Internal Revenue Bulletin 2010-44 (PDF rendition): IRS Revenue Rulings

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Bulletin No. 201
0-44
November 1, 2010
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
SPECIAL ANNOUNCEMENT
Announcement 2010–86, page 604.
The Twenty-Third Annual Institute on Current Issues in Interna-
tional Taxation, jointly sponsored by the Internal Revenue Ser-
vice and The George Washington University Law School, will be
held on December 9 and 10, 2010, at the J.W. Marriott Hotel
in Washington, DC.
INCOME TAX
Rev. Rul. 2010–25, page 571.
Limitations on qualified residence interest.This ruling
holds that indebtedness in excess of $1 million that a taxpayer
incurs to acquire, construct, or substantially improve a quali-
fied residence may constitute home equity indebtedness within
the meaning of section 163(h)(3)(C) of the Code.
Rev. Rul. 2010–26, page 573.
Federal rates; adjusted federal rates; adjusted federal
long-termrateandthelong-termexemptrate.For pur-
poses of sections 382, 642, 1274, 1288, and other sections
of the Code, tables set forth the rates for November 2010.
T.D. 9497, page 558.
REG–142800–09, page 580.
Temporary and proposed regulations under section 108(i) of
the Code provide guidance to C corporations regarding the
acceleration of deferred COD income and deferred OID de-
ductions including special rules for members of consolidated
groups. In addition, these regulations provide rules applicable
to all taxpayers regarding deferred OID deductions.
EMPLOYEE PLANS
Notice 2010–70, page 576.
Weighted average interest rate update; corporate bond
indices; 30-year Treasury securities; segment rates.
This notice contains updates for the corporate bond weighted
average interest rate for plan years beginning in October
2010; the 24-month average segment rates; the funding
transitional segment rates applicable for October 2010; and
the minimum present value transitional rates for September
2010.
EXEMPT ORGANIZATIONS
Announcement 2010–84, page 603.
The IRS has revoked its determinations that the American Chil-
dren’s Safety Source of Michigan Center; MI; Anna Foundation,
Inc., of Melville, NY; California Consumer Credit of Los Ange-
les, CA; Consumer Counseling Centers of America of Wash-
ington, DC; The Cruffel Foundation of Jackson, WY; Interpreter
Referral Service dba Chicago Area Interpreter Referral Service
of Chicago, IL; Museum of Military History of Chandler, AZ;
Debticated Consumer Counseling, Inc., of Centerport, NY; and
United Children’s Fund of Michigan Center; MI, quality as orga-
nizations described in sections 501(c)(3) and 170(c)(2) of the
Code.
(Continued on the next page)
Announcement of Declaratory Judgment Proceedings Under Section 7428 begins on page 604.
Finding Lists begin on page ii.

EXCISE TAX
Notice 2010–68, page 576.
This notice maintains the current system in Alaska for fuel distri-
bution and nontaxable use and provides that Alaska continues
to remain exempt from the dyeing requirements for nontaxable
use of diesel fuel and kerosene.
ADMINISTRATIVE
Notice 2010–69, page 576.
This notice provides interim relief to employers with respect to
reporting the cost of coverage under an employer-sponsored
grouphealthplanonFormW-2,WageandTaxStatement,pur-
suant to section 6051(a)(14) of the Code.
REG–138637–07, page 581.
Proposed regulations modify the general standards of practice
before the IRS and the standards with respect to tax returns.
November 1, 20102010–44 I.R.B.

The IRS Mission
Provide Americ
a’s taxpayers top-quality service by helping
them understa
nd and meet their tax responsibilities and en-
force the law wi
th integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Secre-
tary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
2010–44 I.R.B.November 1, 2010

November 1, 20102010–44 I.R.B.

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 November 20
10. See Rev. Rul. 2010-26, page
573.
Section 108.—Income From
Discharge of Indebtedness
26 CFR 1.108(i)–1T: Deferred discharge of indebt-
edness income and deferred original issue discount
deductions of C corporations (temporary).
T.D. 9497
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Guidance Regarding Deferred
Discharge of Indebtedness
Income of Corporations
and Deferred Original Issue
Discount Deductions
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Temporary regulations.
SUMMAR
Y: This document contains
tempor
ary regulations under section 108(i)
of the I
nternal Revenue Code (Code).
These r
egulations primarily affect C cor-
porati
ons regarding the acceleration of
defer
red discharge of indebtedness (COD)
incom
e (deferred COD income) and de-
ferre
d original issue discount (OID) de-
ducti
ons (deferred OID deductions) under
secti
on 108(i)(5)(D), and the calculation
of ea
rnings and profits as a result of an
elec
tion under section 108(i). In addition,
thes
e regulations provide rules applicable
to al
l taxpayers regarding deferred OID
dedu
ctions under section 108(i) as a result
of a r
eacquisition of an applicable debt in-
str
ument by an issuer or related party. The
tex
t of these temporary regulations also
ser
ves as the text of proposed regulations
(RE
G–142800–09) set forth in the notice
of proposed ru
lemaking on this subject in
this issue of t
he Bulletin.
DATES:Effect
ive Dates:These regula-
tions are eff
ective on August 11, 2010.
Applicabili
ty Dates:For dates of appli-
cability, se
e §1.108(i)–0T(b).
FOR FURTHER I
NFORMATION
CONTACT: Con
cerning the acceleration
rules for de
ferred COD income and de-
ferred OID d
eductions, and the rules for
earnings an
d profits, Robert M. Rhyne
(202) 622–7
790; concerning the rules for
deferred O
ID deductions, Rubin B. Ranat
(202) 622–
7530 (not toll-free numbers).
SUPPLEMEN
TARY INFORMATION:
Paperwor
kReductionAct
These tem
porary regulations are being
issued wi
thout prior notice and public
procedur
e pursuant to the Administra-
tive Proc
edure Act (5 U.S.C. 553). For
this rea
son, the collection of information
contain
ed in these regulations has been
reviewe
d and, pending receipt and evalua-
tion of p
ublic comments, approved by the
Office o
f Management and Budget under
contro
l number 1545–2147. Responses to
this co
llection of information are required
in orde
r for a member of a consolidated
group t
o make the election described in
§1.108
(i)–1T(b)(3).
An agen
cy may not conduct or sponsor,
and a pe
rson is not required to respond
to, a c
ollection of information unless the
colle
ction of information displays a valid
contr
ol number.
For fu
rther information concerning this
colle
ction of information, and where to
submi
t comments on the collection of in-
forma
tion and the accuracy of the esti-
mate
d burden, and suggestions for reduc-
ing t
his burden, please refer to the pream-
ble t
o the cross-referencing notice of pro-
pose
d rulemaking on this subject in this is-
sue o
f the Bulletin.
Book
s or records relating to a collection
of in
formation must be retained as long as
the
ir contents may become material in the
adm
inistration of any internal revenue law.
See
26 U.S.C. 6001. Generally, tax returns
and tax return
information are confidential,
as required by
26 U.S.C. 6103.
Background
Under section
61(a)(12), a taxpayer
includes in gr
oss income any discharge
of indebtedn
ess (COD income) if the
taxpayer’s o
bligation to repay its indebt-
edness is dis
chargedinwholeorinpart.
Section 108 p
rovides special rules for the
treatment of
COD income in certain cases.
Section 108
(i) was added to the Code
by section 1
231 of the American Recovery
and Reinves
tment Tax Act of 2009 (Pub-
lic Law 111–
5, 123 Stat. 338), enacted
on February
17, 2009. Section 108(i)(1)
provides an
election for deferral of the in-
clusion of
COD income (deferred COD in-
come) aris
ing in connection with the reac-
quisition
after December 31, 2008, and be-
fore Janua
ry 1, 2011, of an applicable debt
instrume
nt. If a taxpayer makes the elec-
tion, the
deferred COD income generally
is includ
ible in gross income ratably over
a 5-taxab
le-year period, beginning with the
taxpaye
r’s fourth or fifth taxable year fol-
lowing t
he taxable year of the reacquisition
(inclus
ion period). If, as part of a reacqui-
sition t
o which section 108(i)(1) applies, a
debt ins
trument is issued (or is treated as
issued
) for the applicable debt instrument
and the
re is any OID with respect to the
newly i
ssued debt instrument, then the de-
ductio
nforalloraportionoftheOIDmay
be defe
rred (deferred OID deductions) un-
der sec
tion 108(i)(2). (See the discussion
of sec
tion 108(i)(2) later in this preamble.)
An app
licable debt instrument means
any de
bt instrument (within the meaning
of sec
tion 1275(a)(1)) issued by a C cor-
porat
ion, or any other person in connection
with t
he conduct of a trade or business by
such a
person. Section 108(i)(3). Section
108(
i)(4)(A) defines areacquisitionas any
acqu
isition of the debt instrument by the
debt
or which issued (or is otherwise the
obli
gor under) the debt instrument, or by
aper
son related to the debtor within the
mea
ning of section 108(e)(4). Anacquisi-
tio
nincludes acquisitions for cash or other
pro
perty, for another debt instrument, for
cor
porate stock or a partnership interest, or
as a
contribution of the debt instrument to
2010–44 I.R.B.558November 1, 2010

capital. The term also includes the com-
plete forgiveness of the indebtedness by
the holder of the debt instrument. Section
108(i)(4)(B).
Section 108(i)(5)(D) requires a tax-
payer to accelerate the inclusion of any
remaining items of deferred COD income
or deferred (and otherwise allowable) OID
deduction (deferred items) under certain
circumstances, including the death of the
taxpayer, the liquidation or sale of sub-
stantially all the assets of the taxpayer
(including in a title 11 or similar case), the
cessation of business by the taxpayer, or
similar circumstances. Section 108(i)(7)
authorizes the Secretary to issue guidance
necessary or appropriate for purposes of
applying section 108(i), including extend-
ing the application of the rules of section
108(i)(5)(D) to other appropriate circum-
stances.
On August 17, 2009, the IRS and
Treasury Department issued Rev. Proc.
2009–37, 2009–36 I.R.B. 309, providing
procedures for taxpayers to make a section
108(i) election, and requiring the annual
reporting of additional information. See
§601.601(d)(2)(ii)(b). The revenue pro-
cedure also announced the intention to
issue additional guidance, and that the
additional guidance may be retroactive.
Explanation of Provisions
I.Mandatory Acceleration Events for
Deferred COD Income
The IRS and Treasury Department
believe that the deferral rules of section
108(i) generally are intended to facilitate
debt workouts and to alleviate taxpayer
liquidity concerns by deferring the tax lia-
bility associated with COD income. These
taxpayer-favorable deferral rules are tem-
pered, however, by section 108(i)(5)(D),
which operates to accelerate the inclu-
sion of a taxpayer’s remaining deferred
COD income in the case of the death of
the taxpayer, the liquidation or sale of
substantially all the assets of the taxpayer
(including in a title 11 or similar case),
the cessation of business by the taxpayer
or similar circumstances (acceleration
events).
A common trait of these enumerated ac-
celeration events is that they involve sit-
uations where collection of the tax liabil-
ity associated with a taxpayer’s deferred
COD income may be hindered, either be-
cause the taxpayer has ceased to exist or
because the taxpayer has disposed of the
business to which the COD income relates.
Section 108(i) poses unique concerns re-
garding collectability of the incipient tax
liability associated with deferred COD in-
come. In other contexts in which gain or
income is deferred, the deferral is gener-
ally associated with a particular asset or its
replacement. For example, gain on the sale
of an asset under the installment method of
accounting is deferred until payments are
received under the installment obligation,
or until the taxpayer disposes of the in-
stallment obligation. Collectability of the
tax liability associated with the deferred
gain is preserved in that context because
the taxpayer has either the installment obli-
gation or the proceeds therefrom. Section
108(i) deferral, in contrast, is not linked to
a particular asset or a particular replace-
ment asset. In the absence of acceleration
events, the government’s ability to ensure
appropriate inclusion of the deferred COD
income and the collectability of the associ-
ated tax liability would be jeopardized.
The enumerated acceleration events ap-
ply, however, to a broad range of taxpay-
ers, including individuals and passthrough
entities as well as corporations. Applied
literally, the statutory rules would require
acceleration in circumstances, such as cer-
tain corporate nonrecognition transactions,
that do not pose particular concerns re-
garding collectability. For example, the
statute treats a sale of substantially all the
assets of the taxpayer as an acceleration
event. If construed broadly, any asset dis-
position involving the transfer of substan-
tially all of the assets of a corporation that
made a section 108(i) election (for exam-
ple, a reorganization exchange described
in section 368(a)(1)(C)) would constitute
an acceleration event. However, commen-
tators noted that it did not seem consis-
tent with the purposes of section 108(i)
to require the acceleration of an electing
corporation’s deferred items in the case of
a transaction to which section 381(a) ap-
plies. As discussed further in this pream-
ble, the IRS and Treasury Department gen-
erally agree.
The rules provided in these temporary
regulations with respect to a C corpora-
tion with deferred COD income by reason
of a section 108(i) election (electing cor-
poration) are intended to focus more pre-
cisely on the underlying purpose of sec-
tion 108(i)(5)(D) to ensure that the gov-
ernment’s ability to collect the tax liabil-
ity associated with the deferred COD in-
come is not impaired. Thus, with respect
to electing corporations, the rules provided
in these regulations generally reflect a nar-
rower interpretation of the statutory accel-
eration events.
In addition, however, the nature of the
corporate entity introduces concerns not
present for other types of taxpayers. In
particular, a corporation can dissipate its
assets (for example, by distributions to its
shareholders) without harming the eco-
nomic interests of its shareholders. As a
result, there may be a greater incentive for
the owners of a corporationtomakethe
corporation judgment-proof with respect
to its tax liability. This is illustrated by
the intermediary transactions described in
Notice 2008–111, 2008–2 C.B. 1299. The
IRS and Treasury Department believe that
the acceleration rulesshould be tailored to
foreclose such opportunities.
Accordingly, while these temporary
regulations do not require acceleration in
every instance enumerated in the statute,
they provide instead for acceleration in a
limited number of circumstances in which
corporations have impaired their ability
to pay their incipient tax liability. This
approach is broadly consistent with the
approach advanced by commentators who
suggested, for example, that a transfer of
a corporation’s business assets for stock
in a section 351 exchange should not be
an acceleration event, despite the literal
language of section 108(i)(5)(D).
Specifically, these temporary regula-
tions generally provide that an electing
corporation will accelerate deferred COD
income under section 108(i)(5)(D) if the
electing corporation (i) changes its tax
status, (ii) ceases its corporate existence
in a transaction to which section 381(a)
does not apply, or (iii) engages in a trans-
action that impairs its ability to pay the tax
liability associatedwith its deferred COD
income (the net value acceleration rule).
Under these temporary regulations, the
foregoing three rules are the only events
that accelerate an electing corporation’s
deferred COD income. In addition to these
temporary regulations, however, the rules
under §1.108(i)–2T apply to C corpora-
tions that are direct or indirect partners of
a partnership.
November 1, 20105592010–44 I.R.B.

The acceleration rules provided in these
temporary regulations generally are differ-
ent from the rules for passthrough entities.
For example, a sale of substantially all of
the assets of a passthrough entity is an ac-
celeration event for an S corporation while
that transaction, standing alone, is not an
acceleration event for an electing corpora-
tion. The IRS and Treasury Department
believe that it is appropriate to provide dif-
ferent acceleration rules for passthrough
entities and electing corporations because
the statute requires the debt instrument of
a passthrough entity to be issued in con-
nection with a trade or business. Accord-
ingly, consistent with the trade or business
requirement, it is appropriate to accelerate
the deferred COD income of a passthrough
entity if the entity sells substantially all of
its assets.
A.Net value acceleration rule
Under the net value acceleration rule,
an electing corporation generally is re-
quired to accelerate all of its remaining
deferred COD income if it engages in an
impairment transaction, and immediately
after the transaction, the value of its as-
sets fails to satisfy a minimum threshold
(as further described herein). In general,
impairment transactions are volitional
transactions that reduce an electing corpo-
ration’s asset base.
As provided in these regulations, im-
pairment transactions are any transactions,
however effected, that impair an electing
corporation’s ability to pay the amount
of Federal income tax liability on its
deferred COD income and include, for
example, distributions (including sec-
tion 381(a) transactions), redemptions,
below market sales, and donations, and
the incurrence of additional indebtedness
without a corresponding increase in asset
value. However, value-for-value sales or
exchanges (including, for example, an ex-
change to which section 351 or section 721
applies) are not impairment transactions.
The IRS and Treasury Department believe
that the receipt of replacement assets in
these cases adequately protects the gov-
ernment’s interests and ensures continued
collectability of any incipient tax liability.
Under this rule, an electing corporation’s
investments and expenditures in pursuance
of its good faith business judgment are not
impairment transactions, merely because,
for example, acquired assets are riskier
or less liquid than the electing corpora-
tion’s previous assets. In addition, mere
declines in the market value of an electing
corporation’s assets are not impairment
transactions. Although the decline may
impair an electing corporation’s ability to
pay its tax liability, a different rule would
require continuous valuations and is con-
trary to the transactional approach taken in
the statute and these regulations, and the
realization requirement generally.
Under the net value acceleration rule,
an electing corporation generally is re-
quired to accelerate its remaining deferred
COD income if immediately after an im-
pairment transaction, the gross value of
the corporation’s assets (gross asset value)
is less than one hundred and ten percent
of the sum of its total liabilities and the
tax on the net amount of its deferred items
(the net value floor). Solely for purposes
of computing the net value floor, the tax
on the net amount of the electing corpo-
ration’s deferred items is determined by
applying the highest rate of tax specified
in section 11(b) for the taxable year (even
though the corporation’s actual tax rate for
the taxable year may differ).
The net value acceleration rule has a
mitigating provision that allows an elect-
ing corporation to avoid accelerated inclu-
sion of its deferred COD income if value
is restored to the corporation by the due
date of the electing corporation’s tax re-
turn (including extensions). In general, the
amount required to be restored is the lesser
of: (i) the amount of value that was re-
moved (net of amounts previously restored
under this rule) from the electing corpo-
ration in one or more impairment trans-
actions; or (ii) the amount by which the
electing corporation’s net value floor ex-
ceeds its gross asset value. For example,
assume an electing corporation incurs $50
of indebtedness, distributes the $50 of pro-
ceeds to its shareholder, and immediately
after the distribution, the electing corpora-
tion’s gross asset value is $25 below the
net value floor. The electing corporation
may avoid application of the net value ac-
celeration rule if, as a result of a transac-
tion, assets with a value of $25 are restored
to the corporation before the due date of
its tax return (including extensions) for the
taxable year that includes the distribution.
For purposes of this provision, the value
that must be restored is determined at the
time of the impairment transaction, and is
determined upon a net value basis (for ex-
ample, additional borrowings by an elect-
ing corporation do not restore value).
The IRS and Treasury Department be-
lieve that the net value acceleration rule
is an appropriate interpretation of section
108(i) because, consistent with the pur-
pose of facilitating workouts, the rule al-
lows electing corporations the flexibility to
realign business operations through strate-
gic acquisitions and dispositions within the
objective standard of the net value floor.
Although the net value acceleration rule
contains a valuation component, a valua-
tion will be required only if an electing cor-
poration engages in an impairment trans-
action. Moreover, the IRS and Treasury
Department believe that the net value ac-
celeration rule is a more objective rule
than requiring corporations to determine
the amount of business assets that would
have to be retained simply to preserve the
deferral benefit of section 108(i).
1. Consolidated Groups
In the case of consolidated groups, the
determination of whether an electing cor-
poration that is a member of a consolidated
group (electing member) has engaged in
an impairment transaction is made on a
group-wide basis. Thus, an electing mem-
ber is treated as engaging in an impair-
ment transaction if any member’s transac-
tion impairs the group’s ability to pay the
tax liability associated with the group’s de-
ferred COD income. See §1.1502–6. Ac-
cordingly, intercompany transactions are
not impairment transactions. Similarly,
the net value acceleration rule is applied
by reference to the gross asset value of
all members (excluding stock of members
whether or not the stock is described in
section 1504(a)(4)), the liabilities of all
members,andthetaxonallmembers’de-
ferred items. For example, assume P is
the common parent of the P-S consolidated
group, S has a section 108(i) election in ef-
fect, and S makes a $100 distribution to P,
which, on a separate entity basis, would re-
duce S’s gross asset value below the net
value floor. S’s intercompany distribu-
tion to P is not an impairment transaction.
However, if P makes a $100 distribution
to its shareholder, P’s distribution, subject
to an exception described in section I.A.2
of this preamble, is an impairment transac-
2010–44 I.R.B.560November 1, 2010

tion, and the net value acceleration rule is
applied by reference tothe assets, liabili-
ties, and deferred items of the P-S group.
Special rules are provided when an
electing member that previously engaged
in an impairment transaction on a separate
entity basis leaves a consolidated group. If
the electing member ceases to be a mem-
ber of a consolidatedgroup, the cessation
is treated as an impairment transaction and
the net value acceleration rule is applied
on a separate entity basis (by reference to
the assets, liabilities, and deferred items
of the electing member only) immediately
after it ceases to be a member. If the elect-
ing member’s gross asset value is less than
the net value floor, then the electing mem-
ber’s remaining deferred COD income
must be taken into account immediately
before the electing member ceases to be a
member (unless value is restored). In the
case of an electing member that becomes
a member of another consolidated group,
the cessation is treated as an impairment
transaction and the net value acceleration
rule is applied by reference to the assets,
liabilities, and deferred items of the mem-
bers of the acquiring group immediately
after the transaction. If the gross asset
value of the acquiring group is less than
its net value floor, the electing member’s
remaining deferred COD income is taken
into account immediately before the elect-
ing member ceases to be a member of the
former group. If accelerated inclusion is
not required, the common parent of the
acquiring group succeeds to the reporting
requirements of section 108(i) with respect
to the electing member.
2. Exception for Distributions and
Charitable Contributions Consistent with
Historical Practice — In General
The IRS and Treasury Department be-
lieve it is appropriate to allow an electing
corporation to continue to make distribu-
tions to the extent the distributions are con-
sistent with its historical practice. Accord-
ingly, these distributions are not treated as
impairment transactions (and are not taken
into account as a reduction in gross as-
set value when applying the net value ac-
celeration rule to any impairment transac-
tion). For this purpose, distributions are
consistent with an electing corporation’s
historical practice to the extent the distri-
butions are described in section 301(c) and
the amount of these distributions, in the
aggregate, for the applicable taxable year
(applicable distribution amount) does not
exceed the annual average amount of sec-
tion 301(c) distributions over the preced-
ing three taxable years (average distribu-
tion amount). Any excess of the applica-
ble distribution amount over the average
distribution amount is treated as an im-
pairment transaction and is taken into ac-
count when applying the net value acceler-
ation rule. For purposes of this rule, appro-
priate adjustments must be made to take
into account any issuances or redemptions
of stock, or similar transactions, occurring
during a relevant taxable year. In addition,
if the electing corporation has a short tax-
able year for the year of the distribution or
foranyoftheyearsrelieduponincom-
puting the average distribution amount, the
applicable distribution amount and the av-
erage distribution amount are determined
on an annualized basis. If an electing
corporation has been in existence for less
than three years, the average distribution
amount is computed by substituting the pe-
riod during which the electing corporation
has been in existence for the preceding
three taxable years. The regulations also
provide similar rules that exclude from im-
pairment transaction status an electing cor-
poration’s charitable contributions (within
the meaning of section 170(c)) that are
consistent with its historical practice.
3. Special Rules for Regulated Investment
Companies (RICs) and Real Estate
Investment Trusts (REITs)
In the case of a RIC or REIT, any dis-
tributions with respect to stock that are
treated as a dividend under section 852 or
857 are not treated as impairment transac-
tions (and are not taken into account as a
reduction in gross asset value when apply-
ing the net value acceleration rule to any
impairment transaction). In addition, any
redemption of a redeemable security, as
definedin15U.S.C.section80a–2(a)(32),
by a RIC in the ordinary course of business
is not treated as an impairment transaction
(and is not taken into account as a reduc-
tion in gross asset value when applying the
net value acceleration rule to any impair-
ment transaction).
B.Other mandatory acceleration events
1. Changes in Tax Status
To preserve the government’s ability
to collect the incipient tax liability as-
sociated with a C corporation’s deferred
COD income, these regulations provide
that an electing corporation must take into
account its remaining deferred COD in-
come immediately before a change in its
tax status. An example of such a change
includes a C corporation that becomes a
tax-exempt entity, ora C corporation that
begins operating as a cooperative. Other
changes in tax status are more fully de-
scribed herein.
If a C corporation elects to be treated
as an S corporation, the S corporation is
subject to tax on its net recognized built-in
gains during the recognition period. Sec-
tion 1374(a). Although an item of income,
such as deferred COD income, can consti-
tute recognized built-in gain, recognition
of the gain for any taxable year may be lim-
ited under §1.1374–2. Accordingly, if an
electing corporation elects to be treated as
an S corporation, the S corporation would
not pay tax on its deferred COD income
to the extent that the S corporation’s COD
income and other recognized built-in gains
exceed the limitation.
The IRS and Treasury Department have
determined that permanent exclusion of a
corporate tax liability associated with a
section 108(i) election is inconsistent with
congressional intent to provide for defer-
ral of corporate tax liability with respect
to COD income. Accordingly, these tem-
porary regulations provide that if an elect-
ing corporation elects to become an S cor-
poration, the C corporation must take into
account its deferred COD income immedi-
ately before the S corporation election is
effective.
Similarly, these temporary regulations
provide that an electing corporation that
elects to be treated as a RIC or REIT must
take into account its remaining deferred
COD income immediately before the elec-
tion is effective.
2. Cessation of Existence
Section 108(i)(5)(D) provides that in
the case of the cessation of business by
a taxpayer, deferred items must be taken
into account in the taxable year of the ces-
sation. Consistent with this provision, in
November 1, 20105612010–44 I.R.B.

general, these temporary regulations pro-
vide that an electing corporation must ac-
celerate its remaining deferred COD in-
come in the taxable year that the corpora-
tion ceases to exist.
AsnotedinsectionIofthepream-
ble, commentators suggested that contin-
ued deferral of an electing corporation’s
COD income is appropriate if the corpo-
ration ceases to exist in a reorganization
or liquidation to which section 381(a) ap-
plies. The IRS and Treasury Department
agree that, in these transactions, the poli-
cies that support nonrecognition for cor-
porations also support continued deferral
of COD income. In addition, an exception
for these transactions affords corporations
maximum flexibility in structuring trans-
actions as asset reorganizations or stock re-
organizations to meet business exigencies.
Therefore, these temporary regulations
generally provide that if the assets of the
electing corporation are acquired in a
transaction to which section 381(a) applies
(the section 381 exception), the electing
corporation’s deferred COD income is not
accelerated. In such a case, the acquiring
corporation succeeds to the electing corpo-
ration’s remaining deferred COD income,
and becomes subject to section 108(i),
including all of its reporting requirements.
However, these temporary regulations
limit the applicability of the section 381
exception in certain circumstances, some
of which are described herein. Moreover,
a section 381(a) transaction may still con-
stitute an impairment transaction. (See
Example 3 of §1.108(i)–1T(c)).
a. Outbound section 381(a) transactions
If the assets of a domestic electing cor-
porationareacquiredbyaforeigncorpo-
ration in a transaction to which section
381(a) applies, the electing corporation’s
deferred COD income may not be subject
to U.S. tax when it is includible in the
foreign acquirer’s gross income. Accord-
ingly, to ensure that the COD income is
appropriately taxed, these temporary reg-
ulations provide that the electing corpora-
tion takes into account its remaining de-
ferred COD income immediately before
the transaction.
b. Inbound section 381(a) transactions
As more fully described in section
III, in general, deferred COD income
increases the earnings and profits of an
electing corporation, including a foreign
electing corporation,in the year the debt
is discharged. Accordingly, if the assets
of a foreign electing corporation are ac-
quired by a domestic corporation in a
transaction to which section 381(a) ap-
plies, the increase in earnings and profits
is taken into account in computing the for-
eign corporation’s all earnings and profits
amount and therefore, may be subject to
U.S. taxation as a deemed dividend pur-
suant to §1.367(b)–3(b)(3). To prevent
the deferred COD income from being
subject to U.S. tax a second time when
the deferred COD income is includible
in the domestic acquirer’s gross income,
these temporary regulations provide that a
foreign electing corporation takes into ac-
count its remaining deferred COD income
immediately before the transaction if, as a
result of the transaction, one or more ex-
changing shareholders include in income
as a deemed dividend the all earnings and
profits amount with respect to stock in the
foreign electing corporation pursuant to
§1.367(b)–3(b)(3).
c. Acquisition of assets of an electing
corporation by a RIC or REIT or by an
S corporation
To ensure that the corporate tax liabil-
ity associated with deferred COD income
is appropriately preserved, these tempo-
rary regulations provide that if the assets
of an electing corporation are acquired by
a RIC or REIT in a transaction that is sub-
ject to §1.337(d)–7 and section 381(a) (a
conversion transaction), the electing cor-
poration takes into account its remaining
deferred COD income immediately before
the conversion transaction. Similarly, if
the assets of an electing C corporation are
acquired by an S corporation in a trans-
action to which sections 1374(d)(8) and
section 381(a) apply, the electing C cor-
poration takes into account its remaining
deferred COD income immediately before
the transaction.
C. Title 11 (or similar case)
Under section 108(i)(5)(D), if an elect-
ing corporation ceases to do business, liq-
uidates or sells substantially all of its assets
in a proceeding under title 11 (or a similar
case), the corporation’s deferred items are
taken into account the day before the pe-
tition is filed. The IRS and Treasury De-
partment believe that the acceleration rules
(outlined in section I) are sufficient to pro-
tect the collectability of tax relating to de-
ferred COD income. Accordingly, no spe-
cial acceleration rules for an electing cor-
poration in a title 11 or similar case are pro-
vided.
II.Elective Acceleration for Electing
Members of a Consolidated Group
These temporary regulations provide an
elective provision under which an elect-
ing member of a consolidated group (other
than the common parent) may at any time
accelerate in full (and not in part) the in-
clusion of its remaining deferred COD in-
come with respect to all applicable debt in-
struments. Electiveacceleration within a
consolidated group is consistent with other
consolidated return provisions that miti-
gate the double taxation of income or gain.
III.Earnings and Profits
In Rev. Proc. 2009–37, the IRS
and Treasury Department announced its
intention to issue regulations regard-
ing the computation of a corporation’s
earnings and profits in connection with
an election under section 108(i). See
§601.601(d)(2)(ii)(b). Consistent with the
revenue procedure, these temporary regu-
lations provide that deferred COD income
generally increases earnings and profits in
the taxable year that it is realized, and de-
ferred OID deductions generally decrease
earnings and profits in the taxable year
or years in which the deductions would
be allowed without regard to the deferral
rules of section 108(i).
Although §1.312–6(a) generally states
that adjustments to earnings and profits are
dependent upon the method of accounting
properly employed incomputing taxable
income (or net income, as the case may
be), the IRS and Treasury Department be-
lieve this principle should not apply in the
case of an electing corporation.
Section 312(n)(5) provides that in the
case of any installment sale, earnings and
profits shall be computed as if the cor-
poration did not use the installment sale
method. Some commentators have sug-
gested that because the deferral of COD
income under section 108(i) is analogous
2010–44 I.R.B.562November 1, 2010

