Bulletin No. 2010-41October 12, 2010

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

Notice 2010–64, page 421.Extension of replacement period for livestock soldon account of drought. This notice explains the circum-stances under which the 4–year replacement period undersection 1033(e)(2) of the Code is extended for livestocksold on account of drought. This notice also contains a listof the counties that experienced exceptional, extreme, orsevere drought during the preceding 12–month period endingAugust 31, 2010. Taxpayers may use this list to determine ifan extension is available.

Notice 2010–65, page 424.The notice announces that the Treasury Department andthe IRS intend to exercise regulatory authority under section901(l)(3) of the Code not to apply the credit disallowance rulesof section 901(l) to foreign withholding taxes on (1) royaltiesreceived in “ordinary course” back-to-back licenses of intel-lectual property and articles embodying intellectual propertyand (2) direct sales from the U.S. of copies of copyrightedarticles. The notice solicits comments on the exception as wellas on related issues under section 901(l). Notice 2005–90supplemented.

Announcement 2010–75, page 428.This document is part of a series of announcements relating tothe Service’s announcement that it was developing a schedulerequiring certain business taxpayers to report uncertain taxpositions on their tax returns. This announcement explains theactions being taken by the IRS in response to the commentsreceived on the proposed schedule and instructions.

Announcement 2010–76, page 432.This document announces that the Service is expanding its pol-icy of restraint in connection with its decision to require certaincorporations to file Schedule UTP, Uncertain Tax Position State-ment, and will forgo seeking particular documents that relateto uncertain tax positions and the workpapers that documentthe completion of Schedule UTP.

EMPLOYEE PLANS

Notice 2010–63, page 420.This notice solicits comments on the requirements under sec-tion 9815 of the Code (and 2716 of the Public Health ServiceAct) that insured group health plans not discriminate in favor ofhighly compensated individuals.

EXCISE TAX

Notice 2010–63, page 420.This notice solicits comments on the requirements under sec-tion 9815 of the Code (and 2716 of the Public Health ServiceAct) that insured group health plans not discriminate in favor ofhighly compensated individuals.

(Continued on the next page)

Announcements of Disbarments and Suspensions begin on page 433.Finding Lists begin on page ii.

ADMINISTRATIVE

Rev. Proc. 2010–34, page 426.Nonshareholder contribution to capital under section118(a). This procedure provides a safe harbor under section118(a) of the Code for the treatment of certain grants tocorporations from the Rural Utilities Service of the Depart-ment of Agriculture under the Broadband Initiatives Programand from the National Telecommunications and InformationAdministration of the Department of Commerce under theBroadband Technology Opportunities Program, as authorizedby the American Recovery and Reinvestment Act of 2009.

Announcement 2010–77, page 433.This document contains a correction to Announcement2010–59, which corrected Announcement 2010–47,2010–30 I.R.B. 173, regarding “Deletions From CumulativeList of Organizations Contributions to Which are DeductibleUnder Section 170 of the Code”.

October 12, 2010 2010–41 I.R.B.

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

force the 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 Secre-tary (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.

2010–41 I.R.B. October 12, 2010

October 12, 2010 2010–41 I.R.B.

Place missing child here.

Part III. Administrative, Procedural, and MiscellaneousRequest for Comments onRequirements ProhibitingDiscrimination in Favorof Highly CompensatedIndividuals in Insured GroupHealth Plans

Notice 2010–63

PURPOSE

This notice invites public commentsconcerning the application of rules pro-hibiting insured group health plans fromdiscriminating in favor of highly compen-sated individuals. Representatives fromthe United States Department of Laborand from the United States Departmentof Health and Human Services have re-viewed this notice and have advised theDepartment of the Treasury and the Inter-nal Revenue Service that they agree withit.

I. BACKGROUND

The Patient Protection and Afford-able Care Act (the Affordable CareAct), Pub. L. 111–148, was enactedon March 23, 2010; the Health Careand Education Reconciliation Act(the Reconciliation Act), Pub. L.111–152, was enacted on March 30,2010. The Affordable Care Act and theReconciliation Act reorganize, amend,and add to the provisions of part Aof title XXVII of the Public HealthService Act (PHS Act) relating to grouphealth plans and health insurance issuersin the group and individual markets.The Affordable Care Act adds section9815(a)(1) to the Internal Revenue Codeand section 715(a)(1) to the EmployeeRetirement Income Security Act (ERISA)to incorporate the provisions of partA of title XXVII of the PHS Act intothe Code and ERISA, and make themapplicable to group health plans, andhealth insurance issuers providing healthinsurance coverage in connection withgroup health plans.

Section 10101(d) of the AffordableCare Act adds section 2716 to the PHS

Act. Section 2716 of the PHS Act pro-vides that a group health plan (other than aself-insured plan) must satisfy the require-ments of section 105(h)(2) of the Code;that rules similar to the rules of section105 in paragraphs (h)(3) (nondiscrimi-natory eligibility classification), (h)(4)(nondiscriminatory benefits), and (h)(8)(certain controlled groups) apply; and thatthe term “highly compensated individ-ual” has the meaning given by section105(h)(5). These requirements for insuredgroup health plans are effective for planyears beginning on or after September 23,2010. New section 9815 of the Code in-corporates by reference the requirementsof section 2716 of the PHS Act into chap-ter 100 of the Code. Section 4980D of theCode provides that group health plans thatfail to satisfy the requirements of chapter100 are subject to an excise tax.

Section 105(h)(1) of the Code providesthat the exclusion in section 105(b), whichgenerally excludes from gross incomeamounts paid through employer-spon-sored health care coverage, does not applyto amounts paid to a highly compensatedindividual under a self-insured medicalreimbursement plan that does not satisfythe requirements of section 105(h)(2) fora plan year, to the extent the amountsconstitute an excess reimbursement ofthe highly compensated individual. Sec-tion 105(h)(2) provides that a self-insuredmedical reimbursement plan satisfies therequirements of that section only if (1)the plan does not discriminate in favor ofhighly compensated individuals as to eli-gibility to participate and (2) the benefitsprovided under the plan do not discrimi-nate in favor of participants who are highlycompensated individuals. Treasury Regu-lation §1.105–11 provides guidance on theapplication of section 105(h).

II. APPLICATION OF THENONDISCRIMINATION RULESIN CODE SECTION 105(h)(2) TOINSURED GROUP HEALTH PLANS

PHS Act section 2716 incorporates thesubstantive nondiscrimination require-ments of Code section 105(h) (but not thetaxes on highly compensated individuals

in section 105(h)(1)) and applies them toinsured group health plans. An insuredgroup health plan failing to comply withthe nondiscrimination requirements ofCode section 105(h) is subject to the taxes,remedies, and penalties that generally ap-ply for a plan failing to comply with therequirements of chapter 100 of the Code(generally, an excise tax of $100 per dayper individual discriminated against foreach day the plan does not comply withthe requirement), part 7 of ERISA (a civilaction to enjoin a noncompliant act orpractice or for appropriate equitable re-lief), or title XXVII of the PHS Act (civilmoney penalties of $100 per day per indi-vidual discriminated against for each daythe plan does not comply with the require-ment). Thus, if a self-insured plan fails tocomply with Code section 105(h), highlycompensated individuals lose a tax ben-efit; if an insured group health plan failsto comply with Code section 105(h), theplan is subject to a civil action to compelit to provide nondiscriminatory benefitsand the plan or plan sponsor is subject toan excise tax or civil money penalty of$100 per day per individual discriminatedagainst.

For determining the application ofPHS Act section 2716 to grandfatheredhealth plans, see §54.9815–1251T,29 CFR 2590.715–1251, and 45 CFR147.140 (providing that the rulesprohibiting discrimination in favor ofhighly compensated individuals by insuredgroup health plans do not apply tograndfathered health plans). The rulesof section 105(h) of the Code continueto apply to any self-insured medicalreimbursement plan regardless of whetherthe plan is a grandfathered health plan.

III. REQUEST FOR COMMENTS

The final regulations under section105(h) of the Code,1 prohibiting discrim-ination in favor of highly compensatedindividuals under self-insured medical ex-pense reimbursement plans, were issuedin 1981. The Treasury Department andthe IRS are considering issuing guidanceon the extension, through section 2716of the PHSA and new section 9815 of

1 26 CFR 1.105–11.

2010–41 I.R.B. 420 October 12, 2010

the Code, of the requirements of section105(h)(2) to insured group health plans.The Department of the Treasury and theIRS request comments on what additionalguidance relating to the application ofsection 105(h) (2) would be helpful withrespect to insured group health plans.

Date: Comments must be submitted byNovember 4, 2010.

Addresses: Comments, identified by “No-tice 2010–63”, may be sent by one of thefollowing methods:

• Electronic: Send to the followinge-mail address:Notice.Comments@irscounsel.treas.gov.Include “Notice 2010–63” in thesubject line.

• Mail: CC:PA:LPD:PR (Notice2010–63), Room 5205, Internal Rev-enue Service, P.O. Box 7604, BenFranklin Station, Washington, DC20044.

• Hand or courier delivery: Mondaythrough Friday between the hours of8 a.m. and 4 p.m. to: CC:PA:LPD:PR(Notice 2010–63), Courier’s Desk,Internal Revenue Service, 1111Constitution Avenue, NW, WashingtonDC 20224.

All submissions will be open to pub-lic inspection and copying in room 1621,1111 Constitution Avenue, NW, Washing-ton, DC from 9 a.m. to 4 p.m.

IV. DRAFTING INFORMATION

The principal author of this notice isKaren Levin of the Office of DivisionCounsel/Associate Chief Counsel (TaxExempt and Government Entities). Forfurther information regarding this notice,contact Ms. Levin at (202) 622–6080 (nota toll-free call).

Extension of ReplacementPeriod for Livestock Soldon Account of Drought inSpecified Counties

Notice 2010–64

SECTION 1. PURPOSE

This notice provides guidance regard-ing an extension of the replacement pe-riod under § 1033(e) of the Internal Rev-enue Code for livestock sold on account ofdrought in specified counties.

