TaxAlmanac - New pages [en]

Notice 2009-94

Trillium — Wed, 25 Nov 2009 17:00:18 GMT

Summary: add n09-94

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Internal Revenue Bulletin: TBD

Date TBD 

Part III -- Administrative, Procedural, and Miscellaneous

'''2010 Limitations Adjusted As Provided in Section 415(d), etc. 1 '''

'''Notice 2009-94'''

__TOC__

Section 415 of the Internal Revenue Code (the Code) provides for dollar
limitations on benefits and contributions under qualified retirement plans. Section 415(d)
requires that the Commissioner annually adjust these limits for cost-of-living increases.
Other limitations applicable to deferred compensation plans are also affected by these
adjustments under § 415. Under § 415(d), the adjustments are to be made pursuant to
adjustment procedures which are similar to those used to adjust benefit amounts under
section 215(i)(2)(A) of the Social Security Act.

The limitations that are adjusted by reference to § 415(d) will remain unchanged
for 2010. This is because the cost-of-living index for the quarter ended
September 30, 2009, is less than the cost-of-living index for the quarter ended
September 30, 2008, and, following the procedures under the Social Security Act for
adjusting benefit amounts, any decline in the applicable index cannot result in a reduced
limitation. For example, the limitation under § 402(g)(1) on the exclusion for elective
deferrals described in § 402(g)(3) will be $16,500 for 2010, which is the same amount as
for 2009. This limitation affects elective deferrals to § 401(k) plans and to the Federal
Government’s Thrift Savings Plan, among other plans.

==Cost-of-Living Adjusted Limits for 2010 ==

Effective January 1, 2010, the limitation on the annual benefit under a defined
benefit plan under § 415(b)(1)(A) remains unchanged at $195,000. For participants who
separated from service before January 1, 2010, the limitation for defined benefit plans
under § 415(b)(1)(B) is computed by multiplying the participant's compensation
limitation, as adjusted through 2009, by 1.0000.

The limitation for defined contribution plans under § 415(c)(1)(A) remains
unchanged for 2010 at $49,000.

The Code provides that various other dollar amounts are to be adjusted at the
same time and in the same manner as the dollar limitation of § 415(b)(1)(A). After taking
into account the applicable rounding rules, the amounts for 2010 are as follows:
:The limitation under § 402(g)(1) on the exclusion for elective deferrals described in § 402(g)(3) remains unchanged at $16,500.
:The annual compensation limit under §§ 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) remains unchanged at $245,000.
:The dollar limitation under § 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan remains unchanged at $160,000.
:The dollar amount under § 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5-year distribution period remains unchanged at $985,000, while the dollar amount used to determine the lengthening of the 5-year distribution period remains unchanged at $195,000.
:The limitation used in the definition of highly compensated employee under § 414(q)(1)(B) remains unchanged at $110,000.
:The dollar limitation under § 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in § 401(k)(11) or 408(p) for individuals aged 50 or over remains unchanged at $5,500. The dollar limitation under § 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in § 401(k)(11) or 408(p) for individuals aged 50 or over remains unchanged at $2,500.
:The annual compensation limitation under § 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost-of-living adjustments to the compensation limitation under the plan under § 401(a)(17) to be taken into account, remains unchanged at $360,000.
:The compensation amount under § 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $550.
:The limitation under § 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $11,500.
:The limitation on deferrals under § 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations remains unchanged at $16,500.
:The compensation amounts under § 1.61-21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation purposes remains unchanged at $95,000. The compensation amount under § 1.61-21(f)(5)(iii) remains unchanged at $195,000.

The Code also provides that several pension-related amounts are to be adjusted
using the cost-of-living adjustment under § 1(f)(3). After taking the applicable rounding
rules into account, the amounts for 2010 are as follows:
:The adjusted gross income limitation under § 25B(b)(1)(A) for determining the retirement savings contribution credit for taxpayers filing a joint return is increased from $33,000 to $33,500; the limitation under § 25B(b)(1)(B) remains unchanged at $36,000; and the limitation under § 25B(b)(1)(C) and (D) remains unchanged at $55,500.
:The adjusted gross income limitation under § 25B(b)(1)(A) for determining the retirement savings contribution credit for taxpayers filing as head of household is increased from $24,750 to $25,125; the limitation under § 25B(b)(1)(B) remains unchanged at $27,000; and the limitation under § 25B(b)(1)(C) and (D) remains unchanged at $41,625.
:The adjusted gross income limitation under § 25B(b)(1)(A) for determining the retirement savings contribution credit for all other taxpayers is increased from $16,500 to $16,750; the limitation under § 25B(b)(1)(B) remains unchanged at $18,000; and the limitation under § 25B(b)(1)(C) and (D) remains unchanged at $27,750.
:The deductible amount under § 219(b)(5)(A) for an individual making qualified retirement contributions remains unchanged at $5,000.
:The applicable dollar amount under § 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) remains unchanged at $89,000. The applicable dollar amount under § 219(g)(3)(B)(ii) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $55,000 to $56,000. The applicable dollar amount under § 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $166,000 to $167,000.
:The adjusted gross income limitation under § 408A(c)(3)(C)(ii)(I) for determining the maximum Roth IRA contribution for taxpayers filing a joint return or as a qualifying widow(er) is increased from $166,000 to $167,000. The adjusted gross income limitation under § 408A(c)(3)(C)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) remains unchanged at $105,000.

==Drafting Information ==
The principal author of this notice is John Heil of the Employee Plans, Tax
Exempt and Government Entities Division. For further information regarding the data in
this notice, please contact the Employee Plans’ taxpayer assistance telephone service at
1-877-829-5500 (a toll-free call) between the hours of 8:30 a.m. and 4:30 p.m. Eastern
time Monday through Friday. For information regarding the methodology used in arriving
at the data in this notice, please e-mail Mr. Heil at RetirementPlanQuestions@irs.gov.

Footnotes:

1. Based on News Release IR-2009-94 dated October 15, 2009.

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T.D. 9448

Trillium — Mon, 23 Nov 2009 06:08:05 GMT

Summary: add TD9448

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Internal Revenue Bulletin: 2009-20

May 18, 2009

'''T.D. 9448'''

'''Use of Actuarial Tables in Valuing Annuities, Interests for Life or Terms of Years, and Remainder or Reversionary Interests'''

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 54

__TOC__

==AGENCY:==

Internal Revenue Service (IRS), Treasury.

==ACTION:==

Final and temporary regulations.

==SUMMARY:==

This document contains regulations relating to the use of actuarial tables in valuing annuities, interests for life or terms of years, and remainder or reversionary interests. These regulations will affect the valuation of inter vivos and testamentary transfers of interests dependent on one or more measuring lives. These regulations are necessary because section 7520(c)(3) directs the Secretary to update the actuarial tables to reflect the most recent mortality experience available. The text of the temporary regulations also serves as the text of the proposed regulations (REG-107845-08) set forth in the notice of proposed rulemaking on this subject elsewhere in this issue of the Bulletin.

==DATES:==

''Effective Date:'' These regulations are effective on May 1, 2009.

''Applicability Date:'' These regulations apply on May 1, 2009.

==FOR FURTHER INFORMATION CONTACT:==

Mayer R. Samuels, (202) 622-3090 (not a toll-free number).

==SUPPLEMENTARY INFORMATION:==

===Background===

This document contains amendments to the regulations revising certain tables used for the valuation of partial interests in property under section 7520 of the Internal Revenue Code of 1986 (Code) to reflect the most recent mortality experience available.

===In General===

Section 7520, effective for transfers for which the valuation date is after April 30, 1989, provides generally that the value of an annuity, an interest for life or a term of years, and a remainder or reversionary interest is to be determined under tables published by the Secretary by using an interest rate (rounded to the nearest two-tenths of one percent) equal to 120 percent of the Federal midterm rate in effect under section 1274(d)(1) for the month in which the valuation date falls. Section 7520(c)(3) directed the Secretary to issue tables not later than December 31, 1989, utilizing the then most recent mortality experience. Thereafter, the Secretary is directed to revise these tables not less frequently than once each 10 years to take into account the most recent mortality experience available as of the time of the revision.

These temporary regulations, REG-107845-08, incorporate revised Table S (Single Life Remainder Factors) and Table U(1) (Unitrust Single Life Remainder Factors), effective for transfers for which the valuation date is on or after May 1, 2009, based on data compiled from the 2000 census as set forth in Life Table 2000CM, and make conforming amendments to various sections to reflect the revised tables. At the same time, in the portions of these regulations that are final regulations, REG-105643-09, the current tables, effective for transfers for which the valuation date is after April 30, 1999, and before May 1, 2009, are moved to sections containing actuarial material for historical reference. Table B, Table D, Tables F(4.2) through F(14.0), Table J, and Table K, which are not based on mortality experience, are not changed. Internal Revenue Service Publications 1457 “Actuarial Valuations Version 3A” (forthcoming 2009), 1458 “Actuarial Valuations Version 3B” (forthcoming 2009), and 1459 “Actuarial Valuations Version 3C” (forthcoming 2009) will contain a complete set of actuarial tables that include factors not contained in the temporary regulations (for example, annuity and life interest factors). These publications will be available beginning May 1, 2009, at no charge, electronically via the IRS Internet site at www.irs.gov.

The following chart summarizes the applicable interest rates and the citations to textual materials and tables for the various periods covered under the current regulations:

'''''Cross Reference to Regulation Sections'''''
{||
|-
| col width="100" align="center" |Valuation Period
| col width="30" align="center" |Interest Rate
| col width="50" align="center" |Regulation Section
| col width="80" align="center" |Table 
|-
|''Section 642: ''
|-
|...Valuation, in general|| -|| 1.642(c)–6
|-
|before 01/01/52|| 4%|| 1.642(c)–6A(a)
|-
|01/01/52 - 12/31/70|| 3.5%|| 1.642(c)–6A(b)
|-
|01/01/71 - 11/30/83|| 6%|| 1.642(c)–6A(c)
|-
|12/01/83 - 04/30/89|| 10%|| 1.642(c)–6A(d) ||Table G
|-
|05/01/89 - 04/30/99|| §7520|| 1.642(c)–6A(e) ||Table S (5/1/89 - 4/30/99)
|-
|05/01/99 - 04/30/09|| §7520|| 1.642(c)–6A(f) ||Table S (5/1/99 - 04/30/09)
|-
|on or after 05/01/09|| §7520|| 1.642(c)–6T(e) ||Table S (on or after 05/01/09)
|-
|''Section 664: ''
|-
|...Valuation, in general|| -|| 1.664–4
|-
|before 01/01/52|| 4%|| 1.664–4A(a)
|-
|01/01/52 - 12/31/70|| 3.5%|| 1.664–4A(b)
|-
|01/01/71 - 11/30/83|| 6%|| 1.664–4A(c)
|-
|12/01/83 - 04/30/89|| 10%|| 1.664–4A(d) ||Table E, Table F(1)
|-
|05/01/89 - 04/30/99|| §7520|| 1.664–4A(e) ||Table U(1) (5/1/89 - 4/30/99)
|-
|05/01/99 - 04/30/09|| §7520|| 1.664–4A(f) ||Table U(1) (5/1/99 - 04/30/09
|-
|on or after 05/01/09|| §7520|| 1.664–4T(e) ||Table U(1) (on or after 05/01/09
|-
| || ||1.664–4(e) ||Table D and Tables F(4.2) - F(14.0)
|-
|''Section 2031: ''
|-
|...Valuation, in general|| -|| 20.2031–7
|-
|before 01/01/52|| 4%|| 20.2031–7A(a)
|-
|01/01/52 - 12/31/70|| 3.5%|| 20.2031–7A(b)
|-
|01/01/71 - 11/30/83|| 6%|| 20.2031–7A(c)
|-
|12/01/83 - 04/30/89|| 10%|| 20.2031–7A(d) ||Table A, Table B, Table LN
|-
|05/01/89 - 04/30/99|| §7520|| 20.2031–7A(e) ||Table S (5/1/89 - 4/30/99) and Life Table 80CNSMT
|-
|05/01/99 - 04/30/09|| §7520|| 20.2031–7A(f) ||Table S (5/1/99 - 4/30/09) and Life Table 90 CM
|-
|on or after 05/01/09|| §7520|| 20.2031–7T(d) ||Table S (on or after 05/01/09) and Life Table 2000CM
|-
| || ||20.2031–7(d) ||Table B, Table J, Table K
|-
|''Section 2512:''
|-
|...Valuation, in general|| -|| 25.2512–5
|-
|before 01/01/52|| 4%|| 25.2512–5A(a)
|-
|01/01/52 - 12/31/70|| 3.5%|| 25.2512–5A(b)
|-
|01/01/71 - 11/30/83|| 6%|| 25.2512–5A(c)
|-
|12/01/83 - 04/30/89|| 10%|| 25.2512–5A(d)
|-
|05/01/89 - 04/30/99|| §7520|| 25.2512–5A(e)
|-
|05/01/99 - 04/30/09|| §7520|| 25.2512–5A(f)
|-
|on or after 05/01/09|| §7520|| 25.2512–5T(d)
|-
|}

===Effective Dates===

These regulations are applicable in the case of annuities, interests for life or terms of years, and remainder or reversionary interests valued as of a date on or after May 1, 2009.

===Transitional Rules===

The regulations provide certain transitional rules intended to alleviate any adverse consequences resulting from the proposed regulatory change. For gift tax purposes, if the date of a transfer is on or after May 1, 2009, but before July 1, 2009, the donor may choose to determine the value of the gift (and/or any applicable charitable deduction) under tables based on either Life Table 90CM or Table 2000CM. Similarly, for estate tax purposes, if the decedent dies on or after May 1, 2009, but before July 1, 2009, the value of any interest (and/or any applicable charitable deduction) may be determined in the discretion of the decedent’s executor under tables based on either Life Table 90CM or Table 2000CM. However, the section 7520 interest rate to be utilized is the appropriate rate for the month in which the valuation date occurs, subject to the following special rule for certain charitable transfers. Specifically, in accordance with this transitional rule and the rules contained in §§1.7520-2(a)(2), 20.7520-2(a)(2) and 25.7520-2(a)(2), in cases involving a charitable deduction, if the valuation date occurs on or after May 1, 2009, and before July 1, 2009, and the executor or donor elects under section 7520(a) to use the section 7520 interest rate for March 2009 or April 2009, then the mortality experience contained in 90CM must be used. If the executor or donor uses the section 7520 interest rate for May 2009 or for June 2009, then the tables based on either Table 90CM or Table 2000CM may be used. However, if the valuation date occurs after June 30, 2009, the executor or donor must use the new mortality experience contained in Table 2000CM even if the use of a prior month’s interest rate is elected under section 7520(a).

In addition, for estate tax purposes, the estate of a mentally incompetent decedent may elect to value the property interest included in the gross estate either under the mortality table and interest rate in effect at the time the decedent became mentally incompetent or under the mortality table and interest rate in effect on the decedent’s date of death if the decedent was under a mental incapacity that existed on May 1, 2009, and continued uninterrupted until the decedent’s death, or the decedent died within 90 days after regaining competency on or after May 1, 2009.

===Special Analyses===

It has been determined that this Treasury decision is not a significant regulatory action as defined in EO 12866. Therefore, a regulatory assessment is not required. For applicability of the Regulatory Flexibility Act, please refer to the cross-referenced notice of proposed rulemaking published elsewhere in this Bulletin. Pursuant to section 7805(f) of the Internal Revenue Code, these regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

==Adoption of Amendments to the Regulations==

Accordingly, 26 CFR parts 1, 20, and 25 are amended as follows:

===PART 1—INCOME TAXES===

Paragraph 1. The authority citation for part 1 is amended by adding entries in numerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Section 1.170A-12T also issued under 26 U.S.C. 170(f)(4).

Section 1.642(c)-6T also issued under 26 U.S.C. 642(c)(5).

Section 1.664-4T also issued under 26 U.S.C. 664(a).

Section 1.7520-1T also issued under 26 U.S.C. 7520(c)(2).

Par. 2. Sections 1.170A-12 is amended by revising paragraphs (b)(2) and (b)(3) and adding paragraph (f) to read as follows:

'''''§1.170A-12 Valuation of a remainder interest in real property for contributions made after July 31, 1969.'''''

<nowiki>* * * * *</nowiki>

(b)(2) and (b)(3) [Reserved]. For further guidance, see §§1.170A-12T(b)(2) and (b)(3).

<nowiki>* * * * *</nowiki>

(f) ''Effective/applicability date''. This section applies to contributions made after July 31, 1969.

Par. 3. Section 1.170A-12T is added to read as follows:

'''''§1.170A-12T Valuation of a remainder interest in real property for contributions made after July 31, 1969 (temporary).'''''

(a) through (b)(1) [Reserved]. For further guidance, see §1.170A-12(a) through (b)(1).

(b)(2) Computation of depreciation factor. If the valuation of the remainder interest in depreciable property is dependent upon the continuation of one life, a special factor must be used. The factor determined under this paragraph (b)(2) is carried to the fifth decimal place. The special factor is to be computed on the basis of the interest rate and life contingencies prescribed in §20.2031-7T (or for periods before May 1, 2009, §20.2031-7A) and on the assumption that the property depreciates on a straight-line basis over its estimated useful life. For transfers for which the valuation date is on or after May 1, 2009, special factors for determining the present value of a remainder interest following one life and an example describing the computation are contained in Internal Revenue Service Publication 1459, “Actuarial Valuations Version 3C” (2009). This publication will be available beginning May 1, 2009, at no charge, electronically via the IRS Internet site at www.irs.gov. For transfers for which the valuation date is after April 30, 1999, and before May 1, 2009, special factors for determining the present value of a remainder interest following one life and an example describing the computation are contained in Internal Revenue Service Publication 1459, “Actuarial Values, Book Gimel,” (7-99). For transfers for which the valuation date is after April 30, 1989, and before May 1, 1999, special factors for determining the present value of a remainder interest following one life and an example describing the computation are contained in Internal Revenue Service Publication 1459, “Actuarial Values, Gamma Volume,” (8-89). These publications are no longer available for purchase from the Superintendent of Documents, United States Government Printing Office. However, they may be obtained by requesting a copy from: CC:PA:LPD:PR (IRS Publication 1459), Room 5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. See, however, §1.7520-3(b) (relating to exceptions to the use of prescribed tables under certain circumstances). Otherwise, in the case of the valuation of a remainder interest following one life, the special factor may be obtained through use of the following formula:
[http://www.irs.gov/irb/2009-20_IRB/2009-20_td-9448_formula.html Click link to view formula], where:
:n=the estimated number of years of useful life,
:i=the applicable interest rate under section 7520 of the Internal Revenue Code,
:v=1 divided by the sum of 1 plus the applicable interest rate under section 7520 of the Internal Revenue Code,
:x=the age of the life tenant, and
:lx=number of persons living at age x as set forth in Table 2000CM of §20.2031-7T (or, for periods before May 1, 2009, the tables set forth under §20.2031-7A).

(3) The following example illustrates the provisions of this paragraph (b):Example. A, who is 62, donates to Y University a remainder interest in a personal residence, consisting of a house and land, subject to a reserved life estate in A. At the time of the gift, the land has a value of $30,000 and the house has a value of $100,000 with an estimated useful life of 45 years, at the end of which period the value of the house is expected to be $20,000. The portion of the property considered to be depreciable is $80,000 (the value of the house ($100,000) less its expected value at the end of 45 years ($20,000)). The portion of the property considered to be nondepreciable is $50,000 (the value of the land at the time of the gift ($30,000) plus the expected value of the house at the end of 45 years ($20,000)). At the time of the gift, the interest rate prescribed under section 7520 is 8.4 percent. Based on an interest rate of 8.4 percent, the remainder factor for $1.00 prescribed in §20.2031-7T(d) for a person age 62 is 0.26534. The value of the nondepreciable remainder interest is $13,267.00 (0.26534 times $50,000). The value of the depreciable remainder interest is $15,053.60 (0.18817, computed under the formula described in paragraph (b)(2) of this section, times $80,000). Therefore, the value of the remainder interest is $28,320.60.

(c) through (e) [Reserved]. For further guidance, see §1.170A-12(c) through (e).

(f) ''Effective/applicability date''. Paragraphs (b)(2) and (b)(3) apply to all contributions made on or after May 1, 2009.

(g) ''Expiration date.'' Paragraphs (b)(2) and (b)(3) expire on or before May 1, 2012.

Par. 4. Section 1.642(c)-6 is amended as follows:

1. Paragraph (d) is removed.

2. Paragraph (e) is redesignated as paragraph (f) of §1.642(c)-6A.

3. New paragraphs (d) and (e) are added.

4. Paragraph (f) is revised.

The revisions and addition read as follows:

'''''§1.642(c)-6 Valuation of a remainder interest in property transferred to a pooled income fund.'''''

<nowiki>* * * * *</nowiki>

(d) and (e) [Reserved]. For further guidance, see §1.642(c)-6T(d) and (e).

(f) Effective/applicability dates. This section applies after April 30, 1999, and before May 1, 2009.

Par. 5. Section 1.642(c)-6T is added to read as follows:

'''''§1.642(c)-6T Valuation of a remainder interest in property transferred to a pooled income fund (temporary).'''''

(a) through (c) [Reserved]. For further guidance, see §1.642(c)-6(a) through (c).

(d) Valuation. The present value of the remainder interest in property transferred to a pooled income fund on or after May 1, 2009, is determined under paragraph (e) of this section. The present value of the remainder interest in property transferred to a pooled income fund for which the valuation date is before May 1, 2009, is determined under the following sections:

'''''Cross Reference to Regulation Sections'''''
{||
|-
| colspan="2" align="center" |Valuation Dates
|-
| col width="40" align="center" |After
| col width="40" align="center" |Before
| col width="80" align="center" |Applicable Regulations
|-
|''(all dates before)''|| 01-01-52|| 1.642(c)-6A(a)
|-
|12-31-51|| 01-01-71|| 1.642(c)-6A(b)
|-
|12-31-70|| 12-01-83|| 1.642(c)-6A(c)
|-
|11-30-83|| 05-01-89|| 1.642(c)-6A(d)
|-
|04-30-89|| 05-01-99|| 1.642(c)-6A(e)
|-
|04-30-99|| 05/01/09|| 1.642(c)-6A(f)
|-
|}

(e) ''Present value of the remainder interest in the case of transfers to pooled income funds for which the valuation date is on or after May 1, 2009''—(1) ''In general.'' In the case of transfers to pooled income funds for which the valuation date is on or after May 1, 2009, the present value of a remainder interest is determined under this section. See, however, §1.7520-3(b) (relating to exceptions to the use of prescribed tables under certain circumstances). The present value of a remainder interest that is dependent on the termination of the life of one individual is computed by the use of Table S in paragraph (e)(6) of this section. For purposes of the computations under this section, the age of an individual is the age at the individual’s nearest birthday.

(2) ''Transitional rules for valuation of transfers to pooled income funds''. (i) For purposes of sections 2055, 2106, or 2624, if on May 1, 2009, the decedent was mentally incompetent so that the disposition of the property could not be changed, and the decedent died on or after May 1, 2009, without having regained competency to dispose of the decedent’s property, or the decedent died within 90 days of the date that the decedent first regained competency on or after May 1, 2009, the present value of a remainder interest is determined as if the valuation date with respect to the decedent’s gross estate is either before or after May 1, 2009, at the option of the decedent’s executor.

(ii) For purposes of sections 170, 2055, 2106, 2522, or 2624, in the case of transfers to a pooled income fund for which the valuation date is on or after May 1, 2009, and before July 1, 2009, the present value of the remainder interest under this section is determined by use of the section 7520 interest rate for the month in which the valuation date occurs (see §§1.7520-1(b) and 1.7520-2(a)(2)) and the appropriate actuarial tables under either paragraph (e)(6) of this section or §1.642(c)-6A(f)(6), at the option of the donor or the decedent’s executor, as the case may be.

(iii) For purposes of paragraphs (e)(2)(i) and (e)(2)(ii) of this section, where the donor or decedent’s executor is given the option to use the appropriate actuarial tables under either paragraph (e)(6) of this section or §1.642(c)-6A(f)(6), the donor or decedent’s executor must use the same actuarial table with respect to each individual transaction and with respect to all transfers occurring on the valuation date (for example, gift and income tax charitable deductions with respect to the same transfer must be determined based on the same tables, and all assets includible in the gross estate and/or estate tax deductions claimed must be valued based on the same tables).

(3) ''Present value of a remainder interest.'' The present value of a remainder interest in property transferred to a pooled income fund is computed on the basis of—

(i) Life contingencies determined from the values of lx that are set forth in Table 2000CM in §20.2031-7T(d)(7) (see §20.2031-7A for certain prior periods); and

(ii) Discount at a rate of interest, compounded annually, equal to the highest yearly rate of return of the pooled income fund for the 3 taxable years immediately preceding its taxable year in which the transfer of property to the fund is made. For purposes of this paragraph (e), the yearly rate of return of a pooled income fund is determined as provided in §1.642(c)-6(c) unless the highest rate of return is deemed to be the rate described in paragraph (e)(4) of this section for funds in existence less than 3 taxable years. For purposes of this paragraph (e)(3)(ii), the first taxable year of a pooled income fund is considered a taxable year even though the taxable year consists of less than 12 months. However, appropriate adjustments must be made to annualize the rate of return earned by the fund for that period. Where it appears from the facts and circumstances that the highest yearly rate of return of the fund for the 3 taxable years immediately preceding the taxable year in which the transfer of property is made has been purposely manipulated to be substantially less than the rate of return that would otherwise be reasonably anticipated with the purpose of obtaining an excessive charitable deduction, that rate of return may not be used. In that case, the highest yearly rate of return of the fund is determined by treating the fund as a pooled income fund that has been in existence for less than 3 preceding taxable years.

(4) ''Pooled income funds in existence less than 3 taxable years.'' If a pooled income fund has been in existence less than 3 taxable years immediately preceding the taxable year in which the transfer is made to the fund and the transfer to the fund is made after April 30, 1989, the highest rate of return is deemed to be the interest rate (rounded to the nearest two-tenths of one percent) that is 1 percent less than the highest annual average of the monthly section 7520 rates for the 3 calendar years immediately preceding the calendar year in which the transfer to the pooled income fund is made. The deemed rate of return for transfers to new pooled income funds is recomputed each calendar year using the monthly section 7520 rates for the 3-year period immediately preceding the calendar year in which each transfer to the fund is made until the fund has been in existence for 3 taxable years and can compute its highest rate of return for the 3 taxable years immediately preceding the taxable year in which the transfer of property to the fund is made in accordance with the rules set forth in the first sentence of paragraph (e)(3)(ii) of this section.

(5) ''Computation of value of remainder interest.'' (i) The factor that is used in determining the present value of a remainder interest that is dependent on the termination of the life of one individual is the factor from Table S in paragraph (e)(6) of this section under the appropriate yearly rate of return opposite the number that corresponds to the age of the individual upon whose life the value of the remainder interest is based (See §1.642(c)-6A for certain prior periods). The tables in paragraph (e)(6) of this section include factors for yearly rates of return from 0.2 to 14 percent. Many actuarial factors not contained in the tables in paragraph (e)(6) of this section are contained in Table S in Internal Revenue Service Publication 1457, “Actuarial Valuations Version 3A” (2009). This publication will be available beginning May 1, 2009, at no charge, electronically via the IRS Internet site at www.irs.gov. For other situations, see §1.642(c)-6(b). If the yearly rate of return is a percentage that is between the yearly rates of return for which factors are provided, a linear interpolation must be made. The present value of the remainder interest is determined by multiplying the fair market value of the property on the valuation date by the appropriate remainder factor.

(ii) This paragraph (e)(5) may be illustrated by the following example:

''Example''. A, who is 54 years and 8 months, transfers $100,000 to a pooled income fund, and retains a life income interest in the property. The highest yearly rate of return earned by the fund for its 3 preceding taxable years is 9.47 percent. In Table S, the remainder factor opposite 55 years under 9.4 percent is .16192 and under 9.6 percent is .15755. The present value of the remainder interest is $16,039.00, computed as follows:

{|
|-
|Factor at 9.4 percent for age 55|| .16192
|-
|Factor at 9.6 percent for age 55|| .15755
|-
|Difference|| .00437
|-
|Interpolation adjustment:
|-
|9.47% - 9.4% ||= ||x
|-
|0.2% || ||.00437
|-
| || ||x = .00153
|-
|Factor at 9.4 percent for age 55|| .16192
|-
|Less: Interpolation adjustment ||''.00153''
|-
|Interpolated factor|| .16039
|-
|Present value of remainder interest:
|-
|($100,000 X .16039)|| $16,039.00
|-
|}

(6) ''Actuarial tables.'' In the case of transfers for which the valuation date is on or after May 1, 2009, the present value of a remainder interest dependent on the termination of one life in the case of a transfer to a pooled income fund is determined by use of the following Table S:

'''Table S'''

'''''Tables in this section not yet imported - see [http://www.irs.gov/irb/2009-20_IRB/ar09.html IRB 2009-20] for tables'''''

(f) ''Effective/applicability date''. This section applies on or after May 1, 2009.

(g) ''Expiration date.'' This section expires on or before May 1, 2012.

Par. 6. The undesignated center heading immediately preceding §1.642(c)-6A is revised to read as follows:

Pooled Income Fund Actuarial Tables Applicable Before May 1, 2009
Par. 7. Section 1.642(c)-6A is amended by:

1. Revising the section heading.

2. Amending newly-designated paragraph (f) as follows:

a. Paragraph (f) heading is revised.

b. Paragraphs (f)(1), (f)(2), (f)(3), (f)(4), and (f)(5) are revised.

c. The introductory text in paragraph (f)(6) and the heading preceding Table S is are revised.

d. Paragraph (f)(7) is added.

The revisions and addition read as follows:

'''''§1.642(c)-6A Valuation of charitable remainder interests for which the valuation date is before May 1, 2009.'''''

<nowiki>* * * * *</nowiki>

(f) ''Present value of the remainder interest in the case of transfers to pooled income funds for which the valuation date is after April 30, 1999, and before May 1, 2009''—(1)'' In general''. In the case of transfers to pooled income funds for which the valuation date is after April 30, 1999, and before May 1, 2009, the present value of a remainder interest is determined under this section. See, however, §1.7520-3(b) (relating to exceptions to the use of prescribed tables under certain circumstances). The present value of a remainder interest that is dependent on the termination of the life of one individual is computed by the use of Table S in paragraph (f)(6) of this section. For purposes of the computations under this section, the age of an individual is the age at the individual’s nearest birthday.

(2)'' Transitional rules for valuation of transfers to pooled income funds. ''(i) For purposes of sections 2055, 2106, or 2624, if on May 1, 1999, the decedent was mentally incompetent so that the disposition of the property could not be changed, and the decedent died after April 30, 1999, without having regained competency to dispose of the decedent’s property, or the decedent died within 90 days of the date that the decedent first regained competency after April 30, 1999, the present value of a remainder interest is determined as if the valuation date with respect to the decedent’s gross estate is either before May 1, 1999, or after April 30, 1999, at the option of the decedent’s executor.

(ii) For purposes of sections 170, 2055, 2106, 2522, or 2624, in the case of transfers to a pooled income fund for which the valuation date is after April 30, 1999, and before July 1, 1999, the present value of the remainder interest under this section is determined by use of the section 7520 interest rate for the month in which the valuation date occurs (see §§1.7520-1(b) and 1.7520-2(a)(2)) and the appropriate actuarial tables under either paragraph (e)(5) or (f)(6) of this section, at the option of the donor or the decedent’s executor, as the case may be.

(iii) For purposes of paragraphs (f)(2)(i) and (f)(2)(ii) of this section, where the donor or decedent’s executor is given the option to use the appropriate actuarial tables under either paragraph (e)(5) or (f)(6) of this section, the donor or decedent’s executor must use the same actuarial table with respect to each individual transaction and with respect to all transfers occurring on the valuation date (for example, gift and income tax charitable deductions with respect to the same transfer must be determined based on the same tables, and all assets includible in the gross estate and/or estate tax deductions claimed must be valued based on the same tables).

(3) ''Present value of a remainder interest. ''The present value of a remainder interest in property transferred to a pooled income fund is computed on the basis of —

(i) Life contingencies determined from the values of lx that are set forth in Table 90CM in §20.2031-7A(f)(4); and

(ii) Discount at a rate of interest, compounded annually, equal to the highest yearly rate of return of the pooled income fund for the 3 taxable years immediately preceding its taxable year in which the transfer of property to the fund is made. The provisions of §1.642(c)-6(c) apply for determining the yearly rate of return. However, where the taxable year is less than 12 months, the provisions of §1.642(c)-6T(e)(3)(ii) apply for the determining the yearly rate of return.

(4) ''Pooled income funds in existence less than 3 taxable years.'' The provisions of §1.642(c)-6T(e)(4) apply for determining the highest yearly rate of return when the pooled income fund has been in existence less than three taxable years.

(5) ''Computation of value of remainder interest.'' The factor that is used in determining the present value of a remainder interest that is dependent on the termination of the life of one individual is the factor from Table S in paragraph (f)(6) of this section under the appropriate yearly rate of return opposite the number that corresponds to the age of the individual upon whose life the value of the remainder interest is based. Table S in paragraph (f)(6) of this section includes factors for yearly rates of return from 4.2 to 14 percent. Many actuarial factors not contained in Table S in paragraph (f)(6) of this section are contained in Table S in Internal Revenue Service Publication 1457, “Actuarial Values, Book Aleph,” (7-99). Publication 1457 is no longer available for purchase from the Superintendent of Documents, United States Government Printing Office. However, pertinent factors in this publication may be obtained by a written request to: CC:PA:LPD:PR (IRS Publication 1457), Room 5205, Internal Revenue Service, P.O.Box 7604, Ben Franklin Station, Washington, DC 20044. For other situations, see §1.642(c)-6(b). If the yearly rate of return is a percentage that is between the yearly rates of return for which factors are provided, a linear interpolation must be made. The present value of the remainder interest is determined by multiplying the fair market value of the property on the valuation date by the appropriate remainder factor. For an example of a computation of the present value of a remainder interest requiring a linear interpolation adjustment, see §1.642(c)-6T(e)(5).

(6) ''Actuarial tables''. In the case of transfers for which the valuation date is after April 30, 1999, and before May 1, 2009, the present value of a remainder interest dependent on the termination of one life in the case of a transfer to a pooled income fund is determined by use of the following tables:

TABLE S.—BASED ON LIFE TABLE 90CM SINGLE LIFE REMAINDER FACTORS [Applicable After April 30, 1999, and Before May 1, 2009]
<nowiki>* * * * *</nowiki>

(7) ''Effective/applicability dates.'' Paragraphs (f)(1) through (f)(6) apply after April 30, 1999, and before May 1, 2009.

Par. 8. Section 1.664-2 is amended by revising paragraph (c) and adding paragraph (e) to read as follows:

'''''§1.664-2 Charitable remainder annuity trust.'''''

<nowiki>* * * * *</nowiki>

(c) ''Calculation of the fair market value of the remainder interest of a charitable remainder annuity trust. ''For purposes of sections 170, 2055, 2106, and 2522, the fair market value of the remainder interest of a charitable remainder annuity trust (as described in this section) is the net fair market value (as of the appropriate valuation date) of the property placed in trust less the present value of the annuity. For purposes of this section, valuation date means, in general, the date on which the property is transferred to the trust by the donor regardless of when the trust is created. In the case of transfers to a charitable remainder annuity trust for which the valuation date is after April 30, 1999, if an election is made under section 7520 and §1.7520-2(b) to compute the present value of the charitable interest by use of the interest rate component for either of the 2 months preceding the month in which the transfer is made, the month so elected is the valuation date for purposes of determining the interest rate and mortality tables. For purposes of section 2055 or 2106, the valuation date is the date of death unless the alternate valuation date is elected in accordance with section 2032 in which event, and within the limitations set forth in section 2032 and the regulations thereunder, the valuation date is the alternate valuation date. If the decedent’s estate elects the alternate valuation date under section 2032 and also elects, under section 7520 and §1.7520-2(b), to use the interest rate component for one of the 2 months preceding the alternate valuation date, the month so elected is the valuation date for purposes of determining the interest rate and mortality tables. The present value of an annuity is computed under §20.2031-7T(d) for transfers for which the valuation date is on or after May 1, 2009, or under §20.2031-7A(a) through (f), whichever is applicable, for transfers for which the valuation date is before May 1, 2009. See, however, §1.7520-3(b) (relating to exceptions to the use of prescribed tables under certain circumstances).

<nowiki>* * * * *</nowiki>

(e) E''ffective/applicability date.'' Paragraph (c)(1) applies after April 30, 1989.

Par. 9. Section 1.664-4 is amended as follows:

1. Paragraph (a)(1) is revised.

2. Paragraph (d) is removed.

3. The heading for paragraph (e) is redesignated as the heading for §1.664-4A(f).

4. Paragraphs (e)(1), (e)(2), (e)(5), and (e)(7) are redesignated as §1.664-4A(f)(1), (f)(2), (f)(5) and (f)(6), respectively.

5. New paragraphs (d), (e)(1), (e)(2), and (e)(5) are added.

6. The heading and introductory text of paragraph (e)(6), preceding Table D, is revised.

7. New paragraph (e)(7) is added.

8. Paragraph (f) is revised.

The additions and revision read as follows:

'''''§1.664-4 Calculation of the fair market value of the remainder interest in a charitable remainder unitrust.'''''

(a) * * *

(1) [Reserved]. For further guidance, see §1.664-4T(a)(1).

<nowiki>* * * * *</nowiki>

(d) through (e)(2) [Reserved]. For further guidance, see §1.664-4T(d) through (e)(2).

<nowiki>* * * * *</nowiki>

(5) [Reserved]. For further guidance, see §1.664-4T(e)(5).

(6) ''Actuarial Table D and F (4.2 through 14.0) for transfers for which the valuation date is after April 30, 1989.'' For transfers for which the valuation date is after April 30, 1989, the present value of a charitable remainder unitrust interest that is dependent upon a term of years is determined by using the section 7520 rate and the tables in this paragraph (e)(6). For transfers for which the valuation date is on or after May 1, 2009, where the present value of a charitable remainder unitrust interest is dependent on the termination of a life interest, see §1.664-4T(e)(5). See, however, §1.7520-3(b) (relating to exceptions to the use of prescribed tables under certain circumstances). Many actuarial factors not contained in the following tables are contained in Internal Revenue Service Publication 1458, “Actuarial Valuations Version 3B” (2009). This publication will be available beginning May 1, 2009, at no charge, electronically via the IRS Internet site at www.irs.gov.

<nowiki>* * * * *</nowiki>

(7) [Reserved]. For further guidance, see §1.664-4T(e)(7).

(f) ''Effective/applicability dates.'' This section applies after April 30, 1999, and before May 1, 2009.

Par. 10. Section 1.664-4T is added to read as follows:

'''''§1.664-4T Calculation of the fair market value of the remainder interest in a charitable remainder unitrust (temporary).'''''

(a) [Reserved]. For further guidance, see §1.664-4(a).

(1) Life contingencies determined as to each life involved, from the values of lx set forth in Table 2000CM contained in §20.2031-7T(d)(7) in the case of transfers for which the valuation date is on or after May 1, 2009; or from Table 90CM contained in §20.2031-7A(f)(4) in the case of transfer for which the valuation date is after April 30, 1999, and before May 1, 2009. See §20.2031-7A(a) through (e), whichever is applicable, for transfers for which the valuation date is before May 1, 1999;

(a)(2) through (c) [Reserved]. For further guidance, see §1.664-4(a)(2) through (c).

(d) ''Valuation.'' The fair market value of a remainder interest in a charitable remainder unitrust (as described in §1.664-3) for transfers for which the valuation date is on or after May 1, 2009, is its present value determined under paragraph (e) of this section. The fair market value of a remainder interest in a charitable remainder unitrust (as described in §1.664-3) for transfers for which the valuation date is before May 1, 2009, is its present value determined under the following sections:
{||
|-
| colspan="2" align="center" |Valuation Dates
|-
| col width="40" align="center" |After
| col width="40" align="center" |Before
| col width="80" align="center" |Applicable Regulations
|-
|''(all dates before)''|| 01-01-52|| 1.664-4A(a)
|-
|12-31-51|| 01-01-71|| 1.664-4A(b)
|-
|12-31-70|| 12-01-83|| 1.664-4A(c)
|-
|11-30-83|| 05-01-89|| 1.664-4A(d)
|-
|04-30-89|| 05-01-99|| 1.664-4A(e)
|-
|04-30-99|| 05-01-09|| 1.664-4A(f)
|-
|}

(e) ''Valuation of charitable remainder unitrusts having certain payout sequences for transfers for which the valuation date is on or after May 1, 2009''—(1) ''In general''. Except as otherwise provided in paragraph (e)(2) of this section, in the case of transfers for which the valuation date is on or after May 1, 2009, the present value of a remainder interest is determined under paragraphs (e)(3) through (e)(7) of this section, provided that the amount of the payout as of any payout date during any taxable year of the trust is not larger than the amount that the trust could distribute on such date under §1.664-3(a)(1)(v) if the taxable year of the trust were to end on such date. See, however, §1.7520-3(b) (relating to exceptions to the use of the prescribed tables under certain circumstances).

(2) ''Transitional rules for valuation of charitable remainder unitrusts.'' (i) For purposes of sections 2055, 2106, or 2624, if on May 1, 2009, the decedent was mentally incompetent so that the disposition of the property could not be changed, and the decedent died on or after May 1, 2009, without having regained competency to dispose of the decedent’s property, or the decedent died within 90 days of the date that the decedent first regained competency on or after May 1, 2009, the present value of a remainder interest under this section is determined as if the valuation date with respect to the decedent’s gross estate is either before or after May 1, 2009, at the option of the decedent’s executor.

(ii) For purposes of sections 170, 2055, 2106, 2522, or 2624, in the case of transfers to a charitable remainder unitrust for which the valuation date is on or after May 1, 2009, and before July 1, 2009, the present value of a remainder interest based on one or more measuring lives is determined under this section by use of the section 7520 interest rate for the month in which the valuation date occurs (see §§1.7520-1(b) and 1.7520-2(a)(2)) and the appropriate actuarial tables under either paragraph (e)(7) of this section or §1.664-4A(f)(6), at the option of the donor or the decedent’s executor, as the case may be.

(iii) For purposes of paragraphs (e)(2)(i) and (e)(2)(ii) of this section, where the donor or decedent’s executor is given the option to use the appropriate actuarial tables under either paragraph (e)(7) of this section or §1.664-4A(f)(6), the donor or decedent’s executor must use the same actuarial table with respect to each individual transaction and with respect to all transfers occurring on the valuation date (for example, gift and income tax charitable deductions with respect to the same transfer must be determined based on the same tables, and all assets includible in the gross estate and/or estate tax deductions claimed must be valued based on the same tables).

(3) and (4) [Reserved]. For further guidance, see §1.664-4(e)(3) and (e)(4).

(5) ''Period is the life of one individual.'' (i) If the period described in §1.664-3(a)(5) is the life of one individual, the factor that is used in determining the present value of the remainder interest for transfers for which the valuation date is on or after May 1, 2009, is the factor in Table U(1) in paragraph (e)(7) of this section under the appropriate adjusted payout. For purposes of the computations described in this paragraph (e)(5), the age of an individual is the age of that individual at the individual’s nearest birthday. If the adjusted payout rate is an amount that is between adjusted payout rates for which factors are provided in the appropriate table, a linear interpolation must be made. The present value of the remainder interest is determined by multiplying the net fair market value (as of the valuation date as determined in §1.664-4(e)(4)) of the property placed in trust by the factor determined under this paragraph (e)(5). If the adjusted payout rate is between 4.2 and 14 percent, see paragraph (e)(7) of this section. If the adjusted payout rate is below 4.2 percent or greater than 14 percent, see §1.664-4(b).

