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Bulletin No.

2006-5
January 30, 2006

HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.

INCOME TAX Notice 2006–6, page 385.


This document notifies taxpayers and material advisors of a
future change to the categories of reportable transactions
Rev. Rul. 2006–6, page 381. under proposed section 1.6011–4 of the regulations. The
LIFO; price indexes; department stores. The November Service and Treasury Department will be issuing temporary
2005 Bureau of Labor Statistics price indexes are accepted and proposed regulations under section 1.6011–4 that will
for use by department stores employing the retail inventory remove from the categories of reportable transactions under
and last-in, first-out inventory methods for valuing inventories section 1.6011–4(b)(1) the category of transactions with a
for tax years ended on, or with reference to, November 30, significant book-tax difference currently set forth in section
2005. 1.6011–4(b)(6). Until the amended regulations are issued,
taxpayers and material advisors may rely on this notice.
T.D. 9236, page 382.
Final regulations under section 1374 of the Code provide that Notice 2006–10, page 386.
(a) section 1374(d)(8) applies to any transaction described in Hurricane Katrina evacuation allowances. This notice dis-
that section that occurs on or after December 27, 1994, re- cusses the income and employment tax treatment of special
gardless of the date of the S corporation’s election under sec- allowances paid by federal executive agencies to employees
tion 1362; and (b) for purposes of section 633(d)(8) of the Tax and their dependents to reimburse certain expenses incurred
Reform Act of 1986, as amended, a corporation’s most recent while evacuating from the Hurricane Katrina core disaster area
S election, not an earlier election that has been revoked or and staying at a safe haven.
terminated, determines whether or not it is subject to current
section 1374.

REG–104385–01, page 389. EMPLOYEE PLANS


Proposed regulations under section 168 of the Code provide
guidance on the normalization requirements applicable to pub- Notice 2006–8, page 386.
lic utilities that benefit (or have benefited) from accelerated de- Weighted average interest rate update; 30–year Trea-
preciation methods or from the investment tax credit permitted sury securities. The weighted average interest rate for Jan-
under pre-1999 law. The regulations permit a utility whose as- uary 2006 and the resulting permissible range of interest rates
sets cease to be public utility property to return to its ratepay- used to calculate current liability and to determine the required
ers the normalization reserve for excess deferred income taxes contribution are set forth.
(EDFIT) with respect to those assets and, in certain circum-
stances, also permit the return of part or all of the reserve for
accumulated deferred investment tax credits (ADITC) with re-
spect to those assets. A public hearing is scheduled for April
5, 2006.

(Continued on the next page)

Finding Lists begin on page ii.


Index for January begins on page iv.
EXEMPT ORGANIZATIONS

Announcement 2006–9, page 392.


The Nunoi Foundation of Los Angeles, CA, no longer qualifies
as an organization to which contributions are deductible under
section 170 of the Code.

EMPLOYMENT TAX

Notice 2006–10, page 386.


Hurricane Katrina evacuation allowances. This notice dis-
cusses the income and employment tax treatment of special
allowances paid by federal executive agencies to employees
and their dependents to reimburse certain expenses incurred
while evacuating from the Hurricane Katrina core disaster area
and staying at a safe haven.

ADMINISTRATIVE

Notice 2006–6, page 385.


This document notifies taxpayers and material advisors of a
future change to the categories of reportable transactions
under proposed section 1.6011–4 of the regulations. The
Service and Treasury Department will be issuing temporary
and proposed regulations under section 1.6011–4 that will
remove from the categories of reportable transactions under
section 1.6011–4(b)(1) the category of transactions with a
significant book-tax difference currently set forth in section
1.6011–4(b)(6). Until the amended regulations are issued,
taxpayers and material advisors may rely on this notice.

Notice 2006–10, page 386.


Hurricane Katrina evacuation allowances. This notice dis-
cusses the income and employment tax treatment of special
allowances paid by federal executive agencies to employees
and their dependents to reimburse certain expenses incurred
while evacuating from the Hurricane Katrina core disaster area
and staying at a safe haven.

Rev. Proc. 2006–15, page 387.


This procedure provides the maximum vehicle values for
use of the special valuation rules under regulations sections
1.61–21(d) and (e). These values are indexed for inflation and
must be adjusted annually by referring to the Consumer Price
Index (CPI).

Announcement 2006–10, page 393.


This document provides notice of a public hearing on proposed
regulations (REG–131739–03, 2005–36 I.R.B. 494) relating to
the IRS preparing or executing returns for persons who fail to
make required returns. The hearing is scheduled for March 8,
2006.

January 30, 2006 2006–5 I.R.B.


The IRS Mission
Provide America’s taxpayers top quality service by helping applying the tax law with integrity and fairness to all.
them understand and meet their tax responsibilities and by

Introduction
The Internal Revenue Bulletin is the authoritative instrument of court decisions, rulings, and procedures must be considered,
the Commissioner of Internal Revenue for announcing official and Service personnel and others concerned are cautioned
rulings and procedures of the Internal Revenue Service and for against reaching the same conclusions in other cases unless
publishing Treasury Decisions, Executive Orders, Tax Conven- the facts and circumstances are substantially the same.
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
The Bulletin is divided into four parts as follows:
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis. Part I.—1986 Code.
This part includes rulings and decisions based on provisions of
It is the policy of the Service to publish in the Bulletin all sub- the Internal Revenue Code of 1986.
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod- Part II.—Treaties and Tax Legislation.
ify, or amend any of those previously published in the Bulletin. This part is divided into two subparts as follows: Subpart A,
All published rulings apply retroactively unless otherwise indi- Tax Conventions and Other Related Items, and Subpart B, Leg-
cated. Procedures relating solely to matters of internal man- islation and Related Committee Reports.
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published. 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
Revenue rulings represent the conclusions of the Service on the included in this part are Bank Secrecy Act Administrative Rul-
application of the law to the pivotal facts stated in the revenue ings. Bank Secrecy Act Administrative Rulings are issued by
ruling. In those based on positions taken in rulings to taxpayers the Department of the Treasury’s Office of the Assistant Sec-
or technical advice to Service field offices, identifying details retary (Enforcement).
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements. Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.
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 The last Bulletin for each month includes a cumulative index
relied on, used, or cited as precedents by Service personnel in for the matters published during the preceding months. These
the disposition of other cases. In applying published rulings and monthly indexes are cumulated on a semiannual basis, and are
procedures, the effect of subsequent legislation, regulations, 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.

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

2006–5 I.R.B. January 30, 2006


Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 61.—Gross Income Section 472.—Last-in, of the Income Tax Regulations and Rev.
Defined First-out Inventories Proc. 86–46, 1986–2 C.B. 739, for ap-
propriate application to inventories of
26 CFR 1.61–21(e): Vehicle cents-per-mile valua- 26 CFR 1.472–1: Last-in, first-out inventories. department stores employing the retail
tion.
inventory and last-in, first-out inventory
LIFO; price indexes; department
A revenue procedure provides maximum vehicle methods for tax years ended on, or with
stores. The November 2005 Bureau of
values for which the special valuation rules of regu- reference to, November 30, 2005.
lations sections 1.61–21(d) and (e) may be used. See Labor Statistics price indexes are accepted
The Department Store Inventory Price
Rev. Proc. 2006-15, page 387. for use by department stores employing
Indexes are prepared on a national basis
the retail inventory and last-in, first-out
and include (a) 23 major groups of depart-
inventory methods for valuing inventories
Section 280F.—Limitation for tax years ended on, or with reference
ments, (b) three special combinations of
on Depreciation for Luxury to, November 30, 2005.
the major groups — soft goods, durable
Automobiles; Limitation goods, and miscellaneous goods, and (c) a
Where Certain Property store total, which covers all departments,
Rev. Rul. 2006–6 including some not listed separately, ex-
Used for Personal Purposes
cept for the following: candy, food, liquor,
The following Department Store In-
A revenue procedure provides maximum vehicle tobacco, and contract departments.
values for which the special valuation rules of regu-
ventory Price Indexes for November 2005
lations sections 1.61–21(d) and (e) may be used. See were issued by the Bureau of Labor Statis-
Rev. Proc. 2006-15, page 387. tics. The indexes are accepted by the Inter-
nal Revenue Service, under § 1.472–1(k)

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE


INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS
(January 1941 = 100, unless otherwise noted)
Percent Change
from Nov. 2004
Groups Nov. 2004 Nov. 2005 to Nov. 20051
1. Piece Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 507.8 480.6 -5.4
2. Domestics and Draperies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 535.3 508.2 -5.1
3. Women’s and Children’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 656.6 684.7 4.3
4. Men’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 842.9 868.9 3.1
5. Infants’ Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 584.3 564.1 -3.5
6. Women’s Underwear. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 518.5 548.8 5.8
7. Women’s Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342.0 339.8 -0.6
8. Women’s and Girls’ Accessories . . . . . . . . . . . . . . . . . . . . . . . . . . . 583.1 582.1 -0.2
9. Women’s Outerwear and Girls’ Wear . . . . . . . . . . . . . . . . . . . . . . . 376.8 368.3 -2.3
10. Men’s Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 542.5 542.1 -0.1
11. Men’s Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 581.5 574.9 -1.1
12. Boys’ Clothing and Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 430.1 403.5 -6.2
13. Jewelry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 879.0 861.4 -2.0
14. Notions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 789.1 803.1 1.8
15. Toilet Articles and Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 998.6 1001.0 0.2
16. Furniture and Bedding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 601.7 596.7 -0.8
17. Floor Coverings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 590.2 612.3 3.7
18. Housewares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 711.8 701.9 -1.4
19. Major Appliances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201.6 204.3 1.3
20. Radio and Television. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40.7 38.1 -6.4
21. Recreation and Education2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79.5 77.6 -2.4
22. Home Improvements2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130.6 137.2 5.1
23. Automotive Accessories2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113.1 116.5 3.0

2006–5 I.R.B. 381 January 30, 2006


BUREAU OF LABOR STATISTICS, DEPARTMENT STORE
INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS
(January 1941 = 100, unless otherwise noted)
Percent Change
from Nov. 2004
Groups Nov. 2004 Nov. 2005 to Nov. 20051
Groups 1–15: Soft Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 566.4 561.0 -1.0
Groups 16–20: Durable Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 380.5 376.2 -1.1
Groups 21–23: Misc. Goods2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92.9 93.1 0.2

Store Total3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 499.6 495.4 -0.8

1
Absence of a minus sign before the percentage change in this column signifies a price increase.
2
Indexes on a January 1986 = 100 base.
3
The store total index covers all departments, including some not listed separately, except for the following: candy, food, liquor,
tobacco, and contract departments.

