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Bulletin No.

2007-46
November 13, 2007

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

SPECIAL ANNOUNCEMENT REG–114125–07, page 1012.


Proposed regulations under section 861 of the Code contain
changes to existing final regulations regarding the source of
Announcement 2007–106, page 1021. compensation for labor or personal services.
The announcement for the 2008 IRS Individual e-file Partner-
ship Program will solicit applications from potential partners Notice 2007–86, page 990.
for participation in the program. The partnership opportuni- This notice provides additional transition relief, under section
ties are a result of RRA 98, which authorized the IRS Commis- 409A of the Code, that was scheduled to expire on December
sioner to promote the benefits of and encourage the use of 31, 2007. Generally, this notice extends relief to December
e-file products and services through partnerships with various 31, 2008, except that reliance on the proposed regulations un-
entities that offer low-cost tax preparation and electronic filing der section 409A is not permitted after December 31, 2007.
of individual income tax returns for qualified taxpayers. Those Notice 2007–78 modified. Section 3 of Notice 2006–79 mod-
applicants that are accepted into the program will have a link(s) ified and superseded.
and offer description(s) for their products and services posted
to IRS.gov (Partners Page). Notice 2007–88, page 993.
This notice requests public comment on a proposal to change
the process by which taxpayers obtain the consent of the Com-
INCOME TAX missioner of Internal Revenue to change a method of account-
ing for federal income tax purposes.
Ct. D. 2083, page 986.
Levies upon third party property to collect taxes owed by
another; wrongful levy action. The Supreme Court holds
EMPLOYEE PLANS
that the Trust missed section 7426(a)(1)’s deadline for chal-
lenging a levy, and may not bring the challenge as a tax refund Notice 2007–86, page 990.
claim under section 1346(a)(1). This notice provides additional transition relief, under section
409A of the Code, that was scheduled to expire on December
REG–140206–06, page 1006. 31, 2007. Generally, this notice extends relief to December
Proposed regulations under section 1441 of the Code provide 31, 2008, except that reliance on the proposed regulations un-
guidance regarding the withholding and reporting obligations der section 409A is not permitted after December 31, 2007.
of a withholding agent in the case of a self tender by a pub- Notice 2007–78 modified. Section 3 of Notice 2006–79 mod-
licly traded corporation, when a determination is required un- ified and superseded.
der section 301 as to whether the distribution is treated as a
dividend or a distribution in part or full payment in exchange
for stock. A public hearing is scheduled for February 6, 2008.

(Continued on the next page)

Announcements of Disbarments and Suspensions begin on page 1015.


Finding Lists begin on page ii.
ESTATE TAX

Notice 2007–90, page 1003.


This notice provides interim guidance and describes a change
in IRS policy regarding section 6166 of the Code, Extension of
time for payment of estate tax where estate consists largely of
interest in closely held business. The IRS will now determine
on a case-by-case basis whether security will be required when
a qualifying estate elects under section 6166 to pay all or a
part of the estate tax in installments. This notice also informs
taxpayers, tax practitioners, executors and other persons who
represent estates of what factors the IRS will consider in de-
termining whether an estate making the section 6166 election
will be required to provide security.

TAX CONVENTIONS

Announcement 2007–107, page 989.


The competent authorities of the United States and the United
Kingdom hereby enter into the following agreement (“the Agree-
ment”) regarding the definition of “first notification” under para-
graph 1 of Article 26 (Mutual Agreement Procedure) of the Con-
vention between the United States of America and the United
Kingdom of Great Britain and Northern Ireland for the avoidance
of double taxation with respect to taxes on income signed at
London on July 24, 2001 (“the Treaty”). The Agreement is en-
tered into under paragraph 3 of Article 26 (Mutual Agreement
Procedure).

ADMINISTRATIVE

Ct. D. 2083, page 986.


Levies upon third party property to collect taxes owed by
another; wrongful levy action. The Supreme Court holds
that the Trust missed section 7426(a)(1)’s deadline for chal-
lenging a levy, and may not bring the challenge as a tax refund
claim under section 1346(a)(1).

Notice 2007–89, page 998.


This notice provides interim guidance to employers and pay-
ers on their reporting and wage withholding requirements for
calendar year 2007 with respect to deferrals of compensation
and amounts includible in gross income under section 409A of
the Code. The notice also provides interim rules on calculating
amounts includible in gross income under section 409A. No-
tice 2005–1 modified.

November 13, 2007 2007–46 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.

2007–46 I.R.B. November 13, 2007


Place missing child here.

November 13, 2007 2007–46 I.R.B.


Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 1346.—Recovery District Court dismissed the complaint be- 434 F.3d 807 affirmed.
of Unconstitutional Federal cause it was filed after the 9-month limi- STEVENS, J., delivered the opinion for
Taxes tations period had expired. After unsuc- a unanimous Court.
cessfully pursing a tax refund at the ad-
The Supreme Court holds that the Trust missed ministrative level, the Trust filed a refund
section 7426(a)(1)’s deadline for challenging a levy, SUPREME COURT OF THE
action under §1346(a)(1). The District
and may not bring the challenge as a tax refund claim
Court held that a wrongful levy claim un- UNITED STATES
under section 1346(a)(1). See Court Decision 2083,
page 986. der §7426(a)(1) was the sole remedy pos-
sible and dismissed, and the Fifth Circuit No. 05–1541 (2007)
affirmed.
Section 7426.—Civil Held: The Trust missed §7426(a)(1)’s EC TERM OF YEARS
Actions by Persons Other deadline for challenging a levy, and TRUST v. UNITED STATES
Than Taxpayers may not bring the challenge as a tax
refund claim under §1346(a)(1). Section On WRIT OF CERTIORARI TO THE
Ct. D. 2083 7426(a)(1) provides the exclusive remedy UNITED STATES COURT
for third-party wrongful levy claims. “[A] OF APPEALS FOR THE FIFTH
precisely drawn, detailed statute pre-empts CIRCUIT
SUPREME COURT OF THE
UNITED STATES more general remedies,” Brown v. GSA,
April 30, 2007
425 U.S. 820, 834, and it braces the pre-
No. 05–1541 (2007) emption claim when resort to a general JUSTICE STEVENS delivered the
remedy would effectively extend the limi- opinion of the Court.
EC TERM OF YEARS tations period for the specific one, see id. This is a challenge to the Internal Rev-
TRUST v. UNITED STATES at 833. If third parties could avail them- enue Service’s levy upon the property of a
selves of §1346(a)(1)’s general tax refund trust, to collect taxes owed by another, an
CERTIORARI TO THE UNITED jurisdiction, they could effortlessly evade action specifically authorized by 26 U.S.C.
STATES COURT §7426(a)(1)’s much shorter limitations §7426(a)(1), but subject to a statutory fil-
OF APPEALS FOR THE FIFTH period. The Trust argues that because ing deadline the trust missed. The question
CIRCUIT United States v. Williams, 514 U.S. 527, is whether the trust may still challenge the
construed §1346(a)(1)’s general jurisdic- levy through an action for tax refund un-
April 30, 2007
tional grant expansively enough to cover der 28 U.S.C. §1346(a)(1). We hold that it
Syllabus third parties’ wrongful levy claims, treat- may not.
ing §7426(a)(1) as the exclusive avenue
Under 26 U.S.C. §7426(a)(1), if the In- for these claims would amount to a disfa- I
ternal Revenue Service (IRS) levies upon a vored holding that §7426(a)(1) implicitly
third party’s property to collect taxes owed repealed §1346(a)(1)’s pre-existing juris- The Internal Revenue Code provides
by another, the third party may bring a dictional grant. But this reads Williams that “[i]f any person liable to pay any tax
wrongful levy action against the United too broadly. Williams involved a lien and neglects or refuses to pay the same after
States, so long as such action is brought was decided on the specific understand- demand, the amount . . . shall be a lien in
before “the expiration of 9 months from ing that no other remedy was open to the favor of the United States upon all prop-
the date of the levy,” §6532(c)(1). In con- plaintiff. Here, the Trust challenges a erty and rights to property, whether real
trast, the limitations period for a tax re- levy and could have made a timely claim or personal, belonging to such person.” 26
fund action under 28 U.S.C. §1346(a)(1) under §7426(a)(1). Even if the presump- U.S.C. §6321. “A federal tax lien, how-
begins with an administrative claim that tion against implied repeals applied here, ever, is not self-executing,” and the IRS
may be filed within at least two years, and §7426(a)(1)’s 9-month limitations period must take “[a]ffirmative action . . . to
may be brought to court within another two cannot be reconciled with the notion that enforce collection of the unpaid taxes.”
years after an administrative denial. The the same challenge would be open under United States v. National Bank of Com-
IRS levied on a bank account in which §1346(a)(1) for up to four years. Nor can merce, 472 U.S. 713, 720 (1985). One of
petitioner (Trust) had deposited funds be- the two statutory schemes be harmonized its “principal tools,” ibid., is a levy, which
cause the IRS assumed that the Trust’s cre- by construing §7426(a)(1)’s filing dead- is a “legally sanctioned seizure and sale
ators had transferred assets to the Trust to line to cover only those actions seeking of property,” Black’s Law Dictionary 926
evade taxes. The bank responded with a pre-deprivation remedies unavailable un- (8th ed. 2004); see also §6331(b) (“The
check to the Treasury. Almost a year later, der §1346(a)(1). On its face, §7426(a)(1) term ‘levy’ as used in this title includes
the Trust and others brought a §7426(a)(1) applies to pre-deprivation and post-depri- the power of distraint and seizure by any
action claiming wrongful levies, but the vation claims alike. Pp. 4–7. means”).

2007–46 I.R.B. 986 November 13, 2007


To protect against a “‘wrongful’” im- federal tax liabilities against them for Because the Ninth Circuit, on the con-
position upon “property which is not the what the Government claimed (and the trary, has held that §7426(a)(1) is not the
taxpayer’s,” S. Rep. No. 1708, 89th Trust does not dispute, see Tr. of Oral exclusive remedy for third parties chal-
Cong., 2d Sess., 30 (1966), the Federal Arg. 7) were unwarranted income tax lenging a levy, see WWSM Investors v.
Tax Lien Act of 1966 added §7426(a)(1), deductions in the 1980s. The Government United States, 64 F.3d 456 (1995), we
providing that “[i]f a levy has been made assumed that the Cullerses had transferred granted certiorari to resolve the conflict,
on property . . . any person (other than the assets to the Trust to evade taxes, and so 549 U.S. (2006). We affirm.
person against whom is assessed the tax filed a tax lien against the Trust in August
out of which such levy arose) who claims 1999. The Trust denied any obligation, III
an interest in . . . such property and that but for the sake of preventing disruptive
“In a variety of contexts, the Court
such property was wrongfully levied upon collection efforts by the IRS, it deposited
has held that a precisely drawn, detailed
may bring a civil action against the United funds in a bank account, against which the
statute pre-empts more general remedies.”
States in a district court. 80 Stat. 1143. IRS issued a notice of levy to the bank
Brown v. GSA, 425 U.S. 820, 834 (1976);
The action must, however, be brought in September 1999. In October, the bank
see Block v. North Dakota ex rel. Board
before “the expiration of 9 months from responded with a check for over $3 million
of Univ. and School Lands, 461 U.S.
the date of the levy.”1 §6532(c)(1). This to the United States Treasury.
273, 284–286 (1983) (adverse claimants
short limitations period contrasts with its Almost a year after that, the Trust
to real property of the United States may
counterpart in a tax refund action under (joined by several other trusts created by
not rely on “officer’s suits” or on other
28 U.S.C. §1346(a)(1), which begins with the Cullerses) brought a civil action under
general remedies because the Quiet Title
an administrative claim that may be filed 26 U.S.C. §7426(a)(1) claiming wrongful
Act of 1972 is their exclusive recourse);
within at least two years, and may be levies, but the District Court dismissed it
see also Stonite Products Co. v. Melvin
brought to court within another two after because the complaint was filed after the
Lloyd Co., 315 U.S. 561 (1942) (venue in
an administrative denial.2 The demand for 9-month limitations period had expired,
patent infringement cases is governed by
greater haste when a third party contests a see §6532(c)(1). The court also noted
a statute dealing specifically with patents,
levy is no accident; as the Government ex- that tax refund claims under 28 U.S.C.
not a general venue provision). It braces
plained in the hearings before passage of §1346(a)(1) were not open to the plaintiff
the preemption claim when resort to a
the Act, “[s]ince after seizure of property trusts because §7426 “‘affords the exclu-
general remedy would effectively extend
for nonpayment of taxes [an IRS] district sive remedy for an innocent third party
the limitations period for the specific one.
director is likely to suspend further col- whose property is confiscated by the IRS
See Brown v. GSA, supra, at 833 (rejecting
lection activities against the taxpayer, it is to satisfy another person’s tax liability.’”
an interpretation that would “driv[e] out
essential that he be advised promptly if he BSC Term of Years Trust v. United States,
of currency” a narrowly aimed provision
has seized property which does not belong 2001–1 USTC ¶50,174, p. 87,237, n. 1,
“with its rigorous . . . time limitations”
to the taxpayer. Hearings on H.R. 11256 87 AFTR 2d ¶2001–390, p. 2001–547, n.
by permitting “access to the courts under
and H.R. 11290 before the House Com- 1 (WD Tex., 2000) (quoting Texas Comm.
other, less demanding statutes”); see also
mittee on Ways and Means, 89th Cong., 2d Bank Fort Worth, N.A. v. United States,
Rancho Palos Verdes v. Abrams, 544 U.S.
Sess., 57–58 (1966) (written statement of 896 F.2d 152, 156 (CA5 1990); emphasis
113, 122–123 (2005) (concluding that 47
Stanley S. Surrey, Assistant Secretary of deleted). At first the Trust sought review
U.S.C. §332(c) precludes resort to the
the Treasury); see also id. at 72 (statement by the Court of Appeals for the Fifth
general cause of action under 42 U.S.C.
of Laurens Williams, Chairman, Special Circuit, but then voluntarily dismissed
§1983, in part because §332 “limits relief
Committee on Federal Liens, American its appeal. BSC Term of Years Trust v.
in ways that §1983 does not” by requiring
Bar Association) (“A short (9-month) United States, 87 AFTR 2d ¶2001–1039,
judicial review to be sought within 30
statute of limitations is provided, because p. 2001–2532 (2001).
days); 544 U.S. at 130, n. (STEVENS, J.,
it is important to get such controversies After unsuccessfully pursuing a tax re-
concurring in judgment) (same).
decided quickly so the Government may fund at the administrative level, the Trust
Resisting the force of the better-fit-
pursue the taxpayer’s own property if it filed a second action, this one for a refund
ted statute requires a good countervailing
made a mistake the first time”). under §1346(a)(1). The District Court
reason, and none appears here. Con-
remained of the view that a claim for a
II gress specifically tailored §7426(a)(1) to
wrongful levy under §7426(a)(1) had been
third-party claims of wrongful levy, and
the sole remedy possible and dismissed.3
After Elmer W. Cullers, Jr., and if third parties could avail themselves
The Court of Appeals for the Fifth Circuit
Dorothy Cullers established the EC Term of the general tax refund jurisdiction of
affirmed.
of Years Trust in 1991, the IRS assessed §1346(a)(1), they could effortlessly evade
1 This period can be extended for up to 12 months if the third party makes an administrative request for the return of the property wrongfully levied upon. See 26 U.S.C. §6532(c)(2).
2 Title 28 U.S.C. §1346(a)(1) gives district courts “jurisdiction, concurrent with the United States Court of Federal Claims,” over “[a]ny civil action against the United States for the recovery
of,” among other things, “any internal revenue tax alleged to have been erroneously or illegally assessed or collected.” A taxpayer may bring such an action within two years after the IRS
disallows the taxpayer’s administrative refund claim. See 26 U.S.C. Secs. 6532(a)(1)–(2); see also §7422(a) (requiring a taxpayer to file the administrative claim before seeking a refund in
court). An administrative refund claim must, in turn, be filed within two years from the date the tax was paid or three years from the time the tax return was filed, whichever is later. See
§6511(a).
3 The District Court declined to dismiss the Trust’s claim on res judicata grounds, and the Government does not argue claim or issue preclusion in this Court, see Brief for United States 5, n. 2.

November 13, 2007 987 2007–46 I.R.B.


the levy statute’s 9-month limitations pe- that no other remedy, not even a timely schemes can be “harmonized” by con-
riod thought essential to the Government’s claim under §7426(a)(1), was open to the struing the deadline for filing §7426(a)(1)
tax collection. plaintiff in that case. See Williams, supra, claims to cover only those actions seeking
The Trust argues that in United States at 536–538. Here, on the contrary, the “pre-deprivation” remedies unavailable
v. Williams, 514 U.S. 527 (1995), we con- Trust challenges a levy, not a lien, and under §1346(a)(1). See Reply Brief for
strued the general jurisdictional grant of could have made a timely claim under Petitioner 6. But this reading would vio-
§1346(a)(1) expansively enough to cover §7426(a)(1) for the relief it now seeks late the clear text of §7426(a)(1), which
third parties’ wrongful levy claims. So, ac- under §1346(a)(1).4 on its face applies to pre-deprivation and
cording to the Trust, treating §7426(a)(1) And even if the canon against implied post-deprivation claims alike. See 26
as the exclusive avenue for these claims repeals applied here, the Trust still could U.S.C. §7426(a)(1) (“Such action may be
would amount to a disfavored holding that not prevail. We simply cannot recon- brought without regard to whether such
§7426(a)(1) implicitly repealed the pre-ex- cile the 9-month limitations period for a property has been surrendered to or sold
isting jurisdictional grant of §1346(a)(1). wrongful levy claim under §7426(a)(1) by the Secretary”).
See Radzanower v. Touche Ross & Co., with the notion that the same challenge * * *
426 U.S. 148 (1976); Morton v. Mancari, would be open under §1346(a)(1) for up to The Trust missed the deadline for chal-
417 U.S. 535 (1974). four years. See Posadas v. National City lenging a levy under §7426(a)(1), and may
But the Trust reads Williams too Bank, 296 U.S. 497, 503 (1936) (“[W]here not bring the challenge as a tax refund
broadly. Although we decided that provisions in the two acts are in irrecon- claim under §1346(a)(1). The judgment
§1346(a)(1) authorizes a tax-refund claim cilable conflict, the later act to the extent of the Court of Appeals is accordingly af-
by a third party whose property was sub- of the conflict constitutes an implied re- firmed.
jected to an allegedly wrongful tax lien, peal of the earlier one”). On this point,
we so held on the specific understanding the Trust proposes that the two statutory It is so ordered.

4 It has been commonly understood that Williams did not extend §1346(a)(1) to parties in the Trust’s position. See 434 F.3d 807, 810 (CA5 2006) (case below) (“To construe Williams to allow
an alternative remedy under §1346, with its longer statute of limitations period, would undermine the surety provided by the clear avenue to recovery under §7426” (citation omitted)); Dahn
v. United States, 127 F.3d 1249, 1253 (CA10 1997) (“[T]here were no tax levies involved in [Williams]. Thus, the Court was concerned solely with the reach of §1346 per se; the exclusivity
of a concurrent §7426 claim was never in issue. Indeed, the Court specifically emphasized the inapplicability of §7426 (or any other meaningful remedy) to reinforce its broad reading of
§1346”); WWSM Investors v. United States, 64 F.3d 456, 459 (CA9 1995) (Brunetti, J., dissenting) (“The Supreme Court recognized Williams as a refund, not a wrongful levy, case, and [did
not] even hint that §7426 was not the exclusive remedy for a claimed wrongful levy”); Rev.Rul. 2005–49, 2005–2 Cum.Bull. 126 (“The rationale in Williams is inapplicable to wrongful levy
suits because, Congress created an exclusive remedy under section 7426 for third persons claiming an interest in property levied upon by the [IRS]”); but see WWSM Investors, supra, at 459
(majority opinion) (“[S]eizing money from WWSM’s bank account is functionally equivalent to what the IRS did in Williams — placing a lien on property in escrow under circumstances
which compelled Mrs. Williams to pay the IRS and discharge the lien”).

2007–46 I.R.B. 988 November 13, 2007


Part II. Treaties and Tax Legislation
Subpart A.—Tax Conventions and Other Related Items
US-UK Agreement Defining ment”) entered into by the Competent for the avoidance of double taxation with
the Term “First Notification” Authorities of the United States and the respect to taxes on income.
Under Treaty Article 26(1) United Kingdom regarding the definition The text of the Agreement is as follows:
of “first notification” under paragraph 1 of
Announcement 2007–107 Article 26 (Mutual Agreement Procedure)
of the Convention between the United
The following is a copy of the Com- States of America and the United King-
petent Authority Agreement (“the Agree- dom of Great Britain and Northern Ireland

COMPETENT AUTHORITY AGREEMENT


The competent authorities of the United States and the United Kingdom hereby enter into the following agreement (“the
Agreement”) regarding the definition of “first notification” under paragraph 1 of Article 26 (Mutual Agreement Procedure) of
the Convention between the United States of America and the United Kingdom of Great Britain and Northern Ireland for the
avoidance of double taxation with respect to taxes on income signed at London on July 24, 2001 (“the Treaty”). The Agreement is
entered into under paragraph 3 of Article 26 (Mutual Agreement Procedure).
It is understood that for the purposes of the Agreement the term “Article” refers to an Article of the Treaty.
Definition of “First Notification” under Article 26(1)
Paragraph 1 of Article 26 provides that
Where a person considers that the actions of one or both of the Contracting States result or will result for him in
taxation not in accordance with the provisions of this Convention, he may, irrespective of the remedies provided by
the domestic law of those States, present his case to the competent authority of the Contracting State of which he is a
resident or national. The case must be presented within three years from the first notification of the action resulting
in taxation not in accordance with the provisions of this Convention or, if later, within six years from the end of the
taxable year or chargeable period in respect of which that taxation is imposed or proposed. [Emphasis added].
The competent authorities of the United States and the United Kingdom have agreed that paragraph 1 of Article 26 of the
Convention shall be interpreted in the way most favourable to the taxpayer, consistent with the approach set out in the OECD
commentary on the Model Tax Convention on Income and on Capital. In order to provide certainty for taxpayers and to ensure
consistent application of the provision, the date of “first notification of the action resulting in taxation not in accordance with the
Convention” shall be treated as the date when all domestic remedies have been exhausted.
In the United Kingdom, this will be either the date of issue of a statutory notice required to conclude an assessment and/or any
related appeal procedures for the period of assessment in question, or a letter of acceptance by an officer of the Board of HM
Revenue & Customs to settlement terms for the period in question.
In the United States, this will be the date of the later of: (1) an assessment pursuant to a notice of proposed adjustment or a
statutory notice of deficiency; (2) when a closing agreement is accepted by the Secretary of the Treasury or his delegate; or (3)
if the taxpayer is a party in an action in a US court regarding a redetermination of tax liability or requesting a refund of tax,
when such action is finally resolved, including any appeal.
Upon signature by both Competent Authorities, this agreement shall have effect from the date of entry into force of the
Convention, without regard to the taxable or chargeable period to which the matter relates.
Agreed to by the Undersigned competent authorities:

Date Date

Frank Y. Ng Diane Hay


U.S. Competent Authority U.K. Competent Authority

November 13, 2007 989 2007–46 I.R.B.


