Internal Revenue Bulletin 2011-19 (PDF rendition): IRS Revenue Rulings

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Bulletin No. 201
1-19
May 9, 2011
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. 2011–11, page 758.
Federal rates; adjusted federal rates; adjusted federal
long-term rate and the long-term exempt rate.For pur-
poses of sections 382, 642, 1274, 1288, and other sections
of the Code, tables set forth the rates for May 2011.
T.D. 9521, page 750.
Final regulations under section 904(d) of the Code provide tran-
sition rules regarding the reduction of the number of separate
foreign tax credit limitation categories.
REG–154159–09, page 777.
Proposed regulations under section 108(a) of the Code relate
to the exclusion from gross income of discharge of indebted-
ness income of a grantor trust or an entity that is disregarded
as an entity separate from its owner. The regulations provide
rules regarding the term “taxpayer” for purposes of applying
section 108 to discharge of indebtedness income of a grantor
trust or a disregarded entity.
Notice 2011–21, page 761.
To provide a more uniform method for the federal income tax-
ation of Treasury Inflation-Protected Securities (TIPS), this no-
tice provides that the IRS and the Department of the Treasury
plan to issue regulations that will provide that the coupon bond
method described in regulations section 1.1275–7(d) applies
to TIPS issued with more than ade minimisamount of pre-
mium. The regulations will be effective for TIPS issued on or
after April 8, 2011.
Notice 2011–34, page 765.
This notice provides further guidance to Notice 2010–60 and
requests comments regarding implementation of chapter 4 of
the Code. Notice 2010–60 supplemented and superseded.
EMPLOYEE PLANS
Notice 2011–33, page 761.
Weighted average interest rate update; corporate bond
indices; 30-year Treasury securities; segment rates.
This notice contains updates for the corporate bond weighted
average interest rate for plan years beginning in April 2011;
the 24-month average segment rates; the funding transitional
segment rates applicable for April 2011; and the minimum
present value transitional rates for March 2011.
Finding Lists begin on page ii.

The IRS Mission
Provide Americ
a’s taxpayers top-quality service by helping
them understa
nd and meet their tax responsibilities and en-
force the law wi
th 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.
May 9, 20112011–19 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 42.—Low-Income
Housing Credit
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of May 2011. See Rev. Rul. 2011-11, page 758.
Sect
ion 280G.—Golden
Para
chute Payments
Fede
ral short-term, mid-term, and long-term rates
are s
et forth for the month of May 2011. See Rev.
Rul.
2011-11, page 758.
Section 382.—Limitation
on Net Operating Loss
Carryforwards and Certain
Built-In Losses Following
Ownership Change
The adjusted applicable federal long-term rate is
set forth for the month of May 2011. See Rev. Rul.
2011-11, page 758.
Section 412.—Minimum
Funding Standards
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of May 2011. See Rev. Rul. 2011-11, page 758.
Section 467.—Certain
Payments for the Use of
Property or Services
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of May 2011. See Rev. Rul. 2011-11, page 758.
Section 468.—Special
Rules for Mining and Solid
Waste Reclamation and
Closing Costs
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of May 2011. See Rev. Rul. 2011-11, page 758.
Section 482.—Allocation
of Income and Deductions
Among Taxpayers
Federal short-term, mid-term, and long-term rates
are set forth for the month of May 2011. See Rev.
Rul. 2011-11, page 758.
Sect
ion 483.—Interest on
Cert
ain Deferred Payments
The a
djusted applicable federal short-term, mid-
term
, and long-term rates are set forth for the month
of Ma
y 2011. See Rev. Rul. 2011-11, page 758.
Section 642.—Special
Rules for Credits and
Deductions
Federal short-term, mid-term, and long-term rates
are set forth for the month of May 2011. See Rev.
Rul. 2011-11, page 758.
Sec
tion 807.—Rules for
Cer
tain Reserves
The
adjusted applicable federal short-term, mid-
ter
m, and long-term rates are set forth for the month
of
May 2011. See Rev. Rul. 2011-11, page 758.
Section 846.—Discounted
Unpaid Losses Defined
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of May 2011. See Rev. Rul. 2011-11, page 758.
Section 904.—Limitation
on Credit
26 CFR 1.904–0: Outline of regulation provisions for
section 904.
T.D. 9521
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Reduction of Foreign Tax
Credit Limitation Categories
Under Section 904(d)
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations and removal
of temporary regulations.
SUMMARY: This document contains fi-
nal regulations that provide guidance relat-
ing to the reduction of the number of sepa-
rate foreign tax credit limitation categories
under section 904(d) of the Internal Rev-
enue Code. Changes to the applicable law
were made by the American Jobs Creation
Act of 2004 (AJCA) reducing the number
of section 904(d) separate categories from
eight to two, effective for taxable years be-
ginning after December 31, 2006. The fi-
nal regulations provide guidance needed to
comply with these changes and affect indi-
viduals and corporations claiming foreign
tax credits.
DATES:Effective Date:These regulations
are effective on April 7, 2011.
Applicability Dates:For dates of appli-
cability, see §§1.904–2(i)(3), 1.904–4(n),
1.904–5(o)(3), 1.904–7(g)(6), and
1.904(f)–12(h)(6).
FOR FURTHER INFORMATION
CONTACT:Jeffrey L. Parry, (202)
622–3850 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On December 21, 2007, a notice of pro-
posedrulemakingbycross-reference to
2011–19 I.R.B.750May 9, 2011

temporary regulations (REG–114126–07,
2008–1 C.B. 410) under section 904 of
the Code and temporary regulations (T.D.
9368, 2008–1 C.B. 382) (the 2007 tem-
porary regulations) were published in the
Federal Register(72 FR 72645) and (72
FR 72582), respectively. Corrections to
those temporary regulations were pub-
lished on March 21, 2008, in theFederal
Register(73 FR 15063). No written com-
ments were received. A public hearing
was not requested and none was held. This
Treasury decision adopts the proposed
regulation with the changes discussed in
this preamble.
Explanation of Changes in this Final
Rule
I. Gain from the Sale of a Partnership
Interest
Section 954(c)(4), which was enacted
by the AJCA, provides a look-through rule
for sales of 25-percent-owned partner-
ships. Because the definition of passive
income in section 904(d)(2)(B) refers to
section 954(c), §1.904–5T(h)(3)(ii) of the
2007 temporary regulations provides that
in the case of a sale of a partnership in-
terest by a 25-percent partner, under the
principles of section 954(c)(4)(B) the in-
come recognized on such sale is assigned
to the separate category for general cat-
egory income, to the extent that the gain
would not be classified as foreign per-
sonal holding company income under the
section 954(c)(4) look-through rule. The
rule has been revised to clarify that the
look-through rule applies to a sale by any
25-percent owner of a partnership (and not
just controlled foreign corporations that
are 25-percent partners). The language
of this provision has also been revised to
be more consistent with the language of
the look-through rule as provided under
section 954(c)(4).
II. Losses in and Losses with respect to
the Pre-2007 Separate Category for High
Withholding Tax Interest
Section 1.904(f)–12T(h) of the 2007
temporary regulationsprovides transition
rules for recapture in a taxable year begin-
ning after December 31, 2006 (post-2006
taxable year) of an overall foreign loss
(OFL) or separate limitation loss (SLL)
in a pre-2007 separate category (as de-
fined in §1.904–7T(g)(1)(ii)) that offset
U.S. source income or income in another
pre-2007 separate category, respectively.
Section 1.904(f)–12T(h)(3) provides that
to the extent a taxpayer had an OFL or SLL
at the end of the taxpayer’s last pre-2007
taxable year in the pre-2007 separate cat-
egory for high withholding tax interest,
the allocation of such OFL or SLL to the
taxpayer’s post-2006 separate categories
follows the taxpayer’s allocation of ex-
cess taxes in the high withholding tax
interest loss category for section 904(c)
carryover purposes. If there were no ex-
cess taxes in the loss category that carried
over to post-2006 taxable years, an OFL
or SLL in the pre-2007 separate category
for high withholding tax interest is allo-
cated to the post-2006 separate category
for passive category income. Similarly,
§1.904(f)–12T(h)(3) provides that where
a taxpayer had an SLL in a pre-2007 sepa-
rate category that offset high withholding
tax interest (that is, an SLL with respect
to a pre-2007 separate category for high
withholding tax interest), the SLL will be
recaptured in subsequent taxable yearspro
rataas income in the post-2006 separate
categories for general category income
and passive category income based on
how the taxpayer allocated excess taxes
in the pre-2007 separate category for high
withholding tax interest. If no excess taxes
in the pre-2007 separate category for high
withholding tax interest were carried over
to post-2006 taxable years, the SLL will be
recaptured in subsequent taxable years as
income in the post-2006 separate category
for passive category income.
A question was raised as to whether it
was appropriate, in the case of a finan-
cial services entity that had a loss in, or
a loss with respect to, a pre-2007 sepa-
rate category for high withholding tax in-
terest, and no excess taxes in the loss cat-
egory were carried over to post-2006 tax-
able years, that the loss be allocated to
the post-2006 separate category for pas-
sive category income (in the case of a loss
in the pre-2007 separate category for high
withholding tax interest) or that the loss be
recaptured in subsequent taxable years as
income in the post-2006 separate category
for passive category income (in the case of
a loss with respect to a pre-2007 separate
category for high withholding tax interest).
Section 904(d)(2)(C)(i), as amended by
the AJCA, provides that financial services
income is treated as general category in-
come in the case of a member of a finan-
cial services group and any other person
predominantly engaged in the active con-
duct of a banking, insurance, financing or
similar business (a financial services en-
tity). Financial services income includes
passive income that is received or accrued
by any person predominantly engaged in
the active conduct of a banking, insurance,
financing, or similar business, but does
not include specified passive category in-
come. See section 904(d)(2)(D)(i)(II). Ac-
cordingly, in post-2006 taxable years, in-
come that otherwise would be treated as
passive income (and assigned to the sepa-
rate category for passive category income)
will instead be treated as general category
income in the case of a financial services
entity.
The IRS and the Treasury Department
believe that, in the case of a financial ser-
vices entity, the appropriate treatment of a
loss in, or a loss with respect to, a pre-2007
separate category for high withholding tax
interest, where no excess taxes in the loss
category were carried over to post-2006
taxable years, is to allocate the loss to
the post-2006 separate category for gen-
eral category income or to recapture the
loss in subsequent years as general cate-
gory income, as the case may be. Accord-
ingly, the regulations have been revised to
provide that if a financial services entity al-
located under §1.904(f)–12T(h)(3) an OFL
or SLL at the end of its last pre-2007 tax-
able year in the pre-2007 separate cate-
gory for high withholding tax interest to
the post-2006 separate category for pas-
sive category income, and no excess taxes
in the loss category were carried over to
post-2007 taxable years, the amount of any
such loss that has not yet been recaptured
will be allocated to the post-2006 sepa-
rate category for general category income.
Similarly, if a financial services entity allo-
cated under §1.904(f)–12T(h)(3) at the end
of its last pre-2007 taxable year an SLL
with respect to a pre-2007 separate cate-
gory for high withholding tax interest, and
no excess taxes in the separate category for
high withholding tax interest were carried
over to post-2007 taxable years (that is, the
SLL would be subject to recapture as pas-
sive category income), the amount of any
such SLL that has not yet been recaptured
May 9, 20117512011–19 I.R.B.

will be recaptured in subsequent taxable
years as general category income.
III. Section 952(c) Recapture Accounts
Section 1.904–7(g)(3) of the final reg-
ulations clarifies that section 952(c)(2)
recapture accounts maintained by a con-
trolled foreign corporation with respect
to subpart F income in a separate cate-
gory that was subject to the earnings and
profits limitation of section 952(c)(1)(A)
are allocated to separate categories in the
same manner as the associated post-1986
undistributed earnings.
IV. Safe Harbors
The 2007 temporary regulations pro-
vide several safe harbors that a taxpayer
may apply in lieu of generally applicable
rules. Section 1.904–2T(i)(1)(ii) pro-
vides a safe harbor for the carryover of
unused foreign taxes in a pre-2007 sep-
arate category to a post-2006 separate
category; §1.904–2T(i)(2)(ii) provides a
safe harbor for the carryback of unused
foreign taxes in a post-2006 separate cat-
egory to a pre-2007 separate category;
§1.904–7T(g)(3)(ii) provides safe harbors
for allocating pools of post-1986 undis-
tributed earnings and post-1986 foreign
income taxes in the pre-2007 separate
categories of controlled foreign corpo-
rations and noncontrolled section 902
corporations to the post-2006 separate cat-
egories; and §1.904(f)–12T(h)(5) provides
an alternative method for determining the
recapture in post-2006 taxable years of
separate limitation losses and overall for-
eign losses incurred in pre-2007 taxable
years.
A question was raised as to how a safe
harbor method election is to be made and
the time frame for making the election.
The final regulations provide that taxpay-
ers may choose to use a safe harbor method
on a timely filed (original or amended)
tax return or during audit. If a taxpayer
chooses to use the safe harbor method on
an amended return or in the course of an
audit, the taxpayer must make appropriate
adjustments to eliminate any double bene-
fit arising from application of the safe har-
bor method to years that are not open for
assessment. A taxpayer’s choice to use the
safe harbor method is evidenced by sim-
ply employing the method in determining
its foreign tax credit limitation. No sepa-
rate statement need be filed.
V. Effective/Applicability Dates
The effective/applicability dates are the
same as those in the proposed and tem-
porary regulations with minor clarifying
changes.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Exec-
utive Order 12866. Therefore, a regula-
tory assessment is not required. It has also
been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these reg-
ulations, and because the regulations do
not impose a collection of information on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply.
Drafting Information
The principal author of these regula-
tions is Jeffrey L. Parry of the Office of
Chief Counsel (International). However,
other personnel from the Treasury Depart-
ment and the IRS participated in their de-
velopment.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.904–0 is amended
by adding entries for §§1.904–2(i),
1.904–4(a), (b), (h)(3), and (l),
1.904–5(h)(3) and (o)(3), and1.904–7(g)
to read as follows:
§1.904–0 Outline of regulation provisions
for section 904.
*****
§1.904–2 Carryback and carryover of
unused foreign tax.
*****
(i) Transition rules for carryovers and
carrybacks of pre-2007 and post-2006 un-
used foreign tax.
(1) Carryover of unused foreign tax.
(i) General rule.
(ii) Safe harbor.
(2) Carryback of unused foreign tax.
(i) General rule.
(ii) Safe harbor.
(3) Effective/applicability date.
*****
§1.904–4 Separate application of section
904 with respect to certain categories of
income.
(a) In general.
(b) Passive category income.
(1) In general.
(2) Passive income.
(i) In general.
(ii) Exceptions.
(iii) Active rents or royalties.
(A) In general.
(B) Active conduct of trade or business.
(iv) Examples.
(3) Specified passive category income.
*****
(h) * * *
(3) Exception.
*****
(l) Priority rule.
*****
§1.904–5 Look-through rules as applied
to controlled foreign corporations and
other entities.
*****
(h) * * *
(3) Income from the sale of a partner-
ship interest.
(i) In general.
(ii) Exception for sale by 25-percent
owner.
*****
(o) * * *
(3) Rules for income from the sale of a
partnership interest.
§1.904–7 Transition rules.
*****
(g) Treatment of earnings and foreign
taxes of a controlled foreign corporation
2011–19 I.R.B.752May 9, 2011

or a noncontrolled section 902 corpora-
tion accumulated in taxable years begin-
ning before January 1, 2007.
(1) Definitions.
(i) Pre-2007 pools.
(ii) Pre-2007 separate categories.
(iii) Post-2006 separate categories.
(2) Treatment of pre-2007 pools of a
controlled foreign corporation or a non-
controlled section 902 corporation.
(3) Substantiation of post-2006 charac-
ter of earnings and taxes in a pre-2007
pool.
(i) Reconstruction of earnings and taxes
pools.
(ii) Safe harbor method.
(A) In general.
(B) General safe harbor method.
(C) Interest apportionment safe harbor.
(iii) Consistency rule.
(4) Treatment of pre-1987 accumulated
profits.
(5) Treatment of earnings and foreign
taxes in pre-2007 pools of a lower-tier
controlled foreign corporation or noncon-
trolled section 902 corporation.
(6) Effective/applicability date.
Par. 3. Section 1.904–2(i) is revised to
read as follows:
§1.904–2 Carryback and carryover of
unused foreign tax.
*****
(i)Transition rules for carryovers and
carrybacks of pre-2007 and post-2006
unused foreign tax—(1)Carryover of un-
used foreign tax—(i)General rule.For
purposes of this paragraph (i), the terms
post-2006 separate categoryandpre-2007
separate categoryhave the meanings set
forth in §1.904–7(g)(1)(ii) and (iii). The
rules of this paragraph (i)(1) apply to real-
locate to the taxpayer’s post-2006 separate
categories for general category income and
passive category income any unused for-
eign taxes (as defined in §1.904–2(b)(2))
that were paid or accrued or deemed paid
under section 902 with respect to income
in a pre-2007 separate category (other than
a category described in §1.904–4(m)). To
the extent any such unused foreign taxes
are carried forward to a taxable year be-
ginning after December 31, 2006, such
taxes shall be allocated to the taxpayer’s
post-2006 separatecategories to which
those taxes would have been allocated if
the taxes were paid or accrued in a taxable
year beginning after December 31, 2006.
For example, any foreign taxes paid or
accrued or deemed paid with respect to
financial services income in a taxable year
beginning before January 1, 2007, that
are carried forward to a taxable year be-
ginning after December 31, 2006, will be
allocated to the general category because
the financial services income to which
those taxes relate would have been allo-
cated to the general category if it had been
earned in a taxable year beginning after
December 31, 2006.
(ii)Safe harbor. In lieu of applying
the rules of paragraph (i)(1)(i) of this sec-
tion, a taxpayer may allocate all unused
foreign taxes in the pre-2007 separate cat-
egory for passive income to the post-2006
separate category for passive category in-
come, and allocate all other unused for-
eign taxes described in paragraph (i)(1)(i)
of this section to the post-2006 separate
category for general category income. A
taxpayer may choose to use the safe har-
bormethodonatimelyfiled(originalor
amended) tax return or during an audit. A
taxpayer that uses the safe harbor method
on an amended return or in the course
of an audit must make appropriate adjust-
ments to eliminate any double benefit aris-
ing from application of the safe harbor
method to years that are not open for as-
sessment. A taxpayer’s choice to use the
safe harbor method is evidenced by em-
ploying the method. The taxpayer need not
file any separate statement.
(2)Carryback of unused foreign
tax—(i)General rule.Therulesofthis
paragraph (i)(2) apply to any unused
foreign taxes that were paid or accrued
or deemed paid under section 902 with
respect to income in a post-2006 sep-
arate category (other than a category
described in §1.904–4(m)). To the ex-
tentanysuchunusedforeigntaxesare
carried back to a taxable year beginning
before January 1, 2007, a credit for such
taxes shall be allowed only to the extent
of the excess limitation in the pre-2007
separate category, or categories, to which
the taxes would have been allocated if the
taxes were paid or accrued in a taxable
year beginning before January 1, 2007.
For example, any foreign taxes paid or
accrued or deemed paid with respect
to income in the general category in a
taxable year beginning after December 31,
2006, that are carried back to a taxable
year beginning before January 1, 2007,
will be allocated to the same separate
categories to which the income would
have been allocated if such income had
been earned in a taxable year beginning
before January 1, 2007.
(ii)Safe harbor. In lieu of applying the
rules of paragraph (i)(2)(i) of this section,
a taxpayer may allocate all unused foreign
taxes in the post-2006 separate category
for passive category income to the pre-
2007 separate category for passive income,
and may allocate all other unused foreign
taxes described in paragraph (i)(2)(i) of
this section to the pre-2007 separate cat-
egory for general limitation income. A
taxpayer may choose to use the safe har-
bor method on a timely filed (original or
amended) tax return or during an audit. A
taxpayer that uses the safe harbor method
on an amended return or in the course
of an audit must make appropriate adjust-
ments to eliminate any double benefit aris-
ing from application of the safe harbor
method to years that are not open for as-
sessment. A taxpayer’s choice to use the
safe harbor method is evidenced by em-
ploying the method. The taxpayer need not
file any separate statement.
(3)Effective/applicability date.This
paragraph (i) applies to taxable years be-
ginning after December 31, 2006 and end-
ing on or after December 21, 2007.
§1.904–2T [Removed].
Par. 4. Section 1.904–2T is removed.
Par. 5. In §1.904–4, paragraphs (a), (b),
(h)(3), and (l) are revised, paragraphs (f)
and (g) are removed and reserved, and a
new sentence is added immediately after
the heading of paragraph (n) to read as
follows:
§1.904–4 Separate application of section
904 with respect to certain categories of
income.
(a)In general. A taxpayer is required to
compute a separate foreign tax credit lim-
itation for income received or accrued in
a taxable year that is described in section
904(d)(1)(A) (passive category income),
904(d)(1)(B) (general category income),
or §1.904–4(m) (additional separate cate-
gories).
(b)Passive category income—(1)In
general.Thetermpassive category in-
May 9, 20117532011–19 I.R.B.

