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Bulletin No.

2005-33
August 15, 2005

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

INCOME TAX the information that must be disclosed, and the deadlines by
which persons must make the disclosures on reports filed with
the SEC in order to avoid additional penalties under section
Rev. Rul. 2005–54, page 289. 6707A(e).
Federal rates; adjusted federal rates; adjusted federal
long-term rate and the long-term exempt rate. For pur-
poses of sections 382, 642, 1274, 1288, and other sections
of the Code, tables set forth the rates for August 2005.
EMPLOYEE PLANS

T.D. 9210, page 290. Rev. Rul. 2005–55, page 284.


Final regulations under section 1363(d) of the Code address Profit-sharing plan; retiree health accounts; nonfor-
LIFO recapture by corporations converting from C corpora- feitability; prospective application. This ruling holds that a
tions to S corporations. The purpose of these regulations is sub-account within a profit-sharing plan that provides medical
to provide guidance on the LIFO recapture requirement when reimbursement expenses to each participant does not meet
the corporation holds inventory accounted for under the last-in, the provisions of section 411 of the Code on nonforfeitability
first-out (LIFO) method (LIFO inventory) indirectly through a part- because it imposes conditions on the use of the amounts held
nership. in the participants’ accounts. If certain criteria are met, the
ruling will be applied prospectively.
T.D. 9211, page 287.
Final regulations under section 861 of the Code provide that REG–138362–04, page 299.
deductions for charitable contributions (as defined in section Proposed regulations under section 401 of the Code provide
170(c)) are definitely related and allocable to all of a taxpayer’s guidance on the use of electronic media to provide certain no-
gross income and are apportioned on the basis of income from tices to recipients or to transmit participant and beneficiary
sources within the United States. In addition, regulations are elections or consents with respect to employee benefit ar-
finalized in this document with respect to the allocation and rangements. A public hearing is scheduled for November 2,
apportionment of deductions for charitable contributions that 2005.
are provided by an income tax treaty rather than by sections
170, 873(b)(2), and 882(c)(1)(B). Notice 2005–58, page 295.
This notice addresses certain income tax issues with respect
Rev. Proc. 2005–51, page 296. to nonqualified deferred compensation plans maintained by fed-
This procedure provides guidance to persons who may be re- eral credit unions, including whether a federal credit union can
quired to pay certain penalties under sections 6662(h), 6662A, maintain an eligible nonqualified deferred compensation plan
or 6707A of the Code, and who may be required under sec- described in section 457 of the Code, and issues relating to
tion 6707A(e) to disclose those penalties on reports filed with plans in effect on publication of this notice that are intended to
the Securities and Exchange Commission (SEC). The procedure satisfy section 457.
describes the report on which the disclosures must be made,

(Continued on the next page)

Announcements of Disbarments and Suspensions begin on page 309.


Finding Lists begin on page ii.
EXEMPT ORGANIZATIONS ADMINISTRATIVE

Notice 2005–58, page 295. Rev. Proc. 2005–51, page 296.


This notice addresses certain income tax issues with respect This procedure provides guidance to persons who may be re-
to nonqualified deferred compensation plans maintained by fed- quired to pay certain penalties under sections 6662(h), 6662A,
eral credit unions, including whether a federal credit union can or 6707A of the Code, and who may be required under sec-
maintain an eligible nonqualified deferred compensation plan tion 6707A(e) to disclose those penalties on reports filed with
described in section 457 of the Code, and issues relating to the Securities and Exchange Commission (SEC). The procedure
plans in effect on publication of this notice that are intended to describes the report on which the disclosures must be made,
satisfy section 457. the information that must be disclosed, and the deadlines by
which persons must make the disclosures on reports filed with
Announcement 2005–58, page 319. the SEC in order to avoid additional penalties under section
A list is provided of organizations now classified as private foun- 6707A(e).
dations.
Announcement 2005–56, page 318.
This document contains corrections to proposed regulations
EMPLOYMENT TAX (REG–102144–04, 2005–25 I.R.B. 1297) relating to dual con-
solidated loss issues.

Rev. Proc. 2005–51, page 296. Announcement 2005–57, page 318.


This procedure provides guidance to persons who may be re- This document contains corrections to proposed regulations
quired to pay certain penalties under sections 6662(h), 6662A, (REG–100420–03, 2005–24 I.R.B. 1236) relating to elective
or 6707A of the Code, and who may be required under sec- safe harbor for dealers and traders in securities and commodi-
tion 6707A(e) to disclose those penalties on reports filed with ties.
the Securities and Exchange Commission (SEC). The procedure
describes the report on which the disclosures must be made,
the information that must be disclosed, and the deadlines by
which persons must make the disclosures on reports filed with
the SEC in order to avoid additional penalties under section
6707A(e).

Announcement 2005–55, page 317.


This document withdraws proposed regulations
(REG–142686–01, 2001–2 C.B. 561) concerning the
application of FICA, FUTA, and federal income tax withholding
to stock options issued under an employee stock purchase
plan or an incentive stock option plan (collectively, statutory
stock options).

EXCISE TAX

Rev. Proc. 2005–51, page 296.


This procedure provides guidance to persons who may be re-
quired to pay certain penalties under sections 6662(h), 6662A,
or 6707A of the Code, and who may be required under sec-
tion 6707A(e) to disclose those penalties on reports filed with
the Securities and Exchange Commission (SEC). The procedure
describes the report on which the disclosures must be made,
the information that must be disclosed, and the deadlines by
which persons must make the disclosures on reports filed with
the SEC in order to avoid additional penalties under section
6707A(e).

August 15, 2005 2005–33 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.

2005–33 I.R.B. August 15, 2005


Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 42.—Low-Income Rev. Rul. 2005–55 any, and is only available for that purpose
Housing Credit as long as those individuals qualify as
ISSUE the participant’s spouse and dependents
The adjusted applicable federal short-term, mid-
for purposes of § 105(b). If there is no
term, and long-term rates are set forth for the month Does a profit-sharing plan fail to satisfy
of August 2005. See Rev. Rul. 2005-54, page 289.
surviving spouse or dependent(s), upon
the requirements of § 401(a)(7) of the In-
the participant’s death, or at such time
ternal Revenue Code if it provides a med-
when no individual qualifies as a surviv-
Section 105.—Amounts ical reimbursement account for each par-
ing spouse or dependent for purposes of
Received Under Accident ticipant from which payments may only be
§ 105(b), any remaining unused portion of
and Health Plans distributed to reimburse the participant for
the medical reimbursement account will
expenses for medical care?
be forfeited and will be applied to reduce
Does a medical reimbursement account for each
participant that’s contained in a profit-sharing plan FACTS future employer contributions to medical
cause the profit-sharing plan to fail the vesting re- reimbursement accounts under the plan.
quirements of § 401(a)(7) of the Code? See Rev. Rul. Employer M maintains Plan A, a non- Plan A provides that amounts in the
2005-55, page 284. governmental profit-sharing plan that is profit-sharing account of each participant
intended to be a qualified plan under (and not amounts in the medical reim-
Section 280G.—Golden § 401(a). Plan A includes two separate ac- bursement account of the participant) are
Parachute Payments counts for each participant: a profit-shar- available for distribution to the participant
ing account and a medical reimbursement after severance from employment with
Federal short-term, mid-term, and long-term rates account. Plan A provides that 75% of Em- Employer M.
are set forth for the month of August 2005. See Rev. ployer M’s annual contributions to Plan A
Rul. 2005-54, page 289. on behalf of each participant is allocated LAW
to that participant’s profit-sharing account
Section 401(a) provides requirements
Section 382.—Limitation and the remaining 25% is allocated to
for a trust forming part of a stock bonus,
on Net Operating Loss the participant’s medical reimbursement
pension or profit-sharing plan to be qual-
Carryforwards and Certain account. Plan A does not provide for (af-
ified under § 401(a). A profit-sharing
Built-In Losses Following ter-tax) employee contributions.
plan is a type of defined contribution plan.
Ownership Change Plan A provides that amounts in a par-
Section 414(j) provides that a defined con-
ticipant’s medical reimbursement account
tribution plan is a plan which provides an
The adjusted applicable federal long-term rate is may be used to reimburse the participant
set forth for the month of August 2005. See Rev. Rul. individual account for each participant and
for any substantiated expenses for medical
2005-54, page 289. for benefits based solely on the amount
care (as defined by § 213(d)) incurred by
contributed to the participant’s account,
the participant or the participant’s spouse
and any income, expenses, gains and
Section 411.—Minimum and dependents (as defined in § 152, de-
losses, and any forfeitures of accounts of
Vesting Standards termined without regard to § 152(b)(1),
other participants which may be allocated
(b)(2), and (d)(1)(B)). Plan A also ex-
26 CFR 1.411(a)–1: Minimum vesting standards; to the participant’s account.
pressly provides that under no circum-
general rules. Section 1.401–1(b)(1)(ii) of the In-
(Also, §§105, 7805; 301.7805–1.) stances may amounts held in the medical
come Tax Regulations provides that a
reimbursement account be distributed
profit-sharing plan, within the meaning of
Profit-sharing plan; retiree health except to reimburse the participant for
§ 401, must provide for distributing the
accounts; nonforfeitability; prospec- expenses for medical care incurred by
funds accumulated under the plan after a
tive application. This ruling holds that a the participant or the participant’s spouse
fixed number of years, the attainment of
sub-account within a profit-sharing plan or dependents. The restriction on use of
a stated age, or upon the prior occurrence
that provides medical reimbursement ex- the medical reimbursement account ap-
of some event such as layoff, illness, dis-
penses to each participant does not meet plies to all participants in the plan (i.e.,
ability, retirement, death, or severance of
the provisions of section 411 of the Code current and former employees, includ-
employment. Section 1.401–1(b)(1)(ii)
on nonforfeitability because it imposes ing retired employees). Plan A further
further provides that a profit-sharing plan
conditions on the use of the amounts held provides that, upon the death of the par-
is primarily a plan of deferred compen-
in the participants’ accounts. If certain ticipant, the account is available only to
sation but the amounts allocated to the
criteria are met, the ruling will be applied reimburse expenses for medical care of the
account of a participant may be used to
prospectively. participant’s spouse or, if unmarried or the
provide incidental life or accident or health
spouse consents (in the manner required
insurance for him and his family.
under § 417(a)(2)), the medical care ex-
penses of the participant’s dependents, if

2005–33 I.R.B. 284 August 15, 2005


Section 402(a) generally provides that Notwithstanding § 411(a)(2), § 411(a) during the year. See Rev. Rul. 2002–80,
any amount distributed to any distributee (3) and § 1.411(a)–4(b) permit the forfei- 2002–2 C.B. 925, and Rev. Rul. 2005–24,
from a plan qualified under § 401(a) is ture of an employee’s accrued benefit un- 2005–16 I.R.B. 892.
taxable to the distributee, in the taxable der certain circumstances. These permis- Finally, Congress has specifically pre-
year in which distributed, under § 72. sible forfeitures include forfeitures on ac- scribed rules relating to the funding of fu-
Rev. Rul. 61–164, 1961–2 C.B. 99, count of death. ture health benefits on a tax-favored basis.
provides that a profit-sharing plan does Section 1.411(a)–4T(a) provides that, For example, such funding is addressed by
not violate the incidental benefit rule in for purposes of § 411, a right to an accrued the rules in §§ 419, 419A, 501(c)(9), and
§ 1.401–1(b)(1)(ii) merely because, in benefit is considered to be nonforfeitable 512 for welfare benefit funds (including
accordance with the terms of the plan, at a particular time if, at that time and Voluntary Employees’ Beneficiary Asso-
each participant’s account under the plan thereafter, it is an unconditional right. The ciations) and by §§ 401(h) and 420 with
is charged with the cost of the major med- regulation further provides that, subject to respect to retiree health benefits provided
ical benefits for the participant under the the permissible forfeitures of § 411(a)(3) through a qualified plan.
group hospitalization insurance for the and § 1.411(a)–4(b) and certain other
employer’s employees, provided that the prescribed situations, a right which, at a ANALYSIS
total amount used for life or accident or particular time, is conditioned under the
health insurance for him and his family is plan upon a subsequent event, subsequent Under a profit-sharing plan, as a de-
incidental. The revenue ruling further pro- performance, or subsequent forbearance fined contribution plan, benefits to a
vides that such insurance will be treated which will cause the loss of such right is a participant must be based solely upon
as incidental if the amount expended for forfeitable right at that time. amounts contributed to the participant’s
such benefits does not exceed 25% of the Section 105(a) provides that, except as account and attributable income, gains, ex-
funds allocated to a participant’s account otherwise provided in § 105, amounts re- penses and losses. Under the § 411(a)(7)
that have not been accumulated for the ceived by an employee through accident definition of accrued benefit for a defined
period prescribed by the plan for the de- or health insurance for personal injuries or contribution plan, all amounts credited
ferment of distributions. However, Rev. sickness are included in gross income to to a participant’s account under the plan
Rul. 61–164 provides that the inciden- the extent such amounts (1) are attributable are part of the accrued benefit and must
tal benefit requirement does not limit the to contributions by the employer which satisfy the nonforfeiture requirements of
amount expended for such benefits from were not includible in the gross income of § 411(a)(2).
funds allocated to a participant’s account the employee, or (2) are paid by the em- Plan A provides that under no circum-
that have been accumulated for the period ployer. Section 105(b) provides that, ex- stances may any amounts held in a medi-
prescribed by the plan for the deferment cept in the case of amounts attributable to cal reimbursement account be distributed
of distributions. The revenue ruling also (and not in excess of) deductions allowed to any participant except to reimburse the
concludes that although the purchase of under § 213 for any prior taxable year, participant for substantiated medical ex-
the major hospitalization insurance does gross income does not include amounts de- penses incurred by the participant or the
not prevent the qualification of the plan if scribed in § 105(a) if such amounts are participant’s spouse and dependents. Plan
the insurance is deemed to be incidental, paid, directly or indirectly, to the taxpayer A thereby imposes a condition on the enti-
the use of the funds to pay for the employ- to reimburse the taxpayer for expenses in- tlement of the participant (and the partici-
ees’ medical insurance is a distribution curred by the taxpayer for the medical care pant’s beneficiaries) to the amounts held in
within the meaning of § 402. (as defined in § 213(d)) of the taxpayer the medical reimbursement accounts and,
Section 401(a)(7) provides that a trust or the taxpayer’s spouse or dependents (as as a result of that restriction, these amounts
shall not constitute a qualified trust unless defined in § 152, determined without re- fail to be nonforfeitable.
the plan of which such trust is a part satis- gard to § 152(b)(1), (b)(2), and (d)(1)(B)). However, if Plan A instead provided
fies the requirements of § 411. Section 1.105–2 of the regulations that amounts payable from the medical
Section 411(a) describes minimum provides that only amounts that are paid reimbursement account were available for
vesting standards that a retirement plan specifically to reimburse the taxpayer for distribution under the same terms as the
subject to that section must satisfy in the expenses incurred by the taxpayer for amounts held in the profit-sharing account
order for the plan to be qualified un- medical care (as defined in § 213(d)) are (e.g. after severance of employment with
der § 401(a). These standards include excludable from gross income. Section Employer M), Plan A would not fail to
§ 411(a)(2), which requires that an em- 105(b) does not apply to amounts that the satisfy § 411 merely because Plan A also
ployee’s accrued benefit derived from taxpayer would be entitled to receive ir- permitted amounts held in the medical
employer contributions become nonfor- respective of whether the taxpayer incurs reimbursement account to be distributed
feitable in accordance with one of the two expenses for medical care. Accordingly, both before and after severance of em-
schedules specified in § 411(a)(2). Section if an employee is entitled to receive the ployment to reimburse medical expenses
411(a)(7) and § 1.411(a)–7(a)(2) provide payment irrespective of whether or not (or to pay the cost of major medical insur-
that, in the case of a defined contribution any medical expenses have been incurred, ance as described in Rev. Rul. 61–164).
plan, an employee’s accrued benefit is the none of the payments are excludable from However, in that case, no amounts paid
balance of the employee’s account under gross income under § 105(b), even if the from Plan A would be excludable under
the plan. employee has incurred medical expenses §105(b). Therefore, any distribution from

August 15, 2005 285 2005–33 I.R.B.


Plan A would be includable in gross in- Further, any distributions made from a Section 467.—Certain
come under § 402(a). plan that is the same as or similar to the Payments for the Use of
plan described under the FACTS section Property or Services
HOLDING of this revenue ruling before the first day
of the first plan year beginning after Au- The adjusted applicable federal short-term, mid-
Plan A fails to satisfy the vesting re- gust 15, 2005, to reimburse the participant term, and long-term rates are set forth for the month
quirements of § 411 because it imposes of August 2005. See Rev. Rul. 2005-54, page 289.
for any substantiated expenses for medical
conditions on the use of the amounts held care (as defined by § 213(d)) incurred by
in the participants’ accounts. Accordingly, the participant or the participant’s spouse Section 468.—Special
the plan fails to satisfy § 401(a)(7). or dependents (as defined in § 152, de- Rules for Mining and Solid
In addition to the requirements of termined without regard to § 152(b)(1), Waste Reclamation and
§§ 401(a)(7) and 411, a profit-sharing (b)(2), and (d)(1)(B)) will not fail to be Closing Costs
plan which only permits distribution of excluded from income under § 105(b)
amounts held in a separate medical reim- merely because, due to the publication of The adjusted applicable federal short-term, mid-
bursement account for reimbursement of term, and long-term rates are set forth for the month
this revenue ruling, the plan is amended of August 2005. See Rev. Rul. 2005-54, page 289.
substantiated medical care expenses, as effective as of the first day of the plan year
described in the facts above, may fail to beginning on or after August 15, 2005,
satisfy various other qualification require- to allow distribution of the amounts held Section 482.—Allocation
ments of § 401(a), including § 401(a)(9), in the medical reimbursement account for of Income and Deductions
§ 401(a)(11), and § 401(a)(14). reasons other than for reimbursement for Among Taxpayers
any substantiated expenses for medical
CORRECTIVE PLAN Federal short-term, mid-term, and long-term rates
care. are set forth for the month of August 2005. See Rev.
AMENDMENTS
Rul. 2005-54, page 289.
DRAFTING INFORMATION
Pursuant to the authority contained in
§ 7805(b) and § 301.7805–1 of the Pro- The principal author of this revenue rul- Section 483.—Interest on
cedure and Administration Regulations, ing is Robert Walsh of the Employee Plans, Certain Deferred Payments
the Commissioner has determined that a Tax Exempt and Government Entities Di-
profit-sharing plan or stock bonus plan vision. For further information regarding The adjusted applicable federal short-term, mid-
will not fail to be qualified under § 401(a) term, and long-term rates are set forth for the month
this revenue ruling, contact the Employee
of August 2005. See Rev. Rul. 2005-54, page 289.
for plan years beginning on or before Au- Plans taxpayer assistance telephone ser-
gust 15, 2005, merely because the plan vice between the hours of 8:00 a.m. and
provides for a separate medical reim- 6:30 p.m. Eastern time, Monday through Section 642.—Special
bursement account for each participant Friday, by calling (877) 829–5500 (a toll- Rules for Credits and
and for the amounts in the participant’s free number). Mr. Walsh may be reached Deductions
medical reimbursement account to be only at (202) 283–9888 (not a toll-free number).
used to reimburse the participant for any Federal short-term, mid-term, and long-term rates
For further information regarding this rev-
are set forth for the month of August 2005. See Rev.
substantiated expenses for medical care enue ruling as it pertains to § 105, please Rul. 2005-54, page 289.
provided that (i) the plan (including the contact Barbara E. Pie of the Office of
provisions of the plan relating to the medi- Division Counsel/Associate Chief Coun-
cal reimbursement accounts) is the subject sel (Tax Exempt and Government Entities) Section 807.—Rules for
of a favorable determination letter (or in at (202) 622–6080 (not a toll-free number). Certain Reserves
the case of a pre-approved plan, a favor-
The adjusted applicable federal short-term, mid-
able advisory or opinion letter) issued
term, and long-term rates are set forth for the month
before August 15, 2005, and (ii) the plan Section 412.—Minimum of August 2005. See Rev. Rul. 2005-54, page 289.
is amended effective on the first day of Funding Standards
the first plan year beginning after August
15, 2005, to provide that amounts in each The adjusted applicable federal short-term, mid- Section 846.—Discounted
participant’s medical reimbursement ac-
term, and long-term rates are set forth for the month Unpaid Losses Defined
of August 2005. See Rev. Rul. 2005-54, page 289.
count are available for distribution under The adjusted applicable federal short-term, mid-
the same terms as amounts held in the term, and long-term rates are set forth for the month
participant’s other accounts under the plan of August 2005. See Rev. Rul. 2005-54, page 289.
(e.g. upon severance from employment).