Part III. Administrative, Procedural, and Miscellaneous
Notice of Additional 2008 On September 10, 2007, the Treasury proposed regulations (relating to the ap-
Transition Relief under Department and the IRS issued Notice plication of section 409A to partners and
Section 409A 2007–78, granting certain transition re- partnerships) until further guidance is is-
lief intended to facilitate compliance with sued and sections XI.C (relating to changes
the written plan requirements set forth in in payment elections or conditions) and
Notice 2007–86 the final regulations. See §1.409A–1(c). XI.H (relating to substitutions of non-dis-
Commentators stated that although the No- counted stock options and stock apprecia-
SECTION 1. PURPOSE
tice 2007–78 transition relief was helpful, tion rights for discounted stock options and
This notice provides additional tran- the transition relief in that notice did not stock appreciation rights) of the preamble
sition relief regarding the application of adequately address the need for additional to the proposed regulations continue to ap-
section 409A of the Internal Revenue time for service recipients and service ply to the extent provided in § 3 of Notice
Code to nonqualified deferred compensa- providers to analyze all of their plans and 2006–79, as modified and superseded by
tion plans. Generally, this notice extends make informed and reasoned decisions paragraph (B) of this § 3.01.
to December 31, 2008, the transition relief regarding the changes that would be nec- (B) Section 3 of Notice 2006–79 modi-
that was scheduled to expire on December essary to bring existing arrangements into fied and superseded.
31, 2007, as provided in Notice 2006–79, compliance with the final regulations. (1) Paragraphs .01, .02, .03 and .04 of
2006–43 I.R.B. 763, and the preamble to This notice addresses these concerns by § 3 of Notice 2006–79 are modified and
the final regulations under section 409A generally extending the transition relief superseded to reflect the general rule pro-
(72 Fed. Reg. 19234 (April 17, 2007)) currently scheduled to expire on Decem- vided in paragraph (A) and to read as fol-
(the final regulations preamble). This ber 31, 2007 through December 31, 2008. lows:
transition relief revokes and supersedes Section III of Notice 2007–78 is revoked .01. Amendment and operation of plans
the transition relief provided in § III of and superseded by this notice. adopted on or before December 31, 2008
Notice 2007–78, 2007–41 I.R.B. 780, and A plan adopted on or before December
SECTION 3. EXTENSION OF 31, 2008 will not be treated as violat-
modifies the relief provided in § IV of TRANSITION RELIEF
Notice 2007–78 related to employment ing section 409A(a)(2), (3) or (4) on or
agreements, as described below. This before December 31, 2008 if the plan is
.01 Extension of Transition Relief
transition relief does not affect the guid- operated through December 31, 2008 in
Provided in Notice 2006–79
ance provided in § IV of Notice 2007–78 compliance with the provisions of section
related to predetermined cashout features, Section 3 of Notice 2006–79 is mod- 409A and applicable provisions of Notice
or the guidance provided in § VI of Notice ified and superseded in accordance with 2005–1 and any other generally applicable
2007–78, related to the application of sec- paragraphs (A) and (B) of this § 3.01. guidance published with an effective date
tion 409A(b) (restrictions on certain trusts (A) General rule. During 2008, tax- prior to January 1, 2008, and the plan is
and other arrangements). payers are not required to comply with the amended on or before December 31, 2008
requirements of the final regulations. In- to conform to the provisions of section
SECTION 2. BACKGROUND stead, they are required to operate a non- 409A and the final regulations under sec-
qualified deferred compensation plan in tion 409A (70 Fed. Reg. 19234 (April
Section 409A provides certain require- compliance with the plan’s terms, to the 17, 2007)) with respect to amounts subject
ments applicable to nonqualified deferred extent consistent with section 409A and to section 409A. For such periods, to the
compensation plans. If a plan does not the applicable guidance (including Notice extent an issue is not addressed in an appli-
meet those requirements, participants in 2005–1). Where a provision of Notice cable provision of Notice 2005–1 or other
the plan are required to immediately in- 2005–1 is inconsistent with the final regu- generally applicable guidance published
clude amounts deferred under the plan in lations, taxpayers may rely upon either No- with an effective date prior to January 1,
income and pay additional taxes on such tice 2005–1 or the final regulations. To the 2008, the plan must be operated consistent
income. Beginning with Notice 2005–1, extent an issue is not addressed in Notice with a good faith, reasonable interpreta-
2005–1 C.B. 274 , the Treasury Depart- 2005–1 or other applicable guidance, tax- tion of section 409A, and, to the extent not
ment and the IRS have issued several no- payers must apply a reasonable, good faith inconsistent therewith, the plan’s terms.
tices and other guidance providing transi- interpretation of the statute. Reliance upon For purposes of this notice, “generally
tion relief intended to permit and promote the final regulations is treated as applying applicable guidance published with an ef-
compliance with the requirements of sec- a reasonable, good faith interpretation of fective date prior to January 1, 2008” does
tion 409A. The Treasury Department and the statute. not include the final regulations.
the IRS also issued proposed regulations Taxpayers may not rely upon the provi- Compliance with the proposed regu-
under section 409A (70 Fed. Reg. 57930 sions of the proposed regulations for peri- lations is not required and compliance
(Oct. 4, 2005)) (the proposed regulations), ods after December 31, 2007, except that with the final regulations before January
and final regulations under section 409A in taxpayers may continue to rely on sec- 1, 2009 is not required. However, for pe-
April 2007 (the final regulations). tions II.E and VI.E of the preamble to the riods before January 1, 2008, compliance

2007–46 I.R.B. 990 November 13, 2007


with the proposed regulations or the fi- through December 31, 2008, with certain provided that the election is made before
nal regulations will constitute reasonable, clarifications described below, and subject January 1, 2009 and before the year in
good faith compliance with the statute. to limitations for certain discounted stock which the amount would otherwise have
For periods after December 31, 2007 and rights also described below. Accordingly, been paid.
before January 1, 2009, compliance with with respect to amounts subject to section This provision applies to elections or
the final regulations (but not the proposed 409A, a plan may provide, or be amended amendments by a service provider, a ser-
regulations) will constitute reasonable, to provide, for new payment elections on vice recipient, or both a service provider
good faith compliance with the statute. or before December 31, 2008, with respect and a service recipient. A service provider
To the extent that a provision of either to both the time and form of payment of or service recipient may make more than
the proposed regulations or the final reg- such amounts and the election or amend- one change or amendment under this relief,
ulations is inconsistent with a provision ment will not be treated as a change in provided that each such change or amend-
of Notice 2005–1, or a provision of the the time or form of payment under section ment is made in accordance with the dead-
proposed regulations is inconsistent with a 409A(a)(4) or an acceleration of a pay- lines and conditions set forth in the ap-
provision of the final regulations, for peri- ment under section 409A(a)(3), provided plicable transition relief. For example, a
ods before January 1, 2008, the plan may that the plan is so amended and elections service provider that in 2005 elected to
comply with the provision of the proposed are made on or before December 31, 2008. change the time and form of payment of
regulations, the final regulations or Notice With respect to an election or amendment deferred compensation to a lump sum pay-
2005–1. To the extent that a provision of to change a time and form of payment ment in 2010, may elect again in 2006,
the final regulations is inconsistent with a made on or after January 1, 2006 and on 2007 or 2008 to change the time and form
provision of Notice 2005–1, after Decem- or before December 31, 2006, the election of payment in accordance with this para-
ber 31, 2007 and before January 1, 2009, or amendment may apply only to amounts graph. However, a service provider that in
the plan may comply with the provision of that would not otherwise be payable in 2005 elected to be paid an amount in 2008
the final regulations or Notice 2005–1. 2006 and may not cause an amount to (and that did not change such election in
A plan will not be operating in good be paid in 2006 that would not otherwise 2006 or 2007) may not in 2008 change the
faith compliance if discretion provided un- be payable in 2006. With respect to an time and form of payment to be paid in a
der the terms of the plan is exercised in a election or amendment to change a time later year.
manner that causes the plan to fail to meet and form of payment made on or after Similarly, except as provided below
the requirements of section 409A. For ex- January 1, 2007 and on or before Decem- with respect to certain discounted stock
ample, if an employer retains the discretion ber 31, 2007, the election or amendment rights, an outstanding stock right that
under the terms of the plan to delay or ex- may apply only to amounts that would provides for a deferral of compensation
tend payments under the plan in a manner not otherwise be payable in 2007 and subject to section 409A may be amended
that violates section 409A and exercises may not cause an amount to be paid in to provide for fixed payment terms con-
such discretion, the plan will not be con- 2007 that would not otherwise be payable sistent with section 409A, or to permit
sidered to be operated in good faith com- in 2007. With respect to an election or holders of such rights to elect fixed pay-
pliance with section 409A with regard to amendment to change a time and form of ment terms consistent with section 409A,
any plan participant. However, an exercise payment made on or after January 1, 2008 and such amendment or election will not
of a right under the terms of the plan by a and on or before December 31, 2008, the be treated as a change in the time and form
participant solely with respect to that par- election or amendment may apply only of payment under section 409A(a)(4) or
ticipant’s benefits under the plan, in a man- to amounts that would not otherwise be an acceleration of a payment under section
ner that causes the plan to fail to meet the payable in 2008 and may not cause an 409A(a)(3), provided that the option or
requirements of section 409A, will not be amount to be paid in 2008 that would not right is so amended, and any elections are
considered to result in the plan failing to otherwise be payable in 2008. So, for ex- made, on or before December 31, 2008.
be operated in good faith compliance with ample, where an amount would otherwise For this purpose, a stock right will not be
respect to other participants. For example, be payable upon an event, such as a sep- treated as payable in a year solely because
the request for and receipt of an immediate aration from service, an election in 2008 the stock right is exercisable during that
payment permitted under the terms of the cannot change the amount that would be year, if the stock right is also reasonably
plan if the participant forfeits 20 percent of payable in 2008 if the service provider expected to be exercisable in a subsequent
the participant’s benefits (a haircut) will be separated from service in 2008. In addi- year.
considered a failure of the plan to meet the tion, a deferral election may be made with .03 Payments linked to qualified plans
requirements of section 409A with respect respect to an amount that is a short-term and certain other plans
to that participant, but not with respect to deferral within the meaning of proposed The ability to link a payment election
all other participants under the plan. §1.409A–1(b)(4), provided that the elec- under a nonqualified deferred compensa-
.02. Change in payment elections or tion is made before January 1, 2008 and tion plan to an election under a qualified
conditions on or before December 31, before the year in which the amount would plan is extended through 2008. In addition,
2008 otherwise have been paid. Also, a deferral this relief is extended to payment elections
The transition relief provided in sec- election may be made with respect to an under nonqualified deferred compensation
tion XI.C of the preamble to the proposed amount that is a short-term deferral within plans that are linked to certain additional
regulations generally continues to apply the meaning of final §1.409A–1(b)(4), employer plans, including section 403(b)

November 13, 2007 991 2007–46 I.R.B.


annuities, section 457(b) eligible plans, ferral of compensation under section 409A Notice 2005–1, Q&A–21 provided re-
and certain foreign broad-based plans. if it had been granted upon the original lief with respect to certain initial deferral
Accordingly, (i) for periods ending on or date of grant of the replaced stock option elections, generally providing that cer-
before December 31, 2007, an election or stock appreciation right, provided that tain requirements would not be applicable
as to the time and form of a payment the cancellation and reissuance occurs on to elections made on or before March
under a nonqualified deferred compensa- or before December 31, 2005. Section 15, 2005. One of the conditions of the
tion plan that is controlled by a payment XI.H of the preamble to the proposed reg- relief was that the plan be amended to
election made by the service provider or ulations extended the period during which comply with the requirements of section
beneficiary of the service provider un- the cancellation and reissuance may oc- 409A in accordance with Notice 2005–1,
der a qualified employer plan described cur until December 31, 2006, but only to Q&A–19. Notice 2005–1, Q&A–19 gen-
in proposed or final §1.409A–1(a)(2), a the extent a cancellation and reissuance erally required that plans be amended
plan that includes a trust described in sec- in 2006 does not result in the cancella- by December 31, 2005. The March 15,
tion 402(d), a plan described in section tion of a deferral in exchange for cash or 2005 deadline for initial deferral elections
1022(i)(1) or (2) of the Employee Retire- vested property in 2006. Except with re- was not extended in the preamble to the
ment Income Security Act, or a foreign spect to certain discounted stock rights de- proposed regulations; however, the plan
broad-based plan described in proposed or scribed in § 3.07 of Notice 2006–79, the amendment requirement generally was ex-
final §1.409A–1(a)(3)(v), will not violate period during which the cancellation and tended to December 31, 2006. Although
the requirements of section 409A, pro- reissuance may occur is extended until De- the initial deferral election relief contained
vided that the determination of the time cember 31, 2008, but only to the extent in Notice 2005–1, Q&A–21 only referred
and form of the payment is made in accor- such cancellation and reissuance in 2007 to the requirements of Notice 2005–1,
dance with the terms of the nonqualified does not result in the cancellation of a de- Q&A–19, the Treasury Department and
deferred compensation plan that govern ferral in exchange for cash or vested prop- the IRS have become aware that many
payment elections, as in effect on October erty in 2007 and only to the extent such taxpayers interpreted the extension of
3, 2004 and (ii) for periods ending after cancellation and reissuance in 2008 does the plan amendment deadlines as flow-
December 31, 2007 and before January not result in the cancellation of a deferral ing through to the requirements of Notice
1, 2009, the rules discussed in (i) will be in exchange for cash or vested property in 2005–1, Q&A–21. To avoid unintentional
applied by reference to the provisions of 2008. For example, a discounted option noncompliance in this area, the deadline
the final regulations only. For example, generally may be replaced through De- for a plan to be amended to reflect use
where a nonqualified deferred compensa- cember 31, 2008 with an option that would of the relief provided in Notice 2005–1,
tion plan provides as of October 3, 2004, not have provided for a deferral of com- Q&A–21 is extended to December 31,
that the time and form of payment to a pensation, although the exercise of such 2008. However, taxpayers retain the bur-
service provider or beneficiary will be the a discounted option after 2005 and before den of demonstrating satisfaction of the
same time and form of payment elected by the cancellation and replacement generally requirement by showing that the defer-
the service provider or beneficiary under would result in a violation of section 409A ral election was made by the March 15,
a qualified plan, it will not be a violation unless such exercise complied in operation 2005 deadline, in accordance with the plan
of section 409A for the plan administrator with the requirements of section 409A and terms in effect on or before December 31,
to make or commence payments under the applicable guidance. 2005 (other than a requirement to make a
the nonqualified deferred compensation Where replacement stock options or deferral election on or before March 15,
plan on or after January 1, 2005, and on or stock appreciation rights that would not 2005). See Notice 2005–1, Q&A–21.
before December 31, 2008, pursuant to the constitute deferred compensation subject (3) Paragraphs .05 and .07 of § 3 of
payment election under the qualified plan. to section 409A are issued in accordance Notice 2006–79 are not affected by this
Notwithstanding the foregoing, other pro- with the conditions set forth in Notice notice.
visions of the Internal Revenue Code and 2005–1, Q&A–18(d), the preamble to the
common law tax doctrines continue to proposed regulations and this notice, such .02 Modification of Transition Relief
apply to any election as to the time and replacement stock options or stock appre- Provided in the Final Regulations
form of a payment under a nonqualified ciation rights will be treated for purposes Preamble
deferred compensation plan. of section 409A as if granted on the grant
.04 Substitutions of non-discounted date of the original stock option or stock The relief provided in sections XII and
stock options and stock appreciation rights appreciation right. For a discussion of cer- XIII of the final regulations preamble is
for discounted stock options and stock ap- tain methods that commentators proposed modified to reflect the extension of the No-
preciation rights to use to compensate option holders for tice 2006–79 transition relief through De-
Notice 2005–1, Q&A–18(d) provides the value of a lost discount, see section cember 31, 2008, and the guidance pro-
that it will not be a material modification XI.H of the preamble to the proposed reg- vided in section XIV of the final regula-
to replace a stock option or stock appre- ulations. tions preamble is modified with respect to
ciation right otherwise providing for a de- (2) Paragraph .06 of § 3 of Notice periods after December 31, 2007, as fol-
ferral of compensation under section 409A 2006–79 is modified and superseded to lows:
with a stock option or stock appreciation read as follows: (A) General rule. Sections XII and XIII
right that would not have constituted a de- .06 Other transition issues of the final regulations preamble are ap-

2007–46 I.R.B. 992 November 13, 2007


plied by substituting references to Decem- any other applicable guidance: Q&A–6 at (202) 927–9639 (not a toll-free num-
ber 31, 2008 for references to December (application to arrangements covered by ber).
31, 2007, and substituting references to section 457); Q&A–7 (application to ar-
January 1, 2009 for references to January rangements between a partnership and a
1, 2008. However, references to April 10, partner of the partnership); and Q&A–24 Proposed Changes to the
2007 (the date of issuance of the final reg- through Q&A–38 (information reporting Process for Obtaining the
ulations) and October 3, 2004 (the enact- and withholding guidance). Commissioner’s Consent
ment date of the statute) are not modified. Pursuant to this notice, Notice 2006–4,
(B) Section XII.C. With respect to the 2006–3 C.B. 307 (relating to the applica-
to Change a Method of
determination of the fair market value of tion of section 409A to certain outstanding Accounting
stock, the last sentence of the second para- stock rights), is superseded by the final
graph of section XII.C of the final regu- regulations with respect to stock rights Notice 2007–88
lations preamble is modified to delete the issued in taxable years of the service
PURPOSE
words “proposed or” so as to eliminate re- provider beginning after December 31,
liance on the provisions of the proposed 2008. Notice 2006–64, 2006–29 I.R.B. 88 This notice requests comments from
regulations. (relating to the acceleration of payments the public regarding a proposal to change
(C) Section XII.D. With respect to pro- to comply with certain conflict of interest the process by which taxpayers obtain the
grams established before April 10, 2007 rules), is superseded by the final regu- consent of the Commissioner of Internal
where initial deferral elections have not lations effective for taxable years of the Revenue to change a method of account-
been made by January 1, 2008, the tran- service provider beginning after Decem- ing for federal income tax purposes. The
sition relief provided in the second para- ber 31, 2008. proposal described in this notice is one
graph of section XII.D of the final regu- Section III of Notice 2007–78 is re- possible approach. The Internal Revenue
lations preamble remains unchanged (that voked and superseded by this notice. Pur- Service (IRS) is interested in consider-
is, no further transition relief is provided suant to this notice, the penultimate para- ing other possible approaches. Therefore,
by this notice). graph and the first sentence of the final changes to the process, including any pilot
(D) Section XIV. The guidance pro- paragraph of § IV.A of Notice 2007–78 are program, will not become effective until
vided in section XIV of the final regula- modified by substituting references to De- the IRS considers public comments and
tions preamble (Calculation and Timing cember 31, 2008 for references to Decem- suggestions received in response to this
of Income Inclusion Amounts, Reporting ber 31, 2007. The guidance otherwise pro- notice and publishes guidance announcing
and Withholding) on the application of vided in § IV of Notice 2007–78 is not changes to the process.
section 409A before January 1, 2008 is affected by this notice. Section 3 of No-
extended to apply before January 1, 2009 tice 2006–79 is modified and superseded BACKGROUND
except that paragraph A of such section is as provided in this notice. The guidance
not changed. and relief provided in the final regulations A. The Existing Accounting Method
preamble is modified as provided in this Change Process
SECTION 4. EFFECT ON OTHER notice.
DOCUMENTS Section 446(e) of the Internal Revenue
The Treasury Department and the IRS
Code requires taxpayers to obtain the con-
anticipate issuing guidance as soon as pos-
Nothing in this notice is intended to sent of the Commissioner before changing
sible with respect to the correction pro-
limit the scope or applicability of the tran- a method of accounting for federal income
gram and other matters discussed in § V
sition relief provided in Notice 2005–1, the tax purposes. A change in a method of ac-
of Notice 2007–78 and this notice does not
proposed regulations or Notice 2006–79 counting includes a change in the overall
affect that section. In addition, this notice
for periods before January 1, 2008. This plan of accounting for gross income or de-
does not affect the guidance provided in
notice does not affect the guidance pro- ductions or a change in the treatment of
§ VI of Notice 2007–78.
vided in Notice 2006–33, 2006–1 C.B. any item that involves the proper time for
754 (relating to the application of section SECTION 5. DRAFTING the inclusion of the item in income or the
409A(b)), Notice 2005–94, 2005–2 C.B. INFORMATION taking of the item as a deduction. Taxpay-
1208 (relating to reporting and wage with- ers request the Commissioner’s consent to
holding for 2005) and Notice 2006–100, The principal authors of this notice change a method of accounting by filing
2006–51 I.R.B. 1109 (relating to reporting are Stephen Tackney and Bill Schmidt of a Form 3115, Application for Change in
and wage withholding for 2006). Notwith- the Office of Division Counsel/Associate Accounting Method, that describes the cur-
standing the section of the final regulations Chief Counsel (Tax Exempt and Govern- rent and new methods of accounting, iden-
preamble entitled “Effect on Other Docu- ment Entities), although other Treasury tifies items that will be treated differently
ments”, Notice 2005–1 is obsoleted only Department and IRS officials participated under the new method of accounting, and
for taxable years beginning on or after in its development. For further infor- includes a computation of any adjustment
January 1, 2009, except for the following mation on the provisions of this notice, required by section 481(a).
sections of Notice 2005–1, which remain contact Stephen Tackney or Bill Schmidt The Commissioner has issued admin-
effective after that date as modified by istrative procedures instructing taxpayers

November 13, 2007 993 2007–46 I.R.B.


how and when to file Form 3115, and sent of the Commissioner before changing section 481(a). The processing of a tax-
prescribing the terms and conditions nec- a method of accounting. Accordingly, a payer’s request for an accounting method
essary to obtain consent to change an taxpayer that qualifies to make a change change may involve requests for supple-
accounting method. These procedures through the automatic consent process mental information from the taxpayer,
are contained principally in Rev. Proc. may not opt to make the change under the including requests for additional facts and
2002–9, 2002–1 C.B. 327, as modified nonautomatic consent process described clarification of how the taxpayer intends
and clarified by Announcement 2002–17, below. A user fee is not charged in the to apply the requested method to particu-
2002–1 C.B. 561, modified and amplified automatic consent process. lar types of transactions. If supplemental
by Rev. Proc. 2002–19, 2002–1 C.B. The IRS national office reviews Forms information is needed, the IRS national of-
696, and amplified, clarified and modified 3115 filed through the automatic consent fice notifies the taxpayer and the taxpayer
by Rev. Proc. 2002–54, 2002–2 C.B. process to determine whether the form generally is permitted 21 days to furnish
432 (“automatic consent process”) and is properly completed and whether the the necessary information.
Rev. Proc. 97–27, 1997–1 C.B. 680, as taxpayer qualifies for automatic consent. If the taxpayer’s requested accounting
modified and amplified by Rev. Proc. If the IRS national office reviews a Form method change is approved by the IRS na-
2002–19, as amplified and clarified by 3115 and determines that the form is not tional office, the taxpayer receives a let-
Rev. Proc. 2002–54 (“nonautomatic con- properly completed, or if supplemental ter ruling granting the taxpayer consent to
sent process”). information is needed, the IRS national make the change subject to certain terms
1. The automatic consent process office notifies the taxpayer, specifies the and conditions. The taxpayer also gen-
Under the existing process, the Com- information that is needed, and permits the erally receives audit protection and ruling
missioner grants eligible taxpayers auto- taxpayer 30 days to furnish the necessary protection. In cases where the IRS na-
matic consent to change to certain methods information. If the IRS national office tional office is tentatively adverse to the
of accounting, most of which are described tentatively determines that the taxpayer taxpayer’s requested change in method of
in the Appendix to Rev. Proc. 2002–9. has changed its method of accounting accounting, the IRS national office notifies
A taxpayer that seeks to change to one of without complying with all the applicable the taxpayer of its tentative adverse deter-
these methods must attach Form 3115 to its provisions of Rev. Proc. 2002–9, the IRS mination and offers the taxpayer a confer-
timely filed (including extensions) original national office notifies the taxpayer of its ence of right, if the taxpayer has requested
income tax return for the requested year of tentative adverse determination and offers such a conference. If the IRS national of-
change and send a copy of the Form 3115 the taxpayer a conference of right, if the fice remains adverse after the conference
to the IRS national office no later than the taxpayer has requested such a conference. of right, it notifies the taxpayer that con-
date that the original Form 3115 is filed In cases where the IRS national office sent to make the change in method of ac-
with the federal income tax return for the remains adverse after the conference of counting is denied.
year of change. In general, a taxpayer, not right, it notifies the taxpayer that consent
under audit, complying with all the appli- to make the change in method of account- B. Reasons for Change
cable provisions of Rev. Proc. 2002–9 has ing is not granted.
The IRS is concerned that certain as-
obtained the consent of the Commissioner 2. The nonautomatic consent process
pects of the existing accounting method
to change its method of accounting and or- Changes that do not qualify for auto-
change process make it a complex and
dinarily receives both “audit protection” matic consent must be requested under the
inefficient means for taxpayers to obtain
and “ruling protection.” That is, the IRS nonautomatic consent process described in
consent to change an accounting method.
will not require the taxpayer to change its Rev. Proc. 97–27. A taxpayer that seeks
These complexities and inefficiencies of-
method of accounting for the same item for the Commissioner’s consent to change a
ten result in significant delays in the pro-
a taxable year prior to the year of change method of accounting through the nonau-
cessing of accounting method change re-
(“audit protection”). The IRS also will not tomatic consent process must file Form
quests. The IRS believes that an effi-
require the taxpayer to change or modify 3115 with the IRS national office during
cient process that provides taxpayers with
the new method of accounting except in the taxable year in which the taxpayer de-
a means of obtaining timely consent to
certain circumstances specifically enumer- sires to make the proposed change. There
change to a proper method of accounting
ated in section 8 of Rev. Proc. 2002–9 is a user fee for a nonautomatic consent re-
is crucial to ensuring that taxpayers com-
and, if the IRS does require the taxpayer quest (in general, the current fee is $2,500
ply with the consent requirement of sec-
to change or modify the new method of per request).
tion 446(e). Accordingly, the IRS is con-
accounting, the required change or modi- In processing a request for a change in
sidering proposals to modify the account-
fication to the new method of accounting method of accounting made through the
ing method change process. In considering
generally will not be applied retroactively nonautomatic consent process, the IRS
any modifications to the existing process,
(“ruling protection”). In other words, the national office considers, among other
the IRS will balance taxpayers’ need for
taxpayer receives protection with respect factors, whether the requested method of
timely consent with the Commissioner’s
to the use of the new method of account- accounting is legally permissible for the
responsibility to ensure that the process
ing in future years. taxpayer, whether the requested method
comports with the purpose underlying sec-
Rev. Proc. 2002–9 is the exclusive clearly reflects the taxpayer’s income, and
tion 446(e).
procedure for a taxpayer within the scope whether the taxpayer has appropriately
of Rev. Proc. 2002–9 to obtain the con- computed any adjustment required by