to the deferral of gain from an install-
ment sale, a rule consistent with section
312(n)(5) should apply for purposes of
determining the timing of adjustments to
earnings and profits with respect to de-
ferred items under section 108(i). The IRS
and Treasury Department agree that the
policies underlying section 312(n) inform
the treatment of deferred COD income
under section 108(i).
The legislative history to section
312(n)(5) focuses on the fact that a tax-
payer may realize cash or its equivalent
under the installment method in the year of
the sale, but is not required to take income
into account until later years.S. Rep. No.
98–169, at 198–99 (1984). As in the case
of an installment sale, an electing corpora-
tion realizes economic income in the year
of discharge. Even though the electing
corporation is not required to recognize
income until later years, its dividend pay-
ing capacity is enhanced immediately, not
during the inclusion period, or at the time
the deferred COD income may be acceler-
ated into income.
These temporary regulations also pro-
vide certain exceptions to current year ad-
justments to earnings and profits. In the
case of RICs and REITs, deferred COD
income increases earnings and profits in
the taxable year or years in which the de-
ferred COD income is includible in gross
income and not in the year that the de-
ferred COD income is realized, and de-
ferred OID deductions decrease earnings
and profits in the taxable year or years
that the deferred OID deductions are de-
ductible. This rule is intended to ensure
that a RIC or REIT has sufficient earn-
ings and profits to claim a dividends paid
deduction in the taxable year that the de-
ferred COD income is included in taxable
income. In addition, for purposes of cal-
culating alternative minimum taxable in-
come, deferred items increase or decrease,
as the case may be, adjusted current earn-
ings under section 56(g)(4) in the taxable
year or years that the item is includible or
deductible.
IV.Deferred OID Deductions
Section 108(i)(2) generally provides
that if, as part of a reacquisition to which
section 108(i)(1) applies, a debt instru-
ment is issued (or is treated as issued under
section 108(e)(4)) for the applicable debt
instrument being reacquired and there is
any OID with respect to the debt instru-
ment, no deduction otherwise allowable
is allowed for the portion of the OID that
accrues before the inclusion period and
that does not exceed the COD income with
respect to the applicable debt instrument
being reacquired. The aggregate amount
of deferred OID deductions is allowed
ratably over the inclusion period. If the
amount of OID accruing before the in-
clusion period exceeds the deferred COD
income with respect to the applicable debt
instrument being reacquired, the deduc-
tions are disallowed in the order in which
the OID is accrued.
Under section 108(i)(2)(B), if a debt in-
strument is issued by an issuer and the pro-
ceeds of the debt instrument are used di-
rectly or indirectly by the issuer to reac-
quire an applicable debt instrument of the
issuer, then the debt instrument is treated
as issued for the applicable debt instrument
being reacquired. If only a portion of the
proceeds of the debt instrument are used
directly or indirectly to reacquire the ap-
plicable debt instrument, then the rules in
section 108(i)(2)(A) apply to the portion
of any OID on the debt instrument that is
equal to the portion of the proceeds used to
reacquire the applicable debt instrument.
A.Application of §1.1502–13(g)(5)
The intercompany obligation rules of
§1.1502–13(g) operate to minimize the
effect on consolidated taxable income of
items of income, gain, deduction, or loss
arising from intercompany debt. These
rules generally match the amount, timing,
and character of the creditor and debtor
member’s items, and ensure that future
items similarly correspond. Thus, for ex-
ample, assume that S holds a B note with
an adjusted issue price and basis of $100
and a fair market value of $70, and that S
sells the B note to a nonmember for $70.
Under §1.1502–13(g)(3), B is deemed,
immediately before the sale to X, to satisfy
the note for its fair market value of $70,
resulting in $30 of COD income for B
and $30 of loss for S (which is treated as
ordinary loss under the attribute redeter-
mination rule of §1.1502–13(c)(4)(i)). Be-
cause the debtor’s COD income matches
the creditor’s ordinary loss, in cases where
the intercompany obligation becomes a
non-intercompany obligation (and in intra-
group transactions), there is no benefit to
the group to elect deferral of COD income
under section 108(i).
However, for those transactions in
which a non-intercompany obligation be-
comes an intercompany obligation (as
described in §1.1502–13(g)(5)), the timing
and attributes of the debtor and creditor
member’s items from the deemed sat-
isfaction are determined on a separate
entity basis. In such cases, the elective
deferral rules of section 108(i) may be
beneficial. Accordingly, these temporary
regulations limit the application of section
108(i) by providing that in the case of an
intercompany obligation (as defined in
§1.1502–13(g)(2)(ii)), the termapplica-
ble debt instrumentincludes only a debt
instrument for which COD income is re-
alized upon the debt instrument’s deemed
satisfaction under §1.1502–13(g)(5).
B.Deemed debt-for-debt exchanges
Pursuant to the regulatory authority in
section 108(i)(7), the temporary regula-
tions provide that, for purposes of sec-
tion 108(i)(2) (relating to deferred OID de-
ductions that arise in certain debt-for-debt
exchanges involving the reacquisition of
an applicable debt instrument), if the pro-
ceeds of any debt instrument are used di-
rectly or indirectly by the issuer or a person
related to the issuer (within the meaning of
section 108(i)(5)(A)) to reacquire an appli-
cable debt instrument, the debt instrument
shall be treated as issued for the applicable
debt instrument being reacquired. There-
fore, section 108(i)(2) may apply, for ex-
ample, to a debt instrument issued by a cor-
poration for cash in which some or all of
the proceeds are used directly or indirectly
by the corporation’s related subsidiary in
the reacquisition of thesubsidiary’s appli-
cable debt instrument. The rule in the tem-
porary regulations is intended to prevent
related parties from avoiding the rules for
deferred OID deductions.
C.Directly or indirectly
In response to comments received by
the IRS and Treasury Department, the tem-
porary regulations provide principles simi-
lar to those of §1.279–3(b) for purposes of
determining when the proceeds of a debt
instrument will be treated as having been
used “directly or indirectly” to reacquire
November 1, 20105632010–44 I.R.B.

an applicable debt instrument. Generally,
whether the proceeds from an issuance of
a debt instrument are used directly or indi-
rectly by the issuer of the debt instrument
or a person related to the issuer to reac-
quire an applicable debt instrument will
depend upon all of the facts and circum-
stances surroundingthe issuance and the
reacquisition. The proceeds of an issuance
of a debt instrument will be treated as be-
ing used indirectly to reacquire an appli-
cable debt instrument if: (i) at the time of
the issuance of the debt instrument, the is-
suer of the debt instrument anticipated that
an applicable debt instrument of the issuer
or a person related to the issuer would be
reacquired by the issuer, and the debt in-
strument would not have been issued if the
issuer had not so anticipated such reacqui-
sition; (ii) at the time of the issuance of the
debt instrument, the issuer of the debt in-
strument or a person related to the issuer
anticipated that an applicable debt instru-
ment would be reacquired by a related per-
son and the related person receives cash or
property that it would not have received
unless the reacquisition had been so antic-
ipated; or (iii) at the time of the reacqui-
sition, the issuer or a person related to the
issuer foresaw or reasonably should have
foreseen that it would be required to is-
sue a debt instrument, which it would not
have otherwise been required to issue if the
reacquisition had not occurred, in order to
meet its future economic needs.
D.Proportional rule for accruals of OID
If a portion of the proceeds of a debt
instrument with OID are used directly or
indirectly to reacquire an applicable debt
instrument, then the temporary regulations
provide that the amount of the issuer’s de-
ferred OID deductions generally is equal
to the product of the amount of OID that
accrues in the taxable year under section
1272 or section 1275 (and the regulations
under those sections), whichever section is
applicable, and a fraction, the numerator of
which is the portion of the total proceeds
of the debt instrument used directly or in-
directly to reacquire the applicable debt
instrument and the denominator of which
is the total proceeds of the debt instru-
ment. However, if the total amount of OID
that accrues before the inclusion period is
greater than the total amount of deferred
COD income under section 108(i), then the
OID deductions are disallowed in the order
in which the OID is accrued, subject to the
total amount of deferred COD income.
E.Acceleration events for deferred OID
deductions
The temporary regulations provide
rules for the acceleration of deferred OID
deductions by an issuer that is a C cor-
poration (C corporation issuer). The IRS
and Treasury Department believe that it is
appropriate to accelerate deferred OID de-
ductions with respect to a debt instrument
when the corresponding deferred COD in-
come is taken into account. Accordingly,
these temporary regulations provide that
all or a portion of a C corporation issuer’s
deferred OID deductions with respect to a
debt instrument are taken into account to
the extent that an electing entity or its own-
ers include all or a portion of the deferred
COD income to which the C corporation
issuer’s deferred OID deductions relate.
These temporary regulations also in-
clude special rules to accelerate a C cor-
poration issuer’s remaining deferred OID
deductions even though the deferred COD
income to which it relates continues to
be deferred. Under these rules, a C cor-
poration issuer takes into account all of
its remaining deferred OID deductions if
the issuer (i) changes its tax status, or (ii)
ceases to exist in a transaction to which
section 381(a) does not apply, taking into
account the application of §1.1502–34.
See §1.1502–80(g).
With respect to all taxpayers with de-
ferred OID deductions, the temporary reg-
ulations also provide that any remaining
deferred OID deductions are not acceler-
ated solely by reason of the retirement
of any debt instrument subject to section
108(i)(2).
V.Effective/Applicability Dates
In general, the rules regarding deferred
COD income and the calculation of earn-
ings and profits apply to reacquisitions
of applicable debt instruments in taxable
years ending after December 31, 2008. In
addition, the rules regarding deferred OID
deductions generallyapply to debt instru-
ments issued after December 31, 2008 in
connection with the reacquisition of an
applicable debt instrument.
However, the rules with respect to the
acceleration of deferred COD income and
deferred OID deductions apply prospec-
tively to acceleration events occurring
on or after August 11, 2010. Electing
corporations and C corporation issuers
are given the option to apply these rules
to all acceleration events occurring prior
to August 11, 2010, by taking a return
position consistent with these provisions.
In the case of a consolidated group, this
option is available only if the acceleration
rules are applied to all acceleration events
with respect to all members of the group.
In addition, certain transitional rules
are provided in order to allow electing
corporations the ability to use provisions
in the acceleration rules that are time
sensitive.
To the extent an electing corporation or
C corporation issuer does not apply these
acceleration rules toacceleration events
occurring prior to August 11, 2010, then
all deferred items are subject to the rules
of section 108(i)(5)(D)(i).
Comments
The text of these temporary regulations
also serves as the text of the proposed reg-
ulations set forth in the notice of proposed
rulemaking on this subject in this issue of
the Bulletin. Please see the “Comments
and Requests for a Public Hearing” sec-
tion of the notice of proposed rulemaking
for the procedures to follow in submitting
comments on the proposed regulations on
this subject.
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. For applicability of the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6), refer to the Special Analyses section
of the preamble to the cross-referenced no-
tice of proposed rulemaking published in
this issue of the Bulletin. Pursuant to sec-
tion 7805(f) of the Code, these regulations
will be submitted to the Chief Counsel for
Advocacy of the Small Business Adminis-
tration for comment on its impact on small
business.
Section 108(i) applies to the reacquisi-
tion of an applicable debt instrument dur-
ing the brief election period, January 1,
2009 through December 31, 2010. These
temporary regulations provide necessary
2010–44 I.R.B.564November 1, 2010

guidance regarding the application of this
new section 108(i) in order for corpora-
tions to timely file their tax returns. For
this reason, it has been determined pur-
suant to 5 U.S.C. 553(b)(3)(B), that prior
notice and public procedure are imprac-
ticable and contrary to the public inter-
est. For the same reason, it has been de-
termined pursuant to 5 U.S.C. 553(d)(3)
that good cause exists for not delaying the
effective date of these temporary regula-
tions.
Drafting Information
The principal authors of these reg-
ulations are Robert M. Rhyne and
Rubin B. Ranat of the Office of
Associate Chief Counsel (Corporate).
Other personnel from the IRS and
Treasury Department participated in their
development.
*****
Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding the en-
try for §1.108(i)–0T, §1.108(i)–1T, and
§1.108(i)–3T, to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.108(i)–0T also issued under
26 U.S.C. 108(i)(7) and 1502. * * *
Section 1.108(i)–1T also issued under
26 U.S.C. 108(i)(7) and 1502. * * *
Section 1.108(i)–3T also issued under
26 U.S.C. 108(i)(7) and 1502. * * *
Par. 2. Section 1.108(i)–0T is added to
read as follows:
§1.108(i)–0T Definitions (temporary).
(a)Definitions. For purposes of regula-
tions under section 108(i)—
(1)Acquisition.Anacquisition,with
respect to any applicable debt instrument,
includes an acquisition of the debt instru-
ment for cash or other property, the ex-
change of the debt instrument for another
debt instrument (including an exchange re-
sulting from a modification of the debt in-
strument), the exchange of the debt instru-
ment for corporate stock or a partnership
interest, the contribution of the debt in-
strument to capital, the complete forgive-
ness of the indebtedness by the holder of
the debt instrument, and a direct or an in-
direct acquisition within the meaning of
§1.108–2;
(2)Applicable debt instrument.Anap-
plicable debt instrumentis a debt instru-
ment that was issued by a C corporation
or any other person in connection with the
conduct of a trade or business by such per-
son. In the case of an intercompany obliga-
tion (as defined in §1.1502–13(g)(2)(ii)),
applicable debt instrumentincludes only
an instrument for which COD income is re-
alized upon the instrument’s deemed satis-
faction under §1.1502–13(g)(5);
(3)C corporation issuer.C corporation
issuermeans a C corporation that issues
a debt instrument with any deferred OID
deduction;
(4)C corporation partner.ACcor-
poration partneris a C corporation that is
a direct or indirect partner of an electing
partnership or a related partnership;
(5)COD income.COD incomemeans
income from the discharge of indebt-
edness, as determined under sections
61(a)(12) and 108(a) and the regulations
under those sections;
(6)COD income amount.ACOD in-
come amountis a partner’s distributive
share of COD income with respect to an
applicable debt instrument of an electing
partnership;
(7)Debt instrument.Debt instru-
mentmeans a bond, debenture, note,
certificate, or any other instrument or
contractual arrangement constituting in-
debtedness (within the meaning of section
1275(a)(1));
(8)Deferral period. For a reacquisition
that occurs in 2009,deferral periodmeans
the taxable year of the reacquisition and
the four taxable years following such tax-
able year. For a reacquisition that occurs
in 2010,deferral periodmeans the taxable
year of the reacquisition and the three tax-
able years following such taxable year;
(9)Deferred amount.Adeferred
amountis the portion of a partner’s COD
income amount with respect to an applica-
ble debt instrument that is deferred under
section 108(i);
(10)Deferred COD income
.Deferred
COD incomemeans COD income that is
deferred under section 108(i);
(11)Deferred item.Adeferred itemis
any item of deferred COD income or de-
ferred OID deduction that has not been
previously taken into account under sec-
tion 108(i);
(12)Deferred OID deduction.A
deferred OID deductionmeans an oth-
erwise allowable deduction for OID
that is deferred under section 108(i)(2)
with respect to a debt instrument is-
sued (or treated as issued under section
108(e)(4)) in a debt-for-debt exchange
described in section 108(i)(2)(A) or a
deemed debt-for-debt exchange described
in §1.108(i)–3T(a);
(13)Deferred section 465 amount.A
deferred section 465 amountis described
in paragraph (d)(3) of §1.108(i)–2T;
(14)Deferred section 752 amount.A
deferred section 752 amountis described
in paragraph (b)(3) of §1.108(i)–2T;
(15)Direct partner.Adirect partner
is a person that owns a direct interest in a
partnership;
(16)Electing corporation.Anelect-
ing corporationis a C corporation with de-
ferred COD income by reason of a section
108(i) election;
(17)Electing entity.Anelecting entity
is an entity that is a taxpayer that makes an
election under section 108(i);
(18)Electing member.Anelecting
memberis an electing corporation that is
a member of an affiliated group that files
a consolidated return;
(19)Electing partnership.Anelecting
partnershipis a partnership that makes an
election under section 108(i);
(20)Electing S corporation.Anelect-
ing S corporationis an S corporation that
makes an election under section 108(i);
(21)Included amount.Anincluded
amountis the portion of a partner’s COD
income amount with respect to an appli-
cable debt instrument that is not deferred
under section 108(i) and is included in the
partner’s distributive share of partnership
income for the taxable year of the partner-
ship in which the reacquisition occurs;
(22)Inclusion period.Theinclusion
periodis the five taxable years following
the last taxable year of the deferral period;
(23)Indirect partner.Anindirect
partner is a person that owns an interest
in a partnership through an S corporation
and/or one or more partnerships;
(24)Issuing entity.Anissuing entityis
any entity that is—
November 1, 20105652010–44 I.R.B.

(i) A related partnership;
(ii) A related S corporation;
(iii) An electing partnership that is-
sues a debt instrument (or is treated as
issuing a debt instrument under section
108(e)(4)) in a debt-for-debt exchange
described in section 108(i)(2)(A) or a
deemed debt-for-debt exchange described
in §1.108(i)–3T(a); or
(iv) An electing S corporation that is-
sues a debt instrument (or is treated as
issuing a debt instrument under section
108(e)(4)) in a debt-for-debt exchange
described in section 108(i)(2)(A) or a
deemed debt-for-debt exchange described
in §1.108(i)–3T(a);
(25)OID.OIDmeans original issue dis-
count, as determined under sections 1271
through 1275 (and the regulations under
those sections). If the amount of OID with
respect to a debt instrument is less than
ade minimisamount as determined under
§1.1273–1(d), the OID is treated as zero
for purposes of section 108(i)(2);
(26)Reacquisition.Areacquisition,
with respect to any applicable debt instru-
ment, is any event occurring after Decem-
ber 31, 2008 and before January 1, 2011,
that causes COD income with respect to
such applicable debt instrument, includ-
ing any acquisition of the debt instrument
by the debtor that issued (or is otherwise
the obligor under) the debt instrument or
a person related to such debtor (within the
meaning of section 108(i)(5)(A));
(27)Related partnership.Arelated
partnershipis a partnership that is related
to the electing entity (within the mean-
ing of section 108(i)(5)(A)) and that issues
a debt instrument in a debt-for-debt ex-
change described in section 108(i)(2)(A)
or a deemed debt-for-debt exchange de-
scribed in §1.108(i)–3T(a);
(28)Related S corporation.Are-
lated S corporationis an S corpora-
tion that is related to the electing en-
tity (within the meaning of section
108(i)(5)(A)) and that issues a debt in-
strument in a debt-for-debt exchange
described in section 108(i)(2)(A) or a
deemed debt-for-debt exchange described
in §1.108(i)–3T(a);
(29)Separate interest.Aseparate in-
terestis a direct interest in an electing part-
nership or in a partnership or S corpora-
tion that is a direct or indirect partner of an
electing partnership;
(30)S corporation partner.AnScor-
poration partneris an S corporation that is
a direct or indirect partner of an electing
partnership or a related partnership.
(b)Effective/Applicability dates—(1)
In general. This section, §1.108(i)–2T,
and, except as provided in paragraph (b)(2)
of this section, §1.108(i)–1T apply to reac-
quisitions of applicable debt instruments
in taxable years ending after Decem-
ber 31, 2008. In addition, §1.108(i)–3T
applies to debt instruments issued af-
ter December 31, 2008, in connection
with reacquisitions of applicable debt
instruments in taxable years ending after
December 31, 2008.
(2)Acceleration events—(i)In gen-
eral. Section 1.108(i)–1T(b) (acceleration
rules) generally applies to acceleration
events occurring on or after August 11,
2010. However, an electing corporation
or C corporation issuer may apply the ac-
celeration rules to all acceleration events
occurring prior to August 11, 2010, by tak-
ing a return position consistent with these
provisions beginning with the first accel-
eration event occurring prior to August 11,
2010. Also, in the case of a consolidated
group, if the common parent of the consol-
idated group applies the acceleration rules
on behalf of one member of the consoli-
dated group, then the common parent must
apply the acceleration rules to all acceler-
ation events with respect to all members
of the group. If the electing corporation,
common parent (under the preceding sen-
tence), or C corporation issuer, as the case
may be, does not apply the acceleration
rules to all acceleration events occurring
prior to August 11, 2010, then it is, with
respect to all deferred items, subject to the
rules of section 108(i)(5)(D)(i).
(3)Transitional rules—(i)Net value
acceleration rule and corrective action to
restore net value rule. Ifanelectingcor-
poration applies the acceleration rules of
§1.108(i)–1T(b) to all acceleration events
occurring prior to August 11, 2010, and
the due date of its tax return (including
extensions) for the taxable year of the
mandatory acceleration event occurs prior
to August 11, 2010, then for purposes of
the net value acceleration rule described
in §1.108(i)–1T(b)(2)(iii), an electing
corporation may restore value by the fif-
teenth day of the ninth month following
August 11, 2010.
(ii)Elective acceleration. If an elect-
ing member cannot timely file an election
under §1.108(i)–1T(b)(3) to accelerate its
remaining deferred COD income by the
due date of the electing member’s tax re-
turn (including extensions) which occurs
prior to August 11, 2010, then an amended
return must be filed with the required in-
formation statement by the fifteenth day
of the ninth month following August 11,
2010.
Par. 3. Section 1.108(i)–1T is added to
read as follows:
§1.108(i)–1T Deferred discharge of
indebtedness income and deferred
original issue discount deductions of
C corporations (temporary).
(a)Overview. Section 108(i)(1) pro-
vides an election for the deferral of COD
income arising in connection with the
reacquisition of an applicable debt instru-
ment. An electing corporation generally
includes deferred COD income ratably
over the inclusion period. Paragraph
(b) of this section provides rules for the
mandatory acceleration of an electing
corporation’s remaining deferred COD
income, the mandatory acceleration of
a C corporation issuer’s deferred OID
deductions, and for the elective accelera-
tion of an electing member’s (other than
the common parent’s) remaining deferred
COD income. Paragraph (c) of this sec-
tion provides examples illustrating the
application of the mandatory and elective
acceleration rules. Paragraph (d) of this
section provides rules for the computation
of an electing corporation’s earnings and
profits. Paragraph (e) of this section refers
to the effective/applicability dates.
(b)Acceleration events—(1)Deferred
COD income. Except as otherwise pro-
vided in paragraphs (b)(2) and (3) of this
section, and §1.108(i)–2T(b)(6) (in the
case of a corporate partner), an electing
corporation’s deferred COD income is
taken into account ratably over the inclu-
sion period.
(2)Mandatory acceleration events.An
electing corporation takes into account all
of its remaining deferred COD income, in-
cluding its share of an electing partner-
ship’s deferred COD income, immediately
before the occurrence of any one of the
events described in this paragraph (b)(2)
(mandatory acceleration events).
2010–44 I.R.B.566November 1, 2010

(i)Changes in tax status. The electing
corporation changes its tax status. For pur-
poses of the preceding sentence, an elect-
ing corporation is treated as changing its
tax status if it becomes one of the follow-
ing entities:
(A) A tax-exempt entity as defined in
§1.337(d)–4(c)(2).
(B) An S corporation as defined in sec-
tion 1361(a)(1).
(C) A qualified subchapter S subsidiary
as defined in section 1361(b)(3)(B).
(D) An entity operating on a coopera-
tive basis within the meaning of section
1381.
(E) A regulated investment company
(RIC) as defined in section 851 or a real
estate investment trust (REIT) as defined
in section 856.
(F) A qualified REIT subsidiary as de-
finedinsection856(i),butonlyifthe
qualified REIT subsidiary was not a REIT
immediately before it became a qualified
REIT subsidiary.
(ii)Cessation of corporate exis-
tence—(A)In general. The electing cor-
poration ceases to exist for Federal income
tax purposes.
(B)Exception for section 381(a) trans-
actions—(1)In general. The electing cor-
poration is not treated as ceasing to ex-
ist and is not required to take into account
its remaining deferred COD income solely
because its assets are acquired in a trans-
action to which section 381(a) applies. In
such a case, the acquiring corporation suc-
ceeds to the electing corporation’s remain-
ing deferred COD income and becomes
subject to section 108(i) and the regula-
tions thereunder, including all reporting re-
quirements, as if the acquiring corporation
were the electing corporation. A transac-
tion is not treated as one to which section
381(a) applies for purposes of this para-
graph (b)(2)(ii)(B) in any one of the fol-
lowing circumstances:
(i) The acquisition of the assets of an
electing corporation by an S corporation,
if the acquisition is described in section
1374(d)(8).
(ii) The acquisition of the assets of
an electing corporation by a RIC or
REIT, if the acquisition is described in
§1.337(d)–7(a)(2)(ii).
(iii) The acquisition of the assets of a
domestic electing corporation by a foreign
corporation.
(iv) The acquisition of the assets of a
foreignelectingcorporationbyadomes-
tic corporation, if as a result of the transac-
tion, one or more exchanging shareholders
include in income as a deemed dividend
the all earnings and profits amount with re-
spect to stock in the foreign electing corpo-
ration pursuant to §1.367(b)–3(b)(3).
(v) The acquisition of the assets of an
electing corporation by a tax-exempt entity
as defined in §1.337(d)–4(c)(2).
(vi) The acquisition of the assets of an
electing corporation by an entity operating
on a cooperative basis within the meaning
of section 1381.
(2)Special rules for consolidated
groups—(i)Liquidations. For purposes
of paragraph (b)(2)(ii)(B) of this section,
the acquisition of assets by distributee
members of a consolidated group upon
the liquidation of anelecting corporation
is not treated as a transaction to which
section 381(a) applies, unless immediately
prior to the liquidation, one of the distribu-
tee members owns stock in the electing
corporation meeting the requirements
of section 1504(a)(2) (without regard to
§1.1502–34). See §1.1502–80(g).
(ii)Taxable years. In the case of an
intercompany transaction to which section
381(a) applies, the transaction does not
cause the transferor or distributor to have
a short taxable year for purposes of deter-
mining the taxable year of the deferral and
inclusion period.
(iii)Net value acceleration rule—(A)
In general. The electing corporation en-
gages in an impairment transaction and,
immediately after the transaction, the
gross value of the electing corporation’s
assets (gross asset value) is less than one
hundred and ten percent of the sum of
its total liabilities and the tax on the net
amount of its deferred items (the net value
floor) (the net valueacceleration rule). Im-
pairment transactions are any transactions,
however effected, that impair an electing
corporation’s ability to pay the amount of
Federal income tax liability on its deferred
COD income and include, for example,
distributions (including section 381(a)
transactions), redemptions, below-mar-
ket sales, charitable contributions, and
the incurrence of additional indebtedness
without a corresponding increase in asset
value. Value-for-value sales or exchanges
(for example, an exchange to which sec-
tion 351 or section 721 applies), or mere
declines in the market value of the electing
corporation’s assets are not impairment
transactions. In addition, an electing cor-
poration’s investments and expenditures in
pursuance of its good faith business judg-
ment are not impairment transactions. For
purposes of determining an electing cor-
poration’s gross asset value, the amount
of any distribution that is not treated as an
impairment transaction under paragraph
(b)(2)(iii)(D) of this section (distributions
and charitable contributions consistent
with historical practice) or under para-
graph (b)(2)(iii)(E) of this section (special
rules for RICs and REITs) is treated as an
asset of the electing corporation. Solely
for purposes of computing the amount of
the net value floor, the tax on the deferred
items is determined by applying the high-
est rate of tax specified in section 11(b)
for the taxable year.
(B)Transactions integrated.Anytrans-
action that occurs before the reacquisition
of an applicable debt instrument, but that
occurs pursuant to the same plan as the
reacquisition, is taken into account in de-
termining whether the gross asset value of
the electing corporation is less than the net
value floor.
(C)Corrective action to restore net
value. Anelectingcorporationisnotre-
quired to take into account its deferred
COD income under the net value accel-
eration rule of paragraph (b)(2)(iii)(A) of
this section if, before the due date of the
electing corporation’s return (including
extensions), value is restored in a transac-
tion in an amount equal to the lesser of—
(1) The amount of value that was re-
moved from the electing corporation in
one or more impairment transactions (net
of amounts previously restored under this
paragraph (b)(2)(iii)(C)); or
(2) The amount by which the electing
corporation’s net value floor exceeds its
gross asset value. For purposes of this
paragraph (b)(2)(iii)(C), for example, as-
sume an electing corporation incurs $50
of debt, distributes the $50 of proceeds
to its shareholder, and immediately after
the distribution, the electing corporation’s
gross asset value is below the net value
floor by $25. The electing corporation
may avoid the inclusion of its remaining
deferred COD income if value of at least
$25 is restored to it before the due date
of the electing corporation’s tax return (in-
cluding extensions) for the taxable year
November 1, 20105672010–44 I.R.B.