2005–33 I.R.B. 286 August 15, 2005


Section 861.—Income 2005, but during a taxable year ending on Explanation of Provisions
From Sources Within the or after July 14, 2005.
United States These final regulations adopt the rules
FOR FURTHER INFORMATION of the temporary and proposed regulations,
26 CFR 1.861–8: Computation of taxable income CONTACT: Teresa Burridge Hughes at which provide that the deduction for chari-
from sources within the United States and from other (202) 622–3850 (not a toll-free call).
sources and activities. table contributions allowed under sections
170, 873(b)(2), and 882(c)(1)(B) is defi-
SUPPLEMENTARY INFORMATION:
T.D. 9211 nitely related and allocable to all of the tax-
Background payer’s gross income and is apportioned
between the statutory grouping (or among
DEPARTMENT OF
This document contains amendments to the statutory groupings) of gross income
THE TREASURY 26 CFR part 1. Section 1.861–8(e)(9)(iv) and the residual grouping on the basis of
Internal Revenue Service (the 1977 regulations) provided that de- the relative amounts of gross income from
26 CFR Part 1 ductions for charitable contributions gen- sources in the United States in each group-
erally were not definitely related to any ing. The corresponding temporary regula-
Allocation and Apportionment gross income and therefore were ratably tions are removed.
of Deductions for Charitable apportioned to the statutory and residual One written comment responding to
groupings on the basis of gross income. the temporary and proposed regulations
Contributions In 1991, the Treasury Department and was received. The comment requested
AGENCY: Internal Revenue Service the IRS issued proposed regulations (the that taxpayers be permitted to elect to ap-
(IRS), Treasury. 1991 proposed regulations) that would ply the new allocation and apportionment
have changed the ratable apportionment rules to deductions for charitable contri-
ACTION: Final regulations. rule of the 1977 regulations to a rule that, butions previously claimed on timely filed
assuming certain requirements were met, tax returns for all open tax years. After
SUMMARY: This document contains fi- generally would have apportioned the de- consideration, the Treasury Department
nal regulations relating to the allocation duction for a charitable contribution based and the IRS concluded that adoption of the
and apportionment of the deduction for on where the contribution would have been comment’s suggestion is not appropriate.
charitable contributions allowed under used. Prop. Treas. Reg. §1.861–8(e)(12), The new allocation and apportionment
sections 170, 873(b)(2), and 882(c)(1)(B) 56 Fed. Reg. 10,395. rules apply to charitable contributions
and the deduction for charitable contribu- On July 28, 2004, the Treasury De- made on or after July 28, 2004. Although
tions allowed under an income tax treaty. partment and the IRS issued temporary the temporary regulations permit taxpay-
These regulations apportion the deduc- regulations (T.D. 9143, 2004–36 I.R.B. ers to apply the new rules to charitable
tion for charitable contributions on the 442) relating to the allocation and appor- contributions made before July 28, 2004,
basis of income from sources within the tionment of the deduction for charitable this election applies only to charitable
United States. These regulations affect contributions allowed under sections 170, contributions made in a taxable year that
individuals and corporations that make 873(b)(2), and 882(c)(1)(B) of the Inter- ends on or after July 28, 2004. The pur-
contributions to charitable organizations nal Revenue Code. A notice of proposed pose of this election is to allow taxpayers
and that have foreign source income and rulemaking by cross reference to the tem- to apply only one set of allocation and
calculate their foreign tax credit limita- porary regulations (REG–208246–90, apportionment rules to charitable contri-
tions under section 904. 2004–36 I.R.B. 450) was also published butions made in the same taxable year. To
in the Federal Register on the same date. permit taxpayers to apply the new rules to
DATES: Effective Date: These regula- That notice of proposed rulemaking also all open tax years would not provide such
tions are effective July 28, 2004, except proposed rules governing the allocation simplification and would raise concerns
§1.861–8(e)(12)(ii), which is effective and apportionment of the deduction for regarding fairness and administration.
July 14, 2005. charitable contributions that is allowed The regulations also adopt, as pro-
Applicability Dates: For dates of ap- under a U.S. income tax treaty (rather posed, the rules with respect to deduc-
plicability, see §§1.861–8(e)(12)(iv) and than under sections 170, 873(b)(2), and tions for charitable contributions that
1.861–14(e)(6)(ii). The regulations gener- 882(c)(1)(B)). As part of the issuance are allowed under an income tax treaty
ally apply to charitable contributions made of the temporary and proposed regula- (rather than by sections 170, 873(b)(2),
on or after July 28, 2004, although taxpay- tions, the Treasury Department and the and 882(c)(1)(B)). The regulations make
ers generally may choose to apply these IRS removed the 1977 regulations and one change to the effective date in the pro-
regulations to contributions made before withdrew the 1991 proposed regulations. posed regulations. As with the deduction
July 28, 2004, but during a taxable year REG–208246–90, 2004–36 I.R.B. 450. for charitable contributions allowed under
ending on or after July 28, 2004. Section Although a public hearing on the proposed sections 170, 873(b)(2), and 882(c)(1)(B),
1.861–8(e)(12)(ii) applies to contributions regulations was originally scheduled for the regulations give taxpayers the op-
made on or after July 14, 2005, although December 2, 2004, the public hearing was portunity to apply the new rules for all
taxpayers may choose to apply that sec- cancelled because no person requested to charitable contributions made during the
tion to contributions made before July 14, provide an oral statement at the hearing. taxable year. Accordingly, the rule for

August 15, 2005 287 2005–33 I.R.B.


the deduction for charitable contributions §1.861–8 Computation of taxable income charitable contributions made before July
allowed under an income tax treaty is ef- from sources within the United States and 14, 2005, but during the taxable year end-
fective for taxable years beginning on or from other sources and activities. ing on or after July 14, 2005.
after July 14, 2005, with an election to ap- *****
ply the rule to contributions made before *****
(e) * * * (1) * * * Par. 3. Section 1.861–8T is amended as
July 14, 2005, but during a taxable year follows:
that ends on or after July 14, 2005. (12) Deductions for certain charitable
contributions—(i) In general. The deduc- 1. Remove paragraph (e)(12).
tion for charitable contributions that is al- 2. Revise the second sentence of para-
Special Analyses graph (h) introductory text.
lowed under sections 170, 873(b)(2), and
882(c)(1)(B) is definitely related and al- The revision reads as follows:
It has been determined that this Trea-
sury decision is not a significant regula- locable to all of the taxpayer’s gross in- §1.861–8T Computation of taxable
tory action as defined in Executive Order come. The deduction allocated under this income from sources within the United
12866. Therefore, a regulatory assessment paragraph (e)(12)(i) shall be apportioned States and from other sources and
is not required. It also has been deter- between the statutory grouping (or among activities (temporary).
mined that section 553(b) of the Admin- the statutory groupings) of gross income
istrative Procedure Act (5 U.S.C. chapter and the residual grouping on the basis of *****
5) does not apply to these regulations. Be- the relative amounts of gross income from (h) * * * However, see §§1.861–
cause the regulations do not impose a col- sources in the United States in each group- 8(e)(12)(iv) and 1.861–14(e)(6) for rules
lection of information on small entities, the ing. concerning the allocation and apportion-
Regulatory Flexibility Act (5 U.S.C. chap- (ii) Treaty provisions. If a deduction ment of deductions for charitable contri-
ter 6) does not apply. Pursuant to section for charitable contributions not otherwise butions. * * *
7805(f) of the Internal Revenue Code, the permitted by sections 170, 873(b)(2), and
*****
proposed regulations preceding these reg- 882(c)(1)(B) is allowed under a U.S. in-
Par. 4. Section 1.861–14 is amended
ulations were submitted to the Chief Coun- come tax treaty, and such treaty limits
by removing paragraphs (d)(3) through
sel for Advocacy of the Small Business the amount of the deduction based on a
(j), adding new paragraphs (d)(3) through
Administration for comment on their im- percentage of income arising from sources
(e)(5), adding paragraph (e)(6), and adding
pact on small businesses. within the treaty partner, the deduction
new paragraphs (f) through (j) to read as
is definitely related and allocable to all
follows:
Drafting Information of the taxpayer’s gross income. The de-
duction allocated under this paragraph §1.861–14 Special rules for allocating
The principal author of these regula- (e)(12)(ii) shall be apportioned between and apportioning certain expenses (other
tions is Teresa Burridge Hughes, Office of the statutory grouping (or among the than interest expense) of an affiliated
Associate Chief Counsel (International). statutory groupings) of gross income and group of corporations.
However, other personnel from the IRS the residual grouping on the basis of the
and Treasury Department participated in relative amounts of gross income from *****
their development. sources within the treaty partner within (d)(3) through (e)(5) [Reserved]. For
each grouping. further guidance, see §1.861–14T(d)(3)
***** (iii) Coordination with §§1.861–14 through (e)(5).
and 1.861–14T. A deduction for a char- (e)(6) Charitable contribution ex-
Adoption of Amendments to the itable contribution by a member of an penses—(i) In general. A deduction
Regulations affiliated group shall be allocated and ap- for a charitable contribution by a mem-
portioned under the rules of this section, ber of an affiliated group shall be allo-
Accordingly, 26 CFR part 1 is amended §1.861–14(e)(6), and §1.861–14T(c)(1). cated and apportioned under the rules of
as follows: (iv) Effective date. (A) The rules of §§1.861–8(e)(12) and 1.861–14T(c)(1).
paragraphs (e)(12)(i) and (iii) of this sec- (ii) Effective date. (A) The rules of this
PART 1 — INCOME TAXES tion shall apply to charitable contributions paragraph shall apply to charitable contri-
made on or after July 28, 2004. Taxpay- butions subject to §1.861–8(e)(12)(i) that
Paragraph. 1. The authority for part 1 ers may apply the provisions of paragraphs are made on or after July 28, 2004, and, for
continues to read in part as follows: (e)(12)(i) and (iii) of this section to char- taxpayers applying the second sentence of
Authority: 26 U.S.C. 7805 * * * itable contributions made before July 28, §1.861–8(e)(12)(iv)(A), to charitable con-
Par. 2. Section §1.861–8 is amended as 2004, but during the taxable year ending tributions made during the taxable year
follows: on or after July 28, 2004. ending on or after July 28, 2004.
1. Remove the last sentence of para- (B) The rules of paragraphs (e)(12)(ii) (B) The rules of this paragraph shall
graph (a)(5)(i). of this section shall apply to charitable apply to charitable contributions sub-
2. Revise paragraph (e)(12). contributions made on or after July 14, ject to §1.861–8(e)(12)(ii) that are made
The revision and addition read as fol- 2005. Taxpayers may apply the provisions on or after July 14, 2005, and, for tax-
lows: of paragraph (e)(12)(ii) of this section to payers applying the second sentence of

2005–33 I.R.B. 288 August 15, 2005


§1.861–8(e)(12)(iv)(B), to charitable con- Section 1274.—Determi- Internal Revenue Code. Table 2 contains
tributions made during the taxable year nation of Issue Price in the the short-term, mid-term, and long-term
ending on or after July 14, 2005. Case of Certain Debt Instru- adjusted applicable federal rates (adjusted
(f) through (j) [Reserved]. For further ments Issued for Property AFR) for the current month for purposes
guidance, see §1.861–14T(f) through (j). of section 1288(b). Table 3 sets forth the
(Also Sections 42, 280G, 382, 412, 467, 468, 482,
483, 642, 807, 846, 1288, 7520, 7872.)
adjusted federal long-term rate and the
§1.861–14T [Amended] long-term tax-exempt rate described in
Federal rates; adjusted federal rates; section 382(f). Table 4 contains the ap-
Par. 5. Section 1.861–14T is amended propriate percentages for determining the
adjusted federal long-term rate and the
by removing paragraph (e)(6). low-income housing credit described in
long-term exempt rate. For purposes of
sections 382, 642, 1274, 1288, and other section 42(b)(2) for buildings placed in
Mark E. Matthews,
sections of the Code, tables set forth the service during the current month. Finally,
Deputy Commissioner for
rates for August 2005. Table 5 contains the federal rate for deter-
Services and Enforcement.
mining the present value of an annuity, an
Approved July 5, 2005. Rev. Rul. 2005–54 interest for life or for a term of years, or
a remainder or a reversionary interest for
Eric Solomon, This revenue ruling provides various purposes of section 7520.
Acting Deputy Assistant Secretary prescribed rates for federal income tax
of the Treasury. purposes for August 2005 (the current
month). Table 1 contains the short-term,
(Filed by the Office of the Federal Register on July 13, 2005,
8:45 a.m., and published in the issue of the Federal Register
mid-term, and long-term applicable fed-
for July 14, 2005, 70 F.R. 40661) eral rates (AFR) for the current month
for purposes of section 1274(d) of the

REV. RUL. 2005–54 TABLE 1


Applicable Federal Rates (AFR) for August 2005
Period for Compounding
Annual Semiannual Quarterly Monthly
Short-term
AFR 3.58% 3.55% 3.53% 3.52%
110% AFR 3.95% 3.91% 3.89% 3.88%
120% AFR 4.31% 4.26% 4.24% 4.22%
130% AFR 4.67% 4.62% 4.59% 4.58%

Mid-term
AFR 3.92% 3.88% 3.86% 3.85%
110% AFR 4.32% 4.27% 4.25% 4.23%
120% AFR 4.71% 4.66% 4.63% 4.62%
130% AFR 5.10% 5.04% 5.01% 4.99%
150% AFR 5.90% 5.82% 5.78% 5.75%
175% AFR 6.91% 6.79% 6.73% 6.70%

Long-term
AFR 4.33% 4.28% 4.26% 4.24%
110% AFR 4.77% 4.71% 4.68% 4.66%
120% AFR 5.21% 5.14% 5.11% 5.09%
130% AFR 5.64% 5.56% 5.52% 5.50%

August 15, 2005 289 2005–33 I.R.B.


REV. RUL. 2005–54 TABLE 2
Adjusted AFR for August 2005
Period for Compounding
Annual Semiannual Quarterly Monthly
Short-term adjusted
AFR 2.71% 2.69% 2.68% 2.68%
Mid-term adjusted AFR 3.11% 3.09% 3.08% 3.07%
Long-term adjusted
AFR 4.12% 4.08% 4.06% 4.05%

REV. RUL. 2005–54 TABLE 3


Rates Under Section 382 for August 2005
Adjusted federal long-term rate for the current month 4.12%
Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted
federal long-term rates for the current month and the prior two months.) 4.20%

REV. RUL. 2005–54 TABLE 4


Appropriate Percentages Under Section 42(b)(2) for August 2005
Appropriate percentage for the 70% present value low-income housing credit 7.96%
Appropriate percentage for the 30% present value low-income housing credit 3.41%

REV. RUL. 2005–54 TABLE 5


Rate Under Section 7520 for August 2005
Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,
or a remainder or reversionary interest 4.8%

Section 1363.—Effect of by corporations converting from C corpo-


Election on Corporation rations to S corporations. The purpose of
Section 1288.—Treatment these regulations is to provide guidance on
of Original Issue Discount 26 CFR 1.1363–2: Recapture of LIFO benefits.
the LIFO recapture requirement when the
on Tax-Exempt Obligations corporation holds inventory accounted for
T.D. 9210 under the last-in, first-out (LIFO) method
The adjusted applicable federal short-term, mid-
(LIFO inventory) indirectly through a part-
term, and long-term rates are set forth for the month DEPARTMENT OF
of August 2005. See Rev. Rul. 2005-54, page 289.
nership. These regulations affect C corpo-
THE TREASURY rations that own interests in partnerships
Internal Revenue Service holding LIFO inventory and that elect to
26 CFR Parts 1 and 602 be taxed as S corporations or that transfer
such partnership interests to S corporations
LIFO Recapture Under Section in nonrecognition transactions. These reg-
1363(d) ulations also affect S corporations receiv-
ing such partnership interests from C cor-
AGENCY: Internal Revenue Service porations in nonrecognition transactions.
(IRS), Treasury.
DATES: Effective Date: These regulations
ACTION: Final regulation. are effective July 12, 2005.

SUMMARY: This document contains fi-


nal regulations regarding LIFO recapture

2005–33 I.R.B. 290 August 15, 2005


Applicability Date: These regulations information are confidential, as required Summary of Comments and
apply to S elections and transfers made on by 26 U.S.C. 6103. Explanation of Revisions
or after August 13, 2004.
Background The proposed regulations provided that
FOR FURTHER INFORMATION a C corporation that holds an interest in a
This document contains amendments to partnership owning LIFO inventory must
CONTACT: Pietro Canestrelli, at (202)
26 CFR Part 1 under section 1363(d) of include the lookthrough LIFO recapture
622–3060 and Martin Schäffer, at (202)
the Internal Revenue Code (Code). Sec- amount in its gross income where the cor-
622–3070 (not toll-free numbers).
tion 1363(d)(1) provides that a C corpo- poration either elects to be an S corpora-
SUPPLEMENTARY INFORMATION: ration that owns LIFO inventory and that tion or transfers its interest in the partner-
elects under section 1362(a) to be taxed as ship to an S corporation in a nonrecog-
Paperwork Reduction Act an S corporation must include in its gross nition transaction. The proposed regu-
income for its final tax year as a C cor- lations defined the lookthrough LIFO re-
The collection of information con- poration the LIFO recapture amount. Un- capture amount as the amount of income
tained in these final regulations has been der section 1363(d)(3), the LIFO recap- that would be allocated to the corpora-
reviewed and approved by the Office of ture amount is the excess of the inventory tion, taking into account section 704(c) and
Management and Budget in accordance amount of the inventory using the first-in, §1.704–3, if the partnership sold all of its
with the Paperwork Reduction Act of 1995 first-out (FIFO) method (the FIFO value) LIFO inventory for the FIFO value. A cor-
(44 U.S.C. 3507(d)) under control number over the inventory amount of the inventory porate partner’s lookthrough LIFO recap-
1545–1906. using the LIFO method (the LIFO value) ture amount must be determined, in gen-
The collection of information in these at the close of the corporation’s final tax eral, as of the day before the effective date
final regulations is in § 1.1363–2(e)(3). year as a C corporation (essentially, the of the S corporation election or, if the re-
This information is required to inform the amount of income the corporation has de- capture event is a transfer of a partnership
IRS of partnerships electing to increase the ferred by using the LIFO method rather interest to an S corporation, the date of the
basis of inventory to reflect any amount in- than the FIFO method). transfer (the recapture date). The proposed
cluded in a partner’s income under section Final regulations (T.D. 8567, 1994–2 regulations provided that, if a partnership
1363(d). C.B. 199) under section 1363(d) were pub- is not otherwise required to determine in-
An agency may not conduct or sponsor, lished in the Federal Register on October ventory values on the recapture date, the
and a person is not required to respond 7, 1994 (59 FR 51105) to describe the re- lookthrough LIFO recapture amount may
to, a collection of information unless the capture of LIFO benefits when a C corpo- be determined based on inventory values
collection of information displays a valid ration that owns LIFO inventory elects to of the partnership’s opening inventory for
control number assigned by the Office of become an S corporation or transfers LIFO the year that includes the recapture date.
Management and Budget. inventory to an S corporation in a non- The sole commentator suggested that
Estimated total annual reporting bur- recognition transaction. The regulations the regulations provide that, if the look-
den: 200 hours. did not explicitly address the indirect own- through LIFO recapture amount is deter-
The estimated annual burden per re- ership of inventory through a partnership. mined based on inventory values of the
spondent varies from 1 to 3 hours, depend- A notice of proposed rulemaking partnership’s opening inventory for the
ing on individual circumstances, with an (REG–149524–03, 2004–39 I.R.B. 528) year that includes the recapture date, then
estimated average of 2 hours. was published in the Federal Register the lookthrough LIFO recapture amount
Estimated number of respondents: 100. on August 13, 2004 (69 FR 50109). The must be adjusted to take into account
Estimated annual frequency of re- proposed regulations provided guidance any adjustments to the partnership’s ba-
sponses: On occasion. for situations in which a C corporation sis in its LIFO inventory that result from
Comments concerning the accuracy that owns LIFO inventory through a part- transactions occurring during the period
of this burden estimate and sugges- nership (or through tiered partnerships) from the start of the partnership’s tax year
tions for reducing this burden should converts to an S corporation or transfers to the end of the recapture date. Thus,
be sent to the Internal Revenue Service, its partnership interest to an S corporation the lookthrough LIFO recapture amount
Attn: IRS Reports Clearance Officer, in a nonrecognition transaction. One per- would have to reflect any adjustments to
SE:W:CAR:MP:T:T:SP, Washington, DC son submitted comments in response to the the basis of LIFO inventory during that
20224, and to the Office of Manage- notice of proposed rulemaking. A public period under sections 734(b), 737(c), or
ment and Budget, Attn: Desk Officer for hearing was held on December 8, 2004. 751(b). The final regulations adopt this
the Department of the Treasury, Office After consideration of the comments, the suggestion.
of Information and Regulatory Affairs, proposed regulations are adopted as final The proposed regulations provided
Washington, DC 20503. regulations with the modifications dis- that a corporation owning LIFO inven-
Books or records relating to a collection cussed below. tory through a partnership must increase
of information must be retained as long its basis in its partnership interest by the
as their contents may become material in lookthrough LIFO recapture amount. The
the administration of any internal revenue proposed regulations also allowed the
law. Generally, tax returns and tax return partnership through which the LIFO in-

August 15, 2005 291 2005–33 I.R.B.


ventory is owned to elect to adjust the basis ing section 1367(a)(2)(D), the regulations Drafting Information
of partnership inventory (or lookthrough should provide that the stock basis of the
partnership interests held by that part- shareholders of the S corporation not be re- The principal authors of these reg-
nership) to account for LIFO recapture. duced upon such a payment. The issues ulations are Pietro Canestrelli and
This adjustment to basis is patterned in raised by the payment by an S corporation Martin Schäffer, Office of Associate Chief
manner and effect after the adjustment in of taxes attributable to a taxable year in Counsel (Passthroughs and Special Indus-
section 743(b). Thus, the basis adjustment which the corporation was a C corporation tries). However, other personnel from the
constitutes an adjustment to the basis of are not unique to a payment of the LIFO IRS and the Treasury Department partici-
the LIFO inventory (or lookthrough part- recapture tax and are beyond the scope of pated in their development.
nership interests held by that partnership) these regulations. *****
with respect to the corporate partner only; Finally, the commentator questioned
no adjustment is made to the partnership’s whether it is appropriate to issue these Adoption of Amendments to the
common basis. regulations under the authority of section Regulations
The Treasury Department and the IRS 337(d). The Treasury Department and the
requested comments on whether the part- IRS continue to believe that issuing these Accordingly, 26 CFR parts 1 and 602
nership should be required, in some or regulations under the authority of section are amended as follows:
all circumstances, to increase the basis 337(d) is appropriate, because Congress’s
of partnership assets by the lookthrough purpose in enacting section 1363(d) was to PART 1—INCOME TAXES
LIFO recapture amount attributable to prevent taxpayers owning LIFO inventory Paragraph 1. The authority citation for
those assets. No comments were received from avoiding the built-in gain rules of part 1 is amended by adding an entry in
on this question. Therefore, the final reg- section 1374. H.R. Rep. No. 100–391 numerical order to read, in part, as follows:
ulations follow the rule of the proposed (Parts 1 and 2), 1098 (1987). Authority: 26 U.S.C. 7805 * * *
regulations. Section 1.1363–2 also issued under 26
The sole commentator recommended Special Analyses
U.S.C. 337(d). * * *
that the regulations should extend the Par. 2. Section 1.1363–2 is amended
It has been determined that this Trea-
availability of a section 743(b)-type basis by:
sury decision is not a significant regulatory
adjustment to the purchase of a look- 1. Redesignating paragraphs (b), (c),
action as defined in EO 12866; therefore, a
through partnership interest by a C cor- and (d) as paragraphs (d), (e), and (g), re-
regulatory assessment is not required. It is
poration that subsequently makes an S spectively.
hereby certified that these regulations will
election (or subsequently disposes of the 2. Adding new paragraphs (b), (c), (f),
not have a significant economic impact on
partnership interest in a nontaxable car- and (g)(3).
a substantial number of small entities. This
ryover basis transaction). It has been 3. Revising newly designated para-
certification is based upon the fact that few
determined that this recommendation is graphs (d) and (e).
corporations engage in the type of transac-
beyond the scope of the regulations and, The revision and addition read as fol-
tions that are subject to these regulations
so, is not included in the final regulations. lows:
(the conversion from C corporation to S
The commentator recommended that
corporation status while holding an inter-
the regulations provide for the retroactive §1.1363–2 Recapture of LIFO benefits.
est in a partnership that owns LIFO inven-
revaluation of LIFO inventories under
tory or the transfer of an interest in such
§1.704–1(b)(2)(iv)(f) when a non-C cor- *****
a partnership by a C corporation to an S
poration partner has been admitted to (b) LIFO inventory held indirectly
corporation in a nonrecognition transac-
a partnership (or the non-C-corporation through partnership. A C corporation
tion). Therefore, a Regulatory Flexibil-
partner’s relative interest in the partner- must include the lookthrough LIFO re-
ity Analysis under the Regulatory Flexi-
ship has increased) within a period of two capture amount (as defined in paragraph
bility Act (5 U.S.C. chapter 6) is not re-
years ending on the date when a C corpora- (c)(4) of this section) in its gross income—
quired. These final regulations are nec-
tion partner in the same partnership makes (1) In its last taxable year as a C cor-
essary to prevent abusive transactions in-
an S election (or transfers its partnership poration if, on the last day of the corpora-
volving partnerships and S corporations.
interest to an S corporation in a nontaxable tion’s last taxable year before its S corpo-
Accordingly, good cause is found for dis-
carryover basis transaction). It has been ration election becomes effective, the cor-
pensing with a delayed effective date pur-
determined that this recommendation is poration held a lookthrough partnership in-
suant to 5 U.S.C. 553(d)(3). Pursuant to
beyond the scope of the regulations and, terest (as defined in paragraph (c)(3) of this
section 7805(f) of the Code, the notice of
so, is not included in the final regulations. section); or
proposed rulemaking preceding this regu-
Regarding the payment of the LIFO re- (2) In the year of transfer by the C cor-
lation was submitted to the Chief Counsel
capture tax during an S year, the commen- poration to an S corporation of a look-
for Advocacy of the Small Business Ad-
tator made two suggestions. First, not- through partnership interest if the corpo-
ministration for comment on its impact on
withstanding section 1371(c)(1), the regu- ration transferred its lookthrough partner-
small business.
lations should provide that the S corpora- ship interest to the S corporation in a non-
tion’s earnings and profits be reduced upon recognition transaction (within the mean-
such a payment. Second, notwithstand- ing of section 7701(a)(45)) in which the