DRAFTING INFORMATION tus and later elect again to become S cor- under section 1362, and (2) for purposes
porations. of section 633(d)(8) of the Tax Reform
The principal author of this revenue Act of 1986, as amended by the Technical
ruling is Michael Burkom of the Office DATES: Effective Date: These regulations and Miscellaneous Revenue Act of 1988,
of Associate Chief Counsel (Income Tax are effective December 21, 2005. a corporation’s most recent S election, not
and Accounting). For further informa- Applicability Dates: Section 1.1374–8 an earlier election that has been revoked
tion regarding this revenue ruling, contact applies to any transaction described in or terminated, determines whether or not
Mr. Burkom at (202) 622–7924 (not a section 1374(d)(8) that occurs on or after it is subject to current section 1374.
toll-free call). December 27, 1994. Section 1.1374–10 No comments were received respond-
applies for taxable years beginning after ing to the notice of proposed rulemaking,
December 22, 2004. and no public hearing was requested
Section 1374.—Tax or held. The proposed regulations are
Imposed on Certain FOR FURTHER INFORMATION
adopted with no substantive change by this
Built-In Gains CONTACT: Stephen R. Cleary, (202)
Treasury decision, and the corresponding
622–7750, (not a toll-free number).
temporary regulations are removed.
26 CFR 1.1374–8: Section 1374(d)(8) transactions.
SUPPLEMENTARY INFORMATION:
Special Analyses
T.D. 9236 Background
It has been determined that this regula-
DEPARTMENT OF This document contains amendments tion is not a significant regulatory action
THE TREASURY to 26 CFR Part 1. On December 22, 2004, as defined in Executive Order 12866.
Internal Revenue Service temporary regulations (T.D. 9170, 2005–4 Therefore, a regulatory assessment is not
I.R.B. 363) regarding the applicability required. It also has been determined that
26 CFR Part 1
of section 1374 to S corporations that section 553(b) and (d) of the Adminis-
acquire assets in certain carryover basis trative Procedure Act (5 U.S.C. chapter
Section 1374 Effective Dates
transactions and to certain corporations 5) does not apply to §1.1374–8(a)(2)
AGENCY: Internal Revenue Service that terminate S corporation status and of these regulations. With respect to
(IRS), Treasury. later elect again to become S corporations §1.1374–10(c) of these regulations, it has
were published in the Federal Register been determined, pursuant to 5 U.S.C.
ACTION: Final regulations. (69 FR 76612). A notice of proposed rule- 553(d)(3), that good cause exists to dis-
making (REG–139683–04, 2005–4 I.R.B. pense with a delayed effective date. This
SUMMARY: This document contains fi- 371) cross-referencing the temporary reg- section, which is substantively identical to
nal regulations that provide guidance con- ulations was published in the Federal currently effective temporary regulations,
cerning the applicability of section 1374 of Register for the same day (69 FR 76635). merely continues to provide necessary
the Internal Revenue Code to S corpora- The temporary regulations provide that (1) guidance to taxpayers with respect to the
tions that acquire assets in carryover basis section 1374(d)(8) applies to any transac- application of the transition rule regarding
transactions from C corporations on or af- tion described in that section that occurs qualified corporations in section 633(d)(8)
ter December 27, 1994, and to certain cor- on or after December 27, 1994, regardless of TRA, as amended by TAMRA, and,
porations that terminate S corporation sta- of the date of the S corporation’s election accordingly, with respect to the applica-

January 30, 2006 382 2006–5 I.R.B.


tion of section 1374 to asset dispositions §1.1374–8 Section 1374(d)(8) §1.1374–10 Effective date and additional
which occur during taxable years begin- transactions. rules.
ning after December 22, 2004. Because
§1.1374–8(a)(2) does not impose a collec- (a) In general. *****
tion of information on small entities, it is (b) Effective date of section 1374(d)(8). (c) Termination and re-election of
not subject to the provisions of the Regu- (c) Separate determination of tax. S corporation status—(1) In general. For
latory Flexibility Act (5 U.S.C. chapter 6). (d) Taxable income limitation. purposes of section 633(d)(8) of the Tax
It is hereby certified that §1.1374–10(c) (e) Examples. Reform Act of 1986, as amended, any ref-
of these regulations will not have a sig- ***** erence to an election to be an S corporation
nificant economic impact on a substantial under section 1362 shall be treated as a
number of small entities. This certification §1.1374–10 Effective date and additional reference to the corporation’s most recent
is based on the fact that §1.1374–10(c) of rules. election to be an S corporation under sec-
these regulations addresses an uncommon tion 1362. This paragraph (c) applies for
***** taxable years beginning after December
fact situation not likely to affect a signifi-
(c) Revocation and re-election of S corpo- 22, 2004, without regard to the date of the
cant number of small entities. Therefore,
ration status. corporation’s most recent election to be an
a regulatory flexibility analysis is not re-
(1) In general. S corporation under section 1362.
quired. Pursuant to section 7805(f) of the
(2) Example. (2) Example. The following example
Code, the notice of proposed rulemaking
Par. 3. Section 1.1374–8 is amended illustrates the rules of this paragraph (c):
preceding these final regulations was sub-
by: Example. (i) Effective January 1, 1988, X, a
mitted to the Chief Counsel for Advocacy
1. Redesignating paragraphs (b), (c), C corporation that is a qualified corporation under
of the Small Business Administration for section 633(d) of the Tax Reform Act of 1986, as
and (d) as paragraphs (c), (d), and (e), re-
comment on its impact on small business. amended, elects to be an S corporation under section
spectively. 1362. Effective January 1, 1990, X revokes its S
Drafting Information 2. Revising paragraph (a). status and becomes a C corporation. On January 1,
3. Adding new paragraph (b). 2004, X again elects to be an S corporation under
The revision and addition read as fol- section 1362. X disposes of assets in 2006, 2007,
The principal author of these regula-
and 2008, recognizing gain.
tions is Stephen R. Cleary of the Office lows:
(ii) X is not eligible for treatment under the tran-
of Associate Chief Counsel (Corporate). sition rule of section 633(d)(8) of the Tax Reform Act
§1.1374–8 Section 1374(d)(8)
Other personnel from Treasury and the IRS of 1986, as amended, with respect to these assets. Ac-
transactions. cordingly, X is subject to section 1374, as amended
participated in their development.
by the Tax Reform Act of 1986 and the Technical and
***** (a) In general. If any S corporation ac- Miscellaneous Revenue Act of 1988, and the 10-year
quires any asset in a transaction in which recognition period begins on January 1, 2004.
the S corporation’s basis in the asset is de- (iii) To the extent the gain that X recognizes on the
Adoption of Amendments to the asset sales in 2006, 2007, and 2008 reflects built-in
Regulations termined (in whole or in part) by reference
gain inherent in such assets in X’s hands on January
to a C corporation’s basis in the assets (or 1, 2004, such gain is subject to tax under section 1374
Accordingly, 26 CFR part 1 is amended any other property) (a section 1374(d)(8) as amended by the Tax Reform Act of 1986 and the
as follows: transaction), section 1374 applies to the net Technical and Miscellaneous Revenue Act of 1988.
recognized built-in gain attributable to the
PART 1 — INCOME TAXES assets acquired in any section 1374(d)(8) §1.1374–10T [Removed]
transaction.
Par. 6. Section 1.1374–10T is removed.
Paragraph 1. The authority citation for (b) Effective date of section 1374(d)(8).
part 1 is amended by adding entries in nu- Section 1374(d)(8) applies to any section Mark E. Matthews,
merical order to read, in part, as follows: 1374(d)(8) transaction, as defined in para- Deputy Commissioner for
Authority: 26 U.S.C. 7805 * * * graph (a)(1) of this section, that occurs on Services and Enforcement.
Section 1.1374–8 also issued under 26 or after December 27, 1994, without re-
U.S.C 337(d) and 1374(e).* * * gard to the date of the corporation’s elec- Approved December 9, 2005.
Section 1.1374–10 also issued under 26 tion to be an S corporation under section
U.S.C. 337(d) and 1374(e).* * * 1362. Eric Solomon,
Par. 2. Section 1.1374–0 is amended Acting Deputy Assistant
*****
by revising the entries for §1.1374–8 and Secretary of the Treasury (Tax Policy).
adding an entry for §1.1374–10(c) to read §1.1374–8T [Removed] (Filed by the Office of the Federal Register on December 20,
as follows: 2005, 8:45 a.m., and published in the issue of the Federal
Register for December 21, 2005, 70 F.R. 75730)
Par. 4. Section 1.1374–8T is removed.
§1.1374–0 Table of contents. Par. 5. Section 1.1374–10 is amended
by revising paragraph (c) to read as fol-
***** lows:

2006–5 I.R.B. 383 January 30, 2006


Section 6011.—General Section 6111.—Disclosure Section 6112.—Material
Requirement of Return, of Reportable Transactions Advisors of Reportable
Statement, or List Transactions Must Keep
A notice notifies taxpayers and material advisors
of a future change to the categories of reportable
Lists of Advisees, etc.
A notice notifies taxpayers and material advisors
of a future change to the categories of reportable transactions under section 1.6011–4 of the Income
A notice notifies taxpayers and material advisors
transactions under section 1.6011–4 of the Income Tax Regulations. See Notice 2006-6, page 385.
of a future change to the categories of reportable
Tax Regulations. See Notice 2006-6, page 385. transactions under section 1.6011–4 of the Income
Tax Regulations. See Notice 2006-6, page 385.

January 30, 2006 384 2006–5 I.R.B.


