Internal Revenue Bulletin 2007-18 (PDF rendition): IRS Revenue Procedures

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
7-18
April 30, 2007
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. 2007–27, page 1099.
LIFO; price indexes; department stores.The February
2007 Bureau of Labor Statistics price indexes are accepted
for use by department stores employing the retail inventory and
last-in, first-out inventory methods for valuing inventories for tax
years ended on, or with reference to, February 28, 2007.
Rev. Rul. 2
007–28, page 1039.
Geographi
cal areas included in North American area.
This rulin
g contains an updated list of all geographical areas
included
in the North American area for purposes of section
274 of the
Code. Rev. Rul. 2003–109 superseded.
T.D. 9322, page 1100.
REG–156420–06, page 1110.
Final, temporary, and proposed regulations under section 1502
of the Code provide guidance to corporations filing consoli-
dated returns. The regulations add an anti-avoidance rule and
revise the anti-loss reimportation rule that apply following a dis-
position of stock of a subsidiary at a loss.
Notice 2007–38, page 1103.
2007 section 45K inflation adjustment factor.This notice
announces the applicable inflation adjustment factor and phase-
out amount for the nonconventional source fuel credit for the
2006 calendar year.
Rev. Pro
c. 2007–30, page 1104.
Automob
ile owners and lessees.This procedure provides
owners a
nd lessees of passenger automobiles (including trucks
and vans
) with tables detailing the limitations on depreciation
deduct
ions for passenger automobiles first placed in service
during
calendar year 2007 and the amounts to be included in
income
for passenger automobiles first leased during calendar
year 20
07.
EMPLOYEE PLANS
T.D. 9319, page 1041.
Final regulations contain amendments to the regulations under
section 415 of the Code regarding limitation on benefits and
contributions under qualified plans. The amendments provide
comprehensive guidance regarding the limitations of section
415, including updates to the regulations for numerous statu-
tory changes since regulations were last published. The reg-
ulations also make conforming changes to regulations under
sections 401(a)(9), 401(k), and 457, and make other minor
corrective changes to regulations under section 457.
TAX CONVENTIONS
Rev. Rul. 2007–28, page 1039.
Geographical areas included in North American area.
This ruling contains an updated list of all geographical areas
included in the North American area for purposes of section
274 of the Code. Rev. Rul. 2003–109 superseded.
Announcement of Declaratory Judgment Proceedings Under Section 7428 begins on page 1122.
Ann
ouncements of Disbarments and Suspensions begin on page 1111.
Finding Lists begin on page ii.
Index for January through April begins on page vi.

The IRS Mission
Provide America’s taxpayers top quality service by helping
them understand and meet their tax responsibilities and by
applying the tax law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Sec-
retary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
April 30, 20072007–18 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 274.—Disallowance
of Certain Entertainment,
etc., Expenses
26 CFR 1.274–1: Disallowance of certain entertain-
ment, etc., expenses.
Geographical areas included in
North American area.This ruling con-
tains an updated list of all geographical
areas included in the North American area
for purposes of section 274 of the Code.
Rev. Rul. 2003–109 superseded.
Rev. Rul. 2007–28
ISSUE
Section 274(h) of the Internal Revenue
Code (the “Code”) limits deductions for
expenses incurred in connection with a
convention, seminar, or similar meeting
held outside the “North American area.”
This revenue ruling contains an updated
list of all geographical areas currently in-
cluded in the North American area for pur-
poses of section 274(h).
LAW AND ANALYSIS
Section 274(h) disallows deductions
under section 162 for expenses alloca-
ble to attendance of an individual at a
convention, seminar, or similar meeting
(collectively, a “convention”) held outside
the “North American area” unless the tax-
payer demonstrates that the location of the
convention satisfies specified standards of
reasonableness.
A geographical area may be included
in the “North American area” for purposes
of section 274(h) under one of the four
provisions described below.
Section 274(h)(3)(A)
Section 274(h)(3)(A) defines the term
“North American area” as the United
States, its possessions, the Trust Territory
of the Pacific Islands, Canada, and Mex-
ico. Under section 7701(a)(9), the United
States consists of the fifty states and the
District of Columbia. The Internal Rev-
enue Service treats the following as the
possessions of the United States for this
purpose: American Samoa, Baker Island,
the Commonwealth of Puerto Rico, the
Commonwealth of the Northern Mariana
Islands, Guam, Howland Island, Jarvis
Island, Johnston Island, Kingman Reef,
the Midway Islands, Palmyra Atoll, the
United States Virgin Islands, Wake Island,
and other United States islands, cays, and
reefs not part of the fifty states or the Dis-
trict of Columbia. The jurisdictions that
formerly constituted the Trust Territory of
the Pacific Islands — the Republic of the
Marshall Islands, the Federated States of
Micronesia, and the Republic of Palau —
are now covered by the compacts with the
United States described below.
The Compact of Free Association Act of
1985
The Compact of Free Association Act
of 1985, Pub. L. No. 99–239, 99 Stat.
1770 (1986), went into effect on October
21, 1986, with respect to the Republic of
the Marshall Islands, and on November 3,
1986, with respect tothe Federated States
of Micronesia. Section 405 of Title IV of
the Compact provides that, for purposes of
section 274(h)(3)(A) of the Code, the Re-
public of the Marshall Islands and the Fed-
erated States of Micronesia are included in
the North American area.
The Compact of Free Association Between
the United States and the Republic of
Palau
The Compact of Free Association be-
tween the United States and the Republic
of Palau, Pub. L. No. 99–658, 100 Stat.
3672 (1986), went into effect on October
1, 1994. Section 225(d) of Title II of the
Compact with Palau provides that, for pur-
poses of section 274(h)(3)(A) of the Code,
Palau is included in the North American
area.
Section 274(h)(6)
Section 274(h)(6)(A) provides that the
term “North American area” includes any
“beneficiary country” if, as of the time
a convention begins: (i) there is in ef-
fect an agreement described in section
274(h)(6)(C) providing for the exchange
of information between the United States
and the beneficiary country; and (ii) there
is not in effect a finding by the Secretary
of the Treasury that the tax laws of the
beneficiary country discriminate against
conventions held in the United States.
Section 274(h)(6)(B) defines the term
“beneficiary country” as a beneficiary
country as defined in section 212(a)(1)(A)
of the Caribbean Basin Economic Re-
covery Act, Pub. L. No. 98–67, 97 Stat.
384 (1983), and Bermuda. Under section
274(h)(6)(C)(i), to constitute an agree-
ment that provides for the exchange of
information between the United States
and a beneficiary country, an agreement
generally must provide:
for the exchange of such information
(not limited to information concerning
nationals or residents of the United
States or the beneficiary country) as
may be necessary or appropriate to
carry out and enforce the tax laws of
the United States and the beneficiary
country (whether criminal or civil pro-
ceedings), including information which
may otherwise be subject to nondisclo-
sure provisions of the local law of the
beneficiary country such as provisions
respecting bank secrecy and bearer
shares.
Where an exchange of information agree-
ment between a beneficiary country
and the United States does not qualify
as an agreement described in section
274(h)(6)(C)(i) or is not in effect within
the meaning of section 274(h)(6)(A)(i),
the beneficiary country is not included as
part of the North American area under
section 274(h)(6) for purposes of deter-
mining whether deductions are allowed
for expenses incurred in connection with
a convention.
Rev. Rul. 2003–109, 2003–2 C.B. 839,
identified each of the following jurisdic-
tions as a beneficiary country for which
there was in effect an agreement with
the United States as described in section
274(h)(6)(C)(i) and for which there was
not in effect a finding by the Secretary of
the Treasury that the tax laws of the benefi-
ciary country discriminate against conven-
tions held in the United States: Antigua
and Barbuda, Barbados, Bermuda, Costa
Rica, Dominica, Dominican Republic,
2007–18 I.R.B.1039April 30, 2007

Grenada, Guyana, Honduras, Jamaica,
Saint Lucia, and Trinidad and Tobago.
It has come to the attention of the In-
ternal Revenue Service that the tax infor-
mation exchange agreement signed by the
United States and Saint Lucia on January
30, 1987, is not in effect within the mean-
ing of section 274(h)(6)(A)(i) because the
government of Saint Lucia has not en-
acted legislation to implement the agree-
ment. Accordingly, Saint Lucia is not in-
cluded in the North American area under
section 274(h)(6), subject to the transition
relief provided in the Holding below.
Since publication of Rev.Rul.
2003–109, three new qualifying agree-
ments have entered into force. First, the
“Agreement Between the Government
of the United States of America and the
Government of the Commonwealth of the
Bahamas for the Provision of Informa-
tion with Respect to Taxes and for Other
Matters” entered into force on Decem-
ber 31, 2003.SeeTreas. News Release
JS–1075 (December 31, 2003). However,
under the agreement with the Bahamas,
Article 2 (“Provision of Information with
Respect to United States Taxes”) did not
take effect with respect to requests for
information made by the United States in
connection with a civil matter until Jan-
uary 1, 2006, and Article 5 (“Convention
Tax Treatment”) similarly did not take ef-
fect until January 1, 2006. Consequently,
the Bahamas is included within the North
American area under section 274(h)(6) as
of January 1, 2006.
Second, the “Agreement Between the
United States of America and the Kingdom
of the Netherlands in Respect of Aruba for
the Exchange of Information With Respect
to Taxes” entered into force on Septem-
ber 13, 2004.SeeTreas. News Release
JS–1914 (September 14, 2004). There-
fore, Aruba is included within the North
American area under section 274(h)(6) as
of September 13, 2004.
Third, the “Agreement Between the
Government of the United States of Amer-
ica and the Government of the Kingdom of
the Netherlands in Respect of the Nether-
lands Antilles for the Exchange of Infor-
mation With Respect to Taxes” entered
into force on March 22, 2007. There-
fore, the Netherlands Antilles is included
within the North American area under
section 274(h)(6) as of March 22, 2007.
Two other beneficiary countries — the
Cayman Islands and the British Virgin Is-
lands — have entered into tax informa-
tion exchange agreements with the United
States that are not of the type described
in section 274(h)(6)(C)(i) because of cer-
tain limitations in the scope of those agree-
ments. Accordingly, the Cayman Islands
and the British Virgin Islands are not in-
cluded as part of the North American area
under section 274(h)(6).
HOLDING
For purposes of determining whether
deductions are allowed for expenses in-
curred in connection with a convention,
seminar, or similar meeting, the following
areas are included in the “North Ameri-
can area” as of the effective date of section
274(h) except as otherwise indicated:
1. The fifty states of the United States and the District of Columbia;
2. The possessions of the United States, which for this purpose are American Samoa, Baker
Island, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana
Islands, Guam, Howland Island, Jarvis Island, Johnston Island, Kingman Reef, the Midway
Islands, Palmyra Atoll, the United States Virgin Islands, Wake Island, and other United States
islands, cays, and reefs not part of the fifty states or the District of Columbia;
3. Canada;
4. Mexico;
5. The Republic of the Marshall Islands;
6. The Federated States of Micronesia;
7. The Republic of Palau;
Forexpensesincurredinattendinga
convention that began after:
8. Antigua and BarbudaFebruary 9, 2003
9. ArubaSeptember 12, 2004
10. BahamasDecember 31, 2005
11. BarbadosNovember 2, 1984
12. BermudaDecember 1, 1988
13. Costa RicaFebruary 11, 1991
14. DominicaMay 8, 1988
15. Dominican RepublicOctober 11, 1989
16. GrenadaJuly 12, 1987
April 30, 200710402007–18 I.R.B.

17. GuyanaAugust 26, 1992
18. HondurasOctober 9, 1991
19. JamaicaDecember 17, 1986
20. Netherlands AntillesMarch 21, 2007
21. Trinidad and TobagoFebruary 8, 1990
The Internal Revenue Service will treat
Saint Lucia as not included in the North
American area under section 274(h)(6)
with respect to conventions that begin af-
ter April 4, 2007, except with respect to
expenses for which the taxpayer demon-
strates a nonrefundable contractual obli-
gation existing as of April 4, 2007.
This revenue ruling will be updated as
future developments result in the inclusion
of other areas in, or the exclusion of areas
from, the North American area.
EFFECT ON OTHER DOCUMENTS
Rev. Rul. 2003–109 is superseded.
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Denen Norfleet Boyce of the Of-
fice of Associate Chief Counsel (Interna-
tional), Branch 7. For further information
regarding this revenue ruling, contact the
principal author at (202) 435–5262 (not a
toll-free call).
Section 280F.—Limitation
on Depreciation for Luxury
Automobiles; Limitation
Where Certain Property
Used for Personal Purposes
26 CFR 1.280F–7: Property leased after December
31, 1986.
This procedure provides owners and lessees of
passenger automobiles (including electric auto-
mobiles) with tables detailing the limitations on
depreciation deductions for automobiles first placed
in service during calendar year 2007 and the amounts
to be included in income for automobiles first leased
during calendar year 2007. See Rev. Proc. 2007-30,
page 1104.
Section 401.—Qualified
Pension, Profit-Sharing,
and Stock Bonus Plans
26 CFR 1.401(a)(9)–6: Required minimum distribu-
tions for defined benefit plans and annuity contracts.
26 CFR 1.401(k)–1: Certain cash or deferred ar-
rangements.
To conform to the amendments to section 415
Income Tax Regulations, Q&A–13(c)(3) of section
1.401(a)(9)–6 is amended, and section 1.401(k)–1 is
amended by adding paragraph (e)(8). See T.D. 9319,
page 1041.
Section 415.—Limitations
on Benefits and
Contributions Under
Qualified Plans
26 CFR 1.415(a)–1: General rules with respect to
limitations on benefits and contributions under qual-
ified plans.
T.D. 9319
DEPARTMENT OF
THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 11
Limitations on Benefits and
Contributions Under Qualified
Plans
AGEN
CY: Internal Revenue Service
(IRS
), Treasury.
ACTION: Final regulations and removal
of temporary regulations.
SUMMARY: This document contains fi-
nal regulations under section 415 of the
Internal Revenue Code (Code) regarding
the limitations of section 415, including
updates to the regulations for numerous
statutory changes since comprehensive fi-
nal regulations were last published under
section 415. The final regulations also
make conforming changes to regulations
under sections 401(a), 401(a)(9), 401(k),
402, 416, and 457, and make other mi-
nor corrective changes to regulations un-
der sections 401(a)(4), 414(s), 457, and
924. These regulationsaffect administra-
tors of, participants in, and beneficiaries of
qualified employer plans and certain other
retirement plans.
DATES:Effective Date:These regulations
are effective April 5, 2007.
Applicability Dates:These regula-
tions generally apply for limitation years
beginning on or after July 1, 2007.
See §§1.401(k)–1(e)(8), 1.415(a)–1(g),
1.457–6(c)(2)(i), and 1.457–12 regarding
the applicability dates of these regulations.
FOR FURTHER INFORMATION
CONTACT: Vernon S. Carter at (202)
622–6060 or Linda S. F. Marshall at (202)
622–6090 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to
the Income Tax Regulations (26 CFR Parts
1 and 11) under section 415 of the Code
relating to limitations on benefits and con-
tributions under qualified plans. In addi-
tion, this document contains conforming
amendments to the Income Tax Regula-
tions under sections 401(a) (including sec-
tion 401(a)(9)), 401(k), 402, 416, and 457,
as well as minor corrective changes to the
regulations under section 457 and changes
to other regulations under sections 401(a)
(including section 401(a)(4)), 414(s), and
924toupdatecross-references to the final
regulations under section 415.
Section 415 was added to the Code by
the Employee Retirement Income Security
Act of 1974 (88 Stat. 829), Public Law
93–406 (ERISA), and has been amended
many times since. Section 415 provides
a series of limits on benefits under qual-
ified defined benefit plans and on contri-
butions and other additions under quali-
fied defined contribution plans. See also
section 401(a)(16). Pursuant to section
2007–18 I.R.B.1041April 30, 2007

415(a)(2), the limitations of section 415
also apply to section 403(b) annuity con-
tracts and to simplified employee pensions
describedinsection408(k)(SEPs).Inad-
dition, the limitations of section 415 for
defined contribution plans apply to contri-
butions allocated to any individual medi-
cal account that is part of a pension or an-
nuity plan established pursuant to section
401(h) and to amounts attributable to med-
ical benefits allocated to an account under
a welfare benefit fund established for a key
employee pursuant to section 419A(d)(1).
Section 404(j) provides generally that,
in computing the amount of any deduction
for contributions under a qualified plan,
benefits and annual additions in excess
of the applicable limitations under section
415 are not taken into account. In addition,
in computing the applicable limits on de-
ductions for contributions to a defined ben-
efit plan, and in computing the full fund-
ing limitation, an adjustment under section
415(d)(1) is not taken into account for any
year before the year for which that adjust-
ment first takes effect.
The definition of compensation that is
used for purposes of section 415 is also
used for a number of other purposes un-
der the Code. Under section 219(b)(3),
contributions on behalf of an employee
to a plan described in section 501(c)(18)
are limited to 25 percent of compensation
as defined in section 415(c)(3). Section
404(a)(12) provides that, for various spec-
ified purposes in determining deductible
limits under section 404, the termcom-
pensationincludes amounts treated as
participant’s compensation under section
415(c)(3)(C) or (D). Pursuant to section
409(b)(3), for purposes of determining
whether employer securities are allocated
proportionately to compensation in accor-
dance with the rules of section 409(b)(1),
the amount of compensation paid to a par-
ticipant for any period is the amount of
such participant’s compensation (within
the meaning of section 415(c)(3)) for
such period. Under section 414(q)(4), for
purposes of determining whether an em-
ployee is a highly compensated employee
within the meaning of section 414(q), the
term compensation has the meaning given
such term by section 415(c)(3). Section
414(s), which defines the term compensa-
tion for purposes of certain qualification
requirements, generally provides that the
term compensation has the meaning given
such term by section 415(c)(3). Under
section 416(c)(2), allocations to partici-
pants who are non-key employees under
a top-heavy plan that is a defined contri-
bution plan are required to be at least 3
percent of the participant’s compensation
(within the meaning of section 415(c)(3)).
Pursuant to section 457(e)(5), the term
includible compensation, which is used in
limiting the amount that can be deferred
for a participant under an eligible deferred
compensation plan as defined in section
457(b), has the same meaning as the term
participant’s compensation under section
415(c)(3).
Comprehensive regulations regarding
section 415 were last issued in 1981. See
T.D. 7748, 1981–1 C.B. 259, published in
theFederal Registeron January 7, 1981
(46 FR 1687). Since then, changes to sec-
tion 415 have been made in the Economic
Recovery Tax Act of 1981, Public Law
97–34 (95 Stat. 320) (ERTA), the Tax
Equity and Fiscal Responsibility Act of
1982, Public Law 97–248 (96 Stat. 623)
(TEFRA), the Deficit Reduction Act of
1984, Public Law 98–369 (98 Stat. 494)
(DEFRA), the Tax Reform Act of 1986,
Public Law 99–514 (100 Stat. 2481)
(TRA ’86), the Technical and Miscella-
neous Revenue Act of 1988, Public Law
100–647 (102 Stat. 3342) (TAMRA), the
Uruguay Round Agreements Act of 1994,
Public Law 103–465 (108 Stat. 4809)
(GATT), the Small Business Job Protec-
tion Act of 1996, Public Law 104–188
(110 Stat. 1755) (SBJPA), the Commu-
nity Renewal Tax Relief Act of 2000,
Public Law 106–554 (114 Stat. 2763)
(CRA), the Economic Growth and Tax
Relief Reconciliation Act of 2001, Public
Law 107–16 (115 Stat. 38) (EGTRRA),
the Job Creation and Worker Assistance
Act of 2002, Public Law 107–147 (116
Stat. 21) (JCWAA), the Pension Funding
Equity Act of 2004, Public Law 108–218
(118 Stat. 596) (PFEA), the Working
Families Tax Relief Act of 2004, Public
Law 108–311 (118 Stat. 1166) (WFTRA),
the Gulf Opportunity Zone Act of 2005,
Public Law 109–135 (119 Stat. 2577)
(GOZA), and the Pension Protection Act
of 2006, Public Law 109–280 (120 Stat.
780) (PPA ’06).
Although some limited changes to the
regulations were made after 1981, most
of the statutory changes made since that
time are not reflectedin the regulations,
but in IRS notices, revenue rulings, and
other guidance of general applicability, as
follows:
•Notice 82–13, 1982–1 C.B. 360, (see
§601.601(d)(2)) provides guidance on
deductible employee contributions (in-
cluding guidance under section 415) to
reflect the addition of provisions relat-
ing to deductible employee contribu-
tions in ERTA.
•Notice 83–10, 1983–1 C.B. 536, (see
§601.601(d)(2)) provides guidance on
the changes to section 415 made by
TEFRA. The TEFRA changes were
extensive, and included reductions of
the dollar limits on annual benefits un-
der a defined benefit plan and annual
additions under a defined contribution
plan, changes to the age and form ad-
justments made in the application of
the limits under a defined benefit plan,
and rules regarding the deductibility of
contributions with respect to benefits
that exceed the applicable limitations
of section 415.
•Notice 87–21, 1987–1 C.B. 458, (see
§601.601(d)(2)) provides guidance
on the changes to section 415 made
by TRA ’86. The TRA ’86 changes
modified the rules for the indexing of
the dollar limit on annual additions
under a defined contribution plan, the
treatment of employee contributions
as annual additions, and the rules for
age adjustments under defined bene-
fit plans, and added a phase-in of the
section 415(b)(1)(A) dollar limitation
over 10 years of participation, as well
as rules permitting the limitations of
section 415 to be incorporated by ref-
erence under the terms of a plan.
•Rev. Rul. 98–1, 1998–1 C.B. 249,
(modifying and superseding Rev.
Rul. 95–29, 1995–1 C.B. 81) (see
§601.601(d)(2)) provides guidance
regarding certain form and age ad-
justments under a defined benefit plan
pursuant to changes made by GATT
(as modified under SBJPA), including
transition rules relating to those ad-
justments.
•Notice 99–44, 1999–2 C.B. 326, (see
§601.601(d)(2)) provides guidance
regarding the repeal under SBJPA of
April 30, 200710422007–18 I.R.B.

the limitation on the combination of
a defined benefit plan and a defined
contribution plan under former section
415(e).
•Notice 2001–37, 2001–1 C.B. 1340,
(see §601.601(d)(2)) provides guid-
ance regarding the inclusion of salary
reduction amounts for qualified trans-
portation fringe benefits in the defini-
tion of compensation for purposes of
section 415, as provided under CRA.
•Rev. Rul. 2001–51, 2001–2 C.B. 427,
(see §601.601(d)(2)) provides guid-
ance relating to the increases in the
limitations of section 415 for both de-
fined benefit and defined contribution
plans, which were enacted as part of
EGTRRA.
•Rev. Rul. 2001–62, 2001–2 C.B. 632,
(superseding Rev. Rul. 95–6, 1995–1
C.B. 80) (see §601.601(d)(2)) provides
mortality tables to be used to make cer-
tain form adjustments to benefits un-
der a defined benefit plan for purposes
of applying the limitations of section
415, pursuant to the requirement to use
a specified mortality table added by
GATT.
•Notice 2002–2, 2002–1 C.B. 285,
(see §601.601(d)(2)) provides guid-
ance regarding the treatment of rein-
vested employee stock ownership
plan (ESOP) dividends under section
415(c), to reflect changes made by
SBJPA.
•Rev. Rul. 2002–27, 2002–1 C.B. 925,
(see §601.601(d)(2)) provides guid-
ance pursuant to which a definition of
compensation can be used for purposes
of applying the limitations of section
415 even if that definition treats cer-
tain specified amounts that may not
be available to an employee in cash as
subject to section 125 (and therefore
included in compensation).
•Rev. Rul. 2002–45, 2002–2 C.B. 116,
(see §601.601(d)(2)) provides guid-
ance regarding the treatment of certain
payments to defined contribution plans
to restore losses resulting from actions
by a fiduciary for which there is a rea-
sonable risk of liability for breach of a
fiduciary duty (including the treatment
of those payments under section 415).
•Notice 2004–78, 2004–2 C.B. 879,
(see §601.601(d)(2)) provides guid-
ance regarding the actuarial assump-
tions that must be used for distributions
with annuity starting dates occurring
during plan years beginning in years
2004 and 2005 to determine whether
an amount payable under a defined
benefit plan in a form that is subject
to the minimum present value require-
ments of section 417(e)(3) satisfies
the requirements of section 415. This
guidance reflects changes made in
PFEA.
For copies of recently issued revenue
procedures, revenue rulings, notices, and
other guidance published in the Inter-
nal Revenue Bulletin or the Cumulative
Bulletin, please visit the IRS website at
www.irs.gov.
Some previously issued guidance has
been superseded by subsequent statutory
changes. For example, the simplified
actuarial adjustment factors formerly per-
mitted to be used to adjust certain forms
of benefit for purposes of applying the
limitations of section 415(b) pursuant to
Rev. Rul. 80–253, 1980–2 C.B. 159, (see
§601.601(d)(2)) were not permitted to be
used after statutory changes imposed the
use of specified actuarial assumptions to
make these adjustments. In addition, the
projected post-retirement adjustments to
the section 415(b)(1)(B) compensation
limit that were required to be taken into
account for purposes of sections 404 and
412 under Rev. Rul. 81–195, 1981–2
C.B. 104, (see §601.601(d)(2)) were not
required or permitted to be taken into ac-
count for those purposes following the
addition of section 404(j) in TEFRA.
The Treasury Department and the IRS
believe that a single restatement of the
section 415 rules serves the interests of
plan sponsors, third-party administrators,
plan participants, and plan beneficiaries.
On May 31, 2005, a notice of proposed
rulemaking (REG–130241–04, 2005–2
C.B. 18) was published in theFederal
Register(70 FR 31214) to issue new reg-
ulations under section 415 (the proposed
regulations). The guidance items de-
scribed in this preamble were reflected in
the proposed regulations with some mod-
ifications. In addition, the proposed reg-
ulations reflected other statutory changes
not previously addressed by guidance, and
included some other changes and clari-
fications to the 1981 regulations. To the
extent practicable, the preamble to the
proposed regulations identified and ex-
plained substantive changes from the 1981
regulations or existing guidance.
Following publication of the proposed
regulations, comments were received and
a public hearing was held on August 17,
2005. Subsequently, Notice 2005–87,
2005–2 C.B. 1097, (see §601.601(d)(2))
was issued to address certain concerns
about the effective date provisions of the
proposed regulations. After consideration
of the comments received, the proposed
regulations are adopted by this Treasury
decision, subject to a number of changes
that are summarized in the preamble.
Explanation of Provisions
Overview
These regulations reflect the numerous
statutory changes to section 415 and re-
lated provisions that have been made since
1981. Some of the statutory changes re-
flected in the regulations are as follows:
•The current statutory limitations under
sections 415(b)(1)(A) and 415(c)(1)
applicable for defined benefit and
defined contribution plans, respec-
tively, as most recently amended by
EGTRRA.
•Changes to the rules for age adjust-
ments to the applicable limitations
under defined benefit plans, under
which the dollar limitation is adjusted
for commencement before age 62 or
after age 65.
•Changes to the rules, including speci-
fication of parameters, for benefit ad-
justments under defined benefit plans.
•The phase-in of the dollar limitation
under section 415(b)(1)(A) over 10
years of participation, as added by
TRA ’86.
•The addition of the section 401(a)(17)
limitation on compensation that is per-
mitted to be taken into account in deter-
mining plan benefits, as added by TRA
’86, and the interaction of this require-
2007–18 I.R.B.1043April 30, 2007

ment with the limitations under section
415.
•Exceptions to the compensation-based
limitation under section 415(b)(1)(B)
for governmental plans and multiem-
ployer plans.
•Changes to the aggregation rules under
section 415(f) under which multiem-
ployer plans are not aggregated with
single-employer plans for purposes of
applying the compensation-based lim-
itation of section 415(b)(1)(B) to a sin-
gle-employer plan.
•The repeal under SBJPA of the section
415(e) combined limitation on partici-
pation in a defined benefit plan and a
defined contribution plan.
•The changes to section 415(c) that
were made in conjunction with the re-
peal under EGTRRA of the exclusion
allowance under section 403(b)(2).
•The current rounding and base period
rules for annual cost-of-living adjust-
ments pursuant to section 415(d), as
most recently amended in EGTRRA
and WFTRA.
•Changes to section 415(c) under which
certain types of arrangements are no
longer subject to the limitations of sec-
tion 415(c) (such as individual retire-
ment accounts other than SEPs) and
other types of arrangements have be-
come subject to the limitations of sec-
tion 415(c) (such as certain individual
medical accounts).
•The inclusion in compensation (for
purposes of section 415) of certain
salary reduction amounts not included
in gross income.
•The modification for distributions
with annuity starting dates in plan
years beginning in years 2004 and
2005 made by PFEA with respect to
the interest rate assumptions in section
415(b)(2)(E) for converting certain
forms of benefits to an actuarially
equivalent straight life annuity.
•The following modifications to section
415 that were made by PPA ’06: (i)
changes to the interest rate assump-
tions in section 415(b)(2)(E) that are
used for converting certain forms of
benefits to an equivalent straight life
annuity (section 303 of PPA ’06);
(ii) elimination of the active partici-
pation requirement in determining a
participant’s high-3 years of service
in section 415(b)(3) (section 832 of
PPA ’06); (iii) exemption from the
section 415(b)(1)(B) compensation
limit for certain benefits provided un-
der a defined benefit plan maintained
by an organization described in sec-
tion 3121(w)(3)(A) (section 867 of
PPA ’06); and (iv) expansion of the
definition of qualified participant in
section 415(b)(2)(H) to include certain
participants in a defined benefit plan
maintained by an Indian tribal govern-
ment (section 906(b) of PPA ’06).
These regulations provide specific
rules regarding when amounts received
following severance from employment
are considered compensation for pur-
poses of section 415, and when such
amounts are permitted to be deferred pur-
suant to section 401(k) or section 457(b).
These regulations generally provide that
amounts received following severance
from employment are not considered to
be compensation for purposes of section
415, but provide exceptions for certain
payments made by the later of 2
1
/2months
following severancefrom employment or
the end of the year in which the sever-
ance occurs. These regulations include
corresponding changes to the regulations
under sections 401(k) and 457 that provide
that amounts payable following severance
from employment can only be deferred
if those amounts are within these same
exceptions.
1
The rule pursuant to which
compensation received after severance
from employment is not considered com-
pensation for purposes of section 415
generally does not apply to payments to
an individual in qualified military service.
The rules governing amounts received
following severance from employment are
discussed in this preamble in more detail
under the paragraph heading “Definition
of compensation (§1.415(c)–2).”
Provisions of the Regulations
General rules (§1.415(a)–1)
Section 1.415(a)–1 of these regulations
sets forth general rules relating to limita-
tions under section 415 and provides an
overview of the remaining regulations,
including cross-references to special rules
that apply to section 403(b) annuities,
multiemployer plans, governmental plans,
and plans that are not subject to the re-
quirements of section 411. In addition,
§1.415(a)–1 provides rules for a plan’s
incorporation by reference of the rules of
section 415 pursuant to section 1106(h)
of TRA ’86 (including detailed guidelines
regarding incorporation by reference of
the annual cost-of-living adjustments to
the statutory limits and the application of
default rules), rules for plans maintained
by more than one employer, a definition of
the term “severance from employment,”
and rules that apply in other special situa-
tions. Section 1.415(a)–1 generally retains
the rules set forth in the proposed regula-
tions.
The proposed regulations eliminated
the rule under the 1981 regulations under
which a multiemployer plan could satisfy
the limitations of section 415 separately
with respect to benefits or contributions
from each employer. Thus, the proposed
regulations required the benefits or annual
additions with respect to a participant un-
der a multiemployer plan to satisfy the
limitations of section 415 on an aggregate
basis. Some commentators asked that the
rule from the 1981 regulations be retained.
The IRS and the Treasury Department
have determined that there is no statutory
basis for permitting disaggregation of a
multiemployer plan for this purpose. Fur-
thermore, statutory changes made since
the issuance of the 1981 regulations have
made this permissive disaggregation rule
from the 1981 regulations less needed
and more conducive to significant abuses.
In EGTRRA (and as made permanent in
PPA ’06), multiemployer plans were ex-
empted from the limitation for defined
benefit plans based on high-3 average
compensation. This change eliminated the
need for multiemployer plans to obtain
compensation information with respect to
each participant from multiple participat-
1
The proposed regulations also contained corresponding changes to regulations under section 403(b) with respect to amounts payable following severance from employment. These changes
will be incorporated into regulations under section 403(b) when those regulations are finalized.
April 30, 200710442007–18 I.R.B.

ing employers. In TRA ’86, the phase-in
period for the dollar limitation for defined
benefit plans was changed from 10 years
of service to 10 years of plan participation.
As a result of this change, the permis-
sive disaggregation rule from the 1981
regulations allows for the multiplication
of section 415 limits within a multiem-
ployer plan that could not be otherwise
achieved by simply establishing separate
single employer plans. Accordingly, these
final regulations retain the rule from the
proposed regulations that does not allow
disaggregation of a multiemployer plan.
In this regard, see the discussion under the
paragraph heading “Definition of com-
pensation (§1.415(c)–2)” for a rule that
treats all employers contributing to a mul-
tiemployer plan as a single employer for
purposes of the restriction on the recogni-
tion of compensation paid after severance
from employment with an employer.
Section 1.415(a)–1(d)(3)(v) provides
rules regarding a plan’s incorporation by
reference of cost-of-living increases in the
applicable limitations pursuant to section
415(d), including default rules that apply
in the absence of contrary plan provisions.
In providing rules for incorporation by ref-
erence, the proposed regulations provided
that annual increases in the applicable lim-
itations pursuant to section 415(d) do not
apply in limitation years beginning after
the annuity starting date to a participant
who has previously commenced receiving
benefits unless the plan specifies that this
annual increase applies to such a partici-
pant.
One commentator pointed out that
this provision in the proposed regulations
modified the default treatment under the
1981 regulations (which provide that ad-
justments to the applicable limitations
are not made after a participant’s sep-
aration from service unless the plan so
provides). In response to this comment,
the final regulations retain the rule from
the 1981 regulations under which the
section 415(d) annual increases in the
applicable limitations do not apply with
respect to a participant for increases that
become effective after the participant’s
severance from employment with the em-
ployer maintaining the plan (or, if earlier,
after the annuity starting date in the case
of a participant who has commenced re-
ceiving benefits) unless the plan specifies
that this annual increase applies to such a
participant. Thus, annual increases in the
applicable limitations apply to a partici-
pant who has severed from employment
with the employer maintaining the plan
or who has commenced receiving benefits
only if the plan specifies that those annual
increases apply to such a participant.
Limitations applicable to defined benefit
plans (§ 1.415(b)–1)
Section 1.415(b)–1 of these regulations
sets forth rules for applying the limitations
on benefits under a defined benefit plan.
Under these limitations, the annual bene-
fit must not exceed the lesser of $160,000
(as adjusted pursuant to section 415(d))
and 100 percent of the participant’s aver-
age compensation for the period of the par-
ticipant’s high-3 years of service. These
regulations generally define the period of
a participant’s high-3 years of service as
the period of 3 consecutive calendar years
during which the employee had the great-
est aggregate compensation from the em-
ployer. A retirement benefit payable in a
form other than a straight life annuity is ad-
justed to an actuariallyequivalent straight
life annuity to determine the annual bene-
fit payable under that form of distribution.
In addition, the $160,000 dollar limitation
under section 415(b)(1)(A) is actuarially
adjusted for benefit payments that com-
mence before age 62 or after age 65. Sec-
tion 1.415(b)–1 generally retains the rules
set forth in the proposed regulations except
as indicated below.
The proposed regulations provided that,
in addition to applying to benefits payable
to participants and beneficiaries, the limi-
tations of section 415(b) apply to accrued
benefits (regardless of whether the benefit
is vested) and benefits payable from an an-
nuity contract distributed to a participant.
Some commentators argued that it is inap-
propriate to apply the limitations of section
415(b) to a participant’s accrued benefit in
the case of a plan that is not subject to the
requirements of section 411, since such a
plan sometimes does not define an accrued
benefit and benefits under such a plan can
always be reduced if needed so that pay-
ments under the plan will satisfy the lim-
itations of section 415. In response, these
regulations provide that the rule applying
section 415(b) to limit a participant’s ac-
crued benefit applies only to a plan that is
subject to the requirements of section 411.
However, a plan that is not subject to the
requirements of section 411 is still subject
to the requirements of section 415(b) with
respect to the annual benefit payable to a
participant at any time under the plan. As
indicated in the preamble to the proposed
regulations, where a participant’s accrued
benefit is computed pursuant to the frac-
tional rule of section 411(b)(1)(C), the lim-
itations of section 415(b) apply to the ac-
crued benefit as of the end of the limitation
year and, for ages prior to normal retire-
ment age, are not required to be applied to
the projected annual benefit commencing
at normal retirement age from which the
accrued benefit is computed.
A. Actuarial assumptions used to convert
benefit to a straight life annuity
Pursuant to section 415(b)(2)(B)
(which provides for benefits paid in a form
other than a straight life annuity to be ad-
justed to an actuarially equivalent straight
life annuity in accordance with Treasury
regulations), these regulations provide
rules under which a retirement benefit
payable in any form other than a straight
life annuity is converted to the straight
life annuity that is actuarially equivalent
to that other form to determine the an-
nualbenefit(whichisusedtodemonstrate
compliance with section 415) with respect
to that form of distribution. These rules
reflect statutory changes that specify the
actuarial assumptions that are to be used
for these equivalency calculations as well
as published guidance that has been is-
sued since the prior final regulations were
published in 1981. The statutory changes
reflected in these rules include, for plan
years beginning in years 2004 and 2005,
the use of a 5.5 percent interest rate for
benefits that are subject to the present
value rules of section 417(e)(3),
2
as set
forth in PFEA, as well as the modifica-
2
Section 417(e)(3) provides minimum present value requirements for certain forms of benefit payable from a defined benefit plan under which paymentscannot be less than the amount
calculated using a specified interest rate and a specified mortality table. For forms of benefit that are subjectto the minimum present value rules ofsection 417(e)(3), the limitations of
section 415(b) apply to limit the amount of a distribution even if those limitations result in a lower distribution than would otherwise be required under the rules of section 417(e)(3). See
§1.417(e)–1(d)(1).
2007–18 I.R.B.1045April 30, 2007

tions under section 303 of PPA ’06 to the
equivalency calculations for benefits that
are subject to the present value rules of
section 417(e)(3) (which are applicable to
distributions with annuity starting dates in
plan years beginning after December 31,
2005). In addition to setting forth rules
for adjusting forms of benefit other than
straight life annuities, these regulations
permit the IRS to issue published guid-
ance setting forth simplified methods for
making these adjustments.
Under these regulations, the annual
benefit is determined as the greater of the
actuarially equivalent straight life annu-
ity determined under the plan’s actuarial
assumptions or the actuarially equivalent
straight life annuity determined under ac-
tuarial assumptions specified by statute.
This methodology implements the policy
reflected in section415(b)(2)(E), un-
der which the plan’s determination that
a straight life annuity and a particular
optional form of benefit are actuarially
equivalent is overridden only when the
optional form of benefit under the plan
is more valuable than the corresponding
straight life annuity when the two forms
are compared using the statutorily speci-
fied actuarial assumptions.
The rules in these regulations under
which a retirement benefit payable in any
form other than a straight life annuity is
converted to a straight life annuity to de-
termine the annual benefit with respect to
that form of distribution generally follow
the rules set forth in Rev. Rul. 98–1.
However, the calculation of the actuarially
equivalent straight life annuity determined
using the plan’s assumptions for actuar-
ial equivalence has been simplified for a
form of benefit that is not subject to the
minimum present value rules of section
417(e)(3). Under the simplified calcu-
lation, instead of first determining the
actuarial assumptions used under the plan
and then applying those assumptions to
convert an optional form of benefit to an
actuarially equivalent straight life annuity,
the regulations use the straight life annu-
ity, if any, that is payable at the same age
under the plan. This straight life annuity is
then compared to the straight life annuity
that is the actuarial equivalent of the op-
tional form of benefit (determined using
the standardized assumptions), and the
larger of the two straight life annuities is
used for purposes of demonstrating com-
pliance with section 415.
This simplification has not been ex-
tended to forms of benefit that are subject
to the minimum present value rules of
section 417(e)(3), however, because under
a plan those forms of benefit are often
determined as the actuarial equivalent
of the deferred annuity, rather than as
the actuarial equivalent of the immediate
straight life annuity. Instead, for a benefit
paid in a form to which section 417(e)(3)
applies, pursuant to section 415(b)(2)(E),
the actuarially equivalent straight life an-
nuity benefit generally is determined as
the greatest of three annual amounts. The
first is the annual amount of the straight
life annuity commencing at the annuity
starting date that has the same actuarial
present value as the particular form of ben-
efit payable, computed using the interest
rate and mortality table, or tabular factor,
specified in the plan for actuarial equiv-
alence. The second is the annual amount
of the straight life annuity commencing
at the annuity starting date that has the
same actuarial present value as the par-
ticular form of benefit payable, computed
using a 5.5 percent interest assumption
and the applicable mortality table for the
distribution under §1.417(e)–1(d)(2). The
third is the annual amount of the straight
life annuity commencing at the annuity
starting date that has the same actuarial
present value as the particular form of
benefit payable (computed using the ap-
plicable interest rate for the distribution
under §1.417(e)–1(d)(3) and the appli-
cable mortality table for the distribution
under §1.417(e)–1(d)(2)), divided by 1.05.
This rule reflects the amendment of sec-
tion 415(b)(2)(E) by section 303 of PPA
’06.
One commentator asked whether the
rules regarding adjustments for forms
of benefit that are subject to the mini-
mum present value standards of section
417(e)(3) apply to plans that are not sub-
ject to the requirements of section 417.
Section 415(b)(2)(E) applies based on the
form of the benefit, and not the status of
the plan, and therefore the final regulations
provide that these rules also apply to plans
that are not subject to the requirements of
section 417.
Some commentators expressed concern
that the examples illustrating the rules for
actuarial adjustments converted optional
forms of benefit into straight life annu-
ities payable monthly, and they noted that
had the conversion been to a straight life
annuity payable on the first day of each
year, the straight life annuity would have
been smaller and therefore a greater bene-
fit would have been permissible under sec-
tion 415(b). Under section 415(b)(2)(B),
the Secretary is delegated authority to pre-
scribe regulations for adjusting a benefit
so that it is equivalent to a benefit payable
annually in the form of a straight life an-
nuity. These regulations provide that if a
benefit is payable in the form of a straight
life annuity, no adjustment is made to ac-
count for differences in the timing of pay-
ments during a year (for example, no ad-
justment is made on account of the annuity
being payable in annual or monthly install-
ments). Thus, if the section 415(b) dol-
lar limit for a limitation year is $180,000,
a plan is not permitted to provide for 12
monthly payments of $15,583, which is ac-
tuarially equivalentto an annual benefit of
$180,000 payable on the first day of the
year. With respect to a benefit payable in a
form other than a straight life annuity, the
annual benefit is determined as the straight
life annuity payable on the first day of each
month that is actuarially equivalent to the
benefit payable in such other form.
Some commentators expressed con-
cerns regarding the application of these
actuarial adjustments in the case of an-
nuity forms of benefitthat are increased
automatically each year pursuant to plan
terms. Commentators argued that, in test-
ing such a form of benefit for compliance
with section 415, increases to the section
415(b) limits pursuant to section 415(d)
should be taken into account. Thus, com-
mentators asserted that a form of benefit
with an automatic increase feature should
satisfy section 415(b) so long as payments
made pursuant to the benefit during each
limitation year are less than the section
415(b) limit in effect for the limitation
year.
In response to these comments, these
final regulations provide that, for a form
of benefit that is not subject to the re-
quirements of section 417(e)(3), no adjust-
ments are made to reflect these automatic
increases if certain requirements are sat-
isfied. Specifically, the form of benefit
without regard to the automatic increase
feature must satisfy the requirements of
section 415(b), and the plan must provide
April 30, 200710462007–18 I.R.B.

that in no event will the amount payable
to a participant under the form of benefit
in any limitation year be greater than the
section 415(b) limit applicable at the an-
nuity starting date, as increased in subse-
quent years pursuant to section 415(d). If
these requirements are not satisfied, the an-
nual benefit with respect to a benefit that is
subject to automatic increases must reflect
the value of these automatic increases un-
der the rules described above.
B. Inclusion of social security supplements
in annual benefit
As under the proposed regulations,
these regulations clarify that a social
security supplement is included in deter-
mining the annual benefit. Under section
415(b)(2)(B), the annual benefit does not
include ancillary benefits that are not di-
rectly related to retirement benefits. How-
ever, because a social security supplement
is payable upon retirement as a form of
retirement income, it is a retirement ben-
efit. Thus, a social security supplement is
included in determining the annual benefit
without regard to whether it is an ancillary
benefit or a qualified social security sup-
plement (QSUPP) within the meaning of
§1.401(a)(4)–12.
C. Determination of high-3 average
compensation
The proposed regulations contained
two new provisions that would have had
a significant effect on the determination
of a participant’s average compensation
for the participant’s high-3 consecutive
years. The first provision changed a rule
in the 1981 final regulations by restricting
the compensation used for this purpose
to compensation earned in periods dur-
ing which the participant was an active
participant in the plan. Pursuant to the
amendment of section 415(b)(3) made by
section 832 of PPA ’06 (which eliminated
the active participation requirement for
purposes of determining average compen-
sation for years beginning after December
31, 2005), this change has not been incor-
porated into the final regulations.
The second provision in the proposed
regulations clarified the interaction of the
requirements of section 401(a)(17) and the
definition of compensation that must be
used for purposes of determining a partici-
pant’s average compensation for the par-
ticipant’s high-3 consecutive years. Be-
cause a plan is not permitted to base bene-
fits on compensation in excess of the lim-
itation under section 401(a)(17), a plan’s
definition of compensation used for pur-
poses of applying the limitations of section
415 is not permitted to reflect compensa-
tion in excess of the limitation under sec-
tion 401(a)(17). Thus, for example, where
a participant commences receiving bene-
fits in 2006 at age 75 (so that the age-ad-
justed dollar limitation could be as high as
$390,953, depending on plan provisions),
and the participant had compensation in
excess of the applicable section 401(a)(17)
limit for years 2003, 2004, and 2005, the
participant’s benefit under the plan is lim-
ited by the average compensation for his
highest three years as limited by section
401(a)(17), which is $205,000 (the aver-
age of $200,000, $205,000, and $210,000).
Commentators objected to this second
provision. These regulations retain this
provision from the proposed regulations
because the IRS and the Treasury De-
partment believe that this interpretation
is based on the best reading of applicable
statutory requirements. However, these
regulations include a grandfather provi-
sion under which a defined benefit plan
is considered to satisfy the limitations of
section 415(b) for a participant with re-
spect to benefits accrued or payable under
the plan as of the end of the limitation year
that is immediately prior to the effective
date of these final regulations for the plan
pursuant to plan provisions (including plan
provisions relating to the plan’s limitation
year) that were both adopted and in ef-
fect before April 5, 2007, but only if such
plan provisions meet the requirements
of statutory provisions, regulations, and
other published guidance relating to sec-
tion 415 in effect immediately before the
effective date of these final regulations.
In determining whether plan provisions
meet the requirements of statutory pro-
visions, regulations, and other published
guidance relating to section 415 in effect
immediately before the effective date of
these final regulations, plan provisions
are permitted to reflect compensation in
excess of the section 401(a)(17) limit, and
the benefits based on such compensation
are eligible for the grandfather rules.
These regulations set forth rules for
computing the limitation of section
415(b)(1)(B) of 100 percent of the par-
ticipant’s average compensation for the
period of the participant’s high-3 years of
service for a participant who is employed
with the employer for less than 3 consecu-
tive calendar years. For such a participant,
the period of the participant’s high-3 years
of service is the actual number of consecu-
tive years of service (including fractions of
years, but not less than one year). In such a
case, the limitation of section 415(b)(1)(B)
of 100 percent of the participant’s aver-
age compensation for the period of the
participant’s high-3 years of service is
computed by averaging the participant’s
compensation during the participant’s
longest consecutive period of service over
the actual period of service (including
fractions of years, but not less than one
year). In a change from the proposed reg-
ulations, these regulations provide that,
in the case of a participant who has had
a severance from employment with the
employer maintaining the plan and who
is subsequently rehired by that employer,
the period of the participant’s high-3 years
of service is calculated by excluding any
years for which the participant performs
no services for and receives no compen-
sation from the employer maintaining the
plan (the break period), and by treating the
year of service immediately prior to and
the year of service immediately after the
break period as if the years were consec-
utive.
These regulations also modify the pro-
posed regulations by providing a rule that
applies in the case of an employee who
is rehired after severing employment. If
the plan provides for the adjustment of a
participant’s compensation limit in accor-
dance with section 415(d) for limitation
years following the limitation year in
which the employee severs employment,
the rehired employee’s compensation
limit under section 415(b) is the greater
of 100 percent of the participant’s aver-
age compensation for the period of the
participant’s high-3 years of service, as
determined prior to the employee’s sev-
erance from employment and as adjusted
pursuant to section 415(d), or 100 percent
of the participant’s average compensation
for the period of the participant’s high-3
years of service, taking into account ser-
vice both before and after rehire. This rule
was added because a participant’s com-
pensation limit should not be lower than
2007–18 I.R.B.1047April 30, 2007

it would otherwise be merely because the
participant in rehired.
D. Treatment of benefits paid partially in
the form of a QJSA
Under section 415(b)(2)(B), the sur-
vivor annuity portion of any joint and
survivor annuity that constitutes a quali-
fied joint and survivor annuity (QJSA), as
definedinsection417(b),isnottakeninto
account in determining the annual benefit
for purposes of applying the limitations
of section 415(b). As under the proposed
regulations, these regulations clarify how
this exception from the limitations of sec-
tion 415 for the survivor annuity portion of
a QJSA applies to benefits paid partially
in the form of a QJSA and partially in
some other form. Under this clarification,
the rule excluding the survivor portion of
a QJSA from the annual benefit applies to
the survivor annuity payments under the
portion of a benefit that is paid in the form
of a QJSA, even if another portion of the
benefitispaidinsomeotherform.
E. Dollar limitation applicable to early or
late commencement
The determination of the age-adjusted
dollar limitation under these regulations
reflects the rules enacted in EGTRRA.
As provided in Q&A–3 of Rev. Rul.
2001–51, this determination generally fol-
lows the same steps and procedures as
those used in Rev. Rul. 98–1, except that
such determination takes into account the
increased defined benefit dollar limitation
enacted by EGTRRA and the adjustments
for early or late commencement are no
longer based on social security retirement
age. Applying rules that are similar to
those that are used for determining actuar-
ial equivalence among forms of benefits,
these regulations generally use the plan’s
determinations for actuarial equivalence
of early or late retirement benefits, but
override those determinations where the
use of the specified statutory assumptions
results in a lower limit. This methodology
is retained from the proposed regulations
because the IRS and the Treasury De-
partment believe that generally a plan’s
actuarial equivalence for section 415 pur-
poses should be the same as actuarial
equivalence for other purposes and be-
cause of the need to have an administrable
rule when a plan uses factors that are not
explicitly based on an interest rate and
mortality table.
Some commentators expressed concern
that these rules effectively result in no in-
crease to the dollar limitation where a plan
that is not subject to the requirements of
section 411 does not increase the partic-
ipant’s benefit to reflect a delay in com-
mencement beyond age 65. No change has
been made to address this concern because
the IRS and the Treasury Department be-
lieve it is not appropriate to increase the
dollar limitation for commencement after
age 65 where, under the plan terms, there
is no increase to the participant’s benefit
on account of delayed commencement (so
that any increase in a participant’s benefit
is solely on account of additional service or
compensation). In response to other com-
mentator concerns, these regulations pro-
vide that an actuarial increase to a partici-
pant’s benefit for commencement after age
65 is taken into account for this purpose
even if the actuarial increase offsets addi-
tional benefit accruals under the plan.
These regulations adopt rules for mor-
tality adjustments used in computing the
dollar limitation on a participant’s annual
benefit for distributions commencing be-
fore age 62 or after age 65 that are gener-
ally consistent with Notice 83–10 and No-
tice 87–21. Under these rules, to the ex-
tent that a forfeiture does not occur upon
the participant’s death before the annuity
starting date, generally no adjustment is
made to reflect the probability of the par-
ticipant’s death during the relevant time
period (which is the period before age 62
or after age 65), and to the extent a for-
feiture occurs upon the participant’s death
before the annuity starting date, an adjust-
ment must be applied to reflect the proba-
bility of the participant’s death during the
relevant time period.
These regulations also provide a sim-
plified method for applying these mortal-
ity adjustment rules. Under this simpli-
fied method, a plan is permitted to treat
no forfeiture as occurring upon a partic-
ipant’s death if the plan does not charge
participants for providing a qualified pre-
retirement survivor annuity, but only if the
plan applies this treatment for adjustments
that apply both before age 62 and after age
65. This simplified method eliminates the
need to determine the extent of a forfeiture
upon death in the case where a plan pro-
vides for a qualified preretirement survivor
annuity.
One commentator asked whether, for
purposes of adjusting the dollar limit for
commencement prior to age 62, a plan is
permitted to make a mortality adjustment
for ages below age 62, even if the plan does
not provide for a forfeiture upon the par-
ticipant’s death before the annuity starting
date where it is before age 62. Recogniz-
ing that mortality adjustments would result
in a lower limit in such a case, these reg-
ulations permit such an adjustment to be
made if the plan so provides.
Some commentators expressed concern
that the application of the rules that ad-
just the section 415(b)(1)(A) dollar limit
for pre-age 62 benefit commencement as
set forth in the proposed regulations could
result in the limit decreasing as a partici-
pant ages under certain circumstances. To
address this concern, these regulations pro-
vide that, notwithstanding the generally
applicable rules for age adjustments to the
dollar limitation, the age-adjusted section
415(b)(1)(A) dollar limit does not decrease
on account of an increase in age or the per-
formance of additional service.
F. Nonapplication of adjustment to dollar
limitation for early commencement with
respect to police department and fire
department employees
Consistent with section 415(b)(2)(G)
and (H), as amended by section 906(b) of
PPA ’06, these regulations provide that
the early retirement reduction does not
apply to certain participants in plans of
state, Indian tribal government, and local
government units who are employees of
a police department or fire department,
or former members of the Armed Forces
of the United States. This rule applies to
any participant in a plan maintained by a
state, Indian tribalgovernment, or polit-
ical subdivision thereof who is credited,
for benefit accrual purposes, with at least
15 years of service as either (1) a full-time
employee of any police department or
fire department of the state, Indian tribal
government, or political subdivision that
provides police protection, firefighting
services, or emergency medical services,
or (2) a member of the Armed Forces
of the United States. These regulations
clarify that the application of this rule
depends on whether the employer is a po-
April 30, 200710482007–18 I.R.B.

lice department or fire department of the
state, Indian tribal government, or political
subdivision, rather than on the job classifi-
cation of the individual participant. Also,
this rule applies based on the function of
an organization rather than based on the
name of the organization.
G. Application of $10,000 exception
Pursuant to section 415(b)(4), the ben-
efits payable with respect to a participant
under a defined benefit plan satisfy the
limitations of section 415(b) if the retire-
ment benefits payable with respect to such
a participant under the plan and all other
defined benefit plans of the employer do
not exceed $10,000 for the plan year or
for any prior plan year, and the employer
has not at any time maintained a defined
contribution plan in which the participant
participated. As under the proposed reg-
ulations, these regulations clarify that the
alternative $10,000 limitation under sec-
tion 415(b)(4) is applied to actual distri-
butions made during each year. Thus, a
distribution for a limitation year that ex-
ceeds $10,000 is not within the section
415(b)(4) alternative limitation (and there-
fore will not be excepted from the other-
wise applicable limits of section 415(b)),
even if the distribution is a single-sum dis-
tribution that is the actuarial equivalent of
an accrued benefit with annual payments
that are less than $10,000.
H. Exclusion of annual benefit attributable
to mandatory employee contributions
from annual benefit
These regulations retain the rules from
the 1981 regulations that the annual ben-
efit does not include the annual benefit
attributable to mandatory employee con-
tributions. For this purpose, the term
mandatory employee contributionsmeans
amounts contributed to the plan by the
employee that are required as a condition
of employment, as a condition of partic-
ipation in the plan, or as a condition of
obtaining benefits (or additional benefits)
under the plan attributable to employer
contributions. See section 411(c)(2)(C).
Employee contributions to a defined ben-
efit plan that are not maintained in a
separate account as described in section
414(k) constitute mandatory employee
contributions (even if an employee can
elect whether to make the contributions,
and even if section 411 does not apply
to the plan) because, depending upon the
investment performance of plan assets,
employer contributions may be needed to
pay the portion of the participant’s benefit
that is conditioned upon these employee
contributions. Any other employee contri-
butions (plus earnings thereon) are treated
as a separate defined contribution plan
rather than as part of a defined benefit
plan.
These regulations retain the rule from
the 1981 regulations that the annual ben-
efit attributable to mandatory employee
contributions is determined under the
rules of section 411(c) and regulations
promulgated under section 411, regard-
less of whether section 411 applies to the
plan. These regulations also clarify that
the following are not treated as employee
contributions: (1) contributions that are
picked up by a governmental employer as
provided under section 414(h)(2), (2) re-
payment of any loan made to a participant
from the plan, and (3) repayment of any
amount that was previously distributed.
One commentator asked how to determine
the annual benefit attributable to manda-
tory employee contributions under section
411(c) in the case of a plan that is not sub-
ject to the requirements of section 411 and
417, and suggested the use of the plan’s
factors for this purpose. This suggestion
was not incorporated into these final reg-
ulations because the amount payable with
respect to employee contributions that is
in excess of the amount that would be
payable with respect to such contributions
using the rules of section 411(c) is effec-
tively a subsidy that should be included in
determining the participant’s annual ben-
efit under the plan. These regulations also
provide that, for purposes of determining
the accumulated contributions described
in section 411(c)(2)(C), where the plan is
not subject to the requirements of section
411, the plan must determine what would
have been the applicable effective date of
section 411(a)(2) as if section 411 applied
to the plan, and in determining the an-
nual benefit that is actuarially equivalent
to these accumulated contributions, the
plan must determine the interest rate that
would have been required under section
417(e)(3) as if section 417 applied to the
plan.
Another commentator asked why the
repayment of an employee contribution is
not treated as an employee contribution
under this rule. No change to the regula-
tions has been made to reflect this concern
because, while the repayment is not treated
as an employee contribution for purposes
of section 415, the original employee con-
tribution is still considered an employee
contribution for this purpose.
I. Exclusion of annual benefit attributable
to rollover contributions from annual
benefit
These regulations clarify that the annual
benefit does not include the annual ben-
efit attributable to rollover contributions
made to a defined benefit plan (that is,
rollover contributions that are not main-
tained in a separate account that is treated
as a separate definedcontribution plan un-
der section 414(k)). In such a case, the
annual benefit attributable to rollover con-
tributions is determined by applying the
rules of section 411(c) and treating the
rollover contributions as employee con-
tributions (regardless of whether sections
411 and 417 apply to the plan). This
will occur, for example, if a distribution
is rolled over from a defined contribution
plan to a defined benefit plan to provide an
annuity distribution. Thus, in the case of
rollover contributions from a defined con-
tributionplantoadefinedbenefitplanto
provide an annuity distribution, the annual
benefit attributable to those rollover con-
tributions for purposes of section 415 is de-
termined by applying the rules of section
411(c), regardless of the assumptions used
to compute the annuity distribution under
the plan. Accordingly, in such a case, if the
plan credits higher interest or uses more
favorable factors than those specified in
section 411(c) to determine the amount of
annuity payments arising from a rollover
contribution, the annual benefit under the
plan reflects the excess of those annuity
payments over the amounts that would be
payable using the rules of section 411(c)
because such excess is effectively a sub-
sidywhichisincludedindeterminingthe
participant’s annual benefit under the plan.
These final regulations clarify that the
rule that excludes the annual benefit at-
tributable to rollover contributions applies
to rollover contributions from an eligi-
ble retirement plan, as defined in section
402(c)(8)(B). Thus, the rule applicable to
2007–18 I.R.B.1049April 30, 2007

rollovers is not limited solely to rollovers
from qualified plans.
Rollover contributions to an account
that is treated as a separate defined con-
tribution plan under section 414(k) do not
give rise to an annual benefit because the
separate account is not treated as a defined
benefit plan under section 415(b). Further-
more, under the rules relating to defined
contribution plans, these rollover contri-
butions to a separate account are excluded
from the definition of annual additions to
a defined contribution plan.
J. Treatment of benefits transferred among
plans and terminated plans
These regulations generally retain the
provisions in the proposed regulations
that modify the rules of the 1981 final
regulations for determining the amount
of transferred benefits that are excluded
from the annual benefit under a defined
benefit plan in the event of a transfer from
another defined benefit plan. These mod-
ifications to the 1981 final regulations are
designed to ensure that transferred bene-
fits are not counted more than once when
the transferor plan and the transferee plan
are aggregated under section 415(f) and
§1.415(f)–1, and to prevent the circum-
vention of the limitations of section 415(b)
through benefit transfers to plans of un-
related employers. The rules of section
415(b) that apply upon a transfer of ben-
efits between plans operate independently
from the requirements of section 414(l),
and compliance with the requirements of
section 414(l) does not ensure compliance
with these rules.
The proposed regulations provided
that, if the transferee plan’s benefits are
required to be taken into account pursuant
to section 415(f) and §1.415(f)–1 in de-
termining whether the transferor plan sat-
isfies the limitations of section 415(b) for
that limitation year, then the transferred
benefits are disregarded in determining
the annual benefit under the transferor
plan. The final regulations modify this
rule. This modification is being made
in conjunction with modifications to the
proposed regulations with respect to the
aggregation of plans among formerly affil-
iated employers (discussed in more detail
under the heading “Aggregating plans
(§1.415(f)–1)”). Generally, under the
modified section 415(f) aggregation rules,
there are situations in which only a por-
tion of the benefits provided under plans
maintained by formerly affiliated employ-
ers is taken into account when applying
section 415 on an aggregated basis to each
employer. Given this modification to the
aggregation rules, the determination of
whether transferred benefits are nonethe-
less treated as provided by the transferor
plan is properly based on whether the
transferred benefits are included in the
portion of the transferee plan that is aggre-
gated with the transferor plan. Thus, the
final regulations provide that, to the extent
the benefits transferred to a transferee plan
are otherwise required to be taken into
account pursuant to section 415(f) and
§1.415(f)–1 in determining whether the
transferor plan satisfies the limitations of
section 415(b), the transferred benefits are
not also treated as being provided under
the transferor plan (because these benefits
will be taken into account by the trans-
ferorplanwhenitisaggregatedwiththe
transferee plan).
The proposed regulations provided that
where there has been a transfer of lia-
bilities between plans and the transferee
plan’s benefits are not required to be taken
into account pursuant to section 415(f) and
§1.415(f)–1 in determining whether the
transferor plan satisfies the limitations of
section 415(b), the assets associated with
those transferred liabilities (other than sur-
plus assets) are treated by the transferor
plan as distributed as a single-sum dis-
tribution. These final regulations modify
this proposed transfer rule in two respects.
First, for the reasons described in the
paragraph above, this transfer rule is ap-
plicable only if the benefits transferred
to the transferee plan are not otherwise
required to be taken into account by the
transferor plan pursuant to section 415(f)
and §1.415(f)–1. Second, the final regula-
tions modify this proposed rule in response
to comments expressing concern with the
administrative complexity associated with
the calculation of the deemed single-sum
distribution. Instead of treating the assets
associated with the transferred liabilities
as a deemed single-sum distribution, the
final regulations treat the transferred lia-
bilities as comprising a plan that must be
aggregated with the transferor plan, that
hadterminatedwithsufficientassetsto
pay benefit liabilities under the plan and
had purchased annuities to provide plan
benefits.
Although such a transfer is treated as a
plan termination in computing the annual
benefit under the transferor plan, no cor-
responding adjustment to the annual bene-
fit under the transferee plan is made to re-
flect the fact that some of the benefits pro-
vided under the transferee plan are attribut-
able to the transfer. Thus, the actual ben-
efit provided under the transferee plan is
used to determine the annual benefit under
the transferee plan even though the trans-
ferred amount is also included along with
other benefits provided under the trans-
feror plan in determining the participant’s
annual benefit under the transferor plan.
While some commentators expressed
concern that this resulted in double count-
ing of benefits, in most such cases, a partic-
ipant whose benefits have been transferred
would accrue no additional benefit under
the transferor plan that would be required
to be tested under the transferor plan (in
combination with the transferred benefits).
Furthermore, these rules prevent the trans-
feror plan from avoiding the limitations of
section 415 for participants by spinning off
the participants’ benefits to a plan of an un-
related employer and then accruing addi-
tional benefits for the participants. For ex-
ample, without these rules, the benefit of
an executive in a plan maintained by the
executive’s employer could be transferred
to a plan maintained by a business that is
owned by the executive and that is not ag-
gregated with the executive’s employer for
purposes of section 415, and the executive
could accrue an additional benefit up to
the section 415 limits under the plan main-
tained by the executive’s employer.
The final regulations provide rules
specifying how to take into account ben-
efits provided under a terminated plan. If
a defined benefit plan is terminated with
sufficient assets to pay accrued benefits
and a participant in the plan has not yet
commenced benefits under the plan, for
purposes of satisfying section 415(b) with
respect to the participant, the final regula-
tions require that all other defined benefit
plans maintained by the employer that
maintained the terminated plan take into
account the benefits provided pursuant to
the annuities purchased to provide benefits
under the terminated plan at each possible
annuity starting date. The final regula-
tions provide that if a defined benefit plan
April 30, 200710502007–18 I.R.B.

