bulletin no. 2006-49 december 4, 2006 highlights of this issue · december 4, 2006 2006–49 i.r.b....

Bulletin No. 2006-49December 4, 2006

HIGHLIGHTSOF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied upon as authoritative interpretations.

INCOME TAX

Rev. Rul. 2006–61, page 1028.Federal rates; adjusted federal rates; adjusted federallong-term rate and the long-term exempt rate. For pur-poses of sections 382, 642, 1274, 1288, and other sectionsof the Code, tables set forth the rates for December 2006.

T.D. 9295, page 1030.Final and temporary regulations under sections 6011, 6111,and 6112 of the Code amend the rules relating to requestsfor private letter rulings regarding reportable transactionsand remove the tolling provision from the current regula-tions. These regulations cross-reference REG–103038–05,REG–103039–05, and REG–103043–05 in this Bulletin.

REG–103038–05, page 1049.Proposed regulations under section 6011 of the Code amendthe rules relating to the disclosure of reportable transactionsby taxpayers. These regulations cross-reference T.D. 9295 inthis Bulletin.

REG–103039–05, page 1057.Proposed regulations under section 6111 of the Code pro-vide the rules relating to the disclosure of reportable transac-tions by material advisors. These regulations cross-referenceT.D. 9295 in this Bulletin.

REG–103043–05, page 1063.Proposed regulations under section 6112 of the Code providethe rules relating to the obligation of material advisors to pre-pare and maintain lists with respect to reportable transactions.These regulations cross-reference T.D. 9295 in this Bulletin.

EXEMPT ORGANIZATIONS


ESTATE TAX


GIFT TAX


(Continued on the next page)

Announcements of Disbarments and Suspensions begin on page 1066.Finding Lists begin on page ii.

EMPLOYMENT TAX


Notice 2006–106, page 1033.This notice provides tables that show the amount of an indi-vidual’s wages, salary, or other income that is exempt from anotice of levy used to collect delinquent tax in 2007.

EXCISE TAX


ADMINISTRATIVE

T.D. 9295, page 1030.Final and temporary regulations under sections 6011, 6111,and 6112 of the Code amend the rules relating to requestsfor private letter rulings regarding reportable transactionsand remove the tolling provision from the current regula-tions. These regulations cross-reference REG–103038–05,REG–103039–05, and REG–103043–05 in this Bulletin.

REG–103039–05, page 1057.Proposed regulations under section 6111 of the Code pro-vide the rules relating to the disclosure of reportable transac-tions by material advisors. These regulations cross-referenceT.D. 9295 in this Bulletin.

REG–103043–05, page 1063.Proposed regulations under section 6112 of the Code providethe rules relating to the obligation of material advisors to pre-pare and maintain lists with respect to reportable transactions.These regulations cross-reference T.D. 9295 in this Bulletin.

Rev. Proc. 2006–54, page 1035.This document updates the procedures for requesting assis-tance from the U.S. competent authority under the provisions ofan income, estate, or gift tax treaty to which the United Statesis a party. Rev. Procs. 2002–52 and 2006–26 modified andsuperseded. Rev. Proc. 2006–9 amplified. Rev. Rul. 92–75clarified.

December 4, 2006 2006–49 I.R.B.

The IRS MissionProvide America’s taxpayers top quality service by helpingthem understand and meet their tax responsibilities and by

applying the tax law with integrity and fairness to all.

IntroductionThe Internal Revenue Bulletin is the authoritative instrument ofthe Commissioner of Internal Revenue for announcing officialrulings and procedures of the Internal Revenue Service and forpublishing Treasury Decisions, Executive Orders, Tax Conven-tions, legislation, court decisions, and other items of generalinterest. It is published weekly and may be obtained from theSuperintendent of Documents on a subscription basis. Bulletincontents are compiled semiannually into Cumulative Bulletins,which are sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletin all sub-stantive rulings necessary to promote a uniform application ofthe tax laws, including all rulings that supersede, revoke, mod-ify, or amend any of those previously published in the Bulletin.All published rulings apply retroactively unless otherwise indi-cated. Procedures relating solely to matters of internal man-agement are not published; however, statements of internalpractices and procedures that affect the rights and duties oftaxpayers are published.

Revenue rulings represent the conclusions of the Service on theapplication of the law to the pivotal facts stated in the revenueruling. In those based on positions taken in rulings to taxpayersor technical advice to Service field offices, identifying detailsand information of a confidential nature are deleted to preventunwarranted invasions of privacy and to comply with statutoryrequirements.

Rulings and procedures reported in the Bulletin do not have theforce and effect of Treasury Department Regulations, but theymay be used as precedents. Unpublished rulings will not berelied on, used, or cited as precedents by Service personnel inthe disposition of other cases. In applying published rulings andprocedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,and Service personnel and others concerned are cautionedagainst reaching the same conclusions in other cases unlessthe facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.This part includes rulings and decisions based on provisions ofthe Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.This part is divided into two subparts as follows: Subpart A,Tax Conventions and Other Related Items, and Subpart B, Leg-islation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references to thesesubjects are contained in the other Parts and Subparts. Alsoincluded in this part are Bank Secrecy Act Administrative Rul-ings. Bank Secrecy Act Administrative Rulings are issued bythe Department of the Treasury’s Office of the Assistant Sec-retary (Enforcement).

Part IV.—Items of General Interest.This part includes notices of proposed rulemakings, disbar-ment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative indexfor the matters published during the preceding months. Thesemonthly indexes are cumulated on a semiannual basis, and arepublished in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

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

2006–49 I.R.B. December 4, 2006

Place missing child here.

December 4, 2006 2006–49 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986Section 42.—Low-IncomeHousing Credit

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof December 2006. See Rev. Rul. 2006-61, page1028.

Section 280G.—GoldenParachute Payments

Federal short-term, mid-term, and long-term ratesare set forth for the month of December 2006. SeeRev. Rul. 2006-61, page 1028.

Section 382.—Limitationon Net Operating LossCarryforwards and CertainBuilt-In Losses FollowingOwnership Change

The adjusted applicable federal long-term rate isset forth for the month of December 2006. See Rev.Rul. 2006-61, page 1028.

Section 412.—MinimumFunding Standards


Section 467.—CertainPayments for the Use ofProperty or Services


Section 468.—SpecialRules for Mining and SolidWaste Reclamation andClosing Costs


Section 482.—Allocationof Income and DeductionsAmong Taxpayers


Section 483.—Interest onCertain Deferred Payments


Section 642.—SpecialRules for Credits andDeductions


Section 807.—Rules forCertain Reserves


Section 846.—DiscountedUnpaid Losses Defined

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the month

of December 2006. See Rev. Rul. 2006-61, page1028.

Section 1274.—Determi-nation of Issue Price in theCase of Certain Debt Instru-ments Issued for Property(Also Sections 42, 280G, 382, 412, 467, 468, 482,483, 642, 807, 846, 1288, 7520, 7872.)

Federal rates; adjusted federal rates;adjusted federal long-term rate and thelong-term exempt rate. For purposes ofsections 382, 642, 1274, 1288, and othersections of the Code, tables set forth therates for December 2006.

Rev. Rul. 2006–61

This revenue ruling provides variousprescribed rates for federal income taxpurposes for December 2006 (the currentmonth). Table 1 contains the short-term,mid-term, and long-term applicable fed-eral rates (AFR) for the current monthfor purposes of section 1274(d) of theInternal Revenue Code. Table 2 containsthe short-term, mid-term, and long-termadjusted applicable federal rates (adjustedAFR) for the current month for purposesof section 1288(b). Table 3 sets forth theadjusted federal long-term rate and thelong-term tax-exempt rate described insection 382(f). Table 4 contains the ap-propriate percentages for determining thelow-income housing credit described insection 42(b)(2) for buildings placed inservice during the current month. Table 5contains the federal rate for determiningthe present value of an annuity, an interestfor life or for a term of years, or a remain-der or a reversionary interest for purposesof section 7520. Finally, Table 6 containsthe 2007 interest rate for sections 846 and807.

2006–49 I.R.B. 1028 December 4, 2006

REV. RUL. 2006–61 TABLE 1

Applicable Federal Rates (AFR) for December 2006

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term

AFR 4.97% 4.91% 4.88% 4.86%110% AFR 5.47% 5.40% 5.36% 5.34%120% AFR 5.98% 5.89% 5.85% 5.82%130% AFR 6.48% 6.38% 6.33% 6.30%

Mid-term

AFR 4.73% 4.68% 4.65% 4.64%110% AFR 5.22% 5.15% 5.12% 5.10%120% AFR 5.70% 5.62% 5.58% 5.56%130% AFR 6.17% 6.08% 6.03% 6.00%150% AFR 7.14% 7.02% 6.96% 6.92%175% AFR 8.36% 8.19% 8.11% 8.05%

Long-term

AFR 4.90% 4.84% 4.81% 4.79%110% AFR 5.39% 5.32% 5.29% 5.26%120% AFR 5.89% 5.81% 5.77% 5.74%130% AFR 6.39% 6.29% 6.24% 6.21%


Adjusted AFR for December 2006

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term adjustedAFR

3.42% 3.39% 3.38% 3.37%

Mid-term adjusted AFR 3.59% 3.56% 3.54% 3.53%

Long-term adjustedAFR

4.14% 4.10% 4.08% 4.07%


Rates Under Section 382 for December 2006

Adjusted federal long-term rate for the current month 4.14%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjustedfederal long-term rates for the current month and the prior two months.) 4.22%


Appropriate Percentages Under Section 42(b)(2) for December 2006Appropriate percentage for the 70% present value low-income housing credit 8.12%

Appropriate percentage for the 30% present value low-income housing credit 3.48%

December 4, 2006 1029 2006–49 I.R.B.


Rate Under Section 7520 for December 2006

Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,or a remainder or reversionary interest 5.8%


Applicable rate of interest for 2007 for purposes of section 846 and 807 3.97%

Section 1288.—Treatmentof Original Issue Discounton Tax-Exempt Obligations


Section 6011.—GeneralRequirement of Return,Statement, or List26 CFR 1.6011–4: Requirement of statement disclos-ing participation in certain transactions by taxpay-ers.

26 CFR 301.6111–3T: Disclosure of reportabletransactions (temporary).

26 CFR 301.6112–1: Requirement to prepare, main-tain, and furnish lists with respect to potentially abu-sive tax shelters.

T.D. 9295

DEPARTMENT OFTHE TREASURYInternal Revenue Service26 CFR Parts 1 and 301

AJCA Modifications to theSection 6011, 6111, and6112 Regulations

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final and temporary regula-tions.

SUMMARY: This document contains tem-porary and final regulations under sections6011, 6111, and 6112 of the Internal Rev-enue Code that modify the rules relating

to the disclosure of reportable transactionsand the list maintenance requirements.These regulations affect taxpayers partic-ipating in reportable transactions undersection 6011, material advisors responsi-ble for disclosing reportable transactionsunder section 6111, and material advisorsresponsible for keeping lists under section6112. These temporary and final regula-tions are being issued concurrently withproposed regulations (REG–103038–05,REG–103039–05, and REG–103043–05)under sections 6011, 6111, and 6112 pub-lished elsewhere in the Bulletin.

DATES: Effective Date: These regulationsare effective November 1, 2006.

FOR FURTHER INFORMATIONCONTACT: Tara P. Volungis orCharles Wien, 202–622–3070 (not atoll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document amends 26 CFR parts1 and 301 by modifying the rules relat-ing to the disclosure of reportable transac-tions under sections 6011 and 6111 and thelist maintenance rules under section 6112.On February 28, 2003, the IRS issued finalregulations under sections 6011, 6111, and6112 (T.D. 9046, 2003–1 C.B. 615) (theFebruary 2003 regulations). The Febru-ary 2003 regulations were published in theFederal Register (68 FR 10161) on March4, 2003. On December 29, 2003, the IRSissued final regulations under section 6011and 6112 (T.D. 9108, 2004–1 C.B. 429)(the December 2003 regulations). The De-cember 2003 regulations were published inthe Federal Register (68 FR 75128) onDecember 30, 2003.

Explanation of Provisions

These regulations relate to the provi-sions for obtaining a private letter rulingand the tolling of the time for providingdisclosure under §1.6011–4 and section6111 and for maintaining a list under sec-tion 6112 during the time the request fora ruling is pending. Because the IRS andTreasury Department believe that the re-moval of the tolling provision will promoteeffective tax administration, these regula-tions eliminate the tolling of the time forproviding disclosure and for maintainingthe list when a taxpayer or a potentialmaterial advisor requests a private letterruling. Proposed regulations removing thetolling provision are being issued concur-rently with these temporary regulations.Taxpayers and potential material advisorsmay still request a ruling on a transactionunder the regular procedures for request-ing a ruling, provided the ruling request isnot factual or hypothetical, but the time forproviding disclosure or for maintaining alist will not be tolled. The removal of thetolling provision is effective for all rulingrequests received on or after November 1,2006.

Special Analyses

It has been determined that these regu-lations are not a significant regulatory ac-tion as defined in Executive Order 12866.Therefore, a regulatory assessment is notrequired. It also has been determined thatsection 553(b) of the Administrative Pro-cedure Act (5 U.S.C. chapter 5) does notapply to these regulations. For applica-bility of the Regulatory Flexibility Act,please refer to the cross-reference notice ofproposed rulemaking published elsewherein this issue of the Bulletin. Pursuant tosection 7805(f) of the Internal RevenueCode, this regulation will be submitted to

2006–49 I.R.B. 1030 December 4, 2006

the Chief Counsel for Advocacy of theSmall Business Administration for com-ment on its impact on small business.

Drafting Information

The principal authors of these reg-ulations are Tara P. Volungis andCharles Wien, Office of the AssociateChief Counsel (Passthroughs and SpecialIndustries). However, other personnelfrom the IRS and Treasury Departmentparticipated in their development.

* * * * *

Amendments to the Regulations

Accordingly, 26 CFR parts 1 and 301are amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation forpart 1 is amended by adding an entry innumerical order to read, in part, as follows:

Authority: 26 U.S.C. 7805 * * *Section 1.6011–4T also issued under

26 U.S.C. 6011 * * *Par. 2. Section 1.6011–4 is amended

by:1. Revising paragraphs (f)(1) and

(f)(3).2. Redesignating the text of paragraph

(h) as (h)(1) and adding a heading.3. Adding paragraph (h)(2).The revisions and additions read as fol-

lows:

§1.6011–4 Requirement of statementdisclosing participation in certaintransactions by taxpayers.

* * * * *(f) * * * (1) [Reserved]. For further

guidance, see §1.6011–4T(f)(1).(2) * * *(3) [Reserved]. For further guidance,

see §1.6011–4T(f)(1).

* * * * *(h) Effective date—(1) In general. * * *(2) [Reserved]. For further guidance,

see §1.6011–4T(h)(2).Par. 3. Section 1.6011–4T is added to

read as follows:

§1.6011–4T Requirement of statementdisclosing participation in certaintransactions by taxpayers (temporary).

(a) through (e) [Reserved]. For furtherguidance, see §1.6011–4(a) through (e).

(f) Rulings and protective disclo-sures—(1) Rulings. If a taxpayer requestsa ruling on the merits of a specific trans-action on or before the date that disclosurewould otherwise be required under thissection, and receives a favorable rulingas to the transaction, the disclosure rulesunder this section will be deemed to havebeen satisfied by that taxpayer with regardto that transaction, so long as the requestfully discloses all relevant facts relating tothe transaction which would otherwise berequired to be disclosed under this section.If a taxpayer requests a ruling as to whethera specific transaction is a reportable trans-action on or before the date that disclosurewould otherwise be required under thissection, the Commissioner in his discre-tion may determine that the submissionsatisfies the disclosure rules under thissection for the taxpayer requesting theruling for that transaction if the requestfully discloses all relevant facts relating tothe transaction which would otherwise berequired to be disclosed under this section.The potential obligation of the taxpayer todisclose the transaction under this sectionwill not be suspended during the periodthat the ruling request is pending.

(f)(2) through (g) [Reserved]. For fur-ther guidance, see §1.6011–4(f)(2) through(g).

(h) Effective date—(1) [Reserved]. Forfurther guidance, see §1.6011–4(h)(1).

(2) Tolling provision. Paragraph (f)(1)of this section applies to ruling requestsreceived on or after November 1, 2006.The applicability of this section expires onor before November 2, 2009.

PART 301—PROCEDURE ANDADMINISTRATION

Par. 4. The authority citation for part301 is amended by adding an entry in nu-merical order to read, in part, as follows:

Authority: 26 U.S.C. 7805 * * *Section 301.6111–3T also issued under

26 U.S.C. 6111 * * *

Par. 5. Section 301.6111–3T is addedto read as follows:

§301.6111–3T Disclosure of reportabletransactions (temporary).

(a) through (g) [Reserved].(h) Rulings. If a potential material ad-

visor requests a ruling as to whether a spe-cific transaction is a reportable transactionon or before the date that disclosure wouldotherwise be required under this section,the Commissioner in his discretion maydetermine that the submission satisfies thedisclosure rules under this section for thattransaction if the request fully disclosesall relevant facts relating to the transactionwhich would otherwise be required to bedisclosed under this section. The poten-tial obligation of the person to disclose thetransaction under this section (or to main-tain or furnish the list under §301.6112–1)will not be suspended during the periodthat the ruling request is pending.

(i) Effective date—(1) [Reserved].(2) Tolling provision. Paragraph (h) of

this section applies to ruling requests re-ceived on or after November 1, 2006. Theapplicability of this section expires on orbefore November 2, 2009.

Par. 6. Section 301.6112–1 is amendedby revising paragraph (i) to read as fol-lows:

§301.6112–1 Requirement to prepare,maintain, and furnish lists with respect topotentially abusive tax shelters.

* * * * *(i) [Reserved]. For further guidance,

see §301.6111–3T(h).

* * * * *

Mark E. Matthews,Deputy Commissioner forServices and Enforcement.

Approved October 25, 2006.

Eric Solomon,Acting Deputy Assistant

Secretary of the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on November 1,2006, 8:45 a.m., and published in the issue of the FederalRegister for November 2, 2006, 71 F.R. 64458)

December 4, 2006 1031 2006–49 I.R.B.

Section 7520.—ValuationTables


Section 7872.—Treatmentof Loans With Below-MarketInterest Rates


2006–49 I.R.B. 1032 December 4, 2006

Part III. Administrative, Procedural, and MiscellaneousTables for Figuring AmountExempt From Levy on Wages,Salary, and Other Income

Notice 2006–106

1. Table for Figuring Amount Exempt From Levy on Wages, Salary, and Other Income(Forms 668–W(c) and 668–W(c)(DO)) 2007

Publication 1494, shown below, provides tables that show the amount of an individual’s income that is exempt from a noticeof levy used to collect delinquent tax in 2007.

(Amounts are for each pay period.)

Filing Status: Single

Number of Exemptions Claimed on Statement

Pay Period 1 2 3 4 5 6 More Than 6

Daily 33.65 46.73 59.81 72.88 85.96 99.04 20.58 plus 13.08 foreach exemption

Weekly 168.27 233.65 299.04 364.42 429.81 495.19 102.89 plus 65.39 foreach exemption

Biweekly 336.54 467.31 598.08 728.85 859.62 990.38 205.77 plus 130.77 foreach exemption

Semi-monthly

364.58 506.25 647.92 789.58 931.25 1072.92 222.92 plus 141.67 foreach exemption

Monthly 729.17 1012.50 1295.83 1579.17 1862.50 2145.83 445.83 plus 283.33 foreach exemption

Filing Status: Unmarried Head of Household






Semi-monthly



December 4, 2006 1033 2006–49 I.R.B.

Filing Status: Married Filing Joint Return (and Qualifying Widow(er)s)






Semi-monthly



Filing Status: Married Filing Separate Return






Semi-monthly



2. Table for Figuring Additional Exempt Amount for Taxpayers at Least 65 Years Old and/or Blind

Additional Exempt Amount

Filing Status * Daily Wkly Bi-Wkly Semi-Mo Monthly

Single or Headof Household

12

5.0010.00

25.0050.00

50.00100.00

54.17108.33

108.33216.67

Any OtherFiling Status

1234

4.048.08

12.1216.15

20.1940.3860.5880.77

40.3880.77

121.15161.54

43.7587.50

131.25175.00

87.50175.00262.50350.00

* ADDITIONAL STANDARD DEDUCTION claimed on Parts 3, 4, & 5 of levy.

2006–49 I.R.B. 1034 December 4, 2006

Examples

These tables show the amount exempt from a levy on wages, salary, and other income.For example:

1. A single taxpayer who is paid weekly and claims three exemptions (including one for the taxpayer) has $299.04 exemptfrom levy.

2. If the taxpayer in number 1 is over 65 and writes 1 in the ADDITIONAL STANDARD DEDUCTION space on Parts 3, 4, & 5of the levy, $324.04 is exempt from this levy ($299.04 plus $25.00).

3. A taxpayer who is married, files jointly, is paid biweekly, and claims two exemptions (including one for the taxpayer) has$673.08 exempt from levy.

4. If the taxpayer in number 3 is over 65 and has a spouse who is blind, this taxpayer should write 2 in the ADDITIONALSTANDARD DEDUCTION space on Parts 3, 4, & 5 of the levy. Then, $753.85 is exempt from this levy ($673.08 plus $80.77).

26 CFR 601.201: Rulings and determination letters.

Procedures for Requesting Competent Authority Assistance Under Tax Treaties

Rev. Proc. 2006–54

TABLE OF CONTENTS

SECTION 1. PURPOSE AND BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1037.01 Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1037.02 Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1037.03 Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1037

SECTION 2. SCOPE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1037.01 In General.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1037.02 Requests for Assistance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1038.03 General Process.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1038.04 Failure to Request Assistance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1038

SECTION 3. GENERAL CONDITIONS UNDER WHICH THIS PROCEDURE APPLIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1038.01 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1038.02 Requirements of a Treaty.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1038.03 Applicable Standards in Allocation Cases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1038.04 Who Can File Requests for Assistance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1038.05 Closed Cases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1038.06 Foreign Initiated Competent Authority Request. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1038.07 Requests Relating to Residence Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1038.08 Determinations Regarding Limitation on Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1039

SECTION 4. PROCEDURES FOR REQUESTING COMPETENT AUTHORITY ASSISTANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1039.01 Time for Filing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1039.02 Place of Filing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1039.03 Additional Filing.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1039.04 Form of Request. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1039.05 Information Required.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1039.06 Other Dispute Resolution Programs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1040.07 Other Documentation.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1040.08 Updates.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1040.09 Conferences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1040

SECTION 5. SMALL CASE PROCEDURE FOR REQUESTING COMPETENT AUTHORITY ASSISTANCE . . . . . . . . . . . . . . . . . 1041

December 4, 2006 1035 2006–49 I.R.B.

.01 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1041

.02 Small Case Standards.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1041

.03 Small Case Filing Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1041

SECTION 6. RELIEF REQUESTED FOR FOREIGN INITIATED ADJUSTMENT WITHOUT COMPETENTAUTHORITY INVOLVEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1041

SECTION 7. COORDINATION WITH OTHER ADMINISTRATIVE OR JUDICIAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . 1041.01 Suspension of Administrative Action with Respect to U.S. Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1041.02 Coordination with IRS Appeals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1042.03 Coordination with Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1042.04 Coordination with Other Alternative Dispute Resolution and Pre-Filing Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1042.05 Effect of Agreements or Judicial Determinations on Competent Authority Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1042.06 Accelerated Competent Authority Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1042

SECTION 8. SIMULTANEOUS APPEALS PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1043.01 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1043.02 Time for Requesting the Simultaneous Appeals Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1043

(1) When Filing for Competent Authority Assistance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1043(2) After Filing for Competent Authority Assistance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1043

.03 Cases Pending in Court. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1043

.04 Request for Simultaneous Appeals Procedure.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1043

.05 Role of IRS Appeals in the Simultaneous Appeals Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1044(1) IRS Appeals Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1044(2) Assistance to U.S. Competent Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1044

.06 Denial or Termination of Simultaneous Appeals Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1044(1) Taxpayer’s Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1044(2) IRS’s Denial or Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1044

.07 Returning to IRS Appeals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1044

.08 IRS Appeals’ Consideration of Non-Competent Authority Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1044

SECTION 9. PROTECTIVE MEASURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1044.01 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1044.02 Filing Protective Claim for Credit or Refund with a Competent Authority Request. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1044

(1) In General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1044(2) Treatment of Competent Authority Request as Protective Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1045

.03 Protective Filing Before Competent Authority Request. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1045(1) In general. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1045(2) Letter to Competent Authority Treated as Protective Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1045(3) Notification Requirement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1045(4) No Consultation between Competent Authorities until Formal Request is Filed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1045

.04 Effect of a Protective Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1045

.05 Treaty Provisions Waiving Procedural Barriers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1045

SECTION 10. APPLICATION OF REV. PROC. 99–32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1045

SECTION 11. DETERMINATION OF CREDITABLE FOREIGN TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1046

SECTION 12. ACTION BY U.S. COMPETENT AUTHORITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1046.01 Notification of Taxpayer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1046.02 Denial of Assistance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1046.03 Extending Period of Limitations for Assessment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1046.04 No Review of Denial of Request for Assistance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1046.05 Notification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1046.06 Closing Agreement.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1047.07 Unilateral Withdrawal or Reduction of U.S. Initiated Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1047

SECTION 13. REQUESTS FOR RULINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1047.01 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1047.02 Foreign Tax Rulings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1047

2006–49 I.R.B. 1036 December 4, 2006

SECTION 14. FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1047.01 Requests to Which a User Fee Does Not Apply. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1047.02 Requests to Which a User Fee Applies.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1047.03 Acceptance of Requests.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1047.04 Address to Send Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1047.05 Refunds of User Fee.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1047

SECTION 15. EFFECT ON OTHER DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1047

SECTION 16. EFFECTIVE DATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1048

SECTION 17. PAPERWORK REDUCTION ACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1048

SECTION 18. DRAFTING INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1048

SECTION 1. PURPOSE ANDBACKGROUND

.01 Purpose. This revenue procedureexplains the procedures by which taxpay-ers may obtain assistance from the U.S.competent authority under the provisionsof a tax treaty to which the United Statesis a party. This revenue procedure up-dates and supersedes Rev. Proc. 2002–52,2002–2 C.B. 242.

.02 Background. The U.S. competentauthority assists taxpayers with respect tomatters covered in the mutual agreementprocedure provisions of tax treaties. A taxtreaty generally permits taxpayers to re-quest competent authority assistance whenthey consider that the actions of the UnitedStates, the treaty country, or both, resultor will result in taxation that is contraryto the provisions of the treaty. For exam-ple, tax treaties generally permit taxpayersto request assistance in order to relieveeconomic double taxation arising from anallocation under section 482 of the InternalRevenue Code (the “Code”) or an equiv-alent provision under the laws of a treatycountry. Competent authority assistancemay also be available with respect to issuesspecifically dealt with in other provisionsof a treaty. For example, many tax treatiescontain provisions permitting competentauthorities to resolve issues of fiscal res-idence or allowing a competent authorityto make a discretionary determination thata taxpayer is entitled to the benefits of atreaty under specific limitation on benefitsprovisions. See sections 3.07 and 3.08of this revenue procedure. The DeputyCommissioner (International), Large andMid-Size Business Division, acts as theU.S. competent authority in administeringthe operating provisions of tax treaties,including reaching mutual agreements

in specific cases, and in interpreting andapplying tax treaties. In interpreting andapplying tax treaties, the Deputy Commis-sioner (International), Large and Mid-SizeBusiness Division, acts only with the con-currence of the Associate Chief Counsel(International). See Delegation Order4–12 (formerly DO–114, Rev. 13), In-ternal Revenue Manual (“IRM”), Part1 Organization, Finance and Manage-ment, Chapter 2 Servicewide Policies andAuthorities, Section 43 Delegation of Au-thorities for the Examining Process (IRM1.2.43), http://www.irs.gov/irm/part1/ch02s10.html#d0e33677.