Part III. Administrative, Procedural, and Miscellaneous
Notification of Removal of the accepted accounting principles for world- REMOVAL OF BOOK-TAX
Transaction With a Significant wide income. DIFFERENCE CATEGORY UNDER
Book-Tax Difference Category In 2004, the Internal Revenue Ser- § 1.6011–4
vice released Schedule M–3, Net Income
of Reportable Transaction (Loss) Reconciliation for Corporations The removal of the book-tax differ-
Under § 1.6011–4 With Total Assets of $10 Million or More, ence category of reportable transactions
for corporations that file Form 1120, U.S. will apply to transactions with a signif-
Notice 2006–6 Corporation Income Tax Return, effective icant book-tax difference that otherwise
for taxable years ending on or after De- would have to be disclosed by taxpayers
The purpose of this notice is to notify cember 31, 2004. On August 2, 2004, the under § 1.6011–4 on Form 8886 (or on
taxpayers and material advisors of a fu- Service and Treasury Department released Schedule M–3 as prescribed in Rev. Proc.
ture change to the categories of reportable Rev. Proc. 2004–45, 2004–2 C.B. 140, 2004–45) on or after January 6, 2006, the
transactions under § 1.6011–4 of the In- which provided procedures for filing the date this notice is released to the public.
come Tax Regulations. Until regulations Schedule M–3 that are deemed to satisfy Consequently, for those affected transac-
reflecting this change are issued, taxpay- a taxpayer’s disclosure obligations for tions, taxpayers are not required to file a
ers and material advisors may rely on this reporting transactions with a significant disclosure statement solely because the
notice. book-tax difference under § 1.6011–4. transaction has a significant book-tax dif-
Rev. Proc. 2004–45 also announced that ference under § 1.6011–4(b)(6).
BACKGROUND the Service and Treasury Department will The removal of this category of re-
continue to evaluate whether the disclo- portable transaction also will apply to
Section 1.6011–4 requires a taxpayer sure requirements described in the revenue transactions with a significant book-tax
that participates in a reportable transaction procedure and Schedule M–3 provide the difference that otherwise would have to
to disclose the transaction in accordance Service and Treasury Department ade- be disclosed by material advisors under
with procedures provided in § 1.6011–4. quate information regarding significant § 6111 on Form 8264, Application for Reg-
Similarly, § 6111 of the Internal Rev- book-tax differences. In December 2005, istration of a Tax Shelter, on or after Jan-
enue Code, as amended by the American the Service released draft Schedules M–3 uary 6, 2006. For those affected transac-
Jobs Creation Act of 2004, Pub. L. No. and instructions for corporations and part- tions, material advisors are not required to
108–357, 118 Stat. 1418 (the Act), re- nerships that, in general, have total assets file a disclosure statement solely because
quires that each material advisor with of $10 million or more and that file Forms the transaction has a significant book-tax
respect to any reportable transaction make 1120–PC, U.S. Property and Casualty difference under § 1.6011–4(b)(6).
a return setting forth information identify- Insurance Company Income Tax Return, Similarly, the removal of this category
ing and describing the transaction and any 1120–L, U.S. Life Insurance Company of reportable transaction will apply to
potential tax benefits expected to result Income Tax Return, 1120–S, U.S. Income transactions with a significant book-tax
from the transaction by the date speci- Tax Return for an S Corporation, or 1065, difference for which lists under § 6112
fied by the Secretary. Section 6112, as U.S. Return of Partnership Income. When otherwise should have been prepared and
amended by the Act, requires material finalized, these Schedules M–3 will be maintained beginning on or after January
advisors to maintain lists identifying each effective for tax years ending on or after 6, 2006. For those affected transactions,
person with respect to whom the advisor December 31, 2006. material advisors are not required to pre-
acted as a material advisor and containing Based on a review of the Forms 8886, pare and maintain lists solely because the
such other information as the Secretary Reportable Transaction Disclosure State- transaction has a significant book-tax dif-
may by regulations require. ment, and Schedules M–3 received during ference under § 1.6011–4(b)(6).
Under § 1.6011–4(b), there are cur- the most recent filing season, the Service This notice does not relieve taxpayers
rently six categories of reportable trans- and Treasury Department have concluded or material advisors of any disclosure, reg-
actions. One category of reportable trans- that the book-tax difference category of istration or list maintenance obligations
actions is a transaction with a significant reportable transactions under § 1.6011–4 for transactions that should have been dis-
book-tax difference. A transaction with is no longer necessary. As a result, the closed or registered, or for transactions for
a significant book-tax difference is de- Service and Treasury Department will be which lists should have been prepared and
fined in § 1.6011–4(b)(6) as a transaction issuing temporary and proposed regula- maintained, prior to January 6, 2006. Fur-
where the amount for tax purposes of any tions under § 1.6011–4 that will remove ther, this notice does not relieve taxpayers
item or items of income, gain, expense, or from the categories of reportable trans- of any obligation to file a Schedule M–3.
loss from the transaction differs by more actions under § 1.6011–4(b)(1) the cat- If a transaction with a significant
than $10 million on a gross basis from egory of transactions with a significant book-tax difference also is described
the amount of the item or items for book book-tax difference currently set forth in in § 1.6011–4(b)(2) through (5) or (7),
purposes in any taxable year. The amount § 1.6011–4(b)(6). the transaction is a reportable transac-
of an item for book purposes is normally tion under § 1.6011–4 for which disclo-
determined by applying U.S. generally sure may be required by taxpayers under

2006–5 I.R.B. 385 January 30, 2006


§ 1.6011–4, and for which disclosure and erally provide that the interest rates used securities for the month before the date
list maintenance may be required by ma- to calculate current liability for purposes of distribution or such other time as the
terial advisors under §§ 6111 and 6112, of determining the full funding limitation Secretary may by regulations prescribe.
respectively. under § 412(c)(7) and the required con- Section 1.417(e)–1(d)(3) of the Income
tribution under § 412(l) must be within Tax Regulations provides that the applica-
DRAFTING INFORMATION a permissible range around the weighted ble interest rate for a month is the annual
average of the rates of interest on 30-year interest rate on 30-year Treasury securi-
The principal author of this notice Treasury securities during the four-year ties as specified by the Commissioner for
is Tara P. Volungis of the Office of the period ending on the last day before the that month in revenue rulings, notices or
Associate Chief Counsel (Passthroughs beginning of the plan year. other guidance published in the Internal
& Special Industries). For further in- Notice 88–73, 1988–2 C.B. 383, pro- Revenue Bulletin.
formation regarding this notice, contact vides guidelines for determining the The rate of interest on 30-year Treasury
Ms. Volungis at (202) 622–3080 (not a weighted average interest rate and the securities for December 2005 is 4.65 per-
toll-free call). resulting permissible range of interest cent. Pursuant to Notice 2002–26, 2002–1
rates used to calculate current liability for C.B. 743, the Service has determined this
the purpose of the full funding limitation rate as the monthly average of the daily de-
Weighted Average Interest of § 412(c)(7) of the Code. termination of yield on the 30-year Trea-
Rate Update Section 417(e)(3)(A)(ii)(II) defines sury bond maturing in February 2031.
the applicable interest rate, which must The following 30-year Treasury rates
Notice 2006–8 be used for purposes of determining the were determined for the plan years begin-
minimum present value of a participant’s ning in the month shown below.
Sections 412(b)(5)(B) and 412(l)(7) benefit under § 417(e)(1) and (2), as the
(C)(i) of the Internal Revenue Code gen- annual rate of interest on 30-year Treasury

30-Year
For Plan Years Treasury 90% to 105% 90% to 110%
Beginning in: Weighted Permissible Permissible
Month Year Average Range Range
January 2006 4.85 4.37 to 5.10 4.37 to 5.34

Drafting Information Treatment of Certain Katrina core disaster area” means that por-
Travel, Lodging, and Other tion of the Hurricane Katrina Disaster Area
The principal authors of this notice determined by the President to warrant in-
are Paul Stern and Tony Montanaro of Allowances Paid by Federal
dividual or individual and public assis-
the Employee Plans, Tax Exempt and Executive Agencies to tance from the federal government under
Government Entities Division. For fur- Employees Evacuated From the Robert T. Stafford Disaster Relief and
ther information regarding this notice, Hurricane Katrina Core Emergency Assistance Act. See § 2(2) of
please contact the Employee Plans’ tax- the Katrina Emergency Tax Relief Act of
Disaster Area
payer assistance telephone service at 2005, Pub. L. No. 109–73, 119 Stat. 2016
1–877–829–5500 (a toll-free number), Notice 2006–10 (2005).
between the hours of 8:30 a.m. and
4:30 p.m. Eastern time, Monday through SECTION 1. PURPOSE SECTION 2. BACKGROUND
Friday. Mr. Stern may be reached at
1–202–283–9703. Mr. Montanaro may This notice provides guidance on the In the wake of Hurricane Katrina,
be reached at 1–202–283–9714. The tele- federal income and employment tax treat- which was a Presidentially declared disas-
phone numbers in the preceding sentences ment of special allowances (as defined in ter, federal executive agencies may make
are not toll-free. 5 C.F.R. §§ 550.403(c) and 550.405(b)(2)) payments to their employees to reimburse
paid by federal executive agencies (as de- the costs of travel, lodging, meals, and
fined in 5 U.S.C. § 105) to employees incidental expenses the employees and
(as defined in 5 C.F.R. § 550.401(b)(2), their dependents incur while evacuating
(3), and (4)) to reimburse certain expenses from the Hurricane Katrina core disaster
the employees and their dependents in- area and staying at a safe haven. Federal
cur while evacuating from the Hurricane executive agencies are authorized to pay
Katrina core disaster area and staying at these special allowances to employees un-
a safe haven as a result of the extraor- der 5 U.S.C. § 5523(b) (“An employee in
dinary damage and destruction caused by an Executive agency may be granted such
Hurricane Katrina. The term “Hurricane additional allowance payments . . . .”)

January 30, 2006 386 2006–5 I.R.B.