(ii) The application of paragraph (e)(5)(i) of this section may be illustrated by the following example:

''Example''. A, who is 44 years and 11 months old, transfers $100,000 to a charitable remainder unitrust on January 1st. The trust instrument requires that the trust pay to A semiannually (on June 30 and December 31) 8 percent of the fair market value of the trust assets as of January 1st during A’s life. The section 7520 rate for January is 6.6 percent. Under Table F(6.6) in §1.664-4(e)(6), the appropriate adjustment factor is .953317 for semiannual payments payable at the end of the semiannual period. The adjusted payout rate is 7.627% (8% X .953317). Based on the remainder factors in Table U(1) in this section, the present value of the remainder interest is $11,075.00, computed as follows:

{|
|-
|Factor at 7.6 percent at age 45|| .11141
|-
|Factor at 7.8 percent at age 45|| .10653
|-
|Difference|| .00488
|-
|Interpolation adjustment:
|-
|7.627% - 7.6% ||= ||x
|-
|0.2% || ||.00488
|-
| || ||x = .00066
|-
|Factor at 7.6 percent at age 45|| .11141
|-
|Less: Interpolation adjustment ||''.00066''
|-
|Interpolated factor|| .11075
|-
|Present value of remainder interest:
|-
|($100,000 X ..11075)|| $11,075.00
|-
|}

(6) [Reserved]. For further guidance, see §1.664-4(e)(6).

(7) ''Actuarial Table U(1) for transfers for which the valuation date is on or after May 1, 2009.'' For transfers for which the valuation date is on or after May 1, 2009, the present value of a charitable remainder unitrust interest that is dependent on the termination of a life interest is determined by using the section 7520 rate, Table U(1) in this paragraph (e)(7) and Table F(4.2) through (14.0) in §1.664-4(e)(6). See, however, §1.7520-3(b) (relating to exceptions to the use of prescribed tables under certain circumstances). Many actuarial factors not contained in the following tables are contained in Internal Revenue Service Publication 1458, “Actuarial Valuations Version 3B” (2009). This publication will be available beginning May 1, 2009, at no charge, electronically via the IRS Internet site at www.irs.gov.

'''Table U(1) — Unitrust Single Life Remainder Factors'''

'''''Tables in this section not yet imported - see [http://www.irs.gov/irb/2009-20_IRB/ar09.html IRB 2009-20] for tables'''''

(f) ''Effective/applicability date.'' This section applies on or after May 1, 2009.

(g) ''Expiration date''. This section expires on or before May 1, 2012.

Par. 11. The undesignated center heading immediately preceding §1.664-4A is revised to read as follows:

:Unitrust Actuarial Tables Applicable Before May 1, 2009

Par. 12. Section 1.664-4A is amended as follows:

1. The section heading is revised.

2. The heading of newly-designated paragraph (f) is revised.

3. Newly-designated paragraphs (f)(1) and (f)(2) are revised.

4. New paragraphs (f)(3) and (f)(4) are added.

5. Newly-designated paragraph (f)(5) is revised.

6. In newly-designated paragraph (f)(6), the heading and the first paragraph are revised.

7. The heading of Table U(1) is revised.

8. Paragraph (f)(7) is added.

The additions and revisions read as follows:

'''''§1.664-4A Valuation of charitable remainder interests for which the valuation date is before May 1, 2009.'''''

<nowiki>* * * * *</nowiki>

(f)'' Valuation of charitable remainder unitrusts having certain payout sequences for transfers for which the valuation date is after April 30, 1999, and before May 1, 2009''—(1) ''In general.'' Except as otherwise provided in paragraph (f)(2) of this section, in the case of transfers for which the valuation date is after April 30, 1999, and before May 1, 2009, the present value of a remainder interest is determined under paragraphs (f)(3) through (f)(6) of this section, provided that the amount of the payout as of any payout date during any taxable year of the trust is not larger than the amount that the trust could distribute on such date under §1.664-3(a)(1)(v) if the taxable year of the trust were to end on such date. See, however, §1.7520-3(b) (relating to exceptions to the use of the prescribed tables under certain circumstances).

(2)'' Transitional rules for valuation of charitable remainder unitrusts. ''(i) For purposes of sections 2055, 2106, or 2624, if on May 1, 1999, the decedent was mentally incompetent so that the disposition of the property could not be changed, and the decedent died after April 30, 1999, without having regained competency to dispose of the decedent’s property, or the decedent died within 90 days of the date that the decedent first regained competency after April 30, 1999, the present value of a remainder interest under this section is determined as if the valuation date with respect to the decedent’s gross estate is either before May 1, 1999, or after April 30, 1999, at the option of the decedent’s executor.

(ii) For purposes of sections 170, 2055, 2106, 2522, or 2624, in the case of transfers to a charitable remainder unitrust for which the valuation date is after April 30, 1999, and before July 1, 1999, the present value of a remainder interest based on one or more measuring lives is determined under this section by use of the section 7520 interest rate for the month in which the valuation date occurs (see §§1.7520-1(b) and 1.7520-2(a)(2)) and the appropriate actuarial tables under either paragraph (e)(6) or (f)(6) of this section, at the option of the donor or the decedent’s executor, as the case may be.

(iii) For purposes of paragraphs (f)(2)(i) and (f)(2)(ii) of this section, where the donor or decedent’s executor is given the option to use the appropriate actuarial tables under either paragraph (e)(6) or (f)(6) of this section, the donor or decedent’s executor must use the same actuarial table with respect to each individual transaction and with respect to all transfers occurring on the valuation date (for example, gift and income tax charitable deductions with respect to the same transfer must be determined based on the same tables, and all assets includible in the gross estate and/or estate tax deductions claimed must be valued based on the same tables).

(3) ''Adjusted payout rate. ''For transfers for which the valuation date is after April 30, 1999, and before May 1, 2009, the adjusted payout rate is determined by using the appropriate Table F, contained in §1.664-4(e)(6), for the section 7520 interest rate applicable to the transfer. If the interest rate is between 4.2 and 14 percent, see §1.664-4(e)(6). If the interest rate is below 4.2 percent or greater than 14 percent, see §1.664-4(b). See §1.664-4(e) for rules applicable in determining the adjusted payout rate.

(4) ''Period is a term of years.'' If the period described in §1.664-3(a)(5) is a term of years, the factor that is used in determining the present value of the remainder interest for transfers for which the valuation date is after April 30, 1999, and before May 1, 2009, is the factor under the appropriate adjusted payout rate in Table D in §1.664-4(e)(6) corresponding to the number of years in the term. If the adjusted payout rate is an amount that is between adjusted payout rates for which factors are provided in Table D, a linear interpolation must be made. The present value of the remainder interest is determined by multiplying the net fair market value (as of the appropriate valuation date) of the property placed in trust by the factor determined under this paragraph. Generally, for purposes of this section, the valuation date is, in the case of an inter vivos transfer, the date on which the property is transferred to the trust by the donor, and, in the case of a testamentary transfer under sections 2055, 2106, or 2624, the valuation date is the date of death. See §1.664-4(e)(4) for additional rules regarding the valuation date. See §1.664-4(e)(4) for an example that illustrates the application of this paragraph (f)(4).

(5) ''Period is the life of one individual.'' If the period described in §1.664-3(a)(5) is the life of one individual, the factor that is used in determining the present value of the remainder interest for transfers for which the valuation date is after April 30, 1999, and before May 1, 2009, is the factor in Table U(1) in paragraph (f)(6) of this section under the appropriate adjusted payout. For purposes of the computations described in this paragraph (f)(5), the age of an individual is the age of that individual at the individual’s nearest birthday. If the adjusted payout rate is an amount that is between adjusted payout rates for which factors are provided in the appropriate table, a linear interpolation must be made. The rules provided in §1.664-4T(e)(5) apply for determining the present value of the remainder interest. See §1.664-4T(e)(5) for an example illustrating the application of this paragraph (f)(5) (using current actuarial tables).

(6) ''Actuarial Table U(1) for transfers for which the valuation date is after April 30, 1999, and before May 1, 2009''. For transfers for which the valuation date is after April 30, 1999, and before May 1, 2009, the present value of a charitable remainder unitrust interest that is dependent on the termination of a life interest is determined by using the section 7520 rate, Table U(1) in this paragraph (f)(6), and Tables F(4.2) through F(14.0) in §1.664-4(e)(6). See, however, §1.7520-3(b) (relating to exceptions to the use of prescribed tables under certain circumstances). Many actuarial factors not contained in the following tables are contained in Internal Revenue Service Publication 1458, “Actuarial Values, Book Beth,” (7-1999). Publication 1458 is no longer available for purchase from the Superintendent of Documents, United States Government Printing Office. However, pertinent factors in this publication may be obtained by a written request to: CC:PA:LPD:PR (IRS Publication 1458), Room 5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.

TABLE U(1).—BASED ON LIFE TABLE 90CM UNITRUST SINGLE LIFE REMAINDER FACTORS [Applicable After April 30, 1999, and Before May 1, 2009]
<nowiki>* * * * *</nowiki>

(7) ''Effective/applicability dates.'' Paragraphs (f)(1) through (f)(6) apply after April 30, 1999, and before May 1, 2009.

Par. 13. Section 1.7520-1 is amended by:

1. Revising the section heading.

2. Revising paragraphs (a)(1) and (a)(2).

3. Removing the last two sentences of paragraph (b)(2) and adding a new sentence at the end of the paragraph.

4. Revising paragraph (c)(1).

5. Revising the heading and introductory text of paragraph (c)(2).

6. Revising paragraph (d).

The revisions and additions read as follows:

'''''§1.7520-1 Valuation of annuities, unitrust interests, interests for life or terms of years, and remainder or reversionary interests prior to May 1, 2009.'''''

(a) General actuarial valuations. (1) Except as otherwise provided in this section and in §1.7520-3 (relating to exceptions to the use of prescribed tables under certain circumstances), in the case of certain transactions after April 30, 1989, subject to income tax, the fair market value of annuities, interests for life or for a term of years (including unitrust interests), remainders, and reversions is their present value determined under this section. For periods prior to May 1, 2009, see §20.2031-7A for the computation of the value of annuities, unitrust interests, life estates, terms for years, remainders, and reversions, other than interests described in paragraphs (a)(2) and (a)(3) of this section.

(2) For a transfer to a pooled income fund prior to May 1, 2009, see §1.642(c)-6A with respect to the valuation of the remainder interest.

<nowiki>* * * * *</nowiki>

(b) * * *

(2) * * * For transactions with valuation dates after April 30, 1989, and before May 1, 2009, the mortality component tables are contained in §20.2031-7A.

(c) * * *

(1) [Reserved]. For further guidance, see §1.7520-1T(c)(1).

(2)'' Internal Revenue Service publications containing tables with interest rates between 2.2 and 22 percent for valuation dates after April 30, 1999, and before May 1, 2009.'' The following publications are no longer available for purchase from the Superintendent of Documents, United States Government Printing Office; however, they may be obtained from CC:PA:LPD:PR, Room 5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044:

* * * * *

(d)'' Effective/applicability dates.'' This section applies after April 30, 1989, and before May 1, 2009.

Par. 14. Section 1.7520-1T is added to read as follows:

'''''§1.7520-1T Valuation of annuities, unitrust interests, interests for life or terms of years, and remainder or reversionary interests on or after May 1, 2009 (temporary).'''''

(a) ''General actuarial valuations.'' (1) Except as otherwise provided in this section and in §1.7520-3 (relating to exceptions to the use of prescribed tables under certain circumstances), in the case of certain transactions after April 30, 1989, subject to income tax, the fair market value of annuities, interests for life or for a term of years (including unitrust interests), remainders, and reversions is their present value determined under this section. See §20.2031-7T(d) (and, for certain prior periods, §20.2031-7A) for the computation of the value of annuities, unitrust interests, life estates, terms for years, remainders, and reversions, other than interests described in paragraphs (a)(2) and (a)(3) of this section.

(2) For a transfer to a pooled income fund on or after May 1, 2009, see §1.642(c)-6T(e) (or, for certain prior periods, §1.642(c)-6A) with respect to the valuation of the remainder interest.

(3) [Reserved]. For further guidance, see §1.7520-1(a)(3).

(b)(1) [Reserved]. For further guidance, see §1.7520-1(b)(1).

(2) ''Mortality component''. The mortality component reflects the mortality data most recently available from the United States census. As new mortality data becomes available after each decennial census, the mortality component described in this section will be revised periodically and the revised mortality component tables will be published in the regulations at that time. For transactions with valuation dates on or after May 1, 2009, the mortality component table (Table 2000CM) is contained in §20.2031-7T(d)(7). See §20.2031-7A for mortality component tables applicable to transactions for which the valuation date falls before May 1, 2009.

(c) [Reserved]. For further guidance, see §1.7520-1(c).

(1) ''Regulation sections containing tables with interest rates between 0.2 and 14 percent for valuation dates on or after May 1, 2009.'' Section 1.642(c)-6T(e)(6) contains Table S used for determining the present value of a single life remainder interest in a pooled income fund as defined in §1.642(c)-5. See §1.642(c)-6A for actuarial factors for one life applicable to valuation dates before May 1, 2009. Section 1.664-4(e)(6) contains Table F (payout factors) and Table D (actuarial factors used in determining the present value of a remainder interest postponed for a term of years). Section 1.664-4T(e)(7) contains Table U(1) (unitrust single life remainder factors). These tables are used in determining the present value of a remainder interest in a charitable remainder unitrust as defined in §1.664-3. See §1.664-4A for unitrust single life remainder factors applicable to valuation dates before May 1, 2009. Section 20.2031-7(d)(6) contains Table B (actuarial factors used in determining the present value of an interest for a term of years), Table K (annuity end-of-interval adjustment factors), and Table J (term certain annuity beginning-of-interval adjustment factors). Section 20.2031-7T(d)(7) contains Table S (single life remainder factors), and Table 2000CM (mortality components). These tables are used in determining the present value of annuities, life estates, remainders, and reversions. See §20.2031-7A for single life remainder factors for one life and mortality components applicable to valuation dates before May 1, 2009.

(2) ''Internal Revenue Service publications containing tables with interest rates between 0.2 and 22 percent for valuation dates on or after May 1, 2009''. The following documents are available beginning May 1, 2009, at no charge, electronically via the IRS Internet site at www.irs.gov:

(i) ''Internal Revenue Service Publication 1457'', “Actuarial Valuations Version 3A” (2009). This publication includes tables of valuation factors, as well as examples that show how to compute other valuation factors, for determining the present value of annuities, life estates, terms of years, remainders, and reversions, measured by one or two lives. These factors may also be used in the valuation of interests in a charitable remainder annuity trust as defined in §1.664-2 and a pooled income fund as defined in §1.642(c)-5.

(ii) Internal Revenue Service Publication 1458, “Actuarial Valuations Version 3B” (2009). This publication includes term certain tables and tables of one and two life valuation factors for determining the present value of remainder interests in a charitable remainder unitrust as defined in §1.664-3.

(iii) Internal Revenue Service Publication 1459, “Actuarial Valuations Version 3C” (2009). This publication includes tables for computing depreciation adjustment factors. See §1.170A-12T.

(d) ''Effective/applicability date.'' This section applies on or after May 1, 2009.

(e) ''Expiration date''. This section expires on or before May 1, 2012.

===PART 20—ESTATE TAX; ESTATES OF DECEDENTS DYING AFTER AUGUST 16, 1954===

Par. 15. The authority citation for part 20 is amended by adding entries in numerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Section 20.2031-7T also issued under 26 U.S.C. 7520(c)(2).

Section 20.7520-1T also issued under 26 U.S.C. 7520(c)(2). * * *

Par. 16. Section 20.2031-0 is revised to read as follows:

'''''§20.2031-0 Table of contents.'''''

This section lists the section headings and undesignated center headings that appear in the regulations under section 2031.

§20.2031-1 Definition of gross estate; valuation of property.

§20.2031-2 Valuation of stocks and bonds.

§20.2031-3 Valuation of interests in businesses.

§20.2031-4 Valuation of notes.

§20.2031-5 Valuation of cash on hand or on deposit.

§20.2031-6 Valuation of household and personal effects.

§20.2031-7 Valuation of annuities, interests for life or term of years, and remainder or reversionary interests.

§20.2031-7T Valuation of annuities, interests for life or term of years, and remainder or reversionary interests (temporary).

§20.2031-8 Valuation of certain life insurance and annuity contracts; valuation of shares in an open-end investment company.

§20.2031-9 Valuation of other property.

Actuarial Tables Applicable Before May 1, 2009.

§20.2031-7A Valuation of annuities, interests for life or term of years, and remainder or reversionary interests for estates of decedents for which the valuation date of the gross estate is before May 1, 2009.

Par. 17. Section 20.2031-7 is amended as follows:

1. Revising paragraphs (c), (d)(1), (d)(2), (d)(3), (d)(4), (d)(5), and (e).

2. Redesignating paragraph (d)(7) as paragraph (f)(4) of §20.2031-7A.

3. Adding new paragraph (d)(7).

The revisions and additions read as follows:

'''''§20.2031-7 Valuation of annuities, interests for life or term of years, and remainder or reversionary interests.'''''

<nowiki>* * * * *</nowiki>

(c) through (d)(5) [Reserved]. For further guidance, see §20.2031-7T(c) through (d)(5).

<nowiki>* * * * *</nowiki>

(7) [Reserved]. For further guidance, see §20.2031-7T(d)(7).

(e) ''Effective/applicability dates.'' This section applies after April 30, 1999, and before May 1, 2009.

Par. 18. Section 20.2031-7T is added to read as follows:

'''''§20.2031-7T Valuation of annuities, interests for life or term of years, and remainder or reversionary interests (temporary).'''''

(a) through (b) [Reserved]. For further information, see §20.2031-7(a) through (b).

(c) ''Actuarial valuations''. The present value of annuities, life estates, terms of years, remainders, and reversions for estates of decedents for which the valuation date of the gross estate is on or after May 1, 2009, is determined under paragraph (d) of this section. The present value of annuities, life estates, terms of years, remainders, and reversions for estates of decedents for which the valuation date of the gross estate is before May 1, 2009, is determined under the following sections:

{||
|-
| colspan="2" align="center" |Valuation Dates
|-
| col width="40" align="center" |After
| col width="40" align="center" |Before
| col width="80" align="center" |Applicable Regulations
|-
|''(all dates before)''|| 01-01-52|| 20.2031-7A(a)
|-
|12-31-51|| 01-01-71|| 20.2031-7A(b)
|-
|12-31-70|| 12-01-83|| 20.2031-7A(c)
|-
|11-30-83|| 05-01-89|| 20.2031-7A(d)
|-
|04-30-89|| 05-01-99|| 20.2031-7A(e)
|-
|04-30-99|| 05-01-09|| 20.2031-7A(f)
|-
|}

(d)'' Actuarial valuations on or after May 1, 2009''—(1) ''In general''. Except as otherwise provided in paragraph (b) of this section and §20.7520-3(b) (pertaining to certain limitations on the use of prescribed tables), if the valuation date for the gross estate of the decedent is on or after May 1, 2009, the fair market value of annuities, life estates, terms of years, remainders, and reversionary interests is the present value determined by use of standard or special section 7520 actuarial factors. These factors are derived by using the appropriate section 7520 interest rate and, if applicable, the mortality component for the valuation date of the interest that is being valued. For purposes of the computations described in this section, the age of an individual is the age of that individual at the individual’s nearest birthday. See §§20.7520-1 through 20.7520-4.

(2)'' Specific interests''—(i) Charitable remainder trusts. The fair market value of a remainder interest in a pooled income fund, as defined in §1.642(c)-5, is its value determined under §1.642(c)-6T(e). The fair market value of a remainder interest in a charitable remainder annuity trust, as defined in §1.664-2(a), is the present value determined under §1.664-2(c). The fair market value of a remainder interest in a charitable remainder unitrust, as defined in §1.664-3, is its present value determined under §1.664-4T(e). The fair market value of a life interest or term of years in a charitable remainder unitrust is the fair market value of the property as of the date of valuation less the fair market value of the remainder interest on that date determined under §1.664-4T(e)(4) and (5).

(ii) ''Ordinary remainder and reversionary interests.'' If the interest to be valued is to take effect after a definite number of years or after the death of one individual, the present value of the interest is computed by multiplying the value of the property by the appropriate remainder interest actuarial factor (that corresponds to the applicable section 7520 interest rate and remainder interest period) in Table B (for a term certain) or the appropriate Table S (for one measuring life), as the case may be. Table B is contained in §20.2031-7(d)(6) and Table S (for one measuring life when the valuation date is on or after May 1, 2009) is contained in paragraph (d)(7) of this section and in Internal Revenue Service Publication 1457. See §20.2031-7A containing Table S for valuation of interests before May 1, 2009. For information about obtaining actuarial factors for other types of remainder interests, see paragraph (d)(4) of this section.

(iii)'' Ordinary term-of-years and life interests''. If the interest to be valued is the right of a person to receive the income of certain property, or to use certain nonincome-producing property, for a term of years or for the life of one individual, the present value of the interest is computed by multiplying the value of the property by the appropriate term-of-years or life interest actuarial factor (that corresponds to the applicable section 7520 interest rate and term-of-years or life interest period). Internal Revenue Service Publication 1457 includes actuarial factors for a remainder interest after a term of years in Table B and after the life of one individual in Table S (for one measuring life when the valuation date is on or after May 1, 2009). However, term-of-years and life interest actuarial factors are not included in Table B in §20.2031-7(d)(6) or Table S in paragraph (d)(7) of this section (or in §20.2031-7A). If Internal Revenue Service Publication 1457 (or any other reliable source of term-of-years and life interest actuarial factors) is not conveniently available, an actuarial factor for the interest may be derived mathematically. This actuarial factor may be derived by subtracting the correlative remainder factor (that corresponds to the applicable section 7520 interest rate and the term of years or the life) in Table B (for a term of years) in §20.2031-7(d)(6) or in Table S (for the life of one individual) in paragraph (d)(7) of this section, as the case may be, from 1.000000. For information about obtaining actuarial factors for other types of term-of-years and life interests, see paragraph (d)(4) of this section.

(iv) ''Annuities''. (A) If the interest to be valued is the right of a person to receive an annuity that is payable at the end of each year for a term of years or for the life of one individual, the present value of the interest is computed by multiplying the aggregate amount payable annually by the appropriate annuity actuarial factor (that corresponds to the applicable section 7520 interest rate and annuity period). Internal Revenue Publication 1457 includes actuarial factors for a remainder interest in Table B (after an annuity payable for a term of years) and in Table S (after an annuity payable for the life of one individual when the valuation date is on or after May 1, 2009). However, annuity actuarial factors are not included in Table B in §20.2031-7(d)(6) or Table S in paragraph (d)(7) of this section (or in §20.2031-7A). If Internal Revenue Service Publication 1457 (or any other reliable source of annuity actuarial factors) is not conveniently available, a required annuity factor for a term of years or for one life may be mathematically derived. This annuity factor may be derived by subtracting the applicable remainder factor (that corresponds to the applicable section 7520 interest rate and annuity period) in Table B (in the case of a term-of-years annuity) in §20.2031-7(d)(6) or in Table S (in the case of a one-life annuity when the valuation date is on or after May 1, 2009) in paragraph (d)(7) of this section, as the case may be, from 1.000000 and then dividing the result by the applicable section 7520 interest rate expressed as a decimal number.

(B) If the annuity is payable at the end of semiannual, quarterly, monthly, or weekly periods, the product obtained by multiplying the annuity factor by the aggregate amount payable annually is then multiplied by the applicable adjustment factor as contained in Table K in §20.2031-7(d)(6) for payments made at the end of the specified periods. The provisions of this paragraph (d)(2)(iv)(B) are illustrated by the following example:

''Example''. At the time of the decedent’s death, the survivor/annuitant, age 72, is entitled to receive an annuity of $15,000 a year for life payable in equal monthly installments at the end of each period. The section 7520 rate for the month in which the decedent died is 5.6 percent. Under Table S in paragraph (d)(7) of this section, the remainder factor at 5.6 percent for an individual aged 72 is .53243. By converting the remainder factor to an annuity factor, as described above, the annuity factor at 5.6 percent for an individual aged 72 is 8.3495 (1.00000 minus .53243, divided by .056). Under Table K in §20.2031-7(d)(6), the adjustment factor under the column for payments made at the end of each monthly period at the rate of 5.6 percent is 1.0254. The aggregate annual amount, $15,000, is multiplied by the factor 8.3495 and the product multiplied by 1.0254. The present value of the annuity at the date of the decedent’s death is, therefore, $128,423.66 ($15,000 x 8.3495 x 1.0254).

(C) If an annuity is payable at the beginning of annual, semiannual, quarterly, monthly, or weekly periods for a term of years, the value of the annuity is computed by multiplying the aggregate amount payable annually by the annuity factor described in paragraph (d)(2)(iv)(A) of this section; and the product so obtained is then multiplied by the adjustment factor in Table J in §20.2031-7(d)(6) at the appropriate interest rate component for payments made at the beginning of specified periods. If an annuity is payable at the beginning of annual, semiannual, quarterly, monthly, or weekly periods for one or more lives, the value of the annuity is the sum of the first payment plus the present value of a similar annuity, the first payment of which is not to be made until the end of the payment period, determined as provided in this paragraph (d)(2)(iv).

(v) ''Annuity and unitrust interests for a term of years or until the prior death of an individual.'' See §25.2512-5T(d)(2)(v) for examples explaining how to compute the present value of an annuity or unitrust interest that is payable until the earlier of the lapse of a specific number of years or the death of an individual.

(3) ''Transitional rule''. (i) If a decedent dies on or after May 1, 2009, and if on May 1, 2009, the decedent was mentally incompetent so that the disposition of the decedent’s property could not be changed, and the decedent dies without having regained competency to dispose of the decedent’s property or dies within 90 days of the date on which the decedent first regains competency, the fair market value of annuities, life estates, terms for years, remainders, and reversions included in the gross estate of the decedent is their present value determined either under this section or under the corresponding section applicable at the time the decedent became mentally incompetent, at the option of the decedent’s executor. For examples, see §20.2031-7A(d).

(ii) If a decedent dies on or after May 1, 2009, and before July 1, 2009, the fair market value of annuities, life estates, remainders, and reversions based on one or more measuring lives included in the gross estate of the decedent is their present value determined under this section by use of the section 7520 interest rate for the month in which the valuation date occurs (see §§20.7520-1(b) and 20.7520-2(a)(2)) and the appropriate actuarial tables under either paragraph (d)(7) of this section or §20.2031-7A(f)(4), at the option of the decedent’s executor.

(iii) For purposes of paragraphs (d)(3)(i) and (d)(3)(ii) of this section, where the decedent’s executor is given the option to use the appropriate actuarial tables under either paragraph (d)(7) of this section or §20.2031-7A(f)(4), the decedent’s executor must use the same actuarial table with respect to each individual transaction and with respect to all transfers occurring on the valuation date (for example, gift and income tax charitable deductions with respect to the same transfer must be determined based on the same tables, and all assets includible in the gross estate and/or estate tax deductions claimed must be valued based on the same tables).

(4) ''Publications and actuarial computations by the Internal Revenue Service''. Many standard actuarial factors not included in §20.2031-7(d)(6) or in paragraph (d)(7) of this section are included in Internal Revenue Service Publication 1457, “Actuarial Valuations Version 3A” (2009). Publication 1457 also includes examples that illustrate how to compute many special factors for more unusual situations. This publication will be available beginning May 1, 2009, at no charge, electronically via the Internal Revenue Service Internet site at www.irs.gov. If a special factor is required in the case of an actual decedent, the Internal Revenue Service may furnish the factor to the executor upon a request for a ruling. The request for a ruling must be accompanied by a recitation of the facts including a statement of the date of birth for each measuring life, the date of the decedent’s death, any other applicable dates, and a copy of the will, trust, or other relevant documents. A request for a ruling must comply with the instructions for requesting a ruling published periodically in the Internal Revenue Bulletin (see §§601.201 and 601.601(d)(2)(ii)(b)) and include payment of the required user fee.

(5) Examples. The provisions of this section are illustrated by the following examples:

''Example 1''. Remainder payable at an individual’s death. The decedent, or the decedent’s estate, was entitled to receive certain property worth $50,000 upon the death of A, to whom the income was bequeathed for life. At the time of the decedent’s death, A was 47 years and 5 months old. In the month in which the decedent died, the section 7520 rate was 6.2 percent. Under Table S in paragraph (d)(7) of this section, the remainder factor at 6.2 percent for determining the present value of the remainder interest due at the death of a person aged 47, the number of years nearest A’s actual age at the decedent’s death, is .18672. The present value of the remainder interest at the date of the decedent’s death is, therefore, $9,336.00 ($50,000 X .18672).

''Example 2''. Income payable for an individual’s life. A’s parent bequeathed an income interest in property to A for life, with the remainder interest passing to B at A’s death. At the time of the parent’s death, the value of the property was $50,000 and A was 30 years and 10 months old. The section 7520 rate at the time of the parent’s death was 6.2 percent. Under Table S in paragraph (d)(7) of this section, the remainder factor at 6.2 percent for determining the present value of the remainder interest due at the death of a person aged 31, the number of years closest to A’s age at the decedent’s death, is .08697. Converting this remainder factor to an income factor, as described in paragraph (d)(2)(iii) of this section, the factor for determining the present value of an income interest for the life of a person aged 31 is .91303. The present value of A’s interest at the time of the parent’s death is, therefore, $45,651.50 ($50,000 X .91303).

''Example 3''. Annuity payable for an individual’s life. A purchased an annuity for the benefit of both A and B. Under the terms of the annuity contract, at A’s death, a survivor annuity of $10,000 per year payable in equal semiannual installments made at the end of each interval is payable to B for life. At A’s death, B was 45 years and 7 months old. Also, at A’s death, the section 7520 rate was 4.8 percent. Under Table S in paragraph (d)(7) of this section, the factor at 4.8 percent for determining the present value of the remainder interest at the death of a person age 46 (the number of years nearest B’s actual age) is .24774. By converting the factor to an annuity factor, as described in paragraph (d)(2)(iv)(A) of this section, the factor for the present value of an annuity payable until the death of a person age 46 is 15.6721 (1.00000 minus .24774, divided by .048). The adjustment factor from Table K in §20.2031-7(d)(6) at an interest rate of 4.8 percent for semiannual annuity payments made at the end of the period is 1.0119. The present value of the annuity at the date of A’s death is, therefore, $158,585.98 ($10,000 X 15.6721 X 1.0119).

''Example 4''. Annuity payable for a term of years. The decedent, or the decedent’s estate, was entitled to receive an annuity of $10,000 per year payable in equal quarterly installments at the end of each quarter throughout a term certain. At the time of the decedent’s death, the section 7520 rate was 9.8 percent. A quarterly payment had just been made prior to the decedent’s death and payments were to continue for 5 more years. Under Table B in §20.2031-7(d)(6) for the interest rate of 9.8 percent, the factor for the present value of a remainder interest due after a term of 5 years is .626597. Converting the factor to an annuity factor, as described in paragraph (d)(2)(iv)(A) of this section, the factor for the present value of an annuity for a term of 5 years is 3.8102 (1.00000 minus .626597, divided by .098). The adjustment factor from Table K in §20.2031-7(d)(6) at an interest rate of 9.8 percent for quarterly annuity payments made at the end of the period is 1.0360. The present value of the annuity is, therefore, $39,473.67 ($10,000 X 3.8102 X 1.0360).

(6) [Reserved]. For further guidance, see §20.2031-7(d)(6).

(7) ''Actuarial Table S and Table 2000CM where the valuation date is on or after May 1, 2009''. Except as provided in §20.7520-2(b) (pertaining to certain limitations on the use of prescribed tables), for determination of the present value of an interest that is dependent on the termination of a life interest, Table 2000CM and Table S (single life remainder factors applicable where the valuation date is on or after May 1, 2009) contained in this paragraph (d)(7) and Table J and Table K contained in §20.2031-7(d)(6), must be used in the application of the provisions of this section when the section 7520 interest rate component is between 0.2 and 14 percent.

'''Table S'''

'''''Tables in this section not yet imported - see [http://www.irs.gov/irb/2009-20_IRB/ar09.html IRB 2009-20] for tables'''''

(e) Effective/applicability date. This section applies on or after May 1, 2009.

(f) Expiration date. This section expires on or before May 1, 2012.

Par. 19. The undesignated center heading immediately preceding §20.2031-7A is revised to read as follows:

:Actuarial Tables Applicable Before May 1, 2009

Par. 20. Section 20.2031-7A is amended by:

1. Revising the section heading.

2. Adding paragraphs (f)(1), (f)(2), and (f)(3).

3. In newly-designated paragraph (f)(4), the heading and introductory text paragraph is revised.

4. The heading of Table S in newly-designated paragraph (f)(4) is revised.

5. The heading of Table 90CM in newly-designated paragraph (f)(4) is revised.

6. Paragraph (f)(5) is added.

The revisions and additions read as follows:

'''''§20.2031-7A Valuation of annuities, interests for life or term of years, and remainder or reversionary interests for estates of decedents for which the valuation date of the gross estate is before May 1, 2009.'''''

<nowiki>* * * * *</nowiki>

(f) ''Valuation of annuities, interests for life or term of years, and remainder or reversionary interests for estates of decedents for which the valuation date of the gross estate is after April 30,1999, and before May 1, 2009''—(1)'' In general''. Except as otherwise provided in §20.2031-7(b) and §20.7520-3(b) (pertaining to certain limitations on the use of prescribed tables), if the valuation date for the gross estate of the decedent is after April 30, 1999, and before May 1, 2009, the fair market value of annuities, life estates, terms of years, remainders, and reversionary interests is the present value of the interests determined by use of standard or special section 7520 actuarial factors and the valuation methodology described in §20.2031-7T(d). These factors are derived by using the appropriate section 7520 interest rate and, if applicable, the mortality component for the valuation date of the interest that is being valued. See §§20.7520-1 through 20.7520-4. See paragraph (f)(4) of this section for determination of the appropriate table for use in valuing these interests.

(2) ''Transitional rule''. (i) If a decedent dies after April 30, 1999, and if on May 1, 1999, the decedent was mentally incompetent so that the disposition of the decedent’s property could not be changed, and the decedent dies without having regained competency to dispose of the decedent’s property or dies within 90 days of the date on which the decedent first regains competency, the fair market value of annuities, life estates, terms for years, remainders, and reversions included in the gross estate of the decedent is their present value determined either under this section or under the corresponding section applicable at the time the decedent became mentally incompetent, at the option of the decedent’s executor. For example, see paragraph (d) of this section.

(ii) If a decedent dies after April 30, 1999, and before July 1, 1999, the fair market value of annuities, life estates, remainders, and reversions based on one or more measuring lives included in the gross estate of the decedent is their present value determined under this section by use of the section 7520 interest rate for the month in which the valuation date occurs (see §§20.7520-1(b) and 20.7520-2(a)(2)) and the appropriate actuarial tables under either paragraph (e)(4) or paragraph (f)(4) of this section, at the option of the decedent’s executor.

(iii) For purposes of paragraphs (f)(2)(i) and (f)(2)(ii) of this section, where the decedent’s executor is given the option to use the appropriate actuarial tables under either paragraph (e)(4) or paragraph (f)(4) of this section, the decedent’s executor must use the same actuarial table with respect to each individual transaction and with respect to all transfers occurring on the valuation date (for example, gift and income tax charitable deductions with respect to the same transfer must be determined based on the same tables, and all assets includible in the gross estate and/or estate tax deductions claimed must be valued based on the same tables).

(3) ''Publications and actuarial computations by the Internal Revenue Service.'' Many standard actuarial factors not included in paragraph (f)(4) of this section or in §20.2031-7(d)(6) are included in Internal Revenue Service Publication 1457, “Actuarial Values, Book Aleph,” (7-99). Publication 1457 also includes examples that illustrate how to compute many special factors for more unusual situations. Publication 1457 is no longer available for purchase from the Superintendent of Documents, United States Government Printing Office. However, pertinent factors in this publication may be obtained from: CC:PA:LPD:PR (IRS Publication 1457), Room 5205, Internal Revenue Service, P.O.Box 7604, Ben Franklin Station, Washington, DC 20044. If a special factor is required in the case of an actual decedent, the Internal Revenue Service may furnish the factor to the executor upon a request for a ruling. The request for a ruling must be accompanied by a recitation of the facts including a statement of the date of birth for each measuring life, the date of the decedent’s death, any other applicable dates, and a copy of the will, trust, or other relevant documents. A request for a ruling must comply with the instructions for requesting a ruling published periodically in the Internal Revenue Bulletin (see §§601.201 and 601.601(d)(2)(ii)(b)) and include payment of the required user fee.

(4) ''Actuarial tables''. Except as provided in §20.7520-3(b) (pertaining to certain limitations on the use of prescribed tables), Life Table 90CM and Table S (Single life remainder factors applicable where the valuation date is after April 30, 1999, and before May 1, 2009), contained in this paragraph (f)(4), and Table B, Table J, and Table K set forth in §20.2031-7(d)(6) must be used in the application of the provisions of this section when the section 7520 interest rate component is between 4.2 and 14 percent. Table S and Table 90CM are as follows:

:Table S.—Based on Life on Life Table 90CM Single Life Remainder Factors [Applicable After April 30, 1999, and Before May 1, 2009]
<nowiki>* * * * *</nowiki>

Table 90 CM.—Applicable After April 30, 1999, and Before May 1, 2009
<nowiki>* * * * *</nowiki>

(5) Effective/applicability dates. Paragraphs (f)(1) through (f)(4) apply after April 30, 1999, and before May 1, 2009.

Par. 21. Section 20.2032-1 is amended by revising paragraph (f)(1) as follows:

'''''§20.2032-1 Alternate Valuation.'''''

<nowiki>* * * * *</nowiki>

(f) * * *

(1) [Reserved]. For further guidance, see §20.2032-1T(f)(1).

<nowiki>* * * * *</nowiki>

Par. 22. Section 20.2032-1T is added to read as follows:

'''''§20.2032-1T Alternate Valuation (temporary).'''''

(a) through (e) [Reserved]. For further guidance, see §20.2032-1(a) through (e).

(f) [Reserved]. For further guidance, see §20.2032-1(f).

(1) ''Life estates, remainders, and similar interests.'' The values of life estates, remainders, and similar interests are to be obtained by applying the methods prescribed in §20.2031-7, using (i) the age of each person, the duration of whose life may affect the value of the interest, as of the date of the decedent’s death, and (ii) the value of the property as of the alternate valuation date. For example, assume that the decedent, or the decedent’s estate, was entitled to receive certain property worth $50,000 upon the death of A, who was entitled to the income for life. At the time of the decedent’s death, on or after May 1, 2009, A was 47 years and 5 months old. In the month in which the decedent died, the section 7520 rate was 6.2 percent. The value of the decedent’s remainder interest at the date of the decedent’s death would, as illustrated in Example 1 of §20.2031-7T(d)(5), be $9,336.00 ($50,000 x .18672). If, because of economic conditions, the property declined in value and was worth only $40,000 on the date that was 6 months after the date of the decedent’s death, the value of the remainder interest would be $7,468.80 ($40,000 X .18672), even though A would be 48 years old on the alternate valuation date.

(f)(2) through (g) [Reserved]. For further guidance, see §20.2032-1(f)(2) through (g).

(h) ''Effective/applicability date''. Paragraph (f)(1) applies on or after May 1, 2009.

(i) ''Expiration date''. Paragraph (f)(1) expires on or before May 1, 2012.

Par. 23. Section 20.2055-2 is amended by revising the heading in paragraph (e)(3) and revising the text in paragraphs (e)(3)(iii) and (f)(4) to read as follows:

'''''§20.2055-2 Transfers not exclusively for charitable purposes.'''''

<nowiki>* * * * *</nowiki>

(e) * * *

(3) ''Effective/applicability date''. * * *

(iii) [Reserved]. For further guidance, see §20.2055-2T(e)(3)(iii).

<nowiki>* * * * *</nowiki>

(f) * * *

(4) [Reserved]. For further guidance, see §20.2055-2T(f)(4).

<nowiki>* * * * *</nowiki>

Par. 24. Section 20.2055-2T is added to read as follows:

'''''§20.2055-2T Transfers not exclusively for charitable purposes (temporary).'''''

(a) through (e)(3)(ii). [Reserved]. For further guidance, see §20.2055-2(a) through (e)(3)(ii).

(e)(3)(iii) The rule in paragraphs (e)(2)(vi)(a) and (e)(2)(vii)(a) of this section that guaranteed annuity interests or unitrust interests, respectively, may be payable for a specified term of years or for the life or lives of only certain individuals is generally effective in the case of transfers pursuant to wills and revocable trusts when the decedent dies on or after April 4, 2000. Two exceptions from the application of this rule in paragraphs (e)(2)(vi)(a) and (e)(2)(vii)(a) of this section are provided in the case of transfers pursuant to a will or revocable trust executed on or before April 4, 2000. One exception is for a decedent who dies on or before July 5, 2001, without having republished the will (or amended the trust) by codicil or otherwise. The other exception is for a decedent who was on April 4, 2000, under a mental disability that prevented a change in the disposition of the decedent’s property, and who either does not regain competence to dispose of such property before the date of death, or dies prior to the later of 90 days after the date on which the decedent first regains competence, or July 5, 2001, without having republished the will (or amended the trust) by codicil or otherwise. If a guaranteed annuity interest or unitrust interest created pursuant to a will or revocable trust when the decedent dies on or after April 4, 2000, uses an individual other than one permitted in paragraphs (e)(2)(vi)(a) and (vii)(a) of this section, and the interest does not qualify for this transitional relief, the interest may be reformed into a lead interest payable for a specified term of years. The term of years is determined by taking the factor for valuing the annuity or unitrust interest for the named individual measuring life and identifying the term of years (rounded up to the next whole year) that corresponds to the equivalent term of years factor for an annuity or unitrust interest. For example, in the case of an annuity interest payable for the life of an individual age 40 at the time of the transfer on or after May 1, 2009, assuming an interest rate of 7.4 percent under section 7520, the annuity factor from column 1 of Table S(7.4), contained in IRS Publication 1457, Actuarial Valuations Version 3A, for the life of an individual age 40 is 12.1519 (1.00000 minus .10076, divided by .074). Based on Table B(7.4), contained in Publication 1457, Actuarial Valuations Version 3A, the factor 12.1519 corresponds to a term of years between 32 and 33 years. Accordingly, the annuity interest must be reformed into an interest payable for a term of 33 years. A judicial reformation must be commenced prior to the later of July 5, 2001, or the date prescribed by section 2055(e)(3)(C)(iii). Any judicial reformation must be completed within a reasonable time after it is commenced. A non-judicial reformation is permitted if effective under state law, provided it is completed by the date on which a judicial reformation must be commenced. In the alternative, if a court, in a proceeding that is commenced on or before July 5, 2001, declares any transfer made pursuant to a will or revocable trust where the decedent dies on or after April 4, 2000, and on or before March 6, 2001, null and void ab initio, the Internal Revenue Service will treat such transfers in a manner similar to that described in section 2055(e)(3)(J).

(e)(4) through (f)(3). [Reserved]. For further guidance, see §20.2055-2(e)(4) through (f)(3).

(f)(4)'' Other decedents''. The present value of an interest not described in paragraph (f)(2) of this section is to be determined under §20.2031-7T(d) in the case of decedents where the valuation date of the gross estate is on or after May 1, 2009, or under §20.2031-7A in the case of decedents where the valuation date of the gross estate is before May 1, 2009.

(f)(5) [Reserved]. For further guidance, see §20.2055-2(f)(5).