SECTION 2. BACKGROUND

.01 Nonrecognition of Gain on Invol-untary Conversion of Livestock. Section1033(a) generally provides for nonrecog-nition of gain when property is involuntar-ily converted and replaced with propertythat is similar or related in service or use.Section 1033(e)(1) provides that a sale orexchange of livestock (other than poultry)held by a taxpayer for draft, breeding, ordairy purposes in excess of the numberthat would be sold following the taxpayer’susual business practices is treated as aninvoluntary conversion if the livestock issold or exchanged solely on account ofdrought, flood, or other weather-relatedconditions.

.02 Replacement Period. Section1033(a)(2)(A) generally provides that gainfrom an involuntary conversion is rec-ognized only to the extent the amountrealized on the conversion exceeds thecost of replacement property purchasedduring the replacement period. If a saleor exchange of livestock is treated as aninvoluntary conversion under § 1033(e)(1)and is solely on account of drought, flood,or other weather-related conditions that re-sult in the area being designated as eligiblefor assistance by the federal government,§ 1033(e)(2)(A) provides that the replace-ment period ends four years after the closeof the first taxable year in which any partof the gain from the conversion is realized.Section 1033(e)(2)(B) provides that theSecretary may extend this replacement pe-riod on a regional basis for such additionaltime as the Secretary determines appro-priate if the weather-related conditionsthat resulted in the area being designatedas eligible for assistance by the federalgovernment continue for more than three

years. Section 1033(e)(2) is effective forany taxable year with respect to which thedue date (without regard to extensions) fora taxpayer’s return is after December 31,2002.

SECTION 3. EXTENSION OFREPLACEMENT PERIOD UNDER§ 1033(e)(2)(B)

Notice 2006–82, 2006–2 C.B. 529, pro-vides for extensions of the replacement pe-riod under § 1033(e)(2)(B). If a sale or ex-change of livestock is treated as an invol-untary conversion on account of droughtand the taxpayer’s replacement period isdetermined under § 1033(e)(2)(A), the re-placement period will be extended under§ 1033(e)(2)(B) and Notice 2006–82 untilthe end of the taxpayer’s first taxable yearending after the first drought-free year forthe applicable region. For this purpose, thefirst drought-free year for the applicableregion is the first 12-month period that (1)ends August 31; (2) ends in or after the lastyear of the taxpayer’s 4-year replacementperiod determined under § 1033(e)(2)(A);and (3) does not include any weekly periodfor which exceptional, extreme, or severedrought is reported for any location in theapplicable region. The applicable regionis the county that experienced the droughtconditions on account of which the live-stock was sold or exchanged and all coun-ties that are contiguous to that county.

A taxpayer may determine whetherexceptional, extreme, or severe droughtis reported for any location in the ap-plicable region by reference to U.S.Drought Monitor maps that are pro-duced on a weekly basis by the Na-tional Drought Mitigation Center. U.S.Drought Monitor maps are archived atwww.drought.unl.edu/dm/archive.html.

In addition, Notice 2006–82 providesthat the Internal Revenue Service willpublish in September of each year a listof counties, districts, cities, or parishes(hereinafter “counties”) for which excep-tional, extreme, or severe drought wasreported during the preceding 12 months.Taxpayers may use this list instead ofU.S. Drought Monitor maps to determinewhether exceptional, extreme, or severedrought has been reported for any locationin the applicable region.

The Appendix to this notice containsthe list of counties for which exceptional,

October 12, 2010 421 2010–41 I.R.B.

extreme, or severe drought was reportedduring the 12-month period ending Au-gust 31, 2010. Under Notice 2006–82,the 12-month period ending on August 31,2010, is not a drought-free year for an ap-plicable region that includes any county onthis list. Accordingly, for a taxpayer whoqualified for a four-year replacement pe-riod for livestock sold or exchanged on ac-count of drought and whose replacement

period is scheduled to expire at the end of2010 (or, in the case of a fiscal year tax-payer, at the end of the taxable year that in-cludes August 31, 2010), the replacementperiod will be extended under § 1033(e)(2)and Notice 2006–82 if the applicable re-gion includes any county on this list. Thisextension will continue until the end of thetaxpayer’s first taxable year ending after adrought-free year for the applicable region.

SECTION 4. DRAFTINGINFORMATION

The principal author of this notice isSue-Jean Kim of the Office of AssociateChief Counsel (Income Tax & Account-ing). For further information regardingthis notice, contact Ms. Kim at (202)622–4960 (not a toll-free call).

APPENDIX

Arizona

Counties of Apache, Cochise, Coconino, Gila, Graham, Greenlee, La Paz, Maricopa, Mohave, Navajo, Pima, Pinal, SantaCruz, Yavapai, Yuma.

Arkansas

Counties of Arkansas, Ashley, Chicot, Clay, Columbia, Desha, Drew, Greene, Lafayette, Ouachita, Phillips, Union.

California

Counties of Alameda, Amador, Butte, Calaveras, Colusa, Contra Costa, El Dorado, Fresno, Glenn, Humboldt, Imperial, Inyo,Kern, Kings, Lake, Lassen, Los Angeles, Madera, Marin, Mariposa, Mendocino, Merced, Modoc, Monterey, Napa, Nevada,Orange, Placer, Plumas, Riverside, Sacramento, San Benito, San Bernardino, San Diego, San Joaquin, San Luis Obispo, SantaBarbara, Santa Clara, Shasta, Siskiyou, Solano, Sonoma, Stanislaus, Sutter, Tehama, Trinity, Tulare, Tuolumne, Ventura,Yolo, Yuba.

Colorado

Counties of La Plata, Montezuma.

Delaware

County of Sussex.

Hawaii

Counties of Hawaii, Honolulu, Kalawao, Kauai, Maui.

Idaho

Counties of Bear Lake, Benewah, Bonner, Bonneville, Caribou, Clearwater, Fremont, Idaho, Kootenai, Latah, Madison,Shoshone, Teton.

Kentucky

Counties of Carlisle, Fulton, Hickman.

Louisiana

Parishes of Avoyelles, Beauregard, Bienville, Bossier, Caddo, Caldwell, Catahoula, Claiborne, Concordia, De Soto, East Carroll,Franklin, Grant, Jackson, La Salle, Lincoln, Madison, Morehouse, Natchitoches, Ouachita, Rapides, Red River, Richland,Sabine, Tensas, Union, Vernon, Webster, West Carroll, Winn.

Maryland

Counties of Allegany, Anne Arundel, Calvert, Charles, Dorchester, Frederick, Garrett, Prince George’s, Saint Mary’s, Somerset,Washington, Wicomico, Worcester.

Michigan

Counties of Alger, Baraga, Charlevoix, Chippewa, Delta, Dickinson, Gogebic, Houghton, Iron, Keweenaw, Luce, Mackinac,Marquette, Menominee, Ontonagon, Schoolcraft.

Minnesota

Counties of Aitkin, Anoka, Beltrami, Cass, Chisago, Cook, Crow Wing, Dakota, Hennepin, Hubbard, Isanti, Itasca, Koochiching,Lake, Pine, Ramsey, Saint Louis, Sherburne, Washington, Wright.

2010–41 I.R.B. 422 October 12, 2010

Mississippi

Counties of Bolivar, Coahoma, Humphreys, Issaquena, Leflore, Quitman, Sharkey, Sunflower, Tallahatchie, Tunica, Warren,Washington, Yazoo.

Missouri

Counties of Butler, Carter, Dunklin, Mississippi, New Madrid, Pemiscot, Ripley, Stoddard, Wayne.

Montana

Counties of Big Horn, Carbon, Flathead, Gallatin, Glacier, Granite, Lake, Lincoln, Mineral, Missoula, Park, Pondera, Ravalli,Sanders, Stillwater.

Nevada

Counties of Churchill, Clark, Esmeralda, Humboldt, Lincoln, Nye, Pershing, Washoe.

New Jersey

Counties of Atlantic, Burlington, Hunterdon, Mercer, Middlesex, Monmouth, Ocean, Somerset.

New Mexico

Counties of Hidalgo, McKinley, San Juan.

North Carolina

Counties of Franklin, Gates, Halifax, Hertford, Nash, Northampton, Union, Warren.

Oklahoma

Counties of Atoka, Bryan, Choctaw, Ellis, Harper, McCurtain, Pushmataha, Woods, Woodward.

Oregon

Counties of Harney, Jackson, Klamath, Lake.

Pennsylvania

Counties of Bedford, Bucks, Fayette, Franklin, Fulton, Somerset.

South Carolina

Counties of Chester, Chesterfield, Clarendon, Darlington, Dillon, Fairfield, Florence, Georgetown, Horry, Kershaw, Lancaster,Lee, Marion, Marlboro, Sumter, Williamsburg.

Tennessee

Counties of Dyer, Lake, Obion.

Texas

Counties of Aransas, Atascosa, Austin, Bandera, Bastrop, Bee, Bell, Bexar, Blanco, Bosque, Brazoria, Brazos, Brooks, Brown,Burleson, Burnet, Caldwell, Calhoun, Callahan, Cameron, Collin, Colorado, Comal, Comanche, Coryell, Dallas, Delta, Denton,DeWitt, Dimmit, Duval, Edwards, Ellis, Erath, Falls, Fannin, Fayette, Fort Bend, Freestone, Frio, Galveston, Gillespie, Goliad,Gonzales, Grayson, Grimes, Guadalupe, Hamilton, Harris, Harrison, Haskell, Hays, Hidalgo, Hill, Hood, Hopkins, Houston,Hunt, Jackson, Jasper, Jim Hogg, Jim Wells, Johnson, Jones, Karnes, Kaufman, Kendall, Kenedy, Kerr, Kimble, Kinney, Kleberg,Lamar, Lampasas, La Salle, Lavaca, Lee, Leon, Limestone, Live Oak, Llano, McLennan, McMullen, Madison, Marion,Matagorda, Maverick, Medina, Milam, Mills, Montgomery, Nacogdoches, Newton, Nueces, Panola, Rains, Real, Refugio,Robertson, Rockwall, Rusk, Sabine, San Augustine, San Patricio, San Saba, Shackelford, Shelby, Somervell, Starr, Stephens,Throckmorton, Travis, Trinity, Uvalde, Val Verde, Van Zandt, Victoria, Walker, Waller, Washington, Webb, Wharton, Willacy,Williamson, Wilson, Zapata, Zavala.

Utah

Counties of Kane, Rich, San Juan, Washington.

October 12, 2010 423 2010–41 I.R.B.

