us-irs-revenue-rulings-irb-2010-3-pdf•Internal Revenue Bulletin 2010-3 (PDF rendition): IRS Revenue Rulings
Internal Revenue Bulletin 2010-3 (PDF rendition): IRS Revenue Rulings
us-irs-revenue-rulings-irb-2010-3-pdfInternal Revenue Bulletin 2010-3 (PDF rendition): IRS Revenue RulingsGuidance
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Bulletin No. 201 0-3 January 19, 2010 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. 2010–2, page 272. Section 1274A — inflation adjusted numbers for 2010. This ruling provides the dollar amounts, increased by the 2010 inflation adjustment, for section 1274A of the Code. Rev. Rul. 2008–52 supplemented and superseded. Rev. Rul. 2010–3, page 272. Section 1256 contracts market to market.This ruling holds that the London International Financial Futures and Op- tions Exchange (LIFFE), which is a United Kingdom derivatives market, is a qualified board or exchange within the meaning of section 1256(g)(7)(C) of the Code. Notice 2010–7, page 296. This notice modifies Notice 2008–88, 2008–42 I.R.B. 933, to extend the expiration dates from December 31, 2009 to December 31, 2010 of certain temporary rules allowing state and local government issuers to purchase and hold their own tax-exempt bonds under special reissuance standards for tax- exempt bonds. Notice 2008–88 amended and supplemented Notice 2008–41, 2008–15 I.R.B. 742, regarding reissuance standards for tax-exempt bonds to expand the circumstances and time periods during which the Treasury Department and the Service would treat a tax-exempt bond that is purchased by its state or local governmentalissuer as continuing in effect without resulting in a reissuance or retirement of the purchased bond solely for purposes of section 103 and sections 141 through 150 of the Code, as amended. Notices 2008–41 and 2008–88 modified. Notice 2010–10, page 299. This notice provides guidance on the tax-exempt bond provi- sions for the Midwestern and Hurricane Ike disaster areas un- der the Heartland Disaster Tax Relief Act of 2008, the Tax Ex- tenders and Alternative Minimum Tax Relief Act of 2008 (the Act) and section 1400N(a) of the Code, as modified by the Act. This notice also provides guidance on reimbursement ex- penditures made with proceeds of tax-exempt bonds issued for Midwestern and Hurricane Ike disaster areas and tax-exempt “Qualified Gulf Opportunity Zone Bonds” issued under section 1400N(a). Rev. Proc. 2010–10, page 300. Maximum vehicle values.This procedure provides the max- imum vehicle values for use with the special valuation rules un- der regulations sections 1.61–21(d) and (e). These values are adjusted for inflation and must be adjusted annually by refer- ence to the Consumer Price Index. Rev. Proc. 2010–12, page 302. Section 305.Section 305 treatment of a stock distribution by a publicly traded regulated investment company or real estate investment trust in which the shareholders have an election to receive money or stock, subject to an aggregate limitation on the amount of money to be distributed. Rev. Proc. 2009–15 amplified and superseded. (Continued on the next page) Finding Lists begin on page ii. EMPLOYEE PLANS Notice 2010–6, page 275. This notice provides rules governing the taxation of nonquali- fied deferred compensation plans. Section 409A of the Code requires that a nonqualified deferred compensation plan meet certain plan document requirements, and that the plan be op- erated in compliance with the plan document. Notice 2010–6 permits taxpayers to correct certain failures of a nonqualified deferred compensation plan to comply with the plan document requirements of section 409A, or in certain circumstances, to limit the amount includible in income and additional taxes under section 409A as a result of a plan document failure. Notices 2008–113 and 2008–115 modified. ADMINISTRATIVE Notice 2010–8, page 297. This notice provides interim rules extending the period for sub- mission to the IRS (or an agent or contractor of the IRS) of tax- payer authorizations permitting disclosure of returns and return information pursuant to section 6103(c) of the Code. Notice 2010–9, page 298. The notice clarifies that, for calendar year 2009, filers of Form 1099–B, Form 1099–S, and certain information on Form 1099–MISC have until February 16, 2010, to report both the information required on these forms and certain other tax information furnished on the same date. Notice 2009–11 amplified. Rev. Proc. 2010–10, page 300. Maximum vehicle values.This procedure provides the max- imum vehicle values for use with the special valuation rules un- der regulations sections 1.61–21(d) and (e). These values are adjusted for inflation and must be adjusted annually by refer- ence to the Consumer Price Index. January 19, 20102010–3 I.R.B. The IRS Mission Provide Americ a’s taxpayers top quality service by helping them understand an d meet their tax responsibilities and by applying the tax law with integrity and fairness to all. Introduction The Internal Revenue Bulletin is the authoritative instrument of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service and for publishing Treasury Decisions, Executive Orders, Tax Conven- tions, legislation, court decisions, and other items of general interest. It is published weekly and may be obtained from the Superintendent of Documents on a subscription basis. Bulletin contents are compiled semiannually into Cumulative Bulletins, which are sold on a single-copy basis. It is the policy of the Service to publish in the Bulletin all sub- stantive rulings necessary to promote a uniform application of the tax laws, including all rulings that supersede, revoke, mod- ify, or amend any of those previously published in the Bulletin. All published rulings apply retroactively unless otherwise indi- cated. Procedures relating solely to matters of internal man- agement are not published; however, statements of internal practices and procedures that affect the rights and duties of taxpayers are published. Revenue rulings represent the conclusions of the Service on the application of the law to the pivotal facts stated in the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices, identifying details and information of a confidential nature are deleted to prevent unwarranted invasions of privacy and to comply with statutory requirements. Rulings and procedures reported in the Bulletin do not have the force and effect of Treasury Department Regulations, but they may be used as precedents. Unpublished rulings will not be relied on, used, or cited as precedents by Service personnel in the disposition of other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations, court decisions, rulings, and procedures must be considered, and Service personnel and others concerned are cautioned against reaching the same conclusions in other cases unless the facts and circumstances are substantially the same. The Bulletin is divided into four parts as follows: Part I.—19 86 Code. This part i ncludes rulings and decisions based on provisions of the Intern al Revenue Code of 1986. Part II.—Treaties and Tax Legislation. This part is divided into two subparts as follows: Subpart A, Tax Conventions and Other Related Items, and Subpart B, Leg- islation and Related Committee Reports. Part III.—Administrative, Procedural, and Miscellaneous. To the extent practicable, pertinent cross references to these subjects are contained in the other Parts and Subparts. Also included in this part are Bank Secrecy Act Administrative Rul- ings. Bank Secrecy Act Administrative Rulings are issued by the Department of the Treasury’s Office of the Assistant Secre- tary (Enforcement). Part IV .—Items of General Interest. This par t includes notices of proposed rulemakings, disbar- ment an d suspension lists, and announcements. The last Bulletin for each month includes a cumulative index for the matters published during the preceding months. These monthly indexes are cumulated on a semiannual basis, and are published in the last Bulletin of each semiannual period. The c ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate. For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402. 2010–3 I.R.B.January 19, 2010 January 19, 20102010–3 I.R.B. Part I. Rulings and Decisions Under the Internal Revenue Code of 1986 Section 301.— Distributions of Property 26 CFR 1.301–1 0: Rules applicable with respect to distribution s of money and other property. This revenue p rocedure provides temporary guid- ance regardi ng certain stock distributions by publicly traded regul ated investment companies (RICs) and real estate i nvestment trusts (REITs). See Rev. Proc. 2010-12, pag e 302. Section 305.—Distributions of Stock and Stock Rights 26 CFR 1.305–1: Stock dividends. This revenue procedure provides temporary guid- ance regarding certain stock distributions by publicly traded regulated investment companies (RICs) and real estate investment trusts (REITs). See Rev. Proc. 2010-12, page 302. Section 483.—Interest on Certain Deferred Payments This ruling provides the dollar amounts, increased by the 2010 inflation adjustment, for section 1274A of the Code. Rev. Rul. 2008–52 supplemented and superseded. See Rev. Rul. 2010-2, page 272. Section 125 6.—Section 1256 Contra cts Marked to Market (Also: §§ 4 46, 481, 7805; 1.446–1, 301.7805–1.) Section 12 56 contracts market to market.Th is ruling holds that the Lon- don Intern ational Financial Futures and Options Ex change (LIFFE), which is a United Kin gdom derivatives market, is a qualifi ed board or exchange within the meaning o fsection1256(g)(7)(C)ofthe Code. Rev. Rul. 2010–3 ISSUE Is London International Financial Fu- tures and Options Exchange (“LIFFE”), which is a regulated exchange of the United K ingdom, a qualified board or exchang e within the meaning of section 1256(g) (7)(C) of the Internal Revenue Code? LAW AND ANALYS IS Section 1256(g)(7) provides that the term “qualified board or exchange” means: (A) a national securities exchange which is registered with the Securities and Exchange Commission, (B) a domestic board of trade desig- nated as a contract market by the Com- modity Futures Trading Commission, or (C) any other exchange, board of trade, or other market which the Secretary deter- mines has rules adequate to carry out the purposes of section 1256. HOLDING The Internal Revenue Service deter- mines that LIFFE, which is a regulated exchange of the United Kingdom, is a qualified board or exchange within the meaning of section 1256(g)(7)(C). EFFECTIVE DATE Under the authority of section 7805(b)(8) of the Code, this revenue ruling is effective for LIFFE Contracts (futures contracts and futures contract options) entered into on or after January 1, 2010. CHANGE IN METHOD OF ACCOUNTING A change in t he treatment of LIFFE Contracts t o comply with this revenue rul- ing is a chan ge in method of accounting within the m eaning of sections 446 and 481 and the r egulations thereunder. The Commissio ner grants consent to taxpayers to change t othesection1256marktomar- ket method for the first taxable year dur- ing which t he taxpayer holds a LIFFE Con- tract that was entered into on or after Jan- uary 1, 20 10. Such a taxpayer need not file a For m3115,Application for Change in Accoun ting Method, and LIFFE Con- tracts th at were entered into before January 1, 2010 wi ll not be covered by the change in metho d for which consent is granted. Because the change is being made on a “cut-of f” basis, there is no potential omis- sion or d uplication of income or deduc- tions, a nd therefore no adjustment under sectio n 481 is required. DRAFTING INFO RMATION The principal author of this revenue rul- ing is Andrea Hoffenson of the Office of Associate Chief Counsel (Financial Insti- tutions & Products). For further informa- tion regarding this revenue ruling, contact Andrea Hoffenson at (202) 622–3930 (not a toll-free call). Section 1274.—Determi- nation of Issue Price in the Case of Certain Debt Instru- ments Issued for Property This ruling provides the dollar amounts, increased by the 2010 inflation adjustment, for section 1274A of the Code. Rev. Rul. 2008–52 supplemented and superseded. See Rev. Rul. 2010-2, page 272. Section 1274A.—Special Rules for Certain Transactions Where Stated Principal Amount Does Not Exceed $2,800,000 26 CFR 1.1274A–1: Special rules for certain trans- actions where stated principal amount does not ex- ceed $2,800,000. (Also §§ 483, 1274.) Section 1274A — inflation adjusted numbers for 2010.This ruling provides the dollar amounts, increased by the 2010 inflation adjustment, for section 1274A of the Code. Rev. Rul. 2008–52 supple- mented and superseded. Rev. Rul. 2010–2 This revenue ruling provides the dollar amounts, increased by the 2010 inflation adjustment, for § 1274A of the Internal Revenue Code. BACKGROUND In general , §§ 483 and 1274 determine the princ ipal amount of a debt instrument given in c onsideration for the sale or ex- change of nonpublicly traded property. In addition , any interest on a debt instrument subject t o § 1274 is taken into account un- der the o riginal issue discount provisions of the Co de. Section 1274A, however, 2010–3 I.R.B.272January 19, 2010 modifies the rules under §§ 483 and 1274 for certain types of debt instruments. In the case of a “qualified debt instru- ment,” the discount rate used for purposes of §§ 483 and 1274 may not exceed 9 per- cent, compounded semiannually. Section 1274A(b) defines a qualified debt instru- ment as any debt instrument given in con- sideration for the sale or exchange of prop- erty (other than new § 38 property within the meaning of § 48(b), as in effect on the day before the date of enactment of the Revenue Reconciliation Act of 1990) if the stated principal amount of the instrument does not exceed the amount specified in § 1274A(b). For debt instruments arising out of sales or exchanges before January 1, 1990, this amount is $2,800,000. In the case of a “cash method debt in- strument,” as defined in § 1274A(c), the borrower and lender may elect to use the cash receipts and disbursements method of accounting. In particular, for any cash method debt instrument, § 1274 does not apply, and interest on the instrument is ac- counted for by both the borrower and the lender under the cash method of account- ing. A cash method debt instrument is a qualified debt instrument that meets the following additional requirements: (A) In the case of instruments arising out of sales or exchanges before January 1, 1990, the stated principal amount does not exceed $2,000,000; (B) the lender does not use an accrual method of accounting and is not a dealer with respect to the property sold or exchanged; (C) § 1274 would have applied to the debt instrument but for an election under § 1274A(c); and (D) an election un- der § 1274A(c) is jointly made with respect to the debt instrument by the borrower and lender. Section 1.1274A–1(c)(1) of the In- come Tax Regulations provides rules con- cerning the time for, and manner of, mak- ing this election. Section 1274A(d)(2) provides that, for any debt instrument arising out of a sale or exchange during any calendar year after 1989, the dollar amounts stated in § 1274A(b) and § 1274A(c)(2)(A) are increased by the inflation adjustment for the calendar year. Any increase due to the inflation adjustment is rounded to the nearest multiple of $100 (or, if the increase is a multiple of $50 and not of $100, the increase is increased to the nearest mul- tiple of $100). The inflation adjustment for any calendar year is the percentage (if any) by which the CPI for the preceding calendar year exceeds the CPI for calendar year 1988. Section 1274A(d)(2)(B) de- fines the CPI for any calendar year as the average of the Consumer Price Index as of the close of the 12-month period ending on September 30 of that calendar year. INFLATION-ADJUSTED AMOUNTS UNDER § 1274A For debt instruments arising out of sales or exchanges after December 31, 1989, the inflation-adjusted amounts under § 1274A areshowninTable1. Rev. Rul. 2010–2 Table 1 Inflation-Adjusted Amounts Under § 1274A Calendar Year of Sale o rExchange 1274A(b) Amount (qualified debt i nstrument) 1274A(c)(2)(A) Amount (cash method debt i nstrument) 1990 $2,933,200$2,095,100 1991 $3,079,600$2,199,700 1992 $3,234,900$2,310,600 1993 $3,332,400$2,380,300 1994 $3,433,500$2,452,500 1995 $3,523,600$2,516,900 1996 $3,622,500$2,587,500 1997 $3,723,800$2,659,900 1998 $3,823,100$2,730,800 1999 $3,885,500$2,775,400 2000 $3,960,100$2,828,700 2001 $4,085,900$2,918,500 2002 $4,217,500$3,012,500 2003 $4,280,800$3,057,700 2004 $4,381,300$3,129,500 2005 $4,483,000$3,202,100 2006 $4,630,300$3,307,400 2007 $4,800,800$3,429,100 2008 $4,913,400$3,509,600 2009 $5,131,700$3,665,500 2010 $5,115,100$3,653,600 Note: These inflation adjustments were computed using the All-Urban, Consumer Price Index, 1982–1984 base, published by the Bureau of Labor Statistics. January 19, 20102732010–3 I.R.B. EFFECT ON OTHER DOCUMENTS Rev. Rul. 2008–52, 2008–49 I.R.B. 1233, is supplemented and superseded. DRAFTING INFORMATION The author of this revenue ruling is An- drea M. Hoffenson of the Office of the As- sociate Chief Counsel (Financial Institu- tions and Products). For further informa- tion regarding this revenue ruling, please contact Ms. Hoffenson at (202) 622–3930 (not a toll-free call). 2010–3 I.R.B.274January 19, 2010 Part III. Administrative, Procedural, and Miscellaneous Relief and Guidance on Corrections of Certain Failures of a Nonqualified Deferred Compensation Plan to Comply with § 409A(a) Notice 2010–6 TABLE OF CONTENTS I. Purpose II. Background III. Eligibility Requirements and Effect of Correction A. In General B. Correction of Plans Containing Substantially Similar Document Failures C. Relief not Available to Service Providers and Certain Service Recipients Under Examination D. Relief not Available for Intentional Failures or Listed Transactions E. Amounts Included in Incomeas a Condition of Correction F. Date of Correction; Determining Certain Periods G. Linked Plans and Stock Rights not Eligible for Relief H. New or Modified Payment Events Required as a Condition of Correction I. Effect of Correction J. References to the Internal Revenue Code; Certain Terms IV. Application of § 409A(a) to Certain Ambiguous Plan Terms A. Terms Providing for a Payment “As Soon as Practicable” or Substantially Similar Language Following a Permissible Payment Event B. Permissible Payment Event with no Definition or an Ambiguous Definition C. Examp les V. Corre ction of Impermissible Definition ofOtherwise Permissible Payment Events A. Impermissible Definition of Separation from Service B. Impermissible Definition of a Change in Control Event C. Impe rmissible Definition of Disability D. Examples VI. Correction of Impermissible Payment Periods followinga Permissible Payment Event A. Payment Periods of Longer than 90 DaysFollowing a Permissible Payment Event B. Pay ment Periods Following a Permissible Payment Event Dependent upon the Service Provider Completing Certain Emplo yment-Related Actions C. Examples VII. Correction of Certain Impermissible Payment Events and Payment Schedules A. Plans with Permissible and Impermissible Payment Events under § 409A B. Plans with Only Impermissible Payment Events under § 409A C. Certain Impermissible Alternative Payment Schedules D. Impermissible Service Provider or Service Recipient Discretion with Respect to a Payment Schedule Following a Permissible Payment Event (Including Impermissible Subsequent Deferral Elections) E. Impermissible ServiceRecipient Discretion to Accelerate Payment Events F. Impermissible Reimbursement or In-Kind Benefit Provisions G. E xamples VIII . Correction of Failure to Include Six-Month Delay of Payment for Specified Employees IX. C orrection of Provisions Providing for Impermissible Initial Deferral Elections X. Am endment Period Following a Service Recipient’s Initial Adoption of a Plan XI. T ransition Relief A. Correction of Document Failures Described in this Notice B. Correction of Impermissible Provisions Linking Nonqualified Deferred Compensation Plans January 19, 20102752010–3 I.R.B. C. Correction of Payment Schedules Determined by the Timing of Payments Received by the Service Recipient D. Service Recipients Under Examination for Returns Covering Periods Beginning on or Before December 31, 2011 XII. Information and Reporting Requirements A. Information Required for Correction of a Document Failure B. Attachment to Service Recipient Tax Return for Failures Described in §§ V through XI of this Notice C. Information to be Provided to Service Provider for Failures Described in §§ V through XI of this Notice D. Attachment to Service Provider Tax Return for Failures Described in §§ V through XI of this Notice XIII. Modifications to Notice 2008–113 XIV. Effect on Other Documents XV. Request for Comments XVI. Paperwork Reduction Act XVII. Drafting Information I. PURPOSE This notice provides methods for tax- payers to voluntarily correct many types of failures to comply with the document requirements applicable under § 409A of the Internal Revenue Code (Code) to non- qualified deferred compensation plans and thereby avoid or reduce the current in- come inclusion and additional taxes un- der § 409A. This document correction pro- gram is intended to encourage taxpayers to review nonqualified deferred compen- sation plans to identify provisions that fail to comply with the requirements of § 409A and § 1.409A–1(c) of the Income Tax Reg- ulations (a document failure), and to cor- rect those plan provisions promptly, while also not providing an advantage to taxpay- ers participating in plans that initially fail to comply with § 409A over taxpayers par- ticipating in plans drafted in compliance with § 409A. Accordingly, this notice pro- vides: •Clarification that certain language commonly included in plan documents will not cause a document failure. •Relief permitting correction of cer- tain document failures without current income inclusion or additional taxes under § 409A, provided, in certain circumstances, that the corrected plan provision does not affect the operation of the plan within one year following the date of correction. •Relief limiting the amount currently includible in income and the additional taxes under § 409A for certain docu- ment failures if correction of the failure affects the operation of the plan within one year following the date of correc- tion. •Relief permitting correction of cer- tain document failures without current income inclusion or additional taxes under § 409A, if the plan is the ser- vice recipient’s first plan of that type (disregarding any plans not subject to § 409A or any plans under which all deferred amounts have previously been paid or forfeited) and the failure is corrected within a limited period following adoption of the plan. •Transition relief permitting corrections of certain document failures without current income inclusion or additional taxes under § 409A, if the document failure is corrected by December 31, 2010, and any operational failures re- sulting from the document failure are also corrected in accordance with No- tice 2008–113, 2008–51 I.R.B. 1305, by December 31, 2010. This notice also clarifies certain aspects of Notice 2008–113, which addresses cer- tain failures of nonqualified deferred com- pensation plans to comply with § 409A in operation (operational failures), including clarification of: •The application of the subsequent year correction method to late payments of amounts deferred. •The calculation of the amount that must be paid to the service provider as a correction of a late payment of an amount deferred under a plan if the payment would have been made in property, such as shares of stock. •The calculation of the amount that must be repaid by the service provider as a correction of an early payment of an amount deferred under a plan if the early payment was made in property, such as shares of stock. II. BACKGROUND Section 409A was added to the Code by § 885 of the American Jobs Creation Act of 2004, Public Law 108–357 (118 Stat. 1418). Section 409A generally provides that, unless certain requirements are met, amounts deferred under a nonqualified de- ferred compensation plan for all taxable years are currently includible in gross in- come to the extent not subject to a substan- tial risk of forfeiture and not previously in- cluded in gross income. Section 409A fur- ther provides that amounts includible in in- come under § 409A are subject to two ad- ditional taxes, a 20% additional tax and an additional tax calculated as the underpay- ment interest determined at a premium in- terest rate that would have been due had the amounts deferred been includible in in- come when first deferred or first no longer subject to a substantialrisk of forfeiture, whichever is later. Thus, a failure to com- ply with the requirements of § 409A may have severely adverse tax consequences. Final regulations under § 409A were is- sued by the IRS and the Treasury Depart- ment on April 17, 2007 (T.D. 9321, 2007–1 C.B. 1123 [72 Fed. Reg. 19234]), effec- tive for taxable years beginning on or af- ter January 1, 2009 (see Notice 2007–86, 2007–2 C.B. 990). A nonqualified deferred compensation plan must comply with the requirements of § 409A both in form and in opera- tion. On December 3, 2008, the Treasury Department and the IRS issued Notice 2008–113, setting forth guidance permit- ting the correction of certain operational failures, and providing transition relief 2010–3 I.R.B.276January 19, 2010 limiting the amount includible in income under § 409A(a) for certain operational failures involving limited amounts. Notice 2008–113 also provided guidance limiting the amount includible in income under § 409A(a) for certain operational failures involving amounts that exceeded the limit. Notice 2008–113 requested comments with respect to potential guidance permit- ting the correction of document failures. In response, the Treasury Department and the IRS received various comments request- ing that relief also be available for docu- ment failures and containing suggestions for corrections. The Treasury Department and the IRS have reviewed all of the com- ments submitted and are issuing this no- tice to provide relief for numerous types of document failures. The Treasury Department and the IRS are issuing this notice primarily to ad- dress document failures. Notice 2008–113 remains in effect to address operational failures. However, § XIII of this notice provides certain modifications to Notice 2008–113, clarifying certain aspects of that notice, that are effective for service provider taxable years beginning on or after January 1, 2010. For further infor- mation regarding the effective dates, see § XIV of this notice. III. ELIGIBILITY REQUIREMENTS AND EFFECT OF CORRECTION A.In General A taxpayer is not eligible for the re- lief provided in §§ V through XI of this notice for a document failure unless the taxpayer demonstrates that all of the fol- lowing requirements have been met: (i) the requirements of this § III applicable to the document failure; (ii) the requirements of the particular section in §§ V through XI of this notice providing the correction method and relief applicable to the docu- ment failure; and (iii) the information and reporting requirements of § XII of this no- tice. The taxpayer claiming the relief has the burden of demonstrating eligibility for the relief and that each of the requirements in the preceding sentence have been met. A taxpayer’s eligibility for the relief pro- vided in this notice is subject to examina- tion by the IRS. B.Correction of Plans Containing Substantially Similar Document Failures Thereliefprovidedin§§VthroughXI of this notice is not available with respect to a plan for which a document failure has been identified and corrected unless, in ad- dition to satisfying the requirements of the applicable sections ofthis notice, the ser- vice recipient takes commercially reason- able steps to: (i) identify all other non- qualified deferred compensation plans that have a document failure that is substan- tially similar to the document failure ini- tially identified and corrected (regardless of whether the other plan provides deferred compensation for any of the same service providers that participate in the plan with the initially