comemeans passive income and specified
passive category income.
(2)Passive income—(i)In general.The
termpassive incomemeans any—
(A) Income received or accrued by any
person that is of a kind that would be for-
eign personal holding company income (as
defined in section 954(c)) if the taxpayer
were a controlled foreign corporation, in-
cluding any amount of gain on the sale or
exchange of stock in excess of the amount
treated as a dividend under section 1248;
or
(B) Amount includible in gross income
under section 1293.
(ii)Exceptions. Passive income does
not include any export financing inter-
est (as defined in section 904(d)(2)(G)
and paragraph (h) of this section), any
high-taxed income (as defined in section
904(d)(2)(F) and paragraph (c) of this sec-
tion), or any active rents and royalties (as
defined in paragraph (b)(2)(iii) of this sec-
tion). In addition, passive income does not
include any income that would otherwise
be passive but is characterized as income
in another separate category under the
look-through rules of section 904(d)(3),
(d)(4), and (d)(6)(C) and the regulations
under those provisions. In determining
whether any income is of a kind that would
be foreign personal holding company in-
come, the rules of section 864(d)(5)(A)(i)
and (6) (treating related person factoring
income of a controlled foreign corpora-
tion as foreign personal holding company
income that is not eligible for the export
financing income exception to the separate
limitation for passive income) shall apply
only in the case of income of a controlled
foreign corporation (as defined in section
957). Thus, income earned directly by a
United States person that is related person
factoring income may be eligible for the
exception for export financing interest.
(iii)Active rents or royalties—(A)In
general. For rents and royalties paid or
accrued after September 20, 2004, pas-
sive income does not include any rents
or royalties that are derived in the active
conduct of a trade or business, regard-
less of whether such rents or royalties are
received from a related or an unrelated
person. Except as provided in paragraph
(b)(2)(iii)(B) of this section, the principles
of section 954(c)(2)(A) and the regulations
under that section shall apply in determin-
ing whether rents or royalties are derived
in the active conduct of a trade or business.
For this purpose, the term taxpayer shall be
substituted for the term controlled foreign
corporation if the recipient of the rents or
royalties is not a controlled foreign corpo-
ration.
(B)Active conduct of trade or busi-
ness. Rents and royalties are considered
derived in the active conduct of a trade
or business by a United States person or
by a controlled foreign corporation (or
other entity to which the look-through
rules apply) for purposes of section 904
(but not for purposes of section 954) if the
requirements of section 954(c)(2)(A) are
satisfied by one or more corporations that
are members of an affiliated group of cor-
porations (within the meaning of section
1504(a), determined without regard to sec-
tion 1504(b)(3)) of which the recipient is
a member. For purposes of this paragraph
(b)(2)(iii)(B), an affiliated group includes
only domestic corporations and foreign
corporations that are controlled foreign
corporations in which domestic members
of the affiliated group own, directly or
indirectly, at least 80 percent of the total
voting power and value of the stock. For
purposes of this paragraph (b)(2)(iii)(B),
indirect ownership shall be determined un-
der section 318 and the regulations under
that section.
(iv)Examples. The following exam-
ples illustrate the application of paragraph
(b)(2) of this section.
Example 1. P is a domestic corporation with a
branch in foreign country X. P does not have any fi-
nancial services income. For 2008, P has a net foreign
currency gain that would not constitute foreign per-
sonal holding company income if P were a controlled
foreign corporation because the gain is directly re-
lated to the business needs of P. The currency gain
is, therefore, general category income to P because it
is not income of a kind that would be foreign personal
holding company income.
Example 2. Controlled foreign corporation S is
a wholly-owned subsidiary of P, a domestic corpora-
tion. S is regularly engaged in the restaurant franchise
business. P licenses trademarks, tradenames, cer-
tain know-how, related services, and certain restau-
rant designs for which S pays P an arm’s length roy-
alty. P is regularly engaged in the development and
licensing of such property. The royalties received by
P for the use of its property are allocable under the
look-through rules of §1.904–5 to the royalties S re-
ceives from the franchisees. Some of the franchisees
are unrelated to S and P. Other franchisees are related
to S or P and use the licensed property outside of S’s
country of incorporation. S does not satisfy, but P
does satisfy, the active trade or business requirements
of section 954(c)(2)(A) and the regulations under that
section. The royalty income earned by S with regard
to both its related and unrelated franchisees is foreign
personal holding company income because S does not
satisfy the active trade or business requirements of
section 954(c)(2)(A) and, in addition, the royalty in-
come from the related franchisees does not qualify
for the same country exception of section 954(c)(3).
However, all of the royalty income earned by S is gen-
eral category income to S under §1.904–4(b)(2)(iii)
because P, a member of S’s affiliated group (as de-
fined therein), satisfies the active trade or business
test (which is applied without regard to whether the
royalties are paid by a related person). S’s royalty
income that is taxable to P under subpart F and the
royalties paid to P are general category income to P
under the look-through rules of §1.904–5(c)(1)(i) and
(c)(3), respectively.
(3)Specified passive category income
means—
(i) Dividends from a DISC or former
DISC (as defined in section 992(a)) to
the extent such dividends are treated as
income from sources without the United
States;
(ii) Taxable income attributable to for-
eign trade income (within the meaning of
section 923(b)); or
(iii) Distributions from a FSC (or a for-
mer FSC) out of earnings and profits at-
tributable to foreign trade income (within
the meaning of section 923(b)) or inter-
est or carrying charges (as defined in sec-
tion 927(d)(1)) derived from a transaction
which results in foreign trade income (as
defined in section 923(b)).
*****
(f) [Reserved].
(g) [Reserved].
(h) * * *
(3)Exception. Unless it is received or
accrued by a financial services entity, ex-
port financing interest shall be treated as
passive category income if that income is
also related person factoring income. For
this purpose, related person factoring in-
come is—
(i) Income received or accrued by a con-
trolled foreign corporation that is income
described in section 864(d)(6) (income of a
controlled foreign corporation from a loan
for the purpose of financing the purchase
of inventory property of a related person);
or
(ii) Income received or accrued by any
person that is income described in section
864(d)(1) (income from a trade receivable
acquired from a related person).
*****
(l)Priority rule. Income that meets
the definitions of a separate category de-
2011–19 I.R.B.754May 9, 2011

scribed in paragraph (m) of this section
and another category of income described
in section 904(d)(2)(A)(i) and (ii) will be
subject to the separate limitation described
in paragraph (m) of this section and will
not be treated as general category income
described in section 904(d)(2)(A)(ii).
*****
(n) * * * Paragraphs (a), (b), (h)(3), and
(l) of this section shall apply to taxable
years of United States persons and, for pur-
poses of section 906, foreign persons be-
ginning after December 31, 2006 and end-
ing on or after December 21, 2007, and
to taxable years of a foreign corporation
which end with or within taxable years of
its domestic corporateshareholder begin-
ning after December 31, 2006 and ending
on or after December 21, 2007. * * *
§1.904–4T [Removed].
Par. 6. Section 1.904–4T is removed.
Par. 7. In §1.904–5, paragraphs (h)(3)
and (o)(3) are revised to read as follows:
§1.904–5 Look-through rules as applied
to controlled foreign corporations and
other entities.
*****
(h) * * *
(3)Incomefromthesaleofapart-
nership interest—(i)In general.Tothe
extent a partner recognizes gain on the
sale of a partnership interest, that income
shall be treated as passive category in-
come to the partner, unless the income is
considered to be high-taxed under section
904(d)(2)(B)(iii)(II) and §1.904–4(c).
(ii)Exception for sale by 25-percent
owner. In the case of a sale of an interest in
a partnership by a partner that is a 25-per-
cent owner of the partnership, determined
by applying section 954(c)(4)(B) and sub-
stituting “controlled foreign corporation”
with “partner” every place it appears, for
purposes of determining the separate cat-
egory to which the income recognized on
the sale of the partnership interest is as-
signed such partner shall be treated as sell-
ing the proportionate share of the assets of
the partnership attributable to such inter-
est.
*****
(o) * * *
(3)Rules for income from the sale of a
partnership interest. Paragraph (h)(3) of
this section shall apply to taxable years of
United States persons and, for purposes of
section 906, foreign persons beginning af-
ter December 31, 2006 and ending on or
after December 21, 2007, and to taxable
years of a foreign corporation which end
with or within taxable years of its domestic
corporate shareholder beginning after De-
cember 31, 2006 and ending on or after De-
cember 21, 2007.
§1.904–5T [Removed].
Par. 8. Section 1.904–5T is removed.
Par. 9. Section 1.904–7, paragraph (g)
is revised to read as follows:
§1.904–7 Transition rules.
*****
(g)Treatment of earnings and foreign
taxes of a controlled foreign corpora-
tion or a noncontrolled section 902 cor-
poration accumulated in taxable years
beginning before January 1, 2007—(1)
Definitions—(i)Pre-2007 poolsmeans
the pools in each separate category of
post-1986 undistributed earnings (as de-
fined in §1.902–1(a)(9)) that were accu-
mulated, and post-1986 foreign income
taxes (as defined in §1.902–1(a)(8)) paid,
accrued, or deemed paid, in taxable years
beginning before January 1, 2007.
(ii)Pre-2007 separate categories
means the separate categories of income
described in section 904(d) as applicable to
taxable years beginning before January 1,
2007, and any other separate category of
income described in §1.904–4(m).
(iii)Post-2006 separate categories
means the separate categories of in-
come described in section 904(d) as
applicable to taxable years beginning af-
ter December 31, 2006, and any other
separate category of income described in
§1.904–4(m).
(2)Treatment of pre-2007 pools of
a controlled foreign corporation or a
noncontrolled section 902 corporation.
Any post-1986 undistributed earnings in
a pre-2007 pool of a controlled foreign
corporation or a noncontrolled section
902 corporation shall be treated in tax-
able years beginning after December 31,
2006, as if they were accumulated during
a period in which the rules governing the
determination of post-2006 separate cate-
gories applied. Post-1986 foreign income
taxes paid, accrued, or deemed paid with
respect to such earnings shall be treated
as if they were paid, accrued, or deemed
paid during a period in which the rules
governing the determination of post-2006
separate categories (including the rules of
section 904(d)(3)(E)) applied as well. Any
such earnings and taxes in pre-2007 pools
shall constitute the opening balance of
the foreign corporation’s post-1986 undis-
tributed earnings and post-1986 foreign
income taxes on the first day of the foreign
corporation’s first taxable year beginning
after December 31, 2006, in accordance
with the rules of paragraph (g)(3) of this
section. Similar rules shall apply to char-
acterize any deficits in the pre-2007 pools
and previously-taxed earnings and profits
described in section 959(c)(1) and (2) that
are attributable to earnings in the pre-2007
pools. Any section 952(c)(2) recapture
account with respect to a separate category
shall be allocated in the same manner as
the post-1986 undistributed earnings in
the associated pre-2007 pool.
(3)Substantiation of post-2006 char-
acter of earnings and taxes in a pre-2007
pool—(i)Reconstruction of earnings and
taxes pools. In order to substantiate the
post-2006 characterization of post-1986
undistributed earnings (as well as deficits
and previously-taxed earnings, if any)
and post-1986 foreign income taxes in
pre-2007 pools of a controlled foreign
corporation or a noncontrolled section
902 corporation, the taxpayer shall make
a reasonable, good-faith effort to recon-
struct the pre-2007 pools of post-1986
undistributed earnings (as well as deficits
and previously-taxed earnings, if any)
and post-1986 foreign income taxes fol-
lowing the rules governing the determi-
nation of post-2006 separate categories
for each taxable year beginning before
January 1, 2007, beginning with the first
year in which post-1986 undistributed
earnings were accumulated in the pre-2007
pool. Reconstruction shall be based on
reasonably available books and records
and other relevant information. To the
extent any pre-2007 separate category
includes earnings that would be allocated
to more than one post-2006 separate
category, the taxpayer must account for
earnings distributed and taxes deemed
paid in these years for such category as
if they were distributed and deemed paid
pro ratafrom the amounts that were added
May 9, 20117552011–19 I.R.B.

to that category during each taxable year
beginning before January 1, 2007.
(ii)Safe harbor method—(A)In gen-
eral. Subject to the rules of paragraph
(g)(3)(iii) of this section, a taxpayer may
allocate the post-1986 undistributed earn-
ings and post-1986 foreign income taxes
in pre-2007 pools of a controlled foreign
corporation or a noncontrolled section 902
corporation (as well as deficits and pre-
viously-taxed earnings, if any) under one
of the safe harbor methods described in
paragraphs (g)(3)(ii)(B) and (g)(3)(ii)(C)
of this section. A taxpayer may choose
to use the safe harbor method on a timely
filed (original or amended) tax return or
during an audit. A taxpayer that uses the
safe harbor method on an amended return
or in the course of an audit must make
appropriate adjustments to eliminate any
double benefit arising from application of
the safe harbor method to years that are not
open for assessment. A taxpayer’s choice
to use the safe harbor method is evidenced
by employing the method. The taxpayer
need not file any separate statement.
(B)General safe harbor method—(1)
Any post-1986 undistributed earnings (as
well as deficits and previously-taxed earn-
ings, if any) and post-1986 foreign income
taxes of a noncontrolled section 902 corpo-
ration or a controlled foreign corporation
in a pre-2007 separate category for passive
income, certain dividends from a DISC or
former DISC, taxable income attributable
to certain foreign trade income, or certain
distributions from a FSC or former FSC
shall be allocated to the post-2006 separate
category for passive category income.
(2) Any post-1986 undistributed
earnings (as well as deficits and pre-
viously-taxed earnings, if any) and
post-1986 foreign income taxes of a
noncontrolled section 902 corporation
or a controlled foreign corporation in a
pre-2007 separate category for financial
services income, shipping income or gen-
eral limitation income shall be allocated to
the post-2006 separate category for gen-
eral category income.
(3) Except as provided in paragraph
(g)(3)(ii)(B)(4) of this section, any
post-1986 undistributed earnings (as well
as deficits and previously-taxed earnings,
if any) and post-1986 foreign income taxes
of a noncontrolled section 902 corporation
or a controlled foreign corporation in a
pre-2007 separate category for high with-
holding tax interest shall be allocated to
the post-2006 separate category for pas-
sive category income.
(4) If a controlled foreign corporation
has positive post-1986 undistributed earn-
ings and post-1986 foreign income taxes
in a pre-2007 separate category for high
withholding tax interest, such earnings and
taxes shall be allocated to the post-2006
separate category for general category in-
come if the earnings would qualify as in-
come subject to highforeign taxes un-
der section 954(b)(4) if the entire amount
of post-1986 undistributed earnings were
treated as a net item of income subject
to the rules of §1.954–1(d). If the high
withholding tax interest earnings would
not qualify as income subject to high for-
eign taxes under section 954(b)(4), then
the earnings and taxes shall be allocated
to the post-2006 separate category for pas-
sive category income.
(C)Interest apportionment safe harbor.
A taxpayer may allocate the post-1986
undistributed earnings (as well as deficits
and previously-taxed earnings, if any)
and post-1986 foreign income taxes in
pre-2007 pools of a controlled foreign
corporation or a noncontrolled section 902
corporation following the principles of
paragraph (f)(4)(ii) of this section.
(iii)Consistency rule. The election to
apply a safe harbor method under para-
graph(g)(3)(ii)ofthissectioninlieuof
the rules described in paragraph (g)(3)(i)
of this section may be made on a sep-
arate category by separate category ba-
sis. However, if a taxpayer elects to ap-
ply a safe harbor to allocate pre-2007 pools
of more than one pre-2007 separate cat-
egory of a controlled foreign corporation
or a noncontrolled section 902 corpora-
tion, such safe harbor (the general safe
harbor described in paragraph (g)(3)(ii)(B)
of this section or the interest apportion-
ment safe harbor described in paragraph
(g)(3)(ii)(C) of this section) shall apply to
allocate post-1986 undistributed earnings
(aswellasdeficitsand previously-taxed
earnings, if any) and post-1986 foreign in-
come taxes for the pre-2007 pools in each
pre-2007 separate category of the foreign
corporation for which the taxpayer elected
to apply a safe harbor method in lieu of re-
constructing the pre-2007 pools.
(4)Treatment of pre-1987 accumulated
profits. Any pre-1987 accumulated prof-
its (as defined in §1.902–1(a)(10)) of a
noncontrolled section 902 corporation or
a controlled foreign corporation shall be
treated in taxable years beginning after De-
cember 31, 2006, as if they had been ac-
cumulated during a period in which the
rules governing the determination of post-
2006 separate categories applied. Foreign
income taxes paid, accrued, or deemed
paid with respect to such earnings shall be
treated as if they were paid, accrued, or
deemed paid during a period in which the
rules governing the determination of post-
2006 separate categories applied as well.
The taxpayer must substantiate the post-
2006 characterization of the pre-1987 ac-
cumulated profits and pre-1987 foreign in-
come taxes in accordance with the rules of
paragraph (g)(3) of this section, including
the safe harbor provisions. Similar rules
shall apply to characterize any deficits or
previously-taxed earnings and profits de-
scribed in section 959(c)(1) and (2) that are
attributable to pre-1987 accumulated prof-
its.
(5)Treatment of earnings and foreign
taxes in pre-2007 pools of a lower-tier
controlled foreign corporation or non-
controlled section 902 corporation.The
rules of paragraphs (g)(1) through (4)
of this section apply to post-1986 undis-
tributed earnings (as well as deficits
and previously-taxed earnings, if any)
and post-1986 foreign income taxes in
pre-2007 pools, and pre-1987 accumu-
lated profits and pre-1987 foreign income
taxes, of a lower-tier controlled foreign
corporation or noncontrolled section 902
corporation.
(6)Effective/applicability date.This
paragraph (g) shall apply to taxable years
of United States persons and, for purposes
of section 906, foreign persons beginning
after December 31, 2006 and ending on or
after December 21, 2007, and to taxable
years of a foreign corporation which end
with or within taxable years of its domestic
corporate shareholder beginning after De-
cember 31, 2006 and ending on or after De-
cember 21, 2007.
§1.904–7T [Removed].
Par. 10. Section 1.904–7T is removed.
Par. 11. Section 1.904(f)–0 is amended
by adding an entry for §1.904(f)–12(h) to
read as follows:
2011–19 I.R.B.756May 9, 2011