.03 Changes. Although most of thechanges made by this revenue procedure toRev. Proc. 2002–52 are minor edits for or-ganization, accuracy, readability, or updat-ing of citations to cross-referenced guid-ance, substantive changes have also beenmade and may be summarized as follows:

(1) Sections 3.04, 3.08 and 7.06 havebeen revised to clarify standards for accep-tance of requests for competent authorityassistance.

(2) Sections 3.08, 4.04 and 5.03 havebeen revised to clarify signature require-ments for requests for determinations re-garding limitation on treaty benefits.

(3) Section 4.04 has been revised to pro-vide for filing copies of submissions onelectronic media.

(4) Sections 4.05 and 5.03 have been re-vised to provide additional detail regardinginformation to be submitted with requestsfor competent authority assistance.

(5) Sections 7.02 and 7.05 have been re-vised to clarify current practices regardingcoordination with IRS Appeals.

(6) Section 7.06 has been revised toclarify the coordination of the acceleratedcompetent authority procedure with re-quests for Advance Pricing Agreements.

(7) Section 8.04 has been revised toclarify current practices regarding the pro-cessing of requests for the SimultaneousAppeal procedure.

(8) Section 9.03(3) has been revised toreduce the frequency with which taxpayersfiling protective claims are required to no-tify the U.S. competent authority as to theirintent to file a request for assistance.

(9) Section 10 has been revised to clar-ify the role of the U.S. competent author-ity in considering requests regarding con-forming a taxpayer’s accounts and allow-ing repatriation of certain amounts follow-ing an allocation of income between re-lated U.S. and foreign corporations undersection 482 of the Code.

(10) Section 12.02(8) has been revisedto provide for denial of competent author-ity assistance where the underlying trans-action is listed for purposes of the applica-ble Treasury regulations as a tax avoidancetransaction.

(11) Section 14 has been revised to im-plement user fees for requests for determi-nations regarding limitation on treaty ben-efits.

SECTION 2. SCOPE

.01 In General. This revenue procedureaddresses procedures for obtaining assis-tance from the U.S. competent authorityunder the provisions of an income, estateor gift tax treaty entered into between theUnited States and another country. TheU.S. competent authority assists taxpay-ers with respect to matters covered in taxtreaties in the manner specified in themutual agreement procedure provisionsor other provisions of the relevant taxtreaty. Taxpayers are urged to examinethe specific provisions of the treaty underwhich they seek relief, in order to deter-

December 4, 2006 1037 2006–49 I.R.B.

mine whether relief may be available intheir particular case. If, after examiningthe applicable treaty, a taxpayer is unsurewhether relief is available, the taxpayershould contact competent authority. Thisrevenue procedure is not intended to limitany specific treaty provisions relating tocompetent authority matters.

.02 Requests for Assistance. In gen-eral, requests by taxpayers for competentauthority assistance must be submittedin accordance with this revenue proce-dure. However, where a treaty or otherpublished administrative guidance pro-vides specific procedures for requests forcompetent authority assistance, those pro-cedures will apply, and the provisions ofthis revenue procedure will not apply tothe extent inconsistent with such proce-dures. Taxpayers may consult the “TaxInformation for International Businesses”and “Competent Authority Agreements”pages at www.irs.gov for links to a varietyof agreements and other documents thatmay modify the procedures set forth inthis revenue procedure.

.03 General Process. If a taxpayer’srequest for competent authority assistanceis accepted, the U.S. competent authoritygenerally will consult with the appropriateforeign competent authority and attempt toreach a mutual agreement that is accept-able to all parties. The U.S. competent au-thority also may initiate competent author-ity negotiations in any situation deemednecessary to protect U.S. interests. Sucha situation may arise, for example, whena taxpayer fails to request competent au-thority assistance after agreeing to a U.S.or foreign tax assessment that is contrary tothe provisions of an applicable tax treaty orfor which correlative relief may be avail-able.

.04 Failure to Request Assistance. Fail-ure to request competent authority assis-tance or to take appropriate steps as nec-essary to maintain the availability of theremedy may cause a denial of part or all ofany foreign tax credits claimed. See Treas.Reg. §1.901–2(e)(5)(i). See also section 9of this revenue procedure concerning pro-tective measures and section 11 of this rev-enue procedure concerning the determina-tion of creditable foreign taxes.

SECTION 3. GENERAL CONDITIONSUNDER WHICH THIS PROCEDUREAPPLIES

.01 General. The exclusions, exemp-tions, deductions, credits, reductions inrate, and other benefits and safeguardsprovided by treaties are subject to con-ditions and restrictions that may vary indifferent treaties. Taxpayers should exam-ine carefully the specific treaty provisionsapplicable in their cases to determine thenature and extent of treaty benefits orsafeguards they are entitled to and theconditions under which such benefits orsafeguards are available. See section 9 ofthis revenue procedure, which prescribesprotective measures to be taken by thetaxpayer and any concerned related per-son with respect to U.S. and foreign taxauthorities. See also section 12.02 of thisrevenue procedure for circumstances inwhich competent authority assistance maybe denied.

.02 Requirements of a Treaty. There isno authority for the U.S. competent author-ity to provide relief from U.S. tax or to pro-vide other assistance due to taxation aris-ing under the tax laws of a foreign countryor the United States, unless such authorityis granted by a treaty. See also Rev. Proc.2006–23, 2006–20 I.R.B. 900, for proce-dures for requesting the assistance of theIRS when a taxpayer is or may be subjectto inconsistent tax treatment by the IRSand a U.S. possession tax agency.

.03 Applicable Standards in AllocationCases. With respect to requests for com-petent authority assistance involving theallocation of income and deductions be-tween a U.S. taxpayer and a related per-son, the U.S. competent authority and itscounterpart in the treaty country will bebound by the arm’s length standard pro-vided by the applicable provisions of therelevant treaty. The U.S. competent au-thority will also be guided by the arm’slength standard consistent with the regu-lations under section 482 of the Code andthe Transfer Pricing Guidelines for Multi-national Enterprises and Tax Administra-tions as published from time to time bythe Organisation for Economic Co-opera-tion and Development. When negotiatingmutual agreements on the allocation of in-come and deductions, the U.S. competentauthority will take into account all of the

facts and circumstances of the particularcase and the purpose of the treaty, whichis to avoid double taxation.

.04 Who Can File Requests for Assis-tance. The U.S. competent authority willconsider requests for assistance from U.S.persons, as defined in section 7701(a)(30)of the Code, and from non-U.S. persons aspermitted under an applicable tax treaty.As noted in section 12.02 of this rev-enue procedure, there are circumstancesin which the U.S. competent authoritywill not pursue assistance. For purposesof this revenue procedure, except wherethe context otherwise requires, the term“taxpayer” refers to the person requestingcompetent authority assistance.

.05 Closed Cases. A case previouslyclosed after examination will not be re-opened in order to make an adjustmentunfavorable to the taxpayer except in thepresence of an exceptional circumstancedescribed in Rev. Proc. 2005–32, 2005–23I.R.B. 1206 (providing procedures for re-opening cases if fraud, substantial error,or certain other circumstances are present).The U.S. competent authority may, but isnot required to, accept a taxpayer’s requestfor competent authority consideration thatwill require the reopening of a case closedafter examination.

.06 Foreign Initiated Competent Au-thority Request. When a foreign com-petent authority refers a request from aforeign person to the U.S. competent au-thority for consultation under the mutualagreement procedure, the U.S. competentauthority generally will require the U.S.related person (in the case of an allocationof income or deductions between relatedpersons) or may require the foreign per-son (in other cases) to file a request forcompetent authority assistance under thisrevenue procedure.

.07 Requests Relating to Residence Is-sues. U.S. competent authority assistancemay be available to taxpayers seekingto clarify their residency status in theUnited States. Examples include cases inwhich taxpayers believe that they are er-roneously treated as non-U.S. residents bytreaty countries or cases where taxpayersare treated as dual residents despite theobjective tie-breaker provisions containedin the applicable treaties. Generally, com-petent authority assistance is limited tosituations where resolution of a residency

2006–49 I.R.B. 1038 December 4, 2006

issue is necessary in order to avoid doubletaxation or to determine the applicabilityof a benefit under the treaty. Further, a re-quest for assistance regarding a residencyissue will be accepted only if it is estab-lished that the issue requires consultationwith the foreign competent authority inorder to ensure consistent treatment bythe United States and the applicable treatycountry. The U.S. competent authoritydoes not issue unilateral determinationswith respect to whether an individual is aresident of the United States or of a treatycountry.

.08 Determinations Regarding Limita-tion on Benefits. Many treaties contain alimitation on benefits article that enumer-ates prescribed requirements that must bemet to be eligible for benefits under thetreaty. The U.S. competent authority willnot issue determinations regarding a tax-payer’s status under one of the prescribedrequirements in a limitation on benefitsprovision. However, certain treaties pro-vide that the competent authority may,as a matter of discretion, determine theavailability of treaty benefits where theprescribed requirements are not met. Re-quests for assistance in such cases shouldcomply with this revenue procedure andany other specific procedures that maybe issued from time to time. A requestmay be with respect to an initial dis-cretionary determination, a renewal ora redetermination. The request shouldtake the form of a letter as described insection 4.04 of this revenue procedure,except that if the requester does not filefederal tax returns and cannot identify aperson authorized to sign such returns,the letter may be dated and signed by anyauthorized representative or officer of therequester. Taxpayers who are request-ing a discretionary determination undera limitation on benefits provision shouldinclude the user fee as described in Sec-tion 14 of this revenue procedure as wellas the information described in Exhibit4.60.3–3 of the Internal Revenue Man-ual (“IRM”), Part 4 Examining Process,Chapter 60 International Procedure, Sec-tion 3 Tax Treaty Related Matters (IRM4.60.3), http://www.irs.gov/irm/part4/ch45s03.html.

SECTION 4. PROCEDURES FORREQUESTING COMPETENTAUTHORITY ASSISTANCE

.01 Time for Filing. A request for com-petent authority assistance generally maybe filed at any time after an action resultsin taxation not in accordance with the pro-visions of the applicable treaty. In a caseinvolving a U.S. initiated adjustment of taxor income resulting from a tax examina-tion, a request for competent authority as-sistance may be submitted as soon as prac-ticable after the amount of the proposedadjustment is communicated in writing tothe taxpayer (e.g., a Notice of ProposedAdjustment). Where a U.S. initiated ad-justment has not yet been communicatedin writing to the taxpayer, the U.S. com-petent authority generally will deny the re-quest as premature. In the case of a foreignexamination, a request may be submittedas soon as the taxpayer believes such fil-ing is warranted based on the actions ofthe country proposing the adjustment. In acase involving the re-allocation of incomeor deductions between related persons, therequest should not be filed until such timethat the taxpayer can establish that there isa probability of double taxation. In casesnot involving an examination, a requestcan be made when the taxpayer believesthat an action or potential action warrantsthe assistance of the U.S. competent au-thority. Examples of such action include:(a) a ruling or promulgation by a foreigntax authority concerning a taxation matter;and (b) the withholding of tax by a with-holding agent. Except where otherwiseprovided in an applicable treaty, taxpayershave discretion over the time for filing arequest; however, delays in filing may pre-clude effective relief. See section 9 of thisrevenue procedure, which explains protec-tive measures to be taken by the taxpayerand any concerned related person with re-spect to U.S. and foreign tax authorities.See also section 7.06 of this revenue pro-cedure for rules relating to accelerated is-sue resolution and competent authority as-sistance.

.02 Place of Filing. The taxpayer mustsend all written requests for, or any in-quiries regarding, U.S. competent author-ity assistance to the Deputy Commissioner(International), Large and Mid-Size Busi-ness Division, Attn: Office of Tax Treaty,

Internal Revenue Service, 1111 Constitu-tion Avenue, NW, Routing: MA3–322A,Washington, D.C. 20224.

.03 Additional Filing. In the case ofU.S. initiated adjustments, the taxpayeralso must file a copy of the request withthe office of the IRS where the taxpayer’scase is pending. If the request is filedafter the matter has been designated forlitigation or while a suit contesting therelevant tax liability of the taxpayer ispending in a United States court, a copyof the request also must be filed with theOffice of Associate Chief Counsel (Inter-national), Internal Revenue Service, 1111Constitution Avenue, N.W., Washington,D.C. 20224, with a separate statement at-tached identifying the court where the suitis pending and the docket number of theaction.

.04 Form of Request. A request for U.S.competent authority assistance must be inthe form of a letter addressed to the DeputyCommissioner (International), Large andMid-Size Business Division. It must bedated and signed by a person having theauthority to sign the taxpayer’s federal taxreturns. The request must contain a state-ment that competent authority assistance isbeing requested and must include the in-formation described in section 4.05 of thisrevenue procedure. In addition to the orig-inal signed submission, a copy of the textof the request and any materials contem-poraneously prepared in support of the re-quest must also be submitted, in AdobePDF or Microsoft Word format, in the formof a CD, DVD, or 3.5-inch diskette. Seesection 5 of this revenue procedure for re-quests involving small cases.

.05 Information Required. The follow-ing information must be included in the re-quest for competent authority assistance:

(1) a reference to the specific treaty andthe provisions therein pursuant to whichthe request is made;

(2) the names, addresses, U.S. taxpayeridentification number and foreign taxpayeridentification number (if any) of the tax-payer and, if applicable, all related personsinvolved in the matter;

(3) a brief description of the issues forwhich competent authority assistance is re-quested, including a description of the rel-evant transactions, activities or other cir-cumstances involved in the issues raisedand the basis for the adjustment, if any;

December 4, 2006 1039 2006–49 I.R.B.

(4) if applicable, a description of thecontrol and business relationships betweenthe taxpayer and any relevant related per-son for the years in issue, including anychanges in such relationship to the date offiling the request;

(5) the years and amounts involved withrespect to the issues in both U.S. dollarsand foreign currency;

(6) the IRS office that has made or isproposing to make the adjustment or, ifknown, the IRS office with examinationjurisdiction over the taxpayer;

(7) an explanation of the nature of therelief sought or the action requested inthe United States or in the treaty countrywith respect to the issues raised, includ-ing a statement as to whether the taxpayerwishes to apply for treatment similar tothat provided under Rev. Proc. 99–32,1999–2 C.B. 296 (referred to in this rev-enue procedure as “Rev. Proc. 99–32treatment” and explained in further detailin section 10 of this revenue procedure);

(8) a statement whether the period oflimitations for the years for which relief issought has expired in the United States orin the treaty country;

(9) a statement of relevant domestic andforeign judicial or administrative proceed-ings that involve the taxpayer and relatedpersons, including all information relatedto notification of the treaty country;

(10) to the extent known by the tax-payer, a statement of relevant foreign ju-dicial or public administrative proceedingsthat do not involve the taxpayer or re-lated persons but involve the same issuefor which competent authority assistanceis requested;

(11) a statement whether the requestfor competent authority assistance in-volves issues that are currently, or werepreviously, considered part of an AdvancePricing Agreement (“APA”) proceedingor other proceeding relevant to the issueunder consideration in the United States orpart of a similar proceeding in the foreigncountry;

(12) if applicable, powers of attorneywith respect to the taxpayer, and the re-quest should identify the individual toserve as the taxpayer’s initial point ofcontact for the competent authority;

(13) if the jurisdiction of an issue is withan IRS Appeals office, a summary of priordiscussions of the issue with that office andcontact information regarding the IRS Ap-

peals officer handling the issue; also, ifappropriate, a statement whether the tax-payer is requesting the Simultaneous Ap-peals procedure as provided in section 8 ofthis revenue procedure;

(14) in a separate section, the statementand information required by section 9.02of this revenue procedure if the request isto serve as a protective claim;

(15) on a separate document, a state-ment that the taxpayer consents to the dis-closure to the competent authority of thetreaty country (with the name of the treatycountry specifically stated) and that com-petent authority’s staff, of any or all of theitems of information set forth or enclosedin the request for U.S. competent author-ity assistance within the limits contained inthe tax treaty under which the taxpayer isseeking relief. The taxpayer may request,as part of this statement, that its trade se-crets not be disclosed to a foreign com-petent authority. This statement must bedated and signed by a person having au-thority to sign the taxpayer’s federal taxreturns and is required to facilitate the ad-ministrative handling of the request by theU.S. competent authority for purposes ofthe recordkeeping requirements of section6103(p) of the Code. Failure to providesuch a statement will not prevent the U.S.competent authority from disclosing infor-mation under the terms of a treaty. Seesection 6103(k)(4) of the Code. Taxpayersare encouraged to provide duplicates to theU.S. and foreign competent authorities ofall information otherwise disclosable un-der the treaty;

(16) a penalties of perjury statement inthe following form:

Under penalties of perjury, I declarethat I have examined this request, in-cluding accompanying documents, and,to the best of my knowledge and be-lief, the facts presented in support ofthe request for competent authority as-sistance are true, correct and complete.

The declaration must be dated and signedby the person or persons on whose be-half the request is being made and not bythe taxpayer’s representative. The personsigning for a corporate taxpayer must bean authorized officer of the taxpayer whohas personal knowledge of the facts. Theperson signing for a trust, an estate or apartnership must be respectively, a trustee,an executor or a partner who has personalknowledge of the facts; and

(17) any other information required orrequested under this revenue procedure, asapplicable. See, e.g., section 7.06 of thisrevenue procedure, which requires the pro-vision of certain information in the case ofa request for the accelerated competent au-thority procedure, and section 10 of thisrevenue procedure, which requires the pro-vision of certain information in the caseof a request for Rev. Proc. 99–32 treat-ment. Requests for supplemental informa-tion may include items such as detailed fi-nancial information, comparability analy-sis, or other material relevant to a transferpricing analysis.

.06 Other Dispute Resolution Pro-grams. Requests for competent authorityassistance that involve an APA or Pre-Fil-ing Agreement request must include theinformation required under Rev. Proc.2006–9, 2006–2 I.R.B. 278 (concerningAPAs), and Rev. Proc. 2005–12, 2005–2I.R.B. 311 (concerning Pre-Filing Agree-ments).

.07 Other Documentation. In addi-tion, on request, the taxpayer must submitany other information or documentationdeemed necessary by the U.S. or for-eign competent authority for purposesof reaching an agreement. This includesEnglish translations of any documentationrequired in connection with the competentauthority request.

.08 Updates. The taxpayer must keepthe U.S. competent authority informed ofall material changes in the information ordocumentation previously submitted aspart of, or in connection with, the requestfor competent authority assistance. Thetaxpayer also must provide any updatedinformation or new documentation thatbecomes known or is created after the re-quest is filed and which is relevant to theresolution of the issues under considera-tion.

.09 Conferences. To the extent possi-ble, the U.S. competent authority will con-sult with the taxpayer regarding the sta-tus and progress of the mutual agreementproceedings. The taxpayer may request apre-filing conference with the U.S. compe-tent authority to discuss the mutual agree-ment process with respect to matters cov-ered under a treaty, including discussion ofthe proper time for filing, the practical as-pects of obtaining relief and actions nec-essary to facilitate the proceedings. Simi-

2006–49 I.R.B. 1040 December 4, 2006

larly, after a matter is resolved by the com-petent authorities, a taxpayer may also re-quest a conference with the U.S. compe-tent authority to discuss the resolution.

SECTION 5. SMALL CASEPROCEDURE FOR REQUESTINGCOMPETENT AUTHORITYASSISTANCE

.01 General. To facilitate requests forassistance involving small cases, this sec-tion provides a special procedure simpli-fying the form of a request for assistanceand, in particular, the amount of informa-

tion that initially must be submitted. Allother requirements of this revenue proce-dure continue to apply to requests for as-sistance made pursuant to this section.

.02 Small Case Standards. A taxpayermay file an abbreviated request for com-petent authority assistance in accordancewith this section if the total proposedadjustment involved in the matter is notgreater than the following:

Taxpayer ProposedAdjustment

Individual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,000Corporation/Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000,000Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,000

.03 Small Case Filing Procedure. Theabbreviated request for competent author-ity assistance under the small case proce-dure must be dated and signed by a per-son having the authority to sign the tax-payer’s federal tax returns. Although otherinformation and documentation may be re-quested at a later date, the initial request forassistance should include the following in-formation and materials:

(1) a statement indicating that this is amatter subject to the small case procedure;

(2) the name, address, U.S. taxpayeridentification number and foreign taxpayeridentification number (if any) of the tax-payer and, if applicable, all related personsinvolved in the matter;

(3) a description of the issue and thenature of the relief sought;

(4) the taxable years and amounts in-volved with respect to the issues in bothU.S. and foreign currency;

(5) the name of the treaty country;(6) if applicable, powers of attorney

with respect to the taxpayer;(7) on a separate document, a statement

that the taxpayer consents to the disclosureto the competent authority of the treatycountry (with the name of the treaty coun-try specifically stated) and that competentauthority’s staff, of any or all of the itemsof information set forth or enclosed in therequest for U.S. competent authority assis-tance within the limits contained in the taxtreaty under which the taxpayer is seek-ing relief. The taxpayer may request, aspart of this statement, that its trade secretsnot be disclosed to a foreign competent au-thority. This statement must be dated and

signed by a person having authority to signthe taxpayer’s federal tax returns and is re-quired to facilitate the administrative han-dling of the request by the U.S. competentauthority for purposes of the recordkeep-ing requirements of section 6103(p) of theCode. Failure to provide such a statementwill not prevent the U.S. competent author-ity from disclosing information under theterms of a treaty. See section 6103(k)(4)of the Code; and

(8) a penalties of perjury statement inthe following form:

Under penalties of perjury, I declarethat I have examined this request, in-cluding accompanying documents, and,to the best of my knowledge and be-lief, the facts presented in support ofthe request for competent authority as-sistance are true, correct and complete.

The declaration must be dated and signedby the person or persons on whose be-half the request is being made and not bythe taxpayer’s representative. The personsigning for a corporate taxpayer must bean authorized officer of the taxpayer whohas personal knowledge of the facts. Theperson signing for a trust, an estate or apartnership must be respectively, a trustee,an executor or a partner who has personalknowledge of the facts.

SECTION 6. RELIEF REQUESTEDFOR FOREIGN INITIATEDADJUSTMENT WITHOUTCOMPETENT AUTHORITYINVOLVEMENT

Taxpayers seeking correlative reliefwith respect to a foreign initiated adjust-

ment involving a treaty matter shouldpresent their request to the U.S. competentauthority. However, when the adjustmentinvolves years under the jurisdiction ofthe Industry or Area Director or IRS Ap-peals, taxpayers sometimes try to obtainrelief from these offices. This may occur,for example, if the adjustment involvesa re-allocation of income or deductionsinvolving a related person in a countrywith which the United States has an in-come tax treaty. In these cases, taxpayerswill be advised to contact the U.S. com-petent authority office. In appropriatecases, the U.S. competent authority willadvise the Industry or Area Director orIRS Appeals office on appropriate action.The U.S. competent authority may requestthe taxpayer to provide the informationdescribed under sections 4.05 and 4.07 ofthis revenue procedure. Failure to requestcompetent authority assistance may resultin denial of correlative relief with respectto the issue, including applicable foreigntax credits.

SECTION 7. COORDINATION WITHOTHER ADMINISTRATIVE ORJUDICIAL PROCEEDINGS

.01 Suspension of Administrative Ac-tion with Respect to U.S. Adjustments.When a request for competent authorityassistance is accepted with respect to aU.S. initiated adjustment, the IRS willpostpone further administrative actionwith respect to the issues under competentauthority consideration (such as assess-ment or collection procedures), except:(a) in situations in which the IRS may be

December 4, 2006 1041 2006–49 I.R.B.

requested otherwise by the U.S. compe-tent authority; or (b) in situations involv-ing cases pending in court and in otherinstances in which action must be taken toavoid prejudicing the U.S. Government’sinterest. The normal administrative pro-cedures continue to apply, however, toall other issues not under U.S. competentauthority consideration. For example, ifthere are other issues raised during theexamination and the taxpayer is not inagreement with these issues, the usualprocedures for completing the examina-tion with respect to these issues apply. Ifthe taxpayer is issued a Notice of ProposedAdjustment with respect to these issuesand prepares a protest of the unagreedissues, the taxpayer need not include anyunagreed issue under consideration bythe competent authority. Following thereceipt of a taxpayer’s protest, normalIRS Appeals procedures will be initiatedwith respect to those issues not subject tocompetent authority consideration.

.02 Coordination with IRS Appeals.Taxpayers who disagree with a proposedU.S. adjustment have the option of pur-suing their right of administrative re-view with IRS Appeals before requestingcompetent authority assistance; makinga request pursuant to the SimultaneousAppeals procedure in section 8 of thisrevenue procedure; or requesting com-petent authority assistance immediatelyfor bilateral consideration. Taxpayers re-questing unilateral withdrawal of a U.S.adjustment without consultation with thetreaty country must direct such a requestto IRS Appeals rather than to the U.S.competent authority. Taxpayers who arepursuing their rights with IRS Appealsmay contact the U.S. competent authorityif they believe they have a potential com-petent authority issue. If a taxpayer doesnot go through the Simultaneous Appealsprocedure and instead enters into settle-ment discussions with IRS Appeals beforemaking a competent authority request,the U.S. competent authority may relyupon, but will not necessarily be boundby, such previous consideration by IRSAppeals when considering the case (seealso section 7.05 of this revenue procedureregarding settlements with IRS Appealsand section 8.05 of this revenue procedureregarding the role of IRS Appeals in theSimultaneous Appeals procedure). If a

taxpayer enters into the Appeals arbitra-tion program (see Rev. Proc. 2006–44,2006–44 I.R.B. 800), the taxpayer gener-ally may not request competent authorityassistance until the arbitration processis completed. However, if the taxpayerdemonstrates that a request for competentauthority assistance is necessary to keepopen a statute of limitations in the treatycountry, then competent authority assis-tance may be requested while arbitration ispending, and the U.S. competent authoritywill suspend action on the case until arbi-tration is completed. If a taxpayer makes acompetent authority request, the taxpayeris deemed to consent to communicationsbetween the U.S. competent authority andIRS Appeals regarding the matter. SeeRev. Proc. 2000–43, 2000–2 C.B. 404.

.03 Coordination with Litigation. TheU.S. competent authority will not, withoutthe consent of the Associate Chief Counsel(International), accept (or continue to con-sider) a taxpayer’s request for assistance ifthe request involves a taxable period pend-ing in a United States court or involves amatter pending in a United States court ordesignated for litigation for any taxable pe-riod. If the case is pending in the UnitedStates Tax Court, the taxpayer may, in ap-propriate cases, be asked to join the IRS ina motion to sever issues or delay trial pend-ing completion of the competent author-ity proceedings. If the case is pending inany other court, the Associate Chief Coun-sel (International) will consult with the De-partment of Justice about appropriate ac-tion, and the taxpayer may, in appropriatecases, be asked to join the U.S. Govern-ment in a motion to sever issues or delaytrial pending completion of the competentauthority proceedings. Final decision onsevering issues or delaying trial rests withthe court. The filing of a competent author-ity request does not, however, relieve thetaxpayer from taking any action that maybe necessary or required with respect to lit-igation.

.04 Coordination with Other Alterna-tive Dispute Resolution and Pre-FilingProcedures. Competent authority assis-tance is available to taxpayers in con-junction with other alternative disputeresolution and pre-filing procedures inorder to ensure taxation in accordancewith tax treaty provisions. Other revenueprocedures and IRS publications should

be consulted as necessary with regard tospecific matters. See, e.g., Rev. Proc.2006–9, 2006–2 I.R.B. 278 (concerningAPAs); Rev. Proc. 2005–12, 2005–2I.R.B. 311 (concerning Pre-Filing Agree-ments); or Rev. Proc. 98–21, 1998–1C.B. 585 (concerning Article XIII(8) ofthe U.S.-Canada treaty). Taxpayers withapplications under any other dispute reso-lution procedures should seek competentauthority assistance as early as possible ifthey believe they have potential competentauthority issues.