is terminated and there are not sufficient
assets for the payment of the accrued
benefit of all plan participants, all other
defined benefit plans maintained by the
employer that maintained the terminated
plan are required to take into account the
benefits that are actually provided under
the terminated plan. For example, if the
terminated plan is subject to Title IV of
ERISA, the other plans maintained by the
employer that maintained the terminated
plan take into account the benefits that are
provided by the Pension Benefit Guaranty
Corporation. If the terminated plan was
not subject to Title IV of ERISA, the other
plans take into account the benefits that
are actually paid by the terminated plan.
The multiple annuity starting date rules
apply to the extent that benefits from a
terminated plan and an ongoing plan do
not commence at the same time.
These regulations clarify that if a partic-
ipant elects to transfer a distributable ben-
efit to a defined benefit plan pursuant to
§1.411(d)–4, A–3(c), the transfer is treated
inthesamemannerasanamountthatis
distributed and then rolled over (specifi-
cally, the transferred benefit is treated by
the transferor plan as a distribution, and the
annual benefit provided by the transferee
plan does not include the annual benefit at-
tributable to the amount transferred). This
rule applies regardless of whether the re-
quirements of section 411 apply to the plan
and, in the case of a transfer from a de-
fined contribution plan that is not subject
to the requirements of section 411 (such as
a governmental plan) to a defined benefit
plan, the rule applies even if the partici-
pant’s benefits are not distributable from
the defined contribution plan at the time of
the transfer.
K. 10-year phase-in of limitations based
on years of participation and years of
service
As under the proposed regulations,
these regulations provide rules for ap-
plying the 10-year phase-in of the dollar
limitation based on years of participation
in the plan, as added by TRA ’86, and
modify the rules set forth in the 1981 reg-
ulations for applying the 10-year phase-in
of the compensation limit based on years
of service. These regulations, like the
proposed regulations, follow the guidance
set forth in Notice 87–21 for applying the
10-year phase-in based on years of par-
ticipation, and apply analogous rules for
purposes of applying the 10-year phase-in
based on years of service.
L. Exception to compensation-based limit
for certain church plans
The final regulations also reflect the
amendment of section 415(b)(11) by PPA
’06. Under the amendment, the section
415(b)(1)(B) compensation-based limit
that is generally applicable to defined ben-
efit plans is not applicable to a participant
in a plan maintained by a church described
in section 3121(w)(3)(A) if the partici-
pant has never been a highly compensated
employee (as defined in section 414(q))
of the church. These regulations provide
that if such a participant later becomes
a highly compensated employee of the
church, the plan is not treated as failing to
satisfy the compensation-based limit pro-
vided that no plan amendments increasing
the participant’s benefits are adopted in
the year the participant becomes a highly
compensated employee and there is no in-
crease in the participant’s accrued benefit
derived from employer contributions in
subsequent years.
Multiple annuity starting dates
(§1.415(b)–2)
Section 1.415(b)–2 of the proposed reg-
ulations set forth rules for computing the
annual benefit under one or more defined
benefit plans in the case of multiple annu-
ity starting dates. Multiple annuity start-
ing dates exist, for example, where bene-
fit distributions to a participant have previ-
ously commenced under a plan that is ag-
gregated for purposes of section 415 with
a plan for which the participant receives
current accruals. In addition, the multiple
annuity starting date rules apply for pur-
poses of determiningthe annual benefit of
a participant where a new distribution elec-
tion is effective during the current limita-
tion year with respect to a distribution that
previously commenced. The multiple an-
nuity starting date rules also apply when
benefit payments are increased, unless the
benefit increase complies with one of the
safe harbors provided in the regulations.
Numerous commentators raised con-
cerns regarding these rules. Based on
these comments, the IRS and the Trea-
sury Department have determined that
revisions to these rules are needed before
these rules are adopted in final form. Ac-
cordingly, these regulations reserve a place
for regulations regarding multiple annuity
starting dates. The IRS and the Treasury
Department are developing new proposed
regulations regarding multiple annuity
starting dates, and corresponding revi-
sions to regulations under §1.401(a)(9)–6.
In the interim, §1.415(b)–1 of these reg-
ulations provides that if a participant has
or will have distributions commencing at
more than one annuity starting date, the
limitations of section 415 must be satisfied
as of each of the annuity starting dates, tak-
ing into account the benefits that have been
or will be provided at all of the annuity
starting dates. In determining the annual
benefit of a participant as of a particular
annuity starting date, the plan is required to
actuarially adjust past and future distribu-
tions with respect to the benefit that com-
menced at the other annuity starting dates.
Limitations applicable to defined
contribution plans (§1.415(c)–1)
Section 1.415(c)–1 of these regulations
sets forth rules that apply to limitations on
annual additions under a defined contri-
bution plan. Under these limitations, an-
nual additions must not be greater than
the lesser of $40,000 (as adjusted pursuant
to section 415(d)) or 100 percent of the
participant’s compensation for the limi-
tation year. The termannual additions
generally means the sum for any year of
employer contributions, employee contri-
butions, and forfeitures. In addition to
applying to qualified defined contribution
plans, the limitations in section 415(c) and
§1.415(c)–1 of the regulations apply to
section 403(b) annuitycontracts, simpli-
fied employee pensions described in sec-
tion 408(k), mandatory employee contri-
butions to qualified defined benefit plans,
and contributions to certain medical bene-
fit accounts.
These regulations reflect a number
of statutory changes to section 415(c)
that were made after the issuance of the
1981 regulations. Among these changes
are the revised limitation amounts under
section 415(c), the revised rules applica-
ble to employee stock ownership plans,
and the rules applying the limitations of
section 415(c) to certain medical benefit
accounts. These regulations also make
2007–18 I.R.B.1051April 30, 2007

some other changes to the 1981 regula-
tions, as discussed below. Consistent with
the change to section 403(b)(1) made in
JCWAA, these regulations provide that
the limitations under section 415(c) apply
to any section 403(b) annuity contract,
regardless of whether the contract satisfies
the requirements of section 414(i) to be
a defined contribution plan. Thus, the
limitations under section 415(c) apply to a
section 403(b) annuitycontract even if the
limitations of section 415(b) also apply to
the contract. Section 415(b) applies to the
contract if the contract is a church plan
that is covered by the grandfather rule of
section 251(e)(5) of TEFRA.
Consistent with Rev. Rul. 2002–45, the
regulations provide that a restorative pay-
ment that is allocated to a participant’s ac-
count does not give rise to an annual addi-
tion for any limitation year. For this pur-
pose, restorative payments are payments
made to restore losses to a plan resulting
from actions by a fiduciary for which there
is a reasonable risk of liability for breach
of a fiduciary duty under Title I of ERISA,
where plan participants who are similarly
situated are treated similarly with respect
to the payments. Commentators suggested
that restorative payments should also in-
clude payments made to restore losses to a
plan resulting from actions by a fiduciary
for which there is a reasonable risk of li-
ability for breach of a fiduciary duty un-
der other applicable federal or state law, to
take into account contributions under plans
that are not subject to Title I of ERISA in
appropriate circumstances. These regula-
tions adopt this suggestion. Accordingly,
payments to a defined contribution plan
are restorative payments only if the pay-
ments are made in order to restore some or
all of the plan’s losses due to an action (or a
failure to act) that creates a reasonable risk
of liability for such a breach of fiduciary
duty under Title I of ERISA or under other
applicable federal or state law. The reg-
ulations specifically list certain payments
that satisfy this rule, including payments
to a plan made pursuant to a Department
of Labor order or court-approved settle-
ment to restore losses to a qualified defined
contribution plan on account of the breach
of fiduciary duty, and payments made pur-
suant to the Department of Labor’s Volun-
tary Fiduciary Correction Program to re-
store losses to a qualified defined contribu-
tion plan on account of the breach of fidu-
ciary duty.
As under the proposed regulations,
these final regulations provide that the
Commissioner may in appropriate cases,
considering all of the facts and circum-
stances, treat transactions between the
plan and the employer, transactions be-
tween the plan and the employee, or cer-
tain allocations to participants’ accounts
as giving rise to annual additions. For
example, in general, the Commissioner
will treat payments made to a plan by an
employer or another party to make up for
losses due merely to market fluctuations
and other payments that are not made on
account of a reasonable risk of liability
for breach of a fiduciary duty under Title
I of ERISA or other Federal or state law
generally as contributions that give rise to
annual additions. As under the proposed
regulations, these regulations clarify that
where an employee or employer transfers
assets to a plan in exchange for considera-
tion that is less than the fair market value
of the assets transferred to the plan, there
is an annual addition in the amount of the
difference between the value of the assets
transferred and the consideration.
For taxable employers, these regu-
lations retain the rule under the 1981
regulations that an employer contribution
is not treated as credited to a participant’s
account for a particular limitation year un-
less the contribution is actually made to the
plan no later than 30 days after the end of
the period described in section 404(a)(6)
applicable to the taxable year with or
within which the particular limitation year
ends. The final regulations modify the cor-
responding rule for tax-exempt employers
in the proposed regulations. Under the
final regulations, a contribution to a plan
by a tax-exempt employer is taken into
account for a limitation year for purposes
of section 415(c) if the contribution is
credited to a participant’s account no later
than the 15
th
day of the tenth calendar
month following the end of the calendar
year or fiscal year (as applicable, depend-
ingonthebasisonwhichtheemployer
keeps its books) with or within which the
particular limitation year ends. This date
corresponds to the due date for Form 5500,
“Annual Return/Report of Employee Ben-
efit Plan,” (with extensions) in cases in
which the calendar or fiscal year coincides
with the plan year and generally corre-
sponds to the date for taxable employers
who request filing extensions. The extent
to which elective contributions constitute
plan assets for purposes of the prohibited
transaction provisions of section 4975 and
Title I of ERISA is determined in accor-
dance with regulations and rulings issued
by the Department of Labor. See 29 CFR
2510.3–102.
The final regulations clarify that if the
allocation of an annual addition is depen-
dent under the terms of the plan upon the
satisfaction of a condition that has not been
satisfied by the date as of which the an-
nual addition is allocated, then the annual
addition is considered allocated as of the
date the condition is satisfied. This is a
change from the proposed regulations, un-
der which this rule only applied if the al-
location was dependent upon participation
in the plan as of a particular date. Addi-
tionally, the final regulations clarify that an
annual addition that is made pursuant to a
corrective amendment that complies with
the requirements of §1.401(a)(4)–11(g) is
credited to the account of a participant for
a particular limitation year if it is allocated
to the participant’s account under the terms
of the corrective amendment as of any date
within that limitation year.
These regulations clarify the opera-
tion of the special increased limitation
applicable to churchplans under section
415(c)(7). Under this rule, notwithstand-
ing the generally applicable limitations,
annual additions for a section 403(b) an-
nuity contract for ayear with respect to
an individual who is a church employee
are treated as not exceeding the limitation
of section 415(c) if such annual additions
for the year are not in excess of $10,000.
However, the total amount of additions
with respect to any participant that are
permitted to be taken into account for
purposes of this rule for all years may
not exceed $40,000. The regulations also
reflect a special rule for church employees
performing services outside the United
States, as amended by GOZA. Under this
special rule, for any individual who is a
church employee performing any services
for the church outside the United States
during the limitation year, additions for
a section 403(b) annuity contract for any
year are not treated as exceeding the lim-
itations of section 415(c) if those annual
additions for the year do not exceed $3,000
(but only if the individual’s adjusted gross
April 30, 200710522007–18 I.R.B.

income does not exceed $17,000). These
regulations clarify that the $40,000 cumu-
lative total only applies to excesses over
what would have been permitted to be
contributed without regard to this special
rule, and clarify the interaction between
the generally applicable church employee
rule and the rule for church employees
performing services outside the United
States.
As under the proposed regula-
tions, these regulations do not in-
clude the correction methods for ex-
cess annual additions applicable un-
der §1.415–6(b)(6) of the 1981 regula-
tions. Conforming changes have been
made to §1.401(a)–2(b), §1.401(a)(9)–5,
A–9(b)(1), and §1.402(c)–2, A–4(a) to
reflect this deletion.
Despite the deletion, the deleted cor-
rection methods are generally permit-
ted under the Employee Plans Compli-
ance Resolution System (EPCRS), Rev.
Proc. 2006–27, 2006–22 I.R.B. 945 (see
§601.601(d)(2)). In section 2.02(2) of
Rev. Proc. 2006–27, comments were re-
quested on whether the correction methods
in former §1.415–6(b)(6), including the
maintenance of suspense accounts, should
be retained as options under EPCRS.
Pending the issuance of further guidance
that takes into account those comments,
plans that are eligible for the Self-Correc-
tion Program under section 4 of Rev. Proc.
2006–27 may implement corrections us-
ing the methods in former §1.415–6(b)(6),
but only if the requirements of section
9 of Rev. Proc. 2006–27 are satisfied,
and those corrections will also be taken
into account for purposes of the Voluntary
Correction and Audit Closing Agreement
Programs under EPCRS.
These regulations generally retain the
rules under the 1981 regulations provid-
ing that a contribution to reduce accumu-
lated funding deficiencies or a contribu-
tion made pursuant to a funding waiver
relates to the limitation year of the initial
funding obligation. However, these regu-
lations, like the proposed regulations, pro-
vide that any interest paid by the employer
with respect to such a contribution that is
in excess of a reasonable amount is taken
into account as an annual addition for the
limitation year when the contribution is
made (in contrast to the 1981 regulations,
which required interest in excess of a rea-
sonable amount to be taken into account as
an annual addition for the limitation year
for which the contribution was originally
required). Rev. Rul. 78–223, 1978–1
C.B. 125, (see §601.601(d)(2)) provides a
method for determining contributions re-
quired to amortize waived contributions
under a defined contribution plan. The ap-
plication of any of the methods described
in Rev. Rul. 78–223 will result in reason-
able interest payments for purposes of ap-
plying the rules of section 415 (provided
that, if a fixed interest rate in excess of 5
percentisusedtoamortizewaivedcontri-
butions, the interest rate must be reason-
able). Thus, for example, the actual yield
method (under which the adjusted account
balance is increased or decreased periodi-
cally at the actual rate of investment return
experienced by the plan for such period)
can be used for this purpose.
Definition of compensation (§1.415(c)–2)
Section 1.415(c)–2 of these regulations
defines the term “compensation,” which
isdefinedinsection415(c)(3)andused
for purposes of applying the limitations
of section 415 as well as for various other
purposes specified under the Internal Rev-
enue Code. These regulations reflect a
number of statutory changes to section
415(c)(3) that were made after the is-
suance of the 1981 regulations. Among
these changes are the inclusion in com-
pensation of certain deemed amounts for
disabled participants and nontaxable elec-
tive amounts for deferrals under sections
401(k), 403(b), and 457, cafeteria plan
elections under section 125, and quali-
fied transportation fringe elections under
section 132(f)(4). In addition to these
changes, these regulations make some
other changes to the 1981 regulations, as
discussed in this preamble.
The proposed regulations provided spe-
cific guidelines regarding when amounts
received following severance from em-
ployment are considered compensation
for purposes of section 415. The proposed
regulations provided that the following
are types of post-severance payments that
are not excluded from compensation be-
cause of timing if they are paid within
2
1
/2months following severance from
employment: (1) payments that, absent
a severance from employment, would
have been paid to the employee while the
employee continued in employment with
the employer and are regular compensa-
tion for services during the employee’s
regular working hours, compensation for
services outside the employee’s regular
working hours (such as overtime or shift
differential), commissions, bonuses, or
other similar compensation; and (2) pay-
ments for accruedbona fidesick, vacation,
or other leave, but only if the employee
would have been able to use the leave if
employment had continued.
Commentators made a number of sug-
gestions regarding the post-severance
compensation rules. Some commentators
requested a lengthening of the 2
1
/2-month
period to as long as a year, or exceptions
from the 2
1
/2-month rule under certain
circumstances (such as teacher pay that is
paid on a 12-month basis for each 9-month
school year, or residual payments that are
made to entertainment industry employees
years after the services are performed).
Some commentators requested changes to
the types of compensation that are permit-
ted or required to be taken into account for
ease of plan administration.
The final regulations lengthen the time
during which certainpost-severance pay-
ments are taken into account from the 2
1
/2-
month period under the proposed regula-
tions. The final regulations provide that
in order for payments after severance from
employment to be treated as compensation
within the meaning of section 415(c)(3),
payments made for services provided to a
former employer must be made by the later
of 2
1
/2months after the severance from
employment or the end of the limitation
year that includes the date of severance
from employment. In addition, a govern-
mental plan (within the meaning of section
414(d)) is permitted to provide that the cal-
endar year that includes the date of sever-
ance from employment is substituted for
the limitation year that includes the date of
severance from employment for this pur-
pose.
The final regulations also provide that
post-severance payments of accruedbona
fidesick, vacation, and other leave that are
paid within the timeframe described in the
preceding paragraph are not included in
compensation unless the plan specifically
includes such payments. Additionally, the
final regulations permit a plan to specify
that a post-severance payment from a non-
qualified unfunded deferred compensation
plan may be included in compensation if
2007–18 I.R.B.1053April 30, 2007

the payment is made within the timeframe
described in the preceding paragraph, but
only if the payment would have been made
at the same time if the employee had con-
tinued his or her employment and only to
the extent that the payment is includible in
the employee’s gross income.
As under the proposed regulations, the
rule under the final regulations generally
excluding payments after severance from
employment from compensation does not
apply to payments to an individual who
does not currently perform services for the
employer by reason of qualified military
service (as that term is used in section
414(u)(1)) to the extent those payments
do not exceed the amounts the individual
would have received if the individual had
continued to perform services for the em-
ployer rather than entering qualified mil-
itary service. The final regulations mod-
ify the proposed regulations by adding an-
other exception to the post-severance tim-
ing rule for compensation paid to a per-
manently and totally disabled participant,
provided certain conditions are satisfied.
As provided under the proposed regula-
tions, the final regulations also contain cor-
responding amendments to the regulations
under sections 401(k) and 457 that pro-
vide that amounts received following sev-
erance from employment can be deferred
only if they are considered compensation
under the rules of section 415.
Whether a person has a severance from
employment with the employer that main-
tains a plan is determined for purposes
of section 415 in the same manner as
under §1.401(k)–1(d)(2), except that for
purposes of determining the employer of
an employee, the rules of section 415(h)
are taken into account (under which the
phrase “more than 50 percent” is substi-
tuted for the phrase “at least 80 percent”
each place it appears in section 1563(a)(1)
for purposes of applying section 414(b)
and (c)). Thus, an employee has a sev-
erance when the employee ceases to be
an employee of the employer maintain-
ing the plan, and an employee does not
have a severance from employment if, in
connection with a change of employment,
the employee’s new employer maintains
the plan with respect to the employee. In
addition, the determination of whether an
employee ceases to be an employee of the
employer maintaining the plan is based
on all of the relevant facts and circum-
stances. In the case of a multiemployer
plan, a payment after severance from em-
ployment from an employer for whom
services were provided is considered to
be compensation within the meaning of
section 415(c)(3) as long as the individual
receiving the payment is employed by any
employer maintaining the multiemployer
plan. Thus, in the case of a multiem-
ployer plan, an employee is treated as
having a severance from employment only
when the employee is no longer providing
services to any employer maintaining the
multiemployer plan. This rule is consistent
with the treatment of a multiemployer plan
as a single plan that is not disaggregated
for purposes of applying the limitations of
section 415.
As noted above, the final regulations
provide that a plan cannot take into ac-
count compensation in excess of the sec-
tion 401(a)(17) limit. In addition, the fi-
nal regulations provide that elective defer-
rals can only be made from compensation
as defined in section 415(c)(3). However,
in applying these two rules, a plan is not
required to determine a participant’s com-
pensation on the basis of the earliest pay-
ments of compensation during a year.
Commentators also requested clarifi-
cation as to the treatment of nonresident
aliens under all of the alternative defini-
tions of compensation that the regulations
allow. Commentators had noted that the
various alternative definitions of compen-
sation permitted under the 1981 regula-
tions could be interpreted as including
compensation paid to nonresident aliens,
but the commentators observed that this
issue was not sufficiently clear.
These regulations provide that amounts
paid to an individualas compensation for
services do not fail to be treated as com-
pensation merely because those amounts
are not includible in the individual’s gross
income on account of the location of the
services. Similarly, these regulations also
provide that amounts paid to an individual
as compensation for services do not fail to
be treated as compensation merely because
those amounts are paid by an employer
with respect to which payments of com-
pensation to the individual are excluded
from gross income. Thus, for example,
the determination of whether an amount is
includible as compensation is made with-
out regard to the exclusions from gross in-
come under sections 872, 893, 894, 911,
and 933.
Under these modified rules, an em-
ployee who is a nonresident alien with
no United States sourced income is not
prevented from participating in a qual-
ifiedplansponsoredbytheemployee’s
employer on account of the limitations of
section 415 that relate to the employee’s
compensation. These rules, however, do
not modify other requirements with re-
spect to such an employee’s participation
in a qualified plan, such as the rules relat-
ing to the entity that is properly entitled
to a deduction for contributions made to
the plan on account of the employee’s
participation.
These regulations also provide a rule of
administrative convenience under which
section 415 compensation does not include
compensation paid to a nonresident alien,
provided that the individual does not par-
ticipate in the plan and the compensation is
not effectively connected with the conduct
of a trade or business within the United
States, and only to the extent that the com-
pensation is excludable from the individ-
ual’s gross income either on account of the
location of the services or because com-
pensation paid by the employer is exclud-
able from gross income. This is relevant
for purposes of determining who is a key
employee under the top heavy rules of sec-
tion 416 and who is a highly compen-
sated employee under the rules of section
414(q).
Like the proposed regulations, these
final regulations generally retain the rules
in the 1981 regulations regarding section
415 compensation and contributions to
and distributions from plans of deferred
compensation. Accordingly, these regu-
lations provide that distributions from a
plan of deferred compensation (whether
or not qualified) are not compensation for
section 415 purposes (but permit a plan to
include as compensation amounts received
by an employee pursuant to a nonqualified
unfunded plan for the year in which the
amounts are actually received) and provide
that contributions made by an employer
(other than elective contributions) to a
plan of deferred compensation (whether
or not qualified) are not compensation to
the extent that the contributions are not
includible in the income of the employee
for the taxable year in which contributed.
The final regulations clarify that section
April 30, 200710542007–18 I.R.B.

415 compensation includes amounts that
are includible in the gross income of an
employee under the rules of section 409A
or section 457(f)(1)(A) or because the
amounts are constructively received by
the employee. The final regulations also
clarify that a plan is permitted to include as
compensation amounts received by an em-
ployee pursuant to a nonqualified deferred
compensation plan only to the extent such
amounts are includible in gross income.
Cost-of-living adjustments (§1.415(d)–1)
Section 1.415(d)–1 of these regulations
sets forth rules that apply to cost-of-liv-
ing adjustments to the various limitations
of section 415 pursuant to section 415(d).
Section 415(d) provides for the dollar and
compensation limitations on annual ben-
efits and the dollar limitation on annual
additions to be adjusted annually for in-
creases in the cost of living based on ad-
justment proceduressimilar to the proce-
dures used to adjust social security bene-
fit amounts. These adjustments also ap-
ply for other purposes as specified in the
Code. These regulations specify the man-
ner in which these adjustments are de-
termined each year, and reflect statutory
changes to the adjustment methodology
made after the 1981 regulations were is-
sued. In addition, these regulations make
several other changes to the 1981 regula-
tions, as discussed in this preamble. Sec-
tion 1.415(d)–1 generally retains the rules
set forth in the proposed regulations except
as indicated in this preamble.
These regulations specify the circum-
stances under which an adjusted limit is
permitted to be applied to participants
who have previously commenced receiv-
ing benefits under a defined benefit plan.
Under these regulations, the adjusted
dollar limitation is applicable to current
employees who are participants in a de-
fined benefit plan and is permitted to apply
to former employees who have retired or
otherwise terminated their service under
the plan and have a nonforfeitable right
to accrued benefits, regardless of whether
they have actually begun to receive ben-
efits. If a participant has commenced
receiving benefits, the annual increase is
only permitted to be applied to the extent
that benefits have not been paid. Thus, for
example, a plan cannot provide that this
annual increase applies to a participant
who has previously received the entire
plan benefit in a single-sum distribution.
However,aplanispermittedtoprovide
for an increase in benefits to a participant
to the extent the participant accrues addi-
tional benefits under the plan that could
have been accrued without regard to the
adjustment of the dollar limitation (includ-
ing benefits that accrue as a result of a plan
amendment) on or after the effective date
of the adjusted limitation.
These regulations retain the safe harbor
set forth in the proposed regulations under
which the annual benefit will satisfy the
limitations of section 415(b) for the current
limitation year following an adjustment to
benefit payments that is made to reflect the
cost-of-living adjustment made pursuant
to section 415(d). Under this safe harbor,
if a plan incorporates by reference the an-
nual section 415(d) cost-of-living adjust-
ments to the limitations of section 415, a
distribution that is increased solely as a re-
sult of the application of the section 415(d)
cost-of-living adjustments to the applica-
ble limits will be treated as continuing to
satisfy the requirements of section 415(b)
and is not subject to the multiple annuity
starting date rules. In connection with the
changes discussed in the following para-
graph, this safe harbor has been relocated
to §1.415(a)–1(d)(3)(v).
Commentators expressed concern that
the safe harbor in the proposed regu-
lations did not cover situations where
benefits are increased periodically by plan
amendments that reflect the section 415(d)
cost-of-living adjustments. After consid-
eration of these comments, the IRS and
the Treasury Department have determined
that additional safe harbors are appro-
priate. Accordingly, under these final
regulations, if a plan is amended to apply
the adjusted section 415(b) limits in ac-
cordance with either of two safe harbors,
a distribution that is increased pursuant to
the amendment will be treated as continu-
ing to satisfy the requirements of section
415(b).
A plan amendment satisfies the first
safe harbor if the employee has received
one or more distributions that satisfy the
requirements of section 415(b) before the
date the adjustment to the applicable lim-
its is effective, the increased distribution
is solely as a result of the amendment of
the plan to reflect the adjustment to the ap-
plicable limits pursuant to section 415(d),
and the amounts payable to the employee
on and after the effective date of the ad-
justment are not greater than the amounts
that would otherwise be payable without
regard to the adjustment, multiplied by a
fraction determined for the limitation year,
the numerator of which is the limitation
undersection415(b)(whichisthelesserof
the applicable dollar limitation under sec-
tion 415(b)(1)(A), as adjusted for age at
commencement, and the applicable com-
pensation-based limitation under section
415(b)(1)(B)) in effect for the distribution
following the section 415(d) adjustment,
and the denominator of which is such limi-
tation under section 415(b) in effect for the
distribution immediately before the sec-
tion 415(d) adjustment.
A plan amendment satisfies the second
safe harbor if the employee has received
one or more distributions that satisfy the
requirements of section 415(b) before the
date on which the increased distribution
is effective, and the amounts payable to
the employee on and after the effective
date for the increased distribution are not
greater than the amounts that would other-
wise be payable without regard to the in-
crease, multiplied by the cumulative ad-
justment fraction. The cumulative adjust-
ment fraction is equal to the product of
all of the annual fractions (described in
the first safe harbor) that would have ap-
plied after benefits commence if the plan
had been amended each year to incorporate
the section 415(d) adjustments to the appli-
cable section 415(b)limits in accordance
with the first safe harbor. In determin-
ing the cumulative adjustment fraction, if
for the limitation year for which the ad-
justment in the section 415(b)(1)(A) dol-
lar limit pursuant to EGTRRA is first ef-
fective (generally, the first limitation year
beginning after December 31, 2001), the
section 415(b)(1)(A) dollar limit applica-
ble to a participant is less than the section
415(b)(1)(B) compensation limit, then the
annual fraction for such year is 1.0.
Aggregating plans (§1.415(f)–1)
Section 1.415(f)–1 of these regulations
sets forth rules for aggregating plans pur-
suant to section 415(f). Section 1.415(f)–1
generally retains the rules set forth in the
proposed regulationsexcept as indicated
in this preamble. Under section 415(f)
and these regulations, for purposes of ap-
2007–18 I.R.B.1055April 30, 2007

plying the limitations of section 415(b)
and (c), all defined benefit plans that have
ever been maintained by an employer are
treated as one defined benefit plan, and
all defined contribution plans that have
ever been maintained by an employer
are treated as one defined contribution
plan. The controlled group rules of sec-
tion 414(b) and (c) (as modified by section
415(h)), the affiliated service group rules
of section 414(m), and the leased em-
ployee rules of section 414(n) apply for
purposes of determining whether a plan
that is maintained by an entity other than
the employer is considered maintained by
the employer for purposes of applying the
aggregation rules of section 415(f). These
basic employer aggregation rules were
also contained in the 1981 regulations.
One commentator noted that the pro-
posed regulations incorrectly reflected the
rules of section 415(h) (which applies a 50
percent standard in lieu of an 80 percent
standard for purposes of applying the con-
trol rules) by applying those rules in de-
termining whether two or more organiza-
tions are a brother-sister group of trades
or businesses under common control un-
der the rules in §1.414(c)–2(c). These final
regulations provide that the rules of section
415(h) do not apply for this purpose.
These final regulations make various
changes and clarifications to the 1981 reg-
ulations relating to aggregating plans. As
under the proposed regulations, these fi-
nal regulations clarify that an employer’s
plan must be aggregated with all plans
maintained by a predecessor employer (see
section 414(a)), regardless of whether any
such plan is assumed by the employer.
As under the proposed regulations, the
final regulations provide that a former em-
ployer is a predecessor employer with re-
spect to a participant in a plan maintained
by an employer if the employer maintains
a plan under which the participant had ac-
crued a benefit while performing services
for the former employer, but only if that
benefit is provided under the plan main-
tained by the employer. In addition, as
under the proposed regulations, these fi-
nal regulations provide pursuant to section
414(a)(2) that, with respect to an employer
of a participant, a former entity that an-
tedates the employer is a predecessor em-
ployer with respect to the participant if, un-
der the facts and circumstances, the em-
ployer constitutes a continuation of all or
a portion of the trade or business of the
former entity. This will occur, for exam-
ple, where formation of the employer con-
stitutes a mere formal or technical change
in the employment relationship and conti-
nuity otherwise exists in the substance and
administration of the business operations
of the former entity and the employer. See
Lear Eye Clinic, Ltd. v. Commissioner,
106 T.C. 418, 425 (1996).
These final regulations make several
other changes to the employer aggrega-
tion rules. These changes limit the ex-
tent to which a plan maintained by an em-
ployer must aggregate benefits accrued un-
der a plan that was formerly maintained
by the employer or that was maintained by
an entity that was formerly affiliated with
the employer under the employer aggre-
gation rules of §1.415(a)–1(f)(1) and (2)
(which provide that a plan maintained by
any member of a controlled group of em-
ployers or an affiliated service group is
deemed to be maintained by all members
of the group). Under these final regula-
tions, a “formerly affiliated plan” of an em-
ployer is treated as if it were a plan that
terminated immediately prior to the “ces-
sation of affiliation” with sufficient assets
to pay benefit liabilities under the plan,
and had purchased annuities to provide
plan benefits. The final regulations de-
fine a formerly affiliated plan of an em-
ployer as a plan that, immediately prior
to the cessation of affiliation, was actu-
ally maintained by one or more of the enti-
ties that constitute the employer (as deter-
mined under the employer affiliation rules
of §1.415(a)–1(f)(1) and (2)), and that, im-
mediately after the cessation of affiliation,
is not actually maintained by any of the en-
tities that constitute the employer (as deter-
mined under the employer affiliation rules
of §1.415(a)–1(f)(1) and (2)). The final
regulations define a cessation of affilia-
tion as the event that causes an entity to
no longer be aggregated with one or more
other entities as a single employer under
the employer affiliation rules (such as a
sale of a subsidiary) or an event that causes
a plan to not actually be maintained by any
of the entities that constitute the employer
(such as a transfer of sponsorship of a plan
to an unrelated employer).
A similar rule is provided under these
final regulations with respect to a plan
(orportionofaplan)maintainedbya
predecessor employer that is not assumed
by the successor employer. As under the
proposed regulations, the final regulations
provide that all plans ever maintained by
an employer or predecessor employer are
aggregated. For purposes of applying this
aggregation rule, these final regulations
limit the extent to which plans that are not
maintained by an employer but that are
maintained by the employer’s predecessor
employer are taken into account when
aggregating the employer’s plans. This
limit provides that a plan that is not main-
tained by the employer and is maintained
by the employer’s predecessor employer
is treated as if the plan terminated (with
sufficient assets to pay benefit liabilities
under the plan) immediately prior to the
event giving rise to the predecessor em-
ployer relationship. The effect of these
rules is that, for purposes of aggregating
the predecessor employer’s plans with
plans maintained by the employer, bene-
fits accrued after the transfer of benefits
from the predecessor employer’s plan to
the employer’s plan are excluded.
These final regulations also add a rule
that prevents the double counting of a par-
ticipant’s benefit when applying the ag-
gregation rules. For example, in aggre-
gating defined benefit plans of a prede-
cessor employer with the defined benefit
plans of an employer following a trans-
fer of benefits to the plan maintained by
the employer from the plan maintained
by the predecessor employer, the trans-
feree plan (maintained by the employer)
does not double count a participant’s ben-
efit by taking into account both the trans-
ferred benefits and the portion of the trans-
feror plan (maintained by the predeces-
sor employer) that is deemed to have ter-
minated on account of the transfer pur-
suant to §1.415(b)–1(b)(3)(i)(B). Instead,
the transferee plan includes the benefits
that are actually provided under the trans-
feree plan when applying the aggregation
rule.
The proposed regulations provided
rules for applying the requirements of sec-
tion 415(f)(2) when an employer has more
than one defined benefit plan. Pursuant
to section 415(f)(2), the proposed regu-
lations provided that the compensation
limit of section 415(b)(1)(B) is applied
separately with respect to each plan, and
in applying the compensation limit to the
aggregated plans, the plans calculate a
participant’s average compensation for
April 30, 200710562007–18 I.R.B.

the participant’s high-3 years of service by
taking into account compensation for all
years of active participation in the aggre-
gated plans. Because the requirements of
section 415(f)(2) have been rendered moot
by the amendment to section 415(b)(3)
made by section 832 of PPA ’06, these
rules have not been incorporated into the
final regulations.
These regulations provide rules for ag-
gregating participation and service for pur-
poses of the 10-year phase-in of the limita-
tions on defined benefit plans. Under these
rules, years of participation in all aggre-
gated plans and years of service for em-
ployers maintaining all aggregated plans
are counted for purposes of applying the
10-year phase-in rules.
These regulations clarify the aggre-
gation rules that apply to section 403(b)
annuity contracts, other plans of the em-
ployer, and plans of related employers, in
light of changes made in EGTRRA. Gen-
erally, a section 403(b) annuity contract is
not aggregated with plans that are main-
tained by the participant’s employer be-
cause the section 403(b) annuity contract is
deemed maintained by the participant and
not the employer for purposes of section
415. However, if a participant on whose
behalf a section 403(b) annuity contract is
purchased is in control of any employer
for a limitation year, the annuity contract
for the benefit of the participant is treated
as a defined contribution plan maintained
by both the controlled employer and the
participant for that limitation year and
accordingly, the section 403(b) annuity
contract is aggregated with all other de-
fined contribution plans maintained by the
employer. Accordingly, the employer that
contributes to the section 403(b) annuity
contract must obtain information from par-
ticipants regardingemployers controlled
by those participants and plans maintained
by those controlled employers to monitor
compliance with applicable limitations
to comply with applicable reporting and
withholding obligations.
In general, under these regulations, the
benefits provided by all plans maintained
by all employers maintaining a multiem-
ployer plan (as defined in section 414(f))
are taken into account in applying the
limitations of section 415 to the multiem-
ployer plan. However, a multiemployer
plan is permitted to provide that, where
a participating employer maintains both
a plan which is not a multiemployer plan
and a multiemployer plan, only the ben-
efits provided by the employer under the
multiemployer plan are aggregated with
the benefits under the non-multiemployer
plan. By contrast, when a multiple em-
ployer plan is aggregated with a single
employer plan maintained by the same
employer, all of the benefits provided
by the multiple employer plan must be
taken into account in determining whether
the aggregated plans satisfy section 415.
These regulations also provide that a mul-
tiemployer plan is not aggregated with any
other multiemployer plan for purposes of
determining any section 415 limitation.
In addition, a multiemployer plan is not
aggregated with any other non-multiem-
ployer plan for purposes of applying the
100 percent of compensation benefit limit
to non-multiemployer plans under section
415(b)(1)(B).
Disqualification of plans and trusts
(§1.415(g)–1)
Section 1.415(g)–1 of these final regu-
lations sets forth rules regarding disqualifi-
cation of plans and trusts, including plans
and trusts that are aggregated pursuant to
§1.415(f)–1. In large part, §1.415(g)–1
of these regulations replicates the rules of
§1.415–9 of the 1981 regulations regard-
ing ordering rules for disqualifying plans
and trusts that are aggregated for purposes
of compliance with section 415. In addi-
tion, the final regulations provide rules for
disqualification where an individual med-
ical benefit account (as described in sec-
tion 415(l)) and a post-retirement medical
benefits account for key employees (as de-
scribed in section 419A(d)) is aggregated
with a qualified defined contribution plan
for purposes of applying section 415(c).
If the total of the annual additions under
both plans exceeds those limitations for
a particular limitation year, the qualified
defined contribution plan (rather than the
medical benefit account) is disqualified for
the limitation year.
Limitation year (§1.415(j)–1)
Section 1.415(j)–1 of the regulations
sets forth rules regarding limitation years
that are used as the period for demonstrat-
ing compliance with section 415. Sec-
tion 1.415(j)–1 generally retains the rules
set forth in the proposed regulations ex-
cept as indicated in this preamble. In addi-
tion to setting forth general rules that gen-
erally correspond to rules under the 1981
regulations, these regulations provide spe-
cific guidelines with respect to overlap-
ping limitation years for aggregated plans.
These rules reflect the guidance provided
in Rev. Rul. 79–5, 1979–1 C.B. 165 (see
§601.601(d)(2)). Where defined contribu-
tion plans with different limitations years
are aggregated, the rules of section 415(c)
must be applied with respect to each lim-
itation year of each such plan. For each
such limitation year, the requirements of
section 415(c) are applied to annual ad-
ditions that are made for that time pe-
riod with respect to the participant un-
der all aggregated plans. Similarly, where
defined benefit plans with different lim-
itation years are aggregated, the rules of
section 415(b) must be applied with re-
spect to each limitation year of each such
plan. Thus, for example, the dollar lim-
itation of section 415(b)(1)(A) applicable
to the limitation year for each plan must
be applied to annual benefits under all ag-
gregated plans to determine whether the
plan satisfies the requirements of section
415(b).
These final regulations add a rule that
applies to a terminating defined contribu-
tion plan. If a defined contribution plan is
terminated effective as of a date other than
the last day of the plan’s limitation year,
the plan is deemed to have been amended
to change its limitation year. As a re-
sult of this deemed amendment, the section
415(c)(1)(A) dollar limit must be pro-rated
under the short limitation year rules.
Sections 415(m) and (n)(Sections 415(m)
and (n)) have not been addressed in these
regulations. Comments received concern-
ing these provisions in response to the no-
tice of proposed rulemaking that preceded
these regulations will be considered for
guidance at a later date.
Section 416 regulations
These regulations update the defini-
tion of compensation used for purposes
of applying the top heavy rules of section
416. Pursuant to statutory amendments
to the definition of compensation under
section 415(c)(3) under SBJPA and CRA
(which were generally effective for years
2007–18 I.R.B.1057April 30, 2007

beginning after December 31, 1997), these
regulations update the alternative defini-
tion of compensation permitted under the
section 416 regulations (which is based
on compensation reported on Form W–2,
“Wage and Tax Statement”) to include
amounts that would be included on Form
W–2 but for an election under sections
125, 132(f)(4), 401(k), 403(b), 408(k),
408(p)(2)(A)(i), or 457(b).
Section 457 regulations
These regulations include revisions to
the regulations under section 457 that are
in addition to the revisions to reflect the
treatment of compensation paid after sev-
erance from employment (§1.457–4(d)).
The additional revisions do not include
any substantive changes, but merely make
clarifications, including revisions in an ex-
ample illustrating the section 457 catch-up
rules (§1.457–5(d)Example 2)anda
change in the rules relating to unforesee-
able emergencies to reflect revisions in
the definition of a dependent (made under
WFTRA, which modified the definition of
the term “dependent” under section 152)
(§1.457–6(c)).
Effective Dates
In general
These regulations generally apply to
limitation years beginning on or after July
1, 2007. However, §1.401(k)–1(e)(8) ap-
plies with respect tocompensation paid
(or that would have been paid but for a
cash or deferred election) in plan years
beginning on or after July 1, 2007, and
the amendment to §1.457–4(d) applies
to taxable years beginning on or after
December 31, 2001 (see §1.457–12).
See §§1.457–6(c)(2)(i) and 1.457–12 for
the applicability of the modifications to
§§1.457–5, 1.457–6, and 1.457–10. In the
case of a governmental plan (within the
meaning of section 414(d)), §§1.415(a)–1,
1.415(b)–1, 1.415(c)–1, 1.415(c)–2,
1.415(d)–1, 1.415(f)–1, 1.415(g)–1, and
1.415(j)–1 apply to limitation years that
begin more than 90 days after the close of
the first regular legislative session of the
legislative body with authority to amend
the plan that begins on or after July 1,
2007. However, a governmental plan
is permitted to apply the provisions of
§§1.415(a)–1, 1.415(b)–1, 1.415(c)–1,
1.415(c)–2, 1.415(d)–1, 1.415(f)–1,
1.415(g)–1, and 1.415(j)–1 to limitation
years beginning on or after July 1, 2007.
In response to commentator concerns,
and as provided in Notice 2005–87, these
regulations reflect revisions to the ef-
fective date provisions of the proposed
regulations to expand the benefits that
are grandfathered from the application
of these regulations. Under these regula-
tions, a defined benefit plan is considered
to satisfy the limitations of section 415(b)
for a participant with respect to benefits
accrued or payable under the plan as of
the end of the limitation year that is im-
mediately prior to the effective date of
these final regulations for the plan pur-
suant to plan provisions (including plan
provisions relating to the plan’s limitation
year) that were both adopted and in effect
before April 5, 2007, but only if such plan
provisions meet the requirements of statu-
tory provisions, regulations, and other
published guidance in effect immediately
before the effective date of these final reg-
ulations. For this purpose, plan provisions
will not be treated as failing to satisfy the
requirements of statutory provisions, regu-
lations, and other published guidance in ef-
fect immediately before the effective date
of these final regulations merely because
the plan has not been amended to reflect
changes to section 415(b) made by PFEA
and PPA ’06. In addition, for this purpose,
plan provisions will not be treated as fail-
ing to satisfy the requirements of section
415(b)(1)(B) merely because the plan’s
definition of compensation for a limitation
year that is used for purposes of applying
the limitations of section 415(b)(1)(B)
reflects compensation for a plan year that
is in excess of the limitation under section
401(a)(17) that applies to that plan year.
Thus, plans that were in compliance with
the rules of section 415 as in effect for
limitation years prior to the effective date
of these regulations for the plan will not
be disqualified based on benefits that arise
pursuant to plan provisions that were both
adopted and in effect before April 5, 2007,
and that accrue prior to the effective date
of these regulations for the plan, even if
those benefits no longer comply with the
requirements of section 415 as set forth
under these final regulations. However,
such a plan will not be permitted to pro-
vide for the accrual of additional benefits
for a participant on or after the effective
date of these regulations for the plan un-
less such additional benefits, together with
the participant’s other accrued benefits,
comply with these regulations.
The preamble to the proposed regula-
tions provided that, pending issuance of
final regulations, taxpayers may rely on
the modifications contained in the pro-
posed regulations in §1.401(k)–1(e)(8),
§1.415(c)–2(e), and §1.457–4(d) regard-
ing post-severance compensation pay-
ments and other compensation timing
rules. Accordingly, taxpayers may apply
those proposed amendments for peri-
ods prior to the effective date of these
final regulations. The final regulations
also provide that taxpayers may apply
the post-severance compensation pay-
ments and other compensation timing
rules contained in the final regulations
in §1.415(c)–2(e) for years prior to the
effective date of these final regulations.
This early application also is used for
purposes of determining compensation in
§§1.401(k)–1(e)(8) and 1.457–4(d).
Plan amendment timing
Generally, a provision of a plan that re-
sults in a failure of the plan to satisfy these
final regulations is a disqualifying pro-
vision described in §1.401(b)–1(b)(3)(i).
Therefore, the remedial amendment period
rules of §1.401(b)–1 apply. For example,
in the case of a plan with a calendar plan
year and a calendar limitation year that is
maintained by an employer with a calendar
taxable year (and the plan is not a govern-
mental plan), the plan’s remedial amend-
ment period with respect to a disqualify-
ing plan provision as a result of these fi-
nal regulations ends onthe date prescribed
by law for the filing of the employer’s in-
come tax return (including extensions) for
the 2008 taxable year. In addition, spe-
cial timing rules apply in the case of cer-
tain plan amendments made pursuant to
changes made to section 415 by PFEA and
PPA ’06.
Under section 101(c) of PFEA (prior to
amendment by PPA ’06), a plan amend-
ment to reflect the 5.5 percent interest rate
assumption that is generally required to be
used for distributions with annuity starting
dates in plan years beginning in years 2004
and 2005 under section 101(b)(4) of PFEA
(for determining the actuarially equivalent
straight life annuity for a form of benefit
April 30, 200710582007–18 I.R.B.

that is subject to section 417(e)) must be
made on or before the last day of the first
plan year beginning on or after January 1,
2006. Section 301(c) of PPA ’06 modified
section 101(c) of PFEA by extending the
due date for the amendment required under
section 101(b)(4) of PFEA to on or before
the last day of the first plan year beginning
on or after January 1, 2008. Thus, pursuant
to section 101(c) of PFEA (as amended by
PPA ’06), in the case of an amendment to
a plan with a calendar year plan year to re-
flect the interest rate assumption specified
by section 101(b)(4) of PFEA, the plan is
treated as having been operated in accor-
dance with its terms and the amendment
does not violate section 411(d)(6), pro-
vided that the plan is operated in confor-
mity with the amendment and the amend-
ment is adopted no later than December 31,
2008.
Under section 1107 of PPA ’06, a plan
amendment that is made pursuant to PPA
’06 (or a regulation issued by the Secre-
tary under PPA ’06) must be made on or
before the last day of the first plan year be-
ginning on or after January 1, 2009 (Jan-
uary 1, 2011, in the case of a governmental
plan within the meaning of section 414(d)).
Under section 1107 of PPA ’06, if the plan
is amended by such date and the plan is
operated in conformity with the amend-
ment, the plan is treated as having been
operated in accordance with its terms and
the amendment does not cause the plan
to fail to meet the requirements of section
411(d)(6). A plan amendment is treated as
an amendment that is made pursuant to a
statutory amendment made by PPA ’06 (or
a regulation issued by the Secretary under
PPA ’06) if the amendment is: (i) a plan
amendment to reflect the changes to the as-
sumptions in section 415(b)(2)(E) that are
used for converting certain forms of ben-
efits to an equivalent straight life annuity
in a limitation year beginning on or after
January 1, 2006 (section 303 of PPA ’06);
(ii) a plan amendment to reflect the modi-
fications to the purchase of permissive ser-
vice credit rules of section 415(n) (section
821 of PPA ’06); (iii) a plan amendment
to incorporate the exemption from the sec-
tion 415(b)(1)(B) compensation limit for
certain benefits provided under a defined
benefit plan maintained by an organiza-
tion described in section 3121(w)(3)(A)
(section 867 of PPA ’06); and (iv) a plan
amendment to reflect the expansion of the
definition of qualified participant in sec-
tion 415(b)(2)(H) to include certain par-
ticipants in a defined benefit plan main-
tained by an Indian tribal government (sec-
tion 906(b) of PPA ’06). However, section
1107 of PPA ’06 does not apply for other
amendments required by these regulations,
unless such amendments are pursuant to a
provision of PPA ’06 that did not amend
section 415 (for example, section 906 of
PPA ’06, relating to the definition of gov-
ernmental plan in section 414(d)). Accord-
ingly, there is no extension of the remedial
amendment period for such amendments,
and such amendments are subject to the re-
quirements of section 411(d)(6).
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It has also been deter-
mined that section 553(b) of the Adminis-
trative Procedure Act(5 U.S.C. chapter 5)
does not apply to these regulations, and be-
cause the regulations do not impose a col-
lection of information on small entities, the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6) does not apply. Pursuant to section
7805(f) of the Code, the notice of proposed
rulemaking that preceded these regulations
was submitted to the Chief Counsel for
Advocacy of the Small Business Adminis-
tration for comment on its impact on small
business.
Drafting Information
The principal authors of these reg-
ulations are Vernon S. Carter and
Linda S. F. Marshall, Office of Divi-
sion Counsel/Associate Chief Counsel
(Tax Exempt and Government Entities),
and Christopher A. Crouch, formerly of
the Office of Division Counsel/Associate
Chief Counsel (Tax Exempt and Govern-
ment Entities). However, other personnel
from the IRS and the Treasury Department
participated in the development of these
regulations.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 11 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. For each section set forth in the
table, remove the text that appears in the
column labeled “Remove” and add the text
that appears in the column labeled “Add”
in its place.
Regulation citeRemoveAdd
§1.401(a)–1(b)(1)(iii)1.415–1(d)(1)1.415(a)–1(d)(1)
§1.401(a)(4)–2(c)(2)(ii)1.415–6(b)(2)(i)1.415(c)–1(b)(4)
§1.414(s)–1(c)(2)1.415–2(d)(2) and (d)(3)1.415(c)–2(b) and (c)
§1.414(s)–1(c)(2)1.415–2(d)(10) and (d)(11)1.415(c)–2(d)(2), (d)(3) and (d)(4)
§1.414(s)–1(c)(2)1.415–2(d)(13)1.415(c)–2(d)(1)
§1.924(c)–1(d)(6)Paragraphs (d)(1) and (2) of §1.415–21.415(c)–2(b) and (c)
Par. 3. Section 1.401(a)–2(b) is revised
to read as follows:
2007–18 I.R.B.1059April 30, 2007

§1.401(a)–2 Impossibility of diversion
under qualified plan or trust.
*****
(b)Section 415 suspense ac-
count. Notwithstanding paragraph (a)
of this section, a plan, or trust forming part
of a plan, may provide for the reversion
to the employer, upon termination of the
plan, of amounts contributed to the plan
that exceed the limitations imposed under
section 415(c), to the extent set forth in
rules prescribed by the Commissioner in
revenue rulings, notices, or other guidance
published in the Internal Revenue Bulletin
(see §601.601(d)(2) of this chapter).
Par. 4. Section 1.401(a)(9)–5,
A–9(b)(1) is revised to read as follows:
§1.401(a)(9)–5 Required minimum
distributions from defined contribution
plans.
*****
A–9. * * *
(b) * * *
(1) Elective deferrals (as defined in
section 402(g)(3)) and employee contri-
butions that, pursuant to rules prescribed
by the Commissioner in revenue rul-
ings, notices, or other guidance published
in the Internal Revenue Bulletin (see
§601.601(d)(2) of this chapter), are re-
turned to the employee (together with the
income allocable thereto) in order to com-
ply with the section 415 limitations.
*****
Par. 5. Section 1.401(k)–1 is amended
by adding paragraph (e)(8) to read as fol-
lows:
§1.401(k)–1 Certain cash or deferred
arrangements.
*****
(e) * * *
(8)Section 415 compensation required.
With respect to compensation that is paid
(or would have been paid but for a cash
or deferred election) in plan years begin-
ning on or after July 1, 2007, a cash or de-
ferred arrangement satisfies this paragraph
(e) only if cash or deferred elections can
only be made with respect to amounts that
are compensation within the meaning of
section 415(c)(3) and §1.415(c)–2. Thus,
for example, the arrangement is not a qual-
ified cash or deferred arrangement if an
eligible employee who is not in qualified
military service (as that term is defined
in section 414(u)) and who is not perma-
nently and totally disabled (as defined in
section 22(e)(3)) can make a cash or de-
ferred election with respect to an amount
paid after severance from employment, un-
less the amount is paid by the later of 2
1
/2
months after severance from employment
or the end of the year that includes the date
of severance from employment and is de-
scribed in §1.415(c)–2(e)(3)(ii) or (iii).
*****
Par. 6. Section 1.402(c)–2, A–4(a) is
revised to read as follows:
§1.402(c)–2 Eligible rollover
distributions; questions and answers.
*****
A–4: * * *
(a) Elective deferrals (as defined in
section 402(g)(3)) and employee contri-
butions that, pursuant to rules prescribed
by the Commissioner in revenue rul-
ings, notices, or other guidance published
in the Internal Revenue Bulletin (see
§601.601(d)(2) of this chapter), are re-
turned to the employee (together with the
income allocable thereto) in order to com-
ply with the section 415 limitations.
*****
§§1.415–1 through 1.415–10 [Removed]
Par. 7. Sections 1.415–1 through
1.415–10 are removed.
Par. 8. Section 1.415(a)–1 is added to
read as follows:
§1.415(a)–1 General rules with respect to
limitations on benefits and contributions
under qualified plans.
(a)Trusts. Under sections 415 and
401(a)(16), a trust that forms part of a pen-
sion, profit-sharing, or stock bonus plan
will not be qualified under section 401(a)
if any of the following conditions exists:
(1) In the case of a defined benefit
plan, the annual benefit with respect to
any participant for anylimitation year ex-
ceeds the limitations of section 415(b) and
§1.415(b)–1.
(2) In the case of a defined contribution
plan, the annual additions credited with
respect to any participant for any limita-
tion year exceed the limitations of section
415(c) and §1.415(c)–1.
(3) The trust has been disqualified un-
der section 415(g) and §1.415(g)–1 for any
year.
(b)Certain annuities and ac-
counts—(1)In general. Under section
415, an employee annuity plan described
in section 403(a), anannuity contract de-
scribed in section 403(b), or a simplified
employee pension described in section
408(k) will not be considered to be de-
scribed in the otherwise applicable section
if any of the following conditions exists:
(i) The annual benefit under a defined
benefit plan with respect to any participant
for any limitation year exceeds the limita-
tions of section 415(b) and §1.415(b)–1.
(ii) The contributions and other addi-
tions credited under a defined contribution
plan with respect to any participant for any
limitation year exceed the limitations of
section 415(c) and §1.415(c)–1.
(iii) The employee annuity plan, annu-
ity contract, or simplified employee pen-
sion has been disqualified under section
415(g) and §1.415(g)–1 for any year.
(2)Special rule for section 403(b) an-
nuity contracts. If the contributions and
other additions under an annuity contract
that otherwise satisfies the requirements
of section 403(b) exceed the limitations
of section 415(c) and §1.415(c)–1 with
respect to any participant for any limita-
tion year (regardless of whether the annu-
ity contract is a defined contribution plan
or a defined benefit plan), then the por-
tion of the contract that includes such ex-
cess annual addition fails to be a section
403(b) annuity contract, and the remaining
portion of the contract is a section 403(b)
annuity contract. However, the status of
the remaining portion of the contract as a
section 403(b) annuity contract is not re-
tained unless, for the year of the excess
and each year thereafter, the issuer of the
contract maintains separate accounts for
each such portion. In addition, if the ben-
efit under an annuity contract that is a de-
fined benefit plan and that otherwise satis-
fies the requirements of section 403(b) ex-
ceeds the limitations of section 415(b) and
§1.415(b)–1 with respect to any participant
for any limitation year, then the contract
fails to be a section 403(b) annuity con-
tract.
(3)Section 403(b) annuity contract.
For purposes of section 415 and regu-
lations promulgated under section 415,
the termsection 403(b) annuity contract
April 30, 200710602007–18 I.R.B.

