us-irs-revenue-rulings-irb-2023-49-pdf•Internal Revenue Bulletin 2023-49 (PDF rendition): IRS Revenue Rulings
Internal Revenue Bulletin 2023-49 (PDF rendition): IRS Revenue Rulings
us-irs-revenue-rulings-irb-2023-49-pdfInternal Revenue Bulletin 2023-49 (PDF rendition): IRS Revenue RulingsGuidance
Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing. Whole bulletin rendition: numbered items are identified below; other legal material and publisher context remain included. This is not a new standalone advance release.
Bulletin No. 2023–49 December 4, 2023 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. ADMINISTRATIVE Rev. Rul. 2023-22, page 1301. Interest rates: underpayments and overpayments. The rates for interest determined under Section 6621 of the code for the calendar quarter beginning January 1, 2024, will be 8 percent for overpayments (7 percent in the case of a cor- poration), 8 percent for underpayments, and 10 percent for large corporate underpayments. The rate of interest paid on the portion of a corporate overpayment exceeding $10,000 will be 5.5 percent. EMPLOYEE PLANS Notice 2023-76, page 1320. This notice sets forth updates on the corporate bond monthly yield curve, the corresponding spot segment rates for November 2023 used under § 417(e)(3)(D), the 24-month average segment rates applicable for November 2023, and the 30-year Treasury rates, as reflected by the application of § 430(h)(2)(C)(iv). EXCISE TAX, EXEMPT ORGANIZATIONS REG-142338-07, page 1363. This document contains proposed regulations regarding excise taxes on taxable distributions made by a sponsoring organization from a donor advised fund (DAF), and on the agreement of certain fund managers to the making of such distributions. The proposed regulations provide guidance regarding DAFs and taxable distributions. The proposed reg- ulations generally apply to certain organizations, including community foundations and other charitable organizations, that maintain one or more DAFs, and to other persons involved with the DAFs, including donors, donor-advisors, related persons, and certain fund managers. EXEMPT ORGANIZATIONS Announcement 2023-34, page 1385. Revocation of IRC 501(c)(3) Organizations for failure to meet the code section requirements. Contributions made to the organizations by individual donors are no longer deductible under IRC 170(b)(1)(A). EMPLOYEE PLANS REG-112916-23, page 1323. This document contains proposed regulations concerning the statutory disallowance rule enacted by the SECURE 2.0 Act of 2022 to disallow a Federal income tax deduction for a qualified conservation contribution made by a partnership or an S corporation after December 29, 2022, if the amount of the contribution exceeds 2.5 times the sum of each part- ner’s or S corporation shareholder’s relevant basis. The proposed regulations would provide guidance regarding this statutory disallowance rule, including definitions, appropri- ate methods to calculate the relevant basis of a partner or an S corporation shareholder, the three statutory exceptions to the statutory disallowance rule, and related reporting requirements. In addition, the proposed regulations would provide reporting requirements for partners and S corpo- ration shareholders that receive a distributive share or pro rata share of any noncash charitable contribution made by a partnership or S corporation, regardless of whether the contribution is a qualified conservation contribution (and regardless of whether the contribution is of real property or other noncash property) Finding Lists begin on page ii. REG-128276-12, page 1362. The Department of the Treasury and the IRS are reopen- ing the comment period for REG-128276-12, published in the Federal Register on December 8, 2016, relating to the determination and recognition of taxable income or loss and foreign currency gain or loss with respect to a qualified busi- ness unit. Rev. Rul. 2023-21, page 1299. Federal rates; adjusted federal rates; adjusted federal long-term rate, and the long-term tax exempt rate. For pur- poses of sections 382, 1274, 1288, 7872 and other sec- tions of the Code, tables set forth the rates for December 2023. The IRS Mission Provide America’s taxpayers top-quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all. Introduction The Internal Revenue Bulletin is the authoritative instrument of the Commissioner of Internal Revenue for announcing offi- cial rulings and procedures of the Internal Revenue Service and for publishing Treasury Decisions, Executive Orders, Tax Conventions, legislation, court decisions, and other items of general interest. It is published weekly. 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, modify, or amend any of those previously published in the Bulletin. All published rulings apply retroactively unless other- wise indicated. Procedures relating solely to matters of inter- nal management 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 rul- ings 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.—1986 Code. This part includes rulings and decisions based on provisions of the Internal 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, Legislation 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 Rulings. Bank Secrecy Act Administrative Rulings are issued by the Department of the Treasury’s Office of the Assistant Secretary (Enforcement). Part IV.—Items of General Interest. This part includes notices of proposed rulemakings, disbar- ment and 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 contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate. December 4, 2023 Bulletin No. 2023–49 Part I Section 1274.— Determination of Issue Price in the Case of Certain Debt Instruments Issued for Property Rev. Rul. 2023-21 This revenue ruling provides various prescribed rates for federal income tax purposes for December 2023 (the current month). Table 1 contains the short-term, mid-term, and long-term applicable fed- eral rates (AFR) for the current month for purposes of section 1274(d) of the Internal Revenue Code. Table 2 contains the short- term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for the current month for purposes of section 1288(b). Table 3 sets forth the adjusted federal long-term rate and the long-term tax-exempt rate described in section 382(f). Table 4 contains the appropriate percentages for determining the low-in- come housing credit described in section 42(b)(1) for buildings placed in service during the current month. However, under section 42(b)(2), the applicable percent- age for non-federally subsidized new buildings placed in service after July 30, 2008, shall not be less than 9%. Finally, Table 5 contains the federal rate for deter- mining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of section 7520. REV. RUL. 2023-21 TABLE 1 Applicable Federal Rates (AFR) for December 2023 Period for Compounding AnnualSemiannualQuarterlyMonthly Short-term AFR5.26%5.19%5.16%5.13% 110% AFR5.79%5.71%5.67%5.64% 120% AFR6.33%6.23%6.18%6.15% 130% AFR6.86%6.75%6.69%6.66% Mid-term AFR4.82%4.76%4.73%4.71% 110% AFR5.31%5.24%5.21%5.18% 120% AFR5.79%5.71%5.67%5.64% 130% AFR6.29%6.19%6.14%6.11% 150% AFR7.27%7.14%7.08%7.04% 175% AFR8.50%8.33%8.25%8.19% Long-term AFR5.03%4.97%4.94%4.92% 110% AFR5.54%5.47%5.43%5.41% 120% AFR6.05%5.96%5.92%5.89% 130% AFR6.56%6.46%6.41%6.37% REV. RUL. 2023-21 TABLE 2 Adjusted AFR for December 2023 Period for Compounding AnnualSemiannualQuarterlyMonthly Short-term adjusted AFR3.98%3.94%3.92%3.91% Mid-term adjusted AFR3.64%3.61%3.59%3.58% Long-term adjusted AFR3.81%3.77%3.75%3.74% Bulletin No. 2023–49 1299 December 4, 2023 REV. RUL. 2023-21 TABLE 3 Rates Under Section 382 for December 2023 Adjusted federal long-term rate for the current month3.81% 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.) 3.81% REV. RUL. 2023-21 TABLE 4 Appropriate Percentages Under Section 42(b)(1) for December 2023 Note: Under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July 30, 2008, shall not be less than 9%. Appropriate percentage for the 70% present value low-income housing credit8.15% Appropriate percentage for the 30% present value low-income housing credit 3.49% REV. RUL. 2023-21 TABLE 5 Rate Under Section 7520 for December 2023 Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest 5.80% Section 42.—Low-Income Housing Credit The applicable federal short-term, mid-term, and long-term rates are set forth for the month of December 2023. See Rev. Rul. 2023-21, page 1299. Section 280G.—Golden Parachute Payments The applicable federal short-term, mid-term, and long-term rates are set forth for the month of December 2023. See Rev. Rul. 2023-21, page 1299. Section 382.—Limitation on Net Operating Loss Carryforwards and Certain Built-In Losses Following Ownership Change The adjusted applicable federal long-term rate is set forth for the month of December 2023. See Rev. Rul. 2023-21, page 1299. Section 467.—Certain Payments for the Use of Property or Services The applicable federal short-term, mid-term, and long-term rates are set forth for the month of December 2023. See Rev. Rul. 2023-21, page 1299. Section 468.—Special Rules for Mining and Solid Waste Reclamation and Closing Costs The applicable federal short-term rates are set forth for the month of December 2023. See Rev. Rul. 2023-21, page 1299. Section 482.—Allocation of Income and Deductions Among Taxpayers The applicable federal short-term, mid-term, and long-term rates are set forth for the month of December 2023. See Rev. Rul. 2023-21, page 1299. Section 483.—Interest on Certain Deferred Payments The applicable federal short-term, mid-term, and long-term rates are set forth for the month of December 2023. See Rev. Rul. 2023-21, page 1299. 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 December 2023. See Rev. Rul. 2023-21, page 1299. Section 7520.—Valuation Tables The applicable federal mid-term rates are set forth for the month of December 2023. See Rev. Rul. 2023-21, page 1299. Section 7872.—Treatment of Loans With Below- Market Interest Rates The applicable federal short-term, mid-term, and long-term rates are set forth for the month of December 2023. See Rev. Rul. 2023-21, page 1299. December 4, 2023 1300 Bulletin No. 2023–49 Bulletin No. 2023–49 1301 December 4, 2023 Section 6621.— Determination of Rate of Interest 26 CFR 301.6621-1: Interest rate. Rev. Rul. 2023-22 Section 6621 of the Internal Revenue Code establishes the interest rates on overpayments and underpayments of tax. Under section 6621(a)(1), the over- payment rate is the sum of the federal short-term rate plus 3 percentage points (2 percentage points in the case of a cor- poration), except the rate for the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the sum of the federal short-term rate plus 0.5 of a percentage point. Under section 6621(a) (2), the underpayment rate is the sum of the federal short-term rate plus 3 percent- age points. Section 6621(c) provides that for purposes of interest payable under section 6601 on any large corporate underpayment, the underpayment rate under section 6621(a)(2) is determined by substituting “5 percentage points” for “3 percentage points.” See sec- tion 6621(c) and section 301.6621-3 of the Regulations on Procedure and Administration for the definition of a large corporate underpayment and for the rules for determining the applica- ble date. Section 6621(c) and section 301.6621-3 are generally effective for periods after December 31, 1990. Section 6621(b)(1) provides that the Secretary will determine the federal short-term rate for the first month in each calendar quarter. Section 6621(b)(2)(A) provides that the federal short-term rate determined under section 6621(b)(1) for any month applies during the first calen- dar quarter beginning after that month. Section 6621(b)(3) provides that the fed- eral short-term rate for any month is the federal short-term rate determined during that month by the Secretary in accordance with section 1274(d), rounded to the near- est full percent (or, if a multiple of 1/2 of 1 percent, the rate is increased to the next highest full percent). Notice 88-59, 1988-1 C.B. 546, announced that in determining the quar- terly interest rates to be used for over- payments and underpayments of tax under section 6621, the Internal Revenue Service will use the federal short-term rate based on daily compounding because that rate is most consistent with section 6621 which, pursuant to section 6622, is subject to daily compounding. The federal short-term rate determined in accordance with section 1274(d) during October 2023 is the rate published in Revenue Ruling 2023-20, 2023-45 IRB 1221, to take effect beginning November 1, 2023. The federal short-term rate, rounded to the nearest full percent, based on daily compounding determined during the month of October 2023 is 5 percent. Accordingly, an overpayment rate of 8 percent (7 percent in the case of a cor- poration) and an underpayment rate of 8 percent are established for the calendar quarter beginning January 1, 2024. The overpayment rate for the portion of a cor- porate overpayment exceeding $10,000 for the calendar quarter beginning January 1, 2024, is 5.5 percent. The underpayment rate for large corporate underpayments for the calendar quarter beginning January 1, 2024, is 10 percent. These rates apply to amounts bearing interest during that cal- endar quarter. Sections 6654(a)(1) and 6655(a)(1) provide that the underpayment rate estab- lished under section 6621 applies in deter- mining the addition to tax under sections 6654 and 6655 for failure to pay esti- mated tax for any taxable year. Thus, the 8 percent rate also applies to estimated tax underpayments for the first calendar quar- ter beginning January 1, 2024. Pursuant to section 6621(b)(2)(B), in determining the addition to tax under section 6654 for any taxable year for an individual, the federal short-term rate that applies during the third month following the taxable year also applies during the first 15 days of the fourth month following the taxable year. In addition, pursuant to section 6603(d) (4), the rate of interest on section 6603 deposits is 5 percent for the first calendar quarter in 2024. Interest factors for daily compound interest for annual rates of 5.5 percent, 7 percent, 8 percent and 10 percent are pub- lished in Tables 64, 67, 69 and 73 of Rev. Proc. 95-17, 1995-1 C.B. 618, 621, 623, and 627. Annual interest rates to be compounded daily pursuant to section 6622 that apply for prior periods are set forth in the tables accompanying this revenue ruling. DRAFTING INFORMATION The principal author of this revenue ruling is Casey R. Conrad of the Office of the Associate Chief Counsel (Procedure and Administration). For further informa- tion regarding this revenue ruling, contact Mr. Conrad at (202) 317-6844 (not a toll- free number). December 4, 2023 1302 Bulletin No. 2023–49 APPENDIX A 365 Day Year 0.5% Compound Rate 184 Days DaysFactorDaysFactorDaysFactor 10.000013699630.0008633801250.001713784 20.000027397640.0008770911260.001727506 30.000041096650.0008908011270.001741228 40.000054796660.0009045121280.001754951 50.000068495670.0009182231290.001768673 60.000082195680.0009319341300.001782396 70.000095894690.0009456461310.001796119 80.000109594700.0009593571320.001809843 90.000123294710.0009730691330.001823566 100.000136995720.0009867811340.001837290 110.000150695730.0010004931350.001851013 120.000164396740.0010142061360.001864737 130.000178097750.0010279181370.001878462 140.000191798760.0010416311380.001892186 150.000205499770.0010553441390.001905910 160.000219201780.0010690571400.001919635 170.000232902790.0010827701410.001933360 180.000246604800.0010964841420.001947085 190.000260306810.0011101971430.001960811 200.000274008820.0011239111440.001974536 210.000287711830.0011376251450.001988262 220.000301413840.0011513391460.002001988 230.000315116850.0011650541470.002015714 240.000328819860.0011787681480.002029440 250.000342522870.0011924831490.002043166 260.000356225880.0012061981500.002056893 270.000369929890.0012199131510.002070620 280.000383633900.0012336291520.002084347 290.000397336910.0012473441530.002098074 300.000411041920.0012610601540.002111801 310.000424745930.0012747761550.002125529 320.000438449940.0012884921560.002139257 330.000452154950.0013022081570.002152985 340.000465859960.0013159251580.002166713 350.000479564970.0013296411590.002180441 360.000493269980.0013433581600.002194169 370.000506974990.0013570751610.002207898 380.0005206801000.0013707921620.002221627 390.0005343861010.0013845101630.002235356 400.0005480921020.0013982271640.002249085 410.0005617981030.0014119451650.002262815 Bulletin No. 2023–49 1303 December 4, 2023 420.0005755041040.0014256631660.002276544 430.0005892111050.0014393811670.002290274 440.0006029171060.0014531001680.002304004 450.0006166241070.0014668181690.002317734 460.0006303311080.0014805371700.002331465 470.0006440391090.0014942561710.002345195 480.0006577461100.0015079751720.002358926 490.0006714541110.0015216941730.002372657 500.0006851611120.0015354141740.002386388 510.0006988691130.0015491331750.002400120 520.0007125781140.0015628531760.002413851 530.0007262861150.0015765731770.002427583 540.0007399951160.0015902931780.002441315 550.0007537031170.0016040141790.002455047 560.0007674121180.0016177341800.002468779 570.0007811211190.0016314551810.002482511 580.0007948311200.0016451761820.002496244 590.0008085401210.0016588971830.002509977 600.0008222501220.0016726191840.002523710 610.0008359601230.001686340 620.0008496701240.001700062 December 4, 2023 1304 Bulletin No. 2023–49 366 Day Year 0.5% Compound Rate 184 Days DaysFactorDaysFactorDaysFactor 10.000013661630.0008610201250.001709097 20.000027323640.0008746931260.001722782 30.000040984650.0008883661270.001736467 40.000054646660.0009020401280.001750152 50.000068308670.0009157131290.001763837 60.000081970680.0009293871300.001777522 70.000095632690.0009430611310.001791208 80.000109295700.0009567351320.001804893 90.000122958710.0009704091330.001818579 100.000136620720.0009840841340.001832265 110.000150283730.0009977581350.001845951 120.000163947740.0010114331360.001859638 130.000177610750.0010251081370.001873324 140.000191274760.0010387831380.001887011 150.000204938770.0010524591390.001900698 160.000218602780.0010661341400.001914385 170.000232266790.0010798101410.001928073 180.000245930800.0010934861420.001941760 190.000259595810.0011071621430.001955448 200.000273260820.0011208391440.001969136 210.000286924830.0011345151450.001982824 220.000300590840.0011481921460.001996512 230.000314255850.0011618691470.002010201 240.000327920860.0011755461480.002023889 250.000341586870.0011892231490.002037578 260.000355252880.0012029001500.002051267 270.000368918890.0012165781510.002064957 280.000382584900.0012302561520.002078646 290.000396251910.0012439341530.002092336 300.000409917920.0012576121540.002106025 310.000423584930.0012712911550.002119715 320.000437251940.0012849691560.002133405 330.000450918950.0012986481570.002147096 340.000464586960.0013123271580.002160786 350.000478253970.0013260061590.002174477 360.000491921980.0013396851600.002188168 370.000505589990.0013533651610.002201859 380.0005192571000.0013670441620.002215550 390.0005329251010.0013807241630.002229242 400.0005465941020.0013944041640.002242933 410.0005602621030.0014080851650.002256625 420.0005739311040.0014217651660.002270317 Bulletin No. 2023–49 1305 December 4, 2023 430.0005876001050.0014354461670.002284010 440.0006012691060.0014491271680.002297702 450.0006149391070.0014628081690.002311395 460.0006286081080.0014764891700.002325087 470.0006422781090.0014901701710.002338780 480.0006559481100.0015038521720.002352473 490.0006696181110.0015175331730.002366167 500.0006832891120.0015312151740.002379860 510.0006969591130.0015448971750.002393554 520.0007106301140.0015585801760.002407248 530.0007243011150.0015722621770.002420942 540.0007379721160.0015859451780.002434636 550.0007516431170.0015996281790.002448331 560.0007653151180.0016133111800.002462025 570.0007789861190.0016269941810.002475720 580.0007926581200.0016406781820.002489415 590.0008063301210.0016543611830.002503110 600.0008200031220.0016680451840.002516806 610.0008336751230.001681729 620.0008473481240.001695413 December 4, 2023 1306 Bulletin No. 2023–49 TABLE OF INTEREST RATES PERIODS BEFORE JUL. 1, 1975 - PERIODS ENDING DEC. 31, 1986 OVERPAYMENTS AND UNDERPAYMENTS PERIODRATEIn 1995-1 C.B. DAILY RATE TABLE Before Jul. 1, 19756%Table2,pg.557 Jul. 1, 1975–Jan. 31, 19769%Table4,pg.559 Feb. 1, 1976–Jan. 31, 19787%Table3,pg.558 Feb. 1, 1978–Jan. 31, 19806%Table2,pg.557 Feb. 1, 1980–Jan. 31, 198212%Table5,pg.560 Feb. 1, 1982–Dec. 31, 198220%Table6,pg.560 Jan. 1, 1983–Jun. 30, 198316%Table37,pg.591 Jul. 1, 1983–Dec. 31, 198311%Table27,pg.581 Jan. 1, 1984–Jun. 30, 198411%Table75,pg.629 Jul. 1, 1984–Dec. 31, 198411%Table75,pg.629 Jan. 1, 1985–Dec. 31, 198513%Table31,pg.585 Jul. 1, 1985–Dec. 31, 198511%Table27,pg.581 Jan. 1, 1986–Jun. 30, 198610%Table25,pg.579 Jul. 1, 1986–Dec. 31, 19869%Table23,pg.577 TABLE OF INTEREST RATES FROM JAN. 1, 1987 – Dec. 31, 1998 OVERPAYMENTSUNDERPAYMENTS 1995-1 C.B.1995-1 C.B. RATE RATETABLEPGRATETABLEPG Jan. 1, 1987–Mar. 31, 19878%215759%23577 Apr. 1, 1987–Jun. 30, 19878%215759%23577 Jul. 1, 1987–Sep. 30, 19878%215759%23577 Oct. 1, 1987–Dec. 31, 19879%2357710%25579 Jan. 1, 1988–Mar. 31, 198810%7362711%75629 Apr. 1, 1988–Jun. 30, 19889%7162510%73627 Jul. 1, 1988–Sep. 30, 19889%7162510%73627 Oct. 1, 1988–Dec. 31, 198810%7362711%75629 Jan. 1, 1989–Mar. 31, 198910%2557911%27581 Apr. 1, 1989–Jun. 30, 198911%2758112%29583 Jul. 1, 1989–Sep. 30, 198911%2758112%29583 Oct. 1, 1989–Dec. 31, 198910%2557911%27581 Jan. 1, 1990–Mar. 31, 199010%2557911%27581 Apr. 1, 1990–Jun. 30, 199010%2557911%27581 Jul. 1, 1990–Sep. 30, 199010%2557911%27581 Oct. 1, 1990–Dec. 31, 199010%2557911%27581 Jan. 1, 1991–Mar. 31, 199110%2557911%27581 Apr. 1, 1991–Jun. 30, 19919%2357710% 25579 Jul. 1, 1991–Sep. 30, 19919%2357710%25579 Bulletin No. 2023–49 1307 December 4, 2023 Oct. 1, 1991–Dec. 31, 19919%2357710%25579 Jan. 1, 1992–Mar. 31, 19928%696239%71625 Apr. 1, 1992–Jun. 30, 19927%676218%69623 Jul. 1, 1992–Sep. 30, 19927%676218%69623 Oct. 1, 1992–Dec. 31, 19926%656197%67621 Jan. 1, 1993–Mar. 31, 19936%175717%19573 Apr. 1, 1993–Jun. 30, 19936%175717%19573 Jul. 1, 1993–Sep. 30, 19936%175717%19573 Oct. 1, 1993–Dec. 31, 19936%175717%19573 Jan. 1, 1994–Mar. 31, 19946%175717%19573 Apr. 1, 1994–Jun. 30, 19946%175717%19573 Jul. 1, 1994–Sep. 30, 19947%195738%21575 Oct. 1, 1994–Dec. 31, 19948%215759%23577 Jan. 1, 1995–Mar. 31, 19958%215759%23577 Apr. 1, 1995–Jun. 30, 19959%2357710%25579 Jul. 1, 1995–Sep. 30, 19958%215759%23577 Oct. 1, 1995–Dec. 31, 19958%215759%23577 Jan. 1, 1996–Mar. 31, 19968%696239%71625 Apr. 1, 1996–Jun. 30, 19967%676218%69623 Jul. 1, 1996–Sep. 30, 1996 8%696239%71625 Oct. 1, 1996–Dec. 31, 19968%696239%71625 Jan. 1, 1997–Mar. 31, 19978%215759%23577 Apr. 1, 1997–Jun. 30, 19978%215759%23577 Jul. 1, 1997–Sep. 30, 19978%215759%23577 Oct. 1, 1997–Dec. 31, 19978%215759%23577 Jan. 1, 1998–Mar. 31, 19988%215759%23577 Apr. 1, 1998–Jun. 30, 19987%195738%21575 Jul. 1, 1998–Sep. 30, 19987%195738%21575 Oct. 1, 1998–Dec. 31, 19987%195738%21575 December 4, 2023 1308 Bulletin No. 2023–49 TABLE OF INTEREST RATES FROM JANUARY 1, 1999 - PRESENT NONCORPORATE OVERPAYMENTS AND UNDERPAYMENTS 1995-1 C.B. RATETABLEPAGE Jan. 1, 1999–Mar. 31, 19997%19573 Apr. 1, 1999–Jun. 30, 19998%21575 Jul. 1, 1999–Sep. 30, 19998%21575 Oct. 1, 1999–Dec. 31, 19998%21575 Jan. 1, 2000–Mar. 31, 20008%69623 Apr. 1, 2000–Jun. 30, 20009%71625 Jul. 1, 2000–Sep. 30, 20009%71625 Oct. 1, 2000–Dec. 31, 20009%71625 Jan. 1, 2001–Mar. 31, 20019%23577 Apr. 1, 2001–Jun. 30, 20018%21575 Jul. 1, 2001–Sep. 30, 20017%19573 Oct. 1, 2001–Dec. 31, 20017%19573 Jan. 1, 2002–Mar. 31, 20026%17571 Apr. 1, 2002–Jun. 30, 20026%17571 Jul. 1, 2002–Sep. 30, 20026%17571 Oct. 1, 2002–Dec. 31, 20026%17571 Jan. 1, 2003–Mar. 31, 20035%15569 Apr. 1, 2003–Jun. 30, 20035%15569 Jul. 1, 2003–Sep. 30, 20035%15569 Oct. 1, 2003–Dec. 31, 20034%13567 Jan. 1, 2004–Mar. 31, 20044%61615 Apr. 1, 2004–Jun. 30, 20045%63617 Jul. 1, 2004–Sep. 30, 20044%61615 Oct. 1, 2004–Dec. 31, 20045%63617 Jan. 1, 2005–Mar. 31, 20055%15569 Apr. 1, 2005–Jun. 30, 20056%17571 Jul. 1, 2005–Sep. 30, 20056%17571 Oct. 1, 2005–Dec. 31, 20057%19573 Jan. 1, 2006–Mar. 31, 20067%19573 Apr. 1, 2006–Jun. 30, 20067%19573 Jul. 1, 2006–Sep. 30, 20068%21575 Oct. 1, 2006–Dec. 31, 20068%21575 Jan. 1, 2007–Mar. 31, 20078% 21575 Apr. 1, 2007–Jun. 30, 20078%21575 Jul. 1, 2007–Sep. 30, 20078%21575 Oct. 1, 2007–Dec. 31, 20078%21575 Jan. 1, 2008–Mar. 31, 20087%67621 Apr. 1, 2008–Jun. 30, 20086%65619 Jul. 1, 2008–Sep. 30, 20085%63617 Oct. 1, 2008–Dec. 31, 20086%65619 Jan. 1, 2009–Mar. 31, 20095%15569 Bulletin No. 2023–49 1309 December 4, 2023 Apr. 1, 2009–Jun. 30, 20094%13567 Jul. 1, 2009–Sep. 30, 20094%13567 Oct. 1, 2009–Dec. 31, 20094%13567 Jan. 1, 2010–Mar. 31, 20104%13567 Apr. 1, 2010–Jun. 30, 20104%13567 Jul. 1, 2010–Sep. 30, 20104%13567 Oct. 1, 2010–Dec. 31, 20104%13567 Jan. 1, 2011–Mar. 31, 20113%11565 Apr. 1, 2011–Jun. 30, 20114%13567 Jul. 1, 2011–Sep. 30, 20114%13567 Oct. 1, 2011–Dec. 31, 20113%11565 Jan. 1, 2012–Mar. 31, 20123%59613 Apr. 1, 2012–Jun. 30, 20123%59613 Jul. 1, 2012–Sep. 30, 20123%59613 Oct. 1, 2012–Dec. 31, 20123%59613 Jan. 1, 2013–Mar. 31, 20133%11565 Apr. 1, 2013–Jun. 30, 20133%11565 Jul. 1, 2013–Sep. 30, 20133%11565 Oct. 1, 2013–Dec. 31, 20133%11565 Jan. 1, 2014–Mar. 31, 20143%11565 Apr. 1, 2014–Jun. 30, 20143%11565 Jul. 1, 2014–Sep. 30, 20143%11565 Oct. 1, 2014–Dec. 31, 20143%11565 Jan. 1, 2015–Mar. 31, 20153%11565 Apr. 1, 2015–Jun. 30, 20153%11565 Jul. 1, 2015–Sep. 30, 20153%11565 Oct. 1, 2015–Dec. 31, 20153%11565 Jan. 1, 2016–Mar. 31, 20163%59613 Apr. 1, 2016–Jun. 30, 20164%61615 Jul. 1, 2016–Sep. 30, 20164%61615 Oct. 1, 2016–Dec. 31, 20164%61615 Jan. 1, 2017–Mar. 31, 20174%13567 Apr. 1, 2017–Jun. 30, 20174%13567 Jul. 1, 2017–Sep. 30, 20174% 13567 Oct. 1, 2017–Dec. 31, 20174%13567 Jan. 1, 2018–Mar. 31, 20184%13567 Apr. 1, 2018–Jun. 30, 20185%15569 Jul. 1, 2018–Sep. 30, 20185%15569 Oct. 1, 2018–Dec. 31, 20185%15569 Jan. 1, 2019–Mar. 31, 20196%17571 Apr. 1, 2019–Jun. 30, 20196%17571 Jul. 1, 2019–Sep. 30, 20195%15569 Oct. 1, 2019–Dec. 31, 20195%15569 Jan. 1, 2020–Mar. 31, 20205%63617 Apr. 1, 2020–Jun. 30, 20205%63617 December 4, 2023 1310 Bulletin No. 2023–49 Jul. 1, 2020–Sep. 30, 20203%59613 Oct. 1, 2020–Dec. 31, 20203%59613 Jan. 1, 2021–Mar. 31, 20213%11565 Apr. 1, 2021–Jun. 30, 20213%11565 Jul. 1, 2021–Sep. 30, 20213%11565 Oct. 1, 2021–Dec. 31, 20213%11565 Jan. 1, 2022–Mar. 31, 20223%11565 Apr. 1, 2022–Jun. 30, 20224%13567 Jul. 1, 2022–Sep. 30, 20225%15569 Oct. 1, 2022–Dec. 31, 20226%17571 Jan. 1, 2023–Mar. 31, 20237%19573 Apr. 1, 2023–Jun. 30, 20237%19573 Jul. 1, 2023–Sep. 30, 2023 7%19573 Oct. 1, 2023–Dec. 31, 20238%21575 Jan. 1, 2024–Mar. 31, 20248%69623 Bulletin No. 2023–49 1311 December 4, 2023 TABLE OF INTEREST RATES FROM JANUARY 1, 1999 - PRESENT CORPORATE OVERPAYMENTS AND UNDERPAYMENTS OVERPAYMENTSUNDERPAYMENTS 1995-1 C.B.1995-1 C.B. RATETABLEPGRATETABLEPG Jan. 1, 1999–Mar. 31, 19996%175717%19573 Apr. 1, 1999–Jun. 30, 19997%195738%21575 Jul. 1, 1999–Sep. 30, 19997%195738%21575 Oct. 1, 1999–Dec. 31, 19997%195738%21575 Jan. 1, 2000–Mar. 30, 20007%676218%69623 Apr. 1, 2000–Jun. 30, 20008%696239%71625 Jul. 1, 2000–Sep. 30, 20008%696239%71625 Oct. 1, 2000–Dec. 31, 20008%696239%71625 Jan. 1, 2001–Mar. 31, 20018%215759%23577 Apr. 1, 2001–Jun. 30, 20017%195738%21575 Jul. 1, 2001–Sep. 30, 20016%175717%19573 Oct. 1, 2001–Dec. 31, 20016%175717%19573 Jan. 1, 2002–Mar. 31, 20025%155696%17571 Apr. 1, 2002–Jun. 30, 20025%155696%17571 Jul. 1, 2002–Sep. 30, 20025%155696%17571 Oct. 1, 2002–Dec. 31, 20025%155696%17571 Jan. 1, 2003–Mar. 31, 20034%135675%15569 Apr. 1, 2003–Jun. 30, 20034%135675% 15569 Jul. 1, 2003–Sep. 30, 20034%135675%15569 Oct. 1, 2003–Dec. 31, 20033%115654%13567 Jan. 1, 2004–Mar. 31, 20043%596134%61615 Apr. 1, 2004–Jun. 30, 20044%616155%63617 Jul. 1, 2004–Sep. 30, 20043%596134%61615 Oct. 1, 2004–Dec. 31, 20044%616155%63617 Jan. 1, 2005–Mar. 31, 20054%135675%15569 Apr. 1, 2005–Jun. 30, 20055%155696%17571 Jul. 1, 2005–Sep. 30, 20055%155696%17571 Oct. 1, 2005–Dec. 31, 20056%175717%19573 Jan. 1, 2006–Mar. 31, 20066%175717%19573 Apr. 1, 2006–Jun. 30, 20066%175717%19573 Jul. 1, 2006–Sep. 30, 20067%195738%21575 Oct. 1, 2006–Dec. 31, 20067%195738%21575 Jan. 1, 2007–Mar. 31, 20077%195738%21575 Apr. 1, 2007–Jun. 30, 20077%195738%21575 Jul. 1, 2007–Sep. 30, 20077%195738%21575 Oct. 1, 2007–Dec. 31, 20077%195738%21575 Jan. 1, 2008–Mar. 31, 20086%656197%67 621 Apr. 1, 2008–Jun. 30, 20085%636176%65619 Jul. 1, 2008–Sep. 30, 20084%616155%63617 Oct. 1, 2008–Dec. 31, 20085%636176%65619 December 4, 2023 1312 Bulletin No. 2023–49 Jan. 1, 2009–Mar. 31, 20094%135675%15569 Apr. 1, 2009–Jun. 30, 20093%115654%13567 Jul. 1, 2009–Sep. 30, 20093%115654%13567 Oct. 1, 2009–Dec. 31, 20093%115654%13567 Jan. 1, 2010–Mar. 31, 20103%115654%13567 Apr. 1, 2010–Jun. 30, 20103%115654%13567 Jul. 1, 2010–Sep. 30, 20103%115654%13567 Oct. 1, 2010–Dec. 31, 20103%115654%13567 Jan. 1, 2011–Mar. 31, 20112%95633%11565 Apr. 1, 2011–Jun. 30, 20113%115654%13567 Jul. 1, 2011–Sep. 30, 20113%115654%13567 Oct. 1, 2011–Dec. 31, 20112%95633%11565 Jan. 1, 2012–Mar. 31, 20122%576113%59613 Apr. 1, 2012–Jun. 30, 20122%576113%59613 Jul. 1, 2012–Sep. 30, 20122%576113%59613 Oct. 1, 2012–Dec. 31, 20122%576113%59613 Jan. 1, 2013–Mar. 31, 20132%95633%11565 Apr. 1, 2013–Jun. 30, 20132%95633%11565 Jul. 1, 2013–Sep. 30, 20132%95633%11565 Oct. 1, 2013–Dec. 31, 2013 2%95633%11565 Jan. 1, 2014–Mar. 31, 20142%95633%11565 Apr. 1, 2014–Jun. 30, 20142%95633%11565 Jul. 1, 2014–Sep. 30, 20142%95633%11565 Oct. 1, 2014–Dec. 31, 20142%95633%11565 Jan. 1, 2015–Mar. 31, 20152%95633%11565 Apr. 1, 2015–Jun. 30, 20152%95633%11565 Jul. 1, 2015–Sep. 30, 20152%95633%11565 Oct. 1, 2015–Dec. 31, 20152%95633%11565 Jan. 1, 2016–Mar. 31, 20162%576113%59613 Apr. 1, 2016–Jun. 30, 20163%596134%61615 Jul. 1, 2016–Sep. 30, 20163%596134%61615 Oct. 1, 2016–Dec. 31, 20163%596134%61615 Jan. 1, 2017–Mar. 31, 20173%115654%13567 Apr. 1, 2017–Jun. 30, 20173%115654%13567 Jul. 1, 2017–Sep. 30, 20173%115654%13567 Oct. 1, 2017–Dec. 31, 20173%115654%13567 Jan. 1, 2018–Mar. 31, 20183%115654%13567 Apr. 1, 2018–Jun. 30, 20184%135675%15569 Jul. 1, 2018–Sep. 30, 20184% 135675%15569 Oct. 1, 2018–Dec. 31, 20184%135675%15569 Jan. 1, 2019–Mar. 31, 20195%155696%17571 Apr. 1, 2019–Jun. 30, 20195%155696%17571 Jul. 1, 2019–Sep. 30, 20194%135675%15569 Oct. 1, 2019–Dec. 31, 20194%135675%15569 Jan. 1, 2020–Mar. 31, 20204%616155%63617 Bulletin No. 2023–49 1313 December 4, 2023 Apr. 1, 2020–Jun. 30, 20204%616155%63617 Jul. 1, 2020–Sep. 30, 20202%576113%59613 Oct. 1, 2020–Dec. 31, 20202%576113%59613 Jan. 1, 2021–Mar. 31, 20212%95633%11565 Apr. 1, 2021–Jun. 30, 20212%95633%11565 Jul. 1, 2021–Sep. 30, 20212%95633%11565 Oct. 1, 2021–Dec. 31, 20212%95633%11565 Jan. 1, 2022–Mar. 31, 20222%95633%11565 Apr. 1, 2022–Jun. 30, 20223%115654%13567 Jul. 1, 2022–Sep. 30, 20224%135675%15569 Oct. 1, 2022–Dec. 31, 20225%155696%17571 Jan. 1, 2023–Mar. 31, 20236%175717%19573 Apr. 1, 2023–Jun. 30, 20236%175717%19573 Jul. 1, 2023–Sep. 30, 20236%175717%19573 Oct. 1, 2023–Dec. 31, 20237%195738%21575 Jan. 1, 2024–Mar. 31, 20247%676218%69623 December 4, 2023 1314 Bulletin No. 2023–49 TABLE OF INTEREST RATES FOR LARGE CORPORATE UNDERPAYMENTS FROM JANUARY 1, 1991 - PRESENT 1995-1 C.B. RATETABLEPG Jan. 1, 1991–Mar. 31, 199113%31585 Apr. 1, 1991–Jun. 30, 199112%29583 Jul. 1, 1991–Sep. 30, 199112%29583 Oct. 1, 1991–Dec. 31, 199112%29583 Jan. 1, 1992–Mar. 31, 199211%75629 Apr. 1, 1992–Jun. 30, 199210%73627 Jul. 1, 1992–Sep. 30, 199210%73627 Oct. 1, 1992–Dec. 31, 19929%71625 Jan. 1, 1993–Mar. 31, 19939%23577 Apr. 1, 1993–Jun. 30, 19939%23577 Jul. 1, 1993–Sep. 30, 19939%23577 Oct. 1, 1993–Dec. 31, 19939%23577 Jan. 1, 1994–Mar. 31, 19949%23577 Apr. 1, 1994–Jun. 30, 19949%23577 Jul. 1, 1994–Sep. 30, 199410%25579 Oct. 1, 1994–Dec. 31, 199411%27581 Jan. 1, 1995–Jun. 30, 199511%27581 Apr. 1, 1995–Jun. 30, 199512%29583 Jul. 1, 1995–Sep. 30, 199511%27581 Oct. 1, 1995–Dec. 31, 199511%27581 Jan. 1, 1996–Mar. 31, 199611%75629 Apr. 1, 1996–Jun. 30, 199610%73627 Jul. 1, 1996–Sep. 30, 199611%75629 Oct. 1, 1996–Dec. 31, 199611%75629 Jan. 1, 1997–Mar. 31, 199711%27581 Apr. 1, 1997–Jun. 30, 199711%27581 Jul. 1, 1997–Sep. 30, 199711%27581 Oct. 1, 1997–Dec. 31, 199711%27581 Jan. 1, 1998–Mar. 31, 199811%27581 Apr. 1, 1998–Jun. 30, 199810%25579 Jul. 1, 1998–Sep. 30, 199810%25579 Oct. 1, 1998–Dec. 31, 199810%25579 Jan. 1, 1999–Mar. 31, 19999% 23577 Apr. 1, 1999–Jun. 30, 199910%25579 Jul. 1, 1999–Sep. 30, 199910%25579 Oct. 1, 1999–Dec. 31, 199910%25579 Jan. 1, 2000–Mar. 31, 200010%73627 Apr. 1, 2000–Jun. 30, 200011%75629 Jul. 1, 2000–Sep. 30, 200011%75629 Oct. 1, 2000–Dec. 31, 200011%75629 Jan. 1, 2001–Mar. 31, 200111%27581 Bulletin No. 2023–49 1315 December 4, 2023 Apr. 1, 2001–Jun. 30, 200110%25579 Jul. 1, 2001–Sep. 30, 20019%23577 Oct. 1, 2001–Dec. 31, 20019%23577 Jan. 1, 2002–Mar. 31, 20028%21575 Apr. 1, 2002–Sep. 30, 20028%21575 Jul. 1, 2002–Sep. 30, 20028%21575 Oct. 1, 2002–Dec. 31, 20028%21575 Jan. 1, 2003–Mar. 31, 20037%19573 Apr. 1, 2003–Jun. 30, 20037%19573 Jul. 1, 2003–Sep. 30, 20037%19573 Oct. 1, 2003–Dec. 31, 20036%17571 Jan. 1, 2004–Mar. 31, 20046%65619 Apr. 1, 2004–Jun. 30, 20047%67621 Jul. 1, 2004–Sep. 30, 20046%65619 Oct. 1, 2004–Dec. 31, 20047%67621 Jan. 1, 2005–Mar. 31, 20057%19573 Apr. 1, 2005–Jun. 30, 20058%21575 Jul. 1, 2005–Sep. 30, 20058%21575 Oct. 1, 2005–Dec. 31, 20059%23577 Jan. 1, 2006–Mar. 31, 20069%23577 Apr. 1, 2006–Jun. 30, 20069%23577 Jul. 1, 2006–Sep. 30, 200610%25579 Oct. 1, 2006–Dec. 31, 200610%25579 Jan. 1, 2007–Mar. 31, 200710%25579 Apr. 1, 2007–Jun. 30, 200710%25579 Jul. 1, 2007–Sep. 30, 200710%25579 Oct. 1, 2007–Dec. 31, 200710%25579 Jan. 1, 2008–Mar. 31, 20089%71625 Apr. 1, 2008–Sep. 30, 20088%69623 Jul. 1, 2008–Sep. 30, 20087%67621 Oct. 1, 2008–Dec. 31, 20088%69623 Jan. 1, 2009–Mar. 31, 20097%19573 Apr. 1, 2009–Jun. 30, 20096%17571 Jul. 1, 2009–Sep. 30, 20096% 17571 Oct. 1, 2009–Dec. 31, 20096%17571 Jan. 1, 2010–Mar. 31, 20106%17571 Apr. 1, 2010–Jun. 30, 20106%17571 Jul. 1, 2010–Sep. 30, 20106%17571 Oct. 1, 2010–Dec. 31, 20106%17571 Jan. 1, 2011-Mar. 31, 20115%15569 Apr. 1, 2011–Jun. 30, 20116%17571 Jul. 1, 2011–Sep. 30, 20116%17571 Oct. 1, 2011–Dec. 31, 20115%15569 Jan. 1, 2012–Mar. 31, 20125%63617 Apr. 1, 2012–Jun. 30, 20125%63617 Jul. 1, 2012–Sep. 30, 20125%63617 December 4, 2023 1316 Bulletin No. 2023–49 Oct. 1, 2012–Dec. 31, 20125%63617 Jan. 1, 2013–Mar. 31, 20135%15569 Apr. 1, 2013–Jun. 30, 20135%15569 Jul. 1, 2013–Sep. 30, 20135%15569 Oct. 1, 2013–Dec. 31, 20135%15569 Jan. 1, 2014–Mar. 31, 20145%15569 Apr. 1, 2014–Jun. 30, 20145%15569 Jul. 1, 2014–Sep. 30, 20145%15569 Oct. 1, 2014–Dec. 31, 20145%15569 Jan. 1, 2015–Mar. 31, 20155%15569 Apr. 1, 2015–Jun. 30, 20155%15569 Jul. 1, 2015–Sep. 30, 20155%15569 Oct. 1, 2015–Dec. 31, 20155%15569 Jan. 1, 2016–Mar. 31, 20165%63617 Apr. 1, 2016–Jun. 30, 20166%65619 Jul. 1, 2016–Sep. 30, 20166%65619 Oct. 1, 2016–Dec. 31, 20166%65619 Jan. 1, 2017–Mar. 31, 20176%17571 Apr. 1, 2017–Jun. 30, 20176%17571 Jul. 1, 2017–Sep. 30, 20176%17571 Oct. 1, 2017–Dec. 31, 20176%17571 Jan. 1, 2018–Mar. 31, 20186%17571 Apr. 1, 2018–Jun. 30, 20187%19573 Jul. 1, 2018–Sep. 30, 20187%19573 Oct. 1, 2018–Dec. 31, 20187%19573 Jan. 1, 2019–Mar. 31, 20198%21575 Apr. 1, 2019–Jun. 30, 20198%21575 Jul. 1, 2019–Sep. 30, 20197%19573 Oct. 1, 2019–Dec. 31, 20197%19573 Jan. 1, 2020–Mar. 31, 20207%67621 Apr. 1, 2020–Jun. 30, 20207%67621 Jul. 1, 2020–Sep. 30, 20205%63617 Oct. 1, 2020–Dec. 31, 20205%63617 Jan. 1, 2021–Mar. 31, 20215% 15569 Apr. 1, 2021–Jun. 30, 20215%15569 Jul. 1, 2021–Sep. 30, 20215%15569 Oct. 1, 2021–Dec. 31, 20215%15569 Jan. 1, 2022–Mar. 31, 20225%15569 Apr. 1, 2022–Jun. 30, 20226%17571 Jul. 1, 2022–Sep. 30, 20227%19573 Oct. 1, 2022–Dec. 31, 20228%21575 Jan. 1, 2023–Mar. 31, 20239%23577 Apr. 1, 2023-Jun. 30, 20239%23577 Jul. 1, 2023–Sep. 30, 20239%23577 Oct. 1, 2023–Dec. 31, 202310%25579 Jan. 1, 2024–Mar. 31, 202410%73627 Bulletin No. 2023–49 1317 December 4, 2023 TABLE OF INTEREST RATES FOR CORPORATE OVERPAYMENTS EXCEEDING $10,000 FROM JANUARY 1, 1995 – PRESENT 1995-1 C.B. RATETABLEPG Jan. 1, 1995–Mar. 31, 19956.5%18572 Apr. 1, 1995–Jun. 30, 19957.5%20574 Jul. 1, 1995–Sep. 30, 19956.5%18572 Oct. 1, 1995–Dec. 31, 19956.5%18572 Jan. 1, 1996–Mar. 31, 19966.5%66620 Apr. 1, 1996–Jun. 30, 19965.5%64618 Jul. 1, 1996–Sep. 30, 19966.5%66620 Oct. 1, 1996–Dec. 31, 19966.5%66620 Jan. 1, 1997–Mar. 31, 19976.5%18572 Apr. 1, 1997–Jun. 30, 19976.5%18572 Jul. 1, 1997–Sep. 30, 19976.5%18572 Oct. 1, 1997–Dec. 31, 19976.5%18572 Jan. 1, 1998–Mar. 31, 19986.5%18572 Apr. 1, 1998–Jun. 30, 19985.5%16570 Jul. 1, 1998–Sep. 30, 19985.5%16570 Oct. 1, 1998–Dec. 31, 19985.5%16570 Jan. 1, 1999–Mar. 31, 19994.5%14568 Apr. 1, 1999–Sep. 30, 19995.5%16570 Jul. 1, 1999–Sep. 30, 19995.5%16570 Oct. 1, 1999–Dec. 31, 19995.5%16570 Jan. 1, 2000–Mar. 31, 20005.5%64618 Apr. 1, 2000–Jun. 30, 20006.5%66620 Jul. 1, 2000–Sep. 30, 20006.5%66620 Oct. 1, 2000–Dec. 31, 20006.5%66620 Jan. 1, 2001–Mar. 31, 20016.5%18572 Apr. 1, 2001–Jun. 30, 20015.5%16570 Jul. 1, 2001–Sep. 30, 20014.5%14568 Oct. 1, 2001–Dec. 31, 20014.5%14568 Jan. 1, 2002–Mar. 31, 20023.5%12566 Apr. 1, 2002–Jun. 30, 20023.5%12566 Jul. 1, 2002–Sep. 30, 20023.5%12566 Oct. 1, 2002–Dec. 31, 20023.5%12566 Jan. 1, 2003–Mar. 31, 20032.5% 10564 Apr. 1, 2003–Jun. 30, 20032.5%10564 Jul. 1, 2003–Sep. 30, 20032.5%10564 Oct. 1, 2003–Dec. 31, 20031.5%8562 Jan. 1, 2004–Mar. 31, 20041.5%56610 Apr. 1, 2004–Jun. 30, 20042.5%58612 December 4, 2023 1318 Bulletin No. 2023–49 Jul. 1, 2004–Sep. 30, 20041.5%56610 Oct. 1, 2004–Dec. 31, 20042.5%58612 Jan. 1, 2005–Mar. 31, 20052.5%10564 Apr. 1, 2005–Jun. 30, 20053.5%12566 Jul. 1, 2005–Sep. 30, 20053.5%12566 Oct. 1, 2005–Dec. 31, 20054.5%14568 Jan. 1, 2006–Mar. 31, 20064.5%14568 Apr. 1, 2006–Jun. 30, 20064.5%14568 Jul. 1, 2006–Sep. 30, 20065.5%16570 Oct. 1, 2006–Dec. 31, 20065.5%16570 Jan. 1, 2007–Mar. 31, 20075.5%16570 Apr. 1, 2007–Jun. 30, 20075.5%16570 Jul. 1, 2007–Sep. 30, 20075.5%16570 Oct. 1, 2007–Dec. 31, 20075.5%16570 Jan. 1, 2008–Mar. 31, 20084.5%62616 Apr. 1, 2008–Jun. 30, 20083.5%60614 Jul. 1, 2008–Sep. 30, 20082.5%58612 Oct. 1, 2008–Dec. 31, 20083.5%60614 Jan. 1, 2009–Mar. 31, 20092.5%10564 Apr. 1, 2009–Jun. 30, 20091.5%8562 Jul. 1, 2009–Sep. 30, 20091.5%8562 Oct. 1, 2009–Dec. 31, 20091.5%8562 Jan. 1, 2010–Mar. 31, 20101.5%8562 Apr. 1, 2010–Jun. 30, 20101.5%8562 Jul. 1, 2010–Sep. 30, 20101.5%8562 Oct. 1, 2010–Dec. 31, 20101.5%8562 Jan. 1, 2011–Mar. 31, 20110.5%* Apr. 1, 2011–Jun. 30, 20111.5%8562 Jul. 1, 2011–Sep. 30, 20111.5%8562 Oct. 1, 2011–Dec. 31, 20110.5%* Jan. 1, 2012–Mar. 31, 20120.5%* Apr. 1, 2012–Jun. 30, 20120.5%* Jul. 1, 2012–Sep. 30, 20120.5%* Oct. 1, 2012–Dec. 31, 20120.5%* Jan. 1, 2013–Mar. 31, 20130.5%* Apr. 1, 2013–Jun. 30, 20130.5%* Jul. 1, 2013–Sep. 30, 20130.5%* Oct. 1, 2013–Dec. 31, 20130.5%* Jan. 1, 2014–Mar. 31, 20140.5%* Apr. 1, 2014–Jun. 30, 20140.5%* Jul. 1, 2014–Sep. 30, 20140.5%* Oct. 1, 2014–Dec. 31, 20140.5%* Bulletin No. 2023–49 1319 December 4, 2023 Jan. 1, 2015–Mar. 31, 20150.5%* Apr. 1, 2015–Jun. 30, 20150.5%* Jul. 1, 2015–Sep. 30, 20150.5%* Oct. 1, 2015–Dec. 31, 20150.5%* Jan. 1, 2016–Mar. 31, 20160.5%* Apr. 1, 2016–Jun. 30, 20161.5%56610 Jul. 1, 2016–Sep. 30, 20161.5%56610 Oct. 1, 2016–Dec. 31, 20161.5%56610 Jan. 1, 2017–Mar. 31, 20171.5%8562 Apr. 1, 2017–Jun. 30, 20171.5%8562 Jul. 1, 2017–Sep. 30, 20171.5%8562 Oct. 1, 2017–Dec. 31, 20171.5%8562 Jan. 1, 2018–Mar. 31, 20181.5%8562 Apr. 1, 2018–Jun. 30, 20182.5%10564 Jul. 1, 2018–Sep. 30, 20182.5%10564 Oct. 1, 2018–Dec. 31, 20182.5%10564 Jan. 1, 2019–Mar. 31, 20193.5%12566 Apr. 1, 2019–Jun. 30, 20193.5%12566 Jul. 1, 2019–Sep. 30, 20192.5%10564 Oct. 1, 2019–Dec. 31, 20192.5%10564 Jan. 1, 2020–Mar. 31, 20202.5%58612 Apr. 1, 2020–Jun. 30, 20202.5%58612 Jul. 1, 2020–Sep. 30, 20200.5%* Oct. 1, 2020–Dec. 31, 20200.5%* Jan. 1, 2021–Mar. 31, 20210.5%* Apr. 1, 2021–Jun. 30, 20210.5%* Jul. 1, 2021–Sep. 30, 20210.5%* Oct. 1, 2021–Dec. 31, 20210.5%* Jan. 1, 2022–Mar. 31, 20220.5%* Apr. 1, 2022–Jun. 30, 20221.5%8562 Jul. 1, 2022–Sep. 30, 20222.5%10564 Oct. 1, 2022–Dec. 31, 20223.5%12566 Jan. 1, 2023–Mar. 31, 20234.5%14568 Apr. 1, 2023–Jun. 30, 20234.5%14568 Jul. 1, 2023–Sep. 30, 2023 4.5%14568 Oct. 1, 2023–Dec. 31, 20235.5%16570 Jan. 1, 2024–Mar. 31, 2024 5.5%64618 * The asterisk reflects the interest factors for daily compound interest for annual rates of 0.5 percent published in Appendix A of this Revenue Ruling. December 4, 2023 1320 Bulletin No. 2023–49 Part III Update for Weighted Average Interest Rates, Yield Curves, and Segment Rates Notice 2023-76 This notice provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under § 417(e)(3), and the 24-month aver- age segment rates under § 430(h)(2) of the Internal Revenue Code. In addition, this notice provides guidance as to the inter- est rate on 30-year Treasury securities under § 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under § 431(c)(6)(E)(ii)(I). YIELD CURVE AND SEGMENT RATES Section 430 specifies the minimum funding requirements that apply to sin- gle-employer plans (except for CSEC plans under § 414(y)) pursuant to § 412. Section 430(h)(2) specifies the interest rates that must be used to determine a plan’s target normal cost and funding target. Under this provision, present value is generally determined using three 24-month average interest rates (“segment rates”), each of which applies to cash flows during speci- fied periods. To the extent provided under § 430(h)(2)(C)(iv), these segment rates are adjusted by the applicable percentage of the 25-year average segment rates for the period ending September 30 of the year preceding the calendar year in which the plan year begins. 1 However, an elec- tion may be made under § 430(h)(2)(D) (ii) to use the monthly yield curve in place of the segment rates. Notice 2007-81, 2007-44 I.R.B. 899, provides guidelines for determining the monthly corporate bond yield curve, and the 24-month average corporate bond seg- ment rates used to compute the target nor- mal cost and the funding target. Consistent with the methodology specified in Notice 2007-81, the monthly corporate bond yield curve derived from October 2023 data is in Table 2023-10 at the end of this notice. The spot first, second, and third segment rates for the month of October 2023 are, respectively, 5.77, 6.14, and 6.19. The 24-month average segment rates determined under § 430(h)(2)(C)(i) through (iii) must be adjusted pursuant to § 430(h) (2)(C)(iv) to be within the applicable mini- mum and maximum percentages of the cor- responding 25-year average segment rates. For this purpose, any 25-year average seg- ment rate that is less than 5% is deemed to be 5%. The 25-year average segment rates for plan years beginning in 2022, 2023 and 2024 were published in Notice 2021-54, 2021-41 I.R.B. 457, Notice 2022-40, 2022- 40 I.R.B. 266, and Notice 2023-66, 2023- 40 I.R.B. 992, respectively. The applicable minimum and maximum percentages are 95% and 105% for plan years beginning in 2022, 2023 and 2024. 24-MONTH AVERAGE CORPORATE BOND SEGMENT RATES The three 24-month average corporate bond segment rates applicable for November 2023 without adjustment for the 25-year average segment rate limits are as follows: 24-Month Average Segment Rates Without 25-Year Average Adjustment Applicable Month First Segment Second Segment Third Segment November 2023 4.02 4.73 4.75 The adjusted 24-month average segment rates set forth in the chart below reflect § 430(h)(2)(C)(iv) of the Code. The 24-month averages applicable for November 2023, adjusted to be within the applicable min- imum and maximum percentages of the corresponding 25-year average segment rates in accordance with § 430(h)(2)(C)(iv) of the Code, are as follows: Adjusted 24-Month Average Segment Rates For Plan Years Beginning InApplicable MonthFirst SegmentSecond SegmentThird Segment 2022November 20234.755.185.92 2023November 20234.755.005.74 2024November 20234.754.875.59 30-YEAR TREASURY SECURITIES INTEREST RATES Section 431 specifies the minimum funding requirements that apply to multiemployer plans pursuant to § 412. Section 431(c)(6)(B) specifies a mini- mum amount for the full-funding limita- tion described in § 431(c)(6)(A), based on the plan’s current liability. Section 431(c) (6)(E)(ii)(I) provides that the interest 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 1 Pursuant to § 433(h)(3)(A), the third segment rate determined under § 430(h)(2)(C) is used to determine the current liability of a CSEC plan (which is used to calculate the minimum amount of the full funding limitation under § 433(c)(7)(C)). Bulletin No. 2023–49 1321 December 4, 2023 on 30-year Treasury securities during 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 rate of interest on 30-year Treasury securities for October 2023 is 4.94 percent. The Service deter- mined this rate as the average of the daily determinations of yield on the 30-year Treasury bond maturing in August 2053. For plan years beginning in November 2023, the weighted average of the rates of interest on 30-year Treasury securities and the permissible range of rates used to calculate current liability are as follows: Treasury Weighted Average Rates For Plan Years Beginning In30-Year Treasury Weighted AveragePermissible Range 90% to 105% November 20233.002.70 to 3.15 MINIMUM PRESENT VALUE SEGMENT RATES In general, the applicable interest rates under § 417(e)(3)(D) are segment rates computed without regard to a 24-month average. Notice 2007-81 provides guide- lines for determining the minimum present value segment rates. Pursuant to that notice, the minimum present value segment rates determined for October 2023 are as follows: Minimum Present Value Segment Rates Month First Segment Second Segment Third Segment October 2023 5.77 6.14 6.19 DRAFTING INFORMATION The principal author of this notice is Tom Morgan of the Office of Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes). However, other personnel from the IRS participated in the development of this guidance. For further information regarding this notice, contact Mr. Morgan at 202-317-6700 or Tony Montanaro at 626-927-1475 (not toll-free numbers). December 4, 2023 1322 Bulletin No. 2023–49 Table 2023-10 Monthly Yield Curve for October 2023 Derived from September 2023 Data MaturityYieldMaturityYieldMaturityYieldMaturityYieldMaturityYield 0.55.8620.56.2440.56.1860.56.1680.56.16 1.05.8321.06.2441.06.1861.06.1681.06.16 1.55.8021.56.2341.56.1861.56.1681.56.16 2.05.7822.06.2342.06.1862.06.1682.06.16 2.55.7522.56.2342.56.1862.56.1682.56.16 3.05.7423.06.2243.06.1863.06.1683.06.16 3.55.7323.56.2243.56.1863.56.1683.56.16 4.05.7324.06.2244.06.1864.06.1684.06.16 4.55.7424.56.2144.56.1864.56.1684.56.16 5.05.7625.06.2145.06.1765.06.1685.06.15 5.55.7825.56.2145.56.1765.56.1685.56.15 6.05.8126.06.2146.06.1766.06.1686.06.15 6.5 5.8526.56.2146.56.1766.56.1686.56.15 7.05.8927.06.2047.06.1767.06.1687.06.15 7.55.9327.56.2047.56.1767.56.1687.56.15 8.05.9728.06.2048.06.1768.06.1688.06.15 8.56.0128.56.2048.56.1768.56.1688.56.15 9.06.0529.06.2049.06.1769.06.1689.06.15 9.56.0829.56.2049.56.1769.56.1689.56.15 10.06.1130.06.2050.06.1770.06.1690.06.15 10.56.1430.56.1950.56.1770.56.1690.56.15 11.06.1631.06.1951.06.1771.06.1691.06.15 11.56.1931.56.1951.56.1771.56.1691.56.15 12.06.2032.06.1952.06.1772.06.1692.06.15 12.56.2232.56.1952.56.1772.56.1692.56.15 13.06.2333.06.1953.0 6.1773.06.1693.06.15 13.56.2433.56.1953.56.1773.56.1693.56.15 14.06.2534.06.1954.06.1774.06.1694.06.15 14.56.2634.56.1954.56.1774.56.1694.56.15 15.06.2635.06.1955.06.1775.06.1695.06.15 15.56.2635.56.1955.56.1775.56.1695.56.15 16.06.2636.06.1956.06.1776.06.1696.06.15 16.56.2636.56.1856.56.1776.56.1696.56.15 17.06.2637.06.1857.06.1777.06.1697.06.15 17.56.2637.56.1857.56.1777.56.1697.56.15 18.06.2638.06.1858.06.1778.06.1698.06.15 18.56.2538.56.1858.56.1778.56.1698.56.15 19.06.2539.06.1859.06.1679.06.1699.06.15 19.56.2539.56.1859.56.1679.56.1699.5 6.15 20.06.2440.06.1860.06.1680.06.16100.06.15 Bulletin No. 2023–49 1323 December 4, 2023 Part IV Notice of Proposed Rulemaking Statutory Disallowance of Deductions for Certain Qualified Conservation Contributions Made by Partnerships and S Corporations REG-112916-23 AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemak- ing and notice of public hearing. SUMMARY: This document contains proposed regulations concerning the stat- utory disallowance rule enacted by the SECURE 2.0 Act of 2022 to disallow a Federal income tax deduction for a qual- ified conservation contribution made by a partnership or an S corporation after December 29, 2022, if the amount of the contribution exceeds 2.5 times the sum of each partner’s or S corporation sharehold- er’s relevant basis. The proposed regula- tions would provide guidance regarding this statutory disallowance rule, including definitions, appropriate methods to cal- culate the relevant basis of a partner or an S corporation shareholder, the three statutory exceptions to the statutory dis- allowance rule, and related reporting requirements. In addition, the proposed regulations would provide reporting requirements for partners and S corpo- ration shareholders that receive a dis- tributive share or pro rata share of any noncash charitable contribution made by a partnership or S corporation, regardless of whether the contribution is a qualified conservation contribution (and regard- less of whether the contribution is of real property or other noncash property). These proposed regulations would affect partnerships and S corporations that claim qualified conservation contributions, and partners and S corporation shareholders that receive a distributive share or pro rata share, as applicable, of a noncash charita- ble contribution. This document also pro- vides a notice of public hearing on these proposed regulations. DATES: Written or electronic comments must be received by December 20, 2023. The public hearing on these proposed reg- ulations is scheduled to be held on January 3, 2024, at 10 a.m. ET. Requests to speak and outlines of topics to be discussed at the public hearing must be received by December 20, 2023. If no outlines are received by December 20, 2023, the pub- lic hearing will be cancelled. Requests to attend the public hearing must be received by 5 p.m. on December 29, 2023. The public hearing will be made accessible to people with disabilities. Requests for spe- cial assistance during the hearing must be received by 5 p.m. on December 28, 2023. ADDRESSES: Commenters are strongly encouraged to submit public comments electronically. Submit electronic submis- sions via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG-112916-23) by following the online instructions for submitting comments. Once submitted to the Federal eRulemaking Portal, comments cannot be edited or withdrawn. The Department of Treasury (Treasury Department) and the IRS will publish for public availability any comments submitted, whether elec- tronically or on paper, to the IRS’s pub- lic docket. Requests for a public hearing must be submitted as prescribed in the “Comments and Public Hearing” section. Send paper submissions to: CC:PA:01:PR (REG-112916-23), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington DC 20044. FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations under §§1.170A-14, 1.706-3, and 1.706-4, contact Benjamin Weaver at (202) 317-6850 (not a toll-free num- ber); concerning the proposed regulations under §1.170A-16 and issues regarding section 170 other than section 170(h)(7), contact Elizabeth Boone at (202) 317- 5100 and Hannah Kim at (202) 317-7003 (not toll-free numbers); and concerning submissions of comments and requests for a public hearing, contact Vivian Hayes at (202) 317-6901 (not a toll-free number) or by email to publichearings@irs.gov (preferred). SUPPLEMENTARY INFORMATION: Background I. Overview This document contains proposed reg- ulations that would amend the Income Tax Regulations (26 CFR part 1) under sec- tions 170 and 706 of the Internal Revenue Code (Code) to implement the provisions of section 605(a) and (b) of the SECURE 2.0 Act of 2022 (SECURE 2.0 Act), enacted as Division T of the Consolidated Appropriations Act, 2023, Public Law 117-328, 136 Stat. 4459, 5393 (December 29, 2022), which apply to contributions of property made after December 29, 2022. II. Charitable Contribution Deductions Section 170(a) provides, subject to cer- tain limitations and requirements, a deduc- tion for any charitable contribution, as defined in section 170(c), of cash or other property the payment of which is made within the taxable year. Section 170(f) dis- allows charitable contribution deductions in certain cases and provides special rules. Section 170(f)(3)(A) provides that, in the case of a contribution (not made by a transfer in trust) of an interest in property that consists of less than the taxpayer’s entire interest in such property, a deduc- tion will be allowed only to the extent that the value of the interest contributed would be allowable as a deduction under section 170 if such interest had been transferred in trust. Section 170(f)(3)(B)(iii) provides that section 170(f)(3)(A) does not apply to a qualified conservation contribution (discussed in part III of this Background section). Section 170(f)(11) requires a qualified appraisal and other documentation for a December 4, 2023 1324 Bulletin No. 2023–49 charitable contribution deduction to be allowed with respect to certain contribu- tions of property. Section 170(f)(11) also includes special rules for contributions of property other than cash (noncash chari- table contributions) of more than $5,000 and for noncash charitable contributions of more than $500,000. In addition, sec- tion 170(f)(11)(H) provides that the Secretary of the Treasury or her delegate (Secretary) may prescribe such regula- tions as may be necessary or appropriate to carry out the purposes of section 170(f) (11). Section 6001 provides that every person liable for any tax imposed by title 26, United States Code (title 26) must keep such records, render such statements, make such returns, and comply with such rules and regulations as the Secretary may from time to time prescribe. In addition, section 6011 provides, in part, that, when- ever required by regulations prescribed by the Secretary, any person made liable for any tax imposed by title 26 must make a return or statement according to the forms and regulations prescribed by the Secretary and include therein the informa- tion required by such forms or regulations. Under the authority of sections 170(f)(11) (H), 6001, and 6011, existing regulations under §1.170A-16 provide substantiation and reporting requirements that must be satisfied for a deduction to be allowed under section 170 with respect to noncash charitable contributions. III. Qualified Conservation Contributions Section 170(h)(1) provides that, in general, for purposes of section 170(f)(3) (B)(iii), the term “qualified conservation contribution” means a contribution (1) of a qualified real property interest, (2) to a qualified organization, (3) exclusively for conservation purposes. Section 170(h) (2) defines the term “qualified real prop- erty interest,” section 170(h)(3) defines the term “qualified organization,” section 170(h)(4) defines the term “conservation purpose,” and section 170(h)(5) defines the term “exclusively for conservation purposes.” In general, a qualified conser- vation contribution may include a contri- bution of a conservation easement. The existing regulations under §1.170A-14 provide rules for qualified conservation contributions described in section 170(h). Consistent with section 170(f)(3), §1.170A-14(a) provides that a deduction under section 170 generally is not allowed for a charitable contribution of any interest in property that consists of less than the donor’s entire interest in the property other than certain transfers in trust. However, by reason of section 170(f) (3)(B)(iii), a deduction may be allowed for the value of a qualified conservation con- tribution if the requirements of §1.170A- 14 are met. To be eligible for a deduction under §1.170A-14, the conservation pur- pose of the contribution must be protected in perpetuity. See §1.170A-14(a) and (g). IV. Syndicated Conservation Easement Transactions On December 23, 2016, the Treasury Department and the IRS released Notice 2017-10, 2017-4 I.R.B. 544, which iden- tified transactions that are the same as or substantially similar to certain syndi- cated conservation easement transactions as “listed transactions” under §1.6011-4 subject to certain disclosure and list main- tenance requirements. Notice 2017-10 explains that the Treasury Department and the IRS are aware that some promot- ers are syndicating conservation easement transactions that purport to give investors the opportunity to obtain charitable con- tribution deductions in amounts that sig- nificantly exceed the amounts invested. In addition, Notice 2017-10 provides that a transaction is a listed transaction if (1) an investor receives promotional materials that offer a prospective investor in a pass- through entity the possibility of a charita- ble contribution deduction that equals or exceeds an amount that is 2.5 times the amount of the investor’s investment, (2) the investor purchases an interest directly or indirectly (through one or more tiers of pass-through entities) in the pass-through entity that holds real property, (3) the pass-through entity contributes a conser- vation easement and allocates, directly or through one or more tiers of pass-through entities, a charitable contribution to the investor, and (4) the investor reports on the investor’s Federal income tax return a charitable contribution deduction with respect to the conservation easement. Congress continued to be concerned about abusive syndicated conservation easement transactions even after Notice 2017-10 was issued, and the transactions were the subject of an investigation by the U.S. Senate Committee on Finance, which issued a report on August 25, 2020. S. Committee on Finance, Comm. Print 116-44, Syndicated Conservation- Easement Transactions, 116th Cong., 2nd Sess. (2020) (Committee Report). The Committee Report found that the syndi- cated conservation easement transactions examined were nothing more than retail tax shelters allowing taxpayers to buy tax deductions at the end of any given tax year. Id. at 3. The Committee Report further stated that these tax deductions could be purchased with no economic risk. Id. As such, the Finance Committee concluded that further action was neces- sary to preserve the integrity of the con- servation easement tax deduction despite ongoing