Internal Revenue Bulletin 2008-14 (PDF rendition): IRS Revenue Rulings

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

Bulletin No. 200
8-14
April 7, 2008
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Rev. Rul. 2008–20, page 716.
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 April 2008.
T.D. 9378, page 720.
Final regulations under section 6325 of the Code outline spe-
cific procedures for obtaining a release of a federal tax lien or a
discharge of a federal tax lien from property to which it has at-
tached. The regulations incorporate changes to the Code that
were made by the IRS Restructuring and Reform Act of 1998,
which afford a means for a person whose property is encum-
bered by a federal tax lien, but who does not owe the tax giving
rise to the lien, to have his property discharged from the lien.
T.D. 9379, page 715.
REG–153589–06, page 730.
Temporary and proposed regulations under section 1221 of
theCodeprovidethetimeandmannerformakinganelection
to treat the sale or exchange of musical compositions or copy-
rights in musical works created by the taxpayer as the sale or
exchange of a capital asset.
T.D. 9381, page 694.
Final regulations under section 199 of the Code concern the
amendments made by the Tax Increase Prevention and Recon-
ciliation Act of 2005 (TIPRA) to section 199, which provides a
deduction for income attributable to domestic production ac-
tivities.
Notice 2008–40, page 725.
Amplification of Notice 2006–52; Deduction for Energy
Efficient Commercial Buildings.This notice sets forth ad-
ditional guidance relating to the deduction for energy efficient
commercial buildings under section 179D of the Code and is
intended to be used with Notice 2006–52. Several aspects of
the deduction for energy efficient commercial buildings were
not addressed in Notice 2006–52. This notice addresses
some of these items including the allocation of the section
179D deduction to designers of government owned buildings,
certification requirements for the interim lighting rule, and the
application of the interim lighting rule to unconditioned garage
space. Notice 2006–52 clarified and amplified.
Announcement 2008–25, page 732.
This document withdraws a portion of proposed regulations
(REG–107592–00, 2007–44 I.R.B. 908) under the consoli-
dated return regulations. The withdrawn portion relates to the
treatment of transactions involving the provision of insurance
between members of a consolidated group.
EMPLOYEE PLANS
Announcement 2008–23, page 731.
Pre-approved defined contribution master and prototype
and volume submitter plans; issuance of EGTRRA opin-
ion and advisory letters.This announcement states that the
Service will soon issue opinion and advisory letters for pre-ap-
proved,i.e., master and prototype and volume submitter de-
fined contribution plans that were timely filed with the Service
to comply with the Economic Growth and Tax Relief Reconcili-
ation Act of 2001 (EGTRRA), and other changes in plan quali-
fication requirements listed in Notice 2004–84, 2004–2 C.B.
1030.
(Continued on the next page)
Finding Lists begin on page ii.

EXEMPT ORGANIZATIONS
Announcement 2008–28, page 733.
A list is provided of organizations now classified as private foun-
dations.
ADMINISTRATIVE
T.D. 9380, page 718.
Final regulations under section 6020 of the Code relate to re-
turns prepared or signed by the Commissioner or other In-
ternal Revenue Officers or employees. The regulations pro-
vide guidance for preparing a substitute for return under sec-
tion 6020(b). Absent the existence of a return under section
6020(b), the addition to tax under section 6651(a)(2) does not
apply to a nonfiler. The regulations affect any person who fails
to file a required return.
Announcement 2008–25, page 732.
This document withdraws a portion of proposed regulations
(REG–107592–00, 2007–44 I.R.B. 908) under the consoli-
dated return regulations. The withdrawn portion relates to the
treatment of transactions involving the provision of insurance
between members of a consolidated group.
April 7, 20082008–14 I.R.B.

The IRS Mission
Provide Americ
a’s taxpayers top quality service by helping them
understand an
d meet their tax responsibilities and by applying
the tax law with
integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Secre-
tary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
2008–14 I.R.B.April 7, 2008

April 7, 20082008–14 I.R.B.
Place missing child here.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 42.—L
ow-Income
Housing Credi
t
The adjusted a
pplicable federal short-term, mid-
term, and long
-term rates are set forth for the month
of April 2008.
See Rev. Rul. 2008-20, page 716.
Section 199.—Income
Attributable to Domestic
Production Activities
26 CFR 1.199–3: Domestic production gross re-
ceipts.
T.D. 9381
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
TIPRA Amendments to Section
199
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains final
regulations concerning the amendments
made by the Tax Increase Prevention and
Reconciliation Act of 2005 to section 199
of the Internal Revenue Code. The final
regulations also contain a rule concerning
the use of losses incurred by members of
an expanded affiliated group. Section 199
provides a deduction for income attribut-
able to domestic production activities. The
final regulations affect taxpayers engaged
in certain domestic production activities.
DATES:Effective Date:These regulations
are effective on February 15, 2008.
Applicability Date:For dates of appli-
cability, see §1.199–8(i)(5) and (6).
FOR
FURTHER INFORMATION
CON
TACT: Concerning §§1.199–2(e)(2)
and
1.199–8(i)(5), Paul Handleman or
Dav
id McDonnell, (202) 622–3040;
co
ncerning§§1.199–3(i)(7)and
(8
), and 1.199–5, William Kostak,
(202) 622–306
0; and concerning
§§1.199–7(b)
(4) and 1.199–8(i)(6),
Ken Cohen, (20
2) 622–7790 (not toll-free
numbers).
SUPPLEMENTA
RY INFORMATION:
Background
This document
provides rules relating
to the deduct
ion for income attributable
to domestic p
roduction activities under
section 199 o
f the Internal Revenue Code
(Code). Sec
tion 199 was added to the
Code by sect
ion 102 of the American
Jobs Creati
on Act of 2004 (Public Law
108–357, 11
8 Stat. 1418), and amended
by section 4
03(a) of the Gulf Opportunity
Zone Act of
2005 (Public Law 109–135,
119 Stat. 2
5), section 514 of the Tax
Increase P
revention and Reconciliation
Act of 2005
(Public Law 109–222, 120
Stat. 345)
(TIPRA), and section 401 of
the Tax Re
lief and Health Care Act of
2006 (Pub
lic Law 109–432, 120 Stat.
2922). On
June 1, 2006, the IRS and
Treasury
Department published final reg-
ulation
s under section 199 (T.D. 9263,
2006–1 C
.B. 1063 [71 FR 31268]). On
October
19, 2006, the IRS and Treasury
Departm
ent published final and temporary
regulat
ions on the TIPRA amendments
to sect
ion 199 (T.D. 9293, 2006–2 C.B.
957 [71
FR 61662]) and cross-referencing
propos
ed regulations (REG–127819–06,
2006–2
C.B. 1013 [71 FR 61692]). No
public
hearing was requested or held on
the pro
posed regulations. One comment
respo
nding to the proposed regulations
was re
ceived. After consideration of the
comme
nt, the proposed regulations are
adopt
ed as amended by this Treasury de-
cisio
n and the corresponding temporary
regu
lations are removed.
Gene
ral Overview
Sect
ion 199(a)(1) allows a deduction
equa
l to 9 percent (3 percent in the case of
taxa
ble years beginning in 2005 or 2006,
and 6
percent in the case of taxable years
begi
nning in 2007, 2008, or 2009) of the
less
er of (A) the qualified production ac-
tiv
ities income (QPAI) of the taxpayer for
the taxable ye
ar, or (B) taxable income (de-
termined with
out regard to section 199) for
the taxable ye
ar (or, in the case of an indi-
vidual, adju
sted gross income (AGI)).
Section 199(b
)(1) limits the deduction
for a taxable
year to 50 percent of the W–2
wages paid by
the taxpayer during the cal-
endar year th
at ends in such taxable year.
For this purp
ose, section 199(b)(2)(A) de-
fines the te
rmW–2 wagesto mean, with
respect to a
ny person for any taxable year
of such pers
on, the sum of the amounts de-
scribed in s
ection 6051(a)(3) and (8) paid
by such per
son with respect to employ-
ment of emp
loyees by such person during
the calend
ar year ending during such tax-
able year.
Section514(a)ofTIPRAadded
new sectio
n 199(b)(2)(B), which provides
that the t
ermW–2 wagesdoes not in-
clude any
amount which is not properly
allocabl
e to domestic production gross
receipts
(DPGR) for purposes of section
199(c)(1
). Section 199(b)(2)(C) provides
that the
termW–2 wagesdoes not include
any amou
nt that is not properly included
in a retu
rn filed with the Social Security
Adminis
tration on or before the 60th day
after t
he due date (including extensions)
for the
return.
Pass-t
hru Entities
Sectio
n 199(d)(1)(A) provides that, in
the cas
e of a partnership or S corpora-
tion, (
i) section 199 shall be applied at the
partne
r or shareholder level, (ii) each part-
ner or s
hareholder shall take into account
such p
erson’s allocable share of each item
descr
ibed in section 199(c)(1)(A) or (B)
(dete
rmined without regard to whether the
items
described in section 199(c)(1)(A)
excee
d the items described in section
199(
c)(1)(B)), and (iii) each partner or
shar
eholder shall be treated for purposes
of se
ction 199(b) as having W–2 wages
for t
he taxable year in an amount equal to
such
person’s allocable share of the W–2
wag
es of the partnership or S corporation
for
the taxable year (as determined under
reg
ulations prescribedby the Secretary).
Sec
tion 199(d)(1)(B) provides that, in
the
case of a trust or estate, (i) the items
ref
erred to in section 199(d)(1)(A)(ii) (as
det
ermined therein) and the W–2 wages
2008–14 I.R.B.694April 7, 2008

of the trust or estate for the taxable year
shall be apportioned between the benefi-
ciaries and the fiduciary (and among the
beneficiaries) under regulations prescribed
by the Secretary, and (ii) for purposes of
section 199(d)(2), AGI of the trust or es-
tate shall be determined as provided in sec-
tion 67(e) with the adjustments described
in such section.
Section 199(d)(1)(C) provides that the
Secretary may prescribe rules requiring
or restricting the allocation of items and
wages under section 199(d)(1) and may
prescribe such reporting requirements as
the Secretary determines appropriate.
Expanded Affiliated Groups
Section 199(d)(4)(A) provides that all
members of an expanded affiliated group
(EAG) are treated as a single corpora-
tion for purposes of section 199. Section
199(d)(4)(B) provides that an EAG is
an affiliated group as defined in section
1504(a), determined by substituting “more
than 50 percent” for “at least 80 percent”
each place it appears and without regard
to section 1504(b)(2) and (4).
Authority to Prescribe Regulations
Section 199(d)(9) authorizes the Secre-
tary to prescribe such regulations as are
necessary to carry out the purposes of sec-
tion 199, including regulations that pre-
vent more than one taxpayer from being al-
lowed a deduction under section 199 with
respect to any activity described in section
199(c)(4)(A)(i).
Summary of Comments
For taxable years beginning after May
17, 2006, §1.199–2T(e)(2)(i) provides that
the termW–2 wagesincludes only amounts
described in §1.199–2(e)(1) (paragraph
(e)(1) wages) that are properly allocable
to DPGR (as defined in §1.199–3) for
purposes of section 199(c)(1). A taxpayer
may determine the amount of paragraph
(e)(1) wages that is properly allocable to
DPGR using any reasonable method that
is satisfactory to the Secretary based on all
of the facts and circumstances.
Section 1.199–2T(e)(2)(ii) and (iii)
provide safe harbors for determining
the amount of paragraph (e)(1) wages
that is properly allocable to DPGR. Un-
der the wage expense safe harbor in
§1.199–2T(e)(2)(ii)(A) for taxpayers us-
ing either the section 861 method of cost
allocation under §1.199–4(d) or the simpli-
fied deduction method under §1.199–4(e),
a taxpayer may determine the amount of
paragraph (e)(1) wages that is properly
allocable to DPGR by multiplying the
amount of paragraph (e)(1) wages by the
ratio of the taxpayer’s wage expense in-
cluded in calculating QPAI for the taxable
year to the taxpayer’s total wage expense
used in calculating the taxpayer’s taxable
income (or AGI, if applicable) for the
taxable year. For purposes of determining
the amount of wage expense included in
cost of goods sold (CGS) for this safe
harbor, §1.199–2T(e)(2)(ii)(B) provides
that a taxpayer may determine its wage
expense included in CGS using any rea-
sonable method that is satisfactory to the
Secretary based on all of the facts and
circumstances.
Under the wage expense safe harbor in
§1.199–2T(e)(2)(ii)(A), a taxpayer uses
its wage expense, not W–2 wages, to de-
termine the amount of W–2 wages that
are properly allocable to DPGR. Section
1.199–2T(e)(2)(ii)(A) defines the term
wage expenseas wages (that is, com-
pensation paid by the employer in the
active conduct of a trade or business to
its employees) that are properly taken into
account under the taxpayer’s method of
accounting.
The commentator suggested that, in
certain circumstances, it should not be
necessary for W–2 wages to be paid by
a taxpayer in order for those wages to
be properly allocable to DPGR. Specif-
ically, the commentator suggested that
W–2 wages should be treated as properly
allocable to DPGR ifthe wages are paid
to employees that are performing services
in connection with an activity attributable
to DPGR. Thus, in the case of partner-
ship-shared services, if the employees of
one partnership perform services that give
rise to DPGR for another partnership and
both partnerships have common owner-
ship, then some or all of the W–2 wages
should be treated as properly allocable
to DPGR. The commentator further sug-
gested that W–2 wages should be properly
allocable to DPGR as long as the owner
of the pass-thru entity includes in its tax-
able income DPGR (as a distributive share
of another pass-thru entity’s DPGR) and
deducts from its taxable income wages
paid to employees (those employed by the
pass-thru entity) whose services created
that DPGR.
As an alternative, the commentator
suggested that owners of certain pass-thru
entities be permitted to treat non-DPGR
as DPGR for purposes of determining
whether W–2 wages are properly allocable
to DPGR. The commentator suggested that
the activity attribution rules for qualifying
in-kind partnerships in §1.199–3T(i)(7)(i),
EAG partnerships in §1.199–3T(i)(8)(ii),
and EAGs in §1.199–7(a)(3) be extended
to pass-thru entities with respect to gross
receipts attributable to services performed
by employees of a pass-thru entity if such
gross receipts are taken into account as an
item of income on a tax return in which
the DPGR attributable to those services
also is reported. The commentator be-
lieves the result of such a rule would be
to recharacterize non-DPGR as DPGR if
the activities giving rise to the employee
wages contribute to generating DPGR that
is reported on the same tax return as the
wage deduction. Therefore, the pass-thru
entity with the employees would be treated
as engaged in a qualifying production
activity to the extent of the W–2 wages
and the W–2 wages would be treated as
properly allocable to DPGR.
The interplay between the TIPRA
amendment to section 199(b)(2) and the
rules for qualifying in-kind partnerships
under §1.199–3T(i)(7), EAG partnerships
under §1.199–3T(i)(8), and EAGs under
§1.199–7 may reduce or eliminate the sec-
tion 199 deduction for EAGs and partners
in qualifying in-kind partnerships if one
entity uses employees of another entity to
perform activities giving rise to DPGR.
In addition, even though §1.199–3(f) pro-
vides rules for contract manufacturing
and certain government contracts, the
TIPRA amendment to section 199(b)(2)
may reduce or eliminate the section 199
deduction for taxpayers entering into such
contracts because the contract manufac-
turer’s W–2 wages are not attributed to the
taxpayer.
The commentator’s suggestions would
treat pass-thru entities more favorably
than non-consolidated EAGs. In general,
§1.199–7(a) and (b)provides that each
member of an EAG calculates its own
taxable income or loss, QPAI, and W–2
wages, which are then aggregated in deter-
mining the EAG’s section 199 deduction.
April 7, 20086952008–14 I.R.B.

After the TIPRA amendment to section
199(b)(2), to qualify as W–2 wages within
the meaning of §1.199–2T(e)(2), para-
graph (e)(1) wages must be properly allo-
cable to DPGR. Because each member of
an EAG separately calculates its own items
before they are aggregated by the EAG,
the member having the paragraph (e)(1)
wages must itself have DPGR to which the
wages are properly allocable in order to
qualify those wages as W–2 wages. Para-
graph (e)(1) wages that are not properly
allocable to DPGR of the member having
the paragraph (e)(1) wages do not qual-
ify as W–2 wages, even if the paragraph
(e)(1) wages were paid in connection with
another member’s DPGR activities.Ex-
ample 5in §1.199–2T(e)(2)(iv) illustrates
this point.
Section 514(b) of TIPRA amended sec-
tion 199(d)(1)(A)(iii) regarding a partner’s
or shareholder’s share of W–2 wages from
a partnership or S corporation for taxable
years beginning after May 17, 2006. Af-
ter TIPRA, the section 199(d)(1)(A)(iii)
rule for determining a partner’s or share-
holder’s share of W–2 wages from a
pass-thru entity no longer includes the
second prong of the former two-prong
standard, by which a partner’s or share-
holder’s share of W–2 wages from the
partnership or S corporation was limited
to the lesser of that person’s allocable
share of W–2 wages from the entity or a
specified percentage of the person’s QPAI,
computed by taking into account only the
items of the entity allocated to that person
for the taxable year of the entity. Before
TIPRA, if the employees of a partner-
ship performed services that gave rise to
DPGR for another entity, but the partner-
ship had no DPGR, then under the section
199(d)(1)(A)(iii) wage limitation, a part-
ner could not take into account any W–2
wages from the partnership. After TIPRA,
if the partner uses the section 861 method
of cost allocation under §1.199–4(d), the
partner cannot take into account any W–2
wages from the partnership because the
W–2 wages do not generate DPGR in the
partnership. Thus, in the case of part-
nership-shared services where the partner
uses the section 861 method, the TIPRA
amendment to section199(b)(2) retains
the result that the partner cannot take into
account any W–2 wages from the partner-
ship in applying the wage limitation under
section 199(b)(1).
Moreover, the TIPRA amendment
modified the W–2 wage limitation to nar-
row the availability of the section 199
deduction. The commentator’s sugges-
tions would allow more taxpayers to claim
the section 199 deduction and increase
the amount of the deduction for some tax-
payers, which conflicts with the changes
made by TIPRA. Accordingly, the final
regulations do not adopt the commenta-
tor’s suggestions.
In finalizing §1.199–5, certain clari-
fying changes have been made and con-
forming clarifications have been made to
§1.199–9.
As described in the preamble to the
final and temporary regulations on the
TIPRA amendments to section 199, pub-
lished on October 19, 2006 (T.D. 9293, 71
FR 61662), the combination of the aggre-
gation rules for determining the taxable
income of an EAG in §1.199–7(b)(1) of
the June 1, 2006 final regulations (T.D.
9263, 71 FR 31268) and the rules of sec-
tion 172 for net operating loss deductions
could cause the unintended result of the
same loss being used twice in determin-
ing the taxable income limitation under
section 199(a)(1)(B). To eliminate this
unintended result, §1.199–7T(b)(4) was
promulgated to prevent a loss that was
used in the year it was sustained in de-
termining any EAG’s taxable income for
purposes of the taxable income limitation
under section 199(a)(1)(B) from being
used again as either a carryover or carry-
back to any taxable year in determining the
taxable income limitation under section
199(a)(1)(B). No comments were received
on the provisions of §1.199–7T(b)(4) and
those provisions are finalized without
change.
Effective/Applicability Dates
Section 199 applies to taxable years
beginning after December 31, 2004. Sec-
tions 1.199–2(e)(2), 1.199–3(i)(7) and
(8), and 1.199–5 are applicable for tax-
able years beginning on or after October
19, 2006 (the effective date of the tem-
porary regulations). A taxpayer may
apply §§1.199–2(e)(2), 1.199–3(i)(7) and
(8), and 1.199–5 to taxable years be-
ginning after May 17, 2006, and before
October 19, 2006, regardless of whether
the taxpayer otherwise relied upon No-
tice 2005–14, 2005–1 C.B. 498 (see
§601.601(d)(2)(ii)(b)), the provisions of
REG–105847–05, 2005–2 C.B. 987, or
§§1.199–1 through 1.199–8. Section
1.199–7(b)(4) is applicable for taxable
years beginning on orafter February 15,
2008.
Special Analyses
It has been determined that this Trea-
sury decision is not asignificant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It also has been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does
not apply to this regulation, and because
the regulation does not impose a collection
of information on small entities, the Regu-
latory Flexibility Act (5 U.S.C. chapter 6)
does not apply. Pursuant to section 7805(f)
of the Code, the notice of proposed rule-
making preceding this regulation has been
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administration
for comment on its impact on small busi-
ness.
Drafting Information
The principal authors of these reg-
ulations are Paul Handleman and
Lauren Ross Taylor, Office of the
Associate Chief Counsel (Passthroughs
and Special Industries), IRS. However,
other personnel from the IRS and
Treasury Department participated in their
development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.199–0 is amended
by adding new entries for §§1.199–2(e)(2),
1.199–3(i)(7), 1.199–3(i)(8), 1.199–5, and
1.199–7(b)(4) to read as follows:
§1.199–0 Table of contents.
*****
2008–14 I.R.B.696April 7, 2008

§1.199–2 Wage limitation.
*****
(e) * * *
(2) Limitation on W–2 wages for tax-
able years beginningafter May 17, 2006,
the enactment date of the Tax Increase Pre-
vention and Reconciliation Act of 2005.
(i) In general.
(ii) Wage expense safe harbor.
(A) In general.
(B) Wage expense included in cost of
goods sold.
(iii) Small business simplified overall
method safe harbor.
(iv) Examples.
*****
§1.199–3 Domestic production gross
receipts.
*****
(i) * * *
(7) Qualifying in-kind partnership for
taxable years beginning after May 17,
2006, the enactment date of the Tax In-
crease Prevention and Reconciliation Act
of 2005.
(i) In general.
(ii) Definition of qualifying in-kind
partnership.
(iii) Other rules.
(iv) Example.
(8) Partnerships owned by members of
a single expanded affiliated group for tax-
able years beginningafter May 17, 2006,
the enactment date of the Tax Increase Pre-
vention and Reconciliation Act of 2005.
(i) In general.
(ii) Attribution of activities.
(A) In general.
(B) Attribution between EAG partner-
ships.
(C) Exceptions to attribution.
(iii) Other rules.
(iv) Examples.
*****
§1.199–5 Application of section 199
to pass-thru entities for taxable years
beginning after May 17, 2006, the
enactment date of the Tax Increase
Prevention and Reconciliation Act of
2005.
(a) In general.
(b) Partnerships.
(1) In general.
(i) Determination at partner level.
(ii) Determination at entity level.
(2) Disallowed losses or deductions.
(3) Partner’s share of paragraph (e)(1)
wages.
(4) Transition rule for definition of W–2
wages and for W–2 wage limitation.
(5) Partnerships electing out of sub-
chapter K.
(6) Examples.
(c) S corporations.
(1) In general.
(i) Determination at shareholder level.
(ii) Determination at entity level.
(2) Disallowed losses and deductions.
(3) Shareholder’s share of paragraph
(e)(1) wages.
(4) Transition rule for definition of W–2
wages and for W–2 wage limitation.
(d) Grantor trusts.
(e) Non-grantor trusts and estates.
(1) Allocation of costs.
(2) Allocation among trust or estate and
beneficiaries.
(i) In general.
(ii) Treatment of items from a trust or
estate reporting qualified production activ-
ities income.
(3) Transition rule for definition of W–2
wages and for W–2 wage limitation.
(4) Example.
(f) Gain or loss from the disposition of
an interest in a pass-thru entity.
(g) No attribution of qualified activities.
*****
§1.199–7 Expanded affiliated groups.
*****
(b) * * *
(4) Losses used to reduce taxable in-
come of expanded affiliated group.
(i) In general.
(ii) Examples.
*****
§1.199–8 Other rules.
*****
(i) * * *
(5) Tax Increase Prevention and Recon-
ciliation Act of 2005.
(6) Losses used to reduce taxable in-
come of expanded affiliated group.
*****
§1.199–1 [Amended]
Par. 3. Section 1.199–1 is amended by
removing the language “§1.199–9(d)” in
paragraphs (d)(3)(i) and (ii) and adding the
language “§1.199–5(d) or §1.199–9(d)” in
its place.
Par. 4. Section 1.199–2 is amended
by revising paragraph (e)(2) to read as fol-
lows:
§1.199–2 Wage limitation.
*****
(e) * * *
(2)Limitation on W–2 wages for tax-
able years beginning after May 17, 2006,
the enactment date of the Tax Increase
Prevention and Reconciliation Act of
2005—(i)In general.ThetermW–2
wagesincludes only amounts described in
paragraph (e)(1) of this section (paragraph
(e)(1) wages) that are properly alloca-
ble to domestic production gross receipts
(DPGR) (as defined in §1.199–3) for pur-
poses of section 199(c)(1). A taxpayer
may determine the amount of paragraph
(e)(1) wages that is properly allocable to
DPGR using any reasonable method that
is satisfactory to the Secretary based on all
of the facts and circumstances.
(ii)Wage expense safe harbor—(A)In
general. A taxpayer using either the sec-
tion 861 method of cost allocation under
§1.199–4(d) or the simplified deduction
method under §1.199–4(e) may determine
the amount of paragraph (e)(1) wages that
is properly allocable to DPGR for a taxable
year by multiplying the amount of para-
graph (e)(1) wages for the taxable year by
the ratio of the taxpayer’s wage expense
included in calculating qualified produc-
tion activities income (QPAI) (as defined
in §1.199–1(c)) for the taxable year to the
taxpayer’s total wage expense used in cal-
culating the taxpayer’s taxable income (or
adjusted gross income, if applicable) for
the taxable year, without regard to any
wage expense disallowed by section 465,
469, 704(d), or 1366(d). A taxpayer that
uses the section 861 method of cost al-
location under §1.199–4(d) or the simpli-
fied deduction method under §1.199–4(e)
to determine QPAI must use the same ex-
pense allocation and apportionment meth-
ods that it uses to determine QPAI to allo-
cate and apportion wage expense for pur-
poses of this safe harbor. For purposes of
April 7, 20086972008–14 I.R.B.

this paragraph (e)(2)(ii), the termwage ex-
pensemeans wages (that is, compensation
paid by the employer in the active conduct
of a trade or business to its employees) that
are properly takeninto account under the
taxpayer’s method of accounting.
(B)Wage expense included in cost of
goods sold. For purposes of paragraph
(e)(2)(ii)(A) of this section, a taxpayer may
determine its wage expense included in
cost of goods sold (CGS) using any rea-
sonable method that is satisfactory to the
Secretary based on all of the facts and
circumstances, such as using the amount
of direct labor included in CGS or using
section 263A labor costs (as defined in
§1.263A–1(h)(4)(ii)) included in CGS.
(iii)Small business simplified over-
all method safe harbor. A taxpayer that
uses the small business simplified overall
method under §1.199–4(f) may use the
small business simplified overall method
safe harbor for determining the amount
of paragraph (e)(1) wages that is properly
allocable to DPGR. Under this safe harbor,
the amount of paragraph (e)(1) wages that
is properly allocable to DPGR is equal to
the same proportion of paragraph (e)(1)
wages that the amount of DPGR bears to
the taxpayer’s total gross receipts.
(iv)Examples. The following examples
illustrate the application of this paragraph
(e)(2). See §1.199–5(e)(4) for an example
of the application of paragraph (e)(2)(ii)
of this section to a trust or estate. The
examples read as follows:
Example 1.Section 861 method and no EAG.(i)
Facts. X, a United States corporation that is not a
member of an expanded affiliated group (EAG) (as
defined in §1.199–7) or an affiliated group as de-
fined in the regulations under section 861, engages in
activities that generate both DPGR and non-DPGR.
X’s taxable year ends on April 30, 2011. For X’s
taxable year ending April 30, 2011, X has $3,000
of paragraph (e)(1) wages reported on 2010 Forms
W–2. All of X’s production activities that gener-
ate DPGR are within Standard Industrial Classifica-
tion (SIC) Industry Group AAA (SIC AAA). All of
X’s production activities that generate non-DPGR are
within SIC Industry Group BBB (SIC BBB). X is able
to specifically identify CGS allocable to DPGR and
to non-DPGR. X incurs $900 of research and experi-
mentation expenses (R&E) that are deductible under
section 174, $300 of which are performed with re-
spect to SIC AAA and $600 of which are performed
with respect to SIC BBB. None of the R&E is legally
mandated R&E as described in §1.861–17(a)(4) and
none of the R&E is included in CGS. X incurs sec-
tion 162 selling expenses that are not includible in
CGS and are definitely related to all of X’s gross in-
come. For X’s taxable year ending April 30, 2011,
the adjusted basis of X’s assets is $50,000, $40,000
of which generate gross income attributable to DPGR
and $10,000 of which generate gross income attribut-
able to non-DPGR. For X’s taxable year ending April
30, 2011, the total square footage of X’s headquarters
is 8,000 square feet, of which 2,000 square feet is set
aside for domestic production activities. For its tax-
able year ending April 30, 2011, X’s taxable income
is $1,380 based on the following Federal income tax
items:
DPGR (all from sales of products within SIC AAA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,000
Non-DPGR(allfromsalesofproductswithinSICBBB).............................................3,000
CGSallocabletoDPGR(includes$200ofwageexpense)............................................
(600)
CGSallocabletonon-DPGR(includes$600ofwageexpense)........................................
(1,800)
Section162sellingexpenses(includes$600ofwageexpense)........................................
(840)
Section174R&E-SICAAA(includes$100ofwageexpense) ........................................
(300)
Section174R&E-SICBBB(includes$200ofwageexpense).........................................
(600)
Interestexpense(notincludedinCGS)...........................................................(300)
Headquartersoverheadexpense(includes$100ofwageexpense)......................................
(
180)
X’staxableincome...........................................................................1,380
(ii)X’s QPAI. X allocates and apportions its de-
ductions to gross income attributable to DPGR un-
der the section 861 method in §1.199–4(d). In this
case, the section 162 selling expenses and overhead
expense are definitely related to all of X’s gross in-
come. Based on the facts and circumstances of this
specific case, apportionment of the section 162 sell-
ing expenses between DPGR and non-DPGR on the
basis of X’s gross receipts is appropriate. In addition,
based on the facts and circumstances of this specific
case, apportionment of the headquarters overhead ex-
pense between DPGR and non-DPGR on the basis of
thesquarefootageofX’sheadquarters is appropriate.
For purposes of apportioning R&E, X elects to use the
sales method as described in §1.861–17(c). X elects
to apportion interest expense under the tax book value
method of §1.861–9T(g). X has $2,400 of gross in-
come attributable to DPGR (DPGR of $3,000 - CGS
of $600 allocated based on X’s books and records).
X’s QPAI for its taxable year ending April 30, 2011,
is $1,395, as shown in the following table:
DPGR (all from sales of products within SIC AAA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,000
CGSallocabletoDPGR ......................................................................(600)
Section162sellingexpenses($840x($3,000DPGR/$6,000totalgrossreceipts)).........................
(420)
Section174R&E-SICAAA...................................................................(300)
Interest expense (not included in CGS)
($300x($40,000(X’sDPGRassets)/$50,000(X’stotalassets))) ...................................
(240)
Headquarters overhead expense ($180 x (2,000 square feet attributable to
DPGRactivity/total8,000squarefeet)) .......................................................
(
45)
X’sQPAI..................................................................................
1,395
(iii)W–2 wages. X chooses to use the wage ex-
pense safe harbor under paragraph (e)(2)(ii) of this
sectiontodetermineitsW–2wages,asshowninthe
following steps:
(A)Step one. X determines that $625 of wage
expense were taken into account in determining its
QPAI in paragraph (ii) of thisExample 1,asshownin
the following table:
2008–14 I.R.B.698April 7, 2008