includes arrangements that are treated
as annuity contracts for purposes of sec-
tion 403(b). Thus, such term includes
custodial accounts described in section
403(b)(7) and retirement income accounts
described in section 403(b)(9).
(c)Regulations—(1)In general.This
section provides general rules regarding
the application of section 415. For further
rules regarding the application of section
415, see—
(i) Section 1.415(b)–1 (for general rules
regarding the limits applicable to defined
benefit plans);
(ii) Section 1.415(b)–2 (for special
rules for defined benefit plans where a
participant has multiple annuity starting
dates);
(iii) Section 1.415(c)–1 (for general
rules regarding the limits applicable to
defined contribution plans);
(iv) Section 1.415(c)–2 (for rules re-
garding the definition of compensation for
purposes of section 415);
(v) Section 1.415(d)–1 (for rules re-
garding cost-of-living adjustments to the
various limits of section 415);
(vi) Section 1.415(f)–1 (for rules for
aggregating plans for purposes of section
415);
(vii) Section 1.415(g)–1 (for rules re-
garding disqualification of plans that fail
to satisfy the requirements of section 415);
and
(viii) Section 1.415(j)–1 (for rules re-
garding limitation years).
(2)Cross references to special rules for
section 403(b) annuity contracts.Forspe-
cial rules relating to section 403(b) annuity
contracts, see—
(i) Section 1.415(c)–2(g)(1) and (3) (re-
lating to the definition of compensation for
section 403(b) annuity contracts);
(ii) Section 1.415(f)–1(f) (relating to
rules for section 403(b) annuity contracts
for purposes of aggregating plans);
(iii) Section 1.415(g)–1(b)(3)(iv)(C)
(regarding disqualification of a section
403(b) annuity contract aggregated with a
qualified defined contribution plan if the
aggregated plans exceed the limitations of
section 415(c));
(iv) Section 1.415(g)–1(c) (relating to
the plan year for section 403(b) annuity
contracts); and
(v) Section 1.415(j)–1(e) (relating to
the limitation year for section 403(b) an-
nuity contracts).
(3)Cross references to special rules for
governmental plans. For special rules re-
lating to governmental plans, see—
(i) Paragraph (f)(4) of this section (re-
garding permissive service credits);
(ii) Paragraph (g)(2) of this section
(providing a delayed effective date for
governmental plans);
(iii) Section 1.415(b)–1(a)(6)(i) (pro-
viding an exception from the compensa-
tion-based limit of section 415(b)(1)(B)
for governmental plans);
(iv) Section 1.415(b)–1(a)(7)(ii) (re-
garding a special limitation for certain
governmental plans making an election
during 1990);
(v) Section 1.415(b)–1(b)(4) (regarding
qualified governmental excess benefit ar-
rangements);
(vi) Section 1.415(b)–1(d)(3) and (4)
(regarding age adjustments to the dollar
limit of section 415(b)(1)(A) for employ-
ees of police and fire departments and
members of the Armed Forces of the
United States, and for survivor and dis-
ability benefits);
(vii) Section 1.415(b)–1(g)(3) (regard-
ing adjustments to applicable limitations
for years of participation, and adjustments
to applicable limitations for years of ser-
vice for survivor and disability benefits un-
der governmental plans);
(viii) Section 1.415(c)–1(b)(2)(ii) and
(3)(iii) (regardingamounts not treated
as annual additions under governmental
plans); and
(ix) Section 1.415(c)–2(e)(5) (provid-
ing an alternative rule for inclusion of
compensation after a severance from em-
ployment for governmental plans).
(4)Cross references to special rules for
multiemployer plans. For special rules re-
lating to multiemployer plans as defined in
section 414(f), see—
(i) Paragraph (e) of this section (regard-
ing benefits or contributions taken into ac-
count where a plan is maintained by more
than one employer);
(ii) Paragraph (f)(5)(ii) of this section
(providing a special definition of sever-
ance from employmentfor multiemployer
plans);
(iii) Section 1.415(b)–1(a)(6)(ii) (pro-
viding an exception from the compensa-
tion-based limit for multiemployer plans);
(iv) Section 1.415(b)–1(f)(3) (regard-
ing the application of the minimum
$10,000 limitation on benefits in the case
of a multiemployer plan);
(v) Section 1.415(f)–1(g) (providing
special rules for aggregating multiem-
ployer plans with other plans); and
(vi) Section 1.415(g)–1(b)(3)(ii) (re-
garding plan disqualification rules where
a multiemployer planis aggregated with a
plan that is not a multiemployer plan and
the aggregated plans exceed the limita-
tions of section 415).
(5)Cross references to special rules for
plans that are not subject to the require-
ments of section 411. For special rules re-
lating to plans that are not subject to the
requirements of section 411, see—
(i) Paragraph (d)(1) of this section and
§1.415(b)–1(a)(7)(iii) (providing that the
rule limiting accruals to the section 415(b)
limits does not apply to plans that are not
subject to the requirements of section 411);
and
(ii) Section 1.415(b)–1(b)(2)(iii) (pro-
viding rules for applying the section 411(c)
factors in determining the annual benefit
attributable to employee contributions for
plans that are not subject to the require-
ments of section 411).
(6)Cross references to spe-
cial rules for plans maintained by
churches. For special rules relating
to plans maintained by churches as
defined in section 3121(w)(3)(A),
see§§1.415(b)–1(a)(6)(iv)and
1.415(b)–1(a)(7)(iv) (providing an
exception from the compensation-based
limit for participants who have never been
a highly compensated employee of the
church).
(d)Plan provisions—(1)In general.
Although no specific plan provision is
required under section 415 in order for a
plan to establish or maintain its qualifica-
tion, the plan provisions must preclude the
possibility that any distribution under a
defined benefit plan or annual addition un-
der a defined contribution plan will exceed
the limitations of section 415. In addition,
a defined benefit plan that is subject to the
requirements of section 411 must preclude
the possibility that any accrual under the
plan will exceed the limitations of section
415. A defined benefit plan may include
provisions that automatically freeze or re-
duce the rate of benefit accrual (or limit the
benefit payable in the case of a plan that is
not subject to the requirements of section
411), and a defined contribution plan may
2007–18 I.R.B.1061April 30, 2007

include provisions that automatically limit
the annual addition to a level necessary
to prevent the limitations of section 415
from being exceeded with respect to any
participant. For rules relating to this type
of plan provision and the definitely deter-
minable benefit requirement for pension
plans, see §1.401(a)–1(b)(1)(iii). Because
§1.401(a)–1(b)(1)(iii) requires that the
operation of such a provision preclude
discretion by the employer, if two defined
benefit plans that are aggregated under the
rules of section 415(f) would otherwise
provide for aggregate benefits that might
exceed the limits of section 415(b), the
plan provisions must specify (without in-
volving employer discretion) how benefits
will be limited to prevent a violation of
section 415(b).
(2)Special rule for profit-sharing and
stock bonus plans. A provision of a profit-
sharing or stock bonusplan that automati-
cally freezes or reduces the amount of an-
nual additions to ensure that the limitations
of section 415 will not be exceeded must
comply with the requirement set forth in
§1.401–1(b)(1)(ii) or (iii) (as applicable)
that such plans provide a definite prede-
termined formula for allocating the contri-
butions made to the plan among the par-
ticipants. If the operation of a provision
that automatically freezes or reduces the
amount of annual additions to ensure that
the limitations of section 415 are not ex-
ceeded does not involve discretionary ac-
tion on the part of the employer, the def-
inite predetermined allocation formula re-
quirement is not violated by the provision.
If the operation of such a provision in-
volves discretionary action on the part of
the employer, the definite predetermined
allocation formula requirement is violated.
For example, if two profit-sharing plans of
one employer otherwise provide for aggre-
gate contributions which may exceed the
limits of section 415(c), the plan provi-
sions must specify (without involving em-
ployer discretion) under which plan contri-
butions and allocations will be reduced to
prevent an excess annual addition and how
the reduction will occur.
(3)Incorporation by reference—(i)In
general. A plan is permitted to incorporate
by reference the limitations of section 415,
and will not fail to meet the definitely de-
terminable benefit requirement or the def-
inite predetermined allocation formula re-
quirement, whichever applies to the plan,
merely because it incorporates the limits of
section 415 by reference.
(ii)Section 415 can be applied in more
than one manner, but a statutory or regula-
tory default rule exists. Where a provision
of section 415 is permitted to be applied in
more than one manner but is to be applied
in a specified manner in the absence of
contrary plan provisions (in other words,
a default rule exists), if a plan incorporates
the limitations of section 415 by reference
with respect to that provision of section
415 and does not specifically vary from the
default rule, then the default rule applies.
With respect to a provision of section 415
for which a default rule exists, if the limi-
tations of section 415 are to be applied in
a manner other than using the default rule,
the plan must specify the manner in which
the limitation is to be applied in addition
to generally incorporating the limitations
of section 415 by reference. For example,
if a plan generally incorporates the limita-
tions of section 415 by reference and does
not restrict the accrued benefits to which
the amendments to section 415(b)(2)(E)
made by the Uruguay Round Agreements
Act of 1994, Public Law 103–465 (108
Stat. 4809) (GATT), apply (as permitted
by Q&A–12 of Rev. Rul. 98–1, 1998–1
C.B. 249 (see §601.601(d)(2) of this chap-
ter), which reflects the amendments to sec-
tion 767 of GATT made by section 1449
of the Small Business Job Protection Act
of 1996, Public Law 104–188 (110 Stat.
1755)), then the amendments to section
415(b)(2)(E) made by GATT apply to all
benefits under the plan.
(iii)Section 415 can be applied in more
than one manner with no statutory or reg-
ulatory default. If a limitation of section
415 may be applied in more than one man-
ner, and if there is no governing princi-
ple pursuant to which that limitation is ap-
plied in the absence of contrary plan provi-
sions, then the plan must specify the man-
ner in which the limitation is to be ap-
plied in addition to generally incorporating
the limitations of section 415 by reference.
For example, if an employer maintains two
profit-sharing plans, and if any participant
participates in more than one such plan,
then both plans must specify (in a con-
sistent manner) under which of the em-
ployer’s two profit-sharing plans annual
additions must be reduced if aggregate an-
nual additions would otherwise exceed the
limitations of section 415(c)).
(iv)Former requirements. A plan is not
permitted to incorporate by reference for-
merly applicable requirements of section
415 that are no longer in force (such as the
limits of former section 415(e)).
(v)Cost-of-living adjustments—(A)In
general. A plan is permitted to incorpo-
rate by reference the annual adjustments
to the limitations of section 415 that are
made pursuant to section 415(d). See
§1.415(d)–1 for additional rules relating
to cost-of-living adjustments under section
415(d).
(B)Cost-of-living adjustments not in-
cluded in accrued benefit until effective.
Notwithstanding that a plan incorporates
the increases to the applicable limits under
section 415(d) by reference, the accrued
benefit of a participant for purposes of sec-
tion 411 and any amount payable to a par-
ticipant for purposes of §1.415(b)–1(a)(1)
are not permitted to reflect increases pur-
suant to the annual increase under section
415(d) of the dollar limitation described in
section 415(b)(1)(A) or the compensation
limit described in section 415(b)(1)(B) for
any period before the annual increase be-
comes effective. See §1.415(d)–1(a)(3)
for rules relating to when the annual ad-
justments to the dollar and compensation
limitations are effective. A plan amend-
ment does not violate the requirements of
section 411(d)(6) merely because it elim-
inates the incorporation by reference of
the increases under section 415(d) with re-
spect to increases that have not yet oc-
curred.
(C)Application of increase in defined
benefit dollar limit to participants who
have incurred a severance from employ-
ment or commenced receiving benefits.
If a plan incorporates by reference the
annual adjustments to the limitations of
section 415 pursuant to this paragraph
(d)(3)(v), the plan will be treated as ap-
plying the section 415(d) cost-of-living
adjustments to the maximum extent per-
mitted under the safe harbor described in
§1.415(d)–1(a)(5), except to the extent
provided in this paragraph (d)(3)(v)(C).
Thus, such a plan is not subject to the
requirements of §1.415(b)–1(b)(1)(iii)
(providing special rules for determining
the annual benefit of an employee in the
case of multiple annuity starting dates)
with respect to benefit increases that re-
sult solely from an increase in the section
415(b) limits pursuant to section 415(d). If
April 30, 200710622007–18 I.R.B.

a plan incorporates by reference the annual
adjustments to the limitations of section
415 pursuant to this paragraph (d)(3)(v),
the annual increase under section 415(d)
of the dollar limitation described in sec-
tion 415(b)(1)(A) does not apply with
respect to a participant if the increase
is effective after the participant’s sever-
ance from employment with the employer
maintaining the plan (or, if earlier, after
the annuity starting date in the case of a
participant who has commenced receiving
benefits), unless the plan specifies that
this annual increase applies. Similarly, if a
plan incorporates by reference the annual
adjustments to the limitations of section
415 pursuant to this paragraph (d)(3)(v),
the annual increase under section 415(d)
of the compensation-based limitation de-
scribed in section 415(b)(1)(B) does not
apply with respect toa participant for
increases that are effective after the partic-
ipant’s severance from employment with
the employer maintaining the plan (or, if
earlier, after the annuity starting date in the
case of a participant who has commenced
receiving benefits), unless the plan speci-
fies that this annual increase applies.
(D)Treatment of cost-of-living ad-
justments for funding and deduction pur-
poses. In general, the annual increase
under section 415(d) of the dollar limita-
tion described in section 415(b)(1)(A) and
the compensation limitation described in
section 415(b)(1)(B) is treated as a plan
amendment, regardless of whether the plan
reflects the increase automatically through
operation of plan provisions in accordance
with this paragraph (d)(3)(v) or the plan is
amended to reflect the increase (pursuant
to §1.415(d)–1(a)(5)). However, where
a plan reflects the annual increase under
section415(d)ofthedollarlimitation
described in section 415(b)(1)(A) or the
compensation limitation described in sec-
tion 415(b)(1)(B) automatically through
operation of plan provisions pursuant
to this paragraph (d)(3)(v), the funding
method for the plan is permitted to pro-
vide for this annual increase to be treated
as an experience loss for purposes of ap-
plying sections 404, 412, and 431.
(e)Rules for plans maintained by more
than one employer. Except as provided
in §1.415(f)–1(g)(2)(i) (regarding aggre-
gation of multiemployer plans with plans
other than multiemployer plans), for pur-
poses of applying the limitations of sec-
tion 415 with respect to a participant in
a plan maintained by more than one em-
ployer, benefits and contributions attribut-
able to such participant from all of the em-
ployers maintaining the plan must be taken
into account. Furthermore, in applying the
limitations of section 415 with respect to
a participant in such a plan, the total com-
pensation received by the participant from
all of the employers maintaining the plan
is taken into account under the plan, unless
the plan specifies otherwise.
(f)Special rules—(1)Affiliated em-
ployers. Pursuant to section 414(b) and
§1.414(b)–1, all employees of all corpo-
rations that are members of a controlled
group of corporations (within the meaning
of section 1563(a), as modified by section
1563(f)(5), and determined without regard
to section 1563(a)(4) and (e)(3)(C)) are
treated as employed by a single employer
for purposes of section 415. Similarly,
pursuant to section 414(c) and regula-
tions promulgated under section 414(c),
all employees of trades or businesses that
are under common control are treated as
employed by a single employer. Thus, any
defined benefit plan or defined contribu-
tion plan maintained by any member of a
controlled group of corporations (within
the meaning of section 414(b)) or by any
trade or business (whether or not incorpo-
rated) that is part of a group of trades or
businesses that are under common control
(within the meaning of section 414(c)) is
deemed maintained by all such members
or such trades or businesses. Pursuant
to section 415(h), for purposes of section
415, sections 414(b) and 414(c) are applied
by using the phrase “more than 50 percent”
instead of the phrase “at least 80 percent”
each place the latter phrase appears in
section 1563(a)(1) and in the regulations
under section 414(c) (except for purposes
of determining whether two or more or-
ganizations are a brother-sister group of
trades or businesses under common con-
trol under the rules in §1.414(c)–2(c)).
(2)Affiliated service groups.Anyde-
fined benefit plan or defined contribution
plan maintained by any member of an af-
filiated service group (within the meaning
of section 414(m)) is deemed maintained
by all members of that affiliated service
group.
(3)Leased employees—(i)In general.
Pursuant to section414(n), except as pro-
videdinparagraph(f)(3)(ii) of this section,
with respect to any person (referred to as
the recipient) for whom a leased employee
(within the meaning of section 414(n)(2))
performs services, the leased employee is
treated as an employee of the recipient,
but contributions or benefits provided by
the leasing organization that are attribut-
able to services performed for the recipient
are treated as provided under a plan main-
tained by the recipient.
(ii)Exception for leased employees cov-
ered by safe harbor plans.Pursuantto
section 414(n)(5), the rule of paragraph
(f)(3)(i) of this section does not apply to
a leased employee with respect to services
performed for a recipient if—
(A) The leased employee is covered by
aplanthatismaintainedbytheleasingor-
ganization and that meets the requirements
of section 414(n)(5)(B); and
(B) Leased employees (determined
without regard to this paragraph (f)(3)(ii))
do not constitute more than 20 percent
of the recipient’s nonhighly compensated
workforce.
(4)Permissive service credit under gov-
ernmental plans. See section 415(n) for
rules regarding the application of the lim-
itations of sections 415(b) and (c) where a
participant makes contributions (including
a transfer described in section 403(b)(13)
or section 457(e)(17)) to a defined benefit
governmental plan to purchase permissive
service credit under the plan.
(5)Definition of severance from em-
ployment—(i)General rule.Forpur-
poses of this section and §§1.415(b)–1,
1.415(b)–2, 1.415(c)–1, 1.415(c)–2,
1.415(d)–1, 1.415(f)–1, 1.415(g)–1, and
1.415(j)–1, whether an employee has a
severance from employment with the
employer that maintains a plan is de-
termined in the same manner as under
§1.401(k)–1(d)(2) except that, for pur-
poses of determining the employer of an
employee, the modifications provided un-
der section 415(h) (described in paragraph
(f)(1) of this section) to the employer ag-
gregation rules apply. Thus, an employee
has a severance from employment when
the employee ceases to be an employee
of the employer maintaining the plan, and
an employee does not have a severance
from employment if, in connection with
a change of employment, the employee’s
new employer maintains such plan with
respect to the employee. The determina-
tion of whether an employee ceases to be
2007–18 I.R.B.1063April 30, 2007

an employee of the employer maintaining
the plan is based on all of the relevant facts
and circumstances.
(ii)Multiemployer plans. A partici-
pant in a multiemployer plan (within the
meaning of section 414(f)) is not treated as
having incurred a severance from employ-
ment with the employer maintaining the
multiemployer plan for purposes of this
section and §§1.415(b)–1, 1.415(b)–2,
1.415(c)–1, 1.415(c)–2, 1.415(d)–1,
1.415(f)–1, 1.415(g)–1, and 1.415(j)–1
if the participant continues to be an em-
ployee of another employer maintaining
the multiemployer plan.
(6)Qualified domestic relations or-
ders. Abenefitprovidedtoanalternate
payee (as defined in section 414(p)(8)) of a
participant pursuant to a qualified domes-
tic relations order (as defined in section
414(p)(1)(A)) is treated as if it were pro-
vided to the participant for purposes of
applying the limitations of section 415.
See §1.401(a)–13(g)(4)(iv).
(7)Effect on other requirements.Ex-
cept as provided in §1.417(e)–1(d)(1), the
application of section 415 does not relieve
a plan from the obligation to satisfy other
applicable qualification requirements. Ac-
cordingly, the terms of the plan must pro-
vide for the plan to satisfy section 415 as
well as all other applicable requirements.
For example, if a defined benefit plan has
a normal retirement age of 62, and if a par-
ticipant’s benefit remains unchanged be-
tween the ages of 62 and 65 because of
the application of the section 415(b)(1)(A)
dollar limit, the plan satisfies the require-
ments of section 411 only if the plan ei-
ther commences distribution of the partic-
ipant’s benefit at normal retirement age
(without regard to severance from employ-
ment) or provides for a suspension of ben-
efits at normal retirement age that satisfies
the requirements of section 411(a)(3)(B)
and 29 CFR 2530.203–3. Similarly, if the
increase to a participant’s benefit under
a defined benefit plan in a year after the
participant has attained normal retirement
age is less than the actuarial increase to
the participant’s previously accrued ben-
efit because of the application of the sec-
tion 415(b)(1)(B) compensation limitation
(which is not adjusted for commencement
after age 65), the plan satisfies the require-
ments of section 411 only if the plan ei-
ther commences distribution of the partic-
ipant’s benefit at normal retirement age
(without regard to severance from employ-
ment) or provides for a suspension of ben-
efits at normal retirement age that satisfies
the requirements of section 411(a)(3)(B)
and 29 CFR 2530.203–3.
(g)Effective date—(1)General rule.
Except as otherwise provided, this section
and §§1.415(b)–1, 1.415(c)–1, 1.415(c)–2,
1.415(d)–1, 1.415(f)–1, 1.415(g)–1, and
1.415(j)–1 apply to limitation years begin-
ning on or after July 1, 2007.
(2)Governmental plans. In the case of
a governmental plan as defined in section
414(d), this section and §§1.415(b)–1,
1.415(c)–1, 1.415(c)–2, 1.415(d)–1,
1.415(f)–1, 1.415(g)–1, and 1.415(j)–1
apply to limitation years that begin more
than 90 days after the close of the first reg-
ular legislative session of the legislative
body with authority to amend the plan that
begins on or after July 1, 2007. A govern-
mental plan is permitted to apply the pro-
visions of this section and §§1.415(b)–1,
1.415(c)–1, 1.415(c)–2, 1.415(d)–1,
1.415(f)–1, 1.415(g)–1, and 1.415(j)–1
to limitation years beginning on or after
July 1, 2007, provided the plan applies all
the applicable provisions of this section
and §§1.415(b)–1, 1.415(c)–1, 1.415(c)–2,
1.415(d)–1, 1.415(f)–1, 1.415(g)–1, and
1.415(j)–1 for such limitation years.
(3)Option to apply regulations ear-
lier. A plan may apply the rules in
§1.415(c)–2(e) regarding post-severance
compensation payments for limitation
years prior to the effective date described
in paragraphs (g)(1) and (2) of this section.
This early application affects the rules re-
lating to the definition of compensation in
§1.401(k)–1(e)(8) and §1.457–4(d).
(4)Grandfather rule for preexisting
benefits. A defined benefitplan is consid-
ered to satisfy the limitations of section
415(b) for a participant with respect to
benefits accrued or payable under the plan
as of the end of the limitation year that
is immediately prior to the effective date
of final regulations under this section and
§§1.415(b)–1, 1.415(c)–1, 1.415(c)–2,
1.415(d)–1, 1.415(f)–1, 1.415(g)–1, and
1.415(j)–1 (as provided under paragraph
(g)(1) or (2) of this section) pursuant to
plan provisions (including plan provisions
relating to the plan’s limitation year) that
were both adopted and in effect before
April 5, 2007, but only if such plan provi-
sions meet the applicable requirements of
statutory provisions, regulations, and other
published guidance relating to section 415
in effect immediately before the effective
date of final regulations under this section
and §§1.415(b)–1, 1.415(c)–1, 1.415(c)–2,
1.415(d)–1, 1.415(f)–1, 1.415(g)–1, and
1.415(j)–1 (as provided under paragraph
(g)(1) or (2) of this section). Plan pro-
visions will not be treated as failing to
satisfy these requirements merely because
the plan has not been amended to reflect
changes to section 415(b) made by the
Pension Funding Equity Act of 2004, Pub-
lic Law 108–218 (118 Stat. 596), and the
Pension Protection Act of 2006, Public
Law 109–280 (120 Stat. 780). In addi-
tion, plan provisions will not be treated
as failing to satisfy these requirements
merely because the plan’s definition of
compensation for a limitation year that
is used for purposes of applying the lim-
itations of section 415(b)(1)(B) reflects
compensation for a plan year that is in
excess of the limitation under section
401(a)(17) that applies to that plan year.
If benefits under a plan are accrued after
the applicable effective date under para-
graph (g)(1) or (2) of this section, then
the sum of the benefits grandfathered un-
der the first sentence of this paragraph
(g)(4) and benefits accrued after the ap-
plicable effective date must satisfy the
requirements of section 415, taking into
account the requirements of this section
and §§1.415(b)–1, 1.415(c)–1, 1.415(c)–2,
1.415(d)–1, 1.415(f)–1, 1.415(g)–1, and
1.415(j)–1.
Par. 9. Section1.415(b)–1isaddedto
read as follows:
§1.415(b)–1 Limitations for defined
benefit plans.
(a)General rules—(1)Maximum lim-
itations. Except as otherwise provided
under this section, a defined benefit plan
fails to satisfy the requirements of section
415(a) for a limitation year if, during the
limitation year, either the annual benefit
(as defined in paragraph (b)(1)(i) of this
section) accrued by a participant (whether
or not the benefit is vested) or the annual
benefit payable to a participant at any time
under the plan exceeds the lesser of—
(i) $160,000 (as adjusted pursuant to
section 415(d), §1.415(d)–1(a), and this
section); or
(ii) 100 percent of the participant’s
average compensation for the period of
April 30, 200710642007–18 I.R.B.

the participant’s high-3 years of service
(as adjusted pursuant to section 415(d),
§1.415(d)–1(a), and this section).
(2)Defined benefit plan. For pur-
poses of section 415 and regulations
promulgated under section 415, a de-
fined benefit plan is any plan, contract,
or account to which section 415 applies
pursuant to §1.415(a)–1(a) or (b) (or
any portion thereof) that is not a defined
contribution plan within the meaning of
§1.415(c)–1(a)(2). In addition, a sec-
tion 403(b) annuity contract that is not
described in section 414(i) is treated as
a defined benefit plan for purposes of
section 415 and regulations promulgated
under section 415.
(3)Plan provisions. As required in
§1.415(a)–1(d)(1), in order to satisfy the
limitations on benefits under this section,
the plan provisions (including the provi-
sions of any annuity) must preclude the
possibility that any annual benefit exceed-
ing these limitations will be accrued (ex-
cept as provided in paragraph (a)(7)(iii)
of this section), distributed, or otherwise
payable in any optional form of benefit (in-
cluding the normal form of benefit) at any
time (from the plan, from an annuity con-
tract that will make distributions to the par-
ticipant on behalf of the plan, or from an
annuity contract that has been distributed
under the plan). Thus, for example, a plan
that is subject to the requirements of sec-
tion 411 will fail to satisfy the limitations
of this section if the plan does not contain
terms that preclude the possibility that any
annual benefit exceeding these limitations
will be accrued or payable in any optional
form of benefit (including the normal form
of benefit) at any time, even though no par-
ticipant has actually accrued a benefit in
excess of these limitations.
(4)Adjustments to dollar limitation for
commencement before age 62 or after age
65. The age-adjusted section 415(b)(1)(A)
dollar limit computed pursuant to para-
graph (d) or (e) of this section is used in
place of the dollar limitation described
in section 415(b)(1)(A) and paragraph
(a)(1)(i) of this section in the case of a
benefit with an annuity starting date that
occurs before the participant attains age
62 or after the participant attains age 65.
(5)Average compensation for period
of high-3 years of service—(i)In gen-
eral. Except as otherwise provided in this
paragraph (a)(5), for purposes of apply-
ing the limitation on benefits described in
this section, the period of a participant’s
high-3 years of service is the period of
3 consecutive calendar years (taking into
account the rule in paragraph (a)(5)(iii) of
this section) during which the employee
had the greatest aggregate compensation
(as defined in §1.415(c)–2) from the em-
ployer, and the average compensation for
the period of a participant’s high-3 years
of service is determined by dividing the
aggregate compensation for this period by
3. For purposes of this paragraph (a)(5),
in determining a participant’s high-3 years
of service, the plan may use any 12-month
period to determine a year of service in-
stead of the calendar year, provided that
it is uniformly and consistently applied
in a manner that is specified under the
terms of the plan. As provided under
§1.415(c)–2(f), because a plan is not per-
mitted to base benefits on compensation
in excess of the limitation under section
401(a)(17), a plan’s definition of compen-
sation for a year that is used for purposes
of applying the limitations of section 415
is not permitted to reflect compensation
for a year that is in excess of the limitation
under section 401(a)(17) that applies to
that year. See §§1.401(a)(17)–1(a)(3)(i)
and 1.401(a)(17)–1(b)(3)(ii) for rules re-
garding the effective date of increases in
the section 401(a)(17) compensation lim-
itation for a plan year and for a 12-month
period other than the plan year.
(ii)Short periods of service.Forapar-
ticipantwhoisemployedwithanemployer
for less than 3 consecutive years, the pe-
riod of the participant’s high-3 years of
service is the actual number of consecu-
tive years of service (including fractions of
years, but not less than one year). In such a
case, the limitation of section 415(b)(1)(B)
of 100 percent of the participant’s aver-
age compensation for the period of the par-
ticipant’s high-3 years of service is com-
puted by dividing the participant’s com-
pensation during the participant’s longest
consecutive period of service by the num-
ber of years in that period (including frac-
tions of years, but not less than one year).
The rule in paragraph (a)(5)(iii) of this sec-
tion is used for purposes of determining a
participant’s consecutive years of service.
(iii)Break in service. In the case of a
participant who has had a severance from
employment with an employer that main-
tains the plan and who is subsequently
rehired by the employer, the period of
the participant’s high-3 years of service
is calculated by excluding all years for
which the participant performs no ser-
vices for and receives no compensation
from the employer maintaining the plan
(referred to as the break period), and by
treating the year of service immediately
prior to and the year of service imme-
diately after the break period as if such
years of service were consecutive. See
§1.415(d)–1(a)(2)(iii) for a special rule for
determining a rehired participant’s section
415(b)(1)(B) compensation limit in the
case of a plan that adjusts the compen-
sation limit for limitation years after the
limitation year in which the participant
incurs a severance from employment.
(iv)Examples. For purposes of these
examples, except as otherwise stated, the
plan year and the limitation year are the
calendar year, and the plan uses the cal-
endar year for purposes of determining the
period of high-3 years of service. In ad-
dition, except as otherwise stated, it is as-
sumed that the plan’s normal retirement
age is 65, and all participants discussed in
these examples have at least ten years of
service with the employer and at least ten
years of participation in the plan at issue.
It is also assumed that none of the plans in
the examples are governmental plans. The
following examples illustrate the rules of
this paragraph (a)(5):
Example 1.(i)Facts. PlanA,whichwasestab-
lished on January 1, 2008, covers Participant M, who
was hired on January 1, 1990. Participant M’s com-
pensation (as defined in §1.415(c)–2) from the em-
ployer maintaining the plan is $140,000 each year for
1990 through 1992, is $120,000 each year for 1993
through 2007, and is $165,000 for 2008 and 2009.
Assume that for Plan A’s 2008 and 2009 limitation
years, the section 415(b)(1)(A) age-adjusted dollar
limit for M is $185,000 and $190,000, respectively,
prior to the reduction of the age-adjusted dollar limit
pursuant to paragraph (g)(1) of this section (which re-
quires a reduction in the dollar limit if a participant
has less than 10 years of participation in the plan).
(ii)Conclusion. As of the end of the 2008 limita-
tion year, the period of M’s high-3 consecutive years
of service runs from January 1, 1990, through De-
cember 31, 1992, and M’s average compensation for
this period is $140,000. Thus, the limitation under
section 415(b)(1)(B) for the 2008 limitation year is
$140,000. As of the end of the 2009 limitation year,
the period of M’s high-3 consecutive years of ser-
vice runs from January 1, 2007, through December
31, 2009, and M’s average compensation for this pe-
riod is $150,000. Thus, the limitation under section
415(b)(1)(B) for the 2009 limitation year is $150,000.
Example 2.(i)Facts. Participant N is a partic-
ipant in Plan B. N’s compensation for 2008, 2009,
2007–18 I.R.B.1065April 30, 2007

and 2010 is $300,000 for each year. N’s average
compensation for the period of N’s high-3 years of
service (determined before the application of section
401(a)(17)) is $300,000, based on N’s compensation
for 2008, 2009, and 2010. For all years before 2008,
Participant N’s compensation was less than the then-
applicable section 401(a)(17) limit. On January 1,
2011, N commences receiving benefits from Plan B at
the age of 75, 10 years after attaining N’s normal re-
tirement age under Plan B, when the age-adjusted sec-
tion 415(b)(1)(A) dollar limit for benefits commenc-
ing at that age is $293,453.
(ii)Conclusion. Pursuant to §1.415(c)–2(f) and
section 401(a)(17), Plan B is not permitted to provide
for a definition of compensation that includes com-
pensation for a year that is in excess of the limitation
under section 401(a)(17) that applies to that year. Ac-
cordingly, the limitation under section 415(b)(1)(B)
based on N’s average compensation for the period of
N’s high three years of service must not reflect com-
pensation for a year that is in excess of the limita-
tion under section 401(a)(17)that applies to that year.
Thus, if the limitation under section 401(a)(17) for
years beginning in 2008, 2009, and 2010 is $230,000,
$235,000, and $240,000, respectively, then the limi-
tation under section 415(b)(1)(B) based on N’s av-
erage compensation for the period of N’s high three
years of service is $235,000.
Example 3.(i)Facts. The facts are the same as in
Example 2, except that N commences receiving ben-
efits from Plan B on January 1, 2008, at the age of 75,
10 years after attaining N’s normal retirement age un-
der Plan B. In addition, N’s period of high three years
of service is from January1, 2003, through December
31, 2005, and N’s average compensation for this pe-
riod is $300,000. The section 401(a)(17) limits for
2003, 2004 and 2005 are $200,000, $205,000, and
$210,000, respectively. As of December 31, 2007,
pursuant to plan provisions adopted and in effect on
January 1, 2007, N’s accrued benefit under Plan B,
payable in the form of a straight life annuity, actuari-
ally adjusted to reflect commencement 10 years after
normal retirement age, is $300,000. Plan B has not
been amended during 2007, and that as of Decem-
ber 31, 2007, Plan B satisfied all of the requirements
of section 415(b) with respect to N’s accrued bene-
fit, pursuant to statutory provisions, regulations, and
other published guidance in effect immediately be-
fore the limitation year beginning on January 1, 2008.
(ii)Conclusion. Under §1.415(a)–1(g)(4), Plan B
is considered to satisfy the section 415(b)(1)(B) com-
pensation limit with respect to N’s benefit payable at
age 75 of $300,000 (which N accrued prior to January
1, 2008), for limitation years beginning after Decem-
ber 31, 2007. This is because§1.415(a)–1(g)(4) pro-
vides that plan provisions will not be treated as failing
to satisfy the requirements of section 415(b)(1)(B)
merely because the plan’s definition of compensa-
tion that is used for purposes of applying the limi-
tations of section 415(b)(1)(B) reflects compensation
in excess of the section 401(a)(17) limitation for lim-
itation years beginning before January 1, 2008. N,
however, cannot accrue any additional benefits under
Plan B for limitation years beginning after December
31, 2007, until N’s section 415(b)(1)(B) compensa-
tion limit, as limited by §1.415(c)–2(f) and section
401(a)(17), increases above $300,000.
Example 4.(i)Facts. Participant O participates in
Plan C, maintained by Employer X. Plan C does not
adjust a participant’s section 415(b)(1)(B) compensa-
tion limit for limitation years after the limitation year
in which the participant incurs a severance from em-
ployment. Prior to separating from employment with
X in 2010, O’s average compensation for O’s period
of high-3 years of service is $50,000, based on O’s
compensation for 2007, 2008, and 2009, which was
$50,000 for each year. O’s compensation for 2010
was $45,000. O’s compensation is $0 for 2011. In
2012, O is rehired by X and resumes participation in
Plan C. O’s compensation in 2012 is $45,000, and is
$70,000 in 2013.
(ii)Conclusion. As of the end of the 2013 limita-
tion year, O’s average compensation for O’s period of
high-3 years of service is $53,333, based on O’s com-
pensation in 2010, 2012, and 2013. See paragraph
(a)(5)(iii) of this section.
Example 5.(i)Facts. The facts are the same
as inExample 4, except that, in accordance with
§1.415(a)–1(d)(3)(v), Plan C incorporates by refer-
ence section 415(d) adjustments to a participant’s
section 415(b)(1)(B) compensation limit for limi-
tation years after the limitation year in which the
participant incurs a severance from employment.
Assume that the annual adjustment factor described
in §1.415(d)–1(a)(2)(ii) for 2011 through 2013 is
1.03 for each year. Thus, disregarding O’s rehire
by X, O’s average compensation for O’s period of
high-3 years of service for the 2013 limitation year
is equal to $54,636 ($50,000 * 1.03 * 1.03 * 1.03).
(ii)Conclusion. Under §1.415(d)–1(a)(2)(iii),
O’s average compensation for O’s period of high-3
years of service for the 2013 limitation year is
$54,636.
(6)Exceptions from compensation
limit. The limit under paragraph (a)(1)(ii)
of this section (100 percent of the par-
ticipant’s average compensation for the
participant’s high-3 years of service) does
not apply to—
(i) A governmental plan (as defined in
section 414(d));
(ii) A multiemployer plan (as defined in
section 414(f));
(iii) A collectively bargained plan that
is described in section 415(b)(7); or
(iv) A participant in a plan maintained
by an organization described in section
3121(w)(3)(A) who has never been a
highly compensated employee (within the
meaning of section 414(q)) of the organi-
zation.
(7)Special rules—(i)Total benefits
not in excess of $10,000. See section
415(b)(4) and paragraph (f) of this section
for an exception from the limits of section
415(b)(1) and paragraph (a)(1) of this sec-
tion with respect to retirement benefits that
do not exceed $10,000 for the limitation
year.
(ii)Governmental plans electing during
1990. For a special limitation applicable
to certain governmental plans electing the
application of this rule during the first plan
year beginning after December 31, 1989,
see section 415(b)(10).
(iii)Defined benefit plans not subject to
the requirements of section 411. In the case
of a defined benefit plan that is not sub-
ject to the requirements of section 411, the
limitations described in this paragraph (a)
are not required to be applied to the annual
benefit accrued by a participant before the
benefit is payable. However, such a de-
fined benefit plan is subject to the limita-
tions described in this paragraph (a) with
respect to the annual benefit payable to a
participant at any time under the plan.
(iv)Application of compensation lim-
itation exception to a church employee
who becomes a highly compensated em-
ployee—(A)In general.Ifaparticipant
who was described in paragraph (a)(6)(iv)
of this section for a prior limitation year
later becomes a highly compensated em-
ployee (within the meaning of section
414(q)) of the organization that main-
tains the defined benefit plan, the plan is
not treated as failing to satisfy the com-
pensation-based limitation described in
paragraph (a)(1)(ii) of this section with re-
spect to the participant if the requirements
of paragraph (a)(7)(iv)(B) of this section
are satisfied with respect to the participant.
(B)Limitation on accruals.There-
quirements of this paragraph (a)(7)(iv)(B)
are satisfied with respect to a participant
if no plan amendments increasing the
participant’s benefits are adopted during
the limitation year in which the partici-
pant first becomes a highly compensated
employee (within the meaning of section
414(q)) of the organization that main-
tains the plan, and there is no increase in
the participant’s accrued benefit derived
from employer contributions (including
increases as a result of increased compen-
sation or service) in subsequent limitation
years.
(b)Annual benefit—(1)In general—(i)
Definition of annual benefit—(A)Straight
life annuities. For purposes of this sec-
tion and §1.415(b)–2, the termannual ben-
efitmeans a benefit that is payable in the
form of a straight life annuity. Astraight
life annuitymeans an annuity payable in
equal installments for the life of the par-
ticipant that terminates upon the partici-
pant’s death. Examples of benefits that are
not in the form of a straight life annuity
include an annuity with a post-retirement
April 30, 200710662007–18 I.R.B.

death benefit and an annuity providing a
guaranteed number of payments. If a ben-
efit is payable in the form of a straight life
annuity, no adjustment is made to the ben-
efit to account for differences in the timing
of payments during a year (for example, no
adjustment is made on account of the an-
nuity being payable in annual or monthly
installments).
(B)Other benefit forms. With respect
to a benefit payable in a form other than
a straight life annuity, the annual bene-
fit is determined as the straight life annu-
ity payable on the first day of each month
that is actuarially equivalent to the bene-
fit payable in such other form, determined
under the rules of paragraph (c) of this sec-
tion.
(ii)Rules for determination of an-
nual benefit. The annual benefit does
not include the annual benefit attribut-
able to either employee contributions or
rollover contributions (as described in
sections 401(a)(31), 402(c)(1), 403(a)(4),
403(b)(8), 408(d)(3), and 457(e)(16)),
determined pursuant to the rules of para-
graph (b)(2) of this section. The treatment
of transferred benefits is determined un-
der the rules of paragraph (b)(3) of this
section. Paragraph (b)(4) of this section
discusses the treatment of qualified gov-
ernmental excess benefit arrangements.
(iii)Determination of annual benefit
in the case of multiple annuity starting
dates—(A)General rule. If a participant
has or will have distributions commencing
at more than one annuity starting date,
then the limitations of section 415 must
be satisfied as of each of the annuity
starting dates, taking into account the ben-
efits that have been or will be provided
at all of the annuity starting dates. This
will happen, for example, where benefit
distributions to a participant have pre-
viously commenced under a plan that is
aggregated for purposes of section 415
with a plan under which the participant
receives current accruals. In determining
the annual benefit for such a participant
as of a particular annuity starting date,
the plan must actuarially adjust the past
and future distributions with respect to
the benefits that commenced at the other
annuity starting dates. For limitation years
to which §1.415(b)–2 applies, these ad-
justments must be made using the rules
of §1.415(b)–2. For purposes of this
paragraph (b)(1)(iii) and §1.415(b)–2, the
determination of whether a new annuity
starting date has occurred is made with-
out regard to the rule of §1.401(a)–20,
Q&A–10(d) (under which the commence-
ment of certain distributions may not give
rise to a new annuity starting date).
(B)Scope of multiple annuity starting
date rules. The rules provided in this para-
graph (b)(1)(iii) and §1.415(b)–2 apply for
purposes of determining the annual bene-
fit of a participant where a new distribution
election is effective during the current lim-
itation year with respect to a distribution
that previously commenced. The rules of
this paragraph (b)(1)(iii) and §1.415(b)–2
also apply for determining the annual ben-
efit of a participant for purposes of apply-
ing the limitations of section 415(b) and
this section where benefit payments are in-
creased as a result of plan terms or a plan
amendment applying a cost-of-living ad-
justment or similar benefit increase, un-
less the increase is described in paragraph
(b)(1)(iii)(C) of this section.
(C)Safe harbors for certain benefit in-
creases. An increase to benefit payments
as a result of plan terms or a plan amend-
ment applying a cost-of-living adjustment
or similar benefit increase is described
in this paragraph (b)(1)(iii)(C) if the in-
crease—
(1) Has previously been accounted for
as part of the annual benefit under the rules
of paragraph (c) of this section;
(2) Is not required to be accounted for
as part of the annual benefit, pursuant to
the exception for certain automatic benefit
increase features under paragraph (c)(5) of
this section;
(3) Is pursuant to a plan provision
that automatically incorporates section
415(d) cost-of-living adjustments under
§1.415(a)–1(d)(3)(v); or
(4) Complies with one of the safe har-
bors described in §1.415(d)–1(a)(5) or (6)
(providing safe harbors for annual and
other periodic adjustments to distribu-
tions).
(2)Determination of annual benefit at-
tributable to employee contributions and
rollover contributions—(i)In general.If
employee contributions (other than contri-
butions described in paragraph (b)(2)(ii) of
this section) or rollover contributions are
made to the plan, the annual benefit attrib-
utable to these contributions is determined
as provided in this paragraph (b)(2).
(ii)Certain employee contributions dis-
regarded. For purposes of this paragraph
(b)(2), the following are not treated as em-
ployee contributions:
(A) Contributions that are picked up by
a governmental employer as provided un-
der section 414(h)(2).
(B) Repayment of any loan made to a
participant from the plan.
(C) Repayment of a previously dis-
tributed amount as described in section
411(a)(7)(B) in accordance with section
411(a)(7)(C).
(D) Repayment of a withdrawal of em-
ployee contributions as provided under
section 411(a)(3)(D).
(E) Repayments that would have been
described in paragraph (b)(2)(ii)(C) or
(b)(2)(ii)(D) of this section except that the
plan does not restrict the timing of repay-
ments to the maximum extent permitted
by section 411(a).
(iii)Annual benefit attributable to
mandatory employee contributions.Inthe
case of mandatory employee contributions
as defined in section 411(c)(2)(C) and
§1.411(c)–1(c)(4) (or contributions that
would be mandatory employee contribu-
tions if section 411 applied to the plan),
the annual benefit attributable to those
contributions is determined by applying
the factors applicable to mandatory em-
ployee contributions as described in sec-
tion 411(c)(2)(B) and (C) and regulations
promulgated under section 411 to those
contributions to determine the amount of a
straight life annuity commencing at the an-
nuity starting date, regardless of whether
the requirements of sections 411 and 417
apply to that plan. For purposes of apply-
ing such factors to a plan that is not subject
to the requirements of section 411, the ap-
plicable effective date of section 411(a)(2)
(which is used under §1.411(c)–1(c)(3) to
determine the beginning date from which
statutorily specified interest must be cred-
ited to mandatory employee contributions)
must be determined as if section 411 ap-
plied to the plan, and in determining the
annual benefit that is actuarially equiva-
lent to these accumulated contributions,
the plan must determine the interest rate
that would have been required under sec-
tion 417(e)(3) as if section 417 applied
to the plan. See §1.415(c)–1(a)(2)(ii)(B)
and (b)(3) for rules regarding treatment
of mandatory employee contributions to
2007–18 I.R.B.1067April 30, 2007

a defined benefit plan as annual additions
under a defined contribution plan.
(iv)Voluntary employee contributions.
If voluntary employee contributions are
made to the plan, the portion of the plan to
which voluntary employee contributions
are made is treated as a defined contribu-
tion plan pursuant to section 414(k) and,
accordingly, is a defined contribution plan
pursuant to §1.415(c)–1(a)(2)(i). Accord-
ingly, the portion of a plan to which vol-
untary employee contributions are made is
not a defined benefit plan within the mean-
ing of paragraph (a)(2) of this section and
is not taken into account in determining the
annual benefit under the portion of the plan
that is a defined benefit plan.
(v)Annual benefit attributable to
rollover contributions. The annual benefit
attributable to rollover contributions from
an eligible retirement plan, as defined
in section 402(c)(8)(B) (for example, a
contribution received pursuant to a direct
rollover under section 401(a)(31)(A)), is
determined in the same manner as the an-
nual benefit attributable to mandatory em-
ployee contributions if the plan provides
for a benefit derived from the rollover
contribution (other than a benefit derived
from a separate account to be maintained
with respect to the rollover contribution
and actual earnings and losses thereon).
Thus, in the case of rollover contributions
from a defined contribution plan to a de-
fined benefit plan to provide an annuity
distribution, the annual benefit attribut-
able to those rollover contributions for
purposes of section 415(b) is determined
by applying the rules of section 411(c)
as described in paragraph (b)(2)(iii) of
this section, regardless of the assumptions
used to compute the annuity distribution
under the plan and regardless of whether
the plan is subject to the requirements of
sections 411 and 417. Accordingly, in
such a case, if the plan uses more favor-
able factors than those specified in section
411(c) to determine the amount of annuity
payments arising from rollover contribu-
tions, the annual benefit under the plan
would reflect the excess of those annuity
payments over the amounts that would
be payable using the factors specified in
section 411(c). See §1.415(c)–1(b)(3)(i)
for rules excluding rollover contributions
maintained in a separate account that is
treated as a defined contribution plan
pursuant to section 414(k) from annual
additions to a defined contribution plan.
(3)Treatment of transferred bene-
fits—(i)In general—(A)Treatment of
transferor plan if transferred benefits are
aggregated with transferor plan. Except
as provided in paragraph (b)(3)(ii) of this
section, when there has been a transfer
of benefits from one defined benefit plan
to another plan, to the extent the benefits
transferred to the transferee plan are oth-
erwise required to be taken into account
pursuant to section 415(f) and §1.415(f)–1
in determining whether the transferor plan
satisfies the limitations of section 415(b)
for a limitation year, the transferred bene-
fits are not treated as being provided under
the transferor plan. This will occur, for
example, if the employer sponsoring the
transferor plan and the employer spon-
soring the transferee plan are in the same
controlled group within the meaning of
section 414(b).
(B)Treatment of transferor plan if
transferred benefits are not aggregated
with transferor plan. Except as provided
in paragraph (b)(3)(ii) of this section,
when there has been a transfer of benefits
from one defined benefit plan to another
plan, to the extent the benefits transferred
to the transferee plan are not otherwise
required to be taken into account pur-
suant to section 415(f) and §1.415(f)–1 in
determining whether the transferor plan
satisfies the limitations of section 415(b)
for a limitation year, the transferred bene-
fits are treated by the transferor plan as if
such benefits were provided under annu-
ities purchased to provide benefits under
a plan that must be aggregated with the
transferor plan and that terminated imme-
diately prior to the transfer with sufficient
assets to pay all benefit liabilities under
the plan, in accordance with the rules of
paragraph (b)(5)(i) of this section. This
will occur, for example, in the case of a
transfer of benefits between defined ben-
efit plans maintained by employers that
are not required to be aggregated under
sections 414(b) and (c) (as modified by
section 415(h)) or sections 414(m).
(C)Treatment of transferee plan.Ex-
cept as provided in paragraph (b)(3)(ii) of
this section, where there has been a transfer
of benefits from one defined benefit plan to
another defined benefit plan, the transferee
plan must take into account the transferred
benefits in determining whether it satisfies
the limitations of section 415(b).
(ii)Elective transfer of distributable
benefit.Where, as described in
§1.411(d)–4, Q&A–3(c) (permitting cer-
tain elective transfers of distributable
benefits), a distributable benefit is trans-
ferred to a defined benefit plan from either
a defined contribution plan or a defined
benefit plan, the amount transferred is
treated as a benefit paid from the trans-
feror plan, and the annual benefit provided
by the transferee defined benefit plan does
not include the annual benefit attributable
to the amount transferred (determined as
if the transferred amount were a rollover
contribution subject to the rules of para-
graph (b)(2)(v) of this section). The rule in
the preceding sentence applies regardless
of whether the requirements of section
411 apply to the plan and, in the case of a
transfer from a defined contribution plan
that is not subject to the requirements of
section 411 (such as a governmental plan)
to a defined benefit plan, the rule applies
even if the participant’s benefits are not
distributable from the defined contribution
plan at the time of the transfer.
(4)Treatment of qualified governmen-
tal excess benefit arrangements.Pursuant
to section 415(m), in determining whether
a governmental plan (as defined in section
414(d)) meets the requirements of this sec-
tion, the annual benefit does not include
benefits provided under a qualified gov-
ernmental excess benefit arrangement, as
defined in section 415(m)(3). Thus, the
limitation of section 415(b) does not ap-
ply to benefits to the extent the benefits are
provided under a qualified governmental
excess benefit arrangement.
(5)Treatment of benefits provided un-
der a terminated plan—(i)Terminated
plan with sufficient assets.Ifadefined
benefit plan is terminated with sufficient
assets for the payment of the benefit liabil-
ities of all plan participants and a partic-
ipant in the plan has not yet commenced
benefits under the plan, for purposes of sat-
isfying section 415(b) with respect to the
participant, all other defined benefit plans
maintained by the employer that main-
tained the terminated plan are required to
take into account the benefits provided
pursuant to the annuities purchased to
provide benefits under the terminated plan
at each possible annuity starting date. In
such a case, see paragraph (b)(1)(iii) of
April 30, 200710682007–18 I.R.B.

this section for rules regarding the deter-
mination of a participant’s annual benefit
if the participant commences receiving
benefits under the terminated plan.
(ii)Terminated plan with insufficient
assets. If a defined benefit plan is termi-
nated and there are not sufficient assets for
the payment of the benefit liabilities of all
plan participants, for purposes of satisfy-
ing section 415(b) with respect to a partic-
ipant, all other defined benefit plans main-
tained by the employer that maintained the
terminated plan are required to take into
account the benefits that are actually pro-
vided to the participant under the termi-
nated plan. For example, in the case of a
plan that is subject to Title IV of the Em-
ployee Retirement Income Security Act of
1974 (88 Stat. 829), Public Law 93–406
(ERISA), and that terminates with insuf-
ficient assets for the payment of the ben-
efit liabilities of all plan participants, all
other defined benefit plans maintained by
the employer that maintained the termi-
nating plan must take into account ben-
efits that are paid by the Pension Bene-
fit Guaranty Corporation. In such a case,
see paragraph (b)(1)(iii) of this section for
rules regarding the determination of a par-
ticipant’s annual benefit if the participant
commences receiving benefits under the
terminated plan.
(iii)Other guidance. The Commis-
sioner may provide guidance regarding the
rules applicable to terminated plans (and
plans that are deemed to have been termi-
nated pursuant to paragraph (b)(3)(i)(B)
of this section) in revenue rulings, notices,
and other guidance published in the Inter-
nal Revenue Bulletin. See §601.601(d) of
this chapter.
(c)Adjustment to form of benefit for
forms other than a straight life annu-
ity—(1)In general. This paragraph (c)
provides rules for adjusting a form of
benefit other than a straight life annu-
ity to an actuarially equivalent straight
life annuity beginning at the same time
for purposes of determining the annual
benefit described in paragraph (b) of this
section. Paragraph (c)(2) of this section
describes how to adjust a benefit paid in
a form to which section 417(e)(3) does
not apply. Paragraph (c)(3) of this section
describes how to adjust a benefit paid in
a form to which section 417(e)(3) applies.
Paragraph (c)(4) of this section describes
benefit forms for which no adjustment is
required. Paragraph (c)(5) of this section
provides an exception from the require-
ments of this paragraph (c) with respect
to certain automatic benefit increase fea-
tures. Paragraph (c)(6) of this section sets
forth examples illustrating the application
of this paragraph (c). The Commissioner
may, in revenue rulings, notices, or other
guidance published in the Internal Rev-
enue Bulletin set forth simplified methods
for adjusting a form of benefit other than a
straight life annuity to an actuarially equiv-
alent straight life annuity beginning at the
same time for purposes of determining the
annual benefit described in paragraph (b)
of this section. See §601.601(d)(2) of this
chapter.
(2)Benefits paid in a form to which sec-
tion 417(e)(3) does not apply. For a benefit
paid in a form to which section 417(e)(3)
does not apply, the actuarially equivalent
straight life annuity benefit is the greater
of—
(i) The annual amount of the straight
life annuity (if any) payable to the partic-
ipant under the plan commencing at the
same annuity starting date as the form of
benefit payable to the participant; or
(ii) The annual amount of the straight
life annuity commencing at the same an-
nuity starting date that has the same ac-
tuarial present value as the form of ben-
efit payable to the participant, computed
using a 5 percent interest assumption and
the applicable mortality table described in
§1.417(e)–1(d)(2) for that annuity starting
date.
(3)Benefits paid in a form to which sec-
tion 417(e)(3) applies—(i)In general.Ex-
cept as otherwise provided in this para-
graph (c)(3), for a benefit paid in a form to
which section 417(e)(3) applies, the actu-
arially equivalent straight life annuity ben-
efit is the greatest of:
(A) The annual amount of the straight
life annuity commencing at the annuity
starting date that has the same actuarial
present value as the particular form of ben-
efit payable, computed using the interest
rate and mortality table, or tabular factor,
specified in the plan for actuarial equiva-
lence;
(B) The annual amount of the straight
life annuity commencing at the annuity
starting date that has the same actuarial
present value as the particular form of ben-
efit payable, computed using a 5.5 per-
cent interest assumption and the applica-
ble mortality table for the distribution un-
der §1.417(e)–1(d)(2); or
(C) The annual amount of the straight
life annuity commencing at the annuity
starting date that has the same actuarial
present value as the particular form of ben-
efit payable (computed using the applica-
ble interest rate for the distribution un-
der §1.417(e)–1(d)(3) and the applicable
mortality table for the distribution under
§1.417(e)–1(d)(2)), divided by 1.05.
(ii)Special rule for distributions in plan
years beginning in 2004 and 2005.For
a distribution to which section 417(e)(3)
applies and which has an annuity starting
date occurring in plan years beginning in
2004 or 2005, except as provided in sec-
tion 101(d)(3) of the Pension Funding Eq-
uity Act of 2004, Public Law 108–218
(118 Stat. 596), the actuarially equivalent
straight life annuity benefit is the greater
of—
(A) The annual amount of the straight
life annuity commencing at the annuity
starting date that has the same actuarial
present value as the particular form of ben-
efit payable, computed using the interest
rate and mortality table, or tabular factor,
specified in the plan for actuarial equiva-
lence; or
(B) The annual amount of the straight
life annuity commencing at the annuity
starting date that has the same actuarial
present value as the particular form of ben-
efit payable, computed using a 5.5 per-
cent interest assumption and the applica-
ble mortality table for the distribution un-
der §1.417(e)–1(d)(2).
(4)Certain benefit forms for which no
adjustment is required—(i)In general.For
purposes of the adjustments described in
this paragraph (c), the following benefits
are not taken into account:
(A) Survivor benefits payable to a sur-
viving spouse under a qualified joint and
survivor annuity (as defined in section
417(b)) to the extent that such benefits
would not be payable if the participant’s
benefit were not paid in the form of a
qualified joint and survivor annuity.
(B) Ancillary benefits that are not di-
rectly related to retirement benefits, such
as preretirement disability benefits not in
excess of the qualified disability benefit,
preretirement incidental death benefits (in-
cluding a qualified preretirement survivor
annuity), and post-retirement medical ben-
efits.
2007–18 I.R.B.1069April 30, 2007

(ii)Rules of application—(A)Social
security supplements. Although a social
security supplement described in section
411(a)(9) and §1.411(a)–7(c)(4) may be an
ancillary benefit, it is included in determin-
ing the annual benefit because it is payable
upon retirement and therefore is directly
related to retirement income benefits.
(B)Qualified joint and survivor annu-
ities combined with other distributions.
If benefits are paid partly in the form
of a qualified joint and survivor annuity
(QJSA) and partly in some other form
(such as a single-sum distribution), the
rule of paragraph (c)(4)(i)(A) of this sec-
tion (under which survivor benefits are
not included in determining the annual
benefit) applies to the survivor annuity
payments under the portion of the benefit
that is paid in the form of a QJSA.
(5)Exception for certain automatic
benefit increase features—(i)Gen-
eral rule. Notwithstanding paragraph
(b)(1)(i)(B) of this section, no adjustment
is required to a benefit that is paid in a
form that is not a straight life annuity to
take into account the inclusion in that form
of an automatic benefit increase feature,
as described in paragraph (c)(5)(ii) of this
section, if:
(A) The benefit is paid in a form to
which section 417(e)(3) does not apply.
(B) The plan satisfies the requirements
of paragraph (c)(5)(iii) of this section.
(ii)Definition of automatic benefit in-
crease feature. An automatic benefit in-
crease feature is included in a form of ben-
efit if that form provides for automatic, pe-
riodic increases to the benefits paid in that
form, such as a form of benefit that auto-
matically increases the benefit paid under
that form annually according to a specified
percentage or objective index, or a form
of benefit that automatically increases the
benefit paid in that form to share favorable
investment returns on plan assets.
(iii)Requirements. A plan satisfies the
requirements of this paragraph (c)(5)(iii)
with respect to a form of benefit that
includes an automatic benefit increase fea-
ture if the form of benefit without regard to
the automatic benefit increase feature sat-
isfies the requirements of section 415(b)
and this section, and the plan provides that
in no event will the amount payable to
the participant under the form of benefit
in any limitation year be greater than the
section 415(b) limit applicable at the an-
nuity starting date (which is the lesser of
the age-adjusted section 415(b)(1)(A) dol-
lar limit described in paragraph (a)(1)(i)
of this section or the section 415(b)(1)(B)
compensation limit described in paragraph
(a)(1)(ii) of this section), as increased
in subsequent years pursuant to section
415(d) and §1.415(d)–1. If the form of
benefit without regard to the automatic
benefit increase feature is not a straight
life annuity, then the preceding sentence
is applied by reducing the section 415(b)
limit applicable at the annuity starting date
to an actuarially equivalent amount (de-
termined using the assumptions specified
in paragraph (c)(2)(ii) of this section) that
takes into account the death benefits under
the form of benefit (other than the survivor
portion of a QJSA).
(6)Examples. The following examples
illustrate the provisions of this paragraph
(c). For purposes of these examples, ex-
cept as otherwise stated, actuarial equiv-
alence under the plan is determined us-
ing a 5 percent interest assumption and the
mortality table that applies under section
417(e)(3) as of January 1, 2003. It is as-
sumed for purposes of these examples that
the interest rate that applies under section
417(e)(3) and §1.417(e)–1(d)(3) for rele-
vant time periods is 5.25 percent and that
the mortality table that applies under sec-
tion 417(e)(3) and §1.417(e)–1(d)(2) for
relevant time periods is the mortality table
that applies under section 417(e)(3) as of
January 1, 2003. In addition, it is assumed
that all participants discussed in these ex-
amples have at least ten years of service
with the employer and at least ten years of
participation in the plan at issue, all pay-
ments other than a payment of a single sum
are made monthly, on the first day of each
calendar month, and each plan’s normal re-
tirementageis65. Theexamplesareas
follows:
Example 1.(i)Facts. Plan A provides a single-
sum distribution determined as the actuarial present
value of the straight life annuity payable at the ac-
tual retirement date. Plan A provides that a partic-
ipant’s single sum is determined as the greater of
the present value determined using the otherwise ap-
plicable actuarial assumptions of the plan and the
present value determined using the applicable inter-
est rate and the applicable mortality table for the dis-
tribution under section 417(e)(3). In accordance with
§1.417(e)–1(d)(1), Plan A also provides that the sin-
gle sum is not less than the actuarial present value
of the accrued benefit payable at normal retirement
age, determined using the applicable interest rate and
the applicable mortality table under section 417(e)(3)
and §1.417(e)–1(d). Participant M retires at age 65
with a benefit under the plan formula (and before the
application of section 415) of $152,619 and elects to
receive a distribution in the form of a single sum. Un-
der the plan and before the application of section 415,
the amount of the single sum is $1,800,002 (which
is based on the 5 percent interest rate and applica-
ble mortality table as of January 1, 2003, since that
present value is greater than the present value that
would have been determined using the applicable in-
terest rate (5.25 percent) and the applicable mortality
table (the January 1, 2003, table) for the distribution
under section 417(e)(3)).
(ii)Conclusion. For purposes of this section, the
annual benefit is the greatest of the annual amount of
the actuarially equivalent straight life annuity com-
mencing at the same age (determined using the plan’s
actuarial factors), the annual amount of the actuari-
ally equivalent straight life annuity commencing at
the same age (determined using a 5.5 percent inter-
est assumption and the applicable mortality table for
the distribution under §1.417(e)–1(d)(2)), and the an-
nual amount of the actuarially equivalent straight life
annuity commencing at the same age (determined us-
ing the applicable interest rate and applicable mortal-
ity table for the distribution under §§1.417(e)–1(d)(2)
and (d)(3)) divided by 1.05. Based on the factors
used in the plan to determine the actuarially equiv-
alent lump sum (in this case, an interest rate of 5 per-
cent and the applicable mortality table as of January
1, 2003), $1,800,002 payable as a single sum is actu-
arially equivalent to an immediate straight life annu-
ity at age 65 of $152,619. A single sum payment of
$1,800,002 is actuarially equivalent to an immediate
straight life annuity at age 65 of $159,105, using a 5.5
percent interest assumption and the applicable mor-
tality table under §1.417(e)–1(d)(2). Based on the ap-
plicable interest rate and the applicable mortality ta-
ble for the distribution under §§1.417(e)–1(d)(2) and
(d)(3), $1,800,002 payable as a single sum is actuar-
ially equivalent to an immediate straight life annuity
at age 65 of $155,853. $148,432 is the result when
this annual amount is divided by 1.05. With respect
to the single-sum distribution, M’s annual benefit for
purposes of section 415(b) is equal to the greatest of
the three resulting amounts ($152,619, $159,105, and
$148,432), or $159,105.
Example 2.(i)Facts. The facts are the same as in
Example 1, except that Participant M elects to receive
his benefit in the form of a 10-year certain and life
annuity. Applying the plan’s actuarial equivalence
factors, the benefit payable in this form is $146,100.
(ii)Conclusion. Since the form of benefit elected
by M is a form of benefit to which section 417(e)(3)
does not apply, the annual benefit for purposes of
this section is the greater of the annual amount of the
plan’s straight life annuity commencing at the same
age or the annual amount of the actuarially equivalent
straight life annuity commencing at the same age, de-
termined using a 5 percent interest rate and the appli-
cable mortality table described in §1.417(e)–1(d)(2)
for that annuity starting date. In this case, the straight
life annuity payable under the plan commencing at
the same age is $152,619. Because the plan’s fac-
tors for actuarial equivalence in this case are the same
standardized actuarial factors required to be applied
to determine the actuarially equivalent straight life
annuity, the actuarially equivalent straight life an-
nuity using the required standardized factors is also
April 30, 200710702007–18 I.R.B.