efforts to combat this abuse such as the issuance of Notice 2017-10 and IRS enforcement action. Id. at 4. In a separate report accompanying an earlier proposal for amending sec- tion 170(h), in legislation proposed as the “Enhancing American Retirement Now Act,” the Committee on Finance recognized charitable deductions for the donation of conservation easements as an important tool and incentive to protect the environment and historic structures. S. Rep. No. 117-142 on S. 4808, at 218, 117th Cong., 2nd Sess. (2022). Citing its findings from the 2020 Committee Report, the Committee noted, however, that abu- sive tax shelter transactions put the con- servation easement tax deduction at risk. The Committee ultimately found it appro- priate to take legislative action to protect the integrity of the conservation easement tax deduction for easement donations with a legitimate conservation purpose. Id. On December 8, 2022, the Treasury Department and the IRS published in the Federal Register (87 FR 75185) a notice of proposed rulemaking (REG-106134- 22) identifying syndicated conservation easement transactions and substantially similar transactions as listed transactions (listing NPRM). The definition of a syn- dicated conservation easement trans- action in proposed §1.6011-9 of the listing NPRM is similar to the definition in Notice 2017-10. The purpose of the list- ing NPRM was to eliminate any confusion Bulletin No. 2023–49 1325 December 4, 2023 and ensure consistent enforcement of Federal tax laws throughout the nation in light of certain judicial decisions holding that, under the Administrative Procedure Act, 5 U.S.C. chapter 5, subchapter II, listed transactions may be identified only after following notice and comment pro- cedures. See, e.g., Mann Construction, Inc. v. United States, 27 F.4th 1138 (6th Cir. 2022), and Green Valley Investors, LLC, et al. v. Commissioner, 159 T.C. No. 5 (2022). The Treasury Department and the IRS are in the process of considering the comments received and finalizing the listing NPRM. V. Section 605 of the SECURE 2.0 Act Section 170(h)(7) was added to the Code by section 605(a)(1) of the SECURE 2.0 Act. Section 170(h)(7)(A) states that a contribution by a partnership (whether directly or as a distributive share of a con- tribution of another partnership) is not treated as a qualified conservation contri- bution for purposes of section 170 if the amount of such contribution exceeds 2.5 times the sum of each partner’s relevant basis in such partnership (Disallowance Rule). Thus, a contribution of a quali- fied real property interest to a qualified organization exclusively for conservation purposes is not a qualified conservation contribution if the Disallowance Rule applies. Section 170(h)(7)(F) provides that the rules of section 170(h)(7) “apply to S corporations and other pass-through entities in the same manner as such rules apply to partnerships” except as the Secretary may otherwise provide. Section 170(h)(7)(B) defines the terms “relevant basis” and “modified basis,” section 170(h)(7)(C), (D), and (E) pro- vide three exceptions to the Disallowance Rule, and section 170(h)(7)(G) provides a specific grant of regulatory authority to the Secretary to issue regulations or other guidance as the Secretary determines are necessary or appropriate to carry out the purposes of the Disallowance Rule, including reporting requirements and rules to prevent the avoidance of the Disallowance Rule. Section 605(a)(2) of the SECURE 2.0 Act modifies certain penalty provisions in sections 6662, 6664, and 6751 of the Code to provide special rules for charitable contribution deductions disallowed by section 170(h)(7). Section 605(a)(3) of the SECURE 2.0 Act provides that any charitable contribution for which a deduc- tion was disallowed under section 170(h) (7) is treated, for purposes of the period of limitations on assessment and collection of tax in section 6501 of the Code and the period of limitations on making adjust- ments in section 6235 of the Code, as a transaction specifically identified by the Secretary as a tax-avoidance transaction. Section 605(b) of the SECURE 2.0 Act added section 170(f)(19) to the Code, which provides that, in the case of a partnership or S corporation claim- ing a qualified conservation contribution for the preservation of a building that is a certified historic structure (as defined in section 170(h)(4)(C)) in an amount that exceeds 2.5 times the sum of each part- ner’s or S corporation shareholder’s rel- evant basis (as defined in section 170(h) (7)), no deduction under section 170 is allowed unless, as provided in section 170(f)(19)(A)(i) and (ii), the partnership or S corporation includes on its return for the taxable year a statement that such con- tribution was made and any other infor- mation as the Secretary may require. A contribution to preserve a certified historic structure is one of the three exceptions to the Disallowance Rule. Section 605(c) of the SECURE 2.0 Act provides that the amendments made by section 605 of the SECURE 2.0 Act apply to contributions made after December 29, 2022, and that no inference is intended as to the appropriate treatment of contribu- tions made in taxable years ending on or before that date, or as to any contribution for which a deduction is not disallowed by reason of section 170(h)(7). VI. Overview of the Disallowance Rule The Disallowance Rule provides that a contribution by a partnership (whether directly or as a distributive share of a con- tribution of another partnership) is not treated as a qualified conservation contri- bution for purposes of section 170 if the amount of such contribution exceeds 2.5 times the sum of each partner’s relevant basis in such partnership. If such a contri- bution is not treated as a qualified conser- vation contribution, then the general rule under section 170(f)(3)(A) disallowing a charitable contribution deduction under section 170 for a contribution of a partial interest in property applies. Thus, if the Disallowance Rule applies, any amount of deduction under section 170 for a qualified conservation contribution is disallowed. Section 170(h)(7)(B)(i) provides that, for purposes of section 170(h)(7), the term “relevant basis” means, with respect to any partner, the portion of such partner’s modified basis in the partnership that is allocable (under rules similar to the rules of section 755 of the Code for allocating certain special basis adjustments to part- nership property) to the portion of the real property with respect to which the contribution described in section 170(h) (7)(A) is made. Section 170(h)(7)(B) (ii) provides that, for purposes of sec- tion 170(h)(7), the term “modified basis” means, with respect to any partner, such partner’s adjusted basis in the partnership as determined (1) immediately before the contribution described in section 170(h) (7)(A), (2) without regard to the treatment of partnership liabilities in section 752, and (3) by the partnership after taking into account these first two adjustments and such other adjustments as the Secretary may provide. Section 170(h)(7) contains three excep- tions to the Disallowance Rule. First, section 170(h)(7)(C) provides that the Disallowance Rule does not apply to any contribution made at least three years after the latest of (1) the last date on which the partnership that made such contribution acquired any portion of the real property with respect to which such contribution is made, (2) the last date on which any partner in the partnership that made such contribution acquired any interest in such partnership, and (3) if the interest in the partnership that made such contribution is held through one or more partnerships, the last date on which any such partnership acquired any interest in any other such partnership, and the last date on which any partner in any such partnership acquired any interest in such partnership. Second, section 170(h)(7)(D)(i) pro- vides that the Disallowance Rule does not apply to any contribution made by any part- nership if substantially all of the partner- ship interests in such partnership are held, directly or indirectly, by an individual and December 4, 2023 1326 Bulletin No. 2023–49 members of the family of such individual. Section 170(h)(7)(D)(ii) provides that, for purposes of section 170(h)(7)(D), the term “members of the family” means, with respect to any individual (I) the spouse of such individual, and (II) any individual who bears a relationship to such individ- ual that is described in section 152(d)(2) (A) through (G) of the Code for purposes of determining whether an individual is a qualifying relative. Third, section 170(h)(7)(E) provides that the Disallowance Rule does not apply to any qualified conservation contribution the conservation purpose of which is the preservation of any building that is a cer- tified historic structure (as defined in sec- tion 170(h)(4)(C)). Section 170(h)(7)(F) provides that, except as may be otherwise provided by the Secretary, the rules of section 170(h) (7) apply to S corporations and other pass- through entities in the same manner as such rules apply to partnerships. Section 170(h)(7)(G) authorizes the Secretary to prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of section 170(h)(7), including regulations or other guidance (1) to require reporting, including reporting related to tiered part- nerships and the modified basis of part- ners, and (2) to prevent the avoidance of the purposes of section 170(h)(7). Explanation of Provisions I. Overview These proposed regulations would address several requirements added by section 605 of the SECURE 2.0 Act and make several related clarifying changes to the existing regulations applicable to qualified charitable contributions. First, these proposed regulations would make changes to existing §1.170A-14, includ- ing modifying paragraph (a) to reference the Disallowance Rule and adding new paragraphs (j) through (n) to §1.170A-14 to provide guidance on the application of the Disallowance Rule to partnerships and S corporations, the computation of relevant basis and modified basis, includ- ing in tiered structures, and the three statutory exceptions to the Disallowance Rule. These proposed regulations would pro- vide specific rules for partnerships and S corporations, but do not specifically address other types of pass-through enti- ties. The Treasury Department and the IRS continue to study whether specific rules are needed for other types of pass- through entities and request comments on the application of section 170(f)(19) and (h)(7) to pass-through entities other than partnerships and S corporations. The Treasury Department and the IRS intend to issue future guidance on other issues relating to section 605 of SECURE 2.0 Act, including additional guidance relat- ing to the three statutory exceptions to the Disallowance Rule. Second, these proposed regulations would make changes to the reporting requirements in §1.170A-16 to address substantiation of charitable contribu- tion deductions as well as to implement section 170(f)(19)(A)(i). The Treasury Department and the IRS intend to issue future guidance addressing section 170(f) (19)(A)(ii). Finally, these proposed regulations propose new language in §§1.706-3 and 1.706-4 to facilitate the operation of the Disallowance Rule in the case of a qual- ified conservation contribution made by a partnership. II. Clarifying Change to §1.170A-14(a) The second sentence of existing §1.170A-14(a) provides that a deduc- tion may be allowed under section 170(f) (3)(B)(iii) for the value of a qualified conservation contribution if the require- ments of §1.170A-14 are met. Because the Disallowance Rule provided in sec- tion 170(h)(7) is proposed to be contained in §1.170A-14(j) through (n), proposed §1.170A-14(a) would amend this sentence to provide that a deduction may be allowed under section 170(f)(3)(B)(iii) for the value of a qualified conservation contribution if the requirements of §1.170A-14 are met and the contribution is not a disallowed qualified conservation contribution within the meaning of proposed §1.170A-14(j). III. Disallowance Rule and Its Exceptions Proposed §1.170A-14(j) would provide guidance on the general applicability of the Disallowance Rule to partnerships and S corporations. Proposed §1.170A-14(j) (3) would provide definitions. Consistent with section 170(h)(7)(B), proposed §1.170A-14(k) would provide that the term “relevant basis” means, with respect to any ultimate member (as defined in proposed §1.170A-14(j)(3)(x)), the por- tion of such ultimate member’s modi- fied basis (as determined under proposed §1.170A-14(l)) that is allocable (under the rules of proposed §1.170A-14(m)) to the portion of the real property with respect to which the qualified conser- vation contribution is made. Proposed §1.170A-14(l) would provide guidance on the determination of modified basis. Proposed §1.170A-14(m) would provide guidance on the allocation of modified basis to the portion of the real property with respect to which the qualified conser- vation contribution was made. Proposed §1.170A-14(m)(6) would impose record- keeping requirements for substantiating the computation of each ultimate mem- ber’s adjusted basis, modified basis, and relevant basis by the due date, including extensions, of the partnership’s or S cor- poration’s Federal income tax return. Proposed §1.170A-14(n) would provide guidance on the three statutory exceptions to the Disallowance Rule. A. General Disallowance Rule for Partnerships and S Corporations Consistent with section 170(h)(7)(A), proposed §1.170A-14(j)(1) would provide that proposed §1.170A-14(j) applies the rules of section 170(h)(7), which disallow a deduction under the Code and §1.170A- 14 for certain qualified conservation con- tributions, as defined in section 170(h)(1) and §1.170A-14, made by, or allocated to, partnerships or S corporations if the amount of the qualified conservation con- tribution exceeds 2.5 times the sum of the relevant bases, as determined by proposed §1.170A-14(j) through (m). Proposed §1.170A-14(j)(3)(vii) would define a con- tribution for which a deduction is disal- lowed by §1.170A-14(j) as a “disallowed qualified conservation contribution.” Proposed §1.170A-14(j)(2)(i) would pro- vide that, except as provided in proposed §1.170A-14(n), a qualified conservation contribution by a contributing partnership Bulletin No. 2023–49 1327 December 4, 2023 or a contributing S corporation is a disal- lowed qualified conservation contribution if the amount of the qualified conservation contribution exceeds 2.5 times the sum of each of the contributing partnership’s or contributing S corporation’s ultimate mem- ber’s relevant basis as determined under proposed §1.170A-14(j) through (m). Proposed §1.170A-14(j)(2)(ii) would provide that, except as provided in pro- posed §1.170A-14(n), an allocated portion of a contribution received by an upper-tier partnership or upper-tier S corporation is a disallowed qualified conservation contribution if either the contribution is a disallowed qualified conservation con- tribution with respect to the partnership that allocated the allocated portion to the upper-tier partnership or upper-tier S cor- poration, or such allocated portion exceeds 2.5 times the sum of each of that upper- tier partnership’s or upper-tier S corpora- tion’s ultimate member’s relevant basis as determined under proposed §1.170A-14(j) through (m). Thus, if a contribution is a disallowed qualified conservation contri- bution with respect to a partnership, then the contribution is a disallowed qualified conservation contribution with respect to any upper-tier partnership or upper-tier S corporation owning a direct or indirect interest in that partnership. On the other hand, if a contribution is not a disallowed qualified conservation contribution with respect to a partnership, then the rules of proposed §1.170A-14(j) through (m) must be applied to the next tier of upper-tier partnerships and upper-tier S corporations (which own a direct interest in the part- nership) to determine if the Disallowance Rule applies to those upper-tier partner- ships and upper-tier S corporations. In other words, the test of §1.170A-14(j) through (m) must be applied at each tier unless and until the test is failed at one tier, in which case that portion of the con- tribution will be a disallowed qualified conservation contribution to that tier and any subsequent tiers. B. Definitions Proposed §1.170A-14(j)(3) would contain definitions, including definitions of terms, including “contributing part- nership,” “contributing S corporation,” “ultimate member,” “allocated portion,” “upper-tier partnership,” and “upper-tier S corporation.” 1. Allocated portion Proposed §1.170A-14(j)(3)(i) would provide that, in the case of an upper-tier partnership or upper-tier S corporation that receives, directly or indirectly, a distributive share of a qualified conservation contribu- tion, the phrase “allocated portion” means the amount of such distributive share. 2. Amount of qualified conservation contribution Proposed §1.170A-14(j)(3)(ii) would provide that the amount of a contributing partnership’s or contributing S corpora- tion’s qualified conservation contribution is the amount claimed as a qualified con- servation contribution on the return of the contributing partnership or contributing S corporation for the taxable year in which the contribution is made. It would also provide that, if the contributing partner- ship or contributing S corporation files an amended return or administrative adjust- ment request under section 6227 of the Code claiming a different amount with respect to the qualified conservation con- tribution, the rules of §1.170A-14 must be re-applied with respect to such different amount to determine the application of section 170(h)(7) and §1.170A-14. 3. Contributing partnership The Disallowance Rule applies to a partnership or S corporation that makes a qualified conservation contribution, as well as a partnership or S corporation that is allocated a distributive share of a qualified conservation contribution of another partnership. For clarity, proposed §1.170A-14(j)(3)(iii) would provide that the term “contributing partnership” means a partnership that makes a qualified con- servation contribution. 4. Contributing S corporation Proposed §1.170A-14(j)(3)(iv) would provide that the term “contribut- ing S corporation” means an S corpora- tion that makes a qualified conservation contribution. 5. Direct interest Proposed §1.170A-14(j)(3)(v) would provide that the term “direct interest” refers to an ownership interest in a contributing partnership, upper-tier partnership, con- tributing S corporation, or upper-tier S corporation that is held directly, or through an entity disregarded as separate from its owner for Federal income tax purposes, a qualified subchapter S subsidiary as defined in section 1361(b)(3) of the Code, or through a grantor trust (under subpart E of part 1 of subchapter J of chapter 1 of the Code). In the case of a partner that is a C corporation, non-grantor trust, or an estate, or an S corporation shareholder that is a non-grantor trust or an estate, the direct interest in the partnership or S corpora- tion, as applicable, would be considered to be held by the C corporation, non-grantor trust, or estate; the C corporation’s share- holders, trust beneficiaries, and estate ben- eficiaries would not be considered to hold any interest in the partnership or S corpo- ration, as applicable, for purposes of pro- posed §1.170A-14(j) through (n). 6. Directly Proposed §1.170A-14(j)(3)(vi) would provide that an ownership interest is held “directly” if it is not held through one or more upper-tier partnerships or upper-tier S corporations. Similarly, a distributive share or pro rata share of a qualified con- servation contribution would be received “directly” if it does not pass through one or more upper-tier partnerships or upper- tier S corporations. 7. Disallowed qualified conservation contribution Proposed §1.170A-14(j)(3)(vii) would provide that the term “disallowed qual- ified conservation contribution” means a qualified conservation contribution or allocated portion for which no deduction is allowed pursuant to section 170(h)(7) and proposed §1.170A-14(j). 8. Indirect interest Proposed §1.170A-14(j)(3)(viii) would provide that the term “indirect inter- est” refers to an ownership interest in a December 4, 2023 1328 Bulletin No. 2023–49 contributing partnership, contributing S corporation, upper-tier partnership, or upper-tier S corporation held through an upper-tier S corporation or one or more upper-tier partnerships. 9. Indirectly Proposed §1.170A-14(j)(3)(ix) would provide that an ownership interest is held “indirectly” if it is held through one or more upper-tier partnerships or upper-tier S corporations. Similarly, a distributive share or pro rata share of a qualified con- servation contribution would be received “indirectly” if it passes through one or more upper-tier partnerships or upper-tier S corporations. 10. Ultimate Member Proposed §1.170A-14(j)(3)(x) would provide that the term “ultimate member” means, with respect to any partnership or S corporation, any partner (that is not itself a partnership or S corporation) or S cor- poration shareholder that receives a dis- tributive share or pro rata share, directly or indirectly, of a qualified conservation contribution. Thus, ultimate members would either be partners holding a direct interest in a partnership, which may be the contributing partnership or an upper- tier partnership, or shareholders holding a direct interest in an S corporation, which may be the contributing S corporation or an upper-tier S corporation. Proposed §1.170A-14(j)(3)(x) would provide that upper-tier S corporations and upper-tier partnerships themselves are not consid- ered ultimate members. Several considerations played a role in the decision of the Treasury Department and the IRS to propose this rule that looks to the relevant basis of the ultimate members for determining whether a qual- ified conservation contribution will be disallowed. Although section 170(h)(7) (A) provides that the Disallowance Rule applies in tiered structures, the statu- tory language does not explicitly explain whether the determination of relevant basis is made with respect to partners (who may themselves be pass-through entities) and S corporation shareholders holding a direct interest in the contributing partnership or contributing S corporation, or whether the determination of relevant basis is made with respect to the ulti- mate members. The Disallowance Rule is meant to compare the amount of a claimed qualified conservation contribution with the equity investment made by those per- sons expected to claim a deduction with respect to such contribution. Because it is the ultimate members, such as individuals, estates, and C corporations (that is, non- pass-through entities), who ultimately claim a deduction for a qualified conser- vation contribution, the proposed regula- tions would require that the determination of relevant basis be made with respect to those ultimate partners and S corporation shareholders. For example, assume a con- tributing partnership has two partners: (1) an upper-tier S corporation, which has two individual shareholders, and (2) an upper-tier partnership, which has three partners—a C corporation, an estate, and an individual. Under these proposed reg- ulations, relevant basis would be com- puted with respect to the three individuals, C corporation, and estate, and not with respect to the upper-tier S corporation or upper-tier partnership. The proposed regu- lations would refer to these persons as the “ultimate members.” In the case of a tiered arrangement, the use of the term “partner” to refer to such ultimate members might be confusing or inaccurate because such persons may not be partners of the con- tributing partnership, and in fact, may not be partners at all, if they are shareholders of an upper-tier S corporation that is itself a partner in the contributing partnership. As such, the proposed regulations use the term “member.” The Treasury Department and the IRS considered alternatives to the ultimate member rule. One possible approach would be to determine the application of the Disallowance Rule with respect to the contributing partnership by looking only to the relevant bases of the contributing partnership’s direct partners. In the exam- ple in which a contributing partnership has two partners, an upper-tier S corporation and an upper-tier partnership, the direct partners would be the upper-tier S corpo- ration and the upper-tier partnership. The modified basis (and thus, relevant basis) of the upper-tier S corporation or upper- tier partnership could include basis attrib- utable to shareholders or partners of the upper-tier entity that will not be expected to claim the deduction. For example, this might be the case because the contributing partnership allocates all of the qualified conservation contribution to the upper-tier S corporation. Because the Disallowance Rule is meant to compare the amount of a claimed qualified conservation contribu- tion with the equity investment made by those persons expected to claim a deduc- tion with respect to such contribution, it is more consistent with the purposes of the Disallowance Rule to compute relevant basis only using the basis of those persons who are expected to claim a deduction with respect to the contribution. Additionally, in the example earlier, if the contributing partnership’s qualified conservation contribution was not dis- allowed by the Disallowance Rule, the upper-tier S corporation and the upper- tier partnership would each be required to determine the application of the Disallowance Rule by looking to their direct owners. Because section 170(h) (7)(B)(i) requires that relevant basis be traced to the portion of the real property with respect to which the contribution is made, the upper-tier S corporation’s and upper-tier partnership’s determinations would necessarily involve computations by both the upper-tier entity and the contributing partnership. Thus, in many cases, computing relevant basis only with respect to direct partners would not sim- plify the computations required to apply the Disallowance Rule, because it would still be necessary to carry the computa- tions through each tier. These proposed regulations would provide numerous examples to determine who is an ultimate member. Comments are requested on the definition of ultimate member, and whether additional examples for specific situations would be helpful. 11. Upper-tier partnership Proposed §1.170A-14(j)(3)(xi) would provide that the term “upper-tier partner- ship” means a partnership that receives an allocated portion. Where appropriate, the proposed reg- ulations would provide separate rules for contributing partnerships, contributing S corporations, upper-tier partnerships, and upper-tier S corporations. The Treasury Bulletin No. 2023–49 1329 December 4, 2023 Department and the IRS are aware that sometimes different naming conventions are used to refer to tiered partnership arrangements. For example, some may refer to the contributing partnership as the “property partnership” or “top-tier partnership,” and in fact the IRS has used that naming convention in some corre- spondence. That naming convention is not inherently wrong, as different practi- tioners refer to the “bottom” and “top” of a tiered structure differently. However, the regulations under subchapter K of chapter 1 of the Code generally would refer to the contributing partnership as the lower-tier partnership, and to a partnership that owns an interest in the contributing partnership (either directly or indirectly) as an upper- tier partnership. Accordingly, in a tiered partnership ownership structure, these proposed regulations reflect a naming convention under which the contribut- ing partnership would be the “lower-tier partnership,” and a partnership receiving a distributive share of a qualified conser- vation contribution from the contribut- ing partnership would be an “upper-tier partnership.” 12. Upper-Tier S Corporation Proposed §1.170A-14(j)(3)(xii) would provide that the term “upper-tier S cor- poration” means an S corporation that receives an allocated portion. C. Effect of the Disallowance Rule As noted previously, section 170(h)(7) (A) applies the Disallowance Rule to both contributing partnerships and upper-tier partnerships. Section 170(h)(7) does not explicitly address what effect the appli- cation of the Disallowance Rule to one partnership or S corporation in a tiered structure has on the other partnerships or S corporations in the tiered structure. These proposed regulations would pro- vide that if the Disallowance Rule applies to a partnership or S corporation, then the qualified conservation contribution is a disallowed qualified conservation contri- bution to that entity as well as to any per- son receiving a distributive share or pro rata share, directly or indirectly, of that entity’s disallowed qualified conservation contribution; however, the disallowance would not affect the qualified conser- vation contribution with respect to any lower-tier entities. In other words, if the application of the Disallowance Rule with respect to an upper-tier partnership or upper-tier S corporation results in a dis- allowed qualified conservation contribu- tion, that would affect Federal income tax consequences up the chain of tiers, but not down the chain of tiers, so, for example, the contributing partnership would not be affected. The Treasury Department and the IRS considered other approaches, such as always re-testing the application of the Disallowance Rule to an upper-tier part- nership’s or upper-tier S corporation’s allocated portion, even when the contribu- tion is a disallowed qualified conservation contribution with respect to the low- er-tier partnership. Under this approach, if the allocated portion does not exceed 2.5 times the sum of each of the upper- tier partnership’s or upper-tier S corpora- tion’s ultimate member’s relevant basis, the allocated portion would be a quali- fied conservation contribution and not disallowed to the upper-tier partnership’s non-pass-through partners or the upper- tier S corporation’s shareholders, even though the contribution was a disallowed qualified conservation contribution to the non-pass-through partners of the low- er-tier partnership. Allowing re-testing of contributions that have already failed the Disallowance Rule would be inconsistent with the purposes of the Disallowance Rule because it would inappropriately encourage the creation of tiered structures to allow some ultimate members to avoid the Disallowance Rule. These proposed regulations are intended to prevent avoid- ance of the purposes of section 170(h) (7) and ensure disallowance of deduc- tions attributable to disallowed qualified conservation contributions. The Treasury Department and the IRS request comments on the application of the Disallowance Rule in tiered structures. Under the authority of section 170(h) (7)(G)(ii) to issue regulations or other guidance to prevent the avoidance of the purposes of section 170(h)(7), proposed §1.170A-14(j)(4)(i) would provide that, if a contributing partnership’s or con- tributing S corporation’s qualified con- servation contribution is a disallowed qualified conservation contribution, then: (1) any upper-tier partnership’s or upper- tier S corporation’s allocated portion of such contribution is a disallowed qualified conservation contribution, regardless of whether such allocated portion exceeds 2.5 times the sum of each of the upper- tier partnership’s or upper-tier S corpora- tion’s ultimate member’s relevant basis; and (2) no person (whether holding a direct or indirect interest in such contrib- uting partnership or contributing S cor- poration) may claim a deduction under any provision of the Code with respect to any amount of such disallowed qualified conservation contribution, regardless of whether that person’s distributive share or pro rata share of the disallowed quali- fied conservation contribution exceeds 2.5 times its relevant basis. The reference to “any provision of the Code” is necessary to prevent taxpayer attempts to avoid the Disallowance Rule by claiming a deduc- tion with respect to any amount of a qual- ified conservation contribution under a provision of the Code other than section 170 in cases in which no deduction is allowable under section 170 by reason of section 170(h)(7). For example, this pro- posed rule would disallow a deduction under section 642(c) of the Code for a trust that is a partner in a partnership with respect to a distributive share of a disal- lowed qualified conservation contribution from the partnership. Proposed §1.170A-14(j)(4)(ii) would provide that if a contributing partnership’s or contributing S corporation’s qualified conservation contribution is not a disal- lowed qualified conservation contribu- tion, then: (1) the distributive share or pro rata share of any ultimate member holding a direct interest in the contributing part- nership or contributing S corporation is not a disallowed qualified conservation contribution; and (2) any upper-tier part- nership or upper-tier S corporation that receives an allocated portion of such qual- ified conservation contribution must sep- arately apply the rules of section 170(h) (7) and proposed §1.170A-14(j) through (m) to determine whether that upper-tier partnership’s or upper-tier S corporation’s allocated portion is a disallowed qualified conservation contribution. Proposed §1.170A-14(j)(4)(iii) would provide that, if an upper-tier partnership’s December 4, 2023 1330 Bulletin No. 2023–49 or upper-tier S corporation’s allocated portion is a disallowed qualified conserva- tion contribution, then: (1) any subsequent upper-tier partnership’s or upper-tier S corporation’s allocated portion of such allocated portion would be a disallowed qualified conservation contribution, regardless of whether the subsequent upper-tier partnership’s or upper-tier S corporation’s allocated portion exceeds 2.5 times the sum of each of the subse- quent upper-tier partnership’s or upper- tier S corporation’s ultimate member’s relevant basis; and (2) no person (whether holding a direct or indirect interest in that upper-tier partnership or upper-tier S cor- poration) would be able to claim a deduc- tion under any provision of the Code with respect to any amount of that upper-tier partnership’s or upper-tier S corporation’s allocated portion, regardless of whether that person’s distributive share or pro rata share of the allocated portion exceeds 2.5 times its relevant basis. Similar to proposed §1.170A-14(j)(4)(i), proposed §1.170A-14(j)(4)(iii) would be issued under the authority of section 170(h) (7)(G)(ii) to issue regulations or other guidance to prevent the avoidance of the purposes of section 170(h)(7). However, this proposed rule would not affect the application of proposed §1.170A-14(j) through (m) to another partner of the con- tributing partnership; for example, if the qualified conservation contribution is not a disallowed qualified conservation con- tribution with respect to the contributing partnership, then the distributive share of such contribution of an ultimate mem- ber holding a direct interest in the con- tributing partnership is not a disallowed qualified conservation contribution, not- withstanding that the qualified conserva- tion contribution is a disallowed qualified conservation contribution with respect to one or more upper-tier partnerships or upper-tier S corporations. Proposed §1.170A-14(j)(4)(iv) would provide that, if an upper-tier partnership’s or upper-tier S corporation’s allocated portion is not a disallowed qualified con- servation contribution, then: (1) the dis- tributive share or pro rata share of such allocated portion of any ultimate member holding a direct interest in the upper-tier partnership or upper-tier S corporation is not a disallowed qualified conservation contribution; and (2) any subsequent upper-tier partnership or upper-tier S cor- poration that receives an allocated portion of such allocated portion must separately apply the rules of section 170(h)(7) and proposed §1.170A-14(j) through (m) to determine whether that subsequent upper-tier partnership’s or upper-tier S corporation’s allocated portion is treated as a disallowed qualified conservation contribution. The proposed regulations contain examples illustrating the rules with respect to tiers of entities. The Treasury Department and the IRS request com- ments on whether additional examples would be helpful. D. No inference The Treasury Department and the IRS are aware that, even though section 605(c) (2) of the SECURE 2.0 Act plainly states that no inference is intended as to any contribution for which a deduction is not disallowed by reason of section 170(h)(7), some practitioners have taken the position that section 170(h)(7) operates as a “safe harbor.” According to these practitioners, a qualified conservation contribution that is not disallowed by the Disallowance Rule is somehow immune to a challenge on other grounds, including failure to comply with other rules under section 170 and overvaluation of the contribution. Such a position is baseless and contra- dicted by the statutory language. To clarify this issue, proposed §1.170A-14(j)(5) would provide that there is no presumption that a qualified conservation contribution that is not a disallowed qualified conservation contri- bution is compliant with section 170, any other section of the Code, the regulations, or any other guidance thereunder. It would also provide that compliance with section 170(h)(7) and proposed §1.170A-14(j) through (n) is not a safe harbor for purposes of any other provision of law, including the other requirements of section 170 and the value of the contribution. Such trans- actions are subject to adjustment or disal- lowance for any other reason, including failure to satisfy the requirements of sec- tion 170 and the overvaluation of the con- tribution; for example, failure to properly execute Form 8283, Noncash Charitable Contributions, violation of the partnership anti-abuse rule of §1.701-2, lack of eco- nomic substance, or other rules or judi- cial doctrines. In addition, compliance with proposed §1.170A-14(j) through (n) would not preclude the application of any penalty, including penalties for valua- tion misstatement, negligence, and fraud. Proposed §1.170A-14(j)(5) would also provide that taxpayers who engage in such transactions may be required to disclose under §1.6011-4 the transactions as listed transactions. E. Determination of Relevant Basis Consistent with section 170(h)(7)(B) (i), proposed §1.170A-14(k) would pro- vide that, for purposes of §1.170A-14, the term “relevant basis” means, with respect to any ultimate member, the portion of such ultimate member’s modified basis (as defined in proposed §1.170A-14(l)) that is allocable (under the rules of pro- posed §1.170A-14(m)) to the portion of the real property with respect to which the qualified conservation contribution is made. 1. Modified Basis Proposed §1.170A-14(l)(1) would provide that, in the case of an ultimate member holding a direct interest in a part- nership, the ultimate member’s modified basis is determined by such partnership immediately before the qualified conser- vation contribution is made in the manner described in §1.170A-14(l)(2). In the case of an ultimate member holding a direct interest in an S corporation, the ultimate member’s modified basis would be deter- mined by such S corporation in the man- ner described in §1.170A-14(l)(3). a. Modified basis of ultimate members that are partners Consistent with section 170(h)(7)(B) (ii), the proposed regulations would pro- vide rules that are designed to determine a partner’s modified basis immediately prior to the qualified conservation contribution. Without additional guidance under section 706, there may be situations in which the contribution is allocated to partners that did not hold an interest at the time of the Bulletin No. 2023–49 1331 December 4, 2023 qualified conservation contribution. Such partners would not have any bases in their partnership interests immediately before the contribution, and thus, without addi- tional rules, their modified bases and rel- evant bases would be zero. As discussed later in this preamble, these proposed reg- ulations would contain rules under section 706 that would treat a qualified conserva- tion contribution as an extraordinary item under §1.706-4(e) that must be allocated only to partners holding an interest in the partnership at the time of the contribution. Proposed rules under §1.706-3 would ensure that only partners holding an inter- est in an upper-tier partnership at the time of the contribution would receive a distributive share of an allocated portion. Thus, all ultimate members who are part- ners would be partners at the time of day the contribution is made. In other words, for a partner to be an ultimate member, the partner must have been a partner at the time of day the contribution is made and must have been allocated a distributive share of that contribution. These proposed rules are intended to facilitate the com- putation of modified basis immediately before the contribution, consistent with section 170(h)(7)(B)(ii)(I). The proposed regulations would pro- vide a process for determining a partner’s modified basis. Proposed §1.170A-14(l) (2)(i) would provide that, for purposes of §1.170A-14, the term “modified basis” means, with respect to any ulti- mate member that is a direct partner in either a contributing partnership or an upper-tier partnership, such ultimate member’s adjusted basis in its interest in the partnership in which the ultimate member holds a direct interest as of the beginning of the first day of the partner- ship’s taxable year in which the qualified conservation contribution is made with adjustments as determined under pro- posed §1.170A-14(l)(2)(ii) through (v). However, if the ultimate member was not a partner as of the beginning of the first day of the partnership’s taxable year, then the term “modified basis” would mean such ultimate member’s adjusted basis in its interest in the partnership immedi- ately after the transaction that resulted in the ultimate member becoming a partner with adjustments as determined under proposed §1.170A-14(l)(2)(ii) through (v). The Treasury Department and the IRS considered alternatives to this rule, including simply requiring that “adjusted basis” be computed immediately prior to the contribution. However, adjusted basis is typically computed as of the beginning of a taxable year, and it may be unclear to taxpayers how to compute adjusted basis as of another time during the year. Current regulations generally do not require partners to compute their adjusted bases in their partnership interests as of the time events, such as the making of a qualified conservation contribution, occur. Accordingly, these proposed reg- ulations would start with a calculation of adjusted basis that partners are familiar with computing, and then make adjust- ments to arrive at an amount that reflects the partner’s modified basis immediately before the contribution. Proposed §1.170A-14(l)(2)(ii) through (v) would provide four adjustments that must be made to a partner’s adjusted basis to arrive at modified basis. These adjust- ments would be required to be made in the order in which they are listed. First, proposed §1.170A-14(l)(2)(ii) would provide that the computation of mod- ified basis must start with the ultimate member’s adjusted basis under proposed §1.170A-14(l)(2)(i) and then reflect an increase for any contributions made by the ultimate member to the partnership during the portion of the year commencing with the beginning of the taxable year of the partnership and ending immediately prior to the time of day at which the qualified conservation contribution is made as pro- vided in section 722 of the Code. Second, proposed §1.170A-14(l)(2) (iii) would provide that the amount deter- mined under proposed §1.170A-14(l) (2)(ii) must be adjusted, as provided in section 705 of the Code, by the ultimate member’s hypothetical distributive share of partnership items attributable to the portion of the year commencing with the beginning of the taxable year of the partnership and ending immediately prior to the time of day at which the qualified conservation contribution is made. For example, if a calendar-year partnership makes a qualified conservation contribu- tion at 9:17 a.m. on November 19 of Year 1, then the hypothetical distributive share would be required to be made based on the partnership items attributable to the period between the beginning of the day on January 1 Year 1 and 9:16 a.m. on November 19 Year 1. In making this determination, the partnership would be required to apply the rules of §1.706-4 and apply a hypothetical interim closing method to allocate the partnership’s items attributable to the portion of the year com- mencing with the beginning of the taxable year of the partnership and ending imme- diately prior to the time of day at which the qualified conservation contribution is made. Proposed §1.170A-14(l)(2)(iii) would provide that the partnership can- not apply any convention in §1.706-4(c) to the hypothetical determination of the partners’ distributive shares, but rather must perform the calculation as though the determination occurred immediately prior to the time of day at which the qual- ified conservation contribution is made. Proposed §1.170A-14(l)(2)(iii) would clarify that this hypothetical determina- tion of the partners’ distributive shares is only for purposes of calculating mod- ified basis. Proposed §1.170A-14(l)(2) (iii) would also make clear that proposed §1.170A-14(l) does not require the part- nership to use the interim closing method with respect to the determination of its partners’ actual distributive shares for the taxable year in which the qualified conservation contribution is made or oth- erwise. See section 706(d) and the reg- ulations thereunder for the permissible methods that may be used in the determi- nation of the partners’ distributive shares for a partnership taxable year in which there is a variation in a partner’s interest in the partnership. As described later this preamble, proposed §§1.706-3(a) and 1.706-4(e)(2)(ix) would provide special rules for the allocation of qualified con- servation contributions. The Treasury Department and the IRS considered using the partners’ actual distributive shares, determined as of the time of the contribution. In the case of a partnership using the proration method, however, such an approach would result in the partners’ modified bases reflect- ing a portion of partnership items earned or incurred by the partnership after the time of the contribution, and thus would be inconsistent with the requirement in section 170(h)(7)(B)(ii)(I) that partners’ December 4, 2023 1332 Bulletin No. 2023–49 modified bases be determined imme- diately before the contribution. The Treasury Department and the IRS request comments on the approach taken in the proposed regulations to determine the partners’ distributive shares of partner- ship items attributable to the portion of the year commencing with the beginning of the taxable year of the partnership and ending immediately prior to the time of day at which the qualified conservation contribution is made. Third, proposed §1.170A-14(l)(2)(iv) would provide that the amount determined under proposed §1.170A-14(l)(2)(iii) must be reduced (but not below zero) by any distributions made by the partnership to the ultimate member during the portion of the year commencing with the begin- ning of the taxable year of the partnership and ending immediately prior to the time of day at which the qualified conservation contribution is made as provided in sec- tion 733 of the Code. Fourth, consistent with section 170(h) (7)(B)(ii)(II), proposed §1.170A-14(l)(2) (v) would provide that the amount deter- mined under proposed §1.170A-14(l)(2) (iv) must be reduced by the full amount of the ultimate member’s share of §1.752-1 liabilities of any partnership (including a lower-tier partnership). The remaining amount would be such ultimate member’s modified basis. Thus, under the proposed regulations, an ultimate member’s mod- ified basis may be less than zero. Under the formulas for the determination of rele- vant basis discussed later in this preamble, a negative modified basis will result in a negative relevant basis. Because the appli- cation of the Disallowance Rule is based on the sum of each ultimate member’s relevant basis, if one ultimate member’s relevant basis is negative, it will be added to all other ultimate members’ relevant bases, and the sum may be a positive or negative number. b. Modified basis of ultimate members that are shareholders in an S corporation Unlike the rules for partnerships dis- cussed previously, S corporations do not have extraordinary items that must be allocated only to shareholders as of the time of day the item occurs. Instead, section 1377 of the Code and existing §1.1377-1 generally require pro rata allo- cations. Section 1.1377-1(a) provides that each shareholder’s pro rata share of any S corporation item described in sec- tion 1366(a) of the Code for any taxable year is the sum of the amounts deter- mined with respect to the shareholder by assigning an equal portion of the item to each day of the S corporation’s tax- able year, and then dividing that portion pro rata among the shares outstanding on that day. If a shareholder disposes of its entire interest in an S corporation, §1.1377-1(b) allows the S corporation to make a terminating election, under which the S corporation will determine the terminating shareholder’s share as though the S corporation’s taxable year closed on the day of the termination. However, there is no extraordinary item rule for S corporations similar to §1.706- 4(e). As such, it may be the case that an S corporation allocates a portion of a qual- ified conservation contribution to some- one that was not a shareholder at the time of the contribution, but that share- holder would still be treated as an ulti- mate member because the shareholder received a pro rata share of the qualified conservation contribution. As described previously, the rules for determining a partner’s modified basis start with the partner’s adjusted basis at the start of the partnership’s taxable year and work forward to determine modified basis immediately before the contribu- tion. However, the Treasury Department and the IRS are concerned that such an approach is not appropriate for S corpo- ration shareholders, as it could be unnec- essarily burdensome and, in some cases, impossible to determine each sharehold- er’s modified basis immediately prior to the qualified conservation contribution (because some ultimate members may not be shareholders at the time of the con- tribution). To provide an administrable standard consistent with the purposes of section 170(h)(7), these proposed regu- lations would require the computation of an S corporation shareholder’s modified basis under an approach that is similar in purpose to the approach for partners but different in application. Proposed §1.170A-14(l)(3)(i) would provide that, for purposes of §1.170A- 14, the term “modified basis” means, with respect to any ultimate member that is a shareholder of either a contributing S corporation or an upper-tier S corpo- ration, such ultimate member’s adjusted basis in its shares in the S corporation as of the end of the S corporation’s taxable year in which the qualified conservation contribution is made with adjustments as determined under proposed §1.170A-14(l) (3)(ii) and (iii). However, if the ultimate member was not a shareholder at the end of the S corporation’s taxable year in which the qualified conservation contri- bution is made, then the term “modified basis” would mean such ultimate mem- ber’s adjusted basis in its shares in the S corporation immediately prior to the transaction that terminated its interest in the S corporation with adjustments as determined under proposed §1.170A-14(l) (3)(ii) and (iii). The Treasury Department and the IRS considered several alternatives to this rule. One method would be to require a determination of a portion of modified basis for every day during the S corpo- ration’s taxable year, because S corpora- tions generally allocate the contribution on a pro rata basis among the share- holders on each day of the taxable year. These proposed regulations do not take that approach because the Treasury Department and the IRS are concerned that such an approach, although techni- cally accurate and consistent with the purposes of section 170(h)(7), would be too burdensome for taxpayers and difficult for the IRS to administer. The Treasury Department and the IRS also considered using the shareholders’ adjusted bases as of the beginning of the S corporation’s taxable year (rather than as of the end of the year). However, because qualified conservation contribu- tions are typically made in the second half of the year, especially in syndicated transactions, the Treasury Department and the IRS determined that such an approach would be less accurate than using the shareholders’ adjusted bases as of the end of the year (or a shareholder’s adjusted basis immediately prior to the transaction that terminated their interest in the S corporation). Proposed §1.170A-14(l)(3)(i) would also clarify that modified basis does not include the ultimate member’s adjusted Bulletin No. 2023–49 1333 December 4, 2023 basis of any indebtedness of the S corpo- ration to the ultimate member. 1 Proposed §1.170A-14(l)(3)(ii) and (iii) would provide two adjustments that must be made to arrive at modified basis. These adjustments would be required to be made in the order in which they are listed. First, proposed §1.170A-14(l)(3) (ii) would provide that the computation of modified basis must start with the ulti- mate member’s adjusted basis under pro- posed §1.170A-14(l)(3)(i) and then must reflect an increase for the extent to which the adjusted basis reflects a reduction as a result of the qualified conservation con- tribution. Thus, the ultimate member’s modified basis with respect to a qual- ified conservation contribution would not reflect any reduction for the ultimate member’s pro rata share of the S corpo- ration’s basis in the conservation ease- ment or other property contributed in the qualified conservation contribution. This adjustment in proposed §1.170A-14(l)(3) (ii) would be made because it would not be appropriate or consistent with section 170(h)(7)(B)(ii)(I) for modified basis, and thus relevant basis, to reflect a reduction for the very contribution that is being analyzed under the Disallowance Rule as such an approach might result in deduc- tions being inappropriately disallowed by the Disallowance Rule. Second, proposed §1.170A-14(l)(3) (iii) would provide that the amount deter- mined under proposed §1.170A-14(l)(3) (ii) must be multiplied by the number of days during the S corporation’s taxable year in which the ultimate member was a shareholder and divided by the total number of days during the S corpora- tion’s taxable year. The resulting amount would be such ultimate member’s modi- fied basis. Inappropriate double counting of relevant basis might occur unless the proposed regulations provide this rule. For example, assume individual A owns a portion of the outstanding shares of an S corporation. In early July, A sells all its shares to B. In December, the S cor- poration makes a qualified conservation contribution. Absent a terminating elec- tion under §1.1377-1(b), the S corpora- tion would allocate some of the qualified conservation contribution to each of A and B. Unless A’s and B’s modified bases (and thus, their relevant bases) are adjusted to reflect that each was a shareholder for approximately half of the year, the S cor- poration’s computation of the sum of each of its ultimate member’s relevant basis would be inappropriately overstated. The Treasury Department and the IRS request comments on whether there are certain sit- uations in which the divisor should be less than the full number of days in the S cor- poration’s taxable year. In particular, the Treasury Department and the IRS request comments on whether, and how, elections under §§1.1368-1(g)(2) and 1.1377-1(b) should result in the divisor being less than the full number of days in the S corpora- tion’s taxable year. It would be particularly helpful for commenters to address situa- tions in which elections under §§1.1368- 1(g)(2) and 1.1377-1(b) affect some, but not all, of the shareholders. Section 170(h)(7)(B)(ii)(III) provides authority for the Secretary to provide for other adjustments in the computation of modified basis. The Treasury Department and the IRS request comments on whether any additional adjustments to arrive at modified basis would be appropriate. The proposed regulations also contain examples illustrating the determination of modified basis. Comments are requested on whether it would be helpful to add examples with other factual scenarios. 