identified and corrected docu- ment failure) and (ii) correct all such fail- ures in a manner consistent with this no- tice. C.Relief not Available to Service Providers and Certain Service Recipients Under Examination Except where specifically noted in this notice, the relief provided in §§ V through XI of this notice is not available for a service provider participating in a nonqualified deferred compensation plan if a federal income tax return of the ser- vice provider or a federal tax return of the service recipient is under examination with respect to nonqualified deferred com- pensation for any taxable year in which the document failure existed. For this purpose, an individual service provider or service recipient is treated as under examination with respect to nonqualified deferred compensation if the individual is under examination with respect to the individual’s federal income tax return (for example, Form 1040) for the taxable year. Any other type of service provider or ser- vice recipient is treated as under examina- tion with respect to nonqualified deferred compensation if the service provider or service recipient receives written notifica- tion (for example, by examination plan, information document request (IDR), or notification of proposed adjustments or income tax examination changes) from the examining agent(s) specifically cit- ing nonqualified deferred compensation as an issue under consideration. See § XI.D for certain transition relief through December 31, 2011, regarding federal tax returns of non-individual service recipients under examination. A service provider and service recipient will not fail to qualify for relief, however, merely because the service provider or ser- vice recipient becomes under examination with respect to nonqualified deferred com- pensation after the date of correction, if all of the requirements of this notice for re- lief are otherwise satisfied and the service provider and the service recipient were not under examination on the date of the cor- rection. For example, assume a document failure exists during 2010 and 2011, but not in any prior years. The date of correc- tion of the document failure is January 1, 2012, at which time the federal tax returns of the service providerand service recipi- ent for 2010 and 2011 are not under exam- ination. Provided that the service recipient and service provider otherwise satisfy the requirements of this notice (including any requirements of inclusion of income, pay- ment of additional taxes, reporting and tak- ing commercially reasonable steps to iden- tify and correct all plans with substantially similar document failures), the document failure will remain eligible for the relief so that for purposes of any subsequent exam- ination of the service provider’s or the ser- vice recipient’s federal tax returns for 2010 and 2011, the failure will be treated as cor- rected. D.Relief not Available for Intentional Failures or Listed Transactions Thereliefprovidedin§§VthroughXI of this notice applies only to failures to comply with the plan document require- ments under § 409A(a) and § 1.409A–1(c) that are inadvertent and unintentional. In addition, the relief provided in this notice is not available if the failure is directly or indirectly related to participation in any listed transaction under §1.6011–4(b)(2)). E.Amounts Included in Income as a Condition of Correction If the applicable section of this notice under which the correction is made re- quires that the service provider include an amount deferred in income under § 409A(a), the relief provided under such section is conditioned upon (i) the ser- vice provider including the amount in income on the appropriate tax return and January 19, 20102772010–3 I.R.B. paying all applicable Federal taxes, in- cluding the additional 20% tax under § 409A(a)(1)(B)(i)(II) but not the premium interest tax under § 409A(a)(1)(B)(i)(I), and (ii) the service recipient complying with the information statement reporting requirements set forth in the applicable section of this notice (for example, Form W–2 reporting). Provided that the service provider has actually included the amount in income under § 409A(a) pursuant to the applicable section of this notice and paid the additional tax due on such amount under § 409A(a)(1)(B)(i)(II), the amount included in income will be treated for all subsequent periods as an amount previ- ously included in income for purposes of § 409A(c) and the regulations thereunder. If the applicable section of this notice under which the correction is made re- quires that the service provider include an amount deferred in income under § 409A(a), such as 50% of the amount de- ferred under the plan, the amount deferred to which the income inclusion requirement applies is only the amount deferred to which the corrected plan provision applies, and the calculation of the amount deferred is based upon the plan provision in effect immediately before the correction. F.Date of Correction; Income Inclusion Upon Correction of Multiple Failures For purposes of this notice, the date of correction of a document failure is the lat- est of the date on which the correction is adopted, the date on which the correction is effective and the date on which the cor- rectionissetforthinwritinginoneormore documents. Under many sections of this notice the most favorable relief is available only if certain events do not occur within one year following the date of the correc- tion. For purposes of applying this notice, one year following a date means the pe- riod beginning on such date and ending on the first anniversary of such date. For ex- ample, one year following April 1, 2010, means April 1, 2011. Special rules apply if two or more doc- ument failures that apply to the same de- ferred amount under a plan are corrected, and two or more of the sections of this no- tice pursuant to which the corrections are made with respect to that deferred amount require as a condition of the correction that the service provider include a percentage of the amount deferred in income under § 409A. In that situation, if two or more sections of this notice would require a per- centage of the amount deferred to be in- cluded in income in the same taxable year, the service provider is only required to in- clude in income, and the service recipient is only required to report as income to the service provider, the percentage of the de- ferred amount required to be included in income under the section of this notice pur- suant to which a correction is made with respect to that deferred amount that re- quires the largest percentage to be included in income for that taxable year. For exam- ple, if application of each of two document corrections to the same deferred amount would require that the service provider in- clude 50% of the deferred amount subject to the corrected plan provision in income under § 409A during the same taxable year as a condition of each correction, the ser- vice provider will only be required to in- clude 50% of the deferred amount in in- come under § 409A (and not 100%). If, in the situation described in the first sentence of the preceding paragraph, the applicable sections of this notice would re- quire a percentage of the amount deferred to be included in income under § 409A as a condition of correction in two or more taxable years, then, solely for purposes of determining the amount deferred that must be included in income under § 409A as a condition of correction in a taxable year after the first taxable year in which such an inclusion is required as a condition of correction, the service provider may treat two times the amount included in income under § 409A as a condition of correction in a prior taxable year with respect to the amount deferred as previously included in income. For example, assume that an em- ployee is entitled to a payment upon a sep- aration from service that includes any re- duction in the level of services provided, payable at the discretion of the employer over a period not to exceed three years. On April 1, 2011, the employer corrects the definition of the term “separation from service” but the employee has a reduc- tion in services on June 1, 2011 (within one year of the correction) so that the em- ployee is required to include in income un- der § 409A as a condition of correction 50% of the $100x deferred under the plan, or $50x. On April 1, 2012, the employer corrects the impermissible discretion with respect to the payment schedule follow- ing the permissible payment event. The employee separates from service on Au- gust 1, 2012 (within one year of the cor- rection) so that the employee is required to include in income under § 409A as a con- dition of correction 50% of the amount de- ferred under the plan subject to the provi- sion. However, solely for this purpose, the employee is entitled to treat two times the $50x included in income during 2011, or $100x, as previously included in income. Assume that the amount deferred under the plan for 2012 subject to the provision is $150x. Solely for purposes of determining the amount that must be included as a con- dition of correction, the $150x is reduced by the $100x deemed to be previously in- cluded in income. Accordingly, the em- ployee must include $25x (50% x 50x) in income under § 409A as a condition of the second correction. G.Linked Plans and Stock Rights not Eligible for Relief Except as specifically provided in § XI.B of this notice, the relief provided under this notice does not apply to a plan to the extent that the document failure is due to the amount deferred under the plan being determined by, or the time or form of payment being affected by, the amount deferred under, or the payment provisions of, one or more other non- qualified deferred compensation plans or one or more qualified plans (as defined in § 1.409A–1(a)(2)). In addition, the relief provided under this notice does not apply to a stock right. For certain relief with re- spect to a stock right with an exercise price that is less than the fair market value of the underlying shares of stock at the date of grant, see Notice 2008–113, §§ IV.D and V.E. H.New or Modified Payment Events Required as a Condition of Correction Many of the corrections available under this notice are conditioned upon the plan being amended to adopt a new or modi- fied payment event for an amount deferred. Nothing in these conditions is intended to prohibit or alter the ability of the plan to be modified at any time to include death, disability or an unforeseeable emergency as a payment event (see § 1.409A–3(i)(3)), 2010–3 I.R.B.278January 19, 2010 or to adopt any of the permissible excep- tions to the rule prohibiting accelerated payments (see § 1.409A–3(j)(4)). In ad- dition, nothing in these conditions is in- tended to prohibit or alter the ability to pro- vide for a subsequent deferral election un- der the plan that complies with the require- ments of § 409A, provided that the subse- quent deferral election requirements apply, both in form and in operation, to the de- ferred amount based upon the plan provi- sions after correction under this notice. I.Effect of Correction If a document failure is eligible for cor- rection under, and is fully corrected in ac- cordance with, the requirements of this § III, the applicable provisions of §§ V through XI of this notice (including any requirement of a service recipient to re- port, and a service provider to include an amount in income under § 409A(a) and pay all applicable taxes, including an ad- ditional tax under § 409A(a)), and the re- porting requirements of § XII of this no- tice, then, except as otherwise provided in this notice, the service recipient will not be required to report, and the service provider will not be required to include any amount as income under § 409A(a) for any taxable year of the service provider before the tax- able year in which the document failure is properly corrected, solely as a result of the document failure being in the written plan during any such earlier year. For purposes of this notice, a plan provision is fully cor- rected only if the plan provision, and any substantially similar plan provision, has been corrected in accordance with this no- tice with respect to all deferred amounts under the plan to which the plan provision, or the substantially similar plan provision, applies (other than deferred amounts not subject to § 409A, such as grandfathered amounts as defined under § 1.409A–6). This notice does not address the appli- cation of any other provision of the Code or any other rule of law or tax doctrine, including the constructive receipt doctrine and the economic benefit doctrine, to a nonqualified deferred compensation plan due to the plan provisions either before or as a result of the correction of a plan provi- sion under this notice, or due to the opera- tion of the plan either before or as a result of the correction of a plan provision under this notice. J.References to the Internal Revenue Code; Certain Terms For purposes of this notice, references to sections of the Code include references to the regulations and any other applicable guidance thereunder. For purposes of this notice, the term “payment event” refers to an event set forth in the applicable plan, the occurrence of which will result in the payment of compensation, the terms “per- missible payment event” or “permissible payment event under § 409A” refer to any event the occurrence of which will result in the payment of compensation that sat- isfies the requirements of § 409A(a) and § 1.409A–3(a), and the terms “impermissi- ble payment event” or “impermissible pay- ment event under § 409A” refer to any event the occurrence of which will result in the payment of compensation that does not satisfy the requirements of § 409A(a) and § 1.409A–3(a). As provided by § 1.409A–1(c)(3)(viii), the plan aggregation rules of § 1.409A–1(c)(2)(i) do not apply to the written plan requirements of § 1.409A–1(c)(3), so that deferrals of com- pensation under an agreement, method, program, or other arrangement that fails to meet the requirements of § 409A solely due to a failure to meet the written plan requirements of § 1.409A–1(c)(3) are not aggregated with deferrals of compensa- tion under other agreements, methods, programs, or other arrangements that meet such requirements. Accordingly, for purposes of this notice (other than § X and § XIII of this notice, and any references to the correction of an operational failure), the terms “arrangement”, “plan” and “nonqualified deferred compensation plan” refer to a plan or arrangement subject to the requirements of § 409A(a), without reference to the aggregation rules of § 1.409A–1(c)(2)(i). References in this notice to amounts deferred under a plan in the context of a dollar amount deferred (for example, a requirement to include in income un- der § 409A(a) a specified percentage of the amount deferred under the plan) refer to the dollar amount determined under applicable guidance. As of January 5, 2010, the applicable guidance for this pur- pose is Notice 2008–115, 2008–52 I.R.B. 1367, which also permits taxpayers to rely upon the proposed regulations under § 1.409A–4, issued on December 8, 2008 (REG–148326–05, 2008–51 I.R.B. 1325 [73 Fed. Reg. 74380]). Under this guid- ance, the amount deferred under a plan is determined as of the last day of the service provider’s taxable year. If an amount is requiredtobeincludedinincomeasa condition of a document correction with- out regard to whethera subsequent event occurs, the amount deferred under the plan is determined as of the last day of the ser- vice provider’s taxable year during which the correction is made. If an amount is requiredtobeincludedinincomeasa condition of a document correction only if an event occurs within a certain period of time following the document correction (generally one year),the amount deferred under the plan is determined as of the last day of the service provider’s taxable year during which the event occurs. References in this notice to the applica- tion of a corrected plan provision refer to the change in the operation of the plan that results from compliance with the corrected plan provision in lieu of the pre-correction plan provision. Nothing in this notice is intended to imply that compliance with a corrected plan provision is elective or that a failure to comply with a corrected plan provision would not otherwise be an oper- ational failure under § 409A(a). IV. APPLICATION OF § 409A(a) TO CERTAIN AMBIGUOUS PLAN TERMS A.Terms Providing for a Payment “As Soon as Practicable” or Substantially Similar Language Following a Permissible Payment Event 1. Eligibility This section applies to a plan provi- sion that sets forth a permissible payment event under § 409A(a) and § 1.409A–3(a), but requires payment “as soon as reason- ably practicable” following the permissi- ble payment event, or under conditions substantially similar to as soon as practi- cable following the permissible payment event. 2. Application of § 409A Except as otherwise provided in this § IV.A, a plan provision does not fail to sat- isfy the requirement to designate a permis- January 19, 20102792010–3 I.R.B. sible payment event under § 1.409A–3(b), and does not otherwise result in a docu- ment failure, merely because it includes a phrase described in § IV.A.1 of this notice. For purposes of § 1.409A–3(d) (rules re- garding the timeliness of payments), and the application of the subsequent defer- ral rules and anti-acceleration rules under § 409A, the permissible payment event un- der § 409A(a) is treated as the payment date. Thus, if the payment is not made by the later of the end of the service provider’s taxable year in which the permissible pay- ment event occurs or the fifteenth day of the third calendar month following the per- missible payment event, the failure to pay will constitute an operational failure unless the service provider can demonstrate that the delay qualifies for a timeliness excep- tion under the regulations (for example, the payment would have jeopardized the abil- ity of the service recipient to continue as a going concern pursuant to § 1.409A–3(d)). The resulting operational failure may qual- ify for the correction of operational fail- ures involving late payments pursuant to Notice 2008–113 provided that all other applicable requirements of that notice are met. Notwithstanding the foregoing, if a plan contains a provision otherwise eligi- ble for this section and the service recipi- ent has a pattern or practice of making late payments that do not qualify for a timeli- ness exception under the regulations, that plan and any other plan of the service re- cipient containing language similar to that provision will be treated as having failed to set forth a permissible payment date (regardless of whether the other plan pro- vides deferred compensation to any ser- vice provider that participates in the plan otherwise eligible for this section). B.Permissible Payment Event with no Definition or an Ambiguous Definition 1. Eligibility This section applies to a plan provision that designates a payment event but does not define the payment event or has an am- biguous definition of the payment event, if the plan provision could reasonably be interpreted to be compliant with § 409A, but could also reasonably be interpreted to include an impermissible payment event under § 409A (or to not include events that must be included in the definition of a permissible payment event under § 409A). For example, the use of the term “termina- tion of employment” as a payment event in a plan could be interpreted to mean only events that constitute a separation from service for purposes of § 1.409A–3(a)(1), or also to include events that do not consti- tute a separation from service for purposes of § 1.409A–3(a)(1) (and to exclude events that must be included in the definition of a separation from service). Similarly, the use of the term “acquisition” of the ser- vice recipient as a payment event in a plan could be interpreted to mean only events that constitute a change in control event under § 1.409A–3(a)(5), or also to include events that do not constitute a change in control event under § 1.409A–3(a)(5). If the plan also contains a provision requir- ing that the term be interpreted to comply with the requirements of § 409A (or a plan provision with the same effect), this sec- tion does not apply because the provision is not ambiguous and complies with the re- quirements of § 409A and § 1.409A–3(a). If the particular plan provision has been interpreted by the service recipient, on or after January 1, 2009, such that a pattern or practice of the application of a specific in- terpretation has been established that does not satisfy the requirements of § 409A, the plan provision will no longer be treated as ambiguous either with respect to the plans to which the service recipient has applied the interpretation, or any other plan of the service recipient with substantially similar language (regardless of whether the plans provide deferred compensation to the same service provider or service providers), and therefore will not be eligible for the relief in this § IV.B (but see § V of this notice). Similarly, if the particular plan provision hasbeeninterpretedbyacourtwithjuris- diction over the enforcement of the con- tract, the term will no longer be treated as ambiguous either with respect to the plan at issue in the decision or with re- spect to any other plan of the service re- cipient with substantially similar language over which the same court has jurisdiction (regardless of whether the plans provide deferred compensation to the same service provider or service providers). If the defi- nition of the payment event in the plan ex- plicitly includes events that would not con- stitute a permissible payment event under § 409A, or explicitly excludes events that are required for the payment event to be treated as a permissible payment event un- der § 409A, this section does not apply (but see § V of this notice). 2. Application of § 409A Except as otherwise provided in this § IV.B, a payment provision eligible for this section will not result in the plan failing to satisfy the requirements of § 409A(a) and § 1.409A–3(a). If an amount is paid pursuant to the provision in a manner that is not compliant with the requirements of § 409A(a) (or, pursuant to the provision, the plan fails to make a payment of an amount required to be paid to comply with the requirements of § 409A(a)), that payment (or failure to make a payment) may be treated as an operational failure eligible for relief under Notice 2008–113 despite the interpretation of the written plan provision in a man- ner that does not comply with § 409A(a), provided that the plan is amended in accor- dance with this section before the end of the service provider’s taxable year during which the operational failure is corrected in accordance with Notice 2008–113. Notwithstanding the foregoing, if the facts and circumstances indicate that the ser- vice recipient has intentionally used an ambiguous term for a payment event in a plan, the plan and any other plan of the service recipient with the same or sub- stantially similar language (regardless of whether the plans include any of the same service providers) will not be eligible for relief under this section. An amendment satisfies the requirements of this section if the amendment either: (i) adds language requiring that the terms of the plan be interpreted as necessary to comply with the requirements of § 409A(a), or (ii) sets forth explicit definitions of the terms of the plan that comply with the requirements of § 409A(a) (including by cross-reference to the relevant regulations under § 409A(a)), provided that in either case, except as necessary to satisfy the requirements of § 1.409A–3(a), the amendment may not have the effect of either expanding the definition to include as a payment event any event that was not a payment event under the plan before the amendment, or narrowing the definition to eliminate as a payment event any event that was a payment event under the plan before the amendment. For purposes of applying the 2010–3 I.R.B.280January 19, 2010 previous sentence, it is assumed that no permissible alternative definitions were designated under the plan (for example, a permissible alternative definition of sepa- ration from service under § 1.409A–1(h)) other than those designations timely made and explicitly provided in the plan before the correcting amendment. C.Examples The following examples illustrate the provisions of this § IV. Example 1 (as soon as reasonably practicable payment provision). Employee A is an employee of Employer who participates in a plan that provides for a lump sum payment “as soon as reasonably practi- cable” following the earliest of separation from ser- vice, death, disability or a change in control of Em- ployer, but does not specify any other time limit for when payment must be completed. The definitions of the payment events under the plan satisfy the re- quirements of § 1.409A–3(a). A change in control event occurs with respect to Employer on December 1, 2010, resulting in Employee A being entitled to a lump sum payment under the plan. Conclusion: The plan provision providing for payment “as soon as reasonably practicable” follow- ing the payment event does not cause the plan to fail to designate a permissible payment date under § 409A and § 1.409A–3(b). However, if the amount is not actually paid to Employee A by the later of the end of the 2010 calendar year or the fifteenth day of the third calendar month following the change in control event (in this case, March 15, 2011), and the late payment does not satisfy the requirements of a timeliness exception under the § 409A regulations, the plan will have an operational failure with respect to the payment to Employee A that may be eligible for correction under Notice 2008–113. Example 2 (ambiguous definition of payment event).Employee B is an employee of Employer whose employment agreement with Employer pro- vides for payment of $100x upon Employee B’s “termination of employment.” The employment agreement does not define what events constitute a “termination of employment” and does not include a provision that the terms of the agreement must be interpreted in a manner consistent with § 409A. To date, employees of Employer with substantially similar plan provisions have never reduced their employment to part-time and have only been paid upon an event that constitutes a complete cessation of services to Employer with no anticipated return to providing services to Employer. Consequently, there is no pattern or practice of paying amounts upon payment events that would not constitute separations from service under § 409A or § 1.409A–3(a)(1), or not paying amounts upon payment events that would constitute separations from service under § 409A(a) and § 1.409A–3(a)(1). There is no indication that the term was intentionally left vague. On April 1, 2010, before any amendment of the employment agreement, Employee B ceases providing services to Employer with no anticipated return and Employer determines that Employee B has become entitled to the payment of $100x. Employer pays Employee B the $100x on April 1, 2010. Conclusion: The plan provision providing for payment upon a “termination of employment” will not cause the employment agreement to fail to sat- isfy the document requirements of § 409A(a) and § 1.409A–3(a) to the extent the term is not inter- preted to provide for payment under circumstances that would cause the employment agreement to fail to satisfy the requirements of § 409A(a) and § 1.409A–3(a) in operation. The agreement may be amended at any time to provide either (i) the plan provision must be interpreted to comply with the requirements of § 409A, or (ii) an explicit definition of termination of employment that qualifies as a separation from service under § 1.409A–3(a)(1), provided that in either case the amendment may not have the effect of either expanding the definition to include as a payment event any event that was not a payment event under the plan before the amendment, or narrowing the definition to eliminate as a payment event any event that was a payment event under the plan before the amendment, except as necessary to satisfy the requirements of § 1.409A–3(a)(1) (applied as if no alternative definition of separation from ser- vice permitted under § 1.409A–1(h) was designated under the plan other than a designation timely-made and explicitly provided in the pre-correction plan provision). The payment of $100x on April 1, 2010, will not be an operational failure and will not re- sult in the employment agreement being treated as failing to satisfy the requirements of § 409A(a) and § 1.409A–3(a)(1). Example 3 (ambiguous definition of payment event):ThesamefactsasinExample 2, except that the employment agreement is between Employer and Employee C. Employee C provided, on average, 40 hours of service to Employer over the 36-month period ending on April 1, 2010. On April 1, 2010, before any amendment of the agreement, Employee C changes status from an employee to an indepen- dent contractor and is expected to provide 20 hours of service per week to Employer, which would not be a separation from service under § 1.409A–3(a)(1). Employer determines that under the agreement Employee C is not entitled to a payment of $100x because Employee C has not had a separation of service from Employer. Conclusion: The plan provision providing for payment upon “termination of employment” will not cause the employment agreement to fail to sat- isfy the document requirements of § 409A(a) and § 1.409A–3(a) to the extent the term is not interpreted to provide for payment under circumstances that would cause the employment agreement to fail to sat- isfy the requirements of § 409A(a) and § 1.409A–3(a) in operation. The agreement may be amended at any time to provide either (i) that the plan provision must be interpreted to comply with the requirements of § 409A, or (ii) an explicit definition of termination of employment that qualifies as a separation from service under § 1.409A–3(a)(1), provided that the definition does not add a payment event that would not have been a payment event under the pre-cor- rection plan provision, or remove a payment event that would have been a payment event under the pre-correction plan provision, except as necessary to satisfy the requirements of § 1.409A–3(a)(1) applied as if no alternative definition of separation from ser- vice permitted under § 1.409A–1(h) was designated under the plan, other than a designation timely made and explicitly provided in the pre-correction plan provision. V. CORRECTION OF IMPERMISSIBLE DEFINITIONS OF OTHERWISE PERMISSIBLE PAYMENT EVENTS A.Impermissible Definition of Separation from Service 1. Eligibility This section applies to a plan provi- sion that provides for a payment upon an event involving a change in the relation- ship between the service provider and the service recipient related to the level of services provided bythe service provider (for example, a change from full-time to part-time employment), the capacity in which the service provider provides the services to the service recipient (for exam- ple, a change in status from an employee to an independent contractor), or the re- cipient of the services provided by the service provider (for example, a change from employment by one subsidiary to employment by another subsidiary) that does not qualify as a separation from ser- vice under § 1.409A–3(a)(1) but is treated as a payment event under the plan. This section also applies to a plan provision that fails to provide for a payment upon an event that is a separation from ser- vice under § 1.409A–3(a)(1) (without reference to any permissible alternative definition of separation from service un- der § 1.409A–1(h) that may be designated under a plan). 