that includes the distribution. The value
that must be restored is determined at the
time of the impairment transaction on a net
value basis (for example, additional bor-
rowings by an electing corporation do not
restore value).
(D)Exceptions for distributions and
charitable contributions that are consis-
tent with historical practice. An electing
corporation’s distributions are not treated
as impairment transactions (and are not
taken into account as a reduction of the
electing corporation’s gross asset value
when applying the net value acceleration
rule to any impairment transaction), to
the extent that the distributions are de-
scribed in section 301(c) and the amount
of these distributions, in the aggregate,
for the applicable taxable year (applicable
distribution amount) does not exceed the
annual average amount of section 301(c)
distributions over the preceding three tax-
able years (average distribution amount).
If an electing corporation’s applicable
distribution amount exceeds its average
distribution amount (excess amount), then
the amount of the impairment transaction
equals the excess amount. Appropriate
adjustments must be made to take into
account any issuances or redemptions of
stock, or similar transactions, occurring
during the year of distribution or any of
the three preceding years. If the electing
corporation has a short taxable year for
the year of the distribution or for any of
the three preceding years, the amounts are
determined on an annualized basis. If an
electing corporation has been in existence
for less than three years, the period during
which the electing corporation has been
in existence is substituted for the pre-
ceding three taxable years. For purposes
of determining an electing corporation’s
average distribution amount, the electing
corporation does not take into account
the distribution history of a distributor
or transferor in a transaction to which
section 381(a) applies (other than a trans-
action described in section 368(a)(1)(F)).
Rules similar to those prescribed in this
paragraph (b)(2)(iii)(D) also apply to an
electing corporation’scharitable contri-
butions (within the meaning of section
170(c)) that are consistent with its histori-
cal practice.
(E)Special rules for RICs
andREITs—(1)Distributions.
Notwithstanding paragraph (b)(2)(iii)(D)
of this section, in the case of a RIC
or REIT, any distribution with respect
to stock that is treated as a dividend
under section 852 or 857 is not treated
as an impairment transaction (and is
not taken into account as a reduction in
gross asset value when applying the net
value acceleration rule to any impairment
transaction).
(2)Redemptions by RICs.Anyredemp-
tion of a redeemable security, as defined in
15 U.S.C. section 80a–2(a)(32), by a RIC
in the ordinary course of business is not
treated as an impairment transaction (and
is not taken into account as a reduction in
gross asset value when applying the net
value acceleration rule to any impairment
transaction).
(F)Special rules for consolidated
groups—(1)Impairment transactions and
net value acceleration rule. In the case
of an electing member, the determination
of whether the member has engaged in
an impairment transaction is made on a
group-wide basis. An electing member
is treated as engaging in an impairment
transaction if any member’s transaction
impairs the group’s ability to pay the tax
liability associated with all electing mem-
bers’ deferred COD income. Accordingly,
intercompany transactions are not impair-
ment transactions. Similarly, the net value
acceleration rule is applied by reference
to the gross asset value of all members
(excluding stock of members whether or
not described in section 1504(a)(4)), the
liabilities of all members, and the tax on
all members’ deferred items. For exam-
ple, assume P is the common parent of the
P-S consolidated group, S has a section
108(i) election in effect, and S makes a
$100 distribution to P which, on a sepa-
rate entity basis, would reduce S’s gross
asset value below the net value floor. S’s
intercompany distribution to P is not an
impairment transaction. However, if P
makes a $100 distribution to its share-
holder, P’s distribution is an impairment
transaction (unless the distribution is con-
sistent with its historical practice under
paragraph (b)(2)(iii)(D) of this section),
and the net value acceleration rule is ap-
plied by reference to the assets, liabilities,
and deferred items of the P-S group.
(2)Departing member. If an electing
member that previously engaged in one or
more impairment transactions on a sepa-
rate entity basis ceases to be a member of
a consolidated group (departing member),
the cessation is treated as an impairment
transaction and the net value acceleration
rule under paragraph (b)(2)(iii)(A) of this
sectionisappliedtothedepartingmem-
ber on a separate entity basis immediately
after ceasing to be a member (and taking
into account the impairment transaction(s)
that occurred on a separate entity basis). If
the departing member’s gross asset value
is below the net value floor, the depart-
ing member’s remaining deferred COD in-
come is taken into account immediately
before the departing member ceases to be
a member (unless value is restored under
paragraph (b)(2)(iii)(C) of this section).
If the departing member’s deferred COD
income is not accelerated, the departing
member is subject to the reporting require-
ments of section 108(i) on a separate entity
basis. If the departing member becomes a
member of another consolidated group, the
cessation is treated as an impairment trans-
action and the net value acceleration rule
under paragraph (b)(2)(iii)(A) of this sec-
tion is applied by reference to the assets,
liabilities, and the tax on deferred items of
the members of the acquiring group im-
mediately after the transaction. If the ac-
quiring group’s gross asset value is below
the net value floor, the departing mem-
ber’s remaining deferred COD income is
taken into account immediately before the
departing member ceases to be a member
(unless value is restored under paragraph
(b)(2)(iii)(C) of this section). If the depart-
ing member’s remaining deferred COD in-
come is not accelerated, the common par-
ent of the acquiring group succeeds to the
reporting requirements of section 108(i)
with respect to the departing member.
(3)Elective acceleration for certain
consolidated group members—(i)In gen-
eral. Anelectingmember(otherthanthe
common parent) of a consolidated group
may elect at any time to accelerate in full
(and not in part) the inclusion of its remain-
ing deferred COD income with respect to
all applicable debt instruments by filing a
statement described inparagraph (b)(3)(ii)
of this section. Once made, an election
to accelerate deferred COD income under
this paragraph (b)(3) is irrevocable.
(ii)Time and manner for making elec-
tion—(A)In general. The election to
accelerate the inclusion of an electing
member’s remaining deferred COD in-
come with respect to all applicable debt in-
2010–44 I.R.B.568November 1, 2010

struments is made on a statement attached
to a timely filed tax return (including ex-
tensions) for the year in which the deferred
COD income is taken into account. The
election is made by the common parent
on behalf of the electing member. See
§1.1502–77(a).
(B)Additional information. The state-
ment must include—
(1)Label. A label entitled “SECTION
1.108(i)–1T ELECTION AND INFOR-
MATION STATEMENT BY [INSERT
NAME AND EMPLOYER IDENTIFI-
CATION NUMBER OF THE ELECTING
MEMBER]”; and
(2)Required Information.Aniden-
tification of each applicable debt instru-
ment to which an election under this para-
graph (b)(3) applies and the corresponding
amount of—
(i) Deferred COD income that is accel-
erated under this paragraph (b)(3); and
(ii) Deferred OID deductions that are
accelerated under paragraph (b)(4) of this
section.
(4)Deferred OID deductions—(i)In
general. Except as otherwise provided
in paragraph (b)(4)(ii) of this section and
§1.108(i)–2T(b)(6) (in the case of a C cor-
poration partner), a C corporation issuer’s
deferred OID deductions are taken into
account ratably over the inclusion period.
(ii)OID acceleration events.ACcor-
poration issuer takes into account all of
its remaining deferred OID deductions
with respect to a debt instrument imme-
diately before the occurrence of any one
of the events described in this paragraph
(b)(4)(ii).
(A)Inclusion of deferred COD income.
An electing entity or its owners take into
account all of the remaining deferred COD
income to which the C corporation issuer’s
deferred OID deductions relate. If, under
§1.108(i)–2T(b) or (c), an electing entity
or its owners take into account only a por-
tion of the deferred COD income to which
the deferred OID deductions relate, then
the C corporation issuer takes into account
a proportionate amount of the remaining
deferred OID deductions.
(B)Changes in tax status. The C corpo-
ration issuer changes its tax status within
the meaning of paragraph (b)(2)(i) of this
section.
(C)Cessation of corporate exis-
tence—(1)In general. The C corporation
issuer ceases to exist for Federal income
tax purposes.
(2)Exception for section 381(a) trans-
actions—(i)In general. A C corporation
issuer is not treated as ceasing to exist and
does not take into account its remaining
deferred OID deductions in a transaction
to which section 381(a) applies, taking into
account the application of §1.1502–34,
as appropriate. See §1.1502–80(g). This
exception does not apply to a transac-
tion which is not treated as one to which
section 381(a) applies under paragraph
(b)(2)(iii)(B)(1)ofthissection.
(ii)Taxable years. In the case of an
intercompany transaction to which section
381(a) applies, the transaction does not
cause the transferor or distributor to have
a short taxable year for purposes of deter-
mining the taxable year of the deferral and
inclusion period.
(c)Examples. The application of this
section is illustratedby the following ex-
amples. Unless otherwise stated, P, S, S1,
and X are domestic C corporations, and
each files a separate return on a calendar
year basis:
Example 1.Net value acceleration rule.(i)Facts.
On January 1, 2009, S reacquires its own note and re-
alizes $400 of COD income. Pursuant to an election
under section 108(i), S defers recognition of the entire
$400 of COD income. Therefore, absent a mandatory
acceleration event, S will take into account $80 of its
deferred COD income in each year of the inclusion
period. On December 31,2010, S makes a $25 dis-
tribution to its sole shareholder, P, and this is the only
distribution made by S in the past four years. Immedi-
ately following the distribution, S’s gross asset value
is $100, S has no liabilities, and the Federal income
taxonS’s$400ofdeferredCODincomeis$140.Ac-
cordingly, S’s net value floor is $154 (110% x $140).
(ii)Analysis. Under paragraph (b)(2)(iii)(A) of
this section, S’s distribution is an impairment trans-
action. Immediately following the distribution, S’s
gross asset value of $100 is less than the net value
floor of $154. Accordingly, under the net value ac-
celeration rule of paragraph (b)(2)(iii)(A) of this sec-
tion, S takes into account its $400 of deferred COD
income immediately before the distribution.
(iii)Corrective action to restore value. The facts
are the same as in paragraph (i) of thisExample 1,ex-
cept that P contributes assets with a value of $25 to S
before the due date of S’s 2010 return (including ex-
tensions). Because P restores $25 of value to S (the
lesser of the amount of value removed in the distribu-
tion ($25) or the amount by which S’s net value floor
exceeds its gross asset value ($54)), under paragraph
(b)(2)(iii)(C) of this section, S does not take into ac-
count its $400 of deferred COD income.
Example 2.Distributions consistent with his-
torical practice.(i)Facts. P, a publicly traded
corporation, makes a valid section 108(i) election
with respect to COD income realized in 2009. On
December 31, 2009, P distributes $25 million on
its 5 million shares of common stock outstanding.
As of January 1, 2006, P has 10 million shares of
common stock outstanding, and on March 31, 2006,
P distributes $10 million on those 10 million shares.
On September 15, 2006, P effects a 2:1 reverse stock
split, and on December 31, 2006, P distributes $10
million on its 5 million shares of common stock
outstanding. In each of 2007 and 2008, P distributes
$5 million on its 5 million shares of common stock
outstanding. All of the distributions are described in
section 301(c).
(ii)Amount of impairment transaction.Under
paragraph (b)(2)(iii)(D) of this section, P’s 2009 dis-
tributions are not treated as impairment transactions
(and are not taken into account as a reduction of P’s
gross asset value when applying the net value accel-
eration rule to any impairment transaction), to the
extent that the aggregate amount distributed in 2009
(the applicable distribution amount) does not exceed
the annual average amount of distributions (the aver-
age distribution amount) over the preceding three tax-
able years. Accordingly, P’s applicable distribution
amount for 2009 is $25 million, and its average dis-
tribution amount is $10 million ($20 million (2006)
plus $5 million (2007) plus $5 million (2008) divided
by 3). The reverse stock split in 2006 is not a trans-
action requiring an adjustment to the determination
of the average distribution amount. Because P’s ap-
plicable distribution amount of $25 million exceeds
its average distribution amount of $10 million, under
paragraph (b)(2)(iii)(D) of this section, the amount of
P’s 2009 distribution that is treated as an impairment
transaction is $15 million. The balance of the 2009
distribution, $10 million, is not treated as an impair-
ment transaction (and is not taken into account as a
reduction in P’s gross asset value when applying the
net value acceleration rule to any impairment trans-
action).
(iii)Distribution history.Thefactsarethesame
as in paragraph (i) of thisExample 2, except that in
2010, P merges into X in a transaction to which sec-
tion 381(a) applies, with X succeeding to P’s deferred
COD income, and X makes a distribution to its share-
holders. For purposes of determining whether X’s
distribution is consistent with its historical practice,
the average distribution amount is determined solely
with respect to X’s distribution history.
Example 3.Cessation of corporate existence.(i)
Transaction to which section 381(a) applies.Powns
all of the stock of S. In 2009, S reacquires its own note
and elects to defer recognition of its $400 of COD in-
come under section 108(i). On December 31, 2010, S
liquidates into P in a transaction that qualifies under
section 332. Under paragraph (b)(2) of this section,
S must take into account all of its remaining deferred
COD income upon the occurrence of any one of the
mandatory acceleration events. Although S ceases its
corporate existence as a result of the liquidation, S
is not required to take into account its remaining de-
ferred COD income under the exception in paragraph
(b)(2)(ii)(B) of this section because its assets are ac-
quired in a transaction to which section 381(a) ap-
plies. However, under paragraph (b)(2)(iii)(A) of this
section, S’s distribution to P is an impairment transac-
tion and the net value acceleration rule is applied with
respect to the assets, liabilities, and deferred items
of P (S’s successor) immediately following the dis-
tribution. If S’s deferred COD income is not taken
into account under the net value acceleration rule of
November 1, 20105692010–44 I.R.B.

(b)(2)(iii) of this section, P succeeds to S’s remaining
deferred COD income and to S’s reporting require-
ments as if P were the electing corporation.
(ii)Debt-laden distributee. The facts are the same
as in paragraph (i) of thisExample 3, except that in the
liquidation, S distributes $100 of assets to P, a holding
company whose only asset is its stock in S. Assume
that immediately following the distribution, P’s gross
asset value is $100, P has $60 of liabilities, and the
Federal income tax on the $400 of deferred COD in-
come is $140. Under paragraph (b)(2) of this section,
S must take into account all of its remaining deferred
COD income upon the occurrence of any one of the
mandatory acceleration events. Although S ceases
its corporate existence as a result of the liquidation,
S is not required to take into account its remaining
deferred COD income under the exception in para-
graph (b)(2)(ii)(B) of this section because its assets
are acquired in a transaction to which section 381(a)
applies. However, under paragraph (b)(2)(iii)(A) of
this section, S’s distribution to X is an impairment
transaction and the net value acceleration rule is ap-
plied with respect to the assets, liabilities, and de-
ferred items of P (S’s successor). Immediately fol-
lowing the distribution, P’s gross asset value of $100
is less than the net value floor of $220 [110% x ($60
+ $140)]. Accordingly, under the net value acceler-
ation rule of paragraph (b)(2)(iii)(A) of this section,
S is required to take into account its $400 of deferred
COD income immediately before the distribution, un-
less value is restored to P pursuant to (b)(2)(iii)(C) of
this section.
(iii)Foreign acquirer. The facts are the same as
in paragraph (i) of thisExample 3, except that P is a
foreign corporation. Although S’s assets are acquired
in a transaction to which section 381(a) applies, un-
der paragraph (b)(2)(ii)(B)(1)(iii) of this section, the
exception to accelerated inclusion does not apply and
S takes into account its remaining deferred COD in-
come immediately before the liquidation. See also
section 367(e)(2) and the regulations thereunder.
(iv)Section 338 transaction. P, the common par-
ent of a consolidated group (P group), owns all the
stock of S1, one of the members of the P group. In
2009, S1 reacquires its own indebtedness and realizes
$30 of COD income. Pursuant to an election under
section 108(i), S1 defers recognition of the entire $30
of COD income. In 2010, P sells all the stock of S1
to X, an unrelated corporation, for $300, and P and
X make a timely section 338(h)(10) election with re-
spect to the sale. Under paragraph (b)(2)(ii)(A) of this
section, an electing corporation takes into account
its remaining deferred COD income when it ceases
its existence for Federal income tax purposes unless
the exception in paragraph(b)(2)(ii)(B) of this sec-
tion applies. Pursuant to section 338(h)(10) and the
regulations, S1 is treated as transferring all of its as-
sets to an unrelated person in exchange for considera-
tion that includes the discharge of its liabilities. This
deemed value-for-value exchange is not an impair-
ment transaction. Following the deemed sale, while
S1 is still a member of the P group, S1 is treated as
distributing all of its assets to P and as ceasing its ex-
istence. Under these facts, the distribution of all of
S1’s assets constitutes a deemed liquidation, and is a
transaction to which sections 332 and 381(a) apply.
Although S1 ceases its corporate existence as a re-
sult of the liquidation, S1 is not required to take into
account its remaining deferred COD income under
the exception in paragraph (b)(2)(ii)(B) of this sec-
tion because its assets are acquired in a transaction
to which section 381(a) applies. P succeeds to S1’s
remaining deferred COD income and to S1’s report-
ing requirements as if P were the electing corporation.
Under paragraph (b)(2)(iii)(F)(1)ofthissection,the
intercompany distribution from S1 to P is not an im-
pairment transaction.
(d)Earnings and profits—(1)In gen-
eral. Deferred COD income increases
earnings and profits in the taxable year that
it is realized and not in the taxable year
or years that the deferred COD income is
includible in gross income. Deferred OID
deductions decrease earnings and profits
in the taxable year or years in which the
deduction would be allowed without re-
gard to section 108(i).
(2)Exceptions—(i)RICs and REITs.
Notwithstanding paragraph (d)(1) of this
section, deferred COD income increases
earnings and profits of a RIC or REIT in
the taxable year or years in which the de-
ferred COD income is includible in gross
income and not in the year that the deferred
COD income is realized. Deferred OID
deductions decrease earnings and profits
of a RIC or REIT in the taxable year or
years that the deferred OID deductions are
deductible.
(ii)Alternative minimum tax. For pur-
poses of calculating alternative minimum
taxable income, any items of deferred
COD income or deferred OID deduction
increase or decrease, respectively, adjusted
current earnings undersection 56(g)(4) in
the taxable year or years that the item is
includible or deductible.
(e)Effective/applicability dates.
Foreffective/applicability dates,see
§1.108(i)–0T(b).
(f)Expiration date. This section ex-
pires August 9, 2013.
Par. 4. Section 1.108(i)–3T is added to
read as follows:
§1.108(i)–3T Rules for the deduction of
OID (temporary).
(a)Deemed debt-for-debt ex-
changes—(1)In general. For purposes
of section 108(i)(2) (relating to deferred
OID deductions that arise in certain
debt-for-debt exchanges involving the
reacquisition of an applicable debt in-
strument), if the proceeds of any debt
instrument are used directly or indirectly
by the issuer or a person related to the
issuer (within the meaning of section
108(i)(5)(A)) to reacquire an applicable
debt instrument, the debt instrument shall
be treated as issued for the applicable debt
instrument being reacquired. Therefore,
section 108(i)(2) may apply, for example,
to a debt instrument issued by a corpora-
tion for cash in which some or all of the
proceeds are used directly or indirectly by
the corporation’s related subsidiary in the
reacquisition of the subsidiary’s applicable
debt instrument.
(2)Directly or indirectly. Whether the
proceeds of an issuance of a debt instru-
ment are used directly or indirectly to reac-
quire an applicable debt instrument de-
pends upon all of the facts and circum-
stances surrounding the issuance and the
reacquisition. The proceeds of an issuance
of a debt instrument will be treated as be-
ing used indirectly to reacquire an applica-
ble debt instrument if—
(i) At the time of the issuance of the debt
instrument, the issuer of the debt instru-
ment anticipated that an applicable debt in-
strument of the issuer or a person related
to the issuer would be reacquired by the
issuer, and the debt instrument would not
have been issued if the issuer had not so
anticipated such reacquisition;
(ii) At the time of the issuance of the
debt instrument, the issuer of the debt in-
strument or a person related to the issuer
anticipated that an applicable debt instru-
ment would be reacquired by a related per-
son and the related person receives cash or
property that it would not have received
unless the reacquisition had been so antic-
ipated; or
(iii) At the time of the reacquisition, the
issuer or a person related to the issuer fore-
saw or reasonably should have foreseen
that the issuer or a person related to the is-
suer would be required to issue a debt in-
strument, which it would not have other-
wise been required to issue if the reacqui-
sition had not occurred, in order to meet its
future economic needs.
(b)Proportional rule for accruals of
OID. For purposes of section 108(i)(2), if
only a portion of the proceeds from the is-
suance of a debt instrument are used di-
rectly or indirectlyto reacquire an appli-
cable debt instrument, the rules of section
108(i)(2)(A) will apply to the portion of
OID on the debt instrument that is equal
to the portion of the proceeds from such
instrument used to reacquire the outstand-
ing applicable debt instrument. Except
2010–44 I.R.B.570November 1, 2010

as provided in the last sentence of sec-
tion 108(i)(2)(A), the amount of deferred
OID deduction that is subject to section
108(i)(2)(A) for a taxable year is equal
to the product of the amount of OID that
accrues in the taxable year under section
1272 or section 1275 (and the regulations
under those sections), whichever section is
applicable, and a fraction, the numerator of
which is the portion of the total proceeds
from the issuance of the debt instrument
used directly or indirectly to reacquire the
applicable debt instrument and the denom-
inator of which is the total proceeds from
the issuance of the debt instrument.
(c)No acceleration—(1)Retirement.
Retirement of a debt instrument subject
to section 108(i)(2) does not accelerate
deferred OID deductions.
(2)Cross-reference. See §1.108(i)–1T
and §1.108(i)–2T for rules relating to the
acceleration of deferred OID deductions.
(d)Examples. The application of this
section is illustrated by the following ex-
amples. Unless otherwise stated, all tax-
payers in the following examples are cal-
endar-year taxpayers, and P and S each file
separate returns:
Example 1.(i)Facts. P, a domestic corpora-
tion, owns all of the stock of S, a domestic corpo-
ration. S has a debt instrument outstanding that has
an adjusted issue price of $100,000. On January 1,
2010, P issues for $160,000 a four-year debt instru-
ment that has an issue price of $160,000 and a stated
redemption price at maturity of $200,000, resulting
in $40,000 of OID. In P’s discussion with potential
lenders/holders, and as described in offering materi-
als provided to potential lenders/holders, P disclosed
that it planned to use all or a portion of the proceeds
from the issuance of the debt instrument to reacquire
outstanding debt of P and its affiliates. Following
the issuance, P makes a $70,000 capital contribution
to S. S then reacquires its debt instrument from X, a
person not related to S within the meaning of section
108(i)(5)(A), for $70,000. At the time of the reacqui-
sition, the adjusted issue price of S’s debt instrument
is $100,000. Under §1.61–12(c), S realizes $30,000
of COD income. S makes a section 108(i) election
for the $30,000 of COD income.
(ii)Analysis. Under the facts, at the time of
P’s issuance of its $160,000 debt instrument, P an-
ticipated that the loan proceeds would be used to
reacquire the debt of S, and P’s debt instrument
would not have been issued for an amount greater
than $90,000 if P had not anticipated that S would
use the proceeds to reacquire its debt. Pursuant to
paragraph (a) of this section, the proceeds from P’s
issuance of its debt instrument are treated as being
used indirectly to reacquire S’s applicable debt in-
strument. Therefore, section 108(i)(2)(B) applies to
P’s debt instrument and P’s OID deductions on its
debt instrument are subject to deferral under sec-
tion 108(i)(2)(A). However, because only a portion
of the proceeds from P’s debt instrument are used
by S to reacquire its applicable debt instrument,
only a portion of P’s total OID deductions will be
deferred under section 108(i)(2)(A). See section
108(i)(2)(B). Accordingly, a maximum of $17,500
($40,000 x $70,000/$160,000) of P’s $40,000 total
OID deductions is subject to deferral under section
108(i)(2)(A). Under paragraph (b) of this section,
the amount of P’s deferred OID deduction each
taxable year under section 108(i)(2)(A) is equal to
the product of the amount of OID that accrues in
the taxable year under section 1272 for the debt
instrument and a fraction ($70,000/$160,000). As
a result, P’s deferred OID deductions are the fol-
lowing amounts: $4,015.99 for 2010 ($ 9,179.40 x
$70,000/$160,000); $4,246.39 for 2011 ($9,706.04 x
$70,000/$160,000); $4,490.01 for 2012 ($10,262.88
x $70,000/$160,000); and $4,747.61 for 2013
($10,851.68 x $70,000/$160,000).
Example 2.(i)Facts. The facts are the same as in
Example 1, except that S makes a section 108(i) elec-
tion for only $10,000 of the $30,000 of COD income.
(ii)Analysis. The maximum amount of P’s de-
ferred OID deductions under section 108(i)(2)(A) is
$10,000 rather than $17,500 because S made a sec-
tion 108(i) election for only $10,000 of the $30,000
of COD income. Under section 108(i)(2)(A), because
the amount of OID that accrues prior to 2014 attribut-
able to the portion of the debt instrument issued to in-
directly reacquire S’s applicable debt instrument un-
der paragraph (b) of this section ($17,500) exceeds
the amount of deferred COD income under section
108(i) ($10,000), P’s deferred OID deductions are the
following amounts: $4,015.99 for 2010; $4,246.39
for 2011; $1,737.62 for 2012; and $0 for 2013.
Example 3.(i)Facts. The facts are the same as
inExample 1, except that P pays $200,000 in cash to
the lenders/holders on December 31, 2012, to retire
the debt instrument. P did not directly or indirectly
obtain the funds to retire the debt instrument from the
issuance of another debt instrument with OID.
(ii)Analysis. Under paragraph (c)(1) of this
section, the retirement of P’s debt instrument is not
an acceleration event for the deferred OID deduc-
tions of $4,015.99 for 2010, $4,246.39 for 2011,
and $4,490.01 for 2012. Except as provided in
§1.108(i)–1T(b)(4), these amounts will be taken
into account during the inclusion period. P, how-
ever, paid a repurchase premium of $10,851.68 in
2012 ($200,000 minus the adjusted issue price of
$189,148.32) to retire the debt instrument. If other-
wise allowable, P may deduct this amount in 2012
under §1.163–7(c).
(e)Effective/applicability dates.
Foreffective/applicability dates,see
§1.108(i)–0T(b).
(f)Expiration date. This section ex-
pires August 9, 2013.
Part 602—OMB CONTROL NUMBERS
UNDER THE PAPERWORK
REDUCTION ACT
Par. 5. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805
Par. 6. In §602.101, paragraph (b) is
amended by adding the following entry in
numerical order to the table to read as fol-
lows:
§602.101 OMB Control numbers.
*****
(b) * * *
CFR part or section where
Identified and described
Current OMB
control No.
*****
1.108(i)–1T...........................................................
1545–2147
***
**
*****
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
Approved August 6, 2010.
Michael Mundaca,
Assistant Secretary of
the Treasury (Tax Policy).
(Filed by the Office of the Federal Register on August 11,
2010, 11:15 a.m., and published in the issue of the Federal
Register for August 13, 2010, 75 F.R.)
Section 163.—Interest.
Limitations on qualified residence in-
terest.This ruling holds that indebtedness
in excess of $1 million that a taxpayer in-
curs to acquire, construct, or substantially
improve a qualified residence may consti-
tute home equity indebtedness within the
November 1, 20105712010–44 I.R.B.

meaning of section 163(h)(3)(C) of the
Code.
Rev. Rul. 2010–25
ISSUE
Whether indebtedness that is incurred
by a taxpayer to acquire, construct, or sub-
stantially improve a qualified residence
can constitute “home equity indebtedness”
(within the meaning of § 163(h)(3)(C) of
the Internal Revenue Code) to the extent
it exceeds $1 million.
FACTS
In 2009, an unmarried individual (Tax-
payer) purchased a principal residence for
its fair market value of $1,500,000. Tax-
payer paid $300,000 and financed the re-
mainder by borrowing $1,200,000 through
a loan that is secured by the residence. In
2009, Taxpayer paid interest that accrued
on the indebtedness during that year. Tax-
payer has no other debt secured by the res-
idence.
LAW
Section 163(a) allows as a deduction
all interest paid or accrued within the
taxable year on indebtedness. However,
for individuals § 163(h)(1) disallows a
deduction for personal interest. Under
§ 163(h)(2)(D), qualified residence in-
terest is not personal interest. Section
163(h)(3)(A) definesqualified residence
interest as interest paid or accrued during
the taxable year on acquisition indebted-
ness or home equity indebtedness secured
by any qualified residence of the tax-
payer. Under § 163(h)(4)(A), “qualified
residence” means a taxpayer’s principal
residence, within the meaning of § 121,
and one other residence selected and used
by the taxpayer as a residence.
Section 163(h)(3)(B)(i) provides that
acquisition indebtedness is any indebt-
edness that is incurred in acquiring, con-
structing, or substantially improving a
qualified residence and is secured by the
residence. However, § 163(h)(3)(B)(ii)
limits the amount of indebtedness treated
as acquisition indebtedness to $1,000,000
($500,000 for a married individual filing
separately). Accordingly, any indebted-
ness described in § 163(h)(3)(B)(i) in
excess of $1,000,000 is, by definition, not
acquisition indebtedness for purposes of
§ 163(h)(3).
Section 163(h)(3)(C)(i) provides that
home equity indebtedness is any indebt-
edness secured by a qualified residence
other than acquisition indebtedness, to
the extent the fair market value of the
qualified residence exceeds the amount of
acquisition indebtedness on the residence.
However, § 163(h)(3)(C)(ii) limits the
amount of indebtedness treated as home
equity indebtedness to $100,000 ($50,000
for a married individual filing separately).
Accordingly, any indebtedness described
in § 163(h)(3)(C)(i) in excess of $100,000
is, by definition, not home equity indebt-
edness for purposes of § 163(h)(3).
InPau v. Commissioner,T.C.Memo.
1997–43, the Tax Court limited the tax-
payers’ deduction for qualified residence
interest to the interest paid on $1 million
of the $1.33 million indebtedness incurred
to purchase their residence. The court
stated that § 163(h) restricts home mort-
gage interest deductions to interest paid
on $1 million of acquisition indebtedness
and $100,000 of home equity indebted-
ness. Citing § 163(h)(3)(B), the court
stated that acquisition indebtedness is de-
fined as indebtedness that is incurred in
acquiring, constructing, or substantially
improving any qualified residence of the
taxpayer, and is secured by the residence.
Citing § 163(h)(3)(C), the court further
stated that home equity indebtedness is
defined as any indebtedness (other than
acquisition indebtedness) secured by a
qualified residence. The court concluded
that the taxpayers failed to demonstrate
that any of their debt was not incurred in
acquiring, constructing, or substantially
improving their residence and thus was
not acquisition indebtedness. However,
the court did not address the effect of the
$1 million limitation in § 163(h)(3)(B)(ii)
on the definition of acquisition indebt-
edness for purposes of § 163(h)(3). The
Tax Court followedPauinCatalano v.
Commissioner, T.C. Memo. 2000–82.
ANALYSIS
Taxpayer may deduct, as inter-
est on acquisition indebtedness under
§ 163(h)(3)(B), interest paid in 2009 on
$1,000,000 of the $1,200,000 indebted-
ness used to acquire the principal resi-
dence. The $1,200,000 indebtedness was
incurred in acquiring a qualified residence
of Taxpayer and was secured by the resi-
dence. Thus, indebtedness of $1,000,000
is treated as acquisition indebtedness un-
der § 163(h)(3)(B).
Taxpayer also may deduct, as inter-
est on home equity indebtedness under
§163(h)(3)(C),interestpaidin2009on
$100,000 of the remaining indebtedness
of $200,000. The $200,000 is secured
by the qualified residence, is not acquisi-
tion indebtedness under § 163(h)(3)(B),
and does not exceed the fair market value
of the residence reduced by the acqui-
sition indebtedness secured by the resi-
dence. Thus, $100,000 of the $200,000 is
treated as home equity indebtedness under
§ 163(h)(3)(C).
Under § 163(h)(3)(A), the interest on
both acquisition indebtedness and home
equity indebtedness is qualified residence
interest. Therefore, for 2009 Taxpayer
may deduct interest paid on indebtedness
of $1,100,000 as qualified residence inter-
est. Any interest Taxpayer paid on the re-
maining indebtedness of $100,000 is nond-
eductible personal interest under § 163(h).
The Internal Revenue Service will not
follow the decisions inPau v. Commis-
sionerandCatalano v. Commissioner.
The holding inPauwas based on the
incorrect assertion that taxpayers must
demonstrate that debt treated as home
equity indebtedness “was not incurred in
acquiring, constructing or substantially
improving their residence.” The defi-
nition of home equity indebtedness in
§ 163(h)(3)(C) contains no such restric-
tions, and accordingly the Service will
determine home equity indebtedness con-
sistent with the provisions of this revenue
ruling, notwithstanding the decisions in
PauandCatalano.
HOLDING
Indebtedness incurred by a taxpayer
to acquire, construct, or substantially im-
prove a qualified residence can constitute
home equity indebtedness to the extent it
exceeds $1 million (subject to the applica-
ble dollar and fair market value limitations
imposed on home equity indebtedness by
§ 163(h)(3)(C)).
DRAFTING INFORMATION
The principal author of this revenue rul-
ingisSharonHalloftheOfficeofAsso-
2010–44 I.R.B.572November 1, 2010

ciate Chief Counsel (Income Tax & Ac-
counting). For further information regard-
ing this revenue ruling, contact Ms. Hall
at (202) 622–4950 (not a toll-free call).
Section 280G.—Golden
Parachute Payments
Federal short-term, mid-term, and long-term rates
are set forth for the month of November 2010. See
Rev. Rul. 2010-26, page 573.
Section 382.—Limitation
on Net Operating Loss
Carryforwards and Certain
Built-In Losses Following
Ownership
Change
The adjuste
d applicable federal long-term rate is
set forth f
or the month of November 2010. See Rev.
Rul. 2010-
26, page 573.
Section 412.—Minimum
Funding Standards
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of November 2010. See Rev. Rul. 2010-26, page
573.
Section 467.—Certain
Payments for the Use of
Property or Services
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of November 2010. See Rev. Rul. 2010-26, page
573.
Section 468.—Special
Rules fo
r 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 November 2010. See Rev. Rul. 2010-26, page
573.
Section 482.—Allocation
of Income and Deductions
Among Taxpayers
Federal short-term, mid-term, and long-term rates
are set forth for the month of November 2010. See
Rev. Rul. 2010-26, page 573.
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 November 2010. See Rev. Rul. 2010-26, page
573.
Section 642.—Special
Rules for Credits and
Deductions
Federal short-term, mid-term, and long-term rates
are set forth for the month of November 2010. See
Rev. Rul. 2010-26, page 573.
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 November 2010. See Rev. Rul. 2010-26, page
573.
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 November 2010. See Rev. Rul. 2010-26, page
573.
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 November 2010.
Rev. Rul. 2010–26
This revenue ruling provides various
prescribed rates for federal income tax
purposes for November 2010 (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 (ad-
justed 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 de-
scribed in section 382(f). Table 4 contains
the appropriate percentages for deter-
mining the low-income housing credit
described in section 42(b)(1) for build-
ings placed in service during the current
month. However, under section 42(b)(2),
the applicable percentage for non-feder-
ally subsidized new buildings placed in
service after July 30, 2008, and before
December 31, 2013, shall not be less than
9%. Finally, Table 5 contains the federal
rate for determining the present value of
an annuity, an interest for life or for a term
of years, or a remainder or a reversionary
interest for purposes of section 7520.
November 1, 20105732010–44 I.R.B.