2. Allocation of Modified Basis and Determination of Relevant Basis Proposed §1.170A-14(m) would pro- vide rules for determining the portion of an ultimate member’s modified basis that is allocable to the portion of the real prop- erty with respect to which the contribu- tion is made, which is the final step in the determination of relevant basis. Section 170(h)(7)(B)(i) provides that the allo- cation is made under rules similar to the rules of section 755. Section 755 provides rules for allocating special basis adjust- ments to partnership property resulting from partnership distributions or transfers of partnership interests, such as adjust- ments under section 734(b) of the Code and adjustments under section 743(b) of the Code. Section 755(a) generally provides that any increase or decrease in the adjusted basis of partnership property under section 734(b) (relating to the optional adjustment to the basis of undistributed partnership property) or section 743(b) (relating to the optional adjustment to the basis of part- nership property in the case of a transfer of an interest in a partnership) is allocated (1) in a manner that reduces the difference between the fair market value and the adjusted basis of partnership properties, or (2) in any other manner permitted by regulations. The regulations under section 755 provide rules for performing these allocations. Those rules can be complex and involve several different methods for allocating basis adjustments among the partnership’s properties, including: (1) Allocating in a manner that reduces the difference between the fair market value and the adjusted basis of partnership properties. See §1.755-1(b)(2)(i) and (b) (3). (2) Allocating in proportion to the transferee’s share of the amount that would be realized by the partnership upon the hypothetical sale of each property. See §1.755-1(b)(5)(iii)(A). (3) Allocating in proportion to the fair market values of the partnership’s proper- ties. See §1.755-1(c)(2)(i). (4) Allocating in proportion to the part- nership’s adjusted bases in its properties. See §1.755-1(c)(2)(ii). (5) Allocating in proportion to the part- ner’s share of the adjusted bases in the partnership’s properties. See §1.755-1(b) (5)(iii)(B). In considering which of these alloca- tion rules would be most appropriate to determine relevant basis, the Treasury Department and the IRS considered the 1 As described previously, section 170(h)(7)(B)(ii)(II) provides that the determination of modified basis is to be made without regard to section 752. However, the Code does not contain a rule substantially similar to section 752 for S corporations. Unlike a partner’s basis in the partner’s interest in the partnership, an S corporation shareholder’s basis in stock of the S corporation does not include any share of the S corporation’s liabilities. Under section 1367(b)(2)(A) of the Code and §1.1367-2(b), if an S corporation shareholder’s pro rata share of the S corporation’s losses, deductions, noncapital, nondeductible expenses, and certain oil and gas depletion deductions exceed the shareholder’s stock basis, then these items may reduce the shareholder’s basis in indebtedness owed to them by the S corporation (but not below zero). Under section 1367(b)(2)(B) and §1.1367-2(c), if the basis in indebtedness has been so reduced, then any future net increase must be applied to restore such reduction in indebtedness basis before any of it may be used to increase the shareholder’s basis in its stock of the S corporation. December 4, 2023 1334 Bulletin No. 2023–49 special basis adjustment and loss limita- tion rules for charitable contributions. Those rules look to a partner’s or share- holder’s share of the partnership’s or S corporation’s basis in the contributed property. Generally, section 705(a)(2) provides that the adjusted basis of a partner’s inter- est in a partnership is decreased (but not below zero) by distributions by the part- nership and by the sum of the partner’s distributive share for the taxable year and prior taxable years of (1) losses of the partnership, and (2) expenditures of the partnership not deductible in comput- ing its taxable income and not properly chargeable to capital account. Generally, when a partnership makes a charitable contribution, the partners are not required to reduce their adjusted bases in their part- nership interests by the fair market value of the contribution. Instead, Revenue Ruling 96-11, 1996-1 C.B. 140, provides that after a partnership makes a charita- ble contribution of property, the basis of each partner’s interest in the partnership is decreased (but not below zero) by the partner’s share of the partnership’s basis in the property contributed. Revenue Ruling 96-11 explains that reducing the partners’ bases in their partnership interests by their respective shares of the permanent decrease in the partnership’s basis in its properties preserves the intended bene- fit of providing a deduction (in circum- stances not under section 170(e)) for the fair market value of appreciated property without recognition of the appreciation. In contrast, reducing the partners’ bases in their partnership interests by the fair market value of the contributed property would subsequently cause the partners to recognize gain (or a reduced loss), for example, upon a disposition of their part- nership interests, attributable to the unrec- ognized appreciation in the contributed property at the time of the contribution. The partnership loss limitation rules in section 704(d) of the Code have a similar rule for charitable contributions. Generally, section 704(d)(1) provides that a partner’s distributive share of partner- ship loss is allowed only to the extent such partner’s adjusted basis in its partnership interest at the end of the partnership year in which such loss occurred. Section 704(d) (3)(A) provides, in part, that in determin- ing the amount of any loss under section 704(d)(1), the partner’s distributive share of charitable contributions as defined in section 170(c) must be taken into account. However, section 704(d)(3)(B) provides that, in the case of a charitable contribu- tion of property whose fair market value exceeds its adjusted basis, section 704(d) (3)(A) does not apply to the extent of the partner’s distributive share of such excess. The rules for S corporations also look to the shareholder’s share of the S corpo- ration’s basis in the contributed property. Section 1367(a)(2)(B) of the Code pro- vides that the basis of each shareholder’s stock is reduced by the items of loss and deduction described in section 1366(a) (1)(A). However, the second sentence of section 1367(a)(2) provides that the decrease in basis under section 1367(a)(2) (B) by reason of a charitable contribution (as defined in section 170(c)) of property is the amount equal to the shareholder’s pro rata share of the adjusted basis of such property. 2 Generally, section 1366(d)(1) pro- vides that the aggregate amount of losses and deductions taken into account by a shareholder under section 1366(a) for any taxable year cannot exceed the sum of (1) the adjusted basis of the sharehold- er’s stock in the S corporation, and (2) the shareholder’s adjusted basis of any indebtedness of the S corporation to the shareholder. However, section 1366(d) (4) provides that, in the case of any char- itable contribution of property to which the second sentence of section 1367(a) (2) applies, section 1366(d)(1) does not apply to the extent of the excess (if any) of (1) the shareholder’s pro rata share of such contribution, over (2) the sharehold- er’s pro rata share of the adjusted basis of such property. See also Rev. Rul. 2008-16, 2008-1 C.B. 585. Therefore, generally partnerships and S corporations making charitable con- tributions are already required to track each partner’s and shareholder’s share of the entity’s basis in the contributed prop- erty. And as noted previously, in certain circumstances the rules under section 755 also look to the partner’s share of the partnership’s basis in its properties. Accordingly, as described in this section of the preamble, these proposed regula- tions would require the allocation of an ultimate member’s modified basis to the portion of the real property with respect to which the qualified conservation contri- bution is made to be based on the ultimate member’s share of the entity’s bases in its properties. This provides an administrable standard consistent with the purposes of section 170(h)(7). The Treasury Department and the IRS considered alternatives to this rule. In par- ticular, the Treasury Department and the IRS considered simply cross-referencing the rules under section 755. Under that alternative approach, the amount of each partner’s modified basis would be treated for purposes of the computation of rele- vant basis as a special basis adjustment under section 734(b) or section 743(b); relevant basis would be the portion of modified basis that would be allocated under the rules of section 755 to the por- tion of the real property with respect to which the contribution was made. Such an approach would be less consistent with the purposes of the Disallowance Rule. As noted previously, basis allocations under section 755 are sometimes made in a way to reduce or eliminate built-in gain or loss in partnership property. The relevant basis rule of section 170(h)(7) is designed to determine the portion of a partner’s modified basis that is allocable to the por- tion of the real property with respect to which the contribution is made, which is a broader and, generally, different concept than determining the partner’s share of built-in gain or loss in that property. The approach in the proposed regulations is similar to the rules of section 755 and con- sistent with the rule of section 170(h)(7) (B)(i). The Treasury Department and the IRS request comments on whether another acceptable allocation approach would be easier or more administrable. Proposed §1.170A-14(m)(1) would provide that the allocation of an ultimate member’s modified basis to the portion of the real property with respect to which 2 Whether a qualified conservation contribution is a disallowed qualified conservation contribution has no effect on the application of sections 705 and 1367 to the contribution. These basis reductions remain required regardless of whether a qualified conservation contribution is a disallowed qualified conservation contribution. Bulletin No. 2023–49 1335 December 4, 2023 the qualified conservation contribution is made must be made in accordance with proposed §1.170A-14(m). Rules for allo- cating an ultimate member’s modified basis in a contributing partnership would be provided in proposed §1.170A-14(m) (2). Rules for allocating an ultimate mem- ber’s modified basis in a contributing S corporation would be provided in pro- posed §1.170A-14(m)(3). Rules for allo- cating an ultimate member’s modified basis in an upper-tier partnership would be provided in proposed §1.170A-14(m) (4). Rules for allocating an ultimate member’s modified basis in an upper-tier S corporation would be provided in pro- posed §1.170A-14(m)(5). Records would be required to be kept in accordance with proposed §1.170A-14(m)(6). a. Determination of relevant basis for an ultimate member holding a direct interest in a contributing partnership Proposed §1.170A-14(m)(2)(i) through (iii) would provide a narrative rule appli- cable in the case of an ultimate member holding a direct interest in a contributing partnership and would provide that a con- tributing partnership must determine each such ultimate member’s relevant basis as provided therein. Relevant basis would equal each ultimate member’s modi- fied basis as determined under proposed §1.170A-14(l)(2) multiplied by a fraction (1) the numerator of which is the ultimate member’s share of the contributing part- nership’s adjusted basis in the portion of the real property with respect to which the qualified conservation contribution is made as determined under proposed §1.170A-14(m)(2)(ii); and (2) the denom- inator of which is the ultimate member’s portion of the adjusted basis in all the con- tributing partnership’s properties as deter- mined under proposed §1.170A-14(m)(2) (iii). The Treasury Department and the IRS note that this numerator determines the ultimate member’s share of the contrib- uting partnership’s adjusted basis in the portion of the real property with respect to which the qualified conservation contribu- tion is made, which is what is required by the statute, but may be different than the ultimate member’s share of the contrib- uting partnership’s adjusted basis in the contributed property. As noted previously, section 704(d) and Revenue Ruling 96-11 require a partner’s basis in its interest in the partnership to be decreased (but not below zero) by the partner’s share of the partner- ship’s basis in the contributed property. For example, assume a partnership owns 100 acres of real property, and grants a conservation easement that is a qualified conservation contribution on 60 of those acres. Assume the partnership’s adjusted basis in the 100 acres is $100,000, its adjusted basis in the 60 acres is $60,000, and its adjusted basis in the conservation easement itself is $45,000. Section 705(a) (2)(B) and Revenue Ruling 96-11 would require each partner’s basis in its interest in the partnership to be decreased (but not below zero) by the partner’s share of the partnership’s $45,000 basis in the ease- ment. On the other hand, the computation of each ultimate member’s relevant basis would look to the ultimate member’s share of the partnership’s $60,000 basis in the 60 acres (the portion of the real property with respect to which the quali- fied conservation contribution was made). As described in the following paragraphs, these proposed regulations would provide computational rules for determining an ultimate member’s share of the contrib- uting partnership’s adjusted basis in the portion of the real property with respect to which the qualified conservation contri- bution is made. The Treasury Department and the IRS request comments on whether these computations generally align with the methods used by partnerships to deter- mine each partner’s share of the partner- ship’s basis in the contributed property for purposes of sections 704(d) and 705(a)(2) (B) and Revenue Ruling 96-11. In terms of the example in this paragraph, the Treasury Department and the IRS request comments on whether the rules in the pro- posed regulations for determining each ultimate member’s share of the partner- ship’s $60,000 basis in the 60 acres align with the way in which the partnership would determine each partner’s share of the partnership’s $45,000 basis in the con- servation easement for purposes of apply- ing sections 704(d) and 705(a)(2)(B) and Revenue Ruling 96-11. Proposed §1.170A-14(m)(2)(ii) would provide that, for purposes of proposed §1.170A-14(m), an ultimate member’s share of the contributing partnership’s adjusted basis in the portion of the real property with respect to which the qual- ified conservation contribution is made equals the contributing partnership’s adjusted basis in the portion of the real property with respect to which the qual- ified conservation contribution is made multiplied by a fraction (1) the numerator of which is the ultimate member’s distrib- utive share of the qualified conservation contribution; and (2) the denominator of which is the total amount of the contrib- uting partnership’s qualified conservation contribution. The Treasury Department and the IRS considered several alternatives to this rule, including determining the ultimate member’s share of the contributing part- nership’s adjusted basis in the property based on the ultimate member’s share of gain, loss, and cash distributions attribut- able to the property. However, there may be situations in which the allocation of a qualified conservation contribution does not match the partners’ shares of gain, loss, or cash distributions with respect to the property. Accordingly, the Treasury Department and the IRS determined that such an approach would be less accurate. In addition, the proposed rule would be less burdensome for taxpayers and more easily administrable for the IRS because it would be based on the partnership’s actual allocation of the contribution, rather than on a hypothetical sale of the property. Proposed §1.170A-14(m)(2)(iii) would provide that, for purposes of pro- posed §1.170A-14(m), an ultimate mem- ber’s portion of the adjusted basis in all the contributing partnership’s properties is equal to the sum of: (1) the ultimate member’s share of the contributing part- nership’s adjusted basis in the portion of the real property with respect to which the qualified conservation contribution is made as determined under proposed §1.170A-14(m)(2)(ii), plus (2) the ulti- mate member’s portion of the adjusted basis in all the contributing partnership’s properties other than the portion of the real property with respect to which the qualified conservation contribution is made. Proposed §1.170A-14(m)(2)(iii) would provide that, to determine the ultimate member’s share of the adjusted basis in all the contributing partnership’s December 4, 2023 1336 Bulletin No. 2023–49 properties, the contributing partnership must apportion among its partners in accordance with their interests in the part- nership under section 704(b) its adjusted basis in each of its properties (except the portion of the real property with respect to which the qualified conservation contri- bution is made), using the adjusted bases immediately before the qualified conser- vation contribution, without duplication or omission of any property, and by treat- ing the adjusted basis in each property as not less than zero. The Treasury Department and the IRS considered alternatives to this rule, including determining the ultimate mem- ber’s portion of the partnership’s adjusted basis in all its properties in accordance with §1.743-1(d), which provides for the determination of a transferee partner’s share of the partnership’s adjusted basis of its property for purposes of computing special basis adjustments under section 743(b). The Treasury Department and the IRS also considered determining the ultimate member’s portion of the partner- ship’s adjusted basis in all its properties in proportion to the ultimate member’s share of the built-in gain in each of the partnership’s properties. The Treasury Department and the IRS determined that these approaches would be more com- plex and could reach results that are less accurate for purposes of the Disallowance Rule. In particular, as previously men- tioned, the partnership’s allocation of the qualified conservation contribution might differ from the way that the part- nership would allocate gain and loss and make cash distributions with respect to the contributed property. Moreover, these approaches would require the part- nership to obtain a valuation of each of its properties at the time of the qualified conservation contribution. The Treasury Department and the IRS also considered an approach under which each ultimate member’s portion of the partnership’s adjusted basis in all its properties would be determined in proportion to the ulti- mate member’s share of the qualified conservation contribution. Although such an approach would be simpler than using the partners’ interests in the part- nership, it would be less accurate. The Treasury Department and the IRS also considered an approach based on section 704(b) capital accounts. However, not all partnerships use the section 704(b) capital account safe harbor, and such an approach would also require a revalu- ation of partnership properties as of the time of the contribution. The Treasury Department and the IRS also considered a rule based on how the partnership would allocate depreciation from the properties, similar to the rule in §1.199A-2(a)(3)(ii). However, such a rule would not address property that is not depreciable. The Treasury Department and the IRS request comments on these proposed rules and alternatives. Proposed §1.170A-14(m)(2)(iv) would provide a formulaic version of the narra- tive rules in proposed §1.170A-14(m)(2) (i) through (iii). b. Determination of relevant basis for an ultimate member holding a direct interest in a contributing S corporation Proposed §1.170A-14(m)(3)(i) would provide a narrative rule for the determi- nation of relevant basis for an ultimate member holding a direct interest in a contributing S corporation. It would pro- vide that a contributing S corporation must determine each such ultimate mem- ber’s relevant basis as provided therein. Relevant basis would equal each ultimate member’s modified basis as determined under proposed §1.170A-14(l)(3) multi- plied by a fraction (1) the numerator of which is the ultimate member’s pro rata portion of the contributing S corporation’s adjusted basis in the portion of the real property with respect to which the qual- ified conservation contribution is made; and (2) the denominator of which is the ultimate member’s pro rata portion of the adjusted basis in all the contributing S corporation’s properties (including the portion of the real property with respect to which the qualified conservation contri- bution is made). The Treasury Department and the IRS request comments on whether this rule is sufficiently clear, and whether additional rules are needed regarding the time at which the pro rata portions of bases are determined. For example, the regulations could provide that these deter- minations are made as of the time of the qualified conservation contribution; how- ever, in the event that an ultimate member is not a shareholder at that time, it would be unclear when the determination is to be made. Proposed §1.170A-14(m)(3)(ii) would provide a formulaic version of the narra- tive rules in proposed §1.170A-14(m)(3) (i). c. Determination of relevant basis for an ultimate member holding a direct interest in an upper-tier partnership Proposed §1.170A-14(m)(4) would provide rules for determining the relevant basis of an ultimate member holding a direct interest in an upper-tier partnership. Proposed §1.170A-14(m)(4)(i) would provide that each such ultimate member’s modified basis must be traced through all upper-tier partnerships to the contrib- uting partnership, and the contributing partnership must determine the relevant basis. This would involve a multi-step process under which, beginning with the upper-tier partnership in which the ulti- mate member holds a direct interest, each upper-tier partnership would be required to perform calculations, and then finally the contributing partnership would be required to use those calculations to com- pute the ultimate member’s relevant basis. For simplicity, proposed §1.170A-14(m) (4) would describe a situation in which there are two tiers of partnerships—a contributing partnership and an upper- tier partnership. Proposed §1.170A-14(m) (4)(i) would provide that, in a situation involving more tiers, each partnership must apply the rules and principles of proposed §1.170A-14(m)(4) iteratively to determine relevant basis. In a tiered structure, the determination of relevant basis should reflect the basis of the ulti- mate members that intend to claim a por- tion of the deduction and thus, cannot be done without computations at the level of each entity. The Treasury Department and the IRS request comments on whether, and how, these rules can be simplified, and whether any additional rules are nec- essary to prevent the avoidance of the Disallowance Rule in tiered structures. Proposed §1.170A-14(m)(4)(ii)(A) would provide a narrative rule for the upper-tier partnership. It would pro- vide that the upper-tier partnership must determine the portion of each ultimate Bulletin No. 2023–49 1337 December 4, 2023 member’s modified basis that is allocable to the upper-tier partnership’s interest in the partnership in which it holds a direct interest (in a situation involving only two tiers of partnerships, that would be the contributing partnership). This proposed regulation would require this determina- tion to be made in accordance with the principles of proposed §1.170A-14(m) (2), and the formula provided in pro- posed §1.170A-14(m)(4)(ii)(B). In other words, the formula provided in pro- posed §1.170A-14(m)(4)(ii)(B) would be similar to the formula provided in proposed §1.170A-14(m)(2)(iv), except that, instead of determining the portion of modified basis that is allocable to the portion of the real property with respect to which the qualified conservation con- tribution is made, the formula in proposed §1.170A-14(m)(4)(ii)(B) would deter- mine the portion of modified basis that is allocable to the upper-tier partnership’s interest in the next lower-tier partnership. As explained in proposed §1.170A-14(m) (4)(iii), the contributing partnership then would be required to use the amount deter- mined as the result of the formula in pro- posed §1.170A-14(m)(4)(ii)(B) in another set of computations that would determine the portion of modified basis that is alloca- ble to the portion of the real property with respect to which the qualified conserva- tion contribution is made. Proposed §1.170A-14(m)(4)(ii)(B) would provide that the rule of proposed §1.170A-14(m)(4)(ii) is also expressed in the following formula: 3 G = M × (U ÷ (J + U)) Where: G = The portion of the ultimate mem- ber’s modified basis that is allocable to the upper-tier partnership’s interest in the contributing partnership. M = Modified basis as determined under proposed §1.170A-14(l). J = Ultimate member’s portion of the adjusted basis in all the upper-tier partner- ship’s properties (other than the upper-tier partnership’s interest in the contributing partnership), determined by apportioning among the partners of the upper-tier part- nership in accordance with their interests in the partnership under section 704(b) its adjusted basis in each of its properties (other than the upper-tier partnership’s interest in the contributing partnership), using the adjusted bases immediately before the qualified conservation contri- bution, without duplication or omission of any property, and by treating the adjusted basis in each property as not less than zero. U = Ultimate member’s share of the upper-tier partnership’s adjusted basis in its interest in the contributing partnership, determined according to the following formula: H × (B ÷ K). H = Upper-tier partnership’s adjusted basis in its interest in the contributing partnership. B = Ultimate member’s distribu- tive share of the qualified conservation contribution. K = Upper-tier partnership’s allocated portion of the qualified conservation contribution. After this formula is computed, then the contributing partnership must perform computations using the amount deter- mined for item “G” to determine relevant basis. Proposed §1.170A-14(m)(4)(iii) (A) would provide a narrative rule for the contributing partnership to complete this second step. It would provide that the con- tributing partnership must determine the portion of the amount determined under proposed §1.170A-14(m)(4)(ii) with respect to each ultimate member that is allocable to the portion of the real property with respect to which the qualified conser- vation contribution is made. The proposed regulations would require this determi- nation to be made in accordance with the principles of proposed §1.170A-14(m) (2), and the formula provided in proposed §1.170A-14(m)(4)(iii)(B). Proposed §1.170A-14(m)(4)(iii)(B) would provide that the rule of proposed §1.170A-14(m)(4)(iii) is also expressed in the following formula: R = G × (V ÷ (L + V)) Where: R = Relevant basis. G = Amount determined with respect to item G as described previously under proposed §1.170A-14(m)(4)(ii)(B). L = Upper-tier partnership’s portion of adjusted basis in all the contributing partnership’s properties (other than the portion of the real property with respect to which the qualified conservation contri- bution is made), determined by apportion- ing among the partners of the contributing partnership in accordance with their inter- ests in the partnership under section 704(b) its adjusted basis in each of its properties (except the portion of the real property with respect to which the qualified con- servation contribution is made), using the adjusted bases immediately before the qualified conservation contribution, with- out duplication or omission of any prop- erty, and by treating the adjusted basis in each property as not less than zero. V = Upper-tier partnership’s share of the contributing partnership’s adjusted basis in the portion of the real property with respect to which the qualified conser- vation contribution is made, determined according to the following formula: A × (K ÷ C). A = Contributing partnership’s adjusted basis in the portion of the real property with respect to which the qualified conser- vation contribution is made. K = Upper-tier partnership’s allocated portion of the qualified conservation contribution. C = Total amount of the contribut- ing partnership’s qualified conservation contribution. d. Determination of relevant basis for an ultimate member holding a direct interest in an upper-tier S corporation Proposed §1.170A-14(m)(5) would provide rules for determining relevant basis for an ultimate member holding a direct interest in an upper-tier S corpo- ration. Proposed §1.170A-14(m)(5)(i) would provide that each such ultimate member’s modified basis must be traced through the upper-tier S corporation and any upper-tier partnerships to the contrib- uting partnership, and the contributing partnership must determine the relevant basis. This would involve a multi-step process under which, beginning with the upper-tier S corporation, the upper- tier S corporation and any upper-tier 3 Under the order of operations for mathematical computations, operations contained in parenthesis (such as the addition of J and U) are performed before the rest of the equation. December 4, 2023 1338 Bulletin No. 2023–49 partnerships would be required to perform calculations, and then finally the con- tributing partnership would be required to use those calculations to compute the ultimate member’s relevant basis. For simplicity, proposed §1.170A-14(m)(5) would describe a situation in which there are two tiers – a contributing partnership and an upper-tier S corporation. Proposed §1.170A-14(m)(5)(i) would provide that, in a situation involving more tiers, each partnership and the upper-tier S corpora- tion must apply the rules and principles of proposed §1.170A-14(m) iteratively to determine relevant basis. Proposed §1.170A-14(m)(5)(ii)(A) would provide a narrative rule for the upper-tier S corporation. It would provide that the upper-tier S corporation must determine the portion of each ultimate member’s modified basis that is allocable to the upper-tier S corporation’s inter- est in the partnership in which it holds a direct interest (in a situation involv- ing only two tiers, that would be the contributing partnership). The proposed regulations would require this determina- tion to be made in accordance with the principles of proposed §1.170A-14(m) (3), and the formula provided in pro- posed §1.170A-14(m)(5)(ii)(B). In other words, the formula provided in pro- posed §1.170A-14(m)(5)(ii)(B) would be similar to the formula provided in proposed §1.170A-14(m)(3)(ii), except that, instead of determining the portion of modified basis that is allocable to the portion of the real property with respect to which the qualified conservation con- tribution is made, the formula in pro- posed §1.170A-14(m)(5)(ii)(B) would determine the portion of modified basis that is allocable to the upper-tier S cor- poration’s interest in the next lower-tier partnership. As explained in proposed §1.170A-14(m)(5)(iii), the contributing partnership then would be required to use the amount determined as the result of the formula in proposed §1.170A-14(m) (5)(ii)(B) in another set of computations that would determine the portion of mod- ified basis that is allocable to the portion of the real property with respect to which the qualified conservation contribution is made. Proposed §1.170A-14(m)(5)(ii)(B) would provide that the rule of proposed §1.170A-14(m)(5)(ii) is also expressed in the following formula: N = M × (P ÷ Q) Where: N = Portion of the ultimate member’s modified basis that is allocable to the upper-tier S corporation’s interest in the contributing partnership. M = Modified basis as determined under proposed §1.170A-14(l). P = Ultimate member’s pro rata portion of the upper-tier S corporation’s adjusted basis in its interest in the contributing partnership. Q = Ultimate member’s pro rata por- tion of the adjusted basis in all the upper- tier S corporation’s properties (including the upper-tier S corporation’s interest in the contributing partnership). After this formula is computed, then the contributing partnership must perform computations using the amount deter- mined for item “N” to determine relevant basis. Proposed §1.170A-14(m)(5)(iii) (A) would provide a narrative rule for the contributing partnership to compute this second step. It would provide that the con- tributing partnership must determine the portion of the amount determined under proposed §1.170A-14(m)(5)(ii) with respect to each ultimate member that is allocable to the portion of the real property with respect to which the qualified conser- vation contribution is made. The proposed regulations would require this determi- nation to be made in accordance with the principles of proposed §1.170A-14(m) (2), and the formula provided in proposed §1.170A-14(m)(5)(iii)(B). Proposed §1.170A-14(m)(5)(iii)(B) would provide that the rule of proposed §1.170A-14(m)(5)(iii) is also expressed in the following formula: R = N × (W ÷ (S + W)) Where: R = Relevant basis. N = Amount determined with respect to item N as described previously under proposed §1.170A-14(m)(5)(ii)(B). S = Upper-tier S corporation’s portion of the adjusted basis in all the contribut- ing partnership’s properties (other than the portion of the real property with respect to which the qualified conservation contri- bution is made), determined by apportion- ing among the partners of the contributing partnership in accordance with their inter- ests in the partnership under section 704(b) its adjusted basis in each of its properties (other than the portion of the real prop- erty with respect to which the qualified conservation contribution is made), using the adjusted bases immediately before the qualified conservation contribution, with- out duplication or omission of any prop- erty, and by treating the adjusted basis in each property as not less than zero. W = Upper-tier S corporation’s share of the contributing partnership’s adjusted basis in the portion of the real property with respect to which the qualified conser- vation contribution is made, determined according to the following formula: A × (Y ÷ C). A = Contributing partnership’s adjusted basis in the portion of the real property with respect to which the qualified conser- vation contribution is made. Y = Upper-tier S corporation’s distrib- utive share of the qualified conservation contribution. C = Total amount of the contribut- ing partnership’s qualified conservation contribution. The proposed regulations would pro- vide examples illustrating these rules. The Treasury Department and the IRS request comments on the determination of rele- vant basis. 3. Recordkeeping Requirements Proposed §1.170A-14(m)(6) would provide that contributing partnerships, contributing S corporations, upper-tier partnerships, and upper-tier S corpora- tions must each maintain dated, written statements in their books and records, by the due date, including extensions, of their Federal income tax returns, sub- stantiating the computation of each ulti- mate member’s adjusted basis, modified basis, and relevant basis. It would also provide that these statements need not be maintained (nor does modified basis or relevant basis need to be computed) with respect to contributions that meet an exception in proposed §1.170A-14(n)(2) (contributions outside a three-year hold- ing period) or (n)(3) (family pass-through Bulletin No. 2023–49 1339 December 4, 2023 entities). However, these statements must be maintained with respect to contribu- tions that meet the exception in proposed §1.170A-14(n)(4) for certified historic structures because section 170(f)(19) imposes special reporting requirements for such contributions if they exceed 2.5 times the sum of relevant basis. F. Exceptions to the Disallowance Rule Consistent with section 170(h)(7) (C), (D), and (E), the rules in proposed §1.170A-14(n) would provide defini- tions and additional guidance relating to the three exceptions to the Disallowance Rule. It would also provide that there is no presumption that such a contribution oth- erwise is compliant with section 170, any other section of the Code, or the regulations or any other guidance thereunder; being described in proposed §1.170A-14(n) is not a safe harbor for purposes of any other provision of law or with respect to the value of the contribution; such trans- actions are subject to adjustment or dis- allowance for any other reason, including failure to satisfy the other requirements of section 170 and overvaluation of the con- tribution; and taxpayers who engage in such transactions may be required to dis- close under §1.6011-4 the transactions as listed transactions. 1. Exception for Contributions Outside Three-Year Holding Period Consistent with section 170(h)(7)(C), proposed §1.170A-14(n)(2)(i) would pro- vide that §1.170A-14(j) does not apply to any qualified conservation contribution by a contributing partnership or contributing S corporation that is made at least three years after the latest of (1) the last date on which the contributing partnership or contributing S corporation acquired any portion of the real property with respect to which such qualified conservation contri- bution is made, (2) the last date on which any partner in the contributing partner- ship or shareholder in the contributing S corporation acquired any interest in such partnership or S corporation, and (3) if the interest in the contributing partnership is held through one or more upper-tier part- nerships or upper-tier S corporations (A) the last date on which any such upper-tier partnership or upper-tier S corporation acquired any interest in the contribut- ing partnership or any other such upper- tier partnership, and (B) the last date on which any partner or shareholder in any such upper-tier partnership or upper-tier S corporation acquired any interest in such upper-tier partnership or upper-tier S corporation. Neither section 605 of SECURE 2.0 Act nor section 170 defines the phrase “acquired any interest.” An acquisition of an interest in a partnership can occur in several ways, including by inheritance, purchase from an existing partner, in a sec- tion 721 exchange with the partnership, in exchange for the provision of services, or as a distribution from an upper-tier partnership. An existing partner can also acquire additional interests in the partner- ship. In addition, one partner’s complete or partial disposition of an interest in the partnership can be economically similar to the acquisition of an interest in the part- nership by the remaining partners. For example, if a partnership makes a distribu- tion that reduces one partner’s interest in the profits or losses of the partnership, the remaining partners’ interests, in the aggre- gate, may increase in the same manner as if they had acquired additional interests in the partnership. The rules under section 706(c) and (d) address partnership allocations in sit- uations involving variations in partners’ interests attributable to acquisitions and dispositions. Section 1.706-4(a)(1) pro- vides rules for determining the partners’ distributive shares of partnership items when a partner’s interest in a partnership varies during the taxable year as a result of the disposition of a partial or entire interest in a partnership as described in §1.706-1(c)(2) and (3), 4 or with respect to a partner whose interest in a partnership is reduced as described in §1.706-1(c)(3), including by the entry of a new partner, collectively referred to as a “variation.” Generally, a variation includes any acqui- sition, partial disposition, or complete dis- position of an interest in the partnership. However, §1.706-4(b)(1) provides that the rules in §1.706-4(a)(3) do not preclude changes in the allocations of the distrib- utive share of items described in section 702(a) among contemporaneous partners, provided that any variation in a partner’s interest is not attributable to a contribu- tion of money or property by a partner to the partnership or a distribution of money or property by the partnership to a part- ner, and the allocations resulting from the modification satisfy the requirements in section 704(b) and the regulations there- under. Generally, partnerships are famil- iar with the rules under §1.706-4 because they must apply such rules in computing allocations whenever there is an acquisi- tion or disposition of a partner’s interest during the taxable year. The definition of “variation” in §1.706-4 would provide an administrable standard consistent with the purposes of section 170(h)(7)(C). Accordingly, pro- posed §1.170A-14(n)(2)(ii) would pro- vide that, for purposes of §1.170A-14(n) (2), an acquisition of any interest in a partnership is any “variation” within the meaning of that term in §1.706-4(a)(1); however, a variation would not include a change in allocations that satisfies the requirements of §1.706-4(b)(1). The Treasury Department and the IRS con- sidered alternatives to this rule, including defining acquisition as any acquisition by purchase, contribution, or gift. However, because certain other transactions such as redemptions and abandonments may reach results that are substantively similar to an acquisition by purchase, contribu- tion, or gift, the Treasury Department and the IRS determined that the variation rules of §1.706-4 would be more appropriate in this context. Proposed §1.170A-14(n)(2)(iii) would define an acquisition of any interest in an S corporation as any transfer, issuance, redemption, or other disposition of stock in the S corporation; however, an acqui- sition would not include any issuance or redemption involving all shareholders that does not affect the proportionate owner- ship of any shareholder (for example, a stock split). The Treasury Department and the IRS considered alternatives to 4 Section 1.706-1(c)(2) provides in part that a partnership taxable year closes with respect to a partner who sells or exchanges the partner’s entire interest in the partnership, with respect to a partner whose entire interest in the partnership is liquidated, and with respect to a partner who dies. Section 1.706-1(c)(3) provides that if a partner sells or exchanges a part of the partner’s interest in a partnership, or if the interest of a partner is reduced, the partnership taxable year continues to its normal end. December 4, 2023 1340 Bulletin No. 2023–49 this rule, including defining acquisition as any acquisition by purchase, contri- bution, or gift. However, because certain other transactions such as redemptions and abandonments may reach results that are substantively similar to an acquisi- tion by purchase, contribution, or gift, the Treasury Department and the IRS deter- mined that the proposed rule would be more appropriate in this context. Proposed §1.170A-14(n)(2)(iv) would provide that, if the contributing part- nership or contributing S corporation does not satisfy the requirements of pro- posed §1.170A-14(n)(2), then proposed §1.170A-14(n)(2) would not apply to any person who receives a distributive share or pro rata share of the qualified conserva- tion contribution (including an upper-tier partnership or upper-tier S corporation), regardless of whether the person receiving such distributive share or pro rata share would have satisfied the requirements of proposed §1.170A-14(n)(2) if the person had been the one to make the qualified conservation contribution. The Treasury Department and the IRS considered alternatives to this rule, such as allow- ing upper-tier partnerships and upper-tier S corporations to apply the three-year- holding-period exception even if the con- tributing partnership failed to satisfy the exception. Such an approach, however, would be inconsistent with section 170(h) (7)(C), which explicitly applies the hold- ing period requirements to the contribut- ing partnership. The proposed regulations contain two examples illustrating these rules. The Treasury Department and the IRS request comments on whether any additional rules or examples should be provided for the three-year holding period exception. 2. Exception for Family Pass-Through Entities As mentioned earlier, section 170(h) (7)(D)(i) provides the Disallowance Rule does not apply to any contribution made by any partnership if substantially all of the partnership interests in such partner- ship are held, directly or indirectly, by an individual and members of the family of such individual. The Treasury Department and the IRS are aware that the meaning of the term “substantially all” in section 170(h)(7)(D)(i) may not be clear and that such ambiguity could impair taxpayers’ ability to determine whether they qualify for the family pass-through entity excep- tion. For purposes of applying different provisions of the Code that also use that term, various Income Tax Regulations define the term “substantially all” as com- prising different percentages, including: 70 percent (§1.1400Z2(d)-2(d)(4)); 80 percent (§§1.41-2(d)(2), 1.41-4(a)(6)); 85 percent (§§1.45D-1(c)(5), 1.72(e)-1T, Q&A 3; 1.528-4(b) and (c)); 90 percent (§§1.103-8(a)(1)(i), 1.103-16(c), 1.731- 2(c)(3)(i); 1.1400Z2(d)-2(d)(3)); and 95 percent (§§1.448-1T(e)(4)(i) and (e)(5)(i), 1.460-6(d)(4)(i)(D)(1)). It is appropriate to select a percentage at the higher end of this range to carry out the purpose of section 170(h)(7) of preventing abusive syndications of qualified conservation contributions. Accordingly, the Treasury Department and the IRS propose to define “substantially all” for purposes of sec- tion 170(h)(7)(D)(i) and §1.170A-14(n) (3)(i) as 90 percent of the interests in the contributing partnership or contributing S corporation that meets the requirements of proposed §1.170A-14(n)(3). Thus, proposed §1.170A-14(n)(3)(i) would provide that §1.170A-14(j) does not apply with respect to any qualified conservation contribution made by a con- tributing partnership or contributing S corporation if at least 90 percent of the interests in the contributing partnership or contributing S corporation are held by an individual and members of the family of such individual, and the contributing partnership or contributing S corpora- tion meets the requirements of proposed §1.170A-14(n)(3). The Treasury Department and the IRS are also aware that it may be unclear what “interests” in the contributing part- nership or contributing S corporation are to be taken into account for purposes of the family pass-through entity exception. Generally, the Code characterizes interests in a partnership as comprising the “cap- ital interests” in the partnership and the “profits interests” in the partnership. See, for example, section 707(b) of the Code. The Treasury Department and the IRS propose limiting the family pass-through entity exception to situations in which an individual and the family members of such individual own at least 90 percent of both the capital and profits interests in the contributing partnership. Doing so would help to ensure that the family pass-through entity exception does not apply in situa- tions in which persons outside an individ- ual’s family own a substantial economic interest in the partnership. Accordingly, proposed §1.170A-14(n)(3)(ii)(A) would provide that, in the case of a contribut- ing partnership, at least 90 percent of the interests in the contributing partnership are held by an individual and members of the family of such individual if, at the time of the qualified conservation contribution, at least 90 percent of the interests in capi- tal and profits in such partnership are held, directly or indirectly, by an individual and members of the family of such individual. A similar rule is proposed for S corpo- rations. Section 1361(b)(1)(D) requires that an S corporation have only one class of stock. However, section 1361(c)(4) provides that differences in voting rights alone do not create a second class of stock. The Treasury Department and the IRS propose limiting the family pass-through entity exception in the case of S corpora- tions to situations in which the individual and the family of such individual own stock in the contributing S corporation possessing at least 90 percent of the total voting power and at least 90 percent of the total value of the outstanding stock of the contributing S corporation. Doing so would help to ensure that the family pass-through exception does not apply in situations in which persons outside an individual’s family own a substantial economic interest in the S corporation. Accordingly, proposed §1.170A-14(n)(3) (ii)(B) would provide that, in the case of a contributing S corporation, at least 90 percent of the interests in the contributing S corporation are held by an individual and members of the family of such indi- vidual if, at the time of the qualified con- servation contribution, at least 90 percent of the total value and at least 90 percent of the total voting power of the outstanding stock in such S corporation are held by an individual and members of the family of such individual. The Treasury Department and the IRS request comments on whether these defi- nitions of “substantially all of the inter- ests” in the contributing partnership or Bulletin No. 2023–49 1341 December 4, 2023 contributing S corporation are appropriate and sufficient to ensure the intended appli- cation of the family pass-through entity exception. Consistent with section 170(h)(7) (D)(ii), proposed §1.170A-14(n)(3) (iii) would provide that, for purposes of §1.170A-14(n)(3), the term “members of the family” means, with respect to any individual (1) the spouse of such indi- vidual, and (2) any individual who bears a relationship to such individual that is described in section 152(d)(2)(A) through (G). Under these proposed regulations, members of the family would be limited to individuals. The Treasury Department and the IRS request comments on whether certain estates or trusts should be treated as members of the family for purposes of this rule. The Treasury Department and the IRS note that, under existing §1.1361- 1(e)(3)(ii), certain estates and trusts of deceased members of the family are treated as members of the family for pur- poses of the limitation on the number of shareholders in an S corporation. As described earlier in this preamble, the Disallowance Rule and its exceptions in section 170(h)(7) are generally mechan- ical. However, Congress recognized that additional guidance may be needed to prevent situations in which those mechan- ical rules are used to avoid the purposes of the Disallowance Rule. As mentioned previously, section 170(h)(7)(G)(ii) pro- vides the Secretary with authority to issue regulations or other guidance to prevent the avoidance of the purposes of section 170(h)(7). Accordingly, these proposed regulations would provide two anti-abuse rules designed to ensure that the family pass-through entity exception in proposed §1.170A-14(n)(3) is not used inappro- priately to circumvent the Disallowance Rule. First, the Treasury Department and the IRS propose to limit the family pass- through entity exception to situations in which an individual and members of that individual’s family have held the requisite ownership interest in the property for at least one year prior to the contribution. The need for such a rule is the concern that, in the absence of a requirement that the members of the family hold the con- tributed property for a certain period of time before the contribution, promoters could structure transactions to inappro- priately take advantage of tacked holding periods under section 1223 of the Code together with the family pass-through entity exception. Due to the operation of section 170(e), most contributions that exceed 2.5 times the sum of relevant basis would be expected to be of long-term capital gain property because, in those situations, the amount of the contribu- tion would not be limited to the donor’s basis. Transactions in which a family is relying on a tacked-holding period under section 1223 from another owner out- side the family to claim a contribution in excess of 2.5 times the sum of rele- vant basis raise serious concerns that the family pass-through entity exception is being used inappropriately to circumvent the Disallowance Rule. Accordingly, pro- posed §1.170A-14(n)(3)(iv)(A) would provide that the exception in proposed §1.170A-14(n)(3) does not apply unless at least 90 percent of the interests in the property with respect to which the quali- fied conservation contribution was made were owned, directly or indirectly, by one individual and members of the family of that individual for at least one year prior to the date of the contribution. The proposed rules would clarify that the members of the family during that year need not be the same members of the family that own an interest at the time of the qualified conser- vation contribution; however, at least one individual must own an interest for the entire year, and at least 90 percent of the interests in the property must be owned, directly or indirectly, during that year by that individual and members of the fam- ily with respect to that individual. The proposed regulations contain an example illustrating the application of this rule. Second, proposed §1.170A-14(n)(3) (iv)(B) would provide that the exception in proposed §1.170A-14(n)(3) does not apply unless at least 90 percent of the qualified conservation contribution is allocated to the individual and all mem- bers of the individual’s family who own at least 90 percent of all the interests in the contributing partnership or contributing S corporation. The Treasury Department and the IRS are concerned that, without such a rule, contributing partnerships or contributing S corporations might be structured to meet the family pass-through exception, but the qualified conservation contribution would be allocated dispro- portionately to persons that are not mem- bers of the family. Proposed §1.170A-14(n)(3)(v) would provide that, in the case of tiered pass- through entities, the family pass-through exception is available only if the con- tributing partnership or contributing S corporation satisfies the requirements of §1.170A-14(n)(3). If the contributing partnership or contributing S corporation satisfies the requirements of proposed §1.170A-14(n)(3), then any upper-tier partnership or upper-tier S corporation need not apply §1.170A-14(j) through (n) to its allocated portion of such con- tribution. If the contributing partner- ship or contributing S corporation does not satisfy the requirements of proposed §1.170A-14(n)(3), then the exception in §1.170A-14(n)(3) would not apply to any person who receives a distributive share or pro rata share of the qualified conserva- tion contribution (including an upper-tier partnership or upper-tier S corporation), regardless of whether the person receiving such distributive share or pro rata share would have satisfied the requirements of proposed §1.170A-14(n)(3) if the person had been the one to make the contribu- tion. The Treasury Department and the IRS considered alternatives to this rule, such as allowing upper-tier partnerships and upper-tier S corporations to apply the family pass-through entity exception even if the contributing partnership failed to satisfy the exception. Such an approach, however, would be inconsistent with section 170(h)(7)(D), which explicitly applies the substantially-all requirement to the contributing partnership or contrib- uting S corporation. 3. Exception for Contributions to Preserve Certified Historic Structures Consistent with section 170(h)(7)(E), proposed §1.170A-14(n)(4) would pro- vide that proposed §1.170A-14(j) does not apply to any qualified conservation contribution the conservation purpose of which is the preservation of any build- ing that is a certified historic structure (as defined in section 170(h)(4)(C)). Proposed §1.170A-14(n)(4) would also contain a cross-reference to the special reporting December 4, 2023 1342 Bulletin No. 2023–49 requirements in proposed §1.170A-16(f) (6) for a contribution that meets the certi- fied historic structure exception. IV. Reporting Requirements Existing §1.170A-16 imposes sub- stantiation and reporting requirements for noncash charitable contributions. Subject to certain exceptions, §1.170A- 16 requires the donor to file Form 8283, Noncash Charitable Contributions, in the case of a noncash charitable contribu- tion exceeding $500. Specifically, exist- ing §1.170A-16(c) generally requires the donor to complete Form 8283 (Section A) in the case of a noncash charitable contri- bution of more than $500 but not more than $5,000. Existing §1.170A-16(d) generally requires the donor to complete Form 8283 (Section A or Section B, or both, as appli- cable) in the case of a noncash charitable contribution of more than $5,000. Existing §1.170A-16(e) applies to noncash charita- ble contributions of more than $500,000 and generally requires the donor to com- plete Form 8283 (Section A or Section B, or both, as applicable). Consistent with section 170(f)(11)(D), §1.170A-16(e) requires a donor of a noncash contribu- tion of more than $500,000 to attach an appraisal to the return on which the deduc- tion is claimed. Existing §1.170A-16(f) provides additional substantiation rules, including rules for donors that are partner- ships or S corporations. A. Requirement that Numbers be Entered in Sections A and B of Form 8283 Existing §1.170A-16(c)(3) and (d)(3) define a completed Form 8283 (Section A) and Form 8283 (Section B), respec- tively. To further clarify reporting require- ments for donated property, proposed §1.170A-16(c)(3)(v) and (d)(3)(ix) would add a requirement that, if a box in Section A or Section B of the Form 8283 (respec- tively) requests insertion of a number, the taxpayer must include the number in the box or attach a statement explaining why the taxpayer cannot include the number in the box. Taxpayers that do not include numbers where required or engage in a practice to obfuscate or otherwise defeat the requirement to include a number in the box, could be subject to heightened scrutiny and a denial of the deduction for failure to provide the requested informa- tion on the Form 8283. The Treasury Department and the IRS believe that this rule regarding specific reporting of numerical amounts is rea- sonable and necessary because the IRS has observed a pronounced increase in taxpayers filing a Form 8283 that does not contain any numbers and instead refers the IRS to an attachment. Often, the attachment includes nonresponsive infor- mation, such as “available upon request,” is entirely blank, or otherwise does not provide the information required by Form 8283. Other times, the attachment includes multiple numbers for different boxes, leaving the IRS to surmise which of the included numbers is appropriate for a particular box. These actions are to the detriment of fair and effective tax admin- istration. Accordingly, the proposed regu- lations state that Sections A and B of Form 8283, including any attachments thereto, may not include nonresponsive informa- tion, such as “available upon request,” “provided upon request,” or any other nonresponsive information other than the information requested. Including any non- responsive language may result in a pre- sumption that Form 8283 is incomplete. While many taxpayers understandably want to attach a statement to the Form 8283 to verify their calculations and pro- vide appropriate supplemental informa- tion, having the numerical information in the appropriate box on Sections A and B of Form 8283 is critical to the IRS’s abil- ity to ensure the integrity of each filing, as IRS systems are programmed to match a partner’s or shareholder’s information to the appropriate contributing partnership’s or contributing S corporation’s informa- tion. Moreover, information requested on Sections A and B of Form 8283 is infor- mation that the partnership or S corpora- tion should already have and is already required to provide to the partner or share- holder, as appropriate. See §1.170A-16(f) (4). B. Clarification of Reporting of Certain Qualified Conservation Contributions made by a Partnership or S Corporation Existing §1.170A-16(d)(3) defines a completed Form 8283 (Section B) required to substantiate charitable contributions of more than $5,000. To ensure that taxpay- ers claiming qualified conservation con- tributions properly comply with section 170(f)(19) and (h)(7), which require a partnership or S corporation to calculate the sum of the relevant basis of the part- nership’s or S corporation’s partners or shareholders, the IRS must have relevant basis reporting from both the contributing partnership or contributing S corporation and each partner or shareholder receiving an allocation of the contribution (which will be ultimate members, upper-tier part- nerships, or upper-tier S corporations). Accordingly, these proposed regulations would insert a new paragraph, proposed §1.170A-16(d)(3)(viii). 