and 5 C.F.R. § 550.403(c) if the employ- (2) a Presidentially declared disaster (as .02 Payments Made by Federal Execu-
ees and their dependents “are evacuated defined in § 1033(h)(3)); or tive Agencies to Which This Notice Does
in the United States because of natural (3) a disaster resulting from an accident Not Apply
disasters or for military or other reasons involving a common carrier, or from any The rules provided in section 3.01 of
that create imminent danger to their lives.” other event, that is determined by the Sec- this notice do not apply to payments not
5 C.F.R. § 550.401(a). The payments au- retary to be of a catastrophic nature. described therein. For example, the rules
thorized by 5 C.F.R. § 550.403(c) include Section 139(d) provides that for pur- do not apply to advance payments of
travel expenses and per diem payments to poses of chapter 2 and subtitle C of the pay, allowances, and differentials under
offset direct added expenses the employ- Code, a qualified disaster relief payment 5 U.S.C. § 5522(a) and to payments made
ees and their dependents incur due to an shall not be treated as net earnings from by a federal executive agency to compen-
evacuation. Additional special allowance self-employment, wages, or compensation sate an employee for expenses incurred in
payments for subsistence expenses, as au- subject to tax. relocating to the disaster area.
thorized by and computed under 5 C.F.R. Because “of the extraordinary circum-
§ 550.405(b)(2), may be paid for a period stances surrounding a qualified disaster, it SECTION 4. DRAFTING
not to exceed 180 days after the effective is anticipated that individuals will not be INFORMATION
date of the order to evacuate. Federal ex- required to account for actual expenses in
ecutive agencies generally must determine order to qualify for the [§ 139] exclusion, The principal author of this notice is
the amount of the special allowance pay- provided that the amount of the payments Sheldon A. Iskow of the Office of Asso-
ments for the employees and their depen- can be reasonably expected to be commen- ciate Chief Counsel (Income Tax and Ac-
dents consistent with the Federal Travel surate with the expenses incurred.” Joint counting). For further information regard-
Regulation (FTR), 41 C.F.R. Chapters 300 Committee on Taxation Staff, Technical ing this notice, please contact Mr. Iskow
through 304. For dependents under 12 Explanation of the “Victims of Terrorism at (202) 622–4920 (not a toll-free call).
years of age and for payments made after Tax Relief Act of 2001,” As Passed by the
the first 30 days of evacuation, the special House and Senate on December 20, 2001,
26 CFR 1.61–21: Taxation of fringe benefits.
allowance payments are paid at a rate less 107th Cong., 1st Sess. 16 (2001). (Also Internal Revenue Code §§ 61, 280F.)
than the maximum per diem. 5 C.F.R.
§ 550.405. The regulations authorizing SECTION 3. APPLICATION
Rev. Proc. 2006–15
these payments are silent as to whether
federal executive agencies are required .01 Payments Made by Federal Execu-
to take into account reimbursements from tive Agencies to Which This Notice Applies SECTION 1. PURPOSE
other payors when determining the amount The special allowances described
of a special allowance. in 5 U.S.C. § 5523(b) and 5 C.F.R. .01 This revenue procedure provides:
Section 61 provides that except as oth- §§ 550.403(c) and 550.405(b)(2) that (1) the maximum value of employer-pro-
erwise provided in subtitle A of the Code, an employee receives as a result of Hurri- vided vehicles first made available to em-
gross income means all income from what- cane Katrina will be treated as reasonable, ployees for personal use in calendar year
ever source derived. necessary, and excludable from the gross 2006 for which the vehicle cents-per-mile
The Victims of Terrorism Tax Relief income and wages of the employee under valuation rule provided under section
Act of 2001, Pub. L. No. 107–134, 115 § 139 to the extent that the expenses com- 1.61–21(e) of the Income Tax Regula-
Stat. 2427 (2001), added § 139 to the pensated by the special allowances are not tions may be applicable is $15,000 for a
Code. Section 139(a) provides that gross otherwise compensated for by insurance passenger automobile and $16,400 for a
income shall not include any amount re- or otherwise. truck or van; (2) the maximum value of
ceived by an individual as a qualified dis- Federal executive agencies that pay employer-provided vehicles first made
aster relief payment. an employee special allowances autho- available to employees for personal use in
Under § 139(b)(1), a qualified disaster rized by 5 U.S.C. § 5523(b) and 5 C.F.R. calendar year 2006 for which the fleet-av-
relief payment includes any amount paid to §§ 550.403(c) and 550.405(b)(2) as a erage valuation rule provided under sec-
or for the benefit of an individual to reim- result of Hurricane Katrina will not be tion 1.61–21(d) of the regulations may
burse or pay reasonable and necessary per- required to report the special allowances be applicable is $19,900 for a passenger
sonal, family, living, or funeral expenses (even if the expenses are otherwise com- automobile and $21,400 for a truck or van.
incurred as a result of a qualified disaster, pensated for by insurance or otherwise) on
but only to the extent any expense com- Form W–2, Wage and Tax Statement, or SECTION 2. BACKGROUND
pensated by such payment is not other- to deduct and withhold taxes from these
wise compensated for by insurance or oth- amounts. In addition, the IRS will not .01 If an employer provides an em-
erwise. require either a Federal executive agency ployee with a vehicle that is available
Section 139(c) defines a qualified dis- or its employee to include any amount of to the employee for personal use, the
aster to include: Hurricane Katrina special allowances in value of the personal use must generally
(1) a disaster that results from a ter- wages for employment tax purposes (even be included in the employee’s income
roristic or military action (as defined in if the expenses are otherwise compensated and wages. Internal Revenue Code § 61;
§ 692(c)(2)); for by insurance or otherwise). Treas. Reg. § 1.61–21.

2006–5 I.R.B. 387 January 30, 2006


.02 For employer-provided passen- trucks and vans uses the “new car” com- the first time in calendar year 2006 for
ger automobiles (including trucks and ponent of the Consumer Price Index (CPI) the personal use of any employee for an
vans) made available to employees for “automobile component”. When calcu- entire year may determine the value of
personal use that meet the requirements lating this price inflation adjustment for the personal use by using the fleet-aver-
of section 1.61–21(e)(1) of the regula- trucks and vans, the “new trucks” com- age valuation rule in regulations section
tions, generally the value of the personal ponent of the CPI is used. This results 1.61–21(d)(5)(v) to calculate the Annual
use may be determined under the vehicle in somewhat higher maximum values for Lease Values of the automobiles in the
cents-per-mile valuation rule of section trucks and vans. This change reflects the fleet. The fleet-average valuation rule may
1.61–21(e). However, regulations section higher rate of price inflation that trucks not be used to determine the Annual Lease
1.61–21(e)(1)(iii)(A) provides that for a and vans have been subject to since 1988, Value of any automobile if its fair market
passenger automobile first made avail- and is consistent with the change an- value on the date it is first made available
able after 1988 to any employee of the nounced in Rev. Proc. 2003–75, 2003–2 exceeds $19,900 for a passenger automo-
employer for personal use, the value of C.B. 1018, for purposes of calculating de- bile other than a truck or van, or $21,400
the personal use may not be determined preciation deductions. See also Rev. Proc. for a truck or van. If all other appli-
under the vehicle cents-per-mile valuation 2004–20, 2004–1 C.B. 642, and Rev. cable requirements are met, an employer
rule for a calendar year if the fair market Proc. 2005–13, 2005–12 I.R.B. 759. For with a fleet of 20 or more vehicles consist-
value of the passenger automobile (de- purposes of this revenue procedure, the ing of passenger automobiles other than
termined pursuant to regulations section term “trucks and vans” refers to passenger trucks or vans as well as trucks and vans
1.61–21(d)(5)(i) through (iv)) on the first automobiles that are built on a truck chas- may use the fleet-average valuation rule
date the passenger automobile is made sis, including minivans and sport utility as long as none of the vehicles exceed
available to the employee exceeds a spec- vehicles (SUVs) that are built on a truck their respective maximum allowable val-
ified dollar limit. chassis. ues. If the fair market value of any passen-
.03 For employer-provided vehicles ger automobile in the fleet exceeds these
available to employees for personal use SECTION 3. PROCEDURE amounts, the employer may determine the
for an entire year, generally the value of value of the personal use under regulations
the personal use may be determined un- .01 Maximum Automobile Value for section 1.61–21(f) (Commuting valuation)
der the automobile lease valuation rule Using the Cents-per-mile Valuation Rule. or the general valuation rules of section
of section 1.61–21(d) of the regulations. An employer providing a passenger auto- 1.61–21(b), or may determine the Annual
Under this valuation rule, the value of mobile for the first time in calendar year Lease Value of such automobile separately
the personal use is the Annual Lease 2006 for the personal use of any employee under the automobile lease valuation rule
Value. Provided the requirements of reg- may determine the value of the personal of section 1.61–21(d)(2) if the applicable
ulations section 1.61–21(d)(5)(v) are met, use by using the vehicle cents-per-mile requirements are met.
an employer with a fleet of 20 or more valuation rule in section 1.61–21(e) of the
automobiles may use a fleet-average value regulations if its fair market value on the SECTION 4. EFFECTIVE DATE
for purposes of calculating the Annual date it is first made available does not
Lease Values of the automobiles in the exceed $15,000 for a passenger automo- This revenue procedure applies to em-
employer’s fleet. The fleet-average value bile other than a truck or van, or $16,400 ployer-provided passenger automobiles
is the average of the fair market values of for a truck or van. If the fair market first made available to employees for per-
all the automobiles in the fleet. However, value of the passenger automobile exceeds sonal use in calendar year 2006.
section 1.61–21(d)(5)(v)(D) of the regula- this amount, the employer may determine
SECTION 5. DRAFTING
tions provides that for an automobile first the value of the personal use under the
INFORMATION
made available after 1988 to an employee general valuation rules of regulations sec-
of the employer for personal use, the value tion 1.61–21(b) or under the special valua- The principal author of this revenue
of the personal use may not be determined tion rules of section 1.61–21(d) (Automo- procedure is Frederick L. Wesner of the
under the fleet-average valuation rule for a bile lease valuation) or section 1.61–21(f) Office of Division Counsel/Associate
calendar year if the fair market value of the (Commuting valuation) if the applicable Chief Counsel (Tax Exempt/Government
automobile (determined pursuant to reg- requirements are met. See Rev. Proc. Entities). For further information re-
ulations section 1.61–21(d)(5)(i) through 2004–20 for guidance on determining the garding the maximum automobile value
(v)) on the first date the passenger auto- maximum value of passenger automobiles for applying the valuation rules of reg-
mobile is made available to the employee first made available during calendar year ulations section 1.61–21(e)(1)(iii)(A)
exceeds a specified dollar limit. 2004, and Rev. Proc. 2005–48 for guid- (the vehicle cents-per-mile valuation
.04 The maximum passenger auto- ance on determining the maximum value rule), and section 1.61–21(d)(5)(v)(D)
mobile values for applying the vehicle of passenger automobiles first made avail- (the fleet-average valuation rule), contact
cents-per-mile and the fleet-average value able during calendar year 2005. Frederick L. Wesner at (202) 622–6040
rules reflect the automobile price inflation .02 Maximum Automobile Value for (not a toll-free call).
adjustment of Code section 280F(d)(7). Using the Fleet-Average Valuation Rule.
The method of calculating this price in- An employer with a fleet of 20 or more
flation amount for automobiles other than automobiles providing an automobile for

January 30, 2006 388 2006–5 I.R.B.