2005–33 I.R.B. 292 August 15, 2005


transferred interest constitutes transferred recapture amount as though the FIFO and amount included in income under para-
basis property (within the meaning of sec- LIFO values of the inventory on the recap- graph (a) of this section.
tion 7701(a)(43)). ture date equaled the FIFO and LIFO val- (2) LIFO inventory owned through a
(c) Definitions and special rules—(1) ues of the opening inventory for the part- partnership—(i) Basis of corporation’s
Recapture date. In the case of a transac- nership’s taxable year that includes the re- partnership interest. Appropriate adjust-
tion described in paragraph (a)(1) or (b)(1) capture date. For this purpose, the opening ments to the basis of the corporation’s
of this section, the recapture date is the day inventory includes inventory contributed lookthrough partnership interest are to be
before the effective date of the S corpora- by a partner to the partnership on or before made to reflect any amount included in in-
tion election. In the case of a transaction the recapture date and excludes inventory come under paragraph (b) of this section.
described in paragraph (a)(2) or (b)(2) of distributed by the partnership to a partner (ii) Basis of partnership assets. A part-
this section, the recapture date is the date on or before the recapture date. A part- nership directly holding LIFO inventory
of the transfer of the partnership interest to nership that applies the alternative method that is taken into account under paragraph
the S corporation. of this paragraph (c)(4)(iii) to calculate the (b) of this section may elect to adjust the
(2) Determination of LIFO recapture lookthrough LIFO recapture amount must basis of that LIFO inventory. In addition,
amount. The LIFO recapture amount shall take into account any adjustments to the a partnership that holds, through another
be determined as of the end of the re- partnership’s basis in its LIFO inventory partnership, LIFO inventory that is taken
capture date for transactions described in that result from transactions occurring af- into account under paragraph (b) of this
paragraph (a)(1) of this section, and as of ter the start of the partnership’s taxable section may elect to adjust the basis of that
the moment before the transfer occurs for year and before the end of the recapture partnership interest. Any adjustment un-
transactions described in paragraph (a)(2) date. For example, the lookthrough LIFO der this paragraph (e)(2) to the basis of in-
of this section. recapture amount must be adjusted to take ventory held by the partnership is equal to
(3) Lookthrough partnership interest. into account any adjustments to the basis the amount of LIFO recapture attributable
A partnership interest is a lookthrough of LIFO inventory during that period un- to the inventory. Likewise, any adjustment
partnership interest if the partnership der sections 734(b), 737(c), or 751(b). under this paragraph (e)(2) to the basis of
owns (directly or indirectly through one (d) Payment of tax. Any increase in a lookthrough partnership interest held by
or more partnerships) assets accounted for tax caused by including the LIFO recap- the partnership is equal to the amount of
under the last-in, first-out (LIFO) method ture amount or the lookthrough LIFO re- LIFO recapture attributable to the interest.
(LIFO inventory). capture amount in the gross income of the A basis adjustment under this paragraph
(4) Lookthrough LIFO recapture C corporation is payable in four equal in- (e)(2) is treated in the same manner and
amount—(i) In general. For purposes of stallments. The C corporation must pay has the same effect as an adjustment to the
this section, a corporation’s lookthrough the first installment of this payment by the basis of partnership property under section
LIFO recapture amount is the amount of due date of its return, determined without 743(b). See §1.743–1(j).
income that would be allocated to the regard to extensions, for the last taxable (3) Election. A partnership elects to ad-
corporation, taking into account section year it operated as a C corporation if para- just the basis of its inventory and any look-
704(c) and §1.704–3, if the partnership graph (a)(1) or (b)(1) of this section ap- through partnership interest that it owns
sold all of its LIFO inventory for the in- plies, or for the taxable year of the transfer by attaching a statement to its original or
ventory’s FIFO value. For this purpose, if paragraph (a)(2) or (b)(2) of this section amended income tax return for the first
the FIFO value of inventory is the inven- applies. The three succeeding installments taxable year ending on or after the date of
tory amount of the inventory assets under must be paid— the S corporation election or transfer de-
the first-in, first-out method of accounting (1) For a transaction described in para- scribed in paragraph (b) of this section.
authorized by section 471, determined in graph (a)(1) or (b)(1) of this section, by the This statement shall state that the partner-
accordance with section 1363(d)(4)(C). corporation that made the election under ship is electing under this paragraph (e)(3)
(ii) Determination of lookthrough LIFO section 1362(a) to be an S corporation, on and must include the names, addresses,
recapture amount. Except as provided in or before the due date for the corporation’s and taxpayer identification numbers of any
paragraph (c)(4)(iii) of this section, the returns (determined without regard to ex- corporate partner liable for tax under para-
lookthrough LIFO recapture amount shall tensions) for the succeeding three taxable graph (d) of this section and of the partner-
be determined as of the end of the re- years; and ship, as well as the amount of the adjust-
capture date for transactions described in (2) For a transaction described in para- ment and the portion of the adjustment that
paragraph (b)(1) of this section, and as of graph (a)(2) or (b)(2) of this section, by the is attributable to each pool of inventory
the moment before the transfer occurs for transferee S corporation on or before the or lookthrough partnership interest that is
transactions described in paragraph (b)(2) due date for the transferee corporation’s held by the partnership.
of this section. returns (determined without regard to ex- (f) Examples. The following examples
(iii) Alternative rule. If the partner- tensions) for the succeeding three taxable illustrate the rules of this section:
ship is not otherwise required to deter- years. Example 1. (i) G is a C corporation with a taxable
mine the inventory amount of the inven- (e) Basis adjustments—(1) General year ending on June 30. GH is a partnership with a
calendar year taxable year. G has a 20 percent interest
tory using the LIFO method (the LIFO rule. Appropriate adjustments to the basis in GH. The remaining 80 percent interest is owned by
value) on the recapture date, the partner- of inventory are to be made to reflect any an individual. On April 25, 2005, G contributed in-
ship may determine the lookthrough LIFO ventory that is LIFO inventory to GH, increasing G’s

August 15, 2005 293 2005–33 I.R.B.


interest in the partnership to 50 percent. GH holds no ending on June 30, 2005. Under paragraph (e)(2) of (g) * * *
other LIFO inventory, and there are no other adjust- this section, G must increase its basis in its interest in (3) The provisions of paragraphs (b),
ments to the partnership’s basis in its LIFO inventory GH by $80. Under paragraphs (e)(2) and (3) of this (c), (d), (e)(2), (e)(3), and (f) of this section
between January 1, 2005, and the end of the recapture section, and in accordance with section 743(b) princi-
date. G elects to be an S corporation effective July ples, GH may elect to increase the basis (with respect
apply to S elections and transfers made on
1, 2005. The recapture date is June 30, 2005, under to G only) of its LIFO inventory by $80. or after August 13, 2004. The rules that
paragraph (c)(1) of this section. GH elects to use the Example 2. (i) J is a C corporation with a cal- apply to S elections and transfers made
LIFO method for the inventory and determines that endar year taxable year. JK is a partnership with a before August 13, 2004, are contained in
the FIFO and LIFO values of the opening inventory calendar year taxable year. J has a 30 percent interest §1.1363–2 as in effect prior to August 13,
for GH’s 2005 taxable year, including the inventory in the partnership. JK owns LIFO inventory that is
contributed by G, are $200 and $120, respectively. not section 704(c) property. J elects to be an S corpo-
2004 (see 26 CFR part 1 revised as of April
(ii) Under paragraph (c)(4)(iii) of this section, GH ration effective January 1, 2005. The recapture date 1, 2005).
is not required to determine the FIFO and LIFO val- is December 31, 2004, under paragraph (c)(1) of this
ues of the inventory on the recapture date. Instead, section. JK determines that the FIFO and LIFO val- PART 602—OMB CONTROL
GH may determine the lookthrough LIFO recapture ues of the inventory on December 31, 2004, are $240 NUMBERS UNDER THE PAPERWORK
amount as though the FIFO and LIFO values of the and $140, respectively.
inventory on the recapture date equaled the FIFO and (ii) The amount by which the FIFO value ($240)
REDUCTION ACT
LIFO values of the opening inventory for the part- exceeds the LIFO value ($140) on the recapture date
nership’s taxable year (2005) that includes the recap- is $100. Thus, if JK sold all of its LIFO inventory for Par. 3. The authority citation for part
ture date. For this purpose, under paragraph (c)(4) $240, it would recognize $100 of income. J’s look- 602 continues to read as follows:
of this section, the opening inventory includes the in- through LIFO recapture amount is $30, the amount Authority: 26 U.S.C. 7805.
ventory contributed by G. The amount by which the of income that would be allocated to J if JK sold all
FIFO value ($200) exceeds the LIFO value ($120) in of its LIFO inventory for the FIFO value (30 percent
Par. 4. In §602.101, paragraph (b) is
GH’s opening inventory is $80. Thus, if GH sold of $100). Under paragraph (b)(1) of this section, J amended by adding an entry in numerical
all of its LIFO inventory for $200, it would recog- must include $30 in income in its taxable year end- order to the table to read as follows:
nize $80 of income. G’s lookthrough LIFO recapture ing on December 31, 2004. Under paragraph (e)(2)
amount is $80, the amount of income that would be of this section, J must increase its basis in its interest §602.101 OMB Control numbers.
allocated to G, taking into account section 704(c) and in JK by $30. Under paragraphs (e)(2) and (3) of this
§1.704–3, if GH sold all of its LIFO inventory for section, and in accordance with section 743(b) princi-
the FIFO value. Under paragraph (b)(1) of this sec- ples, JK may elect to increase the basis (with respect *****
tion, G must include $80 in income in its taxable year to J only) of its inventory by $30. (b)* * *

CFR part or section where Current OMB


identified and described control No.
*****
1.1363–2 ........................................................... 1545–1906
*****

Mark E. Matthews, Section 7520.—Valuation reimbursement account for each participant. See Rev.
Deputy Commissioner for Tables Rul. 2005-55, page 284.
Services and Enforcement.
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month Section 7872.—Treatment
Approved June 23, 2005. of Loans With Below-Market
of August 2005. See Rev. Rul. 2005-54, page 289.
Interest Rates
Eric Solomon,
Acting Deputy Assistant Secretary Section 7805.—Rules The adjusted applicable federal short-term, mid-
of the Treasury. and Regulations term, and long-term rates are set forth for the month
of August 2005. See Rev. Rul. 2005-54, page 289.
(Filed by the Office of the Federal Register on July 11, 2005, 26 CFR 301.7805–1: Rules and regulations.
8:45 a.m., and published in the issue of the Federal Register
for July 12, 2005, 70 F.R. 39920) Whether a revenue ruling may be applied prospec-
tively where a profit-sharing plan contains a medical

2005–33 I.R.B. 294 August 15, 2005


Part III. Administrative, Procedural, and Miscellaneous
Section 457(b) Plans and plan under § 457(b). This private letter described in § 501(c)(1), provided that
Federal Credit Unions ruling was based on prior published au- the federal credit union has consistently
thority indicating that federal credit unions claimed the status of a non-governmental
Notice 2005–58 chartered under the Federal Credit Union tax-exempt organization for all employee
Act are federal instrumentalities for pur- benefit plan purposes, including § 414(d)
I. PURPOSE poses of § 501(c)(1). Rev. Rul. 69–283, and the parallel definition of a “gov-
1969–1 C.B. 156. See also Rev. Rul. ernmental plan” in section 3(32) of the
This notice addresses certain income 55–133, 1955–1 C.B. 138 (superseded Employee Retirement Income Security
tax issues with respect to nonqualified de- by Rev. Rul. 60–169) (“Federal credit Act of 1974 (ERISA). In addition, because
ferred compensation plans maintained by unions are recognized as instrumentalities eligible § 457(b) plans are not subject to
federal credit unions, including whether a of the United States within the meaning of § 409A of the Code (providing new re-
federal credit union can maintain an eli- section 501(c)(1) of the Internal Revenue quirements for most nonqualified deferred
gible nonqualified deferred compensation Code”); Rev. Rul. 60–169, 1960–1 C.B. compensation plans), if the federal credit
plan described in § 457(b) of the Internal 621 (obsoleted on other grounds by Rev. union treats its nonqualified deferred com-
Revenue Code (the “Code”). Rul. 89–94, 1989–2 C.B. 233) (“Federal pensation plan as an eligible § 457(b) plan
The provisions of this notice are ap- credit unions organized and operated in pursuant to this notice, that plan will not
plicable to any nonqualified deferred accordance with the Federal Credit Union be subject to the requirements of § 409A.
compensation plan maintained by a fed- Act are recognized as instrumentalities of If future § 414(d) guidance contains rules
eral credit union described in § 501(c)(1) the United States within the meaning of providing that a federal credit union is not
until publication of guidance regarding the section 501(c)(1) of the Code.”) an eligible employer under § 457, the guid-
definition of a “governmental plan” under Section 6110(k)(3) provides that a pri- ance will include a reasonable transition
§ 414(d). vate letter ruling applies only to the tax- period during which any federal credit
payer who requested it and is not to be union that has consistently claimed the
II. BACKGROUND cited or treated as precedent with respect to status of a non-governmental tax-exempt
any other taxpayer. Therefore, no federal organization will be permitted to revise its
Section 457 provides rules regarding
credit union, other than the credit union to arrangements in order to avoid possible
the taxation of a nonqualified deferred
whom the private letter ruling was issued, adverse tax consequences for participants
compensation plan of an eligible em-
is entitled to rely on the 2004 private letter in its nonqualified deferred compensation
ployer. For this purpose, the term “eligible
ruling with respect to whether § 457 ap- plan that was intended to constitute an
employer” is defined in § 457(e)(1)(A) as a
plies to its nonqualified deferred compen- eligible plan under § 457(b).
state, a political subdivision of a state, and
sation plan. In addition, the 2004 private Pending further guidance, a federal
any agency or instrumentality of a state or
letter ruling did not address the application credit union that has consistently claimed
political subdivision of a state. In addi-
of other provisions of the Internal Revenue the status of a non-governmental tax-ex-
tion, § 457(e)(1)(B) includes as an eligible
Code to a nonqualified deferred compen- empt organization for all employee benefit
employer “any other organization (other
sation plan maintained by a federal credit plan purposes may treat § 457(f) as apply-
than a governmental unit) exempt from
union. ing to any nonqualified plan it maintains
tax under” subtitle A of the Internal Rev-
(other than an eligible § 457(b) plan) that
enue Code. [Emphasis added.] Section III. CURRENT TREATMENT OF provides for a deferral of compensation.
1.457–2(e) of the Income Tax Regulations FEDERAL CREDIT UNION 457 PLANS Note that § 409A applies to arrangements
provides that the term “eligible employer”
to which § 457(f) applies. See Q&A–6 of
does not include “the federal government Treasury and the IRS intend to publish
Notice 2005–1, 2005–2 I.R.B. 274, 279.
or any agency or instrumentality thereof.” guidance regarding the meaning of the
Thus, agencies or instrumentalities of the term “governmental plan” under § 414(d).
IV. DRAFTING INFORMATION
federal government are not eligible em- Treasury and the IRS have determined
ployers described in § 457(e)(1)(A) or (B). that, until § 414(d) guidance is published, The principal author of this notice is
In 2004, the IRS issued a private letter a plan in effect on August 15, 2005, that is John A. Tolleris of the Office of Division
ruling (LTR 200430013) to a federal credit maintained by a federal credit union and is Counsel/Associate Chief Counsel (Tax Ex-
union indicating that because federal credit intended to be an eligible nonqualified de- empt & Government Entities). For further
unions chartered under the Federal Credit ferred compensation plan of a non-govern- information regarding this notice, contact
Union Act are not eligible employers un- mental tax-exempt entity under § 457(b) John A. Tolleris at (202) 622–6060 (not a
der § 457(e)(1), the nonqualified deferred will not fail to be a § 457(b) plan solely toll-free call).
compensation plan to be established by because the employer establishing and
the requesting entity is not an eligible maintaining it is a federal credit union

August 15, 2005 295 2005–33 I.R.B.


26 CFR 601.105: Examination of returns and claims a natural person, and $50,000 in any other understatement with respect to which the
for refund, credit, or abatement; determination of case. Section 6707A(b)(2) provides that relevant facts affecting the tax treatment
correct tax liability.
(Also: Part I, §§ 6011, 6662, 6662A, 6707A;
for a listed transaction, the penalty is in- of the item were not adequately disclosed
1–6011–4.) creased to $100,000 in the case of a natural in accordance with regulations prescribed
person, and $200,000 in any other case. under section 6011;
Rev. Proc. 2005–51 .03 Section 812 of the Act, which added (3) the accuracy-related penalty im-
section 6662A to the Code, provides that posed by section 6662(a) at the 40-percent
a 20-percent accuracy-related penalty may rate determined under section 6662(h) for
SECTION 1. PURPOSE be imposed on any “reportable transac- a gross valuation misstatement, if the per-
tion understatement,” as defined in section son would (but for the exclusionary rule
This revenue procedure provides guid- 6662A(b). Section 6662A(c) increases the of section 6662A(e)(2)(C)(ii)) have been
ance to persons who may be required penalty rate to 30-percent for the portion subject to the accuracy-related penalty
to pay certain penalties under sections of any reportable transaction understate- under section 6662A(a) at the 30-percent
6662(h), 6662A, or 6707A of the Internal ment with respect to which the relevant rate determined under section 6662A(c);
Revenue Code, and who may be required facts affecting the tax treatment of the item and
under section 6707A(e) to disclose those were not adequately disclosed in accor- (4) the penalty imposed by section
penalties on reports filed with the Secu- dance with regulations prescribed under 6707A(e) for failure to disclose any of the
rities and Exchange Commission. This section 6011. If the penalty under sec- penalties described in section 2.05(1) –
revenue procedure describes the report on tion 6707A for failure to include reportable (3) of this revenue procedure in periodic
which the disclosures must be made, the transaction information with a return is re- reports required under section 13 or 15(d)
information that must be disclosed, and scinded pursuant to section 6707A(d), the of the Securities Exchange Act of 1934, as
the deadlines by which persons must make taxpayer is treated as having adequately specified in this revenue procedure.
the disclosures on reports filed with the disclosed the relevant facts with respect to
SEC in order to avoid additional penalties that reportable transaction, and the 30-per- SECTION 3. SCOPE
under section 6707A(e). cent penalty rate under section 6662A(c)
does not apply. See I.R.C. § 6664(d)(2). In This revenue procedure applies to any
SECTION 2. BACKGROUND addition, section 6662A(e)(2)(C)(ii) pro- person required to pay any penalty de-
vides that the reportable transaction under- scribed in section 2.05 of this revenue pro-
.01 Section 6011 and the regulations statement penalty does not apply to any cedure that is also required to file peri-
thereunder require a taxpayer that has par- portion of an understatement on which the odic reports under section 13 or 15(d) of
ticipated in a reportable transaction to dis- 40-percent accuracy-related penalty for a the Securities Exchange Act of 1934 or is
close certain information with respect to gross valuation misstatement is imposed required to be consolidated with another
the reportable transaction with its tax re- under section 6662(h). person for purposes of those reports. Fur-
turn. Section 1.6011–4(b) of the Income .04 Section 6707A(e) requires a person ther guidance will be issued providing pre-
Tax Regulations describes six categories that is required to file periodic reports un- assessment administrative appeal rights to
of reportable transactions. One category der section 13 or 15(d) of the Securities persons required to pay the penalties de-
of reportable transactions is a transaction Exchange Act of 1934, or is required to be scribed in section 2.05(1). The adminis-
that is the same as, or substantially sim- consolidated with another person for pur- trative appeal rights for the penalties de-
ilar to, one of the types of transactions poses of those reports, to disclose in those scribed in section 2.05(2) and (3) are the
that the Internal Revenue Service has de- reports for the periods specified by the same as the administrative appeal rights af-
termined to be a tax avoidance transac- Secretary the requirement to pay the penal- forded with respect to the deficiency de-
tion and has identified by notice, regu- ties set forth in section 6707A(e)(2). If the terminations (or proposed deficiency de-
lation, or other form of published guid- person fails to disclose the requirement to terminations) with which those penalties
ance as a “listed transaction.” Treas. Reg. pay the penalties, as required by section are associated, and no separate administra-
§ 1.6011–4(b)(2). 6707A(e), that failure shall be treated as a tive appeal rights regarding those penalties
.02 The American Jobs Creation Act of failure to disclose a listed transaction and are available. There are no administrative
2004, Pub. L. No. 108–357, 118 Stat. shall be subject to an additional penalty. appeal rights with respect to penalties de-
1418 (the Act) was enacted on October 22, .05 Under section 6707A(e), the penal- scribed in section 2.05(4).
2004. Section 811 of the Act added section ties a person must disclose in periodic re-
6707A to the Code to provide a monetary ports filed with the SEC are as follows: SECTION 4. APPLICATION
penalty for the failure to include on any re- (1) the penalty imposed by section
turn or statement any information required 6707A(a) in the amount determined under .01 Periodic reports required under the
to be disclosed under section 6011 with re- section 6707A(b)(2) for failure to disclose Securities Exchange Act of 1934. In ac-
spect to a reportable transaction. Section a listed transaction; cordance with section 6707A(e), a person
6707A(b)(1) provides that the penalty for (2) the accuracy-related penalty im- who files SEC Form 10–K, Annual Report,
failure to include information with respect posed by section 6662A(a) at the 30-per- pursuant to section 13 or 15(d) of the Se-
to a reportable transaction, other than a cent rate determined under section curities Exchange Act of 1934, either sep-
listed transaction, is $10,000 in the case of 6662A(c) for a reportable transaction arately or consolidated with another per-