5 The new paragraph would provide that, for certain qualified conservation contri- butions made by a partnership or S corpo- ration, the sum of each ultimate member’s relevant bases, computed in accordance with §1.170A-14(j) through (m), must be reported on the Form 8283 (Section B) in order for the Form 8283 (Section B) to be considered complete. This new requirement applies to con- tributions described in section 170(h) (7)(E) and §1.170A-14(n)(4) (for con- tributions to preserve certified historic structures), regardless of whether they are also described in section 170(h)(7) (C) and §1.170A-14(n)(2) (for contri- butions made outside of the three-year holding period) and/or section 170(h)(7) (D) and §1.170A-14(n)(3) (for contribu- tions made by certain family partnerships or S corporations). While contributions by partnerships or S corporations to pre- serve historic structures are excepted from the Disallowance Rule of section 170(h) (7), they are potentially subject to sec- tion 170(f)(19), which applies when the amount of the contribution exceeds 2.5 times of the relevant bases. The Treasury Department and the IRS request comments on whether any adjustments to relevant basis are warranted in the case of a con- tribution to preserve a historic structure. This new requirement also would apply for any other qualified conserva- tion contribution by a partnership or S corporation, provided that the contribu- tion is not described in section 170(h) (7)(C) and §1.170A-14(n)(2) (for con- tributions made outside of the three-year Bulletin No. 2023–49 1343 December 4, 2023 holding period) and/or section 170(h)(7) (D) and §1.170A-14(n)(3) (for contribu- tions made by certain family partnerships or S corporations). If the contribution is disallowed by section 170(h)(7) and pro- posed §1.170A-14(j), then the Treasury Department and the IRS expect that the contribution will not be reported to the IRS on Form 8283 because no deduction can be taken. C. Clarification of Reporting of Noncash Charitable Contributions over $500 made by a Partnership or S Corporation Existing §1.170A-16(d)(6) refers to existing §1.170A-16(f) for additional sub- stantiation rules. Existing §1.170A-16(f) (4) provides special substantiation rules for partner and S corporation shareholders. Existing §1.170A-16(f)(4)(i) provides that, if the donor is a partnership or S cor- poration, the donor must provide a copy of the completed Form 8283 to every partner or shareholder who receives an allocation of a charitable contribution under section 170 for the property described in the Form 8283. Similarly, existing §1.170A-16(f) (4)(i) provides that a recipient partner or shareholder that is a partnership or S cor- poration must provide a copy of the com- pleted Form 8283 to each of its partners or shareholders who receives an allocation of a charitable contribution under section 170 for the property described in Form 8283. Existing §1.170A-16(f)(4)(ii) provides that a partner of a partnership or share- holder of an S corporation who receives an allocation of a charitable contribution under section 170 for property to which §1.170A-16(c), (d), or (e) applies 5 must attach a copy of the partnership’s or S corporation’s completed Form 8283 to the return on which the deduction is claimed. In pass-through and tiered entity struc- tures, the IRS regularly observes partners and shareholders providing incomplete information to substantiate their charitable contribution deductions. For example, an ultimate member might complete a Form 8283 that contains the necessary informa- tion from the Form K-1 received from the contributing partnership, contributing S corporation, or an upper-tier partnership or upper-tier S corporation. However, often, the ultimate member fails to pro- vide a copy of the appropriate partner- ship’s or S corporation’s Form 8283 and the Form K-1. In accordance with the authority granted by section 170(h)(7) (G) to “prescribe such regulations or other guidance as may be necessary or appro- priate to carry out the purposes of this paragraph, including regulations or other guidance ... to require reporting, includ- ing reporting related to tiered partnerships and the modified basis of partners,” these proposed regulations would revise para- graph §1.170A-16(f)(4). Proposed §1.170A-16(f)(4)(i) would retain the requirement that a donor that is a partnership or S corporation provide a copy of the completed Form 8283 to every partner or shareholder who receives an allocation. That paragraph also would retain the requirement that a partnership or corporation that receives an allocation of a charitable contribution under section 170 must provide a copy of the donor’s Form 8283 to its partners or shareholders who receive an allocation of the deduc- tion, but would clarify that this reporting is required through any additional tiers. Proposed §1.170A-16(f)(4)(ii) would retain the rule that a partner of a partner- ship or shareholder of an S corporation who receives an allocation of a charita- ble contribution to which §1.170A-16(c), (d), or (e) applies must attach the donor partnership’s or S corporation’s Form 8283 to the return on which the deduction is claimed. A clarifying requirement is added that the partner or shareholder must also attach a copy of any additional Forms 8283 that they must receive as provided in proposed §1.170A-16(f)(4)(iii)(A). Proposed §1.170A-16(f)(4)(iii)(A) would provide that a partner of a partner- ship or shareholder of an S corporation that receives an allocation of a charitable con- tribution under section 170 for property to which §1.170A-16(c), (d), or (e) applies must complete their own Form 8283 with any information required by Form 8283 and the instructions to Form 8283. In addition, a partner that is itself a part- nership or S corporation must complete its own Form 8283 and provide a copy of that Form 8283 to every partner or share- holder who receives an allocation of the charitable contribution, and so on through any additional tiers. The partner or share- holder must attach its separate Form 8283 to the return on which the contribution is claimed in addition to the copy of donor’s Form 8283 as well as other Forms 8283 that the partner or shareholder received. This new requirement would apply to all noncash charitable contributions over $500 made by a partnership or S corpo- ration, not just those for conservation easements. Proposed §1.170A-16(f)(4)(iii)(B) would provide that, if the contribution was a qualified conservation contribution, an ultimate member’s separate Form 8283 must include the ultimate member’s own relevant basis. An upper-tier partnership’s or upper-tier S corporation’s separate Form 8283 must include the sum of each of its ultimate member’s relevant bases. However, the requirements that an ulti- mate member provide their own relevant basis and that an upper-tier partnership or upper-tier S corporation include the sum of its ultimate member’s relevant bases do not apply to contributions described in section 170(h)(7)(C) and §1.170A-14(n) (2) (for contributions made outside of the three-year holding period) or section 170(h)(7)(D) and §1.170A-14(n)(3) (for contributions made by certain family partnerships or S corporations), provided that they are not also described in section 170(h)(7)(E) and §1.170A-14(n)(4) (for contributions to preserve certified his- toric structures), in which case proposed paragraph §1.170A-16(f)(4)(iii)(B) does apply. The Form 8283 instructions will be revised accordingly. D. Additional Reporting Required by Section 170(f)(19) To ensure proper reporting under sec- tion 170(f)(19), the proposed regula- tions would add new §1.170A-16(f)(6). Specifically, proposed §1.170A-16(f)(6) (i) would provide that, in the case of any contribution described in section 170(h) (4)(C) and proposed §1.170A-16(f)(6) 5 In other words, a charitable contribution of more than $500 but not more than $5,000, §1.170A-16(c), a charitable contribution of more than $5,000, §1.170A-16(d), or noncash charitable contributions of more than $500,000, §1.170A-16(e). December 4, 2023 1344 Bulletin No. 2023–49 (ii) (relating to the preservation of certi- fied historic structures), pursuant to sec- tion 170(f)(19), no deduction is allowed under section 170 or any other provision of the Code under which deductions are allowable to pass-through entities with respect to such contribution unless each partnership or S corporation (1) includes on its return for the taxable year in which the contribution is made a statement that it made such a contribution or received such allocated portion and (2) provides such information about the contribution as the Secretary may require in guidance, forms, or instructions. The reference to “any other provision of the Code under which deductions are allowable to pass-through entities” is included under the authority of section 170(f)(19)(C) to apply these rules to S corporations and other pass-through entities in the same manner as such rules apply to partnerships and their partners, and is necessary to prevent such pass- through entities and their owners from claiming a deduction under a different provision of the Code other than section 170, such as section 642(c), unless the statutory and regulatory requirements of section 170(f)(19) are met. Proposed §1.170A-16(f)(6)(ii) describes (using terms defined in proposed §1.170A-14(j)(3)) the contributions to which proposed §1.170A-16(f)(6) would apply, namely any qualified conservation contribution (as defined in section 170(h) (1) and proposed §1.170A-14) for which: (1) the conservation purpose of which is preservation of a building that is a certi- fied historic structure (as defined in sec- tion 170(h)(4)(C)); (2) that is either made by a contributing partnership or contrib- uting S corporation, or that is an allo- cated portion of an upper-tier partnership or upper-tier S corporation; and (3) the amount of such contribution or such allo- cated portion exceeds 2.5 times the sum of each ultimate member’s relevant basis (as defined in proposed §1.170A-14(j) through (m)). Proposed §1.170A-16(f)(6)(iii) would provide that a partnership or S corporation satisfies the requirement to have made a statement that it made such a contribution or received such allocated portion and to provide such information about the con- tribution as the Secretary may require by filing Form 8283 (including information about relevant basis) in accordance with section 170, the regulations under sec- tion 170 (including those proposed in this notice of proposed rulemaking), and the instructions to Form 8283. V. Section 706 Regulations The general mechanism of section 170(h)(7) with respect to partnerships is to compare the amount of the partnership’s contribution (or its distributive share of a contribution made by another partnership) to 2.5 times the sum of each of its partner’s relevant basis. Relevant basis is based on modified basis, which is based on the partner’s adjusted basis in its partnership interest immediately before the contribu- tion. Without additional rules, there may be situations in which the contribution is allocated to partners that did not hold an interest at the time of the qualified conser- vation contribution. Such partners would not have any adjusted basis in their part- nership interests immediately before the contribution, and thus, without additional rules, their relevant basis would be zero. Therefore, rules are needed to align the computation of relevant basis (which is generally required to be computed imme- diately before the computation) with the allocation of the contribution among the partners. Generally, section 706 and §1.706-4 of the existing regulations provide rules for determining a partner’s distributive share of partnership items when a partner’s interest in the partnership varies during the taxable year. For example, assume a partner holding a 25 percent interest in a calendar-year partnership sells its 25 per- cent interest on July 1. Under section 706 and §1.706-4, the partnership would not allocate the selling partner 25 percent of all items of income for the year because the selling partner had no interest in the partnership for the final half of the year. Instead, the partnership would follow the rules of §1.706-4 to ensure that the allo- cations properly reflect the sale of the partner’s interest. Generally, the rules of §1.706-4 allow partnerships to use either a proration method or an interim clos- ing of the books method (interim closing method). 6 In the example, a partnership using the proration method generally would allocate the selling partner 12.5 percent (reflecting the fact that the selling partner held a 25 percent interest in the partnership for half of the year) of every item of the partnership for the full year, regardless of whether the partnership incurred the item in the first or second half of the year. Alternatively, a partnership using the interim closing method gener- ally would allocate the selling partner 25 percent of every item occurring in the first half of the year. Section 1.706-4 provides an exception to these rules for certain “extraordinary items,” which must be allocated in accor- dance with the partners’ interests in the item at the time of day the extraordinary item occurred. Section 1.706-4(e)(2) pro- vides a list of these extraordinary items. In particular, §1.706-4(e)(2)(i) and (ii) pro- vide that an extraordinary item includes any item from the disposition or abandon- ment (other than in the ordinary course of business) of a capital asset as defined in section 1221 of the Code (determined without the application of any other rules of law) and any item from the disposition or abandonment (other than in the ordi- nary course of business) of property used in a trade or business as defined in section 1231(b) of the Code (determined with- out the application of any holding period requirement). Section 1.706-4(e)(3) pro- vides a “small item exception” under which certain items in the list in §1.706- 4(e)(2) nevertheless are not extraordinary items if they fall below certain thresholds. Proposed §1.706-4(e)(2)(ix) would provide that an extraordinary item includes any qualified conservation con- tribution (without regard to whether such contribution is a disallowed qualified con- servation contribution within the meaning of §1.170A-14(j)(3)(vii)). The proposed amendments to existing §1.706-4(e)(3) contained in these proposed regulations would provide that the small item excep- tion does not apply to any qualified con- servation contribution. These rules are 6 The rules of §1.706-4 also require the use of conventions to determine the date on which variations are deemed to occur. Discussion of these conventions is beyond the scope of this preamble. Bulletin No. 2023–49 1345 December 4, 2023 designed to ensure that modified basis can be computed immediately before the contribution, as directed in section 170(h) (7). The Treasury Department and the IRS considered alternatives to this rule. However, many, and perhaps most, quali- fied conservation contributions are already considered extraordinary items under existing §1.706-4(e)(2)(i) or (ii). The proposed rule, however, provides clarity and uniformity regarding the application of the extraordinary item rule to qualified conservation contributions and facilitates the computation of a partner’s modified basis immediately before the contribution as directed by the statute. Section 706(d)(3) provides rules for an upper-tier partnership’s allocation of items to its partners attributable to an interest in a lower-tier partnership. It provides that if, during any taxable year of the upper- tier partnership there is a change in any partner’s interest in the upper-tier partner- ship, then (except to the extent provided in regulations) each partner’s distributive share of any item of the upper-tier part- nership attributable to the lower-tier part- nership must be determined by assigning the appropriate portion (determined by applying principles similar to the princi- ples of section 706(d)(2)(C) and (D)) of each such item to the appropriate days during which the upper-tier partnership is a partner in the lower-tier partnership and by allocating the portion assigned to any such day among the partners in pro- portion to their interests in the upper-tier partnership at the close of such day. The Treasury Department and the IRS are concerned that, even if a lower-tier part- nership’s qualified conservation contri- bution is treated as an extraordinary item with respect to the lower-tier partnership, an upper-tier partnership might never- theless attempt to rely on section 706(d) (3) and allocate its share of the contri- bution to partners that were not partners on the date of contribution. To facilitate the computation of a partner’s relevant basis immediately before the contribu- tion, proposed §1.706-3(a) would pro- vide that, for purposes of section 706(d) (3), in the case of a qualified conservation contribution (without regard to whether such contribution is a disallowed quali- fied conservation contribution within the meaning of §1.170A-14(j)(3)(vii)) by a partnership that is allocated to an upper- tier partnership, the upper-tier partnership must allocate the contribution among its partners in proportion to their interests in the upper-tier partnership at the time of day at which the contribution was made, regardless of the method (interim closing or proration) and convention (daily, semi- monthly, or monthly) otherwise used by the upper-tier partnership under §1.706- 4. The Treasury Department and the IRS request comments on whether these rules are necessary and sufficient to ensure the appropriate operation of the Disallowance Rule. Proposed Applicability Dates Section 605(c) of the SECURE 2.0 Act provides that the amendments made by section 605 of the SECURE 2.0 Act apply to contributions made after December 29, 2022. Pursuant to section 7805(b) (2) of the Code, regulations issued under section 170(f)(19) and (h)(7) within 18 months of the December 29, 2022, date of enactment of section 605 of the SECURE 2.0 Act are permitted to apply to periods ending before the dates provided under section 7805(b)(1). Accordingly, the pro- posed regulations under §§1.170A-14(j) through (n), 1.706-3, and 1.706-4 are pro- posed to apply to contributions made after December 29, 2022. To align the reporting requirements under §1.170A-16 with the publication of the revised Form 8283 and its instructions, the proposed regulations under §1.170A- 16 are proposed to apply to contributions made in taxable years ending on or after November 20, 2023. Special Analyses I. Paperwork Reduction Act The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) generally requires that a Federal agency obtain the approval of the Office of Management and Budget (OMB) before collecting information from the public, whether such collection of information is mandatory, voluntary, or required to obtain or retain a benefit. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number. The collection of information con- tained in these proposed regulations is reflected in the collection of information for Form 8283 and Schedule K-1 for Forms 1065, U.S. Return of Partnership Income, and 1120-S, U.S. Income Tax Return for an S corporation, that have been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U.S.C. 3507(c)) under control numbers 1545-0074 and 1545-0123. The estimated burden for taxpayers filing Form 8283 under OMB control number 1545-0074 is nineteen minutes for recordkeeping, twen- ty-nine minutes for learning about the law or the form, one hour and four minutes for preparing the form, and thirty-four min- utes for copying, assembling, and sending the form to the IRS. To the extent there is a change in burden as a result of these regulations, the change in burden will be reflected in the updated burden estimates for the Form 8283 and Schedule K-1 for Forms 1065 and 1120- S. The requirement to maintain records to substantiate information on Form 8283 and Schedule K-1 for Forms 1065 and 1120-S is already contained in the burden associated with the control number for the forms and remains unchanged. II. Regulatory Flexibility Act The Secretary of the Treasury hereby certifies that the proposed regulations will not have a significant economic impact on a substantial number of small entities pur- suant to the Regulatory Flexibility Act (5 U.S.C. chapter 6). This rule would affect partnerships and S corporations that claim qualified conservation contributions, and partners and S corporation shareholders that receive a distributive share or pro rata share of a noncash charitable contribu- tion. Although data is not readily available about the number of small entities that are potentially affected by this rule, it is pos- sible that a substantial number of small entities may be affected. The impact of these proposed regula- tions can be described in the following four categories. First, proposed §1.170A-14(j) through (n) would provide guidance in applying December 4, 2023 1346 Bulletin No. 2023–49 section 170(h)(7), including providing definitions, formulas for the required cal- culations, and examples to help ensure the effective application of section 170(h)(7), and proposed §§1.706-3 and 1.706-4(e) (2)(ix) would provide special rules for allocating qualified conservation contri- butions. Even assuming that these provi- sions affect a substantial number of small entities, they will not have a significant economic impact. Section 170(h)(7) is self-executing and imposes the burden of calculating relevant basis and apply- ing the Disallowance Rule. Because these proposed regulations are focused on pro- viding definitional and computational guidance related to section 170(h)(7), their economic impact is expected to be minimal. Second, proposed §1.170A-16(d)(3) (viii) would require the Form 8283 filed by contributing partnerships and contrib- uting S corporations to include the sum of each ultimate member’s relevant basis. The existing regulations under §1.170A- 16 already requires these entities to file Form 8283. Even assuming that this pro- vision affects a substantial number of small entities, it will not have a signifi- cant economic impact because it simply requires contributing partnerships and contributing S corporations to put a small amount of additional information, which section 170(h)(7) and (f)(19) requires them to determine, on a form they are already required to file. Third, proposed §1.170A-16(f)(6) would require a partnership or S corpora- tion to file a completed Form 8283 to be considered to satisfy the requirements of section 170(f)(19)(A)(i). Even assuming that this provision affects a substantial number of small entities, it will not have a significant economic impact because it simply requires contributing partnerships and contributing S corporations to put a small amount of additional information on a form they are already required to file. Fourth, proposed §1.170A-16(f)(4) (iii) would require all partners and share- holders of S corporations who receive an allocation of a noncash charitable contri- bution to file a separate Form 8283. Many of these partners and shareholders will be individuals, not small entities. However, even assuming that this provision affects a substantial number of small entities, it will not have a significant economic impact. The partnership or S corporation will pro- vide the partner or shareholder with all, or substantially all, of the information to be reported on the separate Form 8283; this information will be contained either on the partnership’s or S corporation’s Form 8283 or the Schedule K-1 issued to the partner or shareholder. Accordingly, in most cases partners and shareholders will simply be transcribing information provided to them onto the separate Form 8283. For the reasons stated, a regulatory flexibility analysis under the Regulatory Flexibility Act is not required. The Treasury Department and the IRS invite comments on the impact of the proposed regulations on small entities. Pursuant to section 7805(f), this notice of proposed rulemaking has been submitted to the Chief Counsel for the Office of Advocacy of the Small Business Administration for comment on its impact on small business. III. Unfunded Mandates Reform Act Section 202 of the Unfunded Mandate Reform Act of 1995 (UMRA) requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expen- ditures in any one year by a State, local, or Tribal government, in the aggregate, or by the private sector, of $100 million (updated annually for inflation). These proposed regulations do not include any Federal mandate that may result in expen- ditures by State, local, or Tribal govern- ments or by the private sector in excess of that threshold. IV. Executive Order 13132: Federalism Executive Order 13132 (Federalism) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial, direct compliance costs on State and local gov- ernments, and is not required by statute, or preempts State law, unless the agency meets the consultation and funding requirements of section 6 of the Executive order. These proposed regulations do not have federalism implications and do not impose substantial, direct compliance costs on State and local governments or preempt State law within the meaning of the Executive order. V. Executive Order 13175: Consultation and Coordination With Indian Tribal Governments Executive Order 13175 (Consultation and Coordination With Indian Tribal Governments) prohibits an agency from publishing any rule that has Tribal impli- cations if the rule either imposes substan- tial, direct compliance costs on Indian Tribal governments, and is not required by statute, or preempts Tribal law, unless the agency meets the consultation and funding requirements of section 5 of the Executive order. This proposed rule does not have substantial direct effects on one or more federally recognized Indian tribes and does not impose substantial direct compli- ance costs on Indian Tribal governments within the meaning of the Executive order. VI. Regulatory Planning and Review Pursuant to the Memorandum of Agreement, Review of Treasury Regulations under Executive Order 12866 (June 9, 2023), tax regulatory actions issued by the IRS are not subject to the requirements of section 6 of Executive Order 12866, as amended. Therefore, a regulatory impact assessment is not required. Comments and Public Hearing Before these proposed regulations are adopted as final regulations, consideration will be given to comments that are sub- mitted timely to the IRS as prescribed in the preamble under the ADDRESSES section. The Treasury Department and the IRS request comments on all aspects of the proposed regulations. Any electronic comments submitted, and any paper com- ments submitted, will be made available at https://www.regulations.gov or upon request. Once submitted to the Federal eRulemaking Portal, comments cannot be edited or withdrawn. Announcement 2023-16, 2023-20 I.R.B. 854 (May 15, 2023), provides that public hearings will be conducted in Bulletin No. 2023–49 1347 December 4, 2023 person, although the IRS will continue to provide a telephonic option for individu- als who wish to attend or testify at a hear- ing by telephone. Any telephonic hearing will be made accessible to people with disabilities. A public hearing has been scheduled for January 3, 2024, beginning at 10 a.m. ET, in the Auditorium at the Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, DC, unless no outlines are received by December 20, 2023. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the imme- diate entrance area more than 30 minutes before the hearing starts. Participants may alternatively attend the public hearing by telephone. The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to comment by telephone at the hearing must submit written or electronic comments and an outline of the topics to be discussed as well as the time to be devoted to each topic by December 20, 2023, as prescribed in the preamble under the ADDRESSES section. A period of ten minutes will be allo- cated to each person for making com- ments. After the deadline for receiving outlines has passed, the IRS will prepare an agenda containing the schedule of speakers. If no outline of the topics to be discussed at the hearing is received by December 20, 2023, the public hearing will be cancelled. If the public hearing is cancelled, a notice of cancellation of the public hearing will be published in the Federal Register. Copies of the agenda will be available free of charge at the hearing, and via the Federal eRulemak- ing Portal (https://www.regulations.gov) under the title of Supporting & Related Material. Copies of the agenda will also be available by emailing a request to pub- lichearings@irs.gov . Please put “REG- 112916-23 Agenda Request” in the subject line of the email. Individuals who want to testify in person at the public hearing must send an email to publichearings@irs.gov to have your name added to the building access list. The subject line of the email must contain the regulation number REG- 112916-23 and the language “TESTIFY In Person.” For example, the subject line may say: Request to TESTIFY In Person at Hearing for REG-112916-23. Individuals who want to testify by telephone at the public hearing must send an email to publichearings@irs.gov to receive the telephone number and access code for the hearing. The subject line of the email must contain the regulation number REG-112916-23 and the language “TESTIFY Telephonically.” For exam- ple, the subject line may say: Request to TESTIFY Telephonically at Hearing for REG-112916-23. Individuals who want to attend the public hearing in person without testify- ing must also send an email to publichear- ings@irs.gov to have your name added to the building access list. The subject line of the email must contain the regulation number REG-112916-23 and the language “ATTEND In Person.” For example, the subject line may say: Request to ATTEND Hearing In Person for REG-112916-23. Individuals who want to attend the public hearing by telephone without testifying must also send an email to publichear- ings@irs.gov to receive the telephone number and access code for the hearing. The subject line of the email must con- tain the regulation number REG-112916- 23 and the language “ATTEND Hearing Telephonically.” For example, the sub- ject line may say: Request to ATTEND Hearing Telephonically for REG-112916- 23. Requests to attend the public hear- ing must be received by 5 p.m. ET on December 29, 2023. Hearings will be made accessible to people with disabilities. To request spe- cial assistance during a hearing please contact the Publications and Regulations Branch of the Office of Associate Chief Counsel (Procedure and Administration) by sending an email to publichearings@ irs.gov (preferred) or by telephone at (202) 317-6901 (not a toll-free number) by December 28, 2023. Statement of Availability of IRS Documents IRS notices and other guidance cited in this preamble are published in the Internal Revenue Bulletin (or Cumulative Bulletin) and are available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS website at https://www.irs.gov. Drafting Information The principal authors of these proposed are Elizabeth Boone and Hannah Kim, Office of the Associate Chief Counsel (Income Tax & Accounting), IRS, and Benjamin Weaver, Office of the Associate Chief Counsel (Passthroughs & Special Industries), IRS. However, other person- nel from the Treasury Department and the IRS participated in their development. List of Subjects in 26 CFR Part 1 Income taxes, Reporting and record- keeping requirements. Proposed Amendments to the Regulations Accordingly, the Treasury Department and the IRS propose to amend 26 CFR part 1 as follows: PART 1—INCOME TAXES Paragraph 1. The authority citation for part 1 is amended by: 1. Adding an entry for §1.170A-14 in numerical order; 2. Revising the entry for §1.170A-16; 3. Adding an entry for §1.706-3 in numerical order; and 4. Revising the entry for § 1.706-4. The additions and revisions read as follows: Authority: 26 U.S.C. 7805 * * * * * * * * Section 1.170A-14 also issued under 26 U.S.C. 170(f)(11) and 170(h)(7). * * * * * Section 1.170A-16 also issued under 26 U.S.C. 170(f)(11), 170(f)(19), 170(h) (7)(G), 6001, and 6011. * * * * * Section 1.706-3 also issued under 26 U.S.C. 170(h)(7)(G). * * * * * Section 1.706-4 also issued under 26 U.S.C. 170(h)(7)(G). * * * * * December 4, 2023 1348 Bulletin No. 2023–49 Par. 2. Section 1.170A-14 is amended by: 1. Revising paragraph (a); 2. Redesignating paragraph (j) as para- graph (o) and adding new paragraph (j); 3. Adding paragraphs (k) through (n); and 4. Revising newly designated para- graph (o). The additions and revisions read as follows: §1.170A-14 Qualified conservation contributions. (a) Qualified conservation contribu- tions. A deduction under section 170 of the Internal Revenue Code (Code) is generally not allowed for a charitable contribution of any interest in property that consists of less than the donor’s entire interest in the property other than certain transfers in trust (see §1.170A–6 relating to charita- ble contributions in trust and §1.170A–7 relating to contributions not in trust of partial interests in property). However, a deduction may be allowed under sec- tion 170(f)(3)(B)(iii) for the value of a qualified conservation contribution if the requirements of this section are met and the contribution is not a disallowed qual- ified conservation contribution within the meaning of paragraph (j) of this section. A qualified conservation contribution is the contribution of a qualified real prop- erty interest to a qualified organization exclusively for conservation purposes. To be eligible for a deduction under section 170(h) and this section, the conservation purpose must be protected in perpetuity. * * * * * (j) Disallowance of certain deductions for contributions by partnerships and S corporations that exceed 2.5 times the sum of relevant bases—(1) In general. This paragraph (j) applies the rules of sec- tion 170(h)(7), which disallow a deduc- tion for certain qualified conservation contributions, as defined in section 170(h) (1) and this section, made by, or allocated to, partnerships or S corporations (as defined in section 1361(a)(1) of the Code) if the amount of the qualified conservation contribution exceeds 2.5 times the sum of the relevant bases, as determined by this paragraph (j) and paragraphs (k) through (m) of this section (Disallowance Rule). See paragraph (n) of this section for cer- tain exceptions. See paragraph (j)(3) of this section for definitions of terms used in this paragraph (j) and paragraphs (k) through (n) of this section. (2) Application—(i) Contributing part- nerships and contributing S corporations. Except as provided in paragraph (n) of this section, a qualified conservation con- tribution by a contributing partnership or a contributing S corporation is a disal- lowed qualified conservation contribution if the amount of the qualified conservation contribution exceeds 2.5 times the sum of each of the contributing partnership’s or contributing S corporation’s ultimate member’s relevant basis as determined under this paragraph (j) and paragraphs (k) through (m) of this section. (ii) Upper-tier partnerships and upper- tier S corporations. Except as provided in paragraph (n) of this section, an allocated portion received by an upper-tier partner- ship or upper-tier S corporation is a disal- lowed qualified conservation contribution if either the contribution is a disallowed qualified conservation contribution with respect to the partnership that allocated the allocated portion to the upper-tier partnership or upper-tier S corporation, or such allocated portion exceeds 2.5 times the sum of each of that upper-tier part- nership’s or upper-tier S corporation’s ultimate member’s relevant basis as deter- mined under this paragraph (j) and para- graphs (k) through (m) of this section. (3) Definitions. The following defini- tions apply for purposes of this paragraph (j) and paragraphs (k) through (n) of this section: (i) Allocated portion. In the case of an upper-tier partnership or upper-tier S cor- poration that receives, directly or indi- rectly, a distributive share of a qualified conservation contribution, the phrase allo- cated portion means the amount of such distributive share. (ii) Amount of qualified conservation contribution. The amount of a contributing partnership’s or contributing S corpora- tion’s qualified conservation contribution is the amount claimed as a qualified con- servation contribution on the return of the contributing partnership or contrib- uting S corporation for the taxable year in which the contribution is made. If the contributing partnership or contributing S corporation files an amended return or administrative adjustment request under section 6227 of the Code claiming a dif- ferent amount with respect to the qualified conservation contribution, the rules of this section must be re-applied with respect to such different amount to determine the application of section 170(h)(7) and this section. (iii) Contributing partnership. The term contributing partnership means a partnership that makes a qualified conser- vation contribution. (iv) Contributing S corporation. The term contributing S corporation means an S corporation that makes a qualified con- servation contribution. (v) Direct interest. The term direct interest refers to an ownership interest in a contributing partnership, upper-tier partner- ship, contributing S corporation, or upper- tier S corporation that is held directly, or through an entity disregarded as separate from its owner for Federal income tax pur- poses, a qualified subchapter S subsidiary as defined in section 1361(b)(3), or through a grantor trust (under subpart E of part 1 of subchapter J of chapter 1 of the Code). In the case of a partner that is a C corpo- ration (as defined in section 1361(a)(2)), non-grantor trust, or an estate, or an S cor- poration shareholder that is a non-grantor trust or an estate, the direct interest in the partnership or S corporation, as applicable, is held by the C corporation, non-grantor trust, or estate; the C corporation’s share- holders, trust beneficiaries, and estate ben- eficiaries are not considered to hold any interest in the partnership or S corporation, as applicable, for purposes of this para- graph (j) and paragraphs (k) through (n) of this section. (vi) Directly. An ownership interest is held directly if it is not held through one or more upper-tier partnerships or upper- tier S corporations. A distributive share or pro rata share of a qualified conservation contribution is received directly if it does not pass through one or more upper-tier partnerships or upper-tier S corporations. (vii) Disallowed qualified conservation contribution. The term disallowed qual- ified conservation contribution means a qualified conservation contribution or allocated portion for which no deduction is allowed pursuant to section 170(h)(7) and this paragraph (j). Bulletin No. 2023–49 1349 December 4, 2023 (viii) Indirect interest. The term indi- rect interest refers to an ownership interest in a contributing partnership, contributing S corporation, upper-tier partnership, or upper-tier S corporation held through an upper-tier S corporation or one or more upper-tier partnerships. (ix) Indirectly. An ownership interest is held indirectly if it is held through one or more upper-tier partnerships or upper-tier S corporations. A distributive share or pro rata share of a qualified conservation con- tribution is received indirectly if it passes through one or more upper-tier partner- ships or upper-tier S corporations. (x) Ultimate member. The term ulti- mate member means, with respect to any partnership or S corporation, any partner (that is not itself a partnership or S corpo- ration) or S corporation shareholder that receives a distributive share or pro rata share, directly or indirectly, of a qualified conservation contribution. Thus, ultimate members will either be partners holding a direct interest in a partnership, which may be the contributing partnership or an upper-tier partnership, or shareholders holding a direct interest in an S corpo- ration, which may be the contributing S corporation or an upper-tier S corporation. Upper-tier S corporations and upper-tier partnerships themselves are not consid- ered ultimate members. (xi) Upper-tier partnership. The term upper-tier partnership means a partner- ship that receives an allocated portion. (xii) Upper-tier S corporation. The term upper-tier S corporation means an S corporation that receives an allocated portion. (4) Effect of Disallowance Rule—(i) If the Disallowance Rule applies to a contributing partnership or contributing S corporation. If a contributing partner- ship’s or contributing S corporation’s qualified conservation contribution is a disallowed qualified conservation contri- bution under this paragraph (j), then: (A) Any upper-tier partnership’s or upper-tier S corporation’s allocated por- tion of such contribution is a disallowed qualified conservation contribution, regardless of whether such allocated por- tion exceeds 2.5 times the sum of each of the upper-tier partnership’s or upper-tier S corporation’s ultimate member’s rele- vant basis; and (B) No person (whether holding a direct or indirect interest in such contrib- uting partnership or contributing S cor- poration) may claim a deduction under any provision of the Code with respect to any amount of such disallowed qualified conservation contribution, regardless of whether that person’s distributive share or pro rata share of the disallowed quali- fied conservation contribution exceeds 2.5 times its relevant basis. (ii) If the Disallowance Rule does not apply to a contributing partnership or contributing S corporation. If a con- tributing partnership’s or contributing S corporation’s qualified conservation contribution is not a disallowed qualified conservation contribution under this para- graph (j), then: (A) The distributive share or pro rata share of any ultimate member holding a direct interest in the contributing partner- ship or contributing S corporation is not a disallowed qualified conservation contri- bution; and (B) Any upper-tier partnership or upper-tier S corporation that receives an allocated portion of such qualified conser- vation contribution must separately apply the rules of section 170(h)(7) and this paragraph (j) and paragraphs (k) through (m) of this section to determine whether that upper-tier partnership’s or upper-tier S corporation’s allocated portion is a disal- lowed qualified conservation contribution. (iii) If the Disallowance Rule applies to an upper-tier partnership or an upper- tier S corporation. If an upper-tier part- nership’s or upper-tier S corporation’s allocated portion is a disallowed qualified conservation contribution under this para- graph (j), then: (A) Any subsequent upper-tier part- nership’s or upper-tier S corporation’s allocated portion of such allocated por- tion is a disallowed qualified conserva- tion contribution, regardless of whether the subsequent upper-tier partnership’s or upper-tier S corporation’s allocated por- tion exceeds 2.5 times the sum of each of subsequent upper-tier partnership’s or upper-tier S corporation’s ultimate mem- ber’s relevant basis; and (B) No person holding a direct or indi- rect interest in that upper-tier partnership or upper-tier S corporation may claim a deduction under any provision of the Code with respect to any amount of that upper- tier partnership’s or upper-tier S corpo- ration’s allocated portion, regardless of whether that person’s distributive share or pro rata share of the allocated por- tion exceeds 2.5 times its relevant basis. However, this does not affect the applica- tion of this paragraph (j) and paragraphs (k) through (m) of this section to another partner of the contributing partnership; for example, if the qualified conservation contribution is not a disallowed qualified conservation contribution with respect to the contributing partnership, then the dis- tributive share of such contribution of an ultimate member holding a direct interest in the contributing partnership is not a disallowed qualified conservation contri- bution, notwithstanding that the qualified conservation contribution is a disallowed qualified conservation contribution with respect to one or more upper-tier partner- ships or upper-tier S corporations. (iv) If the Disallowance Rule does not apply to an upper-tier partnership or upper-tier S corporation. If an upper-tier partnership’s or upper-tier S corporation’s allocated portion is not a disallowed qual- ified conservation contribution under this paragraph (j), then: (A) The distributive share or pro rata share of such allocated portion of any ultimate member holding a direct interest in the upper-tier partnership or upper-tier S corporation is not a disallowed qualified conservation contribution; and (B) Any subsequent upper-tier part- nership or upper-tier S corporation that receives an allocated portion of such allo- cated portion must separately apply the rules of section 170(h)(7) and this para- graph (j) and paragraphs (k) through (m) of this section to determine whether that subsequent upper-tier partnership’s or upper-tier S corporation’s allocated por- tion is treated as a disallowed qualified conservation contribution. (5) No inference. There is no presump- tion that a qualified conservation contri- bution that is not a disallowed qualified conservation contribution as defined in paragraph (j)(3)(vii) of this section is com- pliant with section 170, any other section of the Code, the regulations, or any other guidance. Compliance with section 170(h) (7) and this paragraph (j) and paragraphs (k) through (n) of this section is not a safe December 4, 2023 1350 Bulletin No. 2023–49 harbor for purposes of any other provi- sion of law or with respect to the value of the contribution. Such transactions are subject to adjustment or disallowance for any other reason, including failure to sat- isfy the other requirements of section 170 and overvaluation of the contribution. In addition, taxpayers who engage in such transactions may be required to disclose under §1.6011-4 the transactions as listed transactions. (6) Examples. The following examples illustrate the rules of this paragraph (j). For these three examples in this paragraph (j)(6), assume that the partnership alloca- tions comply with the rules of subchapter K of chapter 1 of the Code, and that the exceptions in paragraph (n) of this section do not apply. (i) Example 1: Disallowed qualified conser- vation contribution—(A) Facts. A, an individual, and B, a C corporation, form AB Partnership, a partnership for Federal income tax purposes. AB Partnership acquires real property. Two years later, AB Partnership makes a qualified conservation con- tribution with respect to the property and claims a contribution of $100X on its return. AB Partnership allocates the contribution equally to A and B. A’s rel- evant basis is $30X, and B’s relevant basis is $8X. (B) Analysis. A and B are the ultimate members of AB Partnership because they each receive a dis- tributive share of the qualified conservation contribu- tion and are not partnerships or S corporations. The claimed amount of AB Partnership’s qualified con- servation contribution is $100X, which exceeds 2.5 times the sum of A’s and B’s relevant bases, which is $95X ($95X = 2.5 x (A’s $30X relevant basis + B’s $8X relevant basis)). Therefore, AB Partnership’s contribution is a disallowed qualified conservation contribution. No person may claim any deduction with respect to this contribution, even though A’s $50X distributive share of the contribution does not exceed 2.5 times A’s $30X relevant basis. (ii) Example 2: Not a disallowed qualified con- servation contribution—(A) Facts. Individuals C and D form CD Partnership, a partnership for Federal income tax purposes. CD Partnership acquires real property. Two years later, CD Partnership makes a qualified conservation contribution with respect to the property and claims a contribution of $100X on its return. CD Partnership allocates the contribution $5X to C and $95X to D. C’s relevant basis is $6X, and D’s relevant basis is $34X. (B) Analysis. C and D are the ultimate mem- bers of CD Partnership because they each receive a distributive share of the qualified conservation contribution and are not partnerships or S corpo- rations. The claimed amount of CD Partnership’s qualified conservation contribution is $100X, which does not exceed 2.5 times the sum of C’s and D’s relevant bases, which is also $100X ($100X = 2.5 x (C’s $6X relevant basis + D’s $34X relevant basis)). Therefore, CD Partnership’s contribution is not a disallowed qualified conservation contribution (that is, not disallowed by section 170(h)(7) and this paragraph (j)) with respect to CD Partnership, C, or D, even though D’s $95X distributive share of the contribution exceeds 2.5 times D’s $34X relevant basis. (iii) Example 3: Tiered partnerships—(A) Facts. Individuals E and F form UTP Partnership, a partnership for Federal income tax purposes. UTP Partnership and G, a C corporation, form LTP Partnership, a partnership for Federal income tax purposes. LTP Partnership acquires real property. Two years later, LTP Partnership makes a qualified conservation contribution with respect to the prop- erty and claims a contribution of $100X on its return. LTP Partnership allocates the contribution $5X to G and $95X to UTP Partnership. UTP Partnership allo- cates its $95X portion of the contribution $45X to E and $50X to F. G’s relevant basis is $10X, E’s rele- vant basis is $11X, and F’s relevant basis is $21X. (B) Analysis for LTP Partnership. The ultimate members of LTP Partnership are G, E, and F because they each receive a distributive share of the quali- fied conservation contribution and are not a partner- ship or S corporation. Because UTP Partnership is a partnership, it is not an ultimate member of LTP Partnership, even though it receives a distributive share of the qualified conservation contribution. The amount of LTP Partnership’s qualified conserva- tion contribution is $100X, which does not exceed 2.5 times the sum of each of the ultimate member’s relevant basis, which is $105X ($105X = 2.5 x (G’s $10X relevant basis + E’s $11X relevant basis + F’s $21X relevant basis)). Therefore, LTP Partnership’s contribution is not a disallowed qualified conserva- tion contribution (that is, is not disallowed by section 170(h)(7) and this paragraph (j)) with respect to LTP Partnership and G. (C) Analysis for UTP Partnership. Because UTP Partnership receives an allocated portion, UTP Partnership must apply this paragraph (j) and para- graphs (k) through (m) of this section to determine whether its allocated portion is a disallowed qualified conservation contribution. The ultimate members of UTP Partnership are E and F because they each receive a distributive share of UTP Partnership’s allocated portion and are not partnerships or S corpo- rations. The amount of UTP Partnership’s allocated portion of LTP Partnership’s qualified conservation contribution is $95X, which exceeds 2.5 times the sum of E’s and F’s relevant bases, which is $80X ($80X = 2.5 x (E’s $11X relevant basis + F’s $21X relevant basis)). Therefore, UTP Partnership’s allo- cated portion of LTP Partnership’s contribution is a disallowed qualified conservation contribution with respect to UTP Partnership, E, and F. No partner of UTP Partnership may claim any deduction with respect to this contribution, even though F’s $50X distributive share of the contribution does not exceed 2.5 times F’s $21X relevant basis. This does not affect the determination that G’s distributive share of the contribution is not a disallowed qualified conser- vation contribution. (k) Determination of relevant basis. For purposes of this section, the term rele- vant basis means, with respect to any ulti- mate member, the portion of such ultimate member’s modified basis (as determined under paragraph (l) of this section) that is allocable (under the rules of paragraph (m) of this section) to the portion of the real property with respect to which the quali- fied conservation contribution is made. (l) Determination of modified basis— (1) In general. In the case of an ultimate member holding a direct interest in a part- nership, the ultimate member’s modified basis is determined by such partnership immediately before the qualified conser- vation contribution is made in the man- ner described in paragraph (l)(2) of this section. In the case of an ultimate mem- ber holding a direct interest in an S cor- poration, the ultimate member’s modified basis is determined by such S corporation in the manner described in paragraph (l) (3) of this section. (2) Partners in partnerships—(i) Computation. For purposes of this sec- tion, the term modified basis means, with respect to any ultimate member that is a direct partner in either a contributing part- nership or an upper-tier partnership, such ultimate member’s adjusted basis in its interest in the partnership in which the ultimate member holds a direct interest as of the beginning of the first day of the part- nership’s taxable year in which the quali- fied conservation contribution is made, with adjustments as determined under paragraphs (l)(2)(ii) through (v) of this section. However, if the ultimate member was not a partner as of the beginning of the first day of the partnership’s taxable year in which the qualified conservation contribution is made, then the term mod- ified basis means such ultimate member’s adjusted basis in its interest in the partner- ship immediately after the transaction that resulted in the ultimate member becoming a partner, with adjustments as determined under paragraphs (l)(2)(ii) through (v) of this section. The adjustments under para- graphs (l)(2)(ii) through (v) of this section must be made in the order in which they are listed. (ii) Step 1. First, the computation of modified basis must start with the ultimate member’s adjusted basis under paragraph (l)(2)(i) of this section and then reflect an increase for any contributions made by the ultimate member to the partnership during the portion of the year commencing with the beginning of the taxable year of the partnership and ending immediately prior to the time of day at which the qualified Bulletin No. 2023–49 1351 December 4, 2023 conservation contribution is made as pro- vided in section 722 of the Code. (iii) Step 2. Second, the amount deter- mined under paragraph (l)(2)(ii) of this section must be adjusted, as provided in section 705 of the Code, by the ultimate member’s hypothetical distributive share of partnership items attributable to the portion of the year commencing with the beginning of the taxable year of the part- nership and ending immediately prior to the time of day at which the qualified con- servation contribution is made. In making this determination, the partnership must apply the rules of §1.706-4 and apply a hypothetical interim closing method to allocate the partnership’s items attribut- able to the portion of the year commenc- ing with the beginning of the taxable year of the partnership and ending immediately prior to the time of day at which the qual- ified conservation contribution is made. The partnership cannot apply any con- vention in §1.706-4(c) to the hypothetical determination of the partners’ distribu- tive shares, but rather must perform the calculation as though the determination occurred immediately prior to the time of day at which the qualified conservation contribution is made. This hypothetical determination of the partners’ distribu- tive shares is only for purposes of calcu- lating modified basis. This paragraph (l) does not require the partnership to use the interim closing method with respect to the determination of its partners’ actual distributive shares of partnership items of income, gain, loss, deduction, and credit for the taxable year in which the qualified conservation contribution is made or oth- erwise. See §1.706-4 for applicable rules for the determination of a partner’s dis- tributive share when a partner’s interest varies during a partnership taxable year. (iv) Step 3. Third, the amount deter- mined under paragraph (l)(2)(iii) of this section must be reduced (but not below zero) by any distributions made by the partnership to the ultimate member during the portion of the year commencing with the beginning of the taxable