§1.904(f)–0 Outline of regulation
provisions.
*****
§1.904(f)–12 Transition rules.
*****
(h) Recapture in years beginning after
December 31, 2006, of separate limitation
losses and overall foreign losses incurred
in years beginning before January 1, 2007.
(1) Losses related to pre-2007 separate
categories for passive income, certain div-
idends from a DISC or former DISC, tax-
able income attributable to certain foreign
trade income or certain distributions from
a FSC or former FSC.
(i) Recapture of separate limitation loss
or overall foreign loss incurred in a pre-
2007 separate category for passive income,
certain dividends from a DISC or former
DISC, taxable income attributable to cer-
tain foreign trade income or certain distri-
butions from a FSC or former FSC.
(ii) Recapture of separate limitation loss
with respect to a pre-2007 separate cate-
gory for passive income, certain dividends
from a DISC or former DISC, taxable in-
come attributable to certain foreign trade
income or certain distributions from a FSC
or former FSC.
(2) Losses related to pre-2007 separate
categories for shipping, financial services
income or general limitation income.
(i) Recapture of separate limitation loss
or overall foreign loss incurred in a pre-
2007 separate category for shipping in-
come, financial services income or general
limitation income.
(ii) Recapture of separate limitation loss
with respect to a pre-2007 separate cat-
egory for shipping income, financial ser-
vices income or general limitation income.
(3) Losses related to a pre-2007 sepa-
rate category for high withholding tax in-
terest.
(i) Recapture of separate limitation loss
or overall foreign loss incurred in a pre-
2007 separate category for high withhold-
ing tax interest.
(ii) Recapture of separate limitation loss
with respect to a pre-2007 separate cate-
gory for high withholding tax interest.
(4) Elimination of certain separate lim-
itation loss accounts.
(5) Alternative method.
(6) Effective/applicability date.
Par. 12. Section 1.904(f)–12(h) is re-
vised to read as follows:
§1.904(f)–12 Transition rules.
*****
(h)Recapture in years beginning af-
ter December 31, 2006, of separate lim-
itation losses and overall foreign losses
incurred in years beginning before Jan-
uary 1, 2007—(1)Lossesrelatedtopre-
2007 separate categories for passive in-
come, certain dividends from a DISC or
former DISC, taxable income attributable
to certain foreign trade income or cer-
tain distributions from a FSC or former
FSC—(i)Recapture of separate limitation
loss or overall foreign loss incurred in a
pre-2007 separate category for passive in-
come, certain dividends from a DISC or
former DISC, taxable income attributable
to certain foreign trade income or certain
distributions from a FSC or former FSC.
To the extent that a taxpayer has a balance
in any separate limitation loss or overall
foreign loss account in a pre-2007 separate
category (as defined in §1.904–7(g)(1)(ii))
for passive income, certain dividends from
a DISC or former DISC, taxable income at-
tributable to certain foreign trade income
or certain distributions from a FSC or for-
mer FSC, at the end of the taxpayer’s last
taxable year beginning before January 1,
2007, the amount of such balance, or bal-
ances, shall be allocated on the first day
of the taxpayer’s next taxable year to the
taxpayer’s post-2006 separate category (as
defined in §1.904–7(g)(1)(iii)) for passive
category income.
(ii)Recapture of separate limitation
loss with respect to a pre-2007 separate
category for passive income, certain div-
idends from a DISC or former DISC,
taxable income attributable to certain for-
eign trade income or certain distributions
from a FSC or former FSC.Totheex-
tent that a taxpayer has a balance in any
separate limitation loss account in any
pre-2007 separate category with respect to
a pre-2007 separate category for passive
income, certain dividends from a DISC or
former DISC, taxableincome attributable
to certain foreign trade income or certain
distributions from a FSC or former FSC
at the end of the taxpayer’s last taxable
year beginning before January 1, 2007,
such loss shall be recaptured in subsequent
taxable years as income in the post-2006
separate category for passive category in-
come.
(2)Lossesrelatedtopre-2007separate
categories for shipping, financial services
income or general limitation income—(i)
Recapture of separate limitation loss or
overall foreign loss incurred in a pre-2007
separate category for shipping income, fi-
nancial services income or general limi-
tation income. To the extent that a tax-
payer has a balance in any separate limi-
tation loss or overall foreign loss account
in a pre-2007 separate category for ship-
ping income, financial services income or
general limitation income at the end of the
taxpayer’s last taxable year beginning be-
fore January 1, 2007, the amount of such
balance, or balances, shall be allocated on
the first day of the taxpayer’s next taxable
year to the taxpayer’s post-2006 separate
category for general category income.
(ii)Recapture of separate limitation
loss with respect to a pre-2007 separate
category for shipping income, financial
services income or general limitation in-
come. To the extent that a taxpayer has
a balance in any separate limitation loss
account in any pre-2007 separate cate-
gory with respect to a pre-2007 separate
category for shipping income, financial
services income or general limitation in-
come at the end of the taxpayer’s last
taxable year beginning before January 1,
2007, such loss shall be recaptured in
subsequent taxable years as income in the
post-2006 separate category for general
category income.
(3)Lossesrelatedtoapre-2007sepa-
rate category for high withholding tax in-
terest—(i)Recapture of separate limita-
tion loss or overall foreign loss incurred
in a pre-2007 separate category for high
withholding tax interest. To the extent that
a taxpayer has a balance in any separate
limitation loss or overall foreign loss ac-
count in a pre-2007 separate category for
high withholding tax interest at the end of
the taxpayer’s last taxable year beginning
before January 1, 2007, the amount of such
balance shall be allocated on the first day
of the taxpayer’s next taxable year on apro
ratabasis to the taxpayer’s post-2006 sep-
arate categories forgeneral category and
passive category income, based on the pro-
portion in which any unused foreign taxes
in the same pre-2007 separate category
for high withholding tax interest are al-
located under §1.904–2(i)(1). If the tax-
May 9, 20117572011–19 I.R.B.

payer, other than a financial services entity
as defined in §1.904–4(e)(3), has no un-
used foreign taxes in the pre-2007 separate
category for high withholding tax interest,
then any loss account balance in that cat-
egory shall be allocated to the post-2006
separate category for passive category in-
come. If the taxpayer is a financial ser-
vices entity, as defined in §1.904–4(e)(3),
and has no unused foreign taxes in the
pre-2007 separate category for high with-
holding tax interest, then any loss account
balance in that category shall be allocated
to the post-2006 separate category for gen-
eral category income.
(ii)Recapture of separate limitation
loss with respect to a pre-2007 separate
category for high withholding tax interest.
To the extent that a taxpayer has a balance
in a separate limitation loss account in any
pre-2007 separate category with respect
to a pre-2007 separate category for high
withholding tax interest at the end of the
taxpayer’s last taxable year beginning be-
fore January 1, 2007, such loss shall be
recaptured in subsequent taxable years on
apro ratabasis as income in the post-2006
separate categories for general category
and passive category income, based on the
proportioninwhichanyunusedforeign
taxes in the pre-2007 separate category for
high withholding tax interest are allocated
under §1.904–2(i)(1). If the taxpayer,
other than a financial services entity as
defined in §1.904–4(e)(3), has no unused
foreign taxes in the pre-2007 separate
category for high withholding tax inter-
est, then the loss account balance shall
be recaptured in subsequent taxable years
solely as income in the post-2006 separate
category for passive category income. If
the taxpayer is a financial services entity,
as defined in §1.904–4(e)(3), and has no
unused foreign taxesin the pre-2007 sep-
arate category for high withholding tax
interest, then the loss account balance shall
be recaptured in subsequent taxable years
solely as income in the post-2006 separate
category for general category income.
(4)Elimination of certain separate lim-
itation loss accounts. After application
of paragraphs (h)(1) through (h)(3) of this
section, any separate limitation loss ac-
count allocated to the post-2006 separate
category for passive category income for
which income is to be recaptured as pas-
sive category income, as determined un-
der those same provisions, shall be elimi-
nated. Similarly, after application of para-
graphs (h)(1) through (h)(3) of this section,
any separate limitation loss account allo-
cated to the post-2006 separate category
for general category income for which in-
come is to be recaptured as general cat-
egory income, as determined under those
same provisions, shall be eliminated.
(5)Alternative method. Inlieuof
applying the rules of paragraphs (h)(1)
through (h)(3) of this section, a taxpayer
may apply the principles of paragraphs
(g)(1) and (g)(2) of this section to deter-
mine recapture in taxable years beginning
after December 31, 2006, of separate lim-
itation losses and overall foreign losses
incurred in taxable years beginning before
January 1, 2007. A taxpayer may choose
to use the alternative method on a timely
filed (original or amended) tax return or
during an audit. A taxpayer that uses the
alternative method on an amended return
or in the course of an audit must make
appropriate adjustments to eliminate any
double benefit arising from application of
the alternative method to years that are not
open for assessment. A taxpayer’s choice
to use the alternative method is evidenced
by employing the method. The taxpayer
need not file any separate statement.
(6)Effective/applicability date.This
paragraph (h) shall apply to taxable years
beginning after December 31, 2006,
and ending on or after December 21,
2007. However, taxpayers may choose
to apply 26 CFR 1.904(f)–12T(h) as it
appeared in the Code of Federal Reg-
ulations as of April 1, 2010, in lieu of
this paragraph (h) to taxable years be-
ginning after December 31, 2006 and
ending on or after December 21, 2007,
but ending before April 7, 2011 provided
that appropriate adjustments are made to
eliminate duplicate benefits arising from
application of 26 CFR 1.904(f)–12T(h)
to taxable years that are not open for
assessment. In addition, if a taxpayer
that is a financial services entity (as
defined in §1.904–4(e)(3)) chooses to
apply 26 CFR 1.904(f)–12T(h) to taxable
years ending before April 7, 2011, then
as of the beginning of the taxpayer’s
first taxable year ending on or after
April 7, 2011 any remaining balance
in a passive category loss account that
is attributable to a loss account in a
pre-2007 separate category for high
withholding tax interest shall be allocated
to the general category or eliminated
pursuant to §1.904(f)–12(h)(4), and any
remaining balance in a separate limitation
loss account with respect to passive
category income that is attributable to a
loss account with respect to a pre-2007
separate category for high withholding tax
interest will be recaptured in such year
and subsequent taxable years as general
category income or eliminated pursuant to
§1.904(f)–12(h)(4).
§1.904(f)–12T [Removed].
Par. 13. Section 1.904(f)–12T is re-
moved.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
Approved March 29, 2011.
Michael Mundaca,
Assistant Secretary of
theTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on April 6, 2011,
8:45 a.m., and published in the issue of the Federal Register
for April 7, 2011, 76 F.R. 19268)
Section 1274.—Determi-
nation of Issue Price in the
Case of Certain Debt Instru-
ments Issued for Property
(Also Sections 42, 280G, 382, 412, 467, 468, 482,
483, 642, 807, 846, 1288, 7520, 7872.)
Federal rates; adjusted federal rates;
adjusted federal long-term rate and the
long-term exempt rate.For purposes of
sections 382, 642, 1274, 1288, and other
sections of the Code, tables set forth the
rates for May 2011.
Rev. Rul. 2011–11
This revenue ruling provides various
prescribed rates for federal income tax pur-
poses for May 2011 (the current month).
Table 1 contains the short-term, mid-term,
and long-term applicable federal rates
(AFR) for the current month for purposes
of section 1274(d) of the Internal Revenue
Code. Table 2 contains the short-term,
mid-term, and long-term adjusted appli-
cable federal rates (adjusted AFR) for
the current month for purposes of section
1288(b). Table 3 sets forth the adjusted
federal long-term rate and the long-term
2011–19 I.R.B.758May 9, 2011

tax-exempt rate described in section
382(f). Table 4 contains the appropriate
percentages for determining the low-in-
come housing credit described in section
42(b)(1) for buildings placed in service
during the current month. However, under
section 42(b)(2), the applicable percentage
for non-federally subsidized new build-
ings placed in service after July 30, 2008,
and before December 31, 2013, shall not
be less than 9%. Finally, Table 5 contains
the federal rate for determining the present
value of an annuity, an interest for life
or for a term of years, or a remainder or
a reversionary interest for purposes of
section 7520.
REV. RUL. 2011–11 TABLE 1
Applicable Federal Rates (AFR) for May 2011
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
AFR
.56%.56%.56%.56%
110% AFR.62%.62%.62%.62%
120% AFR.67%.67%.67%.67%
130% AFR.73%.73%.73%.73%
Mid-term
AFR2.44%2.43%2.42%2.42%
110% AFR2.69%2.67%2.66%2.66%
120% AFR2.94%2.92%2.91%2.90%
130% AFR3.18%3.16%
3.15%
3.14%
150% AFR
3.68%
3.65%
3.63%3.62%
175% AFR
4.30%
4.25%
4.23%4.21%
Long-term
AFR4.19%
4.15%
4.13%4.11%
110% AFR4.62%
4.57%4.54%4.53%
120% AFR
5.04%
4.98%
4.95%
4.93%
130% AFR
5.47%5.40%5.36%5.34%
REV. RUL. 2011–11 TABLE 2
Adjusted AFR for May 2011
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-t
erm adjusted
AFR
.73%.73%.73%.73%
Mid-term adjusted AFR1.98%1.97%1.97%1.96%
Long-term adjusted
AFR
4.30%
4.25%
4.23%4.21%
REV. RUL
.2011–11TABLE3
Rates Under Section 382 for May 2011
Adjusted federal long-term rate for the current month4.30%
Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted
federal long-term rates for the current month and the prior two months.)4.55%
May 9, 20117592011–19 I.R.B.

REV. RUL. 2011–11 TABLE 4
Appropriate Percentages Under Section 42(b)(1) for May 2011
Note: Under Section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after
July 30, 2008, and before December 31, 2013, shall not be less than 9%.
Appropriate percentage for the 70% present value low-income housing credit7.77%
Appropriate percentage for the 30% present value low-income housing credit3.33%
REV. RUL. 2011–11 TABLE 5
Rate Under Sec
tion 7520 for May 2011
Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,
or a remainder or reversionary interest3.0%
Section 1288.
—Treatment
of Original Is
sue Discount
on Tax-Exempt Obligations
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of May 2011. See Rev. Rul. 2011-11, page 758.
Section 7520.—Valuation
Tables
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of May 2011. See Rev. Rul. 2011-11, page 758.
Section 7872.—Treatment
of Loans With Below-Market
Interest Rates
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of May 2011. See Rev. Rul. 2011-11, page 758.
2011–19 I.R.B.760May 9, 2011

Part III. Administrative, Procedural, and Miscellaneous
Treasury Inflation-Protected
Securities Issued at a
Premium
Notice 2011–21
This notice provides guidance on the
tax treatment of Treasury Inflation-Pro-
tected Securities (“TIPS”) issued at a pre-
mium. TIPS are securities issued by the
Department of the Treasury. The princi-
pal amount of a TIPS is adjusted for any
inflation or deflation that occurs over the
term of the security. The rules for the
taxation of TIPS (and other inflation-in-
dexed debt instruments) are contained in
§ 1.1275–7 of the Income Tax Regulations.
See also§ 1.171–3(b) (rules for TIPS with
bond premium). To date, the coupon bond
method described in § 1.1275–7(d) has ap-
plied to TIPS rather than the more com-
plex discount bond method described in
§ 1.1275–7(e).
Under the existing regulations, the
coupon bond method is not available with
respect to inflation-indexed debt instru-
ments that are issued with more than a
de minimisamount of premium. Section
1.1275–7(d)(2)(i). Due to recent financial
conditions, however, the Department of
the Treasury anticipates that TIPS may be
issued at a premium that is more than a
de minimisamount as determined under
the principles of § 1.1273–1(d) (that is, an
amount greater than .0025 times the stated
principal amount of the security times the
number of complete years to the security’s
maturity).
To provide a more uniform method for
the federal income taxation of TIPS, the
Internal Revenue Service and the Depart-
ment of the Treasury plan to issue regula-
tions that will provide that taxpayers must
apply the coupon bond method described
in § 1.1275–7(d) with respect to TIPS is-
sued with more than ade minimisamount
of premium. As a result, the discount bond
method described in § 1.1275–7(e) will not
apply to TIPS issued with more than ade
minimisamount of premium. The regula-
tions will be effective for TIPS issued on
or after April 8, 2011.
EXAMPLE
The following example illustrates the application
of the coupon bond method to TIPS issued at a pre-
mium on or after the effective date of the change to
§ 1.1275–7 as described in this notice:
(i)Facts. X, a calendar year taxpayer, purchases
at original issuance TIPS with a stated principal
amount of $100,000 and a stated interest rate of .125
percent, compounded semiannually. For purposes of
this example, assume that the TIPS are issued in Year
1 on January 1, stated interest is payable on June 30
and December 31 of each year, and that the TIPS
mature on December 31, Year 5. X pays $102,000
fortheTIPS,whichistheissuepricefortheTIPS
as determined under § 1.1275–2(d)(1). Assume that
the inflation-adjusted principal amount for the first
coupon in Year 1 is $101,225 (resulting in an interest
payment of $63.27) and for the second coupon in
Year 1 is $102,500 (resulting in an interest payment
of $64.06). X elects to amortize bond premium
under § 1.171–4. (For simplicity, contrary to actual
practice, the TIPS in this example were issued on the
date with respect to which the calculation of the first
coupon began.)
(ii)Bond premium. The stated interest on the
TIPS is qualified stated interest under § 1.1273–1(c).
X acquired the TIPS with bond premium of $2,000
(basis of $102,000 minus the TIPS’ stated principal
amount of $100,000).See§§ 1.171–1(d), 1.171–3(b),
and 1.1275–7(f)(3). The $2,000 is more than thede
minimisamount of premium for the TIPS of $1,250
(.0025 times the stated principal amount of the TIPS
($100,000) times the number of complete years to the
TIPS’ maturity (5 years)). Although the TIPS were
issued with more than ade minimisamount of bond
premium, X must use the coupon bond method to de-
termine X’s income from the TIPS.
(iii)Allocation of bond premium. Under
§ 1.171–3(b), the bond premium of $2,000 is alloca-
ble to each semiannual accrual period by assuming
that there will be no inflation or deflation over
the term of the TIPS. Moreover, for purposes of
§ 1.171–2, the yield of the securities is determined
by assuming that there will be no inflation or defla-
tion over their term. Based on this assumption, for
purposes of section 171, the TIPS provide for semi-
annual interest payments of $62.50 and a $100,000
payment at maturity. As a result, the yield of the
securities for purposes of section 171 is -0.2720 per-
cent, compounded semiannually. Under § 1.171–2,
the bond premium allocable to an accrual period is
the excess of the qualified stated interest allocable to
the accrual period ($62.50 for each accrual period)
over the product of the taxpayer’s adjusted acqui-
sition price at the beginning of the accrual period
(determined without regard to any inflation or defla-
tion) and the taxpayer’s yield. Therefore, the $2,000
of bond premium is allocable to each semiannual
accrual period in Year 1 as follows: $201.22 to the
accrual period ending on June 30, Year 1 (the excess
of the stated interest of $62.50 over ($102,000 x
-0.002720/2)); and $200.95 to the accrual period
ending on December 31, Year 1 (the excess of the
stated interest of $62.50 over ($101,798.78 x -0.
002720/2)).
(iv)Income determined by applying the coupon
bond method and the bond premium rules. Under
§ 1.1275–7(d)(4), the application of the coupon bond
method to the TIPS results in a positive inflation ad-
justment in Year 1 of $2,500, which is includible in
X’s income for Year 1. However, because X acquired
the TIPS at a premium and elected to amortize the
premium, the premium allocable to Year 1 will offset
the income on the TIPS as follows: The premium al-
locable to the first accrual period of $201.22 first off-
sets the interest payable for that period of $63.27. The
remaining $137.95 of premium is treated as a defla-
tion adjustment that offsets the positive inflation ad-
justment.See§ 1.171–3(b). The premium allocable
to the second accrual period of $200.95 first offsets
the interest payable for that period of $64.06. The re-
maining $136.89 of premium is treated as a deflation
adjustment that offsets the remaining positive infla-
tion adjustment. As a result, X does not include in in-
come any of the stated interest received in Year 1 and
includes in Year 1 income only $2,225.16 of the posi-
tive inflation adjustment for Year 1 ($2,500 - $137.94
- $136.89).
DRAFTING INFORMATION
The principal author of this notice is
William E. Blanchard of the Office of
the Associate Chief Counsel (Financial
Institutions & Products). For further in-
formation regarding this notice, contact
Mr. Blanchard at (202) 622–3950 (not a
toll-free call).
Update for Weighted Average
Interest Rates, Yield Curves,
and Segment Rates
Notice 2011–33
This notice provides guidance as to the
corporate bond weighted average interest
rate and the permissible range of interest
rates specified under §412(b)(5)(B)(ii)(II)
of the Internal Revenue Code as in ef-
fect for plan years beginning before 2008.
It also provides guidance on the cor-
porate bond monthly yield curve (and
the corresponding spot segment rates),
and the 24-month average segment rates
under § 430(h)(2). In addition, this no-
tice provides guidance as to the interest
rate on 30-year Treasury securities un-
der § 417(e)(3)(A)(ii)(II) as in effect for
plan years beginning before 2008, the
30-year Treasury weighted average rate
under § 431(c)(6)(E)(ii)(I), and the min-
imum present value segment rates under
§ 417(e)(3)(D) as in effect for plan years
beginning after 2007.
May 9, 20117612011–19 I.R.B.