.05 Effect of Agreements or Judicial De-terminations on Competent Authority Pro-ceedings. If a taxpayer either executes aclosing agreement with the IRS (whetheror not contingent upon competent author-ity relief) with respect to a potential com-petent authority issue or reaches a settle-ment on the issue with IRS Appeals (in-cluding an Appeals settlement through thearbitration process) or with Chief Coun-sel pursuant to an executed closing agree-ment or other written agreement such asForm 870–AD, the U.S. competent author-ity will endeavor only to obtain a correla-tive adjustment from the treaty country andwill not undertake any actions that wouldotherwise change such agreements. How-ever, the U.S. competent authority will,in appropriate cases, consider actions nec-essary for the purpose of providing treat-ment similar to that provided in Rev. Proc.99–32. Once a taxpayer’s tax liability forthe taxable periods in issue has been de-termined by a U.S. court (including settle-ment of the proceedings before or duringtrial), the U.S. competent authority simi-larly will endeavor only to obtain correla-tive relief from the treaty country and willnot undertake any action that would other-wise reduce the taxpayer’s federal tax lia-bility for the taxable periods in issue as de-termined by a U.S. court. Taxpayers there-fore should be aware that in these situa-tions, as well as in situations where a treatycountry takes a similar position with re-spect to issues resolved under its domesticlaws, relief from double taxation may bejeopardized.

.06 Accelerated Competent AuthorityProcedure. A taxpayer requesting compe-tent authority assistance with respect to anissue raised by the IRS also may requestthat the competent authorities attempt toresolve the issue for subsequent taxable

2006–49 I.R.B. 1042 December 4, 2006

periods for which returns have been filed,if the same issue continues in those peri-ods. See also Rev. Proc. 94–67, 1994–2C.B. 800, concerning the Accelerated Is-sue Resolution (“AIR”) process. The U.S.competent authority will consider the re-quest and will contact the appropriate IRSfield office to consult on whether the issueshould be resolved for subsequent taxableperiods. If the IRS field office consents tothis procedure, the U.S. competent author-ity will address with the foreign competentauthority the request for such taxable pe-riods. For purposes of resolving the issue,the taxpayer must furnish all relevantinformation and statements that may berequested by the U.S. competent authoritypursuant to this revenue procedure. In ad-dition, if the case involves a CoordinatedIndustry Case (“CIC”) taxpayer, the tax-payer must furnish all relevant informationand statements requested by the IRS, asdescribed in Rev. Proc. 94–67, 1994–2C.B. 800. If the case involves a non-CICtaxpayer, the taxpayer must furnish all rel-evant information and statements that maybe requested by the IRS field office. Arequest for the accelerated competent au-thority procedure may be made at the timeof filing a request for competent authorityassistance or at any time thereafter, butgenerally before conclusion of the mutualagreement in the case; however, taxpayersare encouraged to request the procedureas early as practicable. The applicationof the accelerated procedure may requirethe prior consent of the Associate ChiefCounsel (International). See section 7.03of this revenue procedure. A request forthe accelerated competent authority pro-cedure must contain a statement that thetaxpayer agrees that: (a) the inspectionof books of account or records under theaccelerated competent authority procedurewill not preclude or impede (under section7605(b) or any administrative provisionadopted by the IRS) a later examination ofa return or inspection of books of accountor records for any taxable period coveredin the accelerated competent authorityassistance request; and (b) the IRS neednot comply with any applicable proce-dural restrictions (for example, providingnotice under section 7605(b)) before be-ginning such examination or inspection.The accelerated competent authority pro-cedure is not subject to the AIR processlimitations. The accelerated competent

authority procedure is implicitly invokedwhen a taxpayer requests a rollback of itsrequested bilateral APA to already filedyears. Thus, the provisions of section7.06 of this revenue procedure also applywhen a rollback is requested pursuant toRev. Proc. 2006–9, which governs re-quests for APAs filed with the Office ofAssociate Chief Counsel (International),Advance Pricing Agreement Program.

SECTION 8. SIMULTANEOUSAPPEALS PROCEDURE

.01 General. A taxpayer filing a requestfor competent authority assistance underthis revenue procedure may, at the sametime or at a later date, request IRS Ap-peals’ consideration of the competent au-thority issue under the procedures and con-ditions provided in this section. The U.S.competent authority also may request IRSAppeals’ involvement if it is determinedthat such involvement would facilitate thenegotiation of a mutual agreement in thecase or otherwise would serve the inter-est of the IRS. The taxpayer may, at anytime, request a prefiling conference withthe offices of the Chief of IRS Appealsand the U.S. competent authority to dis-cuss the Simultaneous Appeals procedure.See also section 7.02 of this revenue pro-cedure for coordination with the compe-tent authority of cases already in IRS Ap-peals. However, arbitration or mediationprocedures that otherwise would be avail-able through the IRS Appeals process arenot available for cases in the Simultane-ous Appeals procedure. See Rev. Proc.2006–44, 2006–44 I.R.B. 800, and Rev.Proc. 2002–44, 2002–2 C.B. 10.

.02 Time for Requesting the Simultane-ous Appeals Procedure.

(1) When Filing for Competent Author-ity Assistance. The Simultaneous Appealsprocedure may be invoked at any of thefollowing times:

(a) When the taxpayer applies for com-petent authority assistance with respect toan issue for which the examining IRS of-fice has proposed an adjustment and beforethe protest is filed;

(b) When the taxpayer files a protestand decides to sever the competent author-ity issue and seek competent authority as-sistance while other issues are referred toIRS Appeals; and

(c) When the case is in IRS Appeals andthe taxpayer later decides to request com-petent authority assistance with respect tothe competent authority issue. The tax-payer may sever the competent authorityissue for referral to the U.S. competent au-thority and invoke the Simultaneous Ap-peals procedure at any time when the caseis in IRS Appeals but before settlement ofthe issue. Taxpayers, however, are encour-aged to invoke the Simultaneous Appealsprocedure as soon as possible, preferablyas soon as practicable after the first IRSAppeals conference.

(2) After Filing for Competent AuthorityAssistance. The taxpayer may request theSimultaneous Appeals procedure at anytime after requesting competent authorityassistance. However, a taxpayer’s requestfor the Simultaneous Appeals proceduregenerally will be denied if made after thedate the U.S. position paper is communi-cated to the foreign competent authority,unless the U.S. competent authority deter-mines that the procedure would facilitatean early resolution of the competent au-thority issue or otherwise is in the best in-terest of the IRS.

.03 Cases Pending in Court. If the mat-ter is pending before a U.S. court or hasbeen designated for litigation and jurisdic-tion has been released to the U.S. compe-tent authority, a request for the Simulta-neous Appeals procedure may be grantedonly with the consent of the U.S. compe-tent authority and the Office of AssociateChief Counsel (International).

.04 Request for Simultaneous AppealsProcedure. The taxpayer’s request for theSimultaneous Appeals procedure shouldbe addressed to the U.S. competent au-thority either as part of the initial compe-tent authority assistance request or, if madelater, as a separate letter to the U.S. com-petent authority. The request should statewhether the issue was previously protestedto IRS Appeals for the periods in compe-tent authority or for prior periods (in whichcase a copy of the relevant portions of theprotest and an explanation of the outcome,if any, should be provided). The U.S. com-petent authority will send a copy of the re-quest to the Chief of IRS Appeals, who,in turn, will forward a copy to the appro-priate Area Director. The U.S. competentauthority will consult with IRS Appeals todetermine whether the Simultaneous Ap-

December 4, 2006 1043 2006–49 I.R.B.

peals procedure should be invoked. Whenthe U.S. competent authority invokes theSimultaneous Appeals procedure, the tax-payer will be notified. The U.S. competentauthority has jurisdiction of the issue whenthe Simultaneous Appeals procedure is in-voked.

.05 Role of IRS Appeals in the Simulta-neous Appeals Procedure.

(1) IRS Appeals Process. The IRS Ap-peals representative assigned to the casewill consult with the taxpayer and theU.S. competent authority for the purposeof reaching a resolution of the unagreedissue under competent authority juris-diction before the issue is presented tothe foreign competent authority. For thispurpose, established IRS Appeals proce-dures generally apply. The IRS Appealsrepresentative will consult with the U.S.competent authority during this processto ensure appropriate coordination of theIRS Appeals process with the competentauthority procedure, so that the terms of atentative resolution and the principles andfacts upon which it is based are compatiblewith the position that the U.S. competentauthority intends to present to the foreigncompetent authority with respect to the is-sue. Any resolution reached with the IRSunder this procedure is subject to the com-petent authority process and, therefore, istentative and not binding on the IRS orthe taxpayer. The IRS will not requestthe taxpayer to conclude the IRS Appealsprocess with a written agreement. Theconclusions of the tentative resolution,however, generally will be reflected in theU.S. position paper used for negotiating amutual agreement with the foreign com-petent authority. The procedures underthis section do not give taxpayers the rightto receive reconsideration of the issue byIRS Appeals where the taxpayer appliedfor competent authority assistance afterhaving received substantial IRS Appealsconsideration. Rather, the IRS may relyupon, but will not necessarily be boundby, such previous consideration by IRSAppeals when considering the case underthe Simultaneous Appeals procedure.

(2) Assistance to U.S. Competent Au-thority. The U.S. competent authority isresponsible for developing a U.S. positionpaper with respect to the issue and for con-ducting the mutual agreement procedure.Generally, requesting IRS Appeals’ con-

sideration of an issue under competent au-thority jurisdiction will not affect the man-ner in which taxpayers normally are in-volved in the competent authority process.

.06 Denial or Termination of Simulta-neous Appeals Procedure.

(1) Taxpayer’s Termination. The tax-payer may, at any time, withdraw its re-quest for the Simultaneous Appeals proce-dure.

(2) IRS’s Denial or Termination. TheU.S. competent authority, the Chief ofIRS Appeals or the appropriate Industryor Area Director may decide to deny orterminate the Simultaneous Appeals pro-cedure if the procedure is determined tobe prejudicial to the mutual agreementprocedure or to the administrative appealsprocess. For example, a taxpayer that re-ceived IRS Appeals consideration beforerequesting competent authority assistance,but was unable to reach a settlement inIRS Appeals, may be denied the Simul-taneous Appeals procedure. A taxpayermay request a conference with the officesof the U.S. competent authority and theChief of IRS Appeals to discuss the denialor termination of the procedure.

.07 Returning to IRS Appeals. If thecompetent authorities fail to agree or if thetaxpayer does not accept the mutual agree-ment reached by the competent authorities,the taxpayer will be permitted to refer theissue to IRS Appeals for further consider-ation.

.08 IRS Appeals’ Consideration of Non-Competent Authority Issues. The Simul-taneous Appeals procedure does not af-fect the taxpayer’s rights to IRS Appeals’consideration of other unresolved issues.The taxpayer may pursue settlement dis-cussions with respect to the other issueswithout waiting for resolution of the issuesunder competent authority jurisdiction.

SECTION 9. PROTECTIVEMEASURES

.01 General. In negotiating treaties, theUnited States seeks to secure an agreementwith the treaty country that any compe-tent authority agreement reached withthe treaty country will be implementednotwithstanding any time limits or otherprocedural limitations in the domestic lawof either country. However, treaty provi-sions that provide a competent authority

with the ability to waive such limitationsdo not affect the application of statutes oflimitation in the event that a request forcompetent authority assistance is declinedor the competent authorities are unableto reach an agreement. In addition, theparticular treaty or the posture of the par-ticular case may indicate that the taxpayeror a related person must take protectivemeasures with the U.S. and foreign taxauthorities so that the implementation ofany agreement reached by the competentauthorities or alternative remedies outsideof the competent authority process are notbarred by administrative, legal or proce-dural barriers. Such barriers may ariseeither before or after a competent author-ity request is filed. Protective measuresinclude, but are not limited to: (a) filingprotective claims for refund or credit; (b)extending any period of limitations onassessment or refund; (c) avoiding thelapse or termination of the taxpayer’sright to appeal any tax determination;(d) complying with all applicable proce-dures for invoking competent authorityconsideration, including applicable treatyprovisions dealing with time limits withinwhich to invoke such remedy; and (e)contesting an adjustment or seeking anappropriate correlative adjustment withrespect to the U.S. or treaty country tax. Ataxpayer should take protective measuresin a timely manner, that is, in a mannerthat allows sufficient time for appropriateprocedures to be completed and effectivebefore barriers arise. Generally, a taxpayershould consider, at the time an adjustmentis first proposed, which protective mea-sures may be necessary and when suchmeasures should be taken. However, ear-lier consideration of appropriate actionsmay be desirable, for example, in thecase of a recurring adjustment or wherethe taxpayer otherwise is on notice thatan adjustment is likely to be proposed.Taxpayers may consult with the U.S. com-petent authority to determine the need forand timing of protective measures in theirparticular case.

.02 Filing Protective Claim for Creditor Refund with a Competent Authority Re-quest.

(1) In General. A valid protective claimfor credit or refund must meet the require-ments of section 6402 of the Code andthe regulations thereunder. Accordingly, a

2006–49 I.R.B. 1044 December 4, 2006

protective claim must: (a) fully advise theIRS of the grounds on which credit or re-fund is claimed; (b) contain sufficient factsto apprise the IRS of the exact basis of theclaim; (c) state the year for which the claimis being made; (d) be on the proper form;and (e) be verified by a written declarationmade under penalties of perjury.

(2) Treatment of Competent AuthorityRequest as Protective Claim. The IRSwill treat a request for competent authorityassistance itself as one or more protectiveclaims for credit or refund with respectto issues raised in the request and withinthe jurisdiction of the U.S. competentauthority and will not require a taxpayerto file the form described in Treas. Reg.§301.6402–3 with respect to those issues,provided that the request meets the otherrequirements of section 6402 of the Codeand the regulations thereunder, as de-scribed in section 9.02(1) of this revenueprocedure. The information constitutingthe protective claim should be set forth ina separate section of the request for as-sistance and captioned “Protective claimpursuant to section 9.02 of Rev. Proc.2006–54.” The penalties of perjury state-ment described in section 4.05(16) of thisrevenue procedure satisfies the require-ment for the written declaration and aseparate declaration is not required.

.03 Protective Filing Before CompetentAuthority Request.

(1) In general. There may be situa-tions in which a taxpayer will be unableto file a formal competent authority assis-tance request before the period of limita-tions expires with respect to the affectedU.S. return. In these situations, before theperiod of limitations expires, the taxpayershould file a protective claim for creditor refund of the taxes attributable to thepotential competent authority issue to en-sure that alternative remedies outside ofthe competent authority process will not bebarred. A protective filing may be appro-priate where: (a) the treaty country is con-sidering but has not yet proposed an adjust-ment; (b) the treaty country has proposedan adjustment but the related taxpayer inthe treaty country decides to pursue admin-istrative or judicial remedies in the foreigncountry; or (c) the terms of the applicabletreaty require notification to be made to thecompetent authority within a certain timeperiod. In considering whether to accept

a taxpayer’s request for competent author-ity assistance, the U.S. competent author-ity will consider whether the proper treatynotification has been made in accordancewith this subsection.

(2) Letter to Competent AuthorityTreated as Protective Claim. In situa-tions in which a protective claim is filedprior to submitting a request for compe-tent authority assistance, the taxpayer maymake a protective claim in the form of aletter to the competent authority. The lettermust indicate that the taxpayer is filing aprotective claim and set forth, to the extentavailable, the information required undersection 4.05(1) through (17) or under sec-tion 5.03(1) through (8) of this revenueprocedure, as applicable. The letter mustinclude a penalties of perjury statement asdescribed in sections 4.05(16) and 5.03(8)of this revenue procedure. The letter mustbe filed in the same place and manner as arequest for competent authority assistance.The IRS will treat the letter as a protectiveclaim(s) with respect to issues raised inthe letter and within the jurisdiction of theU.S. competent authority and will not re-quire a taxpayer to file the form describedin Treas. Reg. §301.6402–3 with respectto those issues, provided that the requestmeets the other requirements described insection 9.02(1) of this revenue procedure.The letter must include the caption “Pro-tective claim pursuant to section 9.03 ofRev. Proc. 2006–54.”

(3) Notification Requirement. After fil-ing a protective claim, the taxpayer period-ically must notify the U.S. competent au-thority whether the taxpayer still is consid-ering filing for competent authority assis-tance. The notification must be filed ev-ery twelve months until the formal requestfor competent authority assistance is filed.The U.S. competent authority may denycompetent authority assistance if the tax-payer fails to file this annual notification.

(4) No Consultation between Compe-tent Authorities until Formal Request isFiled. The U.S. competent authority gen-erally will not undertake any consultationwith the foreign competent authority withrespect to a protective claim filed undersection 9.03 of this revenue procedure.The U.S. competent authority will placethe protective claim in suspense untileither a formal request for competent au-thority assistance is filed or the taxpayer

notifies the U.S. competent authority thatcompetent authority consideration is nolonger needed. In appropriate cases, theU.S. competent authority will send thetaxpayer a formal notice of claim disal-lowance.

.04 Effect of a Protective Claim.Protective claims filed under section

9.02 or 9.03 of this revenue procedure willonly allow a credit or refund to the extentof the grounds set forth in the protectiveclaim and only to the extent agreed to bythe U.S. and foreign competent authoritiesor to the extent unilaterally allowed by theU.S. competent authority. This revenueprocedure does not grant a taxpayer theright to invoke section 482 of the Codein its favor or compel the IRS to allocateincome or deductions or grant a tax creditor refund.

.05 Treaty Provisions Waiving Proce-dural Barriers.

In those cases where the mutual agree-ment article authorizes a competent au-thority to waive or remove procedural bar-riers to the credit or refund of tax, tax-payers may be allowed a credit or refundof tax even though the otherwise appli-cable period of limitations has expired,prior closing agreements have been en-tered into, or other actions have been takenor omitted that ordinarily would forecloserelief in the form of a credit or refundof tax. However, under these provisionsthere may still be situations in which tax-payers should take appropriate protectivemeasures as described under this revenueprocedure or under applicable foreign pro-cedures. For example, procedural limi-tations cannot be waived if a request forcompetent authority assistance is declinedor the competent authorities are unable toreach agreement. In addition, some coun-tries may take the position that domesticstatutes of limitation on refunds cannot bewaived under the relevant treaty. Becausethere are circumstances that are not underthe control of taxpayers or the U.S. com-petent authority it is advisable that taxpay-ers take protective measures to increase thepossibility that appropriate relief is avail-able to them in all circumstances.

SECTION 10. APPLICATION OFREV. PROC. 99–32

Rev. Proc. 99–32, 1999–2 C.B. 296,generally provides a means to conform a

December 4, 2006 1045 2006–49 I.R.B.

taxpayer’s accounts and allow repatriationof certain amounts following an allocationof income between related U.S. and for-eign corporations under section 482 of theCode without the federal income tax con-sequences of the adjustments that wouldotherwise have been necessary to conformthe taxpayer’s accounts in light of the al-location of income. In situations where asection 482 allocation is the subject of arequest for competent authority assistance,the competent authority may provide reliefconsistent with the principles of Rev. Proc.99–32 with respect to any new or pend-ing requests for Rev. Proc. 99–32 treat-ment relating to such allocation. Accord-ingly, if a taxpayer intends to seek Rev.Proc. 99–32 treatment in connection withcompetent authority assistance relating toa section 482 allocation, the taxpayer mustrequest Rev. Proc. 99–32 treatment inconjunction with its request for competentauthority assistance. If a taxpayer has al-ready requested Rev. Proc. 99–32 treat-ment at the time it submits a request forcompetent authority assistance relating toa section 482 allocation, consideration ofRev. Proc. 99–32 treatment must be trans-ferred to the U.S. competent authority anda copy of the pending Rev. Proc. 99–32 re-quest forwarded along with the request forcompetent authority assistance.

SECTION 11. DETERMINATION OFCREDITABLE FOREIGN TAXES

For purposes of determining the amountof foreign taxes creditable under sections901 and 902 of the Code, any amountspaid to foreign tax authorities that wouldnot have been due if the treaty countryhad made a correlative adjustment maynot constitute a creditable foreign tax. SeeTreas. Reg. §1.901–2(e)(5)(i) and Rev.Rul. 92–75, 1992–2 C.B. 197. Acts oromissions by the taxpayer that precludeeffective competent authority assistance,including failure to take protective mea-sures as described in section 9 of thisrevenue procedure or failure to seek com-petent authority assistance, may constitutea failure to exhaust all effective and practi-cal remedies as may be required to claim acredit. See Treas. Reg. §1.901–2(e)(5)(i).Further, the fact that the taxpayer hassought competent authority assistancebut obtained no relief, either because thecompetent authorities failed to reach an

agreement or because the taxpayer rejectedan agreement reached by the competentauthorities, generally will not, in and ofitself, demonstrate that the taxpayer hasexhausted all effective and practical reme-dies to reduce the taxpayer’s liability forforeign tax (including liability pursuantto a foreign tax audit adjustment). Anydetermination within the IRS of whethera taxpayer has exhausted the competentauthority remedy must be made in consul-tation with the U.S. competent authority.

SECTION 12. ACTION BY U.S.COMPETENT AUTHORITY

.01 Notification of Taxpayer. Upon re-ceiving a request for assistance pursuant tothis revenue procedure, the U.S. competentauthority will notify the taxpayer whetherthe facts provide a basis for assistance.

.02 Denial of Assistance. The U.S.competent authority generally will not ac-cept a request for competent authority as-sistance or will cease providing assistanceto the taxpayer if:

(1) competent authority determines thatthe taxpayer is not entitled to the treatybenefit or safeguard in question or to theassistance requested;

(2) the taxpayer is willing only to ac-cept a competent authority agreementunder conditions that are unreasonableor prejudicial to the interests of the U.S.Government;

(3) the taxpayer rejected the competentauthority resolution of the same or similarissue in a prior case;

(4) the taxpayer does not agree thatcompetent authority negotiations are agovernment-to-government activity thatdoes not include the taxpayer’s participa-tion in the negotiation proceedings;

(5) the taxpayer does not furnish uponrequest sufficient information to determinewhether the treaty applies to the taxpayer’sfacts and circumstances;

(6) the taxpayer was found to have ac-quiesced in a foreign initiated adjustmentthat involved significant legal or factualissues that otherwise would be properlyhandled through the competent author-ity process and then unilaterally made acorresponding correlative adjustment orclaimed an increased foreign tax credit,without initially seeking U.S. competentauthority assistance;

(7) the taxpayer: (a) fails to complywith this revenue procedure; (b) failed tocooperate with the IRS during the exam-ination of the periods in issue and suchfailure significantly impedes the ability ofthe U.S. competent authority to negoti-ate and conclude an agreement (e.g., sig-nificant factual development is requiredthat cannot effectively be completed out-side the examination process); or (c) failsto cooperate with the U.S. competent au-thority (including failing to provide suffi-cient facts and documentation to supportits claim of double taxation or taxationcontrary to the treaty) or otherwise signifi-cantly impedes the ability of the U.S. com-petent authority to negotiate and concludean agreement; or

(8) the transaction giving rise to the re-quest for competent authority assistance:(a) is more properly within the jurisdic-tion of IRS Appeals; (b) includes an issuepending in a U.S. Court, or designated forlitigation, unless competent authority con-sideration is concurred in by the U.S. com-petent authority and the Associate ChiefCounsel (International); (c) is a listedtransaction for purposes of Treas. Reg.§1.6011–4(b)(2) and §301.6111–2(b)(2);or (d) involves fraudulent activity by thetaxpayer.

.03 Extending Period of Limitations forAssessment. If the U.S. competent author-ity accepts a request for assistance, the tax-payer may be requested to execute a con-sent to extend the period of limitations forassessment of tax for the taxable periodsin issue. Failure to comply with the provi-sions of this subsection can result in denialof assistance by the U.S. competent author-ity with respect to the request.

.04 No Review of Denial of Request forAssistance. The U.S. competent author-ity’s denial of a taxpayer’s request for as-sistance or dismissal of a matter previouslyaccepted for consideration pursuant to thisrevenue procedure is final and not subjectto administrative review.

.05 Notification. The U.S. competentauthority will notify a taxpayer requestingassistance under this revenue procedure ofany agreement that the U.S. and the for-eign competent authorities reach with re-spect to the request. If the taxpayer ac-cepts the resolution reached by the com-petent authorities, the agreement will pro-vide that it is final and is not subject to fur-

2006–49 I.R.B. 1046 December 4, 2006

ther administrative or judicial review. Ifthe competent authorities fail to agree, orif the agreement reached is not acceptableto the taxpayer, the taxpayer may withdrawthe request for competent authority assis-tance and may then pursue all rights other-wise available under the laws of the UnitedStates and the treaty country. Where thecompetent authorities fail to agree, no fur-ther competent authority remedies gener-ally are available, except with respect totreaties that provide for arbitration of thedispute. See, e.g., Article 25(5) of theU.S.-German income tax treaty. A requestfor arbitration must be made in accordancewith the procedures prescribed under theapplicable treaty and related documents,including procedures that the IRS may pro-mulgate from time to time.

.06 Closing Agreement. When appro-priate, the taxpayer may be requested toenter into a closing agreement that reflectsthe terms of the mutual agreement andof the competent authority assistance pro-vided and that is executed in conformitywith sections 6.07 and 6.17 of Rev. Proc.68–16, 1968–1 C.B. 770 (as modified byRev. Proc. 94–67, 1994–2 C.B. 800).

.07 Unilateral Withdrawal or Reductionof U.S. Initiated Adjustments. With respectto U.S. initiated adjustments under section482 of the Code, the primary goal of themutual agreement procedure is to obtaina correlative adjustment from the treatycountry. For other types of U.S. initiatedadjustments, the primary goal of the U.S.competent authority is the avoidance oftaxation not in accordance with an applica-ble treaty. Unilateral withdrawal or reduc-tion of U.S. initiated adjustments, there-fore, generally will not be considered. Forexample, the U.S. competent authority willnot withdraw or reduce an adjustment toincome, deductions, credits or other itemssolely because the period of limitations hasexpired in the foreign country and the for-eign competent authority has declined togrant any relief. If the period provided bythe foreign statute of limitations has ex-pired, the U.S. competent authority maytake into account other relevant facts todetermine whether such withdrawal or re-duction is appropriate and may, in extra-ordinary circumstances and as a matter ofdiscretion, provide such relief with respectto the adjustment to avoid actual or eco-nomic double taxation. In no event, how-

ever, will relief be granted where there isfraud or negligence with respect to the rel-evant transactions. In keeping with theU.S. Government’s view that tax treatiesshould be applied in a balanced and recip-rocal manner, the United States normallywill not withdraw or reduce an adjustmentwhere the treaty country does not grantsimilar relief in equivalent cases.

SECTION 13. REQUESTS FORRULINGS

.01 General. Requests for advance rul-ings regarding the interpretation or appli-cation of a tax treaty, as distinguished fromrequests for assistance from the U.S. com-petent authority pursuant to this revenueprocedure, must be submitted to the As-sociate Chief Counsel (International). SeeRev. Proc. 2006–1, 2006–1 I.R.B. 1, andRev. Proc. 2006–7, 2006–1 I.R.B. 242.

.02 Foreign Tax Rulings. The IRS doesnot issue advance rulings on the effect ofa tax treaty on the tax laws of a treatycountry for purposes of determining thetax of the treaty country.

SECTION 14. FEES

.01 Requests to Which a User Fee DoesNot Apply. Except as provided in sec-tion 14.02 of this revenue procedure, nouser fees are required with respect to a re-quest for U.S. competent authority assis-tance pursuant to this revenue procedure.

.02 Requests to Which a User Fee Ap-plies. In general, a $15,000 user fee ap-plies to all requests for determinations onlimitation on benefits, as described in sec-tion 3.08 of this revenue procedure. Thefee will apply regardless of whether the re-quest is for: (a) an initial determination;(b) a renewal of a previously issued deter-mination; or (c) a supplemental determina-tion required, for example, if there is a ma-terial change in fact or if the taxpayer seeksbenefits with respect to a different type ofincome or requests a lower rate of with-holding tax on dividends. If a request issubmitted that requires the U.S. competentauthority to make a discretionary determi-nation for more than one entity, a separateuser fee will be charged for each entity.