year of the partnership and ending immediately prior to the time of day at which the qualified conservation contribution is made as pro- vided in section 733 of the Code. (v) Step 4. Fourth, the amount deter- mined under paragraph (l)(2)(iv) of this section must be reduced by the full amount of the ultimate member’s share of §1.752-1 liabilities of any partnership (including a lower-tier partnership). The remaining amount is such ultimate mem- ber’s modified basis. Thus, an ultimate member’s modified basis may be less than zero. (3) S corporation shareholder—(i) Computation. For purposes of this sec- tion, the term modified basis means, with respect to any ultimate member that is a shareholder of either a contributing S corporation or an upper-tier S corpora- tion, such ultimate member’s adjusted basis in its shares in the S corporation as of the end of the S corporation’s taxable year in which the qualified conservation contribution is made, with adjustments as determined under paragraphs (l)(3)(ii) and (iii) of this section. However, if the ulti- mate member was not a shareholder at the end of the S corporation’s taxable year in which the qualified conservation contribu- tion is made, then the term modified basis means such ultimate member’s adjusted basis in its shares in the S corporation immediately prior to the transaction that terminated its interest in the S corporation, with adjustments as determined under paragraphs (l)(3)(ii) and (iii) of this sec- tion. Modified basis does not include the ultimate member’s adjusted basis of any indebtedness of the S corporation to the ultimate member. The adjustments under paragraphs (l)(3)(ii) and (iii) of this sec- tion must be made in the order in which they are listed. (ii) Step 1. First, the computation of modified basis must start with the ultimate member’s adjusted basis under paragraph (l)(3)(i) of this section, and then reflect an increase for the extent to which the ulti- mate member’s adjusted basis reflects a reduction as a result of the qualified con- servation contribution. Thus, the ultimate member’s modified basis with respect to a qualified conservation contribution does not reflect any reduction for the ultimate member’s pro rata share of the S corpora- tion’s basis in the conservation easement or other property contributed in the quali- fied conservation contribution. (iii) Step 2. Second, the amount deter- mined under paragraph (l)(3)(ii) of this section must be multiplied by the number of days during the S corporation’s taxable year in which the ultimate member was a shareholder and divided by the total num- ber of days during the S corporation’s taxable year. The resulting amount is such ultimate member’s modified basis. (4) Examples. The following examples illustrate the provisions of this paragraph (l). For the three examples in this para- graph (l)(4), assume that the exceptions in paragraph (n) of this section do not apply. (i) Example 1—(A) Facts. AB Partnership is a calendar-year partnership for Federal income tax purposes whose partners are A and B, each of whom is an individual and has a 50 percent interest in income, gain, loss, and deduction. Several years ago, B contributed property to AB Partnership sub- ject to a §1.752-1 liability. At the beginning of AB Partnership’s 2024 taxable year (the beginning of the day on January 1, 2024), A’s adjusted basis in its inter- est in AB Partnership is $19X, and B’s adjusted basis in its interest in AB Partnership is $17X. At 10:01 a.m. on August 29, 2024, AB Partnership makes a qualified conservation contribution. On August 29, 2024, the amount of the §1.752-1 liability is $10X and is allocated under the rules of section 752 to A. During 2024, there were no variations in any part- ner’s interests in AB Partnership within the meaning of section 706. During 2024, AB Partnership earned $8X of ordinary income and sustained ($4X) of capi- tal loss in the ordinary course of its business, both of which are allocated equally to A and B. Within 2024, AB Partnership earned $6X of ordinary income, and sustained ($4X) of capital loss between the begin- ning of the day on January 1, 2024, and 10:00 a.m. on August 29, 2024, and AB Partnership earned $2X of ordinary income, and sustained $0X of capital loss between 10:01 a.m. on August 29, 2024, and the end of the day on December 31, 2024. Other than the qualified conservation contribution, none of AB Partnership’s items are extraordinary items within the meaning of §1.706-4(e)(2). In April 2024, AB Partnership distributed $1X cash to A. In November 2024, B contributed $2X cash to AB Partnership. (B) Analysis. The ultimate members of AB Partnership are A and B because they each receive a distributive share of the qualified conservation contribution and are not partnerships or S corpo- rations. To determine A’s and B’s modified bases, AB Partnership must start with A’s and B’s adjusted bases in the AB Partnership as of the beginning of the first day of the taxable year of AB Partnership and then make the adjustments required under paragraphs (l)(2)(ii) through (v) of this section. Accordingly, the computation of A’s beginning mod- ified basis begins with $19X, and the computation of B’s modified basis begins with $17X. First, those amounts must be increased by any contributions between the beginning of the day on January 1, 2024, and 10:00 a.m. on August 29, 2024. Because there were none, after this step, the computation of A’s modified basis remains at $19X and the computation of B’s modified basis remains at $17X. Then these amounts must be adjusted as provided in section 705 by A’s and B’s hypothetical distributive share of AB Partnership’s items attributable to the portion of the year between the beginning of the day on January December 4, 2023 1352 Bulletin No. 2023–49 1, 2024, and 10:00 a.m. on August 29, 2024. Thus, the computations of A’s and B’s modified bases will each reflect an increase for their hypothetical $3X distributive share of the $6X ordinary income that AB Partnership earned between the beginning of the day on January 1, 2024, and 10:00 a.m. on August 29, 2024, and a decrease for their hypothetical ($2X) distributive share of the ($4X) capital loss that AB Partnership incurred between the beginning of the day on January 1, 2024, and 10:00 a.m. on August 29, 2024. Therefore, after this step, the computa- tion of A’s modified basis reflects an increase from $19X to $20X, and the computation of B’s modified basis reflects an increase from $17X to $18X. Next, these amounts must be reduced by any distributions between the beginning of the day on January 1, 2024, and 10:00 a.m. on August 29, 2024. Thus, the computation of A’s modified basis reflects a reduc- tion from $20X to $19X. B did not receive any dis- tribution, so the computation of B’s modified basis remains at $18X. Finally, the full amount of A’s and B’s shares of §1.752-1 liabilities must be subtracted. Thus, the computation of A’s modified basis reflects a reduction from $19X to $9X, which is A’s modified basis. B’s modified basis is $18X. (ii) Example 2—(A) Facts. CD Partnership, a partnership for Federal income tax purposes, is a cal- endar-year partnership using the calendar day con- vention under §1.706-4 whose partners on January 1, 2024, are C and D, each of whom is an individual and has a 50 percent interest in income, gain, loss, and deduction. On March 15, 2024, C sells its inter- est to E, a C corporation. At 1:15 p.m. on September 15, 2024, CD Partnership makes a qualified con- servation contribution. On September 21, 2024, D sells its interest to F, an individual. During 2024, CD Partnership earned $8X of ordinary income and sustained ($14X) of ordinary loss. Within 2024, CD Partnership earned all $8X of ordinary income in November and December, and sustained all ($14X) of ordinary loss in April through August. In May 2024, D contributed $6X cash to CD Partnership, and E contributed property with a fair market value of $6X and basis of $3X. D and E are equal part- ners during the period in which they are both part- ners. CD Partnership made no distributions during 2024. CD Partnership had no §1.752-1 liabilities during 2024. In accordance with §1.706-4(e)(2) (ix), CD Partnership treats its qualified conservation contribution as an extraordinary item allocable only to D and E, its partners at 1:15 p.m. on September 15, 2024. Other than the qualified conservation contribution, none of AB Partnership’s items are extraordinary items within the meaning of §1.706- 4(e)(2). CD Partnership uses the proration method under §1.706-4 to allocate its items among C, D, E, and F. Under the proration method, CD Partnership allocates each C, D, E, and F a distributive share of a portion of both the $8X ordinary income and the ($14X) ordinary loss. D’s adjusted basis in its interest in CD Partnership at the beginning of CD Partnership’s 2024 taxable year (the beginning of the day on January 1, 2024), is $8X. E’s adjusted basis in its interest in CD Partnership immediately after E acquires C’s interest in CD Partnership is $6X. (B) Analysis. The ultimate members of CD Partnership are D and E because they each receive a distributive share of the qualified conservation contribution and are not partnerships or S corpo- rations. To determine D’s and E’s modified bases, CD Partnership must start with D’s and E’s adjusted bases in CD Partnership as of the beginning of the day on January 1, 2024, and then make the adjust- ments required under paragraphs (l)(2)(ii) through (v) of this section. However, because E was not a partner as of the beginning of the day on January 1, 2024, CD Partnership must start with E’s adjusted basis immediately after E’s purchase of C’s inter- est in CD Partnership. Accordingly, the computa- tion of D’s modified basis begins with $8X, and the computation of E’s modified basis begins with $6X. Then, these amounts must be increased by any contributions made by D or E, respectively, to CD Partnership between the beginning of the day on January 1, 2024, and 1:14 p.m. on September 15, 2024. Therefore, the computation of D’s modified basis reflects an increase from $8X to $14X (for D’s $6X contribution of cash to CD Partnership in May 2024), and the computation of E’s modified basis reflects an increase from $6X to $9X (for E’s con- tribution of property to CD Partnership with a basis of $3X in May 2024). Next, these amounts must be adjusted as provided in section 705 by D’s and E’s hypothetical distributive share of CD Partnership’s items attributable to the portion of the year between the beginning of the day on January 1, 2024, and 1:14 p.m. on September 15, 2024. CD Partnership must perform the analysis using an interim closing method to a hypothetical variation at 1:14 p.m. on September 15, 2024, immediately prior to the qual- ified conservation contribution. The computation of D’s modified basis will reflect an adjustment for its hypothetical distributive share of all CD Partnership’s items incurred from the beginning of the day on January 1, 2024, through 1:14 p.m. on September 15, 2024. The computation of E’s modi- fied basis will reflect an adjustment for its hypothet- ical distributive share of all CD Partnership’s items incurred from the end of the day on March 15, 2024, through 1:14 p.m. on September 15, 2024. For pur- poses of this paragraph (l)(4)(ii)(B) (Example 2), it does not matter that CD Partnership actually used the proration method to allocate its 2024 income. Instead, under this hypothetical calculation of the distributive share, the computation of D’s and E’s modified bases will each reflect a reduction for their 50 percent share of the ($14X) ordinary loss. Because none of CD Partnership’s $8X of ordinary income was earned between the beginning of the day on January 1, 2024, and 1:14 p.m. on September 15, 2024, neither D’s nor E’s modified basis will reflect an increase for any amount of that income. Thus, after this step, the computation of D’s mod- ified basis reflects a reduction from $14X to $7X, and the computation of E’s modified basis reflects a reduction from $9X to $2X. Then, these amounts must be reduced by any distributions between the beginning of the day on January 1, 2024, and 1:14 p.m. on September 15, 2024. Because there were none, after this step, the computation of D’s mod- ified basis remains at $7X, and the computation of E’s modified basis remains at $2X. Finally, the full amount of D’s and E’s shares of §1.752-1 liabili- ties must be subtracted. Because there were none, D’s modified basis is $7X, and E’s modified basis is $2X. (iii) Example 3—(A) Facts. HI Inc. is a cal- endar-year S corporation whose shareholders on January 1, 2024, are H and I, each of whom owns 50 percent of the shares. On May 1, 2024, H sells all of its stock to J. In June 2024, HI Inc. contributes a conservation easement that is a qualified conserva- tion contribution on 400 acres of real property. HI Inc.’s adjusted basis in the conservation easement is $12X (which is different from HI Inc.’s adjusted basis in the 400 acres and also may be different from the value of the conservation easement). On July 1, 2024, I sells all of its stock to K. Under §1.1377-1, HI Inc. allocates its qualified conservation contribu- tion 1/6 to H, 1/4 to I, 1/3 to J, and 1/4 to K. Pursuant to the second sentence of section 1367(a)(2)(B), as a result of the qualified conservation contribution, H’s adjusted basis in its shares is reduced by $2X, I’s adjusted basis in its shares is reduced by $3X, J’s adjusted basis in its shares is reduced by $4X, and K’s adjusted basis in its shares is reduced by $3X. At the end of HI Inc.’s 2024 taxable year (the end of the day on December 31, 2024), J’s adjusted basis in its shares is $15X and K’s adjusted basis in its shares is $11X. Immediately prior to H’s sale to J, H’s adjusted basis in its shares was $8X. Immediately prior to I’s sale to K, I’s adjusted basis in its shares was $7X. Whether H, I, J, or K have adjusted basis in indebtedness of HI Inc., has no effect on the com- putation of their modified bases. H is an estate of a deceased shareholder, and I, J, and K are individuals that are not nonresident aliens. (B) Analysis. The ultimate members of HI Inc. are H, I, J, and K, because they each receive a pro rata share of the qualified conservation contribution and are not partnerships or S corporations. To deter- mine H’s, I’s, J’s, and K’s modified bases, HI Inc. must begin with each shareholder’s adjusted basis in its shares as of the end of the day on December 31, 2024 (the end of the S corporation’s taxable year in which it made the qualified conservation contribu- tion). However, because H and I were not sharehold- ers as of the end of the day on December 31, 2024, HI Inc. must begin with H’s adjusted basis imme- diately before H’s sale to J, and I’s adjusted basis immediately before I’s sale to K. Accordingly, the computation of H’s modified basis begins with $8X, the computation of I’s modified basis begins with $7X, the computation of J’s modified basis begins with $15X, and the computation of K’s modified basis begins with $11K. Next, HI Inc. must increase these amounts by the extent the adjusted bases were reduced as a result of the qualified conservation con- tribution. Accordingly, the computation of H’s modi- fied basis reflects an increase from $8X to $10X, the computation of I’s modified basis reflects an increase from $7X to $10X, the computation of J’s modified basis reflects an increase from $15X to $19X, and the computation of K’s modified basis reflects an increase from $11X to $14X. Finally, HI Inc. must multiply each of these amounts by the number of days during 2024 in which each ultimate member was a shareholder, and divide by 366 (the total num- ber of days in HI Inc.’s 2024 taxable year). H was a shareholder for 122 days. Thus, H’s modified basis is $3.33X ($10X x 122/366). I was a shareholder for 183 days. Thus, I’s modified basis is $5X ($10X x 183/366). J was a shareholder for 244 days. Thus, J’s modified basis is $12.67X ($19X x 244/366). K was Bulletin No. 2023–49 1353 December 4, 2023 a shareholder for 183 days. Thus, K’s is $7X ($14X x 183/366). (m) Allocation of modified basis—(1) In general. An allocation of an ultimate member’s modified basis to the portion of the real property with respect to which the qualified conservation contribution is made must be made in accordance with this paragraph (m). Rules for allocating an ultimate member’s modified basis in a contributing partnership are provided in paragraph (m)(2) of this section. Rules for allocating an ultimate member’s mod- ified basis in a contributing S corporation are provided in paragraph (m)(3) of this section. Rules for allocating an ultimate member’s modified basis in an upper-tier partnership are provided in paragraph (m) (4) of this section. Rules for allocating an ultimate member’s modified basis in an upper-tier S corporation are provided in paragraph (m)(5) of this section. Records must be kept in accordance with para- graph (m)(6) of this section. (2) Determination of relevant basis for an ultimate member holding a direct interest in a contributing partnership— (i) Narrative rule. This paragraph (m)(2) applies in the case of an ultimate member holding a direct interest in a contributing partnership and provides that a contribut- ing partnership must determine each such ultimate member’s relevant basis as pro- vided in this paragraph (m)(2). Relevant basis equals each ultimate member’s mod- ified basis as determined under paragraph (l)(2) of this section multiplied by a frac- tion – (A) The numerator of which is the ulti- mate member’s share of the contributing partnership’s adjusted basis in the portion of the real property with respect to which the qualified conservation contribution is made as determined under paragraph (m) (2)(ii) of this section; and (B) The denominator of which is the ultimate member’s portion of the adjusted basis in all the contributing partnership’s properties as determined under paragraph (m)(2)(iii) of this section. (ii) Ultimate member’s share of the contributing partnership’s adjusted basis in the portion of the real property with respect to which the qualified conserva- tion contribution is made. For purposes of this paragraph (m)(2), an ultimate member’s share of the contributing partnership’s adjusted basis in the por- tion of the real property with respect to which the qualified conservation contri- bution is made equals the contributing partnership’s adjusted basis in the portion of the real property with respect to which the qualified conservation contribution is made (determined as of the time of day of the contribution) multiplied by a fraction – (A) The numerator of which is the ulti- mate member’s distributive share of the qualified conservation contribution; and (B) The denominator of which is the total amount of the contributing partner- ship’s qualified conservation contribution. (iii) Ultimate member’s portion of the adjusted basis in all the contributing part- nership’s properties. For purposes of this paragraph (m)(2), an ultimate member’s portion of the adjusted basis in all the con- tributing partnership’s properties is equal to the sum of: (A) The ultimate member’s share of the contributing partnership’s adjusted basis in the portion of the real property with respect to which the qualified conser- vation contribution is made as determined under paragraph (m)(2)(ii) of this section; plus (B) The ultimate member’s portion of the adjusted basis in all the contributing partnership’s properties other than the portion of the real property with respect to which the qualified conservation con- tribution is made. To determine the ulti- mate member’s portion of the adjusted basis in all the contributing partnership’s properties, the contributing partnership must apportion among its partners in accordance with their interests in the part- nership under section 704(b) its adjusted basis in each of its properties (except the portion of the real property with respect to which the qualified conservation contri- bution is made), using the adjusted bases immediately before the qualified conser- vation contribution, without duplication or omission of any property, and by treat- ing the adjusted basis in each property as not less than zero. (iv) Formulaic rule. The rule of this paragraph (m)(2) is also expressed in the following formula: Figure 1 to Paragraph (m)(2)(iv) R = M × (T ÷ (D + T)) Where: R = Relevant basis. M = Modified basis as determined under paragraph (l) of this section. D = Ultimate member’s portion of the adjusted basis in all the contributing partnership’s properties (other than the portion of the real property with respect to which the qualified conservation contri- bution is made), determined by apportion- ing among the partners of the contributing partnership in accordance with their inter- ests in the partnership under section 704(b) its adjusted basis in each of its properties (other than the portion of the real prop- erty with respect to which the qualified conservation contribution is made), using the adjusted bases immediately before the qualified conservation contribution, with- out duplication or omission of any prop- erty, and by treating the adjusted basis in each property as not less than zero. T = Ultimate member’s share of the contributing partnership’s adjusted basis in the portion of the real property with respect to which the qualified conserva- tion contribution is made, determined according to the following formula: A × (B ÷ C). A = Contributing partnership’s adjusted basis in the portion of the real property with respect to which the qualified conser- vation contribution is made. B = Ultimate member’s distribu- tive share of the qualified conservation contribution. C = Total amount of the contribut- ing partnership’s qualified conservation contribution. (3) Determination of relevant basis for an ultimate member holding a direct interest in a contributing S corporation— (i) Narrative rule. This paragraph (m)(3) applies in the case of an ultimate member holding a direct interest in a contributing S corporation and provides that a contrib- uting S corporation must determine each such ultimate member’s relevant basis as provided in this paragraph (m)(3). Relevant basis equals each ultimate mem- ber’s modified basis as determined under paragraph (l)(3) of this section multiplied by a fraction – (A) The numerator of which is the ultimate member’s pro rata portion of the contributing S corporation’s adjusted basis in the portion of the real property December 4, 2023 1354 Bulletin No. 2023–49 with respect to which the qualified conser- vation contribution is made; and (B) The denominator of which is the ultimate member’s pro rata portion of the adjusted basis in all the contributing S corporation’s properties (including the portion of the real property with respect to which the qualified conservation contribu- tion is made). (ii) Formulaic rule. The rule of this paragraph (m)(3) is also expressed in the following formula: Figure 2 to Paragraph (m)(3)(ii) R = M × (E ÷ F) Where: R = Relevant basis. M = Modified basis as determined under paragraph (l) of this section. E = Ultimate member’s pro rata por- tion of the contributing S corporation’s adjusted basis in the portion of the real property with respect to which the quali- fied conservation contribution is made. F = Ultimate member’s pro rata portion of the adjusted basis in all the contributing S corporation’s properties (including the portion of the real property with respect to which the qualified conservation contribu- tion is made). (4) Determination of relevant basis for an ultimate member holding a direct interest in an upper-tier partnership—(i) In general. This paragraph (m)(4) applies in the case of an ultimate member hold- ing a direct interest in an upper-tier part- nership. Each such ultimate member’s modified basis must be traced through all upper-tier partnerships to the contributing partnership, and the contributing partner- ship must determine the relevant basis. This involves a multi-step process under which, beginning with the upper-tier part- nership in which the ultimate member holds a direct interest, each upper-tier partnership must perform calculations, and then finally the contributing part- nership must use those calculations to compute the ultimate member’s relevant basis. For simplicity, this paragraph (m) (4) describes a situation in which there are two tiers of partnerships—a contributing partnership and an upper-tier partnership. In a situation involving more tiers, each partnership must apply the rules and prin- ciples of this paragraph (m)(4) iteratively to determine relevant basis. (ii) Upper-tier partnership—(A) Narrative rule. The upper-tier partner- ship must determine the portion of each ultimate member’s modified basis that is allocable to the upper-tier partnership’s interest in the partnership in which it holds a direct interest (in a situation involving only two tiers of partnerships, that will be the contributing partnership). This deter- mination must be done in accordance with the principles of paragraph (m)(2) of this section, and the formula provided in paragraph (m)(4)(ii)(B) of this section. In other words, the formula provided in paragraph (m)(4)(ii)(B) is similar to the formula provided in paragraph (m)(2) (iv) of this section, except that, instead of determining the portion of modified basis that is allocable to the portion of the real property with respect to which the qual- ified conservation contribution is made, the formula in paragraph (m)(4)(ii)(B) determines the portion of modified basis that is allocable to the upper-tier partner- ship’s interest in the next lower-tier part- nership. As explained in paragraph (m)(4) (iii) of this section, the contributing part- nership will then use the amount deter- mined under the formula in paragraph (m) (4)(ii)(B) to compute the portion of mod- ified basis that is allocable to the portion of the real property with respect to which the qualified conservation contribution is made. (B) Formulaic rule. The rule of this paragraph (m)(4)(ii) is also expressed in the following formula: Figure 3 to Paragraph (m)(4)(ii)(B) G = M × (U ÷ (J + U)) Where: G = The portion of the ultimate mem- ber’s modified basis that is allocable to the upper-tier partnership’s interest in the contributing partnership. M = Modified basis as determined under paragraph (l) of this section. J = Ultimate member’s portion of the adjusted basis in all the upper-tier partnership’s properties (other than the upper-tier partnership’s interest in the contributing partnership), determined by apportioning among the partners of the upper-tier partnership in accordance with their interests in the partnership under section 704(b) its adjusted basis in each of its properties (other than the upper-tier partnership’s interest in the contributing partnership), using the adjusted bases immediately before the qualified conser- vation contribution, without duplication or omission of any property, and by treat- ing the adjusted basis in each property as not less than zero. U = Ultimate member’s share of the upper-tier partnership’s adjusted basis in its interest in the contributing partnership, determined according to the following formula: H × (B ÷ K). H = Upper-tier partnership’s adjusted basis in its interest in the contributing partnership. B = Ultimate member’s distribu- tive share of the qualified conservation contribution. K = Upper-tier partnership’s allocated portion of the qualified conservation contribution. (iii) Contributing partnership—(A) Narrative rule. After completion of the computations under paragraph (m)(4)(ii) of this section, the contributing partner- ship must determine the portion of the amount determined under item G (see paragraph (m)(4)(ii)(B) of this section) with respect to each ultimate member that is allocable to the portion of the real property with respect to which the qualified conservation contribution is made. This determination must be done in accordance with the principles of para- graph (m)(2) of this section, and the for- mula provided in paragraph (m)(4)(iii) (B) of this section. (B) Formulaic rule. The rule of this paragraph (m)(4)(iii) is also expressed in the following formula: Figure 5 to Paragraph (m)(4)(iii)(B) R = G × (V ÷ (L + V)) Where: R = Relevant basis. G = Amount determined with respect to item G as described under paragraph (m)(4)(ii)(B) of this section. L = Upper-tier partnership’s portion of adjusted basis in all the contributing partnership’s properties (other than the portion of the real property with respect Bulletin No. 2023–49 1355 December 4, 2023 to which the qualified conservation contri- bution is made), determined by apportion- ing among the partners of the contributing partnership in accordance with their inter- ests in the partnership under section 704(b) its adjusted basis in each of its properties (except the interest in the contributing partnership), using the adjusted bases immediately before the qualified conser- vation contribution, without duplication or omission of any property, and by treat- ing the adjusted basis in each property as not less than zero. V = Upper-tier partnership’s share of the contributing partnership’s adjusted basis in the portion of the real property with respect to which the qualified conser- vation contribution is made, determined according to the following formula: A × (K ÷ C). A = Contributing partnership’s adjusted basis in the portion of the real property with respect to which the qualified conser- vation contribution is made. K = Upper-tier partnership’s allocated portion of the qualified conservation contribution. C = Total amount of the contribut- ing partnership’s qualified conservation contribution. (5) Determination of relevant basis for an ultimate member holding a direct inter- est in an upper-tier S corporation—(i) In general. This paragraph (m)(5) applies in the case of an ultimate member holding a direct interest in an upper-tier S cor- poration. Each such ultimate member’s modified basis must be traced through the upper-tier S corporation and any upper- tier partnerships to the contributing part- nership, and the contributing partnership must determine the relevant basis. This involves a multi-step process under which, beginning with the upper-tier S corpora- tion, the upper-tier S corporation and any upper-tier partnerships must perform cal- culations, and then finally the contributing partnership must use those calculations to compute the ultimate member’s relevant basis. For simplicity, this paragraph (m) (5) describes a situation in which there are two tiers—a contributing partnership and an upper-tier S corporation. In a situation involving more tiers, each partnership and the upper-tier S corporation must apply the rules and principles of this paragraph (m) iteratively to determine relevant basis. (ii) Upper-tier S corporation—(A) Narrative rule. The upper-tier S corpora- tion must determine the portion of each ultimate member’s modified basis that is allocable to the upper-tier S corporation’s interest in the partnership in which it holds a direct interest (in a situation involving only two tiers, that will be the contribut- ing partnership). This determination must be done in accordance with the principles of paragraph (m)(3) of this section, and the formula provided in paragraph (m)(5) (ii)(B) of this section. In other words, the formula provided in paragraph (m)(5)(ii) (B) is similar to the formula provided in paragraph (m)(3)(ii) of this section, except that, instead of determining the portion of modified basis that is allocable to the portion of the real property with respect to which the qualified conservation con- tribution is made, the formula in para- graph (m)(5)(ii)(B) determines the portion of modified basis that is allocable to the upper-tier S corporation’s interest in the next lower-tier partnership. As explained in paragraph (m)(5)(iii) of this section, the contributing partnership will then use the amount determined under the formula in paragraph (m)(5)(ii)(B) to compute the portion of modified basis that is allocable to the portion of the real property with respect to which the qualified conserva- tion contribution is made. (B) Formulaic rule. The rule of this paragraph (m)(5)(ii) is also expressed in the following formula: Figure 6 to Paragraph (m)(5)(ii)(B) N = M × (P ÷ Q) Where: N = Portion of the ultimate member’s modified basis that is allocable to the upper-tier S corporation’s interest in the contributing partnership. M = Modified basis as determined under paragraph (l) of this section. P = Ultimate member’s pro rata portion of the upper-tier S corporation’s adjusted basis in its interest in the contributing partnership. Q = Ultimate member’s pro rata por- tion of the adjusted basis in all the upper- tier S corporation’s properties (including the upper-tier S corporation’s adjusted basis in its interest in the contributing partnership). (iii) Contributing partnership—(A) Narrative rule. After completion of the computations under paragraph (m)(5)(ii) of this section, the contributing partner- ship must determine the portion of the amount determined under item N (see paragraph (m)(5)(ii)(B) of this section) with respect to each ultimate member that is allocable to the portion of the real prop- erty with respect to which the qualified conservation contribution is made. This determination must be done in accordance with the principles of paragraph (m)(2) of this section, and the formula provided in paragraph (m)(5)(iii)(B) of this section. (B) Formulaic rule. The rule of this paragraph (m)(5)(iii) is also expressed in the following formula: Figure 7 to Paragraph (m)(5)(iii)(B) R = N × (W ÷ (S + W)) Where: R = Relevant basis. N = Amount determined with respect to item N as described under paragraph (m)(5)(ii)(B) of this section. S = Upper-tier S corporation’s por- tion of the adjusted basis in all the con- tributing partnership’s properties (other than the portion of the real property with respect to which the qualified conserva- tion contribution is made), determined by apportioning among the partners of the contributing partnership in accordance with their interests in the partnership under section 704(b) its adjusted basis in each of its properties (other than the por- tion of the real property with respect to which the qualified conservation contri- bution is made), using the adjusted bases immediately before the qualified conser- vation contribution, without duplication or omission of any property, and by treat- ing the adjusted basis in each property as not less than zero. W = Upper-tier S corporation’s share of the contributing partnership’s adjusted basis in the portion of the real property with respect to which the qualified conser- vation contribution is made, determined according to the following formula: A × (Y ÷ C). A = Contributing partnership’s adjusted basis in the portion of the real property with respect to which the qualified conser- vation contribution is made. December 4, 2023 1356 Bulletin No. 2023–49 Y = Upper-tier S corporation’s allo- cated portion of the qualified conservation contribution. C = Total amount of the contribut- ing partnership’s qualified conservation contribution. (6) Recordkeeping requirements. Contributing partnerships, contributing S corporations, upper-tier partnerships, and upper-tier S corporations must main- tain dated, written statements in their books and records, by the due date, includ- ing extensions, of their Federal income tax returns, substantiating the computa- tion of each ultimate member’s adjusted basis, modified basis, and relevant basis. See §1.6001-1. These statements need not be maintained (nor does modified basis or relevant basis need to be computed) with respect to contributions that meet an exception in paragraph (n)(2) or (3) of this section. (7) Examples. The following examples illustrate the provisions of this paragraph (m). For the three examples in this para- graph (m)(7), assume that the partnership allocations comply with the rules of sub- chapter K of chapter 1 of the Code and the exceptions in paragraph (n) of this section do not apply. (i) Example 1—(A) Facts. YZ Partnership is a partnership for Federal income tax purposes whose partners are individuals Y and Z. YZ Partnership owns 100 acres of real property with an adjusted basis of $10X. YZ Partnership makes a qualified conser- vation contribution on 60 acres of the property. YZ Partnership claims a contribution of $18X, which it allocates $12X to Y and $6X to Z. YZ Partnership’s adjusted basis in the 60 acres is $6X, and its adjusted basis in all of its other properties (including its $4X basis in the 40 acres on which a qualified conserva- tion contribution was not made) is $18X. Y’s mod- ified basis is $8X. Y’s portion of YZ Partnership’s adjusted basis in all partnership property (other than the 60 acres) as determined in accordance with Y’s interest in YZ Partnership is $4X. Z’s modified basis is $12X. Z’s portion of YZ Partnership’s adjusted basis in all partnership property (other than the 60 acres) as determined in accordance with Z’s interest in YZ Partnership is $14X. (B) General analysis. Y and Z are the ultimate members of YZ Partnership because they each receive a distributive share of the qualified conser- vation contribution and are not partnerships or S cor- porations. Their relevant bases must be determined according to the following formula: Figure 8 to Paragraph (m)(7)(i)(B) R = M × (T ÷ (D + T)) Where: R = Relevant basis. M = Modified basis as determined under para- graph (l) of this section. D = Ultimate member’s portion of the adjusted basis in all of the contributing partnership’s proper- ties (other than the portion of the real property with respect to which the qualified conservation contribu- tion is made). T = Ultimate member’s share of the contributing partnership’s adjusted basis in the portion of the real property with respect to which the qualified conser- vation contribution is made, determined according to the following formula: A × (B ÷ C). A = Contributing partnership’s adjusted basis in the portion of the real property with respect to which the qualified conservation contribution is made. B = Ultimate member’s distributive share of the qualified conservation contribution. C = Total amount of the contributing partner- ship’s qualified conservation contribution. (C) Y’s relevant basis. With respect to Y: (1) M = $8X. (2) D = $4X. (3) A = $6X. (4) B = $12X. (5) C = $18X. (6) Thus, T is $4X = $6X × ($12X ÷ $18X). (7) Accordingly, Y’s relevant basis is $4X = $8X × ($4X ÷ ($4X + $4X)). (D) Z’s relevant basis. With respect to Z: (1) M = $12X. (2) D = $14X. (3) A = $6X. (4) B = $6X. (5) C = $18X. (6) Thus, T is $2X = $6X × ($6X ÷ $18X). (7) Accordingly, Z’s relevant basis is $1.5X = $12X × ($2X ÷ ($14X + $2X)). (E) Sum of relevant bases. The amount of YZ Partnership’s claimed contribution is $18X, which exceeds 2.5 times the sum of Y’s and Z’s relevant bases, which is $13.75X ($13.75X = 2.5 x (Y’s rel- evant basis of $4X + Z’s relevant basis of $1.5X)). Accordingly, YZ Partnership’s contribution is a disallowed qualified conservation contribution. No person may claim any deduction with respect to this contribution. (ii) Example 2—(A) Facts. CD Inc. is an S cor- poration with shareholders C and D, each of whom is an individual that is not a nonresident alien. C owns one third of the outstanding stock in CD Inc., and D owns the remaining two thirds. CD Inc. owns 100 acres of real property with an adjusted basis of $10X. CD Inc. makes a qualified conservation contribution on 60 acres of the property. CD Inc. claims a contri- bution of $9X, which it allocates $3X to C and $6X to D. CD Inc.’s adjusted basis in the 60 acres is $6X, and its adjusted basis in all its properties (including its $6X basis in the 60 acres) is $24X. C’s modified basis in CD Inc. is $8X. D’s modified basis in CD Inc. is $12X. (B) General analysis. C and D are the ultimate members of CD Inc. because they each receive a pro rata share of the qualified conservation contribution and are not partnerships or S corporations. Their relevant bases must be determined according to the following formula: Figure 9 to Paragraph (m)(7)(ii)(B) R = M × (E ÷ F) Where: R = Relevant basis. M = Modified basis as determined under para- graph (l) of this section. E = Ultimate member’s pro rata portion of the contributing S corporation’s adjusted basis in the portion of the real property with respect to which the qualified conservation contribution is made. F = Ultimate member’s pro rata portion of the adjusted basis in all the contributing S corporation’s properties (including the portion of the real property with respect to which the qualified conservation con- tribution is made). (C) C’s relevant basis. With respect to C: (1) M = $8X. (2) E = $2X (1/3 of $6X). (3) F = $8X (1/3 of $24X). (4) Thus, C’s relevant basis is $2X = $8X × ($2X ÷ $8X). (D) D’s relevant basis. With respect to D: (1) M = $12X. (2) E = $4X (2/3 of $6X). (3) F = $16X (2/3 of $24X). (4) Thus, D’s relevant basis is $3X = $12X × ($4X ÷ $16X). (E) Sum of relevant bases. The amount of CD Inc.’s claimed qualified conservation contribution is $9X, which does not exceed 2.5 times the sum of C’s and D’s relevant bases, which is $12.50 ($12.50X = 2.5 x (C’s relevant basis of $2X + D’s relevant basis of $3X)). Accordingly, CD Inc.’s contribution is not a disallowed qualified conservation contribution (that is, is not disallowed by section 170(h)(7) and paragraph (j) of this section). (iii) Example 3—(A) Facts. LTP Partnership is a partnership for Federal income tax purposes whose partners are individual E and UTP Partnership, a partnership for Federal income tax purposes. UTP Partnership’s partners are C corporations P and Q. LTP Partnership owns 300 acres of real property. LTP Partnership makes a qualified conservation con- tribution on all 300 acres. LTP Partnership claims a qualified conservation contribution of $22X, which it allocates $2X to E and $20X to UTP Partnership. UTP Partnership allocates its $20X share of the qualified conservation contribution $6X to P and $14X to Q. LTP Partnership’s basis in the 300 acres is $18X, and its adjusted basis in all of its other properties is $12X. E’s modified basis in LTP Partnership is $4X. E’s por- tion of LTP Partnership’s adjusted basis in all partner- ship property (other than the 300 acres) as determined in accordance with E’s interest in LTP Partnership is $4.36X. UTP Partnership’s portion of LTP Partnership’s adjusted basis in all partnership property (other than the 300 acres) as determined in accordance with UTP Partnership’s interest in LTP Partnership is $7.64X. UTP Partnership’s adjusted basis in its inter- est in LTP Partnership is $19, and its adjusted basis in all other properties is $6X. P’s modified basis in UTP Partnership is $12X. P’s portion of UTP Partnership’s adjusted basis in all partnership property (other than the interest in LTP Partnership) as determined in accordance with P’s interest in UTP Partnership is $3.6X. Q’s modified basis in UTP Partnership is $8X. Q’s portion of UTP Partnership’s adjusted basis of all partnership property (other than the interest in LTP Partnership) as determined in accordance with Q’s interest in UTP Partnership is $2.4X. Bulletin No. 2023–49 1357 December 4, 2023 (B) Analysis: partner E. (1) The ultimate mem- bers of LTP Partnership are E, P, and Q because they each receive a distributive share of the qualified conservation contribution and are not partnerships or S corporations. Because E holds a direct interest in LTP Partnership, E’s relevant basis must be deter- mined in accordance with the following formula: Figure 10 to Paragraph (m)(7)(iii)(B)(1) R = M × (T ÷ (D + T)) Where: R = Relevant basis. M = Modified basis as determined under para- graph (l) of this section. D = Ultimate member’s portion of the adjusted basis in all the contributing partnership’s proper- ties (other than the portion of the real property with respect to which the qualified conservation contribu- tion is made). T = Ultimate member’s share of the contributing partnership’s adjusted basis in the portion of the real property with respect to which the qualified conser- vation contribution is made, determined according to the following formula: A × (B ÷ C). A = Contributing partnership’s adjusted basis in the portion of the real property with respect to which the qualified conservation contribution is made. B = Ultimate member’s distributive share of the qualified conservation contribution. C = Total amount of the contributing partner- ship’s qualified conservation contribution. (2) With respect to E: (i) M = $4X. (ii) D = $4.36X. (iii) A = $18X. (iv) B = $2X. (v) C = $22X. (vi) Thus, T is $1.64X = $18X × ($2X ÷ $22X). (vii) Accordingly, E’s relevant basis is $1.09X = $4X × ($1.64X ÷ ($4.36X + $1.64X)). (C) Analysis: General rule for UTP Partnership. Because P and Q hold interests in an upper-tier partnership, UTP Partnership must first determine the portions of P’s and Q’s modified bases that are allocable to UTP Partnership’s interest in LTP Partnership. This is to be done according to the fol- lowing formula: Figure 11 to Paragraph (m)(7)(iii)(C) G = M × (U ÷ (J + U)) Where: G = The portion of the ultimate member’s mod- ified basis that is allocable to the upper-tier partner- ship’s interest in the contributing partnership. M = Modified basis as determined under para- graph (l) of this section. J = Ultimate member’s portion of adjusted basis in all the upper-tier partnership’s properties (other than the upper-tier partnership’s interest in the con- tributing partnership). U = Ultimate member’s share of the upper-tier partnership’s adjusted basis in its interest in the con- tributing partnership, determined according to the following formula: H × (B ÷ K). H = Upper-tier partnership’s adjusted basis in its interest in the contributing partnership. B = Ultimate member’s distributive share of the qualified conservation contribution. K = Upper-tier partnership’s allocated portion of the qualified conservation contribution. (D) Analysis: Step 1 for P. With respect to P: (1) M = $12X. (2) J = $3.6X. (3) H = $19X. (4) B = $6X. (5) K = $20X. (6) Thus, U is $5.70X = $19X × ($6X ÷ $20X). (7) Accordingly, the portion of P’s modified basis that is allocable to UTP Partnership’s interest in LTP Partnership is $7.35X = $12X × ($5.70X ÷ ($3.60X + $5.70X)). (E) Analysis: Step 1 for Q. With respect to Q: (1) M = $8X. (2) J = $2.4X. (3) H = $19X. (4) B = $14X. (5) K = $20X. (6) Thus, U is $13.30X = $19X × ($14X ÷ $20X). (7) Accordingly, the portion of Q’s modified basis that is allocable to UTP Partnership’s interest in LTP Partnership is $6.78X = $8X × ($13.30X ÷ ($2.40X + $13.30X)). (F) Analysis: General rule for LTP Partnership. Next, LTP Partnership must determine P’s and Q’s relevant bases, which equals the portions of the amounts determined under paragraphs (m)(7)(iii)(D) and (E) of this section (Example 3) that are alloca- ble to the portion of the real property with respect to which the qualified conservation contribution was made. This must be done according to the following formula: Figure 12 to Paragraph (m)(7)(iii)(F) R = G × (V ÷ (L + V)) Where: R = Relevant basis. G = Amount determined with respect to item G under paragraph (m)(4)(ii)(B) of this section. L = Upper-tier partnership’s portion of adjusted basis in all the contributing partnership’s proper- ties (other than the portion of the real property with respect to which the qualified conservation contribu- tion is made). V = Upper-tier partnership’s share of the con- tributing partnership’s adjusted basis in the por- tion of the real property with respect to which the qualified conservation contribution is made, deter- mined according to the following formula: A × (K ÷ C). A = Contributing partnership’s adjusted basis in the portion of the real property with respect to which the qualified conservation contribution is made. K = Upper-tier partnership’s allocated portion of the qualified conservation contribution. C = Total amount of the contributing partner- ship’s qualified conservation contribution. (G) Analysis: Step 2 for P. With respect to P: (1) G = $7.35X. (2) L = $7.64X. (3) A = $18X. (4) K = $20X. (5) C = $22X. (6) Thus, V is $16.36X = $18X × ($20X ÷ $22X). (7) Accordingly, P’s relevant basis is $5.01X = $7.35X × ($16.36X ÷ ($7.64X + $16.36X)). (H) Analysis: Step 2 for Q. With respect to Q: (1) G = $6.78X. (2) L = $7.64X. (3) A = $18X. (4) K = $20X. (5) C = $22X. (6) Thus, V is $16.36X = $18X × ($20X ÷ $22X). (7) Accordingly, Q’s relevant basis is $4.62X = $6.78X × ($16.36X ÷ ($7.64X + $16.36X)). (I) Analysis: Computation of 2.5 times sum of relevant bases. The ultimate mem- bers of LTP Partnership are E, P, and Q. The amount of LTP Partnership’s quali- fied conservation contribution is $22X. This does not exceed 2.5 times the sum of each of the ultimate member’s relevant basis, which totals $26.80 ($26.80 = 2.5 x (E’s relevant basis of 1.09X + P’s rele- vant basis of $5.01X + Q’s relevant basis of $4.62X)). Therefore, LTP Partnership’s contribution is not a disallowed qualified conservation contribution (that is, is not disallowed by section 170(h)(7) and para- graph (j) of this section). Because UTP Partnership receives an allocated portion, it must apply paragraphs (j) through (l) of this section and this paragraph (m) to determine whether its allocated portion is a disallowed qualified conservation contribution. The ultimate members of UTP Partnership are P and Q. The amount of UTP Partnership’s allocated portion of LTP Partnership’s qualified conser- vation contribution is $20X. This does not exceed 2.5 times the sum of P’s and Q’s relevant bases, which is $24.08X ($24.08X = 2.5 x (P’s relevant basis of $5.01X + Q’s relevant basis of $4.62X)). Therefore, UTP Partnership’s allocated portion of LTP Partnership’s contribution is not a disallowed qualified conservation contribution (that is, is not disallowed by section 170(h)(7) and paragraph (j) of this section). (n) Exceptions—(1) In general. Paragraph (j) of this section does not apply to any qualified conservation con- tribution that satisfies one or more of the three exceptions in this paragraph (n). However, as provided in paragraph (j) (5) of this section, there is no presump- tion that such a contribution is compli- ant with section 170, any other section of the Code, or the regulations in this part or any other guidance. Being described in this paragraph (n) is not a safe har- bor for purposes of any other provision December 4, 2023 1358 Bulletin No. 2023–49 of law or with respect to the value of the contribution. Such transactions are sub- ject to adjustment or disallowance for any other reason, including failure to satisfy other requirements of section 170 and overvaluation of the contribution. In addition, taxpayers who engage in such transactions may be required to disclose under §1.6011-4 the transactions as listed transactions. (2) Exception for contributions outside three-year holding period—(i) In general. Paragraph (j) of this section does not apply to any qualified conservation contribution by a contributing partnership or contribut- ing S corporation made at least three years after the latest of— (A) The last date on which the contrib- uting partnership or contributing S cor- poration acquired any portion of the real property with respect to which such quali- fied conservation contribution is made; (B) The last date on which any partner in the contributing partnership or share- holder in the contributing S corporation acquired any interest in such partnership or S corporation; and (C) If the interest in the contributing partnership is held through one or more upper-tier partnerships or upper-tier S corporations— (1) The last date on which any such upper-tier partnership or upper-tier S corporation acquired any interest in the contributing partnership or any other upper-tier partnership; and (2) The last date on which any part- ner or shareholder in any such upper-tier partnership or upper-tier S corporation acquired any interest in such upper-tier partnership or upper-tier S corporation. (ii) Acquisition of partnership interest. For purposes of this paragraph (n)(2), an acquisition of any interest in a partner- ship is any variation within the meaning of that term in §1.706-4(a)(1); however, a variation does not include a change in allocations that satisfies the requirements of §1.706-4(b)(1). (iii) Acquisition of interest in an S cor- poration. For purposes of this paragraph (n)(2), an acquisition of any interest in an S corporation is any transfer, issuance, redemption, or other disposition of stock in the S corporation; however, an acqui- sition does not include any issuance or redemption involving all shareholders that does not affect the proportionate owner- ship of any shareholder. (iv) Exception is determined at the level of the contributing partnership or contributing S corporation. If the con- tributing partnership or contributing S corporation does not satisfy the require- ments of this paragraph (n)(2), then this paragraph (n)(2) will not apply to any person who receives a distributive share or pro rata share of the qualified conserva- tion contribution (including an upper-tier partnership or upper-tier S corporation), regardless of whether the person receiving such distributive share or pro rata share would have satisfied the requirements of this paragraph (n)(2) if the person had been the one to make the qualified conser- vation contribution. (v) Examples. The following examples illustrate the provisions of this paragraph (n)(2). For the two examples in this para- graph (n)(2)(v), assume that the excep- tions in paragraphs (n)(3) and (4) of this section do not apply. (A) Example 1—(1) Facts. ABC Partnership is a partnership for Federal income tax purposes. Since 2015, ABC Partnership’s partners have been A, an individual, and BC Inc., an S corporation. Since 2015, BC Inc.’s shareholders have been B and C, each of whom is an individual that is not a nonresi- dent alien. On December 27, 2024, ABC partnership acquires real property. On August 29, 2025, BC Inc. redeems half of B’s shares in BC Inc. On December 28, 2027, ABC Partnership makes a qualified conser- vation contribution. (2) Analysis. Pursuant to paragraph (n)(2)(iii) of this section, BC Inc.’s redemption of some of B’s shares is treated as an acquisition of an inter- est in BC Inc. for purposes of this paragraph (n) (2). Accordingly, ABC Partnership’s contribution occurred less than three years after the latest acqui- sition of an interest in a partnership or S corporation that held an interest in ABC Partnership, the con- tributing partnership. Therefore, ABC Partnership’s contribution fails to satisfy the requirements of this paragraph (n)(2) and must apply the provisions of paragraphs (j) through (m) of this section to deter- mine whether the contribution is a disallowed quali- fied conservation contribution. (B) Example 2—(1) Facts. LTP partnership is a partnership for Federal income tax purposes. Since 2017, LTP Partnership’s partners have been UTP Partnership, a partnership for Federal income tax purposes, and FG Inc., an S corporation. Since 2018, UTP Partnership’s partners have been individuals D and E, and there has been no variation in their ownership. Since 2019, FG Inc.’s shareholders have been F and G, each of whom is an individual that is not a nonresident alien. On March 15, 2024, LTP Partnership acquires real property. On September 15, 2026, D dies and D’s interest in UTP Partnership passes to D’s estate. On March 18, 2027, LTP Partnership makes a qualified conservation contri- bution. LTP Partnership allocates all of the qualified conservation contribution to FG Inc. (2) Analysis. Pursuant to paragraph (n)(2)(ii) of this section, the transfer of D’s interest in UTP Partnership to D’s estate is treated as an acquisi- tion of an interest in UTP Partnership for purposes of paragraph (n)(2) of this section. Accordingly, LTP Partnership’s contribution occurred less than three years after the latest acquisition of an inter- est in a partnership or S corporation that held an interest in LTP Partnership, the contributing part- nership. Therefore, LTP Partnership’s contribution fails to satisfy the requirement of this paragraph (n)(2). Pursuant to paragraph (n)(2)(iv) of this section, FG Inc. cannot avail itself of this para- graph (n)(2) with respect to its allocated portion of LTP Partnership’s contribution. Accordingly, FG Inc. must apply the provisions of paragraphs (j) through (m) of this section to determine whether its allocated portion is a disallowed qualified con- servation contribution. (3) Exception for family partnerships and S corporations—(i) General rule. Paragraph (j) of this section does not apply with respect to any qualified conservation contribution made by a contributing part- nership or contributing S corporation if at least 90 percent of the interests in the contributing partnership or contributing S corporation are held by an individual and members of the family of such individual, and the contributing partnership or con- tributing S corporation meets the require- ments of this paragraph (n)(3). (ii) Ninety percent of the interests—(A) Family partnerships. In the case of a con- tributing partnership, at least 90 percent of the interests in the contributing partnership are held by an individual and members of the family of such individual if, at the time of the qualified conservation contribution, at least 90 percent of the interests in capi- tal and profits in such partnership are held, directly or indirectly, by an individual and members of the family of such individual. (B) Family S corporations. In the case of a contributing S corporation, at least 90 percent of the interests in the contributing S corporation are held by an individual and members of the family of such indi- vidual if, at the time of the qualified con- servation contribution, at least 90 percent of the total value and at least 90 percent of the total voting power of the outstanding stock in such S corporation are held by an individual and members of the family of such individual. (iii) Members of the family. For pur- poses of this paragraph (n)(3), the term Bulletin No. 2023–49 1359 December 4, 2023 members of the family means, with respect to any individual— (A) The spouse of such individual; and (B) Any individual who bears a relationship to such individual that is