$152,619. With respect to the 10-year certain and
life annuity distribution, M’s annual benefit is equal
to the greater of the two resulting amounts ($152,619
and $152,619), or $152,619.
Example 3.(i)Facts. The facts are the same as in
Example 1. Participant M retires at age 62 with a ben-
efit under the plan (before the application of section
415) of $100,000 (after application of the plan’s early
retirement factors) and a Social Security supplement
of $10,000 per year payable until age 65. N chooses
to receive the accrued benefit in the form of a straight
life annuity. The Plan has no provisions under which
the actuarial value of the Social Security supplement
can be paid as a level annuity for life.
(ii)Conclusion. Because the form of benefit
elected by M is a form of benefit to which section
417(e)(3) does not apply and because the plan does
not provide for a straight life annuity beginning
at age 62, the annual benefit for purposes of this
section is the annual amount of the straight life
annuity commencing at age 62 that is actuarially
equivalent to the distribution stream of $110,000 for
three years and $100,000 thereafter, where actuarial
equivalence is determined using a 5 percent interest
rate and the applicable mortality table described in
§1.417(e)–1(d)(2) for the annuity starting date. In
this case, the actuarially equivalent straight life an-
nuity is $102,180. Accordingly, with respect to this
distribution stream, N’s annual benefit is equal to
$102,180. The results are the same without regard to
whether the Social Security supplement is a QSUPP
(as defined in §1.401(a)(4)–12).
Example 4.(i)Facts. Plan B is a defined benefit
plan that provides a benefit equal to 100 percent of a
participant’s average compensation for the period of
the participant’s high-3 years of service, payable as
a straight life annuity. For a married participant who
does not elect another form of benefit, the benefit is
payable in the form of a joint and 100 percent survivor
annuity benefit that is a QJSA within the meaning of
section 417 and that is reduced from the straight life
annuity. For purposes of determining the amount of
this QJSA, the plan provides that the reduction is only
half of the reduction that would normally apply un-
der the actuarial assumptions specified in the plan for
determining actuarial equivalence of optional forms.
The plan also provides that a married participant can
elect to receive the plan benefits as a straight life an-
nuity, or in the form of a single sum distribution that
is the actuarial equivalent of the joint and 100 per-
cent survivor annuity determined using the applicable
interest rate and the applicable mortality table under
section 417(e)(3) and §1.417(e)–1(d). Participant O
elects, with spousal consent, a single-sum distribu-
tion.
(ii)Conclusion. The special rule that disregards
the value of the survivor portion of a QJSA set forth
in paragraph (c)(4)(i) of this section only applies to a
benefit that is payable in the form of a qualified joint
and survivor annuity. Any other form of benefit must
be adjusted to a straightlife annuity in accordance
with paragraph (c)(1) of this section. Accordingly,
because the benefit payable under the plan in the form
of a single-sum distribution is actuarially equivalent
to a straight life annuity that is greater than 100 per-
cent of a participant’s average compensation for the
period of the participant’s high-3 years of service, the
limitation of section 415(b)(1)(B) has been exceeded.
Example 5.(i)Facts. Plan C is a defined bene-
fitplanthatprovidesanoptiontoreceivethebenefit
in the form of a joint and 100 percent survivor annu-
ity with a 10-year certain feature, where the survivor
beneficiary is the participant’s spouse.
(ii)Conclusion. Since this form of benefit is not
subject to section 417(e)(3), for a participant at age
65, the annual benefit with respect to the joint and
100 percent survivor annuity with a 10-year certain
feature is determined for purposes of this section as
the greater of the annual amount of the straight life
annuity payable to the participant under the plan at
age 65 (if any), or the annual amount of the straight
life annuity commencing at age 65 that has the same
actuarial present value as the joint and 100 percent
survivor annuity with a 10-year certain feature (but
excluding the survivor annuity payments pursuant to
paragraph (c)(4)(i)(A) of this section), computing us-
ing a 5 percent interest assumption and the applica-
ble mortality table described in §1.417(e)–1(d)(2) for
the annuity starting date. This latter amount is equal
to the product of the annual payments under this op-
tional form of benefit and the factor that provides for
actuarial equivalence between a straight life annuity
and a 10-year certain and life annuity (with no annu-
ity for the survivor) computed using a 5 percent inter-
est rate and the applicable mortality table described in
§1.417(e)–1(d)(2) for the annuity starting date.
Example 6.(i)Facts. Plan E provides a bene-
fit at age 65 of a straight life annuity equal to the
lesser of 90 percent of the participant’s average com-
pensation for the period of the participant’s high-3
years of service and $148,500. Upon retirement at
age 65, the optional forms of benefit available to
a participant include payment of a QJSA with an-
nual payments equal to 50 percent of the annual pay-
ments under the straight life annuity, along with a
single-sum distribution that is actuarially equivalent
(determined as the greater of the single sum calcu-
lated using a 5 percent interest assumption and the
section 417(e)(3)(A)(ii)(I) mortality table in effect on
January 1, 2003, and the single sum calculated us-
ing the section 417(e)(3)(A)(ii)(II) applicable inter-
est rate and the section 417(e)(3)(A)(ii)(I) applicable
mortality table for the distribution) to 50 percent of
the annual payments under the straight life annuity.
Participant Q retires at age 65. Q’s average compen-
sation for the period of Q’s high-3 years of service is
$100,000. Q elects to receive a distribution in the op-
tional form of benefit described above, under which
the annual payments under the QJSA are $45,000 and
the single-sum distribution is equal to $530,734. Q’s
spouse is 3 years younger than Q.
(ii)Determination of annual benefit. Q’s annual
benefit under Plan E for purposes of section 415(b) is
determined as the sum of the annual benefit attribut-
able to the QJSA portion of the distribution and the
annual benefit attributable to the single-sum portion
of the distribution.
(iii)Annual benefit attributable to QJSA portion.
Because survivor benefits are not taken into account
in determining the annual benefit attributable to the
QJSA portion of the distribution, the annual benefit
attributable to the QJSA portion of the distribution is
determined as if that distribution were a straight life
annuity of $45,000 per year commencing at age 65.
Thus, no form adjustment is needed to determine the
annual benefit attributable to the QJSA portion of the
distribution, and the annual benefit attributable to the
QJSA portion of the benefit is $45,000.
(iv)Annual benefit attributable to single sum por-
tion. The annual benefit attributable to the single sum
portion of the distribution is determined as the great-
est of the annual amount of the actuarially equivalent
straight life annuity commencing at the same age
(determined using the plan’s actuarial factors), the
annual amount of the actuarially equivalent straight
life annuity commencing at the same age (determined
using a 5.5 percent interest assumption and the ap-
plicable mortality table under §1.417(e)–1(d)(2) for
the distribution), and the annual amount of the actu-
arially equivalent straight life annuity commencing
at the same age (determined using the applicable
interest rate and applicable mortality table under
section 417(e)(3) and §§1.417(e)–1(d)(2) and (d)(3)
for the distribution) divided by 1.05. With respect
to the single-sum distribution, the annual amount
of the actuarially equivalent straight life annuity
commencing at the same age determined using the
plan’s actuarial factors is equal to $45,954. The
annual amount of the actuarially equivalent straight
life annuity commencing at the same age determined
using a 5.5 percent interest assumption and the appli-
cable mortality table under §1.417(e)–1(d)(2) for the
distribution is $46,912. The actuarially equivalent
straight life annuity commencing at the same age
determined using the applicable interest rate and the
applicable mortality table under section 417(e)(3)
and §§1.417(e)–1(d)(2) and (d)(3) for the distribu-
tion is equal to $45,954. This amount divided by
1.05 is equal to $43,766. Thus, the annual benefit
attributable to the single sum portion of the benefit
is $46,912.
(v)Conclusion. Q’s annual benefit under the op-
tional form of benefit for purposes of section 415(b)
is equal to the sum of the annual benefit attributable
to the QJSA portion of the distribution and the annual
benefit attributable to the single sum portion of the
distribution, or $91,912. Because Q’s average com-
pensation for the period of Q’s high-3 years of service
is $100,000, the distribution satisfies the compensa-
tion limit of section 415(b)(1)(B).
Example 7.(i)Facts. Plan D is a defined benefit
plan with a normal retirement age of 65. The normal
retirement benefit under Plan D (and the only life an-
nuity available under Plan D) is a life annuity with a
fixed increase of 2 percent per year. The increase ap-
plies to the benefit provided in the prior year and is
thus compounded. The plan provides that the bene-
fit is limited to the lesser of 84 percent of the partici-
pant’s average compensation for the period of the par-
ticipant’s high-3 years of service or 84 percent of the
age-adjusted section 415(b)(1)(A) dollar limit (which
is assumed to be $180,000 at age 65). Plan D does not
incorporate the section 415(d) cost-of-living adjust-
ments to the section 415(b) limits for limitation years
following the limitation year in which a participant
incurs a severancefrom employment. Participant P’s
retires at age 65, at which time P’s average compen-
sation for the period of P’s high-3 years of service
is $165,000. Under Plan D, P commences receiving
benefits in the form of a life annuity of $138,600 with
a fixed increase of 2 percent per year.
(ii)Conclusion. Because Plan D does not pro-
vide for a straight life annuity and the form of ben-
efit is not subject to section 417(e)(3), P’s annual
benefit for purposes of section 415(b) is the annual
2007–18 I.R.B.1071April 30, 2007

amount of the straight life annuity, commencing at
age 65, that is actuarially equivalent to the distribu-
tion stream of $138,600 with a fixed increase of 2
percent per year, where actuarial equivalence is de-
termined using a 5 percent interest rate and the appli-
cable mortality table for the distribution under sec-
tion 417(e)(3) and §1.417(e)–1(d)(2). In order to sat-
isfy the requirements of section 415 and this section,
this annual benefit must not exceed 100 percent of
the average compensation for the period of the par-
ticipant’s high-3 years of service, or $165,000. Us-
ing a 5 percent interest rate and the section 417(e)(3)
applicable mortality table for the distribution, the ac-
tuarially equivalent straight life annuity is $165,453,
which exceeds $165,000. Accordingly, the plan fails
to satisfy the compensation-based limitation of sec-
tion 415(b)(1)(B).
Example 8.(i)Facts. The facts are the same as
inExample 7, except that Plan D incorporates by
reference the section 415(d) cost-of-living adjust-
ments to the section 415(b) limits as described in
§1.415(a)–1(d)(3)(v) and Plan D provides that the
benefit is limited to the applicable section 415(b)
limit. Under Plan D, P commences receiving benefits
at age 65 in the form of a life annuity of $138,221
with a fixed increase of 2 percent per year.
(ii)Conclusion. Because Plan D does not pro-
vide for a straight life annuity and the form of ben-
efit is not subject to section 417(e)(3), P’s annual
benefit for purposes of section 415(b) is the annual
amount of the straight life annuity, commencing at
age 65, that is actuarially equivalent to the distribu-
tion stream of $138,221 with a fixed increase of 2
percent per year, where actuarial equivalence is de-
termined using a 5 percent interest rate and the ap-
plicable mortality table for P’s annuity starting date
under section 417(e)(3) and §1.417(e)–1(d)(2). In or-
der to satisfy the requirements of section 415(b) and
this section, this annual benefit must not exceed 100
percent of P’s average compensation for the period
of P’s high-3 years of service, or $165,000. Using a
5 percent interest rate andthe section 417(e)(3) ap-
plicable mortality table for the distribution, the ac-
tuarially equivalent straight life annuity is $165,000,
which does not exceed $165,000. Accordingly, the
plan satisfies the compensation-based limitation of
section 415(b)(1)(B).
(iii)Section 415(d) adjustments. In addition to
the fixed 2 percent per year automatic increase, P’s
benefit will be increased in limitation years follow-
ing the limitation year in which P retires in accor-
dance with the plan provisions that incorporate by ref-
erence the section 415(d) cost-of-living adjustments
to the section 415(b) limits (or, if Plan D did not incor-
porate by reference the section 415(d) adjustments,
P’s benefit may be increased pursuant to plan amend-
ments that comply with the safe harbors provided in
§1.415(d)–1(a)(5) or (6)), and such increases will not
cause P’s benefit to violate the requirements of sec-
tion 415(b). For example, if in a later limitation year
the applicable section 415(b) limit is increased by 3
percent pursuant to section 415(d) and §1.415(d)–1,
P’s benefit payable under Plan D will be increased by
both the fixed automatic 2 percent per year increase
andbythe3percentsection415(d)cost-of-livingad-
justment. The effect of the combined increases may
result in P’s benefits for a year exceeding the then ap-
plicable dollar limit under section 415(b), but the plan
will not violate section 415(b).
Example 9.(i)Facts. The facts are the same as in
Example 7, except that the plan provides that benefits
are limited to the lesser of 100 percent of the partic-
ipant’s average compensation for the period of the
participant’s high-3 years of service or 100 percent
of the age-adjusted section 415(b)(1)(A) dollar limit.
Assume that P retires at age 65 with a benefit in the
form of a life annuity of $165,000 per year with a
fixed increase of 2 percent per year. Additionally,
assume that Plan D incorporates by reference the sec-
tion 415(d) cost-of-living adjustments to the section
415(b) limits as described in §1.415(a)–1(d)(3)(v)
and the plan provides pursuant to paragraph (c)(5)
of this section that in no event will a benefit payable
from the plan, as increased by the fixed increase of 2
percent per year, be greater than the section 415(b)
limit applicable as of the annuity starting date for
the benefit (increased pursuant to the rules of section
415(d) and §1.415(d)–1).
(ii)Conclusion. The benefit payable to P at age 65
isnotrequiredtobeadjustedtotakeintoaccountthe
fixed increase of 2 percent per year. This is because
the benefit payable to P satisfies the requirements of
section 415(b) without regard to the fixed increase of
2 percent per year, and pursuant to paragraph (c)(5) of
this section, the plan provides that the benefit payable
to P, as increased by the fixed increase of 2 percent
per year, will never be greater than the section 415(b)
limit applicable as of P’s annuity starting date (in-
creased in subsequent limitation years pursuant to the
rules of section 415(d) and §1.415(d)–1).
(iii)Section 415(d) adjustments
. In addition to
the fixed 2 percent per yearautomatic increase, P’s
benefit will be increased in limitation years follow-
ing the limitation year in which P retires in accor-
dance with the plan provisions that incorporate by ref-
erence the section 415(d) cost-of-living adjustments
to the section 415(b) limits (or, if Plan D did not
incorporate by referencethe section 415(d) adjust-
ments, P’s benefit may be increased pursuant to plan
amendments that comply with the safe harbors pro-
vided in §1.415(d)–1(a)(5) or (6)), and such increases
will not cause P’s benefit to violate the requirements
of section 415(b). However, pursuant to paragraph
(c)(5)(iii) of this section, P’s benefit during any limi-
tation year, as increased bythe 2 percent per year au-
tomatic increase feature and any plan provisions that
incorporate by referencethe section 415(d) cost-of-
living adjustments or any plan amendments that in-
crease P’s benefits, cannot exceed the then applicable
section 415(b) limit (as increased pursuant to section
415(d) and §1.415(d)–1).
Example 10.(i)Facts. Employer T maintains a
defined benefit plan. Under the terms of the plan,
all benefits in pay status (other than single sum pay-
ments) are adjusted upwards or downwards annually
depending on an annual comparison of actual return
on plan assets and an assumed interest rate of 4 per-
cent. Thus, the plan does not offer a straight life an-
nuity form of benefit, and the plan must determine for
purposes of applying the section 415(b) limits the ac-
tuarially equivalent straight life annuity for benefits
provided under the plan.
(ii)Conclusion. Benefits under the plan are paid
in a form to which section 417(e)(3) does not apply.
In determining the actuarially equivalent straight life
annuity of benefits that are subject to the annual in-
vestment performance adjustment, the plan must as-
sume a 5 percent return on plan assets. See paragraph
(c)(2) of this section. Therefore, in determining the
actuarially equivalent straight life annuity, the plan
must assume that the form of benefit payable under
the plan will be an annuity that increases annually by
a factor equal to 1.05 divided by 1.04. This increas-
ing annuity is then converted to an actuarially equiva-
lent straight life annuity under paragraph (c)(2) of this
section using a 5 percent interest rate and the applica-
ble mortality table described in §1.417(e)–1(d)(2) for
the relevant annuity starting date.
Example 11.(i)Facts. R is a participant in a de-
fined benefit plan maintained by R’s employer. Un-
der the terms of the plan, R must make contributions
to the plan in a stated amount to accrue benefits de-
rived from employer contributions.
(ii)Conclusion. R’s contributions are mandatory
employee contributions within the meaning of section
411(c)(2)(C) and, thus, the annual benefit attributable
to these contributions is not taken into account for
purposes of testing the annual benefit derived from
employer contributions against the applicable limi-
tation on benefits. However, these contributions are
treated as contributions to a defined contribution plan
maintained by R’s employer for purposes of section
415(c). See §1.415(c)–1(a)(2)(ii)(B). Accordingly,
with respect to the current limitation year, the limi-
tation on benefits (as described in paragraph (a)(1)
of this section) is applicable to the annual benefit
attributable to employer contributions to the defined
benefit plan, and the limitation on contributions and
other additions (as described in §1.415(c)–1) is ap-
plicable to the portion of the plan treated as a defined
contribution plan, which consists of R’s mandatory
contributions. These same limitations would also ap-
ply if, instead of providing for mandatory employee
contributions, the plan permitted voluntary employee
contributions, because the portion of the plan at-
tributable to voluntary employee contributions and
earnings thereon is treated as a defined contribution
plan maintained by the employer pursuant to section
414(k), and thus is not subject to the limitations of
section 415(b).
Example 12.(i)Facts. V is a participant in a de-
fined benefit plan maintained by V’s employer. Un-
der the terms of the plan, V must make contribu-
tions to the plan in a stated amount to accrue bene-
fits derived from employer contributions. V’s contri-
butions are mandatory employee contributions within
the meaning of section 411(c)(2)(C). Thus, the annual
benefit attributable to these contributions is not taken
into account for purposes of testing the annual benefit
derived from employer contributions against the ap-
plicable limitation on benefits. V terminates employ-
ment and receives a distribution from the plan that in-
cludes V’s mandatory employee contributions. Sub-
sequently, V resumes employment with the employer
maintaining the plan. V recommences participation
in the plan and repays the prior distribution from the
plan (including the portion of the distribution that in-
cluded V’s prior mandatory employee contributions
to the plan) with reasonable interest.
(ii)Conclusion. In determining V’s annual bene-
fit under the plan for purposes of applying the limita-
tions of section 415(b), no portion of V’s repayment
of the prior distribution is treated as employee con-
tributions. See paragraphs (b)(2)(ii)(C), (D) and (E)
of this section. However, V’s annual benefit under
the plan is determined by excluding the portion of the
annual benefit attributable to V’s employee contribu-
April 30, 200710722007–18 I.R.B.

tions to the plan made both prior to the first distribu-
tion and during V’s subsequent recommencement of
plan participation.
(d)Adjustment to section 415(b)(1)(A)
dollar limit for commencement before age
62—(1)General rule—(i)Calculation
using statutory factors. For a distribution
with an annuity starting date that occurs
before the participant attains the age of
62, the age-adjusted section 415(b)(1)(A)
dollar limit generally is determined as the
actuarial equivalent of the annual amount
of a straight life annuity commencing
at the annuity starting date that has the
same actuarial present value as a deferred
straight life annuity commencing at age
62, where annual payments under the
straight life annuity commencing at age
62 are equal to the dollar limitation of
section 415(b)(1)(A) (as adjusted pursuant
to section 415(d) and §1.415(d)–1 for
the limitation year), and where the actu-
arially equivalent straight life annuity is
computed using a 5 percent interest rate
and the applicable mortality table under
§1.417(e)–1(d)(2) that is effective for that
annuity starting date (and expressing the
participant’s age based on completed cal-
endar months as of the annuity starting
date). However, if the plan has an imme-
diately commencing straight life annuity
payable both at age 62 and the age of ben-
efit commencement, then the age-adjusted
section 415(b)(1)(A) dollar limit is equal
to the lesser of—
(A) The limit as otherwise determined
under this paragraph (d)(1)(i); and
(B) The amount determined under para-
graph (d)(1)(ii) of this section.
(ii)Calculation using plan factors.
The amount determined under this para-
graph (d)(1)(ii) is equal to the section
415(b)(1)(A) dollar limit (as adjusted pur-
suant to section 415(d) and §1.415(d)–1
for the limitation year) multiplied by the
ratio of the annual amount of the imme-
diately commencing straight life annuity
under the plan to the annual amount of
the straight life annuity under the plan
commencing at age 62, with both annual
amounts determined without applying the
rules of section 415.
(2)Mortality adjustments—(i)In gen-
eral. For purposes of determining the ac-
tuarially equivalent amount described in
paragraph (d)(1)(i) of this section, to the
extent that a forfeiture does not occur upon
the participant’s death before the annuity
starting date, no adjustment is made to
reflect the probability of the participant’s
death between the annuity starting date and
the participant’s attainment of age 62, un-
less the plan provides for such an adjust-
ment. To the extent that a forfeiture occurs
upon the participant’sdeath before the an-
nuity starting date, an adjustment must be
made to reflect the probability of the par-
ticipant’s death between the annuity start-
ing date and the participant’s attainment of
age 62.
(ii)No forfeiture deemed to occur
where qualified preretirement survivor an-
nuity payable. For purposes of paragraphs
(d)(2)(i) and (e)(2)(i) of this section, a plan
is permitted to treat no forfeiture as occur-
ring upon a participant’s death if the plan
does not charge participants for providing
a qualified preretirement survivor annuity
(QPSA) (as defined in section 417(c)) on
the participant’s death, but only if the plan
applies this treatmentboth for adjustments
before age 62 and adjustments after age
65. Thus, in such a case, the plan is per-
mitted to provide that, in computing the
adjusted dollar limitation under section
415(b)(1)(A), no adjustment is made to
reflect the probability of a participant’s
death after the annuitystarting date and
before age 62 or after age 65 and before
the annuity starting date.
(3)Exception for certain participants
of certain governmental plans.Pursuant
to section 415(b)(2)(G) and (H), no age
adjustment is made to the dollar limit for
commencement before age 62 for any
qualified participant. For this purpose,
a qualified participant is a participant in
a defined benefit plan that is maintained
by a state, Indian tribal government (as
defined in section 7701(a)(40)), or any
political subdivision of a state or Indian
tribal government with respect to whom
the service taken into account in determin-
ing the amount of the benefit under the
defined benefit plan includes at least 15
years of service ofthe participant—
(i) As a full-time employee of any po-
lice department or fire department that is
organized and operated by the state, Indian
tribal government, or political subdivision
maintaining such defined benefit plan to
provide police protection, firefighting ser-
vices, or emergency medical services for
any area within the jurisdiction of such
state, Indian tribalgovernment, or politi-
cal subdivision; or
(ii) As a member of the Armed Forces
of the United States.
(4)Exception for survivor and disabil-
ity benefits under governmental plans.
Pursuant to section 415(b)(2)(I), no age
adjustment is made to the dollar limit for
commencement before age 62 for a dis-
tribution from a governmental plan (as
defined in section 414(d)) on account of
the participant’s becoming disabled by
reason of personal injuries or sickness, or
as a result of the death of the participant.
(5)Special rule for commercial airline
pilots. Pursuant to section 415(b)(9), no
age adjustment is made to the dollar limit
for early commencement on or after age 60
for a participant if—
(i) The participant is a commercial air-
line pilot;
(ii) The participant separates from ser-
vice upon or after attaining age 60; and
(iii) As of the time of the participant’s
retirement, regulations prescribed by the
Federal Aviation Administration require
an individual to separate from service as
a commercial airline pilot after attaining
any age occurring on or after age 60 and
before age 62.
(6)No decrease in age-adjusted section
415(b)(1)(A) dollar limit on account of age
or service. Notwithstanding any other pro-
vision of this paragraph (d), the age-ad-
justed section 415(b)(1)(A) dollar limit ap-
plicable to a participant does not decrease
on account of an increase in age or the per-
formance of additional service.
(7)Examples. The following examples
illustrate the application of this paragraph
(d). For purposes of these examples, it
is assumed that the dollar limitation under
section 415(b)(1)(A) for all relevant years
is $180,000, that the normal form of bene-
fit under the plan is a straight life annuity
payable beginning at age 65, and that all
payments other than a payment of a single
sum are made monthly, on the first day of
each calendar month. The examples are as
follows:
Example 1. (i) Plan A provides that early retire-
ment benefits are determined by reducing the accrued
benefit by 4 percent for each year that the early retire-
ment age is less than age 65. Participant M retires at
age 60 with exactly 30 years of service with a benefit
(prior to the application of section 415) in the form
of a straight life annuity of $100,000 payable at age
65, and is permitted to elect to commence benefits at
any time between M’s retirement and M’s attainment
of age 65. For example, M can elect to commence
benefits at age 60 in the amount of $80,000, can wait
until age 62 and commence benefits in the amount
2007–18 I.R.B.1073April 30, 2007

of $88,000, or can wait until age 65 and commence
benefits in the amount of $100,000. Plan A provides
a QPSA to all married participants without charge.
Plan A provides (consistent with paragraph (d)(2)(ii)
of this section) that, for purposes of adjusting the
dollar limitation under section 415(b)(1)(A) for com-
mencement before age 62 or after age 65, no forfei-
ture is treated as occurring upon a participant’s death
before retirement and, therefore, in computing the ad-
justed dollar limitation under section 415(b)(1)(A),
no adjustment is made to reflect the probability of a
participant’s death after the annuity starting date and
before age 62 or after age 65 and before the annuity
starting date.
(ii) The age-adjusted section 415(b)(1)(A) dollar
limit that applies for commencement of M’s benefit
at age 60 is the lesser of the section 415(b)(1)(A)
dollar limit multiplied by the ratio of the annuity
payable at age 60 to the annuity payable at age 62,
or the straight life annuity payable at age 60 that is
actuarially equivalent, using 5 percent interest and
the applicable mortality table effective for that annu-
ity starting date under section 417(e)(3)(A)(ii)(I) and
§1.417(e)–1(d)(2), to the deferred annuity payable
at age 62 of $180,000 per year. In this case, the
age-adjusted section 415(b)(1)(A) dollar limit at age
60 is $156,229 (the lesser of $163,636 ($180,000*
$80,000/$88,000) and $156,229 (the straight life
annuity at age 60 that is actuarially equivalent to a
deferred annuity of $180,000 commencing at age 62,
determined using 5 percent interest and the applica-
ble mortality table, without a mortality decrement
for the period between 60 and 62)).
Example 2. (i) The facts are the same as inExam-
ple 1, except that participant M elects to retire at age
60, 6 months, and 21 days.
(ii) Under paragraph (d)(1)(i) of this section, M
is treated as age 60 and 6 months (or, age 60.5).
Absent the rule provided in paragraph (d)(6) of this
section, the age-adjusted section 415(b)(1)(A) dollar
limit that applies for commencement of M’s benefit
at age 60.5 is the lesser of the section 415(b)(1)(A)
dollar limit multiplied by the ratio of the annuity
payable at age 60.5 to the annuity payable at age
62, or the straight life annuity payable at age 60.5
that is actuarially equivalent, using 5 percent interest
and the applicable mortality table for that annuity
starting date under section 417(e)(3)(A)(ii)(I) and
§1.417(e)–1(d)(2), to the deferred annuity payable at
age 62 of $180,000 per year. The age-adjusted sec-
tion 415(b)(1)(A) dollar limit at age 60.5 is $161,769
(the lesser of $167,727 ($180,000* $82,000/$88,000)
and $161,769 (the straight life annuity at age 60.5
that is actuarially equivalent to a deferred annuity of
$180,000 commencing at age 62, determined using
5 percent interest and the applicable mortality table,
without a mortality decrement for the period between
60.5 and 62).
Example 3. (i) The facts are the same as inExam-
ple 1, except the plan provides that, if a participant
has 30 or more years of service, no reduction applies
for benefits commencing at age 62 and later.
(ii) Absent the rule provided in paragraph (d)(6)
of this section, the age-adjusted section 415(b)(1)(A)
dollar limit that applies for commencement of
M’s benefit at age 60 is the lesser of the section
415(b)(1)(A) dollar limit multiplied by the ratio of
the annuity payable at age 60 to the annuity payable
at age 62, or the straight life annuity payable at age 60
that is actuarially equivalent, using 5 percent interest
and the applicable mortality table for that annuity
starting date under section 417(e)(3)(A)(ii)(I) and
§1.417(e)–1(d)(2), to the deferred annuity payable at
age 62 of $180,000 per year. In this case, because
M has 30 years of service and would be eligible for
the unreduced early retirement benefit at age 62,
the age-adjusted section 415(b)(1)(A) dollar limit at
age 60 would be $144,000 (the lesser of $144,000
($180,000* $80,000/$100,000) and $156,229 (the
straight life annuity at age 60 that is actuarially equiv-
alent to a deferred annuity of $180,000 commencing
at age 62, determined using 5 percent interest and
the applicable mortality table, without a mortality
decrement for the period between 60 and 62).
(iii) However, at age 59 11/12 with 29 11/12 years
of service, the age-adjusted section 415(b)(1)(A) dol-
lar limit for M is $155,311 (the lesser of $162,955
($180,000* $79,667/$88,000) and $155,311 (the
straight life annuity at age 59 11/12 that is actuar-
ially equivalent to a deferred annuity of $180,000
commencing at age 62, determined using 5 percent
interest and the applicable mortality table, without
a mortality decrement for the period between 59
and 62). Thus, after applying the rule provided in
paragraph (d)(6) of this section, the age-adjusted
section 415(b)(1)(A) dollar limit that applies for
commencement of M’s benefit at age 60 is $155,311.
Example 4. (i) The facts are the same as inExam-
ple 1, except that the plan provides that, if a partici-
pant has 30 or more years of service, then no reduc-
tion is made in early retirement benefits if the early
retirement age is at least age 62 and, in the case of an
early retirement age before age 62, the early retire-
ment benefit is determined by reducing the accrued
benefit by 4 percent for each year that the early re-
tirement age is less than age 62.
(ii) The age-adjusted section 415(b)(1)(A) dollar
limit that applies for commencement of M’s benefit
at age 60 is the lesser of the section 415(b)(1)(A)
dollar limit multiplied by the ratio of the annuity
payable at age 60 to the annuity payable at age 62,
or the straight life annuity payable at age 60 that
is actuarially equivalent, using 5 percent interest
and the applicable mortality table for that annuity
starting date under section 417(e)(3)(A)(ii)(I) and
§1.417(e)–1(d)(2), to the deferred annuity payable at
age 62 of $180,000 per year. In this case, because
M has 30 years of service and would be eligible for
the unreduced early retirement benefit at age 62, the
age-adjusted section 415(b)(1)(A) dollar limit at age
60 is $156,229 (the lesser of $165,600 ($180,000*
$92,000/$100,000) and $156,229 (the straight life
annuity at age 60 that is actuarially equivalent to a
deferred annuity of $180,000 commencing at age 62,
determined using 5 percent interest and the applica-
ble mortality table, without a mortality decrement
for the period between 60 and 62).
Example 5. (i)ThefactsarethesameasinEx-
ample 1, except that Participant M chooses to receive
benefits in the form of a 10-year certain and life an-
nuity under which payments are 97 percent of the pe-
riodic payments that would be made under the im-
mediately commencing straight life annuity. Annual
payments to M are 97 percent of $80,000, or $77,600.
Additionally, M’s average compensation for the pe-
riod of M’s high-3 years of service is $120,000. As
inExample 1, the age-adjusted section 415(b)(1)(A)
dollar limit at age 60 is $156,229.
(ii) In the case of a form of benefit to which sec-
tion 417(e)(3) does not apply, the annual benefit for
purposes of this section is the greater of the annual
amount of the plan’s straight life annuity commenc-
ing at the same age or the annual amount of the ac-
tuarially equivalent straight life annuity commencing
at the same age, determined using a 5 percent interest
rate and the applicable mortality table for that annu-
ity starting date under section 417(e)(3)(A)(ii)(I) and
§1.417(e)–1(d)(2). In this case, the straight life an-
nuity payable under the plan commencing at the same
age is $80,000. The annual amount of the straight life
annuity that is actuarially equivalent to the $77,600
benefit payable as a 10-year certain and life annu-
ity is determined by applying the required standard-
ized factors (a 5 percent interest assumption and the
applicable mortality under section 417(e)(3)(A)(ii)(I)
and §1.417(e)–1(d)(2), and is $79,416. With respect
to the 10-year certain and life annuity commencing
at age 62, M’s annual benefit is equal to the greater
of the two resulting amounts ($80,000 and $79,416),
or $80,000. Because M’s annual benefit is less than
the age-adjusted section 415(b)(1)(A) dollar limit and
is less than the section 415(b)(1)(B) compensation
limit, M’s benefit satisfies section 415.
Example 6. (i) Participant O is a full-time civilian
employee of the Harbor Police Division of the State
of X Port Authority. The Harbor Police Division pro-
vides police protection services. O performs clerical
services for the Harbor Police Division. O is a par-
ticipant in the defined benefit plan that is maintained
by the State of X with respect to whom the years of
service taken into account in determining the amount
of the benefit under the plan includes 10 years of ser-
vice working for the Harbor Police Division and 5
years of service as a member of the Armed Forces of
the United States.
(ii) For a distribution with an annuity starting date
that occurs before O attains the age of 62, there is
no age adjustment to the section 415(b)(1)(A) dollar
limit.
Example 7. (i) Participant R is a full-time em-
ployee of the Emergency Medical Service Depart-
ment of County Y (which is not a part of a police or
fire department) who performs services as a driver of
an ambulance. R is a participant in the defined bene-
fit plan that is maintained by County Y with respect
to whom the years of service taken into account in
determining the amount of the benefit under the plan
includes 15 years of serviceworkingforCountyY.
R does not have service credit for time in the Armed
Forces of the United States.
(ii) The age adjustments to the limitations of sec-
tion 415(b)(1)(A) pursuant to section 415(b)(2)(C)
and (D) will apply if R commences receiving a distri-
bution at an age to which either of those adjustments
applies.
(e)Adjustment to section 415(b)(1)(A)
dollar limit for commencement after age
65—(1)General rule—(i)Calculation us-
ing statutory factors. For a distribution
with an annuity starting date that occurs
after the participant attains the age of 65,
the age-adjusted section 415(b)(1)(A) dol-
lar limit generally is determined as the ac-
tuarial equivalent of the annual amount of
a straight life annuity commencing at the
April 30, 200710742007–18 I.R.B.

annuity starting date that has the same ac-
tuarial present value as a straight life an-
nuity commencing at age 65, where an-
nual payments under the straight life annu-
ity commencing at age 65 are equal to the
dollar limitation of section 415(b)(1)(A)
(as adjusted pursuant to section 415(d) and
§1.415(d)–1 for the limitation year), and
where the actuarially equivalent straight
life annuity is computed using a 5 percent
interest rate and the applicable mortality
table under §1.417(e)–1(d)(2) that is ef-
fective for that annuity starting date (and
expressing the participant’s age based on
completed calendar months as of the an-
nuity starting date). However, if the plan
has an immediately commencing straight
life annuity payable as of the annuity start-
ing date and an immediately commencing
straight life annuity payable at age 65, then
the age-adjusted section 415(b)(1)(A) dol-
lar limit is equal to the lesser of—
(A) The limit as otherwise determined
under this paragraph (e)(1)(i); and
(B) The amount determined under para-
graph (e)(1)(ii) of this section.
(ii)Calculation using plan factors.
The amount determined under this para-
graph (e)(1)(ii) is equal to the section
415(b)(1)(A) dollar limit (as adjusted pur-
suant to section 415(d) and §1.415(d)–1
for the limitation year) multiplied by the
adjustment ratio described in paragraph
(e)(2)(i) of this section.
(2)Adjustment ratio—(i)General rule.
For purposes of applying the rule of para-
graph (e)(1)(ii) of this section, the ad-
justment ratio is equal to the ratio of the
annual amount of the adjusted immedi-
ately commencing straight life annuity
under the plan described in paragraph
(e)(2)(ii) of this section to the adjusted
age 65 straight life annuity described in
paragraph (e)(2)(iii) of this section.
(ii)Adjusted immediately commencing
straight life annuity. The adjusted immedi-
ately commencing straight life annuity that
is used for purposes of paragraph (e)(2)(i)
of this section is the annual amount of the
immediately commencing straight life an-
nuity payable to the participant, computed
disregarding the participant’s accruals af-
ter age 65 but including actuarial adjust-
ments even if those actuarial adjustments
are applied to offset accruals. For this pur-
pose, the annual amount of the immedi-
ately commencing straight life annuity is
determined without applying the rules of
section 415.
(iii)Adjusted age 65 straight life an-
nuity. The adjusted age 65straightlife
annuity that is used for purposes of para-
graph (e)(2)(i) of this section is the an-
nual amount of the straight life annuity that
would be payable under the plan to a hypo-
thetical participant who is 65 years old and
has the same accrued benefit (with no ac-
tuarial increases for commencement after
age 65) as the participant receiving the dis-
tribution (determineddisregarding the par-
ticipant’s accruals after age 65 and without
applying the rules of section 415).
(3)Mortality adjustments—(i)In gen-
eral. For purposes of determining the ac-
tuarially equivalent amount described in
paragraph (e)(1)(i) of this section, to the
extent that a forfeiture does not occur upon
the participant’s death before the annuity
starting date, no adjustment is made to
reflect the probability of the participant’s
death between the participant’s attainment
of age 65 and the annuity starting date. To
the extent that a forfeiture occurs upon the
participant’s death before the annuity start-
ing date, an adjustment must be made to
reflect the probability of the participant’s
death between the participant’s attainment
of age 65 and the annuity starting date.
(ii)No forfeiture deemed to occur where
QPSA payable. See paragraph (d)(2)(ii) of
this section for a rule deeming no forfei-
ture to occur if the plan does not charge
participants for providing a QPSA on the
participant’s death.
(4)Examples. The following examples
illustrate the application of this paragraph
(e):
Example 1. (i) Plan A provides that monthly ben-
efits payable upon commencement after normal re-
tirement age (which is age 65) are increased by 0.5
percent for each month of delay in commencement
after attainment of normal retirement age. Plan A
provides a QPSA to all married participants without
charge. Plan A provides (consistent with paragraph
(d)(2)(ii) of this section) that, for purposes of adjust-
ing the dollar limitation under section 415(b)(1)(A)
for commencement before age 62 or after age 65, no
adjustment is made to reflect the probability of a par-
ticipant’s death between the annuity starting date and
the participant’s attainment of age 62 or between the
age of 65 and the annuity starting date. The normal
form of benefit under Plan A is a straight life annuity
commencing at age 65. Plan A does not provide ad-
ditional benefit accruals oncea participant is credited
with 30 years of service. Participant M was credited
with 30 years of service under Plan A when M at-
tained age 65. M retires at age 70 on January 1, 2008,
with a benefit (prior to the application of section 415)
that is payable monthly in the form of a straight life
annuity of $195,000, which reflects the actuarial in-
crease of 30 percent applied to the accrued benefit of
$150,000. It is assumed that all payments under Plan
A, other than a payment of a single sum, are made
monthly, on the first day of each calendar month. It is
also assumed that the dollar limit in 2008 is $185,000.
(ii) The age-adjusted section 415(b)(1)(A) dollar
limit at age 70 is the lesser of the section 415(b)(1)(A)
dollar limit multiplied by the ratio of the adjusted im-
mediately commencing straight life annuity payable
at age 70 (computed disregarding the rules of section
415 and accruals after age 65, but including actuar-
ial adjustments) to the adjusted age 65 straight life
annuity (computed disregarding the rules of section
415 and any accruals after age 65), or the straight life
annuity payable at age 70 that is actuarially equiva-
lent, using 5 percent interest and the applicable mor-
tality table for that annuity starting date under sec-
tion 417(e)(3)(A)(ii)(I) and §1.417(e)–1(d)(2), to the
straight life annuity payable at age 65, where annual
payments under the straight life annuity payable at
age 65 are equal to the dollar limitation of section
415(b)(1)(A). In this case, the age-adjusted section
415(b)(1)(A) dollar limit at age 70 is $240,500 (the
lesser of $240,500 ($185,000* $195,000/$150,000)
and $271,444 (the straight life annuity at age 70 that is
actuarially equivalent to an annuity of $185,000 com-
mencing at age 65, determined using 5 percent inter-
est and the applicable mortality table, without a mor-
tality decrement for the period between 65 and 70)).
Example 2. (i) The facts are the same as inExam-
ple 1, except that Plan A does not limit benefit accru-
als to 30 years of creditedservice, and thus M accrues
benefits between ages 65 and 70.
(ii) Since M’s accruals after attaining age 65 are
disregarded for purposes of determining the age-ad-
justed section 415(b)(1)(A) dollar limit applicable to
M at age 70, the result is the same as inExample 1.
Example 3. (i) The facts are the same as inExam-
ple 1, except that Plan A does not limit benefit accru-
als to 30 years of credited service. However, benefit
accruals after an employee has reached normal retire-
ment age (age 65), are offset by the actuarial increase
that the plan provides for commencement of benefits
after normal retirement age.
(ii) The result is the same as inExample 1,even
if the actuarial increases for post-age 65 benefit
commencement provided under Plan A do or do not
fully offset M’s benefit accruals after attaining age
65. This is because benefit accruals after age 65 are
disregarded for purposes of determining the age-ad-
justed section 415(b)(1)(A) dollar limit applicable to
Mafterage65.
(f)Total annual payments not in excess
of $10,000—(1)In general.Pursuantto
section 415(b)(4), the annual benefit (with-
out regard to the age at which benefits
commence) payable with respect to a par-
ticipant under any defined benefit plan is
not considered to exceed the limitations on
benefits described in section 415(b)(1) and
in paragraph (a)(1) of this section if—
(i) The benefits (other than benefits not
taken into account in the computation of
the annual benefit under the rules of para-
2007–18 I.R.B.1075April 30, 2007

graph (b) or (c) of this section) payable
with respect to the participant under the
plan and all other defined benefit plans of
the employer do not in the aggregate ex-
ceed $10,000 (as adjusted under paragraph
(g) of this section) for the limitation year,
or for any prior limitation year; and
(ii)Theemployer(orapredecessorem-
ployer) has not at any time maintained a
defined contribution plan in which the par-
ticipant participated.
(2)Computation of benefits for pur-
poses of applying the $10,000 amount.For
purposes of paragraph (f)(1)(i) of this sec-
tion, the benefits payable with respect to
the participant under a plan for a limitation
year reflect all amounts payable under the
plan for the limitation year (other than ben-
efits not taken into account in the compu-
tation of the annual benefit under the rules
of paragraph (b) or (c) of this section), and
are not adjusted for form of benefit or com-
mencement date.
(3)Special rule with respect to partici-
pants in multiemployer plans. The special
$10,000 exception set forth in paragraph
(f)(1) of this section applies to a partici-
pant in a multiemployer plan described in
section 414(f) without regard to whether
that participant ever participated in one or
more other plans maintained by an em-
ployer who also maintains the multiem-
ployer plan, provided that none of such
other plans were maintained as a result of
collective bargaining involving the same
employee representative as the multiem-
ployer plan.
(4)Special rule with respect to
employee contributions.Notwith-
standing §§1.415(c)–1(a)(2)(ii)(B) and
1.415(c)–1(b)(3), mandatory employee
contributions under a defined benefit plan
described in paragraph (b)(2)(iii) of this
section are not considered a separate de-
fined contribution plan maintained by
the employer for purposes of paragraph
(f)(1)(ii) of this section. Thus, the special
dollar limitation provided for in this para-
graph (f) applies to a contributory defined
benefit plan. Similarly, for purposes of
this paragraph (f), an individual medical
account under section 401(h) or an ac-
count for postretirement medical benefits
established pursuant to section 419A(d)(1)
is not considered a separate defined con-
tribution plan maintained by the employer.
(5)Examples. The application of this
paragraph (f) may be illustrated by the fol-
lowing examples. For purposes of these
examples, it is assumed that each partic-
ipant has 10 years of participation in the
plan and service with the employer. The
examples are as follows:
Example 1. (i) B is a participant in a defined bene-
fitplanmaintainedbyXCorporation,whichprovides
for a benefit payable in the form of a straight life an-
nuity beginning at age 65. B’s average compensation
for the period of B’s high-3 years of service is $6,000.
The plan does not provide for mandatory employee
contributions, and at no time has B been a participant
inadefinedcontributionplanmaintainedbyX.With
respect to the current limitation year, B’s benefit un-
der the plan (before the application of section 415) is
$9,500.
(ii) Because annual payments under B’s benefit
do not exceed $10,000, and because B has at no time
participated in a defined contribution plan maintained
by X, the benefits payable under the plan are not con-
sidered to exceed the limitation on benefits otherwise
applicable to B ($6,000).
(iii) This result would remain the same even if,
under the terms of the plan, B’s benefit of $9,500
were payable at age 60, or if the plan provided for
mandatory employee contributions.
Example 2. (i)ThefactsarethesameasinEx-
ample 1, except that the plan provides for a benefit
payable in the form of a life annuity with a 10-year
certain feature with annual payments of $9,500. As-
sume that, after the adjustment described in para-
graph (c) of this section, B’s actuarially equivalent
straight life annuity (which is the annual benefit used
for demonstrating compliance with section 415) for
the current limitation year is $10,400.
(ii) For purposes of applying the special rule pro-
vided in this paragraph for total benefits not in excess
of $10,000, there is no adjustment required if the re-
tirement benefit payable under the plan is not in the
form of a straight life annuity. Therefore, because B’s
retirement benefit does not exceed $10,000, B may
receive the full $9,500 benefit without the otherwise
applicable benefit limitations of this section being ex-
ceeded.
Example 3. (i)ThefactsarethesameasinEx-
ample 1, except that the plan provides for a benefit
payable in the form of a single sum and the amount
of the single sum that is the actuarial equivalent of
the straight life annuity payable to B ($9,500 annu-
ally), determined in accordance with the rules of sec-
tion 417(e)(3) and §1.417(e)–1(d), is $95,000.
(ii) Because the amount payable to B for the lim-
itation year would exceed $10,000, the rule of this
paragraph (f) does not provide an exception from the
generally applicable limits of section 415(b)(1) for
the single-sum distribution. Thus, the otherwise ap-
plicable limits apply to the single-sum distribution,
and a single-sum distribution of $95,000 would not
satisfy the requirements of section 415(b). Limiting
the single-sum distribution to $60,000 (the present
value of the annuity that complies with the compen-
sation-based limitation of section 415(b)(1)(B)) in or-
der to satisfy section 415 would be an impermissible
forfeiture under the requirements of section 411(a).
Accordingly, the plan should not provide for a sin-
gle-sum distribution in these circumstances.
(g)Special rule for participation or ser-
vice of less than 10 years—(1)Proration
of dollar limit based on years of partic-
ipation—(i)In general. Pursuant to sec-
tion 415(b)(5)(A), where a participant has
less than 10 years of participation in the
plan, the dollar limit described in para-
graph (a)(1)(i) of thissection (as adjusted
pursuant to section 415(d), §1.415(d)–1,
and paragraphs (d) and (e) of this section)
is reduced by multiplying the otherwise
applicable limitation by a fraction—
(A) The numerator of which is the num-
ber of years of participation in the plan (or
1, if greater); and
(B)Thedenominatorofwhichis10.
(ii)Years of participation. The follow-
ing rules apply for purposes of determin-
ing a participant’s years of participation
for purposes of this paragraph (g)(1)—
(A) A participant is credited with a year
of participation (computed to fractional
parts of a year) for each accrual compu-
tation period for which the participant
is credited with at least the number of
hours of service (or period of service if the
elapsed time method is used for benefit
accrual purposes) required under the terms
of the plan in order to accrue a benefit for
the accrual computation period, and the
participant is included as a plan participant
under the eligibility provisions of the plan
for at least one day of the accrual compu-
tation period. If these two conditions are
met, the portion of a year of participation
credited to the participant is equal to the
amount of benefit accrual service credited
to the participant for such accrual com-
putation period. For example, if under
the terms of a plan, a participant receives
1/10 of a year of benefit accrual service
for an accrual computation period for each
200 hours of service, and the participant
is credited with 1,000 hours of service for
the period, the participant is credited with
1
/2a year of participation for purposes of
section 415(b)(5)(A) and this paragraph
(g)(1).
(B) A participant who is permanently
and totally disabled within the meaning of
section 415(c)(3)(C)(i) for an accrual com-
putation period is credited with a year of
participation with respect to that period for
purposes of section 415(b)(5)(A) and this
paragraph (g)(1).
(C) For a participant to receive a year
of participation (or part thereof) for an ac-
crual computation period for purposes of
section 415(b)(5)(A) and this paragraph
(g)(1), the plan must be established no later
April 30, 200710762007–18 I.R.B.

than the last day of such accrual computa-
tion period.
(D) No more than one year of participa-
tion may be credited for any 12-month pe-
riod for purposes of section 415(b)(5)(A)
and this paragraph (g)(1).
(2)Proration of compensation limit
and special rule for total annual payments
less than $10,000 based on years of ser-
vice—(i)In general. Pursuant to section
415(b)(5)(B), where a participant has less
than 10 years of service with the employer,
the compensation limit described in para-
graph (a)(1)(ii) of this section and the
$10,000 amount under the special rule for
small annual payments under paragraph
(f) of this section are reduced by multiply-
ing the otherwise applicable limitation by
a fraction—
(A) The numerator of which is the num-
ber of years of service with the employer
(or 1, if greater); and
(B) The denominator of which is 10.
(ii)Years of service—(A)In general.
For purposes of applying this paragraph
(g)(2), years of service must be determined
on a reasonable and consistent basis. A
plan is considered to be determining years
of service on a reasonable and consistent
basis for this purpose if, subject to the lim-
its of paragraph (g)(2)(ii)(B) of this sec-
tion, a participant is credited with a year of
service (computed to fractional parts of a
year) for each accrual computation period
for which the participant is credited with at
least the number of hours of service (or pe-
riod of service if the elapsed time method
is used for benefit accrual purposes) re-
quired under the terms of the plan in order
to accrue a benefit for the accrual compu-
tation period.
(B)Rules of application.Nomore
than one year of service may be credited
for any 12-month period for purposes of
section 415(b)(5)(B).In addition, only the
participant’s service with the employer
or a predecessor employer (as defined in
§1.415(f)–1(c)) may be taken into account
in determining the participant’s years
of service for this purpose. Thus, if an
employer does not maintain a former em-
ployer’s plan, a participant’s service with
the former employer may be taken into
account in determining the participant’s
years of service for purposes of this para-
graph (g)(2) only if the former employer is
a predecessor employer with respect to the
employer pursuant to §1.415(f)–1(c)(2)
(which defines predecessor employer to
include, under certain circumstances, a
former entity that antedates the employer).
(C)Period of disability. Notwithstand-
ing the rules of paragraph (g)(2)(ii)(B) of
this section, a plan is permitted to provide
that a participant who is permanently and
totally disabled within the meaning of sec-
tion 415(c)(3)(C)(i) for an accrual compu-
tation period is credited with service with
respect to that period for purposes of sec-
tion 415(b)(5)(B).
(3)Exception for survivor and disabil-
ity benefits under governmental plans.The
requirements of this paragraph (g) (regard-
ing participation or service of less than 10
years) do not apply to a distribution from
a governmental plan (as defined in section
414(d)) on account of the participant’s be-
coming disabled by reason of personal in-
juries or sickness, or as a result of the death
of the participant.
(4)Examples. The provisions of this
paragraph (g) may be illustrated by the fol-
lowing examples:
Example 1. (i) C begins employment with Em-
ployer A on January 1, 2005, at the age of 58. Em-
ployer A maintains only a noncontributory defined
benefit plan which provides for a straight life annu-
ity beginning at age 65 and uses the calendar year for
the limitation and plan year. Employer A has never
maintained a defined contribution plan. C becomes a
participant in Employer A’s plan on January 1, 2006,
and works through December 31, 2011, when C is
age 65. C begins to receive benefits under the plan
in 2012. C’s average compensation for the period
of C’s high-3 years of service is $40,000. Further-
more, under the terms of Employer A’s plan, for pur-
poses of computing C’s nonforfeitable percentage in
C’s accrued benefit derived from employer contribu-
tions, C has only 7 years of service with Employer A
(2005–2011).
(ii) Because C has only 7 years of service with
Employer A at the time he begins to receive bene-
fits under the plan, the maximum permissible annual
benefit payable with respect to C is $28,000 ($40,000
multiplied by 7/10).
Example 2. (i) The facts are the same as inExam-
ple 1, except that C’s average compensation for the
period of his high-3 years of service is $8,000.
(ii) Because C has only 7 years of service with
Employer A at the time he begins to receive bene-
fits, the maximum benefit payable with respect to C
would be reduced to $5,600 ($8,000 multiplied by
7/10). However, the special rule for total benefits
not in excess of $10,000, provided in paragraph (f) of
this section, is applicable in this case. Accordingly,
C may receive an annual benefit of $7,000 ($10,000
multiplied by 7/10) without the benefit limitations of
this section being exceeded.
Example 3. (i) Employer B maintains a defined
benefit plan. Benefits under the plan are computed
based on months of service rather than years of ser-
vice. Accordingly, for purposes of applying the re-
duction based on years of service less than 10 to the
limitations under section 415(b), the plan provides
that the otherwise applicable limitation is multiplied
by a fraction, the numerator of which is the number
of completed months of service with the employer
(but not less than 12 months), and the denominator of
which is 120. The plan further provides that months
of service are computed in the same manner for this
purpose as for purposes of computing plan benefits.
(ii) The manner in which the plan applies the re-
duction based on years of service less than 10 to the
limitations under section 415(b) is consistent with the
requirements of this paragraph (g).
Example 4. (i) G begins employment with Em-
ployer D on January 1, 2003, at the age of 58. Em-
ployer D maintains a noncontributory defined bene-
fit plan which provides for a straight life annuity be-
ginning at age 65 and uses the calendar year for the
limitation and plan year. G becomes a participant in
Employer D’s plan on January 1, 2004, and works
through December 31, 2009, when G is age 65. G
performs sufficient service to be credited with a year
of service under the plan for each year during 2003
through 2009 (although G is not credited with a year
of service for 2003 because G is not yet a plan par-
ticipant). G begins to receive benefits under the plan
during 2010. The plan’s accrual computation period
is the plan year. The plan provides that, for purposes
of applying the rules of section 415(b)(5)(B), a partic-
ipant is credited with a year of service (computed to
fractional parts of a year) for each plan year for which
the participant is credited with sufficient service to ac-
crue a benefit for the planyear. G’s average compen-
sation for the period of G’s high-3 years of service is
$200,000. It is assumed for purposes of this example
that the dollar limitation of section 415(b)(1)(A) for
limitation years ending in 2010 is $195,000.
(ii) G has 7 years of service and 6 years of partici-
pation in the plan at the time G begins to receive bene-
fits under the plan. Accordingly, the limitation under
section 415(b)(1)(B) based on G’s average compen-
sation for the period of G’shigh-3 years of service
that applies pursuant to the adjustment required under
section 415(b)(5)(B) is $140,000 ($200,000 multi-
plied by 7/10), and the dollar limitation under section
415(b)(1)(A) that applies to G pursuant to the adjust-
ment required under section 415(b)(5)(A) is $117,000
($195,000 multiplied by 6/10).
(h)Retirement Protection Act of 1994
transition rules. For special rules affecting
the actuarial adjustment for form of bene-
fit under paragraph (c) of this section and
the adjustment to the dollar limit for early
or late commencement under paragraphs
(d) and (e) of this section for certain plans
adopted and in effect before December
8, 1994, see section 767(d)(3)(A) of the
Uruguay Round Agreements Act of 1994,
Public Law 103–465 (108 Stat. 4809) as
amended by section 1449(a) of the Small
Business Job Protection Act of 1996,
Public Law 104–188 (110 Stat. 1755).
The Commissioner may provide guidance
regarding these special rules in revenue
rulings, notices, and other guidance pub-
2007–18 I.R.B.1077April 30, 2007

lished in the Internal Revenue Bulletin.
See §601.601(d) of this chapter.
Par. 10. Section 1.415(b)–2 is added
and reserved.
§1.415(b)–2 Multiple annuity starting
dates.[Reserved].
Par. 11. Section 1.415(c)–1 is added to
read as follows:
§1.415(c)–1 Limitations for defined
contribution plans.
(a)General rules—(1)Maximum limi-
tations. Under section 415(c) and this sec-
tion, to satisfy the provisions of section
415(a) for any limitation year, except as
provided by paragraph (a)(3) of this sec-
tion, the annual additions (as defined in
paragraph (b) of this section) credited to
the account of a participant in a defined
contribution plan for the limitation year
must not exceed the lesser of—
(i) $40,000 (adjusted pursuant to sec-
tion 415(d) and §1.415(d)–1(b)); or
(ii) 100 percent of the participant’s
compensation (as defined in §1.415(c)–2)
for the limitation year.
(2)Defined contribution plan—(i)Def-
inition. For purposes of section 415 and
regulations promulgated under section
415, the termdefined contribution plan
means a defined contribution plan within
the meaning of section 414(i) (including
the portion of a plan treated as a defined
contribution plan underthe rules of section
414(k)) that is—
(A) A plan described in section 401(a)
which includes a trust which is exempt
fromtaxundersection501(a);
(B) An annuity plan described in sec-
tion 403(a); or
(C) A simplified employee pension de-
scribedinsection408(k).
(ii)Additional plans treated as defined
contribution plans—(A)In general.Con-
tributions to the types of arrangements de-
scribed in paragraphs (a)(2)(ii)(B) through
(D) of this section are treated as contribu-
tions to defined contribution plans for pur-
poses of section 415 and regulations pro-
mulgated under section 415.
(B)Employee contributions to a defined
benefit plan. Mandatory employee contri-
butions (as defined in section 411(c)(2)(C)
and §1.411(c)–1(c)(4), regardless of
whether the plan is subject to the re-
quirements of section 411) to a defined
benefit plan are treated as contributions
to a defined contribution plan. For this
purpose, contributions that are picked up
by the employer as described in section
414(h)(2) are not considered employee
contributions.
(C)Individual medical benefit accounts
under section 401(h). Pursuant to section
415(l)(1), contributions allocated to any
individual medical benefit account which
is part of a pension or annuity plan es-
tablished pursuant to section 401(h) are
treated as contributions to a defined con-
tribution plan.
(D)Post-retirement medical accounts
for key employees. Pursuant to section
419A(d)(2), amounts attributable to med-
ical benefits allocated to an account es-
tablished for a key employee (any em-
ployee who, at any time during the plan
year or any preceding plan year, is or was a
key employee as defined in section 416(i))
pursuant to section 419A(d)(1) are treated
as contributions to a defined contribution
plan.
(iii)Section 403(b) annuity contracts.
Annual additions under an annuity con-
tract described in section 403(b) are treated
as annual additions under a defined contri-
bution plan for purposes of this section.
(3)Alternative contribution limita-
tions—(i)Church plans. For alternative
contribution limitations relating to church
plans, see paragraph (d) of this section.
(ii)Special rules for medical benefits.
For additional rules relating to certain
medical benefits, see paragraph (e) of this
section.
(iii)Employee stock ownership plans.
For additional rules relating to employee
stock ownership plans, see paragraph (f) of
this section.
(b)Annual additions—(1)In gen-
eral—(i)General definition.Theterm
annual additionmeans, for purposes of
this section, the sum, credited to a par-
ticipant’s account for any limitation year,
of—
(A) Employer contributions;
(B) Employee contributions; and
(C) Forfeitures.
(ii)Certain excess amounts treated as
annual additions. Contributions do not
fail to be annual additions merely because
they are excess contributions (as described
in section 401(k)(8)(B)) or excess aggre-
gate contributions (as described in section
401(m)(6)(B)), or merely because excess
contributions or excess aggregate contri-
butions are corrected through distribution.
(iii)Direct transfers. The direct trans-
fer of a benefit or employee contributions
fromaqualifiedplantoadefinedcontri-
bution plan does not give rise to an annual
addition.
(iv)Reinvested employee stock owner-
ship plan dividends. The reinvestment
of dividends on employer securities un-
der an employee stock ownership plan pur-
suant to section 404(k)(2)(A)(iii)(II) does
not give rise to an annual addition.
(2)Employer contributions—(i)
Amounts treated as an annual addition.
For purposes of paragraph (b)(1)(i)(A)
of this section, the termannual addition
includes employer contributions credited
to the participant’s account for the limita-
tion year and other allocations described
in paragraph (b)(4) of this section that
are made during the limitation year. See
paragraph (b)(6) of this section for timing
rules applicable to annual additions with
respect to employer contributions.
(ii)Amounts not treated as annual addi-
tions—(A)Certain restorations of accrued
benefits. The restoration of an employee’s
accrued benefit by the employer in accor-
dance with section 411(a)(3)(D) or section
411(a)(7)(C) or resulting from the repay-
ment of cashouts (as described in section
415(k)(3)) under a governmental plan (as
defined in section 414(d)) is not consid-
ered an annual addition for the limitation
year in which the restoration occurs. This
treatment of a restoration of an employee’s
accrued benefit as not giving rise to an an-
nual addition applies regardless of whether
the plan restricts the timing of repayments
to the maximum extent allowed by section
411(a).
(B)Catch-up contributions. A catch-up
contribution made in accordance with sec-
tion 414(v) and §1.414(v)–1 does not give
rise to an annual addition.
(C)Restorative payments.Arestorative
payment that is allocated to a participant’s
account does not give rise to an annual ad-
dition for any limitation year. For this pur-
pose, restorative payments are payments
made to restore losses to a plan resulting
from actions by a fiduciary for which there
is reasonable risk ofliability for breach of
a fiduciary duty under Title I of the Em-
ployee Retirement Income Security Act of
1974 (88 Stat. 829), Public Law 93–406
(ERISA) or under other applicable federal
April 30, 200710782007–18 I.R.B.