2007–46 I.R.B. 994 November 13, 2007


Prior to the codification of sections the Commissioner’s consent to change its of change and would not receive ruling
446(e) and 481 in 1954, the regulations method of accounting. A change made protection.
imposed a “consent” requirement on tax- under the standard consent process must Although the proposal contemplates
payers seeking a change in accounting be made under the published terms and that taxpayers would file Form 3115 with
method, the purpose of which was to give conditions applicable to the standard con- their returns for the requested year of
the Commissioner the opportunity to insist sent process. No letter ruling would be is- change, the IRS is considering an alter-
on compensating adjustments to eliminate sued by the IRS, and no user fee would be native approach under which taxpayers
the omissions and duplications of income charged. would be required to file Form 3115
and deductions that can result from a All changes in method of accounting for changes to methods of accounting
change in accounting method. Today, sec- that are specifically identified in Rev. not specifically identified in Rev. Proc.
tion 481(a) provides for such adjustments, Proc. 2002–9 (or any successor), or other 2002–9 (or any successor) or other au-
thereby diminishing the role of the consent automatic consent guidance, would be tomatic guidance, by the last day of the
requirement as a means for the Commis- eligible for consent under the standard ninth month of the requested taxable year
sioner to mandate these adjustments. The consent process. As is the case under of change. Requiring Form 3115 to be
consent requirement is recognized today the existing automatic consent process, filed during the requested taxable year
as serving broader policy aims, such as taxpayers changing to one of these specif- of change, rather than with the tax return
promoting consistent accounting practices ically identified methods of accounting for the requested taxable year of change,
and easing the administrative burden on would ordinarily obtain audit protection would provide the IRS with time to con-
the Commissioner of detecting accounting and ruling protection. The IRS antici- sider the request before the taxpayer files
method changes. pates that Rev. Proc. 2002–9 (or any its return for the requested taxable year of
The IRS believes that the proposal con- successor), and other automatic consent change. The IRS requests comments on
tained in this notice fulfills the broad pol- guidance, would be incorporated into the this alternative approach.
icy aims of section 446(e). As under the administrative procedures that govern the The IRS expects that the standard con-
existing automatic consent and nonauto- standard consent process. Consequently, sent process would give taxpayers who
matic consent processes, the IRS intends the standard consent process would be the seek consent under section 446(e) without
to review all accounting method change exclusive process available to taxpayers ruling protection the opportunity to obtain
requests, and to focus on those that raise changing to methods of accounting specif- this consent in a timely and efficient man-
novel or controversial accounting method ically identified in Rev. Proc. 2002–9 ner. The taxpayer’s filing of Form 3115
change issues. The IRS expects that the (or any successor) and other automatic would give the IRS adequate notice of the
proposal contained in this notice will sim- consent guidance. change in accounting method. Further, the
plify the consent process and reduce de- This proposal contemplates that the lack of ruling protection for changes that
lays for most taxpayers, while preserving standard consent process would be avail- are not specified in Rev. Proc. 2002–9 (or
the ability of the IRS to effectively moni- able even for changes that are not identi- any successor), or other automatic consent
tor changes of accounting methods. fied in Rev. Proc. 2002–9 (or any succes- guidance, puts the taxpayer in no worse a
sor), or other automatic consent guidance. position with regard to the new method of
PROPOSAL That is, except for changes required to be accounting as the taxpayer is in with re-
made under the proposed specific con- gard to other items of income or deduction
The IRS is considering whether to
sent process (described below), a taxpayer reported on the return. That is, the tax-
modify the accounting method change
that timely files Form 3115 with its tax payer’s use of the new method of account-
process so that the existing “automatic
return and complies with the procedures ing is an issue that may be considered upon
consent” process and “nonautomatic con-
governing the standard consent process examination.
sent” process are replaced with a system
would have the Commissioner’s consent 2. IRS review of Forms 3115
under which a taxpayer requests “standard
to change to any permissible method of ac- Under the proposal, the IRS would
consent,” “specific consent” or “letter rul-
counting for the requested year of change, screen accounting method change requests
ing consent.”
including changes to methods of account- for completeness and for compliance with
A. Standard Consent Process ing not specifically identified in Rev. the procedures governing the standard
Proc. 2002–9 (or any successor) or other consent process. Requests that are not
1. In general automatic consent guidance. However, substantially complete would be denied
The IRS anticipates that, under this pro- unlike the consent applicable to method consent and the taxpayer would be notified
posal, the majority of accounting method changes specifically identified in Rev. that consent is not granted. In contrast to
change requests would be made through Proc. 2002–9 (or any successor), or other the procedures contained in section 10.02
the standard consent process. The pro- automatic consent guidance, a taxpayer’s of Rev. Proc. 2002–9, under the pro-
posed standard consent process is expected change of its method of accounting to a posal, the IRS does not intend to permit
to operate in a manner similar to the ex- method other than a method specifically taxpayers to perfect requests that are not
isting automatic consent process — a tax- identified in Rev. Proc. 2002–9 (or any substantially complete prior to denying
payer that timely files Form 3115 with successor), or other automatic consent consent. As a consequence, a taxpayer
its tax return and complies with the pro- guidance, would receive only audit pro- who submits a form that is not substan-
cedures governing the process is granted tection for years prior to the requested year tially complete would not receive consent

November 13, 2007 995 2007–46 I.R.B.


to change its method of accounting for (1) accounting method changes specifi- and ruling protection would usually apply.
the proposed year of change and, thus, cally identified in published guidance as However, the IRS, in its discretion, may
would not receive ruling protection or required to be made under the specific decline to grant ruling protection in a par-
audit protection. The IRS plans to issue consent process, and (2) changes that oth- ticular case.
guidelines and examples of what consti- erwise qualify under the standard consent 2. Changes seeking modified terms and
tutes a substantially complete Form 3115. process, but for which the taxpayer seeks conditions or a waiver of certain scope
For example, a Form 3115 must include different terms and conditions or a waiver limitations
sufficient information about the current of certain scope limitations that apply to The specific consent process would also
and new methods of accounting to permit the standard consent process. Each of apply to any change that otherwise quali-
the IRS to understand how the methods these categories is discussed in further fies for the standard consent process (in-
work, and must identify legal authority detail below. The IRS expects that under cluding a change specifically identified in
(including any contrary authority) gov- this proposal a user fee would apply to a Rev. Proc. 2002–9, or any successor, or
erning the new method of accounting. change requiring specific consent. other automatic consent guidance), but for
However, minor omissions or errors on 1. Changes identified in published the fact that the taxpayer seeks a term and
Form 3115 would not result in the denial guidance condition different from those that apply
of consent. Under the proposal, the IRS would to standard consent requests, or seeks a
In addition to screening accounting publish guidance in the Internal Rev- waiver of certain scope limitations that ap-
method change requests for complete- enue Bulletin that lists specific accounting ply to standard consent requests. For ex-
ness, the IRS would review Forms 3115 method changes that must be made using ample, a taxpayer that filed a Form 3115
filed under the standard consent process the specific consent process. The spe- under the standard consent process and
to determine whether the new accounting cific accounting method changes listed seeks to make a subsequent change to the
method is permissible. In cases where in this published guidance would include same item within five years would be re-
the IRS agrees that the new method is the types of changes that the IRS wants quired to request consent under this spe-
permissible, ordinarily no further action to review in more depth and prior to the cific consent process to make the subse-
would be taken and the taxpayer would taxpayer implementing the accounting quent change. As provided in section 8.02
not be advised that the review has taken method on its tax return. The IRS would of Rev. Proc. 97–27, the IRS may de-
place. In cases where the IRS questions update the proposed published list as termine that, based on the unique facts
the propriety of the new method, the IRS necessary to add or remove specific ac- of a particular case and in the interest of
may correspond with the taxpayer to re- counting method changes that are required sound tax administration, terms and con-
solve the matter. In some cases, resolution to be made under the specific consent ditions that differ from those that ordinar-
may require the taxpayer to provide addi- process. The IRS expects that, in gen- ily apply are more appropriate for a par-
tional information about the change. If the eral, the process for requesting specific ticular accounting method change. It is
IRS tentatively determines that the new consent would be similar to the existing not intended that under this proposal the
method of accounting is impermissible, advance consent process described in Rev. IRS would change its policy concerning
the IRS would notify the taxpayer of the Proc. 97–27. That is, a taxpayer files a the circumstances in which it will approve
tentative adverse determination and will Form 3115 that is substantially complete a request for modified terms and condi-
ordinarily offer the taxpayer a conference. (as discussed above in the description of tions. Taxpayers should be aware that it is
In cases where the IRS remains adverse the standard consent process) and awaits only in rare situations that the IRS agrees
after the conference, it would notify the a ruling from the IRS granting consent to a taxpayer’s request for terms and con-
taxpayer that consent to make the change to the change. To give the IRS adequate ditions different from those prescribed in
in method of accounting is not granted. time to consider the request prior to the published guidance.
Under the existing accounting method due date of the taxpayer’s tax return for To give the IRS adequate time to con-
change process, the IRS provides audit the requested taxable year of change, the sider the request prior to the due date of
protection for changes in method of ac- IRS expects to require taxpayers to file the taxpayer’s tax return for the requested
counting only if the request for change is Form 3115 by the last day of the ninth taxable year of change, the IRS expects to
granted. The IRS is considering whether it month of the requested taxable year of require taxpayers to file Form 3115 by the
would be appropriate to provide audit pro- change, without the possibility of relief last day of the ninth month of the requested
tection even in cases where consent is not for late requests under section 301.9100 taxable year of change, without the possi-
granted. Providing audit protection in such of the Regulations on Procedure and Ad- bility of relief for late requests under sec-
cases may encourage taxpayers to seek ministration. However, the IRS intends tion 301.9100 of the Regulations on Pro-
consent to change from improper methods to consider an otherwise qualified request cedure and Administration. However, the
of accounting. filed after the last day of the ninth month IRS intends to consider an otherwise qual-
of a taxable year and before the beginning ified request filed after the last day of the
B. Specific Consent Process of the succeeding taxable year a timely ninth month of a taxable year and before
filed request for the succeeding taxable the beginning of the succeeding taxable
The specific consent process is pro- year. year a timely filed request for the succeed-
posed to be available for only two cat- If a taxpayer’s consent request is ing taxable year.
egories of accounting method changes: granted, audit protection would apply

2007–46 I.R.B. 996 November 13, 2007


Under the proposal, in cases where the transaction and a completed Form 3115 as Proc. 97–27 and Rev. Proc. 2002–9) for
IRS agrees to the modified term and con- an attachment to the letter ruling request. obtaining consent to change an accounting
dition or the waiver of certain scope limi- As provided in Rev. Proc. 2007–1, taxpay- method.
tations, any consent would be granted un- ers must provide any additional informa-
der the standard consent process, gener- tion requested by the IRS and, if a taxpayer REQUEST FOR COMMENTS
ally with audit protection and without rul- does not submit the information within 21
ing protection. That is, no ruling letter calendar days from the date of the request, The proposal contained in this notice is
would be issued; the IRS would simply the letter ruling request would be closed one way, but not the only way, that the
issue a waiver that permits the taxpayer and the taxpayer would be notified in writ- accounting method change process could
to utilize the standard consent process to ing. be modified to improve efficiencies and
make the change with the modified term Requests made under this letter ruling reduce delays both for taxpayers and the
and condition or with a waiver of the scope consent process would be subject to the IRS. The IRS requests public comments
limitation. In appropriate cases, the IRS generally applicable user fee imposed on on this proposal and any other suggestions
would limit audit protection where the tax- letter ruling requests, and not the user fee for modifying and improving the account-
payer previously received audit protection currently imposed in the existing advance ing method change process. Any modi-
for the same item under the standard con- consent process. Further, the IRS intends fication to the accounting method change
sent process. to require taxpayers to submit letter rul- process will not become effective until the
ing consent requests by the last day of the IRS considers any public comments re-
C. Letter Ruling Consent Process ninth month of the requested taxable year ceived and publishes additional guidance
of change, without the possibility of relief announcing changes to the process.
The IRS recognizes that some taxpayers
for late requests under section 301.9100 Written submissions in response to
who seek to change an accounting method
of the Regulations on Procedure and Ad- this notice should be submitted no later
may want the certainty of a letter ruling is-
ministration. However, the IRS intends to than January 18, 2008, to Internal Rev-
sued by the IRS national office concern-
consider an otherwise qualified letter rul- enue Service, CC:PA:LPD:RU (Notice
ing the propriety of a requested method
ing request filed after the last day of the 2007–88), room 5203, P.O. Box 7604, Ben
of accounting. Under the proposal, a tax-
ninth month of a taxable year and before Franklin Station, Washington, DC 20044.
payer that seeks a change in accounting
the beginning of the succeeding taxable Submissions may be hand delivered be-
method other than a change that is specif-
year a timely filed letter ruling request for tween the hours of 8 a.m. and 4 p.m.
ically identified in Rev. Proc. 2002–9 (or
the succeeding taxable year. to CC:PA:LPD:RU (Notice 2007–88),
any successor), or other automatic consent
If the IRS national office rules favor- Courier’s Desk, Internal Revenue Service,
guidance, may request a letter ruling un-
ably on the letter ruling request, it also 1111 Constitution Avenue, NW, Washing-
der Rev. Proc. 2007–1, 2007–1 I.R.B. 1,
would grant the taxpayer consent under ton, DC 20224. Alternatively, submis-
(or its successor). The IRS would apply
section 446(e) to change its method of ac- sions may be submitted via the Internet at
Rev. Proc. 2007–1 (or its successor) and
counting for the item that is the subject of Notice.Comments@irscounsel.treas.gov
Rev. Proc. 2007–3, 2007–1 I.R.B. 108,
the letter ruling request. Audit protection in which case “Notice 2007–88” should
(or its successor) in determining whether
and ruling protection would apply. be in the subject line. All submissions
to rule on a request filed under the letter
will be available for public inspection and
ruling consent process. D. Pilot Program copying in their entirety. Therefore, sub-
The IRS is concerned that requests for
missions received by the IRS should not
accounting method changes made under The IRS intends to implement any
include taxpayer-specific information of a
the existing advance consent process of- changes to the accounting method change
confidential nature. Submissions should
ten are not as well developed as requests process on a pilot basis before making
include the name and telephone number of
for letter rulings generally. Under this pro- permanent changes to the process. The
a person to contact.
posal, a taxpayer utilizing the letter ruling IRS expects to open the pilot program
consent process must submit a fully devel- to all taxpayers making an accounting
DRAFTING INFORMATION
oped request, and that request would be method change within a specified pilot
subject to the same standard of factual and period. During the pilot period, the IRS
The principal authors of this notice are
legal development as a request for a let- will continue to evaluate the process. The
Andrew J. Keyso and Brenda D. Wilson
ter ruling generally. Under this proposal, a IRS emphasizes that this notice does not
of the Office of Associate Chief Coun-
letter ruling request would include, among establish a pilot program. The IRS will
sel (Income Tax & Accounting). For fur-
other information, a complete statement of consider public comments received in re-
ther information regarding this notice, con-
facts, copies of documents pertinent to the sponse to this notice before establishing
tact Mr. Keyso or Ms. Wilson at (202)
transaction, statements of supporting and a pilot program in separate guidance. In
622–4800 (not a toll-free call).
contrary authorities, examples of the appli- the meantime, taxpayers must continue to
cation of the new method to the taxpayer’s follow the existing procedures (e.g., Rev.

November 13, 2007 997 2007–46 I.R.B.


Reporting and Wage plan on a Form W–2 (Wage and Tax C. Final Regulations
Withholding Under Internal Statement) or a Form 1099–MISC
(Miscellaneous Income), regardless of On April 10, 2007, the IRS issued fi-
Revenue Code § 409A nal regulations (T.D. 9321, 2007–14 I.R.B.
whether such deferred compensation
is includible in gross income under 865) regarding the application of § 409A,
Notice 2007–89 applicable for taxable years beginning on
§ 409A(a).
I. PURPOSE or after January 1, 2008. See 72 Fed. Reg.
• The Act amended § 3401(a) to pro- 19234 (April 17, 2007). The regulations
This notice provides guidance to em- vide that the term “wages” includes generally incorporate and expand on the
ployers and payers on their reporting and any amount includible in the gross in- guidance provided in Notice 2005–1. Un-
wage withholding requirements for calen- come of an employee under § 409A. der Notice 2007–86, 2007–46 I.R.B. 990
dar year 2007 with respect to amounts in- (November 13, 2007), taxpayers generally
cludible in gross income under § 409A • The Act amended § 6041 to require are not required to comply with the fi-
of the Internal Revenue Code. This no- that a payer report amounts includible nal regulations until January 1, 2009, but
tice also provides guidance to employers in gross income under § 409A that are taxpayers may rely on the final regula-
and payers on their reporting requirements not treated as wages under § 3401(a). tions for periods before January 1, 2009.
with respect to all deferrals of compen- The final regulations generally supersede
sation under § 409A of the Internal Rev- B. Notice 2005–1 Notice 2005–1 for periods beginning af-
enue Code for 2007. This notice does ter 2008. However, the regulations do
not affect the application of § 3121(v)(2) On December 20, 2004, the IRS issued not address reporting and withholding re-
or an employer’s reporting obligations un- Notice 2005–1, 2005–1 C.B. 274, which quirements, and accordingly do not su-
der § 31.3121(v)(2)–1 of the Employment provides guidance with respect to the ap- persede Notice 2005–1, Q&A–24 through
Tax Regulations. In addition, this notice plication of § 409A. Additionally, in ac- Q&A–38, which address those issues. See
provides guidance to service providers on cordance with the amendments made by Preamble to the Final Regulations, Effect
their income tax reporting and tax pay- § 885(b) of the Act, Notice 2005–1 pro- on Other Documents, 72 Fed. Reg. 19275.
ment requirements with respect to amounts vides the following with respect to report-
includible in gross income under § 409A ing and wage withholding requirements D. Notice 2006–100
for 2007. Generally, these requirements for deferred amounts: On November 30, 2006, the IRS is-
for 2007 reflect an extension to 2007 tax
sued Notice 2006–100, 2006–51 I.R.B.
years of the guidance provided in Notice • An employer reports to an employee 1109, which provided guidance to em-
2006–100 applicable to 2005 and 2006 tax the total amount of deferrals for the ployers and payers on their reporting and
years. year under a nonqualified deferred withholding obligations with respect to
compensation plan in box 12 of Form deferrals of compensation and amounts
II. BACKGROUND W–2 using code Y. See Q&A–29. includible in gross income under § 409A
A. The American Jobs Creation Act of during calendar years 2005 and 2006. The
2004
• An employer reports amounts includi-
notice permanently waived employers’
ble in gross income under § 409A and
and payers’ reporting requirements under
Section 885 of the American Jobs in wages under § 3401(a) in box 1
§§ 6041 and 6051 for calendar years 2005
Creation Act of 2004, Pub. Law No. of Form W–2 as wages paid to the
and 2006 with respect to annual deferrals
108–357, 118 Stat. 1418 (the Act), added employee during the year and subject
of compensation within the meaning of
§ 409A, which provides, inter alia, that to income tax withholding. An em-
§ 409A (Form W–2, Box 12, Code Y and
all amounts deferred under a nonquali- ployer also reports such amounts in
Form 1099, Box 15a). The notice also
fied deferred compensation plan for all box 12 of Form W–2 using code Z. See
provided guidance regarding the calcu-
taxable years are currently includible in Q&A–33.
lation of amounts includible in income
gross income to the extent not subject under § 409A, and the application of the
to a substantial risk of forfeiture and not • A payer reports to a nonemployee the
employer and payer reporting and with-
previously included in gross income, un- total amount of deferrals for the year
holding requirements for such amounts
less certain requirements are met. Section under a nonqualified deferred com-
under § 409A (Form W–2, Box 12, Code
885(b) of the Act amended the Code to pensation plan in box 15a of Form
Z and Form 1099, Box 15b).
impose the following reporting and wage 1099–MISC. See Q&A–30.
withholding requirements with respect III. INTERIM EMPLOYER AND
to deferrals of compensation within the • A payer reports amounts includible in PAYER REPORTING AND WAGE
meaning of § 409A. gross income under § 409A and not WITHHOLDING PROVISIONS
treated as wages under § 3401(a) as
• The Act amended §§ 6041 and 6051 nonemployee compensation in box 7 This section provides guidance on em-
to require that an employer or payer of Form 1099–MISC. A payer also re- ployers’ and payers’ reporting and wage
report all deferrals for the year under ports such amounts in box 15b of Form withholding requirements for calendar
a nonqualified deferred compensation 1099–MISC. See Q&A–35. year 2007.

2007–46 I.R.B. 998 November 13, 2007


A. 2007 Annual Deferrals For nonemployees, § 6041(g)(2) re- ingly, for purposes of this section III.B.1.,
quires a payer to report to a nonemployee references to amounts deferred under a
1. Amounts Reportable on Form W–2 any amount that is includible in gross in- plan, including references to account bal-
come under § 409A that is not treated as ances, refer solely to amounts deferred that
For calendar year 2007, an employer wages under § 3401(a). Thus, for calendar are subject to § 409A and not, for exam-
is not required to report amounts deferred year 2007, a payer must report amounts ple, to amounts deferred that were earned
during the year under a nonqualified includible in gross income under § 409A and vested prior to January 1, 2005 and
deferred compensation plan subject to and not treated as wages under § 3401(a) that are not otherwise subject to § 409A
§ 409A in box 12 of Form W–2 using code as nonemployee compensation in box 7 due to the application of the effective date
Y. of Form 1099–MISC. A payer must also provisions. For rules regarding the appli-
report such amounts as § 409A income in cation of the effective date provisions of
2. Amounts Reportable on Form box 15b of Form 1099–MISC. § 409A to nonqualified deferred compen-
1099–MISC sation plans, see § 1.409A–6.
1. Calculation of Amounts Includible in The provisions of this notice address-
For calendar year 2007, a payer is not Income under § 409A(a) — In General ing the calculation of the amounts includi-
required to report amounts deferred dur- ble in income are intended as interim guid-
ing the year under a nonqualified deferred Section 409A(a)(1)(A)(i) provides that
ance only. The Treasury Department and
compensation plan subject to § 409A in if at any time during a taxable year a non-
the IRS are currently formulating general
box 15a of Form 1099–MISC. qualified deferred compensation plan fails
guidance with respect to the calculation of
to meet the requirements of § 409A(a)(2),
the amounts includible in income, as well
B. 2007 Reporting and Withholding on (3) or (4), all compensation deferred un-
as other related issues. For information
Amounts Includible in Gross Income der the plan for the taxable year and all
regarding the submission of comments on
under § 409A preceding taxable years shall be includible
these topics, see section V. of this notice.
in gross income for the taxable year to the
Section 3401(a) provides that for in- extent not subject to a substantial risk of 2. Wage Payment Date of Amounts
come tax withholding purposes the term forfeiture and not previously included in Includible in Income under § 409A(a)
“wages” includes any amount includible gross income. Accordingly, for purposes
in gross income of an employee under of this notice, the amount includible in Amounts includible in gross income
§ 409A, and payment of such amount is gross income under § 409A(a) and re- under § 409A(a) in 2007 that are either
treated as having been made in the taxable quired to be reported by the employer actually or constructively received (disre-
year in which the amount is includible or payer equals the portion of the total garding the application of § 409A) by an
in gross income. Thus, for calendar year amount deferred under the plan that, as employee during the calendar year 2007,
2007, an employer must treat amounts of December 31, 2007, is not subject to are considered a payment of wages by the
includible in gross income under § 409A a substantial risk of forfeiture as defined employer when received by the employee
as wages for income tax withholding pur- in Notice 2005–1, Q&A–6, or the final for purposes of withholding, depositing,
poses. An employer is required to report regulations, and has not been included and reporting the income tax at source on
such amounts as wages paid on line 2 in income in a previous year, plus any wages under § 3401(a).
of Form 941, Employer’s QUARTERLY amounts of deferred compensation paid Amounts includible in gross income
Federal Tax Return, and in box 1 of Form or made available to the service provider under § 409A(a) in 2007 that are neither
W–2. An employer must also report such under the plan during the calendar year actually nor constructively received (dis-
amounts as § 409A income in box 12 of 2007. For purposes of this paragraph, an regarding the application of § 409A) by
Form W–2 using code Z. Amounts includi- employer or payer may treat an amount the employee during the calendar year
ble in gross income under section § 409A as previously included in income if prop- 2007, are treated as a payment of wages
are supplemental wages for purposes of erly reported by the employer or payer on December 31, 2007 for purposes of
determining the amount of income tax on a 2005 or 2006 Form W–2, Form withholding, depositing, and reporting
required to be deducted and withheld un- 1099–MISC, or Form W–2c or corrected the income tax at source on wages under
der § 3402(a), regardless of whether the Form 1099–MISC. Thus, amounts prop- § 3401(a). If as of December 31, 2007
employer has paid the employee any reg- erly reported on a 2005 or 2006 Form W–2 the employer does not withhold income
ular wages during the calendar year of or Form 1099–MISC, or Form W–2c or tax from the employee on such wages,
the payment. See Publication 15 for the corrected Form 1099–MISC should not or withholds less than the amount of in-
withholding rules with respect to supple- be reported again on a 2007 Form W–2 come taxes required to be withheld under
mental wages. The amount required to or Form 1099–MISC. For the definition § 3402 from the employee, the employee
be withheld is not increased on account of a plan, including the plan aggregation will receive credit under § 31 for 2007 if
of the additional income taxes imposed rules, see Notice 2005–1, Q&A–9, and the employer follows one of two possible
under § 409A(a)(1)(B). Employees should § 1.409A–1(c). options. Under the first option, notwith-
thus be aware that estimated tax payments Amounts includible in gross income un- standing § 31.6205–1(c)(4), the employer
may be required to avoid penalties under der § 409A(a) include only amounts de- withholds or recovers from the employee
§ 6654. ferred that are subject to § 409A. Accord- the amount of the undercollection after

November 13, 2007 999 2007–46 I.R.B.


