Bulletin No. 2012-9February 27, 2012

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

REG–109369–10, page 434.Proposed regulations under section 469 of the Code provideguidance regarding the definition of an “interest in a limitedpartnership as a limited partner” for purposes of determiningwhether a taxpayer materially participates in an activity.

Notice 2012–13, page 421.This notice provides guidance for employers that seek to claimthe Work Opportunity Tax Credit (WOTC) for hiring veterans.The notice also provides information on alternative methodsfor filing Form 8850 with the Department of Labor/DesignatedLocal Agencies. Announcement 2002–44 supplemented.

Notice 2012–15, page 424.This notice addresses the application of section 367 of theCode to transfers of stock subject to section 304.

EMPLOYEE PLANS

Notice 2012–16, page 427.Weighted average interest rate update; corporate bondindices; 30-year Treasury securities; segment rates.This notice contains updates for the corporate bond weightedaverage interest rate for plan years beginning in February2012; the 24-month average segment rates; the fundingtransitional segment rates applicable for February 2012; andthe minimum present value transitional rates for January 2012.

EMPLOYMENT TAX

Notice 2012–13, page 421.This notice provides guidance for employers that seek to claimthe Work Opportunity Tax Credit (WOTC) for hiring veterans.The notice also provides information on alternative methodsfor filing Form 8850 with the Department of Labor/DesignatedLocal Agencies. Announcement 2002–44 supplemented.

EXCISE TAX

Notice 2012–17, page 430.This notice answers to frequently asked questions from em-ployers regarding certain provisions of the Patient Protectionand Affordable Care Act, specifically the provisions dealing withautomatic enrollment, employer shared responsibility and wait-ing periods.

Finding Lists begin on page ii.Index for January through February begins on page iv.

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.

February 27, 2012 2012–9 I.R.B.

Part III. Administrative, Procedural, and MiscellaneousWork Opportunity Tax Credit

Notice 2012–13

I. PURPOSE

This notice provides guidance on Re-turning Heroes and Wounded WarriorsWork Opportunity Tax Credits, includedas § 261 of the VOW to Hire Heroes Actof 2011, Tit. II, subtitle D, of Pub. L. No.112–056 (Act), enacted on November 21,2011. Section 261 of the Act amended§§ 51, 52, and 3111 of the Internal Rev-enue Code to provide a credit for hiringcertain qualified veterans. This noticealso provides employers who hire quali-fied veterans additional time beyond the28-day deadline in § 51(d)(13) for sub-mitting Form 8850, Pre-screening Noticeand Certification Request for the WorkOpportunity Credit, to Designated LocalAgencies (DLAs)

This notice provides additional guid-ance on electronic signature and electronicsubmission of Form 8850 and also informsall employers that the Internal RevenueService (IRS) will allow the signature andsubmission of Form 8850 by facsimile toDLAs that choose to accept such submis-sions.

This notice also requests comments onalternative methods for certification of aveteran as a qualified veteran described inclause (ii)(II), (iii), or (iv) of § 51(d)(3)(A),

II. BACKGROUND

Section 51 provides for a Work Oppor-tunity Tax Credit (WOTC) for employerswho hire individuals who are members oftargeted groups. An employer must obtaincertification that an individual is a targetedgroup member before the employer mayclaim the credit. Certification of an indi-vidual’s targeted group status is obtainedfrom a DLA. A DLA is a State employ-ment security agency established in accor-dance with 29 U.S.C. §§ 49–49n. An em-ployer must submit Form 8850 to the DLAnot later than the 28th day after the individ-ual begins work for the employer.

The WOTC applies to certain wagespaid or incurred by employers with respectto a member of a targeted group. Prior toenactment of the Act, § 51(c)(4)(B) pro-

vided that wages paid or incurred with re-spect to an individual who begins work forthe employer after December 31, 2011, arenot taken into account for purposes of theWOTC. Thus, the credit is not availablewith respect to wages for persons who be-gin work after December 31, 2011, otherthan qualified veterans. The Act extendedthe credit only with respect to qualifiedveterans who begin work for the employeron or before December 31, 2012.

The Act amends § 51(d)(3) to add twonew categories to the qualified veteran tar-geted group. Under new § 51(d)(3)(A)(iii)and (iv), a qualified veteran is a veterancertified as having aggregate periods ofunemployment of at least 4 weeks but lessthan 6 months in the year prior to beinghired or certified as having aggregate peri-ods of unemployment of 6 months or morein the year prior to being hired.

The amount of wages that an employermay take into account in computing thecredit differs for the various categoriesof qualified veterans. The Act amends§ 51(b)(3), which provides the amount ofqualified wages that an employer may takeinto account in calculating the WOTC.Section 51(b)(3), as amended, providesthat the amount of qualified wages takeninto account is limited to $6,000 per yearin the case of any individual who is aqualified veteran by reason of subsection(d)(3)(A)(i) (a veteran certified as being amember of a family receiving assistanceunder a supplemental nutrition assistanceprogram under the Food and NutritionAct of 2008 for at least a 3-month pe-riod ending during the 12-month periodending on the hiring date) and subsection(d)(3)(A)(iii) (a veteran certified as havingaggregate periods of unemployment of atleast 4 weeks but less than 6 months inthe year prior to being hired); $12,000 peryear in the case of any individual who is aqualified veteran by reason of subsection(d)(3)(A)(ii)(I) (a disabled veteran whois certified as having a hiring date whichis not more than 1 year after dischargeor release from active duty); $14,000 peryear in the case of any individual who is aqualified veteran by reason of subsection(d)(3)(A)(iv) (a veteran certified as havingaggregate periods of unemployment of 6months or more in the year prior to being

hired); and $24,000 per year in the case ofany individual who is a qualified veteranby reason of subsection (d)(3)(A)(ii)(II) (adisabled veteran who is certified as havingaggregate periods of unemployment of 6months or more in the year prior to beinghired).

The Act amends § 51(d)(13)(D) to pro-vide that a veteran will be treated as beingcertified as having the requisite aggregateperiod of unemployment by the DLA if theveteran is certified as being in receipt ofunemployment compensation for the ap-plicable period. The Act also allows theSecretary of the Treasury to provide, at theSecretary’s discretion, alternative methodsfor certification of a veteran as a qualifiedveteran described in clause (ii)(II), (iii), or(iv) of § 51(d)(3)(A).

The Act amends § 51(c)(4)(B) to extendthe credit and allow an employer to claimthe WOTC for qualified wages paid or in-curred by the employer to a qualified vet-eran who begins work on or before Decem-ber 31, 2012.

The Act also amends § 52 and § 3111to make a credit available to “qualifiedtax-exempt organizations” that hire qual-ified veterans for which the WOTC wouldhave been allowable under § 51 if the or-ganization were not a qualified tax-exemptorganization. Specifically, the Act addsnew § 3111(e), which permits qualifiedtax-exempt organizations that hire quali-fied veterans on or after November 22,2011, to claim a credit against the em-ployer share of social security tax imposedunder § 3111(a).

The credit under § 3111(e)(1) is a creditagainst the tax imposed by § 3111(a) onwages paid by the qualified tax-exempt or-ganization with respect to employment ofall employees of the organization duringthe applicable period. Section 3111(e)(4)defines the “applicable period” as the1-year period beginning with the day thequalified veteran begins work for the or-ganization. The amount of the credit under§ 3111(e) equals the amount of the creditdetermined under § 51 (after applicationof the modifications under § 3111(e)(3))with respect to wages paid to the quali-fied veteran during the applicable period.However, under § 3111(e)(2), the aggre-gate amount allowed as a credit under

2012–9 I.R.B. 421 February 27, 2012

§ 3111(e) for all qualified veterans for anyperiod with respect to which tax is im-posed under § 3111(a) cannot exceed theamount of the employer social security taximposed by § 3111(a) on all wages paidby the employer during such period.

As indicated above, the amount of thecredit under § 3111(e) is determined under§ 51 but is subject to modifications under§ 3111(e)(3). Specifically, § 3111(e)(3)modifies the amount of the credit availableto the qualified tax-exempt organization to16.25 percent (rather than 25 percent) ofthe qualified first-year wages for the ap-plicable period if the veteran performs lessthan 400 hours but at least 120 hours of ser-vice, or 26 percent (rather than 40 percent)of the qualified first-year wages for the ap-plicable period if the veteran performs atleast 400 hours of service for the qualifiedtax-exempt organization. Further, to cal-culate the amount of the credit, the qual-ified tax-exempt organization only takesinto account the wages paid to a quali-fied veteran for services in furtherance ofactivities related to the purpose or func-tion constituting the basis of the organi-zation’s exemption under § 501. For ex-ample, wages for services in an unrelatedtrade or business (as defined in § 513) arenot counted for purposes of the credit. Al-though wages are defined for purposes ofthe WOTC under § 51 as wages under theFederal Unemployment Tax Act, for pur-poses of the credit available to qualifiedtax-exempt organizations under § 3111(e),the term “wages” refers to wages under theFederal Insurance Contributions Act.

New § 3111(e)(5)(A) defines “quali-fied tax-exempt organization” as an em-ployer that is an organization described in§ 501(c) and exempt from taxation under§ 501(a). Accordingly, an employer thatis an agency or instrumentality of the fed-eral government, or of a state, local, or In-dian tribal government, is not a qualifiedtax-exempt organization unless it is an or-ganization described in § 501(c) that is ex-empt from tax under § 501(a).

The requirements for certification un-der § 51, as amended by the Act, applyto qualified tax-exempt organizations aswell as to taxable employers. Accordingly,a qualified tax-exempt organization mustobtain certification, as required under § 51,that an individual is a qualified veteran be-fore it may claim the credit. The transi-tion relief, guidance on filing Forms 8850

with electronic signatures, and allowanceof signature and submission of Form 8850by facsimile provided for in this notice ap-ply to all employers, including qualifiedtax-exempt organizations.

III. TRANSITION RELIEF

Section 51(d)(13)(A) provides that anindividual shall not be treated as a mem-ber of a targeted group unless (1) on orbefore the day the individual begins work,the employer obtains certification from theDLA that the individual is a member of atargeted group; or (2) the employer com-pletes a pre-screening notice (Form 8850)on or before the day the individual is of-fered employment and submits such noticeto the DLA to request certification not laterthan 28 days after the individual beginswork. Because the credit, as amended, be-came effective on the day after enactment,the Treasury Department and the IRS be-lieve it is appropriate to provide employ-ers with additional time to file Form 8850with a DLA. Accordingly, any employerwho hires any qualified veteran describedin § 51(d)(3) on or after November 22,2011, and before May 22, 2012, will beconsidered to satisfy the requirements of§ 51(d)(13)(A)(ii) if the employer submitsthe completed pre-screening notice to theDLA to request certification not later thanJune 19, 2012.

IV. FILING OF FORM 8850 WITHELECTRONIC SIGNATURES

Before any employer may claim theWOTC for hiring any member of a targetedgroup (or, for qualified tax-exempt orga-nizations, the § 3111(e) credit for hiring aqualified veteran), that individual must becertified by the DLA as a member of a tar-geted group. Section 51(d)(13)(A)(ii)(II)requires that, not later than the 28th dayafter the individual begins work for theemployer, the employer submit a notice,signed by the employer and the individualunder penalties of perjury, to the DLA aspart of a written request for certification.For purposes of this Section IV, “em-ployer” refers to any employer requiredto submit a Form 8850 in order to obtainthe WOTC under § 51 or the equivalentcredit under § 3111(e), or an authorizedrepresentative of such an employer.

Employers may submit Form 8850 tothe DLA electronically if the employer’s

system satisfies the requirements in Ann.2002–44, 2002–1 C.B. 809. This noticemakes available to employers two alter-native methods of certification using elec-tronic signatures in addition to the elec-tronic submission of Form 8850 as pro-vided in Ann. 2002–44. The alternativemethods are available to any employer re-quired to submit a Form 8850 in order toobtain the WOTC for any member of anytargeted group under § 51 or the equivalentcredit under § 3111(e).

First, an employer may print out a pa-per copy of the Form 8850 that was signedelectronically by both the applicant and theemployer in accordance with the require-ments of Ann. 2002–44, and transmit thatpaper copy to the DLA (by mail or by fac-simile following the rules in Section V ofthis notice).