CORPORATE BOND WEIGHTED
AVERAGE INTEREST RATE
Sections412(b)(5)(B)(ii)and
412(l)(7)(C)(i), as amended by the Pen-
sion Funding Equity Act of 2004 and by
the Pension Protection Act of 2006 (PPA),
provide that the interest rates used to cal-
culate current liability and to determine
the required contribution under § 412(l)
for plan years beginning in 2004 through
2007 must be within a permissible range
based on the weighted average of the rates
of interest on amounts invested conser-
vatively in long term investment grade
corporate bonds during the 4-year period
ending on the last day before the beginning
of the plan year.
Notice 2004–34, 2004–1 C.B. 848, pro-
vides guidelines for determining the cor-
porate bond weighted average interest rate
and the resulting permissible range of in-
terest rates used to calculate current liabil-
ity. That notice establishes that the corpo-
rate bond weighted average is based on the
monthly composite corporate bond rate de-
rived from designated corporate bond in-
dices. The methodology for determining
the monthly composite corporate bond rate
as set forth in Notice 2004–34 continues to
apply in determining that rate. See Notice
2006–75, 2006–2 C.B. 366.
The composite corporate bond rate for
March2011is5.60percent. Pursuant
to Notice 2004–34, the Service has de-
termined this rate as the average of the
monthly yields for the included corporate
bond indices for that month.
The following corporate bond weighted
average interest rate was determined for
plan years beginning in the month shown
below.
For Plan Years
Beginning inPermissible Range
MonthYear
Corporate
Bond Weighted
Average90%to100%
April20116.06
5.45
6.06
YIELD CURVE AND SEGMENT
RATES
Generally for plan years beginning
after 2007 (except for delayed effective
dates for certain plans under sections 104,
105, and 106 of PPA), § 430 of the Code
specifies the minimum funding require-
ments that apply to single employer plans
pursuant to § 412. Section 430(h)(2) spec-
ifies the interest rates that must be used
to determine a plan’s target normal cost
and funding target. Under this provision,
present value is generally determined us-
ing three 24-month average interest rates
(“segment rates”), each of which applies
to cash flows during specified periods.
However, an election may be made under
§ 430(h)(2)(D)(ii) to use the monthly yield
curve in place of the segment rates. Sec-
tion 430(h)(2)G) set forth a transitional
rule applicable to plan years beginning in
2008 and 2009 under which the segment
rates were blended with the corporate bond
weighted average described above, includ-
ing an election under § 430(h)(2)(G)(iv)
foranemployertousethesegmentrates
without the transitional rule.
Notice 2007–81, 2007–2 C.B. 899,
provides guidelines for determining the
monthly corporate bond yield curve, and
the 24-month average corporate bond
segment rates used to compute the tar-
get normal cost and the funding target.
Pursuant to Notice 2007–81, the monthly
corporate bond yield curve derived from
March 2011 data is in Table I at the end
of this notice. The spot first, second,
and third segment rates for the month of
March 2011 are, respectively, 1.91, 5.23,
and 6.46. The three 24-month average
corporate bond segment rates applicable
for April 2011 are as follows:
First
Segment
Second
Segment
Third
Segment
2.515.59
6.38
The transitional rule of § 430(h)(2)(G)
does not apply to plan years beginning af-
ter December 31, 2009. Therefore, for a
plan year beginning after 2009 with a look-
back month to April 2011, the funding seg-
ment rates are the three 24-month average
corporate bond segment rates applicable
for April 2011, listed above without blend-
ing for any transitional period.
30-YEAR TREASURY SECURITIES
INTEREST RATES
Section 417(e)(3)(A)(ii)(II) (prior to
amendment by PPA) defines the appli-
cable interest rate, which must be used
for purposes of determining the minimum
present value of a participant’s benefit
under § 417(e)(1) and (2), as the annual
rate of interest on 30-year Treasury se-
curities for the month before the date
of distribution or such other time as the
Secretary may by regulations prescribe.
Section 1.417(e)–1(d)(3) of the Income
Tax Regulations provides that the applica-
bleinterestrateforamonthistheannual
rate of interest on 30-year Treasury secu-
rities as specified by the Commissioner
for that month in revenue rulings, notices
or other guidance published in the Internal
Revenue Bulletin.
The rate of interest on 30-year Trea-
sury securities for March 2011 is 4.51 per-
cent. The Service has determined this rate
as the average of the daily determinations
of yield on the 30-year Treasury bond ma-
turing in February 2041.
Generally for plan years beginning
after 2007, § 431 specifies the mini-
mum funding requirements that apply to
multiemployer plans pursuant to § 412.
Section 431(c)(6)(B) specifies a minimum
amount for the full-funding limitation
described in section 431(c)(6)(A), based
2011–19 I.R.B.762May 9, 2011

on the plan’s current liability. Section
431(c)(6)(E)(ii)(I) provides that the inter-
est rate used to calculate current liability
for this purpose must be no more than 5
percent above and no more than 10 percent
below the weighted average of the rates of
interest on 30-year Treasury securities dur-
ing the four-year period ending on the last
day before the beginning of the plan year.
Notice 88–73, 1988–2 C.B. 383, provides
guidelines for determining the weighted
average interest rate. The following rates
were determined for plan years beginning
in the month shown below.
For Plan Years
Beginning inPermissible R
ange
MonthYear
30-Year
Treasury
Weighted
Average
90%to
105%
April20114.283.86
4.50
MINIMUM PRESENT VALUE
SEGMENT RATES
Generally for plan years beginning af-
ter December 31, 2007, the applicable in-
terest rates under § 417(e)(3)(D) are seg-
ment rates computed without regard to a
24-month average. For plan years begin-
ning in 2008 through 2011, the applica-
ble interest rates are the monthly spot seg-
ment rates blended with the applicable rate
under § 417(e)(3)(A)(ii)(II) as in effect
for plan years beginning in 2007. Notice
2007–81 provides guidelines for determin-
ing the minimum present value segment
rates. Pursuant to that notice, the min-
imum present value transitional segment
rates determined for March 2011, taking
into account the March 2011 30-year Trea-
sury rate of 4.51 stated above, are as fol-
lows:
For Plan Years
Beginning in
First
Segment
Second
Segment
Third
Segment
2010
2.95
4.94
5.68
20112.43
5.09
6.07
DRAFTING IN
FORMATION
The princip
al author of this notice is
Tony Montan
aro of the Employee Plans,
Tax Exempt a
nd Government Entities Di-
vision. Mr.
Montanaro may be e-mailed at
Retirement
PlanQuestions@irs.gov.
May 9, 20117632011–19 I.R.B.

Table I
Monthly Yield Curve for March 2011
Derived from March 2011 Data
Maturity YieldMaturity YieldMaturity YieldMaturity YieldMaturity Yield
0.5
0.46
20.56.0540.56.5160.5
6.67
80.56.75
1.00.7621.06.0741.0
6.52
61.06.6781.0
6.75
1.51.0721.5
6.09
41.56.5261.56.6781.56.75
2.01.3922.06.1142.0
6.53
62.06.6882.0
6.75
2.5
1.74
22.5
6.13
42.56.5362.5
6.68
82.56.75
3.0
2.09
23.0
6.15
43.0
6.54
63.06.6883.06.76
3.5
2.43
23.5
6.17
43.56.5463.5
6.68
83.5
6.76
4.0
2.75
24.06.1844.0
6.55
64.0
6.69
84.06.76
4.53.0524.56.2044.56.5564.5
6.69
84.56.76
5.0
3.33
25.0
6.21
45.06.5665.0
6.69
85.0
6.76
5.53.5825.5
6.23
45.56.5665.5
6.69
85.5
6.76
6.03.8026.06.2446.0
6.57
66.06.7086.06.76
6.5
4.01
26.5
6.26
46.56.5766.5
6.70
86.5
6.77
7.0
4.19
27.06.2747.0
6.58
67.06.7087.06.77
7.54.3627.56.2847.56.5867.56.7087.56.77
8.0
4.51
28.06.3048.06.5968.06.7088.06.77
8.54.6528.5
6.31
48.5
6.59
68.5
6.71
88.5
6.77
9.0
4.78
29.0
6.32
49.0
6.59
69.0
6.71
89.0
6.77
9.5
4.90
29.56.3349.56.6069.56.7189.56.77
10.0
5.00
30.06.34
50.0
6.6070.06.71
90.0
6.77
10.55.1030.56.3550.56.6170.56.7190.56.78
11.05.1931.06.36
51.0
6.6171.06.7291.06.78
11.55.2731.5
6.37
51.5
6.61
71.5
6.7291.56.78
12.0
5.35
32.06.38
52.0
6.6272.06.72
92.0
6.78
12.55.4232.5
6.39
52.5
6.62
72.5
6.7292.56.78
13.05.4933.06.40
53.0
6.6273.06.72
93.0
6.78
13.55.5533.56.4153.56.6373.56.7393.56.78
14.0
5.60
34.06.42
54.0
6.6374.06.7394.06.78
14.55.6534.5
6.43
54.5
6.63
74.5
6.7394.56.78
15.05.7035.0
6.44
55.0
6.64
75.0
6.7395.0
6.79
15.55.7435.5
6.44
55.5
6.64
75.5
6.7395.5
6.79
16.0
5.78
36.0
6.4556.0
6.6476.06.73
96.06.79
16.55.8236.56.4656.56.6576.56.7496.5
6.79
17.0
5.85
37.06.47
57.06.65
77.06.7497.06.79
17.5
5.89
37.5
6.47
57.56.6577.5
6.7497.5
6.79
18.05.9238.06.48
58.0
6.6678.06.74
98.06.79
18.5
5.95
38.5
6.49
58.5
6.66
78.5
6.7498.5
6.79
19.0
5.97
39.06.49
59.06.66
79.0
6.74
99.06.79
19.56.0039.56.5059.56.6679.56.7599.5
6.79
20.06.0240.0
6.50
60.06.6780.0
6.75
100.06.80
2011–19 I.R.B.764May 9, 2011

Supplemental Notice to Notice
2010–60 Providing Further
Guidance and Requesting
Comments on Certain Priority
Issues Under Chapter 4 of
Subtitle A of the Code
Notice 2011–34
PURPOSE
On March 18, 2010, the Hiring Incen-
tives to Restore Employment Act of 2010,
Pub. L. 111–147 (H.R. 2847) (the Act)
was enacted into law. Section 501(a) of the
Act added a new chapter 4 (sections 1471 -
1474) to Subtitle A of the Internal Revenue
Code (Code). Chapter 4 expands the infor-
mation reporting requirements imposed on
foreign financial institutions (as defined in
section 1471(d)(4)) (FFIs) with respect to
certain United States accounts (as defined
in section 1471(d)(1)) (U.S. accounts), and
imposes withholding, documentation, and
reporting requirements with respect to cer-
tain payments made to certain foreign en-
tities.
On August 27, 2010, the Department
of the Treasury (Treasury) and the Inter-
nal Revenue Service (IRS) published No-
tice 2010–60, 2010–37 I.R.B. 329, to pro-
vide preliminary guidance regarding pri-
ority issues involving the implementation
of chapter 4 and to request comments on
the issues addressed in Notice 2010–60
and certain other issues to be addressed in
future published guidance. Unless other-
wise indicated, all chapter and section ref-
erences are to the Code and the regulations
thereunder. Except as otherwise provided,
all terms used in this notice shall have the
same meaning as set forth in sections 1471
through 1474 and Notice 2010–60.
This notice provides guidance in re-
sponse to certain priority concerns identi-
fied by commentators following the pub-
lication of Notice 2010–60 and requests
further comments with respect to specific
issues. Treasury and the IRS intend to
issue regulations incorporating the guid-
ance described in this notice and address-
ing other matters necessary to implement
chapter 4. In addition, Treasury and the
IRS intend to publish draft FFI Agree-
ments and draft information reporting and
certification forms.
Section I of this notice provides up-
dated guidance regarding the procedures
to be followed by participating FFIs in
identifying U.S. accounts among their
preexisting individual accounts. Section
II provides guidance regarding the def-
inition of the term “passthru payment”
for purposes of chapter 4 and provides
guidance with respect to the obligation of
participating FFIs to withhold on passthru
payments. Section III provides guidance
regarding certain categories of FFIs that
will be deemed compliant under sec-
tion 1471(b)(2). Section IV provides
further guidance regarding the obliga-
tion of participating FFIs to report with
respect to U.S. accounts. Section V ad-
dresses the treatment under section 1471
of Qualified Intermediaries (as defined in
§ 1.1441–1(e)(5)(ii)) (QIs). Section VI
provides guidance regarding the applica-
tion of section 1471 to expanded affiliated
groups of FFIs under section 1471(e).
Section VII states theeffectivedateofFFI
Agreements.
Section I. Preexisting Individual Accounts
This section modifies the procedures
provided in Notice 2010–60 for a partici-
pating FFI to identify U.S. accounts among
its preexisting individual accounts. It also
describes a new procedure for participat-
ing FFIs to certify their completion of the
requirements for determining the status of
their preexisting individual accounts.
Section III.B.2.a of Notice 2010–60
provides procedures for participating FFIs
to identify U.S. accounts among their pre-
existing individualaccounts. Treasury and
the IRS have received several comments
about aspects of these procedures that
present compliance challenges to FFIs.
First, comments suggested that many
FFIs would be unable as a practical matter
to apply the exclusion in Step 1 of Section
III.B.2.a of Notice 2010–60 for accounts
of $50,000 or less because of legal restric-
tions on the sharing of account holder in-
formation across branches or affiliates lo-
cated in different jurisdictions and because
of certain limitations of many FFIs’ infor-
mation technology systems.
Second, comments raised concerns
about treating a non-U.S. P.O. box as an
indication of U.S. status because in certain
countries a significant percentage of the
population uses P.O. boxes as their sole
address. Accordingly, treating a non-U.S.
P.O. box as an indication of U.S. status
could result in a large number of account
holderswithnoconnectiontotheUnited
States potentially being treated as recalci-
trant account holders.
Third, comments requested clarifica-
tion of the terms “electronically searchable
information” and “documentary evidence”
as used in Section III.B.2.a of Notice
2010–60. Finally, comments raised con-
cerns with the potential costs that par-
ticipating FFIs would incur if they were
required to apply the new individual ac-
count identification procedures described
in Section III.B.2.b of Notice 2010–60 to
preexisting individual accounts (with lim-
ited exceptions) withinfive years after the
effective date of the FFI’s FFI Agreement,
as set forth in Section III.B.2.a of Notice
2010–60.
After considering these comments,
Treasury and the IRS intend to revise the
procedures for identifying U.S. accounts
among preexisting individual accounts
described in Section III.B.2.a of Notice
2010–60. Subsection A, below, sets forth
a description of these revised procedures,
and replaces Section III.B.2.a of Notice
2010–60 in its entirety.
A.Revised Procedures for Identification
of Preexisting Individual Accounts
1.Definitions
The following definitions apply for
purposes of this notice:
(1) A “preexisting individual ac-
count” is any financial account held by
an individual as of the date that a partic-
ipating FFI’s FFI Agreement becomes
effective.
(2) A “private banking account” is
any account maintained or serviced by
an FFI’s private banking department or
any account maintained or serviced as
part of a private banking relationship,
including any account held by any en-
tity, nominee, or other person to the ex-
tent the account is associated with the
private banking relationship with an in-
dividual client.
(3) A “private banking department”
is any department, unit, division, or
similar part of an FFI:
May 9, 20117652011–19 I.R.B.

(A)thatisreferredtobytheFFIas
a private banking, wealth management,
or similar department;
(B) that focuses on servicing ac-
counts and investments of individ-
ual clients (or their families) whose
accounts with the FFI or whose in-
come, earnings, or assets exceed certain
thresholds, or who are otherwise iden-
tified as high-net worth individuals (or
families), as determined under an FFI’s
own policies and procedures;
(C) that is considered a private bank-
ing department under the anti-money
laundering or know-your-customer
(AML/KYC) requirements to which
the FFI is subject; or
(D) in which some or all of its em-
ployees, under any of an FFI’s formal or
informal procedures or other guidelines
for its personnel: (i) ordinarily pro-
vide personalized services to individual
clients (or their families), such as bank-
ing, investment advisory, trust and fidu-
ciary, estate planning, philanthropic, or
other services not generally provided to
account holders; or (ii)gather informa-
tion about individual clients’ personal,
professional, and financial histories in
addition to the information ordinarily
gathered with respect to the FFI’s retail
customers.
(4) A “private banking relationship”
exists when one or more officers or
other employees of the FFI are assigned
by the FFI to provide services such as
those described in clause (D)(i) of the
definition of a private banking depart-
ment or to gather information about a
client (or the client’s family) of the type
described in clause (D)(ii) of the defi-
nition of a private banking department,
regardless of whether the assigned indi-
vidual is employed within the FFI’s pri-
vate banking department.
(5) A “private banking relationship
manager” is an officer or other em-
ployee of the FFI who: (i) is assigned
responsibility for specific account hold-
ers on an ongoing basis; (ii) advises ac-
count holders regarding their banking,
investment, trust and fiduciary, estate
planning, or philanthropic needs; and
(iii) recommends, makes referrals to, or
arranges for the provision of financial
products, services, or other assistance
by internal or external providers to
meet those needs.
(6) Except as otherwise provided for
purposes of chapter 4, the term “docu-
mentary evidence” includes: (i) docu-
mentary evidence sufficient to establish
the identity of an individual and the sta-
tus of that person as a non-U.S. person
(consistent with the documentary evi-
dence that may be relied upon pursuant
to § 1.6049–5(c)(1)), which may in-
clude, but is not limited to, photo identi-
fication described in § 1.1441–6(c)(4));
(ii) any valid document issued by an
authorized governmental body that
includes the individual’s name and
address and is typically used for identi-
fication purposes; and (iii) with respect
to an account maintained in a jurisdic-
tion with AML/KYC rules that have
been approved by the IRS in connec-
tion with a QI agreement (as referenced
in § 1.1441–1(e)(5)(iii)), any of the
documents (other than a Form W–8)
referenced in the jurisdiction’s attach-
ment for identifying natural persons, as
shown on the IRS’s webpage.
(7) “Documentary evidence estab-
lishing non-U.S. status” means docu-
mentary evidence that includes the ac-
count holder’s name and indicates citi-
zenship or residence outside the United
States.
(8) “Documentation” includes all
information recorded in written or elec-
tronic form (including documentary
evidence and Forms W–8) that is col-
lected in connection with a financial
account (e.g., for purposes of maintain-
ing the account, corresponding with the
account holder, or complying with reg-
ulatory or AML/KYC requirements).
2.Procedures for Identification by
Participating FFIs of Preexisting
Individual Accounts
In the case of preexisting individual
accounts, the participating FFI is required
to determine whether such accounts are to
be treated as U.S. accounts, accounts of
recalcitrant account holders (recalcitrant
accounts), or accountsthat are other than
U.S. accounts (non-U.S. accounts), ac-
cording to the steps below. For purposes
of applying the procedures of this section,
the following rules apply. First, a partici-
patingFFImayrelyondocumentationthat
is collected pursuant to these procedures
or that is otherwise maintained in an ac-
count holder’s files, unless it knows or has
reason to know that such documentation is
unreliable. Second, with respect to preex-
isting individual accounts, a participating
FFI has maintained documentary evidence
if the participating FFI retains either: (i)
a copy of the documentary evidence; or
(ii) a record of the documentary evidence
examined, including the type of document
and the name of the employee that re-
viewed the documentary evidence. Third,
a participating FFI has maintained a Form
W–8BEN (Certificate of Foreign Status
of Beneficial Owner for United States Tax
Withholding) only if it maintains a copy of
the form in its files. Fourth, for purposes
of determining the balances or values (as
relevant) of accounts in each of the below
steps, an FFI will be required to treat as a
single account all accounts maintained by
the FFI or its affiliates that are associated
with one another due to partial or com-
plete common ownership of the accounts
under the FFI’s existing computerized in-
formation management, accounting, tax
reporting, or other recordkeeping systems.
With respect to a jointly held account,
each account holder will be attributed the
full balance or value of the joint account
for purposes of determining the combined
balance or value of that account holder’s
associated accounts.
Step 1: Documented U.S. Accounts
All account holders already docu-
mented as U.S. persons for other U.S. tax
purposes (e.g., for purposes of chapters 3
and 61) will be treated as specified U.S.
persons, and those account holders’ fi-
nancial accounts will be treated as U.S.
accounts. Notwithstanding the foregoing,
unless the FFI elects otherwise, an account
is a non-U.S. account if: (i) the account is
a depository account; (ii) each holder of
such account is a natural person; and (iii)
the balance or value of such account as of
the end of the calendar year preceding the
effective date of the FFI’s FFI Agreement
does not exceed $50,000 (or the equivalent
in foreign currency).
Step 2: Accounts of $50,000 or Less
From among the accounts not identified
as U.S. accounts in Step 1, the FFI may
treat an account as a non-U.S. account if
the balance or value of the account as of
the end of the calendar year preceding the
2011–19 I.R.B.766May 9, 2011