CGSwageexpense ..........................................................................
$200
Section 162 selling expenses wage expense ($600 x ($3,000 DPGR/$6,000 total gross receipts)) . . . . . . . . . . . . .
300
Section174R&E-SICAAAwageexpense........................................................100
Headquarters overhead wage expense ($100 x (2,000 square feet attributable to DPGR
activity/8,000totalsquarefeet)) .............................................................
2
5
Totalwageexpensetakenintoaccount...........................................................
625
(B)Step two. X determines that $1,042 of the
$3,000 in paragraph (e)(1) wages are properly alloca-
ble to DPGR, and are therefore W–2 wages, as shown
in the following calculation:
S
teponewageexpense
x
X’s paragraph (e)(1) wages
X’s total wage expense for taxable
year ending April 30, 2011
$
625
x
$3,000
=
$1,042
$1,800
(iv)Section 199 deduction determination.X’s
tentative deduction under §1.199–1(a) (section 199
deduction) is $124 (.09 x (lesser of QPAI of $1,395 or
taxable income of $1,380)) subject to the wage limi-
tation under section 199(b)(1) (W–2 wage limitation)
of $521 (50% x $1,042). Accordingly, X’s section
199 deduction for its taxable year ending April 30,
2011, is $124.
Example 2.Section 861 method and EAG.(i)
Facts. The facts are the same as inExample 1ex-
cept that X owns stock in Y, a United States corpo-
ration, equal to 75% of the total voting power of the
stock of Y and 80% of the total value of the stock of
Y. X and Y are not members of an affiliated group
as defined in section 1504(a). Accordingly, the rules
of §1.861–14T do not apply to X’s and Y’s selling
expenses, R&E, and charitable contributions. X and
Y are, however, members of an affiliated group for
purposes of allocating and apportioning interest ex-
pense (see §1.861–11T(d)(6)) and are also members
of an EAG. Y’s taxable year ends April 30, 2011.
For Y’s taxable year ending April 30, 2011, Y has
$2,000 of paragraph (e)(1) wages reported on 2010
Forms W–2. For Y’s taxable year ending April 30,
2011, the adjusted basis of Y’s assets is $50,000,
$20,000 of which generate gross income attributable
to DPGR and $30,000 of which generate gross in-
come attributable to non-DPGR. All of Y’s activities
that generate DPGR are within SIC Industry Group
AAA (SIC AAA). All of Y’s activities that gener-
ate non-DPGR are within SIC Industry Group BBB
(SIC BBB). None of X’s and Y’s sales are to each
other. Y is not able to specifically identify CGS allo-
cable to DPGR and non-DPGR. In this case, because
CGS is definitely related under the facts and circum-
stances to all of Y’s gross receipts, apportionment of
CGS between DPGR and non-DPGR based on gross
receipts is appropriate. For Y’s taxable year ending
April 30, 2011, the total square footage of Y’s head-
quarters is 8,000 square feet, of which 2,000 square
feet is set aside for domestic production activities. Y
incurs section 162 selling expenses that are not in-
cludible in CGS and are definitely related to all of
Y’s gross income. For Y’s taxable year ending April
30, 2011, Y’s taxable income is $1,710 based on the
following Federal income tax items:
DPGR (all from sales of products within SIC AAA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,000
Non-DPGR(allfromsalesofproductswithinSICBBB).............................................3,000
CGSallocatedtoDPGR(includes$300ofwageexpense)............................................
(1,200)
CGSallocatedtonon-DPGR(includes$300ofwageexpense)........................................
(1,200)
Section162sellingexpenses(includes$300ofwageexpense)........................................
(840)
Section174R&E-SICAAA(includes$20ofwageexpense) .........................................
(100)
Section174R&E-SICBBB(includes$60ofwageexpense)..........................................
(200)
Interestexpense(notincludedinCGSandnotsubjectto§1.861–10T)..................................
(500)
Charitablecontributions.......................................................................
(50)
Headquartersoverheadexpense(includes$40ofwageexpense).......................................
(
200)
Y’staxableincome...........................................................................1,710
(ii)QPAI.(A)X’s QPAI. Determination of X’s
QPAI is the same as inExample 1except that interest
is apportioned to gross income attributable to DPGR
based on the combined adjusted bases of X’s and Y’s
assets. See §1.861–11T(c). Accordingly, X’s QPAI
for its taxable year ending April 30, 2011, is $1,455,
as shown in the following table:
DPGR (all from sales of products within SIC AAA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,000
CGSallocatedtoDPGR ......................................................................(600)
Section162sellingexpenses($840x($3,000DPGR/$6,000totalgrossreceipts)).........................
(420)
Section174R&E-SICAAA...................................................................(300)
Interest expense (not included in CGS and not subject to §1.861–10T) ($300 x ($60,000 (tax book
valueofX’sandY’sDPGRassets)/$100,000(taxbookvalueofX’sandY’stotalassets)))...............
(180)
Headquarters overhead expense ($180 x (2,000 square feet attributable to DPGR activity/total
8,000squarefeet))........................................................................
(
45)
X’sQPAI..................................................................................
1,455
(B)Y’s QPAI. Y makes the same elections under
the section 861 method as does X. Y has $1,800 of
gross income attributable to DPGR (DPGR of $3,000
- CGS of $1,200 allocated based on Y’s gross re-
ceipts). Y’s QPAI for its taxable year ending April
30, 2011, is $905, as shown in the following table:
April 7, 20086992008–14 I.R.B.

DPGR (all from sales of products within SIC AAA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,000
CGSallocatedtoDPGR ......................................................................(1,200)
Section162sellingexpenses($840x($3,000DPGR/$6,000totalgrossreceipts)).........................
(420)
Section174R&E-SICAAA...................................................................(100)
Interest expense (not included in CGS and not subject to §1.861–10T) ($500 x ($60,000 (tax book
valueofX’sandY’sDPGRassets)/$100,000(taxbookvalueofX’sandY’stotalassets)))...............
(300)
Charitable contributions (not included in CGS) ($50 x ($1,800 gross income attributable to
DPGR/$3,600totalgrossincome))...........................................................
(25)
Headquarters overhead expense ($200 x (2,000 square feet attributable to DPGR activity/total
8,000squarefeet))........................................................................
(
50)
Y’sQPAI..................................................................................
905
(iii)W–2 wages.(A)X’s W–2 wages.X’sW–2
wages are $1,042, the same as inExample 1.
(B)Y’s W–2 wages. Y chooses to use the wage
expense safe harbor under paragraph (e)(2)(ii) of this
section to determine its W–2 wages, as shown in the
following steps:
(1)Step one. Y determines that $480 of wage
expense were taken into account in determining its
QPAI in paragraph (ii)(B) of thisExample 2,asshown
in the following table:
CGSwageexpense ..........................................................................
$300
Section 162 selling expenses wage expense ($300 x ($3,000 DPGR/$6,000 total gross receipts)) . . . . . . . . . . . . .
150
Section174R&E-SICAAAwageexpense........................................................20
Headquarters overhead wage expense ($40 x (2,000 square feet attributable to DPGR activity/
8,000totalsquarefeet))....................................................................1
0
Totalwageexpensetakenintoaccount...........................................................480
(2)Step two. Y determines that $941 of the
$2,000 paragraph (e)(1) wages are properly allocable
to DPGR, and are therefore W–2 wages, as shown in
the following calculation:
S
teponewageexpense
x
Y’s paragraph (e)(1) wages
Y’s total wage expense for taxable
year ending April 30, 2011
$
480
x
$2,000
=
$941
$1,020
(iv)Section 199 deduction determination.The
section 199 deduction of the X and Y EAG is deter-
mined by aggregating the separately determined tax-
ableincome,QPAI,andW–2wagesofXandY.See
§1.199–7(b). Accordingly, the X and Y EAG’s tenta-
tive section 199 deduction is $212 (.09 x (lesser of
combined QPAI of X and Y of $2,360 (X’s QPAI
of $1,455 plus Y’s QPAI of $905) or combined tax-
able incomes of X and Y of $3,090 (X’s taxable in-
come of $1,380 plus Y’s taxable income of $1,710))
subject to the combined W–2 wage limitation of X
and Y of $992 (50% x ($1,042 (X’s W–2 wages) +
$941 (Y’s W–2 wages)))). Accordingly, the X and Y
EAG’s section 199 deduction is $212. The $212 is al-
located to X and Y in proportion to their QPAI. See
§1.199–7(c).
Example 3.Simplified deduction method.(i)
Facts. Z, a corporation that is not a member of an
EAG, engages in activities that generate both DPGR
and non-DPGR. Z is able to specifically identify CGS
allocable to DPGR and to non-DPGR. Z’s taxable
year ends on April 30, 2011. For Z’s taxable year
ending April 30, 2011, Z has $3,000 of paragraph
(e)(1) wages reported on 2010 Forms W–2, and Z’s
taxable income is $1,380 based on the following
Federal income tax items:
DPGR.....................................................................................
$3,000
Non-DPGR ................................................................................3,000
CGSallocabletoDPGR(includes$200ofwageexpense)............................................
(600)
CGSallocabletonon-DPGR(includes$600ofwageexpense)........................................
(1,800)
Expenses,losses,ordeductions(deductions)(includes$1,000ofwageexpense)..........................
(
2,220)
Z’staxableincome...........................................................................1,380
(ii)Z’s QPAI. Z uses the simplified deduction
method under §1.199–4(e) to apportion deductions
between DPGR and non-DPGR. Z’s QPAI for its taxable year ending April 30, 2011, is $1,290, as
shown in the following table:
DPGR ....................................................................................
$3,000
CGSallocabletoDPGR ......................................................................(600)
Deductions apportioned to DPGR ($2,220 x ($3,000 DPGR/$6,000 total gross receipts)) . . . . . . . . . . . . . . . . . . .
(
1,110)
Z’sQPAI ..................................................................................1,290
(iii)W–2 wages. Z chooses to use the wage ex-
pense safe harbor under paragraph (e)(2)(ii) of this
section to determine its W–2 wages, as shown in the
following steps:
(A)Step one. Z determines that $700 of wage
expense were taken into account in determining its
2008–14 I.R.B.700April 7, 2008

QPAI in paragraph (ii) of thisExample 3,asshownin
the following table:
WageexpenseincludedinCGSallocabletoDPGR.................................................
$200
Wage expense included in deductions ($1,000 in wage expense x ($3,000 DPGR/$6,000 total gross receipts)). . .
5
00
WageexpenseallocabletoDPGR...............................................................700
(B)Step two. Z determines that $1,167 of the
$3,000 paragraph (e)(1) wages are properly allocable
to DPGR, and are therefore W–2 wages, as shown in
the following calculation:
S
teponewageexpense
x
Z’s paragraph (e)(1) wages
Z’s total wage expense for taxable
year ending April 30, 2011
$
700
x
$3,000
=
$1,167
$1,800
(iv)Section 199 deduction determination.Z’s
tentative section 199 deduction is $116 (.09 x (lesser
of QPAI of $1,290 or taxable income of $1,380))
subject to the W–2 wage limitation of $584 (50% x
$1,167). Accordingly, Z’s section 199 deduction for
its taxable year ending April 30, 2011, is $116.
Example 4.Small business simplified overall
method.(i)Facts. Z, a corporation that is not a mem-
ber of an EAG, engages in activities that generate
both DPGR and non-DPGR. Z’s taxable year ends
on April 30, 2011. For Z’s taxable year ending April
30, 2011, Z has $3,000 of paragraph (e)(1) wages re-
ported on 2010 Forms W–2, and Z’s taxable income
is $1,380 based on the following Federal income tax
items:
DPGR ....................................................................................
$3,000
Non-DPGR ................................................................................3,000
CGSanddeductions..........................................................................(
4,620)
Z’staxableincome...........................................................................1,380
(ii)Z’s QPAI. Z uses the small business simplified
overall method under §1.199–4(f) to apportion CGS
and deductions between DPGR and non-DPGR. Z’s QPAI for its taxable year ending April 30, 2011, is
$690, as shown in the following table:
DPGR ....................................................................................
$3,000
CGS and deductions apportioned to DPGR ($4,620 x ($3,000 DPGR/$6,000 total gross receipts)) . . . . . . . . . . . .
(
2,310)
Z’sQPAI ..................................................................................690
(iii)W–2 wages. Z’s W–2 wages under paragraph
(e)(2)(iii) of this section are $1,500, as shown in the
following calculation:
$3,000inparagraph(e)(1)wagesx($3,000DPGR/$6,000totalgrossreceipts)...........................$1,500
(iv)Section 199 deduction determination.Z’s
tentative section 199 deduction is $62 (.09 x (lesser of
QPAI of $690 or taxable income of $1,380)) subject
to the W–2 wage limitation of $750 (50% x $1,500).
Accordingly, Z’s section 199 deduction for its taxable
year ending April 30, 2011, is $62.
Example 5.Corporation uses employees of non-
consolidated EAG member.(i)Facts. Corporations S
and B are the only members of a single EAG but are
not members of a consolidated group. S and B are
both calendar year taxpayers. All the activities de-
scribedinthisExample 5take place during the same
taxable year and they are the only activities of S and
B. S and B each use the section 861 method described
in §1.199–4(d) for allocating and apportioning their
deductions. B is a manufacturer but has only three
employees of its own. S employs the remainder of the
personnel who perform the manufacturing activities
for B. S’s only receipts are from supplying employees
to B. In 2010, B manufactures qualifying production
property (QPP) (as defined in §1.199–3(j)(1)), using
its three employees and S’s employees, and sells the
QPP for $10,000,000. B’s total CGS and other de-
ductions are $6,000,000, including $1,000,000 paid
to S for the use of S’s employees and $100,000 paid
to its own employees. B reports the $100,000 paid
to its employees on the 2010 Forms W–2 issued to
its employees. S pays its employees $800,000 that is
reported on the 2010 Forms W–2 issued to the em-
ployees.
(ii)B’s W–2 wages. In determining its W–2
wages, B utilizes the wage expense safe harbor de-
scribed in paragraph (e)(2)(ii) of this section. The
entire $100,000 paid by B to its employees is included
in B’s wage expense included in calculating its QPAI
and is the only wage expense used in calculating
B’s taxable income. Thus, under the wage expense
safe harbor described in paragraph (e)(2)(ii) of this
section, B’s W–2 wages are $100,000 ($100,000
(paragraph (e)(1) wages) x ($100,000 (wage expense
used in calculating B’s QPAI)/$100,000 (wage ex-
pense used in calculating B’s taxable income))).
(iii)S’s W–2 wages. In determining its W–2
wages, S utilizes the wage expense safe harbor
described in paragraph (e)(2)(ii) of this section.
Because S’s $1,000,000 in receipts from B do not
qualify as DPGR and are S’s only gross receipts,
none of the $800,000 paid by S to its employees is
included in S’s wage expense included in calculating
its QPAI. However, the entire $800,000 is included
in calculating S’s taxable income. Thus, under the
wage expense safe harbor described in paragraph
(e)(2)(ii)(A) of this section, S’s W–2 wages are $0
($800,000 (paragraph (e)(1) wages) x ($0 (wage ex-
pense used in calculating S’s QPAI)/$800,000 (wage
expense used in calculating S’s taxable income))).
(iv)Determination of EAG’s section 199 deduc-
tion. The section 199 deduction of the S and B EAG
is determined by aggregating the separately deter-
mined taxable income or loss, QPAI, and W–2 wages
April 7, 20087012008–14 I.R.B.

of S and B. See §1.199–7(b). B’s taxable income
and QPAI are each $4,000,000 ($10,000,000 DPGR
- $6,000,000 CGS and other deductions). S’s tax-
able income is $200,000 ($1,000,000 gross receipts
- $800,000 total deductions). S’s QPAI is $0 ($0
DPGR - $0 CGS and other deductions). B’s W–2
wages (as calculated in paragraph (ii) of thisExam-
ple 5) are $100,000 and S’s W–2 wages (as calcu-
lated in paragraph (iii) of thisExample 5)are$0.The
EAG’s tentative section 199 deduction is $360,000
(.09 x (lesser of combined QPAI of $4,000,000 (B’s
QPAI of $4,000,000 + S’s QPAI of $0) or combined
taxable income of $4,200,000 (B’s taxable income of
$4,000,000 + S’s taxable income of $200,000))) sub-
ject to the W–2 wage limitation of $50,000 (50% x
($100,000 (B’s W–2 wages) + $0 (S’s W–2 wages))).
Accordingly, the S and B EAG’s section 199 deduc-
tion for 2010 is $50,000. The $50,000 is allocated to
S and B in proportion to their QPAI. See §1.199–7(c).
Because S has no QPAI, the entire $50,000 is allo-
cated to B.
Example 6.Corporation using employees of
consolidated EAG member. The facts are the same
as inExample 5except that B and S are members of
the same consolidated group. Ordinarily, as demon-
strated inExample 5, S’s $1,000,000 of receipts
would not be DPGR and its $800,000 paid to its
employees would not be W–2 wages (because the
$800,000 would not be properly allocable to DPGR).
However, because S and B are members of the same
consolidated group, §1.1502–13(c)(1)(i) provides
that the separate entity attributes of S’s intercompany
items or B’s corresponding items, or both, may be
redetermined in order to produce the same effect as
if S and B were divisions of a single corporation. If S
and B were divisions of a single corporation, S and B
would have QPAI and taxable income of $4,200,000
($10,000,000 DPGR received from the sale of the
QPP - $5,800,000 CGS and other deductions) and,
under the wage expense safe harbor described in
paragraph (e)(2)(ii) of this section, would have
$900,000 of W–2 wages ($900,000 (combined para-
graph (e)(1) wages of S and B) x ($900,000 (wage
expense used in calculating QPAI)/$900,000 (wage
expense used in calculating taxable income))). The
single corporation would have a tentative section 199
deduction equal to 9% of $4,200,000, or $378,000,
subject to the W–2 wage limitation of 50% of
$900,000, or $450,000. Thus, the single corporation
would have a section 199 deduction of $378,000. To
obtain this same result for the consolidated group,
S’s $1,000,000 of receipts from the intercompany
transaction are redetermined as DPGR. Thus, S’s
$800,000 paid to its employees are costs properly
allocable to DPGR and S’s W–2 wages are $800,000.
Accordingly, the consolidated group has QPAI and
taxable income of $4,200,000 ($11,000,000 DPGR
(from the sale of the QPP and the redetermined in-
tercompany transaction) - $6,800,000 CGS and other
deductions) and W–2 wages of $900,000. The con-
solidated group’s section 199 deduction is $378,000,
the same as the single corporation. However, for
purposes of allocating the section 199 deduction
between S and B, the redetermination of S’s income
as DPGR under §1.1502–13(c)(1)(i) is not taken
into account. See §1.199–7(d)(5). Accordingly, the
consolidated group’s entire section 199 deduction of
$378,000 is allocated to B.
*****
§1.199–2T [Removed]
Par. 5. Section 1.199–2T is removed.
Par. 6. Section 1.199–3 is amended by:
1. Revising the first sentence of para-
graph (f)(1).
2. Adding the language “paragraph
(i)(8) of this section and” before the
language “§1.199–9(j)” in paragraph
(g)(4)(ii)(B).
3. Adding the language “paragraph
(i)(7) of this section and” before the
language “§1.199–9(i)” in paragraph
(g)(4)(ii)(D).
4. Revising paragraphs (i)(7) and (8).
5.Removing the language
“§1.199–9(e)” in the last sentence of
paragraph (m)(6)(iv)(B) and adding the
language “§§1.199–5(e) and 1.199–9(e)”
in its place.
6. Revising the second and third sen-
tences in paragraph (p).
The revisions read as follows:
§1.199–3 Domestic production gross
receipts.
*****
(f)***(1)In general.Withthe
exception of the rules applicable to an
expanded affiliated group (EAG) under
§1.199–7, qualifying in-kind partnerships
under paragraph (i)(7) of this section
and §1.199–9(i), EAG partnerships un-
der paragraph (i)(8) of this section and
§1.199–9(j), and government contracts
under paragraph (f)(2) of this section,
only one taxpayer may claim the deduc-
tion under §1.199–1(a) with respect to
any qualifying activity under paragraphs
(e)(1), (k)(1), and (l)(1) of this section
performed in connection with the same
QPP, or the production of a qualified film
or utilities. * * *
*****
(i) * * *
(7)Qualifying in-kind partnership for
taxable years beginning after May 17,
2006, the enactment date of the Tax In-
crease Prevention and Reconciliation Act
of 2005—(i)In general. If a partnership is
a qualifying in-kind partnership described
in paragraph (i)(7)(ii) of this section, then
each partner is treated as having MPGE or
produced the property MPGE or produced
by the partnership that is distributed to that
partner. If a partner of a qualifying in-kind
partnership derives gross receipts from
the lease, rental, license, sale, exchange,
or other disposition of the property that
was MPGE or produced by the qualifying
in-kind partnership and distributed to that
partner, then, provided such partner is a
partner of the qualifying in-kind partner-
ship at the time the partner disposes of
the property, the partner is treated as con-
ducting the MPGE or production activities
previously conducted by the qualifying
in-kind partnership with respect to that
property. With respect to a lease, rental, or
license, the partner is treated as having dis-
posed of the property on the date or dates
on which it takes into account its gross
receipts derived from the lease, rental, or
license under its method of accounting.
With respect to a sale, exchange, or other
disposition, the partner is treated as hav-
ing disposed of the property on the date
it ceases to own the property for Federal
income tax purposes, even if no gain or
loss is taken into account.
(ii)Definition of qualifying in-kind
partnership. For purposes of this para-
graph (i)(7), aqualifying in-kind partner-
shipis a partnership engaged solely in—
(A) The extraction, refining, or process-
ing of oil, natural gas (as described in para-
graph (l)(2) of this section), petrochemi-
cals, or products derived from oil, natural
gas, or petrochemicals in whole or in sig-
nificant part within the United States;
(B) The production or generation of
electricity in the United States; or
(C) An activity or industry desig-
nated by the Secretary by publication
in the Internal Revenue Bulletin (see
§601.601(d)(2)(ii)(b) of this chapter).
(iii)Other rules. Except as provided in
this paragraph (i)(7), a qualifying in-kind
partnership is treated the same as other
partnerships for purposes of section 199.
Accordingly, a qualifying in-kind partner-
ship is subject to the rules of this section
regarding the application of section 199 to
pass-thru entities, including application of
the section 199(d)(1)(A)(iii) rule for de-
termining a partner’s share of the amounts
described in §1.199–2(e)(1) (paragraph
(e)(1) wages) from the partnership under
§1.199–5(b)(3). In determining whether a
qualifying in-kind partnership or its part-
ners MPGE QPP in whole or in significant
part within the United States, see para-
graphs (g)(2) and (3) of this section.
2008–14 I.R.B.702April 7, 2008

(iv)Example. The following example
illustrates the application of this paragraph
(i)(7). Assume that PRS and X are calen-
dar year taxpayers. The example reads as
follows:
Example. X, Y, and Z are partners in PRS, a
qualifying in-kind partnership described in paragraph
(i)(7)(ii) of this section. X, Y, and Z are corporations.
In 2007, PRS distributes oil to X that PRS derived
from its oil extraction. PRS incurred $600 of CGS
extracting the oil distributed to X, and X’s adjusted
basis in the distributed oil is $600. X incurs $200 of
CGS in refining the oil within the United States. In
2007, X, while it is a partner in PRS, sells the oil to
a customer for $1,500. X is treated as having dis-
posed of the property on the date it ceases to own
the property for Federal income tax purposes. Under
paragraph (i)(7)(i) of this section, X is treated as hav-
ing extracted the oil. The extraction and refining of
the oil each qualify as an MPGE activity under para-
graph (e)(1) of this section.Therefore, X’s $1,500 of
gross receipts qualify as DPGR. X subtracts from the
$1,500 of DPGR the $600 of CGS incurred by PRS
and the $200 of refining costs it incurred. Thus, X’s
QPAI is $700 for 2007.
(8)Partnerships owned by members
of a single expanded affiliated group for
taxable years beginning after May 17,
2006, the enactment date of the Tax In-
crease Prevention andReconciliation Act
of 2005—(i)In general. For purposes of
this section, if all of the interests in the
capital and profits of a partnership are
owned by members of a single EAG at
all times during the taxable year of the
partnership (EAG partnership), then the
EAG partnership and all members of that
EAG are treated as a single taxpayer for
purposes of section 199(c)(4) during that
taxable year.
(ii)Attribution of activities—(A)In
general. If a member of an EAG (dispos-
ing member) derives gross receipts from
the lease, rental, license, sale, exchange,
or other disposition of property that was
MPGE or produced by an EAG partner-
ship, all the partners of which are members
of the same EAG to which the disposing
member belongs at the time that the dis-
posing member disposes of such property,
then the disposing member is treated as
conducting the MPGE or production ac-
tivities previously conducted by the EAG
partnership with respect to that property.
The previous sentence applies only for
those taxable years in which the disposing
member is a member of the EAG of which
all the partners of the EAG partnership are
members for the entire taxable year of the
EAG partnership. With respect to a lease,
rental, or license, the disposing member
is treated as having disposed of the prop-
erty on the date or dates on which it takes
into account its gross receipts from the
lease, rental, or license under its method
of accounting. With respect to a sale, ex-
change, or other disposition, the disposing
member is treated as having disposed of
the property on the date it ceases to own
the property for Federal income tax pur-
poses, even if no gain or loss is taken into
account. Likewise, if an EAG partner-
ship derives gross receipts from the lease,
rental, license, sale, exchange, or other
disposition of property that was MPGE or
produced by a member (or members) of
the same EAG (the producing member)
to which all the partners of the EAG part-
nership belong at the time that the EAG
partnership disposes of such property, then
the EAG partnership is treated as con-
ducting the MPGE or production activities
previously conducted by the producing
member with respect to that property.
The previous sentence applies only for
those taxable years in which the producing
memberisamemberoftheEAGofwhich
all the partners of the EAG partnership are
members for the entire taxable year of the
EAG partnership. With respect to a lease,
rental, or license, the EAG partnership is
treated as having disposed of the property
on the date or dates on which it takes into
account its gross receipts derived from the
lease, rental, or license under its method
of accounting. With respect to a sale,
exchange, or other disposition, the EAG
partnership is treated as having disposed
of the property on the date it ceases to own
the property for Federal income tax pur-
poses, even if no gain or loss is taken into
account. See paragraph (i)(8)(iv)Example
3of this section.
(B)Attribution between EAG partner-
ships. If an EAG partnership (disposing
partnership) derives gross receipts from
the lease, rental, license, sale, exchange,
or other disposition of property that was
MPGE or produced by another EAG part-
nership (producing partnership), then the
disposing partnership is treated as con-
ducting the MPGE or production activi-
ties previously conducted by the produc-
ing partnership with respect to that prop-
erty, provided that each of these partner-
ships (the producing partnership and the
disposing partnership) is owned for its en-
tire taxable year in which the disposing
partnership disposes of such property by
members of the same EAG. With respect
to a lease, rental, or license, the dispos-
ing partnership is treated as having dis-
posed of the property on the date or dates
on which it takes into account its gross re-
ceipts from the lease, rental, or license un-
der its method of accounting. With respect
to a sale, exchange, or other disposition,
the disposing partnership is treated as hav-
ing disposed of the property on the date it
ceases to own the property for Federal in-
come tax purposes, even if no gain or loss
is taken into account.
(C)Exceptions to attribution. Attribu-
tion of activities does not apply for pur-
poses of the construction of real property
under paragraph (m)(1) of this section and
the performance of engineering and archi-
tectural services under paragraphs (n)(2)
and (3) of this section, respectively.
(iii)Other rules. Except as provided in
this paragraph (i)(8), an EAG partnership
is treated the same as other partnerships
for purposes of section 199. Accordingly,
an EAG partnership is subject to the rules
of this section regarding the application of
section 199 to pass-thru entities, includ-
ing the section 199(d)(1)(A)(iii) rule under
§1.199–5(b)(3). In determining whether a
member of an EAG or an EAG partner-
ship MPGE QPP in whole or in signifi-
cant part within the United States or pro-
duced a qualified film or produced utilities
within the United States, see paragraphs
(g)(2) and (3) of this section andExample
5of paragraph (i)(8)(iv) of this section.
(iv)Examples. The following examples
illustrate the rules of this paragraph (i)(8).
Assume that PRS, X, Y, and Z all are cal-
endar year taxpayers. The examples read
as follows:
Example 1.Contribution. X and Y are the only
partners in PRS, a partnership, for PRS’s entire 2007
taxable year. X and Y are both members of a single
EAG for the entire 2007 year. In 2007, X MPGE
QPP within the United States and contributes the
QPP to PRS. In 2007, PRS sells the QPP for $1,000.
Under this paragraph (i)(8), PRS is treated as having
MPGE the QPP within the United States, and PRS’s
$1,000 gross receipts constitute DPGR. PRS, X, and
Y must apply the rules of this section regarding the
application of section 199 to pass-thru entities with
respect to the activity of PRS, including the section
199(d)(1)(A)(iii) rule for determining a partner’s
share of the paragraph (e)(1) wages from the partner-
ship under §1.199–5(b)(3).
Example 2.Sale.X,Y,andZaretheonlymem-
bers of a single EAG for the entire 2007 year. X and
Y each own 50% of the capital and profits interests
in PRS, a partnership, for PRS’s entire 2007 taxable
year. In 2007, PRS MPGE QPP within the United
April 7, 20087032008–14 I.R.B.