Second, an employer may file Form8850 using a method under which theapplicant signs electronically but the em-ployer signs in ink. More specifically, theapplicant signs Form 8850 electronicallyand the Form 8850 is transmitted electron-ically to the employer in accordance withthe requirements detailed below. Oncereceived and printed out, the paper copyof the Form 8850 shows “signed elec-tronically” in the field for the applicant’ssignature. The employer signs that papercopy of that Form 8850 in ink, complyingwith the signature and jurat requirementson Form 8850 and the Form 8850 instruc-tions for the paper copy of Form 8850, andtransmits that paper copy to the DLA (bymail or by facsimile following the rulesin Section V of this notice). Under thissecond alternative method, the employermust satisfy all five of the following re-quirements with respect to the Form 8850that is electronically signed by the appli-cant:

(i) In General. The electronic systemmust ensure that the information receivedis the information sent, and it must doc-ument all occasions of access that resultin the transmission of a Form 8850. Inaddition, the design and operation of theelectronic system, including access pro-cedures, must make it reasonably certainthat the applicant signing the Form 8850,accessing the system, and submitting theForm 8850 is the applicant identified in theform.

(ii) Same Information as Paper Form8850. The electronically signed Form

February 27, 2012 422 2012–9 I.R.B.

8850 must provide the DLA with exactlythe same information as the paper Form8850.

(iii) Jurat and Signature Requirements.The Form 8850 must be signed electron-ically by the applicant under penalties ofperjury.

(A) Jurat. The jurat (perjury statement)must contain the language that appears onthe paper Form 8850 for the applicant. Theelectronic system must inform the appli-cant that he or she must make the declara-tion contained in the jurat and that the dec-laration is made by signing the Form 8850.The instructions and the language of the ju-rat must immediately follow the informa-tion provided by the applicant, and mustimmediately precede the applicant’s elec-tronic signature.

(B) Electronic Signature. The elec-tronic signature must (1) identify the appli-cant whose name is on the Form 8850 andthe employer submitting the Form 8850,and (2) authenticate and verify the form.For this purpose, the terms “authenticate”and “verify” have the same meaning asthey do when applied to a written signa-ture on a paper Form 8850. An electronicsignature can be in any form that satisfiesthe foregoing requirements.

(iv) Copies of Form 8850. The em-ployer must be able to supply and, uponrequest by the IRS, the employer must sup-ply (1) a paper copy of the Form 8850 sub-mitted to the DLA, and (2) a statement that,to the best of the employer’s knowledge,the Form 8850 was submitted by the em-ployer with respect to the named applicant.The paper copy of the electronically signedForm 8850 must provide exactly the sameinformation as, but need not be a facsimileof, the paper Form 8850.

(v) Retention of Forms 8850 by theDLAs and Employers. Forms 8850 withan applicant’s electronic signature havethe same status as paper Forms 8850.Therefore, guidance that applies to paperForms 8850 also applies to these Forms8850. For example, as is the case for paperForms 8850, electronic Forms 8850 arerequired to be retained by employers undertheir established record-keeping systems.For further information, see Rev. Proc.98–25, 1998–1 C.B. 689, on informationregarding the retention of records withinan Automatic Data Processing System.

V. ALTERNATIVE METHOD OFFILING OR SIGNING FORM8850—FILING OR SIGNING BYFACSIMILE

In addition to the electronic signaturemethod of filing Form 8850 described inSection IV, the IRS will also allow the fac-simile transmission of applicant and em-ployer signatures on a Form 8850 if the ap-plicable DLA accepts Form 8850 via fac-simile, the applicant and employer intendthe signatures on the faxed copy to be theirsignatures for purposes of the document,and the requirements of paragraphs (1) and(2) below are satisfied:

(1) Same Information as Paper Form8850. The facsimile submission is a re-production of Form 8850 that provides theDLA with exactly the same information asthe paper Form 8850.

(2) Signature and Transmission Re-quirements. The Form 8850 is signedby the applicant and the employer, underpenalties of perjury, and transmitted to theDLA in the following manner:

(i) An original Form 8850 is completedin paper copy and then signed in ink by theapplicant;

(ii) The original Form 8850, signed bythe applicant, is delivered to the employereither in person or by facsimile;

(iii) The employer signs in ink either thepaper copy of Form 8850 that was signedby the applicant or the facsimile of thatpaper copy; and

(iv) The employer mails or faxes thesigned Form 8850 to the DLA within thetime prescribed by § 51(d)(13)(A)(ii) (orwithin the period authorized under SectionIII of this notice).

For purposes of this Section V, “em-ployer” refers to any employer required tosubmit a Form 8850 in order to obtain theWOTC for any member of any targetedgroup under § 51 or the equivalent creditunder § 3111(e), or an authorized represen-tative of such an employer.

VI. GUIDANCE FOR TAX-EXEMPTORGANIZATIONS

Qualified tax-exempt organizations en-titled to a credit under § 3111(e) must useForm 5884–C, Work Opportunity Creditfor Qualified Tax-Exempt OrganizationsHiring Qualified Veterans, to claim thecredit. Although the credit under § 3111(e)

is applied against the employer social se-curity tax liability for the employmenttax period in which the credit is claimed,the liability reported on the qualifiedtax-exempt organization’s employmenttax return (e.g., Form 941) is not reducedwhen that return is filed. Rather, the IRSwill process Form 5884–C separately andrefund the amount properly claimed onForm 5884–C to the qualified tax-ex-empt organization, subject to the limit ofthe amount of employer social securitytax liability for the period in which thecredit is claimed. Because Form 5884–Cwill generally not be processed simul-taneously with the qualified tax-exemptorganization’s employment tax return, itis recommended that qualified tax-exemptorganizations not reduce their requireddeposits in anticipation of any credit. Aqualified tax-exempt organization thatreduces its required employment tax de-posits in anticipation of a credit under§ 3111(e) may receive a system-generatednotice; however, the balance due, includ-ing any related penalties and interest,resulting from the reduction in deposits toreflect the credit under § 3111(e), will beabated when the credit is applied, gener-ally without any taxpayer action.

Form 5884–C is filed separately andshould not be attached to any other returnfiled by the qualified tax-exempt organiza-tion. Form 5884–C should be filed afterthe qualified tax-exempt organization filesits employment tax return for the tax pe-riod for which the credit is claimed and inaccordance with the Form 5884–C instruc-tions. Form 5884–C can be filed immedi-ately after the qualified tax-exempt organ-ization files its employment tax return andit must be filed within 2 years from thedate the tax reported on the employmenttax return was paid, or 3 years from thedate the employment tax return was filed,whichever is later.

The qualified tax-exempt organizationusing Form 5884–C must calculate thecumulative credit to which the qualifiedtax-exempt organization is entitled under§ 3111(e) for all qualified veterans hired onor after November 22, 2011. The qualifiedtax-exempt organization must reduce thecumulative credit by any credits claimedon any Forms 5884–C filed for prior taxperiods. The amount refunded will belimited to the amount of employer socialsecurity tax reported on the employment

2012–9 I.R.B. 423 February 27, 2012

tax return filed by the qualified tax-ex-empt organization for the employment taxperiod for which the credit is claimed.Any excess credit (i.e., any credit thatexceeds the employer social security taxfor the period the credit is claimed) maybe carried forward and will be includedin the qualified tax-exempt organization’scumulative calculation on Form 5884–Cfiled for a subsequent tax period to theextent provided in the instructions to Form5884–C.

VII. REQUEST FOR COMMENTS

The Treasury Department and the IRSrequest comments on alternative methodsfor certification of a veteran as a qualifiedveteran described in § 51(d)(3) in additionto the methods of signing and filing elec-tronically or by facsimile described in thisnotice. In particular, comments relatedto certification of a veteran as a qualifiedveteran described in clause (ii)(II), (iii), or(iv) of § 51(d)(3)(A) are requested. Com-ments are also requested on alternativemethods of filing Form 8850. Commentsmust be submitted by April 12, 2012. Allmaterials submitted will be available forpublic inspection and copying. Commentsshould be submitted to Internal Rev-enue Service, CC:PA:LPD:RU (Notice2012–13), Room 5203, PO Box 7604, BenFranklin Station, Washington, DC 20224.Submissions may also be hand-deliveredMonday through Friday between the hoursof 8 a.m. and 4 p.m. to the Courier’s Desk,1111 Constitution Avenue, NW, Washing-ton, DC 20224, Attn: CC:PA:LPD:RU(Notice 2012–13), Room 5203. Submis-sions may also be sent electronically viathe internet to the following email address:Notice.comments@irscounsel.treas.gov.Include the notice number (Notice2012–13) in the subject line.

VIII. EFFECT ON OTHERDOCUMENTS

This notice supplements Ann.2002–44, 2002–1 C.B. 809.

EFFECTIVE DATE

Amendments made to § 51, § 52, and§ 3111 by the Act are effective for individ-uals who begin work for the employer onor after November 22, 2011. As describedin Section III, any employer who hires any

qualified veteran described in § 51(d)(3)on or after November 22, 2011, and beforeMay 22, 2012, will be considered to sat-isfy the requirements of § 51(d)(13)(A)(ii)if the employer submits the completed pre-screening notice to the DLA to request cer-tification not later than June 19, 2012. Thealternative methods of signing and filingForms 8850, as described in Sections IVand V, are effective for Forms 8850 filedwith a DLA on or after March 10, 2012.

DRAFTING INFORMATION

The principal authors of this no-tice are Robin Ehrenberg and LigeiaDonis of the Office of DivisionCounsel/Associate Chief Counsel (TaxExempt and Government Entities). Forfurther information on the submission ofcomments or the comments submitted,contact Regina Johnson at (202) 622–7180(not a toll-free number). For furtherinformation regarding the WOTC forqualified veterans, electronic filing,and facsimile submissions, contactMs. Ehrenberg at (202) 622–6080 (not atoll-free number). For further informationon how to claim the WOTC on behalfof tax-exempt organizations, contactLigeia Donis at (202) 622–6040 (not atoll-free number).

Application of Section 367 toSection 304 Transactions

Notice 2012–15

SECTION 1. OVERVIEW

This notice provides guidance undersection 367(a) and (b) of the Internal Rev-enue Code (Code) in the case of certaintransfers of stock to foreign corporationsin exchange for property under section304. The Internal Revenue Service (IRS)and the Department of the Treasury (Trea-sury Department) will amend the regu-lations under section 367 to incorporatethe guidance described in this notice.The amendments to the regulations willapply to transfers occurring on or afterFebruary 10, 2012.

SECTION 2. BACKGROUND

.01 Section 367(a)

Section 367(a)(1) generally providesthat if a United States person transfersproperty to a foreign corporation in anexchange described in section 332, 351,354, 356, or 361, the foreign corpora-tion shall not be considered a corporationfor purposes of determining the extent towhich the United States person recognizesgain on such transfer. Section 367(a)(2)and (3) provide specific exceptions to thegeneral rule, and the Secretary has author-ity under section 367(a)(6) to promulgateregulations providing exceptions for othertransfers.

Section 1.367(a)–3 provides exceptionsto the general rule of section 367(a)(1)for certain transfers by a U.S. person ofstock or securities to a foreign corporation.In some cases, these exceptions requirethe U.S. person to file a gain recognitionagreement (GRA) and other related docu-ments under the provisions of § 1.367(a)–8(GRA regulations). The GRA regulationswere revised in 2009 (T.D. 9446, 2009–1C.B. 607) to provide further guidance,including examples addressing when aGRA needs to be filed, when it will betriggered, and when exceptions to thesetriggering events apply. The triggeringevent exceptions address distributions inredemption of stock, including by reasonof the application of section 304(a)(1).See § 1.367(a)–8(n)(1) and (q)(2), Exam-ple 14. The GRA regulations also includea general exception that, under certaincircumstances, applies to dispositions orother events not otherwise specificallyexcepted. See § 1.367(a)–8(k)(14).