or state law, where plan participants who
are similarly situated are treated similarly
with respect to the payments. Generally,
payments to a defined contribution plan
are restorative payments only if the pay-
ments are made in order to restore some or
all of the plan’s losses due to an action (or
a failure to act) that creates a reasonable
risk of liability for such a breach of fidu-
ciary duty (other than a breach of fiduciary
duty arising from failure to remit contribu-
tions to the plan). This includes payments
to a plan made pursuant to a Department
of Labor order, the Department of Labor’s
Voluntary Fiduciary Correction Program,
or a court-approved settlement, to restore
losses to a qualified defined contribution
plan on account of the breach of fiduciary
duty (other than a breach of fiduciary duty
arising from failure to remit contributions
to the plan). Payments made to a plan to
make up for losses due merely to market
fluctuations and other payments that are
not made on account of a reasonable risk
of liability for breach of a fiduciary duty
under Title I of ERISA are not restorative
payments and generally constitute contri-
butions that give rise to annual additions
under paragraph (b)(4) of this section.
(D)Excess deferrals. Excess defer-
rals that are distributed in accordance with
§1.402(g)–1(e)(2) or (3) do not give rise to
annual additions.
(3)Employee contributions. For pur-
poses of paragraph (b)(1)(i)(B) of this
section, the termannual additionincludes
mandatory employee contributions (as
defined in section 411(c)(2)(C) and reg-
ulations promulgated under section 411)
as well as voluntary employee contribu-
tions. The termannual additiondoes not
include—
(i) Rollover contributions (as de-
scribed in sections 401(a)(31), 402(c)(1),
403(a)(4), 403(b)(8), 408(d)(3), and
457(e)(16));
(ii) Repayments of loans made to a par-
ticipant from the plan;
(iii) Repayments of amounts described
in section 411(a)(7)(B) (in accordance
with section 411(a)(7)(C)) and section
411(a)(3)(D) or repayment of contribu-
tions to a governmental plan (as defined
in section 414(d)) as described in section
415(k)(3);
(iv) Repayments that would have been
described in paragraph (b)(3)(iii) of this
section except that the plan does not re-
strict the timing of repayments to the max-
imum extent permitted by section 411(a);
or
(v) Employee contributions to a quali-
fied cost of living arrangement within the
meaning of section 415(k)(2)(B).
(4)Transactions with plan.TheCom-
missioner may in an appropriate case, con-
sidering all of the facts and circumstances,
treat transactions between the plan and the
employer, transactions between the plan
and the employee, or certain allocations
to participants’ accounts as giving rise to
annual additions. Further, where an em-
ployee or employer transfers assets to a
plan in exchange for consideration that is
less than the fair market value of the as-
sets transferred to the plan, there is an an-
nual addition in the amount of the differ-
ence between the valueof the assets trans-
ferred and the consideration. A transac-
tion described in this paragraph (b)(4) may
constitute a prohibited transaction with the
meaning of section 4975(c)(1).
(5)Contributions other than cash.For
purposes of this paragraph (b), a contribu-
tion by the employer or employee of prop-
erty rather than cash is considered to be a
contributioninanamountequaltothefair
market value of the property on the date
the contribution is made. For this purpose,
the fair market value is the price at which
the property would change hands between
a willing buyer and a willing seller, neither
being under any compulsion to buy or to
sell and both having reasonable knowledge
of relevant facts. In addition, a contribu-
tion described in this paragraph (b)(5) may
constitute a prohibited transaction within
the meaning of section 4975(c)(1).
(6)Timing rules—(i)In general—(A)
Date of allocation. For purposes of this
paragraph (b), an annual addition is cred-
ited to the account of a participant for a par-
ticular limitation year if it is allocated to
the participant’s account under the terms
of the plan as of any date within that lim-
itation year. Similarly, an annual addi-
tion that is made pursuant to a corrective
amendment that complies with the require-
ments of §1.401(a)(4)–11(g) is credited to
the account of a participant for a particu-
lar limitation year if it is allocated to the
participant’s account under the terms of
the corrective amendment as of any date
within that limitation year. However, if the
allocation of an annualaddition is depen-
dent upon the satisfaction of a condition
(such as continued employment or the oc-
currence of an event) that has not been sat-
isfied by the date as of which the annual
addition is allocatedunder the terms of the
plan, then the annual addition is considered
allocated for purposes of this paragraph (b)
as of the date the condition is satisfied.
(B)Date of employer contributions.
For purposes of this paragraph (b), em-
ployer contributions are not treated as
credited to a participant’s account for a
particular limitation year unless the con-
tributions are actually made to the plan
no later than 30 days after the end of the
period described in section 404(a)(6) ap-
plicable to the taxable year with or within
which the particular limitation year ends.
If, however, contributions are made by an
employer exempt from Federal income
tax (including a governmental employer),
the contributions must be made to the plan
no later than the 15th day of the tenth
calendar month following the end of the
calendar year or fiscal year (as applica-
ble, depending on the basis on which the
employer keeps its books) with or within
which the particular limitation year ends.
If contributions are made to a plan after the
end of the period during which contribu-
tions can be made and treated as credited
to a participant’s account for a particular
limitation year, allocations attributable to
those contributions are treated as credited
to the participant’s account for the limita-
tion year during which those contributions
are made.
(C)Date of employee contributions.
For purposes of this paragraph (b), em-
ployee contributions, whether voluntary
or mandatory, are not treated as credited
to a participant’s account for a particular
limitation year unless the contributions are
actually made to the plan no later than 30
days after the close of that limitation year.
(D)Date for forfeitures. A forfeiture is
treated as an annual addition for the limita-
tion year that contains the date as of which
it is allocated to a participant’s account as
a forfeiture.
(E)Treatment of elective contributions
as plan assets. The extent to which elec-
tive contributions constitute plan assets
for purposes of the prohibited transac-
tion provisions of section 4975 and Title
I of ERISA, is determined in accordance
with regulations and rulings issued by
the Department of Labor. See 29 CFR
2510.3–102.
2007–18 I.R.B.1079April 30, 2007

(ii)Special timing rules—(A)Correc-
tive contributions. For purposes of this
section, if, in a particular limitation year,
an employer allocates an amount to a par-
ticipant’s account because of an erroneous
forfeiture in a prior limitation year, or be-
cause of an erroneous failure to allocate
amounts in a prior limitation year, the cor-
rective allocation will not be considered
an annual addition with respect to the par-
ticipant for that particular limitation year,
but will be considered an annual addition
for the prior limitation year to which it re-
lates. An example of a situation in which
an employer contribution might occur un-
der the circumstances described in the pre-
ceding sentence is a retroactive crediting
of service for an employee under 29 CFR
2530.200b–2(a)(3) in accordance with an
award of back pay. For purposes of this
paragraph (b)(6)(ii), if the amount so con-
tributed in the particular limitation year
takes into account actual investment gains
attributable to the period subsequent to the
year to which the contribution relates, the
portion of the total contribution that con-
sists of such gains is not considered as an
annual addition for any limitation year.
(B)Contributions for accumulated
funding deficiencies and previously waived
contributions—(1)Accumulated funding
deficiency. In the case of a defined contri-
bution plan to which the rules of section
412 apply, a contribution made to reduce
an accumulated funding deficiency will
be treated as if it were timely made for
purposes of determining the limitation
year in which the annual additions arising
from the contribution are made, but only
if the contribution is allocated to those
participants who would have received an
annual addition if the contribution had
been timely made.
(2)Previously waived contributions.In
the case of a defined contribution plan
to which the rules of section 412 apply
and for which there has been a waiver of
the minimum funding standard in a prior
limitation year in accordance with section
412(d), that portion of an employer con-
tribution in a subsequent limitation year
which, if not for the waiver, would have
otherwise been required in the prior lim-
itation year under section 412(a) will be
treated as if it were timely made (without
regard to the funding waiver) for purposes
of determining the limitation year in which
the annual additions arising from the con-
tribution are made, but only if the contribu-
tion is allocated to those participants who
would have received an annual addition
if the contribution had been timely made
(without regard to the funding waiver).
(3)Interest. For purposes of deter-
mining the amount of the annual addi-
tion under paragraphs (b)(6)(ii)(B)(1)and
(2) of this section, a reasonable amount
of interest paid by the employer is dis-
regarded. However, any interest paid by
the employer that is in excess of a reason-
able amount, as determined by the Com-
missioner, is taken into account as an an-
nual addition for the limitation year during
which the contribution is made.
(C)Simplified employee pensions.For
purposes of this paragraph (b), amounts
contributed to a simplified employee pen-
sion described in section 408(k) are treated
as allocated to the individual’s account as
of the last day of the limitation year ending
with or within the taxable year for which
the contribution is made.
(D)Treatment of certain contributions
made pursuant to veterans’ reemployment
rights. If, in a particular limitation year,
an employer contributes an amount to an
employee’s account with respect to a prior
limitation year and such contribution is re-
quired by reason of such employee’s rights
under chapter 43 of title 38, United States
Code, resulting from qualified military ser-
vice, as specified in section 414(u)(1), then
such contribution is not considered an an-
nual addition with respect to the employee
for that particular limitation year in which
the contribution is made, but, in accor-
dance with section 414(u)(1)(B), is consid-
ered an annual addition for the limitation
year to which the contribution relates.
(c)Examples. The following examples
illustrate the rules of paragraphs (a) and (b)
of this section:
Example 1. (i) P is a participant in a qualified
profit-sharing plan maintained by his employer,
ABC Corporation. The limitation year for the plan
is the calendar year. P’s compensation (as defined
in §1.415(c)–2) for the current limitation year is
$30,000.
(ii) Because the compensation limitation de-
scribed in section 415(c)(1)(B) applicable to P for
the current limitation year is lower than the dollar
limitation described in section 415(c)(1)(A), the
maximum annual addition which can be allocated to
P’s account for the current limitation year is $30,000
(100 percent of $30,000).
Example 2. (i) The facts are the same as inEx-
ample 1, except that P’s compensation for the current
limitation year is $140,000.
(ii) The maximum amount of annual additions
that may be allocated to P’s account in the current
limitation year is the lesser of $140,000 (100 per-
cent of P’s compensation) or the dollar limitation of
section 415(c)(1)(A) as in effect as of January 1 of
the calendar year in which the current limitation year
ends. If, for example, the dollar limitation of section
415(c)(1)(A) in effect as of January 1 of the calen-
dar year in which the current limitation year ends is
$45,000, then the maximum annual addition that can
be allocated to P’s account for the current limitation
year is $45,000.
Example 3. (i) Employer N maintains a qualified
profit-sharing plan that uses the calendar year as its
plan year and its limitation year. N’s taxable year is a
fiscal year beginning June 1 and ending May 31. Un-
der the terms of the profit-sharing plan maintained by
N, employer contributions are made to the plan two
months after the close of N’s taxable year and are
allocated as of the last day of the plan year ending
within the taxable year (and are not dependent on the
satisfaction of a condition). Thus, employer contri-
butions for the 2008 calendar year limitation year are
made on July 31, 2009 (the date that is two months
after the close of N’s taxable year ending May 31,
2009) and are allocated as of December 31, 2008.
(ii) Because the employer contributions are actu-
ally made to the plan no later than 30 days after the
end of the period described in section 404(a)(6) with
respect to N’s taxable year ending May 31, 2009, the
contributions will be considered annual additions for
the 2008 calendar year limitation year.
Example 4. (i) The facts are the same as inExam-
ple 3, except that the plan year for the profit-sharing
plan maintained by N is the 12-month period begin-
ning on February 1 and ending on January 31. The
limitation year continues to be the calendar year. Un-
der the terms of the plan, an employer contribution
which is made to the plan on July 31, 2009, is allo-
cated to participants’ accounts as of January 31, 2009.
(ii) Because the last day of the plan year is in
the 2009 calendar year limitation year, and because,
under the terms of the plan, employer contributions
are allocated to participants’ accounts as of the last
day of the plan year, the contributions are considered
annual additions for the 2009 calendar year limitation
year.
Example 5. (i) XYZ Corporation maintains a
profit-sharing plan to which a participant may make
voluntary employee contributions for any year not to
exceed 10 percent of the participant’s compensation
for the year. The plan permits a participant to make
retroactive make-up contributions for any year for
which the participant contributed less than 10 percent
of compensation. XYZ uses the calendar year as the
plan year and the limitation year. Under the terms
of the plan, voluntary employee contributions are
credited to a participant’s account for a particular
limitation year if such contributions are allocated to
the participant’s account as of any date within that
limitation year. Participant A’s compensation is as
follows—
April 30, 200710802007–18 I.R.B.

Limitation yearCompensation
2008
$30,000
2009
$32,000
2010
$34,000
2011
$36,000
(ii) P
articipant A makes no voluntary employee
contributions during limitation years 2008, 2009, and
2010. On October 1, 2011, participant A makes a vol-
untar
y employee contribution of $13,200 (10 percent
of A’s aggregate compensation for limitation years
2008, 2009, 2010, and 2011 of $132,000). Under the
term
s of the plan, $3,000 of this 2011 contribution
is allocated to A’s account as of limitation year 2008;
$3,200 is allocated to A’s account as of limitation year
2009
; $3,400 is allocated to A’s account as of limita-
tion year 2010, and $3,600 is allocated to A’s account
as of limitation year 2011.
(iii
) Under the rule set forth in paragraph
(b)(6)(i)(C) of this section, employee contributions
will not be considered credited to a participant’s
acc
ount for a particular limitation year for section
415 purposes unless the contributions are actually
made to the plan no later than 30 days after the close
of t
hat limitation year. Thus, A’s voluntary employee
contribution of $13,200 made on October 1, 2011,
would be considered as credited to A’s account only
fo
r the 2011 calendar year limitation year, notwith-
standing the plan provisions.
(d)Special rules relating to church
plans—(1)Alternative contribution limi-
tation—(i)In general. Pursuant to section
415(c)(7)(A), notwithstanding the general
rule of paragraph (a)(1) of this section,
additions for a section 403(b) annuity
contract for a year with respect to a partic-
ipant who is an employee of a church or
a convention or association of churches,
including an organization described in
section 414(e)(3)(B)(ii), when expressed
as an annual addition to such participant’s
account, are treated as not exceeding the
limitation of paragraph (a)(1) of this sec-
tion if such annual additions for the year
are not in excess of $10,000.
(ii)$40,000 aggregate limitation.With
respect to any participant, the total amount
of annual additions that are in excess of the
limitation of paragraph (a)(1) of this sec-
tion but, pursuant to the rule of paragraph
(d)(1)(i) of this section, are treated as not
exceeding that limitation (taking into ac-
count the rule of paragraph (d)(3) of this
section) cannot exceed $40,000. Thus, the
aggregate of annual additions for all limi-
tation years that would exceed the limita-
tion of this section but for this paragraph
(d)(1) is limited to $40,000.
(2)Ye
ars of service taken into account
for du
ly ordained, commissioned, or li-
cense
d ministers or lay employees.For
purpo
ses of this paragraph (d)—
(i) Al
l years of service by an individ-
ual as
an employee of a church, or a con-
vent
ion or association of churches, includ-
ing a
n organization described in section
414(
e)(3)(B)(ii), are considered as years of
serv
ice for one employer; and
(ii)
All amounts contributed for annu-
ity c
ontracts by each such church (or con-
vent
ion or association of churches) during
suc
h years for the employee are considered
to h
ave been contributed by one employer.
(3)
Foreign missionaries.Pursuantto
sec
tion 415(c)(7)(C), in the case of any in-
div
idual described in paragraph (d)(1) of
thi
s section performing any services for the
chu
rch outside the United States during the
li
mitation year, additions for an annuity
co
ntract under section 403(b) for any year
ar
e not treated as exceeding the limitation
of
paragraph (a)(1) of this section if such
an
nual additions for the year do not ex-
c
eed $3,000. The preceding sentence shall
n
ot apply with respect to any taxable year
t
o any individual whose adjusted gross in-
c
ome for such taxable year (determined
s
eparately and without regard to commu-
n
ity property law) exceeds $17,000.
(
4)Church, convention or association
o
fchurches. For purposes of this para-
graph (d), the terms “church” and “con-
vention or association of churches” have
the same meaning as when used in section
414(e).
(5)Examples. The following examples
illustrate the rules of this paragraph (d):
Example1. (i) E is an employee of ABC Church
earning $7,000 during each calendar year. E partici-
pates in a section 403(b) annuity contract maintained
by ABC Church beginning in the year 2008. E’s tax-
able year is the calendar year, and the limitation year
for the plan coincides with the calendar year. ABC
Church contributes $10,000 to be allocated to E’s ac-
count under the plan for the year 2008.
(ii) Under paragraph (d)(1) of this section, this
allocation is treated as not violating the limits estab-
lished in paragraph (a)(1) of this section because it
does not exceed $10,000. Moreover, since an annual
addition of $10,000 would otherwise exceed the lim-
itati
on of paragraph (a)(1) of this section by $3,000,
$3,000 is counted toward the aggregate limitation
specified in paragraph (d)(1)(ii) of this section for
year 2
008. Accordingly, ABC Church may make
such allocations for 13 years (for example, for years
2008 through 2020) without exceeding the aggregate
limi
tation of $40,000 specified in paragraph (d) of
this section. For the fourteenth year, ABC Church
could allocate only $8,000 to E’s account (the sum
of th
e $7,000 limitation computed under paragraph
(a)(1)(ii) of this section and the remaining $1,000
of the $40,000 aggregate limitation under paragraph
(d)
(1)(ii) of this section on annual additions in excess
of the limits under paragraph (a)(1) of this section).
Example 2. (i) F is an employee of XYZ Church
and
F’s taxable year is the calendar year. F earns
$2,000 during each calendar year for services he pro-
vides to XYZ Church, all of which are performed out-
sid
e the United States during each calendar year. F
participates in a section 403(b) annuity contract main-
tained by ABC Church beginning in the year 2008.
Th
e limitation year for the plan coincides with the
calendar year. ABC Church contributes $10,000 to
be allocated to F’s account under the plan for the year
20
08. F’s adjusted gross income for each taxable year
(determined separately and without regard to commu-
nity property law) does not exceed $17,000.
(i
i) Under paragraph (d)(1) of this section, this al-
location is treated as not violating the limits estab-
lished in paragraph (a)(1) of this section because it
d
oes not exceed $10,000. Moreover, since an annual
addition of $10,000 would otherwise exceed the lim-
itation of paragraph (a)(1) of this section by $7,000
(
the excess of $10,000 over the greater of the $2,000
compensation limitation under section 415(c)(1)(B)
or the $3,000 section 415(c)(7)(C) amount), XYZ
Church may make such allocations for 5 years (for
example, for years 2008 through 2012) without ex-
ceeding the aggregate limitation of $40,000 specified
in paragraph (d) of this section. In year 2013, XYZ
church may contribute $8,000 to be allocated to F’s
account under the plan (the sum of the $3,000 lim-
itation computed under paragraph (d)(3) of this sec-
tion and the remaining $5,000 of the $40,000 aggre-
gate limitation under paragraph (d)(1)(ii) of this sec-
tion on annual additions in excess of the limits un-
der paragraph (a)(1) of this section). For years af-
ter 2013, pursuant to paragraph (d)(3) of this section,
XYZ Church could allocate $3,000 per year to F’s ac-
count.
(e)Special rules for medical benefits.
The limit under paragraph (a)(1)(ii) of this
section (100 percent of the participant’s
compensation for the limitation year) does
not apply to—
(1) An individual medical benefit ac-
count (as defined in section 415(l)); or
2007–18 I.R.B.1081April 30, 2007

(2) A post-retirement medical benefits
account for a key employee (as defined in
section 419A(d)(1)).
(f)Special rules for employee stock
ownership plans—(1)In general. Special
rules apply to employee stock ownership
plans, as provided in paragraphs (f)(2)
through (f)(4) of this section.
(2)Determination of annual additions
for leveraged employee stock ownership
plans—(i)In general. Except as provided
in this paragraph (f) of this section, in
the case of an employee stock ownership
plan to which an exempt loan as described
in §54.4975–7(b) of this chapter has been
made, the amount of employer contribu-
tions that is considered an annual addition
for the limitation year is calculated with
respect to employer contributions of both
principal and interest used to repay that ex-
empt loan for the limitation year.
(ii)Employer stock that has decreased
in value. A plan may provide that, in lieu
of computing annual additions in accor-
dance with paragraph (f)(2)(i) of this sec-
tion, annual additions with respect to a loan
repayment described in paragraph (f)(2)(i)
of this section are determined as the fair
market value of shares released from the
suspense account on account of the repay-
ment and allocated to participants for the
limitation year if that amount is less than
the amount determined in accordance with
paragraph (f)(2)(i) of this section.
(3)Exclusions from annual additions
for certain employee stock ownership
plans that allocate to a broad range of
participants—(i)General rule.Pursuant
to section 415(c)(6), in the case of an em-
ployee stock ownership plan (as described
in section 4975(e)(7)) that meets the re-
quirements of paragraph (f)(3)(ii) of this
section for a limitation year, the limita-
tions imposed by this section do not apply
to—
(A) Forfeitures of employer securities
(within the meaning of section 409(l))
under such an employee stock ownership
plan if such securities were acquired with
the proceeds of a loan (as described in
section 404(a)(9)(A)); or
(B) Employer contributions to such an
employee stock ownership plan which are
deductible under section 404(a)(9)(B) and
charged against the participant’s account.
(ii)Employee stock ownership plans to
which the special exclusion applies.An
employee stock ownership plan meets the
requirements of this paragraph (f)(3)(ii)
for a limitation year if no more than one-
third of the employer contributions for the
limitation year that are deductible under
section 404(a)(9) are allocated to highly
compensated employees (within the mean-
ing of section 414(q)).
(4)Gratuitous transfers under section
664(g)(1). The amount of any qualified
gratuitous transfer (as defined in section
664(g)(1)) allocated to a participant for
any limitation year is not taken into ac-
count in determining whether any other
annual addition exceeds the limitations
imposed by this section, but only if the
amount of the qualified gratuitous transfer
does not exceed the limitations imposed
by section 415.
Par. 12. Section 1.415(c)–2 is added to
read as follows:
§1.415(c)–2 Compensation.
(a)General definition. Except as oth-
erwise provided in this section, compensa-
tion from the employer within the mean-
ing of section 415(c)(3), which is used for
purposes of section 415 and regulations
promulgated under section 415, means all
items of remuneration described in para-
graph (b) of this section, but excludes the
items of remuneration described in para-
graph (c) of this section. Paragraph (d)
of this section provides safe harbor def-
initions of compensation that are permit-
tedtobeprovidedinaplaninlieuofthe
generally applicable definition of compen-
sation. Paragraph (e) of this section pro-
vides timing rules relating to compensa-
tion. Paragraph (f) of this section pro-
vides rules regarding the application of
the rules of section 401(a)(17) to the def-
inition of compensation for purposes of
section 415. Paragraph (g) of this sec-
tion provides specialrulesrelatingtothe
determination of compensation, including
rules for determining compensation for a
section 403(b) annuitycontract, rules for
determining the compensation of employ-
ees of controlled groups or affiliated ser-
vice groups, rules for disabled employ-
ees, rules relating to foreign compensation,
rules regarding deemed section 125 com-
pensation, rules for employees in qualified
military service, and rules relating to back
pay.
(b)Items includible as compensation.
For purposes of applying the limitations
of section 415, except as otherwise pro-
vided in this section, the termcompensa-
tionmeans remuneration for services of
the following types—
(1) The employee’s wages, salaries,
fees for professional services, and other
amounts received (without regard to
whether or not an amount is paid in cash)
for personal services actually rendered in
the course of employment with the em-
ployer maintaining the plan, to the extent
that the amounts are includible in gross
income (or to the extent amounts would
have been received and includible in gross
income but for an election under section
125(a), 132(f)(4), 402(e)(3), 402(h)(1)(B),
402(k), or 457(b)). These amounts in-
clude, but are not limited to, commissions
paid to salespersons, compensation for
services on the basis of a percentage of
profits, commissions on insurance pre-
miums, tips, bonuses, fringe benefits,
and reimbursements or other expense al-
lowances under a nonaccountable plan as
described in §1.62–2(c).
(2) In the case of an employee who is an
employee within the meaning of section
401(c)(1) and regulations promulgated
under section 401(c)(1), the employee’s
earned income (as described in section
401(c)(2) and regulations promulgated
under section 401(c)(2)), plus amounts
deferred at the election of the employee
that would be includible in gross income
but for the rules of section 402(e)(3),
402(h)(1)(B), 402(k), or 457(b).
(3) Amounts described in section
104(a)(3), 105(a), or 105(h), but only to
the extent that these amounts are includi-
ble in the gross income of the employee.
(4) Amounts paid or reimbursed by the
employer for moving expenses incurred by
an employee, but only to the extent that
at the time of the payment it is reason-
able to believe that these amounts are not
deductible by the employee under section
217.
(5) The value of a nonstatutory option
(which is an option other than a statutory
option as defined in §1.421–1(b)) granted
to an employee by the employer, but only
to the extent that the value of the option
is includible in the gross income of the
employee for the taxable year in which
granted.
(6) The amount includible in the gross
income of an employee upon making the
election described in section 83(b).
April 30, 200710822007–18 I.R.B.

(7) Amounts that are includible in
the gross income of an employee un-
der the rules of section 409A or section
457(f)(1)(A) or because the amounts are
constructively received by the employee.
(c)Items not includible as compensa-
tion.Thetermcompensationdoes not in-
clude—
(1) Contributions (other than elec-
tive contributions described in section
402(e)(3), section 408(k)(6), section
408(p)(2)(A)(i), or section 457(b)) made
by the employer to a plan of deferred
compensation (including a simplified em-
ployee pension described in section 408(k)
or a simple retirement account described
in section 408(p), and whether or not qual-
ified) to the extent that the contributions
are not includible in the gross income of
the employee for the taxable year in which
contributed. In addition, any distributions
from a plan of deferred compensation
(whether or not qualified) are not consid-
ered as compensation for section 415 pur-
poses, regardless of whether such amounts
are includible in the gross income of the
employee when distributed. However, if
the plan so provides, any amounts received
by an employee pursuant to a nonqualified
unfunded deferred compensation plan are
permitted to be considered as compensa-
tion for section 415 purposes in the year
the amounts are actually received, but only
to the extent such amounts are includible
in the employee’s gross income.
(2) Amounts realized from the exercise
of a nonstatutory option (which is an op-
tion other than a statutory option as defined
in §1.421–1(b)), or when restricted stock
or other property held by an employee ei-
ther becomes freely transferable or is no
longer subject to a substantial risk of for-
feiture (see section 83 and regulations pro-
mulgated under section 83).
(3) Amounts realized from the sale, ex-
change, or other disposition of stock ac-
quired under a statutory stock option (as
defined in §1.421–1(b)).
(4) Other amounts that receive special
tax benefits, such as premiums for group-
term life insurance (but only to the ex-
tent that the premiums are not includible
in the gross income of the employee and
are not salary reduction amounts that are
describedinsection125).
(5) Other items of remuneration that are
similar to any of the items listed in para-
graphs (c)(1) through (c)(4) of this section.
(d)Safe harbor rules with respect to
plan’s definition of compensation—(1)In
general. Paragraphs (d)(2) through (4) of
this section contain safe harbor definitions
of compensation that are automatically
considered to satisfy section 415(c)(3) if
specified in the plan. The Commissioner
may, in revenue rulings, notices, and
other guidance of general applicability
published in the Internal Revenue Bul-
letin (see §601.601(d)(2) of this chapter),
provide additional definitions of compen-
sation that are treated as satisfying section
415(c)(3).
(2)Simplified compensation.Thesafe
harbor definition of compensation under
this paragraph (d)(2) includes only those
items specified in paragraph (b)(1) or (2)
of this section and excludes all those items
listed in paragraph (c) of this section.
(3)Section 3401(a) wages.Thesafe
harbor definition of compensation un-
der this paragraph (d)(3) includes wages
within the meaning of section 3401(a)
(for purposes of income tax withholding
at the source), plus amounts that would
be included in wages but for an election
under section 125(a), 132(f)(4), 402(e)(3),
402(h)(1)(B), 402(k), or 457(b). How-
ever, any rules that limit the remuneration
included in wages based on the nature or
location of the employment or the services
performed (such as the exception for agri-
cultural labor in section 3401(a)(2)) are
disregarded for this purpose.
(4)Information required to be reported
under sections 6041, 6051 and 6052.
The safe harbor definition of compensa-
tion under this paragraph (d)(4) includes
amounts that are compensation under the
safe harbor definition of paragraph (d)(3)
of this section, plus all other payments
of compensation to an employee by his
employer (in the course of the employer’s
trade or business) for which the employer
is required to furnish the employee a
written statement under sections 6041(d),
6051(a)(3), and 6052. See §§1.6041–1(a),
1.6041–2(a)(1), 1.6052–1, and 1.6052–2,
and also see §31.6051–1(a)(1)(i)(C) of
this chapter. This safe harbor definition of
compensation may be modified to exclude
amounts paid or reimbursed by the em-
ployer for moving expenses incurred by
an employee, but only to the extent that, at
the time of the payment, it is reasonable to
believe that these amounts are deductible
by the employee under section 217.
(e)Timing rules—(1)In general—(i)
Payment during the limitation year.Ex-
cept as otherwise provided in this para-
graph (e), in order to be taken into account
for a limitation year, compensation within
the meaning of section 415(c)(3) must be
actually paid or made available to an em-
ployee (or, if earlier, includible in the gross
income of the employee) within the limita-
tion year. For this purpose, compensation
is treated as paid on a date if it is actually
paid on that date or it would have been paid
on that date but for an election under sec-
tion 125, 132(f)(4), 401(k), 403(b), 408(k),
408(p)(2)(A)(i), or 457(b).
(ii)Payment prior to severance from
employment. Except as otherwise pro-
vided in this paragraph (e), in order to
be taken into account for a limitation
year, compensation within the mean-
ing of section 415(c)(3) must be paid
or treated as paid to the employee (in
accordance with the rules of paragraph
(e)(1)(i)ofthissection)priortotheem-
ployee’s severance from employment with
the employer maintaining the plan. See
§1.415(a)–1(f)(5) for the definition of sev-
erance from employment.
(2)Certain minor timing differences.
Notwithstanding the provisions of para-
graph (e)(1)(i) of this section, a plan may
provide that compensation for a limitation
year includes amounts earned during that
limitation year but not paid during that lim-
itation year solely because of the timing of
pay periods and pay dates if—
(i) These amounts are paid during the
first few weeks of the next limitation year;
(ii) The amounts are included on a uni-
form and consistent basis with respect to
all similarly situated employees; and
(iii) No compensation is included in
more than one limitation year.
(3)Compensation paid after sever-
ance from employment—(i)In general.
Any compensation described in paragraph
(e)(3)(ii) of this section does not fail to
be compensation (within the meaning of
section 415(c)(3)) pursuant to the rule of
paragraph (e)(1)(ii) of this section merely
because it is paid after the employee’s
severance from employment with the em-
ployer maintaining the plan, provided the
compensation is paid by the later of 2
1
/2
months after severance from employment
with the employer maintaining the plan or
the end of the limitation year that includes
the date of severance from employment
2007–18 I.R.B.1083April 30, 2007

with the employer maintaining the plan.
In addition, the plan may provide that
amounts described in paragraph (e)(3)(iii)
of this section are included in compen-
sation (within the meaning of section
415(c)(3)) if—
(A) Those amounts are paid by the later
of 2
1
/2months after severance from em-
ployment with the employer maintaining
the plan or the end of the limitation year
that includes the date of severance from
employment with the employer maintain-
ing the plan; and
(B) Those amounts would have been in-
cluded in the definition of compensation
if they were paid prior to the employee’s
severance from employment with the em-
ployer maintaining the plan.
(ii)Regular pay after severance from
employment. An amount is described in
this paragraph (e)(3)(ii) if—
(A) The payment is regular compen-
sation for services during the employee’s
regular working hours, or compensation
for services outside the employee’s reg-
ular working hours (such as overtime or
shift differential), commissions, bonuses,
or other similar payments; and
(B) The payment would have been paid
to the employee prior to a severance from
employment if the employee had contin-
uedinemploymentwiththeemployer.
(iii)Leave cashouts and deferred com-
pensation. An amount is described in this
paragraph (e)(3)(iii) if the amount is ei-
ther—
(A) Payment for unused accruedbona
fidesick, vacation, or other leave, but only
if the employee would have been able to
use the leave if employment had contin-
ued; or
(B) Received by an employee pursuant
to a nonqualified unfunded deferred com-
pensation plan, but only if the payment
would have been paid to the employee at
the same time if the employee had contin-
ued in employment with the employer and
only to the extent that the payment is in-
cludible in the employee’s gross income.
(iv)Other post-severance payments.
Any payment that is not described in para-
graph (e)(3)(ii) or (iii) of this section is
not considered compensation under para-
graph (e)(3)(i) of this section if paid after
severance from employment with the em-
ployer maintaining the plan, even if it is
paid within the time period described in
paragraph (e)(3)(i) of this section. Thus,
compensation does not include severance
pay, or parachute payments within the
meaning of section 280G(b)(2), if they
are paid after severance from employ-
ment with the employer maintaining the
plan, and does not include post-severance
payments under a nonqualified unfunded
deferred compensation plan unless the
payments would have been paid at that
time without regard to the severance from
employment.
(4)Salary continuation payments for
military service and disabled participants.
The rule of paragraph (e)(1)(ii) of this sec-
tion does not apply to payments to an indi-
vidual who does not currently perform ser-
vices for the employer by reason of quali-
fied military service (as that term is used in
section 414(u)(1)) to the extent those pay-
ments do not exceed the amounts the indi-
vidual would have received if the individ-
ual had continued to perform services for
the employer rather than entering qualified
military service, but only if the plan so pro-
vides. In addition, the rule of paragraph
(e)(1)(ii) of this section does not apply to
compensation paid to aparticipant who is
permanently and totally disabled (as de-
fined in section 22(e)(3)) if the conditions
set forth in paragraph (g)(4)(ii)(A) of this
sectionaresatisfied(appliedbysubstitut-
ing a continuation of compensation for the
continuation of contributions), but only if
the plan so provides.
(5)Special rule for governmental plans.
For purposes of applying the rules of para-
graph (e)(3) of this section, a governmen-
talplan(asdefinedinsection414(d))may
provide for the substitution of the calendar
year in which the severance from employ-
ment with the employer maintaining the
plan occurs for the limitation year in which
the severance from employment with the
employer maintaining the plan occurs.
(6)Examples. The provisions of this
paragraph (e) are illustrated by the follow-
ing examples:
Example 1.(i)Facts. Participant A was a com-
mon law employee of Employer X, performing ser-
vices as a script writer for Employer X from January
1, 2005 to December 31, 2005. Pursuant to a collec-
tive bargaining agreement, Employer X, Employer Y
and Employer Z maintain and contribute to Plan T, a
multiemployer plan (as defined in section 414(f)) in
which Participant A participates. Under the collec-
tive bargaining agreement, Participant A is entitled
to residual payments whenever television shows that
Participant A wrote are re-used commercially (These
residual payments constitute compensation described
in paragraph (b) of this section and do not constitute
compensation described in paragraph (c) of this sec-
tion.). In the year 2008, Participant A receives resid-
ual payments from Employer X for television pro-
grams using the scripts that Participant A wrote in the
year 2005 that were rebroadcast in the year 2008. In
the years 2006, 2007, and 2008, Participant A was a
common law employee of Employer Y, and did not
perform any services for Employer X.
(ii)Conclusion. The residual payments received
from Employer X by Participant A in the year 2008
are compensation for purposes of section 415(c)(3).
The payments are not treated as made after severance
from employment because Plan T is a multiemployer
plan (as defined in section 414(f)) and Participant A
continues to be employed by an employer maintain-
ing Plan T.
Example 2.(i)Facts. The facts are the same as
inExample 1, except that Participant A: ceased em-
ployment with Employer Y in the year 2006; subse-
quently moved away from the area in which A for-
merly worked; performs no services as an employee
for any employer; and commenced receiving distri-
butions under Plan T in March, 2006.
(ii)Conclusion. Based on the facts and circum-
stances, A has ceased employment with any employer
maintaining Plan T. Pursuant to paragraph (e)(1)(ii)
of this section, compensation must be paid prior to an
employee’s severance from employment with the em-
ployer maintaining the plan. Accordingly, the resid-
ual payments received by Participant A in the year
2008 are not compensation for purposes of section
415(c)(3).
(f)Interaction with section 401(a)(17).
Because a plan may not base allocations
(in the case of a defined contribution plan)
or benefits (in the case of a defined ben-
efit plan) on compensation in excess of
the limitation under section 401(a)(17),
a plan’s definition of compensation for a
year that is used for purposes of apply-
ing the limitations of section 415 is not
permitted to reflect compensation for a
year that is in excess of the limitation un-
der section 401(a)(17) that applies to that
year. See §§1.401(a)(17)–1(a)(3)(i) and
1.401(a)(17)–1(b)(3)(ii) for rules regard-
ing the effective date of increases in the
section 401(a)(17) compensation limita-
tion for a plan year and for a 12-month
period other than the plan year.
(g)Special rules—(1)Compensation
for section 403(b) annuity contract.In
the case of an annuity contract described
in section 403(b), the termparticipant’s
compensationmeans the participant’s in-
cludible compensation determined under
section 403(b)(3). Accordingly, the rules
for determining a participant’s compensa-
tion pursuant to section 415(c)(3) (other
than section 415(c)(3)(E)) and this section
do not apply to a section 403(b) annuity
contract.
April 30, 200710842007–18 I.R.B.

(2)Employees of controlled groups of
corporations, etc. Inthecaseofanem-
ployee of two or more corporations which
are members of a controlled group of cor-
porations (as defined in section 414(b)
as modified by section 415(h)), the term
compensationfor such employee includes
compensation from all employers that
are members of the group, regardless of
whether the employee’s particular em-
ployer has a qualified plan. This special
rule is also applicable to an employee of
two or more trades or businesses (whether
or not incorporated) that are under com-
mon control (as defined in section 414(c)
as modified by section 415(h)), to an em-
ployee of two or more members of an
affiliated service group as defined in sec-
tion414(m),andtoanemployeeoftwoor
more members of any group of employers
who must be aggregated and treated as one
employer pursuant to section 414(o).
(3)Aggregation of section 403(b) an-
nuity with qualified plan of controlled em-
ployer. If a section 403(b) annuity con-
tract is aggregated with a qualified plan
of a controlled employer in accordance
with §1.415(f)–1(f)(2), then, in applying
the limitations of section 415(c) in con-
nection with the aggregation of the section
403(b) annuity with a qualified plan, the
total compensation from both employers is
permitted to be taken into account.
(4)Permanent and total disability of de-
fined contribution plan participant—(i)In
general. Pursuant to section 415(c)(3)(C),
if the conditions set forth in paragraph
(g)(4)(ii) of this section are satisfied, then,
in the case of a participant in any defined
contribution plan who is permanently and
totally disabled (as defined in section
22(e)(3)), theparticipant’s compensation
means the compensation the participant
would have received for the year if the
participant was paid at the rate of compen-
sation paid immediately before becoming
permanently and totally disabled, if such
compensation is greater than the partici-
pant’s compensation determined without
regard to this paragraph (g)(4).
(ii)Conditions for deemed disability
compensation. The rule of paragraph
(g)(4)(i) of this section applies only if the
following conditions are satisfied—
(A) Either the participant is not a highly
compensated employee (as defined in sec-
tion 414(q)) immediately before becoming
disabled, or the plan provides for the con-
tinuation of contributions on behalf of all
participants who are permanently and to-
tally disabled for a fixed or determinable
period;
(B) The plan provides that the rule
of this paragraph (g)(4) (treating certain
amounts as compensation for a disabled
participant) applies with respect to the
participant; and
(C) Contributions made with respect
to amounts treated as compensation under
this paragraph (g)(4) are nonforfeitable
when made.
(5)Foreign compensation, etc.—(i)
In general. Amounts paid to an individ-
ual as compensation for services do not
fail to be treated as compensation under
paragraphs (b)(1) and (2) of this section
(and are not excludedfrom the definition
of compensation pursuant to paragraph
(c)(4) of this section) merely because
those amounts are not includible in the
individual’s gross income on account of
the location of the services. Similarly,
compensation for services do not fail to be
treated as compensation under paragraphs
(b)(1) and (2) of this section (and are not
excluded from the definition of compen-
sation pursuant to paragraph (c)(4) of this
section) merely because those amounts are
paid by an employer with respect to which
all compensation paid to the participant
by such employer is excluded from gross
income. Thus, for example, the determi-
nation of whether an amount is treated as
compensation under paragraph (b)(1) or
(2) of this section is made without regard
to the exclusions from gross income under
sections 872, 893, 894, 911, 931, and 933.
(ii)Exclusion of non-participant com-
pensation by the plan. With respect to
a nonresident alien who is not a partici-
pant in a plan, the plan may provide that
the compensation described in paragraph
(g)(5)(i) of this section is not treated as
compensation for purposes of paragraphs
(b)(1) and (b)(2) of this section to the ex-
tent the compensation is excludable from
gross income and is not effectively con-
nected with the conduct of a trade or busi-
ness within the United States, but only if
the plan applies this rule uniformly to all
such employees. For purposes of this para-
graph (g)(5)(ii), nonresident alien has the
same meaning as in section 7701(b)(1)(B).
(6)Deemed section 125 compensa-
tion—(i)General rule. A plan is permit-
ted to provide that deemed section 125
compensation (as defined in paragraph
(g)(6)(ii) of this section) is compensation
within the meaning of section 415(c)(3),
but only if the plan applies this rule uni-
formly to all employees with respect to
whom amounts subject to section 125 are
included in compensation.
(ii)Definition of deemed section 125
compensation. Deemed section 125 com-
pensation is an amount that is excludable
from the income of the participant under
section 106 that is not available to the
participant in cash in lieu of group health
coverage under a section 125 arrangement
solely because that participant is not able
to certify that the participant has other
health coverage. Under this definition,
amounts are deemed section 125 com-
pensation only if the employer does not
otherwise request or collect information
regarding the participant’s other health
coverage as part of the enrollment process
for the health plan.
(7)Employees in qualified military ser-
vice. See section 414(u)(7) for special
rules regarding compensation of employ-
ees who are in qualified military service
within the meaning of section 414(u)(5).
(8)Back pay. Payments awarded by an
administrative agency or court or pursuant
to abona fideagreement by an employer
to compensate an employee for lost wages
are compensation within the meaning of
section 415(c)(3) for the limitation year to
which the back pay relates, but only to the
extent such payments represent wages and
compensation that would otherwise be in-
cluded in compensation under this section.
Par. 13. Section 1.415(d)–1 is added to
read as follows:
§1.415(d)–1 Cost-of-living adjustments.
(a)Defined benefit plans—(1)Dol-
lar limitation—(i)Determination of ad-
justed limit. Under section 415(d)(1)(A),
the dollar limitation described in section
415(b)(1)(A) applicable to defined bene-
fit plans is adjusted annually to take into
account increases in the cost of living.
The adjustment of the dollar limitation
is made by multiplying the adjustment
factor for the year, as described in para-
graph (a)(1)(ii)(A) of this section, by
$160,000, and rounding the result in ac-
cordance with paragraph (a)(1)(iii) of this
section. The adjusted dollar limitation is
prescribed by the Commissioner and pub-
2007–18 I.R.B.1085April 30, 2007

lished in the Internal Revenue Bulletin.
See §601.601(d)(2) of this chapter.
(ii)Determination of adjustment fac-
tor—(A)Adjustment factor.Theadjust-
ment factor for a calendar year is equal to
a fraction, the numerator of which is the
value of the applicable index for the cal-
endar quarter ending September 30 of the
preceding calendar year, and the denomi-
nator of which is the value of such index
for the base period. The applicable index
is determined consistent with the proce-
dures used to adjust benefit amounts under
section 215(i)(2)(A) of the Social Security
Act, Public Law 92–336 (86 Stat. 406),
as amended. If, however, the value of that
fraction is less than one for a calendar year,
then the adjustment factor for the calendar
year is equal to one.
(B)Base period. For the purpose of
adjusting the dollar limitation pursuant to
paragraph (a)(1)(ii)(A) of this section, the
base period is the calendar quarter begin-
ning July 1, 2001.
(iii)Rounding. Any increase in the
$160,000 amount specified in section
415(b)(1)(A) which is not a multiple of
$5,000 is rounded to the next lowest mul-
tiple of $5,000.
(2)Average compensation for high-3
years of service limitation—(i)Determi-
nation of adjusted limit. Under section
415(d)(1)(B), with regard to participants
who have had a severance from employ-
ment with the employer maintaining the
plan, the compensation limitation de-
scribed in section 415(b)(1)(B) is permit-
tedtobeadjustedannuallytotakeinto
account increases in the cost of living.
For any limitation year beginning after
the severance occurs, the adjustment of
the compensation limitation is made by
multiplying the annual adjustment factor
(as defined in paragraph (a)(2)(ii) of this
section) by the compensation limitation
applicable to the participant in the prior
limitation year. The annual adjustment
factor is prescribed by the Commissioner
and published in the Internal Revenue Bul-
letin. See §601.601(d)(2) of this chapter.
(ii)Annual adjustment factor.Thean-
nual adjustment factor for a calendar year
is equal to a fraction, the numerator of
which is the value of the applicable index
for the calendar quarter ending Septem-
ber 30 of the preceding calendar year, and
the denominator of which is the value of
such index for the calendar quarter ending
September 30 of the calendar year prior to
that preceding calendar year. The applica-
ble index is determined consistent with the
procedures used to adjust benefit amounts
under section 215(i)(2)(A) of the Social
Security Act. If the value of the frac-
tion described in the first sentence of this
paragraph (a)(2)(ii) is less than one for a
calendar year, then the adjustment factor
for the calendar year is equal to one. In
such a case, the annual adjustment fac-
tor for future calendar years will be de-
termined in accordance with revenue rul-
ings, notices, or other published guidance
prescribed by the Commissioner and pub-
lished in the Internal Revenue Bulletin.
See §601.601(d)(2) of this chapter.
(iii)Special rule for rehired employ-
ees. If, after having a severance from em-
ployment with the employer maintaining
the plan, an employee is rehired by the
employer maintaining the plan, the em-
ployee’s compensation limit under section
415(b)(1)(B) is the greater of—
(A) 100 percent of the participant’s av-
erage compensation for the period of the
participant’s high-3 years of service, as
determined prior to the employee’s sever-
ance from employment with the employer
maintaining the plan, as adjusted pursuant
to paragraph (a)(2)(i) of this section (if the
plan so provides); or
(B) 100 percent of the participant’s
average compensation for the period of
the participant’s high-3 years of service,
with the period of the participant’s high-3
years of service determined pursuant to
§1.415(b)–1(a)(5)(iii).
(3)Effective date of adjustment.The
adjusted dollar limitation applicable to de-
fined benefit plans and the adjusted com-
pensation limit applicable to a participant
are effective as of January 1 of each calen-
dar year and apply with respect to limita-
tion years ending with or within that calen-
dar year. However, benefit payments (and,
in the case of plans that are subject to the
requirements of section 411, accrued ben-
efits for a limitation year) cannot exceed
the currently applicable dollar limitation or
compensation limitation (as in effect be-
fore the January 1 adjustment) prior to Jan-
uary 1. Thus, where there is an increase in
the limitation under section 415(b)(1), any
increase in a participant’s benefits associ-
ated with the limitation increase is permit-
ted to occur as of a date no earlier than Jan-
uary 1 of the calendar year for which the
increase in the limitation is effective, and
can only be applied for payments due on or
after January 1 of such calendar year. For
example, assume that a participant in a de-
fined benefit plan is currently receiving a
benefit in the form of a straight life annu-
ity, payable monthly, in an amount equal to
the section 415(b)(1)(A) dollar limit, and
the defined benefit plan has a limitation
year that runs from July 1 to June 30. If
the plan is amended to reflect the section
415(d) increase to the section 415(b)(1)(A)
dollar limit that is effective as of January 1,
2009, the associated increase in the partic-
ipant’s monthly benefit payments is only
effective for payments due on or after Jan-
uary 1, 2009, and the participant’s benefit
cannot be increased to reflect the section
415(d) increase that is effective January 1,
2009, with respect to any monthly payment
due prior to January 1, 2009.
(4)Application of adjusted figure—(i)
In general. If the dollar limitation of sec-
tion 415(b)(1)(A) or the compensation
limitation of section 415(b)(1)(B) is ad-
justed pursuant to section 415(d) for a
limitation year, the adjustment is applied
as provided in this paragraph (a)(4).
(ii)Application of adjusted limitations
to benefits that have not commenced.
An adjustment to the dollar limitation
of section 415(b)(1)(A) is permitted to
be applied to a participant who has not
commenced benefits before the date on
which the adjustmentis effective. Annual
adjustments to the compensation limit of
section 415(b)(1)(B) as described in para-
graph (a)(2) of this section are permitted
to be made for all limitation years that be-
gin after the participant’s severance from
employment, and apply to distributions
that commence after the effective dates
of such adjustments. However, no adjust-
ment to the compensation limit of section
415(b)(1)(B) is made for any limitation
year that begins on or before the date of the
participant’s severance from employment
with the employer maintaining the plan.
(iii)Application of adjusted dollar lim-
itation to remaining payments under bene-
fits that have commenced. With respect to
a distribution of accrued benefits that com-
menced before the date on which an ad-
justment to the section 415(b)(1)(A) dol-
lar limitation is effective, a plan is permit-
ted to apply the adjusted limitations to that
distribution, but only to the extent that ben-
efits have not been paid. Thus, for ex-
April 30, 200710862007–18 I.R.B.

ample, a plan cannot provide that the ad-
justed dollar limitation applies to a partic-
ipant who has previously received the en-
tire plan benefit in a single-sum distribu-
tion. However, a plan can provide for an
increase in benefits to a participant who
accrues additional benefits under the plan
that could have been accrued without re-
gard to the adjustment of the dollar limi-
tation (including benefits that accrue as a
result of a plan amendment) on or after the
effective date of the adjusted limitation.
(iv)Manner of adjustment for bene-
fits that have commenced.Ifaplanis
amended to increase benefits payable un-
der the plan in accordance with paragraphs
(a)(5) or (a)(6) of this section (or the plan
is treated as applying paragraph (a)(5)
of this section because the plan incor-
porates the section 415(d) cost-of-living
adjustments automatically by reference
pursuant to §1.415(a)–1(d)(3)(v)), or if
benefits payable under the plan are in-
creased pursuant to a form of benefit that
is described in §1.415(b)–1(c)(5), then the
distribution as increased will be treated as
continuing to satisfy the requirements of
section 415(b). If benefits payable under a
plan are increased in a manner other than
as described in the preceding sentence,
the plan must satisfy the requirements of
§1.415(b)–1(b)(1)(iii), treating the com-
mencement of the additional benefit as the
commencement of a new distribution that
gives rise to a new annuity starting date.
(5)Safe harbor for annual adjustments
to distributions. An amendment to a plan
to incorporate adjustments to the section
415(b) limits that increases a distribution
that has previously commenced is de-
scribed in this paragraph (a)(5) if—
(i) The employee has received one or
more distributions that satisfy the require-
ments of section 415(b) before the date the
adjustment to the applicable limits is effec-
tive (as determined under paragraph (a)(3)
of this section);
(ii) The increased distribution is solely
as a result of the amendment of the plan
to reflect the adjustment to the applicable
limits pursuant to section 415(d); and
(iii) The amounts payable to the em-
ployee on and after the effective date of
the adjustment (as determined under para-
graph (a)(3) of this section) are not greater
than the amounts that would otherwise be
payable without regard to the adjustment,
multiplied by a fraction determined for the
limitation year, the numerator of which is
the limitation under section 415(b) (which
is the lesser of the applicable dollar lim-
itation under section 415(b)(1)(A), as ad-
justed for age at commencement, and the
applicable compensation-based limitation
under section 415(b)(1)(B)) in effect with
respect to the distribution taking into ac-
count the section 415(d) adjustment, and
the denominator of which is the limitation
under section 415(b) in effect for the distri-
bution immediately before the adjustment.
(6)Safe harbor for periodic adjust-
ments to distributions—(i)General rule.
An amendment to a plan that increases
a distribution that has previously com-
menced is made using the safe harbor
methodology of this paragraph (a)(6) if—
(A) The employee has received one or
more distributions that satisfy the require-
ments of section 415(b) before the date on
which the increase is effective; and
(B) The amounts payable to the em-
ployee on and after the effective date of the
increase are not greater than the amounts
that would otherwise be payable without
regard to the increase, multiplied by the cu-
mulative adjustment fraction.
(ii)Cumulative adjustment fraction.
The cumulative adjustment fraction for
purposes of this paragraph (a)(6) is equal
to the product of all of the fractions de-
scribed in paragraph (a)(5)(iii) of this
section that would have applied after
benefits commence if the plan had been
amended each year to incorporate the sec-
tion 415(d) adjustments to the applicable
section 415(b) limits and had otherwise
satisfied the safe harbor methodology de-
scribed in paragraph (a)(5) of this section.
For purposes of the preceding sentence,
if for the limitation year for which the
increase to the section 415(b)(1)(A) dollar
limitation pursuant to section 611(a)(1)(A)
of the Economic Growth and Tax Relief
Reconciliation Act of 2001 (115 Stat. 38),
Public Law 107–16 (EGTRRA), is first ef-
fective (generally, the first limitation year
beginning after December 31, 2001), the
section 415(b)(1)(A) dollar limit applica-
ble to a participant is less than the section
415(b)(1)(B) compensation limit for the
participant, then the fraction described in
paragraph (a)(5)(iii) of this section for that
limitation year is 1.0.
(7)Examples. The following examples
illustrate the application of this paragraph
(a):
Example 1. (i) X is a participant in a qualified de-
fined benefit plan maintained by X’s employer. The
plan has a calendar year limitation year. Under the
terms of the plan, X is entitled to a benefit consisting
of a straight life annuity equal to 100 percent of X’s
average compensation for the period of X’s high-3
years of service. X’s average compensation for the
period of X’s high-3 years of service is $50,000.
X incurs a severance from employment with the
employer maintaining the plan on October 3, 2007,
at age 65 with a nonforfeitable right to the accrued
benefit after more than 10years of participation in
the plan. X begins to receive annual benefit pay-
ments (payable monthly) of $50,000, commencing
on November 1, 2007. The dollar limitation for the
2007 limitation year (as adjusted pursuant to section
415(d)) is $180,000. Assume that the dollar limita-
tion for the 2008 limitation year (as adjusted pursuant
to section 415(d)) is $185,000 and the annual adjust-
ment factor for adjusting the compensation limitation
of section 415(b)(1)(B) for the 2008 limitation year
is 1.0334. Effective January 1, 2008, the plan is
amended to incorporate these adjustments to the dol-
lar and compensation limitations, and accordingly,
X’s annual benefit payment is increased, effective
for payments due on or after January 1, 2008. Prior
to the plan amendment incorporating the application
of the adjusted dollar and compensation limitations,
X has received one or more distributions that satisfy
the requirements of section 415(b). In addition, the
adjustment to X’s annual benefit payments is solely
on account of the plan amendment incorporating the
adjusted limitations.
(ii) For the limitation year beginning January 1,
2008, the dollar limit applicable to X under section
415(b)(1)(A) is $185,000, and the compensation
limit applicable to X under section 415(b)(1)(B) is
$51,670 ($50,000 multiplied by the annual adjust-
ment factor of 1.0334). Accordingly, the adjustment
to X’s benefit satisfies the safe harbor for cost-of-liv-
ing adjustments under paragraph (a)(5) of this section
if, after the adjustment, X’s benefit payable in the
2008 limitation year is no greater than $50,000 mul-
tiplied by $51,670 (X’s section 415(b) limitation
for 2008)/$50,000 (X’s section 415(b) limitation for
2007).
Example 2. (i) The facts are the same as inEx-
ample 1, except that X’s average compensation for
the period of X’s high-3 consecutive years of service
is $200,000. Consequently, X’s annual benefit pay-
ments commencing on November 1, 2007, are limited
to $180,000.
(ii) For the limitation year beginning January 1,
2008, the dollar limit applicable to X under section
415(b)(1)(A) is $185,000, and the compensation
limit applicable to X under section 415(b)(1)(B) is
$206,680 ($200,000 multiplied by the annual adjust-
ment factor of 1.0334). Accordingly, the adjustment
to X’s benefit satisfies the safe harbor for cost-of-liv-
ing adjustments under paragraph (a)(5) of this section
if, after the adjustment, X’s benefit payable in 2008
is no greater than $180,000 multiplied by $185,000
(X’s section 415(b) limitation for 2008)/$180,000
(X’s section 415(b) limitation for 2007).
Example 3. (i) X is a participant in Plan T, a quali-
fied defined benefit plan maintained by X’s employer.
In the year 2008, X receives a single-sum distribution
of X’s entire accrued benefit under the plan. At the
time that X receives the single-sum distribution, X’s
2007–18 I.R.B.1087April 30, 2007

accrued benefit under Plan T is limited by the section
415(b)(1)(A) age-adjusted dollar limit. X accrues no
further benefits under Plan T after X receives the sin-
gle-sum distribution. In the 2009 limitation year, pur-
suant to section 415(d) and §1.415(d)–1, the section
415(b)(1)(A) dollar limit is increased.
(ii) In the 2009 limitation year, Plan T may not
provide additional benefits to X on account of the
increase in the section 415(b)(1)(A) dollar limit pur-
suant to section 415(d) and §1.415(d)–1.
Example 4. (i) X is a participant in Plan T, a
qualified defined benefit plan maintained by X’s em-
ployer, Employer S. Plan T has a calendar limitation
year. In 2008, X incurs a severance from employment
with Employer S and X commences receiving distri-
butions from Plan T in the form of a single life annuity
in an annual amount of $30,000. At the time that X
commences receiving distributions from Plan T, X’s
accrued benefit under Plan T is limited by the section
415(b)(1)(B) compensation limit. In 2009, the annual
adjustment factor described in paragraph (a)(2) of this
section (which is the factor for adjusting the compen-
sation limit described in section 415(b)(1)(B)) is 1.03.
Employer S amends Plan T, effective as of January
1, 2009, to increase the annual benefit of all partici-
pants who, prior to January 1, 2009, incurred a sev-
erance from employment with Employer S and who
have commenced receiving benefits from Plan T by a
factor of 1.015. Assume that for limitation years prior
to 2009, X’s distributions from Plan T satisfy the re-
quirements of section 415(b).
(ii) The increase in X’s annual benefit pursuant to
the amendment effective January 1, 2009, is within
the safe harbor described in paragraph (a)(6) of this
section. This is becausethe amount payable to X
under Plan T for the 2009 limitation year and lim-
itation years thereafter (as increased by the amend-
ment effective January 1, 2009) is not greater than the
product of the amount payable to X under Plan T for
such limitation years (as determined without regard to
the amendment increasing X’s benefit effective Jan-
uary 1, 2009) and the cumulative adjustment fraction
(which, in X’s case, is 1.03). Thus, X’s annual bene-
fit, as increased by the amendment, is not determined
pursuant to the rules of §1.415(b)–1(b)(1)(iii).
Example 5. (i) Participant P participated in Plan
A, maintained by Employer M, for more than 10
years. Plan A uses a calendar year limitation year
and Plan A automatically adjusts a participant’s
section 415(b)(1)(B) compensation limit for limi-
tation years after the limitation year in which the
participant incurs a severance from employment as
described in §1.415(a)–1(d)(3)(v). Prior to separat-
ing from employment with M in 2010, P’s average
compensation for P’s period of high-3 years while
a participant in Plan A is $50,000, based on P’s
compensation for 2007, 2008, and 2009, which was
$50,000 for each year. P’s compensation for year
2010 was $45,000. In year 2012, P is rehired by M
and resumes participation in Plan A. P’s compen-
sation in year 2012 is $45,000, and is $70,000 in
year 2013. Assume that the annual adjustment factor
described in §1.415(d)–1(a)(2)(ii) for the limitation
years 2011 through 2013 is 1.03 for each year. Thus,
disregarding P’s rehire by M, P’s average compensa-
tion for P’s period of high-3 years while a participant
in Plan A for the 2013 limitation year would be equal
to $54,636 (or 1.03 * 1.03 * 1.03 * $50,000). See
§1.415(b)–1(a)(5)(iii).
(ii) Under §1.415(d)–1(a)(2)(iii), P’s average
compensation for P’s period of high-3 years while a
participant in Plan A for the 2013 limitation year is
$54,636.
(b)Defined contribution plans—(1)
In general. Under section 415(d)(1)(C),
the dollar limitation described in sec-
tion 415(c)(1)(A) isadjusted annually to
take into account increases in the cost of
living. The adjusted dollar limitation is
prescribed by the Commissioner and pub-
lished in the Internal Revenue Bulletin.
See §601.601(d)(2) of this chapter.
(2)Determination of adjusted limit—(i)
Base period. The base period taken into
account for purposes of adjusting the
dollar limitation pursuant to paragraph
(b)(2)(ii) of this section is the calendar
quarter beginning July 1, 2001.
(ii)Method of adjustment—(A)In gen-
eral. The dollar limitation is adjusted
with respect to a calendar year based on
the increase in the applicable index for
the calendar quarter ending September 30
of the preceding calendar year over such
index for the base period. Adjustment
procedures similar to the procedures used
to adjust benefit amounts under section
215(i)(2)(A) of the Social Security Act
will be used.
(B)Rounding. Any increase in the
$40,000 amount specified in section
415(c)(1)(A) which is not a multiple of
$1,000 shall be rounded to the next lowest
multiple of $1,000.
(iii)Effective date of adjustment.The
adjusted dollar limitation applicable to de-
fined contribution plans is effective as of
January 1 of each calendar year and ap-
plies with respect to limitation years end-
ing with or within that calendar year. An-
nual additions for a limitation year cannot
exceed the currently applicable dollar lim-
itation (as in effect before the January 1 ad-
justment) prior to January 1. However, af-
ter a January 1 adjustment is made, annual
additions for the entire limitation year are
permitted to reflect the dollar limitation as
adjusted on January 1.
(c)Application of rounding rules to
other cost-of-living adjustments.Pursuant
to section 415(d)(4)(A), the $5,000 round-
ing methodology of paragraph (a)(1)(iii)
of this section is used for purposes of any
provision of chapter 1 of subtitle A of the
Internal Revenue Code that provides for
adjustments in accordance with section
415(d), except to the extent provided by
that provision. Thus, the $5,000 rounding
methodology of paragraph (a)(1)(iii) of
this section is used for purposes of—
(1) Determining the level of compensa-
tion specified in section 414(q)(1)(B) that
is used to determine whether an employee
is a highly compensated employee;
(2) Calculating the amounts used pur-
suant to section 409(o)(1)(C) to determine
the maximum period over which distribu-
tions from an employee stock ownership
plan may be made without participant con-
sent; and
(3) Determining the levels of com-
pensation specified in §1.61–21(f)(5)(i)
and (iii) used in determining whether
an employee is a control employee of
a nongovernmental employer for pur-
poses of the commuting valuation rule of
§1.61–21(f).
(d)Implementation ofcost-of-living
adjustments. A plan is permitted to be
amended to reflect any of the adjustments
described in this section at any time af-
ter those limitations become applicable.
Alternatively, a plan is permitted to incor-
porate by reference any of the adjustments
described in this section in accordance
with the rules of §1.415(a)–1(d)(3)(v).
Because the accrued benefit of a partici-
pant can reflect increases in the applicable
limitations only afterthose increases be-
come effective, a pattern of repeated plan
amendments increasing annual benefits to
reflect the increases in the section 415(b)
limitations pursuantto section 415(d) does
not result in any protection under section
411(d)(6) for future increases to reflect
increases in the section 415(b) limitations
pursuant to §1.411(d)–4, Q&A–1(c)(1).
Thus, a plan does not violate the require-
ments of section 411(d)(6) merely because
the plan has been amended annually for a
number of years to increase annual bene-
fits to reflect the increases in the section
415(b) limitations pursuant to section
415(d) and subsequently is not amended
to reflect later increases in the section
415(b) limitations.
Par. 14. Section 1.415(f)–1 is added to
read as follows:
§1.415(f)–1 Aggregating plans.
(a)In general. Except as provided in
paragraph (g) of this section (regarding
multiemployer plans), and taking into ac-
count the rules of paragraph (b)(2) (regard-
April 30, 200710882007–18 I.R.B.

