notice 2018-30) under
a hypothetical purchase of each asset at its
current fair market value exceed actual al-
lowable cost recovery deductions.
The Treasury Department and the
IRS have determined that this treatment
of built-in gain assets under the 338 ap-
proach is problematic for two reasons.
First, the schedules for cost recovery de-
ductions were never intended to match
the production of income from each asset;
rather, they were intended to accelerate
cost recovery to stimulate investment.
Thus, this proxy is likely to, on average,
overstate income created by those assets,
further increasing NOL usage beyond the
neutral baseline. Second, such an adjust-
ment for income created by built-in gain
assets is unnecessary, as it is already taken
into account by section 382. Section 382
provides that the NOLs of the old loss cor-
poration can be used by the new loss cor-
poration up to the annual limit. This an-
nual limit is equal to a prescribed interest
rate multiplied by the value of the stock
of the old loss corporation, and serves as
a proxy for the income created by the as-
sets of the old loss corporation. Thus, to
the extent that the appreciated value of a
built-in gain asset is reflected in the val-
ue of the stock, the general rule of section
382 allows for the NOLs of the old loss
corporation to offset the flow of income
created by that asset. Therefore, the treat-
ment created by the 338 approach creates
a double benefit. By eliminating this treat-
ment, the proposed regulations reduce the
attractiveness of inefficient, tax-motivated
acquisitions, which enhances economic
efficiency.
3. Modification to treatment of COD
income
The proposed regulations also modify
the treatment of COD income under the
1374 approach. The baseline rules provide
that COD income enters into the NUBIG/
NUBIL calculations without regard to
whether that income was ultimately in-
cluded in, or excluded from, income by
the new loss corporation under the rules of
section 108. This issue is especially rele-
vant under the consolidated return regula-
tions regarding the application of section
108. Such regulations provide that, gen-
erally, when a member leaves its consol-
idated group, excluded COD income will
be taken into account by the consolidated
group and not the new loss corporation.
Therefore, inclusion of the COD amount
in the NUBIG/NUBIL calculations does
not reflect the economic reality of the tax-
payer and may inappropriately influence a
taxpayer’s decision of whether to volun-
tarily enter into bankruptcy. The proposed
regulations address this issue by ensuring
that COD income enters into the RBIG
and NUBIG/NUBIL calculations only to
the extent actually taken into account by
the new loss corporation. The Treasury
Department and the IRS have determined
that this revision will treat different types
of transactions more neutrally. Such treat-
ment will increase economic efficiency by
causing taxpayers to choose transactions
that are optimal for non-tax reasons rather
than for tax reasons.
4. Modification to treatment of contingent
liabilities
These proposed regulations would re-
vise the 1374 approach with respect to the
treatment of contingent liabilities. Under
Notice 2003-65, the estimated value of
contingent liabilities (as of the change
date) was included in the NUBIG/NUBIL
calculation. However, the ultimate pay-
ment of such liability did not give rise to
RBIL. This asymmetry violates the princi-
ple of neutrality between pre-change and
post-change deductions. If the old loss
corporation were able to pay a third party
to assume the liability prior to the own-
ership change, it would generate a deduc-
tion that increases the pre-change NOLs,
which would be limited after the owner-
ship change. If the liability were not treat-
ed as RBIL, the post-change realization
of that liability could freely offset other
sources of income. This non-neutrality
may distort decision-making and reduce
economic efficiency.
These proposed regulations would
address this issue by providing that pay-
ments of contingent liabilities represent
RBIL to the extent of the estimated value
of the contingent liability as of the change
date.
5. Modification to treatment of cost
recovery deductions
Section 382(h)(6)(B) provides that cost
recovery deductions during the recogni-
tion period are treated as RBIL, except to
the extent that the new loss corporation

Bulletin No. 2019–40 797 September 30, 2019
can establish that the deduction is not
attributable to a built-in loss. Intuitively,
RBIL includes cost recovery deductions
taken against assets whose depreciation
deductions are too large relative to the val-
ue of the asset. Under the baseline rules of
Notice 2003-65, the suggested approach is
to compare (1) actual depreciation deduc-
tions on a given asset to (2) the depreci-
ation deductions that would be allowable
(disregarding bonus depreciation under
section 168(k), per Notice 2018-30) if the
asset were hypothetically purchased at the
change date from a third party at its fair
market value. The excess of (1) over (2)
is treated as RBIL. Because depreciation
deductions under section 168 tend to be
larger closer to the beginning of an asset’s
life, this approach can lead to absurd re-
sults. In particular, it is possible to create
RBIL even when the fair market value is
equal to the adjusted basis.
These proposed regulations would
abandon that approach. Instead, the hypo-
thetical cost recovery deduction would be
computed by applying the same deprecia-
tion schedule actually used by the corpo-
ration to the fair market value of the asset.
This will generally narrow the role of such
RBIL treatment to taxpayers with an asset
with a fair market value that is less than
adjusted basis. Given the front-loading of
depreciation schedules (including under
section 168(k)), the Treasury Department
and the IRS project that the new rule will
cause RBIL to be calculated for far fewer
taxpayers and thus the change will reduce
compliance burden. Additionally, the new
rule will generally cause an increase in
allowable NOLs by reducing RBIL, con-
trary to the other rule changes in these
proposed regulations. However, the Trea-
sury Department and IRS project that the
effect of this change (in terms of gener-
ated RBIL/RBIG) will be quantitatively
less significant than other modifications,
such as the elimination of the section 338
approach.
6. Clarification of treatment of disallowed
business interest expense
Section 382(d)(3) provides that carry-
overs of disallowed interest under section
163(j) (as amended by the TCJA) are to
be treated analogously to NOLs, meaning
that their use would be limited after an
ownership change. Additionally, the gen-
eral rules of section 382(h)(6) could be in-
terpreted to cause such disallowed interest
to be RBIL if recognized during the recog-
nition period, as they may be “allowable
as a deduction during the recognition peri-
od” but “attributable to periods before the
change date.” Such treatment would cause
section 163(j) carryovers to be counted
twice for the purpose of section 382.
These proposed regulations would pre-
clude this possibility by clarifying that the
use of section 163(j) carryovers during the
recognition period would not give rise to
RBIL. This proposed clarification would
provide certainty to taxpayers that section
382 will operate as intended in this regard.
II. Paperwork Reduction Act
Pursuant to §1.382-11, a loss corpora-
tion must include a statement on or with
its tax return for each taxable year that it is
a loss corporation in which an owner shift,
equity structure shift, or other transaction
described in §1.382-2T(a)(2)(i) occurs.
The statement must include, among other
things, attributes described in §1.382-2(a)
(1)(i) that caused the corporation to be a
loss corporation. One of the attributes de-
scribed in §1.382-2(a)(1)(i) is a loss cor-
poration’s NUBIL (that is, net unrealized
built-in loss), if any. The existing collec-
tion of information under §1.382-11 has
been reviewed and approved by the OMB
in accordance with the Paperwork Re-
duction Act of 1995 (44 U.S.C. 3507(d))
(PRA) under OMB control number 1545-
2019. The collection of information is
necessary to enable the IRS to verify the
amount of any attributes that are subject
to section 382.
These proposed regulations provide
guidance regarding the calculation of
built-in gains and losses under section
382, including whether a corporation has
a NUBIL. Therefore, these proposed reg-
ulations could cause a corporation to have
a NUBIL when they would not have had
one in the absence of these proposed reg-
ulations. As a result, a corporation would
have to file a statement under §1.382-11,
or include an item on its statement under
§1.382-11, when the corporation would
not have had to do so in the absence of
these proposed regulations. The §1.382-
11 statement is a one-time paperwork
burden that is required to be filed in the
taxable year during which an owner shift,
equity structure shift, or other transaction
described in §1.382-2T(a)(2)(i) occurs.
On the other hand, these proposed regu-
lations, if finalized, also could cause some
firms to no longer have a NUBIL, there-
by eliminating their requirement to file a
statement under §1.382-11. Furthermore,
by eliminating the 338 approach, the Trea-
sury Department and the IRS project that
compliance burdens will fall for most ex-
isting filers of the §1.382-11 statement.