2005–33 I.R.B. 296 August 15, 2005


son, must disclose in Item 3 (Legal Pro- the penalty on the Form 10–K filed with 10–K filed with the SEC that relates to the
ceedings) of Form 10–K the requirement the SEC that relates to the fiscal year (as fiscal year in which a decision upholding
to pay any penalty specified in section 2.05 defined in 17 C.F.R. § 240.12b–2) in which the 30-percent penalty (either directly, or
of this revenue procedure. the Service sends the person notice and de- in the alternative to the 40-percent penalty)
.02 Required disclosures. A person mand for payment of the penalty. If the becomes final. If, after commencing a re-
must disclose in the Form 10–K the person pays the penalty (not including in- fund action described above, the person
amount of any penalty specified in section terest) in full prior to the Service sending enters into a written settlement agreement
2.05 of this revenue procedure, whether notice and demand for payment, the person with the government expressly acknowl-
it has paid the penalty in full, the Code must disclose the requirement to pay the edging the applicability of the 30-percent
section and subparagraph under which penalty on the Form 10–K filed with the penalty in the alternative to the 40-per-
the penalty was determined (i.e., sec- SEC that relates to the fiscal year in which cent penalty, the person must disclose the
tion 6662(h), section 6662A(c), section the person has paid the penalty. If the per- requirement to pay either the 30-percent
6707A(b)(2), or section 6707A(e)), and son fails to disclose the requirement to pay or 40-percent penalty, as applicable, on
a description of the penalty (i.e., accu- any penalty specified in section 2.05, as the first Form 10–K filed with the SEC
racy-related penalty for gross valuation specified in the two preceding sentences, that relates to the fiscal year in which the
misstatement, accuracy-related penalty the disclosure must be made on the next settlement agreement is entered into.
on an understatement attributable to a Form 10–K filed with the SEC after the
nondisclosed listed or other avoidance failure to disclose has occurred. This obli- SECTION 5. PAPERWORK
transaction, penalty for failure to include gation to disclose on each successive Form REDUCTION ACT
listed transaction information with return, 10–K filed will continue until the person
or penalty for failure to disclose imposition actually discloses its requirement to pay The collection of information con-
of penalty in report filed with the SEC). A each of the penalties specified in section tained in this revenue procedure has been
person must disclose in its Form 10–K the 2.05. Each failure to disclose the require- reviewed and approved by the Office of
requirement to pay the 40-percent accu- ment to pay a penalty specified in section Management and Budget in accordance
racy-related penalty under section 6662(h) 2.05, in the manner specified in sections with the Paperwork Reduction Act (44
if: 4.01, 4.02 and this section 4.03, will give U.S.C. § 3507) under control number
(1) the person consented to the assess- rise to a new, separate penalty under sec- 1545–1956.
ment of the 40-percent penalty without tion 6707A(e) that also must be disclosed An agency may not conduct or sponsor,
the issuance of a statutory notice of defi- on the Form 10–K in the manner specified. and a person is not required to respond
ciency if the Service proposed the 30-per- Example: In Year 1, Taxpayer T failed to dis- to, a collection of information unless the
cent penalty determined under section close the requirement to pay a section 6662A(c) accu- collection of information displays a valid
racy-related penalty on the Form 10–K filed with the
6662A(c) in the alternative in a notice of SEC (the Year 1 Form 10–K) that relates to the fiscal
OMB control number.
proposed deficiency (30-day letter); year in which the IRS sent notice and demand for pay- The collections of information in this
(2) the person consented to the assess- ment of the penalty. Taxpayer T is subject to a penalty revenue procedure are in sections 4.01 and
ment of the 40-percent penalty or did not under section 6707A(e) for a failure to disclose the 4.02. This information is required to en-
timely petition the Tax Court if the Ser- section 6662A(c) accuracy-related penalty. Accord- force the provisions of section 6707A(e)
ingly, Taxpayer T must disclose on the next Form
vice included the 30-percent penalty deter- 10–K filed with the SEC (the Year 2 Form 10–K)
and make investors or potential investors
mined under 6662A(c) in the alternative in the requirement to pay the original section 6662A(c) aware of a person’s participation in certain
a statutory notice of deficiency; penalty and, if the IRS sends notice and demand for reportable transactions that led to penalties
(3) the government raised the 30-per- payment of the section 6707A(e) penalty in the fis- under the Internal Revenue Code. The col-
cent accuracy-related penalty under sec- cal year to which the Year 2 Form 10–K relates, must lection of information is mandatory. The
disclose the requirement to pay that penalty as well.
tion 6662A(c) in the alternative in any likely respondents are businesses that are
(2) If a person brings a refund action
pleading in a judicial proceeding chal- publicly traded corporations.
seeking recovery of a 40-percent accu-
lenging the applicability of the 40-percent The estimated total annual reporting or
racy-related penalty under section 6662(h)
penalty and the court expressly determined recordkeeping burden is 429.5 hours.
and the government raises the 30-percent
that the 30-percent penalty applied in the The estimated annual burden per re-
penalty under section 6662A(c) in the
alternative to the 40-percent penalty; or spondent/recordkeeper varies from .25 to
alternative in any pleading filed in that
(4) the person expressly acknowl- .75 hour, depending on individual circum-
action without having previously raised
edged the applicability of the 30-percent stances, with an estimated average of .5
the 30-percent penalty in a 30-day letter
accuracy-related penalty under section hour. The estimated number of respon-
or a statutory notice of deficiency, the
6662A(c) in the alternative to the 40-per- dents or recordkeepers is 859.
requirement to disclose the penalty will
cent accuracy-related penalty under sec- The estimated annual frequency of re-
only apply if the 30-percent penalty is
tion 6662(h) in a written settlement agree- sponses (used for reporting requirements
upheld, either directly or in the alternative
ment with the government. only) is 859.
to the 40-percent penalty. In that case,
.03 When disclosure must be made. (1) Books or records relating to a collection
the person must disclose the requirement
A person required to pay a penalty speci- of information must be retained as long
to pay either the 30-percent or 40-percent
fied in section 2.05 of this revenue proce- as their contents may become material in
penalty, as applicable, on the first Form
dure must disclose the requirement to pay the administration of any internal revenue

August 15, 2005 297 2005–33 I.R.B.


law. Generally, tax returns and tax return relates to a return or statement the due date Office of the Associate Chief Counsel
information are confidential, as required for which is after October 22, 2004. (Procedure & Administration), Admin-
by 26 U.S.C. § 6103. istrative Provisions & Judicial Practice
SECTION 7. DRAFTING Division. For further information re-
SECTION 6. EFFECTIVE DATE INFORMATION garding this revenue procedure, contact
Matthew S. Cooper at (202) 622–4940
This revenue procedure is effective for The principal author of this revenue (not a toll-free call).
any penalty specified in section 2.05 that procedure is Matthew S. Cooper of the

2005–33 I.R.B. 298 August 15, 2005


Part IV. Items of General Interest
Notice of Proposed www.irs.gov/regs or via the Federal eRule- Background
Rulemaking and Notice of making Portal at www.regulations.gov
(IRS—REG–138362–04). The public This document contains proposed
Public Hearing amendments to the regulations under
hearing will be held in the Auditorium,
Internal Revenue Building, 1111 Constitu- section 401 of the Internal Revenue Code
Use of Electronic Technologies tion Avenue, NW, Washington, DC. (Code) and to other sections of the Code
for Providing Employee relating to employee benefit arrangements.
Benefit Notices and FOR FURTHER INFORMATION These proposed amendments, when final-
CONTACT: Concerning the proposed ized, will set forth rules regarding the use
Transmitting Employee Benefit
regulations, Pamela R. Kinard at (202) of electronic media to provide notices to
Elections and Consents 622–6060; concerning submissions of plan participants and beneficiaries or to
comments, the hearing, and/or to be placed transmit elections or consents relating to
REG–138362–04 on the building access list to attend the employee benefit arrangements. These
AGENCY: Internal Revenue Service hearing, Richard Hurst, (202) 622–7180 regulations also reflect the provisions
(IRS), Treasury. (not toll-free numbers). of the Electronic Signatures in Global
and National Commerce Act, Public Law
ACTION: Notice of proposed rulemaking SUPPLEMENTARY INFORMATION: 106–229 (114 Stat. 464 (2000)) (E-SIGN).
and notice of public hearing. The Code and regulations thereunder,
Paperwork Reduction Act
and the parallel provisions of the Em-
SUMMARY: This document contains pro- ployee Retirement Income Security Act
The collections of information refer-
posed regulations that would provide guid- of 1974 (ERISA), include a number of
enced in this notice of proposed rule-
ance on the use of electronic media to rules that require certain retirement plan
making were previously reviewed and
provide certain notices to recipients or to notices, elections, or consents to be writ-
approved by the Office of Management
transmit participant and beneficiary elec- ten or in writing.1 Examples of these rules
and Budget in accordance with the Pa-
tions or consents with respect to employee include the following:
perwork Reduction Act of 1995 (44
benefit arrangements. In general, these
U.S.C. 3507(d)) under control number
proposed regulations would affect spon-
1545–1632, in conjunction with the Trea-
• Under sections 401(k)(12)(D) and
sors of, and participants and beneficiaries 401(m)(11), a written notice is re-
sury Decision (T.D. 8873, 2000–1 C.B.
in, certain employee benefit arrangements. quired to be given to each employee
713), relating to New Technologies in
This document also provides a notice of eligible to participate in a cash or
Retirement Plans, published on February
public hearing on these proposed regula- deferred arrangement under section
8, 2000 in the Federal Register (65 FR
tions. 401(k) in order for the plan to be per-
6001), and control number 1545–1780, in
mitted to use a safe harbor in lieu of
DATES: Written or electronic comments conjunction with the Treasury Decision
the actual deferral percentage test or
must be received by October 12, 2005. Re- (T.D. 9052, 2003–1 C.B. 879), relating
actual contribution percentage test to
quests to speak (with outlines of oral com- to Notice of Significant Reduction in the
ensure that the plan satisfies certain
ments to be discussed) at the public hear- Rate of Future Benefit Accrual, published
nondiscrimination requirements.
ing scheduled for November 2, 2005, must on April 9, 2003 in the Federal Register
be received by October 12, 2005. (68 FR 17277). No substantive changes to • Under section 402(f), a plan is required
these collections of information are being to provide a distributee, within a rea-
ADDRESSES: Send submissions to: proposed. sonable period of time before an eli-
CC:PA:LPD:PR (REG–138362–04), room An agency may not conduct or sponsor, gible rollover distribution is made, a
5203, Internal Revenue Service, POB and a person is not required to respond to, a written explanation of the distributee’s
7604, Ben Franklin Station, Washington, collection of information unless it displays rollover rights and the tax and other po-
DC 20044. Submissions may be hand a valid control number assigned by the Of- tential consequences of the distribution
delivered Monday through Friday, be- fice of Management and Budget. or rollover.
tween the hours of 8 a.m. and 4 p.m. Books or records relating to a collection
to CC:PA:LPD:PR (REG–138362–04), of information must be retained as long • Under section 411(a)(11) (and the par-
Courier’s Desk, Internal Revenue Ser- as their contents may become material in allel provision in section 203(e) of
vice, 1111 Constitution Avenue, NW, the administration of any internal revenue ERISA) and §1.411(a)–11(f)(2), a par-
Washington, DC. Alternatively, tax- law. Generally, tax returns and tax return ticipant cannot be cashed out of a plan
payers may submit comments elec- information are confidential, as required before the later of normal retirement
tronically via the IRS Internet site at by 26 U.S.C. 6103. age or age 62 without the participant’s

1 Pursuant to section 101(a) of the Reorganization Plan No. 4 of 1978, 29 U.S.C. 1001nt, the Secretary of the Treasury has authority to issue regulations under parts 2 and 3 of subtitle B of
title I of ERISA with certain exceptions. Under section 104 of the Reorganization Plan No. 4, the Secretary of Labor retains enforcement authority with respects to parts 2 and 3 of subtitle B
of title 1 of ERISA, but, in exercising that authority, is bound by the regulations issued by the Secretary of Treasury.

August 15, 2005 299 2005–33 I.R.B.


written consent if the value of the the rights of participants and beneficiaries. sumer’s ability to access the information in
participant’s nonforfeitable accrued Pursuant to the mandate of section 1510 electronic form). Prior to consent, the con-
benefit exceeds $5,000. of TRA ’97, final regulations (T.D. 8873) sumer must receive certain specified dis-
relating to the use of electronic media closures. The disclosures must include,
• Under section 417 (and the parallel for transmissions of notices and consents among other items, the hardware or soft-
provision in section 205 of ERISA) under sections 402(f), 411(a)(11), and ware requirements for access to and re-
and the regulations thereunder, a plan 3405(e)(10)(B) were published in the tention of the electronic records, the con-
must provide to each participant a writ- Federal Register (65 FR 6001) on Febru- sumer’s right to withdraw his or her con-
ten explanation of the terms and condi- ary 8, 2000 (the 2000 regulations). These sent to receive the information electron-
tions of a qualified joint and survivor regulations are discussed in this preamble ically (and the consequences that follow
annuity, the participant’s right to make under the heading Prior Guidance Related the withdrawal of consent), the procedures
an election to waive the qualified joint to New Technologies. for requesting a paper copy of the elec-
and survivor annuity, the right to re- E-SIGN, signed into law on June 30, tronic record, and the cost, if any, of ob-
voke such an election, and the rights of 2000, generally provides that electronic taining a paper copy. Section 106(1) of
the participant’s spouse. Under section documents and signatures are given the E-SIGN generally defines a consumer as
417(a)(2), an election to waive a quali- same legal effect as their paper counter- an individual who obtains products or ser-
fied joint and survivor annuity can gen- parts. Section 101(a) of E-SIGN provides vices used primarily for personal, family,
erally go into effect only if the partic- that, notwithstanding any statute, regula- or household purposes.
ipant’s spouse consents to the election tion, or rule of law relating to a transac- Section 104(b)(1) of E-SIGN generally
in writing and that consent is witnessed tion in or affecting interstate or foreign provides that a Federal or state agency
by either a plan representative or a no- commerce, a signature, contract, or other that is responsible for rulemaking under
tary public. record may not be denied legal effect, va- a statute has interpretative authority to is-
lidity, or enforceability solely because it is sue guidance interpreting section 101 of
• Under section 3405(e)(10)(B) and
in electronic form. E-SIGN with respect to that other statute.
§34.3405–1, A–d–35, a payor is re-
Section 101(b)(1) provides that However, as a limitation on that author-
quired to provide written notice to a
E-SIGN does not limit, alter, or other- ity, section 104(b)(2) of E-SIGN prohibits
payee regarding the payee’s right to
wise affect any requirement imposed by the issuance of any regulation that is not
elect not to have Federal income tax
a statute, regulation, or rule of law re- consistent with section 101 or that adds
withheld from a periodic payment (as
lating to a person’s rights or obligations to the requirements of that section. Sec-
defined in section 3405(e)(2)).
under any statute, regulation, or rule of tion 104(b)(2) of E-SIGN also requires that
• Under section 4980F (and the parallel law except with respect to a requirement any agency issuing the regulations find
provision in section 204(h) of ERISA) that contracts be written, signed, or in that the rules selected to carry out the pur-
and §54.4980F–1, A–13, a plan must non-electronic form. Section 101(b)(2) pose of the relevant statute are substan-
provide written notice (section 204(h) provides that E-SIGN does not require any tially equivalent to the requirements im-
notice) of an amendment to an appli- person to agree to use or accept electronic posed on records that are not electronic,
cable pension plan that either provides signatures or records, other than a gov- do not impose unreasonable cost on the ac-
for a significant reduction in the rate of ernmental agency with respect to a record ceptance and use of electronic records, and
future benefit accrual or that eliminates other than a contract to which it is a party. do not require or give greater legal status to
or significantly reduces an early retire- Section 101(c) of E-SIGN sets forth a specific technology.
ment benefit or retirement-type sub- special protections for consumers that ap- Section 104(d)(1) of E-SIGN autho-
sidy. ply when a statute, regulation, or other rizes a Federal regulatory agency to ex-
rule of law requires that consumer infor- empt, without condition, a specified cat-
Section 1510 of the Taxpayer Relief mation relating to a transaction be pro- egory or type of record from the consent
Act of 1997, Public Law 105–34 (111 vided or made available in writing.2 Under requirements in section 101(c). The ex-
Stat. 788, 1068) (TRA ’97), provides those protections, before information can emption may be issued only if the exemp-
for the Secretary of the Treasury to issue be transmitted electronically, a consumer tion is necessary to eliminate a substantial
guidance designed to interpret the notice, must first affirmatively consent to receiv- burden on electronic commerce and will
election, consent, disclosure, and timing ing the information electronically and the not increase the material risk of harm to
requirements (include related recordkeep- consent must be made in a manner that rea- consumers.
ing requirements) under the Code and sonably demonstrates the consumer’s abil- Subsequent to the enactment of
ERISA relating to retirement plans as ap- ity to access the information in electronic E-SIGN, Congress amended section
plied to the use of new technologies by form (or if the consent is not provided in 204(h) of ERISA and enacted a corre-
plan sponsors and administrators. Section such a manner, that confirmation of the sponding provision in section 4980F of
1510 of TRA ’97 further provides that the consent be made electronically in a man- the Code. Under ERISA section 204(h)(7)
guidance should maintain the protection of ner that reasonably demonstrates the con- and Code section 4980F(g), the Secretary

2 The rules of section 101 of E-SIGN do not apply to certain consumer notices. These include consumer notices that are necessary for the protection of a consumer’s health, safety, or shelter
(e.g., cancellation of health benefits or life insurance and foreclosure on a credit agreement secured by an individual’s primary residence). See section 103(b)(2)(B) and (C) of E-SIGN.

2005–33 I.R.B. 300 August 15, 2005


of the Treasury may, by regulations, allow are satisfied. First, the electronic medium that are the same as the standards in the
any section 204(h) notice to be provided must be reasonably accessible to the par- 2000 regulations, or in such other form as
by using new technologies. ticipant. Second, the electronic system may be approved by the Commissioner.
must be reasonably designed to preclude In 2003, final regulations (T.D. 9052)
Prior Guidance Relating to New anyone other than the participant from under section 4980F were published in
Technologies giving the consent. Third, the system must the Federal Register (68 FR 17277).
provide the participant with a reasonable Q&A–13 of §54.4980F–1 provides the
Following the enactment of section opportunity to review and to confirm, rules for the manner of delivering a sec-
1510 of TRA ’97, the Treasury Depart- modify, or rescind the terms of the con- tion 204(h) notice. For a plan to deliver
ment and IRS issued several items of sent before it becomes effective. Fourth, electronically a section 204(h) notice, the
guidance relating to the use of electronic the system must provide the participant, following requirements must be satis-
media with respect to employee benefit within a reasonable time after the con- fied. First, the section 204(h) notice must
arrangements. Notice 99–1, 1999–1 C.B. sent is given, a confirmation of the terms actually be received by the applicable in-
269, provides guidance relating to qual- (including the form) of the distribution dividual or the plan administrator must
ified retirement plans permitting the use through either a written paper document take appropriate and necessary measures
of electronic media for plan participants or in an electronic format that satisfies reasonably calculated to ensure that the
or beneficiaries conducting certain ac- the requirements for providing applicable method for providing the section 204(h)
count transactions for which there is no notices. Thus, the participant must be ad- notice results in actual receipt. Second,
specific writing requirement, such as plan vised of the right to request and to receive the plan administrator must provide the
enrollments, direct rollover elections, ben- a confirmation copy of the consent on a applicable individual with a clear and con-
eficiary designations, investment change written paper document without charge. spicuous statement that the individual has
allocations, elective and after-tax contri- Subsequent to the issuance of the 2000 a right to receive a paper version of the
bution designations, and general plan or regulations, the Treasury Department and section 204(h) notice without the imposi-
specific account inquiries.3 IRS have applied the standards set forth in tion of fees and, if the individual requests
The 2000 regulations relating to the use those regulations in other situations. For a paper copy of the section 204(h) notice,
of electronic media for transmissions of example, §1.7476–2(c)(2) provides that a the paper copy must be provided without
notices and consents required to be in writ- notice to an interested party4 is deemed to charge.
ing under sections 402(f), 411(a)(11), and be provided in a manner that satisfies the In addition, the regulations under sec-
3405(e)(10)(B) set forth standards for the delivery requirements of §1.7476–2(c)(1) tion 4980F provide a safe harbor method
electronic transmission of certain notices if the notice is delivered using an elec- for delivering a section 204(h) notice elec-
and consents required in connection with tronic medium under a system that satisfies tronically. Under the safe harbor, which
distributions from retirement plans. These the requirements of §1.402(f)–1, Q&A–5. is substantially the same as the consumer
regulations provide that a plan may pro- Q&A–7 of Notice 2000–3, 2000–1 C.B. consent rules of E-SIGN, consent must
vide a notice required under section 402(f), 413, provides that, until the issuance of be made electronically in a manner that
411(a)(11), or 3405(e)(10)(B) either on a further guidance, a plan is permitted to reasonably demonstrates the individual’s
written paper document or through an elec- use electronic media to provide notices ability to access the information in elec-
tronic medium that is reasonably accessi- required under sections 401(k)(12) and tronic form. The applicable individual
ble to the participant. The system must be 401(m)(11) if the employee receives the must also provide an address for the deliv-
reasonably designed to provide the notice notice through an electronic medium that ery of the electronic section 204(h) notice
in a manner no less understandable to the is reasonably accessible, the system is de- and the plan administrator must provide
participant than a written paper document. signed to provide the notice in a manner the applicable individual with certain dis-
In addition, the participant must be advised no less understandable to the employee closures regarding the section 204(h) no-
of the right to request and receive a paper than a written paper document, and, at the tice, including the right to withdraw con-
copy of the written paper document at no time the notice is provided, the employee sent.
charge, and, upon request, the document is advised that the employee may request The Department of Labor (DOL) and
must be provided to the participant with- and receive the notice on a written paper the Pension Benefit Guaranty Corporation
out charge. document at no charge. Similarly, regula- (PBGC) have also issued regulations relat-
The 2000 regulations permit an elec- tions at §1.72(p)–1, Q&A–3(b), require a ing to the use of electronic media to fur-
tronic system to satisfy the requirement loan from a plan to a participant to be set nish notices, reports, statements, disclo-
that a participant provide written consent forth in a written paper document, in an sures, and other documents to participants,
to a distribution if certain requirements electronic medium that satisfies standards beneficiaries, and other individuals under

3 The Treasury Department and IRS have also issued guidance regarding the use of electronic media with respect to tax reporting and other tax requirements with respect to employee benefit
plans. For example, Announcement 99–6, 1999–1 C.B. 352, authorizes payers of pensions, annuities, and other employee benefits to establish a system for payees to submit electronically
Forms W–4P, “Withholding Certificate for Pension or Annuity Payments,” W–4S, “Request for Federal Income Tax Withholding From Sick Pay,” and W–4V, “Voluntary Withholding Request,”
if certain requirements, including signature and recordkeeping requirements, are satisfied. In addition, Notice 2004–10, 2004–1 C.B. 433, authorizes the electronic delivery of certain forms
relating to the reporting of contributions and distributions of pensions, simplified employee pensions, traditional IRAs, Roth IRAs, qualified tuition programs, Coverdell education savings
accounts, and Archer Medical Savings Accounts. See also §§31.6051–1(j) and 1.6039–1(f).
4 Under section 7476, in order to receive a determination letter on the qualified status of a retirement plan, the applicant must provide evidence that individuals who qualify as interested parties
received notification of the determination letter application.