Virginia

Cities of Charlottesville, Colonial Heights, Emporia, Franklin, Hopewell, Newport News, Petersburg, Poquoson, Richmond,Suffolk, Williamsburg, Winchester. Counties of Accomack, Albemarle, Amelia, Brunswick, Buckingham, Caroline, Charles City,Chesterfield, Clarke, Culpeper, Cumberland, Dinwiddie, Essex, Fauquier, Fluvanna, Frederick, Gloucester, Goochland, Greene,Greensville, Hanover, Henrico, Isle of Wight, James City, King and Queen, King George, King William, Lancaster, Loudoun,Louisa, Lunenburg, Madison, Mathews, Mecklenburg, Middlesex, New Kent, Northampton, Northumberland, Nottoway,Orange, Page, Powhatan, Prince George, Rappahannock, Richmond, Rockingham, Shenandoah, Southampton, Spotsylvania,Surry, Sussex, Warren, Westmoreland, York.

Washington

Counties of Chelan, Clallam, Douglas, Grant, Grays Harbor, Jefferson, Kittitas, Mason, Okanogan.

West Virginia

Counties of Berkeley, Grant, Hampshire, Hardy, Jefferson, Mineral, Morgan, Preston, Tucker.

Wisconsin

Counties of Ashland, Barron, Bayfield, Burnett, Chippewa, Clark, Door, Douglas, Dunn, Eau Claire, Florence, Forest, Iron,Langlade, Lincoln, Marathon, Marinette, Menominee, Oconto, Oneida, Polk, Price, Rusk, Saint Croix, Sawyer, Shawano,Taylor, Vilas, Washburn.

Wyoming

Counties of Big Horn, Fremont, Lincoln, Park, Sublette, Sweetwater, Teton.

Credit for Certain ForeignGross-Basis Withholding Taxes

Notice 2010–65

PURPOSE

On November 30, 2005, the TreasuryDepartment and the Internal Revenue Ser-vice (IRS) issued Notice 2005–90, 2005–2C.B. 1163. Notice 2005–90 sets forth anexception to the application of section901(l)(1)(B) of the Internal Revenue Codewith respect to certain back-to-back com-puter program licensing arrangements.This notice provides additional guidanceregarding the application of section 901(l)to other back-to-back licensing arrange-ments and certain arrangements for theretail distribution of copyrighted articles.

BACKGROUND

Section 901(l) generally disallows acredit for foreign gross-basis withholdingtax on any item of income (other than div-idends) or gain with respect to property if(a) the recipient of the item has not heldthe property for more than 15 days (withina 31-day testing period), exclusive of peri-ods during which the recipient is protectedfrom risk of loss (section 901(l)(1)(A)),or (b) the recipient is under an obligation

(whether pursuant to a short sale or oth-erwise) to make related payments withrespect to positions in substantially similaror related property (section 901(l)(1)(B)).Section 901(l)(3) provides that the Secre-tary may by regulation provide that section901(l)(1) does not apply to property wheresuch application is not necessary to carryout the purposes of section 901(l).

Notice 2005–90 states that the Trea-sury Department and the IRS expect to is-sue regulations setting forth an exceptionto the application of section 901(l)(1)(B)to foreign gross-basis withholding taxesimposed on payments in a back-to-backcomputer program licensing arrangementin the ordinary course of the licensor’sand licensee’s respective trades or busi-nesses. Notice 2005–90 also requestedcomments concerning any additional is-sues that should be addressed by regu-lations, including whether the exceptionshould apply to other circumstances and toother types of property.

DISCUSSION

Following the issuance of Notice2005–90, the Treasury Department and theIRS received comments regarding busi-ness arrangements involving the ordinarycourse licensing and other transfers ofcertain intellectual property with respectto which the disallowance of a credit isnot necessary to carry out the purposes

of section 901(l). One such businessarrangement is generally similar to theback-to-back licensing arrangements de-scribed in Notice 2005–90, except that theintellectual property involved is propertyother than rights in, or copies of, computerprograms. Another ordinary course ofbusiness arrangement identified by a com-mentator involves the retail distribution ofcertain copyrighted articles that does notmeet the holding period requirement insection 901(l)(1)(A).

Consistent with Notice 2005–90 andin response to comments received sincethe issuance of that notice, the TreasuryDepartment and the IRS intend to issueregulations, pursuant to section 901(l)(3),providing relief from the application ofsection 901(l)(1)(A) or (B) in the circum-stances described below. Specifically, theregulations will provide that (1) section901(l)(1)(B) will not apply to disallow acredit for foreign gross-basis withhold-ing taxes (which otherwise meet the legalrequirements to be treated as creditabletaxes) imposed on income or gain withrespect to back-to-back licensing arrange-ments involving certain intellectual prop-erty or copyrighted articles entered intoin the ordinary course of business; and(2) section 901(l)(1)(A) will not applyto disallow a credit for foreign gross-ba-sis withholding taxes (which otherwisemeet the legal requirements to be treatedas creditable taxes) imposed on income

2010–41 I.R.B. 424 October 12, 2010

or gain with respect to retail distributionarrangements for certain copyrighted arti-cles entered into in the ordinary course ofbusiness.

1. Relief from application of section901(l)(1)(B) for certain back-to-backlicensing arrangements made in theordinary course of business

Under a typical business arrangementinvolving back-to-back licensing, a do-mestic corporation or a U.S. citizen orresident alien individual (Master Licen-sor) licenses (or otherwise transfers) rightsto certain intellectual property pursuantto a master license agreement or similararrangement to either an affiliate (foreignor domestic) or an unrelated domesticcorporation (or its controlled foreign cor-poration) (Head Licensee) for the purposeof development, production, exploitation,distribution, or marketing of the intel-lectual property. Head Licensee (or itsaffiliates) is in the business of develop-ing, producing, exploiting, distributing ormarketing intellectual property. As partof the arrangement, Head Licensee subli-censes rights to the intellectual property toits affiliates or to unrelated corporations(Sublicensees), as permitted under theterms and conditions of the master licenseagreement. Pursuant to the sublicenseagreements, Sublicensees make paymentsto Head Licensee, which may be subjectto foreign gross-basis withholding tax.

There are a variety of business reasonsindependent of U.S. tax considerationsfor parties to structure a back-to-backlicensing arrangement with respect to in-tellectual property. For example, MasterLicensor may contract with an unrelatedHead Licensee as part of a distributionarrangement in which Licensee distributesan article embodying Master Licensor’sintellectual property through its affiliatedSublicensees around the world. In such acase, Master Licensor may be unwillingfor business or practical reasons to enterinto a contractual relationship with eachSublicensee in each foreign jurisdictionand may therefore require that its onlycontractual relationship be with Head Li-censee. Alternatively, Master Licensormay license the intellectual property toan affiliated domestic or foreign HeadLicensee that distributes articles embody-ing the intellectual property by means of

contractual relationships with unrelatedSublicensees in foreign jurisdictions.

A back-to-back licensing arrangementmay be part of the manner by which anunrelated Head Licensee conducts its busi-ness. For example, where Head Licenseehas expertise in exploiting the intellectualproperty, it may be ordinary and customaryfor Head Licensee to acquire rights to theintellectual property from Master Licen-sor as part of a production or developmentprocess before the article embodying theintellectual property is distributed throughsublicensing arrangements with Head Li-censee’s foreign or domestic affiliates.

a. Covered intellectual property andcopyrighted articles

Pursuant to the authority granted undersection 901(l)(3), the Treasury Depart-ment and the IRS have determined thatthe application of section 901(l)(1)(B)to foreign gross-basis withholding taxesimposed on payments in a back-to-backlicensing arrangement with respect to cov-ered intellectual property or a coveredcopyrighted article entered into in the or-dinary course of business, as that term isdefined in section 1(b) of this notice, isnot necessary to carry out the purposes ofsection 901(l). For purposes of this notice,“covered intellectual property” meansintellectual property rights in any film,television program or recording; literary,musical or artistic composition; computerprogram; right to publicity (e.g., nameand likeness); or other similar property,and a “covered copyrighted article” meansa copy of any film, television programor recording; literary, musical or artisticcomposition; computer program; or othersimilar property.

b. Back-to-back licensing arrangement

For purposes of this notice, a “back-to-back licensing arrangement with respect tocovered intellectual property or a coveredcopyrighted article” is a transaction or se-ries of transactions in which: (1) a domes-tic corporation or individual who is a citi-zen or resident of the United States owns aright or rights in covered intellectual prop-erty or a covered copyrighted article (mas-ter licensor) and transfers a right or rightsin the covered intellectual property or thecovered copyrighted article to a domestic

corporation or a controlled foreign corpo-ration within the meaning of section 957(head licensee) pursuant to an agreement(a master license agreement or similar ar-rangement) that is confined to the devel-opment, production, exploitation, distribu-tion, or marketing of the intellectual prop-erty or the copyrighted article; (2) the headlicensee transfers a right or rights in thecovered intellectual property or the cov-ered copyrighted article to one or more cor-porations (sublicensees), as permitted bythe terms and conditions of the master li-cense agreement, for the purpose of devel-opment, production, exploitation, distribu-tion or marketing of the intellectual prop-erty or the copyrighted article or for thesublicensee’s own use; and (3) the head li-censee is a member of the worldwide affil-iated group that includes either the masterlicensor or the sublicensee. For purposesof this notice, a worldwide affiliated groupis as defined in section 864(f)(1)(C), de-termined without regard to the exceptionin section 1504(a)(4) treating certain pre-ferred stock as not stock.