.02 Section 367(b)

Section 367(b)(1) provides that in thecase of an exchange described in section332, 351, 354, 355, 356, or 361 in con-nection with which there is no transfer ofproperty described in section 367(a)(1), aforeign corporation shall be considered tobe a corporation except to the extent pro-vided in regulations prescribed by the Sec-retary which are necessary or appropriateto prevent the avoidance of Federal in-come taxes. Section 367(b)(2) providesthat the regulations prescribed pursuant tosection 367(b)(1) shall include (but shallnot be limited to) regulations dealing with

February 27, 2012 424 2012–9 I.R.B.

the sale or exchange of stock or securi-ties in a foreign corporation by a UnitedStates person, including regulations pro-viding the circumstances under which gainis recognized or deferred, amounts are in-cluded in gross income as a dividend, ad-justments are made to earnings and prof-its, or adjustments are made to the basis ofstock or securities.

Regulations under section 367(b) gen-erally provide that if the potential applica-tion of section 1248 cannot be preservedfollowing the acquisition of the stock orassets of a foreign corporation (foreign ac-quired corporation) by another foreign cor-poration in an exchange subject to section367(b), including an exchange describedin section 351, then certain exchangingshareholders of the foreign acquired cor-poration must include in income as a divi-dend the section 1248 amount (as definedin § 1.367(b)–2(c)) attributable to the stockof the foreign acquired corporation. See§ 1.367(b)–4(b).

.03 Section 304

Section 304(a)(1) generally providesthat, for purposes of sections 302 and 303,if one or more persons are in control ofeach of two corporations and in return forproperty one of the corporations (the ac-quiring corporation) acquires stock in theother corporation (the issuing corporation)from the person (or persons) so in control,then such property shall be treated as adistribution in redemption of the stock ofthe acquiring corporation. To the extentsection 301 applies to the distribution, thetransferor and the acquiring corporationare treated as if (1) the transferor trans-ferred the stock of the issuing corporationto the acquiring corporation in exchangefor stock of the acquiring corporation ina transaction to which section 351(a) ap-plies, and (2) the acquiring corporationthen redeemed the stock it is deemed tohave issued in the transaction.

.04 Application of Section 367 to Section304 Transactions

On February 21, 2006, the IRS and theTreasury Department issued final regula-tions (T.D. 9250, 2006–1 C.B. 588) pro-viding that section 367(a) and (b) shall notapply to certain transfers of stock of a for-eign or domestic corporation to a foreign

acquiring corporation to which section 351applies (deemed section 351 exchange) byreason of section 304(a)(1) (2006 regula-tions).

The preamble to the 2006 regulationsstated that the policies underlying sec-tion 367(a) and (b) are preserved evenif a deemed section 351 exchange is notsubject to section 367(a) and (b) becausegenerally the income recognized by thetransferor in the transaction (dividendincome, capital gain, or both) shouldequal or exceed the built-in gain in thetransferred stock. The preamble furtherexplained that the application of section367 to deemed section 351 exchanges re-sults in complexity and uncertainty.

Comments were received, however,stating that the transferor may not recog-nize income equal to or greater than thebuilt-in gain in the transferred stock if,under section 301(c)(2), the transferor ispermitted to recover the basis of sharesof the foreign acquiring corporation heldbefore (and after) the transaction. In re-sponse to these comments, temporary reg-ulations were published on February 11,2009 (T.D. 9444, 2009–1 C.B. 603)(2009 regulations), which modified thetreatment of section 304 transactionsprovided by the 2006 regulations. The2009 regulations retain the general rulethat the deemed section 351 exchange willnot be a transfer to a foreign corporationsubject to section 367(a). However, the2009 regulations provide an exceptionif a U.S. person reduces its basis undersection 301(c)(2), in whole or in part, in itsstock of the foreign acquiring corporationother than the stock deemed issued to theU.S. person in the deemed section 351exchange. In such case, the U.S. personrecognizes gain under section 367(a)(1)equal to the amount by which the gainrealized by the U.S. person exceeds theamount of the distribution that is treatedas a dividend under section 301(c)(1)and included in gross income of the U.S.person. Furthermore, the 2009 regulationsprovide that a U.S. person cannot avoidsuch gain by entering into a GRA.

The 2009 regulations made similar revi-sions to the 2006 regulations under section367(b). Specifically, the 2009 regulationsprovide that § 1.367(b)–4(b) applies toa deemed section 351 exchange only tothe extent the distribution received by the

exchanging shareholder in redemption ofthe stock deemed issued by the foreignacquiring corporation is applied againstand reduces, pursuant to section 301(c)(2),the basis of stock of the foreign acquir-ing corporation held by the exchangingshareholder other than the stock deemedissued to the exchanging shareholder inthe deemed section 351 exchange.

.05 Section 1248(a)

Section 1248(a) generally provides thatif a U.S. person that satisfies certain own-ership requirements sells or exchangesstock in a controlled foreign corporation(or a foreign corporation that was a con-trolled foreign corporation within the pastfive years), then the gain recognized onthe sale or exchange is included in grossincome of such person as a dividend tothe extent of the earnings and profits ofthe foreign corporation (and in certaincases, earnings and profits of foreign sub-sidiaries of such foreign corporation) thatare attributable to such stock. The 2009regulations provide that for purposes ofsection 1248(a), gain recognized by ashareholder under section 301(c)(3) inconnection with a distribution of propertyby a foreign corporation with respect toits stock is treated as gain from the sale orexchange of stock of such corporation.

SECTION 3. REVISED APPROACH TOSECTION 304 TRANSACTIONS

After consideration of the comments re-ceived and the underlying policies of sec-tion 367(a) and (b), the IRS and the Trea-sury Department believe that the amountof income taken into account as a result ofa section 304 distribution generally shouldnot affect the application of section 367 tothe deemed section 351 exchange. Fur-thermore, in the case of a transfer of stockby a U.S. person to a foreign corporation,the revised GRA regulations should sub-stantially reduce the complexity and uncer-tainty resulting from the filing of a GRAin connection with a deemed section 351exchange. Accordingly, the IRS and theTreasury Department believe it is appro-priate to revise the approach to the inter-action of sections 367 and 304 under the2006 regulations and 2009 regulations byproviding that section 367(a) and (b) applyfully to the deemed section 351 exchange.

2012–9 I.R.B. 425 February 27, 2012

SECTION 4. APPLICATION OFSECTION 367 TO SECTION 304TRANSACTIONS

The IRS and the Treasury Departmentwill amend the section 367 regulations toprovide that the section 351 exchange thatis deemed to occur in a section 304 trans-action is subject to section 367(a) and (b)in the manner described below.

.01 Application of Section 367(a)

To the extent that, pursuant to sec-tion 304(a)(1), a U.S. person is treated astransferring stock of a domestic or foreigncorporation to a foreign corporation (for-eign acquiring corporation) in a deemedsection 351 exchange, the transfer is sub-ject to section 367(a) and the regulationsthereunder, including the exceptions de-scribed in § 1.367(a)–3(b)(1) and (c)(1),as applicable. Thus, a transferor in a sec-tion 304 transaction that is a U.S. personmay, in certain cases, be permitted to enterinto a GRA pursuant to § 1.367(a)–8 toavoid the recognition of gain under section367(a)(1).

If the U.S. person (referred to in theGRA regulations as the U.S. transferor)enters into a GRA with respect to a deemedsection 351 exchange, the deemed redemp-tion of the stock of the foreign acquiringcorporation deemed issued to the U.S. per-son pursuant to section 304(a)(1) consti-tutes a disposition of the transferee for-eign corporation stock under § 1.367(a)–8.See § 1.367(a)–8(b)(1)(iii) and (n)(1). Asa result, the deemed redemption is gen-erally treated as a triggering event withinthe meaning of § 1.367(a)–8(j). However,consistent with the redemption rules pro-vided in § 1.367(a)–8(n)(1), the redemp-tion will not be treated as a triggering eventif the U.S. person that transfers the stockin the deemed section 351 exchange (or aU.S. person that is treated as a successorU.S. transferor as a result of the deemedredemption) enters into a new GRA thatincludes appropriate provisions to accountfor the redemption, provided the principlesof § 1.367(a)–8(k)(14)(ii) and (iii) are sat-isfied. Generally, the requirement to filean initial GRA for the deemed section 351exchange and a new GRA by reason of thedeemed redemption will be satisfied if theU.S. person that transfers the stock in thedeemed section 351 exchange files a single

GRA with respect to the entire section 304transaction. See § 1.367(a)–8(d)(2)(ii).

.02 Application of Section 367(b)

To the extent that, pursuant to section304(a)(1), a foreign corporation (foreignacquiring corporation) acquires the stockof a foreign corporation in a deemedsection 351 exchange, such exchange issubject to section 367(b) and the regula-tions thereunder, including § 1.367(b)–4.Thus, for example, if a deemed section351 exchange results in the loss of statusas a section 1248 shareholder as providedin § 1.367(b)–4(b)(1)(i), the exchangingshareholder must include in income as adeemed dividend the section 1248 amountattributable to the foreign stock that istransferred in the deemed section 351 ex-change.

.03 Example

Example. (i) Facts. USP, a domestic corporation,owns all of the outstanding stock of FT and FA, eacha foreign corporation. USP’s tax basis in the FT stockis $50x, and the FT stock has a fair market value of$100x. The section 1248 amount (within the mean-ing of § 1.367(b)–2(c)) with respect to the FT stockis $10x. FA has earnings and profits of $200x, allof which are available for distribution taking into ac-count section 304(b)(5). In a transaction to whichsection 304(a)(1) applies, USP transfers all of its FTstock to FA in exchange for $100x cash.

(ii) Application of section 304(a)(1). Under sec-tion 304(a)(1), USP and FA are treated as if USPtransferred its FT stock to FA in a section 351(a) ex-change solely for FA stock, and then FA redeemed itsdeemed issued stock in exchange for the cash. Theredemption of the FA stock deemed issued by FA toUSP is treated as a distribution to which section 301applies. The entire distribution is treated under sec-tion 301(c)(1) as a dividend (as defined in section316) out of the earnings and profits of FA.

(iii) Application of section 367(a). Under sec-tion 4.01 of this notice, § 1.367(a)–3(b) applies toUSP’s transfer of the FT stock to FA in exchangefor FA stock. As a result, USP recognizes gain onthe transfer under section 367(a)(1) unless USP en-ters into a GRA with respect to the transfer pursuantto § 1.367(a)–3(b)(1)(ii) and § 1.367(a)–8. How-ever, the deemed redemption by FA of the stock itis deemed to issue to USP would constitute a trig-gering event with respect to such GRA as describedin § 1.367(a)–8(j). The redemption will not consti-tute a triggering event, however, if USP enters into anew GRA that includes appropriate provisions to ac-count for the redemption and that is consistent withthe principles of § 1.367(a)–8(k)(14)(ii) and (iii). Af-ter the redemption, USP owns at least 5% of the totalvoting power and the total value of the outstandingstock of FA. Thus, if USP enters into a new GRA thatsatisfies the requirements of § 1.367(a)–8(k)(14)(iii),the deemed redemption will not constitute a trigger-ing event. In this case, the requirement that an initial

GRA be filed for the deemed section 351 exchangeand a new GRA be filed by reason of the deemed re-demption will be satisfied if USP files a single GRApursuant to § 1.367(a)–8(d)(2)(ii).

(iv) Application of section 367(b). Under sec-tion 4.02 of this notice, § 1.367(b)–4 applies toUSP’s transfer of the FT stock to FA in exchangefor FA stock. Under § 1.367(b)–2(a) and (b), USPis a section 1248 shareholder with respect to FT, acontrolled foreign corporation, immediately beforethe exchange. Section 1.367(b)–4(b)(1)(i) does notapply to require USP to include in income the $10xsection 1248 amount with respect to the FT stockbecause each of FA and FT is a controlled foreigncorporation as to which USP is a section 1248 share-holder immediately after the exchange.

SECTION 5. FINALIZATION OFTHE 2009 REGULATIONS UNDERSECTION 1248

The IRS and the Treasury Departmentwill finalize the portions of the 2009 reg-ulations that address the application ofsection 1248 to gain recognized with re-spect to stock upon distributions, includinggain under section 301(c)(3), in separatepublished guidance effective February 10,2009.