described in section 152(d)(2)(A) through (G) of the Code. (iv) Anti-abuse rules—(A) Holding period. This paragraph (n)(3) does not apply unless at least 90 percent of the interests in the property with respect to which the qualified conservation contri- bution was made were owned, directly or indirectly, by one individual and mem- bers of the family of that individual for at least one year prior to the date of the contribution. The members of the family during that year need not be the same members of the family that own an inter- est at the time of the qualified conserva- tion contribution; however, at least one individual must own an interest for the entire year, and at least 90 percent of the interests in the property must be owned, directly or indirectly, during that year by that individual and members of that indi- vidual’s family. (B) Allocations. This paragraph (n)(3) does not apply unless at least 90 percent of the qualified conservation contribution is allocated to the individual and all mem- bers of the family who own at least 90 percent of the interests in the contributing partnership or contributing S corporation under paragraph (n)(3)(ii) of this section. (v) Exception is determined at the level of the contributing partnership or contrib- uting S corporation. If the contributing partnership or contributing S corporation satisfies the requirements of this para- graph (n)(3), then any upper-tier partner- ship or upper-tier S corporation need not apply paragraphs (j) through (m) of this section and this paragraph (n) to its allo- cated portions of such contribution. If the contributing partnership or contributing S corporation does not satisfy the require- ments of this paragraph (n)(3), then the exception in this paragraph (n)(3) will not apply to any person who receives a distrib- utive share or pro rata share of the quali- fied conservation contribution (including an upper-tier partnership or upper-tier S corporation), regardless of whether the person receiving such distributive share or pro rata share would have satisfied the requirements of this paragraph (n)(3) if the person had been the one to make the contribution. (vi) Examples. The following examples illustrate the provisions of this paragraph (n)(3). For the two examples in this para- graph (n)(3)(vi), assume that the excep- tions in paragraphs (n)(2) and (4) of this section do not apply. (A) Example 1—(1) Facts. Individual A and A’s sibling B acquire real property on July 5, 2024. On September 14, 2024, B transfers its interest in the real property to B’s child C. On February 21, 2025, A and C transfer their interests in the real property to AC Partnership, a partnership for Federal income tax purposes whose only partners are A and C. On March 18, 2025, A’s stepfather D becomes a partner in AC Partnership in exchange for a capital contri- bution. On September 15, 2025, AC Partnership makes a qualified conservation contribution on the real property. AC Partnership never had any partners other than A, C, and D. (2) Analysis. B, C, and D qualify as members of the family with respect to A. Accordingly, as of the time of the qualified conservation contribution, at least 90 percent of the interests in capital and profits of AC Partnership were owned by an individual and members of that individual’s family. In addition, at least 90 percent of the interests in the property with respect to which the qualified conservation contribu- tion was made were owned, directly and indirectly, by A and members of A’s family for at least one year prior to the date of the contribution. Moreover, at least 90 percent of the contribution is allocated to A and members of A’s family. Accordingly, the require- ments of this paragraph (n)(3) are satisfied, and the Disallowance Rule in section 170(h)(7)(A) and para- graph (j) of this section does not apply. (B) Example 2—(1) Facts. LTP Partnership is a partnership for Federal income tax purposes whose partners are EF Inc., an S corporation, and UTP Partnership, a partnership for Federal income tax purposes. EF Inc. and UTP Partnership each hold a 50 percent interest in the profits and capital of LTP Partnership. The shareholders of EF Inc. are E and E’s sibling F. The partners of UTP Partnership are G and G’s child H. E and F are not related to G and H. LTP Partnership has held real property since 2019. On July 5, 2024, LTP Partnership distributes half of the acres of its real property to EF Inc., and the remaining acres to UTP Partnership. On October 21, 2024, EF Inc., makes a qualified conservation con- tribution on the real property it received from LTP Partnership. (2) Analysis. F qualifies as a member of the family with respect to E. Accordingly, as of the time of EF Inc.’s qualified conservation contribu- tion, EF Inc. was owned at least 90 percent by an individual and members of that individual’s family. In addition, at least 90 percent of EF Inc’s quali- fied conservation contribution is allocated to E and members of E’s family. However, E and members of E’s family failed to own at least 90 percent of the property with respect to which the qualified conservation contribution was made for at least one year prior to the date of the contribution. In particular, G and H (who are not members of the family with respect to E or F) indirectly owned a 50 percent interest in the property until July 5, 2024. Accordingly, the requirements of this paragraph (n) (3) are not satisfied. EF Inc. must apply the provi- sions of paragraphs (j) through (m) of this section to determine whether the contribution is a disallowed qualified conservation contribution. (4) Exception for contributions to preserve certified historic structures. Paragraph (j) of this section does not apply to any qualified conservation contri- bution the conservation purpose of which is the preservation of any building that is a certified historic structure (as defined in section 170(h)(4)(C)). See §1.170A-16(f) (6) for special reporting requirements for a contribution that meets the exception in this paragraph (n)(4). (o) Applicability dates—(1) In gen- eral. Except as provided in paragraphs (g)(4)(ii), (i), and (o)(2) of this section, paragraphs (a) through (i) of this section apply only to contributions made on or after December 18, 1980. Paragraphs (j) through (n) of this section apply to con- tributions made after December 29, 2022. (2) Exception. Paragraph (h)(4)(ii) of this section applies on and after June 1, 2023. Par. 3. Section 1.170A-16 is amended by: 1. In paragraph (c)(3)(iv)(F), adding the word “and” at the end of the paragraph; 2. In paragraph (c)(3)(iv)(G), remov- ing the language “and” at the end of the paragraph; 3. Redesignating paragraph (c)(3)(v) as paragraph (c)(3)(vi) and adding new para- graph (c)(3)(v); 4. In paragraph (d)(3)(vii), remov- ing the language “and” at the end of the paragraph; 5. Redesignating paragraph (d)(3)(viii) as paragraph (d)(3)(x) and adding new paragraph (d)(3)(viii); 6. Adding paragraph (d)(3)(ix); 7. Revising paragraph (f)(4); 8. Adding paragraph (f)(6); 9. Revising paragraph (g). The additions and revisions read as follows: §1.170A-16 Substantiation and reporting requirements for noncash charitable contributions. * * * * * (c) * * * (3) * * * December 4, 2023 1360 Bulletin No. 2023–49 (v) Where a number can be inserted into any box on Form 8283 (Section A), the number inserted in the box on Form 8283 (Section A). Alternatively, taxpay- ers may attach a statement to the Form 8283 explaining why a number cannot be inserted. Nothing in this paragraph (c)(3) (v) precludes a taxpayer from both insert- ing the number in the appropriate box on Form 8283 (Section A) and including an attached statement explaining any addi- tional information regarding the number. Taxpayers may not respond to a request for information on Form 8283 (Section A) with nonresponsive responses, for example, by indicating that the requested information is available upon request or will be provided upon request. The inclu- sion of such nonresponsive language in response to a request for information on Form 8283 (Section A) may be treated by the IRS as being an incomplete filing of Form 8283; and * * * * * (d) * * * (3) * * * (viii) In the case of a partnership or S corporation that makes a qualified conser- vation contribution, the sum of each ulti- mate member’s relevant bases, computed in accordance with §1.170A-14(j) through (m), but only: (A) For contributions described in section 170(h)(7)(E) and §1.170A-14(n) (4) (for contributions to preserve certified historic structures), regardless of whether they are also described in section 170(h) (7)(C) and §1.170A-14(n)(2) (for contri- butions made outside of the three-year holding period) and/or section 170(h)(7) (D) and §1.170A-14(n)(3) (for contribu- tions made by certain family partnerships or S corporations); and (B) For all contributions not described in section 170(h)(7)(E) and §1.170A-14(n) (4), provided they are not described in section 170(h)(7)(C) and §1.170A-14(n) (2) (for contributions made outside of the three-year holding period) and/or section 170(h)(7)(D) and §1.170A-14(n)(3) (for contributions made by certain family part- nerships or S corporations); (ix) Where a number can be inserted into any box on Form 8283 (Section B), the number inserted in the box on Form 8283 (Section B). Alternatively, taxpay- ers may attach a statement to the Form 8283 explaining why a number cannot be inserted. Nothing in this paragraph (d)(3) (ix) precludes a taxpayer from both insert- ing the number in the appropriate box on Form 8283 (Section B) and including an attached statement explaining any addi- tional information regarding the number. Taxpayers may not respond to a request for information on Form 8283 (Section B) with nonresponsive responses, for example, by indicating that the requested information is available upon request or will be provided upon request. The inclu- sion of such nonresponsive language in response to a request for information on Form 8283 (Section B) may be treated by the IRS as being an incomplete filing of Form 8283; and * * * * * (f) * * * (4) Partners and S corporation share- holders —(i) Form 8283 (Section A or Section B) must be provided to partners and S corporation shareholders. If the donor is a partnership or an S corporation, the donor must provide a copy of its com- pleted Form 8283 (Section A or Section B) to every partner or shareholder who receives an allocation of a charitable con- tribution under section 170 for the prop- erty described in Form 8283 (Section A or Section B). Similarly, a recipient partner that is a partnership or S corporation must provide a copy of the donor’s completed Form 8283 (Section A or Section B) to each of its partners or shareholders who receives an allocation of the charitable contribution, and so on through any addi- tional tiers. (ii) Partners and S corporation shareholders must attach Forms 8283 (Section A or Section B) to return. A partner of a partnership or shareholder of an S corporation who receives an allocation of a charitable contribution under section 170 for property to which paragraph (c), (d), or (e) of this sec- tion applies must attach to the return on which the contribution is claimed a copy of each Form 8283 that must be provided to them under paragraph (f)(4) (i) or (iii) of this section. (iii) Partners and S corporation shareholders must file separate Forms 8283 and provide copies to any part- ners—(A) In general. Subject to para- graph (f)(4)(iii)(B) of this section, every partner of a partnership (including a partner that is itself a partnership or S corporation) or shareholder of an S cor- poration that receives an allocation of a charitable contribution under section 170 for which paragraph (c), (d), or (e) of this section applies must complete a separate Form 8283 with any infor- mation required by Form 8283 and the instructions to Form 8283. In the case of a partner that is itself a partnership or S corporation, that partnership or S corporation must provide a copy of its completed separate Form 8283 to every partner or shareholder who receives an allocation of the charitable contribution, and so on through any additional tiers. The partner or shareholder must attach its separate Form 8283 to the return on which the contribution is claimed, in addition to the copy of each Form 8283 that the partner or shareholder is required to attach pursuant to paragraph (f)(4)(ii) of this section. (B) Conservation contributions. The terms defined in §1.170A-14(j)(3) apply for purposes of this paragraph (f)(4)(iii) (B). In the case of a qualified conservation contribution that is made by a partnership or S corporation, an ultimate member’s separate Form 8283 must include their own relevant basis. An upper-tier part- nership’s or upper-tier S corporation’s separate Form 8283 must include the sum of each of its ultimate member’s rel- evant bases (as computed in accordance with §1.170A-14(j) through (m)). This paragraph (f)(4)(iii)(B) does not apply to contributions described in section 170(h) (7)(C) and §1.170A-14(n)(2) (for contri- butions made outside of the three-year holding period) or section 170(h)(7)(D) and §1.170A-14(n)(3) (for contributions made by certain family partnerships or S corporations), provided that they are not also described in section 170(h)(7)(E) and §1.170A-14(n)(4) (for contributions to preserve certified historic structures), in which case this paragraph (f)(4)(iii)(B) does apply. * * * * * (6) Conservation contributions by pass-through entities preserving certified historic structures—(i) In general. The terms defined in §1.170A-14(j)(3) apply for purposes of this paragraph (f)(6). For any contribution described in paragraph Bulletin No. 2023–49 1361 December 4, 2023 (f)(6)(ii) of this section, pursuant to sec- tion 170(f)(19), no deduction is allowed under section 170 or any other provision of the Code under which deductions are allowable to pass-through entities with respect to such contribution unless the contributing partnership, the contribut- ing S corporation, the upper-tier part- nership, or the upper-tier S corporation, respectively— (A) Includes on its return for the tax- able year in which the contribution is made a statement that it made such a con- tribution or received such allocated por- tion, as described in paragraph (f)(6)(iii) of this section; and (B) Provides such information about the contribution as the Secretary may require in guidance, forms, or instructions. (ii) Contributions to which this para- graph (f)(6) applies. This paragraph (f)(6) applies to any qualified conservation con- tribution (as defined in section 170(h)(1) and §1.170A-14): (A) The conservation purpose of which is preservation of a building that is a cer- tified historic structure (as defined in sec- tion 170(h)(4)(C)); (B) That is either made by a contrib- uting partnership or contributing S cor- poration (as defined in §1.170A-14(j) (3)(iv)), or that is an allocated por- tion (as defined in §1.170A-14(j)(3) (i)) of an upper-tier partnership (as defined in §1.170A-14(j)(3)(xi)) or upper-tier S corporation (as defined in §1.170A-14(j)(3)(xii)); and (C) The amount of such contribu- tion (as defined in §1.170A-14(j)(3)(ii)) or such allocated portion (as defined in §1.170A-14(j)(3)(i)) exceeds 2.5 times the sum of each ultimate member’s relevant basis (as defined in §1.170A-14(j) through (m)). (iii) Required information. A part- nership or S corporation satisfies the requirements of section 170(f)(19)(A) and paragraph (f)(6)(i) of this section by filing a completed Form 8283, including infor- mation about relevant basis, in accordance with section 170, the regulations under section 170, and the instructions to Form 8283. (g) Applicability dates—(1) In general. Except as provided in paragraph (g)(2) of this section, this section applies to contri- butions made after July 30, 2018. (2) Certain paragraphs. Paragraphs (c)(3)(vi), (d)(3)(viii) and (x), and (f)(4) and (6) of this section apply to taxable years ending on or after November 20, 2023. Par. 4. Section 1.706-0 is amended by revising the entry for §1.706-3 to read as follows: §1.706-0 Table of contents. * * * * * §1.706–3 Items attributable to interest in lower-tier partnership. (a) Conservation contributions. (b) Applicability date. * * * * * Par. 5. Section 1.706-3 is revised to read as follows: §1.706-3 Items attributable to interest in lower-tier partnership. (a) Conservation contributions. For purposes of section 706(d)(3), in the case of a qualified conservation contribu- tion (as defined in section 170(h)(1) and §1.170A-14(a) without regard to whether such contribution is a disallowed quali- fied conservation contribution within the meaning of §1.170A-14(j)(3)(vii)) by a partnership that is allocated to an upper- tier partnership, the upper-tier partnership must allocate the contribution among its partners in proportion to their interests in the upper-tier partnership at the time of day at which the contribution was made, regardless of the method (interim clos- ing or proration) and convention (daily, semi-monthly, or monthly) otherwise used by the upper-tier partnership under §1.706-4. (b) Applicability date. Paragraph (a) of this section applies to qualified conserva- tion contributions made after December 29, 2022. Par. 6. Section 1.706-4 is amended by: 1. Redesignating paragraphs (e)(2) (ix) through (xi) as paragraphs (e)(2)(x) through (xii), respectively, and adding new paragraph (e)(2)(ix); 2. Adding the word “and” at the end of newly redesignated paragraph (e)(2)(xi); and 3. Revising paragraphs (e)(3) and (g). The addition and revisions read as follows: §1.706-4 Determination of distributive share when a partner’s interest varies. * * * * * (e) * * * (2) * * * (ix) Any qualified conservation contri- bution (as defined in section 170(h)(1) and §1.170A-14(a) without regard to whether such contribution is a disallowed quali- fied conservation contribution within the meaning of §1.170A-14(j)(3)(vii)); * * * * * (3) Small item exception. A partnership may treat an item described in paragraph (e)(2) of this section (except for an item described in paragraph (e)(2)(ix) of this section) as other than an extraordinary item for purposes of this paragraph (e) if, for the partnership’s taxable year the total of all items in the particular class of extraor- dinary items (as enumerated in paragraphs (e)(2)(i) through (xii) of this section, for example, all tort or similar liabilities, but in no event counting an extraordinary item more than once) is less than five percent of the partnership’s gross income, including tax-exempt income described in section 705(a)(1)(B), in the case of income or gain items, or gross expenses and losses, includ- ing section 705(a)(2)(B) expenditures, in the case of losses and expense items; and the total amount of the extraordinary items from all classes of extraordinary items amounting to less than five percent of the partnership’s gross income, includ- ing tax-exempt income described in section 705(a)(1)(B), in the case of income or gain items, or gross expenses and losses, includ- ing section 705(a)(2)(B) expenditures, in the case of losses and expense items, does not exceed $10 million in the taxable year, determined by treating all such extraordi- nary items as positive amounts. * * * * * (g) Applicability dates—(1) In general. Except as provided in paragraphs (g)(2) and (3) of this section, this section applies for partnership taxable years that begin on or after August 3, 2015. (2) Paragraph (c)(3) of this section. The rules of paragraph (c)(3) of this sec- tion apply for taxable years of partner- ships other than existing publicly traded December 4, 2023 1362 Bulletin No. 2023–49 partnerships that begin on or after August 3, 2015. For purposes of this paragraph (g)(2), an existing publicly traded part- nership is a partnership described in section 7704(b) that was formed prior to April 14, 2009. For purposes of this paragraph (g)(2), the termination of a publicly traded partnership under section 708(b)(1)(B) due to the sale or exchange of 50 percent or more of the total inter- ests in partnership capital and profits in a taxable year beginning on or before December 31, 2017, is disregarded in determining whether the publicly traded partnership is an existing publicly traded partnership. (3) Paragraph (e)(2)(ix) of this section. Paragraph (e)(2)(ix) of this section applies to qualified conservation contributions made after December 29, 2022. Douglas W. O’Donnell, Deputy Commissioner for Services and Enforcement. (Filed by the Office of the Federal Register November 17, 2023, 8:45 a.m., and published in the issue of the Federal Register for November 20, 2023, 88 FR 80910) Notice of Proposed Rulemaking Recognition and Deferral of Section 987 Gain or Loss; Comment Period Reopening REG-128276-12 AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemak- ing; reopening of comment period. SUMMARY: The Department of the Treasury and the IRS are reopening the comment period for REG-128276-12, published in the Federal Register on December 8, 2016, relating to the determi- nation and recognition of taxable income or loss and foreign currency gain or loss with respect to a qualified business unit. DATES: The comment period for REG- 128276-12 (81 FR 88882, December 8, 2016) (the “2016 proposed regulations”) is reopened, and additional written or elec- tronic comments and requests for a public hearing must be received by February 12, 2024. ADDRESSES: Commenters are strongly encouraged to submit additional public comments electronically via the Federal eRulemaking Portal at https://www.regula- tions.gov (indicate IRS and REG-128276- 12) by following the online instructions for submitting comments. Requests for a public hearing must be submitted as pre- scribed in the “Comments and Requests for a Public Hearing” section. Once sub- mitted to the Federal eRulemaking Portal, comments cannot be edited or with- drawn. The Department of the Treasury (the “Treasury Department”) and the IRS will publish for public availability any comments submitted to the IRS’s pub- lic docket. Send paper submissions to: CC:PA:01:PR (REG-128276-12), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. FOR FURTHER INFORMATION CONTACT: Jack Zhou at (202) 317- 6938; concerning submissions of com- ments, requests for a public hearing, or access to a public hearing, Vivian Hayes at (202) 317-6901 (not toll-free numbers) or by e-mail to publichearings@irs.gov (preferred). SUPPLEMENTARY INFORMATION: On December 8, 2016, the Treasury Department and the IRS published a notice of proposed rulemaking (REG-128276- 12, 81 FR 88882, December 8, 2016) (the “2016 proposed regulations”) in the Federal Register. The 2016 proposed regulations cross-reference temporary regulations in Treasury Decision 9795 (81 FR 88854, December 8, 2016) (the “tem- porary regulations”), which provided rules under section 987 of the Internal Revenue Code relating to the determination and recognition of taxable income or loss and foreign currency gain or loss with respect to a qualified business unit. On May 13, 2019, the Treasury Department and the IRS published Treasury Decision 9857 (84 FR 20790, May 13, 2019), which finalized parts of the 2016 proposed regulations and withdrew one section of the tempo- rary regulations. The temporary regula- tions that were not finalized or withdrawn expired on December 6, 2019. A notice of proposed rulemaking published in this issue of the Federal Register contains new proposed regulations under section 987 and withdraws parts of the 2016 pro- posed regulations. The parts of the 2016 proposed regulations that remain out- standing include: (1) rules regarding the treatment of section 988 transactions of a section 987 QBU (see §§1.987-1, 1.987-3, and 1.988-1 of the 2016 proposed regula- tions); (2) rules regarding QBUs with the U.S. dollar as their functional currency (see §§1.987-1 and 1.987-6 of the 2016 proposed regulations); (3) rules regarding the translation of income used to pay cred- itable foreign income taxes (see §1.987-3 of the 2016 proposed regulations); and (4) rules requiring the deferral of certain section 988 loss that arises with respect to related-party loans (see §1.988-2 of the 2016 proposed regulations). The Treasury Department and the IRS are considering finalizing these parts of the 2016 proposed regulations and, there- fore, are reopening the comment period for 90 days. Comments that were previ- ously submitted in accordance with the 2016 proposed regulations will be consid- ered and do not need to be resubmitted. COMMENTS AND REQUESTS FOR A PUBLIC HEARING: Before the parts of the 2016 proposed regulations that remain outstanding are adopted as final regulations, consideration will be given to comments that are submitted timely to the IRS as prescribed in this Notice in the “Addresses” section. Any comments sub- mitted will be made available at https:// www.regulations.gov or upon request. A public hearing will be scheduled if requested in writing by any person who timely submits written comments. Requests for a public hearing are also encouraged to be made electronically. If a public hearing is scheduled, notice of the Bulletin No. 2023–49 1363 December 4, 2023 date and time for the public hearing will be published in the Federal Register. Oluwafunmilayo A. Taylor Section Chief, Publications and Regulations Section, Associate Chief Counsel, (Procedure and Administration). (Filed by the Office of the Federal Register November 9, 2023, 4:15 p.m., and published in the issue of the Federal Register for November 14, 2023, 88 FR 77921) Notice of Proposed Rulemaking Taxes on Taxable Distributions from Donor Advised Funds under Section 4966 REG-142338-07 AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemaking SUMMARY: This document contains proposed regulations regarding excise taxes on taxable distributions made by a sponsoring organization from a donor advised fund (DAF), and on the agreement of certain fund managers to the making of such distributions. The proposed regula- tions would provide guidance regarding DAFs and taxable distributions. The pro- posed regulations generally would apply to certain organizations, including com- munity foundations and other charitable organizations, that maintain one or more DAFs, and to other persons involved with the DAFs, including donors, donor-ad- visors, related persons, and certain fund managers. DATES: Written or electronic comments and requests for a public hearing must be received by January 16, 2024. ADDRESSES: Commenters are strongly encouraged to submit public comments electronically. Submit electronic sub- missions via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG–142338-07) by following the online instructions for sub- mitting comments. Requests for a public hearing must be submitted as prescribed in the “Comments and Requests for a Public Hearing” section. Once submit- ted to the Federal eRulemaking Portal, comments cannot be edited or withdrawn. The Department of the Treasury (Treasury Department) and the IRS will publish for public availability any comment received to its public docket, whether submit- ted electronically or in hard copy. Send paper submissions to: CC:PA:01:PR (REG–142338-07), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Ward L. Thomas at (202) 317- 5800 (not a toll-free number); concerning submission of comments and requests for a public hearing, contact Vivian Hayes by email at publichearings@irs.gov (pre- ferred) or by phone at (202) 317-6901 (not a toll-free number). SUPPLEMENTARY INFORMATION Background I. Overview Some charitable organizations (includ- ing community foundations) establish accounts to which donors may contribute and thereafter provide nonbinding advice or recommendations with regard to distri- butions from the account or the investment of assets in the account. Such accounts are commonly referred to as “donor advised funds” or “DAFs.” Sections 1231-1235 of the Pension Protection Act of 2006 (PPA), Public Law 109-280, 120 Stat. 780, 1094- 1102 (August 17, 2006), enacted various amendments to the Internal Revenue Code (Code) regarding DAFs. Among these, section 1232 of the PPA amended sec- tion 4958 of the Code to add special rules relating to excess benefit transactions with DAFs; section 1231(b) of the PPA added section 4967 to the Code, which imposes an excise tax on prohibited benefits result- ing from distributions from DAFs; and section 1231(a) of the PPA added section 4966 of the Code, which imposes excise taxes on taxable distributions made by sponsoring organizations from a DAF, and on the agreement of certain fund man- agers to the making of such distributions. This notice of proposed rulemaking con- tains proposed amendments to 26 CFR Part 53 (Foundation and Similar Excise Taxes) under section 4966 (proposed regulations). II. Statutory Provisions A. Section 4958 Section 4958 imposes an excise tax on any “excess benefit transaction,” which is defined generally under section 4958(c)(1) as any transaction in which an economic benefit is provided, the value of which exceeds the value of any consideration received, by an applicable tax-exempt organization (including a sec- tion 501(c)(3) sponsoring organization of a DAF) directly or indirectly to or for the use of a disqualified person with respect to a transaction. 1 This excise tax under section 4958 is paid by the disqualified person with respect to the transaction. A separate excise tax, paid by organization managers, is imposed on the participation of any organization manager in the trans- action, knowing that it is an excess benefit transaction, unless such participation is not willful and is due to reasonable cause. Section 1232 of the PPA amended sec- tion 4958 to provide that, with respect to any transaction that involves a DAF, a disqualified person includes (1) any donor with respect to the DAF, (2) any donor-advisor with respect to the DAF, and (3) any member of the family, or any 35-percent controlled entity of a donor or donor-advisor or member of their families with respect to the DAF, each, a “related 1 For this purpose, a disqualified person is defined under section 4958(f) as a person who was, at any time during the five-year period ending on the date of the transaction, in a position to exercise substantial influence over the affairs of the organization, and certain related persons, with special rules for DAFs and section 509(a)(3) organizations. December 4, 2023 1364 Bulletin No. 2023–49 person,” and to provide that any grant, loan, compensation, or other similar payment from the DAF to such disqual- ified person is an excess benefit transac- tion. For purposes of this special rule for transactions involving DAFs, the excess benefit includes the entire amount of the grant, loan, compensation, or other similar payment. The PPA also amended section 4958 to treat as a disqualified person with respect to a transaction involving a spon- soring organization an investment advisor (or a family member or a 35-percent con- trolled entity of such person). B. Section 4966 1. DAFs Section 4966(d)(2)(A) defines a “DAF” generally as a fund or account (1) that is separately identified by reference to contributions of a donor or donors, (2) that is owned and controlled by a sponsor- ing organization, and (3) with respect to which a donor (or any person appointed or designated by the donor, namely, a donor-advisor) has, or reasonably expects to have, advisory privileges with respect to the distribution or investment of amounts held in the fund or account by reason of the donor’s status as a donor. Section 4966(d)(2)(B)(i) states that a DAF does not include a fund or account that makes distributions only to a single identified organization or governmental entity. Section 4966(d)(2)(B)(ii) states that a DAF does not include a fund or account with respect to which a donor or a donor-advisor provides advice regarding grants to individuals for travel, study, or similar purposes if (1) the donor’s, or the donor-advisor’s, advisory privileges are exercised exclusively in the donor’s or donor-advisor’s capacity as a member of a committee all the members of which are appointed by the sponsoring organization, (2) no combination of donor(s), donor-ad- visor(s), or persons related to such per- sons directly or indirectly control the committee, and (3) all grants are awarded on an objective and nondiscriminatory basis pursuant to a procedure approved in advance by the sponsoring organization’s board of directors, and the procedure is designed to ensure that the grants meet the requirements of section 4945(g)(1), (2), or (3). Section 4966(d)(2)(C) authorizes the Secretary of the Treasury or her delegate (Secretary) to exempt a fund or account from treatment as a DAF if it (1) is advised by a committee not directly or indirectly controlled by the donor or any donor-ad- visor (and any related parties), or (2) ben- efits a single identified charitable purpose. 2. Sponsoring Organizations Section 4966(d)(1) defines a “spon- soring organization” as an organization described in section 170(c) (including a foreign organization that otherwise would be described in section 170(c)(2)), other than a private foundation (as defined in section 509(a)) or a governmental entity (as defined in section 170(c)(1)), that maintains one or more DAFs. 3. Excise Tax on Taxable Distributions Section 4966(a)(1) imposes a 20 percent excise tax on each taxable dis- tribution, payable by the sponsoring orga- nization with respect to the DAF. Section 4966(c)(1) defines a “taxable distribution” as including any distribution from a DAF to any natural person. Section 4966(c) (1) also defines a taxable distribution as including a distribution from a DAF to any other person if (1) the distribution is for any purpose other than a purpose spec- ified in section 170(c)(2)(B), 2 or (2) the sponsoring organization does not exercise expenditure responsibility with respect to the distribution in accordance with section 4945(h). Section 4966(c)(2) provides that a taxable distribution, however, does not include a distribution from a DAF to (1) any organization described in section 170(b)(1)(A) (other than a disqualified supporting organization), (2) the sponsor- ing organization of such DAF, or (3) any other DAF. Section 4966(d)(4) defines a “disqualified supporting organization” as (1) a Type III supporting organization that is not functionally integrated and (2) any other supporting organization if the donor or any donor-advisor (and any related parties) with respect to a DAF directly or indirectly controls a supported organiza- tion of the supporting organization. 4. Excise Tax on Agreement of Fund Manager Section 4966(a)(2) imposes a five per- cent excise tax on the agreement of a fund manager to the making of a taxable dis - tribution knowing that it is a taxable dis- tribution, payable by any fund manager who agreed to the making of the distribu- tion. Section 4966(d)(3) defines a “fund manager” with respect to any sponsoring organization as (1) an officer, director, or trustee of such sponsoring organiza- tion (or an individual having powers or responsibilities similar to those of officers, directors, or trustees of the sponsoring organization), and (2) with respect to any act (or failure to act), the employees of the sponsoring organization having authority or responsibility with respect to each act (or failure to act). Section 4966(b) provides that, if more than one fund manager is liable under sec- tion 4966(a)(2), then all such persons are jointly and severally liable with respect to the distribution; however, the maximum amount of tax imposed by section 4966(a) (2) with respect to any one taxable distri- bution is $10,000. C. Section 4967 The PPA also added section 4967, which imposes an excise tax on the advice that a donor, donor-advisor, or related person provides regarding a distribution from a DAF that results in such person or any other donor, donor-advisor, or related person receiving, directly or indirectly, a more than incidental benefit. This excise tax is paid by any donor, donor-advisor, or related person who advises the sponsoring organization as to the distribution or who receives the prohibited benefit. A separate excise tax, paid by the fund manager, is 2 Section 170(c)(2)(B) defines charitable contributions to include contributions to certain organizations for the following purposes: religious, charitable, scientific, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of the organization’s activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals. Bulletin No. 2023–49 1365 December 4, 2023 imposed on the agreement of any fund manager of the sponsoring organization to the making of the distribution, know- ing that it would confer a prohibited ben- efit. Section 4967(b) provides that, with respect to any distribution, no tax can be imposed under section 4967 if a tax has been imposed under section 4958. III. Administrative Guidance In December 2006, the Treasury Department and the IRS issued Notice 2006-109, 2006-2 C.B. 1121, to provide interim guidance on certain requirements enacted by the PPA, including those that affect DAFs. 3 Notice 2006-109 also requested comments regarding the notice and suggestions for future guidance. In February 2007, the Treasury Department and the IRS issued Notice 2007-21, 2007-1 C.B. 611, requesting comments in connection with a study con- ducted by the Treasury Department and the IRS on the organization and operation of DAFs and supporting organizations, as required by section 1226 of the PPA. In December 2017, the Treasury Department and the IRS issued Notice 2017-73, 2017-51 I.R.B. 562, describing approaches being considered to address certain issues regarding DAFs and request- ing comments on those approaches. In particular, Notice 2017-73 stated, among other things, that the Treasury Department and the IRS are considering developing proposed regulations under section 4967 that would, if finalized, provide that (1) certain distributions from a DAF that pay for the purchase of tickets that enable a donor, donor-advisor, or related person under section 4958(f)(7) to attend or par- ticipate in a charity-sponsored event result in a more than incidental benefit to such person under section 4967, and (2) certain distributions from a DAF that the distrib- utee charity treats as fulfilling a pledge made by a donor, donor-advisor, or related person, do not result in a more than inci- dental benefit under section 4967 if cer- tain requirements are met. In response to these three notices, the Treasury Department and the IRS received 118 comments, 74 of which concerned DAFs and taxable distributions. 4 After consideration of the comments received, the Treasury Department and the IRS are proposing these regulations regarding the excise taxes payable by sponsoring organizations of DAFs and fund manag- ers on taxable distributions under section 4966. The major areas of comment relat- ing to section 4966 are discussed in the Explanation of Provisions. Explanation of Provisions 1. Definition of Donor Advised Fund In accordance with section 4966(d)(2) (A), the proposed regulations would define a DAF generally as a fund or account (1) that is separately identified by reference to contributions of a donor or donors, (2) that is owned and controlled by a sponsoring organization, and (3) with respect to which at least one donor or donor-advisor has, or reasonably expects to have, advisory priv- ileges with respect to the distribution or investment of amounts held in such fund or account by reason of the donor’s status as a donor. Unless otherwise excepted, a fund or account that meets all three prongs of the definition would be a DAF. A sponsoring organization is proposed to be defined in accordance with section 4966(d)(1) as any organization that (1) is described in section 170(c) (other than a governmental unit described in section 170(c)(1)), without the requirement under section 170(c)(2)(A) that it be created or organized in the United States or in any possession thereof, or under the law of the United States, any State, the District of Columbia, or any possession of the United States; (2) is not a private foundation; and (3) maintains one or more DAFs. A. Separate Identification by Reference to Contributions of a Donor or Donors Section 4966(d)(2)(A)(i) states that a DAF must be separately identified by reference to contributions of a donor or donors. In general, the proposed regula- tions would provide that a fund or account is separately identified by reference to contributions of a donor or donors if the sponsoring organization maintains a for- mal record of contributions to the fund or account relating to a donor or donors. A formal record exists regardless of whether the sponsoring organization commingles the assets attributed to the fund or account with other assets of the sponsoring orga- nization, as long as the sponsoring orga- nization tracks contributions of a donor or donors to the fund or account. A contribu- tion would be defined as any gift, bequest, or similar payment or transfer, whether in cash or in-kind, to or for the use of a spon- soring organization. If the sponsoring organization does not maintain a formal record of contribu- tions to a fund or account, then whether a fund or account is separately identi- fied would be based on all the facts and circumstances. The proposed regulations would pro- vide that facts and circumstances that are relevant in determining that a fund or account is separately identified by refer- ence to contributions of a donor or donors include: (1) the fund or account balance reflects items such as contributions, div- idends, interest, distributions, adminis- trative expenses, and gains and losses (realized or unrealized); (2) the fund or account is named after one or more donors, donor-advisors, or related persons (as defined by proposed §53.4966-1(j)); 5 3 For example, section 5.01 of Notice 2006-109 excludes from the definition of a DAF an employer-sponsored disaster relief fund that meets certain requirements. To be excluded, the fund must: (1) serve a single identified charitable purpose, which is to provide relief from one or more qualified disasters within the meaning of section 139(c)(1), (2), or (3); (2) serve a large or indefinite class, i.e., a charitable class; (3) select recipients of grants based on objective determinations of need; (4) select recipients of grants using either an independent selection committee or adequate substitute procedures to ensure that any benefit to the employer is incidental and tenuous; (5) make no payment from the fund to or for the benefit of any director, officer, or trustee of the sponsoring organization of the fund or for the benefit of any member of the fund's selection committee; and (6) maintain adequate records that demonstrate the recipients' needs for the disaster relief assistance. 4 The Treasury Department and the IRS anticipate that the other comments will be considered in the development of future guidance under other Code sections. 5 Section 53.4966-1(j) of the proposed regulations defines “related person,” by reference to section 4958(f)(7)(B) and (C), as any family member (as defined in section 4958(f)(4)) or any 35-percent controlled entity (as defined in section 4958(f)(3) with appropriate substituted language). December 4, 2023 1366 Bulletin No. 2023–49 (3) the sponsoring organization refers to the fund or account as a DAF; (4) the sponsoring organization has an agree- ment or understanding with one or more donors or donor-advisors that such fund or account is a DAF; (5) one or more donors or donor-advisors regularly receive a fund or account statement from the sponsoring organization; and (6) the sponsoring orga- nization generally solicits advice from the donor(s) or donor-advisor(s) before mak- ing distributions from the fund or account. The Treasury Department and the IRS request comments on these and any addi- tional factors that would be relevant in determining whether a fund or account is separately identified by reference to con- tributions of a donor or donors. Several commenters asked that funds or accounts funded by certain types of orga- nizations, such as public charities, private foundations, or governmental entities, be excluded from the definition of a DAF. The proposed regulations define a donor generally as any person described in sec- tion 7701(a)(1) that contributes to a fund or account of a sponsoring organization. However, the proposed regulations would explicitly exclude from the definition of donor (1) any public charity described in section 509(a)(1), (2), or (3) (other than a disqualified supporting organization) and (2) any governmental unit described in section 170(c)(1). A fund or account that is separately identified by reference to contributions solely from either of these types of entities would not be treated as separately identified by reference to con- tributions from a donor and thus would not be a DAF. 6 Because private founda- tions and disqualified supporting organi- zations could use a DAF to circumvent the payout and other requirements that are applicable to those organizations, the proposed regulations would not exclude private foundations or disqualified sup- porting organizations from the definition of donor. B. Advisory Privileges Under section 4966(d)(2)(A)(iii), for a fund or account to constitute a DAF, (1) at least one donor or donor-advisor must have, or reasonably expect to have, advi- sory privileges with respect to the distribu- tion or investment of amounts held in such fund or account, and (2) such advisory privileges must arise by reason of (in other words, because of) the donor’s status as a donor. The proposed regulations generally would provide that the existence of such advisory privileges depends on the facts and circumstances, including the conduct (and any agreement or understanding) of both the donor(s) or donor-advisor(s) and the sponsoring organization. A donor (or donor-advisor) may have, or reasonably expect to have, advisory privileges even in the absence of the actual provision of advice. Advisory privileges would include those arising from service on an advisory committee. The proposed regulations also would presume that advisory privileges of a donor or donor-advisor arise by reason of the donor’s status as a donor, except where specifically provided otherwise. Commenters recommended that, for advisory privileges to exist, advice must include a specified amount and a named recipient. Commenters also suggested that, in the absence of written evidence, advisory privileges should not be inferred unless there are at least three separate suc- cessive occasions where the sponsoring organization accepts the donor’s advice. Commenters further requested that a sponsoring organization’s proposal to dis- tribute a certain amount to a certain dis- tributee, subject to the donor’s approval, be viewed as the donor’s exercise of the advisory privilege only if the donor approves the proposal. The Treasury Department and the IRS believe that the commenters’ recommen- dations would define advisory privileges too narrowly. Instead, the proposed reg- ulations would provide that the presence of any of the following four facts is suffi- cient to establish that a donor or donor-ad- visor has advisory privileges by reason of the donor’s status as a donor, regardless of whether they are exercised: (1) the sponsoring organization allows a donor or donor-advisor to provide nonbinding recommendations regarding distributions from, or regarding the investment of assets held in, a fund or account; (2) a written agreement states that a donor or donor-ad- visor has advisory privileges; (3) a written document or any marketing material of the sponsoring organization made avail - able to a donor or donor-advisor indicates that a donor or donor-advisor may pro- vide advice to the sponsoring organization regarding the distribution or investment of amounts held by a sponsoring orga- nization (for example, a pre-approved list of investment options or distributees that the sponsoring organization provides to a donor or donor-advisor); or (4) the sponsoring organization generally solic- its advice from a donor or donor-advisor regarding the distribution or investment of amounts held in a fund or account. However, the proposed regulations would also provide four special rules relat- ing to advisory privileges. First, if at least one donor or donor-advisor has, or reason- ably expects to have, advisory privileges with respect to a fund or account or any portion of a fund or account, then advi- sory privileges by reason of the donor’s status as a donor exist with respect to that fund or account even if there are multiple donors to the fund or account. Second, there would be special rules for advisory privileges arising from ser- vice on an advisory committee, as dis- cussed in section 1.D of this Explanation of Provisions of this preamble. Third, advice provided solely in a person’s capacity as an officer, direc- tor, employee (or in a similar capacity) of a sponsoring organization would not by itself give rise to advisory privileges by reason of a donor’s status as a donor. However, if, by reason of the person’s contribution to a fund or account, an offi- cer, director, or employee of the sponsor- ing organization is allowed to advise on how to distribute or invest amounts in the fund or account, the person would be con- sidered to have advisory privileges by rea- son of the donor’s status as a donor with respect to that fund or account. Lastly, unless the special rule for offi- cers, directors, and employees of a spon- soring organization applies, if a donor to 6 Because public charities and governmental units are not treated as donors, it also follows that if only they have advisory privileges with respect to a fund, the fund would not be a DAF even if there are other donors. See §53.4966-3(e)(4) (Example 4) of these proposed regulations. Bulletin No. 2023–49 1367 December 4, 2023 a fund or account is the sole person with advisory privileges with respect to a fund or account, the advisory privileges would be deemed to be by reason of the donor’s status as a donor. This bright-line rule would provide clarity and enhance admin- istrability. The Treasury Department and the IRS request comments regarding whether there are additional circumstances in which application of the bright-line rule is not warranted. Commenters asked that guidance clar- ify that advisory privileges do not include certain legally enforceable rights of the donor with respect to a contribution. If a restriction is placed on a gift at the time the gift is made and there is no provision for subsequent discretion regarding the restriction, then the restriction should not give rise to advisory privileges. For example, a donor’s mere earmarking of a donation (at the time of donation) for a particular fund or program of the recipient charity, without more, does not create an advisory privilege. Whether the terms of a gift agreement create a DAF depends on the restrictions set forth in the agreement. The Treasury Department and the IRS request comments on the circumstances in which a gift agreement or advisory rights retained by a donor could create a DAF. C. Donor-Advisor Consistent with section 4966(d) (2)(A)(iii), the proposed regulations would define donor-advisor as a person appointed or designated by a donor to have advisory privileges regarding the distribution or investment of assets held in a fund or account of a sponsoring orga- nization. If a donor-advisor delegates any of the donor-advisor’s advisory privileges to another person, that person also would be a donor-advisor. No particular form of appointment or designation would be nec- essary under the proposed regulations. A donor-advisor generally would include a person suggested or recom- mended by a donor to have advisory privileges if the sponsoring organization provides such privileges. However, this rule would not apply if (1) the donor recommends an investment advisor who is properly viewed as providing ser- vices to the sponsoring organization as a whole, rather than providing services to the DAF, as described in this section 1.C of this Explanation of Provisions of this preamble, or (2) the donor recommends a person to serve on a committee of the sponsoring organization that advises as to distributions or investments of amounts in a fund or account if the recommenda- tion is based on objective criteria related to the expertise of the member in the par- ticular field of interest or purpose of the fund or account, the committee consists of three or more individuals and a majority of the committee is not recommended by the donor or donor-advisor, and the rec- ommended person is not a related person with respect to the recommending donor or donor-advisor, as discussed in section 1.D of this Explanation of Provisions of this preamble. The proposed regulations include three special rules with respect to donor-advi- sors. First, a person (other than a person or governmental unit excepted from status as a donor) who establishes a fund or account and advises as to the distribution or invest- ment of amounts in that fund or account would be treated as a donor-advisor with respect to that fund or account, regardless of whether the person contributes to the fund or account. For example, if a per- son establishes a memorial or fundraising fund to which the person does not contrib- ute, but does provide advice regarding dis- tributions from the fund, the person would be considered a donor-advisor. The donors to the fund have implicitly designated the advisor to have advisory privileges. Second, an investment advisor described in section 4958(f)(8)(B) 7 that manages the investment of, or provides investment advice with respect to, both assets maintained in a DAF and the per- sonal assets of a donor to that DAF (per- sonal investment advisor) would be a donor-advisor with respect to the DAF while serving in that dual capacity, regard- less of whether the donor appointed, des- ignated, or recommended the personal investment advisor. However, recognizing that a personal investment advisor may more generally advise the sponsoring organization, the proposed regulations would provide that a personal investment advisor will not be considered a donor-ad- visor if the personal investment advisor is properly viewed as providing services to the sponsoring organization as a whole, rather than providing services to the DAF. For example, if an investment advisor contracts with a sponsoring organiza- tion to provide services to all of its 1,000 DAFs, and the sponsoring organization reasonably charges the investment advi- sor’s fees uniformly to all of those DAFs, the investment advisor would properly be viewed as providing services to the spon- soring organization as a whole. The Treasury Department and the IRS request comments on additional circum- stances that would indicate that a personal investment advisor is properly viewed as providing services to the sponsoring orga- nization as a whole, rather than providing services to the DAF, as well as additional circumstances in which a personal invest- ment advisor should not be considered a donor-advisor. One commenter suggested that an investment advisor recommended by a donor to the sponsoring organization should not be treated as a donor-advi- sor if the investment advisor is regulated by State and Federal agencies, because agency oversight makes it unlikely that the investment advisor would manipulate the assets of the DAF for personal gain. The commenter stated that an investment advisor that was considered a donor-advi- sor could not receive compensation from a DAF because that would be an excess benefit transaction under section 4958(c) (2). While the commenter believes that it is unlikely that a regulated investment advisor would manipulate the assets of the DAF for personal gain, the Treasury Department and the IRS view the close relationship between a donor and his or her personal investment advisor as giving the donor influence over investment decisions with respect to assets held in the DAF comparable to that of a donor-advisor. 