2. Correction A plan provision eligible for this sec- tion may be corrected in accordance with this section before the date an event occurs that would not be a separation from service under § 1.409A–3(a)(1) but is a payment event under the plan, or the date an event occurs that is a separation from service un- der § 1.409A–3(a)(1) but is not a payment event under the plan. The plan may be corrected by amending the plan to provide for a payment event that satisfies the re- quirements of § 1.409A–3(a)(1), provided that the amendment may not have the effect of either expanding the definition January 19, 20102812010–3 I.R.B. to include as a payment event any event that was not a payment event under the plan before the amendment, or narrowing the definition to eliminate as a payment event any event that was a payment event under the plan before the amendment, except as necessary to satisfy the re- quirements of § 1.409A–3(a)(1) (without reference to any permissible alternative definition of separation from service un- der § 1.409A–1(h) that may be designated under a plan). The amendment must be effective immediately. If, within one year following the date of correction, an event occurs that is not a separation from service under § 1.409A–3(a)(1) but would have required payment under the pre-correc- tion plan provision, or that is a separation from service under § 1.409A–3(a)(1) but would not have required payment under the pre-correction plan provision, and re- sults in the corrected plan provision being applied to avoid a payment that would have been due under the pre-correction plan provision, or to make a payment that would not have been due under the pre-correction plan provision, 50% of the amount deferred under the plan to which the pre-correction plan provision applied must be included in income under § 409A by the affected service provider in the ser- vice provider’s taxable year within which the event occurs. B.Impermissible Definition of a Change in Control Event 1. Eligibility This section applies to a provision of a plan of a service recipient that provides, for a service provider with respect to whom that service recipient satisfies the require- ments of § 1.409A–3(i)(5)(ii) (identifica- tion of relevant corporations), for a pay- ment upon the sale of some or all of the equity or assets of the service recipient (other than specifically identified assets or a specifically identified type of assets), or a change in the effective control of the ser- vice recipient, but thatincludes events that would not qualify as a change in control event under § 1.409A–3(a)(5). For this purpose, with respect to a parent corpo- ration or other parent entity, a payment event based upon the sale of an identified subsidiary constitutes the sale of a speci- fied asset, and accordingly employees of the parent corporation would not be eligi- ble for the relief provided in this section (though employees of the subsidiary cor- poration may be eligible for the relief). In addition, the requirement of a public offer- ing of securities, securing of financing, or similar event does not constitute a sale of some or all of the equity or assets of a ser- vice recipient, or a change in effective con- trol of a service recipient, for purposes of this section. 1 2. Correction A plan provision eligible for this sec- tion may be corrected in accordance with this section before the date an event occurs that is not a change in control event under § 1.409A–3(a)(5) but is a payment event under the plan. The plan may be corrected by amending the plan to provide for a change in control event that satisfies the requirements of § 1.409A–3(a)(5), pro- vided that the amendment may not cause an event that was not a payment event under the original terms of the plan to become a payment event under the plan. The amendment must be effective imme- diately. If, within one year following the date of correction, a transaction occurs that is not a change in control event un- der § 1.409A–3(a)(5) and results in the corrected plan provision being applied to avoid a payment that would have been due under the pre-correction plan provision, 25% of the amount deferred under the plan to which the pre-correction plan provi- sion applied must be included in income under § 409A(a) by the affected service provider in the service provider’s taxable year within which the event occurs. C.Impermissible Definition of Disability 1. Eligibility This section applies to a plan provision that provides for a payment event related to the service provider’s illness or other incapacity and resulting inability to per- form the service provider’s duties as a ser- vice provider to the service recipient, but that does not qualify as disabled within the meaning of §§ 409A(a)(2)(A)(ii) and 409A(a)(2)(C) and §§ 1.409A–3(a)(2) and 1.409A–3(i)(4). 2. Correction A plan provision eligible for this sec- tion may be treated by the service recipient and service provider as not failing to sat- isfy the requirements of § 409A(a) and § 1.409A–3(a)(2) before an event oc- curs that is not a disability within the meaning of §§ 409A(a)(2)(A)(ii) and 409A(a)(2)(C) and § 1.409A–3(a)(2) but is a payment event under the plan. The plan may be corrected by amend- ing the plan provision either to remove the payment event or to define the pay- ment event as a disability within the meaning of §§ 409A(a)(2)(A)(ii) and 409A(a)(2)(C) and § 1.409A–3(a)(2). The amendment must be effective immedi- ately. The plan may be corrected in the same manner after an event occurs that is not a disability within the meaning of §§ 409A(a)(2)(A)(ii) and 409A(a)(2)(C) and § 1.409A–3(a)(2) but is a payment event under the plan, but only if the entire amount, if any, paid under the plan due to the event would be eligible for correc- tion under Notice 2008–113 if the plan were treated as having had a compliant plan provision regarding the disability payment, and the payment is treated as an operational failure and is corrected under Notice 2008–113. D.Examples The following examples illustrate the provisions of this § V. For each example, assume that the employee and employer are eligible to correct the impermissible provision under § III of this notice at all relevant times. Example 1 (impermissible definition of separa- tion from service). Employer consists of one parent corporation and two 80%-owned subsidiaries. Em- ployee D is an employee of the parent corporation who participates in a plan providing for $100x when Employee D separates from service from the parent corporation, defined to be a separation from service under § 1.409A–3(a)(1) except that the term also in- cludes a transfer from employment by the parent cor- poration to employment by either of the subsidiaries. On January 10, 2011, Employee D transfers from the parent corporation to a subsidiary corporation. Conclusion: Because the plan provision was not corrected before EmployeeD transferred from the 1 However, until further guidance is issued, for purposes of identifying and correcting failures eligible for thissection, taxpayers may apply the guidance provided in Section III.G of the Preamble to the final regulations issued under § 409A regarding application of change in control events by analogy to partnerships. 2010–3 I.R.B.282January 19, 2010 parent corporation to a subsidiary corporation, re- gardless of whether Employee D is paid $100x, the plan fails to satisfy the requirements of § 409A(a) and § 1.409A–3(a)(1) for 2011 and all previous years in which the plan contained that plan provision, and Em- ployee D must include amounts in income and pay the additional taxes under § 409A(a) accordingly. Example 2 (impermissible definition of separa- tion from service). The same facts as inExample 1, except that the plan is with Employee E, instead of Employee D, and Employee E does not transfer em- ployment on January 10, 2011. On March 1, 2011, Employer amends the plan to remove a transfer from the parent corporation to either of the subsidiaries as a separation from service payment event under the plan. On July 1, 2011, Employee E transfers employ- ment from the parent corporation to one of the sub- sidiary corporations. Conclusion: Employer and Employee E corrected the provision before Employee E transferred from the parent corporation to one of the subsidiary cor- porations, but Employee E transferred from the par- ent corporation to a subsidiary corporation within one year following the date of correction. Provided that Employer does not pay Employee E any amount un- der the plan due to the event, Employer reports 50% of the amount deferred under the plan to which the pre-correction plan provision applied as an amount includible in income under § 409A(a) for 2011 on the Form W–2, Box 1 and Box 12 using Code Z, for Employee E, and Employee E includes 50% of the amount deferred in income under § 409A(a) and pays all applicable Federal taxes, including the ad- ditional 20% tax on such amount (but not the addi- tional premium interest tax), Employee E will not be required to include in income under § 409A(a) any further amount solely as a result of the pre-correction plan provision. Example 3 (impermissible definition of separa- tion from service). The same facts as inExample 2, except that the plan is with Employee F, instead of Employee E, and Employee F does not transfer em- ployment on July 1, 2011. On May 1, 2012, Em- ployee F transfers employment from the parent cor- poration to one of the subsidiary corporations. Conclusion: Employer and Employee F corrected the provision before Employee F transferred from the parent corporation to one of the subsidiary corpora- tions, and Employee F did not transfer from the par- ent corporation to a subsidiary corporation within one year following the date of correction. Provided that Employer does not pay Employee E any amount un- der the plan due to the event, Employee F will not be required to include any amount in income under § 409A(a) solely as a result of the pre-correction plan provision. Example 4 (impermissible definition of a change in control payment event).Employee G is an em- ployee of Employer. Employee G participates in a plan that provides for a payment of $100x to Em- ployee G upon the earliest of Employee G attaining age 65, death, or a “change in control” of Employer. The definition of “change in control” under the plan does not satisfy the definition of a change in con- trol event under § 1.409A–3(a)(5) solely because the definition includes an initial public offering of more than 30% of the stock of Employer. On February 15, 2011, at which time Employee G is age 50, Employer amends the definition of change in control under the plan to delete the occurrence of an initial public of- fering of Employer stock as a “change in control” of Employer and does not add any other change in con- trol events that would cause a payment under the plan, regardless of whether the additional event is permis- sible under § 1.409A–3(a)(5). Employer has an initial public offering of 33% of Employer stock on July 1, 2011. Conclusion: Employer and Employee G cor- rected the provision before the initial public offering, but the initial public offering occurred within one year following the date of correction. Provided that Employer does not pay Employee G any amount un- der the plan due to the event, Employer reports 25% of the amount deferred under the plan to which the pre-correction plan provision applied as an amount includible in income under § 409A(a) for 2011 on the Form W–2, Box 1 and Box 12 using Code Z, for Employee G, and Employee G includes 25% of the amount deferred in income under § 409A(a) and pays all applicable Federal taxes, including the additional 20% tax on such amount (but not the additional pre- mium interest tax), Employee G will not be required to include in income under § 409A(a) any further amount solely as a result of the pre-correction plan provision. Example 5 (impermissible definition of a dis- ability provision).Employee H is an employee of Employer who participates in a plan that provides for payments of $100x to Employee H upon the earlier of Employee H’s separation from service (as defined under § 1.409A–1(h)), death or disability. The definition of disability requires only that the employee be unable to continue for a period of six months his or her duties in the employee’s position of employment at the time of the disability. On July 1, 2011, Employee H suffers an illness that qualifies as a disability under the plan but does not qualify as a disability under § 1.409A–3(a)(2). On July 15, 2011, Employee H receives a payment of $100x. On August 1, 2011, the plan is amended so that the definition of disability under the plan would qualify as a disability under § 1.409A–3(a)(2). On September 15, 2011, Employer and Employee H treat the $100x as an operational failure under Notice 2008–113 and Employee H repays Employer the $100x and meets all the other requirements of Notice 2008–113. Conclusion: Because the plan provision defining disability was corrected and all payments received under the plan due to the impermissible payment event were treated as operational failures and corrected under Notice 2008–113, Employer and Employee H are not required to treat the plan as failing to satisfy the requirements of § 409A(a) and § 1.409A–3(a)(2) solely due to the plan provision defining disability. Example 6 (impermissible definition of a disabil- ity provision).ThesamefactsasinExample 6, except that the plan is between Employer and Employee J, and on July 1, 2011, Employee J does not suffer an illness but instead is injured in a manner that quali- fies as a disability under the plan and as a disability under § 1.409A–3(a)(2). Conclusion: Because the injury to Employee J qualifies as both a payment event under the plan and a disability under § 1.409A–3(a)(2), Employee J must be paid $100x. A failure to pay the $100x would be an operational failure that may be eligible for correction under Notice 2008–113. VI. CORRECTION OF IMPERMISSIBLE PAYMENT PERIODS FOLLOWING A PERMISSIBLE PAYMENT EVENT A.Payment Periods of Longer than 90 Days Following a Permissible Payment Event 1. Eligibility This section applies to a plan provision that provides that payment will be made following a permissible payment event un- der § 409A, but designates the period im- mediately following such payment event during which payment may be made or commenced as later than 90 days and ear- lier than 366 days following such payment event. 2. Correction A plan provision eligible for this section may be corrected by amending the plan to either remove the period following the permissible payment event during which payment may be made or commenced, or to set forth a period immediately following the permissible payment event that com- plies with § 409A(a) and § 1.409A–3(b) (so that it is a period not exceeding 90 days and the service provider does not have a right to designate the taxable year of pay- ment). If the plan is not so amended before the occurrence of the permissible payment event with respect to any service provider, but is so amended within a reasonable time thereafter, the plan may be treated as not failing to comply with § 409A(a) and § 1.409A–3(b) (so that the amount is paid within 90 days of the payment event and the service provider does not have a right to designate the taxable year of payment) for the affected service provider solely due to the impermissible payment periods, provided that upon the occurrence of the permissible payment event the plan com- plies in operation with § 1.409A–3(b) with respect to the affected service provider, and 50% of the amount deferred under the plan to which the pre-correction plan provision applied is included in income under § 409A(a) by the affected service January 19, 20102832010–3 I.R.B. provider in the service provider’s taxable year within which the permissible pay- ment event occurs. B.Payment Periods Following a Permissible Payment Event Dependent Upon the Service Provider Completing Certain Employment-Related Actions 1. Eligibility This section applies to a plan provision that provides for payment upon a permissi- ble payment event under § 409A, but con- ditions the payment on an employment-re- lated action of the service provider such as the execution and submission of a non- competition agreement, a nonsolicitation agreement, or a release of claims. 2. Correction A plan provision eligible for this sec- tion may be corrected in accordance with this section before the date an event oc- curs that would be a permissible payment event under § 409A to which the provi- sion applies. The plan may be corrected by amending the plan to remove the abil- ity of the service provider to delay or accel- erate the timing of the payment as a result of the service provider’s actions; provided, however, that if the plan provides for pay- ment (subject to the service provider’s ac- tion) within a designated period follow- ing the permissible payment event under § 409A that complies with § 1.409A–3(b), the amendment must provide for payment only on the last day of such designated pe- riod, and if the plan does not provide for payment (subject to the service provider’s action) within a designated period follow- ing the permissible payment event under § 409A that complies with § 1.409A–3(b), the amendment must provide for payment only upon a fixed date either 60 or 90 days following the occurrence of the permissi- ble payment event. The amendment may not otherwise change the time or form of payment. C.Examples The following examples illustrate the provisions of this § VI. For each example, assume that the employee and employer are eligible to correct the impermissible provision under § III of this notice at all relevant times. Example 1 (Payment Period in Excess of 90 Days Following Permissible Payment Event). Employee K is an employee of Employer whose employment agreement entitles Employee K to $100x upon a separation from service (defined to comply with § 1.409A–1(h)), payable within 180 days following the separation from service and the exact timing within the 180 days is in the discretion of Employer. On February 1, 2011, Employee K has a separa- tion from service from Employer. Employer pays Employee K $100x on March 1, 2011, provides Employee K no election regarding the timing of the payment and amends the employment agreement to comply with § 1.409A–3(b) within a reasonable period of time following February 1, 2011. Conclusion: Employer paid Employee K $100x within 90 days following Employee K’s separation from service, Employer provided Employee K no election regarding the timing of the payment and Employer amended the employment agreement to comply with § 1.409A–3(b) within a reasonable period of time following Employee K’s separation from service. Provided that Employer reports 50% of the amount deferred under the plan to which the pre-correction plan provision applied as an amount includible in income under § 409A(a) for 2011 on the Form W–2, Box 1 and Box 12 using Code Z, for Employee K, and Employee K includes the amount in income under § 409A(a) and pays all applicable Federal taxes, including the additional 20% tax on such amount (but not the additional premium interest tax), Employee K will not be required to include in income under § 409A(a) any further amount solely as a result of the plan provision providing a 180-day payment period. Example 2 (impermissible payment period fol- lowing a permissible payment event).Thesame factsasinExample 1, except that the agreement is between Employer and Employee L, and Employee L does not separate from service on March 1, 2011. On March 15, 2011, Employer amends Employee L’s employment agreement to provide for payment within 90 days of Employee L’s separation from service with the exact timing within the 90 days at the discretion of the employer. On April 1, 2011, Employee L has a separation from service from Employer and Employer pays Employee L $100x on April 15, 2011, without providing Employee L any election regarding the timing of the payment. Conclusion: Because Employer corrected Em- ployee L’s employment agreement before Employee L’s separation from service, Employee L will not be required to include any amount in income under § 409A(a) solely as a result of the 180-day payment period under the pre-correction plan provision. Example 3 (impermissible payment provision making timing of payment after a permissible pay- ment event dependent upon service provider action). Employee M is an employee of Employer whose employment agreement entitles Employee M to $100x upon a separation from service (defined to comply with § 1.409A–1(h)). Employee M’s em- ployment agreement provides that the amount is payable within 90 days of Employee M’s separation from service, but not until Employee M executes and submits a release of claims and any period during which Employee M may revoke the release pursuant to applicable law has expired before the end of the 90-day period. If Employee M fails to execute the release the amount is forfeited. On April 1, 2011, Employer and Employee M amend Employee M’s employment agreement to provide for payment of the amount on the 90 th day following Employee M’s separation from service provided that Employee M has executed and submitted a release of claims and the statutory period during which Employee M is entitled to revoke the release of claims has expired on or before that 90 th day. Employee M has a sepa- ration from service with Employer on June 1, 2011 and Employee M executes and submits a release of claims on June 30, 2011. Employer pays Employee $100x on August 30, 2011. Conclusion: Because Employer and Employee M corrected the amendment before Employee M’s sep- aration from service, andbecause Employer paid the amount in compliance with the amended plan pro- vision, Employee M is not required to include any amount in income under § 409A solely due to the pre-correction plan provision. Example 4 (payment provision making timing of payment after a permissible payment event depen- dent upon service provider action). Employee N is an employee of Employer whose employment agree- ment entitles Employee N to $100x upon a separation from service (defined to comply with § 1.409A–1(h)). Employee N’s employment agreement provides that the amount is payable upon Employee N executing and submitting a release of claims and after any pe- riod during which Employee N may revoke the re- lease pursuant to applicable law has expired, but the agreement does not include any time limit for pay- ment. On April 1, 2011, Employer and Employee N amend Employee N’s employment agreement to pro- vide for payment of $100x on the 60 th day follow- ing Employee N’s separation from service, provided that Employee N has executed and submitted a re- lease of claims and the statutory period during which Employee N is entitled to revoke the release of claims has expired on or before that 60 th day. Employee N has a separation from service with Employer on June 16, 2011. Employee N executes and submits a release of claims on July 1, 2011. Employer pays Employee N $100x on August 15, 2011. Conclusion: Because Employer and Employee N corrected the provision before Employee N’s separa- tion from service, Employee N is not required to in- clude any amount in income under § 409A(a) solely due to the pre-correction plan provision. VII. CORRECTION OF CERTAIN IMPERMISSIBLE PAYMENT EVENTS AND PAYMENT SCHEDULES A.Plans with Permissible and Impermissible Payment Events under § 409A 1. Eligibility This section applies to a plan provision that, with respect to a deferred amount, provides both for one or more permissible payment events under § 409A, and one or more impermissible payment events under 2010–3 I.R.B.284January 19, 2010 § 409A. This section does not apply to a payment event the occurrence of which is in the discretion of the service recipient, such as the right of the service recipient to use its discretion to pay some or all of an amount upon a different payment event (for example, service recipient discretion to terminate and liquidate the plan), or the service provider, such as the right of the service provider to an accelerated payment upon an agreement to forfeit a portion of the amount deferred (a haircut provision). 