December 31, 2007 and before Febru- a. Account Balance Plans normal commencement date. In addition,
ary 1, 2008, and reports as wages for the an amount deferred does not fail to be
quarter ending December 31, 2007 such For a plan that is an account balance reasonably ascertainable on a date merely
amounts that were neither actually nor plan as defined in § 1.409A–1(c)(2)(i)(A) because the exact amount of the bene-
constructively received but are includible or (B), the amount deferred as of Decem- fit payable cannot readily be calculated
in income under § 409A on Form 941 ber 31, 2007 equals the amount that would on that date or merely because the exact
for that quarter and in box 1 of the em- be treated as an amount deferred under amount of the benefit payable depends
ployee’s Form W–2 for 2007. Under the § 31.3121(v)(2)–1(c)(1) on December 31, on future changes in the cost of living. If
second option, the employer pays the in- 2007 if the entire account balance under the exact amount of the benefit payable
come tax withholding liability on behalf such plan (including all principal amounts, depends on future changes in the cost of
of the employee (without deduction from adjusted for income, gain or loss cred- living, the amount deferred must be deter-
the employee’s wages or other reimburse- ited to the service provider’s account) as mined using a reasonable assumption as
ment by the employee), and reports the of December 31, 2007 were treated as a to the future changes in the cost of living.
gross amount of wages and the income tax principal amount credited to the service These same rules apply for purposes of
withholding liability for the quarter end- provider’s account on December 31, 2007. determining the amount reported on Form
ing December 31, 2007 as including such These same calculation rules apply for pur- 1099–MISC for calendar year 2007 with
amounts that were neither actually nor poses of determining the amount reported respect to a nonemployee participating in
constructively received but are includible on Form 1099–MISC for calendar year a nonaccount balance plan.
in income under § 409A, as well as the 2007 with respect to a nonemployee par-
Federal Insurance Contributions Act, Fed- ticipating in an account balance plan. For c. Amounts Deferred Under Stock
eral Unemployment Tax Act, and income purposes of this section, a plan described in Rights Covered by § 409A
tax withholding wages resulting from § 1.409A–1(c)(2)(i)(A) (elective account
For a plan that provides stock rights
paying the income tax on the employee’s balance plan) is not aggregated with a plan
as defined in § 1.409A–1(c)(2)(i)(H), the
behalf, on Form 941 and Form 940, Em- described in § 1.409A–1(c)(2)(i)(B) (non-
amount deferred as of December 31, 2007
ployer’s Annual Federal Unemployment elective account balance plan).
equals the amount that the service provider
(FUTA) Tax Return, and in box 1 of the
would be required to include in income if
employee’s Form W–2 for 2007. See b. Nonaccount Balance Plans —
the stock rights were immediately exercis-
Rev. Rul. 58–113, 1958–1 C.B. 362 and Amounts that are Reasonably
able and exercised on December 31, 2007.
Rev. Rul. 86–14, 1986–1 C.B. 304, for Ascertainable
In general, this will mean with respect to a
methods of computing gross wages when
stock right outstanding as of December 31,
paying employment taxes on behalf of an For a plan that is a nonaccount balance
2007, the amount deferred as of December
employee. In addition, for purposes of plan as defined in § 1.409A–1(c)(2)(i)(C),
31, 2007 equals the fair market value of the
the deposit requirements associated with where the amount deferred is reason-
underlying stock less the sum of the exer-
such wages, if the income tax withholding ably ascertainable within the meaning of
cise price and any amount paid by the ser-
liability with respect to such wages is paid § 31.3121(v)(2)–1(e)(4), the amount de-
vice provider for the stock right.
to the IRS by the due date of the Form 941 ferred as of December 31, 2007 equals
for the quarter ending December 31, 2007 the present value of all future payments to d. Other Deferred Amounts
on which the wages are reported, then which the service provider has obtained
the amount of income tax withholding a legally binding right as of December For all deferred amounts not addressed
liability will be considered to have been 31, 2007, calculated in accordance with in section III.B.2.a., b., or c. of this no-
deposited in accordance with the rules of § 31.3121(v)(2)–1(c)(2) as if the ser- tice, the amount deferred as of December
§ 31.6302–1(c). Thus, penalties for failure vice provider had obtained all of such 31, 2007 must be determined under a rea-
to deposit taxes under § 6656 will not be rights on December 31, 2007. Section sonable, good faith application of a rea-
imposed with respect to such amount. 31.3121(v)(2)–1(e)(4)(i)(B) provides that sonable, good faith method. For this pur-
an amount deferred is considered rea- pose, a reasonable, good faith application
3. 2007 Amounts Includible in Income sonably ascertainable on the first date of a reasonable, good faith method gener-
under § 409A(a) on which the amount, form, and com- ally must reflect reasonable, good faith as-
mencement date of the benefit payments sumptions with respect to any contingen-
The following sections provide guid-
attributable to the amount deferred are cies as to the timing or amount of any pay-
ance for calculating the total amount
known, and the only actuarial or other ment. Generally, the use of an assumption
deferred under the plan as of December
assumptions regarding future events or with respect to a contingency that results in
31, 2007 for purposes of determining the
circumstances needed to determine the the amount deferred being the lowest po-
amount required to be included in gross
amount deferred are interest and mortality. tential value of the future payment will be
income under § 409A(a) in accordance
An amount does not fail to be reason- presumed not to be a reasonable, good faith
with the rules described in section III.B.1.
ably ascertainable if alternative forms or assumption unless clear and convincing
of this notice.
commencement dates are available that evidence demonstrates that the assumption
provide an actuarially equivalent benefit is reasonable. For example, where a pay-
to the normal benefit commencing at the ment may be made in more than one form,

2007–46 I.R.B. 1000 November 13, 2007


the assumption that the payment will be plan, assets are set aside or reserved in, or ample because the transfer occurred after
made in the least valuable form will be transferred to, a trust or other arrangement March 21, 2006 or the arrangement is not
presumed not to be a reasonable, good for purposes of paying deferred compen- made compliant with § 409A(b) by Jan-
faith assumption unless clear and convinc- sation for an applicable covered employee uary 1, 2008), employers and payers must
ing evidence demonstrates otherwise. The under a nonqualified deferred compensa- make a reasonable, good faith application
assumptions concerning time and form of tion plan of the plan sponsor or a member of a reasonable, good faith method to de-
payment set out in § 1.409A–6(a)(3)(i) (re- of its controlled group, or a nonqualified termine the amount includible in income
lating to calculation of the grandfathered deferred compensation plan of the plan for purposes of reporting. In addition, em-
benefit in a nonaccount balance plan) will sponsor or a member of its controlled ployers must treat the amount as wages for
constitute reasonable, good faith assump- group provides that assets will become purposes of § 3401. Amounts includible
tions for this purpose. If a portion of a de- restricted to the provision of benefits, or in income under § 409A(b) that are not
ferred amount can be calculated under sec- assets are so restricted, in connection with eligible for the relief in Notice 2006–33
tion III.B.2.a., b., or c. of this notice, a rea- such restricted period (or similar financial are treated as wages paid on the date the
sonable, good faith method of calculation measure determined by the Secretary), the deemed transfer of property under § 83
will in fact be a combination of two meth- assets are treated as a transfer of property described in § 409A(b) would be required
ods. The method applicable under section for purposes of § 83 whether or not such to be included in income under the rules of
III.B.2.a., b., or c. of this notice must be assets are available to satisfy claims of § 83, for purposes of withholding, deposit-
applied to the portion, and the balance of general creditors. ing and reporting the income tax at source
the deferred amount must be determined Section 409A(b)(4) provides that for on wages under § 3401(a). For amounts
under a reasonable good faith method. each taxable year that assets treated as includible in income under § 409A(b)
transferred under § 409A(b) remain set that were eligible for the relief in Notice
4. Amounts Includible in Income under aside in a trust or other arrangement sub- 2006–33 (“grace period assets”) but are
§ 409A(b) ject to § 409A(b)(1) or (2), any increase includible in income under § 409A(b)
in value in, or earnings with respect to, because the arrangement is not made
Section 409A(b)(1) provides generally such assets shall be treated as an additional compliant with § 409A(b) on or before
that in the case of assets set aside (directly transfer of property under this subsection December 31, 2007, Notice 2007–78 pro-
or indirectly) in a trust (or other arrange- (to the extent not previously included in in- vides that the date of the deemed transfer
ment determined by the Secretary) for pur- come). of property is January 1, 2008.
poses of paying deferred compensation un- Notice 2006–33, 2006–1 C.B. 754,
der a nonqualified deferred compensation April 10, 2006, provides transition C. Protection from Future Additional
plan, such assets shall be treated as prop- guidance related to the application of Reporting or Withholding for 2007
erty transferred in connection with the per- § 409A(b) to certain arrangements out-
formance of services for purposes of § 83 standing as of March 21, 2006. Under that An employer or payer who complies
whether or not such assets are available to relief, amounts transferred to trusts under with the rules of this notice regarding com-
satisfy claims of general creditors at the the arrangement on or before March 21, puting amounts includible in gross income
time set aside if such assets (or such trust 2006 that triggered the income inclusion under § 409A and withholding and report-
or other arrangement) are located outside and additional taxes under § 409A(b), ing for calendar year 2007 will not be li-
of the United States, or at the time trans- or arrangements that otherwise triggered able for additional income tax withholding
ferred if such assets (or such trust or other the income inclusion and additional taxes or penalties, or be required to file a subse-
arrangement) are subsequently transferred under § 409A(b) on or before March 21, quent corrected information return or fur-
outside of the United States. 2006, generally are treated as not having nish a corrected payee statement, as a re-
Section 409A(b)(2) provides that in the triggered the inclusion or additional tax sult of future published guidance with re-
case of compensation deferred under a provisions of § 409A(b), provided that spect to the computation of amounts in-
nonqualified deferred compensation plan, the arrangements become compliant with cludible in gross income under § 409A. If
there is a transfer of property within the § 409A(b) by January 1, 2008. Section VI it is subsequently determined that the em-
meaning of § 83 with respect to such com- of Notice 2007–78, 2007–41 I.R.B. 780, ployer did not apply the rules of this notice
pensation as of the earlier of the date on and Notice 2007–86 provide that such re- in determining amounts includible in gross
which the plan first provides that assets lief is not extended beyond December 31, income under § 409A and in wages un-
will become restricted to the provision 2007 and nothing in this notice is intended der § 3401(a) for calendar year 2007, any
of benefits under the plan in connection to modify or extend that relief. recalculation of these amounts will result
with a change in the employer’s financial However, where amounts have been in additional liability for income tax with-
health, or the date on which assets are transferred to a trust under an arrange- holding under § 3403 for these years, plus
so restricted, whether or not such assets ment that triggers the income inclusion any applicable penalties. In addition, an
are available to satisfy claims of general and additional taxes under § 409A(b), or employer or payer who does not apply the
creditors. the arrangement otherwise triggers the in- rules of this notice in determining amounts
Section 409A(b)(3) provides that if, come inclusion and additional taxes under includible in gross income under § 409A
during a restricted period with respect to § 409A(b), and the transfer is not eligible and in wages under § 3401(a) for calen-
a single-employer defined benefit pension for the relief in Notice 2006–33 (for ex- dar year 2007 will be required to file an

November 13, 2007 1001 2007–46 I.R.B.


original or a corrected information return If the service provider does not report calculation of the additional tax under
and furnish an original or a corrected payee and pay taxes due with respect to amounts § 409A(a)(1)(B)(ii), taxpayers may treat
statement. For purposes of determining includible in gross income under § 409A amounts deferred under a plan that were
any amount includible in income under for calendar year 2007 in accordance with originally deferred on or before January 1,
§ 409A in a subsequent year, an amount the guidance contained in this notice, the 2005 but became subject to § 409A due to
will not be treated as previously included IRS may assert additional income taxes the material modification of the plan after
in income unless the amount has been re- and penalties under §§ 6651(a)(1) and (2), October 3, 2004 as deferred on January 1,
ported appropriately on an information re- 6654, and 6662 if it is determined that the 2005.
turn and payee statement, or has been in- amount of taxes reported and paid for cal-
cluded in income by the service provider endar year 2007 was underreported or un- V. REQUEST FOR COMMENTS
in a previous year. derpaid. Interest imposed under Chapter
The provisions of this notice are in-
67 of the Code will apply to any under-
IV. SERVICE PROVIDER tended as interim guidance only. The
payments of tax resulting from a service
REQUIREMENTS WITH RESPECT Treasury Department and the IRS are
provider’s failure to include amounts in-
TO AMOUNTS INCLUDIBLE IN currently formulating general guidance
cludible in gross income under § 409A for
GROSS INCOME UNDER § 409A with respect to the income inclusion re-
calendar year 2007. For purposes of de-
quirements, the additional taxes, and the
termining the amount includible in income
This section provides guidance on ser- reporting and withholding requirements of
under § 409A in a subsequent year, the ser-
vice providers’ income tax reporting and § 409A. The Treasury Department and the
vice provider may treat an amount as pre-
tax payment requirements for calendar IRS request comments on all aspects of
viously included in income only if the ser-
year 2007 with respect to deferrals of these requirements, including but not lim-
vice provider has actually and properly in-
compensation that are includible in gross ited to the topics addressed in this notice.
cluded the amount in gross income in a
income under § 409A. Comments must be submitted by Feb-
previous year.
ruary 13, 2008. All materials submitted
A. Amounts Required to be Included will be available for public inspection and
B. Calculation of Additional Tax under
in Income copying.
§ 409A(a)(1)(B)(i)(I)
Comments may be submitted to In-
A service provider must report as in-
Section 409A(a)(1)(B)(i)(I) pro- ternal Revenue Service, CC:PA:LPD:RU
come and pay any taxes due relating to
vides that if compensation is required (Notice 2007–89), Room 5203, PO Box
amounts includible in gross income under
to be included in gross income under 7604, Ben Franklin Station, Washing-
§ 409A for calendar year 2007. For pur-
§ 409A(a)(1)(A), the tax imposed on ton, DC 20044. Submissions may also
poses of determining the amount required
such income is increased by the sum be hand-delivered Monday through Fri-
to be included in income under § 409A,
of two additional taxes equal to the day between the hours of 8 a.m. and
the same standards apply to a service
amount of interest determined under 4 p.m. to the Courier’s Desk at 1111
provider as apply to an employer or payer
§ 409A(a)(1)(B)(ii) plus an amount equal Constitution Avenue, NW, Washington,
when calculating the amount required to
to 20% of the compensation which is re- DC 20224, Attn: CC:PA:LPD:RU (No-
be reported as income, provided that an
quired to be included in gross income. tice 2007–89), Room 5203. Submissions
amount is treated as previously included
Section 409A(a)(1)(B)(ii) provides that may also be sent electronically via the
in income only if the amount has been
the amount of interest is the amount of internet to the following email address:
included in the service provider’s income
interest at the underpayment rate plus 1 Notice.comments@irscounsel.treas.gov.
in a previous taxable year (regardless
percentage point on the underpayments Include the notice number (Notice
of whether reported on a Form W–2 or
that would have occurred had the deferred 2007–89) in the subject line.
1099–MISC). Accordingly, an employee
compensation been includible in gross
or other service provider must calculate VI. EFFECT ON OTHER
income for the taxable year in which first
the amounts required to be included in DOCUMENTS
deferred or, if later, the first taxable year in
gross income under the same methods
which such deferred compensation is not
and standards as set forth in section III. Notice 2005–1 is modified. Notice
subject to a substantial risk of forfeiture.
Whether a service provider has complied 2006–100 is not affected by this notice.
Section 885(d)(1) of the Act provides
with the requirements of this notice is
that § 409A generally applies to amounts VII. EFFECTIVE DATE
determined independently of whether the
deferred after December 31, 2004. Sec-
employer or payer has complied with the
tion 885(d)(2)(B) of the Act provides that This notice is effective with respect
requirements of this notice. Thus, if the
amounts deferred in taxable years be- to employers’ and payers’ reporting and
service provider includes in income the
ginning before January 1, 2005, shall be wage withholding requirements and with
same amount reported by the employer or
treated as amounts deferred in a taxable respect to service providers’ filing re-
payer, the service provider has not nec-
year beginning on or after such date if quirements and tax payment obligations
essarily complied with the terms of this
the plan under which the deferral is made relating to amounts includible in gross
notice.
is materially modified after October 3, income under § 409A for calendar year
2004. Accordingly, for purposes of the 2007.

2007–46 I.R.B. 1002 November 13, 2007


VIII. DRAFTING INFORMATION not deferred under section 6166. An es- granted) from an estate to ensure payment
tate qualifies for a section 6166 election of the deferred estate tax to be paid in
The principal author of this notice is if the value of the decedent’s interest in installments under section 6166. In lieu of
Don M. Parkinson of the Office of Di- the closely held business exceeds 35 per- the requirement to post a surety bond, the
vision Counsel/Associate Chief Counsel cent of the adjusted gross estate, the dece- executor may elect to grant the IRS a spe-
(Tax Exempt and Government Entities), dent was a United States citizen or resi- cial extended estate tax lien (in the amount
although other Treasury and IRS offi- dent at the time of his or her death, and of the deferred amount plus any interest,
cials participated in its development. For the estate made the election by attaching a additional amount, addition to tax, assess-
further information on the provisions full and complete notice of election with a able penalty, and costs attributable to the
of this notice addressing the calculation timely filed federal estate tax return. I.R.C. deferred amount) to secure the govern-
of the amount includible in income un- § 6166(a) and (d). If the estate qualifies for ment’s interest. I.R.C. §§ 6166(k)(2) and
der § 409A, contact Stephen Tackney the election, the estate pays a reduced rate 6324A. This special lien does not expire
at (202) 927–9639; for further informa- of interest on the portion of estate tax de- until the earlier of the date the estate tax
tion on other provisions of this notice, ferred under section 6166; that interest is is paid in full or the tax becomes uncol-
including the reporting and withholding payable annually during the entire defer- lectible. I.R.C. §§ 6324A(d)(2), 6502, and
provisions contained in this notice, con- ral period, and in most instances, interest 6503(d).
tact Mr. Parkinson at (202) 622–6040 (not only is paid during the first four years of In March 2000, the Treasury Inspec-
toll-free numbers). the deferral period. I.R.C. §§ 6166(f) and tor General for Tax Administration recom-
6601(j). The deferred tax is payable in no mended, in report 2000–30–059 “The In-
more than ten equal annual installments, ternal Revenue Service Can Improve the
Security Under Section 6166 beginning on a date that is not more than Estate Tax Collection Process,” that the
five years after the due date of the Fed- IRS protect the government’s interest in
Elections
eral estate tax return, which is generally estate tax deferred under section 6166. In
nine months from the date of death. I.R.C. 2002 in response to that report, the IRS
Notice 2007–90
§§ 6166(a)(1) and (3). implemented a policy requiring a surety
PURPOSE Under section 6324(a), a general fed- bond, or in the alternative, a section 6324A
eral estate tax lien arises upon the dece- special lien, as a prerequisite to making the
The purpose of this notice is to alert dent’s date of death and attaches for ten section 6166 election. On April 12, 2007,
taxpayers, tax practitioners, executors and years to all assets of the gross estate (ex- in Estate of Roski v. Commissioner, 128
other persons who represent estates, that, cept those used to pay certain expenses). T.C. 113 (2007), the Tax Court held that the
in light of a recent Tax Court decision, This general federal estate tax lien may IRS had abused its discretion by requiring
the Internal Revenue Service is changing not be extended beyond the ten-year period that all estates electing to pay the estate tax
its policy and now will determine on a following the date of death. As a result, in installments under section 6166 must
case-by-case basis whether security will when an estate qualifies and elects under provide a bond (or alternatively a special
be required when a qualifying estate elects section 6166 to pay estate tax over a period lien). The court found that it was Con-
under Internal Revenue Code section 6166 of up to 14 years, the government’s inter- gress’s intent that the IRS determine, on a
to pay all or a part of the estate tax in in- est in the deferred estate tax is secured by case-by-case basis, that the government’s
stallments. This notice invites comments the general federal estate tax lien for only interest is at risk prior to requiring security
from the public regarding the relevant fac- the first nine years and three months of the from an estate electing to pay the estate tax
tors and appropriate standards for deter- installment payment period. (Although the in installments under section 6166.
mining whether security is deemed to be lien runs from the date of death, the install-
necessary (and thus will be required) to ment payment period generally runs from INTERIM PROVISIONS
protect the government’s interest in ob- the normal payment due date, nine months
taining full payment of the estate tax and after the date of death, thus reducing the The Treasury Department and the IRS
interest thereon when that liability is de- time the general lien protects the govern- are in the process of establishing standards
ferred under section 6166. ment to nine years and three months). Dur- to be applied on a case-by-case basis in the
ing the final four years and nine months future to identify those estates making an
BACKGROUND of the 14-year installment payment period, election under section 6166 in which the
the government’s interest is no longer se- government’s interest in the deferred es-
Under section 6166, an estate that meets cured by the general estate tax lien. In tate tax and the interest thereon is deemed
all of the requirements of the statute may most cases, approximately one-half of the to be sufficiently at risk to justify the re-
elect to pay the estate tax attributable to the total deferred estate tax still remains to be quirement of a bond or special lien. The
decedent’s interest in a closely held busi- paid during that final, unsecured portion of Treasury Department and the IRS intend to
ness in up to 10 equal, annual installments. the deferral period. issue regulations implementing those stan-
The first of those annual payments must Sections 6166(k)(1) and 6165, how- dards and related procedures. Until those
be made by the 5th anniversary of the due ever, permit the IRS to require a surety regulations are issued, however, the IRS
date (determined without regard to any ex- bond (not exceeding double the amount will evaluate the factors described below
tension) of the estate tax liability that is with respect to which the extension is and all other relevant facts to determine on

November 13, 2007 1003 2007–46 I.R.B.


a case-by-case basis whether, at any time factor will be determinative, and not all sified, surveyed or audited by the IRS as of
and from time to time during the deferral factors may be relevant to every estate. April 12, 2007; or (3) that is currently in
period, the government’s interest in the es- 1. Duration and stability of the busi- the deferred payment period but that has
tate tax deferred under section 6166 and in- ness. This factor considers the nature of not yet provided a bond or special lien if
terest thereon is sufficiently at risk to jus- the closely held business on which the es- (a) the general federal estate tax lien will
tify the requirement of a bond or special tate tax is deferred under section 6166 and expire within two years from November
lien. of the assets of that business, the relevant 13, 2007 or (b) the IRS reasonably believes
In order to determine whether the gov- market factors that will impact the busi- that the government’s interest in collecting
ernment’s interest in the deferred tax is ness’s future success, its recent financial the deferred estate tax and interest thereon
adequately secured up to the amount al- history, and the experience of its manage- in full is sufficiently at risk to require a
lowed under sections 6165 and 6324A, the ment, in an effort to predict the likelihood bond or special lien.
IRS will consider information contained in of its success and survival through the de-
the estate tax return, attachments to the re- ferred payment period. Facts relevant to REQUEST FOR COMMENTS
turn, information obtained during exami- this factor are likely to appear primarily in
nation in audited cases, and any other rel- the appraisal and the financial statements The Treasury Department and the IRS
evant information described in paragraphs that accompany the estate tax return. In- intend to issue regulations regarding the
1 through 3 of the discussion of the factors formation regarding any outstanding liens, appropriate standards to be applied by the
to be considered. Estates that have filed judgments, or pending or anticipated law- IRS in exercising its discretion with regard
returns that do not contain adequate in- suits or other claims against the business, to whether a bond or special lien will be
formation to make this determination may if any, that are not disclosed in that doc- required in order to avoid an IRS termi-
be contacted and required to provide ad- umentation should be provided by the es- nation of an estate’s election under sec-
ditional financial information to the IRS tate with the election. The estate may be tion 6166, and invite interested persons
for purposes of making this determination. required to furnish such information in re- to submit comments regarding such stan-
The IRS may terminate an estate’s elec- sponse to an inquiry by the IRS. dards and possible alternatives to a bond
tion for failure to respond to such requests 2. Ability to pay the installments of tax or special lien for providing security under
within a reasonable timeframe. If, after and interest timely. This factor considers section 6166.
this individual evaluation and analysis, the how the estate expects to be able to make In particular, comments are requested
IRS determines there is a sufficient credit the annual payments of tax and interest as with regard to the following issues:
risk regarding the government’s collection due, and the objective likelihood of real- 1. What factors, in addition to or in
of the estate tax payments deferred under izing that expectation. Facts relevant to place of those stated above, should the IRS
section 6166 and the interest thereon, the this factor may include the nature of the use in determining whether to require se-
IRS will notify the estate that it must pro- business’s significant assets and liabilities, curity from an estate electing to pay the es-
vide a bond or elect to provide a section and the business’s cash flow (both histori- tate tax in installments under section 6166?
6324A special lien in lieu of a bond. If cal and anticipated). If not sufficiently dis- 2. How often during the section 6166
the estate then refuses to provide a bond or closed in the documents attached to the es- installment payment period (or on what
a section 6324A special lien, the IRS will tate tax return, the estate should submit rel- occurrences) should the IRS reevaluate
terminate the estate’s section 6166 elec- evant information with the election under whether the estate poses a sufficient credit
tion. The estate may then seek reconsid- section 6166. The estate may be required risk to the government’s collection of the
eration of the termination by the Office to furnish such information in response to deferred estate tax and related interest to
of Appeals and, if the Office of Appeals an inquiry by the IRS. justify the requirement of a bond or special
upholds the IRS’s determination, the es- 3. Compliance history. This factor lien?
tate then will have the opportunity to pe- addresses the business’s history regarding 3. What facts evident from a review of
tition the Tax Court under section 7479 compliance with all federal tax payment the estate tax return are likely to be reason-
for a declaratory judgment with regard to and tax filing requirements, in an effort ably accurate predictors of either a future
whether its section 6166 election may be to determine whether the business and its default in or full payment of the deferred
continued. I.R.C. § 7479; Rev. Proc. management respect and comply with all tax payments and related interest?
2005–33, 2005–1 C.B. 1231. tax requirements on a regular basis. This 4. What additional financial informa-
The factors the IRS will consider in factor also addresses the estate’s compli- tion should the IRS require from an estate
determining whether deferred installment ance history with respect to federal tax to assist in making the determination as to
payments of estate tax under section 6166 payment and filing requirements. The es- whether the estate poses a sufficient credit
pose a sufficient credit risk to the govern- tate may use a sworn affidavit or other pro- risk to the government with regard to the
ment to justify the requirement of a bond or bative documents to provide this informa- deferred estate tax and interest thereon to
special lien are described below. In mak- tion. justify requiring a bond or special lien?
ing this determination, the IRS will con- This notice is applicable to each estate: 5. For purposes of sections 6165 and
sider all relevant facts and circumstances, (1) that timely elects to pay the estate tax 6166(k), should the IRS define a surety
in addition to the factors identified in the in installments under section 6166 and that bond under section 7101 to also include
following, non-exclusive list. No single timely files a return on or after November other forms of security, and, if so, what
13, 2007; (2) whose return was being clas- other forms of security, such as certain ir-

2007–46 I.R.B. 1004 November 13, 2007


revocable letters of credit from reputable 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (No- DRAFTING INFORMATION
financial institutions or United States Trea- tice 2007–90), Courier’s Desk, Internal
sury Bonds, should be so included? Revenue Service, 1111 Constitution Av- The principal author of this notice
Comments are encouraged to be sub- enue, NW, Washington, DC. Alternatively, is Laura Urich Daly of the Office of
mitted by January 14, 2008, to: Internal taxpayers may submit electronic com- Associate Chief Counsel (Procedure
Revenue Service, CC:PA:LPD:PR (Notice ments directly to the IRS e-mail address: and Administration). For further infor-
2007–90), room 5203, P.O. Box 7604, Ben notice.comments@irscounsel.treas.gov. mation regarding this notice, contact
Franklin Station, Washington, DC 20224. Please include “Notice 2007–90” in the Laura Urich Daly at (202) 622–3600 (not
Submissions may be hand delivered Mon- subject line of any electronic communica- a toll-free call).
day through Friday between the hours of tion.