REV. RUL. 2010–26 TABLE 1
Applicable Federal Rates(AFR) for November 2010
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
AFR
.35%.35%.35%.35%
110% AFR.39%.39%.39%.39%
120% AFR.42%.42%.42%.42%
130% AFR.46%.46%.46%.46%
Mid-term
AFR
1.59%1.58%1.58%1.57%
110% AFR
1.75%
1.74%1.74%1.73%
120% AFR1.91%1.90%1.90%1.89%
130% AFR2.06%
2.05%
2.04%2.04%
150% AFR
2.38%2.37%2.36%2.36%
175% AFR
2.79%2.77%2.76%
2.75%
Long-term
AFR
3.35%
3.32%3.31%3.30%
110% AFR3.68%
3.65%
3.63%3.62%
120% AFR4.02%3.98%3.96%
3.95%
130% AFR4.37%4.32%4.30%4.28%
REV. RUL. 20
10–26 TABLE 2
Adjusted AF
R for November 2010
Period for C
ompounding
AnnualSemiannualQuarterlyMonthly
Short-term a
djusted
AFR
.49%.49%.49%.49%
Mid-term adj
usted AFR
1.53%1.52%1.52%1.52%
Long-term adjusted
AFR
3.54%3.51%
3.49%3.48%
REV. RUL. 201
0–26 TABLE 3
Rates Under S
ection 382 for November 2010
Adjusted fed
eral long-term rate for the current month
3.54%
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.)3.86%
2010–44 I.R.B.574November 1, 2010

REV. RUL. 2010–26 TABLE 4
Appropriate Percentages Under Section 42(b)(1) for November 2010
Note: Under Section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after
July 30, 2008, and before December 31, 2013, shall not be less than 9%.
Appropriate percentage for the 70% present value low-income housing credit
7.57%
Appropriate percentage for the 30% present value low-income housing credit3.24%
REV. RUL. 2010–26 TABLE 5
Rate Under Secti
on 7520 for November 2010
Applicable fede
ral rate for determining the present value of anannuity, an interest for life or a term of years,
or a remainder or
reversionary interest
2.0%
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 November 2010. See Rev. Rul. 2010-26, page
573.
Section 7520.—V
aluation
Tables
The adjusted ap
plicable federal short-term, mid-
term, and long-
term rates are set forth for the month
of November 201
0. See Rev. Rul. 2010-26, page
573.
Section 7872.—T
reatment
of Loans With Be
low-Market
Interest Rates
The adjusted ap
plicable federal short-term, mid-
term, and long-
term rates are set forth for the month
of November 201
0. See Rev. Rul. 2010-26, page
573.
November 1, 20105752010–44 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Dyed Diesel Fuel and
Kerosene: Nontaxable Use;
Alaska
Notice 2010–68
This notice provides that undyed diesel
fuel and undyed kerosene (undyed fuel)
may continue to be removed, entered,
and sold for nontaxable uses in the entire
state of Alaska under the existing proce-
dures in § 48.4082–5 of the Manufacturers
and Retailers Excise Tax Regulations.
These regulations generally allow tax-free
removals of diesel fuel from approved
terminals and tax-free sales of undyed fuel
between registered dealers and between
registered dealers and nontaxable users.
This notice clarifies that recent changes
in Environmental Protection Agency
(EPA) rules relating to Alaskan diesel
fuel do not affect existing Internal Rev-
enue Service (IRS) procedures relating
to undyed fuel transactions in Alaska.
Section 48.4082–5(b) provides that these
existing IRS procedures apply only to ar-
eas of Alaska in which the sulfur content
requirements for diesel fuel (see § 211(i)
of the Clean Air Act, 42 U.S.C. 7545(i))
do not apply because the Administrator of
the EPA has granted an exemption under
§ 211(i)(4) of that Act.
When § 48.4082–5 was issued in 1996,
the entire state of Alaska was exempt from
both EPA’s sulfur content requirement
and its requirement for dyeing high sulfur
diesel fuel and kerosene. The EPA is now
phasing out Alaska’s exemption from the
EPA sulfur content requirement but has
retained its rule that exempts Alaska from
the EPA fuel dyeing requirement.
Because § 4082(c) of the Internal Rev-
enue Code provides an exemption from the
dyeing requirements of § 4082(a)(2) of the
Code for areas that are exempt from the
EPA fuel dyeing requirement, diesel fuel
and kerosene in Alaska will continue to be
exempt from the dyeing requirements of
the Internal Revenue Code. In addition,
the current system of fuel distribution and
nontaxable use in Alaska will remain in
effect until the Administrator of the EPA
eliminates part or all of Alaska’s exemp-
tion from the dyeing requirements of the
Clean Air Act. The IRS expects to amend
§ 48.4082–5(b) to reflect the provisions of
this notice.
Taxpayers are reminded that the $0.001
per gallon tax for the Leaking Under-
ground Storage Tank Trust Fund financ-
ing rate generally applies to sales of
undyed fuel for nontaxable uses including
off-highway and heating oil uses.
The principal author of this notice is
CharlesJ.Langley,Jr. oftheOfficeof
Associate Chief Counsel (Passthroughs
& Special Industries). For further in-
formation regarding this notice, contact
Charles J. Langley, Jr. at (202) 622–3130
(not a toll-free call).
Interim Relief with Respect
to Form W-2 Reporting of
the Cost of Coverage of
Group Health Insurance Under
§ 6051(a)(14)
Notice 2010–69
This notice provides interim relief to
employers with respect to reporting the
cost of coverage under an employer-spon-
sored group health plan on Form W-2,
Wage and Tax Statement,pursuantto
§ 6051(a)(14) of the Code. Specifically,
this notice provides that reporting the cost
of such coverage will not be mandatory
for 2011 Forms W-2. The Treasury De-
partment and the IRS have determined that
this relief is appropriate to provide em-
ployers with additional time to make any
necessary changes to their payroll systems
or procedures in preparation for compli-
ance with the reporting requirement.
BACKGROUND
Section 6051(a)(14) was added to the
Code by § 9002 of the Patient Protection
and Affordable Care Act of 2010, Public
Law 111–148, enacted March 23, 2010.
Section 6051(a)(14) provides generally
that the aggregate cost of applicable em-
ployer-sponsored coverage (as defined in
§ 4980I(d)(1)) must be reported on Form
W-2. Section 6051(a)(14) further provides
that, for this purpose, the aggregate cost
is to be determined under rules similar to
the rules of § 4980B(f)(4), referring to the
definition of the “applicable premium”
under the rules providing for COBRA con-
tinuation coverage. Section 6051(a)(14) is
effective for taxable years beginning on or
after January 1, 2011.
INTERIM RELIEF
Pursuant to this notice, the reporting re-
quirement set forth in § 6051(a)(14) is not
mandatory for 2011 Forms W-2. Accord-
ingly, an employer will not be treated as
failing to meet the requirements of § 6051
for 2011, and will not be subject to any
penalties for failure to meet such require-
ments, merely because it does not report
the aggregate cost of employer-sponsored
coverage (as defined in § 4980I(d)(1)) on
2011 Forms W-2. The Treasury Depart-
ment and the IRS anticipate issuing guid-
ance on the reporting requirement set forth
in § 6051(a)(14) before the end of this year.
DRAFTING INFORMATION
The principal author of this notice
is Leslie Paul of the Office of Division
Counsel/Associate Chief Counsel (Tax
Exempt and Government Entities) though
other Treasury Department and IRS offi-
cials participated in its development. For
further information on the provisions of
this notice, contact Leslie Paul at (202)
622–6080 (not a toll-free number).
Update for Weighted Average
Interest Rates, Yield Curves,
and Segment Rates
Notice 2010–70
This notice provides guidance as to the
corporate bond weighted average interest
rate and the permissible range of interest
rates specified under §412(b)(5)(B)(ii)(II)
of the Internal Revenue Code as in ef-
fect for plan years beginning before 2008.
It also provides guidance on the corpo-
rate bond monthly yield curve (and the
corresponding spot segment rates), the
24-month average segment rates, and
the funding transitional segment rates
under § 430(h)(2). In addition, this no-
tice provides guidance as to the interest
2010–44 I.R.B.576November 1, 2010

rate on 30-year Treasury securities un-
der § 417(e)(3)(A)(ii)(II) as in effect for
plan years beginning before 2008, the
30-year Treasury weighted average rate
under § 431(c)(6)(E)(ii)(I), and the min-
imum present value segment rates under
§ 417(e)(3)(D) as in effect for plan years
beginning after 2007.
CORPORATE BOND WEIGHTED
AVERAGE INTEREST RATE
Sections412(b)(5)(B)(ii)and
412(l)(7)(C)(i), as amended by the Pen-
sion Funding Equity Act of 2004 and by
the Pension Protection Act of 2006 (PPA),
provide that the interest rates used to cal-
culate current liability and to determine
the required contribution under § 412(l)
for plan years beginning in 2004 through
2007 must be within a permissible range
based on the weighted average of the rates
of interest on amounts invested conser-
vatively in long term investment grade
corporate bonds during the 4-year period
ending on the last day before the beginning
of the plan year.
Notice 2004–34, 2004–1 C.B. 848, pro-
vides guidelines for determining the cor-
porate bond weighted average interest rate
and the resulting permissible range of in-
terest rates used to calculate current liabil-
ity. That notice establishes that the corpo-
rate bond weighted average is based on the
monthly composite corporate bond rate de-
rived from designated corporate bond in-
dices. The methodology for determining
the monthly composite corporate bond rate
as set forth in Notice 2004–34 continues to
apply in determining that rate. See Notice
2006–75, 2006–2 C.B. 366.
The composite corporate bond rate for
September 2010 is 5.17 percent. Pursuant
to Notice 2004–34, the Service has de-
termined this rate as the average of the
monthly yields for the included corporate
bond indices for that month.
The following corporate bond weighted
average interest rate was determined for
plan years beginning in the month shown
below.
For Plan Years
Beginning inPermissible Range
MonthYear
Corporate
Bond Weighted
Average90%to100%
October20106.21
5.59
6.21
YIELD CU
RVE AND SEGMENT
RATES
General
ly for plan years beginning
after 2
007 (except for delayed effective
dates f
or certain plans under sections 104,
105, an
d 106 of PPA), § 430 of the Code
specif
ies the minimum funding require-
ments t
hat apply to single employer plans
pursu
ant to § 412. Section 430(h)(2) spec-
ifies
the interest rates that must be used
to det
ermine a plan’s target normal cost
and fu
nding target. Under this provision,
prese
nt value is generally determined us-
ing t
hree 24-month average interest rates
(“segme
nt rates”), each of which applies
to cash f
lows during specified periods.
Howeve
r, an election may be made under
§430(h
)(2)(D)(ii) to use the monthly yield
curve i
n place of the segment rates. For
plan ye
ars beginning in 2008 and 2009, a
transi
tional rule under § 430(h)(2)(G) pro-
vides
that the segment rates are blended
with t
he corporate bond weighted average
as spe
cified above. An election may be
made u
nder § 430(h)(2)(G)(iv) to use the
segme
nt rates without applying the transi-
tion
al rule.
Notic
e 2007–81, 2007–2 C.B. 899,
prov
ides guidelines for determining the
monthly
corporate bond yield curve, the
24-mont
h average corporate bond segment
rates,
and the funding transitional segment
rates u
sed to compute the target normal
cost an
d the funding target. Pursuant to
Notice
2007–81, the monthly corporate
bond yi
eld curve derived from September
2010 d
ata is in Table I at the end of this
notic
e. The spot first, second, and third
segme
nt rates for the month of Septem-
ber 20
10 are, respectively, 1.74, 4.75,
and 6.
03. The three 24-month average
corp
orate bond segment rates applicable
for O
ctober 2010 under the election of
§430
(h)(2)(G)(iv) are as follows:
First
Segment
Second
Segment
Third
Segment
3.616.20
6.53
The transitional segment rates under
§ 430(h)(2)(G) applicable for October 2010,
taking into account the corporate bond
weighted average of 6.21 stated above, are
as follows:
For Plan Years
Beginning in
First
Segment
Second
Segment
Third
Segment
20094.486.206.42
The transitional rule of § 430(h)(2)(G)
does not apply to plan years starting in
2010. Therefore, for a plan year starting
in 2010 with a lookback month to Octo-
ber 2010, the funding segment rates are
the three 24-month average corporate bond
November 1, 20105772010–44 I.R.B.

segment rates applicable for October 2010,
listed above without blending for the tran-
sitional period.
30-YEAR TREASURY SECURITIES
INTEREST RATES
Section 417(e)(3)(A)(ii)(II) (prior to
amendment by PPA) defines the appli-
cable interest rate, which must be used
for purposes of determining the minimum
present value of a participant’s benefit
under § 417(e)(1) and (2), as the annual
rate of interest on 30-year Treasury se-
curities for the month before the date
of distribution or such other time as the
Secretary may by regulations prescribe.
Section 1.417(e)–1(d)(3) of the Income
Tax Regulations provides that the applica-
bleinterestrateforamonthistheannual
rate of interest on 30-year Treasury secu-
rities as specified by the Commissioner
for that month in revenue rulings, notices
or other guidance published in the Internal
Revenue Bulletin.
The rate of interest on 30-year Treasury
securities for September 2010 is 3.77 per-
cent. The Service has determined this rate
as the average of the daily determinations
of yield on the 30-year Treasury bond ma-
turing in August 2040.
Generally for plan years beginning
after 2007, § 431 specifies the mini-
mum funding requirements that apply to
multiemployer plans pursuant to § 412.
Section 431(c)(6)(B) specifies a minimum
amount for the full-funding limitation
described in section 431(c)(6)(A), based
on the plan’s current liability. Section
431(c)(6)(E)(ii)(I) provides that the inter-
est rate used to calculate current liability
for this purpose must be no more than 5
percent above and no more than 10 percent
below the weighted average of the rates of
interest on 30-year Treasury securities dur-
ing the four-year period ending on the last
day before the beginning of the plan year.
Notice 88–73, 1988–2 C.B. 383, provides
guidelines for determining the weighted
average interest rate. The following rates
were determined for plan years beginning
in the month shown below.
For Plan Yea
rs
Beginning inPermissible
Range
MonthYear
30-Year
Treasury
Weighted
Average
90%to
105%
October20104.28
3.85
4.49
MINIMUM PRESENT VALUE
SEGMENT RATES
Generally for plan years beginning
after December 31, 2007, the applicable
interest rates under § 417(e)(3)(D) are
segment rates computed without regard
to a 24-month average. For plan years
beginning in 2008 through 2011, the ap-
plicable interest rates are the monthly spot
segment rates blended with the applica-
ble rate under § 417(e)(3)(A)(ii)(II) as in
effect for plan years beginning in 2007.
Notice 2007–81 provides guidelines for
determining the minimum present value
segment rates. Pursuant to that notice,
the minimum present value transitional
segment rates determined for September
2010, taking into account the September
2010 30-year Treasury rate of 3.77 stated
above, are as follows:
For Plan Years
Beginning in
First
Segment
Second
Segment
Third
Segment
20092.964.164.67
2010
2.55
4.36
5.13
2011
2.154.555.58
DRAFTING
INFORMATION
The princ
ipal author of this notice is
Tony Mont
anaro of the Employee Plans,
Tax Exemp
t and Government Entities Di-
vision.
Mr. Montanaro may be e-mailed at
Retirem
entPlanQuestions@irs.gov.
2010–44 I.R.B.578November 1, 2010

Table I
Monthly Yield Curve for September 2010
Derived from September 2010 Data
Maturity YieldMaturity YieldMaturity YieldMaturity YieldMaturity Yield
0.5
0.73
20.5
5.59
40.5
6.09
60.5
6.26
80.5
6.34
1.00.8821.05.6141.0
6.09
61.06.2681.06.34
1.5
1.06
21.55.6341.5
6.10
61.5
6.26
81.5
6.34
2.01.2822.0
5.66
42.06.1062.06.2682.0
6.35
2.51.5422.55.6842.5
6.11
62.5
6.27
82.56.35
3.01.8223.0
5.70
43.06.1263.06.2783.0
6.35
3.5
2.11
23.55.7143.5
6.12
63.5
6.27
83.56.35
4.02.4024.05.7344.06.1364.06.2784.06.35
4.5
2.66
24.55.7544.5
6.13
64.5
6.28
84.56.35
5.0
2.91
25.05.7745.0
6.14
65.0
6.28
85.0
6.36
5.5
3.14
25.55.7845.5
6.14
65.5
6.28
85.5
6.36
6.0
3.35
26.0
5.80
46.0
6.15
66.06.2886.06.36
6.53.5526.55.8146.56.1566.5
6.29
86.5
6.36
7.03.7227.05.8347.06.1667.0
6.29
87.06.36
7.5
3.88
27.55.8447.5
6.16
67.5
6.29
87.5
6.36
8.04.0328.0
5.86
48.06.1768.0
6.29
88.06.36
8.5
4.16
28.55.8748.5
6.17
68.5
6.30
88.5
6.36
9.04.2929.0
5.88
49.0
6.17
69.0
6.30
89.0
6.37
9.54.4029.55.8949.56.1869.56.3089.56.37
10.04.5130.05.9150.06.1870.06.30
90.0
6.37
10.5
4.60
30.5
5.92
50.5
6.19
70.5
6.3090.56.37
11.04.7031.05.93
51.0
6.19
71.06.31
91.0
6.37
11.5
4.78
31.5
5.94
51.5
6.20
71.5
6.3191.56.37
12.04.8632.05.95
52.0
6.2072.06.31
92.0
6.37
12.5
4.93
32.5
5.96
52.5
6.20
72.5
6.3192.56.38
13.0
4.99
33.05.9753.06.2173.06.31
93.0
6.38
13.55.0533.5
5.98
53.5
6.21
73.5
6.3293.56.38
14.0
5.11
34.05.99
54.0
6.2174.06.32
94.0
6.38
14.55.1634.5
6.00
54.5
6.22
74.5
6.3294.56.38
15.05.2135.0
6.00
55.0
6.22
75.0
6.3295.06.38
15.55.2635.5
6.01
55.5
6.22
75.5
6.3295.56.38
16.05.3036.06.0256.06.2376.06.33
96.0
6.38
16.55.3436.5
6.03
56.5
6.23
76.5
6.3396.56.38
17.0
5.38
37.06.04
57.0
6.2377.06.33
97.06.39
17.55.4137.5
6.04
57.5
6.24
77.5
6.3397.5
6.39
18.0
5.45
38.0
6.0558.0
6.2478.06.33
98.06.39
18.55.4838.5
6.06
58.5
6.24
78.5
6.3398.5
6.39
19.0
5.51
39.0
6.0759.06.25
79.0
6.34
99.06.39
19.5
5.53
39.56.0759.5
6.25
79.56.3499.56.39
20.0
5.56
40.06.0860.0
6.25
80.06.34100.0
6.39
November 1, 20105792010–44 I.R.B.

Part IV. Items o
fGeneralInterest
Notice of Prop
osed
Rulemaking by
Cross-Refere
nce to
Temporary Re
gulations
Guidance Reg
arding Deferred
Discharge of
Indebtedness
Income of Co
rporations
and Deferre
dOriginalIssue
Discount D
eductions
REG–14280
0–09
AGENCY: In
ternal Revenue Service
(IRS), Tre
asury.
ACTION: No
tice of proposed rulemaking
by cross-r
eference to temporary regula-
tions.
SUMMARY:
In this issue of the Bulletin,
the IRS an
d the Treasury Department
are issui
ng temporary regulations (T.D.
9497) und
er section 108(i) of the Internal
Revenue C
ode (Code). These regulations
primari
ly affect C corporations regarding
the acce
leration of deferred discharge of
indebte
dness (COD) income (deferred
COD inco
me) and deferred original issue
discoun
t (OID) deductions (deferred OID
deduct
ions) under section 108(i)(5)(D),
and the
calculation of earnings and profits
as a res
ult of an election under section
108(i)
. In addition, these regulations
provid
e rules applicable to all taxpayers
regar
ding deferred OID deductions under
secti
on 108(i) as a result of a reacquisi-
tion o
f an applicable debt instrument by
an iss
uer or related party. The text of the
tempo
rary regulations also serves as the
text
of these proposed regulations.
DATE
S: Written or electronic comments
and r
equest for a public hearing must be
rece
ived by November 12, 2010.
ADDR
ESSES: Send submissions to:
CC:P
A:LPD:PR(REG–142800–09),
Room
5203, Internal Revenue Service,
P.O.
Box 7604, Ben Franklin Station,
Was
hington, DC 20044. Submissions may
be h
and-delivered Monday through Friday
bet
ween the hours of 8 a.m. and 4 p.m.
to C
C:PA:LPD:PR (REG–142800–09),
Courier’s Des
k, Internal Revenue Ser-
vice, 1111 Con
stitution Avenue, NW,
Washington, D
C, or sent electroni-
cally, via the
Federal eRulemaking Por-
tal athttp://
www.regulations.gov(IRS
REG–142800–
09).
FOR FURTHER I
NFORMATION
CONTACT: Con
cerning the proposed
regulations
, Robert M. Rhyne (202)
622–7790 an
d Rubin B. Ranat (202)
622–7530; c
oncerning submissions
of comments
and/or requests for a
public hear
ing, Richard Hurst (202)
622–7180 (
not toll-free numbers), or
Richard.a
.hurst@irscounsel.treas.gov.
SUPPLEMEN
TARY INFORMATION:
Paperwork
Reduction Act
The collec
tion of information contained
in this no
tice of proposed rulemaking
has been s
ubmitted to the Office of Man-
agement a
nd Budget in accordance with
the Paper
work Reduction Act of 1995
(44 U.S.C
. 3507) under control number
1545–21
47. Comments on the collection
of infor
mation should be sent to theOf-
fice of M
anagement and Budget, Attn:
Desk Off
icer for the Department of the
Treasur
y, Office of Information and Reg-
ulator
y Affairs, Washington, DC 20503,
with co
pies to the Internal Revenue Ser-
vice, A
ttn: IRS Reports Clearance Officer,
SE:W:C
AR:MP:T:T:SP, Washington, DC
20224.
Comments on the collection of
infor
mation should be received by Novem-
ber 12
, 2010. Comments are specifically
reque
sted concerning:
Wheth
er the proposed collection of in-
forma
tion is necessary for the proper per-
forma
nce of the functions of the Internal
Reven
ue Service, including whether the
info
rmation will have practical utility;
The ac
curacy of the estimated burden
asso
ciated with the proposed collection of
info
rmation (see below);
How t
he quality, utility, and clarity of
the i
nformation to be collected may be en-
hanc
ed;
How t
he burden of complying with the
prop
osed collections of information may
be mi
nimized, including through the appli-
cati
on of automated collection techniques
or other forms
of information technology;
and
Estimates of c
apital or start-up costs of
operation, ma
intenance, and purchase of
service to pro
vide information.
The collectio
n of information
in this propos
ed regulation is in
§1.108(i)–1
(b)(3). This information is
requiredbyt
he IRS to allow members of a
consolidate
d group to make an election to
accelerate t
he inclusion of deferred COD
income under
section 108(i). The likely
recordkeepe
rs are corporations filing con-
solidated i
ncome tax returns (electing
members). T
he IRS and Treasury Depart-
ment believ
e that an electing member’s
election un
der §1.108(i)–1(b)(3) reduces
the member
’s overall reporting burden
under sect
ion 108(i).
Estimated
total annual reporting bur-
den: 0 hour
s.
Estimated
average annual burden per
responden
t: 0 hours.
Estimated
number of respondents:
5,000.
An agency m
ay not conduct or sponsor,
and a perso
n is not required to respond to, a
collectio
n of information unless it displays
a valid co
ntrol number assigned by the Of-
fice of Ma
nagement and Budget.
Books or r
ecords relating to a collection
of inform
ation must be retained as long
as their c
ontents may become material in
the admin
istration of any internal revenue
law. Gen
erally, tax returns and tax return
informa
tion are confidential, as required
by 26 U.S
.C. 6103.
Backgro
und and Explanation of
Provisi
ons
The temp
orary regulations published in
this iss
ue of the Bulletin amend the Income
Tax Regu
lations (26 CFR parts 1 and 602)
relati
ng to section 108(i). The temporary
regula
tions set forth rules for applying sec-
tion 10
8(i) to C corporations. The text of
those t
emporary regulations also serves as
the tex
t of these proposed regulations. The
pream
ble to the temporary regulations ex-
plain
s the temporary regulations and these
propo
sed regulations.
2010–44 I.R.B.580November 1, 2010

Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory as-
sessment is not required. It is hereby cer-
tified that these regulations will not have a
significant economic impact on a substan-
tial number of small entities. This certi-
fication is based upon the fact that these
regulations merely provide more specific
guidance for the timing of the inclusion
of deferred COD income that is otherwise
includible under the Code. Therefore, a
Regulatory Flexibility analysis under the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6) is not required. Pursuant to section
7805(f) of the Code, this notice of pro-
posed rulemaking will be submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any written (a signed
original and eight (8) copies) or electronic
comments that are submitted timely to the
IRS. In addition to the specific requests
for comments made elsewhere in this pre-
amble or the preamble to the temporary
regulations, the IRS and Treasury Depart-
ment request comments on the clarity of
the proposed rules and how they can be
made easier to understand. All comments
will be available for public inspection and
copying. A public hearing may be sched-
uled if requested in writing by any person
who timely submits written comments. If
a public hearing is scheduled, notice of the
date, time, and place of the hearing will be
published in theFederal Register.
Drafting Information
The principal authors of these pro-
posed regulations are Robert M. Rhyne
and Rubin B. Ranat of the Office of
Associate Chief Counsel (Corporate).
However, other personnel from the IRS
and Treasury Department participated in
their development.
*****
Proposed Amendment 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
part1isamendedbyaddingentriesinnu-
merical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.108(i)–0T also issued under
26 U.S.C. 108(i)(7) and 1502. * * *
Section 1.108(i)–1T also issued under
26 U.S.C. 108(i)(7) and 1502. * * *
Section 1.108(i)–3T also issued under
26 U.S.C. 108(i)(7) and 1502. * * *
Par. 2. Section 1.108(i)–0 is added to
read as follows:
§1.108(i)–0 Definitions.
[The text of proposed §1.108(i)–0 is the
same as the text of §1.108(i)–0T published
elsewhere in this issue of the Bulletin].
Par. 3. Section 1.108(i)–1 is added to
read as follows:
§1.108(i)–1 Deferred discharge of
indebtedness income and deferred
original issue discount deductions of
C corporations.
[The text of proposed §1.108(i)–1 is the
same as the text of §1.108(i)–1T published
elsewhere in this issue of the Bulletin].
Par. 4. Section 1.108(i)–3 is added to
read as follows:
§1.108(i)–3 Rules for the deduction of
OID.
[The text of proposed §1.108(i)–3 is the
same as the text of §1.108(i)–3T published
elsewhere in this issue of the Bulletin].
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on August 11,
2010, 11:15 p.m., and published in the issue of the Federal
Register for August 13, 2010, 75 F.R.)
Notice of Proposed
Rulemaking
Regulations Governing
Practice Before the Internal
Revenue Service
REG–138637–07
AGENCY: Office of the Secretary, Trea-
sury.
ACTION: Withdrawal of notice of pro-
posed rulemaking, notice of proposed rule-
making, and notice of public hearing.
SUMMARY: This document contains pro-
posed modifications revising the regula-
tions governing practice before the Inter-
nal Revenue Service (IRS). The proposed
regulations affect individuals who practice
before the IRS and providers of continuing
education programs. The proposed reg-
ulations modify the general standards of
practice before the IRS and the standards
with respect to tax returns. This document
also provides notice of a public hearing
on these proposed regulations and with-
draws the notice of proposed rulemaking
published on September 26, 2007.
DATES: Written or electronic com-
ments must be received by Thursday,
October 7, 2010. Outlines of topics
to be discussed at the public hearing
scheduled for Friday, October 8, 2010
at 10 am must be received by Monday,
September 27, 2010. ADDRESSES:
Send submissions to: CC:PA:LPD:PR
(REG–138637–07), room 5205, Internal
Revenue Service, PO Box 7604, Ben
Franklin Station, Washington, D.C. 20044.
Submissions may be hand-delivered
Monday through Friday between the
hours of 8 a.m. and 4 p.m. to:
CC:PA:LPD:PR(REG–138637–07),
Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue, NW,
Washington, D.C., or sent electronically
via the Federal eRulemaking Portal
athttp://www.regulations.gov(IRS
REG–138637–07). The public hearing
will be held in IRS Auditorium, Internal
Revenue Building, 1111 Constitution
Avenue, NW, Washington, D.C.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
November 1, 20105812010–44 I.R.B.