2. Correction With respect to a service provider, a plan provision eligible for this section may be corrected in accordance with this sec- tion before the date a payment event that is impermissible under § 409A has been elected as a payment event by the service provider participating in the plan or oth- erwise applies to an amount deferred by the service provider. The plan may be cor- rected by amending the plan to remove such impermissible payment event. For this purpose, an impermissible payment event will not be treated as elected until the service provider’s election is irrevocable under the terms of the plan. (Note that al- though this relief is available for a service provider who has not elected an impermis- sible payment event even though other ser- vice providers under a substantially similar plan have elected an impermissible pay- ment event, eligibility for any correction under this notice for the service providers who have elected an impermissible pay- ment event generally requires that the ser- vice recipient take commercially reason- able steps to identify and correct all sub- stantially similar language in other plans sponsored by the servicerecipient, includ- ing with respect to those who have not elected an impermissible payment event. See § III.B of this notice). With respect to a service provider, to the extent one or more impermissible payment events under a plan provision el- igible for this section has been elected by the service provider, or otherwise has be- come applicable to the service provider’s deferred amount, a plan provision eligible for this section may be corrected in ac- cordance with this section before the date any of the impermissible payment events occurs. The plan may be corrected by amending the plan to remove such imper- missible payment events. The amendment must be effective immediately, and if any of the impermissible payment events that would have required payment under the pre-correction plan provision occur within one year following the date of correction, 50% of the amount deferred under the plan to which the pre-correction plan provision applied must be included in income under § 409A(a) by the affected service provider for the service provider’s taxable year within which the event occurs. B.Plans with Only Impermissible Payment Events under § 409A 1. Eligibility This section applies to a plan provision that, with respect to a deferred amount, provides for payment only upon one or more impermissible payment events under § 409A and does not include any permissi- ble payment events under § 409A. 2. Correction A plan provision eligible for this sec- tion may be corrected in accordance with this section before the date one or more of the impermissible payment events oc- curs to which the provision applies. The plan may be corrected by amending the plan to remove the provision providing for the impermissible payment events before any impermissible payment event occurs, and replacing that provision with a provi- sion providing for payment upon the later of the service provider’s separation from service (as defined under § 1.409A–1(h) without reference to any permissible alter- native definition that may be designated in the plan) and the sixth anniversary of the date of correction. In addition, the affected service provider must include 50% of the amount deferred under the plan to which the pre-correction plan provision applied in income under § 409A(a) in the service provider’s taxable year within which the date of correction occurs. C.Certain Impermissible Alternative Payment Schedules 1. Eligibility This section applies to a plan provision that, with respect to a deferred amount, provides for more than one time or form of payment upon the occurrence of a sin- gle type of permissible payment event un- der § 409A in a manner that fails to sat- isfy the requirements of § 409A(a) and § 1.409A–3(c). 2. Correction To the extent the multiple times or forms of payment relate to the occurrence of a service provider’s voluntary and invol- untary separation from service (as defined under § 1.409A–1(n)), a plan provision eligible for this section may be corrected in accordance with this section before the date a separation from service occurs that could result in the impermissible multiple times or forms of payment for that ser- vice provider. The plan may be corrected by amending the plan to provide that the time or form of payment upon a voluntary separation from service will be the same time or form of payment that the pre-cor- rection plan provision provided for upon an involuntary separation from service (as defined under § 1.409A–1(n)), subject to the requirements of § 409A(a)(2)(B)(i), if applicable (the six-month delay require- ment). The amendment must be effective immediately, and if a service provider has a voluntary separation from service within one year following the date of correction which results in the corrected plan pro- vision being applied to avoid a time or form of payment that would have been due under the pre-correction plan provision, 50% of the amount deferred under the plan to which the pre-correctionplanprovi- sion applied must be included in income under § 409A(a) by the affected service provider in the service provider’s taxable year within which the event occurs. To the extent the multiple times or forms of payment result from an al- ternative payment schedule relating to some factor other than whether a service provider’s separation from service is vol- untary or involuntary, a plan provision eligible for this section may be corrected in accordance with this section before the date a payment event occurs that could re- sult in the impermissible multiple times or forms of payment for that service provider. Until that time, the plan may be corrected by amending the plan to remove the times or forms of payment, in accordance with the next sentence, until the remaining times or forms of payment no longer cause January 19, 20102852010–3 I.R.B. theplantofailtosatisfytherequirements § 409A and § 1.409A–3(c). In determining which of two times or forms of payment should be removed, the remaining time or form of payment must be the time or form of payment resulting in, or potentially re- sulting in, the latest final payment date, and if two times or forms of payment result in, or potentially result in, the same latest final payment date, the time or form of payment commencing, or potentially com- mencing, at the latest possible date, and if those two dates are the same, the time or form of payment generally anticipated to result in the amount deferred being paid at later dates. The amendment must be effective immediately, and if a payment event corrected under this provision oc- curs within one year following the date of correction, 50% of the amount deferred under the plan to which the pre-correction plan provision applied must be included in income under § 409A(a) by the affected service provider in the service provider’s taxable year within which the event oc- curs. If a time or form of payment has no possibility of applying to a service provider because the service provider is not eligible and can never become eligible, or is no longer eligible and cannot again become eligible, for such a time or form of payment, that time or form of payment is not required to be removed from the plan with respect to that service provider and the service recipient and service provider may treat the plan as not failing to sat- isfy the requirements of § 409A(a) and § 1.409A–3(c) with respect to that service provider merely because of the inclusion of that time or form of payment in the plan. D.Impermissible Service Provider or Service Recipient Discretion with Respect to a Payment Schedule Following a Permissible Payment Event (Including Subsequent Deferral Elections) 1. Eligibility This section applies to a plan provision that provides a service provider or a ser- vice recipient with discretion to change the time or form of payment of an amount due under the plan following a permissi- ble payment event, causing the plan to fail to satisfy the requirements of § 409A(a), § 1.409A–2(b) or § 1.409A–3(j). How- ever, this section does not apply to a plan provision that provides a service provider or service recipient discretion to change or modify payment events, such as the discre- tion to terminate the plan. 2. Correction A plan provision to which this sec- tion applies that provides a default time or form of payment that would be in effect if the service provider or service recipient did not exercise its discretion to change the time or form of payment, and that does not provideany discretion to change the time or form of payment after the payment event has occurred, will not be treated as failing to meet the require- ments of § 409A(a) and § 1.409A–3(a), § 1.409A–3(j) or § 1.409A–2(b) if the service provider and service recipient do not exercise their discretion, or revoke any discretion exercised and the revoca- tion occurs more thanone year before the payment event occurs. However, if a ser- vice provider to the same service recipient participates in a plan with a substantially similar provision, and either the service provider or service recipient exercises its discretion under the plan to change the time or form of payment under the plan and does not revoke that exercise of discre- tion at least one year before the payment event occurs, then, to be eligible to correct that plan provision under this section the service recipient is required to take com- mercially reasonable steps to identify and correct all substantially similar provisions in other plans, including substantially sim- ilar provisions with respect to which the discretion has not been exercised by the service provider or service recipient or whose exercises of that discretion have been revoked. In all other cases, a plan provision eligi- ble for this section may be corrected in ac- cordance with this section before the date a payment event occurs that is the subject of the plan provision eligible for this section. The plan may be corrected by amending the plan in accordance with this section. To the extent that the plan has a de- fault time or form of payment that would be in effect if the service provider or ser- vice recipient did not exercise its discre- tion to change the time or form of pay- ment, the plan may be amended to remove the service provider’s or service recipient’s discretion to change the time or form of payment. If the plan does not have a de- fault time or form of payment that would be in effect if the service provider or ser- vice recipient did not exercise its discre- tion to change the time or form of pay- ment, the plan may be amended to re- move the service provider’s or service re- cipient’s discretion to change the time or form of payment, and to provide that the time or form of payment will be that po- tential time or form of payment under the terms of the plan in place immediately prior to the amendment that would result in the latest final payment date, and if two forms of payment result in, or potentially result in, the same latest final payment date, the form of payment commencing, or potentially commencing, at the latest pos- sible date, and if those two dates are the same the form of payment generally re- sulting in the amount deferred being paid at later dates. In each case the amend- ment must be effective immediately. If a payment event to which the correction applies occurs within one year following the date of correction (including where a service provider or service recipient had exercised its discretion before the correc- tion and had revoked the discretion within one year of the occurrence of the payment event), 50% of the amount deferred under the plan to which the pre-correction plan provision applied must be included in in- come under § 409A(a) by the affected ser- vice provider in the service provider’s tax- able year within which the event occurs. E.Impermissible Service Recipient Discretion to Accelerate Payment Events 1. Eligibility This section applies to a plan pro- vision that does not comply with § 1.409A–3(j)(4) that provides a service recipient with the discretion to accelerate and make a payment regardless of whether a payment event has occurred, such as the discretion to terminate the plan and im- mediately pay all amounts deferred, and thus does not comply with § 409A(a) and § 1.409A–3(a) or § 1.409A–3(j). 2. Correction With respect to a service provider, a plan provision eligible for this section may be corrected in accordance with this sec- tion before the earlier of the date the ser- 2010–3 I.R.B.286January 19, 2010 vice recipient exercises its discretion to ac- celerate a payment under the plan and such discretion is irrevocable, or the date a pay- ment has been made under the plan pur- suant to the exercise of discretion. The plan may be corrected by amending the plan to remove the service recipient’s dis- cretion to accelerate the payment or to oth- erwise make the acceleration permissible under § 1.409A–3(j)(4). F.Impermissible Reimbursement or In-Kind Benefit Provisions 1. Eligibility This section applies to a plan provi- sion that provides for a reimbursement or in-kind benefits subject to § 409A that does not comply with the requirements of § 409A(a) and § 1.409A–3(i)(1)(iv). 2. Correction A plan provision eligible for this sec- tion may be corrected in accordance with this section before the date an event occurs that would result in the service provider becoming eligible to receive a reimbursement or in-kind benefits subject to § 409A. The plan may be corrected by amending the plan to provide for re- imbursement or in-kind benefits that sat- isfy the requirements of § 409A(a) and § 1.409A–3(i)(1)(iv), provided that any amendment required to satisfy the require- ments of § 1.409A–3(i)(1)(iv)(A)(3) must cause the amount eligible for reimburse- ment or in-kind benefits to be allocatedpro ratato the number of years during which the service provider may be eligible to receive the reimbursement or in-kind ben- efits (which may not be amended as part of the plan correction). If the pre-correction reimbursement or in-kind benefits were available for the service provider’s or other individual’s lifetime, the period for pur- poses of the proration requirement must be established based upon that service provider’s or individual’s life expectancy under reasonable actuarial assumptions. If the pre-correction reimbursement or in-kind benefits were available for a period ending with an event, the period for pur- poses of the proration requirement must be established based upon reasonable as- sumptions and may not be less than three years. The amendment must be effective immediately, and if an event occurs that would have made the service provider eligible for payment of reimbursement or in-kind benefits underthe pre-correction plan provision within one year following the date of correction and results in the corrected plan provision being applied to avoid or reduce the availability or payment of reimbursement or in-kind benefits, 50% of the amount deferred under the plan to which the pre-correction plan provision applied must be included in income under § 409A in the service provider’s taxable year within which the event occurs. G.Examples The following examples illustrate the provisions of this § VII. For each example, assume that the employee and employer are eligible to correct the impermissible provision under § III of this notice at all relevant times. Example 1 (plan with permissible and impermis- sible payment events). Employee P is an employee of Employer whose employment agreement entitles Employee P to $100x payable upon the earlier of sep- aration from service or an initial public offering of Employer stock. On January 1, 2011, Employer and Employee P amend the employment agreement to re- move the payment event related to an initial public of- fering, so that the amount is payable solely upon Em- ployee P’s separation from service. An initial public offering of Employer stock occurs on September 1, 2011. Conclusion: Employer and Employee P corrected the employment agreement before the initial public offering of Employer stock, but the initial public of- fering occurred within one year following the date of correction. Provided that Employer reports 50% of the amount deferred under the plan to which the pre-correction plan provision applied as an amount includible in income under § 409A(a) for 2011 on the Form W–2, Box 1 and Box 12 using Code Z, for Employee P, and Employee P includes 50% of the amount deferred in income under § 409A and pays all applicable Federal taxes, including the additional 20% tax on such amount (but not the premium interest tax), Employee P will not be required to include any further amounts in income under § 409A(a) solely as a result of the pre-correction plan provision. Example 2 (plan with permissible and impermis- sible payment events). Employee Q is an employee of Employer whose employment agreement entitles Employee Q to $100x payable upon the earlier of separation from service or an initial public offering of Employer stock. On July 1, 2011, Employer and Employee Q amend the employment agreement to re- move the payment event related to an initial public of- fering, so that the amount is payable solely upon Em- ployee Q’s separation from service. An initial public offering of Employer stock occurs on September 1, 2012. Conclusion: Employer and Employee Q cor- rected the employment agreement more than one year before the initial public offering of Employer stock. Provided that Employer does not pay Employee Q any amount pursuant to this plan provision due to the initial public offering, Employee Q will not be required to include any amount under § 409A(a) solely as a result of the pre-correction plan provision. Example 3 (plan with only impermissible pay- ment events). Employee R is an employee of Em- ployer who participates in a plan providing for pay- ment of $100x to a service provider upon the service provider’s child enrolling in an institution providing post-secondary education. On August 15, 2011, Em- ployee R’s child enrolls in an institution providing post-secondary education. Conclusion: Because Employee R’s child en- rolled in an institution providing post-secondary education before the provision was corrected, regard- less of whether Employee R is paid $100x, the plan is not eligible for correction, and Employee R must include amounts in income and pay the additional taxes under § 409A(a) accordingly. Example 4 (plan with only impermissible payment events). Employee S is an employee of Employer who participates in a plan providing for payment of $100x to a service provider upon the service provider’s child enrolling in an institution providing post-secondary education. On October 1, 2011, Employer and Employee S amend the plan to re- place the provision providing for payment upon a service provider’s child enrolling in an institution providing post-secondary education with a provision providing for payment upon the later of the service provider’s separation from service (as defined under § 1.409A–1(h) without reference to any permissible alternative definition that may be designated in a plan) and October 1, 2017. Conclusion: Employer and Employee S corrected the plan provision before a child of Employee S en- rolled in an institution providing post-secondary ed- ucation. Provided that Employer reports 50% of the amount deferred under the plan to which the pre-cor- rection plan provision applied as an amount includi- ble in income under § 409A(a) for 2011 on the Form W–2, Box 1 and Box 12 using Code Z, for Employee S, and Employee S includes 50% of the amount de- ferred in income under § 409A(a) and pays all appli- cable Federal taxes, including the additional 20% tax on such amount (but not the additional premium in- terest tax), Employee S will not be required to include any further amount in income under § 409A(a) solely due to the pre-correction plan provision. Example 5 (plan with impermissible alternative payment schedules). Employee T is an employee of Employer whose employment agreement with Em- ployer provides for payment of $100x in the form of a lump sum payment if Employee T has an invol- untary separation from service with Employer, and $100x in the form of ten annual installments if Em- ployee T has a voluntary separation from service with Employer. On October 1, 2011, Employer amends the agreement to replace the provision providing for payment in the form of installments upon a volun- tary separation from service with a provision provid- ing for payment in the form of a lump sum upon a voluntary separation from service. Employee T has a voluntary separation from service with Employer on June 1, 2015. Conclusion: Because Employee T and Employer corrected the plan provision before Employee T sep- arated from service with Employer, and Employee January 19, 20102872010–3 I.R.B. T separated from servicemore than one year fol- lowing the date of correction, Employee T will not be required to include any amount in income under § 409A(a) solely due to the pre-correction plan pro- vision. Example 6 (plan with impermissible alternative payment schedules). All of Employer’s employees are classified as either Level 1 or Level 2 employ- ees, depending upon the position in which they work and the division at which they work. Employee U is an employee of Employer whose employment agree- ment with Employer provides for a payment of $100x in the form of a lump sum if Employee U separates from service at a time that Employee U is a Level 1 employee, or for payment of $100x in the form of ten annual installments if Employee U separates from service at a time that Employee U is a Level 2 em- ployee. On October 1, 2011, Employer amends the agreement to replace the provision providing for pay- ment in the form of a lump sum payment upon a sepa- ration from service at the time Employee U is a Level 1 employee with a provision providing for payment in the form of ten annual installments upon Employee U’s separation from service(regardless of Employee U’s classification at the time). Employee U has a sep- aration from service with Employer on June 1, 2012 at which time Employee U is a Level 2 employee. Conclusion: Employer and Employee U cor- rected the plan provision before Employee U sepa- rated from service, and Employee U separated from service within a year of the correction. Provided that Employer pays $100x to Employee U in ten annual installments, Employer reports 50% of the amount deferred under the plan to which the pre-correction plan provision applied as an amount includible in income under § 409A(a) for 2012 on the Form W–2, Box1andBox12usingCodeZ,forEmployeeU, and Employee U pays all applicable Federal taxes, including the additional 20% tax on such amount (but not the additional premium interest tax), Employee U will not be required to include any further amount in income under § 409A(a) solely as a result of the pre-correction plan provision. Example 7 (plan with impermissible service provider or service recipient discretion with respect to payment schedules following permissible payment events). Employee V is an employee of Employer who participates in a plan providing for payment of $100x to Employee V upon Employee V attaining age 65 in the form of ten annual installments, unless Employer otherwise determines in its sole discre- tion to pay the amount in the form of a lump sum payment. On February 1, 2011, Employer amends the plan with Employee V to remove Employer’s discretion to change the time or form of payment, so that the amount is payable in the form of ten annual installments. Employee V attains age 65 on July 1, 2012. Conclusion: Because Employer and Employee V corrected the provision before Employee V attained age 65, and because more than one year passed after thedateofcorrectionbeforeEmployeeVattainedage 65, Employee V will not be required to include an amount in income under § 409A(a) solely due to the pre-correction plan provision. Example 8 (plan with impermissible service provider or service recipient discretion with respect to payment schedules following permissible payment events). Employee W is an employee of Employer who participates in a plan providing for payment of $100x to Employee W upon Employee W attaining age 65 in the form of a lump sum payment or annual installments not to exceed ten years, determined at the sole discretion of Employer. On February 1, 2011, Employer amends the plan with Employee W to remove Employer’s discretion to change the time or form of payment upon Employee W attaining age 65, so that the amount is payable in the form of ten annual installments upon Employee W attaining age 65. Employee W attains age 65 on January 2, 2012. Conclusion: Employer and Employee W cor- rected the plan provision before Employee W attained age 65, but less than one year before Employee W attained age 65. Provided that Employer reports 50% of the amount deferred under the plan to which the pre-correction plan provision applied as an amount includible in income under § 409A(a) for 2012 on the Form W–2, Box 1 and Box 12 using Code Z, for Employee W, and Employee W includes 50% of the amount deferred in income under § 409A(a) and pays all applicable Federal taxes, including the additional 20% tax on such amount (but not the additional premium interest tax), Employee W will not be required to include any further amount in income under § 409A(a) solely as a result of the pre-correction plan provision. Example 9 (plan with impermissible service provider or service recipient discretion with respect to payment schedules following permissible payment events). Employee X is an employee of Employer who participates in a plan providing for payment of $100x to Employee X upon Employee X’s separation from service, provided that Employer may delay that payment for up to three years if certain cash flow targets are not met. On July 1, 2011, Employer amends the plan to remove its discretion to delay payment, and to remove any delay on payment due to a failure to meet prescribed cash flow targets. It replaces those provisions with a provision stating that payment will be delayed to the extent a payment would jeopardize the ability of the service recipient to continue as a going concern, but only until such time as the making of the payment would not have such effect. Employee X separates from service on January 1, 2013. Conclusion: Because Employer and Employee X corrected the plan provision more than one year be- fore Employee X separated from service, Employee X will not be required to include an amount in income under § 409A(a) solely as a result of the pre-correc- tion plan provision. Note that this correction required not only the removal of the discretion, but also the provision that payment would be delayed if certain cash flow targets were not met. The addition of the language providing for a delay if the payment would jeopardize the ability of the service recipient to con- tinue as a going concern is not required as a condi- tion of the correction, but may be added because the provision complies with the operational provisions of § 1.409A–3(d) (permitting delayed payments under certain circumstances, regardless of whether such cir- cumstances are described in the plan). Example 10 (plan permitting impermissible sub- sequent deferral election). Employee Y is an employee of Employer who participates in a plan providing for payment at age 65. The plan further providesthat an employee may elect at any time before 30 days before reaching age 65 to defer the payment for a period of at least 12 months. Employee Y never makes a subsequent deferral elec- tion under the plan, attains age 65 on March 1, 2011, and is paid the amount deferred under the plan. Conclusion: BecauseEmployeeYwasonlyal- lowed to apply Employee Y’s discretion to further de- fer the payment before the payment event occurred, and has never applied the subsequent deferral election provision, Employee Y will not be required to include an amount in income under § 409A(a) solely due to the impermissible subsequent deferral plan provision. Example 11 (plan permitting impermissible sub- sequent deferral election). ThesamefactsasinEx- ample 10, except that the participant is Employee Z who makes a subsequent deferral election to defer the payment to age 70 on June 1, 2011, when Employee Z is age 63. On July 1, 2011, Employee Z revokes the subsequent deferral election. Conclusion: Because Employee Z was only al- lowed to apply Employee Z’s discretion to further de- fer the time or form of payment before the payment event occurred, and revoked