August 15, 2005 301 2005–33 I.R.B.


titles I and IV of ERISA. See 29 CFR which the DOL or the PBGC has interpre- The view of the Treasury Department
2520.104b–1 and 29 CFR 4000.14. tative and regulatory authority. For exam- and IRS is that a participant under an em-
ple, the rules in 29 C.F.R. 2520.104b–1 of ployee benefit arrangement is generally a
Explanation of Provisions the Labor Regulations apply with respect consumer within the meaning of section
to an employee benefit plan furnishing 106(1) of E-SIGN when receiving a notice
Overview disclosure documents, such as a summary in order to make a decision about the par-
plan description or a summary annual re- ticipant’s benefits or other rights under an
The proposed regulations would coor-
port. The proposed regulations would also employee benefit arrangement.7 Accord-
dinate the existing notice and election rules
not apply to Code section 411(a)(3)(B) ingly, §1.401(a)–21(b) of these proposed
under the Code and regulations relating
(relating to suspension of benefits), Code regulations would provide rules, reflect-
to certain employee benefit arrangements
section 4980B(f)(6) (relating to an in- ing the consumer consent requirements of
with the requirements of E-SIGN and set
dividual’s COBRA rights), or any other section 101(c) of E-SIGN, under which an
forth the exclusive rules relating to the use
Code provision over which DOL and the employee benefit arrangement may pro-
of electronic media to satisfy any require-
PBGC have similar interpretative author- vide an applicable notice through an elec-
ment under the Code that a communica-
ity. In addition, the rules in these proposed tronic medium. However, the Treasury
tion to or from a participant, with respect to
regulations apply only with respect to Department and IRS also believe that, if an
the participant’s rights under the employee
notices and elections relating to a partic- employee benefit arrangement could pro-
benefit arrangement be in writing or in
ipant’s rights under an employee benefit vide these notices only by complying with
written form. The standards set forth in
arrangement; thus they do not apply with the rules in §1.401(a)–21(b) of these pro-
the proposed regulations would also func-
respect to other requirements under the posed regulations, it would impose a sub-
tion as a safe harbor when an electronic
Code, such as requirements relating to tax stantial burden on electronic commerce.
medium is used for any communication
reporting, tax records,5 or substantiation Furthermore, there is an alternative that is
that is not required to be in writing or in
of expenses. less burdensome and that would not in-
written form.
crease the material risk of harm to plan par-
The proposed regulations would apply Requirements for the Use of Electronic ticipants. Accordingly, §1.401(a)–21(c) of
to any notice, election, or similar com- Media these proposed regulations provides an al-
munication provided to or made by a
ternative means of providing notices elec-
participant or beneficiary under a quali- These proposed regulations would re-
tronically.
fied plan, an annuity contract described quire that any communication that is pro-
Section 1.401(a)–21(b) of these pro-
in section 403(a) or 403(b), a simplified vided using an electronic medium satisfy
posed regulations would generally require
employee pension (SEP) under section all the otherwise applicable requirements
that before a plan may provide an appli-
408(k), a simple retirement plan under (including the applicable timing and con-
cable notice using an electronic medium,
section 408(p), or an eligible governmen- tent rules) relating to that communication.
the participant must consent to receive
tal plan under section 457(b). Thus, for In addition, these regulations would re-
the communication electronically. The
example, the proposed regulations would quire that the content of the notice and the
consent generally must be made in a man-
apply to a section 402(f) notice, a section medium through which it is delivered be
ner that reasonably demonstrates that the
411(a)(11) notice, and a section 204(h) reasonably designed to provide the infor-
participant can access the notice in the
notice. mation to a recipient in a manner no less
electronic form that will be used to pro-
In addition, the proposed regulations understandable to the recipient than if pro-
vide the notice. Alternatively, the consent
would apply to any notice, election, or sim- vided on a written paper document. For
may be made using a written paper docu-
ilar communication provided to or made example, a plan delivering a lengthy sec-
ment or through some other nonelectronic
by a participant or beneficiary under an tion 402(f) notice would not satisfy this re-
means, but only if the participant confirms
accident and health plan or an arrange- quirement if the plan chose to provide the
the consent in a manner that reasonably
ment under section 104(a)(3) or 105, a notice through a pre-recorded message on
demonstrates that the participant can ac-
cafeteria plan under section 125, an edu- an automated phone system.6 The regula-
cess the notice in the electronic form to be
cational assistance program under section tions would also require that, at the time
provided. Prior to consenting, the partic-
127, a qualified transportation fringe pro- the applicable notice is provided, the elec-
ipant must receive a disclosure statement
gram under section 132, an Archer Medi- tronic transmission alert the recipient to
that outlines the scope of the consent,
cal Savings Account under section 220, or the significance of the transmittal (includ-
the participant’s right to withdraw his or
a health savings account under section 223. ing the identification of the subject matter
her consent to receive the communication
However, the proposed regulations of the notice), and provide any instructions
electronically (including any conditions,
would not apply to any notice, election, needed to access the notice, in a manner
consequences, or fees in the event of the
consent, or disclosure required under the that is readily understandable and accessi-
withdrawal), and the right to receive the
provisions of title I or IV of ERISA over ble.

5 See section 6001 of the Code and the regulations thereunder, and Rev. Proc. 98–25, 1998–1 C.B. 689 (setting forth the basic requirements that the IRS treats as essential for satisfying the
recordkeeping requirements of section 6001 in cases where a taxpayer’s records are maintained in electronic form).
6 Note that a section 204(h) notice cannot be provided using oral communication or a recording of an oral communication. See §54.4980F–1, A–13(c)(1).
7 See also 12 CFR 202.16, 205.17, 213.6, and 2226.36, treating electronic disclosures in connection with certain credit transactions as consumer information for purposes of E-SIGN.

2005–33 I.R.B. 302 August 15, 2005


communication using paper. The dis- of the notice be effectively able to access tions to be provided electronically, such
closure must also specify the hardware the electronic medium. This is not in- as requiring that any consent to a distri-
and software requirements for accessing tended to reflect a substantive change in bution under section 411(a)(11) be trans-
the electronic media and the procedures the rules, but rather to avoid confusion mitted electronically through a particular
for updating information to contact the with Labor Regulations interpreting the medium (without an option to make the
participant electronically. In the event words reasonably accessible as used in election on paper), then these regulations
the hardware or software requirements section 101(i)(2)(D) of ERISA, as added would not apply with respect to a partic-
change, new consent must be obtained by section 306 of the Sarbanes Oxley Act ipant who is not effectively able to ac-
from the participant, generally following of 2002, Public Law 107–204 (116 Stat. cess to the electronic medium. In addi-
the rules of section 101(c) of E-SIGN. 745).8 tion, such a participant would be effec-
Section 1.401(a)–21(c) of these pro- Proposed §1.401(a)–21(d) would set tively unable to provide consent and would
posed regulations provides alternate con- forth the requirements that apply if a generally not be paid until the later of age
ditions for providing notices electroni- consent, election, request, agreement, or 62 or normal retirement age. Moreover,
cally. The proposed regulations would similar communication is made by or from no form of distribution would be avail-
exempt applicable notices from the con- a participant, beneficiary, or alternate able to the former employee and such a
sumer consent requirements of E-SIGN payee using an electronic medium. (For plan may have difficulties demonstrating
and would provide an alternative method simplicity, the proposed regulations refer compliance with the qualification require-
of complying with the requirement that to all of these types of actions as partic- ments. For example, the plan may not be
a participant notice be in writing or in ipant elections.) The rules in proposed able to demonstrate that it satisfies the re-
written form if the plan complies with §1.401(a)–21(d), which are also based quirements of §1.401(a)(4)–4 under which
those conditions. This alternative method on the standards in the 2000 regulations, benefits, rights, and features, such as a
of compliance is based on the 2000 reg- would require that (1) the participant be right to early distribution, must be made
ulations previously issued under section effectively able to access to the electronic available in a nondiscriminatory manner.9
1510 of TRA ’97 (which provides that system in order to transmit the participant Unlike the 2000 regulations, the rules in
any guidance issued should maintain the election, (2) the electronic system be rea- these proposed regulations would extend
protection of the rights of participants and sonably designed to preclude any person the use of electronic media to the notice
beneficiaries). This alternative method of other than the participant from making the and election rules applicable to plans sub-
compliance satisfies the requirements of participant election (for example, through ject to the QJSA requirements of section
section 104(d)(1) of E-SIGN, including the use of a personal identification number 417. Section 417 requires the consent of
the requirement that any exemption from (PIN)), (3) the electronic system provide a spouse to be witnessed by a plan rep-
the consumer consent requirements not the participant making the participant resentative or a notary public. In accor-
increase the material risk of harm to con- election with a reasonable opportunity to dance with section 101(g) of E-SIGN, the
sumers. review, confirm, modify, or rescind the proposed regulations would permit the use
The alternative method of compliance terms of the election before it becomes of an electronic acknowledgment or nota-
provides rules that are intended generally effective, and (4) the participant making rization of a signature (if the standards of
to replicate the requirements in the 2000 the participant election, within a reason- section 101(g) of E-SIGN and State law
regulations that apply to notices required able time period, receive a confirmation of applicable to notary publics are satisfied).
under sections 402(f), 411(a)(11), and the election through either a written paper However, the proposed regulations would
3405 and thereby allow plans to continue document or an electronic medium under a require that the signature of the individ-
to provide these notices electronically us- system that satisfies the applicable notice ual be witnessed in the physical presence
ing the rules in those 2000 regulations. As requirements of proposed §1.401(a)–21(b) of the plan representative or notary pub-
under the 2000 regulations, the proposed or (c). lic, regardless of whether the signature is
regulations would retain the requirement These regulations require that a partici- provided on paper or through an electronic
that, at the time the applicable notice is pant be effectively able to access the elec- medium.
provided, the participant must be advised tronic system that the plan provides for As discussed above, these proposed
that he or she may request and must receive participant elections, but, like the 2000 regulations, which are consistent with sec-
the applicable notice in writing on paper at regulations, do not require that a plan also tion 101 of E-SIGN and do not add to the
no charge. However, the requirement that permit the election to be transmitted by requirements of that section, are issued to
the electronic medium be reasonably ac- paper as an alternative to using the elec- set forth rules that coordinate section 101
cessible under the 2000 regulations would tronic system available to the participant. of E-SIGN with the sections of the Code
be changed to require that the recipient If a plan were to require participant elec- relating to employee benefit arrangements.

8 Section 101(i) of ERISA sets forth a requirement for a plan administrator to notify plan participants and beneficiaries of a blackout period with respect to an individual account plan. Section
101(i)(2)(D) provides that the required blackout notice “shall be in writing, except that such notice may be in electronic or other form to the extent that such form is reasonably accessible
to the recipient.” Section 2520.101–3(b)(3) of the Labor Regulations interpreting this requirement provides for this notice to be in writing and furnished in any manner consistent with the
requirements of section 2520.104b–1 of the Labor Regulations, including the provisions in that section relating to the use of electronic media. Those regulations also deem a notice requirement
to be satisfied if certain measures are taken. Section 1.401(a)–21 of these proposed regulations only provides rules for satisfying, through the use of electronic media, a requirement that a
notice or election be in writing.
9 Similar problems would arise under section 411(d)(6), assuming the plan previously permitted election of early distribution to be made on paper.

August 15, 2005 303 2005–33 I.R.B.


In accordance with section 104(b)(2)(C) Special Analyses rization of an electronic signature (without
of E-SIGN, the Treasury Department and the spouse’s presence) provides the same
IRS find that there is substantial justifica- It has been determined that this notice protections and assurance as the require-
tion for these proposed regulations, that of proposed rulemaking is not a significant ment that a person’s signature be executed
the requirements imposed on the use of regulatory action as defined in Executive in the presence of a notary.
electronic media under these regulations Order 12866. Therefore a regulatory as- A public hearing has been scheduled
are substantially equivalent to those im- sessment is not required. It has also been for November 2, 2005, beginning at 10
posed on non-electronic records, that the determined that section 553(b) of the Ad- a.m. in the Auditorium, Internal Revenue
requirements will not impose unreason- ministrative Procedure Act (5 U.S.C. chap- Building, 1111 Constitution Avenue, NW,
able costs on the acceptance and use of ter 5) does not apply to these regulations, Washington, DC. Due to building secu-
electronic records, and that these regu- and because these regulations do not pro- rity procedures, visitors must enter at the
lations do not require (or accord greater pose any new collection of information, main entrance, located at 1111 Constitu-
legal status or effect to) the use of any the provisions of the Regulatory Flexibil- tion Avenue, NW. In addition, all visitors
specific technology. ity Act (5 U.S.C. chapter 6) do not ap- must present photo identification to enter
ply. These regulations only provide guid- the building. Because of access restric-
Conforming Amendments to Other Rules ance on how to satisfy existing collection tions, visitors will not be admitted beyond
in Law of information requirements through the the immediate entrance area more than 30
use of electronic media. Pursuant to sec- minutes before the hearing starts. For in-
The proposed regulations would mod-
tion 7805(f) of the Code, these proposed formation about having your name placed
ify a number of existing regulations (in-
regulations will be submitted to the Chief on the building access list to attend the
cluding the 2000 regulations and the other
Counsel for Advocacy of the Small Busi- hearing, see the "FOR FURTHER INFOR-
regulations described above) that have pre-
ness Administration for comment on its MATION CONTACT" portion of this pre-
viously provided rules relating to the use
impact on small business. amble.
of new technology in providing applica-
The rules of 26 CFR 601.601(a)(3) ap-
ble notices that are required to be in writ-
Comments and Public Hearing ply to the hearing. Persons who wish to
ing or in written form. These modifi-
present oral comments must submit writ-
cations, which merely add the consumer
Before these proposed regulations are ten or electronic comments and an outline
consent requirements of E-SIGN, are not
adopted as final regulations, consideration of the topics to be discussed and time to
expected to adversely affect existing ad-
will be given to any written comments be devoted to each topic (a signed origi-
ministrative practices of plan sponsors de-
(a signed original and eight (8) copies) nal and eight (8) copies) by October 12,
signed to comply with the 2000 regula-
or electronic comments that are submitted 2005. A period of 10 minutes will be allot-
tions.
timely to the IRS. The Treasury Depart- ted to each person for making comments.
As noted above, these proposed regu-
ment and IRS specifically request com- An agenda showing the scheduling of the
lations would apply to categories of ap-
ments on the clarity of the proposed rules speakers will be prepared after the dead-
plicable notices that were not previously
and how they can be made easier to under- line for receiving comments has passed.
addressed in the 2000 regulations and
stand. All comments will be available for Copies of the agenda will be available free
subsequent regulations. As such, these
public inspection and copying. of charge at the hearing.
regulations apply whenever there is a re-
The proposed regulations have reserved
quirement that an applicable notice under Drafting Information
the issue of whether there should be any
one of the covered sections be provided in
exceptions to the rule generally requiring
written form or in writing, without regard The principal author of these proposed
the physical presence of the spouse for a
to whether that other requirement specif- regulations is Pamela R. Kinard, Office of
notarization of the spouse’s consent. Com-
ically cross-references these regulations. Division Counsel/Associate Chief Coun-
ments are requested on whether the reser-
Thus, safe harbor notices under sections sel (Tax Exempt and Government Enti-
vation should be: (i) deleted in favor of
401(k)(12)(D) and 401(m)(11), which ties), Internal Revenue Service. However,
a broad prohibition that has no exception;
are required to be in writing, can be pro- personnel from other offices of the IRS and
(ii) filled in based on a general standard
vided electronically if the requirements of Treasury Department participated in their
under which electronic notarization of an
§1.401(a)–21 of this chapter are satisfied. development.
electronic signature (without the spouse’s
presence) would be permitted if the tech- *****
Proposed Effective Date
nology provides the same protections and
Proposed Amendments to the
These regulations are proposed to ap- assurance as the requirement that a per-
Regulations
ply prospectively. Thus, these rules will son’s signature be executed in the presence
apply no earlier than the date of the pub- of a notary (e.g., that the spouse is actually Accordingly, 26 CFR parts 1, 35, and
lication of the Treasury decision adopting the person signing); or (iii) filled in with 54 are proposed to be amended as follows:
these rules as final regulations in the Fed- a grant of discretion to the Commissioner
eral Register. These regulations cannot to determine in the future, after advance PART 1—INCOME TAXES
be relied upon prior to their issuance as fi- notice and an opportunity for comment,
nal regulations. that a particular form of electronic nota-

2005–33 I.R.B. 304 August 15, 2005


Paragraph 1. The authority citation for (ii) Notices and elections required to be an eligible governmental plan under sec-
part 1 is amended by adding an entry in in writing or in written form—(A) In gen- tion 457(b).
numerical order to read as follows: eral. The rules of this section must be sat- (ii) Notices, elections, or consents un-
Authority: 26 U.S.C. 7805 * * * isfied in order to use electronic media to der other employee benefit arrangements.
Section 1.401(a)–21 also issued under provide an applicable notice or to transmit The rules of this section also apply to any
26 U.S.C. 401 and section 104(b)(1) and a participant election if the notice or elec- applicable notice or any participant elec-
(2) of the Electronic Signatures in Global tion is required under the Internal Revenue tion relating to accident and health plans
and National Commerce Act, Public Law Code or Department of Treasury regula- or arrangements under sections 104(a)(3)
106–229 (114 Stat. 464). * * * tions to be in writing or in written form. and 105, cafeteria plans under section 125,
Par. 2. Section 1.72(p)–1, Q&A–3, is (B) Rules relating to applicable notices. qualified education assistance programs
amended by revising the text of paragraph An applicable notice that is provided using under section 127, qualified transportation
(b) to read as follows: electronic media is treated as being pro- fringe programs under section 132, Archer
vided in writing or in written form if and medical savings accounts under section
§1.72(p)–1 Loans treated as distributions. only if the consumer consent requirements 220, and health savings accounts under
of paragraph (b) of this section are sat- section 223.
***** isfied or the requirements for exemption (3) Limitation on application of
A–3. * * * from the consumer consent requirements rules—(i) In general. The rules of this
(b) * * * A loan does not satisfy the under paragraph (c) of this section are sat- section do not apply to any notice, elec-
requirements of this paragraph unless the isfied. For example, in order to provide a tion, consent, or disclosure required un-
loan is evidenced by a legally enforceable section 402(f) notice electronically, a qual- der the provisions of title I or IV of the
agreement (which may include more than ified plan must satisfy either the consumer Employee Retirement Income Security
one document) and the terms of the agree- consent requirements of paragraph (b) of Act of 1974, as amended (ERISA), over
ment demonstrate compliance with the re- this section or the requirements for exemp- which the Department of Labor or the
quirements of section 72(p)(2) and this tion under paragraph (c) of this section. If Pension Benefit Guaranty Corporation
section. Thus, the agreement must spec- a plan fails to satisfy either of these re- has interpretative and regulatory author-
ify the amount and date of the loan and the quirements, the plan must provide the sec- ity. For example, the rules in 29 C.F.R.
repayment schedule. The agreement does tion 402(f) notice using a written paper 2520.104b–1 of the Labor Regulations
not have to be signed if the agreement is document in order to satisfy the require- apply with respect to an employee bene-
enforceable under applicable law without ments of section 402(f). fit plan providing disclosure documents,
being signed. The agreement must be set (C) Rules relating to participant elec- such as a summary plan description or a
forth either— tions. A participant election that is trans- summary annual report. The rules in this
(1) In a written paper document; or mitted using electronic media is treated section also do not apply to Internal Rev-
(2) In an electronic medium under a as being provided in writing or in writ- enue Code section 411(a)(3)(B) (relating
system that satisfies the participant elec- ten form if and only if the requirements of to suspension of benefits), Internal Rev-
tion requirements of §1.401(a)–21(d) of paragraph (d) of this section are satisfied. enue Code section 4980B(f)(6) (relating
this chapter. (iii) Safe harbor method for applicable to an individual’s COBRA rights), or any
***** notices and participant elections that are other Internal Revenue Code provision
Par. 3. Section 1.401(a)–21 is added to not required to be in writing or written over which Department of Labor or the
read as follows: form. For an applicable notice or a par- Pension Benefit Guaranty Corporation has
ticipant election that is not required to be similar interpretative authority.
§1.401(a)–21 Rules relating to the use of in writing or in written form, the rules of (ii) Other requirements under the Inter-
electronic media to provide applicable this section provide a safe harbor method nal Revenue Code. Because the rules in
notices and to transmit participant for using electronic media to provide the this section only apply with respect to ap-
elections. applicable notice or to transmit the partic- plicable notices and participant elections
ipant election. relating to a participant’s rights under an
(a) Introduction—(1) In general—(i) (2) Application of rules—(i) Notices, employee benefit arrangement; thus they
Permission to use electronic media. This elections, or consents under retirement do not apply with respect to other require-
section provides rules relating to the use plans. The rules of this section apply to ments under the Internal Revenue Code,
of electronic media to provide applicable any applicable notice or any participant such as requirements relating to tax report-
notices and to transmit participant elec- election relating to a qualified retirement ing, tax records, or substantiation of ex-
tions as defined in paragraphs (e)(1) and plan under section 401(a) or 403(a). In ad- penses.
(2) of this section with respect to certain dition, the rules of this section apply to any (4) Additional requirements related to
employee benefit arrangements referenced applicable notice and any participant elec- applicable notices and participant elec-
in this section. The rules in this section tion relating to an annuity contract under tions. The rules of this section supple-
reflect the provisions of the Electronic section 403(b), a simplified employee pen- ment the general requirements related to
Signatures in Global and National Com- sion (SEP) under section 408(k), a simple each applicable notice and to each partic-
merce Act, Public Law 106–229 (114 Stat. retirement plan under section 408(p), and ipant election. Thus, in addition to satis-
464 (2000) (E-SIGN)). fying the rules for delivery under this sec-

August 15, 2005 305 2005–33 I.R.B.