.03 Acceptance of Requests. A user feewill not be charged until the U.S. compe-tent authority has formally accepted the re-

quest for consideration. Within 30 days ofreceipt of a complete submission, the U.S.competent authority will provide writtennotice to the taxpayer as to whether the re-quest will be accepted or rejected for con-sideration. If a request is accepted, thetaxpayer will be required to mail a checkor money order in the appropriate amount,along with a copy of the written notice ofacceptance to the IRS office identified be-low. The check or money order should bepayable to the United States Treasury. Thefee may be refunded as provided in section14.05 of this revenue procedure.

.04 Address to Send Payment. The userfee should be sent along with a copy of thewritten notice of acceptance to the mailingaddress listed below:

IRS/BFCP.O. Box 9002Beckley, WV 25802

.05 Refunds of User Fee. In general, auser fee will not be refunded once the U.S.competent authority accepts a request forconsideration and the user fee is paid. Forexample, the IRS will not refund the userfee if the request for a discretionary deter-mination is withdrawn by the taxpayer or ifthe taxpayer fails to submit additional in-formation as requested by the U.S. compe-tent authority. A user fee may be refunded,however, if: (a) a higher user fee is paidthan is required; or (b) taking into accountall the facts and circumstances, includingthe IRS’s resources devoted to the request,the Competent Authority declines to ruleand, in his or her sole discretion, decides arefund is appropriate.

SECTION 15. EFFECT ON OTHERDOCUMENTS

Rev. Proc. 2006–26, 2006–21 I.R.B.936, and Rev. Proc. 2002–52, 2002–2C.B. 242, are modified and supersededby this revenue procedure. Rev. Proc.2006–9, 2006–9 I.R.B. 278 is amplified.Rev. Rul. 92–75, 1992–2 C.B. 197, isclarified. References in this revenue pro-cedure to Rev. Proc. 99–32 will be treatedas references to Rev. Proc. 65–17, 1965–1C.B. 833, as modified, amplified and clar-ified from time to time, for taxable yearsbeginning before August 24, 1999.

December 4, 2006 1047 2006–49 I.R.B.

SECTION 16. EFFECTIVE DATE

This revenue procedure is effective forrequests for U.S. competent authority as-sistance and Rev. Proc. 99–32 treatmentfiled after December 4, 2006.

SECTION 17. PAPERWORKREDUCTION ACT

The collection of information con-tained in this revenue procedure has beenreviewed and approved by the Officeof Management and Budget in accor-dance with the Paperwork Reduction Act(44 U.S.C. § 3507) under control number1545–2044.

An agency may not conduct or sponsor,and a person is not required to respondto, a collection of information unless thecollection of information displays a validcontrol number.

The collection of information in thisrevenue procedure is in sections 4.04, 4.05,5.03, 7.06, 8.04, and 9.03. This informa-tion is required, and will be used, to eval-uate and process the request for competentauthority assistance. The collection of in-formation is required to obtain competentauthority assistance. The likely respon-dents are individuals or business or otherfor-profit institutions.

The estimated total annual reportingand/or recordkeeping burden is 9,000hours.

The estimated annual burden per re-spondent/recordkeeper is 30 hours. Theestimated number of respondents and/orrecordkeepers is 300.

The estimated annual frequency of re-sponses is on occasion.

Books or records relating to a collectionof information must be retained as longas their contents may become material in

the administration of any internal revenuelaw. Generally, tax returns and tax returninformation are confidential, as requiredby section 6103 of the Code.

SECTION 18. DRAFTINGINFORMATION

The principal authors of this rev-enue procedure are Aziz Benbrahimand Vincent Salvo of the Office of theDeputy Commissioner (International),Large and Mid-Size Business Division,and Mae J. Lew and Denen A. Norfleetof the Office of Associate Chief Counsel(International). For further informationregarding this revenue procedure, contacteither Mr. Benbrahim or Mr. Salvo at(202) 435–5000 or Ms. Norfleet at (202)435–5262 (not toll-free calls).

2006–49 I.R.B. 1048 December 4, 2006

Part IV. Items of General InterestNotice of ProposedRulemaking byCross-Reference toTemporary Regulations

AJCA Modifications to theSection 6011 Regulations

REG–103038–05


ACTION: Notice of proposed rulemakingby cross-reference to temporary regula-tions.

SUMMARY: This document contains pro-posed regulations under section 6011 ofthe Internal Revenue Code that modifythe rules relating to the disclosure of re-portable transactions under section 6011.These regulations affect taxpayers partici-pating in reportable transactions under sec-tion 6011, material advisors responsiblefor disclosing reportable transactions un-der section 6111, and material advisors re-sponsible for keeping lists under section6112.

DATES: Written or electronic commentsand requests for a public hearing must bereceived by January 31, 2007.

ADDRESSES: Send submissions to:CC:PA:LPD:PR (REG–103038–05), room5203, Internal Revenue Service, PO Box7604, Ben Franklin Station, Washing-ton, DC 20044. Submissions may behand delivered Monday through Fridaybetween the hours of 8 a.m. and 4 p.m.to CC:PA:LPD:PR (REG–103038–05),Courier’s Desk, Internal Revenue Service,Crystal Mall 4 Building, 1901 S. Bell St.,Arlington, VA, or sent electronically, viathe IRS Internet site at www.irs.gov/regsor via the Federal eRulemaking Portal atwww.regulations.gov (indicate IRS andREG–103038–05).

FOR FURTHER INFORMATIONCONTACT: Concerning the proposed reg-ulations, Tara P. Volungis or Charles Wien,202–622–3070; concerning the submis-sions of comments and requests for hear-

ing, Kelly Banks, 202–622–0392 (nottoll-free numbers).


Background

This document proposes to amend 26CFR part 1 by modifying and clarifyingthe rules relating to the disclosure of re-portable transactions under section 6011.This document also proposes to amend 26CFR parts 20, 25, 31, 53, 54, and 56 bymodifying the rules for purposes of estate,gift, employment, and pension and exemptorganizations excise taxes that require thedisclosure of listed transactions by certaintaxpayers on their Federal tax returns un-der section 6011.

On February 28, 2003, the IRS issuedfinal regulations under sections 6011,6111, and 6112 (T.D. 9046, 2003–1 C.B.614) (the February 2003 regulations). TheFebruary 2003 regulations were publishedin the Federal Register (68 FR 10161) onMarch 4, 2003. On December 29, 2003,the IRS issued final regulations under sec-tion 6011 and 6112 (T.D. 9108, 2004–1C.B. 429) (the December 2003 regula-tions). The December 2003 regulationswere published in the Federal Register(68 FR 75128) on December 30, 2003.

Since the publication of the February2003 regulations and the December 2003regulations, the American Jobs CreationAct of 2004, Public Law 108–357, 118Stat. 1418, (AJCA) was enacted on Oc-tober 22, 2004. The AJCA revised sec-tions 6111 and 6112, thereby necessitatingchanges to the rules under section 6011.The IRS and Treasury Department alsohave received various comments and ques-tions regarding the rules under §1.6011–4.Consequently, the IRS and Treasury De-partment are proposing modifications tothe rules regarding the disclosure of re-portable transactions under §1.6011–4.

It should be noted that section 516 ofthe Tax Increase Prevention and Reconcil-iation Act of 2005, Public Law 109–222,120 Stat. 345, (TIPRA), enacted on May17, 2006, includes new excise taxes thattarget prohibited tax shelter transactionsto which a tax-exempt entity is a party.Prohibited tax shelter transactions consistof listed transactions, confidential trans-

actions, and transactions with contractualprotection under section 6011. TIPRAalso contains new disclosure requirements,which apply not only to tax-exempt en-tities but also to taxable entities that areparties to prohibited tax shelter transac-tions involving tax-exempt entities, andmakes penalties applicable for failure tocomply with each new disclosure require-ment. The IRS and Treasury Departmentwill issue separate guidance regarding thedisclosure provision in TIPRA.


A. Removal of Transactions with aSignificant Book-Tax Difference

Under the current regulations in§1.6011–4, there are six categories ofreportable transactions. In accordancewith the interim guidance provided inNotice 2006–6, 2006–5 I.R.B. 385, theseproposed regulations eliminate the trans-actions with a significant book-tax differ-ence category of reportable transactionthat is in §1.6011–4(b)(6). The IRS andTreasury Department have determinedthat this category of reportable transactionis no longer necessary due to the issuanceof the Schedule M–3, “Net Income (Loss)Reconciliation For Corporations With To-tal Assets of $10 Million or More”, whichnow provides the IRS a more completedisclosure of book-tax differences for cor-porations. The Schedule M–3 reportingrequirements will be extended to partner-ships and S corporations. The removal ofthe book-tax difference category applies totransactions that otherwise would have tohave been disclosed on or after January 6,2006 (regardless of when the transactionwas entered into).

B. Transactions of Interest

The IRS and Treasury Department areproposing as a new category of reportabletransaction the transactions of interestreportable transaction. A transaction ofinterest is a transaction that the IRS andTreasury Department believe has a po-tential for tax avoidance or evasion, butfor which the IRS and Treasury Depart-ment lack enough information to deter-mine whether the transaction should beidentified specifically as a tax avoidance

December 4, 2006 1049 2006–49 I.R.B.

transaction. Transactions of interest willbe identified in published guidance. Whenthe IRS and Treasury Department havegathered enough information to make aninformed decision as to whether the trans-action of interest is a tax avoidance typeof transaction, the IRS and Treasury De-partment may take one or more actions,including removing the transaction fromthe transactions of interest category inpublished guidance, designating the trans-action as a listed transaction, or providinga new category of reportable transaction.Listed transactions do not have to be iden-tified as transactions of interest beforethe transactions are identified as listedtransactions. It is anticipated that, uponfinalization of these proposed regulations,the transactions of interest category ofreportable transaction will apply to trans-actions entered into on or after November2, 2006.

C. Lease Transactions

These proposed regulations also elimi-nate the special rule for lease transactions.Under the current regulations this spe-cial rule provides that certain customarycommercial leases of tangible personalproperty described in Notice 2001–18,2001–1 C.B. 731, are excluded fromall of the reportable transaction cate-gories except listed transactions. Notice2001–18 originally was published prior tothe AJCA to provide exceptions from theconfidential corporate tax shelter registra-tion requirements under section 6111(d)and the list maintenance requirementsunder section 6112. The special rule forlease transactions that cross-referencesNotice 2001–18 was added to §1.6011–4in T.D. 9046 in February 2003. At thattime, the IRS and Treasury Departmentwere concerned that customary commer-cial lease transactions routinely would fallunder the significant book-tax differencecategory of reportable transaction. Thepublic also expressed concern that manycustomary leasing transactions would trig-ger the confidential transaction categoryof reportable transaction that was pub-lished in the temporary regulations under§1.6011–4T in T.D. 9017, 2002–2 C.B.815, in October 2002 (and in the February2003 regulations). Since the publicationof the February 2003 regulations, the IRSand Treasury Department amended the

confidential transaction category of re-portable transaction in the December 2003regulations, the AJCA removed the con-fidential corporate tax shelter provisionin section 6111(d) in October 2004, andNotice 2006–6 signaled the removal of thesignificant book-tax difference transactioncategory of reportable transaction.

Because the confidential transactioncategory has been narrowed and the sig-nificant book-tax difference transactioncategory is being removed, the IRS andTreasury Department believe that leas-ing transactions should be subject to thesame disclosure rules as other transac-tions. While the IRS and Treasury De-partment do believe the disclosure rulesshould apply to all leasing transactions,the IRS and Treasury Department alsobelieve that most customary commercialleasing transactions will not meet the re-portable transaction requirements and willnot be subject to disclosure. The IRS andTreasury Department intend to obsoleteNotice 2001–18, 2001–1 C.B. 731, whenthese proposed regulations are finalized.Comments regarding the removal of thisexception, the transactions that will haveto be disclosed as a consequence, if any,and the possibility of exceptions for spe-cific types of leasing transactions as toeach category of reportable transaction arerequested.

D. Transactions Involving a Brief AssetHolding Period

These proposed regulations also mod-ify the transactions involving a brief as-set holding period category of reportabletransaction in §1.6011–4(b)(7). Section901(l), added to the Code by the AJCA,and section 901(k) operate to disallow for-eign tax credits for withholding and cer-tain other foreign taxes imposed on divi-dends or other income or gain with respectto property if the taxpayer does not meeta minimum holding period. In light of theenactment of section 901(l), the proposedregulations amend the brief asset holdingperiod category to exclude transactions re-sulting in a claimed foreign tax credit.

E. Protective Disclosures

The IRS receives disclosures that tax-payers file on a protective basis, claim-ing that the transactions are not subjectto disclosure under section 6011. Some

of those taxpayers fail to provide the IRSwith the information requested under sec-tion 6011 and the regulations thereunderthat would enable the IRS to make a de-termination as to whether the transactionis subject to disclosure. Consequently, theIRS and Treasury Department have addedclarifying language in the proposed regula-tions that allows protective disclosures tobe filed in situations where a taxpayer isunsure of whether the transaction shouldbe disclosed under section 6011 if the tax-payer complies with the rules of §1.6011–4as if the transaction is subject to disclosureand the person furnishes the IRS the infor-mation requested under these regulations.

F. Partners, Shareholders, andBeneficiaries

The IRS and Treasury Department areaware of situations in which partners,shareholders, and beneficiaries have filedtheir Federal tax returns before receiv-ing Schedule K–1s from the partnership,S corporation or trust that participated in areportable transaction. The proposed reg-ulations address this problem by providingthat if a taxpayer in a partnership, S corpo-ration, or trust receives a timely ScheduleK–1 less than 10 calendar days before thedue date of the taxpayer’s return (includ-ing extensions) and, based on receipt ofthe timely Schedule K–1, the taxpayerdetermines that the taxpayer participatedin a reportable transaction, the disclosurestatement will not be considered late if thetaxpayer discloses the reportable trans-action by filing a disclosure statementwith OTSA within 45 calendar days afterthe due date of the taxpayer’s return (in-cluding extensions). A taxpayer filing adisclosure statement in accordance withthis provision need only file the statementwith OTSA and need not file an amendedreturn to make the disclosure. This pro-vision is proposed to be applicable fortransactions entered into on or after thedate these regulations are published asfinal regulations in the Federal Register.However, taxpayers currently may rely onthis provision in the proposed regulations,and taxpayers who have filed a disclosurestatement with OTSA within 45 calendardays after the due date of the taxpayer’sreturn (including extensions) as providedin this provision have satisfied the dis-closure requirements under §1.6011–4.

2006–49 I.R.B. 1050 December 4, 2006

The IRS and Treasury Department solicitcomments on whether there may be othersituations in which a taxpayer may notknow or have reason to know of its par-ticipation in a reportable transaction at thetime the return is filed and ways in whichthe disclosure rules could address thesesituations.

G. Tolling Provision

Other proposed changes relate to theprovisions for obtaining a private letter rul-ing and the tolling of the time for pro-viding disclosure during the time the re-quest for a ruling is pending. Because theIRS and Treasury Department believe thatthe removal of the tolling provision willpromote effective tax administration, theseproposed regulations eliminate the tollingof the time for providing disclosure whena taxpayer requests a private letter ruling.Temporary regulations (T.D. 9295) remov-ing the tolling provision are being issuedconcurrently with these proposed regula-tions. Taxpayers may still request a rul-ing on a transaction under the regular pro-cedures for requesting a ruling, providedthe ruling request is not factual or hypo-thetical, but the time for providing disclo-sure will not be tolled. The removal of thetolling provision is effective for all rulingrequests received on or after November 1,2006.

H. Other Clarifications and Modifications

These proposed regulations also clar-ify and/or modify other provisions under§1.6011–4. The regulations for estate, gift,employment, and pension and exempt or-ganizations excise taxes are proposed tobe modified by making them applicable totransactions of interest.

I. Comments

The IRS and Treasury Department areaware of concerns expressed by commen-tators regarding the patenting of tax ad-vice or tax strategies. The IRS and Trea-sury Department share these concerns andare exploring ways in which they couldbe addressed, including through the cre-ation of a new category of reportable trans-action. Comments are requested regard-ing the creation of such a category of re-portable transaction. Comments also are

requested on all proposed changes to theregulations.

J. Effective Date

Generally, when these proposed reg-ulations become final, they will apply totransactions entered into on or after thedate these regulations are published asfinal regulations in the Federal Regis-ter. However, upon publication the finalregulations will apply to transactions ofinterest entered into on or after November2, 2006.

Special Analyses

It has been determined that this noticeof proposed rulemaking is not a significantregulatory action as defined in ExecutiveOrder 12866. Therefore, a regulatory as-sessment is not required. It also has beendetermined that section 553(b) of the Ad-ministrative Procedure Act (5 U.S.C. chap-ter 5) does not apply to these regulations,and because these regulations do not im-pose a collection of information on smallentities, the provisions of the RegulatoryFlexibility Act (5 U.S.C. chapter 6) do notapply. The disclosure statement referencedin these regulations will be made availablefor public comment in accordance withthe Paperwork Reduction Act of 1995 (44U.S.C. chapter 35). Pursuant to section7805(f) of the Internal Revenue Code, thisnotice of proposed rulemaking will be sub-mitted to the Chief Counsel for Advocacyof the Small Business Administration forcomment on its impact on small business.

Comments and Requests for a PublicHearing

Before these proposed regulations areadopted as final regulations, considerationwill be given to any written comments(a signed original and eight (8) copies)or electronic comments that are submittedtimely to the IRS. The IRS and TreasuryDepartment request comments on the clar-ity of the proposed rules, how they can bemade easier to understand, and the admin-istrability of the rules in the proposed regu-lations. All comments will be available forpublic inspection and copying. A publichearing will be scheduled if requested inwriting by any person that submits timelywritten or electronic comments. If a pub-lic hearing is scheduled, notice of the date,

time, and place for the public hearing willbe published in the Federal Register.



* * * * *

Proposed Amendments to theRegulations

Accordingly, 26 CFR parts 1, 20, 25,31, 53, 54, and 56 are proposed to beamended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation forpart 1 continues to read, in part, as follows:

Authority: 26 U.S.C. 7805 * * *Par. 2. Section 1.6011–4 is revised to

read as follows:


(a) In general. Every taxpayer thathas participated, as described in paragraph(c)(3) of this section, in a reportable trans-action within the meaning of paragraph(b) of this section and who is required tofile a tax return must attach to its returnfor the taxable year described in paragraph(e) of this section a disclosure statementin the form prescribed by paragraph (d)of this section. The fact that a transac-tion is a reportable transaction shall not af-fect the legal determination of whether thetaxpayer’s treatment of the transaction isproper.

(b) Reportable transactions—(1) Ingeneral. A reportable transaction is atransaction described in any of the para-graphs (b)(2) through (7) of this section.The term transaction includes all of thefactual elements relevant to the expectedtax treatment of any investment, entity,plan, or arrangement, and includes anyseries of steps carried out as part of a plan.There are six categories of reportabletransactions: listed transactions, confi-dential transactions, transactions with

December 4, 2006 1051 2006–49 I.R.B.

contractual protection, loss transactions,transactions of interest, and transactionsinvolving a brief asset holding period.

(2) Listed transactions. A listed trans-action is a transaction that is the sameas or substantially similar to one of thetypes of transactions that the Internal Rev-enue Service (IRS) has determined to bea tax avoidance transaction and identifiedby notice, regulation, or other form of pub-lished guidance as a listed transaction.

(3) Confidential transactions—(i) Ingeneral. A confidential transaction is atransaction that is offered to a taxpayerunder conditions of confidentiality and forwhich the taxpayer has paid an advisor aminimum fee.

(ii) Conditions of confidentiality. Atransaction is considered to be offered toa taxpayer under conditions of confiden-tiality if the advisor who is paid the min-imum fee places a limitation on disclosureby the taxpayer of the tax treatment or taxstructure of the transaction and the limi-tation on disclosure protects the confiden-tiality of that advisor’s tax strategies. Atransaction is treated as confidential evenif the conditions of confidentiality are notlegally binding on the taxpayer. A claimthat a transaction is proprietary or exclu-sive is not treated as a limitation on dis-closure if the advisor confirms to the tax-payer that there is no limitation on disclo-sure of the tax treatment or tax structure ofthe transaction.

(iii) Minimum fee. For purposes of thisparagraph (b)(3), the minimum fee is:

(A) $250,000 for a transaction if thetaxpayer is a corporation.

(B) $50,000 for all other transactionsunless the taxpayer is a partnership or trust,all of the owners or beneficiaries of whichare corporations (looking through anypartners or beneficiaries that are them-selves partnerships or trusts), in whichcase the minimum fee is $250,000.

(iv) Determination of minimum fee. Forpurposes of this paragraph (b)(3), in de-termining the minimum fee, all fees fora tax strategy or for services for advice(whether or not tax advice) or for the im-plementation of a transaction are taken intoaccount. Fees include consideration inwhatever form paid, whether in cash or inkind, for services to analyze the transaction(whether or not related to the tax conse-quences of the transaction), for services toimplement the transaction, for services to

document the transaction, and for servicesto prepare tax returns to the extent returnpreparation fees are unreasonable in lightof the facts and circumstances. For pur-poses of this paragraph (b)(3), a taxpayeralso is treated as paying fees to an advisorif the taxpayer knows or should know thatthe amount it pays will be paid indirectly tothe advisor, such as through a referral feeor fee-sharing arrangement. A fee does notinclude amounts paid to a person, includ-ing an advisor, in that person’s capacity asa party to the transaction. For example,a fee does not include reasonable chargesfor the use of capital or the sale or use ofproperty. The IRS will scrutinize carefullyall of the facts and circumstances in deter-mining whether consideration received inconnection with a confidential transactionconstitutes fees.

(v) Related parties. For purposes ofthis paragraph (b)(3), persons who bear arelationship to each other as described insection 267(b) or 707(b) will be treated asthe same person.

(4) Transactions with contractual pro-tection—(i) In general. A transaction withcontractual protection is a transaction forwhich the taxpayer or a related party (asdescribed in section 267(b) or 707(b)) hasthe right to a full or partial refund of fees(as described in paragraph (b)(4)(ii) of thissection) if all or part of the intended taxconsequences from the transaction are notsustained. A transaction with contractualprotection also is a transaction for whichfees (as described in paragraph (b)(4)(ii)of this section) are contingent on the tax-payer’s realization of tax benefits fromthe transaction. All the facts and circum-stances relating to the transaction will beconsidered when determining whether afee is refundable or contingent, includingthe right to reimbursements of amountsthat the parties to the transaction have notdesignated as fees or any agreement to pro-vide services without reasonable compen-sation.

(ii) Fees. Paragraph (b)(4)(i) of this sec-tion only applies with respect to fees paidby or on behalf of the taxpayer or a relatedparty to any person who makes or providesa statement, oral or written, to the taxpayeror related party (or for whose benefit astatement is made or provided to the tax-payer or related party) as to the potentialtax consequences that may result from thetransaction.

(iii) Exceptions—(A) Termination oftransaction. A transaction is not consid-ered to have contractual protection solelybecause a party to the transaction has theright to terminate the transaction uponthe happening of an event affecting thetaxation of one or more parties to thetransaction.

(B) Previously reported transaction. Ifa person makes or provides a statement toa taxpayer as to the potential tax conse-quences that may result from a transactiononly after the taxpayer has entered into thetransaction and reported the consequencesof the transaction on a filed tax return,and the person has not previously receivedfees from the taxpayer relating to the trans-action, then any refundable or contingentfees are not taken into account in determin-ing whether the transaction has contrac-tual protection. This paragraph (b)(4) doesnot provide any substantive rules regard-ing when a person may charge refundableor contingent fees with respect to a trans-action. See Circular 230, 31 CFR Part 10,for the regulations governing practice be-fore the IRS.

(5) Loss transactions—(i) In general.A loss transaction is any transaction result-ing in the taxpayer claiming a loss undersection 165 of at least—

(A) $10 million in any single taxableyear or $20 million in any combination oftaxable years for corporations;

(B) $10 million in any single taxableyear or $20 million in any combinationof taxable years for partnerships that haveonly corporations as partners (lookingthrough any partners that are themselvespartnerships), whether or not any lossesflow through to one or more partners; or$2 million in any single taxable year or$4 million in any combination of taxableyears for all other partnerships, whetheror not any losses flow through to one ormore partners;

(C) $2 million in any single taxable yearor $4 million in any combination of tax-able years for individuals, S corporations,or trusts, whether or not any losses flowthrough to one or more shareholders orbeneficiaries; or

(D) $50,000 in any single taxable yearfor individuals or trusts, whether or not theloss flows through from an S corporationor partnership, if the loss arises with re-spect to a section 988 transaction (as de-

2006–49 I.R.B. 1052 December 4, 2006

fined in section 988(c)(1) relating to for-eign currency transactions).

(ii) Cumulative losses. In determin-ing whether a transaction results in a tax-payer claiming a loss that meets the thresh-old amounts over a combination of taxableyears as described in paragraph (b)(5)(i) ofthis section, only losses claimed in the tax-able year that the transaction is entered intoand the five succeeding taxable years arecombined.

(iii) Section 165 loss. (A) For purposesof this section, in determining the thresh-olds in paragraph (b)(5)(i) of this section,the amount of a section 165 loss is ad-justed for any salvage value and for anyinsurance or other compensation received.See §1.165–1(c)(4). However, a section165 loss does not take into account offset-ting gains, or other income or limitations.For example, a section 165 loss does nottake into account the limitation in section165(d) (relating to wagering losses) or thelimitations in sections 165(f), 1211, and1212 (relating to capital losses). The fullamount of a section 165 loss is taken intoaccount for the year in which the loss issustained, regardless of whether all or partof the loss enters into the computation ofa net operating loss under section 172 or anet capital loss under section 1212 that is acarryback or carryover to another year. Asection 165 loss does not include any por-tion of a loss, attributable to a capital losscarryback or carryover from another year,that is treated as a deemed capital loss un-der section 1212.

(B) For purposes of this section, asection 165 loss includes an amount de-ductible pursuant to a provision that treatsa transaction as a sale or other disposition,or otherwise results in a deduction undersection 165. A section 165 loss includes,for example, a loss resulting from a sale orexchange of a partnership interest undersection 741 and a loss resulting from asection 988 transaction.

(6) Transactions of interest. A transac-tion of interest is a transaction that is thesame as or substantially similar to one ofthe types of transactions that the IRS hasidentified by notice, regulation, or otherform of published guidance as a transac-tion of interest.

(7) Transactions involving a brief assetholding period. A transaction involving abrief asset holding period is any transac-tion resulting in the taxpayer claiming a

tax credit (other than a foreign tax credit)exceeding $250,000 if the underlying assetgiving rise to the credit is held by the tax-payer for 45 days or less. For purposes ofdetermining the holding period, the princi-ples of section 246(c)(3) and (c)(4) apply.

(8) Exceptions—(i) In general. A trans-action will not be considered a reportabletransaction, or will be excluded from anyindividual category of reportable transac-tion under paragraphs (b)(3) through (7) ofthis section, if the Commissioner makes adetermination by published guidance thatthe transaction is not subject to the report-ing requirements of this section. The Com-missioner may make a determination byindividual letter ruling under paragraph (f)of this section that an individual letter rul-ing request on a specific transaction satis-fies the reporting requirements of this sec-tion with regard to that transaction for thetaxpayer who requests the individual letterruling.

(ii) Special rule for RICs. For pur-poses of this section, a regulated invest-ment company (RIC) as defined in section851 or an investment vehicle that is owned95 percent or more by one or more RICs atall times during the course of the transac-tion are not required to disclose a transac-tion that is described in any of paragraphs(b)(3) through (5) and (b)(7) of this sectionunless the transaction is also a listed trans-action or a transaction of interest.

