Internal Revenue Bulletin 2008-21 (PDF rendition): IRS Announcements

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

Bulletin No. 200
8-21
May 27, 2008
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Rev. Rul. 2008–25, page 986.
Section 338.This ruling discusses an integrated transaction
where stock of a target corporation is acquired in a taxable re-
verse subsidiary merger, followed by liquidation of target. The
ruling addresses the proper treatment and application of the
step transaction doctrine in light of the policies behind section
338 of the Code.
Rev. Rul. 2008–26, page 985.
Medicaid rebates.This ruling holds that Medicaid rebates
paid by a pharmaceutical manufacturer are adjustments to the
sales price in calculating gross receipts, rather than deductions
from gross income under section 162 of the Code. Rev. Rul.
2005–28 clarified and superseded.
T.D. 9394, page 988.
Final regulations under section 1446 of the Code provide rules
permitting a partnership under certain circumstances to con-
sider partner-level items when computing its section 1446 with-
holding tax obligation on income that is effectively connected
with its U.S. trade or business, which is allocable under section
704 to foreign partners.
Notice 2008–48, page 1008.
Renewable electricity production, refined coal produc-
tion, and Indian coal production; calendar year 2008
inflation adjustment factors and reference prices.This
notice announces the calendar year 2008 inflation adjustment
factors and reference prices for the renewable electricity pro-
duction credit, refined coal production credit, and Indian coal
production credit under section 45 of the Code.
Rev. Proc. 2008–26, page 1014.
This procedure sets forth circumstances under which the IRS
will not challenge whether a security is “readily marketable” for
purposes of section 956(c)(2)(J).
EMPLOYEE PLANS
Notice 2008–50, page 1010.
Weighted average interest rate update; corporate bond
indices; 30-year Treasury securities; segment rates.
This notice contains updates for the corporate bond weighted
average interest rate for plan years beginning in May 2008;
the 24-month average segment rates; the funding transitional
segment rates applicable for May 2008; and the minimum
present value transitional rates for April 2008.
EXEMPT ORGANIZATIONS
Announcement 2008–49, page 1024.
The IRS has revoked its determination that Heritage Christian
Schools for Children of Stone Mountain, GA, and Lima Legion-
naires Charitable Foundation, Inc., of Lima, OH, qualify as orga-
nizations described in sections 501(c)(3) and 170(c)(2) of the
Code.
(Continued on the next page)
Fi
nding Lists begin on page ii.
Index for January through May begins on page vi.

ESTATE TAX
REG–112196–07, page 1021.
Proposed regulations under section 2032 of the Code clarify
that the election to use the alternate valuation method is avail-
able to estates that qualify under section 2032(c) and that ex-
perience a reduction in the value of the decedent’s gross estate
duetomarketconditions.Theregulationsalsodefinetheterm
“market conditions,” clarify that post-death events may not be
taken into account in valuing the gross estate on the alternate
valuation date, and provide examples, which are not intended
to be exclusive.
ADMINISTRATIVE
REG–208199–91, page 1017.
Proposed regulations under section 6503 of the Code pertain
to the use of designated summonses and related summonses,
particularly as they suspend the period of limitations on assess-
ment when a case is brought with respect to the designated or
related summonses.
Rev. Proc. 2008–27, page 1014.
This procedure provides a simplified method for taxpayers to
request relief for certain late filings under sections 897 and
1445 of the Code. The provisions of this procedure apply to
certain nonrecognition transactions and transfers of domestic
corporations that are not United States real property holding
corporations.
Announcement 2008–50, page 1024.
The Office of Professional Responsibility intends to publish an-
nouncements of disciplinary sanctions in a redesigned format
that will list specific violations of Treasury Department Circu-
lar No. 230. A new "Disciplinary Sanction" column of the an-
nouncements will include the relevant section number of Circu-
lar 230 and a brief description of misconduct.
May 27, 20082008–21 I.R.B.

The IRS Mission
Provide Americ
a’s taxpayers top quality service by helping them
understand an
d meet their tax responsibilities and by applying
the tax law with
integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Secre-
tary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
2008–21 I.R.B.May 27, 2008

May 27, 20082008–21 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 61.—G
ross Income
Defined
26 CFR 1.61–3: Gross income derived from business.
(Also § 162; 1.162–1.)
Medicaid rebates.This ruling holds
that Medicaid rebates paid by a pharma-
ceutical manufacturer are adjustments to
the sales price in calculating gross receipts,
rather than deductions from gross income
under section 162 of the Code. Rev. Rul.
2005–28 clarified and superseded.
Rev. Rul. 2008–26
ISSUE
Are Medicaid Rebates that a pharma-
ceutical manufacturer pays to State Medic-
aid Agencies adjustments to the sales price
in calculating gross receipts, or are they
ordinary and necessary business expenses
that are deductible from gross income un-
der § 162 of the Internal Revenue Code?
FACTS
M,whou
ses an accrual method of ac-
counti
ng and files returns on a calendar
year ba
sis, manufactures and sells pre-
script
ion drugs. In 1992,Mentered into a
“Reba
te Agreement” with the Department
of Hea
lth and Human Services (HHS)
pursu
ant to the Medicaid Rebate Pro-
gram e
stablished by the Omnibus Budget
Recon
ciliation Act of 1990, Pub. L. No.
101–
508, 104 Stat. 1388 (1990) (the Act).
The M
edicaid Rebate Program is de-
sign
ed to reduce the cost of drugs paid for
by th
e Medicaid Program and to increase
Medi
caid beneficiaries’ access to prescrip-
tion
drugs. Under the Act, pharmaceutical
manu
facturers must sign a “Rebate Agree-
men
t” with HHS (who acts on behalf of
eac
h State Medicaid Agency) to gain ac-
ces
s to the Medicaid-funded segment of
the
pharmaceutical market.
The
Rebate Agreements require phar-
mac
eutical manufacturers to pay Medic-
aid
Rebates directly to each State Medic-
ai
d Agency. A Medicaid Rebate is a por-
ti
on of the price paid by State Medicaid
Ag
encies to retailers for covered outpa-
ti
ent drugs dispensed to Medicaid benefi-
ciaries. The a
mount of the Medicaid Re-
bate is design
ed to ensure that the Medic-
aid Program is
charged no more for cov-
ered outpati
ent drugs than any other pur-
chaser.SeeH
.R. Rep. No. 101–881 at 96
(1990).
In 2005, the f
ollowing events occur: (1)
MsellsProdu
ct D, a prescription drug, to
W, a wholesal
er; (2)WsellsProduct Dto
R, a retail p
harmacy; (3)RdispensesProd-
uct Dto indi
vidualA, a Medicaid benefi-
ciary, and t
hen files a reimbursement claim
withS,aSta
te Medicaid Agency; (4)Sap-
proves the
claim and then reimbursesRfor
the cost of
Product Dplus a dispensing fee;
and (5)Mpa
ys a Medicaid Rebate toSpur-
suant to th
e Rebate Agreement.
LAW AND AN
ALYSIS
Section 6
1(a) provides that, except as
otherwis
e provided, gross income means
all incom
e from whatever source derived.
Section
1.61–3(a) of the Income Tax Reg-
ulation
s provides that in a manufacturing,
merchan
dising, or mining business, “gross
income”
means the total sales, less the cost
of good
s sold, plus any income from in-
vestme
nts and from incidental or outside
operat
ions or sources.
Sectio
n 162 allows as a deduction all
the ord
inary and necessary expenses paid
or incu
rred during the taxable year in car-
rying o
n any trade or business. Section
1.162
–1(a) provides, in part, that business
expen
ses deductible from gross income in-
clude
the ordinary and necessary expendi-
tures
directly connected with or pertaining
to the
taxpayer’s trade or business.
InPit
tsburghMilkCo.v.Commis-
sione
r, 26 T.C. 707 (1956),nonacq.
1959
–2 C.B. 8–9,nonacq. withdrawn
and a
cq. 1962–2 C.B. 5–6,acq. with-
draw
n and nonacq. 1976–2 C.B. 3–4, and
nona
cq. withdrawn in part and acq. in
part
1982–2 C.B. 2, the Tax Court ad-
dres
sed whether allowances, discounts, or
reb
ates paid by a milk producer to certain
pur
chasers of its milk, in willful viola-
tio
n of state law, are adjustments to the
pur
chase price of the milk resulting in a
red
uced sales price, or ordinary and nec-
es
sary business expenses under § 162 (in
wh
ich case no deduction would be allowed
under the rule
s of § 162(c)). The court
reasoned that
for income derived from
thesaleofpro
perty, in determining gain,
the amount re
alized must be based on the
actual price
or consideration for which
the property
was sold and not on some
greater pric
e for which it possibly should
have been, b
ut was not, sold. The court
focusedont
he facts and circumstances of
the transac
tion, what the parties intended,
and the purp
ose or consideration for which
the allowan
ce was made. The court found
that the al
lowances were part of the sales
transacti
on and concluded that gross in-
come must b
e computed on the price for
which the m
ilk was actually sold. Thus,
underPit
tsburgh Milk, where a payment is
made from
a seller to a purchaser, and the
purpose a
nd intent of the parties is to reach
an agreed
upon selling price, the payment
is proper
ly viewed as an adjustment to the
purchas
e price that reduces gross sales.
In contra
st, inUnited Draperies, Inc. v.
Commiss
ioner, 41 T.C. 457 (1964),aff’d,
340 F.2d
936 (7
th
Cir.),cert. denied,382
U.S. 813
(1965), the Tax Court held that
adraper
y manufacturer could not exclude
from in
come kickbacks paid to employees
of the c
ompanies that purchased the tax-
payer’
s draperies. The court noted that
the kic
kbacks were made to employees of
its cus
tomers and were “independent of its
agree
ment with its purchasers fixing the
selli
ng price of the products sold,” and that
“[t]h
ese amounts were paid for a consider-
ation
separate from the selling price of its
produ
cts, namely these employees send-
ing t
he business of their employers to peti-
tion
er ....”United Draperiesat 465.
Rev.
Rul. 76–96, 1976–1 C.B. 23, ad-
dres
ses the tax treatment of rebates paid by
an au
tomobile manufacturer to retail cus-
tome
rs. The manufacturer offered rebates
of a s
et amount to retail customers who
inde
pendently negotiated at arm’s length
wit
h one of the manufacturer’s dealers to
arr
ive at a purchase price for a new car.
The
ruling holds that the rebates reduce the
pur
chase price of the cars and are not in-
clu
dible in the retail customer’s gross in-
co
me. The ruling further holds that the
ma
nufacturer may deduct the rebates as
or
dinary and necessary business expenses
un
der § 162.
2008–21 I.R.B.985May 27, 2008

The Medicaid Rebate is paid byMtoS
pursuant to the terms of the rebate agree-
ment. Under the purpose and intent test
ofPittsburgh Milk, the Medicaid Rebate is
a factor used in setting the actual selling
price, negotiated and agreed to before the
sale toWtakes place.
HOLDING
Medicaid Rebates that a pharmaceuti-
cal manufacturer paysto State Medicaid
Agencies are adjustments to the sales price
in calculating gross receipts. This holding
is limited to Medicaid Rebates that a phar-
maceutical manufacturer pays pursuant to
the Medicaid Rebate Program established
by the Act.
EFFECT ON OTHER DOCUMENTS
Rev. Rul. 2005–28, 2005–1 C.B. 997,
is clarified and superseded. Rev. Rul.
2005–28 suspended, in part, Rev. Rul.
76–96. Whether a rebate of the type de-
scribed in Rev. Rul. 76–96 is an ordinary
and necessary business expense or, alter-
natively, is an adjustment to the sales price
in calculating gross receipts, is an issue un-
der reconsideration. Therefore, pending
the Service’s reconsideration of the issue
and publication of subsequent guidance,
the Service will not apply, and taxpayers
may not rely on, the conclusion of Rev.
Rul. 76–96 that rebates made by the man-
ufacturer are ordinary and necessary busi-
ness expenses deductible under § 162.
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Susie K. Bird of the Office of Asso-
ciate Chief Counsel (Income Tax and Ac-
counting). For further information regard-
ing this revenue ruling, contact Ms. Bird
at (202) 622–4950 (not a toll-free call).
Section 162.—Trade or
Business Expenses
A revenue ruling holds that Medicaid Rebates paid
by a pharmaceutical manufacturer are adjustments to
the sales price in calculating gross receipts, rather
than deductions from gross income under section 162
of the Internal Revenue Code. The ruling clarifies
and supersedes Rev. Rul. 2005–28, 2005–1 C.B. 997.
See Rev. Rul. 2008-26, page 985.
Section 368.—Definitions
Relating to Corporate
Reorganizations
26 CFR 1.368–1: Purpose and scope of exception of
reorganization exchanges.
(Also § 338; 1.338–3; 1.368–2.)
Section 338.This ruling discusses an
integrated transaction where stock of a tar-
get corporation is acquired in a taxable re-
verse subsidiary merger, followed by liq-
uidation of target. The ruling addresses
the proper treatment and application of the
step transaction doctrine in light of the
policies behind section 338 of the Code.
Rev. Rul. 2008–25
ISSUE
What is the proper Federal income tax
treatment of the transaction described be-
low?
FACTS
T is a corporation all of the stock of
which is owned by individual A. T has
150x dollars worth of assets and 50x dol-
lars of liabilities. P is a corporation that
is unrelated to A and T. The value of P’s
assets, net of liabilities, is 410x dollars. P
forms corporation X, a wholly owned sub-
sidiary, for the sole purpose of acquiring
all of the stock of T by causing X to merge
into T in a statutory merger (the “Acquisi-
tion Merger”). In the Acquisition Merger,
P acquires all of the stock of T, and A ex-
changes the T stock for 10x dollars in cash
and P voting stock worth 90x dollars. Fol-
lowing the Acquisition Merger and as part
of an integrated plan that included the Ac-
quisition Merger, T completely liquidates
into P (the “Liquidation”). In the Liquida-
tion, T transfers all of its assets to P and P
assumes all of T’s liabilities. The Liquida-
tion is not accomplished through a statu-
tory merger. After the Liquidation, P con-
tinues to conduct the business previously
conducted by T.
LAW
Section 368(a)(1)(A) of the Internal
Revenue Code provides that the term “re-
organization” means a statutory merger
or consolidation. Section 368(a)(2)(E)
provides that a transaction otherwise qual-
ifying under § 368(a)(1)(A) shall not be
disqualified by reason of the fact that stock
of a corporation in control of the merged
corporation is used in the transaction, if
(i) after the transaction, the corporation
surviving the merger holds substantially
all of its propertiesand of the properties
of the merged corporation (other than
stock of the controlling corporation dis-
tributed in the transaction), and (ii) in the
transaction, former shareholders of the
surviving corporation exchanged, for an
amount of voting stock of the controlling
corporation, an amount of stock in the
surviving corporation which constitutes
control of the surviving corporation. Fur-
ther, §1.368–2(j)(3)(iii) of the Income Tax
Regulations provides that “[i]n applying
the ‘substantially all’ test to the merged
corporation, assets transferred from the
controlling corporation to the merged
corporation in pursuance of the plan of
reorganization are not taken into account.”
Section 368(a)(1)(C) provides in part
that a reorganization is the acquisition by
one corporation, in exchange solely for all
or part of its voting stock, of substantially
all of the propertiesof another corpora-
tion, but in determining whether the ex-
change is solely for stock, the assumption
by the acquiring corporation of a liability
of the other shall be disregarded. Section
368(a)(2)(B) provides that if one corpora-
tion acquires substantially all of the prop-
erties of another corporation, the acquisi-
tion would qualify under § 368(a)(1)(C)
but for the fact that the acquiring corpo-
ration exchanges money or other property
in addition to voting stock, and the acquir-
ing corporation acquires, solely for voting
stock described in § 368(a)(1)(C), property
of the other corporation having a fair mar-
ket value which is at least 80 percent of
the fair market value of all of the property
of the other corporation, then such acqui-
sition shall (subject to § 368(a)(2)(A)) be
treated as qualifying under § 368(a)(1)(C).
Section 368(a)(2)(B) further provides that
solely for purposes of determining whether
its requirements are satisfied, the amount
of any liabilities assumed by the acquiring
corporation shall be treated as money paid
for the property.
Section 1.368–1(a) generally provides
that in determining whether a transac-
tion qualifies as a reorganization under
§ 368(a), the transaction must be evaluated
under relevant provisions of law, including
the step transaction doctrine.
May 27, 20089862008–21 I.R.B.

Section 1.368–2(k) provides, in part,
that a transaction otherwise qualifying as
a reorganization under § 368(a) shall not
be disqualified or recharacterized as a re-
sult of one or more distributions to share-
holders (including distribution(s) that in-
volve the assumption of liabilities) if the
requirements of §1.368–1(d) are satisfied,
the property distributed consists of assets
of the surviving corporation, and the ag-
gregate of such distributions does not con-
sist of an amount of assets of the surviv-
ing corporation (disregarding assets of the
merged corporation)that would result in a
liquidation of such corporation for Federal
income tax purposes.
Rev. Rul. 67–274, 1967–2 C.B. 141,
holds that an acquiring corporation’s ac-
quisition of all of the stock of a target
corporation solely in exchange for vot-
ing stock of the acquiring corporation, fol-
lowed by the liquidation of the target cor-
poration as part of the same plan, will be
treated as an acquisition by the acquiring
corporation of substantially all of the tar-
get corporation’s assets in a reorganization
described in § 368(a)(1)(C). The ruling ex-
plains that, under these circumstances, the
stock acquisition and the liquidation are
part of the overall plan of reorganization
and the two steps may not be considered
independently of each other for Federal in-
come tax purposes. See also, Rev. Rul.
72–405, 1972–2 C.B. 217.
Rev. Rul. 2001–46, 2001–2 C.B. 321,
holds that, where a newly formed wholly
owned subsidiary of an acquiring corpora-
tion merged into a target corporation, fol-
lowed by the merger of the target corpo-
ration into the acquiring corporation, the
step transaction doctrine is applied to in-
tegrate the steps and treat the transaction
as a single statutory merger of the target
corporation into the acquiring corporation.
Noting that the rejection of step integration
in Rev. Rul. 90–95, 1990–2 C.B. 67, and
§ 1.338–3(d) is based on Congressional in-
tent that § 338 replaceany nonstatutory
treatment of a stock purchase as an asset
purchase under the Kimbell-Diamond doc-
trine, the Service found that the policy un-
derlying § 338 is not violated by treating
the steps as a single statutory merger of
the target into the acquiring corporation
because such treatment results in a trans-
action that qualifies as a reorganization in
which the acquiring corporation acquires
the assets of the target corporation with a
carryover basis under § 362, rather than re-
ceiving a cost basis in those assets under
§ 1012. (InKimbell-Diamond Milling Co.
v. Commissioner,14T.C.74,aff’d per cu-
riam, 187 F.2d 718 (1951),cert. denied,
342 U.S. 827 (1951), the court held that
the purchase of the stock of a target corpo-
ration for the purpose of obtaining its as-
sets through a prompt liquidation should
be treated by the purchaser as a purchase
of the target corporation’s assets with the
purchaser receiving a cost basis in the as-
sets.)
Section 338(a) provides that if a cor-
poration makes a qualified stock purchase
and makes an election under that section,
then the target corporation (i) shall be
treated as having sold all of its assets at the
close of the acquisition date at fair market
value and (ii) shall be treated as a new cor-
poration which purchased all of its assets
as of the beginning of the day after the ac-
quisition date. Section 338(d)(3) defines a
qualified stock purchase as any transaction
or series of transactions in which stock
(meeting the requirements of § 1504(a)(2))
of one corporation is acquired by an-
other corporation by purchase during a
12-month acquisition period. Section
338(h)(3) defines a purchase generally as
any acquisition of stock, but excludes ac-
quisitions of stock in exchanges to which
§ 351, § 354, § 355, or § 356 applies.
Section 338 was enacted in 1982 and
was “intended to replace any nonstatutory
treatment of a stock purchase as an as-
set purchase under the Kimbell-Diamond
doctrine.” H.R. Conf. Rep. No. 760,
97th Cong, 2d Sess. 536 (1982), 1982–2
C.B. 600, 632. Stock purchase or as-
set purchase treatment generally turns on
whether the purchasing corporation makes
or is deemed to make a § 338 election. If
the election is made or deemed made, as-
set purchase treatment results and the ba-
sis of the target assets is adjusted to reflect
the stock purchase price and other relevant
items. If an election is not made or deemed
made, the stock purchase treatment gener-
ally results. In such a case, the basis of
the target assets is not adjusted to reflect
the stock purchase price and other relevant
items.
Rev. Rul. 90–95 (Situation 2), holds
that the merger of a newly formed wholly
owned domestic subsidiary into a target
corporation with the target corporation
shareholders receiving solely cash in
exchange for their stock, immediately
followed by the merger of the target cor-
poration into the domestic parent of the
merged subsidiary, will be treated as a
qualified stock purchase of the target cor-
poration followed by a § 332 liquidation
of the target corporation. As a result, the
parent’s basis in the target corporation’s
assets will be the same as the basis of the
assets in the target corporation’s hands.
The ruling explains that even though “the
step-transaction doctrine is properly ap-
plied to disregard the existence of the
[merged subsidiary],” so that the first step
is treated as a stock purchase, the acqui-
sition of the target corporation’s stock is
accorded independent significance from
the subsequent liquidation of the target
corporation and, therefore, is treated as
a qualified stock purchase regardless of
whether a § 338 election is made. Thus, in
that case, the step transaction doctrine was
not applied to treat the transaction as a di-
rect acquisition by the domestic parent of
the assets of the target corporation because
such an application would have resulted
in treating a stock purchase as an asset
purchase, which would be inconsistent
with the repeal of the Kimbell-Diamond
doctrine and § 338.
Section 1.338–3(d) incorporates the
approach of Rev. Rul. 90–95 into the
regulations by requiring the purchasing
corporation (or a member of its affiliated
group) to treat certain asset transfers fol-
lowing a qualified stock purchase (where
no § 338 election is made) independently
of the qualified stock purchase. In the ex-
ample in § 1.338–3(d)(5), the purchase for
cash of 85 percent of the stock of a target
corporation, followed by the merger of the
target corporation into a wholly owned
subsidiary of the purchasing corporation,
is treated (other than by certain minority
shareholders) as a qualified stock purchase
of the stock of the target corporation fol-
lowedbya§368reorganizationofthe
target corporation into the subsidiary. As
a result, the subsidiary’s basis in the target
corporation’s assets is the same as the ba-
sis of the assets in the target corporation’s
hands.
ANALYSIS
If the Acquisition Merger and the Liq-
uidation were treated as separate from each
other, the Acquisition Merger would be
2008–21 I.R.B.987May 27, 2008

treated as a stock acquisition that qualifies
as a reorganization under § 368(a)(1)(A)
by reason of § 368(a)(2)(E), and the
Liquidation would qualify under § 332.
However, as provided in § 1.368–1(a), in
determining whether a transaction qual-
ifies as a reorganization under § 368(a),
the transaction must be evaluated under
relevant provisions of law, including the
step transaction doctrine. In this case,
because T was completely liquidated, the
§ 1.368–2(k) safe harbor exception from
the application of the step transaction
doctrine does not apply. Accordingly,
the Acquisition Merger and the Liquida-
tion may not be considered independently
of each other for purposes of determin-
ing whether the transaction satisfies the
statutory requirements of a reorganization
described in § 368(a)(1)(A) by reason of
§ 368(a)(2)(E). As such, this transaction
does not qualify as a reorganization de-
scribed in § 368(a)(1)(A) by reason of
§ 368(a)(2)(E) because, after the trans-
action, T does not hold substantially all
of its properties and the properties of the
merged corporation.
In determining whether the transaction
is a reorganization, the approach reflected
in Rev. Rul. 67–274 and Rev. Rul.
2001–46 is applied to ignore P’s acqui-
sition of the T stock in the Acquisition
Merger and to treat the transaction as a di-
rect acquisition by P of T’s assets in ex-
change for 10x dollars in cash, 90x dollars
worth of P voting stock, and the assump-
tion of T’s liabilities.
However, unlike the transactions con-
sidered in Revenue Rulings 67–274,
72–405 and 2001–46, a direct acquisition
by P of T’s assets in this case does not
qualify as a reorganization under § 368(a).
P’s acquisition of T’s assets is not a re-
organization described in § 368(a)(1)(C)
because the consideration exchanged is
not solely P voting stock and the require-
ments of § 368(a)(2)(B) are not satisfied.
Section 368(a)(2)(B) would treat P as
acquiring 40 percent of T’s assets for
consideration other than P voting stock
(liabilities assumed of 50x dollars, plus
10x dollars cash). See Rev. Rul. 73–102,
1973–1 C.B. 186 (analyzing the applica-
tion of § 368(a)(2)(B)). P’s acquisition
of T’s assets is not a reorganization de-
scribed in § 368(a)(1)(D) because neither
T nor A (nor a combination thereof) was
in control of P (within the meaning of
§ 368(a)(2)(H)(i)) immediately after the
transfer. Additionally, the transaction is
not a reorganization under § 368(a)(1)(A)
because T did not merge into P. Accord-
ingly, the overall transaction is not a
reorganization under § 368(a).
Additionally, P’s acquisition of the T
stock in the Acquisition Merger is not a
transaction to which § 351 applies because
A does not control P (within the mean-
ing of § 368(c)) immediately after the ex-
change.
Rev. Rul. 90–95 and § 1.338–3(d) re-
ject the step integration approach reflected
in Rev. Rul. 67–274 where the applica-
tion of that approach would treat the pur-
chase of a target corporation’s stock with-
out a § 338 election followed by the liqui-
dation or merger of the target corporation
as the purchase of the target corporation’s
assets resulting in a cost basis in the as-
sets under § 1012. Rev. Rul. 90–95 and
§ 1.338–3(d) treat the acquisition of the
stock of the target corporation as a qual-
ified stock purchase followed by a sepa-
rate carryover basis transaction in order to
preclude any nonstatutory treatment of the
steps as an integrated asset purchase.
In this case, further application of the
approach reflectedin Rev. Rul. 67–274,
integrating the acquisition of T stock with
the liquidation of T, would result in treat-
ing the acquisition of T stock as a tax-
able purchase of T’s assets. Such treatment
would violate the policy underlying § 338
that a cost basis in acquired assets should
not be obtained through the purchase of
stock where no § 338 election is made. Ac-
cordingly, consistent with the analysis set
forth in Rev. Rul. 90–95, the acquisition
of the stock of T is treated as a qualified
stockpurchasebyPfollowedbytheliqui-
dation of T into P under § 332.
HOLDING
The transaction is not a reorganization
under § 368(a). The Acquisition Merger is
a qualified stock purchase by P of the stock
of T under § 338(d)(3). The Liquidation
is a complete liquidation of a controlled
subsidiary under § 332.
PROSPECTIVE APPLICATION
The Service will consider the applica-
tion of § 7805(b) on a case-by-case basis.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Mary W. Lyons of the Office
of Associate Chief Counsel (Corporate).
For further information regarding this rev-
enue ruling, contact Ms. Lyons at (703)
622–7930 (not a toll-free call).
Section 897.—Disposition
of Investment in United
States Real Property
A revenue procedure describes simplified relief
in the case of certain nonrecognition transactions
and dispositions of domestic corporations that are
not United States real property holding corporations.
See Rev. Proc. 2008-27, page 1014.
Section 144
5.—Withholding
of Tax on Dispositions
of United States Real
Property Interests
A revenue procedure describes simplified relief
in the case of certain nonrecognition transactions
and dispositions of domestic corporations that are
not United States real property holding corporations.
See Rev. Proc. 2008-27, page 1014.
Section 1446.—Withholding
Tax on Fo
reign Partners’
Share of Effectively
Conne
cted Income
26 CFR 1
.1446–6: Special rules to reduce a partner-
ship’s
1446 tax with respect to a foreign partner’s al-
locabl
e share of effectively connected taxable income.
T.D. 9
394
DEPAR
TMENT OF THE
TREAS
URY
Inte
rnal Revenue Service
26 CF
R Parts 1, 301, and 602
Spec
ial Rules to Reduce
Sect
ion 1446 Withholding
AGEN
CY: Internal Revenue Service
(IR
S), Treasury.
ACT
ION: Final regulations and removal
of t
emporary regulations.
SUM
MARY: This document contains final
reg
ulations regarding when a partnership
may
consider certain deductions and losses
of a
foreign partner to reduce or eliminate
May 27, 20089882008–21 I.R.B.

the partnership’s obligation to pay with-
holding tax under section 1446 on effec-
tively connected taxable income allocable
under section 704 to such partner. The reg-
ulations will affect partnerships engaged in
a trade or business in the United States that
have one or more foreign partners. The
final regulations also include conforming
amendments to §§1.1446–3 and 1.1446–5
and to regulations under sections 1464,
6071, 6091, 6151, 6302, 6402, 6414, and
6722.
DATES:Effective Date:These regulations
are effective on April 29, 2008.
Applicability Dates:The regulations
are generally applicable for partnership
taxable years beginning after December
31, 2007. See §1.1446–6(f). For a transi-
tion rule see §1.1446–6(g).
FOR FURTHER INFORMATION
CONTACT: Ronald M. Gootzeit at (202)
622–3860 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information con-
tained in these final regulations has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)) under control
number 1545–1934. The collection of
information in these final regulations is in
§1.1446–6(c) and (d). This information is
required to determine the extent to which
a partnership will consider certifications
of losses and deductions in calculating
the amount of withholding tax it must pay
with respect to a foreign partner on the
partner’s allocable share of effectively
connected taxable income earned by such
partnership.
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
control number.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
Background
On September 3, 2003, the IRS and
the Treasury Department published in the
Federal Registera notice of proposed
rulemaking (REG–108524–00, 2003–2
C.B. 869 [68 FR 52466]), corrected at 68
FR 62553 (November 5, 2003), under sec-
tions 871, 1443, 1446, 1461, 1462, 1463,
6109, and 6721 of the Internal Revenue
Code (Code). The regulations provide
guidance for partnerships required to pay
withholding tax under section 1446 of the
Code (1446 tax). On May 18, 2005, the
IRS and the Treasury Department issued
final and temporary regulations under
section 1446. The 2005 final regulations
set forth the provisions of the 2003 pro-
posed regulations in final form and the
temporary regulations established a new
procedure by which a partnership could
consider certain partner-level deductions
and losses when computing its 1446 tax.
The temporary regulations generally ap-
ply to partnership taxable years beginning
after the date of their issuance, but an
election was provided that permitted a
partnership to apply the regulations to
partnership taxable years beginning after
December 31, 2004, provided the part-
nership elected to apply the 2005 final
regulations to partnership taxable years
beginning after December 31, 2004. On
May 18, 2005, the IRS and the Treasury
Department also published in theFederal
Registera notice of proposed rulemaking
(REG–108524–00, 2005–1 C.B. 1158 [70
FR 28701]) under sections 1464, 6071,
6091, 6151, 6302, 6402, 6414, and 6722
of the Code to implement the section 1446
regime, as well as cross-referencing the
temporary regulations under §1.1446–6T
(see 26 CFR Part 1, revised as of April 1,
2007). Written comments were received
in response to the notice of proposed rule-
making, and a public hearing was held
on November 16, 2005. After consider-
ation of all the comments, the proposed
regulations are adopted, as revised by this
Treasury decision and the temporary reg-
ulations are removed.
Explanation of Provisions
Section 1446 requires a partnership to
pay section 1446 tax on a foreign part-
ner’s allocable share of effectively con-
nected taxable income (ECTI) from the
partnership. The temporary regulations al-
low certain foreign partners to certify cer-
tain deductions and losses to a partnership
to reduce the 1446 tax required to be paid
by the partnership with respect to ECTI al-
locable to such partners. The temporary
regulations also permit a nonresident alien
partner to certify to the partnership that the
partnership investment is (and will be) its
only activity for its taxable year that gives
rise to effectively connected income, gain,
deduction, or loss. In that case, the part-
nership is not required to pay 1446 tax (or
any installment of such tax) with respect
to such partner if the partnership estimates
that the annualized (or, in the case of a
partnership completing its Form 8804 “An-
nual Return for Partnership Withholding
Tax (Section 1446),” the actual) 1446 tax
due with respect to such nonresident alien
partner is less than $1,000.
I.Modifications to the Temporary
Regulations
A.Format of certificate submitted to a
partnership
The temporary regulations state that no
particular form is required for the partner’s
certificate of deduction and losses to the
partnership. However, the temporary reg-
ulations list 13 items the certificate must
contain and the caption that must appear at
the top of the certificate. To ensure uni-
formity of the certificates and to reduce
the likelihood of an inadvertently omitted
item causing the certificate to be defective,
the IRS developed a form (Form 8804–C,
“Certificate of Partner-Level Items to Re-
duce Section 1446 Withholding”)tobe
used by the partner providing a certifi-
cate to the partnership. The IRS and the
Treasury Department believe that the Form
8804–C will facilitate a partner’s ability to
provide original and updated certificates.
B.Partners entitled to certify deductions
and losses
1.Filing period requirement: number of
years
To be eligible to provide a certificate
to a partnership the temporary regulations
require a partner to have timely filed (or
to represent that it will timely file) a U.S.
income tax return for each of its preced-
ing four taxable years and for the taxable
2008–21 I.R.B.989May 27, 2008

year during which thecertificate is pro-
vided and will be considered by the part-
nership. The partner is also required to
have timely paid (or to represent that it will
timely pay) all tax shown on such returns.
The final regulations clarify that only re-
turns that report income or gain effectively
connected with a U.S. trade or business or
deductions or losses properly allocated and
apportioned to such activities will satisfy
the tax return filing requirement (for the
current or relevant prior years). Accord-
ingly, the partner may not fulfill this re-
quirement with a U.S. income tax return
that reports no items of income or gain ef-
fectively connectedwith a U.S. trade or
business or deductions or losses properly
allocated and apportioned to such activi-
ties.
Several commentators suggested reduc-
ing the temporary regulations’ prior years
U.S. tax return filing requirement. One
commentator suggested reducing the re-
quirement to the lesser of the two prior
years or the number of years the partner
has been a partner in the relevant partner-
ship. Another commentator suggested re-
ducing the requirement from four to two
years.
The IRS and the Treasury Department
believe it is appropriate to require the for-
eign partner to have filed a certain number
of returns and paid any tax relating to those
returns regardless of the number of years
the partner has been a member of the rel-
evant partnership. The IRS and the Trea-
sury Department do not believe that a re-
duction to two years is appropriate. Be-
cause the return for the year immediately
preceding the year a partner submits a cer-
tificate to a partnership may not have been
filed by the date when the certificate is sub-
mitted, reducing the prior years filing re-
quirement to two years could result in only
one return being filed by the date on which
the certificate is submitted. In response to
these comments, however, the IRS and the
Treasury Department have determined that
it is appropriate to reduce the prior years
filing requirement to three years.
The IRS and the Treasury Department
have also decided to modify the filing re-
quirement of a tax return for a preceding
taxable year in which the partner did not
submit a certificate to any partnership, if
the return has a due date (without exten-
sions) before the beginning of the part-
nership taxable year for which the certifi-
cate is provided. The final regulations pro-
vide that such returns must be filed and
all amounts due with such return (includ-
ing interest, penalties, and additions to tax,
if any) must be paid on or before the ear-
lier of: (1) The date that is one year from
the due date (without extensions) of such
return; or (2) The date on which the cer-
tificate for the current taxable year is sub-
mitted to the partnership. Once a partner
submits a certificate to a partnership, how-
ever, it must timely file all its subsequent
years’ returns (and timely pay all amounts
due with the returns) to submit a certifi-
cate to a partnership in a later year. The
IRS and the Treasury Department antic-
ipate that this modified rule will permit
more foreign partners to provide certifi-
cates to partnerships under the final regu-
lations.
2.Trusts and estates
One commentator requested that the
IRS and the Treasury Department explain
why foreign estates and domestic or for-
eign trusts, other than grantor trusts, are
not permitted to certify deductions and
losses to partnerships. Another commen-
tator asked that the decedent’s compli-
ance record be considered in determining
whether the estate can certify deductions
and losses to a partnership. The final reg-
ulations do not modify the treatment of
estates and trusts. The IRS and the Trea-
sury Department continue to believe, as
stated in the preamble to the temporary
regulations, that because trusts and estates
are not always pure conduits for tax pur-
posesitisdifficultforapartnershipto
determine the taxpayer (that is, the trust,
estate or beneficiary) that will pay tax on
the ECTI allocated to the trust or estate.
Further, a decedent’s filing history may
have limited relevance in predicting the
estate’s likely compliance.
3.Tiered partnerships
In a tiered partnership structure, a
lower-tier partnership must withhold 1446
tax on ECTI allocable to an upper-tier
foreign partnership that is a partner in
the lower-tier partnership. However, if
the upper-tier foreign partnership pro-
vides sufficient information regarding its
partners to the lower-tier partnership, the
lower-tier partnership may withhold 1446
tax based on the partners in the upper-tier
partnership. These rules may also apply
to upper-tier domestic partnerships that
have foreign partners. See §1.1446–5.
Similarly, an upper-tier partnership that re-
ceives certificates of deductions and losses
from its foreign partners may provide the
certificates to the lower-tier partnerships.
The final regulations add several rules
to ensure that deductions and losses cer-
tified to an upper-tier partnership are not
taken into account by both the upper-tier
partnership and a lower-tier partnership or
by more than one lower-tier partnership. A
new rule is also added requiring that suffi-
cient information regarding a partner in the
upper-tier partnership submitting the cer-
tificate be provided to the lower-tier part-
nership and then to the IRS so that the IRS
can reliably associate the ECTI and the cer-
tificate with the partner in the upper-tier
partnership.
C.Submissions of certificates
1.Time Lags for submission of certificates
The temporary regulations provide that
the partnership may rely on the first cer-
tificate submitted by the foreign partner
for a partnership taxable year only if the
partnership receives the certificate at least
30 days before the installment due date
or the annual Form 8804 filing due date
(without regard to extensions) for the part-
nership taxable year for which the partner
would like the certificate to be considered
in computing the 1446 tax due with respect
to the partner. Updated certificates may
only be considered if received at least ten
days before the installment due date or the
Form 8804 filing date (without regard to
extensions). Several commentators ques-
tioned the appropriateness of these timing
requirements if the partnership is willing to
rely on a certification submitted at the last
moment and remits the 1446 tax install-
ment or files the final return on a timely ba-
sis. The IRS and the Treasury Department
agree with the commentators and have re-
moved these requirements in the final reg-
ulations.
2.Resubmission of certificates
The temporary regulations require the
partnership to attach a copy of any certifi-
cate, and the computation of 1446 tax due
with respect to a partner, to both the Form
May 27, 20089902008–21 I.R.B.