(f)(6) ''Effective/applicability date''. Paragraphs (e)(3)(iii) and (f)(4) apply on or after May 1, 2009.

(f)(7) ''Expiration date''. Paragraphs (e)(3)(iii) and (f)(4) expire on or before May 1, 2012.

Par. 25. Section 20.2056A-4 is amended by revising paragraph (c)(4)(ii)(B) and Example 4 of paragraph (d). The revisions reads as follows:

'''''§20.2056A-4 Procedures for conforming marital trusts and nontrust marital transfers to the requirements of a qualified domestic trust.'''''

<nowiki>* * * * *</nowiki>

(c) * * *

(4) * * *

(ii) * * *

(B) [Reserved]. For further guidance, see §20.2056A-4T(c)(4)(ii)(B).

(d) * * *

Example 4. [Reserved]. For further guidance, see §20.2056A-4T(d) Example 4.

Par. 26. Section 20.2056A-4T is added to read as follows:

'''''§20.2056A-4T Procedures for conforming marital trusts and nontrust marital transfers to the requirements of a qualified domestic trust (temporary).'''''

(a) through (c)(4)(ii)(A). [Reserved]. For further guidance, see §20.2056A-4(a) through (c)(4)(ii)(A).

(c)(4)(ii)(B) The total present value of the annuity or other payment is the present value of the nonassignable annuity or other payment as of the date of the decedent’s death, determined in accordance with the interest rates and mortality data prescribed by section 7520. The expected annuity term is the number of years that would be required for the scheduled payments to exhaust a hypothetical fund equal to the present value of the scheduled payments. This is determined by first dividing the total present value of the payments by the annual payment. From the quotient so obtained, the expected annuity term is derived by identifying the term of years that corresponds to the annuity factor equal to the quotient. This is determined by using column 1 of Table B, for the applicable interest rate, contained in Publication 1457, Actuarial Valuations Version 3A. A copy of this publication is available beginning May 1, 2009, at no charge, electronically via the IRS Internet site at www.irs.gov. If the quotient obtained falls between two terms, the longer term is used.

(c)(5) through (c)(7). [Reserved]. For further guidance, see §20.2056A-4(c)(5) through (c)(7).

(d) ''Examples 1'' through ''3''. [Reserved]. For further guidance, see §20.2056A-4(d) Examples 1 through 3.

''Example 4''. Computation of corpus portion of annuity payment. (i) At the time of D’s death on or after May 1, 2009, D is a participant in an employees’ pension plan described in section 401(a). On D’s death, D’s spouse S, a resident of the United States, becomes entitled to receive a survivor’s annuity of $72,000 per year, payable monthly, for life. At the time of D’s death, S is age 60. Assume that under section 7520, the appropriate discount rate to be used for valuing annuities in the case of this decedent is 6.0 percent. The annuity factor at 6.0 percent for a person age 60 is 11.0625 (1.0000 minus .33625, divided by .06). The adjustment factor at 6.0 percent in Table K for monthly payments is 1.0272. Accordingly, the right to receive $72,000 per year on a monthly basis is equal to the right to receive $73,958.40 ($72,000 x 1.0272) on an annual basis.

(ii) The corpus portion of each annuity payment received by S is determined as follows. The first step is to determine the annuity factor for the number of years that would be required to exhaust a hypothetical fund that has a present value and a payout corresponding to S ’s interest in the payments under the plan, determined as follows:

(A) Present value of S ’s annuity: $73,958.40 x 11.0625 = $818,164.80.

(B) Annuity Factor for Expected Annuity Term: $818,164.80 / $73,958.40 = 11.0625

(iii) The second step is to determine the number of years that would be required for S ’s annuity to exhaust a hypothetical fund of $818,164.80. The term certain annuity factor of 11.0625 falls between the annuity factors for 18 and 19 years in a 6.0 percent term certain annuity table (Column 1 of Table B, Publication 1457, Actuarial Valuations Version 3A, which may be obtained on the IRS Internet site). Accordingly, the expected annuity term is 19 years.

(iv) The third step is to determine the corpus amount by dividing the expected term of 19 years into the present value of the hypothetical fund as follows:

:Corpus amount of annual payment: $818,164.80/19 = $43,061.31

(v) In the fourth step, the corpus portion of each annuity payment is determined by dividing the corpus amount of each annual payment by the annual annuity payment (adjusted for payments more frequently than annually as in (i) of this Example 4) as follows:

:Corpus portion of each annuity payment: $43,061.31/$73,958.40 = .58

(vi) Accordingly, 58 percent of each payment to S is deemed to be a distribution of corpus. A marital deduction is allowed for $818,164.80, the present value of the annuity as of D’s date of death, if either: S agrees to roll over the corpus portion of each payment to a QDOT and the executor files the Information Statement described in paragraph (c)(5) of this section and the Roll Over Agreement described in paragraph (c)(7) of this section; or S agrees to pay the tax due on the corpus portion of each payment and the executor files the Information Statement described in paragraph (c)(5) of this section and the Payment Agreement described in paragraph (c)(6) of this section.

''Example 5''. [Reserved]. For further guidance, see §20.2056A-4(d) Example 5.

(e) ''Effective/applicability date''. Paragraph (c)(4)(ii)(B) and Example 4 in paragraph (d) of this section are applicable with respect to decedents dying on or after May 1, 2009.

(f) ''Expiration date''. Paragraph (c)(4)(ii)(B) and Example 4 in paragraph (d) of this section expire on or before May 1, 2012.

Par. 27. Section 20.7520-1 is amended by:

1. Revising the section heading.

2. Revising the second sentence of paragraph (a)(1) and revising paragraph (a)(2).

3. Removing the last two sentences of paragraph (b)(2) and adding a new sentence at the end of the paragraph.

4. Revising paragraphs (c)(1), (c)(2), and (d).

The revisions and additions read as follows:

'''''§20.7520-1 Valuation of annuities, unitrust interests, interests for life or terms of years, and remainder or reversionary interests prior to May 1, 2009.'''''

<nowiki>* * * * *</nowiki>

(a) * * *(1) * * * For periods prior to May 1, 2009, see §20.2031-7A for the computation of the value of annuities, unitrust interests, life estates, terms for years, remainders, and reversions, other than interests described in paragraphs (a)(2) and (a)(3) of this section.

(2) For a transfer to a pooled income fund prior to May 1, 2009, see §1.642(c)-6A (Income Tax Regulations) with respect to the valuation of the remainder interest.

<nowiki>* * * * *</nowiki>

(b) * * *

(2) * * * For decedents’ estates with valuation dates after April 30, 1989, and before May 1, 2009, the mortality component tables are contained in §20.2031-7A.

(c) * * *

(1) [Reserved]. For further guidance, see §20.7520-1T(c)(1).

(2) ''Internal Revenue Service publications containing tables with interest rates between 2.2 and 22 percent for valuation dates after April 30, 1999, and before May 1, 2009.'' The following publications are no longer available for purchase from the Superintendent of Documents, United States Government Printing Office; however, they may be obtained from CC:PA:LPD:PR, Room 5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044:

<nowiki>* * * * *</nowiki>

(d) Effective/applicability dates. This section applies after April 30, 1989, and before May 1, 2009.

Par. 28. Section 20.7520-1T is added to read as follows:

'''''§20.7520-1T Valuation of annuities, unitrust interests, interests for life or terms of years, and remainder or reversionary interests on or after May 1, 2009 (temporary).'''''

(a) ''General actuarial valuations.'' (1) Except as otherwise provided in this section and in §20.7520-3 (relating to exceptions to the use of prescribed tables under certain circumstances), in the case of estates of decedents with valuation dates after April 30, 1989, the fair market value of annuities, interests for life or for a term of years (including unitrust interests), remainders, and reversions is their present value determined under this section. See §20.2031-7T(d) (and, for certain prior periods, §20.2031-7A) for the computation of the value of annuities, unitrust interests, life estates, terms for years, remainders, and reversions, other than interests described in paragraphs (a)(2) and (a)(3) of this section.

(2) In the case of a transfer to a pooled income fund with a valuation date on or after May 1, 2009, see §1.642(c)-6T(e), Income Tax Regulations, (or, for certain prior periods, §1.642(c)-6A) with respect to the valuation of the remainder interest.

(3) [Reserved]. For further guidance, see §20.7520-1(a)(3).

(b)(1) [Reserved]. For further guidance, see §20.7520-1(b)(1).

(2) ''Mortality component.'' The mortality component reflects the mortality data most recently available from the United States census. As new mortality data becomes available after each decennial census, the mortality component described in this section will be revised periodically and the revised mortality component tables will be published in the regulations at that time. For decedent’s estates with valuation dates on or after May 1, 2009, the mortality component table (Table 2000CM) is contained in §20.2031-7T(d)(7). See §20.2031-7A for mortality component tables applicable to decedent’s estates with valuation dates before May 1, 2009.

(c) [Reserved]. For further guidance, see §20.7520-1(c).

(1) ''Regulation sections containing tables with interest rates between 0.2 and 14 percent for valuation dates on or after May 1, 2009.'' Section 1.642(c)-6T(e)(6) contains Table S used for determining the present value of a single life remainder interest in a pooled income fund as defined in §1.642(c)-5. See §1.642(c)-6A for single life remainder factors applicable to valuation dates before May 1, 2009. Section 1.664-4(e)(6) contains Table F (payout factors) and Table D (actuarial factors used in determining the present value of a remainder interest postponed for a term of years). Section1.664-4T(e)(7) contains Table U(1) (unitrust single life remainder factors). These tables are used in determining the present value of a remainder interest in a charitable remainder unitrust as defined in §1.664-3. See §1.664-4A for unitrust single life remainder factors applicable to valuation dates before May 1, 2009. Section 20.2031-7(d)(6) contains Table B (actuarial factors used in determining the present value of an interest for a term of years), Table K (annuity end-of-interval adjustment factors), and Table J (term certain annuity beginning-of-interval adjustment factors). Section 20.2031-7T(d)(7) contains Table S (single life remainder factors), and Table 2000CM (mortality components). These tables are used in determining the present value of annuities, life estates, remainders, and reversions. See §20.2031-7A for single life remainder factors applicable to valuation dates before May 1, 2009.

(2) ''Internal Revenue Service publications containing tables with interest rates between 0.2 and 22 percent for valuation dates on or after May 1, 2009''. The following documents are available beginning May 1, 2009, at no charge, electronically via the IRS Internet site at www.irs.gov:

(i) Internal Revenue Service Publication 1457, “Actuarial Valuations Version 3A” (2009). This publication includes tables of valuation factors, as well as examples that show how to compute other valuation factors, for determining the present value of annuities, life estates, terms of years, remainders, and reversions, measured by one or two lives. These factors may also be used in the valuation of interests in a charitable remainder annuity trust as defined in §1.664-2 and a pooled income fund as defined in §1.642(c)-5.

(ii) Internal Revenue Service Publication 1458, “Actuarial Valuations Version 3B” (2009). This publication includes term certain tables and tables of one and two life valuation factors for determining the present value of remainder interests in a charitable remainder unitrust as defined in §1.664-3.

(iii) Internal Revenue Service Publication 1459, “Actuarial Valuations Version 3C” (2009). This publication includes tables for computing depreciation adjustment factors. See §1.170A-12T.

(d) ''Effective/applicability date''. This section applies on or after May 1, 2009.

(e) ''Expiration date''. This section expires on or before May 1, 2012.

===PART 25—GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954===

Par. 29. The authority citation for part 25 is amended by adding entries in numerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Section 25.2512-5T also issued under 26 U.S.C. 7520(c)(2).

Section 25.7520-1T also issued under 26 U.S.C. 7520(c)(2). * * *

Par. 30. Section 25.2512-0 is revised to read as follows:

'''''§25.2512-0 Table of contents.'''''

This section lists the section headings that appear in the regulations under section 2512.

§25.2512-1 Valuation of property; in general.

§25.2512-2 Stocks and bonds.

§25.2512-3 Valuation of interests in businesses.

§25.2512-4 Valuation of notes.

§25.2512-5 Valuation of annuities, unitrust interests, interests for life or term of years, and remainder or reversionary interests.

§25.2512-5T Valuation of annuities, unitrust interests, interests for life or term of years, and remainder or reversionary interests (temporary).

§25.2512-6 Valuation of certain life insurance and annuity contracts; valuation of shares in an open-end investment company.

§25.2512-7 Effect of excise tax.

§25.2512-8 Transfers for insufficient consideration.

:Actuarial Tables Applicable Before May 1, 2009

§25.2512-5A Valuation of annuities, unitrust interests, interests for life or term of years, and remainder or reversionary interests transferred before May 1, 2009.

Par. 31. Section 25.2512-5 is amended by revising paragraphs (c), (d), and (e) to read as follows:

The revised provisions read as follows:

'''''§25.2512-5 Valuation of annuities, unitrust interests, interests for life or term of years, and remainder or reversionary interests.'''''

<nowiki>* * * * *</nowiki>

(c) and (d) [Reserved]. For further guidance, see §25.2512-5T(c) and (d).

(e) ''Effective/applicability dates''. This section applies after April 30, 1999, and before May 1, 2009.

Par. 32. Section 25.2512-5T is added to read as follows:

'''''§25.2512-5T Valuation of annuities, unitrust interests, interests for life or term of years, and remainder or reversionary interests (temporary).'''''

(a) and (b) [Reserved]. For further guidance, see §25.2512-5(a) and (b).

(c) ''Actuarial valuations''. The present value of annuities, unitrust interests, life estates, terms of years, remainders, and reversions transferred by gift on or after May 1, 2009, is determined under paragraph (d) of this section. The present value of annuities, unitrust interests, life estates, terms of years, remainders, and reversions transferred by gift before May 1, 2009, is determined under the following sections:

{||
|-
| colspan="2" align="center" |Transfers
|-
| col width="40" align="center" |After
| col width="40" align="center" |Before
| col width="80" align="center" |Applicable Regulations
|-
|''(all dates before)''||01-01-52|| 25.2512-5A(a)
|-
|12-31-51|| 01-01-71|| 25.2512-5A(b)
|-
|12-31-70|| 12-01-83|| 25.2512-5A(c)
|-
|11-30-83|| 05-01-89|| 25.2512-5A(d)
|-
|04-30-89|| 05-01-99|| 25.2512-5A(e)
|-
|04-30-99|| 05-01-09|| 25.2512-5A(f)
|-
|}

(d) ''Actuarial valuations on or after May 1, 2009''—(1) ''In general. ''Except as otherwise provided in paragraph (b) of this section and §25.7520-3(b) (relating to exceptions to the use of prescribed tables under certain circumstances), if the valuation date for the gift is on or after May 1, 2009, the fair market value of annuities, life estates, terms of years, remainders, and reversions transferred on or after May 1, 2009, is the present value of such interests determined under paragraph (d)(2) of this section and by use of standard or special section 7520 actuarial factors. These factors are derived by using the appropriate section 7520 interest rate and, if applicable, the mortality component for the valuation date of the interest that is being valued. See §§25.7520-1 through 25.7520-4. The fair market value of a qualified annuity interest described in section 2702(b)(1) and a qualified unitrust interest described in section 2702(b)(2) is the present value of such interests determined under §25.7520-1(c).

(2) ''Specific interests''. When the donor transfers property in trust or otherwise and retains an interest therein, generally, the value of the gift is the value of the property transferred less the value of the donor’s retained interest. However, if the donor transfers property after October 8, 1990, to or for the benefit of a member of the donor’s family, the value of the gift is the value of the property transferred less the value of the donor’s retained interest as determined under section 2702. If the donor assigns or relinquishes an annuity, life estate, remainder, or reversion that the donor holds by virtue of a transfer previously made by the donor or another, the value of the gift is the value of the interest transferred. However, see section 2519 for a special rule in the case of the assignment of an income interest by a person who received the interest from a spouse.

(i) ''Charitable remainder trusts''. The fair market value of a remainder interest in a pooled income fund, as defined in §1.642(c)-5, is its value determined under §1.642(c)-6T(e) (see §1.642(c)-6A for certain prior periods). The fair market value of a remainder interest in a charitable remainder annuity trust, as described in §1.664-2(a), is its present value determined under §1.664-2(c). The fair market value of a remainder interest in a charitable remainder unitrust, as defined in §1.664-3, is its present value determined under §1.664-4T(e). The fair market value of a life interest or term for years in a charitable remainder unitrust is the fair market value of the property as of the date of transfer less the fair market value of the remainder interest, determined under §1.664-4T(e)(4) and (5).

(ii) ''Ordinary remainder and reversionary interests''. If the interest to be valued is to take effect after a definite number of years or after the death of one individual, the present value of the interest is computed by multiplying the value of the property by the appropriate remainder interest actuarial factor (that corresponds to the applicable section 7520 interest rate and remainder interest period) in Table B (for a term certain) or the appropriate Table S (for one measuring life), as the case may be. Table B is contained in §20.2031-7(d)(6) and Table S (for one measuring life when the valuation date is on or after May 1, 2009) is included in §20.2031-7T(d)(7) and Internal Revenue Service Publication 1457. See §20.2031-7A containing Table S for valuation of interests before May 1, 2009. For information about obtaining actuarial factors for other types of remainder interests, see paragraph (d)(4) of this section.

(iii)'' Ordinary term-of-years and life interests''. If the interest to be valued is the right of a person to receive the income of certain property, or to use certain nonincome-producing property, for a term of years or for the life of one individual, the present value of the interest is computed by multiplying the value of the property by the appropriate term-of-years or life interest actuarial factor (that corresponds to the applicable section 7520 interest rate and term-of-years or life interest period). Internal Revenue Service Publication 1457 includes actuarial factors for a remainder interest after a term of years in Table B and after the life of one individual in Table S (for one measuring life when the valuation date is on or after May 1, 2009). However, term-of-years and life interest actuarial factors are not included in Table B in §20.2031-7(d)(6) or Table S in §20.2031-7T(d)(7) (or in §20.2031-7A). If Internal Revenue Service Publication 1457 (or any other reliable source of term-of-years and life interest actuarial factors) is not conveniently available, an actuarial factor for the interest may be derived mathematically. This actuarial factor may be derived by subtracting the correlative remainder factor (that corresponds to the applicable section 7520 interest rate) in Table B (for a term of years) in §20.2031-7(d)(6) or in Table S (for the life of one individual) in §20.2031-7T(d)(7), as the case may be, from 1.000000. For information about obtaining actuarial factors for other types of term-of-years and life interests, see paragraph (d)(4) of this section.

(iv) ''Annuities''. (A) If the interest to be valued is the right of a person to receive an annuity that is payable at the end of each year for a term of years or for the life of one individual, the present value of the interest is computed by multiplying the aggregate amount payable annually by the appropriate annuity actuarial factor (that corresponds to the applicable section 7520 interest rate and annuity period). Internal Revenue Service Publication 1457 includes actuarial factors in Table B (for a remainder interest after an annuity payable for a term of years) and in Table S (for a remainder interest after an annuity payable for the life of one individual when the valuation date is on or after May 1, 2009). However, annuity actuarial factors are not included in Table B in §20.2031-7(d)(6) or Table S in §20.2031-7T(d)(7) (or in §20.2031-7A). If Internal Revenue Service Publication 1457 (or any other reliable source of annuity actuarial factors) is not conveniently available, an annuity factor for a term of years or for one life may be derived mathematically. This annuity factor may be derived by subtracting the applicable remainder factor (that corresponds to the applicable section 7520 interest rate and annuity period) in Table B (in the case of a term-of-years annuity) in §20.2031-7(d)(6) or in Table S (in the case of a one-life annuity) in §20.2031-7T(d)(7), as the case may be, from 1.000000 and then dividing the result by the applicable section 7520 interest rate expressed as a decimal number. See §20.2031-7T(d)(2)(iv) for an example that illustrates the computation of the present value of an annuity.

(B) If the annuity is payable at the end of semiannual, quarterly, monthly, or weekly periods, the product obtained by multiplying the annuity factor by the aggregate amount payable annually is then multiplied by the applicable adjustment factor set forth in Table K in §20.2031-7(d)(6) at the appropriate interest rate component for payments made at the end of the specified periods. The provisions of this paragraph (d)(2)(iv)(B) are illustrated by the following example:

''Example''. In July of a year after 2008, the donor agreed to pay the annuitant the sum of $10,000 per year, payable in equal semiannual installments at the end of each period. The semiannual installments are to be made on each December 31st and June 30th. The annuity is payable until the annuitant’s death. On the date of the agreement, the annuitant is 68 years and 5 months old. The donee annuitant’s age is treated as 68 for purposes of computing the present value of the annuity. The section 7520 rate on the date of the agreement is 6.6 percent. Under Table S in §20.2031-7T(d)(7), the factor at 6.6 percent for determining the present value of a remainder interest payable at the death of an individual aged 68 is .42001. Converting the remainder factor to an annuity factor, as described above, the annuity factor for determining the present value of an annuity transferred to an individual age 68 is 8.7877 (1.00000 minus .42001 divided by .066). The adjustment factor from Table K in §20.2031-7(d)(6) in the column for payments made at the end of each semiannual period at the rate of 6.6 percent is 1.0162. The aggregate annual amount of the annuity, $10,000, is multiplied by the factor 8.7877 and the product is multiplied by 1.0162. The present value of the donee’s annuity is, therefore, $89,300.61 ($10,000 X 8.7877 X 1.0162).

(C) If an annuity is payable at the beginning of annual, semiannual, quarterly, monthly, or weekly periods for a term of years, the value of the annuity is computed by multiplying the aggregate amount payable annually by the annuity factor described in paragraph (d)(2)(iv)(A) of this section; and the product so obtained is then multiplied by the adjustment factor in Table J in §20.2031-7(d)(6) at the appropriate interest rate component for payments made at the beginning of specified periods. If an annuity is payable at the beginning of annual, semiannual, quarterly, monthly, or weekly periods for one or more lives, the value of the annuity is the sum of the first payment and the present value of a similar annuity, the first payment of which is not to be made until the end of the payment period, determined as provided in paragraph (d)(2)(iv)(B) of this section.

(v) ''Annuity and unitrust interests for a term of years or until the prior death of an individual''—(A) ''Annuity interests''. The present value of an annuity interest that is payable until the earlier to occur of the lapse of a specific number of years or the death of an individual may be computed with values from the tables in §§20.2031-7(d)(6) and 20.2031-7T(d)(7) as described in the following example:

''Example.'' The donor transfers $100,000 into a trust on or after May 1, 2009, and retains the right to receive an annuity from the trust in the amount of $6,000 per year, payable in equal semiannual installments at the end of each period. The semiannual installments are to be made on each June 30th and December 31st. The annuity is payable for 10 years or until the donor’s prior death. At the time of the transfer, the donor is 59 years and 6 months old. The donor’s age is deemed to be 60 for purposes of computing the present value of the retained annuity. The section 7520 rate for the month in which the transfer occurred is 5.8 percent. The present value of the donor’s retained interest is $42,575.65, determined as follows:

{|
|-
|TABLE S value at 5.8 percent, age 60|| .34656
|-
|TABLE S value at 5.8 percent, age 70|| .49025
|-
|TABLE 2000CM value at age 70|| 74794
|-
|TABLE 2000CM value at age 60|| 87595
|-
|TABLE B value at 5.8 percent, 10 years|| .569041
|-
|TABLE K value at 5.8 percent|| 1.0143
|-
|Factor for donor’s retained interest at 5.8 percent:||
|-
|(1.00000 - .34656) - (.569041 X (74794/87595) X (1.00000 - .49025)) = 6.9959
|-
|.058
|-
|Present value of donor’s retained interest:
|-
|($6,000 X 6.9959 X 1.0143)|| $42,575.65
|-
|}

(B) ''Unitrust interests''. The present value of a unitrust interest that is payable until the earlier to occur of the lapse of a specific number of years or the death of an individual may be computed with values from the tables in §§1.664-4(e)(6) and 1.664-4T(e)(7) as described in the following example:

''Example.'' The donor who, as of the nearest birthday, is 60 years old, transfers $100,000 to a unitrust on January 1st of a year after 2009. The trust instrument requires that each year the trust pay to the donor, in equal semiannual installments on June 30th and December 31st, 6 percent of the fair market value of the trust assets, valued as of January 1st each year, for 10 years or until the prior death of the donor. The section 7520 rate for the January in which the transfer occurred is 6.6 percent. Under Table F(6.6) in §1.664-4(e)(6), the appropriate adjustment factor is .953317 for semiannual payments payable at the end of the semiannual period. The adjusted payout rate is 5.720 percent (6% X .953317). The present value of the donor’s retained interest is $41,920.00 determined as follows:

{|
|-
|TABLE U(1) value at 5.6 percent, age 60|| .33970
|-
|TABLE U(1) value at 5.6 percent, age 70|| .48352
|-
|TABLE 2000CM value at age 70|| 74794
|-
|TABLE 2000CM value at age 60|| 87595
|-
|TABLE D value at 5.6 percent, 10 years|| .561979
|-
|Factor for donor’s retained interest at 5.6 percent:
|-
|(1.000000 - .33970) - (.561979 X (74794/87595) X (1.000000 - .48352)) = .41247
|-
|TABLE U(1) value at 5.8 percent, age 60 ||.32846
|-
|TABLE U(1) value at 5.8 percent, age 70 ||.47241
|-
|TABLE 2000CM value at age 70|| 74794
|-
|TABLE 2000CM value at age 60|| 87595
|-
|TABLE D value at 5.8 percent, 10 years|| .550185
|-
|Factor for donor’s retained interest at 5.8 percent:
|-
|(1.000000 - .32846) - (.550185 X (74974/87595) X (1.000000 - .47241)) = .42369
|-
|Difference|| .01122
|-
|Interpolation adjustment:
|-
| || 5.720% - 5.6% =|| x
|-
| || 0.2% ||.01122
|-
| || ||x = .00673
|-
|Factor at 5.6 percent, age 60|| .41247
|-
|Plus: Interpolation adjustment|| .00673
|-
|Interpolated Factor|| .41920
|-
|Present value of donor’s retained interest:
|-
|($100,000 X .41920) ||$41,920.00
|-
|}

(3)'' Transitional rule.'' If the valuation date of a transfer of property by gift is on or after May 1, 2009, and before July 1, 2009, the fair market value of the interest transferred is determined by use of the section 7520 interest rate for the month in which the valuation date occurs (see §§25.7520-1(b) and 25.7520-2(a)(2)) and the appropriate actuarial tables under either §20.2031-7T(d)(7) or §20.2031-7A(f)(4), at the option of the donor. However, with respect to each individual transaction and with respect to all transfers occurring on the valuation date, the donor must use the same actuarial tables (for example, gift and income tax charitable deductions with respect to the same transfer must be determined based on the same tables, and all transfers made on the same date must be valued based on the same tables).

(4) ''Publications and actuarial computations by the Internal Revenue Service.'' Many standard actuarial factors not included in §20.2031-7(d)(6) or §20.2031-7T(d)(7) are included in Internal Revenue Service Publication 1457, “Actuarial Valuations Version 3A” (2009). Internal Revenue Service Publication 1457 also includes examples that illustrate how to compute many special factors for more unusual situations. A copy of this publication is available beginning May 1, 2009, at no charge, electronically via the IRS Internet site at www.irs.gov. If a special factor is required in the case of a completed gift, the Internal Revenue Service may furnish the factor to the donor upon a request for a ruling. The request for a ruling must be accompanied by a recitation of the facts including a statement of the date of birth for each measuring life, the date of the gift, any other applicable dates, and a copy of the will, trust, or other relevant documents. A request for a ruling must comply with the instructions for requesting a ruling published periodically in the Internal Revenue Bulletin (see §§601.201 and 601.601(d)(2)(ii)(b)) and include payment of the required user fee.

(e) ''Effective/applicability date''. This section applies on or after May 1, 2009.

(f) ''Expiration date''. This section expires on or before May 1, 2012.

Par. 33. The undesignated center heading immediately preceding §25.2512-5A is revised to read as follows:

:Actuarial Tables Applicable Before May 1, 2009

Par. 34. Section 25.2512-5A is amended by revising the section heading and adding paragraph (f) to read as follows:

'''''§25.2512-5A Valuation of annuities, unitrust interests, interests for life or term of years, and remainder or reversionary interests transferred before May 1, 2009.'''''

<nowiki>* * * * *</nowiki>

(f) ''Valuation of annuities, unitrust interests, interests for life or term of years, and remainder or reversionary interests transferred after April 30, 1999, and before May 1, 2009''—(1) ''In general''. Except as otherwise provided in §§25.2512-5(b) and 25.7520-3(b) (pertaining to certain limitations on the use of prescribed tables), if the valuation date of the transferred interest is after April 30, 1999, and before May 1, 2009, the fair market value of annuities, unitrust interests, life estates, terms of years, remainders, and reversions transferred by gift is the present value of the interests determined by use of standard or special section 7520 actuarial factors and the valuation methodology described in §25.2512-5T(d). Sections 20.2031-7(d)(6) and 20.2031-7A(f)(4) and related sections provide tables with standard actuarial factors and examples that illustrate how to use the tables to compute the present value of ordinary annuity, life, and remainder interests in property. These sections also refer to standard and special actuarial factors that may be necessary to compute the present value of similar interests in more unusual fact situations. These factors and examples are also generally applicable for gift tax purposes in computing the values of taxable gifts.

(2) ''Transitional rule''. If the valuation date of a transfer of property by gift is after April 30, 1999, and before July 1, 1999, the fair market value of the interest transferred is determined by use of the section 7520 interest rate for the month in which the valuation date occurs (see §§25.7520-1(b) and 25.7520-2(a)(2)) and the appropriate actuarial tables under either §20.2031-7A(e)(4) or §20.2031-7A(f)(4), at the option of the donor. However, with respect to each individual transaction and with respect to all transfers occurring on the valuation date, the donor must use the same actuarial tables (for example, gift and income tax charitable deductions with respect to the same transfer must be determined based on the same tables, and all transfers made on the same date must be valued based on the same tables).

(3) ''Publications and actuarial computations by the Internal Revenue Service.'' Many standard actuarial factors not included in §§20.2031-7(d)(6) and 20.2031-7A(f)(4) are included in Internal Revenue Service Publication 1457, “Actuarial Values, Book Aleph,” (7-99). Internal Revenue Service Publication 1457 also includes examples that illustrate how to compute many special factors for more unusual situations. Publication 1457 is no longer available for purchase from the Superintendent of Documents, United States Government Printing Office. However, pertinent factors in this publication may be obtained from: CC:PA:LPD:PR (IRS Publication 1457), Room 5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. If a special factor is required in the case of a completed gift, the Internal Revenue Service may furnish the factor to the donor upon a request for a ruling. The request for a ruling must be accompanied by a recitation of the facts including a statement of the date of birth for each measuring life, the date of the gift, any other applicable dates, and a copy of the will, trust, or other relevant documents. A request for a ruling must comply with the instructions for requesting a ruling published periodically in the Internal Revenue Bulletin (see §§601.201 and 601.601(d)(2)(ii)(b)) and include payment of the required user fee.

(4) ''Effective/applicability dates''. Paragraphs (f)(1) through (f)(3) apply after April 30, 1999, and before May 1, 2009.

Par. 35. Section 25.2522(c)-3 is amended by revising paragraph (e) to read as follows:

'''''§25.2522(c)-3 Transfers not exclusively for charitable, etc., purposes in the case of gifts made after July 31, 1969.'''''

<nowiki>* * * * *</nowiki>

(e) [Reserved]. For further guidance, see §25.2522(c)-3T(e).

Par. 36. Section 25.2522(c)-3T is added as follows:

'''''§25.2522(c)-3T Transfers not exclusively for charitable, etc., purposes in the case of gifts made after July 31, 1969 (temporary).'''''

(a) through (d) [Reserved]. For further guidance, see §25.2522(c)-3(a) through (d).

(e) ''Effective/applicability date''. This section applies only to gifts made after July 31, 1969. In addition, the rule in paragraphs (c)(2)(vi)(a) and (c)(2)(vii)(a) of this section that guaranteed annuity interests or unitrust interests, respectively, may be payable for a specified term of years or for the life or lives of only certain individuals applies to transfers made on or after April 4, 2000. If a transfer is made on or after April 4, 2000, that uses an individual other than one permitted in paragraphs (c)(2)(vi)(a) and (c)(2)(vii)(a) of this section, the interest may be reformed into a lead interest payable for a specified term of years. The term of years is determined by taking the factor for valuing the annuity or unitrust interest for the named individual measuring life and identifying the term of years (rounded up to the next whole year) that corresponds to the equivalent term of years factor for an annuity or unitrust interest. For example, in the case of an annuity interest payable for the life of an individual age 40 at the time of the transfer on or after May 1, 2009, assuming an interest rate of 7.4 percent under section 7520, the annuity factor from column 1 of Table S(7.4), contained in IRS Publication 1457, Actuarial Valuations Version 3A, for the life of an individual age 40 is 12.1519 (1 - .10076 / .074). Based on Table B(7.4), contained in Publication 1457, Actuarial Valuations Version 3A, the factor 12.1519 corresponds to a term of years between 32 and 33 years. Accordingly, the annuity interest must be reformed into an interest payable for a term of 33 years. A judicial reformation must be commenced prior to October 15th of the year following the year in which the transfer is made and must be completed within a reasonable time after it is commenced. A non-judicial reformation is permitted if effective under state law, provided it is completed by the date on which a judicial reformation must be commenced. In the alternative, if a court, in a proceeding that is commenced on or before July 5, 2001, declares any transfer, made on or after April 4, 2000, and on or before March 6, 2001, null and void ab initio, the Internal Revenue Service will treat such transfers in a manner similar to that described in section 2055(e)(3)(J).

Par. 37. Section 25.7520-1 is amended by:

1. Revising the section heading.

2. Revising the second sentence of paragraph (a)(1) and revising paragraph (a)(2).

3. Removing the last two sentences of paragraph (b)(2) and adding a new sentence at the end.

4. Revising paragraphs (c)(1), (c)(2), and (d).

The revisions and additions read as follows:

'''''§25.7520-1 Valuation of annuities, unitrust interests, interests for life or terms of years, and remainder or reversionary interests prior to May 1, 2009.'''''

<nowiki>* * * * *</nowiki>

(a) * * *(1) * * * For periods prior to May 1, 2009, see §20.2031-7A for the computation of the value of annuities, unitrust interests, life estates, terms for years, remainders, and reversions, other than interests described in paragraphs (a)(2) and (a)(3) of this section.

(2) For a gift to a pooled income fund prior to May 1, 2009, see §1.642(c)-6A (Income Tax Regulations) with respect to the valuation of the remainder interest.

<nowiki>* * * * *</nowiki>

(b) * * *

(2) * * * For transactions with valuation dates after April 30, 1989, and before May 1, 2009, the mortality component tables are contained in §20.2031-7A.

(c) * * *

(1) [Reserved]. For further guidance, see §25.7520-1T(c)(1).

(2) ''Internal Revenue Service publications containing tables with interest rates between 2.2 and 22 percent for valuation dates after April 30, 1999, and before May 1, 2009.'' The following publications are no longer available for purchase from the Superintendent of Documents, United States Government Printing Office; however, they may be obtained from CC:PA:LPD:PR, Room 5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044:

<nowiki>* * * * *</nowiki>

(d) ''Effective/applicability dates''. This section applies after April 30, 1989, and before May 1, 2009.

Par. 38. Section 25.7520-1T is added to read as follows:

'''''§25.7520-1T Valuation of annuities, unitrust interests, interests for life or terms of years, and remainder or reversionary interests on or after May 1, 2009 (temporary).'''''

(a) ''General actuarial valuations''. (1) Except as otherwise provided in this section and in §25.7520-3 (relating to exceptions to the use of prescribed tables under certain circumstances), in the case of certain gifts after April 30, 1989, the fair market value of annuities, interests for life or for a term of years (including unitrust interests), remainders, and reversions is their present value determined under this section. See §20.2031-7T(d) (and, for certain prior periods, §20.2031-7A) for the computation of the value of annuities, unitrust interests, life estates, terms for years, remainders, and reversions, other than interests described in paragraphs (a)(2) and (a)(3) of this section.

(2) In the case of a gift to a beneficiary of a pooled income fund on or after May 1, 2009, see §1.642(c)-6T(e) (or, for certain prior periods, §1.642(c)-6A) with respect to the valuation of the remainder interest.

(3) [Reserved]. For further guidance, see §25.7520-1(a)(3).

(b)(1) [Reserved]. For further guidance, see §25.7520-1(b)(1).

(2) ''Mortality component''. The mortality component reflects the mortality data most recently available from the United States census. As new mortality data becomes available after each decennial census, the mortality component described in this section will be revised periodically and the revised mortality component tables will be published in the regulations at that time. For gifts with valuation dates on or after May 1, 2009, the mortality component table (Table 2000CM) is contained in §20.2031-7T(d)(7). See §20.2031-7A for mortality component tables applicable to gifts for which the valuation date falls before May 1, 2009.

(c) [Reserved]. For further guidance, see §25.7520-1(c).

(1) ''Regulation sections containing tables with interest rates between 0.2 and 14 percent for valuation dates on or after May 1, 2009.'' Section 1.642(c)-6T(e)(6) contains Table S used for determining the present value of a single life remainder interest in a pooled income fund as defined in §1.642(c)-5. See §1.642(c)-6A for single life remainder factors applicable to valuation dates before May 1, 2009. Section 1.664-4(e)(6) contains Table F (payout factors) and Table D (actuarial factors used in determining the present value of a remainder interest postponed for a term of years). Section 1.664-4T(e)(7) contains Table U(1) (unitrust single life remainder factors). These tables are used in determining the present value of a remainder interest in a charitable remainder unitrust as defined in §1.664-3. See §1.664-4A for unitrust single life remainder factors applicable to valuation dates before May 1, 2009. Section 20.2031-7(d)(6) contains Table B (actuarial factors used in determining the present value of an interest for a term of years), Table K (annuity end-of-interval adjustment factors), and Table J (term certain annuity beginning-of-interval adjustment factors). Section 20.2031-7T(d)(7) contains Table S (single life remainder factors), and Table 2000CM (mortality components). These tables are used in determining the present value of annuities, life estates, remainders, and reversions. See §20.2031-7A for single life remainder factors and mortality components applicable to valuation dates before May 1, 2009.

(2) ''Internal Revenue Service publications containing tables with interest rates between 0.2 and 22 percent for valuation dates on or after May 1, 2009''. The following documents are available beginning May 1, 2009, at no charge, electronically via the IRS Internet site at www.irs.gov:

(i) Internal Revenue Service Publication 1457, “Actuarial Valuations Version 3A” (2009). This publication includes tables of valuation factors, as well as examples that show how to compute other valuation factors, for determining the present value of annuities, life estates, terms of years, remainders, and reversions, measured by one or two lives. These factors may also be used in the valuation of interests in a charitable remainder annuity trust as defined in §1.664-2 and a pooled income fund as defined in §1.642(c)-5.

(ii) Internal Revenue Service Publication 1458, “Actuarial Valuations Version 3B” (2009). This publication includes term certain tables and tables of one and two life valuation factors for determining the present value of remainder interests in a charitable remainder unitrust as defined in §1.664-3.

(iii) Internal Revenue Service Publication 1459, “Actuarial Valuations Version 3C” (2009). This publication includes tables for computing depreciation adjustment factors. See §1.170A-12T.

(d)'' Effective/applicability date''. This section applies on or after May 1, 2009.

(e) ''Expiration date.'' This section expires on or before May 1, 2012.

Par. 39. Section 25.7520-3 is amended by revising paragraph (b)(2)(v), Example 5 and paragraph (b)(4) to read as follows:

'''''§25.7520-3 Limitation on the application of section 7520.'''''

<nowiki>* * * * *</nowiki>

(b) * * *

(2) * * *

(v) * * *

Example 5. [Reserved]. For further guidance, see §25.7520-3T(b)(2)(v) Example 5.

<nowiki>* * * * *</nowiki>

(4) [Reserved]. For further guidance, see §25.7520-3T(b)(4).

<nowiki>* * * * *</nowiki>

Par. 40. Section 25.7520-3T is added as follows:

'''''§25.7520-3T Limitation on the application of section 7520 (temporary).'''''

(a) through (b)(2)(iv) [Reserved]. For further guidance, see §25.7520-3(a) through (b)(2)(iv).

(b)(2)(v) ''Examples 1'' through ''4''. [Reserved]. For further guidance, see §25.7520-3(b)(2)(v) Examples 1 through 4.

''Example 5. Eroding corpus in an annuity trust''. (i) The donor, who is age 60 and in normal health, transfers property worth $1,000,000 to a trust on or after May 1, 2009. The trust will pay a 10 percent ($100,000 per year) annuity to a charitable organization for the life of the donor, payable annually at the end of each period, and the remainder then will be distributed to the donor’s child. The section 7520 rate for the month of the transfer is 6.8 percent. First, it is necessary to determine whether the annuity may exhaust the corpus before all annuity payments are made. Because it is assumed that any measuring life may survive until age 110, any life annuity could require payments until the measuring life reaches age 110. Based on a section 7520 interest rate of 6.8 percent, the determination of whether the annuity may exhaust the corpus before the annuity payments are made is computed as follows:

{|
|-
|Age to which life annuity may continue ||110
|-
|less: Age of measuring life at date of transfer || 60
|-
|Number of years annuity may continue|| 50
|-
|Annual annuity payment|| $100,000.00
|-
|times: Annuity factor for 50 years ||
|-
|derived from Table B ||
|-
|(1 - .037277 / .068)|| 14.1577
|-
|Present value of term certain annuity|| $1,415,770.00
|-
|}

(ii) Because the present value of an annuity for a term of 50 years exceeds the corpus, the annuity may exhaust the trust before all payments are made. Consequently, the annuity must be valued as an annuity payable for a term of years or until the prior death of the annuitant, with the term of years determined by when the fund will be exhausted by the annuity payments.

(iii) The annuity factor for a term of years at 6.8 percent is derived by subtracting the applicable remainder factor in Table B (see §20.2031-7(d)(6)) from 1.000000 and then dividing the result by .068. An annuity of $100,000 payable at the end of each year for a period that has an annuity factor of 10.0 would have a present value exactly equal to the principal available to pay the annuity over the term. The annuity factor for 17 years is 9.8999 and the annuity factor for 18 years is 10.2059. Thus, it is determined that the $1,000,000 initial transfer will be sufficient to make 17 annual payments of $100,000, but not to make the entire 18th payment. The present value of an annuity of $100,000 payable at the end of each year for 17 years certain is $100,000 times 9.8999 or $989,990. The remaining amount is $10,010.00. Of the initial corpus amount, $10,010.00 is not needed to make payments for 17 years, so this amount, as accumulated for 18 years, will be available for the final payment. The 18-year accumulation factor is (1 + 0.068)18 or 3.268004. Then the amount available in 18 years is $10,010.00 times 3.268004 or $32,712.72. Therefore, for purposes of analysis we consider the annuity payments as being composed of two distinct annuity components. The two annuity components taken together must equal the total annual amount of $100,000. The first annuity is the exact amount that the trust will have available for the final payment, $32,712.72. The second annuity component then must be $100,000 minus $32,712.72, or $67,287.28. Specifically, the initial corpus will be able to make payments of $67,287.28 per year for 17 years plus payments of $32,712.72 per year for 18 years. The total annuity is valued by adding the value of the two separate temporary component annuities.

(iv) Based on Table H of Publication 1457, Actuarial Valuations Version 3A, which may be obtained from the IRS Internet site, the present value of an annuity of $67,287.28 per year payable for 17 years or until the prior death of a person aged 60 is $597,013.12 ($67,287.28 X 8.8726). The present value of an annuity of $32,712.72 per year payable for 18 years or until the prior death of a person aged 60 is $296,887.56 ($32,712.72 X 9.0756). Thus, the present value of the charitable annuity interest is $893,900.68 ($597,013.12 + $296,887.56).