effective date of the FFI’s FFI Agreement
does not exceed $50,000 (or the equivalent
in foreign currency). An FFI may elect not
to apply this Step 2.
Step 3: Private Banking Accounts
With respect to private banking ac-
counts maintained by the FFI that are not
addressedinStep1or2,theFFImust
perform the steps described below. For
purposes of this Step 3, a participating FFI
will not be entitled to rely on any docu-
mentation received from a client or from
an individual holding an account associ-
ated with the client if the private banking
relationship manager knows or has reason
to know that the information contained in
such documentation is unreliable or incor-
rect.
A. The FFI must ensure that all of the
FFI’s private banking relationship
managers:
i. identify any client of the private
banking relationship manager
for which the private banking
relationship manager has actual
knowledge that the client is a
U.S. person and request that each
such client provide a Form W–9
(Request for Taxpayer Identifica-
tion Number and Certification);
ii. perform a diligent review of the
paper and electronic account files
and other records for each client
with respect to whom they serve
as a private banking relationship
manager, and identify each client
(including any associated family
members) who, to the best of the
knowledge of the private banking
relationship manager, has:
a. U.S. citizenship or lawful
permanent resident (green
card) status;
b. a U.S. birthplace;
c. a U.S. residence address or a
U.S. correspondence address
(including a U.S. P.O. box);
d. standing instructions to
transfer funds to an account
maintained in the United
States, or directions regu-
larly received from a U.S.
address;
e. an “in care of” address or a
“hold mail” address that is
the sole address with respect
to the client; or
f. a power of attorney or sig-
natory authority granted to a
person with a U.S. address.
iii. with respect to each client identi-
fied in Step 3(A)(ii):
a. request documentation to es-
tablish whether the client’s
account is a U.S. account. In
particular, the private bank-
ing relationship manager
must request that each client
identified as a U.S. citizen
or lawful permanent resident
in Step 3(A)(ii)(a) provide
a Form W–9. In the case
of any client identified as
having a U.S. birthplace or
address in Step 3(A)(ii)(b)
or (c), the private banking
relationship manager must
request that the client pro-
vide either a Form W–9 es-
tablishing U.S. status, or a
Form W–8BEN (or a substi-
tute certification as may be
provided in future guidance)
and a non-U.S. passport or
other similar government-is-
sued evidence establishing
the client’s citizenship in a
country other than the United
States. In addition, to estab-
lish non-U.S. status in the
case of any client identified
as having a U.S. birthplace
in Step 3(A)(ii)(b), the pri-
vate banking relationship
manager will be required
to obtain from the client a
written explanation regard-
ing the client’s renunciation
of U.S. citizenship or reason
that the client did not acquire
U.S. citizenship at birth. In
the case of any client iden-
tified as having standing in-
structions or directions in
Step 3(A)(ii)(d), the private
banking relationship man-
ager must request that the
client provide a Form W–9
establishing U.S. status, or a
Form W–8BEN (or a substi-
tute certification as may be
provided in future guidance)
and documentary evidence
establishing non-U.S. sta-
tus of the client. In the case
of any client identified as
having only an “in care of”
or “hold mail” address or a
power of attorney in Step
3(A)(ii)(e)or(f),theprivate
banking relationship man-
ager must request that the
client provide a Form W–9
establishing U.S. status, a
Form W–8BEN (or a substi-
tute certification as may be
provided in future guidance),
or documentary evidence es-
tablishing non-U.S. status.
b. request that any client pro-
viding a Form W–9 estab-
lishing U.S. status in re-
sponse to a request under
Step 3(A)(iii)(a) also pro-
vide a waiver of applicable
restrictions, if any, on report-
ing of the client’s informa-
tion to the IRS.
iv. treat all accounts associated with
a client as U.S. accounts (or, to
the extent applicable, as Docu-
mented FFIs under Section II.B.3
of Notice 2010–60) if the client is
identified as a U.S. person in Step
3(A)(i), or is identified as having
U.S. indicia as described in Step
3(A)(ii) and does not establish
non-U.S. status as described in
Step 3(A)(iii)(a). Notwithstand-
ing the prior sentence, an account
held solely by a family member
of the client who provides a Form
W–8BEN (or a substitute certifi-
cation establishing non-U.S. sta-
tus as may be provided in future
guidance) and documentary evi-
dence establishing the non-U.S.
status of the family member will
not be treated as a U.S. account,
unless the private banking rela-
tionship manager knows or has
reason to know the family mem-
ber is acting as a nominee or agent
for the client; and
v. create and retain lists of all ex-
isting clients whose accounts
are U.S. accounts, non-U.S. ac-
counts, or recalcitrant accounts.
B. The FFI must complete the proce-
dures described in Step 3(A) by the
end of the first year in which an FFI’s
May 9, 20117672011–19 I.R.B.

FFI Agreement is in effect. If a pri-
vate banking relationship manager
subsequently becomes aware that an
account holder of a preexisting private
banking account has any of the U.S.
indicia described in Step 3(A)(ii),
the private banking relationship man-
ager must request the documentation
described in Step 3(A)(iii) from the
account holder, and, if the account
holder does not establish non-U.S.
status pursuant to Step 3(A)(iii) within
one year of the date on which the
private banking relationship manager
discovers the U.S. indicia, include the
account in the FFI’s reporting of its
U.S. accounts or treat the account as
a recalcitrant account.
C. The FFI must ensure that all accounts
identified in Step 3(A) for which the
account holder has provided a Form
W–9 and agreed to waive any appli-
cable restrictions on reporting of their
information to the IRS are included
in the FFI’s reporting of its U.S. ac-
counts. Further, the FFI must ensure
that all accounts for which the account
holders either have not provided the
documentationrequiredinStep3(A)
above or, in the case of U.S. persons,
have not agreed to waive any appli-
cable restrictions on reporting of their
information to the IRS, are treated as
recalcitrant accountholders after the
end of the first year in which the FFI’s
FFI Agreement is in effect and are in-
cluded in the FFI’s reporting with re-
spect to such accounts. An FFI’s due
date for reporting U.S. accounts and
information regarding recalcitrant ac-
count holders will be the designated
reporting dates (to be prescribed) fol-
lowing the close of the first full year
covered by the FFI’s FFI Agreement.
D. The FFI must ensure that all of the
written requests and responses related
to the search are retained by the FFI
for ten years.
Step 4: Accounts with U.S. Indicia
A. From among the accounts that are not
identified as U.S. accounts in Step 1,
as non-U.S. accounts in Step 2, or as
private banking accounts under Step
3, the FFI shall determine whether the
electronically searchable information
maintained by the FFI and associated
with those accounts or account hold-
ers (e.g., customer information kept
for purposes of maintaining the ac-
count, corresponding with the account
holder, or complying with regulatory
requirements) includes any of the fol-
lowing U.S. indicia:
i. identification of an account
holder as a U.S. resident or U.S.
citizen;
ii. a U.S. place of birth for an ac-
count holder;
iii. a U.S. residence address or a U.S.
correspondence address (includ-
ing a U.S. P.O. box);
iv. standing instructions to transfer
funds to an account maintained in
the United States;
v. an “in care of” address or a “hold
mail”addressthatisthesolead-
dress shown in the FFI’s electron-
ically searchable information for
the account holder; or
vi. a power of attorney or signatory
authority granted to a person with
aU.S.address.
For this purpose, “electronically
searchable information” refers to in-
formation that an FFI maintains in its
tax reporting files, or customer mas-
ter files or similar files, that is stored
in the form of an electronic data-
base against which standard queries
in programming languages, such as
Structured Query Language, may be
used. Customer master files include
an FFI’s primary files for maintain-
ing account holder information, such
as information used for contacting
account holders and for satisfying
AML/KYC requirements. Informa-
tion, data, or files are not electroni-
cally searchable merely because they
are stored in an image retrieval system
(such as .pdf files or scanned docu-
ments).
B. For all accounts identified as con-
taining U.S. indicia described in Step
4(A), the FFI will be required within
one year of the effective date of
the FFI’s FFI Agreement to request
certain documentation to establish
whether the account is a U.S. account.
In particular, if an account holder is
identified as a U.S. resident or citizen
in Step 4(A)(i), the FFI shall request
a Form W–9 from such individual.
If the account information includes a
U.S. birthplace or address identified
in Steps 4(A)(ii) or (iii), the FFI shall
request either a Form W–9 establish-
ing U.S. status, or a Form W–8BEN
(or a substitute certification as may
be provided in future guidance) and
a non-U.S. passport or other govern-
ment-issued evidence of citizenship in
a country other than the United States.
In addition, to establish non-U.S. sta-
tus in the case of any account holder
identified as having a U.S. birthplace,
the account holder will be required to
provide a written explanation regard-
ing the account holder’s renunciation
of U.S. citizenship or reason that the
account holder did not acquire U.S.
citizenship at birth. In the case of any
account identified as having stand-
ing instructions in Step 4(A)(iv), the
FFI shall request either a Form W–9
establishing U.S. status, or a Form
W–8BEN (or a substitute certifica-
tionasmaybeprovidedinfuture
guidance) and documentary evidence
establishing non-U.S. status. If the
account is identified as containing
only an “in care of” or “hold mail” ad-
dress or a power of attorney described
in Steps 4(A)(v) or (vi), the FFI shall
request a Form W–9 establishing U.S.
status, a Form W–8BEN (or a substi-
tute certification as may be provided
in future guidance), or documentary
evidence establishing non-U.S. sta-
tus. Account holders that have not
provided appropriate documentation
within two years of the effective date
of the FFI’s FFI Agreement will be
classified as recalcitrant account hold-
ers from that date until the date on
which appropriate documentation is
received from the account holder by
the participating FFI.
Step 5: Accounts of $500,000 or More
For all preexisting individual accounts
that are not identified as U.S. accounts in
Step 1, as non-U.S. accounts in Step 2, as
private banking accounts in Step 3, or as
accounts with U.S. indicia in Step 4, and
that had a balance or value of $500,000 or
more at the end of the year preceding the
effective date of the FFI’s FFI Agreement
(high value accounts), the FFI must per-
form a diligent review of the account files
associated with the account. To the extent
2011–19 I.R.B.768May 9, 2011

that the account files contain any of the
U.S. indicia described in Step 4(A)(i)-(vi),
the FFI must obtain the appropriate docu-
mentation as indicated in Step 4(B) within
two years of the effective date of the FFI’s
FFI Agreement. Account holders that do
not provide appropriate documentation by
the required date will be classified as re-
calcitrant account holders until the date
on which appropriate documentation is re-
ceived from the account holder by the par-
ticipating FFI.
Step 6: Annual Retesting
Beginning in the third year following
the effective date of the FFI Agreement,
the FFI will be required to apply Step 5
annually to all preexisting individual ac-
counts that did not previously satisfy the
account balance or value threshold and
other requirements to be treated as high
value accounts, but that would be high
value accounts under Step 5 if the account
balance or value of the account were tested
on the last day of the preceding year. From
among the accounts identified each year
under this test, the FFI will be required to
treat as recalcitrant any account for which
the required documentation has not been
provided by the end of the year.
3.Certifying Completion of Customer
Identification Procedures
The chief compliance officer or another
equivalent-level officer of the FFI (respon-
sible officer) must certify to the IRS when
the FFI has completed the above proce-
dures (other than the annual retesting de-
scribed in Step 6) for its preexisting in-
dividual accounts. The responsible offi-
cer will certify to the FFI’s completion of
Steps 1 through 3 within one year after the
effective date of the FFI’s FFI Agreement,
and will certify to the FFI’s completion of
Step 4 and Step 5 within two years after
the effective date of the FFI’s FFI Agree-
ment. As part of these certifications, the
responsible officer will be required to cer-
tify that, between the publication date of
this notice and the effective date of the
FFI’s FFI Agreement, FFI management
personnel did not engage in any activity, or
have any formal or informal policies and
procedures in place, directing, encourag-
ing, or assisting account holders with re-
spect to strategies for avoiding identifica-
tion of their accounts as U.S. accounts un-
der the procedures described above. The
responsible officer will further be required
to certify that the FFI had written policies
and procedures in place as of the effective
date of the FFI’s FFI Agreement prohibit-
ing its employees from advising U.S. ac-
count holders on how to avoid having their
U.S. accounts identified. Treasury and the
IRS intend to provide in future guidance
the due dates and associated requirements
for the certifications described in this Sec-
tion I.A.3.
B.Future Guidance and Request for
Public Comment
Treasury and the IRS solicit comments
on appropriate ways to modify the applica-
tion of the private banking test described in
Step 3 in order to ensure that the test will
apply, whenever practical, to the accounts
of high-net-worth individuals and individ-
uals who receive from FFIs services of the
type described in Section I.A.1(3)(D)(i) in
the definition of a private banking depart-
ment and thereby reduce the number of ac-
counts that will be subject to Step 5.
Treasury and the IRS recognize that
the procedures described in Step 3 are
most relevant to those FFIs that engage
in banking, brokerage, and similar busi-
nesses. Treasury and the IRS are con-
sidering whether other FFIs should apply
analogous procedures to certain classes
of accounts they maintain. Accordingly,
Treasury and the IRS seek comments
concerning whether other FFIs, and in
particular insurance companies, should
perform procedures similar to those de-
scribed above with respect to holders of
preexisting individual accounts, including
private placement life insurance.
Treasury and the IRS intend to require
FFIs to adopt the procedures described in
this section with regard to private bank-
ing accounts for any preexisting individual
accounts that become private banking ac-
counts after the procedures in Step 3 above
are performed, including requiring the re-
sponsible officer to provide a certification
regarding the completion of Step 3 with re-
gard to such accounts. Treasury and the
IRS are considering adopting the private
banking test described in Step 3 for new
accounts that are or become private bank-
ing accounts.
C.Long Term Recalcitrant Account
Holders
As noted in Notice 2010–60, withhold-
ing with respect to recalcitrant account
holders is intended to provide relief for
participating FFIs that would not other-
wise be able to collect the information
required to comply with their obligations
under their FFI Agreements. It should not,
however, become a permanent substitute
for collecting and reporting information
with respect to U.S. accounts. Treasury
and the IRS continue to consider what
measures should be taken to address
long-term recalcitrant accounts, including
whether, and in what circumstances, FFI
Agreements should be terminated due to
the number of recalcitrant account holders
remaining after a reasonable period of
time.
SectionII.PassthruPayments
This section provides guidance regard-
ing the definition of the term “passthru
payment” for purposes of chapter 4 and
regarding the obligation of a participat-
ing FFI to withhold on a passthru pay-
ment. This section also provides an ex-
emption from passthru payment withhold-
ing for obligations that are grandfathered
under section 501(d)(2) of the Act. See
Section I of Notice 2010–60.
Section 1471(b)(1)(D) requires a partic-
ipating FFI to deduct and withhold a tax
equal to 30 percent of any passthru pay-
ment made to a recalcitrant account holder
or non-participating FFI. A passthru pay-
ment is defined under section 1471(d)(7)
as any withholdable payment or other pay-
ment to the extent attributable to a with-
holdable payment.
In Notice 2010–60, Treasury and the
IRS requested comments on methods that
a participating FFI could use to determine
whether payments it makes are attributable
to withholdable payments, including any
associated information reporting that may
be necessary. In response, Treasury and
the IRS have received several comments
proposing that a payment attributable to a
withholdable payment should include only
payments that are either withholdable pay-
ments or directly traceable to withholdable
payments. These approaches would not,
however, be consistent with the purposes
underlying the passthru payment concept.
May 9, 20117692011–19 I.R.B.