the subsequent defer- ral election more than one year before the payment event occurred (attaining age 65), Employee Z will not be required to include an amount in income under § 409A solely due to the pre-correction plan provi- sion. Example 12 (plan permitting impermissible sub- sequent deferral election). ThesamefactsasinEx- ample 10, except that the participant is Employee AA who makes a subsequent deferral election to defer the payment to age 67 on March 1, 2010, when Em- ployee AA is age 63 and two months. Employee AA revokes the subsequent deferral election on Septem- ber 1, 2011, when Employee AA is age 64 and eight months. Employee AA attains age 65 on January 1, 2012, and is not paid the amount deferred under the plan. Conclusion: Because Employee AA exercised Employee AA’s discretion to make a subsequent deferral election under the plan, but did not revoke the subsequent deferral election more than one year before the payment event occurred (Employee AA attaining age 65), and the plan provision was not corrected before Employee AA attained age 65, Em- ployee AA must include the amount deferred under the plan in income under § 409A(a). Example 13 (plan permitting impermissible sub- sequent deferral election). ThesamefactsasinEx- ample 10, except that the participant is Employee BB who makes a subsequent deferral election to defer the payment to age 68 on March 1, 2010, when Employee BB is age 63 and six months. On June 1, 2011, when Employee BB is age 64 and eight months, the plan is amended to remove the subsequent deferral election provision and Employee BB’s election is revoked. Conclusion: Employee BB exercised Employee BB’s discretion to make a subsequent deferral elec- tion under the plan and did not revoke the subse- quent deferral election more than one year before the payment event occurred (Employee BB attaining age 65), but the plan provision was corrected before Em- ployee BB attained age 65. Provided that Employer reports 50% of the amount deferred under the plan to which the pre-correction plan provision applied as an amount includible in income under § 409A(a) for 2011 on the Form W–2, Box 1 and Box 12 using Code Z, for Employee BB, and Employee BB includes 50% of the amount deferred in income under § 409A(a) 2010–3 I.R.B.288January 19, 2010 and pays all applicable Federal taxes, including the additional 20% tax on such amount (but not the addi- tional premium interest tax), Employee BB will not be required to include any further amount in income under § 409A(a) solely as a result of the pre-correc- tion plan provision. Example 14 (plan with impermissible service re- cipient discretion to accelerate payment events).Em- ployee CC is an employee of Employer who partici- pates in a plan that provides for payment of $100x to Employee CC upon Employee CC’s separation from service, unless Employer otherwise elects in its sole discretion to pay all or a portion of such amount on an earlier date. On January 1, 2011, Employer ex- ercises its discretion to accelerate payment to Em- ployee CC and makes a $50x lump sum payment on March 1, 2011. On July 1, 2011, Employer amends the plan to remove its discretion to pay all or a por- tion of the remaining amount on an earlier date, and to provide only that it may exercise discretion to ter- minate and pay amounts under the plan in compliance with 1.409A–3(j). Conclusion: Because Employer exercised its dis- cretion and made a payment before the correction of the plan provision, regardless of whether Employee CC returns the payment the plan fails to meet the re- quirements of § 409A(a) for periods during which the plan contained the provision, and Employee CC must include amounts in income and pay the addi- tional taxes under § 409A(a) accordingly. Example 15 (plan with impermissible service re- cipient discretion to accelerate payment events).Em- ployee DD is an employee of Employer who partici- pates in a plan that provides for payment of $100x to Employee DD upon Employee DD’s separation from service, unless Employer otherwise elects in its sole discretion to pay all or a portion of such amount on an earlier date. On March 1, 2011, Employer amends the plan to remove its discretion to pay all or a por- tion of such amount on an earlier date, and to pro- vide only that it may exercise discretion to terminate and pay amounts under the plan in compliance with 1.409A–3(j). Employee DD has a separation from service on March 15, 2011. Conclusion: Because Employer and Employee DD corrected the plan provision before Employer exercised its discretion, Employee DD will not be required to include any amount in income under § 409A(a) solely as a result of the pre-correction plan provision. Example 16 (plan with impermissible reimburse- ment or in-kind benefits provision).EmployeeEE is an employee of Employer who participates in a plan providing that Employee EE is eligible for reimbursement of country club dues for five years, up to an aggregate of $100x, following Employee EE’s separation from service with Employer after attaining age 65 and ten years of service. Employee EE attained age 65 and ten years of service during 2009. On April 1, 2011, Employer amends the plan to specify that Employee EE is only eligible for reimbursement of up to $20x during each of the five years following the Employee EE’s separation from service. Employee EE has a separation from service with Employer on December 15, 2011. Conclusion: Employer and Employee EE cor- rected the plan provision before Employee EE sep- arated from service with Employer but less than one year passed between the date of correction and Em- ployee EE’s separation from service. Provided that Employer reports 50% of the amount deferred un- der the plan to which the pre-correction plan provi- sion applied as an amount includible in income under § 409A(a) for 2011 on the Form W–2, Box 1 and Box 12 using Code Z, for Employee EE, and Employee EE includes 50% of the amount deferred in income under § 409A(a) and pays all applicable Federal taxes, in- cluding the additional 20% tax on such amount (but not the additional premium interest tax), Employee EE will not be required to include any further amount in income under § 409A(a) solely as a result of the pre-correction plan provision. Example 17 (plan with impermissible reimburse- ment or in-kind benefits provision).Thesamefactsas inExample 16, except that the plan is with Employee FF and Employee FF has a separation from service with Employer on October 1, 2012. Conclusion: Because Employer and Employee FF corrected the plan provision before Employee FF separated from service with Employer, and because more than one year passed between the date of correc- tion and Employee FF’s separation from service, Em- ployee FF will not be required to include any amount in income under § 409A(a) solely as a result of the pre-correction plan provision. VIII. CORRECTION OF FAILURE TO INCLUDE SIX-MONTH DELAY OF PAYMENT FOR SPECIFIED EMPLOYEES 1. Eligibility This section applies to a plan that fails to include a provision providing for a six-month delay of payment for a speci- fied employee, to the extent required by § 409A(a)(2)(B)(i) and § 1.409A–1(c)(3). 2. Correction A plan eligible for this section may be corrected in accordance with this sec- tion before the date an event occurs that would be subject to the requirements of § 409A(a)(2)(B)(i) by amending the plan to add the requirements set forth under §409A(a)(2)(B)(i)andtofurtherpro- vide that an amount payable under the plan that is subject to the requirements of § 409A(a)(2)(B)(i) may not be paid before the later of (i) 18 months fol- lowing the date of correction, or (ii) six months following the date of the payment event. The amendment must be effective immediately. Provided that the require- ments of this section are otherwise met, the correction will not constitute a sub- sequent change in the time or form of payment under § 1.409A–2(b). If a service provider subject to the requirements of § 409A(a)(2)(B)(i) participates in the plan that is so amended and has a separation from service within one year following the date of correction that results in the corrected plan provision being applied to avoid a payment that would have been due under the pre-correction plan provision, 50% of the amount deferred under the plan to which the pre-correction plan provision applied (and that thus is delayed due to the amendment) must be included in income under § 409A(a) by the service provider in the service provider’s taxable year within which the separation from service occurs. 3. Example Employee GG is the chief executive officer of Employer, a corporation whose stock is publicly traded. Employee GG participates in a plan provid- ing for a payment of $100x in ten annual installments of $10x commencing immediately when Employee GG separates from service from Employer but the plan does not include the six-month delay in payment as required by § 409A(a)(2)(B)(i). On September 1, 2011, Employer and Employee GG amend the plan to include the requirements under § 409A(a)(2)(B)(i) and to provide further that no amount will be payable before March 1, 2013 (18 months after September 1, 2011). Employee GG has a separation from service with Employer on December 1, 2011. Conclusion: Employer and Employee GG cor- rected the plan provisionbefore Employee GG sep- arated from service, but Employee GG has a sep- aration from service within one year following the date of correction, which results in a payment be- ing delayed that would have been due under the pre- correction plan provision. Provided that Employer does not pay Employee GG any amount under the plan until March 1, 2013 (except, as provided by the plan due to death, disability (as defined under § 1.409A–3(i)(4)) or a permissible acceleration under § 1.409A–3(j)(4)), Employer reports as an amount in- cludible in income under § 409A(a) for 2011 on the Form W–2, Box 1 and Box 12 using Code Z, for Em- ployee GG 50% of the amount deferred under the plan to which the pre-correction plan provision applied, and Employee GG includes 50% of the amount de- ferred in income under § 409A(a) and pays all appli- cable Federal taxes, including the additional 20% tax on such amount (but not the additional premium inter- est tax), Employee GG will not be required to include any further amount in income under § 409A solely as a result of the pre-correction plan provision. IX. CORRECTION OF PROVISIONS PROVIDING FOR IMPERMISSIBLE INITIAL DEFERRAL ELECTIONS 1. Eligibility This section applies to a plan provision that provides for an initial election to defer compensation that does not comply with § 409A(a) and § 1.409A–2(a). Notwith- standing the foregoing, this section does January 19, 20102892010–3 I.R.B. not apply to any plan provision that is el- igible for correction under § VII.D of this notice. Accordingly, this section generally applies to plan provisions providing elec- tions to defer compensation that would not otherwise be deferred compensation, and not elections as to the time or form of pay- ment of a deferred amount. 2. Correction A service provider is not required to include an amount in income under § 409A(a) solely because a plan includes a provision that provides for an ini- tial election to defer compensation that does not comply with § 409A(a) and § 1.409A–2(a), if the provision has not been applied by the service provider or the service recipient with respect to the service provider. If the service provider or service recipient takes the action nec- essary to make an election under the provision before theapplicable deadline under § 1.409A–2(a), the provision will be treated as applied on the date of such applicable deadline unless the service provider or service recipient has revoked the election before the applicable dead- line under the regulations. If the service provider or service recipient takes the ac- tion necessary to make an election under the provision after the applicable deadline under § 1.409A–2(a), the provision will be treated as applied on the date the necessary action is taken. Note that if a substan- tially similar provision under a plan has been applied by another service provider to the same service recipient, or by the same service recipient with respect to an- other service provider, to be eligible for correction the service recipient would be required to take commercially reasonable steps to identify and correct the provisions in all such plans. See § III.B of this notice. A plan provision that is eligible for correction under this section that has been applied may be corrected in accordance with this section provided that the cor- rection is made no later than the end of the service provider’s second taxable year immediately following the taxable year during which occurs the applicable dead- line for making an initial deferral election under § 409A(a) and § 1.409A–2(a). The plan may be corrected by amending the plan to remove the ability to make the impermissible initial deferral election, provided that any amounts that were not paid during one or more of the service provider’s taxable years due to the im- permissible initial deferral election are corrected in accordance with the pro- visions of Notice 2008–113 (including any income inclusion under § 409A(a) required by the applicable provision of Notice 2008–113). Notwithstanding § III of this notice, this correction will not have any retroactive effect on amounts deferred under the same provision in any previous year if the deferral was not corrected under this section for such previous year by the applicable deadline under this section, so that the plan provision will remain a plan document failure for the previous year and any resulting deferral will remain an operational failure. 3. Examples Example 1 (plan permitting impermissible initial deferral election). Employee HH is an employee of Employer who participates in an annual bonus plan under which employees are awarded bonuses based on a calendar year of service, payable on March 15 of the following year. The bonus plan is not a performance-based compensation arrangement under § 1.409A–2(a)(8). The bonus plan provides that employees may make initial deferral elections to defer the bonus until separation from service (as defined under § 1.409A–1(h)), provided that the election is made no later than June 30 of the year in which the bonus is earned. Employee HH is not a new participant in the plan so that the applicable deadline under 1.409A–2(a) for the deferral of the bonus earned during 2012 (the 2012 annual bonus) is December 31, 2011. On November 1, 2011, Employee HH submits an election form electing to defer the 2012 annual bonus. On December 31, 2011, Employee HH revokes the deferral election for the 2012 annual bonus. Conclusion: Because Employee HH revoked the impermissible deferral election on or before the ap- plicable deadline for a permissible deferral election under §1.409A–2(a), the plan provision permitting the impermissible initial deferral election has not been applied. Accordingly, Employee HH will not be required to include any amount in income under § 409A(a) for the 2012 annual bonus solely due to the plan provision. Example 2 (plan permitting impermissible initial deferral election). ThesamefactsasinExample 1, except that the participant is Employee JJ who also makes an election to defer the 2012 annual bonus on November 1, 2011, but does not revoke her defer- ral election for the 2012 annual bonus on or before December 31, 2011. On May 15, 2012, the defer- ral election provision is removed from the plan and Employee JJ’s deferral election for the 2012 annual bonus is revoked. Conclusion: Because Employee JJ did not re- voke the impermissible deferral election until after the deadline for making an initial deferral election un- der § 1.409A–2(a), the provision has been applied. Because Employee JJ took the actions necessary to make the election on or before the applicable dead- line under § 1.409A–2(a) for making an initial de- ferral election, the provision is treated as applied on the date of the deadline, December 31, 2011. Be- cause the provision was removed from the plan be- fore December 31, 2013, and because no amount had failed to be paid due to the application of the imper- missible deferral election, no operational failure oc- curred, and Employee JJ will not be required to in- clude an amount in income under § 409A(a). Note that to be eligible to make this correction, Employer would be required to take commercially reasonable steps to identify and remove any substantially simi- lar provision in any plan of the Employer, including plans of other service providers and including plans under which the plan provision permitting an imper- missible initial deferral election had not been applied. Note further that the correction of the provision with respect to the 2012 annual bonus will have no effect on the impermissible deferral of an annual bonus or other amounts earned in 2011 or any earlier year, so that, for example, if a 2011 annual bonus were earned by Employee JJ and Employee JJ made an impermis- sible deferral election with respect to the 2011 bonus that was not corrected in accordance with this section, that amount would be subject to income inclusion and the additional taxes under § 409A(a) for the taxable year 2011 (the year in which Employee JJ’s right to the bonus was first no longer subject to a substantial risk of forfeiture), regardless of whether Employee JJ’s deferral election with respect to the 2011 annual bonus was subsequently revoked and Employee JJ was paid the bonus on or before March 15, 2012. Example 3 (plan permitting impermissible initial deferral election). Employee KK is an employee of Employer who has been an employee of Employer for several years. Employee KK has been eligible for, but has not participated in, a plan under which an em- ployee may elect to defer all or part of his salary to be payable at separation from service (as defined in § 1.409A–1(h)), provided that the election may only be applied to salary earned on or after the first day of the second month immediately subsequent to the date the employee makes an election to defer. For example, under the plan terms an election made in April may only apply to salary earned for June 1 or later. On April 15, 2011, Employee KK makes an election to defer 10% of any salary earned on or after June 1, 2011. The deferral election remains in effect through December 1, 2012, at which time Employer removes the provision from the plan and revokes Em- ployee KK’s election. Employer treats the failures to pay Employee KK 10% of Employee KK’s salary earned from June 1, 2011, through December 1, 2012, as operational failures under Notice 2008–113 and corrects the failures during 2012 (treating the salary that would have been paid during 2011 as a correction made during the taxable year after the taxable year of the operational failure, and the salary that would have been paid during 2012 as a correction made during the taxable year in which the operational failure oc- curred). Conclusion: Because Employee KK took the actions necessary to make a deferral election under the plan provision before the applicable deadline for making an initial deferral election under 1.409A–2(a) (in this case, December 31, 2010), the provision is 2010–3 I.R.B.290January 19, 2010 treated as applied on the date the actions were taken (April 15, 2011). Because Employer removed the plan provision on or before December 31, 2012, and revoked Employee KK’s election and corrected the resulting operational failures under Notice 2008–113, Employee KK will not be required to include an amount in income under § 409A(a) solely as a result of the pre-correction plan provision. However, Em- ployee KK may still be required to include an amount in income under § 409A(a) as a condition of correc- tion under Notice 2008–113. Note that to be eligible to make this correction, Employer would be required to take commercially reasonable steps to identify and remove any substantially similar provision in any plan of Employer, including plans of other service providers and including plans under which the plan provision permitting an impermissible initial deferral election had not been applied. X. AMENDMENT PERIOD FOLLOWING A SERVICE RECIPIENT’S INITIAL ADOPTION OF A PLAN 1. Eligibility and Correction This section applies to a plan provi- sion that is eligible for correction under any other section of this notice, but only to the extent that the document failure is corrected no later than the later of the end of the calendar year in which, or the 15 th day of the third calendar month follow- ing, the date the first legally binding right to deferred compensation arose under that plan and all other plans of the service re- cipient that would be treated as the same plan under § 1.409A–1(c)(2) if a single service provider participated in all of such plans (for example, all nonaccount balance plans of the service recipient). For pur- poses of determining whether a service re- cipient has an additional plan to the one under which the legally binding right has first arisen, a taxpayer may disregard any plan not subject to § 409A (for exam- ple, a grandfathered plan as defined under § 1.409A–6) and any plan under which all amounts have been paid or forfeited such that the service recipient did not retain any obligation to make a payment under that plan at the time the legally binding right arises under the plan at issue. Provided that the plan is corrected in accordance with the applicable section of this notice by such deadline (including the requirement that all commercially reasonable steps to identify and correctany other plans with substantially similar language is met), any amounts paid that would not have been paid under the corrected plan provision if that provision had always been the plan provision are treated as operational fail- ures and corrected under Notice 2008–113 by the end of the calendar year in which the document failure is corrected (and any amounts not paid that would have been paid under the corrected plan provision if that provision had always been the plan provision are treated as operational fail- ures and corrected under Notice 2008–113 by the end of the calendar year in which the document failure is corrected), the ap- plicable section of this notice may be ap- plied without applying any requirement in that section that an amount be includible in income under § 409A(a) if an event occurs within one year following the date of cor- rection. 2. Example On April 1, 2011, Employer establishes its first nonqualified deferred compensation plan that is a nonaccount balance plan. Employee LL, an em- ployee of Employer, becomes eligible for a payment under the plan of $100x by Employer upon the earlier of an initial public offering of Employer stock or separation from service. On September 15, 2011, Employer and Employee LL amend the plan in ac- cordance with § VII.A of this notice to delete the payment event related to an initial public offering of Employer stock, so that the plan provides that the amount will only be paid upon Employee LL’s separation from service. Because the amendment occurred by the end of the calendar year in which the first legally binding right arose under any nonaccount balance plan of Employer, Employer and Employee LL may apply the provisions of § VII.A of this notice without applying any requirements that Employee LL include an amount in income if certain events oc- cur within one year following the date of correction. Accordingly, Employee LL will not be required to include any amount in income under § 409A(a) as a result of the pre-correction plan provision regarding payment upon an initial public offering even if there is a public offering of Employer stock on or before December 15, 2012 (provided that if there had been an initial public offering of Employer stock before September 15, 2011, and Employee LL had been paid an amount under the plan, the payment would be required to be treated as an operational failure and corrected under Notice 2008–113 by December 31, 2012). XI. TRANSITION RELIEF A.Correction of Document Failures DescribedinthisNotice 1. Relief for Corrections Made on or Before December 31, 2010 Solely for purposes of applying this no- tice, if a plan fails to satisfy the require- ments of § 409A(a) in a manner that is eligible for correction under this notice, and the plan is corrected in accordance with this notice on or before December 31, 2010, the plan may be treated as having been corrected on January 1, 2009, for pur- poses of applying the relief provided un- der the applicable section of this notice, and any requirement of an income inclu- sion under § 409A as a condition of the relief will not apply (for example, an in- come inclusion under § 409A due to an event occurring within one year follow- ing the date of correction), provided that any payment made before December 31, 2010 that would not have been made under the amended provision (or any payment not made before December 31, 2010 that would have been made under the amended provision) is treated as an operational fail- ure and corrected under Notice 2008–113 on or before December 31, 2010. Noth- inginthissectionisintendedtomodifythe requirements of Notice 2008–113, so that, for example, a service provider that was an insider with respect to a service recip- ient may be required to include an amount in income under § 409A to satisfy the re- quirements of Notice 2008–113 and be eli- gible for relief under this section. See No- tice 2008–113, § VII. 2. Examples The following examples illustrate the provisions of this § XI.A. For each ex- ample, assume that the employee and em- ployer are eligible to correct the impermis- sible provision under § III of this notice. Example 1. Employee MM is an employee of Employer who participates in a plan that provides for a payment of $100x upon a separation from service that was defined to include transition from employee to independent contractor status and to exclude any reduction in the hours of employment. In all other respects, the plan complies with § 409A(a). On July 1, 2009, Employee MM became an independent con- tractor and was paid $100x. On April 1, 2010, Em- ployer amends the plan in accordance with § V.A of this notice to define separation from service as a sepa- ration from service in accordance with § 1.409A–1(h) (designating no permissible alternative definition of separation from service under § 1.409A–1(h)). Conclusion: Because Employer and Employee MM amended the plan before December 31, 2010 in accordance with § V.A ofthis notice, if the pay- ment of $100x is treated as an operational failure and corrected in accordance with the provisions of Notice 2008–113 on or before December 31, 2010, the plan may be treated as corrected under § V.A without ap- plication of the requirement of income inclusion un- der § 409A if an event occurs that would have been January 19, 20102912010–3 I.R.B. treated as a separation from service under the pre-cor- rection provision but not under the corrected plan pro- vision (or an event occurs that would not have been treated as a separation from service under the pre-cor- rection plan provision but would be so treated under the corrected plan provision) within one year follow- ing the date of correction. Example 2. Same facts asExample 1, except that the plan is with Employee NN, who reduced her hours from 40 hours per week to 10 hours per week on September 1, 2009 and was not paid any amount. Conclusion: Because Employer and Employee NN amended the plan between Employer and Em- ployee NN before December 31, 2010, in accordance with § V.A of this notice, if the failure to pay $100x during 2009 is treated as an operational failure and corrected in accordance with the provisions of No- tice 2008–113 on or before December 31, 2010, the plan may be treated as corrected under § V.A without application of the requirement of an income inclusion under § 409A if an event occurs that would have been treated as a separation from service under the pre-cor- rection provision but not under the corrected plan pro- vision (or an event occurs that would not have been treated as a separation from service under the pre-cor- rection provision but would be so treated under the corrected plan provision) within one year following the date of correction. Example 3. ThesamefactsasinExample 1,ex- cept that the plan is with Employee PP who continues providing services of 40 hours per week for Employer at all relevant times and received no payment. Conclusion: For purposes of this notice the plan may be treated as corrected under § V.A without ap- plication of the requirement of an income inclusion under § 409A if an event occurs that would have been treated as a separation from service under the pre-cor- rection provision but not under the corrected plan pro- vision (or an event occurs that would not have been treated as a separation from service under the pre-cor- rection provision but would be so treated under the corrected plan provision) within one year following the date of correction. B.Correction of Impermissible Provisions Linking Nonqualified Deferred Compensation Plans 1. Relief for Corrections Made on or Before December 31, 2011 This section applies to a nonqualified deferred compensation plan if the amount deferred under the plan is determined by, or the time or form of payment is affected by, the amount deferred under, or the pay- ment provisions of, another nonqualified deferred compensation plan such that one or both of the plans fails to satisfy the re- quirements of § 409A(a). Provided that the plans are corrected in accordance with this section on or before December 31, 2011, the plans will not be treated as failing to satisfy the requirements of § 409A(a) solely due to the effect of the linkage be- tween the two plans (so that one or both plans may continue to fail to satisfy the requirements of § 409A(a) due to a fail- ure unrelated to the linkage between the two plans, in which case that failure would need to be addressed separately if eligible for correction under this notice). To cor- rect under this section, the time or form of payment under the two plans must be made identical. For this purpose, any permissi- ble payment event under § 409A that is a payment event under either plan must be retained. If the two plans contain the same permissible payment events under § 409A, but the payment events are defined dif- ferently, the amended payment event for the two plans must be the narrower def- inition (meaning the definition resulting in the smaller scope of events that would constitute payment events). If the two plans contain the same permissible pay- ment event under § 409A, but the schedule of payments following the payment event are different, the amended schedule of pay- ments must be the payment schedule re- sulting in, or potentially resulting in, the latest final payment date, and if two pay- ment schedules result in, or potentially re- sult in, the same latest final payment date, the payment schedule commencing, or po- tentially commencing, at the latest possi- ble date, and if those two dates are the same the payment schedule generally re- sulting in the amount deferred being paid at later dates. If any amounts have been paid under one or more of the plans in a manner that would not have been con- sistent with the amended payment provi- sions had those payment provisions been the payment provisions since January 1, 2009, or have failed to be paid in a manner that would not have been consistent with the amended payment provisions, the pay- ments must be treated as operational fail- ures and corrected under Notice 2008–113 on or before December 31, 2011 to be eli- gible for the relief under this section. 