tion, the timing, content, and other general (i) Right to receive paper docu- (i) The recipient must receive a state-
requirements (including recordkeeping re- ment—(A) In general. The statement ment of—
quirements in guidance issued by the Com- informs the recipient of any right to have (A) The revised hardware or software
missioner under section 6001) relating to the applicable notice be provided using a requirements for access to and retention of
the applicable notice or participant elec- written paper document or other nonelec- the applicable notice; and
tion must be satisfied. With respect to the tronic form. (B) The right to withdraw consent to re-
content of the notice, the system of deliv- (B) Post-consent request for paper ceive electronic delivery without the impo-
ery must be reasonably designed to pro- copy. The statement informs the recipient sition of any fees for the withdrawal and
vide the applicable notice to a recipient in how, after having provided consent to re- without the imposition of any condition or
a manner no less understandable to the re- ceive the applicable notice electronically, consequence that was not previously dis-
cipient than a written paper document. In the recipient may, upon request, obtain a closed in paragraph (b)(3) of this section.
addition, at the time the applicable notice is paper copy of the applicable notice and (ii) The recipient must reaffirm con-
provided, the electronic transmission must whether any fee will be charged for such sent to receive electronic delivery in accor-
alert the recipient to the significance of the copy. dance with the requirements of paragraph
transmittal (including identification of the (ii) Right to withdraw consumer con- (b)(2) of this section.
subject matter of the notice) and provide sent. The statement informs the recipient (5) Prohibition on oral communica-
any instructions needed to access the no- of the right to withdraw consent to receive tions. For purposes of this paragraph
tice, in a manner that is readily understand- electronic delivery of an applicable notice (b), neither an oral communication nor a
able and accessible. on a prospective basis at any time and ex- recording of an oral communication is an
(b) Consumer consent require- plains the procedures for withdrawing that electronic record.
ments—(1) Requirements. The consumer consent and any conditions, consequences, (c) Exemption from consumer consent
consent requirements of this paragraph (b) or fees in the event of the withdrawal. requirements—(1) In general. This para-
are satisfied if the requirements in para- (iii) Scope of the consumer consent. graph (c) is satisfied if the conditions in
graphs (b)(2) through (5) of this section The statement informs the recipient paragraphs (c)(2) and (3) of this section are
are satisfied. whether the consent to receive electronic satisfied. This paragraph (c) constitutes an
(2) Consent—(i) In general. The recip- delivery of an applicable notice applies exemption from the consumer consent re-
ient must affirmatively consent to the de- only to the particular transaction that gave quirements of section 101(c) of E-SIGN
livery of the applicable notice using elec- rise to the applicable notice or to other pursuant to the authority granted in section
tronic media. This consent must be ei- identified transactions that may be pro- 104(d)(1) of E-SIGN.
ther— vided or made available during the course (2) Effective ability to access. For pur-
(A) Made electronically in a manner of the parties’ relationship. For example, poses of this paragraph (c), the electronic
that reasonably demonstrates that the re- the statement may provide that a recipi- medium used to provide an applicable no-
cipient can access the applicable notice in ent’s consent to receive electronic delivery tice must be a medium that the recipient
the electronic form that will be used to pro- will apply to all future applicable notices has the effective ability to access.
vide the notice; or of the recipient relating to the employee (3) Free paper copy of applicable no-
(B) Made using a written paper docu- benefit arrangement until the recipient is tice. At the time the applicable notice is
ment (or using another form not described no longer a participant in the employee provided, the recipient must be advised
in paragraph (b)(2)(i)(A) of this section), benefit arrangement (or withdraws the that he or she may request and receive the
but only if the recipient confirms the con- consent). applicable notice in writing on paper at no
sent electronically in a manner that reason- (iv) Description of the contact proce- charge, and, upon request, that applicable
ably demonstrates that the recipient can ac- dures. The statement describes the proce- notice must be provided to the recipient at
cess the applicable notice in the electronic dures to update information needed to con- no charge.
form that will be used to provide the no- tact the recipient electronically. (d) Special rules for participant elec-
tice. (v) Hardware or software requirements. tions—(1) In general. This paragraph (d)
(ii) Withdrawal of consumer consent. The statement describes the hardware and is satisfied if the conditions described in
The consent to receive electronic delivery software requirements needed to access paragraphs (d)(2) through (6) of this sec-
requirement of this paragraph (b)(2) is not and retain the applicable notice. tion are satisfied.
satisfied if the recipient withdraws his or (4) Post-consent change in hardware or (2) Effective ability to access. The
her consent before the applicable notice is software requirements. If, after a recipi- electronic medium under a system used
delivered. ent provides consent to receive electronic to make a participant election must be a
(3) Required disclosure statement. The delivery, there is a change in the hardware medium that the individual who is eligible
recipient, prior to consenting under para- or software requirements needed to access to make the election is effectively able to
graph (b)(2)(i) of this section, must be pro- or retain the applicable notice and such access. If the individual is not effectively
vided with a clear and conspicuous state- change creates a material risk that the re- able to access the electronic medium for
ment containing the disclosures described cipient will not be able to access or re- making the participant election, the partic-
in paragraphs (b)(3)(i) through (v) of this tain the applicable notice in electronic for- ipant election will not be treated as made
section: mat— available to that individual. For example,
the participant election will not be treated

2005–33 I.R.B. 306 August 15, 2005


as made available for purposes of the rules rangement described in paragraph (a)(2) such transactions, a participant must enter his or her
under section 401(a)(4). of this section. account number and personal identification number
(3) Authentication. The electronic sys- (3) Recipient. The term recipient means (PIN) and this information must match the informa-
tion in Plan B’s records in order for the transaction to
tem used in delivering a participant elec- a plan participant, beneficiary, employee, proceed. If a participant requests a distribution from
tion is reasonably designed to preclude any alternate payee, or any other person to Plan B by e-mail, the plan administrator provides the
person other than the appropriate individ- whom an applicable notice is to be pro- participant with a section 411(a)(11) notice in an at-
ual from making the election. For exam- vided. tachment to an e-mail. Plan B sends the e-mail with
ple, a system can require that an account (4) Electronic. The term electronic a request for a computer generated notification that
the message was received and opened. The e-mail
number and a personal identification num- means technology having electrical, dig- instructs the participant to read the attachment for im-
ber (PIN) be entered into the system before ital, magnetic, wireless, optical, electro- portant information regarding the request for a distri-
a participant election can be transmitted. magnetic, voice-recording systems, or bution. In addition, the e-mail also provides that the
(4) Opportunity to review. The elec- similar capabilities. participant may request the section 411(a)(11) notice
tronic system provides the individual mak- (5) Electronic media. The term elec- on a written paper document and that, if the partici-
pant requests the notice on a written paper document,
ing the participant election with a reason- tronic media means an electronic method it will be provided at no charge. Plan B receives no-
able opportunity to review, confirm, mod- of communication (e.g., websites, elec- tification indicating that the e-mail was received and
ify, or rescind the terms of the election be- tronic mail, telephonic systems, magnetic opened by the participant. The participant is effec-
fore the election becomes effective. disks, and CD-ROMs). tively able to access the e-mail system used to make
(5) Confirmation of action. The person (6) Electronic record. The term elec- a participant election and consents to the distribution
by e-mail. Within a reasonable period of time after
making the participant election, within a tronic record means an applicable notice the participant’s consent to the distribution by e-mail,
reasonable time, receives a confirmation of created, generated, sent, communicated, the plan administrator, by e-mail, sends confirmation
the effect of the election under the terms received, or stored by electronic means. of the terms (including the form) of the distribution
of the plan through either a written paper (f) Examples. The following examples to the participant and advises the participant that the
document or an electronic medium under illustrate the rules of this section. In all participant may request the confirmation on a written
paper document that will be provided at no charge.
a system that satisfies the requirements of of these examples, with the exception of (ii) Conclusion. In this Example 2, Plan B’s deliv-
either paragraph (b) or (c) of this section Example 4 and Example 5, assume that ery of the section 411(a)(11) notice and the transmis-
(as if the confirmation were an applicable the requirements of paragraph (a)(4) of this sion of a participant’s consent to a distribution satisfy
notice). section are satisfied. the requirements of paragraphs (c) and (d) of this sec-
(6) Participant elections, including Example 1. (i) Facts. Plan A, a qualified plan, tion.
permits participants to request benefit distributions Example 3. (i) Facts. Plan C, a qualified pen-
spousal consents, that are required to be sion plan, permits participants to request plan loans
from the plan on Plan A’s Intranet website. Under
witnessed by a plan representative or a Plan A’s system for such transactions, a participant through the Plan C’s web site on the internet with the
notary public. (i) Except as provided in must enter his or her account number and personal notarized consent of the spouse in accordance with
paragraph (d)(6)(ii) of this section, in the identification number (PIN), and this information applicable State law. Under Plan C’s system for such
case of a participant election which is re- must match the information in Plan A’s records in transactions, a participant must enter his or her ac-
order for the transaction to proceed. If a participant count number, personal identification number (PIN),
quired to be witnessed by a plan represen- and his or her e-mail address. The information en-
requests a distribution from Plan A on Plan A’s web-
tative or a notary public (such as a spousal site, then, at the time of the request for distribution, a tered by the participant must match the information
consent under section 417), an electronic disclosure statement appears on the computer screen in Plan C’s records in order for the transaction to pro-
notarization acknowledging a signature that explains that the participant can consent to re- ceed. A participant may request a loan from Plan C
(in accordance with section 101(g) of ceive the section 402(f) notice electronically. In the by following the applicable instructions on Plan C’s
disclosure statement, Plan A provides information web site. Participant M, a married participant, is ef-
E-SIGN and state law applicable to notary fectively able to access the web site available to apply
relating to the consent, including how to receive a pa-
publics) will not be denied legal effect so per copy of the notice, how to withdraw the consent, for a loan and completes the forms on the web site for
long as the signature of the individual is the hardware and software requirements, and the obtaining the loan. The forms include attachments
witnessed in the physical presence of the procedures for accessing the section 402(f) notice, setting forth the terms of the loan agreement and all
plan representative or notary public. which is in a file format from a specific spreadsheet other required information. Participant M is then in-
program. After reviewing the disclosure statement, structed to submit to the plan administrator a nota-
(ii) [Reserved]. rized spousal consent form. Participant M and M’s
which satisfies the requirements of paragraph (b)(3)
(e) Definitions. The following defini- of this section, the participant consents to receive spouse go to a notary public and the notary witnesses
tions apply to this section: the section 402(f) notice via e-mail by selecting the Participant M’s spouse signing the spousal consent
(1) Applicable notice. The term appli- consent button at the end of the disclosure statement. for the loan agreement. After witnessing M’s spouse
cable notice includes any notice, report, As a part of the consent procedure, the participant signing the spousal consent, the notary public sends
must demonstrate that the participant can access the an e-mail with an electronic acknowledgement that is
statement, or other document required to attached to or logically associated with the signature
spreadsheet program by answering a question from
be provided to a recipient under an ar- the spreadsheet program, which is in an attachment to of M’s spouse to the plan administrator. The elec-
rangement described in paragraph (a)(2) of an e-mail. Once the participant correctly answers the tronic acknowledgement is in accordance with sec-
this section. question, the section 402(f) notice is then delivered tion 101(g) of E-SIGN and the relevant state law ap-
(2) Participant election. The term par- to the participant via e-mail. plicable to notary publics. After the plan receives the
(ii) Conclusion. In this Example 1, Plan A’s deliv- e-mail, Plan C sends an e-mail to the participant, giv-
ticipant election includes any consent, ing the participant a reasonable period to review and
ery of the section 402(f) notice satisfies the require-
election, request, agreement, or similar ments of paragraph (b) of this section. confirm the loan application or to determine whether
communication made by or from a par- Example 2. (i) Facts. Plan B, a qualified plan, the application should be modified or rescinded. In
ticipant, beneficiary, or alternate payee permits participants to request benefit distributions addition, the e-mail to the participant also provides
to which this section applies under an ar- from the plan by e-mail. Under Plan B’s system for that the participant may request the plan loan applica-

August 15, 2005 307 2005–33 I.R.B.


tion on a written paper document and that, if the par- personal identification number (PIN). This informa- provide applicable notices to recipients
ticipant requests the written paper document, it will tion must match that in Plan E’s records in order for with respect to employee benefit arrange-
be provided at no charge. the transaction to proceed. If a participant requests ments.
(ii) Conclusion. In this Example 3, the transmis- a distribution by e-mail, the plan administrator pro-
sions of the loan agreement and the spousal consent vides the participant with a section 411(a)(11) notice
(2) * * * The consent described in
satisfy the requirements of paragraph (d) of this sec- by e-mail. The plan administrator also advises the paragraphs (c)(2) and (3) of this section
tion. participant by e-mail that he or she may request the must be given on a written paper docu-
Example 4. (i) Facts. A qualified profit-sharing section 411(a)(11) notice on a written paper docu- ment. However, see §1.401(a)–21(d) of
plan (Plan D) permits participants to request distribu- ment and that, if the participant requests the notice this chapter for rules permitting the use
tions through an automated telephone system. Under on a written paper document, it will be provided at
Plan D’s system for such transactions, a participant no charge. Participant N requests a distribution and
of electronic media to transmit participant
must enter his or her account number and personal receives the section 411(a)(11) notice from the plan elections with respect to employee benefit
identification number (PIN); this information must administrator by reply e-mail. However, before Par- arrangements.
match that in Plan D’s records in order for the trans- ticipant N elects a distribution, N terminates employ- Par. 6. Section 1.417(a)(3)–1 is
action to proceed. Plan D provides only the following ment. Following termination of employment, Partic- amended by revising the text of para-
distribution options: single-sum payment; and annual ipant N no longer has access to the employer’s e-mail
installments over 5, 10, or 20 years. A participant system.
graph (a)(3) to read as follows:
may request a distribution from Plan D by follow- (ii) Conclusion. In this Example 6, Plan E does
ing the applicable instructions on the automated tele- not satisfy the participant election requirements under §1.417(a)(3)–1 Required explanation of
phone system. After the participant has requested a paragraph (d) of this section because Participant N is qualified joint and survivor annuity and
distribution, the automated telephone system recites not effectively able to access the electronic medium qualified preretirement survivor annuity.
the section 411(a)(11) notice to the participant. The used to make the participant election. Plan E must
automated telephone system also advises the partici- provide Participant N with the opportunity to transmit
pant that he or she may request the notice on a written the participant election through another system that
(a) * * *
paper document and that, if the participant requests Participant N is effectively able to access, such as the (3) * * * A section 417(a)(3) expla-
the notice on a written paper document, it will be pro- automated telephone systems described in Example 4 nation must be a written explanation.
vided at no charge. The participants are effectively and Example 5 of this paragraph (f). First class mail to the last known ad-
able to access the automated telephone system used to Par. 4. Section 1.402(f)–1 is amended dress of the participant is an acceptable
make a participant election. The automated telephone
by: delivery method for a section 417(a)(3)
system requires a participant to review and confirm
the terms (including the form) of the distribution be-
(1) Revising A–5. explanation. Likewise, hand delivery is
fore the transaction is completed. After the partici- (2) Removing Q&A–6. acceptable. However, posting of the ex-
pant has given consent, the automated telephone sys- The revision reads as follows: planation is not considered provision of
tem confirms the distribution to the participant and the section 417(a)(3) explanation. But
advises the participant that he or she may request the §1.402(f)–1 Required explanation of see §1.401(a)–21 of this chapter for rules
confirmation on a written paper document that will be eligible rollover distributions; questions
provided at no charge. permitting the use of electronic media to
and answers. provide applicable notices to recipients
(ii) Conclusion. In this Example 4, because Plan
D has relatively few and simple distribution op-
***** with respect to employee benefit arrange-
tions, the provision of the section 411(a)(11) notice ments.
through the automated telephone system is no less A–5. Yes. See §1.401(a)–21 of this
understandable to the participant than a written paper chapter for rules permitting the use of elec- *****
notice for purposes of paragraph (a)(4) of this section. tronic media to provide applicable notices Par. 7. Section 1.7476–2 is amended
In addition, the automated telephone procedures of
to recipients with respect to employee ben- by revising paragraph (c)(2) to read as fol-
Plan D satisfy the requirements of paragraphs (c) and
(d) of this section.
efit arrangements. lows:
Example 5. (i) Facts. Same facts as Example 4, Par. 5. Section 1.411(a)–11 is amended
except that, pursuant to Plan D’s system for process- by: §1.7476–2 Notice to interested parties.
ing such transactions, a participant who so requests (1) Revising the text of paragraphs
is transferred to a customer service representative
(f)(1) and (2). *****
whose conversation with the participant is recorded.
The customer service representative provides the
(2) Removing paragraph (g). (c) * * *
section 411(a)(11) notice from a prepared text and The revisions read as follows. (2) If the notice to interested parties
processes the participant’s distribution in accordance is delivered using an electronic medium
with the predetermined instructions from the plan §1.411(a)–11 Restriction and valuation under a system that satisfies the applica-
administrator. of distributions. ble notice requirements of §1.401(a)–21 of
(ii) Conclusion. Like in Example 4, because
Plan D has relatively few and simple distribution
this chapter, the notice is deemed to be pro-
*****
options, the provision of the section 411(a)(11) no- vided in a manner that satisfies the require-
(f) * * *
tice through the automated telephone system is no ments of paragraph (c)(1) of this section.
less understandable to the participant than a written
(1) * * * The notice of a participant’s
paper notice for purposes of paragraph (a)(4) of this rights described in paragraph (c)(2) of *****
section. Further, in this Example 5, the customer this section or the summary of that notice
service telephone procedures of Plan D satisfy the described in paragraph (c)(2)(iii)(B)(2) PART 35—EMPLOYMENT TAX AND
requirements of paragraphs (c) and (d) of this section.
of this section must be provided on a COLLECTION OF INCOME TAX AT
Example 6. (i) Facts. Plan E, a qualified plan, per-
mits participants to request distributions by e-mail on
written paper document. However, see THE SOURCE REGULATIONS UNDER
the employer’s e-mail system. Under this system, a §1.401(a)–21 of this chapter for rules THE TAX EQUITY AND FISCAL
participant must enter his or her account number and permitting the use of electronic media to RESPONSIBILITY ACT OF 1982

2005–33 I.R.B. 308 August 15, 2005


Par. 8. The authority citation for part payee on a written paper document. How- significantly reducing the rate of future
35 continues to read, in part, as follows: ever, see §1.401(a)–21 of this chapter benefit accrual.
Authority: 26 U.S.C. 7805 * * * for rules permitting the use of electronic
Par. 9. Section 35.3405–1 is amended media to provide applicable notices to re- *****
by: cipients with respect to employee benefit A–13. * * *
(1) Revising d–35, A. arrangements. (c) * * *
(2) Removing d–36, Q&A. (1) * * *
The revision reads as follows: PART 54—PENSION EXCISE TAXES (ii) The section 204(h) notice is deliv-
ered using an electronic medium under a
§35.3405–1 Questions and answers Par. 10. The authority citation for part system that satisfies the applicable notice
relating to withholding on pensions, 54 continues to read, in part, as follows: requirements of §1.401(a)–21.
annuities, and certain other deferred Authority: 26 U.S.C. 7805 * * *
income. Par. 11. Section 54.4980F–1, *****
Q&A–13, is amended as follows:
***** Mark E. Matthews,
(1) Revising paragraph A–13 (c)(1)(ii).
d–35. * * * Deputy Commissioner for
(2) Removing paragraph A–13
A. A payor may provide the notice Services and Enforcement.
(c)(1)(iii) and (c)(3).
required under section 3405 (including The revision reads as follows: (Filed by the Office of the Federal Register on July 13, 2005,
the abbreviated notice described in d–27 8:45 a.m., and published in the issue of the Federal Register
for July 14, 2005, 70 F.R. 40675)
of §35.3405–1T and the annual notice §54.4980F–1 Notice requirements
described in d–31 of §35.3405–1T) to a for certain pension plan amendments

Announcement of Disciplinary Actions Involving


Attorneys, Certified Public Accountants, Enrolled Agents,
and Enrolled Actuaries — Suspensions, Censures,
Disbarments, and Resignations
Announcement 2005-48
Under Title 31, Code of Federal Regu- person to practice before the Internal Rev- their names, their city and state, their pro-
lations, Part 10, attorneys, certified public enue Service during a period of suspen- fessional designation, the effective date
accountants, enrolled agents, and enrolled sion, disbarment, or ineligibility of such of disciplinary action, and the period of
actuaries may not accept assistance from, other person. suspension. This announcement will ap-
or assist, any person who is under disbar- To enable attorneys, certified public pear in the weekly Bulletin at the earliest
ment or suspension from practice before accountants, enrolled agents, and enrolled practicable date after such action and will
the Internal Revenue Service if the assis- actuaries to identify persons to whom continue to appear in the weekly Bulletins
tance relates to a matter constituting prac- these restrictions apply, the Director, Of- for five successive weeks.
tice before the Internal Revenue Service fice of Professional Responsibility, will
and may not knowingly aid or abet another announce in the Internal Revenue Bulletin

Consent Suspensions From Practice Before the Internal


Revenue Service
Under Title 31, Code of Federal Regu- such practice. The Director, Office of Pro- practice before the Internal Revenue Ser-
lations, Part 10, an attorney, certified pub- fessional Responsibility, in his discretion, vice:
lic accountant, enrolled agent, or enrolled may suspend an attorney, certified public
actuary, in order to avoid institution or con- accountant, enrolled agent or enrolled ac-
clusion of a proceeding for his or her dis- tuary in accordance with the consent of-
barment or suspension from practice be- fered.
fore the Internal Revenue Service, may of- The following individuals have been
fer his or her consent to suspension from placed under consent suspension from

August 15, 2005 309 2005–33 I.R.B.


Name Address Designation Date of Suspension

Harrison, John S. Oakland, CA Attorney Indefinite


from
January 25, 2005
Newkirk, Stephon Winterville, NC CPA Indefinite
from
February 8, 2005
Goldman, Mark L. East Meadow, NY Attorney Indefinite
from
February 18, 2005
Johnston, H. James Knoxville, TN CPA Indefinite
from
March 16, 2005
Gapp, Edward J. Greenwich, CT CPA Indefinite
from
March 28, 2005
Rowland, Mark C. Westlake, OH CPA Indefinite
from
April 11, 2005
French Jr., Paul C. Bangor, MI CPA Indefinite
from
April 25, 2005
Mynsberge, Richard C. Mishawaka, IN CPA Indefinite
from
May 1, 2005
Specht Jr., Henry F. N. Myrtle Beach, SC CPA Indefinite
from
May 1, 2005
Sostarich, Mark E. S. Milwaukee, WI Attorney Indefinite
from
May 1, 2005
Gasa, William M. Winfield, IL Enrolled Agent Indefinite
from
June 1, 2005
Leisure, Sally R. Portland, OR Attorney Indefinite
from
June 9, 2005
Tuerk Jr., Carl E. Annapolis, MD Attorney Indefinite
from
July 1, 2005

Expedited Suspensions From Practice Before the Internal


Revenue Service
Under Title 31, Code of Federal Regu- immediately suspend from practice before the expedited proceeding is instituted (1)
lations, Part 10, the Director, Office of Pro- the Internal Revenue Service any practi- has had a license to practice as an attor-
fessional Responsibility, is authorized to tioner who, within five years from the date ney, certified public accountant, or actuary

2005–33 I.R.B. 310 August 15, 2005


suspended or revoked for cause or (2) has The following individuals have been fore the Internal Revenue Service by virtue
been convicted of certain crimes. placed under suspension from practice be- of the expedited proceeding provisions:

Name Address Designation Date of Suspension

Hawkins, Nicholas G. Harrods Creek, KY Attorney Indefinite


from
February 11, 2005

Richey, Michael L. Girardeau, MO Attorney Indefinite


from
February 11, 2005

Brown, Calvin D. Dallas, TX CPA Indefinite


from
February 16, 2005

Bell, James M. Bandera, TX CPA Indefinite


from
February 23, 2005

Fedynshyn, Michael P. Broomfield, CO Attorney Indefinite


from
February 23, 2005

Harris, Ross Pikeville, KY Attorney Indefinite


from
February 23, 2005

Tehin Jr., Nikolai San Francisco, CA Attorney Indefinite


from
March 7, 2005

Ballance, Frank W. Warrenton, NC Attorney Indefinite


from
March 7, 2005

Jacob, Arthur F. Sykesville, MD Attorney Indefinite


from
March 8, 2005

Hefley, Lee D. Burleson, TX CPA Indefinite


from
March 8, 2005

Beswick, Robert H. Encino, CA Attorney Indefinite


from
March 8, 2005

Scarpello, Joseph R. Tustin, CA CPA Indefinite


from
March 8, 2005

Machado, Lazaro J. Santa Ana, CA Attorney Indefinite


from
March 8, 2005

McKnew, Donna K. Ashland, KY Attorney Indefinite


from
March 8, 2005

August 15, 2005 311 2005–33 I.R.B.