States and then sells the QPP to X for $6,000, its fair
market value at the time of the sale. PRS’s gross re-
ceipts of $6,000 qualify as DPGR. In 2007, X sells
the QPP to customers for $10,000, incurring selling
expenses of $2,000. Under paragraph (i)(8)(ii)(A) of
this section, X is treated as having MPGE the QPP
within the United States, and X’s $10,000 of gross
receipts qualify as DPGR. PRS, X and Y must ap-
ply the rules of this section regarding the application
of section 199 to pass-thru entities with respect to
the activity of PRS, including application of the sec-
tion 199(d)(1)(A)(iii) rule for determining a partner’s
share of the paragraph (e)(1) wages from the partner-
ship under §1.199–5(b)(3). The results would be the
same if PRS sold the QPP to Z rather than to X. How-
ever, if PRS did sell the QPP to Z, and Z was not a
member of the EAG for PRS’sentire taxable year, the
activities previously conducted by PRS with respect
to the QPP would not be attributed to Z, and none of
Z’s $10,000 of gross receipts would qualify as DPGR.
Example 3.Lease.X,Y,andZaretheonlymem-
bers of a single EAG for the entire 2007 year. X
and Y each own 50% of the capital and profits in-
terests in PRS, a partnership, for PRS’s entire 2007
taxable year. In 2007, PRS MPGE QPP within the
United States and then sells the QPP to X for $6,000,
its fair market value at the time of the sale. PRS’s
gross receipts of $6,000 qualify as DPGR. In 2007, X
rents the QPP it acquired from PRS to customers un-
related to X. X takes the gross receipts attributable to
the rental of the QPP into account under its method
of accounting in 2007 and 2008. On July 1, 2008,
X ceases to be a member of the same EAG to which
Y, the other partner in PRS, belongs. For 2007, X is
treated as having MPGE the QPP within the United
States under paragraph (i)(8)(ii)(A) of this section,
and its gross receipts derived from the rental of the
QPP qualify as DPGR. For 2008, however, because
X and Y, partners in PRS, are no longer members of
the same EAG for the entire year, the gross rental re-
ceipts X takes into account in 2008 do not qualify as
DPGR.
Example 4.Distribution. X and Y are the only
partners in PRS, a partnership, for PRS’s entire 2007
taxable year. X and Y are both members of a single
EAG for the entire 2007 year. In 2007, PRS MPGE
QPP within the United States, incurring $600 of CGS,
and then distributes the QPP to X. X’s adjusted basis
in the QPP is $600. X incurs $200 of CGS to further
MPGE the QPP within the United States. In 2007,
X sells the QPP for $1,500 to an unrelated customer.
X is treated as having disposed of the QPP on the
date it ceases to own the QPP for Federal income
tax purposes. Under paragraph (i)(8)(ii)(A) of this
section, X is treated as having MPGE the QPP within
the United States, and X’s $1,500 of gross receipts
qualify as DPGR.
Example 5.Multiple sales.(i)Facts.XandYare
the only partners in PRS, a partnership, for PRS’s en-
tire 2007 taxable year. X and Y are both non-consol-
idated members of a single EAG for the entire 2007
year. PRS produces in bulk form in the United States
the active ingredient for a drug. Assume that PRS’s
own MPGE activity with respect to the active ingre-
dient is not substantial in nature, taking into account
all of the facts and circumstances, and PRS’s direct
labor and overhead to MPGE the active ingredient
within the United States are $15 and account for 15%
of PRS’s $100 CGS of the active ingredient. In 2007,
PRS sells the active ingredient in bulk form to X.
X uses the active ingredient to produce the finished
dosage form drug. Assume that X’s own MPGE ac-
tivity with respect to the finished dosage form drug
is not substantial in nature, taking into account all
of the facts and circumstances, and X’s direct labor
and overhead to MPGE the finished dosage form drug
within the United States are $12 and account for 10%
of X’s $120 CGS of the drug. In 2007, X sells the
finished dosage form drug to Y and Y sells the fin-
ished dosage form drug to customers. Assume that
Y’s own MPGE activity with respect to the finished
dosage form drug is not substantial in nature, taking
into account all of the facts and circumstances, and Y
incurs $2 of direct labor and overhead and Y’s CGS
in selling the finished dosage form drug to customers
is $130.
(ii)Analysis. PRS’s gross receipts from the sale
of the active ingredient to X are non-DPGR because
PRS’s MPGE activity is not substantial in nature and
PRS does not satisfy the safe harbor described in
paragraph (g)(3) of this section because PRS’s di-
rect labor and overhead account for less than 20%
of PRS’s CGS of the active ingredient. X’s gross
receipts from the sale of the finished dosage form
drug to Y are DPGR because X is considered to have
MPGE the finished dosage form drug in significant
part in the United States pursuant to the safe harbor
described in paragraph (g)(3) of this section because
the $27 ($15 + $12) of direct labor and overhead in-
curred by PRS and X equals or exceeds 20% of X’s
total CGS ($120) of the finished dosage form drug
at the time X disposes of the finished dosage form
drug to Y. Similarly, Y’s gross receipts from the sale
of the finished dosage form drug to customers are
DPGR because Y is considered to have MPGE the
finished dosage form drug in significant part in the
United States pursuant to the safe harbor described in
paragraph (g)(3) of this section because the $29 ($15
+ $12 + $2) of direct labor and overhead incurred by
PRS, X, and Y equals or exceeds 20% of Y’s total
CGS ($130) of the finished dosage form drug at the
time Y disposes of the finished dosage form drug to
Y’s customers.
*****
(p) * * * Thus, partners, including
partners in partnerships described in
paragraphs (i)(7) and (8) of this sec-
tion and §1.199–9(i) and (j), may not
treat guaranteed payments as DPGR.
See §§1.199–5(b)(6)Example 5and
1.199–9(b)(6)Example 5.
§1.199–3T [Removed]
Par. 7. Section 1.199–3T is removed.
Par. 8. Section 1.199–4 is amended by:
1. Revising paragraph (d)(5).
2.Removing the language
“§1.199–9(d)” in paragraph (e)(1) and
adding the language “§1.199–5(d) or
§1.199–9(d)” in its place.
3. Revising paragraph (f)(5).
The revisions read as follows:
§1.199–4 Costs allocable to domestic
production gross receipts.
*****
(d) * * *
(5)Treatment of items from a pass-thru
entity reporting qualified production
activities income.If, pursuant to
§1.199–5(e)(2) or §1.199–9(e)(2), or to
the authority granted in §1.199–5(b)(1)(ii)
or (c)(1)(ii), or §1.199–9(b)(1)(ii) or
(c)(1)(ii), a taxpayer must combine QPAI
and W–2 wages from a partnership,
S corporation, trust (to the extent not
described in §1.199–5(d) or §1.199–9(d))
or estate with the taxpayer’s total QPAI
and W–2 wages from other sources,
then for purposes of apportioning the
taxpayer’s interest expense under this
paragraph (d), the taxpayer’s interest in
such partnership (and, where relevant
in apportioning the taxpayer’s interest
expense, the partnership’s assets), the
taxpayer’s shares in such S corporation, or
the taxpayer’s interest in such trust shall
be disregarded.
*****
(f) * * *
(5)Trusts and estates.Trustsandes-
tates under §§1.199–5(e) and 1.199–9(e)
may not use the small business simplified
overall method.
*****
Par. 9. Section 1.199–5 is added to read
as follows:
§1.199–5 Application of section 199
to pass-thru entities for taxable years
beginning after May 17, 2006, the
enactment date of the Tax Increase
Prevention and Reconciliation Act of
2005.
(a)In general. The provisions of this
section apply solely for purposes of section
199 of the Internal Revenue Code (Code).
(b)Partnerships—(1)In general—(i)
Determination at partner level. The de-
duction with respect to the qualified pro-
duction activities of the partnership allow-
able under §1.199–1(a) (section 199 de-
duction) is determined at the partner level.
As a result, each partner must compute its
deduction separately. The section 199 de-
duction has no effect on the adjusted ba-
sis of the partner’s interest in the part-
nership. Except as provided by publi-
cation pursuant to paragraph (b)(1)(ii) of
2008–14 I.R.B.704April 7, 2008

this section, for purposes of this section,
each partner is allocated, in accordance
with sections 702 and 704, its share of
partnership items (including items of in-
come, gain, loss, and deduction), cost of
goods sold (CGS) allocated to such items
of income, and gross receipts that are in-
cluded in such items of income, even if
the partner’s share of CGS and other de-
ductions and losses exceeds domestic pro-
duction gross receipts (DPGR) (as defined
in §1.199–3(a)). A partnership may spe-
cially allocate items of income, gain, loss,
or deduction to its partners, subject to the
rules of section 704(b) and the support-
ing regulations. Guaranteed payments un-
der section 707(c) are not considered al-
locations of partnership income for pur-
poses of this section. Guaranteed pay-
ments under section 707(c) are deductions
by the partnership that must be taken into
account under the rules of §1.199–4. See
§1.199–3(p) and paragraph (b)(6)Example
5of this section. Except as provided in
paragraph (b)(1)(ii) of this section, to de-
termine its section 199 deduction for the
taxable year, a partner aggregates its dis-
tributive share of such items, to the extent
they are not otherwise disallowed by the
Code, with those items it incurs outside the
partnership (whether directly or indirectly)
for purposes of allocating and apportion-
ing deductions to DPGR and computing
its qualified production activities income
(QPAI) (as defined in §1.199–1(c)).
(ii)Determination at entity level.
The Secretary may, by publication
in the Internal Revenue Bulletin (see
§601.601(d)(2)(ii)(b) of this chapter), per-
mit a partnership to calculate a partner’s
share of QPAI and W–2 wages as defined
in §1.199–2(e)(2) (W–2 wages) at the
entity level, instead of allocating to the
partner, in accordance with sections 702
and 704, the partner’s share of partner-
ship items (including items of income,
gain, loss, and deduction) and amounts
described in §1.199–2(e)(1) (paragraph
(e)(1) wages). If a partnership does calcu-
late QPAI at the entity level—
(A) Each partner is allocated its share
of QPAI (subject to the limitations of
paragraph (b)(2) of this section) and W–2
wages from the partnership, which are
combined with the partner’s QPAI and
W–2 wages from other sources, if any;
(B) For purposes of computing the
partner’s QPAI under §§1.199–1 through
1.199–8, a partner does not take into ac-
count the items from the partnership (for
example, a partner does not take into
account items from the partnership in
determining whether a threshold orde
minimisrule applies or in allocating and
apportioning deductions) in calculating its
QPAI from other sources;
(C) A partner generally does not recom-
pute its share of QPAI from the partnership
using another method; however, the part-
ner might have to adjust its share of QPAI
from the partnership to take into account
certain disallowed losses or deductions, or
the allowance of suspended losses or de-
ductions; and
(D) A partner’s distributive share of
QPAI from a partnership may be less than
zero.
(2)Disallowed losses or deduc-
tions. Except as provided by publication
in the Internal Revenue Bulletin (see
§601.601(d)(2)(ii)(b) of this chapter),
losses or deductions of a partnership are
taken into account in computing the part-
ner’s QPAI for a taxable year only if, and
to the extent that, the partner’s distributive
share of those losses or deductions from
all of the partnership’s activities is not
disallowed by section 465, 469, or 704(d),
or any other provision of the Code. If
only a portion of the partner’s distributive
share of the losses or deductions from a
partnership is allowed for a taxable year,
a proportionate share of those allowed
losses or deductions that are allocated
to the partnership’s qualified production
activities, determined in a manner consis-
tent with sections 465, 469, and 704(d),
and any other applicable provision of the
Code, is taken intoaccount in computing
QPAI for that taxable year. To the extent
that any of the disallowed losses or deduc-
tions are allowed in a later taxable year
under section 465, 469, or 704(d), or any
other provision of the Code, the partner
takes into account a proportionate share
of those allowed losses or deductions that
are allocated to the partnership’s qualified
production activities in computing the
partner’s QPAI for that later taxable year.
Losses or deductions of the partnership
that are disallowed for taxable years be-
ginning on or before December 31, 2004,
however, are not taken into account in a
later taxable year for purposes of com-
puting the partner’s QPAI for that later
taxable year, whether or not the losses or
deductions are allowed for other purposes.
(3)Partner’s share of paragraph (e)(1)
wages.Under section 199(d)(1)(A)(iii), a
partner’s share of paragraph (e)(1) wages
of a partnership for purposes of determin-
ing the partner’s wage limitation under
section 199(b)(1) (W–2 wage limitation)
equals the partner’s allocable share of
those wages. Except as provided by pub-
lication in the Internal Revenue Bulletin
(see §601.601(d)(2)(ii)(b)ofthischapter),
the partnership mustallocate the amount
of paragraph (e)(1) wages among the part-
ners in the same manner it allocates wage
expense among those partners. The part-
ner must add its share of the paragraph
(e)(1) wages from the partnership to the
partner’s paragraph (e)(1) wages from
other sources, if any. The partner (other
than a partner that itself is a partnership
or S corporation) then must calculate its
W–2 wages by determining the amount
of the partner’s total paragraph (e)(1)
wages properly allocable to DPGR. If the
partner is a partnership or S corporation,
the partner must allocate its paragraph
(e)(1) wages (including the paragraph
(e)(1) wages from a lower-tier partnership)
among its partners or shareholders in the
same manner it allocates wage expense
among those partners or shareholders. See
§1.199–2(e)(2) for the computation of
W–2 wages and for the proper allocation
of any such wages to DPGR.
(4)Transition rule for definition of W–2
wages and for W–2 wage limitation.If a
partnership and any partner in that part-
nership have different taxable years, only
one of which begins after May 17, 2006,
the definition of W–2 wages of the partner-
ship and the section 199(d)(1)(A)(iii) rule
for determining a partner’s share of wages
from that partnership is determined under
the law applicable to partnerships based on
the beginning date of the partnership’s tax-
able year. Thus, for example, for the tax-
able year of a partnership beginning on or
before May 17, 2006, a partner’s share of
W–2 wages from the partnership is deter-
mined under section 199(d)(1)(A)(iii) as in
effect for taxable years beginning on or be-
fore May 17, 2006, even if the taxable year
of that partner in which those wages are
taken into account begins after May 17,
2006.
(5)Partnerships electing out of sub-
chapter K. For purposes of §§1.199–1
April 7, 20087052008–14 I.R.B.

through 1.199–8, the rules of this para-
graph (b) apply to all partnerships, in-
cluding those partnerships electing under
section 761(a) to be excluded, in whole or
in part, from the application of subchapter
K of chapter 1 of the Code.
(6)Examples. The following examples
illustrate the application of this paragraph
(b). Assume that each partner has suffi-
cient adjusted gross income or taxable in-
come so that the section 199 deduction is
not limited under section 199(a)(1)(B). As-
sume also that the partnership and each of
its partners (whether individual or corpo-
rate) are calendar year taxpayers. The ex-
amples read as follows:
Example 1.Section 861 method with interest ex-
pense.(i)Partnership Federal income tax items.X
and Y, unrelated United States corporations, are each
50% partners in PRS, a partnership that engages in
production activities that generate both DPGR and
non-DPGR. X and Y share all items of income, gain,
loss, deduction, and credit equally. Both X and Y
are engaged in a trade or business. PRS is not able
to identify from its books and records CGS alloca-
ble to DPGR and non-DPGR. In this case, because
CGS is definitely related under the facts and circum-
stances to all of PRS’s gross receipts, apportionment
of CGS between DPGR and non-DPGR based on
gross receipts is appropriate. For 2010, the adjusted
basis of PRS’s business assets is $5,000, $4,000 of
which generate gross income attributable to DPGR
and $1,000 of which generate gross income attribut-
able to non-DPGR. For 2010, PRS has the following
Federal income tax items:
DPGR.....................................................................................
$3,000
Non-DPGR.................................................................................3,000
CGS......................................................................................3,240
Section162sellingexpenses ..................................................................1,200
Interestexpense(notincludedinCGS)...........................................................300
(ii)Allocation of PRS’s Federal income tax items.
X and Y each receive the following distributive share
of PRS’s Federal income tax items, as determined un-
der the principles of §1.704–1(b)(1)(vii):
GrossincomeattributabletoDPGR($1,500(DPGR)-$810(allocableCGS))............................$690
Gross income attributable to non-DPGR ($1,500 (non-DPGR) - $810 (allocable CGS)) . . . . . . . . . . . . . . . . . . . .
690
Section162sellingexpenses ..................................................................600
Interestexpense(notincludedinCGS)...........................................................
150
(iii)Determination of QPAI.(A)X’s QPAI.Be-
cause the section 199 deduction is determined at the
partner level, X determines its QPAI by aggregat-
ing its distributive share of PRS’s Federal income
tax items with all other such items from all other,
non-PRS-related activities. For 2010, X does not
have any other such items. For 2010, the adjusted ba-
sis of X’s non-PRS assets, all of which are investment
assets, is $10,000. X’s only gross receipts for 2010
are those attributable to the allocation of gross income
from PRS. X allocates and apportions its deductible
items to gross income attributable to DPGR under the
section 861 method of §1.199–4(d). In this case, the
section 162 selling expenses are not included in CGS
and are definitely related to all of PRS’s gross in-
come. Based on the facts and circumstances of this
specific case, apportionment of those expenses be-
tween DPGR and non-DPGR on the basis of PRS’s
gross receipts is appropriate. X elects to apportion
its distributive share of interest expense under the tax
book value method of §1.861–9T(g). X’s QPAI for
2010 is $366, as shown in the following table:
DPGR.....................................................................................
$1,500
CGSallocabletoDPGR ......................................................................(810)
Section162sellingexpenses($600x($1,500DPGR/$3,000totalgrossreceipts)).........................
(300)
Interest expense (not included in CGS) ($150 x ($2,000 (X’s share of PRS’s DPGR assets)/
$12,500(X’snon-PRSassets($10,000)+X’sshareofPRSassets($2,500)))).........................
(
24)
X’sQPAI..................................................................................366
(B)Y’s QPAI.(1) For 2010, in addition to the ac-
tivities of PRS, Y engages in production activities
that generate both DPGR and non-DPGR. Y is able
to identify from its books and records CGS allocable
to DPGR and to non-DPGR. For 2010, the adjusted
basis of Y’s non-PRS assets attributable to its produc-
tion activities that generate DPGR is $8,000 and to
other production activities that generate non-DPGR
is $2,000. Y has no other assets. Y has the following
Federal income tax items relating to its non-PRS ac-
tivities:
GrossincomeattributabletoDPGR($1,500(DPGR)-$900(allocableCGS))............................$600
Gross income attributable to non-DPGR ($3,000 (other gross receipts) - $1,620 (allocable CGS)) . . . . . . . . . . . .
1,380
Section162sellingexpenses ..................................................................
540
Interestexpense(notincludedinCGS)...........................................................90
(2) Y determines its QPAI in the same general
manner as X. However, because Y has other trade
or business activities outside of PRS, Y must aggre-
gate its distributive share of PRS’s Federal income
tax items with its own such items. Y allocates and
apportions its deductible items to gross income at-
tributable to DPGR under the section 861 method
of §1.199–4(d). In this case, Y’s distributive share
of PRS’s section 162 selling expenses, as well as
those selling expenses from Y’s non-PRS activities,
are definitely related to all of its gross income. Based
on the facts and circumstances of this specific case,
apportionment of those expenses between DPGR and
non-DPGR on the basis of Y’s gross receipts (includ-
ing Y’s share of PRS’s gross receipts) is appropri-
ate. Y elects to apportion its distributive share of in-
terest expense under the tax book value method of
§1.861–9T(g). Y has $1,290 of gross income attribut-
able to DPGR ($3,000 DPGR ($1,500 from PRS and
$1,500 from non-PRS activities) - $1,710 CGS ($810
from PRS and $900 from non-PRS activities)). Y’s
QPAI for 2010 is $642, as shown in the following ta-
ble:
2008–14 I.R.B.706April 7, 2008

DPGR ($1,500 from PRS and $1,500 from non-PRS activities). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$3,000
CGS allocable to DPGR ($810 from PRS and $900 from non-PRS activities) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,710)
Section 162 selling expenses ($1,140 ($600 from PRS and $540 from non-PRS
activities) x $3,000 ($1,500 PRS DPGR + $1,500 non-PRS DPGR)/$7,500 ($3,000 PRS
totalgrossreceipts+$4,500non-PRStotalgrossreceipts))........................................
(456)
Interest expense (not included in CGS) ($240 ($150 from PRS and $90 from non-PRS activities) x $10,000
(Y’s non-PRS DPGR assets ($8,000) + Y’s share of PRS DPGR assets ($2,000))/$12,500
(Y’snon-PRSassets($10,000)+Y’sshareofPRSassets($2,500))).................................
(
192)
Y’sQPAI..................................................................................642
(iv)Determination of section 199 deduction.X’s
tentative section 199 deduction is $33 (.09 x $366,
that is, QPAI determined at the partner level) subject
to the W–2 wage limitation (50% of W–2 wages). Y’s
tentative section 199 deduction is $58 (.09 x $642)
subject to the W–2 wage limitation.
Example 2.Section 861 method with R&E ex-
pense.(i)Partnership Federal income tax items.X
and Y, unrelated United States corporations each of
which is engaged in a trade or business, are partners in
PRS, a partnership that engages in production activ-
ities that generate both DPGR and non-DPGR. Nei-
ther X nor Y is a member of an affiliated group. X
and Y share all items of income, gain, loss, deduction,
and credit equally. All of PRS’s domestic production
activities that generate DPGR are within Standard
Industrial Classification (SIC) Industry Group AAA
(SIC AAA). All of PRS’s production activities that
generate non-DPGR are within SIC Industry Group
BBB (SIC BBB). PRS is not able to identify from
its books and records CGS allocable to DPGR and to
non-DPGR. In this case, because CGS is definitely
related under the facts and circumstances to all of
PRS’s gross receipts, apportionment of CGS between
DPGR and non-DPGR based on gross receipts is ap-
propriate. PRS incurs $900 of research and experi-
mentation expenses (R&E) that are deductible under
section 174, $300 of which are performed with re-
spect to SIC AAA and $600 of which are performed
with respect to SIC BBB. None of the R&E is legally
mandated R&E as described in §1.861–17(a)(4) and
none is included in CGS. For 2010, PRS has the fol-
lowing Federal income tax items:
DPGR (all from sales of products within SIC AAA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,000
Non-DPGR(allfromsalesofproductswithinSICBBB).............................................3,000
CGS......................................................................................2,400
Section162sellingexpenses...................................................................840
Section174R&E-SICAAA...................................................................300
Section174R&E-SICBBB....................................................................600
(ii)Allocation of PRS’s Federal income tax items.
X and Y each receive the following distributive share
of PRS’s Federal income tax items, as determined un-
der the principles of §1.704–1(b)(1)(vii):
GrossincomeattributabletoDPGR($1,500(DPGR)-$600(CGS))....................................$900
Grossincomeattributabletonon-DPGR($1,500(othergrossreceipts)-$600(CGS)) .....................
900
Section162sellingexpenses...................................................................420
Section174R&E-SICAAA...................................................................
150
Section174R&E-SICBBB....................................................................300
(iii)Determination of QPAI.(A)X’s QPAI.Be-
cause the section 199 deduction is determined at the
partner level, X determines its QPAI by aggregat-
ing its distributive share of PRS’s Federal income tax
items with all other such items from all other, non-
PRS-related activities. For 2010, X does not have
any other such tax items. X’s only gross receipts for
2010 are those attributable to the allocation of gross
income from PRS. As stated, all of PRS’s domestic
production activities that generate DPGR are within
SIC AAA. X allocates and apportions its deductible
items to gross income attributable to DPGR under the
section 861 method of §1.199–4(d). In this case, the
section 162 selling expenses are definitely related to
all of PRS’s gross income. Based on the facts and
circumstances of this specific case, apportionment of
those expenses between DPGR and non-DPGR on
the basis of PRS’s gross receipts is appropriate. For
purposes of apportioning R&E, X elects to use the
sales method as described in §1.861–17(c). Because
X has no direct sales of products, and because all
of PRS’s SIC AAA sales attributable to X’s share
of PRS’s gross income generate DPGR, all of X’s
share of PRS’s section 174 R&E attributable to SIC
AAA is taken into account for purposes of determin-
ing X’s QPAI. Thus, X’s total QPAI for 2010 is $540,
as shown in the following table:
DPGR (all from sales of products within SIC AAA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,500
CGS......................................................................................(600)
Section162sellingexpenses($420x($1,500DPGR/$3,000totalgrossreceipts)).........................
(210)
Section174R&E-SICAAA...................................................................
(150)
X’sQPAI..................................................................................
540
(B)Y’s QPAI.(1) For 2010, in addition to the ac-
tivities of PRS, Y engages in domestic production
activities that generate both DPGR and non-DPGR.
With respect to those non-PRS activities, Y is not able
to identify from its books and records CGS alloca-
ble to DPGR and to non-DPGR. In this case, because
non-PRS CGS is definitely related under the facts and
circumstances to all of Y’s non-PRS gross receipts,
apportionment of non-PRS CGS between DPGR and
non-DPGR based on Y’s non-PRS gross receipts is
appropriate. For 2010, Y has the following non-PRS
Federal income tax items:
April 7, 20087072008–14 I.R.B.