The Treasury Department and the IRS
have based this projection on their obser-
vations that (i) taxpayers currently incur
costs to compute their NUBIG/NUBIL
under each of the two methods in order
to be able to choose the more beneficial
method, and (ii) the 338 approach re-
quires taxpayers to determine hypothetical
amounts (for example, what depreciation
would have been available in the case of a
deemed asset sale under section 338). As
a result, removing the hypothetical com-
putations, as well as the optionality, will
reduce compliance burden.
For purposes of the PRA, the reporting
burden associated with these proposed
regulations will be reflected in the col-
lection of information under §1.382-11
(OMB control number 1545-2019). The
aggregate estimates for all collection of
information conducted under OMB con-
trol number 1545-2019, including the
§1.382-11 statement and other statements,
are that 225,000 respondents will require
1 hour and 40 minutes per response for a
total annual reporting burden of 375,000
hours and total annual monetized costs of
$15,930,000 (2016 dollars). The Treasury
Department and the IRS have not estimat-
ed the burden, including that of any new
information collections, related to the re-
quirements under these proposed regula-
tions.
Based on the checkbox on Line 16
of Form 1120, Schedule K and other tax
attributes, the Treasury Department and
the IRS estimate that between 7,000 and
15,000 firms per year will be affected by
these proposed regulations. The Treasury
Department and the IRS estimate that
these proposed regulations will, if any-
thing, cause a slight reduction in the total
amount of paperwork burden for most af-
fected taxpayers. This reduction in burden

September 30, 2019 798 Bulletin No. 2019–40
is driven by the elimination of the 338
approach. As a result of such elimination,
taxpayers may perform fewer calcula-
tions when complying with section 382.
The Treasury Department and the IRS,
however, have not estimated the burden,
including that of any new information col-
lections, related to the requirements under
the proposed regulations.
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.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mate-
rial in the administration of any internal
revenue law. The IRS has posted informa-
tion for taxpayers on their recordkeeping
requirements at https://www.irs.gov/tax-
topics/tc305. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
The Treasury Department and the IRS
request comments on all aspects of in-
formation collection burdens relating to
these proposed regulations, including (i)
estimates for how much time it would take
to comply with the paperwork burdens de-
scribed earlier for each relevant form and
(ii) ways for the IRS to minimize the pa-
perwork burden. Proposed revisions to the
information collections contained in these
proposed regulations will not be finalized
until after these regulations take effect
and have been approved by OMB under
the PRA. The Treasury Department and
the IRS have not estimated the burden,
including that of any new information col-
lections, related to the requirements under
the proposed regulations. The Treasury
Department and the IRS estimate PRA
burdens on a taxpayer-type basis rather
than a provision-specific basis. Those es-
timates would capture both changes made
by the TCJA and those that arise out of
discretionary authority exercised in the
proposed regulations.
III. Regulatory Flexibility Act
As described in more detail in this
section, pursuant to the Regulatory Flex-
ibility Act (RFA), 5 U.S.C. chapter 6, the
Treasury Department and the IRS hereby
certify that these proposed regulations
will not have a significant economic im-
pact on a substantial number of small enti-
ties. Notwithstanding this certification, the
Treasury Department and the IRS invite
comments on any impact that these regu-
lations would have on small entities.
These proposed regulations, if final-
ized, would amend the calculation of
certain items under section 382, which
pertains to the tax attributes of certain ac-
quired corporations (known as “loss cor-
porations”) in the hands of the acquiring
corporation after an ownership change.
Broadly, the proposed regulations, if final-
ized, would (i) eliminate one safe harbor
under which firms were formerly entitled
to calculate items of income and deduc-
tion under section 382(h)(6), and (ii) make
a number of other conforming changes. In
particular, these regulations could change
the amount of net unrealized built-in gain
or loss (NUBIG and NUBIL, respectively)
computed by the loss corporation. Impor-
tantly, section 382(h)(3)(B) provides a de
minimis rule for which it is expected that
substantially all small entities will qualify.
Specifically, if a loss corporation’s NU-
BIG or NUBIL is not greater than the less-
er of (i) 15 percent of the fair market value
of the loss corporation’s non-cash corpo-
rate assets on the ownership change or (ii)
$10 million, then the loss corporation’s
NUBIG or NUBIL is deemed to be zero.
Furthermore, these proposed regulations
would not change this de minimis rule.
Therefore, to the extent that small firms
understood that they historically qualified
for the de minimis rule, substantially all
of them could determine, with little bur-
den, that they will qualify as well under
these proposed regulations (if finalized).
The Treasury Department and the IRS in-
vite comments on the impact of these pro-
posed rules on small entities.
Comments and Requests for Public
Hearing
Before the proposed regulations are
adopted as final regulations, consider-
ation will be given to any comments that
are submitted timely to the IRS as pre-
scribed in this preamble under the “AD-
DRESSES” heading. The Treasury De-
partment and the IRS request comments
on all aspects of the proposed regulations.
All comments will be available at www.
regulations.gov for public inspection and
copying. A public hearing will be sched-
uled if requested in writing by any person
that timely submits written comments. If
a public hearing is scheduled, then notice
of the date, time, and place for the public
hearing will be published in the Federal
Register.
Drafting Information
The principal authors of this notice of
proposed rulemaking are Kevin M. Jacobs
and Marie C. Milnes-Vasquez of the Of-
fice of Associate Chief Counsel (Corpo-
rate). However, other personnel from the
Treasury Department and the IRS partici-
pated in their development.
Statement of Availability of IRS
Documents
IRS Revenue Procedures, Revenue
Rulings, notices, and other guidance cit-
ed in this document are published in the
Internal Revenue Bulletin (or Cumula-
tive Bulletin) and are available from the
Superintendent of Documents, U.S. Gov-
ernment Printing Office, Washington, DC
20402, or by visiting the IRS website at
http://www.irs.gov.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by revising the entry for
§1.382-7 to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.382-7 also issued under 26
U.S.C. 382(h)(3)(B)(ii) and (m).
* * * * *
Par. 2. Section 1.382-1 is amended by:
a. Under §1.382-2, adding reserved en-
tries for (a)(7) and (8) and entries for
(a)(9) through (13), and (b)(4); and
b. Revising the entry for §1.382-7.

Bulletin No. 2019–40 799 September 30, 2019
The additions and revision read as fol-
lows:
§1.382-1 Table of contents.
* * * * *
§1.382-2 General rules for ownership
change.
(a) * * *
(7) [Reserved]
(8) [Reserved]
(9) Net unrealized built-in gain.
(10) Net unrealized built-in loss.
(11) Recognized built-in gain.
(12) Recognized built-in loss.
(13) Section 382 regulations.
(b) * * *
(4) Rules provided in paragraphs (a)(9)
through (13) of this section.
* * * * *
§1.382-7 Built-in gains and losses.
(a) Overview.
(b) Definitions.
(1) Change year.
(2) Cost recovery deduction.
(3) First-year nonrecourse COD income.
(4) First-year recourse COD income.
(5) Inadequately secured nonrecourse
liabilities.
(6) Negative section 163(j) expense.
(7) Nonrecourse liabilities.
(8) Pre-change excess recourse liabil-
ities.
(9) Recognition period.
(10) Section 382 asset.
(11) Section 382 excess business inter-
est expense.
(12) Taxable income or timing limita-
tion.
(c) Net unrealized built-in gains and
losses.
(1) In general.
(2) Consistency rules.
(i) In general.
(ii) Members of consolidated groups.
(3) Computation of net unrealized
built-in gain and net unrealized built-in
loss.
(i) In general.
(ii) Adjustments related to discharge of
indebtedness.
(A) In general.
(B) Exception for first-year recourse
COD income.
(1) Discharge of indebtedness income
included in gross income.
(2) Excluded discharge of indebtedness
income reducing post-ownership change
attributes.
(3) Excluded discharge of indebtedness
income reducing basis.
(iii) Additional operating rules.
(A) Value of contingent liabilities.
(B) Inventory.
(C) Limitation on total amount of ad-
justment to NUBIL/NUBIG regarding re-
course COD income.
(D) Timing of adjustments described in
paragraphs (c)(3)(ii)(B)(1) through (3) of
this section.
(E) Adjusted basis of the loss corpora-
tion’s section 382 assets.
(F) [Reserved]
(d) Recognized built-in gain and loss.
(1) In general.