The relief described in section 1 of thisnotice applies without regard to the formof the transaction or the treatment of thetransaction under foreign law, and includesthe transfer of rights in the intellectualproperty or the copyrighted article througha license, sale, lease or exchange for U.S.tax purposes.

c. Ordinary course of business

For purposes of this notice, a back-to-back licensing arrangement with respectto covered intellectual property or a cov-ered copyrighted article is in the “ordinarycourse of business” if: (A) the arrange-ment is consistent with the normal busi-ness practices of the master licensor withrespect to licensing of intellectual prop-erty or a copyrighted article of the typethat is the subject of the back-to-back li-censing arrangement (as defined in sec-tion 1(a) of this notice) independent ofU.S. federal tax considerations; (B) thehead licensee and each sublicensee (otherthan a sublicensee that licenses the intel-lectual property or copyrighted article ex-clusively for its own use) are regularly en-gaged in a trade or business, within themeaning of § 1.367(a)–2T(b)(2), of devel-oping, producing, exploiting, distributingor marketing the intellectual property or

October 12, 2010 425 2010–41 I.R.B.

the copyrighted article that is the subjectof the back-to-back licensing arrangement;and (C) for each payment made by a sub-licensee under the sublicense agreementwith respect to which foreign gross-ba-sis withholding tax is imposed, the sub-licensee uses the right to the intellectualproperty or the copyrighted article that isthe subject of the sublicense agreementin a trade or business within the meaningof § 1.367(a)–2T(b)(2). For purposes ofclause (B), the head licensee or the sub-licensee shall be considered to be regu-larly engaged in the business of develop-ing, producing, exploiting, distributing ormarketing the intellectual property or thecopyrighted article that is the subject of theback-to-back licensing arrangement if anymember of its worldwide affiliated groupis so engaged with respect to that specificintangible.

2. Relief from application of section901(l)(1)(A) for certain retail distributionarrangements made in the ordinary courseof business

Under a typical business arrangementinvolving retail distribution of certaincopyrighted articles, a domestic corpora-tion owns a copyright which is used to pro-duce copyrighted articles. In the ordinarycourse of its trade or business, the corpora-tion, which may or may not hold the copy-righted articles for the minimum holdingperiod described in section 901(l)(1)(A),transfers such copyrighted articles directlyor indirectly through U.S. affiliates to re-tail customers in foreign jurisdictions. Thetransactions with retail customers wouldgenerally be treated as sales in determiningwhether for U.S. tax purposes the incomeis from sources within the United States.See, e.g., § 1.861–18. Retail customersin foreign jurisdictions make payments tothe domestic corporation or its U.S. affil-iate that, nevertheless, may be subject toforeign gross-basis withholding taxes.

a. Covered copyrighted articles

Pursuant to the authority granted undersection 901(l)(3), the Treasury Departmentand the IRS have determined that the ap-plication of section 901(l)(1)(A) to foreigngross-basis withholding taxes imposed onpayments in a retail distribution arrange-ment for covered copyrighted articles (as

that term is defined in section 1(a) of thisnotice) entered into in the ordinary courseof business (as that term is defined in sec-tion 2(c) of this notice) is not necessary tocarry out the purposes of section 901(l).

b. Retail distribution arrangement

For purposes of this notice, a “re-tail distribution arrangement for coveredcopyrighted articles” is a transaction inwhich: (1) a domestic corporation owns acopyright which is used to produce a cov-ered copyrighted article; (2) the domesticcorporation transfers directly or indirectlythrough one or more U.S. affiliates thecovered copyrighted article to foreign re-tail customers; and (3) such arrangementis in the ordinary course of business of thedomestic corporation and, if appropriate,its U.S. affiliate(s). For purposes of thisnotice, a U.S. affiliate is any member ofthe domestic corporation’s affiliated groupas defined in section 1504(a).

c. Ordinary course of business

For purposes of this notice, a retail dis-tribution arrangement for covered copy-righted articles is in the “ordinary course ofbusiness” if: (A) the arrangement is con-sistent with the normal business practicesof the domestic corporation with respectto sales of copyrighted articles of the typethat is the subject of the retail distributionarrangement (as defined in section 2(a) ofthis notice) independent of U.S. federal taxconsiderations; and (B) the domestic cor-poration, or the U.S. affiliate in the caseof a domestic corporation that transfersthe covered copyrighted articles indirectlythrough such affiliate, is regularly engagedin a trade or business, within the meaningof § 1.367(a)–2T(b)(2), of selling the cov-ered copyrighted articles that are the sub-ject of the retail distribution arrangement.

EFFECT ON OTHER DOCUMENTS

This notice supplements but does notmodify or affect the application of the ex-ception described in Notice 2005–90.

EFFECTIVE DATE

The regulations described in this no-tice will apply to amounts that are paid or

accrued after September 23, 2010. Untilregulations incorporating the guidance setforth in this notice are issued, taxpayersmay rely on the guidance contained in thisnotice.

REQUEST FOR COMMENTS ANDCONTACT INFORMATION

The Treasury Department and the IRSrequest comments concerning the excep-tions to section 901(l)(1) described inthis notice, the scope of the active dealerexception in section 901(l)(2) to personsfor whom intangible property or copy-righted articles are described in section1221(a)(1), as well as the exception de-scribed in Notice 2005–90 and other issueswith respect to which the Treasury Depart-ment and the IRS requested comments inNotice 2005–90. Written comments maybe submitted to the Office of AssociateChief Counsel (International), Attention:Suzanne Walsh, Internal Revenue Service,1111 Constitution Avenue, NW, Washing-ton, DC 20224. Alternatively, taxpayersmay submit comments electronically toNotice.comments@irscounsel.treas.gov.Comments will be available for publicinspection and copying. For furtherinformation regarding this notice,contact Ms. Walsh of the Office ofAssociate Chief Counsel (International) at(202)–622–3850 (not a toll-free call).

26 CFR 601.105: Examination of returns and claimsfor refund, credit, or abatement; determination ofcorrect tax liability.(Also Part I, §§ 118, 362.)

Rev. Proc. 2010–34

SECTION 1. PURPOSE

This revenue procedure provides a safeharbor under section 118(a) of the Inter-nal Revenue Code for the treatment of cer-tain grants to corporations from the RuralUtilities Service (RUS) of the Departmentof Agriculture under the Broadband Initia-tives Program (BIP) and from the NationalTelecommunications and Information Ad-ministration (NTIA) of the Department ofCommerce under the Broadband Technol-ogy Opportunities Program (BTOP) as au-thorized by the American Recovery andReinvestment Act of 2009 (ARRA).

2010–41 I.R.B. 426 October 12, 2010

SECTION 2. BACKGROUND

Section 118(a) of the Code providesthat in the case of a corporation, gross in-come does not include a contribution to thecapital of the taxpayer.

Section 1.118–1 of the Income TaxRegulations provides that section 118 ap-plies to contributions to capital made by aperson other than a shareholder, for exam-ple, property contributed to a corporationby a governmental unit for the purposeof enabling the corporation to expand itsoperating facilities.

Section 362(c)(2) of the Code requires abasis reduction in a corporation’s propertywhen the corporation receives money froma nonshareholder as a contribution to itscapital.

ARRA appropriated money for theexpansion of broadband capabilities inthe United States. Title I, Division A ofARRA appropriated $2.5 billion to RUSfor BIP. Title II, Division A of ARRA ap-propriated $4.7 billion to NTIA for BTOP.

BIP provides grants for six purposes:(1) Last Mile Remote Projects (LMRP);(2) Last Mile Projects (LMP); (3) Mid-dle Mile Projects (MMP); (4) SatelliteProjects (SP); (5) Technical Assistance

(TA); and (6) Rural Library Broadband(RLB). BTOP provides grants for fourpurposes: (1) Broadband Infrastructure(BI); (2) Comprehensive Community In-frastructure (CCI); (3) Public ComputerCenters (PCC); and (4) Sustainable Broad-band Adoption (SBA). See Notices ofFunds Availability, 74 FR 33104 (BIP andBTOP), 75 FR 3792 (BTOP), and 75 FR3820 (BIP).

SECTION 3. SCOPE

This revenue procedure generally ap-plies to corporate taxpayers that receivea grant from RUS under BIP for LMRP,LMP, MMP, or RLB or from NTIA underBTOP for BI or CCI.

This revenue procedure does not ap-ply to the portion of any grant paid to re-imburse pre-application expenses. Thisrevenue procedure also does not apply togrants from RUS under BIP for SP or TA.

In addition, this revenue procedure doesnot apply to: (1) noncorporate taxpay-ers; (2) loans from RUS under BIP; (3)grants from NTIA under BTOP for PCC orSBA; or (4) the National Broadband Planor the Universal Service Fund of the Fed-eral Communications Commission.

SECTION 4. PROCEDURE

The Internal Revenue Service will notchallenge a corporation’s treatment of agrant to the corporation from RUS underBIP for LMRP, LMP, MMP, or RLB orfrom NTIA under BTOP for BI or CCIwithin the scope of section 3 of this rev-enue procedure as a nonshareholder con-tribution to the capital of the corporationunder section 118(a) of the Code if the cor-poration properly reduces the basis of itsproperty under section 362(c)(2) and theregulations thereunder.

SECTION 5. EFFECTIVE DATE

This revenue procedure is effectiveSeptember 23, 2010.

SECTION 6. DRAFTINGINFORMATION

The principal author of this rev-enue procedure is David McDonnell ofthe Office of Associate Chief Counsel(Passthroughs & Special Industries). Forfurther information regarding this revenueprocedure, contact Mr. McDonnell at(202) 622–3040 (not a toll-free call).

October 12, 2010 427 2010–41 I.R.B.

Part IV. Items of General InterestReporting of Uncertain TaxPositions

Announcement 2010–75

In a series of announcements the Inter-nal Revenue Service announced that it wasdeveloping a schedule requiring certainbusiness taxpayers to report uncertain taxpositions on their tax returns and requestedcomments both on the proposal and ona draft schedule and instructions. An-nouncement 2010–9, 2010–7 I.R.B. 408;Announcement 2010–17, 2010–13 I.R.B.515; Announcement 2010–30, 2010–19I.R.B. 668. The Service also stated in An-nouncement 2010–9 that it would issue aNotice of Proposed Rulemaking (NPRM)to provide that corporations would berequired to file a schedule disclosing un-certain tax positions. The NPRM waspublished on September 9, 2010, and setsout a proposed rule explicitly authoriz-ing the Service to require the filing ofSchedule UTP. Requirement of a State-ment Disclosing Uncertain Tax Positions,75 Fed. Reg. 54802 (proposed Sept. 9,2010). The Service expects a final rulewill be promulgated by the end of the year.

The Service received a large number ofcomments on the overall proposal, includ-ing whether and how the Service shouldimplement the requirement to file a sched-ule reporting uncertain tax positions, aswell as the draft schedule and instructionsreleased for comment on April 19, 2010.Many of the comments expressed concernsregarding how the Service would use thereported information, the interaction of thenew reporting requirement with the exist-ing policy of restraint, the additional bur-den the reporting requirement would placeon affected corporations, and the impactthe reporting requirement would have onthe relationship between the corporationand the Service or the corporation and itsadvisors or independent auditors. Somecommentators questioned the Service’s au-thority to require reporting of uncertain taxpositions with the corporation’s tax return.