8813,“Partnership Withholding Tax Pay-
ment Voucher (Section 1446),”and Form
8805,“Foreign Partner’s Information
Statement of Section 1446 Withholding
Tax,”filed with the IRS for any period
for which such certificate is considered
in computing the partnership’s 1446 tax
(or any installment of such tax). One
commentator suggested that a certificate
submitted with Form 8813 should not be
required to be submitted with subsequent
filings of Form 8813 or with Form 8805.
The IRS and the Treasury Department
agree with the comment regarding Form
8813. The final regulations provide that
a partner’s certificate need only be sub-
mitted for the first installment period for
which it is considered. For subsequent in-
stallment periods for which the certificate
is considered, the partnership may instead
attach a list of the name, taxpayer identifi-
cation number, and the amount of certified
deductions of each foreign partner whose
certificate was previously considered dur-
ing the taxable year and whose certificate
was again considered in the subject install-
ment period. The partnership would also
indicate if it was relying on the state and
local taxes withheld and remitted on behalf
of the partner. If the partnership is relying
on thede minimisrule for the partner, the
partnership would indicate that, in lieu of
indicating the amount of certified deduc-
tions. However, if a partnership receives
an updated certificate from a partner, that
certificate must be attached with the Form
8813 for the first installment period it is
considered. In all events, a partnership
must attach to the Form 8813 and Form
8805, a computation of 1446 tax due with
respect to such partner for all periods for
which a certificate received from the part-
ner is considered by the partnership. In
addition, in all events the partnership must
attach to the Form 8805 a copy of the
partner’s original or updated certificate, as
appropriate.
3.Denying partnerships the ability to
submit certificates
Consistent with the temporary regu-
lations, the final regulations provide that
upon receipt of written notification from
the IRS that a foreign partner’s certificate
is defective, the partnership may no longer
rely on the defective certificate or any
other certificate submitted by the partner
until the IRS notifies the partnership in
writing and revokes or modifies the orig-
inal notice. The final regulations provide
thattheIRSmayalsonotifythepart-
nership in writing if either a substantial
portion of the certificates submitted by the
partnership are defective or a substantial
amount of the deductions and losses relied
on by the partnership in computing its
1446 tax due are reported on one or more
defective certificates. Upon receiving that
notification the partnership may not rely
on any certificate submitted by any partner
for the partnership taxable year in which
such notification is received or any sub-
sequent partnership taxable year, until the
IRS notifies the partnership again in writ-
ing and revokes or modifies the original
notice.
D.Deductions and losses certified to the
partnership
1.Current year deductions
The temporary regulations provide that
a foreign partner can only certify deduc-
tions and losses that are or will be re-
flected on the partner’s U.S. income tax
return filed (or to be filed) for a taxable
year ending prior to the installment due
date or Form 8804 filing date (without re-
gard to extensions) for the partnership tax-
able year for which the certificate is con-
sidered. Therefore,no anticipated deduc-
tion or loss with respect to current opera-
tions may be considered. One commenta-
tor suggested that partners should be per-
mitted to certify current year deductions to
the partnership. The IRS and the Treasury
Department are concerned about the uncer-
tainty associated with fluctuations in esti-
mates of current-year activities and there-
fore have not adopted this suggestion.
2.Charitable deductions
One commentator requested that part-
ners be permitted to certify charitable con-
tribution deductions. The IRS and the
Treasury Department have not adopted this
recommendation because of the difficulty
a partnership would have in determining
the amount of a charitable contribution
deductionallowedtotheforeignpartner.
Section 170 provides separate rules for
corporations and individuals, the type of
charity to which the contribution is made,
and the type of property contributed to the
charity. In addition, separate rules apply
to determine the deduction amount in the
case of charitable contribution carryover.
3.Suspended losses
One commentator raised a concern that
a foreign partner could certify a passive ac-
tivity loss to a partnership that conducts a
different activity in which the partner ma-
terially participates. If the partnership took
that loss into account it would inappro-
priately reduce its 1446 tax due with re-
spect to that partner. Because on its in-
come tax return the partner could not off-
set the loss against its allocable share of
partnership ECTI, the partner might inap-
propriately each year recertify that loss to
the partnership. To address that concern
the final regulations clarify that a partner
must identify any certified deductions and
losses that are subjectto special limitations
at the partner level and provide informa-
tion to the partnership that will allow the
partnership to take into account the special
limitations.
4.Net operating losses
The temporary regulations provide that
a partnership may not consider a partner’s
net operating loss (NOL) deduction in an
amount greater than 90 percent of the part-
ner’s allocable share of ECTI. Two com-
mentators discerned that this requirement
reflects a concern about the alternative
minimum tax (AMT) limitation on NOL
deductions and suggested the regulations
should be tied to the continuing applica-
bility of the 90 percent AMT limitation on
the use of NOL carryovers. The IRS and
the Treasury Department have adopted
this suggestion. One commentator further
suggested that if the 90 percent limitation
is retained, or as long as it applies, the
regulations should be clarified to explain
that the limitation should be applied on
a cumulative basis for each installment
period. This suggestion has also been
adopted. With this clarification, if the
partnership’s annualized income changes
during the year, the NOL deduction that
the partnership may take into account can
increase or decrease accordingly.
E.Partnership items allocable to partners
that give rise to partner level deductions,
losses or credits but are not partnership
2008–21 I.R.B.991May 27, 2008

allocations of deductions and losses under
section 704
1.State income taxes
One commentator suggested allowing
the partnership to reduce a foreign part-
ner’s ECTI by the amount of any state
and local taxes paid by the partnership on
behalf of the partner with respect to the
partner’s allocable share of partnership in-
come. The final regulations adopt this rec-
ommendation but provide that the partner-
ship may only consider 90 percent of the
state and local taxes withheld and remit-
ted on behalf of the partner but only with
respect to the partner’s allocable share of
ECTI. The partnership may consider these
amounts regardless of whether the partner
submits a certification of deductions and
lossesorofitsde minimisstatus to the part-
nership for the relevant partnership taxable
year.
2.Section 199 deductions
One commentator suggested allowing a
partnership to consider a partner’s avail-
able deduction under section 199 in deter-
mining its section 1446 tax with respect to
that partner. The section 199 deduction is
a percentage of the lesser of the qualified
production activities income (QPAI) of the
taxpayer for the taxable year or the tax-
payer’s taxable income or, in the case of
an individual, adjusted gross income de-
termined without regard to section 199 for
the taxable year. In addition, the deduction
islimitedto50percentoftheFormW–2,
“WageandTaxStatement”, wages for the
taxpayer for the taxable year. Depending
on a taxpayer’s gross receipts and assets,
there are up to three permissible methods
for calculating QPAI.
In the case of a pass-through en-
tity (such as a partnership), section
199(d)(1)(A) provides that the section
199 deduction is calculated at the partner
level. A partner may be a member of more
than one partnership and may engage in
its own qualifying activities under section
199. The QPAI and Form W–2 wages,
and any other QPAI and Form W–2 wages
reported by a partnership to the partner,
must be added to the partner’s own cal-
culation of QPAI and Form W–2 wages.
Therefore, because of the difficulty in a
partnership determining the section 199
deduction of a partner, the IRS and the
Treasury Department determined it would
be inappropriate to allow a partnership to
consider the section 199 deduction of a
partner in determining the amount of sec-
tion 1446 tax to be withheld with respect
to that partner.
3.Section 470 deductions
One commentator suggested that the
regulations allow the partnership to con-
sider partner-level deductions previously
suspended under section 470 (limitation
on deductions allocable to property used
by governments or other tax-exempt enti-
ties) and relating to the partnership, when
the deductions becomeavailable. Section
470 currently allows the partnership to
consider these suspended partner-level
deductions in determining the partner’s
ECTI. Therefore, there is no need to mod-
ify the regulations in response to this
suggestion.
4.Tax credits
One commentator suggested that a for-
eign partner should beable to certify cred-
its to the partnership and that the partner-
ship be able to considercurrent-year cred-
its in determining the amount of its 1446
tax. Section 1446 requires that a partner-
ship pay a withholding tax on its ECTI al-
locable to foreign partners. It provides no
authority for partnerships to consider cred-
its in determining the amount of 1446 tax
the partnership is required to withhold and
pay. Therefore, this suggestion has not
been adopted.
F.Effect on reasonable reliance on
certificate of deductions and losses
The temporary regulations provide that
a partnership is not relieved from liabil-
ity for 1446 tax under section 1461 or for
any applicable addition to the tax, interest,
or penalties if a partner’s certificate is de-
fective or the partner submits an updated
certificate that increases the 1446 tax due
with respect to such partner. If a certificate
is determined to be defective for a reason
other than the amount or character of the
deductions and losses set forth on such cer-
tificate (for example, the partner failed to
timely file a U.S. income tax return), then
the partnership is liable for the entire 1446
tax amount under section 1461 (or any in-
stallment of such tax).
Further, under the temporary regula-
tions, if it is determined that a certificate
is defective because the actual deductions
and losses available to the partner are less
than the amount certified to the partnership
(other than when it is determined that the
partner certified the same deduction or loss
to more than one partnership), the partner-
ship is liable for 1446 tax under section
1461 (or any installment of such tax) only
to the extent the amount of certified de-
ductions and losses taken into account by
the partnership is greater than the amount
determined to be actually available to the
partner and permitted to be used under reg-
ulations.
Similarly, if it is determined that a cer-
tificate is defective because the character
of the certified deductions and losses is er-
roneous, the partnership is liable for 1446
tax under section 1461 (or any installment
of such tax) only to the extent the actual
character of the deductions and losses re-
sults in an increase in the 1446 tax due with
respect to such partner.
However, the temporary regulations
provide that the partnership is not liable for
the addition to tax under section 6655 (as
applied though §1.1446–3) for the period
during which the partnership reasonably
relied on the certificate. Further, the tem-
porary regulations provide that although a
partnership is generally liable for the 1446
tax, any addition to the tax, interest, and
penalties, the partnership may be relieved
of some penalties in certain circumstances.
One commentator stated that reason-
able reliance on a certificate should protect
a partnership against liability not only un-
der section 6655, but also for liability for
the tax under section 1461, interest on the
tax under section 6601, and various other
penalty provisions. The IRS and the Trea-
sury Department have not adopted this rec-
ommendation. Use of the certification pro-
cedures under §1.1446–6 is voluntary. The
foreign partner is not required to submit a
certificate of deductions and losses to the
partnership. Moreover, even if the partner-
ship receives a certificate it may consider
all, none or only a portion of the certified
deductions and losses when calculating its
payment of 1446 tax. Further, as the tem-
porary regulations stated, the partnership
may be relieved of some penalties in cer-
tain circumstances.
May 27, 20089922008–21 I.R.B.

G.Relief for a partnership’s failure to
timely comply with the requirements of
this section
Among other requirements, to apply the
rules of §1.1446–6 the partnership must re-
ceive a valid certificate from the foreign
partner and attach the certificate, along
with the computation of 1446 tax due with
respect to that partner, to certain Forms
8813 and Form 8805 filed with respect to
that partner. The IRS and the Treasury De-
partment believe that a reasonable cause
standard should be applied to determine
whether a partnership that failed to attach
the certificate and 1446 tax computation to
the relevant filing is eligible for an exten-
sion of time to comply with this require-
ment.
Under the reasonable cause standard, if
a partnership that may otherwise rely on a
partner’s certificate fails to comply timely
with the requirements of §1.1446–6, the
partnership is considered to have satisfied
the timeliness requirement if it demon-
strates, to the satisfaction of the Area
Director, Field Examination, Small Busi-
ness/Self-Employed or the Director, Field
Operations, Large and Mid-Size Business
(Director) having jurisdiction of the part-
nership’s return for the taxable year, that
such failure was due to reasonable cause
and not willful neglect. Once the part-
nership becomes aware of the failure, the
partnership must demonstrate reasonable
cause and must satisfy the filing require-
ment by attaching the certificate and the
partnership’s computation of 1446 tax due
with respect to that partner to an amended
Form 8813 or Forms 8804 and 8805 (that
amends the tax return to which the certifi-
cate and computation should have been
attached). A written statement must be
included that explains the reasons for the
failure to comply.
In determining whether the partnership
has reasonable cause, the Director shall
determine whether the partnership acted
reasonably and in good faith based on all
the facts and circumstances. The Direc-
tor shall notify the partnership in writing
within 120 days of the filing if it is de-
termined that the failure to comply was
not due to reasonable cause or if additional
time will be needed to make such determi-
nation. If the Director fails to notify the
partnership within 120 days of the filing,
the partnership shall be considered to have
demonstrated to the Director that such fail-
ure was due to reasonable cause and not
willful neglect.
H.Effective/Applicability dates and
transition rule
The final regulations are effective for
partnership taxable years beginning after
December 31, 2007. However, any certifi-
cate submitted on or before July 28, 2008,
that met the requirements of the temporary
regulations shall not be considered defec-
tive solely because it does not meet the re-
quirements of the final regulations. How-
ever, any certificate (including any up-
dated certificates and status reports) sub-
mitted, or required to be submitted, after
July 28, 2008, must comply with the re-
quirements of these final regulations.
II.Modifications to the 2005 Final
Regulations
The final regulations make several clar-
ifying and conforming changes to the 2005
final regulations including with respect to
the calculation of installment payments of
1446 tax when a partnership considers a
certificate received under §1.1446–6 and
the information that a lower-tier partner-
ship must receive from an upper-tier part-
nership when the lower-tier partnerships
pays 1446 tax on behalf of the partners in
the upper-tier partnership. Also the prior
year safe harbor provision in §1.1446–3
wasconformedwithsection6655topro-
vide that the partnership must compute its
current year 1446 tax installments based
on the total 1446 tax (without regard to
§1.1446–6) as computed for the prior tax-
able year. These revisions are effective for
partnership taxable years beginning after
December 31, 2007.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. It also has been determined that
section553(b)oftheAdministrativePro-
cedures Act (5 U.S.C. chapter 5) does not
apply to these regulations. It is hereby
certified that the collections of informa-
tion contained in these regulations will not
have a significant economic impact on a
substantial number of small entities. This
certification is based upon the fact that
only a few small entities are expected to
be impacted by these collections and the
burden associated with such collections is
estimated to be 0.5 hours. Moreover, the
information collection in §1.1446–6 and
its use is voluntary.Therefore, a Regula-
tory Flexibility Analysis under the Regula-
tory Flexibility Act (5 U.S.C. chapter 6) is
not required. Pursuant to section 7805(f)
of the Code, the notice of proposed rule-
making preceding the final regulations was
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administration
for comment on their impact on small busi-
ness.
Drafting Information
The principal author of these regula-
tions is Ronald M. Gootzeit of the Office
of the Associate Chief Counsel (Interna-
tional). However, other personnel from the
IRS and the Treasury Department partici-
pated in their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1, 301, and
602 are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.1446–0 is amended as
follows:
1. Adding entries for §1.1446–6.
2. Removing entries for §1.1446–6T.
3. Revising the entry for §1.1446–7.
The addition and revision read as fol-
lows:
§1.1446–0 Table of contents.
*****
§1.1446–6 Special rules to reduce a
partnership’s 1446 tax with respect to
a foreign partner’s allocable share of
effectively connected taxable income.
(a) In general.
(1) Purpose and scope.
(2) Reasonable reliance on a certificate.
(b) Foreign partners to whom this sec-
tion applies.
(1) In general.
2008–21 I.R.B.993May 27, 2008

(2) Definitions.
(i) U.S. income tax return.
(ii) Timely-filed.
(iii) Qualifying U.S. income tax return.
(3) Special rules.
(c) Reduction of 1446 tax with respect
to a foreign partner.
(1) General rules.
(i) Certified deductions and losses.
(A) Deductions and losses from the
partnership.
(B) Deductions and loss from other
sources.
(C) Limit on the consideration of a part-
ner’s net operating loss deduction.
(D) Limitation on losses subject to cer-
tain partner level limitations.
(E) Certification of deductions and
losses to other partnerships.
(F) Partner level use of deductions and
losses certified to a partnership.
(ii)De minimiscertificate for nonresi-
dent alien individual partners.
(A) In general.
(B) Requirements for exception.
(iii) Consideration of certain current
year state and local taxes.
(2) Form and time of certification.
(i) Form of certification.
(ii) Time of certification provided to
partnership.
(A) First certificate submitted for a part-
nership’s taxable year.
(B) Updated certificates and status up-
dates.
(1) Preceding year tax returns not yet
filed.
(2) Other circumstances requiring an
updated certificate.
(3) Form and content of updated certifi-
cate.
(4) Partnership consideration of an up-
dated certificate.
(3) Notification to partnership when a
partner’s certificate cannot be relied upon.
(4) Partner to receive copy of notice.
(5) Notification to partnership when no
foreign partner’s certificate can be relied
upon.
(6) Partnership notification to partner
regarding use of deductions and losses.
(7) Partner’s certificate valid only for
partnership taxable year for which submit-
ted.
(d) Effect of certificate of deductions
and losses on partner and partnership.
(1) Effect on partner.
(i) No effect on liability for income tax
of foreign partner.
(ii) No effect on partner’s estimated tax
obligations.
(iii) No effect on partner’s obligation to
file U.S. income tax return.
(2) Effect on partnership.
(i) Reasonable reliance to relieve part-
nership from addition to tax under section
6665.
(ii) Continuing liability for withholding
tax under section 1461 and for applicable
interest and penalties.
(A) In general.
(B) Certificate defective because of
amount or character of deductions and
losses.
(3) Partnership level rules and require-
ments.
(i) Filing requirement.
(ii) Reasonable cause for failure to
timely file a valid certificate and compu-
tation.
(A) Determining reasonable cause.
(B) Notification.
(e) Examples.
(f) Effective/Applicability date.
(g) Transition rule.
§1.1446–7 Effective/Applicability date.
Par. 3. For each entry in the table in
the “Section” column remove the phrase in
the “Remove” column and add the phrase
in the “Add” column in its place.
SectionRemoveAdd
1.1446–1(a) (First sentence)1.1446–6T1.1446–6
1.1446–1(a)1.1446–6T1.1446–6
1.1446–1(b)§1.1446–6T§1.1446–6
1.1446–1(c)(5) (Second sentence)
1.1446–6T1.1446–6
1.1446–2(a) (Third sentence)§1.1446–6T§1.1446–6
1.1446–2(b)(1) (Second sentence)§1.1446–6T§1.1446–6
1.1446–2(b)(1) (Last sentence)1.1446–6T1.1446–6
1.1446–2(b)(3)(iii) (First sentence)§1.1446–6T§1.1446–6
1.1446–2(b)(3)(iii) (Second sentence)§1.1446–6T§1.1446–6
1.1446–2(b)(3)(vii)§1.1446–6T§1.1446–6
1.1446–2(b)(5)Example 3(Sixth
sentence)
§1.1446–6T§1.1446–6
1.1446–3(b)(2)(v)(F) (Second sentence) §1.1446–6T§1.1446–6(c)(1)(ii)
1.1446–3(d)(1)(i) (Third sentence§1.1446–6T§1.1446–6(d)(3)
1.1446–3(d)(1)(iii) (Third sentence)§1.1446–6T§1.1446–6
May 27, 20089942008–21 I.R.B.

SectionRemoveAdd
1.1446–3(e)(3)(i) (Last sentence)§1.1446–6T§1.1446–6(d)(2)(i)
1.1446–5(f)Example 1(i) (Ninth
sentence)
§1.1446–6T§1.1446–6
Par. 4. Section 1.1446–3 is amended
by:
1. Removing the acronym “ECTI”
from the first sentence in paragraph (b)(1)
and adding the language “effectively con-
nected taxable income (ECTI)” in its
place.
2. Revising paragraphs (b)(2)(i) and
(b)(3)(i)(A).
The revisions read as follows:
§1.1446–3 Time and manner of
calculating and paying over the 1446 tax.
*****
(b) * * *
(2) * * * (i)Application of the principles
of section 6655—(A)In general. Install-
ment payments of 1446 tax required dur-
ing the partnership’s taxable year are based
upon partnership ECTI for the portion of
the partnership taxable year to which the
payments relate, and, except as set forth in
this paragraph (b)(2) or paragraph (b)(3) of
this section, shall be calculated using the
principles of section 6655. The principles
of section 6655, except as otherwise pro-
vided in §1.6655–2, are applied to annu-
alize the partnership’s items of effectively
connected income, gain, loss, and deduc-
tion to determine each foreign partner’s al-
locable share of partnership ECTI. Each
foreign partner’s allocable share of part-
nershipECTIisthenmultipliedbytherel-
evant applicable percentage for the type
of income allocable to the foreign part-
ner under paragraph (a)(2) of this section.
The respective 1446 tax amounts are then
added for each foreign partner to yield an
annualized 1446 tax with respect to such
partner. The installment of 1446 tax due
with respect to a foreign partner equals the
excess of the section 6655(e)(2)(B)(ii) per-
centage of the annualized 1446 tax for that
partner (or, if applicable, the adjusted sea-
sonal amount) for the relevant installment
period, over the aggregate amount of 1446
tax installment payments previously paid
with respect to that partner during the part-
nership’s taxable year. The partnership’s
total 1446 tax installment payment equals
the sum of the installment payments due
for such period on behalf of all the part-
nership’s foreign partners.
(B)Calculation rules when certificates
are submitted under §1.1446–6—(1)To
the extent applicable, in computing the
1446 tax due with respect to a foreign
partner, a partnership may consider a cer-
tificate received from such partner under
§1.1446–6(c)(1)(i) or (ii) and the amount
of state and local taxes permitted to be
considered under §1.1446–6(c)(1)(iii).
For this purpose, a partnership shall first
annualize the partner’s allocable share of
the partnership’s items of effectively con-
nected income, gain, deduction, and loss
before—
(i) Considering under §1.1446–
6(c)(1)(i) the partner’s certified deductions
and losses;
(ii) Determining under §1.1446–
6(c)(1)(ii) whether the 1446 tax otherwise
due with respect to that partner is less than
$1,000 (determined with regard to any
certified deductions or losses); or
(iii) Considering under §1.1446–6
(c)(1)(iii) the amount of state and local
taxes withheld and remitted on behalf of
the partner.
(2) The amount of the limitation pro-
vided in §1.1446–6(c)(1)(i)(C) shall be
based on the partner’s allocable share of
these annualized amounts. For any in-
stallment period in which the partnership
considers a partner’s certificate, the part-
nership must also consider the following
events to the extent they occur prior to the
due date for paying the 1446 tax for such
installment period—
(i) The receipt of an updated certifi-
cate or status update from the partner
under §1.1446–6(c)(2)(ii)(B) certifying
an amount of deductions or losses that is
less than the amount reflected on the su-
perseded certificate (see §1.1446–6(e)(2)
Example 4);
(ii) The failure to receive an updated
certificate or status update from the part-
ner that should have been provided under
§1.1446–6(c)(2)(ii)(B); and
(iii) The receipt of a notification from
the IRS under §1.1446–6(c)(3) or (c)(5)
(see §1.1446–6(e)(2)Example 5).
*****
(3)***(i)***
(A) The average of the amount of the
current installment and prior installments
during the taxable year is at least 25 per-
cent of the total 1446 tax (without regard
to §1.1446–6) for the prior taxable year;
******
Par. 5. Section 1.1446–5(c)(2) is
amended by adding two new sentences
after the first sentence to read as follows:
§1.1446–5 Tiered partnership structures.
****
*
(c) *
**
(2) *
* * The lower-tier partnership re-
quir
ed to pay 1446 tax must be able to pro-
vid
e the information necessary for the IRS
to d
etermine the chain of ownership, al-
loc
ation of effectively connected items at
eac
h partnership level, as well as to the ul-
tim
ate beneficial owner of the effectively
con
nected items, and whether the amount
of
1446 tax paid was appropriate. This in-
fo
rmation should permit each partnership
in
the tiered structure and the IRS to re-
li
ably associate any effectively connected
it
ems allocable to such upper-tier partner-
s
hip, as well as to the ultimate beneficial
o
wner of the effectively connected items.
*
**
§1.1446–6T [Removed]
Par. 6. Section 1.1446–6T is removed.
Par. 7. Section 1.1446–6 is added to
read as follows:
§1.1446–6 Special rules to reduce a
partnership’s 1446 tax with respect to
a foreign partner’s allocable share of
effectively connected taxable income.
(a)In general—(1)Purpose and scope.
This section provides rules regarding when
a partnership required to pay withholding
tax under section 1446 (1446 tax), or an
installment of 1446 tax, may consider cer-
tain partner-level deductions and losses in
computing its 1446 tax obligation under
§1.1446–3, or otherwise not pay ade min-
imisamount of 1446 tax due with respect
2008–21 I.R.B.995May 27, 2008

to a nonresident alien individual partner.
A partnership determines the applicability
of the rules of this section on a partner-
by-partner basis foreach installment pe-
riod and when completing its Form 8804,
“Annual Return for Partnership Withhold-
ing Tax (Section 1446),”and paying 1446
tax for the partnership taxable year. Ex-
cept with respect to certain state and lo-
cal taxes paid by the partnership on be-
half of the partner, to apply the rules of
this section with respect to a foreign part-
ner, the partnership must receive a certifi-
cate from such partner for each partner-
ship taxable year. Paragraph (b) of this
section identifies the foreign partners to
which this section applies. Paragraph (c)
of this section identifies the deductions and
losses that a foreign partner may certify
to the partnership as well as the state and
local taxes paid by the partnership on be-
half of the foreign partner that can be taken
into account without a certification, and es-
tablishes an exception that permits a part-
nership to not pay ade minimisamount
of 1446 tax with respect to a nonresident
alien partner. Paragraph (c) of this sec-
tion also sets forth the requirements for a
valid certificate. Paragraphs (a)(2) and (d)
of this section establish when a partner-
ship may rely on and consider a foreign
partner’s certificate in computing its 1446
tax, and the effects of relying on such a
certificate. Paragraph (d) of this section
also describes the effects of a partnership
relying on a certificate (including an up-
dated certificate) and the reporting require-
ments of a partnership with respect to a cer-
tificate. Paragraph (e)of this section sets
forth examples that illustrate the rules of
this section. Paragraph (f) of this section
provides the Effective/Applicability date.
Paragraph (g) of this section provides a
transition rule.
(2)Reasonable reliance on a certifi-
cate. Subject to §1.1446–2 and the rules of
this section, a partnership receiving a cer-
tificate (including an updated certificate or
status update under paragraph (c)(2)(ii)(B)
of this section) of deductions and losses
from a partner provided in accordance with
the provisions of this section may reason-
ably rely on such certificate (to the extent
of the certified deductions and losses or
other representations set forth in the cer-
tificate) until such time that it has actual
knowledge or reason to know that the cer-
tificate is defective or that the time for
receiving an updated certificate or status
update from the partner under paragraph
(c)(2)(ii)(B) of this section has expired.
For this purpose, a partnership shall be
considered to have actual knowledge or
reason to know that a certificate is defec-
tive upon receipt of written notification
from the IRS under paragraph (c)(3) or
(c)(5) of this section.
(b)Foreign partner to whom this sec-
tion applies—(1)In general. Except as
otherwise provided in paragraph (b)(3) of
this section, a foreign partner to whom
this section applies is a foreign partner that
meets the requirements of this paragraph
(b)(1).
(i) The partner has provided valid doc-
umentation to the partnership to which a
certificate is submitted under this section
in accordance with §1.1446–1.
(ii) If the partner’s current taxable year
is the first taxable year in which the part-
ner submits a certificate to any partnership,
the partner has filed (or will file) a quali-
fying U.S. income tax return for each of
its three taxable years ending before the
end of the partnership’s taxable year for
which the partner is submitting a certifi-
cate (regardless of whether it was a part-
ner in that partnership during each of these
years). A qualifying U.S. income tax re-
turn for a taxable year that is prior to the
first taxable year the partner submits a cer-
tificate to any partnership is a U.S. income
tax return filed within the time specified in
paragraph (b)(2)(iii) of this section.
(iii) If the current taxable year of the
partner is not the first taxable year in which
the partner submits a certificate to any
partnership, the partner met the require-
ments in paragraph (b)(1)(ii) of this section
for the first taxable year in which it sub-
mitted a certificate to any partnership and
has filed (or will file) a qualifying U.S. in-
come tax return for its first taxable year in
which it submitted a certificate to any part-
nership and each subsequent taxable year
ending before the beginning of the current
taxable year (regardless of whether it was
a partner in any partnership during each of
those years). A qualifying U.S. income tax
return for a taxable year that is prior to the
taxable year the partner submits a certifi-
cate to any partnership is a U.S. income
tax return filed within the time specified in
paragraph (b)(2)(iii) of this section.
(iv) The partner files a qualifying U.S.
income tax return (within the meaning of
paragraph (b)(2)(iii) of this section) for its
taxable year in which a certificate is pro-
vided to any partnership.
(2)Definitions—(i)U.S. income tax
return. A U.S. income tax return means
a Form 1040NR,“U.S. Nonresident Alien
Income Tax Return,”in the case of a
nonresident alien individual and a Form
1120F,“U.S. Income Tax Return of a For-
eign Corporation,”in the case of a foreign
corporation.
(ii)Timely-filed. Only for purposes of
this section, a U.S. income tax return shall
be considered timely-filed if the return is
filedonorbeforetheduedatesetforthin
section 6072(c), plus any extension of time
to file such return granted under section
6081.
(iii)Qualifying U.S. income tax return.
A U.S. income tax return shall constitute
a qualifying U.S. income tax return if
the return reports income or gain that is
effectively connected with a U.S. trade
or business or deductions or losses prop-
erly allocated and apportioned to such
activities and if the return is described in
paragraph (b)(2)(iii)(A), (B), or (C) of this
section. A protective return described in
§1.874–1(b)(6) or §1.882–4(a)(3)(vi) is
not a qualifying U.S. income tax return for
purposes of this section.
(A) A U.S. income tax return for a part-
ner’s preceding taxable year in which it did
not submit a certificate to any partnership
(but not including a taxable year follow-
ing the first taxable year in which the part-
ner submitted a certificate to any partner-
ship), with a due date as set forth in sec-
tion 6072(c), not including any extensions
of time to file, which falls before the be-
ginning of the current partnership taxable
year for which the certificate is provided is
described in this paragraph (b)(2)(iii)(A) if
the return is filed and all amounts due with
respect to such return (including interest,
penalties, and additions to tax, if any) are
paid on or before the earlier of—
(1)The date that is one year after the
due date set forth in section 6072(c) for
such return, not including any extensions
of time to file; or
(2)The date on which the certificate
for the current partnership taxable year is
submitted to the partnership.
(B) A U.S. income tax return for a part-
ner’s preceding taxable year in which it
did not submit a certificate to any partner-
ship (but not including a taxable year fol-
May 27, 20089962008–21 I.R.B.