(c) Definitions. For purposes of thissection, the following definitions apply:

(1) Taxpayer. The term taxpayermeans any person described in section7701(a)(1), including S corporations. Ex-cept as otherwise specifically providedin this section, the term taxpayer also in-cludes an affiliated group of corporationsthat joins in the filing of a consolidatedreturn under section 1501.

(2) Corporation. When used specifi-cally in this section, the term corporationmeans an entity that is required to file a re-turn for a taxable year on any 1120 seriesform, or successor form, excluding S cor-porations.

(3) Participation—(i) In general—(A)Listed transactions. A taxpayer has par-ticipated in a listed transaction if thetaxpayer’s tax return reflects tax conse-quences or a tax strategy described in thepublished guidance that lists the transac-tion under paragraph (b)(2) of this section.A taxpayer also has participated in a listed

transaction if the taxpayer knows or hasreason to know that the taxpayer’s taxbenefits are derived directly or indirectlyfrom tax consequences or a tax strategydescribed in published guidance that lists atransaction under paragraph (b)(2) of thissection. Published guidance may iden-tify other types or classes of persons thatwill be treated as participants in a listedtransaction. Published guidance also mayidentify types or classes of persons thatwill not be treated as participants in alisted transaction.

(B) Confidential transactions. A tax-payer has participated in a confidentialtransaction if the taxpayer’s tax returnreflects a tax benefit from the transactionand the taxpayer’s disclosure of the taxtreatment or tax structure of the transac-tion is limited in the manner describedin paragraph (b)(3) of this section. If apartnership’s, S corporation’s or trust’sdisclosure is limited, and the partner’s,shareholder’s, or beneficiary’s disclo-sure is not limited, then the partnership,S corporation, or trust, and not the partner,shareholder, or beneficiary, has partici-pated in the confidential transaction.

(C) Transactions with contractual pro-tection. A taxpayer has participated in atransaction with contractual protection ifthe taxpayer’s tax return reflects a tax ben-efit from the transaction and, as describedin paragraph (b)(4) of this section, the tax-payer has the right to the full or partial re-fund of fees or the fees are contingent. If apartnership, S corporation, or trust has theright to a full or partial refund of fees orhas a contingent fee arrangement, and thepartner, shareholder, or beneficiary doesnot individually have the right to the re-fund of fees or a contingent fee arrange-ment, then the partnership, S corporation,or trust, and not the partner, shareholder, orbeneficiary, has participated in the transac-tion with contractual protection.

(D) Loss transactions. A taxpayer hasparticipated in a loss transaction if thetaxpayer’s tax return reflects a section165 loss and the amount of the section165 loss equals or exceeds the thresh-old amount applicable to the taxpayer asdescribed in paragraph (b)(5)(i) of thissection. If a taxpayer is a partner in apartnership, shareholder in an S corpora-tion, or beneficiary of a trust and a section165 loss as described in paragraph (b)(5)of this section flows through the entity

December 4, 2006 1053 2006–49 I.R.B.

to the taxpayer (disregarding netting atthe entity level), the taxpayer has partici-pated in a loss transaction if the taxpayer’stax return reflects a section 165 loss andthe amount of the section 165 loss thatflows through to the taxpayer equals orexceeds the threshold amounts applicableto the taxpayer as described in paragraph(b)(5)(i) of this section. For this purpose,a tax return is deemed to reflect the fullamount of a section 165 loss describedin paragraph (b)(5) of this section alloca-ble to the taxpayer under this paragraph(c)(3)(i)(D), regardless of whether all orpart of the loss enters into the computationof a net operating loss under section 172or net capital loss under section 1212 thatthe taxpayer may carry back or carry overto another year.

(E) Transactions of interest. A taxpayerhas participated in a transaction of interestif the taxpayer is one of the types or classesof persons identified as participants in thetransaction in the published guidance de-scribing the transaction of interest.

(F) Transactions involving a brief as-set holding period. A taxpayer has partici-pated in a transaction involving a brief as-set holding period if the taxpayer’s tax re-turn reflects items giving rise to a tax creditdescribed in paragraph (b)(7) of this sec-tion. If a taxpayer is a partner in a part-nership, shareholder in an S corporation, orbeneficiary of a trust and the items givingrise to a tax credit described in paragraph(b)(7) of this section flow through the en-tity to the taxpayer (disregarding netting atthe entity level), the taxpayer has partici-pated in a transaction involving a brief as-set holding period if the taxpayer’s tax re-turn reflects the tax credit and the amountof the tax credit claimed by the taxpayerexceeds $250,000.

(G) Shareholders of foreign corpora-tions—(1) In general. A reporting share-holder of a foreign corporation participatesin a transaction described in paragraphs(b)(2) through (5) and (b)(7) of this sec-tion if the foreign corporation would beconsidered to participate in the transac-tion under the rules of this paragraph (c)(3)if it were a domestic corporation filinga tax return that reflects the items fromthe transaction. A reporting shareholderof a foreign corporation participates in atransaction described in paragraph (b)(6)of this section only if the published guid-ance identifying the transaction includes

the reporting shareholder among the typesor classes of persons identified as partic-ipants. A reporting shareholder (and anysuccessor in interest) is considered to par-ticipate in a transaction under this para-graph (c)(3)(i)(G) only for its first tax-able year with or within which ends thefirst taxable year of the foreign corpora-tion in which the foreign corporation par-ticipates in the transaction, and for the re-porting shareholder’s five succeeding tax-able years.

(2) Reporting shareholder. The termreporting shareholder means a UnitedStates shareholder (as defined in section951(b)) in a controlled foreign corporation(as defined in section 957) or a 10 percentshareholder (by vote or value) of a qual-ified electing fund (as defined in section1295).

(ii) Examples. The following exam-ples illustrate the provisions of paragraph(c)(3)(i) of this section:

Example 1. Notice 2003–55, 2003–2 C.B. 395,which modified and superseded Notice 95–53,1995–2 C.B. 334 (see §601.601(d)(2) of this chap-ter), describes a lease stripping transaction in whichone party (the transferor) assigns the right to receivefuture payments under a lease of tangible propertyand treats the amount realized from the assignmentas its current income. The transferor later transfersthe property subject to the lease in a transactionintended to qualify as a transferred basis transaction,for example, a transaction described in section 351.The transferee corporation claims the deductionsassociated with the high basis property subject to thelease. The transferor’s and transferee corporation’stax returns reflect tax positions described in Notice2003–55. Therefore, the transferor and transfereecorporation have participated in the listed transac-tion. In the section 351 transaction, the transferorwill have received stock with low value and high ba-sis from the transferee corporation. If the transferorsubsequently transfers the high basis/low value stockto a taxpayer in another transaction intended to qual-ify as a transferred basis transaction and the taxpayeruses the stock to generate a loss, and if the taxpayerknows or has reason to know that the tax loss claimedwas derived indirectly from the lease stripping trans-action, then the taxpayer has participated in the listedtransaction. Accordingly, the taxpayer must disclosethe transaction and the manner of the taxpayer’sparticipation in the transaction under the rules of thissection. For purposes of this example, if a bank lendsmoney to the transferor, transferee corporation, ortaxpayer for use in their transactions, the bank hasnot participated in the listed transaction because thebank’s tax return does not reflect tax consequencesor a tax strategy described in the listing notice (nordoes the bank’s tax return reflect a tax benefit derivedfrom tax consequences or a tax strategy describedin the listing notice) nor is the bank described as aparticipant in the listing notice.

Example 2. XYZ is a limited liability companytreated as a partnership for tax purposes. X, Y, and

Z are members of XYZ. X is an individual, Y is anS corporation, and Z is a partnership. XYZ entersinto a confidential transaction under paragraph (b)(3)of this section. XYZ and X are bound by the confi-dentiality agreement, but Y and Z are not bound bythe agreement. As a result of the transaction, XYZ,X, Y, and Z all reflect a tax benefit on their tax re-turns. Because XYZ’s and X’s disclosure of the taxtreatment and tax structure are limited in the mannerdescribed in paragraph (b)(3) of this section and theirtax returns reflect a tax benefit from the transaction,both XYZ and X have participated in the confidentialtransaction. Neither Y nor Z has participated in theconfidential transaction because they are not subjectto the confidentiality agreement.

Example 3. P, a corporation, has an 80% partner-ship interest in PS, and S, an individual, has a 20%partnership interest in PS. P, S, and PS are calendaryear taxpayers. In 2006, PS enters into a transac-tion and incurs a section 165 loss (that does not meetany of the exceptions to a section 165 loss identi-fied in published guidance) of $12 million and off-setting gain of $3 million. On PS’ 2006 tax return,PS includes the section 165 loss and the correspond-ing gain. PS must disclose the transaction under thissection because PS’ section 165 loss of $12 millionis equal to or greater than $2 million. P is allocated$9.6 million of the section 165 loss and $2.4 millionof the offsetting gain. P does not have to disclose thetransaction under this section because P’s section 165loss of $9.6 million is not equal to or greater than $10million. S is allocated $2.4 million of the section 165loss and $600,000 of the offsetting gain. S must dis-close the transaction under this section because S’ssection 165 loss of $2.4 million is equal to or greaterthan $2 million.

(4) Substantially similar. The term sub-stantially similar includes any transactionthat is expected to obtain the same or simi-lar types of tax consequences and that is ei-ther factually similar or based on the sameor similar tax strategy. Receipt of an opin-ion regarding the tax consequences of thetransaction is not relevant to the determi-nation of whether the transaction is thesame as or substantially similar to anothertransaction. Further, the term substantiallysimilar must be broadly construed in fa-vor of disclosure. For example, a transac-tion may be substantially similar to a listedtransaction even though it involves differ-ent entities or uses different Code provi-sions. (See e.g., Notice 2003–54, 2003–2C.B. 363, describing a transaction substan-tially similar to the transactions in No-tice 2002–50, 2002–2 C.B. 98, and Notice2002–65, 2002–2 C.B. 690.) The follow-ing examples illustrate situations where atransaction is the same as or substantiallysimilar to a listed transaction under para-graph (b)(2) of this section. (Such trans-actions may also be reportable transac-tions under paragraphs (b)(3) through (7)of this section.) The following examples

2006–49 I.R.B. 1054 December 4, 2006

illustrate the provisions of this paragraph(c)(4):

Example 1. Notice 2000–44, 2000–2 C.B. 255(see §601.601(d)(2) of this chapter), sets forth a listedtransaction involving offsetting options transferred toa partnership where the taxpayer claims basis in thepartnership for the cost of the purchased options butdoes not adjust basis under section 752 as a result ofthe partnership’s assumption of the taxpayer’s obli-gation with respect to the options. Transactions usingshort sales, futures, derivatives or any other type ofoffsetting obligations to inflate basis in a partnershipinterest would be the same as or substantially sim-ilar to the transaction described in Notice 2000–44.Moreover, use of the inflated basis in the partner-ship interest to diminish gain that would otherwisebe recognized on the transfer of a partnership assetwould also be the same as or substantially similar tothe transaction described in Notice 2000–44.

Example 2. Notice 2001–16, 2001–1 C.B. 730(see §601.601(d)(2) of this chapter), sets forth a listedtransaction involving a seller (X) who desires to sellstock of a corporation (T), an intermediary corpora-tion (M), and a buyer (Y) who desires to purchasethe assets (and not the stock) of T. M agrees to fa-cilitate the sale to prevent the recognition of the gainthat T would otherwise report. Notice 2001–16 de-scribes M as a member of a consolidated group thathas a loss within the group or as a party not subject totax. Transactions utilizing different intermediaries toprevent the recognition of gain would be the same asor substantially similar to the transaction describedin Notice 2001–16. An example is a transaction inwhich M is a corporation that does not file a consol-idated return but which buys T stock, liquidates T,sells assets of T to Y, and offsets the gain recognizedon the sale of those assets with currently generatedlosses.

(5) Tax. For purposes of this section,the term tax means Federal income tax.

(6) Tax benefit. A tax benefit includesdeductions, exclusions from gross income,nonrecognition of gain, tax credits, adjust-ments (or the absence of adjustments) tothe basis of property, status as an entity ex-empt from Federal income taxation, andany other tax consequences that may re-duce a taxpayer’s Federal income tax li-ability by affecting the amount, timing,character, or source of any item of income,gain, expense, loss, or credit.

(7) Tax return. For purposes of this sec-tion, the term tax return means a Federalincome tax return and a Federal informa-tion return.

(8) Tax treatment. The tax treatment ofa transaction is the purported or claimedFederal income tax treatment of the trans-action.

(9) Tax structure. The tax structure of atransaction is any fact that may be relevantto understanding the purported or claimedFederal income tax treatment of the trans-action.

(d) Form and content of disclosurestatement. A taxpayer required to filea disclosure statement under this sec-tion must file a completed Form 8886,“Reportable Transaction Disclosure State-ment” (or a successor form), in accordancewith this paragraph (d) and the instructionsto the form. The Form 8886 (or a successorform) is the disclosure statement requiredunder this section. The form must beattached to the appropriate tax return(s)as provided in paragraph (e) of this sec-tion. If a copy of a disclosure statementis required to be sent to the Office of TaxShelter Analysis (OTSA) under paragraph(e) of this section, it must be sent in accor-dance with the instructions to the form. Tobe considered complete, the informationprovided on the form must describe theexpected tax treatment and all potential taxbenefits expected to result from the trans-action, describe any tax result protection(as defined in §301.6111–3(c)(12) of thischapter) with respect to the transaction,and identify and describe the transactionin sufficient detail for the IRS to be ableto understand the tax structure of the re-portable transaction and the identity of allparties involved in the transaction. An in-complete Form 8886 (or a successor form)containing a statement that informationwill be provided upon request is not con-sidered a complete disclosure statement.If the form is not completed in accordancewith the provisions in this paragraph(d) and the instructions to the form, thetaxpayer will not be considered to havecomplied with the disclosure requirementsof this section. If a taxpayer receives oneor more reportable transaction numbersfor a reportable transaction, the taxpayermust include the reportable transactionnumber(s) on the Form 8886 (or a succes-sor form). See §301.6111–3(d)(2) of thischapter.

(e) Time of providing disclosure—(1)In general. The disclosure statement fora reportable transaction must be attachedto the taxpayer’s tax return for each tax-able year for which a taxpayer participatesin a reportable transaction. In addition, adisclosure statement for a reportable trans-action must be attached to each amendedreturn that reflects a taxpayer’s participa-tion in a reportable transaction. A copyof the disclosure statement must be sent toOTSA at the same time that any disclosurestatement is first filed by the taxpayer per-

taining to a particular reportable transac-tion. If a reportable transaction results in aloss which is carried back to a prior year,the disclosure statement for the reportabletransaction must be attached to the tax-payer’s application for tentative refund oramended tax return for that prior year. Inthe case of a taxpayer that is a partnership,S corporation, or trust, the disclosure state-ment for a reportable transaction must beattached to the partnership, S corporation,or trust’s tax return for each taxable yearin which the partnership, S corporation, ortrust participates in the transaction underthe rules of paragraph (c)(3)(i) of this sec-tion. If a taxpayer in a partnership, S cor-poration, or trust receives a timely Sched-ule K–1 less than 10 calendar days be-fore the due date of the taxpayer’s return(including extensions) and, based on re-ceipt of the timely Schedule K–1, the tax-payer determines that the taxpayer partici-pated in a reportable transaction within themeaning of paragraph (c)(3) of this sec-tion, the disclosure statement will not beconsidered late if the taxpayer disclosesthe reportable transaction by filing a dis-closure statement with OTSA within 45calendar days after the due date of the tax-payer’s return (including extensions).

(2) Special rules—(i) Listed transac-tions and transactions of interest. In gen-eral, if a transaction becomes a listed trans-action or a transaction of interest after thefiling of a taxpayer’s tax return (includ-ing an amended return) reflecting the tax-payer’s participation in the listed trans-action or transaction of interest and be-fore the end of the period of limitationsfor assessment of tax for any taxable yearin which the taxpayer participated in thelisted transaction or transaction of interest,then a disclosure statement must be filed,regardless of whether the taxpayer partic-ipated in the transaction in the year thetransaction became a listed transaction or atransaction of interest, with OTSA within60 calendar days after the date on whichthe transaction became a listed transactionor a transaction of interest. The Commis-sioner also may determine the time for dis-closure of listed transactions and transac-tions of interest in the published guidanceidentifying the transaction.

(ii) Loss transactions. If a transac-tion becomes a loss transaction becausethe losses equal or exceed the thresh-old amounts as described in paragraph

December 4, 2006 1055 2006–49 I.R.B.

(b)(5)(i) of this section, a disclosure state-ment must be filed as an attachment to thetaxpayer’s tax return for the first taxableyear in which the threshold amount isreached and to any subsequent tax returnthat reflects any amount of section 165loss from the transaction.

(3) Multiple disclosures. The taxpayermust disclose the transaction in the timeand manner provided for under the provi-sions of this section regardless of whetherthe taxpayer also plans to disclose thetransaction under other published guid-ance, for example, §1.6662–3(c)(2).

(4) Example. The following exampleillustrates the application of this paragraph(e):

Example. In January of 2006, F, a calendar yeartaxpayer, enters into a transaction that at the time isnot a listed transaction and is not a transaction de-scribed in any of the paragraphs (b)(3) through (7)of this section. All the tax benefits from the transac-tion are reported on F’s 2006 tax return filed timely inApril 2007. On May 1, 2009, the IRS publishes a no-tice identifying the transaction as a listed transactiondescribed in paragraph (b)(2) of this section. Uponissuance of the May 1, 2009 notice, the transactionbecomes a reportable transaction described in para-graph (b) of this section. The period of limitations onassessment for F’s 2006 taxable year is still open. Fis required to file Form 8886 for the transaction withOTSA within 60 calendar days after May 1, 2009.

(f) [The text of the proposed amend-ment to §1.6011–4(f)(1) is the same as thetext for §1.6011–4T(f)(1) published else-where in this issue of the Bulletin].

(2) Protective disclosures. If a taxpayeris uncertain whether a transaction must bedisclosed under this section, the taxpayermay disclose the transaction in accordancewith the requirements of this section andcomply with all the provisions of this sec-tion, and indicate on the disclosure state-ment that the disclosure statement is be-ing filed on a protective basis. The IRSwill not treat disclosure statements filedon a protective basis any differently thanother disclosure statements filed under thissection. For a protective disclosure to beeffective, the taxpayer must comply withthese disclosure regulations by providingto the IRS all information requested by theIRS under this section.

(g) Retention of documents. In accor-dance with the instructions to Form 8886(or a successor form), the taxpayer mustretain a copy of all documents and otherrecords related to a transaction subject todisclosure under this section that are ma-terial to an understanding of the tax treat-

ment or tax structure of the transaction.The documents must be retained until theexpiration of the statute of limitations ap-plicable to the final taxable year for whichdisclosure of the transaction was requiredunder this section. (This document re-tention requirement is in addition to anydocument retention requirements that sec-tion 6001 generally imposes on the tax-payer.) The documents may include thefollowing: marketing materials related tothe transaction; written analyses used indecision-making related to the transaction;correspondence and agreements betweenthe taxpayer and any advisor, lender, orother party to the reportable transactionthat relate to the transaction; documentsdiscussing, referring to, or demonstratingthe purported or claimed tax benefits aris-ing from the reportable transaction; anddocuments, if any, referring to the busi-ness purposes for the reportable transac-tion. A taxpayer is not required to retainearlier drafts of a document if the taxpayerretains a copy of the final document (or, ifthere is no final document, the most recentdraft of the document) and the final docu-ment (or most recent draft) contains all theinformation in the earlier drafts of the doc-ument that is material to an understandingof the purported tax treatment or tax struc-ture of the transaction.

(h) Effective date—(1) In general. Ingeneral, this section applies to transactionsentered into on or after the date these regu-lations are published as final regulations inthe Federal Register. However, upon thepublication of final regulations, this sec-tion will apply to transactions of interestentered into on or after November 2, 2006.

(2) [The text of the proposed amend-ment to §1.6011–4(h)(2) is the same as thetext for §1.6011–4T(h)(2) published else-where in this issue of the Bulletin].

PART 20— ESTATE TAX; ESTATESOF DECEDENTS DYING AFTERAUGUST 16, 1954

Par. 3. The authority citation for part20 continues to read, in part, as follows:

Authority: 26 U.S.C. 7805 * * *Par. 4. Section 20.6011–4 is amended

as follows:1. Paragraph (a) is amended by adding

the language “or a transaction of interest”after the first occurrence of “listed transac-tion” and by adding the language “or trans-

action of interest” after the second occur-rence of “listed transaction”.

2. Paragraph (b) is revised.

The revision reads as follows:


* * * * *(b) Effective date. This section applies

to listed transactions entered into on or af-ter January 1, 2003. Upon the publicationof final regulations, this section will applyto transactions of interest entered into onor after November 2, 2006.

PART 25—GIFT TAX; GIFTS MADEAFTER DECEMBER 31, 1954




the language “or a transaction of interest”after the first occurrence of “listed transac-tion” and by adding the language “or trans-action of interest” after the second occur-rence of “listed transaction”.

2. Paragraph (b) is revised.The revision reads as follows:




PART 31—EMPLOYMENT TAXESAND COLLECTION OF INCOME TAXAT SOURCE




the language “or a transaction of interest”

2006–49 I.R.B. 1056 December 4, 2006

after the first occurrence of “listed transac-tion” and by adding the language “or trans-action of interest” after the second occur-rence of “listed transaction”.





PART 53—FOUNDATION ANDSIMILAR EXCISE TAXES









PART 54—PENSION EXCISE TAXES




the language “or a transaction of interest”

after the first occurrence of “listed transac-tion” and by adding the language “or trans-action of interest” after the second occur-rence of “listed transaction”.





PART 56—PUBLIC CHARITY EXCISETAXES











Notice of ProposedRulemaking byCross-Reference toTemporary Regulations


REG–103039–05


ACTION: Notice of proposed rulemakingby cross-reference to temporary regula-tions.

SUMMARY: This document contains pro-posed regulations under section 6111 ofthe Internal Revenue Code which providethe rules relating to the disclosure of re-portable transactions by material advisors.These regulations affect material advisorsresponsible for disclosing reportable trans-actions under section 6111 and material ad-visors responsible for keeping lists undersection 6112.


ADDRESSES: Send submissions to:CC:PA:LPD:PR (REG–103039–05), room5203, Internal Revenue Service, PO Box7604, Ben Franklin Station, Washing-ton, DC 20044. Submissions may behand delivered Monday through Fridaybetween the hours of 8 a.m. and 4 p.m.to CC:PA:LPD:PR (REG–103039–05),Courier’s Desk, Internal Revenue Service,Crystal Mall 4 Building, 1901 S. Bell St.,Arlington, VA, or sent electronically, viathe IRS Internet site at www.irs.gov/regsor via the Federal eRulemaking Portal atwww.regulations.gov (indicate IRS andREG–103039–05).

FOR FURTHER INFORMATIONCONTACT: Concerning the proposed reg-ulations, Tara P. Volungis or Charles Wien,202–622–3070; concerning the submis-sions of comments and requests for hear-ing, Kelly Banks, 202–622–0392 (nottoll-free numbers).

December 4, 2006 1057 2006–49 I.R.B.


Background

This document proposes to amend 26CFR part 301 by providing rules relatingto the disclosure of reportable transactionsby material advisors under section 6111.

The American Jobs Creation Act of2004, Public Law 108–357, 118 Stat.1418, (AJCA) was enacted on October 22,2004. Section 815 of the AJCA amendedsection 6111 to require each material ad-visor with respect to any reportable trans-action to make a return (in such form asthe Secretary may prescribe) setting forth:(1) information identifying and describingthe transaction; (2) information describ-ing any potential tax benefits expected toresult from the transaction; and (3) suchother information as the Secretary mayprescribe. Section 6111(a), as amended,also provides that the return must be filednot later than the date specified by the Sec-retary. Section 6111(b)(1), as amended,provides a definition for the term mate-rial advisor and includes as part of thatdefinition a requirement that the materialadvisor derive certain threshold amountsof gross income that the Secretary mayprescribe. The AJCA amendments tosection 6111 also authorize the Secretaryto prescribe regulations that provide: (1)that only one person shall be required tomeet the requirements of section 6111(a)in cases in which two or more personswould otherwise be required to meet suchrequirements; (2) exemptions from therequirements of section 6111; and (3)rules as may be necessary or appropriateto carry out the purposes of section 6111.Section 815 of the AJCA is effective fortransactions with respect to which materialaid, assistance, or advice is provided afterOctober 22, 2004.

Prior to these amendments, section6111(a) required an organizer of a taxshelter to register the tax shelter withthe Secretary not later than the day onwhich interests in the tax shelter were firstoffered for sale. Under former section6111(c), the term tax shelter was definedas any investment with respect to whichany person could reasonably infer fromthe representations made or to be made,in connection with the offering for saleof interests in the investments that the taxshelter ratio for any investor as of the close

of any of the first five years ending afterthe date on which the investment was of-fered for sale may have been greater thantwo to one and which was: (1) requiredto be registered under a Federal or Statelaw regulating securities; (2) sold pursuantto an exemption from registration requir-ing the filing of a notice with a Federalor State agency regulating the offeringor sale of securities; or (3) a substantialinvestment (the aggregate amount whichmay have been offered for sale exceeded$250,000 and the expected involvementof five or more investors). Under formersection 6111(d), for purposes of section6111(a), the term tax shelter included anyentity, plan, arrangement or transaction:(1) a significant purpose of the structureof which is the avoidance or evasion ofFederal income tax for a direct or indirectparticipant which is a corporation; (2)which is offered to any potential partici-pant under conditions of confidentiality;and (3) for which the tax shelter promotersmay receive fees in excess of $100,000 inthe aggregate.

In response to the AJCA, the IRS andTreasury Department issued interim guid-ance on section 6111 in Notice 2004–80,2004–2 C.B. 963; Notice 2005–17,2005–1 C.B. 606; Notice 2005–22,2005–1 C.B. 756; and Notice 2006–6,2006–5 I.R.B. 385 (see §601.601(d)(2)).The IRS and Treasury Department havereceived various comments and questionsregarding the application of section 6111.Consequently, the IRS and Treasury De-partment propose new rules relating to thedisclosure of reportable transactions bymaterial advisors under section 6111.


A. In General

These proposed regulations arebeing issued concurrently with pro-posed regulations under §301.6112–1(REG–103043–05) and §1.6011–4(REG–103038–05) published elsewherein the Bulletin. Under these proposedregulations, each material advisor withrespect to any reportable transaction (asdefined in §1.6011–4(b)(1)) must file areturn by the date prescribed in the reg-ulations. For this purpose, a person is amaterial advisor with respect to a trans-action if the person provides any material

aid, assistance, or advice with respect toorganizing, managing, promoting, selling,implementing, insuring, or carrying outany reportable transaction, and directly orindirectly derives gross income in excessof the threshold amount for the materialaid, assistance, or advice. A person pro-vides material aid, assistance, or advicewith respect to organizing, managing, pro-moting, selling, implementing, insuring,or carrying out any transaction if the per-son makes or provides a tax statement to orfor the benefit of certain persons. The IRSand Treasury Department also may iden-tify other types or classes of persons asmaterial advisors in published guidance.

Further, these proposed regulations pro-vide that the threshold amount of gross in-come that a person may derive, directly orindirectly, for providing any material aid,assistance or advice is $50,000 in the caseof a reportable transaction substantially allof the tax benefits from which are pro-vided to natural persons ($10,000 in thecase of a listed transaction). This thresh-old amount of gross income is increased to$250,000 in any other case ($25,000 in thecase of a listed transaction). For transac-tions of interest, the IRS and Treasury De-partment also may identify reduced thresh-old amounts in published guidance. A per-son will be treated as becoming a materialadvisor when all of the following eventshave occurred (in no particular order): (A)the person provides material aid, assis-tance or advice; (B) the person directly orindirectly derives gross income in excessof the threshold amount; and (C) the trans-action is entered into by the taxpayer.