(2) Recognized built-in gain.
(i) In general.
(ii) Disposition of an asset.
(iii) Income from discharge of indebt-
edness attributable to certain recourse li-
abilities.
(iv) Income from discharge of indebt-
edness attributable to certain nonrecourse
liabilities.
(A) Treatment as RBIG.
(B) Adjustment to basis.
(C) Limitation on total amount of RBIG
regarding nonrecourse COD income.
(D) No adjustment to the NUBIG/NU-
BIL computation.
(v) Installment method.
(vi) Prepaid income.
(3) Recognized built-in loss.
(i) In general.
(ii) Disposition of an asset.
(iii) Cost recovery deductions.
(iv) Bad debt expense.
(v) Deductions for payments on certain
liabilities.
(vi) Deduction for section 382 excess
business interest expense.
(A) In general.
(B) No adjustment to the NUBIG/NU-
BIL computation.
(4) Additional recognized built-in gain
and loss items.
(5) Section 382 disallowed business in-
terest carryforwards.
(e) General operating rules.
(1) Anti-duplication rule.
(2) References to the principles of reg-
ulations under section 1374.
(f) Examples.
(g) Applicability dates.
(1) In general.
(2) Paragraph (d)(2)(vi) of this section.
* * * * *
Par. 3. Section 1.382-2 is amended by
adding reserved paragraphs (a)(7) and (8)
and paragraphs (a)(9) through (13) and (b)
(4) to read as follows:
§1.382-2 General rules for ownership
change.
(a) * * *
(7)-(8) [Reserved]
(9) Net unrealized built-in gain. The
term net unrealized built-in gain means a
positive amount determined under §1.382-
7(c)(3).
(10) Net unrealized built-in loss. The
term net unrealized built-in loss means
a negative amount determined under
§1.382-7(c)(3).
(11) Recognized built-in gain. The term
recognized built-in gain has the meaning
provided in §1.382-7(d)(2).
(12) Recognized built-in loss. The term
recognized built-in loss has the meaning
provided in §1.382-7(d)(3).
(13) Section 382 regulations. The term
section 382 regulations means this section
and §§1.382-3 through 1.382-12.
(b) * * *
(4) Rules provided in paragraphs (a)
(9) through (13) of this section. The rules
of paragraphs (a)(9) through (13) of this
section apply to any ownership change
occurring after date of publication of Trea-
sury decision adopting these proposed reg-
ulations as final regulations in the Federal
Register. However, taxpayers and their re-
lated parties, within the meaning of sections
267(b) and 707(b)(1), may apply the rules
of paragraphs (a)(9) through (13) of this
section to any ownership change occurring
during a taxable year with respect to which
the period described in section 6511(a) has
not expired, so long as the taxpayers and
their related parties consistently apply the
rules of paragraphs (a)(9) through (13) of
this section and §1.382-7 to such owner-
ship change and all ownership changes oc-
curring in subsequent taxable years.
Par. 4. Section 1.382-7 is revised to
read as follows:
§1.382-7 Built-in gains and losses.
(a) Overview. This section provides
rules governing the determination of a loss
corporation’s net unrealized built-in gain
or net unrealized built-in loss, as well as its
recognized built-in gains and recognized
built-in losses for purposes of section 382
and the section 382 regulations. Paragraph

September 30, 2019 800 Bulletin No. 2019–40
(b) of this section provides definitions of
terms used for purposes of this section.
Paragraph (c) of this section provides the
rules regarding the determination of a loss
corporation’s net unrealized built-in gain or
net unrealized built-in loss. Paragraph (d)
of this section provides the rules regarding
the determination of a loss corporation’s
recognized built-in gain or recognized
built-in loss. Paragraph (e) of this section
provides an anti-duplication rule to prevent
duplicate inclusion of items in the com-
putation of net unrealized built-in gain or
net unrealized built-in loss, or in the com-
putation of recognized built-in gain or rec-
ognized built-in loss. Paragraph (f) of this
section provides examples illustrating the
rules of this section. Paragraph (g) of this
section provides applicability dates for the
rules of this section.
(b) Definitions. The following defini-
tions apply for purposes of this section.
(1) Change year. The term change year
has the meaning provided in §1.382-6(g)
(1).
(2) Cost recovery deduction. The term
cost recovery deduction means any deduc-
tion for depreciation under section 167 or
section 168, any deduction for the amor-
tization of intangibles (for example, un-
der section 167 or 197) and amortizable
expenditures (for example, under sec-
tion 195(b)(1)(B), section 248 or section
1245(a)(2)(C)), or any deduction for de-
pletion under section 611.
(3) First-year nonrecourse COD in-
come. The term first-year non-recourse
COD income means any income from
discharge of indebtedness that the loss
corporation recognizes (including income
that is excluded from gross income under
section 108(a)(1)) during the first twelve
months of the recognition period on inad-
equately secured nonrecourse liabilities.
(4) First-year recourse COD income.
The term first-year recourse COD income
means any income from discharge of indebt-
edness (including from liabilities described
in paragraph (c)(3)(i)(C) of this section) that
the loss corporation recognizes (including
income that is excluded from gross income
under section 108(a)(1)) during the first
twelve months of the recognition period on
all of the loss corporation’s liabilities im-
mediately before the ownership change (ex-
cluding nonrecourse liabilities) to the extent
of its pre-change excess recourse liabilities.
(5) Inadequately secured nonrecourse
liabilities. The term inadequately secured
nonrecourse liabilities means any nonre-
course liability of which, immediately be-
fore the ownership change:
(i) The adjusted issue price (within the
meaning of §1.1275-1(b)) of the nonre-
course liability; exceeds
(ii) The fair market value of the prop-
erty (determined without regard to section
7701(g) and §1.1001-2(a)(4)(i)) which se-
cures such nonrecourse liability.
(6) Negative section 163(j) expense.
The term negative section 163(j) expense
has the meaning provided in §1.163(j)-
6(h)(1).
(7) Nonrecourse liabilities. The term
nonrecourse liabilities has the same
meaning as the term nonrecourse liability
has in §1.1001-2(a)(4)(i).
(8) Pre-change excess recourse liabili-
ties. The term pre-change excess recourse
liabilities means:
(i) If the loss corporation is under the
jurisdiction of a court under title 11 of the
United States Code on the change date, in
an action that results in a discharge of re-
course liabilities of the loss corporation,
then the amount of all of the loss corpo-
ration’s liabilities immediately before the
ownership change (excluding nonrecourse
liabilities) that are discharged by order of
the court in that action; or
(ii) In all other cases, an amount equal
to the excess, if any, of:
(A) The aggregate adjusted issue price
(within the meaning of §1.1275-1(b)) of
the loss corporation’s liabilities immedi-
ately before the ownership change, ex-
cluding—
(1) Recourse liabilities to the extent
that they would not be included in the
determination of whether the loss corpo-
ration is insolvent within the meaning of
section 108(d)(3), and
(2) Nonrecourse liabilities; over
(B) The sum of the fair market val-
ue of the assets that the loss corporation
owns immediately before the ownership
change, reduced, but not below zero, by
the amount of nonrecourse liabilities that
is secured by such assets immediately be-
fore the ownership change.
(9) Recognition period. The term rec-
ognition period has the meaning provided
in section 382(h)(7)(A).
(10) Section 382 asset. The term sec-
tion 382 asset means any asset that the
loss corporation owns immediately before
the ownership change, including goodwill
and other intangible assets, but excluding
those assets described in section 382(h)(3)
(B)(ii). For purposes of this definition, all
accounts receivable, other than those that
were acquired in the ordinary course of
the loss corporation’s business, are treated
as items described in section 382(h)(3)(B)
(ii).
(11) Section 382 excess business in-
terest expense. The term section 382 ex-
cess business interest expense means the
amount of business interest expense of
a partnership for a taxable year that was
disallowed under §1.163(j)-2(b) but not
suspended under section 704(d).
(12) Taxable income or timing limita-
tion. The term taxable income or timing
limitation means:
(i) A limitation set forth in the Inter-
nal Revenue Code of 1986, as amended
(Code), on the amount of a deduction that
may otherwise be claimed by a loss cor-
poration, based on, or derived from, any
amount of a loss corporation’s taxable in-
come (see, for example, section 170(b)(2)
(A)); or
(ii) A limitation set forth in the Code
that defers the timing of a deduction that
is otherwise allowable under the Code or
regulations (see, for example, sections
267(a)(2) and 469).