lowing the first taxable year in which the
partner submitted a certificate to any part-
nership), with a due date as set forth in
section 6072(c), not including any exten-
sions of time to file, which falls within the
current partnership taxable year for which
the certificate is provided is described in
this paragraph (b)(2)(iii)(B) if the return is
timely-filed and all amounts due with re-
spect to such return are timely paid.
(C) A U.S. income tax return for a tax-
able year in which the partner submits a
certificate to any partnership and for a tax-
able year following the first taxable year
in which the partner submits a certificate
to any partnership is described in this para-
graph (b)(2)(iii)(C) if the return is timely-
filed and all amounts due with such return
are timely paid with respect to such return.
(3)Special rules—(i) In the case of a
partnership (upper-tier partnership) that is
a partner in another partnership (lower-tier
partnership)—
(A) The rules of this section may apply
to reduce or eliminate the 1446 tax (or any
installment of such tax) of the lower-tier
partnership with respect to a foreign part-
ner of the upper-tier partnership only to the
extent the provisions of §1.1446–5 apply
to look through the upper-tier partnership
to the foreign partner of such upper-tier
partnership and the certificate described in
paragraph (c) of this section is provided
by such foreign partner to the upper-tier
partnership and, in turn, provided to the
lower-tier partnership with other appropri-
ate documentation (see §1.1446–5(c) and
(e));
(B) An upper-tier partnership that sub-
mits a certificate of deductions and losses
or ade minimiscertificate to a lower-tier
partnership may not submit that certificate
to another lower-tier partnership;
(C) An upper-tier partnership that relies
on a certificate submitted to it by a foreign
partner under this section for computing its
1446 tax due on effectively connected tax-
able income (ECTI) allocable to that part-
ner (other than ECTI allocable to it from
a lower-tier partnership) may not submit
that certificate to any lower-tier partner-
ship; and
(D) In addition to any other information
required by this section, a lower-tier part-
nership must submit with a Form 8813,
“Partnership Withholding Tax Payment
Voucher (Section 1446),”and Form 8805,
“Foreign Partner’s Information Statement
ofSection1446WithholdingTax,”for
which it relies on a certificate from an
upper-tier partnership to reduce the 1446
tax due with respect to a foreign partner
of the upper-tier partnership, sufficient
information so that the IRS may reliably
associate the ECTI and the certificate of
deductions and losses with the partner in
the upper-tier partnership submitting the
certificate, including the name, taxpayer
identification number (TIN) and alloca-
tion of effectively connected items at each
partnership tier, as well as to the ultimate
upper-tier partner submitting the certifi-
cate.
(ii) This section shall not apply to a part-
ner that is a foreign estate or its beneficia-
ries.
(iii) This section shall not apply to a
partner that is a trust or to its beneficiaries,
except to the extent that such trust is owned
by a grantor or other person under subpart
E of subchapter J of the Internal Revenue
Code, the documentation requirements of
§1.1446–1 have been met by the grantor
or other owner of such trust, and the cer-
tificate described in paragraph (c) of this
section is provided by the grantor or other
owner of such trust to the partnership.
(iv) This section shall not apply to a
partner in a publicly-traded partnership
subject to §1.1446–4.
(c)Reduction of 1446 tax with respect
to a foreign partner—(1)General rules.
Under paragraph (c)(1)(i) of this section a
foreign partner to whom this section ap-
plies may certify to a partnership for a part-
nership taxable year that it has certain de-
ductions (other than charitable deductions)
and losses properly allocated and appor-
tioned to gross income that is effectively
connected (or treatedas effectively con-
nected) with the conduct of the partner’s
trade or business in the United States, and
that the partner reasonably expects those
deductions and losses to be available and
claimed on the partner’s U.S. income tax
return to be filed for that taxable year.
Under paragraph (c)(1)(ii) of this section,
a nonresident alien individual partner to
whom this section applies may also cer-
tify to a partnership for a partnership tax-
able year that its only investment or ac-
tivity giving rise to effectively connected
items for the partnership’s taxable year that
ends with or within the partner’s taxable
year is (and will be) the partner’s invest-
ment in the partnership. A certificate sub-
mitted by a foreign partner to a partnership
under this section must be in accordance
with the form and requirements set forth in
paragraph (c)(2)(ii) of this section. Under
paragraph (c)(1)(iii) of this section, a part-
nership may take into account certain state
and local taxes withheld by the partnership
on behalf of the partner.
(i)Certified deductions and
losses—(A)Deductions and losses from
the partnership. Under this paragraph
(c)(1)(i)(A), a partner may certify to
a partnership for a partnership taxable
year deductions (other than charitable
deductions) and losses properly allocated
and apportioned to gross income which
is effectively connected (or treated as
effectively connected) with the conduct
of the partner’s trade or business in the
United States, that are reported on a Form
1065 (Schedule K–1),“Partner’s Share of
Income, Deductions, Credits, etc.,”issued
(or to be issued) to the partner by the
partnership for a prior partnership taxable
year, that are (or will be) reported on a
qualifying U.S. income tax return for a
partner’s taxable year that ends before
the installment due date or the close of
the partnership taxable year for which the
partner is certifying such deductions and
losses, and that the partner reasonably
expects to be available and claimed on
a qualifying U.S. income tax return for
the partner’s taxable year ending with or
after the close of the partnership taxable
year. A partner that has a loss reported on
a Form 1065 (Schedule K–1) issued (or to
be issued) to the partner by the partnership
for a prior partnership taxable year, but
that is not (and will not be) reported on
a qualifying U.S. income tax return for a
prior taxable year of the partner because
the loss is suspended under section 704(d)
may also certify such suspended loss
to the partnership under this paragraph
(c)(1)(i)(A).
(B)Deductions and losses from other
sources. Under this paragraph (c)(1)(i)(B),
a foreign partner may certify to a part-
nership for a partnership taxable year de-
ductions (other than charitable deductions)
and losses properly allocated and appor-
tioned to gross income that is effectively
connected (or treated as effectively con-
nected) with the conduct of the partner’s
trade or business in the United States and
that are from sources other than the part-
nership to whom the certificate is submit-
2008–21 I.R.B.997May 27, 2008

ted if the deductions and losses are (or will
be) reported on a qualifying U.S. income
tax return of the partner for a taxable year
that ends before the installment due date or
the close of the partnership taxable year for
which the partner is certifying the deduc-
tions and losses and the partner reasonably
expects the deductions and losses to be
available and claimed on the a qualifying
U.S. income tax return filed for its taxable
year ending with or after the close of the
partnership taxable year. Any deductions
and losses certified under this paragraph
(c)(1)(i)(B) that are allocated to the partner
from another partnership must be reported
on a Form 1065 (Schedule K–1) issued (or
to be issued) to the partner by such other
partnership. However, the partner may not
certify any deduction or loss allocated to it
from another partnership that is suspended
under section 704(d).
(C)Limit on the consideration of a part-
ner’s net operating loss deduction.Apart-
nership may not consider a net operating
loss deduction (as determined under sec-
tion 172) certified by the partner under this
paragraph (c)(1)(i) in an amount greater
than the percentage limitation, if any, pro-
vided in section 56(a)(4) and (d) multiplied
by the partner’s allocable share of ECTI
from the partnership reduced by all other
certified deductions and losses whether or
not taken into account by the partnership,
as well as deductions considered under
paragraph (c)(1)(iii) of this section.
(D)Limitation on losses subject to cer-
tain partner level limitations.Pursuantto
paragraph (c)(2)(i) of this section, a part-
ner must identify any certified losses or de-
ductions that are subject to special limita-
tions at the partner level (for example, sec-
tions 465 and 469) and provide informa-
tion to the partnership that will allow the
partnership to take the special limitations
into account. For example, where a partner
certifies a loss to the partnership that is a
passive activity loss under section 469, the
partner shall identify the activities the part-
nership conducts that the partner expects
will be passive activities. The partnership
shall then ensure that these limitations are
taken into account when determining the
1446 tax due with respect to the partner.
(E)Certification of deductions and
losses to other partnerships. Deductions
and losses certified to a partnership for a
taxable year of the partnership may not be
certified for the taxable year of another
partnership that begins or ends with or
within the taxable year of the partnership
to which the deductions and losses were
certified.
(F)Partner level use of deductions and
losses certified to a partnership.Any
deductions and losses certified to a part-
nership for a taxable year of the partner
and considered by the partnership in com-
puting its section 1446 tax due may not
be considered by that partner for the same
taxable year in computing the amount
of its required installments under section
6654(d) or 6655(d) on income unrelated
to the partnership to which the partner has
submitted the certificate.
(ii)De minimis certificate for nonres-
ident alien individual partners—(A)In
general. Under this paragraph (c)(1)(ii),
a nonresident alien individual partner
to whom this section applies and that
satisfies the requirements of paragraph
(c)(1)(ii)(B) of this section may certify to
a partnership that its only activity giving
rise to effectively connected income, gain,
deduction, or loss for the partnership’s
taxable year that ends with or within the
partner’s taxable year is (and will be) the
partner’s investment in the partnership. A
partnership that receives a certificate from
a nonresident alien partner under this para-
graph (c)(1)(ii) and that may reasonably
rely on such certificate is not required to
pay 1446 tax (or any installment of such
tax) with respect to such partner if the part-
nership estimates that the annualized (or,
in the case of a partnership completing its
Form 8804, the actual) 1446 tax otherwise
due with respect to such partner is less
than $1,000, without taking into account
any deductions or losses certified by the
partner to the partnership under paragraph
(c)(1)(i) of this section or any amounts
under paragraph (c)(1)(iii) of this section.
(B)Requirements for exception.There-
quirements of this paragraph (c)(1)(ii)(B)
are met if the nonresident individual alien
partner’s only activity giving rise to effec-
tively connected income, gain, deduction,
or loss for the partnership taxable year that
ends with or within the partner’s taxable
year is (and will be) the partner’s invest-
ment in the partnership. For this purpose,
if the partner has (or has reason to expect to
have) income or gain described in section
864(c)(6), such income or gain shall be
considered derived from a separate invest-
ment activity. A certificate submitted by
a nonresident alien individual partner un-
der this paragraph (c)(1)(ii) is valid even if
such certificate does not certify deductions
and losses to partnership under this sec-
tion. A nonresident alien individual part-
ner that submits a certificate to a partner-
ship under this paragraph (c)(1)(ii) must
notifythepartnershipinwritingandre-
voke such certificate within 10 days of the
date that the partner invests or otherwise
engages in another activity that may give
rise to effectively connected income, gain,
deduction, or loss for the partner’s taxable
year. For example, while an investment in
a U.S. real property interest (as defined in
section 897(c)) would not give rise to an
activity requiring a notification (unless an
election is in effect under section 871(d)),
the disposition of the U.S. real property in-
terestwouldgiverisetoanactivityrequir-
ing a notification.
(iii)Consideration ofcertain current
year state and local taxes. In addition to
any deductions and losses certified by a
foreign partner to a partnership under para-
graph (c)(1)(i) of this section, the part-
nership may consider as a deduction of
such partner 90-percent of any state and
local income taxes withheld and remitted
by the partnership on behalf of such part-
ner with respect to the partner’s allocable
share of partnership ECTI. The partnership
may consider the amount of state and local
taxes of the foreign partner determined un-
der this paragraph (c)(1)(iii) regardless of
whether the foreign partner submits a cer-
tificate to the partnership under paragraph
(c)(1)(i) or (ii) of this section.
(2)Form and time of certification—(i)
Form of certification. A partner’s certi-
fication to a partnership under paragraph
(c)(1)(i) or (iii) of this section shall be
made using Form 8804–C,“Certificate
of Partner-Level Items to Reduce Section
1446 Withholding”in accordance with the
instructions of the form and the rules of
this section.
(ii)Time for certification provided to
partnership—(A)First certificate submit-
ted for a partnership’s taxable year.Pro-
vided the other requirements of this sec-
tion are met, a partnership may only rely on
the first certificate received from a foreign
partner for any 1446 tax installment due or
Form 8804 filing due (without regard to
extensions) on or after the date on which
the certificate is received. See §1.1446–3
for 1446 tax installment due dates. See
May 27, 20089982008–21 I.R.B.

also paragraph (e) of this section for exam-
ples illustrating the rules of this paragraph
(c)(2).
(B)Updated certificates and status
updates—(1)Preceding year tax returns
not yet filed. If a foreign partner’s U.S.
income tax return for a preceding taxable
year has not been filed as of the time the
partner submits to the partnership its first
certificate under thisparagraph (c), the
certificate shall specify this fact and set
forth the filing due date for such return
set forth in section 6072(c), plus any ex-
tensionoftimetofilesuchreturngranted
under section 6081 and the regulations
under section 6081. The partner shall also
submit an updated certificate to the part-
nership in accordance with this paragraph
(c) within 10 days of the date the partner
files its U.S. income tax return for any
such taxable year. In addition, prior to the
partnership’s final 1446 tax installment
due date the partner shall provide to the
partnership, under penalties of perjury, a
status update regarding any U.S. income
tax return for the prior taxable year that
has not (or will not) be filed as of the final
installment due date. The status update
must identify the due date, set forth in sec-
tion 6072(c), plus any extension of time
to file such return granted under section
6081 and the regulations under section
6081, for any un-filed return identified in
the first certificate and state whether the
first certificate submitted may continue
to be considered by the partnership. If
the partnership does not receive an up-
dated certificate or a status update from
the partner prior to the partnership’s final
installment due date, the partnership shall
disregard the partner’s certificate when
computing the 1446 tax due with respect
to that partner for the final installment
period and when completing its Form
8804 for the taxable year. In addition,
the foreign partner shall not be permit-
ted to submit an additional or substitute
certificate for the disregarded certificate.
See §1.1446–3(b)(2)(i) for computation
requirements for installment payments of
1446 tax when a partnership receives, or
fails to receive, an updated certificate or
status update. See also paragraph (e)(2)
Examples 4 and 8of this section. Notwith-
standing this paragraph (c)(2)(ii)(B)(1), a
partner that can meet the requirements of
this section for a subsequent partnership
taxable year may submit a certificate to
the partnership under this section for such
taxable year.
(2)Other circumstances requiring an
updated certificate. If at any time during
the partnership taxable year the partner de-
termines that its most recent certificate fur-
nished to the partnership for such taxable
year is incorrect, then the partner shall sub-
mit to the partnership an updated certifi-
cate in accordance with this paragraph (c)
within 10 days of such determination. For
example, if the partnerdetermines that the
amount or character of the certified deduc-
tions or losses is incorrect, the partner shall
submit an updated certificate to the part-
nership. See §1.1446–3(b)(2)(i) for com-
putation requirements for installment pay-
ments of 1446 tax when a partnership re-
ceives an updated certificate.
(3)Form and content of updated certifi-
cate. The updated certificate required by
this paragraph (c)(2)(ii) must be provided
using the form and instructions identified
in paragraph (c)(2)(i) of this section. The
updated certificate must indicate that it is
an updated certificate filed in accordance
with this paragraph (c)(2)(ii). The partner
is not required to attach to the updated cer-
tificate a copy of the certificate that is be-
ing updated (superseded certificate).
(4)Partnership consideration of an up-
dated certificate. A partnership may con-
sider an updated certificate, that meets the
requirements of this paragraph (c), that is
received prior to an installment due date
in the same partnership taxable year for
which the superseded certificate was pro-
vided, or prior to the due date of its Form
8804 (without regard to extensions) to be
filed for the year the superseded certificate
was provided. A partnership must con-
sider an updated certificate that meets all
the requirements of this paragraph (c) if it
would increase the amount of 1446 tax the
partnership would pay by the next install-
ment due date, if any, or the due date of
its Form 8804. An updated certificate con-
sidered by the partnership under this para-
graph (c)(2)(ii)(B)(4) supersedes all prior
certificates submitted by the foreign part-
ner for the same partnership taxable year,
beginning with the installment period or
Form 8804 filing date for which the part-
nership considers the updated certificate.
See paragraph (e)(2)Example 4of this sec-
tion.
(3)Notification to partnership when a
partner’s certificate cannot be relied upon.
If the IRS determines, in its discretion
based on all the facts and circumstances,
that a foreign partner’s certificate is de-
fective (or that it lacks information suffi-
cient to make this determination after pro-
viding written request for such informa-
tion to the partnership), the IRS shall no-
tify the partnership of such determination
in writing. Upon receipt of such written
notification, the partnership shall not rely
on any certificate submitted by that foreign
partner for the partnership taxable year to
which the defective certificate relates (or
any subsequent partnership taxable year),
until the IRS provides written notification
to the partnership revoking or modifying
the original written notification. For pur-
poses of this section, a foreign partner’s
certificate of deductions and losses shall be
defective if—
(i) The partner is not described in para-
graph (b) of this section;
(ii) Any deductions or losses set forth in
such certificate are not described in para-
graph (c)(1)(i) of this section;
(iii) The timing requirements under
paragraph (c)(2) of this section for sub-
mitting an original certificate, an updated
certificate or a status update to the part-
nership are not met;
(iv) The certificate does not include all
of the information required by paragraph
(c)(2)(i) of this section;
(v) Any representation made on the cer-
tificate is incorrect;
(vi) The actual amount of deductions
and losses available to the partner is less
than the amount of deductions and losses
certified to the partnership for the part-
nership taxable year and considered by
the partnership in determining its 1446 tax
due; or
(vii) There is a failure to comply with
any other provision of this section.
(4)Partner to receive copy of notice.If
the IRS notifies a partnership under para-
graph (c)(3) of this section that a certifi-
cate of a foreign partner is defective, the
IRS shall send a copy of such notice to the
partner’s address as shown on the certifi-
cate. The partnership shall also promptly
furnish a copy of the IRS notice to such
partner.
(5)Notification to partnership when no
foreign partner’s certificate can be relied
upon. If the IRS determines, in its dis-
cretion based on all the facts and circum-
stances, that there would be a substantial
2008–21 I.R.B.999May 27, 2008

reduction in section 1446 tax as a result
of the submission of one or more defec-
tive certificates or that a substantial por-
tion of all certificates being submitted by
partners to the partnership and by the part-
nership to the IRS are defective (or lack in-
formation sufficient to make this determi-
nation), then the IRS shall notify the part-
nership of such determination in writing.
Upon receipt of such written notification,
the partnership shall not rely on any certifi-
cate submitted by any partner for the part-
nership taxable year to which the notice re-
lates or any subsequent partnership taxable
year, until the IRS provides written notifi-
cation to the partnership revoking or mod-
ifying the original notice.
(6)Partnership notification to partner
regarding use of deductions and losses.
Unless §1.1446–3(d)(1)(i)(A) or (B) ap-
plies (relating to waiver of notice of tax
paid during the partnership taxable year), a
partnership must notify each foreign part-
ner of the amount of such partner’s certi-
fied deductions and losses and state and
local taxes, if any, taken into account un-
der this paragraph (c) in determining the
1446 tax due with respect to such partner
for each installment period or Form 8804
filing date, as applicable.
(7)Partner’s certificate valid only for
partnership taxable year for which submit-
ted. A partnership that receives a certifi-
cate from a partnership under this para-
graph (c) shall consider such certificate
only for the partnership taxable year for
which the certificate is submitted, as set
forth on the certificate.
(d)Effect of certificate of deductions
and losses on partners and partner-
ship—(1)Effect on partner—(i)No effect
on liability for income tax of foreign
partner. A foreign partner that certifies
deductions and losses to a partnership un-
der this section is not relieved of liability
for income tax on its allocable share of
ECTI from the partnership. Further, the
submission of a certificate under this sec-
tion does not constitute an acceptance by
the IRS of the amount or character of the
deductions or losses certified therein.
(ii)No effect on partner’s estimated tax
obligations. A foreign partner that certi-
fies deductions and losses to a partnership
under this section is not relieved of any es-
timated tax obligation otherwise applica-
ble to such partner with respect to income
or gain allocated to such partner from the
partnership.
(iii)No effect on partner’s obligation to
file U.S. income tax return.Thesubmis-
sion of a certificate under paragraph (c)
of this section does not relieve the foreign
partner from its obligation to file a U.S. in-
come tax return even if as a result of the
partnership considering the certificate the
partner would have no additional tax due
with such return. See also §1.1446–3(f).
(2)Effect on partnership—(i)Reason-
able reliance to relieve partnership from
addition to tax under section 6655.Apart-
nership that has reasonably relied on a cer-
tificate received from a foreign partner and
complied with the filing requirements of
paragraph (d)(3)(i) of this section, shall not
be liable for any addition to tax under sec-
tion 6655 (as applied through §1.1446–3)
for any period during which the partner-
ship reasonably relied on such certificate,
even if such certificate is later determined
to be defective or the partner submits an
updated certificate under paragraph (c)(2)
of this section that increases the 1446 tax
due with respect to such partner.
(ii)Continuing liability for withholding
tax under section 1461 and for applica-
ble interest and penalties—(A)In general.
Except as otherwise provided in this sec-
tion, a partnership that has reasonably re-
lied on a certificate received from a for-
eign partner and complied with the fil-
ing requirements of paragraph (d)(3)(i) of
this section, is not relieved from liabil-
ity for the 1446 tax (or any installment of
such tax) under section 1461, any addi-
tions to the tax, interest or penalties. How-
ever, the partnership may be relieved of
additions to the tax or penalties in certain
circumstances. See §§301.6651–1(c) and
301.6724–1 of this chapter. Further, see
§1.1446–3(e) which deems a partnership
to have paid 1446 tax with respect to ECTI
allocable to a partner in certain circum-
stances. See also paragraph (e)(2)Exam-
ple 5of this section.
(B)Certificate defective because of
amount or character of deductions and
losses. If a certificate is determined to be
defective because the actual amount of de-
ductions and losses available to the partner
is less than the amount reflected on the cer-
tificate (other than when it is determined
that the partner certified the same deduc-
tion or loss to more than one partnership),
or because the character of the certified
deductions and losses is erroneous, the
partnership shall be liable for 1446 tax
under section 1461 (or any installment of
such tax) with respect to such partner to
the extent the partnership considered an
amount of certified deductions and losses
greater than the amount actually available
to the partner and permitted to be used
under §§1.1446–1 through 1.1446–5 and
this section, or to the extent that the proper
character of the certified deductions and
losses results in a greater amount of 1446
tax due with respect to such partner. See
paragraph (e)(2)Example 6of this section.
(3)Partnership level rules and require-
ments—(i)Filing requirement.Apart-
nership that relies in whole or in part on
a certificate received from a partner un-
der this section in computing its 1446 tax
due with respect to such partner must still
file Form 8813 or Form 8804 and 8805,
whichever is applicable, for the period for
which the certificate is considered, even if
as a result of relying on the certificate no
1446 tax (or an installment of such tax)
is due with respect to such foreign part-
ner. See generally §1.1446–3(d)(1). Ex-
cept as otherwise provided in this para-
graph (d)(3)(i), the partnership must at-
tach a copy of the foreign partner’s certifi-
cate, and the computation of the 1446 tax
due with respect to such partner, to both
the Form 8813 and Form 8805 filed with
the IRS for any installment period or year
for which such certificate is considered in
computing the partnership’s 1446 tax. See
§1.1446–3(d)(1)(iii) requiring the partner-
shiptofurnishForm8805totheIRSand
such foreign partner even if no 1446 tax
is paid on behalf of the partner. The part-
nership must include in that computation
the amount of state and local taxes de-
scribed in paragraph (c)(1)(iii) of this sec-
tion taken into account in computing the
1446 tax due with respect to that partner.
The partnership must also attach a com-
putation of the 1446 tax due with respect
to a partner for whom only state and lo-
cal taxes described in paragraph (c)(1)(iii)
are taken into account. For an installment
period other than the first installment pe-
riod for which the partnership considers
a foreign partner’s certificate or updated
certificate, the partnership may, instead of
attaching any partner’s certificate, attach
to Form 8813 a list containing the name,
TIN, the amount of certified deductions
and losses, and the amount of state and lo-
May 27, 200810002008–21 I.R.B.

cal taxes the partnership may consider un-
der paragraph (c)(1)(iii) of this section for
each foreign partner whose certificate was
relied upon. For purposes of the preced-
ing sentence, if the partnership is relying
on a certificate received under paragraph
(c)(1)(ii) of this section, instead of provid-
ing the amounts described in the prior sen-
tence, it should attach a statement to Form
8813 which provides that, relying on that
certificate, no 1446 tax is due with respect
to that partner.
(ii)Reasonable cause for failure to
timely file a valid certificate and compu-
tation. This paragraph (d)(3)(ii) provides
thesolesourceofreliefforapartnership
that fails to timely file a valid certifi-
cate or attach a computation of 1446 tax
as required under paragraph (d)(3)(i) of
this section. To permit the partnership to
reasonably rely on such certificate, the
partnership shall be considered to have
satisfied the requirements of paragraph
(d)(3)(i) of this section if the partnership
demonstrates to the Area Director, Field
Examination, Small Business/Self-Em-
ployed or the Director, Field Operations,
Large and Mid-Size Business (Director)
having jurisdiction of the partnership’s re-
turn for the taxable year, that such failure
was due to reasonable cause and not willful
neglect and if once the partnership be-
comes aware of the failure, the partnership
attaches the certificate and computation,
as well as a written statement setting forth
the reasons for the failure to comply with
the requirements of paragraph (d)(3)(i) of
this section, to an amended Form 8813
or amended Forms 8804 and 8805 for the
relevant period.
(A)Determining reasonable cause.In
determining whether the partnership has
reasonable cause, the Director shall con-
sider whether the partnership acted reason-
ably and in good faith considering all the
facts and circumstances.
(B)Notification. If the IRS has notified,
as provided in paragraph (c)(3) of this sec-
tion, the partnership that the certificate is
defective or that no foreign partner’s cer-
tificate may be relied upon, as provided in
paragraph (c)(5) of this section, the part-
nership will be deemed not to have acted
reasonably and in good faith. Otherwise,
the Director shall notify the partnership in
writing within 120 days of the amended fil-
ing if it is determined that the failure to
comply was not due to reasonable cause,
or if additional timewill be needed to make
such determination. If the Director fails to
notify the partnership within 120 days of
the amended filing, the partnership shall be
considered to have demonstrated to the Di-
rector that such failure was due to reason-
able cause and not willful neglect.
(e)Examples. (1) The rules of this sec-
tion are illustrated by the examples in para-
graph (e)(2) of this section. Except as oth-
erwise provided, in each example assume:
(i) Section 1.1446–3(b)(2)(v)(F) (relat-
ingtothede minimisexception to paying
1446 tax) does not apply;
(ii) Paragraph (c)(1)(ii) of this section
(relating to a nonresident alien individual
partner whose sole investment generating
effectively connected income or gain is the
partnership) does not apply;
(iii) All income and losses are ordinary;
(iv) For purposes of applying paragraph
(c)(1)(i)(C) of this section, the percentage
limitation under section 56(a)(4) and (d) is
90 percent;
(v) Any loss is not a passive activity loss
within the meaning of section 469;
(vi) The partnership uses an acceptable
annualization method under §1.1446–3;
(vii) NRA is a nonresident alien indi-
vidual who maintainsa calendar taxable
year for U.S. tax purpose;
(viii) B and C are U.S. individuals who
maintain a calendar taxable year; and
(ix) Any partnershipmaintains a calen-
dar taxable year.
(2) The examples are as follows:
Example 1.Qualifying U.S. income tax return.
(i) NRA and B form a partnership (PRS) in year 4
to conduct a trade or business in the United States.
NRA and B provide PRS appropriate documentation
under §1.1446–1 to establish their status for purposes
of section 1446. NRA submits a certificate to PRS
(using Form 8804–C) on March 20, year 4, to be con-
sidered by PRS in determining its 1446 tax due with
respect to NRA for the first installment period in the
year 4. The Form 8804–C states that NRA reason-
ably expects to have an effectively connected net op-
erating loss of $5,000 available to offset its allocable
share of ECTI from PRS in year 4. Prior to year 4,
NRA had not submitted a certificate to a partnership
under this section. NRA filed (or will file) its year 1
U.S. income tax return on March 11, year 3; its year
2 U.S. income tax return on February 12, year 4; its
year 3 U.S. income tax return on April 13, year 4; and
its year 4 U.S. income tax return on May 14, year 5.
NRA paid or (will pay) all amounts due with respect
to the returns (including interest, penalties, and addi-
tions to tax, if any) by the date they are filed. NRA’s
years 1 though 3 U.S. income tax returns report in-
come or gain effectively connected with a U.S. trade
or business or deductions or losses properly allocated
and apportioned to such activities.
(ii) To be eligible to submit a certificate of de-
ductions and losses to PRS under this section, NRA
must satisfy the requirements of paragraph (b)(1) of
this section. In accordance with §1.1446–1, NRA
provided valid documentation to PRS to establish
its status for purposes of section 1446. NRA’s year
1 U.S. income tax return is a qualifying U.S. in-
come tax return because it reported income or gain
effectively connected with a U.S. trade or business
or deductions or losses properly allocated and ap-
portioned to such activities and is described under
paragraph (b)(2)(iii)(A) of this section. Although
NRA filed its year 1 return after the due date of the
return (determined under section 6072(c) without
regard to any extension of time to file) the return was
filed on March 11, year 3, which was on or before
the earlier of June 15, year 3, the date one year after
its section 6072(c) due date without regard to any
extension of time to file, and March 20, year 4, the
date on which NRA submitted the certificate to PRS.
NRA’s year 2 U.S. income tax return is a qualifying
U.S. income tax return because it reported income
or gain effectively connected with a U.S. trade or
business or deductions or losses properly allocated
and apportioned to such activities and is described
under paragraph (b)(2)(iii)(A) of this section. Al-
though NRA filed its year 2 return after the due
date of the return (determined under section 6072(c)
without regard to any extension of time to file) the
return was filed on February 12, year 4, which was
on or before the earlier of June 15, year 4, the date
one year after its section 6072(c) due date without
regard to any extension of time to file, and March
20, year 4, the date on which NRA submitted the
certificate to PRS. NRA’s year 3 U.S. income tax
return is a qualifying U.S. income tax return because
it reported income or gain effectively connected
with a U.S. trade or business or deductions or losses
properly allocated and apportioned to such activities
and is described under paragraph (b)(2)(iii)(B) of this
section. Because NRA filed its year 3 U.S. income
tax return on April 13, year 4, the return will be
considered timely-filed under paragraph (b)(2)(ii) of
this section, as the due date under section 6072(c)
was June 15, year 4. NRA’s year 4 U.S. income tax
return is a qualifying U.S. income tax return because
it reported income or gain effectively connected
with a U.S. trade or business or deductions or losses
properly allocated and apportioned to such activities
and is described under paragraph (b)(2)(iii)(C) of this
section. Because NRA filed its year 4 U.S. income
tax return on May 14, year 5, the return will be
considered timely-filed under paragraph (b)(2)(ii) of
this section. Accordingly, NRA meets the conditions
of paragraph (b)(1) of this section and is eligible to
provide a certificate of deductions and losses to PRS
for year 4.
Example 2.Subsequent year qualifying U.S. in-
come tax return. (i) Assume the same facts as inEx-
ample 1. Further, NRA and C form a second partner-
ship (XYZ) in year 7 to conduct a trade or business in
the United States. NRA and C provide XYZ appro-
priate documentation under §1.1446–1 to establish
their status for purposes of section 1446. NRA did
not submit a certificate under this section to any part-
nership for years 5 and 6. NRA submits a certificate
to XYZ (using Form 8804–C) on April 10, year 7, to
be considered by XYZ in determining its 1446 tax due
with respect to NRA for its first installment period in
2008–21 I.R.B.1001May 27, 2008