The disclosure statement for a re-portable transaction must be filed by thelast day of the month that follows the endof the calendar quarter in which the advi-sor became a material advisor with respectto the reportable transaction. Form 8918,“Material Advisor Disclosure Statement,”will be published for use by material ad-visors to disclose reportable transactionsand will supersede the Form 8264 whichis currently being used for material ad-visor disclosures. The IRS will issue areportable transaction number to materialadvisors who file the Form 8918. Mate-rial advisors must provide the reportabletransaction number issued by the IRS topersons to whom the material advisormakes or provides tax statements with re-spect to the transaction. Public comment

2006–49 I.R.B. 1058 December 4, 2006

on the Form 8918 will be solicited in ac-cordance with the Paperwork ReductionAct of 1995 (44 U.S.C. 3507(d)).

B. Incomplete Disclosure Statements

Persons who file incomplete disclo-sures under section 6111 are subject topenalties under section 6707. The pro-posed regulations include clarifying lan-guage to the regulation reminding taxpay-ers that for a disclosure to be consideredcomplete, the information provided onForm 8918 must describe the expectedtax treatment and all potential tax benefitsexpected to result from the transaction,describe any tax result protection withrespect to the transaction, and identify anddescribe the transaction in sufficient detailfor the IRS to be able to understand thetax structure of the reportable transactionand the identity of the material advisor(s).An incomplete form containing a state-ment that information will be providedupon request is not considered a completedisclosure statement.

C. Tax Result Protection

Previous comments to the regulationsunder §1.6011–4 stated that it is inappro-priate to require reporting of transactionsunder the contractual protection filter of§1.6011–4(b)(4) for which the taxpayerobtains tax result protection (sometimesreferred to as “tax result insurance”) be-cause numerous legitimate business trans-actions with tax indemnities would besubject to reporting. The IRS and Trea-sury Department removed tax result pro-tection from that category of reportabletransaction but cautioned that if the IRSand Treasury Department became awareof abusive transactions utilizing tax resultprotection, the issue would be reconsid-ered.

The IRS and Treasury Department havesince become aware of taxpayers who haveobtained tax result protection for the taxbenefits of a listed transaction from a thirdparty provider. In the AJCA, Congress ex-pressed concern about tax result protectionfor reportable transactions and includedinsuring in the list of activities added tothe statutory language under section 6111.The IRS, Treasury Department, and Con-gress have an interest in learning moreabout the insuring of reportable transac-tions. Accordingly, while a transaction

will not be a reportable transaction simplybecause there is tax result protection forthe transaction, tax result protection pro-vided for a reportable transaction may sub-ject a person to the material advisor dis-closure rules under section 6111 because atax statement includes third party tax resultprotection that insures the tax benefits of areportable transaction.

D. Designation Agreements

The proposed regulations include a pro-vision allowing designation agreementsfor disclosure of reportable transactionssimilar to the provision in the current reg-ulations under §301.6112–1 that allowsmaterial advisors to have a designationagreement authorizing one material advi-sor to maintain a list of investors in thetransaction. However, parties to the desig-nation agreement may still be liable for thepenalty under section 6707 if the desig-nated material advisor fails to disclose thereportable transaction under section 6111.

E. Post-Filing Advice

The current regulations under§301.6112–1 provide that a person willnot be considered to be a material advisorwith respect to a transaction if that persondoes not make or provide a tax statementregarding the transaction until after thefirst tax return reflecting tax benefit(s) ofthe transaction is filed with the IRS. TheIRS and Treasury Department, however,believe that a person should be considereda material advisor for certain post-filingadvice. Consequently, the proposed ruleprovides that the exception will not applyto a person who makes a tax statement withrespect to the transaction if it is expectedthat the taxpayer will file a supplementalor amended return reflecting additionaltax benefits from the transaction.

F. Protective Disclosures

The IRS receives disclosures filed on aprotective basis from persons claiming thatthe transactions are not subject to disclo-sure under section 6111. Some of thosedisclosures fail to provide the IRS with theinformation requested under sections 6111and 6112 and the regulations thereunderthat would enable the IRS to make a de-termination as to whether the transactionis subject to disclosure. Consequently, the

IRS and Treasury Department have addedclarifying language in the proposed regu-lation that allows protective disclosures tobe filed in situations where a person is un-sure of whether the transaction should bedisclosed under section 6111. However,the disclosure is effective only if the rulesof §301.6111–3 and §301.6112–1 are fol-lowed.

G. Tolling Provision

In response to comments that askedwhether the tolling provisions of§1.6011–4(f) would apply to requestsfrom a potential material advisor for aletter ruling under section 6111, Notice2005–22 provided that, until further guid-ance is issued, if an advisor submits arequest for a letter ruling on or before thedate the return under section 6111 is dueand fully discloses all relevant facts relat-ing to the transaction, the obligation of thepotential material advisor to disclose thetransaction will be suspended as providedin §1.6011–4(f). The IRS and TreasuryDepartment believe that removing thetolling provision will promote effectivetax administration. Consequently, theseproposed regulations do not include aprovision to toll the time for providingdisclosure when a potential material ad-visor requests a ruling on a transaction.Potential material advisors may request aruling under section 6111 on a transactionunder the regular procedures for request-ing a ruling, provided the ruling request isnot factual or hypothetical, but the time forproviding disclosure under section 6111will not be tolled. The temporary regu-lations (T.D. 9295) issued concurrentlywith these proposed regulations supersedethe tolling provision in Notice 2005–22,effective for all ruling requests receivedon or after November 1, 2006.

H. Effective Date

Generally, when these proposed regula-tions become final, they will apply to trans-actions with respect to which a material ad-visor makes a tax statement on or after thedate the regulations are published as finalregulations in the Federal Register. How-ever, upon publication the final regulationswill apply to transactions of interest en-tered into on or after November 2, 2006with respect to which a material advisor

December 4, 2006 1059 2006–49 I.R.B.

makes a tax statement under §301.6111–3on or after November 2, 2006.

Special Analyses

It has been determined that this noticeof proposed rulemaking is not a significantregulatory action as defined in ExecutiveOrder 12866. Therefore, a regulatory as-sessment is not required. It also has beendetermined that section 553(b) of the Ad-ministrative Procedure Act (5 U.S.C. chap-ter 5) does not apply to these regulations,and because these regulations do not im-pose a collection of information on smallentities, the provisions of the RegulatoryFlexibility Act (5 U.S.C. chapter 6) do notapply. The return referenced in these reg-ulations will be made available for pub-lic comment in accordance with the Paper-work Reduction Act of 1995 (44 U.S.C.chapter 35). Pursuant to section 7805(f)of the Internal Revenue Code, this noticeof proposed rulemaking will be submittedto the Chief Counsel for Advocacy of theSmall Business Administration for com-ment on its impact on small business.


Before these proposed regulations areadopted as final regulations, considerationwill be given to any written comments(a signed original and eight (8) copies)or electronic comments that are submittedtimely to the IRS. The IRS and TreasuryDepartment request comments on the clar-ity of the proposed rules, how they can bemade easier to understand, and the admin-istrability of the rules in the proposed regu-lations. All comments will be available forpublic inspection and copying. A publichearing will be scheduled if requested inwriting by any person that submits timelywritten or electronic comments. If a pub-lic hearing is scheduled, notice of the date,time, and place for the public hearing willbe published in the Federal Register.



* * * * *


Accordingly, 26 CFR part 301 is pro-posed to be amended as follows:


Paragraph 1. The authority citation forpart 301 continues to read, in part, as fol-lows:

Authority: 26 U.S.C. 7805 * * *Par. 2. Section 301.6111–3 is added to

read as follows:

§301.6111–3 Disclosure of reportabletransactions.

(a) In general. Each material advisor,as defined in paragraph (b) of this section,with respect to any reportable transaction,as defined in §1.6011–4(b) of this chapter,must file a return as described in paragraph(d) of this section by the date described inparagraph (e) of this section.

(b) Material advisor—(1) In general. Aperson is a material advisor with respectto a transaction if the person provides anymaterial aid, assistance, or advice with re-spect to organizing, managing, promoting,selling, implementing, insuring, or carry-ing out any reportable transaction, and di-rectly or indirectly derives gross incomein excess of the threshold amount as de-fined in paragraph (b)(3) of this section forthe material aid, assistance, or advice. Theterm transaction includes all of the factualelements relevant to the expected tax treat-ment of any investment, entity, plan or ar-rangement, and includes any series of stepscarried out as part of a plan.

(2) Material aid, assistance, or ad-vice—(i) In general. Except as providedin paragraph (b)(5) of this section, a per-son provides material aid, assistance, oradvice with respect to organizing, man-aging, promoting, selling, implementing,insuring, or carrying out any transaction ifthe person makes or provides a tax state-ment to or for the benefit of—

(A) A taxpayer who either is re-quired to disclose the transaction un-der §§1.6011–4, 20.6011–4, 25.6011–4,31.6011–4, 53.6011–4, 54.6011–4, or56.6011–4 of this chapter because thetransaction is a listed transaction or a

transaction of interest, or would have beenrequired to disclose the transaction un-der §§1.6011–4, 20.6011–4, 25.6011–4,31.6011–4, 53.6011–4, 54.6011–4, or56.6011–4 of this chapter if the transac-tion had become a listed transaction or atransaction of interest within the period oflimitations in §1.6011–4(e) of this chapter;

(B) A taxpayer who the potential ma-terial advisor knows is or reasonably ex-pects to be required to disclose the trans-action under §1.6011–4 of this chapter be-cause the transaction is or is reasonably ex-pected to become a transaction describedin §1.6011–4(b)(3) through (5) or (7) ofthis chapter;

(C) A material advisor who is requiredto disclose the transaction under this sec-tion because it is a listed transaction or atransaction of interest; or

(D) A material advisor who the poten-tial material advisor knows is or reason-ably expects to be required to disclosethe transaction under this section becausethe transaction is or is reasonably ex-pected to become a transaction describedin §1.6011–4(b)(3) through (5) or (7) ofthis chapter.

(ii) Tax statement—(A) In general. Atax statement is any statement (includ-ing another person’s statement), oral orwritten, that relates to a tax aspect of atransaction that causes the transaction tobe a reportable transaction as defined in§1.6011–4(b)(2) through (7) of this chap-ter. A tax statement under this sectionincludes tax result protection that insuressome or all of the tax benefits of a re-portable transaction.

(B) Confidential transactions. A state-ment relates to a tax aspect of a transactionthat causes it to be a confidential transac-tion if the statement concerns a tax benefitrelated to the transaction and either the tax-payer’s disclosure of the tax treatment ortax structure of the transaction is limited inthe manner described in §1.6011–4(b)(3)of this chapter by or for the benefit of theperson making the statement, or the per-son making the statement knows the tax-payer’s disclosure of the tax structure ortax aspects of the transaction is limited inthe manner described in §1.6011–4(b)(3)of this chapter.

(C) Transactions with contractual pro-tection. A statement relates to a tax as-pect of a transaction that causes it to bea transaction with contractual protection if

2006–49 I.R.B. 1060 December 4, 2006

the statement concerns a tax benefit relatedto the transaction and either—

(1) The taxpayer has the right to afull or partial refund of fees paid to theperson making the statement or the feesare contingent in the manner described in§1.6011–4(b)(4) of this chapter; or

(2) The person making the statementknows or has reason to know that the tax-payer has the right to a full or partial refundof fees (described in §1.6011–4(b)(4)(ii) ofthis chapter) paid to another if all or partof the intended tax consequences from thetransaction are not sustained or that fees(as described in §1.6011–4(b)(4)(ii) of thischapter) paid by the taxpayer to anotherare contingent on the taxpayer’s realiza-tion of tax benefits from the transaction inthe manner described in §1.6011–4(b)(4)of this chapter.

(D) Loss transactions. A statement re-lates to a tax aspect of a transaction thatcauses it to be a loss transaction if the state-ment concerns an item that gives rise to aloss described in §1.6011–4(b)(5) of thischapter.

(E) Transactions involving a brief assetholding period. A statement relates to atax aspect of a transaction involving a briefasset holding period if the statement con-cerns an item that gives rise to a tax creditdescribed in §1.6011–4(b)(7) of this chap-ter.

(iii) Special rules—(A) Capacity as anemployee. A material advisor generallydoes not include a person who makes a taxstatement solely in the person’s capacity asan employee, shareholder, partner or agentof another person. Any tax statement madeby that person will be attributed to that per-son’s employer, corporation, partnershipor principal. However, a person shall betreated as a material advisor if that personforms or avails of an entity with the pur-pose of avoiding the rules of section 6111or 6112 or the penalties under section 6707or 6708.

(B) Post-filing advice. A person willnot be considered to be a material advi-sor with respect to a transaction if that per-son does not make or provide a tax state-ment regarding the transaction until afterthe first tax return reflecting tax benefit(s)of the transaction is filed with the IRS.However, this exception does not apply toa person who makes a tax statement withrespect to the transaction if it is expectedthat the taxpayer will file a supplemental

or amended return reflecting additional taxbenefits from the transaction.

(C) Publicly filed statements. A taxstatement with respect to a transaction thatincludes only information about the trans-action contained in publicly available doc-uments filed with the Securities and Ex-change Commission no later than the closeof the transaction will not be considered atax statement to or for the benefit of a per-son described in paragraph (b)(2) of thissection.

(3) Gross income derived for materialaid, assistance, or advice—(i) Thresholdamount—(A) In general. The thresholdamount of gross income is $50,000 in thecase of a reportable transaction substan-tially all of the tax benefits from whichare provided to natural persons (lookingthrough any partnerships, S corporations,or trusts). For all other transactions, thethreshold amount is $250,000.

(B) Listed transactions and transac-tions of interest. For listed transactionsdescribed in §§1.6011–4, 20.6011–4,25.6011–4, 31.6011–4, 53.6011–4,54.6011–4, or 56.6011–4 of this chap-ter, the threshold amounts in paragraph(b)(3)(i)(A) of this section are reducedfrom $50,000 to $10,000 and from$250,000 to $25,000. For transactionsof interest described in §§1.6011–4,20.6011–4, 25.6011–4, 31.6011–4,53.6011–4, 54.6011–4, or 56.6011–4 ofthis chapter, the threshold amounts inparagraph (b)(3)(i)(A) of this section maybe reduced as identified in the publishedguidance describing the transaction.

(ii) Gross income derived directly orindirectly for the material aid, assistance,or advice. In determining the amount ofgross income a person derives directly orindirectly for material aid, assistance, oradvice, all fees for a tax strategy or for ser-vices for advice (whether or not tax advice)or for the implementation of a reportabletransaction are taken into account. Feesinclude consideration in whatever formpaid, whether in cash or in kind, for ser-vices to analyze the transaction (whetheror not related to the tax consequences ofthe transaction), for services to implementthe transaction, for services to documentthe transaction, and for services to preparetax returns to the extent return preparationfees are unreasonable in light of all of thefacts and circumstances. A fee does notinclude amounts paid to a person, includ-

ing an advisor, in that person’s capacity asa party to the transaction. For example,a fee does not include reasonable chargesfor the use of capital or the sale or use ofproperty. The IRS will scrutinize carefullyall of the facts and circumstances in deter-mining whether consideration received inconnection with a reportable transactionconstitutes gross income derived directlyor indirectly for aid, assistance, or advice.For purposes of this section, the thresh-old amount must be met independentlyfor each transaction that is a reportabletransaction and aggregation of fees amongtransactions is not required.

(4) Date a person becomes a materialadvisor—(i) In general. A person willbe treated as becoming a material advisorwhen all of the following events have oc-curred (in no particular order)—

(A) The person provides material aid,assistance or advice as described in para-graph (b)(2) of this section;

(B) The person directly or indirectlyderives gross income in excess of thethreshold amount as described in para-graph (b)(3) of this section; and

(C) The transaction is entered into bythe taxpayer to whom or for whose benefitthe person provided the tax statement, orin the case of a tax statement provided toanother material advisor, when the transac-tion is entered into by a taxpayer to whomor for whose benefit that material advisorprovided a tax statement.

(ii) Determining if the taxpayer enteredinto the transaction. Material advisors,including those who cease providing ser-vices before the time the transaction is en-tered into, must make reasonable and goodfaith efforts to determine whether the eventdescribed in paragraph (b)(4)(i)(C) of thissection has occurred.

(iii) Listed transactions and transac-tions of interest. If a transaction that wasnot a reportable transaction is identified asa listed transaction or a transaction of inter-est in published guidance after the occur-rence of the events described in paragraph(b)(4)(i) of this section, the person will betreated as becoming a material advisor onthe date the transaction is identified as alisted transaction or a transaction of inter-est.

(5) Other persons designated as ma-terial advisors. Published guidance mayidentify other types or classes of personsas material advisors.

December 4, 2006 1061 2006–49 I.R.B.

(c) Definitions. For purposes of thissection, the following definitions apply:

(1) Reportable transaction. Theterm reportable transaction is definedin §1.6011–4(b)(1) of this chapter.

(2) Listed transaction. The term listedtransaction is defined in §1.6011–4(b)(2)of this chapter. See also §§20.6011–4(a),25.6011–4(a), 31.6011–4(a), 53.6011–4(a), 54.6011–4(a), or 56.6011–4(a) ofthis chapter.

(3) Derive. The term derive means re-ceive or expect to receive.

(4) Person. The term person means anyperson described in section 7701(a)(1), in-cluding an affiliated group of corporationsthat join in the filing of a consolidated re-turn under section 1501.

(5) Substantially similar. The termsubstantially similar is defined in§1.6011–4(c)(4) of this chapter.

(6) Tax. The term tax means Federaltax.

(7) Tax benefit. A tax benefit includesdeductions, exclusions from gross income,nonrecognition of gain, tax credits, adjust-ments (or the absence of adjustments) tothe basis of property, status as an entity ex-empt from Federal income taxation, andany other tax consequences that may re-duce a taxpayer’s Federal tax liability byaffecting the amount, timing, character, orsource of any item of income, gain, ex-pense, loss, or credit.

(8) Tax return. The term tax returnmeans a Federal tax return and a Federalinformation return.

(9) Tax structure. The tax structure of atransaction is any fact that may be relevantto understanding the purported or claimedFederal tax treatment of the transaction.

(10) Tax treatment. The tax treatmentof a transaction is the purported or claimedFederal tax treatment of the transaction.

(11) Taxpayer. The term taxpayer isdefined in §1.6011–4(c)(1) of this chapter.

(12) Tax result protection. The term taxresult protection includes insurance com-pany and other third party products com-monly described as tax result insurance.

(13) Transaction of interest. Theterm transaction of interest is definedin §1.6011–4(b)(6) of this chapter. Seealso §§20.6011–4(a), 25.6011–4(a),31.6011–4(a), 53.6011–4(a), 54.6011–4(a), or 56.6011–4(a) of this chapter.

(d) Form and content of material advi-sor’s disclosure statement—(1) In general.

A material advisor required to file a dis-closure statement under this section mustfile a completed Form 8918, “Material Ad-visor Disclosure Statement” (or successorform) in accordance with this paragraph(d) and the instructions to the form. To beconsidered complete, the information pro-vided on the form must describe the ex-pected tax treatment and all potential taxbenefits expected to result from the trans-action, describe any tax result protectionwith respect to the transaction, and iden-tify and describe the transaction in suffi-cient detail for the IRS to be able to un-derstand the tax structure of the reportabletransaction and the identity of the mate-rial advisor(s). An incomplete form con-taining a statement that information will beprovided upon request is not considered acomplete disclosure statement. A materialadvisor may file a single form for substan-tially similar transactions. An amendedform must be filed if information previ-ously provided is no longer accurate, if ad-ditional information that was not disclosedbecomes available, or if there are materialchanges to the transaction. A material ad-visor is not required to file an additionalform for each additional taxpayer that en-ters into the same or substantially similartransaction. If the form is not completedin accordance with the provisions in thisparagraph (d) and the instructions to theform, the material advisor will not be con-sidered to have complied with the disclo-sure requirements of this section.

(2) Reportable transaction number.The IRS will issue to a material advi-sor a reportable transaction number withrespect to the disclosed reportable trans-action. Receipt of a reportable transactionnumber does not indicate that the dis-closure statement is complete, nor doesit indicate that the transaction has beenreviewed, examined, or approved by theIRS. Material advisors must provide thereportable transaction number to all tax-payers and material advisors to whom thematerial advisor makes or provides taxstatements. The reportable transactionnumber must be provided at the time thetransaction is entered into, or, if the trans-action is entered into prior to the materialadvisor receiving the reportable transac-tion number, within 60 calendar days fromthe date the reportable transaction numberis mailed to the material advisor.

(e) Time of providing disclosure. Thematerial advisor’s disclosure statement fora reportable transaction must be filed withthe Office of Tax Shelter Analysis (OTSA)by the last day of the month that followsthe end of the calendar quarter in whichthe advisor became a material advisor withrespect to the reportable transaction or inwhich the circumstances necessitating anamended disclosure statement occur. Thedisclosure statement must be sent to OTSAat the address provided in the instructionsfor Form 8918 (or a successor form).

(f) Designation agreements. If morethan one material advisor is required to dis-close a reportable transaction under thissection, the material advisors may desig-nate by written agreement a single mate-rial advisor to disclose the transaction. Thetransaction must be disclosed by the lastday of the month following the end of thecalendar quarter that includes the earliestdate on which a material advisor who is aparty to the agreement became a materialadvisor with respect to the transaction asdescribed in paragraph (b)(4) of this sec-tion. The designation of one material ad-visor to disclose the transaction does notrelieve the other material advisors of theirobligation to disclose the transaction to theIRS in accordance with this section, if thedesignated material advisor fails to dis-close the transaction to the IRS in a timelymanner.

(g) Protective disclosures. If a poten-tial material advisor is uncertain whethera transaction must be disclosed under thissection, the advisor may disclose the trans-action in accordance with the requirementsof this section and comply with all theprovisions of this section, and indicate onthe disclosure statement that the disclosurestatement is being filed on a protective ba-sis. The IRS will not treat disclosure state-ments filed on a protective basis any differ-ently than other disclosure statements filedunder this section. For a protective disclo-sure to be effective, the advisor must com-ply with the regulations under this sectionand §301.6112–1 by providing to the IRSall information requested by the IRS underthese sections.

(h) [The text of the proposed§301.6111–3(h) is the same as the textfor §301.6111–3T(h) published elsewherein this issue of the Bulletin].

(i) Effective date—(1) In general. Ingeneral, this section applies to transac-

2006–49 I.R.B. 1062 December 4, 2006

tions with respect to which a materialadvisor makes a tax statement on or afterthe date these regulations are publishedas final regulations in the Federal Reg-ister. However, upon the publication offinal regulations, this section will applyto transactions of interest entered into onor after November 2, 2006 with respectto which a material advisor makes a taxstatement under §301.6111–3 on or afterNovember 2, 2006.

(2) [The text of the proposed§301.6111–3(i)(2) is the same as the textfor §301.6111–3T(i)(2) published else-where in this issue of the Bulletin].



Notice of ProposedRulemaking


REG–103043–05


ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains pro-posed regulations under section 6112 ofthe Internal Revenue Code which providethe rules relating to the obligation of mate-rial advisors to prepare and maintain listswith respect to reportable transactions.These regulations affect material advisorsresponsible for keeping lists under section6112.


ADDRESSES: Send submissions to:CC:PA:LPD:PR (REG–103043–05), room5203, Internal Revenue Service, PO Box7604, Ben Franklin Station, Washing-ton, DC 20044. Submissions may behand delivered Monday through Fridaybetween the hours of 8 a.m. and 4 p.m.to CC:PA:LPD:PR (REG–103043–05),

Courier’s Desk, Internal Revenue Service,Crystal Mall 4 Building, 1901 S. Bell St.,Arlington, VA, or sent electronically, viathe IRS Internet site at www.irs.gov/regsor via the Federal eRulemaking Portal atwww.regulations.gov (indicate IRS andREG–103043–05).

FOR FURTHER INFORMATIONCONTACT: Concerning the proposed reg-ulations, Tara P. Volungis or Charles Wien,202–622–3070; concerning the submis-sions of comments and requests for hear-ing, Kelly Banks, 202–622–0392 (nottoll-free numbers).


Paperwork Reduction Act

The collection of information containedin this notice of proposed rulemaking hasbeen submitted to the Office of Manage-ment and Budget for review in accordancewith the Paperwork Reduction Act of 1995(44 U.S.C. 3507(d)). Comments on thecollection of information should be sent tothe Office of Management and Budget,Attn: Desk Officer for the Departmentof the Treasury, Office of Informationand Regulatory Affairs, Washington, DC20503, with copies to the Internal Rev-enue Service, Attn: IRS Reports Clear-ance Officer, SE:W:CAR:MP:T:T:SP,Washington, DC 20224. Comments onthe collection of information should bereceived by January 2, 2007.

Comments are specifically requestedconcerning:

Whether the proposed collection of in-formation is necessary for the proper per-formance of the functions of the InternalRevenue Service, including whether theinformation will have practical utility;

The accuracy of the estimated burdenassociated with the proposed collection ofinformation (see below);

How the quality, utility, and clarity ofthe information to be collected may be en-hanced;

How the burden of complying with theproposed collections of information maybe minimized, including through the appli-cation of automated collection techniquesor other forms of information technology;and

Estimates of capital or start-up costsand costs of operation, maintenance, andpurchase of service to provide information.

The collection of information in thisproposed regulation is in §301.6112–1(b)and (d). This information is required in or-der for a material advisor to comply withthe list maintenance rules under section6112. This information will be used to im-prove compliance with the tax laws by giv-ing the IRS earlier notification of transac-tions that may not comport with the taxlaws. The collection of information ismandatory. The likely respondents arebusiness or other for-profit institutions orindividuals.

Estimated total annual reporting bur-den: 50,000 hours.

Estimated average annual burden hoursper respondent: 100 hours.

Estimated number of respondents: 500.Estimated annual frequency of re-

sponses: on occasion.An agency may not conduct or sponsor,

and a person is not required to respond to, acollection of information unless it displaysa valid control number assigned by the Of-fice of Management and Budget.

Books or records relating to a collectionof information must be retained as longas their contents may become material inthe administration of any internal revenuelaw. Generally, tax returns and tax returninformation are confidential, as requiredby 26 U.S.C. 6103.

Background

This document proposes to amend 26CFR part 301 by amending the rules re-lating to the list maintenance requirementsof material advisors with respect to re-portable transactions under section 6112.

The American Jobs Creation Act of2004, Public Law 108–357, 118 Stat.1418, (AJCA) was enacted on October 22,2004. Section 815 of the AJCA amendedsection 6112 to provide that each mate-rial advisor (as defined in section 6111, asamended by the AJCA) with respect to anyreportable transaction is required to main-tain a list (in such manner as the Secretarymay by regulations prescribe) identifyingeach person with respect to whom theadvisor acted as a material advisor withrespect to the transaction, and containingother information as the Secretary mayby regulations require. Section 815 of theAJCA is effective for transactions withrespect to which material aid, assistance,or advice is provided after October 22,

December 4, 2006 1063 2006–49 I.R.B.

2004. Prior to the amendments to section6111 made by the AJCA, the definition ofmaterial advisor was in §301.6112–1 ofthe Procedure and Administration Regula-tions.

In response to the AJCA, the IRSand Treasury Department issued interimguidance affecting section 6112 in No-tice 2004–80, 2004–2 C.B. 963; No-tice 2005–17, 2005–1 C.B. 606; Notice2005–22, 2005–1 C.B. 756; and No-tice 2006–6, 2006–5 I.R.B. 385 (see§601.601(d)(2)). The IRS and Trea-sury Department have received variouscomments and questions regarding the ap-plication of section 6112 under the AJCA.Consequently, the IRS and Treasury De-partment propose amendments to the rulesrelating to the list maintenance obligationof material advisors under section 6112.