SECTION 6. EFFECTIVE DATE

The regulations described in this no-tice shall apply to section 304 transactionsoccurring on or after February 10, 2012.Pending the issuance of the regulations de-scribed in this notice, the IRS will notchallenge reasonable interpretations of theapplication of section 367(a) and (b) todeemed section 351 exchanges and relateddeemed redemptions completed on or afterFebruary 10, 2012, including reasonableinterpretations of the GRA rules as appliedto such deemed section 351 exchanges anddeemed redemptions under the principlesof § 1.367(a)–8(k)(14)(ii) and (iii).

SECTION 7. COMMENTS

The IRS and the Treasury Departmentrequest comments on the regulations to beissued under this notice.

SECTION 8. PAPERWORKREDUCTION ACT

The collections of information in thisnotice were previously reviewed and ap-proved by the Office of Managementand Budget in connection with Trea-sury Decision 9446 in accordance withthe Paperwork Reduction Act of 1995

February 27, 2012 426 2012–9 I.R.B.

(44 U.S.C. 3507(d)) under control number1545–2056.

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

The collections of information are insections 4.01 and 4.02 of this notice. Re-sponses to the collections of informationare required to avoid recognizing gain un-der section 367, including under an ex-isting gain recognition agreement, and tofacilitate electronic filing. The likely re-spondents are large corporations.

The estimated burden will change asfollows:

The estimated total annual reportingburden will increase by 100 hours.

The estimated annual burden per re-spondent remains 2 hours. The estimatednumber of respondents will increase by 50.

The estimated annual frequency of re-sponses remains once per year.

Books and records relating to these col-lections of information must be retained aslong as their contents may become mate-rial in the administration of any internalrevenue law. Generally, tax returns and taxreturn information are confidential, as re-quired by 26 U.S.C. 6103.

SECTION 9. DRAFTINGINFORMATION

The principal author of this notice isRyan A. Bowen of the Office of AssociateChief Counsel (International). However,other personnel from the IRS and the

Treasury Department participated in itsdevelopment. For further informationregarding this notice, contact Mr. Bowenat (202) 622–3860 (not a toll-free call).

Update for Weighted AverageInterest Rates, Yield Curves,and Segment Rates

Notice 2012–16

This notice provides guidance as to thecorporate bond weighted average interestrate and the permissible range of interestrates specified under § 412(b)(5)(B)(ii)(II)of the Internal Revenue Code as in ef-fect for plan years beginning before 2008.It also provides guidance on the cor-porate bond monthly yield curve (andthe corresponding spot segment rates),and the 24-month average segment ratesunder § 430(h)(2). In addition, this no-tice provides guidance as to the interestrate on 30-year Treasury securities un-der § 417(e)(3)(A)(ii)(II) as in effect forplan years beginning before 2008, the30-year Treasury weighted average rateunder § 431(c)(6)(E)(ii)(I), and the min-imum present value segment rates under§ 417(e)(3)(D) as in effect for plan yearsbeginning after 2007.

CORPORATE BOND WEIGHTEDAVERAGE INTEREST RATE

Sections 412(b)(5)(B)(ii) and412(l)(7)(C)(i), as amended by the Pen-sion Funding Equity Act of 2004 and by

the Pension Protection Act of 2006 (PPA),provide that the interest rates used to cal-culate current liability and to determinethe required contribution under § 412(l)for plan years beginning in 2004 through2007 must be within a permissible rangebased on the weighted average of the ratesof interest on amounts invested conser-vatively in long term investment gradecorporate bonds during the 4-year periodending on the last day before the beginningof the plan year.

Notice 2004–34, 2004–1 C.B. 848, pro-vides guidelines for determining the cor-porate bond weighted average interest rateand the resulting permissible range of in-terest rates used to calculate current liabil-ity. That notice establishes that the corpo-rate bond weighted average is based on themonthly composite corporate bond rate de-rived from designated corporate bond in-dices. The methodology for determiningthe monthly composite corporate bond rateas set forth in Notice 2004–34 continues toapply in determining that rate. See Notice2006–75, 2006–2 C.B. 366.

The composite corporate bond rate forJanuary 2012 is 4.56 percent. Pursuantto Notice 2004–34, the Service has de-termined this rate as the average of themonthly yields for the included corporatebond indices for that month.

The following corporate bond weightedaverage interest rate was determined forplan years beginning in the month shownbelow.

For Plan YearsBeginning in Permissible Range

Month Year

CorporateBond Weighted

Average 90% to 100%

February 2012 5.67 5.10 5.67

YIELD CURVE AND SEGMENTRATES

Generally for plan years beginningafter 2007 (except for delayed effectivedates for certain plans under sections 104,105, and 106 of PPA), § 430 of the Codespecifies the minimum funding require-ments that apply to single employer planspursuant to § 412. Section 430(h)(2) spec-ifies the interest rates that must be usedto determine a plan’s target normal cost

and funding target. Under this provision,present value is generally determined us-ing three 24-month average interest rates(“segment rates”), each of which appliesto cash flows during specified periods.However, an election may be made under§ 430(h)(2)(D)(ii) to use the monthly yieldcurve in place of the segment rates. Sec-tion 430(h)(2)G) set forth a transitionalrule applicable to plan years beginning in2008 and 2009 under which the segment

rates were blended with the corporate bondweighted average described above, includ-ing an election under § 430(h)(2)(G)(iv)for an employer to use the segment rateswithout the transitional rule.

Notice 2007–81, 2007–2 C.B. 899,provides guidelines for determining themonthly corporate bond yield curve, andthe 24-month average corporate bondsegment rates used to compute the tar-get normal cost and the funding target.

2012–9 I.R.B. 427 February 27, 2012

Pursuant to Notice 2007–81, the monthlycorporate bond yield curve derived fromJanuary 2012 data is in Table I at the end

of this notice. The spot first, second, andthird segment rates for the month of Jan-uary 2012 are, respectively, 1.84, 4.36,

and 5.19. The three 24-month averagecorporate bond segment rates applicablefor February 2012 are as follows:

FirstSegment

SecondSegment

ThirdSegment

1.96 5.01 6.13

The transitional rule of § 430(h)(2)(G)does not apply to plan years beginningafter December 31, 2009. Therefore, for aplan year beginning after 2009 with a look-back month to February 2012, the fundingsegment rates are the three 24-monthaverage corporate bond segment rates ap-plicable for February 2012, listed abovewithout blending for any transitional pe-riod.

30-YEAR TREASURY SECURITIESINTEREST RATES

Section 417(e)(3)(A)(ii)(II) (prior toamendment by PPA) defines the appli-cable interest rate, which must be usedfor purposes of determining the minimumpresent value of a participant’s benefitunder § 417(e)(1) and (2), as the annual

rate of interest on 30-year Treasury se-curities for the month before the dateof distribution or such other time as theSecretary may by regulations prescribe.Section 1.417(e)–1(d)(3) of the IncomeTax Regulations provides that the applica-ble interest rate for a month is the annualrate of interest on 30-year Treasury secu-rities as specified by the Commissionerfor that month in revenue rulings, noticesor other guidance published in the InternalRevenue Bulletin.

The rate of interest on 30-year Treasurysecurities for January 2012 is 3.03 percent.The Service has determined this rate asthe average of the daily determinations ofyield on the 30-year Treasury bond matur-ing in November 2041.

Generally for plan years beginningafter 2007, § 431 specifies the mini-

mum funding requirements that apply tomultiemployer plans pursuant to § 412.Section 431(c)(6)(B) specifies a minimumamount for the full-funding limitationdescribed in section 431(c)(6)(A), basedon the plan’s current liability. Section431(c)(6)(E)(ii)(I) provides that the inter-est rate used to calculate current liabilityfor this purpose must be no more than 5percent above and no more than 10 percentbelow the weighted average of the rates ofinterest on 30-year Treasury securities dur-ing the four-year period ending on the lastday before the beginning of the plan year.Notice 88–73, 1988–2 C.B. 383, providesguidelines for determining the weightedaverage interest rate. The following rateswere determined for plan years beginningin the month shown below.

For Plan YearsBeginning in Permissible Range

Month Year

30-YearTreasuryWeightedAverage 90% to 105%

February 2012 4.04 3.64 4.25

MINIMUM PRESENT VALUESEGMENT RATES

Generally for plan years beginning af-ter December 31, 2007, the applicable in-terest rates under § 417(e)(3)(D) are seg-ment rates computed without regard to a

24-month average. For plan years begin-ning in 2008 through 2011, the applica-ble interest rates are the monthly spot seg-ment rates blended with the applicable rateunder § 417(e)(3)(A)(ii)(II) as in effectfor plan years beginning in 2007. Notice2007–81 provides guidelines for determin-

ing the minimum present value segmentrates. Pursuant to that notice, the min-imum present value transitional segmentrates determined for January 2012, tak-ing into account the January 2012 30-yearTreasury rate of 3.03 stated above, are asfollows:

For Plan YearsBeginning in

FirstSegment

SecondSegment

ThirdSegment

2011 2.08 4.09 4.762012 1.84 4.36 5.19

DRAFTING INFORMATION

The principal author of this notice isTony Montanaro of the Employee Plans,

Tax Exempt and Government Entities Di-vision. Mr. Montanaro may be e-mailed atRetirementPlanQuestions@irs.gov.

February 27, 2012 428 2012–9 I.R.B.

Table I

Monthly Yield Curve for January 2012Derived from January 2012 Data

Maturity Yield Maturity Yield Maturity Yield Maturity Yield Maturity Yield

0.5 0.55 20.5 4.99 40.5 5.21 60.5 5.29 80.5 5.341.0 0.94 21.0 5.00 41.0 5.21 61.0 5.30 81.0 5.341.5 1.30 21.5 5.01 41.5 5.22 61.5 5.30 81.5 5.342.0 1.61 22.0 5.02 42.0 5.22 62.0 5.30 82.0 5.342.5 1.86 22.5 5.02 42.5 5.22 62.5 5.30 82.5 5.343.0 2.08 23.0 5.03 43.0 5.23 63.0 5.30 83.0 5.343.5 2.27 23.5 5.04 43.5 5.23 63.5 5.30 83.5 5.344.0 2.44 24.0 5.05 44.0 5.23 64.0 5.30 84.0 5.344.5 2.61 24.5 5.05 44.5 5.23 64.5 5.30 84.5 5.345.0 2.78 25.0 5.06 45.0 5.24 65.0 5.31 85.0 5.345.5 2.94 25.5 5.07 45.5 5.24 65.5 5.31 85.5 5.346.0 3.10 26.0 5.07 46.0 5.24 66.0 5.31 86.0 5.346.5 3.26 26.5 5.08 46.5 5.24 66.5 5.31 86.5 5.347.0 3.41 27.0 5.09 47.0 5.25 67.0 5.31 87.0 5.347.5 3.56 27.5 5.09 47.5 5.25 67.5 5.31 87.5 5.358.0 3.70 28.0 5.10 48.0 5.25 68.0 5.31 88.0 5.358.5 3.83 28.5 5.11 48.5 5.25 68.5 5.31 88.5 5.359.0 3.95 29.0 5.11 49.0 5.25 69.0 5.31 89.0 5.359.5 4.05 29.5 5.12 49.5 5.26 69.5 5.32 89.5 5.3510.0 4.16 30.0 5.12 50.0 5.26 70.0 5.32 90.0 5.3510.5 4.26 30.5 5.13 50.5 5.26 70.5 5.32 90.5 5.3511.0 4.35 31.0 5.13 51.0 5.26 71.0 5.32 91.0 5.3511.5 4.43 31.5 5.14 51.5 5.26 71.5 5.32 91.5 5.3512.0 4.50 32.0 5.14 52.0 5.27 72.0 5.32 92.0 5.3512.5 4.56 32.5 5.15 52.5 5.27 72.5 5.32 92.5 5.3513.0 4.62 33.0 5.15 53.0 5.27 73.0 5.32 93.0 5.3513.5 4.67 33.5 5.16 53.5 5.27 73.5 5.32 93.5 5.3514.0 4.71 34.0 5.16 54.0 5.27 74.0 5.32 94.0 5.3514.5 4.75 34.5 5.17 54.5 5.28 74.5 5.33 94.5 5.3515.0 4.79 35.0 5.17 55.0 5.28 75.0 5.33 95.0 5.3515.5 4.82 35.5 5.18 55.5 5.28 75.5 5.33 95.5 5.3616.0 4.84 36.0 5.18 56.0 5.28 76.0 5.33 96.0 5.3616.5 4.87 36.5 5.18 56.5 5.28 76.5 5.33 96.5 5.3617.0 4.89 37.0 5.19 57.0 5.28 77.0 5.33 97.0 5.3617.5 4.91 37.5 5.19 57.5 5.29 77.5 5.33 97.5 5.3618.0 4.92 38.0 5.19 58.0 5.29 78.0 5.33 98.0 5.3618.5 4.94 38.5 5.20 58.5 5.29 78.5 5.33 98.5 5.3619.0 4.95 39.0 5.20 59.0 5.29 79.0 5.33 99.0 5.3619.5 4.97 39.5 5.20 59.5 5.29 79.5 5.33 99.5 5.3620.0 4.98 40.0 5.21 60.0 5.29 80.0 5.33 100.0 5.36

2012–9 I.R.B. 429 February 27, 2012

Frequently-Asked-QuestionsFrom Employers RegardingAutomatic Enrollment,Employer SharedResponsibility, and WaitingPeriods

Notice 2012–17

INTRODUCTION

Many provisions of the Patient Protec-tion and Affordable Care Act (AffordableCare Act) that become effective beginningin 2014 are designed to expand accessto affordable health coverage. These in-clude provisions for automatic enrollmentof full-time employees in an employer’shealth plan, shared responsibility of em-ployers regarding health coverage, cov-erage to be offered through State-basedAffordable Insurance Exchanges (Ex-changes), premium tax credits to assist in-dividuals in purchasing coverage throughExchanges, and other related provisions.The Departments of Labor, Health andHuman Services, and the Treasury (theDepartments) are working together to de-velop regulations and other administrativeguidance that will respond to questionsand assist stakeholders with implementa-tion.