Part IV. Items of General Interest
Notice of Proposed ADDRESSES: Send submissions to: flow through certain reserves associated
Rulemaking, Notice of Public CC:PA:LPD:PR (REG–104385–01), room with those assets without violating the
Hearing, and Withdrawal 5203, Internal Revenue Service, PO Box normalization requirements. In response
7604, Ben Franklin Station, Washing- to public comments and after further anal-
of Previous Proposed ton, DC 20044. Submissions may be ysis, the 2003 proposed regulations are
Regulations hand-delivered Monday through Friday withdrawn, and new regulations are pro-
between the hours of 8 a.m. and 4 p.m. posed in this document.
Application of Normalization to CC:PA:LPD:PR (REG–104385–01),
Courier’s Desk, Internal Revenue Service, Normalization Method of Accounting
Accounting Rules to Balances
of Excess Deferred Income 1111 Constitution Avenue, NW, Wash-
Section 168 of the Code permits the use
ington, DC, or sent electronically, via the
Taxes and Accumulated IRS Internet site at www.irs.gov/regs or
of accelerated depreciation methods. Sec-
Deferred Investment Tax tion 168(f)(2) provides, however, that ac-
via the Federal eRulemaking Portal at
celerated depreciation is permitted with re-
Credits of Public Utilities www.regulations.gov (indicate IRS and
spect to public utility property only if the
Whose Assets Cease to be REG–104385–01). The public hearing
taxpayer uses a normalization method of
Public Utility Property will be held in the IRS Auditorium, Inter-
accounting for ratemaking purposes.
nal Revenue Building, 1111 Constitution
Under a normalization method of ac-
Avenue, NW, Washington, DC.
REG–104385–01 counting, a utility calculates its ratemaking
tax expense using depreciation that is no
AGENCY: Internal Revenue Service FOR FURTHER INFORMATION
more accelerated than its ratemaking de-
(IRS), Treasury. CONTACT: Concerning the proposed reg-
preciation (typically straight-line). In the
ulations, David Selig, at (202) 622–3040;
early years of an asset’s life, this results
ACTION: Notice of proposed rulemaking, concerning submissions of comments, the
in ratemaking tax expense that is greater
notice of public hearing, and withdrawal of hearing, or to be placed on the build-
than actual tax expense. The difference
previous proposed regulations. ing access list to attend the hearing,
between the ratemaking tax expense and
Richard Hurst, at (202) 622–7180 (not
the actual tax expense is added to a reserve
SUMMARY: This document contains pro- toll-free numbers).
(the accumulated deferred federal income
posed regulations that provide guidance tax reserve, or ADFIT). The difference be-
on the normalization requirements appli- SUPPLEMENTARY INFORMATION:
tween ratemaking tax expense and actual
cable to public utilities that benefit (or tax expense is not permanent and reverses
have benefited) from accelerated depre- Background
in the later years of the asset’s life when the
ciation methods or from the investment ratemaking depreciation method provides
tax credit permitted under pre-1991 law. This document contains proposed
larger depreciation deductions and lower
The proposed regulations permit a util- amendments to the Income Tax Regu-
tax expense than the accelerated method
ity whose assets cease to be public utility lations (26 CFR Part 1) relating to the
used in computing actual tax expense.
property to return to its ratepayers the nor- normalization requirements of sections
This accounting treatment prevents
malization reserve for excess deferred in- 168(f)(2) and 168(i)(9) of the Internal
the immediate flow-through to utility
come taxes (EDFIT) with respect to those Revenue Code (Code), section 203(e)
ratepayers of the reduction in current taxes
assets and, in certain circumstances, also of the Tax Reform Act of 1986, Public
resulting from the use of accelerated de-
permit the return of part or all of the re- Law 99–514 (100 Stat. 2146), and for-
preciation. Instead, the reduction is treated
serve for accumulated deferred investment mer section 46(f) of the Code. Proposed
as a deferred tax expense that is collected
tax credits (ADITC) with respect to those regulations relating to the normalization
from current ratepayers through utility
assets. This document also provides notice requirements applicable to electric utili-
rates, and thus is available to utilities as
of a public hearing on these proposed reg- ties that benefit (or have benefited) from
investment capital. When the accelerated
ulations and a withdrawal of proposed reg- accelerated depreciation methods or from
method provides lower depreciation de-
ulations [REG–104385–01, 2003–1 C.B. the investment tax credit permitted under
ductions in later years, only the ratemaking
634] published March 4, 2003, at 68 FR pre-1991 law [REG–104385–01] were
tax expense is collected from ratepayers
10190. published in the Federal Register on
and the difference between actual tax
March 4, 2003 (the 2003 proposed regu-
expense and ratemaking tax expense is
DATES: Written or electronic comments lations). The 2003 proposed regulations
charged to ADFIT.
must be received by March 21, 2005. Re- would have provided rules under which
quests to speak and outlines of topics to be electric utilities whose electricity gen- Excess Deferred Income Tax
discussed at the public hearing scheduled eration assets cease to be public utility
for April 5, 2006, at 10 a.m. must be re- property, whether by disposition, dereg- The Tax Reform Act of 1986 (the 1986
ceived by March 15, 2006. ulation, or otherwise, could continue to Act) reduced the highest corporate tax rate

2006–5 I.R.B. 389 January 30, 2006


from 46 percent to 34 percent. The ex- investment tax credits (ADITC). If the changes described below, for generation
cess deferred federal income tax (EDFIT) utility elected ratable flow-through of the assets and extend the application of the
reserve is the balance of the deferred tax credit, the rate base could not be reduced rule to all other public utility property.
reserve immediately before the rate reduc- by reason of any portion of the credit. The 2003 proposed regulations also
tion over the balance that would have been provided similar rules under which utili-
held in the reserve if the 34 percent rate Private Letter Rulings ties could continue to flow through ADITC
had been in effect for prior periods. The reserves associated with deregulated gen-
The IRS has issued a number of private
EDFIT reserves were amounts that utilities eration assets without violating the nor-
letter rulings holding that flow-through of
had collected from ratepayers to pay future malization requirements. The proposed
the EDFIT and ADITC reserves associ-
taxes that, as a result of the 1986 Act re- regulations did not address the treatment
ated with an asset is not permitted after
duction in corporate tax rates, would not of deregulated assets under former sec-
the asset’s deregulation, whether by dis-
be imposed. tion 46(f)(1) (relating to the use of the
position or otherwise. These rulings were
Section 203(e) of the 1986 Act speci- investment credit to reduce the taxpayer’s
based on the principle that flow-through
fies the manner in which the EDFIT re- rate base). After further consideration,
is permitted only over the asset’s regula-
serve must be flowed through to ratepay- the IRS and Treasury have concluded that
tory life and when that life is terminated
ers under a normalization method of ac- flowthrough of the ADITC reserve should
by deregulation no further flow-through is
counting. It provides that the EDFIT re- not continue after deregulation except to
permitted. After further consideration, the
serve may be reduced, with a correspond- the extent the utility is permitted to recover
IRS and Treasury have concluded that for-
ing reduction in the cost of service the stranded costs after deregulation.
mer section 46(f) does not, in all cases,
utility collects from ratepayers, no more If an asset qualifying for the invest-
prohibit flowthrough of ADITC reserves
rapidly than the EDFIT reserve would be ment tax credit is purchased by a util-
after deregulation and that section 203(e)
reduced under the average rate assump- ity, the allowance of the credit, without
of the Tax Reform Act does not preclude
tion method (ARAM). For taxpayers that flowthrough, lowers the utility’s actual
flowthrough of the EDFIT reserve with re-
did not have adequate data to apply the tax expense but does not result in higher
spect to deregulated property.
average rate assumption method, subse- tax expense for ratepayers than would
quent guidance permitted use of the re- Explanation of Provisions have been the case if the asset had not
verse South Georgia method as an alter- been purchased. Thus, in the absence of
native. In general, both the average rate The 2003 proposed regulations pro- flowthrough, the investment tax credit is
assumption method and the reverse South vided that utilities whose generation assets a subsidy from the Federal government
Georgia method spread the flow-through cease to be public utility property, whether for the purchase of the asset rather than a
of the EDFIT reserve over the remaining by disposition, deregulation, or otherwise transfer from ratepayers to the utility. The
lives of the property that gave rise to the (deregulated public utility property), may underlying policy of former section 46(f)
excess. continue to flow through EDFIT reserves is to share this subsidy between ratepay-
associated with those assets without vi- ers and utilities in proportion to their
Accumulated Deferred Investment Tax olating the normalization requirements. respective contributions to the purchase
Credits (ADITC) The rate of flowthrough was limited to the price. In general, former section 46(f)
rate that would have been permitted un- treats ratepayers as contributing to the
Former section 46 of the Code similarly der a normalization method of accounting purchase price when ratemaking depreci-
addressed the flow-through to ratepayers if the assets had remained public utility ation expense with respect to the asset is
of the investment tax credit determined property. But for section 203(e) of the included in the rates they pay, resulting
under that section. Under former section 1986 Act, the entire EDFIT reserve would in full flowthrough over the asset’s reg-
46(f)(1), the rate base (the amount on have been flowed through to ratepayers ulatory life. In the case of a deregulated
which the utility is permitted to collect a when the reduction in rates became ef- asset, the contribution of ratepayers can be
return from ratepayers) could be reduced fective, whether the assets to which the appropriately measured by the ratemak-
by reason of the credit if the reduction in EDFIT reserve was attributable remained ing depreciation expense they are charged
the rate base was restored not less rapidly public utility property for their entire use- with respect to the asset and any additional
than ratably. If the rate base is reduced, the ful life or were subsequently deregulated stranded cost that the utility is permitted
credit may not also be used to reduce the or sold. As noted in the preamble of the to recover with respect to the asset after its
utility’s cost of service. Under former sec- 2003 proposed regulations, the IRS and deregulation.
tion 46(f)(2), an electing utility could flow Treasury have concluded that section 203 Accordingly, the proposed regulations
through the investment credit not more of the 1986 Act provides a schedule for permit flowthrough of the ADITC reserve
rapidly than ratably (that is, could reduce flowing through the EDFIT reserve but with respect to public utility property to
the cost of service collected from ratepay- that nothing in that section suggests that continue after its deregulation only to the
ers by no more than a ratable portion of the something less than the entire reserve extent the reduction in cost of service does
credit) over the investment’s regulatory should ultimately be flowed through to not exceed, as a percentage of the ADITC
life. The balance of the credit remaining to ratepayers. Accordingly, these proposed with respect to the property at the time
be flowed through to ratepayers would be regulations retain the rule of the 2003 pro- of deregulation, the percentage of the to-
held in a reserve for accumulated deferred posed regulations, with the effective date tal stranded cost that the taxpayer is per-

January 30, 2006 390 2006–5 I.R.B.