year 7. The certificate states that NRA reasonably ex-
pects to have an effectively connected net operating
loss of $8,000 available to offset its allocable share
of ECTI from XYZ in year 7. Further, the certificate
contains all of the necessaryrepresentations required
under this section. NRA will file its U.S. income tax
return for year 5 on March 25, year 7, (after its sec-
tion 6072(c) due date and any extension of time to file
that could have been granted under section 6081), its
U.S. income tax return for year 6 on April 26, year
7; and its U.S. income tax return for year 7 on May
27, year 8. NRA will pay all amounts due with the
returns (including interest, penalties, and additions to
tax, if any) by the dates they are filed. NRA’s years 5,
6, and 7 U.S. income tax returns will report income
or gain that is effectively connected with a U.S. trade
or business or deductions or losses properly allocated
and apportioned to such activities.
(ii) To be eligible to submit a certificate of de-
ductions and losses to XYZ under this section, NRA
must satisfy the requirements of paragraph (b)(1) of
this section. NRA provided valid documentation to
XYZ in accordance with §1.1446–1. As described in
Example 1, NRA’s year 4 U.S. income tax return is a
qualifying U.S. income tax return because it will re-
port income or gain effectively connected with a U.S.
trade or business and is described under paragraph
(b)(2)(iii)(C) of this section. Although NRA’s year 5
U.S. income tax return reports income or gain effec-
tively connected with a U.S. trade or business or de-
ductions or losses properly allocated and apportioned
to such activities it is not a qualifying U.S. income tax
return under paragraph (b)(2)(iii) of this section. Be-
cause NRA submitted a certificate to PRS in year 4, to
constitute a qualifying U.S. income tax return the year
5 U.S. income tax return must be timely-filed and all
amounts due with such return must be timely paid.
See paragraph (b)(2)(iii)(C) of this section. However,
NRA will not file its U.S. income tax return for year 5
until March 25, year 7, (after its section 6072(c) due
date and any extension of time to file that could have
been granted under section 6081). Because the year
5 tax return is not a qualifying U.S. income tax return
under paragraph (b)(2)(iii) of this section, NRA does
not satisfy the requirements of paragraph (b)(1)(ii) of
this section and, therefore, may not submit a certifi-
cate of deductions and losses to XYZ under this sec-
tion in year 7.
Example 3.General application of the rules of
this section. NRA and B form a partnership (PRS) to
conduct a trade or business in the United States. NRA
and B are equal partners under the partnership agree-
ment. NRA and B provide PRS appropriate docu-
mentation under §1.1446–1 to establish their status
for purposes of section 1446. Prior to the formation of
PRS, NRA had not invested in or engaged in the con-
duct of a U.S. trade or business. PRS incurs a $1,500
effectively connected net operating loss in years 1 and
2. The loss incurred in each is allocated equally be-
tween NRA and B. NRA has filed a qualifying U.S.
income tax return (within the meaning of paragraph
(b)(2)(iii) of this section) for years 1 and 2 that report
its allocable share of effective connected net operat-
ing loss allocated to it from PRS, as reported on the
Form 1065 (Schedule K–1) issued to NRA for each
year.
(i) In year 3, NRA may not submit a certificate to
PRS under paragraph (c) because it will not have filed
qualifying U.S. income tax returns for the preceding
three years. In year 3, PRS has ECTI of $1,000 that is
allocated equally between NRA and B. PRS satisfies
its 1446 tax obligation with respect to NRA for year
3.
(ii) In year 4, PRS estimates that it will have ECTI
of $4,000, which will be allocated equally between
NRA and B. On or before April 15
th
of year 4 (the
first installment due date), NRA submits a certificate
to PRS under this section (using Form 8804–C) certi-
fying that it reasonably expects to have an effectively
connected net operating loss of $1,000 ($750 loss in
both years 1 and 2, less $500 of income in year 3)
available to offset its allocable share of ECTI from
PRS in year 4. As of the date the certificate is sub-
mitted, NRA has received the Form 1065 (Schedule
K–1) from PRS for year 3 but has not yet filed its U.S.
income tax return for year 3.
(iii) With respect to year 4, and based upon para-
graph (b)(1) of this section, NRA can include year 3
(NRA’s preceding taxable year) as one of the preced-
ing three years that it has filed or will file qualifying
U.S. income tax returns (within the meaning of para-
graph (b)(2)(iii) of this section). Therefore, provided
PRS has, in accordance with paragraph (a)(2) of this
section, no actual knowledge or reason to know the
certificate is defective, PRS may reasonably rely on
NRA’s certificate. Accordingly, PRS may consider
NRA’s certificate to reduce the 1446 tax that would
otherwise be required to be paid on NRA’s behalf.
Specifically, subject to paragraph (c)(1)(i)(C) of this
section, the $1,000 of net losses that have been re-
ported on Forms 1065 (Schedule K–1) issued to NRA
that are available to reduce NRA’s U.S. income tax
on NRA’s allocable share of effectively connected in-
come or gain allocable from PRS may be used to re-
duce the $2,000 of ECTI estimated to be allocable to
NRA. As a result, PRS must pay 1446 tax on only
$1,100 of NRA’s allocable share of partnership ECTI
for the first installment period in year 5 ($2,000 -
($1,000 x .90)). PRS must pay 1446 tax of $96.25 for
its first installment period with respect to the ECTI
allocable to NRA ($1,100 (net ECTI after consider-
ing certified losses) x .35 (withholding tax rate) x
.25 (section 6655(e)(2)(B) percentage for the first in-
stallment period)). See §1.1446–3(b)(2). Pursuant
to paragraph (d)(3) of this section, PRS must attach
NRA’s certificate and PRS’s computation of its 1446
tax obligation with respect to NRA to its Form 8813,
“Partnership Withholding Tax Payment Voucher (Sec-
tion 1446),”filed for the first installment period. Un-
der paragraph (c)(2)(ii)(B) of this section, NRA is re-
quired to provide an updated certificate on or before
the 10
th
day after NRA files its U.S. income tax re-
turn for year 3, even if the updated certificate results
in no change to the amount of deductions and losses
reported on the superseded certificate.
(iv) The results are the same if NRA had not yet
received a Form 1065 (Schedule K–1) from PRS for
year 3. See paragraph (c)(1)(i)(A) of this section.
Example 4.Updated certificate submitted for
losses. On January 1, year 8, NRA and B form a part-
nership (PRS) to conduct a trade or business in the
United States. NRA and B are equal partners in PRS.
NRA and B provide PRS appropriate documentation
under §1.1446–1 to establish their status for purposes
of section 1446. During years 1 through 7 NRA
held an interest in another partnership (XYZ) that
conducted a trade or business in the United States.
NRA timely-filed (within the meaning of paragraph
(b)(2) of this section) U.S. income tax returns for
years 1 through 6 reporting its allocable year of ECTI
(or loss) from XYZ (and timely paid all tax shown
on such returns). NRA files its U.S. income tax
return for year 7 on June 9, year 8 (and timely pays
all tax due with such return). Therefore, NRA has
filed qualifying U.S. income tax returns (within the
meaning of paragraph (b)(2)(iii) of this section) for
years 1 through 7. During years 1 through 7, NRA’s
only investment generating effectively connected
items was its interest in XYZ. The XYZ partnership
liquidated and ceased doing business on December
31, year 7.
(i) On or before April 15, year 8, PRS receives
from NRA a valid certificate under this section using
Form 8804–C in which NRA certifies that it reason-
ably expects to have available effectively connected
net operating losses in the amount of $5,000. Among
other statements made in accordance with paragraph
(c) of this section, NRA represents that it has not
yet filed its year 7 U.S. income tax return, but will
timely file such return (and timely pay all tax due with
such return). For its first installment period in year
8, PRS estimates that it will earn taxable income of
$10,000 for the year which will be allocated equally
to NRA and B (NRA’s allocable share of PRS’s ECTI
is $5,000).
(ii) Provided PRS has, in accordance with para-
graph (a)(2) of this section, no actual knowledge or
reason to know the certificate is defective, PRS may
reasonably rely on NRA’scertificate when comput-
ing its 1446 tax obligation for the first installment
period. PRS is limited under paragraph (c)(1)(i)(C)
of this section and PRS may only consider $4,500
($5,000 x .90) of the certified net operating loss.
After consideration of the certified loss, PRS owes
1446 tax in the amount of $43.75 for the first in-
stallment period ($5,000estimated allocable ECTI
less $4,500 (certified loss as limited under paragraph
(c)(1)(i)(C)) x .35 (1446 tax applicable percentage)
x .25 (section 6655(e)(2)(B) percentage for the first
installment period)). See §1.1446–3(b)(2). Pursuant
to paragraph (d)(3) of this section, PRS must attach
a copy of NRA’s certificate and the computation of
1446 tax due with respect to NRA to the Form 8813
filed with respect to NRA.
(iii) PRS’s estimate of ECTI allocable to NRA
for the second installment period remains unchanged
from the first installment period. On June 10, year 8,
NRA provides PRS an updated certificate reporting
that NRA now reasonably expects to have an effec-
tively connected net operating loss of $4,000 avail-
able to offset its allocable share of ECTI from PRS in
year 4. NRA provided the updated certificate within
10 days of filing its U.S. income tax return for the year
7 taxable year, as required by paragraph (c)(2)(ii)(B)
of this section. Provided the updated certificate is
otherwise valid, PRS may rely on the updated certifi-
cate for the second installment period (due date June
15, year 8). Even if the updated certificate were not
valid, PRS could no longer rely on the original cer-
tificate.
(iv) Under paragraph (d) of this section, PRS is
not relieved from liability for the 1446 tax due with
respect to NRA under section 1461 if it relies on a cer-
tificate determined to be defective, or if it receives an
updated certificate reporting an amount of deductions
and losses less than the amount reported on the su-
perseded certificate. Under the principles of section
May 27, 200810022008–21 I.R.B.

6655 (as applied through §1.1446–3), PRS is required
to have paid 50-percent of the annualized 1446 tax
due with respect to NRA on or before the due date of
the second installment period (section 6655(e)(2)(B)
percentage for the second installment period). Under
paragraph (c)(2)(ii)(B) of this section, because NRA’s
updated certificate is valid for the second installment
period, if PRS considers a certificate for that period
it must consider the updated certificate. Under para-
graph (c)(1)(i)(C) of this section, PRS can only con-
sider $3,600 ($4,000 x .90) of NRA’s updated effec-
tively connected net operating loss. Assuming PRS
considers NRA’s updated certificate for the second in-
stallment period, PRS must have paid a total of $245
of 1446 tax with respect to the ECTI estimated to be
allocable to NRA as of the second installment due
date ($1,400 ($5,000 ECTI less $3,600 net operat-
ing loss deduction) x .35 (withholding tax rate) x .50
(section 6655(e)(2)(B) percentage for the second in-
stallment period)). After considering PRS’s payment
of 1446 tax for the first installment period, PRS is
required to pay $201.25 for the second installment
period ($245 less previous payment of $43.75). See
§1.1446–3(b)(2). Further, if PRS considers NRA’s
updated certificate for the second installment period,
when PRS files Form 8813 it must attach the updated
certificate along with PRS’s computation of 1446 tax
due with respect to NRA.
(v) Under paragraph (d) of this section, PRS is not
liable for the addition to the tax under section 6655 (as
applied through §1.1446–3) for the first installment
period because PRS reasonably relied on NRA’s cer-
tificate of losses for that period.
(vi) Assume that PRS’s estimate of its ECTI al-
locable to NRA for the third and fourth installment
periods is the same as for the first and second install-
ment periods. Assume PRS may reasonably rely on
NRA’s updated certificate in calculating its payment
of 1446 tax for the third and fourth installment pe-
riods. The third installment of 1446 tax would be
$122.50 (($5,000 - $3,600) x .35 x .75 = $367.50
- $245 (total previous payments)). The fourth in-
stallment of 1446 tax would be $122.50 (($5,000-
$3,600) x .35 x 1.00 = $490 - $367.50 (total previ-
ous payments)). See §1.1446–3(b)(2). PRS must at-
tach to each Form 8813 a computation of the 1446 tax
due with respect to NRA that takes into account the
amount of effectively connected net operating loss re-
ported on NRA’s updated certificate.
(vii) Because NRA’s certified net operating loss
has not changed for the third and fourth installments,
in lieu of attaching NRA’s certificate, PRS may at-
tach a statement containing NRA’s name, TIN, and
the certified net operating loss amount. However,
PRS must attach NRA’s certificate and a computation
of the 1446 tax due with respect to NRA that takes
into account NRA’s certified net operating loss to the
Form 8805 filed with respect to NRA. See paragraph
(d)(3) of this section.
Example 5.IRS determines in subsequent tax-
able year that partner’s certificate is defective be-
cause partner failed to timely file a U.S. income tax
return. NRA and B form a partnership (PRS) in year
1 to conduct a trade or business in the United States.
NRA and B provide PRS appropriate documentation
under §1.1446–1 to establish their status for purposes
of section 1446. In year 4, NRA timely submits a
certificate under this section (using Form 8804–C)
to be considered by PRS for its first installment pe-
riod. The certificate reports that NRA reasonably ex-
pects to have an effectively connected net operating
loss of $5,000 available to offset its allocable share
of ECTI from PRS in year 4. Further, the certificate
contains all of the necessary representations required
under this section. PRS estimates for each installment
period that NRA’s allocable share of ECTI will be
$5,000 for the taxable year. PRS’s actual operating
results for the year result in $5,000 of ECTI allocable
to NRA.
(i) PRS reasonably relies on (within the mean-
ing of paragraph (a)(2) of this section) NRA’s certifi-
cate when computing each installment payment dur-
ing year 4 and the 1446 tax due on Form 8804 and
appropriately considers the limitation in paragraph
(c)(1)(i)(C) of this section. As a result, PRS paid
$175 of 1446 tax on behalf of NRA for the taxable
year ($5,000 of ECTI less $4,500 net operating loss
deduction x .35 applicable percentage). As required
under paragraph (d) of this section, PRS attached the
certificate to the Form 8813 for the first installment
period and the Form 8805 for year 4. Because NRA
did not submit an updated certificate to PRS in year 4,
PRS attached to the Forms 8813 for the second, third
and fourth installment periods a statement containing
NRA’s name, TIN, and the certified net operating loss
as well as the computation of 1446 tax due with re-
spect to NRA reflecting theamount of net operating
loss considered.
(ii) In year 5, NRA timely submits to PRS a
certificate under this section to be considered for the
first installment period. The certificate represents
that NRA reasonably expects to have an effectively
connected net operating loss of $5,000 available to
offset its allocable share of ECTI from PRS in year
5. For the first installment period, PRS estimates that
NRA’s allocable share of partnership ECTI is $5,000.
PRS reasonably relies on the certificate for the first
installment period and determines that it is required
to make a 1446 tax installment payment of $43.75
($5,000 allocable ECTI less $4,500 (certified net
operating loss as limited under paragraph (c)(1)(i)(C)
of this section) x .35 (1446 tax applicable percent-
age) x .25 (section 6655(e)(2)(B) percentage for the
first installment period)). See §1.1446–3(b)(2). PRS
makes the installment payment with the Form 8813
filed for the first installment period, and complies
with paragraph (d)(3) of this section by attaching
NRA’s certificate and the computation of 1446 tax
due with respect to NRA to the Form 8813.
(iii) The IRS provides written notification to PRS
on June 1, year 5, (pursuant to paragraph (c)(3) of
this section) that the certificate received from NRA
in year 4 is defective because NRA failed to file a
qualifying U.S. income tax return (within the mean-
ing of paragraph (b)(2)(iii) of this section) for one of
the preceding taxable years as required under para-
graph (b)(1) of this section. The notice further states
that PRS is not to rely on any certificate received from
NRA in year 5.
(iv) Under paragraph (d)(2)(ii) of this section, be-
cause the certificate submitted by NRA in year was
determined to be defective for a reason other than the
amount or character of the certified deductions and
losses, under section 1461 PRS is fully liable for the
1446 tax due with respect to NRA’s allocable share
of ECTI year 4 without regard to the certificate. The
total 1446 tax due for year 4 without regard to the cer-
tificate is $1,750 ($5,000 ECTI x .35) and PRS paid
$175 of 1446 tax in year 4. Therefore, PRS owes
$1,575 of 1446 tax. However, PRS may be deemed to
have paid the outstanding 1446 tax due if NRA paid
all of its U.S. tax due in year 4. See §1.1446–3(e).
(v) However, because PRS did not have actual
knowledge or reason to know that the certificate NRA
submitted in year 4 was defective, PRS reasonably re-
lied on the certificate for purposes of paragraph (d)(2)
of this section. Therefore,PRS is not liable for an ad-
dition to the tax with respect to its underpayment of
1446 tax under the principles of section 6655 (as ap-
plied through §1.1446–3) for any installment period
in year 4.
(vi) However, PRS is generally liable for interest
under section 6601 and for the failure to pay addition
to tax under section 6651(a)(2) on the $1,575 of 1446
tax due for year 4 for the period from April 15, year 5
(last date prescribed for payment of 1446 tax) to the
date PRS pays the 1446 tax or is deemed to have paid
the 1446 tax under §1.1446–3(e).
(vii) With respect to the year 5, PRS reasonably
relied on NRA’s certificate when computing its first
installment payment (due onApril 15, year 5). There-
fore, in accordance with paragraph (d)(2)(i) of this
section, PRS will not be liable for an addition to the
tax under the principles of section 6655 (as applied
through §1.1446–3) for the first installment period.
However, because the IRS provided written notifica-
tion to PRS on June 1, year 5, to disregard any certifi-
cate received from NRA for year 5, PRS may not rely
on any certificate received from NRA certificate (or
any new certificate provided by NRA) when it com-
putes its second installment payment in year 5. PRS
is not permitted to consider any certificate submit-
ted by NRA until the IRS provides written notifica-
tion to PRS revoking or modifying the original notice.
PRS’s second installment payment in year 5 must in-
clude the additional amount of 1446 tax it would have
paid for the first installment period without regard to
the certificate received from NRA.
Example 6.IRS determines in subsequent tax-
able year that partner’s certificate is defective be-
cause partner’s actual losses are less than amount
certified and considered by the partnership.Assume
the same facts as inExample 5, except that the IRS
determines that NRA’s certificate submitted in year 4
is defective because the actual effectively connected
net operating loss available to NRA for year 4 was
$1,000 rather than the $5,000 certified.
(i) Under paragraph (d)(2)(ii) of this section,
PRS is not relieved from its liability for 1446 tax
under section 1461 when it relies on a certificate of
losses from a foreign partner that is later determined
to be defective. However, when the IRS determines
that a partner’s certificate is defective because of the
amount of the certified deductions and losses, the
partnership is liable for the 1446 tax, interest, addi-
tions to tax, and penalties to the extent the amount
of certified deductions and losses taken into account
when computing 1446 tax (or, unless there was rea-
sonable reliance on the certificate, any installment of
such tax) is greater than the actual amount of avail-
able deductions and losses. Here, PRS considered
the certified deductions and losses in the amount
of $4,500. The IRS subsequently determined that
NRA only had $1,000 of actual losses, only $900
of which were permitted to be considered under
paragraph (c)(1)(i)(C) of this section. Accordingly,
PRS is liable for the 1446 tax due with respect to
2008–21 I.R.B.1003May 27, 2008

the portion of the overstated losses that it considered
when computing its 1446 tax. The remaining 1446
tax due for year 4 is $1,260 ($3,600 ($4,500 less
$900) of excess losses considered x .35). However,
PRS may be deemed to have paid the $1,260 of 1446
tax under §1.1446–3(e) if NRA has paid all of NRA’s
U.S. income tax.
(ii) If PRS had considered only $900 (or a lesser
amount) of NRA’s certified net operating loss when
computing and paying its 1446 tax during year 4 then,
under paragraph (d)(2)(iii) of this section, PRS would
not be liable for 1446 tax because it did not consider
a net operating loss greater than the amount actually
available to NRA.
Example 7.Partner with different taxable year
than partnership. PRS partnership has two equal
partners, FC, a foreign corporation, and DC, a domes-
tic corporation. PRS conducts a trade or business in
the United States and generates effectively connected
income. FC maintains a June 30 fiscal taxable year
end, while DC and PRS maintain a calendar taxable
year end. FC and DC provide a valid Form W–8BEN
and Form W–9, respectively, to PRS. FC and DC are
the only persons that have ever been partners in PRS.
For its year 1 through year 3 taxable years, PRS is-
sued Forms 1065 (Schedule K–1) reporting in the ag-
gregate $100 of net loss to each partner. For its year 4
taxable year, PRS issued Forms 1065 (Schedule K–1)
to its partners reporting $150 of loss to each partner.
All of the losses reported on the Forms 1065 (Sched-
ule K–1) are effectively connected to PRS’s and FC’s
trade or business in the United States.
(i) Assume that FC submits a valid certificate un-
der this section certifying losses to the partnership
for the partnership’s year 5 taxable year. Further, as-
sume that FC’s only sourceof effectively connected
income, gain, deduction, or loss is the activity of PRS.
(ii) For PRS’s first installment period in year 5,
FC may only certify deductions and losses under this
section in the amount of $100 (the losses as reported
on the Forms 1065 (Schedule K–1) issued for PRS’s
year 1 through 3 taxable years). Under section 706,
the taxable income of a partner shall include the in-
come, gain, loss, deduction, or credit of the partner-
ship for the partnership taxable year ending within
or with the taxable year of the partner. PRS’s year
4 calendar taxable year ends during FC’s fiscal tax-
able year ending June 30, year 5. Therefore, under
paragraph (c)(1) of this section, as of April 15, year
5 (the last date FC may submit its first certificate un-
der paragraph (c) of this section to have it considered
for PRS’s first installment due date of April 15, year
5), FC’s allocable share of the PRS losses for years
1 through 3 are the only losses that FC can represent
have been or will be reported on an FC U.S. income
tax return filed for a taxable year ending prior to such
installment due date.
(iii) The result in paragraph (ii) of thisExample 7
is the same for the year 5 second installment period,
the due date of which is June 15, year 5.
(iv) FC may submit an updated certificate under
this section after June 30, year 5, which includes the
$150 loss for year 4. PRS may consider such an up-
dated certificate for its third installment period (due
date September 15, year 5), provided the updated cer-
tificate is received by the due date for such install-
ment in accordance with paragraph (c) of this section.
Example 8.Failure to provide status update with
respect to prior year unfiled returns.FC,aforeign
corporation, and DC, a domestic corporation, form a
partnership (PRS) to conduct a trade or business in
the United States. FC and DC provide PRS appropri-
ate documentation under §1.1446–1 to establish their
status for purposes of section 1446. FC and DC are
equal partners in PRS, and all partnership items are
allocated equally between FC and DC.
(i) In the current taxable year FC submits a certifi-
cate under this section using Form 8804–C prior to
PRS’s first installment due date. FC represents that
it has filed or will file a qualifying U.S. income tax
return (within the meaning of paragraph (b)(2)(iii) of
this section) in each of the preceding three taxable
years. FC specifies that it has not filed its U.S. in-
come tax return for the immediately preceding tax-
able year. FC also represents that it will timely file
its U.S. income tax return for the partnership taxable
year during which the certificate is considered (and
will timely pay all tax due with such return). Assume
all other requirements under paragraph (c) of this sec-
tion are met for FC’s certificate to be valid.
(ii) Provided that PRS does not possess actual
knowledge or reason to know that FC’s certificate is
defective under paragraph (a)(2) of this section, PRS
may reasonably rely on FC’s certificate for its first,
second, and third installment payments.
(iii) If FC does not submit to PRS either an up-
dated certificate or a status update as required by
paragraph (c)(2)(ii)(B)(1) of this section by Decem-
ber 15
th
(PRS’s final installment due date), PRS must
disregard FC’s certificate when computing its fourth
installment payment of 1446 tax and when complet-
ing its Form 8804 for the taxable year. PRS’s pay-
ment of 1446 tax for its fourth installment period must
include the additional amount of 1446 tax it would
have paid in the first, second and third installment pe-
riods had it not considered FC’s certificate. Further,
even if the status update is provided by December
15
th
,PRSmayonlyrelyonthecertificateifthestatus
update does not contradict the original certificate and
such update indicates that the immediately preceding
year’s return will be timely filed. Finally, even if the
status update is provided by December 15
th
,FCmust
also submit an updated certificate to the partnership in
accordance with paragraph (c) of this section within
10 days of the date FC timely files its U.S. income tax
return for the preceding taxable year.
Example 9.Partnership consideration of certified
deductions and losses or de minimis certificate.For
purposes of this example assume paragraph (c)(1)(ii)
of this section may apply. On January 1, year 4, NRA
and B form a partnership (PRS) to conduct a trade
or business in the United States. NRA and B are
equal partners in PRS and all partnership items are
shared equally. NRA and B provide PRS appropri-
ate documentation under §1.1446–1 to establish their
status for purposes of section 1446. During years
1 through 3, NRA’s only activity generating effec-
tively connected items was an interest in partnership
XYZ. XYZ allocated NRA a loss for all three years.
NRA filed qualifying U.S. income tax returns (within
the meaning of paragraph (b)(2)(iii) of this section)
reporting its allocable share of losses from XYZ in
years 1 through 3. The XYZ partnership dissolved
on December 31, year 3.
(i) In year 4, NRA’s only activity giving rise to ef-
fectively connected income, gain, deduction, or loss
is its interest in PRS. NRA submits to PRS a valid cer-
tificate (using Form 8804–C) certifying under para-
graph (c)(1)(i) its effectively connected net operating
losses from years 1 through 3 and under (c)(1)(ii) of
this section that its only activity giving rise to effec-
tively connected income, gain, deduction, or loss for
the PRS taxable year that ends with or within its tax-
able year is (and will be) its investment in PRS.
(ii) During year 4, PRS allocates ECTI to NRA. If
the 1446 tax otherwise due on the annualized amount
allocated to NRA is less than $1,000, determined
without regard to any deductions and losses certified
by NRA under paragraph (c)(1)(i) of this section,
PRS may consider the certificate received from NRA
under paragraph (c)(1)(ii) of this section and not
pay 1446 tax (or any installment of such tax) with
respect to NRA. Alternatively, PRS may consider
the deductions and losses certified by NRA under
paragraph (c)(1)(i) of this section.
(iii) Regardless of whether PRS considers NRA’s
certification under paragraph (c)(1)(i) or (c)(1)(ii) of
this section in computing its 1446 tax due with re-
spect to NRA, PRS must file Form 8813 for all install-
ment periods as well as a Form 8805 for NRA with
its Form 8804. If PRS considers NRA’s certification
under paragraph (c)(1)(i) or (c)(1)(ii) of this section,
PRS must attach to each Form 8813, as well as to the
Form 8805, a computation of the 1446 tax with re-
spect to NRA that takes into account its consideration
of NRA’s certificate. In addition, PRS must attach
NRA’s certificate to the Form 8813 for the first in-
stallment period it considers the certificate, as well as
to the Form 8805. For all subsequent installment pe-
riods, PRS may attach a statement containing NRA’s
name, and TIN. If PRS is relying on NRA’s certified
losses under paragraph (c)(1)(i) of this section, the
statement must indicate the amount of losses and de-
ductions NRA certified. If PRS is relying on NRA’s
certification under paragraph (c)(ii) of this section,
the statement must indicate that it is relying on NRA
meeting the requirements under paragraph (c)(1)(ii)
of this section and the 1446 tax on the annualized
amount allocated to NRA is less than $1,000. See
paragraph (d)(3)(i) of this section.
Example 10.Application of transition rule.NRA
and B form a partnership (PRS) on January 1, 2004, to
conduct a trade or business in the United States. NRA
and B are equal partners in PRS and all partnership
items are shared equally. NRA and B provide PRS
appropriate documentation under §1.1446–1 to estab-
lish their status for purposes of section 1446. For its
2004 through 2007 tax years, PRS issued Forms 1065
(Schedule K–1) to NRA and B reporting a $1,000 net
loss from its U.S. trade or business to each partner for
each year (for an aggregate loss of $4,000 per part-
ner). During the 2004 through 2007 tax years, NRA’s
only activity generating effectively connected items
was its investment in PRS.
(i) On February 10, 2008, NRA submitted a cer-
tificate to PRS, reporting its aggregate $4,000 effec-
tively connected loss to PRS, that met the require-
ments of §1.1446–6T(c) (See 26 CFR Part 1, revised
as of April 1, 2007), as in effect before January 1,
2008. The certificate stated that NRA had timely
filed its U.S. income tax returns for the 2004, 2005
and 2006 tax years, and that it would timely file a
U.S. income tax return for its 2007 tax year. For the
first and second installments period in 2008, PRS es-
timates that it will earn ECTI of $10,000.
(ii) Because the certificate submitted by NRA to
PRS on February 10, 2008, met the requirements of
May 27, 200810042008–21 I.R.B.

§1.1446–6T (See 26 CFR Part 1, revised as of April 1,
2007), as in effect before January 1, 2008, PRS may
consider such certificate when computing its 1446 tax
due for the first and second installment period even if
the certificate does not meet all the requirements of
paragraph (c) of this section.
(iii) NRA timely files its U.S. income tax return
for the 2007 tax year on July 24, 2008. In accor-
dance with paragraph (c)(2)(ii)(B)(1) of this section,
within 10 days of filing such return NRA prepares
an updated certificate to be submitted to PRS certify-
ing that it reasonably expects to have only $3,500 of
losses available to reduce its allocable share of ECTI
from PRS. Because the updated certificate will be
submitted after July 28, 2008, to be valid the updated
certificate must meet the requirements of paragraph
(c) this section.
(f)Effective/Applicability date. Except
as otherwise provided in this paragraph (f),
the rules of this section are applicable for
partnership taxable years beginning after
December 31, 2007. The rules of para-
graphs (b)(3)(i)(B) through (D) shall apply
to partnership taxable years beginning af-
ter July 28, 2008.
(g)Transition rule. A certificate that
met the requirements of §1.1446–6T(c)
(See 26 CFR Part 1, revised as of April
1, 2007), as in effect before January 1,
2008, submitted on or before July 28, 2008
by a partner that met the requirements
of §1.1446–6T(b) (See 26 CFR Part 1,
revised as of April 1, 2007), as in effect
before January 1, 2008, shall not be con-
sidered defective because it does not meet
the requirements of this section. However,
any certificate (including any updated cer-
tificates and status updates) submitted, or
required to be submitted, under paragraph
(c) of this section after July 28, 2008, must
meet the requirements of this section. See
paragraph (e)(2)Example 10of this sec-
tion.
Par. 8. In §1.1446–7, the section head-
ing is revised and two new sentences are
added at the end of the paragraph to read
as follows:
§1.1446–7 Effective/Applicability date.
***Therevisionsto
§§1.1446–3(b)(2), 1.1446–3(b)(3)(i)(A)
and 1.1446–5(c)(2) contained in the final
regulations published in 2008 apply to
partnership taxable years beginning after
December 31, 2007. See §1.1446–6(f)
and (g) for the Effective/Applicability
date and Transition rule for §1.1446–6.
Par. 9. In §1.1464–1, paragraph (a) is
amended by adding one sentence at the end
of the paragraph and new paragraph (c) is
added to read as follows:
§1.1464–1 Refunds or credits.
(a) * * * With respect to section 1446,
this section shall only apply to a publicly
traded partnership described in §1.1446–4.
*****
(c)Effective/Applicability date.The
last two sentences in paragraph (a) of this
section shall apply to partnership taxable
years beginning after April 29, 2008.
Par. 10. In §1.6071–1, paragraph
(c)(15) is revised and paragraph (d) is
added to read as follows:
§1.6071–1 Time for filing returns and
other documents.
*****
(c) * * *
(15) For provisions relating to the
time for filing an annual information re-
turn on Form 1042–S,“Foreign Person’s
U.S. Source Income Subject to Withhold-
ing,”or Form 8805,“Foreign Partner’s
Information Statement of Section 1446
Withholding Tax,”for any tax withheld
under chapter 3 of the Internal Revenue
Code (relating to withholding of tax on
nonresident aliens and foreign corpora-
tions and tax-free covenant bonds), see
§1.1461–1(c) and §1.1446–3(d).
*****
(d)Effective/Applicability date.The
references to Form 8805 and §1.1446–3(d)
in paragraph (c)(15) of this section shall
apply to partnership taxable years begin-
ning after April 29, 2008.
Par. 11. In §1.6091–1, paragraph
(b)(17) and paragraph (c) are added to read
as follows:
§1.6091–1 Place for filing returns or
other documents.
*****
(b) * * *
(17) For the place for filing information
returns on Form 8805,“Foreign Partner’s
Information Statement of Section 1446
Withholding Tax,”with respect to certain
amounts paid on behalf of foreign part-
ners, see the instructions to the form.
(c)Effective/Applicability date. Para-
graph (b)(17) of this section shall apply to
partnership taxable years beginning after
April 29, 2008.
Par. 12. In §1.6151–1, paragraph (d)(2)
is amended by adding one sentence at the
end of the paragraph and paragraph (e) is
added to read as follows:
§1.6151–1 Time and place for paying tax
shown on returns.
*****
(d) * * *
(2) * * * With respect to section 1446,
the previous sentence shall apply only to
a publicly traded partnership described in
§1.1446–4.
(e)Effective/Applicability date. Para-
graph (d)(2) of this section shall apply to
publicly traded partnerships described in
§1.1446–4 for partnership taxable years
beginning after April 29, 2008.
Par. 13. In §1.6302–2, paragraphs
(a)(1)(i), (a)(2) and (g) are revised to read
as follows:
§1.6302–2 Use of Government
depositaries for payment of tax
withheld on nonresident aliens and
foreign corporations.
(a)***(1)***
(i)Monthly deposits. Except as pro-
vided in paragraphs (a)(1)(ii) and (iv)
of this section, every withholding agent
who, pursuant to chapter 3 of the Internal
Revenue Code, has accumulated at the
close of any calendar month beginning
on or after January 1, 1973, an aggregate
amount of undeposited taxes of $200 or
more shall deposit such aggregate amount
with an authorized financial institution
(see paragraph (b)(1)(ii) of this section)
within 15 days after the close of such
calendar month. However, the preceding
sentence shall not apply if the withholding
agent has made a deposit of taxes pur-
suant to paragraph (a)(1)(ii) of this section
with respect to a quarter monthly period
which occurred during such month. With
respect to section 1446, this section shall
only apply to a publicly traded partnership
described in §1.1446–4.
*****
(2)Cross reference. For rules relat-
ing to the adjustment of deposits, see
§§1.1461–2(b) and 1.6414–1. For rules
requiring payment of any undeposited tax,
see §1.1461–1.
2008–21 I.R.B.1005May 27, 2008

*****
(g)Effective/Applicability date. Except
as otherwise provided, this section shall
apply to tax required to be withheld under
chapter 3 of the Internal Revenue Code af-
ter 1966. The last sentence of paragraph
(a)(1)(i) of this section shall apply to part-
nership taxable years beginning after April
29, 2008.
Par. 14. Section 1.6414–1 is amended
by:
1. Adding two sentences at the end of
paragraph (a)(2).
2. Revising the third sentence of para-
graph (b).
3. Adding paragraph (d).
The additions and revision read as fol-
lows:
§1.6414–1 Credit or refund of tax
withheld on nonresident aliens and
foreign corporations.
(a) * * *
(2)***Withrespecttothepayment
of withholding tax under section 1446,
this section shall only apply to a publicly
traded partnership described in §1.1446–4.
See §1.1446–3(d)(2)(iv) for rules regard-
ing refunds to a withholding agent under
section 1446.
(b) * * * The amount claimed as a credit
may be applied, to the extent it has not
been applied under §1.1461–2(b), by the
withholding agent to reduce the amount of
a payment or deposit of tax required by
§1.1461–1 or §1.6302–2(a) for any pay-
ment period occurring in the calendar year
following the calendar year of overwith-
holding. * * *
*****
(d)Effective/Applicability date.The
last two sentences of paragraph (a) of this
section shall apply to partnership taxable
years beginning after April 29, 2008.
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 15. The authority for 26 CFR part
301 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 16. In §301.6402–3, the second
and third sentences of paragraph (e) are
revised and paragraph (f) is added to read
as follows:
§301.6402–3 Special rules applicable to
income tax.
*****
(e)***Also,iftheoverpaymentof
tax resulted from the withholding of tax at
source under chapter 3 of the Internal Rev-
enue Code, a copy of the Form 1042–S,
“Foreign Person’s U.S. Source Income
Subject to Withholding,”Form 8805,“For-
eign Partner’s Information Statement of
Section 1446 Withholding Tax,”or other
statement (see §1.1446–3(d)(2) of this
chapter) required to be provided to the
beneficial owner or partner pursuant to
§1.1461–1(c)(1)(i) or §1.1446–3(d) of this
chapter must be attached to the return. For
purposes of claiming a refund, the Form
1042–S, Form 8805, or other statement
must include the taxpayer identification
number of the beneficial owner or partner
even if not otherwise required. * * *
(f)Effective/Applicability date. Refer-
ences in paragraph (e) of this section to
Form 8805 or other statements required
under §1.1446–3(d)(2) shall apply to part-
nership taxable years beginning after April
29, 2008.
Par. 17. In §301.6722–1, paragraph
(d)(3) is revised and paragraph (e) is added
to read as follows:
§301.6722–1 Failure to furnish correct
payee statements.
*****
(d) * * *
(3)Other items.Thetermpayee state-
mentalso includes any form, statement,
or schedule required to be furnished to
the recipient of any amount from which
taxisrequiredtobedeductedandwith-
held under chapter 3 of the Internal Rev-
enue Code (or from which tax would be
required to be so deducted and withheld
but for an exemptionunder the Internal
Revenue Code or any treaty obligation of
the United States) (generally the recipient
copy of Form 1042–S,“Foreign Person’s
U.S. Source Income Subject to Withhold-
ing,”or Form 8805,“Foreign Partner’s In-
formation Statement of Section 1446 With-
holding Tax.”)
(e)Effective/Applicability date.The
reference in paragraph (d)(3) of this sec-
tion to Form 8805 shall apply to partner-
ship taxable years beginning after April 29,
2008.
PART 602—OMB CONTROL
NUMBERS UNDER THE PAPERWORK
REDUCTION ACT
Par. 18. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 19. In §602.101, paragraph (b)
is amended by removing the entry for
§1.1446–6T from the table, adding an en-
try for §1.1446–6, and revising the entries
to the table to read as follows:
§602.101 OMB Control numbers.
*****
(b) * * *
CFR part or section where
identified and described
Current OMB
control No.
*****
1.1446–1...........................................................
1545–1934
1.1446–3...........................................................
1545–1934
1.1446–4...........................................................
1545–1934
1.1446–5
...........................................................
1545–1934
1.1446–6...........................................................
1545–1934
*****
May 27, 200810062008–21 I.R.B.

Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved April 23, 2008.
Eric Solomon,
Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register on April 28, 2008,
8:45 a.m., and published in the issue of the Federal Register
for April 29, 2008, 73 F.R. 23069)
2008–21 I.R.B.1007May 27, 2008

Part III. Administrative, Procedural, and Miscellaneous
Credit for Renewable
Electricity Production,
Refined Coal Production,
and Indian Coal Production,
and Publication of Inflation
Adjustment Factors and
Reference Prices for Calendar
Year 2008
Notice 2008–48
This notice publishes the inflation ad-
justment factors and reference prices for
calendar year 2008 for the renewable elec-
tricity production credit, the refined coal
production credit, and the Indian coal pro-
ductioncreditunder§45oftheInternal
Revenue Code. The 2008 inflation adjust-
ment factors and reference prices are used
in determining the availability of the cred-
its. The 2008 inflation adjustment factors
and reference pricesapply to calendar year
2008 sales of kilowatt-hours of electricity
produced in the United States or a pos-
session thereof from qualified energy re-
sources and to calendar year 2008 sales of
refined coal and Indian coal produced in
the United States or a possession thereof.
BACKGROUND
Section 45(a) provides that the renew-
able electricity production credit for any
tax year is an amount equal to the prod-
uct of 1.5 cents multiplied by the kilowatt
hours of specified electricity produced by
the taxpayer and sold to an unrelated per-
son during the tax year. This electricity
must be produced from qualified energy
resources and at a qualified facility during
the 10-year period beginning on the date
the facility was originally placed in ser-
vice.
Section 45(b)(1) provides that the
amount of the credit determined under
§ 45(a) is reduced by an amount which
bears the same ratio to the amount of the
credit as (A) the amount by which the
reference price for the calendar year in
which the sale occurs exceeds 8 cents,
bears to (B) 3 cents. Under § 45(b)(2),
the 1.5 cent amount in § 45(a), the 8 cent
amount in § 45(b)(1), the $4.375 amount in
§ 45(e)(8)(A), and in § 45(e)(8)(B)(i) the
reference price of fuel used as feedstock
(within the meaning of § 45(c)(7)(A)) in
2002 are each adjusted by multiplying the
amount by the inflation adjustment factor
for the calendar year in which the sale
occurs. If any amount as increased under
the preceding sentence is not a multiple
of 0.1 cent, the amount is rounded to the
nearest multiple of 0.1 cent.
Section 45(c)(1) defines qualified
energy resources as wind, closed-loop
biomass, open-loop biomass, geother-
mal energy, solar energy, small irrigation
power, municipal solid waste, and quali-
fied hydropower production.
Section 45(d)(1) defines a qualified fa-
cility using wind to produce electricity as
any facility owned by the taxpayer that is
originally placed in service after Decem-
ber 31, 1993, and before January 1, 2009.
See § 45(e)(7) for rules relating to the in-
applicability of the credit to electricity sold
to utilities under certain contracts.
Section 45(d)(2)(A) defines a qualified
facility using closed-loop biomass to pro-
duce electricity as any facility (i) owned
by the taxpayer that is originally placed in
service after December 31, 1992, and be-
fore January 1, 2009, or (ii) owned by the
taxpayer which before January 1, 2009, is
originally placed in service and modified
to use closed-loop biomass to co-fire with
coal, with other biomass, or with both,
but only if the modification is approved
under the Biomass Power for Rural De-
velopment Programs or is part of a pilot
project of the Commodity Credit Corpora-
tion as described in 65 Fed. Reg. 63052.
Section 45(d)(2)(B) provides that in the
case of a qualified facility described in
§ 45(d)(2)(A)(ii), (i) the 10-year period re-
ferred to in § 45(a) is treated as begin-
ning no earlier than the date of enactment
of § 45(d)(2)(B)(i); (ii) the amount of the
credit determined under § 45(a) with re-
spect to the facility is an amount equal
to the amount determined without regard
to § 45(d)(2)(B)(ii) multiplied by the ratio
of the thermal content of the closed-loop
biomass used in the facility to the thermal
content of all fuels used in the facility; and
(iii) if the owner of the facility is not the
producer of the electricity, the person eli-
gible for the credit allowable under § 45(a)
is the lessee or the operator of the facility.
Section 45(d)(3)(A) defines a qualified
facility using open-loop biomass to pro-
duce electricity as any facility owned by
the taxpayer which (i) in the case of a facil-
ity using agriculturallivestock waste nutri-
ents, (I) is originally placed in service after
the date of enactment of § 45(d)(3)(A)(i)(I)
and before January 1, 2009, and (II) the
nameplate capacity rating of which is not
less than 150 kilowatts; and (ii) in the case
of any other facility,is originally placed in
service before January 1, 2009. In the case
of any facility described in § 45(d)(3)(A),
if the owner of the facility is not the pro-
ducer of the electricity, § 45(d)(3)(B) pro-
vides that the person eligible for the credit
allowable under § 45(a) is the lessee or the
operator of the facility.
Section 45(d)(4) defines a qualified fa-
cility using geothermal or solar energy to
produce electricityas any facility owned
by the taxpayer which is originally placed
in service after the date of enactment of
§ 45(d)(4) and before January 1, 2009 (Jan-
uary 1, 2006, in the case of a facility us-
ing solar energy). A qualified facility us-
ing geothermal or solar energy does not in-
clude any property described in § 48(a)(3)
the basis of which is taken into account by
the taxpayer for purposes of determining
the energy credit under § 48.
Section 45(d)(5) defines a qualified
facility using small irrigation power to
produce electricityas any facility owned
by the taxpayer which is originally placed
in service after the date of enactment of
§ 45(d)(5) and before January 1, 2009.
Section 45(d)(6) defines a qualified fa-
cility using gas derived from the biodegra-
dation of municipal solid waste to produce
electricity as any facility owned by the tax-
payer which is originally placed in service
after the date of enactment of § 45(d)(6)
and before January 1, 2009.
Section 45(d)(7) defines a qualified fa-
cility that burns municipal solid waste to
produce electricityas any facility owned
by the taxpayer which is originally placed
in service after the date of enactment of
§ 45(d)(7) and before January 1, 2009. A
qualified facility burning municipal solid
waste includes a new unit placed in service
in connection with a facility placed in ser-
vice on or before the date of enactment of
§ 45(d)(7), but only to the extent of the in-
May 27, 200810082008–21 I.R.B.

creased amount of electricity produced at
the facility by reason of such new unit.
Section 45(d)(8) provides in the case
of a facility that produces refined coal,
the term “refined coal production facility”
means a facility which is placed in service
after the date of enactment of § 45(d)(8)
and before January 1, 2009.
Section 45(d)(9) defines a qualified
facility producing qualified hydroelec-
tric production described in § 45(c)(8) as
(A) any facility producing incremental
hydropower production, but only to the
extent of its incremental hydropower pro-
duction attributable to efficiency improve-
ments or additions to capacity described
in § 45(c)(8)(B) placed in service after the
date of enactment of § 45(d)(9) and before
January 1, 2009, and (B) any other facility
placed in service after the date of enact-
ment of § 45(d)(9) and before January 1,
2009. Section 45(d)(9)(C) provides that in
the case of a qualified facility described in
§ 45(d)(9)(A), the 10-year period referred
to in § 45(a) is treated as beginning on
the date the efficiency improvements or
additions to capacity are placed in service.
Section 45(d)(10) provides in the case
of a facility that produces Indian coal,
the term “Indian coal production facility”
means a facility which is placed in service
before January 1, 2009.
Section 45(e)(8)(A) provides that the
refined coal production credit is an amount
equal to $4.375 per ton of qualified re-
fined coal (i) produced by the taxpayer
at a refined coal production facility dur-
ing the 10-year period beginning on the
date the facility was originally placed in
service, and (ii) sold by the taxpayer (I)
to an unrelated person and (II) during the
10-year period and the tax year. Section
45(e)(8)(B) provides that the amount of
credit determined under § 45(e)(8)(A) is
reduced by an amount which bears the
same ratio to the amount of the increase
as (i) the amount by which the reference
price of fuel used as feedstock (within the
meaning of § 45(c)(7)(A)) for the calendar
year in which the sale occurs exceeds an
amount equal to 1.7 multiplied by the ref-
erence price for such fuel in 2002, bears to
(ii) $8.75.
Section 45(e)(10)(A) provides in the
case of a producer of Indian coal, the credit
determined under section 45 for any tax-
able year shall be increased by an amount
equal to the applicable dollar amount per
ton of Indian coal (i) produced by the tax-
payer at an Indian coal production facility
during the 7-year period beginning on Jan-
uary 1, 2006, and (ii) sold by the taxpayer
(I) to an unrelated person, and (II) during
such 7-year period and such taxable year.
Section 45(e)(10)(B)(i) defines “ap-
plicable dollar amount” for any taxable
year as (I) $1.50 in the case of calendar
years 2006 through 2009, and (II) $2.00 in
the case of calendar years beginning after
2009.
Section 45(e)(2)(A) requires the Secre-
tary to determine and publish in the Fed-
eral Register each calendar year the infla-
tion adjustment factor and the reference
price for the calendar year. The inflation
adjustment factors and the reference prices
for the 2008 calendar year were published
in the Federal Register on April 30, 2008
(73 Fed. Reg. 23525).
Section 45(e)(2)(B) defines the infla-
tion adjustment factor for a calendar year
as the fraction the numerator of which is
the GDP implicit price deflator for the pre-
ceding calendar year and the denominator
of which is the GDP implicit price defla-
tor for the calendar year 1992. The term
“GDP implicit price deflator” means the
most recent revision of the implicit price
deflator for the gross domestic product as
computed and published by the Depart-
ment of Commerce before March 15 of the
calendar year.
Section 45(e)(2)(C) provides that the
reference price is the Secretary’s determi-
nation of the annual average contract price
per kilowatt hour of electricity generated
from the same qualified energy resource
and sold in the previous year in the United
States. Only contracts entered into af-
ter December 31, 1989, are taken into ac-
count.
Under § 45(e)(8)(C), the determination
of the reference price for fuel used as feed-
stock within the meaning of § 45(c)(7)(A)
is made according to rules similar to the
rules under § 45(e)(2)(C).
Under section 45(e)(10)(B)(ii), in the
case of any calendar year after 2006,
each of the dollar amounts under section
45(e)(10)(B)(i) shall be equal to the prod-
uct of such dollar amount and the inflation
adjustment factor determined under sec-
tion 45(e)(2)(B) for the calendar year,
except that section 45(e)(2)(B) shall be
applied by substituting 2005 for 1992.
INFLATION ADJUSTMENT FACTORS
AND REFERENCE PRICES
The inflation adjustment factor for
calendar year 2008 for qualified energy
resources and refined coal is 1.3854. The
inflation adjustment factor for Indian coal
is 1.0591. The reference price for calendar
year 2008 for facilities producing elec-
tricity from wind (based upon information
provided by the Department of Energy)
is 3.60 cents per kilowatt hour. The ref-
erence prices for fuel used as feedstock
within the meaning of § 45(c)(7)(A), re-
lating to refined coal production (based
upon information provided by the Depart-
ment of Energy) are $31.90 per ton for
calendar year 2002 and $45.56 per ton for
calendar year 2008. The reference prices
for facilities producing electricity from
closed-loop biomass, open-loop biomass,
geothermal energy, solar energy, small ir-
rigation power, municipal solid waste, and
qualified hydropower production have not
been determined for calendar year 2008.
The IRS is exploring methods of deter-
mining those reference prices for calendar
year 2009.
PHASE-OUT CALCULATION
Because the 2008 reference price for
electricity producedfrom wind does not
exceed 8 cents multiplied by the infla-
tion adjustment factor, the phaseout of
the credit provided in § 45(b)(1) does
not apply to such electricity sold during
calendar year 2008. Because the 2008 ref-
erence price of fuel used as feedstock for
refined coal does not exceed the $31.90
reference price of such fuel in 2002 mul-
tiplied by the inflation adjustment factor
and 1.7, the phaseout of credit provided
in § 45(e)(8)(B) does not apply to re-
fined coal sold during calendar year 2008.
Further, for electricity produced from
closed-loop biomass, open-loop biomass,
geothermal energy, solar energy, small
irrigation power, municipal solid waste,
and qualified hydropower production, the
phaseout of credit provided in § 45(b)(1)
does not apply to such electricity sold dur-
ing calendar year 2008.
2008–21 I.R.B.1009May 27, 2008

CREDIT AMOUNT BY QUALIFIED
ENERGY RESOURCE AND FACILITY,
REFINED COAL, AND INDIAN COAL
As required by § 45(b)(2), the 1.5 cent
amount in § 45(a)(1), the 8 cent amount
in § 45(b)(1), and the $4.375 amount in
§ 45(e)(8)(A) are each adjusted by mul-
tiplying such amount by the inflation
adjustment factor for the calendar year
in which the sale occurs. If any amount
as increased under the preceding sen-
tence is not a multiple of 0.1 cent, such
amount is rounded to the nearest multi-
ple of 0.1 cent. In the case of electricity
produced in open-loopbiomass facilities,
small irrigation power facilities, landfill
gas facilities, trash combustion facili-
ties, and qualified hydropower facilities,
§ 45(b)(4)(A) requires the amount in ef-
fect under § 45(a)(1) (before rounding
to the nearest 0.1 cent) to be reduced by
one-half. Under the calculation required
by § 45(b)(2), the credit for renewable
electricity production for calendar year
2008 under § 45(a) is 2.1 cents per kilowatt
hour on the sale of electricity produced
from the qualified energy resources of
wind, closed-loop biomass, geothermal
energy, and solar energy, and 1.0 cent per
kilowatt hour on the sale of electricity
produced in open-loopbiomass facilities,
small irrigation power facilities, landfill
gas facilities, trash combustion facilities,
and qualified hydropower facilities. Under
the calculation required by § 45(b)(2), the
credit for refined coalproduction for cal-
endar year 2008 under section 45(e)(8)(A)
is $6.061 per ton on the sale of qualified
refined coal. The credit for Indian coal
production for calendar year 2008 under
§ 45(e)(10)(B) is $1.589 per ton on the
sale of Indian coal.
DRAFTING AND CONTACT
INFORMATION
The principal author of this notice is
Philip Tiegerman of the Office of Asso-
ciate Chief Counsel (Passthroughs and
Special Industries). For further infor-
mation regarding this notice, contact
Mr. Tiegerman at (202) 622–3110 (not a
toll-free call).
Update for Weighted Average
Interest Rates, Yield Curves,
and Segment Rates
Notice 2008–50
This notice provides guidance as to the
corporate bond weighted average interest
rate and the permissible range of interest
rates specified under § 412(b)(5)(B)(ii)(II)
of the Internal Revenue Code as in ef-
fect for plan years beginning before 2008.
It also provides guidance on the corpo-
rate bond monthly yield curve (and the
corresponding spot segment rates), the
24-month average segment rates, and
the funding transitional segment rates
under § 430(h)(2). In addition, this no-
tice provides guidance as to the interest
rate on 30-year Treasury securities un-
der § 417(e)(3)(A)(ii)(II) as in effect for
plan years beginning before 2008, the
30-year Treasury weighted average rate
under § 431(c)(6)(E)(ii)(I), and the min-
imum present value segment rates under
§ 417(e)(3)(D) as in effect for plan years
beginning after 2007.
CORPORATE BOND WEIGHTED
AVERAGE INTEREST RATE
Sections412(b)(5)(B)(ii)and
412(l)(7)(C)(i), as amended by the Pen-
sion Funding Equity Act of 2004 and by
the Pension Protection Act of 2006 (PPA),
provide that the interest rates used to cal-
culate current liability and to determine
the required contribution under § 412(l)
for plan years beginning in 2004 through
2007 must be within a permissible range
based on the weighted average of the rates
of interest on amounts invested conser-
vatively in long term investment grade
corporate bonds during the 4-year period
ending on the last day before the beginning
of the plan year.
Notice 2004–34, 2004–1 C.B. 848, pro-
vides guidelines for determining the cor-
porate bond weighted average interest rate
and the resulting permissible range of in-
terest rates used to calculate current liabil-
ity. That notice establishes that the corpo-
rate bond weighted average is based on the
monthly composite corporate bond rate de-
rived from designated corporate bond in-
dices. The methodology for determining
the monthly composite corporate bond rate
as set forth in Notice 2004–34 continues to
apply in determining that rate. See Notice
2006–75, 2006–2 C.B. 366.
The composite corporate bond rate for
April 2008 is 6.45 percent. Pursuant to No-
tice 2004–34, the Service has determined
this rate as the average of the monthly
yields for the included corporate bond in-
dices for that month.
The following corporate bond weighted
average interest rate was determined for
plan years beginning in the month shown
below.
For Plan Years
Beginning inPermissible Range
MonthYear
Corporate
Bond Weighted
Average90%to100%
May20086.00
5.40
6.00
YIELD CURVE AND SEGMENT
RATES
Generally for plan years beginning
after 2007 (except for delayed effective
dates for certain plans under sections 104,
105, and 106 of PPA), § 430 of the Code
specifies the minimum funding require-
ments that apply to single employer plans
pursuant to § 412. Section 430(h)(2) spec-
ifies the interest rates that must be used
to determine a plan’s target normal cost
and funding target. Under this provision,
present value is generally determined us-
ing three 24-month average interest rates
(“segment rates”), each of which applies
to cash flows during specified periods.
However, an election may be made under
§ 430(h)(2)(D)(ii) to use the monthly yield
curve in place of the segment rates. For
plan years beginning in 2008 and 2009, a
transitional rule under § 430(h)(2)(G) pro-
vides that the segment rates are blended
with the corporate bond weighted average
May 27, 200810102008–21 I.R.B.

as specified above. An election may be
made under § 430(h)(2)(G)(iv) to use the
segment rates without applying the transi-
tional rule.
Notice 2007–81, 2007–44 I.R.B. 899,
provides guidelinesfor determining the
monthly corporate bond yield curve, the
24-month average corporate bond segment
rates, and the funding transitional segment
rates used to compute the target normal
cost and the funding target. Pursuant to
Notice 2007–81, the monthly corporate
bond yield curve derived from April 2008
data is in Table I at the end of this notice.
The spot first, second, and third segment
rates for the month of April 2008 are,
respectively, 4.60, 6.28, and 6.96. The
three 24-month average corporate bond
segment rates applicable for May 2008
under the election of § 430(h)(2)(G)(iv)
are as follows:
First
Segment
Second
Segment
Third
Segment
5.16
6.00
6.53
The transitional segment rates under
§ 430(h)(2)(G) applicable for May 2008,
taking into account the corporate bond
weighted average of 6.00 stated above, are
as follows:
For Plan Years
Beginning in
First
Segment
Second
Segment
Third
Segment
2008
5.72
6.006.18
30-YEAR TREASURY SECURITIES
INTEREST RATES
Section 417(e)(3)(A)(ii)(II) (prior to
amendment by PPA) defines the appli-
cable interest rate, which must be used
for purposes of determining the minimum
present value of a participant’s benefit
under § 417(e)(1) and (2), as the annual
rate of interest on 30-year Treasury se-
curities for the month before the date
of distribution or such other time as the
Secretary may by regulations prescribe.
Section 1.417(e)–1(d)(3) of the Income
Tax Regulations provides that the applica-
ble interest rate for a month is the annual
rate of interest on 30-year Treasury secu-
rities as specified by the Commissioner
for that month in revenue rulings, notices
or other guidance published in the Internal
Revenue Bulletin.
The rate of interest on 30-year Treasury
securities for April 2008 is 4.44 percent.
The Service has determined this rate as the
monthly average of the daily determina-
tion of yield on the 30-year Treasury bond
maturing in February 2038.
Generally for plan years beginning after
2007, § 431 specifies the minimum fund-
ing requirements that apply to multiem-
ployer plans pursuant to § 412. Section
431(c)(6)(B) specifies a minimum amount
for the full-funding limitation described in
§ 431(c)(6)(A), based on the plan’s current
liability. Section 431(c)(6)(E)(ii)(I) pro-
vides that the interest rate used to calculate
current liability for this purpose must be
no more than 5 percent above and no more
than 10 percent below the weighted aver-
age of the rates of interest on 30-year Trea-
sury securities during the four-year period
ending on the last day before the beginning
of the plan year. Notice 88–73, 1988–2
C.B. 383, provides guidelines for deter-
mining the weighted average interest rate.
The following rates were determined for
plan years beginning in the month shown
below.
For Plan Years
Beginning inPermissible Range
MonthYear
30-Year
Treasury
Weighted
Average
90%to
105%
May20084.764.29
5.00
MINIMUM PRESENT VALUE
SEGMENT RATES
Generally for plan years beginning af-
ter December 31, 2007, the applicable in-
terest rates under § 417(e)(3)(D) are seg-
ment rates computed without regard to a
24-month average. For plan years begin-
ning in 2008 through 2011, the applica-
ble interest rate is the monthly spot seg-
ment rate blended with the applicable rate
under § 417(e)(3)(A)(ii)(II) as in effect
for plan years beginning in 2007. No-
tice 2007–81 provides guidelines for de-
termining the minimum present value seg-
ment rates. Pursuant to that notice, the
minimum present value transitional seg-
ment rates determined for April 2008, tak-
ing into account theApril 2008 30-year
Treasury rate of 4.44 stated above, are as
follows:
2008–21 I.R.B.1011May 27, 2008

For Plan Years
Beginning in
First
Segment
Second
Segment
Third
Segment
20084.474.814.94
DRAFTING INFORMATION
The principal author of this notice is
Tony Montanaro of the Employee Plans,
Tax Exempt and Government Entities Di-
vision. Mr. Montanaro may be e-mailed at
RetirementPlanQuestions@irs.gov.
May 27, 200810122008–21 I.R.B.

Table I
Monthly Yield Curve for April 2008
Maturity YieldMaturity YieldMaturity YieldMaturity YieldMaturity Yield
0.5
3.42
20.5
6.76
40.5
6.98
60.5
7.06
80.5
7.10
1.03.8421.06.7741.0
6.99
61.07.0681.07.10
1.5
4.20
21.5
6.78
41.5
6.99
61.5
7.07
81.5
7.11
2.0
4.49
22.0
6.79
42.0
6.99
62.07.0782.07.11
2.5
4.71
22.5
6.80
42.5
7.00
62.5
7.07
82.5
7.11
3.04.8623.06.8143.07.0063.07.0783.07.11
3.5
4.97
23.5
6.81
43.5
7.00
63.5
7.07
83.5
7.11
4.0
5.07
24.06.8244.07.0064.07.0784.07.11
4.55.1724.5
6.83
44.5
7.01
64.5
7.07
84.5
7.11
5.05.2625.06.8445.07.0165.07.0785.07.11
5.55.3525.5
6.84
45.5
7.01
65.5
7.08
85.5
7.11
6.0
5.44
26.0
6.85
46.07.0166.07.0886.07.11
6.55.5326.5
6.86
46.5
7.01
66.5
7.08
86.5
7.11
7.0
5.63
27.06.8647.07.0267.07.0887.07.11
7.55.7227.5
6.87
47.5
7.02
67.5
7.08
87.5
7.11
8.05.8128.06.8848.07.0268.07.0888.07.11
8.5
5.89
28.5
6.88
48.5
7.02
68.5
7.08
88.5
7.11
9.0
5.97
29.06.8949.0
7.03
69.0
7.08
89.0
7.12
9.5
6.05
29.5
6.89
49.57.0369.57.0889.57.12
10.06.1230.0
6.90
50.0
7.0370.0
7.0990.0
7.12
10.5
6.19
30.5
6.90
50.5
7.03
70.5
7.09
90.57.12
11.06.2531.0
6.91
51.07.0371.0
7.0991.0
7.12
11.5
6.30
31.5
6.92
51.5
7.04
71.5
7.0991.57.12
12.0
6.35
32.0
6.92
52.0
7.0472.0
7.0992.0
7.12
12.5
6.40
32.5
6.92
52.5
7.04
72.5
7.09
92.57.12
13.06.4433.0
6.93
53.0
7.0473.0
7.0993.0
7.12
13.5
6.48
33.5
6.93
53.5
7.04
73.5
7.09
93.57.12
14.06.5234.0
6.94
54.07.0474.0
7.0994.0
7.12
14.56.5534.5
6.94
54.57.0574.5
7.0994.57.12
15.06.5735.0
6.95
55.07.0575.0
7.09
95.07.12
15.5
6.60
35.5
6.95
55.57.0575.5
7.1095.57.12
16.06.6236.06.95
56.07.05
76.07.10
96.0
7.12
16.5
6.64
36.5
6.96
56.57.0576.5
7.1096.57.12
17.06.6637.0
6.96
57.07.05 77.07.10
97.0
7.12
17.5
6.68
37.5
6.96
57.5
7.06
77.5
7.1097.57.12
18.06.7038.0
6.97
58.0
7.0678.07.10
98.0
7.13
18.5
6.71
38.5
6.97
58.5
7.06
78.5
7.1098.57.13
19.0
6.72
39.06.97
59.07.06
79.0
7.10
99.0
7.13
19.56.7439.5
6.98
59.57.0679.57.1099.57.13
20.06.7540.0
6.98
60.07.0680.07.10100.07.13
2008–21 I.R.B.1013May 27, 2008

26 CFR 1.956–1: Definition of United States prop-
erty.
(Also: 956(c)(2)(J).)
Rev. Proc. 2008–26
SECTION 1. PURPOSE
This revenue procedure sets forth cir-
cumstances in which the Internal Rev-
enue Service (Service) will not challenge
whether a security is a “readily mar-
ketable security” for purposes of section
956(c)(2)(J) of the Internal Revenue Code
(Code). No inference should be drawn
regarding whether a security would be
described in section 956(c)(2)(J) if it falls
outside the scope of this revenue proce-
dure. Furthermore, there should be no
inference regarding whether securities
within the scope of this revenue procedure
would be readily marketable or would
not be readily marketable for purposes of
section 956(c)(2)(J) but for this revenue
procedure. In addition, this revenue pro-
cedure does not address any United States
federal income tax issue arising under any
other section of the Code.
SECTION 2. BACKGROUND
Section 951(a)(1) requires that a United
States shareholder of a controlled foreign
corporation include in gross income for his
taxable year in which or with which such
taxable year of the corporation ends cer-
tain amounts including the amount deter-
mined under section 956 with respect to
such shareholder for such year. Section
951(a)(1)(B).
The amount determined under sec-
tion 956 is generally the lesser of (i) the
excess (if any) of the United States share-
holder’spro ratashare of the average of
the amounts of United States property
held (directly or indirectly) by the con-
trolled foreign corporation as of the close
of each quarter of the controlled foreign
corporation’s taxable year over the amount
of earnings and profits described in sec-
tion 959(c)(1)(A) with respect to such
shareholder or (ii) the United States share-
holder’spro ratashare of the applicable
earnings (as defined in section 956(b)(1))
of such controlled foreign corporation.
Section 956(a).
The term United States property in-
cludes an obligation of a United States
person, excluding, however:
an obligation of a United States person
to the extent the principal amount of the
obligation does not exceed the fair mar-
ket value ofreadily marketable securi-
tiessold or purchased pursuant to a sale
and repurchase agreement or otherwise
posted or received as collateral for the
obligation in the ordinary course of its
business by a United States or foreign
person which is a dealer in securities or
commodities.
Section 956(c)(2)(J) (emphasis added).
Current market conditions and liquidity
constraints are creating some uncertainty
regarding whether a security is “read-
ily marketable” for purposes of section
956(c)(2)(J). For example, the market for
certain securities that were readily mar-
ketable in the past has become severely
curtailed. As a result, there is uncer-
tainty whether many securities are readily
marketable in the current economic envi-
ronment even though they are of a type
that are readily marketable under ordinary
market conditions. In response to tax-
payers’ concerns, this revenue procedure
provides certainty to taxpayers by setting
forth circumstances under which the Ser-
vice will not challenge whether a security
is “readily marketable” for purposes of
section 956(c)(2)(J) to the extent that it is
of a type that would be readily marketable
under ordinary market conditions.
SECTION 3. SCOPE
This revenue procedure applies to
determine whether securities are “read-
ily marketable” for purposes of section
956(c)(2)(J) for any day during calendar
years 2007 or 2008 for which it is relevant
whether securities are readily marketable
for purposes of that section.
SECTION 4. APPLICATION
With respect to a determination within
the scope of this revenue procedure, the
Service will not challenge whether a se-
curity is readily marketable for purposes
of section 956(c)(2)(J) if the security is of
a type that was readily marketable at any
time within three years prior to the effec-
tive date of this revenue procedure. For
example, the Service will not challenge
whether a mortgage-backed security or
corporate debt security (whether secured
or unsecured) is “readily marketable” if
such a security is described in Section 3 of
this revenue procedure and is of a type that
was readily marketable at any time within
three years prior to the effective date of
this revenue procedure.
This revenue procedure does not ad-
dress any other issue relating to the qual-
ification of a transaction under section
956(c)(2)(J) (e.g.,whether the transaction
is undertaken in the ordinary course of
business by a dealer in securities or com-
modities).
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective
May 12, 2008.
SECTION 6. DRAFTING
INFORMATION
The principal author of this revenue
procedure is John H. Seibert of the Of-
fice of Associate Chief Counsel (Inter-
national). For further information re-
garding this revenue procedure, contact
Mr. Seibert at (202) 622–0171 (not a
toll-free call).
26 CFR 1.1445–2: Situations in which withholding is
not required under section 1445(a).
(Also: §§ 897; 1445; 1.897–1; 1.897–2; 1.897–5T;
1.897–6T; 1.1445–5.)
Rev. Proc. 2008–27
SECTION 1. PURPOSE
This revenue procedure provides a
simplified method for taxpayers to re-
quest relief for late filings under sec-
tions 1.897–2(g)(1)(ii)(A), 1.897–2(h),
1.1445–2(c)(3)(i),1.1445–2(d)(2),
1.1445–5(b)(2), and 1.1445–5(b)(4) of the
Income Tax Regulations.
SECTION 2. BACKGROUND
.01 Section 897(a)(1) of the Internal
Revenue Code treats the gain or loss of
a nonresident alien or foreign corporation
from the disposition of a U.S. real property
interest as if the taxpayer were engaged in
a trade or business in the United States,
and as if such gain or loss were effectively
May 27, 200810142008–21 I.R.B.