A. In General

These proposed regulations are beingissued concurrently with proposed regula-tions under §1.6011–4 (REG–103038–05)and §301.6111–3 (REG–103039–05) pub-lished elsewhere in the Bulletin. Thedefinition of material advisor is pro-vided in the proposed regulations under§301.6111–3(b). The definition of re-portable transaction is provided in the pro-posed regulations under §1.6011–4(b)(1).Under these proposed regulations, eachmaterial advisor for any reportable trans-action must maintain a list identifyingeach person with respect to whom theadvisor acted as a material advisor andcontaining other information described inthe regulations.

B. The List

The information that must be containedin the list under these proposed regulationsis similar to the information required tobe included on the list under the current§301.6112–1 regulations, with some addi-tions or clarifications, such as, the nameof each other material advisor to the trans-action, if known by the material advisor,and any designation agreement to whichthe material advisor is a party. The IRS andTreasury Department believe that this in-formation is required to be provided underthe current regulations. However, due toquestions raised by material advisors un-

der the current regulations, these proposedamendments clarify that the name of othermaterial advisors and designation agree-ments are required to be maintained.

To date, the IRS has received lists un-der the current regulations that are not ina form that enables the IRS to determinewithout undue delay or difficulty the in-formation required under the regulation.Some material advisors have merely pro-duced boxes of documents rather than alist as required under §301.6112–1. Un-der section 6708 as amended by the AJCA,any person who is required to maintaina list under section 6112(a) who fails tomake the list available to the Secretaryupon written request within 20 businessdays after the date of the request, mustpay a penalty of $10,000 for each dayof such failure. Failure to maintain thelist in accordance with these regulationsalso subjects a person to the penalty un-der section 6708. The proposed regula-tions specifically clarify that the list to bemaintained by the material advisor and fur-nished to the IRS upon request consists ofthree separate components: (1) an item-ized statement of information, (2) a de-tailed description of the transaction, and(3) copies of documents relating to thetransaction. The itemized statement of in-formation must contain all of the requestedinformation in a form that is easy to un-derstand (for example, in a format such asa list, spreadsheet, or table). In order forthe material advisor to be in compliancewith its obligations under section 6112, thematerial advisor must maintain and furnishin the time prescribed the itemized state-ment of information, the description of thetransaction, and the copies of documents.Under the proposed regulations, the Secre-tary, in published guidance, may provide aform or method for maintaining and/or fur-nishing a list.

C. Other Clarifications and Modifications

The proposed regulations remove theprovision detailing how a privilege isclaimed with regard to certain informa-tion on the list. The regulations continueto require that if a claim of privilege ismade, the material advisor must continueto maintain the list in accordance withthese regulations.

Similar to provisions in the current§301.6112–1 regulations, material advi-

sors under the proposed regulations mayhave a designation agreement authoriz-ing one material advisor to maintain andfurnish the list. However, the designationagreement does not relieve the other mate-rial advisors of their obligation to furnishthe list if the designated material advisorfails to furnish the list in a timely manner.Thus, parties to a designation agreementmay still be liable for the penalty undersection 6708.

Contrary to the provisions in the cur-rent regulations under §301.6112–1, theseproposed regulations contain no provisionto toll the requirement for maintaining thelist when a potential material advisor re-quests a private letter ruling on a specifictransaction. The IRS and Treasury Depart-ment believe that removing the tolling pro-vision will promote effective tax adminis-tration. Consequently, potential materialadvisors may request a ruling on a trans-action, as provided in the temporary regu-lations under §301.6111–3T(h), under theregular procedures for requesting a ruling,provided the ruling request is not factual orhypothetical, but the requirement for dis-closing the transaction under section 6111and maintaining the list under section 6112will not be tolled. Final regulations remov-ing the tolling provision are being issuedconcurrently with these proposed regula-tions. The removal of the tolling provisionis effective for all ruling requests receivedon or after November 1, 2006.

D. Effective Date

Generally, when these proposed regula-tions become final, they will apply to trans-actions with respect to which a material ad-visor makes a tax statement on or after thedate the regulations are published as finalregulations in the Federal Register. How-ever, upon publication the final regulationswill apply to transactions of interest en-tered into on or after November 2, 2006with respect to which a material advisormakes a tax statement under §301.6111–3on or after November 2, 2006.

Special Analyses

It has been determined that this noticeof proposed rulemaking is not a signifi-cant regulatory action as defined in Exec-utive Order 12866. Therefore, a regula-tory assessment is not required. It also hasbeen determined that section 553(b) of the

2006–49 I.R.B. 1064 December 4, 2006

Administrative Procedure Act (5 U.S.C.chapter 5) does not apply to these regu-lations. It is hereby certified that the col-lection of information in these regulationswill not have a significant economic im-pact on a substantial number of small en-tities. This certification is based upon thefact that most of the information is alreadyrequired to be reported under the currentregulations; the clarifications and new in-formation required by the proposed regu-lations add little or no new burden to theexisting requirements. Therefore, a Regu-latory Flexibility Analysis under the Reg-ulatory Flexibility Act (5 U.S.C. chapter 6)is not required. Pursuant to section 7805(f)of the Internal Revenue Code, this noticeof proposed rulemaking will be submittedto the Chief Counsel for Advocacy of theSmall Business Administration for com-ment on its impact on small business.


Before these proposed regulations areadopted as final regulations, considerationwill be given to any written comments(a signed original and eight (8) copies)or electronic comments that are submittedtimely to the IRS. The IRS and TreasuryDepartment request comments on the clar-ity of the proposed rules, how they can bemade easier to understand, and the admin-istrability of the rules in the proposed regu-lations. All comments will be available forpublic inspection and copying. A publichearing will be scheduled if requested inwriting by any person that submits timelywritten or electronic comments. If a pub-lic hearing is scheduled, notice of the date,time, and place for the public hearing willbe published in the Federal Register.



* * * * *


Accordingly, 26 CFR part 301 is pro-posed to be amended as follows:


Paragraph 1. The authority citation forpart 301 continues to read, in part, as fol-lows:

Authority: 26 U.S.C. 7805 * * *Par. 2. Section 301.6112–1 is revised

to read as follows:

§301.6112–1 Material advisors ofreportable transactions must keep lists ofadvisees, etc.

(a) In general. Each material advisor,as defined in §301.6111–3(b), with respectto any reportable transaction, as definedin §1.6011–4(b) of this chapter, shall pre-pare and maintain a list in accordance withparagraph (b) of this section and shall fur-nish such list to the Internal Revenue Ser-vice (IRS) in accordance with paragraph(e) of this section.

(b) Preparation and maintenance oflists—(1) In general. A separate list mustbe prepared and maintained for each re-portable transaction. However, one listmust be maintained for substantially simi-lar transactions. A list must be maintainedin a form that enables the IRS to determinewithout undue delay or difficulty the in-formation required in paragraph (b)(3) ofthis section. The Secretary may, by pub-lication in the Internal Revenue Bulletin(see §601.601(d)(2)(ii)(b) of this chapter),provide a form or method for maintainingand/or furnishing a list.

(2) Persons required to be included onlists. A material advisor is required tomaintain a list identifying each person withrespect to whom the advisor acted as a ma-terial advisor with respect to the reportabletransaction. However, a material advisor isnot required to identify a person on the listif the person entered into a listed transac-tion or a transaction of interest more than 6years before the transaction was identifiedin published guidance as a listed transac-tion or a transaction of interest.

(3) Contents. Each list must include thethree components described in paragraph(b)(3)(i), (ii), and (iii) of this section.

(i) Statement. An itemized statementcontaining the following information—

(A) The name of each reportable trans-action, the citation to the published guid-ance number identifying the transaction ifthe transaction is a listed transaction or atransaction of interest, and the reportabletransaction number obtained under section6111;

(B) The name, address, and TIN of eachperson required to be included on the list;

(C) The date on which each person re-quired to be included on the list enteredinto each reportable transaction, if knownby the material advisor;

(D) The amount invested in each re-portable transaction by each person re-quired to be included on the list, if knownby the material advisor;

(E) A summary or schedule of the taxtreatment that each person is intended orexpected to derive from participation ineach reportable transaction; and

(F) The name of each other materialadvisor to the transaction, if known by thematerial advisor.

(ii) Description of the transaction. Adetailed description of each reportabletransaction that describes both the taxstructure of the transaction and the pur-ported tax treatment of the transaction.

(iii) Documents. The following docu-ments—

(A) A copy of any designation agree-ment (as described in paragraph (f) of thissection) to which the material advisor is aparty; and

(B) Copies of any additional writtenmaterials, including tax analyses or opin-ions, relating to each reportable transactionthat are material to an understanding of thepurported tax treatment or tax structure ofthe transaction that have been shown orprovided to any person who acquired ormay acquire an interest in the transactions,or to their representatives, tax advisors, oragents, by the material advisor or any re-lated party or agent of the material advisor.However, a material advisor is not requiredto retain earlier drafts of a document pro-vided the material advisor retains a copyof the final document (or, if there is no fi-nal document, the most recent draft of thedocument) and the final document (or mostrecent draft) contains all the informationin the earlier drafts of such document thatis material to an understanding of the pur-

December 4, 2006 1065 2006–49 I.R.B.

ported tax treatment or the tax structure ofthe transaction.

(c) Definitions. For purposes of thissection, the following terms are defined as:

(1) Material advisor. The term materialadvisor is defined in §301.6111–3(b).

(2) Reportable transaction. Theterm reportable transaction is definedin §1.6011–4(b)(1) of this chapter.

(3) Listed transaction. The term listedtransaction is defined in §1.6011–4(b)(2)of this chapter. See also §§20.6011–4(a),25.6011–4(a), 31.6011–4(a), 53.6011–4(a), 54.6011–4(a), or 56.6011–4(a) ofthis chapter.

(4) Substantially similar. The termsubstantially similar is defined in§1.6011–4(c)(4) of this chapter.

(5) Person. The term person is definedin §301.6111–3(c)(4).

(6) Related party. A person is a re-lated party with respect to another personif such person bears a relationship to suchother person described in section 267(b) or707(b).

(7) Tax. The term tax is defined in§301.6111–3(c)(6).

(8) Tax benefit. The term tax benefit isdefined in §301.6111–3(c)(7).

(9) Tax return. The term tax return isdefined in §301.6111–3(c)(8).

(10) Tax structure. The term tax struc-ture is defined in §301.6111–3(c)(9).

(11) Tax treatment. The term tax treat-ment is defined in §301.6111–3(c)(10).

(12) Transaction of interest. Theterm transaction of interest is definedin §1.6011–4(b)(6) of this chapter. Seealso §§20.6011–4(a), 25.6011–4(a),31.6011–4(a), 53.6011–4(a), 54.6011–4(a), or 56.6011–4(a) of this chapter.

(d) Retention of lists. Each materialadvisor must maintain each component ofthe list described in paragraph (b)(3) ofthis section in a readily accessible formfor seven years following the earlier ofthe date on which the material advisor lastmade a tax statement relating to the trans-action, or the date the transaction was lastentered into, if known. If the material ad-visor required to prepare, maintain, andfurnish the list is a corporation, partner-ship, or other entity (entity) that has dis-solved or liquidated before completion ofthe seven-year period, the person respon-sible under state law for winding up the

affairs of the entity must prepare, main-tain and furnish each component of the liston behalf of the entity, unless the entitysubmits the list to the Office of Tax Shel-ter Analysis (OTSA) within 60 days afterthe dissolution or liquidation. If state lawdoes not specify any person as responsi-ble for winding up the affairs, then each ofthe directors of the corporation, the generalpartners of the partnership, or the trustees,owners, or members of the entity are re-sponsible for preparing, maintaining andfurnishing each component of the list onbehalf of the entity, unless the entity sub-mits the list to the OTSA within 60 daysafter the dissolution or liquidation. The re-sponsible person must also provide noticeto OTSA of such dissolution or liquidationwithin 60 days after the dissolution or liq-uidation. The list and the notice providedto OTSA must be sent to: Internal Rev-enue Service, OTSA Mail Stop 4915, 1973North Rulon White Blvd., Ogden, Utah84404, or to such other address as providedby the Commissioner.

(e) Furnishing of lists—(1) In gen-eral. Each material advisor responsiblefor maintaining a list must, upon writtenrequest by the IRS, make each componentof the list described in paragraph (b)(3) ofthis section available to the IRS by fur-nishing each component of the list to theIRS within 20 business days from the dayon which the request is provided. The 20business-day period shall begin on the firstbusiness day following the earlier of thedate that the IRS mails a request for thelist by certified or registered mail to thelast known address of the material advisorrequired to maintain the list, or hand-deliv-ers the written request in person. Businessdays include every calendar day other thanSaturdays, Sundays, or legal holidays.For purposes of this paragraph (e), legalholiday shall have the same meaning pro-vided in section 7503. The request is notrequired to be in the form of an adminis-trative summons. Each component of thelist must be furnished to the IRS in a formthat enables the IRS to determine withoutundue delay or difficulty the informationrequired in paragraph (b)(3) of this sec-tion. If any component of the list is notin a form that enables the IRS to deter-mine without undue delay or difficulty theinformation required in paragraph (b)(3)

of this section, the material advisor willnot be considered to have complied withthe list maintenance provisions in section6112 and this section.

(2) Claims of privilege. Each mate-rial advisor who is required to maintain alist with respect to a reportable transaction,must still maintain the list pursuant to therequirements of this section even if a per-son asserts a claim of privilege with re-spect to the information specified in para-graph (b)(3)(iii)(B) of this section.

(f) Designation agreements. If morethan one material advisor is required tomaintain a list of persons for a reportabletransaction, in accordance with paragraph(b) of this section, the material advisorsmay designate by written agreement a sin-gle material advisor to maintain the list or aportion of the list. The designation of onematerial advisor to maintain the list doesnot relieve the other material advisors fromtheir obligation to furnish the list to the IRSin accordance with paragraph (e)(1) of thissection, if the designated material advisorfails to furnish the list to the IRS in a timelymanner. A material advisor is not relievedfrom the requirement of this section be-cause a material advisor is unable to obtainthe list from any designated material ad-visor, any designated material advisor didnot maintain a list, or the list maintainedby any designated material advisor is notcomplete.

(g) Effective date. In general, this sec-tion applies to transactions with respect towhich a material advisor makes a tax state-ment under §301.6111–3 on or after thedate these regulations are published as fi-nal regulations in the Federal Register.However, upon the publication of finalregulations, this section will apply to trans-actions of interest entered into on or afterNovember 2, 2006 with respect to which amaterial advisor makes a tax statement un-der §301.6111–3 on or after November 2,2006.



2006–49 I.R.B. 1066 December 4, 2006

Announcement of Disciplinary Actions InvolvingAttorneys, Certified Public Accountants, Enrolled Agents,and Enrolled Actuaries — Suspensions, Censures,Disbarments, and ResignationsAnnouncement 2006-94

Under Title 31, Code of Federal Regu-lations, Part 10, attorneys, certified publicaccountants, enrolled agents, and enrolledactuaries may not accept assistance from,or assist, any person who is under disbar-ment or suspension from practice beforethe Internal Revenue Service if the assis-tance relates to a matter constituting prac-tice before the Internal Revenue Serviceand may not knowingly aid or abet another

person to practice before the Internal Rev-enue Service during a period of suspen-sion, disbarment, or ineligibility of suchother person.

To enable attorneys, certified publicaccountants, enrolled agents, and enrolledactuaries to identify persons to whomthese restrictions apply, the Director, Of-fice of Professional Responsibility, willannounce in the Internal Revenue Bulletin

their names, their city and state, their pro-fessional designation, the effective dateof disciplinary action, and the period ofsuspension. This announcement will ap-pear in the weekly Bulletin at the earliestpracticable date after such action and willcontinue to appear in the weekly Bulletinsfor five successive weeks.

Consent Suspensions From Practice Before the InternalRevenue Service

Under Title 31, Code of Federal Regu-lations, Part 10, an attorney, certified pub-lic accountant, enrolled agent, or enrolledactuary, in order to avoid the institutionor conclusion of a proceeding for his orher disbarment or suspension from prac-tice before the Internal Revenue Service,

may offer his or her consent to suspensionfrom such practice. The Director, Officeof Professional Responsibility, in his dis-cretion, may suspend an attorney, certifiedpublic accountant, enrolled agent, or en-rolled actuary in accordance with the con-sent offered.

The following individuals have beenplaced under consent suspension frompractice before the Internal Revenue Ser-vice:

Name Address Designation Date of Suspension

Tomasulo, Maria V. Wantagh, NY CPA IndefinitefromAugust 7, 2006

Maloy, Jr., Robert J. Galion, OH CPA IndefinitefromAugust 15, 2006

Pate, Janet M. Broadview, NM CPA IndefinitefromAugust 15, 2006

Scott, Howard Miami, FL Attorney IndefinitefromAugust 15, 2006

Adamic, Jonathan E. San Lorenzo, CA CPA IndefinitefromAugust 18, 2006

Becker, Ira S. Wilmette, IL CPA August 22, 2006toAugust 21, 2008

December 4, 2006 1067 2006–49 I.R.B.


Snigur, Virginia Iaquinta Warwick, NY Attorney IndefinitefromAugust 31, 2006

Galpern, Joel G. North Miami, FL CPA IndefinitefromSeptember 1, 2006

DiSiena, Frank E. Katonah, NY CPA IndefinitefromSeptember 4, 2006

Carusona, Thomas M. Huntington, NY Attorney IndefinitefromSeptember 15, 2006

Shaikh, Firoz A. Melville, NY CPA IndefinitefromSeptember 15, 2006

Wickline, Ella L. Ronceverte, WV Enrolled Agent IndefinitefromSeptember 15, 2006

Smith, Daniel B. Garden City, NY CPA IndefinitefromSeptember 18, 2006

Carlin, Charles R. South Bend, IN CPA IndefinitefromOctober 1, 2006

Devine, Daniel M. Boca Raton, FL CPA IndefinitefromOctober 1, 2006

Dupont, Hewitt, J. Daytona Beach, FL CPA IndefinitefromOctober 1, 2006

Farrell, Raymond J. Matawan, NJ Attorney IndefinitefromOctober 1, 2006

Kelligrew, John R. White Plains, NY Attorney IndefinitefromOctober 1, 2006

Klein, Robert B. Bardonia, NY Enrolled Agent IndefinitefromOctober 1, 2006

Long, Gregory S. Hutchinson, KS Attorney IndefinitefromOctober 1, 2006

Moore, Ronald L. Cayce, SC CPA IndefinitefromOctober 1, 2006

2006–49 I.R.B. 1068 December 4, 2006


Schaffer, Robert J. Calverton, NY CPA IndefinitefromOctober 1, 2006

Berlin, Stanley Erie, PA Attorney IndefinitefromOctober 15, 2006

Briscoe, Jack Drexel Hill, PA Attorney IndefinitefromOctober 15, 2006

Buzzeo, Michael V. New Canaan, CT CPA IndefinitefromOctober 15, 2006

Sacco, John M. Pound Ridge, NY CPA IndefinitefromOctober 15, 2006

Sheiman, Alan P. Sherman Oaks, CA Enrolled Agent IndefinitefromOctober 15, 2006

Tourin, Mark Miami, FL CPA IndefinitefromOctober 15, 2006

Burns, William J. Randolph, MA Attorney IndefinitefromOctober 16, 2006

Webb, Norman R. Daphne, AL CPA IndefinitefromOctober 16, 2006

Brown, Guia EP Hobe Sound, FL Enrolled Agent October 20, 2006toApril 19, 2008

Gram, John A. Gainesville, GA Attorney IndefinitefromNovember 1, 2006

Herzog, Samuel A. Jericho, NY CPA IndefinitefromNovember 1, 2006

Kellicker, John F. Cleveland, OH CPA IndefinitefromNovember 1, 2006

Krieger, Robert M. Hampton, NH CPA IndefinitefromNovember 1, 2006

Minsky, Neil J. Randolph, NJ CPA IndefinitefromNovember 1, 2006

O’Brien, Timothy Newton Center, MA Attorney IndefinitefromNovember 1, 2006

December 4, 2006 1069 2006–49 I.R.B.


Sukenik, Martin Kew Gardens, NY Attorney IndefinitefromNovember 1, 2006

Savoy, Cassandra East Orange, NJ Attorney IndefinitefromNovember 7, 2006

Bonner, Charles B. Athens, GA CPA IndefinitefromNovember 15, 2006

Levine, Barton P. New York, NY Attorney IndefinitefromNovember 15, 2006

Taves, Joseph G. Provincetown, MA CPA IndefinitefromNovember 15, 2006

Young, Ronald Fairfield, CT CPA IndefinitefromNovember 16, 2006

Brush, Charles, H. Southbury, CT CPA IndefinitefromDecember 1, 2006

Jacob, Robert T. Tucson, AZ CPA IndefinitefromDecember 15, 2006

Expedited Suspensions From Practice Before the InternalRevenue Service

Under Title 31, Code of Federal Regu-lations, Part 10, the Director, Office of Pro-fessional Responsibility, is authorized toimmediately suspend from practice beforethe Internal Revenue Service any practi-tioner who, within five years from the date

the expedited proceeding is instituted (1)has had a license to practice as an attor-ney, certified public accountant, or actuarysuspended or revoked for cause or (2) hasbeen convicted of certain crimes.

The following individuals have beenplaced under suspension from practice be-fore the Internal Revenue Service by virtueof the expedited proceeding provisions:


Williams, Donna M. York, PA CPA IndefinitefromJuly 25, 2006

Foushee, Wayne H. Winston-Salem, NC Attorney IndefinitefromAugust 3, 2006

Kronegold, Sheldon H. Englewood, NJ Attorney IndefinitefromAugust 3, 2006

2006–49 I.R.B. 1070 December 4, 2006


Norman, Clarence Brooklyn, NY Attorney IndefinitefromAugust 3, 2006

Chin, Arnold San Francisco, CA Attorney IndefinitefromAugust 31, 2006

McCann, Thomas Des Moines, IA Attorney IndefinitefromAugust 31, 2006

Whaley, Daniel P. Hood, CA Attorney IndefinitefromAugust 31, 2006

Chukumba, Stephen C. Montclair, NJ Attorney IndefinitefromSeptember 12, 2006

Katz, Edward C. New York, NY Attorney IndefinitefromSeptember 12, 2006

Kadunce, Darrell L. Butler, PA Attorney IndefinitefromSeptember 18, 2006

Allen, Robert W. Torrance, CA CPA IndefinitefromSeptember 21, 2006

Brown, Davin W. Raleigh, NC CPA IndefinitefromSeptember 21, 2006

Cunningham, R. Scott Dalton, GA Attorney IndefinitefromSeptember 21, 2006

Eilers, Tom D. Raleigh, NC CPA IndefinitefromSeptember 21, 2006

Gerdes, Roger A. Carpinteria, CA Attorney IndefinitefromSeptember 21, 2006

Kurth, Richard Frederick Danville, IL Attorney IndefinitefromSeptember 21, 2006

Mitchell, McArthur D. Charlotte, NC CPA IndefinitefromSeptember 21, 2006

Ragusa, Patricia A. Spring, TX CPA IndefinitefromSeptember 21, 2006

December 4, 2006 1071 2006–49 I.R.B.


Wulfsberg, David E. Murrieta, CA Attorney IndefinitefromSeptember 21, 2006

Cox, Brian J. Plymouth, MI CPA IndefinitefromSeptember 25, 2006

Mandelman, Michael D. Mequon, WI Attorney IndefinitefromSeptember 25, 2006

Miller, Steven L. Canal Winchester, OH Attorney IndefinitefromSeptember 25, 2006

Felli, Jay A. Mequon, WI Attorney IndefinitefromOctober 2, 2006

Schoch V, Arch K. High Point, NC Attorney IndefinitefromOctober 2, 2006

Andre, Patrick F. Manchester, MO Attorney IndefinitefromOctober 12, 2006

Brill, Kevin Michael Downers Grove, IL Attorney IndefinitefromOctober 12, 2006

Day, Richard G. Largo, FL Attorney IndefinitefromOctober 12, 2006

Dull, Kay E. Miami Shores, FL Attorney IndefinitefromOctober 12, 2006

Frank, Arthur J. Chicago, IL Attorney IndefinitefromOctober 12, 2006

Gackle, Thomas E. Plymouth, MI Attorney IndefinitefromOctober 12, 2006

Hamilton, Howard D. Fort Dodge, IA Attorney IndefinitefromOctober 12, 2006

Hodge, Robert M. Lafayette, LA Attorney IndefinitefromOctober 12, 2006

Lesyshen, Donna P. Waterloo, IA Attorney IndefinitefromOctober 12, 2006

Peiss, John H. Downers Grove, IL Attorney IndefinitefromOctober 12, 2006

2006–49 I.R.B. 1072 December 4, 2006


Petty, James E. Austin, TX CPA IndefinitefromOctober 12, 2006

Ruffin-Hudson, Linda C. Saint Louis, MO Attorney IndefinitefromOctober 12, 2006

Schaefer, James E. St. Louis Park, MN Attorney IndefinitefromOctober 12, 2006

Schmitt, Martha G. Minneapolis, MN Attorney IndefinitefromOctober 12, 2006

Shannon, Terrance J. Mission Viejo, CA Attorney IndefinitefromOctober 12, 2006

Smith, Matthew S. Denver, CO Attorney IndefinitefromOctober 12, 2006

Swanson, Richard West Chicago, IL CPA IndefinitefromOctober 12, 2006

Thomas, Kenneth A. Farmers Branch, TX Attorney IndefinitefromOctober 12, 2006

Tomasa, Ryan H. Honolulu, HI Attorney IndefinitefromOctober 12, 2006

Williams, Jr., Harry D. San Antonio, TX Attorney IndefinitefromOctober 12, 2006

Wilson, Jr., Robert N. Ayer, MA Attorney IndefinitefromOctober 12, 2006

Yum, Chris Chulho Woodbridge, VA Attorney IndefinitefromOctober 12, 2006

Dunham, Richard G. Irvine, CA Enrolled Agent IndefinitefromOctober 15, 2006

Housman, David Albuquerque, NM Attorney IndefinitefromOctober 15, 2006

Malitz, Charles P. Beachwood, OH CPA IndefinitefromOctober 15, 2006

Emig, Robert W. Houston, TX CPA IndefinitefromOctober 24, 2006

December 4, 2006 1073 2006–49 I.R.B.


Freese, Scott D. Norfolk, NE Attorney IndefinitefromOctober 24, 2006

Rambo, Byron L. Sanford, FL EA IndefinitefromOctober 24, 2006

Ask, Ronald W. Riverside, CA Attorney IndefinitefromOctober 30, 2006

Berry, Richard S. Tempe, AZ Attorney IndefinitefromOctober 30, 2006

Burkhardt, William R. Canyon Lake, TX CPA IndefinitefromOctober 30, 2006

Callaway, Jr., Paul F. Greensboro, NC CPA IndefinitefromOctober 30, 2006

Doyle, David W. Arvada, CO Attorney IndefinitefromOctober 30, 2006

Elmore, III, Virgil Birmingham, AL Attorney IndefinitefromOctober 30, 2006

Grandt, Lawrence E. Gurnee, IL CPA IndefinitefromOctober 30, 2006

Hanson, Steven G. Lodi, CA Attorney IndefinitefromOctober 30, 2006

Omodele, Boluwaji Houston, TX CPA IndefinitefromOctober 30, 2006

Rahden, Horst R. Fort Wayne, IN CPA IndefinitefromOctober 30, 2006

Censoprano, Salvatore Foster City, CA CPA IndefinitefromOctober 31, 2006

Powell, James S. Lakewood, CO Attorney IndefinitefromOctober 31, 2006

Allen, Leonard G. Mesa, AZ CPA IndefinitefromNovember 1, 2006

Parker, Donald A. Benson, NC Attorney IndefinitefromNovember 6, 2006

2006–49 I.R.B. 1074 December 4, 2006


Rogers, James M. Tulsa, OK Attorney IndefinitefromNovember 6, 2006

Coopet, Michael W. Saint Paul, MN Attorney IndefinitefromNovember 8, 2006

Day, Jr., John Taylor Hingham, MA Attorney IndefinitefromNovember 8, 2006

Grella, Paul J. Canton, MA Attorney IndefinitefromNovember 8, 2006

Meggers, Theodore M. Des Moines, IA Attorney IndefinitefromNovember 8, 2006

Tolbert, James L. Los Angeles, CA Attorney IndefinitefromNovember 8, 2006

Suspensions From Practice Before the Internal RevenueService After Notice and an Opportunity for a Proceeding

Under Title 31, Code of Federal Reg-ulations, Part 10, after notice and an op-portunity for a proceeding before an ad-

ministrative law judge, the following indi-viduals have been placed under suspension

from practice before the Internal RevenueService:

Name Address Designation Effective Date

Lazaro, Charles Visalia, CA Attorney July 20, 2006toJanuary 19, 2010

Wasilowski, Ronald Natrona Heights, PA CPA July 21, 2006toJuly 20, 2011

Wellbery, William J. Deerfield Beach, FL CPA October 12, 2006toOctober 11, 2008

Clapper, Gary L. La Mesa, CA Enrolled Agent November 2, 2006toNovember 1, 2008

December 4, 2006 1075 2006–49 I.R.B.