This notice, which is being issued insubstantially identical form by the othertwo Departments, provides information onquestions from employers and other stake-holders regarding the provisions of the Af-fordable Care Act governing automatic en-rollment, employer shared responsibility,and the 90-day limitation on waiting pe-riods. Also outlined below are variousapproaches that the Departments are con-sidering proposing in future regulations orother guidance. Comments and input arewelcome on all intended proposals below.

BACKGROUND

Automatic Enrollment

Section 18A of the Fair Labor Stan-dards Act (FLSA), as added by section

1511 of the Affordable Care Act, directs anemployer to which the FLSA applies, andthat has more than 200 full-time employ-ees, to automatically enroll new full-timeemployees in one of the employer’s healthbenefits plans (subject to any waiting pe-riod authorized by law), and to continuethe enrollment of current employees in ahealth benefits plan offered through theemployer. Section 18A further requiresadequate notice and the opportunity for anemployee to opt out of any coverage inwhich the employee was automatically en-rolled.

On December 22, 2010, the Depart-ments issued frequently asked questions(FAQ) on section 18A of the FLSA, whichnoted that the statute provides that em-ployer compliance with the automatic en-rollment provisions of section 18A shallbe carried out “[i]n accordance with reg-ulations promulgated by the Secretary [ofLabor].”1 That FAQ also stated that it isthe view of the Department of Labor that,until such regulations are issued, employ-ers are not required to comply with section18A. Finally, the FAQ indicated that theDepartment of Labor intends to completethis rulemaking by 2014.

Employer Shared Responsibility

The employer shared responsibilityprovisions, contained in section 4980H ofthe Internal Revenue Code (Code), pro-vide that an applicable large employer(for this purpose, an employer with 50or more full-time equivalent employees)could be subject to an assessable paymentif any full-time employee is certified toreceive an applicable premium tax creditor cost-sharing reduction payment. Gen-erally, this may occur where either:

(1) The employer does not offer toits full-time employees (and their depen-dents) the opportunity to enroll in mini-mum essential coverage under an eligibleemployer-sponsored plan; or

(2) The employer offers its full-timeemployees (and their dependents) the op-portunity to enroll in minimum essentialcoverage under an eligible employer-spon-sored plan that either is unaffordable rela-

tive to an employee’s household income ordoes not provide minimum value.

For purposes of section 4980H, a “full-time employee” is an employee who is em-ployed on average at least 30 hours perweek.

The Treasury Department and the Inter-nal Revenue Service (IRS) have requestedand received comments on a number ofissues and potential approaches to inter-preting and applying the employer sharedresponsibility provisions. In particular,IRS Notice 2011–36, 2011–21 I.R.B.7922, described and requested commentson a possible approach that would use a“look-back/stability period safe harbor”method that employers might use in deter-mining whether current employees (thosewho are not newly-hired or transferred)are full-time employees for purposes ofthe employer shared responsibility provi-sions. Comments were also requested onpotential rules for determining full-timestatus of new employees and employeeswho move into full-time status mid-year.

In addition, Treasury and the IRShave described (in IRS Notice 2011–73,2011–40 I.R.B. 474)3, a safe harbor al-lowing employers, for purposes of deter-mining whether they owe an assessablepayment under section 4980H(b), to usean employee’s Form W–2 wages (as re-ported in Box 1) instead of householdincome in determining whether coverageoffered is affordable. Treasury and theIRS requested and received comments onthe safe harbor.

90-Day Limitation on Waiting Periods

Public Health Service (PHS) Act sec-tion 2708, as added by the Affordable CareAct, provides that, in plan years begin-ning on or after January 1, 2014, a grouphealth plan or group health insurance is-suer shall not apply any waiting periodthat exceeds 90 days.4 PHS Act section2704(b)(4), ERISA section 701(b)(4), andCode section 9801(b)(4) define a waitingperiod to be the period that must pass withrespect to the individual before the individ-ual is eligible to be covered for benefits un-der the terms of the plan. In previous regu-

1 Available at: www.dol.gov/ebsa/faqs/faq-aca5.html.

2 Available at: www.irs.gov/pub/irs-drop/n-11-36.pdf.

3 Available at: www.irs.gov/pub/irs-drop/n-11-73.pdf.

4 The Affordable Care Act also added section 715(a)(1) to the Employee Retirement Income Security Act (ERISA) and section 9815(a)(1) to the Code to incorporate various provisions of thePHS Act into the Code and ERISA, including the provisions of section 2708 of the PHS Act.

February 27, 2012 430 2012–9 I.R.B.

lations, the Departments defined a waitingperiod to mean the period that must passbefore coverage for an employee or depen-dent who is otherwise eligible to enroll un-der the terms of a group health plan canbecome effective.5 Unlike Code section4980H, PHS Act section 2708 does not dis-tinguish between full-time and part-timeemployees.

In addition to requesting comments onthe employer shared responsibility pro-visions, IRS Notice 2011–36 requestedcomments on behalf of the Departmentsregarding the 90-day waiting period lim-itation under PHS Act section 2708,including how rules relating to the poten-tial look-back/stability period safe harbormethod for determining the number offull-time employees under Code section4980H should be coordinated with the90-day waiting period limitation.

DISCUSSION

The following questions and answersrespond to inquiries the Departments arereceiving regarding automatic enroll-ment, employer shared responsibility, andthe 90-day limitation on waiting peri-ods. As discussed above, the questionsand answers below provide informationand identify various approaches that theDepartments are considering proposingin future regulations or other guidance.Guidance that employers may rely uponwith respect to the issues addressed belowwill be provided with sufficient lead timefor employers to comply. Comments arerequested on these approaches.

Q1. What is the current timeline forissuing guidance on automatic enroll-ment under FLSA section 18A?

A1. The Department of Labor has beenworking with stakeholders to ensure that ithas the necessary information and data todevelop regulations relating to automaticenrollment, and is sensitive to stakeholderconcerns regarding the need for adequatetime to comply with any regulations thatare ultimately issued. In addition, the De-partment of Labor is aware of the need tocoordinate the work it will be undertak-ing to develop guidance relating to auto-matic enrollment with the guidance beingdeveloped regarding other related Afford-able Care Act provisions, including the

employer shared responsibility provisionand the 90-day limitation on waiting peri-ods, described above.

In view of the need for coordinatedguidance and a smooth implementationprocess, including an applicability datethat gives employers sufficient time tocomply, the Department of Labor hasconcluded that its automatic enrollmentguidance will not be ready to take effectby 2014. It remains the Department ofLabor’s view that, until final regulationsunder FLSA section 18A are issued andbecome applicable, employers are not re-quired to comply with FLSA section 18A.

Q2. Do Treasury and the IRS intendto issue proposed regulations or otherguidance permitting employers to usean employee’s W–2 wages as a safe har-bor in determining the affordability ofemployer coverage, as outlined in IRSNotice 2011–73?

A2. Yes. As described in Notice2011–73, Treasury and the IRS intendto issue proposed regulations or otherguidance permitting employers to use anemployee’s Form W–2 wages (as reportedin Box 1) as a safe harbor in determiningthe affordability of employer coverage.

Q3. Do Treasury and the IRS intendto issue proposed regulations or otherguidance addressing how the employershared responsibility provisions underCode section 4980H and the 90-daywaiting period limitation under PHSAct section 2708 are coordinated?

A3. Yes. Treasury and the IRS intend toissue proposed regulations or other guid-ance under Code section 4980H (whichimposes shared responsibility on large em-ployers with respect to coverage of full-time employees). That guidance is ex-pected to address the intersection of theCode section 4980H rules and the PHSAct section 2708 rules applicable to the90-day waiting period limitation and willbe coordinated with upcoming tri-Depart-ment proposed rules under PHS Act sec-tion 2708 (discussed below). Treasuryand the IRS are mindful of employers’ re-quests for safe harbors and simplicity andwill seek to accommodate those requests tothe extent feasible and consistent with theterms of the statute.

The upcoming guidance is expected toprovide that, at least for the first three

months following an employee’s date ofhire, an employer that sponsors a grouphealth plan will not, by reason of failingto offer coverage to the employee underits plan during that three-month period, besubject to the employer responsibility pay-ment under Code section 4980H.

Q4. For purposes of determiningwhether an employee (other than anewly-hired employee) is a full-timeemployee for purposes of Code section4980H, do Treasury and the IRS intendto issue proposed regulations or otherguidance allowing employers to use alook-back/stability period safe harbor,based on the approach outlined in IRSNotice 2011–36?

A4. Yes. Having reviewed the com-ments in response to IRS Notice 2011–36,Treasury and the IRS intend to issue pro-posed regulations or other guidance thatwould allow employers to use a “look-back/stability period safe harbor” methodbased on the approach outlined in the no-tice for purposes of determining whetheran employee (other than a newly-hired em-ployee) is a full-time employee. Accord-ingly, it is anticipated that the guidancewill allow look-back and stability periodsnot exceeding 12 months.

For a description of anticipated guid-ance regarding newly-hired employees,see Q&A–5.

Q5. For purposes of determiningwhether a newly-hired employee is afull-time employee, do Treasury andthe IRS intend to issue proposed regu-lations or other guidance under Codesection 4980H?

A5. Yes. Treasury and the IRS also in-tend to issue proposed regulations or otherguidance that will address how to deter-mine whether a newly-hired employee isa full-time employee for purposes of Codesection 4980H.

As stated in Q&A–3, the upcomingguidance is expected to provide that, atleast for the first three months followingan employee’s date of hire, an employerthat sponsors a group health plan willnot, by reason of failing to offer cover-age to the employee under its plan duringthat three-month period, be subject to theemployer responsibility payment underCode section 4980H. The guidance is alsoexpected to provide that, in certain cir-

5 26 CFR 54.9801–3(a)(3)(iii), 29 CFR 2590.701–3(a)(3)(iii), 45 CFR 146.111(a)(3)(iii).

2012–9 I.R.B. 431 February 27, 2012

cumstances, employers have six monthsto determine whether a newly-hired em-ployee is a full-time employee for pur-poses of section 4980H and will not besubject to a section 4980H payment dur-ing that six-month period with respect tothat employee. Treasury and the IRS in-tend to propose an approach under whichthe period of time that an employer willhave to determine whether a newly-hiredemployee is a full-time employee (withinthe meaning of section 4980H) will de-pend upon whether, based on the factsand circumstances, (a) the employee isreasonably expected as of the time of hireto work an average of 30 or more hoursper week on an annual basis and (b) theemployee’s first three months of employ-ment are reasonably viewed, as of the endof that period, as representative of theaverage hours the employee is expected towork on an annual basis.