regulations, Matthew D. Lucey or
Matthew S. Cooper at (202) 622–4940;
concerning submissions of comments,
the public hearing, and/or to be placed
on the building access list to attend the
public hearing, Regina Johnson of the
Publications and Regulations Branch at
(202) 622–7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained
in these proposed regulations was previ-
ously reviewed and approved by the Office
of Management and Budget in accordance
with the Paperwork Reduction Act of 1995
(44 U.S.C. 3507(d)) under control number
1545–1726. Comments on the collection
of information should be sent to theOf-
fice of Management and Budget,Attn:
Desk Officer for the Department of the
Treasury, Office of Information and Reg-
ulatory Affairs, Washington, D.C. 20503,
with copies to theInternal Revenue
Service, Attn: IRS Reports Clearance
Officer, SE:W:CAR:MP:T:T:SP, Wash-
ington, D.C. 20224. Comments on the
collection of information should be re-
ceived by October 22, 2010. Comments
are specifically requested concerning:
Whether the proposed collection of
information is necessary for the proper
performance of the Internal Revenue Ser-
vice, including whether the information
will have practical utility;
The accuracy of the estimated burden
associated with the proper collection of in-
formation;
How the quality, utility, and clarity of
the information to be collected may be en-
hanced;
How the burden of complying with the
proposed collection of information may be
minimized, including through the appli-
cation of automated collection techniques
or other forms of information technology;
and
Estimates of capital or start-up costs
and costs of operation, maintenance, and
purchase of services to provide informa-
tion.
The collection of information in these
proposed regulations is in §§10.6 and 10.9.
The total annual burden of this collection
of information is an increase from the bur-
den in the current regulations.
Section 10.6 requires a registered tax
return preparer to maintain records and ed-
ucational materials regarding the comple-
tion of the required qualifying continuing
education credits. Section 10.9 also re-
quires providers of qualifying continuing
education programs to maintain records
and educational material concerning these
programs and the individuals who attend
them. Continuing education providers also
obtain approval of each program as a qual-
ified continuing education program. The
collection of this material helps to ensure
that individuals authorized to prepare tax
returns are informed of the latest develop-
ments in Federal tax practice.
Currently, there are approximately
46,000 enrolled agents and 300 enrolled
retirement plan agents who are required
to maintain records and educational ma-
terials regarding the completion of the
required continuing education credits.
There are approximately 350 continuing
education providers of qualifying con-
tinuing education programs required to
maintain records and educational material
concerning these programs and the indi-
viduals who attend them. It is expected
that there will be an additional 600,000
registered tax return preparers and 1,900
continuing education providers who will
be affected by the collection of infor-
mation requirements in these proposed
regulations. The IRS and the Treasury
Department estimate that the total annual
costs resulting from these requirements
will be $9,880,000 for all affected prac-
titioners and $38,632,500 for all affected
continuing education providers.
This collection of information is
mandatory. The likely respondents and
record keepers are individuals and busi-
nesses.
Estimated total annual recordkeeping
and reporting burden is 1,710,000 hours.
Estimated annual burden per practi-
tioner varies from 30 minutes to one hour,
depending on individual circumstances,
with an estimated average of 54 minutes.
Estimated annual burden per continuing
education provider varies from five hours
to 5,000 hours, depending on individual
circumstances, with an estimated average
of 500 hours.
Estimated number of affected practi-
tioners is 650,000.
Estimated number of affected continu-
ing education providers is 2,250.
Estimated annual frequency of re-
sponses is on occasion.
An agency may not conduct or sponsor,
and a person is not required to respond to, a
collection of information unless it displays
a valid control number.
Books or records relating to a collection
of information must be retained as long
as their contents might become material in
the administration of any internal revenue
law.
Background
Section 330 of title 31 of the United
States Code authorizes the Secretary of
the Treasury (the Secretary) to regulate the
practice of representatives before the Trea-
sury Department. The Secretary is autho-
rized, after notice and an opportunity for a
proceeding, to censure, suspend, or disbar
from practice before the Treasury Depart-
ment those representatives who are incom-
petent, disreputable, or who violate regu-
lations prescribed under section 330 of ti-
tle 31. The Secretary also is authorized to
impose a monetary penalty against these
individuals and the individuals’ firms or
other entities that employ them. Addi-
tionally, the Secretary may seek an injunc-
tion against these individuals under section
7408 of the Internal Revenue Code (Code).
The Secretary has published regulations
governing the practice of representatives
before the IRS in 31 CFR part 10 and
reprinted the regulations as Treasury De-
partment Circular No. 230 (Circular 230).
These regulations authorize the Director
of the Office of Professional Responsi-
bility (OPR) to act upon applications for
enrollment to practice before the IRS, to
make inquiries with respect to matters un-
der OPR’s jurisdiction, to institute pro-
ceedings to impose a monetary penalty or
to censure, suspend, or disbar a practi-
tioner from practice before the IRS, to in-
stitute proceedings todisqualify apprais-
ers, and to perform other duties necessary
to carry out these functions.
Circular 230 has been amended peri-
odically. The regulations were amended
most recently on September 26, 2007 (T.D.
9359, 2007–2 C.B. 931 [72 FR 54540]), to
modify various provisions relating to the
general standards of practice. For exam-
ple, the 2007 regulations established an en-
rolled retirement plan agent designation,
modified the conflict of interest rules, lim-
2010–44 I.R.B.582November 1, 2010

ited the use of contingent fees by practi-
tioners, and required public disclosure of
OPR disciplinary decisions after the deci-
sions become final.
Those final regulations, however, did
not finalize the standards with respect to
tax returns under §10.34(a) and the def-
initions under §10.34(e) because of the
amendments to section 6694(a) of the
Code made by the Small Business and
Work Opportunity Tax Act of 2007, Public
Law 110–28, 121 Stat. 190. Rather, the
IRS and the Treasury Department reserved
§10.34(a) and (e) in those final regulations
and also simultaneously issued a notice of
proposed rulemaking (REG–138637–07,
2007–2 C.B. 977) in the Federal Register
(72 FR 54621) proposing to conform the
professional standards under §10.34 of
Circular 230 with the civil penalty stan-
dards under section 6694(a) as amended
by the 2007 Act.
On October 3, 2008, the Tax Ex-
tenders and Alternative Minimum Tax
Relief Act of 2008, Div. C. of Public
Law 110–343, 122 Stat. 3765, again
amended the standard of conduct that
must be met to avoid imposition of the
tax return preparer penalty under section
6694(a). The IRS and the Treasury De-
partment published final regulations (T.D.
9436, 2009–3 I.R.B. 268) in the Federal
Register (73 FR 78430) implementing
amendments to the tax return preparer
penalties on December 22, 2008. This
document proposes modifications to the
standards with respect to tax returns and
also withdraws the proposed amendments
to §10.34 published in the Federal Register
on September 26, 2007.
The proposed regulations also provide
new rules governing the oversight of tax
return preparers. Currently, an individ-
ual tax return preparer generally is not
subject to the provisions in Circular 230
unless the tax return preparer is an attor-
ney, certified public accountant, enrolled
agent, or other type of practitioner iden-
tified in Circular 230. Under current law,
any individual may prepare tax returns
and claims for refund without meeting
any qualifications or competency stan-
dards. A tax return preparer also may
exercise the privilege of limited practice
before the IRS pursuant to the rules in
§10.7(c)(1)(viii) of Circular 230 and Rev-
enue Procedure 81–38, 1981–2 C.B. 592.
See§601.601(d)(2)(ii)(b).
In June 2009, the IRS launched a re-
view of tax return preparers with the in-
tent to propose a comprehensive set of
recommendations to ensure uniform and
high ethical standards of conduct for all
tax return preparers and to increase tax-
payer compliance. As part of this effort,
the IRS received input from a large and di-
verse community through numerous chan-
nels, including public forums, solicitation
of written comments, and meetings with
advisory groups.
The IRS made findings and recommen-
dations in Publication 4832, “Return Pre-
parer Review”(theReport),whichwas
published on January 4, 2010. The Re-
port recommends increased oversight of
the tax return preparer industry through the
issuance of regulations.
This document proposes amendments
to Circular 230 based upon certain of the
recommendations inthe Report. Specif-
ically, the proposed regulations establish
“registered tax return preparers,” as a
new class of practitioners. Sections 10.3
through 10.6 of the proposed regula-
tions describe the process for becoming
a registered tax return preparer and the
limitations on a registered tax return pre-
parer’s practice before the IRS. In general,
practice by registered tax return preparers
is limited to preparing tax returns, claims
for refund, and other documents for sub-
mission to the IRS. A registered tax return
preparer may prepare all or substantially
all of a tax return or claim for refund,
andsignataxreturnorclaimforrefund,
commensurate with the registered tax re-
turn preparer’s level of competence as
demonstrated by written examination. The
proposed regulations also revise §10.30
regarding solicitation, §10.36 regarding
procedures to ensure compliance, and
§10.51 regarding incompetence and dis-
reputable conduct.
Proposed regulations under section
6109 of the Code (REG–134235–08,
2010–16 I.R.B. 596) published in the
Federal Register(75 FR 14539) on
March 26, 2010, also implement certain
recommendations in the Report. The
proposed regulations under section 6109
provide that, for returns or claims for
refund filed after December 31, 2010,
the identifying number of a tax return
preparer is the individual’s preparer tax
identificationnumber(PTIN)orsuch
other number prescribed by the IRS in
forms, instructions, or other appropriate
guidance. The proposed regulations
under section 6109 provide that the
IRS is authorized to require through
other guidance (as well as in forms and
instructions) that tax return preparers
apply for a PTIN or other prescribed
identifying number, the regular renewal
of PTINs or other prescribed identifying
number, and the payment of user fees.
Explanation of Provisions
The scope of these proposed regulations
is limited to practice before the IRS. The
Director of OPR has general oversight re-
sponsibilities for the rules in these pro-
posed regulations, but specific duties re-
lated to the administration of certain pro-
cedural aspects of these rules (for example,
test administration, issuance of enrollment
or registration certificates or cards) may be
delegated to employees of other IRS func-
tions or third party vendors if the Commis-
sioner determines that the performance of
these duties by these organizations will aid
tax administration. These proposed regu-
lations do not change the existing authority
of attorneys, certified public accountants,
and enrolled agents to practice before the
IRS under Circular 230. These proposed
regulations also do not alter or supplant
ethical standards that might otherwise be
applicable to practitioners.
Definitions — Practice Before the Internal
Revenue Service and Tax Return Preparer
“Practice before the Internal Revenue
Service” under §10.2(a)(4) comprehends
all matters connectedwith a presentation
to the IRS or any of its officers or employ-
ees relating to a taxpayer’s rights, privi-
leges, or liabilities under laws or regula-
tions administered bytheIRS.Underthe
current definition of practice, preparing a
tax return or claim for refund (even if the
tax return or claim for refund is filed by
another person) is practice before the IRS.
Similarly, an individual who files a tax re-
turn or claim for refund prepared by some-
one else also is engaged in practice before
the IRS. The IRS and the Treasury Depart-
ment are aware that some tax professionals
have suggested that they are not engaged
in practice before the IRS unless they both
prepare and file a tax return, claim for
refund, or other document. Accordingly,
§10.2(a)(4) of the proposed regulations is
November 1, 20105832010–44 I.R.B.

revised to eliminate this misunderstanding,
and specifically clarifies that either prepar-
ing a document or filing a document may
constitute practice before the IRS. Section
10.2(a)(8) of the proposed regulations also
clarifies that the definition of “tax return
preparer” in Circular 230 is the same as
the meaning in section 7701(a)(36) of the
Code and 26 CFR 301.7701–15.
Who May Practice
Section 10.3(f) of the proposed regula-
tions establishes a new “registered tax re-
turn preparer” designation. A registered
tax return preparer is any individual so des-
ignated under §10.4(c) who is not currently
under suspension or disbarment from prac-
tice before the IRS. An individual who is
a registered tax return preparer pursuant
to this part is a practitioner authorized to
practice before the IRS, subject to the lim-
itations identified in these proposed regu-
lations.
These proposed regulations generally
limit practice as a registered tax return pre-
parer to preparing tax returns, claims for
refund, and other documents for submis-
sion to the IRS. Pursuant to §10.3(f)(2) of
these proposed regulations, a registered tax
return preparer may only prepare, or as-
sist in the preparation of, all or substan-
tially all of a tax return or claim for re-
fund that is commensurate with the level
of competence that the registered tax re-
turn preparer has demonstrated by written
examination. Registered tax return pre-
parers also are permitted to sign tax re-
turns, claims for refund, and other docu-
ments as the preparer provided the doc-
ument is commensurate with the level of
competence demonstrated, and may repre-
sent taxpayers before revenue agents, cus-
tomer service representatives or similar of-
ficers and employees of the IRS (includ-
ing the Taxpayer Advocate Service) dur-
ing an examination if the registered tax
return preparer signed the tax return or
claim for refund for the taxable year or pe-
riod under examination. Consistent with
the limited practice rights currently avail-
able to unenrolled return preparers under
§10.7(c)(1)(viii), registered tax return pre-
parers are not permitted to represent tax-
payers, regardless of the circumstances re-
quiring representation, before appeals of-
ficers, revenue officers, Counsel or sim-
ilar officers or employees of the IRS or
the Treasury Department. A registered tax
return preparer’s authorization to practice
under this part also does not include the au-
thority to provide tax advice to a client or
another person except as necessary to pre-
pare a tax return, claim for refund, or other
document intended to be submitted to the
IRS.
The conduct of the registered tax return
preparer in connection with the prepara-
tion of the return, claim for refund, or other
document, as well as any representation of
the client during an examination, will be
subject to the standards of conduct in Cir-
cular 230. Inquiries into possible miscon-
duct and disciplinary proceedings relating
to registered tax return preparer miscon-
duct will be conducted under the provi-
sions in Circular 230.
Eligibility to Become a Registered Tax
Return Preparer
An individual must pass a minimum
competency examination and possess a
current or otherwise valid PTIN or other
prescribed identifying number to become
a registered tax return preparer. The ex-
amination will be administered by, or ad-
ministered under the oversight of, the IRS,
similar to the special enrollment exami-
nations for enrolled agents and enrolled
retirement plan agents. After completing
competency testing,tax return preparers
will be subject to suitability checks to de-
termine whether the tax return preparer has
engaged in disreputable conduct which, at
the time the application is filed with OPR,
could result in suspension or disbarment
under Circular 230. An individual who
has engaged in disreputable conduct is not
eligible to become a registered tax return
preparer.
Consistent with the recommendations
made in the Report, these proposed reg-
ulations do not exempt a tax return pre-
parer from the competency testing require-
ments based upon the individual’s past tax
return preparation experience. Initially,
the IRS will offer two competency ex-
aminations. One examination will cover
wage and nonbusiness income Form 1040
series returns, while another examination
will cover wage and small business income
Form 1040 series returns. An individual
must successfully complete an examina-
tion prior to becoming a registered tax re-
turn preparer and obtaining a PTIN. The
IRS will prescribe by forms, instructions,
or other appropriate guidance the tax re-
turns and claims for refund, including the
schedules and forms, that a registered tax
return preparer may prepare based upon
the written examination successfully com-
pleted under §10.4(c). The registered tax
return preparer who passes the wage and
small business income Form 1040 series
examination, however, will be able to pre-
pare any Form 1040 series returns. The
IRS and the Treasury Department request
comments on whether a tax return pre-
parer who solely prepares tax returns other
than Form 1040 series returns (for exam-
ple, Form 941,Employer’s QUARTERLY
Federal Tax Return,orForm706,U.S. Es-
tate Tax Return)shouldbepermittedto
prepare these other tax returns without suc-
cessfully completing any examination.
It is currently anticipated that the exam-
ination to become a registered tax return
preparer will not be available until after
the effective date of these regulations. The
IRS and the Treasury Department will pro-
vide published guidance establishing tran-
sition rules that explain the steps individu-
als must take to prepare all or substantially
all of a tax return or claim for refund while
awaiting full implementation of the exam-
ination process.
Application and Renewal Procedures
Section 10.5 of the regulations sets
forth the applicable procedures relating
to the application to become a registered
tax return preparer, which generally are
consistent with the procedures currently
utilized for enrolled agents and enrolled
retirement plan agents. The proposed
regulations provide that applicants must
utilize forms and comply with the pro-
cedures established and published by the
IRS. The proposed regulations permit the
IRS to change the procedures to apply to
become a registered tax return preparer.
As a condition for consideration of an
application, the IRS may conduct a Fed-
eral tax compliance check and suitability
check. The tax compliance check will be
limitedtoaninquiryregardingwhetheran
applicant has filed allrequired individual
or business tax returns (such as employ-
ment tax returns that might have been re-
quired to be filed by the applicant) and
whether the applicant has failed to pay, or
make proper arrangement with the IRS for
2010–44 I.R.B.584November 1, 2010

payment of, any Federal tax debts. The
suitability check will be limited to an in-
quiry regarding whether an applicant has
engaged in any conduct that would justify
suspension or disbarment of any practi-
tioner under the provisions of this part, in-
cluding whether the applicant has engaged
in disreputable conduct.
The IRS may deny an application only
if the results of the tax compliance or suit-
ability check are sufficient to establish that
the practitioner engaged in conduct sub-
ject to sanctions under Circular 230 at the
time the application is filed or the appli-
cant does not pass the required compe-
tency examination. If the applicant does
not pass the competency examination or
the tax compliance or suitability check, the
applicant will not be issued an enrollment
or registration card orcertificate, and will
be provided information regarding the de-
nial of the application and the rules on ap-
pealing the denial. An applicant who is
initially denied enrollment or registration
for failure to pass a tax compliance check
may reapply after the initial denial if the
applicant becomes current with respect to
the applicant’s tax liabilities.
Once an application to become a regis-
tered tax return preparer is approved, the
IRS will issue a registration card or cer-
tificate to each individual and each card
or certificate will be valid for the period
stated on the card or certificate. The card
or certificate will be in addition to any cer-
tificate that may be issued to an attorney,
certified public accountant, enrolled agent,
or registered tax return preparer who ob-
tains a PTIN. Registered tax return prepar-
ers must have both a current and valid reg-
istration card or certificate and a current
and valid PTIN certificate to practice be-
fore the IRS.
Section 10.6 of the proposed regula-
tionssetsforththeprocedures for renewal
of application to practice before the IRS
as a registered tax return preparer. A reg-
istered tax return preparer must apply for
renewal as prescribed in forms, instruc-
tions, or other appropriate guidance. A
condition of renewal, as recommended in
the Report, is the completion of continu-
ing education requirements by registered
tax return preparers. A registered tax re-
turn preparer must complete 15 hours of
continuing education during each registra-
tion year, with a minimum of three hours
of Federal tax law updates, two hours of
tax-related ethics and 10 hours of Fed-
eral tax law topics. The registration year
is defined as each 12-month period that
the registered tax return preparer is autho-
rized to practice before the IRS. Registered
tax return preparers will be required to
maintain records with respect to the com-
pletion of the continuing education credit
hours and to self-certify the completion of
the continuing education credit at the time
of renewal. The proposed regulations re-
quire that a qualifying continuing educa-
tion course enhance professional knowl-
edge in Federal taxation or Federal tax re-
lated matters and be consistent with the
Code and effective tax administration.
Section 10.6(f)(2)(iii) and (f)(2)(iv) of
the current regulations authorizes contin-
uing education credit to be awarded for
hoursrelatingtoworkasaninstructor,
discussion leader, or speaker at an educa-
tion program, as well as hours for author-
ing articles, books, or other publications
on Federal taxation or Federal tax-related
matters. The maximum credit for instruc-
tion and preparation currently may not ex-
ceed 50 percent of the continuing educa-
tion requirement for an enrollment cycle.
After further consideration, the IRS and
the Treasury Department believe that the
maximum credit for instruction and prepa-
ration should be reduced to encourage a
more diverse educational program. These
proposed regulations, therefore, reduce the
maximum credit for instruction and prepa-
ration to four hours annually of the con-
tinuing education requirement. These pro-
posed regulations also remove the abil-
ity to receive hours for authoring articles,
books, or other publications.
Section 10.5(b) and §10.6(d)(6) of the
proposed regulationsare revised to reflect
that the IRS will charge a reasonable non-
refundable fee for eachinitial application
and application for renewal as a registered
tax return preparer filed with OPR. Sep-
arate regulation projects under 26 CFR
part 300 will provide further details on the
amounts of those user fees in the near fu-
ture.
Continuing Education Providers
The rules regarding continuing ed-
ucation providers that currently are in
§10.6 of Circular 230 are moved to new
§10.9. Under §10.9 of the proposed regu-
lations, providers of continuing education
courses are required to maintain records
and educational material concerning these
programs and the individuals who attend
them, as well as obtain approval of each
program to be qualified as a qualified
continuing education program. Section
10.9(a)(6) also states that the IRS may
charge a reasonable nonrefundable fee
for each application for qualification as
a qualified continuing education pro-
gram. A separate regulation project under
26 CFR part 300 will provide further
details on the amounts of the user fee in
the near future.
Limited Practice Before the IRS, Return
Preparation, and Application to Other
Individuals
Section 10.7(c)(1)(viii) currently au-
thorizes an individual, who is not other-
wise a practitioner, to represent a taxpayer
during an examination if that individual
prepared the return for the taxable pe-
riod under examination. The proposed
regulations remove this limited practice
authorization from §10.7(c) because of
the addition to §10.3(f) regarding regis-
tered tax return preparers. Additionally,
these proposed regulations remove cur-
rent §10.8 regarding customhouse brokers
from Circular 230 and move the language
in current §10.7(e) to new §10.8(a). Sec-
tion 10.8(a) of the proposed regulations
provides that any individual, whether or
not the individual is a practitioner, may
assist with the preparation of a tax return
or claim for refund (provided the individ-
ual prepares less than substantially all of
the tax return or claim for refund). This
revision is consistent with the inclusion
of registered tax return preparers as prac-
titioners authorized to practice before the
IRS and the practice rights available to
these practitioners.
These proposed regulations also es-
tablish a new §10.8(b) regarding other
individuals. Any individual who pre-
pares for compensation all or a substantial
portion of a document pertaining to a
taxpayer’s tax liability for submission to
the IRS is subject to the duties and re-
strictions relating to practice before the
IRS and may be sanctioned, after notice
and opportunity for aconference, for any
conduct that would justify a sanction un-
der §10.50. An individual described in
26 CFR 301.7701–15(f) is not treated
November 1, 20105852010–44 I.R.B.

as having prepared all or a substantial
portion of the document by reason of such
assistance. For example, an individual
who only furnishes typing, reproducing, or
other mechanical assistance with respect
to a document is not subject to the duties
and restrictions relating to practice before
the IRS. Only an attorney, certified public
accountant, enrolled agent, or registered
tax return preparer may prepare for
compensation all or substantially all of a
tax return or claim for refund, or sign as a
preparer tax returns and claims for refund.
An individual who is not an attorney,
certified public accountant, enrolled agent,
or registered tax return preparer who nev-
ertheless prepares for compensation all or
a substantial portion of a document (in-
cluding tax returns and claims for refund)
for submission to the IRS is engaged in
practice before the IRS, and subject to the
rules and standards of Circular 230.
Solicitation
Section 10.30(a)(1) of these proposed
regulations provides that a practitioner
may not, with respect to any IRS matter, in
any way use or participate in the use of any
form of public communication or private
solicitation containing a false, fraudu-
lent, coercive, misleading, or deceptive
statement or claim. In describing their pro-
fessional designation, registered tax return
preparers may not utilize the term “cer-
tified” or imply an employer/employee
relationship with the IRS. An example of
an acceptable description for registered
tax return preparers under §10.4(c), in de-
scribing their professional designation, is
“designated as a registered tax return pre-
parer with the Internal Revenue Service.”
Standards With Respect to Tax Returns
and Documents, Affidavits and Other
Papers
After careful consideration, the IRS and
the Treasury Department continue to con-
clude that the professional standards in
§10.34(a) generally should be consistent
with the civil penalty standards in section
6694 for tax return preparers. As discussed
in this preamble, the limited differences
between the proposed standards in §10.34
andsection6694arisefromthedifferent
purposes served by those provisions and
the different manner in which the two stan-
dards will be administered.
The standards with respect to tax re-
turns in §10.34(a) are being reproposed to
provide broader guidelines that are more
appropriate for professional ethics stan-
dards. Under §10.34(a)(1)(i) of these pro-
posed regulations, a practitioner may not
willfully, recklessly, or through gross in-
competence, sign a tax return or claim for
refund that the practitioner knows or rea-
sonably should know contains a position
that: (A) lacks a reasonable basis; (B) is an
unreasonable position as described in sec-
tion 6694(a)(2) (including the related reg-
ulations and other published guidance); or
(C) is a willful attempt by the practitioner
to understate the liability for tax or a reck-
less or intentional disregard of rules or reg-
ulations by the practitioner as described in
section 6694(b)(2) (including the related
regulations and other published guidance).
Under §10.34(a)(1)(ii) of these pro-
posed regulations, a practitioner may not
willfully, recklessly, or through gross
incompetence, advise a client to take a
position on a tax return or claim for re-
fund, or prepare a portion of a tax return
or claim for refund containing a position,
that: (A) lacks a reasonable basis; (B) is
an unreasonable position as described in
section 6694(a)(2) (including the related
regulations and other published guidance);
or (C) is a willful attempt by the practi-
tioner to understate the liability for tax
or a reckless or intentional disregard of
rules or regulations by the practitioner as
described in section 6694(b)(2) (including
the related regulations and other published
guidance).
These proposed ethical guidelines un-
der §10.34 closely mirror the civil penalty
standards in section 6694 with only a few
minor differences. First, these proposed
regulations specifically provide that a po-
sition on a return or claim for refund must
always meet the minimum threshold stan-
dard of reasonable basis. Because Circu-
lar 230 establishes minimum standards for
practitioners, these proposed regulations
provide that a practitioner acts unethically
when the practitioner advises a taxpayer
to take a return position that lacks a rea-
sonable basis. The proposed regulations
do not provide an exception to §10.34(a)
merely because there is a final determi-
nation that no understatement of liability
for tax exists. This differs from section
6694(d), which provides that the IRS must
abate (or refund) a preparer penalty any
time there is a final administrative deter-
mination or a final judicial decision that
there was no understatement of liability
by the taxpayer. A practitioner, there-
fore, may still be subject to discipline un-
der §10.34(a) for a position on a tax return
or claim for refund even if other positions
on the same tax return or claim for refund
eliminate the understatement of liability.
Second, these proposed regulations
provide that a practitioner is subject to dis-
cipline under §10.34(a) only after willful,
reckless, or grossly incompetent conduct.
Under section 6694, a single, uninten-
tional error that is not willful, reckless, or
grossly incompetent may result in a sec-
tion 6694(a) penalty. Similarly, a return
preparer may claim a reasonable cause de-
fense to the imposition of penalties under
section 6694, while Circular 230 does not
provide such a defense but rather relies on
the requirement that a practitioner must
have acted willfully, recklessly, or through
gross incompetence to ensure that sanc-
tions are not imposed on a practitioner
who acts reasonably and in good faith. If
the IRS imposes a penalty against a prac-
titioner under section 6694 and also refers
the practitioner for possible discipline
under Circular 230, OPR will make an in-
dependent determination as to whether the
practitioner engaged in willful, reckless,
or grossly incompetent conduct subject
to discipline under §10.34(a) before any
disciplinary proceedings are instituted or
any sanctions are imposed. Thus, a prac-
titioner liable for a penalty under section
6694 is not automatically subject to disci-
pline under §10.34(a).
Third, multiple practitioners from the
same firm may be disciplined if their con-
duct in connection with the same act(s)
does not comply with the standard of con-
duct required under §10.34. Under the
provisions in the regulations under section
6694, only one person within a firm is sub-
ject to the penalty under section 6694. The
provisions of section 6694 prevent unwar-
ranted duplication of civil penalties, but in
the Circular 230 context, it may be critical
that each practitioner engaged in miscon-
duct be subject to appropriate sanctions.
Finally, §10.34(a)(2) of these proposed
regulations expressly provides that a pat-
tern of conduct is a factor that will be
taken into account in determining whether
a practitioner acted willfully, recklessly, or
through gross incompetence for purposes
2010–44 I.R.B.586November 1, 2010

of §10.34. This differs from section 6694,
which imposes a penalty based upon a sin-
gle act in violation of the applicable provi-
sions.
With these revisions, the definitions
previously proposed under §10.34(e) are
withdrawn because the well-established
definitions under the section 6662 and
section 6694 penalty regulations and other
published guidance will control for pur-
poses of §10.34.
Procedures to Ensure Compliance
Section 10.36 currently provides proce-
dures to ensure that tax practitioners with
responsibility for overseeing a firm’s prac-
tice before the IRS take reasonable steps
to ensure that the firm has adequate proce-
dures in effect for all members, associates,
and employees for purposes of comply-
ing with §10.35 regarding covered opin-
ions. The procedures to ensure compli-
ance have produced great successes in en-
couraging firms to self-regulate, while at
thesametimedoingsoinaflexibleway
that is not a rigid one-size-fits-all regula-
tory burden. Firm responsibility is a crit-
ical factor in ensuring high quality advice
and representation for taxpayers. Accord-
ingly, the IRS and the Treasury Depart-
ment conclude that the procedures to en-
sure compliance should be expanded to in-
clude practice involving tax return prepa-
ration activities. Section 10.36 of the pro-
posed regulations provides that firm man-
agement with principal authority and re-
sponsibility for overseeing a firm’s prac-
tice of preparing tax returns, claims for re-
funds and other documents filed with the
IRS must take reasonable steps to ensure
that the firm has adequate procedures in ef-
fect for purposes of complying with Circu-
lar 230.
Incompetence and Disreputable Conduct
Section 10.51 of Circular 230 de-
fines disreputable conduct for which a
practitioner may be sanctioned. Section
6011(e)(3) of the Code, enacted by section
17 of the Worker, Homeownership, and
Business Assistance Act of 2009, Pub-
lic Law 111–92 (123 Stat. 2984, 2996)
(Nov. 6, 2009), requires certain specified
tax return preparers to file individual
income tax returns electronically. Because
the IRS and the Treasury Department
believe that the failure to comply with
this requirement is disreputable conduct,
these proposed regulations are amended to
add a new paragraph in §10.51 to address
practitioners who fail to comply with
this requirement. Under §10.51(a)(16)
of the proposed regulations, disreputable
conduct includes willfully failing to file on
magnetic or other electronic media a tax
return prepared by the practitioner when
thepractitionerisrequiredtodosobythe
Federal tax laws (unless the failure is due
to reasonable cause and not due to willful
neglect).
Under §10.51(a)(17) of the proposed
regulations, disreputable conduct also in-
cludes willfully preparing all or substan-
tially all of, or signing as a compensated
tax return preparer, a tax return or claim for
refund when the practitioner does not pos-
sess a current or otherwise valid PTIN or
other prescribed identifying number. Sec-
tion 10.51(a)(18) states that it is disrep-
utable conduct for a practitioner to will-
fully represent a taxpayer before an officer
or employee of the IRS unless the practi-
tioner is authorized to do so pursuant to
Circular 230. These changes are consistent
with the other revisions in these proposed
regulations and under section 6109.
Records
Under §10.90 of the current regulations,
OPR must maintain and may make avail-
able for public inspection in the time and
manner prescribed bythe Secretary a ros-
ter of enrolled agents, including those who
are active, inactive, and sanctioned. These
proposed regulations clarify that the roster
requirements also pertain to registered tax
return preparers andqualified continuing
education programs.
Proposed Effective Date
These regulations are generally pro-
posedtoapply60daysafterthedatethat
final regulations are published in the Fed-
eral Register.
Special Analyses
Executive Order 12866 requires certain
regulatory assessmentsand procedures for
a significant regulatory action, defined as
adversely affecting in a material way the
economy, a sector of the economy, pro-
ductivity, competition, or jobs. This rule
has been designated as significant and has
been reviewed by the Office of Manage-
ment and Budget as required under the pro-
visions of E.O. 12866. The Regulatory
Assessment prepared for this regulation is
provided below under the heading “Regu-
latory Assessment under E.O. 12866.”
It has been determined that an initial
regulatory flexibilityanalysis is required
for this notice of proposed rulemaking un-
der 5 U.S.C. 603. This analysis is set forth
later in this preamble under the heading
“Initial Regulatory Flexibility Analysis.”
Pursuant to section 7805(f) of the Inter-
nal Revenue Code (Code), this notice of
proposed rulemaking has been submitted
to the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on its impact on small business.
A.Regulatory Assessment under E.O.
12866
1.Description of need for the regulatory
action
Although the IRS has exercised its au-
thority to regulate for attorneys, certified
public accountants, and other specified tax
professionals, regulations under Circular
230 currently do not apply to a critical
group of tax professionals: tax return pre-
parers. AsdiscussedintheReport,tax-
payers’ reliance on tax return preparers
has grown steadily in recent decades. The
number of taxpayers who prepared their
own tax returns without assistance fell by
more than two-thirds between 1993 and
2005. In fact, today, tax return preparers
assist a majority of U.S. taxpayers in meet-
ing their Federal tax filing obligations. In
2008 and 2009, for example, tax return
preparers prepared almost 60 percent of all
federal tax returns filed, including approx-
imately 87 million federal individual in-
come tax returns. The IRS expects these
numbers to increase in 2010 and the com-
ing years.
Tax return preparers are not only re-
sponsible for assisting taxpayers in filing
complete, timely, and accurate returns, but
also help educate taxpayers about the tax
laws, and facilitate electronic filing. Tax
return preparers provide advice to taxpay-
ers, identify items or issues for which the
law or guidance is unclear, and inform tax-
payers of the benefits and risks of positions
takenonataxreturn,andthetaxtreatment
or reporting of items and transactions. The
November 1, 20105872010–44 I.R.B.