As described in Notice 2010–60, one pur-
pose of the passthru payment rule is to en-
courage FFIs to enter into FFI Agreements
if they hold investments that produce pay-
ments that are attributable to withhold-
able payments, even if they do not directly
hold assets that produce withholdable pay-
ments. Without such a rule, participating
FFIs could be used as “blockers” through
which non-participating FFIs might bene-
fit from indirect investment in U.S. assets
(as defined below) without being subject to
withholding or entering into an FFI Agree-
ment. The approach suggested by the com-
ments described above would largely limit
the definition of passthru payments to pay-
ments that would constitute withholdable
payments and thus would fail to address
account holders who invest in U.S. assets
indirectly. Moreover, given the diversity
of capital structures and payment arrange-
ments of FFIs, a rule that defined passthru
payments based on whether a payment was
“directly traceable” to awithholdable pay-
ment would be difficult for FFIs to apply
and the IRS to administer. Accordingly,
Treasury and the IRS have not adopted the
limited definition of a passthru payment
proposed in such comments.
Other comments suggested broader
definitions of passthru payments, includ-
ing approaches focusing on the FFI’s ratio
of assets giving rise to withholdable pay-
ments or passthru payments to total assets
as a means to make the passthru payment
rules administrable. This approach would
more effectively accomplish the purposes
of the passthru payment provision of
chapter 4 and avoid the complications
presented by implementing a tracing ap-
proach.
A.General Rule
Treasury and the IRS intend to issue
regulations providing that, subject to the
exceptions described below or in future
guidance, a payment made by an FFI (the
payor FFI) will be a passthru payment to
the extent of: (i) the amount of the pay-
ment that is a withholdable payment; plus
(ii) the amount of the payment that is not
a withholdable payment multiplied by (A)
in the case of a custodial payment (as de-
finedinSectionII.Cbelow),thepassthru
payment percentage of the entity that is-
sued the interest or instrument, or (B) in
the case of any other payment, the passthru
payment percentage of the payor FFI.
B.Calculation of Passthru Payment
Percentage
1.In General
In order to calculate its passthru pay-
ment percentage, an FFI must determine
its total assets and U.S. assets, as defined
below in Sections II.B.3 and II.B.4, re-
spectively, as of its quarterly testing dates.
The FFI’s passthru payment percentage
will be determined by dividing the sum of
the FFI’s U.S. assets (as defined in Section
II.B.4) held on each of the last four quar-
terly testing dates, by the sum of the FFI’s
total assets (as defined in Section II.B.3)
held on those dates. FFIs will determine
their passthru payment percentages as of
each quarterly testing date.
The quarterly testing date for an FFI
will be either the last redemption date of
the quarter (for entities that conduct re-
demptions at least quarterly) or the last
business day of the quarter (for all other
entities). A quarter will be determined in
accordance with the FFI’s fiscal year. Any
participating FFI which does not calculate
and publish its passthru payment percent-
age, as set forth in Section II.B.5 will be
deemed to have a passthru payment per-
centage of 100 percent.
Treasury and the IRS request comments
as to whether alternative methods for de-
termining passthru payment percentages
(such as permitting reliance upon repre-
sentations in investor solicitation or proxy
materials regarding target percentage hold-
ings of U.S. assets) may be appropriate and
administrable under certain circumstances.
2.Alternative Transition Method for
Computing Passthru Payment Percentage
In lieu of the general rule described in
Section II.B.1, above, an FFI may elect to
compute its passthru payment percentage
in the first year of its FFI Agreement under
the following alternative method. An FFI
may calculate its passthru payment per-
centage to be used for the first quarter of
the first year of its FFI Agreement based
on the FFI’s assets on a single testing date
(Initial Testing Date). The Initial Testing
Date may be any date in the six months
preceding the effective date of the FFI’s
FFI Agreement. For the quarterly testing
dates falling in each of the first three com-
plete quarters after the effective date of the
FFI’s FFI Agreement, the FFI will deter-
mine its passthru payment percentage by
dividing the sum of the FFI’s U.S. assets
held on the Initial Testing Date and each
of the quarterly testing dates by the sum
of the FFI’s total assets held on the Initial
Testing Date and each of the quarterly test-
ing dates.
3.Determination of Assets
For purposes of calculating an FFI’s
passthru payment percentage, an asset gen-
erally includes any asset includible on a
balance sheet of an FFI prepared under the
FFI’s method of accounting for reporting
to its interest holders. An asset will also
include off-balancesheet transactions or
positions to the extent provided in future
guidance. Assets held in a custodial ac-
count of an FFI will not be considered as-
sets of the FFI for purposes of computing
its passthru payment percentage. A cus-
todial account is an account with respect
to which a financial institution acts as a
custodian, broker, nominee, or agent for
the benefit of the account holder. All as-
sets are includable for purposes of an FFI’s
passthru payment percentage calculations
at their gross values, unreduced by liabili-
ties or other associated obligations.
The value of an asset is the amount
shown on the quarterly financial state-
ments issued by the FFI for purposes of
reporting to its interest holders. If no such
financial statements are issued for a quar-
terly testing date, then the value of an asset
shall be determined consistent with the
method used on the most recently issued
financial statements to interest holders.
An FFI’s assets must be translated into
a single currency (which need not be the
U.S. dollar) for purposes of computing its
passthru payment percentage.
4.Definition of “U.S. Asset”
For purposes of determining an FFI’s
passthru payment percentage, Treasury
and the IRS intend to publish regulations
defining a U.S. asset to include any asset
to the extent that it is of a type that could
give rise to a passthru payment. Notwith-
standing the previous sentence, an FFI’s
debt or equity interest in a domestic cor-
poration will be treated solely as a U.S.
asset and an FFI’s debt or equity interest
2011–19 I.R.B.770May 9, 2011

in a non-financial foreign entity (NFFE)
shall be treated solelyas a non-U.S. asset,
regardless of whether the interest would
otherwise be an asset of a type that could
give rise to a passthru payment.
The above definition of U.S. asset also
includes certain interests in or other fi-
nancial accounts that are not custodial ac-
counts (non-custodial accounts) held with
another FFI. An interest in, or other non-
custodial account held with, another FFI
(Lower Tier FFI) constitutes a U.S. asset
in an amount equal to the value of the in-
terest in, or account with, the Lower Tier
FFI multiplied by the Lower Tier FFI’s
passthru payment percentage. An FFI may
rely on the passthru payment percentage of
a Lower Tier FFI that is a participating or
deemed-compliant FFI, if such FFI pub-
lishes its passthru percentage as provided
in Section II.B.5, below. If a participating
FFI or deemed-compliant FFI does not cal-
culate or publish its passthru payment per-
centage as set forth in Section II.B.5, it will
be deemed to have a passthru payment per-
centage of 100 percent. An FFI that is not
a participating or deemed-compliant FFI
will be presumed to have a passthru pay-
ment percentage of zero percent. An FFI
will be required to confirm that a Lower
Tier FFI is not a participating or deemed-
compliant FFI prior to presuming that the
Lower Tier FFI has a passthru payment
percentage of zero percent. The IRS in-
tends to maintain a database that will per-
mit FFIs and other withholding agents to
confirm whether an FFI is a participating
or deemed-compliant FFI.
Example of Calculation of Passthru
Payment Percentage.FundAisapar-
ticipating FFI that operates as a fund of
funds and that elects the book value (BV)
method for determining the value of its
assets. As of the relevant testing date,
Fund A’s assets consist of: (a) an interest
in Fund B, a non-participating FFI (BV of
$20 million); (b) an interest in Fund C, a
participating FFI with a passthru payment
percentage (PP%) of 50 percent (BV of
$30 million); (c) an interest in Fund D, an
FFI that does not calculate its PP% (BV of
$10 million); (d) an interest in Fund E, a
domestic corporation (BV of $40 million).
Fund A’s total assets are $100 million.
Fund A’s U.S. assets are $65 million (($20
million x Fund B’s PP% of 0%) + ($30
million x Fund C’s PP% of 50%) + ($10
million x Fund D’s PP% of 100%) + ($40
million x 100% because Fund E is a U.S.
entity)). Therefore, Fund A’s passthru pay-
ment percentage for the relevant testing
date is equal to $65 million (U.S. assets) /
$100 million (total assets), or 65 percent.
Treasury and the IRS intend to issue
guidance providing that an FFI that has
engaged in a pattern of selling or trans-
ferring any of its U.S. assets immediately
prior to its quarterly testing date and reac-
quiring the same or similar assets follow-
ing the quarterly testing date, or other-
wise engaging in transactions with the in-
tent of manipulating its passthru payment
percentage, will be treated as having its
passthru payment percentage determined
without regard to those transactions, re-
gardless of how such transactions would
be characterized under the FFI’s financial
accounting standards for purposes of re-
porting to its interest holders. Comments
are requested regarding any further anti-
abuse rules which may be necessary to pre-
vent the manipulation of an FFI’s passthru
payment percentage.
Comments are also requested regarding
the above approach to defining a U.S. as-
set. Additionally, Treasury and the IRS
are seeking comments regarding the use
of the passthru payment percentage with
respect to domestic and foreign partner-
ships and other flow-through entities, as
well as how a partnership or other flow-
through entity may determine whether a
payment it makes to an interest holder is
a withholdable payment or a passthru pay-
ment. Comments are also requested re-
garding whether it is appropriate to permit
a U.S. financial institution that is a part-
nership or other flow-through entity under
U.S. tax principles to calculate and make
available a passthru payment percentage
thatmaybeusedbyparticipatingFFIsin
determining their own passthru payment
percentages with respect to non-custodial
accounts held with suchU.S. institutions.
5.Timing and Publishing of Passthru
Payment Percentages
Each participating FFI will be required
within three months after its quarterly
testing date to make available its passthru
payment percentage information calcu-
lated for that testing date, for example,
on a website or database readily search-
able by the public. Treasury and the IRS
request comments on the most efficient
mechanism for ensuring that accurate
passthru payment percentage information
is readily available to FFIs for purposes
of administering their obligations under
chapter 4. Treasury and the IRS intend
that a participating or deemed-compliant
FFI that fails to make available updated
passthru payment percentage information
will be treated as having a passthru pay-
ment percentage of 100 percent. Treasury
and the IRS further intend that an FFI that
holds an interest in one or more Lower
Tier FFIs may rely on such FFI’s most
recently published passthru payment per-
centage in determining its own passthru
payment percentage. The determination
of when a passthru payment percentage
is out-of-date and how frequently an FFI
must check for more recently published
passthru payment percentages of other
FFIs shall be set forth in future guidance.
If deemed-compliant FFIs publish their
passthru payment percentages, they must
certify to the IRS every three years that the
passthru payment percentages they publish
are accurate. See also Section III of this
notice concerning other proposed rules ap-
plicable to deemed-compliant FFIs.
C.Custodial Payments
A custodial payment is a payment with
respect to which an FFI acts as a cus-
todian, broker, nominee, or otherwise as
an agent for another person. A custo-
dial payment that is a withholdable pay-
ment will be treated as a withholdable pay-
ment (and thus as a passthru payment), and
the FFI must apply the appropriate with-
holding unless the withholding obligation
has been satisfied by another withholding
agent. As described above, if the custodial
payment is made with respect to an inter-
est or instrument issued by another FFI (is-
suer FFI), then the custodial payment is a
passthru payment in an amount equal to the
amount of the payment multiplied by the
passthru payment percentage of the issuer
FFI.
For example, consider an FFI that holds
stock of a domestic corporation in a cus-
todial account for a recalcitrant account
holder. Upon receiving a dividend from
the domestic corporation, the FFI must
treat the dividend as a passthru payment
when credited to the account of the recalci-
trant account holder because the dividend
constitutes a withholdable payment.
May 9, 20117712011–19 I.R.B.

Similarly, when a broker that is a partic-
ipating FFI holds an interest in another FFI
on behalf of a recalcitrant account holder
and collects a distribution from that other
FFI on behalf of the account holder, the
portion of that distribution constituting a
passthru payment is equal to the amount
of the distribution multiplied by that other
FFI’s passthru payment percentage. Since
the broker is acting in a custodial capac-
ity with respect to the distribution paid or
credited to the account of the recalcitrant
account holder, the broker’s own passthru
payment percentage does not affect the ap-
plication of the passthru payment rules to
the distribution.
D.Grandfathered Obligations
An obligation that gives rise to pay-
ments that are exempt from withholding
under section 501(d)(2) of the Act (grand-
fathered obligation), including any accrual
of income with respect to such obliga-
tion, will not be treated as a U.S. asset
for purposes of determining an entity’s
passthru payment percentage. A grand-
fathered obligation also will not give rise
to a passthru payment under the rules for
custodial payments described in Section
II.C above.
E.Request for Comments Regarding
Potential Exceptions to Passthru Payments
Treasury and the IRS request com-
ments regarding possible exemptions from
the definition of passthru payments that
would, to the extent possible, be consis-
tent with the policy goals of the passthru
payment rule and reasonable in light of the
potential burden on participating FFIs.
Section III. Deemed-Compliant Status for
Certain FFIs
This section describes certain cate-
gories of FFIs that will be deemed compli-
ant pursuant to section 1471(b)(2). Unless
provided otherwise, a deemed-compliant
FFI will be required to: (1) apply for
deemed-compliant status with the IRS;
(2) obtain an FFI identification number
(FFI-EIN) from the IRS identifying it as
a deemed-compliant FFI; and (3) certify
every three years to the IRS that it meets
the requirements for such treatment.
A.Certain Local Banks
Treasury and the IRS intend to issue
regulations under which each FFI in an ex-
panded affiliated group (as defined in sec-
tion 1471(e) and discussed below in Sec-
tion VI) will be treated as a deemed-com-
pliant FFI under section 1471(b)(2)(A) if:
(1) each FFI in the expanded affiliated
group is, under the laws of its country of
organization, licensed and regulated as a
bank or similar organization authorized to
accept deposits in the ordinary course of
its business and is not described in section
1471(d)(5)(C); (2) all of the FFIs in the
expanded affiliatedgroup are organized in
the same country; (3) no FFI in the ex-
panded affiliated group maintains opera-
tions outside the country of organization;
(4) no FFI in the expanded affiliated group
solicits account holders outside its country
of organization; and (5) each FFI in the ex-
panded affiliated group implements poli-
cies and procedures to ensure that it does
not open or maintain accounts for non-res-
idents, non-participating FFIs, or NFFEs
(other than excepted NFFEs as defined in
Notice 2010–60 that are organized and op-
erating in the jurisdiction where all mem-
bers of the expanded affiliated group are
organized). Treasury and the IRS solicit
comments on how an expanded affiliated
group would demonstrate to the IRS that it
meets the requirements described above.
B.Local FFI Members of Participating
FFI Groups
Treasury and the IRS also intend to is-
sue regulations under which any FFI that is
a member of an expanded affiliated group
that includes one participating FFI (each
an “FFI member” of a “Participating FFI
Group”) may be treated as a deemed-com-
pliant FFI under section 1471(b)(2)(A) if:
(1) the FFI member maintains no opera-
tions outside its country of organization;
(2) the FFI member does not solicit ac-
count holders outside its country of organi-
zation;(3)theFFImemberimplementsthe
pre-existing account and customer identi-
fication procedures required of participat-
ingFFIstoidentifythefollowingtypes
of accounts: (a) U.S. accounts; (b) ac-
counts of non-participating FFIs; and (c)
accounts of NFFEs (other than excepted
NFFEs as defined in Notice 2010–60 that
are organized and operating in the juris-
diction where the FFI member maintains
the account); and (4) the FFI agrees that,
if any of the types of accounts described
in clause (3) above are found, it will en-
ter into an FFI Agreement, transfer such
accounts to an affiliate that is a partici-
pating FFI within a reasonable period of
time to be provided in future guidance, or
close such accounts. Treasury and the IRS
solicit comments on how an FFI would
demonstrate to the IRS that it meets the re-
quirements described above. In addition,
Treasury and the IRS request comments
as to whether there are policies and pro-
cedures other than the customer identifi-
cation procedures required of participating
FFIs that an FFI member of a Participat-
ing FFI Group could apply to effectively
ensure that it identifies any U.S. accounts
that it opens or maintains.
C.Certain Investment Vehicles
In addition, Notice 2010–60 stated that
Treasury and the IRS were considering
whether, under the standard set forth in
section 1471(b)(2)(A), certain investment
vehicles could be deemed to meet the re-
quirements of section 1471(b). Treasury
and the IRS intend to issue guidance under
which certain collective investment ve-
hicles and other investment funds would
be treated as deemed-compliant under
section 1471(b)(2)(A). Under this guid-
ance, a fund will be deemed-compliant
if it meets the following three require-
ments: (1) all holders of record of direct
interests in the fund (e.g., the holders of
its units or global certificates) are partic-
ipating FFIs or deemed-compliant FFIs
holding on behalf of other investors, or
entities described in section 1471(f); (2)
the fund prohibits the subscription for or
acquisition of any interests in the fund
by any person that is not a participating
FFI, a deemed-compliant FFI, or an entity
described in section 1471(f); and (3) the
fund certifies that any passthru payment
percentages that it calculates and publishes
will be done in accordance with Section II
of this notice.
Treasury and the IRS are also consider-
ing under what circumstances certain for-
eign entities, all the interests in which are
regularly traded on an established secu-
rities market (e.g., exchange-traded funds
(ETFs)), could be deemed compliant un-
der section 1471(b)(2)(A). FFIs that is-
2011–19 I.R.B.772May 9, 2011

sue only debt or equity interests that are
regularly traded on an established securi-
ties market do not maintain “financial ac-
counts” under section 1471(d)(2)(C). Al-
though such FFIs maintain no U.S. ac-
counts, they are FFIs and are subject to
certain obligations under chapter 4 to the
extent they receive passthru payments. In
particular, such FFIs would be required
to enter into an FFI Agreement, withhold
on passthru payments made to non-partic-
ipating FFIs, and certify that any passthru
payment percentage that they publish will
be published in accordance with Section
II.B.5.
Treasury and the IRS continue to
consider comments received regarding
whether there may be a category of funds
that may be treated as deemed-compliant
because: (i) all direct interest holders in
the fund are participating FFIs, USFIs,
deemed-compliant FFIs, entities described
in section 1471(f), or non-participating
FFIs acting as distributors; (ii) distribu-
tion or similar agreements prohibit sales
of interests to specified U.S. persons,
NFFEs other than excepted NFFEs, and
non-participating FFIs holding for their
own account; (iii) each distributor agrees
to enforce the sales prohibitions described
in (ii) above, and (iv) the fund satisfies
other requirements and meets other crite-
ria relevant to the purposes of chapter 4.
Many FFIs employ paying agents or
transfer agents to act on their behalf in
making payments to direct interest holders
or maintaining a register of direct interest
holders in the fund. Treasury and the IRS
intend to issue guidance clarifying that,
while a deemed-compliant FFI is respon-
sible for ensuring that the requirements
for being deemed compliant are met, it
may use an agent to perform the necessary
due diligence and take any required action
associated with maintaining deemed-com-
pliant status on its behalf. Similarly, a par-
ticipating FFI is liable for the performance
of its obligations under its FFI Agreement,
but may use an agent to perform those obli-
gations on its behalf.
D.Other Categories of
Deemed-Compliant FFIs
As discussed in Notice 2010–60, Trea-
suryandtheIRSintendtoissueguid-
ance providing that certain foreign retire-
ment plans pose a low risk of tax evasion
under section 1471(f), and therefore pay-
ments beneficially owned by such retire-
ment plans will be exempt from withhold-
ing under section 1471(a). Treasury and
the IRS are still considering the many com-
ments received regarding the types of for-
eign retirement plans that should be treated
as posing a low risk of tax evasion under
section1471(f),andintendtoprovidefur-
ther guidance on the types of foreign re-
tirement plans that may qualify for such
treatment. In addition, Treasury and the
IRS intend to provide further guidance on
foreign retirement plans or retirement ac-
counts that may be deemed compliant un-
der section 1471(b)(2).
Treasury and the IRS request comments
regarding other categories of entities that
should be treated as deemed-compliant
FFIs under section 1471(b)(2)(A) because
they possess certain characteristics, or
have implemented appropriate policies
and procedures, that are consistent with
the purpose of the passthru payment rule
of section 1471 to prevent these entities
frombeingusedbynon-participatingFFIs
to avoid compliance with chapter 4.
Section IV. Reporting on U.S. Accounts
A.Account Balance or Value
This section modifies certain of the pro-
posed U.S. account reporting requirements
for FFIs outlined in Section IV of Notice
2010–60.
Section 1471(c)(1)(C) requires a par-
ticipating FFI to report the account bal-
ance or value of each U.S. account un-
less the FFI elects to report in accordance
with section 1471(c)(2). Section IV of No-
tice 2010–60 provides preliminary guid-
ance regarding the manner and type of in-
formation FFIs would be required to re-
port with respect to their U.S. accounts.
Notice 2010–60 requires reporting of the
highest of the month-end balances during
the year (or, if the balance is determined
less frequently than monthly (e.g., quar-
terly) for the purposes of reporting to the
account holder, the highest of the balances
as determined for purposes of reporting
to the account holder during the year) for
deposit and custodial accounts. In addi-
tion, the FFI would be required to pro-
vide additional account-related informa-
tion (e.g., copies of account statements, in-
cluding monthly or quarterly balances and
daily receipts and withdrawals) to the IRS
upon request. In the case of a U.S. account
that is an interest in an entity described
in section 1471(d)(5)(C), Notice 2010–60
requires a participating FFI to report the
highest value of such account during the
year, as determined for the purpose that re-
quires the most frequent determination of
value by the participating FFI.
A number of commentators indicated
that some FFIs do not retain records of
their periodic (month-end, quarterly, or
otherwise) account balance determina-
tions. As a result, such FFIs would incur
significant costs to comply with this re-
quirement.
In light of these comments and the re-
vised reporting requirements described in
Section IV.B of this notice, Treasury and
the IRS intend to issue regulations limit-
ing FFIs’ account balance reporting obli-
gations to year-end account balances or
values, as determined for purposes of re-
porting to the account holder or, in the case
of a U.S. account that is an interest in an
entity described in section 1471(d)(5)(C),
as determined for the purpose that requires
the most frequent determination of value.
B.Gross Receipts and Withdrawals
Section 1471(c)(1)(D) also requires
the reporting of gross receipts and gross
withdrawals or payments made to and
from U.S. accounts, except to the ex-
tent otherwise provided by the Secretary.
Notice 2010–60 requested comments as
to how to minimize burdens on partici-
pating FFIs with respect to their section
1471(c)(1)(D) reporting. Commentators
indicated that many FFIs do not currently
maintain gross receipt and withdrawal
data. These FFIs would have to incur
significant costs in order to comply with
the section 1471(c)(1)(D) reporting re-
quirement. Commentators also indicated
that it would be difficult for FFIs to apply
U.S. federal income tax principles when
satisfying their section 1471(c)(1)(D) re-
porting responsibilities.
In light of these comments, Treasury
and the IRS intend to issue regulations pro-
viding that under section 1471(c)(1)(D) an
FFI must annually report the following in-
formation with respect to a U.S. account
that is described in section 1471(d)(2)(A)
or (B):
May 9, 20117732011–19 I.R.B.