Specifically, it is intended that theupcoming proposed regulations or otherguidance would provide, for purposes ofsection 4980H, that:

• If a newly-hired employee is reason-ably expected to work full-time on anannual basis and does work full-timeduring the first three months of em-ployment, the employee must be of-fered coverage under the employer’sgroup health plan as of the end of thatperiod in order to avoid the possibilitythat the employer would be subject toa section 4980H payment after the endof that three-month period.

• If, based on the facts and circum-stances as of the time of hire, it can-not reasonably be determined that anewly-hired employee is expected towork full-time, the following ruleswill apply for purposes of determiningwhether the newly-hired employee isconsidered a full-time employee in ap-plying section 4980H with respect tothe employer’s group health plan:• If the employee works full-time

during the first three months ofemployment, and the employee’shours during that period are rea-sonably viewed, as of the end ofthat period, as representative of theaverage hours the employee is ex-pected to work on an annual basis,the employee will first be consid-ered a full-time employee for pur-

poses of section 4980H as of theend of that three-month period. (Ifthe employee works part-time dur-ing the first three months of em-ployment, then no section 4980Hpenalty applies during the first orsecond three-month period.)

• If the employee works full-timeduring the first three months ofemployment, but the employee’shours during that period are rea-sonably viewed, as of the end ofthat period, as not representativeof the average hours the employeeis expected to work on an annualbasis, the plan is permitted anadditional three-month period todetermine the employee’s status,and no section 4980H paymentwould be required with respectto that employee during the firstor second three-month periods.(If the employee works part-timeduring the second three monthsof employment, then no section4980H penalty applies during thefirst, second, or third three-monthperiod.)

This policy describes the applicabilityof a potential section 4980H payment withrespect to newly-hired employees. Forth-coming guidance is expected also to coor-dinate the rules for newly-hired employeeswith those applicable to other employees(including employees who are transferredfrom one employment classification or sta-tus to another).

The following examples illustrate theintended approach described above:

Example 1: Newly-hired employeeexpected to work full time.

Facts: Employer D, an applicable largeemployer (i.e., an employer with at least50 full-time equivalent employees), hiresEmployee X as a computer programmeron December 1. Employee X is expectedto work full-time on an annual basis anddoes work full-time for the months of De-cember, January, and February. EmployerD offers health coverage to its full-timeworkers (and their dependents).

Conclusion: Employee X must beable to enroll in coverage beginning inMarch or the employer potentially wouldbe subject to a section 4980H payment.However, failure to offer coverage to Em-ployee X during the first three months

(December–February) would not subjectEmployer D to a potential section 4980Hpayment.

Example 2: Newly-hired employeewho seasonally works full-time

Facts: Same as Example 1 except thatEmployer D hires Employee Y as a sales-person who is expected to work full-timeduring the holiday season and part-time therest of the year. Employee Y works anaverage of 35 hours per week in Decem-ber, January, and February and 20 hoursper week in March, April, and May.

Conclusion: If, based on the factsand circumstances at the end of the pe-riod, the three-month period of Decemberthrough February is reasonably viewedas not representative of the average hoursEmployee Y is reasonably expected towork on an annual basis, Employer Dmay use a second three-month period(March–May) as a look-back period. Fail-ure to offer coverage under Employer D’sgroup health plan to Employee Y duringthe first (December-February) and thesecond (March–May) three-month peri-ods would not subject Employer D to apotential section 4980H payment. (Fail-ure to offer coverage to Employee Y forJune also would not subject EmployerD to a potential section 4980H paymentbecause Employee Y was determinedto be part-time during the March–Maylook-back period.)

Q6. When PHS Act section 2708(which imposes a 90-day limitation onwaiting periods) becomes effective in2014, will it require an employer tooffer coverage to part-time employeesor to any other particular category ofemployees?

A6. No. Many employers make dis-tinctions in eligibility for coverage basedon full-time or part-time status, as de-fined by the employer’s group health plan(which may differ from the standard underCode section 4980H). PHS Act section2708 does not require the employer tooffer coverage to any particular employeeor class of employees, including part-timeemployees. PHS Act section 2708 merelyprohibits requiring an otherwise eligibleemployee to wait more than 90 days be-fore coverage is effective. Furthermore,nothing in the Affordable Care Act penal-izes small employers for choosing not tooffer coverage to any employee, or largeemployers for choosing to limit their offer

February 27, 2012 432 2012–9 I.R.B.

of coverage to full-time employees, as de-fined in the employer shared responsibilityprovisions.

Q7. How do the Departments intendto address the application of the 90-daywaiting period limitation in PHS Actsection 2708 to an offer of coverage byan employer?

A7. Having reviewed the comments inresponse to IRS Notice 2011–36, the De-partments intend to retain, for purposes ofPHS Act section 2708, the definition in ex-isting regulations that the 90-day waitingperiod begins when an employee is other-wise eligible for coverage under the termsof the group health plan. This is the defi-nition of waiting period used for purposesof Title XXVII of the PHS Act, Part 7 ofERISA, and chapter 100 of the Code.6 Un-der this approach, if a plan were to pro-vide that full-time employees are eligiblefor coverage without satisfying any othercondition, and an employee were hired asa full-time employee, the waiting period(if the employer were to choose to imposeone) for that employee would begin on thedate of hire and could not exceed 90 days.Consistent with PHS Act section 2708, eli-gibility conditions that are based solely onthe lapse of a time period would be permis-sible for no more than 90 days.

Other conditions for eligibility underthe terms of a group health plan would gen-erally be permissible under PHS Act sec-tion 2708, unless the condition is designedto avoid compliance with the 90-day wait-ing period limitation. For example, eligi-bility conditions such as full-time status, abona fide job category, or receipt of a li-cense would be permissible.

The upcoming guidance under section2708 is also expected to address situationsin which, under the terms of an employer’splan, employees (or certain classes of em-ployees) are eligible for coverage oncethey complete a specified cumulativenumber of hours of service within a spec-ified period (such as 12 months). It isanticipated that, under the upcoming guid-ance, such eligibility conditions will not

be treated as designed to avoid compliancewith the 90-day waiting period limitationso long as the required cumulative hoursof service do not exceed a number of hoursto be specified in that guidance.

Comments are requested on how thispossible approach would apply to plansthat credit hours of service from multi-ple different employers and plans that usehours banks.

Example 3: Employee ineligible un-der terms of plan by reason of job clas-sification

Facts: Same as Example 1 except thatEmployer D’s plan does not cover com-puter programmers.

Conclusion: Unlike Code section4980H, in which the determination offull-time status is governed by a statutorystandard (working an average of 30 hoursper week), the waiting period limitationunder PHS Act 2708 applies only to em-ployees who are otherwise eligible underthe terms of the plan. Because EmployeeX is excluded under the plan’s eligibilitycriteria, and the plan’s terms are not de-signed to avoid compliance with PHS Actsection 2708, the plan’s eligibility pro-vision does not violate PHS Act section2708.

Example 4: Part-time employee,hours of service requirement

Facts: Employer E hires Employee Zto work 20 hours per week. Employer E’splan requires part-time employees to com-plete 750 hours of service in order to par-ticipate. Solely for purposes of illustrationin this example, it is assumed that upcom-ing guidance under PHS Act section 2708permits plans to require part-time employ-ees to complete up to, but no more than,750 hours of service in order to participate.

Conclusion: Part-time employees whowork 20 hours per week will complete 750hours of service in 371/2 weeks or just un-der 9 months. The waiting period un-der PHS Act section 2708 begins whenEmployee Z satisfies the cumulative ser-vice requirement, thereby becoming eligi-ble (but for the waiting period) for cover-

age under the plan. Employer E must pro-vide coverage to Employee Z no later than90 days after Employee Z completes 750hours of service, which is about one yearafter Employee Z is hired and begins work-ing part-time. (No Code section 4980Hpayment applies because Employee Z ispart-time.)

REQUEST FOR COMMENTS

Comments are requested by April 9,2012. WARNING: Do not include any per-sonally identifiable information (such asname, address, or other contact informa-tion) or confidential business informationthat you do not want publicly disclosed.All comments are posted on the Internet asreceived, and can be retrieved by most In-ternet search engines. Comments may besubmitted anonymously. Comments willbe shared by the Departments.

Comments may be sent electronicallyto: e-ohpsca-er.ebsa@dol.gov. Alterna-tively, comments may be sent via mail orhand delivery to: Office of Health PlanStandards and Compliance Assistance,Employee Benefits Security Administra-tion, Room N–5653, U.S. Departmentof Labor, 200 Constitution Avenue, NW,Washington, DC 20210.

FOR FURTHER INFORMATION

The Departments have coordinated onthe information contained in this noticeand are publishing substantively identicalissuances. Questions concerning the infor-mation contained herein may be directedto the Department of Labor’s Office ofHealth Plan Standards and ComplianceAssistance at 202–693–8335; the InternalRevenue Service at 202–927–9639; or theDepartment of Health and Human Servicesat 410–786–1565 or phig@cms.hhs.gov.Additional information for employersregarding the Affordable Care Act isavailable at www.healthcare.gov andwww.dol.gov/ebsa/healthreform.

6 26 CFR 54.9801–3(a)(3)(iii), 29 CFR 2590.701–3(a)(3)(iii), 45 CFR 146.111(a)(3)(iii).

2012–9 I.R.B. 433 February 27, 2012

Part IV. Items of General InterestNotice of ProposedRulemaking

Passive Activity Losses andCredits Limited

REG–109369–10

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains pro-posed regulations regarding the definitionof an “interest in a limited partnership as alimited partner” for purposes of determin-ing whether a taxpayer materially partici-pates in an activity under section 469 of theInternal Revenue Code (Code). These pro-posed regulations affect individuals whoare partners in partnerships.

DATES: Written or electronic commentsand requests for a public hearing must bereceived by February 27, 2012.

ADDRESSES: Send submissions to:CC:PA:LPD:PR (REG–109369–10), room5203, Internal Revenue Service, PO Box7604, Ben Franklin Station, Washing-ton, DC 20044. Submissions may behand-delivered Monday through Fridaybetween the hours of 8 a.m. and 4 p.m.to: CC:PA:LPD:PR (REG–109369–10),Courier’s Desk, Internal Revenue Ser-vice, 1111 Constitution Avenue, NW,Washington, DC, or sent electroni-cally, via the Federal eRulemaking Por-tal at http://www.regulations.gov/ (IRSREG–109369–10).

FOR FURTHER INFORMATIONCONTACT: Concerning the proposedregulations, Michala Irons, (202)622–3050; concerning submissions ofcomments and requests for public hearing,Oluwafunmilayo Taylor, (202) 622–7180(not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

Section 469(a)(1) limits the ability ofcertain taxpayers to deduct losses from

passive activities. Section 469(b) permitspassive losses disallowed in one year tobe carried over to the next year. Section469(c)(1) provides that a passive activitymeans any activity which involves the con-duct of any trade or business, and in whichthe taxpayer does not materially partici-pate. Section 469(h)(1) provides that a tax-payer shall be treated as materially partic-ipating in an activity only if the taxpayeris involved in the operations of the activ-ity on a basis which is regular, continuous,and substantial. The Treasury Departmentand the IRS promulgated temporary regu-lations under section 469 in 1988. See T.D.8175, 1998–1 C.B. 191, 53 FR 5686 (Feb-ruary 25, 1988). Section 1.469–5T(a) pro-vides that an individual taxpayer shall betreated as materially participating in an ac-tivity for the taxable year if and only if:

(1) The individual participates in the ac-tivity for more than 500 hours during suchyear;

(2) The individual’s participation in theactivity for the taxable year constitutessubstantially all of the participation insuch activity of all individuals (includingindividuals who are not owners of interestsin the activity) for such year;

(3) The individual participates in the ac-tivity for more than 100 hours during thetaxable year, and such individual’s partici-pation in the activity for the taxable year isnot less than the participation in the activ-ity of any other individual (including indi-viduals who are not owners of interests inthe activity) for such year;

(4) The activity is a significant par-ticipation activity (within the meaning of§1.469–5T(c)) for the taxable year, and theindividual’s aggregate participation in allsignificant participation activities duringsuch year exceeds 500 hours;

(5) The individual materially partici-pated in the activity (determined withoutregard to §1.469–5T(a)(5)) for any fivetaxable years (whether or not consecutive)during the ten taxable years that immedi-ately precede the taxable year;

(6) The activity is a personal ser-vice activity (within the meaning of§1.469–5T(d)), and the individual mate-rially participated in the activity for anythree taxable years (whether or not con-secutive) preceding the taxable year; or

(7) Based on all of the facts and circum-stances (taking into account the rules in§1.469–5T(b)), the individual participatesin the activity on a regular, continuous, andsubstantial basis during such year.