(c) Net unrealized built-in gains and
losses—(1) In general. This paragraph (c)
provides rules regarding the calculation of
a loss corporation’s net unrealized built-in
gain or net unrealized built-in loss for pur-
poses of section 382 and the section 382
regulations. See paragraph (e)(1) of this
section (regarding anti-duplication).
(2) Consistency rules—(i) In general.
No amount is included in the calculation
of net unrealized built-in gain or net unre-
alized built-in loss if the amount is prop-
erly allocable to the pre-change period
(within the meaning of §1.382-6(g)(2))
pursuant to §1.382-6 and is included in
the determination of the loss corporation’s
taxable income or net operating loss for
the change year.
(ii) Members of consolidated groups.
If a loss corporation enters or leaves a
consolidated group on the date of an
ownership change for purposes of sec-

Bulletin No. 2019–40 801 September 30, 2019
tion 382, the principles of §1.1502-76(b)
apply in determining the treatment of any
taxable item for purposes of this section.
Accordingly, items that are includible
(under the end of the day rule (within the
meaning of §1.1502-76(b)(1)(ii)(A)) or
otherwise) in the taxable year that ends
as a result of the change in status of a loss
corporation (S) are not treated as recog-
nized or taken into account during the
recognition period for purposes of sec-
tion 382 and the section 382 regulations.
See §1.1502-28(b)(11) (regarding alloca-
tion of excluded COD income under end
of the day rule principles). Moreover, no
such item is included in the determina-
tion of net unrealized built-in gain or net
unrealized built-in loss. For example, if
income from the discharge of indebted-
ness is includable in the taxable year that
ends as a result of S’s change in status,
that income is neither treated as taken
into account during the recognition peri-
od nor included in the determination of
net unrealized built-in gain or net unreal-
ized built-in loss. Further, the determina-
tion of net unrealized built-in gain or net
unrealized built-in loss excludes the fair
market value and basis of any asset that is
disposed of on the change date if the gain
or loss from that asset is includible in the
taxable year that ends as a result of S’s
change in status. In contrast, items that
are includible (under the next day rule
(within the meaning of §1.1502-76(b)(1)
(ii)(B)) or otherwise) in the taxable year
that begins as a result of S’s change in
status are treated as occurring in the rec-
ognition period, and those items (and the
basis and fair market value of any assets
that generate those items) are among the
amounts included in the determination of
net unrealized built-in gain or loss.
(3) Computation of net unrealized
built-in gain and net unrealized built-in
loss—(i) In general. A loss corporation’s
net unrealized built-in gain, if positive, or
net unrealized built-in loss, if negative, is
the amount equal to—
(A) The sum of the amount that would
be realized (taking into account section
382(h)(8)) if, immediately before the
ownership change, the loss corporation—
(1) Had satisfied each inadequately se-
cured nonrecourse liability by surrender-
ing to the creditor all of the assets securing
that debt; and
(2) Had sold all of its section 382 as-
sets (other than those assets described in
paragraph (c)(3)(i)(A)(1) of this section)
at fair market value to an unrelated third
party with the hypothetical buyer assum-
ing no liabilities; decreased by
(B) The aggregate adjusted basis of the
loss corporation’s section 382 assets im-
mediately before the ownership change;
decreased by
(C) The amount of any non-contin-
gent liability of the loss corporation im-
mediately before the ownership change
for which the loss corporation would be
allowed a deduction (including a deduc-
tion for a capital loss) on payment of the
liability (determined without regard to any
taxable income or timing limitation); de-
creased by
(D) The estimated value of any liability
of the loss corporation that is contingent
immediately before the ownership change,
for which, upon the removal of the contin-
gency, the loss corporation would be al-
lowed a deduction (including a deduction
for a capital loss) on payment or accrual
(determined without regard to any taxable
income or timing limitation); increased or
decreased by
(E) The loss corporation’s section 481
adjustments that would be taken into ac-
count on the sale referred to in paragraph
(c)(3)(i)(A) of this section; increased by
(F) The amount that would be treated as
recognized built-in gain under paragraph
(d)(2) of this section if all amounts (except
for amounts described in paragraph (d)(2)
(ii) of this section) were properly taken
into account during the recognition peri-
od; decreased by
(G) The amount that would be treated
as recognized built-in loss under para-
graph (d)(3) of this section if all amounts
(except for amounts described in para-
graph (d)(3)(ii) of this section) were prop-
erly taken into account during the recog-
nition period.
(ii) Adjustments related to discharge
of indebtedness—(A) In general. Except
as provided in paragraph (c)(3)(ii)(B) of
this section, no amount of discharge of
indebtedness income recognized during
the recognition period that is included in
gross income under section 61(a)(12) or
excluded under section 108(a) is added to
the computation of the loss corporation’s
net unrealized built-in gain or net unreal-
ized built-in loss. See paragraphs (c)(2)
and (c)(3)(iii)(C) of this section for limita-
tions on amounts that can be included in
the computation of net unrealized built-in
gain and net unrealized built-in loss.
(B) Exception for first-year recourse
COD income. A loss corporation may ap-
ply the provisions of this paragraph (c)
(3)(ii)(B) to all of its first-year recourse
COD income, subject to the timing rules
of paragraphs (c)(3)(iii)(D) of this sec-
tion. An adjustment that is made pursuant
to this paragraph (c)(3)(ii)(B) can cause
a loss corporation that would otherwise
have a net unrealized built-in loss to have
a net unrealized built-in gain or to meet
the requirements of section 382(h)(3)(B)
such that the loss corporation’s net unreal-
ized built-in gain or net unrealized built-in
loss is zero. See paragraphs (c)(2) and (c)
(3)(iii)(C) of this section for limitations on
amounts that can be included in the com-
putation of net unrealized built-in gain
and net unrealized built-in loss.
(1) Discharge of indebtedness income
included in gross income. The amount
calculated under paragraph (c)(3)(i) of
this section is increased by the amount of
all first-year recourse COD income that
is included in gross income under section
61(a)(12). This amount of first-year re-
course COD income is treated as recog-
nized built-in gain. See paragraph (d)(2)
(iii) of this section.
(2) Excluded discharge of indebtedness
income reducing post-ownership change
attributes. The amount calculated un-
der paragraph (c)(3)(i) of this section is
increased by the amount of all first-year
recourse COD income that is excluded
under section 108(a), to the extent section
108(b) reduces attributes that are not pre-
change losses, as defined in §1.382-2(a)
(2), including reduction under section
1017(a) of the basis of the loss corpora-
tion’s assets that were not held at the time
of the ownership change. This amount of
first-year recourse COD income is treated
as recognized built-in gain. See paragraph
(d)(2)(iii) of this section. This paragraph
(c)(3)(ii)(B)(2) does not apply to amounts
of first-year recourse COD income corre-
sponding to debt whose discharge results
in reduction under section 1017(a) of the
basis of the loss corporation’s assets that
were held at the time of the ownership
change.

September 30, 2019 802 Bulletin No. 2019–40
(3) Excluded discharge of indebtedness
income reducing basis. A loss corpora-
tion decreases the amount of basis that
is described in paragraph (c)(3)(i)(B) of
this section by the amount of first-year
recourse COD income that is excluded
under section 108(a), to the extent that
section 1017(a) reduces the basis of the
loss corporation’s section 382 assets. No
other adjustment to the computation in
paragraph (c)(3)(i) of this section is made
with respect to the first-year recourse
COD income described in this paragraph
(c)(3)(ii)(B)(3), and this amount of first-
year recourse COD income is not treated
as recognized built-in gain.
(iii) Additional operating rules—(A)
Value of contingent liabilities. If any lia-
bility described in paragraph (c)(3)(i)(C)
of this section is reflected on the face of
the most recently issued applicable fi-
nancial statement, within the meaning of
section 451(b)(3) and the regulations in
this part under section 451 of the Inter-
nal Revenue Code (determined without
regard to whether the taxpayer has anoth-
er statement described in section 451(b)
(3) and the regulations in this part under
section 451 of the Inernal Revenue Code),
then the estimated value of a liability is
the amount of such liability reflected on
the most current applicable financial state-
ment as of the change date. The estimated
value of any liability described in para-
graph (c)(3)(i)(C) of this section is not
adjusted to reflect the actual amount of
liability that is established on removal of
the contingency.