i. the gross amount of dividends paid or
credited to the account;
ii. the gross amount of interest paid or
credited to the account;
iii. other income paid or credited to the
account; and
iv. gross proceeds from the sale or re-
demption of property paid or credited
to the account with respect to which
the FFI acted as a custodian, broker,
nominee, or otherwise as an agent for
the account holder.
For purposes of the preceding sentence, the
amount and character of dividends, inter-
est, other income, and gross proceeds need
not be determined in accordance with U.S.
federal income tax principles (though the
FFImayrelyonsuchprinciples). The
amount and character of dividends, inter-
est, other income, and gross proceeds may
be determined under the same principles
that the FFI uses to report information on
its resident account holders to the jurisdic-
tion in which the FFI (or branch thereof) is
located. If any of these amounts are not
reported to the tax administration of the
jurisdiction in which the FFI (or branch
thereof) is located, such amounts must be
determined in the same manner as is used
for purposes of reporting to the account
holder. If the amount of dividends, inter-
est, gross proceeds, or other income is nei-
ther reported to the tax administration of
the jurisdiction in which the FFI (or branch
thereof) is located nor reported to the ac-
count holder, such amounts must be deter-
mined either in accordance with U.S. fed-
eral tax principles or in accordance with
any reasonable method of reporting con-
sistent with the accounting principles gen-
erally applied by the FFI. Once an FFI
has applied a method to determine such
amounts, it must apply such method con-
sistently for all account holders and for all
subsequent years unless the Commissioner
consents to a change in such method. Con-
sent will be automatically granted for a
change to rely on U.S. federal income tax
principles to determine such amounts.
In the case of a U.S. account that is de-
scribed in section 1471(d)(2)(C), the FFI
will be required to report with respect to
such interest, the gross amount of: (i) all
distributions, interest, and similar amounts
credited during the year; and (ii) each re-
demption payment made during the year.
In the case of a U.S. account closed or
transferred in its entirety by an account
holder during the year, the FFI will be re-
quired to report the income paid or credited
to the account for the year until the date
of transfer or closure, and will also be re-
quired to report the amount or value with-
drawn or transferred from the U.S. account
as a gross withdrawal. The FFI will also
be required to reportthe U.S. account as
closed or transferred.
In addition, the FFI Agreement will
provide that if the FFI retains copies of
statements sent to holders of U.S. accounts
in the ordinary course of its business, such
statements must be retained for a period
of five years and must be provided to the
IRS upon request.
C.Basis Reporting
Treasury and the IRS intend to is-
sue guidance providing that FFIs that
are not U.S. payors (as defined in
§ 1.6049–5(c)(5)) and that report the
information required under section
1471(c)(1)(D) withrespect to a U.S. ac-
count will not be required to report tax
basis information required under section
6045(g) with respect to the account.
D.Branch and Affiliate Reporting
1.Mandatory Identification of FFI
Branches
Section 1471(b) provides that a partic-
ipating FFI must report certain informa-
tion pursuant to an FFI Agreement with re-
spect to each U.S. account. Treasury and
the IRS intend to publish draft FFI Agree-
ments that require FFIs, including FFIs
that do not elect branch-by-branch report-
ing under Section IV.E.2, below, to iden-
tify the branch that maintains the U.S. ac-
count being reported.
2.Branch Reporting Election and
Reporting by Affiliates
Treasury and the IRS received com-
ments asserting that some FFIs may face
constraints under local law that would pre-
vent consolidating account holder infor-
mation across branches or affiliates located
in different jurisdictions generally, includ-
ing for purposes of reporting under chap-
ter 4. These commentators noted that those
constraints may not prevent branches from
reporting separately in order to satisfy the
requirements of section 1471(b).
In light of these comments, Treasury
andtheIRSintendtoissueguidanceal-
lowing FFIs to elect to have each branch
report information regarding the U.S. ac-
counts it maintains and to make the section
1471(c)(2) election with respect to each
of their branches. Treasury and the IRS
intend to require that such an election be
made as part of the application process for
an FFI to obtain status as a participating
FFI, as further described in Section VI of
this notice.
Section V. Chapter 4 Requirements for
Qualified Intermediaries
This section addresses the treatment
of QIs under section 1471. QIs currently
agree to perform certain withholding and
reporting responsibilities with regard to
their non-U.S. account holders for pur-
poses of chapter 3. They further agree to
perform certain reporting responsibilities
under chapter 61 with respect to reportable
payments made to their U.S. non-exempt
recipient account holders and to apply
backup withholding under section 3406
on such payments when applicable.
Under section 1471(c)(3), a QI that is an
FFI is subject to the requirements of sec-
tion 1471 in addition to the reporting or
other requirements imposed on QIs. Trea-
sury and the IRS intend to issue guidance
requiring all FFIs currently acting as QIs to
consent to include in their QI agreements
the requirement to become participating
FFIs unless they qualify as deemed-com-
pliant FFIs under section 1471. This re-
quirement will apply to all such QIs as of
January 1, 2013, the effective date of chap-
ter 4. Treasury and the IRS intend to pro-
vide transition rules under both chapters 3
and 4 to accommodate this change. FFIs
applying for QI status after the effective
date of chapter 4 will be required to sat-
isfy the requirements of section 1471.
Treasury and the IRS also intend to is-
sue guidance that will require FFIs cur-
rently acting as Foreign Withholding Part-
nerships (FWPs) or Foreign Withholding
Trusts (FWTs) under § 1.1441–5(c) or (e)
to consent to includein their agreements
the requirement to become participating
FFIs unless they qualify as deemed-com-
pliant FFIs under section 1471. FFIs ap-
plying for FWP or FWT status after the ef-
fective date of chapter 4 will also be re-
2011–19 I.R.B.774May 9, 2011

quired to satisfy the requirements of sec-
tion 1471.
Treasury and the IRS intend to co-
ordinate the section 1471 reporting and
withholding requirements for QIs, FWPs,
and FWTs with the requirements that
presently apply to QIs, FWPs, and FWTs
under chapter 3 and guidance thereunder,
and request comments on how the chapter
3 rules and agreements for these entities
may be appropriately modified for that
purpose.
Section VI. Application of Section 1471(e)
Regarding Expanded Affiliated Groups of
FFIs
Section 1471(e) provides that the with-
holding, reporting, and other requirements
imposed on an FFI under section 1471(b)
and section 1471(c)(1) shall apply with re-
spect to U.S. accounts maintained by the
FFI and, except as otherwise provided by
the Secretary, with respect to U.S. accounts
maintained by each other FFI (other than
any FFI that otherwise meets the require-
ments of section 1471(b)) which is a mem-
ber of the same expanded affiliated group
that includes the FFI (each an “FFI affil-
iate”ofan“FFIGroup”). Undersection
1471(e)(2), an expanded affiliated group is
an “affiliated group” as defined in section
1504(a), determined by substituting “more
than 50 percent” for “at least 80 percent”
in each place it appears in section 1504(a)
and without regard to paragraphs (2) and
(3) of section 1504(b) (which would oth-
erwise exclude insurance companies sub-
ject to tax under section 801 and foreign
corporations). Section 1471(e)(2) further
provides that a partnership or any other en-
tity (other than a corporation) is treated as a
member of an expanded affiliated group if
such entity is controlled (within the mean-
ing of section 954(d)(3)) by members of
such group (includingany entity treated as
a member of such group by reason of this
rule).
A.Requirements for FFI Affiliates
Treasury and the IRS intend to issue
regulations under section 1471(e) requir-
ing that each FFI affiliate in an FFI Group
must be a participating FFI or a deemed-
compliant FFI. Each FFI affiliate in the
FFI Group that is to become a participat-
ingFFIwillberequiredtoexecute,un-
der the coordinated execution procedures
described below, an FFI Agreement that
will apply to all of its worldwide branches
and offices. Each participating FFI affili-
ate will be responsible for its own due dili-
gence, withholding and reporting obliga-
tions, and return filing requirements under
its FFI Agreement with respect to its ac-
count holders. EachFFI affiliate will be
issued its own FFI-EIN. Treasury and the
IRS continue to study whether and under
what conditions it may be possible to al-
low an FFI Group to include one or more
non-participating FFI affiliates.
B.Execution of Agreements for FFI
Affiliates
The IRS intends to require FFI affili-
ates of FFI Groups to apply for partici-
pating FFI or deemed-compliant FFI status
through a coordinatedapplication process.
For this purpose, the IRS intends to require
each FFI Group to designate a “lead FFI.”
A lead FFI will be required to complete
an application and execute either an agree-
ment with the IRS to become a participat-
ing FFI or a certification for deemed-com-
pliant FFI status, and also will be required
to complete an application on behalf of
each FFI affiliate. The lead FFI will be re-
quired to provide the IRS with documenta-
tion, in a format to be prescribed, evidenc-
ing that each FFI affiliate has agreed to the
provisions of an FFI Agreement or certifi-
cation, depending on whether the FFI af-
filiate seeks participating or deemed-com-
pliant FFI status. Such documents will in-
clude a legally binding authorization from
each such FFI affiliate for the lead FFI to
act on its behalf in signing the applica-
tion for participating FFI or deemed-com-
pliant FFI status (as applicable) and in sub-
mitting a Form SS–4 (Application for Em-
ployer Identification Number)toapplyfor
and obtain an FFI-EIN for the FFI affili-
ate. The lead FFI also will be required to
represent in the application that it has iden-
tified to the IRS each affiliate in the FFI
Group and that it has completed the appli-
cation in accordance with the instructions
provided to it by each affiliate. It will fur-
ther be required to represent that it is au-
thorized to act as agent for the FFI Group
for purposes of an ongoing requirement to
notify the IRS of any new FFI affiliate or
of any FFI affiliate that ceases to be an FFI
affiliate.
The IRS further intends to require that
the lead FFI provide certain information in
the application aboutboth itself and each
affiliate in the FFI Group. The lead FFI
will in all cases be required to identify it-
self as the lead FFI and identify each affil-
iate of the FFI Group. The lead FFI will
be required to provide the following infor-
mation about each FFI affiliate in the FFI
Group: (1) its name, address, and country
of organization; (2) whether the FFI affil-
iate is described in section 1471(d)(5)(A),
(B), and/or (C); (3) whether the FFI affil-
iate is applying as a participating FFI or a
deemed-compliant FFI; (4) the types of ac-
counts the FFI affiliate maintains among
those specified in section 1471(d)(2); (5)
whether the FFI affiliate maintains private
banking accounts (as defined in Section
I.A.1(2) of this notice); and (6) whether
the affiliate is a QI, FWP, or FWT. The
lead FFI also will be required to provide
the name, address, and country of organ-
ization of each member of the FFI Group
that is not an FFI. The lead FFI also will
be required to identify each FFI affiliate
that maintains a branch that elects to sep-
arately report its U.S. accounts under Sec-
tion IV.D.2 of this notice and will be re-
quired to identify the jurisdiction of each
such branch. Lead FFIs may be required
to provide additional information as part of
the application process to the extent pro-
vided in future guidance.
Once the FFI Agreement has been exe-
cuted, the IRS intends to require the lead
FFI to continue to act as a central con-
tact point with the IRS for issues concern-
ing the application and execution of the
agreements and certifications with respect
to each FFI affiliate, and concerning any
affiliate that is not an FFI. Alternatively,
the lead FFI may designate other FFI affil-
iates to serve as ongoing points of contact
(POC FFIs) on behalf of particular mem-
bers of the FFI Group. For example, a lead
FFI may choose to establish a POC FFI for
members of the group that share a com-
mon line of business or that operate in the
same jurisdiction. POC FFIs would also be
responsible for addressing issues with the
IRS concerning the certifications provided
by their associated FFI affiliates in order to
maintain deemed-compliant status, or con-
cerning ongoing issues pertaining to any
NFFEs in the FFI Group.
May 9, 20117752011–19 I.R.B.

C.Centralized Compliance Option for
FFI Groups
Treasury and the IRS also intend to
provide FFI Groups with an option un-
der which a designated FFI could be ap-
pointed by some or all of the FFI affili-
ates in the FFI Group to assume an over-
sight role with respect to the compliance
by the FFI Group with the section 1471 re-
quirements (Compliance FFIs). For exam-
ple, a Compliance FFI could assume the
responsibility to: (1) establish applicable
policies and procedures with respect to the
section 1471 requirements for all or a sub-
set of the FFI affiliates in the FFI Group;
(2) ensure that all such FFI affiliates have
adopted and implemented these policies
and procedures; and (3) account to the IRS
with respect to each such affiliate’s com-
pliance with such policies and procedures
and the section 1471 requirements. Trea-
sury and the IRS anticipate that a central-
ized compliance approach of this type may
result in certain efficiencies for both FFIs
and the IRS and seek comments about this
approach, including the time that Compli-
ance FFIs would need to establish poli-
cies and procedures for assuming these ad-
ditional responsibilities and other sugges-
tions to facilitate a Compliance FFI’s role
in enforcing its affiliates’ compliance with
the section 1471 requirements.
Comments are also requested concern-
ing the utility of an option to allow U.S.
shareholders of controlled foreign corpo-
rations that are FFIs to function as lead
FFIs and/or Compliance FFIs (although
the U.S. shareholder will not be an FFI).
D.Centralized Option for Funds
Treasury and the IRS are also consider-
ing whether a centralized compliance op-
tion should be provided for certain col-
lective investment entities (funds) that are
associated with a common asset manager
or other agent. Under this approach, an
asset manager or other agent would ex-
ecute a single FFI Agreement on behalf
of each member of a group of funds that
contracts with the asset manager or other
agent to perform the functions required un-
der the FFI Agreement with respect to the
fund. This option would be restricted to
those cases in which the asset manager or
other agent is able to monitor each fund’s
compliance with its FFI Agreement based
on its legal agreements and other arrange-
ments with each fund. An asset manager or
other agent executing an agreement of this
type would be required to act as a point of
contact for the IRS with respect to all is-
sues concerning the FFIs in its group, or
designate an agent to assume this respon-
sibility. It would further be required to
implement policies and procedures cover-
ing the section 1471(b) and (c)(1) require-
ments for each participating FFI fund in-
cluded in the single agreement, and would
also be required to account to the IRS
with respect to each such fund’s compli-
ance with these procedures and their sec-
tion 1471 requirements. Each fund partic-
ipating in an agreement under this option
would remain liable for the performance
of its obligations under its FFI Agreement.
See also Section III.C of this notice con-
cerning the proposed requirements for cer-
tain investment funds to obtain deemed-
compliant treatment.
Section VII. Effective Date of FFI
Agreements
FFI Agreements will become effective
on the later of: (i) the date they are exe-
cuted; or (ii) the effective date of section
501 of the Act.
REQUEST FOR PUBLIC COMMENT
This notice requests public comment re-
garding the issues described in this notice
and regarding other priority issues in con-
nection with forthcoming guidance on the
application of chapter 4.
Written comments should be sent to:
CC:PA:LPD:PR (NOT–121556–10), room
5203, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may be
hand-delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to: CC:PA:LPD:PR (NOT–121556–10),
Courier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW, Wash-
ington, DC 20224 or sent electronically
via the Federal eRulemaking Portal at
Notice.Comments@irscounsel.treas.gov
(NOT–121556–10). Please insert “Notice
2011–34” in the subject line of any
electronic communications.
All comments will be available for pub-
lic inspection and copying. The dead-
line for written comments on this notice is
June 7, 2011.
EFFECT ON OTHER DOCUMENTS
This notice supplements and supersedes
Notice 2010–60 to the extent indicated
herein.
DRAFTING INFORMATION
The principal authors of this notice are
Danielle Nishida and Ana Guzman of the
Office of Associate Chief Counsel (Inter-
national). For further information regard-
ing this notice, contact John Sweeney at
(202) 622–3840 (not a toll-free call).
2011–19 I.R.B.776May 9, 2011