DPGR(fromsalesofproductswithinSICAAA)...................................................
$1,500
DPGR (from sales of products within SIC BBB) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,500
Non-DPGR (from sales of products within SIC BBB) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3,000
CGS(allocatedtoDPGRwithinSICAAA).......................................................
750
CGS (allocated to DPGR within SIC BBB) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
750
CGS (allocated to non-DPGR within SIC BBB). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,500
Section162sellingexpenses...................................................................
540
Section174R&E-SICAAA...................................................................300
Section174R&E-SICBBB....................................................................
450
(2) Because Y has DPGR as a result of activities
outside PRS, Y must aggregate its distributive share
of PRS’s Federal income tax items with such items
from all its other, non-PRS-related activities. Y al-
locates and apportions its deductible items to gross
income attributable to DPGR under the section 861
method of §1.199–4(d). In this case, the section 162
selling expenses are definitely related to all of Y’s
gross income. Based on the facts and circumstances
of the specific case, apportionment of such expenses
between DPGR and non-DPGR on the basis of Y’s
gross receipts (including Y’s share of PRS’s gross re-
ceipts) is appropriate. For purposes of apportioning
R&E, Y elects to use the sales method as described in
§1.861–17(c).
(3) With respect to sales that generate DPGR, Y
has gross income of $2,400 ($4,500 DPGR ($1,500
from PRS and $3,000 from non-PRS activities) -
$2,100 CGS ($600 from sales of products by PRS
and $1,500 from non-PRS activities)). Because all
of the sales in SIC AAA generate DPGR, all of Y’s
share of PRS’s section 174 R&E attributable to SIC
AAA and the section 174 R&E attributable to SIC
AAA that Y incurs in its non-PRS activities are taken
into account for purposes of determining Y’s QPAI.
Because only a portion of the sales within SIC BBB
generate DPGR, only a portion of the section 174
R&E attributable to SIC BBB is taken into account
in determining Y’s QPAI. Thus, Y’s QPAI for 2010
is $1,282, as shown in the following table:
DPGR ($4,500 DPGR ($1,500 from PRS and $3,000 from non-PRS activities)) . . . . . . . . . . . . . . . . . . . . . . . . . .$4,500
CGS($600fromsalesofproductsbyPRSand$1,500fromnon-PRSactivities)..........................
(2,100)
Section 162 selling expenses ($960 ($420 from PRS + $540 from non-PRS activities) x
($4,500DPGR/$9,000totalgrossreceipts))....................................................
(480)
Section 174 R&E-SIC AAA ($150 from PRS and $300 from non-PRS activities) . . . . . . . . . . . . . . . . . . . . . . . . .
(450)
Section 174 R&E-SIC BBB ($750 ($300 from PRS + $450 from non-PRS activities) x ($1,500 DPGR/$6,000
total gross receipts allocated to SIC BBB ($1,500 from PRS + $4,500 from non-PRS activities)) . . . . . . . . . .
(
188)
Y’sQPAI..................................................................................1,282
(i
v)Determination of section 199 deduction.X’s
tentative section 199 deduction is $49 (.09 x $540,
that is, QPAI determined at the partner level) subject
to
the W–2 wage limitation (50% of W–2 wages). Y’s
tentative section 199 deduction is $115 (.09 x $1,282)
subject to the W–2 wage limitation.
Ex
ample 3.Partnership with special allocations.
(i)In general. X and Y are unrelated corporate part-
ners in PRS and each is engaged in a trade or busi-
n
ess. PRS is a partnership that engages in a domes-
tic production activity and other activities. In gen-
eral, X and Y share all partnership items of income,
g
ain, loss, deduction, and credit equally, except that
80% of the wage expense of PRS and 20% of PRS’s
other expenses are specially allocated to X. Under
all the facts and circumstances, these special alloca-
tions have substantial economic effect under section
704(b). In the 2010 taxable year, PRS’s only wage ex-
pense is $2,000 for marketing, which is not included
in CGS. PRS has $8,000 of gross receipts ($6,000 of
which is DPGR), $4,000 of CGS ($3,500 of which is
allocable to DPGR), and $3,000 of deductions (com-
prised of $2,000 of wage expense for marketing and
$1,000 of other expenses). X qualifies for and uses
the simplified deduction method under §1.199–4(e).
Y does not qualify to use that method and, therefore,
must use the section 861 method under §1.199–4(d).
In the 2010 taxable year, X has gross receipts attrib-
utable to non-partnership trade or business activities
of $1,000 and wage expense of $200. None of X’s
non-PRS gross receipts is DPGR. For purposes of this
Example 3, with regard to both X and PRS, paragraph
(e)(1) wages equal wage expense for the 2010 taxable
year.
(i
i)Allocation and apportionment of costs. Under
the partnership agreement, X’s distributive share of
the Federal income tax items of PRS is $1,250 of
gr
oss income attributable to DPGR ($3,000 DPGR
- $1,750 allocable CGS), $750 of gross income at-
tributable to non-DPGR ($1,000 non-DPGR - $250
a
llocable CGS), and $1,800 of deductions (com-
prised of X’s special allocations of $1,600 of wage
expense ($2,000 x 80%) for marketing and $200 of
o
ther expenses ($1,000 x 20%)). Under the simpli-
fied deduction method, X apportions $1,200 of other
deductions to DPGR ($2,000 ($1,800 from the part-
nership and $200 from non-partnership activities)
x ($3,000 DPGR/$5,000 total gross receipts)). Ac-
cordingly, X’s QPAI is $50 ($3,000 DPGR - $1,750
CGS - $1,200 of deductions). X has $1,800 of para-
graph (e)(1) wages ($1,600 (X’s 80% share) from
PRS + $200 (X’s own non-PRS paragraph (e)(1)
wages)). To calculate its W–2 wages, X must deter-
mine how much of this $1,800 is properly allocable
under §1.199–2(e)(2) to X’s total DPGR (including
X’s share of DPGR from PRS). Thus, X’s tentative
section 199 deduction for the 2010 taxable year is
$5 (.09 x $50), subject to the W–2 wage limitation
(50% of X’s W–2 wages).
Example 4.Partnership with no paragraph (e)(1)
wages.(i)Facts. AandB,bothindividuals,are
partners in PRS. PRS is a partnership that engages
in manufacturing activities that generate both DPGR
and non-DPGR. A and B share all items of income,
gain, loss, deduction, and credit equally. For the
2010 taxable year, PRS has total gross receipts of
$2,000 ($1,000 of which is DPGR), CGS of $400
and deductions of $800. PRS has no paragraph
(e)(1) wages. Each partner’s distributive share of
PR
S’s Federal income tax items is $500 DPGR, $500
non-DPGR, $200 CGS, and $400 of deductions.
A has trade or business activities outside of PRS
(n
on-PRS activities). With respect to those activities,
A has total gross receipts of $1,000 ($500 of which
is DPGR), CGS of $400 (including $50 of paragraph
(
e)(1) wages), and deductions of $200 for the 2010
taxable year. B has no trade or business activities
outside of PRS. A and B each use the small business
s
implified overall method under §1.199–4(f).
(ii)A’s QPAI. A’s total CGS and deductions
apportioned to DPGR equal $600 (($1,200 ($200
P
RS CGS + $400 non-PRS CGS + $400 PRS deduc-
tions + $200 non-PRS trade or business deductions))
x ($1,000 total DPGR ($500 from PRS + $500
from non-PRS activities)/$2,000 total gross receipts
($1,000 from PRS + $1,000 from non-PRS activ-
ities))). Accordingly, A’s QPAI is $400 ($1,000
DPGR ($500 from PRS + $500 from non-PRS activ-
ities) - $600 CGS and deductions).
(iii)A’s W–2 wages and section 199 deduction.
A has $50 of paragraph (e)(1) wages ($0 from PRS
+ $50 from A’s non-PRS activities). To calculate
A’s W–2 wages, A determines, under a reasonable
method satisfactory to the Secretary, that $40 of this
$50 is properly allocable under §1.199–2(e)(2) to A’s
DPGR from PRS and non-PRS activities. A’s tenta-
tive section 199 deduction is $36 (.09 x $400), sub-
ject to the W–2 wage limitation of $20 (50% of W–2
wages of $40). Thus, A’s section 199 deduction is
$20.
(iv)B’s QPAI and section 199 deduction.B’s
CGS and deductions apportioned to DPGR equal
$300 (($200 PRS CGS + $400 PRS deductions) x
($500 DPGR from PRS /$1,000 total gross receipts
2008–14 I.R.B.708April 7, 2008

from PRS)). Accordingly, B’s QPAI is $200 ($500
DPGR - $300 CGS and deductions). B’s tentative
section 199 deduction is $18 (.09 x $200), subject to
the W–2 wage limitation. In this case, however, the
limitation is $0, because B has no paragraph (e)(1)
wages. Thus, B’s section 199 deduction is $0.
Example 5.Guaranteed payment.(i)Facts.The
facts are the same as inExample 4, except that in
2010 PRS also makes a guaranteed payment of $200
to A for services rendered by A (see section 707(c)),
and PRS incurs $200 of wage expense for employ-
ees’ salary, which is included within the $400 of CGS
(in this case the wage expense of $200 equals PRS’s
paragraph (e)(1) wages). The guaranteed payment
is taxable to A as ordinary income and is properly
deducted by PRS under section 162. Pursuant to
§1.199–3(p), A may not treat any part of this pay-
ment as DPGR. Accordingly, PRS has total gross re-
ceipts of $2,000 ($1,000 of which is DPGR), CGS of
$400 (including $200 of wage expense) and deduc-
tions of $1,000 (including the $200 guaranteed pay-
ment) for the 2010 taxable year. Each partner’s dis-
tributive share of the items of the partnership is $500
DPGR, $500 non-DPGR, $200 CGS (including $100
of wage expense), and $500 of deductions.
(ii)A’s QPAI and W–2 wages.A’stotalCGSand
deductions apportioned to DPGR equal $591 ($1,300
($200 PRS CGS + $400 non-PRS CGS + $500 PRS
deductions + $200 non-PRS trade or business de-
ductions) x ($1,000 total DPGR ($500 from PRS +
$500 from non-PRS activities)/$2,200 total gross re-
ceipts ($1,000 from PRS + $200 guaranteed payment
+ $1,000 from non-PRS activities))). Accordingly,
A’s QPAI is $409 ($1,000 DPGR - $591 CGS and
other deductions). A’s total paragraph (e)(1) wages
are $150 ($100 from PRS + $50 from non-PRS ac-
tivities). To calculate its W–2 wages, A must deter-
mine how much of this $150 is properly allocable un-
der §1.199–2(e)(2) to A’s total DPGR from PRS and
non-PRS activities. A’s tentative section 199 deduc-
tion is $37 (.09 x $409), subject to the W–2 wage lim-
itation (50% of W–2 wages).
(iii)B’s QPAI and W–2 wages. B’s QPAI is $150
($500 DPGR - $350 CGS and other deductions).
B has $100 of paragraph (e)(1) wages (all from
PRS). To calculate its W–2 wages, B must determine
how much of this $100 is properly allocable under
§1.199–2(e)(2) to B’s total DPGR. B’s tentative
section 199 deduction is $14 (.09 x $150), subject to
the W–2 wage limitation (50% of B’s W–2 wages).
(c)S corporations—(1)In general—(i)
Determination at shareholder level.The
section 199 deduction with respect to the
qualified production activities of an S cor-
poration is determined at the shareholder
level. As a result, each shareholder must
compute its deduction separately. The sec-
tion 199 deduction has no effect on the ad-
justed basis of a shareholder’s stock in an
S corporation. Except as provided by pub-
lication pursuant to paragraph (c)(1)(ii) of
this section, for purposes of this section,
each shareholder is allocated, in accor-
dance with section 1366, itspro ratashare
of S corporation items (including items of
income, gain, loss, and deduction), CGS
allocated to such items of income, and
gross receipts included in such items of in-
come, even if the shareholder’s share of
CGS and other deductions and losses ex-
ceeds DPGR. Except as provided by pub-
lication under paragraph (c)(1)(ii) of this
section, to determine its section 199 deduc-
tion for the taxable year, the shareholder
aggregates itspro ratashare of such items,
to the extent they are not otherwise disal-
lowed by the Code, with those items it in-
curs outside the S corporation (whether di-
rectly or indirectly) for purposes of allocat-
ing and apportioning deductions to DPGR
and computing its QPAI.
(ii)Determination at entity level.
The Secretary may, by publication
in the Internal Revenue Bulletin (see
§601.601(d)(2)(ii)(b)ofthischapter),per-
mit an S corporation to calculate a share-
holder’s share of QPAI and W–2 wages at
the entity level, instead of allocating to the
shareholder, in accordance with section
1366, the shareholder’spro ratashare of
S corporation items (including items of
income, gain, loss, and deduction) and
paragraph (e)(1) wages. If an S corpo-
ration does calculate QPAI at the entity
level—
(A) Each shareholder is allocated its
share of QPAI (subject to the limitations of
paragraph (c)(2) of this section) and W–2
wages from the S corporation, which are
combined with the shareholder’s QPAI and
W–2 wages from other sources, if any;
(B) For purposes of computing the
shareholder’s QPAI under §§1.199–1
through 1.199–8, a shareholder does not
take into account the items from the
S corporation (for example, a shareholder
does not take into account items from the
S corporation in determining whether a
threshold orde minimisrule applies or in
allocating and apportioning deductions) in
calculating its QPAI from other sources;
(C) A shareholder generally does not
recompute its share of QPAI from the
S corporation using another method;
however, the shareholder might have
to adjust its share of QPAI from the
S corporation to take into account certain
disallowed losses or deductions, or
the allowance of suspended losses or
deductions; and
(D) A shareholder’s share of QPAI from
an S corporation may be less than zero.
(2)Disallowed losses or deduc-
tions.Except as provided by publication
in the Internal Revenue Bulletin (see
§601.601(d)(2)(ii)(b)ofthischapter),
losses or deductions of the S corporation
are taken into account in computing the
shareholder’s QPAI for a taxable year
only if, and to the extent that, the share-
holder’spro ratashare of the losses or
deductions from all of the S corporation’s
activities is not disallowed by section 465,
469, or 1366(d), or any other provision
of the Code. If only a portion of the
shareholder’s share of the losses or de-
ductions from an S corporation is allowed
for a taxable year, a proportionate share
of those allowed losses or deductions that
are allocated to the S corporation’s quali-
fied production activities, determined in a
manner consistent with sections 465, 469,
and 1366(d), and any other applicable pro-
vision of the Code, is taken into account
in computing QPAI for that taxable year.
To the extent that any of the disallowed
losses or deductions are allowed in a later
taxable year under section 465, 469, or
1366(d), or any other provision of the
Code, the shareholder takes into account
a proportionate share of those allowed
losses or deductions that are allocated to
the S corporation’s qualified production
activities in computing the shareholder’s
QPAI for that later taxable year. Losses
or deductions of the S corporation that are
disallowed for taxable years beginning on
or before December 31, 2004, however,
are not taken into account in a later taxable
year for purposes of computing the share-
holder’s QPAI for that later taxable year,
whether or not the losses or deductions are
allowed for other purposes.
(3)Shareholder’s share of para-
graph (e)(1) wages. Under section
199(d)(1)(A)(iii), an S corporation share-
holder’s share of the paragraph (e)(1)
wages of the S corporation for purposes of
determining the shareholder’s W–2 wage
limitation equals the shareholder’s alloca-
ble share of those wages. Except as pro-
vided by publication in the Internal Rev-
enue Bulletin (see §601.601(d)(2)(ii)(b)
of this chapter), the S corporation must
allocate the paragraph (e)(1) wages among
the shareholders in the same manner it al-
locates wage expense among those share-
holders. The shareholder then must add its
share of the paragraph (e)(1) wages from
the S corporation to theshareholder’s para-
graph (e)(1) wages from other sources,
if any, and then must determine the por-
April 7, 20087092008–14 I.R.B.

tion of those total paragraph (e)(1) wages
allocable to DPGR to compute the share-
holder’s W–2 wages. See §1.199–2(e)(2)
for the computation of W–2 wages and
for the proper allocation of such wages to
DPGR.
(4)Transition rule for definition of W–2
wages and for W–2 wage limitation.If
an S corporation and any of its sharehold-
ers have different taxable years, only one
of which begins after May 17, 2006, the
definition of W–2 wages of the S corpo-
ration and the section 199(d)(1)(A)(iii)
rule for determining a shareholder’s share
of wages from that S corporation is de-
termined under the law applicable to
S corporations based on the beginning
date of the S corporation’s taxable year.
Thus, for example, for the short taxable
year of an S corporation beginning after
May 17, 2006, and ending in 2006, a
shareholder’s share of W–2 wages from
the S corporation is determined under
section 199(d)(1)(A)(iii) for taxable years
beginning after May 17, 2006, even if that
shareholder’s taxable year began on or
before May 17, 2006.
(d)Grantor trusts. To the extent that
the grantor or another person is treated as
owning all or part (the owned portion) of a
trust under sections 671 through 679, such
person (owner) computes its QPAI with re-
spect to the owned portion of the trust as
if that QPAI had been generated by activi-
ties performed directly by the owner. Sim-
ilarly, for purposes of the W–2 wage limi-
tation, the owner of the trust takes into ac-
count the owner’s share of the paragraph
(e)(1) wages of the trust that are attribut-
able to the owned portion of the trust. The
provisions of paragraph (e) of this section
do not apply to the owned portion of a trust.
(e)Non-grantor trusts and estates—(1)
Allocation of costs. The trust or estate cal-
culates each beneficiary’s share (as well
as the trust’s or estate’s own share, if any)
of QPAI and W–2 wages from the trust
or estate at the trust or estate level. The
beneficiary of a trust or estate may not re-
compute its share of QPAI or W–2 wages
from the trust or estate by using another
method to reallocate the trust’s or estate’s
qualified production costs or paragraph
(e)(1) wages, or otherwise. Except as
provided in paragraph (d) of this section,
theQPAIofatrustorestatemustbecom-
puted by allocating expenses described
in section 199(d)(5) in one of two ways,
depending on the classification of those
expenses under §1.652(b)–3. Specifically,
directly attributable expenses within the
meaning of §1.652(b)–3 are allocated pur-
suant to §1.652(b)–3, and expenses not
directly attributable within the meaning of
§1.652(b)–3 (other expenses) are allocated
under the simplified deduction method
of §1.199–4(e) (unless the trust or estate
does not qualify to use the simplified de-
duction method, in which case it must use
the section 861 method of §1.199–4(d)
with respect to such other expenses). For
this purpose, depletion and depreciation
deductions described in section 642(e) and
amortization deductions described in sec-
tion 642(f) are treated as other expenses
described in section 199(d)(5). Also for
this purpose, the trust’s or estate’s share of
other expenses from a lower-tier pass-thru
entity is not directlyattributable to any
class of income (whether or not those
other expenses are directly attributable to
the aggregate pass-thru gross income as a
class for purposes other than section 199).
A trust or estate may not use the small
business simplified overall method for
computing its QPAI. See §1.199–4(f)(5).
(2)Allocation among trust or estate and
beneficiaries—(i)In general. The QPAI
of a trust or estate (which will be less
than zero if the CGS and deductions allo-
cated and apportioned to DPGR exceed the
trust’s or estate’s DPGR) and W–2 wages
of a trust or estate are allocated to each
beneficiary and to the trust or estate based
on the relative proportion of the trust’s or
estate’s distributable net income (DNI), as
defined by section 643(a), for the taxable
year that is distributed or required to be
distributed to the beneficiary or is retained
by the trust or estate. For this purpose, the
trust or estate’s DNI is determined with re-
gard to the separate share rule of section
663(c), but without regard to section 199.
To the extent that the trust or estate has no
DNI for the taxable year, any QPAI and
W–2 wages are allocated entirely to the
trust or estate. A trust or estate is allowed
the section 199 deduction in computing its
taxable income to the extent that QPAI and
W–2 wages are allocated to the trust or es-
tate. A beneficiary of a trust or estate is
allowed the section 199 deduction in com-
puting its taxable income based on its share
of QPAI and W–2 wages from the trust or
estate, which are aggregated with the bene-
ficiary’s QPAI and W–2 wages from other
sources, if any.
(ii)Treatment of items from a trust or
estate reporting qualified production ac-
tivities income. When, pursuant to this
paragraph (e), a taxpayer must combine
QPAI and W–2 wages from a trust or es-
tate with the taxpayer’s total QPAI and
W–2 wages from other sources, the tax-
payer, when applying §§1.199–1 through
1.199–8 to determine the taxpayer’s to-
tal QPAI and W–2 wages from such other
sources, does not take into account the
items from such trust or estate. Thus, for
example, a beneficiary of an estate that re-
ceives QPAI from the estate does not take
into account the beneficiary’s distributive
share of the estate’s gross receipts, gross
income, or deductions when the benefi-
ciary determines whether a threshold orde
minimisrule applies or when the benefi-
ciary allocates and apportions deductions
in calculating its QPAI from other sources.
Similarly, in determining the portion of the
beneficiary’s paragraph (e)(1) wages from
other sources that is attributable to DPGR
(thus, the W–2 wages from other sources),
the beneficiary does not take into account
DPGR and non-DPGR from the trust or es-
tate.
(3)Transition rule for definition of W–2
wages and for W–2 wage limitation.The
definition of W–2 wages of a trust or estate
and the section 199(d)(1)(A)(iii) rule for
determining the respective shares of wages
from that trust or estate, and thus the ben-
eficiary’s share of W–2 wages from that
trust or estate, is determined under the law
applicable to pass-thru entities based on
the beginning date of the taxable year of
the trust or estate, regardless of the begin-
ning date of the taxable year of the benefi-
ciary.
(4)Example. The following example
illustrates the application of this paragraph
(e). Assume that the partnership, trust,
and trust beneficiary all are calendar year
taxpayers. The example reads as follows:
Example.(i)Computation of DNI and inclusion
and deduction amounts.(A)Trust’s distributive share
of partnership items.Trust,acomplextrust,isapart-
ner in PRS, a partnership that engages in activities
that generate DPGR and non-DPGR. In 2010, PRS
distributes $10,000 cash to Trust. PRS properly al-
locates (in the same manner as wage expense) para-
graph (e)(1) wages of $3,000 to Trust. Trust’s dis-
tributive share of PRS items, which are properly in-
cluded in Trust’s DNI, is as follows:
2008–14 I.R.B.710April 7, 2008

Gross income attributable to DPGR ($15,000 DPGR - $5,000 CGS (including wage expense of $1,000)). . . . . . .$10,000
Grossincomeattributabletonon-DPGR($5,000othergrossreceipts-$0CGS) ..........................
5,000
Selling expenses attributable to DPGR (includes wage expense of $2,000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,000
Otherexpenses(includeswageexpenseof$1,000) .................................................
2,000
(B)Trust’s direct activities. In addition to its
cash distribution in 2010 from PRS, Trust directly has
the following items which are properly included in
Trust’s DNI:
Dividends..................................................................................
$10,000
Tax-exemptinterest..........................................................................10,000
RentsfromcommercialrealpropertyoperatedbyTrustasabusiness...................................10,000
Realestatetaxes.............................................................................1,000
Trusteecommissions.........................................................................3,000
Stateincomeandpersonalpropertytaxes.........................................................
5,000
Wageexpenseforrentalbusiness(directparagraph(e)(1)wages)......................................2,000
Otherbusinessexpenses ......................................................................1,000
(C)Allocation of deductions under §1.652(b)–3.
(1)Directly attributable expenses. In computing
Trust’s DNI for the taxable year, the distributive
share of expenses of PRS are directly attributable
under §1.652(b)–3(a) to the distributive share of
income of PRS. Accordingly, the $5,000 of CGS,
$3,000 of selling expenses, and $2,000 of other ex-
penses are subtracted from the gross receipts from
PRS ($20,000), resulting in net income from PRS of
$10,000. With respect to the Trust’s direct expenses,
$1,000 of the trustee commissions, the $1,000 of
real estate taxes, and the $2,000 of wage expense
are directly attributable under §1.652(b)–3(a) to the
rental income.
(2)Non-directly attributable expenses. Under
§1.652(b)–3(b), the trustee must allocate a portion
of the sum of the balance of the trustee commissions
($2,000), state income and personal property taxes
($5,000), and the other business expenses ($1,000) to
the $10,000 of tax-exempt interest. The portion to be
attributed to tax-exempt interest is $2,222 ($8,000 x
($10,000 tax exempt interest/$36,000 gross receipts
net of direct expenses)), resulting in $7,778 ($10,000
- $2,222) of net tax-exempt interest. Pursuant to
its authority recognized under §1.652(b)–3(b), the
trustee allocates the entire amount of the remaining
$5,778 of trustee commissions, state income and
personal property taxes, and other business expenses
to the $6,000 of net rental income, resulting in $222
($6,000 - $5,778) of net rental income.
(D)Amounts included in taxable income.For
2010, Trust has DNI of $28,000 (net dividend in-
come of $10,000 + net PRS income of $10,000 + net
rental income of $222 + net tax-exempt income of
$7,778). Pursuant to Trust’s governing instrument,
Trustee distributes 50%, or $14,000, of that DNI to
B, an individual who is a discretionary beneficiary of
Trust. Assume that there are no separate shares under
Trust, and no distributions are made to any other ben-
eficiary that year. Consequently, with respect to the
$14,000 distribution B receives from Trust, B prop-
erly includes in B’s gross income $5,000 of income
from PRS, $111 of rents, and $5,000 of dividends,
and properly excludes from B’s gross income $3,889
of tax-exempt interest. Trust includes $20,222 in its
adjusted total income and deducts $10,111 under sec-
tion 661(a) in computing its taxable income.
(ii)Section 199 deduction.(A)Simplified deduc-
tion method. For purposes of computing the section
199 deduction for the taxable year, assume Trust
qualifies for the simplified deduction method under
§1.199–4(e). The determination of Trust’s QPAI un-
der the simplified deduction method requires multiple
steps to allocate costs. First, the Trust’s expenses
directly attributable to DPGR under §1.652(b)–3(a)
are subtracted from the Trust’s DPGR. In this step,
the directly attributable $5,000 of CGS and sell-
ing expenses of $3,000 are subtracted from the
$15,000 of DPGR from PRS. Second, the Trust’s
expenses directly attributable under §1.652(b)–3(a)
to non-DPGR from a trade or business are subtracted
from the Trust’s trade or business non-DPGR. In this
step, $4,000 of Trust expenses directly allocable to
the real property rental activity ($1,000 of real estate
taxes, $1,000 of Trustee commissions, and $2,000
of wages) are subtracted from the $10,000 of rental
income. Third, Trust must identify the portion of
its other expenses that is attributable to Trust’s trade
or business activities, if any, because expenses not
attributable to trade or business activities are not
taken into account in computing QPAI. In this step,
in this example, the portion of the trustee commis-
sions not directly attributable to the rental operation
($2,000) is directly attributable to non-trade or busi-
ness activities. In addition, the state income and
personal property taxes are not directly attributable
under §1.652(b)–3(a) to either trade or business or
non-trade or business activities, so the portion of
those taxes not attributable to either the PRS interests
or the rental operation is not a trade or business
expense and, thus, is not taken into account in com-
puting QPAI. The portion of the state income and
personal property taxes that is treated as an other trade
or business expense is $3,000 ($5,000 x $30,000 total
trade or business gross receipts/$50,000 total gross
receipts). Fourth, Trust then allocates its other trade
or business expenses (not directly attributable under
§1.652(b)–3(a)) between DPGR and non-DPGR on
the basis of its total gross receipts from the conduct
of a trade or business ($20,000 from PRS + $10,000
rental income). Thus, Trust combines its non-directly
attributable (other) business expenses ($2,000 from
PRS + $4,000 ($1,000 of other business expenses +
$3,000 of income and property taxes allocated to a
trade or business) from its own activities) and then
apportions this total ($6,000) between DPGR and
other receipts on the basis of Trust’s total trade or
business gross receipts ($6,000 of such expenses x
$15,000 DPGR/$30,000 total trade or business gross
receipts = $3,000). Thus, for purposes of computing
Trust’s and B’s section 199 deduction, Trust’s QPAI
is $4,000 ($7,000 ($15,000 DPGR - $5,000 CGS
- $3,000 selling expenses) - $3,000). Because the
distribution of Trust’s DNI to B equals one-half of
Trust’s DNI, Trust and B each has QPAI from PRS
for purposes of the section 199 deduction of $2,000.
B has $1,000 of QPAI from non-Trust activities that
is added to the $2,000 QPAI from Trust for a total of
$3,000 of QPAI.
(B)W–2 wages. For the 2010 taxable year, Trust
chooses to use the wage expense safe harbor under
§1.199–2(e)(2)(ii) to determine its W–2 wages. For
its taxable year ending December 31, 2010, Trust has
$5,000 ($3,000 from PRS + $2,000 of Trust) of para-
graph (e)(1) wages reported on 2010 Forms W–2.
Trust’s W–2 wages are $2,917, as shown in the fol-
lowing table:
April 7, 20087112008–14 I.R.B.