mitted to recover with respect to the prop- permitted, however, if it is consistent with ments and submit an outline of the topics
erty. In addition, the credit may not be the 2003 proposed regulations, and occurs to be discussed and the time to be devoted
flowed through more rapidly than the rate during the period March 5, 2003, through to each topic (signed original and eight (8)
at which the taxpayer is permitted to re- the earlier of the last date on which the copies) by March 15, 2006.
cover the stranded cost with respect to the utility’s rates are determined under the A period of 10 minutes will be allotted
property. rate order in effect on December 21, 2005, to each person for making comments.
As in the case of the EDFIT reserve, or December 21, 2007. An agenda showing the scheduling of
these proposed regulations extend the the speakers will be prepared after the
flowthrough rule for generation assets Special Analyses deadline for receiving outlines has passed.
to all public utility property. In addi- Copies of the agenda will be available free
It has been determined that this notice
tion, these proposed regulations provide of charge at the hearing.
of proposed rulemaking is not a signifi-
equivalent rules for property to which for-
cant regulatory action as defined in Exec- Drafting Information
mer section 46(f)(1) (relating to rate base
utive Order 12866. Therefore, a regula-
restoration) applies.
tory assessment is not required. It also has The principal author of these regula-
been determined that section 553(b) of the tions is David Selig, Office of the Asso-
Proposed Effective Date
Administrative Procedure Act (5 U.S.C. ciate Chief Counsel (Passthroughs and
chapter 5) does not apply to these reg- Special Industries), IRS. However, other
The 2003 proposed regulations would
ulations and, because the regulations do personnel from the IRS and Treasury
have applied to public utility property
not impose a collection of information on Department participated in their develop-
deregulated after March 4, 2003. Utilities
small entities, the Regulatory Flexibility ment.
would have been permitted an election to
Act (5 U.S.C. chapter 6) does not apply. *****
apply the proposed rules to property that
Therefore, a Regulatory Flexibility Anal-
was deregulated on or before that date.
Comments suggested that deregulation
ysis is not required. Pursuant to section Withdrawal of Proposed Regulations
7805(f) of the Code, this notice of pro-
agreements between utilities and their reg-
posed rulemaking will be submitted to the Under the authority of 26 U.S.C.
ulators entered into before the March 4,
Chief Counsel for Advocacy of the Small 7805, the notice of proposed rulemak-
2003 proposed effective date were based
Business Administration for comment on ing (REG–104385–01) published in the
on the only guidance then available (i.e.,
its impact on small business. Federal Register on March 4, 2003 (68
the private letter rulings issued by the IRS)
FR 10190) is withdrawn.
and that the availability of a retroactive Comments and Public Hearing
election could effectively change the terms Proposed Amendments to the
of those agreements. Although private let- Before these proposed regulations are Regulations
ter rulings are directed only to the taxpay- adopted as final regulations, consideration
ers who requested them and may not be will be given to any comments that are Accordingly, 26 CFR part 1 is proposed
used or cited as precedent, the IRS and submitted (in the manner described in the to be amended as follows:
Treasury have concluded that the Secre- ADDRESSES caption) timely to the IRS.
tary’s authority under section 7805(b)(7) All comments will be available for public PART 1—INCOME TAXES
to provide for retroactive elections should inspection and copying. Treasury and IRS
Paragraph 1. The authority citation for
not be exercised in a manner that impairs specifically request comments on the clar-
part 1 continues to read, in part, as follows:
existing agreements between utilities and ity of the proposed regulations and how
Authority: 26 U.S.C. 7805 * * *
their regulators. Accordingly, these pro- they may be made clearer and easier to un-
Par. 2. Section 1.46–6 is amended by
posed regulations do not include a similar derstand.
adding paragraph (k) to read as follows:
election to apply the regulations retroac- A public hearing has been scheduled for
tively. April 5, 2006, at 10 a.m. in room 7218 of §1.46–6 Limitation in case of certain
As noted above, these proposed regu- the Internal Revenue Building, 1111 Con- regulated companies.
lations are broader in scope than the 2003 stitution Avenue, NW, Washington, DC.
proposed regulations. Accordingly, these Because of access restrictions, visitors will *****
regulations are proposed to apply to public not be admitted beyond the Internal Rev- (k) Treatment of accumulated deferred
utility property that becomes deregulated enue Building lobby more than 30 minutes investment tax credits upon the deregula-
public utility property after December before the hearing starts. Due to building tion of public utility property—(1) Scope.
21, 2005. For public utility property that security procedures, visitors must enter at This paragraph (k) provides rules for the
becomes deregulated public utility prop- the Constitution Avenue entrance. In addi- application of former sections 46(f)(1)
erty on or before December 21, 2005, tion, all visitors must present photo identi- and 46(f)(2) of the Internal Revenue Code
the IRS will follow the holdings set forth fication to enter the building. with respect to public utility property that
in the private letter rulings that prohibit The rules of 26 CFR 601.601(a)(3) ap- ceases, whether by disposition, deregu-
flow-through of the EDFIT and ADITC ply to the hearing. lation, or otherwise, to be public utility
reserves associated with an asset after the Persons who wish to present oral com- property (deregulated public utility prop-
asset’s disposition. Flowthrough will be ments at the hearing must submit com- erty).

2006–5 I.R.B. 391 January 30, 2006


(2) Ratable amount—(i) Restoration erty remaining to be used to reduce cost utilities dispose of regulated public utility
of rate base reduction. A reduction in of service immediately before the property property.
the taxpayer’s rate base on account of becomes deregulated public utility prop- (d) Effective dates—(1) In general.
the credit with respect to public utility erty by the stranded cost of the property. This section applies to public utility prop-
property that becomes deregulated public (3) Cross reference. See §1.168(i)–(3) erty that becomes deregulated public
utility property is restored ratably dur- for rules relating to the treatment of bal- utility property after December 21, 2005.
ing the period after the property becomes ances of excess deferred income taxes (2) Application of regulation project
deregulated public utility property if the when public utility property becomes REG–104385–01 to pre-effective date re-
amount of the reduction remaining to be deregulated public utility property. ductions of excess deferred income tax
restored does not, at any time during the (4) Effective dates—(i) In general. This reserve. A reduction in the taxpayer’s
period, exceed the restoration percentage paragraph (k) applies to public utility prop- excess deferred income tax reserve will
of the recoverable stranded cost of the erty that becomes deregulated public util- be treated as ratable if it is consistent with
property at such time. For this purpose— ity property after December 21, 2005. the proposed rules in regulation project
(A) The stranded cost of the property (ii) Application of regulation project REG–104385–01, 2003–1 C.B. 634, and
is the cost of the property reduced by the REG–104385–01 to pre-effective date re- occurs during the period March 5, 2003,
amount of such cost that the taxpayer has ductions in cost of service. A reduction through the earlier of the last date on which
recovered through regulated depreciation in the taxpayer’s cost of service will be the utility’s rates are determined under the
expense during the period before the prop- treated as ratable if it is consistent with rate order in effect on December 21, 2005,
erty becomes deregulated; the proposed rules in regulation project or December 21, 2007.
(B) The recoverable stranded cost of the REG–104385–01, 2003–1 C.B. 634, and
property at any time is the stranded cost of occurs during the period March 5, 2003, Mark E. Matthews,
the property that the taxpayer will be per- through the earlier of the last date on which Deputy Commissioner for
mitted to recover through rates after such the utility’s rates are determined under the Services and Enforcement.
time; and rate order in effect on December 21, 2005, (Filed by the Office of the Federal Register on December 20,
(C) The restoration percentage for the or December 21, 2007. 2005, 8:45 a.m., and published in the issue of the Federal
Register for December 21, 2005, 70 F.R. 75762)
property is determined by dividing the re- Par. 3. Section 1.168(i)–3 is added to
duction in rate base remaining to be re- read as follows:
stored with respect to the property immedi-
§1.168(i)–3 Treatment of excess deferred Deletions From Cumulative
ately before the property becomes deregu-
lated public utility property by the stranded income tax reserve upon disposition of List of Organizations
cost of the property. deregulated public utility property. Contributions to Which
(ii) Cost of service reduction. Reduc-
(a) Scope. This section provides rules are Deductible Under Section
tions in the taxpayer’s cost of service on 170 of the Code
for the application of section 203(e) of
account of the credit with respect to pub-
the Tax Reform Act of 1986, Public Law
lic utility property that becomes deregu- Announcement 2006–9
99–514 (100 Stat. 2146) with respect to
lated public utility property are ratable dur-
public utility property (within the meaning
ing the period after the property becomes The name of an organization that no
of section 168(i)(10)) that ceases, whether
deregulated public utility property if the longer qualifies as an organization de-
by disposition, deregulation, or otherwise,
cumulative amount of the reduction during scribed in section 170(c)(2) of the Internal
to be public utility property (deregulated
such period does not, at any time during the Revenue Code of 1986 is listed below.
public utility property).
period, exceed the flow-through percent- Generally, the Service will not disallow
(b) Amount of reduction. If public util-
age of the cumulative stranded cost recov- deductions for contributions made to a
ity property of a taxpayer becomes dereg-
ery for the property at such time. For this listed organization on or before the date
ulated public utility property to which this
purpose— of announcement in the Internal Revenue
section applies, the reduction in the tax-
(A) The stranded cost of the property Bulletin that an organization no longer
payer’s excess tax reserve permitted under
is the cost of the property reduced by the qualifies. However, the Service is not
section 203(e) of the Tax Reform Act of
amount of such cost that the taxpayer has precluded from disallowing a deduction
1986 is equal to the amount by which the
recovered through regulated depreciation for any contributions made after an or-
reserve could be reduced under that provi-
expense during the period before the prop- ganization ceases to qualify under section
sion if all such property had remained pub-
erty becomes deregulated; 170(c)(2) if the organization has not timely
lic utility property of the taxpayer and the
(B) The cumulative stranded cost re- filed a suit for declaratory judgment under
taxpayer had continued use of its normal-
covery for the property at any time is section 7428 and if the contributor (1) had
ization method of accounting with respect
the stranded cost of the property that the knowledge of the revocation of the ruling
to such property.
taxpayer has been permitted to recover or determination letter, (2) was aware that
(c) Cross reference. See §1.46–6(k) for
through rates on or before such time; and such revocation was imminent, or (3) was
rules relating to the treatment of accumu-
(C) The flow-through percentage for in part responsible for or was aware of the
lated deferred investment tax credits when
the property is determined by dividing the activities or omissions of the organization
amount of credit with respect to the prop- that brought about this revocation.

January 30, 2006 392 2006–5 I.R.B.


If on the other hand a suit for declara- DATES: The public hearing is being held (REG–131739–03) that was published in
tory judgment has been timely filed, con- on Wednesday, March 8, 2006, at 10 a.m. the Federal Register on Monday, July 18,
tributions from individuals and organiza- The IRS must receive outlines of the topics 2005 (70 FR 41165).
tions described in section 170(c)(2) that to be discussed at the hearing by Wednes- The rules of 26 CFR 601.601(a)(3) ap-
are otherwise allowable will continue to day, February 15, 2006. ply to the hearing. Persons who have sub-
be deductible. Protection under section mitted written or electronic comments and
7428(c) would begin on January 30, 2006, ADDRESSES: The public hearing is being wish to present oral comments at the hear-
and would end on the date the court first held in the IRS Auditorium, Internal Rev- ing must submit an outline of the topics to
determines that the organization is not de- enue Building, 1111 Constitution Avenue, be discussed and the amount of time to be
scribed in section 170(c)(2) as more partic- NW, Washington, DC. Due to building se- devoted to each topic (signed original and
ularly set forth in section 7428(c)(1). For curity procedures, visitors must enter at the eight (8) copies) by February 15, 2006.
individual contributors, the maximum de- Constitution Avenue entrance. In addition, A period of 10 minutes is allotted
duction protected is $1,000, with a hus- all visitors must present photo identifica- to each person for presenting oral com-
band and wife treated as one contributor. tion to enter the building. ments. After the deadline for receiving
This benefit is not extended to any indi- Mail outlines to: CC:PA:LPD:PR outlines has passed, the IRS will pre-
vidual, in whole or in part, for the acts or (REG–131739–03), room 5203, Inter- pare an agenda containing the schedule
omissions of the organization that were the nal Revenue Service, POB 7604, Ben of speakers. Copies of the agenda will
basis for revocation. Franklin Station, Washington, DC 20044. be made available, free of charge, at the
Submissions may be hand delivered Mon- hearing. Because of access restrictions,
The Nunoi Foundation day through Friday between the hours of the IRS will not admit visitors beyond
Los Angeles, CA 8 a.m. and 4 p.m. to CC:PA:LPD:PR the immediate entrance area more than 30
(REG–131739–03), Courier’s Desk, In- minutes before the hearing starts. For in-
ternal Revenue Service, 1111 Constitution formation about having your name placed
Substitute for Return; Hearing Avenue, NW, Washington, DC. Alter- on the building access list to attend the
natively, taxpayers may submit outlines hearing, see the “FOR FURTHER IN-
Announcement 2006–10 electronically via the Federal eRulemak- FORMATION CONTACT” section of this
ing Portal at www.regulations.gov (IRS document.
AGENCY: Internal Revenue Service and notice.comment@irscounsel.treas.gov
(IRS), Treasury. (REG–131739–03). Guy R. Traynor,
ACTION: Notice of public hearing on pro- Federal Register Liaison,
FOR FURTHER INFORMATION Publications and Regulations Branch,
posed rulemaking. CONTACT: Concerning submissions Legal Processing Division,
SUMMARY: This document provides no- of comments, the hearing, and/or to be Associate Chief Counsel
tice of public hearing on proposed regu- placed on the building access list to at- (Procedures and Administration).
lations (REG–131739–03, 2005–36 I.R.B. tend the hearing Treena Garrett, (202)
(Filed by the Office of the Federal Register on January 13,
494) relating to the IRS preparing or exe- 622–7180 (not a toll-free number). 2006, 8:45 a.m., and published in the issue of the Federal
Register for January 17, 2006, 71 F.R. 2497)
cuting returns for persons who fail to make SUPPLEMENTARY INFORMATION:
required returns.
The subject of the public hearing
is the notice of proposed rulemaking