Name Address Designation Date of Suspension

Yarno Jr., William Lafayette, LA Attorney Indefinite


from
March 8, 2005

Walker, Frank O. Bay City, TX CPA Indefinite


from
March 8, 2005

Kafkas, Demetrios G. Tewksbury, MA Attorney Indefinite


from
March 8, 2005

Scott, Bertram A. Brooklyn, NY Attorney Indefinite


from
March 8, 2005

Templeton, Robert L. Ashland, KY Attorney Indefinite


from
March 8, 2005

Christopher, Nathan H. Salisbury, MD Attorney Indefinite


from
March 8, 2005

Willingham, Nathaniel J. Jacksonville, NC Attorney Indefinite


from
March 8, 2005

Anderson, Brett I. Des Moines, IA Attorney Indefinite


from
March 8, 2005

Broderick, Thomas F. Somerville, MA Attorney Indefinite


from
March 14, 2005

Peoples, Brendan K. Ft. Worth, TX CPA Indefinite


from
March 15, 2005

Tidmore, J. Todd Addison, TX CPA Indefinite


from
March 15, 2005

Cox, Patricia A. Victoria, TX CPA Indefinite


from
March 15, 2005

Rogers, Fred Mansfield, LA CPA Indefinite


from
March 15, 2005

Bridgeforth, Wyvonnia Oak Park, IL Attorney Indefinite


from
March 15, 2005

Bruce, Donna M. Athens, AL CPA Indefinite


from
March 18, 2005

2005–33 I.R.B. 312 August 15, 2005


Name Address Designation Date of Suspension

Teske, David S. Seattle, WA Attorney Indefinite


from
March 18, 2005
Cobb Jr., Wayne H. Kaufman, TX Attorney Indefinite
from
March 18, 2005
Swindell IV, Lewis H. Avondale, AZ Attorney Indefinite
from
March 18, 2005
Murr, Mark D. Houston, TX Attorney Indefinite
from
March 18, 2005
Nip, Raymond A.C. Honolulu, HI CPA Indefinite
from
March 18, 2005
Asbury, Lloyd T. Jacksonville, FL Attorney Indefinite
from
March 18, 2005
Lowell, Melinda E. New York, NY Attorney Indefinite
from
March 18, 2005
Rub, Lawrence P. Glenwood, MD CPA Indefinite
from
March, 18, 2005
Fagan, Charles G. Severna Park, MD CPA Indefinite
from
March 21, 2005
Lewis, Larry L. Woodbridge, VA Attorney Indefinite
from
March 28, 2005
Mpi, Afoma M. Peoria, IL Attorney Indefinite
from
March 30, 2005
Gross, Hyath B. Schenectady, NY Attorney Indefinite
from
April 1, 2005
Zick, Terry T. Wrightville Beach, NC Attorney Indefinite
from
April 1, 2005
Atlas, Joan M. Philadelphia, PA Attorney Indefinite
from
April 4, 2005
Rider, Lawrence C. Boulder, CO Attorney Indefinite
from
April 5, 2005
Eller, Scott D. Frisco, TX CPA Indefinite
from
April 6, 2005

August 15, 2005 313 2005–33 I.R.B.


Name Address Designation Date of Suspension

Brenton, Robert O. Overland Park, KS CPA Indefinite


from
April 6, 2005
Folks, Lloyd C. Kinston, NC CPA Indefinite
from
April 6, 2005
Suckling, John R. San Marcos, CA CPA Indefinite
from
April 6, 2005
Pulito, James P. Phoenix, AZ CPA Indefinite
from
April 6, 2005
Garcia, Felix D. Auroa, CO Attorney Indefinite
from
April 6, 2005
Wentzel, Gerald L. Bloomingdale, IL CPA Indefinite
from
April 14, 2005
Williams, David W. Simpsonville, KY Attorney Indefinite
from
April 19, 2005
Sykes III, Bernard G. Riviera Beach, FL Attorney Indefinite
from
April 19, 2005
Hambrick Jr., J. C. Branson, MO Attorney Indefinite
from
April 19, 2005
Adams, David M. Charleston, SC Attorney Indefinite
from
April 19, 2005
Richardson, Jon M. Danville, IL Attorney Indefinite
from
April 19, 2005
Rose, Shaun H. Baltimore, MD Attorney Indefinite
from
April 19, 2005
Tanner, Fred L. Bowling Green, KY Attorney Indefinite
from
April 19, 2005
Perry, David W. Reading, MA Attorney Indefinite
from
April 19, 2005
Fleming, Bruce D. Council Bluffs, IA Attorney Indefinite
from
April 19, 2005
Healy, Paul J. Pembroke, MA Attorney Indefinite
from
April 19, 2005

2005–33 I.R.B. 314 August 15, 2005


Name Address Designation Date of Suspension

Kaczynski, Ronald C. Andover, MA Attorney Indefinite


from
April 19, 2005
Whalley, Lester F. Yorba Linda, CA Attorney Indefinite
from
April 27, 2005
Tanner, Max Las Vegas, NV Attorney Indefinite
from
May 3, 2005
Blackwell, Johnny L. Fayetteville, NC CPA Indefinite
from
May 3, 2005
Szer, Steven Fort Mill, SC CPA Indefinite
from
May 3, 2005
Chinn, David P. Louisville, KY Attorney Indefinite
from
May 9, 2005
Bille, Anthony J. Hopkinton, MA Attorney Indefinite
from
May 16, 2005
Dotson, Lewis S. Mattoon, IL Attorney Indefinite
from
May 16, 2005
Palmer, Philip B. Chubbuck, ID Attorney Indefinite
from
May 16, 2005
Wolterbeek, Mark E. Rindge, NH Attorney Indefinite
from
May 31, 2005
James III., Charles M. Cheverly, MD Attorney Indefinite
from
May 31, 2005
Jorgensen, Allen C. Redlands, CA Attorney Indefinite
from
June 2, 2005
Brisbon, Brenda C. Baltimore, MD Attorney Indefinite
from
June 7, 2005
Gilroy, John M. Waterloo, NE Attorney Indefinite
from
June 7, 2005
Relphorde, Colin B. Homewood, IL Attorney Indefinite
from
June 7, 2005
Pomeroy, John S. Dedham, MA Attorney Indefinite
from
June 7, 2005

August 15, 2005 315 2005–33 I.R.B.


Name Address Designation Date of Suspension

Gonick, Richard S. Ipswich, MA Attorney Indefinite


from
June 7, 2005
Curran, Martin J. Manchester, NH Attorney Indefinite
from
June 7, 2005
Koenigsdorf, Keith B. Overland Park, KS Attorney Indefinite
from
June 7, 2005
Jambor, Daniel F. St. Paul, MN Attorney Indefinite
from
June 7, 2005
LaFont Jr., Henry J. Lockport, LA Attorney Indefinite
from
June 7, 2005
Janosik, Dennis M. Parma, OH CPA Indefinite
from
June 9, 2005
Carter, Evalyn R. Calera, OK CPA Indefinite
from
June 9, 2005
Chasnoff, Joel Gaithersburg, MD Attorney Indefinite
from
June 9, 2005
O’Keefe, Michael E. Oak Park, CA Attorney Indefinite
from
June 9, 2005
Wilkes, Richard C. Bowbells, ND Attorney Indefinite
from
June 9, 2005
Rogers, Reginald J. Bowie, MD Attorney Indefinite
from
June 9, 2005
Hindley, Charles T. Colton, CA Attorney Indefinite
from
June 9, 2005
Morgan, Wendy B. Scotts Valley, CA Attorney Indefinite
from
June 9, 2005

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-

2005–33 I.R.B. 316 August 15, 2005


Name Address Designation Effective Date

Cahill, Gary Shelton, CT Attorney January 27, 2005


to
January 26, 2008
Banks, Jean R. Van Nuys, CA Enrolled Agent March 8, 2005
to
December 7, 2006

Censure Issued by Consent


Under Title 31, Code of Federal Reg- or enrolled actuary, may offer his or her The following individuals have con-
ulations, Part 10, in lieu of a proceeding consent to the issuance of a censure. Cen- sented to the issuance of a Censure:
being instituted or continued, an attorney, sure is a public reprimand.
certified public accountant, enrolled agent,

Name Address Designation Date of Censure

Borden Kathleen Bluffton, SC Attorney May 11, 2005


Williamson, Debra Long Beach, CA CPA June 3, 2005

lectively referred to as “statutory stock The American Jobs Creation Act of


options”) that was published on Novem- 2004 (the AJCA), H.R. 4520, Public Law
Application of the Federal ber 14, 2001. This withdrawal affects 108–357 (118 Stat. 1418), was enacted
Insurance Contributions Act, employers that grant these options and on October 22, 2004. Section 251 of
Federal Unemployment Tax employees who exercise these options. the AJCA amended sections 3121(a) and
3306(b) of the Code to exclude remuner-
Act, and Collection of Income FOR FURTHER INFORMATION ation on account of a transfer of a share
Tax at Source to Statutory CONTACT: Paul J. Carlino or Michael of stock to any individual pursuant to an
Stock Options Swim, 202–622–0047 (not a toll-free exercise of an incentive stock option (as
number). defined in section 422(b)) or under an
Announcement 2005–55 employee stock purchase plan (as defined
SUPPLEMENTARY INFORMATION: in section 423(b)), or any disposition by
AGENCY: Internal Revenue Service the individual of such stock, from the
(IRS), Treasury. Background
definition of wages for FICA and FUTA
ACTION: Withdrawal of notice of pro- On November 14, 2001, the IRS and tax purposes, respectively. Section 251 of
posed rulemaking. Treasury published proposed amendments the AJCA also amended sections 421(b)
to 26 CFR Part 31 under sections 3121(a), and 423(c) of the Code so that no amount
SUMMARY: This document withdraws 3306(b), and 3401(a) of the Internal Rev- shall be required to be deducted and with-
the notice of proposed rulemaking enue Code (Code), and to 26 CFR Part held under the Collection of Income Tax at
(REG–142686–01, 2001–2 C.B. 561) 1 under section 424 of the Code, that Source provisions of the Code with respect
relating to the application of the Federal would address the application of the FICA, to any amount treated as compensation un-
Insurance Contributions Act (FICA), Fed- FUTA, and Collection of Income Tax at der section 421(b) or 423(c), respectively.
eral Unemployment Tax Act (FUTA), and Source to statutory stock options. These Because the proposed amendments to the
Collection of Income Tax at Source to in- proposed amendments to the regulations regulations are no longer consistent with
centive stock options and options granted were published in the Federal Register the statutes, the IRS and Treasury are
under employee stock purchase plans (col- (66 FR 57023).

August 15, 2005 317 2005–33 I.R.B.


withdrawing the proposed amendments to SUPPLEMENTARY INFORMATION: Safe Harbor for Valuation
the regulations. Under Section 475; Correction
The statutory amendments made by Background
section 251 of the AJCA apply to stock
The notice of proposed rulemaking Announcement 2005–57
acquired pursuant to statutory stock op-
(REG–102144–04) that is the subject of AGENCY: Internal Revenue Service
tions exercised after October 22, 2004.
these corrections are under sections 1503, (IRS), Treasury.
For guidance applying to stock acquired
953 and 367 of the Internal Revenue Code.
pursuant to statutory stock options exer-
cised on or before October 22, 2004, see ACTION: Correction to notice of pro-
Need for Correction posed rulemaking and notice of public
Notice 2002–47, 2002–2 C.B. 97.
hearing.
As published, the notice of proposed
*****
rulemaking and notice of public hearing SUMMARY: This document contains
Withdrawal of Notice of Proposed (REG–102144–04) contains errors that corrections to a notice of proposed rule-
Rulemaking may prove to be misleading and are in making and notice of public hearing
need of clarification. (REG–100420–03, 2005–24 I.R.B. 1236)
Accordingly, under the authority of 26 that was published in the Federal Reg-
Correction of Publication
U.S.C. 7805, the notice of proposed rule- ister on Tuesday, May 24, 2005 (70 FR
making (REG–142686–01) that was pub- Accordingly, the notice of proposed 29663). The proposed regulations provide
lished in the Federal Register on Novem- rulemaking and notice of public hearing guidance regarding elective safe harbor
ber 14, 2001 (66 FR 57023) is withdrawn. (REG–102144–04), that was the subject for dealers and traders in securities and
of FR Doc. 05–10160, is corrected as commodities.
Mark E. Matthews, follows:
Deputy Commissioner FOR FURTHER INFORMATION
1. On page 29869, column 1, in the
for Services and Enforcement. CONTACT: Marsha A. Sabin or John W.
preamble under the paragraph heading
Rogers III (202) 622–3950 (not a toll-free
(Filed by the Office of the Federal Register on June 30, 2005, “Background”, paragraph 3 from the top
number).
8:45 a.m., and published in the issue of the Federal Register of the column, line 5, the language “as
for July 1, 2005, 70 F.R. 38057)
if such unit where a wholly owned” is SUPPLEMENTARY INFORMATION:
corrected to read “as if such unit were a
wholly owned” Background
Dual Consolidated Loss
Regulations; Correction §1.1503(d)–4 [Corrected] The notice of proposed rulemaking
(REG–100420–03) that is the subject of
2. On page 29897, column 2, these corrections is under section 475 of
Announcement 2005–56 “§1503(d)–4 (i)(1), line 6, the language, the Internal Revenue Code.
“through (ix) of this section, including”
AGENCY: Internal Revenue Service
is corrected to read “through (viii) of this Need for Correction
(IRS), Treasury.
section, including”
The notice of proposed rulemaking
ACTION: Correction to notice of pro- §1.1503(d)–5 [Corrected] (REG–100420–03) contains errors that
posed rulemaking. may prove to be misleading and are in
3. On page 29903, column 2, need of clarification.
SUMMARY: This document contains §1.1503(d)–5(c), paragraph (i), of Ex-
corrections to a notice of proposed rule- ample 34., the language, “its worldwide Correction of Publication
making and notice of public hearing income Fx, a an unrelated” is corrected to
(REG–102144–04, 2005–25 I.R.B. 1297) read “its worldwide income, Fx, an unre- Accordingly, the notice proposed rule-
that was published in the Federal Reg- lated” making (REG–100420–03), that was the
ister on Tuesday, May 24, 2005 (70 FR subject of FR Doc. 05–10167, is corrected
29868). The proposed regulations provide Cynthia Grigsby, as follows:
guidance regarding dual consolidated loss Acting Chief, Publications 1. On page 29666, column 2, under
issues, including exceptions to the general and Regulations Branch, paragraph heading “Record Retention and
prohibition against using a dual consoli- Legal Processing Division, Production; Use of Different Values”, first
dated loss to reduce the taxable income of Associate Chief Counsel paragraph, lines 15 through 18 from the
any other member of the affiliated group. (Procedure and Administration). bottom of the paragraph, the language
“such as the Schedule M–1, “Net Income
(Filed by the Office of the Federal Register on July 8, 2005,
FOR FURTHER INFORMATION 8:45 a.m., and published in the issue of the Federal Register (Loss) Reconciliation for Corporations
CONTACT: Kathryn T. Holman, (202) for July 11, 2005, 70 F.R. 39695) With Total Assets of $10 Million or More,”
622–3840 (not a toll-free number). Schedule M–3, “Net” is corrected to read

2005–33 I.R.B. 318 August 15, 2005


“such as the Schedule M–1, “Reconcilia- Adventure Based Learning Experiences, Black Womens Leadership Conference,
tion of Income (Loss) per Books With In- Enterprise, OR Los Angeles, CA
come per Return”, Schedule M–3, “Net”. Affordable Housing Associates, Inc., Boca Raton Preparatory PTO,
Salt Lake City, UT Boca Raton, FL
§1.475(a)–4 [Corrected] Airborne Specialists, Inc., Claremore, OK Bodega Bay Fishermans Festival,
Alabama Repertory Theatre, Inc., Bodega Bay, CA
2. On page 29670, column 3,
Birmingham, AL Bridges of Health, Inc., Alamosa, CO
§1.475(a)–4(k)(2)(i)(A), lines 11 through
Alder Point Blocksburg Casterlin Buddies Unlimited, Pueblo, CO
13 from the top of the column, the lan-
Community Center, Alder Point, CA Building Community Without Walls, Inc.,
guage, “Schedule M–1, “Net Income
All Star Sports Association, Santa Monica, CA
(Loss) Reconciliation for Corporations
Union City, CA Bulldogs Cheer Boosters, Palmdale, CA
With Total Assets of $10 Million or More”
Alzheimer Associates Enterprise, Burney Falls Intermountain Main Street,
is corrected to read “Schedule M–1, “Rec-
Fairfield, OH Burney, CA
onciliation of Income (Loss) per Books
Amateur Stallions, Inc., Clifton, NJ Business and Research Assistance Center,
With Income per Return”.
American Friends of Kollel Zichron Clarksville, TN
Cynthia E. Grigsby, Asher, Inc., Miami Beach, FL Butte Glen Family Violence Prevention
Acting Chief, Publications American Philanthropic Trust Fund, Inc., Council, Chico, CA
and Regulations Branch, Chicago, IL By Faith Theatre Ministries, Incorporated,
Legal Processing Division, American Railroad Preservation Memphis, TN
Associate Chief Counsel Foundation, Inc., Coral Gables, FL C D Franks PTO, Ashdown, AR
(Procedure and Administration). Angel House, Inc., Sterling, IL California Center for Cultural Educational
Angelic Intervention, Torrance, CA Development, Fresno, CA
(Filed by the Office of the Federal Register on July 8, 2005, Angels on Earth Foundation, Kenner, LA California Culture Net, San Francisco, CA
8:45 a.m., and published in the issue of the Federal Register
for July 11, 2005, 70 F.R. 39695) Animal Assistance Association, Inc., California Student Scholarship Fund,
Hillsboro, OR W. Sacramento, CA
Animal Sanctuary of the Central Coast, California Wine Education Foundation,
Foundations Status of Certain Santa Maria, CA Lodi, CA
Animals Facilitating Adolescents & Camague Yanos Catolicos, Inc.,
Organizations
Children Therapeutically, Cortaro, AZ Miami, FL
Arizona Ballet School, Inc., Phoenix, AZ Cancer Care Foundation, Inc.,
Announcement 2005–58
Arizona Entrepreneurs Organization, Valencia, CA
The following organizations have failed Tempe, AZ Cantebria Senior Homes, Denver, CO
to establish or have been unable to main- Arts for Everyone, Ogden, UT Canyon West Academy, Arvada, CO
tain their status as public charities or as op- Ashley County Tea Coalition, Caribbean World Arts & Culture, Inc.,
erating foundations. Accordingly, grantors Hamburg, AR Los Angeles, CA
and contributors may not, after this date, Asian POWs Memorial Fund, Tucson, AZ Caring Veterans, Paradise, CA
rely on previous rulings or designations Auburn Riverside Grad Nite Committee, Carlos Gilbert PTK, Inc., Santa Fe, NM
in the Cumulative List of Organizations Auburn, WA Center for Computer Literacy, Inc.,
(Publication 78), or on the presumption Bad Epitaph Theater Company, St. Croix, VI
arising from the filing of notices under sec- Cleveland Heights, OH Central Arkansas Youth Hockey
tion 508(b) of the Code. This listing does Badge 2 Badge, Encino, CA Association, Little Rock, AR
not indicate that the organizations have lost Balance Dance Company, Boise, ID Charitable Association of Santa Clara
their status as organizations described in Ballet Jude, Brooklyn, NY Post 419, Santa Clara, CA
section 501(c)(3), eligible to receive de- Barefoot Ballet, Inc., Atlanta, GA Chickasha Quarterback Club,
ductible contributions. Beavercreek Charitable Trust, Chickasha, OK
Former Public Charities. The follow- Beavercreek, OR Chickasha Youth Baseball, Inc.,
ing organizations (which have been treated Because We Are People Too, Houston, TX Chickasha, OK
as organizations that are not private foun- Ben-Hair Productions, Las Vegas, NV Childrens Personality Development
dations described in section 509(a) of the Berkeley Center for Survivors of Foundation, Mankato, MN
Code) are now classified as private foun- Domestic Violence, Oakland, CA Chopin Society of Houston, Bellaire, TX
dations: Berkeley Spay Neuter Your Pet, Inc., Christian Partnerships, Inc.,
Berkeley, CA Sacramento, CA
18 Society Foundation, Henderson, NV Birdville High School Choir Booster Circle of Concern of Kansas, Inc.,
22nd International Asian Organized Club, N. Richland Hills, TX Salina, KS
Crime Conference, San Francisco, CA Black Catholic Association, Inc., City & State Economic Development
203 K Hope, El Paso, TX Phoenix, AZ Corporation, New Orleans, LA
AAM Foundation, Novato, CA Black Women in Progress, Arlington, TX City Vision Santa Rosa, Santa Rosa, CA

August 15, 2005 319 2005–33 I.R.B.