November 13, 2007 1005 2007–46 I.R.B.


Part IV. Items of General Interest
Notice of Proposed Avenue, NW, Washington, DC, or sent or other forms of information technology;
Rulemaking and Notice of electronically, via the Federal eRulemak- and
Public Hearing ing Portal at www.regulations.gov (IRS Estimates of capital or start-up costs
REG–140206–06). The public hearing and costs of operation, maintenance and
will be held in room 2140, Internal Rev- purchase of service to provide information.
Withholding Procedures Under enue Building, 1111 Constitution Avenue, The collection of information
Section 1441 for Certain NW, Washington, DC. in these proposed regulations is in
Distributions to Which Section §1.1441–3(c)(5)(iii). This information is
FOR FURTHER INFORMATION required to allow a U.S. financial institu-
302 Applies
CONTACT: Concerning the proposed tion that is applying the escrow procedure
REG–140206–06 regulations, Kathryn Holman, (202) to properly comply with its withholding
622–3440 (not a toll-free number); con- and reporting obligations under sections
AGENCY: Internal Revenue Service cerning submissions of comments, the 1441, 1442 and 1443 in the case of a
(IRS), Treasury. hearing, and/or to be placed on the build- distribution made by a corporation with
ing access list to attend the hearing, email respect to its stock that is actively traded
ACTION: Notice of proposed rulemaking Richard.A.Hurst@irscounsel.treas.gov. on an established financial market and that
and notice of public hearing. requires a determination under section 302
SUPPLEMENTARY INFORMATION:
SUMMARY: This document contains pro- as to whether the distribution is treated
posed regulations regarding a withholding Paperwork Reduction Act as a dividend or a distribution in part or
agent’s obligation to withhold and report full payment in exchange for stock. The
tax under Chapter 3 of the Internal Rev- The collections of information con- collection of information is mandatory and
enue Code when there is a distribution in tained in this notice of proposed rulemak- the respondents are nonresident aliens and
redemption of stock of a corporation that is ing have been submitted to the Office of foreign corporations.
actively traded on an established financial Management and Budget for review in Estimated total annual reporting bur-
market. Specifically, the proposed regula- accordance with the Paperwork Reduc- den: 1400 hours.
tions provide an escrow procedure that a tion Act of 1995 (44 U.S.C. 3507(d)). The estimated annual burden per re-
withholding agent must apply while mak- Comments on the collections of infor- spondent: 2 hours.
ing the determination under section 302 as mation should be sent to the Office of Estimated number of respondents: 700.
to whether the distribution in redemption Management and Budget, Attn: Desk Estimated annual frequency of re-
of the stock held by a foreign shareholder Office for the Department of the Treasury, sponses: 5 times.
is treated as a dividend subject to withhold- Office of Information and Regulatory An agency may not conduct or sponsor,
ing, or a distribution in part or full pay- Affairs, Washington, DC 20503, with and a person is not required to respond to, a
ment in exchange for stock. These regu- copies to the Internal Revenue Service, collection of information unless it displays
lations would affect corporations that are Attn: IRS Reports Clearance Officer, a valid control number assigned by the Of-
actively traded on an established financial SE:W:CAR:MP:T:T:SP, Washington, DC fice of Management and Budget.
market and their shareholders. This docu- 20224. Comments on the collection of Books or records relating to a collection
ment also provides a notice of public hear- information should be received by Jan- of information must be retained as long
ing on these proposed regulations. uary 16, 2008. Comments are specifically as their contents may become material in
requested concerning: the administration of any internal revenue
DATES: Written or electronic comments Whether the proposed collection of in- law. Generally, tax returns and tax return
must be received by January 16, 2008. formation is necessary for the proper per- information are confidential as required by
Outlines of topics to be discussed at the formance of the functions of the Internal 26 U.S.C. 6103.
public hearing scheduled for February 6, Revenue Service, including whether the
2008 at 10 a.m. must be received by Jan- information will have practical utility; Background
uary 16, 2008. The accuracy of the estimated burden
associated with the proposed collection of These proposed regulations,
ADDRESSES: Send submissions to information; REG–140206–06, provide guidance
CC:PA:LPD:PR (REG–140206–06), How the quality, utility, and clarity of regarding the withholding and reporting
room 5203, Internal Revenue Ser- the information to be collected may be en- obligations of a withholding agent under
vice, PO Box 7604, Ben Franklin Sta- hanced; Chapter 3 of the Internal Revenue Code
tion, Washington, DC 20044. Submis- How the burden of complying with the (Code) in the case of a distribution in
sions may be hand delivered Monday proposed collections of information may redemption of the stock of a corporation
through Friday between the hours of be minimized, including through the appli- that is actively traded on an established
8 a.m. and 4 p.m. to CC:PA:LPD:PR cation of automated collection techniques financial market within the meaning of
(REG–140206–06), Courier’s Desk, In- §1.1092(d)–1 (publicly traded). In general
ternal Revenue Service, 1111 Constitution the proposed regulations contemplate

2007–46 I.R.B. 1006 November 13, 2007


a transaction where a publicly traded the sale of stock is excluded from FDAP. shareholder in a publicly held corporation
corporation offers to purchase stock from Further, to the extent a distribution is a re- has been sufficiently reduced as a result of
its shareholders (a self tender), where turn of capital, it is not gross income under a distribution to effect exchange treatment
the amount of stock purchased and the section 61, and thus also is not FDAP. under section 302(a).
shareholders involved in the transaction Section 302 provides rules for deter- In Rev. Rul. 76–385, 1976–2 C.B.
(the participating shareholders) depend mining when a distribution in redemption 92, see §601.601(d)(2)(ii)(b), the IRS
on a number of factors, including each of stock is treated as a distribution in part ruled that a shareholder who actually and
shareholder’s willingness to sell some or or full payment in exchange for stock. constructively owned 0.0001118% of a
all of its stock, and the terms set forth That section generally requires a com- publicly traded corporation’s stock be-
in the offer. The regulations would also parison of a shareholder’s overall interest fore a redemption, but only constructively
apply to transactions described in section in the corporation before the distribution owned 0.0001081% after the redemption,
304(a)(2). and its overall interest in such corporation had experienced a “meaningful reduction
In the case of a self-tender, a corpora- after the distribution. See section 302(b). in proportionate interest” in the corpora-
tion may purchase stock from some or all In conducting the comparison, the con- tion under the principles of United States
of its shareholders and, as a result, each structive ownership rules of section 318 v. Davis, 397 U.S. 301 (1970), rehearing
participating shareholder’s percentage generally apply. If the shareholder’s inter- denied, 397 U.S. 107 (1970). The share-
ownership interest in the corporation may est in the corporation has been sufficiently holder’s interest in the corporation after
increase, decrease, or remain the same. reduced, then the distribution is treated as a the redemption therefore was approxi-
Although the corporation’s self tender of- payment in exchange for the shareholder’s mately 96.7% of the shareholder’s interest
fer is denominated as an offer to purchase stock under section 302(a). If the share- before the redemption, taking constructive
shares, the tax consequences to the corpo- holder’s interest in the corporation has not ownership into account. Nevertheless, the
ration and any participating shareholder been sufficiently reduced, the tax conse- reduction was considered meaningful, and
of the payment to such a shareholder, as quences of the distribution are determined so the distribution to the shareholder was
described in this preamble, depend on under section 301, and such distribution is treated as not essentially equivalent to a
several factors. Further, where the par- a dividend to the shareholder to the extent dividend under section 302(b)(1) and as a
ticipating shareholder is a foreign person, the distribution is out of the distributing payment in exchange for the shareholder’s
withholding under Chapter 3 of the Code corporation’s earnings and profits, then stock under section 302(a).
may or may not be required. applied against and reduce the adjusted Consistent with Rev. Rul. 76–385, in
Sections 1441 and 1442 and basis of the stock, and finally treated as Rev. Rul. 81–289, 1981–2 C.B. 82, see
§1.1441–1(b)(1) generally require a per- gain from the sale or exchange of property. §601.601(d)(2)(ii)(b), the IRS ruled that a
son that makes a payment of an “amount See section 301(c). shareholder who owned 0.2% of the com-
subject to withholding” to a beneficial When a publicly held corporation mon stock of a publicly traded company
owner that is a foreign person to deduct makes a distribution in redemption of before a redemption, and 0.2% of the com-
and withhold 30 percent of the payment its stock, a determination must be made mon stock in the company after the re-
unless the payor can reliably associate the under section 302 with respect to each demption, did not satisfy the “meaning-
payment with documentation upon which shareholder as to whether the redemption ful reduction” standard of United States
the payor can rely to treat the payment as is treated as a distribution of property to v. Davis, and that the redemption did not
made to a beneficial owner that is a U.S. which section 301 applies (potentially qualify for exchange treatment under sec-
person or as made to a beneficial owner constituting a dividend in whole or in part) tion 302(a).
that is a foreign person entitled to a re- or as a distribution in part or full payment Under the analysis adopted in these rev-
duced rate of withholding under the Code, in exchange for stock. However, the in- enue rulings, each minority shareholder
regulations or an income tax treaty. formation necessary for each shareholder who participates in a self tender must com-
Section 1.1441–2(a) provides that to make such a determination generally pute its percentage ownership of the to-
the term amounts subject to withhold- is not available until after the transaction tal outstanding stock of the corporation
ing means amounts from sources within is completed because the redemption of before and after the transaction. If af-
the United States that constitute fixed stock held by other shareholders must be ter the transaction the shareholder’s per-
or determinable annual or periodical in- taken into account. Further, because of the centage ownership is less than it was be-
come (FDAP) described in §1.1441–2(b) application of the constructive ownership fore the transaction, the shareholder gener-
or other amounts subject to withholding rules of section 318, when a distribution ally has experienced a “meaningful reduc-
described in §1.1441–2(c). is made to a foreign shareholder, a with- tion” in the shareholder’s proportionate in-
Section 1.1441–2(b)(1) provides that holding agent will often not be in the terest in the corporation, and the transac-
FDAP includes all income described in best position to make a determination as tion, at least with respect to that share-
section 61 of the Code, unless the item of to whether the distribution to the foreign holder, is considered a distribution in ex-
income is described in §1.1441–2(b)(2). shareholder should be treated as a payment change for the stock under section 302(a)
Section 1.1441–2(b)(2)(i) generally ex- in exchange for the shareholder’s stock or and not a distribution of property to which
cludes from FDAP gains derived from the a dividend. section 301 applies. This result occurs
sale of property. Thus, a distribution to There are two revenue rulings that con- even if another participating shareholder in
a shareholder that is treated as gain from sider the issue of whether the interest of a the same self tender experiences no change

November 13, 2007 1007 2007–46 I.R.B.


or an increase in its percentage ownership a foreign account holder with respect to unreliable or incorrect, or the withholding
of the corporation, and, therefore, is con- certain self tenders. agent does not receive a certification from
sidered to receive a distribution of property a foreign beneficial owner, the withhold-
to which section 301 applies. See also sec- Explanation of Provisions ing agent is required to treat the amount set
tion 302(b)(2), (3), and (4). aside in escrow as tax withheld on the 61st
Section 1.1441–3(c) requires a cor- The proposed regulations set forth an day, and deposit that amount pursuant to
poration making a distribution with re- escrow procedure for withholding agents the applicable regulations.
spect to its stock to a foreign shareholder, to follow in the case of a payment made Although a qualified intermediary (QI)
as well as any intermediary (such as after December 31, 2008 of a corporate may, and a withholding foreign part-
a broker) making a payment of such distribution in redemption of stock that nership and a withholding foreign trust
a distribution, to withhold on the en- is actively traded on an established fi- (WP/WT) must, assume primary with-
tire amount of the distribution, unless nancial market within the meaning of holding responsibility under section 1441
it elects to reduce the amount of with- §1.1092(d)–1 (section 302 payment). and receive payments without any with-
holding under §1.1441–3(c). Section In general, the proposed regulations holding by the U.S. financial institution,
1.1441–3(c)(2)(i)(B) provides that a dis- require a U.S. financial institution (with- under the proposed regulations, in the
tributing corporation or intermediary may holding agent) to set aside in an escrow case of a section 302 payment, the QI or
elect to not withhold on a distribution account 30 percent (or the applicable div- WP/WT cannot assume primary withhold-
to the extent it represents a distribution idend rate provided under a treaty) of the ing responsibility and receive the payment
in part or full payment in exchange for amount of the section 302 payment. The in gross. The QI or WP/WT must apply
stock. Section 1.1441–3(c)(2)(i) provides withholding agent is then required to pro- the procedure described in this preamble
that a corporation or intermediary makes vide information to the foreign beneficial and provide the U.S. financial institution
the election by reducing the amount of owner regarding the distribution, includ- with a withholding statement that details
withholding at the time that the payment ing the total number of the distributing the appropriate rate of withholding and
is made. However, a withholding agent corporation’s shares outstanding before information reporting for amounts paid
cannot avail itself of this election unless and after the distribution. The withhold- to the QI or WP/WT. In addition, if there
it knows the extent to which a distribu- ing agent must also provide a written is a chain of QIs or WPs/WTs this pro-
tion represents a payment in exchange for statement explaining the conditions under cedure must be followed at each level in
stock under section 302(a). As previously which the section 302 payment will be the chain. The U.S. financial institution
noted, in the context of a distribution in treated as a dividend or a payment in ex- shall treat beneficial owners that are U.S.
redemption of stock held in a publicly change for stock (including an explanation non-exempt recipients, and that hold stock
traded corporation, the withholding agent of the constructive ownership rules under in the distributing corporation through
generally will not have this information section 318). In the written explanation QIs, WPs/WTs, NQIs and flow-throughs,
unless, at the time of the redemption, it provided to the foreign beneficial owner, in accordance with the section 302 pay-
has obtained information from each par- the withholding agent must request that ment certifications obtained from those
ticipating shareholder regarding actual the beneficial owner provide a written cer- U.S. non-exempt recipients and shall in-
and constructive ownership of stock for tification to the withholding agent within struct foreign intermediaries and foreign
purposes of the foregoing analysis. 60 days as to whether the distribution is flow-through entities to do the same.
The Treasury Department and the IRS either a dividend or a payment in exchange These proposed regulations would ap-
are aware that, in the context of transac- for stock. ply for redemptions of stock that are made
tions involving distributions in redemption The certification to be provided by the after December 31, 2008. However, a
of stock held by foreign persons where foreign beneficial owner must contain, withholding agent may, at its option, rely
such stock is actively traded on an es- among other requirements, the beneficial on these proposed regulations for a re-
tablished financial market, the means of owner’s name and account number, a cer- demption of stock that occurs before Jan-
compliance with sections 1441, 1442, and tification that the distribution is a payment uary 1, 2009.
1443 is varied. The Treasury Department in exchange for stock or is a dividend, The Treasury Department and the IRS
and the IRS believe that the discretion and the number of shares actually and are aware that withholding agents serve
permitted by the current regulations, and constructively owned by the beneficial various customer bases: some may main-
the resulting different treatment of similar owner before and after the distribution. tain accounts for a small number of ac-
transactions is not appropriate. Accord- The beneficial owner’s certification must count holders, others may maintain ac-
ingly, these proposed regulations provide be signed under penalties of perjury. counts for a much greater number of ac-
the procedure (“escrow procedure”) to A withholding agent may generally rely count holders. Comments are requested
be followed by U.S. withholding agents on a certification received from a foreign on alternatives to the escrow procedure
to satisfy the withholding, reporting and beneficial owner in determining its section described in this proposed regulation for
deposit requirements of the regulations 1441 obligations with respect to payments withholding agents that maintain accounts
under sections 1441, 1442, and 1443 with for such beneficial owner’s stock. How- for large numbers of customers.
respect to any payment of a corporate dis- ever, if the withholding agent knows or
tribution in redemption of stock made to has reason to know that the certification is

2007–46 I.R.B. 1008 November 13, 2007


Special Analyses age. Pursuant to section 605(b) of the Reg- prepared after the deadline for receiving
ulatory Flexibility Act, 5 U.S.C. §605, the outlines has passed. Copies of the agenda
It has been determined that this notice Chief Counsel certifies that this rule will will be available free of charge at the hear-
of proposed rulemaking is not a significant not have a significant economic impact on ing.
regulatory action as defined in Executive a substantial number of small entities. The
Order 12866. Therefore, a regulatory as- IRS invites specific comments on the eco- Drafting Information
sessment is not required. nomic impact of compliance from mem-
It has been determined that section bers of the public who believe there will The principal author of these proposed
553(b) of the Administrative Procedure be a significant economic impact on small regulations is Kathryn Holman, Office of
Act (5 U.S.C. chapter 5) does not apply to businesses that are regulated by this rule. Associate Chief Counsel (International).
these regulations. Pursuant to section 7805(f) of the Inter- However, other personnel from the IRS
These regulations impose a collection nal Revenue Code, this regulation has been and Treasury Department participated in
of information on small entities, and the submitted to the Chief Counsel for Advo- their development.
Regulatory Flexibility Act (5 U.S.C. chap- cacy of the Small Business Administration *****
ter 6) applies. This rule regulates secu- for comment on its impact on small busi-
rities brokerages that have foreign cus- nesses. Proposed Amendments to the
tomers that respond to a tender offer by Regulations
a U.S. publicly traded corporation to pur- Comments and Public Hearing
chase some of its stock from its share- Accordingly, 26 CFR Part 1 is proposed
holders. The Small Business Administra- Before these proposed regulations are to be amended as follows:
tion (SBA) has established size standards adopted as final regulations, consideration
for types of economic activities which are will be given to any written (a signed origi- Part 1—INCOME TAXES
classified based on the North American In- nal and eight (8) copies) or electronic com-
dustry Classification Codes (NAICS). The ments that are submitted timely to the IRS. Paragraph 1. The authority citation for
regulations specifying size standards are The IRS and the Treasury Department re- part 1 continues to read in part as follows:
set forth in Title 13, Code of Federal Regu- quest comments on the clarity of the pro- Authority: 26 U.S.C. 7805 * * *
lations, part 121 (13 CFR part 121), Small posed rules and how they can be made eas- Par. 2. Section 1.1441–3 is amended as
Business Size Regulations. The NAICS ier to understand. All comments will be follows:
Code for a small securities brokerage is available for public inspection and copy- 1. A sentence is added at the end of
specified at 13 CFR 121.201. Pursuant to ing. paragraph (c)(2)(i)(B).
subsector 523120 of the NAICS, a small A public hearing has been scheduled for 2. Paragraph (c)(5) is added.
securities brokerage is one with receipts February 6, 2008, beginning at 10 a.m. in 3. A sentence is added at the end of
of less than 6.5 million dollars. Accord- room 2140 of the Internal Revenue Build- paragraph (d)(1).
ing to NAICS 523120, U.S. Census Bu- ing, 1111 Constitution Avenue, NW, Wash- The additions read as follows.
reau, Statistics of U.S. Business (2002), ington, DC. Due to building security pro-
there are a total of 7,886 securities bro- cedures, visitors must enter at the 12th §1.1441–3 Determination of amounts to
kerages of which 7,113 generate revenue street entrance. In addition, all visitors be withheld.
less than $5 million and 224 generate rev- must present photo identification to enter
*****
enue between $5 million and $10 million. the building. Because of access restric-
(c) * * *
It is estimated that 7,213 of the securi- tions, visitors will not be admitted beyond
(2) * * *
ties brokerages are considered small busi- the immediate entrance area more than 30
(i) * * *
nesses. The IRS requests information re- minutes before the hearing starts. For in-
(B) * * * The preceding sentence shall
garding the number of transactions these formation about having your name placed
not apply to a public section 302 distribu-
small securities brokerages engage in each on the building access list to attend the
tion to which paragraph (c)(5) applies.
year involving self tenders by public cor- hearing, see the “FOR FURTHER INFOR-
porations. In the case of a tender offer by MATION CONTACT” section of this pre- *****
a publicly held corporation, it is estimated amble. (5) Special rules for certain distribu-
that a brokerage clerk would spend two The rules of 26 CFR 601.601(a)(3) ap- tions to which section 302 applies—(i)
hours preparing the paperwork and veri- ply to the hearing. Persons who wish Withholding responsibility— (A) General
fying the computations required to accu- to present oral comments at the hearing rule. A corporation that makes a public
rately withhold with respect to foreign cus- must submit electronic or written com- section 302 distribution, or any inter-
tomers. According to the Bureau of Labor ments, and an outline of the topics to be mediary (described in §1.1441–1(c)(13))
Statistics, the mean hourly wage of a bro- discussed, and the time to be devoted to making a payment of such a distribution, is
kerage clerk is $18.34, so it is estimated each topic (signed original and eight (8) required to withhold under section 1441,
that it will cost a small securities broker- copies) by January 16, 2008. A period of 1442 or 1443 on the entire amount of
age $36.68 per transaction. This cost is 10 minutes will be allotted to each person the distribution unless the provisions of
not significant when compared to the an- for making comments. An agenda show- paragraph (c)(5)(iii) of this section have
nual revenue of the small securities broker- ing the scheduling of the speakers will be been applied. The provisions of paragraph

November 13, 2007 1009 2007–46 I.R.B.