ing the break-up of affiliated employers
and affiliated service groups), paragraph
(c) (regarding predecessor employers),
and paragraph (d)(1) (regarding nondupli-
cation rules) of this section, section 415(f)
and this section require that for purposes
of applying the limitations of sections
415(b) and (c) applicable to a participant
for a particular limitation year—
(1) All defined benefit plans (without
regard to whether a plan has been termi-
nated) ever maintained by the employer (or
a predecessor employer within the mean-
ing of paragraphs (c)(1) and (c)(2) of this
section) under which the participant has
accrued a benefit are treated as one defined
benefit plan;
(2) All defined contribution plans
(without regard to whether a plan has
been terminated) ever maintained by the
employer (or a predecessor employer
within the meaning of paragraphs (c)(1)
and (c)(2) of this section) under which the
participant receives annual additions are
treated as one defined contribution plan;
and
(3) All section 403(b) annuity contracts
purchasedbyanemployer(includingplans
purchased through salary reduction contri-
butions) for the participant are treated as
one section 403(b) annuity contract.
(b)Affiliated employers, affiliated ser-
vice groups, and leased employees—(1)
General rule. See §1.415(a)–1(f)(1) and
(2) for rules regarding aggregation of
employers in the case of affiliated em-
ployers and affiliated service groups. See
§1.415(a)–1(f)(3) for rules regarding the
treatment of leased employees.
(2)Special rule in the case of the
break-up of an affiliated employer or an
affiliated service group—(i)In general.
Aformerlyaffiliatedplanofanemployer
is taken into account for purposes of ap-
plying paragraph (a) of this section to the
employer, but the formerly affiliated plan
is treated as if it had terminated immedi-
ately prior to the cessation of affiliation
with sufficient assets to pay benefit lia-
bilities under the plan, and had purchased
annuities to provide plan benefits. See
§1.415(b)–1(b)(5)(i) for rules determining
annual benefits under a terminated defined
benefit plan under which annuities are
purchased to provide plan benefits.
(ii)Definitions. For purposes of this
paragraph (b)(2), aformerly affiliated plan
of an employeris a plan that, immediately
prior to the cessation of affiliation, was
actually maintained by one or more of
the entities that constitute the employer
(as determined under the employer affili-
ation rules described in §1.415(a)–1(f)(1)
and (2)), and immediately after the ces-
sation of affiliation, is not actually main-
tained by any of the entities that constitute
the employer (as determined under the
employer affiliation rules described in
§1.415(a)–1(f)(1) and (2)). For purposes
of this paragraph (b)(2), acessation of
affiliationmeans the event that causes an
entity to no longer be aggregated with
one or more other entities as a single
employer under the employer affiliation
rules described in §1.415(a)–1(f)(1) and
(2) (such as the sale of a subsidiary out-
side a controlled group), or that causes
a plan to not actually be maintained by
any of the entities that constitute the em-
ployer under the employer affiliation rules
of §1.415(a)–1(f)(1) and (2) (such as a
transfer of plan sponsorship outside of a
controlled group).
(c)Predecessor employer—(1)Where
plan is maintained by successor. For pur-
poses of section 415 and regulations pro-
mulgated under section 415, a former em-
ployer is a predecessor employer with re-
spect to a participant in a plan maintained
by an employer if the employer maintains
a plan under which the participant had
accrued a benefit while performing ser-
vices for the former employer (for exam-
ple, the employer assumed sponsorship of
the former employer’s plan, or the em-
ployer’s plan received a transfer of bene-
fits from the former employer’s plan), but
only if that benefit is provided under the
plan maintained by the employer. In such a
case, in applying the limitations of section
415 to a participant in a plan maintained
by the employer, paragraph (a) of this sec-
tion requires the plan to take into account
benefits provided to the participant under
plans that are maintained by the predeces-
sor employer and that are not maintained
by the employer. For this purpose, the
formerly affiliated plan rules in paragraph
(b)(2) of this section apply as if the em-
ployer and predecessor employer consti-
tuted a single employer under the rules de-
scribed in §1.415(a)–1(f)(1) and (2) im-
mediately prior to the cessation of affilia-
tion (and as if they constituted two, unre-
lated employers under the rules described
in §1.415(a)–1(f)(1) and (2) immediately
after the cessation of affiliation) and cessa-
tion of affiliation was the event that gives
rise to the predecessor employer relation-
ship, such as a transfer of benefits or plan
sponsorship.
(2)Where plan is not maintained by
successor. With respect to an employer
of a participant, a former entity that an-
tedates the employer is a predecessor em-
ployer with respect to the participant if, un-
der the facts and circumstances, the em-
ployer constitutes a continuation of all or
a portion of the trade or business of the
former entity. This will occur, for exam-
ple, where formation of the employer con-
stitutes a mere formal or technical change
in the employment relationship and conti-
nuity otherwise exists in the substance and
administration of the business operations
of the former entity and the employer.
(d)Special rules—(1)Nonduplication.
In applying the limitations of section 415
to a plan maintained by an employer, if the
plan is aggregated with another plan pur-
suant to the aggregation rules of paragraph
(a) of this section, a participant’s benefits
are not counted more than once in deter-
mining the participant’s aggregate annual
benefit or annual additions. For example,
if a defined benefit plan is treated as if it
terminated immediately prior to a cessa-
tion of affiliation under paragraph (b)(2)
of this section, the plans maintained by the
employer (as determined after the cessa-
tion of affiliation) that actually maintains
the plan do not double count the annual
benefit provided under the plan by aggre-
gating under paragraph (a) of this section
both the participant’s annual benefit pro-
vided under the plan and the participant’s
annual benefit under the plan as a for-
merly affiliated plan (which is a plan that
the employers formerly affiliated with the
employer must take into account as a ter-
minated plan under the rules of paragraph
(b)(2) of this section). Instead, the plans
maintained by the employer include the
annual benefit provided to the participant
under the actual plan that the employer
maintains. Similarly, if a defined benefit
plan maintained by an employer (the trans-
feree plan) receives a transfer of benefits
from a defined benefit plan maintained
by a predecessor employer (the trans-
feror plan) and the transfer is described in
§1.415(b)–1(b)(3)(i)(B) (which requires
the transferred benefits to be treated by
the transferor plan as if the benefits were
2007–18 I.R.B.1089April 30, 2007

provided under a plan that must be aggre-
gated with the transferor plan that termi-
nated immediately prior to the transfer),
the transferee plan does not double count
the transferred benefits under paragraph
(a) of this section by taking into account
both the actual benefit provided under the
transferee plan and the benefit provided
under the deemed terminated plan that the
predecessor employer is treated as main-
taining (and that otherwise would have
to be taken into account by the transferee
plan under the predecessor employer ag-
gregation rules of paragraph (a) of this
section). Instead, the transferee plan takes
into account the transferred benefits that
are actually provided under the transferee
plan (see §1.415(b)–1(b)(3)(i)(C)) and,
pursuant to paragraph (c)(1) of this sec-
tion, any nontransferred benefits provided
under plans maintained by the predeces-
sor employer with respect to a participant
whose benefits have been transferred to
the transferee plan.
(2)Determination of years of partici-
pation for multiple plans.Iftwoormore
defined benefit plans are aggregated un-
der section 415(f) and this section for
a particular limitation year, in applying
the reduction for participation of less
than ten years (as described in section
415(b)(5)(A)) to the dollar limitation un-
der section 415(b)(1)(A), time periods that
are counted as years of participation under
any of the plans are counted in comput-
ing the limitation of the aggregated plans
under this section.
(3)Determination of years of service
for multiple plans. If two or more defined
benefit plans are aggregated under section
415(f) and this section for a particular lim-
itation year, in applying the reduction for
service of less than ten years (as described
in section 415(b)(5)(B)) to the compensa-
tion limitation under section 415(b)(1)(B),
time periods that are counted as years of
service under any of the plans are counted
in computing the limitation of the aggre-
gated plans under this section.
(e)Previously unaggregated plans—(1)
In general. This paragraph (e) provides
rules for those situations in which two
or more existing plans, which previously
were not required to be aggregated pur-
suant to section 415(f) and this section,
are aggregated during a particular limita-
tion year and, as a result, the limitations
of section 415(b) or (c) are exceeded for
that limitation year. Paragraph (e)(2) of
this section provides rules for defined
contribution plans that are first required to
be aggregated pursuant to section 415(f)
and this section in a plan year. Paragraph
(e)(3) of this section provides rules for
defined benefit plans that are first required
to be aggregated pursuant to section 415(f)
and this section, and for defined benefit
plans under which a participant’s benefit
is frozen following aggregation.
(2)Defined contribution plans.Twoor
more defined contribution plans that are
not required to be aggregated pursuant to
section 415(f) and this section as of the
first day of a limitation year do not fail
to satisfy the requirements of section 415
with respect to a participant for the lim-
itation year merely because they are ag-
gregated later in that limitation year, pro-
vided that no annual additions are credited
to the participant’saccount after the date
on which the plans are required to be ag-
gregated.
(3)Defined benefit plans—(i)First year
of aggregation. Two or more defined ben-
efit plans that are not required to be ag-
gregated pursuant to section 415(f) and
this section as of the first day of a limita-
tion year do not fail to satisfy the require-
ments of section 415 for the limitation year
merely because they are aggregated later in
that limitation year, provided that no plan
amendments increasing benefits with re-
spect to the participant under either plan
are made after the occurrence of the event
causing the plan to be aggregated.
(ii)All years of aggregation in which
accrued benefits are frozen.Twoormore
defined benefit plans that are required to
be aggregated pursuant to section 415(f)
and this section during a limitation year
subsequent to the limitation year during
which the plans were first aggregated do
not fail to satisfy the requirements of sec-
tion 415 with respectto a participant for
the limitation year merely because they
are aggregated if there have been no in-
creases in the participant’s accrued benefit
derived from employer contributions (in-
cluding increases as a result of increased
compensation or service) under any of the
plans within the period during which the
plans have been aggregated.
(f)Section 403(b) annuity con-
tracts—(1)In general. In the case of a
section 403(b) annuitycontract, except as
provided in paragraph (f)(2) of this sec-
tion, the participant on whose behalf the
annuity contract is purchased is consid-
ered for purposes of section 415 to have
exclusive control of the annuity contract.
Accordingly, except as provided in para-
graph (f)(2) of this section, the participant,
and not the participant’s employer who
purchased the section 403(b) annuity con-
tract, is deemed to maintain the annuity
contract, and such a section 403(b) annuity
contract is not aggregated with a qualified
plan that is maintained by the participant’s
employer.
(2)Special rules under which the em-
ployer is deemed to maintain the annuity
contract—(i)In general. Where a partici-
pant on whose behalf a section 403(b) an-
nuity contract is purchased is in control
of any employer for a limitation year as
defined in paragraph (f)(2)(ii) of this sec-
tion (regardless of whether the employer
controlled by the participant is the em-
ployer maintaining the section 403(b) an-
nuity contract), the annuity contract for the
benefit of the participant is treated as a de-
fined contribution plan maintained by both
the controlled employer and the partici-
pant for that limitation year. Accordingly,
where a participant on whose behalf a sec-
tion 403(b) annuity contract is purchased is
in control of any employer for a limitation
year, the section 403(b) annuity contract
is aggregated with all other defined contri-
bution plans maintained by that employer.
In addition, in sucha case, the section
403(b) annuity contract is aggregated with
all other defined contribution plans main-
tained by the employee or any other em-
ployer that is controlled by the employee.
Thus, for example, if a doctor is employed
by a non-profit hospital to which section
501(c)(3) applies and which provides him
with a section 403(b) annuity contract, and
the doctor also maintains a private prac-
tice as a shareholder owning more than 50
percent of a professional corporation, then
any qualified defined contribution plan of
the professional corporation must be ag-
gregated with the section 403(b) annuity
contract for purposes of applying the limi-
tations of section 415(c) and §1.415(c)–1.
For purposes of this paragraph (f)(2), it is
immaterial whether the section 403(b) an-
nuity contract is purchased as a result of
a salary reduction agreement between the
employer and the participant.
(ii)Determinationofwhenapartici-
pant is in control of an employer.For
April 30, 200710902007–18 I.R.B.

purposes of paragraph (f)(2)(i) of this sec-
tion, a participant is in control of an em-
ployer for a limitation year if, pursuant
to §1.415(a)–1(f)(1) and (2), a plan main-
tained by that employer would have to be
aggregated with a plan maintained by an
employer that is 100 percent owned by the
participant. Thus, for example, if a partici-
pant owns 60 percent of the common stock
of a corporation, the participant is consid-
ered to be in control of that employer for
purposes of applying paragraph (f)(2)(i) of
this section.
(3)Aggregation of section 403(b) an-
nuity with qualified plan of controlled
employer. If a section 403(b) annuity con-
tract is aggregated with a qualified plan
of a controlled employer in accordance
with paragraph (f)(2) of this section, the
plans must satisfy the limitations of section
415(c) both separately and on an aggregate
basis. In applying separately the limita-
tions of section 415 to the qualified plan
and to the section 403(b) annuity contract,
compensation from the controlled em-
ployer may not be aggregated with com-
pensation from the employer purchasing
the section 403(b) annuity contract (that
is, without regard to §1.415(c)–2(g)(3)).
(g)Multiemployer plans—(1)Multi-
employer plan aggregated with another
multiemployer plan. Pursuant to section
415(f)(3)(B), multiemployer plans, as de-
fined in section 414(f), are not aggregated
with other multiemployer plans for pur-
poses of applying the limits of section 415.
(2)Multiemployer plan aggre-
gated with other plan—(i)Aggregation
only for benefits provided by the em-
ployer. Notwithstanding the rule of
§1.415(a)–1(e), a multiemployer plan,
as defined in section 414(f), is permitted
to provide that only the benefits under that
multiemployer plan that are provided by
an employer are aggregated with benefits
under plans maintained by that employer
that are not multiemployer plans. If the
multiemployer plan so provides, then,
where an employer maintains both a plan
which is not a multiemployer plan and
a multiemployer plan, only the benefits
under the multiemployer plan that are
provided by the employer are aggregated
with benefits under the employer’s plans
other than multiemployer plans (in lieu
of including benefits provided by all em-
ployers under the multiemployer plan
pursuant to the generally applicable rule
of §1.415(a)–1(e)).
(ii)Exception from aggregation for
purposes of applying section 415(b)(1)(B)
compensation limit. Pursuant to section
415(f)(3)(A), a multiemployer plan, as
defined in section 414(f), is not aggre-
gated with any other plan that is not a
multiemployer plan for purposes of ap-
plying the compensation limit of section
415(b)(1)(B) and §1.415(b)–1(a)(1)(ii).
(h)Special rules for aggregating cer-
tain plans, etc. If a plan, annuity contract
or arrangement is subject to a special limi-
tation in addition to, or instead of, the reg-
ular limitations described in section 415(b)
or (c), and is aggregated under this section
with a plan which is subject only to the reg-
ular section 415(b) or (c) limitations, the
following rules apply:
(1) Each plan, annuity contract or ar-
rangement which is subject to a special
limitation must meet its own applicable
limitation and each plan subject to the reg-
ular limitations of section 415 must meet
its applicable limitation.
(2) The limitation for the aggregated
plans is the larger of the applicable limi-
tations for the separate plans.
(i) [Reserved.]
(j)Examples. The following exam-
ples illustrate the rules of this section.
Except to the extent otherwise stated in
an example, each entity is not and has
never been affiliated with another entity
under the employer affiliation rules of
§1.415(a)–1(f)(1) and (2), each entity has
never maintained a qualified plan (other
than the plans specifically mentioned in
the example), and the limitation year for
each qualified plan is the calendar year.
Example 1.(i)Facts. M was formerly an em-
ployee of ABC Corporation and is currently an em-
ployee of XYZ Corporation. ABC maintains a qual-
ified defined benefit plan (Plan ABC) and a quali-
fied defined contribution plan in which M participates
and XYZ maintains a qualified defined benefit plan
(Plan XYZ) and a qualified defined contribution plan
in which M participates. ABC Corporation owns 60
percent of XYZ Corporation.
(ii)Treatment as a single employer. ABC Corpo-
ration and XYZ Corporation are members of a con-
trolled group of corporations within the meaning of
section 414(b) as modified by section 415(h). Be-
cause ABC Corporation and XYZ Corporation are
members of a controlled group of corporations within
the meaning of section 414(b) as modified by section
415(h), M is treated as being employed by a single
employer under §1.415(a)–1(f)(1).
(iii)Plan aggregation. Under paragraph (a)(1)
of this section, the sum of M’s annual benefit under
Plan ABC and M’s annual benefit under Plan XYZ
is not permitted to exceed the limitations of section
415(b) and §1.415(b)–1; and, under paragraph (a)(2)
of this section, the sum of the annual additions to
M’s account under the defined contribution plans
maintained by ABC and XYZ may not exceed the
limitations of section 415(c) and §1.415(c)–1. For
purposes of determining the limitations of section
415(b) and §1.415(b)–1 for the aggregated plans, a
year of service for either employer is considered as
a year of service for purposes of §1.415(b)–1(g)(2)
(phase-in rules for the compensation limit) and
a year of participation under either plan is con-
sidered as a year of participation for purposes of
§1.415(b)–1(g)(1) (phase-in rules for the dollar
limit).
Example 2.(i)Facts. The facts are the same
as inExample 1, except that ABC Corporation and
XYZ Corporation do not maintain defined contribu-
tion plans. In addition, Participant O was formerly
an employee of ABC Corporation and is currently an
employee of XYZ Corporation. Participant O has an
accrued benefit under the ABC Plan, but Participant
O has no accrued benefit under the XYZ Plan. Effec-
tive January 1, 2010, ABC Corporation sells all of its
shares of stock of XYZ Corporation to an unaffiliated
entity, LMN Corporation (the 2010 stock sale). Af-
ter the 2010 stock sale, XYZ Corporation continues
to maintain Plan XYZ. LMN Corporation maintains a
qualified defined benefit plan (Plan LMN). After the
2010 stock sale, M begins to accrue benefits under
Plan LMN, but O does not participate in Plan LMN.
(ii)Affiliated employer status of the corporations.
Immediately after the 2010 stock sale, ABC Corpo-
ration and XYZ Corporation are no longer members
of a controlled group of corporations under section
414(b) (as modified by section 414(h)) and accord-
ingly are no longer treated as a single employer under
the employer affiliation rules of §1.415(a)–1(f)(1).
Immediately after the 2010 stock sale, LMN Corpo-
ration and XYZ Corporation are members of a con-
trolled group of corporations under section 414(b)
(as modified by section 414(h)) and accordingly are
treated as a single employer under the employer affil-
iation rules of §1.415(a)–1(f)(1).
(iii)Treatment of plans maintained by ABC
Corporation after the 2010 stock sale.Under
§1.415(a)–1(f)(1), any plan maintained by any mem-
ber of a controlled group ofcorporations is deemed
maintained by all members of the controlled group,
and paragraph (a)(1) of this section requires that,
for purposes of applying the limitations of section
415(b), all defined benefit plans ever maintained
by an employer (as determined under the affiliation
rules of §1.415(a)–1(f)(1) and (2)) are treated as
one defined benefit plan. Therefore, defined benefit
plans maintained by ABC Corporation must take into
account the annual benefit of a participant provided
under Plan XYZ in applying the limitations of section
415(b) to the participant because Plan XYZ is a plan
that had once been maintained by ABC Corporation.
However, beginning with the 2010 limitation year,
the aggregation of the annual benefit accrued by a
participant under Plan XYZ for purposes of testing
defined benefit plans maintained by ABC Corpora-
tionislimitedtotheannualbenefitaccruedbythe
participant under Plan XYZ immediately prior to the
2010 stock sale. This is because paragraph (b)(2)(i)
of this section provides that a formerly affiliated
2007–18 I.R.B.1091April 30, 2007

plan of an employer is treated as if it had terminated
immediately prior to the cessation of affiliation with
sufficient assets to pay benefit liabilities under the
plan, and had purchased annuities to provide plan
benefits. The 2010 stock sale is a cessation of af-
filiation under paragraph (b)(2)(ii) of this section
because this event caused XYZ Corporation to no
longer be affiliated with ABC Corporation under the
employer affiliation rules of §1.415(a)–1(f)(1) and
(2). Immediately after the 2010 stock sale, Plan XYZ
is a formerly affiliated plan with respect to ABC
Corporation under paragraph (b)(2)(ii) of this section
because immediately prior to the cessation of affil-
iation, Plan XYZ was actually maintained by XYZ
Corporation (which together with ABC Corporation
constituted a single employer under the employer
affiliation rules of §1.415(a)–1(f)(1) and (2)), and
immediately after the cessation of affiliation, Plan
XYZ is not actually maintained by ABC Corporation
or any other entity affiliated with it.
(iv)Application of rules to Participants M and O
with respect to plans maintained by ABC Corpora-
tion after the 2010 stock sale. In applying the limita-
tions of section 415(b) to Participant M for the 2010
limitation year and later limitation years, Plan ABC
must take into account the annual benefit provided
under Plan ABC to Participant M and the annual ben-
efit provided under Plan XYZ to Participant M, but
treating Plan XYZ as if it had terminated immedi-
ately prior to the 2010 stock sale with sufficient as-
sets to pay benefit liabilities under the plan, and had
purchased annuities to provide plan benefits. The ag-
gregation of Plan XYZ with Plan ABC is irrelevant
for purposes of Participant O because Participant O
does not have any accrued benefit under Plan XYZ
(as determined prior to the 2010 stock sale).
(v)Treatment of plans maintained by LMN Cor-
poration and XYZ Corporation after the 2010 stock
sale. Under §1.415(a)–1(f)(1) and paragraph (a)(1) of
this section, when applying the limitations of section
415(b) to a participant under Plans LMN and XYZ
for the 2010 limitation year and later years, the an-
nual benefit provided to the participant under Plans
LMN, XYZ and ABC must be aggregated. Benefits
under Plan ABC must be included in this aggregation
because XYZ Corporation is deemed to have once
maintained Plan ABC pursuant to §1.415(a)–1(f)(1),
and since LMN Corporation and XYZ Corporation
constitute a single employer under §1.415(a)–1(f)(1),
paragraph (a)(1) of this section requires the aggrega-
tion of all defined benefit plans ever maintained by
LMN Corporation and XYZ Corporation. However,
in performing this aggregation, a participant’s annual
benefit under Plan ABC is limited to the annual ben-
efit accrued by the participant immediately prior to
the 2010 stock sale. This is because, pursuant to para-
graph (b)(2)(i) of this section, Plan ABC is a formerly
affiliated plan of LMN Corporation and XYZ Corpo-
ration.
(vi)Application of rules to Participants M and O
with respect to plans maintained by LMN Corpora-
tion and XYZ Corporation after the 2010 stock sale.
In applying the limitation of section 415(b) to Partic-
ipant M for the 2010 limitation year and later lim-
itation years, Plan LMN and Plan XYZ must take
into account the annual benefit provided under Plans
LMN and XYZ to Participant M and the annual ben-
efit provided under Plan ABC to Participant M as if
Plan ABC had terminated immediately prior to the
2010 stock sale with sufficient assets to pay benefit
liabilities under the plan, and had purchased annuities
to provide plan benefits. Participant O does not have
an accrued benefit under Plan LMN or Plan XYZ, so
the aggregation of Plan ABC with Plans LMN and
XYZ is currently irrelevant with respect to Participant
O. However, if Participant O were to ever participate
in Plans LMN or XYZ after the 2010 stock sale, Par-
ticipant O’s annual benefit under Plan ABC (deter-
mined as if Plan ABC terminated immediately prior
to the 2010 stock sale) would have to be aggregated
with any annual benefit that Participant O accrues un-
der Plan LMN or Plan XYZ.
(vii)Application of nonduplication rule.Inap-
plying paragraph (a)(1) of this section to plans main-
tained by ABC Corporation after 2010 stock sale,
plans maintained by ABC Corporation do not take
into account the deemed termination of Plan ABC
since ABC Corporation maintains Plan ABC after
the cessation of affiliation. Similarly, in applying
paragraph (a)(1) of this section to plans maintained
by LMN Corporation and XYZ Corporation after the
2010 stock sale, plans maintained by LMN Corpo-
ration and XYZ Corporation do not take into account
the deemed termination of Plan XYZ since XYZ Cor-
poration maintains Plan XYZ after the cessation of
affiliation. See paragraph (d)(1) of this section.
Example 3.(i)Facts. The facts are the same as in
Example 2, except that on January 1, 2009, Plan ABC
transfers Participant M’s benefit to Plan XYZ.
(ii)Treatment of plans maintained by ABC Cor-
poration. Pursuant to §1.415(b)–1(b)(3)(i)(A), M’s
benefit that is transferred from Plan ABC to Plan
XYZ is not treated as being provided under Plan ABC
for the limitation year in which the transfer occurs
(2009). This is because M’s transferred benefit is oth-
erwise required to be taken into account by Plan ABC
for the 2009 limitation year since Plan XYZ must
be aggregated with Plan ABC pursuant to paragraph
(a)(1) of this section. This result does not change
for the 2010 limitation year and later limitation years,
where pursuant to paragraph (b)(2)(i) of this section,
Plan XYZ becomes a formerly affiliated plan with
respect to ABC Corporation due to the 2010 stock
sale. Under paragraph (b)(2)(i) of this section, Plan
XYZ (the formerly affiliated plan) is treated from the
perspective of plans maintained by ABC Corporation
(Plan ABC) as if Plan XYZ terminated immediately
prior to the 2010 stock sale with sufficient assets to
pay benefit liabilities under the plan, and had pur-
chased annuities to provide plan benefits. However,
the pre-2010 stock sale benefits of Plan XYZ include
the January 1, 2009, transfer of Participant M’s ben-
efit. Thus, in the 2010 limitation year, M’s trans-
ferred benefit is still otherwise required to be taken
into account by Plan ABC on account of the aggre-
gation of Plan XYZ with Plan ABC pursuant to para-
graph (a)(1) of this section, and therefore the trans-
ferred benefit is not treated as being provided by Plan
ABC.
(iii)Treatment of plans maintained by LMN
Corporation and XYZ Corporation. Pursuant to
§1.415(b)–1(b)(3)(i)(C), Participant M’s benefit that
is transferred to Plan XYZ from Plan ABC must be
treated as provided under Plan XYZ for purposes of
applying the limitations of section 415 to Plan XYZ
with respect to Participant M for the limitation year
in which the transfer occurs and later years. This
result does not change on account of the 2010 stock
sale. When applying the limitation of section 415 to
Plans LMN and XYZ for the 2010 limitation year and
later years, Plans LMN and XYZ must aggregate the
annual benefit provided to a participant under each
plan along with the participant’s benefit under Plan
ABC pursuant to §1.415(a)–1(f)(1) and paragraph
(a)(1) of this section. However, under paragraph
(b)(2)(i) of this section, for the 2010 limitation year
and later years, this aggregation of M’s Plan ABC
benefit only includes the annual benefit attributable
to a participant’s accrued benefit under Plan ABC
immediately prior to the 2010 stock sale, which (due
to the 2009 transfer) is zero.
Example 4.(i)Facts. The facts are the same as in
Example 2, except that on January 1, 2011, Plan ABC
transfers Participant M’s benefit to Plan XYZ.
(ii)Treatment of plans maintained by ABC Cor-
poration for the 2011 limitation year and later years.
Pursuant to §1.415(b)–1(b)(3)(i)(B), M’s benefit that
is transferred from Plan ABC to Plan XYZ during the
2011 limitation year is treated by Plan ABC for the
2011 limitation year and later years as if the trans-
ferred benefit were provided under a plan that must be
aggregated with Plan ABC that terminated immedi-
ately prior to the transfer with sufficient assets to pay
benefit liabilities under the plan, and had purchased
annuities to provide plan benefits. This is because
M’s transferred benefit is not otherwise required to be
taken into account by Plan ABC for the 2011 limita-
tion year and later years pursuant to paragraphs (a)(1)
and (b)(2)(i) of this section. While Plan ABC must
take into account Participant M’s annual benefit un-
der Plan XYZ under paragraph (a)(1) of this section,
Participant M’s annual benefit for this purpose is lim-
ited under paragraph (b)(2)(i) of this section to M’s
accrued benefit under Plan XYZ immediately prior
to the 2010 stock sale, and Participant M’s pre-2010
stock sale accrued benefit under Plan XYZ excludes
the 2011 transfer.
(iii)Treatment of plans maintained by LMN
Corporation and XYZ Corporation for the 2011
limitation year and later years. Pursuant to
§1.415(b)–1(b)(3)(i)(C), Participant M’s benefit
that is transferred to Plan XYZ from Plan ABC
must be treated as provided under Plan XYZ for
purposes of applying the limitations of section 415
to Plan XYZ with respect to Participant M for the
limitation year in which the transfer occurs and later
years. In applying the limitations of section 415(b)
to Plans LMN and XYZ with respect to Participant
M for the 2010 limitation year and later years, the
annual benefit of Participant M under Plans ABC,
LMN, and XYZ must be aggregated pursuant to
§1.415(a)–1(f)(1) and paragraph (a)(1) of this sec-
tion, but for this purpose, Participant M’s benefit
under Plan ABC is treated as if it were provided
under a plan that terminated immediately prior to the
cessation of affiliation of ABC Corporation and XYZ
Corporation with sufficient assets to pay benefit lia-
bilities under the plan, and had purchased an annuity
to provide Participant M’s benefits. (See paragraph
(b)(2)(i) of this section andExample 2.) In applying
the limitations of section 415(b) to Plans LMN and
XYZ with respect to Participant M for the 2011
limitation year and later years, the annual benefit of
Participant M under Plans ABC, LMN, and XYZ still
must be aggregated pursuant to §1.415(a)–1(f)(1)
and paragraph (a)(1) of this section. However, begin-
ning with the 2011 limitation year, ABC Corporation
April 30, 200710922007–18 I.R.B.

is a predecessor employer with respect to LMN
Corporation and XYZ Corporation with respect to
Participant M on account of the transfer of benefits
fromPlanABCtoPlanXYZ,pursuanttoparagraph
(c)(1) of this section. Therefore, Plans LMN and
XYZ must take into account benefits that Participant
M accrued under Plan ABC after the January 1, 2010,
cessation of affiliation of ABC Corporation and XYZ
Corporation that were not transferred to Plan XYZ
on January 1, 2011, pursuant to paragraphs (c)(1) and
(d)(1) of this section. Since all of Participant M’s
benefitinPlanABCistransferredtoPlanXYZon
January 1, 2011, Participant M’s annual benefit from
Plan ABC for purposes of aggregating Plan ABC
with Plans LMN and XYZ is zero.
Example 5.(i)Facts. The facts are the same as in
Example 2, except that instead of the 2010 stock sale,
XYZ Corporation sells some of its operating assets to
LMN Corporation (and, under the facts and circum-
stances, the sale does not result in XYZ Corporation
constituting a predecessor employer of LMN Corpo-
ration under the rules of paragraph (c)(2) of this sec-
tion), and in connection with the asset sale, LMN Cor-
poration assumes sponsorship of Plan XYZ in place
of XYZ Corporation, effective January 1, 2010.
(ii)Treatment of plans maintained by ABC Cor-
poration and XYZ Corporation. Pursuant to para-
graph (a)(1) of this section, all defined benefit plans
ever maintained by ABC Corporation and XYZ Cor-
poration must be aggregated as a single defined ben-
efit plan for purposes of applying the limitations of
section 415(b). However, for purposes of determin-
ing the annual benefit under Plan XYZ for the 2010
limitation year and later years, the aggregation of a
participant’s benefit under Plan XYZ is limited to
the participant’s annual benefit accrued immediately
prior to the January 1, 2010, transfer of sponsorship
of Plan XYZ. This is because paragraph (b)(2)(i) of
this section provides that a formerly affiliated plan of
an employer is treated as if it were a plan that termi-
nated immediately prior to the cessation of affiliation
with sufficient assets to pay benefit liabilities under
the plan, and had purchased annuities to provide plan
benefits. The January 1, 2010, transfer of sponsor-
ship of Plan XYZ is a cessation of affiliation under
paragraph (b)(2)(ii) of this section because this event
causes Plan XYZ to no longer actually be maintained
by either ABC Corporation or XYZ Corporation. Ef-
fective immediately after the January 1, 2010, trans-
fer of sponsorship, Plan XYZ is a formerly affiliated
plan with respect to ABC Corporation and XYZ Cor-
poration under paragraph (b)(2)(ii) of this section be-
cause immediately prior to the cessation of affiliation,
Plan XYZ was actually maintained by XYZ Corpo-
ration, and immediately after the cessation of affili-
ation, Plan XYZ is not actually maintained by either
XYZ Corporation or ABC Corporation. Therefore,
in applying the limitation of section 415(b) to Partic-
ipant M for the 2010 limitation year and later limita-
tion years, Plan ABC must take into account the an-
nual benefit provided under Plan ABC to Participant
M and the annual benefit provided under Plan XYZ
to Participant M as if Plan XYZ had terminated im-
mediately prior to the 2010 stock sale with sufficient
assets to pay benefit liabilities under the plan, and had
purchased annuities to provide plan benefits. The ag-
gregation of Plan XYZ with Plan ABC is irrelevant
for purposes of Participant O because Participant O
does not have any accrued benefit under Plan XYZ
(as determined prior to the 2010 transfer of sponsor-
ship).
(iii)Treatment of plans maintained by LMN Cor-
poration. Under paragraph (a)(1) of this section, all
defined benefit plans ever maintained by LMN Cor-
poration or a predecessor employer must be aggre-
gated as a single plan for purposes of applying the
limitations of section 415(b). ABC Corporation and
XYZ Corporation constitute a predecessor employer
pursuant to paragraph (c)(1) of this section with re-
spect to the participants who participate in Plan XYZ
on the date of the transfer of sponsorship of Plan XYZ
(the transferred participants) from XYZ Corporation
to LMN Corporation, such as Participant M. This is
because, effective with the January 1, 2010, transfer
of sponsorship, LMN Corporation maintains a plan
(Plan XYZ) under which the participants accrued a
benefit while performing services for XYZ Corpora-
tion (which is in turn affiliated with ABC Corpora-
tion under §1.415(a)–1(f)(1)) and such benefits are
provided under a plan maintained by LMN Corpora-
tion. Therefore, for the 2010 limitation year and later
years, the annual benefitunder Plan ABC of the trans-
ferred participants (such as Participant M) must be
aggregated with the annual benefit provided to such
participants under Plans XYZ and LMN for purposes
of determining whether Plan LMN or Plan XYZ sat-
isfies the limitations of section 415(b). However, the
aggregation of the transferred participants’ Plan ABC
annual benefits is limited to the annual benefit ac-
crued under Plan ABC immediately prior to January
1, 2010, transfer of sponsorship. This is because, pur-
suant to paragraph (c)(1) of this section, Plan ABC
is treated from the perspective of plans maintained
by LMN Corporation as if Plan ABC had terminated
immediately prior to the transfer of sponsorship of
Plan ABC to LMN Corporation with sufficient as-
sets to pay benefit liabilities under the plan, and had
purchased annuities to provide plan benefits. ABC
Corporation and XYZ Corporation do not constitute
a predecessor employer with respect to Participant O.
Thus, if Participant O is a participant in Plan LMN
or becomes a participant in Plan XYZ after the 2010
transfer of sponsorship, neither plan aggregates Par-
ticipant O’s Plan ABC benefits for purposes of sat-
isfying section 415(b). In applying paragraph (a)(1)
of this section to a participant, plans maintained by
LMN Corporation do not double count the partici-
pant’s annual benefit. See paragraph (d)(1) of this
section. Thus, such plans do not aggregate the an-
nual benefit provided under Plan XYZ with the an-
nual benefit from the deemed termination of Plan
XYZ that LMN Corporation’s predecessor employer
(which is ABC and XYZ Corporations) must take into
account in applying paragraph (a)(1) of this section,
and instead consider the annual benefit actually pro-
vided under Plan XYZ.
Example 6.(i)Facts.Nisemployedbyahospi-
tal which purchases an annuity contract described in
section 403(b) on N’s behalf for the current limitation
year. N is in control of the hospital within the mean-
ing of section 414(b) or (c), as modified by section
415(h). The hospital also maintains a qualified de-
fined contribution plan during the current limitation
year in which N participates.
(ii)Conclusion. Under section 415(k)(4), the hos-
pital, as well as N, is considered to maintain the an-
nuity contract. Accordingly, for N the sum of the
annual additions under the qualified defined contri-
bution plan and the annuity contract must satisfy the
limitations of section 415(c) and §1.415(c)–1.
Example 7.(i)Facts. The facts are the same as
inExample 6, except that instead of being in control
of the hospital, N is the 100 percent owner of a pro-
fessional corporation P, which maintains a qualified
defined contribution plan in which N participates.
(ii)Conclusion. Under section 415(k)(4), the
professional corporation, as well as N, is considered
to maintain the annuity contract. Accordingly, the
sum of the annual additions under the qualified de-
fined contribution plan maintained by professional
corporation P and the annuity contract must satisfy
the limitations of section 415(c) and §1.415(c)–1.
See §1.415(g)–1(b)(3)(iv)(C)(2) for an example of
the treatment of a contribution to a section 403(b)
annuity contract that exceeds the limits of section
415(c) by reason of the aggregation required by this
section.
Example 8.(i)Facts. J is an employee of two
corporations, N and M, each of which has employed
J for more than 10 years. N and M are not required to
be aggregated pursuant to section 415(f) and this sec-
tion. Each corporation has a qualified defined bene-
fit plan in which J has participated for more than 10
years. Each plan provides a benefit which is equal
to 75 percent of a participant’s average compensa-
tion for the period of the participant’s high-3 years
of service and is payable in the form of a straight life
annuity beginning at age 65. J’s average compensa-
tion for the period of his high-3 years of service from
each corporation is $160,000. In July 2008, N Cor-
poration becomes a wholly owned subsidiary of M
Corporation.
(ii)Plan aggregation analysis. As a result of the
acquisition of N Corporation by M Corporation, J
is treated as being employed by a single employer
under section 414(b). Therefore, because section
415(f)(1)(A) requires that all defined benefit plans of
an employer be treated as one defined benefit plan,
the two plans must be aggregated for purposes of
applying the limitations of section 415. However,
under paragraph (e)(3)(i) of this section, since the
plans were not aggregated as of the first day of the
2008 limitation year (January 1, 2008), they will
not be considered aggregated until the limitation
year beginning January 1, 2009, provided that no
plan amendment increasing benefits with respect to
participant J is made after the acquisition of N by M.
(iii)Application to Participant J. J has a total ben-
efit under the two plans of $240,000, which, as a re-
sult of the plan aggregation, is in excess of the section
415(b) limit. However, under paragraph (e)(3)(ii)
of this section, the limitations of section 415(b) and
§1.415(b)–1 applicable to J may be exceeded in this
situation without plan disqualification so long as J’s
accrued benefit derived from employer contributions
is not increased (that is, J’s accrued benefit does not
increase on account of increased compensation, ser-
vice, participation, or other accruals) during the pe-
riod within which the limitations are being exceeded.
Example 9.(i)Facts. A, age 30, owns all of
the stock of X Corporation and also owns 10 per-
cent of the stock of Z Corporation. F, A’s father,
directly owns 75 percent of the stock of Z Corpora-
tion. Both corporations have qualified defined con-
tribution plans in which A participates. A’s compen-
sation (within the meaning of §1.415(c)–2) for 2008
is $20,000 from Z Corporation and $150,000 from
2007–18 I.R.B.1093April 30, 2007

X Corporation. During the period January 1, 2008
through June 30, 2008, annual additions of $20,000
are credited to A’s account under the plan of Z Cor-
poration, while annual additions of $40,000 are cred-
ited to A’s account under the plan of X Corporation.
In both instances, the amount of annual additions rep-
resent the maximum allowable under section 415(c)
and §1.415(c)–1. On July 15, 2008, F dies, and A in-
herits all of F’s stock in Z in 2008.
(ii)Conclusion. As of July 15, 2008, A is con-
sidered to be in control of X and Z Corporations,
and the two plans must be aggregated for purposes
of applying the limitations of section 415. How-
ever, even though A’s total annual additions for 2008
are $60,000, the limitations of section 415(c) and
§1.415(c)–1 are not violated for 2008, provided no
annual additions are credited to A’s accounts after
July 15, 2008 (the date that A is first in control of
Z) for the remainder of the 2008 limitation year.
Example 10.(i)Facts. P is a key employee of
employer XYZ who participates in a qualified de-
fined contribution plan (Plan X). P is also provided
post-retirement medical benefits, and XYZ has taken
into account a reserve for those benefits under section
419A(c)(2). In the 2008 limitation year, P’s compen-
sation is $30,000 and P’s annual additions under Plan
X are $5,000. Pursuant to section 419A(d), a separate
account is maintained for P, and that account is cred-
ited with an allocation of $32,000 for the 2008 limita-
tion year. It is assumed that the section 415(c)(1)(A)
dollar limit for 2008 is $46,000.
(ii)Separate testing analysis. Under paragraph
(h)(1) of this section, Plan X and the individual med-
ical account must separately satisfy the requirements
of section 415(c), taking into account any special
limit applicable to that arrangement. In this case,
the contributions to Plan X separately satisfy the
limitations of section 415(c). While the individual
medical account is treated as a defined contribution
plan subject to the rules of section 415(c), it is not
subject to the 100 percent of compensation limit
of section 415(c)(1)(B), so the contributions to that
account satisfy the limitations of section 415(c).
(iii)Aggregation analysis. The sum of the annual
additions under Plan X and the amounts contributed
to the separate account on P’s behalf must satisfy
the requirements of section 415(c). Under paragraph
(h)(2) of this section, the limit applicable to the ag-
gregated plan is equal to the greater of the limits ap-
plicable to the separate plans. In this case, the limit
applicable to the medical account is $46,000 (which
is greater than the limit of $30,000 applicable to the
qualified plan), so the limit that applies to the aggre-
gated plan is $46,000, and the aggregated plan satis-
fies the requirements of section 415.
Par. 15. Section 1.415(g)–1 is added to
read as follows:
§1.415(g)–1 Disqualification of plans and
trusts.
(a)Disqualification of plans—(1)In
general. Under section 415(g) and this
section, with respect to a particular limita-
tion year, a plan (and the trust forming part
of the plan) is disqualified in accordance
with the rules provided in paragraph (b) of
this section, if the conditions described in
paragraph (a)(2) or (a)(3) of this section
apply. For purposes of this paragraph (a),
the determination of whether a plan or
a group of aggregated plans exceeds the
limitations imposed by section 415 for
a particular limitation year is, except as
otherwise provided, made by taking into
account the aggregation of plan rules pro-
vided in section 415(f) and §1.414(f)–1.
(2)Defined contribution plans.Aplan
is disqualified in accordance with the
rules provided in paragraph (b) of this
section if annual additions (as defined
in §1.415(c)–1(b)) with respect to the
account of any participant in a defined
contribution plan maintained by the em-
ployer exceed the limitations of section
415(c) and §1.415(c)–1.
(3)Defined benefit plans.Aplanis
disqualified in accordance with the rules
provided in paragraph (b) of this sec-
tion if the annual benefit (as defined in
§1.415(b)–1(b)(1)) of a participant in a
defined benefit plan maintained by the
employer exceeds the limitations of sec-
tion 415(b) and §1.415(b)–1.
(b)Rules for disqualification of plans
and trusts—(1)In general. If any plan (in-
cluding a trust which forms part of such
plan) is disqualified for a particular limi-
tation year under the rules set forth in this
paragraph (b), then the disqualification is
effective as of the first day of the first plan
year containing any portion of the particu-
lar limitation year.
(2)Single plan. In the case of a sin-
gle qualified defined benefit plan (deter-
minedwithoutregardtosection415(f)
and §1.415(f)–1) maintained by the em-
ployer that provides an annual benefit (as
defined in §1.415(b)–1(b)(1)) in excess
of the limitations of section 415(b) and
§1.415(b)–1 for any particular limitation
year, such plan is disqualified in that lim-
itation year. Similarly, if the employer
only maintains a single defined contri-
bution plan (determined without regard
to section 415(f) and §1.415(f)–1) un-
der which annual additions (as defined in
§1.415(c)–1(b)) allocated to the account
of any participant exceed the limitations
of section 415(c) and §1.415(c)–1 for any
particular limitation year, such plan is also
disqualified in that limitation year.
(3)Multiple plans—(i)In general.
If the limitations of section 415(b)
and §1.415(b)–1, or section 415(c) and
§1.415(c)–1, are exceeded for a particular
limitation year with respect to any partic-
ipant solely because of the application of
the aggregation rules of section 415(f)(1)
and §1.415(f)–1 (taking into account the
rules of §1.415(a)–1(f)), then one or more
of the plans is disqualified in accordance
with the ordering rules set forth in para-
graph (b)(3)(ii) of this section, applied in
accordance with the rules of application
set forth in paragraph (b)(3)(iii) of this sec-
tion, subject to the special rules set forth in
paragraph (b)(3)(iv) of this section, until,
without regard to annual benefits or an-
nual additions under the disqualified plan
or plans, the remaining plans satisfy the
applicable limitations of section 415.
(ii)Ordering rules—(A)Disqualifica-
tion of ongoing plans other than multiem-
ployer plans.Iftherearetwoormore
plans that have not been terminated at any
time including the last day of the partic-
ular limitation year, and if one or more
of those plans is a multiemployer plan de-
scribed in section 414(f), then one or more
of the plans (as needed to satisfy the lim-
itations of section 415) that has not been
terminated and is not a multiemployer plan
is disqualified in that limitation year. For
purposes of the preceding sentence, the de-
termination of whether a plan is a multi-
employer plan described in section 414(f)
is made as of the last day of the particular
limitation year.
(B)Disqualification of ongoing multi-
employer plans. If, after the application
of paragraph (b)(3)(ii)(A) of this section,
there are two or more plans and one or
more of the plans has been terminated at
any time including the last day of the par-
ticular limitation year, then one or more of
the plans (as needed to satisfy the applica-
ble limitations of section 415) that has not
been so terminated (regardless of whether
the plan is a multiemployer plan described
in section 414(f)) is disqualified in that
limitation year.
(iii)Rules of application—(A)Em-
ployer elects which plan is disqualified.
If there are two or more plans of an em-
ployer within a group of plans one or more
of which is to be disqualified pursuant
to paragraph (b)(3)(ii)(A) or (B) of this
section, then the employer may elect, in a
manner determined by the Commissioner,
which plan or plans are disqualified. If
those two or more plans are involved be-
cause of the application of §1.415(a)–1(f),
April 30, 200710942007–18 I.R.B.

the employers involved may elect, in a
manner determined by the Commissioner,
which plan or plans are disqualified. How-
ever, the election described in the preced-
ing sentence is not effective unless made
by all of those employers.
(B)Commissioner determines which
plan is disqualified. If the election de-
scribed in paragraph (b)(3)(iii)(A) of this
section is not made with respect to the two
plans described in paragraph (b)(3)(iii)(A)
of this section, then the Commissioner,
taking into account all of the facts and
circumstances, has the discretion to de-
termine the plan that is disqualified in the
particular limitation year. In making this
determination, some of the factors that will
be taken into account include, but are not
limited to, the number of participants in
each plan, the amount of benefits provided
on an overall basis by each plan, and the
extent to which benefits are distributed or
retained in each plan.
(iv)Special rules—(A)Simplified em-
ployee pensions. If there are two or more
plans one or more of which is to be disqual-
ified pursuant to paragraph (b)(3)(ii)(A) or
(B) of this section, and if one of the plans is
a simplified employee pension (as defined
in section 408(k)), then the simplified em-
ployee pension is not disqualified until all
of the other plans have been disqualified.
However, if one of the plans has been
terminated, then the simplified employee
pension is disqualified before the termi-
nated plan. For purposes of this paragraph
(b)(3)(iv)(A), the disqualification of a sim-
plified employee pension means that the
simplified employee pension is no longer
described under section 408(k).
(B)Aggregating medical accounts with
defined contribution plans. In the event
that aggregating a medical account de-
scribed in §1.415(c)–1(a)(2)(ii)(C) or (D)
and a defined contribution plan other than
such a medical account causes the limi-
tations of section 415(c) and §1.415(c)–1
applicable to a participant to be exceeded
for a particular limitation year, the defined
contribution plan other than the medical
account is disqualifiedfor the limitation
year.
(C)Aggregating section 403(b) annu-
ity contract and qualified defined contri-
bution plan—(1)In general. In the event
that aggregating a section 403(b) annuity
contract and a qualified defined contribu-
tion plan under the provisions of section
415(f)(1)(B) causes the limitations of sec-
tion 415(c) and §1.415(c)–1 applicable to
a participant under the aggregated defined
contribution plans tobe exceeded for a par-
ticular limitation year, the excess of the
contributions to the annuity contract plus
the annual additions to the qualified plan
over such limitations is attributed to the an-
nuity contract and therefore includable in
the gross income of the participant for the
taxable year with or within which that limi-
tation year ends. See §1.415(a)–1(b)(2) for
rules regarding the treatment of a contri-
bution to a section 403(b) annuity contract
that exceeds the limitations of section 415.
(2)Example. The following example il-
lustrates the application of this paragraph
(b)(3)(iv)(C). It is assumed for purposes of
this example that the dollar limitation un-
der section 415(c)(1)(A) that applies for all
relevant limitation years is $45,000. The
example is as follows:
Example. (i) N is employed by a hospital which
purchases an annuity contract described in section
403(b) on N’s behalf for the current limitation year. N
is also the 100 percent owner of a professional corpo-
ration P that maintains a qualified defined contribu-
tion plan during the current limitation year in which N
participates. (The facts of this example are the same
as in §1.415(f)–1(j)Example 7.) N’s compensation
(within the meaning of §1.415(c)–2) from the hospi-
tal for the current limitation year is $150,000. For
the current limitation year, the hospital contributes
$30,000 for the section 403(b) annuity contract on
N’s behalf, which is within the limitations applica-
ble to N under the annuity contract (specifically, the
limit under the annuity contract is $45,000)). Profes-
sional corporation P also contributes $20,000 to the
qualified defined contribution plan on N’s behalf for
the current limitation year (which represents the only
annual additions allocated to N’s account under the
plan for such year), which is within the $45,000 lim-
itation of section 415(c)(1) applicable to N under the
plan.
(ii) Under section 415(k)(4), the professional cor-
poration, as well as N, is considered to maintain the
annuity contract. Accordingly, the sum of the an-
nual additions under the qualified defined contribu-
tionplanmaintainedbyprofessional corporation P
and the annuity contract must satisfy the limitations
of section 415(c) and §1.415(c)–1.
(iii) Because the total aggregate contributions
($50,000) exceed the section 415(c) limitation ap-
plicable to N ($45,000), $5,000 of the $30,000
contributed to the section 403(b) annuity contract is
considered an excess contribution and therefore cur-
rently includable in N’s gross income. The contract
continues to be a section 403(b) annuity contract
only if, for the current limitation year and all years
thereafter, the issuer of the contract maintains sep-
arate accounts for each portion attributable to such
excess contributions. See §1.415(a)–1(b)(2).
(c)Plan year for certain annuity con-
tracts and individual retirement plans.For
purposes of this section, unless the plan
under which the annuity contract or indi-
vidual retirement plan is provided speci-
fies that a different twelve-month period is
considered to be the plan year—
(1) An annuity contract described in
section 403(b) is considered to have a plan
year coinciding with the taxable year of
the individual on whose behalf the contract
has been purchased; and
(2) A simplified employee pension de-
scribed in section 408(k) is considered to
have a plan year coinciding with the year
under the plan that is used pursuant to sec-
tion 408(k)(7)(C).
Par. 16. Section 1.415(j)–1 is added to
read as follows:
§1.415(j)–1 Limitation year.
(a)In general. Unless the terms of a
plan provide otherwise, the limitation year,
with respect to any qualified plan main-
tained by the employer, is the calendar
year.
(b)Alternative limitation year election.
Thetermsofaplanmayprovideforthe
use of any other consecutive twelve month
period as the limitation year. This includes
a fiscal year with an annual period varying
from 52 to 53 weeks, so long as the fiscal
year satisfies the requirements of section
441(f). A plan may only provide for one
limitation year regardless of the number or
identity of the employers maintaining the
plan.
(c)Multiple limitation years—(1)In
general. Where an employer maintains
more than one qualified plan, those plans
may provide for different limitation years.
The rule described in this paragraph (c)
also applies to a controlled group of em-
ployers (within the meaning of section
414(b) or (c), as modified by section
415(h)). If the plans of an employer (or
a controlled group of employers whose
plans are aggregated) have different lim-
itation years, section 415 is applied in
accordance with the rule of paragraphs
(c)(2) and (3) of this section.
(2)Testing rule for defined contribution
plans. If a participant is credited with an-
nual additions in only one defined contri-
bution plan, in determining whether the
requirements of section 415(c) are satis-
fied, only the limitation year applicable
to that plan is considered. However, if
a participant is credited with annual addi-
2007–18 I.R.B.1095April 30, 2007

tions in more than one defined contribution
plan, each such plan satisfies the require-
ments of section 415(c) only if the limita-
tions of section 415(c) are satisfied with re-
spect to amounts that are annual additions
for the limitation year with respect to the
participant under the plan, plus amounts
credited to the participant’s account under
all other plans required to be aggregated
with the plan pursuant to section 415(f)
and §1.415(f)–1 that would have been con-
sidered annual additions for the limitation
year under the plan if they had been cred-
ited under the plan rather than an aggre-
gated plan.
(3)Testing rule for defined benefit
plans. If a participant has participated in
only one defined benefit plan, in determin-
ing whether the requirements of section
415(b) are satisfied, only the limitation
year applicable to thatplan is considered.
However, if a participant has participated
in more than one defined benefit plan, a
plan satisfies the requirements of section
415(b) only if the annual benefit under all
plans required to be aggregated pursuant
to section 415(f) and §1.415(f)–1 for the
limitation year of that plan with respect
to the participant satisfy the applicable
limitations of section 415(b). Thus, for
example, the dollar limitation of section
415(b)(1)(A) applicable to the limitation
year for each plan must be applied to an-
nual benefits under all aggregated plans
to determine whether the plan satisfies the
requirements of section 415(b).
(d)Change of limitation year—(1)In
general. Once established, the limitation
year may be changed only by amending the
plan. Any change in the limitation year
must be a change to a 12-month period
commencing with any day within the cur-
rent limitation year. For purposes of this
section, the limitations of section 415 are
to be applied in the normal manner to the
new limitation year.
(2)Application to short limitation pe-
riod. Where there is a change of limitation
year, the limitations of section 415 are to
be separately applied to a limitation period
which begins with the first day of the cur-
rent limitation year and which ends on the
day before the first day of the first limita-
tion year for which the change is effective.
In the case of a defined contribution plan,
the dollar limitation with respect to this
limitation period is determined by multi-
plying the applicable dollar limitation for
the calendar year in which the limitation
period ends by a fraction, the numerator
of which is the number of months (includ-
ing any fractional parts of a month) in the
limitation period, and the denominator of
which is 12. In the case of a defined benefit
plan, no adjustment is made to the section
415(b) limitations to reflect a short limita-
tion period.
(3)Deemed change of limitation year.
If a defined contribution plan is terminated
effective as of a date other than the last
day of the plan’s limitation year, the plan is
treated for purposes of this section as if the
plan was amended to change its limitation
year. Thus, the rules of this paragraph
(d) apply to the terminating plan’s final
limitation year.
(e)Limitation year for individuals on
whose behalf section 403(b) annuity con-
tracts have been purchased. The limita-
tion year of an individual on whose behalf
a section 403(b) annuity contract has been
purchasedbyanemployerisdeterminedin
the following manner.
(1) If the individual is not in control
of any employer (within the meaning of
§1.415(f)–1(f)(2)(ii)), the limitation year
is the calendar year. However, the indi-
vidual may elect to change the limitation
year to another twelve-month period. To
do this, the individual must attach a state-
ment to his or her income tax return filed
for the taxable year in which the change is
made. Any change in the limitation year
must comply with the rules set forth in
paragraph (d) of this section.
(2) If the individual is in control of
an employer (within the meaning of
§1.415(f)–1(f)(2)(ii)), the limitation year
is the limitation year of that employer.
(f)Limitation year for individuals on
whose behalf individual retirement plans
are maintained. The limitation year of
an individual on whose behalf an individ-
ual retirement plan (within the meaning of
section 7701(a)(37)) is maintained is de-
termined in the manner described in para-
graph (e) of this section.
(g)Examples. The following examples
illustrate the application of this section:
Example 1. (i) Participant M is employed by both
Employer A and Employer B, each of which main-
tains a qualified defined contribution plan. M partic-
ipates in both of these plans. The limitation year for
Employer A’s plan is January 1 through December 31,
and the limitation year for Employer B’s plan is April
1 through March 31. Employer A and Employer B
are both corporations, and Corporation X owns 100
percent of the stock of Employer A and Employer B.
(ii) The two plans in which M participates are re-
quired under section 415(f) to be aggregated for pur-
poses of applying the limitations of section 415(c) to
annual additions made with respect to M. Thus, for
example, for the limitation year of Employer A’s plan
that begins January 1, 2008, annual additions with re-
spect to M that are subject to the limitations of sec-
tion 415(c) include both amounts that are annual ad-
ditions with respect to M under Employer A’s plan
for the period beginning January 1, 2008, and end-
ing December 31, 2008, and amounts contributed to
Employer B’s plan with respect to M that would have
been considered annual additions for the period be-
ginning January 1, 2008, and ending December 31,
2008, under Employer A’s plan if those amounts had
instead been contributed to Employer A’s plan.
Example 2. In 2008, an employer with a qualified
defined contribution plan using the calendar year as
the limitation year elects to change the limitation year
to a period beginning July 1 and ending June 30. Be-
cause of this change, the plan must satisfy the limi-
tations of section 415(c) for the limitation period be-
ginning January 1, 2008, and ending June 30, 2008.
In applying the limitations of section 415(c) to this
limitation period, the amount of compensation taken
into account may only include compensation for this
period. Furthermore, the dollar limitation for this pe-
riod is the otherwise applicable dollar limitation for
calendar year 2008, multiplied by 6/12.
Par. 17. Section 1.416–1 is amended by
revising Q&A T–21 to read as follows:
§1.416–1 Questions and answers on top
heavy plans.
*****
T–21. Q. For purposes of testing
whether an individual has compensation
of more than $150,000, what definition of
compensation must be used?
A. The definition of compensation to
be used is the definition in §1.415(c)–2,
however, compensation must be deter-
mined for a plan year, not a limitation
year. Alternatively,compensation that
wouldbestatedonanemployee’sForm
W–2, “Wage and Tax Statement,”forthe
calendar year that ends with or within the
plan year may be used, although amounts
that would have been stated on the em-
ployee’s Form W–2 but for an election un-
der section 125, 132(f)(4), 401(k), 403(b),
408(k), 408(p)(2)(A)(i), or 457(b) must be
included. A plan must use the same def-
inition of compensation for all top-heavy
plan purposes for which the definition in
this Q and A must be used.
*****
Par. 18. Section 1.457–4 is amended by
revising paragraph (d) to read as follows:
April 30, 200710962007–18 I.R.B.