WageexpenseincludedinCGSdirectlyattributabletoDPGR.........................................
$1,000
Wage expense included in selling expense directly attributable to DPGR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2,000
Wage expense included in non-directly attributable deductions ($1,000 in wage expense x
($15,000DPGR/$30,000totaltradeorbusinessgrossreceipts))....................................
5
00
WageexpenseallocabletoDPGR...............................................................
3,500
W–2 wages (($3,500 of wage expense allocable to DPGR/$6,000 of total wage expense) x $5,000
inparagraph(e)(1)wages)..................................................................
$2,917
(C)Section 199 deduction computation.(1)B’s
computation. B is eligible to use the small business
simp
lified overall method. Assume that B has suf-
ficient adjusted gross income so that the section 199
deduction is not limited under section 199(a)(1)(B).
Beca
use the $14,000 Trust distribution to B equals
one-half of Trust’s DNI, B has W–2 wages from Trust
of $1,459 (50% x $2,917). B has W–2 wages of $100
fro
m trade or business activities outside of Trust and
attributable to DPGR (computed without regard to
B’s interest in Trust pursuant to §1.199–2(e)) for a
tot
al of $1,559 of W–2 wages. B has $1,000 of QPAI
from non-Trust activities that is added to the $2,000
QPAI from Trust for a total of $3,000 of QPAI. B’s
te
ntative deduction is $270 (.09 x $3,000), limited un-
der the W–2 wage limitation to $780 (50% x $1,559
W–2 wages). Accordingly, B’s section 199 deduction
fo
r 2010 is $270.
(2)Trust’s computation. Trust has sufficient ad-
justed gross income so that the section 199 deduction
is
not limited under section 199(a)(1)(B). Because
the $14,000 Trust distribution to B equals one-half
of Trust’s DNI, Trust has W–2 wages of $1,459 (50%
x
$2,917). Trust’s tentative deduction is $180 (.09 x
$2,000 QPAI), limited under the W–2 wage limitation
to $730 (50% x $1,459 W–2 wages). Accordingly,
T
rust’s section 199 deduction for 2010 is $180.
(
f)Gain or loss from the disposition of
a
n interest in a pass-thru entity.DPGR
g
enerally does not include gain or loss rec-
o
gnized on the sale, exchange, or other dis-
position of an interest in a pass-thru entity.
However, with respect to a partnership, if
section 751(a) or (b) applies, then gain or
loss attributable to assets of the partnership
giving rise to ordinary income under sec-
tion 751(a) or (b), the sale, exchange, or
other disposition of which would give rise
to DPGR, is taken into account in com-
puting the partner’s section 199 deduc-
tion. Accordingly, to the extent that cash
or property received by a partner in a sale
or exchange of all or part of its partner-
ship interest is attributable to unrealized
receivables or inventory items within the
meaning of section 751(c) or (d), respec-
tively, and the sale or exchange of the unre-
alized receivable or inventory items would
give rise to DPGR if sold, exchanged, or
otherwise disposed of by the partnership,
the cash or property received by the part-
ner is taken into account by the partner
in determining its DPGR for the taxable
year. Likewise, to the extent that a dis-
tribution of property to a partner is treated
under section 751(b) as a sale or exchange
of property between the partnership and
the distributee partner, and any property
deemed sold or exchanged would give rise
to DPGR if sold, exchanged, or otherwise
disposed of by the partnership, the deemed
sale or exchange of the property must be
taken into account in determining the part-
nership’s and distributee partner’s DPGR
to the extent not taken into account under
the qualifying in-kind partnership rules.
See §§1.751–1(b) and 1.199–3(i)(7).
(g)No attribution of qualified activi-
ties. Except as provided in §1.199–3(i)(7)
regarding qualifying in-kind partnerships
and §1.199–3(i)(8) regarding EAG part-
nerships, an owner of a pass-thru entity
is not treated as conducting the qualified
production activities of the pass-thru en-
tity, and vice versa. This rule applies to all
partnerships, including partnerships that
have elected out of subchapter K under
section 761(a). Accordingly, if a partner-
ship manufactures QPP within the United
States, or produces a qualified film or
produces utilities in the United States, and
distributes or leases, rents, licenses, sells,
exchanges, or otherwise disposes of such
property to a partner who then, without
performing its own qualifying activity,
leases, rents, licenses, sells, exchanges,
or otherwise disposes of such property,
then the partner’s gross receipts from
this latter lease, rental, license, sale, ex-
change, or other disposition are treated as
non-DPGR. In addition, if a partner man-
ufactures QPP within the United States, or
produces a qualified film or produces util-
ities in the United States, and contributes
or leases, rents, licenses, sells, exchanges,
or otherwise disposes of such property
to a partnership which then, without per-
forming its own qualifying activity, leases,
rents, licenses, sells, exchanges, or other-
wise disposes of such property, then the
partnership’s gross receipts from this latter
disposition are treated as non-DPGR.
§1.199–5T [Removed]
Par. 10. Section 1.199–5T is removed.
Par. 11. Section 1.199–7 is amended
by revising paragraph (b)(4) to read as fol-
lows:
§1.199–7 Expanded affiliated groups.
*****
(b) * * *
(4)Losses used to reduce taxable in-
come of expanded affiliated group—(i)
In general. The amount of an NOL sus-
tained by any member of an EAG that is
used in the year sustained in determin-
ing an EAG’s taxable income limitation
under section 199(a)(1)(B) is not treated
as an NOL carryover or NOL carryback
to any taxable year in determining the
taxable income limitation under section
199(a)(1)(B). For purposes of this para-
graph (b)(4), an NOL is considered to be
used if it reduces an EAG’s aggregate tax-
able income, regardless of whether the use
of the NOL actually reduces the amount
of the section 199 deduction that the EAG
would otherwise derive. An NOL is not
considered to be used to the extent that it
reduces an EAG’s aggregate taxable in-
come to an amount less than zero. If more
than one member of an EAG has an NOL
used in the same taxable year to reduce
the EAG’s taxable income, the members’
respective NOLs are deemed used in pro-
portion to the amount of their NOLs.
(ii)Examples. The following exam-
ples illustrate the application of this para-
graph (b)(4). For purposes of these exam-
ples, assume that all relevant parties have
sufficient W–2 wages so that the section
199 deduction is not limited under section
199(b)(1). The examples read as follows:
Example 1.(i)Facts. Corporations A and B are
the only two members of an EAG. A and B are both
calendar year taxpayers, and they do not join in the fil-
ing of a consolidated Federal income tax return. Nei-
ther A nor B had taxable income or loss prior to 2010.
In 2010, A has QPAI and taxable income of $1,000,
and B has QPAI of $1,000 and an NOL of $1,500. In
2011, A has QPAI of $2,000 and taxable income of
$1,000 and B has QPAI of $2,000 and taxable income
2008–14 I.R.B.712April 7, 2008

prior to the NOL deduction allowed under section 172
of $2,000.
(ii)Section 199 deduction for 2010. In determin-
ing the EAG’s section 199 deduction for 2010, A’s
$1,000 of QPAI and B’s $1,000 of QPAI are aggre-
gated, as are A’s $1,000 of taxable income and B’s
$1,500 NOL. Thus, for 2010, the EAG has QPAI of
$2,000 and taxable income of ($500). The EAG’s
section 199 deduction for 2010 is 9% of the lesser of
its QPAI or its taxable income. Because the EAG has
a taxable loss in 2010, the EAG’s section 199 deduc-
tion is $0.
(iii)Section 199 deduction for 2011. In determin-
ing the EAG’s section 199 deduction for 2011, A’s
$2,000 of QPAI and B’s $2,000 of QPAI are aggre-
gated, giving the EAG QPAI of $4,000. Also, $1,000
of B’s NOL from 2010 was used in 2010 to reduce the
EAG’s taxable income to $0. The remaining $500 of
B’s 2010 NOL is not considered to have been used in
2010 because it reduced the EAG’s taxable income
below $0. Accordingly, for purposes of determin-
ing the EAG’s taxable income limitation under sec-
tion 199(a)(1)(B) in 2011, B is deemed to have only a
$500 NOL carryover from 2010 to offset a portion of
its 2011 taxable income. Thus, B’s taxable income in
2011 is $1,500 which is aggregated with A’s $1,000
of taxable income. The EAG’s taxable income limi-
tation in 2011 is $2,500. The EAG’s section 199 de-
duction is 9% of the lesser of its QPAI of $4,000 or
its taxable income of $2,500. Thus, the EAG’s sec-
tion 199 deduction in 2011 is 9% of $2,500, or $225.
The results would be the same if neither A nor B had
QPAI in 2010.
Example 2. The facts are the same as inExample
1except that in 2010 B was not a member of the same
EAG as A, but instead was a member of an EAG with
Corporation X, which had QPAI and taxable income
of $1,000 in 2010, and had neither taxable income nor
loss in any other year. There were no other members
of the EAG in 2010 besides B and X, and B and X did
not file a consolidated Federal income tax return. As
$1,000 of B’s NOL was used in 2010 to reduce the B
and X EAG’s taxable incometo $0, B is considered to
have only a $500 NOL carryover from 2010 to offset a
portion of its 2011 taxable income for purposes of the
taxable income limitation under section 199(a)(1)(B),
just as inExample 1. Accordingly, the results for the
A and B EAG in 2011 are the same as inExample 1.
Example 3. The facts are the same as inExample
1except that B is not a member of any EAG in 2011.
Because $1,000 of B’s NOL was used in 2010 to re-
duce the EAG’s taxable income to $0, B is consid-
ered to have only a $500 NOL carryover from 2010
to offset a portion of its 2011 taxable income for pur-
poses of the taxable income limitation under section
199(a)(1)(B), just as inExample 1. Thus, for pur-
poses of determining B’s taxable income limitation
in 2011, B is considered to have taxable income of
$1,500, and B has a section 199 deduction of 9% of
$1,500, or $135.
Example 4. Corporations A, B, and C are the
only members of an EAG. A, B, and C are all calen-
dar year taxpayers, and they do not join in the filing
of a consolidated Federal income tax return. None
of the EAG members (A, B, or C) had taxable in-
come or loss prior to 2010. In 2010, A has QPAI of
$2,000 and taxable income of $1,000, B has QPAI of
$1,000 and an NOL of $1,000, and C has QPAI of
$1,000 and an NOL of $3,000. In 2011, prior to the
NOL deduction allowed under section 172, A and B
each has taxable income of $200 and C has taxable
income of $5,000. In determining the EAG’s sec-
tion 199 deduction for 2010, A’s QPAI of $2,000, B’s
QPAI of $1,000, and C’s QPAI of $1,000 are aggre-
gated, as are A’s taxable income of $1,000, B’s NOL
of $1,000, and C’s NOL of $3,000. Thus, for 2010,
the EAG has QPAI of $4,000 and taxable income of
($3,000). In determining the EAG’s taxable income
limitation under section 199(a)(1)(B) in 2011, $1,000
of B’s and C’s aggregate NOLs in 2010 of $4,000 are
considered to have been used in 2010 to reduce the
EAG’s taxable income to $0, in proportion to their
NOLs. Thus, $250 of B’s NOL from 2010 ($1,000
x $1,000/$4,000) and $750 of C’s NOL from 2010
($1,000 x $3,000/$4,000) are deemed to have been
used in 2010. The remaining $750 of B’s NOL and
the remaining $2,250 of C’s NOL are not deemed to
have been used because so doing would have reduced
the EAG’s taxable income in 2010 below $0. Accord-
ingly, for purposes of determining the EAG’s taxable
income limitation in 2011, B is deemed to have a $750
NOL carryover from 2010 and C is deemed to have
a $2,250 NOL carryover from 2010. Thus, for pur-
poses of determining the EAG’s taxable income lim-
itation, B’s taxable income in 2011 is $0 and C’s tax-
able income in 2011 is $2,750, which are aggregated
with A’s $200 taxable income. B’s unused NOL car-
ryover from 2010 cannot be used to reduce either A’s
or C’s 2011 taxable income. Thus, the EAG’s taxable
income limitation in 2011 is $2,950, A’s taxable in-
come of $200 plus B’s taxable income of $0 plus C’s
taxable income of $2,750.
*****
§1.199–7T [Removed]
Par. 12. Section 1.199–7T is removed.
Par. 13. Section 1.199–8 is amended
by:
1.Removing the language
“§1.199–9(j)” in paragraph (e)(1)(i) and
adding the language “§§1.199–3(i)(8) and
1.199–9(j)” in its place.
2.Removing the language
“§1.199–9(i)” in paragraph (e)(1)(i) and
adding the language “§§1.199–3(i)(7) and
1.199–9(i)” in its place.
3.Removing the language
“§1.199–9(i)” in paragraph (e)(1)(ii)(B)
and adding the language “§1.199–3(i)(7)
or §1.199–9(i)” in its place.
4. Revising the last two sentences in
paragraph (h).
5. Revising paragraphs (i)(5) and (i)(6).
The revisions read as follows:
§1.199–8 Other rules.
*****
(h)Disallowed losses or deductions.
* * * For taxpayers that are partners
in partnerships, see §§1.199–5(b)(2)
and 1.199–9(b)(2). For taxpayers that
are shareholders in S corporations, see
§§1.199–5(c)(2) and 1.199(c)(2).
(i) * * *
(5)Tax Increase Prevention and
Reconciliation Act of 2005. Sections
1.199–2(e)(2), 1.199–3(i)(7) and (8), and
1.199–5 are applicablefor taxable years
beginning on or after October 19, 2006.
A taxpayer may apply §§1.199–2(e)(2),
1.199–3(i)(7) and (8), and 1.199–5 to tax-
able years beginning after May 17, 2006,
and before October 19, 2006, regardless
of whether the taxpayer otherwise relied
upon Notice 2005–14, 2005–1 C.B. 498
(see §601.601(d)(2)(ii)(b) of this chap-
ter), the provisions of REG–105847–05,
2005–2 C.B. 987, or §§1.199–1 through
1.199–8.
(6)Losses used to reduce taxable in-
come of expanded affiliated group. Sec-
tion 1.199–7(b)(4) is applicable for taxable
years beginning on orafter February 15,
2008. For taxable years beginning on or
after October 19, 2006, and before Febru-
ary 15, 2008, see §1.199–7T(b)(4) (see 26
CFR part 1 revised as of April 1, 2007).
*****
§1.199–8T [Removed]
Par. 14. Section 1.199–8T is removed.
Par. 15. Section 1.199–9 is amended
by:
1. Revising paragraph (b)(1)(ii)(B).
2. Removing the language “paragraph
(b) of this section shall” from paragraph
(b)(5) and adding the language “this para-
graph (b)” in its place.
3. Revising paragraph (c)(1)(ii)(B).
4. Revising paragraph (e)(2)(i).
5. Removing the language “directly al-
locable costs” in the sixth sentence ofEx-
ample 4in paragraph (j)(5) and adding the
language “CGS” in its place.
6. Adding the language “finished
dosage form” before the word “drug” each
time it appears in the seventh, eighth, and
ninth sentences in paragraph (j)(5)Ex-
ample 5(i) and in the second and third
sentences in paragraph (j)(5)Example 5
(ii).
The revisions read as follows:
§1.199–9 Application of section 199
to pass-thru entities for taxable years
beginning on or before May 17, 2006,
the enactment date of the Tax Increase
April 7, 20087132008–14 I.R.B.

Prevention and Reconciliation Act of
2006.
*****
(b) * * *
(1) * * *
(ii) * * *
(B) For purposes of computing the
partner’s QPAI under §§1.199–1 through
1.199–9, a partner does not take into ac-
count the items from the partnership (for
example, a partner does not take into
account items from the partnership in
determining whether a threshold orde
minimisrule applies or in allocating and
apportioning deductions) in calculating its
QPAI from other sources;
*****
(c) * * *
(1) * * *
(ii) * * *
(B) For purposes of computing the
shareholder’s QPAI under §§1.199–1
through 1.199–9, a shareholder does not
take into account the items from the
S corporation (for example, a shareholder
does not take into account items from the
S corporation in determining whether a
threshold orde minimisrule applies or in
allocating and apportioning deductions) in
calculating its QPAI from other sources;
*****
(e) * * *
(2)***(i)In general.TheQPAIofa
trust or estate (which will be less than zero
if the CGS and deductions allocated and
apportioned to DPGR exceed the trust’s or
estate’s DPGR) and W–2 wages of a trust
or estate are allocated to each beneficiary
and to the trust or estate based on the rela-
tive proportion of the trust’s or estate’s dis-
tributable net income (DNI), as defined by
section 643(a), for the taxable year that is
distributed or required to be distributed to
the beneficiary or is retained by the trust
or estate. For this purpose, the trust or es-
tate’s DNI is determined with regard to the
separate share rule of section 663(c), but
without regard to section 199. To the ex-
tent that the trust or estate has no DNI for
the taxable year, any QPAI and W–2 wages
are allocated entirely to the trust or estate.
A trust or estate is allowed the section 199
deduction in computing its taxable income
to the extent that QPAI and W–2 wages
are allocated to the trust or estate. A ben-
eficiary of a trust or estate is allowed the
section 199 deduction in computing its tax-
able income based on its share of QPAI and
W–2 wages from the trust or estate, which
(subject to the wage limitation as described
in paragraph (e)(3) of this section) are ag-
gregated with the beneficiary’s QPAI and
W–2 wages from other sources, if any.
*****
Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved February 1, 2008.
Eric Solomon,
Assistant Secretary of
the Treasury (Tax Policy).
(Filed by the Office of the Federal Register on February 14,
2008, 8:45 a.m., and published in the issue of the Federal
Register for February 15, 2008, 73 F.R. 8798)
Section 280G.—Golden
Parachute Payments
Federal short-term, mid-term, and long-term rates
are set forth for the month of April 2008. See Rev.
Rul. 2008-20, page 716.
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 April 2008. See Rev. Rul.
2008-20, page 716.
Section 412.—Minimum
Funding Standards
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of April 2008. See Rev. Rul. 2008-20, page 716.
Section 467.—Certain
Payments for the Use of
Property or Se
rvices
The adjusted a
pplicable federal short-term, mid-
term, and long
-term rates are set forth for the month
of April 2008.
See Rev. Rul. 2008-20, page 716.
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 April 2008. See Rev. Rul. 2008-20, page 716.
Section 482.—Allocation
of Income and Deductions
Among Taxpayers
Federal short-term, mid-term, an
d long-term rates
are set forth for the month of Apri
l 2008. See Rev.
Rul. 2008-20, page 716.
Section 483.—Interest on
Certain Deferred Payments
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of April 2008. See Rev. Rul. 2008-20, page 716.
Section 642.—Special
Rules for Credits and
Deductions
Federal short-term, mid-term, and long-term rates
are set forth for the month of April 2008. See Rev.
Rul. 2008-20, page 716.
Section 807.—Rules for
Certain Reserves
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of April 2008. See Rev. Rul. 2008-20, page 716.
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 April 2008. See Rev. Rul. 2008-20, page 716.
2008–14 I.R.B.714April 7, 2008

Section 1221.—Capital
Asset Defined
26 CFR 1.1221–3T: Time and manner for electing
capital asset treatment for certain self-created musi-
cal works (temporary).
T.D. 9379
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Time and Manner for Electing
Capital Asset Treatment for
Certain Self-Created Musical
Works
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Temporary regulation.
SUMMARY: This document contains a
temporary regulation that provides the
time and manner for making an election to
treat the sale or exchange of musical com-
positions or copyrights in musical works
created by the taxpayer (or received by
the taxpayer from the works’ creator in a
transferred basis transaction) as the sale
or exchange of a capital asset. The reg-
ulation reflects changes to the law made
by the Tax Increase Prevention and Rec-
onciliation Act of 2005 and the Tax Relief
and Health Care Act of 2006. The regula-
tion affects taxpayers making the election
under section 1221(b)(3) of the Internal
Revenue Code (Code) to treat gain or loss
from such a sale or exchange as capital
gain or loss. The text of this temporary
regulation also serves as the text of the
proposed regulation (REG–153589–06)
set forth in this issue of the Bulletin.
DATES:Effective Date:This regulation is
effective on February 8, 2008.
Applicability Dates:For dates of appli-
cability, see §1.1221–3T(d).
FOR FURTHER INFORMATION
CONTACT: Jamie Kim, (202) 622–4950
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
Section 1221(a) of the Internal Revenue
Code (Code) generally provides that cap-
ital assets include all property held by a
taxpayer with certain specified exclusions.
Section 1221(a)(1) excludes from the defi-
nition of a capital asset inventory property
or property held by a taxpayer primarily
for sale to customers in the ordinary course
of the taxpayer’s trade or business. Section
1221(a)(3) excludes from the definition of
a capital asset copyrights, literary, musical,
or artistic compositions, letters or memo-
randa, or similar property held by a tax-
payer whose personal efforts created the
property (or held by a taxpayer whose ba-
sis in the property is determined by refer-
ence to the basis of such property in the
hands of the taxpayer whose personal ef-
forts created the property).
Section 1221(b)(3) of the Code, added
by section 204 of the Tax Increase Pre-
vention and Reconciliation Act of 2005
(Public Law 109–222, 120 Stat. 345) and
amended by section 412 of the Tax Re-
lief and Health Care Act of 2006 (Public
Law 109–432, 120 Stat. 2922), provides
that, at the election of a taxpayer, the sec-
tion 1221(a)(1) and (a)(3) exclusions from
capitalassetstatusdonotapplytomu-
sical compositions or copyrights in musi-
cal works sold or exchanged by a taxpayer
described in section 1221(a)(3). Thus, if
a taxpayer who owns a musical composi-
tion or copyright in a musical work cre-
ated by the taxpayer (or transferred to the
taxpayer by the work’s creator in a sec-
tion 1221(a)(3)(C) transferred basis trans-
action) elects the application of this provi-
sion, gain or loss from the sale or exchange
of the musical composition or copyright is
treated as capital gain or loss.
Explanation of Provisions
This temporary regulation provides
rules regarding the time and manner
for making an election under section
1221(b)(3) to treat gain or loss from the
sale or exchange of certain musical com-
positions or copyrights in musical works
as gain or loss from the sale or exchange
of a capital asset.
Special Analyses
It has been determined that this Trea-
sury decision is not asignificant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It also has been determined
that section 553(b) of the Administra-
tive Procedure Act (5 U.S.C. chapter 5)
does not apply to this regulation. For
application of the Regulatory Flexibility
Act (5 U.S.C. Chapter 6) please refer to
thecrossreferencenoticeofproposed
rulemaking published elsewhere in this
issue of the Bulletin. Pursuant to section
7805(f) of the Internal Revenue Code,
this regulation has been submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
Drafting Information
The principal author of these regula-
tions is Jamie Kim of the Office of As-
sociate Chief Counsel (Income Tax & Ac-
counting). However, other personnel from
the IRS and Treasury Department partici-
pated in their development.
*****
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 1.1221–3T is added to
read as follows:
§1.1221–3T Time and manner for electing
capital asset treatment for certain
self-created musical works (temporary).
(a)Description. Section 1221(b)(3) al-
lows an electing taxpayer to treat the sale
or exchange of a musical composition or
copyright in a musical work created by the
taxpayer’s personal efforts (or having a ba-
sis determined by reference to the basis of
such property in the hands of a taxpayer
whose personal efforts created such prop-
erty) as the sale or exchange of a capital
asset. As a consequence, gain or loss from
the sale or exchange is treated as capital
gain or loss. An election may be made for
April 7, 20087152008–14 I.R.B.

sales and exchanges in taxable years be-
ginning after May 17, 2006.
(b)Time and manner for making the
election. An election described in this
section is made separately for each mu-
sical composition (or copyright in a mu-
sical work) sold or exchanged during the
taxable year. An election must be made
on or before the due date (including ex-
tensions) of the income tax return for the
taxable year of the sale or exchange. An
election is to be made on Schedule D,
“Capital Gains and Losses,” of the ap-
propriate income tax form (for example,
Form 1040, “U.S. Individual Income Tax
Return;” Form 1065, “U.S. Return of Part-
nership Income;” Form 1120, “U.S. Cor-
poration Income Tax Return”) by treating
the sale or exchange as the sale or ex-
change of a capital asset, in accordance
with the form and its instructions.
(c)Revocability of election. An election
described in this section is revocable with
the consent of the Commissioner. To seek
consent to revoke an election, a taxpayer
must submit a request for a letter ruling
under the appropriate revenue procedure.
See, for example, Rev. Proc. 2007–1,
2007–1 C.B. 1 (updated annually). Al-
ternatively, an automatic extension of 6
months from the due date of the taxpayer’s
income tax return (excluding extensions)
is granted to revoke an election, provided
the taxpayer timely filed the taxpayer’s
income tax return and, within this 6-month
extension period, the taxpayer files an
amended income tax return that treats the
sale or exchange as the sale or exchange
of property that is not a capital asset. See
§601.601(d)(2)(ii)(b) of this Chapter.
(d)Effective/applicability date.(1)The
rules of this section apply to sales and ex-
changes in taxable years beginning after
May 17, 2006.
(2)Expiration date. This section ex-
pires on February 8, 2011.
Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved January 28, 2008.
Eric Solomon,
Assistant Secretary of
the Treasury (Tax Policy).
(Filed by the Office of the Federal Register on February 7,
2008, 8:45 a.m., and published in the issue of the Federal
RegisterforFebruary8,2008,73F.R.7464)
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 April 2008.
Rev. Rul. 2008–20
This revenue ruling provides vari-
ous prescribed rates for federal income
tax purposes for April 2008 (the current
month). Table 1 contains the short-term,
mid-term, and long-term applicable fed-
eral 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 applicable 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 tax-exempt rate described in
section 382(f). Table 4 contains the ap-
propriate percentages for determining the
low-income housing credit described in
section 42(b)(2) for buildings placed in
service during the current month. Finally,
Table 5 contains the federal rate for deter-
mining 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.
2008–14 I.R.B.716April 7, 2008

REV. RUL. 2008–20 TABLE 1
Applicable Federal Rates (AFR) for April 2008
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
AFR
1.85%
1.84%1.84%1.83%
110% AFR2.03%2.02%2.01%2.01%
120% AFR2.22%2.21%2.20%2.20%
130% AFR2.40%2.39%2.38%2.38%
Mid-term
AFR2.87%
2.85%
2.84%2.83%
110% AFR3.16%3.14%3.13%3.12%
120% AFR
3.45%
3.42%3.41%3.40%
130% AFR3.74%3.71%3.69%3.68%
150% AFR
4.33%4.28%4.26%4.24%
175% AFR5.05%
4.99%4.96%4.94%
Long-term
AFR4.40%
4.35%
4.33%4.31%
110% AFR
4.85%
4.79%4.76%4.74%
120% AFR
5.29%5.22%5.19%5.16%
130% AFR
5.74%5.66%5.62%5.59%
REV. RUL. 2008–20 TABLE 2
Adjusted AFR for April 2008
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-ter
madjusted
AFR
1.99%1.98%1.98%1.97%
Mid-term adjusted AFR3.28%
3.25%
3.24%3.23%
Long-term adjusted
AFR
4.55%4.50%
4.47%4.46%
REV. RUL.
2008–20 TABLE 3
Rates Under Section 382 for April 2008
Adjusted federal long-term rate for the current month
4.55%
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%
REV. RUL. 2008–20 TABLE 4
Appropriate Percentages Under Section 42(b)(2) for April 2008
Appropriate percentage for the 70% present value low-income housing credit7.84%
Appropriate percentage for the 30% present value low-income housing credit3.36%
April 7, 20087172008–14 I.R.B.