IRS and the Treasury Department recog-
nize that the majority of tax return prepar-
ers serve the interests of their clients and
the tax system by preparing complete and
accurate returns.
The tax system is best served by tax
return preparers who are ethical, provide
good service, and are qualified. Recent
government studies, including studies
from the Government Accountability Of-
fice and the Treasury Inspector General
for Tax Administration,see, e.g.,Gov-
ernment Accountability Office,Paid Tax
Return Preparers: In a limited Study,
Chain Preparers Made Serious Errors,
GAO–06–563T (Apr. 4, 2006); Treasury
Inspector General for Tax Administra-
tion,Most Tax Returns Prepared by a
Limited Sample of Unenrolled Preparers
Contained Significant Errors,Rept. #
2008–40–171 (Sept. 3, 2008), illustrate
the losses incurred by both taxpayers and
the system of Federal tax administration
when tax return preparers fail to properly
prepare tax returns. Additionally, many
of the more than 500 public comments
received by the IRS during the agency’s
review of the return preparer industry ex-
pressed concern for taxpayers, tax admin-
istration and the return preparer industry,
all of whom are hurt when tax returns are
not accurately prepared.
An overwhelming number of commen-
tators (98 percent of the persons who of-
fered comments on oversight and enforce-
ment) supported increased government
oversight of tax return preparers, particu-
larly for individuals who are not attorneys,
certified public accountants or others cur-
rently authorized to practice before the
IRS. These commentators argued that tax-
payers, the IRS and tax administration
generally would benefit from the registra-
tion of tax return preparers. Eighty-eight
percent of the persons who expressed an
opinion on registering paid tax return pre-
parers favor registration. Ninety percent
of the persons who commented on testing
and education favor minimum education
or testing requirements for paid tax return
preparers. And 98 percent of the persons
who commented on quality and ethics
favor establishment of quality and ethics
standards for paid tax return preparers.
Because the IRS has not adopted a
uniform set of regulations for tax return
preparers, the amount of oversight of tax
return professionals varies greatly depend-
ing on professional affiliations and the
geographic area in which they practice.
Most tax return preparers do not have to
pass any government or professionally
mandated competency requirement. Most
tax return preparers are not required to
participate in a specified program of con-
tinuing professional education. And the
ethical rules found in Circular 230 cur-
rently are not applicable to all tax return
preparers.
As such, the IRS recognizes the need to
apply a uniform set of rules to offer tax-
payers some assurance that their tax re-
turns are prepared completely and accu-
rately. Increasing the completeness and ac-
curacy of returns would necessarily lead to
increase compliance with tax obligations
by taxpayers.
2.Potentially affected tax returns
These proposed regulations generally
extend current regulations that apply to at-
torneys, certified public accountants and
other specified tax professionals to all tax
return preparers, including currently unen-
rolled tax return preparers, who prepare all
or substantially all of a tax return or claim
for refund for compensation. The rules ap-
ply to all returns prepared by tax return
preparers regardless of the taxpayer. The
rule is not limited by the type of return or
claim for refund. For example, the rule ap-
plies to self-employed tax return preparers
who prepare primarily individual tax re-
turns for persons who have only wage and
interest income. The rule also applies to
tax return preparers employed by large ac-
counting firms who prepare primarily cor-
porate and large partnership returns. It also
applies to those tax returns preparers who
prepare only estate or excise tax returns.
These examples are nonexclusive and the
application of these rules is not limited to
only those tax return preparers covered by
the examples.
The IRS and the Treasury Department
believe that the expansion of these regu-
lations to currently unenrolled tax return
preparers may impact individual taxpay-
ers more than large corporate taxpayers be-
cause the IRS and the Treasury Depart-
ment believe that large corporate taxpayers
more likely employ the services of those
whoarecurrentlyregulatedthanthosewho
are currently unenrolled to prepare their
tax returns. The IRS and the Treasury
Department are seeking comments on the
types of returns (for example: individual
versus corporate tax returns) currently be-
ing prepared by currently unenrolled tax
return preparers.
3.An assessment of benefits anticipated
from the regulatory action
The primary benefit anticipated from
these regulations is that they will improve
the accuracy, completeness, and timeliness
of tax returns prepared by tax return pre-
parers. As illustrated in the recent gov-
ernment studies, including the IRS’s recent
review of the tax return preparer indus-
try, inaccurate tax returns are costly both
to taxpayers and the government. Inaccu-
rate returns may affect the finances of tax-
payers, who might overpay their respective
share of taxes or fail to take advantage of
available tax benefits. Inaccurate tax re-
turns may also affectthe U.S. government
because of underpayments and increased
costs of enforcement and collection.
The regulations are expected to im-
prove the accuracy, completeness, and
timeliness of tax returns in a number of
ways. First, requiring tax return preparers
to demonstrate the necessary qualifica-
tions to provide a valuable service by
successfully completing a government or
professionally mandated competency ex-
amination and continued competence by
completing the specified continuing edu-
cation credits annually will result in more
competent and ethical tax return preparers
who are well educated in the rules and
subject matter. A more competent and
ethical tax return preparer community will
prevent costly errors, potentially saving
taxpayers from unwanted problems and
relieving the IRS from expending valu-
able examination and collection resources.
Thus, these proposed regulations are criti-
cal to assisting the IRS curtail the activities
of noncompliant and unethical tax return
preparers.
Second, these regulations, in associ-
ation with new and separate regulations
under section 6109 requiring all individ-
uals who prepare all or substantially all
of a tax return for compensation to ob-
tain a PTIN, are expected to improve the
accuracy, completeness and timeliness of
tax returns because they will help the IRS
identify tax return preparers and the tax
returns and claims for refund that they
2010–44 I.R.B.588November 1, 2010

prepare, which will aidthe IRS’s oversight
of tax return preparers, and to administer
requirements intended to ensure that tax
return preparers are competent, trained,
and conform to rules of practice. Individ-
uals who prepare all or substantially all
of a tax return or claim for refund will be
required to obtain a PTIN prescribed by
the IRS and furnish the PTIN when the
tax return preparer signs (as the tax return
preparer) a tax return or claim for refund.
These individuals who are currently not
attorneys, certified public accountants, or
enrolled agents will apply for status as a
registered tax return preparer and regularly
renew that status. Given the important role
that tax return preparers play in Federal tax
administration, the IRS has a significant
interest in being able to accurately identify
tax return preparers and monitor the tax
return preparation activities of these indi-
viduals. These regulations, in conjunction
with the final PTIN regulations, will en-
able the IRS to more accurately identify
tax return preparers and improve the IRS’s
ability to associate filed tax returns and
refund claims with the responsible tax
return preparer.
Third, the proposed regulations are ex-
pected to improve the accuracy of tax re-
turns by providing that all registered tax
return preparers arepracticing before the
IRS and, therefore, are practitioners sub-
ject to the ethical standards of conduct in
Circular 230. This change will authorize
OPR to inquire into possible misconduct
and institute disciplinary proceedings re-
lating to paid preparer misconduct under
the provisions of Circular 230. A paid pre-
parer who is shown to be incompetent or
disreputable, fails to comply with the pro-
visions in Circular 230, or with intent to
defraud, willfully and knowingly misleads
or threatens a client or prospective client,
is subject to censure, suspension, or disbar-
ment from practice before the IRS, as well
as a monetary penalty.
The availability of these sanctions will
act as a deterrent to paid preparers engag-
ing in misconduct because disreputable
or incompetent paid preparers who are
suspended or disbarred from practice will
no longer be able to prepare tax returns,
claims for refund, and other documents
submitted to the IRS. Competent and eth-
icaltaxreturnpreparerswhoarewell
educated in the rules and subject matter of
their field can prevent costly errors, po-
tentially saving a taxpayer from unwanted
problems later on and relieving the IRS
from expending valuable examination and
collection resources.
Because these regulations apply to all
tax return preparers, the IRS and the Trea-
sury Department anticipate that they will
improve the accuracy of tax returns pre-
pared by all types of tax professionals. The
IRS and the Treasury Department expect
that the largest marginal improvements in
accuracy will be with regard to tax re-
turns prepared by tax return preparers who
previously were unregulated through the
Circular 230 requirements. Unlike certi-
fied public accountants, attorneys, and en-
rolled agents, unenrolled tax return prepar-
ers generally are not subject to any form
of testing, continuing professional educa-
tion, or uniform ethical standards. The
tax returns prepared by unenrolled tax re-
turn preparers may involve tax issues that
are less complicated and smaller in amount
than issues in tax returns prepared by other
types of tax professionals. In addition, in-
dividual taxpayers may face a variety of
complex tax issues, for which the advice
of a qualified tax advisor will improve the
accuracy on the return. Finally, by requir-
ing registration of all tax return preparers,
these regulations will allow the IRS to bet-
ter monitor the relative accuracy of tax re-
turns prepared by various types of tax pro-
fessionals.
Comments are requested on whether
these proposed regulations will improve
overall tax administration. In particular,
comments are specifically requested re-
garding the extent to which the improved
accuracy of tax returns will be achieved
through these regulations and whether
the testing and continuing education pro-
visions of these regulations are properly
focused on currently unregulated tax re-
turn preparers.
4.An assessment of costs anticipated from
the regulatory action
There are various costs anticipated from
this regulatory action.
Cost CategoryPreliminary Cost Estimate
COMPETENCY EXAMINATION
CoststoRegisteredTaxPreparers
•Costs t
o registered tax prepar-
ers: co
sts associated with taking
a minim
um competency exami-
natio
n (including costs of exam-
inati
on, amount of time required
to stu
dy for the exam, and any
assoc
iated travel)
The costs associated with competency examinations for registered tax preparers are
currently unknown. The competency examination has not been developed and an
examination vendor has not been selected. The cost of the examination and amount of
time required to study for it, therefore, are unknown. The costs for any associated travel
will depend on what locations the test is offered in and how close the applicant lives to
those locations. While there is currently no vendor for the examination, it is expected
that the vendor will offer the test in many locations across the United States and several
locations outside the United States.
November 1, 20105892010–44 I.R.B.

CoststoVendors
•Costs to vendors
: user fee costs
IRS will charge t
o recover the
costs to third-
party vendors who
administer the
registered tax re-
turn preparer c
ompetency exami-
nation
The vendor for the examination has not been selected so these fees cannot yet be
determined. This vendor fee will include thecost associated with fingerprinting every
applicant.
CoststoGovernment
These costs are currently unknown. The costs to the government will depend, in part, on
which functions will be performed by a vendor. Also, the vendor may recover the vendor’s
associated costs through a separate fee charged by the vendor.
•Costs to government: costs asso-
ciated with creating, administrat-
ing, and reviewing competency
exams
We therefore seek comment from the public on the costs related to competency
examination faced by both individuals and the government.
PTIN
CoststoRegis
teredTaxPreparers
•Costs to registered tax preparers:
user fees for applying for a PTIN
and renewing a PTIN
The fees regis
tered tax preparers will face for applying for a PTIN and renewing a PTIN is
$50 annually.
Given that there are an estimated 800,000 to 1,200,000 individuals who will
apply for a PTI
N, we estimate that the PTIN registration costs registered tax preparers
face will be f
rom $40 million to $60 million.
CoststoVendors
•Costs to vendors: user fee as-
sessed by third-party vendor to
administer the PTIN application
and renewal process
These fees are currently unknown because the selected vendor has not yet determined
the fee.
CoststoGovernment
•Costs to government: administra-
tion of PTIN registration program
The $50 annu
al fee is expected to recover the $59,427,633 annual costs the government
will face in
its administration of the PTIN registration program. This fee includes: (1)
the costs th
e government faces in administering registration cards orcertificates for each
registered
tax preparer, (2) costs associated with prescribing by forms, instructions, or
other guid
ance which forms and schedules registered tax preparers can sign for, and (3)
tax compli
ance and suitability checks conducted by the government. The $50 fee does not
include th
e cost of fingerprinting which we expectwill be covered in the examination fee.
RECORDKEEPING
CoststoContinuingeducationproviders
•Costs to continuing education
providers: recordkeeping require-
ments on continuing education
providers to maintain records and
educational material concerning
these programs and the individu-
als who attend them.
$38,632,500 annual costs
CoststoRegisteredTaxPreparers
•Costs to r
egistered tax preparers:
recordk
eeping requirements on
registe
red tax preparers to main-
tain rec
ords and educational ma-
terials
regarding the completion
of the re
quired qualifying contin-
uing ed
ucation credits.
$9,880,000 annual costs
2010–44 I.R.B.590November 1, 2010

CONTINUING EDUCATION
Coststoregist
eredtaxpreparers
•Costs to registered tax preparers:
completing continuing education
coursework requirement
We do not have a co
st estimate available for continuing education costs borne by the tax
preparers. We s
eek comment on the cost of continuing education.
Coststogovernment
•Costs to government: user fee for
costs to government for review,
approval and oversight of contin-
uing education, and fee for IRS
recovering these costs.
We do not have a cost estimate available forcontinuing education costs borne by the
government for its review, approval and oversight of continuing education requirements
imposed by the rule, which will be recovered by a user fee (in a future rulemaking)
assessed on continuing education providers. We therefore seek comment from the public
on the cost the government will incur.
Tax return preparers will incur costs
associated with taking a minimum com-
petency examination, including the cost
of the examination, the amount of time
required to study for the examination, and
any associated travel depending on the
proximity of tax return preparer to the test
site location. Although it is anticipated
that the vendor will offer the test at several
locations in the United States and outside
the United States, the vendor and the test
locations have not been selected at this
time. Future regulations will be proposed
that address the costs to the government
for creating, administering, and reviewing
the examination and the user fee the IRS
will charge to recover these costs. The
third-party vendor who helps administer
the registered tax return preparer com-
petency examination also will charge a
reasonable fee to take the registered tax
return preparer examination. Comments
are specifically requested on the costs
associated with the examination and the
impact these costs may have on tax return
preparers, entities that employ them or
taxpayers who use their services.
Additionally, preparers will be sub-
ject to user fees for applying for a PTIN
and renewing the PTIN. Proposed regu-
lations published in the Federal Register
on July 23, 2010, establish a $50 fee to
apply for a PTIN. A third party vendor
will administer the PTIN application
and renewal process and will charge a
fee that is independent of the user fee
charged by the government. Comments
are specifically requested on the costs
associated with applying for and renewing
a PTIN and the impact these costs may
have on tax return preparers and entities
that employ them.
Tax return preparers will incur record-
keeping and other costs associated with
taking continuing education classes and
any associated travel. Section 10.6 of
these proposed regulations requires a
registered tax return preparer to main-
tain records and educational materials
regarding the completion of the required
qualifying continuing education credits.
The IRS and the Treasury Department es-
timate that there are 650,000 practitioners
who will be affected by these recordkeep-
ing requirements and the estimated annual
burden per practitioner will vary from 30
minutes to one hour, depending on indi-
vidual circumstances, with an estimated
average of 54 minutes. The total annual
costs resulting fromthese recordkeep-
ing requirements will be $9,880,000 for
all affected practitioners. Comments are
specifically requested on the other costs
associated with taking continuing educa-
tion classes.
Continuing education providers will be
subject to recordkeeping costs and user
fees for each application for qualification
as a qualified continuing education pro-
gram. Section 10.9 of these proposed reg-
ulations requires providers of qualifying
continuing education programs to main-
tain records and educational material con-
cerning these programs and the individu-
als who attend them. Continuing educa-
tion providers also obtain approval of each
program as a qualified continuing educa-
tion program. Approximately 500 con-
tinuing education providers are currently
approved to provide continuing education
programs for the approximately 50,000 en-
rolled agents, enrolled actuaries and en-
rolled retirement plan agents who must
complete continuing education currently,
but the IRS and the Treasury Department
estimate that there are 2,250 continuing
education providers who will be affected
by these recordkeeping requirements and
the estimated annual burden per continu-
ingeducationproviderwillvaryfrom5
hours to 5,000 hours, depending on indi-
vidual circumstances, with an estimated
average of 500 hours. The estimated total
annual costs resulting from these require-
ments will be $38,632,500 for all affected
continuing education providers.
The amounts of the user fee for pro-
viding continuing education programs
are still to be determined and another
regulation addressing user fees will be
proposed. These future regulations will
address the costs to the government for
the review, approval, and oversight of
continuing education providers to ensure
their compliance with program design and
maintenance for continuing education pro-
grams and the user fee to be charged by
the IRS to recover these costs.
Currently, the cost to the tax return
preparer of any particular continuing ed-
ucation course can vary greatly from free
to hundreds of dollars. Many tax return
preparation firms either provide contin-
uing education courses at the firm to its
employees for no charge or sponsor the
cost of external courses for its employees.
Other tax return preparers, however, will
have to personally pay the cost of each
continuing education course, which gener-
ally ranges anywhere from $20 to $300 per
course depending on whether the contin-
uing education provider offers the course
in person, online, or over the phone. After
the publication of this regulatory action,
continuing education providers may in-
crease the costs of the courses in response
to the new user fee on continuing educa-
tion providers. Tax return preparers also
November 1, 20105912010–44 I.R.B.

may incur additional costs if they travel
to attend continuing education programs.
These costs may include the time to travel
to the program, transportation, lodging
and incidentals.
Entities may be directly affected by the
competency examination, PTIN and con-
tinuing education costs if they choose to
pay any or all of the user fees or expenses
for their employees. Some individuals
and entities also may lose sales and prof-
its while preparers are studying and sitting
for the examination or taking the contin-
uing education courses. Finally, individ-
ual tax return preparers and entities that
employ individuals who prepare tax re-
turns may need to close or change their
business model if all, or a majority, of
their employees cannot satisfy the nec-
essary qualifications and competency re-
quirements. The IRS and the Treasury De-
partment believe that only a small percent-
age of tax return preparers will need to
close or change their business model based
upon these proposed rules. Comments are
specifically requested on the costs associ-
ated with continuing education and the im-
pact these costs may have on tax return
preparers, continuingeducation providers,
entities that employ tax return preparers or
taxpayers who use the services of a tax re-
turn preparer.
5.An assessment of costs and benefits of
potential alternatives
The IRS and the Treasury Department
considered various alternatives in deter-
mining the best ways to implement pro-
posed changes to the regulation of tax re-
turn preparers. In order to place the costs
and benefits of the proposed rule in con-
text, E.O. 12866 requires a comparison be-
tween the proposed rule, a baseline of what
the world would look like without the pro-
posed rule, and reasonable alternatives to
the proposed rule.
i.Baseline scenario
Under a baseline scenario, the current
ethical standards in Circular 230 would
continue to apply only to attorneys, cer-
tified public accountants, enrolled agents,
and other practitioners who prepare tax re-
turns and claims for refund, but not to un-
enrolled tax return preparers. Also, any
unenrolled tax return preparer under this
baseline scenario would be able to prepare
andsigntaxreturnsand claims for refund
without passing an examination to estab-
lish competence or satisfying continuing
education requirements.
Remaining under the current rules re-
garding tax return preparers would elimi-
nate the benefits of the proposed rule de-
scribedinsectionA2ofthispreamble.For
example, under the baseline, OPR would
not be authorized to institute disciplinary
proceedings seeking sanctions against un-
enrolled tax return preparers.
Continuing to authorize any individual
to prepare tax returns and claims for refund
for compensation without passing an ex-
amination or taking continuing education
courses also would eliminate any costs as-
sociated with the proposed rule described
in section A3 of this preamble. Tax return
preparers, however, would still potentially
be subject to user fees for obtaining a PTIN
and renewing the PTINif other Treasury
Department and IRS regulations specifi-
cally prescribed those fees.
ii.Alternative one
The first alternative that was considered
is to require all tax return preparers to com-
ply with the ethical standards in Circular
230, but not to require any tax return pre-
parertopassanexaminationandcomplete
continuing education courses. Under this
alternative, the provisions of the proposed
rule clarifying that tax return preparers are
subject to the ethical rules in Circular 230
would remain intact, but all of the other
changes would not be adopted.
The benefits resulting from this alter-
native would likely be less than the rules
in the proposed regulations because tax re-
turn preparers would not need to meet a
minimum competency level and keep edu-
cated and up-to-date on Federal tax issues.
The most significant drawback to this al-
ternative is the potential loss of these ben-
efits and the benefits that result from mon-
itoring the return preparation activities of
tax return preparers generally. Under this
alternative, however, tax return preparers
would not incur the majority of costs that
exist under the proposed regulations.
iii.Alternative two
A second alternative is to require tax re-
turn preparers who are not currently autho-
rized to practice before the IRS to apply
for such authorization with the IRS, sat-
isfy annual continuingeducation require-
ments, and meet certain ethical standards,
but not to pass a minimum competency ex-
amination. This alternative is identical to
the proposed regulations other than requir-
ing certain preparers to successfully pass
an examination administered by, or under
the oversight of, the IRS.
The benefits resulting from this alterna-
tive are more comparable to the benefits
in the proposed regulations than under al-
ternative one. Nevertheless, the lack of an
examination probably would not be as ef-
fective in ensuring that tax return preparers
are qualified to obtain professional creden-
tials and practice before the IRS. Tax re-
turn preparers under this alternative would
incur all of the same costs that are in the
proposed regulations other than the costs
associated with taking the examination.
iv.Alternative three
A third alternative is to “grandfather in”
unenrolled tax return preparers who have
accurately and competently prepared tax
returns for a certain amount of years. This
alternative is the same as the rules in the
proposed regulations other than authoriz-
ing some unenrolled return preparers who
have a specified amount of prior experi-
ence preparing tax returns and claims for
refund to continue to prepare and sign re-
turns without passing a minimum compe-
tency examination.
The benefits resulting from this alter-
native would likely be less than the rules
in the proposed regulations because the
IRS and the Treasury Department believe a
minimum level of competency needs to be
assured through examination. Addition-
ally, this alternative is not as likely to pro-
mote the same taxpayer confidence in the
tax return preparation community as the
proposed regulations, which may, in turn,
influence taxpayers when choosing a tax
return preparer. Tax return preparers under
this alternative would incur all of the same
costs that are in the proposed regulations
except certain unenrolled preparers would
avoid the costs associated with taking the
examination.
Comments are specifically requested on
the benefits and costs of these alternatives
compared to the approach taken in the pro-
posed regulations.
2010–44 I.R.B.592November 1, 2010

B.Initial Regulatory Flexibility Analysis
When an agency issues a rulemaking
proposal, the Regulatory Flexibility Act
(5 U.S.C. chapter 6) (RFA) requires the
agency “to prepare and make available for
public comment an initial regulatory flex-
ibility analysis” that will “describe the im-
pact of the proposed rule on small enti-
ties.” See 5 U.S.C. 603(a). Section 605 of
the RFA provides an exception to this re-
quirement if the agency certifies that the
proposed rulemaking will not have a sig-
nificant economic impact on a substantial
number of small entities. A small entity
is defined as a small business, small non-
profit organization, or small governmental
jurisdiction. See 5 U.S.C. 601(3) through
(6). The IRS and the Treasury Depart-
ment conclude that the proposed regula-
tions, if promulgated, will impact a sub-
stantial number of small entities and the
economic impact will be significant. As a
result, an initial regulatory flexibility anal-
ysis is required.
1.Description of the reasons why the
agency action is being considered
As discussed in more detail in section
A1 of this preamble, tax return preparers
are critical to ensuring compliance with
the Federal tax laws and are an impor-
tant component in the IRS’s administra-
tion of those laws. More than eighty per-
cent of U.S. taxpayers use a tax return pre-
parer or consumer tax return preparation
software to help prepare and file tax re-
turns. Most tax return preparers are cur-
rently not subject to the ethical rules gov-
erning practice before the IRS and do not
have to pass any competency requirement
established by the government or a pro-
fessional organization. After completing
a comprehensive six-month review of tax
return preparers, which included receiving
input through public forums, solicitation
of written comments, and meetings with
advisory groups, the IRS concluded that
there was a need for increased oversight of
the tax return preparer industry. These pro-
posed regulations implement higher stan-
dards for the tax return preparer commu-
nity with the goal of significantly enhanc-
ing protections and service for taxpayers,
increasing confidence in the tax system,
and resulting in greater long-term compli-
ance with the tax laws.
2.Statement of the objectives of, and legal
basis for, the proposed rule
The principal objective of the proposed
regulations is to increase oversight of all
taxreturnpreparersandtoprovideguid-
ance to tax return preparers about the new
requirements imposed on them under Cir-
cular 230. Specifically, the proposed reg-
ulations clarify that any registered tax re-
turn preparer is a practitioner practicing
before the IRS and thereby is subject to
the ethical rules in Circular 230. The pro-
posed regulations require a tax return pre-
parer to demonstrate the necessary qualifi-
cations and competency to advise and as-
sist other persons in the preparation of all
or substantially all of a tax return or claim
for refund. The legal basis for these re-
quirements is contained in section 330 of
title 31.
3.Description and estimate (where
feasible) of the number of small entities
subject to the proposed rule
The proposed regulations affect all in-
dividuals currently working as paid prepar-
ers, individuals who want to become desig-
nated as a registered tax return preparer un-
der the new oversight rules in Circular 230,
and those small entities that are owned by
or employ paid preparers. Only individ-
uals, not businesses, can practice before
the IRS or become a registered tax return
preparer. Thus, the economic impact of
these regulations on any small entity gen-
erally will be a result of an unenrolled in-
dividual owning a small business or on a
small business that otherwise employs un-
enrolled paid return preparers. These reg-
ulations also will economically affect any
small entity that is a provider of qualifying
continuing education programs.
The appropriate NAICS codes for tax
return preparers relate to tax prepara-
tion services (NAICS code 541213) and
other accounting services (NAICS code
541219). Entities identified under these
codes are considered small under the Small
Business Administration size standards
(13 CFR 121.201) if their annual revenue
is less than $7 million or $8.5 million,
respectively. The IRS estimates that ap-
proximately seventy to eighty percent of
the individuals subject to these proposed
regulations are paid preparers operating as
or employed by small entities. The IRS
estimates that there will be 2,250 providers
of qualifying continuing education pro-
grams.
4.Description of the projected reporting,
recordkeeping and related requirements of
the proposed rule, including an estimate
of the classes of small entities that will
be subject to the requirements and the
type of professional skills necessary for
preparation of the report or record
The IRS estimates that there are approx-
imately 600,000 to 700,000 unenrolled
taxreturnpreparerswhoarecurrentlynot
attorneys, certified public accountants, or
enrolled agents and who will apply for
status as a registered tax return preparer if
these proposed rules are adopted. Under
the proposed regulations, tax return pre-
parers who become registered tax return
preparers are subject to a recordkeeping
requirement within the meaning of the
PRA because they are required to main-
tain records and educational materials
regarding the satisfaction of their quali-
fying continuing education requirements.
These recordkeeping requirements do not
require any specific professional skills
other than general recordkeeping skills
already needed to own and operate a small
business or to competently act as a tax
return preparer. It is estimated that practi-
tioners will annually spend approximately
30 minutes to one hour in maintaining the
required records, depending on individual
circumstances.
The estimated 2,250 providers of qual-
ifying continuing education programs will
be required to maintain records and educa-
tional material concerning these programs
and the persons who attended them. These
entities will need to obtain approval of the
program as a qualified continuing educa-
tion program from OPR. These continuing
education providerswill annually spend
approximately 5 minutes per attendee
maintaining the required records and ap-
proximately 30 minutes to one hour per
program completing and filing the applica-
tion for approval as a qualified continuing
education program.
As previously discussed in section A3
of this preamble, the proposed rule con-
tains a number of other compliance re-
quirements not subject to the PRA. These
include the costs tax return preparers incur
to take a competency examination, costs
November 1, 20105932010–44 I.R.B.