(3) [Reserved]. For further guidance, see §25.7520-3(b)(3).

(4) ''Example''. The provisions of paragraph (b)(3) of this section are illustrated by the following example:

''Example. Terminal illness''. The donor transfers property worth $1,000,000 to a child on or after May 1, 2009, in exchange for the child’s promise to pay the donor $80,000 per year for the donor’s life, payable annually at the end of each period. The donor is age 75 but has been diagnosed with an incurable illness and has at least a 50 percent probability of dying within 1 year. The section 7520 interest rate for the month of the transfer is 7.6 percent, and the standard annuity factor at that interest rate for a person age 75 in normal health is 6.6493 (1 - .49465 / .076). Thus, if the donor were not terminally ill, the present value of the annuity would be $531,944.00 ($80,000 X 6.6493). Assuming the presumption provided in paragraph (b)(3) of this section does not apply, because there is at least a 50 percent probability that the donor will die within 1 year, the standard section 7520 annuity factor may not be used to determine the present value of the donor’s annuity interest. Instead, a special section 7520 annuity factor must be computed that takes into account the projection of the donor’s actual life expectancy.

(5) [Reserved]. For further guidance, see §25.7520-3(b)(5).

(c) ''Effective/applicability dates''. Section 25.7520-3(a) is effective as of May 1, 1989. The provisions of paragraph (b) of this section, except Example 5 in paragraph (b)(2)(v) and paragraph (b)(4), are effective with respect to gifts made after December 13, 1995. Example 5 in paragraph (b)(2)(v) and paragraph (b)(4) are effective with respect to gifts made on or after May 1, 2009.

Par. 41. For each section listed in the table below, remove the language in the “Remove” column and add in its place the language in the “Add” column as set forth below:

{|
|-
| col width="100" align="center" |Section
| col width="100" align="center" |Remove
| col width="100" align="center" |Add
|-
|§1.170A-12(e)(2) following the formula|| Table 90 CM in §20.2031-7 ||Table 2000CM in §20.2031-7T
|-
|§1.170A-14(h)(4), Example 2, fourth sentence|| May 1, 1999 ||May 1, 2009
|-
|§1.664-1(a)(6) introductory text|| §§1.664-4(e) and 1.664-4A(d) and (e) ||§§1.664-4T(e) and 1.664-4A
|-
|}

Linda E. Stiff,

''Deputy Commissioner for Services and Enforcement.''

Approved April 23, 2009.

Bernard J. Knight, Jr,

''Acting General Counsel of the Treasury.''

==Note==

(Filed by the Office of the Federal Register on May 1, 2009, 4:15 p.m., and published in the issue of the Federal Register for May 7, 2009, 74 F.R. 21437)

==Drafting Information==

The principal author of these regulations is Mayer R. Samuels, Office of the Associate Chief Counsel (Passthroughs and Special Industries), IRS. However, other personnel from the IRS and Treasury Department participated in their development.

<nowiki>* * * * *</nowiki>

Rev. Proc. 2009-52

Trillium — Sun, 22 Nov 2009 02:11:29 GMT

Summary: add rp09-52

{{RPHeader}}

Internal Revenue Bulletin: 2009-##

(TBD) Month day, 2009

'''Rev. Proc. 2009-52'''

Part III, Administrative, Procedural, and Miscellaneous

26 CFR 601.105: Examination of returns and claims for refund, credit or abatement; determination of correct tax liability. 
(Also Part I, §§ 172, 6411)

----
__TOC__

'''Rev. Proc. 2009-52'''

==SECTION 1. PURPOSE==

.01 This revenue procedure provides guidance under § 13 of the Worker,
Homeownership, and Business Assistance Act of 2009, Pub. L. No. 111-92, 123 Stat.
2984 (November 6, 2009) (the Act). Section 13 of the Act amends §§ 172(b)(1)(H) and
810(b) of the Internal Revenue Code to allow taxpayers to elect to carry back an
applicable net operating loss (NOL) for a period of 3, 4, or 5 years, or a loss from
operations for 4 or 5 years, to offset taxable income in those preceding taxable years.
This revenue procedure applies to losses from operations of a life insurance company
under § 810 in the same manner as to NOLs under § 172.

.02 This revenue procedure prescribes when and how to elect under § 172(b)(1)(H)
to carry back an applicable NOL for a period of 3, 4, or 5 years for (1) taxpayers that
have not claimed a deduction for an applicable NOL; (2) taxpayers that previously
claimed a deduction for an applicable NOL; and (3) taxpayers that previously filed an
election under §§ 172(b)(3) or 810(b)(3) to forgo the NOL carryback period.

==SECTION 2. BACKGROUND ==

.01 Section 172(a) allows a deduction equal to the aggregate of the NOL carryovers
and carrybacks to the taxable year. Section 172(b)(1)(A)(i) provides that an NOL for
any taxable year generally must be carried back to each of the 2 years preceding the
taxable year of the NOL. Section 172(b)(3) provides that any taxpayer entitled to a
carryback period under § 172(b)(1) may make an irrevocable election to relinquish the
carryback period for an NOL for any taxable year.

.02 Section 810(b)(1)(A) provides that life insurance companies may carry back an
NOL for any taxable year to each of the 3 years preceding the taxable year of the loss.
Section 810(b)(3) provides that any taxpayer entitled to a carryback period under §
810(b)(1) may make an irrevocable election to relinquish the carryback period for a loss
from operations for any taxable year.

.03 Section 6411(a) provides that a taxpayer may file an application for a tentative
carryback adjustment of the tax for the prior taxable year affected by an NOL carryback
from any taxable year. Section 6411(a) also provides that the application must be filed
on or after the date of filing for the return for the taxable year of the NOL from which the
carryback results and within a period of 12 months after that taxable year or, for any
portion of a business credit carryback attributable to an NOL from a subsequent taxable
year, within a period of 12 months from the end of the subsequent taxable year.

Section 6411(b) provides a 90-day period during which the Internal Revenue Service
will make a limited examination of the application to discover omissions and errors of
computation and determine the amount of the decrease in tax attributable to the
carryback. The Service may disallow, without further action, any application that
contains errors of computation that cannot be corrected within the 90-day period or that
contains material omissions. The decrease in tax attributable to the carryback is
applied against unpaid amounts of tax. Any remainder of the decrease is credited or
refunded within the 90-day period.

.04 Section 1211 of the American Recovery and Reinvestment Tax Act of 2009, Div.
B of Pub. L. No. 111-5, 123 Stat. 115 (February 17, 2009) (ARRA), amended
§ 172(b)(1)(H) to allow an eligible small business (ESB) to elect to carry back a 2008
applicable NOL for a period of 3, 4, or 5 years (the ARRA election). Unlike the
§ 172(b)(1)(H) election under the Act (referred to in this revenue procedure as the
§ 172(b)(1)(H) election), the ARRA election is applicable only to an NOL attributable to
an ESB. The ARRA election is irrevocable and may be made for only one taxable year.
Rev. Proc. 2009-26, 2009-19 I.R.B. 935 (April 25, 2009), modifying and superseding
Rev. Proc. 2009-19, 2009-14 I.R.B. 747 (March 16, 2009), advises taxpayers how to
make the ARRA election.

.05 Section 172(b)(1)(H)(i), as amended by the Act, permits a taxpayer to elect to
carry back its applicable NOL to 3, 4, or 5 years preceding the taxable year of the
applicable NOL. This election is not limited to an ESB. Section 172(b)(1)(H)(ii)
provides that the term “applicable net operating loss” means the taxpayer’s NOL for a
taxable year ending after December 31, 2007, and beginning before January 1, 2010.

.06 Section 172(b)(1)(H)(iii) provides that the election under § 172(b)(1)(H) is
required to be made in a manner prescribed by the Secretary, and must be made by the
due date (including extensions) for filing the return for the taxpayer’s last taxable year
beginning in 2009. The election is irrevocable and, in general, may be made for only
one taxable year. However, § 172(b)(1)(H)(v) allows a taxpayer that made or makes an
ARRA election also to make an election under § 172(b)(1)(H) for another taxable year.

.07 Section 172(b)(1)(H)(iv) limits the amount of an NOL that a taxpayer elects under
§ 172(b)(1)(H)(i) to carry back to the 5th taxable year preceding the taxable year of the
loss to 50 percent of the taxpayer’s taxable income for the carryback taxable year. The
taxable income for the carryback taxable year is computed without regard to the NOL
for the loss year or any taxable year thereafter. The excess of the amount of the loss
over 50 percent of the taxable income, as determined under § 172(b)(2), for the
carryback taxable year is carried to later taxable years. For the carryback of an
alternative tax NOL to the 5th taxable year preceding the taxable year of the loss, the 50
percent limitation is applied separately based on the alternative minimum taxable
income. The § 172(b)(1)(H)(iv) limitation does not apply to an NOL carryback under the
ARRA election.

.08 Section 13(e)(4) of the Act provides that a taxpayer that has elected under §§
172(b)(3) or 810(b)(3) to forgo a carryback for a loss for a taxable year ending before
the date of enactment of the Act (November 6, 2009) may revoke that election before
the due date (including extensions) for filing the return for the taxpayer’s last taxable
year beginning in 2009. An application under § 6411(a) for the applicable NOL is
treated as timely if filed before that due date.

.09 Section 13(c) of the Act amends § 810(b) to allow life insurance companies to
elect to carry back an applicable loss from operations for 4 or 5 taxable years. An
applicable loss from operations is a loss from operations for a taxable year ending after
December 31, 2007, and beginning before January 1, 2010.

.10 Section 13(f) of the Act provides that § 172(b)(1)(H) does not apply to any
taxpayer that received certain benefits (whether or not repaid) under the Emergency
Economic Stabilization Act of 2008, Title I of Div. A of Pub. L. No. 110-343, 122 Stat.
3765 (TARP recipients), or to members of the taxpayer’s affiliated group.

==SECTION 3. SCOPE ==

Except as provided in § 13(f) of the Act, this revenue procedure applies to taxpayers
that incurred an applicable NOL or an applicable loss from operations for a taxable year
ending after December 31, 2007, and beginning before January 1, 2010.

==SECTION 4. APPLICATION ==

.01 Time and manner of making the election under § 172(b)(1)(H).
:(1) In general. A taxpayer within the scope of this revenue procedure may make the election under § 172(b)(1)(H) or § 810(b)(4) by following the procedure described in either section 4.01(3) or section 4.01(4) of this revenue procedure. The procedures under this revenue procedure that apply to NOLs and the election under § 172(b)(1)(H) also apply to a loss from operations of a life insurance company and the election under § 810(b)(4).
:(2) Affiliated groups. For purposes of this revenue procedure, “taxpayer” includes an affiliated group filing a consolidated return, “applicable NOL” includes a consolidated net operating loss (CNOL), and the common parent of the group makes the § 172(b)(1)(H) election. See § 1.1502-21(b); § 1.1502-77(a). However, nothing in this revenue procedure permits a consolidated return group to otherwise make or revoke a carryback waiver election for the CNOL attributable to a member acquired from another group, described in § 1.1502-21(b)(3)(ii)(B). The conditions under which this election may be permitted will be the subject of separate guidance.
:(3) Electing on a federal income tax return for the taxable year of the applicable NOL.
::(a) What to file. A taxpayer may make the election under § 172(b)(1)(H) by attaching a statement to the taxpayer’s federal income tax return for the taxable year in which the applicable NOL arises. A taxpayer that filed its federal income tax return for the taxable year of the applicable NOL may make the election by attaching a statement to an amended return for the taxable year of the applicable NOL. The election statement must state that the taxpayer is electing to apply § 172(b)(1)(H) or § 810(b)(4) under Rev. Proc. 2009-52, and that the taxpayer is not a TARP recipient nor, in 2008 or 2009, an affiliate of a TARP recipient. The statement must specify the length of the NOL carryback period the taxpayer elects (3, 4, or 5 years).
::(b) When to file. A taxpayer must file the election statement with the taxpayer’s original or amended federal income tax return for the taxable year of the applicable NOL on or before the due date (including extensions) for filing the return for the taxpayer’s last taxable year beginning in 2009.
::(c) Carryback applications or refund claims. A taxpayer that makes the § 172(b)(1)(H) election under this section 4.01(3) must attach a copy of the election statement to the taxpayer’s claim for tentative carryback adjustment (Form 1045, Application for Tentative Refund; or Form 1139, Corporation Application for Tentative Refund) or amended return applying the applicable NOL to the carryback year. The due date for timely filing a claim for tentative carryback adjustment on Form 1045 or 1139 for a taxpayer that makes the § 172(b)(1)(H) election is extended to the due date (including extensions) for filing the return for the taxpayer’s last taxable year beginning in 2009.
:(4) Electing on an appropriate form. In lieu of the procedures described in section 4.01(3) of this revenue procedure, a taxpayer may make the § 172(b)(1)(H) election on an appropriate form under this section 4.01(4).
::(a) What to file.
:::(i) A taxpayer may make the § 172(b)(1)(H) election by attaching an election statement to the appropriate form the taxpayer files applying the NOL carryback period the taxpayer elects. The election statement must state that the taxpayer is electing to apply § 172(b)(1)(H) or § 810(b)(4) under Rev. Proc. 2009-52, and that the taxpayer is not a TARP recipient nor, in 2008 or 2009, an affiliate of a TARP recipient. The statement must specify the length of the NOL carryback period the taxpayer elects (3, 4, or 5 years). The appropriate form is--
::::(A) For corporations, Form 1139 or Form 1120X, Amended U.S. Corporation Income Tax Return;
::::(B) For individuals, Form 1045 or Form 1040X, Amended U.S. Individual Income Tax Return;
::::(C) For estates or trusts, Form 1045 or amended Form 1041, U.S. Income Tax Return for Estates and Trusts.
::::(D) For tax exempt organizations with unrelated business income, Form 1139 or amended Form 990-T, Exempt Organization Business Income Tax Return (and proxy tax under section 6033(e)).
::(b) When to file. When using an appropriate form to make the election under this paragraph 4.01(4), the taxpayer must file the form on or before the due date (including extensions) for filing the return for the taxpayer’s last taxable year beginning in 2009. The taxpayer’s time for claiming a tentative carryback adjustment on Form 1045 or 1139 also is extended to this date.

.02 Taxpayers that previously filed a carryback application or claim.
:(1) In general. A taxpayer that previously filed an application for a tentative carryback adjustment (whether or not the Service has acted upon the application) or an amended return (except to the extent that the application or claim was for an applicable NOL for which an ESB made an ARRA election) may make the election under § 172(b)(1)(H) by following the procedures under section 4.01(3) or (4) of this revenue procedure. The taxpayer’s election statement must state that the election amends a previous carryback application or claim.
:(2) Additional rules. A taxpayer’s amendment of a carryback application or claim also applies to a carryback of any alternative tax NOL for the same taxable year. In the case of an amended application for a tentative carryback adjustment, the 90-day period described in § 6411(b) begins on the date the taxpayer files the amended application.

.03 Revocation of the election to waive NOL carryback period. A taxpayer within the
scope of this revenue procedure that previously elected under § 172(b)(3) or § 810(b)(3)
to forgo the carryback period for an applicable NOL for a taxable year ending before
November 6, 2009, may revoke that election and make the election under §
172(b)(1)(H). Any revocation of the election to forgo the NOL carryback period also will
apply to a carryback of any alternative tax NOL for the same taxable year. The
taxpayer may make the revocation and the election by following the procedures under
section 4.01(3) or (4) of this revenue procedure. The election statement must state that
the taxpayer is revoking an NOL (or loss from operations) carryback waiver and electing
to apply § 172(b)(1)(H) or § 810(b)(4) under Rev. Proc. 2009-52, and that the taxpayer
is not a TARP recipient nor, in 2008 or 2009, an affiliate of a TARP recipient. The
statement must specify the length of the NOL carryback period the taxpayer elects (3, 4,
or 5 years). The taxpayer must file the revocation and the election under § 172(b)(1)(H)
before the due date (including extensions) for filing the return for the taxpayer’s last
taxable year beginning in 2009.

==SECTION 5. EFFECTIVE DATE ==

This revenue procedure is effective for NOLs arising in taxable years ending after December 31, 2007.

==SECTION 6. PAPERWORK REDUCTION ACT ==

The collection of information contained in this revenue procedure has been reviewed
and approved by the Office of Management and Budget in accordance with the
Paperwork Reduction Act (44 U.S.C. 3507) under the following control numbers: 1545-
0074 Form 1040 (U.S. Individual Income Tax Return) and Form 1040X (Amended U.S.
Individual Income Tax Return); 1545-0123 Form 1120 (U.S. Corporation Income Tax
Return); 1545-0132 Form 1120X (Amended U.S. Corporation Income Tax Return);
1545-0128 Form 1120-L (U.S. Life Insurance Company Income Tax Return); 1545-0092
Form 1041 (U.S. Income Tax Return for Estates and Trusts); 1545-0687 Form 990-T
(Exempt Organization Business Income Tax Return (and proxy tax under section
6033(e))); 1545-0098 Form 1045 (Application for Tentative Refund); 1545-0582 Form
1139 (Corporation Application for Tentative Refund). For further information, please
refer to the Paperwork Reduction Act statements accompanying these forms.

==DRAFTING INFORMATION ==

The principal authors of this revenue procedure are Seoyeon Park and Forest Boone
of the Office of the Associate Chief Counsel (Income Tax and Accounting). For further
information regarding this notice, contact Ms. Park or Mr. Boone at (202) 622-4960 (not
a toll-free call).

{{RPFooter}}

Notice 2009-93

Trillium — Thu, 19 Nov 2009 22:32:53 GMT

Summary: add n09-93

{{NtcHeader}}

Internal Revenue Bulletin: TBD

Date TBD 

Part III - Administrative, Procedural, and Miscellaneous

'''Truncating Social Security Numbers on Paper Payee Statements'''

'''Notice 2009-93'''

__TOC__

==SECTION 1. PURPOSE ==

This notice creates a pilot program allowing filers of information returns to
truncate an individual payee’s nine-digit identifying number on paper payee statements
for calendar years 2009 and 2010 if the filers meet the requirements set forth in this
notice. This notice only applies to paper payee statements in the Form 1098 series,
Form 1099 series, and Form 5498 series. Filers who meet the requirements in this
notice will be treated as having satisfied any requirement in Treasury and IRS guidance,
whether in a regulation, form, or form instructions, to include a payee’s identifying
number on a payee statement. This notice also invites public comment.

==SECTION 2. BACKGROUND ==

An information return is a return, statement, form, or other document that must
be filed with the IRS to report certain payments or distributions to a payee or amounts
received from a payee in a calendar year. See section 6724(d)(1); Treas. Reg.
§ 301.6721-1(g)(1). A filer is any person required to file an information return. See
Treas. Reg. § 301.6721-1(g)(6). A payee is any person who is required to receive a
copy of the information set forth on an information return by the filer of the return. See
Treas. Reg. § 301.6721-1(g)(5). A filer generally must also furnish a payee statement
to each payee that contains the same information as the information return for that
payee. See section 6724(d)(2); Treas. Reg. § 301.6722-1(d)(2). Generally, filers are
required to furnish payee statements to payees on or before January 31st (in some
instances on or before February 15th) of the year following the calendar year for which
the information return is made. See, e.g., sections 6041(d) and 6042(c). Filers may be
subject to penalties for failure to file correct information returns or furnish correct payee
statements. See sections 6721 and 6722.

Regulations, forms, or instructions to forms typically require that the payee
statement include the identifying number of the payee. The three types of identifying
numbers applicable to individuals are social security numbers, IRS individual taxpayer
identification numbers, and IRS adoption taxpayer identification numbers. All three of
these identifying numbers are nine-digit numbers taking the form 000-00-0000. Treas.
Reg. § 301.6109-1(a)(1)(i).

A person’s identifying number is sensitive personal information. A risk exists that
this information could be misappropriated from a payee statement and misused in
various ways, such as to facilitate identity theft. In an effort to minimize this risk, this
notice creates a pilot program allowing truncation of individual identifying numbers on
certain paper payee statements.

==SECTION 3. SCOPE ==

This notice only applies to paper payee statements in the Form 1098 series,
Form 1099 series, and Form 5498 series. Substitute and composite substitute
statements (within the meaning of Treas. Reg. § 301.6722-1(a)(1)) that meet the
requirements of this notice are also included. See Rev. Proc. 2008-36, 2008-33 I.R.B.
340 (reprinted as Publication 1179, General Rules and Specifications for Substitute
Forms 1096, 1098, 1099, 5498, W-2G, and 1042-S). This notice does not apply to any
information return filed with the IRS, any payee statement furnished electronically, or
any payee statement not in the Form 1098 series, Form 1099 series, or Form 5498
series.

==SECTION 4. REQUIREMENTS ==

A filer must satisfy the requirements set forth in this section to be authorized to
truncate identifying numbers for individuals on paper payee statements for the calendar
years 2009 and 2010. The IRS will treat a filer as having satisfied any requirement in
Treasury and IRS guidance, whether in a regulation, form, or form instructions, to
include a payee’s identifying number on a payee statement if the following requirements
are met:

.01 The identifying number is a social security number, IRS individual
taxpayer identification number, or IRS adoption taxpayer identification number;

.02 The identifying number is truncated by replacing the first five digits of the
nine-digit number with asterisks or Xs (for example, a social security number 123-45-
6789 would appear on the paper payee statement as ***-**-6789 or XXX-XX-6789); and

.03 The truncated identifying number appears on a paper payee statement
(including substitute and composite substitute statements) in the Form 1098 series,
Form 1099 series, or Form 5498 series for calendar year 2009 or 2010.

==SECTION 5. EFFECTIVE DATE ==

This notice is effective immediately as to paper payee statements in the Form
1098 series, Form 1099 series, and Form 5498 series for calendar years 2009 and
2010.

==SECTION 6. REQUEST FOR COMMENTS ==

The IRS invites the public to submit comments on this notice by May 1, 2010.
Comments are specifically sought on the following:
*Whether truncation of an individual’s identifying number on paper payee
statements should be required, rather than permitted;
*Whether truncation should be permitted or required for identifying
numbers appearing on paper payee statements not within the scope of
this notice;
*Whether truncation should be permitted or required for payee statements
furnished electronically;
*Whether a filer should be required to include the complete identifying
number on the payee statement if requested by the payee; and
*Whether truncation creates difficulties for filers and/or payees.

Comments on any other matters relating to the procedures set forth in this notice are
also encouraged.

Comments should be submitted to: Internal Revenue Service, CC:PA:LPD:PR
(Notice 2009-93), Room 5203, P.O. Box 7604, Ben Franklin Station, N.W., Washington,
D.C. 20044. Alternatively, comments may be hand delivered between the hours of 8:00
a.m. and 4:00 p.m., Monday through Friday, to CC:PA:LPD:PR (Notice 2009-93),
Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, N.W.,
Washington, D.C. Comments may also be transmitted electronically via the following e-
mail address: Notice.Comments@irscounsel.treas.gov. Please include “Notice 2009-
93” in the subject line of any electronic communications. All comments will be available
for public inspection and copying.

==SECTION 7. DRAFTING INFORMATION ==

The principal author of this notice is Tammie A. Geier of the Office of the
Associate Chief Counsel (Procedure and Administration). For further information
regarding this notice, please contact Tammie A. Geier at (202) 622-4940 (not a toll-free
call).

{{NtcFooter}}

Tax Refund XPress

Lmficca — Thu, 19 Nov 2009 05:32:18 GMT

Summary:

I was going to download a demo for TRX, but, after reading the User Agreement we were supposed to agree to, it sounded like we were on our own once we purchased the software. In other words, if the software was faulty or made mistakes--too bad.

Has anyone used TRX, and, if so, how was it?
== Related Code Sections ==

T.D. 9447

Trillium — Wed, 18 Nov 2009 04:02:00 GMT

Summary: add TD9447

{{TDHeader}}

Internal Revenue Bulletin: 2009-12

March 23, 2009

'''T.D. 9447 - Automatic Contribution Arrangements'''

DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 54

__TOC__

==AGENCY:==

Internal Revenue Service (IRS), Treasury.

==ACTION:==

Final regulations.

==SUMMARY:==

This document contains final regulations relating to automatic contribution arrangements. These regulations affect administrators of, employers maintaining, participants in, and beneficiaries of section 401(k) plans and other eligible plans that include an automatic contribution arrangement.

==DATES:==

''Effective date'': These regulations are effective on February 24, 2009.

''Applicability date'': Except as provided in §§1.401(k)-3(j)(1)(i) and 1.401(m)-2(a)(6)(ii), the final regulations relating to qualified automatic contribution arrangements (§§1.401(k)-2, 1.401(k)-3, 1.401(m)-2, and 1.401(m)-3) apply to plan years beginning on or after January 1, 2008. The regulations relating to eligible automatic contribution arrangements (§§1.402(c)-2, 1.411(a)-4, 1.414(w)-1, and 54.4979-1) apply for plan years beginning on or after January 1, 2010.

==FOR FURTHER INFORMATION CONTACT:==

R. Lisa Mojiri-Azad, Dana Barry, or William D. Gibbs at (202) 622-6060 (not a toll-free number).

==SUPPLEMENTARY INFORMATION:==

===Paperwork Reduction Act===

The collection of information contained in these final regulations has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1545-2135 .

The collection of information in these final regulations is in §§1.401(k)-3 and 1.414(w)-1. The information in §1.401(k)-3 is required to comply with the statutory notice requirements in sections 401(k)(13) and 401(m)(12), and is expected to be included in the notices currently provided to employees that inform them of their rights and benefits under the plan. The collection of information under §1.414(w)-1 is required to comply with the statutory notice requirements of section 414(w) and is expected to be included in the notices currently provided to employees that inform them of their rights and benefits under the plan.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number.

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.

===Background===

This document contains amendments to regulations under sections 401(k), 401(m), 402(c), 411(a), and 4979 of the Internal Revenue Code (Code) and new regulations under section 414(w) in order to reflect certain of the provisions of section 902 of the Pension Protection Act of 2006, Public Law 109-280 (PPA ’06), taking into account certain of the changes made by section 109(b) of the Worker, Retiree, and Employer Recovery Act of 2008, Public Law 110-458 (WRERA).

Section 902 of PPA ’06 added sections 401(k)(13), 401(m)(12), and 414(w) to the Code to facilitate automatic contribution arrangements (sometimes referred to as automatic enrollment) in qualified cash or deferred arrangements under section 401(k), as well as in similar arrangements under sections 403(b) and 457(b). An automatic contribution arrangement is a cash or deferred arrangement that provides that, in the absence of an affirmative election by an eligible employee, a default election applies under which the employee is treated as having made an election to have a specified contribution made on his or her behalf under the plan.

Section 401(k)(1) provides that a profit-sharing, stock bonus, pre-ERISA money purchase, or rural cooperative plan will not fail to qualify under section 401(a) merely because it contains a qualified cash or deferred arrangement. Section 1.401(k)-1(a)(2) defines a cash or deferred arrangement (CODA) as an arrangement under which an eligible employee may make a cash or deferred election with respect to contributions to, or accruals or other benefits under, a plan that is intended to satisfy the requirements of section 401(a). Section 1.401(k)-1(a)(3)(i) defines a cash or deferred election as any direct or indirect election (or modification of an earlier election) by an employee to have the employer either: (1) provide an amount to the employee in the form of cash (or some other taxable benefit) that is not currently available; or (2) contribute an amount to a trust, or provide an accrual or other benefit, under a plan deferring the receipt of compensation. For purposes of determining whether an election is a cash or deferred election, §1.401(k)-1(a)(3)(ii) provides that it is irrelevant whether the default that applies in the absence of an affirmative election is cash (or some other taxable benefit) or a contribution, an accrual, or other benefit under a plan deferring the receipt of compensation. Contributions that are made pursuant to a cash or deferred election under a qualified CODA are commonly referred to as elective contributions.

In order for a CODA to be a qualified CODA, it must satisfy a number of other requirements. Section 401(k)(2)(A) provides that the amount that each eligible employee under the arrangement may defer as an elective contribution must be available to the employee in cash. Section 1.401(k)-1(e)(2)(ii) provides that, in order for a CODA to satisfy this requirement, the arrangement must provide each eligible employee with an effective opportunity to make (or change) a cash or deferred election at least once during each plan year.

Section 401(k)(2)(B) provides that a qualified CODA must provide that elective contributions may only be distributed after certain events, including hardship and severance from employment. Similar distribution restrictions apply under sections 403(b)(7) and 403(b)(11). Section 457(d)(1)(A) includes distribution restrictions for eligible governmental deferred compensation plans.

Section 401(k)(3)(A)(ii) applies a special nondiscrimination test to the elective contributions of highly compensated employees, within the meaning of section 414(q) (HCEs). Under this test, called the actual deferral percentage (ADP) test, the average percentage of compensation deferred for HCEs is compared annually to the average percentage of compensation deferred for nonhighly compensated employees (NHCEs) eligible under the plan, and if certain limits are exceeded by the HCEs, corrective action must be taken. Pursuant to section 401(k)(8), one method of correction is distribution to HCEs of excess contributions made on their behalf.

Section 401(m) provides a parallel test for matching contributions and employee after-tax contributions under a defined contribution plan, called the actual contribution percentage (ACP) test. Pursuant to section 401(m)(6), one method of correction of the ACP test is distribution to HCEs of excess aggregate contributions made on their behalf.

Sections 401(k)(12) and 401(m)(11) provide a design-based safe harbor under which elective contributions under a CODA and any associated matching contributions are treated as satisfying the ADP and ACP tests if the arrangement meets certain contribution and notice requirements. Sections 1.401(k)-3 and 1.401(m)-3 provide guidance on the requirements for this design-based safe harbor.

Sections 401(k)(13) and 401(m)(12), added by PPA ’06 and effective for plan years beginning on or after January 1, 2008, provide an alternative design-based safe harbor for a CODA that provides for automatic contributions at a specified level and meets certain employer contribution, notice, and other requirements. A CODA that satisfies these requirements, referred to as a qualified automatic contribution arrangement (QACA), is treated as satisfying the ADP test and ACP test with respect to matching contributions.

Section 414(w), added to the Code by section 902(d)(1) of PPA ’06 and effective for plan years beginning on or after January 1, 2008, further facilitates automatic enrollment by providing limited relief from the distribution restrictions under section 401(k)(2)(B), 403(b)(7), 403(b)(11), or 457(d)(1)(A) in the case of an eligible automatic contribution arrangement (EACA).

Sections 414(w)(1) and 414(w)(2) provide that an applicable employer plan that contains an EACA is permitted to allow employees to elect to receive a distribution equal to the amount of default elective contributions (and attributable earnings) made with respect to the employee beginning with the first payroll period to which the EACA applies to the employee and ending with the effective date of the election. The election must be made within 90 days after the date of the first default elective contribution with respect to the employee under the arrangement. Sections 414(w)(1)(A) and 414(w)(1)(B) provide that the amount of the distribution is includible in gross income for the taxable year in which the distribution is made, but is not subject to the additional income tax under section 72(t).

Section 414(w)(3) defines an EACA as an arrangement under which: (1) a participant may elect to have the employer make payments as contributions under the plan on behalf of the participant, or to the participant directly in cash; (2) the participant is treated as having elected to have the employer make such contributions in an amount equal to a uniform percentage of compensation provided under the plan until the participant specifically elects not to have such contributions made (or specifically elects to have such contributions made at a different percentage); and (3) participants are provided a notice that satisfies the requirements of section 414(w)(4). Section 109(b)(4) of WRERA eliminated the provision previously found under section 414(w)(3)(C) that, in the absence of an investment election by the participant, default elective contributions must be invested in accordance with the regulations prescribed by the Secretary of Labor under section 404(c)(5) of the Employee Retirement Income Security Act of 1974 (ERISA).

Section 414(w)(4) requires that, within a reasonable period before each plan year, each employee to whom the arrangement applies for such year receive written notice of the employee’s rights and obligations under the arrangement which is sufficiently accurate and comprehensive to apprise the employee of such rights and obligations. Section 414(w)(4)(A)(ii) requires that the notice be written in a manner calculated to be understood by the average employee to whom the arrangement applies. Section 414(w)(4)(B) provides that the notice must explain: (1) the employee’s rights under the arrangement to elect not to have elective contributions made on the employee’s behalf or to elect to have contributions made at a different percentage; and (2) how contributions made under the automatic contribution arrangement will be invested in the absence of any investment decision by the employee. In addition, the employee must be given a reasonable period of time after receipt of the notice and before the first elective contribution is made to make an election with respect to contributions. In many respects, the notice under section 414(w)(4) is the same as the notice required under section 401(k)(13) for a QACA.

Section 414(w)(5), as amended by section 109(b)(5) of WRERA, defines an applicable employer plan as a trust described in section 401(a) that is exempt from tax under section 501(a), a plan described in section 403(b), a section 457(b) plan that is maintained by a governmental employer described in section 457(e)(1)(A), a simplified employee pension the terms of which provide for a salary reduction arrangement described in section 408(k)(6), or a SIMPLE described in section 408(p).

Section 414(w)(6) provides that a withdrawal described in section 414(w)(1) is not to be taken into account for purposes of the ADP test. Section 109(b)(6) of WRERA amended section 414(w)(6) to provide that a withdrawal described in section 414(w)(1) is not to be taken into account for purposes of applying the limitation under section 402(g)(1).

Section 411(a)(3)(G), as amended by section 902(d)(2) of PPA ’06, provides that a matching contribution shall not be treated as forfeitable merely because the matching contribution is forfeitable if it relates to a contribution that is withdrawn under an automatic contribution arrangement that satisfies the requirements of section 414(w).

Section 4979 provides for an excise tax on excess contributions (within the meaning of section 401(k)(8)(B)) and excess aggregate contributions (within the meaning of section 401(m)(6)(B)) not distributed within 21/2 months after the close of the plan year for which the contributions are made. Section 902 of PPA ’06 amended section 4979 to lengthen this 21/2 month correction period for excess contributions and excess aggregate contributions under an EACA to 6 months. Thus, in the case of an EACA that is part of a section 401(k) plan, the section 4979 excise tax does not apply to any excess contributions or excess aggregate contributions which, together with income allocable to the contributions, are distributed or forfeited (if forfeitable) within 6 months after the close of the plan year.

Section 902 of PPA ’06 amended section 4979(f)(2) to provide that any distributions of excess contributions and excess aggregate contributions (whether or not under an EACA) are includible in the employee’s gross income for the taxable year in which distributed. However, pursuant to sections 401(k)(8)(D) and 401(m)(7)(A), the distributions are not subject to the additional income tax under section 72(t). Section 902 of PPA ’06 also amended sections 401(k)(8), 401(m)(6), and 4979(f)(1) to eliminate the requirement that distributions of excess contributions or excess aggregate contributions (whether or not under an EACA) include income allocable to the period after the end of the plan year (gap period income).

On November 8, 2007, proposed regulations under sections 401(k), 401(m), 402(c), 411(a), 414(w), and 4979(f) relating to automatic contribution arrangements were issued (REG-133300-07, 2007-2 C.B. 1140 [72 FR 63144]). Written public comments were received on the proposed regulations, and a public hearing was held on May 19, 2008. After consideration of the comments, these final regulations adopt the provisions of the proposed regulations with certain modifications, the most significant of which are highlighted in the Summary of Comments and Explanation of Revisions. In addition, these final regulations reflect the amendments to sections 401(k)(13) and 414(w) that were made by WRERA.

===Summary of Comments and Explanation of Revisions===

====I. Qualified Automatic Contribution Arrangement under Section 401(k)(13)====

=====A. Minimum percentage requirement=====

Section 401(k)(13)(C)(iii) sets forth a series of minimum default contribution percentages that an automatic contribution arrangement must satisfy in order to be a qualified automatic contribution arrangement (QACA). The final regulations clarify that the minimum percentage for the initial period is based on when the employee first has contributions made pursuant to a default election under the QACA. Thus, if an employee makes an affirmative election before the default contribution would have begun, then the initial period does not begin for the employee. The minimum percentages are increased for plan years after the initial period.

Several commentators requested guidance on the application of the minimum percentage requirement in the case of a rehired employee. The final regulations provide that the minimum percentages are determined without regard to whether an employee has continued to be eligible to make contributions under the plan. Thus, the minimum percentage is generally determined based on the number of years since the date the employee first had default contributions made under the QACA. However, in response to recordkeeping concerns raised by commentators, the final regulations also provide that a plan is permitted to treat an employee who for an entire plan year did not have contributions made pursuant to a default election under the QACA as if the employee had not had such contributions for any prior plan year as well. For example, if an employee terminates in one plan year, remains terminated for a full plan year, and is rehired in a subsequent plan year, the plan is permitted to provide that a new initial period begins after the employee is rehired, regardless of whether the employee had in fact had contributions made pursuant to a default election under the QACA in some earlier plan year.

Other commentators asked whether plans are permitted to limit the duration of an affirmative election or to require employees to make new elections. Under the final regulations, automatic enrollment applies for periods during which the affirmative election is not in effect. Accordingly, a plan could specifically provide that an affirmative election expires and, thus, require an employee to make a new affirmative election if he or she wants the prior rate of elective contribution to continue. In the absence of a second affirmative election, the employee will be automatically enrolled at the plan’s default percentage (which must meet the minimum percentage requirement described in the preceding paragraph). For example, if an employer has a QACA beginning in 2009 and the plan provides that all affirmative elections in effect on December 31, 2010 expire on that date, then, if the QACA continues into 2011, all eligible employees who do not make a new affirmative election will be automatically enrolled under the QACA. Similarly, if an employee who made an affirmative election takes a hardship withdrawal under the plan and the plan suspends elective contributions for 6 months after receipt of the hardship distribution in accordance with §1.401(k)-3(c)(6)(v)(B), then, if the plan does not reinstate the affirmative election at the end of the 6 months, the employer must automatically enroll the employee.

The final regulations provide that, for plan years beginning on or after January 1, 2010, compensation for purposes of determining default contributions means safe harbor compensation as defined in §1.401(k)-3(b)(2).

=====B. Uniformity requirement=====

Section 401(k)(13)(C)(iii) provides that the default percentage must be applied uniformly. The proposed regulations provided that a plan does not fail to satisfy this uniformity requirement merely because: the percentage varies based on the number of years an eligible employee has participated in the automatic contribution arrangement intended to be a QACA; the rate of elective contributions under a cash or deferred election that is in effect immediately prior to the effective date of the default percentage under the QACA is not reduced; the rate of elective contributions is limited so as not to exceed the limits of sections 401(a)(17), 402(g) (determined with or without catch-up contributions described in section 402(g)(1)(C) or 402(g)(7)), and 415; or the default election is not applied during the period an employee is not permitted to make elective contributions in order for the plan to satisfy the requirements of §1.401(k)-3(c)(6)(v)(B).

Some commentators asked whether a QACA may provide for an increase in the default percentage in the middle of the plan year. These commentators suggested that some employers wanted to provide for such an increase to coincide with salary increases or performance evaluations.

To address this issue, the final regulations expand the exception to the uniformity requirement that allows variance based on the number of years since the date the employee first had contributions made pursuant to a default election under an arrangement that is intended to be a QACA. Under the final regulations, the default percentage may also vary based on the portions of years since that date. Thus, the plan may provide for the increase of the default percentage mid-year, as long as the percentage is uniform based on the number of years or portions of years since an employee first had contributions made pursuant to a default election and satisfies the minimum percentage requirement throughout the plan year.

=====C. Notice timing requirement=====

The proposed regulations provided that a QACA satisfies the notice requirement of section 401(k)(13)(E) only if the notice satisfies the notice requirements under section 401(k)(12) and satisfies the additional requirements found in section 401(k)(13)(E)(ii). Section 401(k)(12)(D) and section 401(k)(13)(E)(i) provide that the notice must be provided within a reasonable period before each plan year to each employee eligible to participate in the QACA.

The final regulations under section 401(k)(12) provide that the determination of whether the notice satisfies the timing requirement is based on all of the relevant facts and circumstances. The timing requirement is deemed satisfied if at least 30 days (and no more than 90 days) before the beginning of each plan year, the notice is provided to each eligible employee. In the case where an eligible employee is not provided the notice within this 30-90 day period because the employee becomes eligible after the 90th day before the beginning of the plan year, the timing requirement is deemed to be satisfied if the notice is provided no more than 90 days before the employee becomes eligible and no later than the date the employee becomes eligible.

The proposed regulations under section 401(k)(13) applied these same rules to the notice required under section 401(k)(13)(E)(i). In accordance with section 401(k)(13)(E)(ii), the proposed regulations also provided that the notice satisfies the timing requirements only if it is provided sufficiently early so that the employee has a reasonable period of time after receipt of the notice and before the first contribution is made pursuant to a default election under the arrangement to make an affirmative election to defer a different amount or percentage.

Some commentators raised a concern about meeting the notice requirement for employees who are eligible to participate in the plan immediately upon hire. Commentators suggested that employers be given a grace period to provide notice, such as 15 days after hire, as long as the employee has an effective opportunity to elect not to make contributions or make an affirmative election to defer a different amount or percentage of compensation prior to the first contribution made pursuant to a default election.

The final regulations modify the deemed satisfaction of timing requirement set forth in §1.401(k)-3(d)(3)(ii). The regulations provide that if it is not practicable for the notice to be provided on or before the date specified in the plan that an employee becomes eligible, the notice will nonetheless be treated as provided timely if it is provided as soon as practicable after that date and the employee is permitted to elect to defer from all types of compensation that may be deferred under the plan earned beginning on that date. Thus, an employer is required to provide the notice to the employee prior to the pay date for the payroll period that includes the date the employee becomes eligible. This change applies to the safe harbor described in section 401(k)(12), as well as section 401(k)(13).

The final regulations provide rules for when the default election must first become effective. In accordance with section 401(k)(13)(E)(ii)(III), the final regulations provide that the default election must be effective no earlier than a reasonable period of time after the receipt of the notice (in order to provide the employee with a reasonable period of time to make an affirmative election). However, the final regulations provide that the default election must be effective no later than the earlier of the pay date for the second payroll period that begins after the date the notice is provided or the first pay date that occurs at least 30 days after the notice is provided. Notwithstanding any delay in when the first default contribution is made, nonelective contributions that are based on a full year’s contributions and the rate of matching contributions that varies based on compensation must be based on the safe harbor compensation earned since the participant was first eligible under the plan.

=====D. Exclusion of current affirmative elections from automatic enrollment=====

The proposed regulations provided that an automatic contribution arrangement does not fail to be a QACA merely because the default election is not applied to an employee who was eligible under the cash or deferred arrangement (or a predecessor arrangement) immediately prior to the effective date of the QACA and on that effective date had an affirmative election in effect (that remains in effect) to have elective contributions made on his or her behalf (in a specified amount or percentage of compensation) or not have elective contributions made on his or her behalf.

Some commentators requested that employers be permitted to treat employees who did not affirmatively elect to make elective contributions under the plan as though they had affirmatively elected zero. These commentators stated that it would be administratively difficult to determine which employees had affirmative elections in effect prior to the effective date of the QACA.

The regulations do not expand the exception for automatically enrolling current employees to employees who have not made an affirmative election. Under section 401(k)(13)(C)(iv)(II), only those employees who had an affirmative election in effect immediately before the QACA became effective are permitted to be excluded from having a default election apply to them.

=====E. Other topics=====

Commentators requested clarification as to whether the safe harbor nonelective and matching contributions made under a QACA are eligible for hardship withdrawal. The final regulations clarify that these safe harbor contributions are subject to the withdrawal restrictions found in §1.401(k)-1(d) that apply to QNECs and QMACs. Thus, the maximum distributable amount under §1.401(k)-1(d)(3)(ii) does not include earnings, QNECs, QMACs, or these safe harbor contributions.