Consent Disbarments From Practice Before the InternalRevenue Service

Under Title 31, Code of Federal Regu-lations, Part 10, an attorney, certified pub-lic accountant, enrolled agent, or enrolledactuary, in order to avoid institution or con-clusion of a proceeding for his or her dis-barment or suspension from practice be-

fore the Internal Revenue Service, may of-fer his or her consent to disbarment fromsuch practice. The Director, Office of Pro-fessional Responsibility, in his discretion,may disbar an attorney, certified public ac-

countant, enrolled agent, or enrolled actu-ary in accordance with the consent offered.

The following individuals have beenplaced under consent disbarment frompractice before the Internal Revenue Ser-vice:

Name Address Designation Date of Disbarment

Grossman, Robert S. Ardmore, PA Attorney IndefinitefromOctober 4, 2006

Disbarments From Practice Before the Internal RevenueService After Notice and an Opportunity for a Proceeding

Under Title 31, Code of Federal Regu-lations, Part 10, after notice and an oppor-

tunity for a proceeding before an adminis-trative law judge, the following individu-

als have been disbarred from practice be-fore the Internal Revenue Service:

Name Address Designation Effective Date

Hubbard, Murphy Springfield, MO CPA September 20, 2006

Kardos, Sandra E. Van Nuys, CA CPA October 2, 2006

Jewett, Jerry A. Fremont, OH Enrolled Agent November 2, 2006

Censure Issued by ConsentUnder Title 31, Code of Federal Reg-

ulations, Part 10, in lieu of a proceedingbeing instituted or continued, an attorney,certified public accountant, enrolled agent,

or enrolled actuary, may offer his or herconsent to the issuance of a censure. Cen-sure is a public reprimand.

The following individuals have con-sented to the issuance of a Censure:

Name Address Designation Date of Censure

Applegate, William F. Madison, NJ CPA September 12, 2006

Vigliotti, Anthony J. East Haven, CT Enrolled Agent September 12, 2006

Bolgiani, Janette A. Brooklyn, NY Enrolled Agent September 14, 2006

Cheney, James E. Phelps, NY CPA September 18, 2006

Dollinger, Douglas Middletown, NY Attorney October 2, 2006

Reeves, Zak E. Denver, CO Enrolled Agent October 2, 2006

2006–49 I.R.B. 1076 December 4, 2006

Name Address Designation Date of Censure

Castiglione, John Pittsfield, MA Attorney October 4, 2006

Shannon, James P. Rochester, NH Attorney October 4, 2006

Kuller, Mark A. Bethesda, MD Attorney October 6, 2006

Resignations of Enrolled AgentsUnder Title 31, Code of Federal Regu-

lations, Part 10, an enrolled agent, in or-der to avoid the institution or conclusionof a proceeding for his or her disbarmentor suspension from practice before the In-

ternal Revenue Service, may offer his orher resignation as an enrolled agent. TheDirector, Office of Professional Responsi-bility, in his discretion, may accept the of-fered resignation.

The Director, Office of ProfessionalResponsibility, has accepted offers of res-ignation as an enrolled agent from thefollowing individuals:

Name Address Date of Resignation

Schwartz, Judy Las Vegas, NV October 13, 2006

December 4, 2006 1077 2006–49 I.R.B.

Definition of TermsRevenue rulings and revenue procedures(hereinafter referred to as “rulings”) thathave an effect on previous rulings use thefollowing defined terms to describe the ef-fect:

Amplified describes a situation whereno change is being made in a prior pub-lished position, but the prior position is be-ing extended to apply to a variation of thefact situation set forth therein. Thus, ifan earlier ruling held that a principle ap-plied to A, and the new ruling holds that thesame principle also applies to B, the earlierruling is amplified. (Compare with modi-fied, below).

Clarified is used in those instanceswhere the language in a prior ruling is be-ing made clear because the language hascaused, or may cause, some confusion.It is not used where a position in a priorruling is being changed.

Distinguished describes a situationwhere a ruling mentions a previously pub-lished ruling and points out an essentialdifference between them.

Modified is used where the substanceof a previously published position is beingchanged. Thus, if a prior ruling held that aprinciple applied to A but not to B, and thenew ruling holds that it applies to both A

and B, the prior ruling is modified becauseit corrects a published position. (Comparewith amplified and clarified, above).

Obsoleted describes a previously pub-lished ruling that is not considered deter-minative with respect to future transac-tions. This term is most commonly used ina ruling that lists previously published rul-ings that are obsoleted because of changesin laws or regulations. A ruling may alsobe obsoleted because the substance hasbeen included in regulations subsequentlyadopted.

Revoked describes situations where theposition in the previously published rulingis not correct and the correct position isbeing stated in a new ruling.

Superseded describes a situation wherethe new ruling does nothing more than re-state the substance and situation of a previ-ously published ruling (or rulings). Thus,the term is used to republish under the1986 Code and regulations the same po-sition published under the 1939 Code andregulations. The term is also used whenit is desired to republish in a single rul-ing a series of situations, names, etc., thatwere previously published over a period oftime in separate rulings. If the new rul-ing does more than restate the substance

of a prior ruling, a combination of termsis used. For example, modified and su-perseded describes a situation where thesubstance of a previously published rulingis being changed in part and is continuedwithout change in part and it is desired torestate the valid portion of the previouslypublished ruling in a new ruling that is selfcontained. In this case, the previously pub-lished ruling is first modified and then, asmodified, is superseded.

Supplemented is used in situations inwhich a list, such as a list of the names ofcountries, is published in a ruling and thatlist is expanded by adding further names insubsequent rulings. After the original rul-ing has been supplemented several times, anew ruling may be published that includesthe list in the original ruling and the ad-ditions, and supersedes all prior rulings inthe series.

Suspended is used in rare situationsto show that the previous published rul-ings will not be applied pending somefuture action such as the issuance of newor amended regulations, the outcome ofcases in litigation, or the outcome of aService study.

AbbreviationsThe following abbreviations in current useand formerly used will appear in materialpublished in the Bulletin.

A—Individual.Acq.—Acquiescence.B—Individual.BE—Beneficiary.BK—Bank.B.T.A.—Board of Tax Appeals.C—Individual.C.B.—Cumulative Bulletin.CFR—Code of Federal Regulations.CI—City.COOP—Cooperative.Ct.D.—Court Decision.CY—County.D—Decedent.DC—Dummy Corporation.DE—Donee.Del. Order—Delegation Order.DISC—Domestic International Sales Corporation.DR—Donor.E—Estate.EE—Employee.E.O.—Executive Order.

ER—Employer.ERISA—Employee Retirement Income Security Act.EX—Executor.F—Fiduciary.FC—Foreign Country.FICA—Federal Insurance Contributions Act.FISC—Foreign International Sales Company.FPH—Foreign Personal Holding Company.F.R.—Federal Register.FUTA—Federal Unemployment Tax Act.FX—Foreign corporation.G.C.M.—Chief Counsel’s Memorandum.GE—Grantee.GP—General Partner.GR—Grantor.IC—Insurance Company.I.R.B.—Internal Revenue Bulletin.LE—Lessee.LP—Limited Partner.LR—Lessor.M—Minor.Nonacq.—Nonacquiescence.O—Organization.P—Parent Corporation.PHC—Personal Holding Company.PO—Possession of the U.S.PR—Partner.

PRS—Partnership.PTE—Prohibited Transaction Exemption.Pub. L.—Public Law.REIT—Real Estate Investment Trust.Rev. Proc.—Revenue Procedure.Rev. Rul.—Revenue Ruling.S—Subsidiary.S.P.R.—Statement of Procedural Rules.Stat.—Statutes at Large.T—Target Corporation.T.C.—Tax Court.T.D. —Treasury Decision.TFE—Transferee.TFR—Transferor.T.I.R.—Technical Information Release.TP—Taxpayer.TR—Trust.TT—Trustee.U.S.C.—United States Code.X—Corporation.Y—Corporation.Z —Corporation.

2006–49 I.R.B. i December 4, 2006

Numerical Finding List1

Bulletins 2006–27 through 2006–49

Announcements:

2006-42, 2006-27 I.R.B. 48

2006-43, 2006-27 I.R.B. 48

2006-44, 2006-27 I.R.B. 49

2006-45, 2006-31 I.R.B. 121

2006-46, 2006-28 I.R.B. 76

2006-47, 2006-28 I.R.B. 78

2006-48, 2006-31 I.R.B. 135

2006-49, 2006-29 I.R.B. 89

2006-50, 2006-34 I.R.B. 321

2006-51, 2006-32 I.R.B. 222

2006-52, 2006-33 I.R.B. 254

2006-53, 2006-33 I.R.B. 254

2006-54, 2006-33 I.R.B. 254

2006-55, 2006-35 I.R.B. 342

2006-56, 2006-35 I.R.B. 342

2006-57, 2006-35 I.R.B. 343

2006-58, 2006-36 I.R.B. 388

2006-59, 2006-36 I.R.B. 388

2006-60, 2006-36 I.R.B. 389

2006-61, 2006-36 I.R.B. 390

2006-62, 2006-37 I.R.B. 444

2006-63, 2006-37 I.R.B. 445

2006-64, 2006-37 I.R.B. 447

2006-65, 2006-37 I.R.B. 447

2006-66, 2006-37 I.R.B. 448

2006-67, 2006-38 I.R.B. 509

2006-68, 2006-38 I.R.B. 510

2006-69, 2006-37 I.R.B. 449

2006-70, 2006-40 I.R.B. 629

2006-71, 2006-40 I.R.B. 630

2006-72, 2006-40 I.R.B. 630

2006-73, 2006-42 I.R.B. 745

2006-74, 2006-42 I.R.B. 746

2006-75, 2006-42 I.R.B. 746

2006-76, 2006-42 I.R.B. 746

2006-77, 2006-42 I.R.B. 748

2006-78, 2006-42 I.R.B. 748

2006-79, 2006-43 I.R.B. 792

2006-80, 2006-45 I.R.B. 840

2006-81, 2006-44 I.R.B. 821

2006-82, 2006-44 I.R.B. 821

2006-83, 2006-44 I.R.B. 822

2006-84, 2006-45 I.R.B. 873

2006-85, 2006-45 I.R.B. 873

2006-86, 2006-45 I.R.B. 842

2006-87, 2006-44 I.R.B. 822

2006-88, 2006-46 I.R.B. 910

2006-89, 2006-44 I.R.B. 826

2006-90, 2006-47 I.R.B. 953

2006-91, 2006-47 I.R.B. 953

2006-92, 2006-48 I.R.B. 1014

2006-93, 2006-48 I.R.B. 1017

Announcements— Continued:

2006-94, 2006-48 I.R.B. 1017

Notices:

2006-56, 2006-28 I.R.B. 58

2006-57, 2006-27 I.R.B. 13

2006-58, 2006-28 I.R.B. 59

2006-59, 2006-28 I.R.B. 60

2006-60, 2006-29 I.R.B. 82

2006-61, 2006-29 I.R.B. 85

2006-62, 2006-29 I.R.B. 86

2006-63, 2006-29 I.R.B. 87

2006-64, 2006-29 I.R.B. 88

2006-65, 2006-31 I.R.B. 102

2006-66, 2006-30 I.R.B. 99

2006-67, 2006-33 I.R.B. 248

2006-68, 2006-31 I.R.B. 105

2006-69, 2006-31 I.R.B. 107

2006-70, 2006-33 I.R.B. 252

2006-71, 2006-34 I.R.B. 316

2006-72, 2006-36 I.R.B. 363

2006-73, 2006-35 I.R.B. 339

2006-74, 2006-35 I.R.B. 339

2006-75, 2006-36 I.R.B. 366

2006-76, 2006-38 I.R.B. 459

2006-77, 2006-40 I.R.B. 590

2006-78, 2006-41 I.R.B. 675

2006-79, 2006-43 I.R.B. 763

2006-80, 2006-40 I.R.B. 594

2006-81, 2006-40 I.R.B. 595

2006-82, 2006-39 I.R.B. 529

2006-83, 2006-40 I.R.B. 596

2006-84, 2006-41 I.R.B. 677

2006-85, 2006-41 I.R.B. 677

2006-86, 2006-41 I.R.B. 680

2006-87, 2006-43 I.R.B. 766

2006-88, 2006-42 I.R.B. 686

2006-89, 2006-43 I.R.B. 772

2006-90, 2006-42 I.R.B. 688

2006-91, 2006-42 I.R.B. 688

2006-92, 2006-43 I.R.B. 774

2006-93, 2006-44 I.R.B. 798

2006-94, 2006-43 I.R.B. 777

2006-95, 2006-45 I.R.B. 848

2006-96, 2006-46 I.R.B. 902

2006-97, 2006-46 I.R.B. 904

2006-98, 2006-46 I.R.B. 906

2006-99, 2006-46 I.R.B. 907

2006-101, 2006-47 I.R.B. 930

2006-102, 2006-46 I.R.B. 909

2006-103, 2006-47 I.R.B. 931

2006-104, 2006-48 I.R.B. 995

2006-106, 2006-49 I.R.B. 1033

Proposed Regulations:

REG-208270-86, 2006-42 I.R.B. 698

Proposed Regulations— Continued:

REG-121509-00, 2006-40 I.R.B. 602

REG-135866-02, 2006-27 I.R.B. 34

REG-140379-02, 2006-44 I.R.B. 808

REG-142599-02, 2006-44 I.R.B. 808

REG-146893-02, 2006-34 I.R.B. 317

REG-159929-02, 2006-35 I.R.B. 341

REG-148864-03, 2006-34 I.R.B. 320

REG-168745-03, 2006-39 I.R.B. 532

REG-105248-04, 2006-43 I.R.B. 787

REG-103038-05, 2006-49 I.R.B. 1049

REG-103039-05, 2006-49 I.R.B. 1057

REG-103043-05, 2006-49 I.R.B. 1063

REG-109512-05, 2006-30 I.R.B. 100

REG-110405-05, 2006-48 I.R.B. 1004

REG-141901-05, 2006-47 I.R.B. 947

REG-142270-05, 2006-43 I.R.B. 791

REG-145154-05, 2006-39 I.R.B. 567

REG-148576-05, 2006-40 I.R.B. 627

REG-109367-06, 2006-41 I.R.B. 683

REG-112994-06, 2006-27 I.R.B. 47

REG-118775-06, 2006-28 I.R.B. 73

REG-118897-06, 2006-31 I.R.B. 120

REG-120509-06, 2006-39 I.R.B. 570

REG-124152-06, 2006-36 I.R.B. 368

REG-125071-06, 2006-36 I.R.B. 375

REG-127819-06, 2006-48 I.R.B. 1013

REG-136806-06, 2006-47 I.R.B. 950

Revenue Procedures:

2006-29, 2006-27 I.R.B. 13

2006-30, 2006-31 I.R.B. 110

2006-31, 2006-27 I.R.B. 32

2006-32, 2006-28 I.R.B. 61

2006-33, 2006-32 I.R.B. 140

2006-34, 2006-38 I.R.B. 460

2006-35, 2006-37 I.R.B. 434

2006-36, 2006-38 I.R.B. 498

2006-37, 2006-38 I.R.B. 499

2006-38, 2006-39 I.R.B. 530

2006-39, 2006-40 I.R.B. 600

2006-40, 2006-42 I.R.B. 694

2006-41, 2006-43 I.R.B. 777

2006-42, 2006-47 I.R.B. 931

2006-43, 2006-45 I.R.B. 849

2006-44, 2006-44 I.R.B. 800

2006-45, 2006-45 I.R.B. 851

2006-46, 2006-45 I.R.B. 859

2006-47, 2006-45 I.R.B. 869

2006-48, 2006-47 I.R.B. 934

2006-49, 2006-47 I.R.B. 936

2006-50, 2006-47 I.R.B. 944

2006-51, 2006-47 I.R.B. 945

2006-52, 2006-48 I.R.B. 995

2006-53, 2006-48 I.R.B. 996

2006-54, 2006-49 I.R.B. 1035

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2006–1 through 2006–26 is in Internal Revenue Bulletin2006–26, dated June 26, 2006.

December 4, 2006 ii 2006–49 I.R.B.

Revenue Rulings:

2006-35, 2006-28 I.R.B. 50

2006-36, 2006-36 I.R.B. 353

2006-37, 2006-30 I.R.B. 91

2006-38, 2006-29 I.R.B. 80

2006-39, 2006-32 I.R.B. 137

2006-40, 2006-32 I.R.B. 136

2006-41, 2006-35 I.R.B. 331

2006-42, 2006-35 I.R.B. 337

2006-43, 2006-35 I.R.B. 329

2006-44, 2006-36 I.R.B. 361

2006-45, 2006-37 I.R.B. 423

2006-46, 2006-39 I.R.B. 511

2006-47, 2006-39 I.R.B. 511

2006-48, 2006-39 I.R.B. 516

2006-49, 2006-40 I.R.B. 584

2006-50, 2006-41 I.R.B. 672

2006-51, 2006-41 I.R.B. 632

2006-52, 2006-43 I.R.B. 761

2006-53, 2006-44 I.R.B. 796

2006-54, 2006-45 I.R.B. 834

2006-55, 2006-45 I.R.B. 837

2006-56, 2006-46 I.R.B. 874

2006-57, 2006-47 I.R.B. 911

2006-58, 2006-46 I.R.B. 876

2006-59, 2006-48 I.R.B. 992

2006-60, 2006-48 I.R.B. 977

2006-61, 2006-49 I.R.B. 1028

Social Security Contribution and BenefitBase; Domestic Employee CoverageThreshold:

2006-102, 2006-46 I.R.B. 909

Tax Conventions:

2006-80, 2006-45 I.R.B. 840

2006-86, 2006-45 I.R.B. 842

Treasury Decisions:

9265, 2006-27 I.R.B. 1

9266, 2006-28 I.R.B. 52

9267, 2006-34 I.R.B. 313

9268, 2006-30 I.R.B. 94

9269, 2006-30 I.R.B. 92

9270, 2006-33 I.R.B. 237

9271, 2006-33 I.R.B. 224

9272, 2006-35 I.R.B. 332

9273, 2006-37 I.R.B. 394

9274, 2006-33 I.R.B. 244

9275, 2006-35 I.R.B. 327

9276, 2006-37 I.R.B. 424

9277, 2006-33 I.R.B. 226

9278, 2006-34 I.R.B. 256

9279, 2006-36 I.R.B. 355

9280, 2006-38 I.R.B. 450

9281, 2006-39 I.R.B. 517

9282, 2006-39 I.R.B. 512

9283, 2006-41 I.R.B. 633

Treasury Decisions— Continued:

9284, 2006-40 I.R.B. 582

9285, 2006-41 I.R.B. 656

9286, 2006-43 I.R.B. 750

9287, 2006-46 I.R.B. 896

9288, 2006-44 I.R.B. 794

9289, 2006-45 I.R.B. 827

9290, 2006-46 I.R.B. 879

9291, 2006-46 I.R.B. 887

9292, 2006-47 I.R.B. 914

9293, 2006-48 I.R.B. 957

9294, 2006-48 I.R.B. 979

9295, 2006-49 I.R.B. 1030

2006–49 I.R.B. iii December 4, 2006

Finding List of Current Actions onPreviously Published Items1

Bulletins 2006–27 through 2006–49

Announcements:

2005-59

Updated and superseded by

Ann. 2006-45, 2006-31 I.R.B. 121

Notices:

88-128

Supplemented by

Notice 2006-95, 2006-45 I.R.B. 848

2002-45

Amplified by

Rev. Rul. 2006-36, 2006-36 I.R.B. 353

2003-69

Amplified and superseded by

Notice 2006-101, 2006-47 I.R.B. 930

2004-61

Modified and superseded by

Notice 2006-95, 2006-45 I.R.B. 848

2006-20

Supplemented and modified by

Notice 2006-56, 2006-28 I.R.B. 58

2006-27

Modified by

Ann. 2006-88, 2006-46 I.R.B. 910

2006-28

Modified by

Ann. 2006-88, 2006-46 I.R.B. 910

2006-53

Modified by

Notice 2006-71, 2006-34 I.R.B. 316

2006-67


Notice 2006-77, 2006-40 I.R.B. 590

Proposed Regulations:

REG-135866-02

Corrected by

Ann. 2006-64, 2006-37 I.R.B. 447Ann. 2006-65, 2006-37 I.R.B. 447

REG-134317-05

Corrected by

Ann. 2006-47, 2006-28 I.R.B. 78

REG-112994-06

Corrected by

Ann. 2006-79, 2006-43 I.R.B. 792

REG-118775-06

Corrected by

Ann. 2006-71, 2006-40 I.R.B. 630

Proposed Regulations— Continued:

REG-124152-06

Corrected by

Ann. 2006-90, 2006-47 I.R.B. 953

Revenue Procedures:

99-35


Rev. Proc. 2006-40, 2006-42 I.R.B. 694

2002-9

Modified and amplified by

Notice 2006-67, 2006-33 I.R.B. 248Notice 2006-77, 2006-40 I.R.B. 590Rev. Proc. 2006-43, 2006-45 I.R.B. 849

2002-37

Clarified, modified, amplified, and superseded by

Rev. Proc. 2006-45, 2006-45 I.R.B. 851

2002-38

Clarified, modified, amplified, and superseded by

Rev. Proc. 2006-46, 2006-45 I.R.B. 859

2002-41

Modified by

Rev. Proc. 2006-53, 2006-48 I.R.B. 996

2002-52


Rev. Proc. 2006-54, 2006-49 I.R.B. 1035

2004-63

Superseded by

Rev. Proc. 2006-34, 2006-38 I.R.B. 460

2005-41

Superseded by

Rev. Proc. 2006-29, 2006-27 I.R.B. 13

2005-49

Superseded by

Rev. Proc. 2006-33, 2006-32 I.R.B. 140

2005-67

Superseded by

Rev. Proc. 2006-41, 2006-43 I.R.B. 777

2005-70

Amplified by

Rev. Proc. 2006-51, 2006-47 I.R.B. 945

2005-78

Superseded by

Rev. Proc. 2006-49, 2006-47 I.R.B. 936

2006-9

Amplified by

Rev. Proc. 2006-54, 2006-49 I.R.B. 1035

2006-12

Modified by

Rev. Proc. 2006-37, 2006-38 I.R.B. 499

Revenue Procedures— Continued:

2006-26


Rev. Proc. 2006-54, 2006-49 I.R.B. 1035

2006-33

Updated and clarified by

Ann. 2006-73, 2006-42 I.R.B. 745

2006-35

Modified by

Notice 2006-90, 2006-42 I.R.B. 688

Revenue Rulings:

72-238

Obsoleted by

REG-109367-06, 2006-41 I.R.B. 683

73-558

Obsoleted by

REG-109367-06, 2006-41 I.R.B. 683

75-296

Distinguished by

Rev. Rul. 2006-52, 2006-43 I.R.B. 761

80-31

Distinguished by

Rev. Rul. 2006-52, 2006-43 I.R.B. 761

81-35

Amplified and modified by

Rev. Rul. 2006-43, 2006-35 I.R.B. 329

81-36


Rev. Rul. 2006-43, 2006-35 I.R.B. 329

87-10


Rev. Rul. 2006-43, 2006-35 I.R.B. 329

92-75

Clarified by

Rev. Proc. 2006-54, 2006-49 I.R.B. 1035

2002-41

Amplified by

Rev. Rul. 2006-36, 2006-36 I.R.B. 353

2003-43

Amplified by

Notice 2006-69, 2006-31 I.R.B. 107

2005-24

Amplified by

Rev. Rul. 2006-36, 2006-36 I.R.B. 353

Treasury Decisions:

9244

Corrected by

Ann. 2006-91, 2006-47 I.R.B. 953

1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2006–1 through 2006–26 is in Internal Revenue Bulletin 2006–26, dated June 26, 2006.

December 4, 2006 iv 2006–49 I.R.B.

Treasury Decisions— Continued:

9254

Corrected by

Ann. 2006-44, 2006-27 I.R.B. 49Ann. 2006-66, 2006-37 I.R.B. 448

9258

Corrected by

Ann. 2006-46, 2006-28 I.R.B. 76

9260

Corrected by

Ann. 2006-67, 2006-38 I.R.B. 509

9262

Corrected by

Ann. 2006-56, 2006-35 I.R.B. 342

9264

Corrected by

Ann. 2006-46, 2006-28 I.R.B. 76

9272

Corrected by

Ann. 2006-68, 2006-38 I.R.B. 510

9274

Corrected by

Ann. 2006-89, 2006-44 I.R.B. 826

9276

Corrected by

Ann. 2006-83, 2006-44 I.R.B. 822Ann. 2006-85, 2006-45 I.R.B. 873

9277

Corrected by

Ann. 2006-72, 2006-40 I.R.B. 630

9280

Corrected by

Ann. 2006-78, 2006-42 I.R.B. 748

9281

Corrected by

Ann. 2006-82, 2006-44 I.R.B. 821Ann. 2006-84, 2006-45 I.R.B. 873

2006–49 I.R.B. v December 4, 2006

December 4, 2006 2006–49 I.R.B.

2006–49 I.R.B. December 4, 2006

December 4, 2006 2006–49 I.R.B.

INTERNAL REVENUE BULLETINThe Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue

Bulletin is sold on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superin-tendent of Documents when their subscriptions must be renewed.

CUMULATIVE BULLETINSThe contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are

sold on a single copy basis and are not included as part of the subscription to the Internal Revenue Bulletin. Subscribers to the weeklyBulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of printand are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from theSuperintendent of Documents.

ACCESS THE INTERNAL REVENUE BULLETIN ON THE INTERNETYou may view the Internal Revenue Bulletin on the Internet at www.irs.gov. Under information for: select Businesses. Under

related topics, select More Topics. Then select Internal Revenue Bulletins.

INTERNAL REVENUE BULLETINS ON CD-ROMInternal Revenue Bulletins are available annually as part of Publication 1796 (Tax Products CD-ROM). The CD-ROM can be

purchased from National Technical Information Service (NTIS) on the Internet at www.irs.gov/cdorders (discount for online orders)or by calling 1-877-233-6767. The first release is available in mid-December and the final release is available in late January.

HOW TO ORDERCheck the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance,

detach entire page, and mail to the Superintendent of Documents, P.O. Box 371954, Pittsburgh PA, 15250–7954. Please allow two tosix weeks, plus mailing time, for delivery.

WE WELCOME COMMENTS ABOUT THE INTERNALREVENUE BULLETIN

If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it,we would be pleased to hear from you. You can e-mail us your suggestions or comments through the IRS Internet Home Page(www.irs.gov) or write to the IRS Bulletin Unit, SE:W:CAR:MP:T:T:SP, Washington, DC 20224

Internal Revenue ServiceWashington, DC 20224Official BusinessPenalty for Private Use, $300