(B) Inventory. The principles of
§1.1374-7 apply to determine the amount
realized under paragraph (c)(3)(i)(A) of
this section with regard to inventory.
(C) Limitation on total amount of ad-
justment to NUBIL/NUBIG regarding re-
course COD income. The total amount of
increases in the calculation of net unreal-
ized built-in gain or loss under paragraph
(c)(3)(i) of this section related to first-year
recourse COD income under paragraph (c)
(3)(ii)(B) of this section is limited to the
loss corporation’s liabilities immediately
before the ownership change (excluding
nonrecourse liabilities) to the extent of its
pre-change excess recourse liabilities de-
fined in paragraph (b)(8)(i) or (ii) of this
section, as applicable.
(D) Timing of adjustments described in
paragraphs (c)(3)(ii)(B)(1) through (3) of
this section. If a loss corporation choos-
es to apply the provisions of this para-
graph (c)(3)(iii)(D) to all of its first-year
recourse COD income, then it must make
the adjustments described in paragraphs
(c)(3)(ii)(B)(1) through (3) of this section,
in their entirety as of the change date.
However, a loss corporation may make
these adjustments only if—
(1) The statement described in §1.382-
11 reflects such adjustments or;
(2) The loss corporation files an amend-
ed return for the taxable year that includes
the change date and includes an amended
§1.382-11 statement (entitled “AMEND-
ED STATEMENT PURSUANT TO
§1.382-11(a) BY [INSERT NAME AND
EMPLOYER IDENTIFICATION NUM-
BER OF TAXPAYER], A LOSS CORPO-
RATION,”) to reflect such adjustments.
(E) Adjusted basis of the loss corpora-
tion’s section 382 assets. The adjustments
of this paragraph (c)(3)(iii)(E) apply for
purposes of determining the adjusted ba-
sis of loss corporation’s assets under sec-
tion 382(h)(2)(A)(ii)(II) and (B)(ii)(I) and
the computation of net unrealized built-in
gain and loss under section 382(h)(6)(C)
and paragraph (c)(3)(i)(B) of this section.
The loss corporation’s basis in its section
382 assets is adjusted immediately before
the ownership change by the amount of
any adjustment that would apply if the
section 382 asset were sold immediately
before the ownership change. For exam-
ple, the loss corporation’s basis in a part-
nership interest is adjusted to the extent
§1.163(j)-6(h)(3)(i) would have required
an adjustment if the loss corporation had
disposed of all or substantially all of its
partnership interest immediately before
the ownership change.
(F) [Reserved]
(d) Recognized built-in gain and loss—
(1) In general. This paragraph (d) provides
rules for determining whether an item is
recognized built-in gain or recognized
built-in loss for purposes of section 382(h)
and the section 382 regulations. Except as
expressly provided in this paragraph (d),
no amount is treated as recognized built-
in gain or recognized built-in loss if that
amount was not properly included in the
computation of the loss corporation’s net
unrealized built-in gain or net unrealized
built-in loss pursuant to paragraph (c)(3)
of this section.
(2) Recognized built-in gain—(i) In
general. Except as otherwise provided
in this paragraph (d)(2) and in paragraph
(d)(4) of this section, subject to section
382(h)(1)(A)(ii), an item of income that
is properly taken into account during the
recognition period is a recognized built-
in gain only if the item would have been
properly included in gross income before
the change date by an accrual method
taxpayer (disregarding any method of ac-
counting for which an election by the tax-
payer must be made unless the taxpayer
actually elected that method). As a result,
for example, cost recovery deductions on
an appreciated asset claimed during the
recognition period are not treated as gen-
erating recognized built-in gain.
(ii) Disposition of an asset. The gain
recognized on the disposition of an asset
during the recognition period is recog-
nized built-in gain to the extent provided
in section 382(h)(2)(A). Income includ-
ed as a dividend under section 61(a)(7)
(including amounts treated as dividends
under section 1248) and inclusions of
income with respect to stock (excluding
gain recognized on the disposition of
stock), for example under section 951(a)
and 951A(a), are not treated as recognized
built-in gain.
(iii) Income from discharge of indebt-
edness attributable to certain recourse li-
abilities. If a loss corporation chooses to
apply the provisions of paragraph (c)(3)
(ii)(B) of this section, then the amounts
described in paragraphs (c)(3)(ii)(B)(1)
and (2) of this section are treated as recog-
nized built-in gain on the date recognized.
Otherwise, no income from the discharge
of indebtedness attributable to recourse li-
abilities is recognized built-in gain.
(iv) Income from discharge of indebt-
edness attributable to certain nonrecourse
liabilities. Except as provided in this
paragraph (d)(2)(iv), no income from the
discharge of indebtedness attributable to
nonrecourse liabilities is recognized built-
in gain.
(A) Treatment as RBIG. Notwithstand-
ing paragraph (d)(2)(i) of this section, the
amount of all first-year nonrecourse COD
income that is included in gross income
under section 61(a)(12) or first-year non-
recourse COD income that is excluded

Bulletin No. 2019–40 803 September 30, 2019
under section 108(a), to the extent section
108(b) reduces attributes that are not pre-
change losses, as defined in §1.382-2(a)
(2), is recognized built-in gain on the date
recognized. This paragraph (d)(2)(iv)(A)
does not apply to amounts of first-year
nonrecourse COD income corresponding
to debt whose discharge results in reduc-
tion of basis described in section 1017(a).
(B) Adjustment to basis. First-year
nonrecourse COD income that is exclud-
ed under section 108(a) and reduces the
basis of the loss corporation’s assets that
the loss corporation owned immediately
before the ownership change is not rec-
ognized built-in gain. However, first-year
nonrecourse COD income that is excluded
under section 108(a) and reduces the basis
of assets that the loss corporation did not
own immediately before the ownership
change is recognized built-in gain.
(C) Limitation on total amount of RBIG
regarding nonrecourse COD income. The
amount of first-year non-recourse COD
income treated as recognized built-in gain
under this paragraph (d)(2)(iv) is limited
to the excess of adjusted issue price of
debt over fair market value of property
measured under paragraph (e)(5) of this
section.
(D) No adjustment to the NUBIG/
NUBIL computation. The computation
under paragraph (c)(3)(i) of this section
is not adjusted to reflect recognized built-
in gain amounts related to this paragraph
(d)(2)(iv). Nonetheless, for purposes of
determining the limitations on amounts
of recognized built-in gain or loss under
section 382(h)(2)(A)(ii)(II) and (B)(ii)(I),
the adjusted basis of the loss corporation’s
section 382 assets reflects the reduction, if
any, described in paragraph (d)(2)(iv)(B)
of this section.
(v) Installment method. The amount
of income reported under the installment
method (see section 453) that is treated
as recognized built-in gain is determined
under the principles of §1.1374-4(h) (de-
termined without regard to §1.1374-2(a)
(2)). Further, if a loss corporation that is
a member (selling or distributing mem-
ber) of a consolidated group (as defined
in §1.1502-1(h)) transfers a built-in gain
asset to a member of the same consolidat-
ed group (transferee member) before or
during the recognition period, the gain is
deferred under §1.1502-13, and before the
close of the recognition period, the trans-
feree member sells the built-in gain asset
in a sale reportable under the installment
method, then any deferred gain is RBIG
when taken into account by the selling or
distributing member, even if the gain is
taken into account after the close of the
recognition period.
(vi) Prepaid income. Any amount re-
ceived prior to the change date that is
attributable to performance occurring on
or after the change date is not recognized
built-in gain. Examples to which this para-
graph (c)(2)(vi) applies include income
received prior to the change date that is
deferred under sections 451(c) or 455.
(3) Recognized built-in loss—(i) In
general. Except as otherwise provided in
paragraphs (d)(3) and (4) of this section,
subject to section 382(h)(1)(B)(ii), any
deduction properly allowed during the
recognition period is treated as recognized
built-in loss if an accrual-method taxpay-
er would have been allowed a deduction
for the item against gross income before
the change date (taking into account any
additional methods of accounting actually
used by the loss corporation). For purpos-
es of this paragraph (d)(3), in determin-
ing whether an accrual-method taxpayer
would have been allowed a deduction be-
fore the change date, no taxable income or
timing limitation applies. See paragraph
(e) of this section for an anti-duplication
rule.