A commentator asked whether safe harbor matching or nonelective contributions were required for all employees, including those eligible employees with affirmative elections in effect. The final regulations retain the requirement that all eligible employees must receive safe harbor matching contributions or nonelective contributions, whichever is applicable. The special treatment under section 401(k)(13)(C)(iv) for employees who have an affirmative election in effect does not affect whether safe harbor matching contributions or nonelective contributions are required to be made for those employees.

====II. Eligible Automatic Contribution Arrangement under Section 414(w)====

=====A. Non-universal eligible automatic contribution arrangements=====

The proposed regulations provided that an eligible automatic contribution arrangement (EACA) is an automatic contribution arrangement under an applicable employer plan that applies to each “eligible employee.” An eligible employee was defined as an employee who is eligible to make a cash or deferred election under the plan. Therefore, under the proposed regulations, an employer was required to apply automatic enrollment to all current and new employees eligible to make a deferral election under the applicable plan who did not have an affirmative election in effect.

Commentators requested flexibility in the implementation of an EACA by permitting an employer to apply automatic enrollment only to those employees who are hired on or after the effective date of the EACA.

The final regulations modify the rule in the proposed regulations to provide that the employees who must be subject to the automatic enrollment provisions under an EACA are only those employees who are specified in the plan as being covered employees under the EACA. Thus, automatic enrollment under an EACA need not apply to all employees eligible to make a deferral election under the applicable plan, but only to those employees who are covered by the EACA.

The final regulations provide that the plan document must specify the employees who are covered under the EACA and must state whether an employee who makes an affirmative election remains covered under the EACA. Under section 414(w)(4), the notice regarding an employee’s rights and obligations under the arrangement need only be provided to those employees who are covered employees under the EACA as set forth in the plan. Thus, if a plan provides that an employee who makes an affirmative election is no longer a covered employee under the EACA, then the employee is not required to receive the notice after he or she makes an affirmative election.

With respect to the correction of excess contributions for a plan year beginning on or after January 1, 2010, the final regulations provide that a plan that contains an EACA is entitled to the extended 6-month period for correcting excess contributions and excess aggregate contributions without incurring an excise tax under section 4979, only if all eligible NHCEs and eligible HCEs are covered employees under the EACA for the entire plan year (or the portion of the plan year that the employees are eligible employees). Thus, if an EACA covers fewer than all the eligible employees under the plan, the employer will be unable to take advantage of the extension under section 4979.

=====B. Uniformity requirement=====

The proposed regulations provided that an EACA must provide that the default elective contribution is a uniform percentage of compensation. The exceptions to the uniformity requirement for a QACA set forth in §1.401(k)-3(j)(2)(iii) also applied to an EACA (without regard to whether the arrangement was intended to be a QACA).

Some commentators requested that the uniformity requirement be eased if the plan is a multiemployer plan or a multiple employer plan, or if the sponsor wants to have different default contributions for collectively bargained and non-collectively bargained employees. The final regulations do not specifically permit this. However, these plan sponsors can accomplish a similar goal by establishing separate EACAs for each of these separate groups. To address the possibility that a plan may contain more than one EACA, the final regulations provide that the requirement that the default elective contributions under an EACA be a uniform percentage of compensation is applied by aggregating all automatic contribution arrangements within the plan that are intended to be EACAs. For this purpose, in the case of a plan subject to section 410(b), the definition of plan is determined after applying the disaggregation rules of §1.401(k)-1(b)(4). Thus, a plan that is subject to the rules of section 410(b) is permitted to provide for separate EACAs for different groups of collectively bargained employees or different employers in a multiple employer plan with a different default percentage for each EACA, but such a plan could not have different default percentages apply to different groups of employees that are in the same plan after application of the disaggregation rules of §1.401(k)-1(b)(4).

=====C. Mid-year implementation of an eligible automatic contribution arrangement=====

Section 401(k)(12)(D) contains the notice requirement applicable to a plan that is relying on the safe harbor for nondiscrimination testing in section 401(k)(12). It requires that the notice be provided “within a reasonable period before any year.” The final regulations under section 401(k)(12) provide that the notice must be provided within a reasonable period of time before the plan year (or, in the first year that the employee becomes eligible, within a reasonable period of time before the employee becomes eligible). The final regulations further provide that whether this timing requirement is satisfied is based upon all of the relevant facts and circumstances and that the timing requirement is deemed to be satisfied if the notice is given at least 30 days (and no more than 90 days) before the beginning of each plan year. In the case of an employee who becomes eligible after the 90th day before the beginning of the plan year, the timing requirement is deemed to be satisfied if the notice is provided no more than 90 days before the employee becomes eligible for the cash or deferred arrangement (and no later than the date the employee becomes eligible).

Section 401(k)(13)(E), which contains the notice requirements applicable to a QACA, and section 414(w)(4), which contains the notice requirements applicable to an EACA, each require that the notice be provided “within a reasonable period before each plan year.” The proposed regulations interpreted these provisions in a manner consistent with the interpretation in the final regulations under section 401(k)(12) of the almost identical language in that section, including the requirement that the notice be provided within a reasonable period of time before each plan year, except that, for individuals who become eligible employees during the plan year, the notice need only be provided within a reasonable period before the employee becomes an eligible employee.

Some commentators noted that the notice timing requirement could be interpreted to preclude the establishment of an EACA in the middle of the plan year, in situations where the notice was not provided before the beginning of the plan year. They suggested that the statutory requirement to provide notice before the start of each plan year should not preclude starting an EACA in the middle of the plan year of an existing cash or deferred arrangement that is not an EACA, if notice is provided to each eligible employee within a reasonable period of time before the employee becomes eligible for the arrangement.

The final regulations do not adopt this suggestion. Instead, the final regulations generally retain the rule in the proposed regulations, which is consistent with the statutory requirements of section 414(w)(4) and with the interpretation of the identical language in section 401(k)(13) and the almost identical language in section 401(k)(12). The final regulations do, however, treat individuals who first become covered under an automatic contribution arrangement as a result of a change in employment status the same as individuals who first become eligible to make a cash or deferred election for purposes of the notice timing requirements.

Consistent with the revisions to the deemed timing rule for purposes of sections 401(k)(12) and 401(k)(13) described in this preamble, the final regulations provide that if it is not practicable for the notice to be provided on or before the date specified in the plan that an employee becomes eligible, the notice will nonetheless be treated as provided timely if it is provided as soon as practicable after that date and the employee is permitted to elect to defer from all types of compensation that may be deferred under the plan earned beginning on that date. Thus, an employer is required to provide the notice to the employee prior to the pay date for the payroll period that includes the date the employee becomes eligible.

=====D. Permissible withdrawal=====

Section 414(w)(2) limits the period for the special election to withdraw default elective contributions to the first 90 days after the date of the first default contribution under the EACA. The proposed regulations provided that the date of the first default elective contribution is the date that the compensation that is subject to the cash or deferred election would otherwise have been included in gross income.

Some commentators suggested that the 90-day period start from the date the first contribution is received by the plan for the participant. The final regulations retain the rule in the proposed regulations that the 90-day period starts after the date the compensation would otherwise have been included in gross income. This date is used for other relevant Code provisions, such as the application of the section 402(g) limitation.

If an employer is concerned about inadvertently permitting withdrawal elections outside the 90-day period due to misidentifying the date of the first default elective contribution as defined under the regulations, the plan is permitted to limit the period during which the election can be made to less than 90 days. Under the final regulations, a plan is permitted to set an earlier deadline for the election to withdraw default elective contributions. However, if a plan offers a permissible withdrawal for covered employees, the election period for the covered employees must be at least 30 days.

The final regulations also provide that the date of the first default elective contribution must take into account any default elective contributions made under any EACA under the plan. For this purpose, all EACAs under the plan must be aggregated. However, if the plan provides for multiple EACAs to cover different employees in different portions of the plan and these portions of the plan are mandatorily disaggregated under section 410(b), then there is no requirement to aggregate those different EACAs. Thus, in the case where a plan that is subject to the rules of section 410(b) has separate EACAs for different groups of collectively bargained employees or different employers in a multiple employer plan, the date for determining the first default elective contribution is determined with respect to each EACA within the separate disaggregated plan. In addition, in response to comments, the final regulations provide that for purposes of determining the date of the first default elective contribution, a plan is permitted to treat an employee who for an entire plan year did not have default elective contributions made under the EACA as if the employee had not had such contributions for any prior plan year as well.

Commentators asked whether employers can restrict the permissible withdrawals based on subsequent affirmative elections made by employees. For example, one commentator requested that an employer be permitted to limit the permissible withdrawal election to those employees who are automatically enrolled and who do not make a subsequent affirmative election of an amount (other than zero) within the 90-day election period. Under a section 401(a) plan or a section 403(b) plan, an employer is not permitted to condition an employee’s right to take a permissible withdrawal on the level of the employee’s deferral election under the plan. Thus, an employee’s permissible withdrawal rights may not be restricted based upon the employee’s subsequent affirmative election.

The proposed regulations provided that the effective date of the permissible withdrawal election must be no later than the last day of the payroll period that begins after the date the election is made. This rule was included in the proposed regulations to limit section 414(w) withdrawals to default elective contributions made for short periods of time. In response to comments, the final regulations modify this rule to provide that the latest effective date of the permissible withdrawal election cannot be after the earlier of: (1) the pay date for the second payroll period beginning after the election is made, or (2) the first pay date that occurs at least 30 days after the election is made. Of course, a plan may permit an earlier effective date.

Commentators also requested that the IRS clarify when the permissible withdrawal amount must be distributed. The final regulations clarify that the permissible withdrawal distribution must be made in accordance with the plan’s ordinary timing procedures for processing distributions and making distributions. Thus, the permissible withdrawal distribution should be processed and distributed no differently than any other distribution permitted under the plan.

The proposed regulations provided that a permissible withdrawal distribution may be reduced by any generally applicable fees, but specified that the plan may not charge a different fee for a distribution under section 414(w) than would apply to other distributions. In response to comments, the final regulations clarify that the plan cannot charge a higher fee for a distribution under section 414(w) than would apply to any other distributions of cash.

One commentator requested guidance with respect to the withholding treatment of permissible withdrawal amounts. These amounts are subject to section 3405(b).

=====E. Forfeiture of employer matching contributions=====

The proposed regulations provided that matching contributions with respect to default elective contributions that had been distributed pursuant to a permissible withdrawal election must be forfeited. In response to comments, the final regulations clarify that the forfeiture applies to any matching contributions that have been allocated to the participant’s account, adjusted for allocable gain or loss. The final regulations provide that the plan is permitted to provide that matching contributions will not be made with respect to any withdrawal made under §1.414(w)-1(c) if the withdrawal has been made prior to the date as of which the matching contributions would otherwise be allocated.

====III. Other Issues====

=====A. Other automatic contribution arrangements=====

Many employers have previously adopted automatic contribution arrangements as originally described in prior guidance, such as Rev. Rul. 2000-8, 2000-1 C.B. 617. This prior guidance, which was reflected in regulations under section 401(k) issued in 2004, permitted employers to automatically enroll employees in a section 401(k) plan. These final regulations do not affect any automatic contribution arrangement that is not intended to be a QACA or an EACA.

=====B. Other issues under section 902 of PPA ’06 and WRERA=====

These regulations also reflect the modification to the correction rules for excess contributions and excess aggregate contributions provided in section 902(e) of PPA ’06. These provisions include: (1) the change in the year of inclusion in income for distributed excess contributions to the year of distribution; and (2) the elimination of the requirement to include gap period income for a distribution that is made to correct an ADP or ACP failure. However, these regulations do not reflect: (1) the change made by section 109(b)(3) of WRERA that eliminates the requirement to include gap period income for a distribution of an excess deferral under section 402(g); (2) the additional time to correct excess contributions under a SARSEP that includes an EACA; (3) the tax treatment of excess contributions and earnings thereon under a SARSEP; and (4) guidance on SIMPLE IRA plans that include an EACA.

===Effective Date===

Except as provided in §§1.401(k)-3(j)(1)(i) and 1.401(m)-2(a)(6)(ii), the final regulations relating to qualified automatic contribution arrangements (§§1.401(k)-2, 1.401(k)-3, 1.401(m)-2, and 1.401(m)-3) apply to plan years beginning on or after January 1, 2008. The regulations relating to eligible automatic contribution arrangements (§§1.402(c)-2, 1.411(a)-4, 1.414(w)-1, and 54.4979-1) apply for plan years beginning on or after January 1, 2010. For plan years that begin in 2008, a plan must operate in accordance with a good faith interpretation of section 414(w). For this purpose, a plan that operates in accordance with the proposed regulations under §1.414(w)-1 or these final regulations will be treated as operating in accordance with a good faith interpretation of section 414(w).

===Special Analyses===

It has been determined that these final regulations are not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has been determined that 5 U.S.C. 533(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. It is hereby certified that the collection of information in these final regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that most small entities that maintain plans that will be eligible for the safe harbor provisions of sections 401(k) and 401(m) or the distribution relief provisions of section 414(w) currently provide a similar notice with which this notice can be combined. Therefore, an analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking preceding this regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comments on its impact on small business.

==Adoption of Amendments to the Regulations==

Accordingly, 26 CFR parts 1 and 54 are amended as follows:

===Part 1—INCOME TAXES===

Paragraph 1. The authority citation for part 1 is amended to read as follows:

Authority: 26 U.S.C. 401(m)(9) and 26 U.S.C. 7805 * * *

Section 1.401(k)-3 is also issued under 26 U.S.C. 401(m)(9)

Par. 2. Section 1.401(k)-0 is amended in:

1. The entry for §1.401(k)-2 is amended by—

a. Adding the entry for §1.401(k)-2(a)(5)(vi) and revising the entry for §1.401(k)-2(b)(2)(iv)(D).

b. Revising entries for §1.401(k)-2(b)(2)(vi)(A) and (b)(2)(vi)(B).

c. Adding an entry for §1.401(k)-2(b)(5)(iii).

2. The entry for §1.401(k)-3 is amended by—

a. Adding entries for §§1.401(k)-3(a)(1), 1.401(k)-3(a)(2) and 1.401(k)-3(a)(3).

b. Adding an entry for §1.401(k)-3(i).

c. Adding entries for §§1.401(k)-3(j)(1) and 1.401(k)-3(j)(2).

d. Adding entries for §§1.401(k)-3(k)(1), 1.401(k)-3(k)(2), 1.401(k)-3(k)(3) and 1.401(k)-3(k)(4).

The additions and revisions read as follows:

'''''§1.401(k)-0 Table of Contents.'''''

<nowiki>* * * * *</nowiki>

'''''§1.401(k)-2 ADP test.'''''

(a) * * *

(5) * * *

(vi) Default elective contributions pursuant to section 414(w).

<nowiki>* * * * *</nowiki>

(b) * * *

(2) * * *

(iv) * * *

(A) * * *

<nowiki>* * * * *</nowiki>

(D) Plan years before 2008.

<nowiki>* * * * *</nowiki>

(vi) * * *

(A) Corrective distributions for plan years beginning on or after January 1, 2008.

(B) Corrective distributions for plan years beginning before January 1, 2008.

<nowiki>* * * * *</nowiki>

(5) * * *

(iii) Special rule for eligible automatic contribution arrangements.

<nowiki>* * * * *</nowiki>

'''''§1.401(k)-3 Safe harbor requirements.'''''

(a) * * *

(1) Section 401(k)(12) safe harbor.

(2) Section 401(k)(13) safe harbor.

(3) Requirements applicable to safe harbor contributions.

<nowiki>* * * * *</nowiki>

(i) [Reserved].

(j) Qualified automatic contribution arrangement.

(1) Automatic contribution requirement.

(i) In general.

(ii) Automatic contribution arrangement.

(iii) Exception to automatic enrollment for certain current employees.

(2) Qualified percentage.

(i) In general.

(ii) Minimum percentage requirements.

(A) Initial-period requirement.

(B) Second-year requirement.

(C) Third-year requirement.

(D) Later years requirement.

(iii) Exception to uniform percentage requirement.

(iv) Treatment of periods without default contributions.

(k) Modifications to contribution requirements and notice requirements for automatic contribution safe harbor.

(1) In general.

(2) Lower matching requirement.

(3) Modified nonforfeiture requirement.

(4) Additional notice requirements.

(i) In general.

(ii) Additional information.

(iii) Timing requirements.

Par. 3. Section 1.401(k)-1 is amended by:

1. Revising paragraph (b)(1)(ii)(C) and adding new paragraph (b)(1)(ii)(D).

2. Adding a new sentence after the fifth sentence in paragraph (e)(7).

The additions and revisions to read as follows:

'''''§1.401(k)-1 Certain cash or deferred arrangements.'''''

<nowiki>* * * * *</nowiki>

(b) * * *

(1) * * *

(ii) * * *

(C) The ADP safe harbor provisions of section 401(k)(13) described in §1.401(k)-3; or

(D) The SIMPLE 401(k) provisions of section 401(k)(11) described in §1.401(k)-4.

<nowiki>* * * * *</nowiki>

(e) * * *

(7) Plan provision requirement. * * * In addition, a plan that uses the safe harbor method of section 401(k)(13), as described in paragraph (b)(1)(ii)(C) of this section, must specify the default percentages that apply for the plan year and whether the safe harbor contribution will be the nonelective safe harbor contribution or the matching safe harbor contribution, and is not permitted to provide that ADP testing will be used if the requirements for the safe harbor are not satisfied. * * *

<nowiki>* * * * *</nowiki>

Par. 4. Section 1.401(k)-2 is amended by:

1. Adding paragraph (a)(5)(vi).

2. Revising paragraphs (b)(2)(iv)(A) and (b)(2)(iv)(D).

3. Removing paragraph (b)(2)(iv)(E).

4. Revising paragraph (b)(2)(vi)(A).

5. Revising the heading and adding a new first sentence to paragraph (b)(2)(vi)(B).

6. Removing Examples 3, 4, and 5 of paragraph (b)(2)(viii).

7. Revising paragraph (b)(4)(iii) and adding paragraph (b)(5)(iii).

The additions and revisions to read as follows:

'''''§1.401(k)-2 ADP test.'''''

(a) * * *

(5) * * *

(vi) Default elective contributions pursuant to section 414(w). Default elective contributions made under an eligible automatic contribution arrangement (within the meaning of §1.414(w)-1(b)) that are distributed pursuant to §1.414(w)-1(c) for plan years beginning on or after January 1, 2008, are not taken into account under paragraph (a)(4) of this section for the plan year for which the contributions are made, or for any other plan year.

<nowiki>* * * * *</nowiki>

(b) * * *

(2) * * *

(iv) Income allocable to excess contributions—(A) General rule. For plan years beginning on or after January 1, 2008, the income allocable to excess contributions is equal to the allocable gain or loss through the end of the plan year. See paragraph (b)(2)(iv)(D) of this section for rules that apply to plan years beginning before January 1, 2008.

<nowiki>* * * * *</nowiki>

(D) Plan years before 2008. For plan years beginning before January 1, 2008, the income allocable to excess contributions is determined under §1.401(k)-2(b)(2)(iv) (as it appeared in the April 1, 2007, edition of 26 CFR part 1).

<nowiki>* * * * *</nowiki>

(vi) Tax treatment of corrective distributions—(A) Corrective distributions for plan years beginning on or after January 1, 2008. Except as provided in this paragraph (b)(2)(vi), for plan years beginning on or after January 1, 2008, a corrective distribution of excess contributions (and allocable income) is includible in the employee’s gross income for the employee’s taxable year in which distributed. In addition, the corrective distribution is not subject to the early distribution tax of section 72(t). See paragraph (b)(5) of this section for additional rules relating to the employer excise tax on amounts distributed more than 21/2 months (6 months in the case of certain plans that include an eligible automatic contribution arrangement within the meaning of section 414(w)) after the end of the plan year. See also §1.402(c)-2, A-4 for restrictions on rolling over distributions that are excess contributions.

(B) Corrective distributions for plan years beginning before January 1, 2008. The tax treatment of corrective distributions for plan years beginning before January 1, 2008, is determined under §1.401(k)-2(b)(2)(vi) (as it appeared in the April 1, 2007, edition of 26 CFR Part 1). * * *

<nowiki>* * * * *</nowiki>

(4) * * *

(iii) Permitted forfeiture of QMAC. Pursuant to section 401(k)(8)(E), a qualified matching contribution is not treated as forfeitable under §1.401(k)-1(c) merely because under the plan it is forfeited in accordance with paragraph (b)(4)(ii) of this section or §1.414(w)-1(d)(2).

<nowiki>* * * * *</nowiki>

(5) * * *

(iii) Special rule for eligible automatic contribution arrangements. In the case of excess contributions under a plan that includes an eligible automatic contribution arrangement within the meaning of section 414(w), 6 months is substituted for 21/2 months in paragraph (b)(5)(i) of this section. The additional time described in this paragraph (b)(5)(iii) applies to a distribution of excess contributions for a plan year beginning on or after January 1, 2010 only where all the eligible NHCEs and eligible HCEs are covered employees under the eligible automatic contribution arrangement (within the meaning of §1.414(w)-1(e)(3)) for the entire plan year (or for the portion of the plan year that the eligible NHCEs and eligible HCEs are eligible employees).

<nowiki>* * * * *</nowiki>

Par. 5. Section 1.401(k)-3 is amended by:

1. Revising paragraph (a).

2. Adding a new sentence at the end of paragraph (d)(3)(ii).

3. Revising the first sentence of paragraph (e)(1).

4. Revising the last sentence of paragraph (h)(2).

5. Revising the first sentence of paragraph (h)(3).

6. Adding paragraphs (i), (j), and (k).

The additions and revisions to read as follows:

'''''§1.401(k)-3 Safe harbor requirements.'''''

(a) ADP test safe harbor—(1) Section 401(k)(12) safe harbor. A cash or deferred arrangement satisfies the ADP safe harbor provision of section 401(k)(12) for a plan year if the arrangement satisfies the safe harbor contribution requirement of paragraph (b) or (c) of this section for the plan year, the notice requirement of paragraph (d) of this section, the plan year requirements of paragraph (e) of this section, and the additional rules of paragraphs (f), (g), and (h) of this section, as applicable.

(2) Section 401(k)(13) safe harbor. For plan years beginning on or after January 1, 2008, a cash or deferred arrangement satisfies the ADP safe harbor provision of section 401(k)(13) for a plan year if the arrangement is described in paragraph (j) of this section and satisfies the safe harbor contribution requirement of paragraph (k) of this section for the plan year, the notice requirement of paragraph (d) of this section (modified to include the information set forth in paragraph (k)(4) of this section), the plan year requirements of paragraph (e) of this section, and the additional rules of paragraphs (f), (g), and (h) of this section, as applicable. A cash or deferred arrangement that satisfies the requirements of this paragraph (a)(2) is referred to as a qualified automatic contribution arrangement.

(3) Requirements applicable to safe harbor contributions. Pursuant to section 401(k)(12)(E)(ii) and section 401(k)(13)(D)(iv), the safe harbor contribution requirement of paragraph (b), (c), or (k) of this section must be satisfied without regard to section 401(l). The contributions made under paragraph (b) or (c) of this section (and the corresponding contributions under paragraph (k) of this section) are referred to as safe harbor nonelective contributions and safe harbor matching contributions.

<nowiki>* * * * *</nowiki>

(d) * * *

(3) * * *

(ii) Deemed satisfaction of timing requirement. * * * If it is not practicable for the notice to be provided on or before the date specified in the plan that an employee becomes eligible, the notice will nonetheless be treated as provided timely if it is provided as soon as practicable after that date and the employee is permitted to elect to defer from all types of compensation that may be deferred under the plan earned beginning on the date the employee becomes eligible.

(e) Plan year requirement—(1) General rule. Except as provided in this paragraph (e) or in paragraph (f) of this section, a plan will fail to satisfy the requirements of sections 401(k)(12), 401(k)(13), and this section unless plan provisions that satisfy the rules of this section are adopted before the first day of the plan year and remain in effect for an entire 12-month plan year. * * *

<nowiki>* * * * *</nowiki>

(h) * * *

(2) Use of safe harbor nonelective contributions to satisfy other discrimination tests. * * * However, pursuant to section 401(k)(12)(E)(ii) and section 401(k)(13)(D)(iv), to the extent they are needed to satisfy the safe harbor contribution requirement of paragraph (b) of this section, safe harbor nonelective contributions may not be taken into account under any plan for purposes of section 401(l) (including the imputation of permitted disparity under §1.401(a)(4)-7).

(3) Early participation rules. Section 401(k)(3)(F) and §1.401(k)-2(a)(1)(iii)(A), which provide an alternative nondiscrimination rule for certain plans that provide for early participation, do not apply for purposes of section 401(k)(12), section 401(k)(13), and this section. * * *

<nowiki>* * * * *</nowiki>

(i) [Reserved].

(j) Qualified automatic contribution arrangement—(1) Automatic contribution requirement—(i) In general. A cash or deferred arrangement is described in this paragraph (j) if it is an automatic contribution arrangement described in paragraph (j)(1)(ii) of this section where the default election under that arrangement is a contribution equal to the qualified percentage described in paragraph (j)(2) of this section multiplied by the eligible employee’s compensation from which elective contributions are permitted to be made under the cash or deferred arrangement. For plan years beginning on or after January 1, 2010, the compensation used for this purpose must be safe harbor compensation as defined under paragraph (b)(2) of this section.

(ii) Automatic contribution arrangement. An automatic contribution arrangement is a cash or deferred arrangement within the meaning of §1.401(k)-1(a)(2) that provides that, in the absence of an eligible employee’s affirmative election, a default election applies under which the employee is treated as having made an election to have a specified contribution made on his or her behalf under the plan. The default election begins to apply with respect to an eligible employee no earlier than a reasonable period of time after receipt of the notice describing the automatic contribution arrangement. The default election ceases to apply with respect to an eligible employee for periods of time with respect to which the employee has an affirmative election that is currently in effect to—

(A) Have elective contributions made in a different amount on his or her behalf (in a specified amount or percentage of compensation); or

(B) Not have any elective contributions made on his or her behalf.

(iii) Exception to automatic enrollment for certain current employees. An automatic contribution arrangement will not fail to be a qualified automatic contribution arrangement merely because the default election provided under paragraph (j)(1)(i) of this section is not applied to an employee who was an eligible employee under the cash or deferred arrangement (or a predecessor arrangement) immediately prior to the effective date of the qualified automatic contribution arrangement and on that effective date had an affirmative election in effect (that remains in effect) to—

(A) Have elective contributions made on his or her behalf (in a specified amount or percentage of compensation); or

(B) Not have elective contributions made on his or her behalf.

(2) Qualified percentage—(i) In general. A percentage is a qualified percentage only if it—

(A) Is uniform for all employees (except to the extent provided in paragraph (j)(2)(iii) of this section);

(B) Does not exceed 10 percent; and

(C) Satisfies the minimum percentage requirements of paragraph (j)(2)(ii) of this section.

(ii) Minimum percentage requirements—(A) Initial-period requirement. The minimum percentage requirement of this paragraph (j)(2)(ii)(A) is satisfied only if the percentage that applies for the initial period is at least 3 percent. For this purpose, the initial period begins when the employee first has contributions made pursuant to a default election under an arrangement that is intended to be a qualified automatic contribution arrangement for a plan year and ends on the last day of the following plan year.

(B) Second-year requirement. The minimum percentage requirement of this paragraph (j)(2)(ii)(B) is satisfied only if the percentage that applies for the plan year immediately following the last day described in paragraph (j)(2)(ii)(A) of this section is at least 4 percent.

(C) Third-year requirement. The minimum percentage requirement of this paragraph (j)(2)(ii)(C) is satisfied only if the percentage that applies for the plan year immediately following the plan year described in paragraph (j)(2)(ii)(B) of this section is at least 5 percent.

(D) Later years requirement. A percentage satisfies the minimum percentage requirement of this paragraph (j)(2)(ii)(D) only if the percentage that applies for all plan years following the plan year described in paragraph (j)(2)(ii)(C) of this section is at least 6 percent.

(iii) Exception to uniform percentage requirement. A plan does not fail to satisfy the uniform percentage requirement of paragraph (j)(2)(i)(A) of this section merely because—

(A) The percentage varies based on the number of years (or portions of years) since the beginning of the initial period for an eligible employee;

(B) The rate of elective contributions under a cash or deferred election that is in effect for an employee immediately prior to the effective date of the default percentage under the qualified automatic contribution arrangement is not reduced;

(C) The rate of elective contributions is limited so as not to exceed the limits of sections 401(a)(17), 402(g) (determined with or without catch-up contributions described in section 402(g)(1)(C) or 402(g)(7)), and 415; or

(D) The default election provided under paragraph (j)(1)(i) of this section is not applied during the period an employee is not permitted to make elective contributions in order for the plan to satisfy the requirements of §1.401(k)-3(c)(6)(v)(B).

(iv) Treatment of periods without default contributions. The minimum percentages described in paragraph (j)(2)(ii) of this section are based on the date the initial period begins, regardless of whether the employee is eligible to make elective contributions under the plan after that date. Thus, for example, if an employee is ineligible to make contributions under the plan for 6 months because the employee had a hardship withdrawal and the 6-month period includes a date as of which the default minimum percentage is increased, then the default percentage must reflect that increase when the employee is permitted to resume contributions. However, for purposes of determining the date the initial period described in paragraph (j)(2)(ii)(A) of this section begins, a plan is permitted to treat an employee who for an entire plan year did not have contributions made pursuant to a default election under the qualified automatic contribution arrangement as if the employee had not had such contributions made for any prior plan year as well.

(k) Modifications to contribution requirements and notice requirements for automatic contribution safe harbor—(1) In general. A cash or deferred arrangement satisfies the contribution requirements of this paragraph (k) only if it satisfies the contribution requirements of either paragraph (b) or (c) of this section, as modified by the rules of paragraphs (k)(2) and (k)(3) of this section. In addition, a cash or deferred arrangement satisfies the notice requirement of section 401(k)(13)(E) only if the notice satisfies the additional requirements of paragraph (k)(4) of this section.

(2) Lower matching requirement. In applying the requirement of paragraph (c) of this section in the case of a cash or deferred arrangement, the basic matching formula is modified so that each eligible NHCE must receive the sum of—

(i) 100 percent of the employee’s elective contributions that do not exceed 1 percent of the employee’s safe harbor compensation; and

(ii) 50 percent of the employee’s elective contributions that exceed 1 percent of the employee’s safe harbor compensation but that do not exceed 6 percent of the employee’s safe harbor compensation.

(3) Modified nonforfeiture requirement. A cash or deferred arrangement described in paragraph (j) of this section will not fail to satisfy the requirements of paragraph (b) or (c) of this section, as applicable, merely because the safe harbor contributions are not qualified nonelective contributions or qualified matching contributions provided that—

(i) The contributions are subject to the withdrawal restrictions that apply to QNECs and QMACs, as set forth in §1.401(k)-1(d); and

(ii) Any employee who has completed 2 years of service (within the meaning of section 411(a)) has a nonforfeitable right to the account balance attributable to the safe harbor contributions.

(4) Additional notice requirements—(i) In general. A notice satisfies the requirements of this paragraph (k)(4) only if it includes the additional information described in paragraph (k)(4)(ii) of this section and satisfies the timing requirements of paragraph (k)(4)(iii) of this section.

(ii) Additional information. A notice satisfies the additional information requirement of this paragraph (k)(4)(ii) only if it explains—

(A) The level of elective contributions which will be made on the employee’s behalf if the employee does not make an affirmative election;

(B) The employee’s right under the arrangement to elect not to have elective contributions made on the employee’s behalf (or to elect to have such contributions made in a different amount or percentage of compensation); and

(C) How contributions under the arrangement will be invested (including, in the case of an arrangement under which the employee may elect among 2 or more investment options, how contributions will be invested in the absence of an investment election by the employee).

(iii) Timing requirements. A notice satisfies the timing requirements of this paragraph (k)(4)(iii) only if it is provided sufficiently early so that the employee has a reasonable period of time after receipt of the notice to make the elections described under paragraph (k)(4)(ii)(B) and (C) of this section. However, the requirement in the preceding sentence that an employee have a reasonable period of time after receipt of the notice to make an alternative election does not permit a plan to make the default election effective any later than the earlier of—

(A) The pay date for the second payroll period that begins after the date the notice is provided; and

(B) The first pay date that occurs at least 30 days after the notice is provided.

Par. 6. Section 1.401(k)-6 is amended by revising the last sentence in the definition of “qualified matching contributions (QMACs)” to read as follows:

'''''§1.401(k)-6 Definitions.'''''

<nowiki>* * * * *</nowiki>

Qualified matching contributions (QMACs). * * * See also §1.401(k)-2(b)(4)(iii) for a rule providing that a matching contribution does not fail to qualify as a QMAC solely because it is forfeitable under section 411(a)(3)(G) as a result of being a matching contribution with respect to an excess deferral, excess contribution, or excess aggregate contribution, or it is forfeitable under §1.414(w)-1(d)(2).

<nowiki>* * * * *</nowiki>

Par. 7. Section 1.401(m)-0 is amended in:

1. The entry for §1.401(m)-2 by—

a. Revising §1.401(m)-2(b)(2)(iv)(D).

b. Adding an entry for §1.401(m)-2(b)(4)(iii).

c. Revising the entries for §1.401(m)-2(b)(2)(vi)(A) and (b)(2)(vi)(B).

d. Adding an entry for §1.401(m)-2(b)(4)(iii).

2. The entry for §1.401(m)-3 by revising the entries for §§1.401(m)-3(a)(1), 1.401(m)-3(a)(2) and 1.401(m)-3(a)(3).

The additions and revisions read as follows:

'''''§1.401(m)-0 Table of Contents.'''''

<nowiki>* * * * *</nowiki>

'''''§1.401(m)-2 ACP Test.'''''

<nowiki>* * * * *</nowiki>

(b) * * *

(2) * * *

(iv) * * *

(A) * * *

<nowiki>* * * * *</nowiki>

(D) Plan years before 2008.

(E) Allocable income for recharacterized elective contributions.

<nowiki>* * * * *</nowiki>

(vi) * * *

(A) Corrective distributions for plan years beginning on or after January 1, 2008.

(B) Corrective distributions for plan years beginning before January 1, 2008.

<nowiki>* * * * *</nowiki>

(4) * * *

(iii) Special rule for eligible automatic contribution arrangements.

<nowiki>* * * * *</nowiki>

'''''§1.401(m)-3 Safe Harbor Requirements.'''''

(a) * * *

(1) Section 401(m)(11) safe harbor.

(2) Section 401(m)(12) safe harbor.

(3) Requirements applicable to safe harbor contributions.

<nowiki>* * * * *</nowiki>

Par. 8. Section 1.401(m)-1 is amended by:

1. Revising paragraph (b)(1)(iii) and adding paragraph (b)(1)(iv).

2. Revising the last sentence of paragraph (b)(4)(iii)(B).

3. Revising the fifth sentence of paragraph (c)(2).

The additions and revisions read as follows:

'''''§1.401(m)-1 Employee contributions and matching contributions.'''''

<nowiki>* * * * *</nowiki>

(b) * * *

(1) * * *

(iii) The ACP safe harbor provisions of section 401(m)(12) described in §1.401(m)-3; or

(iv) The SIMPLE 401(k) provisions of sections 401(k)(11) and 401(m)(10) described in §1.401(k)-4.

<nowiki>* * * * *</nowiki>

(4) * * *

(iii) * * *

(B) Arrangements with inconsistent ACP testing methods. * * * Similarly, an employer may not aggregate a plan (within the meaning of §1.410(b)-7) that is using the ACP safe harbor provisions of section 401(m)(11) or 401(m)(12) and another plan that is using the ACP test of section 401(m)(2).

<nowiki>* * * * *</nowiki>

(c) * * *

(2) Plan provision requirement. * * * Similarly, a plan that uses the safe harbor method of section 401(m)(11) or 401(m)(12), as described in paragraphs (b)(1)(ii) and (b)(1)(iii) of this section, must specify the default percentages that apply for the plan year and whether the safe harbor contribution will be the nonelective safe harbor contribution or the matching safe harbor contribution, and is not permitted to provide that ACP testing will be used if the requirements for the safe harbor are not satisfied. * * *

<nowiki>* * * * *</nowiki>

Par. 9. Section 1.401(m)-2 is amended by:

1. Revising the first and second sentences of paragraph (a)(5)(iv).

2. Revising paragraph (a)(5)(v).

3. Adding a new sentence at the end of paragraph (a)(6)(ii).

4. Revising paragraphs (b)(2)(iv)(A) and (b)(2)(iv)(D).

5. Removing paragraph (b)(2)(iv)(E).

6. Redesignating paragraph (b)(2)(iv)(F) as paragraph (b)(2)(iv)(E).

7. Revising paragraph (b)(2)(vi)(A).

8. Adding a new sentence to the beginning of paragraph (b)(2)(vi)(B).

9. Adding paragraph (b)(4)(iii).

The additions and revisions to read as follows:

'''''§1.401(m)-2 ACP test.'''''

(a) * * * * *

(5) * * * * *

(iv) Matching contributions taken into account. A plan that satisfies the ACP safe harbor requirements of section 401(m)(11) or 401(m)(12) for a plan year but nonetheless must satisfy the requirements of this section because it provides for employee contributions for such plan year is permitted to apply this section disregarding all matching contributions with respect to all eligible employees. In addition, a plan that satisfies the ADP safe harbor requirements of §1.401(k)-3 for a plan year using qualified matching contributions but does not satisfy the ACP safe harbor requirements of section 401(m)(11) or 401(m)(12) for such plan year is permitted to apply this section by excluding matching contributions with respect to all eligible employees that do not exceed 4 percent (31/2 percent in the case of a plan that satisfies the ADP safe harbor under section 401(k)(13)) of each employee’s compensation. * * *

(v) Treatment of forfeited matching contributions. A matching contribution that is forfeited because the contribution to which it relates is treated as an excess contribution, excess deferral, excess aggregate contribution, or default elective contribution that is distributed under section 414(w), is not taken into account for purposes of this section.

<nowiki>* * * * *</nowiki>

(6) * * * * *

(ii) Elective contributions taken into account under the ACP test. * * * In addition, for plan years ending on or after November 8, 2007, elective contributions which are not permitted to be taken into account for the ADP test for the plan year under §1.401(k)-2(a)(5)(ii), (iii), (v), or (vi) are not permitted to be taken into account for the ACP test.

<nowiki>* * * * *</nowiki>

(b) * * * * *

(2) * * * * *

(iv) Income allocable to excess aggregate contributions—(A) General rule. For plan years beginning on or after January 1, 2008, the income allocable to excess aggregate contributions is equal to the allocable gain or loss through the end of the plan year. See paragraph (b)(2)(iv)(D) of this section for rules that apply to plan years beginning before January 1, 2008.

<nowiki>* * * * *</nowiki>

(D) Plan years before 2008. For plan years beginning before January 1, 2008, the income allocable to excess aggregate contributions is determined under §1.401(m)-2(b)(2)(iv) (as it appeared in the April 1, 2007, edition of 26 CFR part 1).

<nowiki>* * * * *</nowiki>

(vi) Tax treatment of corrective distributions—(A) Corrective distributions for plan years beginning on or after January 1, 2008. Except as otherwise provided in this paragraph (b)(2)(vi), for plan years beginning on or after January 1, 2008, a corrective distribution of excess aggregate contributions (and allocable income) is includible in the employee’s gross income in the taxable year of the employee in which distributed. The portion of the distribution that is treated as an investment in the contract and is therefore not subject to tax under section 72 is determined without regard to any plan contributions other than those distributed as excess aggregate contributions. Regardless of when the corrective distribution is made, it is not subject to the early distribution tax of section 72(t). See paragraph (b)(4) of this section for additional rules relating to the employer excise tax on amounts distributed more than 21/2 months (6 months in the case of certain plans that include an eligible automatic contribution arrangement within the meaning of section 414(w)) after the end of the plan year. See also §1.402(c)-2, A-4, prohibiting rollover of distributions that are excess aggregate contributions.

(B) Corrective distributions for plan years beginning before January 1, 2008. The tax treatment of corrective distributions for plan years beginning before January 1, 2008, is determined under §1.401(m)-2(b)(2)(vi) (as it appeared in the April 1, 2007, edition of 26 CFR Part 1). * * *

(4) * * *

(iii) Special rule for eligible automatic contribution arrangements. In the case of excess aggregate contributions under a plan that includes an eligible automatic contribution arrangement (within the meaning of section 414(w)), 6 months is substituted for 21/2 months in paragraph (b)(4)(i) of this section. The additional time described in this paragraph (b)(4)(iii) applies to a distribution of excess aggregate contributions for a plan year beginning on or after January 1, 2010 only where all the eligible NHCEs and eligible HCEs are covered employees under the eligible automatic contribution arrangement (within the meaning of §1.414(w)-1(e)(3)) for the entire plan year (or for the portion of the plan year that the eligible NHCEs and eligible HCEs are eligible employees).

<nowiki>* * * * *</nowiki>

Par. 10. Section 1.401(m)-3 is amended by:

1. Revising paragraph (a).

2. Revising the first sentences of paragraphs (f)(1) and (j)(3).

The revisions read as follows:

'''''§1.401(m)-3 Safe harbor requirements.'''''

(a) ACP test safe harbor—(1) Section 401(m)(11) safe harbor. Matching contributions under a plan satisfy the ACP safe harbor provisions of section 401(m)(11) for a plan year if the plan satisfies the safe harbor contribution requirement of paragraph (b) or (c) of this section for the plan year, the limitations on matching contributions of paragraph (d) of this section, the notice requirement of paragraph (e) of this section, the plan year requirements of paragraph (f) of this section, and the additional rules of paragraphs (g), (h) and (j) of this section, as applicable.

(2) Section 401(m)(12) safe harbor. For a plan year beginning on or after January 1, 2008, matching contributions under a plan satisfy the ACP safe harbor provisions of section 401(m)(12) for a plan year if the matching contributions are made with respect to an automatic contribution arrangement described in paragraph §1.401(k)-3(j) that satisfies the safe harbor requirements of §1.401(k)-3, the limitations on matching contributions of paragraph (d) of this section, the notice requirement of paragraph (e) of this section, the plan year requirements of paragraph (f) of this section, and the additional rules of paragraphs (g), (h) and (j) of this section, as applicable.

(3) Requirements applicable to safe harbor contributions. Pursuant to sections 401(k)(12)(E)(ii) and 401(k)(13)(D)(iv), the safe harbor contribution requirement of paragraph (b) or (c) of this section and §1.401(k)-3(k) must be satisfied without regard to section 401(l). The contributions made under paragraphs (b) and (c) of this section and §1.401(k)-3(k) are referred to as safe harbor nonelective contributions and safe harbor matching contributions.

<nowiki>* * * * *</nowiki>

(f) Plan year requirement—(1) General rule. Except as provided in this paragraph (f) or in paragraph (g) of this section, a plan will fail to satisfy the requirements of section 401(m)(11), section 401(m)(12), and this section unless plan provisions that satisfy the rules of this section are adopted before the first day of that plan year and remain in effect for an entire 12-month plan year. * * *

<nowiki>* * * * *</nowiki>

(j) * * *

(3) Early participation rules. Section 401(m)(5)(C) and §1.401(m)-2(a)(1)(iii)(A), which provide an alternative nondiscrimination rule for certain plans that provide for early participation, do not apply for purposes of section 401(m)(11), section 401(m)(12), and this section. * * *

<nowiki>* * * * *</nowiki>

Par. 11. Section 1.402(c)-2, A-4, is amended by redesignating paragraph (h) as (j), adding a new paragraph (h), and adding and reserving paragraph (i) to read as follows:

'''''§1.402(c)-2 Eligible rollover distributions, questions and answers.'''''