All of these comments have been care-fully considered in developing the finalschedule and instructions, which requirecertain corporations with audited financialstatements to file Schedule UTP, Uncer-tain Tax Position Statement, beginning

with the 2010 tax year. A final scheduleand instructions are being released con-temporaneously with this announcement.In addition, a Directive regarding imple-mentation of Schedule UTP and relatedmatters, and a separate announcement re-garding modifications that will be madeto the existing Policy of Restraint in con-junction with implementation of ScheduleUTP, are being released contemporane-ously with this announcement.

Overview of major changes to the draftschedule and instructions

The final schedule and instructionsmake a number of significant changes tothe April draft in order to address burdenand other concerns expressed by commen-tators. Some of the major changes include:

• a five-year phase-in of the reportingrequirement based on a corporation’sasset size;

• no reporting of a maximum tax adjust-ment;

• no reporting of the rationale and natureof uncertainty in the concise descrip-tion of the position; and

• no reporting of administrative practicetax positions.

Five-year phase-in period

In Announcement 2010–9, the Serviceproposed that the reporting requirementapply to business taxpayers with total as-sets of at least $10 million. The Servicerequested comments on whether transitionrules should be used or criteria modifiedto either include or exclude certain busi-ness taxpayers, and the type of uncertaintax positions that should be reported bypass-through entities and tax-exempt enti-ties.

In Announcement 2010–30, the Serviceannounced that the types of corporationsrequired to file the schedule initially wouldbe limited to corporations that issue au-dited financial statements (or that have taxpositions for which a related party recordsa reserve in an audited financial statement)and file Form 1120, U.S. CorporationIncome Tax Return; Form 1120-F, U.S.Income Tax Return of a Foreign Corpo-ration; Form 1120-L, U.S. Life Insurance

Company Income Tax Return; or Form1120-PC, U.S. Property and Casualty In-surance Company Income Tax Return.

A number of commentators recom-mended that the Service either increasethe $10 million total asset threshold per-manently or during a transition periodto allow many organizations additionaltime to implement the reporting require-ment. Some commentators recommendedthat taxpayers in the Compliance Assur-ance Program (CAP) and taxpayers undercontinuous audit (CIC taxpayers) be ex-cluded from the reporting requirement.Although a few comments recommendedthat the reporting requirement also applyto pass-through entities and tax-exemptentities, many suggested that the reportingrequirements should be delayed or elimi-nated for these entities.

The final schedule and instructions gen-erally retain the previously announced fil-ing requirements regarding types of cor-porations required to complete the sched-ule for 2010 tax years. Accordingly, pub-lic or privately held corporations that issueor are included in audited financial state-ments and that file a Form 1120, Form1120-F, Form 1120-L, or Form 1120-PCmust report their uncertain tax positions onSchedule UTP if they satisfy the total as-set threshold. In response to comments,however, the Service has implemented afive-year phase-in of the Schedule UTP forcorporations with total assets under $100million. Corporations that have total as-sets equal to or exceeding $100 millionmust file Schedule UTP starting with 2010tax years. The total asset threshold willbe reduced to $50 million starting with2012 tax years and to $10 million start-ing with 2014 tax years. The Service willconsider whether to extend all or a portionof Schedule UTP reporting to other tax-payers for 2011 or later tax years, such aspass-through entities and tax-exempt enti-ties.

The final instructions do not excludeCAP or CIC taxpayers from the reportingrequirement. With respect to CAP, the Ser-vice will address Schedule UTP compli-ance in upcoming CAP permanence guid-ance that is expected to be released shortly.

2010–41 I.R.B. 428 October 12, 2010

No reporting of maximum tax adjustment

The draft schedule and instructions pro-posed that the corporation report a maxi-mum tax adjustment for each tax positionlisted on the schedule, other than trans-fer pricing and other valuation positions.The maximum tax adjustment was definedin the draft instructions as the maximumUnited States federal income tax liabilityfor the tax position if the position werenot sustained upon examination by the Ser-vice. The draft instructions also providedthe corporation a choice of ranking transferpricing and other valuation positions basedon the federal income tax reserve or an es-timate of the adjustment to federal incometax that would result if the position werenot sustained.

Many of the comments recommendedeliminating entirely or modifying the pro-posed requirement to report the maximumtax adjustment for each tax position. Manycomments expressed concern that thisamount would be unduly burdensome tocompute, would provide the Service withmisleading information about the riski-ness of the position and its magnitude,and would not be a meaningful basis uponwhich to determine the issues or returnsto examine. Some commentators recom-mended that no information be providedon the schedule regarding the materialityof the tax position. Some commentatorsexpressed a preference for a measure thatrelied on information already available tothe corporation to minimize the burdenassociated with completing the schedule.Many commentators suggested various al-ternative measures of magnitude includingthe following:

• ranges or baskets based on the maxi-mum tax adjustment, a reasonable esti-mate of the federal income tax benefit,or the reserve for the tax positions;

• ranges or baskets based on a per-centage of gross income, revenue,expenses, or reserves;

• ranking of all issues as proposed in thedraft instructions for transfer pricingand other valuation issues;

• ranking of all issues based on magni-tude, such as reserves for uncertain taxpositions;

• disclosure of only those tax positionsfor which the tax reserve exceeds a per-centage of the tabular roll-forward inthe annual financial statement footnotedisclosures;1

• disclosure of the maximum tax adjust-ment only if it exceeds $500,000; and

• disclosure of the aggregate reserve foruncertain tax positions.

After considering the comments and thesuggested alternatives, the Service has re-moved the proposed requirement to reportthe maximum tax adjustment. Instead, thefinal schedule and instructions require acorporation to rank all of the reported taxpositions (including transfer pricing andother valuation positions) based on theUnited States federal income tax reserve(including interest and penalties) recordedfor the position taken in the return, andto designate those tax positions for whichthe reserve exceeds 10 percent of the ag-gregate amount of the reserves for all ofthe tax positions reported on the schedule.This ranking method is expected to allowthe Service to more accurately evaluatethe materiality of the issues reported onthe schedule and to impose less burdenon corporations than would have beenthe case under the maximum tax adjust-ment proposal. This method relies on thereserve computations that corporationsperform for audited financial statementpurposes, but does not require disclosureof the actual amounts of the tax reserves.

In addition, commentators noted thedifficulty of computing the maximum taxadjustment for tax positions for whichno reserve was created based on an ex-pectation to litigate the position. Theinstructions address this concern by pro-viding that no size needs to be determinedwith respect to these tax positions and thatthese positions can be assigned any rankby the corporation.

Removal of requirement to includerationale and nature of uncertainty inconcise description of the position

A number of commentators expressedconcern about the requirement that therationale for an uncertain tax position, aswell the nature of the uncertainty, be dis-closed as part of the concise description.

Commentators stated that these disclo-sures are not required by FIN 48 andasserted that they conflict with both theService’s policy of restraint and the Ser-vice’s stated objective not to require thattaxpayers disclose their assessment of thestrength or weakness of their positions.Other commentators pointed out that theexamples in the draft instructions did notprovide this information. As an alterna-tive, several commentators suggested thatthe requirements for a concise descriptionbe similar to the information required tobe disclosed in conjunction with the filingof a Form 8275, Disclosure Statement.

In response to these comments, the pro-posed requirement to include the rationaleand nature of the uncertainty in the con-cise description has been eliminated. Theinstructions now require a concise descrip-tion of the tax position, including a de-scription of the relevant facts affecting thetax treatment of the position and informa-tion that reasonably can be expected to ap-prise the Service of the identity of the taxposition and the nature of the issue. Thisis based upon and consistent with the in-formation required to be reported on Form8275. In addition, the final instructions ex-pressly state that a corporation is not re-quired to include an assessment of the haz-ards of a tax position or an analysis of thesupport for or against the tax position.

No reporting of administrative practicetax positions

The proposal required that a corpora-tion report on Schedule UTP tax positionsfor which no reserve was recorded becausethe corporation determined it was the Ser-vice’s administrative practice not to raisethe issue during an examination. Manycommentators recommended eliminationof this requirement because it would be un-duly burdensome for corporations to iden-tify, describe, and quantify these positions,and would provide the Service very littleuseful information.

After reviewing the comments, the Ser-vice determined that the concerns aboutthe administrability of this requirementoutweighed the value of the informationthat may be included. Therefore, theService has eliminated the proposed re-quirement to report tax positions for which

1 Public companies are required to disclose a tabular reconciliation of unrecognized tax benefits at the beginning and end of the reporting period in their annual financial statements. FASBASC Topic 740–10 Income Taxes. Income Taxes, Accounting Standards Codification Subtopic 740–10–5015A (Fin. Accounting Standards Bd. 2010).

October 12, 2010 429 2010–41 I.R.B.

no reserve was created due to a widely-un-derstood administrative practice, but willcontinue to explore ways to assess the im-pact of these tax positions on overall taxcompliance.

Consistency between Schedule UTPreporting and financial statement reservedecisions

Some commentators opposed the pro-posal because of their understanding thatit required a corporation to report tax posi-tions for which no reserve was recorded inthe corporation’s financial statements (in-cluding expectation-to-litigate positions)either because the position was highlycertain or was immaterial in the contextof the audited financial statements. Othercommentators recommended that the in-structions clearly state that highly certainand immaterial tax positions not be re-quired to be reported on the schedule.

The final instructions address thesecomments by clarifying that the scheduleseeks the reporting of tax positions consis-tent with the reserve decisions made by thecorporation for audited financial statementpurposes. The instructions clarify thatcorporations are not required to report taxpositions that are either immaterial underapplicable financial accounting standardsor are sufficiently certain so that no re-serve is required under those standards.A tax position that a corporation wouldlitigate, if challenged, but that is clear andunambiguous or is immaterial is thereforenot required to be reported on ScheduleUTP. The instructions require reporting oftax positions taken in a return for whichreserves were created under applicable fi-nancial accounting standards or for whichno reserve was created because of an ex-pectation to litigate.