2006–5 I.R.B. 393 January 30, 2006


Definition of Terms
Revenue rulings and revenue procedures and B, the prior ruling is modified because of a prior ruling, a combination of terms
(hereinafter referred to as “rulings”) that it corrects a published position. (Compare is used. For example, modified and su-
have an effect on previous rulings use the with amplified and clarified, above). perseded describes a situation where the
following defined terms to describe the ef- Obsoleted describes a previously pub- substance of a previously published ruling
fect: lished ruling that is not considered deter- is being changed in part and is continued
Amplified describes a situation where minative with respect to future transac- without change in part and it is desired to
no change is being made in a prior pub- tions. This term is most commonly used in restate the valid portion of the previously
lished position, but the prior position is be- a ruling that lists previously published rul- published ruling in a new ruling that is self
ing extended to apply to a variation of the ings that are obsoleted because of changes contained. In this case, the previously pub-
fact situation set forth therein. Thus, if in laws or regulations. A ruling may also lished ruling is first modified and then, as
an earlier ruling held that a principle ap- be obsoleted because the substance has modified, is superseded.
plied to A, and the new ruling holds that the been included in regulations subsequently Supplemented is used in situations in
same principle also applies to B, the earlier adopted. which a list, such as a list of the names of
ruling is amplified. (Compare with modi- Revoked describes situations where the countries, is published in a ruling and that
fied, below). position in the previously published ruling list is expanded by adding further names in
Clarified is used in those instances is not correct and the correct position is subsequent rulings. After the original rul-
where the language in a prior ruling is be- being stated in a new ruling. ing has been supplemented several times, a
ing made clear because the language has Superseded describes a situation where new ruling may be published that includes
caused, or may cause, some confusion. the new ruling does nothing more than re- the list in the original ruling and the ad-
It is not used where a position in a prior state the substance and situation of a previ- ditions, and supersedes all prior rulings in
ruling is being changed. ously published ruling (or rulings). Thus, the series.
Distinguished describes a situation the term is used to republish under the Suspended is used in rare situations
where a ruling mentions a previously pub- 1986 Code and regulations the same po- to show that the previous published rul-
lished ruling and points out an essential sition published under the 1939 Code and ings will not be applied pending some
difference between them. regulations. The term is also used when future action such as the issuance of new
Modified is used where the substance it is desired to republish in a single rul- or amended regulations, the outcome of
of a previously published position is being ing a series of situations, names, etc., that cases in litigation, or the outcome of a
changed. Thus, if a prior ruling held that a were previously published over a period of Service study.
principle applied to A but not to B, and the time in separate rulings. If the new rul-
new ruling holds that it applies to both A ing does more than restate the substance

Abbreviations
The following abbreviations in current use ER—Employer. PRS—Partnership.
and formerly used will appear in material ERISA—Employee Retirement Income Security Act. PTE—Prohibited Transaction Exemption.
EX—Executor. Pub. L.—Public Law.
published in the Bulletin.
F—Fiduciary. REIT—Real Estate Investment Trust.
FC—Foreign Country. Rev. Proc.—Revenue Procedure.
A—Individual.
FICA—Federal Insurance Contributions Act. Rev. Rul.—Revenue Ruling.
Acq.—Acquiescence.
B—Individual. FISC—Foreign International Sales Company. S—Subsidiary.
FPH—Foreign Personal Holding Company. S.P.R.—Statement of Procedural Rules.
BE—Beneficiary.
F.R.—Federal Register. Stat.—Statutes at Large.
BK—Bank.
B.T.A.—Board of Tax Appeals. FUTA—Federal Unemployment Tax Act. T—Target Corporation.
FX—Foreign corporation. T.C.—Tax Court.
C—Individual.
G.C.M.—Chief Counsel’s Memorandum. T.D. —Treasury Decision.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations. GE—Grantee. TFE—Transferee.
GP—General Partner. TFR—Transferor.
CI—City.
GR—Grantor. T.I.R.—Technical Information Release.
COOP—Cooperative.
Ct.D.—Court Decision. IC—Insurance Company. TP—Taxpayer.
I.R.B.—Internal Revenue Bulletin. TR—Trust.
CY—County.
LE—Lessee. TT—Trustee.
D—Decedent.
DC—Dummy Corporation. LP—Limited Partner. U.S.C.—United States Code.
LR—Lessor. X—Corporation.
DE—Donee.
M—Minor. Y—Corporation.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation. Nonacq.—Nonacquiescence. Z —Corporation.
O—Organization.
DR—Donor.
P—Parent Corporation.
E—Estate.
PHC—Personal Holding Company.
EE—Employee.
PO—Possession of the U.S.
E.O.—Executive Order.
PR—Partner.

January 30, 2006 i 2006–5 I.R.B.


Numerical Finding List1 Tax Conventions:
Bulletin 2006–1 through 2006–5 2006-6, 2006-4 I.R.B. 340
Announcements: 2006-7, 2006-4 I.R.B. 342
2006-8, 2006-4 I.R.B. 344
2006-1, 2006-1 I.R.B. 260
Treasury Decisions:
2006-2, 2006-2 I.R.B. 300
2006-3, 2006-3 I.R.B. 327 9231, 2006-2 I.R.B. 272
2006-4, 2006-3 I.R.B. 328 9232, 2006-2 I.R.B. 266
2006-5, 2006-4 I.R.B. 378 9233, 2006-3 I.R.B. 303
2006-6, 2006-4 I.R.B. 340 9234, 2006-4 I.R.B. 329
2006-7, 2006-4 I.R.B. 342 9235, 2006-4 I.R.B. 338
2006-8, 2006-4 I.R.B. 344 9236, 2006-5 I.R.B. 382
2006-9, 2006-5 I.R.B. 392
2006-10, 2006-5 I.R.B. 393

Notices:

2006-1, 2006-4 I.R.B. 347


2006-2, 2006-2 I.R.B. 278
2006-3, 2006-3 I.R.B. 306
2006-4, 2006-3 I.R.B. 307
2006-5, 2006-4 I.R.B. 348
2006-6, 2006-5 I.R.B. 385
2006-8, 2006-5 I.R.B. 386
2006-10, 2006-5 I.R.B. 386

Proposed Regulations:

REG-107722-00, 2006-4 I.R.B. 354


REG-104385-01, 2006-5 I.R.B. 389
REG-137243-02, 2006-3 I.R.B. 317
REG-133446-03, 2006-2 I.R.B. 299

Revenue Procedures:

2006-1, 2006-1 I.R.B. 1


2006-2, 2006-1 I.R.B. 89
2006-3, 2006-1 I.R.B. 122
2006-4, 2006-1 I.R.B. 132
2006-5, 2006-1 I.R.B. 174
2006-6, 2006-1 I.R.B. 204
2006-7, 2006-1 I.R.B. 242
2006-8, 2006-1 I.R.B. 245
2006-9, 2006-2 I.R.B. 278
2006-10, 2006-2 I.R.B. 293
2006-11, 2006-3 I.R.B. 309
2006-12, 2006-3 I.R.B. 310
2006-13, 2006-3 I.R.B. 315
2006-14, 2006-4 I.R.B. 350
2006-15, 2006-5 I.R.B. 387

Revenue Rulings:

2006-1, 2006-2 I.R.B. 261


2006-2, 2006-2 I.R.B. 261
2006-3, 2006-2 I.R.B. 276
2006-4, 2006-2 I.R.B. 264
2006-5, 2006-3 I.R.B. 302
2006-6, 2006-5 I.R.B. 381

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2005–27 through 2005–52 is in Internal Revenue Bulletin
2005–52, dated December 27, 2005.

2006–5 I.R.B. ii January 30, 2006


Finding List of Current Actions on Revenue Procedures— Continued:
Previously Published Items1 2005-4
Superseded by
Bulletin 2006–1 through 2006–5
Rev. Proc. 2006-4, 2006-1 I.R.B. 132
Notices:
2005-5
2005-44 Superseded by
Supplemented by Rev. Proc. 2006-5, 2006-1 I.R.B. 174
Notice 2006-1, 2006-4 I.R.B. 347 2005-6
Proposed Regulations: Superseded by
Rev. Proc. 2006-6, 2006-1 I.R.B. 204
REG-131739-03
2005-7
Corrected by
Superseded by
Ann. 2006-10, 2006-5 I.R.B. 393
Rev. Proc. 2006-7, 2006-1 I.R.B. 242
REG-138647-04
2005-8
Corrected by
Superseded by
Ann. 2006-4, 2006-3 I.R.B. 328
Rev. Proc. 2006-8, 2006-1 I.R.B. 245
Revenue Procedures: 2005-9
96-52 Superseded for certain taxable years by
Superseded by Rev. Proc. 2006-12, 2006-3 I.R.B. 310
Rev. Proc. 2006-10, 2006-2 I.R.B. 293 2005-12
97-27 Section 10 modified and superseded by
Modified by Rev. Proc. 2006-1, 2006-1 I.R.B. 1
Rev. Proc. 2006-11, 2006-3 I.R.B. 309 2005-61
Modified and amplified by Superseded by
Rev. Proc. 2006-12, 2006-3 I.R.B. 310 Rev. Proc. 2006-3, 2006-1 I.R.B. 122
2002-9 2005-68
Modified by Superseded by
Rev. Proc. 2006-11, 2006-3 I.R.B. 309 Rev. Proc. 2006-1, 2006-1 I.R.B. 1
Modified and amplified by Rev. Proc. 2006-3, 2006-1 I.R.B. 122
Rev. Proc. 2006-12, 2006-3 I.R.B. 310
Revenue Rulings:
Rev. Proc. 2006-14, 2006-4 I.R.B. 350

2002-17 74-503
Modified by Revoked by
Rev. Proc. 2006-14, 2006-4 I.R.B. 350 Rev. Rul. 2006-2, 2006-2 I.R.B. 261

2004-23
Superseded for certain taxable years by
Rev. Proc. 2006-12, 2006-3 I.R.B. 310

2004-40
Superseded by
Rev. Proc. 2006-9, 2006-2 I.R.B. 278

2005-1
Superseded by
Rev. Proc. 2006-1, 2006-1 I.R.B. 1

2005-2
Superseded by
Rev. Proc. 2006-2, 2006-1 I.R.B. 89

2005-3
Superseded by
Rev. Proc. 2006-3, 2006-1 I.R.B. 122

1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2005–27 through 2005–52 is in Internal Revenue Bulletin 2005–52, dated December 27,
2005.