Section 469(h)(2) presumptively treatslosses from interests in limited part-nerships as passive. Section 469(h)(2)provides that, except as provided in regu-lations, no interest in a limited partnershipas a limited partner shall be treated asan interest with respect to which a tax-payer materially participates. Section1.469–5T(e)(2) permits an individual tax-payer to establish material participationin a limited partnership but constrains theindividual taxpayer to only three of theseven regulatory tests in §1.469–5T(a),(§1.469–5T(a)(1), (a)(5), or (a)(6)).

Section 1.469–5T(e)(3)(i) generallyprovides that a partnership interest shallbe treated as a limited partnership interestif (A) such interest is either designated asa limited partnership interest in the limitedpartnership agreement or the certificateof limited partnership, without regard towhether the liability of the holder of suchinterest for obligations of the partnershipis limited under applicable State law; or(B) the liability of the holder of such in-terest for obligations of the partnership islimited, under the law of the State in whichthe partnership is organized, to a deter-minable fixed amount (for example, thesum of the holder’s capital contributions tothe partnership and contractual obligationsto make additional capital contributionsto the partnership). However, even if theinterest is characterized as a limited part-nership interest under §1.469–5T(e)(3)(i),an exception under §1.469–5T(e)(3)(ii)applies if the individual is a general part-ner in the partnership at all times duringthe partnership’s taxable year ending withor within the individual’s taxable year (orportion of the partnership’s taxable yearduring which the individual (directly orindirectly) owns such limited partnershipinterest) (the “general partner exception”).If the general partner exception applies,the limited partnership interest will not betreated as such for the year in which theindividual taxpayer is a general partner inthe partnership. This allows the individualtaxpayer to demonstrate material partici-

February 27, 2012 434 2012–9 I.R.B.

pation through any of the seven regulatorytests in §1.469–5T(a).

Courts have concluded, in certain in-stances, that the holder of a limited liabil-ity company (LLC) interest is not treatedas holding an interest in a limited part-nership as a limited partner for purposesof applying the section 469 material par-ticipation tests. In Gregg v. U.S., 186F.Supp.2d 1123 (D. Or. 2000), an Ore-gon district court concluded that, in the ab-sence of regulations to the effect that anLLC member should be treated as a lim-ited partner, the limited partner exceptionin section 469(h)(2) was not applicable toLLC members. In Garnett v. Comm’r, 132T.C. 368 (2009), the Tax Court found thatthe taxpayers’ ownership interests in lim-ited liability partnerships and LLCs werenot interests in limited partnerships be-cause their interests fit within the generalpartner exception in §1.469–5T(e)(3)(ii).Shortly thereafter, in Thompson v. U.S.,87 Fed. Cl. 728 (2009), the Court of Fed-eral Claims concluded that the regulationsunder section 469(h)(2) require the tax-payer’s ownership interest to be in a part-nership under State law rather than a part-nership under Federal income tax law. Ac-cordingly, because an LLC member is nota limited partner under State law, the courtconcluded that section 469(h)(2) did notapply to an LLC member. Most recently,the Tax Court in Newell v. Comm’r, T.C.Memo. 2010–23, concluded that section469(h)(2) did not apply to the managingmember of an LLC and that the memberfell within the general partner exception in§1.469–5T(e)(3)(ii). On April 5, 2010, theIRS issued an Action on Decision acqui-escing in the result only in Thompson v.U.S., AOD 2010–02, 2010–14 I.R.B. 515.

Explanation of Provisions

The proposed regulations provide thatan interest in an entity will be treated asan interest in a limited partnership undersection 469(h)(2) if (A) the entity in whichsuch interest is held is classified as a part-nership for Federal income tax purposesunder §301.7701–3; and (B) the holder ofsuch interest does not have rights to man-age the entity at all times during the en-tity’s taxable year under the law of thejurisdiction in which the entity was or-ganized and under the governing agree-ment. Rights to manage include the power

to bind the entity. The proposed regula-tions provide rules concerning an interestin a limited partnership based on the pur-poses for which section 469 was enacted,and the manner in which the provision isstructured and operates within the Code.Accordingly, the rules concerning an in-terest in a limited partnership in the pro-posed regulations are provided solely forpurposes of section 469 and no inferenceis intended that the same rules would ap-ply for any other provisions of the Coderequiring a distinction between a generalpartner and a limited partner.

In Garnett v. Comm’r, supra, the TaxCourt noted that Congress enacted section469(h)(2) to address the limitations on alimited partner’s ability to participate inthe control of the partnership’s business.Under the Uniform Limited PartnershipAct of 1916, limited partners could losetheir limited liability protection if they par-ticipated in the control of the partnership.The regulations under section 469(h)(2)were drafted with these constraints inmind. Today, many states have adopted avariation of the Revised Uniform LimitedPartnership Act of 1985 (RULPA). UnderRULPA, limited partners may participatein the management and control of thepartnership without losing their limitedliability. As a consequence, limited part-ners under RULPA are now more akin togeneral partners and LLC members withrespect to their rights in the managementof the entity. Under the Uniform Lim-ited Liability Company Act of 1996, LLCmembers of member-managed LLCs donot lose their limited liability by partic-ipating in the management and conductof the company’s business. In Newell v.Comm’r, supra, the Tax Court noted thatthe managing member of the LLC at issuemanaged the day-to-day operations of theLLC and was the “substantial equivalent”of a general partner. Recognizing thatthe original presumptions regarding thelimitations on a limited partner’s partici-pation in the activities of the entity are nolonger valid today, and also recognizingthe emergence of LLCs, the proposed reg-ulations eliminate the current regulations’reliance on limited liability for purposesof determining whether an interest is aninterest in a limited partnership as a lim-ited partner under section 469(h)(2) andinstead adopt an approach that relies on

the individual partner’s right to participatein the management of the entity.

The regulations are proposed to applyto taxable years beginning on or after thedate of publication of the Treasury de-cision adopting these regulations as finalregulations in the Federal Register.

Special Analyses

It has been determined that this noticeof proposed rulemaking is not a significantregulatory action as defined in ExecutiveOrder 12866, as supplemented by Execu-tive Order 13563. Therefore, a regulatoryassessment is not required. It has also beendetermined that section 553(b) of the Ad-ministrative Procedure Act (5 U.S.C. chap-ter 5) does not apply to this regulation, andbecause the regulation does not impose acollection of information on small entities,the Regulatory Flexibility Act (5 U.S.C.chapter 6) does not apply. Pursuant to sec-tion 7805(f) of the Code, these regulationswill be submitted to the Chief Counsel forAdvocacy of the Small Business Adminis-tration for comment on its impact on smallbusiness.

Comments and Requests PublicHearing

Before these proposed regulations areadopted as final regulations, considerationwill be given to any written (a signed origi-nal and eight (8) copies) or electronic com-ments that are submitted timely to the IRS.All comments will be available for publicinspection and copying. A public hearingwill be scheduled if requested in writingby any person that timely submits writtencomments. If a public hearing is sched-uled, notice of the date, time, and place forthe public hearing will be published in theFederal Register.

Drafting Information

The principal author of these proposedregulations is Michala Irons, Office of theAssociate Chief Counsel (Passthroughsand Special Industries). However, otherpersonnel from the Treasury Departmentand the IRS participated in their develop-ment.

* * * * *

2012–9 I.R.B. 435 February 27, 2012

Proposed Amendments to theRegulations

Accordingly, 26 CFR part 1 is proposedto be amended as follows:

PART 1—INCOME TAXES

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

Authority: 26 U.S.C. 7805 * * *Par. 2. Section 1.469–0 is amended by:1. Revising the entries for §1.469–5(a),

(b), (c), (d), and (e).2. Removing the entries for

§1.469–5T(e)(1), (e)(2), and (e)(3).The revisions read as follows:

§1.469–0 Table of contents.

* * * * *

§1.469–5 Material participation.

(a) through (d) [Reserved].(e) Treatment of an interest in a limited

partnership as a limited partner.(1) In general.(2) Exceptions.(3) Interest in a limited partnership as a

limited partner.(i) In general.(ii) Individual holding an interest other

than an interest in a limited partnership asa limited partner.

(4) Effective/applicability date.

* * * * *Par. 3. In §1.469–5, paragraphs (a),

(b), (c), (d), and (e) are revised to read asfollows:

§1.469–5 Material Participation.

(a) through (d) [Reserved].(e) Treatment of an interest in a limited

partnership as a limited partner—(1) Ingeneral. Except as otherwise provided inthis paragraph (e), an individual shall notbe treated as materially participating in anyactivity in which the individual owns aninterest in a limited partnership as a limitedpartner (as defined in paragraph (e)(3)(i)of this section) for purposes of applyingsection 469 and the regulations thereunderto—

(i) The individual’s share of any in-come, gain, loss, deduction, or credit fromsuch activity that is attributable to an in-terest in a limited partnership as a limitedpartner; and

(ii) Any gain or loss from such activityrecognized upon a sale or exchange of suchan interest.

(2) Exceptions. Paragraph (e)(1) of thissection shall not apply to an individual’sshare of income, gain, loss, deduction, andcredit for a taxable year from any activityin which the individual would be treatedas materially participating for the taxableyear under paragraphs (a)(1), (a)(5), or(a)(6) of §1.469–5T if the individual didnot own an interest in a limited partnershipas a limited partner (as defined in para-graph (e)(3)(i) of this section) for such tax-able year.

(3) Interest in a limited partnership as alimited partner—(i) In general. Except asprovided in paragraph (e)(3)(ii) of this sec-tion, for purposes of section 469(h)(2) andthis paragraph (e), an interest in an entityshall be treated as an interest in a limitedpartnership as a limited partner if—

(A) The entity in which such inter-est is held is classified as a partnershipfor Federal income tax purposes under§301.7701–3; and

(B) The holder of such interest does nothave rights to manage the entity at all timesduring the entity’s taxable year under thelaw of the jurisdiction in which the entity isorganized and under the governing agree-ment.

(ii) Individual holding an interest otherthan an interest in a limited partnership asa limited partner. An individual shall notbe treated as holding an interest in a lim-ited partnership as a limited partner for theindividual’s taxable year if such individualalso holds an interest in the partnership thatis not an interest in a limited partnershipas a limited partner (as defined in para-graph (e)(3)(i) of this section), such as astate-law general partnership interest, at alltimes during the entity’s taxable year end-ing with or within the individual’s taxableyear (or the portion of the entity’s taxableyear during which the individual (directlyor indirectly) owns such interest in a lim-ited partnership as a limited partner).

(4) Effective/applicability date. Thissection applies to taxable years beginningon or after the date of publication of theTreasury decision adopting these rules asa final regulation in the Federal Register.

* * * * *Par. 4. Section 1.469–5T paragraph (e)

is revised to read as follows:

§1.469–5T Material Participation(Temporary).

* * * * *(e) Treatment of Limited Partners. [Re-

served]. See §1.469–5(e) for rules relatingto this paragraph (e).

* * * * *Par. 5. Section 1.469–9 paragraph

(f)(1) is revised to read as follows:

§1.469–9 Rules for certain rental realestate activities.

* * * * *(f) Limited partnership interests in

rental real estate activities—(1) In gen-eral. If a taxpayer elects under paragraph(g) of this section to treat all interests inrental real estate as a single rental realestate activity, and at least one interest inrental real estate is held by the taxpayeras an interest in a limited partnership asa limited partner (within the meaningof §1.469–5(e)(3)), the combined rentalreal estate activity of the taxpayer will betreated as an interest in a limited partner-ship as a limited partner for purposes ofdetermining material participation. Ac-cordingly, the taxpayer will not be treatedunder this section as materially partici-pating in the combined rental real estateactivity unless the taxpayer materiallyparticipates in the activity under the testslisted in §1.469–5(e)(2) (dealing with thetests for determining the material partici-pation of a limited partner).