Part IV. Items o
fGeneralInterest
Notice of Proposed
Rulemaking
Guidance Under Section
108(a) Concerning the
Exclusion of Section 61(a)(12)
Discharge of Indebtedness
Income of a Grantor Trust or a
Disregarded Entity
REG–154159–09
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains pro-
posed regulations relating to the exclusion
from gross income under section 108(a)
of discharge of indebtedness income of a
grantor trust or an entity that is disregarded
as an entity separate from its owner. The
proposed regulations provide rules regard-
ing the term “taxpayer” for purposes of ap-
plying section 108 to discharge of indebt-
edness income of a grantor trust or a dis-
regarded entity. The proposed regulations
affect grantor trusts,disregarded entities,
and their owners.
DATES: Written or electronic comments
and requests for a public hearing must be
received by July 12, 2011.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR(REG–154159–09),
Room 5203, Internal Revenue Service, PO
Box 7604, Ben Franklin Station, Wash-
ington, DC 20044. Submissions may be
hand-delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to CC:PA:LPD:PR (REG–154159–09),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW,
Washington, DC; or sent electroni-
cally, via the Federal eRulemaking Por-
tal athttp://www.regulations.gov(IRS
REG–154159–09).
FOR FURTHER INFORMATION
CONTACT: Bryan A. Rimmke or
Benjamin H. Weaver, (202) 622–3050 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
Section 61(a)(12) of the Internal Rev-
enue Code (the Code) provides that in-
come from the discharge of indebtedness
is includable in gross income. However,
such income may be excludable from gross
income under section 108 in certain cir-
cumstances. Section 108(a)(1)(A) and (B)
excludes from gross income any amount
that would be includible in gross income
by reason of the discharge of indebtedness
of the taxpayer if the discharge occurs in
aTitle11caseortotheextentthetax-
payer is insolvent when the discharge oc-
curs. Section 108(d)(1) through (3) pro-
vides the meaning of the terms “indebted-
ness of the taxpayer,” “Title 11 case,” and
“insolvent,” for purposes of applying sec-
tion 108, and each definition uses the term
“taxpayer.” Section 7701(a)(14) defines a
taxpayeras any person subject to any in-
ternal revenue tax.
Several types of disregarded entities ex-
ist under the Code and regulations. For in-
stance, §301.7701–2(a) of the Procedure
and Administration Regulations provides
that the termbusiness entityincludes an en-
tity with a single owner that may be disre-
garded as an entity separate from its owner
under §301.7701–3; an example of a dis-
regarded entity under this provision is a
domestic single member limited liability
company that does not elect to be classi-
fied as a corporation for Federal income
tax purposes. Additionally, some disre-
garded entities are created by statute; ex-
amples of statutory disregarded entities in-
clude a corporation that is a qualified REIT
subsidiary (within the meaning of section
856(i)(2)), and a corporation that is a qual-
ified subchapter S subsidiary (within the
meaning of section 1361(b)(3)(B)).
The activities of an entity that is a disre-
garded entity are treated in the same man-
ner as a sole proprietorship, branch, or di-
vision of the owner (except for certain em-
ployment and excise tax rules). Accord-
ingly, for Federal income tax purposes, all
assets, liabilities, and items of income, de-
duction, and credit of adisregarded entity
are treated as assets, liabilities, and such
items (as the case may be) of the owner of
the disregarded entity.
Agrantor trustis any portion of a trust
that is treated (under subpart E of part I of
subchapter J of chapter 1) as being owned
by the grantor or another person. In the
case of any grantor trust, items of income,
deductions, and credits attributable to the
trust are includable in computing the tax-
able income and credits of the owner.
Explanation of Provisions
The proposed regulations provide
that, for purposes of applying section
108(a)(1)(A) and (B) to discharge of in-
debtedness income of a grantor trust or
a disregarded entity, the termtaxpayer,
as used in section 108(a)(1) and (d)(1)
through (3), refers to the owner(s) of the
grantor trust or disregarded entity. The
proposed regulations further provide that
grantor trusts and disregarded entities
themselves will not be considered owners
for this purpose. Finally, the proposed
regulations provide that, in the case of
a partnership, the owner rules apply at
the partner level to the partners of the
partnership to whom the discharge of in-
debtedness income is allocable. Thus, for
example, if a partnership holds an interest
in a grantor trust or disregarded entity, the
applicability of section 108(a)(1)(A) and
(B) to discharge of indebtedness income
of the grantor trust or disregarded entity is
tested by looking to the partners to whom
the income is allocable. If any partner is
itself a grantor trust or disregarded entity,
the applicability of section 108(a)(1)(A)
and (B) is determined by looking through
such grantor trust or disregarded entity to
the ultimate owner(s) of such partner.
Some taxpayers have taken the position
that the insolvency exception is available
to the extent a grantor trust or disregarded
entity is insolvent, even if its owner is not.
The IRS and the Treasury Department do
not believe this is an appropriate applica-
tion of the relevant statutory provisions.
The proposed regulations clarify that, sub-
ject to the special rule for partnerships un-
der section 108(d)(6), the insolvency ex-
ception is available only to the extent the
owner is insolvent, as owner is determined
as described in this preamble.
Some taxpayers have taken the position
that the bankruptcy exception is available
if a grantor trust or disregarded entity is un-
der the jurisdiction of a bankruptcy court,
even if its owner is not. These taxpay-
May 9, 20117772011–19 I.R.B.

ers may argue that because, for Federal
income tax purposes, the disregarded en-
tity is disregarded and the “taxpayer” is
the owner of the disregarded entity’s as-
sets and liabilities, the taxpayer is properly
seen as being subject to the bankruptcy
court’s jurisdiction. Under the proposed
regulations, it is insufficient for the grantor
trust or disregarded entity to be subject to
the bankruptcy court’s jurisdiction. The
proposed regulations clarify that, subject
to the special rule for partnerships under
section 108(d)(6), the bankruptcy excep-
tion is available only if the owner of the
grantor trust or disregardedentityissub-
ject to the bankruptcy court’s jurisdiction,
as owner is determined as described in this
preamble.
Proposed Effective/Applicability Date
These regulations are proposed to ap-
ply to discharge of indebtedness income
occurring on or after the date final regula-
tions are published in theFederal Regis-
ter. No inference is intended that the pro-
visions set forth in these proposed regula-
tions are not current law.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Exec-
utive Order 12866. Therefore, a regula-
tory assessment is not required. It has also
been determined thatsection 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these reg-
ulations, and because the regulations do
not impose a collection of information on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply.
Pursuant to section 7805(f) of the Code,
this regulation has been submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
Comments and Requests for a Public
Hearing
Before the proposed regulations are
adopted as final regulations, considera-
tion will be given to any written (a signed
original and eight (8) copies) or electronic
comments that are submitted timely to
the IRS. The IRS and Treasury Depart-
ment request comments on the clarity of
the proposed rules and how they can be
made easier to understand. All comments
will be available for public inspection and
copying. A public hearing may be sched-
uled if requested in writing by any person
that timely submits written comments. If a
public hearing is scheduled, notice of the
date, time, and place for the public hearing
will be published in theFederal Register.
Drafting Information
The principal authors of these reg-
ulations are Bryan A. Rimmke and
Benjamin H. Weaver, Office of the
Associate Chief Counsel (Passthroughs
& Special Industries).However,
other personnel from the IRS and
Treasury Department participated in its
development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR Part 1 is proposed
to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.108–9 is added to read
as follows:
§1.108–9 Application of insolvency and
bankruptcy provisions of section 108 to
disregarded entities and grantor trusts.
(a)General rule. For purposes of ap-
plying section 108(a)(1)(A) and (B) to
discharge of indebtedness income of a
grantor trust or disregarded entity, neither
the grantor trust nor the disregarded entity
shall be considered to be the “taxpayer,” as
that term is used in section 108(a)(1) and
(d)(1) through (3). Rather, for purposes
of section 108(a)(1) and (d)(1) through
(3) and subject to section 108(d)(6), the
owner of the grantor trust or disregarded
entity is the taxpayer. If indebtedness
of a grantor trust or disregarded entity
is discharged in a Title 11 case, section
108(a)(1)(A) will apply only to an owner
of the grantor trust or disregarded entity
that is under the jurisdiction of the court in
a Title 11 case. If the grantor trust or dis-
regarded entity is under the jurisdiction of
the court in a Title 11 case, but the owner
of the grantor trust or disregarded entity
is not, section 108(a)(1)(A) will not apply
to the discharge of indebtedness income.
If indebtedness of a grantor trust or dis-
regarded entity is otherwise discharged,
section 108(a)(1)(B) will apply only to the
extent the owner of the grantor trust or dis-
regarded entity is insolvent. If the grantor
trust or disregarded entity is insolvent, but
the owner of the grantor trust or disre-
garded entity is not, section 108(a)(1)(B)
will not apply to the discharge of indebt-
edness income.
(b)Application to partnerships. Under
section 108(d)(6), in the case of a partner-
ship, section 108(a)(1)(A) and (B) applies
at the partner level. Accordingly, in the
case of a partnership, paragraph (a) of this
section applies to the partners of such part-
nership to whom the discharge of indebt-
edness income is allocable.
(c)Definitions—(1)Disregarded en-
tities. For purposes of this section, a
disregarded entityis an entity that is dis-
regarded as an entity separate from its
owner for Federal income tax purposes.
Examples of disregarded entities include
a domestic single member limited lia-
bility company that does not elect to be
classified as a corporation for Federal in-
come tax purposes, a corporation that is
a qualified REIT subsidiary (within the
meaning of section 856(i)(2)), and a cor-
poration that is a qualified subchapter S
subsidiary (within the meaning of section
1361(b)(3)(B)).
(2)Grantor trust. For purposes of this
section, agrantor trustisanyportionof
a trust that is treated under subpart E of
part I of subchapter J of chapter 1 as being
owned by the grantor or another person.
(3)Owner. Notwithstanding any other
provision of this section to the contrary,
neither a grantor trust nor a disregarded en-
tity shall be considered an owner for pur-
poses of this section.
2011–19 I.R.B.778May 9, 2011

(d)Effective/applicability date.The
rules of this section are proposed to ap-
ply to discharge of indebtedness income
occurring on or after the date final regula-
tions are published in the Federal Register.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on April 12, 2011,
8:45 a.m., and published in the issue of the Federal Register
for April 13, 2011, 76 F.R. 20593)
May 9, 20117792011–19 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.
2011–19 I.R.B.iMay 9, 2011

Numerical Finding List
1
Bulletin 2011–1 through 2011–19
Announcements:
2011-1, 2011-2 I.R.B.304
2011-2, 2011-3 I.R.B.324
2011-3, 2011-3 I.R.B.324
2011-4, 2011-4 I.R.B.424
2011-5, 2011-4 I.R.B.430
2011-6, 2011-4 I.R.B.433
2011-7, 2011-5 I.R.B.446
2011-8, 2011-5 I.R.B.446
2011-9, 2011-7 I.R.B.499
2011-10, 2011-7 I.R.B.499
2011-11, 2011-7 I.R.B.500
2011-12, 2011-9 I.R.B.532
2011-13, 2011-8 I.R.B.525
2011-14, 2011-9 I.R.B.532
2011-15, 2011-8 I.R.B.526
2011-16, 2011-7 I.R.B.500
2011-17, 2011-9 I.R.B.532
2011-18, 2011-12 I.R.B.567
2011-19, 2011-11 I.R.B.553
2011-20, 2011-10 I.R.B.542
2011-21, 2011-12 I.R.B.567
2011-22, 2011-16 I.R.B.672
2011-23, 2011-12 I.R.B.568
2011-24, 2011-12 I.R.B.569
2011-25, 2011-14 I.R.B.608
2011-26, 2011-14 I.R.B.608
2011-27, 2011-15 I.R.B.651
2011-28, 2011-18 I.R.B.748
2011-29, 2011-18 I.R.B.748
Notices:
2011-1, 2011-2 I.R.B.259
2011-2, 2011-2 I.R.B.260
2011-3, 2011-2 I.R.B.263
2011-4, 2011-2 I.R.B.282
2011-5, 2011-3 I.R.B.314
2011-6, 2011-3 I.R.B.315
2011-7, 2011-5 I.R.B.437
2011-8, 2011-8 I.R.B.503
2011-9, 2011-6 I.R.B.459
2011-10, 2011-6 I.R.B.463
2011-11, 2011-7 I.R.B.497
2011-12, 2011-8 I.R.B.514
2011-13, 2011-9 I.R.B.529
2011-14, 2011-11 I.R.B.544
2011-15, 2011-10 I.R.B.539
2011-16, 2011-17 I.R.B.720
2011-17, 2011-10 I.R.B.540
2011-18, 2011-11 I.R.B.549
2011-19, 2011-11 I.R.B.550
2011-20, 2011-16 I.R.B.652
Notices— Continued:
2011-21, 2011-19 I.R.B.761
2011-22, 2011-12 I.R.B.557
2011-23, 2011-13 I.R.B.588
2011-24, 2011-14 I.R.B.603
2011-25, 2011-14 I.R.B.604
2011-26, 2011-17 I.R.B.720
2011-27, 2011-17 I.R.B.723
2011-28, 2011-16 I.R.B.656
2011-29, 2011-16 I.R.B.663
2011-30, 2011-17 I.R.B.724
2011-31, 2011-17 I.R.B.724
2011-32, 2011-18 I.R.B.737
2011-33, 2011-19 I.R.B.761
2011-34, 2011-19 I.R.B.765
Proposed Regulations:
REG-140108-08, 2011-13 I.R.B.591
REG-149335-08, 2011-6 I.R.B.468
REG-146097-09, 2011-8 I.R.B.516
REG-153338-09, 2011-14 I.R.B.606
REG-154159-09, 2011-19 I.R.B.777
REG-124018-10, 2011-2 I.R.B.301
REG-131151-10, 2011-8 I.R.B.519
REG-131947-10, 2011-8 I.R.B.521
REG-132724-10, 2011-7 I.R.B.498
Revenue Procedures:
2011-1, 2011-1 I.R.B.1
2011-2, 2011-1 I.R.B.90
2011-3, 2011-1 I.R.B.111
2011-4, 2011-1 I.R.B.123
2011-5, 2011-1 I.R.B.167
2011-6, 2011-1 I.R.B.195
2011-7, 2011-1 I.R.B.233
2011-8, 2011-1 I.R.B.237
2011-9, 2011-2 I.R.B.283
2011-10, 2011-2 I.R.B.294
2011-11, 2011-4 I.R.B.329
2011-12, 2011-2 I.R.B.297
2011-13, 2011-3 I.R.B.318
2011-14, 2011-4 I.R.B.330
2011-15, 2011-3 I.R.B.322
2011-16, 2011-5 I.R.B.440
2011-17, 2011-5 I.R.B.441
2011-18, 2011-5 I.R.B.443
2011-19, 2011-6 I.R.B.465
2011-20, 2011-11 I.R.B.551
2011-21, 2011-12 I.R.B.560
2011-22, 2011-18 I.R.B.737
2011-23, 2011-15 I.R.B.626
2011-25, 2011-17 I.R.B.725
2011-26, 2011-16 I.R.B.664
2011-27, 2011-18 I.R.B.740
2011-28, 2011-18 I.R.B.743
2011-29, 2011-18 I.R.B.746
Revenue Rulings:
2011-1, 2011-2 I.R.B.251
2011-2, 2011-2 I.R.B.256
2011-3, 2011-4 I.R.B.326
2011-4, 2011-6 I.R.B.448
2011-5, 2011-13 I.R.B.577
2011-6, 2011-10 I.R.B.537
2011-7, 2011-10 I.R.B.534
2011-8, 2011-12 I.R.B.554
2011-9, 2011-12 I.R.B.554
2011-10, 2011-14 I.R.B.597
2011-11, 2011-19 I.R.B.758
Treasury Decisions:
9507, 2011-3 I.R.B.305
9508, 2011-7 I.R.B.495
9509, 2011-6 I.R.B.450
9510, 2011-6 I.R.B.453
9511, 2011-6 I.R.B.455
9512, 2011-7 I.R.B.473
9513, 2011-8 I.R.B.501
9514, 2011-9 I.R.B.527
9515, 2011-14 I.R.B.599
9516, 2011-13 I.R.B.575
9517, 2011-15 I.R.B.610
9518, 2011-17 I.R.B.710
9519, 2011-18 I.R.B.734
9520, 2011-18 I.R.B.730
9521, 2011-19 I.R.B.750
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2010–27 through 2010–52 is in Internal Revenue Bulletin
2010–52, dated December 27, 2010.
May 9, 2011ii2011–19 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletin 2011–1 through 2011–19
Announcements:
85-88
Obsoleted by
Rev. Proc. 2011-10, 2011-2 I.R.B.294
2008-11
Modified by
Ann. 2011-6, 2011-4 I.R.B.433
2009-62
Obsoleted by
Rev. Proc. 2011-10, 2011-2 I.R.B.294
Notices:
2006-87
Superseded by
Notice 2011-8, 2011-8 I.R.B.503
2007-25
Superseded by
Notice 2011-8, 2011-8 I.R.B.503
2007-77
Superseded by
Notice 2011-8, 2011-8 I.R.B.503
2008-107
Superseded by
Notice 2011-8, 2011-8 I.R.B.503
2009-23
Modified by
Notice 2011-24, 2011-14 I.R.B.603
2009-24
Modified by
Notice 2011-24, 2011-14 I.R.B.603
2009-83
Modified by
Notice 2011-25, 2011-14 I.R.B.604
2010-27
Superseded by
Notice 2011-8, 2011-8 I.R.B.503
2010-59
Modified by
Notice 2011-5, 2011-3 I.R.B.314
2010-60
Supplemented and superseded by
Notice 2011-34, 2011-19 I.R.B.765
2010-71
Modified and superseded by
Notice 2011-9, 2011-6 I.R.B.459
Notices— Continued:
2010-79
Clarified and modified by
Notice 2011-4, 2011-2 I.R.B.282
Proposed Regulations:
REG-132554-08
Corrected by
Ann. 2011-11, 2011-7 I.R.B.500
REG-149335-08
Hearing scheduled by
Ann. 2011-26, 2011-14 I.R.B.608
Revenue Procedures:
72-50
Modified and superseded by
Rev. Proc. 2011-10, 2011-2 I.R.B.294
76-34
Modified and supersed by
Rev. Proc. 2011-10, 2011-2 I.R.B.294
83-23
Modified and superseded by
Rev. Proc. 2011-15, 2011-3 I.R.B.322
94-17
Modified and superseded by
Rev. Proc. 2011-15, 2011-3 I.R.B.322
97-27
Clarified and modified by
Rev. Proc. 2011-14, 2011-4 I.R.B.330
2001-10
Modified by
Rev. Proc. 2011-14, 2011-4 I.R.B.330
2002-28
Modified by
Rev. Proc. 2011-14, 2011-4 I.R.B.330
2003-21
Modified and superseded by
Rev. Proc. 2011-15, 2011-3 I.R.B.322
2004-34
Modified by
Rev. Proc. 2011-14, 2011-4 I.R.B.330
Modified and clarified by
Rev. Proc. 2011-18, 2011-5 I.R.B.443
2006-44
Modified by
Ann. 2011-6, 2011-4 I.R.B.433
2006-56
Modified by
Rev. Proc. 2011-14, 2011-4 I.R.B.330
Revenue Procedures— Continued:
2008-52
Modified by
Notice 2011-4, 2011-2 I.R.B.282
Rev. Proc. 2011-17, 2011-5 I.R.B.441
Superseded in part by
Rev. Proc. 2011-14, 2011-4 I.R.B.330
2009-39
Superseded in part by
Rev. Proc. 2011-14, 2011-4 I.R.B.330
2009-44
Modified by
Ann. 2011-6, 2011-4 I.R.B.433
2010-1
Superseded by
Rev. Proc. 2011-1, 2011-1 I.R.B.1
2010-2
Superseded by
Rev. Proc. 2011-2, 2011-1 I.R.B.90
2010-3
Superseded by
Rev. Proc. 2011-3, 2011-1 I.R.B.111
2010-4
Superseded by
Rev. Proc. 2011-4, 2011-1 I.R.B.123
2010-5
Superseded by
Rev. Proc. 2011-5, 2011-1 I.R.B.167
2010-6
Superseded by
Rev. Proc. 2011-6, 2011-1 I.R.B.195
2010-7
Superseded by
Rev. Proc. 2011-7, 2011-1 I.R.B.233
2010-8
Superseded by
Rev. Proc. 2011-8, 2011-1 I.R.B.237
2010-9
Superseded by
Rev. Proc. 2011-9, 2011-2 I.R.B.283
2010-15
Updated by
Rev. Proc. 2011-13, 2011-3 I.R.B.318
2010-18
Amplified and modified by
Rev. Proc. 2011-21, 2011-12 I.R.B.560
2010-25
Obsoleted in part by
Rev. Proc. 2011-23, 2011-15 I.R.B.626
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2010–27 through 2010–52 is in Internal Revenue Bulletin 2010–52, dated December 27,
2010.
2011–19 I.R.B.iiiMay 9, 2011

Revenue Procedures— Continued:
2011-1
Corrected by
Ann. 2011-7, 2011-5 I.R.B.446
2011-8
Corrected by
Ann. 2011-8, 2011-5 I.R.B.446
2011-11
Corrected by
Ann. 2011-9, 2011-7 I.R.B.499
2011-14
Modified by
Rev. Proc. 2011-27, 2011-18 I.R.B.740
Rev. Proc. 2011-28, 2011-18 I.R.B.743
Modified and amplified by
Rev. Proc. 2011-22, 2011-18 I.R.B.737
2011-21
Amplified by
Rev. Proc. 2011-26, 2011-16 I.R.B.664
Revenue Rulings:
81-100
Modified by
Rev. Rul. 2011-1, 2011-2 I.R.B.251
2004-67
Modified by
Rev. Rul. 2011-1, 2011-2 I.R.B.251
2008-40
Modified by
Rev. Rul. 2011-1, 2011-2 I.R.B.251
2011-3
Corrected by
Ann. 2011-16, 2011-7 I.R.B.500
Treasury Decisions:
9391
Corrected by
Ann. 2011-12, 2011-9 I.R.B.532
9505
Corrected by
Ann. 2011-10, 2011-7 I.R.B.499
May 9, 2011iv2011–19 I.R.B.

2011–19 I.R.B.May 9, 2011

May 9, 20112011–19 I.R.B.

INTERNAL REVENUE BULLETIN
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