(c)(2)(i)(B) or (d)(1) of this section do not (1) The total number of distributing cor- the foreign beneficial owner a section
apply to a public section 302 distribution. poration’s shares outstanding before and 302 payment certification stating that the
(B) Effective/applicability date. The after the public section 302 distribution; section 302 payment is a payment in ex-
rules of this paragraph (c)(5) apply to pub- (2) An explanation of the conditions un- change for stock, and if the U.S. financial
lic section 302 distributions made after De- der which the section 302 payment will be institution does not know or have reason
cember 31, 2008. treated as a dividend or a payment in ex- to know that the information in the section
(ii) Definitions. Solely for purposes of change for stock for Federal income tax 302 payment certification is unreliable
this paragraph (c)(5), the following defini- purposes (including an explanation of any or incorrect, the U.S. financial institution
tions shall apply: applicable constructive ownership rules); shall credit the account with the amount
(A) Public section 302 distribution and set aside with respect to the beneficial
means a distribution by a corporation in (3) A request that the beneficial owner owner who provides the certification. The
redemption of its stock for which there is of the account provide a certification (sec- entire amount paid (including the amount
an established financial market within the tion 302 payment certification), within 60 initially set aside) shall be reported as
meaning of §1.1092(d)–1. days of the section 302 payment, stating capital gains on Form 1042–S, Foreign
(B) Section 302 payment means pay- whether the section 302 payment is either Person’s U.S. Source Income Subject to
ment of a public section 302 distribution. a dividend or a payment in exchange for Withholding.
(C) Distributing corporation means a stock under the Internal Revenue Code. (2) Unreliable or incorrect exchange
corporation making or treated as making a (D) Content of section 302 payment cer- certification. If the U.S. financial institu-
public section 302 distribution. tification. The section 302 payment certi- tion knows or has reason to know that the
(iii) Escrow procedure—(A) Applica- fication must include the following infor- information in the section 302 payment
tion—(1) In general. The escrow proce- mation: certification is unreliable or incorrect, the
dure in this paragraph (c)(5)(iii) may be (1) The beneficial owner’s name and U.S. financial institution shall treat the
applied only by an intermediary (described account number. payment as a payment for which no sec-
in §1.1441–1(c)(13)) that is a U.S. finan- (2) The distributing corporation’s tion 302 payment certification has been
cial institution. A U.S. financial institu- name. received and shall follow the withholding
tion making a section 302 payment to a for- (3) The total shares of the distributing and reporting procedures in paragraph
eign account holder, and applying this es- corporation outstanding immediately be- (c)(5)(iii)(E)(4) of this section.
crow procedure, is not required to withhold fore and immediately after the public sec- (3) Dividend. If, within the 60-day pe-
on the entire amount of a section 302 pay- tion 302 distribution. riod, the U.S. financial institution receives
ment under the general rule of paragraph (4) A certification from the beneficial a section 302 payment certification from
(c)(5)(i). owner that either— the foreign beneficial owner stating that
(B) Escrow account—(1) In general. A (i) The section 302 payment is a pay- the section 302 payment is a dividend,
U.S. financial institution shall set aside in ment in exchange for stock because the the U.S. financial institution shall treat the
an escrow account on the date it receives beneficial owner’s proportionate interest amount set aside as tax withheld as of the
a section 302 payment from a distribut- has been reduced but not completely ter- time it receives the section 302 payment
ing corporation with respect to stock of minated; certification, and shall deposit that amount
a foreign account holder 30 percent (or (ii) The section 302 payment is a pay- pursuant to the applicable regulations. The
the applicable dividend rate provided by a ment in exchange for stock because the entire amount paid shall be reported on
tax treaty for a qualifying foreign account beneficial owner’s interest in the distribut- Form 1042–S as dividends.
holder) of the amount and shall credit the ing corporation is completely terminated; (4) No timely certification received. If,
foreign account holder’s account with the or within the 60-day period, the U.S. finan-
balance of the section 302 payment. (iii) The section 302 payment is a divi- cial institution does not receive a section
(2) Qualified intermediaries. The dend. 302 payment certification, or is treated un-
amount set aside, under paragraph (5) With respect to the certifications der paragraph (c)(5)(iii)(E)(2) of this sec-
(c)(5)(iii)(B)(1) of this section shall in- in paragraph (c)(5)(iii)(D)(4)(i) and (ii) of tion as not receiving a section 302 payment
clude 30 percent (or the applicable div- this section, the number of shares actually certification, the U.S. financial institution
idend rate provided by a treaty) of the and constructively owned by the beneficial shall treat the amount set aside as tax with-
amount paid to any qualified intermediary owner before and after the distribution and held as of the 61st day, and shall deposit
(QI) (whether or not the QI has assumed the beneficial owner’s percentage owner- that amount pursuant to the applicable reg-
primary withholding responsibility) and ship before and after the distribution. ulations. The entire amount paid shall be
to any withholding foreign partnership or (6) A penalties of perjury statement. reported on Form 1042–S as dividends.
withholding foreign trust (WP/WT). (7) The signature of the beneficial (5) Late certification. If, after the
(C) Request for section 302 payment owner and date of signature. 60-day period has expired, the U.S. fi-
certification. On or before the date it re- (E) Receipt of section 302 payment nancial institution receives a section 302
ceives the section 302 payment, the U.S. certification—(1) Payment in exchange payment certification from a foreign ben-
financial institution shall provide the fol- for stock. If, within the 60-day period eficial owner that the section 302 payment
lowing information and instructions, in described in paragraph (c)(5)(iii)(C)(3), is a payment in exchange for stock and
writing, to the foreign beneficial owner— the U.S. financial institution receives from the conditions stated in §1.1461–2(a) are

2007–46 I.R.B. 1010 November 13, 2007


satisfied, the U.S. financial institution may tion, only the U.S. financial institution aside) shall be reported on the QI’s pooled
apply the refund or offset procedures of may establish an escrow account and the basis Form 1042–S as capital gains.
that paragraph. amounts set aside in the escrow account (ii) Unreliable or incorrect exchange
(6) Determination of incorrect treat- shall include 30 percent (or the applica- certification. If the QI knows or has rea-
ment. If, after the 60-day period has ble treaty rate applicable to dividends) son to know that the information in the
expired, the U.S. financial institution de- on payments made to a direct account section 302 payment certification is unre-
termines that the section 302 payment holder that is a QI (including a QI that liable or incorrect, the QI shall treat the
was incorrectly treated as a distribution has assumed primary withholding respon- payment as a payment for which no sec-
in exchange for stock, the procedures sibility). Under the procedure described tion 302 payment certification has been
set forth regarding underwithholding in in paragraph (c)(5)(iii)(I)(3), a QI shall received and shall follow the withhold-
§1.1461–2(b) are applicable. provide the U.S. financial institution with ing and reporting procedures in paragraph
(7) Undocumented beneficial owners. a withholding statement as required in (c)(5)(iii)(I)(3)(iv) of this section.
The U.S. financial institution shall with- the QI Agreement. If there is a chain of (iii) Dividend. If, within the 60-day pe-
hold at 30 percent on the entire amount QIs, each QI in the chain shall apply the riod, QI receives a section 302 payment
paid to a beneficial owner that is not procedure. The procedures described in certification stating that the section 302
properly documented under §§1.1441–1, this paragraph (I) shall be applied to with- payment is a dividend, the QI shall reflect
1.1441–5, etc. and that is presumed to holding foreign partnerships and with- such treatment in its withholding statement
be a foreign person, whether or not the holding foreign trusts within the meaning and shall treat the payment as a dividend
U.S. financial institution has received a of §§1.1441–5(c)(2) and (e)(5)(v), re- for purposes of its reporting and withhold-
section 302 payment certification from spectively, in the same manner as the ing responsibilities under the QI agree-
such beneficial owner. The U.S. financial procedures apply to a QI. ment. The entire amount paid shall be re-
institution shall report the entire amount (1) Request for section 302 payment ported on its pooled basis Form 1042–S as
paid on Form 1042–S as dividends. certification. The U.S. financial institution dividends.
(F) Amounts in excess of section 302 shall provide the information and instruc- (iv) No timely certification received.
payment. If the amount the U.S. financial tions described in paragraph (c)(5)(iii)(C) If, within the 60-day period, the QI does
institution credits to the account of the for- of this section to the QI, and the QI shall not receive a section 302 payment cer-
eign beneficial owner from the escrow ac- provide the same information and instruc- tification, or is treated under paragraph
count includes an amount in excess of the tions to its account holders including ac- (c)(5)(iii)(I)(3)(ii) of this section as not
section 302 payment, such as interest ac- count holders that are U.S. non-exempt re- receiving a section 302 payment certifica-
crued on the escrowed funds, the U.S. fi- cipients. tion, the QI shall reflect such treatment in
nancial institution shall report and with- (2) Content of section 302 payment its withholding statement provided to the
hold on such excess amount in accordance certification. The content of the section U.S. financial institution and shall treat
with the rules under Chapter 3 of the Inter- 302 payment certification shall include the payment as a dividend for purposes
nal Revenue Code. the information described in paragraph of its reporting and withholding respon-
(G) U.S. non-exempt recipients. The (c)(5)(iii)(D) of this section. sibilities under the QI agreement. The
U.S. financial institution shall treat ben- (3) Receipt of section 302 payment entire amount paid shall be reported on its
eficial owners that are U.S. non-exempt certification—(i) Payment in exchange pooled basis Form 1042–S as dividends.
recipients, and that hold stock in the for stock. If, within the 60-day period (v) Late certification. If, after the
distributing corporation through QIs, described in paragraph (c)(5)(iii)(C), the 60-day period has expired, the QI receives
WPs/WTs, NQIs and flow-throughs, in QI receives from the beneficial owner a a section 302 payment certification from
accordance with the section 302 pay- section 302 payment certification stating a beneficial owner that the section 302
ment certifications obtained from those that the section 302 payment is a payment payment is a payment in exchange for
U.S. non-exempt recipients and shall in- in exchange for stock and if the QI does stock and the conditions stated in the QI
struct foreign intermediaries and foreign not know or have reason to know that the agreement regarding the refund and offset
flow-through entities to do the same. information in the section 302 payment procedures are satisfied, the QI may apply
(H) Notice to distributing corporation. certification is unreliable or incorrect, the such refund or offset procedures.
The U.S. financial institution shall notify QI shall reflect such treatment in its with- (vi) Determination of incorrect treat-
the distributing corporation, in writing, by holding statement provided to the U.S. ment. If, after the 60-day period has ex-
the filing date of Form 1042–S, of the ag- financial institution, and, based upon the pired, the QI determines that the section
gregate amount of the section 302 payment withholding statement, the U.S. financial 302 payment was incorrectly treated as a
that the U.S. financial institution has re- institution shall release payment from its distribution in exchange for stock, the pro-
ported on Forms 1042–S as capital gains, escrow and the QI shall credit the benefi- cedures set forth regarding adjustments for
and the aggregate amount of the section cial owner’s account with the amount set underwithholding in the QI agreement are
302 payment that it has reported on Forms aside by the U.S. financial institution with applicable.
1042–S as dividends. respect to the beneficial owner who pro- (vii) Undocumented beneficial owners.
(I) Application of Escrow Procedure vided the certification. The entire amount The QI shall withhold at 30 percent on the
to Qualified Intermediaries. As provided paid (including the amount initially set entire amount paid to a beneficial owner
in paragraph (c)(5)(iii)(A) of this sec- that is not properly documented and that is

November 13, 2007 1011 2007–46 I.R.B.


presumed to be a foreign person, whether Linda E. Stiff, of comments and requests for a hearing,
or not the QI has received a section 302 Deputy Commissioner for Regina Johnson at (202) 622–7180 (not
payment certification from such benefi- Services and Enforcement. toll-free numbers).
cial owner. The QI shall report the en-
(Filed by the Office of the Federal Register on October 16, SUPPLEMENTARY INFORMATION:
tire amount paid on its pooled basis Form 2007, 8:45 a.m., and published in the issue of the Federal
1042–S as dividends. Register for October 17, 2007, 72 F.R. 58781)
Background
(4) U.S. non-exempt recipients. The
QI shall treat direct account holders that This document contains proposed
are U.S. non-exempt recipients, and that Notice of Proposed amendments under 26 CFR part 1 un-
hold stock in the distributing corporation, der section 861 of the Internal Revenue
Rulemaking
in accordance with the section 302 pay- Code (Code). On July 14, 2005, final
ment certifications obtained from those regulations that revised and amended
U.S. non-exempt recipients and shall in- Compensation for Labor or
§1.861–4 were published in the Federal
struct foreign intermediaries and foreign Personal Services: Artists and Register (70 FR 40663) as T.D. 9212,
flow-through entities to do the same. Athletes 2005–2 C.B. 429. In these final reg-
(J) Intermediaries that are not qualified ulations, §1.861–4(b)(2)(ii)(C)(3) was
intermediaries. If the U.S. financial insti- REG–114125–07 reserved with respect to compensation
tution has an account holder that is an inter- for labor or personal services performed
mediary that is not a QI (“NQI”), the U.S. AGENCY: Internal Revenue Service partly within and partly without the United
financial institution shall apply the rules (IRS), Treasury. States by an artist or an athlete who is an
of paragraph (c)(5)(iii)(J)(1) through (4) of employee.
this section. Where the provisions of this ACTION: Notice of proposed rulemaking. Section 861(a)(3) of the Internal Rev-
paragraph (J) refer only to the U.S. finan- enue Code provides that, subject to certain
cial institution, they shall apply in the same SUMMARY: This document contains pro-
exceptions, compensation for labor or per-
manner to a QI or WP/WT and where they posed changes to existing final regulations
sonal services performed in the United
refer to an NQI, they shall apply in the regarding the source of compensation for
States is gross income from sources within
same manner to a flow-through that is not labor or personal services. The proposed
the United States. See also §1.861–4(a) of
a WP or WT. changes are needed to clarify the determi-
the regulations. Section 862(a)(3) of the
(1) The U.S. financial institution shall nation of source of compensation of a per-
Code provides that compensation for labor
provide the information and instructions son, including an artist or athlete, who is
or personal services performed without
described in paragraph (c)(5)(iii)(C) of this compensated for labor or personal services
the United States is gross income from
section to the NQI and the NQI shall pro- performed at specific events. These pro-
sources without the United States. Section
vide the same information and instructions posed regulations affect such an individ-
1.861–4(b) provides rules for determining
to its account holders. ual.
the source of compensation for labor or
(2) The content of the section 302 personal services performed partly within
DATE: Written or electronic comments
payment certification shall include the and partly without the United States. Sec-
and requests for a public hearing must be
information described in paragraph tion 1.861–4(b)(2)(i) provides rules for
received by January 14, 2008.
(c)(5)(iii)(D) of this section. determining the source of compensation
(3) The NQI shall provide the sec- ADDRESSES: Send submissions to: for labor or personal services performed
tion 302 payment certification to the U.S. CC:PA:LPD:PR (REG–114125–07), partly within and partly without the United
financial institution together with the room 5203, Internal Revenue Ser- States by an individual other than as an
otherwise required documentation and a vice, PO Box 7604, Ben Franklin Sta- employee. Section 1.861–4(b)(2)(ii) pro-
withholding statement made in accordance tion, Washington, DC 20044. Submis- vides rules for determining the source of
with the section 302 payment certification. sions may be hand-delivered Monday compensation for labor or personal ser-
(4) The U.S. financial institution shall through Friday between the hours of vices performed partly within and partly
treat the section 302 payment as a dividend 8 a.m. and 4 p.m. to: CC:PA:LPD:PR without the United States by an individual
or a payment in exchange for stock based (REG–114125–07), Courier’s Desk, In- as an employee.
on the information and documentation pro- ternal Revenue Service, 1111 Constitution Under §1.861–4(b)(2)(ii), if an individ-
vided to it under paragraph (c)(5)(iii)(J)(3) Avenue, NW, Washington, DC, or sent ual performs labor or personal services as
of this section. The U.S. financial institu- electronically via the Federal eRulemak- an employee, the source of the individual’s
tion shall withhold and report on a specific ing Portal at http://www.regulations.gov compensation is generally determined on
payee basis in accordance with this infor- (IRS–REG–114125–07). a time basis, with certain fringe benefits
mation. sourced on a geographic basis. An indi-
(d) * * * (1) * * * This paragraph does FOR FURTHER INFORMATION vidual may determine the source of his or
not apply to a public section 302 distribu- CONTACT: Concerning the proposed her compensation as an employee for la-
tion to which paragraph (c)(5) applies. regulations, David Bergkuist at (202) bor or personal services performed partly
622–3850; concerning the submissions within and partly without the United States

2007–46 I.R.B. 1012 November 13, 2007


under an alternative basis if the individ- circumstances, is attributable to the labor the basis that most correctly reflects the
ual establishes to the satisfaction of the or personal services performed at the lo- proper source of that income under the
Commissioner that, under the facts and cir- cation of a specific event. facts and circumstances of the particular
cumstances of the particular case, the al- The IRS and the Treasury Department case. See §1.861–4(b)(1) and (2)(i). If a
ternative basis more properly determines have determined that the proper source of person is compensated specifically for la-
the source of the compensation than the compensation received by a person, in- bor or personal services performed at mul-
general rules of §1.861–4(b)(2)(ii). See cluding an individual who is an artist or tiple events, the basis that most correctly
§1.861–4(b)(2)(ii)(C)(1)(i). In addition, athlete, specifically for performing labor reflects the proper source of that income
the Commissioner may, under the facts and or personal services at an event is the lo- under the facts and circumstances of the
circumstances of the particular case, deter- cation of the event. A basis that purports particular case will generally be the loca-
mine the source of compensation that is re- to determine the source of compensation tion of the events. In addition, a basis
ceived by an individual as an employee un- from the performance of labor or personal that purports to determine the source of
der an alternative basis if such compensa- services at a specific event, whether on such income on a time basis by taking into
tion is not for a specific time period, pro- a time basis or otherwise, by taking into account the location of labor or personal
vided that the Commissioner’s alternative account the location of labor or personal services performed in preparation for the
basis determines the source of compensa- services performed in preparation for the performance of labor or personal services
tion in a more reasonable manner than the performance of labor or personal services at the specific event will generally not be
basis used by the individual. at the specific event will generally not be the basis that most correctly reflects the
The final regulations at the basis that most correctly determines the proper source of the compensation under
§1.861–4(b)(2)(ii)(C)(3) provided a source of the compensation. This rule ap- proposed §1.861–4(b)(2)(ii)(G).
reservation with respect to the source of plies to situations covered by §1.861–4(a) The Commissioner may, under the facts
compensation for labor or personal ser- and (b). and circumstances of the particular case,
vices performed partly within and partly Under §1.861–4(a), the source of com- determine the source of compensation that
without the United States by an artist or pensation for labor or personal services is received by an individual as an em-
athlete who is an employee. The preamble performed wholly within the United States ployee under an alternative basis if such
of T.D. 9212 indicated that it was intended is generally from sources within the United compensation is not for a specific time
that the rule for artists and athletes who are States. Therefore, if a person, including period, provided that the Commissioner’s
employees, when issued, would require an individual who is an artist or an athlete, alternative basis determines the source of
such individuals to determine the proper is specifically compensated for performing compensation in a more reasonable man-
source of their compensation for labor or labor or personal services at an event in the ner than the basis used by the individual.
personal services on the basis that most United States, the source of such compen- Compensation specifically for labor or
correctly reflects the proper source of sation is wholly within the United States personal services performed at a specific
income under the facts and circumstances because the labor or personal services were event is not compensation for a specific
of the particular case, consistent with performed wholly at an event within the time period. The basis that most correctly
current law. United States. The proposed regulations reflects the proper source of that income
state that a basis that purports to deter- will generally be the location of the event
Explanation of Provisions mine the source of such income on a time under proposed §1.861–4(b)(2)(ii)(G).
basis by taking into account the location In addition, a basis that purports to de-
The proposed regulations would of labor or personal services performed in termine the source of such income on a
set forth a new “events basis” rule in preparation for the performance of labor or facts and circumstances basis by taking
§1.861–4(b)(2)(ii)(G) and make cer- personal services at the specific event will into account the location of labor or per-
tain other clarifying changes to the generally not be a more reasonable basis sonal services performed in preparation
existing final regulations. The pro- for determining source of the compensa- for the performance of labor or personal
posed regulations also would remove tion. The proposed regulations add an ex- services at the specific event will gen-
§1.861–4(b)(2)(ii)(C)(3), which reserved ample to §1.861–4(c) to illustrate the ap- erally not more properly determine the
with respect to artists and athletes. plication of this rule. source of the compensation under pro-
The amount of income received by a Section 1.861–4(b) applies to instances posed §1.861–4(b)(2)(ii)(G).
person, including an individual who is in which a person is compensated for per- These proposed regulations provide ex-
an artist or an athlete, that is properly forming labor or personal services at mul- amples to illustrate the event basis for de-
treated as compensation from the perfor- tiple events, only some of which are within termining the source of compensation of
mance of labor or personal services is the United States, and at least a portion an individual, including an artist or ath-
determined based on all of the facts and of the person’s compensation cannot be lete, who is compensated specifically for
circumstances of the particular case. Pro- specifically attributed to the person’s per- performing labor or personal services at an
posed §1.861–4(b)(2)(ii)(G) specifies that formance of labor or personal services at event.
the amount of compensation for labor or a specific location. If the person is not an The revisions to §1.861–4(b)(1),
personal services determined on an event individual who is compensated as an em- (b)(2)(i), and (b)(ii)(C)(1)(i) and (ii) which
basis is the amount of the person’s com- ployee, the source of compensation for la- refer to the event basis; the revisions in
pensation which, based on the facts and bor or personal services is determined on §1.861–4(b)(2)(ii)(C)(3), (b)(2)(ii)(E),

November 13, 2007 1013 2007–46 I.R.B.


and (b)(2)(ii)(F), (b)(2)(ii)(G), and (c); and Proposed Amendments to the 11. Redesignating paragraph
new Examples 7 through 11 of §1.861–4(c) Regulations (b)(2)(ii)(G) as new paragraph (c).
would be effective for taxable years be- 12. Adding a new paragraph
ginning after the date final regulations are Accordingly, 26 CFR part 1 is proposed (b)(2)(ii)(G).
published in the Federal Register. to be amended as follows: 13. In the introductory language of
newly-designated paragraph (c), remov-
Special Analysis PART 1—INCOME TAXES ing the language “paragraph (b)(2)(ii)” and
adding the language “section” in its place.
It has been determined that this notice Paragraph 1. The authority citation for 14. Adding new Examples 7, 8, 9, and
of proposed rulemaking is not a significant part 1 continues to read in part as follows: 10 to newly-designated paragraph (c).
regulatory action as defined in Executive Authority: 26 U.S.C. 7805 * * * 15. Redesignating paragraph (b)(1)(ii)
Order 12866. Therefore, a regulatory as- Par. 2. Section 1.861–4 is amended by: Example, as new Example 11 in
sessment is not required. It has also been 1. Removing the heading for paragraph newly-designated paragraph (c), revis-
determined that section 553(b) of the Ad- (b)(1)(i). ing the paragraph heading and removing
ministrative Procedure Act (5 U.S.C. chap- 2. Redesignating paragraph (b)(1)(i) as paragraph (b)(1)(ii).
ter 5) does not apply to these regulations. paragraph (b)(1). 16. Adding a new sentence at the end
Because these regulations do not impose 3. In the last sentence of newly des- of newly-designated paragraph (e) and re-
a collection of information on small enti- ignated paragraph (b)(1), adding the lan- vising the paragraph heading.
ties, the provisions of the Regulatory Flex- guage “or on the event basis as defined in The additions read as follows:
ibility Act (5 U.S.C. chapter 6) do not ap- paragraph (b)(2)(ii)(G) of this section,” af-
ply. Pursuant to section 7805(f) of the In- ter the language “paragraph (b)(2)(ii)(E) of §1.861–4 Compensation for labor or
ternal Revenue Code, this notice of pro- this section,”. personal services.
posed rulemaking has been submitted to 4. In the last sentence of paragraph
the Chief Counsel for Advocacy of the (b)(2)(i), adding the language “or on *****
Small Business Administration for com- the event basis as defined in paragraph (b) * * *
ment on its impact on small business. (b)(2)(ii)(G) of this section,” after the (2) * * *
language “paragraph (b)(2)(ii)(E) of this (ii) * * *
Comments and Requests for a Public (G) Event basis. The amount of com-
section,”.
Hearing pensation for labor or personal services
5. In the first sentence of paragraph
(b)(2)(ii)(C)(1)(i), adding the language “, determined on an event basis is the amount
Before these proposed regulations are
including an event basis as defined in para- of the person’s compensation which, based
adopted as final regulations, considera-
graph (b)(2)(ii)(G) of this section,” after on the facts and circumstances, is attrib-
tion will be given to any written (a signed
the language “alternative basis” wherever utable to the labor or personal services
original and eight (8) copies) or electronic
the language “alternative basis” appears in performed at the location of a specific
comment that is submitted timely to the
the sentence. event. The source of compensation for la-
IRS. The Treasury Department and the
6. In the first sentence of paragraph bor or personal services determined on an
IRS request comments on the clarity of
(b)(2)(ii)(C)(1)(ii), adding the language event basis is the location of the specific
the proposed rules and how they can be
“event basis as defined in paragraph event. A basis that purports to determine
made easier to understand. All comments
(b)(2)(ii)(G) of this section or other” after the source of compensation from the per-
will be available for public inspection and
the language “partly without the United formance of labor or personal services at
copying. A hearing will be scheduled if
States under an”. a specific event, whether on a time basis
requested in writing by any person that
7. Removing paragraph or otherwise, by taking into account the
timely submits written comments. If a
(b)(2)(ii)(C)(3). location of labor or personal services per-
public hearing is scheduled, notice of the
8. In the first sentence of paragraph formed in preparation for the performance
date, time, and place for a public hearing
(b)(2)(ii)(E), removing the language “in- of labor or personal services at the specific
will be published in the Federal Register.
dividual’s” and adding the language “per- event will generally not be the basis that
Drafting Information son’s” in its place, removing the language most correctly determines the source of
“individual” and adding the language “per- the compensation.
The principal author of these proposed son” in its place, and removing the lan- (c) Examples. * * *
regulations is David Bergkuist, Office Example 7. P, a citizen and resident of Country
guage “his or hers” and adding the lan-
of the Associate Chief Counsel (Interna- A, is paid by Company Z to make a presentation in
guage “such person’s” in its place. the United States in 2009. In 2010, Company Z pays
tional). However, other personnel from 9. In the second sentence of paragraph P to make 10 presentations, four of which are in the
the IRS and the Treasury Department par- (b)(2)(ii)(F), removing the language “an United States and six of which are outside the United
ticipated in their development. individual” and adding the language “a States. P is compensated separately by Company Z
for each presentation. For some presentations P re-
***** person” in its place.
ceives a flat fee from Company Z. For the remaining
10. Redesignating paragraphs (c) and presentations P receives compensation that is based
(d) as new paragraphs (d) and (e), respec- on a formula. Under the facts and circumstances of
tively. the particular case, the source of the compensation

2007–46 I.R.B. 1014 November 13, 2007


for each presentation is most correctly reflected on Example 9. (i) Facts. A, a citizen and resident (ii) Analysis. The salary paid to X by the Team is
an event basis, as defined in paragraph (b)(2)(ii)(G) of Country M, is an employee of Corp X, a Country considered to be personal services compensation of
of this section. Because P is compensated separately M corporation. During 2008, Corp X is contractually X that X received as an employee of the Team. The
for each presentation, the source of P’s compensation obligated to provide A’s services to perform in a spe- source of this compensation within the United States
from Company Z for the 2009 presentation within cific athletic event in the United States. Under A’s is determined under the time basis method described
the United States and the four 2010 presentations in employment contract with Corp X, A is required to in paragraph (b)(2)(ii)(A) of this section and accord-
the United States will be from sources in the United perform at a professional level that requires training ingly is determined based upon the number of days
States. The amounts will be determined based on the and other preparation prior to the event. A undertakes X performed services for the Team within the United
flat fee or the formula as contractually determined. all of this preparation in Country M. Solely as a result States during 2008 over the total number of days that
Example 8. (i) Facts. Group B, a Country N cor- of A’s performance at the athletic event in the United X performed services for the Team during 2008. The
poration, is a musical group. All of the members States, A receives $2,000,000 from Corp X. source of the additional amounts X received for play-
of Group B are citizens and residents of Country N. (ii) Analysis. The entire $2,000,000 received by ing in preseason and postseason games is determined
Group B has an employment arrangement with Corp A for performing labor or personal services at the ath- under the event basis method described in paragraph
Y, a Country N corporation, to perform as directed by letic event in the United States is income from sources (b)(2)(ii)(G) of this section and accordingly is deter-
Corp Y. Corp Y and a tour promoter enter into a con- within the United States on an event basis as defined mined based on the location where each such presea-
tract to provide the services of Group B to perform in paragraph (b)(2)(ii)(G) of this section. A’s com- son or postseason game was played.
in musical concerts in the United States and Country pensation is attributable entirely to labor or personal Example 11. * * *
M during a 45-day period. Under the contract, Group services performed within the United States at the
B performs concerts in 15 cities, 10 of which are in athletic event. It is inappropriate to conclude that the *****
the United States. Prior to entering the United States, source of A’s compensation for labor or personal ser- (e) Effective/applicability date.
Group B spends 60 days rehearsing and preparing in vices is performed partly within and partly without * * * The revisions in paragraphs (b)(1),
Country N. Under the contract with Corp Y, Group B the United States simply because A’s preparation for
(b)(2)(i), and (b)(2)(ii)(C)(1)(i) and
receives a flat fee of $10,000,000 for performing in all the athletic event involved activities in Country M.
15 cities. The fee is based on expected revenues from Example 10. (i) Facts. X, a citizen and resident
(ii) of this section which refer to the
the musical concerts. Each concert is expected to re- of Country M, is employed under a standard player’s event basis; the revisions of paragraphs
quire a similar amount and type of labor or personal contract by a professional sports team (Team) that (b)(2)(ii)(C)(3), (b)(2)(ii)(E), (b)(2)(ii)(F),
services by Group B. At the end of the tour, an analy- plays its games both within and without the United (b)(2)(ii)(G), and (c) of this section; and
sis of the revenues from all of the concerts shows that States during its season. The term of the contract is
Examples 7 through 11 of paragraph (c)
80% of the total revenues from the tour were from the for twelve months beginning on October 1. Under the
performances within the United States. contract, X’s salary could be paid in semi-monthly in-
of this section apply to taxable years be-
(ii) Analysis. Under the facts and circumstances stallments beginning with the first game of the regu- ginning after the date final regulations are
basis of paragraph (b)(1) of this section, the source of lar season and ending with the final game played by published in the Federal Register.
the compensation received under the contract is most the Team. Alternatively, because the regular playing
correctly reflected on an event basis, as defined in season was shorter than the one-year period covered Linda E. Stiff,
paragraph (b)(2)(ii)(G) of this section, with amounts by the contract, X had the option to receive his salary Deputy Commissioner
determined based on the relative gross receipts at- over a twelve-month period. X elected this option. In
for Services and Enforcement.
tributable to the performances within and without addition, during the period of this employment con-
the United States. Thus, of the $10,000,000 of tract, X, as an employee of Team, was required to (Filed by the Office of the Federal Register on October 16,
compensation included in Group B’s gross income, practice at the direction of the Team as well as to par- 2007, 8:45 a.m., and published in the issue of the Federal
$8,000,000 ($10,000,000 X .80) is attributable to la- ticipate in games. During 2008, X participated in all Register for October 17, 2007, 72 F.R. 58787)
bor or personal services performed by Group B within practices and games of Team and received a salary.
the United States and $2,000,000 ($10,000,000 X Team qualified for postseason games in 2008. X also
.20) is attributable to the labor or personal services received in 2008 additional amounts for playing in
performed by Group B without the United States. preseason and postseason games for the Team.