connected with such trade or business un-
der sections 871(b) or 882. A U.S. real
property interest includes an interest in real
property located in the United States or the
Virgin Islands and any interest (other than
an interest solely as a creditor) in a domes-
tic corporation unless the taxpayer estab-
lishes that the corporation was at no time
a U.S. real property holding corporation
(USRPHC) during the period described in
section 897(c)(1)(A)(ii).
.02 Section 1.897–2 provides require-
ments to establish that a corporation is not
a USRPHC. Unless these requirements are
satisfied, it is presumed that a domestic
corporation is a USRPHC.
.03 Section 1445(a) generally requires
the transferee of a U.S. real property inter-
est to withhold 10 percent of the amount
realized by the foreign person on the dis-
position of the U.S. real property inter-
est. Section 1445(b) and the regulations
thereunder provide several exceptions to
this general requirement. In addition, sec-
tion 1445(e) provides special rules for cer-
tain dispositions and distributions. Sec-
tion 1445(e)(1) requires withholding on
certain dispositions of U.S. real property
interests by a domestic partnership, do-
mestic trust, or domestic estate. Section
1445(e)(2) requires withholding on certain
distributions by foreign corporations. Sec-
tion 1445(e)(3) requires withholding on
distributions by certain domestic corpo-
rations to foreign shareholders. Section
1445(e)(4) addresses taxable distributions
by domestic or foreign partnerships, trusts,
or estates, and section 1445(e)(5) provides
rules relating to dispositions of interests
in such entities. Section 1445(e)(6) ad-
dresses certain distributions by a regulated
investment company or real estate invest-
ment trust.
.04 One exception to section 1445 with-
holding involves nonrecognition transac-
tions. Pursuant to section 1.1445–2(d)(2),
a transferee is not required to withhold if
the transferee provides notice that, by rea-
son of the operation of a nonrecognition
provision of the Internal Revenue Code or
the provisions of any United States treaty,
the transferor is not required to recognize
any gain or loss with respect to the trans-
fer. Under section 1.1445–2(d)(2)(i)(A),
the transferor may provide a notice to the
transferee that the transferor is not required
to recognize gain or loss. The notice
must include the information described
in section 1.1445–2(d)(2)(iii). The trans-
feree must provide a copy of the notice
to the IRS within 20 days of the trans-
fer. § 1.1445–2(d)(2)(i)(B). Similarly, in
transfers described in section 1445(e), an
entity or fiduciary otherwise required to
withhold is not required to withhold if, by
reason of the operation of a nonrecognition
provision of the Internal Revenue Code or
the provisions of any United States treaty,
no gain or loss is required to be recognized
by the foreign person with respect to which
withholding would otherwise be required.
§ 1.1445–5(b)(2)(i)(A). Withholding is not
required if, within 20 days of the transfer,
the entity or fiduciary delivers a notice
to the IRS that includes the information
described in section 1.1445–5(b)(2)(ii).
§ 1.1445–5(b)(2)(i)(B).
.05 Another exception to withhold-
ing involves the transfer of an interest
in a domestic corporation which is not
a USRPHC. Because section 897(a)(1)
does not apply to the gain (or loss)
from a foreign person’s disposition of
stock in a domestic corporation that is
not a USRPHC, section 1445 does not
require the transferee to withhold upon
a foreign person’s disposition of stock
in a domestic corporation that is not a
USRPHC. To establish that an interest
in a domestic corporation was not a
U.S. real property interest as of the date
of the disposition, the foreign person
must either obtain a statement from the
corporation or a determination from the
IRS. To qualify for the rule permitting a
statement from the corporation, a foreign
transferor must obtain from the transferred
domestic corporation a statement that the
domestic corporation is not a USRPHC
as of the date of the disposition. This
statement must be obtained no later than
the date, including any extensions, on
which a tax return would otherwise be
due with respect to the foreign transferor’s
disposition.§ 1.897–2(g)(1)(ii)(A).
The domestic corporation must mail
a notice of the statement to the IRS
within 30 days after it is provided to the
foreign transferor, unless it meets the
requirements of section 1.897–2(h)(4)(i).
§§ 1.897–2(h)(2) and 1.897–2(h)(4)(i).
If the IRS has been so notified, and the
transferee receives a copy of the statement,
then the transferee is not required
to withhold.§§1.897–2(g)(1)(ii)(B)
and 1.1445–2(c)(3)(i). Similarly, in
transactions involving the transfer of an
interest in a domestic corporation which
is not a USRPHC under section 1445(e),
where the transferor or its fiduciary
obtains a statement that the domestic
corporation is not a USRPHC, and timely
notice of such statement is provided to
the IRS pursuant to section 1.897–2(h),
section 1.1445–5(b)(4)(iii) provides that
no withholding is required.
.06 Under section 301.9100–1(c), the
Commissioner may grant a reasonable ex-
tension of time to make a regulatory elec-
tion or certain statutory elections under all
subtitles of the Code, except subtitles E,
G, H, and I, if the taxpayer demonstrates to
the satisfaction of the Commissioner that
the taxpayer acted reasonably and in good
faith, and that granting the relief will not
prejudice the interests of the government.
§ 301.9100–3(a). Section 301.9100–1(b)
defines the term “regulatory election” as
an election whose due date is prescribed
by a regulation, a revenue ruling, revenue
procedure, notice, or announcement pub-
lished in the Internal Revenue Bulletin.
The statements and notices described in
sections 1.897–2(g)(1)(ii)(A), 1.897–2(h),
1.1445–2(c)(3)(i),1.1445–2(d)(2),
1.1445–5(b)(2), and 1.1445–5(b)(4) all
fall within the definition of a regulatory
election.
.07 The Commissioner has au-
thority under sections 301.9100–1
and 301.9100–3 to grant an exten-
sion of time if a taxpayer fails to
file a timely election under sec-
tions 1.897–2(g)(1)(ii)(A), 1.897–2(h),
1.1445–2(c)(3)(i),1.1445–2(d)(2),
1.1445–5(b)(2), or 1.1445–5(b)(4). Sec-
tion 301.9100–3 provides that the Com-
missioner will grant an extension of time
when the taxpayer provides the evidence
to the satisfaction of the Commissioner
that the taxpayer has acted reasonably and
in good faith, and the grant of relief will
not prejudice the interests of the govern-
ment.
SECTION 3. SCOPE
This revenue procedure provides
a simplified method to request re-
lief for certain late filings under sec-
tions 1.897–2(g)(1)(ii)(A), 1.897–2(h),
1.1445–2(c)(3)(i),1.1445–2(d)(2),
1.1445–5(b)(2), and 1.1445–5(b)(4). This
procedure is in lieu of the letter ruling
2008–21 I.R.B.1015May 27, 2008

procedure that otherwise would be used
to obtain relief under section 301.9100–3.
Accordingly, user fees do not apply to
corrective action under this revenue proce-
dure, and a taxpayer can request relief by
applying for a letter ruling under section
301.9100–3 only if the taxpayer is denied
relief by the IRS pursuant to this revenue
procedure.
SECTION 4. APPLICATION
.01Eligibility for Relief. A taxpayer is
eligible for relief under section 4.03 of this
revenue procedure for a late filing under
sections 1.897–2(g)(1)(ii)(A), 1.897–2(h),
1.1445–2(c)(3)(i),1.1445–2(d)(2),
1.1445–5(b)(2), or 1.1445–5(b)(4) if a
statement or notice described in one or
more of those sections was not provided
to the relevant person or the IRS by the
specified deadline and the taxpayer has
reasonable cause for the failure to make a
timely filing.
.02Procedural Requirements for Re-
questing Relief. Once the taxpayer be-
comes aware of the failure to file the
statements or notices required by sec-
tions 1.897–2(g)(1)(ii)(A), 1.897–2(h),
1.1445–2(c)(3)(i),1.1445–2(d)(2),
1.1445–5(b)(2), or 1.1445–5(b)(4), the
taxpayer must file the completed state-
ment or notice with the appropriate person
or the IRS, as applicable. The completed
statement or notice filed with the appro-
priate person or the IRS must state at the
top of the document that it is “FILED
PURSUANT TO REV. PROC. 2008–27.”
With respect to a completed statement or
notice required to be filed with the IRS un-
der sections 1.897–2(h), 1.1445–2(d)(2),
or 1.1445–5(b)(2), as applicable, the tax-
payer must attach an explanation describ-
ing why the taxpayer’s failure to timely
file the statement or notice was due to rea-
sonable cause. Additionally, within the ex-
planation, the taxpayer must provide that it
filed with, or obtained from, an appropriate
person the statements or notices required
under sections 1.897–2(g)(1)(ii)(A),
1.1445–2(c)(3)(i), 1.1445–2(d)(2)(i)(A),
or 1.1445–5(b)(4)(iii)(A), as applicable.
The completed statement or notice at-
tached to the taxpayer’s explanation must
be sent to the Ogden Service Center, P.O.
Box 409101, Ogden, UT 84409.
.03Relief for Late Filing.Upon receipt
of a completed application requesting re-
lief under this revenue procedure, the IRS
will determine whether the requirements
for granting additional time have been sat-
isfied. The IRS will notify the taxpayer
in writing within 120 days of the filing of
the completed application if the IRS deter-
mines that the failure to comply was not
due to reasonable cause, or if additional
time will be needed to make a determi-
nation. For this purpose, the 120-day pe-
riod shall begin on the date the taxpayer
is notified in writing that the request has
been received and assigned for review. If,
once such period commences, the taxpayer
is not again notified within 120 days, then
the taxpayer shall be deemed to have es-
tablished reasonable cause.
SECTION 5. EFFECTIVE DATE
This revenue procedure applies to all
requests for relief received after June 26,
2008. Taxpayers that have ruling requests
pending as of May 27, 2008, are not re-
quired to use the procedures of this rev-
enue procedure. However, if taxpayers
have not received a determination of their
request as of May 27, 2008, they may with-
draw their request consistent with the pro-
cedures in Rev. Proc. 2008–1, 2008–1
I.R.B. 1, (or any succeeding document).
In that event, the IRS will refund the tax-
payer’s user fee.
SECTION 6. PAPERWORK
REDUCTION ACT
The collection of information con-
tained in this revenue procedure has been
reviewed and approved by the Office
of Management and Budget in accor-
dance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545–2098.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection displays a valid OMB control
number.
The collection of information in this
revenue procedure is in section 4.02. This
information is required to be submitted
to the applicable service center in order
to obtain relief for late filings under sec-
tions 1.897–2(g)(1)(ii)(A), 1.897–2(h),
1.1445–2(c)(3)(i),1.1445–2(d)(2),
1.1445–5(b)(2), or 1.1445–5(b)(4). This
information will be used to determine
whether the eligibility requirements for
obtaining relief have been met. The col-
lection of information is required to obtain
a benefit. The likely respondents are busi-
nesses or other for-profit institutions.
The estimated annual burden per re-
spondent varies from 3 to 5 hours, depend-
ing on individual circumstances, with an
estimated average of 4 hours. The esti-
mated number of respondents is 200.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
SECTION 7. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Jeffrey P. Cowan of the
Office of Associate Chief Counsel (In-
ternational). For further information re-
garding this revenue procedure, contact
Jeffrey P. Cowan at (202) 622–3860 (not a
toll-free call).
May 27, 200810162008–21 I.R.B.

Part IV. Items o
fGeneralInterest
Notice of Prop
osed
Rulemaking an
dWithdrawal
of Notice of Pr
oposed
Rulemaking
Suspension o
f Running of
Period of Lim
itations During
a Proceedin
gtoEnforce
or Quash a De
signated or
Related Su
mmons
REG–20819
9–91
AGENCY: In
ternal Revenue Service
(IRS), Tre
asury.
ACTION: No
tice of proposed rulemaking
and withdr
awal of notice of proposed rule-
making.
SUMMARY:
This document contains pro-
posed reg
ulations regarding the use of
designat
ed summonses and related sum-
monses an
d the effect on the period of
limitati
ons on assessment when a case is
brought
with respect to a designated or
related
summons. This document also
withdra
ws the previous proposed regula-
tions pu
blishedintheFederal Registeron
July 31,
2003 (REG–208199–91, 2003–2
C.B. 75
7 [68 FR 44905]). These proposed
regula
tions reflect changes to section 6503
of the I
nternal Revenue Code of 1986
made by
the Omnibus Budget Reconcili-
ation A
ct of 1990 and the Small Business
Job Pr
otection Act of 1996. These reg-
ulati
ons affect corporate taxpayers that
are ex
amined under the coordinated issue
case (
CIC) program and are served with
desig
nated or related summonses. These
regu
lations also affect third parties that
are s
erved with designated or related sum-
mons
es for information pertaining to the
corp
orate examination.
DATE
S: Written or electronic comments
and r
equests for a public hearing must be
rece
ived by July 28, 2008.
ADDR
ESSES: Send submissions to:
CC:
PA:LPD:PR(REG–208199–91),
roo
m 5203, Internal Revenue Service,
P.O
. Box 7604, Ben Franklin Station,
Was
hington, DC 20044. Alternatively,
sub
missions may be hand delivered be-
tween the hour
s of 8 a.m. and 4 p.m.
to: CC:PA:LPD
:PR (REG–208199–91),
Courier’s Des
k, Internal Revenue Service,
1111 Constitu
tion Avenue, NW, Washing-
ton, DC. Comme
nts may also be submitted
electronica
llytotheFederaleRulemak-
ing Portal at
www.regulations.gov(IRS
REG–208199–
91).
FOR FURTHER I
NFORMATION
CONTACT: Co
ncerning the pro-
posed regul
ations, Elizabeth Rawlins,
(202)622–3
630;concerning
submission
sofcomments,
Richard Hu
rst, (202) 622–7180 or
Richard.A
.Hurst@IRSCounsel.Treas.Gov
(not toll-
free numbers).
SUPPLEMEN
TARY INFORMATION:
Backgroun
d
This docu
ment contains proposed reg-
ulations
amending the Procedure and
Administ
ration regulations (26 CFR part
301) unde
r section 6503. Section 11311 of
the Omnib
us Budget Reconciliation Act
of 1990 (
Public Law 101–508, 104 Stat.
1388) am
ended section 6503(k) to suspend
the peri
od of limitations on assessment
when a ca
se is brought with respect to
adesign
ated or related summons. Sec-
tion 65
03(k) was redesignated as section
6503(j
) by section 1702(h)(17)(A) of the
Small B
usiness Job Protection Act of 1996
(Publi
c Law 104–188, 110 Stat. 1874).
Propos
ed regulations under section
6503(j
) were previously published in the
Federa
lRegisteron July 31, 2003 (68 FR
44905
) (the 2003 proposed regulations).
The 20
03 proposed regulations contained
aproc
edure for determining the date of
compl
iance with a designated or related
summo
ns issued with respect to a taxpayer
whos
e statute of limitations on assessment
was s
uspended under section 6503(j) be-
caus
e a court proceeding was brought.
No co
mments were received with respect
to th
is procedure or any other aspect of
the 2
003 proposed regulations, and no
hea
ring was requested or held. The IRS
and
the Treasury Department have deter-
min
ed that, in the interest of effective tax
adm
inistration, the procedure in the 2003
pro
posed regulations is not warranted. In-
st
ead, the IRS intends to create procedures
by which taxpa
yers can inquire about the
suspension of
their periods of limitations
under section
6503(j), including the date
of compliance
with the summons, and
to publish the
se procedures in the Inter-
nal Revenue M
anual. In addition, the
IRS has estab
lished administrative proce-
dures in the I
nternal Revenue Manual that
ensure subst
antial IRS executive involve-
ment and ove
rsight of any designated and
related sum
mons issued. Additionally,
§301.6503(
j)–1(c)(1)(i) of these proposed
regulation
s requires that any designated
summons be
reviewed by the IRS Division
Commissio
ner and Division Counsel of
the Office
of Chief Counsel before it is
issued. Ac
cordingly, the 2003 proposed
regulatio
ns are withdrawn.
Explanat
ion of Provisions
These pro
posed regulations generally
provide t
hat the period of limitations on
assessme
nt provided for in section 6501
is suspen
ded with respect to any return of
taxbyac
orporation that is the subject of
adesign
ated or related summons if a court
proceed
ingtoenforceorquashisinstituted
with res
pect to that summons.
Designa
ted Summonses and Related
Summon
ses
Adesig
nated summons is a summons
issued
to determine the amount of any
intern
al revenue tax of a corporation for
which a
return was filed if certain addi-
tiona
l requirements are satisfied. A des-
ignat
ed summons may only be issued to a
corpo
ration (or any other person to whom
the co
rporation has transferred records)
if the
corporation is being examined un-
der t
he IRS’s coordinated examination
prog
ram or “any successor program.”
The e
xisting successor program to the
coor
dinated examination program is the
coor
dinated issue case (CIC) program.
Sect
ion 6503(j)(2)(A)(i) requires that
the i
ssuance of the summons be preceded
by a r
eview by the regional counsel of
the
Office of Chief Counsel for the re-
gio
n in which the examination of the cor-
por
ation is being conducted. The office
of r
egional counsel was eliminated by the
IRS
reorganization implemented pursuant
to
the IRS Reform and Restructuring Act
2008–21 I.R.B.1017May 27, 2008

of 1998. Because the office of regional
counsel no longer exists, these proposed
regulations provide that the review must
by completed by the Division Commis-
sioner and the Division Counsel of the Of-
fice of Chief Counsel (or their successors)
for the organizations that have jurisdiction
over the corporation whose liability is the
subject of the summons. The summons
also must be issued at least 60 days be-
fore the day on which the statute of limi-
tations on assessment under section 6501
would otherwise expire. Finally, the sum-
mons must clearly state that it is a des-
ignated summons for purposes of section
6503(j).
A related summons is any other sum-
mons that is issued with respect to the same
tax return of the corporation as a desig-
nated summons and is issued during the
30-day period that begins on the date the
designated summons is issued.
Suspension of Period of Limitations on
Assessment
Section 6503(j)(1) suspends the period
of limitations on assessment under section
6501 for the applicable tax period when a
court proceeding is brought with respect
to a designated or related summons. For
purposes of these proposed regulations, a
court proceeding is aproceeding brought
in a United States district court either to
quash a designated or related summons
under section 7609(b)(2) or to enforce a
designated or related summons under sec-
tion 7604. The court proceeding must be
brought within the otherwise applicable
period of limitationsin order to suspend
that period under section 6503(j).
The proposed regulations provide that
the suspension begins on the day that a
court proceeding is brought and continues
until there is a final resolution as to the
summoned party’s response to the sum-
mons (discussed in the next section), plus
an additional 120 days if a court requires
any compliance with the summons at is-
sue. If a court does not require any compli-
ance, then the period of limitations on as-
sessment resumes running on the day fol-
lowing the date of the final resolution and
in no event shall expire before the 60th day
following the date of final resolution.
Final Resolution of a Summoned Party’s
Response to a Summons
Under section 6503(j)(3)(B), the length
of the suspension under section 6503(j) de-
pends on when “final resolution” of a sum-
moned party’s response to the designated
or related summons occurs. The term “fi-
nal resolution” is not defined in the statute.
The legislative history states that the term
“final resolution” has the same meaning
it has under section 7609(e)(2)(B), relat-
ing to third-party summonses. H.R. Conf.
Rep. No. 101–964 (1990). Specifically,
the conference report states that final res-
olution means that no court proceeding
remains pending and that the summoned
party has complied with the summons to
the extent required by a court.
Accordingly, the proposed regulations
provide that final resolution occurs when
no court proceeding remains pending and
the summoned party complies with the
summons to the extent required by the
court. If the summoned party has complied
with the summons to the extent required
by the court but there still remains time to
appeal that order, final resolution occurs
when all appeals have been either disposed
of or the period in which an appeal may be
taken or a request for further review may
be made has expired. If all appeal periods
have expired but the summoned party has
not complied with the summons to the
extent required by the court, the proposed
regulations provide that final resolution
does not occur until the summoned party
has complied with the summons to the
extent required by the court. Whether a
party has complied with the terms of the
summons as enforced by a court cannot
be determined until the completeness of
the materials produced and the testimony
given has been evaluated. The IRS in-
tends to create administrative procedures
by which the taxpayer can inquire about
the suspension of its period of limitations
under section 6503(j) and to publish these
procedures in the Internal Revenue Man-
ual.
In cases in which a court wholly denies
enforcement or orders that the summons in
its entirety be quashed, the date of com-
pliance with the court’s order is treated as
occurring on the date when all appeals are
disposed of or when all appeal periods ex-
pire. In cases in which a court orders the
summons enforced, in whole or in part, the
determination of whether there has been
full compliance will be made within a rea-
sonable time after the later of the giving
of all testimony or the production of all
records required by the order. What con-
stitutes a reasonable time will depend on
the volume and complexity of the records
produced.
If, following an enforcement order, col-
lateral proceedings are brought challeng-
ing whether the production made by the
summoned party fully satisfied the court
order and whether sanctions should be im-
posed against the summoned party for a
failing to do so, the suspension of the pe-
riods of limitations shall continue until the
order enforcing any part of the summons is
fully complied with and the decision in the
collateral proceeding becomes final. A de-
cision in a collateral proceeding becomes
final when all appeals are disposed of or
when the period for appeal or further re-
view has expired.
Other Rules
These proposed regulations provide ad-
ditional rules regarding the number of des-
ignated and related summonses that may
be issued with respectto a return for any
taxable period, the time within which a
court proceeding must be brought to en-
force or quash a designated or related sum-
mons, the computation of the suspension
period in cases of multiple court proceed-
ings, and the computation of the 60-day pe-
riod for assessment when the last day falls
on a weekend or holiday.
The proposed regulations also address
the relationship of the suspension pe-
riod provided for in section 6503(j) with
other suspension provisions in the Code.
The proposed regulations provide that
if a designated or related summons also
could be subject to the suspension rules
governing third-party summonses under
section 7609(e), then the suspension rules
in section 6503(j) govern. In addition,
the proposed regulations provide that the
section 6503(j) suspension period is in-
dependent of, and may run concurrently
with, any other period of suspension, such
as the suspension period for third-party
summonses under section 7609(e) if a
separate third-party summons also was
issued in a case. Examples of these rules
are contained in the proposed regulations.
May 27, 200810182008–21 I.R.B.

Proposed Effective Date
These regulations are proposed to be
applicable on the date final regulations are
published in theFederal Register.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory as-
sessment is not required. It has been deter-
mined that section 553(b) of the Admin-
istrative Procedure Act (5 U.S.C. chapter
5) does not apply to this regulation, and
because the regulation does not impose a
collection of information requirement on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply.
Pursuant to section 7805(f), this regulation
has been submitted to the Chief Counsel
for Advocacy of the Small Business Ad-
ministration 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 written comments
(a signed original and eight (8) copies)
or electronic comments that are submitted
timely to the IRS. The IRS and the Trea-
sury Department request comments on the
clarity of the proposed rules and how they
can be made easier to understand. All
comments will be available for public in-
spection and copying. A public hearing
may be scheduled if requested in writing
by a person who timely submits written
comments. If a public hearing is sched-
uled, notice of the date, time, and place for
the hearing will be published in theFed-
eral Register.
Drafting Information
The principal author of these regula-
tions is Elizabeth Rawlins of the Office
of the Associate Chief Counsel, Procedure
and Administration.
*****
Withdrawal of Proposed Regulations
Accordingly, under the authority of 26
U.S.C. 7805, the notice of proposed rule-
making (REG–208199–91) that was pub-
lished in theFederal Registeron Thurs-
day, July 31, 2003 (68 FR 44905) is with-
drawn.
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 301 is pro-
posed to be amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read in part as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.6503(j)–1 is added
to read as follows:
§301.6503(j)–1 Suspension of running of
period of limitations; extension in case of
designated and related summonses.
(a)General rule. The running of the
applicable period of limitations on assess-
ment provided for in section 6501 is sus-
pended with respect to any return of tax by
a corporation that is the subject of a desig-
nated or related summons if a court pro-
ceeding is instituted with respect to that
summons.
(b)Period of suspension. The period
of suspension is the time during which the
running of the applicable period of limita-
tions on assessment provided for in section
6501 is suspended under section 6503(j).
If a court requires any compliance with a
designated or related summons by order-
ing that any record, document, paper, ob-
ject, or items be produced, or the testi-
mony of any person be given, the period
of suspension consists of the judicial en-
forcement period plus 120 days. If a court
does not require any compliance with a
designated or related summons, the period
of suspension consists of the judicial en-
forcement period, and the period of limi-
tations on assessment provided in section
6501 shall not expire before the 60th day
after the close of the judicial enforcement
period.
(c)Definitions—(1) Adesignated sum-
monsis a summons issued to a corporation
(or to any other person to whom the corpo-
ration has transferred records) with respect
to any return of tax bysuch corporation for
a taxable period for which such corpora-
tion is being examined under the coordi-
nated industry case program or any other
successor to the coordinated examination
program if—
(i) The Division Commissioner and the
Division Counsel of the Office of Chief
Counsel (or their successors) for the or-
ganizations that have jurisdiction over the
corporation whose tax liability is the sub-
ject of the summons have reviewed the
summons before it is issued;
(ii) The IRS issues the summons at least
60 days before the day the period pre-
scribedinsection6501fortheassessment
of tax expires (determined with regard to
extensions); and
(iii)Thesummonsstatesthatitisades-
ignated summons for purposes of section
6503(j).
(2) Arelated summonsis any summons
issued that—
(i) Relates to the same return of the cor-
poration under examination as the desig-
nated summons; and
(ii) Is issued to any person, including
the person to whom the designated sum-
mons was issued, during the 30-day period
that begins on the day the designated sum-
mons is issued.
(3) Thejudicial enforcement periodis
the period that begins on the day on which
a court proceeding is instituted with re-
spect to a designated or related summons
andendsonthedayonwhichthereisafi-
nal resolution as to the summoned person’s
response to that summons.
(4)Court proceeding—(i)In general.
Forpurposesofthissection,acourt pro-
ceedingis a proceeding filed in a United
States district court either to quash a des-
ignated or related summons under section
7609(b)(2) or to enforce a designated or
related summons under section 7604. A
court proceeding includes any collateral
proceeding, such as a civil contempt pro-
ceeding.
(ii)Date when proceeding is no longer
pending. A proceeding to quash or to en-
force a designated or related summons is
no longer pending when all appeals (in-
cluding review by the Supreme Court) are
disposed of or after the expiration of the
period in which an appeal may be taken
or a request for further review (includ-
ing review by the Supreme Court) may
be made. If, however, following an en-
forcement order, a collateral proceeding
is brought challenging whether the testi-
mony given or production made by the
2008–21 I.R.B.1019May 27, 2008

summoned party fully satisfied the court
order and whether sanctions should be im-
posed against the summoned party for a
failure to so testify or produce, the pro-
ceeding to quash or to enforce the sum-
mons shall include the time from which
the proceeding to quash or to enforce the
summons was brought until the decision
in the collateral proceeding becomes final.
The decision becomes final on the date
when all appeals (including review by the
Supreme Court) are disposed of or when
all appeal periods or all periods for further
review (including review by the Supreme
Court) expire. A decision in a collateral
proceeding becomes final when all appeals
(including review by the Supreme Court)
are disposed of or when all appeal periods
or all periods for further review (including
review by the Supreme Court) expire.
(5)Compliance—(i)In general.Com-
plianceis the giving of testimony or the
performance of an act or acts of produc-
tion, or both, in response to a court order
concerning the designated or related sum-
mons and the determination that the terms
of the court order have been satisfied.
(ii)Date compliance occurs. Compli-
ance with a court order that wholly de-
nies enforcement of a designated or related
summons is deemed to occur on the date
when all appeals (including review by the
Supreme Court) are disposed of or when
the period in which an appeal may be taken
or a request for further review (includ-
ing review by the Supreme Court) may be
made expires. Compliance with a court or-
der that grants enforcement, in whole or in
part, of a designated or related summons,
occurs on the date it is determined that
the testimony given, or the books, papers,
records, or other data produced, or both,
by the summoned party fully satisfy the
court order concerning the summons. The
determination of whether there has been
full compliance will be made within a rea-
sonable time, given the volume and com-
plexity of the records produced, after the
later of the giving of all testimony or the
production of all records requested by the
summons or required by any order enforc-
ing any part of the summons. If, following
an enforcement order, collateral proceed-
ings are brought challenging whether the
production made by the summoned party
fully satisfied the court order and whether
sanctions should be imposed against the
summoned party for a failing to do so,
the suspension of the periods of limitations
shall continue until the order enforcing any
part of the summons is fully complied with
and the decision in the collateral proceed-
ing becomes final. A decision in a collat-
eral proceeding becomes final when all ap-
peals are disposed of, the period in which
an appeal may be taken has expired or the
period in which a request for further re-
view may be made has expired.
(6)Final resolutionoccurs when the
designated or related summons or any or-
der enforcing any part of the designated
or related summons is fully complied with
and all appeals or requests for further re-
view are disposed of, the period in which
an appeal may be taken has expired or the
period in which a request for further re-
view may be made has expired.
(d)Special rules—(1)Number of sum-
monsesthatmaybeissued—(i)Desig-
nated summons. Only one designated
summons may be issued in connection
with the examination of a specific taxable
year or other period of a corporation. A
designated summons may cover more than
one year or other period of a corporation.
The designated summons may require pro-
duction of information that was previously
sought in a summons (other than a desig-
nated summons) issued in the course of
the examination of that particular corpora-
tion if that information was not previously
produced.
(ii)Related summonses.Thereisno
restriction on the number of related sum-
monses that may be issued in connection
with the examination of a corporation. As
provided in paragraph (c)(2) of this sec-
tion, however, a related summons must be
issued within the 30-day period that be-
gins on the date on which the designated
summons to which it relates is issued and
must relate to the same return as the desig-
nated summons. A related summons may
request the same information as the desig-
nated summons.
(2)Time within which court proceed-
ings must be brought. In order for the
period of limitations on assessment to be
suspended under section 6503(j), a court
proceeding to enforce or to quash a des-
ignated or related summons must be insti-
tuted within the period of limitations on as-
sessment provided in section 6501 that is
otherwise applicable to the tax return.
(3)Computation of suspension period
if multiple court proceedings are insti-
tuted. If multiple court proceedings are
instituted to enforce or to quash a desig-
nated or one or more related summonses
concerning the same tax return, the period
of limitations on assessment is suspended
beginning on the date the first court pro-
ceeding is brought. The suspension shall
end on the date that is the latest date on
which the judicial enforcement period,
plus the 120 day or 60 day period (de-
pending on whether the court requires any
compliance) as provided in paragraph (b)
of this section, expires with respect to each
summons.
(4)Effect on other suspension peri-
ods—(i)In general. Suspensions of the
period of limitations under section 6501
provided for under subsections 7609(e)(1)
and (e)(2) do not apply to any summons
that is issued pursuant to section 6503(j).
The suspension under section 6503(j) of
the running of the period of limitations on
assessment under section 6501 is indepen-
dent of, and may run concurrent with, any
other suspension of the period of limita-
tions on assessment that applies to the tax
return to which the designated or related
summons relates.
(ii)Examples. The rules of paragraph
(d)(4)(i) of this section are illustrated by
the following examples:
Example 1. The period of limitations on assess-
ment against Corporation P, a calendar year taxpayer,
for its 2007 return is scheduled to end on March 17,
2011. (Ordinarily, Corporation P’s returns are filed
on March 15
th
of the following year, but March 15,
2008 was a Saturday, and Corporation P timely filed
its return on the subsequent Monday, March 17, 2008,
making March 17, 2011 the last day of the period of
limitations on assessment for Corporation P’s 2007
tax year.) On January 4, 2011, a designated sum-
mons is issued to Corporation P concerning its 2007
return. On March 3, 2011 (14 days before the period
of limitations on assessment would otherwise expire
with respect to Corporation P’s 2007 return), a court
proceeding is brought to enforce the designated sum-
mons issued to Corporation P. On June 6, 2011, the
court orders Corporation P to comply with the des-
ignated summons. Corporation P does not appeal
the court’s order. On September 6, 2011, agents for
Corporation P deliver material that they state are the
records requested by the designated summons. On
October 13, 2011, a final resolution to Corporation
P’s response to the designated summons occurs when
it is determined that Corporation P has fully com-
plied with the court’s order. The suspension period
applicable with respect to the designated summons
issued to Corporation P consists of the judicial en-
forcement period (March 3, 2011 through October 13,
2011) and an additional 120-day period under sec-
tion 6503(j)(1)(B), becausethe court required Cor-
poration P to comply with the designated summons.
Thus, the suspension period applicable with respect
May 27, 200810202008–21 I.R.B.

to the designated summons issued to Corporation P
begins on March 3, 2011, and ends on February 10,
2012. Under the facts of thisExample 1, the period of
limitations on assessment against Corporation P fur-
ther extends to February 24, 2012, to account for the
additional 14 days that remained on the period of lim-
itations on assessment under section 6501 when the
suspension period under section 6503(j) began.
Example 2. Assume the same facts set forth in
Example 1, except that in addition to the issuance
of the designated summonsand related enforcement
proceedings, on April 5, 2011, a summons concern-
ing Corporation P’s 2007 return is issued and served
on individual A, a third party. This summons is not
a related summons because it was not issued during
the 30-day period that began on the date the desig-
nated summons was issued. The third-party sum-
mons served on individual A is subject to the notice
requirements of section 7609(a). Final resolution of
individual A’s response to this summons does not oc-
cur until February 15, 2012. Because there is no final
resolution of individual A’s response to this summons
by October 5, 2011, which is six months from the date
of service of the summons, the period of limitations
on assessment against Corporation P is suspended un-
der section 7609(e)(2) to the date on which there is a
final resolution to that response for the purposes of
section 7609(e)(2). Moreover, because final resolu-
tion to the summons served on individual A does not
occur until after February 10, 2012, the end of the sus-
pension period for the designated summons, the pe-
riod of limitations on assessment against Corporation
P expires 14 days after the date that the final resolu-
tion as provided for in section 7609(e)(2) occurs with
respect to the summons served on individual A.
(5)Computation of 60-day period when
last day of assessment period falls on a
weekend or holiday. For purposes of para-
graph (c)(1)(ii) of this section, in deter-
mining whether a designated summons has
been issued at least 60 days before the date
on which the period of limitations on as-
sessment prescribed in section 6501 ex-
pires, the provisions of section 7503 apply
when the last day of the assessment period
falls on a Saturday, Sunday, or legal holi-
day.
(e)Effective/applicability date.This
section is applicable on the date the final
regulations are published in theFederal
Register.
Kevin M. Brown,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on April 25, 2008,
8:45 a.m., and published in the issue of the Federal Register
for April 28, 2008, 73 F.R. 22879)
Notice of Proposed
Rulemaking
Gross Estate; Election to Value
on Alternate Valuation Date
REG–112196–07
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains pro-
posed regulations that provide guidance
relating to the availability of the election to
use the alternate valuation method under
section 2032 of the Internal Revenue Code
(Code). The proposed regulations will
affect estates that file Form 706,United
States Estate (and Generation-Skipping
Transfer) Tax Return, and elect to use the
alternate valuation method.
DATES: Written or electronic comments
and requests for a public hearing must be
received by July 24, 2008.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–112196–07), In-
ternal Revenue Service, Room 5203, PO
Box 7604, Ben Franklin Station, Wash-
ington, DC 20044. Submissions may be
hand delivered Monday through Friday
betweenthehoursof8a.m. and4p.m.
to CC:PA:LPD:PR (REG–112196–07),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW,
Washington, DC 20224; or sent elec-
tronically via the Federal eRulemak-
ing Portal athttp://www.regulations.gov
(IRS-REG–112196–07).
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Theresa M. Melchiorre, at
(202) 622–3090; concerning submissions
of comments or to request a hearing,
Kelly Banks, at (202) 622–7180 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed
amendments to the Estate Tax Regulations
(26 CFR part 20) under section 2032 of
the Code. Section 2001 imposes a tax on
thetransferofthetaxableestateofevery
decedent who is a citizen or resident of the
United States. Section 2031(a) provides
that the value of the decedent’s gross estate
includes the value at the time of decedent’s
death of all property, real or personal,
tangible or intangible,wherever situated.
Section 2032(a) provides that the value
of the gross estate instead may be deter-
mined, if the executor so elects, by valuing
all the property included in the gross estate
as follows. Property distributed, sold, ex-
changed, or otherwise disposed of within 6
months after the decedent’s death must be
valued as of the date of distribution, sale,
exchange, or other disposition. I.R.C. sec-
tion 2032(a)(1). Property not distributed,
sold, exchanged, or otherwise disposed of
within 6 months after the decedent’s death
must be valued as of the date that is 6
months after the decedent’s death. I.R.C.
section 2032(a)(2). Any interest or estate
which is affected by the mere lapse of time
is included at its value as of the time of
death (instead of the later date), with ad-
justment for any difference in its value as
of the later date that is not due to the mere
lapse of time. I.R.C. section 2032(a)(3).
The predecessor to section 2032 is sec-
tion 302(j) of the Revenue Act of 1926,
as added by section 202(a) of the Revenue
Act of 1935. Revenue Act of 1935, 74
Public Law 407, 49 Stat. 1014 (1935).
Section 302(j) allowed executors to elect
to use a date that was one year after the
date of decedent’s death to value estate
property. Section 302(j) contained provi-
sions for valuing the property on the date
of its sale or disposition during the alter-
nate valuation period and for not taking
into account changes in value due to a mere
lapse of time. Congress enacted section
302(j) in response to “the hardships which
were experienced after 1929 when market
values decreased very materially between
the period from the date of death and the
date of distribution to the beneficiaries.”
79 Cong. Rec. 14632 (1935) (statement
of Mr. Samuel B. Hill). See, also, H.R.
Rep. No. 74–1681, at 9 (1935); S. Rep.
No. 74–1240, part 1, at 9–10 (1935); and
S. Rep. No. 74–1240, part 2, at 8–9
(1935). Section 302(j) was codified as sec-
tion 811(j) in the Internal Revenue Code of
1939.
In 1941, the U. S. Supreme Court ad-
dressed whether rents, dividends, and in-
terest received and accrued during the al-
2008–21 I.R.B.1021May 27, 2008

ternate valuation period are includible in
the decedent’s gross estate under section
811(j).Maass v. Higgins, 312 U.S. 443
(1941). In that case, the Court stated that
the purpose of section 811(j) is “to mitigate
the hardship consequent upon shrinkage in
the value of estates during the year follow-
ing death. Congress enacted it in the light
of the fact that, due to such shrinkages,
many estates were almost obliterated by
the necessity of paying a tax on the value of
the assets at the date of decedent’s death.”
Id. at 446.
In 1954, section 811(j) was recodified
as section 2032. Congress considered pro-
posals to amend section 811(j) and, again,
Congress stated that, “The option to value
property [on the alternate valuation date]
initially was provided during the depres-
sion of the early 1930’s because by the
time estate taxes were paid, property val-
ues had dropped substantially, sometimes
to such an extent that the proceeds of the
sale would not pay the estate tax due.”
H. Rep. No. 83–1337 at 90 (1954). See,
also, S. Rep. No. 83–1622, at 122–123
(1954).
In 1958, §20.2032–1 of the Estate Tax
Regulations was published. This regula-
tion restates the rule in section 2032(a)(3)
and provides an example that illustrates the
rule that only changes in the value of the
decedent’s gross estate due to market con-
ditions, and not changes to the value due
to a mere lapse of time, are to be consid-
ered in valuing the decedent’s gross estate
under the alternate valuation method. See
example in §20.2032–1(f)(1).
Two judicial decisions have interpreted
the language of section 2032 and its leg-
islative history differently in determining
whether post-death events other than mar-
ket conditions may be taken into account
under the alternate valuation method. In
Flanders v. United States,347F.Supp.95
(N.D. Cal. 1972), the district court held
that the reduction in value of property in-
cluded in the decedent’s estate as a result
of a voluntary act by the trustee, instead
of as a result of market conditions, could
not be taken into consideration in valuing
the property under the alternate valuation
method. In that case, a few months af-
ter the death of the decedent, the trustee
of the trust owning decedent’s undivided
one-half interest in real property entered
into a Land Conservation Agreement pur-
suant to the California Land Conservation
Act of 1965. In exchange for restricting
the property to agricultural uses for a pe-
riod of 10 years, the trustee was allowed to
reduce the assessed value of the land for
purposes of paying property taxes. The
estate elected to use the alternate valua-
tion method for estate tax purposes and re-
ported the value of the decedent’s interest
in the land as $25,000. This value repre-
sented one-half of the value of the ranch af-
ter the land use restriction was placed upon
it, less a lack of marketability discount.
The district court stated that, “It seems
clear that Congress intended that the char-
acter of the property be established for val-
uation purposes at the date of death. The
option to select the alternate valuation date
is merely to allow an estate to pay a lesser
tax if unfavorable market conditions (as
distinguished from voluntary acts chang-
ing the character of the property) result in
a lessening of its fair market value.”Id.at
98.
InKohler v. Commissioner,T.C.
Memo. 2006–152, the U.S. Tax Court
held that valuation discounts attributable
to restrictions imposed on closely-held
corporate stock pursuant to a post-death
reorganization of the Kohler Company
should be taken into consideration in valu-
ing stock on the alternate valuation date.
In that case, approximately two months
after the death of the decedent, the Kohler
Company underwent a reorganization that
qualified as a tax-free reorganization un-
der section 368(a) and, thus, was not a
sale or disposition for purposes of section
2032(a)(1). The estate opted to receive
new Kohler shares that were subject to
transfer restrictions. The estate elected to
use the alternate valuation method under
section 2032(a)(2) and took into account
discounts attributable to the transfer re-
strictions on the stock in determining the
value for Federal estate tax purposes. In
the Internal RevenueBulletin No. 2008–9
on March 3, 2008, the IRS nonacquiesced
to the Tax Court opinion inKohler (AOD
2008–1).
Explanation of Provisions
The proposed regulations will amend
§20.2032–1 by restructuring paragraph (f)
of this section to clarify that the election
to use the alternate valuation method un-
der section 2032 is available to estates
that experience a reduction in the value
ofthegrossestatefollowingthedateof
the decedent’s death due to market con-
ditions, but not due to other post-death
events. The termmarket conditionsis de-
fined in the proposed regulations and ex-
amples are provided, which are not in-
tended to be exclusive.
Proposed Effective Date
Thefourthsentenceof
§20.2032–1(f)(2)(i) is applicable to dece-
dents dying after May 1, 1999, subject
to transition rules for certain incapac-
itated individuals. The fifth sentence
of §20.2032–1(f)(2)(i) is applicable to
decedents dying afterNovember 30, 1983,
subject to transition rules for certain inca-
pacitated individuals. The first, second,
and third sentences of §20.2032–1(f)(2)(i),
§20.2032–1(f)(2)(ii), and all but the last
sentence in §20.2032–1(f)(2) are applica-
ble to decedent’s dying after August 16,
1954. When adopted as final regulations,
the rules contained in §20.2032–1(f)(1),
§20.2032–1(f)(3), and the last sentence of
§20.2032–1(f)(2), will be made applicable
to estates of decedents dying on or after
April 25, 2008.
Special Analyses
It has been determined that this pro-
posed regulation is not a significant regu-
latory action as defined in Executive Or-
der 12866. Therefore, a regulatory assess-
ment is not required. It also has been de-
termined that section 553(b) of the Admin-
istrative Procedure Act (5 U.S.C. chapter
5) does not apply to these regulations and,
because these regulations do not impose
on small entities a collection of informa-
tion requirement, the Regulatory Flexibil-
ity Act (5 U.S.C. chapter 6) does not ap-
ply. Therefore, a Regulatory Flexibility
Analysis is not required. Pursuant to sec-
tion 7805(f) of the Internal Revenue Code,
this regulation has been submitted 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 written (a signed origi-
nal and eight (8) copies)orelectroniccom-
May 27, 200810222008–21 I.R.B.