(ii) Disposition of an asset. The loss
recognized on the disposition of an asset
during the recognition period is treated
as a recognized built-in loss to the extent
provided in section 382(h)(2)(B).
(iii) Cost recovery deductions. The
amount of cost recovery deductions with
respect to any section 382 asset for any
taxable year during the recognition period
is treated as recognized built-in loss to the
extent of the excess, if any, of—
(A) The greater of the amount of cost
recovery deductions allowed or allowable
with respect to the period; over
(B) The amount of cost recovery de-
ductions that would have been allowable
if the adjusted basis on the change date
equaled the fair market value of the sec-
tion 382 asset, taking into account the
depreciation or amortization method, as
applicable; the useful life; the recovery
period or amortization period, as appli-
cable; and the convention (cost recovery
schedule) actually used by the loss corpo-
ration.
(iv) Bad debt expense. Any bad debt
deduction under section 166 that arises
during the recognition period from debt
owed to the loss corporation immediately
before the ownership change is a recog-
nized built-in loss to the extent it does not
exceed the amount described in section
382(h)(2)(B)(ii).
(v) Deductions for payments on certain
liabilities. A deduction for the payment of
a liability that is described in paragraph
(c)(3)(i)(C) or (D) of this section is a rec-
ognized built-in loss to the extent of the
amount or the estimated amount of the li-
ability, as applicable, immediately before
the ownership change, that was included
in the loss corporation’s computation of
net unrealized built-in loss or net unreal-
ized built-in gain under paragraph (c)(3)
of this section.
(vi) Deduction for section 382 excess
business interest expense—(A) In gener-
al. A deduction attributable to section 382
excess business interest expense during
the recognition period is recognized built-
in loss to the extent the section 382 excess
business interest expense is allocated to
the loss corporation pursuant to §1.163(j)-
6(f)(2) and is attributable to either a pre-
change period (within the meaning of
§1.382-6(g)(2)) or a taxable year prior to
the ownership change. Solely for purposes
of determining whether this paragraph (d)
(3)(vi) applies;
(1) The principles of §1.382-6(a) ap-
ply (unless the taxpayer made an election
pursuant to §1.382-6(b), in which case the
principles of §1.382-6(b) apply) to deter-
mine the extent the section 382 excess
business interest expense is attributable to
a pre-change period and
(2) Section 1.163(j)-6(g)(2)(i) applies
to section 382 excess business interest ex-
pense that was allocated to the loss cor-
poration in the order of the taxable years
in which the section 382 excess business
interest expense was allocated to the loss
corporation pursuant to §1.163(j)-6(f)(2),
beginning with the earliest taxable year.
(B) No adjustment to the NUBIG/NU-
BIL computation. The computation of a
loss corporation’s net unrealized built-in
gain or net unrealized built-in loss is not
adjusted to reflect recognized built-in loss

September 30, 2019 804 Bulletin No. 2019–40
amounts related to this paragraph (d)(3)
(vi).
(4) Additional recognized built-in gain
and loss items. The following additional
items of income, gain, deduction, or loss
are treated as recognized built-in gain or
recognized built-in loss, as applicable:
(i) Positive and negative section 481(a)
adjustments, to the extent provided in
§1.1374-4(d)(1);
(ii) Any item of income properly taken
into account during the recognition peri-
od under the completed contract method
(as described in §1.460-4(d)) and similar
items of deduction, to the extent provided
in §1.1374-4(g); and
(iii) The distributive share of a part-
nership item to the extent provided by the
principles of §1.1374-4(i).
(5) Section 382 disallowed business
interest carryforwards. Section 382 disal-
lowed business interest carryforwards are
not treated as recognized built-in losses.
(e) General operating rules—(1) An-
ti-duplication rule. Appropriate adjust-
ments must be made in applying the provi-
sions of this section to ensure that no item
of economic gain or loss is duplicated in
the computation of net unrealized built-
in gain or net unrealized built-in loss, or
in the computation of recognized built-in
gain or recognized built-in loss. Addi-
tionally, appropriate adjustments must be
made in applying the provisions of this
section to ensure that no amount of net
unrealized built-in gain or net unrealized
built-in loss is utilized in a duplicative
manner, and that the limitations on the to-
tal amount of adjustment to net unrealized
built-in loss and net unrealized built-in
gain take into account amounts of income
from discharge of indebtedness that are
excluded under section 108(a) and reduce
the basis of the loss corporation’s assets.
(2) References to the principles of reg-
ulations under section 1374. All referenc-
es in this section to the principles of a reg-
ulation in this part under section 1374 of
the Internal Revenue Code must be inter-
preted, as necessary, to be consistent with
the rules and principles of this section.
(f) Examples. The examples in this
paragraph (f) illustrate the application of
the provisions of this section. For purpos-
es of the examples in this paragraph (f),
LossCo is a loss corporation that files its
return on a calendar year basis, that uses
the accrual method of accounting, and that
has an ownership change on the last day
of the taxable year (Year 0). Further, Loss-
Co satisfies the threshold requirement of
section 382(h)(3)(B)(i). Additionally, the
stated facts of the example include all
relevant corporate activity, property, and
taxable items.
(1) Example 1. Impact of certain liabilities
on computation of net unrealized built-in loss
and amount treated as recognized built-in loss—
(i) Facts. Immediately before the ownership change,
LossCo has a section 382 asset with a fair market
value of $100 and an adjusted basis of $90, a liability
of $30 for which LossCo will be allowed a deduc-
tion upon payment (fixed liability), and an estimated
contingent liability of $20, for which, upon removal
of the contingency and payment, LossCo will be al-
lowed a deduction (contingent liability). In Year 1,
LossCo settles and pays off the contingent liability
for $25. In Year 2, LossCo pays off the fixed liability
for $30.
(ii) Analysis—(A) Computation of net unrealized
built-in loss. Under paragraph (c)(3)(i) of this sec-
tion, LossCo has a net unrealized built-in loss of $40
($100, the amount LossCo would realize if it sold
all its assets to an unrelated third party (paragraph
(c)(i)(A)(2) of this section), decreased by $140 (the
sum of the fixed liability ($30) (paragraph (c)(i)(B)
of this section), the estimated value of the contingent
liability ($20) (paragraph (c)(i)(C) of this section)
and the aggregate adjusted basis in the asset ($90)
(paragraph (c)(i)(D) of this section)).
(B) Settlement of the contingent liability. Upon
settlement and payment of the contingent liability in
Year 1, LossCo is entitled to a deduction of $25 (dis-
regarding application of any limitation). Under para-
graph (d)(3)(vi) of this section, $20 of the deduction
(the estimated value of the liability at the time of the
ownership change) is recognized built-in loss and $5
is not subject to section 382. After Year 1, pursuant
to section 382(h)(1)(B)(ii), the maximum amount of
recognized built-in loss that LossCo can have is $20
($40 net unrealized built-in loss, less the $20 recog-
nized built-in loss in Year 1).
(C) Payment of the fixed liability. Upon paying
the fixed liability in Year 2, LossCo is entitled to a
deduction of $30 (disregarding application of any
limitation). Under paragraph (d)(3)(vi) of this sec-
tion, $30 of the deduction would have been recog-
nized built-in loss, but the amount of recognized
built-in loss is limited by section 382(h)(1)(B)(ii).
As a result, of the $30 deduction, $20 is a recognized
built-in loss and $10 is not subject to section 382.
(2) Example 2. Cost recovery deductions—
(i) Facts. Immediately before the ownership change,
LossCo has a net unrealized built-in loss of $300 that
is attributable to a non-depreciable asset with a fair
market value of $500 and an adjusted basis of $650,
and a patent with a fair market value of $125 and
an adjusted basis of $275. The patent is an “amor-
tizable section 197 intangible” as defined in section
197(c) and has a 15-year amortization period. As of
the change date in Year 0, the patent has a remaining
amortization period under section 197 of 5 years. For
Year 1, LossCo calculates a $55 amortization deduc-
tion for the patent.