REV. RUL. 2008–20 TABLE 5
Rate Under Section 7520 for April 2008
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 interest3.4%
Section 1288.—Treatment
of Original Issue Discount
on Tax-Exempt Obligations
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of April 2008. See Rev. Rul. 2008-20, page 716.
Section 6020.—Returns
Prepared for or Executed
by Secretary
26 CFR 301.6020–1: Returns prepared or executed
by the Commissioner or other Internal Revenue Offi-
cers.
T.D. 9380
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 301
Substitute for Return
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations and removal
of temporary regulations.
SUMMARY: This document contains final
regulations relating to returns prepared or
signed by the Commissioner or other Inter-
nal Revenue Officers or employees under
section 6020 of the Internal Revenue Code.
These final regulations provide guidance
for preparing a substitute for return under
section 6020(b). Absent the existence of
a return under section 6020(b), the addi-
tion to tax under section 6651(a)(2) does
not apply to a nonfiler. These final regu-
lations affect any person who fails to file a
required return.
DATES:Effective Date:These regulations
are effective on February 20, 2008.
Applicability Date:For dates of appli-
cability, see §301.6020–1(d).
FOR FURTHER INFORMATION
CONTACT: Alicia E. Goldstein at (202)
622–3630 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains final regula-
tionsrelatingtosubstitutes for returns.
These final regulations reflect amend-
ments to 26 CFR part 301 under section
6020 of the Internal Revenue Code. Sec-
tion 301.6020–1 of the Procedure and
Administration Regulations provides for
the preparation or execution of returns by
authorized Internal Revenue Officers or
employees. Section 1301(a) of the Tax-
payer Bill of Rights Act of 1996, Public
Law 104–168 (110 Stat. 1452), amended
section 6651 to add subsection (g)(2),
which provides that, for returns due after
July 30, 1996 (determined without regard
to extensions), a return made under sec-
tion 6020(b) shall be treated as a return
filed by the taxpayer for purposes of deter-
mining the amount of the additions to tax
under section 6651(a)(2) and (a)(3). Ab-
sent the existence of a return under section
6020(b), the addition to tax under section
6651(a)(2) does not apply to a nonfiler.
InCabirac v. Commissioner,120T.C.
163 (2003),aff’d in an unpublished opin-
ion, No. 03–3157 (3
rd
Cir. Feb. 10, 2004),
andSpurlock v. Commissioner,T.C.
Memo. 2003–124, the Tax Court found
that the Service did not establish that it had
prepared and signed a return in accordance
with section 6020(b). InSpurlock,theTax
Court held that a return for section 6020(b)
purposes must be subscribed, contain suf-
ficient information from which to compute
the taxpayer’s tax liability, and the return
and any attachments must “purport to be a
return.”Spurlock, T.C.Memo. 2003–124
at 27. These decisions prompted the Ser-
vice and the Treasury Department to revise
its rules for the preparation or execution
of returns by authorized Internal Revenue
Officer or employees. Temporary regula-
tions and a notice of proposed rulemaking
(REG–131739–03, 2005–2 C.B. 494)
were published in theFederal Register
on July 18, 2005 [70 FR 41165].
The Service and the Treasury Depart-
ment received written public comments
responding to the proposed regulations.
After consideration of the comments
received, the proposed regulations are
adopted as revised by this Treasury de-
cision. These final regulations generally
retain the provisions of the proposed regu-
lations with one minor change as explained
in more detail in the preamble.
Explanation of Provisions and
Summary of Comments
The regulations provide that a docu-
ment (or set of documents) signed by an
authorized Internal Revenue Officer or
employee is a return under section 6020(b)
if the document (or set of documents) iden-
tifies the taxpayer by name and taxpayer
identification number, contains sufficient
information from which to compute the
taxpayer’s tax liability, and the document
(or set of documents) purports to be a
return under section 6020(b). A Form
13496, “IRC Section 6020(b) Certifica-
tion,” or any other form that an authorized
Internal Revenue Officer or employee
signs and uses to identify a document (or
set of documents) containing the informa-
tion set forth in this preamble as a section
6020(b) return, and the documents iden-
tified, constitute a valid section 6020(b)
return.
Further, because the Service prepares
and signs section 6020(b) returns both by
hand and through automated means, these
regulations provide that a name or title of
an Internal Revenue Officer or employee
appearing upon a return made in accor-
dance with section 6020(b) is sufficient
as a subscription by that officer or em-
ployee to adopt the document as a return
for the taxpayer without regard to whether
the name or title is handwritten, stamped,
typed, printed or otherwise mechanically
affixed to the document. The document or
2008–14 I.R.B.718April 7, 2008

set of documents and subscription may be
in written or electronic form.
These final regulations do not alter the
method for the preparation of returns un-
dersection6020(a)asprovidedinT.D.
6498. Under section 6020(a), if the tax-
payer consents to disclose necessary infor-
mation, the Service may prepare a return
on behalf of a taxpayer, and if the taxpayer
signs the return, the Service will receive it
as the taxpayer’s return.
The proposed regulations generated nu-
merous comments. For the most part, the
comments were variations of ten different
form letters. The commentators took is-
sue with the regulation because the signa-
ture on the certification was not signed un-
der oath, and therefore not signed under a
penalty of perjury; because a “set of docu-
ments” could substitute for a return instead
of the form that would have been used by
the taxpayer, and because the Service was
making the decision of who should file a
tax return.
After considering these comments, the
Service and the Treasury Department have
concluded that they provide no basis for
adopting changes in the final regulations.
In particular, the argument that the Service
should not be able to decide who should
file a tax return is without merit. The re-
quirement to file a tax return is not vol-
untary and is clearly set forth in sections
6011(a) and 6012(a).
There has been one minor change to
the text of the temporary regulations. The
temporary regulation provided that any
return made in accordance with paragraph
(b)(1) of this section and signed by the
Commissioner or other authorized Inter-
nal Revenue Officer or employee shall be
prima faciegood and sufficient for all le-
gal purposes. In 2005, new language was
added to the Bankruptcy Code at 11 U.S.C.
§523(a) that specifically provided that a
section 6020(b) return is not a return for
dischargeability purposes. Therefore, the
portion of the temporary regulation that
stated that the return was sufficient for
all legal purposes isno longer correct.
The language in the regulation has been
changed to state that a section 6020(b)
return is sufficient for all legal purposes
“except insofar as any Federal statute
expressly provides otherwise.”
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regul
a-
tory action as defined in Executive Orde
r
12866. Therefore, a regulatory assess
ment
is not required. It also has been deter-
mined that section 553(b) of the Admin-
istrative Procedure Act (5 U.S.C. chap
ter
5) does not apply to these regulations
,and
because the regulations do not impose
a
collection of information, the Regu
latory
Flexibility Act (5 U.S.C. chapter 6)
does
not apply. Pursuant to section 7805(
f) of
the Internal Revenue Code, the notic
eof
proposed rulemaking preceding the
se reg-
ulations was submitted to the Chief
Coun-
sel for Advocacy of the Small Busin
ess
Administration for comment on its
impact
on small business.
Drafting Information
The principal author of these regula-
tions is Alicia Goldstein, Office of the As-
sociate Chief Counsel (Procedure and Ad-
ministration).
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 301 is
amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read in part as fol-
lows:
Authority: 26 U.S.C. 7805* * *
§301.6020–1T[Removed]
Par. 2. Section 301.6020–1T is re-
moved.
Par. 3. Section 301.6020–1 is added to
read as follows:
§301.6020–1 Returns prepared or
executed by the Commissioner or other
Internal Revenue Officers.
(a)Preparation of returns—(1)In gen-
eral. If any person required by the Inter-
nal Revenue Code or by the regulations to
make a return fails to make such return,
it may be prepared by the Commissioner
or other authorized Internal Revenue Offi-
cer or employee provided such person con-
sents to disclose all information necessary
for the preparation of such return. The re-
turn upon being signed by the person re-
quired to make it shall be received by the
Commissioner as the return of such person.
(2)Responsibility of person for whom
return is prepared. A person for whom a
return is prepared in accordance with para-
graph (a)(1) of this section shall for all
legal purposes remain responsible for the
correctness of the return to the same extent
as if the return had been prepared by him.
(b)Execution of returns—(1)In gen-
eral. If any person required by the Inter-
nal Revenue Code or by the regulations
to make a return (other than a declaration
of estimated tax required under section
6654 or 6655) fails to make such return
at the time prescribed therefore, or makes,
willfully or otherwise, a false, fraudulent
or frivolous return, the Commissioner or
other authorized Internal Revenue Offi-
cer or employee shall make such return
from his own knowledge and from such
information as he canobtain through tes-
timony or otherwise. The Commissioner
or other authorized Internal Revenue Offi-
cer or employee may make the return by
gathering information and making compu-
tations through electronic, automated or
other means to make a determination of the
taxpayer’s tax liability.
(2)Form of the return.Adocument(or
set of documents) signed by the Commis-
sioner or other authorized Internal Rev-
enue Officer or employee shall be a re-
turn for a person described in paragraph
(b)(1) of this section if the document (or
set of documents) identifies the taxpayer
by name and taxpayer identification num-
ber, contains sufficient information from
which to compute the taxpayer’s tax li-
ability, and purports to be a return. A
Form 13496, “IRC Section 6020(b) Cer-
tification,” or any other form that an au-
thorized Internal Revenue Officer or em-
ployee signs and uses to identify a set of
documents containing the information set
forth in this paragraph as a section 6020(b)
return, and the documents identified, con-
stitute a return under section 6020(b). A
return may be signed by the name or ti-
tle of an Internal Revenue Officer or em-
ployee being handwritten, stamped, typed,
printed or otherwise mechanically affixed
April 7, 20087192008–14 I.R.B.

to the return, so long as that name or ti-
tle was placed on the document to signify
that the Internal Revenue Officer or em-
ployee adopted the document as a return
for the taxpayer. The document and signa-
ture may be in written or electronic form.
(3)Status of returns. Any return made
in accordance with paragraph (b)(1) of this
section and signed by the Commissioner
or other authorized Internal Revenue Of-
ficer or employee shall be good and suf-
ficient for all legal purposes except inso-
far as any Federal statute expressly pro-
vides otherwise. Furthermore, the return
shall be treated as the return filed by the
taxpayer for purposes of determining the
amount of the addition to tax under sec-
tions 6651(a)(2) and (3).
(4)Deficiency procedures. For defi-
ciency procedures in the case of income,
estate, and gift taxes, see §§6211 through
6216, inclusive, and §§301.6211–1
through 301.6215–1, inclusive.
(5)Employment status procedures.For
pre-assessment procedures in employment
taxes cases involving worker classifica-
tion, see section 7436 (proceedings for de-
termination of employment status).
(6)Examples. The application of this
paragraph (b) is illustrated by the follow-
ing examples:
Example 1. Individual A, a calendar-year tax-
payer, fails to file his 2003 return. Employee X, an In-
ternal Revenue Service employee, opens an examina-
tion related to A’s 2003 taxable year. At the end of the
examination, X completes a Form 13496, “IRC Sec-
tion 6020(b) Certification,” and attached to it the doc-
uments listed on the form. Those documents explain
examination changes and provide sufficient informa-
tion to compute A’s tax liability. The Form 13496
provides that the Service employee identified on the
form certifies that the attached pages constitute a re-
turn under section 6020(b). When X signs the certi-
fication package, the package constitutes a return un-
der paragraph (b) of this section because the package
identifies A by name, contains A’s taxpayer identify-
ing number (TIN), has sufficient information to com-
pute A’s tax liability, and contains a statement stat-
ing that it constitutes a return under section 6020(b).
In addition, the Service will determine the amount
of the additions to tax under section 6651(a)(2) by
treating the section 6020(b) return as the return filed
by the taxpayer. Likewise, the Service will deter-
mine the amount of any addition to tax under section
6651(a)(3), which arises only after notice and demand
for payment, by treating the section 6020(b) return as
thereturnfiledbythetaxpayer.
Example 2. Same facts as inExample 1, except
that, after performing the examination, X does not
compile any examination documents together as a re-
lated set of documents. X also does not sign and
complete the Form 13496 nor associate the forms ex-
plaining examination changes with any other docu-
ment. Because X did not sign any document stating
that it constitutes a return under section 6020(b) and
the documents otherwise do not purport to be a sec-
tion 6020(b) return, the documents do not constitute a
return under section 6020(b). Therefore, the Service
cannot determine the section 6651(a)(2) addition to
tax against nonfiler A for A’s 2003 taxable year on
the basis of those documents.
Example 3. Individual C, a calendar-year tax-
payer, fails to file his 2003 return. The Service deter-
mines through its automated internal matching pro-
grams that C received reportable income and failed to
file a return. The Service, again through its automated
systems, generates a Letter 2566, “30 Day Proposed
Assessment (SFR–01) 910 SC/CG.” This letter con-
tains C’s name, TIN, and has sufficient information to
compute C’s tax liability. Contemporaneous with the
creation of the Letter 2566, the Service, through its
automated system, electronically creates and stores a
certification stating that the electronic data contained
as part of C’s account constitutes a valid return under
section 6020(b) as of that date. Further, the electronic
data includes the signature of the Service employee
authorized to sign the section 6020(b) return upon its
creation. Although the signature is stored electroni-
cally, it can appear as a printed name when the Service
requests a paper copy of the certification. The elec-
tronically created information, signature, and certifi-
cation is a return under section 6020(b). The Service
will treat that return as the return filed by the taxpayer
in determining the amount of the section 6651(a)(2)
addition to tax with respect to C’s 2003 taxable year.
Likewise, the Service will determine the amount of
any addition to tax under section 6651(a)(3), which
arises only after notice and demand for payment, by
treating the section 6020(b) return as the return filed
by the taxpayer.
Example 4. Corporation M, a quarterly taxpayer,
fails to file a Form 941, “Employer’s QUARTERLY
Federal Tax Return,” for the second quarter of 2004.
Q, a Service employee authorized to sign returns
under section 6020(b), prepares a Form 941 by hand,
stating Corporation M’s name, address, and TIN.
Q completes the Form 941 by entering line item
amounts, including the tax due, and then signs the
document. The Form 941 that Q prepared and signed
constitutes a section 6020(b) return because the Form
941 purports to be a return under section 6020(b),
the form contains M’s name and TIN, and it includes
sufficient information to compute M’s tax liability
for the second quarter of 2004.
(c)Cross references—(1) For provi-
sions that a return executed by the Com-
missioner or other authorized Internal
Revenue Officer or employee will not start
the running of the period of limitations
on assessment and collection, see section
6501(b)(3) and §301.6501(b)–1(e).
(2) For determining the period of lim-
itations on collection after assessment of
a liability on a return executed by the
Commissioner or other authorized Internal
Revenue Officer or employee, see section
6502 and §301.6502–1.
(3) For additions to the tax and addi-
tional amounts for failure to file returns,
see section 6651 and §301.6651–1, and
section 6652 and §301.6652–1, respec-
tively.
(4) For additions to the tax for fail-
ure to pay tax, see section 6651 and
§301.6651–1.
(5) For criminal penalties for willful
failure to make returns, see sections 7201,
7202 and 7203.
(6) For criminal penalties for willfully
making false or fraudulent returns, see sec-
tions 7206 and 7207.
(7) For civil penalties for filing
frivolous income tax returns, see section
6702.
(8) For authority to examine books
and witnesses, see section 7602 and
§301.7602–1.
(d)Effective/Applicability date.This
section is applicable on February 20, 2008.
LindaE.Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved February 5, 2008.
Eric Solomon,
Assistant Secretary of
theTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on February 19,
2008, 8:45 a.m., and published in the issue of the Federal
Register f
or February 20, 2008, 73 F.R. 9188)
Section 6325.—Release
of Lien or Discharge
of Property
26 CFR 301.6325–1: Release of lien or discharge of
property.
T.D. 93
78
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 301 and 401
Release of Lien or Discharge
of Property
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations and removal
of temporary regulations.
2008–14 I.R.B.720April 7, 2008

SUMMARY: This document contains fi-
nal regulations related to release of lien
and discharge of property under sections
6325, 6503, and 7426 of the Internal Rev-
enue Code (Code). These regulations
update existing regulations and contain
procedures for processing a request made
by a property owner for discharge of a
Federal tax lien from his property under
section 6325(b)(4). The regulations also
clarify the impact of these procedures on
sections 6503(f)(2) and 7426(a)(4) and
(b)(5). These regulations reflect the enact-
ment of sections 6325(b)(4), 6503(f)(2),
and 7426(a)(4) by the IRS Restructuring
and Reform Act of 1998.
DATES:Effective Date:These regulations
are effective January 31, 2008.
Applicability Date:These regulations
apply to any release of lien or discharge of
property that is requested after January 31,
2008.
FOR FURTHER INFORMATION
CONTACT: Debra A. Kohn, (202)
622–7985 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains final regu-
lations that amend the Procedure and
Administration Regulations (26 CFR part
301) under sections 6325, 6503, and 7426
of the Code. The IRS Restructuring and
Reform Act of 1998, Public Law 105–206
(112 Stat. 685) (RRA 1998), enacted sec-
tions 6325(b)(4), 6503(f)(2), 7426(a)(4),
and 7426(a)(5) to provide a statutory
mechanism for a person other than the
person against whom the underlying tax
was assessed, upon furnishing a deposit or
bond, to obtain a discharge of the Federal
tax lien from property owned by him, and
for the IRS or the courts to determine the
disposition of the deposit or bond amount.
RRA 1998 thereby necessitated changes
to the rules under sections 6325, 6503, and
7426.
On January 11, 2007, a notice of pro-
posed rulemaking (REG–159444–04,
2007–9 I.R.B. 618) relating to release of
lien or discharge of property was published
in theFederal Register(72 FR 1301–03).
No comments were received and no public
hearing was requested or held. Accord-
ingly, the proposed regulations are adopted
as amended by this Treasury decision.
These final regulations generally retain
the provisions of the proposed regulations
but include one modification as explained
in more detail below.
Explanation of Modification
The final regulations differ substan-
tively in one respect from the version of
the regulations set forth in the notice of
proposed rulemaking. The proposed reg-
ulations interpret section 6325(b)(4)(D),
which states that section 6325(b)(4)(A) is
inapplicable “if the owner of the property
is the person whose unsatisfied liability
gave rise to the lien,” as indicating that the
procedures for obtaining a discharge of a
Federal tax lien under section 6325(b)(4)
are not available to a person who owns the
subject property withthe person whose tax
liability gave rise to the lien (the taxpayer).
Upon further consideration of this issue,
it was decided that section 6235(b)(4)(D)
should not be so interpreted, as that in-
terpretation would unfairly leave some
third-party property owners without a
means to discharge Federal tax liens from
their properties. Accordingly, the final
regulations reflect an interpretation of
section 6325(b)(4)(D) that makes the sec-
tion 6325(b)(4) procedures available to
a person who co-owns property with the
taxpayer.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It also has been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does
not apply to these regulations, and because
these regulations do not impose a collec-
tion of information on small entities, the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6) does not apply. Pursuant to sec-
tion 7805(f) of the Code, the notice of pro-
posed rulemaking preceding these regula-
tions was submitted to the Chief Counsel
for Advocacy of the Small Business Ad-
ministration for comment on its impact on
small business.
Drafting Information
The principal author of these regula-
tions is Debra A. Kohn of the Office of the
Associate Chief Counsel (Procedure and
Administration).
*****
Adoption of Amendments to the
Regulations
Accordingly, under the authority of
26 U.S.C. 7805, 26 CFR parts 301 and 401
are amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read, in part, as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.6325–1 is amended
as follows:
1.Paragraphs (a) and (b)(1)(i),
(b)(2)(i), (b)(2)(ii), and (b)(3) are revised.
2. Paragraph (b)(2)(iii) is redesignated
as paragraph (b)(6) and revised.
3. Paragraph (b)(4) is redesignated as
paragraph (b)(5) and revised.
4. A new paragraph (b)(4) is added.
5. Paragraphs (c)(1) and (c)(2) are
amended by removing the language “dis-
trict director” and adding the language
“appropriate official” in its place, wher-
ever it appears.
6. The first sentence of paragraph (d)(1)
is amended by removing the language “A
district director” and adding the language
“The appropriate official” in its place, by
removing the word “Code” and adding the
language “Internal Revenue Code” in its
place, and by removing the language “the
district director” and adding the language
“the appropriate official” in its place. The
third sentence is amended by removing the
language “a districtdirector” and adding
the language “the appropriate official” in
its place, and removing the language “the
district director” and adding “the appropri-
ate official” in its place.
7. Paragraph (d)(2)(i) is amended by re-
moving the language “A district director”
and adding the language “The appropriate
official” in its place, by removing the word
“Code” and adding the language “Internal
Revenue Code” in its place, and by remov-
ing the language “the district director” and
April 7, 20087212008–14 I.R.B.

adding the language “the appropriate offi-
cial” in its place.
8. Paragraph (d)(2)(ii),Examples 1
through4, are amended by removing the
language “district director” and adding the
language “appropriate official” in its place,
wherever it appears.
9. Paragraphs (d)(3) and (d)(4) are
amended by removing the language “dis-
trict director” and adding the language
“appropriate official” in its place, wher-
ever it appears.
10. The first sentence of paragraph (e)
is amended by removing the language “a
district director” andadding the language
“the appropriate official” in its place, and
by removing the language “the district
director” and adding the language “the
appropriate official” in its place. The third
and fourth sentences are amended by re-
moving the language “district director”
and adding the language “appropriate of-
ficial” in its place.
11. Paragraphs (f)(1) and (f)(2)(i) are
amended by removing the language “a dis-
trict director” and adding the language “the
appropriate official” in its place, paragraph
(f)(2)(i)(b) is amended by removing the
language “the district director” and adding
the language “the appropriate official” in
its place, and paragraph (f)(3) is amended
by removing the word “Code” and adding
the language “Internal Revenue Code” in
its place.
12. Paragraphs (h) and (i) are added.
The revisions and additions read as fol-
lows:
§301.6325–1 Release of lien or discharge
of property.
(a)Release of lien—(1)Liability sat-
isfied or unenforceable. The appropriate
official shall issue acertificate of release
for a filed notice of Federal tax lien, no
later than 30 days after the date on which
he finds that the entire tax liability listed
in such notice of Federal tax lien either
has been fully satisfied (as defined in para-
graph (a)(4) of this section) or has become
legally unenforceable. In all cases, the lia-
bility for the payment of the tax continues
until satisfaction of the tax in full or un-
til the expiration of the statutory period for
collection, including such extension of the
period for collection as is agreed to.
(2)Bond accepted. The appropriate of-
ficial shall issue a certificate of release of
any tax lien if he is furnished and accepts a
bond that is conditioned upon the payment
of the amount assessed (together with all
interest in respect thereof), within the time
agreed upon in the bond, but not later than
6 months before the expiration of the statu-
tory period for collection, including any
agreed upon extensions. For provisions re-
lating to bonds, see sections 7101 and 7102
and §§301.7101–1 and 301.7102–1.
(3)Certificate of release for a lien
which has become legally unenforceable.
The appropriate official shall have the au-
thority to file a notice of Federal tax lien
which also contains acertificate of release
pertaining to those liens which become
legally unenforceable. Such release will
become effective as a release as of a date
prescribed in the document containing the
notice of Federal tax lien and certificate of
release.
(4)Satisfaction of tax liability.For
purposes of paragraph (a)(1) of this sec-
tion, satisfaction of the tax liability occurs
when—
(i) The appropriate official determines
that the entire tax liability listed in a notice
of Federal tax lien has been fully satisfied.
Such determination will be made as soon
as practicable after tender of payment; or
(ii) The taxpayer provides the appropri-
ate official with proof of full payment (as
defined in paragraph (a)(5) of this section)
with respect to the entire tax liability listed
in a notice of Federal tax lien together with
the information and documents set forth in
paragraph (a)(7) of this section. See para-
graph (a)(6) of this section if more than one
tax liability is listed in a notice of Federal
tax lien.
(5)Proofoffullpayment.Asused
in paragraph (a)(4)(ii)ofthissection,the
termproof of full paymentmeans—
(i) An internal revenue cashier’s receipt
reflecting full payment of the tax liability
in question;
(ii) A canceled check in an amount suf-
ficient to satisfy the tax liability for which
the release is being sought;
(iii) A record, made in accordance
with procedures prescribed by the Com-
missioner, of proper payment of the tax
liability by credit or debit card or by elec-
tronic funds transfer; or
(iv) Any other manner of proof accept-
able to the appropriate official.
(6)Notice of a Federal tax lien which
lists multiple liabilities. When a notice of
Federal tax lien lists multiple tax liabilities,
the appropriate official shall issue a certifi-
cate of release when all of the tax liabilities
listed in the notice of Federal tax lien have
been fully satisfied or have become legally
unenforceable. In addition, if the taxpayer
requests that a certificate of release be is-
sued with respect to one or more tax lia-
bilities listed in the notice of Federal tax
lien and such liability has been fully satis-
fied or has become legally unenforceable,
the appropriate official shall issue a certifi-
cate of release. For example, if a notice of
Federal tax lien lists two separate liabili-
ties and one of the liabilities is satisfied,
the taxpayer may request the issuance of a
certificate of release with respect to the sat-
isfied tax liability and the appropriate offi-
cial shall issue a release.
(7)Taxpayer requests. A request for a
certificate of release with respect to a no-
tice of Federal tax lien shall be submitted
in writing to the appropriate official. The
request shall contain the information re-
quired in the appropriate IRS Publication.
(b)Dischargeofspecificpropertyfrom
the lien—(1)Property double the amount
of the liability. (i) The appropriate official
may, in his discretion, issue a certificate of
discharge of any part of the property sub-
ject to a Federal tax lien imposed under
chapter 64 of the Internal Revenue Code
if he determines that the fair market value
of that part of the property remaining sub-
ject to the Federal tax lien is at least double
the sum of the amount of the unsatisfied li-
abilitysecuredbytheFederaltaxlienand
of the amount of all other liens upon the
property which have priority over the Fed-
eral tax lien. In general, fair market value
is that amount which one ready and willing
but not compelled to buy would pay to an-
other ready and willing but not compelled
to sell the property.
*****
(2)Part payment; interest of United
States valueless—(i)Part payment.The
appropriate official may, in his discretion,
issue a certificate of discharge of any part
of the property subject to a Federal tax
lien imposed under chapter 64 of the In-
ternal Revenue Code if there is paid over
to him in partial satisfaction of the liability
secured by the Federal tax lien an amount
determined by him to be not less than the
value of the interest of the United States in
thepropertytobesodischarged.Indeter-
2008–14 I.R.B.722April 7, 2008

mining the amount to be paid, the appropri-
ate official will take into consideration all
the facts and circumstances of the case, in-
cluding the expenses to which the govern-
ment has been put in the matter. In no case
shall the amount to be paid be less than the
value of the interest of the United States in
the property with respect to which the cer-
tificate of discharge is to be issued.
(ii)Interest of the United States value-
less. The appropriate official may, in his
discretion, issue a certificate of discharge
of any part of the property subject to the
Federal tax lien if he determines that the
interest of the United States in the property
to be so discharged has no value.
(3)Discharge of property by substitu-
tion of proceeds of sale. The appropri-
ate official may, in his discretion, issue
a certificate of discharge of any part of
the property subject to a Federal tax lien
imposed under chapter 64 of the Internal
Revenue Code if such part of the property
is sold and, pursuant to a written agree-
ment with the appropriate official, the pro-
ceeds of the sale are held, as a fund sub-
ject to the Federal tax liens and claims of
the United States, in the same manner and
with the same priority as the Federal tax
liens or claims had with respect to the dis-
charged property. This paragraph does not
apply unless the sale divests the taxpayer
of all right, title, and interest in the prop-
erty sought to be discharged. Any rea-
sonable and necessary expenses incurred
in connection with the sale of the prop-
erty and the administration of the sale pro-
ceeds shall be paid by the applicant or from
the proceeds of the sale before satisfaction
of any Federal tax liens or claims of the
United States.
(4)Right of substitution of value—(i)
Issuance of certificate of discharge to
property owner who is not the taxpayer.
If an owner of property subject to a Fed-
eral tax lien imposed under chapter 64
of the Internal Revenue Code submits an
application for a certificate of discharge
pursuant to paragraph (b)(5) of this sec-
tion, the appropriate official shall issue a
certificate of discharge of such property
after the owner either deposits with the
appropriate official an amount equal to the
value of the interest of the United States in
the property, as determined by the appro-
priate official pursuant to paragraph (b)(6)
of this section, or furnishes an acceptable
bond in a like amount. This paragraph
does not apply if the person seeking the
discharge is the person whose unsatisfied
liability gave rise to the Federal tax lien.
Thus, if the property is owned by both the
taxpayer and another person, the other per-
son may obtain a certificate of discharge
of the property under this paragraph, but
the taxpayer may not.
(ii)Refund of deposit and release of
bond. The appropriate official may, in his
discretion, determinethat either the entire
unsatisfied tax liability listed on the notice
of Federal tax lien can be satisfied from a
source other than the property sought to be
discharged, or the value of the interest of
the United States is less than the prior de-
termination of such value. The appropriate
official shall refund the amount deposited
with interest at the overpayment rate de-
termined under section 6621 or release the
bond furnished to the extent that he makes
this determination.
(iii)Refund request. If a property owner
desires an administrative refund of his de-
posit or release of the bond, the owner shall
file a request in writing with the appropri-
ate official. The request shall contain such
information as the appropriate IRS Publi-
cation may require. The request must be
filed within 120 days after the date the cer-
tificate of discharge is issued. A refund re-
quest made under this paragraph neither is
required nor is effective to extend the pe-
riod for filing an action in court under sec-
tion 7426(a)(4).
(iv)Internal Revenue Service’s use of
deposit if court action not filed.Ifno
action is filed under section 7426(a)(4)
for refund of the deposit or release of the
bond within the 120-day period speci-
fied therein, the appropriate official shall,
within 60 days after the expiration of the
120-day period, apply the amount de-
posited or collect on such bond to the
extent necessary to satisfy the liability
listed on the notice of Federal tax lien, and
shall refund, with interest at the overpay-
ment rate determined under section 6621,
any portion of the amount deposited that
is not used to satisfy the liability. If the
appropriate official has not completed the
application of the deposit to the unsatis-
fied liability before the end of the 60-day
period, the deposit will be deemed to have
been applied to the unsatisfied liability as
of the 60
th
day.
(5)Application for certificate of dis-
charge. Any person desiring a certificate
of discharge under this paragraph (b) shall
submit an application in writing to the ap-
propriate official. The application shall
contain the information required by the ap-
propriate IRS Publication. For purposes
of this paragraph (b), any application for
certificate of discharge made by a prop-
erty owner who is not the taxpayer, and
any amount submitted pursuant to the ap-
plication, will be treated as an application
for discharge and a deposit under section
6325(b)(4) unless the owner of the prop-
erty submits a statement, in writing, that
the application is being submitted under
another paragraph of section 6325 and not
under section 6325(b)(4), and the owner
in writing waives the rights afforded un-
der paragraph (b)(4), including the right to
seek judicial review.
(6)Valuation of interest of United
States. For purposes of paragraphs (b)(2)
and (b)(4) of this section, in determining
the value of the interest of the United
States in the property, or any part thereof,
with respect to which the certificate of
discharge is to be issued, the appropriate
official shall give consideration to the
value of the property and the amount of
all liens and encumbrances thereon hav-
ing priority over the Federal tax lien. In
determining the value of the property, the
appropriate official may, in his discretion,
give consideration to the forced sale value
of the property in appropriate cases.
*****
(h) As used in this section, the termap-
propriate officialmeans either the official
or office identified in the relevant IRS Pub-
lication or, if such official or office is not
so identified, the Secretary or his delegate.
(i)Effective/applicability date.This
section applies to any release of lien or
discharge of property that is requested
after January 31, 2008.
Par. 3. Section 301.6503(f)–1 is
amended as follows:
1. The section heading is revised.
2. The undesignated paragraph is des-
ignated as paragraph (a), a paragraph head-
ing is added, and a new sentence is added
immediately prior to theExample.
3. In newly designated paragraph (a),
the language “a district director” is re-
moved and the language “the appropri-
ate official” is added in its place, the lan-
guage “the district director” is removed
and the language “the appropriate official”
April 7, 20087232008–14 I.R.B.