for continuing education classes, and other
incidental costs and user fees. Small enti-
ties may be directly affected by these costs
if they choose to pay any or all of these fees
for their employees. In some cases, small
entities may lose sales and profits while
their employees prepare for and take the
examination or participate in continuing
education courses. Finally, some small en-
tities that employ individuals who prepare
tax returns may need to alter their business
modelifasignificantnumberoftheirem-
ployees cannot satisfy the necessary qual-
ifications and competency requirements.
The IRS and the Treasury Department be-
lieve that only a small percentage of small
entities, if any, may need to cease doing
business or radically change their business
model due to these proposed rules.
5.Identification, to the extent practicable,
of all relevant Federal rules that may
duplicate, overlap or conflict with the
proposed rule
All tax return preparers currently are
subject to various civil and criminal penal-
ties under the Code. For example, sec-
tion 6694 imposes civil penalties on tax re-
turn preparers for conduct giving rise to
certain understatements of liability on a
return, while section 6695 imposes civil
penalties for, among other acts, failing to
sign or provide an identification number
on a return they prepare. Tax return pre-
parers who demonstrate a pattern of mis-
conduct may be enjoined from preparing
further returns under section 7407. Addi-
tionally, the IRS, under its broad author-
ity to regulate the filing of electronic re-
turns, requires any tax return preparer who
files returns electronically to comply with
certain rules, including requiring the elec-
tronic return originator to pass background
and credit history checks. The IRS and
the Treasury Department believe that the
proposed rules complement these existing
rules with a resulting comprehensive en-
forcement strategy that ensures that all tax
return preparers are assisting clients appro-
priately.
6.Description of any significant
alternatives to the proposed rule that
accomplish the stated objectives of
applicable statutes and which minimize
any significant economic impact on small
entities
The IRS received a large volume of
comments, through the Return Preparer
Review, on the oversight and enforcement
of tax return preparers from all interested
parties, including tax professional groups
representing large and small entities, Fed-
eral and state organizations, IRS advisory
groups, software vendors, individual re-
turn preparers, and the public. The input
received from this large and diverse com-
munity overwhelmingly expressed support
for efforts to increase the oversight of tax
return preparers, particularly for those who
are not attorneys, certified public accoun-
tants, or other individuals currently autho-
rized to practice before the IRS.
In concert with this tremendous pub-
lic support for increased IRS oversight of
tax return preparers, the IRS and the Trea-
sury Department considered various alter-
natives in determining the best ways to im-
plement proposed changes to the regula-
tion of paid preparers. As discussed in
more detail in section A4 of this preamble,
these alternatives included:
(1) Requiring all taxreturn preparers to
comply with the ethical standards in Cir-
cular 230 or a code of ethics similar to
Circular 230, but not requiring any tax re-
turn preparers to demonstrate their qualifi-
cations and competency;
(2) Requiring tax return preparers who
are not currently authorized to practice be-
fore the IRS to apply for authorization with
the IRS, satisfy annual continuing educa-
tion requirements, and meet certain ethical
standards, but not to pass a minimum com-
petency examination; and
(3) Requiring all tax return preparers
who are not currently authorized to prac-
tice before the IRS to pass a minimum
competency examination and meet other
requirements, but “grandfather in” tax re-
turn preparers who have accurately and
competently prepared tax returns for a cer-
tain number of years.
After consideration of these and other
alternatives and all of the input provided
through the public comment process, the
IRS and the Treasury Department con-
cluded that the provisions of the proposed
regulations are necessary for sound tax
administration and are the best way to in-
crease oversight of all paid preparers. The
testing requirements in the proposed rules
will ensure that tax return preparers pass
a minimum competency examination to
obtain their professional credentials, while
the continuing education requirements
will help ensure that tax return preparers
remain current on Federal tax law and con-
tinue to expand their tax knowledge. The
extension of the rules in Circular 230 to
registered tax return preparers will require
all practitioners to meet certain ethical
standards and allow the IRS to suspend or
otherwise discipline tax return preparers
who engage in unethical or disreputable
conduct. Accordingly, the implementation
of the qualification and competency stan-
dards in these proposed rules is expected
to increase taxpayer compliance and en-
sure uniform and high ethical standards
of conduct for tax return preparers. The
public comments submitted during the
Return Preparer Review overwhelmingly
supported the provisions in these proposed
rules.
Comments and Requests For Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written (a signed origi-
nal and eight (8) copies)orelectroniccom-
ments that are submitted timely to the IRS.
The IRS and the Treasury Department re-
quest comments on the substance of the
proposed regulations, as well as on the
clarity of the proposed rules and how they
can be made easier to understand. All
comments that are submitted by the public
will be made available for public inspec-
tion and copying.
A public hearing has been scheduled
for Friday, October 8, 2010, beginning at
10:00 am in Auditorium, Internal Revenue
Building, 1111 Constitution Avenue, NW,
Washington, D.C. Due to building secu-
rity procedures, visitors must enter at the
Constitution Avenue entrance. All visitors
must present photo identification to enter
the building. Because of access restric-
tions, visitors will not be admitted beyond
the immediate entrance area more than 30
minutes before the hearing starts. For in-
formation about having your name placed
on the building access list to attend the
hearing, see the FOR FURTHER INFOR-
MATION CONTACT section of this pre-
amble.
The rules of 26 CFR 601.601(a)(3) ap-
ply to the hearing. Persons who wish to
present oral comments at the hearing must
submit written or electronic comments and
2010–44 I.R.B.594November 1, 2010

an outline of the topics to be discussed and
the time to be devoted to each topic by
Monday, September 27, 2010. A period of
10 minutes will be allocated to each person
for making comments.
An agenda showing the scheduling of
the speakers will be prepared after the
deadline for receiving outlines has passed.
Copies of the agenda will be available free
of charge at the hearing.
Drafting Information
The principal author of these regula-
tions is Matthew S. Cooper of the Office
of the Associate Chief Counsel (Procedure
and Administration).
*****
Withdrawal of Notice of Proposed
Rulemaking
Accordingly, under the authority of
31 U.S.C. 330, the notice of proposed
rulemaking (REG–138637–07, 2007–2
C.B. 977) that was published in the
Federal Registeron September 26, 2007
(72 FR 54621) is withdrawn.
Proposed Amendments to the
Regulations
Accordingly, 31 CFR part 10 is pro-
posedtobeamendedtoreadasfollows:
PART 10—PRACTICE BEFORE THE
INTERNAL REVENUE SERVICE
Paragraph 1. The authority citation for
31 CFR part 10 is revised to read as fol-
lows:
Authority: Sec. 3, 23 Stat. 258, secs.
2–12, 60 Stat. 237et. seq.; 5 U.S.C. 301,
500, 551–559; 31 U.S.C. 321; 31 U.S.C.
330; Reorg. Plan No. 26 of 1950, 15 FR
4935, 64 Stat. 1280, 3 CFR, 1949–1953
Comp., p. 1017.
Par. 2. Section 10.0 is revised to read
as follows:
§10.0 Scope of part.
This part contains rules governing the
recognition of attorneys, certified public
accountants, enrolled agents, enrolled re-
tirement plan agents, registered tax return
preparers, and other persons representing
taxpayers before the Internal Revenue Ser-
vice. Subpart A of this part sets forth rules
relating to the authority to practice before
the Internal RevenueService; Subpart B of
this part prescribes the duties and restric-
tions relating to such practice; Subpart C
of this part prescribes the sanctions for vi-
olating the regulations; Subpart D of this
part contains the rules applicable to disci-
plinary proceedings; and Subpart E of this
part contains general provisions relating to
the availability of official records.
Par. 3. Section 10.2 is amended by
revising paragraphs (a)(4), (a)(5), and (b)
and adding paragraph (a)(8) to read as fol-
lows:
§10.2 Definitions.
(a) * * *
(4)Practice before the Internal Rev-
enue Servicecomprehends all matters con-
nected with a presentation to the Inter-
nal Revenue Service or any of its offi-
cers or employees relating to a taxpayer’s
rights, privileges, or liabilities under laws
or regulations administered by the Inter-
nal Revenue Service. Such presentations
include, but are not limited to, preparing
documents; filing documents; correspond-
ing and communicating with the Internal
Revenue Service; rendering written advice
with respect to any entity, transaction, plan
or arrangement, or other plan or arrange-
ment having a potential for tax avoidance
or evasion; and representing a client at
conferences, hearings, and meetings.
(5)Practitionermeans any individual
described in paragraphs (a), (b), (c), (d),
(e), or (f) of §10.3.
*****
(8)Tax return preparermeans any in-
dividual within the meaning of section
7701(a)(36) and 26 CFR 301.7701–15.
(b)Effective/applicability date.This
section is applicable 60 days after the date
that final regulations are published in the
Federal Register.
Par. 4. Section 10.3 is amended by:
1. Redesignating paragraphs (f), (g),
(h), and (i) as paragraphs (g), (h), (i), and
(j) respectively.
2. Adding new paragraph (f).
3. Revising paragraphs (d)(3) and
(e)(3), and newly designated paragraph
(j).
The revisions and additions read as fol-
lows:
§10.3 Who may practice.
*****
(d) * * *
(3) An individual who practices before
the Internal Revenue Service pursuant to
paragraph (d)(1) of this section is subject
to the provisions of this part in the same
manner as attorneys, certified public ac-
countants, enrolled agents, enrolled retire-
ment plan agents, and registered tax return
preparers.
(e) * * *
(3) An individual who practices before
the Internal Revenue Service pursuant to
paragraph (e)(1) of this section is subject
to the provisions of this part in the same
manner as attorneys, certified public ac-
countants, enrolled agents, enrolled actu-
aries, and registered tax return preparers.
(f)Registered tax return preparers.(1)
Any individual who is designated as a
registered tax return preparer pursuant to
§10.4(c) of this part who is not currently
under suspension or disbarment from prac-
tice before the Internal Revenue Service
may practice before the Internal Revenue
Service.
(2) Practice as a registered tax return
preparer is limited to preparing tax returns,
claims for refund, and other documents for
submission to the Internal Revenue Ser-
vice. A registered tax return preparer may
prepare, or assist in preparing, all or sub-
stantially all of a tax return or claim for
refund for which the registered tax return
preparer has passed the requisite written
examination. A registered tax return pre-
parer also may sign tax returns, claims for
refund, or other documents for which the
registered tax return preparer has passed
the requisite written examination. The In-
ternal Revenue Service will prescribe by
forms, instructions, or other appropriate
guidance the tax returns and claims for re-
fund, including the schedules and forms,
that a registered tax return preparer may
prepare or sign based on the written exam-
ination that the registered tax return pre-
parer has successfully completed. A reg-
istered tax return preparer may represent
taxpayers before revenue agents, customer
service representatives, or similar officers
and employees of the Internal Revenue
Service during an examination if the reg-
istered tax return preparer signed the tax
return or claim for refund for the taxable
year or period under examination. Unless
otherwise prescribed by regulation or no-
tice, this right does not permit such indi-
November 1, 20105952010–44 I.R.B.

vidual to represent the taxpayer, regardless
of the circumstances requiring representa-
tion, before appeals officers, revenue of-
ficers, Counsel or similar officers or em-
ployees of the Internal Revenue Service or
the Treasury Department. A registered tax
return preparer’s authorization to practice
under this part also does not include the au-
thority to provide tax advice to a client or
another person except as necessary to pre-
pare a tax return, claim for refund, or other
document intended to be submitted to the
Internal Revenue Service.
(3) An individual who practices before
the Internal Revenue Service pursuant to
paragraph (f)(1) of this section is subject to
the provisions of this part in the same man-
ner as attorneys, certified public accoun-
tants, enrolled agents, enrolled retirement
plan agents, and enrolled actuaries.
*****
(j)Effective/applicability date.This
section is generally applicable 60 days
after the date that final regulations are
published in the Federal Register.
Par. 5. Section 10.4 is revised to read
as follows:
§10.4 Eligibility to become an enrolled
agent, enrolled retirement plan agent, or
registered tax return preparer.
(a)Enrollment as an enrolled agent
upon examination. The Director of the
Office of Professional Responsibility may
grant enrollment as an enrolled agent to
an applicant who demonstrates special
competence in tax matters by written
examination administered by, or adminis-
tered under the oversight of, the Director
of the Office of Professional Responsi-
bility and who has not engaged in any
conduct that would justify the suspension
or disbarment of any practitioner under
the provisions of this part on the date the
application is submitted.
(b)Enrollment as a retirement plan
agent upon examination. The Director of
the Office of Professional Responsibility
may grant enrollment as an enrolled re-
tirement plan agent to an applicant who
demonstrates special competence in qual-
ified retirement plan matters by written
examination administered by, or adminis-
tered under the oversight of, the Director
of the Office of Professional Responsi-
bility and who has not engaged in any
conduct that would justify the suspension
or disbarment of any practitioner under
the provisions of this part.
(c)Designation as a registered tax
return preparer. The Director of the Of-
fice of Professional Responsibility may
designate an individual as a registered
tax return preparer provided an appli-
cant demonstrates competence in Federal
tax return preparation matters by written
examination administered by, or adminis-
tered under the oversight of, the Internal
Revenue Service, possesses a current or
otherwise valid PTIN or other prescribed
identifying number, and has not engaged
in any conduct that would justify the sus-
pension or disbarment of any practitioner
under the provisions of this part on the
date the application is submitted.
(d)Enrollment of former Internal Rev-
enue Service employees. The Director of
the Office of Professional Responsibility
may grant enrollment as an enrolled agent
or enrolled retirement plan agent to an ap-
plicant who, by virtue of past service and
technical experience in the Internal Rev-
enue Service, has qualified for such en-
rollment and who has not engaged in any
conduct that would justify the suspension
or disbarment of any practitioner under the
provisions of this part, under the following
circumstances—
(1) The former employee applies for
enrollment to the Director of the Office
of Professional Responsibility on a form
supplied by the Director of the Office of
Professional Responsibility and supplies
the information requested on the form and
such other information regarding the expe-
rience and training of the applicant as may
be relevant.
(2) An appropriate office of the Inter-
nal Revenue Service, at the request of the
Director of the Office of Professional Re-
sponsibility, will provide the Director of
the Office of Professional Responsibility
with a detailed report of the nature and
rating of the applicant’s work while em-
ployed by the Internal Revenue Service
and a recommendation whether such em-
ployment qualifies the applicant techni-
cally or otherwise for the desired autho-
rization.
(3) Enrollment as an enrolled agent
basedonanapplicant’sformeremploy-
ment with the Internal Revenue Service
may be of unlimited scope or it may be
limited to permit the presentation of mat-
ters only of the particular specialty or only
before the particular unit or division of
the Internal Revenue Service for which
the applicant’s former employment has
qualified the applicant. Enrollment as an
enrolled retirement plan agent based on an
applicant’s former employment with the
Internal Revenue Service will be limited
to permit the presentation of matters only
with respect to qualified retirement plan
matters.
(4) Application for enrollment as an en-
rolled agent or enrolled retirement plan
agent based on an applicant’s former em-
ployment with the Internal Revenue Ser-
vice must be made within three years from
the date of separation from such employ-
ment.
(5) An applicant for enrollment as an
enrolled agent who is requesting such
enrollment based on former employment
with the Internal Revenue Service must
have had a minimum of five years con-
tinuous employment with the Internal
Revenue Service during which the appli-
cant must have been regularly engaged in
applying and interpreting the provisions
of the Internal Revenue Code and the reg-
ulations relating to income, estate, gift,
employment, or excise taxes.
(6) An applicant for enrollment as an
enrolled retirement plan agent who is re-
questing such enrollment based on former
employment with the Internal Revenue
Servicemusthavehadaminimumoffive
years continuous employment with the
Internal Revenue Service during which
the applicant must have been regularly
engaged in applying and interpreting the
provisions of the Internal Revenue Code
and the regulations relating to qualified
retirement plan matters.
(7) For the purposes of paragraphs
(d)(5) and (d)(6) of this section, an aggre-
gate of 10 or more years of employment in
positions involving the application and in-
terpretation of the provisions of the Inter-
nal Revenue Code, at least three of which
occurred within the five years preceding
the date of application, is the equivalent of
five years continuous employment.
(e)Natural persons. Enrollment or au-
thorization to practice may be granted only
to natural persons.
(f)Effective/applicability date.This
section is applicable 60 days after the date
that final regulations are published in the
Federal Register.
2010–44 I.R.B.596November 1, 2010

Par. 6. Section 10.5 is revised to read
as follows:
§10.5 Application to become an enrolled
agent, enrolled retirement plan agent, or
registered tax return preparer.
(a)Form; address. An applicant to be-
come an enrolled agent, enrolled retire-
ment plan agent, or registered tax return
preparer must apply as required by forms
or procedures established and published
by the Internal Revenue Service, including
proper execution of required forms under
oath or affirmation. The address on the ap-
plication will be theaddress under which
a successful applicant is enrolled or regis-
tered and is the address to which all corre-
spondence concerningenrollment or regis-
tration will be sent.
(b)Fee. A reasonable nonrefundable
fee will be charged for each application
filedwiththeDirectoroftheOfficeofPro-
fessional Responsibility. See 26 CFR part
300.
(c)Additional information; examina-
tion. The Director of the Office of Pro-
fessional Responsibility, as a condition to
consideration of an application, may re-
quire the applicant to file additional infor-
mation and to submit to any written or oral
examination under oath or otherwise. The
Director of the Office of Professional Re-
sponsibility will, on written request filed
by the applicant, afford such applicant the
opportunity to be heard with respect to his
or her application for enrollment.
(d)Compliance and suitability checks.
(1) As a condition to consideration of an
application, the Internal Revenue Service
may conduct a Federal tax compliance
check and suitabilitycheck. The tax com-
pliance check will be limited to an inquiry
regarding whether anapplicant has filed
all required individual or business tax re-
turns and whether the applicant has failed
to pay, or make proper arrangement with
the Internal Revenue Service for payment
of, any Federal tax debts. The suitability
check will be limited to an inquiry regard-
ing whether an applicant has engaged in
any conduct that would justify suspension
or disbarment of any practitioner under the
provisions of this part on the date the ap-
plication is submitted, including whether
the applicant has engaged in disreputable
conduct as defined in §10.51. The appli-
cation will be denied only if the results
of the compliance or suitability check are
sufficient to establish that the practitioner
engaged in conduct subject to sanctions
under §10.51 and §10.52.
(2) If the applicant does not pass the tax
compliance or suitability check, the appli-
cant will not be issued an enrollment or
registration card or certificate pursuant to
§10.6(b) of this part, and will be provided
information regarding the denial of the ap-
plication and the rules on appealing the
denial. An applicant who is initially de-
nied enrollment or registration for failure
to pass a tax compliance check may reap-
ply after the initial denial if the applicant
becomes current with respect to the appli-
cant’s tax liabilities.
(e)Temporary recognition. On receipt
of a properly executed application, the
Director of the Office of Professional
Responsibility may grant the applicant
temporary recognition to practice pending
a determination as to whether status as an
enrolled agent, enrolled retirement plan
agent, or registered tax return preparer
should be granted. Temporary recognition
will be granted only in unusual circum-
stances and it will not be granted, in any
circumstance, if the application is not reg-
ular on its face, if the information stated in
the application, if true, is not sufficient to
warrant granting the application to prac-
tice, or if there is any information before
theDirectoroftheOfficeofProfessional
Responsibility indicating that the state-
ments in the application are untrue or that
the applicant would not otherwise qual-
ify to become an enrolled agent, enrolled
retirement plan agent, or registered tax
return preparer. Issuance of temporary
recognition does not constitute either a
designation or a finding of eligibility as
an enrolled agent, enrolled retirement plan
agent, or registered tax return preparer,
and the temporary recognition may be
withdrawn at any time by the Director of
the Office of Professional Responsibility.
(f)Appeal from denial of application.
The Director of the Office of Professional
Responsibility must inform the applicant
in writing as to the reason(s) for any de-
nial of an application. The applicant may,
within 30 days after receipt of the notice of
denial of the application, file a written ap-
peal of the denial with the Secretary of the
Treasury or delegate. A decision on the ap-
peal will be rendered by the Secretary, or
delegate, as soon as practicable.
(g)Effective/applicability date.This
section is applicable to applications re-
ceived 60 days after the date that final reg-
ulations are published in the Federal Reg-
ister.
Par. 7. Section 10.6 is revised to read
as follows:
§10.6 Term and renewal of status as an
enrolled agent, enrolled retirement plan
agent, or registered tax return preparer.
(a)Term. Each individual authorized to
practice before the Internal Revenue Ser-
vice as an enrolled agent, enrolled retire-
ment plan agent, or registered tax return
preparer will be accorded active enroll-
ment or registration status subject to re-
newal of enrollment or registration as pro-
vided in this part.
(b)Enrollment or registration card or
certificate. The Director of the Office of
Professional Responsibility will issue an
enrollment or registration card or certifi-
cate to each individual whose application
to practice before the Internal Revenue
Service is approved. Each card or certifi-
cate will be valid for the period stated on
the card or certificate. An enrolled agent
or registered tax return preparer may not
practice before the Internal Revenue Ser-
vice if the card or certificate is not current
or otherwise valid. The card or certificate
is in addition to any certificate that may be
issued to each attorney, certified public ac-
countant, enrolled agent, or registered tax
return preparer who obtains a preparer tax
identification number.
(c)Change of address. An enrolled
agent, enrolled retirement plan agent, or
registered tax return preparer must send
notification of any change of address to
the address specified by the Director of
the Office of Professional Responsibility
within 60 days of the change of address.
This notification must include the enrolled
agent’s, enrolled retirement plan agent’s,
or registered tax return preparer’s name,
prior address, new address, tax identifi-
cation number(s) (including preparer tax
identification number), and the date the
change of address became effective. Un-
less this notification is sent, the address
for purposes of any correspondence from
the Director of the Office of Professional
Responsibility shall be the address as re-
flected on the practitioner’s most recent
application for enrollment or registration,
November 1, 20105972010–44 I.R.B.

or application for renewal of enrollment or
registration.
(d)Renewal—(1)In general.Designa-
tion as an enrolled agent, enrolled retire-
ment plan agent, or registered tax return
preparer must be renewed periodically to
maintain active status to practice before
the Internal Revenue Service. Failure to
receive notification from the Director of
the Office of Professional Responsibility
of the renewal requirement will not be jus-
tification for the individual’s failure to sat-
isfy this requirement.
(2)Renewal period for enrolled agents.
(i) All individuals enrolled to practice
before the Internal Revenue Service who
have a social security number or tax
identification number that ends with the
numbers0,1,2,or3,exceptforthose
individuals who received their initial en-
rollment after November 1, 2003, must
apply for renewal between November 1,
2003, and January 31, 2004. The renewal
will be effective April 1, 2004.
(ii) All individuals enrolled to practice
before the Internal Revenue Service who
have a social security number or tax iden-
tification number that ends with the num-
bers 4, 5, or 6, except for those individuals
who received their initial enrollment after
November 1, 2004, must apply for renewal
between November 1, 2004, and January
31, 2005. The renewal will be effective
April 1, 2005.
(iii) All individuals enrolled to practice
before the Internal Revenue Service who
have a social security number or tax iden-
tification number that ends with the num-
bers 7, 8, or 9, except for those individ-
uals who received their initial enrollment
after November 1, 2005, must apply for
renewal between November 1, 2005, and
January 31, 2006. The renewal will be
effective April 1, 2006.
(iv) Thereafter, applications for renewal
as an enrolled agent will be required be-
tween November 1 and January 31 of ev-
ery subsequent third year as specified in
paragraph (d)(2)(i), (d)(2)(ii), or (d)(2)(iii)
of this section according to the last number
of the individual’s social security number
or tax identification number. Those indi-
viduals who receive initial enrollment as
an enrolled agent after November 1 and be-
fore April 2 of the applicable renewal pe-
riod will not be required to renew their en-
rollment before the first full renewal pe-
riod following the receipt of their initial
enrollment.
(3)Renewal period for enrolled retire-
ment plan agents. Applications for re-
newal as an enrolled retirement plan agent
will be required of all enrolled retirement
plan agents between April 1 and June 30 of
every third year period subsequent to their
initial enrollment.
(4)Renewal period for registered tax re-
turn preparers. Applications for renewal
as a registered tax return preparer will be
required of all registered tax return prepar-
ers as prescribed in forms, instructions, or
other appropriate guidance.
(5)Notification of renewal. After re-
view and approval, the Director of the Of-
fice of Professional Responsibility will no-
tify the individual of the renewal and will
issue the individuala card or certificate
evidencing current status as an enrolled
agent, enrolled retirement plan agent, or
registered tax return preparer.
(6)Fee. A reasonable nonrefundable
fee will be charged for each application
for renewal filed with the Director of the
Office of ProfessionalResponsibility. See
26 CFR part 300.
(7)Forms. Forms required for renewal
may be obtained by sending a written
request to the Director of the Office of
Professional Responsibility, Internal Rev-
enue Service, 1111 Constitution Avenue,
NW, Washington, DC 20224 or from such
other source as the Internal Revenue Ser-
vice will publish in the Internal Revenue
Bulletin (see 26 CFR 601.601(d)(2)(ii)(b))
and on the Internal Revenue Service web-
page (www.irs.gov).
(e)Condition for renewal: continuing
education. In order to qualify for renewal
as an enrolled agent, enrolled retirement
plan agent, or registered tax return pre-
parer, an individual must certify, in the
manner prescribed by the Internal Revenue
Service, that the individual has satisfied
the required continuing education require-
ments.
(1)Definitions. For purposes of this
section—
(i)Enrollment yearmeans January 1 to
December 31 of each year of an enrollment
cycle.
(ii)Enrollment cyclemeans the three
successive enrollment years preceding the
effective date of renewal.
(iii)Registration yearmeans each
12-month period the registered tax return
preparer is authorized to practice before
the Internal Revenue Service.
(iv) Theeffective date of renewalis the
first day of the fourth month following the
close of the period for renewal described
in paragraph (d) of this section.
(2)For renewed enrollment as an en-
rolled agent or enrolled retirement plan
agent—(i)Requirements for enrollment
cycle. A minimum of 72 hours of contin-
uing education credit, including six hours
of ethics or professional conduct, must be
completed during each enrollment cycle.
(ii)Requirements for enrollment year.
A minimum of 16 hours of continuing
education credit, including two hours of
ethics or professional conduct, must be
completed during each enrollment year of
an enrollment cycle.
(iii)Enrollment during enrollment cy-
cle—(A)In general. Subject to paragraph
(e)(2)(iii)(B) of this section, an individual
who receives initial enrollment during an
enrollment cycle must complete two hours
of qualifying continuing education credit
for each month enrolled during the enroll-
ment cycle. Enrollment for any part of a
month is considered enrollment for the en-
tire month.
(B)Ethics. An individual who receives
initial enrollment during an enrollment cy-
cle must complete two hours of ethics or
professional conduct for each enrollment
year during the enrollment cycle. Enroll-
ment for any part of an enrollment year is
considered enrollment for the entire year.
(3)Requirements for renewal as a reg-
istered tax return preparer.Aminimumof
15 hours of continuing education credit, in-
cluding two hours of ethics or professional
conduct, three hours of Federal tax law up-
dates, and 10 hours of Federal tax law top-
ics, must be completed during each regis-
tration year.
(f)Qualifying continuing educa-
tion—(1)General—(i)Enrolled agents.
To qualify for continuing education credit
for an enrolled agent, a course of learning
must—
(A) Be a qualifying continuing edu-
cation program designed to enhance pro-
fessional knowledge in Federal taxation
or Federal tax related matters (programs
comprised of current subject matter in
Federal taxation or Federal tax related
matters, including accounting, tax return
preparation software,taxation, or ethics);
and
2010–44 I.R.B.598November 1, 2010

(B) Be a qualifying continuing educa-
tion program consistent with the Internal
Revenue Code and effective tax adminis-
tration.
(ii)Enrolled retirement plan agents.To
qualify for continuing education credit for
an enrolled retirement plan agent, a course
of learning must—
(A) Be a qualifying continuing educa-
tion program designed to enhance profes-
sional knowledge in qualified retirement
plan matters; and
(B) Be a qualifying continuing educa-
tion program consistent with the Internal
Revenue Code and effective tax adminis-
tration.
(iii)Registered tax return preparers.To
qualify for continuing education credit for
a registered tax return preparer, a course of
learning must—
(A) Be a qualifying continuing edu-
cation program designed to enhance pro-
fessional knowledge in Federal taxation
or Federal tax related matters (programs
comprised of current subject matter in
Federal taxation or Federal tax related
matters, including accounting, tax return
preparation software, taxation, or ethics);
and
(B) Be a qualifying continuing educa-
tion program consistent with the Internal
Revenue Code and effective tax adminis-
tration.
(2)Qualifying programs—(i)Formal
programs. A formal program qualifies as
a continuing education program if it—
(A) Requires attendance and provides
each attendee with a certificate of atten-
dance;
(B) Requires that the program be con-
ducted by a qualifiedinstructor, discus-
sion leader, or speaker (in other words, a
person whose background, training, edu-
cation, and experience is appropriate for
instructing or leading a discussion on the
subject matter of the particular program);
(C) Provides or requires a written out-
line, textbook, or suitable electronic edu-
cational materials; and
(D) Is approved as a qualified continu-
ing education program by the Director of
the Office of Professional Responsibility
pursuant to §10.9.
(ii)Correspondence or individual study
programs (including taped programs).
Qualifying continuingeducation programs
include correspondence or individual
study programs that are conducted by con-
tinuing education providers and completed
on an individual basis by the enrolled in-
dividual. The allowable credit hours for
such programs will be measured on a basis
comparable to the measurement of a sem-
inar or course for credit in an accredited
educational institution. Such programs
qualify as continuing education programs
only if they—
(A) Require registration of the par-
ticipants by the continuing education
provider;
(B) Provide a means for measuring suc-
cessful completion by the participants (for
example, a written examination), includ-
ing the issuance of a certificate of comple-
tion by the continuing education provider;
(C) Provide a written outline, textbook,
or suitable electronic educational materi-
als; and
(D) Are approved as a qualified contin-
uing education program by the Director of
the Office of Professional Responsibility
pursuant to §10.9.
(iii)Serving as an instructor, discussion
leader or speaker. (A) One hour of contin-
uing education credit will be awarded for
each contact hour completed as an instruc-
tor, discussion leader, or speaker at an edu-
cational program that meets the continuing
education requirements of paragraph (f) of
this section.
(B) A maximum of two hours of con-
tinuing education credit will be awarded
for actual subject preparation time for each
contact hour completed as an instructor,
discussion leader, or speaker at such pro-
grams. It is the responsibility of the in-
dividual claiming such credit to maintain
records to verify preparation time.
(C) The maximum credit for instruction
and preparation may not exceed four hours
annually of the continuing education re-
quirement.
(D) An instructor, discussion leader, or
speaker who makes more than one presen-
tation on the same subject matter during
an enrollment cycle or registration year,
will receive continuing education credit
for only one such presentation for the en-
rollment cycle or registration year.
(3)Periodic examination. (i) Enrolled
individuals may establish eligibility for re-
newal of enrollment for any enrollment cy-
cle by—
(A) Achieving a passing score on each
part of the Special Enrollment Examina-
tion administered under this part during the
three year period prior to renewal; and
(B) Completing a minimum of 16 hours
of qualifying continuing education during
the last year of an enrollment cycle.
(ii)Coursesdesignedtohelpanappli-
cant prepare for the examination specified
in §10.4 are considered basic in nature and
are not qualifying continuing education.
(g)Measurement of continuing educa-
tion coursework. (1) All continuing edu-
cation programs will be measured in terms
of contact hours. The shortest recognized
program will be one contact hour.
(2) A contact hour is 50 minutes of con-
tinuous participation in a program. Credit
is granted only for a full contact hour,
which is 50 minutes or multiples thereof.
For example, a program lasting more than
50 minutes but less than 100 minutes will
count as only one contact hour.
(3) Individual segments at continous
conferences, conventions and the like will
be considered one total program. For
example, two 90-minute segments (180
minutes) at a continuous conference will
count as three contact hours.
(4) For university or college courses,
each semester hour credit will equal 15
contact hours and a quarter hour credit will
equal 10 contact hours.
(h)Recordkeeping requirements.(1)
Each individual applying for renewal must
retain for a period of four years follow-
ing the date of renewal the information re-
quired with regard to qualifying continu-
ing education credit hours. Such informa-
tion includes—
(i) The name of the sponsoring organi-
zation;
(ii) The location of the program;
(iii) The title of the program, quali-
fied program number, and description of
its content;
(iv) Written outlines, course syllibi,
textbook, and/or electronic materials pro-
vided or required for the course;
(v) The dates attended;
(vi) The credit hours claimed;
(vii) The name(s) of the instructor(s),
discussion leader(s), or speaker(s), if ap-
propriate; and
(viii) The certificate of completion
and/or signed statement of the hours of
attendance obtained from the continuing
education provider.
(2) To receive continuing education
credit for service completed as an in-
November 1, 20105992010–44 I.R.B.