<nowiki>* * * * *</nowiki>

A-4 * * *

(h) A distribution that is a permissible withdrawal from an eligible automatic contribution arrangement within the meaning of section 414(w).

(i) [Reserved].

<nowiki>* * * * *</nowiki>

Par. 12. Section 1.411(a)-4 is amended by revising paragraph (b)(7) to read as follows:

'''''§1.411(a)-4 Forfeitures, suspensions, etc.'''''

<nowiki>* * * * *</nowiki>

(b) * * *

(7) Certain matching contributions. A matching contribution (within the meaning of section 401(m)(4)(A) and §1.401(m)-1(a)(2)) is not treated as forfeitable even if under the plan it may be forfeited under §1.401(m)-2(b)(1) because the contribution to which it relates is treated as an excess contribution (within the meaning of §§1.401(k)-2(b)(2)(ii) and 1.401(k)-6), excess deferral (within the meaning of §1.402(g)-1(e)(1)(iii)), excess aggregate contribution (within the meaning of §1.401(m)-5), or a default elective contribution (within the meaning of §1.414(w)-1(e)) that is withdrawn in accordance with the requirements of §1.414(w)-1(c).

<nowiki>* * * * *</nowiki>

Par. 13. Section 1.414(w)-1 is added to read as follows:

'''''§1.414(w)-1 Permissible Withdrawals from Eligible Automatic Contribution Arrangements.'''''

(a) Overview. Section 414(w) provides rules under which certain employees are permitted to elect to make a withdrawal of default elective contributions from an eligible automatic contribution arrangement. This section sets forth the rules applicable to permissible withdrawals from an eligible automatic contribution arrangement within the meaning of section 414(w). Paragraph (b) of this section defines an eligible automatic contribution arrangement. Paragraph (c) of this section describes a permissible withdrawal and addresses which employees are eligible to elect a withdrawal, the timing of the withdrawal election, and the amount of the withdrawal. Paragraph (d) of this section describes the tax and other consequences of the withdrawal. Paragraph (e) of this section includes the definitions applicable to this section.

(b) Eligible automatic contribution arrangement—(1) In general. An eligible automatic contribution arrangement is an automatic contribution arrangement under an applicable employer plan that is intended to be an eligible automatic contribution arrangement for the plan year and that satisfies the uniformity requirement under paragraph (b)(2) of this section, and the notice requirement under paragraph (b)(3) of this section. An eligible automatic contribution arrangement need not cover all employees who are eligible to elect to have contributions made on their behalf under the applicable employer plan.

(2) Uniformity requirement—(i) In general. An eligible automatic contribution arrangement must provide that the default elective contribution is a uniform percentage of compensation.

(ii) Exception to uniform percentage requirement. An arrangement does not violate the uniformity requirement of paragraph (b)(2)(i) of this section merely because the percentage varies in a manner that is permitted under §1.401(k)-3(j)(2)(iii), except that the rule of §1.401(k)-3(j)(2)(iii)(B) is applied without regard to whether the arrangement is intended to be a qualified automatic contribution arrangement.

(iii) Rules of application. For purposes of this paragraph (b)(2), all automatic contribution arrangements that are intended to be eligible automatic contribution arrangements within a plan (or within the disaggregated plan under §1.410(b)-7, in the case of a plan subject to section 410(b)) are aggregated. Thus, for example, if a single plan within the meaning of section 414(l) covering employees in two separate divisions has two different automatic contribution arrangements that are intended to be eligible automatic contributions arrangements, the two automatic contribution arrangements can constitute eligible automatic contribution arrangements only if the default elective contributions under the arrangements are the same percentage of compensation. However, if the different automatic contribution arrangements cover employees in portions of the plan that are mandatorily disaggregated under the rules of section 410(b), then there is no requirement to aggregate those automatic contribution arrangements under the uniformity requirements of this paragraph (b)(2).

(3) Notice requirement—(i) General rule. The notice requirement of this paragraph (b)(3) is satisfied for a plan year if each covered employee is given notice of the employee’s rights and obligations under the arrangement. The notice must be sufficiently accurate and comprehensive to apprise the employee of such rights and obligations, and be written in a manner calculated to be understood by the average employee to whom the arrangement applies. The notice must be in writing; however, see §1.401(a)-21 for rules permitting the use of electronic media to provide applicable notices.

(ii) Content requirement. The notice must include the provisions found in §1.401(k)-3(d)(2)(ii) to the extent those provisions apply to the arrangement. A notice is not considered sufficiently accurate and comprehensive unless the notice accurately describes—

(A) The level of the default elective contributions which will be made on the employee’s behalf if the employee does not make an affirmative election;

(B) The employee’s rights to elect not to have default elective contributions made to the plan on his or her behalf or to have a different percentage of compensation or different amount of contribution made to the plan on his or her behalf;

(C) How contributions made under the arrangement will be invested in the absence of any investment election by the employee; and

(D) The employee’s rights to make a permissible withdrawal, if applicable, and the procedures to elect such a withdrawal.

(iii) Timing—(A) General rule. The timing requirement of this paragraph (b)(3)(iii) is satisfied if the notice is provided within a reasonable period before the beginning of each plan year or, in the plan year the employee is first eligible to make a cash or deferred election (or first becomes covered under the automatic contribution arrangement as a result of a change in employment status), within a reasonable period before the employee becomes a covered employee. In addition, a notice satisfies the timing requirements of paragraph (b)(3) of this section only if it is provided sufficiently early so that the employee has a reasonable period of time after receipt of the notice in order to make the election described under paragraph (e)(2)(i) or (e)(2)(ii) of this section.

(B) Deemed satisfaction of timing requirement. The timing requirement of this paragraph (b)(3)(iii) is satisfied if at least 30 days (and no more than 90 days) before the beginning of each plan year, the notice is given to each employee covered under the automatic contribution arrangement for the plan year. In the case of an employee who does not receive the notice within the period described in the previous sentence because the employee becomes eligible to make a cash or deferred election (or becomes covered under the automatic contribution arrangement as a result of a change in employment status) after the 90th day before the beginning of the plan year, the timing requirement is deemed to be satisfied if the notice is provided no more than 90 days before the employee becomes eligible to make a cash or deferred election (or becomes covered under the automatic contribution arrangement as a result of a change in employment status), and no later than the date that affords the employee a reasonable period of time after receipt of the notice to make the election described under paragraph (e)(2)(i) or (e)(2)(ii) of this section. If it is not practicable for the notice to be provided on or before the date specified in the plan that an employee becomes eligible to make a cash or deferred election, the notice will nonetheless be treated as provided timely if it is provided as soon as practicable after that date and the employee is permitted to elect to defer from all types of compensation that may be deferred under the plan earned beginning on that date.

(c) Permissible withdrawal—(1) In general. If the plan so provides, any employee who has default elective contributions made under the eligible automatic contribution arrangement may elect to make a withdrawal of such contributions (and earnings attributable thereto) in accordance with the requirements of this paragraph (c). An applicable employer plan that includes an eligible automatic contribution arrangement will not fail to satisfy the prohibition on in-service withdrawals under section 401(k)(2)(B), 403(b)(7), 403(b)(11), or 457(d)(1) merely because it permits withdrawals that satisfy the timing requirement of paragraph (c)(2) of this section and the amount requirement of paragraph (c)(3) of this section.

(2) Timing—(i) Last date to make election. A covered employee’s election to withdraw default elective contributions must be made no later than 90 days after the date of the first default elective contribution under the eligible automatic contribution arrangement and must be effective no later than the date set forth in paragraph (c)(2)(iii) of this section. A plan is permitted to set an earlier deadline for making this election, but if a plan provides that a covered employee may withdraw default elective contributions, then the election period for the covered employee must be at least 30 days.

(ii) Determination of date of first default elective contribution. For purposes of this paragraph (c)(2), the date of the first default elective contribution is the date that the compensation that is subject to the cash or deferred election would otherwise have been included in gross income.

(iii) Latest effective date of the election. The effective date of an election described in this paragraph (c)(2) cannot be after the earlier of—

(A) The pay date for the second payroll period that begins after the date the election is made; and

(B) The first pay date that occurs at least 30 days after the election is made.

(iv) Special rules—(A) Treatment of periods without default elective contributions. For purposes of determining the date of the first default elective contribution under the eligible automatic contribution arrangement, a plan is permitted to treat an employee who for an entire plan year did not have default elective contributions made under the eligible automatic contribution arrangement as if the employee had not had such contributions for any prior plan year as well.

(B) Treatment relating to aggregation of arrangements.The determination of whether an election is made no later than 90 days after the date of the first default elective contribution under the eligible automatic contribution arrangement must take into account any other eligible automatic contribution arrangement that is required to be aggregated with the eligible automatic contribution arrangement under the rules of paragraph (b)(2)(iii) of this section.

(3) Amount and timing of distributions—(i) In general. A distribution satisfies the requirement of this paragraph (c)(3) if the distribution is equal to the amount of default elective contributions made under the eligible automatic contribution arrangement through the effective date of the election described in paragraph (c)(2) of this section (adjusted for allocable gains and losses to the date of distribution). If default elective contributions are separately accounted for in the participant’s account, the amount of the distribution will be the total amount in that account. However, if default elective contributions are not separately accounted for under the plan, the amount of the allocable gains and losses will be determined under rules similar to those provided under §1.401(k)-2(b)(2)(iv) for the distribution of excess contributions.

(ii) Fees. The distribution amount as determined under this paragraph (c)(3) may be reduced by any generally applicable fees. However, the plan may not charge a higher fee for a distribution under section 414(w) than would apply to any other distributions of cash.

(iii) Date of distribution. The distribution must be made in accordance with the plan’s ordinary timing procedures for processing distributions and making distributions.

(d) Consequences of the withdrawal—(1) Income tax consequences—(i) Year of inclusion. The amount of the withdrawal is includible in the eligible employee’s gross income for the taxable year in which the distribution is made. However, any portion of the distribution consisting of designated Roth contributions is not included in an employee’s gross income a second time. The portion of the withdrawal that is treated as an investment in the contract is determined without regard to any plan contributions other than those distributed as a withdrawal of default elective contributions.

(ii) No additional tax on early distributions from qualified retirement plans. The withdrawal is not subject to the additional tax under section 72(t).

(iii) Reporting. The amount of the withdrawal is reported on Form 1099-R, “Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.,” as described in the applicable instructions.

(iv) Disregarded for purposes of section 402(g). The amount of the withdrawal is not taken into account in determining the limitation on elective deferrals under section 402(g).

(2) Forfeiture of matching contributions. In the case of any withdrawal made under paragraph (c) of this section, employer matching contributions with respect to the amount withdrawn that have been allocated to the participant’s account (adjusted for allocable gains and losses) must be forfeited. A plan is permitted to provide that employer matching contributions will not be made with respect to any withdrawal made under paragraph (c) of this section if the withdrawal has been made prior to the date as of which the match would otherwise be allocated.

(3) Consent rules. A withdrawal made under paragraph (c) of this section may be made without regard to any notice or consent otherwise required under section 401(a)(11) or 417.

(e) Definitions. Unless indicated otherwise, the following definitions apply for purposes of section 414(w) and this section.

(1) Applicable employer plan. An applicable employer plan means a plan that—

(i) Is qualified under section 401(a);

(ii) Satisfies the requirements of section 403(b);

(iii) Is a section 457(b) eligible governmental plan described in §1.457-2(f);

(iv) Is a simplified employee pension the terms of which provide for a salary reduction arrangement described in section 408(k)(6); or

(v) Is a SIMPLE described in section 408(p).

(2) Automatic contribution arrangement. An automatic contribution arrangement means an arrangement that provides for a cash or deferred election and which specifies that, in the absence of a covered employee’s affirmative election, a default election applies under which the employee is treated as having elected to have default elective contributions made on his or her behalf under the plan. The default election begins to apply with respect to an eligible employee no earlier than a reasonable period of time after receipt of the notice describing the automatic contribution arrangement. This default election ceases to apply with respect to an eligible employee for periods of time with respect to which the employee has an affirmative election that is currently in effect to—

(i) Not have any default elective contributions made on his or her behalf; or

(ii) Have contributions made in a different amount or percentage of compensation.

(3) Covered employee. Covered employee means an employee who is covered under the automatic contribution arrangement, determined under the terms of the plan. A plan must provide whether an employee who makes an affirmative election remains a covered employee. If a plan provides that an employee who makes an affirmative election described in paragraph (e)(2)(i) or (e)(2)(ii) of this section remains a covered employee, then the employee must continue to receive the notice described in paragraph (b)(3) of this section and the plan may be eligible for the excise tax relief with respect to excess amounts distributed within 6 months after the end of the plan year under section 4979(f)(1). Such an employee will also have the default election reapply if the plan provides that the employee’s prior affirmative election no longer remains in effect and the employee does not make a new affirmative election.

(4) Default elective contributions. Default elective contributions means the contributions that are made at a specified level or amount under an automatic contribution arrangement in the absence of a covered employee’s affirmative election that are—

(i) Contributions described in section 402(g)(3); or

(ii) Contributions made to an eligible governmental plan within the meaning of §1.457-2(f) that would be elective contributions if they were made under a qualified plan.

(f) Effective/applicability date—(1) Statutory effective date. Section 414(w) applies to plan years beginning on or after January 1, 2008.

(2) Regulatory effective date. This section applies to plan years beginning on or after January 1, 2010. For plan years that begin in 2008, a plan must operate in accordance with a good faith interpretation of section 414(w). For this purpose, a plan that operates in accordance with this section will be treated as operating in accordance with a good faith interpretation of section 414(w).

===PART 54—PENSION EXCISE TAXES.===

Par. 14. The authority citation for part 54 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 15. Section 54.4979-1, paragraph (c)(1) is revised to read as follows:

'''''§54.4979-1 Excise tax on certain excess contributions and excess aggregate contributions.'''''

<nowiki>* * * * *</nowiki>

(c) No tax when excess distributed within 21/2 months after close of year or additional employer contributions made—(1) General rule. No tax is imposed under this section on any excess contribution or excess aggregate contribution, as the case may be, to the extent the contribution (together with any income allocable thereto) is corrected before the close of the first 21/2 months of the following plan year (6 months in the case of a plan that includes an eligible automatic contribution arrangement within the meaning of section 414(w)). The extension to 6 months applies to a distribution of excess contributions or excess aggregate contributions for a plan year beginning on or after January 1, 2010, only where all the eligible NHCEs and eligible HCEs (both as defined in §1.401(k)-6 of this Chapter) are covered employees under an eligible automatic contribution arrangement within the meaning of section 414(w) for the entire plan year (or the portion of the plan year that the eligible NHCEs and eligible HCEs are eligible employees under the plan)). Qualified nonelective contributions and qualified matching contributions taken into account under §1.401(k)-2(a)(6) of this Chapter or qualified nonelective contributions or elective contributions taken into account under §1.401(m)-2(a)(6) of this Chapter for a plan year may permit a plan to avoid excess contributions or excess aggregate contributions, respectively, even if made after the close of the 21/2 month (or 6 month) period for distributing excess contributions or excess aggregate contributions without the excise tax. See §1.401(k)-2(b)(1)(i) and (5)(i) of this Chapter for methods to avoid excess contributions, and §1.401(m)-2(b)(1)(i) of the Chapter for methods to avoid excess aggregate contributions.

<nowiki>* * * * *</nowiki>

:Linda E. Stiff,
:Deputy Commissioner for
:Services and Enforcement.

:Approved January 16, 2009.

:Eric Solomon,
:Assistant Secretary of
:the Treasury (Tax Policy).

'''Note'''

(Filed by the Office of the Federal Register on February 23, 2009, 8:45 a.m., and published in the issue of the Federal Register for February 24, 2009, 74 F.R. 8200)

==Drafting Information==

The principal authors of these regulations are Dana Barry, William D. Gibbs, and R. Lisa Mojiri-Azad, Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). However, other personnel from the IRS and Treasury Department participated in the development of these regulations.

<nowiki>* * * * *</nowiki>

{{TDFooter}}

Notice 2009-54

Trillium — Sat, 14 Nov 2009 04:21:16 GMT

Summary: add n09-54 and ref to n09-89 mod & sup

{{NtcHeader}}

Internal Revenue Bulletin: 2009-26

June 29, 2009

Part III - Administrative, Procedural, and Miscellaneous 
'''Qualified Plug-In Electric Vehicle Credit'''

<div style="top:+0.2em;font-size: 125%">'''''Note: also see [[Notice 2009-89]], which amplifies section 4 of this notice and supersedes it for plug-in electric drive motor vehicles acquired after December 31, 2009.</div style>'''''

__TOC__

'''Notice 2009-54'''

==Section 1. PURPOSE==

This notice sets forth interim guidance, pending the issuance of regulations, relating to the new qualified plug-in electric drive motor vehicle credit under § 30D of the Internal Revenue Code. Specifically, this notice provides procedures for a vehicle manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) to certify to the Internal Revenue Service (“Service”) both:

(1) That a motor vehicle of a particular make, model, and model year meets certain requirements that must be satisfied to claim the new qualified plug-in electric drive motor vehicle credit under § 30D; and

(2) The amount of the credit allowable with respect to that motor vehicle.

This notice also provides guidance to taxpayers who purchase motor vehicles regarding the conditions under which they may rely on the vehicle manufacturer’s (or, in the case of a foreign vehicle manufacturer, its domestic distributor’s) certification in determining whether a credit is allowable with respect to the vehicle and the amount of the credit. The Service and the Treasury Department expect that the regulations will incorporate the rules set forth in this notice.

Section 30D originally was enacted in the Energy Improvement and Extension Act of 2008, Pub. L. 110-343, 122 Stat. 3765. The American Recovery and Reinvestment Act of 2009, Pub. L. 111-5, 123 Stat. 115, amended § 30D in certain respects, and those amendments are effective for vehicles acquired after December 31, 2009. The Service and Treasury Department will issue subsequent guidance relating to those amendments. All references to § 30D in this notice are to the provision as in effect before its amendment.

==Section 2. BACKGROUND==

Section 30D provides for a credit for certain new qualified plug-in electric drive motor vehicles. The credit is equal to the sum of: (1) $2,500, plus (2) $417 for each kilowatt hour of traction battery capacity in excess of 4 kilowatt hours. Section 30D(b)(1) limits the amount of the credit allowed for a vehicle to amounts ranging from $7,500 to $15,000, depending on the gross vehicle weight rating of the vehicle. The new qualified plug-in electric drive motor vehicle credit phases out over the period beginning with the second calendar quarter after the calendar quarter in which at least 250,000 qualifying vehicles have been sold for use in the United States (determined on a cumulative basis for sales after December 31, 2008) (phase-out period”). Qualifying vehicles purchased in the first two calendar quarters of the phase-out period are eligible for 50 percent of the credit. Qualifying vehicles purchased in the third and fourth calendar quarters of the phase-out period are eligible for 25 percent of the credit. Vehicles purchased after the last day of the fourth calendar quarter of the phase-out period are not eligible for a credit. If a vehicle qualifies for a credit under both § 30B and § 30D, the amount of the credit allowed under § 30B is the amount of the otherwise allowable credit under that section reduced (but not below zero) by the amount of the credit allowed under § 30D. In addition, if a vehicle qualifies for a credit under § 30D, no credit is allowed for that vehicle under § 30.

==Section 3. SCOPE OF NOTICE==

The new qualified plug-in electric drive motor vehicle credit applies to plug-in electric drive motor vehicles, including low speed vehicles as defined in section 4(6) of this notice, that—

(1) Are placed in service by the taxpayer in a taxable year beginning after December 31, 2008;

(2) Are acquired by the taxpayer on or before December 31, 2009; and

(3) Otherwise meet the requirements of § 30D.

==Section 4. MEANING OF TERMS==

The following definitions apply for purposes of this notice:

.01 In General. Terms used in this notice and not defined in this section 4 have the same meaning as when used in § 30D.

.02 Clean Air Act Regulations. The Clean Air Act regulations are the regulations prescribed by the Administrator of the Environmental Protection Agency for purposes of the administration of title II of the Clean Air Act (42 U.S.C. §§ 7521, et. seq.).

.03 Traction Battery Capacity. Traction battery capacity is measured in kilowatt hours from a 100 percent state of charge to a zero percent state of charge.

.04 Motor Vehicle. The term “motor vehicle” has the meaning given that term by § 30(c)(2).

.05 Manufacturer. The term “manufacturer” has the meaning given that term in the Clean Air Act regulations.

.06 Passenger Vehicle and Light Truck. The terms “passenger vehicle” and “light truck” do not include (1) any vehicle that has a gross vehicle weight of more than 8,500 pounds and (2) any vehicle that is not treated as a motor vehicle in the Clean Air Act regulations. A low speed vehicle, as defined in section 4.07 of this notice, is not treated as a motor vehicle in the Clean Air Act regulations. Accordingly, a low speed vehicle is not a passenger vehicle or light truck and is not required to receive a certificate of conformity under the Clean Air Act to qualify for the credit.

.07 Low Speed Vehicle. The term “low speed vehicle” means a vehicle:

:(1) That has at least four wheels;
:(2) That is manufactured primarily for use on public streets, roads and highways (not including a vehicle operated exclusively on a rail or rails);
:(3) That is not manufactured primarily for off-road use, such as primarily for use on a golf course;
:(4) Whose speed attainable in one mile is more than 20 miles per hour and not more than 25 miles per hour on a paved level surface; and
:(5) Whose gross vehicle weight rating is less than 3,000 pounds.

.08 Model Year. The term “model year” means the model year determined under the Clean Air Act regulations (see 40 CFR § 86-082-2).

==Section 5. MANUFACTURER’S CERTIFICATION AND QUARTERLY REPORTS==

.01 When Certification Permitted. A vehicle manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) may certify to purchasers that a motor vehicle of a particular make, model, and model year meets all requirements (other than those listed in section 5.02 of this notice) that must be satisfied to claim the new qualified plug-in electric drive motor vehicle credit allowable under § 30D with respect to the vehicle, if the following requirements are met:

(1) The manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) has submitted to the Service, in accordance with this section 5 of this notice, a certification with respect to the vehicle and the certification satisfies the requirements of section 5.03 of this notice;

(2) The manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) has received an acknowledgment of the certification from the Service.

.02 Purchaser’s Reliance. Except as provided in section 5.07 of this notice, a purchaser of a motor vehicle may rely on the manufacturer’s (or, in the case of a foreign vehicle manufacturer, its domestic distributor’s) certification concerning the vehicle and the amount of the credit allowable with respect to the vehicle (including in cases in which the certification is received after the purchase of the vehicle). The purchaser may claim a credit in the certified amount with respect to the vehicle if the following requirements are satisfied:

:(1) The vehicle is placed in service by the taxpayer in a taxable year beginning after December 31, 2008, and is purchased by the taxpayer on or before December 31, 2009;
:(2) The original use of the vehicle commences with the taxpayer;
:(3) The vehicle is acquired for use or lease by the taxpayer, and not for resale; and
:(4) The vehicle is used predominantly in the United States.

.03 Content of Certification. The certification must contain the information required in section 5.03(1) of this notice and any applicable additional information required in section 5.03(2) or (3) of this notice.

:(1) All Vehicles. For all vehicles, the certification must contain the following:
::(a) The name, address, and taxpayer identification number of the certifying entity.
::(b) The make, model, model year, and any other appropriate identifiers of the motor vehicle.
::(c) A statement that the vehicle is made by a manufacturer.
::(d) A statement that the vehicle is a motor vehicle within the meaning of section 4.03 of this notice.
::(e) The amount of the credit for the vehicle (showing computations).
::(f) The gross vehicle weight rating of the vehicle.
::(g) A statement that the motor vehicle draws propulsion using a traction battery with at least 4 kilowatt hours of capacity.
::(h) The number of kilowatt hours, if any, in excess of 4 kilowatt hours.
::(i) A statement that the vehicle uses an offboard source of energy to recharge the battery.
::(j) A statement that the vehicle complies with the applicable provisions of the Clean Air Act.
::(k) A statement that the vehicle complies with the applicable air quality provisions of state law of each state that has adopted the provisions under a waiver under § 209(b) of the Clean Air Act or a list identifying each state that has adopted applicable air quality provisions with which the vehicle does not comply.
::(l) A description of the motor vehicle safety provisions of 49 U.S.C. §§ 30101 through 30169 applicable to the vehicle and a statement that the vehicle complies with those provisions.
::(m) A declaration, applicable to the certification, statements, and any accompanying documents, signed by a person currently authorized to bind the manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) in these matters, in the following form: “Under penalties of perjury, I declare that I have examined this certification, including accompanying documents, and to the best of my knowledge and belief, the facts presented in support of this certification are true, correct, and complete.”

:(2) Passenger Vehicles and Light Trucks. If the vehicle is a passenger vehicle or light truck (determined after application of the limitations in section 4.06 of this notice), the certification must also contain the following:
::(a) A copy of the certificate of conformity under the Clean Air Act.
::(b) Documents demonstrating that the vehicle meets or exceeds the equivalent qualifying California low emission vehicle standard under section 243(e)(2) of the Clean Air Act for that make and model year.
::(c) In the case of a vehicle having a gross vehicle weight rating of 6,000 pounds or less, documents showing that the vehicle meets or exceeds the Bin 5 Tier II emission standard established in regulations prescribed by the Administrator of the Environmental Protection Agency under section 202(i) of the Clean Air Act for that make and model year vehicle.
::(d) In the case of a vehicle having a gross vehicle weight rating of more than 6,000 pounds, but not more than 8,500 pounds, documents showing the vehicle meets or exceeds the Bin 8 Tier II emission standard which is so established.

:(3) Low Speed Vehicles. A certification with respect to a low speed vehicle as defined in section 4.07 of this notice must also contain the following:
::(a) A statement that the vehicle has at least four wheels.
::(b) A statement that the vehicle is manufactured primarily for use on public streets, roads and highways.
::(c) A statement that the vehicle is not manufactured primarily for off-road use, such as primarily for use on a golf course.
::(d) Evidence that the speed attainable by the vehicle in one mile is more than 20 miles per hour and not more than 25 miles per hour on a paved level surface.

.04 Acknowledgement of Certification. The Service will review the original signed certification and issue an acknowledgment letter to the vehicle manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) within 30 days of receipt of the request for certification. This acknowledgment letter will state whether purchasers may rely on the certification.

.05 Quarterly Reporting of Sales of Qualified Vehicles. A manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) that has received an acknowledgment of its certification from the Service must submit to the Service, in accordance with section 6 of this notice, a report of the number of qualified plug-in electric drive motor vehicles sold by the manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) to consumers or retail dealers during the calendar quarter. The quarterly report must contain the following information:

:(1) The name, address, and taxpayer identification number of the reporting entity.
:(2) The number of qualified vehicles sold by the reporting entity to consumers or retail dealers during the calendar quarter.
:(3) The make, model, model year, and any other appropriate identifiers of the qualified vehicles sold during the calendar quarter.
:(4) A declaration, applicable to the quarterly report and any accompanying documents, signed by a person currently authorized to bind the manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) in these matters, in the following form: “Under penalties of perjury, I declare that I have examined this report, including accompanying documents, and to the best of my knowledge and belief, the facts presented in support of this report are true, correct, and complete.”

.06 Acknowledgment of Quarterly Report. The Service will review the original signed quarterly report and issue an acknowledgment letter to the vehicle manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) within 30 days of receipt of the report. This acknowledgment letter will state whether purchasers may continue to rely on the certification.

.07 Effect of Erroneous Certification, Erroneous Quarterly Reports, or Failure to Make Timely Quarterly Reports.

(1) Erroneous Certification or Quarterly Report. The acknowledgment that the Service provides for a certification is not a determination that a vehicle qualifies for the credit, or that the amount of the credit is correct. The Service may, upon examination (and after any appropriate consultation with the Department of Transportation or the Environmental Protection Agency), determine that the vehicle is not a new qualified plug-in electric drive motor vehicle or that the amount of the credit determined by the manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) to be allowable with respect to the vehicle is incorrect. In either event, or in the event that the manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) makes an erroneous quarterly report, the manufacturer’s (or, in the case of a foreign vehicle manufacturer, its domestic distributor’s) right to provide a certification to future purchasers of the new qualified plug-in electric drive motor vehicles will be withdrawn, and purchasers who acquire a vehicle after the date on which the Service publishes an announcement of the withdrawal may not rely on the certification. Purchasers may continue to rely on the certification for vehicles they acquired on or before the date on which the announcement of the withdrawal is published (including in cases in which the vehicle is not placed in service and the credit is not claimed until after that date), and the Service will not attempt to collect any understatement of tax liability attributable to such reliance. Manufacturers (or, in the case of foreign vehicle manufacturers, their domestic distributors) are reminded that an erroneous certification or an erroneous quarterly report may result in the imposition of penalties, including, but not limited to, the penalties:

:(a) Under § 7206 for fraud and making false statements; and
:(b) Under § 6701 for aiding and abetting an understatement of tax liability in the amount of $1,000 ($10,000 in the case of understatements by corporations) per return on which a credit is claimed in reliance on the certification.

(2) Failure to Make Timely Quarterly Report. If a manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) fails to make a quarterly report in accordance with section 5.05 of this notice and at the time specified in section 6.02 of this notice, the acknowledgment letter issued under section 5.04 of this notice may be withdrawn, and purchasers will not be entitled to rely on the related certification for quarters beginning after the date on which the Service publishes an announcement of the withdrawal (generally, quarters beginning after the due date of the report). If the quarterly report is filed subsequently, the Service may reissue the acknowledgment letter and retract the withdrawal announcement.

==Section 6. TIME AND ADDRESS FOR FILING CERTIFICATION AND QUARTERLY REPORTS==

.01 Time for Filing Certification. In order for a certification under section 5 of this notice to be effective for new qualified plug-in electric drive motor vehicles placed in service during a calendar year, the certification must be received by the Service not later than December 31 of that calendar year.

.02 Time for Filing Quarterly Reports. A report of sales of qualified vehicles during a quarter must be filed with the Service at the address specified in section 6.03 of this notice not later than the last day of the first calendar month following the quarter to which the report relates.

.03 Address for Filing. Certifications and quarterly reports under section 5 of this notice must be sent to:

:Internal Revenue Service
:Industry Director, LMSB, Heavy
:Manufacturing & Transportation
:Metro Park Office Complex — LMSB
:111 Wood Avenue, South
:Iselin, New Jersey 08830

==Section 7. PAPERWORK REDUCTION ACT==

The collection of information contained in this notice has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under control number 1545-2137.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid OMB control number.

The collections of information in this notice are in sections 5 and 6. This information is collected and retained in order to ensure that vehicles meet the requirements for the new qualified plug-in electric drive motor vehicle credit under § 30D. This information will be used to determine whether the vehicle for which the credit is claimed by a taxpayer is property that qualifies for the credit. The collection of information is voluntary to obtain a benefit. The likely respondents are corporations and partnerships.

The estimated total annual reporting burden is 280 hours.

The estimated annual burden per respondent varies from 20 hours to 35 hours, depending on individual circumstances, with an estimated average burden of 24 hours to complete the certification required under this notice. The estimated number of respondents is 12.

The estimated annual frequency of responses is on occasion.

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.

==SECTION 8. DRAFTING INFORMATION==

The principal author of this notice is Patrick S. Kirwan of the Office of Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding this notice, contact Mr. Kirwan at (202) 622-3110 (not a toll-free call).

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Notice 2009-89

Trillium — Sat, 14 Nov 2009 04:09:19 GMT

Summary: add n09-89

{{NtcHeader}}

Internal Revenue Bulletin: TBD

Date TBD 

Part III - Administrative, Procedural, and Miscellaneous

'''New Qualified Plug-in Electric Drive Motor Vehicle Credit '''

'''Notice 2009-89'''

__TOC__

==Section 1. PURPOSE ==

This notice sets forth interim guidance, pending the issuance of regulations,
relating to the new qualified plug-in electric drive motor vehicle credit under § 30D of the
Internal Revenue Code, as in effect for vehicles acquired after December 31, 2009.
Specifically, this notice provides procedures for a vehicle manufacturer (or, in the case
of a foreign vehicle manufacturer, its domestic distributor) to certify to the Internal
Revenue Service (“Service”) both:

(1) That a motor vehicle of a particular make, model, and model year meets
certain requirements that must be satisfied to claim the new qualified plug-in electric
drive motor vehicle credit under § 30D; and

(2) The amount of the credit allowable with respect to that motor vehicle.

This notice also provides guidance to taxpayers who purchase motor vehicles
regarding the conditions under which they may rely on the vehicle manufacturer’s (or, in
the case of a foreign vehicle manufacturer, its domestic distributor’s) certification in
determining whether a credit is allowable with respect to the vehicle and the amount of
the credit. The Service and the Treasury Department expect that the regulations will
incorporate the rules set forth in this notice.

Section 30D originally was enacted in the Energy Improvement and Extension
Act of 2008, Pub. L. 110-343, 122 Stat. 3765. The American Recovery and
Reinvestment Act of 2009, Pub. L. 111-5, 123 Stat. 115 (“the Act”), amended § 30D in
certain material respects, effective for vehicles acquired after December 31, 2009. This
notice provides guidance regarding the credit under § 30D for qualified plug-in electric
drive motor vehicles acquired after December 31, 2009. .All references to § 30D in
subsequent sections of this notice are to the provision as amended by the Act.
Guidance regarding the credit under § 30D for qualified plug-in electric drive motor
vehicles acquired before January 1, 2010, is provided in Notice 2009-54, I.R.B. 2009-26
1124. This notice also amplifies Notice 2009-54 and Notice 2009-58, I.R.B. 2009-30
163 (relating to the plug-in electric vehicle credit under § 30) to provide that a vehicle is
considered “acquired” when title to that vehicle passes under state law.

==Section 2. BACKGROUND ==

Section 30D provides for a credit for certain new qualified plug-in electric drive
motor vehicles. The credit is equal to the sum of: (1) $2,500, plus (2) for a vehicle
which draws propulsion energy from a battery with at least 5 kilowatt hours of capacity,
$417, plus an additional $417 for each kilowatt hour of battery capacity in excess of 5
kilowatt hours. Under § 30D(b)(3), that portion of the credit determined by battery
capacity cannot exceed $5,000. Therefore, the total amount of the credit allowed for a
vehicle is limited to $7,500. The new qualified plug-in electric drive motor vehicle credit
phases out for a manufacturer’s vehicles over the one-year period beginning with the
second calendar quarter after the calendar quarter in which at least 200,000 qualifying
vehicles manufactured by that manufacturer have been sold for use in the United States
(determined on a cumulative basis for sales after December 31, 2009) (“phase-out
period”). Qualifying vehicles manufactured by that manufacturer are eligible for 50
percent of the credit if acquired in the first two quarters of the phase-out period and 25
percent of the credit if acquired in the third or fourth quarter of the phase-out period.
Vehicles manufactured by that manufacturer are not eligible for a credit if acquired after
the phase-out period. After December 31, 2009, a vehicle that qualifies for a credit
under § 30 does not qualify for the credit under § 30D.

==Section 3. SCOPE OF NOTICE ==

The new qualified plug-in electric drive motor vehicle credit determined under this
notice applies to plug-in electric drive motor vehicles that—
:(1) Are placed in service by the taxpayer in a taxable year beginning after December 31, 2009;
:(2) Are acquired by the taxpayer after December 31, 2009; and
:(3) Otherwise meet the requirements of § 30D.

==Section 4. MEANING OF TERMS ==

The following definitions apply for purposes of this notice:

.01 ''In General''. Terms used in this notice and not defined in this section 4 have
the same meaning as when used in § 30D.

.02 ''Clean Air Act Regulations''. The Clean Air Act regulations are the regulations
prescribed by the Administrator of the Environmental Protection Agency for purposes of
the administration of Title II of the Clean Air Act (42 U.S.C. §§ 7521, et. seq.).

.03 ''Battery Capacity''. Battery capacity is the quantity of electricity that a battery
is capable of storing, expressed in kilowatt hours, as measured from a 100 percent state
of charge to a zero percent state of charge.

.04 ''Motor Vehicle''. The term “motor vehicle” means any vehicle that is
manufactured primarily for use on public streets, roads, and highways (not including a
vehicle operated exclusively on a rail or rails) and which has at least 4 wheels. For
purposes of this notice, the term “motor vehicle” does not include a low-speed vehicle
within the meaning of section 571.3 of Title 49 of the Code of Federal Regulations, or a
vehicle that is manufactured primarily for off-road use, such as primarily for use on a
golf course.

.05 ''Manufacturer''. The term “manufacturer” has the meaning given that term in
the Clean Air Act regulations.

.06 ''Model Year''. The term “model year” means the model year determined under
the Clean Air Act regulations (see 40 CFR § 86-082-2).

.07 ''Acquired''. A vehicle is not “acquired” before the date on which title to that
vehicle passes under state law.

==Section 5. MANUFACTURER’S CERTIFICATION AND QUARTERLY REPORTS ==

.01 ''When Certification Permitted''. A vehicle manufacturer (or, in the case of a
foreign vehicle manufacturer, its domestic distributor) may certify to purchasers that a
motor vehicle of a particular make, model, and model year meets all requirements
(other than those listed in section 5.02 of this notice) that must be satisfied to claim the
new qualified plug-in electric drive motor vehicle credit allowable under § 30D with
respect to the vehicle, if the following requirements are met:

:(1) The manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) has submitted to the Service, in accordance with this section 5, a certification with respect to the vehicle and the certification satisfies the requirements of section 5.03 of this notice; and

:(2) The manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) has received an acknowledgment of the certification from the Service and the acknowledgment states that purchasers may rely on the certification.

.02 ''Purchaser’s Reliance''. Except as provided in section 5.07 of this notice, a
purchaser of a motor vehicle may rely on the manufacturer’s (or, in the case of a foreign
vehicle manufacturer, its domestic distributor’s) certification concerning the vehicle and
the amount of the credit allowable with respect to the vehicle (including in cases in
which the certification is received after the purchase of the vehicle). The purchaser may
claim a credit in the certified amount with respect to the vehicle if the following
requirements are satisfied:

:(1) The vehicle is placed in service by the taxpayer in a taxable year beginning after December 31, 2009, and is acquired by the taxpayer after December 31, 2009;
:(2) The original use of the vehicle commences with the taxpayer;
:(3) The vehicle is acquired for use or lease by the taxpayer, and not for resale; and
:(4) The vehicle is used predominantly in the United States.

.03 ''Content of Certification''. The certification must contain the following:

:(1) The name, address, and taxpayer identification number of the certifying entity.
:(2) The make, model, model year, and any other appropriate identifiers of the motor vehicle.
:(3) A statement that the vehicle is made by a manufacturer.
:(4) A statement that the vehicle is treated as a motor vehicle for purposes of Title II of the Clean Air Act.
:(5) The amount of the credit for the vehicle (showing computations).
:(6) The gross vehicle weight rating of the vehicle.
:(7) A statement that the motor vehicle is propelled to a significant extent by an electric motor that draws electricity from a battery that has a capacity of not less than 4 kilowatt hours.
:(8) The number of kilowatt hours if any, in excess of 4 kilowatt hours.
:(9) A statement that the battery is capable of being recharged from an external source of electricity.
:(10) A statement that the vehicle has at least four wheels.
:(11) A statement that the vehicle is not a low-speed vehicle within the meaning of section 571.3 of Title 49 of the Code of Federal Regulations.
:(12) A statement that the vehicle is manufactured primarily for use on public streets, roads and highways.
:(13) A statement that the vehicle is not manufactured primarily for off-road use, such as primarily for use on a golf course.
:(14) A statement that the vehicle complies with the applicable provisions of the Clean Air Act.
:(15) A statement that the vehicle complies with the applicable air quality provisions of state law of each state that has adopted the provisions under a waiver under § 209(b) of the Clean Air Act or a list identifying each state that has adopted applicable air quality provisions with which the vehicle does not comply.
:(16) A description of the motor vehicle safety provisions of 49 U.S.C. §§ 30101 through 30169 applicable to the vehicle and a statement that the vehicle complies with those provisions.
:(17) A declaration, applicable to the certification, statements, and any accompanying documents, signed by a person currently authorized to bind the manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) in these matters, in the following form: “Under penalties of perjury, I declare that I have examined this certification, including accompanying documents, and to the best of my knowledge and belief, the facts presented in support of this certification are true, correct, and complete.”

.04 ''Acknowledgement of Certification''. The Service will review the original signed
certification and issue an acknowledgment letter to the vehicle manufacturer (or, in the
case of a foreign vehicle manufacturer, its domestic distributor) within 30 days of receipt
of the request for certification. This acknowledgment letter will state whether
purchasers may rely on the certification.

.05 ''Quarterly Reporting of Sales of Qualified Vehicles''. A manufacturer (or, in the
case of a foreign vehicle manufacturer, its domestic distributor) that has received an
acknowledgment of its certification from the Service must submit to the Service, in
accordance with section 6 of this notice, a report of the number of qualified plug-in
electric drive motor vehicles sold by the manufacturer (or, in the case of a foreign
vehicle manufacturer, its domestic distributor) to consumers or retail dealers during the
calendar quarter. The quarterly report must contain the following:

:(1) The name, address, and taxpayer identification number of the reporting entity.
:(2) The number of qualified vehicles sold by the reporting entity to consumers or retail dealers during the calendar quarter.
:(3) The make, model, model year, and any other appropriate identifiers of the qualified vehicles sold during the calendar quarter.
:(4) A declaration, applicable to the quarterly report and any accompanying documents, signed by a person currently authorized to bind the manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) in these matters, in the following form: “Under penalties of perjury, I declare that I have examined this report, including accompanying documents, and to the best of my knowledge and belief, the facts presented in support of this report are true, correct, and complete.”

.06 ''Acknowledgment of Quarterly Report''. The Service will review the original
signed quarterly report and issue an acknowledgment letter to the vehicle manufacturer
(or, in the case of a foreign vehicle manufacturer, its domestic distributor) within 30 days
of receipt of the report. This acknowledgment letter will state whether purchasers may
continue to rely on the certification.

.07 ''Effect of Erroneous Certification, Erroneous Quarterly Reports, or Failure to Make Timely Quarterly Reports''.

(1) ''Erroneous Certification or Quarterly Report''. The acknowledgment that the
Service provides for a certification is not a determination that a vehicle qualifies for the
credit, or that the amount of the credit is correct. The Service may, upon examination
(and after any appropriate consultation with the Department of Transportation or the
Environmental Protection Agency), determine that the vehicle is not a new qualified
plug-in electric drive motor vehicle or that the amount of the credit determined by the
manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor)
to be allowable with respect to the vehicle is incorrect. In either event, or in the event
that the manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic
distributor) makes an erroneous quarterly report, the manufacturer’s (or, in the case of a
foreign vehicle manufacturer, its domestic distributor’s) right to provide a certification to
future purchasers of the new qualified plug-in electric drive motor vehicles will be
withdrawn, and purchasers who acquire a vehicle after the date on which the Service
publishes an announcement of the withdrawal may not rely on the certification.
Purchasers may continue to rely on the certification for vehicles they acquired on or
before the date on which the announcement of the withdrawal is published (including in
cases in which the vehicle is not placed in service and the credit is not claimed until
after that date), and the Service will not attempt to collect any understatement of tax
liability attributable to such reliance. Manufacturers (or, in the case of foreign vehicle
manufacturers, their domestic distributors) are reminded that an erroneous certification
or an erroneous quarterly report may result in the imposition of penalties, including, but
not limited to, the penalties:

:(a) Under § 7206 for fraud and making false statements; and
:(b) Under § 6701 for aiding and abetting an understatement of tax liability in the amount of $1,000 ($10,000 in the case of understatements by corporations) per return on which a credit is claimed in reliance on the certification.