§1.457–4 Annual deferrals, deferral
limitations, and deferral agreements
under eligible plans.
*****
(d)Deferrals after severance from em-
ployment, including sick, vacation, and
back pay under an eligible plan—(1)In
general. An eligible plan may provide
that a participant who has not had a sev-
erance from employment may elect to de-
fer accumulated sick pay, accumulated va-
cation pay, and back pay under an eligible
plan if the requirements of section 457(b)
are satisfied. For example, the plan must
provide, in accordance with paragraph (b)
of this section, that these amounts may
be deferred for any calendar month only
if an agreement providing for the defer-
ral is entered into before the beginning of
the month in which the amounts would
otherwise be paid or made available and
the participant is an employee on the date
the amounts would otherwise be paid or
made available. For purposes of section
457, compensation that would otherwise
be paid for a payroll period that begins be-
fore severance from employment is treated
as an amount that would otherwise be paid
or made available before an employee has
a severance from employment. In addi-
tion, deferrals may be made for former em-
ployees with respectto compensation de-
scribed in §1.415(c)–2(e)(3)(i) (relating to
certain compensation paid by the later of
2
1
/2months after severance from employ-
ment or the end of the limitation year that
includes the date of severance from em-
ployment). For this purpose, the calen-
dar year is substituted for the limitation
year. In addition, compensation described
in §1.415(c)–2(e)(4), (g)(4), or (g)(7) (re-
latingtocompensationpaidtoparticipants
who are permanently and totally disabled
or compensation relating to qualified mil-
itary service under section 414(u)), pro-
vided those amounts represent compensa-
tion described in §1.415(c)–2(e)(3)(i).
(2)Examples. The provisions of this
paragraph (d) are illustrated by the follow-
ing examples:
Example 1.(i)Facts. Participant G, who is age
62 in year 2007, is an employee who participates in
an eligible plan providing a normal retirement age
of 65 and abona fidesick leave and vacation pay
program of the eligible employer. Under the terms
of G’s employer’s eligible plan and the sick leave
and vacation pay program, G is permitted to make a
one-time election to contribute amounts representing
accumulated sick pay to the eligible plan. G has a
severance from employment on January 12, 2008, at
which time G’s accumulated sick and vacation pay
that is payable on March 15, 2008, totals $12,000. G
elects, on February 4, 2008, to have the $12,000 of
accumulated sick and vacation pay contributed to the
eligible plan.
(ii)Conclusion. Under the terms of the eligi-
ble plan and the sick and vacation pay program, G
may elect before March 1, 2008, to defer the accu-
mulated sick and vacation pay because the agree-
ment providing for the deferral is entered into be-
fore the beginning of the month in which the amount
is currently available and the amount isbona fide
accumulated sick and vacation pay, as described in
§1.415(c)–2(e)(3)(ii), and that is payable by the later
of 2
1
/2months after severance from employment or
the end of the calendar yearthat includes the date of
severance from employment by G. Thus, under this
section and §1.415(c)–2(e)(3)(ii), the $12,000 is in-
cluded in G’s includible compensation for purposes
of determining G’s includible compensation in year
2008.
Example 2.(i)Facts. Same facts as inExam-
ple 1, except that G’s severance from employment is
on May 31, 2008, G’s $12,000 of accumulated sick
and vacation pay is payable on September 15, 2008
(which is by the later of 2
1
/2months after severance
from employment or the end of the calendar year that
includes the date of severance from employment by
G), and G’s election to defer the accumulated sick and
vacation pay is made before May 1, 2008.
(ii)Conclusion.Under this section and
§1.415(c)–2(e)(3)(ii), the $12,000 is included in
G’s includible compensation for purposes of deter-
mining G’s includible compensation in year 2008.
Example 3.(i)Facts. Employer X maintains an
eligible plan and a vacation leave plan. Under the
terms of the vacation leave plan, employees gener-
ally accrue three weeks of vacation per year. Up to
one week’s unused vacation may be carried over from
one year to the next, so that in any single year an em-
ployee may have a maximum of four weeks’ vacation
time. At the beginning of each calendar year, under
the terms of the eligible plan (which constitutes an
agreement providing for the deferral), the value of
any unused vacation time from the prior year in ex-
cess of one week is automatically contributed to the
eligible plan, to the extent of the employee’s maxi-
mum deferral limitations. Amounts in excess of the
maximum deferral limitations are forfeited.
(ii)Conclusion. The value of the unused vacation
pay contributed to X’s eligible plan pursuant to the
terms of the plan and the terms of the vacation leave
plan is treated as an annual deferral to the eligible plan
for January of the calendar year. No amounts con-
tributed to the eligible plan will be considered made
available to a participant in X’s eligible plan.
*****
Par. 19. Section 1.457–5 is amended by
revising paragraph (d)Example 2to read
as follows:
§1.457–5 Individual limitation for
combined annual deferrals under multiple
eligible plans.
*****
(d) * * *
Example 2.(i)Facts. Participant E, who will
turn 63 on April 1, 2006, participates in four eli-
gible plans during year 2006: Plan W which is an
eligible governmental plan; and Plans X, Y, and
Z which are each eligible plans of three different
tax-exempt entities. For year 2006, the limitation
that applies to Participant E under all four plans
under §1.457–4(c)(1)(i)(A) is $15,000. For year
2006, the additional age 50 catch-up limitation
that applies to Participant E under all four plans
under §1.457–4(c)(2) is $5,000. Further, for year
2006, different limitations under §1.457–4(c)(3)
and (c)(3)(ii)(B) apply to Participant E under each
of these plans, as follows: under Plan W, the un-
derutilized limitation under §1.457–4(c)(3)(ii)(B) is
$7,000; under Plan X, the underutilized limitation un-
der §1.457–4(c)(3)(ii)(B) is $2,000; under Plan Y, the
underutilized limitation under §1.457–4(c)(3)(ii)(B)
is $8,000; and under Plan Z, §1.457–4(c)(3) is not
applicable since normal retirement age is 62 under
Plan Z. Participant E’s includible compensation is in
each case in excess of any applicable deferral.
(ii)Conclusion. For purposes of applying this
section to Participant E for year 2006, Participant E
could elect to defer $23,000 under Plan Y, which is the
maximum deferral limitation under §1.457–4(c)(1)
through (3), and to defer no amount under Plans W,
X, and Z. The $23,000 maximum amount is equal to
the sum of $15,000 plus $8,000, which is the catch-up
amount applicable to Participant E under Plan Y and
which is the largest catch-up amount applicable to
Participant E under any of the four plans for year
2006. Alternatively, Participant E could instead elect
to defer the following combination of amounts: an
aggregate total of $15,000 to Plans X, Y, and Z, if no
contribution is made to Plan W; an aggregate total of
$20,000 to any of the four plans; or $22,000 to Plan
W and none to any of the other three plans.
(iii) If the underutilized amount under Plans W, X,
and Y for year 2006 were in each case zero (because
E had always contributed the maximum amount or
E was a new participant) or an amount not in excess
of $5,000, the maximum exclusion under this sec-
tion would be $20,000 for Participant E for year 2006
($15,000 plus the $5,000 age 50 catch-up amount),
which Participant E could contribute to any of the
plans.
Par. 20. Section 1.457–6 is amended
by revising paragraphs (a) and (c) to read
as follows:
§1.457–6 Timing of distributions under
eligible plans.
(a)In general. Except as provided in
paragraph (c) of this section (relating to
distributions on account of an unforesee-
able emergency), paragraph (e) of this
section (relating to distributions of small
accounts), §1.457–10(a) (relating to plan
2007–18 I.R.B.1097April 30, 2007

terminations), or §1.457–10(c) (relating
to domestic relations orders), amounts
deferred under an eligible plan may not
be paid to a participant or beneficiary be-
fore the participant has a severance from
employment with the eligible employer
or when the participant attains age 70
1
/2,
if earlier. For rules relating to loans, see
paragraph (f) of this section. This section
does not apply to distributions of excess
amounts under §1.457–4(e). However,
except to the extent set forth by the Com-
missioner in revenue rulings, notices, and
other guidance published in the Internal
Revenue Bulletin (see §601.601(d) of this
chapter), this section applies to amounts
held in a separate account for eligible
rollover distributions maintained by an
eligible governmental plan as described in
§1.457–10(e)(2).
*****
(c)Rules applicable to distributions
for unforeseeable emergencies—(1)In
general. An eligible plan may permit a
distribution to a participant or beneficiary
for an unforeseeable emergency. The dis-
tribution must satisfy the requirements of
paragraph (c)(2) of this section.
(2)Requirements—(i)Unforeseeable
emergency defined. An unforeseeable
emergency must be defined in the plan as a
severe financial hardship of the participant
or beneficiary resulting from an illness or
accident of the participant or beneficiary,
the participant’s or beneficiary’s spouse,
or the participant’sor beneficiary’s de-
pendent (as defined in section 152, and,
for taxable years beginning on or after
January 1, 2005, without regard to sec-
tion 152(b)(1), (b)(2), and (d)(1)(B)); loss
of the participant’s or beneficiary’s prop-
erty due to casualty (including the need
to rebuild a home following damage to
a home not otherwise covered by home-
owner’s insurance, such as damage that is
the result of a natural disaster); or other
similar extraordinary and unforeseeable
circumstances arising as a result of events
beyond the control of the participant or the
beneficiary. For example, the imminent
foreclosure of or eviction from the partic-
ipant’s or beneficiary’s primary residence
may constitute an unforeseeable emer-
gency. In addition, the need to pay for
medical expenses, including non-refund-
able deductibles, as well as for the cost of
prescription drug medication, may consti-
tute an unforeseeable emergency. Finally,
the need to pay for the funeral expenses of
a spouse or a dependent (as defined in sec-
tion 152, and, for taxable years beginning
on or after January 1, 2005, without regard
to section 152(b)(1), (b)(2), and (d)(1)(B))
of a participant or beneficiary may also
constitute an unforeseeable emergency.
Except as otherwise specifically provided
in this paragraph (c)(2)(i), the purchase of
a home and the payment of college tuition
are not unforeseeable emergencies under
this paragraph (c)(2)(i).
(ii)Unforeseeable emergency distribu-
tion standard. Whether a participant or
beneficiary is faced with an unforeseeable
emergency permitting a distribution un-
der this paragraph (c) is to be determined
based on the relevant facts and circum-
stances of each case, but, in any case, a
distribution on account of unforeseeable
emergency may not be made to the ex-
tent that such emergency is or may be re-
lieved through reimbursement or compen-
sation from insurance or otherwise, by liq-
uidation of the participant’s assets, to the
extent the liquidation of such assets would
not itself cause severe financial hardship,
or by cessation of deferrals under the plan.
(iii)Distribution necessary to satisfy
emergency need. Distributions because of
an unforeseeable emergency must be lim-
ited to the amount reasonably necessary
to satisfy the emergency need (which may
include any amounts necessary to pay for
any federal, state, or local income taxes or
penalties reasonably anticipated to result
from the distribution).
*****
Par. 21. Section 1.457–10 is amended
by revising paragraph (b)(8) to read as fol-
lows:
§1.457–10 Miscellaneous provisions.
*****
(b) * * *
(8)Purchase of permissive service
credit by plan-to-plan transfers from an
eligible governmental plan to a qualified
plan—(i)General rule. An eligible gov-
ernmental plan of a State may provide
for the transfer of amounts deferred by
a participant or beneficiary to a defined
benefit governmental plan (as defined in
section 414(d)), and no amount shall be
includible in gross income by reason of
the transfer, if the conditions in paragraph
(b)(8)(ii) of this section are met. A transfer
under this paragraph (b)(8) is not treated
as a distribution for purposes of §1.457–6.
Therefore, such a transfer may be made
before severance from employment.
(ii)Conditions for plan-to-plan trans-
fers from an eligible governmental plan
to a qualified plan. A transfer may be
made under this paragraph (b)(8) only if
the transfer is either—
(A) For the purchase of permissive
service credit (as defined in section
415(n)(3)(A)) under the receiving de-
fined benefit governmental plan; or
(B) A repayment to which section
415 does not apply by reason of section
415(k)(3).
(iii)Example. The provisions of this
paragraph (b)(8) are illustrated by the fol-
lowing example:
Example.(i)Facts. Plan X is an eligible gov-
ernmentalplanmaintainedbyCountyYforitsem-
ployees. Plan X provides for distributions only in the
event of death, an unforeseeable emergency, or sev-
erance from employment with County Y (including
retirement from County Y). Plan S is a qualified de-
fined benefit plan maintained by State T for its em-
ployees. County Y is within State T. Employee A is
an employee of County Y and is a participant in Plan
X. Employee A previously was an employee of State
T and is still entitled to benefits under Plan S. Plan
S includes provisions allowing participants in certain
plans, including Plan X, to transfer assets to Plan S
for the purchase of service credit under Plan S and
does not permit the amount transferred to exceed the
amount necessary to fund the benefit resulting from
the service credit. Although not required to do so,
Plan X allows Employee A to transfer assets to Plan
S to provide a service benefit under Plan S.
(ii)Conclusion. The transfer is permitted under
this paragraph (b)(8).
*****
PART 11—
TEMPORARY INCOME
TAX REGU
LATIONS UNDER THE
EMPLOY
EE RETIREMENT INCOME
SECURI
TY ACT OF 1974
Par. 22. The authority citation for part
11 continues to read in part as follows:
Authority: 26 U.S.C. 7805.* * *
§11.4
15(c)(4)–1 [Removed]
Par. 23. Section 11.415(c)(4)–1 is re-
moved.
Kevin
M. Brown,
Depu
ty Commissioner for
Serv
ices and Enforcement.
Approved March 20, 2007.
April 30, 200710982007–18 I.R.B.

Eric Solomon,
Assistant Secretary of
theTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on April 4, 2007,
8:45 a.m., and published in the issue of the Federal Register
for April 5, 2007, 72 F.R. 16877)
Section 457.—Deferred
Compensation Plans
of State and Local
Governments and
Tax-Exempt Organizations
26 CFR 1.457–4: Annual deferrals, deferral limita-
tions, and deferral agreements under eligible plans.
To conform to the amendments to section 415 In-
come Tax Regulations, section 1.457–4 is amended
by revising paragraph (d). Also, minor correc-
tive changes are made to section 1.457–5(d), Ex-
ample 2, section 1.457–6(a) and (c) and section
1.457–10(b)(8). See T.D. 9319, page 1041.
Section 472.—Last-in,
First-out Inventories
26 CFR 1.472–1: Last-in, first-out inventories.
LIFO; price indexes; department
stores.The February 2007 Bureau of La-
bor Statistics price indexes are accepted
for use by department stores employing
the retail inventory and last-in, first-out
inventory methods for valuing inventories
for tax years ended on, or with reference
to, February 28, 2007.
Rev. Rul. 2007–27
The following Department Store Inven-
tory Price Indexes for February 2007 were
issued by the Bureau of Labor Statistics.
The indexes are accepted by the Inter-
nal Revenue Service, under § 1.472–1(k)
of the Income Tax Regulations and Rev.
Proc. 86–46, 1986–2 C.B. 739, for ap-
propriate application to inventories of
department stores employing the retail
inventory and last-in, first-out inventory
methods for tax years ended on, or with
reference to, February 28, 2007.
The Department Store Inventory Price
Indexes are prepared on a national basis
and include (a) 23 major groups of depart-
ments, (b) three special combinations of
the major groups — soft goods, durable
goods, and miscellaneous goods, and (c) a
store total, which covers all departments,
including some not listed separately, ex-
cept for the following: candy, food, liquor,
tobacco, and contract departments.
BUREAU OF LABOR STATISTICS, DEPARTMENT STORE
INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS
(January 1941 = 100, unless otherwise noted)
GroupsFeb. 2006Feb. 2007
Percent Change
From Feb. 2006
to Feb. 2007
1
1. PieceGoods .............................................437.4427.9-2.2
2. DomesticsandDraperies..................................499.5474.1-5.1
3. Women’sandChildren’sShoes ............................678.8655.3-3.5
4. Men’sShoes.............................................869.8867.5-0.3
5. Infants’Wear ............................................563.8566.30.4
6. Women’sUnderwear......................................538.4554.12.9
7. Women’sHosiery ........................................346.1345.8-0.1
8. Women’sandGirls’Accessories ...........................570.3547.7-4.0
9. Women’sOuterwearandGirls’Wear .......................334.1360.07.8
10. Men’sClothing ..........................................519.4520.10.1
11. Men’sFurnishings........................................556.4566.41.8
12. Boys’ClothingandFurnishings............................400.2381.2-4.7
13. Jewelry..................................................857.6917.06.9
14. Notions .................................................793.6807.21.7
15. ToiletArticlesandDrugs..................................1010.61001.8-0.9
16. FurnitureandBedding ....................................602.0603.90.3
17. FloorCoverings..........................................614.1615.00.1
18. Housewares..............................................698.0692.9-0.7
19. MajorAppliances.........................................204.3211.03.3
20. RadioandTelevision......................................37.333.5-10.2
21. Recreation and Education
2
.................................77.376.4-1.2
22. Home Improvements
2
.....................................139.2141.61.7
23. Automotive Accessories
2
..................................117.4122.74.5
Groups1–15:SoftGoods .......................................543.7552.21.6
Groups16–20:DurableGoods...................................375.1372.4-0.7
Groups 21–23: Misc. Goods
2
....................................93.394.10.9
Store Total
3
..............................................484.5489.61.1
2007–18 I.R.B.1099April 30, 2007

1
Absence of a minus sign before the percentage change in this column signifies a price increase.
2
Indexes on a Ja
nuary 1986 = 100 base.
3
The store total index covers all departments, including some not listed separately, except for the following: candy, food, liquor,
tobacco, and contract departments.
DRAFTING INFORMATION
The principal author of this revenue rul-
ingisJohnRomanFaronoftheOffice
of Associate Chief Counsel (Income Tax
and Accounting). For further informa-
tion regarding this revenue ruling, con-
tact Mr. Faron at (202) 622–4930 (not a
toll-free call).
Section 1502.—Regulations
26 CFR 1.1502–35: Transfers of subsidiary stock and
deconsolidations of subsidiaries.
T.D. 9322
DEPARTMENT OF
THE TREASURY
Internal Revenue Service
26 CFR Part 1
Anti-Avoidance and Anti-Loss
Reimportation Rules
Applicable Following a Loss
on Disposition of Stock of
Consolidated Subsidiaries
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
SUMMARY: This document contains
final and temporary regulations under
section 1502 of the Internal Revenue
Code (Code). These regulations provide
guidance to corporations filing consoli-
dated returns. These regulations apply an
anti-avoidance rule and revise an anti-loss
reimportation rule that applies following
a disposition of stock of a subsidiary at a
loss. The text of the temporary regulations
also serves as the text of the proposed
regulations (REG–156420–06) set forth in
the notice of proposed rulemaking on this
subject in this issue of the Bulletin.
DATES:Effective Date:These regulations
are effective April 10, 2007.
Applicability Date:For dates of ap-
plicability, see §§1.1502–32T(k) and
1.1502–35T(j)(2).
FOR FURTHER INFORMATION
CONTACT: Theresa Abell (202)
622–7700 or Phoebe Bennett (202)
622–7770 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
Section 1.1502–35 currently addresses
loss duplication. The rule generally ap-
plies whenever there is a disposition of loss
shares of subsidiary stock or a subsidiary
is deconsolidated. The regulation includes
several specific anti-abuse rules, including
a rule intended to prevent a group from get-
ting the benefit of a loss on the stock of one
of its subsidiaries and then reimporting the
same economic loss back into the group (or
its successor) in order to claim a duplica-
tive benefit from the one loss.
The current anti-loss reimportation rule
generally disallows reimported losses that
duplicate a loss recognized and allowed
with respect to the disposition of sub-
sidiary stock. The term “subsidiary” is
defined in §1.1502–1(c) to mean a corpo-
ration that is a member of a consolidated
group but is not the common parent of the
group. Taxpayers have attempted to avoid
the anti-loss reimportation rule by first de-
consolidating a subsidiary and then selling
loss shares of the subsidiary’s stock. The
loss on the stock is one that was reflected
in the subsidiary’s attributes at the time of
the deconsolidation and is thus one that
the anti-loss reimportation rule is intended
to address. But because the sale occurs
after the subsidiary ceases to be a member
of the group, taxpayers take the position
that the loss recognized is not with respect
to “subsidiary” stock and therefore is not
subject to the anti-loss reimportation rule.
Thus, after obtaining the tax benefit of its
economic loss (on the disposition of the
stock), the group would be free to reim-
port the loss and then (directly or through
a successor group) claim a second tax
benefit for its one economic loss.
The IRS and Treasury Department be-
lieve that the duplication of a group loss
distorts group income, and is therefore in-
appropriate, regardless of whether or not a
duplicative recognition of the loss occurs
while the subsidiary is a member. In either
case, the group would obtain more than a
single tax benefit for one economic loss.
The IRS and Treasury Department recog-
nize that such transactions remain subject
to, and reimportation will be prevented by,
other principles of law, such as the Step-
Transaction Doctrine and other anti-avoid-
ance rules of law. However, the IRS and
Treasury Department have concluded that
tax administration would be better served
by revising the current anti-loss reimpor-
tation rule to address these situations more
directly.
Accordingly, these final and temporary
regulations revise the anti-loss reimporta-
tion rule to clarify that losses reflected in
the basis of subsidiary stock at the time
of deconsolidation may not be recognized
and reimported into the group, regardless
of whether the stock losses are recognized
when the subsidiary is a member of the
group. To discourage further structuring
to avoid its purposes, the loss reimporta-
tion rule is also revised to replace the list
of events that cause the application of the
rule with a list of criteria that identify reim-
portation transactions that will be treated
as subject to the rule.
In addition, the temporary regulations
add a general anti-avoidance rule under
§1.1502–35T(g)(6), which provides that
appropriate adjustments will be made if
a taxpayer acts with a view to avoid the
purposes of §1.1502–35. The temporary
regulations also remove §1.1502–35(h)
(continued applicability of other rules of
law) because it unnecessarily duplicates
§1.1502–80(a), which provides that other
rules of law apply to members of consoli-
dated groups unless otherwise provided in
the regulations.
The temporary regulations that revise
the anti-loss reimportation rule apply to
reimportation events that occur on or after
April 30, 200711002007–18 I.R.B.

April 10, 2007 if they occur with respect to
stock of a subsidiary sold on or after March
7, 2002, or with respect to stock of a sub-
sidiary or former subsidiary sold on or af-
ter April 10, 2007. The temporary regula-
tions provide a general anti-avoidance rule
that applies on or after April 10, 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. Therefore, a regulatory assessment
is not required. These temporary regula-
tions address situations in which taxpayers
inappropriately attempt to recognize du-
plicative tax losses by attempting to avoid
the application of the anti-loss reimporta-
tion rule. For this reason, it has been deter-
mined pursuant to 5 U.S.C. 553(b)(B) that
prior notice and public procedure are im-
practicable and contrary to the public inter-
est. For the same reason, it has been deter-
mined pursuant to 5 U.S.C. 553(d)(3) that
good cause exists tomake these tempo-
rary regulations effective upon the date of
publication. For applicability of the Reg-
ulatory Flexibility Act (5 U.S.C. chapter
6) refer to the Special Analyses section of
the preamble to the cross-reference notice
of the proposed rulemaking published in
this issue of the Bulletin. Pursuant to sec-
tion 7805(f) of the Code, these temporary
regulations will be submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on their
impact on small business.
Drafting Information
The principal author of these regula-
tions is Phoebe Bennett, Office of the As-
sociate Chief Counsel (Corporate). How-
ever, other personnel from the IRS and
Treasury Department participated in their
development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read as follows:
Authority: 26 U.S.C. 7805 * * *
Sections 1.1502–32T and 1.1502–35T
also issued under 26 U.S.C. 1502 * * *
Par. 2. Section 1.1502–32 is amended
by revising paragraph (b)(3)(iii)(D) and
adding paragraph (k) to read as follows:
§1.1502–32 Investment adjustments.
*****
(b) * * *
(3) * * *
(iii) * * *
(D) [Reserved]. For further guidance,
see §1.1502–32T(b)(3)(iii)(D).
*****
(k) [Reserved]. For further guidance,
see §1.1502–32T(k).
Par. 3. Section 1.1502–32T is amended
by revising paragraphs (a) through
(b)(3)(iii) and adding paragraph (k) to
read as follows:
§1.1502–32T Investment adjustments
(temporary).
(a) through (b)(3)(iii)(C) [Reserved].
For further guidance, see §1.1502–32(a)
through (b)(3)(iii)(C).
(D)Loss disallowed under §1.1502–
35T(g)(3)(ii). Any loss or deduction the
use of which is disallowed pursuant to
§1.1502–35T(g)(3)(ii) (other than dupli-
cating items that are carried back to a
consolidated return year of the group), and
with respect to which no waiver described
in paragraph (b)(4) of this section is filed,
is treated as a noncapital, nondeductible
expense incurred during the taxable year
that such loss would otherwise be ab-
sorbed.
(b)(3)(iv) through (b)(4)(iii) [Re-
served]. For further guidance, see
§1.1502–32(b)(3)(iv) through (b)(4)(iii).
*****
(k)Effective date—(1)Applicability
date. Paragraph (b)(3)(iii)(D) of this sec-
tion applies to any original consolidated
Federal income tax return due (without
extensions) after April 10, 2007.
(2)Expiration date. The applicability
of paragraphs (b)(3)(iii)(D) and (k) of this
section will expire on April 9, 2007.
Par. 4. Section 1.1502–35 is amended
by:
1. Revising paragraphs (g)(3) and (h).
2. Adding new paragraph (g)(6).
3. Revising paragraph (j).
The revisions and additions read as fol-
lows:
§1.1502–35 Transfers of subsidiary stock
and deconsolidations of subsidiaries.
*****
(g) * * *
(3) [Reserved]. For further guidance,
see §1.1502–35T(g)(3).
*****
(6) [Reserved]. For further guidance,
see §1.1502–35T(g)(6).
(h) [Reserved]. For further guidance,
see §1.1502–35T(h).
*****
(j)Effective dates—(1)In general.
This section applies with respect to stock
transfers, deconsolidations of subsidiaries,
determinations of worthlessness, and stock
dispositions on or after March 10, 2006.
For rules applicable before March 10,
2006, see §1.1502–35T(j) as contained in
26 CFR part 1 in effect on January 1, 2006.
(2) [Reserved]. For further guidance,
see §1.1502–35T(j)(2).
*****
Par. 5. Section 1.1502–35T is amended
by revising paragraphs (g)(3) and (h) and
adding a new paragraph (g)(6) and revising
paragraph (j) to read as follows:
§1.1502–35T Transfers of subsidiary
stock and deconsolidations of subsidiaries
(temporary).
*****
(c)(4)(ii) through (g)(2) [Re-
served]. For further guidance, see
§1.1502–35(c)(4)(ii) through (g)(2).
(3)Anti-loss reimportation rule—(i)
Conditions for application. This para-
graph (g)(3) applies when—
(A) A member of a group (the selling
group) recognized and was allowed a loss
with respect to a share of stock of S, a sub-
sidiary or former subsidiary of the selling
group;
(B) That stock loss was duplicated (in
whole or in part) in S’s attributes (dupli-
cating items) at the earlier of the time that
the loss was recognized or that S ceased to
be a member; and
(C) Within ten years of the date that S
ceased to be a member, there is a reimpor-
tation event. For this purpose, a reimporta-
tion event is any event after which a dupli-
cating item is a reimported item. A reim-
2007–18 I.R.B.1101April 30, 2007

ported item is any duplicating item that is
reflected in the attributes of any member
of the selling group, including S, or, if not
reflected in the attributes, would be prop-
erly taken into account by any member of
the selling group (forexample as the result
of a carryback) (a reimported item).
(ii)Effect of application. Immediately
before the time that a reimported item (or
any portion of a reimported item) would
be properly taken into account (but for the
application of this paragraph (g)(3)), such
item (or such portion of the item) is re-
duced to zero and no deduction or loss is
allowed, directly or indirectly, with respect
to that item.
(iii)Operating rules. For purposes of
this paragraph (g)(3)—
(A) The terms member, subsidiary, and
group include their predecessors and suc-
cessors to the extent necessary to effectu-
ate the purposes of this section;
(B) The determination of whether a loss
is duplicative is made under the principles
of paragraph (d)(4) of this section; and
(C) The reduction of a reimported item
(other than duplicating items that are car-
ried back to a consolidated return year of
the selling group) is a noncapital, non-
deductible expense within the meaning of
§1.1502–32(b)(3)(iii).
(g)(4) through (g)(5) [Reserved]. For
further guidance, see §1.1502–35(g)(4)
through (g)(5).
(6)General anti-avoidance rule appli-
cable on or after April 10, 2007.Ifatax-
payer acts with a view to avoid the pur-
poses of this section, appropriate adjust-
ments will be made to carry out the pur-
posesofthissection.
(h)Application of other rules of law.
See §1.1502–80(a) regarding the general
applicability of other rules of law.
(i) [Reserved]. For further guidance,
see §1.1502–35(i).
(j)(1) [Reserved]. For further guidance,
see §1.1502–35(j)(1).
(2)Transactions after April 10,
2007—(i)Effective date. Paragraph (g)(3)
of this section applies to reimported items
if the related stock loss is recognized on
or after April 10, 2007. Paragraph (g)(3)
(other than paragraph (g)(3)(i)(A)) of
this section also applies with respect to
the duplication of subsidiary stock loss
recognized in dispositions (described in
§1.1502–35(g)(3)(i)(A), as contained in
26 CFR part 1, revised as of January 1,
2007) on or after March 7, 2002, if the
reimportation event with respect to that
loss occurs on or after April 10, 2007. For
rules applicable to losses reimported be-
fore April 10, 2007, see §1.1502–35(g)(3),
as contained in 26 CFR part 1 in effect on
January 1, 2007. Paragraphs (g)(6) and (h)
of this section apply on or after April 10,
2007. For rules applicable prior to April
10, 2007, see §1.1502–35 as contained in
26 CFR part 1 in effect on January 1, 2007.
(ii)Expiration date. The applicability
of paragraphs (g)(3), (g)(6), and (h) of this
section will expire on April 9, 2007.
*****
Linda M. Kroening,
Acting Deputy Commissioner for
Services and Enforcement.
Approved March 29, 2007.
Eric Solomon,
Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register on April 9, 2007,
8:45 a.m., and published in the issue of the Federal Register
for April 10, 2007, 72 F.R. 17804)
April 30, 200711022007–18 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Nonconventional Source Fuel
Credit, Section 45K Inflation
Adjustment Factor, and
Section 45K Reference Price
Notice 2007–38
SECTION 1. PURPOSE
This notice publishes the nonconven-
tional source fuel credit, inflation adjust-
ment factor, and reference price under
§ 45K of the Internal Revenue Code for
calendar year 2006. These are used to de-
termine the credit allowable under § 45K
for fuel produced from a nonconventional
source. The calendar year 2006 infla-
tion-adjusted credit applies to the sales of
barrel-of-oil equivalent of qualified fuels
sold by a taxpayer to an unrelated person
during the 2006 calendar year, the domes-
tic production of which is attributable to
the taxpayer.
SECTION 2. BACKGROUND
Section 45K(a) provides for a credit
for producing fuel from a nonconventional
source, measured in barrel-of-oil equiva-
lent of qualified fuels, the production of
which is attributable to the taxpayer and is
sold by the taxpayer to an unrelated per-
son during the tax year. The credit is equal
to the product of $3.00 and the appropriate
inflation adjustment factor.
Section 45K(b)(1) and (2) provides for
a phase-out of the credit. The credit al-
lowable under § 45K(a) must be reduced
by an amount which bears the same ratio
to the amount of the credit (determined
without regard to § 45K(b)(1)) as the
amount by which the reference price for
the calendar year in which the sale occurs
exceeds $23.50 bears to $6.00. The $3.00
in § 45K(a) and the $23.50 and $6.00 each
must be adjusted by multiplying these
amounts by the appropriate inflation ad-
justment factor.
Section 45K(c)(1), in part, defines the
term “qualified fuels” to include gas pro-
duced from biomass and liquid, gaseous,
or solid synthetic fuels produced from coal
(including lignite), including such fuels
when used as feedstocks.
Section 45K(d)(1) provides that the
credit applies only to sales of qualified
fuels the production of which is within
the United States (within the meaning of
§ 638(1)) or a possession of the United
States (within the meaning of § 638(2)).
Section 45K(d)(2)(A) requires that the
Secretary, not later than April 1 of each cal-
endar year, determine and publish in the
Federal Register the inflation adjustment
factor and the reference price for the pre-
ceding calendar year.
Section 45K(d)(2)(B) defines “inflation
adjustment factor” for a calendar year as
a fraction the numerator of which is the
GNP implicit price deflator for the calen-
dar year and the denominator of which is
the GNP implicit price deflator for calen-
dar year 1979. The term “GNP implicit
price deflator” means the first revision of
the implicit price deflator for the gross na-
tional product as computed and published
by the Department of Commerce.
Section 45K(d)(2)(C) defines “refer-
ence price” to mean with respect to a
calendar year the Secretary’s estimate of
the annual average wellhead price per bar-
rel for all domestic crude oil the price of
which is not subject to regulation by the
United States.
Section 45K(d)(5) provides that the
term “barrel-of-oil equivalent” with re-
spect to any fuel generally means that
amount of the fuel that has a Btu content
of 5.8 million.
Section 45K(g)(1) provides that in the
case of a facility for producing coke or
coke gas, which was placed in service
before January 1, 1993, or after June
30, 1998, and before January 1, 2010,
§ 45K(g) shall apply with respect to coke
and coke gas produced in such facility
and sold during the period beginning on
the later of January 1, 2006, or the date
that such facility is placed in service, and
ending on the date which is 4 years after
the date such period began.
Section 45K(g)(2)(B) provides that
in determining the amount of credit al-
lowable under § 45K solely by reason
of § 45K(g), § 45K(d)(2)(B) shall be ap-
plied by substituting “2004” for “1979.”
Accordingly, for purposes of § 45K(g),
the inflation adjustment factor for a cal-
endar year is a fraction the numerator of
which is the GNP implicit price deflator
for the calendar year and the denominator
of which is the GNP implicit price deflator
for calendar year 2004.
Section 45K(g)(2)(D) provides that the
phase-out of the credit under § 45K(b)(1)
does not apply in the case of facilities pro-
ducing coke or coke gas.
SECTION 3. REFERENCE PRICE
The reference price for calendar year
2006 is $59.68.
SECTION 4. INFLATION
ADJUSTMENT AND CREDIT
AMOUNT
.01Gas Produced from Biomass and
Liquid, Gaseous, or Solid Synthetic Fuel
Produced from Coal.
In the case of gas produced from
biomass and liquid, gaseous, or solid
synthetic fuel produced from coal, the
inflation adjustment factor for calendar
year 2006 is 2.3429. Because the calendar
year 2006 reference price exceeds $23.50
multiplied by the inflation adjustment
factor, the credit per barrel equivalent of
qualified fuel sold in calendar year 2006
is reduced by $2.31, which is the amount
that bears the same ratio to the amount of
the credit (determined without regard to
§ 45K(b)(1)) as the amount by which the
reference price for the calendar year 2006
exceeds $23.50 (adjusted for inflation)
bears to $6.00 (adjusted for inflation).
The phase-out amount is computed as
follows:
($3.00 x 2.3429) x [($59.68 – ($23.50 x
2.3429)) / ($6.00 x 2.3429)] = $2.31.
The nonconventional source fuel credit
under § 45K(a) is $4.72 per barrel-of-oil
equivalent of qualified fuels [($3.00 x
2.3429) - $2.31].
.02Facilities for Producing Coke or
Coke Gas. In case of facilities producing
coke or coke gas, the inflation adjustment
factor for calendar year 2006 is 1.0605.
The nonconventional source fuel credit is
$3.18 per barrel-of-oil equivalent ($3.00 x
1.0605).
SECTION 5. DRAFTING
INFORMATION CONTACT
The principal author of this notice is
Jaime C. Park of the Office of Associate
Chief Counsel (Passthroughs and Special
2007–18 I.R.B.1103April 30, 2007

Industries). For further information re-
garding this notice, contact Ms. Park at
(202) 622–3120 (not a toll-free call).
26 CFR 601.105: Examination of returns and claims
for refund, credit, or abatement; determination of
correct tax liability.
(Also: Part I, §§ 280F; 1.280F–7.)
Rev. Proc. 2007–30
SECTION 1. PURPOSE
01. This revenue procedure provides:
(1) limitations on depreciation deductions
for owners of passenger automobiles first
placed in service by the taxpayer during
calendar year 2007, including a sepa-
rate table of limitations on depreciation
deductions for trucks and vans; and (2)
the amounts to be included in income
by lessees of passenger automobiles first
leased by the taxpayer during calendar
year 2007, including a separate table of
inclusion amounts for lessees of trucks
and vans.
02. The tables detailing these depre-
ciation limitations and lessee inclusion
amounts reflect the automobile price infla-
tion adjustments required by § 280F(d)(7).
03. Section 280F(a)(1)(C), which
directed the use of higher depreciation
deduction limits for certain electric auto-
mobiles, was applicable only to property
placed in service after December 31, 2001
and before January 1, 2007. Accordingly,
separate tables are no longer provided for
electric automobiles, and taxpayers should
use the applicable table provided in this
revenue procedure.
SECTION 2. BACKGROUND
01. For owners of passenger automo-
biles, § 280F(a) imposes dollar limitations
on the depreciation deduction for the year
that the passenger automobile is placed in
service by the taxpayer and each succeed-
ing year. Section 280F(d)(7) requires the
amounts allowable as depreciation deduc-
tions to be increased by a price inflation
adjustment amount for passenger automo-
biles placed in service after 1988. The
method of calculating this price inflation
amount for trucks and vans placed in ser-
vice in or after calendar year 2003 uses
a different CPI “automobile component”
(the “new trucks” component) than that
used in the price inflation amount calcu-
lation for other passenger automobiles (the
“new cars” component), resulting in some-
what higher depreciation deductions for
trucks and vans. This change reflects the
higher rate of price inflation that trucks
and vans have been subject to since 1988.
For purposes of this revenue procedure, the
term “trucks and vans” refers to passen-
ger automobiles that are built on a truck
chassis, including minivans and sport util-
ity vehicles (SUVs) that are built on a truck
chassis.
02. For leased passenger automobiles,
§ 280F(c) requires a reduction in the de-
duction allowed to the lessee of the pas-
senger automobile. The reduction must be
substantially equivalent to the limitations
on the depreciation deductions imposed on
owners of passenger automobiles. Under
§ 1.280F–7(a), this reduction requires the
lessees to include in gross income an in-
clusionamountdeterminedbyapplyinga
formula to the amount obtained from a ta-
ble. There is a table for lessees of trucks
and vans and a table for all other passenger
automobiles. Each table shows inclusion
amounts for a range of fair market values
for each tax year after the passenger auto-
mobile is first leased.
SECTION 3. SCOPE
01. The limitations on depreciation de-
ductions in section 4.02(2) of this revenue
procedure apply to passenger automobiles
(other than leased passenger automobiles)
that are placed in service by the taxpayer in
calendar year 2007, and continue to apply
for each tax year that the passenger auto-
mobile remains in service.
02. The tables in section 4.03 of this
revenue procedure apply to leased pas-
senger automobiles for which the lease
term begins during calendar year 2007.
Lessees of such passenger automobiles
must use these tables to determine the
inclusion amount for each tax year dur-
ing which the passenger automobile is
leased. See Rev. Proc. 2002–14, 2002–1
C.B. 450, for passenger automobiles first
leased before January 1, 2003, Rev. Proc.
2003–75, 2003–2 C.B. 1018, for passenger
automobiles first leased during calendar
year 2003, Rev. Proc. 2004–20, 2004–1
C.B. 642, for passenger automobiles first
leased during calendar year 2004, Rev.
Proc. 2005–13, 2005–1 C.B. 759, for
passenger automobiles first leased dur-
ing calendar year 2005, and Rev. Proc.
2006–18, 2006–1 C.B. 645, for passenger
automobiles first leased during calendar
year 2006.
SECTION 4. APPLICATION
01. In General.
(1) Limitations on Depreciation Deduc-
tions for Certain Automobiles. The limita-
tions on depreciation deductions for pas-
senger automobiles placed in service by
the taxpayer for the first time during calen-
dar year 2007 are found in Tables 1 and 2 in
section 4.02(2) of this revenue procedure.
Table 1 of this revenue procedure provides
limitations on depreciation deductions for
a passenger automobile (other than a truck
or van). Table 2 of this revenue proce-
dure provides limitations on depreciation
deductions for a truck or van.
(2) Inclusions in Income of Lessees of
Passenger Automobiles. A taxpayer first
leasing a passenger automobile during cal-
endar year 2007 must determine the in-
clusion amount that is added to gross in-
come using the tables in section 4.03 of this
revenue procedure. The inclusion amount
is determined using Table 3 in the case
of a passenger automobile (other than a
truck or van), and Table 4 in the case of
a truck or van. In addition, the procedures
of § 1.280F–7(a) must be followed.
02. Limitations on Depreciation De-
ductions for Certain Automobiles.
(1) Amount of the Inflation Adjust-
ment. Under § 280F(d)(7)(B)(i), the
automobile price inflation adjustment
for any calendar year is the percentage
(if any) by which the CPI automobile
component for October of the preceding
calendar year exceeds the CPI automobile
component for October 1987. The term
“CPI automobile component” is defined
in § 280F(d)(7)(B)(ii) as the “automobile
component” of the Consumer Price Index
for all Urban Consumers published by the
Department of Labor (the CPI). The new
car component of the CPI was 115.2 for
October 1987 and 136.3 for October 2006.
The October 2006 index exceeded the Oc-
tober 1987 index by 21.1. The Service has,
therefore, determined that the automobile
price inflation adjustment for 2007 for
passenger automobiles (other than trucks
and vans) is 18.32 percent (21.1/115.2 x
April 30, 200711042007–18 I.R.B.

100%). This adjustment is applicable to all
passenger automobiles (other than trucks
and vans) that are first placed in service in
calendar year 2007. The dollar limitations
in § 280F(a) must therefore be multiplied
by a factor of 0.1832, and the resulting
increases, after rounding to the nearest
$100, are added to the 1988 limitations
to give the depreciation limitations ap-
plicable to passenger automobiles (other
than trucks and vans) for calendar year
2007. To determine the dollar limitations
applicable to trucks and vans first placed
in service during calendar year 2007, the
new truck component of the CPI is used
instead of the new car component. The
new truck component of the CPI was 112.4
for October 1987 and 141.4 for October
2006. The October2006 index exceeded
the October 1987 index by 29.0. The Ser-
vice has, therefore, determined that the
automobile price inflation adjustment for
2007 for trucks and vans is 25.80 percent
(29.0/112.4 x 100%). This adjustment is
applicable to all trucks and vans that are
first placed in service in calendar year
2007. The dollar limitations in § 280F(a)
must therefore be multiplied by a factor of
0.2580, and the resulting increases, after
rounding to the nearest $100, are added to
the 1988 limitations to give the depreci-
ation limitations applicable to trucks and
vans.
(2) Amount of the Limitation. For pas-
senger automobiles placed in service by
the taxpayer in calendar year 2007, Tables
1 and 2 contain the dollar amount of the de-
preciation limitation for each tax year. Use
Table 1 for passenger automobiles placed
in service by the taxpayer in calendar year
2007. Use Table 2 for trucks and vans
placed in service by the taxpayer in calen-
dar year 2007.
REV. PROC. 2007–30 TABLE 1
DEPRECIATION LIMITATIONS FOR PASSENGER AUTOMOBILES
PLACED IN SERVICE BY THE TAXPAYER DURING CALENDAR YEAR 2007
Tax YearAmount
1st Tax Year
$3,060
2nd Tax Year
$4,900
3rd Tax Year
$2,850
Each Succeeding Year
$1,775
REV. PROC. 2007–30 TABLE 2
DEPRECIATION LIMITATIONS FOR TRUCKS AND VANS
PLACED IN SERVICE BY THE TAXPAYER DURING CALENDAR YEAR 2007
Tax YearAmount
1st Tax Year
$3,260
2nd Tax Year
$5,200
3rd Tax Year
$3,050
Each Succeeding Year
$1,875
03. Inclusions in Income of Lessees of
Passenger Automobiles.
The inclusion amounts for passenger
automobiles first leased in calendar year
2007 are calculated under the procedures
described in § 1.280F–7(a). Lessees of
passenger automobiles other than trucks
and vans should use Table 3 of this revenue
procedure in applying these procedures,
while lessees of trucks and vans should use
Table 4 of this revenue procedure.
2007–18 I.R.B.1105April 30, 2007

REV. PROC. 2007–30 TABLE 3
DOLLAR AMOUNTS FOR PASSENGER AUTOMOBILES
(THATARENOTTRUCKSORVANS)
WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2007
Fair Market Value of Passenger
AutomobileTax Year During Lease
OverNot Over1st2nd3rd4th5th & later
$15,500$15,800
25111113
15,80016,100410171922
16,10016,400614242831
16,40016,700918313541
16,70017,0001123374350
17,00017,5001329465462
17,50018,0001737566877
18,00018,5002044688193
18,50019,00024518094108
19,00019,500275990108124
19,50020,0003067101121139
20,00020,5003474113134154
20,50021,0003782123148170
21,00021,5004189135161185
21,50022,0004497146174201
22,00023,00049108163194224
23,00024,00056123185221255
24,00025,00063138207248285
25,00026,00070153229275316
26,00027,00077168251302347
27,00028,00083183274328378
28,00029,00090198296355409
29,00030,00097213318382439
30,00031,000104228341408470
31,00032,000111243363435501
32,00033,000118258385461532
33,00034,000125273407488563
34,00035,000131288430515593
35,00036,000138303452542624
36,00037,000145318474568656
37,00038,000152333496595686
38,00039,000159348519621717
39,00040,000166363541648748
40,00041,000172378564674779
41,00042,000179393586701810
42,00043,000186408608728840
43,00044,000193423630755871
44,00045,000200438652782902
45,00046,000207453674809933
46,00047,000213468697835964
47,00048,000220483719862995
48,00049,0002274987428881,025
49,00050,0002345137649151,056
50,00051,0002415287869421,087
51,00052,0002485438089691,117
52,00053,0002545588319951,148
53,00054,0002615738531,0221,179
54,00055,0002685888751,0491,210
55,00056,0002756038971,0761,241
56,00057,0002826189201,1021,271
57,00058,0002896339421,1281,303
58,00059,0002966489641,1551,334
59,00060,0003026639871,1821,364
April 30, 200711062007–18 I.R.B.

REV. PROC. 2007–30 TABLE 3
DOLLAR AMOUNTS FOR PASSENGER AUTOMOBILES
(THATARENOTTRUCKSORVANS)
WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2007
Fair Market Value of Passenger
AutomobileTax Year During Lease
OverNot Over1st2nd3rd4th5th & later
60,00062,0003136851,0201,2221,411
62,00064,0003267161,0641,2761,472
64,00066,0003407461,1081,3291,534
66,00068,0003547751,1541,3821,595
68,00070,0003678061,1981,4351,657
70,00072,0003818361,2421,4891,719
72,00074,0003958651,2871,5431,780
74,00076,0004088961,3311,5961,842
76,00078,0004229261,3761,6491,903
78,00080,0004369551,4211,7031,965
80,00085,0004601,0081,4981,7962,074
85,00090,0004941,0831,6101,9292,228
90,00095,0005281,1581,7212,0632,382
95,000100,0005621,2331,8332,1962,536
100,000110,0006141,3461,9992,3962,767
110,000120,0006821,4962,2222,6633,075
120,000130,0007501,6462,4442,9313,383
130,000140,0008191,7962,6673,1973,692
140,000150,0008871,9462,8903,4644,000
150,000160,0009562,0963,1123,7314,308
160,000170,0001,0242,2463,3353,9984,616
170,000180,0001,0932,3963,5574,2664,924
180,000190,0001,1612,5463,7804,5325,233
190,000200,0001,2292,6964,0034,7995,541
200,000210,0001,2982,8464,2255,0675,848
210,000220,0001,3662,9964,4485,3336,157
220,000230,0001,4353,1464,6715,6006,465
230,000240,0001,5033,2964,8935,8676,774
240,000and up1,5713,4465,1166,1347,082
REV. PROC. 2007–30 TABLE 4
DOLLAR AMOUNTS FOR TRUCKS AND VANS
WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2007
Fair Market Value of Truck or VanTax Year During Lease
OverNot Over1st2nd3rd4th5th and later
$16,400$16,700
2481011
16,70017,00049151721
17,00017,500615242833
17,50018,0001022354248
18,00018,5001330465564
18,50019,0001737576979
19,00019,5002045688294
19,50020,00024528095109
20,00020,500276090109125
20,50021,0003067102122141
21,00021,5003475113135156
21,50022,0003782124149171
22,00023,0004294140169194
23,00024,00049109163195225
24,00025,00056123186222256
2007–18 I.R.B.1107April 30, 2007

REV. PROC. 2007–30 TABLE 4
DOLLAR AMOUNTS FOR TRUCKS AND VANS
WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2007
Fair Market Value of Truck or VanTax Year During Lease
OverNot Over1st2nd3rd4th5th and later
25,00026,00063138208249286
26,00027,00070153230276317
27,00028,00077168252302349
28,00029,00083184274329379
29,00030,00090199296356410
30,00031,00097214318383440
31,00032,000104228342408472
32,00033,000111243364435503
33,00034,000118258386462534
34,00035,000125273408489564
35,00036,000131289430515595
36,00037,000138304452542626
37,00038,000145318475569657
38,00039,000152333497596688
39,00040,000159348520622718
40,00041,000166363542649749
41,00042,000172379563676780
42,00043,000179394586702811
43,00044,000186409608729842
44,00045,000193423631756872
45,00046,000200438653783903
46,00047,000207453675810934
47,00048,000213469697836965
48,00049,000220484719863996
49,00050,0002274997418901,026
50,00051,0002345147649161,057
51,00052,0002415287879431,088
52,00053,0002485438099691,119
53,00054,0002545598319961,150
54,00055,0002615748531,0231,180
55,00056,0002685898751,0501,211
56,00057,0002756048971,0761,243
57,00058,0002826189201,1031,273
58,00059,0002896339431,1291,304
59,00060,0002966489651,1561,335
60,00062,0003066719981,1961,381
62,00064,0003197011,0431,2491,443
64,00066,0003337311,0871,3031,504
66,00068,0003477611,1311,3571,566
68,00070,0003617911,1761,4101,627
70,00072,0003748211,2211,4631,689
72,00074,0003888511,2651,5171,751
74,00076,0004028811,3091,5701,813
76,00078,0004159111,3541,6241,874
78,00080,0004299411,3991,6761,936
80,00085,0004539941,4761,7702,044
85,00090,0004871,0691,5871,9042,198
90,00095,0005211,1441,6992,0372,352
95,000100,0005551,2191,8102,1712,506
100,000110,0006071,3311,9772,3712,737
110,000120,0006751,4812,2002,6383,045
120,000130,0007441,6312,4232,9043,354
130,000140,0008121,7812,6463,1713,662
140,000150,0008801,9322,8673,4393,970
150,000160,0009492,0813,0913,7054,279
160,000170,0001,0172,2323,3133,9724,586
April 30, 200711082007–18 I.R.B.

REV. PROC. 2007–30 TABLE 4
DOLLAR AMOUNTS FOR TRUCKS AND VANS
WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 2007
Fair Market Value of Truck or VanTax Year During Lease
OverNot Over1st2nd3rd4th5th and later
170,000180,0001,0862,3813,5364,2394,895
180,000190,0001,1542,5323,7584,5065,203
190,000200,0001,2222,6823,9814,7735,511
200,000210,0001,2912,8314,2045,0405,820
210,000220,0001,3592,9824,4265,3076,128
220,000230,0001,4283,1314,6495,5756,435
230,000240,0001,4963,2824,8715,8416,744
240,000and up1,5653,4315,0956,1087,052
SECTION 5. EFFECTIVE DATE
This revenue procedure applies to pas-
senger automobiles (other than leased pas-
senger automobiles) that are first placed
in service by the taxpayer during calendar
year 2007, and to leased passenger auto-
mobiles that are first leased by the taxpayer
during calendar year 2007.
SECTION 6. DRAFTING
INFORMATION
The principal author of this rev-
enue procedure is Bernard P. Harvey
of the Office of Associate Chief Counsel
(Passthroughs & Special Industries). For
further information regarding the depre-
ciation limitations and lessee inclusion
amounts in this revenue procedure, con-
tact Bernard P. Harvey at (202) 622–3110
(not a toll-free call).
2007–18 I.R.B.1109April 30, 2007

Part IV. Items of General Interest
Notice of Proposed
Rulemaking by
Cross-Reference to
Temporary Regulations
Anti-Avoidance and Anti-Loss
Reimportation Rules
Applicable Following a Loss
on Disposition of Stock of
Consolidated Subsidiaries
REG–156420–06
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
by cross-reference to temporary regula-
tions.
SUMMARY: In this issue of the Bulletin,
the IRS is issuing temporary regulations
(T.D. 9322) under section 1502 of the In-
ternalRevenueCode(Code). Thetempo-
rary regulations provide guidance to cor-
porations filing consolidated returns. The
temporary regulations apply an anti-avoid-
ance rule and revise an anti-loss reimpor-
tation rule that applies after a disposition
of stock of a subsidiary at a loss. The text
of those regulations also serves as the text
of these proposed regulations.
DATES: Written or electronic comments
or a request for a public hearing must be
received by July 9, 2007.
ADDRESSES: Send submissions to
CC:PA:LPD:PR(REG–156420–06),
room 5203, Internal Revenue Ser-
vice, PO Box 7604, Ben Franklin Sta-
tion, Washington, DC 20044. Submis-
sions may be hand-delivered Monday
through Friday between the hours of
8 a.m. and 4 p.m. to CC:PA:LPD:PR
(REG–156420–06), Courier’s Desk, In-
ternal Revenue Service, 1111 Constitu-
tion Avenue, NW, Washington, DC, or
sent electronically via the Federal eRule-
making Portal atwww.regulations.gov
(IRS–REG–156420–06).
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed reg-
ulations, Theresa Abell (202) 622–7700
or Phoebe Bennett (202) 622–7770; con-
cerning submission of comments and
request for public hearing, Richard Hurst
atRichard.A.Hurst@irscounsel.treas.gov
or (202) 622–7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
Temporary regulations in this issue of
the Bulletin amend the Income Tax Reg-
ulations (26 CFR part 1) relating to sec-
tion 1502. The temporary regulations pro-
vide guidance to corporations filing con-
solidated returns. The temporary regula-
tions apply an anti-avoidance rule and re-
vise an anti-loss reimportation rule that ap-
plies following a disposition of stock of
a subsidiary at a loss. The text of those
regulations also serves as the text of these
proposed regulations. The preamble to the
temporary regulationsexplains the amend-
ments.
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 is hereby cer-
tified that these regulations will not have
a significant economic impact on a sub-
stantial number of small entities. This cer-
tification is based on the fact that these
regulations primarily will affect affiliated
groups of corporations that have elected
to file consolidated returns, which tend to
be larger entities. Therefore, a Regulatory
Flexibility Analysis under the Regulatory
Flexibility Act (5 U.S.C. chapter 6) is not
required. Pursuant to section 7805(f) of
the Code, this notice of proposed rulemak-
ing will be 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 Pu
blic
Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any written (a signed
original and eight (8) copies) or electronic
comments that are submitted timely to
the IRS. The IRS and Treasury Depart-
ment 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 inspection and
copying. A public hearing will be sched-
uled if requested in writing by any person
that timely submits written comments. If a
public hearing is scheduled, notice of the
date, time, and place for the public hearing
will be published in theFederal Register.
Drafting Information
The principal author of these regula-
tions is Phoebe Bennett, Office of the As-
sociate Chief Counsel (Corporate). How-
ever, other personnel from the IRS and
Treasury Department participated in their
development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry in
numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.1502–32 is amended
by revising paragraph (b)(3)(iii)(D) and
adding paragraph (k) to read as follows:
§1.1502–32 Investment adjustments.
*****
(b) * * *
(3) * * *
(iii) * * *
(D) [The text of the proposed
amendment to §1.1502–32(b)(3)(iii)(D)
is the same as the text of
§1.1502–32T(b)(3)(iii)(D)published
elsewhere in this issue of the Bulletin].
*****
(k) [The text of the proposed amend-
ment to §1.1502–32(k) is the same as the
text of §1.1502–32T(k) published else-
whereinthisissueoftheBulletin].
Par. 3. Section 1.1502–35 is amended
by:
April 30, 200711102007–18 I.R.B.

1. Revising paragraphs (g)(3) and (h).
2. Adding new paragraph (g)(6).
3. Paragraph (j) is revised.
The revisions and additions read as fol-
lows:
§1.1502–35 Transfers of subsidiary stock
and deconsolidations of subsidiaries.
*****
(g) * * *
(3) [The text of the proposed amend-
ment to §1.1502–35(g)(3) is the same as
the text of §1.1502–35T(g)(3) published
elsewhere in this issue of the Bulletin].
*****
(6) [The text of the proposed amend-
ment to §1.1502–35(g)(6) is the same as
the text of §1.1502–35T(g)(6) published
elsewhere in this issue of the Bulletin].
(h) [The text of the proposed amend-
ment to §1.1502–35(h) is the same as the
text of §1.1502–35T(h) published else-
where in this issue of the Bulletin].
*****
(j) [The text of the proposed amend-
ment to §1.1502–35(j) is the same as the
text of §1.1502–35T(j) published else-
where in this issue of the Bulletin].
*****
Linda M. Kroening,
Acting Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on April 9, 2007,
8:45 a.m., and published in the issue of the Federal Register
for April 10, 2007, 72 F.R. 17814)
Announcement of Disciplinary Actions Involving
Attorneys, Certified Public Accountants, Enrolled Agents,
and Enrolled Actuaries — Suspensions, Censures,
Disbarments, and Resignations
Announcement 2007-41
Under Title 31, Code of Federal Regu-
lations, Part 10, attorneys, certified public
accountants, enrolled agents, and enrolled
actuaries may not accept assistance from,
or assist, any person who is under disbar-
ment or suspension from practice before
the Internal Revenue Service if the assis-
tance relates to a matter constituting prac-
tice before the Internal Revenue Service
and may not knowingly aid or abet another
person to practice before the Internal Rev-
enue Service during a period of suspen-
sion, disbarment, or ineligibility of such
other person.
To enable attorneys, certified public
accountants, enrolled agents, and enrolled
actuaries to identify persons to whom
these restrictions apply, the Director, Of-
fice of Professional Responsibility, will
announce in the Internal Revenue Bulletin
their names, their city and state, their pro-
fessional designation, the effective date
of disciplinary action, and the period of
suspension. This announcement will ap-
pear in the weekly Bulletin at the earliest
practicable date after such action and will
continue to appear in the weekly Bulletins
for five successive weeks.
Consent Suspensions From Practice Before the Internal
Revenue Service
Under Title 31, Code of Federal Regu-
lations, Part 10, an attorney, certified pub-
lic accountant, enrolled agent, or enrolled
actuary, in order to avoid the institution
or conclusion of a proceeding for his or
her disbarment or suspension from prac-
tice before the Internal Revenue Service,
may offer his or her consent to suspension
from such practice. The Director, Office
of Professional Responsibility, in his dis-
cretion, may suspend an attorney, certified
public accountant, enrolled agent, or en-
rolled actuary in accordance with the con-
sent offered.
The following individuals have been
placed under consent suspension from
practice before the Internal Revenue Ser-
vice:
NameAddressDesignationDate of Suspension
Hankinson, Eugene M.Somerset, PACPAIndefinite
from
November 15, 2006
Canzano, Richard M.Winchester, MAAttorneyIndefinite
from
November 20, 2006
2007–18 I.R.B.1111April 30, 2007

NameAddressDesignationDate of Suspension
Sims, Jr., LionelHouston, TXCPAIndefinite
from
November 20, 2006
Wendekier, Raymond J.Patton, PAAttorneyIndefinite
from
November 21, 2006
Golden, LarryHinesville, GACPAIndefinite
from
November 28, 2006
Lane, David B.Hanover, MAAttorneyIndefinite
from
November 28, 2006
Brown, Arthur I.Miami, FLCPAIndefinite
from
December 1, 2006
Frisk, Daniel J.Fargo, NDAttorneyIndefinite
from
December 1, 2006
Small, Kenneth A.McMurray, PACPAIndefinite
from
December 1, 2006
Vazquez, Sonya M.Port Orchard, WACPAIndefinite
from
December 1, 2006
Swistak, AnthonyAdams, MAEnrolled AgentIndefinite
from
December 6, 2006
Lenahan, Jr., Robert J.Elizabeth, NJAttorneyIndefinite
from
December 11, 2006
Hayes, Richard A.Havervill, MAAttorneyIndefinite
from
December 14, 2006
Scheller, Stephen M.Coppell, TXCPAIndefinite
from
December 15, 2006
Wilson, James M.Berlin, NJCPAIndefinite
from
December 15, 2006
Franzese, Joseph P.Winthrop, MAAttorneyIndefinite
from
December 18, 2006
Black, Charles C.Marietta, GAAttorneyIndefinite
from
January 1, 2007
April 30, 200711122007–18 I.R.B.