Clean Money Kentucky, Inc., Disability Policy and Planning Institute, Foundation Support Services, Inc.,
Louisville, KY Berkeley, CA Pine Bluff, AR
Clear Creek Youth Initiative, District 5520 Youth Exchange Foundation, Freedoms Way Ministry, Yucca Valley, CA
Clearmont, WY Las Cruces, NM Friends of the Wolf, Tenino, WA
Clearwater Project, Inc., Dollar Family Ministries, Inc., Friendship Amateur Radio Society, Inc.,
Santa Barbara, CA Waxahachie, TX Oregon City, OR
Clinical Research Network, Inc., Don’t Blow Smoke on America, Gainesville Housing & Community
Scotch Plains, NJ Houston, TX Development Corporation,
Coalinga Youth Sports Foundation, Dress for Success Yuba Shelter, Gainesville, TX
Coalinga, CA Yuba City, CA Gallman National Historic District
Colonial Middle Band Boosters, Drill Team Booster Club, Redmond, WA Association, Inc., Gallman, MS
Memphis, TN DRSA Foundation, Sacramento, CA George H. Atkinson and Mable
Community Assistance Resource Efforts DUI Prevention Awareness, Allene Atkinson Foundation,
Non Profit Corporation, Riverside, CA Newport Beach, CA Pacific Palisades, CA
Community College Leadership Durango Young Center, Inc., Durango, CO Georgia Rural Water Education
Development Initiative, Santa Rosa, CA Durham Chamber Foundation, Inc., Foundation, Inc., Barnesville, GA
Community Reinvestment Concepts, Inc., Durham, NC Global Aid Network, Seattle, WA
Clayton, GA Earthtime Ranch, Flagstaff, AZ Global Oxygen Crisis, Hudson, FL
Community Service Housing 1, Inc., East Texas Neuro Support Group, Gods House of Refuge Community
Chandler, AZ Lufkin, TX Development Corporation,
Community Service Housing 2, Inc., Eastside Adapt Program, San Antonio, TX West Palm Beach, FL
Chandler, AZ Echo Park Neighborhood Empowerment Golden Rule Services, Inc.,
Community Service Housing 3, Inc., Project, Los Angeles, CA Sacramento, CA
Chandler, AZ Education for Global Diversity, Inc., Good Samaritan Childrens Mission, Inc.,
Computer Place, Kentfield, CA Santa Cruz, CA Sugarland, TX
Concerned Carnegie Area Residents Educational Concepts, Sacramento, CA Goodlettsville Middle School
CCAR, Inc., Carnegie, OK Educational Partners, Nashville, TN Parent Teacher Organization,
Concerned Parents and Patients of Edward James Olmos Educational Center, Goodlettsville, TN
Sickle Cell Disease (CPPSCD), Inc., Santa Fe Springs, CA Grady Community Center, Inc.,
Sacramento, CA Edwards Foundation, Inc., Beaverton, OR Grady, AR
Conversion Project, Inc., Los Angeles, CA EEM Corporation, Los Angeles, CA Great Compassion Buddhist Association,
Cool Springs Rotary Community Fund, Elijah Nichols Wilson Society, Rowland Heights, CA
Inc., Franklin, TN Petaluma, CA Greater Bakersfield Vision 2000, Inc.,
Coral Reef Elementary Act, Inc., Elmwood House Foundation, Inc., Bakersfield, CA
Miami, FL Cherry Hill, NJ Greater Columbia County Education
C P R Community Provided Resources, Emotional Fitness Center, Inc., Tempe, AZ Careers Foundation, Inc.,
Tucson, AZ Empowerment for Life, Inc., St. Helens, OR
Creative Artitudes, Richardson, TX Morgan City, LA Green Valley Parent/Teacher Club,
Critters in Crisis, Lawai, HI Englewood Masonic Family Scholarship Suisan City, CA
Crusade Outreach, Inc., Washington, DC Trust, Englewood, FL Grissly Foundation, Porterville, CA
Dallas Creative Problem Solving Ernest Kelly Outreach, Inc., Midway, GA Growth Objective Distribution,
Organization, Inc., Dallas, TX Eviction Defense Collaborative, Inc., Shreveport, LA
Dan Stover Music Awards, Inc., San Francisco, CA Guadalupe County Advocates Council,
San Marinos, CA Evolutions in Song, Inc., New York, NY Inc., Seguin, TX
Dance Safe, Oakland, CA Faith Family Medical Clinic, Guild Foundation, Inc., Woodbridge, CT
Deer Park Swim Club, Deer Park, TX Nashville, TN Gulf Coast Regional Community
Denny Association for Veterinary Family Medical Physician Group, Inc., Development Corporation, Houston, TX
Assistance, Tucson, AZ Colorado City, TX Hale O Honolulu, Honolulu, HI
Desert Willow PTO, Cave Creek, AZ Family to Family Americans for Prostate Harbor View Community Treatment
Design & Development Resources Cancer Awareness, Carson City, NV Facility, Inc., Oakland, CA
for Education and the Arts, Inc., Farmers Agribusiness Resources & Harvey Mason Foundation, Encino, CA
New York, NY Marketing, Inc., Alexandria, VA Hawaii Geographic Information
Dickson County Band Boosters, Inc., Fayetteville, Sister Cities, Inc., Coordinating Council, Honolulu, HI
Dickson, TN Fayetteville, AR Hawaii Good Samaritan Medical Relief
Directions, Inc., Busby, MT First Night Whittier, Whittier, CA Mission, Inc., Hilo, HI
Directions Unlimited Youth Vocational Florida Orlando Development Health Encouragement Through Active
Center, Ft. Collins, CO Corporation, Orlando, FL Living, Los Angeles, CA

2005–33 I.R.B. 320 August 15, 2005


Helen Lee Gentry Scholarship Fund, Lea County Womens Network, M O D E L Institute, Inc., Inglewood, CA
Loveland, OH Hobbs, NM Modesto North Rotary Club Foundation,
Heritage Preservation Society, Leander High School Alumni Association, Modesto, CA
Houston, TX Leander, TX Mozaic Minds, Inc.,
Highland High School Instrumental Music Learning Center, Inc., of North Little Colorado Springs, CO
Club, Bakersfield, CA Rock, North Little Rock, AR Mt. Pilgrim Institute of Academic
Hogar Manuel Mediavilla Negron, Inc., Lemanski Hall Foundation, Inc., Development, Inc., Anderson, IN
Humacao, FL Nashville, TN Multicultural Connections, Incorporated,
Hope Network of Montgomery County, Lexington Home Ownership Commission Merced, CA
Mt. Ida, AR II, Inc., Lexington, KY Na Lima Paepae O Lele, Lahaina, HI
H O P E NW, Inc., Portland, OR Liberty P A T S, Bakersfield, CA Nanook Basketball Tip Off Club, Inc.,
Hope Resources, Inc., Lindale, TX Life and Economic Improvement Council Fairbanks, AK
Housing & Economic Development, Inc., LEIC, Inc., Miami, FL National Association of Black Women,
Magdalena, NM LIFE (Lifeline Initiative for Family Altadena, CA
Housing Development, Inc., Empowerment) Center, Memphis, TN National Housing Assistance Corporation,
New Bremen, OH Life Plan Foundation, Phoenix, AZ Oxon Hill, MD
Human Services Alliance of Los Angeles, Lions Club of Honolulu Foundation, Inc., National-International Abstinence
Los Angeles, CA Honolulu, HI Association, Tucson, AZ
I Can Wait, Inc., New Orleans, LA Little River Symphony, Inc., National Organization Against Gangs,
Information Technologies Across Annandale, VA Vacaville, CA
Cultures, Espanola, NM Los Angeles Arts Foundation-V, National Police K9 Foundation, Inc.,
Inner-City Economic Development, Inc., Gardena, CA Rhinebeck, NY
Austin, TX Los Angeles Bach Society, La Canada, CA Nebraska Federation of Families for
Inner City Skills Center, Inc., Los Angeles Jazz Museum, Childrens Mental Health, N. Platte, NE
Los Angeles, CA Los Angeles, CA Nehemiah Partners, Edina, MN
InsightOut Enterprises, San Rafael, CA Los Lunas Schools Partners in Education, Neighbors International, Milton, MA
Institute for Consumer Credit Education, Los Lunas, NM Nevada Performing Arts, Inc., Sparks, NV
Tinley Park, IL Mala O Paulele A Me Aloha, Honolulu, HI New Beginning Corp., Miami, FL
Institute for the Study of Long-Term Mance Park Booster Club, Huntsville, TX New Creations Training Center,
Economic Trends, Forest Hills, NY Marumsco Creek Wildlife Foundation, Elk Grove, CA
International Coalition for Childrens Inc., Pocomoke City, MD New Futures for Nickerson Youth, Inc.,
Creative Communication, Meadow Lane Boosters, Lemoore, CA Los Angeles, CA
Culver City, CA Memphis Black Repertory Theatre, Inc., New Hope in Unity, Inc., Fort Pierce, FL
International Transpersonal Studies Memphis, TN New Horizons, Inc., New Roads, LA
Foundation, Honolulu, HI Mendenhall Rural Housing and New Leaf Community School,
Internet Anonymous, Inc., Reseda, CA Community Development Corporation, Phoenix, AZ
Inwood Heights Housing Development Jackson, MS New Life Thru Cars, Ceres, CA
Fund Corporation, Bronx, NY Menorah — The Boulder Center for Adult New Mexico Fiesta Educativa, Inc.,
Iris & Institute for Cultural Education, Jewish Education, Inc., Boulder, CO La Mesa, NM
Santa Fe, NM MentalHealthAmerica, Inc., New York Presbytery of the Lorean
Its Not Your Fault, Inc., Portland, OR Lexington, KY Presbyterian Church in America,
Jamal Anderson Miracle Foundation, Meritor Academy Parent Group, Oakland Gardens, NY
Duluth, GA Westlake Village, CA Non Profit Projects, Inc., Houston, TX
Jammin Foundation, Los Angeles, CA Metro Denver Gang Coalition, North American Wildlife Photography
John Onesti Foundation, Issaquah, WA Denver, CO Hall of Fame, Raymondville, TX
Katherine Dunn Parent Teacher Michael Douglas Jenner Youth Center, North Monterey County High School
Organization, Sparks, NV Inc., Sheperville, KY Athletic Boosters Organization,
Kentucky Appalachian Artisans Education Mid-Nebraska Community Center, Inc., Castroville, CA
Foundation, Inc., Hindman, KY Kearney, NE North Unity Council of La Raza,
Kenwood Charter School, Kenwood, CA Midsouth Leadership Alliance, Inc., Fort Worth, TX
Kigezi International School of Medicine Jackson, MS Northeast Arkansas Razorback Club, Inc.,
Foundation, Bellevue, WA Ministry Management Seminars, Paragould, AR
King Enterprises Youth Programs, Kent, WA Northeast Neighbors, Santa Monica, CA
Oakland, CA Mission Tucson, Inc., Tucson, AZ Northrise University Initiative,
Kolisko Institute, Santa Rosa, CA Mitzvah Outreach International, Inc., Glendale, CA
Latino Alcohol and Drug Services, Inc., Brooklyn, NY Northwest Valley Sunset Rotary Club
Modesto, CA Mobile Jazz Instruction Studio, Foundation, Sun City, AZ
Swanzey, NH

August 15, 2005 321 2005–33 I.R.B.


Norwalk-Knights Youth Hockey Club, Rad4Christ, etc., Inc., Wilmington, DE South Bay Workforce Investment
Norwalk, CA Red Hill Council, Carbondale, CO Consortium, Inc., Hawthorne, CA
Nowata Volunteer Fire Department, Inc., Renaissance Foundation of Alabama, Inc., South Los Angeles Economic
Nowata, OK Andalusia, AL Development Corporation,
Oceans and Earth Research Foundation, Renaissance on Farnam, Omaha, NE Los Angeles, CA
Inc., Dallas, TX Renewed Hope Charitable Foundation, South Perry Fire-EMS Association, Inc.,
Odyssey Industries, Inc., Ada, OK Castle Rock, CO Viper, KY
Oklahoma County Sheriffs Reserves, Riders of Azgard Search and Rescue Southeastern Oklahoma Social Services,
Oklahoma City, OK Team, San Antonio, TX Inc., Wilburton, OK
Oldtown Salinas Foundation, Salinas, CA River Valley Elementary Parent Teacher Southern African Cultural and Economic
Olympus Northwest Parent Support Student Organization, Inc., Meridian, ID Organization, Houston, TX
Group, Bellevue, WA Riverside for a Just Society, Inc., Southern Nevada Opera Association,
On Course Now, Inc., Rowlett, TX New York, NY Las Vegas, NV
Oncology Consultants Cancer Research Rivets, Inc., Las Vegas, NV SPCA Ambassadors, Monterey, CA
Fund, Inc., Cincinnati, OH RMDC Ptarmigan, Inc., Helena, MT Special Riders of Sumner,
One Vision Childrens Foundation, Robyn Institute on Violence, Cottontown, TN
Tempe, AZ Las Cruces, NM Springhurst Project, Kirkland, WA
Oregon Only, Salem, OR Rotary Club of Killeen Heights Charitable St. Gabriels 1st Goal, St. Gabriel, LA
O U R Childrens Center, Inc., Corporation, Temple, TX Strategic Leadership Institute, Seattle, WA
Harrison, AR Rural Access to Growth and Education, Suited for Success, Chattanooga, TN
Our House, Inc., Columbia, SC Inc., Imperial, NE Summit Community Health Education
Ovarian Cancer Alliance of Nevada, Russellville Cyclone Football Booster Center, Inc., Miami, FL
Las Vegas, NV Club, Inc., Fayetteville, AR Sunnyside Home Attendant Program,
Overtown Development Corporation, Russellville High School Renaissance Inc., Sunnyside, NY
Miami, FL Foundation, Inc., Russellville, AR Sunshine Foundation of USA, Inc.,
P. A. K. T., Albuquerque, NM S & P Foundation, San Ramon, CA Dale City, VA
P. J. Howard Scholarship Fund, Sacramento Geranium Club, Sunshine Homes, Inc., Tempe, AZ
Safford, AZ Sacramento, CA Supportive Employments Technologies,
Pacific Rim Cultural Foundation, Safe-on-Sixth, San Francisco, CA Vacaville, CA
Sherman Oaks, CA Safer St. Tammy, Inc., Lacombe, LA Sutter Buttes Sunrise Scholarship
Parker Sayles Foundation, Saint Andrews Renaissance Guild, Foundation, Yuba City, CA
N. Charleston, SC Incorporated, Reno, NV Synchronized on Ice, Long Beach, CA
Partners Helping People Foundation of San Leandro Charter Schools, Inc., Taft Volunteer Advisory Board, Inc.,
America, Alexandria, KY San Leandro, CA Pikeville, TN
Partnership Way, Clinton, IA Santa Clara County Black Firefighters Tennessee Musical Arts Group, Inc.,
Pena Del Sur, San Francisco, CA Association, San Jose, CA Nashville, TN
People Need People, Walnut Creek, CA Santa Paula Resource Youth Team, Terpsicorps, Palos Verdes, CA
Peoria Firefighters Olympic Committee, Santa Paula, CA Thunderbird Foundation for the Arts,
Peoria, AZ Save Our City Kids, Lake Elsinore, CA Ogden, UT
PORCH, Clarksdale, MS Save the Horse, Inc., Massapequa, NY Topcare, Inc., Glendora, CA
Prisoner Integration Experience PIE, Saving Wildlife International, Malibu, CA Torres Basketball Club, San Diego, CA
Las Vegas, NV Scott County Family Resource Total Outreach, Inc., Atlanta, GA
Prodigal Ranch Foundation, Silt, CO Organization, Huntsville, TN Trailhead Foundation, Mandeville, LA
Programa De Ayuda, Inc., Bend, OR Seniors Advocating for Equality, Truth Alternatives, Inc., Cinebar, WA
Progression in Education, Inc., Tacoma, WA Tumwater Hill Elementary PTA 4-4-35,
Reseda, CA Shawnee Park Cultural Renaissance Art Tumwater, WA
Progressive Housing Assistance, Series, Inc., Louisville, KY Tyee HUD 811 Housing, Kenai, AK
Manhattan Beach, CA Sheldon High School Drill and Flag Team Ujamaa Youth Education Foundation,
Progresso Foundation, Inc., Booster Club, Sacramento, CA Oakland, CA
Ft. Lauderdale, FL Shields Valley Foundation, Inc., Ujima Village Resident Council,
Project Graduation 2000, Texas City, TX Clyde Park, MT Los Angeles, CA
Project Success, Lebanon, OR Shiloh-Gibeah, Cottonwood, AZ Unitarian Universalist Community
Proyouth Ministries, Vancouver, WA Shoulder to Shoulder Ministries, Ministry Center, Berkeley, CA
PS Foundation, Sacramento, CA Folsom, CA United Assistance Corporation,
Pueblo of Laguna Boys and Girls Club, Sisters of Joy, Inc., Houston, TX South Gate, CA
Inc., Old Laguna, NM Skilltalk, Bellevue, WA Unlimited Entertainment, Inc.,
Purchasing Services Agency, Skillworks, Inc., Summit, NJ Long Beach, CA
San Francisco, CA Uptown Transportation, Inc., Orem, UT

2005–33 I.R.B. 322 August 15, 2005


U S Youth Flyfishing Association, Inc., Were Here for Kids, Inc., Youth Aid, Inc., Houston, TX
Van Buren, AR Santa Barbara, CA Yuma Main Street, Inc., Yuma, AZ
Utopian Health System, Inc., West Broward Family Empowerment Zanimals Children Foundation, Inc.,
Baton Rouge, LA Center, Lauderhill, FL Miami Beach, FL
Valley Action Community Services, West Wind Worship, Mission Viego, CA
Eloy, AZ Westminster Institute, Santa Barbara, CA If an organization listed above submits
Vaughns Valley Foundation, Westside Community Group, Inc., information that warrants the renewal of
Elk Grove, CA Coldwater, MS its classification as a public charity or as
Violet Foundation, Los Angeles, CA White Mountain Youth Alliance Teen a private operating foundation, the Inter-
Waldorf International Trading House, Advocacy Group, Show Low, AZ nal Revenue Service will issue a ruling or
Citrus Heights, CA Whitley County Family Violence determination letter with the revised clas-
Warren Avenue Baptist Church Housing Prevention Board, Inc., sification as to foundation status. Grantors
Project, Inc., Detroit, MI Williamsburg, KY and contributors may thereafter rely upon
Waterside Community Association, Wind River Therapeutic Riding Facility, such ruling or determination letter as pro-
Shreveport, LA Box Elder, SD vided in section 1.509(a)–7 of the Income
Watsonville Cultural Center, Wirikuta Peace Fellowship, Boulder, CO Tax Regulations. It is not the practice of
Watsonville, CA Wolf Pack, Plano, TX the Service to announce such revised clas-
Watsonville Police Assistance Fund, Yes We Can, Inc., Boca Raton, FL sification of foundation status in the Inter-
Watsonville, CA Young Actors Guild, Inc., Memphis, TN nal Revenue Bulletin.
Waverly United for Action, Inc., Young Musicians of Virginia,
Columbia, SC Virginia Beach, VA

August 15, 2005 323 2005–33 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.
EE—Employee. PHC—Personal Holding Company.
PO—Possession of the U.S.
E.O.—Executive Order.
PR—Partner.

2005–33 I.R.B. i August 15, 2005


Numerical Finding List1 Revenue Rulings:
Bulletins 2005–27 through 2005–33 2005-38, 2005-27 I.R.B. 6
Announcements: 2005-39, 2005-27 I.R.B. 1
2005-40, 2005-27 I.R.B. 4
2005-46, 2005-27 I.R.B. 63 2005-41, 2005-28 I.R.B. 69
2005-47, 2005-28 I.R.B. 71 2005-42, 2005-28 I.R.B. 67
2005-48, 2005-29 I.R.B. 111 2005-43, 2005-29 I.R.B. 88
2005-49, 2005-29 I.R.B. 119 2005-44, 2005-29 I.R.B. 87
2005-50, 2005-30 I.R.B. 152 2005-45, 2005-30 I.R.B. 123
2005-51, 2005-32 I.R.B. 283 2005-46, 2005-30 I.R.B. 120
2005-52, 2005-31 I.R.B. 257 2005-47, 2005-32 I.R.B. 261
2005-53, 2005-31 I.R.B. 258 2005-48, 2005-32 I.R.B. 259
2005-54, 2005-32 I.R.B. 283 2005-49, 2005-30 I.R.B. 125
2005-55, 2005-33 I.R.B. 317 2005-50, 2005-30 I.R.B. 124
2005-56, 2005-33 I.R.B. 318 2005-51, 2005-31 I.R.B. 163
2005-57, 2005-33 I.R.B. 318 2005-54, 2005-33 I.R.B. 289
2005-58, 2005-33 I.R.B. 319 2005-55, 2005-33 I.R.B. 284
Notices: Tax Conventions:
2005-48, 2005-27 I.R.B. 9 2005-47, 2005-28 I.R.B. 71
2005-49, 2005-27 I.R.B. 14
Treasury Decisions:
2005-50, 2005-27 I.R.B. 14
2005-51, 2005-28 I.R.B. 74 9208, 2005-31 I.R.B. 157
2005-52, 2005-28 I.R.B. 75 9209, 2005-31 I.R.B. 153
2005-53, 2005-32 I.R.B. 263 9210, 2005-33 I.R.B. 290
2005-54, 2005-30 I.R.B. 127 9211, 2005-33 I.R.B. 287
2005-55, 2005-32 I.R.B. 265
2005-56, 2005-32 I.R.B. 266
2005-57, 2005-32 I.R.B. 267
2005-58, 2005-33 I.R.B. 295

Proposed Regulations:

REG-130241-04, 2005-27 I.R.B. 18


REG-138362-04, 2005-33 I.R.B. 299

Revenue Procedures:

2005-35, 2005-28 I.R.B. 76


2005-36, 2005-28 I.R.B. 78
2005-37, 2005-28 I.R.B. 79
2005-38, 2005-28 I.R.B. 81
2005-39, 2005-28 I.R.B. 82
2005-40, 2005-28 I.R.B. 83
2005-41, 2005-29 I.R.B. 90
2005-42, 2005-30 I.R.B. 128
2005-43, 2005-29 I.R.B. 107
2005-44, 2005-29 I.R.B. 110
2005-45, 2005-30 I.R.B. 141
2005-46, 2005-30 I.R.B. 142
2005-47, 2005-32 I.R.B. 269
2005-48, 2005-32 I.R.B. 271
2005-49, 2005-31 I.R.B. 165
2005-50, 2005-32 I.R.B. 272
2005-51, 2005-33 I.R.B. 296

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2005–1 through 2005–26 is in Internal Revenue Bulletin
2005–26, dated June 27, 2005.

August 15, 2005 ii 2005–33 I.R.B.


Finding List of Current Actions on Revenue Procedures— Continued:
Previously Published Items1 98-18
Obsoleted by
Bulletins 2005–27 through 2005–33
Rev. Proc. 2005-45, 2005-30 I.R.B. 141
Notices:
2000-49
2005-51 Superseded by
Modified and superseded by Rev. Proc. 2005-41, 2005-29 I.R.B. 90
Notice 2005-57, 2005-32 I.R.B. 267 2001-16
Proposed Regulations: Superseded by
Rev. Proc. 2005-42, 2005-30 I.R.B. 128
REG-142686-01
2002-9
Withdrawn by
Modified and amplified by
Ann. 2005-55, 2005-33 I.R.B. 317
Rev. Rul. 2005-42, 2005-28 I.R.B. 67
REG-100420-03 Rev. Proc. 2005-35, 2005-28 I.R.B. 76
Corrected by Rev. Proc. 2005-43, 2005-29 I.R.B. 107
Rev. Proc. 2005-47, 2005-32 I.R.B. 269
Ann. 2005-57, 2005-33 I.R.B. 318
2004-50
REG-102144-04
Superseded by
Corrected by
Rev. Proc. 2005-49, 2005-31 I.R.B. 165
Ann. 2005-56, 2005-33 I.R.B. 318
Revenue Rulings:
Revenue Procedures:
65-109
64-54
Obsoleted by
Obsoleted by
Rev. Rul. 2005-43, 2005-29 I.R.B. 88
Rev. Rul. 2005-43, 2005-29 I.R.B. 88
68-549
66-33
Obsoleted by
Obsoleted by
Rev. Rul. 2005-43, 2005-29 I.R.B. 88
Rev. Rul. 2005-43, 2005-29 I.R.B. 88
82-29
69-13
Modified and clarified by
Obsoleted by
Rev. Proc. 2005-39, 2005-28 I.R.B. 82
Rev. Rul. 2005-43, 2005-29 I.R.B. 88
2005-41
70-8
Corrected by
Modified by
Ann. 2005-50, 2005-30 I.R.B. 152
Rev. Proc. 2005-46, 2005-30 I.R.B. 142

71-1 Treasury Decisions:


Obsoleted by
9186
Rev. Rul. 2005-43, 2005-29 I.R.B. 88
Corrected by
72-22 Ann. 2005-53, 2005-31 I.R.B. 258
Obsoleted by
9206
Rev. Rul. 2005-43, 2005-29 I.R.B. 88
Corrected by
87-8 Ann. 2005-49, 2005-29 I.R.B. 119
Obsoleted by
9207
Rev. Proc. 2005-44, 2005-29 I.R.B. 110
Corrected by
87-9 Ann. 2005-52, 2005-31 I.R.B. 257
Obsoleted by
Rev. Proc. 2005-44, 2005-29 I.R.B. 110

90–11
Modified by
Rev. Proc. 2005-40, 2005-28 I.R.B. 83

93-22
Obsoleted by
Rev. Proc. 2005-44, 2005-29 I.R.B. 110

1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2005–1 through 2005–26 is in Internal Revenue Bulletin 2005–26, dated June 27, 2005.

2005–33 I.R.B. iii *U.S. Government Printing Office: 2005—310–365/20018 August 15, 2005