is added in its place, and in theExample
the language “district director” is removed
and the language “appropriate official” is
added in its place, wherever it appears.
4. Paragraphs (b), (c), and (d) are
added.
The revisions and additions read as fol-
lows:
§301.6503(f)–1 Suspension of running
of period of limitation; wrongful seizure
of property of third-party owner and
discharge of lien for substitution of value.
(a)Wrongful seizure. ***Thefol-
lowing example illustrates the principles
of this section:
*****
(b)Discharge of wrongful lien for sub-
stitution of value. If a person other than
the taxpayer submits a request in writing
for a certificate of discharge for a filed
Federal tax lien under section 6325(b)(4),
the running of the period of limitations on
collection after assessment under section
6502 for any liability listed in such notice
of Federal tax lien shall be suspended for
a period equal to the period beginning on
the date the appropriate official receives
a deposit or bond in the amount specified
in §301.6325–1(b)(4)(i) and ending on the
date that is 30 days after the earlier of—
(1) The date the appropriate official no
longer holds, or isdeemed to no longer
hold, within the meaning of paragraph
(b)(4)(iv) of this section, any amount as
a deposit or bond by reason of taking
such actions as prescribed in sections
6325(b)(4)(B) and (C); or
(2) The date the judgment secured un-
der section 7426(b)(5) becomes final.
(c) As used in this section, the termap-
propriate officialmeans either the official
or office identified in the relevant IRS Pub-
lication or, if such official or office is not
so identified, the Secretary or his delegate.
(d)Effective/applicability date.This
section applies to any request for a certifi-
cate of discharge made after January 31,
2008.
Par. 4. In §301.7426–1, paragraphs
(a)(4), (b)(5), and (d) are added.
§301.7426–1 Civil actions by persons
other than taxpayers.
(a) * * *
(4)Substitution of value. A person who
obtains a certificate of discharge under sec-
tion 6325(b)(4) with respect to any prop-
erty may, within 120 days after the day on
which the certificate is issued, bring a civil
action against the United States in a district
court of the United States for a determi-
nation of whether the value of the interest
of the United States (if any) in such prop-
erty is less than the value determined by
the appropriate official. A civil action un-
der this provision shall be the exclusive ju-
dicial remedy for a person other than the
taxpayer who obtains a certificate of dis-
charge for a filed notice of Federal tax lien.
(b) * * *
(5)Substitution of value. If the court de-
termines that the determination by the ap-
propriate official of the value of the inter-
est of the United States in the property ex-
ceeds the actual value of such interest, the
court may grant a judgment ordering a re-
fund of the amount deposited, or a release
of the bond, to the extent that the aggregate
of those amounts exceeds the value as de-
termined by the court.
*****
(d) Paragraphs (a)(4) and (b)(5) of this
section apply to any request for a certifi-
cate of discharge made after January 31,
2008.
PART 401—[REMOVED]
Par. 5. Part 401 is removed.
LindaE.Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved January 9, 2008.
Eric Solomon,
Assistant Secretary of
theTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on January 30,
2008, 8:45 a.m., and published in the issue of the Federal
Register for January 31, 2008, 73 F.R. 5741)
Section 7520.—Valuation
Tables
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of April 2008. See Rev. Rul. 2008-20, page 716.
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 April 2008. See Rev. Rul. 2008-20, page 716.
2008–14 I.R.B.724April 7, 2008

Part III. Administrative, Procedural, and Miscellaneous
Amplification of Notice
2006–52; Deduction for
Energy Efficient Commercial
Buildings
Notice 2008–40
SECTION 1. PURPOSE
This notice clarifies and amplifies No-
tice 2006–52, 2006–1 C.B. 1175. No-
tice 2006–52 provides a process that al-
lows a taxpayer who owns a commercial
building and installs property as part of
the commercial building’s interior light-
ing systems, heating, cooling, ventilation,
and hot water systems, or building enve-
lope to obtain a certification that the prop-
erty satisfies the energy efficiency require-
ments of § 179D(c)(1) and (d) of the Inter-
nal Revenue Code. Notice 2006–52 also
provides for a public list of software pro-
grams that may be used in calculating en-
ergy and power consumption for purposes
of § 179D.
This notice sets forth additional guid-
ance relating to the deduction for energy
efficient commercial buildings under
§ 179D and is intended to be used with No-
tice 2006–52. Any reference in this notice
to Standard 90.1–2001 should be treated
as a reference to ANSI/ASHRAE/IESNA
Standard 90.1–2001, Energy Standard for
Buildings Except Low-Rise Residential
Buildings, developed for the American
National Standards Institute by the Amer-
ican Society of Heating, Refrigerating,
and Air Conditioning Engineers and the
Illuminating Engineering Society of North
America (as in effect on April 2, 2003, in-
cluding addenda 90.1a–2003, 90.1b–2002,
90.1c–2002, 90.1d–2002, and 90.1k–2002
as in effect on that date).
SECTION 2. BACKGROUND
Section 1331 of the Energy Policy Act
of 2005, Pub. L. No. 109–58, 119 Stat.
594 (2005), enacted § 179D of the Code,
which provides a deduction with respect
to energy efficient commercial buildings.
Section 204 of the Tax Relief and Health
Care Act of 2006, Pub. L. No. 109–432,
120 Stat. 2922 (2006), extends the § 179D
deduction through December 31, 2008.
Section 179D(a) allows a deduction to
a taxpayer for part or all of the cost of en-
ergy efficient commercial building prop-
erty that the taxpayer places in service af-
ter December 31, 2005, and before January
1, 2009. Sections 179D(d)(1) and 179D(f)
allow a deduction to a taxpayer for part
or all of the cost of certain partially qual-
ifying commercial building property that
the taxpayer places in service after Decem-
ber 31, 2005, and before January 1, 2009.
Partially qualifying commercial building
property is property that would be energy
efficient commercial building property but
for the failure to achieve the 50-percent re-
duction in energy and power costs required
under § 179D(c)(1)(D).
SECTION 3. SPECIAL RULE
FOR GOVERNMENT-OWNED
BUILDINGS
.01In General. In the case of energy
efficient commercial building property (or
partially qualifying commercial building
property for which a deduction is allowed
under § 179D) that is installed on or in
property owned by a Federal, State, or lo-
cal government or a political subdivision
thereof, the owner of the property may al-
locate the § 179D deduction to the per-
son primarily responsible for designing the
property (the designer). If the allocation of
a § 179D deduction to a designer satisfies
the requirements of this section, the deduc-
tionwillbeallowedonlytothatdesigner.
The deduction will be allowed to the de-
signer for the taxable year that includes the
date on which the property is placed in ser-
vice.
.02Designer of Government-Owned
Buildings. A designer is a person that
creates the technical specifications for in-
stallation of energy efficient commercial
building property (or partially qualifying
commercial building property for which
a deduction is allowed under § 179D). A
designer may include, for example, an ar-
chitect, engineer, contractor, environmen-
tal consultant or energy services provider
who creates the technical specifications
foranewbuildingoranadditiontoan
existing building that incorporates energy
efficient commercial building property (or
partially qualifying commercial building
property for which a deduction is allowed
under § 179D). A person that merely in-
stalls, repairs, or maintains the property is
not a designer.
.03Allocation of the Deduction.If
more than one designer is responsible for
creating the technical specifications for
installation of energy efficient commercial
building property (or partially qualifying
commercial building property for which
a deduction is allowed under § 179D) on
or in a government-owned building, the
owner of the building shall—
(1) determine which designer is primar-
ily responsible and allocate the full deduc-
tion to that designer, or
(2) at the owner’s discretion, allocate
the deduction among several designers.
.04Form of Allocation. An allocation
of the § 179D deduction to the designer
of a government-owned building must be
in writing and will be treated as satisfying
the requirements of this section with re-
spect to energy efficient commercial build-
ing property (or partially qualifying com-
mercial building property for which a de-
duction is allowed under § 179D) if the al-
location contains all of the following:
(1) The name, address, and telephone
number of an authorized representative of
the owner of the government-owned build-
ing;
(2) The name, address, and telephone
number of an authorized representative of
the designer receivingthe allocation of the
§ 179D deduction;
(3) The address of the govern-
ment-owned building on or in which the
property is installed;
(4) The cost of the property;
(5) The date the property is placed in
service;
(6) The amount of the § 179D deduction
allocated to the designer;
(7) The signatures of the authorized
representatives of both the owner of the
government-owned building and the de-
signer or the designer’s authorized repre-
sentative; and
(8) A declaration, applicable to the allo-
cation and any accompanying documents,
signed by the authorized representative of
the owner of the government-owned build-
ing, in the following form:
“Under penalties of perjury, I declare
that I have examined this allocation, in-
April 7, 20087252008–14 I.R.B.

cluding accompanying documents, and
to the best of my knowledge and belief,
the facts presented in support of this
allocation are true, correct, and com-
plete.”
.05Obligations of Designer.Before
a designer may claim the § 179D deduc-
tion with respect to property installed on
or in a government-owned building, the
designer must obtain the written alloca-
tion described in section 3.04. A designer
is not required to attach the allocation to
the return on which the deduction is taken.
However, § 1.6001–1(a) of the Income Tax
Regulations requires that taxpayers main-
tain such books and records as are suffi-
cient to establish the entitlement to, and
amount of, any deduction claimed by the
taxpayer. Accordingly, a designer claim-
ing a deduction under § 179D should re-
tain the allocation as part of the taxpayer’s
records for purposes of § 1.6001–1(a) of
the Income Tax Regulations.
.06Tax Consequences to Designer of
Government-Owned Buildings. The maxi-
mum amount of the § 179D deduction to be
allocated to the designer is the amount of
the costs incurred by the owner of the gov-
ernment-owned building to place the en-
ergy efficient commercial building prop-
erty in service. A partial deduction may
be allocated and computed in accordance
with the procedures set forth in sections 2
and 3 of Notice 2006–52. The designer
does not include any amount in income on
account of the § 179D deduction allocated
to the designer. In addition, the designer is
not required to reduce future deductions by
an amount equal to the § 179D deduction
allocated to the designer. Although reduc-
ing future deductions in this manner would
provide equivalent treatment for designers
that are allocated a § 179D deduction and
building owners that are required to reduce
the basis of their energy efficient commer-
cial building property by the amount of the
§ 179D deduction they claim, § 179D does
not provide for any reductions other than
reductions to the basis of the energy effi-
cient commercial building property.
.07Tax Consequences to Owner of
Public Building. The owner of the pub-
lic building is not required to include
any amount in income on account of the
§ 179D deduction allocated to the de-
signer. The owner of the public building
is, however, required to reduce the basis of
the energy efficient commercial building
property (or partially qualifying commer-
cial building property) by the amount of
the § 179D deduction allocated.
SECTION 4. LIST OF APPROVED
SOFTWARE PROGRAMS
.01In General. The Department of En-
ergy creates and maintains a public list of
software that may be used to calculate en-
ergy and power consumption and costs for
purposes of providing a certification under
section 4 of Notice 2006–52. This public
list appears athttp://www.eere.energy.gov/
buildings/info/tax_incentives.html.Soft-
ware will be included on the list if the
software developer submits the following
information to the Department of Energy:
(1) The name, address, and (if applica-
ble) web site of the software developer;
(2) The name, email address, and tele-
phone number of the person to contact
for further information regarding the soft-
ware;
(3) The name, version, or other identi-
fier of the software as it will appear on the
list;
(4) All test results, input files, output
files, weather data, modeler reports, and
theexecutableversionofthesoftwarewith
which the tests were conducted; and
(5) A declaration by the developer of
the software made under penalties of per-
jury and containing all of the following in-
formation:
(a) A statement that the software has
been tested according to the American Na-
tional Standards Institute/American Soci-
ety of Heating, Refrigerating and Air-Con-
ditioning Engineers (ANSI/ASHRAE)
Standard 140–2007 Standard Method of
Test for the Evaluation of Building Energy
Analysis Computer Programs.
(b) A statement that the software can
model explicitly—
(i) 8,760 hours per year;
(ii) Calculation methodologies for the
building components being modeled;
(iii) Hourly variations in occupancy,
lighting power, miscellaneous equipment
power, thermostat setpoints, and HVAC
system operation, defined separately for
each day of the week and holidays;
(iv) Thermal mass effects;
(v) Ten or more thermal zones;
(vi) Part-load performance curves for
mechanical equipment;
(vii) Capacity and efficiency correction
curves for mechanicalheating and cooling
equipment; and
(viii) Air-side and water-side econo-
mizers with integrated control.
(c) A statement that the software can ex-
plicitly model each of the following HVAC
systems listed in Appendix G of Standard
90.1–2004:
(i) Packaged Terminal Air Conditioner
(PTAC) (air source), single-zone package
(through the wall), multi-zone hydronic
loop, air-to-air DX coil cooling, central
boiler, hot water coil.
(ii) Packaged Terminal Heat Pump
(PTHP) (air source), single-zone pack-
age (through the wall), air-to-air DX coil
heat/cool.
(iii) Packaged Single Zone Air Condi-
tioner (PSZ-AC), single-zone air, air-to-air
DX coil cool, gas coil, constant-speed fan.
(iv) Packaged Single Zone Heat Pump
(PSZ-HP), single-zone air, air-to-air DX
coil cool/heat, constant-speed fan.
(v) Packaged Variable-Air-Volume
(PVAV) with reheat, multi-zone air;
multi-zone hydronic loop, air-to-air DX
coil, VAV fan, boiler, hot water VAV ter-
minal boxes.
(vi) Packaged Variable-Air-Volume
with parallel fan powered boxes (PVAV
with PFP boxes), multi-zone air, DX coil,
VAV fan, fan-powered induction boxes,
electric reheat.
(vii) Variable-Air-Volume (VAV) with
reheat, multi-zone air, multi-zone hy-
dronic loop, air-handling unit, chilled
water coil, hot water coil, VAV fan, chiller,
boiler, hot water VAV boxes.
(viii) Variable-Air-Volume with par-
allel fan powered boxes (VAV with PFP
boxes), multi-zone air, air-handling unit,
chilled water coil, hot water coil, VAV
fan, chiller, fan-powered induction boxes,
electric reheat.
(d) A statement that the software can—
(i) Either directly determine energy and
power costs or produce hourly reports of
energy use by energy source suitable for
determining energy and power costs sepa-
rately; and
(ii) Design load calculations to deter-
mine required HVAC equipment capacities
and air and water flow rates.
(e) A statement describing which, if
any, of the following the software can ex-
plicitly model:
(i) Natural ventilation.
2008–14 I.R.B.726April 7, 2008

(ii) Mixed mode (natural and mechani-
cal) ventilation.
(iii) Earth tempering of outdoor air.
(iv) Displacement ventilation.
(v) Evaporative cooling.
(vi) Water use by occupants for cook-
ing, cleaning or other domestic uses.
(vii) Water use by heating, cooling, or
other equipment, or for on-site landscap-
ing.
(viii) Automatic interior or exterior
lighting controls (such as occupancy, pho-
tocells, or time clocks).
(viii) Daylighting (sidelighting, sky-
lights, or tubular daylight devices).
(ix) Improved fan system efficiency
through static pressure reset.
(x) Radiant heating or cooling (low or
high temperature).
(xi) Multiple or variable speed control
for fans, cooling equipment, or cooling
towers.
(xii) On-site energy systems (such as
combined heat and power systems, fuel
cells, solar photovoltaic, solar thermal, or
wind).
.02Addresses. Submissions under this
section must be addressed as follows:
Commercial Software List
Department of Energy
Office of Building Technologies,
EE–2J
1000 Independence Ave., SW
Washington, DC 20585–0121
.03Updated Lists. The software
list athttp://www.eere.energy.gov/
buildings/info/tax_incentives.htmlwill
be updated as necessary to reflect
submissions received under this section.
.04Removal from Published List.The
Department of Energy may, upon exami-
nation, determine that software is not suf-
ficiently accurate to justify its use in calcu-
lating energy and power consumption and
costs for purposes of providing a certifica-
tion under section 4 of Notice 2006–52 and
remove the software from the published
list. The Department of Energy may un-
dertakesuchanexaminationonitsown
initiative or in response to a public request
supported by appropriate analysis of the
software’s deficiencies.
.05Effect of Removal from Published
List. Software may not be used to calcu-
late energy and power consumption and
costs for purposes of providing a certifi-
cation with respect to property placed in
service after the date on which the soft-
ware is removed from the published list.
The removal will not affect the validity of
any certification with respect to property
placed in service on or before the date on
which the software is removed from the
published list.
.06Public Availability of Information.
The Department of Energy may make all
information provided under paragraph .01
of this section available for public review.
.07Applicability. The procedures in
this section supersede the procedures set
forth in section 6 of Notice 2006–52 for
periods after March 31, 2008. Any soft-
ware that is included on the public list on
March 31, 2008, will remain on the pub-
lic list unless and until removed under the
procedures set forth in this section.
SECTION 5. CERTIFICATION
REQUIREMENTS FOR INTERIM
LIGHTING RULE
.01In General. Section 2.03(1)(b) of
Notice 2006–52 provides an interim rule
under which partially qualifying prop-
erty is treated as energy efficient lighting
property (the Interim Lighting Rule). Be-
fore a taxpayer may claim the § 179D
deduction under the Interim Lighting Rule
with respect to energy efficient lighting
property installed on or in a commercial
building, the taxpayer must obtain a cer-
tification with respect to the property.
Thecertificationmustbeprovidedbya
qualified individual. Section 4 of Notice
2006–52 provides that the certification
must include a statement that qualified
computer software was used to calculate
energy and power consumption and costs.
That section also provides that the cer-
tification must include a statement that
the building owner has received an expla-
nation of projected annual energy costs.
These requirements are appropriate only
in the case of certifications that involve
calculations of energy and power con-
sumption and cost. The Interim Lighting
Rule is satisfied by a reduction in lighting
power density and such a reduction may
be computed using a spreadsheet or other
similar software. This computation does
not require qualified computer software
to model the entire building system or a
determination of projected annual energy
costs. Accordingly, the requirements of
section 4 of Notice 2006–52 do not apply
to certifications under the Interim Lighting
Rule.
.02Applicable Requirements.Atax-
payer is not required to attach the certifi-
cation to the return on which the deduction
is taken. However, § 1.6001–1(a) of the
Income Tax Regulations requires that tax-
payers maintain such books and records
as are sufficient to establish the entitle-
ment to, and amount of, any deduction
claimed by the taxpayer. Accordingly,
a taxpayer claiming a deduction under
§ 179D should retain the certification as
part of the taxpayer’s records for pur-
poses of § 1.6001–1(a) of the Income Tax
Regulations. The qualified individual pro-
viding a certification under the interim
rule must document a reduction in lighting
power density in a thorough and consistent
manner. A certification under the Interim
Lighting Rule will be treated as satisfying
the requirements of § 179D(c)(1) if the
certification contains all of the following:
(1) The name, address, and telephone
number of the qualified individual;
(2) The address of the building to which
the certification applies;
(3) A statement by the qualified individ-
ual that the interior lighting systems that
have been, or are planned to be, incorpo-
rated into the building—
(a) Achieve a reduction in lighting
power density of at least 25 percent (50
percent in the case of a warehouse) of the
minimum requirements in Table 9.3.1.1
or Table 9.3.1.2 (not including additional
interior lighting power allowances) of
Standard 90.1–2001;
(b) Have controls and circuiting that
comply fully with the mandatory and
prescriptive requirements of Standard
90.1–2001;
(c) Include provision for bi-level
switching in all occupancies except hotel
and motel guest rooms, store rooms, re-
strooms, public lobbies, and garages; and
(d) Meet the minimum requirements for
calculated lighting levels as set forth in the
IESNA Lighting Handbook, Performance
and Application, Ninth Edition, 2000;
(4) A statement by the qualified individ-
ual that—
(a) Field inspections of the building
were performed by a qualified individual
after the energy efficient lighting property
has been placed in service;
April 7, 20087272008–14 I.R.B.

(b) The field inspections confirmed that
the building has met, or will meet, the re-
duction in lighting power density required
by the design plans and specifications; and
(c) The field inspections were per-
formed in accordance with inspection and
testing procedures that—
(i) Have been prescribed by the Na-
tional Renewable Energy Laboratory
(NREL) as Energy Savings Modeling and
Inspection Guidelines for Commercial
Building Federal Tax Deduction; and
(ii) Are in effect at the time the certifi-
cation is given;
(5) A list identifying the components of
the energy efficient lighting property in-
stalled on or in the building, the energy
efficiency features of the building, and its
projected lighting power density;
(6) A statement that the building owner
has received an explanation of the energy
efficiency featuresof the building and its
projected lighting power density;
(7) A declaration, applicable to the
certification and any accompanying docu-
ments, signed by the qualified individual,
in the following form:
“Under penalties of perjury, I declare
that I have examined this certification,
including accompanying documents,
and to the best of my knowledge and
belief, the facts presented in support of
this certification are true, correct, and
complete.”
SECTION 6. APPLICATION OF THE
INTERIM LIGHTING RULE TO
UNCONDITIONED GARAGE SPACE
For purposes of the Interim Lighting
Rule, the definition of a Building within
the Scope of Standard 90.1–2001 (found
in Section 5.01 of Notice 2006–52) is ex-
panded to include a structure that—
(1) Encloses space affording shelter to
persons, animals, or property within ex-
terior walls (or within exterior and party
walls) and a roof;
(2) Is not a single-family house, a multi-
family structure of three stories or fewer
above grade, a manufactured house (mo-
bile home), or a manufactured house (mod-
ular); and
(3) Is unconditioned attached or de-
tached garage space as referenced by
Tables 9.3.1.1 and 9.3.1.2 of Standard
90.1–2001.
SECTION 7. CHANGES RELATING
TO PARTIALLY QUALIFYING
PROPERTY
.01Energy Savings Percentages.A
taxpayer may apply section 2.05 of Notice
2006–52 by substituting “10” for “16
2
/3”
in section 2.05(1) of such notice. If a
taxpayer makes this substitution, the tax-
payer must apply sections 2.03 and 2.04 of
Notice 2006–52 by substituting “20” for
“16
2
/3” in sections 2.03(1)(a) and 2.04(1)
of such notice. If § 179D is extended
beyond December 31, 2008, the Internal
Revenue Service and the Treasury De-
partment expect, in the absence of other
changes to § 179D, that the substitute per-
centages set forth in this section will be
the only percentages used in determining
whether property placed in service after
December 31, 2008, is partially qualifying
property.
.02Limitation on Deduction for Par-
tially Qualifying Property.
(1)In General. If property installed on
or in a building is treated as partially qual-
ifying property under sections 2.03, 2.04,
and 2.05 of Notice 2006–52, the deduction
for the cost of such property shall not ex-
ceed the greatest of the following amounts:
(a) The sum of the deductions allowable
under sections 2.03 and 2.04 of such no-
tice;
(b) The sum of the deductions allowable
under sections 2.04 and 2.05 of such no-
tice; or
(c) The sum of the deductions allowable
under sections 2.03 and 2.05 of such no-
tice.
(2)Application to Multiple Taxpayers.
If two or more taxpayers install property
on or in the same building and the deduc-
tion for the cost of the property is subject to
the limitation in section 7.02(1) of this no-
tice, the aggregate amount of the § 179D
deductions allowed to all such taxpayers
with respect to the building shall not ex-
ceed the amount determined under section
7.02(1) of this notice.
SECTION 8. PAPERWORK
REDUCTION ACT
The collections of information con-
tained in this notice have been reviewed
and approved by the Office of Manage-
ment and Budget in accordance with the
Paperwork Reduction Act (44 U.S.C.
3507) under control number 1545–2004.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
The collections of information are in
sections 4 and 6 of Notice 2006–52 and
sections 4 and 5 of this notice. This in-
formation is required to be collected and
retained in order to ensure that energy
efficient commercial building property
meets the requirements for the deduction
under § 179D. This information will be
used to determine whether commercial
building property for which certifications
are provided is property that qualifies for
the deduction.
The collection of information is re-
quired to obtain a benefit.
The likely respondents are two groups:
qualified individuals providing a certifica-
tion under § 179D (section 4 of Notice
2006–52 and section 5 of this notice) and
software developers seeking to have soft-
ware included on the public list created by
the Department of Energy (section 6 of No-
tice 2006–52 and section 4 of this notice).
For qualified individuals providing a
certification under § 179D, the likely re-
spondents are individuals. The likely num-
ber of certifications is 20,000. The esti-
mated burden per certification ranges from
15 to 30 minutes with an estimated average
burden of 22.5 minutes. The estimated to-
tal annual reporting burden is 7,500 hours.
For software developers seeking to
have software included on the public list
created by the Department of Energy, the
likely respondents are individuals, corpo-
rations and partnerships. The estimated
total annual reporting burden is 75 hours.
The estimated annual burden per respon-
dent varies from 1 to 2 hours, depending
on individual circumstances, with an es-
timated average burden of 1
1
/2hours to
completethesubmissionrequiredtohave
thesoftwareaddedtothepubliclist. The
estimated number of respondents is 50.
The estimated frequency of responses is
once.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any Internal Revenue
law. Generally, tax returns and tax return
2008–14 I.R.B.728April 7, 2008

information are confidential, as required
by 26 U.S.C. 6103.
SECTION 9. DRAFTING
INFORMATION
The principal author of this notice is
Jennifer C. Bernardini of the Office of
Associate Chief Counsel (Passthroughs
& Special Industries). For further in-
formation regarding this notice, contact
Jennifer C. Bernardini at (202) 622–3110
(not a toll-free call).
April 7, 20087292008–14 I.R.B.

Part IV. Items o
fGeneralInterest
Notice of Prop
osed
Rulemaking by
Cross-Refere
nce to
Temporary Re
gulation
Time and Mann
er for Electing
Capital Asse
tTreatmentfor
Certain Sel
f-Created Musical
Works
REG–153589
–06
AGENCY: In
ternal Revenue Service
(IRS), Tre
asury.
ACTION: No
tice of proposed rulemaking
by cross-r
eference to temporary regula-
tion.
SUMMARY: I
n this issue of the Bulletin,
the IRS is i
ssuing a temporary regulation
(T.D. 937
9) that provides the time and
manner fo
rmakinganelectiontotreatthe
sale or ex
change of musical compositions
or copyri
ghts in musical works created by
the taxpa
yer (or received by the taxpayer
from the
works’ creator in a transferred
basis tr
ansaction) as the sale or exchange
of a capi
tal asset. The temporary regula-
tion ref
lects changes to the law made by
the Tax I
ncrease Prevention and Recon-
ciliat
ion Act of 2005 and the Tax Relief
and Hea
lth Care Act of 2006. The tem-
porary
regulation affects taxpayers making
the ele
ction under section 1221(b)(3) of the
Intern
al Revenue Code (Code) to treat gain
or los
s from such a sale or exchange as
capit
al gain or loss. The text of the tem-
porar
y regulation also serves as the text of
this p
roposed regulation.
DATES
: Written or electronic comments
and re
quests for a public hearing must be
rece
ived by May 8, 2008.
ADDR
ESSES: Send submissions to:
CC:P
A:LPD:PR(REG–153589–06),
room
5203, Internal Revenue Service, PO
Box 7
604, Ben Franklin Station, Wash-
ingt
on, D.C. 20044. Submissions may be
hand
delivered Monday through Friday
bet
ween the hours of 8 a.m. and 4 p.m.
to:
CC:PA:LPD:PR (REG–153589–06),
Cou
rier’s Desk, Internal Revenue
Ser
vice, 1111 Constitution Avenue, N.W.,
Washington, D
.C., or sent electronically
viatheFedera
leRulemaking
Portal atwww.
regulations.gov(IRS
REG–153589–0
6).
FOR FURTHER IN
FORMATION
CONTACT: Conc
erning the pro-
posed regula
tion, Jamie Kim, (202)
622–4950; co
ncerning submission of
comments or r
equesting a hearing,
Richard.A.H
urst@irscounsel.treas.gov,
(202) 622–7
180 (not toll-free numbers).
SUPPLEMENT
ARY INFORMATION:
Background
and Explanation of
Provisions
Temporary r
egulation in this issue of
the Bulleti
n amends the Income Tax Reg-
ulations (2
6 CFR Part 1) relating to sec-
tion 1221(
b)(3) of the Internal Revenue
Code (Code
). The temporary regulation
provides r
ules regarding the time and man-
ner for mak
ing an election under section
1221(b)(3
) to treat the sale or exchange
of certai
n musical compositions or copy-
rights in
musical works as the sale or ex-
change of
a capital asset. The text of the
temporar
y regulation also serves as the text
of this p
roposed regulation. The preamble
to the te
mporary regulation explains the
amendme
nts.
Special
Analyses
It has be
en determined that this notice
of propo
sed rulemaking is not a significant
regulat
ory action as defined in Executive
Order 12
866. Therefore,a regulatory as-
sessme
nt is not required. It also has been
determ
ined that section 553(b) of the Ad-
minist
rative Procedure Act (5 U.S.C. chap-
ter 5) d
oes not apply to this regulation, and
becaus
e the regulation does not impose a
colle
ction of information on small entities,
the Re
gulatory Flexibility Act (5 U.S.C.
chapt
er 6) does not apply. Pursuant to sec-
tion 7
805(f) of the Internal Revenue Code,
this r
egulation has been submitted to the
Chie
f Counsel for Advocacy of the Small
Busi
ness Administration for comment on
its i
mpact on small business.
Comments and R
equests for a Public
Hearing
Before this proposed regulation is
adopted as a final regulation, considera-
tion will be given to any written comments
(a signed original and eight (8) copies) or
electronic comments that are submitted
timely to the IRS. The IRS and Treasury
Department request comments on the clar-
ity of the proposed rules and how they
can be made easier to understand. All
comments will be available for public in-
spection and copying. A public hearing
will be scheduled if requested in writing
by any person that timely submits written
comments. If a public hearing is sched-
uled, notice of the date, time, and place for
the public hearing will be published in the
Federal Register.
Drafting Information
The principal author of these regula-
tions is Jamie Kim of the Office of As-
sociate Chief Counsel (Income Tax & Ac-
counting). However, other personnel from
the IRS and Treasury Department partici-
pated in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.1221–3 is added to
read as follows:
§1.1221–3 Time and manner for electing
capital asset treatment for certain
self-created musical works.
[The text of proposed §1.1221–3 is the
same as the text of §1.1221–3T(a) through
(d)(1) published elsewhere in this issue of
the Bulletin.]
Linda
E. Stiff,
Deput
y Commissioner for
Serv
ices and Enforcement.
2008–14 I.R.B.730April 7, 2008