7 Section 4958(f)(8)(B) defines investment advisor, with respect to any sponsoring organization, as any person (other than an employee of such organization) compensated by the organization for managing the investment of, or providing investment advice with respect to, assets maintained in DAFs owned by the organization. December 4, 2023 1368 Bulletin No. 2023–49 Moreover, the Treasury Department and the IRS are concerned about potential con- flicts of interest. Specifically, sponsoring organizations may allow the appointment of a donor’s personal investment advisor as an advisor regarding the investment of DAF funds in order to encourage invest- ment advisors to promote their clients’ giving through a DAF, rather than directly to a public charity (other than the spon- soring organization). In fact, a counter- incentive may be created for both donors and their personal investment advisors to not advise distributions out of their DAFs to operating charities. Another significant concern is that a more than incidental ben- efit may occur if the investment advisor charges the donor a reduced fee for man- aging the donor’s personal assets because the investment advisor also manages the assets the donor contributed to the DAF. The Treasury Department and the IRS agree that a personal investment advisor that is considered a donor-advisor would be subject to the excess benefit transaction rules of section 4958(c)(2) if he or she received a grant, loan, compensation, or similar payment from the DAF. Third, advisory committee members recommended by a donor and appointed by the sponsoring organization would be donor-advisors, except as discussed in sec- tion 1.D of this Explanation of Provisions of this preamble. D. Advisory Committees The Treasury Department and the IRS generally would regard service on a com- mittee of a sponsoring organization that advises as to distributions from or invest- ments of assets of a fund or account as a form of advisory privilege with respect to that fund or account in determining whether the fund is a DAF, even though the sponsoring organization controls the selection of committee members con- sistent with its ownership and control of the fund or account in accordance with section 4966(d)(2)(A)(ii). Recognizing that a fund or account, including a mul- tiple-donor fund, as discussed in section 1.E of this Explanation of Provisions of this preamble, may sometimes be advised by an advisory committee that includes one or more donors, donor-advisors, related persons, or persons recommended by donors or donor-advisors to serve on the advisory committee, the proposed reg- ulations would provide two special rules relating to advisory privileges arising from service on an advisory committee. Under these two special rules, a fund or account could be advised by a committee that may include one or more donors, donor-ad- visors, related persons, or persons rec- ommended by donors or donor-advisors, without being a DAF. First, when a sponsoring organization appoints a donor, donor-advisor, or related person to serve on an advisory committee, the donor, donor-advisor, or related person generally would have advisory privileges by reason of the donor’s status as a donor. However, the proposed regulations would provide that a sponsoring organization’s appointment of a donor, donor-advisor, or related person to be on a committee that advises as to distributions or investments of amounts in the fund or account will not be deemed to result in advisory privileges by reason of the donor’s status as a donor if (1) the appointment is based on objec- tive criteria related to the expertise of the appointee in the particular field of inter- est or purpose of the fund or account; (2) the committee consists of three or more individuals, not more than one-third of whom are related persons with respect to any of the others; and (3) the appointee is not a significant contributor to the fund or account, taking into account contribu- tions by related persons with respect to the appointee, 8 at the time of appointment. If an appointee or related person is not a sig- nificant contributor to a fund or account at the time of appointment but becomes one shortly afterwards, the IRS may find that the person has advisory privileges based on the facts and circumstances. The Treasury Department and the IRS request comments on what constitutes a significant contributor for purposes of this exception. Second, when a donor (or donor-ad- visor) recommends someone to serve on an advisory committee advising as to the distribution or investment of funds in the fund or account, that person would be considered a donor-advisor if the spon- soring organization appoints the recom- mended person to serve on the advisory committee. However, the proposed regu- lations would allow a donor (or donor-ad- visor) to recommend a person to serve as a member of an advisory committee of the sponsoring organization for the fund or account and not be considered to be a donor-advisor if (1) the recommendation is based on objective criteria related to the expertise of the member in the particular field of interest or purpose of the fund or account; (2) the committee consists of three or more individuals, and a major- ity of the committee is not recommended by the donor or donor-advisor; and (3) the recommended person is not a related person with respect to the recommending donor or donor-advisor. The Treasury Department and the IRS request comments on the proposed advisory committee exceptions, includ- ing additional circumstances in which advisory privileges arising from advisory committees should not result in the cre- ation of a DAF. E. Multiple-Donor Funds or Accounts Several commenters suggested except- ing a fund or account to which multiple unrelated donors contributed from the definition of DAF. Commenters expressed concern that failing to provide an excep- tion would affect charitable giving prac- tices encouraged by alumni organizations or professional associations, as well as discourage the use of funds or accounts to incubate potential public charities. One commenter suggested that imposing var- ious conditions, including that the fund or account have at least three unrelated donors; that the donations be aggregated into a single consolidated account bal- ance; that no written or oral understanding exists that donors have advisory privi- leges corresponding to the amounts they donated to the fund or account; and that no single donor or group of related donors 8 For example, if a donor is a significant contributor, a family member who is appointed to the committee also is considered a significant contributor, regardless of whether the family member actually contributed to the fund. Bulletin No. 2023–49 1369 December 4, 2023 gave more than 35 percent of all dona- tions, would prevent the vast majority of potential abuses of multiple-donor fund status while allowing most giving circles and giving pools maintained at public charities to avoid DAF status. Other com- menters suggested that, without various safeguards, an exception for multiple-do- nor funds or accounts may permit abuses. The Treasury Department and the IRS anticipate that, in most circumstances, a multiple-donor fund or account would be separately identified by reference to con- tributions of a specific donor or donors. However, even if separately identified, a multiple-donor fund or account would not be a DAF if no donor or donor-advisor has, or reasonably expects to have, advisory privileges with respect to the distribution or investment of amounts held in the fund or account by reason of the donor’s status as a donor. Furthermore, section 4966(d) (2)(B) and the proposed regulations include several special rules that may per- mit a multiple-donor fund or account to be excepted from definition as a DAF even if it doesn’t meet one of the exceptions dis- cussed in section 2 of this Explanation of Provisions of this preamble (such as funds or accounts making distributions only to a single identified organization or funds or accounts making certain grants to indi- viduals for travel, study, or other similar purposes). First, as indicated in section 1.A. of this Explanation of Provisions of this pre- amble, the proposed regulations would exclude certain entities from the defi- nition of “donor.” Specifically, the pro- posed regulations would define donor to exclude any public charity described in section 509(a)(1), (2), or (3) (other than a disqualified supporting organization) and (2) any governmental unit described in section 170(c)(1). If a fund or account has multiple donors but only a public charity or governmental unit has the right to exercise advisory privileges, then no donor, as defined by the proposed regula- tions, would have advisory privileges with respect to the distribution or investment of amounts held in the fund or account by reason of the donor’s status as a donor. Thus, the fund or account would not be a DAF. Second, as discussed in section 1.D of this Explanation of Provisions of this preamble, the proposed regulations would provide two special rules relating to advisory privileges arising from service on an advisory committee. These two rules would allow certain multiple-do- nor funds or accounts to be advised by a committee that may include one or more donors, donor-advisors, related persons, or persons recommended by donors or donor-advisors, without being a DAF. The Treasury Department and the IRS request comments on whether and in what circumstances additional types of excep- tions are warranted to allow multiple-do- nor funds or accounts to be excluded from the definition of DAF. The Treasury Department and the IRS are particularly interested in comments addressing how any exception for multiple-donor funds or accounts can be crafted to prevent circum- vention of the provisions of section 4966 while still being administrable for both sponsoring organizations and the IRS. 2. Exceptions to the Definition of Donor Advised Fund Consistent with section 4966(d)(2)(B), the proposed regulations generally would provide that a DAF does not include any fund or account that makes (1) distribu- tions only to a single identified organiza- tion, or (2) certain grants to individuals for travel, study, or other similar purposes. These exceptions are discussed in sec- tions 2.A. and 2.B. of this Explanation of Provisions of this preamble. In addition, under section 4966(d) (2)(C), the Secretary has discretionary authority to exempt a fund or account from the definition of DAF if the fund or account is advised by a committee not directly or indirectly controlled by the donor or donor-advisor (and any related parties 9 ) or if the fund or account bene- fits a single identified charitable purpose. The proposed regulations would pro- vide two exceptions to the definition of DAF under this discretionary authority: (1) an exception for disaster relief funds consistent with the exception originally set forth in Notice 2006-109, with some modifications, and (2) an exception for certain scholarship funds whose com- mittee is nominated by a section 501(c) (4) organization with a broad-based membership. The Treasury Department and the IRS request comments on whether other funds should be excepted from the definition of DAF using the authority under section 4966(d)(2)(C) and what, if any, restric- tions should apply to ensure that the intent of section 4966 is achieved. A. Single Identified Organization Exception Section 4966(d)(2)(B)(i) states that a fund or account that makes distributions only to a single identified organization or governmental entity is not a DAF. Several commenters suggested that a single iden- tified organization should include an orga- nization that is not described in section 501(c)(3), including a for-profit business and an organization described in section 501(c)(4), so long as the distributions to the organization or business are made for a charitable purpose described in section 170(c)(2)(B). The proposed regulations would provide that a fund or account will not be considered a DAF if, along with meeting the other requirements discussed in this section 2.A, it is established to make (and actually does make) distributions solely to a single identified organization that is either: (1) an organization described in sections 170(c)(2) and 509(a)(1), (2), or (3) (other than a disqualified support- ing organization), or (2) a governmental entity described in section 170(c)(1) if the distribution is made exclusively for public purposes. The Treasury Department and the IRS are concerned that expanding the exception to include other types of organi- zations may allow circumvention of other tax provisions, such as the private foun- dation and charitable contribution deduc- tion rules. Thus, the exception would not apply if the single identified organiza- tion is a private foundation, disqualified 9 Section 4966 does not define the term “related parties” and otherwise uses the term “persons.” Furthermore, another provision applicable to donor advised funds, section 4958, defines certain “persons” in connection with a DAF for purposes of excess benefit transactions. For consistency and administrability across the provisions applicable to DAFs, the proposed regulations use the term “related persons” rather than “related parties” and define “related persons” as those persons described in section 4958(f)(7)(B) and (C). December 4, 2023 1370 Bulletin No. 2023–49 supporting organization, foreign organiza- tion, or non-charitable organization. If the single identified organization loses its exempt status or ceases operat- ing, the proposed regulations would pro- vide rules similar to the rules found in §1.509(a)-4(d)(4)(i)(a) (allowing a sup- porting organization to substitute a new supported organization). A sponsoring organization would be permitted to substi- tute another single identified organization if the substitution is conditioned upon the occurrence of a loss of exemption, sub- stantial failure or abandonment of oper- ations, or a dissolution or reorganization that results in the named single identi- fied organization ceasing to exist, and the event is beyond the direct or indirect control of donor(s), donor-advisor(s), or related persons. Commenters suggested that the excep- tion for a fund or account that makes distri- butions to a single identified organization should encompass distributions made to support that organization’s activities and that a fund restricted to a specific charita- ble project should be considered a fund or account that makes distributions to a sin- gle identified organization. Commenters suggested that a fund should therefore be able to support the programs or activities of a single identified organization by mak- ing distributions to individuals directly (as long as the distributions are limited to those within the charitable class served by that single identified organization), or by receiving, holding and disbursing funds for a specific project or program conducted by the single identified orga- nization, including making distributions to third parties for goods, services, and incidental grant-making limited to a par- ticular project or program. For example, commenters suggested that the exception should apply to a scholarship fund that a donor establishes at a university and that provides scholarships and other grants solely to students at that university whom the donor has a role in selecting. Under the proposed regulations, the sponsoring organization would be per- mitted to make distributions to the sin- gle identified organization for the single identified organization’s activities (and only activities other than administering DAFs or grant-making) and, thus, to make distributions to fund a specific charitable project (other than administering DAFs or grant making) of the single identified organization. However, the sponsoring organization could not make distributions directly to third parties on behalf of the single identified organization, such as by making distributions to third parties for goods, services, or incidental grant-mak- ing for a particular project or program, because the statute requires that the fund or account make distributions only to the single identified organization. Because a fund or account that falls within the single identified organization exception is not subject to the rules appli- cable to DAFs, the proposed regulations would provide that distributions to the single identified organization may not be used to administer DAFs or to make grants. In addition, the proposed regula- tions would provide that a fund or account will not be treated as making distributions only to a single identified organization if (1) a donor, donor-advisor, or related per- son has or reasonably expects to have, the ability to advise regarding distributions from the single identified organization to other individuals or entities, or (2) a dis- tribution from the fund or account will provide, directly or indirectly, a more than incidental benefit (within the meaning of section 4967) to a donor, donor-advisor, or related person with respect to the fund or account. Thus, for example, if a donor establishes a fund to make distributions only to a single public charity, and the donor is on the Board of the public charity, then the fund would not be able to meet this exception because the donor has the ability to advise some or all of the distri- butions from the public charity to other entities. Recognizing that a sponsoring orga- nization may lack direct knowledge regarding the activities of the donor, donor-advisor, or related person with regard to the single identified organiza- tion, however, the proposed regulations would allow a sponsoring organization to rely on a certification from the donor that (1) no donor, donor-advisor, or related per- son has or reasonably expects to have, the ability to advise regarding distributions from the single identified organization to other individuals or entities, and (2) no distribution from the fund or account will provide, directly or indirectly, a more than incidental benefit (within the meaning of section 4967) to a donor, donor-advisor, or related person with respect to the fund or account, as long as the sponsoring orga- nization lacks knowledge to the contrary. The Treasury Department and the IRS request comments on whether additional guidance is needed on situations in which a fund or account is established at a public charity and the written agreement estab- lishing the fund or account provides that the contributed amounts can only be used to support programs within that public charity, but the donor retains advisory privileges with respect to the public chari- ty’s use or investment of some or all of the funds. Section 4966(c)(2)(B) excepts from the definition of “taxable distribution” any distribution from a DAF to the sponsor- ing organization of the DAF; accordingly, any fund or account established at a pub- lic charity that is used to support operat- ing programs of the public charity (rather than to make distributions to third parties) would not have any taxable distributions, if the fund or account were a DAF. For example, a donor who established a fund or account at a university could advise that contributions previously made to the fund or account be distributed to the uni- versity’s scholarship program. However, if the donor were to want to have a role in advising on the selection of scholarship recipients then, to avoid a taxable distribu- tion, the donor’s involvement would need to meet the exception provided in section 4966(d)(2)(B)(ii) (discussed in section 2.B. of this Explanation of Provisions of this preamble). B. Statutory Scholarship Exception Under section 4966(d)(2)(B)(ii) the term “donor advised fund” does not include a fund or account that exclu- sively makes grants for travel, study, or other similar purposes, provided certain requirements are met. Consistent with section 4966(d)(2)(B)(ii), the proposed regulations would provide that, under this exception from the definition of a DAF, a donor or donor-advisor may provide advice as to which individuals receive grants for travel, study, or other similar purposes from a fund or account if (1) the person provides the advice exclusively in the person’s capacity as a member of the Bulletin No. 2023–49 1371 December 4, 2023 selection committee; (2) all the members of the selection committee are appointed by the sponsoring organization; (3) no com- bination of donor(s), donor-advisor(s), or related persons controls, directly or indi- rectly, the committee; and (4) all grants from the fund or account are awarded on an objective and nondiscriminatory basis pursuant to a written procedure approved in advance by the board of directors of the sponsoring organization and the procedure is designed to ensure that all grants meet the requirements of paragraph (1), (2), or (3) of section 4945(g) and the regulations thereunder. The requirements in the regu- lations under section 4945(g) include the requirements that the group from which grantees are selected will ordinarily be sufficiently large to constitute a charita- ble class; that the members of the selec- tion committee will not be in a position to derive a private benefit if certain potential grantees are selected over others; and that the sponsoring organization will maintain adequate records regarding the identifica- tion and selection of individual grantees. If a fund or account satisfies the require- ments of the exception, a sponsoring orga- nization may award a scholarship from the fund or account to an individual without subjecting the sponsoring organization or its fund managers to excise taxes under section 4966. The proposed regulations would provide that whether a combination of donor(s), donor-advisor(s), or related persons controls, directly or indirectly, the selection committee is determined by looking to the substance, rather than the form, of any arrangement. Direct con- trol would exist if donor(s), donor-advi- sor(s), or related persons, either alone or together, (1) can require the committee to take or refrain from taking any action; (2) control 50 percent or more of the total voting power of the committee; or (3) have the right to exercise veto power over the committee’s decisions. Whether indirect control exists is determined by the facts and circumstances, including the nature of any relationships among mem- bers of the selection committee and with any donor, donor-advisor, or related per- son. For example, a committee would be “indirectly controlled” by a combination of donor(s), donor-advisor(s), or related persons if a majority of the selection committee is currently engaged by the donor, donor-advisor, or any related per- son in any employment or fiduciary capacity, whether as an employee or inde- pendent contractor, or recommended by a donor or donor-advisor and appointed to the selection committee based on other than objective criteria regarding the per- son’s expertise, or a combination thereof. One commenter recommended that a sponsoring organization be permitted to set reasonable uniform procedures for appointing members to selection com- mittees, taking into account the size of the sponsoring organization, the number of grants from the scholarship fund, and other relevant facts and circumstances, rather than requiring action by the entire board. The proposed regulations would provide that, in appointing the members of the selection committee, a sponsoring organization may act through its board of directors, trustees, or other governing body, a committee appointed by its gov- erning body, or an appropriate officer of the sponsoring organization. The Treasury Department and the IRS are concerned that some employers may seek to use this statutory scholar- ship exception to grant employer-related scholarships in a manner that would oth- erwise not be considered a scholarship or fellowship grant subject to the provisions of section 117(a), or that would otherwise be a taxable expenditure under section 4945, by having a sponsoring organi- zation administer their scholarship pro- grams. See, e.g., Rev. Proc. 76-47, 1976-2 C.B. 670, and Rev. Proc. 80-39, 1980-2 C.B. 772. The Treasury Department and the IRS request comments on whether additional guidance is needed to prevent avoidance of the employer-related schol- arship rules or to address any potential pri- vate benefit arising from employer-related scholarship programs. C. Exception for Certain Scholarship Funds Established by Certain Section 501(c)(4) Organizations Several commenters asked for guid- ance relating to a scholarship fund of a sponsoring organization that receives contributions from a tax-exempt mem- bership organization, such as a section 501(c)(4) social welfare organization. The commenters stated that, for example, Rotary Club scholarship funds are often established at community foundations and that these scholarship funds do not fit within the statutory scholarship com- mittee exception provided by section 4966(d)(2)(B)(ii) because members of the section 501(c)(4) organization who may be donors to the fund comprise a majority of the scholarship selection committee. These commenters asked that the proposed regulations provide an additional exception allowing members of a section 501(c)(4) organization who are otherwise unrelated to one another to control the scholarship selection com- mittee, particularly since it is difficult to find non-members willing to serve on the committee. The commenters noted that requiring Rotary Clubs to form a section 501(c)(3) organization to make distributions for Rotary scholarships would be an inefficient use of charitable resources and that sponsoring organiza- tions can provide expertise on objective and charitable standards for selecting scholarship recipients. The proposed regulations would pro- vide an exception to the definition of DAF for a fund or account established by a broad-based membership organiza- tion described in section 501(c)(4) if six conditions are met. The conditions would substantially mirror the conditions in the statutory scholarship exception, except that donors may control the committee. First, the fund or account’s single iden- tified charitable purpose must be to make grants to individuals for scholarships described in section 4945(g)(1). Second, the selection of recipients of scholarships from the fund or account must be made by a selection committee the members of which are nominated by the section 501(c)(4) organization and approved in writing by the sponsoring organization. This requirement would allow the section 501(c)(4) organization to have input on the members of the selec- tion committee, but would leave the final decision to the sponsoring organization that owns and controls the assets of the fund or account. Third, the fund or account must serve a charitable class. Fourth, like the statutory scholarship exception, recipients of grants from December 4, 2023 1372 Bulletin No. 2023–49 the fund or account must be selected on an objective and nondiscriminatory basis, pursuant to a written procedure, approved in advance by the sponsoring organization’s board of directors, that is designed to ensure that all the grants meet the requirements of section 4945(g) (1) and the regulations under section 4945 (other than advance approval by the IRS). Fifth, no distribution may be made from the fund or account to (1) any direc- tor, officer, or trustee of the sponsoring organization of the fund, (2) any member of the fund’s selection committee, (3) any member, honorary member, or employee of the section 501(c)(4) organization, or (4) any person related to anyone described in (1), (2), or (3). Finally, the fund or account must main- tain adequate records that demonstrate the recipients were selected on an objective and nondiscriminatory basis. The Treasury Department and the IRS are concerned that not requiring the section 501(c)(4) organization to have a broad-based membership could allow a small group of persons to set up a section 501(c)(4) organization and use a fund or account at a sponsoring organization to grant scholarships to their selected recip- ients with tax-deductible contributions, circumventing the DAF rules. Given this concern, the Treasury Department and the IRS request comments on how to identify a broad-based membership organization described in section 501(c)(4), including factors such as the organization’s number of members, criteria for selecting mem- bers, membership rights, and geographic coverage. The Treasury Department and the IRS also request comments on whether and under what circumstances other organiza- tions, such as section 501(c)(5) and 501(c) (6) organizations, use similar types of committee-advised scholarship funds and whether the exception should be extended to those organizations, recognizing that section 501(c)(4) organizations are formed to promote social welfare whereas section 501(c)(5) and section 501(c)(6) organizations are formed to further differ- ent purposes. D. Disaster Relief Exception Several commenters asked that the pro- posed regulations provide, consistent with Notice 2006-109, that an employer-spon- sored disaster relief fund is not a DAF. Commenters also recommended that the exception be extended to disaster relief funds outside of the employment context and that the exception be extended to emergency hardship situations outside of the disaster relief context. Since the determination of the exis- tence of a qualified disaster under section 139 is not controlled by the sponsoring organization or the fund or account’s advi- sory committee, the proposed regulations would exempt a non-employment based disaster relief fund. Thus, the proposed regulations would provide that both an employer-sponsored disaster relief fund and a disaster relief fund outside of the employment context are not DAFs, as long as the requirements of section 139 are met. In contrast, since the determi- nation of the existence of an emergency hardship is controlled by the sponsoring organization or the fund or account’s advi- sory committee, the proposed regulations would not extend the exception to emer- gency hardship funds. To meet the disaster relief exception in the proposed regulations, six conditions must be met. The conditions substantially mirror the provisions in Notice 2006-109 (and the special rules generally for chari- table assistance in qualified disasters) and the provisions of the statutory scholarship exception and the exception for certain scholarship funds established by section 501(c)(4) organizations. First, the fund or account’s single identified charitable purpose must be to provide relief from one or more qualified disasters within the meaning of section 139(c)(1), (2), or (3). Second, the fund or account must serve a charitable class. Third, recipients of grants from the fund or account must be made by a selec- tion committee not controlled by donors, donor-advisors, or related persons and for which all the members are appointed by the sponsoring organization. Alternatively, if the fund or account gives preference or priority to employees (or their fam- ily members) of an employer to receive grants, the majority of the selection com- mittee must consist of persons who are not in a position to exercise substantial influence over the affairs of the employer (or adequate substitute procedures exist to ensure that any benefit to the employer is incidental and tenuous). Fourth, the selection committee must select grant recipients based on objective and nondiscriminatory determinations of need pursuant to a written procedure approved in advance by the board of directors of the sponsoring organization. Fifth, no distribution from the fund or account may result in more than an inci- dental benefit to (1) any director, officer, or trustee of the sponsoring organization of the fund or account; (2) any member of the fund or account’s selection commit- tee; or (3) any person related to a direc- tor, officer, or trustee of the sponsoring organization or a member of the selection committee. Lastly, the sponsoring organization must maintain records that (1) demonstrate the need of the recipients for the disaster relief assistance provided, and (2) satisfy the requirements of section 6033(b)(14). 10 3. Taxable Distributions Section 4966(c)(1) defines a taxable distribution as any distribution from a DAF to (1) any natural person, or (2) any other person unless the distribution is for a purpose specified in section 170(c)(2)(B) and the sponsoring organization exercises expenditure responsibility with respect to the distribution in accordance with section 4945(h). Section 4966(c)(2) excepts from the term “taxable distribution” any distribu- tion from a DAF to (1) any organization described in section 170(b)(1)(A) (other than a disqualified supporting organi- zation), (2) the sponsoring organization of the DAF, or (3) any other DAF. The Treasury Department and the IRS expect that most distributions from DAFs are to organizations described in section 170(b) (1)(A) (but not to disqualified supporting 10 Section 6033(b)(14), added in 2008, requires every section 501(c)(3) organization required to file an annual information return to furnish annually such information as the Secretary may require with respect to disaster relief activities. Bulletin No. 2023–49 1373 December 4, 2023 organizations) and thus are not taxable distributions. The proposed regulations incorporate the statutory definition of taxable distribu- tion. In addition, the proposed regulations would set forth an anti-abuse rule provid- ing that, if a series of distributions through intermediary distributees undertaken pur- suant to a plan achieves a result that is inconsistent with the purposes of section 4966, the distributions are treated as a single distribution for purposes of section 4966. For example, if a donor advises a distribution, that the sponsoring organiza- tion subsequently makes, from a DAF to Charity X and the donor or the sponsor- ing organization arranges for Charity X to use the funds to make distributions to an individual recommended by the donor, the distribution would be a taxable distribu- tion from the sponsoring organization to an individual. Several commenters recommended that the term “distribution” be narrowly defined to include only a gratuitous trans- fer. These commenters requested that a purchase of goods or services by a spon- soring organization using funds from a DAF for charitable activity or fundrais- ing would not be considered a distribu- tion. One commenter asked that the term “distribution” be defined the same as the term “grant” in section 4945 and that it not include payments from a sponsoring organization using funds from a DAF to vendors for goods or services or employee compensation. The proposed regulations do not adopt these suggestions and would construe the term “distribution” broadly. In particular, the proposed regulations would provide that the term “distribution” generally means any grant, payment, disbursement, or transfer, whether in cash or in kind, from a DAF. In addition, the proposed regulations would provide that any use of DAF assets that results in a more than incidental benefit to a donor, donor-ad- visor, or related person is a deemed distribution and thus generally would be a taxable distribution. The Treasury Department and the IRS note that dis- tributions resulting in a more than inci- dental benefit to a donor, donor-advisor, or related person may also result in tax under section 4967. See Notice 2017-73, 2017-51 I.R.B. 562. However, the proposed regulations would provide that (1) investments and (2) reasonable investment and grant-re- lated fees generally are not distributions under this definition (unless they result in a more than incidental benefit as noted above). Investments generally would not be treated as distributions under the proposed regulations because they typically merely reflect a change from one form of prop- erty to another. The Treasury Department and the IRS would consider investments for this purpose as including both debt and equity instruments held for the purpose of obtaining income or funds, including investments made partly for charitable purposes as described in Notice 2015-62, 2015-39 I.R.B. 411. However, an invest- ment would not, for example, include a zero-interest loan, as there is no purpose of, or provision for, obtaining income or funds from the zero-interest loan. The Treasury Department and the IRS antici- pate that a zero-interest loan would be a distribution under the proposed regula- tions and, unless made to a section 170(b) (1)(A) organization other than a disqual- ified supporting organization, would require expenditure responsibility by the sponsoring organization in order not to be a taxable distribution. The Treasury Department and the IRS request com- ments on how to further distinguish distri- butions from investments. Reasonable investment and grant-re- lated fees paid from DAF assets generally would not be considered distributions; however, an unreasonable grant-related or investment fee would be a deemed distri- bution and, thus, would be a taxable distri- bution. The Treasury Department and the IRS expect that whether a fee is reasonable would be determined by all the facts and circumstances. For example, an expense charged uniformly or ratably across all DAFs generally would be considered a reasonable fee and not a distribution. In addition, an expense charged solely to a particular DAF (such as an expense aris- ing from an expenditure responsibility grant from the fund) may be reasonable, depending on the facts and circumstances. However, the proposed regulations would provide that an expense charged solely to a particular DAF that is paid, directly or indirectly, to a donor, donor-advisor, or related person with respect to the DAF, is a deemed distribution subject to sections 4966, 4958, and/or 4967. A. Distributions to Section 170(b)(1)(A) Organizations Section 4966(c)(2)(A) provides that a distribution to any organization described in section 170(b)(1)(A) (other than a dis- qualified supporting organization) is not a taxable distribution. Similar to existing guidance under §53.4945-5(a)(4), the proposed regulations would provide sev- eral categories of organizations treated as described in section 170(b)(1)(A) for pur- poses of section 4966(c)(2)(A). First, an organization would be con- sidered an organization described in section 170(b)(1)(A) if it is described in both sections 170(b)(1)(A) and 170(c)(2) (other than a disqualified supporting orga- nization), without the requirement under section 170(c)(2)(A) that it be created or organized in the United States or in any possession thereof, or under the law of the United States, any State, the District of Columbia, or any possession of the United States. Thus, for example, a tax- able organization that operates a for-profit school would not be treated as described in section 170(b)(1)(A) because the orga- nization would not be described in section 170(c)(2). Second, an organization that is a gov- ernmental unit described in section 170(b) (1)(A)(v) and 170(c)(1) (or an agency or instrumentality thereof, including an orga- nization described in section 511(a)(2) (B)) would be considered an organization described in section 170(b)(1)(A), as long as the distribution to it is made for exclu- sively public purposes. Third, a foreign government (or an agency or instrumentality thereof), or an international organization designated as such by Executive Order under 22 U.S.C. 288 would be treated as an organization described in section 170(b)(1)(A), as long as the distribution to it is made exclusively for purposes described in section 170(c) (2)(B). One commenter asked that guidance expressly provide that DAFs may make grants to foreign organizations based on the same equivalency determinations that private foundations use for purposes December 4, 2023 1374 Bulletin No. 2023–49 of determining whether a foreign orga- nization is the equivalent of a domestic public charity. The proposed regulations would adopt this suggestion. Consistent with Rev. Proc. 2017-53, 2017–40 I.R.B. 263 (providing guidelines for equivalency determinations by, among others, sponsor- ing organizations of DAFs), the proposed regulations would provide that, prior to the distribution, a sponsoring organization may make a good faith determination that a foreign organization is described in sec- tions 501(c)(3) and 170(b)(1)(A) (other than a disqualified supporting organiza- tion) using procedures similar to those pro- cedures permitted for private foundation grantors under §53.4945-5(a)(5). Those procedures provide that a determination will ordinarily be a good faith determina- tion if it is based on current written advice from a qualified practitioner and the orga- nization reasonably relied in good faith on the written advice. If a sponsoring organi- zation makes a good faith determination that a foreign organization is described in sections 501(c)(3) and 170(b)(1)(A) (other than a disqualified supporting organiza- tion), the sponsoring organization would not need to exercise expenditure responsi- bility with respect to a distribution to that organization. B. Disqualified Supporting Organizations Section 4966(d)(4)(A)(i) defines any Type III non-functionally integrated sup- porting organization as a disqualified sup- porting organization with respect to any distribution. 11 Section 4966(d)(4)(A)(ii)(I) disqualifies any other type of supporting organization if the donor or any donor-ad- visor (and any related parties) 12 directly or indirectly controls a supported organi- zation (as defined in section 509(f)(3)) of the supporting organization. The Treasury Department and the IRS request com- ments on whether other entities should be included in the definition of disqualified supporting organization, using the author- ity under section 4966(d)(4)(A)(ii)(II) to designate other supporting organizations as disqualified, because a distribution to such organization is inappropriate if expenditure responsibility is not exercised to ensure the distribution is for a purpose specified in section 170(c)(2)(B). C. Distributions to Non-Section 170(b) (1)(A) Organizations or to Disqualified Supporting Organizations Under section 4966(c)(1)(B), a dis- tribution to any entity not described in section 170(b)(1)(A), or to a disqualified supporting organization, will be a taxable distribution unless (1) the distribution is for a purpose specified in section 170(c) (2)(B) (generally, is for a charitable pur- pose), and (2) the sponsoring organization exercises expenditure responsibility with respect to the distribution in accordance with section 4945(h). i. Non-Charitable Purposes The proposed regulations would pro- vide that purposes described in section 170(c)(2)(B) are treated as such whether or not carried out by an organization described in section 170(c). However, a distribution to be used for an activity prohibited under section 501(c)(3), or for an activity that would cause loss of tax exemption if it were a substantial part of a section 501(c)(3) organization’s total activities, is not for a purpose specified in section 170(c)(2)(B). Thus, a distribution used for political campaign intervention activity or attempts to influence legisla- tion would be considered to be for a pur- pose not specified in section 170(c)(2) (B) 13 and, thus, if made directly or to an entity not described in section 170(b)(1) (A), or to a disqualified supporting orga- nization, would be a taxable distribution. The proposed regulations would also include a requirement, similar to the requirement in §53.4945-6(c)(2), that a grant to an organization (other than one that is described in section 501(c)(3) and not in section 509(a)(4)) will not be con- sidered to be for a purpose specified in section 170(c)(2)(B) unless the grantee agrees to separately account for grant funds (either by separately accounting for grant funds on its books or by segregating the grant funds). (Such grant funds must also be used for charitable purposes, consistent with the expenditure respon- sibility rules discussed in section 3.C.ii of this Explanation of Provisions of this preamble.) ii. Expenditure Responsibility Section 4966(c)(1)(B)(ii) requires sponsoring organizations to exercise expenditure responsibility in accordance with section 4945(h) for certain distri- butions. Thus, the proposed regulations cross-reference the section 4945(h) expen- diture responsibility regulations appli- cable to private foundations, with one modification. In lieu of the requirements found in §53.4945-5(b)(3)(iv)(c) and (b) (4)(iv)(c) (pertaining to the recipient’s permitted use of the funds), the distribu- tee would be required to agree not to: (1) make a grant to an organization that does not comply with the expenditure responsi- bility requirements, (2) make a grant to a natural person, or (3) make a grant, loan, compensation, or other similar payment (as described in section 4958(c)(2)) to a donor, donor-advisor, or related person with respect to the DAF from which the distribution that is the subject of the agree- ment is made. For purposes of these rules pertaining to the secondary use of distri- butions, the definition of “grant” set forth in §53.4945-4(a)(2) would apply, rather than the broader definition of “distribu- tion” found in proposed §53.4966-1(e). If the definition of “distribution” found in proposed §53.4966-1(e) applied, distribu- tees would be required to exercise expen- diture responsibility in the purchase of goods and services, which is not intended under the proposed rule. The Treasury Department and the IRS request comments on this modification to the expenditure responsibility rules and whether additional guidance is needed. 4. Taxes on Taxable Distributions Consistent with section 4966(a)(1), the proposed regulations would provide that an excise tax equal to 20 percent of 11 In defining a disqualified supporting organization, the proposed regulations use the definitions of supporting organization types under the section 509(a)(3) regulations. 12 See note 7. 13 The Treasury Department and the IRS also note that allowing distributions from a DAF for lobbying or political campaign activity would contravene the charitable contribution deduction rules and private foundation restrictions. Bulletin No. 2023–49 1375 December 4, 2023 the amount of the taxable distribution is imposed on each taxable distribution from a DAF. This excise tax is paid by the sponsoring organization of the DAF. The provisions of proposed §53.4966-2 are generally similar to those of §53.4958-1 and other chapter 42 excise tax regula- tions relating to the calculation of the tax on the organization and its managers. In addition, consistent with section 4966(a)(2), the proposed regulations would provide that each fund manager who knowingly agrees to the making of a taxable distribution is liable for an excise tax equal to five percent of the amount of the taxable distribution, up to a maximum of $10,000 for any one taxable distribu- tion. If more than one fund manager is liable for the excise tax, all such persons would be jointly and severally liable for that tax. The proposed regulations, consis- tent with section 4966(d)(3), would define a fund manager as (1) an officer, director, or trustee of the sponsoring organization, or any individual with authority or respon- sibility similar to that exercised by an offi- cer, director, or trustee of an organization, regardless of title, and (2) with respect to any act (or failure to act), the employee having authority or responsibility (either individually or as a member of a collec- tive body) for such act (or failure to act). An example of a failure to act by a fund manager resulting in a taxable distribution would be a failure to exercise expenditure responsibility if required. The proposed regulations would pro- vide that the agreement of any fund man- ager to the making of a taxable distribution consists of any manifestation of approval of the distribution that is sufficient to con- stitute an exercise of the fund manager’s authority to approve, or authority to exer- cise discretion in recommending approval of, the making of the distribution by the sponsoring organization, whether or not it is the final or decisive act on behalf of the sponsoring organization. A fund manager generally would be considered to have agreed to the making of a distribution with knowledge that it is a taxable distribution only if the manager (1) is in fact aware that it is a taxable dis- tribution; or (2) has knowledge of facts sufficient to determine that, based on those facts, the distribution would be a taxable distribution and negligently fails to make reasonable attempts to ascertain whether the distribution is a taxable distribution. A fund manager generally would not be con- sidered to have negligently failed to make reasonable attempts to ascertain whether a distribution is a taxable distribution if the distribution is made to an organization listed as an organization described in sec- tion 170(b)(1)(A) (other than a supporting organization) on the IRS’s search tool, Tax Exempt Organization Search (Pub 78 data) (or if, with respect to a supporting organization, it gathers information to determine that the organization is not a disqualified supporting organization). The Treasury Department and the IRS request comments on whether guidance is needed regarding a fund manager’s reli- ance on professional advice. Proposed Applicability Date These regulations are proposed to be applicable to taxable years ending after the date of publication of the Treasury deci- sion adopting these rules as final regula- tions in the Federal Register. A taxpayer may rely on these proposed regulations for taxable years ending before the date the Treasury decision adopting these regu- lations as final regulations is published in the Federal Register. The guidance these proposed regu- lations would provide with respect to disaster relief funds generally would be consistent with the guidance provided in section 5.01 of Notice 2006-109. However, in certain instances these proposed regula- tions would modify the guidance provided in Section 5.01 of Notice 2006-109. For taxable years ending before the date the Treasury decision adopting these regula- tions as final regulations is published in the Federal Register, taxpayers may rely on the guidance provided in section 5.01 of Notice 2006–109 or, alternatively, on these proposed regulations, including for periods prior to November 14, 2023. Special Analyses I. Regulatory Planning and Review Pursuant to the Memorandum of Agreement, Review of Treasury Regulations under Executive Order 12866 (June 9, 2023), tax regulatory actions issued by the IRS are not subject to the requirements of section 6 of Executive Order 12866, as amended. Therefore, a regulatory impact assessment is not required. II. Paperwork Reduction Act The collections of information con- tained in this notice of proposed rulemak- ing have been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collections of infor- mation should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 20224. Comments on the collection of information should be received by January 16, 2024. Comments are specifically requested concerning: Whether the proposed collections of information are necessary for the proper performance of the functions of the Internal Revenue Service, including whether the information will have practi- cal utility; The accuracy of the estimated burden associated with the proposed collections of information (see below); How the quality, utility, and clarity of the information to be collected may be enhanced; How the burden of complying with the proposed collections of information may be minimized, including through the application of automated collection tech- niques or other forms of information tech- nology; and Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of service to provide information. The collections of information in these proposed regulations are as follows. Section 53.4966-4(a)(4)(ii) allows a spon- soring organization to rely on a certifica- tion from the donor that all distributions satisfy the special rules relating to the single identified organization exception. Section 53.4966-4(b), (c), and (d) require December 4, 2023 1376 Bulletin No. 2023–49 an organization with a fund excepted from the definition of a DAF to maintain records regarding recipients and the selection pro- cess for recipients. Section 53.4966-4(c) also requires the organization to approve in writing the selection committee whose members are nominated by a section 501(c)(4) organization. Section 53.4966- 5(c) allows a sponsoring organization to avoid a taxable distribution to certain for- eign organization distributees if it makes a good faith determination regarding their tax-exempt status. Section 53.4966-5(a) (1)(ii)(B) requires a sponsoring organiza- tion to exercise expenditure responsibility with respect to certain distributions. The expected recordkeepers are spon- soring organizations of DAFs described in section 4966(d)(1), other organizations described in section 4966(d)(1)(A) and (B) that maintain funds excepted from the definition of a DAF under section 4966(d) (2)(B) or (C) (and certain donors to funds described in section 4966(d)(2)(B)(i)), foreign organization distributees that are the subject of equivalency determina- tions by sponsoring organizations, and recipients of expenditure responsibility distributions. Estimated number of recordkeepers: 13,961. Estimated average annual burden per recordkeeper: 3 hours, 47 minutes. Estimated total annual recordkeeping burden: 52,874 hours. Estimated annual frequency of responses: occasional. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it dis- plays a valid control number assigned by the Office of Management and Budget. Books or records relating to a collec- tion of information must be retained as long as their contents may become mate- rial in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103. III. Regulatory Flexibility Act Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby cer- tified that these proposed regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that the proposed regulations will not impact a substantial number of small entities. Based on IRS Statistics of Income data for 2019, there are 1,365,744 active non- profit charitable organizations, of which 1,624 self-identified as sponsoring orga- nizations of donor advised funds (DAFs). Another 82 organizations reported no DAFs but one or more funds similar to DAFs, for a total of 1,706 organizations reporting DAFs or funds similar to DAFs. Any economic impact stems from the col- lection of information under §§53.4966- 4(a)(4)(ii); 53.4966-4(c)(2), (4), and (6); 53.4966-4(d)(4) and (6); and 53.4966- 5(a)(1)(ii)(B) and (c)(2). The universe of sponsoring organizations that would be affected by the collection of information under §§53.4966-4(a)(4)(ii); 53.4966- 4(c)(2), (4), and (6); 53.4966-4(d)(4) and (6); and 53.4966-5(a)(1)(ii)(B) and (c)(2) is a small subset of all sponsoring orga- nizations, since those provisions apply to limited exceptions to DAF status, to for- eign organizations determined to be the equivalent of a U.S. public charity, or to organizations receiving distributions for which expenditure responsibility is exer- cised. Thus, the number of organizations that will be affected by the collection of information under §§53.4966-4(a)(4)(ii); 53.4966-4(c)(2), (4), and (6); 53.4966- 4(d)(4) and (6); and 53.4966-5(a)(1)(ii) (B) and (c)(2) will not be substantial. In 2019, of the 1,365,744 active nonprofit charitable organizations, 1,706 organiza- tions reported 988,718 DAFs and 72,144 non-DAF funds similar to DAFs. We esti- mate that of the 72,144 non-DAF funds reported for 2019, 1.5 percent or 1082 will be section 501(c)(4) scholarship funds subject to the collection of infor- mation in §53.4966-4(c)(2), (4), and (6), and that these funds will be maintained by a significantly small subset of the 1,706 total organizations reporting DAFs or funds similar to DAFs. In 2019, 0.3 per- cent of the 1,365,744 active nonprofit charitable organizations reported disaster relief preparedness as their primary mis- sion. Thus, we estimate that 0.3 percent or five of the 1,706 organizations may spon- sor disaster relief funds subject to the col- lection of information in §53.4966-4(d) (4) and (6). Any costs incurred in meeting the collections of information applicable to section 501(c)(4) scholarship funds and disaster relief funds would be con- siderably less than the costs incurred in establishing and running a separate sec- tion 501(c)(3) organization, which would be the alternative means of providing the same benefits through a nonprofit chari- table organization. In addition, based on IRS Statistics of Income data for 2019, of the 1,624 self-identified sponsoring orga- nizations, an estimated 446 organizations made grants to foreign organizations pur- suant to equivalency determinations sub- ject to the collection in §53.4966-5(c)(2). An indeterminate number of foreign orga- nizations receiving grants from the 446 grant-making organizations also would be subject to the collection of information in §53.4966-5(c)(2). The provisions of §53.4966-5(c)(2) relieve both sponsoring organizations and foreign organizations of the statutory expenditure responsibil- ity requirements under section 4966(c) (1)(B)(ii) that would otherwise apply to grants to foreign organizations and that most organizations prefer to avoid. Based on the 2019 annual returns of private foundations, we estimate that very few sponsoring organizations make grants requiring expenditure responsibility. For these reasons, pursuant to the Regulatory Flexibility Act (5 U.S.C. Chapter 6), the Secretary hereby certifies that this rule will not have significant economic impact on a substantial number of small entities. Notwithstanding this certification, the Treasury Department and the IRS invite comments on the impact this rule may have on small entities. Pursuant to section 7805(f) of the Code, this proposed rule has been sub- mitted to the Chief Counsel for the Office of Advocacy of the Small Business Administration for comment on its impact on small entities. IV. Unfunded Mandates Reform Act Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a State, local, or tribal government, in the aggregate, or by the private sector, Bulletin No. 2023–49 1377 December 4, 2023 of $100 million in 1995 dollars, updated annually for inflation. In 2022, that threshold is approximately $190 million. The proposed regulations do not propose any rule that would include any Federal mandate that may result in expenditures by State, local, or tribal governments, or by the private sector in excess of that threshold. V. Executive Order 13132: Federalism Executive Order 13132 (Federalism) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial, direct compliance costs on State and local gov- ernments, and is not required by statute, or preempts State law, unless the agency meets the consultation and funding requirements of section 6 of the Executive Order. The proposed regulations do not propose rules that would have federalism implications, impose substantial direct compliance costs on State and local gov- ernments, or preempt State law within the meaning of the Executive Order. Comments and Requests for a Public Hearing Consideration will be given to any comments that are submitted timely to the IRS as prescribed in this preamble under the ADDRESSES heading. The Treasury Department and the IRS request comments on all aspects of the proposed regulations, and specifically request com- ments on the clarity of the proposed rules and how they can be made easier to under- stand, as well as on the proposed transi- tion relief, including whether and in what circumstances additional transition guid- ance or relief may be necessary. All com- ments submitted will be made available at https://www.regulations.gov or upon request. A public hearing will be scheduled if requested in writing by any person that timely submits electronic or written comments. Requests for a public hear- ing are encouraged to be made electron- ically. If a public hearing is scheduled, notice of the date, time, and place of the hearing will be published in the Federal Register. Announcement 2023-16, 2023- 20 I.R.B. 854 (May 15, 2023), provides that public hearings will be conducted in person, although the IRS will continue to provide a telephonic option for individu- als who wish to attend or testify at a hear- ing by telephone. Any telephonic hearing will be made accessible to people with disabilities. Statement of Availability of IRS Documents Announcement 2023-16, Notices 2006-109, 2007-21, 2015-62, and 2017- 73, and Revenue Procedures 76-47, 80-39, and 2017-53 are published in the Internal Revenue Bulletin (or Cumulative Bulletin) and are available from the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402, or by vis- iting the IRS website at http://www.irs. gov. Drafting Information The principal author of these regulations is Ward L. Thomas, Office of Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes). However, other personnel from the IRS and the Treasury Department par- ticipated in their development. List of Subjects in 26 CFR Part 53 Excise taxes, Foundations, Investments, Lobbying, Reporting and recordkeeping requirements. Proposed Amendments to the Regulations Accordingly, the Treasury Department and the IRS propose to amend 26 CFR part 53 as follows: PART 53—FOUNDATION AND SIMILAR EXCISE TAXES Paragraph 1. The authority citation for part 53 continues to read, in part, as follows: Authority: 26 U.S.C. 7805 * * * Par. 2. Sections 53.4966-0 through 53.4966-6 are added to read as follows: Sec. * * * * * 53.4966-0 Outline of regulations. 