structor, discussion leader, or speaker, the
following information must be maintained
for a period of four years following the
date of renewal —
(i) The name of the sponsoring organi-
zation;
(ii) The location of the program;
(iii) The title of the program and copy
of its content;
(iv) The dates of the program; and
(v) The credit hours claimed.
(i)Waivers. (1) Waiver from the con-
tinuing education requirements for a given
period may be granted by the Director of
the Office of Professional Responsibility
for the following reasons—
(i) Health, which prevented compliance
with the continuing education require-
ments;
(ii) Extended active military duty;
(iii) Absence from the United States for
an extended period of time due to employ-
ment or other reasons, provided the indi-
vidual does not practice before the Internal
Revenue Service during such absence; and
(iv) Other compelling reasons, which
will be considered on a case-by-case basis.
(2) A request for waiver must be ac-
companied by appropriate documentation.
The individual is required to furnish any
additional documentation or explanation
deemed necessary by the Director of the
Office of Professional Responsibility.
Examples of appropriate documentation
could be a medical certificate or military
orders.
(3) A request for waiver must be filed
no later than the last day of the renewal
application period.
(4) If a request for waiver is not ap-
proved, the individual will be placed in in-
active status, so notified by the Director of
the Office of Professional Responsibility,
and placed on a roster of inactive enrolled
agents, enrolled retirement plan agents, or
registered tax return preparers.
(5) If a request for waiver is approved,
the individual will be notified and issued a
card or certificate evidencing renewal.
(6) Those who are granted waivers are
required to file timely applications for re-
newal of enrollment or registration.
(j)Failure to comply. (1) Compliance
by an individual with the requirements of
this part is determined by the Director of
the Office of Professional Responsibility.
An individual who fails to meet the contin-
uing education and fee requirements of el-
igibility for renewal will be notified by the
Director of the Office of Professional Re-
sponsibility. The notice will state the ba-
sis for the determination of noncompliance
and will provide the individual an oppor-
tunity to furnish the requested information
in writing relating to the matter within 60
days of the date of the notice. Such infor-
mation will be considered by the Director
of the Office of Professional Responsibil-
ity in making a final determination as to
eligibility for renewal. The Director of the
Office of Professional Responsibility must
inform the individual as to the reason(s)
for any denial of a renewal. The individ-
ual may, within 30 days after receipt of the
notice of denial of renewal, file a written
appeal of the denial with the Secretary or
delegate. A decision on the appeal will be
rendered by the Secretary, or delegate, as
soon as practicable.
(2) The Director of the Office of Profes-
sional Responsibility may require any in-
dividual to provide copies of any records
required to be maintained under this part.
The Director of the Office of Professional
Responsibility may disallow any continu-
ing education hours claimed if the individ-
ual fails to comply with this requirement.
(3) An individual who has not filed a
timely application for renewal, who has
not made a timely response to the notice of
noncompliance with the renewal require-
ments, or who has not satisfied the re-
quirements of eligibility for renewal will
be placed on a roster of inactive enrolled
individuals or inactive registered individ-
uals. During this time, the individual will
be ineligible to practice before the Internal
Revenue Service.
(4) Individuals placed in inactive sta-
tus and individuals ineligible to practice
before the Internal Revenue Service may
not state or imply that they are eligible to
practice before the Internal Revenue Ser-
vice, or use the terms enrolled agent, en-
rolled retirement plan agent, or registered
tax return preparer, the designations “EA”
or “ERPA” or other form of reference to
eligibility to practice before the Internal
Revenue Service.
(5) An individual placed in inactive sta-
tus may be reinstated to an active status by
filing an application for renewal and pro-
viding evidence of the completion of all re-
quired continuing education hours for the
enrollment cycle or registration year. Con-
tinuing education credit under this para-
graph (k)(5) may not be used to satisfy
the requirements of the enrollment cycle
or registration year in which the individual
has been placed back on the active roster.
(6) An individual placed in inactive sta-
tus must file an application for renewal
and satisfy the requirements for renewal as
set forth in this section within three years
of being placed in inactive status. Oth-
erwise, the name of such individual will
be removed from the inactive status roster
and the individual’s status as an enrolled
agent, enrolled retirement plan agent, or
registered tax return preparer will termi-
nate. Future eligibility for active status
must then be reestablished by the individ-
ual as provided in this section.
(7) Inactive status is not available to an
individual who is the subject of a pend-
ing disciplinary matter before the Office of
Professional Responsibility.
(k)Inactive retirement status.Anindi-
vidual who no longer practices before the
Internal Revenue Service may request to
be placed in an inactive retirement status at
any time and such individual will be placed
in an inactive retirement status. The in-
dividual will be ineligible to practice be-
fore the Internal Revenue Service. An in-
dividual who is placed in an inactive re-
tirement status may be reinstated to an ac-
tive status by filing an application for re-
newal and providing evidence of the com-
pletion of the required continuing educa-
tion hours for the enrollment cycle or reg-
istration year. Inactive retirement status is
not available to an individual who is inel-
igible to practice before the Internal Rev-
enue Service or who is the subject of a dis-
ciplinary matter in the Office of Profes-
sional Responsibility.
(l)Renewal while under suspension or
disbarment. An individual who is ineligi-
ble to practice before the Internal Revenue
Service by virtue of disciplinary action by
the Director of the Office of Professional
Responsibility is required to conform to
the requirements for renewal of enrollment
or registration before the individual’s eligi-
bility is restored.
(m)Verification. The Director of the
Office of Professional Responsibility may
review the continuing education records
of an enrolled agent, enrolled retirement
plan agent, or registered tax return preparer
in any manner deemed appropriate to de-
termine compliance with the requirements
2010–44 I.R.B.600November 1, 2010

and standards for renewal as provided in
paragraph (f) of this section.
(n)Enrolled actuaries. The enrollment
and renewal of enrollment of actuaries au-
thorized to practice under paragraph (d) of
§10.3 are governed by the regulations of
the Joint Board for the Enrollment of Ac-
tuaries at 20 CFR 901.1 through 901.72.
(o)Effective/applicability date.This
section is applicable to enrollment or regis-
tration effective 60 days after the date that
final regulations are published in the Fed-
eral Register.
Par.8.Section10.7isamendedby:
1. Revising the section heading.
2. Removing paragraphs (c)(1)(viii)
and (e).
3. Redesignating paragraphs (f) and (g)
as paragraphs (e) and (f).
4. Revising newly designated para-
graphs (e) and (f).
The revisions read as follows:
§10.7 Representing oneself; participating
in rulemaking; limited practice; and
special appearances.
*****
(e)Fiduciaries. For purposes of this
part, a fiduciary (for example, a trustee, re-
ceiver, guardian, personal representative,
administrator, or executor) is considered to
be the taxpayer and not a representative of
the taxpayer.
(f)Effective/applicability date.This
section is applicable 60 days after the date
that final regulations are published in the
Federal Register.
Par. 9. Section 10.8 is revised to read
as follows:
§10.8 Return preparation and application
of rules to other individuals.
(a)Preparing tax returns and furnish-
ing information. Any individual may pre-
pare or assist with the preparation of a tax
return or claim for refund (provided the in-
dividual prepares less than substantially all
of the tax return or claim for refund), ap-
pear as a witness for the taxpayer before
the Internal Revenue Service, or furnish
information at the request of the Internal
Revenue Service or any of its officers or
employees.
(b)Application of rules to other individ-
uals. Any individual who for compensa-
tion prepares, or assists in the preparation
of, all or a substantial portion of a docu-
ment pertaining to any taxpayer’s tax lia-
bility for submission to the Internal Rev-
enue Service is subject to the duties and
restrictions relating to practice in subpart
B, as well as subject to the sanctions for
violation of the regulations in subpart C.
Unless otherwise a practitioner, however,
an individual may not prepare, or assist in
the preparation of, all or substantially all
of a tax return or claim for refund, or sign
tax returns and claims for refund. For pur-
poses of this paragraph, an individual de-
scribed in 26 CFR 301.7701–15(f) is not
treated as having prepared all or a substan-
tial portion of the document by reason of
such assistance.
(c)Effective/applicability date.This
section is applicable 60 days after the date
that final regulations are published in the
Federal Register.
Par. 10. Section 10.9 is added to sub-
part A to read as follows:
§10.9 Continuing education programs.
(a)Continuingeducation
providers—(1)In general. Continuing
education providersare those responsible
for presenting continuing education pro-
grams. A continuing education provider
must—
(i) Be an accredited educational institu-
tion;
(ii) Be recognized for continuing educa-
tion purposes by the licensing body of any
State, territory, or possession of the United
States, including a Commonwealth, or the
District of Columbia; or
(iii) Be recognized by the Director of
the Office of Professional Responsibility
as one who offers a qualified continuing
education program.
(2)Qualification of continuing edu-
cation program. A continuing education
provider must obtain the approval of the
Director of the Office of Professional Re-
sponsibility for each program to be qual-
ified as a qualified continuing education
program in the time and manner required
by forms or procedures established and
published by the Internal Revenue Ser-
vice.
(3)Requirements for qualified contin-
uing education program. A continuing
education provider must ensure the qual-
ified continuing education program com-
plies with all the following requirements—
(i) Programs must be developed by in-
dividual(s) qualified in the subject matter;
(ii) Program subject matter must be cur-
rent;
(iii) Instructors, discussion leaders, and
speakers must be qualified with respect to
program content;
(iv) Programs must include some means
for evaluation by the Director of the Office
of Professional Responsibility of technical
content and presentation;
(v) Certificates of completion bearing
a current qualified continuing education
program number issued by the Director of
the Office of Professional Responsibility
must be provided to the participants who
successfully complete the program; and
(vi) Records must be maintained by the
continuing education providertoverifythe
participants who attended and completed
the program for a period of four years fol-
lowing completion of the program. In the
case of continuous conferences, conven-
tions, and the like, records must be main-
tained to verify completion of the program
and attendance by each participant at each
segment of the program.
(4)Fees
. Reasonable nonrefundable
fees may be charged for each qualification
of a qualified continuing education pro-
gram. See 26 CFR part 300.
(b)Failure to comply. Compliance by
a continuing education provider with the
requirements of this part is determined by
the Director of the Office of Professional
Responsibility. A continuing education
provider who fails to meet the require-
ments of this part will be notified by the
Director of the Office of Professional Re-
sponsibility. The notice will state the ba-
sis for the determination of noncompliance
and will provide the continuing education
provider an opportunity to furnish the re-
quested information in writing relating to
the matter within 60 days of the date of the
notice. Such information will be consid-
ered by the Director of the Office of Pro-
fessional Responsibility in making a deter-
mination as to the qualification of a pro-
gram as a qualified continuing education
program. The Director of the Office of
Professional Responsibility must inform
the continuing education provider as to the
reason(s) for any denial of a program as
a qualified continuing education program.
The continuing education provider may,
within 30 days after receipt of the notice of
denial, file a written appeal with the Secre-
November 1, 20106012010–44 I.R.B.

tary or delegate. A decision on the appeal
will be rendered by the Secretary or dele-
gate, as soon as practicable.
(c)Effective/applicability date.This
section is applicable 60 days after the date
that final regulations are published in the
Federal Register.
Par. 11. Section 10.30 is amended by
revising paragraphs (a)(1) and (e) to read
as follows:
§10.30 Solicitation.
(a)Advertising and solicitation restric-
tions. (1) A practitioner may not, with re-
spect to any Internal Revenue Service mat-
ter, in any way use or participate in the
use of any form or public communication
or private solicitation containing a false,
fraudulent, or coercive statement or claim;
or a misleading or deceptive statement or
claim. Enrolled agents, enrolled retire-
ment plan agents, or registered tax return
preparers, in describing their professional
designation, may not utilize the term “cer-
tified” or imply an employer/employee re-
lationship with the Internal Revenue Ser-
vice. Examples of acceptable descriptions
for enrolled agents are “enrolled to rep-
resent taxpayers before the Internal Rev-
enue Service,” “enrolled to practice before
the Internal Revenue Service,” and “admit-
ted to practice before the Internal Revenue
Service.” Similarly, examples of accept-
able descriptions for enrolled retirement
plan agents are “enrolled to represent tax-
payers before the Internal Revenue Service
as a retirement plan agent” and “enrolled to
practice before the Internal Revenue Ser-
vice as a retirement plan agent.” An exam-
ple of an acceptable description for regis-
tered tax return preparers is “designated as
a registered tax return preparer with the In-
ternal Revenue Service.”
*****
(e)Effective/applicability date.This
section is applicable 60 days after the date
that final regulations are published in the
Federal Register.
Par. 12. Section 10.34 is amended by:
1. Adding paragraph (a).
2. Redesignating paragraph (f) as para-
graph (e).
3. Revising newly designated para-
graph (e).
The revisions read as follows:
§10.34 Standards with respect to tax
returns and documents, affidavits and
other papers.
(a)Tax returns. (1) A practitioner may
not willfully, recklessly, or through gross
incompetence—
(i) Sign a tax return or claim for refund
that the practitioner knows or reasonably
should know contains a position that—
(A) Lacks a reasonable basis;
(B) Is an unreasonable position as
described in section 6694(a)(2) of the In-
ternal Revenue Code (Code) (including
the related regulations and other published
guidance); or
(C) Is a willful attempt by the practi-
tioner to understate the liability for tax or a
reckless or intentional disregard of rules or
regulations by the practitioner as described
in section 6694(b)(2) of the Code (includ-
ing the related regulations and other pub-
lished guidance).
(ii) Advise a client to take a position on
a tax return or claim for refund, or prepare
a portion of a tax return or claim for refund
containing a position, that—
(A) Lacks a reasonable basis;
(B) Is an unreasonable position as de-
scribed in section 6694(a)(2) of the Code
(including the related regulations and other
published guidance); or
(C) Is a willful attempt by the practi-
tioner to understate the liability for tax or a
reckless or intentional disregard of rules or
regulations by the practitioner as described
in section 6694(b)(2) of the Code (includ-
ing the related regulations and other pub-
lished guidance).
(2) A pattern of conduct is a factor that
will be taken into account in determin-
ing whether a practitioner acted willfully,
recklessly, or through gross incompetence.
*****
(e)Effective/applicability date. Para-
graph (a) of this section is applicable for
returns or claims for refund filed, or ad-
vice provided, 60 days after the date that fi-
nal regulations are published in the Federal
Register. Paragraphs (b) through (d) of this
section are applicable to tax returns, docu-
ments, affidavits, and other papers filed on
or after September 26, 2007.
Par. 13. Section 10.36 is amended by:
1. Redesignating paragraph (b) as para-
graph (c).
2. Adding new paragraph (b).
3. Revising newly designated para-
graph (c).
The addition and revisions read as fol-
lows:
§10.36 Procedures to ensure compliance.
*****
(b)Requirements for tax returns and
other documents. Any practitioner who
has (or practitioners who have or share)
principal authority and responsibility for
overseeing a firm’s practice of preparing
tax returns, claims for refunds, or other
documents for submission to the Internal
Revenue Service must take reasonable
steps to ensure that the firm has adequate
procedures in effect for all members, as-
sociates, and employees for purposes of
complying with Circular 230. Any practi-
tioner who has (or practitioners who have
or share) this principal authority will be
subject to discipline for failing to comply
with the requirements of this paragraph
if—
(1) The practitioner through willful-
ness, recklessness, or gross incompetence
does not take reasonable steps to ensure
that the firm has adequate procedures to
comply with Circular 230, and one or more
individuals who are members of, associ-
ated with, or employed by, the firm are,
or have, engaged in a pattern or practice,
in connection with their practice with the
firm, of failing to comply with Circular
230; or
(2) The practitioner knows or should
know that one or more individuals who are
members of, associated with, or employed
by, the firm are, or have, engaged in a pat-
tern or practice, in connection with their
practice with the firm, who does not com-
ply with Circular 230, and the practitioner,
through willfulness, recklessness, or gross
incompetence fails to take prompt action to
correct the noncompliance.
(c)Effective/applicability date.This
section is applicable 60 days after the date
that final regulations are published in the
Federal Register.
Par. 14. Section 10.51 is amended
by adding paragraphs (a)(16), (a)(17), and
(a)(18) and revising paragraph (b) to read
as follows:
§10.51 Incompetence and disreputable
conduct.
(a) * * *
2010–44 I.R.B.602November 1, 2010

(16) Willfully failing to file on mag-
netic or other electronic media a tax return
prepared by the practitioner when the prac-
titionerisrequiredtodosobytheFederal
tax laws unless the failure is due to reason-
able cause and not due to willful neglect.
(17) Willfully preparing all or substan-
tially all of, or signing, a tax return or claim
for refund when the practitioner does not
possess a current or otherwise valid pre-
parer tax identification number or other
prescribed identifying number.
(18) Willfully representing a taxpayer
before an officer or employee of the In-
ternal Revenue Service unless the practi-
tioner is authorized to do so pursuant to
this part.
(b)Effective/applicability date.This
section is applicable 60 days after the date
that final regulations are published in the
Federal Register.
Par. 15. Section 10.90 is amended by:
1. Revising paragraph (a).
2. Redesignating the second paragraph
(b) as paragraph (c).
3. Revising newly designated para-
graph (c).
The revisions read as follows:
§10.90 Records.
(a)Roster. The Director of the Office of
Professional Responsibility will maintain,
and may make available for public inspec-
tion in the time and manner prescribed by
the Secretary, or delegate, rosters of —
(1) Individuals (and employers, firms,
or other entities, if applicable) censured,
suspended, or disbarred from practice be-
fore the Internal Revenue Service or upon
whom a monetary penalty was imposed.
(2) Enrolled agents, including individu-
als—
(i) Granted active enrollment to prac-
tice;
(ii) Whose enrollment has been placed
in inactive status for failure to meet the
requirements for renewal of enrollment;
(iii) Whose enrollment has been placed
in inactive retirement status; and
(iv) Whose offer of consent to resign
from enrollment has been accepted by the
Director of the Office of Professional Re-
sponsibility under §10.61.
(3) Enrolled retirement plan agents, in-
cluding individuals—
(i) Granted active enrollment to prac-
tice;
(ii) Whose enrollment has been placed
in inactive status for failure to meet the
requirements for renewal of enrollment;
(iii) Whose enrollment has been placed
in inactive retirement status; and
(iv) Whose offer of consent to resign
from enrollment has been accepted by the
Director of the Office of Professional Re-
sponsibility under §10.61.
(4) Registered tax return preparers, in-
cluding individuals—
(i) Authorized to prepare all or substan-
tially all of a tax return or claim for refund;
(ii) Who have been placed in inactive
status for failure to meet the requirements
for renewal;
(iii) Who have been placed in inactive
retirement status; and
(iv) Whose offer of consent to resign
from their status as a registered tax return
preparer has been accepted by the Director
of the Office of Professional Responsibil-
ity under §10.61.
(5) Disqualified appraisers.
(6) Programs granted status as a quali-
fied continuing education program.
*****
(c)Effective/applicability date.This
section is applicable 60 days after the date
that final regulations are published in the
Federal Register.
Christopher Wagner,
Acting Deputy Commissioner
for Services and Enforcement.
(Filed by the Office of the Federal Register on August 19,
2010, 11:15 a.m., and published in the issue of the Federal
Register for August 23, 2010, 75 F.R. 51713)
Deletions From Cumulative
List of Organizations
Contributions to Which
are Deductible Under Section
170 of the Code
Announcement 2010–84
The Internal Revenue Service has re-
voked its determination that the organi-
zations listed below qualify as organiza-
tions described in sections 501(c)(3) and
170(c)(2) of the Internal Revenue Code of
1986.
Generally, the Service will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletinthatanorganizationnolonger
qualifies. However, the Service is not
precluded from disallowing a deduction
for any contributions made after an or-
ganization ceases to qualify under section
170(c)(2) if the organization has not timely
filed a suit for declaratory judgment under
section 7428 and if the contributor (1) had
knowledge of the revocation of the ruling
or determination letter, (2) was aware that
such revocation was imminent, or (3) was
in part responsible for or was aware of the
activities or omissions of the organization
that brought about this revocation.
If on the other hand a suit for declara-
tory judgment has been timely filed,
contributions from individuals and orga-
nizations described in section 170(c)(2)
that are otherwise allowable will continue
to be deductible. Protection under sec-
tion 7428(c) would begin on November 1,
2010, and would end on the date the court
first determines that the organization is
not described in section 170(c)(2) as more
particularly set forth in section 7428(c)(1).
For individual contributors, the maximum
deduction protected is $1,000, with a hus-
band and wife treated as one contributor.
This benefit is not extended to any indi-
vidual, in whole or in part, for the acts or
omissions of the organization that were
the basis for revocation.
American Children’s Safety Source
Michigan Center, MI
Anna Foundation, Inc.,
Melville, NY
California Consumer Credit
Los Angeles, CA
Interpreter Referral Service dba Chicago
Area Interpreter Referral Service
Chicago, IL
Consumer Counseling Centers of America
Washington, DC
The Cruffel Foundation
Jackson, WY
Debticated Consumer Counseling, Inc.,
Centerport, NY
Museum of Military History
Chandler, AZ
November 1, 20106032010–44 I.R.B.

United Children’s Fund
Michigan Center, MI
Section 7428(c) Validation
of Certain Contributions
Made During Pendency
of Declaratory Judgment
Proceedings
Announcement 2010–85
This announcement serves notice to po-
tential donors that the organization listed
below has recently filed a timely declara-
tory judgment suit under section 7428 of
the Code, challenging revocation of its
status as an eligible donee under section
170(c)(2).
Protection under section 7428(c) of the
Code begins on the date that the notice
of revocation is published in the Internal
Revenue Bulletin and ends on the date
on which a court first determines that an
organization is not described in section
170(c)(2), as more particularly set forth in
section 7428(c)(1).
In the case of individual contributors,
the maximum amount of contributions
protected during this period is limited to
$1,000.00, with a husband and wife being
treated as one contributor. This protection
is not extended to any individual who was
responsible, in whole or in part, for the
acts or omissions of the organizations that
were the basis for the revocation.
This protection also applies (but with-
out limitation as to amount) to organiza-
tions described in section 170(c)(2) which
are exempt from tax under section 501(a).
If the organization ultimately prevails in its
declaratory judgment suit, deductibility of
contributions would be subject to the nor-
mal limitations set forth under section 170.
Xelan Foundation AKA Significance
Foundation
Tampa, FL
Exegetical Institute, Inc.
Kingsland, GA
IRS and the George
Washington University Law
School to Sponsor Institute on
International Tax Issues
Announcement 2010–86
The Internal Revenue Service an-
nounces the Twenty-Third Annual Insti-
tute on Current Issues in International
Taxation, jointly sponsored by the In-
ternal Revenue Service and The George
Washington University Law School, to be
held on December 9 and 10, 2010, at the
J.W. Marriott Hotel in Washington, DC.
Registration is currently underway for the
Institute.
The program, which is intended for in-
ternational tax professionals, will present
a unique opportunity for top IRS and Trea-
sury officials and tax experts, foreign gov-
ernment tax authorities, and leading pri-
vate sector specialists, to address breaking
issues and present key perspectives on new
developments.
The first day will also feature sessions
on:
•Competent Authority
•Transfer Pricing and Intellectual Prop-
erty Transfers
•Foreign Tax Credit Developments
•Inbound and Outbound Update:
What’s New and What’s Coming?
•New Reporting and Withholding Tax
Rules: Sections 1471–1474
•Evolving Reporting Requirements for
Uncertain Tax Positions
The second day will focus on:
•WelcomeAddressby
William J. Wilkins, Chief Counsel of
the Internal Revenue Service
•PFICs: Searching for Answers, Look-
ing for Guidance
•Managing International Tax Issues:
Cooperation or Controversy?
•Financing the Global Corporation:
Working With Section 956
•Ethics Issues in International Tax Prac-
tice
On the first day, Douglas H. Shulman,
Commissioner, Internal Revenue Service,
will deliver the luncheon address. On the
second day, Michael F. Mundaca, Assis-
tant Secretary of the Treasury for Tax Pol-
icy, will deliver the luncheon address. The
second day will also include an “Ask the
IRS” panel featuring senior officials from
the Service.
Those interested in attending or ob-
taining more information should contact
The George Washington University Law
School, athttp://docs.law.gwu.edu/ciit/.
The principal author of this announcement
is Patricia A. Bray of the Office of
Associate Chief Counsel (International).
For further information regarding this
announcement, contactPatricia A. Bray at
202–622–5871 (not a toll-free call).
2010–44 I.R.B.604November 1, 2010

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.
November 1, 2010i2010–44 I.R.B.

Numerical Finding List
1
Bulletins 2010–27 through 2010–44
Announcements:
2010-43, 2010-27 I.R.B.42
2010-44, 2010-28 I.R.B.54
2010-45, 2010-29 I.R.B.87
2010-46, 2010-29 I.R.B.87
2010-47, 2010-30 I.R.B.173
2010-48, 2010-32 I.R.B.234
2010-49, 2010-34 I.R.B.272
2010-50, 2010-33 I.R.B.260
2010-51, 2010-33 I.R.B.261
2010-52, 2010-36 I.R.B.315
2010-53, 2010-36 I.R.B.323
2010-54, 2010-38 I.R.B.386
2010-55, 2010-37 I.R.B.346
2010-56, 2010-39 I.R.B.398
2010-57, 2010-38 I.R.B.386
2010-58, 2010-38 I.R.B.387
2010-59, 2010-39 I.R.B.399
2010-60, 2010-40 I.R.B.417
2010-61, 2010-40 I.R.B.417
2010-62, 2010-40 I.R.B.417
2010-63, 2010-40 I.R.B.417
2010-64, 2010-40 I.R.B.418
2010-65, 2010-40 I.R.B.418
2010-66, 2010-40 I.R.B.418
2010-67, 2010-40 I.R.B.418
2010-68, 2010-40 I.R.B.418
2010-69, 2010-40 I.R.B.418
2010-70, 2010-40 I.R.B.418
2010-71, 2010-40 I.R.B.418
2010-72, 2010-40 I.R.B.419
2010-73, 2010-40 I.R.B.419
2010-74, 2010-40 I.R.B.419
2010-75, 2010-41 I.R.B.428
2010-76, 2010-41 I.R.B.432
2010-77, 2010-41 I.R.B.433
2010-78, 2010-41 I.R.B.433
2010-79, 2010-42 I.R.B.475
2010-82, 2010-42 I.R.B.476
2010-84, 2010-44 I.R.B.603
2010-85, 2010-44 I.R.B.604
2010-86, 2010-44 I.R.B.604
2010-87, 2010-43 I.R.B.557
Notices:
2010-48, 2010-27 I.R.B.9
2010-49, 2010-27 I.R.B.10
2010-50, 2010-27 I.R.B.12
2010-51, 2010-29 I.R.B.83
2010-52, 2010-30 I.R.B.88
2010-53, 2010-31 I.R.B.182
2010-54, 2010-40 I.R.B.403
Notices— Continued:
2010-55, 2010-33 I.R.B.253
2010-56, 2010-33 I.R.B.254
2010-57, 2010-34 I.R.B.267
2010-58, 2010-37 I.R.B.326
2010-59, 2010-39 I.R.B.396
2010-60, 2010-37 I.R.B.329
2010-61, 2010-40 I.R.B.408
2010-62, 2010-40 I.R.B.411
2010-63, 2010-41 I.R.B.420
2010-64, 2010-41 I.R.B.421
2010-65, 2010-41 I.R.B.424
2010-66, 2010-42 I.R.B.437
2010-67, 2010-43 I.R.B.529
2010-68, 2010-44 I.R.B.576
2010-69, 2010-44 I.R.B.576
2010-70, 2010-44 I.R.B.576
Proposed Regulations:
REG-138637-07, 2010-44 I.R.B.581
REG-139343-08, 2010-33 I.R.B.256
REG-142800-09, 2010-44 I.R.B.580
REG-151605-09, 2010-31 I.R.B.184
REG-153340-09, 2010-42 I.R.B.469
REG-112841-10, 2010-27 I.R.B.41
REG-118412-10, 2010-29 I.R.B.85
REG-119046-10, 2010-40 I.R.B.415
REG-120391-10, 2010-35 I.R.B.310
REG-120399-10, 2010-32 I.R.B.239
REG-125592-10, 2010-43 I.R.B.556
Revenue Procedures:
2010-25, 2010-27 I.R.B.16
2010-26, 2010-30 I.R.B.91
2010-27, 2010-31 I.R.B.183
2010-28, 2010-34 I.R.B.270
2010-29, 2010-35 I.R.B.309
2010-30, 2010-36 I.R.B.316
2010-31, 2010-40 I.R.B.413
2010-32, 2010-36 I.R.B.320
2010-33, 2010-38 I.R.B.347
2010-34, 2010-41 I.R.B.426
2010-35, 2010-42 I.R.B.438
2010-36, 2010-42 I.R.B.439
2010-37, 2010-42 I.R.B.440
2010-38, 2010-43 I.R.B.530
2010-39, 2010-42 I.R.B.459
Revenue Rulings:
2010-18, 2010-27 I.R.B.1
2010-19, 2010-31 I.R.B.174
2010-20, 2010-36 I.R.B.312
2010-21, 2010-39 I.R.B.388
2010-22, 2010-39 I.R.B.388
2010-23, 2010-39 I.R.B.388
2010-24, 2010-40 I.R.B.400
Revenue Rulings— Continued:
2010-25, 2010-44 I.R.B.571
2010-26, 2010-44 I.R.B.573
Tax Conventions:
2010-48, 2010-32 I.R.B.234
2010-52, 2010-36 I.R.B.315
Treasury Decisions:
9486, 2010-27 I.R.B.3
9487, 2010-28 I.R.B.48
9488, 2010-28 I.R.B.51
9489, 2010-29 I.R.B.55
9490, 2010-31 I.R.B.176
9491, 2010-32 I.R.B.186
9492, 2010-33 I.R.B.242
9493, 2010-35 I.R.B.273
9494, 2010-43 I.R.B.500
9495, 2010-43 I.R.B.477
9496, 2010-43 I.R.B.484
9497, 2010-44 I.R.B.558
1
A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2010–1 through 2010–26 is in Internal Revenue Bulletin
2010–26, dated June 28, 2010.
2010–44 I.R.B.iiNovember 1, 2010

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2010–27 through 2010–44
Notices:
96-53
Modified by
Notice 2010-59, 2010-39 I.R.B.396
2003-19
Revoked by
Notice 2010-53, 2010-31 I.R.B.182
2004-2
Modified by
Notice 2010-59, 2010-39 I.R.B.396
2004-50
Modified by
Notice 2010-59, 2010-39 I.R.B.396
2005-90
Supplemented by
Notice 2010-65, 2010-41 I.R.B.424
2006-69
Amplified by
Notice 2010-59, 2010-39 I.R.B.396
2008-51
Modified by
Notice 2010-59, 2010-39 I.R.B.396
2008-52
Modified by
Notice 2010-59, 2010-39 I.R.B.396
2009-47
Obsoleted by
Rev. Proc. 2010-28, 2010-34 I.R.B.270
2009-80
Corrected by
Ann. 2010-59, 2010-39 I.R.B.399
2009-90
Superseded by
Notice 2010-54, 2010-40 I.R.B.403
Proposed Regulations:
REG-115037-00
Withdrawn by
Ann. 2010-60, 2010-40 I.R.B.417
REG-146893-02
Withdrawn by
Ann. 2010-60, 2010-40 I.R.B.417
Revenue Procedures:
81-18
Obsoleted by
Rev. Proc. 2010-27, 2010-31 I.R.B.183
Revenue Procedures— Continued:
2007-44
Modified by
Notice 2010-48, 2010-27 I.R.B.9
2008-49
Superseded by
Rev. Proc. 2010-38, 2010-43 I.R.B.530
2009-18
Obsoleted in part by
Rev. Proc. 2010-25, 2010-27 I.R.B.16
2009-30
Superseded by
Rev. Proc. 2010-26, 2010-30 I.R.B.91
2009-35
Superseded by
Rev. Proc. 2010-33, 2010-38 I.R.B.347
2009-46
Superseded by
Rev. Proc. 2010-37, 2010-42 I.R.B.440
2009-47
Superseded by
Rev. Proc. 2010-39, 2010-42 I.R.B.459
2009-50
Modified by
Rev. Proc. 2010-35, 2010-42 I.R.B.438
2010-3
Modified by
Notice 2010-62, 2010-40 I.R.B.411
Revenue Rulings:
2003-102
Obsoleted by
Rev. Rul. 2010-23, 2010-39 I.R.B.388
Treasury Decisions:
9487
Corrected by
Ann. 2010-50, 2010-33 I.R.B.260
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2010–1 through 2010–26 is in Internal Revenue Bulletin 2010–26, dated June 28, 2010.
November 1, 2010iii2010–44 I.R.B.

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