2. Example Employee QQ is an employee of Employer. Em- ployee QQ participates in a nonqualified deferred compensation plan that is a nonaccount balance plan providing for ten annual installments beginning at the earlier of separation from service or a change in control of Employer, with a change in control of Em- ployer defined to include only a sale of the majority of the stock of Employer. The amount payable under the nonaccount balance plan is offset by the amount deferred under a nonelective account balance plan providing for a lump sum payment at the earliest of death, disability, unforeseeable emergency, change in control of Employer (defined to include all permissi- ble change in control events under §1.409A–3(i)(5)) or separation from service. The plan fails to meet the requirement of designating a permissible payment event under § 1.409A–3(a)(1) due to the linkage be- tween the plans because, for example, a contribution to the nonelective account balance plan would reduce the deferred amount under the nonaccount balance plan, causing an amount previously deferred under the nonaccount balance plan to become payable at the different times and forms of payment applicable under the nonelective account balance plan. The plans are amended on or before December 31, 2011, so that both plans provide payment upon the earliest of a change of control of Employer (defined to in- clude only a sale of the majority of the stock of the employer), a separation from service, death, disabil- ity or unforeseeable emergency, and provide that a payment upon a change of control of Employer or a separation from service will be made in ten annual installments beginning on the date of the payment event, and that a payment upon death, disability or unforeseeable emergency will be made as a lump sum payment on the date of the payment event. Conclusion: Provided that any payments that were made before the amendment of the plan that would not have been made if the amended provi- sion had been the payment provision under the plan on and after January 1, 2009, or any failures to make payments that would have been due before the amendment of the plan if the amended provision had been the payment provision under the plan on and after January 1, 2009, are treated as operational failures and corrected under Notice 2008–113 on or before December 31, 2011, Employee QQ and Employer may treat the two plans as not failing to satisfy the requirements of § 409A(a) solely due to the effect of the linkage of the two plans on the time or form of payment of deferred amounts under the plans. C.Correction of Payment Schedules Determined by the Timing of Payments Received by the Service Recipient 1. Relief for Corrections Made on or Before December 31, 2011 If a nonqualified deferred compen- sation plan contains a payment provi- sion that would satisfy the requirement for a fixed schedule of payments under §1.409A–3(i)(1)(iii) but for a failure to satisfy either one or both of the condi- tions set forth in §1.409A–3(i)(1)(iii)(C) or (D), the payment provision will not be treated as causing the plan to fail to be a fixed schedule of payments if the plan is amended to satisfy such conditions on or before December 31, 2011, and any payments made under the plan that would not have been made if the amended pro- vision had been the payment provision 2010–3 I.R.B.292January 19, 2010 under the plan since January 1, 2009, or any failures to make payments that would have been due before the amendment of the plan if the amended provision had al- ways been the payment provision under the plan, are treated as operational failures and corrected under Notice 2008–113 on or before December 31, 2011. 2. Example Employee RR is an employee of Employer who participates in a nonqualified deferred compensa- tion plan under which Employee RR is entitled to a payment of 20% of the amounts collected on any outstanding accounts receivable for which Employee RR was the primary contact at the time of Employee RR’s separation from service, to the extent such amounts are collected on or before the third anniver- sary of Employee RR’s separation from service. The accounts receivable arise from bona fide and rou- tine transactions in the ordinary course of business of Employer. Employee RR does not at any time have effective control of Employer, of any customer from whom the accounts receivable are due, or of the collection of any of the accounts receivable. Employee RR separated from service on March 1, 2008. On February 1, 2009, Employee RR received a payment of 20% of the amount collected on the identified accounts receivable through December 31, 2008. The plan satisfies all of the requirements of § 1.409A–3(i)(1)(iii) except § 1.409A–3(i)(1)(iii)(D), the requirement that the payment schedule provide an objective nondiscretionary schedule under which the payments will be made to the service provider. On October 1, 2009, Employee RR and Employer amend the agreement to provide that each January 15 Employer will pay Employee RR an amount equal to 20% of the amounts collected on the identified accounts receivable during the previous calendar year. Because the payment to Employee RR on February 1, 2009, would not have failed to satisfy the operational requirements of § 409A(a) had the amended payment provision been the payment provision of the plan since January 1, 2009, the payment is not required to be treated as an operational failure and corrected under Notice 2008–113. Employee RR and Employer may treat the plan as not failing to have a fixed schedule of payments for purposes of § 409A(a) for all periods prior to the amendment. D.Service Recipients Under Examination for Returns Covering Periods Beginning on or Before December 31, 2011 Solely for purposes of applying § III.C of this notice, for corrections made on or before December 31, 2011, a non-in- dividual service recipient that is under examination for periods beginning on or before December 31, 2011, will only be treated as under examination with respect to any specific document failure that has been identified as an issue in the exam- ination (including any other plan of the service recipient with a substantially sim- ilar document failure). Therefore, for any document failure that has not yet been specifically identified, the requirements that the non-individual service recipient not be under examination with respect to the plan will be treated as satisfied and the document failure may be eligible for cor- rection under the applicable section of this notice provided that all other eligibility requirements are met. For this purpose, a document failure will be treated as specif- ically identified in an examination of a federal tax return for a taxable year begin- ning before January 1, 2009, if the plan provision is identified as a provision that will have resulted in a document failure if the provision was not amended before the beginning of the first taxable year beginning on or after January 1, 2009. XII. INFORMATION AND REPORTING REQUIREMENTS A.Information and Reporting Required for Correction of a Document Failure A service recipient described in any of §§ V through XI of this notice must attach to its timely-filed (including exten- sions) original federal income tax return for its taxable year in which it corrects the failure, a statement entitled “§ 409A Document Correction under § [INSERT APPROPRIATE SECTION(S)]ofNotice 2010–6” setting out the information re- quired by § XII.B of this notice. This statement must also be attached to the service recipient’s timely-filed (including extensions) original federal income tax re- turn for the service recipient’s taxable year subsequent to the taxable year in which the failure was corrected, but only to the extent that a service provider is required to include an amount in income during such subsequent year to be eligible for the relief under this notice. In addition, not later than the date (with extensions) on which it is required to provide an information return (Form W–2 or 1099) to a service provider who is affected by such failure (or if no information return is required for such service provider, not later than the January 31 following the calendar year in which it corrects such failure) for the calendar year in which it corrects such failure, and for the subsequent calendar year to the extent the service provider is required to include an amount in income during such subsequent year to be eligible for relief under this notice, a service recip- ient described in any of §§ V through XI of this notice must provide to each such ser- vice provider a statement entitled “§ 409A Document Correction under § [INSERT APPROPRIATE SECTION(S)]ofNotice 2010–6” setting out the information re- quired by § XII.C of this notice. A service provider who is relying on the relief pro- vided in §§ V through XI of this notice for a failure to comply with § 409A(a) must at- tach to the service provider’s timely-filed (including extensions) original federal income tax return for the year in which such failure was corrected the information required by § XII.D of this notice. This information must also be attached to the service provider’s timely-filed (including extensions) original federal income tax return for the year subsequent to the year in which the failure was corrected, but only if the service provider is required to include an amount in income during that year to be eligible for the relief in this no- tice. In addition, each taxpayer relying on the relief provided in any of §§ V through XI of this notice must make reasonable efforts to provide notice to the examining agent upon the commencement of an ex- amination of such taxpayer’s federal tax return that the taxpayer was relying upon the relief provided under this notice for years covered by the examination. For purposes of this section, a section of this notice refers to each separate section of this notice, such that § VI.A and § VI.B are separate sections, and includes any use of the transition relief in § XI. B.Attachment to Service Recipient Tax Return for Failures Described in §§ V through XI of this Notice The service recipient must attach a statement to its return setting out the following information for each failure de- scribed in any of §§ V through XI of this notice: (1) The name and taxpayer identifi- cation number of each service provider affected by the document failure. If the same or a substantially similar document failure has occurred for multiple service providers, the information required in §§ XII.B.(2) and (3) of this notice may be January 19, 20102932010–3 I.R.B. supplied only once for each such document failure, provided that the identification of each service provider affected by the doc- ument failure references such information. (2) Identification of the nonqualified deferred compensation plan with respect to which such failure occurred. (3) A statement that the document fail- ure is eligible for the correction under the terms of this notice and identifying the sec- tion of this notice under which the docu- ment failure is corrected, that the service recipient has taken all actions required and otherwise met all requirements for such correction as of the last day of the service recipient’s taxable year in which the cor- rection is made, and also as of the last day of any subsequent taxable year of the ser- vice recipient during which an amount is required to be included in income under § 409A by a service provider as part of the correction, and providing the date of cor- rection and the date of any event causing the inclusion of an amount in income under § 409A by the affected service provider. (4) For each failure described in §§ V through XI of this notice, the amount in- volved in each document failure, and to the extent applicable, the amount reported by the service recipient as includible in in- come under § 409A(a) as part of the cor- rection and the percentage of the amount involved in each document failure required to be included in income under § 409A(a) as part of the correction. C.InformationtobeProvidedtoService Provider for Failures Described in §§ V through XI of this Notice The service recipient must provide the following information to each service provider affected by a failure to comply with § 409A who is entitled to relief under §§ V through XI of this notice with respect to such failure: (1) A statement that the service provider is entitled to the relief provided in §§ V through XI of this notice (identifying the applicable section of this notice under which the document failure is corrected) with respect to a failure to comply with § 409A, and that the service provider must attach a copy of the statement to the service provider’s income tax return for the taxable year in which the failure was corrected and also to the extent applica- ble, any subsequent taxable year in which an amount is included in income under § 409A by the service provider as part of the correction. (2) The information described in § XII.B.(1) through (4) of this notice, but only to the extent that the information re- lates to a deferred amount of that service provider. D.Attachment to Service Provider Tax Return for Failures Described in §§ V through XI of this Notice The service provider must attach to the service provider’s income tax return a copy of the statement the service provider re- ceived from the service recipient with re- spect to each such failure. If a service provider has included an amount in income to be eligible for relief under this notice, and that inclusion in income occurs in a year subsequent to the year the plan was corrected, the service provider must in- clude the statement with the return for the year of the correction as well as the return for the year of income inclusion. XIII. MODIFICATIONS TO NOTICE 2008–113 AND NOTICE 2008–115 A.The following sections are added as §§ III.K and III.L of Notice 2008–113: “K.Required Repayments by the Service Provider If to qualify for any applicable relief a service provider is required to repay to the service recipient an amount erroneously paid or made available to the service provider,suchasrequiredin§§IV.A, IV.B, V.B, V.C, VII.B and VII.C, the amount erroneously paid or made avail- able to the service provider refers to the gross amount paid to, or on behalf of, the service provider, before the application of any withholding requirements such as the Federal employment tax withholding requirements. The service provider may satisfy the requirement to repay the service recipient the amount erroneously paid to the service provider and interest (if ap- plicable) by paying the service recipient the equivalent amount on or before the applicable deadline. The service provider will only be required to pay the service recipient the net amount received after any withholding to the extent the service recipient has made a tax correction (e.g., an adjustment made on Form 941–X,Ad- justed Employer’s QUARTERLY Federal Tax Return or Claim for Refund)to re- cover the amount of taxes withheld on the amount erroneously paid. For purposes of this notice, a correction made by the ser- vice recipient to recover Federal or state taxes withheld on the amount erroneously paid shall be considered repayment by the service provider of an amount equal to the amount of taxes for which a tax cor- rection is made by the service recipient. Alternatively, in lieu of repayment, the service recipient may reduce the service provider’s compensation that otherwise would have been paid on or before the ap- plicable deadline by an equivalent amount. To the extent that, in lieu of repayment, the service recipient reduces other com- pensation that would have been paid to the service provider, the other compensation that would have been paid to the service provider, but instead is used to repay the erroneous payment or interest (if applica- ble), is includible in income (and wages if the service provider is an employee). The amount will not be treated as re- paid by the service provider if, in connec- tion with such payment, the service recipi- ent pays the service provider, or otherwise provides a benefit (including the provision of a loan to the service provider or an obli- gation to pay an amount or provide a ben- efit in the future), intended as a substitute for all or part of the amount the service provider is required to repay the service re- cipient. L.Determination of Amount Erroneously Paid or Amount Erroneously Deferred and the Date an Amount was Otherwise Payable Generally if an amount has been er- roneously paid to a service provider, the amount must be repaid by the service provider to the service recipient to qual- ify for the relief. For this purpose, if the amount erroneously paid to the service provider was paid in the form of prop- erty (such as stock), the amount that must be repaid equals the fair market value of the property at the time of the erroneous payment. Any difference between the fair market value of the property at the time of the erroneous payment and the fair market value of the property at the time of the repayment is treated as earnings or losses 2010–3 I.R.B.294January 19, 2010 in accordance with the applicable section of this notice. If the amount erroneously paid to the service provider was paid in the form of property (such as stock), upon repayment of that amount, earnings and losses may be credited by otherwise ad- justing the amount of property due to the service provider under the terms of the plan. For example, a service recipient er- roneously distributesto a service provider 100sharesofstockworth$5pershare on the date of distribution and the distri- bution fails to satisfy the requirements of § 409A because the shares are not payable under the terms of the plan until a future date. At the time of the correction under the terms of the applicable section of No- tice 2008–113 (as modified), the service recipient’s stock is worth $10 per share. To satisfy the repayment requirement, the service provider must pay the service re- cipient $500 (the amount of shares equal to the fair market value of the shares on the date of the erroneous payment) which may be accomplished through the return of 50 shares. If the applicable section of this notice does not allow for the crediting of earnings, or the service recipient does not otherwise credit earnings, one method by which the service recipient may adjust for the earnings is by reducing the number of shares due to the service provider under thetermsoftheplanto50shares. Generally if an amount has been erro- neously deferred on behalf of a service provider, the service recipient must pay the amount erroneously deferred to the service provider to qualify for the relief. If the amount of the erroneous deferral was set as a dollar amount, the amount of the erro- neous deferral equals the dollar amount re- gardless of whether the erroneous deferral was invested in, or subsequently denomi- nated as, an amount of property (such as a number of shares of stock). If the amount of the erroneous deferral was based on cer- tain property (for example, a certain num- ber of shares of stock), the amount of the erroneous deferral equals the fair market value of the property at the time it would otherwise have been payable to the ser- vice provider had theerroneous deferral not occurred. For this purpose, the date the amount of the erroneous deferral is payable to the service provider is the first date under the plan during the taxable year that the amount became payable under the plan (disregarding any ability to pay up to 30 days early under §1.409A–3(d)).” B.The following section replaces section V.D.2(a) of Notice 2008–113: “(a) A failure is described in this § V.D.2(a) if, under the terms of a plan and an applicable deferral election, and § 409A, an amount that should not have been deferred compensation under the planiserroneouslycreditedtotheservice provider’s account or otherwise treated as deferred compensation under the plan, and such excess amount otherwise would have been paid to the service provider during the service provider’s taxable year in which the excess amount was incor- rectly credited to the service provider’s account or otherwise treated as deferred compensation under the plan. A failure is also described in this § V.D.2(a) if, un- der the terms of a plan and an applicable deferral election, and § 409A, an amount that should have been paid under the plan is not paid to the service provider during the taxable year in which falls the pay- ment date (as determined under § III.K of this notice), and the failure to make such payment results in an operational failure under § 409A(a).” C.Modification of Notice 2008–115 For service recipients and service providers who are entitled to relief under this notice, Notice 2008–115, 2008–52 I.R.B. 1367 (relating to reporting and wage withholding for 2008 and subse- quent years), is modified to conform to the provisions of this notice (including the modifications to Notice 2008–113 contained in § XIII.A and B of this no- tice) with respect to (i) the amount that is required to be included in income by a service provider under § 409A(a), and (ii) the amount that is required to be reported by the service recipient as an amount in- cludible in income under § 409A(a) on Form W–2, Box 1 and Box 12 using Code Z, or Form 1099–MISC, Box 7 and Box 15b, as applicable. XIV. EFFECT ON OTHER DOCUMENTS Taxpayers may rely on this Notice 2010–6 for taxableyears beginning on or after January 1, 2009. The modi- fications to Notice 2008–113 (relating to operational corrections) contained in § XIII.A and B of this notice are effec- tive for service provider taxable years beginning on or after January 1, 2010, but may be relied upon by taxpayers for service provider taxable years beginning before January 1, 2010; this notice does not otherwise affect the guidance provided in Notice 2008–113. The modifications to Notice 2008–115 (relating to reporting and wage withholding for 2008 and subsequent years) described in § XIII.C of this notice are generally effective for service provider taxable years beginning on or after January 1, 2009; provided, however, that the modifications to Notice 2008–115 as a result of the guidance modifying Notice 2008–113 (relating to operational corrections) contained in § XIII.A and B of this notice are effective for service provider taxable years beginning on or after January 1, 2010, but may be relied upon by taxpayers for service provider taxable years beginning before January 1, 2010. XV. REQUEST FOR COMMENTS The Treasury Department and the IRS request comments regarding other docu- ment failures that commonly occur and methods to correct them. Comments must be submitted by April 5, 2010. All mate- rials submitted will be available for public inspection and copying. Comments may be submitted to Internal Revenue Service, CC:PA:LPD:RU (Notice 2010–6), Room 5203, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may also be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to the Courier’s Desk at 1111 Con- stitution Avenue, NW, Washington, DC 20224, Attn: CC:PA:LPD:RU (Notice 2010–6), Room 5203. Submissions may also be sent electronically via the inter- net to the following email address:No- tice.comments@irscounsel.treas.gov.In- clude the notice number (Notice 2010–6) in the subject line. XVI. PAPERWORK REDUCTION ACT The collection of information contained in this notice has been reviewed and ap- proved by the Office of Management and January 19, 20102952010–3 I.R.B. Budget in accordance with the Paperwork Reduction Act (44 USC. 3507) under con- trol number 1545–2164. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number. The collection of information in this no- tice is in § XII. This information is required to determine whether the taxpayers claim- ing the relief are eligible for the relief and that the applicable requirements for relief are met. The likely respondents are corpo- rations and individuals. The estimated annual reporting and/or recordkeeping burden is 5,000 hours. The estimated annual burden per re- spondent/recordkeeper is .5 hours. The estimated number of respondents is 10,000. The estimated annual frequency of re- sponse is on occasion. Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax return and tax return information are confidential, as required by § 6103. XVII. DRAFTING INFORMATION The principal author of this notice is Keith Ranta of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities), al- though other Treasury and IRS officials participated in its development. For fur- ther information on the provisions of this notice, contact Keith Ranta at (202) 927–9639 (not a toll-free number). Extension of Temporary Rules Allowing Governmental Issuers to Purchase and Hold Their Own Tax-Exempt Bonds Notice 2010–7 SECTION 1. PURPOSE This notice modifies Notice 2008–88, 2008–42 I.R.B. 933 (October 20, 2008), to extend the expiration dates from De- cember 31, 2009 to December 31, 2010 of certain temporary rules allowing state and local governmental issuers to purchase and hold their own tax-exempt bonds un- der special reissuance standards for tax-ex- empt bonds. The intent of the extensions of these temporary rules is to facilitate liq- uidity and stability in the tax-exempt bond market in recognition of some continu- ing credit enhancement and liquidity con- straints in this market. Notice 2008–88 amended and supple- mented Notice 2008–41, 2008–15 I.R.B. 742 (April 14, 2008), regarding reissuance standards for tax-exempt bonds to expand the circumstances and time periods dur- ing which the Treasury Department and the Internal Revenue Service (“IRS”) would treat a tax-exempt bond that is purchased by its state or local governmental issuer as continuing in effect without resulting in a reissuance or retirement of the purchased bond solely for purposes of § 103 and §§ 141 through 150 of the Internal Rev- enue Code, as amended (“Code”). (Except as noted, section references in this notice are to the Code and the Income Tax Regu- lations). Defined terms in Notice 2008–41 and Notice 2008–88 shall have the same meanings when used in this notice. SECTION 2. BACKGROUND A debt instrument generally is treated as retired or extinguished when an issuer acquires its own debt because a merger of the interests of the issuer and the holder oc- curs. Notice 2008–41 provides that under certain rules for qualified tender bonds, a bondpurchasedbyoronbehalfofagov- ernmental issuer pursuant to a qualified tender right is not retired until the end of the 90-day period from and after the date of such purchase. In response to liquidity constraints in the tax exempt bond market, § 3.2(3)(b) of Notice 2008–41 extended the 90-day period to 180-days for any pur- chase by or on behalf of a governmental issuer pursuant to a qualified tender right as long as such purchase occurred before October 1, 2008. In response to auction failures in the auction rate bond sector of the tax-exempt bond market, Notice 2008–41 provided other temporary rules. Section 4 of Notice 2008–41 allowed governmental issuers to purchase their own tax-exempt auction rate bonds on a temporary basis without resulting in a reissuance or retirement of the purchased tax-exempt bonds solely for purposes of § 103 and §§ 141 to 150 if the governmental issuer purchased the tax-ex- empt auction rate bonds before October 1, 2008, and held those bonds for not more than a 180-day period from the date of purchase. Section 6.2 of Notice 2008–41 allowed temporary waivers of interest rate caps on auction rate bonds to be disre- garded in determining whether there was a significant modification of such bonds under § 1.1001–3(e)(2) if the agreement to waive such a cap and the period during which such waiver was in effect both were within the period between November 1, 2007 and October 1, 2008. In light of the then-continuing liquid- ity constraints in the tax-exempt bond mar- ket, Notice 2008–88 expanded the types of bonds eligible for relief under Notice 2008–41 and extended the time period for such relief provisions to apply. Section 3.1 of Notice 2008–88 provided that tax-ex- empt qualified tender bonds and tax-ex- empt commercial paper purchased by a governmental issuer would continue in ef- fect without resulting in a reissuance or re- tirement of such bonds if, irrespective of when the governmental issuer purchased such bonds, the governmental issuer held the bonds until not later than December 31 2009. In addition, § 3.1 of Notice 2008–88 clarified that, in the case of the purchase of any particular obligation of tax-exempt commercial paper, including a purchase at maturity, a refinancing of that purchased tax-exempt commercial paper during the permitted holding period would be treated as part of the same issue as that of the pur- chased tax-exempt commercial paper. Section 3.2 of Notice 2008–88 ex- tended the application of the special 180-day holding period (in lieu of the general 90-day holding period) for quali- fied tender bonds to those qualified tender bonds purchased pursuant to qualified tender rights until December 31, 2009. In addition, § 3.2 of Notice 2008–88 ex- tended the application of § 6.2 of Notice 2008–41 to disregard certain waivers of interest rate caps on tax-exempt auction rate bonds until December 31, 2009. 2010–3 I.R.B.296January 19, 2010 SECTION 3. INTERIM GUIDANCE AND RELIANCE 3.1 In General Pending the promulgation and effective date of future administrative or regulatory guidance, taxpayers may rely on the in- terim guidance provided in this notice. 3.2 Extension of Certain Temporary Rules Section 3.1 of Notice 2008–88 regard- ing purchases by a governmental issuer of qualified tender bonds or tax-exempt commercial paper is amended to extend the final date for a governmental issuer to purchase or hold such tax-exempt bonds without resulting in a reissuance or retirement of the purchased bonds until December 31, 2010. In addition, refinancing of purchased tax-exempt commercial paper during this extended period will continue to be treated as part of the same issue as the purchased tax-exempt commercial paper. The provision of § 3.2 of Notice 2008–88 that extended § 3.2(3)(b) of No- tice 2008–41 regarding the purchase of bonds pursuant to qualified tender rights for which the special 180-day holding pe- riod applies is amended to extend the final date for such purchases to December 31, 2010. The provision of § 3.2 of Notice 2008–88 that extended § 6.2 of Notice 2008–41 regarding the treatment of certain waivers of interest rate caps on tax-exempt auction rate bonds isamended to extend the final date on which covered waivers are disregarded to December 31, 2010. SECTION 4. EFFECT ON OTHER DOCUMENTS This notice modifies Notice 2008–88 and Notice 2008–41. SECTION 5. EFFECTIVE DATE This notice is effective as of March 25, 2008, which is the effective date of Notice 2008–88 and Notice 2008–41. Issuers of tax-exempt bonds may apply and rely on this notice to the same extent and in the same manner as provided in § 8 of Notice 2008–41. SECTION 6. DRAFTING INFORMATION The principal author of this notice is Aviva M. Roth, Office of the Chief Counsel (Financial Institutions and Prod- ucts). However, other personnel from the IRS and the Treasury Department par- ticipated in its development. For further information regarding this notice, contact Aviva M. Roth at (202) 622–3980 (not a toll-free call). Extension of the Timeframe for Disclosures to Persons Designated in a Written Request or Consent Pursuant to Section 6103(c) Notice 2010–8 This notice provides interim rules ex- tending the period for submission to the IRS (or an agent or contractor of the IRS) of taxpayer authorizations permitting dis- closure of returns and return information pursuant to section 6103(c). Specifically, this notice extends from 60 days to 120 days the period within which a signed and dated authorization must be received by the IRS in order for it to be effective. The IRS will apply the interim rules in this no- tice until the Treasury Department and the IRS amend the regulation under section 6103(c). BACKGROUND Section 6103(c) provides that, sub- ject to the requirements and conditions set forth by the Secretary in the regula- tion, returns and return information may be disclosed to persons designated by the taxpayer in a request for or consent to disclosure. The Treasury Regulation under section 6103(c) sets out the require- ments for such disclosures to designees. 26 C.F.R. 301.6103(c)–1(b). An autho- rization for disclosure must include the following items in a written document pertaining solely to the authorization: (1) the taxpayer’s identity (name, address, taxpayer identifying number) that enables the IRS to clearly identify the taxpayer; (2) the identity of the person to whom dis- closure is to be made; (3) the type of return or return information to be disclosed; and (4) the taxable year or years covered by the return or return information. 26 C.F.R. 301.6103(c)–1(b)(1). The taxpayer must sign and date the written document. The regulation bars disclosure of a re- turn or return information unless the writ- ten request for or written consent to dis- closure is received by the IRS (or an agent or contractor of the IRS) within 60 days following the date upon which the written request was signed and dated by the tax- payer. 26 C.F.R. 301.6103(c)–1(b)(2). INTERIM GUIDANCE The IRS recognizes the importance of limiting the effective period of authoriza- tions provided pursuant to section 6103(c). Reasonable limitation on the effective pe- riod of written authorizations helps ensure the currency of the authorization and pro- tects taxpayer privacy. The current 60 day period, however, has proven problematic. Some institutions charged with assisting taxpayers in their financial dealings have encountered difficulty in obtaining written authorizations and submitting the autho- rizations to the IRS within the 60 days al- lowed by the existing regulation. To re- duce burdens on taxpayers and the institu- tions and professionals assisting them, the IRS will amend the regulation under sec- tion 6103(c) to extend from 60 days to 120 days the effective period of taxpayer-pro- vided authorizations.Intheinterim,dis- closures otherwise permitted under section 6103(c) will be made provided the IRS re- ceives the written authorization within 120 days following the date upon which the re- quest or consent was signed and dated by the taxpayer. This interim rule will apply to all authorizationsexecuted on or after the date that is sixty days prior to the pub- lication of this notice. COMMENTS Interested parties are invited to sub- mit comments on this notice by Jan- uary 25, 2010. Written comments should be submitted to: Internal Rev- enue Service; CC:PA:LPD:PR (No- tice 2010–8); Room 5203; P.O. Box 7604; Ben Franklin Station; Washing- ton, DC 20044. Alternatively, com- ments may be hand delivered between the hours of 8:00 a.m. and 4:00 p.m. January 19, 20102972010–3 I.R.B. Monday to Friday to: CC:PA:LPD:PR (Notice 2010–8); Courier’s Desk; Internal Revenue Service; 1111 Constitution Avenue, NW; Washington, DC. Comments may also be transmitted electronically via the following e-mail address: Notice.Comments@irscounsel.treas.gov. Please include “Notice 2010–8” in the subject line of any electronic communications. All comments will be available for public inspection and copying in their entirety. EFFECTIVE DATE FOR INTERIM GUIDANCE These interim rules regarding the ef- fective period for authorizations of disclo- sures to third-party designees are applica- ble from the date of publication of this no- tice. Forthcoming changes to the exist- ing regulation under section 6103(c) will be applicable, once promulgated, as of the publication date of this notice. DRAFTING INFORMATION The principal author of this notice is Mark E. Cottrell of the Office of Asso- ciate Chief Counsel (Procedure & Admin- istration). For further information regard- ing this notice, contact Mark E. Cottrell at (202) 622–4570 (not a toll-free call). Certain Annual Tax Reporting Statements May be Furnished by February 16, 2010, Without Penalty Notice 2010–9 PURPOSE This notice provides additional time for furnishing certain annual tax reporting statements for reportable items from cal- endar year 2009. BACKGROUND Section 403 of the Energy Improve- ment and Extension Act of 2008, Div. B of Pub. L. No. 110–343, 122 Stat. 3765, enacted on October 3, 2008, amended sec- tion 6045(b) to change from January 31 to February 15 the deadline for furnishing to customers the information statements re- quired by section 6045. These statements are Form 1099–B, “Proceeds From Broker and Barter Exchange Transactions”; Form 1099–S, “Proceeds From Real Estate Transactions”; and, when reporting pay- ments to attorneys or substitute payments by brokers in lieu of dividends or inter- est, Form 1099–MISC, “Miscellaneous Income.” Because February 15, 2010, is a Federal holiday, filers of these state- ments will meet the deadline under section 6045(b) for reportable items from calendar year 2009 if they furnish the statements by February 16, 2010.Seesection 7503. Section6722imposesapenaltyonany reporting entity that fails to furnish any required payee statement by its deadline. The Act also added language to sec- tion 6045(b) to permit reporting entities, in the case of a “consolidated reporting state- ment (as defined in regulations),” to fur- nish by February 15 a statement that oth- erwisewouldberequiredbyJanuary31. Because January 31, 2010, is a Sunday, in- formation returns that are ordinarily due on January31willbetimelyiftheyarefur- nished by February 1, 2010.Seesection 7503. There is not yet a regulatory defi- nition of the term “consolidated reporting statement.” On February 2, 2009, the IRS published Notice 2009–11, 2009–5 I.R.B. 420, which provided that, for reportable items from calendar year 2008, brokers had until Feb- ruary 17, 2009, to report all items that they customarily reported on their annual com- posite form recipient statements. Notice 2009–11 applied to reportable items from calendar year 2008 only. DEADLINE FOR REPORTING ITEMS FROM 2009 This notice applies to reporting enti- ties that are required to furnish informa- tion statements undersection 6045. This notice provides that such reporting entities have until February 16, 2010, to report any item that they would otherwise be required to report by February 1, 2010, if the report- ing entity furnishes the reporting statement to the same recipient or same group of re- cipients on the same date as a statement re- porting items required by section 6045 (re- gardless of whether the statements relate to the same or different accounts or transac- tions). This additional time applies only to items that a reporting entity must report to a recipient based on the same relationship between the reporting entity and the recip- ient as the items required by section 6045 (for example, broker, payor, or real estate settlement agent to customer), and not as a result of any other relationship between the parties such as debtor to creditor or em- ployer to employee. Accordingly, the additional time pro- vided by this notice applies to the follow- ing forms if the requirements of this notice are met: Form 1099–DIV, “Dividends and Distributions”; Form 1099–INT, “Interest Income”; Form 1099–MISC, “Miscella- neous Income”; Form 1099–OID, “Orig- inal Issue Discount”; Form 1099–PATR, “Taxable Distributions Received From Cooperatives”; Form 1099–Q, “Payments From Qualified Education Programs (Un- der Sections 529 and 530)”; Form 1099–R, “Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.”; and Form 5498, “IRA Contribution Information.” This notice also provides that, if a cus- tomer has an account with a securities bro- ker for which a Form 1099–B would be re- quired to be furnished under section 6045 if a sale had occurred during the year, the additional time permitted by this notice ap- plies to other items the broker must re- port to the customer based on the bro- ker-to-customer relationship regardless of whether the customer’s transactional his- tory for 2009 triggered an obligation to fur- nish Form 1099–B to that customer, pro- vided that the statement reporting the other items is furnished on the same date as the date on which the Form 1099–B would have been furnished. This notice modifies the 2009General Instructions for Forms 1099, 1098, 3921, 3922, 5498, and W–2Gand applies to the reporting of items from calendar year 2009 only. EXAMPLE This notice is illustrated by the follow- ing example: Broker, a securities broker, customarily furnishes an annual composite form recipient statement (as described in Section 4.2 of Rev. Proc. 2008–36, 2008–33 I.R.B. 340) to its customers in order to report dividends as required by section 6042(c) and the gross proceeds of the sale of securities and other items as required by section 6045(b). To report inter- est or original issue discount as required by section 2010–3 I.R.B.298January 19, 2010 6049(c), Broker customarily furnishes separate Form 1099–INT and Form 1099–OID statements to its customers instead of reporting these items on the composite form recipient statement. For calendar year 2009, Broker furnished annual composite form recipient statements on February 11, 2010, to all customers with taxable accounts that received reportable dividends or sold securities or other items in 2009. Because only 80 percent of the customers receiving these composite form recipient statements sold securities or other items in 2009, only 80 percent of the annual composite form recipient statements contained information that section 6045(b) requires to be reported, whereas the remaining 20 percent of the annual composite form recipient statements contained only dividend infor- mation required to be reported by section 6042(c). Broker also furnished Form 1099–INT and Form 1099–OID statements on February 11, 2010, to all customers with taxable accounts with interest or orig- inal issue discount required to be reported under sec- tion 6049(c). To certain customers, Broker furnished only Form 1099–INT or Form 1099–OID or both and did not furnish a composite form recipient statement because these customers did not receive reportable dividends and did not sell securities or other items in 2009. As set forth in this notice, the IRS will treat Bro- ker as having met its reporting deadline requirements under sections 6042(c) and 6049(c) for items from calendar year 2009 because: (1) sections 6042(c) and 6049(c) otherwise require Broker to furnish statements for these items on or before February 1, 2010; (2) Broker reported these items on a statement furnished on or before February 16, 2010; (3) Broker reported these items on a statement furnished to each customer on the same date that Broker either: (a) furnished to the customer a statement reporting items required by section 6045, or (b) would have fur- nished Form 1099–B to the customer if the customer had sold securities during the year; and (4) Broker was required to report these items to the customer as a result of the same broker-to-customer relationship as its obligation under section 6045. The IRS will therefore not assess any penalties under section 6722 based on the date that Broker furnished the state- ments reporting the items required under sections 6042(c) and 6049(c) even though some customers received a composite form recipient statement that reported no sales and other customers received no composite form recipient statement. EFFECT ON OTHER DOCUMENTS Notice 2009–11 is amplified. DRAFTING INFORMATION The principal author of this notice is Stephen Schaeffer of the Office of Associate Chief Counsel (Procedure & Administration). For further informa- tion regarding this notice, please contact Stephen Schaeffer at (202) 622–4910 (not a toll-free call). Tax-Exempt Bonds in Certain Disaster Areas Notice 2010–10 SECTION 1. PURPOSE This notice provides guidance on the tax-exempt bond provisions for the Mid- western and Hurricane Ike disaster areas under the Heartland Disaster Tax Relief Act of 2008, Subtitle A of Title VII of the Tax Extenders and Alternative Mini- mum Tax Relief Act of 2008 (Division C of Public Law 110–343, 122 Stat. 3765, enacted on October 3, 2008) (Act) and § 1400N(a) of the Internal Revenue Code (Code), as modified by the Act. This no- tice also provides guidance on reimburse- ment expenditures made with proceeds of tax-exempt bonds issued for Midwestern and Hurricane Ike disaster areas and tax- exempt “Qualified Gulf Opportunity Zone Bonds” issued under § 1400N(a) of the Code. (Except as noted, section references in this Notice are to the Code and the In- come Tax Regulations.) SECTION 2. BACKGROUND Section 1400N(a) of the Code permits certain tax-exempt bond financing in a Gulf Opportunity Zone, which includes areas in the States of Alabama, Louisiana and Mississippi affected by Hurricane Ka- trina. The Act authorizes certain tax-exempt bond financing in a Midwestern disaster area as defined under § 702(b) of the Act which includes certain counties in cer- tain Midwestern States affected by severe storms, tornados, or flooding (Midwestern Disaster Area), and in a Hurricane Ike disaster area as defined under § 704(c) of the Act which includes certain counties in Texas and parishes in Louisiana affected by Hurricane Ike (Hurricane Ike Disas- ter Area). These disasters are sometimes referred to in this Notice as “Midwestern Disaster” and “Hurricane Ike,” respec- tively. Sections 702 and 704 of the Act pro- vide generally that the special provisions for tax-exempt bond financing in the Gulf Opportunity Zone under § 1400N(a) of the Code apply with certain modifica- tions to tax-exempt bond financing in the Midwestern and Hurricane Ike Disaster Areas. Tax-exempt bonds that meet these modified requirements are referred to as “Qualified Midwestern Disaster Area Bonds” or “Qualified Hurricane Ike Dis- aster Area Bonds” in relevant provisions of§1400N(a),asmodifiedbytheAct. Previously, in Notice 2008–109, 2008–50 I.R.B. 1282 (December 15, 2008), the Internal Revenue Service (IRS) provided guidance on the counties in- cluded within the Midwestern and Hurri- cane Ike Disaster Areas and the relevant State population information needed to determine the State volume caps applica- ble to these disaster area bonds. Sections702(d)(1)(A)(i)and 704(a)(1)(A) of the Act generally provide a modified definition of qualified project costs under § 1400N(a)(2)(A)(i) that may be financed with Qualified Midwestern Disaster Area Bonds and Qualified Hur- ricane Ike Disaster Area Bonds that treat costs as qualified project costs only if: (1) in the case of a project involving a private business use (as defined in § 141(b)(6)), either the person using the property suffered a loss in a trade or business attributable to a Midwestern Disaster or Hurricane Ike or is a person designated for purposes of this section by the Governor of the State in which the project is located as a person carrying on a trade or business replacing a trade or business with respect to which another person suffered such a loss, and, (2) in the case of a project relating to public utility property, the project involves repair or reconstruction of public utility property damaged by a Midwestern Disaster or Hurricane Ike. Sections 702(d)(1)(C) and 704(a)(3) of the Act modify § 1400N(a)(2)(C) to require that Qualified Midwestern Disas- ter Area Bonds and Qualified Hurricane Ike Disaster Area Bonds be “designated” for volume cap allocation purposes on the basis of providing assistance to areas in the order in which such assistance is most needed. Certain interpretive questions have arisen under the Act regarding determina- tions of qualified project costs, designa- tions of areas of greatest need, the scope of gubernatorial discretion on these mat- ters, and the scope of eligible financing by public utilities with Qualified Midwestern Disaster Area Bonds and Qualified Hurri- cane Ike Disaster Area Bonds. In addition, certain interpretive questions have arisen January 19, 20102992010–3 I.R.B. on the use of proceeds of Qualified Mid- western Disaster Area Bonds, Qualified Hurricane Ike Disaster Area Bonds and Qualified Gulf Opportunity Zone Bonds issued under § 1400N(a) to finance “re- imbursements” of original expenditures previously paid from other sources of funds after the date of the occurrence of the applicable disaster under the gen- eral reimbursement expenditure rules for tax-exempt bonds. SECTION 3. INTERIM GUIDANCE AND RELIANCE 3.1 In General Pending the promulgation and effective date of future administrative or regulatory guidance, taxpayers may rely on the in- terim guidance provided in this notice. 3.2 Certain Determinations of Qualified Project Costs for Projects Involving Private Business Use In the case of a project involving pri- vate business use under § 141(b)(6), for purposes of determining qualified project costs that may be financed with proceeds of Qualified Midwestern Disaster Area Bonds and Qualified Hurricane Ike Disas- ter Area Bonds under § 1400N(a)(2)(A)(i), as modified by the Act, the determination of whether a loss in a trade or business has been suffered and whether a person is carrying on a trade or business replacing a trade or business with respect to which anotherpersonsufferedsuchalossmaybe made by the Governor of the State in which the project is located in any reasonable manner as the Governor shall determine in good faith in such Governor’s discretion. In addition, a duly authorized designee of such Governor under applicable State law may make these determinations. Section 3.3 Qualified Project Costs for Public Utility Property In the case of a project relating to public utility property, qualified project costs that may be financed with proceeds of Qual- ified Midwestern Disaster Area Bonds and Qualified Hurricane Ike Disaster Area Bonds include the repair or reconstruction of public utility property (as defined in § 168(i)(10)) damaged by a Midwestern Disaster or Hurricane Ike, as applicable, as provided in § 1400N(a)(2)(A)(i), as modi- fied by the Act. In addition, public utilities may also use proceeds of Qualified Mid- western Disaster Area Bonds and Quali- fied Hurricane Ike Disaster Area Bonds to finance qualified project costs of projects involving private business use under the first prong of the definition of qualified project costs under § 1400N(a)(2)(A)(i), as modified by the Act, as more particu- larly described in § 3.2 of this Notice. Section 3.4 Designations of Areas of Greatest Need For purposes of the requirement to designate allocations of Qualified Mid- western Disaster Area Bonds and Quali- fied Hurricane Ike Disaster Area Bonds to provide assistance to areas in the order in which such assistance is most needed under § 1400N(a)(2)(C), as modified by the Act, the Governor of the State in which the Qualified Midwestern Disaster Area Bonds and Qualified Hurricane Ike Dis- aster Area Bonds are issued or the Bond Commission of such State required to approve such bonds,as applicable under §1400N(a)(2)(C),maymakesuchdesig- nations in any reasonable manner as such Governor or Bond Commission shall de- termine in good faith in the discretion of such Governor or Bond Commission, as applicable. In addition, a duly authorized designee of such Governor or Bond Com- mission under applicable State law may make these determinations. Section 3.5 Certain Reimbursement Expenditures The reimbursement expenditure rules under § 1.150–2 of the Income Tax Reg- ulations apply to Qualified Midwestern Disaster Area Bonds, Hurricane Ike Dis- aster Area Bonds, and Qualified Gulf Opportunity Zone Bonds in the same manner as they apply to exempt facility bonds under § 1.142–4, except that, in the case of these disaster area bonds, issuers are treated as having met the official in- tent requirement under § 1.150–2(e) for original expenditures paid on or after the date of the occurrence of the applicable disaster (i.e., the Midwestern Disaster, Hurricane Ike, or Hurricane Katrina) and before December 31, 2009. Further, in the case of Qualified Midwestern Disaster Area Bonds, Hurricane Ike Disaster Area Bonds, and Gulf Opportunity Zone Bonds, the maximum reimbursement period un- der § 1.150–2(d)(2) is treated as ending no earlier than December 31, 2010. SECTION 4. EFFECTIVE DATE This Notice is effective on December 18, 2009. This notice applies to Qual- ified Midwestern Disaster Area Bonds and Qualified Hurricane Ike Disaster Area Bonds issued after October 3, 2008. In addition, § 3.5 of this notice on reim- bursement expenditures also applies to Qualified Gulf Opportunity Zone Bonds issued after December 21, 2005. SECTION 5. DRAFTING INFORMATION The principal authors of this notice are Carla A. Young and James A. Polfer, Office of the Associate Chief Counsel (Financial Institutions and Products). However, other personnel from the IRS and the Treasury Department partici- pated in its development. For further information regarding this notice, contact James A. Polfer at (202) 622–3980 (not a toll-free call). 