NameAddressDesignationDate of Suspension
Enright, III, Robert A.Naples, FLAttorneyIndefinite
from
January 1, 2007
Fromovitz, Norman M.Brooklyn, NYCPAIndefinite
from
January 1, 2007
Saylor, Mary A.Iowa City, IAEnrolled AgentIndefinite
from
January 1, 2007
Seeherman, AlanWynnewood, PACPAIndefinite
from
January 1, 2007
Beistel, Theodore L.Canton, OHCPAIndefinite
from
January 3, 2007
Myers, Robert J.Fairport Harbor, OHCPAIndefinite
from
January 9, 2007
Burrus, Robert V.Valparaiso, INCPAIndefinite
from
January 22, 2007
Patterson, Douglas W.Newburgh, INAttorneyIndefinite
from
January 31, 2007
Lang, Jeffrey H.Fishers, INCPAIndefinite
from
January 22, 2007
Chickering, DavidVermillion, SDCPAFebruary 5, 2007
to
November 4, 2007
Moss, Steve E.Henderson, NCCPAIndefinite
from
February 5, 2007
Hazlip, KevinOrange Park, FLEnrolled AgentIndefinite
from
February 10, 2007
Adelson, Robert A.Newton, MAAttorneyIndefinite
from
February 15, 2007
Boyer, Daniel D.North Judson, INCPAIndefinite
from
February 15, 2007
LaRusso, Anthony J.North Caldwell, NJAttorneyIndefinite
from
February 15, 2007
Martin, Spencer R.Lancaster, PACPAIndefinite
from
February 15, 2007
2007–18 I.R.B.1113April 30, 2007

NameAddressDesignationDate of Suspension
Hursh, Stephanie S.Brush Prairie, WAEnrolled AgentIndefinite
from
February 20, 2007
Guidera, George C.Weston, CTAttorneyIndefinite
from
February 26, 2007
Ruth, Christopher A.Cypress, CACPAIndefinite
from
February 27, 2007
Elias, Lenard S.El Cajon, CAEnrolled AgentIndefinite
from
March 1, 2007
Ikeji, ChuckOrlando, FLCPAIndefinite
from
March 1, 2007
Lewis, Craig S.Savannah, GACPAIndefinite
from
March 1, 2007
Sloan, Eric R.Brighton, MICPAIndefinite
from
March 1, 2007
Gostomski, MichaelStamford, CTCPAIndefinite
from
March 5, 2007
Hafer, Charles J.Hamburg, PAEnrolled AgentIndefinite
from
March 5, 2007
Jones, Phillip G.Andalusia, ALEnrolled AgentIndefinite
from
March 7, 2007
Agashiwala, Mahesh J.New York, NYCPAIndefinite
from
March 22, 2007
Berndgen, MichaelPlantation, FLCPAIndefinite
from
April 1, 2007
Grahn, Charles R.Indianapolis, INAttorneyIndefinite
from
April 1, 2007
Shaw, G. JoyceHebron, KYEnrolled AgentIndefinite
from
April 1, 2007
Pikaart, Jr., Edward H.N. Branford, CTCPAIndefinite
from
April 10, 2007
Kelley, Richard S.Beverly, MAAttorneyIndefinite
from
May 1, 2007
April 30, 200711142007–18 I.R.B.

NameAddressDesignationDate of Suspension
Crabtree, Michael L.San Dimas, CAEnrolled AgentIndefinite
from
May 15, 2007
Hausmann, Mark D.Troy, NYAttorneyIndefinite
from
May 15, 2007
Expedited Suspensions From Practice Before the Internal
Revenue Service
Under Title 31, Code of Federal Regu-
lations, Part 10, the Director, Office of Pro-
fessional Responsibility, is authorized to
immediately suspend from practice before
the Internal RevenueService any practi-
tioner who, within five years from the date
the expedited proceeding is instituted (1)
has had a license to practice as an attor-
ney, certified public accountant, or actuary
suspended or revoked for cause or (2) has
been convicted of certain crimes.
The following individuals have been
placed under suspension from practice be-
fore the Internal Revenue Service by virtue
of the expedited proceeding provisions:
NameAddressDesignationDate of Suspension
Hatchett, William M.Pontiac, MIAttorneyIndefinite
from
November 13, 2006
Jacobs, Mark L.Jackson Heights, NYAttorneyIndefinite
from
November 21, 2006
Sylver, Peter T.E. Longmeadow, MAAttorneyIndefinite
from
November 21, 2006
Portlock, David R.Pensacola, FLEnrolled AgentIndefinite
from
November 27, 2006
Ascher, Michael P.North Port, FLAttorneyIndefinite
from
November 28, 2006
Barrett, Norman W.Dover, DECPAIndefinite
from
November 28, 2006
Burd, GeneHouston, TXAttorneyIndefinite
from
November 28, 2006
Caceres, Carlos H.Silver Spring, MDAttorneyIndefinite
from
November 28, 2006
Carrabotta, Peter S.Niles, ILAttorneyIndefinite
from
November 28, 2006
2007–18 I.R.B.1115April 30, 2007

NameAddressDesignationDate of Suspension
Davis, Carleton W.St. Louis, MOAttorneyIndefinite
from
November 28, 2006
Frasier, Roland B.Rancho Santa Fe, CAAttorneyIndefinite
from
November 28, 2006
Hubbard, EdwardChicago, ILAttorneyIndefinite
from
November 28, 2006
Hynes, Richard W.Brookline, MAAttorneyIndefinite
from
November 28, 2006
Johnson, Barbara C.Andover, MAAttorneyIndefinite
from
November 28, 2006
Konas, Theodore V.Lancaster, PACPAIndefinite
from
November 28, 2006
Korson, Daniel M.Muskegon, MICPAIndefinite
from
November 28, 2006
Lee, III, Norman J.Collegeville, PAAttorneyIndefinite
from
November 28, 2006
Loiben, Alan A.Skokie, ILAttorneyIndefinite
from
November 28, 2006
McGarry, Thomas H.Denver, COAttorneyIndefinite
from
November 28, 2006
Roberts, Quinton D.Elkridge, MDAttorneyIndefinite
from
November 28, 2006
Schofield, Peter L.Spencer, MAAttorneyIndefinite
from
November 28, 2006
Shultz, Ryan K.Mitchell, NEAttorneyIndefinite
from
November 28, 2006
Stenger, Jeanne P.Temecula, CAAttorneyIndefinite
from
November 28, 2006
Wood, Gary K.Edina, MNAttorneyIndefinite
from
November 28, 2006
April 30, 200711162007–18 I.R.B.

NameAddressDesignationDate of Suspension
Bakare, Adigun S.Laurel, MDAttorneyIndefinite
from
December 6, 2006
Biagini, Marc J.Downers Grove, ILAttorneyIndefinite
from
December 6, 2006
Birchall, Richard G.Brewster, MAAttorneyIndefinite
from
December 6, 2006
Brown, Edward E.Indianapolis, INAttorneyIndefinite
from
December 6, 2006
Cunningham, Jr., Shirley A. Ft. Lauderdale, FLAttorneyIndefinite
from
December 6, 2006
Docherty, Scott R.Branson West, MOAttorneyIndefinite
from
December 6, 2006
Dressler, Peter P.West Chicago, ILAttorneyIndefinite
from
December 6, 2006
Henry, William J.Irvington, NJAttorneyIndefinite
from
December 6, 2006
Hubbard, Cynthia A.Geneva, ILAttorneyIndefinite
from
December 6, 2006
Jackson, Jr., Donald H.Hanover, MAAttorneyIndefinite
from
December 6, 2006
Katz, Norman H.Owings Mills, MDAttorneyIndefinite
from
December 6, 2006
Lakin, Leonard S.Wellesley Hills, MAAttorneyIndefinite
from
December 6, 2006
McGreevy, Jacqueline K.Carbondale, COAttorneyIndefinite
from
December 6, 2006
Zepp, Dale D.Ferguson, MOAttorneyIndefinite
from
December 6, 2006
Triplett, Austin H.Homewood, ILAttorneyIndefinite
from
December 11, 2006
Murphy, Patrick W.Honolulu, HIAttorneyIndefinite
from
December 11, 2006
2007–18 I.R.B.1117April 30, 2007

NameAddressDesignationDate of Suspension
Cronin, Jr., Edward M.Cambridge, MAAttorneyIndefinite
from
December 11, 2006
Christof, Kevin F.Santa Monica, CAAttorneyIndefinite
from
December 21, 2006
Heath, Kenneth J.Canaan, VTCPAIndefinite
from
December 21, 2006
Madigan, Brian C.Binghamton, NYAttorneyIndefinite
from
December 21, 2006
Malloy, Terry P.Tulsa, OKAttorneyIndefinite
from
December 21, 2006
Baynes, Robert M.Indianapolis, INCPAIndefinite
from
December 27, 2006
Ceresa, Richard A.Woodbridge, CACPAIndefinite
from
December 27, 2006
Crews, Richard A.Henderson, COAttorneyIndefinite
from
December 27, 2006
Menkveld, Paul G.Tucson, AZAttorneyIndefinite
from
December 27, 2006
Worischeck, Joseph H.Tempe, AZAttorneyIndefinite
from
December 27, 2006
Brown, Kirk P.Pueblo, COAttorneyIndefinite
from
December 28, 2006
Dowling, Stanley W.Scotts Valley, CACPAIndefinite
from
December 28, 2006
Simmons, Henry L.Greensboro, NCCPAIndefinite
from
December 28, 2006
Steele, Regina D.San Diego, CAAttorneyIndefinite
from
December 29, 2006
Craig, III, William A.Austin, TXAttorneyIndefinite
from
January 1, 2007
Acker, Thomas R.Hollis Center, MEAttorneyIndefinite
from
January 8, 2007
April 30, 200711182007–18 I.R.B.

NameAddressDesignationDate of Suspension
Baxter, Laura M.Monee, ILCPAIndefinite
from
January 8, 2007
Herald, Sally J.Cold Spring, KYAttorneyIndefinite
from
January 8, 2007
Klapheke, II, William T.Bowling Green, KYAttorneyIndefinite
from
January 8, 2007
McCarthy, Charles C.Encino, CAAttorneyIndefinite
from
January 8, 2007
Bolling, Darius C.Chicago, ILCPAIndefinite
from
January 10, 2007
Breitlauch, LindaSaylorsburg, PAAttorneyIndefinite
from
January 10, 2007
Coddington, Paul F.Concord, NHAttorneyIndefinite
from
January 10, 2007
Davis, Jr., William E.Pinehurst, TXCPAIndefinite
from
January 10, 2007
Esola, Louis A.Greensburg, PACPAIndefinite
from
January 10, 2007
Finch, Judith A.Walnut Creek, CAAttorneyIndefinite
from
January 10, 2007
Jeing, Thomas C.San Francisco, CAAttorneyIndefinite
from
January 10, 2007
Ledbetter, Dean D.Pelham, ALCPAIndefinite
from
January 10, 2007
McDiarmid, Katherine B.Greensboro, NCAttorneyIndefinite
from
January 10, 2007
Mills, George P.Oceanside, CAAttorneyIndefinite
from
January 10, 2007
Rather, James L.Irvine, CAAttorneyIndefinite
from
January 10, 2007
Rivera, Eduardo M.Torrance, CAAttorneyIndefinite
from
January 10, 2007
2007–18 I.R.B.1119April 30, 2007

NameAddressDesignationDate of Suspension
Stepovich, Michael A.Fairbanks, AKAttorneyIndefinite
from
January 10, 2007
Ulbrich, David L.Woodland Hills, CACPAIndefinite
from
January 10, 2007
Swanson, Todd-EllisGreenville, SCCPAIndefinite
from
January 20, 2007
Rubin, Deborah L.Delray Beach, FLAttorneyIndefinite
from
January 26, 2007
Wood, Brent E.Cary, NCAttorneyIndefinite
from
January 26, 2007
Currin, Samuel T.Raleigh, NCAttorneyIndefinite
from
February 7, 2007
Lupo, Robert N.Weston, MAAttorneyIndefinite
from
February 20, 2007
Taggart, Lawrence W.El Cajon, CAAttorneyIndefinite
from
March 7, 2007
Fife, III, James H.Schererville, INAttorneyIndefinite
from
March 8, 2007
Katsis, Kevin G.Riverside, ILAttorneyIndefinite
from
March 8, 2007
O’Driscoll, Dennis M.Quincy, MAAttorneyIndefinite
from
March 8, 2007
Siever, Beth F.Austin,TXAttorneyIndefinite
from
March 8, 2007
Wheatley-Clark, Sheila R.Houston, TXCPAIndefinite
from
March 8, 2007
April 30, 200711202007–18 I.R.B.

Suspensions From Practice Before the Internal Revenue
Service After Notice and an Opportunity for a Proceeding
Under Title 31, Code of Federal Reg-
ulations, Part 10, after notice and an op-
portunity for a proceeding before an ad-
ministrative law judge, the following indi-
viduals have been placed under suspension
from practice before the Internal Revenue
Service:
NameAddressDesignationEffective Date
Redmond, DebraGifford, PAEnrolled AgentIndefinite
from
March 5, 2007
Disbarments From Practice Before the Internal Revenue
Service After Notice and an Opportunity for a Proceeding
Under Title 31, Code of Federal Regu-
lations, Part 10, after notice and an oppor-
tunity for a proceeding before an adminis-
trative law judge, the following individu-
als have been disbarred from practice be-
fore the Internal Revenue Service:
NameAddressDesignationEffective Date
Brookstein, GaryHuntingdonValley, PACPADecember 15, 2006
James T. JubbBaltimore, MDCPADecember 15, 2006
Censure Issued by Consent
Under Title 31, Code of Federal Reg-
ulations, Part 10, in lieu of a proceeding
being instituted or continued, an attorney,
certified public accountant, enrolled agent,
or enrolled actuary, may offer his or her
consent to the issuance of a censure. Cen-
sure is a public reprimand.
The following individuals have con-
sented to the issuance of a Censure:
NameAddressDesignationDate of Censure
Zucker, Robert W.Boca Raton, FLCPANovember 14, 2006
Montgomery, David E.Pleasanton, CAEnrolled AgentNovember 15, 2006
Higgins, James M.S. Boston, MAAttorneyDecember 1, 2006
Pennington, Debra L.Lees Summit, MOEnrolled AgentJanuary 29, 2007
Goodwin, Steven C.Concord, MAAttorneyFebruary 2, 2007
Francis, Andrew W.E.Houston, TXCPAFebruary 21, 2007
Griffin, Richard M.Duluth, GACPAFebruary 28, 2007
2007–18 I.R.B.1121April 30, 2007

Resignations of Enrolled Agents
Under Title 31, Code of Federal Regu-
lations, Part 10, an enrolled agent, in or-
der to avoid the institution or conclusion
of a proceeding for his or her disbarment
or suspension from practice before the In-
ternal Revenue Service, may offer his or
her resignation as an enrolled agent. The
Director, Office of Professional Responsi-
bility, in his discretion, may accept the of-
fered resignation.
The Director, Office of Professional
Responsibility, has accepted offers of res-
ignation as an enrolled agent from the
following individuals:
NameAddressDate of Resignation
Filipski, Kenneth M.Bakersfield, CAApril 16, 2007
Section 7428(c) Validation
of Certain Contributions
Made During Pendency
of Declaratory Judgment
Proceedings
Announcement 2007–45
This announcement serves notice to po-
tential donors that the organization listed
below has recently filed a timely declara-
tory judgment suit under section 7428 of
the Code, challenging revocation of its
status as an eligible donee under section
170(c)(2).
Protection under section 7428(c) of the
Code begins on the date that the notice
of revocation is published in the Internal
Revenue Bulletin and ends on the date
on which a court first determines that an
organization is not described in section
170(c)(2), as more particularly set forth in
section 7428(c)(1).
In the case of individual contributors,
the maximum amount of contributions
protected during this period is limited to
$1,000.00, with a husband and wife being
treated as one contributor. This protec-
tion is not extended to any individual who
was responsible, in whole or in part, for
the acts or omissions of the organization
that were the basis for the revocation.
This protection also applies (but without
limitation as to amount) to organizations
described in section 170(c)(2) which are
exempt from tax under section 501(a). If
the organization ultimately prevails in its
declaratory judgment suit, deductibility
of contributions would be subject to the
normal limitations set forth under section
170.
Patrick and Janet Hayes Charitable
Supporting Organization
Houston, TX
April 30, 200711222007–18 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 rul-
ings will not be applied pending some
future action such as the issuance of new
or amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
2007–18 I.R.B.iApril 30, 2007

Numerical Finding List
1
Bulletins 2007–1 through 2007–18
Announcements:
2007-1, 2007-1 I.R.B.243
2007-2, 2007-2 I.R.B.263
2007-3, 2007-4 I.R.B.376
2007-4, 2007-7 I.R.B.518
2007-5, 2007-4 I.R.B.376
2007-6, 2007-4 I.R.B.376
2007-7, 2007-4 I.R.B.377
2007-8, 2007-5 I.R.B.416
2007-9, 2007-5 I.R.B.417
2007-10, 2007-6 I.R.B.464
2007-11, 2007-6 I.R.B.464
2007-12, 2007-6 I.R.B.465
2007-13, 2007-7 I.R.B.519
2007-14, 2007-7 I.R.B.519
2007-15, 2007-8 I.R.B.596
2007-16, 2007-8 I.R.B.597
2007-17, 2007-8 I.R.B.597
2007-18, 2007-9 I.R.B.625
2007-19, 2007-7 I.R.B.521
2007-20, 2007-8 I.R.B.599
2007-21, 2007-9 I.R.B.630
2007-22, 2007-9 I.R.B.631
2007-23, 2007-10 I.R.B.665
2007-24, 2007-10 I.R.B.681
2007-25, 2007-10 I.R.B.682
2007-26, 2007-10 I.R.B.682
2007-27, 2007-11 I.R.B.733
2007-28, 2007-10 I.R.B.683
2007-29, 2007-11 I.R.B.733
2007-30, 2007-11 I.R.B.734
2007-31, 2007-12 I.R.B.769
2007-32, 2007-11 I.R.B.734
2007-33, 2007-13 I.R.B.841
2007-34, 2007-13 I.R.B.842
2007-35, 2007-15 I.R.B.949
2007-36, 2007-15 I.R.B.953
2007-37, 2007-15 I.R.B.954
2007-38, 2007-15 I.R.B.954
2007-39, 2007-15 I.R.B.954
2007-40, 2007-16 I.R.B.978
2007-41, 2007-16 I.R.B.978
2007-42, 2007-17 I.R.B.1037
2007-43, 2007-17 I.R.B.1038
2007-45, 2007-18 I.R.B.1122
Notices:
2007-1, 2007-2 I.R.B.254
2007-2, 2007-2 I.R.B.254
2007-3, 2007-2 I.R.B.255
2007-4, 2007-2 I.R.B.260
2007-5, 2007-3 I.R.B.269
Notices— Continued:
2007-6, 2007-3 I.R.B.272
2007-7, 2007-5 I.R.B.395
2007-8, 2007-3 I.R.B.276
2007-9, 2007-5 I.R.B.401
2007-10, 2007-4 I.R.B.354
2007-11, 2007-5 I.R.B.405
2007-12, 2007-5 I.R.B.409
2007-13, 2007-5 I.R.B.410
2007-14, 2007-7 I.R.B.501
2007-15, 2007-7 I.R.B.503
2007-16, 2007-8 I.R.B.536
2007-17, 2007-12 I.R.B.748
2007-18, 2007-9 I.R.B.608
2007-19, 2007-11 I.R.B.689
2007-20, 2007-9 I.R.B.610
2007-21, 2007-9 I.R.B.611
2007-22, 2007-10 I.R.B.670
2007-23, 2007-11 I.R.B.690
2007-24, 2007-12 I.R.B.750
2007-25, 2007-12 I.R.B.760
2007-26, 2007-14 I.R.B.870
2007-27, 2007-13 I.R.B.814
2007-28, 2007-14 I.R.B.880
2007-29, 2007-14 I.R.B.881
2007-30, 2007-14 I.R.B.883
2007-31, 2007-16 I.R.B.971
2007-32, 2007-17 I.R.B.996
2007-34, 2007-17 I.R.B.996
2007-35, 2007-15 I.R.B.940
2007-36, 2007-17 I.R.B.1000
2007-37, 2007-17 I.R.B.1002
2007-38, 2007-18 I.R.B.1103
Proposed Regulations:
REG-100841-97, 2007-12 I.R.B.763
REG-153037-01, 2007-15 I.R.B.942
REG-157711-02, 2007-8 I.R.B.537
REG-159444-04, 2007-9 I.R.B.618
REG-115403-05, 2007-12 I.R.B.767
REG-152043-05, 2007-2 I.R.B.263
REG-158677-05, 2007-16 I.R.B.975
REG-161919-05, 2007-6 I.R.B.463
REG-125632-06, 2007-5 I.R.B.415
REG-146247-06, 2007-16 I.R.B.977
REG-147144-06, 2007-10 I.R.B.680
REG-156420-06, 2007-18 I.R.B.1110
REG-156779-06, 2007-17 I.R.B.1015
REG-157834-06, 2007-13 I.R.B.840
Revenue Procedures:
2007-1, 2007-1 I.R.B.1
2007-2, 2007-1 I.R.B.88
2007-3, 2007-1 I.R.B.108
2007-4, 2007-1 I.R.B.118
2007-5, 2007-1 I.R.B.161
Revenue Procedures— Continued:
2007-6, 2007-1 I.R.B.189
2007-7, 2007-1 I.R.B.227
2007-8, 2007-1 I.R.B.230
2007-9, 2007-3 I.R.B.278
2007-10, 2007-3 I.R.B.289
2007-11, 2007-2 I.R.B.261
2007-12, 2007-4 I.R.B.354
2007-13, 2007-3 I.R.B.295
2007-14, 2007-4 I.R.B.357
2007-15, 2007-3 I.R.B.300
2007-16, 2007-4 I.R.B.358
2007-17, 2007-4 I.R.B.368
2007-18, 2007-5 I.R.B.413
2007-19, 2007-7 I.R.B.515
2007-20, 2007-7 I.R.B.517
2007-21, 2007-9 I.R.B.613
2007-22, 2007-10 I.R.B.675
2007-23, 2007-10 I.R.B.675
2007-24, 2007-11 I.R.B.692
2007-25, 2007-12 I.R.B.761
2007-26, 2007-13 I.R.B.814
2007-27, 2007-14 I.R.B.887
2007-28, 2007-16 I.R.B.974
2007-29, 2007-17 I.R.B.1004
2007-30, 2007-18 I.R.B.1104
Revenue Rulings:
2007-1, 2007-3 I.R.B.265
2007-2, 2007-3 I.R.B.266
2007-3, 2007-4 I.R.B.350
2007-4, 2007-4 I.R.B.351
2007-5, 2007-5 I.R.B.378
2007-6, 2007-5 I.R.B.393
2007-7, 2007-7 I.R.B.468
2007-8, 2007-7 I.R.B.469
2007-9, 2007-6 I.R.B.422
2007-10, 2007-10 I.R.B.660
2007-11, 2007-9 I.R.B.606
2007-12, 2007-11 I.R.B.685
2007-13, 2007-11 I.R.B.684
2007-14, 2007-12 I.R.B.747
2007-15, 2007-11 I.R.B.687
2007-16, 2007-13 I.R.B.807
2007-17, 2007-13 I.R.B.805
2007-18, 2007-13 I.R.B.806
2007-19, 2007-14 I.R.B.843
2007-20, 2007-14 I.R.B.863
2007-21, 2007-14 I.R.B.865
2007-22, 2007-14 I.R.B.866
2007-23, 2007-15 I.R.B.889
2007-25, 2007-16 I.R.B.956
2007-26, 2007-16 I.R.B.970
2007-27, 2007-18 I.R.B.1099
2007-28, 2007-18 I.R.B.1039
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2006–27 through 2006–52 is in Internal Revenue Bulletin
2006–52, dated December 26, 2006.
April 30, 2007ii2007–18 I.R.B.

Tax Conventions:
2007-23, 2007-10 I.R.B.665
Treasury Decisions:
9298, 2007-6 I.R.B.434
9299, 2007-6 I.R.B.460
9300, 2007-2 I.R.B.246
9301, 2007-2 I.R.B.244
9302, 2007-5 I.R.B.382
9303, 2007-5 I.R.B.379
9304, 2007-6 I.R.B.423
9305, 2007-7 I.R.B.479
9306, 2007-6 I.R.B.420
9307, 2007-7 I.R.B.470
9308, 2007-8 I.R.B.523
9309, 2007-7 I.R.B.497
9310, 2007-9 I.R.B.601
9311, 2007-10 I.R.B.635
9312, 2007-12 I.R.B.736
9313, 2007-13 I.R.B.805
9314, 2007-14 I.R.B.845
9315, 2007-15 I.R.B.891
9316, 2007-16 I.R.B.962
9317, 2007-16 I.R.B.957
9318, 2007-17 I.R.B.990
9319, 2007-18 I.R.B.1041
9320, 2007-17 I.R.B.994
9322, 2007-18 I.R.B.1100
2007–18 I.R.B.iiiApril 30, 2007

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2007–1 through 2007–18
Notices:
2002-45
Modified by
Notice 2007-22, 2007-10 I.R.B.670
2005-29
Modified and superseded by
Notice 2007-4, 2007-2 I.R.B.260
2005-86
Modified by
Notice 2007-22, 2007-10 I.R.B.670
2005-98
Modified and superseded by
Notice 2007-26, 2007-14 I.R.B.870
2006-2
Modified and superseded by
Notice 2007-4, 2007-2 I.R.B.260
2006-13
Obsoleted by
T.D. 9315, 2007-15 I.R.B.891
2006-50
Amplified, clarified, and modified by
Notice 2007-11, 2007-5 I.R.B.405
2006-77
Clarified, modified, and amplified by
Notice 2007-36, 2007-17 I.R.B.1000
2006-87
Modified and supplemented by
Notice 2007-25, 2007-12 I.R.B.760
2007-19
Amended and supplemented by
Notice 2007-31, 2007-16 I.R.B.971
Proposed Regulations:
REG-208270-86
Corrected by
Ann. 2007-4, 2007-7 I.R.B.518
REG-121509-00
Corrected by
Ann. 2007-17, 2007-8 I.R.B.597
REG-139059-02
Corrected by
Ann. 2007-36, 2007-15 I.R.B.953
Ann. 2007-37, 2007-15 I.R.B.954
REG-141901-05
Corrected by
Ann. 2007-7, 2007-4 I.R.B.377
Proposed Regulations— Continued:
REG-142270-05
Corrected by
Ann. 2007-2, 2007-2 I.R.B.263
REG-125632-06
Corrected by
Ann. 2007-26, 2007-10 I.R.B.682
REG-127819-06
Corrected by
Ann. 2007-5, 2007-4 I.R.B.376
REG-136806-06
Corrected by
Ann. 2007-6, 2007-4 I.R.B.376
Hearing cancelled by
Ann. 2007-19, 2007-7 I.R.B.521
Revenue Procedures:
98-20
Superseded by
Rev. Proc. 2007-12, 2007-4 I.R.B.354
2000-38
Modified by
Rev. Proc. 2007-16, 2007-4 I.R.B.358
2000-42
Obsoleted in part by
T.D. 9315, 2007-15 I.R.B.891
2000-50
Modified by
Rev. Proc. 2007-16, 2007-4 I.R.B.358
2001-31
Superseded by
Rev. Proc. 2007-29, 2007-17 I.R.B.1004
2001-42
Modified and amplified by
Rev. Proc. 2007-19, 2007-7 I.R.B.515
2002-9
Modified and amplified by
Rev. Proc. 2007-14, 2007-4 I.R.B.357
Modified by
Rev. Proc. 2007-16, 2007-4 I.R.B.358
2004-11
Superseded by
Rev. Proc. 2007-16, 2007-4 I.R.B.358
2004-65
Modified and superseded by
Rev. Proc. 2007-20, 2007-7 I.R.B.517
2005-12
Superseded by
Rev. Proc. 2007-17, 2007-4 I.R.B.368
2005-51
Amplified by
Rev. Proc. 2007-25, 2007-12 I.R.B.761
Revenue Procedures— Continued:
2005-69
Superseded by
Rev. Proc. 2007-15, 2007-3 I.R.B.300
2005-74
Superseded by
Rev. Proc. 2007-24, 2007-11 I.R.B.692
2006-1
Superseded by
Rev. Proc. 2007-1, 2007-1 I.R.B.1
2006-2
Superseded by
Rev. Proc. 2007-2, 2007-1 I.R.B.88
2006-3
Superseded by
Rev. Proc. 2007-3, 2007-1 I.R.B.108
2006-4
Superseded by
Rev. Proc. 2007-4, 2007-1 I.R.B.118
2006-5
Superseded by
Rev. Proc. 2007-5, 2007-1 I.R.B.161
2006-6
Superseded by
Rev. Proc. 2007-6, 2007-1 I.R.B.189
2006-7
Superseded by
Rev. Proc. 2007-7, 2007-1 I.R.B.227
2006-8
Superseded by
Rev. Proc. 2007-8, 2007-1 I.R.B.230
2006-17
Obsoleted in part by
Rev. Proc. 2007-26, 2007-13 I.R.B.814
2006-35
Modified by
Rev. Proc. 2007-22, 2007-10 I.R.B.675
Revenue Rulings:
54-19
Obsoleted in part by
Rev. Rul. 2007-14, 2007-12 I.R.B.747
55-132
Obsoleted by
Rev. Rul. 2007-14, 2007-12 I.R.B.747
56-462
Obsoleted by
Rev. Rul. 2007-14, 2007-12 I.R.B.747
56-518
Obsoleted by
Rev. Rul. 2007-14, 2007-12 I.R.B.747
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2006–27 through 2006–52 is in Internal Revenue Bulletin 2006–52, dated December 26,
2006.
April 30, 2007iv2007–18 I.R.B.

Revenue Rulings— Continued:
57-505
Obsoleted by
Rev. Rul. 2007-14, 2007-12 I.R.B.747
58-370
Obsoleted by
Rev. Rul. 2007-14, 2007-12 I.R.B.747
58-500
Obsoleted by
Rev. Rul. 2007-14, 2007-12 I.R.B.747
69-141
Modified by
Notice 2007-22, 2007-10 I.R.B.670
69-212
Obsoleted by
Rev. Rul. 2007-14, 2007-12 I.R.B.747
69-587
Revoked by
Rev. Rul. 2007-12, 2007-11 I.R.B.685
71-477
Obsoleted by
Rev. Rul. 2007-14, 2007-12 I.R.B.747
75-161
Obsoleted by
Rev. Rul. 2007-8, 2007-7 I.R.B.469
76-188
Obsoleted by
Rev. Rul. 2007-8, 2007-7 I.R.B.469
78-330
Modified by
Rev. Rul. 2007-8, 2007-7 I.R.B.469
81-225
Clarified and amplified by
Rev. Rul. 2007-7, 2007-7 I.R.B.468
92-19
Supplemented in part by
Rev. Rul. 2007-10, 2007-10 I.R.B.660
96-51
Amplified by
Rev. Rul. 2007-12, 2007-11 I.R.B.685
2002-41
Modified by
Notice 2007-22, 2007-10 I.R.B.670
2003-43
Modified by
Notice 2007-2, 2007-2 I.R.B.254
2003-92
Clarified and amplified by
Rev. Rul. 2007-7, 2007-7 I.R.B.468
2003-102
Modified by
Notice 2007-22, 2007-10 I.R.B.670
Revenue Rulings— Continued:
2003-109
Superseded by
Rev. Rul. 2007–28, 2007-18 I.R.B.1039
2005-24
Modified by
Notice 2007-22, 2007-10 I.R.B.670
2005-76
Supplemented and superseded by
Rev. Rul. 2007-4, 2007-4 I.R.B.351
2006-36
Modified by
Notice 2007-22, 2007-10 I.R.B.670
Treasury Decisions:
9263
Corrected by
Ann. 2007-22, 2007-9 I.R.B.631
9276
Corrected by
Ann. 2007-20, 2007-8 I.R.B.599
Ann. 2007-21, 2007-9 I.R.B.630
9278
Corrected by
Ann. 2007-9, 2007-5 I.R.B.417
Ann. 2007-10, 2007-6 I.R.B.464
9286
Corrected by
Ann. 2007-8, 2007-5 I.R.B.416
9298
Corrected by
Ann. 2007-32, 2007-11 I.R.B.734
9303
Corrected by
Ann. 2007-25, 2007-10 I.R.B.682
2007–18 I.R.B.vApril 30, 2007

INDEX
Internal Revenue Bulletins 2007–1 through
2007–18
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
Contributions, deductibility, Pension Protection Act of 2006
(Notice 28) 14,880
Corporations, prohibited allocations of securities in an S corpo-
ration (TD 9302) 5,382
Definition of party and allocation of net income or proceeds for
purposes of section 4965 (Notice 18) 9,608
Determination letters, issuing procedures (RP 6) 1,189
Full funding limitations, weighted average interest rate for:
January 2007 (Notice 12) 5,409
February 2007 (Notice 20) 9,610
March 2007 (Notice 27) 13,814
April 2007 (Notice 32) 17,996
Health Insurance Portability and Accountability Act of 1996
(HIPAA):
Health plan nondiscrimination requirements:
For certain grandfathered church plans (TD 9299) 6,460
For group health plans (TD 9298) 6,434; correction (Ann
32) 11,734
Insurance arrangements, application of section 409A to split-dol-
lar life insurance arrangements (Notice 34) 17,996
Letter rulings:
And determination letters, areas which will not be issued
from:
Associates Chief Counsel and Division Counsel (TE/GE)
(RP 3) 1,108
Associate Chief Counsel (International) (RP 7) 1,227
And general information letters, procedures (RP 4) 1,118
User fees, request for letter rulings (RP 8) 1,230
Mortality tables for determining current liability, updated (TD
9310) 9,601
EMPLOYEE PLANS—Cont.
Qualified retirement plans:
Defined benefit pension plans:
Cash balance and other hybrid plans (Notice 6) 3,272
Permitted benefits (Notice 14) 7,501
Distribution issues, multiple issues (Notice 7) 5,395
Limitations on benefits and contributions under qualified
plans (TD 9319) 18,1041
Pension plans, in-service distributions (Notice 8) 3,276
Remedial amendment period (Notice 3) 2,255
Regulations:
26 CFR 1.401(a)–2(b), revised; 1.401(a)(9)–5, revised;
1.401(k)–1, amended; 1.402(c)–2, revised; 1.415–1 thru
–10, removed; 1.415(a)–1, added; 1.415(b)–1, –2, added;
1.415(c)–1, –2, added; 1.415(d)–1, added; 1.415(f)–1,
added; 1.415(g)–1, added; 1.415(j)–1, added; 1.416–1,
amended; 1.457–4, –5, –6, –10, amended; 11.415(c)(4)–1,
removed; limitations on benefits and contributions under
qualified plans (TD 9319) 18,1041
26 CFR 1.402(c)–2, revised; 1.409(p)–1, added; prohibited
allocations of securities in an S corporation (TD 9302) 5,
382
26 CFR 1.412(l)(7)–1, added;updated mortality tables for
determining current liability (TD 9310) 9,601
26 CFR 54.9801–1, –2, amended; 54.9802–2, added;
54.9831–1, amended; exception to the HIPAA nondiscrim-
ination requirements for certain grandfathered church plans
(TD 9299) 6,460
26 CFR 54.9802–1, revised; 54.9802–1T, removed; nondis-
crimination and wellness programs in health coverage in
the group market (TD 9298) 6,434; correction (Ann 32)
11,734
Technical advice to IRS employees (RP 5) 1,161
EMPLOYMENT TAX
Frivolous tax return positions:
Arguments and schemes (Notice 30) 14,883
That a taxpayer is not a citizen or is not a person as defined
by the Code (RR 22) 14,866
That filing tax returns and paying federal tax are voluntary
(RR 20) 14,863
That wages are not income (RR 19) 14,843
Installment agreements, payment of tax liabilities
(REG–100841–97) 12,763
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions (RP
1) 1,1
Penalties, disclosure on reports filed with Securities and Ex-
change Commission (SEC) (RP 25) 12,761
Proposed Regulations:
26 CFR 301.6159–0, added; 301.6159–1, revised;
301.6331–4, revised; agreements for payment of tax
liabilities in installments (REG–100841–97) 12,763
April 30, 2007vi2007–18 I.R.B.

EMPLOYMENT TAX—Cont.
Regulations:
26 CFR 31.3402(g)–1(a)(8), revised; flat rate supplemental
wage withholding, correction to TD 9276 (Ann 20) 8,599;
additional correction (Ann 21) 9,630
Supplemental wages, withholding, correction to TD 9276 (Ann
20) 8,599; additional correction (Ann 21) 9,630
Technical Advice Memoranda (TAMs) (RP 2) 1,88
ESTATE TAX
Frivolous tax return positions:
Arguments and schemes (Notice 30) 14,883
That filing tax returns and paying federal tax are voluntary
(RR 20) 14,863
Installment agreements, payment of tax liabilities
(REG–100841–97) 12,763
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions (RP
1) 1,1
Proposed Regulations:
26 CFR 301.6159–0, added; 301.6159–1, revised;
301.6331–4, revised; agreements for payment of tax
liabilities in installments (REG–100841–97) 12,763
Technical Advice Memoranda (TAMs) (RP 2) 1,88
EXCISE TAX
Communications excise tax (Notice 11) 5,405
Credits and payments, renewable diesel and diesel mixtures (No-
tice 37) 17,1002
Frivolous tax return positions:
Arguments and schemes (Notice 30) 14,883
That filing tax returns and paying federal tax are voluntary
(RR 20) 14,863
Health Insurance Portability and Accountability Act of 1996
(HIPAA):
Health plan nondiscrimination requirements:
For certain grandfathered church plans (TD 9299) 6,460
For group health plans (TD 9298) 6,434; correction (Ann
32) 11,734
Installment agreements, payment of tax liabilities
(REG–100841–97) 12,763
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions (RP
1) 1,1
Penalties, disclosure on reports filed with Securities and Ex-
change Commission (SEC) (RP 25) 12,761
Proposed Regulations:
26 CFR 301.6159–0, added; 301.6159–1, revised;
301.6331–4, revised; agreements for payment of tax
liabilities in installments (REG–100841–97) 12,763
EXCISE TAX—Cont.
Regulations:
26 CFR 54.9801–1, –2, amended; 54.9802–2, added;
54.9831–1, amended; exception to the HIPAA nondiscrim-
ination requirements for certain grandfathered church plans
(TD 9299) 6,460
26 CFR 54.9802–1, revised; 54.9802–1T, removed; nondis-
crimination and wellness programs in health coverage in
the group market (TD 9298) 6,434; correction (Ann 32)
11,734
Technical Advice Memoranda (TAMs) (RP 2) 1,88
EXEMPT ORGANIZATIONS
Annual notice to donors regarding pending and settled declara-
tory judgment suits (Ann 1) 1,243
Declaratory judgment suits (Ann 45) 18,1122
Definition of party and allocation of net income or proceeds for
purposes of section 4965 (Notice 18) 9,608
Frivolous tax return positions, arguments and schemes (Notice
30) 14,883
Letter rulings:
And determination letters, areas which will not be issued from
Associates Chief Counsel and Division Counsel (TE/GE)
(RP 3) 1,108
And general information letters, procedures (RP 4) 1,118
User fees, request for letter rulings (RP 8) 1,230
List of organizations classifiedas private foundations (Ann 14)
7,519; (Ann 33) 13,841; (Ann 42) 17,1037
Revocations (Ann 3) 4,376; (Ann 13) 7,519; (Ann 34) 13,842;
(Ann 38) 15,954;(Ann43)17,1038
Safe harbor under section 527(l) (RP 27) 14,887
Technical advice to IRS employees (RP 5) 1,161
GIFT TAX
Frivolous tax return positions:
Arguments and schemes (Notice 30) 14,883
That filing tax returns and paying federal tax are voluntary
(RR 20) 14,863
Installment agreements, payment of tax liabilities
(REG–100841–97) 12,763
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions (RP
1) 1,1
Proposed Regulations:
26 CFR 301.6159–0, added; 301.6159–1, revised;
301.6331–4, revised; agreements for payment of tax
liabilities in installments (REG–100841–97) 12,763
Technical Advice Memoranda (TAMs) (RP 2) 1,88
INCOME TAX
Accounting methods:
Automatic consent to change accounting method for execu-
tory contract liabilities (RP 14) 4,357
2007–18 I.R.B.viiApril 30, 2007

INCOME TAX—Cont.
Changes in accounting methods (RP 16) 4,358
Changes in computing depreciation (TD 9307) 7,470
Executory contract liabilities (RR 3) 4,350
Payroll taxes on deferredcompensation (RR 12) 11,685
Uniform capitalization:
Of costs (Notice 29) 14,881
Simplified methods, assets produced on a routine and
repetitive basis (TD 9318) 17,990
Advance Pricing Agreement (APA) Program, annual report to the
public, 2006 (Ann 31) 12,769
Annual notice to donors regarding pending and settled declara-
tory judgment suits (Ann 1) 1,243
Annuities, exchanges of property for an annuity contract, change
in hearing location for REG–141901–05 (Ann 7) 4,377
Archer Medical Savings Accounts(MSAs), reporting obligation
for accounts established between January 1, 2005, and June
30, 2005, and January 1, 2006, and June 30, 2006 (Ann 24)
10,681
Automobile owners and lessees, inflation adjustments for 2007
(RP 30) 18,1104
Bonds, clean renewable energy bonds (Notice 26) 14,870
Charitable contributions, study on donor advised funds and sup-
porting organizations (Notice 21) 9,611
Common mistakes on tax returns (Notice 35) 15,940
Communications excise tax (Notice 11) 5,405
Compliance resolution program for employees other than cor-
porate insiders for additional 2006 taxes arising under section
409A due to exercise of stock rights (Ann 18) 9,625
Computer software under section 199(c)(5)(B) (TD 9317) 16,
957
Consumer Price Index (CPI) adjustments, certain loans under
section 1274A for 2007 (RR 4) 4,351
Contractual protection filter under regulations section 1.6011–4,
exceptions (RP 20) 7,517
Controlled services transactions under section 482, treatment,
allocation of income and deductions from intangibles, and
stewardship expense, correction to TD 9278 (Ann 9) 5,
417; additional corrections (Ann 10) 6,464; correction to
REG–146893–02 (Ann 11) 6,464
Corporations:
Banks, status as S corporation under section 1361(a)(1)
(REG–158677–05) 16,975
Bulgarian per se entity (Notice 10) 4,354
Consolidated returns:
Anti-avoidance and anti-loss reimportation rules following
a loss on disposition of stock of consolidated subsidiaries
(TD 9322) 18,1100; (REG–156420–06) 18,1110
Unified rule for loss on subsidiary stock
(REG–157711–02) 8,537
Controlled foreign corporation (CFC):
Subpart F income (Notice 9) 5,401
Substantial assistance, shipping income (Notice 13) 5,410
Corporate reorganizations:
Additional guidance on distributions under sections
368(a)(1)(D) and 354(b)(1)(B) (TD 9313) 13,805;cor-
rection(Ann40)16,978; (REG–157834–06) 13,840
INCOME TAX—Cont.
Distributions under sections 368(a)(1)(D) and
354(b)(1)(B) (TD 9303) 5,379; correction (Ann 25) 10,
682; (REG–125632–06) 5,415; correction (Ann 26)
10,682
Guidance on measurement of continuity of interest (TD
9316) 16,962; (REG–146247–06) 16,977
Liabilities in excess of basis, transfers to controlled corpo-
rations (RR 8) 7,469
Dual consolidated losses (TD 9315) 15,891
Exclusion from gross income of previously taxed earnings
and profits and related basis adjustments, correction to
REG–121509–00 (Ann 17) 8,597
Foreign corporation interest expense allocations, branch prof-
its tax, election for liability reduction (Notice 1) 2,254
Look-through treatment of dividends from noncontrolled sec-
tion 902 corporation, correction to TD 9260 (Ann 12) 6,465
Transfers by U.S. persons of stock or securities to foreign cor-
porations (TD 9311) 10,635; (REG–147144–06) 10,680
Credits:
Child and dependent care credit, expenses, correction to
REG–139059–02 (Ann 36) 15,953; additional correction
(Ann 37) 15,954
Foreign tax credits, direct and indirect (REG–156779–06) 17,
1015
Low-income housing credit:
2007 population figures used for calculation (Notice 23)
11,690
Satisfactory bond, “bond factor” amounts for the period:
January through March 2007 (RR 5) 5,378
January through June 2007 (RR 25) 16,956
Nonconventional source fuel credit, inflation adjustment fac-
tor and phase-out amount for CY 2006 (Notice 38) 18,1103
Railroad track maintenance credit, hearing cancellation for
REG–142270–05 (Ann 2) 2,263; correction to TD 9286
(Ann 8) 5,416
Cross licensing arrangements, guidance on tax treatment (RP 23)
10,675
Declaratory judgment suits (Ann 45) 18,1122
Depreciation:
2007 limitations on depreciation deductions for passenger au-
tomobiles (RP 30) 18,1104
MACRS property acquired in a like-kind exchange or an in-
voluntary conversion (TD 9314) 14,845
Disallowance of convention expenses, North American geo-
graphical area (RR 28) 18,1039
Disaster relief:
Depreciation, Gulf Opportunity(GO) Zone additional first
year depreciation deduction (Notice 36) 17,1000
Reduction in taxable income for housing Hurricane Katrina
displaced individuals (TD 9301) 2,244; (REG–152043–05)
2,263
Disciplinary actionsinvolving attorneys,certified public accoun-
tants, enrolled agents, and enrolled actuaries (Ann 41) 16,978
April 30, 2007viii2007–18 I.R.B.

INCOME TAX—Cont.
Disclosure of reportable transactions by:
List maintenance rules under section 6112 for material advi-
sors, hearing scheduled for REG–103043–05 (Ann 27) 11,
733
Material advisors under section 6111, hearing scheduled for
REG–103039–05 (Ann 30) 11,734
Taxpayers under section 6011, hearing scheduled for
REG–103038–05 (Ann 29) 11,733
Domestic production activities, income attributable, correction
to TD 9263 (Ann 22) 9,631
Electronic filing:
Electronic payment option for user fee charges for Form 8802
(RP 22) 10,675
Elimination of regulatory impediments to filing certain busi-
ness income tax returns and other forms (TD 9300) 2,246
Guidance necessary to facilitate business electronic filing un-
der section 1561 (TD 9304) 6,423; (REG–161919–05) 6,
463
Specifications for Form 8851, Summary of Archer MSAs (RP
29) 17,1004
Employer-provided vehicles, cents-per-mile valuation rule, max-
imum vehicle values (RP 11) 2,261
Estimated tax penalty, waiver for citizens or residents of the U.S.
living abroad (Notice 16) 8,536
Extensions:
Extension of time taxpayers have until April 17, 2007, to file
2006 returns and pay any taxes due, Emancipation Day Hol-
iday in the District of Columbia (Ann 16) 8,597
Extension of deadline for settlement offered to certain foreign
embassy staff (Ann 28) 10,683
Federal tax lien, procedures for obtaining release or discharge
(REG–159444–04) 9,618
Film and television production, deduction for qualified costs (TD
9312) 12,736; (REG–115403–05) 12,767
Foreign earned income exclusion (RP 28) 16,974
Forms:
1096, 1098, 1099, 5498, W-2G, and 1042-S, substitute form
specifications (RP 15) 3,300
8802, electronic payment option for user fee charges (RP 22)
10,675
8851, Summary of Archer MSAs, specifications for filing
electronically (Ann 15) 8,596; (RP 29) 17,1004
8921, Transactions Involving a Pool of Applicable Insurance
Contracts, comments requested on draft form (Notice 24)
12,750
8922, Applicable Insurance Contract Information Return (For
Tax-Exempt Organizations and Government Entities under
Section 6050V), comments requested on draft form (Notice
24) 12,750
Frivolous tax return positions:
Arguments and schemes (Notice 30) 14,883
That a Form 23C must be provided as a record of assessment
(RR 21) 14,865
That a taxpayer is not a citizen or is not a person as defined
by the Code (RR 22) 14,866
INCOME TAX—Cont.
That filing tax returns and paying federal tax are voluntary
(RR 20) 14,863
That wages are not income (RR 19) 14,843
Health Reimbursement Arrangements (HRAs), debit cards (No-
tice 2) 2,254
Health Savings Accounts (HSAs), rollovers to (Notice 22) 10,
670
Housing cost amount eligible for exclusion or deduction, revised
(Notice 25) 12,760
Income and currency gain or loss with respect to a section 987
qualified business unit (QBU), correction to REG–208270–86
(Ann 4) 7,518
Information reporting:
Requirements, exclusion of the sale or exchange of a principle
residence (RP 12) 4,354
Under section 6050V, comments requested on draft Forms
8921, Transactions Involving a Pool of Applicable Insur-
ance Contracts, and Form 8922, Applicable Insurance Con-
tract Information Return (For Tax-Exempt Organizations
and Government Entities under Section 6050V) (Notice 24)
12,750
Installment agreements:
Payment of tax liabilities (REG–100841–97) 12,763
User fees (TD 9306) 6,420
Insurance companies:
Comments requested on closing agreements for life insurance
and annuity contracts (Notice 15) 7,503
Indices and electronic submission of information, Rev. Proc.
2001–42 updated (RP 19) 7,515
Investor control and general public (RR 7) 7,468
Loss payment patterns and discount factors for the 2006 acci-
dent year (RP 9) 3,278
Prevailing state assumed interest rate tables, 2007 (RR 10) 10,
660
Salvage discount factors for the 2006 accident year (RP 10)
3,289
Interest:
Investment:
Federal short-term, mid-term, and long-term rates for:
January 2007 (RR 2) 3,266
February 2007 (RR 9) 6,422
March 2007 (RR 15) 11,687
April 2007 (RR 23) 15,889
Rates:
Underpayments and overpayments, quarter beginning,
April 1, 2007 (RR 16) 13,807
Inventory:
LIFO, price indexes used by department stores for:
November 2006 (RR 6) 5,393
December 2006 (RR 11) 9,606
January 2007 (RR 18) 13,806
February 2007 (RR 27) 18,1099
Leases, tax-exempt use property (Notice 4) 2,260
2007–18 I.R.B.ixApril 30, 2007

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) 1,108
Associate Chief Counsel (International) (RP 7) 1,227
And information letters issued by Associate Offices, determi-
nation letters issued by Operating Divisions (RP 1) 1,1
Life insurance, transfer of value and grantor trusts (RR 13) 11,
684
Like-kind exchanges, qualified settlement funds and certain
other escrow accounts, trusts, and funds, taxation and report-
ing of earned income, revision of REG–113365–04 (Ann 35)
15,949
Nonsufficient funds (NSF) fees, accounting for credit card NSF
fees that are not interest (RR 1) 3,265
Penalties:
Disclosure on reports filed with Securities and Exchange
Commission(SEC)(RP25)12,761
Under sections 6707 or 6707A, rescission (RP 21) 9,613
Pre-Filing Agreement (PFA) program, continued (RP 17) 4,368
Private foundations, organizations now classified as (Ann 14) 7,
519; (Ann 33) 13,841;(Ann42)17,1037
Proposed Regulations:
26 CFR 1.21–1, corrected; expenses for household and depen-
dent care services necessary for gainful employment, cor-
rection to REG–139059–02 (Ann 36) 15,953; additional
correction (Ann 37) 15,954
26 CFR 1.45G–0, –1, added; railroad track maintenance
credit, hearing cancellation for REG–142270–05 (Ann 2)
2,263
26 CFR 1.181–0 thru –6, added; deduction for qualified film
and television production costs (REG–115403–05) 12,767
26 CFR 1.337(d)–1, –2, removed; 1.358–6, amended;
1.1502–13, –19, –21, –30 thru –33, –35, –80, –91,
amended; 1.1502–20, –35T, removed; 1.1502–36, added;
unified rule for loss on subsidiary stock (REG–157711–02)
8,537
26 CFR 1.367(a)–3, amended; 1.367(a)–8, revised; certain
transfers of stock or securities by U.S. persons to foreign
corporations (REG–147144–06) 10,680
26 CFR 1.368–1, amended; corporate reorganizations,
guidance on the measurement of continuity of interest
(REG–146247–06) 16,977
26 CFR 1.368–2, amended; corporate reorganizations, dis-
tributions under sections 368(a)(1)(D) and 354(b)(1)(B)
(REG–125632–06) 5,415; correction (Ann 26) 10,682;
additional guidance (REG–157834–06) 13,840
26 CFR 1.468B–6, amended; escrow accounts, trusts, and
other funds used during deferred exchanges of like-kind
property, revision of REG–113365–04 (Ann 35) 15,949
26 CFR 1.482–1, –8, –9, amended; 1.861–8, amended; allo-
cation of income and deductions from intangibles, steward-
ship expense, correction to REG–146893–02 (Ann 11) 6,
464
INCOME TAX—Cont.
26 CFR 1.901–2, amended; determining the amount of taxes
paid for purposes of section 901 (REG–156779–06) 17,
1015
26 CFR 1.959–1, –2, –3, revised; 1.961–2, –3, revised; ex-
clusion from gross income of previously taxed earnings
and profits and adjustments to basis of stock in controlled
foreign corporations and of other property, correction to
REG–121509–00 (Ann 17) 8,597
26 CFR 1.987–1 thru –3, –6, amended; income and currency
gain or loss with respect to a section 987 QBU, correction
to REG–208270–86 (Ann 4) 7,518
26 CFR 1.1363–1, amended; effect of election on corporation
(REG–158677–05) 16,975
26 CFR 1.1502–32, –35, amended, anti-avoidance and
anti-loss reimportation rulesapplicable following a loss
on disposition of stock of consolidated subsidiaries
(REG–156420–06) 18,1110
26 CFR 1.1502–43, –47, amended; 1.1561–1, –3, added;
1.1561–2, amended; 1.1563–1, added; guidance necessary
to facilitate business electronic filing under section 1561
(REG–161919–05) 6,463
26 CFR 1.9300–1, added; reduction in taxable income
for housing Hurricane Katrina displaced individuals
(REG–152043–05) 2,263
26 CFR 301.6159–0, added; 301.6159–1, revised;
301.6331–4, revised; agreements for payment of tax
liabilities in installments (REG–100841–97) 12,763
26 CFR 301.6325–1, amended; 301.6503(f)–1, revised;
301.7426–1, revised; release of lien or discharge of prop-
erty (REG–159444–04) 9,618
26 CFR 301.7603–1, revised; 301.7603–2, added;
301.7609–1 thru –5, revised; suspension of statutes of lim-
itations in third-party and John Doe summons disputes and
expansion of taxpayers’ rights to receive notice and seek ju-
dicial review of third-party summonses (REG–153037–01)
15,942
Publications:
1167, General Rules and Specifications for Substitute Forms
and Schedules (RP 24) 11,692
Qualified amended returns (TD 9309) 7,497
Qualified board or exchange, section 1256(g)(7)(C), United
Kingdom ICE Futures (RR 26) 16,970
Qualified mortgage bonds (QMBs) and mortgage credit certifi-
cates (MCCs), average area housing purchase prices for 2007
(RP 26) 13,814
Qualified Zone Academy Bonds, allocations for years 2006 and
2007 (RP 18) 5,413
Real estate mortgage investment conduit (REMIC), modifica-
tions of commercial loans held by a REMIC (Notice 17) 12,
748
Regulations:
26 CFR 1.45G–0T, –1T, added; railroad track maintenance
credit; correction to TD 9286 (Ann 8) 5,416
April 30, 2007x2007–18 I.R.B.

INCOME TAX—Cont.
26 CFR 1.108–1, removed and reserved; 1.342–1, removed;
1.371–1, –2, removed; 1.372–1, removed; 1.374–1 thru
–4, removed; 1.924(a)–1T, amended; 1.1018–1, removed;
1.1502–43, –47, –47T, –90, amended; 1.1502–43T, added;
1.1561–0, –1, –3, removed; 1.1561–1T, –2T, –3T, added;
1.1561–2, amended; 1.1562–0 thru –7, removed; 1.1563–1,
removed; 1.1563–1T, –3, amended; 1.1564–1, removed;
5.1561–1, removed; guidance necessary to facilitate busi-
ness electronic filing under section 1561 (TD 9304) 6,423
26 CFR 1.167(e)–1, amended; 1.167(e)–1T, removed;
1.168(i)–4, –6T, amended; 1.446–1, amended; 1.446–1T,
removed; 1.1016–3, amended; 1.1016–3T, removed;
changes in computing depreciation (TD 9307) 7,470
26 CFR 1.168(a)–1, (b)–1, (i)–5, (i)–6, added; 1.168(a)–1T,
(b)–1T, (d)–1T, (i)–0T, (i)–1T, (i)–5T, (i)–6T, removed;
1.168(d)–1, (i)–0, (i)–1, (k)–1, amended; depreciation of
MACRS property that is acquired in a like-kind exchange
or as a result of an involuntary conversion (TD 9314) 14,
845
26 CFR 1.170A–11, amended; 1.170A–11T, removed;
1.556–2, amended; 1.556–2T, removed; 1.565–1,
amended; 1.565–1T, removed; 1.936–7, amended;
1.936–7T, removed; 1.1017–1, amended; 1.1017–1T,
removed; 1.1368–1, amended; 1.1368–1T, removed;
1.1377–1, amended; 1.1377–1T, removed; 1.1502–21,
amended; 1.1502–21T, amended; 1.1502–75, amended;
1.1502–75T, removed; 1.1503–2, amended; 1.1503–2T,
removed; 1.6038B–1, amended; 1.6038B–1T, amended;
301.7701–3, amended; 301.7701–3T, removed; 602.101,
amended; guidance necessaryto facilitate business elec-
tronic filing (TD 9300) 2,246
26 CFR 1.181–0T thru –6T, added; 602.101, amended; deduc-
tion for qualified film and television production costs (TD
9312) 12,736
26 CFR 1.199–0, –3, –3T, –6, –8, –8T, amended; computer
software under section 199(c)(5)(B) (TD 9317) 16,957
26 CFR 1.199–1 thru –4, –6 thru –9, amended; income attrib-
utable to domestic production activities, correction to TD
9263 (Ann 22) 9,631
26 CFR 1.263A–1, –2, amended; 1.263A–1T, –2T, removed;
guidance regarding the simplified service cost method and
the simplified production method (TD 9318) 17,990
26 CFR 1.367(a)–3, –8, amended; 1.367(a)–3T, –8T, added;
602.101, amended; certain transfers of stock or securities
by U.S. persons to foreign corporations (TD 9311) 10,635
26 CFR 1.368–1, amended; 1.368–1T, added; corporate reor-
ganizations, guidance on the measurement of continuity of
interest (TD 9316) 16,962
26 CFR 1.368–2, amended; 1.368–2T, added; corporate reor-
ganizations, distributions under sections 368(a)(1)(D) and
354(b)(1)(B) (TD 9303) 5,379; correction (Ann 25) 10,
682;
26 CFR 1.368–2T, amended; corporate reorganizations,
additional guidance on distributions under sections
368(a)(1)(D) and 354(b)(1)(B) (TD 9313) 13,805; correc-
tion (Ann 40) 16,978
INCOME TAX—Cont.
26 CFR 1.482; 1.861; 1.6038; 1.6038A; 1.6662; treatment of
services under section 482, allocation of income and deduc-
tions from intangibles, stewardship expense, correction to
TD 9278 (Ann 9) 5,417; additional corrections (Ann 10) 6,
464
26 CFR 1.671–5, amended; 1.671–5T, removed; reporting
rules for widely held fixed investment trusts (TD 9308) 8,
523
26 CFR 1.863–3, amended; 1.863–8, –9, added; 602.101,
amended; source of income from certain space and ocean
activities, source of communications income (TD 9305) 7,
479
26 CFR 1.902–1, –1T, –2, amended; 1.904–0, –4, –5,
amended; 1.904(f)–12T, amended; 1.964–1, –1T, amended;
application of separate limitations to dividends from non-
controlled section 902 corporations, correction to TD 9260
(Ann 12) 6,465
26 CFR 1.985–3, amended; United States dollar approximate
separate transactions method (DASTM) (TD 9320) 17,994
26 CFR 1.1502–21, amended; 1.1503(d)–0 thru –8, added;
1.1503–2A, removed; 602.101, amended; dual consoli-
dated losses (TD 9315) 15,891
26 CFR 1.1502–32, –32T, –35, –35T, amended, anti-avoid-
ance and anti-loss reimportation rules applicable following
a loss on disposition of stock of consolidated subsidiaries
(TD 9322) 18,1100
26 CFR 1.6664–0, –1, amended; 1.6664–1T, –2T, removed;
1.6664–2(c), revised; qualified amended returns (TD 9309)
7,497
26 CFR 1.9300–1T, added; reduction in taxable income for
housing Hurricane Katrina displaced individuals (TD 9301)
2,244
26 CFR 300.0, amended; 300.1, amended; 300.2, amended;
user fees for processing installment agreements (TD 9306)
6,420
Reporting rules for widely held fixed investment trusts
(WHFITs) (TD 9308) 8,523
Revocations, exempt organizations (Ann 3) 4,376;(Ann13)7,
519;(Ann34)13,842;(Ann38)15,954;(Ann43)17,1038
Rulings, obsolete (RR 14) 12,747
Services cost method:
And other issues under section 482 temporary regulations,
partial modification of effective date and clarification (No-
tice 5) 3,269
Under section 482 regulations, specified covered services el-
igible (RP 13) 3,295
Settlement initiative, further extension of deadline for settlement
offered to certain foreign embassy staff (Ann 39) 15,954
Space and ocean activities, sourceof income, source of commu-
nications income (TD 9305) 7,479
Standard Industry Fare Level (SIFL) formula (RR 17) 13,805
Statute of limitations:
On assessment for bona fide residents of the U.S. Virgin Is-
lands (Notice 19) 11,689; and exchange of information
(Notice 31) 16,971
2007–18 I.R.B.xiApril 30, 2007

INCOME TAX—Cont.
Suspension in third-party and John Doe summons disputes
(REG–153037–01) 15,942
Substitute forms:
1096, 1098, 1099, 5498, W-2G, and 1042-S, rules and speci-
fications (RP 15) 3,300
And schedules, general rules and specifications (RP 24) 11,
692
Tax conventions:
Disallowance of convention expenses, North American geo-
graphical area (RR 28) 18,1039
Reciprocal exemption agreement, Bailiwick of Jersey (Ann
23) 10,665
Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA)
amendments to section 199, change in hearing location for
REG–127819–06 (Ann 5) 4,376
Technical Advice Memoranda (TAMs) (RP 2) 1,88
Treatment of payments in lieu of taxes under section 141, change
in hearing location for REG–136806–06 (Ann 6) 4,376; can-
cellation of hearing on REG–136806–06 (Ann 19) 7,521
United States dollar approximate separate transactions method
(DASTM), qualified business unit (QBU) (TD 9320) 17,994
User fees:
Electronic payment option for user fee charges for Form 8802
(RP 22) 10,675
Installment agreements (TD 9306) 6,420
Waiver of estimated tax penalty for citizens or residents of the
U.S. living abroad (Notice 16) 8,536
SELF-EMPLOYMENT TAX
Frivolous tax return positions:
Arguments and schemes (Notice 30) 14,883
That filing tax returns and paying federal tax are voluntary
(RR 20) 14,863
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) 1,88
April 30, 2007xii2007–18 I.R.B.

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