ments that are submitted timely to the IRS.
The IRS and the Treasury Department also
request comments on the clarity of the pro-
posed regulations and how they may be
made easier to understand. 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 theFederal Register.
Drafting Information
The principal author of these proposed
regulations is Theresa M. Melchiorre,
Office of Associate Chief Counsel
(Passthroughs and Special Industries).
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 20 is pro-
posedtobeamendedasfollows:
PART 20—ESTATE TAX; ESTATES
OF DECEDENTS DYING AFTER
AUGUST 16, 1954
Paragraph 1. The authority citation for
part 20 continues to read in part as follows:
Authority:26U.S.C.7805***
Par. 2. Section 20.2032–1 is amended
as follows:
1. Paragraph (f)(1) is redesignated as
paragraph (f)(2)(i).
2. Paragraph (f)(2) is redesignated as
paragraph (f)(2)(ii).
3. Paragraph (f) introductory text is
redesignated as paragraph (f)(2) introduc-
tory text and the last sentence in the para-
graph is revised.
4. New paragraphs (f)(1) and (f)(3) are
added.
5. The heading for paragraph (h) is
revised and four sentences are added at the
end of the paragraph.
The additions and revisions read as fol-
lows.
§20.2032–1 Alternate valuation.
*****
(f)Post-death market conditions and
other post-death events—(1)In general.
The election to use the alternate valua-
tion method under section 2032 permits
the property included in the gross estate to
be valued as of the alternate valuation date
to the extent that the change in value dur-
ing the alternate valuation period is the re-
sult of market conditions. The termmar-
ket conditionsis defined as events outside
of the control of the decedent (or the dece-
dent’s executor or trustee) or other person
whose property is being valued that affect
the fair market value of the property be-
ing valued. Changes in value due to mere
lapse of time or to other post-death events
other than market conditions will be ig-
nored in determining the value of dece-
dent’s gross estate under the alternate val-
uation method.
(2)Mere lapse of time.***Theappli-
cation of this paragraph (f)(2) is illustrated
in paragraphs (f)(2)(i) and (f)(2)(ii) of this
section:
(3)Post-death events—(i)In general.
In order to eliminate changes in value due
to post-death events other than market con-
ditions, any interest or estate affected by
post-death events other than market condi-
tions is included in a decedent’s gross es-
tate under the alternate valuation method
at its value as of the date of the decedent’s
death, with adjustment for any change in
value that is due to market conditions. The
termpost-death eventsincludes, but is not
limited to, a reorganization of an entity (for
example, corporation,partnership, or lim-
ited liability company) in which the estate
holds an interest, a distribution of cash or
other property to the estate from such en-
tity, or one or more distributions by the es-
tate of a fractional interest in such entity.
(ii)Examples. The following exam-
ples illustrate the application of this para-
graph (f)(3). In each example, decedent’s
(D’s) estate elects to value D’s gross es-
tate under the alternate valuation method,
so that the valuation date of the property
included in D’s gross estate as of D’s date
of death is either the date the property is
distributed, sold, exchanged, or disposed
of under section 2032(a)(1) (the date of
distribution (distribution date)) or the date
that is 6 months after the date of the dece-
dent’s death under section 2032(a)(2) (the
six month alternate valuation date (AVD)).
Example 1. At D’s death, D owned common stock
in Corporation, a closely-held subchapter C corpora-
tion. At that time, the common stock was not sub-
ject to transfer restrictions. D’s stock was valued at
$50X at the date of death. Two months after D’s
death, D’s estate participated in a tax-free reorga-
nization of Corporation that qualified under section
368(a) with respect to which no gain or loss was rec-
ognized for income tax purposes under section 354
or 355. Pursuant to the reorganization, D’s estate
opted to exchange its stock for stock subject to trans-
fer restrictions. Although the value of the stock did
not change during the alternate valuation period, dis-
counts for lack of marketability and lack of control
(totaling $20X) were applied in determining the value
of the stock held by D’s estate on the AVD, and D’s
estate reported the value of the stock on the AVD as
$30X. Because the claimed reduction in value is not
attributable to market conditions, the discounts may
not be taken into account in determining the value of
the stock on the AVD. Accordingly, the value on the
AVD is $50X.
Example 2. ThefactsarethesameasinExam-
ple 1except that the value of the stock declined from
$50X to $40X during the alternate valuation period
because of changes in market conditions during that
period. D’s estate may report the value of the stock as
$40X on the AVD. As inExample 1, however, no dis-
counts resulting from the reorganization are allowed
in computing the value on the AVD.
Example 3. At D’s death, D owned property val-
ued at $100X. Two months after D’s death, the execu-
tor of D’s estate and other family members formed
four limited partnerships. The estate contributed the
estate’s property to the partnerships in exchange for a
25% interest in each partnership. Discounts for lack
of marketability and lack of control (totaling $25X)
were applied in determining the value of the estate’s
partnership interests, and the estate reported $75X as
the total value of the estate’s partnership interests on
the AVD. Because the reduction in value is not at-
tributable to market conditions, the discounts for lack
of marketability and control may not be taken into
account in determining the value of the partnership
interests on the AVD. The result would be the same
if the limited partnerships were formed prior to D’s
death, and the estate transferred property into the part-
nerships after D’s death but prior to the AVD.
Example 4. At D’s death, D owned 100% of the
units of a limited liability company (LLC). The ex-
ecutor elected the alternative valuation method. Dur-
ing the 6 months following D’s death and in accor-
dance with D’s will, the executor made 6 distribu-
tions, each to a different residuary legatee on a differ-
ent date and each of a 10% interest in the LLC. Pur-
suant to section 2032(a)(1), each distribution is val-
ued on the distribution date. On the AVD, the estate
held 40% of the units in the LLC. Pursuant to section
2032(a)(2), the 40% is valued on the AVD. In valu-
ing the 10% interests distributed and the 40% interest
held on the AVD, discounts for lack of control and
lack of marketability were applied. The reduction in
value of the units is not attributable to market con-
ditions. Accordingly, the discounts for lack of mar-
ketability and control may not be taken into account
in determining the value of the units distributed or
held by the estate. The value of each 10% distribution
is determined by taking 10% of the value on the dis-
tribution date of the units (100%) owned by the estate
at D’s death. The value of the units held by the estate
on the AVD is determined by taking 40% of the value
on the AVD of all of the units (100%) owned by the
estate at D’s death. If because of market conditions,
the units had declined in value as of each distribution
date or as of the AVD, D’s estate would take such re-
duction in value into account.
2008–21 I.R.B.1023May 27, 2008

Example 5. D died owning 100% of Blackacre.
D’s will directs that Blackacre be divided between
two trusts, 70% to Trust A for the benefit of S, D’s
surviving spouse, and 30% to Trust B for the benefit
of C, D’s surviving child. The executor of D’s es-
tate distributed a 70% interest in Blackacre to Trust
A three months after D’s death, and distributed a
30% interest in Blackacre to Trust B four months af-
ter D’s death. On the estate tax return, the execu-
tor elected to value the estate’s property under the al-
ternate valuation method under section 2032. There
was no change in the value of Blackacre during the
four-month period following D’s death. The 70% in-
terest in Blackacre is to be valued as of the distribu-
tion date to Trust A, and that value is determined by
taking 70% of the value of all (100%) of Blackacre as
of the distribution date. The 30% interest in Black-
acre is to be valued as of the distribution date to Trust
B, and that value is determined by taking 30% of the
value of all (100%) of Blackacre as of the distribu-
tion date. If, however, because of market conditions
such as a decline in the real estate market, Blackacre’s
value had declined by 10% between D’s date of death
and the distribution date of the 30% interest, the value
of the 30% interest would be determined by ascertain-
ing 30% of the value of all (100%) of Blackacre as of
the distribution date, which would equal 30% of 90%
of the date of death value of Blackacre.
*****
(h)Effective/applicability date. ***
The fourth sentence of paragraph (f)(2)(i)
of this section is applicable to decedents
dying after May 1, 1999, subject to tran-
sition rules for certain incapacitated indi-
viduals. The fifth sentence of paragraph
(f)(2)(i) of this section is applicable to
decedents dying after November 30, 1983,
subject to transition rules for certain inca-
pacitated individuals. The first, second,
and third sentences of paragraph (f)(2)(i),
paragraph (f)(2)(ii), and all but the last
sentence in paragraph (f)(2) of this section
are applicable to decedent’s dying after
August 16, 1954. When adopted as final
regulations, the rules contained in para-
graphs (f)(1), (f)(3), and the last sentence
of paragraph (f)(2) of this section, will be
made applicable to estates of decedents
dying on or after April 25, 2008.
*****
Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on April 24, 2008,
8:45 a.m., and published in the issue of the Federal Register
for April 25, 2008, 73 F.R. 22300)
Deletions From Cumulative
List of Organizations
Contributions to Which
are Deductible Under Section
170 of the Code
Announcement 2008–49
The Internal Revenue Service has re-
voked its determination that the organi-
zations listed below qualify as organiza-
tions described in sections 501(c)(3) and
170(c)(2) of the Internal Revenue Code of
1986.
Generally, the Service will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the Service is not
precluded from disallowing a deduction
for any contributions made after an or-
ganization ceases to qualify under section
170(c)(2) if the organization has not timely
filed a suit for declaratory judgment under
section 7428 and if the contributor (1) had
knowledge of the revocation of the ruling
or determination letter, (2) was aware that
such revocation was imminent, or (3) was
in part responsible for or was aware of the
activities or omissions of the organization
that brought about this revocation.
If on the other hand a suit for declara-
tory judgment has been timely filed, con-
tributions from individuals and organiza-
tions described in section 170(c)(2) that
are otherwise allowable will continue to
be deductible. Protection under section
7428(c) would begin on May 27, 2008, and
would end on the date the court first deter-
mines that the organization is not described
in section 170(c)(2) as more particularly
set forth in section 7428(c)(1). For indi-
vidual contributors, the maximum deduc-
tion protected is $1,000, with a husband
and wife treated as one contributor. This
benefit is not extended to any individual, in
wholeorinpart,fortheactsoromissions
of the organization that were the basis for
revocation.
Heritage Christian Schools for Children
Stone Mountain, GA
Lima Legionnaires Charitable
Foundation, Inc.
Lima, OH
Announcements of
Disciplinary Sanctions From
theOfficeofProfessional
Responsibility Will List Specific
Violations of Circular 230
Announcement 2008–50
The Office of Professional Responsi-
bility intends to publish announcements
of disciplinary sanctions in a redesigned
format that will list specific violations of
Treasury Department Circular No. 230.
A new “Disciplinary Sanction” column of
the announcements will include the rele-
vant section number of Circular 230 and a
brief description of misconduct. Each an-
nouncement will be headed by an introduc-
tion that explains the various types of sanc-
tions, for example, disbarment or suspen-
sion from practice before the IRS.
The listing of individuals sanctioned
will continue to include the professional
designation: attorney, certified public
accountant, enrolled agent, enrolled ac-
tuary, enrolled retirement plan agent, or
appraiser. The listing in the new format
will be alphabetized first by the names
of the individuals’ states of residence and
second by the last names of the individuals
sanctioned.
Previously, OPR endeavored to pub-
lish announcements of disciplinary sanc-
tions on a quarterly basis, and each an-
nouncement was published in five consec-
utive issues of the Internal Revenue Bul-
letin (IRB). Future announcements will be
published more frequently, and each an-
nouncement will be published in one issue
of the IRB and also in the Cumulative Bul-
letin.
OPR redesigned the format of the an-
nouncements in order to expand the pub-
lic availability of information about disci-
plinary proceedings and disciplinary sanc-
tions. The first announcement in the new
format is expected to be published in June
2008.
May 27, 200810242008–21 I.R.B.

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cases
in litigation, or the outcome of a Service
study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
2008–21 I.R.B.iMay 27, 2008

Numerical Finding List
1
Bulletins 2008–1 through 2008–21
Announcements:
2008-1, 2008-1 I.R.B.246
2008-2, 2008-3 I.R.B.307
2008-3, 2008-2 I.R.B.269
2008-4, 2008-2 I.R.B.269
2008-5, 2008-4 I.R.B.333
2008-6, 2008-5 I.R.B.378
2008-7, 2008-5 I.R.B.379
2008-8, 2008-6 I.R.B.403
2008-9, 2008-7 I.R.B.444
2008-10, 2008-7 I.R.B.445
2008-11, 2008-7 I.R.B.445
2008-12, 2008-7 I.R.B.446
2008-13, 2008-8 I.R.B.480
2008-14, 2008-8 I.R.B.481
2008-15, 2008-9 I.R.B.511
2008-16, 2008-9 I.R.B.511
2008-17, 2008-9 I.R.B.512
2008-18, 2008-12 I.R.B.667
2008-19, 2008-11 I.R.B.624
2008-20, 2008-11 I.R.B.625
2008-21, 2008-13 I.R.B.691
2008-22, 2008-13 I.R.B.692
2008-23, 2008-14 I.R.B.731
2008-24, 2008-13 I.R.B.692
2008-25, 2008-14 I.R.B.732
2008-26, 2008-13 I.R.B.693
2008-27, 2008-15 I.R.B.751
2008-28, 2008-14 I.R.B.733
2008-29, 2008-15 I.R.B.786
2008-30, 2008-16 I.R.B.825
2008-31, 2008-15 I.R.B.787
2008-32, 2008-16 I.R.B.826
2008-33, 2008-16 I.R.B.826
2008-34, 2008-17 I.R.B.849
2008-35, 2008-17 I.R.B.849
2008-36, 2008-16 I.R.B.827
2008-37, 2008-17 I.R.B.850
2008-38, 2008-17 I.R.B.851
2008-39, 2008-18 I.R.B.867
2008-40, 2008-19 I.R.B.941
2008-41, 2008-19 I.R.B.943
2008-42, 2008-19 I.R.B.943
2008-43, 2008-19 I.R.B.944
2008-44, 2008-20 I.R.B.982
2008-45, 2008-20 I.R.B.982
2008-46, 2008-20 I.R.B.983
2008-47, 2008-20 I.R.B.983
2008-48, 2008-20 I.R.B.983
2008-49, 2008-21 I.R.B.1024
2008-50, 2008-21 I.R.B.1024
Court Decisions:
2085, 2008-17 I.R.B.828
2086, 2008-19 I.R.B.905
Notices:
2008-1, 2008-2 I.R.B.251
2008-2, 2008-2 I.R.B.252
2008-3, 2008-2 I.R.B.253
2008-4, 2008-2 I.R.B.253
2008-5, 2008-2 I.R.B.256
2008-6, 2008-3 I.R.B.275
2008-7, 2008-3 I.R.B.276
2008-8, 2008-3 I.R.B.276
2008-9, 2008-3 I.R.B.277
2008-10, 2008-3 I.R.B.277
2008-11, 2008-3 I.R.B.279
2008-12, 2008-3 I.R.B.280
2008-13, 2008-3 I.R.B.282
2008-14, 2008-4 I.R.B.310
2008-15, 2008-4 I.R.B.313
2008-16, 2008-4 I.R.B.315
2008-17, 2008-4 I.R.B.316
2008-18, 2008-5 I.R.B.363
2008-19, 2008-5 I.R.B.366
2008-20, 2008-6 I.R.B.406
2008-21, 2008-7 I.R.B.431
2008-22, 2008-8 I.R.B.465
2008-23, 2008-7 I.R.B.433
2008-24, 2008-8 I.R.B.466
2008-25, 2008-9 I.R.B.484
2008-26, 2008-9 I.R.B.487
2008-27, 2008-10 I.R.B.543
2008-28, 2008-10 I.R.B.546
2008-29, 2008-12 I.R.B.637
2008-30, 2008-12 I.R.B.638
2008-31, 2008-11 I.R.B.592
2008-32, 2008-11 I.R.B.593
2008-33, 2008-12 I.R.B.642
2008-34, 2008-12 I.R.B.645
2008-35, 2008-12 I.R.B.647
2008-36, 2008-12 I.R.B.650
2008-37, 2008-12 I.R.B.654
2008-38, 2008-13 I.R.B.683
2008-39, 2008-13 I.R.B.684
2008-40, 2008-14 I.R.B.725
2008-41, 2008-15 I.R.B.742
2008-42, 2008-15 I.R.B.747
2008-43, 2008-15 I.R.B.748
2008-44, 2008-16 I.R.B.799
2008-45, 2008-17 I.R.B.835
2008-46, 2008-18 I.R.B.868
2008-47, 2008-18 I.R.B.869
2008-48, 2008-21 I.R.B.1008
2008-49, 2008-20 I.R.B.979
2008-50, 2008-21 I.R.B.1010
Proposed Regulations:
REG-208199-91, 2008-21 I.R.B.1017
REG-168745-03, 2008-18 I.R.B.871
REG-147290-05, 2008-10 I.R.B.576
REG-141998-06, 2008-19 I.R.B.911
REG-147775-06, 2008-19 I.R.B.916
REG-153589-06, 2008-14 I.R.B.730
REG-104713-07, 2008-6 I.R.B.409
REG-104946-07, 2008-11 I.R.B.596
REG-110136-07, 2008-17 I.R.B.838
REG-111583-07, 2008-4 I.R.B.319
REG-112196-07, 2008-21 I.R.B.1021
REG-114126-07, 2008-6 I.R.B.410
REG-114942-07, 2008-18 I.R.B.901
REG-119518-07, 2008-17 I.R.B.844
REG-124590-07, 2008-16 I.R.B.801
REG-127391-07, 2008-13 I.R.B.689
REG-136701-07, 2008-11 I.R.B.616
REG-137573-07, 2008-15 I.R.B.750
REG-139236-07, 2008-9 I.R.B.491
REG-141399-07, 2008-8 I.R.B.470
REG-143468-07, 2008-17 I.R.B.848
REG-147832-07, 2008-8 I.R.B.472
REG-149475-07, 2008-9 I.R.B.510
REG-151135-07, 2008-16 I.R.B.815
REG-108508-08, 2008-19 I.R.B.923
Revenue Procedures:
2008-1, 2008-1 I.R.B.1
2008-2, 2008-1 I.R.B.90
2008-3, 2008-1 I.R.B.110
2008-4, 2008-1 I.R.B.121
2008-5, 2008-1 I.R.B.164
2008-6, 2008-1 I.R.B.192
2008-7, 2008-1 I.R.B.229
2008-8, 2008-1 I.R.B.233
2008-9, 2008-2 I.R.B.258
2008-10, 2008-3 I.R.B.290
2008-11, 2008-3 I.R.B.301
2008-12, 2008-5 I.R.B.368
2008-13, 2008-6 I.R.B.407
2008-14, 2008-7 I.R.B.435
2008-15, 2008-9 I.R.B.489
2008-16, 2008-10 I.R.B.547
2008-17, 2008-10 I.R.B.549
2008-18, 2008-10 I.R.B.573
2008-19, 2008-11 I.R.B.594
2008-20, 2008-20 I.R.B.980
2008-21, 2008-12 I.R.B.657
2008-22, 2008-12 I.R.B.658
2008-23, 2008-12 I.R.B.664
2008-24, 2008-13 I.R.B.684
2008-25, 2008-13 I.R.B.686
2008-26, 2008-21 I.R.B.1014
2008-27, 2008-21 I.R.B.1014
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2007–27 through 2007–52 is in Internal Revenue Bulletin
2007–52, dated December 26, 2007.
May 27, 2008ii2008–21 I.R.B.

Revenue Rulings:
2008-1, 2008-2 I.R.B.248
2008-2, 2008-2 I.R.B.247
2008-3, 2008-2 I.R.B.249
2008-4, 2008-3 I.R.B.272
2008-5, 2008-3 I.R.B.271
2008-6, 2008-3 I.R.B.271
2008-7, 2008-7 I.R.B.419
2008-8, 2008-5 I.R.B.340
2008-9, 2008-5 I.R.B.342
2008-10, 2008-13 I.R.B.676
2008-11, 2008-10 I.R.B.541
2008-12, 2008-10 I.R.B.520
2008-13, 2008-10 I.R.B.518
2008-14, 2008-11 I.R.B.578
2008-15, 2008-12 I.R.B.633
2008-16, 2008-11 I.R.B.585
2008-17, 2008-12 I.R.B.626
2008-18, 2008-13 I.R.B.674
2008-19, 2008-13 I.R.B.669
2008-20, 2008-14 I.R.B.716
2008-21, 2008-15 I.R.B.734
2008-22, 2008-16 I.R.B.796
2008-23, 2008-18 I.R.B.852
2008-24, 2008-18 I.R.B.861
2008-25, 2008-21 I.R.B.986
2008-26, 2008-21 I.R.B.985
Tax Conventions:
2008-8, 2008-6 I.R.B.403
2008-39, 2008-18 I.R.B.867
Treasury Decisions:
9368, 2008-6 I.R.B.382
9369, 2008-6 I.R.B.394
9370, 2008-7 I.R.B.428
9371, 2008-8 I.R.B.447
9372, 2008-8 I.R.B.462
9373, 2008-8 I.R.B.463
9374, 2008-10 I.R.B.521
9375, 2008-5 I.R.B.344
9376, 2008-11 I.R.B.587
9377, 2008-11 I.R.B.578
9378, 2008-14 I.R.B.720
9379, 2008-14 I.R.B.715
9380, 2008-14 I.R.B.718
9381, 2008-14 I.R.B.694
9382, 2008-9 I.R.B.482
9383, 2008-15 I.R.B.738
9384, 2008-16 I.R.B.792
9385, 2008-15 I.R.B.735
9386, 2008-16 I.R.B.788
9387, 2008-16 I.R.B.789
9388, 2008-17 I.R.B.832
9389, 2008-18 I.R.B.863
9390, 2008-18 I.R.B.855
9391, 2008-20 I.R.B.945
9392, 2008-19 I.R.B.903
Treasury Decisions— Continued:
9393, 2008-20 I.R.B.975
9394, 2008-21 I.R.B.988
2008–21 I.R.B.iiiMay 27, 2008

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2008–1 through 2008–21
Announcements:
2006-88
Clarified and superseded by
Notice 2008-35, 2008-12 I.R.B.647
Notice 2008-36, 2008-12 I.R.B.650
2008-6
Superseded by
Ann. 2008-19, 2008-11 I.R.B.624
Notices:
2001-16
Modified by
Notice 2008-20, 2008-6 I.R.B.406
2001-60
Modified and superseded by
Notice 2008-31, 2008-11 I.R.B.592
2002-44
Superseded by
Notice 2008-39, 2008-13 I.R.B.684
2003-51
Superseded by
Rev. Proc. 2008-24, 2008-13 I.R.B.684
2006-27
Clarified and superseded by
Notice 2008-35, 2008-12 I.R.B.647
2006-28
Clarified and superseded by
Notice 2008-36, 2008-12 I.R.B.650
2006-52
Clarified and amplified by
Notice 2008-40, 2008-14 I.R.B.725
2006-77
Clarified and amplified by
Notice 2008-25, 2008-9 I.R.B.484
2006-107
Modified by
Notice 2008-7, 2008-3 I.R.B.276
2007-30
Modified and superseded by
Notice 2008-14, 2008-4 I.R.B.310
2007-45
Modified by
Notice 2008-49, 2008-20 I.R.B.979
2007-54
Clarified by
Notice 2008-11, 2008-3 I.R.B.279
Notices— Continued:
2008-13
Supplemented by
Notice 2008-46, 2008-18 I.R.B.868
2008-27
Clarified, amended, supplemented, and
superseded by
Notice 2008-41, 2008-15 I.R.B.742
Proposed Regulations:
REG-209020-86
Corrected by
Ann. 2008-11, 2008-7 I.R.B.445
REG-107592-00
Partial withdrawal by
Ann. 2008-25, 2008-14 I.R.B.732
REG-149856-03
Hearing scheduled by
Ann. 2008-26, 2008-13 I.R.B.693
REG-147290-05
Hearing scheduled by
Ann. 2008-43, 2008-19 I.R.B.944
REG-109367-06
Withdrawn by
Ann. 2008-41, 2008-19 I.R.B.943
REG-104946-07
Hearing scheduled by
Ann. 2008-47, 2008-20 I.R.B.983
REG-113891-07
Hearing scheduled by
Ann. 2008-4, 2008-2 I.R.B.269
REG-114126-07
Corrected by
Ann. 2008-36, 2008-16 I.R.B.827
REG-127770-07
Hearing scheduled by
Ann. 2008-24, 2008-13 I.R.B.692
REG-133300-07
Hearing scheduled by
Ann. 2008-34, 2008-17 I.R.B.849
REG-139236-07
Hearing scheduled by
Ann. 2008-42, 2008-19 I.R.B.943
REG-141399-07
Hearing cancelled by
Ann. 2008-31, 2008-15 I.R.B.787
Revenue Procedures:
97-36
Modified by
Rev. Proc. 2008-23, 2008-12 I.R.B.664
Revenue Procedures— Continued:
2001-23
Modified by
Rev. Proc. 2008-23, 2008-12 I.R.B.664
2002-9
Modified by
Rev. Proc. 2008-18, 2008-10 I.R.B.573
Modified and amplified by
Rev. Proc. 2008-25, 2008-13 I.R.B.686
2007-1
Superseded by
Rev. Proc. 2008-1, 2008-1 I.R.B.1
2007-2
Superseded by
Rev. Proc. 2008-2, 2008-1 I.R.B.90
2007-3
Superseded by
Rev. Proc. 2008-3, 2008-1 I.R.B.110
2007-4
Superseded by
Rev. Proc. 2008-4, 2008-1 I.R.B.121
2007-5
Superseded by
Rev. Proc. 2008-5, 2008-1 I.R.B.164
2007-6
Superseded by
Rev. Proc. 2008-6, 2008-1 I.R.B.192
2007-7
Superseded by
Rev. Proc. 2008-7, 2008-1 I.R.B.229
2007-8
Superseded by
Rev. Proc. 2008-8, 2008-1 I.R.B.233
2007-26
Obsoleted in part by
Rev. Proc. 2008-17, 2008-10 I.R.B.549
2007-31
Obsoleted in part by
Rev. Proc. 2008-19, 2008-11 I.R.B.594
2007-39
Superseded by
Rev. Proc. 2008-3, 2008-1 I.R.B.110
2007-52
Superseded by
Rev. Proc. 2008-9, 2008-2 I.R.B.258
2008-13
Corrected by
Ann. 2008-15, 2008-9 I.R.B.511
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2007–27 through 2007–52 is in Internal Revenue Bulletin 2007–52, dated December 26,
2007.
May 27, 2008iv2008–21 I.R.B.

Revenue Rulings:
56-127
Obsoleted by
T.D. 9391, 2008-20 I.R.B.945
58-612
Clarified and amplified by
Rev. Rul. 2008-15, 2008-12 I.R.B.633
64-250
Amplified by
Rev. Rul. 2008-18, 2008-13 I.R.B.674
89-42
Modified and superseded by
Rev. Rul. 2008-17, 2008-12 I.R.B.626
92-19
Supplemented in part by
Rev. Rul. 2008-19, 2008-13 I.R.B.669
97-31
Modified and superseded by
Rev. Rul. 2008-17, 2008-12 I.R.B.626
2001-48
Modified and superseded by
Rev. Rul. 2008-17, 2008-12 I.R.B.626
2005-28
Clarified and superseded by
Rev. Rul. 2008-26, 2008-21 I.R.B.985
2007-4
Supplemented and superseded by
Rev. Rul. 2008-3, 2008-2 I.R.B.249
2008-22
Modified by
Ann. 2008-46, 2008-20 I.R.B.983
Treasury Decisions:
8697
Corrected by
Ann. 2008-38, 2008-17 I.R.B.851
9273
Corrected by
Ann. 2008-33, 2008-16 I.R.B.826
9362
Corrected by
Ann. 2008-9, 2008-7 I.R.B.444
Ann. 2008-12, 2008-7 I.R.B.446
9363
Corrected by
Ann. 2008-10, 2008-7 I.R.B.445
9368
Corrected by
Ann. 2008-29, 2008-15 I.R.B.786
Ann. 2008-30, 2008-16 I.R.B.825
9375
Corrected by
Ann. 2008-16, 2008-9 I.R.B.511
Treasury Decisions— Continued:
9386
Corrected by
Ann. 2008-35, 2008-17 I.R.B.849
2008–21 I.R.B.vMay 27, 2008

INDEX
Internal Revenue Bulletins 2008–1 through
2008–21
The abbreviation and number in parenthesis following the index entry
refer to the specific item; numbers in roman and italic type following
the parenthesis refers to the Internal Revenue Bulletin in which the item
may be found and the page number on which it appears.
Key to Abbreviations:
AnnAnnouncement
CDCourt Decision
DODelegation Order
EOExecutive Order
PLPublic Law
PTEProhibited Transaction Exemption
RPRevenue Procedure
RRRevenue Ruling
SPRStatement of Procedural Rules
TCTax Convention
TDTreasury Decision
TDOTreasury Department Order
EMPLOYEE PLANS
Alternative funding schedule, amortization (Ann 2) 3,307
Automatic contribution agreements,hearing for
REG–133300–07 (Ann 34) 17,849
Benefit restrictions for underfunded pension plans, hearing for
REG–113891–07 (Ann 4) 2,269
Claims submitted to IRS Whistleblower Office under section
7623 (Notice 4) 2,253
Defined benefit plans:
Accrued benefits (RR 7) 7,419
Measurement of assets and liabilities for pension funding pur-
poses (REG–139236–07) 9,491; hearing scheduled (Ann
42) 19,943
Defined contribution plans:
Diversification of employer securities, extension of certain
transitional rules (Notice 7) 3,276
Diversification requirements for certain defined contribu-
tion plans and to publicly traded employer securities
(REG–136701–07) 11,616
Determination letters, issuing procedures (RP 6) 1,192
Economic stimulus payments, tax-favored accounts (Ann 44) 20,
982
Full funding limitations, weighted average interest rates, seg-
ment rates for:
January 2008 (Notice 17) 4,316
February 2008 (Notice 24) 8,466
March 2008 (Notice 37) 12,654
April 2008 (Notice 45) 17,835
May 2008 (Notice 50) 21,1010
Interim standards under section 6694(a) (Notice 46) 18,868
EMPLOYEE PLANS—Cont.
Letter rulings:
And determination letters, areas which will not be issued
from:
Associates Chief Counsel and Division Counsel (TE/GE)
(RP 3) 1,110
Associate Chief Counsel (International) (RP 7) 1,229
And general information letters, procedures (RP 4) 1,121
User fees, request for letter rulings (RP 8) 1,233
Master and prototype (M&P) andvolume submitter (VS) plans,
EGTRRA opinion and advisory letters (Ann 23) 14,731
Mortality tables, disability (Notice 29) 12,637
Multiemployer plan funding guidance (REG–151135–07) 16,
815
Pension plan amendments, notice requirements, significantly re-
ducing rate of future benefit accrual (REG–110136–07) 17,
838
Performance-based compensation (RR 13) 10,518
Proposed Regulations:
26 CFR 1.401, 1.402, 1.411, 1.414, and 54.4979; automatic
contribution arrangements, hearing for REG–133300–07
(Ann 34) 17,849
26 CFR 1.401(a)(35)–1, added; diversification requirements
for certain defined contribution plans and to publicly traded
employer securities (REG–136701–07) 11,616
26 CFR 1.411(a)(13)–1, added; 1.411(b)(5)–1, added; hy-
brid retirement plans (REG–104946–07) 11,596; hearing
scheduled (Ann 47) 20,983
26 CFR 1.411(d)–3, amended; 54.4980F–1, amended; no-
tice requirements for certain pension plan amendments
significantly reducing the rate of future benefit accrual
(REG–110136–07) 17,838
26 CFR 1.430; 1.436; benefit restrictions for underfunded
pension plans, hearing for REG–113891–07 (Ann 4) 2,269
26 CFR 1.430(a)–1, (j)–1, added; 54.4971(c)–1, added;
determination of minimum required pension contributions
(REG–108508–08) 19,923
26 CFR 1.430(d)–1, added; 1.430(g)–1, added;
1.430(h)(2)–1, added; 1.430(i)–1, added; measurement
of assets and liabilities for pension funding purposes
(REG–139236–07) 9,491; hearing scheduled (Ann 42)
19,943
26 CFR 1.432(a)–1, (b)–1, added; multiemployer plan fund-
ing guidance (REG–151135–07) 16,815
Qualified retirement plans:
Determination of minimum required pension contributions
(REG–108508–08) 19,923
Distributions (Notice 30) 12,638
Hybrid retirement plans (REG–104946–07) 11,596; hearing
scheduled (Ann 47) 20,983
Stocks, statutory stock options, information reporting require-
ments (Notice 8) 3,276
Supplemental healthinsurance, HIPAA (Notice 23) 7,433
Technical advice to IRS employees (RP 5) 1,164
Transitional guidance for new funding rules and funding-related
benefits limitations under PPA ’06, uniform effective date (No-
tice 21) 7,431
May 27, 2008vi2008–21 I.R.B.