26 CFR 1.61–21: Taxation of Fringe Benefits. (Also: §§ 61, 280F.) Rev. Proc. 2010–10 SECTION 1. PURPOSE .01 This revenue procedure provides: (1) the maximum value of employer-pro- vided vehicles first made available to em- ployees for personal use in calendar year 2010 for which the vehicle cents-per-mile valuation rule provided under section 1.61–21(e) of the Income Tax Regula- tions may be applicable is $15,300 for a passenger automobile and $16,000 for a truck or van; (2) the maximum value of employer-provided vehicles first made available to employees for personal use in calendar year 2010 for which the fleet-av- erage valuation rule provided under sec- tion 1.61–21(d) of the regulations may be applicable is $20,300 for a passenger automobile and $21,000 for a truck or van. 2010–3 I.R.B.300January 19, 2010 SECTION 2. BACKGROUND .01 If an employer provides an em- ployee with a vehicle that is available to the employee for personal use, the value of the personal use must generally be included in the employee’s income and wages. Internal Revenue Code § 61; Treas. Reg. § 1.61–21. .02 For employer-provided passen- ger automobiles (including trucks and vans) made available to employees for personal use that meet the requirements of section 1.61–21(e)(1) of the regula- tions, generally the value of the personal use may be determined under the vehicle cents-per-mile valuation rule of section 1.61–21(e). However, regulations section 1.61–21(e)(1)(iii)(A) provides that for a passenger automobile first made avail- able after 1988 to any employee of the employer for personal use, the value of the personal use may not be determined under the vehicle cents-per-mile valuation rule for a calendar year if the fair market value of the passenger automobile (de- termined pursuant to regulations section 1.61–21(d)(5)(i) through (iv)) on the first date the passenger automobile is made available to the employee exceeds a spec- ified dollar limit. .03 For employer-provided vehicles available to employees for personal use for an entire year, generally the value of the personal use may be determined under the automobile lease valuation rule of section 1.61–21(d) of the regulations. Under this valuation rule, the value of the personal use is the Annual Lease Value. Provided the requirements of regulation section 1.61–21(d)(5)(v) are met, an employer with a fleet of 20 or more automobiles may use a fleet-average value for purposes of calculating the Annual Lease Values of the automobiles in the employer’s fleet. The fleet-average value is the average of the fair market values of all the auto- mobiles in the fleet. However, section 1.61–21(d)(5)(v)(D) of the regulations provides that for an automobile first made available after 1988 to an employee of the employer for personal use, the value of the personal use may not be determined under the fleet-average valuation rule for a cal- endar year if the fair market value of the automobile (determined pursuant to reg- ulations section 1.61–21(d)(5)(i) through (v)) on the first date the passenger auto- mobile is made available to the employee exceeds a specified dollar limit. .04 The maximum passenger automo- bile values for applying the vehicle cents- per-mile and the fleet-average value rules reflect the automobile price inflation ad- justment of Code section 280F(d)(7). The method of calculating this price inflation amount for automobiles other than trucks and vans uses the “new car” component of the CPI “automobile component”. When calculating this price inflation adjustment for trucks and vans, the “new trucks” com- ponent of the CPI is used. This results in somewhat higher maximum values for trucks and vans. This change reflects the higher rate of price inflation that trucks and vans have been subject to since 1988, and is consistent with the change announced in Rev. Proc. 2003–75, 2003–2 C.B. 1018, for purposes of calculating depreciation deductions.See alsoRev. Proc. 2009–24, 2009–17 I.R.B. 885. For purposes of this revenue procedure, the term “trucks and vans” refers to passenger automobiles that are built on a truck chassis, including mini- vans and sport utility vehicles (SUVs) that are built on a truck chassis. SECTION 3. PROCEDURE .01 Maximum Automobile Value for Using the Vehicle Cents-per-mile Val- uation Rule. An employer providing a passenger automobile for the first time in calendar year 2010 for the personal use of any employee may determine the value of the personal use by using the vehicle cents-per-mile valuation rule in section 1.61–21(e) of the regulations if its fair market value on the date it is first made available does not exceed $15,300 for a passenger automobile other than a tuck or van, or $16,000 for a truck or van. If the fair market value of the passenger automobile exceeds this amount, the em- ployer may determine the value of the personal use under the general valuation rules of regulations section 1.61–21(b) or under the special valuation rules of section 1.61–21(d) (Automobile lease valuation) or section 1.61–21(f) (Commuting valu- ation) if the applicable requirements are met.SeeRev. Proc. 2008–13, 2008–6 I.R.B. 407, as modified by Announcement 2008–15, 2008–9 I.R.B. 511, for guidance on determining the maximum value of passenger automobiles first made avail- able during calendar year 2008, and Rev. Proc. 2009–12, 2009–3 I.R.B. 321, for guidance on determining the maximum value of passenger automobiles first made available during calendar year 2009. .02 Maximum Automobile Value for Using the Fleet-Average Valuation Rule. An employer with a fleet of 20 or more automobiles providing an automobile for the first time in calendar year 2010 for the personal use of any employee for an entire year may determine the value of the personal use by using the fleet-aver- age valuation rule in regulations section 1.61–21(d)(5)(v) to calculate the Annual Lease Values of the automobiles in the fleet. The fleet-average valuation rule may not be used to determine the Annual Lease Value of any automobile if its fair market value on the date it is first made available exceeds $20,300 for a passenger automo- bile other than a truck or van, or $21,000 for a truck or van. If all other appli- cable requirements are met, an employer with a fleet of 20 or more vehicles consist- ing of passenger automobiles other than trucks or vans as well as trucks and vans may use the fleet-average valuation rule as long as none of the vehicles exceed their respective maximum allowable val- ues. If the fair market value of any passen- ger automobile in the fleet exceeds these amounts, the employer may determine the value of the personal use under regulations section 1.61–21(f) (Commuting valuation) or the general valuation rules of section 1.61–21(b) or may determine the Annual Lease Value of such automobile separately under the automobile lease valuation rule of section 1.61–21(d)(2) if the applicable requirements are met. SECTI ON 4. EFFECTIVE DATE This revenue procedure applies to em- ployer-provided passenger automobiles first made available to employees for per- sonal use in calendar year 2010. SECTION 5. DRAFTING INFORMATION The principal author of this revenue procedure is Don M. Parkinson of the Office of the Division Counsel/Associate Chief Counsel (Tax Exempt & Govern- ment Entities). For further information regarding the maximum automobile val- January 19, 20103012010–3 I.R.B. ues for applying the valuation rules of regulations section 1.61–21(e)(1)(iii)(A) (the vehicle cents-per-mile valuation rule), and section 1.61–21(d)(5)(v)(D) (the fleet average valuation rule), contact Don M. Parkinson at (202) 622–6040 (not a toll-free call). 26 CFR 601.601: Rules and regulations. (Also: Part I, §§ 301, 305.) Rev. Proc. 2010–12 SECTION 1. PURPOSE Rev. Proc. 2009–15, 2009–4 I.R.B. 356, amplifying and superseding Rev. Proc. 2008–68, 2008–52 I.R.B. 1373, provides temporary guidance regarding certain stock distributions by publicly traded real estate investment trusts (RE- ITs) and regulated investment companies (RICs). This revenue procedure amplifies and supersedes Rev. Proc. 2009–15. SECTION 2. BACKGROUND .01 Section 305(a) of the Internal Rev- enue Code (“Code”) provides that, except as otherwise provided in section 305, gross income does not include the amount of any distribution of the stock of a corporation made by such corporation to its sharehold- ers with respect to its stock. .02 Section 305(b)(1) provides that sec- tion 305(a) shall not apply to a distribution by a corporation of its stock, and the distri- bution shall be treated as a distribution of property to which section 301 applies, if the distribution is, at the election of any of the shareholders (whether exercised before or after the declaration thereof), payable either in its stock or in property. .03 Section 305(b)(2) provides that sec- tion 305(a) shall not apply to a distribution by a corporation of its stock, and the distri- bution shall be treated as a distribution of property to which section 301 applies, if the distribution (or a series of distributions of which such distribution is one) has the result of the receipt of property by some shareholders, and an increase in the pro- portionate interests of other shareholders in the assets or earnings and profits of the corporation. .04 Section 1.305–2(a) of the Income Tax Regulations provides that under sec- tion 305(b)(1), if any shareholder has the righttoanelectionoroptionwithrespect to whether a distribution shall be made ei- ther in money or any other property, or in stock or rights to acquire stock of the dis- tributing corporation, then, with respect to all shareholders, thedistribution of stock or rights to acquire stock is treated as a dis- tributionofpropertytowhichsection301 applies regardless of— (1) Whether the distribution is actually made in whole or in part in stock or in stock rights; (2) Whether the election or option is exercised or exercisable before or after the declaration of the distribution; (3) Whether the declaration of the dis- tribution provides that the distribution will be made in one medium unless the share- holder specifically requests payment in the other; (4) Whether the election governing the nature of the distribution is provided in the declaration of the distribution or in the cor- porate charter or arises from the circum- stances of the distribution; or (5) Whether all or part of the sharehold- ers have the election. .05 Section 1.305–1(b)(2) provides that where a corporation which regularly dis- tributes its earnings and profits, such as a RIC, declares a dividend pursuant to which the shareholders may elect to receive either money or stock of the distributing corpora- tion of equivalent value, the amount of the distribution of the stock received by any shareholder electing to receive stock will be considered to equal the amount of the money which could have been received in- stead. .06 Section 852(a) provides, in part, that except for section 852(c), the provisions of part I of subchapter M of Chapter 1 shall not apply to a RIC for a taxable year un- less the deduction for dividends paid (as defined in section 561 with certain modifi- cations) for the taxable year equals or ex- ceeds a specified amount. .07 Section 857(a) provides, in part, that except for subsection (d) of section 857 and subsection (g) of section 856, the pro- visionsofpartIIofsubchapterMofChap- ter 1 shall not apply to a REIT for a tax- able year unless the deduction for divi- dends paid during the year (as defined in section 561 with certain modifications) for the taxable year equals or exceeds a speci- fied amount. .08 Section 562(c) provides that the amount of any distribution shall not be considered as a dividend for purposes of computing the dividends paid deduction under section 561, unless such distribution ispro rata,withnopreferencetoanyshare of stock as compared with other shares of the same class, and with no preference to one class of stock as compared with another class except to the extent that the former is entitled (without reference to waivers of their rights by shareholders) to such preference. .09 Section 852(b)(7) provides that any dividend declared by a RIC in October, November, or December of any calendar year and payable to shareholders of record on a specified date in such a month shall be deemed to have been received by each shareholder on December 31 of such cal- endar year, and to have been paid by the RIC on December 31 of such calendar year (or, if earlier, as provided in section 855). The preceding sentence shall apply only if such dividend is actually paid by the RIC during January of the following calendar year. .10 Section 855 provides, in relevant part, that if a RIC declares a dividend prior to the time prescribed by law for the filing of its return for a taxable year (including the period of any extension of time granted for filing such return), and distributes the amountofsuchdividendtoshareholders in the 12-month period following the close of such taxable year and not later than the date of the first regular dividend payment made after such declaration, the amount so declared and distributed shall, to the ex- tent the RIC elects in such return, be gener- ally considered as having been paid during such taxable year. Except as provided in section 852(b)(7), the amounts distributed pursuant to this section shall be treated as received by the shareholder in the taxable year in which the distribution is made. .11 Section 857(b)(9) provides that any dividend declared by a REIT in October, November, or December of any calendar year and payable to shareholders of record on a specified date in such a month shall be deemed to have been received by each shareholder on December 31 of such cal- endar year, and to have been paid by the REIT on December 31 of such calendar year (or, if earlier, as provided in section 858). The preceding sentence shall apply only if such dividend is actually paid by 2010–3 I.R.B.302January 19, 2010 the REIT during January of the following calendar year. .12 Section 858 provides, in relevant part, that if a REIT declares a dividend before the time prescribed by law for the filing of its return for a taxable year (in- cluding the period of any extension of time granted for filing such return), and dis- tributes the amount of such dividend to shareholders in the 12-month period fol- lowing the close of such taxable year and not later than the date of the first regu- lar dividend payment made after such dec- laration, the amount so declared and dis- tributed shall, to the extent the REIT elects in such return, be generally considered as having been paid during such taxable year. Except as provided in section 857(b)(9), the amounts distributed pursuant to sec- tion 858 shall be treated as received by the shareholder in the taxable year in which the distribution is made. .13 If there is a determination with re- spect to a RIC or a REIT that results in an adjustment that produces a tax deficiency for any taxable year, there are procedures under section 860 that enable the RIC or REIT to make a current distribution to its shareholders (a “deficiency dividend”) that increases the RIC’s or REIT’s divi- dends-paid deduction for the earlier year of the deficiency. SECTION 3. SCOPE AND APPLICATION .01In general. If a corporation qual- ifies as a RIC or as a REIT under part I or II, respectively, of subchapter M of the Code and makes a distribution that meets all of the requirements of section 3.02 of this revenue procedure— (1) The Internal Revenue Service will treat the distribution of stock as a distribu- tion of property to which section 301 ap- plies by reason of section 305(b), and the amount of such distribution of stock will be considered to equal the amount of the money which could have been received in- stead; and (2) If some shareholders receive a com- bination of stock and money that differs from the combination received by other shareholders and if the fair market value of the stock on the date of distribution differs from the amount of money which could have been received instead, those differ- ences do not cause the distribution to be a preferential dividend under section 562(c). .02Requirements for distribution. (1) The distribution is made by the cor- poration to its shareholders with respect to its stock; (2) Stock of the corporation is publicly traded on an established securities market in the United States; (3) The distribution is declared on or be- fore December 31, 2012, with respect to a taxable year ending on or before Decem- ber 31, 2011, whether declared and dis- tributed prior to the close of the taxable year or whether declared and distributed pursuant to the provisions of sections 855, 852(b)(7), 858, 857(b)(9), or 860; (4) Pursuant to such declaration each shareholder may elect to receive the share- holder’s entire entitlement under the decla- ration in either money or stock of the dis- tributing corporation of equivalent value subject to a limitation on the amount of money to be distributed in the aggregate to all shareholders (the “Cash Limitation”), provided that— (a) such Cash Limitation is not less than 10% of the aggregate declared distribution, and (b) if too many shareholders elect to receive money, each shareholder electing to receive money will receive apro rata amount of money corresponding to the shareholder’s respective entitlement under the declaration, but in no event will any shareholder electing to receive money re- ceive less than 10% of the shareholder’s entire entitlement under the declaration in money; (5) The calculation of the number of shares to be received by any shareholder will be determined, over a period of up to two weeks ending as close as practi- cable to the payment date, based upon a formula utilizing market prices that is de- signed to equate in value the number of shares to be received with the amount of money that could be received instead. For purposes of applying subsection (4) of this Section 3.02, the value of the shares to be distributed shall be determined by using the formula described in the preceding sen- tence; and (6) With respect to any shareholder par- ticipating in a dividend reinvestment plan (“DRIP”), the DRIP applies only to the ex- tent that, in the absence of the DRIP, the shareholder would have received the dis- tribution in money under subsection (4) of this Section 3.02. SECTION 4. EFFECT ON OTHER DOCUMENTS Rev. Proc. 2009–15 is amplified and superseded. SECTION 5. EFFECTIVE DATE This revenue procedure is effective with respect to distributions declared on or after January 1, 2008. SECTION 6. DRAFTING INFORMATION The principal author of this revenue procedure is T. Ian Russell of the Office of Associate Chief Counsel (Corporate). For further information regarding this revenue procedure, contact T. Ian Russell at (202) 622–7550 (not a toll-free call). January 19, 20103032010–3 I.R.B. Definition of Terms Revenue rulings and revenue procedures (hereinafter referred to as “rulings”) that have an effect on previous rulings use the following defined terms to describe the ef- fect: Amplifieddescribes a situation where no change is being made in a prior pub- lished position, but the prior position is be- ingextendedtoapplytoavariationofthe fact situation set forth therein. Thus, if an earlier ruling held that a principle ap- plied to A, and the new ruling holds that the same principle also applies to B, the earlier ruling is amplified. (Compare withmodi- fied,below). Clarifiedis used in those instances where the language in a prior ruling is be- ing made clear because the language has caused, or may cause, some confusion. It is not used where a position in a prior ruling is being changed. Distinguisheddescribes a situation where a ruling mentions a previously pub- lished ruling and points out an essential difference between them. Modifiedis used where the substance of a previously published position is being changed. Thus, if a prior ruling held that a principle applied to A but not to B, and the new ruling holds that it applies to both A and B, the prior ruling is modified because it corrects a published position. (Compare withamplifiedandclarified, above). Obsoleteddescribes a previously pub- lished ruling that is not considered deter- minative with respect to future transac- tions. This term is most commonly used in a ruling that lists previously published rul- ings that are obsoleted because of changes in laws or regulations. A ruling may also be obsoleted because the substance has been included in regulations subsequently adopted. Revokeddescribes situations where the position in the previously published ruling is not correct and the correct position is beingstatedinanewruling. Supersededdescribes a situation where the new ruling does nothing more than re- state the substance and situation of a previ- ously published ruling (or rulings). Thus, the term is used to republish under the 1986 Code and regulations the same po- sition published under the 1939 Code and regulations. The term is also used when it is desired to republish in a single rul- ing a series of situations, names, etc., that were previously published over a period of time in separate rulings. If the new rul- ing does more than restate the substance of a prior ruling, a combination of terms is used. For example,modifiedandsu- persededdescribes a situation where the substance of a previously published ruling is being changed in part and is continued without change in part and it is desired to restate the valid portion of the previously published ruling in a new ruling that is self contained. In this case, the previously pub- lished ruling is first modified and then, as modified, is superseded. Supplementedis used in situations in which a list, such as a list of the names of countries, is published in a ruling and that list is expanded by adding further names in subsequent rulings. After the original rul- ing has been supplemented several times, a new ruling may be published that includes the list in the original ruling and the ad- ditions, and supersedes all prior rulings in the series. Suspendedis used in rare situations to show that the previous published rulings will not be applied pending some future action such as the issuance of new or amended regulations, the outcome of cases in litigation, or the outcome of a Service study. Abbreviations The fol lowing abbreviations in current use and for merly used will appear in material publis hedintheBulletin. A—Individual. Acq.—A cquiescence. B—Individual. BE—Beneficiary. BK—Bank . B.T.A.—Board of Tax Appeals. C—Individual. C.B.—Cu mulative Bulletin. CFR—Code of Federal Regulations. CI—City. COOP—Coo perative. Ct.D.—Court Decision. CY—County. D—Decede nt. DC—Dummy Corporation. DE—Donee. Del. Order —Delegation Order. DISC—Domestic International Sales Corporation. DR—Donor. E—Estate. EE—Employee. E.O.—Executive Order. ER—Emp loyer. ERISA—Employee Retirement Income Security Act. EX—Executor. F—Fiduc iary. FC—Foreign Country. FICA—Federal Insurance Contributions Act. FISC—Fo reign International Sales Company. FPH—Foreign Personal Holding Company. F.R.—Federal Register. FUTA—Fed eral Unemployment Tax Act. FX—Foreign corporation. G.C.M.—Chief Counsel’s Memorandum. GE—Grante e. GP—General Partner. GR—Grantor. IC—Insura nce Company. I.R.B.—Internal Revenue Bulletin. LE—Lessee. LP—Limited Partner. LR—Lessor. M—Minor. Nonacq.—No nacquiescence. O—Organization. P—Parent Corporation. PHC—Persona l Holding Company. PO—Possession of the U.S. PR—Partner. PRS—Pa rtnership. PTE—Prohibited Transaction Exemption. Pub. L.—Public Law. REIT—Re al Estate Investment Trust. Rev. Proc.—Revenue Procedure. Rev. Rul.—Revenue Ruling. S—Subsi diary. S.P.R.—Statement of Procedural Rules. Stat.—Statutes at Large. T—Target Corporation. T.C.—Tax Court. T.D.—Treasury Decision. TFE—Trans feree. TFR—Transferor. T.I.R.—Technical Information Release. TP—Taxpay er. TR—Trust. TT—Trustee. U.S.C.—Uni ted States Code. X—Corporation. Y—Corporation. Z—Corporat ion. 2010–3 I.R.B.iJanuary 19, 2010 Numerical Finding List 1 Bulletins 2010–1 through 2010–3 Announcements: 2010-2, 2010-2 I.R.B.271 Notices: 2010-1, 2010-2 I.R.B.251 2010-2, 2010-2 I.R.B.251 2010-3, 2010-2 I.R.B.253 2010-4, 2010-2 I.R.B.253 2010-5, 2010-2 I.R.B.256 2010-6, 2010-3 I.R.B.275 2010-7, 2010-3 I.R.B.296 2010-8, 2010-3 I.R.B.297 2010-9, 2010-3 I.R.B.298 2010-10, 2010-3 I.R.B.299 Revenue Procedures: 2010-1, 2010-1 I.R.B.1 2010-2, 2010-1 I.R.B.90 2010-3, 2010-1 I.R.B.110 2010-4, 2010-1 I.R.B.122 2010-5, 2010-1 I.R.B.165 2010-6, 2010-1 I.R.B.193 2010-7, 2010-1 I.R.B.231 2010-8, 2010-1 I.R.B.234 2010-9, 2010-2 I.R.B.258 2010-10, 2010-3 I.R.B.300 2010-11, 2010-2 I.R.B.269 2010-12, 2010-3 I.R.B.302 Revenue Rulings: 2010-1, 2010-2 I.R.B.248 2010-2, 2010-3 I.R.B.272 2010-3, 2010-3 I.R.B.272 1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2009–27 through 2009–52 is in Internal Revenue Bulletin 2009–52, dated December 28, 2009. January 19, 2010ii2010–3 I.R.B. Finding List of Current Actions on Previously Published Items 1 Bulletins 2010–1 through 2010–3 Notices: 2008-41 Modified by Notice 2010-7, 2010-3 I.R.B.296 2008-55 Modified by Notice 2010-3, 2010-2 I.R.B.253 2008-88 Modified by Notice 2010-7, 2010-3 I.R.B.296 2008-113 Modified by Notice 2010-6, 2010-3 I.R.B.275 2008-115 Modified by Notice 2010-6, 2010-3 I.R.B.275 2009-11 Amplified by Notice 2010-9, 2010-3 I.R.B.298 2009-38 Amplified and superseded by Notice 2010-2, 2010-2 I.R.B.251 Revenue Procedures: 80-59 Modified and superseded by Rev. Proc. 2010-11, 2010-2 I.R.B.269 87-35 Obsoleted by Rev. Proc. 2010-3, 2010-1 I.R.B.110 2009-1 Superseded by Rev. Proc. 2010-1, 2010-1 I.R.B.1 2009-2 Superseded by Rev. Proc. 2010-2, 2010-1 I.R.B.90 2009-3 Superseded by Rev. Proc. 2010-3, 2010-1 I.R.B.110 2009-4 Superseded by Rev. Proc. 2010-4, 2010-1 I.R.B.122 2009-5 Superseded by Rev. Proc. 2010-5, 2010-1 I.R.B.165 Revenue Procedures— Continued: 2009-6 Superseded by Rev. Proc. 2010-6, 2010-1 I.R.B.193 2009-7 Superseded by Rev. Proc. 2010-7, 2010-1 I.R.B.231 2009-8 Superseded by Rev. Proc. 2010-8, 2010-1 I.R.B.234 2009-9 Superseded by Rev. Proc. 2010-9, 2010-2 I.R.B.258 2009-15 Amplified and superseded by Rev. Proc. 2010-12, 2010-3 I.R.B.302 2009-25 Superseded by Rev. Proc. 2010-3, 2010-1 I.R.B.110 Revenue Rulings: 2008-52 Supplemented and superseded by Rev. Rul. 2010-2, 2010-3 I.R.B.272 1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2009–27 through 2009–52 is in Internal Revenue Bulletin 2009–52, dated December 28, 2009. 2010–3 I.R.B.iiiJanuary 19, 2010 January 19, 20102010–3 I.R.B. 2010–3 I.R.B.January 19, 2010 January 19, 20102010–3 I.R.B. INTERNAL REVENUE BULLETIN The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue Bulletin is sold on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superin- tendent of Documents when their subscriptions must be renewed. CUMULATIVE BULLETINS The contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are sold on a single copy basis andare notincluded as part of the subscription to the Internal Revenue Bulletin. Subscribers to the weekly Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of print and are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from the Superintendent of Documents. ACCESS THE INTERNAL REVENUE BULLETIN ON THE INTERNET You may view the Internal Revenue Bulletin on the Internet at www.irs.gov. Select Businesses. Under Businesses Topics, select More Topics. Then select Internal Revenue Bulletins. INTERNAL REVENUE BULLETINS ON CD-ROM Internal Revenue Bulletins are available annually as part ofPublication 1796 (Tax Products CD-ROM). The CD-ROM can be purchased from National Technical Information Service (NTIS) on the Internet at www.irs.gov/cdorders (discount for online orders) or by calling 1-877-233-6767. The first release is available in mid-December and the final release is available in late January. HOW TO ORDER Check the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance, detach entire page, and mail to the Superintendent of Documents, P.O. Box 371954, Pittsburgh PA, 15250–7954. Please allow two to six weeks, plus mailing time, for delivery. WE WELCOME COMMENTS ABOUT THE INTERNAL REVENUE BULLETIN If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we would be pleased to hear from you. 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