January 30, 2006 iii 2006–5 I.R.B.


INDEX ESTATE TAX
Internal Revenue Bulletins 2006–1 through Letter rulings and information letters issued by Associate Of-
2006–5 fices, determination letters issued by Operating Divisions (RP
1) 1, 1
The abbreviation and number in parenthesis following the index entry Technical Advice Memoranda (TAMs) and Technical Expedited
refer to the specific item; numbers in roman and italic type following Advice Memoranda (TEAMs) (RP 2) 1, 89
the parentheses refer to the Internal Revenue Bulletin in which the item
may be found and the page number on which it appears.
EXCISE TAX
Key to Abbreviations:
Ann Announcement Health Savings Accounts (HSAs), employer comparable contri-
CD Court Decision butions, public hearing on REG–138647–04 (Ann 4) 3, 328
DO Delegation Order Letter rulings and information letters issued by Associate Of-
EO Executive Order fices, determination letters issued by Operating Divisions (RP
PL Public Law 1) 1, 1
PTE Prohibited Transaction Exemption Technical Advice Memoranda (TAMs) and Technical Expedited
RP Revenue Procedure Advice Memoranda (TEAMs) (RP 2) 1, 89
RR Revenue Ruling
SPR Statement of Procedural Rules EXEMPT ORGANIZATIONS
TC Tax Convention
TD Treasury Decision Annual notice to donors regarding pending and settled declara-
TDO Treasury Department Order tory judgment suits (Ann 1) 1, 260
Information reporting by organizations that receive charitable
EMPLOYEE PLANS contributions of certain motor vehicles, boats, and airplanes
(Notice 1) 4, 347
Determination letters, issuing procedures (RP 6) 1, 204 Letter rulings:
Full funding limitations, weighted average interest rate for: And determination letters, areas which will not be issued from
January 2006 (Notice 8) 5, 386 Associates Chief Counsel and Division Counsel (TE/GE)
Letter rulings: (RP 3) 1, 122
And determination letters, areas which will not be issued And information letters, procedures (RP 4) 1, 132
from: User fees, request for letter rulings (RP 8) 1, 245
Associates Chief Counsel and Division Counsel (TE/GE) List of organizations classified as private foundations (Ann 5) 4,
(RP 3) 1, 122 378
Associate Chief Counsel (International) (RP 7) 1, 242 Revocations (Ann 3) 3, 327; (Ann 9) 5, 392
And information letters, procedures (RP 4) 1, 132 Technical advice to IRS employees (RP 5) 1, 174
User fees, request for letter rulings (RP 8) 1, 245
Reporting requirements, fair market value, Roth IRA conversion
(RP 13) 3, 315
GIFT TAX
Technical advice to IRS employees (RP 5) 1, 174 Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions (RP
EMPLOYMENT TAX 1) 1, 1
Technical Advice Memoranda (TAMs) and Technical Expedited
Disaster relief, Hurricane Katrina, treatment of special evacua- Advice Memoranda (TEAMs) (RP 2) 1, 89
tion allowances (Notice 10) 5, 386
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions (RP
INCOME TAX
1) 1, 1 Acceptance agent revenue procedure (RP 10) 2, 293
Regulations: Accounting methods:
26 CFR 31.3121(a)(2)–1, amended; 32.1, amended; sickness Automatic consent to change procedures (RP 12) 3, 310
or accident disability payments (TD 9233) 3, 303 Automatic consent to change, replacement cost method for
Technical Advice Memoranda (TAMs) and Technical Expedited parts inventory of heavy equipment dealers (RP 14) 4, 350
Advice Memoranda (TEAMs) (RP 2) 1, 89 Normalization, public utilities (REG–104385–01) 5, 389
Treatment of sickness or accident disability payments (TD 9233) Simplified service cost and simplified production methods,
3, 303 consent procedures (RP 11) 3, 309
Advance Pricing Agreement (APA) Program, administration (RP
9) 2, 278

2006–5 I.R.B. iv January 30, 2006


INCOME TAX—Cont. INCOME TAX—Cont.
Annual notice to donors regarding pending and settled declara- Associate Chief Counsel (International) (RP 7) 1, 242
tory judgment suits (Ann 1) 1, 260 And information letters issued by Associate Offices, determi-
Bonds, private activity bond, definition, tax-exempt bonds issued nation letters issued by Operating Divisions (RP 1) 1, 1
by state and local governments (TD 9234) 4, 329 Private foundations, organizations now classified as (Ann 5) 4,
Book-tax filter of reportable transactions under regulations sec- 378
tion 1.6011–4, removal (Notice 6) 5, 385 Proposed Regulations:
Corporations: 26 CFR 1.46–6, amended; 1.168(i)–3, added; application of
Clarification of section 1374 effective dates (TD 9236) 5, 382 normalization accounting rules to balances of excess de-
Entity classification, classification of: ferred income taxes and accumulated deferred investment
Foreign entities, per se corporations (TD 9235) 4, 338 tax credits of public utilities whose assets cease to be pub-
Japanese Tokurei Yugen Kaisha (TYK) (RR 3) 2, 276 lic utility property (REG–104385–01) 5, 389
Estimated tax payments by corporations (REG–107722–00) 26 CFR 1.56–0, –1, revised; 1.6425–2, revised; 1.6425–3,
4, 354 amended; 1.6655–0, added; 1.6655–1 thru –3, revised;
Information reporting for distributions with respect to securi- 1.6655–4 thru –6, added; 1.6655–7, removed; 1.6655–5 re-
ties issued by foreign corporations (Notice 3) 3, 306 designated as 1.6655–7 and revised; 301.6655–1, revised;
Passive foreign investment company (PFIC) purging elec- corporate estimated tax (REG–107722–00) 4, 354
tions: 26 CFR 1.1291–9, revised; 1.1297–0, revised; 1.1297–3,
Foreign corporation no longer satisfies definition of PFIC added; 1.1298–0, –3, revised; guidance on passive
under section 1297(a) (TD 9231) 2, 272 foreign investment company (PFIC) purging elections
Foreign corporation no longer treated as PFIC under sec- (REG–133446–03) 2, 299
tion 1297(a) or (e) (TD 9232) 2, 266; (REG–133446–03) 26 CFR 301.7216–0, added; 301.7216–1, –2, –3, revised;
2, 299 guidance necessary to facilitate electronic tax administra-
Transfers to corporations, corporate formations, corporate re- tion (REG–137243–02) 3, 317
organizations (RR 2) 2, 261 Regulated investment company (RIC), commodity swaps (RR 1)
Credits: 2, 261
Low-income housing credit, satisfactory bond, “bond factor” Regulations:
amounts for the period: 26 CFR 1.141–0, –1, –15, amended; 1.141–13, added;
January through March 2006 (RR 5) 3, 302 1.145–0, –2, amended; 1.149(d)–1, amended; 1.150–1,
Disaster relief, Hurricane Katrina, treatment of special evacua- amended; obligations of states and political subdivisions
tion allowances (Notice 10) 5, 386 (TD 9234) 4, 329
Disclosure and use of tax return information, new and additional 26 CFR 1.1291–9, amended; 1.1297–0, revised; 1.1297–3,
rules for electronic consent (REG–137243–02) 3, 317 added; 1.1298–0, –3, added; 602.101, amended; guidance
Employer-provided vehicles, maximum values for which the on passive foreign investment company (PFIC) purging
special valuation rules of regulations sections 1.61–21(d) and elections (TD 9231) 2, 272
(e) may be used (RP 15) 5, 387 26 CFR 1.1291–9T, added; 1.1297–0T, added; 1.1297–3T,
Forms: revised; 1.1298–0T, –3T, added; 602.101, amended; guid-
8609 revision, 8609-A replaces Schedule A (Form 8609) ance on passive foreign investment company (PFIC) purg-
(Ann 2) 2, 300 ing elections (TD 9232) 2, 266
Information reporting by organizations that receive charitable 26 CFR 1.1374–0, –8, –10, amended; 1.1374–8T, –10T, re-
contributions of certain motor vehicles, boats, and airplanes moved; section 1374 effective dates (TD 9236) 5, 382
(Notice 1) 4, 347 26 CFR 301.7701–2, –2T, amended; classification of certain
Interest: foreign entities (TD 9235) 4, 338
Investment: Revocations, exempt organizations (Ann 3) 3, 327; (Ann 9) 5,
Federal short-term, mid-term, and long-term rates for: 392
January 2006 (RR 4) 2, 264 Stocks, application of section 409A to outstanding stock rights
Inventory: (Notice 4) 3, 307
Heavy equipment dealers, replacement cost method of ac- Substitute for return, Internal Revenue officer or employee, hear-
counting (RP 14) 4, 350 ing on REG–131739–03 (Ann 10) 5, 393
LIFO, price indexes used by department stores for: Tax conventions:
November 2005 (RR 6) 5, 381 Japan Investment Bank memorandum of understanding
Leases, tax-exempt use property (Notice 2) 2, 278 (MOU) (Ann 6) 4, 340
Letter rulings: Superseding U.S.-Mexico LLC mutual agreement procedure
And determination letters, areas which will not be issued (MAP) (Ann 8) 4, 344
from: U.S.-Canada Appeals memorandum of understanding (MOU)
Associates Chief Counsel and Division Counsel (TE/GE) (Ann 7) 4, 342
(RP 3) 1, 122

January 30, 2006 v 2006–5 I.R.B.


INCOME TAX—Cont.
Technical Advice Memoranda (TAMs) and Technical Expedited
Advice Memoranda (TEAMs) (RP 2) 1, 89
Waiver of penalties for failure to report loan origination fees and
capitalized interest (Notice 5) 4, 348

SELF-EMPLOYMENT TAX
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions (RP
1) 1, 1
Technical Advice Memoranda (TAMs) and Technical Expedited
Advice Memoranda (TEAMs) (RP 2) 1, 89

2006–5 I.R.B. vi U.S. GPO: 2006—320–797/20042 January 30, 2006