Announcement of Disciplinary Actions Involving


Attorneys, Certified Public Accountants, Enrolled Agents,
and Enrolled Actuaries — Reinstatements, Suspensions,
Censures, Disbarments, and Resignations
Announcement 2007-104
Under Title 31, Code of Federal Regu- and may not knowingly aid or abet another fice of Professional Responsibility, will
lations, Part 10, attorneys, certified public person to practice before the Internal Rev- announce in the Internal Revenue Bulletin
accountants, enrolled agents, and enrolled enue Service during a period of suspen- their names, their city and state, their pro-
actuaries may not accept assistance from, sion, disbarment, or ineligibility of such fessional designation, the effective date
or assist, any person who is under disbar- other person. of disciplinary action, and the period of
ment or suspension from practice before To enable attorneys, certified public suspension. This announcement will ap-
the Internal Revenue Service if the assis- accountants, enrolled agents, and enrolled pear in the weekly Bulletin at the earliest
tance relates to a matter constituting prac- actuaries to identify persons to whom practicable date after such action and will
tice before the Internal Revenue Service these restrictions apply, the Director, Of-

November 13, 2007 1015 2007–46 I.R.B.


continue to appear in the weekly Bulletins
for five successive weeks.

Reinstatement To Practice Before the Internal Revenue


Service
Under Title 31, Code of Federal Reg- ney, certified public accountant, enrolled The following individuals’ eligibility to
ulations, Part 10, The Director, Office of agent, or enrolled actuary censured, sus- practice before the Internal Revenue Ser-
Professional Responsibility, may entertain pended, or disbarred, from practice before vice has been restored:
a petition for reinstatement for any attor- the Internal Revenue Service.

Name Address Designation Date of Reinstatement

Dotson, Lewis S. Mattoon, IL Attorney April 8, 2007


Adams, Jr., Joseph T. Philadelphia, PA Enrolled Agent July 30, 2007
Cramer, George C. Chicago, IL CPA July 30, 2007
Garlikov, Mark B. Dayton, OH Attorney July 30, 2007
Grant, Elaine C. Woodway, WA Enrolled Agent July 30, 2007
Rubesh, Leland Gillette, WY CPA July 30, 2007
Schawe, Rudolph B. Brenham, TX Enrolled Agent July 30, 2007
Sobel, Herbert L. Elkins Park, PA CPA July 30, 2007
Welch, Frank G. Stamford, CT CPA July 30, 2007
Ferguson, Charles E. Naples, FL CPA July 31, 2007
Lim, Edgar E. St. Louis, MO Attorney July 31, 2007
Sneathen, Lowell D. Orange, CA CPA August 30, 2007
Smith, David B. Kettering, OH Enrolled Agent September 9, 2007
Young, Ronald B. Fairfield, CT CPA September 9, 2007
Sheiman, Alan P. Sherman Oaks, CA Enrolled Agent September 14, 2007
DiSiena, Frank E. Somers, NY CPA September 19, 2007
Leggio, Joseph J. Katonah, NY CPA September 24, 2007

2007–46 I.R.B. 1016 November 13, 2007


Consent Suspensions From Practice Before the Internal
Revenue Service
Under Title 31, Code of Federal Regu- may offer his or her consent to suspension The following individuals have been
lations, Part 10, an attorney, certified pub- from such practice. The Director, Office placed under consent suspension from
lic accountant, enrolled agent, or enrolled of Professional Responsibility, in his dis- practice before the Internal Revenue Ser-
actuary, in order to avoid the institution cretion, may suspend an attorney, certified vice:
or conclusion of a proceeding for his or public accountant, enrolled agent, or en-
her disbarment or suspension from prac- rolled actuary in accordance with the con-
tice before the Internal Revenue Service, sent offered.

Name Address Designation Date of Suspension

Hunter, Richard Moweaqua, IL Enrolled Agent Indefinite


from
July 16, 2007
Sheehy, William J. Northville, MI Attorney Indefinite
from
July 16, 2007
Szwyd, Edward R. Housatonic, MA CPA Indefinite
from
July 16, 2007
Lettieri, Louis E. Red Bank, NJ CPA Indefinite
from
August 1, 2007
Stein, Jerold A. Alpharetta, GA CPA Indefinite
from
August 1, 2007
Tutino, Philip R. East Hampton, NY CPA Indefinite
from
August 1, 2007
Dorr, Mark A. Gillette, WY CPA Indefinite
from
August 7, 2007
Nelson, Carole S. Riverside, CA Enrolled Agent Indefinite
from
August 8, 2007
Siegel, Herbert New City, NY CPA Indefinite
from
August 10, 2007
Taylor, Linda W. Las Vegas, NV CPA Indefinite
from
August 15, 2007
Finkelstein, Meyer Staten Island, NY CPA Indefinite
from
August 15, 2007
Schenck, Thomas M. Tampa, FL CPA Indefinite
from
August 20, 2007

November 13, 2007 1017 2007–46 I.R.B.


Name Address Designation Date of Suspension

Shah, Sudhir P. Richardson, TX CPA Indefinite


from
August 20, 2007
Bender, Elmer P. Missoula, MT CPA Indefinite
from
August 31, 2007
Tselepis, John Jarrettsville, MD CPA Indefinite
from
September 5, 2007
Perez, Ricardo L. Cedar Lake, IN CPA Indefinite
from
September 10, 2007
Golden, Roberta A. Framington, MA Attorney Indefinite
from
September 13, 2007
Ward, Thomas R. St. Louis Park, MN Attorney Indefinite
from
September 13, 2007

Expedited Suspensions From Practice Before the Internal


Revenue Service
Under Title 31, Code of Federal Regu- the expedited proceeding is instituted (1) The following individuals have been
lations, Part 10, the Director, Office of Pro- has had a license to practice as an attor- placed under suspension from practice be-
fessional Responsibility, is authorized to ney, certified public accountant, or actuary fore the Internal Revenue Service by virtue
immediately suspend from practice before suspended or revoked for cause or (2) has of the expedited proceeding provisions:
the Internal Revenue Service any practi- been convicted of certain crimes.
tioner who, within five years from the date

Name Address Designation Date of Suspension

Murphy, John F. Wellsboro, PA Attorney Indefinite


from
June 28, 2007
Aakre, Steven K. Hawley, MN Attorney Indefinite
from
July 11, 2007
Brogan, Jane K. York, NE Attorney Indefinite
from
July 11, 2007
Clark, Clifford A. Raleigh, NC CPA Indefinite
from
July 11, 2007
Downing, Jr., Eugene W. Arlington, MA Attorney Indefinite
from
July 11, 2007

2007–46 I.R.B. 1018 November 13, 2007


Name Address Designation Date of Suspension

Kahn, Arthur M. Woodstock, NY Attorney Indefinite


from
July 11, 2007

Kossmeyer, Carl F. Town and Country, MO CPA Indefinite


from
July 11, 2007

Lee, John C. Charlotte, NC Attorney Indefinite


from
July 11, 2007

McAvoy, Donald L. Windermere, FL CPA Indefinite


from
July 11, 2007

McCabe, Edwin A. Gloucester, MA Attorney Indefinite


from
July 11, 2007

O’Donnell, Judith R. Westborough, MA Attorney Indefinite


from
July 11, 2007

Taylor, John G. Lincoln, NE Attorney Indefinite


from
July 11, 2007

Turner, D. Scott Mooresville, NC Attorney Indefinite


from
July 11, 2007

Csaszar, James J. Columbus, OH CPA Indefinite


from
July 13, 2007

Fischer, Mark W. Boulder, CO Attorney Indefinite


from
July 16, 2007

Behunin, Michael N. Sandy, UT Attorney Indefinite


from
August 8, 2007

Carpenter, Jr., Darwin R. Melbourne, FL CPA Indefinite


from
August 23, 2007

Gresham, James L. Broken Arrow, OK CPA Indefinite


from
August 23, 2007

Krezminski, Allen D. Milwaukee, WI Attorney Indefinite


from
August 23, 2007

Neary, Hugh M. Ottumwa, IA Attorney Indefinite


from
August 23, 2007

November 13, 2007 1019 2007–46 I.R.B.


Name Address Designation Date of Suspension

Weiss, Randy A. Potomac, MD Attorney Indefinite


from
August 23, 2007
Whiddon, Edward L. Houston, TX CPA Indefinite
from
August 23, 2007
Hazen, Robert D. Lindon, UT CPA Indefinite
from
August 29, 2007
Schafer, III, Harry J. Edmond, OK CPA Indefinite
from
September 6, 2007
Pullin, Wendy F. San Antonio, TX CPA Indefinite
from
September 24, 2007

Suspensions From Practice Before the Internal Revenue


Service After Notice and an Opportunity for a Proceeding
Under Title 31, Code of Federal Reg- ministrative law judge, the following indi- from practice before the Internal Revenue
ulations, Part 10, after notice and an op- viduals have been placed under suspension Service:
portunity for a proceeding before an ad-

Name Address Designation Effective Date

Newton, Douglas M. Fernandina Beach, FL CPA Indefinite


from
June 4, 2007
Snell, Barry A. Santa Monica, CA CPA Indefinite
from
June 6, 2007
Khoury, Naif S. Fort Smith, AR Attorney Indefinite
from
June 14, 2007
Bukovac, Jane Alexandria, VA Enrolled Agent Indefinite
from
June 29, 2007
Kreke, David J. Bartelso, IL Enrolled Agent Indefinite
from
July 12, 2007
Dunkley, John D. San Antonio, TX Enrolled Agent Indefinite
from
July 27, 2007

2007–46 I.R.B. 1020 November 13, 2007


Disbarments From Practice Before the Internal Revenue
Service After Notice and an Opportunity for a Proceeding
Under Title 31, Code of Federal Regu- tunity for a proceeding before an adminis- als have been disbarred from practice be-
lations, Part 10, after notice and an oppor- trative law judge, the following individu- fore the Internal Revenue Service:

Name Address Designation Effective Date

Ruocchio, Robert Havertown, PA CPA June 11, 2007


Turner, John S. Paradise, CA Enrolled Agent June 15, 2007
Johnson, Ted R. Frankfort, IN Attorney July 30, 2007
Ayers, Dani D. Kelseyville, CA Enrolled Agent August 6, 2007
80 million electronically filed returns, an pay are exempt from the income calcula-
increase of 9% over the previous year. tions.
Request for Applications to
Visit the IRS web site, http://www.irs.gov, Participants are encouraged to focus on
Participate in the 2008 IRS for the most current results from market reducing the number of errors made on
Individual e-file Partnership research on individual taxpayers, includ- electronically filed returns, including those
Program ing demographic data and psychographic returns claiming EITC. The “EITC Assis-
studies. This research includes attitudinal tant” is an interactive web-based tool de-
Announcement 2007–106 surveys, customer satisfaction surveys, signed to help tax professionals determine
Public Service communications, tracking whether or not their clients are eligible for
The Stakeholder Partnerships, Educa- studies and any focus group results. EITC, and why. The “EITC Assistant” is
tion and Communication (SPEC) organ- The IRS accepts many forms and sched- a step taken by the IRS to maximize tax-
ization within the Internal Revenue Ser- ules for electronic filing. Visit the IRS.gov payer participation, minimize EITC errors
vice (IRS) is continuing its efforts to es- for a complete listing of accepted forms while increasing compliance. You can find
tablish IRS e-file partnerships with vari- and schedules. the “EITC Assistant” on the IRS web site
ous entities. The IRS is seeking non-mon- at http://www.irs.gov/eitc.
etary e-file partnerships for Filing Season FILING SEASON 2008 The Hispanic population is the fastest
2008. No applications for funding (mone- growing minority segment in the U.S. Par-
tary compensation) will be considered. A For Filing Season 2008, the IRS will
ticipants are encouraged to market their
commercial business, non-profit organiza- continue to focus on the 1040 series in-
e-file services to this segment of the pop-
tion, state government or local government come tax returns covering “IRS e-file Us-
ulation and offer the Spanish versions for
may submit applications. Applications are ing a Tax Preparer” and “IRS e-file Us-
online filing and/or downloadable soft-
not solicited from other Federal govern- ing a Personal Computer.” Additional em-
ware.
ment agencies. The program is an annual phasis continues to be placed on the fol-
The IRS expects all accepted partners
program and covers the period January lowing features: electronic signature op-
to market, promote and offer e-file product
through October 15, 2008. All prior tions, Federal/State e-file, and electronic
and services through October 15, 2008.
year partners must reapply for Filing payment options for balance due and esti-
The IRS will supply the partners with
Season 2008. mated payment options.
the key marketing messages that support
A major area of emphasis is to reach
electronic filing during the Filing Sea-
BACKGROUND those taxpayers who continue to file com-
son (January through April 15, 2008) and
puter prepared paper returns (v-code). Re-
post-Filing Season (April through Octo-
The IRS Restructuring and Reform search indicates that the number of v-code
ber 15, 2008). These messages should be
Act of 1998 (RRA 98) authorized the returns continues to increase (76% of all
used in your promotion of electronic filing
IRS Commissioner to promote the ben- v-code returns are prepared by paid prepar-
and displayed on the web sites of Partici-
efits of and encourage the use of e-file ers). Emphasis should be placed on con-
pants. Utilization of these messages will
services. RRA 98 enables the IRS to en- verting v-code filers to electronically file
ensure uniformity and maximize public
ter into non-monetary partnerships with their returns through advertising the bene-
awareness. For additional information on
businesses to offer low cost income tax fits of e-file.
the various e-file programs, features, and
preparation and electronic filing for quali- Participants should also reach those in-
market research, visit the IRS web site at
fied taxpayers. dividuals eligible for the Earned Income
http://www.irs.gov.
Continued opportunities for growth in Tax Credit (EITC). It’s important to note
Participants will receive hyperlinks
electronic tax administration are evident. that military families may qualify for EITC
from IRS.gov (Partners Page) — to the
For Filing Season 2007, the IRS received since supplemental payments and combat

November 13, 2007 1021 2007–46 I.R.B.


Participant’s web site. Potential Partici- use the key marketing messages, pro- Federal/State returns, and 1040EZ re-
pants may request links for the following vided by the IRS, for the promotion turns.
categories: of Filing Season and Post Filing Sea- • The Participant will clearly disclose its
son electronic filing and place them on customer service support options (in-
• IRS e-file Partners for Taxpayers
your web site. cluding associated fees, if any) and pri-
• IRS e-file Partners for Tax Profession-
• The Participant (Electronic Return vacy policy on the landing page of its
als
Originator, Intermediate Service web site. Participants must provide
• IRS e-file Partners for Financial Insti-
Provider, Software Developer, and taxpayers with a business contact point
tutions/Employers
Transmitter) must be in good standing by on-line form, email, mail, facsimile
• IRS e-file Partners for Credit Card Pay-
with the IRS, comply with the e-file or telephone number which the Partic-
ment Options
requirements stated in the IRS Rev- ipant maintains and reviews.
Safeguarding Taxpayer Data enue Procedure 2007–40 (announced • The Participant is encouraged to
in IR Bulletin 2007–26 dated June offer the Spanish versions for online
The security of taxpayer accounts and 25, 2007), current versions of Publi- filing and/or downloadable software.
personal information is a top priority for cations 1345, 1345A, 3112, and pass The Participant who offers Spanish
the IRS. Tax professionals must imple- the annual Suitability and Participants versions for online filing and/or down-
ment safeguards to protect taxpayer’s Acceptance Testing (PATS) conducted loadable software will have customer
data. It is not only the law, but it is good by the IRS. You can find the IRS e-file service support to assist Hispanic tax-
business practice, as it increases customer technical publications on the IRS web payers.
confidence and trust. Refer to Publica- site at http://www.irs.gov. • The Participant will target v-coders
tion 4557, Safeguarding Taxpayer Data, • The Participant will comply with the and individuals eligible for EITC.
A Guide for Your Business, which de- privacy provisions of 26 U.S.C. § 7216 • The Participant will focus on reduc-
scribes the various security provisions and U.S.C.§ 6103. ing the number of errors on electroni-
and rules that impact tax professionals. • The Participant will be required to cally prepared returns, including those
The document assists tax professionals in prove and display third-party certifica- returns claiming EITC.
understanding their requirements for pro- tions for the privacy/security/authen- • The Participant will offer a variety of
tecting the privacy and confidentiality of ticity of its online service. The Par- e-file features including the Self-Se-
taxpayer data, and provides guidance on ticipant’s web site should display the lect PIN, Electronic Payment Options,
the implementing the necessary security third-party certification and privacy Federal/State e-file, Direct Deposit of
controls within their business to satisfy seals. Participants must use software Refunds, etc.
these requirements. Publication 4557 can that will enable their web sites to state • The Participant will be permitted only
be accessed at http://www.irs.gov. their privacy practices in a standard one (1) hyperlink on the IRS e-file
machine-readable format that can be Partners Page per category:
PARTICIPATION STANDARDS & retrieved automatically and interpreted
REQUIREMENTS easily by users. • IRS e-file Partners for Taxpayer
Participants will abide by the following
• Participants will comply with the se- • IRS e-file Partners for Tax Profes-
curity provisions in applicable De- sionals
standards and requirements, if applicable:
partment of Treasury/IRS rules in- • IRS e-file Partners for Financial In-
• The Participant was actively engaged cluding, but not limited to, 31 C.F.R. stitutions/Employers
in the electronic tax preparation and Part 10, IRS Rev. Proc. 2005–60, • IRS e-file Partners for Electronic
filing industry in 2006 and 2007. current versions of IRS Publications Payment Options
• The Participant will offer their tax 1345, 1345A, and 3112, and 26 U.S.C.
preparation and e-file services to the § 7216. In addition, Participants must • The Participant will provide the IRS
individual taxpayer. The IRS will not comply with the Federal Trade Com- with a description (not to exceed 200
post advertisements offering both free mission’s Gramm-Leach-Bliley Act characters including spaces) for each
tax preparation and free e-file on the to protect the security of taxpayer hyperlink placed on the IRS e-file Part-
IRS.gov Partners Page. Promotion information. Refer to Publication ners Page. The hyperlink description
on IRS.gov of free services, services 4557, Safeguarding Taxpayer Data, may describe multiple offers/services.
that include both free tax preparation A Guide for Your Business, for guid- • The Participant will not have a URL(s)
and free e-filing, is reserved for Free ance on various security rules and containing the word “IRS.”
File Alliance members only. Visit provisions that impact tax profession- • The Participant will be required to sup-
www.freefilealliance.org to find out als. The document can be accessed at ply the IRS with a link to their web site
how to become a member of the Free http://www.irs.gov. in their application or no less than ten
File Alliance or visit www.irs.gov for • The Participant will offer their prod- (10) business days before the site is
more details on free file. ucts and services to filers of the indi- expected to go live (start date of elec-
• The Participant will market, promote vidual 1040 Series returns, including tronic filing). All sites must be exam-
and offer e-file services through Octo- complex returns, balance due returns, ined before they can be posted on the
ber 15, 2008. The Participant should IRS e-file Partners Page. The purpose

2007–46 I.R.B. 1022 November 13, 2007


of the review is to ensure each Partici- • The site clearly relates to and com- consistent with obtaining the positive
pant’s web site complies with the stan- plements existing information, consent of the user as described in 26
dards and requirements set forth in this products and services on IRS.gov. U.S.C. 7616 before offering fee-based
announcement. • The site contains relevant and use- products and services not related to tax
• The Participant will adhere to the ful content that will benefit our preparation.
IRS e-file rule for registration of customers. • The Participant will include a feature
web sites which enables IRS to more • The site contains accurate and in their tax preparation software that
quickly identify fraud schemes, in- timely information. will “time out” the session after no
cluding phishing. Failure to do so • The site provides information at no changes are made for a period of time
could result in suspension or ex- cost. The Participant will not link consistent with best practices approved
pulsion from participation in IRS to sites whose primary purpose is by privacy seal certification programs.
e-file. For more information, visit to sell products or services (unless • The Participant that learns of an in-
http://www.irs.gov/efile/index.html. it is part of an approved agreement appropriate disclosure of a taxpayer’s
• The Participant will adhere to industry with IRS). return information to an unauthorized
best practices to ensure the taxpayer re- • The site has an excellent overall Person must report the unauthorized
turn information entrusted to them is quality and professional image. disclosure to the IRS immediately but
secure and the privacy of such infor- • The site is easy to navigate. no later than five (5) hours after de-
mation is maintained. In any instance • The site is a credible source for tection; and immediately shut down its
where a Participant contracts with a information. The site must be free program at the time of detection.
service provider to obtain technology of typos and errors so that it does • The Participant will submit written
services, it will adhere to this standard. not detract from the readability of notification (e.g., email) to the IRS
To the extent multiple Participants rely the site. of changes, additions and deletions to
on a single service provider for front • The site does not exhibit hate, bias, URLs, link descriptions, etc.
or back office services (not ISP ser- or discrimination. • The Participant will submit Perfor-
vices), it is even more critical that such • The site does not contain mislead- mance Reports to the IRS Point of
taxpayer security and privacy be main- ing or unsubstantiated claims or covering Filing Season and post Filing
tained with respect to others who share conflict with the mission of the Season activity. The reports will cover
these services. IRS. information such as e-file statistics,
• A Participant’s web site will be func- web site activity and anything else the
tionally adequate and consistent with • The Participant must provide taxpay- IRS deems necessary. The IRS Point
the Participant’s offer in permitting a ers a method to obtain the status of of Contact will provide written report-
taxpayer to complete their return. Fail- their tax return. Taxpayers can be di- ing instructions and requirements to
ure to comply may result in the Partici- rected to “Where’s My Tax Refund?” accepted Participants.
pant’s removal from the Partners Page. located on the Homepage of the IRS
• Whenever taxpayers are requested or web site at http://www.irs.gov. PERFORMANCE STANDARDS
required to provide their SSN, it must • The Participant will prominently dis-
be part of a secure session. Participants play on the landing page of its web site • The IRS will have the accepted Par-
are not permitted to use SSNs as a re- the promotion of income tax prepara- ticipant’s hyperlink(s) available on the
quested field for registration purposes tion and electronic filing for individu- IRS web site for the start of electronic
or for establishing a taxpayer account als eligible for EITC. filing, subject to the participant’s pass-
on-line. • The Participant is encouraged to offer ing of the annual Suitability, PATS test-
• The Participant will display the IRS a monetary incentive (reduced return ing, and web site review. Hyperlinks
e-file logo on the landing page of its preparation and electronic filing costs) will remain on the IRS e-file Partners
web site. The e-file logo should be a to attract taxpayers. Page through October 15, 2008, or at
click-through to the IRS e-file land- • The Participant will disclose limita- the discretion of the IRS.
ing page www.irs.gov/efile. If the tions in the forms and schedules that • The IRS will randomize on a daily ba-
e-file logo is displayed on other web are likely to be needed to support sis the offers of the Participants listed
pages in addition to the landing page their offerings. The Participant should on the IRS e-file Partners Page.
of the Participant, the logo(s) should clearly display a listing of the forms • The IRS may establish a link from the
be a click-through to the IRS e-file and schedules that will be offered IRS e-file Partners Page to the Free File
landing page. The e-file logo and either visible or accessible from the web page and vice versa.
guidelines can be downloaded from Participant’s landing page. • The IRS will accept, if appropriate,
http://www.irs.gov. • The Participant will clearly disclose a the Participant’s written request for
• The Participant’s web site will not con- listing of the States that their software changes/additions/deletions to a URL,
tain inappropriate content. Participant supports either visible or accessible link description, etc.
web sites must meet the following cri- from the Participant’s landing page. • The IRS will review the Participant’s
teria: • The Participant is permitted to of- web site(s) at any time to ensure that
fer commercial products and services participation requirements are met.