EMPLOYMENT TAX
Claims submitted to IRS Whistleblower Office under section
7623 (Notice 4) 2,253
Corporations, S corporation, status in reorganization where S
corporation becomes a QSub of newly formed holding com-
pany, assignment of EINs (RR 18) 13,674
Frivolous tax return positions (Notice 14) 4,310
Interest-free adjustments and claims for refund of employment
taxes (REG–111583–07) 4,319
Interim standards under section 6694(a) (Notice 46) 18,868
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions
(RP 1) 1,1
Proposed Regulations:
26 CFR 31.6011(a)–1, –4, –5, amended; 31.6205–1,
amended; 31.6302–0, –1, amended; 31.6402(a)–1, –2,
amended; 31.6413(a)–2, amended; 31.6414–1, amended;
interest-free adjustments and claims for refund of employ-
ment taxes (REG–111583–07) 4,319
Technical Advice Memoranda (TAMs) (RP 2) 1,90
ESTATE TAX
Claims submitted to IRS Whistleblower Office under section
7623 (Notice 4) 2,253
Election to value on alternate valuation date (REG–112196–07)
21,1021
Frivolous tax return positions (Notice 14) 4,310
Grantor’s retained power to substitute assets of equivalent value
(RR 22) 16,796; correction (Ann 46) 20,983
Interim standards under section 6694(a) (Notice 46) 18,868
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions
(RP 1) 1,1
Proposed Regulations:
26 CFR 20.2032–1, amended; gross estate, election to value
on alternate valuation date (REG–112196–07) 21,1021
26 CFR 26.2642–7, added; 301.9100–3, amended; regula-
tions under section 2642(g) (REG–147775–06) 19,916
Qualified tuition programs, applicable transfer tax provi-
sions, publication of advance notice of proposed rulemaking
(REG–127127–05) (Ann 17) 9,512
Relief under section 2642(g)(1) (REG–147775–06) 19,916
Technical Advice Memoranda (TAMs) (RP 2) 1,90
EXCISE TAX
Claims submitted to IRS Whistleblower Office under section
7623 (Notice 4) 2,253
Corporations, S corporation, status in reorganization where S
corporation becomes a QSub of newly formed holding com-
pany, assignment of EINs (RR 18) 13,674
Frivolous tax return positions (Notice 14) 4,310
Insurance excise tax treatment of premiums paid by one foreign
insurer to another (RR 15) 12,633
Interim standards under section 6694(a) (Notice 46) 18,868
EXCISE TAX—Cont.
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions
(RP 1) 1,1
Proposed Regulations:
26 CFR 1.430(a)–1, (j)–1, added; 54.4971(c)–1, added;
determination of minimum required pension contributions
(REG–108508–08) 19,923
Qualified retirement plans, determination of minimum required
pension contributions (REG–108508–08) 19,923
Regulations:
26 CFR 1.501(c)(3)–1, amended; 53.4958–2, amended; stan-
dards for recognition of tax-exempt status if private benefit
exists or if an applicable tax-exempt organization has en-
gaged in excess benefit transaction(s) (TD 9390) 18,855
Supplemental healthinsurance, HIPAA (Notice 23) 7,433
Tax-exempt status, standards for recognition if private benefit ex-
ists or if applicable tax-exemptorganization engaged in excess
benefit transaction(s) (TD 9390) 18,855
Technical Advice Memoranda (TAMs) (RP 2) 1,90
Voluntary compliance program for foreign insurers and reinsur-
ers subject to insurance excise tax imposed by section 4371
(Ann 18) 12,667
EXEMPT ORGANIZATIONS
Annual notice to donors regarding pending and settled declara-
tory judgment suits (Ann 1) 1,246
Claims submitted to IRS Whistleblower Office under section
7623 (Notice 4) 2,253
Declaratory judgment suits (Ann 48) 20,983
Forms:
990-T:
Procedures to request a 501(c)(3) organization’s Form
990-T (Ann 21) 13,691
Public inspection of Form 990-T (Notice 49) 20,979
Frivolous tax return positions (Notice 14) 4,310
Interim standards under section 6694(a) (Notice 46) 18,868
Letter rulings:
And determination letters:
Areas which will not be issued from Associates Chief
Counsel and Division Counsel (TE/GE) (RP 3) 1,110
Exemption application determination letter rulings under
sections 501 and 521 (RP 9) 2,258
And general information letters, procedures (RP 4) 1,121
User fees, request for letter rulings (RP 8) 1,233
List of organizations classifiedas private foundations (Ann 13)
8,476; (Ann 28) 14,733; (Ann 37) 17,850; (Ann 40) 19,941
Proposed Regulations:
26 CFR 1.664–1, amended; guidance under section 664
regarding the effect of unrelated business taxable income
(UBTI) on charitable remainder trusts (REG–127391–07)
13,689
2008–21 I.R.B.viiMay 27, 2008

EXEMPT ORGANIZATIONS—Cont.
Regulations:
26 CFR 1.501(c)(3)–1, amended; 53.4958–2, amended; stan-
dards for recognition of tax-exempt status if private benefit
exists or if an applicable tax-exempt organization has en-
gaged in excess benefit transaction(s) (TD 9390) 18,855
Revocations (Ann 3) 2,269;(Ann14)8,477; (Ann 20) 11,625;
(Ann 22) 13,692; (Ann 32) 16,826; (Ann 45) 20,982;(Ann
49) 21,1024
Tax-exempt status, standards for recognition if private benefit ex-
ists or if applicable tax-exemptorganization engaged in excess
benefit transaction(s) (TD 9390) 18,855
Technical advice to IRS employees (RP 5) 1,164
Transitional relief and filing procedures, charitable trust
(Notice 6) 3,275
Trusts, charitable remainder trusts, calculation of excise tax on
unrelated business taxable income (UBTI) (REG–127391–07)
13,689
GIFT TAX
Claims submitted to IRS Whistleblower Office under section
7623 (Notice 4) 2,253
Frivolous tax return positions (Notice 14) 4,310
Interim standards under section 6694(a) (Notice 46) 18,868
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions
(RP 1) 1,1
Qualified tuition programs, applicable transfer tax provi-
sions, publication of advance notice of proposed rulemaking
(REG–127127–05) (Ann 17) 9,512
Technical Advice Memoranda (TAMs) (RP 2) 1,90
INCOME TAX
Accounting methods:
Procedure for election under section 1361(g) for banks (RP
18) 10,573
Safe harbor method of accounting for payroll taxes (RP 25)
13,686
Accounts and notes receivable, section 1221(a)(4) capital asset
exclusion, REG–109367–06 withdrawn (Ann 41) 19,943
Advance Pricing Agreement (APA) Program, annual report to the
public, 2007 (Ann 27) 15,751
Allocation of section 179D deduction to designers of government
owned buildings, certification requirements for interim light-
ing rule, application of interim lighting rule to unconditioned
garage space (Notice 40) 14,725
Annual notice to donors regarding pending and settled declara-
tory judgment suits (Ann 1) 1,246
Annuity contracts, partial exchange (RP 24) 13,684
Calculating and apportioning the section 11(b)(1) additional tax
under section 1561 for controlled groups (TD 9369) 6,394;
(REG–104713–07) 6,409
Capital assets, musical compositions (TD 9379) 14,715;
(REG–153589–06) 14,730
INCOME TAX—Cont.
Capitalization of amounts paid to acquire, produce, or improve
tangible property (REG–168745–03) 18,871
Cell captive guidance:
Insurance, protected cell company (Notice 19) 5,366
Insurance, risk shifting and risk distribution (RR 8) 5,340
Certain outbound reorganizations and section 351 exchanges
(Notice 10) 3,277
Charitable contributions:
Appreciated property, Scorporation (RR 16) 11,585
Recordkeeping requirements (Notice 16) 4,315
Claims submitted to IRS Whistleblower Office under section
7623 (Notice 4) 2,253
Clarification of transitional relief under Notice 2007–54
(Notice 11) 3,279
Coal project program, special allocation round for qualifying ad-
vanced coal projects (Notice 26) 9,487
Consolidated returns:
Intercompany insurance transactions, withdrawal of a portion
of REG–107592–00 (Ann 25) 14,732
Loss disallowance (Notice 9) 3,277
Consumer Price Index (CPI) adjustments, certain loans under
section 1274A for 2008 (RR 3) 2,249
Contingent fees under Circular 230 (Notice 43) 15,748
Corporations:
Entity classification, foreign entities, per se corporations (TD
9388) 17,832; (REG–143468–07) 17,848
Health insurance costs of 2-percent shareholder-employees, S
corporation (Notice 1) 2,251
S corporations:
Charitable contributions, appreciated property (RR 16) 11,
585
Status in reorganization where S corporation becomes a
QSub of newly formed holding company, assignment of
EINs (RR 18) 13,674
Succession to items of a liquidating corporation by members
of a consolidated group (TD 9376) 11,587
Credits:
Alternative motor vehicle credit, qualified fuel cell motor ve-
hicles (Notice 33) 12,642
Energy efficient home credit, calculation of heating and cool-
ing energy consumption:
Dwelling unit (Notice 35) 12,647
Manufactured home (Notice 36) 12,650
Foreign tax credit:
Redeterminations, correction to T.D. 9362 (Ann 9) 7,444;
additional correction to TD 9362 (Ann 12) 7,446;cor-
rection to REG–209020–86 (Ann 11) 7,445
Reduction of foreign tax credit limitation categories un-
der section 904(d) (TD 9368) 6,382; corrections (Ann
29) 15,786; additional corrections (Ann 30) 16,825;
(REG–114126–07) 6,410; hearing cancellation (Ann
36) 16,827
Increasing research activities,centralized filing of certain
claims (Notice 39) 13,684
May 27, 2008viii2008–21 I.R.B.

INCOME TAX—Cont.
Low-income housing credit:
2008 population figures used for calculation (Notice 22) 8,
465
Indian Housing Block Grant (IHBG) Program (RR 6) 3,
271
Nonconventional source fuel credit, inflation adjustment
factor and phase-out amount for CY 2007 (Notice 44)
16,799
Satisfactory bond, “bond factor” amounts for the period:
January through March 2008 (RR 2) 2,247
January through June 2008 (RR 21) 15,734
Renewable electricity, refined coal, and Indian coal produc-
tion credit, 2008 inflation adjustment (Notice 48) 21,1008
Declaratory judgment suits (Ann 48) 20,983
Deductions:
Certain itemized, federal taxable income (CD 2085) 17,828
Dependency exemption, qualifying relative (Notice 5) 2,256
Depreciation, 2008 limitations on depreciation deductions for
passenger automobiles (RP 22) 12,658
Designated and related summonses, effect on period of lim-
itations on assessment whencase brought with respect to
(REG–208199–91) 21,1017
Disciplinary actions involving attorneys, certified public accoun-
tants, enrolled agents, and enrolled actuaries (Ann 5) 4,333;
announcement of new format (Ann 50) 21,1024
Disclosure of return information:
In connection with written contracts among the IRS, whistle-
blowers, and legal representatives of whistleblowers (TD
9389) 18,863; (REG–114942–07) 18,901
To the Bureau of the Census (TD 9372) 8,462; (TD 9373) 8,
463; (REG–147832–07) 8,480
Disposition of investment in United States real property (RP 27)
21,1014
Domestic production activities, Tax Increase Prevention and
Reconciliation Act of 2005 (TIPRA) amendments to section
199 (TD 9381) 14,694
Economic stimulus payments:
Filing instructions (Notice 28) 10,546
Tax-favored accounts (Ann 44) 20,982
Electronic tax administration, guidance necessary to facilitate –
updating section 7216 regulations (TD 9375) 5,344; correction
(Ann 16) 9,511
Employee leasing arrangements, reimbursement of per diem (RR
23) 18,852
Employer-provided vehicles, cents-per-mile valuation rule, max-
imum vehicle values (RP 13) 6,407;correction(Ann15)9,
511
Exclusions from gross income, update of Rev. Rul. 2001–48
(RR 17) 12,626
Exemptions, dependents, hearing on REG–149856–03 (Ann 26)
13,693
Federal tax lien:
Procedures for obtaining release or discharge (TD 9378) 14,
720
Validity and priority of federal tax lien against certain persons
(REG–141998–06) 19,911
INCOME TAX—Cont.
Foreign base company sales income rules, application
(REG–124590–07) 16,801
Foreign currency, debt characterization, exchange traded notes,
prepaid forwards (RR 1) 2,248
Forms, use of Form 13976, Itemized Statement Component of
Advisee List, section 6112 list (RP 20) 20,980
Frivolous tax return positions (Notice 14) 4,310
GO Zone bonus depreciation recapture, like-kind exchanges and
involuntary conversions (Notice 25) 9,484
Guidance Priority List, recommendations for 2008–2009 (Notice
47) 18,869
Guidance to:
Government entities regarding a requirement to withhold on
certain payments made by them (Notice 38) 13,683
Tax return preparers, consents to disclose and consents to use
tax return information in the Form 1040 series (RP 12) 5,
368
Health Savings Accounts (HSAs), employer comparable contri-
butions (TD 9393) 20,975
Income tax returns, 2007, guidance for the Service not challeng-
ing the accuracy of 2007 returns filed in compliance with No-
tice 2008–28 (RP 21) 12,657
Information reporting, donees of qualified intellectual property
contributions (TD 9392) 19,903
Insurance companies:
Application of section 338 (TD 9377) 11,578
Diversification requirements under section 817 (TD 9385) 15,
735
Loss payment patterns and discount factors for the 2007 acci-
dent year (RP 10) 3,290
Prevailing state assumed interest rate tables, 2008 (RR 19) 13,
669
Proposed AG VACARVM and Proposed Life PBR (Notice
18) 5,363
Salvage discount factors for the 2007 accident year (RP 11) 3,
301
Interest:
Deductibility, application of section 163(d) to noncorporate
limited partner that does not materially participate in a
trader partnership’s trading activity (RR 12) 10,520
Investment:
Federal short-term, mid-term, and long-term rates for:
January 2008 (RR 4) 3,272
February 2008 (RR 9) 5,342
March 2008 (RR 11) 10,541
April 2008 (RR 20) 14,716
May 2008 (RR 24) 18,861
Rates:
Underpayments and overpayments, quarter beginning:
April 1, 2008 (RR 10) 13,676
Interim standards under section 6694(a) (Notice 13) 3,282; sup-
plemental guidance (Notice 46) 18,868
Inventory, dollar-value last-in, first-out (LIFO) pooling method
for certain resellers of cars and light-duty trucks (RP 23) 12,
664
2008–21 I.R.B.ixMay 27, 2008

INCOME TAX—Cont.
Letter rulings:
And determination letters, areas which will not be issued
from:
Associates Chief Counsel and Division Counsel (TE/GE)
(RP 3) 1,110
Associate Chief Counsel (International) (RP 7) 1,229
And information letters issued by Associate Offices, determi-
nation letters issued by Operating Divisions (RP 1) 1,1
Life insurance contracts, modifications of split-dollar arrange-
ments (Notice 42) 15,747
Like–kind exchanges, safe harbor, rental property used for per-
sonal purposes (RP 16) 10,547
Listed transaction under sections 6011, 6111, and 6112 (Notice
34) 12,645
Losses, deduction for abandonedstock or securities (TD 9386)
16,788; correction (Ann 35) 17,849
Marketing of refund anticipation loans (RALs) and certain other
products in connection with thepreparation of a tax return
(Ann 7) 5,379
Medicaid rebates (RR 26) 21,985
Mortgage insurance premiums, allocation and information re-
porting for 2007 (Notice 15) 4,313
National and area median gross income figures, guidance for
2008 (RP 19) 11,594
Normalization accounting rules, application (TD 9387) 16,789
Partnerships:
Application of section 163(d) to noncorporate limited partners
in a trader partnership’s trading activity (RR 12) 10,520
Partner-level items in determining withholding tax, effec-
tively connected U.S. trade or business income allocable to
foreign partners (TD 9394) 21,988
Penalties, substantial understatement, preparer penalty (RP 14)
7,435
Performance-based compensation (RR 13) 10,518
Prepaid forward contracts, exchange traded notes (Notice 2) 2,
252
Preparer signature requirements under section 6695(b)
(Notice 12) 3,280
Presidential Primary Matching Payment Account:
Payments from (RP 15) 9,489
Timing of payments (TD 9382) 9,482; (REG–149475–07) 9,
510
Private foundations, organizations now classified as (Ann 13) 8,
476; (Ann 28) 14,733; (Ann 37) 17,850; (Ann 40) 19,941
Proposed Regulations:
26 CFR 1.152; dependent child of divorced or separated par-
ents or parents who live apart, hearing on REG–149856–03
(Ann 26) 13,693
26 CFR 1.162–3, –4, revised; 1.162–6, removed; 1.263(a)–0,
amended; 1.263(a)–1 thru –3, revised; 1.263A–1, amended;
guidance regarding deduction and capitalization of expen-
ditures related to tangible property (REG–168745–03) 18,
871
26 CFR 1.162–24, added; 301.9100–4T, amended; travel ex-
penses of state legislators (REG–119518–07) 17,844
INCOME TAX—Cont.
26 CFR 1.468A–0 thru –9, added; nuclear decommissioning
funds (REG–147290–05) 10,576; hearing scheduled (Ann
43) 19,944
26 CFR 1.664–1, amended; guidance under section 664
regarding the effect of unrelated business taxable income
(UBTI) on charitable remainder trusts (REG–127391–07)
13,689
26 CFR 1.860A, 1.860G, modifications of commercial mort-
gage loans held by a real estate mortgage investment con-
duit (REMIC), hearing for REG–127770–07 (Ann 24) 13,
692
26 CFR 1.904–0, amended; 1.904(f)–1, –2, amended;
1.904(f)–7, –8, added; 1.904(g)–0 thru –3, added;
1.1502–9, revised; treatment ofoverall foreign and domes-
tic losses (REG–141399–07) 8,470; hearing cancellation
(Ann 31) 15,787
26 CFR 1.904–2(i), added; 1.904–4, –5, revised; 1.904–7(g),
added; 1.904(f)–12(h), added; reduction of foreign
tax credit limitation categories under section 904(d)
(REG–114126–07) 6,410; hearing cancellation (Ann 36)
16,827
26 CFR 1.954–3, amended; guidance regarding foreign base
company sales income (REG–124590–07) 16,801
26 CFR 1.1221–1, amended; section 1221(a)(4) capi-
tal asset exclusion for accounts and notes receivable,
REG–109367–06 withdrawn (Ann 41) 19,943
26 CFR 1.1221–3, added; time and manner for electing cap-
ital asset treatment for certain self-created musical works
(REG–153589–06) 14,730
26 CFR 1.1502–13, amended; amendment of matching rule
for certain gains on member stock (REG–137573–07) 15,
750
26 CFR 1.1502–13(e)(2)(ii)(C), withdrawn from
REG–107592–00; consolidated returns, intercompany
obligations (Ann 25) 14,732
26 CFR 1.1561–0, –2, added; 1.1563–1, amended; calculating
and apportioning the section 11(b)(1) additional tax under
section 1561 for controlled groups (REG–104713–07) 6,
409
26 CFR 301.6103(j)(1)–1, amended; disclosure of return in-
formation to the Bureau of the Census (REG–147832–07)
8,480
26 CFR 301.6103(n)–2, added; disclosure of return informa-
tion in connection with written contracts among the IRS,
whistleblowers, and legal representatives of whistleblow-
ers (REG–114942–07) 18,901
26 CFR 301.6323(b)–1, (c)–2, (f)–1, (g)–1, (h)–1, amended;
withdrawal of regulations under old section 6323(b)(10)
(REG–141998–06) 19,911
26 CFR 301.6503(j)–1, added; suspension of running of pe-
riod of limitations during a proceeding to enforce or quash
a designated or related summons (REG–208199–91) 21,
1017
26 CFR 301.7701–2, amended; classification of certain for-
eign entities (REG–143468–07) 17,848
May 27, 2008x2008–21 I.R.B.

INCOME TAX—Cont.
26 CFR 702.9037–1, –2, revised; payments from the
Presidential Primary Matching Payment Account
(REG–149475–07) 9,510
Publications:
Update to Publication 1187, Specifications for Filing Form
1042-S, Foreign Person’s U.S. Source Income Subject
to Withholding, Electronically or Magnetically (Revised
12-2006) (Ann 6) 5,378;(Ann19)11,624
Qualified films under section 199 (TD 9384) 16,792
Qualified mortgage bonds (QMBs) and mortgage credit certifi-
cates (MCCs), average area housing purchase prices for 2008
(RP 17) 10,549
Qualified tuition programs, applicable transfer tax provi-
sions, publication of advance notice of proposed rulemaking
(REG–127127–05) (Ann 17) 9,512
Real estate mortgage investment conduit (REMIC) commercial
mortgage loan modification, hearing for REG–127770–07
(Ann 24) 13,692
Regulations:
26 CFR 1.1–1, amended; 1.170A–1, amended; 1.170A–1T,
removed; 1.861–3, –8, amended; 1.861–3T, removed;
1.871–1, amended; 1.876–1, revised; 1.876–1T, re-
moved; 1.881–1, –5, amended; 1.884–0, amended;
1.884–0T, removed; 1.901–1, amended; 1.901–1T, re-
moved; 1.931–1, revised; 1.931–1T, removed; 1.932–1,
revised; 1.932–1T, removed; 1.933–1, amended; 1.933–1T,
removed; 1.934–1, revised; 1.934–1T, removed; 1.935–1,
amended; 1.935–1T, removed; 1.937–1, amended;
1.937–2, –3, added; 1.937–2T, –3T, removed; 1.957–3,
revised; 1.957–3T, removed; 1.1402(a)–12, revised;
1.1402(a)–12T, removed; 1.6012–1, amended; 1.6038–2,
amended; 1.6038–2T, removed; 1.6046–1, amended;
1.6046–1T, removed; 301.6688–1, revised; 301.6688–1T,
removed; 301.7701(b)–1, –9, amended; 301.7701(b)–1T,
removed; source rules involving U.S. possessions and other
conforming changes (TD 9391) 20,945
26 CFR 1.46–6, amended; 1.168(i)–3, added; application of
normalization accounting rules to balances of excess de-
ferred income taxes and accumulated deferred investment
tax credits of publicutilities whose assets cease to be pub-
lic utility property (TD 9387) 16,789
26 CFR 1.165–5, amended; abandonment of stock or other
securities (TD 9386) 16,788; correction (Ann 35) 17,849
26 CFR 1.197–0, amended; 1.197–2(g)(5)(ii), revised;
1.197–2T, removed; 1.338–0, –1, –11, amended;
1.338–1T, –11T, removed; 1.338(i)–1, amended;
1.381(c)(22)–1(b)(7)(v), amended; 1.846–0, –4, amended;
1.846–2(d), revised; 602.101, amended; application of
section 338 to insurance companies (TD 9377) 11,578
26 CFR 1.199–0 thru –4, –7 thru –9, amended; 1.199–2T, –3T,
–5T, –7T, –8T, removed; 1.199–5, added; TIPRA amend-
ments to section 199 (TD 9381) 14,694
26 CFR 1.199–0, –3, –7, –8, amended; qualified films under
section 199 (TD 9384) 16,792
INCOME TAX—Cont.
26 CFR 1.367(b)–6, amended; stock transfer rules, carryover
of earnings and taxes, correction to TD 9273 (Ann 33) 16,
826
26 CFR 1.468A–0 thru –8, removed; 1.468A–0T thru –9T,
added; 602.101, amended; nuclear decommissioning funds
(TD 9374) 10,521
26 CFR 1.817–5, amended; diversification requirements for
variable annuity, endowment, and life insurance contracts
under section 817 (TD 9385) 15,735
26 CFR 1.904–0, amended; 1.904(b)–0, added; 1.904(f)–0,
–0T, –1T, –2T, –7, –7T, –8, –8T, added; 1.904(f)–1, –2,
–3, amended; 1.904(g)–0, –0T, –1, –1T, –2, –2T, –3, –3T,
added; 1.904(i)–0, added; 1.904(j)–0, added; 1.1502–9, re-
vised; 1.1502–9T, added; treatment of overall foreign and
domestic losses (TD 9371) 8,447
26 CFR 1.904–0, –2, –2T, –4, –4T, –5, –5T, –7, –7T, amended;
1.904(f)–12, –12T, amended; reduction of foreign tax credit
limitation categories under section 904(d) (TD 9368) 6,
382; corrections (Ann 29) 15,786; additional corrections
(Ann 30) 16,825
26 CFR 1.905–3T, –4T, amended;foreign tax credit, notifica-
tion of foreign tax redeterminations, correction to TD 9362
(Ann 9) 7,444
26 CFR 1.1221–3T, added; time and manner for electing cap-
ital asset treatment for certain self-created musical works
(TD 9379) 14,715
26 CFR 1.1446–0, –3, –5(c)(2), amended; 1.1446–6T, re-
moved; 1.1446–6, added; 1.1446–7, revised; 1.1464–1,
amended; 1.6071–1, revised; 1.6091–1, added; 1.6151–1,
amended; 1.6302–2, revised; 1.6414–1, amended;
301.6402–3, revised; 301.6722–1, revised; 602.101,
amended; special rules to reduce section 1446 withholding
(TD 9394) 21,988
26 CFR 1.1502–13, amended; 1.1502–13T, added; amend-
ment of matching rule for certain gains on member stock
(TD 9383) 15,738
26 CFR 1.1502–47T, added; 1.1561–0T, added; 1.1561–2, re-
moved; 1.1561–2T, amended; 1.1563–1T, amended; calcu-
lating and apportioning the section 11(b)(1) additional tax
under section 1561 for controlled groups (TD 9369) 6,394
26 CFR 1.1502–80, amended; miscellaneous operating rules
for successor persons, succession to items of the liquidating
corporation (TD 9376) 11,587
26 CFR 1.6050L–2, added; 1.6050L–2T, removed; 602.101,
amended; information returns by donees relating to quali-
fied intellectual property contributions (TD 9392) 19,903
26 CFR 54.4980G–0, –4, amended; employer comparable
contributions to Health Savings Accounts (HSAs) under
section 4980G (TD 9393) 20,975
26 CFR 300.0, amended; 300.7, .8, added; user fees relating to
enrollment to perform actuarial services (TD 9370) 7,428
26 CFR 301.6020–1, added; 301.6020–1T, removed; substi-
tute for return (TD 9380) 14,718
26 CFR 301.6103(j)(1)–1, amended; disclosure of return in-
formation to the Bureau of the Census (TD 9372) 8,462
2008–21 I.R.B.xiMay 27, 2008

INCOME TAX—Cont.
26 CFR 301.6103(j)(1)–1T, amended; disclosure of return in-
formation to the Bureau of the Census (TD 9373) 8,463
26 CFR 301.6103(n)–2T, added; disclosure of return informa-
tion in connection with written contracts among the IRS,
whistleblowers, and legal representatives of whistleblow-
ers (TD 9389) 18,863
26 CFR 301.6325–1, amended; 301.6503(f)–1, amended;
301.7426–1, amended; 401.6325–1, removed; release of
lien or discharge of property (TD 9378) 14,720
26 CFR 301.7216–0, added; 301.7216–1, –2, –3, revised;
guidance necessary to facilitate electronic tax administra-
tion, update (TD 9375) 5,344;correction(Ann16)9,511
26 CFR 301.7701–2(b)(8)(i), amended; simplification of en-
tity classification rules, correctiontoTD8697(Ann38)17,
851
26 CFR 301.7701–2(b)(8)(vi), (e)(7), added; 301.7701–2T,
added; classification of certain foreign entities (TD 9388)
17,832
26 CFR 702.9037–1, –2, amended; 702.9037–1T, –2T, added;
payments from the Presidential Primary Matching Payment
Account (TD 9382) 9,482
Reissuance standards for state or local bonds (Notice 27) 10,543;
(Notice 41) 15,742
Returns required on magnetic media, corrections to TD 9363
(Ann 10) 7,445
Revocations, exempt organizations (Ann 3) 2,269; (Ann 14) 8,
477;(Ann20)11,625; (Ann 22) 13,692; (Ann 32) 16,826;
(Ann 45) 20,982;(Ann49)21,1024
Safe harbor, guidance for the Service not challenging the accu-
racy of 2007 returns filed incompliance with Notice 2008–28
(RP 21) 12,657
Section 67 limitations on estates or trusts for bundled investment
management and advisory costs (Notice 32) 11,593
Securities, readily marketable for purposes of section
956(c)(2)(J) (RP 26) 21,1014
Simplification of entity classification rules, correction to TD
8697 (Ann 38) 17,851
Standard Industry Fare Level (SIFL) formula (RR 14) 11,578
Stocks:
Losses, deduction for abandoned stock or securities (TD
9386) 16,788; correction (Ann 35) 17,849
Qualified stock purchase (QSP), reverse subsidiary merger,
step transaction (RR 25) 21,986
Redetermination of intercompany gain as excluded from gross
income (TD 9383) 15,738; (REG–137573–07) 15,750
Statutory stock options, information reporting requirements
(Notice 8) 3,276
Stock transfer rules, carryover of earnings and taxes, correc-
tion to TD 9273 (Ann 33) 16,826
Substitute for return (TD 9380) 14,718
Tax conventions:
Exclusions from gross income, update of Rev. Rul. 2001–48
(RR 17) 12,626
Insurance excise tax treatment of premiums paid by one for-
eign insurer to another (RR 15) 12,633
INCOME TAX—Cont.
Updated tax tables for Belgium, Denmark, Finland, and Ger-
many tax conventions (Ann 8) 6,403
U.S.-Germany, guidance on MAP arbitration procedures un-
derGermanTreaty(Ann39)18,867
U.S.-Mexico income tax treaty, treatment of Mexico’s im-
puesto empresarial a tasa unica (IETU) (Notice 3) 2,253
Voluntary compliance program for foreign insurers and rein-
surers subject to insurance excise tax imposed by section
4371 (Ann 18) 12,667
Tax evasion, return-of-capital treatment (CD 2086) 19,905
Tax shelter, listed transactions (Notice 20) 6,406
Technical Advice Memoranda (TAMs) (RP 2) 1,90
Travel expenses of state legislators (REG–119518–07) 17,844
Treatment of overall foreign and domestic losses (TD 9371) 8,
447; (REG–141399–07) 8,470; hearing cancellation (Ann 31)
15,787
Trusts:
Charitable remainder trusts, calculation of excise tax on unre-
lated business taxable income (UBTI) (REG–127391–07)
13,689
Deductions for contributions to qualified nuclear decommis-
sioning trusts (TD 9374) 10,521; (REG–147290–05) 10,
576; hearing scheduled (Ann 43) 19,944
U.S. territories, American Samoa, Guam, the Northern Mariana
Islands, Puerto Rico, U.S. Virgin Islands, source of income,
filing requirements (TD 9391) 20,945
User fees relating to enrollment to perform actuarial services (TD
9370) 7,428
Voluntary closing agreement program for tax-exempt bonds and
tax credit bonds (TEB VCAP) (Notice 31) 11,592
Wash sales, individual retirement accounts, Roth IRAs (RR 5) 3,
271
Withholding of tax on disposition of United States real property
interests (RP 27) 21,1014
SELF-EMPLOYMENT TAX
Claims submitted to IRS Whistleblower Office under section
7623 (Notice 4) 2,253
Frivolous tax return positions (Notice 14) 4,310
Interim standards under section 6694(a) (Notice 46) 18,868
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions
(RP 1) 1,1
Technical Advice Memoranda (TAMs) (RP 2) 1,90
May 27, 2008xii2008–21 I.R.B.

2008–21 I.R.B.May 27, 2008

May 27, 20082008–21 I.R.B.

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