A number of commentators requestedthat the instructions regarding unit of ac-count be clarified to more closely align theterm with its meaning in FIN 48. The finalinstructions add an example to emphasizethat the definition of unit account shouldbe applied consistently with the guidancein FIN 48. Some commentators stated thatthe draft instructions provided inadequateguidance regarding the treatment of a unitof account for reporting tax positions bycorporations using IFRS. The final instruc-tions continue to provide that a corporationthat uses its entire tax year as a unit of ac-

count under IFRS or another method of ac-counting may not do so for Schedule UTPreporting, but must identify a unit of ac-count based on FIN 48 principles or by us-ing any other level of detail that is consis-tently applied if that identification is rea-sonably expected to apprise the Service ofthe identity and nature of the issue under-lying a tax position taken in the tax return.

Additional areas of clarification

Many of the commentators providedspecific comments on the language in thedraft instructions, either asking for clar-ification of the language or suggestingchanges to the language. In response, thefollowing changes were made to the in-structions:

• The instructions clarify that ScheduleUTP requires the reporting of U.S.federal income tax positions but notforeign or state tax positions. Un-der the general reporting instructions,however, a corporation is required toreport a United States federal incometax position taken in a return that arisesout of uncertainty with regard to aforeign tax position (e.g., foreign taxcredits) if a reserve for United Statesfederal income tax was recorded toreflect that uncertainty.

• The instructions clarify that a tax po-sition is reported on Schedule UTPonce (1) a reserve for a tax position isrecorded and (2) a tax position is takenon a return regardless of the order inwhich those two events occur.

• The instructions clarify that corpora-tions report their own tax positions onSchedule UTP and do not report the taxpositions of a related party.

• The instructions clarify that tax posi-tions taken in years before 2010 neednot be reported in 2010 or a later yeareven if a reserve is recorded in auditedfinancial statements issued in 2010 orlater.

• The instructions clarify the reportingof recurring tax positions taken in mul-tiple years.

• The instructions were revised to reflectthe fact that Schedule UTP need not befiled for short tax years ending in 2010.

• The instructions clarify that worldwideassets are used to determine whethera corporation that files a Form 1120-F

(including a protective return) mustfile Schedule UTP.

• The definition of audited financialstatement was revised to clarify thatan audited financial statement is oneon which an independent auditor ex-presses an opinion and that compiledor reviewed financial statements areexcluded from the definition of auditedfinancial statement.

• The definition of record a reserve wasrevised to clarify that it includes therecording of a reserve for United Statesfederal income tax, interest, or penal-ties and to reinforce that temporary dif-ferences must be reported on ScheduleUTP.

• The instructions clarify for corpora-tions included in multiple audited fi-nancial statements that the recording ofa reserve in any audited financial state-ment in which the corporation is in-cluded triggers reporting of the tax po-sition if the tax position is taken on areturn filed by the reporting corpora-tion.

Privilege, work product doctrine, subjectmatter waiver, and policy of restraintcomments

A number of commentators asked thatthe proposal be withdrawn on the basisthat the requirement to identify tax posi-tions along with the taxpayer’s views andassessments of those positions is inconsis-tent with the attorney-client privilege, thework product doctrine, and the tax prac-titioner privilege, because it may requiredisclosure of information that is basedupon the advice of counsel and tax returnpreparers and may require the sharing ofthe mental impressions of these advisers.Many of these commentators were alsoconcerned that disclosure of tax positionson Schedule UTP could enable adversariesto raise questions about subject-matterwaiver with respect to confidential com-munications related to the disclosed taxpositions. Other commentators asked thatthe Service confirm that claims of priv-ilege may continue to be asserted to thesame extent permitted under current law.

As set out above, the instructions nolonger require the rationale and nature ofthe uncertainty to be included in the sched-ule’s concise description and further ex-plain that the concise description should

2010–41 I.R.B. 430 October 12, 2010

not include information related to the cor-poration’s assessment of the hazards of atax position or an analysis of the supportfor or against the tax position.

Many commentators raised issues aboutthe effect of Schedule UTP’s reporting re-quirements on the Service’s policy of re-straint. Some saw Schedule UTP as incon-sistent with the policy of restraint, whileothers asked that the policy of restraintbe expanded to cover documents used toprepare Schedule UTP. The Service is re-leasing, contemporaneously with the re-lease of this announcement, Announce-ment 2010–76, which modifies the policyof restraint in response to these concerns.

Other comments — exclude certain taxpositions and expectation to litigate

Various commentators suggested ex-cluding certain types of tax positions fromSchedule UTP reporting, including:

• all transfer pricing positions;• temporary differences;• correlative effects of foreign tax posi-

tions (e.g., effect of foreign tax posi-tions on U.S. earnings and profits orforeign tax credits); and

• specified transactions or issues, suchas permanent establishment, debt-eq-uity, tax-free combinations, or issuesthe Service has conceded in an auditof the reporting corporation during theprior five years, which should be in-cluded in an “angel list.”

The final schedule and instructions donot incorporate any of the recommendedexclusions. The Service believes that ex-cluding these types of tax positions fromSchedule UTP reporting would be incon-sistent with the purpose and objectivesunderlying the new reporting requirementand that it is important to obtain reportingof all types of uncertain tax positions.

The proposal required a corporation toreport a tax position taken in a return forwhich no reserve was recorded based onthe corporation’s expectation to litigatethe position. A number of commentatorssuggested eliminating this requirement,either because it would be unduly burden-some to identify, describe, and quantifythese positions, or because requiring re-porting of these positions on ScheduleUTP departs from the Service’s stated

objective of consistency with financialaccounting standards. Many commenta-tors recommended clarifying the scopeof tax positions required to be reportedas expectation-to-litigate positions. Somecommentators expressed concern that thisrequirement would require corporations toreassess at the time of preparing Sched-ule UTP all tax positions taken in thecurrent-year return for which no reservewas previously recorded and report on theschedule each tax position the corporationmight litigate if it had to do so in orderto sustain the issue. A few commentatorsrequested guidance on how the corpora-tion documents an expectation-to-litigateposition.

The final schedule and instructions re-tain the requirement to report tax positionstaken in a return for which no reserve wasrecorded because of an expectation to lit-igate the position and incorporate revisedinstructions to clarify the meaning of ex-pectation to litigate. The final instruc-tions clarify that a corporation may rely onthe reserve decisions it made for financialstatement purposes to complete ScheduleUTP and thus is not expected to reassessat the time the schedule is completed thosereserve decisions previously made for fi-nancial statement purposes. The final in-structions do not provide guidance on howa corporation documents an expectation tolitigate position. The Service expects thata corporation would continue to documentits decision in the same way as it substan-tiates any decision not to record a reservein its financial statements.

Internal Directive and related changes

The Service is issuing contemporane-ously with this Announcement a Directiveconcerning the use of Schedule UTP by theService and its examination and researchpersonnel. The Directive outlines the var-ious uses for the information reported onthe schedule and indicates that initial pro-cessing of Schedule UTP information willbe centralized to ensure appropriate reviewto identify trends and areas requiring fur-ther guidance to address uncertainty in thelaw.

In addition, the Service will create aworking group to study and revise theSchedule M–3, Net Income (Loss) Rec-onciliation for Corporations with TotalAssets of $10 Million or More, to reduce

duplicate reporting. The Service believesthat the implementation of Schedule UTPis likely to reduce the need for some ofthe information currently reported on theSchedule M–3. The working group willbegin its work in 2011 and will work withexternal stakeholders to develop appropri-ate revisions to the Schedule M–3.

The Service also will be expanding theCompliance Assurance Program (CAP)and making it permanent. The Serviceintends that the permanent CAP will con-sist of three phases: pre-CAP, which willallow a taxpayer to become current onthe audit cycle while demonstrating therequisite transparency needed to be eligi-ble for CAP; CAP, which will resemblethe existing CAP pilot program; and CAPmaintenance, which will call for the re-duction of resources and taxpayer contactfor those taxpayers in this phase as ap-propriate. Details will be contained in theupcoming CAP permanence guidance thatis expected to be released shortly.

Exchange of information with foreigngovernments

Concerns have been raised that the Ser-vice will automatically disclose informa-tion reported on the Schedule UTP to for-eign governments. The Service intends togenerally refrain from providing ScheduleUTP information to other governments ex-cept in those circumstances in which thereis a reciprocal arrangement with the for-eign government regarding uncertain-tax-position information, such as where theforeign government collects similar infor-mation for its own tax administration pur-poses and agrees to make this informa-tion available to the Service in a similarmanner. In addition, even if reciprocitydid exist, the Service would consider otherfactors in determining whether to disclosethe information, including the relevance ofthe information to the foreign government,which in many cases would not be present.

Future guidance and changes

While the instructions provide initialguidance concerning filing of ScheduleUTP, the Service recognizes that they donot address every issue raised by com-mentators. For example, the instructionsdo not address issues related to the report-ing of tax positions in the year in which

October 12, 2010 431 2010–41 I.R.B.

a corporation is acquired or disposed of.As another example, a number of com-mentators recommended the instructionsaddress the level or type of due diligencerequired to obtain reserve informationfrom a related party or information froma pass-through entity relating to a corpo-ration’s uncertain tax position involvingthe pass-through entity. Other issues willarise as the Service and corporations gainexperience with the schedule. The Servicewill continue to consider these issues andhow best to provide further guidance.

In addition, the Service will review thecompleteness and utility of Schedule UTPsfiled by corporations, beginning with 2010tax years, and modify the schedule and in-structions as appropriate. For example, theService will review the reporting of trans-fer pricing positions on Schedule UTP andconsider whether additional information,such as the specific country, character ofincome, or other facts are necessary to pro-vide sufficient information regarding theidentity and nature of those tax positions.

Penalties

A number of commentators recom-mended that the Service expressly statethat penalties will not be imposed, eitherpermanently or during a transition period,for reporting failures regarding ScheduleUTP. The final instructions do not providespecific instructions regarding penalties.The Service intends to review complianceregarding how the schedule is completedby corporations and to take appropriate en-forcement action, including the possibilityof opening an examination or making an-other type of taxpayer contact, in thoseinstances in which there appears to be afailure to complete the schedule or a fail-ure to report whether the corporation isrequired to complete the schedule.