November 13, 2007 1023 2007–46 I.R.B.


• The IRS will not endorse specific of- • Identify the Applicant’s hyperlink(s) IRS POINT OF
ferings or products, but will promote and provide a short description (not CONTACT/APPLICATION
the IRS e-file Partners Page. A “Site to exceed 200 characters including SUBMISSION
Disclaimer” will be displayed upon ex- spaces) of the services and products
iting the IRS web site before the user to be promoted on the IRS e-file Part- Applications to participate in the
enters the Participant’s web site. ners Page. In addition, the Applicant IRS Individual e-file Partnership
should provide the associated URL(s). Program should be submitted as a
PARTICIPATION TERMS The URL(s) cannot contain the word Word document through email at
“IRS.” Indicate the category for each *WIe-filepartners@irs.gov. (Please make
The IRS Individual e-file Partnership hyperlink: sure there is an asterisk (*) before the WI
Program is an annual program, and all (Wage and Investment) when submitting
prospective Participants, including re- • IRS e-file Partners for Taxpayers an application.) An application may also
turning Participants, must reapply each • IRS e-file Partners for Tax Profes- be sent to:
year following the guidelines in the In- sionals
ternal Revenue Bulletin announcement Internal Revenue Service
• IRS e-file Partners for Financial In-
5000 Ellin Road
advertised on http://www.irs.gov. If the stitutions/Employers
IRS determines that the Participant is not Lanham, MD 20706
• IRS e-file Partners for Electronic
Attention: Karen Bradley C4–132
meeting the “Participation Standards & Payment Options
Requirements,” the IRS may terminate its SE:W:CAR:SPEC:FO:IMS
partnership with the Participant and re- • Identify the Applicant’s third party If you wish to have a hyperlink(s)
move the participant’s hyperlink(s) from administrators (i.e., VeriSign, Thawte, on the IRS e-file Partners Page for the
the IRS e-file Partners Page. Truste) that certify the privacy/secu- start of electronic filing, your applica-
• The Participant will notify the IRS im- rity/authenticity of its online service tion must be submitted by December 13,
mediately if it wishes to terminate its and provide certification that the Ap- 2007. If your application is received after
partnership with the IRS. The notifica- plicant’s current status is active and in the deadline, there is no guarantee that it
tion should be submitted through email good standing. will be accepted by the IRS.
to the IRS Point of Contact or sent • Identify the Applicant’s communica- Any questions regarding the devel-
to the Point of Contact’s address in- tion vehicle(s) (i.e., web site, market- opment of applications, the submis-
dicated below in “IRS Point of Con- ing/promotional products, etc.) to mar- sion of Performance Reports, or any
tact/Application Submission.” ket and promote your products and ser- other type of contact for this program
vices and IRS e-file. Describe the in- should be directed to Karen Bradley
APPLICATION PROCESS centives, discounts, offers, benefits to at (202) 283–7034 or through email to
taxpayers or other specific approaches *WIe-filepartners@irs.gov. Please make
Applications should contain the follow- to increase e-file volumes. sure there is an asterisk (*) before the WI
ing information, if applicable: • Describe steps the Applicant will take (Wage and Investment) for any type of
to reach taxpayers that claim EITC. email contact.
• Provide Primary and Secondary Points This can include marketing/promo-
of Contact (name, title, address, tional efforts, monetary incentives APPLICATION EVALUATION
cell/telephone number, fax number (reduced return preparation and elec-
and email address) for discussion of tronic filing costs). All applications will be evaluated based
your application and program partici- • Describe steps the Applicant will take on the required information provided to
pation. to reduce errors on electronically filed the IRS and the applicant’s ability to ful-
• Identify the Applicant’s secure web returns, including those returns claim- fill their responsibilities. Prior year perfor-
site. ing EITC. mance will also be considered when evalu-
• Identify the Applicant’s tax prepara- • Certify the Applicant’s compliance ating applications from returning partners.
tion software and the States it will sup- with the privacy and disclosure provi-
port. ACCEPTANCE/DENIAL OF
sions of 26 U.S.C. 7216 and 26 U.S.C.
• Identify the IRS forms and schedules 6103.
APPLICATION
that support your offering(s). • Certify the Applicant’s compliance If your application is accepted, you
• Include the Applicant’s Electronic with the Federal Trade Commission’s will receive written notification from the
Filer Identification Number(s) (EFIN) Gramm-Leach-Bliley (GLB) Act of IRS. If your application is denied, you will
and/or Electronic Transmitter Identifi- 1999, Financial Privacy Rule and receive written notification from the IRS
cation Number (ETIN). Safeguard Rules. with an explanation of the denial.
• Indicate if the Applicant will offer
the Spanish versions for online filing e-Help
and/or downloadable software. De-
scribe customer service support for If you have any questions related to
assisting Hispanic taxpayers. e-products/electronic filing, you can

2007–46 I.R.B. 1024 November 13, 2007


contact the e-Help Desk toll-free at related questions and issues. You can also houses a variety of information which im-
1–866–255–0654. The e-Help desk assis- go to http://www.irs.gov where the IRS pacts the tax professional.
tors are ready to respond to non-account

November 13, 2007 1025 2007–46 I.R.B.


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.

2007–46 I.R.B. i November 13, 2007


Numerical Finding List1 Notices: Proposed Regulations— Continued:

Bulletins 2007–27 through 2007–46 REG-118886-06, 2007-37 I.R.B. 591


2007-54, 2007-27 I.R.B. 12
REG-128224-06, 2007-36 I.R.B. 551
Announcements: 2007-55, 2007-27 I.R.B. 13
REG-138707-06, 2007-32 I.R.B. 342
2007-56, 2007-27 I.R.B. 15
REG-139268-06, 2007-34 I.R.B. 415
2007-61, 2007-28 I.R.B. 84 2007-57, 2007-29 I.R.B. 87
REG-140206-06, 2007-46 I.R.B. 1006
2007-62, 2007-29 I.R.B. 115 2007-58, 2007-29 I.R.B. 88
REG-142039-06, 2007-34 I.R.B. 415
2007-63, 2007-30 I.R.B. 236 2007-59, 2007-30 I.R.B. 135
REG-144540-06, 2007-31 I.R.B. 296
2007-64, 2007-29 I.R.B. 125 2007-60, 2007-35 I.R.B. 466
REG-148393-06, 2007-39 I.R.B. 714
2007-65, 2007-30 I.R.B. 236 2007-61, 2007-30 I.R.B. 140
REG-103842-07, 2007-28 I.R.B. 79
2007-66, 2007-31 I.R.B. 296 2007-62, 2007-32 I.R.B. 331
REG-106143-07, 2007-43 I.R.B. 881
2007-67, 2007-32 I.R.B. 345 2007-63, 2007-33 I.R.B. 353
REG-113891-07, 2007-42 I.R.B. 821
2007-68, 2007-32 I.R.B. 348 2007-64, 2007-34 I.R.B. 385
REG-114125-07, 2007-46 I.R.B. 1012
2007-69, 2007-33 I.R.B. 371 2007-65, 2007-34 I.R.B. 386
REG-116215-07, 2007-38 I.R.B. 659
2007-70, 2007-33 I.R.B. 371 2007-66, 2007-34 I.R.B. 387
REG-118719-07, 2007-37 I.R.B. 593
2007-71, 2007-33 I.R.B. 372 2007-67, 2007-35 I.R.B. 467
REG-129916-07, 2007-43 I.R.B. 891
2007-72, 2007-33 I.R.B. 373 2007-68, 2007-35 I.R.B. 468
REG-138637-07, 2007-45 I.R.B. 977
2007-73, 2007-34 I.R.B. 435 2007-69, 2007-35 I.R.B. 468
2007-74, 2007-35 I.R.B. 483 2007-70, 2007-40 I.R.B. 735 Revenue Procedures:
2007-75, 2007-36 I.R.B. 540 2007-71, 2007-35 I.R.B. 472
2007-76, 2007-36 I.R.B. 560 2007-42, 2007-27 I.R.B. 15
2007-72, 2007-36 I.R.B. 544
2007-77, 2007-38 I.R.B. 662 2007-43, 2007-27 I.R.B. 26
2007-73, 2007-36 I.R.B. 545
2007-78, 2007-38 I.R.B. 663 2007-44, 2007-28 I.R.B. 54
2007-74, 2007-37 I.R.B. 585
2007-79, 2007-40 I.R.B. 749 2007-45, 2007-29 I.R.B. 89
2007-75, 2007-39 I.R.B. 679
2007-80, 2007-38 I.R.B. 667 2007-46, 2007-29 I.R.B. 102
2007-76, 2007-40 I.R.B. 735
2007-81, 2007-38 I.R.B. 667 2007-47, 2007-29 I.R.B. 108
2007-77, 2007-40 I.R.B. 735
2007-82, 2007-40 I.R.B. 749 2007-48, 2007-29 I.R.B. 110
2007-78, 2007-41 I.R.B. 780
2007-83, 2007-40 I.R.B. 752 2007-49, 2007-30 I.R.B. 141
2007-79, 2007-42 I.R.B. 809
2007-84, 2007-41 I.R.B. 797 2007-50, 2007-31 I.R.B. 244
2007-80, 2007-43 I.R.B. 867
2007-85, 2007-39 I.R.B. 719 2007-51, 2007-30 I.R.B. 143
2007-81, 2007-44 I.R.B. 899
2007-86, 2007-39 I.R.B. 719 2007-52, 2007-30 I.R.B. 222
2007-82, 2007-44 I.R.B. 904
2007-87, 2007-40 I.R.B. 753 2007-53, 2007-30 I.R.B. 233
2007-83, 2007-45 I.R.B. 960
2007-88, 2007-42 I.R.B. 801 2007-54, 2007-31 I.R.B. 293
2007-84, 2007-45 I.R.B. 963
2007-89, 2007-41 I.R.B. 798 2007-55, 2007-33 I.R.B. 354
2007-85, 2007-45 I.R.B. 965
2007-90, 2007-42 I.R.B. 856 2007-56, 2007-34 I.R.B. 388
2007-86, 2007-46 I.R.B. 990
2007-91, 2007-42 I.R.B. 857 2007-57, 2007-36 I.R.B. 547
2007-87, 2007-45 I.R.B. 966
2007-92, 2007-42 I.R.B. 857 2007-58, 2007-37 I.R.B. 585
2007-88, 2007-46 I.R.B. 993
2007-93, 2007-42 I.R.B. 858 2007-59, 2007-40 I.R.B. 745
2007-89, 2007-46 I.R.B. 998
2007-94, 2007-42 I.R.B. 858 2007-60, 2007-39 I.R.B. 679
2007-90, 2007-46 I.R.B. 1003
2007-95, 2007-43 I.R.B. 894 2007-61, 2007-40 I.R.B. 747
Proposed Regulations: 2007-62, 2007-41 I.R.B. 786
2007-96, 2007-42 I.R.B. 859
2007-97, 2007-43 I.R.B. 895 2007-63, 2007-42 I.R.B. 809
REG-107592-00, 2007-44 I.R.B. 908
2007-98, 2007-43 I.R.B. 896 2007-64, 2007-42 I.R.B. 818
REG-121475-03, 2007-35 I.R.B. 474
2007-99, 2007-43 I.R.B. 896 2007-65, 2007-45 I.R.B. 967
REG-128274-03, 2007-33 I.R.B. 356
2007-100, 2007-44 I.R.B. 922 2007-66, 2007-45 I.R.B. 970
REG-114084-04, 2007-33 I.R.B. 359
2007-101, 2007-43 I.R.B. 898 REG-149036-04, 2007-33 I.R.B. 365 Revenue Rulings:
2007-102, 2007-44 I.R.B. 922 REG-149036-04, 2007-34 I.R.B. 411
2007-103, 2007-44 I.R.B. 923 2007-42, 2007-28 I.R.B. 44
REG-101001-05, 2007-36 I.R.B. 548
2007-104, 2007-44 I.R.B. 924 2007-43, 2007-28 I.R.B. 45
REG-119097-05, 2007-28 I.R.B. 74
2007-105, 2007-45 I.R.B. 984 2007-44, 2007-28 I.R.B. 47
REG-128843-05, 2007-37 I.R.B. 587
2007-106, 2007-46 I.R.B. 1021 2007-45, 2007-28 I.R.B. 49
REG-142695-05, 2007-39 I.R.B. 681
2007-107, 2007-46 I.R.B. 989 2007-46, 2007-30 I.R.B. 126
REG-143326-05, 2007-43 I.R.B. 873
2007-47, 2007-30 I.R.B. 127
Court Decisions: REG-143397-05, 2007-41 I.R.B. 790
2007-48, 2007-30 I.R.B. 129
REG-147171-05, 2007-32 I.R.B. 334
2083, 2007-46 I.R.B. 986 2007-49, 2007-31 I.R.B. 237
REG-148951-05, 2007-36 I.R.B. 550
2007-50, 2007-32 I.R.B. 311
REG-163195-05, 2007-33 I.R.B. 366
2007-51, 2007-37 I.R.B. 573

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2007–1 through 2007–26 is in Internal Revenue Bulletin
2007–26, dated June 25, 2007.

November 13, 2007 ii 2007–46 I.R.B.


Revenue Rulings— Continued:
2007-52, 2007-37 I.R.B. 575
2007-53, 2007-37 I.R.B. 577
2007-54, 2007-38 I.R.B. 604
2007-55, 2007-38 I.R.B. 604
2007-56, 2007-39 I.R.B. 668
2007-57, 2007-36 I.R.B. 531
2007-58, 2007-37 I.R.B. 562
2007-59, 2007-37 I.R.B. 582
2007-60, 2007-38 I.R.B. 606
2007-61, 2007-42 I.R.B. 799
2007-62, 2007-41 I.R.B. 767
2007-63, 2007-41 I.R.B. 778
2007-64, 2007-45 I.R.B. 953
2007-65, 2007-45 I.R.B. 949
2007-66, 2007-45 I.R.B. 956

Tax Conventions:

2007-75, 2007-36 I.R.B. 540


2007-88, 2007-42 I.R.B. 801
2007-107, 2007-46 I.R.B. 989

Treasury Decisions:

9326, 2007-31 I.R.B. 242


9327, 2007-28 I.R.B. 50
9328, 2007-27 I.R.B. 1
9329, 2007-32 I.R.B. 312
9330, 2007-31 I.R.B. 239
9331, 2007-32 I.R.B. 298
9332, 2007-32 I.R.B. 300
9333, 2007-33 I.R.B. 350
9334, 2007-34 I.R.B. 382
9335, 2007-34 I.R.B. 380
9336, 2007-35 I.R.B. 461
9337, 2007-35 I.R.B. 455
9338, 2007-35 I.R.B. 463
9339, 2007-35 I.R.B. 437
9340, 2007-36 I.R.B. 487
9341, 2007-35 I.R.B. 449
9342, 2007-35 I.R.B. 451
9343, 2007-36 I.R.B. 533
9344, 2007-36 I.R.B. 535
9345, 2007-36 I.R.B. 523
9346, 2007-37 I.R.B. 570
9347, 2007-38 I.R.B. 624
9348, 2007-37 I.R.B. 563
9349, 2007-39 I.R.B. 668
9350, 2007-38 I.R.B. 607
9351, 2007-38 I.R.B. 616
9352, 2007-38 I.R.B. 621
9353, 2007-40 I.R.B. 721
9354, 2007-41 I.R.B. 759
9355, 2007-37 I.R.B. 577
9356, 2007-39 I.R.B. 675
9357, 2007-41 I.R.B. 773
9358, 2007-41 I.R.B. 769
9359, 2007-45 I.R.B. 931
9360, 2007-43 I.R.B. 860

2007–46 I.R.B. iii November 13, 2007


Finding List of Current Actions on Proposed Regulations: Proposed Regulations— Continued:
Previously Published Items1 REG-103842-07
EE-16-79
Corrected by
Bulletins 2007–27 through 2007–46 Withdrawn by
Ann. 2007-77, 2007-38 I.R.B. 662
REG-142695-05, 2007-39 I.R.B. 681
Announcements: REG-116215-07
EE-130-86
Corrected by
84-26 Withdrawn by
Ann. 2007-97, 2007-43 I.R.B. 895
Obsoleted by REG-142695-05, 2007-39 I.R.B. 681
T.D. 9336, 2007-35 I.R.B. 461 Revenue Procedures:
REG-243025-96
84-37 Withdrawn by 90-12
Obsoleted by REG-142695-05, 2007-39 I.R.B. 681 Modified by
T.D. 9336, 2007-35 I.R.B. 461
REG-105964-98 Rev. Proc. 2007-66, 2007-45 I.R.B. 970
Notices: Withdrawn by 90-27
REG-107592-00, 2007-44 I.R.B. 908 Superseded by
89-110
REG-117162-99 Rev. Proc. 2007-52, 2007-30 I.R.B. 222
Modified by
REG-142695-05, 2007-39 I.R.B. 681 Withdrawn by 95-28
REG-142695-05, 2007-39 I.R.B. 681 Superseded by
99-6
REG-157711-02 Rev. Proc. 2007-54, 2007-31 I.R.B. 293
Obsoleted as of January 1, 2009 by
T.D. 9356, 2007-39 I.R.B. 675 Corrected by 97-14
Ann. 2007-74, 2007-35 I.R.B. 483 Modified and superseded by
2002-45
REG-119097-05 Rev. Proc. 2007-47, 2007-29 I.R.B. 108
Modified by
REG-142695-05, 2007-39 I.R.B. 681 Hearing location change by 98-48
Ann. 2007-81, 2007-38 I.R.B. 667 Modified by
2003-81
REG-142695-05 T.D. 9353, 2007-40 I.R.B. 721
Modified and supplemented by
Notice 2007-71, 2007-35 I.R.B. 472 Hearing location change by 2002-9
Ann. 2007-91, 2007-42 I.R.B. 857 Modified and amplified by
2005-1
REG-148951-05 Rev. Proc. 2007-48, 2007-29 I.R.B. 110
Modified by
Rev. Proc. 2007-53, 2007-30 I.R.B. 233
Notice 2007-89, 2007-46 I.R.B. 998 Corrected by
Ann. 2007-94, 2007-42 I.R.B. 858 2002-41
2006-1
Modified by
Modified by REG-109367-06
Rev. Proc. 2007-66, 2007-45 I.R.B. 970
Notice 2007-70, 2007-40 I.R.B. 735 Hearing scheduled by
Ann. 2007-66, 2007-31 I.R.B. 296 2003-43
2006-43
Supplemented by
Modified by REG-128224-06
Hearing location change by Rev. Proc. 2007-62, 2007-41 I.R.B. 786
T.D. 9332, 2007-32 I.R.B. 300
Ann. 2007-92, 2007-42 I.R.B. 857 2004-42
2006-56
Corrected by Superseded by
Clarified by
Ann. 2007-95, 2007-43 I.R.B. 894 Notice 2007-59, 2007-30 I.R.B. 135
Notice 2007-74, 2007-37 I.R.B. 585
REG-138707-06 2004-48
2006-79
Corrected by Supplemented by
Section 3 modified and superseded by
Ann. 2007-79, 2007-40 I.R.B. 749 Rev. Proc. 2007-62, 2007-41 I.R.B. 786
Notice 2007-86, 2007-46 I.R.B. 990 Cancellation of hearing by
2005-16
2006-89 Ann. 2007-101, 2007-43 I.R.B. 898
Modified by
Modified by REG-143601-06 Rev. Proc. 2007-44, 2007-28 I.R.B. 54
Notice 2007-67, 2007-35 I.R.B. 467 Corrected by
2005-27
2007-3 Ann. 2007-71, 2007-33 I.R.B. 372
Superseded by
Modified by REG-143797-06 Rev. Proc. 2007-56, 2007-34 I.R.B. 388
Notice 2007-69, 2007-35 I.R.B. 468 Cancellation of hearing by
2005-66
2007-26 Ann. 2007-85, 2007-39 I.R.B. 719
Clarified, modified, and superseded by
Modified by REG-148393-06 Rev. Proc. 2007-44, 2007-28 I.R.B. 54
Notice 2007-56, 2007-27 I.R.B. 15 Corrected by
2006-25
2007-78 Ann. 2007-98, 2007-43 I.R.B. 896
Superseded by
Modified by
Rev. Proc. 2007-42, 2007-27 I.R.B. 15
Notice 2007-86, 2007-46 I.R.B. 990

1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2007–1 through 2007–26 is in Internal Revenue Bulletin 2007–26, dated June 25, 2007.

November 13, 2007 iv 2007–46 I.R.B.


Revenue Procedures— Continued: Revenue Rulings— Continued: Treasury Decisions— Continued:
2006-27 78-257 9332
Modified by Obsoleted by Corrected by
Rev. Proc. 2007-49, 2007-30 I.R.B. 141 T.D. 9347, 2007-38 I.R.B. 624 Ann. 2007-83, 2007-40 I.R.B. 752
Ann. 2007-84, 2007-41 I.R.B. 797
2006-33 78-369
Superseded by Revoked by 9334
Rev. Proc. 2007-51, 2007-30 I.R.B. 143 Rev. Rul. 2007-53, 2007-37 I.R.B. 577 Corrected by
Ann. 2007-93, 2007-42 I.R.B. 858
2006-41 89-96
Superseded by Amplified by 9340
Rev. Proc. 2007-63, 2007-42 I.R.B. 809 Rev. Rul. 2007-47, 2007-30 I.R.B. 127 Corrected by
Ann. 2007-102, 2007-44 I.R.B. 922
2006-45 92-17
Modified and clarified by Modified by 9353
Rev. Proc. 2007-64, 2007-42 I.R.B. 818 Rev. Rul. 2007-42, 2007-28 I.R.B. 44 Corrected by
Ann. 2007-103, 2007-44 I.R.B. 923
2006-53 94-62
Modified by Supplemented by
Rev. Proc. 2007-60, 2007-39 I.R.B. 679 Rev. Rul. 2007-58, 2007-37 I.R.B. 562

2006-55 2001-48
Superseded by Modified by
Rev. Proc. 2007-43, 2007-27 I.R.B. 26 T.D. 9332, 2007-32 I.R.B. 300

2007-4 2002-41
Modified by Modified by
Notice 2007-69, 2007-35 I.R.B. 468 REG-142695-05, 2007-39 I.R.B. 681

2007-15 2003-102
Superseded by Modified by
Rev. Proc. 2007-50, 2007-31 I.R.B. 244 REG-142695-05, 2007-39 I.R.B. 681

Revenue Rulings: 2005-24


Modified by
54-378 REG-142695-05, 2007-39 I.R.B. 681
Clarified by
2006-36
Rev. Rul. 2007-51, 2007-37 I.R.B. 573
Modified by
67-93 REG-142695-05, 2007-39 I.R.B. 681
Obsoleted by
2006-57
T.D. 9347, 2007-38 I.R.B. 624
Modified by
69-141 Notice 2007-76, 2007-40 I.R.B. 735
Modified by
2007-54
REG-142695-05, 2007-39 I.R.B. 681
Suspended by
74-299 Rev. Rul. 2007-61, 2007-42 I.R.B. 799
Amplified by
2007-59
Rev. Rul. 2007-48, 2007-30 I.R.B. 129
Amplified by
75-425 Notice 2007-74, 2007-37 I.R.B. 585
Obsoleted by
Rev. Rul. 2007-60, 2007-38 I.R.B. 606
Treasury Decisions:

76-278 8073
Obsoleted by Removed by
T.D. 9354, 2007-41 I.R.B. 759 T.D. 9349, 2007-39 I.R.B. 668

76-288 9321
Obsoleted by Corrected by
T.D. 9354, 2007-41 I.R.B. 759 Ann. 2007-68, 2007-32 I.R.B. 348
Ann. 2007-78, 2007-38 I.R.B. 663
76-450
Obsoleted by 9330
T.D. 9347, 2007-38 I.R.B. 624 Corrected by
Ann. 2007-80, 2007-38 I.R.B. 667

2007–46 I.R.B. v November 13, 2007


November 13, 2007 2007–46 I.R.B.
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