(ii) Analysis. Under paragraph (d)(3)(iii) of this
section, the amount of cost recovery deduction on the
patent that is a recognized built-in loss is the excess,
if any, of the amount of cost recovery deductions al-
lowed or allowable over the amount of cost recovery
deductions that would have been allowable if the ad-
justed basis on the change date had equaled the fair
market value of the patent, taking into account the
amortization method, amortization period, and con-
vention (cost recovery schedule) actually used by the
loss corporation. LossCo would have been allowed a
cost recovery deduction of $25 if the adjusted basis
of the patent on the change date had equaled its fair
market value taking into account the cost recovery
schedule actually used by LossCo, ($125 fair market
value divided by remaining amortization period of 5
years). Accordingly, $30 of the Year 1 cost recovery
deduction is recognized built-in loss ($55 allowed
and allowable cost recovery deduction, less the $25
cost recovery deduction that would have been allow-
able if the adjusted basis on the change date equaled
the fair market value of the patent). The remaining
$25 is not subject to section 382.
(3) Example 3. Forgiveness of pre-change ex-
cess recourse liabilities—(i) Facts. On Date 1, im-
mediately before the ownership change, LossCo has
two assets: Asset 1, which has a fair market value
of $100, an adjusted basis of $80, and is subject to
a nonrecourse liability with an adjusted issue price
of $120 (Liability 1); and Asset 2, which has a fair
market value of $100, an adjusted basis of $90, and
is subject to a nonrecourse liability with an adjusted
issue price of $60 (Liability 2). Additionally, LossCo
has a recourse liability with an adjusted issue price
of $60. On Date 2, eleven months after the change
date, the creditor forgives $20 of the recourse lia-
bility, which gives rise to discharge of indebtedness
income that is excluded under 108(a), and for which
LossCo elects to reduce the basis of Asset 1 and As-
set 2 pursuant to section 108(b)(5).
(ii) Analysis—(A) Calculation of net unrealized
built-in gain. The nonrecourse liability to which
Asset 1 is subject is an inadequately secured non-
recourse liability, because the adjusted issue price
of the liability ($120) exceeds the fair market val-
ue of the property securing the liability ($100). As a
result, pursuant to paragraph (c)(3)(i)(A)(1) of this
section, in determining its net unrealized built-in
gain, LossCo is treated as satisfying Liability 1 by
surrendering to the creditor Asset 1, resulting in an
amount realized of $120. Additionally, pursuant to
paragraph (c)(3)(i)(A)(2) of this section, LossCo is
treated as selling Asset 2 and having an amount real-
ized of $100. As a result, LossCo has a net unrealized
built-in gain of $50 ($120 amount realized on Asset
1, plus the $100 amount realized on Asset 2, less the
$170 aggregate adjusted basis of LossCo’s section
382 assets). See paragraph (c)(3)(i) of this section.
(B) Forgiveness of the recourse liability. Pursu-
ant to paragraph (c)(3)(ii)(A) of this section, the for-
giveness of the recourse liability will not impact the
calculation of LossCo’s net unrealized built-in gain,
unless it chooses to apply the provisions of para-
graph (c)(3)(ii)(B) of this section to all of its first-
year recourse COD income. The recourse liability is
a pre-change excess recourse liability to the extent
its adjusted issue price ($60) exceeds the fair market
value of LossCo’s section 382 assets, reduced, but

Bulletin No. 2019–40 805 September 30, 2019
not below zero, by the amount of nonrecourse liabil-
ity that is secured by such assets immediately before
the ownership change ($0 for Asset 1 and $40 for
Asset 2), or $20. As a result, the first-year recourse
COD income is $20 (the $20 income to the extent
of the pre-change excess recourse liability). If Loss-
Co chooses to apply the provisions of (c)(3)(ii)(B)
of this section, then, pursuant to paragraph (c)(3)(ii)
(B)(3) of this section, LossCo decreases by $20 the
amount of basis it uses to compute its net unrealized
built-in gain. As a result, LossCo has a net unrealized
built-in gain of $70 ($120 amount realized on Asset
1, plus $100 amount realized on Asset 2, less $150
aggregate adjusted basis of LossCo’s section 382 as-
sets. See paragraph (c)(3)(i)(D) of this section. The
first-year recourse COD income is not recognized
built-in gain.
(4) Example 4. Forgiveness of a recourse liabili-
ty that is not a pre-change excess recourse liability—
(i) Facts. The facts are the same as in paragraph (f)
(3)(i) (Example 3) of this section, except that, as of
the date of the ownership change, LossCo also owns
Asset 3, which has a fair market value of $80 and an
adjusted basis of $50. Additionally, LossCo includes
the $20 of cancellation of indebtedness income in
gross income that was recognized on Date 2 under
section 61(a)(12).
(ii) Analysis—(A) Calculation of net unrealized
built-in gain. As in paragraph (f)(3)(ii)(A) (Example
3) of this section, the nonrecourse liability on Asset
1 is an inadequately secured nonrecourse liability,
and as a result, pursuant to paragraph (c)(3)(i)(A)(1)
of this section, the amount realized with respect to
Asset 1 is $120. Additionally, pursuant to paragraph
(c)(3)(i)(A)(2) of this section, LossCo is treated as
selling Asset 2 and Asset 3 for an amount realized
of $180 ($100, plus $80). As a result, LossCo has
a net unrealized built-in gain of $80 ($120 amount
realized on Asset 1, plus $100 amount realized on
Asset 2, plus $80 amount realized on Asset 3, less
$220 aggregate adjusted basis of LossCo’s section
382 assets. See paragraph (c)(3)(i)(D) of this section.
(B) Forgiveness of the recourse liability. The
forgiveness of the recourse liability will not impact
the calculation of LossCo’s net unrealized built-in
gain under paragraph (c)(3)(ii)(A) of this section.
The adjustment provided under paragraph (c)(3)(ii)
(B) of this section for certain recourse liabilities is
not available (and the cancellation of indebtedness
is not recognized built-in loss) because the recourse
liability does not constitute a pre-change excess re-
course liability. See paragraph (b)(4) and (8) of this
section. The recourse liability is not a pre-change
excess recourse liability because its adjusted issue
price ($60) does not exceed the fair market value
of the LossCo’s section 382 assets, reduced, but not
below zero, by the amount of nonrecourse liability
that is secured by such assets immediately before the
ownership change ($0 for Asset 1, $40 for Asset 2,
and $80 for Asset 3).
(5) Example 5. Computing net unrealized built-
in gain or loss of a partner that is allocated section
382 excess business interest expense—(i) Facts.
LossCo and unrelated Corp A are equal partners in
partnership PRS. LossCo has a basis of $100 in its
PRS interest, which has a fair market value of $90.
In Year 1, PRS pays or accrues $100 of section 382
excess business interest expense, which is allocated
equally to LossCo and Corp A. At the end of Year
1, LossCo has an ownership change. In Year 2, PRS
has $80 of excess taxable income (within the mean-
ing of §1.163(j)-1(b)(15)), of which $40 is allocated
to LossCo pursuant to §1.163(j)-6(f)(2). LossCo’s
section 163(j) limitation (within the meaning of
§1.163(j)-1(b)(31)) for Year 2 is $25, and LossCo
pays or accrues $60 of other business interest ex-
pense in Year 2. LossCo’s section 382 limitation for
Year 2 is $30.
(ii) Analysis—(A) Year 1—(1) Basis reduction to
reflect allocation of excess business interest expense.
Pursuant to section 163(j)(4) and §1.163(j)-6, a part-
ner in a partnership reduces its adjusted basis in its
partnership interest by the amount of excess business
interest expense allocated to that partner. As a result,
LossCo’s basis in its PRS interest is reduced from
$100 to $50 in Year 1.
(2) Calculation of net unrealized built-in gain
or loss. LossCo experiences an ownership change
at the end of Year 1. Paragraph (c)(3)(iii)(E) of this
section provides that, in computing a loss corpora-
tion’s net unrealized built-in gain or loss, the amount
of the corporation’s basis in its section 382 assets is
adjusted immediately before the ownership change
by the amount of any adjustment that would apply if
the section 382 asset were sold immediately before
the ownership change. If LossCo had sold its PRS
interest immediately before the ownership change,
§1.163(j)-6(h)(3)(i) would have required LossCo
to increase its basis in the PRS interest by $50, the
amount of its remaining excess business interest ex-
pense. As a result, for purposes of section 382(h)(6)
(C) and paragraph (c)(3)(i)(B) of this section, Loss-
Co’s basis in its PRS interest is adjusted by the same
amount. Thus, for purposes of computing LossCo’s
net unrealized gain or loss, LossCo’s basis in its PRS
interest is increased to $100 immediately before the
ownership change.