(2) ''Failure to Make Timely Quarterly Report.'' If a manufacturer (or, in the case of
a foreign vehicle manufacturer, its domestic distributor) fails to make a quarterly report
in accordance with section 5.05 of this notice and at the time specified in section 6.02 of
this notice, the acknowledgment letter issued under section 5.04 of this notice may be
withdrawn, and purchasers will not be entitled to rely on the related certification for
quarters beginning after the date on which the Service publishes an announcement of
the withdrawal (generally, quarters beginning after the due date of the report). If the
quarterly report is filed subsequently, the Service may reissue the acknowledgment
letter and retract the withdrawal announcement.

==Section 6. TIME AND ADDRESS FOR FILING CERTIFICATION AND QUARTERLY REPORTS ==

.01 ''Time for Filing Certification''. In order for a certification under section 5 of this
notice to be effective for new qualified plug-in electric drive motor vehicles placed in
service during a calendar year, the certification must be received by the Service not
later than December 31 of that calendar year.

.02 ''Time for Filing Quarterly Reports.'' A report of sales of qualified vehicles
during a quarter must be filed with the Service at the address specified in section 6.03
of this notice not later than the last day of the first calendar month following the quarter
to which the report relates.
.03 ''Address for Filing''. Certifications and quarterly reports under section 5 of this
notice must be sent to:
:Internal Revenue Service
:Industry Director, LMSB, Heavy Manufacturing & Transportation
:Metro Park Office Complex – LMSB
:111 Wood Avenue, South
:Iselin, New Jersey 08830

==Section 7. PAPERWORK REDUCTION ACT ==

The collection of information contained in this notice has been reviewed and
approved by the Office of Management and Budget in accordance with the Paperwork
Reduction Act (44 U.S.C. 3507) under control number 1545-2137.

An agency may not conduct or sponsor, and a person is not required to respond
to, a collection of information unless the collection of information displays a valid OMB
control number.

The collections of information in this notice are in sections 5 and 6. This
information is collected and retained in order to ensure that vehicles meet the
requirements for the new qualified plug-in electric drive motor vehicle credit under
§ 30D. This information will be used to determine whether the vehicle for which the
credit is claimed by a taxpayer is property that qualifies for the credit. The collection of
information is voluntary to obtain a benefit. The likely respondents are corporations and
partnerships.

The estimated total annual reporting burden is 280 hours.

The estimated annual burden per respondent varies from 20 hours to 35 hours,
depending on individual circumstances, with an estimated average burden of 24 hours
to complete the certification required under this notice. The estimated number of
respondents is 12.

The estimated annual frequency of responses is on occasion.

Books or records relating to a collection of information must be retained as long
as their contents may become material in the administration of any internal revenue law.
Generally, tax returns and tax return information are confidential, as required by 26
U.S.C. 6103.

==Section 8. DATE OF APPLICABILITY ==

This notice is applicable to plug-in electric drive motor vehicles acquired (within
the meaning of section 4.07 of this Notice) after December 31, 2009.

==Section 9. EFFECT ON OTHER DOCUMENTS ==

Notice 2009-54, 2009-1 C.B. 1124, is amplified by adding the following sentence
to section 4:
:.09 Acquired. A vehicle is not “acquired” before the date on which title to that vehicle passes under state law.

Notice 2009-58, 2009-30 I.R.B. 163, is amplified by adding the following
sentence to section 4:
:.06 Acquired. A vehicle is not “acquired” before the date on which title to that vehicle passes under state law.

Notice 2009-54 is superseded, effective for plug-in electric drive motor vehicles acquired after December 31, 2009.

==Section 10. DRAFTING INFORMATION ==

The principal author of this notice is Patrick S. Kirwan of the Office of Associate
Chief Counsel (Passthroughs & Special Industries). For further information regarding
this notice contact Mr. Kirwan at (202) 622-3110 (not a toll-free call).

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Notice 2009-91

Trillium — Sat, 14 Nov 2009 03:53:37 GMT

Summary: add n09-91 NRA wh from wages

{{NtcHeader}}

Internal Revenue Bulletin: TBD

Date TBD 

Part III - Administrative, Procedural, and Miscellaneous

'''Withholding on Wages of Nonresident Alien Employees Performing Services Within the United States'''

'''Notice 2009-91'''

__TOC__

==I. PURPOSE ==

This notice modifies the rules in [[Notice 2005-76]], 2005-2 C.B. 947, for
determining the amount of income tax employers must withhold under section 3402 of
the Internal Revenue Code (Code) from wages paid for services performed by
nonresident alien employees within the United States. The modification is effective with
respect to wages paid on or after January 1, 2010.

Notice 2005-76 provides rules for determining the amount of withholding on
wages paid to nonresident alien employees. These rules need to be modified to reflect
changes made in the withholding tables as a result of the enactment of section 36A of
the Code (the “Making Work Pay Tax Credit”) in the American Recovery and
Reinvestment Act of 2009 (Public Law No. 111-5) (ARRA). Nonresident alien
individuals are not eligible for the Making Work Pay Tax Credit under section 36A. The
modified rules provide for withholding on the wages of nonresident alien employees that
more closely approximates their income tax liability.

==II. BACKGROUND ==

A. Income Tax Withholding on Wages of Nonresident Alien Employees

Generally, employers are liable for the withholding of income tax on remuneration
for services performed within the United States by a nonresident alien employee.
Section 3402(a)(1) of the Code provides that, except as otherwise provided in section
3402, every employer making a payment of wages shall deduct and withhold from such
wages a tax determined in accordance with tables or computational procedures
prescribed by the Secretary. Section 3402(a)(1) further provides that any tables or
procedures prescribed under section 3402(a)(1) shall be in such form, and provide for
such amounts to be deducted and withheld, as the Secretary determines to be
appropriate to carry out the purposes of chapter 1 (imposition of individual income tax).

Income tax withholding tables in Publication 15 (Circular E), Employer’s Tax
Guide, for use with the percentage and wage bracket methods of withholding, are based
on the assumption that the employee receiving the wages is entitled to a standard
deduction in determining his or her income tax liability. However, in the case of a
nonresident alien individual, section 63(c)(6)(B) provides that the standard deduction
shall be zero. Notice 2005-76 addresses this difference in treatment by directing an
employer to add an amount to the wages of a nonresident alien employee solely for
purposes of calculating the income tax withholding for each payroll period.

B. Making Work Pay Tax Credit

Section 36A, which was added to the Code by the ARRA, provides a credit
against income tax to an eligible individual in an amount equal to the lesser of (1) 6.2
percent of earned income, or (2) $400 ($800 in the case of a joint return). The credit is
reduced or completely eliminated for individuals with modified adjusted gross income
exceeding threshold amounts. Section 36A(d)(1)(A)(i) provides that an eligible
individual for purposes of section 36A does not include a nonresident alien individual.
As currently enacted, the Making Work Pay Tax Credit does not apply to taxable years
beginning after December 31, 2010. See section 36A(e). Under the ARRA, taxpayers’
reduced tax liability under the provision is expeditiously implemented through revised
income tax withholding. See H.R. Conf. Rep. 111-16, 111th Cong., 1st Sess. (2009) at
517. Accordingly, the income tax withholding tables have been revised to take the
Making Work Pay Tax Credit into account in determining the amount of income tax to be
withheld.

C. Reason for Change to Withholding Procedures for Nonresident Alien Employees

The income tax withholding tables reflect two tax benefits for which nonresident
alien employees are not eligible: (1) the standard deduction; and (2) the Making Work
Pay Tax Credit. If adjustments from the generally applicable procedures for using the
income tax withholding tables are not made in determining income tax withholding for
nonresident alien employees, the withholding on the wages of such employees will
generally be less than their tax liability. This notice modifies the rules for employers to
use in calculating income tax withholding on nonresident alien employees to offset the
effects of both the standard deduction and Making Work Pay Tax Credit as assumed
under the withholding tables.

The modification applies only to the procedure used by employers in calculating
income tax withholding on wages paid to nonresident alien employees as set forth in
part III.B. of Notice 2005-76. The requirements in Notice 2005-76 (part III.A.) relating to
the completion of Form W-4, Employee’s Withholding Allowance Certificate, by
nonresident alien employees, continue in effect.

==III. WITHHOLDING RULES THAT WILL BE IN EFFECT FOR NONRESIDENT ALIEN EMPLOYEES ON OR AFTER JANUARY 1, 2010 ==

Beginning with wages paid on or after January 1, 2010, employers are required
to calculate income tax withholding under section 3402 of the Code on wages of
nonresident alien employees by making two modifications rather than the one
modification described in Notice 2005-76 (part III.B). First, employers need to add an
amount to wages before determining withholding under the wage bracket or percentage
method in order to offset the standard deduction built into the withholding tables.
Second, employers need to determine an additional amount of withholding from a
separate table applicable only to nonresident alien employees to offset the effect of the
Making Work Pay Tax Credit built into the withholding tables. The specific steps to be
followed for each of these two modifications will be set forth in Publication 15 and other
IRS forms or publications.

==IV. EFFECT ON OTHER DOCUMENTS ==

Notice 2005-76 is modified for wages paid after December 31, 2009, during any
period when the Making Work Pay Tax Credit provided under section 36A is in effect.

==V. DRAFTING INFORMATION ==

The principal author of this notice is Alfred G. Kelley of the Office of Associate
Chief Counsel (Tax Exempt & Government Entities). For further information regarding
this notice contact Alfred G. Kelley on (202) 622-6040 (not a toll-free call).

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Notice 98-4

Trillium — Wed, 11 Nov 2009 21:19:05 GMT

Summary: add IRB # and date

{{NtcHeader}}

Internal Revenue Bulletin: 1998–2

January 12, 1998

Part III---Administrative, Procedural and Miscellaneous
SIMPLE IRA Plan Guidance

'''Notice 98-4'''

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__TOC__

==PURPOSE ==

This notice modifies and supersedes Notice 97-6, 1997-2
I.R.B. 26, relating to SIMPLE IRA Plans described in
§ 408(p) of the Internal Revenue Code. The questions and
answers contained in this notice reflect technical
corrections made by the Taxpayer Relief Act of 1997, Pub. L.
105-34 ("TRA 97"). This notice also amends the answers to
certain questions in Notice 97-6 in order to reflect the
issuance of Form 5304-SIMPLE (Not Subject to the Designated
Financial Institution Rules) and provides a transition
period for the use of Form 5305-SIMPLE (for Use With a
Designated Financial Institution) for a SIMPLE IRA Plan that
does not use a designated financial institution.

==BACKGROUND ==

Section 1421 of the Small Business Job Protection Act
of 1996, Pub. L. 104-188 ("SBJPA") established a simplified
tax-favored retirement plan for small employers (a "SIMPLE
IRA Plan") under § 408(p) of the Code. Contributions under
a SIMPLE IRA Plan are made to individual retirement accounts
or annuities ("SIMPLE IRAs") that are established pursuant
to the SIMPLE IRA Plan adopted by the employer.

Section 1601(d)(1) of TRA 97 amended § 1421 of SBJPA,
making technical changes to the statutory requirements for
SIMPLE IRA Plans.

Notice 97-6 was issued on December 23, 1996, and
provided guidance, in the form of questions and answers, on
SIMPLE IRA Plans.

On October 31, 1996, the Internal Revenue Service
issued Form 5305-SIMPLE, a model form that may be used by an
employer to establish a SIMPLE IRA Plan with a designated
financial institution, and on December 30, 1996, the Service
issued 5304-SIMPLE, a model form that may be used by an
employer to establish a SIMPLE IRA Plan without using a
designated financial institution. Notice 97-6 contained
instructions for modifying Form 5305-SIMPLE for an employer
that did not want to use a designated financial institution
but that wanted to use a Service-approved model form to
establish a SIMPLE IRA Plan. Form 5304-SIMPLE is now
available for this purpose.

On November 25, 1997, the Department of Labor ("DOL")
issued a final rule, consistent with the statements in Q&A
G-5 of Notice 97-6, amending 29 CFR 2510.3-102, relating to
the definition of "plan assets" under Title I of the
Employee Retirement Income Security Act of 1974 ("ERISA"),
to harmonize those Title I rules with the rules for salary
reduction contributions to SIMPLE IRA Plans under § 408(p)
of the Code.

==CHANGES TO NOTICE 97-6 ==

This notice modifies Q&As B-3, C-1 and H-2 to reflect
technical corrections made by TRA 97; Q&A G5 to reflect the
amendment to the DOL plan asset regulations; and Q&As E-4,
G-1, H-1 and K-3 to reflect the issuance of Form
5304-SIMPLE. A new Q&A, K-4, is added to provide a
transition period for employers using Form 5305-SIMPLE as
modified in accordance with Notice 97-6 for a SIMPLE IRA
Plan that does not use a designated financial institution.
In addition, this notice makes certain stylistic changes to
the Q&As as published in Notice 97-6, including substituting
the term "SIMPLE IRA Plan" for "SIMPLE plan."

==TABLE OF CONTENTS ==

A. SIMPLE IRA PLANS IN GENERAL
B. EMPLOYERS THAT CAN ESTABLISH SIMPLE IRA PLANS
C. EMPLOYEE ELIGIBILITY TO PARTICIPATE IN A SIMPLE IRA PLAN
D. SIMPLE IRA PLAN CONTRIBUTIONS
E. EMPLOYEE ELECTIONS
F. VESTING REQUIREMENTS
G. EMPLOYER ADMINISTRATIVE AND NOTIFICATION REQUIREMENTS
H. TRUSTEE ADMINISTRATIVE REQUIREMENTS
I. TAX TREATMENT OF SIMPLE IRA PLANS
J. EXCEPTION FOR USE OF DESIGNATED FINANCIAL INSTITUTION
K. SIMPLE IRA PLAN ESTABLISHMENT

==QUESTIONS AND ANSWERS ==

===A. SIMPLE IRA PLANS IN GENERAL ===

Q. A-1: What is a SIMPLE IRA Plan?

A. A-1: A SIMPLE IRA Plan is a written arrangement
established under § 408(p) of the Code that provides a
simplified tax-favored retirement plan for small employers.
If an employer establishes a SIMPLE IRA Plan, each employee
may choose whether to have the employer make payments as
contributions under the SIMPLE IRA Plan or to receive these
payments directly in cash. An employer that chooses to
establish a SIMPLE IRA Plan must make either matching
contributions or nonelective contributions. All
contributions under a SIMPLE IRA Plan are made to SIMPLE
IRAs.

Q. A-2: Can contributions made under a SIMPLE IRA Plan
be made to any type of IRA?

A. A-2: Contributions under a SIMPLE IRA Plan may only
be made to a SIMPLE IRA, not to any other type of IRA. A
SIMPLE IRA is an individual retirement account described in
§ 408(a), or an individual retirement annuity described in
§ 408(b), to which the only contributions that can be made
are contributions under a SIMPLE IRA Plan and rollovers or
transfers from another SIMPLE IRA.

Q. A-3: Can a SIMPLE IRA Plan be maintained on a
fiscal year basis?

A. A-3: A SIMPLE IRA Plan may only be maintained on a
calendar year basis. Thus, for example, employer
eligibility to establish a SIMPLE IRA Plan (see Q&As B-1
through B-5) and SIMPLE IRA Plan contributions (see Q&As D-1
through D-6) are determined on a calendar-year basis.

===B. EMPLOYERS THAT CAN ESTABLISH SIMPLE IRA PLANS ===

Q. B-1: Can any employer establish a SIMPLE IRA Plan?

A. B-1: SIMPLE IRA Plans may be established only by
employers that had no more than 100 employees who earned
$5,000 or more in compensation during the preceding calendar
year (the "100-employee limitation"). See Q&As C-4 and C-5
for the definition of compensation. For purposes of the
100-employee limitation, all employees employed at any time
during the calendar year are taken into account, regardless
of whether they are eligible to participate in the SIMPLE
IRA Plan. Thus, employees who are excludable under the
rules of § 410(b)(3) or who have not met the plan's minimum
eligibility requirements must be taken into account.
Employees also include self-employed individuals described
in § 401(c)(1) who received earned income from the employer
during the year.

Q. B-2: Is there a grace period that can be used by an
employer that ceases to satisfy the 100-employee limitation?

A. B-2: An employer that previously maintained a
SIMPLE IRA Plan is treated as satisfying the 100-employee
limitation for the 2 calendar years immediately following
the calendar year for which it last satisfied the
100-employee limitation. However, if the failure to satisfy
the 100-employee limitation is due to an acquisition,
disposition or similar transaction involving the employer,
then the 2-year grace period will apply only in accordance
with rules similar to the rules of § 410(b)(6)(C)(i).

Q. B-3: Can an employer make contributions under a
SIMPLE IRA Plan for a calendar year if it maintains another
qualified plan?

A. B3: Generally, an employer cannot make
contributions under a SIMPLE IRA Plan for a calendar year if
the employer, or a predecessor employer, maintains a
qualified plan (other than the SIMPLE IRA Plan) under which
any of its employees receives an allocation of contributions
(in the case of a defined contribution plan) or has an
increase in a benefit accrued or treated as an accrued
benefit under § 411(d)(6) (in the case of a defined benefit
plan) for any plan year beginning or ending in that calendar
year. In applying these rules, transfers, rollovers or
forfeitures are disregarded, except to the extent
forfeitures replace otherwise required contributions. For
purposes of this Q&A B3, "qualified plan" means a plan,
contract, pension or trust described in § 219(g)(5) and
includes a plan qualified under § 401(a), a qualified
annuity plan described in § 403(a), an annuity contract
described in § 403(b), a plan established for employees of a
State, a political subdivision or by an agency or
instrumentality of any State or political subdivision (other
than an eligible deferred compensation plan described in
§ 457(b)), a simplified employee pension ("SEP") described
in § 408(k), a trust described in § 501(c)(18) and a SIMPLE
IRA Plan described in § 408(p).

However, an employer can make contributions under a
SIMPLE IRA Plan for a calendar year even though it maintains
another qualified plan if either:
:(1) The other qualified plan maintained by the employer covers only employees described in paragraph (1) of Q&A C1 (i.e., employees covered under a collective bargaining agreement for which retirement benefits were the subject of good faith bargaining) and the SIMPLE IRA Plan excludes these employees.
:(2) The other qualified plan is maintained by the employer during the calendar year in which an acquisition, disposition or similar transaction occurs (or the following calendar year); the requirements of this Q&A B-3 would have been satisfied if the transaction had not occurred (and thus the employer maintaining the SIMPLE IRA Plan had remained a separate employer); and only individuals who would have been employees of that "separate" employer are eligible to participate in the SIMPLE IRA Plan.

Q. B-4: Are tax-exempt employers and governmental
entities permitted to maintain SIMPLE IRA Plans?

A. B-4: Yes. Excludable contributions may be made to
the SIMPLE IRA of employees of tax-exempt employers and
governmental entities on the same basis as contributions may
be made to employees of other eligible employers.

Q. B-5: Do the employer aggregation and leased
employee rules apply for purposes of the SIMPLE IRA Plan
rules under § 408(p)?

A. B-5: For purposes of applying the SIMPLE IRA Plan
rules under § 408(p), certain related employers (trades or
businesses under common control) are treated as a single
employer. These related employers include controlled groups
of corporations under § 414(b), partnerships or sole
proprietorships under common control under § 414(c), and
affiliated service groups under § 414(m). In addition,
leased employees described in § 414(n) are treated as
employed by the employer.

:Example: Individual P owns Business A, a computer rental agency, that has 80 employees who received more than $5,000 in compensation in 1996. Individual P also owns Business B, which repairs computers and has 60 employees who received more than $5,000 in compensation in 1996. Individual P is the sole proprietor of both businesses. Section 414(c) provides that the employees of partnerships and sole proprietorships that are under common control are treated as employees of a single employer. Thus, for purposes of the SIMPLE IRA Plan rules, all 140 employees are treated as employed by Individual P. Therefore, neither Business A nor Business B is eligible to establish a SIMPLE IRA Plan for 1997.

===C. EMPLOYEE ELIGIBILITY TO PARTICIPATE IN A SIMPLE IRA PLAN ===

Q. C-1: Which employees of an employer must be
eligible to participate under the SIMPLE IRA Plan?

A. C-1: If an employer establishes a SIMPLE IRA Plan,
all employees of the employer who received at least $5,000
in compensation from the employer during any 2 preceding
calendar years (whether or not consecutive) and who are
reasonably expected to receive at least $5,000 in
compensation during the calendar year, must be eligible to
participate in the SIMPLE IRA Plan for the calendar year.
An employer, at its option, may exclude from
eligibility employees described in § 410(b)(3). These
employees are:
:(1) Employees who are included in a unit of employees covered by an agreement that the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers, if there is evidence that retirement benefits were the subject of good faith bargaining between such employee representatives and such employer or employers;
:(2) In the case of a trust established or maintained pursuant to an agreement that the Secretary of Labor finds to be a collective bargaining agreement between air pilots represented in accordance with Title II of the Railway Labor Act and one or more employees, all employees not covered by that agreement; and
:(3) Employees who are nonresident aliens and who received no earned income (within the meaning of § 911(d)(2)) from the employer that constitutes income from sources within the United States (within the meaning of § 861(a)(3)).

Moreover, during the calendar year in which an
acquisition, disposition or similar transaction occurs (or
the following calendar year), an employer may exclude from
eligibility all of the employees who would not have been
eligible if the transaction had not occurred (and thus the
employer maintaining the SIMPLE IRA Plan had remained a
separate employer). See paragraph (2) of Q&A B-3 for
circumstances in which exclusion of these employees would be
required.

As noted in Q&A B-5, the employer aggregation and
leased employee rules apply for purposes of § 408(p). Thus,
for example, if two related employers must be aggregated
under the rules of § 414(b), all employees of either
employer who satisfy the eligibility criteria must be
allowed to participate in the SIMPLE IRA Plan.

Q. C-2: May an employer impose less restrictive
eligibility requirements?

A. C-2: An employer may impose less restrictive
eligibility requirements by eliminating or reducing the
prior year compensation requirements, the current year
compensation requirements, or both, under its SIMPLE IRA
Plan. For example, the employer could allow participation
for employees who received $3,000 in compensation during any
preceding calendar year. However, the employer cannot
impose any other conditions on participating in a SIMPLE IRA
Plan.

Q. C-3: May an employee participate in a SIMPLE IRA
Plan if he or she also participates in a plan of a different
employer for the same year?

A. C-3: An employee may participate in a SIMPLE IRA
Plan even if he or she also participates in a plan of a
different employer for the same year. However, the
employee's salary reduction contributions are subject to the
limitations of § 402(g), which provides an aggregate limit
on the exclusion for elective deferrals for any individual.
Similarly, an employee who participates in a SIMPLE IRA Plan
and an eligible deferred compensation plan described in
§ 457(b) is subject to the limitations described in
§ 457(c). An employer that establishes a SIMPLE IRA Plan is
not responsible for monitoring compliance with either of
these limitations.

Q. C-4: What definition of compensation applies for
purposes of the SIMPLE IRA Plan rules in the case of an
individual who is not a self-employed individual?

A. C-4: For purposes of the SIMPLE IRA Plan rules, in
the case of an individual who is not a self-employed
individual, compensation means the amount described in
§ 6051(a)(3) (wages, tips, and other compensation from the
employer subject to income tax withholding under § 3401(a)),
and amounts described in § 6051(a)(8), including elective
contributions made under a SIMPLE IRA Plan, and compensation
deferred under a § 457 plan. For purposes of applying the
100-employee limitation, and in determining whether an
employee is eligible to participate in a SIMPLE IRA Plan
(i.e., whether the employee had $5,000 in compensation for
any 2 preceding years), an employee's compensation also
includes the employee's elective deferrals under a § 401(k)
plan, a salary reduction SEP and a § 403(b) annuity
contract.

Q. C-5: What definition of compensation applies for
purposes of the SIMPLE IRA Plan rules in the case of a
self-employed individual?

A. C-5: For purposes of the SIMPLE IRA Plan rules, in
the case of a self-employed individual, compensation means
net earnings from self-employment determined under
§ 1402(a), prior to subtracting any contributions made under
the SIMPLE IRA Plan on behalf of the individual.

===D. SIMPLE IRA PLAN CONTRIBUTIONS ===

Q. D-1: What contributions must an employer make under
a SIMPLE IRA Plan?

A. D-1: If an employer establishes a SIMPLE IRA Plan,
it must make salary reduction contributions, as described in
Q&A D-2, to the extent elected by employees. In addition,
the employer must make employer matching contributions, as
described in Q&As D-4 and D-5, or employer nonelective
contributions, as described in Q&A D-6. These are the only
contributions that may be made under a SIMPLE IRA Plan.

Q. D-2: What is a salary reduction contribution?

A. D-2: A salary reduction contribution is a
contribution made pursuant to an employee's election to have
an amount contributed to his or her SIMPLE IRA, rather than
have the amount paid directly to the employee in cash. An
employee must be permitted to elect to have salary reduction
contributions made at the level specified by the employee,
expressed as a percentage of compensation for the year.
Additionally, an employer may permit an employee to express
the level of salary reduction contributions as a specific
dollar amount. An employer may not place any restrictions
on the amount of an employee’s salary reduction
contributions (e.g., by limiting the contribution
percentage), except to the extent needed to comply with the
annual limit on the amount of salary reduction contributions
described in Q&A D-3.

Q. D-3: What is the annual limit on the amount of
salary reduction contributions under a SIMPLE IRA Plan?

A. D-3: For 1997 (and for 1998), the maximum annual
amount of salary reduction contributions that can be made on
behalf of any employee under a SIMPLE IRA Plan is $6,000.
This amount will be adjusted by the Service to reflect any
changes in the cost of living.

Q. D-4: What employer matching contribution is
generally required under a SIMPLE IRA Plan?

A. D-4: Under a SIMPLE IRA Plan, an employer is
generally required to make a contribution on behalf of each
eligible employee in an amount equal to the employee’s
salary reduction contributions, up to a limit of 3 percent
of the employee’s compensation for the entire calendar year.

Q. D-5: Can the 3-percent limit on matching
contributions be reduced?

A. D-5: The 3-percent limit on matching contributions
is permitted to be reduced for a calendar year at the
election of the employer, but only if:
:(1) The limit is not reduced below 1 percent;
:(2) The limit is not reduced for more than 2 years out of the 5-year period that ends with (and includes) the year for which the election is effective; and
:(3) Employees are notified of the reduced limit within a reasonable period of time before the 60-day election period during which employees can enter into salary reduction agreements. See Q&A E-1.

For purposes of applying the rule described in
paragraph (2) of this Q&A D-5, in determining whether the
limit was reduced below 3 percent for a year, any year
before the first year in which an employer (or a predecessor
employer) maintains a SIMPLE IRA Plan will be treated as a
year for which the limit was 3 percent. If an employer
chooses to make nonelective contributions for a year (see
Q&A D-6), that year also will be treated as a year for which
the limit was 3 percent.

Q. D-6: May an employer make nonelective contributions
instead of matching contributions?

A. D-6: As an alternative to making matching
contributions under a SIMPLE IRA Plan (as described in Q&A
D-4 and D-5), an employer may make nonelective contributions
equal to 2 percent of each eligible employee’s compensation
for the entire calendar year. The employer’s nonelective
contributions must be made for each eligible employee
regardless of whether the employee elects to make salary
reduction contributions for the calendar year. The employer
may, but is not required to, limit nonelective contributions
to eligible employees who have at least $5,000 (or some
lower amount selected by the employer) of compensation for
the year.

For purposes of the 2-percent nonelective contribution,
the compensation taken into account must be limited to the
amount of compensation that may be taken into account under
§ 401(a)(17) for the year. The § 401(a)(17) limit for 1997
(and for 1998) is $160,000. This amount will be adjusted by
the Service for subsequent years to reflect changes in the
cost of living.

An employer may substitute the 2-percent nonelective
contribution for the matching contribution for a year, only
if:
:(1) Eligible employees are notified that a 2-percent nonelective contribution will be made instead of a matching contribution; and
:(2) This notice is provided within a reasonable period of time before the 60-day election period during which employees can enter into salary reduction agreements. See Q&A E-1.

===E. EMPLOYEE ELECTIONS ===

Q. E-1: When must an employee be given the right to
enter into a salary reduction agreement?

A. E-1: During the 60-day period immediately preceding
January 1 of a calendar year (i.e., November 2 to December
31 of the preceding calendar year), an eligible employee
must be given the right to enter into a salary reduction
agreement for the calendar year, or to modify a prior
agreement (including reducing the amount subject to this
agreement to $0). However, for the year in which the
employee becomes eligible to make salary reduction
contributions, the period during which the employee may
enter into a salary reduction agreement or modify a prior
agreement is a 60-day period that includes either the date
the employee becomes eligible or the day before that date.
For example, if an employer establishes a SIMPLE IRA Plan
effective as of July 1, 1997, each eligible employee becomes
eligible to make salary reduction contributions on that date
and the 60-day period must begin no later than July 1 and
cannot end before June 30, 1997.

During these 60-day periods, employees have the right
to modify their salary reduction agreements without
restrictions. In addition, for the year in which an
employee becomes eligible to make salary reduction
contributions, the employee must be able to commence these
contributions as soon as the employee becomes eligible,
regardless of whether the 60-day period has ended.

Q. E-2: Can a SIMPLE IRA Plan provide additional or
longer election periods?

A. E-2: Nothing precludes a SIMPLE IRA Plan from
providing additional or longer periods for permitting
employees to enter into salary reduction agreements or to
modify prior agreements. For example, a SIMPLE IRA Plan can
provide a 90-day election period instead of the 60-day
period described in Q&A E-1. Similarly, in addition to the
60-day period described in Q&A E-1, a SIMPLE IRA Plan can
provide quarterly election periods during the 30 days before
each calendar quarter.

Q. E-3: Does an employee have the right to terminate a
salary reduction agreement outside a SIMPLE IRA Plan’s
normal election period?

A. E-3: An employee must be given the right to
terminate a salary reduction agreement for a calendar year
at any time during the year. A SIMPLE IRA Plan may provide
that an employee who terminates a salary reduction agreement
at any time other than the periods described in Q&A E-1 or
E-2 is not eligible to resume participation until the
beginning of the next calendar year.

Q. E4: Must an employer allow an employee to select
the financial institution to which the employer will make
all SIMPLE IRA Plan contributions on behalf of the employee?

A. E4: Generally, under § 408(p), an employer must
permit an employee to select the financial institution for
the SIMPLE IRA to which the employer will make all
contributions on behalf of the employee. The employee must
communicate to the employer the name of the financial
institution selected and any additional information
necessary to facilitate transmittal of the contribution to
that institution. The Model Salary Reduction Agreement on
page 3 of Form 5304-SIMPLE can be used for this purpose.
Alternatively, under the exception described in Q&A J1, an
employer may require that all contributions on behalf of
employees be made to a specified designated financial
institution.

===F. VESTING REQUIREMENTS ===

Q. F-1: Must contributions under a SIMPLE IRA Plan be
nonforfeitable?

A. F-1: Yes. All contributions under a SIMPLE IRA
Plan must be fully vested and nonforfeitable when made.

Q. F-2: May amounts held in a SIMPLE IRA be withdrawn
at any time?

A. F-2: Yes. An employer may not require an employee
to retain any portion of the contributions in his or her
SIMPLE IRA or otherwise impose any withdrawal restrictions.

===G. EMPLOYER ADMINISTRATIVE AND NOTIFICATION REQUIREMENTS ===

Q. G1: What notification requirements apply to
employers?

A. G1: An employer must notify each employee,
immediately before the employee’s 60-day election period
described in Q&A E1, of the employee’s opportunity to enter
into a salary reduction agreement or to modify a prior
agreement. If applicable, this notification must disclose
an employee’s ability to select the financial institution
that will serve as the trustee of the employee’s SIMPLE IRA
as described in Q&A E4. In the case of a SIMPLE IRA Plan
established using Form 5304SIMPLE (Not Subject to the
Designated Financial Institution Rules), the employer may
use the Model Notification to Eligible Employees on page 3
of the form to disclose to each employee the employee’s
right to select the financial institution that will serve as
the trustee of the employee’s SIMPLE IRA as described in Q&A
E4. The notification must also include the summary
description described in Q&A H1. In the case of a SIMPLE
IRA Plan established using Form 5304SIMPLE (Not Subject to
the Designated Financial Institution Rules) or Form
5305SIMPLE (for Use With a Designated Financial
Institution), the summary description requirement may be
satisfied by providing a completed copy of pages 1 and 2 of
the form that reflects the terms of the employer’s plan
(including the materials provided by the trustee for
completion of Article VI).

Q. G2: May the notifications regarding a reduced
matching contribution (described in Q&A D5) and a
nonelective contribution in lieu of a matching contribution
(described in Q&A D6) be provided at the same time as the
notification of an employee’s opportunity to enter into a
salary reduction agreement and the summary description?

A. G2: Yes. An employer is deemed to provide the
notification regarding a reduced matching contribution or a
nonelective contribution in lieu of a matching contribution
within a reasonable period of time before the 60day
election period if, immediately before the 60day election
period, this notification is included with the notification
of an employee’s opportunity to enter into a salary
reduction agreement.

Q. G3: What reporting penalties under the Code apply
if an employer fails to provide one or more of the required
notices?

A. G3: If the employer fails to provide one or more
of the required notices described in Q&A G1, the employer
will be liable, under the Code, for a penalty of $50 per day
until the notices are provided. If the employer shows that
the failure was due to reasonable cause, the penalty will
not be imposed. To the extent that each employee is
permitted to select the trustee for his or her SIMPLE IRA
pursuant to Q&A E4, and is so notified in accordance with
Q&A G1, and the information with respect to the trustee
(the name and address of the trustee and its withdrawal
procedures) is not available at the time the employer is
required to provide the summary description, the employer is
deemed to have shown reasonable cause for failure to provide
this information to eligible employees, but only if the
employer sees to it that this information is provided to the
employee as soon as administratively feasible once the
trustee has been selected.

Q. G4: What if an eligible employee is unwilling or
unable to establish a SIMPLE IRA?

A. G4: If an eligible employee who is entitled to a
contribution under a SIMPLE IRA Plan is unwilling or unable
to establish a SIMPLE IRA with any financial institution
prior to the date on which the contribution is required to
be made to the SIMPLE IRA of the employee under Q&A G5 or
G6, an employer may execute the necessary documents to
establish a SIMPLE IRA on the employee’s behalf with a
financial institution selected by the employer.

Q. G5: When must an employer make salary reduction
contributions under a SIMPLE IRA Plan?

A. G5: The employer must make salary reduction
contributions to the financial institution maintaining the
SIMPLE IRA no later than the close of the 30day period
following the last day of the month in which amounts would
otherwise have been payable to the employee in cash. The
Department of Labor has indicated that most SIMPLE IRA Plans
are also subject to Title I of ERISA, and under Department
of Labor regulations, at 29 CFR 2510.3-102, salary reduction
contributions to these plans must be made to the SIMPLE IRA
as of the earliest date on which the contributions can
reasonably be segregated from the employer’s general assets,
but in no event later than the 30day deadline described
above.

Q. G6: When must an employer make matching and
nonelective contributions under a SIMPLE IRA Plan?

A. G6: Matching and nonelective employer
contributions must be made to the financial institution
maintaining the SIMPLE IRA no later than the due date for
filing the employer’s income tax return, including
extensions, for the taxable year that includes the last day
of the calendar year for which the contributions are made.

===H. TRUSTEE ADMINISTRATIVE REQUIREMENTS ===

Q. H1: What information must a SIMPLE IRA trustee
provide to an employer?

A. H1: (1) Summary description. Each year, a SIMPLE
IRA trustee must provide the employer sponsoring the SIMPLE
IRA Plan with a summary description containing the following
information:
:(a) The name and address of the employer and the trustee.
:(b) The requirements for eligibility for participation.
:(c) The benefits provided with respect to the arrangement.
:(d) The time and method of making employee elections with respect to the arrangement.
:(e) The procedures for, and effects of, withdrawals (including rollovers) from the arrangement.

(2) Timing. Each trustee must provide the summary
description to the employer early enough to allow the
employer to meet its notification obligation described in
Q&A G1. However, a trustee is not required to provide the
summary description prior to agreeing to be a trustee of a
SIMPLE IRA under the SIMPLE IRA Plan.

(3) Penalties. Each trustee that fails to provide the
employer with one or more summary descriptions incurs a $50
penalty, under § 6693(c) of the Code, for each day the
failures continue, unless the trustee shows that the
failures are due to reasonable cause. To the extent that
the employer or a trustee provides the information described
in paragraphs (1)(a) through (e) of this Q&A H1 within the
time period prescribed in Q&A G1 to the employee for whom
the SIMPLE IRA is established, the trustee of that SIMPLE
IRA is deemed to have shown reasonable cause for failure to
provide that information to the employer. For example, if,
in accordance with Q&A G1, an employer who uses a
designated financial institution provides, to all eligible
employees in a SIMPLE IRA Plan, its name and address, the
information described in paragraphs (1)(a) through (d) of
this Q&A H1, and the effects of withdrawal, and the trustee
provides its name and address and its procedures for
withdrawal to each eligible employee for whom a SIMPLE IRA
is established with the trustee under the SIMPLE IRA Plan,
the trustee will be deemed to have shown reasonable cause
for failing to provide the employer the information
described in paragraphs (1)(a) through (e) of this Q&A H1.

(4) Use of model forms as the summary description. In
the case of a SIMPLE IRA Plan established using Form
5304SIMPLE (Not Subject to the Designated Financial
Institution Rules) or Form 5305SIMPLE (for Use With a
Designated Financial Institution), a trustee may satisfy
this obligation by providing an employer (and/or the
employee in the case of Form 5304SIMPLE) with a current
copy of Form 5304SIMPLE or Form 5305SIMPLE, the
instructions, the information required for completion of
Article VI, and the name and address of the financial
institution. The trustee should provide guidance to the
employer (and the employee, if Form 5304-SIMPLE is provided
directly to the employee) concerning the need for the
employer to complete the first two pages of Form 5304SIMPLE
or Form 5305SIMPLE in accordance with its plan's terms and
to distribute completed copies to eligible employees.

(5) Transfer SIMPLE IRAs. The trustee of a transfer
SIMPLE IRA is not required to provide the summary
description described in the preceding paragraph. A SIMPLE
IRA is a transfer SIMPLE IRA if it is not a SIMPLE IRA to
which the employer has made contributions under the SIMPLE
IRA Plan.

Q. H2: What information must a SIMPLE IRA trustee
provide to participants in the SIMPLE IRA Plan?

A. H2: Within 31 days after the close of each
calendar year, a SIMPLE IRA trustee must provide each
individual on whose behalf an account is maintained with a
statement of the individual’s account balance as of the
close of that calendar year and the account activity during
that calendar year. A trustee who fails to provide
individuals with this statement incurs a $50 penalty, under
the Code, for each day the failure continues, unless the
trustee shows that the failure is due to reasonable cause.
The trustee must also provide any other information required
to be furnished to IRA holders (e.g., disclosure statements
for individual retirement plans as referred to in § 1.4086
of the regulations).

Q. H3: What information must a SIMPLE IRA trustee
provide to the Service?

A. H3: Section 408(i) requires the trustee of an
individual retirement account to make reports regarding
these accounts to the Service. Form 5498, Individual
Retirement Arrangement Information, has been modified to
require that the amount of contributions to a SIMPLE IRA,
rollover contributions, and the fair market value of the
account be reported, and that contributions to a SIMPLE IRA
be identified as such. A trustee who fails to file these
reports incurs a $50 penalty under the Code for each
failure, unless it is shown that the failure is due to
reasonable cause.

Q. H4: Are distributions from a SIMPLE IRA required
to be reported on Form 1099R?

A. H4: Pursuant to § 6047 of the Code and § 35.34051
of the regulations, the payor of a designated distribution
from an IRA must report the distribution on Form 1099R. A
distribution from a SIMPLE IRA is a designated distribution
from an IRA and thus must be reported on Form 1099R. The
Service has revised Form 1099R, Distributions From
Pensions, Annuities, Retirement or Profit-sharing Plans,
IRAs, Insurance Contracts, Etc., to reflect the requirements
that apply to SIMPLE IRAs. The penalty, under the Code, for
failure to report a designated distribution from an IRA
(including a SIMPLE IRA) is determined under sections
6721-6724.

Q. H5: Is a SIMPLE IRA trustee responsible for
reporting whether a distribution to a participant occurred
during the 2-year period described in Q&A I2?

A. H5: Yes. A SIMPLE IRA trustee is required to
report on Form 1099R whether a distribution to a
participant occurred during the 2-year period described in
Q&A I2. A trustee is permitted to prepare this report on
the basis of its own records with respect to the SIMPLE IRA
account. A trustee may, but is not required to, take into
account other adequately substantiated information regarding
the date on which an individual first participated in any
SIMPLE IRA Plan maintained by the individual’s employer.
See Q&A I2 on the effect of distributions within this
2-year period.

===I. TAX TREATMENT OF SIMPLE IRA PLANS ===

Q. I1: What are the tax consequences of SIMPLE IRA
Plan contributions?

A. I1: Contributions to a SIMPLE IRA are excludable
from federal income tax and not subject to federal income
tax withholding. Salary reduction contributions to a SIMPLE
IRA are subject to tax under the Federal Insurance
Contributions Act ("FICA"), the Federal Unemployment Tax Act
("FUTA"), and the Railroad Retirement Act ("RRTA"), and must
be reported on Form W2, Wage and Tax Statement. Matching
and nonelective contributions to a SIMPLE IRA are not
subject to FICA, FUTA, or RRTA taxes, and are not required
to be reported on Form W2.

Q. I2: What are the tax consequences when amounts are
distributed from a SIMPLE IRA?

A. I2: Generally, the same tax results apply to
distributions from a SIMPLE IRA as to distributions from a
regular IRA (i.e., an IRA described in § 408(a) or (b)).
However, a special rule applies to a payment or distribution
received from a SIMPLE IRA during the 2-year period
beginning on the date on which the individual first
participated in any SIMPLE IRA Plan maintained by the
individual's employer (the "2-year period").

Under this special rule, if the additional income tax
on early distributions under § 72(t) applies to a
distribution within this 2-year period, § 72(t)(6) provides
that the rate of additional tax under this special rule is
increased from 10 percent to 25 percent. If one of the
exceptions to application of the tax under § 72(t) applies
(e.g., for amounts paid after age 59 1/2, after death, or as
part of a series of substantially equal payments), the
exception also applies to distributions within the 2-year
period and the 25-percent additional tax does not apply.

Q. I3: Are there any special rollover rules that
apply to a distribution from a SIMPLE IRA?

A. I3: Section 408(d)(3)(G) provides that the
rollover provisions of § 408(d)(3) apply to a distribution
from a SIMPLE IRA during the 2-year period described in Q&A
I2 only if the distribution is paid into another SIMPLE
IRA. Thus, a distribution from a SIMPLE IRA during that
2-year period qualifies as a rollover contribution (and thus
is not includable in gross income) only if the distribution
is paid into another SIMPLE IRA and satisfies the other
requirements of § 408(d)(3) for treatment as a rollover
contribution.

Q. I4: Can an amount be transferred from a SIMPLE IRA
to another IRA in a tax-free trustee-to-trustee transfer?

A. I4: During the 2-year period described in Q&A I2,
an amount in a SIMPLE IRA can be transferred to another
SIMPLE IRA in a tax-free trustee-to-trustee transfer. If,
during this 2-year period, an amount is paid from a SIMPLE
IRA directly to the trustee of an IRA that is not a SIMPLE
IRA, the payment is neither a tax-free trustee-to-trustee
transfer nor a rollover contribution; the payment is a
distribution from the SIMPLE IRA and a contribution to the
other IRA that does not qualify as a rollover contribution.
After the expiration of the 2-year period, an amount in a
SIMPLE IRA can be transferred in a tax-free
trustee-to-trustee transfer to an IRA that is not a SIMPLE
IRA.