53.4966-1 Definitions. 53.4966-2 Taxes on taxable distributions. 53.4966-3 Definition of donor advised fund. 53.4966-4 Exceptions to the definition of donor advised fund. 53.4966-5 Taxable distributions. 53.4966-6 Applicability date. * * * * * §53.4966-0 Outline of regulations. This section lists the paragraphs in §§53.4966-1 through 53.4966-6. §53.4966-1 Definitions. (a) In general. (b) Contribution. (c) Disqualified supporting organization. (d) Distributee. (e) Distribution. (1) In general. (2) Deemed distribution. (f) Donor. (g) Donor advised fund. (h) Donor-advisor. (1) In general. (2) Person who establishes fund or account. (3) Personal investment advisors. (i) In general. (ii) Exception. (4) Donor-recommended advisory committee member. (i) Fund manager. (1) In general. (2) Delegation of authority. (j) Related persons. (k) Section 4966 regulations. (l) Sponsoring organization. (m) Taxable distribution. §53.4966-2 Taxes on taxable distributions. (a) In general. (b) Taxes paid by the sponsoring organization. (c) Taxes paid by fund managers. (1) In general. (2) Agreement. (3) Knowledge. (4) Joint and several liability. (5) Limit on liability for managers. December 4, 2023 1378 Bulletin No. 2023–49 §53.4966-3 Definition of donor advised fund. (a) In general. (b) Separate identification by reference to contributions of a donor or donors. (1) In general. (2) Facts and circumstances tending to show that a fund or account is separately identified. (3) Commingling. (c) Advisory privileges. (1) In general. (i) Facts and circumstances. (ii) Application to entire fund or account. (iii) Donor, donor-advisor, or related person appointed to an advisory committee. (A) In general. (B) Exception. (iv) Officers, etc. of sponsoring organization. (v) Deemed advisory privileges. (2) Facts sufficient to find advisory privileges. (d) Substance over form. (e) Examples. §53.4966-4 Exceptions to the definition of donor advised fund. (a) Funds or accounts that make dis- tributions only to a single identified organization. (1) In general. (2) Single identified organization. (3) Distributions to a single identified organization. (4) Special rules. (i) In general. (ii) Certifications. (5) Substitution for specified organization. (6) Examples. (b) Certain funds or accounts that grant scholarships. (1) In general. (2) Control of committee. (i) In general. (ii) Direct control. (iii) Indirect control. (3) Appointing members of the selec- tion committee. (4) Examples. (c) Certain scholarship funds estab- lished by certain section 501(c)(4) organizations. (d) Certain disaster relief funds. §53.4966-5 Taxable distributions. (a) Taxable distributions. (1) In general. (2) Non-taxable distributions. (3) Special rule. (b) Distribution for purpose not speci- fied in section 170(c)(2)(B). (1) In general. (2) Grants to noncharitable organizations. (c) Organizations described in section 170(b)(1)(A). (1) In general. (2) Certain foreign organizations. (d) Expenditure responsibility. (1) In general. (2) Special rules. (i) Non-applicability of certain Code provisions. (ii) Substituted terms. (iii) Additional modifications. §53.4966-6 Applicability date. §53.4966-1 Definitions. (a) In general. The definitions in para- graphs (b) through (m) of this section apply for purposes of section 4966 of the Internal Revenue Code (Code) and the section 4966 regulations. (b) Contribution. The term contribu- tion means any gift, bequest, or similar payment or transfer, whether in cash or in-kind, to or for the use of a sponsoring organization. (c) Disqualified supporting organiza- tion. With respect to any distribution, the term disqualified supporting organization means— (1) Any Type III supporting organiza- tion, as defined in section 4943(f)(5)(A) of the Code and the regulations under section 509(a)(3) of the Code, that is not a func- tionally integrated Type III supporting organization, as defined in section 4943(f) (5)(B) and the regulations under section 509(a)(3) (see §1.509(a)-4(i) of this chap- ter); and (2) Any other supporting organization described in section 509(a)(3) if a donor or donor-advisor with respect to the donor advised fund (either alone or together with related persons) directly or indirectly controls a supported organization (as defined in section 509(f)(3)) of the sup- porting organization. For purposes of this paragraph (c), a supported organization will be considered controlled by a donor or donor-advisor with respect to the donor advised fund if that donor or donor-advi- sor, either alone or by aggregating votes or positions of authority with related per- sons, may require the supported organiza- tion to perform any act that significantly affects its operations or may prevent the supported organization from performing any such act. The supported organization will be considered to be controlled directly or indirectly by a donor or donor-advisor with respect to the donor advised fund, either alone or together with related per- sons, if the voting power of such persons is 50 percent or more of the total voting power of the governing body of such sup- ported organization or if one or more of such persons have the right to exercise veto power over the actions of the govern- ing body of the supported organization. However, all pertinent facts and circum- stances will be taken into consideration in determining whether one or more persons do in fact directly or indirectly control the supported organization. (d) Distributee. The term distribu- tee means any person, governmental entity, or donor advised fund receiving a distribution. (e) Distribution—(1) In general. The term distribution means any grant, pay- ment, disbursement, or transfer, whether in cash or in kind, from a donor advised fund. Except as provided in paragraph (e) (2) of this section, investments and rea- sonable investment or grant-related fees are not considered distributions. (2) Deemed distribution. A distribution includes any use of donor advised fund assets that results in a more than inciden- tal benefit (within the meaning of section 4967) to a donor, donor-advisor, or related person. In addition, a distribution includes an expense charged solely to a particular donor advised fund that is paid, directly or indirectly, to a donor, donor-advisor, or related person with respect to the donor advised fund. (f) Donor. The term donor means any person described in section 7701(a) (1) of the Code that makes a contribu- tion to a fund or account of a sponsoring Bulletin No. 2023–49 1379 December 4, 2023 organization, other than a contributor that is a governmental unit described in sec- tion 170(c)(1) of the Code or an organi- zation described in section 509(a)(1), (2), or (3) that is not a disqualified supporting organization. (g) Donor advised fund. See §53.4966-3 for the definition of donor advised fund. See §53.4966-4 for exceptions to the defi- nition of donor advised fund. (h) Donor-advisor—(1) In general. The term donor-advisor means a person appointed or designated by a donor to have advisory privileges regarding the distribution or investment of assets held in a fund or account of a sponsoring organi- zation. If a donor-advisor delegates any of the donor-advisor’s advisory privileges to another person, or appoints or designates another donor-advisor, that person is also a donor-advisor. No particular form of appointment or designation is necessary. Except as provided in paragraphs (h)(3) (ii) and (h)(4) of this section, a donor-ad- visor includes a person recommended by a donor or donor-advisor to have advisory privileges if the sponsoring organization provides such privileges. (2) Person who establishes fund or account. A person (other than a person or governmental unit excepted from sta- tus as a donor under paragraph (f) of this section) who establishes a fund or account and advises as to the distribution or invest- ment of amounts in that fund or account will be treated as a donor-advisor with respect to that fund or account, regardless of whether the person contributes to the fund or account. (3) Personal investment advisors—(i) In general. An investment advisor defined in section 4958(f)(8)(B) of the Code who manages the investment of, or provides investment advice with respect to, both the assets maintained in a donor advised fund and the personal assets of a donor to that donor advised fund (personal investment advisor) will be treated as a donor-advi- sor with respect to the donor advised fund while serving in that dual capacity regard- less of whether the donor appointed, des- ignated, or recommended the personal investment advisor. (ii) Exception. A personal investment advisor is not considered a donor-advi- sor if the personal investment advisor is properly viewed as providing services to the sponsoring organization as a whole, rather than providing services to the donor advised fund. (4) Donor-recommended advisory committee member. A person recom- mended by a donor or donor-advisor and appointed by the sponsoring organization to serve as a member of a committee of the sponsoring organization that advises as to distributions or investments of amounts in a fund or account is a donor-advisor unless— (i) The recommendation is based on objective criteria related to the expertise of the member in the particular field of interest or purpose of the fund or account; (ii) The committee consists of three or more individuals, and a majority of the committee is not recommended by the donor or donor-advisor; and (iii) The recommended person is not a related person with respect to the recom- mending donor or donor-advisor. (i) Fund manager—(1) In general. The term fund manager means, with respect to any sponsoring organization— (i) An officer, director, or trustee of the sponsoring organization or any person having authority or responsibility similar to that exercised by an officer, director, or trustee of a sponsoring organization; or (ii) With respect to any act (or failure to act) resulting in a taxable distribution, the employee who has final authority or responsibility (either individually or as a member of a collective body) for the act (or failure to act). (2) Delegation of authority. A person has authority or responsibility similar to that exercised by an officer, director, or trustee of a sponsoring organization within the meaning of paragraph (i)(1)(i) of this section if, with respect to an act (or failure to act) resulting in a taxable distri- bution, he or she has been delegated final authority or responsibility with respect to the act by an officer, director, or trustee of the sponsoring organization or by the gov- erning body of the sponsoring organiza- tion. For example, an investment manager is a fund manager with respect to a tax- able distribution if the sponsoring organi- zation’s governing body delegated to the investment manager the final authority to make certain investment decisions and, in the exercise of that authority, the manager committed the sponsoring organization to making a taxable distribution. To be con- sidered to have authority or responsibil- ity similar to that exercised by an officer, director, or trustee of a sponsoring organi- zation within the meaning of paragraph (i) (1)(i) of this section, a person need not be an employee of the sponsoring organiza- tion. A person does not have authority or responsibility similar to that exercised by an officer, director, or trustee of a spon- soring organization within the meaning of paragraph (i)(1)(i) of this section if the person is merely implementing a decision made by a superior. (j) Related persons. With respect to any individual, the term related person means a family member of the individual (as defined in section 4958(f)(4)). With respect to any person or persons, the term related person also means a 35-percent controlled entity (as defined in section 4958(f)(3) by substituting such person or persons or their family members for per- sons described in subparagraph (A) or (B) of paragraph (1) in section 4958(f)(3)(A) (i)). See section 4958(f)(7)(B) and (C). (k) Section 4966 regulations. The term section 4966 regulations means this sec- tion and §§53.4966-2 through 53.4966-6. (l) Sponsoring organization. The term sponsoring organization means any orga- nization that— (1) Is described in section 170 (other than a governmental unit described in section 170(c)(1)), without the require- ment under section 170(c)(2)(A) that it be created or organized in the United States or in any possession thereof, or under the law of the United States, any State, the District of Columbia, or any possession of the United States; (2) Is not a private foundation (as defined in section 509(a) and the regula- tions under section 509(a)); and (3) Maintains one or more donor advised funds. (m) Taxable distribution. See §53.4966-5 for the definition of taxable distribution. §53.4966-2 Taxes on taxable distributions. (a) In general. Section 4966 of the Internal Revenue Code imposes two excise taxes with respect to taxable dis- tributions from a donor advised fund. December 4, 2023 1380 Bulletin No. 2023–49 Paragraph (b) of this section describes the excise tax under section 4966(a)(1) imposed on a sponsoring organization of a donor advised fund. Paragraph (c) of this section describes the excise tax under sec- tion 4966(a)(2) imposed on a fund man- ager who knowingly agrees to a taxable distribution. (b) Taxes paid by the sponsoring orga- nization. For each taxable distribution, the excise tax imposed by section 4966(a)(1) is equal to 20 percent of the amount of the taxable distribution from a donor advised fund. The tax imposed by section 4966(a) (1) (20-percent section 4966 tax) is paid by the sponsoring organization of the donor advised fund. (c) Taxes paid by fund managers—(1) In general. For each taxable distribution with respect to which section 4966(a) (1) imposes an excise tax, the excise tax imposed by section 4966(a)(2) is equal to five percent of the amount of the taxable distribution on the agreement of any fund manager who agreed to the making of the taxable distribution with knowledge that it is a taxable distribution as described in paragraph (c)(3) of this section. The tax imposed by section 4966(a)(2) (five-per- cent section 4966 tax) is paid by the fund manager or managers who agreed to the making of the taxable distribution. (2) Agreement. The agreement of any fund manager to the making of a taxable distribution consists of any manifesta- tion of approval of the distribution that is sufficient to constitute an exercise of the fund manager’s authority to approve, or to exercise discretion in recommending approval of, the making of the distribution by the sponsoring organization, whether or not the manifestation of approval is the final or decisive approval on behalf of the sponsoring organization. (3) Knowledge. For purposes of section 4966(a)(2), a fund manager agrees to the making of a distribution with knowledge that it is a taxable distribution only if the manager either— (i) Is in fact aware that it is a taxable distribution; or (ii) Has knowledge of facts sufficient to determine that, based on those facts, the distribution would be a taxable distri- bution and negligently fails to make rea- sonable attempts to ascertain whether the distribution is a taxable distribution. (4) Joint and several liability. In any case in which more than one fund manager is liable for the five-percent section 4966 tax, all such fund managers are jointly and severally liable for the five-percent sec- tion 4966 taxes imposed with respect to that distribution. (5) Limit on liability for managers. The maximum aggregate amount of five-per- cent section 4966 tax collectible for any one taxable distribution is $10,000. §53.4966-3 Definition of donor advised fund. (a) In general. Except as provided in §53.4966-4, the term donor advised fund means a fund or account— (1) That is separately identified by reference to contributions of a donor or donors in accordance with paragraph (b) of this section; (2) That is owned and controlled by a sponsoring organization; and (3) With respect to which at least one donor or donor-advisor has, or reasonably expects to have, advisory privileges with respect to the distribution or investment of amounts held in the fund or account by reason of the donor’s status as a donor in accordance with paragraph (c) of this section. (b) Separate identification by ref- erence to contributions of a donor or donors —(1) In general. A fund or account is separately identified by reference to contributions of a donor or donors if the sponsoring organization maintains a for- mal record of contributions to the fund or account relating to a donor or donors. If there is no formal record, whether a fund or account is separately identified by reference to contributions of a donor or donors is based on all the facts and circumstances. (2) Facts and circumstances tending to show that a fund or account is separately identified. Facts and circumstances that are relevant in determining that a fund or account is separately identified by refer- ence to contributions of a donor or donors include— (i) The fund or account balance reflects items such as contributions, dividends, interest, distributions, administrative expenses, and gains and losses (realized or unrealized); (ii) The fund or account is named after one or more donors, donor-advisors, or related persons; (iii) The sponsoring organization refers to the fund or account as a donor advised fund; (iv) The sponsoring organization has an agreement or understanding with one or more donors or donor-advisors that the fund or account is a donor advised fund; (v) One or more donors or donor-ad- visors regularly receive a fund or account statement from the sponsoring organiza- tion; and (vi) The sponsoring organization gen- erally solicits advice from the donor(s) or donor-advisor(s) before it makes distribu- tions from the fund or account. (3) Commingling. A fund or account does not fail to be a donor advised fund merely because the sponsoring organiza- tion commingles the assets attributed to the fund or account with other assets of the sponsoring organization, as long as the sponsoring organization treats the fund or account as attributable to contributions of a donor or donors. (c) Advisory privileges—(1) In gen- eral—(i) Facts and circumstances. Under section 4966(d)(2)(A)(iii) of the Internal Revenue Code (Code), at least one donor or donor-advisor must have, or reasonably expect to have, advisory privileges by rea- son of the donor’s status as a donor. A donor or donor-advisor may have, or reasonably expect to have, advisory privileges even in the absence of actual provision of advice. The existence of advisory privileges, or the reasonable expectation thereof, is based on all the facts and circumstances, which in turn depend on the conduct (and any agreement or understanding) of both the donor(s) or donor-advisor(s) and the sponsoring organization. Advisory priv- ileges include those arising from service on an advisory committee. If a donor or donor-advisor has, or reasonably expects to have, advisory privileges as defined in this paragraph (c), then the advisory priv- ileges are deemed to be by reason of the donor’s status as a donor except as other- wise provided in this paragraph (c). (ii) Application to entire fund or account. If at least one donor or donor-ad- visor has, or reasonably expects to have, advisory privileges with respect to a fund or account or any portion of a fund or Bulletin No. 2023–49 1381 December 4, 2023 account, advisory privileges by reason of the donor’s status as a donor exist with respect to that fund or account even if there are multiple donors to the fund or account. (iii) Donor, donor-advisor, or related person appointed to an advisory com- mittee—(A) In general. A sponsoring organization’s appointment of a donor, donor-advisor, or related person to be on a committee of persons that advises as to distributions or investments of amounts in the fund or account will be deemed to result in advisory privileges by reason of the donor’s status as a donor unless– (1) The appointment is based on objec- tive criteria related to the expertise of the appointee in the particular field of interest or purpose of the fund or account; (2) The committee consists of three or more individuals, not more than one-third of whom are related persons with respect to any member of the committee; and (3) The appointee is not a significant contributor to the fund or account, taking into account contributions by related per- sons with respect to the appointee, at the time of appointment. (B) Exception. An appointee may be deemed to have advisory privileges by reason of a donor’s status as a donor based on the facts and circumstances, such as if the appointee was not a significant con- tributor to a fund or account at the time of appointment but became a significant contributor shortly thereafter. (iv) Officers, etc. of sponsoring orga- nization. Advice provided solely in a person’s capacity as an officer, director, employee (or in a similar capacity) of a sponsoring organization does not by itself give rise to advisory privileges by reason of a donor’s status as a donor. However, if an officer, director, or employee of the sponsoring organization is allowed to advise how to distribute or invest amounts in a fund or account because of such per- son’s contributions to the fund or account, such person will be considered to have advisory privileges by reason of the per- son’s status as a donor with respect to that fund or account. (v) Deemed advisory privileges. Except as provided in paragraph (c)(1)(iv) of this section, if a donor is the sole person with advisory privileges with respect to a fund or account, the advisory privileges will be deemed to be by reason of the donor’s sta- tus as a donor. (2) Facts sufficient to find advisory privileges. A donor or donor-advisor has advisory privileges by reason of the donor’s status as a donor, regardless of whether they are exercised, if— (i) The sponsoring organization allows a donor or donor-advisor to provide non- binding recommendations regarding distributions from, or regarding the invest- ment of assets held in, a fund or account; (ii) A written agreement between the sponsoring organization and a donor or a donor-advisor states that a donor or donor-advisor has advisory privileges; (iii) A written document or any mar- keting material made available to a donor or donor-advisor indicates that a donor or donor-advisor may provide advice to the sponsoring organization regarding the dis- tribution or investment of amounts held by a sponsoring organization (for example, a pre-approved list of investment options or distributees that the sponsoring organiza- tion provides to a donor or donor-advisor); or (iv) The sponsoring organization gen- erally solicits advice from a donor or donor-advisor regarding the distribution or investment of amounts held in a fund or account. (d) Substance over form. The Commissioner may look to the substance of an arrangement, not merely its form, in determining whether the arrangement is a donor advised fund. (e) Examples. The following examples illustrate the principles of this section (in each example, assume that the funds or accounts at issue are owned and controlled by the sponsoring organization): (1) Example 1. A, B, and C are unrelated donors who jointly establish Fund X at sponsoring orga- nization Y. A, B, and C each make equal contribu- tions to Fund X and each have advisory privileges with respect to all of the assets in Fund X. Y sends A monthly account statements showing Fund X’s account balance and any transactions in the account. A shares information about Fund X with B and C when asked or as needed. Fund X is separately iden- tified by reference to contributions of donors and is a donor advised fund. (2) Example 2. Assume the same facts as para- graph (e)(1) of this section (Example 1), except that A makes 70 percent of the contributions, B 20 per- cent, and C 10 percent, with each having advisory privileges with respect to all of the assets in Fund X. Fund X is separately identified by reference to contributions of donors and is a donor advised fund. (3) Example 3. In Year 1, X, a governmental entity described in section 170(c)(1), and Y, a public charity described in section 509(a)(1) of the Code, establish and fully fund Fund M at sponsoring orga- nization A. Fund M is separately identified with respect to X and Y. However, because neither X nor Y is a donor, Fund M is not separately identified by reference to contributions of a donor or donors and is not a donor advised fund. (4) Example 4. Assume the same facts as para- graph (e)(3) of this section (Example 3), except that in Year 2 individual donors contribute to Fund M. Only X and Y have advisory privileges with respect to the distribution or investment of amounts held in Fund M. Because no donor or donor-advisor has advisory privileges with respect to Fund M, Fund M is not a donor advised fund. (5) Example 5. F, an individual, is a donor to Fund T, a multiple-donor fund at sponsoring organization X. F is also a director of X who provides investment advice that affects all funds at X in his capacity as a director. F will not be considered to have advisory privileges with respect to Fund T solely because of F’s duties as director of X. (6) Example 6. Assume the same facts as para- graph (e)(5) of this section (Example 5), except that by reason of F’s contribution to Fund T, F is appointed to a committee that advises how to dis- tribute or invest amounts in Fund T. F has advisory privileges with respect to Fund T by reason of F’s status as a donor. (7) Example 7. Sponsoring organization Y has established Fund P, which is dedicated to the relief of poverty in City Z. Fund P is advised by a 5-member committee selected by Y from residents of City Z, potentially including donors to Fund P. The committee is comprised of community leaders and other persons with special knowledge or experience in the relief of poverty. Each committee member serves for a term of three years and cannot serve more than two terms. No committee member is related to another committee member and no committee member is (together with related persons with respect to any committee mem- ber) a significant contributor to Fund P. Over 100 citi- zens of City Z have contributed to Fund P. Y maintains a formal record of donors to Fund P and amounts con- tributed, and thus Fund P is separately identified by reference to contributions of donors. However, under the circumstances, no person who serves on the advi- sory committee of Fund P is deemed to have advisory privileges by reason of a donor’s status as a donor. Fund P is not a donor advised fund. (8) Example 8. Fifteen unrelated individuals establish Fund Q at sponsoring organization T. Each individual contributes to Fund Q, and these individ- uals constitute a committee appointed by T to advise on investments and distributions from Fund Q. T regularly issues a statement to one of the committee members (who shares the information with the oth- ers) showing the account balance and any transac- tions with Fund Q. Fund Q is a donor advised fund. (9) Example 9. Assume the same facts as in paragraph (e)(8) of this section (Example 8), except that the advisory committee consists of three of the donors, rotated annually. Fund Q is a donor advised fund. (10) Example 10. N, an individual, establishes Fund O at W, a sponsoring organization. Fund O December 4, 2023 1382 Bulletin No. 2023–49 serves as a memorial to N’s daughter, and receives many contributions from unrelated individuals. N is the only person with advisory privileges and thus is a donor advisor. Fund O is a donor advised fund. (11) Example 11. F, an individual, establishes Fund R at T, a sponsoring organization, to provide scholarship grants for the advancement of science at local secondary schools. F is the sole donor to Fund R. Pursuant to F’s recommendation, an advi- sory committee consisting of five persons is solely responsible for advising T with respect to the distri- bution and investment of amounts held in Fund R. F recommends (and T appoints) two individuals who are the heads of the science departments of those schools, neither of whom is related to F. T inde- pendently appoints the other three committee mem- bers, none of whom are recommended by donors or related to donors. The persons recommended by F for committee membership are not donor-advisors because F’s recommendations are for individuals who are not related persons with respect to F, who, based on objective criteria, have expertise in the field of interest of Fund R, the committee consists of more than two individuals, and a majority of the commit- tee is not recommended by F. Because no donor or donor-advisor has, or reasonably expects to have, advisory privileges with respect to the distribution or investment of amounts held in the fund or account by reason of the donor’s status as a donor, Fund R is not a donor advised fund. §53.4966-4 Exceptions to the definition of donor advised fund. (a) Funds or accounts that make dis- tributions only to a single identified orga- nization—(1) In general. The term donor advised fund does not include any fund or account that is established by written agreement to make (and that actually does make) distributions only to a single iden- tified organization as defined in paragraph (a)(2) of this section, and that meets the other requirements of this paragraph (a). (2) Single identified organization. For purposes of this paragraph (a), the term single identified organization means an organization that is described in sections 170(c)(2) and 509(a)(1), (2), or (3) of the Internal Revenue Code (Code) (other than a disqualified supporting organization), or that is a governmental entity described in section 170(c)(1) if the distribution is exclusively for public purposes. (3) Distributions to a single identified organization. The sponsoring organiza- tion must make distributions from the fund or account only to the single iden- tified organization for use in the single identified organization’s activities (other than the activities of administering donor advised funds or grant-making), and not to third parties on behalf of the single identi- fied organization. (4) Special rules—(i) In general. A fund or account will not be treated as mak- ing distributions only to a single identified organization if— (A) A donor, donor-advisor, or related person has or reasonably expects to have the ability to advise regarding some or all of the distributions from the single iden- tified organization to other individuals or entities; or (B) A distribution from the fund or account provides, directly or indirectly, a more than incidental benefit (within the meaning of section 4967 of the Code), to a donor, donor-advisor, or related person with respect to the fund. (ii) Certifications. A sponsoring orga- nization may rely on a certification from the donor that no distribution will be described in paragraph (a)(4)(i) of this section as long as the sponsoring organi- zation lacks knowledge to the contrary. (5) Substitution for specified organi- zation. A sponsoring organization may substitute another single identified orga- nization if the substitution is conditioned upon the occurrence of a loss of exemp- tion, substantial failure or abandonment of operations, or a dissolution or reorganiza- tion that results in the named single iden- tified organization ceasing to exist, and the event is beyond the direct or indirect control of donor(s), donor-advisor(s), or related persons. (6) Examples. The following examples illustrate the principles of this section: (i) Example 1. A and B, a married couple, estab- lish Fund V at X, a sponsoring organization. Fund V is established by written agreement to make distri- butions only to Y, a university recognized as exempt under section 501(c)(3) of the Code and described in section 170(b)(1)(A)(ii). In the gift instrument, A and B reserve the right to recommend which university projects should be supported by Fund V and which investments to make with fund assets. A and B cer- tify that A, B, and persons related to A and B do not benefit from any distributions from Fund V and do not have, or reasonably expect to have, the ability to advise regarding some or all of the distributions from Y to other entities. Fund V is not a donor advised fund because all distributions are made to a single identified organization, Y. (ii) Example 2. Assume the same facts as para- graph (a)(6)(i) of this section (Example 1), except that the sponsoring organization uses funds from Fund V to purchase goods to distribute to the com- munity on behalf of Y. Fund V does not meet the exception for a fund or account that makes distribu- tions only to a single identified organization because not all distributions from Fund V are made to the sin- gle identified organization, Y. (iii) Example 3. Assume the same facts as para- graph (a)(6)(i) of this section (Example 1), except that A is on the Board of Y. Because A has the ability to advise some or all of the distributions from Y to other entities, Fund V does not meet the exception for a fund or account that makes distributions only to a single identified organization. (b) Certain funds or accounts that grant scholarships—(1) In general. The term donor advised fund does not include any fund or account with respect to which a donor or donor-advisor advises as to which individuals receive grants for travel, study, or other similar purposes, if— (i) The exclusive purpose of the fund or account is to make grants to individuals for travel, study, or other similar purposes; (ii) The donor or donor-advisor pro- vides advice exclusively in the person’s capacity as a member of the selection committee selecting the individuals who receive grants; (iii) All the members of the selection committee are appointed by the sponsor- ing organization; (iv) No combination of donor(s), donor-advisor(s), or related persons con- trols, directly or indirectly, the selection committee; (v) All grants from the fund or account are awarded on an objective and nondis- criminatory basis pursuant to a written procedure approved in advance by the board of directors of the sponsoring orga- nization, and the procedure is designed to ensure that all the grants adhere to the principles set forth by section 4945(g) (1), (2) or (3) of the Code and the regu- lations under section 4945 (other than the requirement to get advance approval by the IRS); and (vi) The fund or account maintains ade- quate records as described in §53.4945- 4(c)(6) that demonstrate the recipients were selected on an objective and nondis- criminatory basis. (2) Control of committee—(i) In gen- eral. For purposes of paragraph (b)(1) (iv) of this section, whether control of the committee exists is determined by looking to the substance, rather than the form, of any arrangement. (ii) Direct control. A committee will be considered controlled if donor(s), donor-advisor(s), or related persons, either alone or together— Bulletin No. 2023–49 1383 December 4, 2023 (A) Can require the committee to take or refrain from taking any action; (B) Control 50 percent or more of the total voting power of the committee; or (C) Have the right to exercise veto power over the committee’s decisions. (iii) Indirect control. Whether a com- mittee is indirectly controlled by a com- bination of donor(s), donor-advisor(s), or related persons is determined by the facts and circumstances, including the nature of any relationships among the members of the selection committee and with any donor, donor-advisor, or related person. For example, a committee is indirectly controlled by a combination of donor(s), donor-advisor(s), or related persons if a majority of the selection committee is currently engaged by the donor, donor-ad- visor, or any related person in any employ- ment or fiduciary capacity, whether as an employee or independent contractor, or recommended by a donor or donor-advi- sor and appointed to the selection commit- tee based on other than objective criteria regarding the person’s expertise, or a com- bination thereof. (3) Appointing members of the selec- tion committee. In appointing the members of the selection committee, a sponsoring organization may act through its board of directors, trustees, or other governing body; a committee appointed by the gov- erning body; or an appropriate officer of the sponsoring organization. (4) Examples. The following examples illustrate the principles of this section: (i) Example 1. Fund O was established at spon- soring organization Y to grant scholarships. Fund O receives contributions from many unrelated donors, including D, E, and F. Y appointed D, E, and F to serve on Fund O’s 5-person selection committee by reason of their status as donors. Because donors con- trol its selection committee, Fund O does not meet the exception for certain funds or accounts that grant scholarships under paragraph (b) of this section. (ii) Example 2. Assume the same facts as in para- graph (b)(4)(i) of this section (Example 1), except that Y appoints G, a donor; H, G’s donor-advisor; and I, an attorney currently employed by G to serve on Fund O’s 5-person selection committee. Y appoints G, H, and I by reason of G’s status as a donor. The committee is indirectly controlled by G, and thus the fund does not meet the exception for certain funds or accounts that grant scholarships under paragraph (b) of this section. (iii) Example 3. Assume the same facts as in paragraph (b)(4)(i) of this section (Example 1), except that Y appoints D and four officers of Y who have not contributed to Fund O to serve on the 5-per- son selection committee. Assuming that the other requirements of paragraph (b)(1) of this section are met and that the facts do not indicate that D indirectly controls the committee, Fund O meets the exception for certain funds or accounts that grant scholarships under paragraph (b) of this section. (c) Certain scholarship funds estab- lished by certain section 501(c)(4) organi- zations. The term donor advised fund does not include a fund or account established by a broad-based membership organiza- tion described in section 501(c)(4) that establishes a committee to advise as to which individuals receive grants, if— (1) The fund or account’s single iden- tified charitable purpose is to make grants to individuals for scholarships described in section 4945(g)(1); (2) The selection of recipients of schol- arships from the fund or account is made using a selection committee the members of which are nominated by the section 501(c)(4) organization and approved in writing by the sponsoring organization; (3) The fund or account serves a char- itable class; (4) Recipients of grants from the fund or account are selected on an objective and nondiscriminatory basis pursuant to a procedure, approved in advance by the sponsoring organization’s board of direc- tors, that is designed to ensure that all the grants meet the requirements of section 4945(g)(1) and the regulations under sec- tion 4945 (other than the requirement to get advance approval by the IRS); (5) No distribution is made from the fund or account to, or for the benefit of: (i) Any director, officer, or trustee of the sponsoring organization of the fund or account; (ii) Any member of the fund or account’s selection committee; (iii) Any member, honorary member, or employee of the section 501(c)(4) organi- zation; or (iv) Any related person with respect to anyone described in paragraph (c)(5)(i), (ii), or (iii) of this section; and (6) The fund or account maintains ade- quate records as described in §53.4945- 4(c)(6) that demonstrate the recipients were selected on an objective and nondis- criminatory basis. (d) Certain disaster relief funds. The term donor advised fund does not include a fund or account if— (1) The fund or account’s single iden- tified charitable purpose is to provide relief from one or more qualified disasters within the meaning of section 139(c)(1), (2), or (3) of the Code; (2) The fund or account serves a char- itable class; (3) The selection of recipients of grants from the fund or account is made using a selection committee— (i) That is not directly or indirectly controlled (as defined in paragraph (b)(2) of this section) by donor(s), donor-advi- sor(s), or related persons and to which all the members are appointed by the spon- soring organization; or (ii) The majority of which, if the fund or account gives preference or priority to employees (or their family members) of an employer to receive grants, consists of persons who are not in a position to exer- cise substantial influence over the affairs of the employer (or adequate substitute procedures exist to ensure that any benefit to the employer is incidental and tenuous); (4) The selection committee selects recipients of grants from the fund or account (and determines the amounts of such grants) based on objective and non- discriminatory determinations of need pursuant to a procedure approved in advance by the board of directors of the sponsoring organization; (5) No distribution is made from the fund or account that would result in more than incidental benefit (within the mean- ing of section 4967 of the Code) to— (i) Any director, officer, or trustee of the sponsoring organization of the fund or account; (ii) Any member of the fund’s selection committee; or (iii) Any related person with respect to a director, officer, or trustee of the spon- soring organization or to a member of the selection committee; and (6) Records are maintained that demon- strate the need of the recipients for the disaster relief assistance provided and that satisfy section 6033(b)(14) of the Code. §53.4966-5 Taxable distributions. (a) Taxable distributions—(1) In gen- eral. Except as provided in paragraphs (a) (2) and (3) of this section, the term taxable distribution means any distribution from a donor advised fund— (i) To any natural person; or December 4, 2023 1384 Bulletin No. 2023–49 (ii) To any other person if— (A) The distribution is for any purpose other than one specified in section 170(c) (2)(B) of the Internal Revenue Code (Code), as defined in paragraph (b) of this section; or (B) The sponsoring organization does not exercise expenditure responsibility with respect to the distribution in accor- dance with paragraph (d) of this section. (2) Non-taxable distributions. The term taxable distribution does not include any distribution from a donor advised fund to— (i) Any organization described in sec- tion 170(b)(1)(A) (other than a disquali- fied supporting organization), as defined in paragraph (c) of this section; (ii) The sponsoring organization of the donor advised fund; or (iii) Any other donor advised fund. (3) Special rule. If a series of distri- butions is undertaken pursuant to a plan that achieves a result inconsistent with the purposes of section 4966 of the Code, the distributions are treated as a single distri- bution for purposes of section 4966. For example, if a donor advises a distribution, that the sponsoring organization subse- quently makes, from a donor advised fund to Charity X and the donor or the sponsor- ing organization arranges for Charity X to use the funds to make distributions to indi- viduals recommended by the donor, the dis- tribution will be a taxable distribution from the sponsoring organization to individuals. (b) Distribution for purpose not spec- ified in section 170(c)(2)(B)—(1) In gen- eral. For purposes of paragraph (a)(1) (ii)(A) of this section, a distribution to be used for an activity that is prohibited under section 501(c)(3) of the Code or for an activity that, if it were a substantial part of a section 501(c)(3) organization’s total activities, would cause loss of tax exemption, is not for a purpose specified in section 170(c)(2)(B). For example, a distribution used for political campaign intervention activity or for attempting to influence legislation is considered to be for a purpose not specified in sec- tion 170(c)(2)(B). Purposes described in section 170(c)(2)(B) are treated as such whether or not carried out by an organiza- tion described in section 170(c). (2) Grants to noncharitable orga- nizations. If the distribution is a grant (as defined in §53.4945-4(a)(2)) to any organization (other than an organization described in section 501(c)(3) and not in section 509(a)(4) of the Code), it will not be considered for a purpose specified in section 170(c)(2)(B) unless the grantee agrees either to separately account for the grant funds on its books or to segregate the grant funds. (c) Organizations described in section 170(b)(1)(A)—(1) In general. For pur- poses of paragraph (a)(2)(i) of this sec- tion, an organization will be treated as described in section 170(b)(1)(A) if— (i) It is described in both sections 170(b)(1)(A) and 170(c)(2), other than a disqualified supporting organization, and without regard to section 170(c)(2)(A); (ii) It is a governmental unit described in section 170(b)(1)(A)(v) and 170(c)(1) (or an agency or instrumentality thereof, including an organization described in section 511(a)(2)(B) of the Code), as long as the distribution to it is made for exclu- sively public purposes; or (iii) It is a foreign government (or an agency or instrumentality thereof), or an international organization designated as such by Executive Order under 22 U.S.C. 288, as long as the distribution to it is made exclusively for charitable purposes as described in section 170(c)(2)(B). (2) Certain foreign organizations. For purposes of this section, a foreign orga- nization distributee that does not have a ruling or determination letter that it is an organization described in sections 501(c) (3) and 170(b)(1)(A) (other than a dis- qualified supporting organization) will be treated as described in sections 501(c)(3) and 170(b)(1)(A) (other than a disquali- fied supporting organization) if, prior to the distribution, the sponsoring organi- zation makes a good faith determination, using procedures similar to those set forth in §53.4945-5(a)(5), that the distributee is described in sections 501(c)(3) and 170(b) (1)(A) (other than a disqualified support- ing organization). (d) Expenditure responsibility—(1) In general. For purposes of paragraph (a) (1)(ii)(B) of this section, a sponsoring organization will be treated as exercising expenditure responsibility if it follows the procedures set forth in §53.4945-5(b) through (e) as modified by paragraph (d) (2) of this section. (2) Special rules—(i) Non-applicability of certain Code provisions. References to sections 507, 4945(d), and 4948 of the Code do not apply. (ii) Substituted terms. In applying §53.4945-5(b) through (e), substitute sponsoring organization for private foundation, granting private foundation, granting foundation, grantor foundation, foundation, or grantor (but not for private foundation grantees in §53.4945-5(c)); substitute distribution for grant or amount granted; substitute distributee for grantee; and substitute taxable distribution for tax- able expenditure each place they appear. (iii) Additional modifications. In lieu of §53.4945-5(b)(3)(iv)(c) and (b)(4)(iv) (c), the distributee must agree not to use any of the funds to make any grant to an organization that does not comply with the expenditure responsibility require- ments of this paragraph (d), to make any grant to a natural person, or to make any grant, loan, compensation, or other similar payment (as described in sec- tion 4958(c)(2) of the Code) to a donor, donor-advisor, or related person with respect to the donor advised fund from which the distribution that is the subject of the agreement is made. §53.4966-6 Applicability date. Applicability date. The rules of §§53.4966-1 through 53.4966-5 apply to taxable years ending on or after [the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register]. Douglas W. O’Donnell, Deputy Commissioner for Services and Enforcement. (Filed by the Office of the Federal Register November 13, 2023, 8:45 a.m., and published in the issue of the Federal Register for November 14, 2023, 88 FR 77922) Bulletin No. 2023–49 1385 December 4, 2023 Deletions From Cumulative List of Organizations, Contributions to Which are Deductible Under Section 170 of the Code Announcement 2023-34 Table of Contents The Internal Revenue Service has revoked 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 IRS will not disallow deductions for contributions made to a listed organization on or before the date of announcement in the Internal Revenue Bulletin that an organization no longer qualifies. However, the IRS is not pre- cluded from disallowing a deduction for any contributions made after an organiza- tion ceases to qualify under section 170(c) (2) if the organization has not timely filed a suit for declaratory judgment under sec- tion 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 declar- atory 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 December 04, 2023 and would end on the date the court first determines the organization is not described in section 170(c)(2) as more particularly set for 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. NAME OF ORGANIZATION Effective Date of Revocation LOCATION BRIGHTER DAY FOUNDATION01/01/2019LOS ANGELES JAMES C. WILBOURN WASHINGTON AND LEE ENDOWMENT TRUST C/O CITIZENS NATIONAL BANK 01/01/2020MERIDIANS, MS JACKSON COUNTY 4-H FOUNDATION07/01/2019SPRINGS , MO ROBERT SAAH MASSAQUOI FOUNDATION01/01/2021SAN DIEGO, CA Bulletin No. 2023–49 i December 4, 2023 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 effect: Amplified describes a situation where no change is being made in a prior pub- lished position, but the prior position is being extended to apply to a variation of the 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 with modified, below). Clarified is 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 rul- ing is being changed. Distinguished describes a situation where a ruling mentions a previously pub- lished ruling and points out an essential difference between them. Modified is 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 with amplified and clarified, above). Obsoleted describes a previously pub- lished ruling that is not considered deter- minative with respect to future transactions. This term is most commonly used in a ruling that lists previously published rulings 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. Revoked describes situations where the position in the previously published ruling is not correct and the correct position is being stated in a new ruling. Superseded describes a situation where the new ruling does nothing more than restate the substance and situation of a previously published ruling (or rulings). Thus, the term is used to republish under the 1986 Code and regulations the same position published under the 1939 Code and regulations. The term is also used when it is desired to republish in a single ruling a series of situations, names, etc., that were previously published over a period of time in separate rulings. If the new ruling does more than restate the sub- stance of a prior ruling, a combination of terms is used. For example, modified and superseded describes 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 previous- ly published ruling in a new ruling that is self contained. In this case, the previously published ruling is first modified and then, as modified, is superseded. Supplemented is 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 ruling has been supplemented several times, a new ruling may be published that includes the list in the original ruling and the additions, and supersedes all prior rul- ings in the series. Suspended is used in rare situations to show that the previous published rul- ings will not be applied pending some future action such as the issuance of new or amended regulations, the outcome of cases in litigation, or the outcome of a Service study. Abbreviations The following abbreviations in current use and formerly used will appear in material published in the Bulletin. A—Individual. Acq.—Acquiescence. B—Individual. BE—Beneficiary. BK—Bank. B.T.A.—Board of Tax Appeals. C—Individual. C.B.—Cumulative Bulletin. CFR—Code of Federal Regulations. CI—City. COOP—Cooperative. Ct.D.—Court Decision. CY—County. D—Decedent. 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—Employer. ERISA—Employee Retirement Income Security Act. EX—Executor. F—Fiduciary. FC—Foreign Country. FICA—Federal Insurance Contributions Act. FISC—Foreign International Sales Company. FPH—Foreign Personal Holding Company. F.R.—Federal Register. FUTA—Federal Unemployment Tax Act. FX—Foreign corporation. G.C.M.—Chief Counsel’s Memorandum. GE—Grantee. GP—General Partner. GR—Grantor. IC—Insurance Company. I.R.B.—Internal Revenue Bulletin. LE—Lessee. LP—Limited Partner. LR—Lessor. M—Minor. Nonacq.—Nonacquiescence. O—Organization. P—Parent Corporation. PHC—Personal Holding Company. PO—Possession of the U.S. PR—Partner. PRS—Partnership. PTE—Prohibited Transaction Exemption. Pub. L.—Public Law. REIT—Real Estate Investment Trust. Rev. Proc.—Revenue Procedure. Rev. Rul.—Revenue Ruling. S—Subsidiary. S.P.R.—Statement of Procedural Rules. Stat.—Statutes at Large. T—Target Corporation. T.C.—Tax Court. T.D.—Treasury Decision. TFE—Transferee. TFR—Transferor. T.I.R.—Technical Information Release. TP—Taxpayer. TR—Trust. TT—Trustee. U.S.C.—United States Code. X—Corporation. Y—Corporation. Z—Corporation. December 4, 2023 ii Bulletin No. 2023–49 Numerical Finding List 1 Bulletin 2023–49 Announcements: 2023-18, 2023-30 I.R.B. 366 2023-19, 2023-30 I.R.B. 367 2023-20, 2023-30 I.R.B. 368 2023-17, 2023-31 I.R.B. 412 2023-21, 2023-31 I.R.B. 413 2023-22, 2023-32 I.R.B. 429 2023-23, 2023-34 I.R.B. 569 2023-24, 2023-35 I.R.B. 661 2023-25, 2023-37 I.R.B. 821 2023-26, 2023-37 I.R.B. 822 2023-28, 2023-37 I.R.B. 823 2023-29, 2023-41 I.R.B. 1064 2023-30, 2023-45 I.R.B. 1236 2023-31, 2023-46 I.R.B. 1251 2023-32, 2023-47 I.R.B. 1258 2023-33, 2023-47 I.R.B. 1261 2023-24, 2023-49 I.R.B. 1385 Notices: 2023-29, 2023-29 I.R.B. 1 2023-45, 2023-29 I.R.B. 317 2023-47, 2023-29 I.R.B. 318 2023-37, 2023-30 I.R.B. 359 2023-50, 2023-30 I.R.B. 361 2023-51, 2023-30 I.R.B. 362 2023-54, 2023-31 I.R.B. 382 2023-53, 2023-32 I.R.B. 424 2023-55, 2023-32 I.R.B. 427 2023-57, 2023-34 I.R.B. 560 2023-58, 2023-34 I.R.B. 563 2023-59, 2023-34 I.R.B. 564 2023-52, 2023-35 I.R.B. 650 2023-61, 2023-35 I.R.B. 651 2023-62, 2023-37 I.R.B. 817 2023-56, 2023-38 I.R.B. 824 2023-63, 2023-39 I.R.B. 919 2023-64, 2023-40 I.R.B. 974 2023-66, 2023-40 I.R.B. 992 2023-68, 2023-41 I.R.B. 1060 2023-65, 2023-42 I.R.B. 1067 2023-67, 2023-42 I.R.B. 1074 2023-69, 2023-42 I.R.B. 1079 2023-71, 2023-44 I.R.B. 1191 2023-70, 2023-45 I.R.B. 1228 2023-72, 2023-45 I.R.B. 1228 2023-73, 2023-45 I.R.B. 1232 2023-75, 2023-47 I.R.B. 1256 2023-76, 2023-49 I.R.B. 1320 Proposed Regulations: REG-124123-22, 2023-30 I.R.B. 369 REG-124930-21, 2023-31 I.R.B. 431 Proposed Regulations:—Continued REG-120730-21, 2023-33 I.R.B. 491 REG-134420-10, 2023-34 I.R.B. 571 REG-109348-22, 2023-35 I.R.B. 662 REG-120727-21, 2023-36 I.R.B. 670 REG-122793-19, 2023-38 I.R.B. 829 REG-100908-23, 2023-39 I.R.B. 931 REG-115559-23, 2023-42 I.R.B. 1082 REG-106203-23, 2023-43 I.R.B. 1143 REG-113064-23, 2023-43 I.R.B. 1144 REG-117614-14, 2023-44 I.R.B. 1193 REG-127391-16, 2023-44 I.R.B. 1214 REG-103525-23, 2023-46 I.R.B. 1252 REG-115762-23, 2023-47 I.R.B. 1262 REG-120727-21, 2023-47 I.R.B. 1285 REG-112916-23, 2023-49 I.R.B. 1323 REG-128276-12, 2023-49 I.R.B. 1362 REG-142338-07, 2023-49 I.R.B. 1363 Revenue Procedures: 2023-31, 2023-25 I.R.B. 386 2023-26, 2023-33 I.R.B. 486 2023-27, 2023-35 I.R.B. 655 2023-17, 2023-37 I.R.B. 819 2023-30, 2023-40 I.R.B. 995 2023-31, 2023-40 I.R.B. 1057 2023-32, 2023-41 I.R.B. 1064 2023-35, 2023-42 I.R.B. 1079 2023-28, 2023-43 I.R.B. 1092 2023-33, 2023-43 I.R.B. 1135 2023-34, 2023-48 I.R.B. 1287 Revenue Rulings: 2023-13, 2023-32 I.R.B. 413 2023-14, 2023-33 I.R.B. 484 2023-15, 2023-34 I.R.B. 559 2023-15, 2023-34 I.R.B. 559 2023-16, 2023-37 I.R.B. 796 2023-17, 2023-37 I.R.B. 798 2023-18, 2023-40 I.R.B. 972 2023-19, 2023-41 I.R.B. 1059 2023-20, 2023-45 I.R.B. 1221 2023-21, 2023-49 I.R.B. 1299 2023-22, 2023-49 I.R.B. 1301 Treasury Decisions: 9976, 2023-30 I.R.B. 354 9977, 2023-31 I.R.B. 375 9978, 2023-32 I.R.B. 415 9979, 2023-35 I.R.B. 602 9980, 2023-43 I.R.B. 1087 9981, 2023-44 I.R.B. 1174 9982, 2023-45 I.R.B. 1223 9983, 2023-46 I.R.B. 1237 1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2023–27 through 2023–52 is in Internal Revenue Bulletin 2023–52, dated December 27, 2023. Bulletin No. 2023–49 iii December 4, 2023 Finding List of Current Actions on Previously Published Items 1 Bulletin 2023–49 1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2023–27 through 2023–52 is in Internal Revenue Bulletin 2023–52, dated December 27, 2023. Internal Revenue Service Washington, DC 20224 Official Business Penalty for Private Use, $300 INTERNAL REVENUE BULLETIN The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue Bulletins are available at www.irs.gov/irb/. We Welcome Comments About the Internal Revenue Bulletin If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we would be pleased to hear from you. You can email us your suggestions or comments through the IRS Internet Home Page www.irs.gov) or write to the Internal Revenue Service, Publishing Division, IRB Publishing Program Desk, 1111 Constitution Ave. NW, IR-6230 Washington, DC 20224.
Continue sua pesquisa no ChatGPT ou Claude
Conecte o Omnilex para pesquisar o corpus jurídico pelo seu assistente de IA.