Coordination with Forms 8275 and 8886

Some commentators suggested theService provide that in certain circum-stances a corporation need not file Form8886, Reportable Transaction DisclosureStatement, if a reportable transaction isdisclosed on Schedule UTP. A numberof commentators recommended that theService expressly provide that disclosureof a tax position on Schedule UTP con-

stitutes disclosure of the position to avoidpenalties under sections 6662(b)(6) and6662(i) involving an underpayment due toa claimed tax benefit because of a transac-tion lacking economic substance.

The final Schedule UTP instructionsstate that a complete and accurate disclo-sure of a tax position on the appropriateyear’s Schedule UTP will be treated as ifthe corporation filed a Form 8275 or Form8275-R regarding the tax position and thata separate Form 8275 or 8275-R need notbe filed to avoid certain accuracy-relatedpenalties with respect to that tax posi-tion. Consistent with Notice 2010–62,issued September 13, 2010, in the case ofa transaction that is not a reportable trans-action, the Service will treat a completeand accurate disclosure of a tax positionon Schedule UTP as satisfying the disclo-sure requirements of section 6662(i). TheService is studying other ways to reduceduplicate reporting and is consideringwhether complete and accurate disclosureon Schedule UTP would also, in appropri-ate circumstances, provide the informationnecessary to satisfy the reportable transac-tion disclosure requirements.

The principal author of this announce-ment is Kathryn Zuba of the Office ofthe Associate Chief Counsel (Procedureand Administration). For further infor-mation regarding this announcement, con-tact Kathryn Zuba at (202) 622–3400 (nota toll-free call). For questions relatingto Schedule UTP and instructions, contactDeborah Palacheck at (202) 283–8710 (nota toll-free call).

Requests for DocumentsProvided to IndependentAuditors, Policy of Restraintand Uncertain Tax Positions

Announcement 2010–76

The Internal Revenue Service is ex-panding its policy of restraint in connec-tion with its decision to require certaincorporations to file Schedule UTP, Uncer-tain Tax Position Statement, and will forgoseeking particular documents that relate touncertain tax positions and the workpapersthat document the completion of ScheduleUTP.

BACKGROUND

Schedule UTP requires a specified classof corporations to provide a concise de-scription of each uncertain tax positionfor which the corporation or a related en-tity has recorded a reserve in its finan-cial statements, or for which no reservehas been recorded because of an expecta-tion of litigation. These uncertain tax po-sitions are identified by corporations dur-ing the process of preparing financial state-ments under applicable accounting stan-dards, such as FASB Interpretation No.48, Accounting for Uncertainty in IncomeTaxes, an Interpretation of FASB StatementNo. 109 (FIN 48).1 In reviewing and ver-ifying financial statements for compliancewith FIN 48, independent auditors may askfor copies of legal opinions and other doc-uments in order to understand transactions,to understand the legal bases for the treat-ment of transactions, and to determine theadequacy of reserves for contingent tax li-abilities.

POLICY OF RESTRAINT

(1) If a document is otherwise privi-leged under the attorney-client privilege,the tax advice privilege in section 7525 ofthe Code, or the work product doctrine andthe document was provided to an indepen-dent auditor as part of an audit of the tax-payer’s financial statements, the Servicewill not assert during an examination thatprivilege has been waived by such disclo-sure.

(2) Paragraph (1) does not apply if(a) the taxpayer has engaged in any

activity or taken any action, other thanthose described in that paragraph, thatwould waive the attorney-client privilege,the tax advice privilege in section 7525 ofthe Code, or the work product doctrine; or

(b) a request for tax accrual work-papers is made under IRM 4.10.20.3 be-cause unusual circumstances exist or thetaxpayer has claimed the benefits of one ormore listed transactions.

(3) Under current procedures, examin-ers request tax reconciliation workpapersas a matter of course. IRM 4.10.20.3. Thetaxpayer may redact the following infor-mation from any copies of tax reconcilia-tion workpapers relating to the preparation

1 Under the codification of accounting standards, the relevant portions of FIN 48 are now contained in Accounting Standards Codification subtopic 740–10, Income Taxes. FASB ASC 740–10.

2010–41 I.R.B. 432 October 12, 2010

of Schedule UTP it is asked to produce dur-ing an examination:

(a) working drafts, revisions, orcomments concerning the concise descrip-tion of tax positions reported on ScheduleUTP;

(b) the amount of any reserve re-lated to a tax position reported on ScheduleUTP; and

(c) computations determining theranking of tax positions to be reported onSchedule UTP or the designation of a taxposition as a Major Tax Position.

(4) Other than requiring the disclosureof the information on the schedule, the re-quirement to file Schedule UTP does notaffect the policy of restraint.

(5) This announcement describes thepolicy of the Service for seeking the docu-ments described in paragraph 1 and 3 fromtaxpayers and third parties during an ex-amination. It does not create or imply theapplication of the attorney-client privilege,the tax advice privilege under section 7525of the Code, or the work product doctrineto any document of any taxpayer or thirdparty.

(6) These modifications to the policyof restraint will be incorporated into IRM4.10.20.

DRAFTING INFORMATION

The principal author of this announce-ment is Kathryn Zuba of the office ofAssociate Chief Counsel (Procedure andAdministration). For further informa-tion regarding this announcement, contactKathryn Zuba at (202) 622–3400 (not atoll-free call).

Deletions From CumulativeList of OrganizationsContributions to Whichare Deductible Under Section170 of the Code; Correction

Announcement 2010–77

This document contains a correctedAnnouncement 2010–59. Announcement2010–59 should have read:

This document contains a correctionto Announcement 2010–47, 2010–30I.R.B. 173, which contained an incorrecttaxpayer name. The taxpayer name incor-rectly read: “Thorek Hospital & MedicalCenter of Chicago, IL”.

The taxpayer name should have read:“Thorek Hospital & Medical Center SelfInsurance Trust Fund of Chicago, IL”.

FOR FURTHER INFORMATIONCONTACT:

Flora McClain1100 Commerce StreetMS 4920DALDallas, TX 75242214–413–5462

Announcement of Disciplinary Sanctions From the Officeof Professional ResponsibilityAnnouncement 2010-78

The Office of Professional Responsi-bility (OPR) announces recent disciplinarysanctions involving attorneys, certifiedpublic accountants, enrolled agents, en-rolled actuaries, enrolled retirement planagents, and appraisers. These individualsare subject to the regulations governingpractice before the Internal Revenue Ser-vice (IRS), which are set out in Title 31,Code of Federal Regulations, Part 10, andwhich are published in pamphlet form asTreasury Department Circular No. 230.The regulations prescribe the duties andrestrictions relating to such practice andprescribe the disciplinary sanctions forviolating the regulations.

The disciplinary sanctions to be im-posed for violation of the regulations are:

Disbarred from practice before theIRS—An individual who is disbarred isnot eligible to represent taxpayers beforethe IRS.

Suspended from practice before theIRS—An individual who is suspended isnot eligible to represent taxpayers beforethe IRS during the term of the suspension.

Censured in practice before theIRS—Censure is a public reprimand. Un-like disbarment or suspension, censuredoes not affect an individual’s eligibilityto represent taxpayers before the IRS, butOPR may subject the individual’s futurerepresentations to conditions designed topromote high standards of conduct.

Monetary penalty—A monetarypenalty may be imposed on an individualwho engages in conduct subject to sanc-tion or on an employer, firm, or entityif the individual was acting on its behalfand if it knew, or reasonably should haveknown, of the individual’s conduct.

Disqualification of appraiser—Anappraiser who is disqualified is barredfrom presenting evidence or testimony in

any administrative proceeding before theDepartment of the Treasury or the IRS.

Under the regulations, attorneys, cer-tified public accountants, enrolled agents,enrolled actuaries, and enrolled retirementplan agents may not assist, or accept assis-tance from, individuals who are suspendedor disbarred with respect to matters consti-tuting practice (i.e., representation) beforethe IRS, and they may not aid or abet sus-pended or disbarred individuals to practicebefore the IRS.

Disciplinary sanctions are described inthese terms:

Disbarred by decision after hearing,Suspended by decision after hearing,Censured by decision after hearing,Monetary penalty imposed after hear-ing, and Disqualified after hearing—Anadministrative law judge (ALJ) conductedan evidentiary hearing upon OPR’s com-plaint alleging violation of the regulationsand issued a decision imposing one of

October 12, 2010 433 2010–41 I.R.B.

these sanctions. After 30 days from theissuance of the decision, in the absence ofan appeal, the ALJ’s decision became thefinal agency decision.

Disbarred by default decision, Sus-pended by default decision, Censured bydefault decision, Monetary penalty im-posed by default decision, and Disqual-ified by default decision—An ALJ, afterfinding that no answer to OPR’s complainthad been filed, granted OPR’s motion for adefault judgment and issued a decision im-posing one of these sanctions.

Disbarment by decision on appeal,Suspended by decision on appeal, Cen-sured by decision on appeal, Monetarypenalty imposed by decision on ap-peal, and Disqualified by decision onappeal—The decision of the ALJ wasappealed to the agency appeal authority,acting as the delegate of the Secretaryof the Treasury, and the appeal authorityissued a decision imposing one of thesesanctions.

Disbarred by consent, Suspended byconsent, Censured by consent, Mone-tary penalty imposed by consent, and

Disqualified by consent—In lieu of adisciplinary proceeding being institutedor continued, an individual offered a con-sent to one of these sanctions and OPRaccepted the offer. Typically, an offerof consent will provide for: suspensionfor an indefinite term; conditions that theindividual must observe during the sus-pension; and the individual’s opportunity,after a stated number of months, to filewith OPR a petition for reinstatement af-firming compliance with the terms of theconsent and affirming current eligibilityto practice (i.e., an active professionallicense or active enrollment status). Anenrolled agent or an enrolled retirementplan agent may also offer to resign in orderto avoid a disciplinary proceeding.

Suspended by decision in expeditedproceeding, Suspended by default de-cision in expedited proceeding, Sus-pended by consent in expedited pro-ceeding—OPR instituted an expeditedproceeding for suspension (based on cer-tain limited grounds, including loss of aprofessional license and criminal convic-tions).

OPR has authority to disclose thegrounds for disciplinary sanctions in thesesituations: (1) an ALJ or the Secretary’sdelegate on appeal has issued a decisionon or after September 26, 2007, which wasthe effective date of amendments to theregulations that permit making such deci-sions publicly available; (2) the individualhas settled a disciplinary case by signingOPR’s “consent to sanction” form, whichrequires consenting individuals to admit toone or more violations of the regulationsand to consent to the disclosure of the in-dividual’s own return information relatedto the admitted violations (for example,failure to file Federal income tax returns);or (3) OPR has issued a decision in anexpedited proceeding for suspension.