(B) Year 2—(1) Treatment of excess business
interest expense as paid or accrued. Pursuant to
§1.163(j)-6(g)(2)(i), because LossCo is allocated
$40 of excess taxable income from PRS in Year 2,
LossCo treats $40 of its excess business interest
expense (from Year 1) as paid or accrued in Year 2.
LossCo’s remaining $10 of excess business interest
expense from Year 1 continues to be characterized as
excess business interest expense in succeeding years.
See §1.163(j)-6(g)(2)(ii).
(2) Section 163(j) deduction. In Year 2, LossCo
is treated as having paid or accrued $100 of business
interest expense ($40 of excess business interest ex-
pense that is treated as business interest expense un-
der §1.163(j)-6(g)(2)(i), and $60 of business interest
expense that LossCo actually paid or accrued in Year
2). Because LossCo has a section 163(j) limitation of
$25, LossCo can deduct only $25 of its $100 Year 2
business interest expense (see §1.163(j)-2(b)). Pur-
suant to §1.383-1(d)(1)(ii), LossCo is treated as de-
ducting $25 of its section 382 excess business interest
expense that is treated as business interest expense in
Year 2, because this amount is a recognized built-in
loss. No adjustment is made to the computation of
LossCo’s net unrealized built-in gain or loss to re-
flect the $25 of LossCo’s recognized built-in loss.
See paragraph (c)(3)(vi) of this section. Both Loss-
Co’s $15 of Year 1 excess business interest expense
that was treated as business interest expense in Year
2 and the $60 of other business interest expense that
was paid or accrued in Year 2 is disallowed in Year
2 under §1.163(j)-2(b). These amounts are treated as
disallowed business interest expense carryforwards
into Year 3 under §1.163(j)-2(c), with the $15 carry-
forward being subject to section 382 limitation. See
paragraph (d)(3)(vi) of this section.
(g) Applicability dates—(1) In gener-
al. This section applies to any ownership
change occurring after date of publica-
tion of Treasury decision adopting these
proposed regulations as final regulations
in the Federal Register. For ownership
changes occurring on or before the date
the Treasury decision adopting these pro-
posed regulations as final regulations is
published in the Federal Register, see
§1.382-7 as contained in 26 CFR part 1,
revised April 1, 2009. However, taxpayers
and their related parties, within the mean-
ing of sections 267(b) and 707(b)(1), may
apply the rules of this section to any own-
ership change occurring during a taxable
year with respect to which the period de-
scribed in section 6511(a) has not expired,
as long as the taxpayers and their related
parties consistently apply the rules of this
section and §1.382-7(a)(9) through (13) to
such ownership change and all subsequent
ownership changes that occur before the
applicability date of final regulations.
(2) Paragraph (d)(2)(vi) of this section.
Paragraph (d)(2)(vi) of this section applies
to loss corporations that have undergone
an ownership change on or after June 11,
2010. For loss corporations that have un-
dergone an ownership change before June
11, 2010, see §1.382-7T as contained in
26 CFR part 1, revised April 1, 2009.
Kirsten Wielobob,
Deputy Commissioner for Services
and Enforcement.
(Filed by the Office of the Federal Register on Sep-
tember 9, 2019, 8:45 a.m., and published in the issue
of the Federal Register for September 10, 2019, 84
F.R. 47455)

Bulletin No. 2019–40 i September 30, 2019
Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that
the same principle also applies to B, the
earlier ruling is amplified. (Compare with
modified, below).
Clarified is used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion. It
is not used where a position in a prior rul-
ing is being changed.
Distinguished describes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modified is used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
with amplified and clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transactions.
This term is most commonly used in a ruling
that lists previously published rulings that
are obsoleted because of changes in laws or
regulations. A ruling may also be obsoleted
because the substance has been included in
regulations subsequently adopted.
Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a
period of time in separate rulings. If the
new ruling does more than restate the sub-
stance of a prior ruling, a combination of
terms is used. For example, modified and
superseded describes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previous-
ly published ruling in a new ruling that is
self contained. In this case, the previously
published ruling is first modified and then,
as modified, is superseded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cas-
es in litigation, or the outcome of a Ser-
vice study.
Abbreviations
The following abbreviations in current use
and formerly used will appear in material
published in the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.

Numerical Finding List
1
Bulletin 2019–40
Announcements:
2019-07, 2019-27 I.R.B. 62
2019-08, 2019-32 I.R.B. 621
Notices:
2019-12, 2019-27 I.R.B. 57
2019-40, 2019-27 I.R.B. 59
2019-41, 2019-28 I.R.B. 256
2019-42, 2019-29 I.R.B. 352
2019-27, 2019-31 I.R.B. 484
2019-43, 2019-31 I.R.B. 487
2019-24, 2019-31 I.R.B. 489
2019-45, 2019-32 I.R.B. 593
2019-48, 2019-36 I.R.B. 678
2019-46, 2019-37 I.R.B. 695
2019-49, 2019-37 I.R.B. 699
2019-50, 2019-37 I.R.B. 700
2019-47, 2019-39 I.R.B. 731
Proposed Regulations:
REG-105476-18, 2019-27 I.R.B. 63
REG-106282-18, 2019-28 I.R.B. 259
REG-101828-19, 2019-29 I.R.B. 412
REG-106877-18, 2019-30 I.R.B. 441
REG-121508-18, 2019-30 I.R.B. 456
REG-105474-18, 2019-31 I.R.B. 493
REG-118425-18, 2019-31 I.R.B. 539
REG-130700-14, 2019-36 I.R.B. 681
REG-101378-19, 2019-37 I.R.B. 702
REG-104554-18, 2019-39 I.R.B. 737
REG-104870-18, 2019-39 I.R.B. 754
REG-102508-16, 2019-40 I.R.B. 777
REG-125710-18, 2019-40 I.R.B. 785
Revenue Rulings:
2019-16, 2019-28 I.R.B. 96
2019-17, 2019-32 I.R.B. 583
2019-18, 2019-35 I.R.B. 668
2019-19, 2019-36 I.R.B. 674
2019-20, 2019-36 I.R.B. 675
2019-21, 2019-38 I.R.B. 708
2019-22, 2019-40 I.R.B. 776
Revenue Procedures:
2019-24, 2019-29 I.R.B. 353
2019-28, 2019-32 I.R.B. 596
2019-29, 2019-32 I.R.B. 620
2019-30, 2019-33 I.R.B. 638
2019-31, 2019-33 I.R.B. 643
2019-32, 2019-33 I.R.B. 659
2019-33, 2019-34 I.R.B. 662
2019-34, 2019-35 I.R.B. 669
Revenue Procedures:—Continued
2019-23, 2019-38 I.R.B. 725
2019-36, 2019-38 I.R.B. 729
2019-37, 2019-39 I.R.B. 731
Treasury Decisions:
9863, 2019-27 I.R.B. 1
9864, 2019-27 I.R.B. 6
9865, 2019-27 I.R.B. 27
9867, 2019-28 I.R.B. 98
9868, 2019-28 I.R.B. 252
9866, 2019-29 I.R.B. 261
9861, 2019-30 I.R.B. 433
9869, 2019-30 I.R.B. 438
9862, 2019-31 I.R.B. 477
9872, 2019-32 I.R.B. 585
9871, 2019-33 I.R.B. 624
9873, 2019-33 I.R.B. 630
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2018–27 through 2018–52 is in Internal Revenue Bulletin
2018–52, dated December 27, 2018.
September 30, 2019 ii Bulletin No. 2019–40

Bulletin No. 2019–40 iii September 30, 2019
Finding List of Current Actions on
Previously Published Items
1
Bulletin 2019–40
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2018–27 through 2018–52 is in Internal Revenue Bulletin
2018–52, dated December 27, 2018.

Internal Revenue Service
Washington, DC 20224
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