(Filed by the Office of the Federal Register on February 7,
2008, 8:45 a.m., and published in the issue of the Federal
Register for February 8, 2008, 73 F.R. 7503)
Issuance of Opinion and
Advisory Letters and
Opening of the EGTRRA
Determination Letter Program
for Pre-Approved Defined
Contribution Plans
Announcement 2008–23
The Service will soon issue opinion
and advisory letters for pre-approved (i.e.,
master and prototype (M&P) and volume
submitter (VS)) definedcontribution plans
that were timely filed with the Service to
comply with the Economic Growth and
Tax Relief Reconciliation Act of 2001,
Pub. L. 107–16, (“EGTRRA”) and other
changes in plan qualification requirements
listed in Notice 2004–84, 2004–2 C.B.
1030 (“the 2004 Cumulative List”). The
Service expects to issue the letters on
March 31, 2008, or, in some cases, as
soon as possible thereafter. Employers
using these pre-approved plan documents
to restate a plan for EGTRRA will be re-
quired to adopt the EGTRRA-approved
plan document by April 30, 2010. The
Service will accept applications for indi-
vidual determination letters submitted by
adopters of these pre-approved plans start-
ing on May 1, 2008. This announcement
describes certain changes to the determi-
nation letter application procedures for
pre-approved plans that will simplify the
application process for many applicants,
and it informs plan sponsors that revised
application forms for these plans will be
available in the near future.
Background
Rev. Proc. 2007–44, 2007–28, I.R.B.
54, and Rev. Proc. 2005–16, 2005–1 C.B.
674, describe a staggered remedial amend-
ment system for plans that are qualified
under § 401(a) of the Internal Revenue
Code, with five-year amendment/approval
cycles for individually designed plans and
six-year cycles for pre-approved plans.
The submission period for the initial cy-
cle for pre-approved defined contribution
plans was February 17, 2005, through Jan-
uary 31, 2006. Sponsors and practitioners
were required to restate their pre-approved
defined contribution plans for EGTRRA
and the 2004 Cumulative List and apply
for new opinion or advisory letters during
this submission period.
Section 16.03 of Rev. Proc. 2007–44
provides that when the review of a cycle
for pre-approved plans has neared comple-
tion, the Service will publish an announce-
ment providing the date by which adopting
employers must adopt the newly approved
plans. This date is intended to give adopt-
ing employers a window of approximately
two years in which to adopt the plans.
Procedures for filing determination let-
ter applications are contained in Rev. Proc.
2008–6, 2008–1 I.R.B. 192. Section 6.05
of Rev. Proc. 2008–6 requires a determi-
nation letter application to include a copy
of the plan’s signed and dated timely good
faith EGTRRA amendments, interim and
other plan amendments. These documents
are in addition to the restated plan or, in
the case of M&P and certain VS plans, the
completed adoption agreement.
In general, an application for an indi-
vidual determination letter on a pre-ap-
proved plan is to be filed on Form
5307, Application forDetermination for
Adopters of Master or Prototype or Volume
Submitter Plans. These applications will
be reviewed on the basis of the Cumula-
tive List of Changes in Plan Qualification
Requirements that was used to review the
underlying pre-approved plan, that is, the
2004 Cumulative List in the case of an
application filed for the cycle that includes
the pre-approved plan submission period
that ended on January 31, 2006.
In certain circumstances, however, an
application for an individual determination
letter on a pre-approved plan is to be filed
on Form 5300,Application for Determina-
tion for Employee Benefit Plan,ratherthan
Form 5307. These circumstances include
the following: (1) where the adopter of
an M&P plan amends the basic plan docu-
ment or adoption agreement, other than by
choosing among options permitted under
the plan or amending the plan in the man-
ner described in sections 5.02 and 19.03 of
Rev. Proc. 2005–16; (2) where the adopter
of a VS plan makes changes to the pre-ap-
proved plan that are too extensive or com-
plex or otherwise determined by the Ser-
vice to be incompatible with the purposes
of the volume submitter program; and (3)
where the adopter of a pre-approved plan is
requesting a determination regarding par-
tial termination, affiliated service group
status or leased employees, or where the
pre-approved plan is a multiple employer
VS plan.
Except as otherwise provided in this an-
nouncement, an application for an individ-
ual determination letter on a pre-approved
plan that is filed on Form 5300 will be re-
viewed on the basis of the Cumulative List
in effect when the application is filed. For
example, a determination letter application
filed on Form 5300 on May 1, 2008, will be
reviewed on the basis of the 2007 Cumula-
tive List (Notice 2007–94, 2007–51 I.R.B.
1179).
Deadline for Employer Adoption of
EGTRRA-approved Defined Contribution
M&P and VS Plans
An adopting employer whose plan is
eligible for the six-year remedial amend-
ment cycle under section 17 of Rev. Proc.
2007–44 and that adopts an EGTRRA-ap-
proved M&P or VS defined contribution
plan by April 30, 2010, will have adopted
the plan within the employer’s six-year re-
medial amendment cycle.
1
The end of the
plan’s remedial amendment cycle with re-
spect to EGTRRA and the changes in plan
qualification requirements on the 2004 Cu-
mulative List is April 30, 2010.
Individual Determination Letter Filing
Procedures for Pre-approved Plans
The Service will accept applications
for individual determination letters for
EGTRRA-approved M&P and VS defined
contribution plans starting May 1, 2008.
The procedures for filing such applications
are clarified and revised as follows:
•An application for a determination
letter that is filed on Form 5307 gen-
erally need not include the plan’s
EGTRRA good faith amendments that
were adopted prior to the adoption of
the EGTRRA-restated plan or any in-
terim plan amendments, regardless of
when adopted, unless the plan is a VS
1
Section 20 of Rev. Proc. 2007–44 provides that an opinion or advisory letter for a new pre-approved plan submitted for approval after the end of the submission period may not be relied on
for the period prior to the date of submission.
April 7, 20087312008–14 I.R.B.

plan that does not authorize the prac-
titioner to amend the plan on behalf
of the adopting employer. The Ser-
vice may, however, request evidence
of adoption of good faith and interim
amendments during the course of its
review of a particular plan. Applica-
tions filed on Form 5307 for VS plans
that do not authorize the practitioner to
amend the plan on behalf of the adopt-
ing employer must include the plan’s
EGTRRA good faith amendments and
any interim amendments that were
adopted for qualification changes on
the 2004 Cumulative List.
•An application for a determination
letter on a pre-approved plan that is
required to file Form 5300 only be-
cause the plan is a multiple employer
VS plan or because the employer is
requesting a determination regarding
partial termination, affiliated service
group status or leased employees will
be reviewed on the basis of the Cu-
mulative List that was used to review
the underlying pre-approved plan, that
is, the 2004 Cumulative List, as if the
application had been filed on Form
5307. The Service’s review of the
application will not consider changes
in the qualification requirements sub-
sequent to the 2004 Cumulative List.
Except in the case of VS plans that do
not authorize the practitioner to amend
the plan on behalf of the adopting em-
ployer, an application described in this
paragraph need not include the plan’s
EGTRRA good faith amendments that
were adopted prior to the adoption
of the EGTRRA-restated plan or any
interim plan amendments, regardless
of when adopted. The Service may,
however, request evidence of adoption
of good faith and interim amendments
during the course of its review of a
particular plan. An application for a
VS plan that is described in this para-
graph but which does not authorize the
practitioner to amend on behalf of the
adopting employer must include the
plan’s EGTRRA good faith amend-
ments and any interim amendments
that were adopted for qualification
changes on the 2004 Cumulative List.
•An application for a determination let-
ter on any other pre-approved plan that
is required to file Form 5300 will be re-
viewed on the basis of the Cumulative
List in effect on the date the appli-
cation is filed. The application must
include a copy of the plan’s signed
and dated timely good faith EGTRRA
amendments, and interim and other
plan amendments for all the changes
in qualification requirements on the
Cumulative List that is in effect when
the application is filed. Applications
described in this paragraph include
(1) applications for determination let-
ters on M&P plans that have been
amended by the adopting employer in
a manner other than to choose among
options permitted under the plan or as
described in sections 5.02 and 19.03
of Rev. Proc. 2005–16, and (2) appli-
cations for determination letters on VS
plans that have been modified by the
adopting employer in a manner that
is too extensive or complex or other-
wise determined by the Service to be
incompatible with the purposes of the
volume submitter program.
These changes will be published as modi-
fications to Rev. Proc. 2008–6 when that
revenue procedure is next revised. Un-
til the modifications to the revenue pro-
cedures are published, plan sponsors may
rely on this announcement regarding the
changes.
Plan sponsors and their advisors are
encouraged to review the frequently
asked questions on the following web
site:http://www.irs.gov/retirement/
article/0,,id=179990,00.htmlfor
additional information regarding the
issuance of opinion, advisory and
determination letters for pre-approved
plans and the documents that must be
submitted with a determination letter
application.
Revision of Form 5307
Form 5307 is being revised to allow the
form to be optically scanned and thereby
improve the Service’s processing of deter-
mination letter applications filed with the
form. It is expected that the revised form
will be available soon. However, applica-
tions filed with the current form (revised
2001) will continueto be accepted through
September 30, 2008.
Consolidated Returns;
Intercompany Obligations
Announcement 2008–25
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Partial withdrawal of notice of
proposed rulemaking.
SUMMARY: This document withdraws a
portion of a notice of proposed rulemak-
ing (REG–107592–00, 2007–44 I.R.B.
908) published in theFederal Registeron
September 28, 2007 (72 FR 55139). The
withdrawn portion relates to the treatment
of transactions involving the provision of
insurance between members of a consol-
idated group.
FOR FURTHER INFORMATION
CONTACT: Frances L. Kelly, (202)
622–7770 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On September 28, 2007, the IRS and the
Treasury Department published a notice of
proposed rulemaking (REG–107592–00)
in theFederal Register(72 FR 55139)
which proposed to amend §1.1502–13(g)
(regarding the treatment of transactions
involving obligations between mem-
bers of a consolidated group) and to add
§1.1502–13(e)(2)(ii)(C) (regarding the
treatment of certain transactions involving
the provision of insurance between mem-
bers of a consolidated group).
Under proposed §1.1502–13(e)(2)
(ii)(C), certain intercompany insurance
transactions would be taken into account
on a single entity basis.Written
comments were received with respect
to proposed §1.1502–13(e)(2)(ii)(C).
After consideration of these comments,
the IRS and the Treasury Department
have decided to withdraw proposed
§1.1502–13(e)(2)(ii)(C). However, the
IRS and the Treasury Department continue
to study whether revisions to the rules for
intercompany transactions are necessary
to clearly reflect the taxable income of
consolidated groups.
*****
2008–14 I.R.B.732April 7, 2008

Partial Withdrawal of a Notice of
Proposed Rulemaking
Accordingly, under the authority of
26 U.S.C. 7805 and 26 U.S.C. 1502,
§1.1502–13(e)(2)(ii)(C) of the notice of
proposed rulemaking (REG–107592–00)
that was published in theFederal Regis-
teron September 28, 2007 (72 FR 55139)
is withdrawn.
Linda E. Stiff,
Deputy Commissioner
for Services and Enforcement.
(Filed by the Office of the Federal Register on February 20,
2008, 8:48 a.m., and published in the issue of the Federal
Register for February 25, 2008, 73 F.R. 9972)
Foundations Status of Certain
Organizations
Announcement 2008–28
The following organizations have failed
to establish or have been unable to main-
tain their status as public charities or as op-
erating foundations. Accordingly, grantors
and contributors may not, after this date,
rely on previous rulings or designations
in the Cumulative List of Organizations
(Publication 78), or on the presumption
arising from the filing of notices under sec-
tion 508(b) of the Code. This listing does
notindicate that the organizations have lost
their status as organizations described in
section 501(c)(3), eligible to receive de-
ductible contributions.
Former Public Charities.The follow-
ing organizations (which have been treated
as organizations thatare not private foun-
dations described in section 509(a) of the
Code) are now classified as private foun-
dations:
Absolute Positive Influences,
Fort Worth, TX
Academy Community Development
Corporation, Greensboro, NC
Adams Clubhouse, Prescott Valley, AZ
Alternative Decisions Incorporation,
Wynocote, PA
Bridges Ministry, Renton, WA
Carolina Assistance Programs, Inc.,
Greer, SC
Christopher House, Inc., Fancy Farm, KY
Coalition for Safe Community Needle
Disposal, Inc., Houston, TX
Colonial Chapel Foundation at the
American Village, Montevallo, AL
Dominion College, Cape Girardeau, MO
Door of Hope Recovery House for
Women, Inc., Indianapolis, IN
Dorothy Below Lesher Scholarship Trust,
Lansing, MI
Eco Mentors Alliance, Mahtomedi, MN
Eisner Research Associates, Inc.,
Encino, CA
Florence Indian Education Parent
Committee, Florence, OR
Friends of Western Missouri Medical
Foundation, Warrensburg, MS
Global Community Development, Inc.,
Birmingham, AL
Gratiot Residents East Area Together,
Detroit, MI
Greater Zion Community Outreach
Center, Inc., Baltimore, MD
Habitat for Education, Danville, CA
Here Too Help, Los Angeles, CA
Hosannas Horse Granger, Duluth, GA
Housing Counselors of Texas, Inc.,
Dallas, TX
Impact Housing Corporation, Mequon, WI
Ivory & Billie Crittendon Foundation,
Tacoma, WA
James 2 Association, Arlington, VA
Knowledge Management Associates,
Columbia, MO
Lambs Vision Christian Fellowship,
Garden Grove, CA
Lindsay Educational Foundation,
Lindsay, OK
Maandeeq Womans Organization, Inc.,
Oxford, GA
Manna Ministry, Inc., Centreville, MD
Metro Community Assistance, Inc.,
Dallas, GA
Mississippi Housing Opportunity
Coalition, Inc., Collins, MS
Morning Glory Temple Shelter of Hope,
Chicago, IL
Museum of Black-African American
History and Learning Center,
Lincoln, NE
Museum of Life or Death Incorporation,
Irvington, NJ
Myers Community Tutoring Service, Inc.,
Cordova, TN
National Cave Museum, Park City, KY
New Horizons Educational Center, Inc.,
Philadelphia, PA
North Carolina Community Solutions
Network, Durham, NC
Paws From the Ghetto, Inc.,
New York, NY
Phoenix Project, Inc., Nashville, TN
Prostate Cancer Project, North Miami, FL
Providence Childrens Home,
Victorville, CA
Quest Depot, Inc., Goshen, AR
Rhodius Booster Club, Plainfield, IN
Scent-cerely Yours,
Desert Hot Springs, CA
Seledorwon USA, Inc., Dorchester, MA
Share Care Prayer Mission, Gonzales, LA
Sherman Chamber Foundation, Inc.,
Sherman, TX
Silver Threads & Golden Needles, Inc.,
Lawrenceville, GA
Snell Development Group,
San Leandro, CA
Society for the Prevention of Domestic
Violence, Inc., New York, NY
Sonoma Mountain Institute, Petaluma, CA
Sonshine Financial Ministries, Inc.,
Odenton, MD
Spirit of a Child Foundation, Hayward, WI
State Committee on the Life and History
of Black Georgians, Atlanta, GA
Turnage Transitional Home for Clean
Living, Los Angeles, CA
Tyler Court Interfaith Housing
Corporation, Lemon Grove, CA
Victoria House Corporation,
San Diego, CA
VIP Care Services, Pomona, CA
Wheel Productions, Phoenix, AZ
Your New Beginnings, Inc.,
Aberdeen, MS
If an organization listed above submits
information that warrants the renewal of
its classification as a public charity or as
a private operating foundation, the Inter-
nalRevenueServicewillissuearulingor
determinationletterwiththerevisedclas-
sification as to foundation status. Grantors
and contributors may thereafter rely upon
such ruling or determination letter as pro-
videdinsection1.509(a)–7oftheIncome
Tax Regulations. It is not the practice of
the Service to announce such revised clas-
sification of foundation status in the Inter-
nal Revenue Bulletin.
April 7, 20087332008–14 I.R.B.

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cases
in litigation, or the outcome of a Service
study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
2008–14 I.R.B.iApril 7, 2008

Numerical Finding List
1
Bulletins 2008–1 through 2008–14
Announcements:
2008-1, 2008-1 I.R.B.246
2008-2, 2008-3 I.R.B.307
2008-3, 2008-2 I.R.B.269
2008-4, 2008-2 I.R.B.269
2008-5, 2008-4 I.R.B.333
2008-6, 2008-5 I.R.B.378
2008-7, 2008-5 I.R.B.379
2008-8, 2008-6 I.R.B.403
2008-9, 2008-7 I.R.B.444
2008-10, 2008-7 I.R.B.445
2008-11, 2008-7 I.R.B.445
2008-12, 2008-7 I.R.B.446
2008-13, 2008-8 I.R.B.480
2008-14, 2008-8 I.R.B.481
2008-15, 2008-9 I.R.B.511
2008-16, 2008-9 I.R.B.511
2008-17, 2008-9 I.R.B.512
2008-18, 2008-12 I.R.B.667
2008-19, 2008-11 I.R.B.624
2008-20, 2008-11 I.R.B.625
2008-21, 2008-13 I.R.B.691
2008-22, 2008-13 I.R.B.692
2008-23, 2008-14 I.R.B.731
2008-24, 2008-13 I.R.B.692
2008-25, 2008-14 I.R.B.732
2008-26, 2008-13 I.R.B.693
2008-28, 2008-14 I.R.B.733
Notices:
2008-1, 2008-2 I.R.B.251
2008-2, 2008-2 I.R.B.252
2008-3, 2008-2 I.R.B.253
2008-4, 2008-2 I.R.B.253
2008-5, 2008-2 I.R.B.256
2008-6, 2008-3 I.R.B.275
2008-7, 2008-3 I.R.B.276
2008-8, 2008-3 I.R.B.276
2008-9, 2008-3 I.R.B.277
2008-10, 2008-3 I.R.B.277
2008-11, 2008-3 I.R.B.279
2008-12, 2008-3 I.R.B.280
2008-13, 2008-3 I.R.B.282
2008-14, 2008-4 I.R.B.310
2008-15, 2008-4 I.R.B.313
2008-16, 2008-4 I.R.B.315
2008-17, 2008-4 I.R.B.316
2008-18, 2008-5 I.R.B.363
2008-19, 2008-5 I.R.B.366
2008-20, 2008-6 I.R.B.406
2008-21, 2008-7 I.R.B.431
2008-22, 2008-8 I.R.B.465
Notices— Continued:
2008-23, 2008-7 I.R.B.433
2008-24, 2008-8 I.R.B.466
2008-25, 2008-9 I.R.B.484
2008-26, 2008-9 I.R.B.487
2008-27, 2008-10 I.R.B.543
2008-28, 2008-10 I.R.B.546
2008-29, 2008-12 I.R.B.637
2008-30, 2008-12 I.R.B.638
2008-31, 2008-11 I.R.B.592
2008-32, 2008-11 I.R.B.593
2008-33, 2008-12 I.R.B.642
2008-34, 2008-12 I.R.B.645
2008-35, 2008-12 I.R.B.647
2008-36, 2008-12 I.R.B.650
2008-37, 2008-12 I.R.B.654
2008-38, 2008-13 I.R.B.683
2008-39, 2008-13 I.R.B.684
2008-40, 2008-14 I.R.B.725
Proposed Regulations:
REG-147290-05, 2008-10 I.R.B.576
REG-153589-06, 2008-14 I.R.B.730
REG-104713-07, 2008-6 I.R.B.409
REG-104946-07, 2008-11 I.R.B.596
REG-111583-07, 2008-4 I.R.B.319
REG-114126-07, 2008-6 I.R.B.410
REG-127391-07, 2008-13 I.R.B.689
REG-136701-07, 2008-11 I.R.B.616
REG-139236-07, 2008-9 I.R.B.491
REG-141399-07, 2008-8 I.R.B.470
REG-147832-07, 2008-8 I.R.B.472
REG-149475-07, 2008-9 I.R.B.510
Revenue Procedures:
2008-1, 2008-1 I.R.B.1
2008-2, 2008-1 I.R.B.90
2008-3, 2008-1 I.R.B.110
2008-4, 2008-1 I.R.B.121
2008-5, 2008-1 I.R.B.164
2008-6, 2008-1 I.R.B.192
2008-7, 2008-1 I.R.B.229
2008-8, 2008-1 I.R.B.233
2008-9, 2008-2 I.R.B.258
2008-10, 2008-3 I.R.B.290
2008-11, 2008-3 I.R.B.301
2008-12, 2008-5 I.R.B.368
2008-13, 2008-6 I.R.B.407
2008-14, 2008-7 I.R.B.435
2008-15, 2008-9 I.R.B.489
2008-16, 2008-10 I.R.B.547
2008-17, 2008-10 I.R.B.549
2008-18, 2008-10 I.R.B.573
2008-19, 2008-11 I.R.B.594
2008-21, 2008-12 I.R.B.657
2008-22, 2008-12 I.R.B.658
Revenue Procedures— Continued:
2008-23, 2008-12 I.R.B.664
2008-24, 2008-13 I.R.B.684
2008-25, 2008-13 I.R.B.686
Revenue Rulings:
2008-1, 2008-2 I.R.B.248
2008-2, 2008-2 I.R.B.247
2008-3, 2008-2 I.R.B.249
2008-4, 2008-3 I.R.B.272
2008-5, 2008-3 I.R.B.271
2008-6, 2008-3 I.R.B.271
2008-7, 2008-7 I.R.B.419
2008-8, 2008-5 I.R.B.340
2008-9, 2008-5 I.R.B.342
2008-10, 2008-13 I.R.B.676
2008-11, 2008-10 I.R.B.541
2008-12, 2008-10 I.R.B.520
2008-13, 2008-10 I.R.B.518
2008-14, 2008-11 I.R.B.578
2008-15, 2008-12 I.R.B.633
2008-16, 2008-11 I.R.B.585
2008-17, 2008-12 I.R.B.626
2008-18, 2008-13 I.R.B.674
2008-19, 2008-13 I.R.B.669
2008-20, 2008-14 I.R.B.716
Tax Conventions:
2008-8, 2008-6 I.R.B.403
Treasury Decisions:
9368, 2008-6 I.R.B.382
9369, 2008-6 I.R.B.394
9370, 2008-7 I.R.B.428
9371, 2008-8 I.R.B.447
9372, 2008-8 I.R.B.462
9373, 2008-8 I.R.B.463
9374, 2008-10 I.R.B.521
9375, 2008-5 I.R.B.344
9376, 2008-11 I.R.B.587
9377, 2008-11 I.R.B.578
9378, 2008-14 I.R.B.720
9379, 2008-14 I.R.B.715
9380, 2008-14 I.R.B.718
9381, 2008-14 I.R.B.694
9382, 2008-9 I.R.B.482
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2007–27 through 2007–52 is in Internal Revenue Bulletin
2007–52, dated December 26, 2007.
April 7, 2008ii2008–14 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2008–1 through 2008–14
Announcements:
2006-88
Clarified and superseded by
Notice 2008-35, 2008-12 I.R.B.647
Notice 2008-36, 2008-12 I.R.B.650
2008-6
Superseded by
Ann. 2008-19, 2008-11 I.R.B.624
Notices:
2001-16
Modified by
Notice 2008-20, 2008-6 I.R.B.406
2001-60
Modified and superseded by
Notice 2008-31, 2008-11 I.R.B.592
2002-44
Superseded by
Notice 2008-39, 2008-13 I.R.B.684
2003-51
Superseded by
Rev. Proc. 2008-24, 2008-13 I.R.B.684
2006-27
Clarified and superseded by
Notice 2008-35, 2008-12 I.R.B.647
2006-28
Clarified and superseded by
Notice 2008-36, 2008-12 I.R.B.650
2006-52
Clarified and amplified by
Notice 2008-40, 2008-14 I.R.B.725
2006-77
Clarified and amplified by
Notice 2008-25, 2008-9 I.R.B.484
2006-107
Modified by
Notice 2008-7, 2008-3 I.R.B.276
2007-30
Modified and superseded by
Notice 2008-14, 2008-4 I.R.B.310
2007-54
Clarified by
Notice 2008-11, 2008-3 I.R.B.279
Proposed Regulations:
REG-209020-86
Corrected by
Ann. 2008-11, 2008-7 I.R.B.445
Proposed Regulations— Continued:
REG-107592-00
Partial withdrawal by
Ann. 2008-25, 2008-14 I.R.B.732
REG-149856-03
Hearing scheduled by
Ann. 2008-26, 2008-13 I.R.B.693
REG-113891-07
Hearing scheduled by
Ann. 2008-4, 2008-2 I.R.B.269
REG-127770-07
Hearing scheduled by
Ann. 2008-24, 2008-13 I.R.B.692
Revenue Procedures:
97-36
Modified by
Rev. Proc. 2008-23, 2008-12 I.R.B.664
2001-23
Modified by
Rev. Proc. 2008-23, 2008-12 I.R.B.664
2002-9
Modified by
Rev. Proc. 2008-18, 2008-10 I.R.B.573
Modified and amplified by
Rev. Proc. 2008-25, 2008-13 I.R.B.686
2007-1
Superseded by
Rev. Proc. 2008-1, 2008-1 I.R.B.1
2007-2
Superseded by
Rev. Proc. 2008-2, 2008-1 I.R.B.90
2007-3
Superseded by
Rev. Proc. 2008-3, 2008-1 I.R.B.110
2007-4
Superseded by
Rev. Proc. 2008-4, 2008-1 I.R.B.121
2007-5
Superseded by
Rev. Proc. 2008-5, 2008-1 I.R.B.164
2007-6
Superseded by
Rev. Proc. 2008-6, 2008-1 I.R.B.192
2007-7
Superseded by
Rev. Proc. 2008-7, 2008-1 I.R.B.229
2007-8
Superseded by
Rev. Proc. 2008-8, 2008-1 I.R.B.233
Revenue Procedures— Continued:
2007-26
Obsoleted in part by
Rev. Proc. 2008-17, 2008-10 I.R.B.549
2007-31
Obsoleted in part by
Rev. Proc. 2008-19, 2008-11 I.R.B.594
2007-39
Superseded by
Rev. Proc. 2008-3, 2008-1 I.R.B.110
2007-52
Superseded by
Rev. Proc. 2008-9, 2008-2 I.R.B.258
2008-13
Corrected by
Ann. 2008-15, 2008-9 I.R.B.511
Revenue Rulings:
58-612
Clarified and amplified by
Rev. Rul. 2008-15, 2008-12 I.R.B.633
64-250
Amplified by
Rev. Rul. 2008-18, 2008-13 I.R.B.674
89-42
Modified and superseded by
Rev. Rul. 2008-17, 2008-12 I.R.B.626
92-19
Supplemented in part by
Rev. Rul. 2008-19, 2008-13 I.R.B.669
97-31
Modified and superseded by
Rev. Rul. 2008-17, 2008-12 I.R.B.626
2001-48
Modified and superseded by
Rev. Rul. 2008-17, 2008-12 I.R.B.626
2007-4
Supplemented and superseded by
Rev. Rul. 2008-3, 2008-2 I.R.B.249
Treasury Decisions:
9362
Corrected by
Ann. 2008-9, 2008-7 I.R.B.444
Ann. 2008-12, 2008-7 I.R.B.446
9363
Corrected by
Ann. 2008-10, 2008-7 I.R.B.445
9375
Corrected by
Ann. 2008-16, 2008-9 I.R.B.511
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2007–27 through 2007–52 is in Internal Revenue Bulletin 2007–52, dated December 26,
2007.
2008–14 I.R.B.iiiApril 7, 2008

April 7, 20082008–14 I.R.B.

2008–14 I.R.B.April 7, 2008

April 7, 20082008–14 I.R.B.

INTERNAL REVENUE BULLETIN
The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue
Bulletin is sold on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superin-
tendent of Documents when their subscriptions must be renewed.
CUMULATIVE BULLETINS
The contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are
sold on a single copy basis andare notincluded as part of the subscription to the Internal Revenue Bulletin. Subscribers to the weekly
Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of print
and are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from the
Superintendent of Documents.
ACCESS THE INTERNAL REVENUE BULLETIN ON THE INTERNET
You may view the Internal Revenue Bulletin on the Internet at www.irs.gov. Under information for: select Businesses. Under
related topics, select More Topics. Then select Internal Revenue Bulletins.
INTERNAL REVENUE BULLETINS ON CD-ROM
Internal Revenue Bulletins are available annually as part ofPublication 1796 (Tax Products CD-ROM). The CD-ROM can be
purchased from National Technical Information Service (NTIS) on the Internet at www.irs.gov/cdorders (discount for online orders)
or by calling 1-877-233-6767. The first release is available in mid-December and the final release is available in late January.
HOW TO ORDER
Check the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance,
detach entire page, and mail to the Superintendent of Documents, P.O. Box 371954, Pittsburgh PA, 15250–7954. Please allow two to
six weeks, plus mailing time, for delivery.
WE WELCOME COMMENTS ABOUT THE INTERNAL
REVENUE BULLETIN
If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it,
we would be pleased to hear from you. You can e-mail us your suggestions or comments through the IRS Internet Home Page
(www.irs.gov) or write to the IRS Bulletin Unit, SE:W:CAR:MP:T:T:SP, Washington, DC 20224
Internal Revenue Service
W
ashington,DC20224
Official Business
Penalty for Private Use, $300