Announcements of disciplinary sanc-tions appear in the Internal Revenue Bul-letin at the earliest practicable date. Thesanctions announced below are alphabet-ized first by the names of states and sec-ond by the last names of individuals. Un-less otherwise indicated, section numbers(e.g., § 10.51) refer to the regulations.

City & State Name Professional Disciplinary Sanction Effective Date(s)Designation

California

West Hollywood Krane, Matthew G. Attorney Suspended by defaultdecision in expeditedproceeding under § 10.82(suspension of attorneylicense)

Indefinite fromAugust 10, 2010

Sacramento Murray, William R. CPA Suspended by defaultdecision in expeditedproceeding under § 10.82(suspension of CPAlicense)

Indefinite fromAugust 10, 2010

Cerritos Tiongson, Anthony A. CPA Suspended by decisionin expedited proceedingunder § 10.82 (convictionunder 26 U.S.C. § 7207,filing false tax return)

Indefinite fromAugust 9, 2010

Florida

Fort Lauderdale Shepherd, Robert L. Attorney Suspended by defaultdecision in expeditedproceeding under § 10.82(attorney disbarment inNew York)

Indefinite fromAugust 10, 2010

2010–41 I.R.B. 434 October 12, 2010

City & State Name Professional Disciplinary Sanction Effective Date(s)Designation

Kentucky

Louisville Atherton, Bruce D. Attorney Suspended by decisionin expedited proceedingunder § 10.82 (attorneydisbarment)

Indefinite fromSeptember 7, 2010

Nebraska

Kearney Hager, Janelle M. CPA Suspended by defaultdecision in expeditedproceeding under § 10.82(revocation of CPAlicense)

Indefinite fromAugust 10, 2010

New York

Garrison Azznara, Nat J. Attorney Suspended by defaultdecision in expeditedproceeding under § 10.82(attorney disbarment)

Indefinite fromAugust 10, 2010

Shepherd, Robert L.,See Florida

Waccabuc Simels, Robert M. Attorney Suspended by defaultdecision in expeditedproceeding under § 10.82(conviction under 18U.S.C. § 1512, conspiracyto obstruct justice, andattempt to obstructjustice; 18 U.S.C. § 201,bribery; and 18 U.S.C.§ 2512, importationof eavesdroppingequipment)

Indefinite fromAugust 10, 2010

North Carolina

Charlotte Ross, Walter H. CPA Suspended by decisionin expedited proceedingunder § 10.82 (suspensionof CPA license)

Indefinite fromAugust 16, 2010

October 12, 2010 435 2010–41 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 situations toshow that the previous published rulingswill not be applied pending some futureaction such as the issuance of new oramended regulations, the outcome of casesin litigation, or the outcome of a Servicestudy.

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.

2010–41 I.R.B. i October 12, 2010

Numerical Finding List1

Bulletins 2010–27 through 2010–41

Announcements:

2010-43, 2010-27 I.R.B. 42

2010-44, 2010-28 I.R.B. 54

2010-45, 2010-29 I.R.B. 87

2010-46, 2010-29 I.R.B. 87

2010-47, 2010-30 I.R.B. 173

2010-48, 2010-32 I.R.B. 234

2010-49, 2010-34 I.R.B. 272

2010-50, 2010-33 I.R.B. 260

2010-51, 2010-33 I.R.B. 261

2010-52, 2010-36 I.R.B. 315

2010-53, 2010-36 I.R.B. 323

2010-54, 2010-38 I.R.B. 386

2010-55, 2010-37 I.R.B. 346

2010-56, 2010-39 I.R.B. 398

2010-57, 2010-38 I.R.B. 386

2010-58, 2010-38 I.R.B. 387

2010-59, 2010-39 I.R.B. 399

2010-60, 2010-40 I.R.B. 417

2010-61, 2010-40 I.R.B. 417

2010-62, 2010-40 I.R.B. 417

2010-63, 2010-40 I.R.B. 417

2010-64, 2010-40 I.R.B. 418

2010-65, 2010-40 I.R.B. 418

2010-66, 2010-40 I.R.B. 418

2010-67, 2010-40 I.R.B. 418

2010-68, 2010-40 I.R.B. 418

2010-69, 2010-40 I.R.B. 418

2010-70, 2010-40 I.R.B. 418

2010-71, 2010-40 I.R.B. 418

2010-72, 2010-40 I.R.B. 419

2010-73, 2010-40 I.R.B. 419

2010-74, 2010-40 I.R.B. 419

2010-75, 2010-41 I.R.B. 428

2010-76, 2010-41 I.R.B. 432

2010-77, 2010-41 I.R.B. 433

2010-78, 2010-41 I.R.B. 433

Notices:

2010-48, 2010-27 I.R.B. 9

2010-49, 2010-27 I.R.B. 10

2010-50, 2010-27 I.R.B. 12

2010-51, 2010-29 I.R.B. 83

2010-52, 2010-30 I.R.B. 88

2010-53, 2010-31 I.R.B. 182

2010-54, 2010-40 I.R.B. 403

2010-55, 2010-33 I.R.B. 253

2010-56, 2010-33 I.R.B. 254

2010-57, 2010-34 I.R.B. 267

2010-58, 2010-37 I.R.B. 326

2010-59, 2010-39 I.R.B. 396

2010-60, 2010-37 I.R.B. 329

Notices— Continued:

2010-61, 2010-40 I.R.B. 408

2010-62, 2010-40 I.R.B. 411

2010-63, 2010-41 I.R.B. 420

2010-64, 2010-41 I.R.B. 421

2010-65, 2010-41 I.R.B. 424

Proposed Regulations:

REG-139343-08, 2010-33 I.R.B. 256

REG-151605-09, 2010-31 I.R.B. 184

REG-112841-10, 2010-27 I.R.B. 41

REG-118412-10, 2010-29 I.R.B. 85

REG-119046-10, 2010-40 I.R.B. 415

REG-120391-10, 2010-35 I.R.B. 310

REG-120399-10, 2010-32 I.R.B. 239

Revenue Procedures:

2010-25, 2010-27 I.R.B. 16

2010-26, 2010-30 I.R.B. 91

2010-27, 2010-31 I.R.B. 183

2010-28, 2010-34 I.R.B. 270

2010-29, 2010-35 I.R.B. 309

2010-30, 2010-36 I.R.B. 316

2010-31, 2010-40 I.R.B. 413

2010-32, 2010-36 I.R.B. 320

2010-33, 2010-38 I.R.B. 347

2010-34, 2010-41 I.R.B. 426

Revenue Rulings:

2010-18, 2010-27 I.R.B. 1

2010-19, 2010-31 I.R.B. 174

2010-20, 2010-36 I.R.B. 312

2010-21, 2010-39 I.R.B. 388

2010-22, 2010-39 I.R.B. 388

2010-23, 2010-39 I.R.B. 388

2010-24, 2010-40 I.R.B. 400

Tax Conventions:

2010-48, 2010-32 I.R.B. 234

2010-52, 2010-36 I.R.B. 315

Treasury Decisions:

9486, 2010-27 I.R.B. 3

9487, 2010-28 I.R.B. 48

9488, 2010-28 I.R.B. 51

9489, 2010-29 I.R.B. 55

9490, 2010-31 I.R.B. 176

9491, 2010-32 I.R.B. 186

9492, 2010-33 I.R.B. 242

9493, 2010-35 I.R.B. 273

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2010–1 through 2010–26 is in Internal Revenue Bulletin2010–26, dated June 28, 2010.

October 12, 2010 ii 2010–41 I.R.B.

Finding List of Current Actions onPreviously Published Items1

Bulletins 2010–27 through 2010–41

Notices:

96-53

Modified by

Notice 2010-59, 2010-39 I.R.B. 396

2003-19

Revoked by

Notice 2010-53, 2010-31 I.R.B. 182

2004-2

Modified by

Notice 2010-59, 2010-39 I.R.B. 396

2004-50

Modified by

Notice 2010-59, 2010-39 I.R.B. 396

2005-90

Supplemented by

Notice 2010-65, 2010-41 I.R.B. 424

2006-69

Amplified by

Notice 2010-59, 2010-39 I.R.B. 396

2008-51

Modified by

Notice 2010-59, 2010-39 I.R.B. 396

2008-52

Modified by

Notice 2010-59, 2010-39 I.R.B. 396

2009-47

Obsoleted by

Rev. Proc. 2010-28, 2010-34 I.R.B. 270

2009-80

Corrected by

Ann. 2010-59, 2010-39 I.R.B. 399

2009-90

Superseded by

Notice 2010-54, 2010-40 I.R.B. 403

Proposed Regulations:

REG-115037-00

Withdrawn by

Ann. 2010-60, 2010-40 I.R.B. 417

REG-146893-02

Withdrawn by

Ann. 2010-60, 2010-40 I.R.B. 417

Revenue Procedures:

81-18

Obsoleted by

Rev. Proc. 2010-27, 2010-31 I.R.B. 183

Revenue Procedures— Continued:

2007-44

Modified by

Notice 2010-48, 2010-27 I.R.B. 9

2009-18

Obsoleted in part by

Rev. Proc. 2010-25, 2010-27 I.R.B. 16

2009-30

Superseded by

Rev. Proc. 2010-26, 2010-30 I.R.B. 91

2009-35

Superseded by

Rev. Proc. 2010-33, 2010-38 I.R.B. 347

2010-3

Modified by

Notice 2010-62, 2010-40 I.R.B. 411

Revenue Rulings:

2003-102

Obsoleted by

Rev. Rul. 2010-23, 2010-39 I.R.B. 388

Treasury Decisions:

9487

Corrected by

Ann. 2010-50, 2010-33 I.R.B. 260

1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2010–1 through 2010–26 is in Internal Revenue Bulletin 2010–26, dated June 28, 2010.

2010–41 I.R.B. iii October 12, 2010

October 12, 2010 2010–41 I.R.B.

2010–41 I.R.B. October 12, 2010

October 12, 2010 2010–41 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. Select Businesses. Under Businesses 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, wewould be pleased to hear from you. You can email 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