Q. I5: When does the 2-year period described in Q&A
I2 begin?

A. I5: The 2-year period described in Q&A I2 begins
on the first day on which contributions made by the
individual's employer are deposited in the individual's
SIMPLE IRA.

Q. I6: Do the qualification rules of § 401(a) apply
to contributions under a SIMPLE IRA Plan?

A. I6: None of the qualification rules of § 401(a)
apply to SIMPLE IRA Plans. For example, the § 415 and 416
rules do not apply to contributions under a SIMPLE IRA Plan.
Similarly, the § 401(a)(17) limit does not apply to salary
reduction contributions and matching contributions.
However, as noted in Q&A D6, the amount of compensation
that may be taken into account for purposes of the 2percent
nonelective contribution is limited to the amount that may
be taken into account under § 401(a)(17) for the year.

Q. I7: What rules apply to an employer's ability to
deduct contributions under a SIMPLE IRA Plan?

A. I7: Pursuant to § 404(m), contributions under a
SIMPLE IRA Plan are deductible in the taxable year of the
employer with or within which the calendar year for which
contributions were made ends (without regard to the
limitations of § 404(a)). For example, if an employer has a
June 30 taxable year end, contributions under the SIMPLE IRA
Plan for the calendar year 1997 (including contributions
made in 1997 before June 30, 1997) are deductible in the
taxable year ending June 30, 1998. Contributions will be
treated as made for a particular taxable year if they are
made on account of that taxable year and are made by the due
date (including extensions) prescribed by law for filing the
return for the taxable year.

===J. EXCEPTION FOR USE OF DESIGNATED FINANCIAL INSTITUTION ===

Q. J1: Can an employer designate a particular
financial institution to which all contributions under the
SIMPLE IRA Plan will be made?

A. J1: Yes. In accordance with § 408(p)(7), instead
of making SIMPLE IRA Plan contributions to the financial
institution selected by each eligible employee (see Q&A
E4), an employer may require that all contributions on
behalf of all eligible employees under the SIMPLE IRA Plan
be made to SIMPLE IRAs at a particular financial institution
if the following requirements are met: (1) the employer and
the financial institution agree that the financial
institution will be a designated financial institution under
§ 408(p)(7) ("DFI") for the SIMPLE IRA Plan; (2) the
financial institution agrees that, if a participant so
requests, the participant's balance will be transferred
without cost or penalty to another SIMPLE IRA (or, after the
2-year period described in Q&A I2, to any IRA) at a
financial institution selected by the participant; and (3)
each participant is given written notification describing
the procedures under which, if a participant so requests,
the participant's balance will be transferred without cost
or penalty to another SIMPLE IRA (or, after the 2-year
period described in Q&A I2, to any IRA) at a financial
institution selected by the participant.

:This Q&A J1 is illustrated by the following examples:

:Example 1: A representative of Financial Institution L approaches Employer B concerning the establishment of a SIMPLE IRA Plan. Employer B agrees to establish a SIMPLE IRA Plan for its eligible employees. Employer B would prefer to avoid writing checks to more than one financial institution on behalf of employees, and is interested in making all contributions under the SIMPLE IRA Plan to a single financial institution. Employer B and Financial Institution L agree that Financial Institution L will be a DFI and Financial Institution L agrees that, if a participant so requests, it will transfer the participant's balance, without cost or penalty, to another SIMPLE IRA (or, after the 2-year period described in Q&A I2, to any IRA) at a financial institution selected by the participant. A SIMPLE IRA is established for each participating employee of Employer B at Financial Institution L. Each participant is provided with a written description of how and when the participant may direct that the participant’s balance attributable to contributions made to Financial Institution L be transferred without cost or penalty to a SIMPLE IRA (or, after the 2-year period described in Q&A I2, to any IRA) at another financial institution selected by the participant. Financial Institution L is a DFI, and Employer B may require that all contributions on behalf of all eligible employees be made to SIMPLE IRAs at Financial Institution L.

:Example 2: A representative of Financial Institution M approaches Employer C concerning the establishment of a SIMPLE IRA Plan. Employer C invites Financial Institution M to make a presentation on its investment options for SIMPLE IRAs to Employer C’s employees. Each eligible employee receives notification that the employer must permit the employee to select which financial institution will serve as the trustee of the employee’s SIMPLE IRA (see Q&A G1). All eligible employees of Employer C voluntarily select Financial Institution M to serve as the trustee of the SIMPLE IRAs to which Employer C will make all contributions on behalf of the employees. Financial Institution M is not a DFI merely because all eligible employees of Employer C selected Financial Institution M to serve as the trustee of their SIMPLE IRAs and Employer C consequently makes all contributions to Financial Institution M. Therefore, Financial Institution M is not required to transfer SIMPLE IRA balances without cost or penalty.

Example 3: Assume the same facts as Example 2, except that Employee X and Employee Y, who made salary reduction elections, failed to establish SIMPLE IRAs to receive SIMPLE IRA Plan contributions on their behalf before the first date on which Employer C is required to make a contribution to their SIMPLE IRAs. Employer C establishes SIMPLE IRAs at Financial Institution M for these employees and contributes the amount required to their accounts. Financial Institution M is not a DFI merely because Employer C establishes SIMPLE IRAs on behalf of Employee X and Employee Y while all other employees voluntarily select Financial Institution M to serve as the trustee of the SIMPLE IRAs to which Employer C will make contributions on their behalf.

Q. J2: May the time and manner in which a participant
may transfer his or her balance without cost or penalty be
limited without violating the requirements of § 408(p)(7)?

A. J2: Yes. Section 408(p)(7) will not be violated
merely because a participant is given only a reasonable
period of time each year in which to transfer his or her
balance without cost or penalty. A participant will be
deemed to have been given a reasonable period of time in
which to transfer his or her balance without cost or penalty
if, for each calendar year, the participant has until the
end of the 60-day period described in Q&A E1 to request to
transfer, without cost or penalty, his or her balance
attributable to SIMPLE IRA Plan contributions for the
calendar year following that 60day period (or, for the year
in which an employee becomes eligible to make salary
reduction contributions, for the balance of that year) and
subsequent calendar years.

If the time or manner in which a participant may
transfer his or her balance without cost or penalty is
limited, any such limitation must be disclosed as part of
the written notification described in Q&A J1. In the case
of a SIMPLE IRA Plan established using Form 5305SIMPLE, if
the summary description requirement is being satisfied by
providing a completed copy of pages one and two of Form
5305SIMPLE, Article VI (Procedures for Withdrawal) must
contain a clear explanation of any such limitation.

:This Q&A J2 is illustrated by the following examples:

:Example 1: Employer A first establishes a SIMPLE IRA Plan effective January 1, 1998, and intends to make all contributions to Financial Institution M, which has agreed to serve as a DFI. For the 1998 calendar year, Employer A provides the 60-day election period described in Q&A E1 beginning November 2, 1997, and notifies each participant that he or she may request that his or her balance attributable to future contributions be transferred from Financial Institution M to a SIMPLE IRA at a financial institution that the participant selects. The notification states that the transfer will be made without cost or penalty if the participant contacts Financial Institution M prior to January 1, 1998. For the 1998 calendar year, the requirements of § 408(p)(7) will not be violated merely because participants are given only a 60-day period in which to request to transfer their balances without cost or penalty.

:Example 2: Assume the same facts as Example 1.
Participant X does not request a transfer of her balance by December 31, 1997, but requests a transfer of her current balance to another SIMPLE IRA on July 1, 1998. Participant X's current balance would not be required to be transferred without cost or penalty because Participant X did not request such a transfer prior to January 1, 1998. However, during the 60-day period preceding the 1999 calendar year, Participant X may request a transfer, without cost or penalty, of her balance attributable to contributions made for the 1999 calendar year and, if she so elects, for all future calendar years (but not her balance attributable to contributions for the 1998 calendar year).

Example 3: Assume the same facts as Example 1. Under the terms of the SIMPLE IRA Plan, Participant Y becomes an eligible employee on June 1, 1998, and, for Participant Y, the 60-day period described in Q&A E1 begins on that date. For the 1998 calendar year, Participant Y will be deemed to have been given a reasonable amount of time in which to request to transfer, without cost or penalty, his balance attributable to contributions for the balance of the 1998 calendar year if Financial Institution M allows such a request to be made prior to July 31, 1998.

Q. J3: Is there a limit on the frequency with which a
participant’s balance must be transferred without cost or
penalty?

A. J3: In order to satisfy § 408(p)(7), if a
participant acts, within applicable reasonable time limits,
if any, to request a transfer of his or her balance, the
participant's balance must be transferred on a reasonably
frequent basis. A participant's balance will be deemed to
be transferred on a reasonably frequent basis if it is
transferred on a monthly basis.

Q. J4: How does a DFI transfer a participant's
balance without cost or penalty?

A. J4: In order to satisfy § 408(p)(7), a
participant's balance must be transferred in a
trustee-to-trustee transfer directly to a SIMPLE IRA (or,
after the 2-year period described in Q&A I2, to any IRA) at
the financial institution specified by the participant.

A transfer is deemed to be made without cost or penalty
if no liquidation, transaction, redemption or termination
fee, or any commission, load (whether front-end or back-end)
or surrender charge, or similar fee or charge is imposed
with respect to the balance being transferred. A transfer
will not fail to be made without cost or penalty merely
because contributions that a participant has elected to have
transferred without cost or penalty are required to be
invested in one specified investment option until
transferred, even though a variety of investment options are
available with respect to contributions that participants
have not elected to transfer.

:This Q&A J4 is illustrated by the following examples:

:Example 1: Financial Institution Q agrees to be a DFI for the SIMPLE IRA Plan maintained by Employer D. Employer D provides the 60-day election period described in Q&A E1 beginning on November 2 of each year and each participant is notified that he or she may request, before the end of the 60-day period, a transfer of his or her future contributions from Financial Institution Q without cost or penalty to a SIMPLE IRA (or, after the 2-year period described in Q&A I2, to any IRA) at a financial institution selected by the participant. The notification states that a participant’s contributions that are to be transferred without cost or penalty will be invested in a specified investment option and will be transferred to the financial institution selected by the participant on a monthly basis.

:Financial Institution Q offers various investment options to account holders of SIMPLE IRA accounts, including investment options with a sales charge. Any participant who does not elect to have his or her balance transferred to another financial institution may invest the contributions made on his or her behalf in any investment option available to account holders of SIMPLE IRA accounts at Financial Institution Q. However, contributions that a participant has elected to have transferred are automatically invested, prior to transfer, in a specified investment option that has no sales charge. The requirement that a participant’s balance be transferred without cost or penalty will not be violated merely because contributions that have been designated to be transferred pursuant to a participant’s election are automatically invested in one specified investment option and transferred on a monthly basis to the financial institution selected by the participant.

:Example 2: Assume the same facts as in Example 1. Financial Institution Q generally charges its IRA accounts a reasonable annual administration fee. Financial Institution Q also charges this annual administration fee with respect to SIMPLE IRA accounts, including SIMPLE IRA accounts from which balances must be transferred in accordance with participants’ transfer elections. The requirement that participants balances be transferred without cost or penalty will not be violated merely because a reasonable annual administration fee is charged to SIMPLE IRA accounts from which balances must be transferred in accordance with participants’ transfer elections.

Q. J5: Is the "without cost or penalty" requirement
violated if a DFI charges an employer for a participant’s
transfer of his or her balance?

A. J5: The "without cost or penalty" requirement of
§ 408(p)(7) is not violated merely because a DFI charges an
employer an amount that takes into account the financial
institution's responsibility to transfer balances upon a
participant's request or otherwise charges an employer for a
transfer requested by a participant, provided that the
charge is not passed through to the participant who requests
the transfer.

===K. SIMPLE IRA PLAN ESTABLISHMENT ===

Q. K1: Must an employer establish a SIMPLE IRA Plan
on January 1?

A. K1: An existing employer may establish a SIMPLE
IRA Plan effective on any date between January 1 and October
1 of a year beginning after December 31, 1996, provided that
the employer (or any predecessor employer) did not
previously maintain a SIMPLE IRA Plan. This requirement
does not apply to a new employer that comes into existence
after October 1 of the year the SIMPLE IRA Plan is
established if the employer establishes the SIMPLE IRA Plan
as soon as administratively feasible after the employer
comes into existence. If an employer (or predecessor
employer) previously maintained a SIMPLE IRA Plan, the
employer may establish a SIMPLE IRA Plan effective only on
January 1 of a year.

Q. K2: When must a SIMPLE IRA be established for an
employee?

A. K2: A SIMPLE IRA is required to be established for
an employee prior to the first date by which a contribution
is required to be deposited into the employee's SIMPLE IRA
(see Q&As G5 and G6).

Q. K3: Has the Service issued model forms that an
employer can use to establish a SIMPLE IRA Plan?

A. K3: Yes. On October 31, 1996, the Service issued
Form 5305SIMPLE (for Use With a Designated Financial
Institution), which is a form that may be used by an
employer establishing a SIMPLE IRA Plan with a financial
institution that is a DFI. On December 30, 1996, the
Service issued Form 5304SIMPLE (Not Subject to the
Designated Financial Institution Rules), which is the model
form that may be used by an employer to establish a SIMPLE
IRA Plan that does not use a DFI.

Q. K4: How long may an employer use the modified Form
5305SIMPLE (for Use With a Designated Financial
Institution)?

A. K4: An employer that established or establishes a
SIMPLE IRA Plan (that does not use a DFI) by using Form
5305SIMPLE (for Use With a Designated Financial
Institution) as modified in accordance with Q&A K3 as it
originally appeared in Notice 976 may continue to use that
modified form through the end of 1998. The Service has not
approved the use of the modified form beyond 1998.
Consequently, such an employer that makes contributions for
a calendar year after 1998 must adopt one of the two model
forms (Form 5304-SIMPLE or Form 5305-SIMPLE) or an approved
prototype SIMPLE IRA Plan in order to rely on
Service-approved SIMPLE IRA Plans for 1999 and future years.
For purposes of Q&As E4, G1 and H1 of this notice, the
modified Form 5305SIMPLE is treated as a Form 5304SIMPLE
(Not Subject to the Designated Financial Institution Rules).

==EFFECT ON OTHER DOCUMENTS ==

This notice modifies and supersedes Notice 976.

==PAPERWORK REDUCTION ACT==

The collection of information contained in this notice
has been reviewed and approved by the Office of Management
and Budget (OMB) in accordance with the Paperwork Reduction
Act (44 U.S.C. 3507) under control number 1545-1502.

An agency may not conduct or sponsor, and a person is
not required to respond to, a collection of information
unless the collection of information displays a valid OMB
control number.

The collection of information in this notice is in the
sections headed "EMPLOYEE ELECTIONS" and "EMPLOYER
ADMINISTRATIVE AND NOTIFICATION REQUIREMENTS." This
information is required to assure compliance with the new
provisions of the Small Business Job Protection Act of 1996.
The collection of information is required to obtain a
benefit. The likely respondents are individuals, businesses
or other for-profit institutions, and not-for-profit
institutions.

The estimated total annual reporting burden is 75,000
hours. The estimated annual burden per recordkeeper is 15
minutes. The estimated number of respondents is 300,000.
The estimated annual frequency of responses is on occasion.

Books or records relating to a collection of
information must be retained as long as their contents may
become material in the administration of any internal
revenue law. Generally, tax returns and tax return
information are confidential, as required by 26 U.S.C. 6103.

==DRAFTING INFORMATION==

The principal author of this notice is Roger Kuehnle of
the Employee Plans Division. For further information
regarding this notice, please contact the Employee Plans
Division’s taxpayer assistance telephone service at (202)
622-6074/6075 (not toll-free numbers), between the hours of
1:30 and 3:30 p.m. Eastern Time, Monday through Thursday.

{{NtcFooter}}

Notice 2009-87

Trillium — Mon, 09 Nov 2009 19:55:09 GMT

Summary: add IRB # and date

{{NtcHeader}}

Internal Revenue Bulletin: 2009-46

November 16, 2009

Part III - Administrative, Procedural, and Miscellaneous

[26 CFR 601.602]: Forms and Instructions (Also: Part I, Section 6012, 6012-1)

'''''Obtaining Permission for a Trustee to Make the Income Tax Return of an Eligible Individual'''''

'''Notice 2009-87'''

__TOC__

==PURPOSE ==

This notice invites public comments on possible modifications to the conditions
established in Rev. Proc. 80-59, 1980-2 C.B. 855, under which a trustee of a blind trust
that meets the requirements of section 102(f)(3) of the Appendix to Title 5 of the United
States Code (or any successor provision of the United States Code) may execute and
file an income tax return on behalf of any individual described in section 101(f) of the
Appendix to Title 5 of the United States Code (or any successor provision of the United
States Code) (“eligible individual”).

==BACKGROUND ==

Section 102(f)(4)(B) of the Appendix to Title 5 of the United States Code provides
that, in the case of a trust created for the benefit of an eligible individual, an asset
placed in trust will not be considered a financial interest of the individual for purposes of
section 208 of Title 18 of the United States Code, and any other conflict of interest
statutes or regulations, if certain requirements are met, including giving the trustee the
power to prepare on behalf of the individual the personal income tax return and similar
returns which may contain information relating to the trust.

Section 1.6012-1(a)(5) of the Income Tax Regulations, concerning returns made
by agents, permits a return to be made by an agent if the taxpayer requests permission,
in writing, and the appropriate IRS official determines that good cause exists for
permitting an agent to make the return. That section provides that whenever a return is
made by an agent it must be accompanied by a power of attorney (or copy thereof)
authorizing the agent to represent the principal in making the return.

Section 601.504(a) of the Conference and Practice Requirements, Statement of
Procedural Rules, provides that a power of attorney is required when the taxpayer
wishes to authorize a recognized representative to represent the taxpayer before the
Internal Revenue Service or perform the following acts on behalf of the taxpayer: (1)
offer or execute either a waiver of restriction on assessment or collection of a deficiency
in tax or a waiver of notice of disallowance of a claim for credit or refund on behalf of the
taxpayer, (2) execute a consent to extend the statutory period for assessment or
collection of a tax on behalf of the taxpayer, (3) execute a closing agreement on behalf
of the taxpayer, (4) receive (but not endorse or collect) a check in payment of any
refund of taxes, penalties or interest on behalf of the taxpayer, or (5) sign a tax return
under a certain conditions.

Section 601.506(a) of the Conference and Practice Requirements, Statement of
Procedural Rules, provides that any notice or communication (or a copy thereof)
required or permitted to be given to a taxpayer in any matter before the Internal
Revenue Service shall be given to the taxpayer and, unless restricted by the taxpayer,
to the taxpayer’s recognized representative.

Revenue Procedure 80-59, 1980-2 C.B. 855, requires an eligible individual to
receive advance written permission from the appropriate IRS official for the trustee to
make the income tax return on behalf of the eligible individual prior to filing of the eligible
individual’s income tax return. The trustee must submit the letter granting the trustee
permission to file the eligible individual’s return when the trustee files the return. In
addition, the return and letter must be accompanied by a power of attorney (or copy
thereof) that grants the trustee authority to sign the return, to receive (but not endorse
or collect) a refund check, to execute a waiver of restriction on assessment or collection,
to execute a waiver of notice of disallowance, to execute a consent to extend the period
for assessment or collection, and to execute a closing agreement. Finally,
notwithstanding the provisions of section 601.506(a) of the Conference and Practice
Requirements, Statement of Procedural Rules, all notices or other written
communication required or permitted to be given to the eligible individual are given only
to the trustee.

==POSSIBLE CHANGES ==

The Internal Revenue Service is considering modifying the requirement that an
eligible individual receive advance permission from the Internal Revenue Service for the
trustee to make the income tax return on behalf of the eligible individual prior to filing the
eligible individual’s income tax return. Under the possible modifications being
considered by the Internal Revenue Service:
*An eligible individual who has an interest in a blind trust that meets the requirements of section 102(f)(3) of the Appendix to Title 5 of the United States Code (or any successor provision of the United States Code) would request permission, in writing, for the trustee of the blind trust to execute and file the Federal income tax return of the eligible individual.
*Both the letter requesting permission and a power of attorney (or copy thereof) that grants the trustee authority to sign the return, to receive (but not endorse or collect) a refund check, to execute a waiver of restriction on assessment or collection, to execute a waiver of notice of disallowance, to execute a consent to extend the period for assessment or collection, and to execute a closing agreement would be submitted to the Internal Revenue Service with the eligible individual’s Federal income tax return when the tax return is filed.
*The eligible individual who has an interest in a blind trust that meets the requirements of section 102(f)(3) of the Appendix to Title 5 of the United States Code (or any successor provision of the United States Code) and who submits the written request for permission and power of attorney consistent with these procedures, would be considered to have shown good cause for having the return filed by the trustee, and would be deemed to have been granted such permission.
*The eligible individual would submit a separate request for permission for the trustee to execute and file the Federal income tax return each taxable year.

==REQUESTS FOR PUBLIC COMMENT ==

The Internal Revenue Service requests comments on whether the existing
procedures for an eligible individual to receive permission from the Internal Revenue
Service for a trustee to make the eligible individual’s income tax return should be
modified. The Internal Revenue Service is particularly interested in receiving comments
on whether taxpayer burden will be reduced if the requirement that an eligible individual
receive advance permission from the Internal Revenue Service for the trustee to make
the income tax return on behalf of the eligible individual is eliminated and any other
ways that the Internal Revenue Service can reduce taxpayer burden or simply these
procedures.

Written comments should be sent to: CC:PA:LPD:PR (Notice 2009-87), Room
5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington,
D.C. 20044. Alternatively, comments may be hand delivered between the hours of 8:00
a.m. and 4:00 p.m. Monday to Friday to CC:PA:LPD:PR (Notice 2009-87), Courier’s
Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, D.C.
Comments may also be transmitted electronically via the following e-mail address:
Notice.Comments@irscounsel.treas.gov. Please include “Notice 2009-87” in the
subject line of any electronic communications.

Comments, if any, must be received by November 30, 2009. All comments will be
available for public inspection and copying.

==DRAFTING INFORMATION==

The principal author of this notice is Richard S. Goldstein of the Office of
Associate Chief Counsel (Procedure & Administration). For further information
regarding this notice contact Richard S. Goldstein at (202) 622-3400 (not a toll-free
call).

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Worker, Homeownership and Business Assistance Act of 2009

MikeD — Fri, 06 Nov 2009 18:01:05 GMT

Summary: add another related discussion and another category

== House Passes Worker, Homeownership, and Business Assistance Act of 2009 ==

The U.S. House of Representatives approved essential legislation to stimulate the economy and provide stability to American families. The House Passed H.R. 3548, the Worker, Homeownership and Business Assistance Act of 2009 by an overwhelmingly bipartisan vote of 403 to 12. President Obama signed the legislation into law on November 6, 2009. The legislation will help continue America’s economic recovery by extending unemployment benefits for millions of workers looking for jobs, as well as extending, expanding and improving the homebuyer tax credit, and providing tax relief for military families and businesses. Many of the provisions in today’s legislation originated in the Committee on Ways and Means, and Committee leaders offered the following statements upon passage:

"Passage of this bill will give critical benefits to the millions of unemployed workers struggling in the current downturn, giving them some measure of relief while they search for the next opportunity to build a brighter future for their families,” said Ways and Means Committee Chairman Charles B. Rangel (D-NY). “This legislation also extends the homebuyer tax credit and provides tax relief for struggling businesses to build upon recent gains in the housing market and give American companies a foundation for future growth."

“The American people deserve and have earned this help,” said Ways and Means Income Security and Family Support Subcommittee Chairman Jim McDermott (D-WA). “We cannot forget that we’re not yet out of the woods, especially for Americans who are struggling to find a job in an economy where 6 people are competing for every available job. Economists continue to project rising unemployment numbers and Congress will need to act again before the end of this year to allow the extended UI benefits to continue into 2010.”

"I am pleased that the legislation extends the first-time homebuyer credit with improvements needed to enhance its administration," said Ways and Means Subcommittee on Oversight Chairman John Lewis (D-GA). "This tax credit is an important resource for families who want to purchase a home and a vital part of our economic recovery efforts. Thus far, this credit has helped over 1.4 million households, the majority of whom have incomes below $50,000. This legislation would help even more moderate-income families fulfill the American dream."

'''Supporting Documents'''
* [http://waysandmeans.house.gov/news.asp?formmode=release&id=967 House Committee on Ways and Means Summary]
* [http://www.jct.gov/publications.html?func=startdown&id=3621 Technical Explanation]
* [http://finance.senate.gov/sitepages/leg/LEG%202009/103009_Worker_Homeownership_Business_Assistance_Act.pdf Legislative Text]

'''Related IRS Guidance'''
* [[Rev. Proc. 2009-52]] - Guidance on carrying back an applicable net operating loss (NOL)

'''Related discussions'''
*[[Discussion:Mandatory e-File]]
*[[Discussion:$6500 homebuyer credit]] ''- also see the [http://www.taxalmanac.org/index.php/Category:First-time_homebuyer_credit FTHB recap] page for links and info''
*[[Discussion:Tax Lawyer commits heresy?]]
*[[Discussion:Three E-file Questions]]
*[[Discussion:New Mandatory e-filing; More than 10 returns]]
*[[Discussion:E-File w/Form 5405]]

[[Category: Topics]]
[[Category: Federal Articles]]
[[Category: Tax Law Changes]]
[[Category: First-time homebuyer credit]]
[[Category: Electronic Filing]]

T.D. 9460

Trillium — Fri, 06 Nov 2009 03:41:55 GMT

Summary: add td9460, it's had a few mentions lately

{{TDHeader}}

Internal Revenue Bulletin: 2009-44

November 2, 2009

'''T.D. 9460'''

'''''Declaratory Judgments — Gift Tax Determinations'''''

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__TOC__

DEPARTMENT OF THE TREASURY 
Internal Revenue Service 
26 CFR Part 301

==AGENCY:==

Internal Revenue Service (IRS), Treasury.

==ACTION:==

Final regulations.

==SUMMARY:==

This document contains final regulations under section 7477 of the Internal Revenue Code (Code) regarding petitions filed with the United States Tax Court for declaratory judgments with respect to the valuation of gifts. Changes to the applicable law were made by section 506(c)(1) of the Taxpayer Relief Act of 1997. These final regulations primarily affect individuals who are donors of gifts. The final regulations provide rules for determining whether a donor may petition the Tax Court for a determination regarding the value of a gift, including guidance regarding the definition of “exhaustion of administrative remedies.”

==DATES:==

''Effective date:'' These regulations are effective September 9, 2009.

''Applicability date:'' For the date of applicability, see §301.7477-1(f).

==FOR FURTHER INFORMATION CONTACT:==

Juli Ro Kim or George Masnik (202) 622-3090 (not a toll-free number).

==SUPPLEMENTARY INFORMATION:==

===Background===

Section 7477, enacted in conjunction with other provisions as part of the Taxpayer Relief Act of 1997 (TRA) (Public Law 105-34, 111 Stat. 855), provides a declaratory judgment procedure pursuant to which taxpayers may contest in the United States Tax Court an IRS determination regarding the value of a gift. Prior law did not provide a judicial remedy in situations where the proposed IRS adjustment would not result in a gift tax deficiency or a tax overpayment. The new procedure applies, for example, where an increase in gift tax determined under section 2502 is offset by the taxpayer’s applicable credit amount under section 2505(a), so that no additional tax is assessed as a result of a valuation increase. Because there is no tax deficiency, in the absence of section 7477, the taxpayer would be unable to challenge the IRS determination, even though, upon the expiration of the statute of limitations, that determination would become binding for purposes of calculating the cumulative gift tax on all future gifts of that taxpayer, as well as the taxpayer’s estate tax liability. See H. R. CONF. REP. NO. 105-220, at 407-408 (1997).

On June 9, 2008, proposed regulations under section 7477 were published in the Federal Register (REG-143716-04, 2008-1 C.B. 1170 [73 FR 32503]). The IRS received no written or oral comments responding to the notice of proposed rulemaking. No public hearing was requested or held.

The final regulations include a few clarifications. In particular, under section 7477, in order to be eligible for the declaratory judgment procedure, the Tax Court must determine that the donor exhausted all administrative remedies. In general, the proposed regulations provide that the IRS will consider a donor to have exhausted all administrative remedies if an Appeals conference is requested timely and the donor (or an authorized representative) “participates fully” in the Appeals process. The final regulations contain a separate subsection specifying that full participation requires timely submission of requested information and disclosure of all relevant information regarding the controversy. In addition, a provision has been added specifying that, if Appeals does not grant the donor’s request for a conference, the donor will be treated as having exhausted all administrative remedies if, after filing a Tax Court petition for a declaratory judgment, the donor (or authorized representative) participates fully in the Appeals office consideration when offered by the IRS while the case is in docketed status.

===Special Analyses===

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations and, because these regulations do not impose on small entities a collection of information requirement, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking preceding this regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

==Adoption of Amendments to the Regulations==

Accordingly, 26 CFR part 301 is amended as follows:

==PART 301—PROCEDURE AND ADMINISTRATION==

Paragraph 1. The authority citation for part 301 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 301.7477-1 is revised to read as follows:

===''§301.7477-1 Declaratory judgments relating to the value of certain gifts for gift tax purposes.''===

(a)'' In general.'' If the adjustment(s) proposed by the Internal Revenue Service (IRS) will not result in any deficiency in or refund of the donor’s gift tax liability for the calendar year, and if the requirements contained in paragraph (d) of this section are satisfied, then the declaratory judgment procedure under section 7477 is available to the donor for determining the amount of one or more of the donor’s gifts during that calendar year for Federal gift tax purposes.

(b) ''Declaratory judgment procedure''—(1)'' In general''. If a donor does not resolve a dispute with the IRS concerning the value of a transfer for gift tax purposes at the Examination level, the donor will be sent a notice of preliminary determination of value (Letter 950-G or such other document as may be utilized by the IRS for this purpose from time to time, but referred to in this section as Letter 950-G), inviting the donor to file a formal protest and to request consideration by the appropriate IRS Appeals office. See §§601.105 and 601.106 of this chapter. Subsequently, the donor will be sent a notice of determination of value (Letter 3569, or such other document as may be utilized from time to time by the IRS for this purpose in cases where no deficiency or refund would result, but referred to in this section as Letter 3569) if—

(i) The donor requests Appeals consideration in writing within 30 calendar days after the mailing date of the Letter 950-G, or by such later date as determined pursuant to IRS procedures, and the matter is not resolved by Appeals;

(ii) The donor does not request Appeals consideration within the time provided in paragraph (b)(1)(i) of this section; or

(iii) The IRS does not issue a Letter 950-G in circumstances described in paragraph (d)(4)(iv) of this section.

(2) ''Notice of determination of value.'' The Letter 3569 will notify the donor of the adjustment(s) proposed by the IRS, and will advise the donor that the donor may contest the determination made by the IRS by filing a petition with the Tax Court before the 91st day after the date on which the Letter 3569 was mailed to the donor by the IRS.

(3)'' Tax Court petition.'' If the donor does not file a timely petition with the Tax Court, the IRS determination as set forth in the Letter 3569 will be considered the final determination of value, as defined in sections 2504(c) and 2001(f). If the donor files a timely petition with the Tax Court, the Tax Court will determine whether the donor has exhausted available administrative remedies. Under section 7477, the Tax Court is not authorized to issue a declaratory judgment unless the Tax Court finds that the donor has exhausted all administrative remedies within the IRS. See paragraph (d)(4) of this section regarding the exhaustion of administrative remedies.

(c) Adjustments subject to declaratory judgment procedure. The declaratory judgment procedures set forth in this section apply to adjustments involving all issues relating to the transfer, including without limitation valuation issues and legal issues involving the interpretation and application of the gift tax law.

(d) Requirements for declaratory judgment procedure—(1) In general. The declaratory judgment procedure provided in this section is available to a donor with respect to a transfer only if all the requirements of paragraphs (d)(2) through (5) of this section with regard to that transfer are satisfied.

(2) ''Reporting''. The transfer is shown or disclosed on the return of tax imposed by chapter 12 for the calendar year during which the transfer was made or on a statement attached to such return. For purposes of this paragraph (d)(2), the term return of tax imposed by chapter 12 means the last gift tax return (Form 709, “United States Gift (and Generation-Skipping Transfer) Tax Return” or such other form as may be utilized for this purpose from time to time by the IRS) for the calendar year filed on or before the due date of the return, including extensions granted if any, or, if a timely return is not filed, the first gift tax return for that calendar year filed after the due date. For purposes of satisfying this requirement, the transfer need not be reported in a manner that constitutes adequate disclosure within the meaning of §301.6501(c)-1(e) or (f) (and thus for which, under §§20.2001-1(b) and 25.2504-2(b) of this chapter, the period during which the IRS may adjust the value of the gift will not expire). The issuance of a Letter 3569 with regard to a transfer disclosed on a return does not constitute a determination by the IRS that the transfer was adequately disclosed, or otherwise cause the period of limitations on assessment to commence to run with respect to that transfer. In addition, in the case of a transfer that is shown on the return, the IRS may in its discretion defer until a later time making a determination with regard to such transfer. If the IRS exercises its discretion to defer such determination in that case, the transfer will not be addressed in the Letter 3569 (if any) sent to the donor currently, and the donor is not yet eligible for a declaratory judgment with regard to that transfer under section 7477.

(3) ''IRS determination and actual controversy.'' The IRS makes a determination regarding the gift tax treatment of the transfer that results in an actual controversy. The IRS makes a determination that results in an actual controversy with respect to a transfer by mailing a Letter 3569 to the donor, thereby notifying the donor of the adjustment(s) proposed by the IRS with regard to that transfer and of the donor’s rights under section 7477.

(4) ''Exhaustion of administrative remedies''—(i) I''n general''. The Tax Court determines whether the donor has exhausted all administrative remedies available within the IRS for resolving the controversy.

(ii)'' Appeals office consideration.'' For purposes of this section, the IRS will consider a donor to have exhausted all administrative remedies if, prior to filing a petition in Tax Court (except as provided in paragraphs (d)(4)(iii) and (iv) of this section), the donor, or a qualified representative of the donor described in §601.502 of this chapter, timely requests consideration by Appeals and participates fully (within the meaning of paragraph (d)(4)(vi) of this section) in the Appeals consideration process. A timely request for consideration by Appeals is a written request from the donor for Appeals consideration made within 30 days after the mailing date of the Letter 950-G, or by such later date for responding to the Letter 950-G as is agreed to between the donor and the IRS.

(iii) ''Request for Appeals office consideration not granted.'' If the donor, or a qualified representative of the donor described in §601.502 of this chapter, timely requests consideration by Appeals and Appeals does not grant that request, the IRS nevertheless will consider the donor to have exhausted all administrative remedies within the IRS for purposes of section 7477 upon the issuance of the Letter 3569, provided that the donor, or a qualified representative of the donor described in §601.502 of this chapter, after the filing of a petition in Tax Court for a declaratory judgment pursuant to section 7477, participates fully (within the meaning of paragraph (d)(4)(vi) of this section) in the Appeals office consideration if offered by the IRS while the case is in docketed status.

(iv) ''No Letter 950-G issued''. If the IRS does not issue a Letter 950-G to the donor prior to the issuance of Letter 3569, the IRS nevertheless will consider the donor to have exhausted all administrative remedies within the IRS for purposes of section 7477 upon the issuance of the Letter 3569, provided that—

(A) The IRS decision not to issue the Letter 950-G was not due to actions or inactions of the donor (such as a failure to supply requested information or a current mailing address to the Area Director having jurisdiction over the tax matter); and

(B) The donor, or a qualified representative of the donor described in §601.502 of this chapter, after the filing of a petition in Tax Court for a declaratory judgment pursuant to section 7477, participates fully (within the meaning of paragraph (d)(4)(vi) of this section) in the Appeals office consideration if offered by the IRS while the case is in docketed status.

(v) ''Failure to agree to extension of time for assessment.'' For purposes of section 7477, the donor’s refusal to agree to an extension of the time under section 6501 within which gift tax with respect to the transfer at issue (if any) may be assessed will not be considered by the IRS to constitute a failure by the donor to exhaust all administrative remedies available to the donor within the IRS.

(vi) ''Participation in Appeals consideration process.'' For purposes of this section, the donor or a qualified representative of the donor described in §601.502 of this chapter participates fully in the Appeals consideration process if the donor or the qualified representative timely submits all information related to the transfer that is requested by the IRS in connection with the Appeals consideration and discloses to the Appeals office all relevant information regarding the controversy to the extent such information and its relevance is known or should be known by the donor or the qualified representative during the time the issue is under consideration by Appeals.

(5) ''Timely petition in Tax Court.'' The donor files a pleading with the Tax Court requesting a declaratory judgment under section 7477. This pleading must be filed with the Tax Court before the 91st day after the date of mailing of the Letter 3569 by the IRS to the donor. The pleading must be in the form of a petition subject to Tax Court Rule 211(d).

(e)'' Examples.'' The following examples illustrate the provisions of this section, and assume that in each case the Tax Court petition is filed on or after September 9, 2009.

:These examples, however, do not address any other situations that might affect the Tax Court’s jurisdiction over the proceeding:

''Example 1. Exhaustion of administrative remedies. ''The donor (D) timely files a Form 709, “United States Gift (and Generation-Skipping Transfer) Tax Return,” on which D reports D’s completed gift of closely held stock. After conducting an examination, the IRS concludes that the value of the stock on the date of the gift is greater than the value reported on the return. Because the amount of D’s available applicable credit amount under section 2505 is sufficient to cover any resulting tax liability, no gift tax deficiency will result from the adjustment. D is unable to resolve the matter with the IRS examiner. The IRS sends a Letter 950-G to D informing D of the proposed adjustment. D, within 30 calendar days after the mailing date of the letter, submits a written request for Appeals consideration. During the Appeals process, D provides to the Appeals office all additional information (if any) requested by Appeals relevant to the determination of the value of the stock in a timely fashion. The Appeals office and D are unable to reach an agreement regarding the value of the stock as of the date of the gift. The Appeals office sends D a notice of determination of value (Letter 3569). For purposes of section 7477, the IRS will consider D to have exhausted all available administrative remedies within the IRS, and thus will not contest the allegation in D’s petition that D has exhausted all such administrative remedies.

''Example 2. Exhaustion of administrative remedies.'' Assume the same facts as in Example 1, except that D does not timely request consideration by Appeals after receiving the Letter 950-G. A Letter 3569 is mailed to D more than 30 days after the mailing of the Letter 950-G and prior to the expiration of the period of limitations for assessment of gift tax. D timely files a petition in Tax Court pursuant to section 7477. After the case is docketed, D requests Appeals consideration. In this situation, because D did not respond timely to the Letter 950-G with a written request for Appeals consideration, the IRS will not consider D to have exhausted all administrative remedies available within the IRS for purposes of section 7477 prior to filing the petition in Tax Court, and thus may contest any allegation in D’s petition that D has exhausted all such administrative remedies.

''Example 3. Exhaustion of administrative remedies.'' D timely files a Form 709 on which D reports D’s completed gifts of interests in a family limited partnership. After conducting an examination, the IRS proposes to adjust the value of the gifts as reported on the return. No gift tax deficiency will result from the adjustments, however, because D has a sufficient amount of available applicable credit amount under section 2505. D declines to consent to extend the time for the assessment of gift tax with respect to the gifts at issue. Because of the pending expiration of the period of limitation on assessment within which a gift tax, if any, could be assessed, the IRS determines that there is not adequate time for Appeals consideration. Accordingly, the IRS mails to D a Letter 3569, even though a Letter 950-G had not first been issued to D. D timely files a petition in Tax Court pursuant to section 7477. After the case is docketed in Tax Court, D is offered the opportunity for Appeals to consider any dispute regarding the determination and participates fully in the Appeals consideration process. However, the Appeals office and D are unable to resolve the issue. The IRS will consider D to have exhausted all administrative remedies available within the IRS, and thus will not assert that D has not exhausted all such administrative remedies.

''Example 4. Legal issue. ''D transfers nonvested stock options to a trust for the benefit of D’s child. D timely files a Form 709 reporting the transfer as a completed gift for Federal gift tax purposes and complies with the adequate disclosure requirements for purposes of triggering the commencement of the applicable statute of limitations. Pursuant to §301.6501(c)-1(f)(5), adequate disclosure of a transfer that is reported as a completed gift on the Form 709 will commence the running of the period of limitations for assessment of gift tax on D, even if the transfer is ultimately determined to be an incomplete gift for purposes of §25.2511-2 of this chapter. After conducting an examination, the IRS concurs with the reported valuation of the stock options, but concludes that the reported transfer is not a completed gift for Federal gift tax purposes. D is unable to resolve the matter with the IRS examiner. The IRS sends a Letter 950-G to D, who timely mails a written request for Appeals consideration. Assuming that the IRS mails to D a Letter 3569 with regard to this transfer, and that D complies with the administrative procedures set forth in this section, including the exhaustion of all administrative remedies available within the IRS, then D may file a petition for declaratory judgment with the Tax Court pursuant to section 7477.

''Example 5. Transfers in controversy. ''On April 16, 2007, D timely files a Form 709 on which D reports gifts made in 2006 of fractional interests in certain real property and of interests in a family limited partnership (FLP). However, although the gifts are disclosed on the return, the return does not contain information sufficient to constitute adequate disclosure under §301.6501(c)-1(e) or (f) for purposes of the application of the statute of limitations on assessment of gift tax with respect to the reported gifts. The IRS conducts an examination and concludes that the value of both the interests in the real property and the FLP interests on the date(s) of the transfers are greater than the values reported on the return. No gift tax deficiency will result from the adjustments because D has a sufficient amount of remaining applicable credit amount under section 2505. However, D does not agree with the adjustments. The IRS sends a Letter 950-G to D informing D of the proposed adjustments in the value of the reported gifts. D, within 30 calendar days after the mailing date of the letter, submits a written request for Appeals consideration. The Appeals office and D are unable to reach an agreement regarding the value of any of the gifts. In the exercise of its discretion, the IRS decides to resolve currently only the value of the real property interests, and to defer the resolution of the value of the FLP interests. On May 28, 2009, the Appeals office sends D a Letter 3569 addressing only the value of the gifts of interests in the real property. Because none of the gifts reported on the return filed on April 16, 2007, were adequately disclosed for purposes of §301.6501(c)-1(e) or (f), the period of limitations during which the IRS may adjust the value of those gifts has not begun to run. Accordingly, the Letter 3569 is timely mailed. If D timely files a petition in Tax Court pursuant to section 7477 with regard to the value of the interests in the real property, then, assuming the other requirements of section 7477 are satisfied with regard to those interests, the Tax Court’s declaratory judgment, once it becomes final, will determine the value of the gifts of the interests in the real property. Because the IRS has not yet put the gift tax value of the interests in the FLP into controversy, the procedure under section 7477 is not yet available with regard to those gifts.

(f) ''Effective/applicability date.'' This section applies to civil proceedings described in section 7477 filed in the United States Tax Court on or after September 9, 2009.

Linda E. Stiff, 
''Deputy Commissioner for '' 
''Services and Enforcement.''

Approved August 26, 2009.

Michael Mundaca, 
''Assistant Secretary of '' 
''the Treasury (Tax Policy).''

==Note==

(Filed by the Office of the Federal Register on September 8, 2009, 8:45 a.m., and published in the issue of the Federal Register for September 9, 2009, F.R. 46347)

==Drafting Information==

The principal authors of these final regulations are George Masnik and Juli Ro Kim, Office of the Associate Chief Counsel (Passthroughs and Special Industries), IRS. Other personnel from the IRS and the Treasury Department participated in their development.

<nowiki>* * * * *</nowiki>

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