* * * * *

Steven T. Miller,Deputy Commissioner forServices and Enforcement.

(Filed by the Office of the Federal Register on November 25,2011, 8:45 a.m., and published in the issue of the FederalRegister for November 28, 2011, 76 F.R. 72875)

February 27, 2012 436 2012–9 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.

2012–9 I.R.B. i February 27, 2012

Numerical Finding List1

Bulletins 2012–1 through 2012–9

Announcements:

2012-1, 2012-1 I.R.B. 249

2012-2, 2012-2 I.R.B. 285

2012-3, 2012-4 I.R.B. 335

2012-4, 2012-4 I.R.B. 335

2012-5, 2012-5 I.R.B. 348

2012-6, 2012-6 I.R.B. 366

2012-7, 2012-6 I.R.B. 367

2012-8, 2012-7 I.R.B. 373

2012-9, 2012-7 I.R.B. 377

Notices:

2012-1, 2012-2 I.R.B. 260

2012-3, 2012-3 I.R.B. 289

2012-4, 2012-3 I.R.B. 290

2012-5, 2012-3 I.R.B. 291

2012-6, 2012-3 I.R.B. 293

2012-7, 2012-4 I.R.B. 308

2012-8, 2012-4 I.R.B. 309

2012-9, 2012-4 I.R.B. 315

2012-10, 2012-5 I.R.B. 343

2012-11, 2012-5 I.R.B. 346

2012-12, 2012-6 I.R.B. 365

2012-13, 2012-9 I.R.B. 421

2012-14, 2012-8 I.R.B. 411

2012-15, 2012-9 I.R.B. 424

2012-16, 2012-9 I.R.B. 427

2012-17, 2012-9 I.R.B. 430

Proposed Regulations:

REG-109369-10, 2012-9 I.R.B. 434

REG-130302-10, 2012-8 I.R.B. 412

REG-149625-10, 2012-2 I.R.B. 279

REG-102988-11, 2012-4 I.R.B. 326

REG-124627-11, 2012-8 I.R.B. 417

REG-130777-11, 2012-5 I.R.B. 347

Revenue Procedures:

2012-1, 2012-1 I.R.B. 1

2012-2, 2012-1 I.R.B. 92

2012-3, 2012-1 I.R.B. 113

2012-4, 2012-1 I.R.B. 125

2012-5, 2012-1 I.R.B. 169

2012-6, 2012-1 I.R.B. 197

2012-7, 2012-1 I.R.B. 232

2012-8, 2012-1 I.R.B. 235

2012-9, 2012-2 I.R.B. 261

2012-10, 2012-2 I.R.B. 273

2012-11, 2012-7 I.R.B. 368

2012-12, 2012-2 I.R.B. 275

2012-13, 2012-3 I.R.B. 295

2012-14, 2012-3 I.R.B. 296

Revenue Procedures— Continued:

2012-15, 2012-7 I.R.B. 369

Revenue Rulings:

2012-1, 2012-2 I.R.B. 255

2012-2, 2012-3 I.R.B. 286

2012-3, 2012-8 I.R.B. 383

2012-4, 2012-8 I.R.B. 386

2012-5, 2012-5 I.R.B. 337

2012-6, 2012-6 I.R.B. 349

2012-7, 2012-6 I.R.B. 362

Treasury Decisions:

9559, 2012-2 I.R.B. 252

9560, 2012-4 I.R.B. 299

9561, 2012-5 I.R.B. 341

9562, 2012-5 I.R.B. 339

9563, 2012-6 I.R.B. 354

9565, 2012-8 I.R.B. 378

9566, 2012-8 I.R.B. 389

9567, 2012-8 I.R.B. 395

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2011–27 through 2011–52 is in Internal Revenue Bulletin2011–52, dated December 27, 2011.

February 27, 2012 ii 2012–9 I.R.B.

Finding List of Current Actions onPreviously Published Items1

Bulletins 2012–1 through 2012–9

Announcements:

2002-44

Supplemented by

Notice 2012-13, 2012-9 I.R.B. 421

2011-63

Corrected by

Ann. 2012-9, 2012-7 I.R.B. 377

Notices:

2010-88

As modified by Ann. 2011-40, is superseded by

Notice 2012-1, 2012-2 I.R.B. 260

2011-28

Superseded by

Notice 2012-9, 2012-4 I.R.B. 315

Revenue Procedures:

2003-61

Superseded by

Notice 2012-8, 2012-4 I.R.B. 309

2007-44

Modified by

Ann. 2012-3, 2012-4 I.R.B. 335

2011-1

Superseded by

Rev. Proc. 2012-1, 2012-1 I.R.B. 1

2011-2

Superseded by

Rev. Proc. 2012-2, 2012-1 I.R.B. 92

2011-3

Superseded by

Rev. Proc. 2012-3, 2012-1 I.R.B. 113

2011-4

Superseded by

Rev. Proc. 2012-4, 2012-1 I.R.B. 125

2011-5

Superseded by

Rev. Proc. 2012-5, 2012-1 I.R.B. 169

2011-6

Superseded by

Rev. Proc. 2012-6, 2012-1 I.R.B. 197

2011-7

Superseded by

Rev. Proc. 2012-7, 2012-1 I.R.B. 232

2011-8

Superseded by

Rev. Proc. 2012-8, 2012-1 I.R.B. 235

Revenue Procedures— Continued:

2011-9

Superseded by

Rev. Proc. 2012-9, 2012-2 I.R.B. 261

2011-10

Superseded by

Rev. Proc. 2012-10, 2012-2 I.R.B. 273

2011-40

Corrected by

Ann. 2012-6, 2012-6 I.R.B. 366

2011-49

Modified by

Ann. 2012-3, 2012-4 I.R.B. 335

2011-50

Corrected by

Ann. 2012-6, 2012-6 I.R.B. 366

2011-51

Corrected by

Ann. 2012-6, 2012-6 I.R.B. 366

2012-8

Corrected by

Ann. 2012-7, 2012-6 I.R.B. 367

Revenue Rulings:

92-19

Supplemented in part by

Rev. Rul. 2012-6, 2012-6 I.R.B. 349

2008-40

Modified by

Notice 2012-6, 2012-3 I.R.B. 293

2011-1

Modified by

Notice 2012-6, 2012-3 I.R.B. 293

Treasury Decision:

9517

Corrected by

Ann. 2012-4, 2012-4 I.R.B. 335Ann. 2012-5, 2012-5 I.R.B. 348

1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2011–27 through 2011–52 is in Internal Revenue Bulletin 2011–52, dated December 27,2011.

2012–9 I.R.B. iii February 27, 2012

INDEXInternal Revenue Bulletins 2012–1 through2012–9

The abbreviation and number in parenthesis following the index entryrefer to the specific item; numbers in roman and italic type followingthe parentheses refer to the Internal Revenue Bulletin in which the itemmay be found and the page number on which it appears.

Key to Abbreviations:Ann AnnouncementCD Court DecisionDO Delegation OrderEO Executive OrderPL Public LawPTE Prohibited Transaction ExemptionRP Revenue ProcedureRR Revenue RulingSPR Statement of Procedural RulesTC Tax ConventionTD Treasury DecisionTDO Treasury Department Order

EMPLOYEE PLANSDetermination letters, issuing procedures (RP 6) 1, 197Full funding limitations, weighted average interest rates, seg-

ment rates for:January 2012 (Notice 10) 5, 343February 2012 (Notice 16) 9, 427

Letter rulings:And determination letters, areas which will not be issued

from:Associates Chief Counsel and Division Counsel (TE/GE)

(RP 3) 1, 113Associate Chief Counsel (International) (RP 7) 1, 232

And general information letters, procedures (RP 4) 1, 125User fees, request for letter rulings (RP 8) 1, 235; correction

(Ann 7) 6, 367Qualified plans:

Accrued benefits (RR 4) 8, 386Determination letters (Ann 3) 4, 335Group trusts (Notice 6) 3, 293Qualified joint and survivors annuities (RR 3) 8, 383Retirement plans, covered compensation, permitted disparity

(RR 5) 5, 337Technical advice to IRS employees (RP 5) 1, 169

EMPLOYMENT TAXEmployer’s annual federal tax return and modifications to the

deposit rules (TD 9566) 8, 389Interim guidance for cost of health care coverage reporting on

Form W-2 (Notice 9) 4, 315Letter rulings and information letters issued by Associate Of-

fices, determination letters issued by Operating Divisions (RP1) 1, 1

EMPLOYMENT TAX—Cont.Regulations:

26 CFR 31.6011(a)–1, –4, amended; 31.6011(a)–1T, –4T, re-moved; 31.6071(a)–1, amended; 31.6302–0, –1, amended;31.6302–0T, –1T, removed; employer’s annual federal taxreturn and modifications to the deposit rules (TD 9566) 8,389

Technical Advice Memoranda (RP 2) 1, 92Work opportunity tax credit (WOTC) (Notice 13) 9, 421

ESTATE TAXLetter rulings and information letters issued by Associate Of-

fices, determination letters issued by Operating Divisions (RP1) 1, 1

Technical Advice Memoranda (RP 2) 1, 92

EXCISE TAXFrequently asked questions, Patient Protection and Affordable

Care Act (Notice 17) 9, 430Letter rulings and information letters issued by Associate Of-

fices, determination letters issued by Operating Divisions (RP1) 1, 1

Technical Advice Memoranda (RP 2) 1, 92

EXEMPT ORGANIZATIONSAnnual notice to donors regarding pending and settled declara-

tory judgment suits (Ann 1) 1, 249Certain filing changes for tax-exempt organizations (Notice 4) 3,

290Letter rulings:

And determination letters:Areas which will not be issued from Associates Chief

Counsel and Division Counsel (TE/GE) (RP 3) 1, 113Qualified nonprofit health insurance issuers, procedures

(RP 11) 7, 368And general information letters, procedures (RP 4) 1, 125Exemption application determination letter rulings under sec-

tions 501, 509, 4940, and 4942 (RP 10) 2, 273Exemption application determination letter rulings under sec-

tions 501 and 521 (RP 9) 2, 261User fees, request for letter rulings (RP 8) 1, 235; correction

(Ann 7) 6, 367Technical advice to IRS employees (RP 5) 1, 169

GIFT TAXLetter rulings and information letters issued by Associate Of-

fices, determination letters issued by Operating Divisions (RP1) 1, 1

Technical Advice Memoranda (TAMs) (RP 2) 1, 92

February 27, 2012 iv 2012–9 I.R.B.

INCOME TAXAdequate notice revenue procedure renewal (RP 15) 7, 369Application of the segregation rules to small shareholders

(REG–149625–10) 2, 279Basis reporting by securities brokers and basis determination for

debt instruments and options (REG–102988–11) 4, 326Changes affecting tax year 2011 filing of information returns

(Ann 6) 6, 366Conduit financing arrangements (TD 9562) 5, 339Continuing education provider and accrediting organization (RP

12) 2, 275Corporate reorganization, guidance on the measurement of con-

tinuity of interest (TD 9565) 8, 378; (REG–124627–11) 8, 417Credits:

Iowa credit disaster relief (Notice 7) 4, 308New markets tax credit (TD 9560) 4, 299Work opportunity tax credit (WOTC) (Notice 13) 9, 421

Current refundings of tax-exempt bonds in certain disaster reliefbond programs (Notice 3) 3, 289

Disciplinary actions involving attorneys, certified public ac-counts, enrolled agents, and enrolled actuaries (Ann 8) 7, 373

Equitable relief under section 66(c) or section 6015(f) (Notice 8)4, 309

Forms:1097, 1098, 3921, 3922, 5498, 8935, and W-2, requirements

for filing electronically; correction to Rev. Proc. 2011–40(Ann 2) 2, 285

Gross income, exclusions, restitution payments under the Traf-ficking Victims Protection Act of 2000 (Notice 12) 6, 365

Guidance regarding foreign base company sales income (TD9563) 6, 354

Health savings accounts (HSAs), Indian health service (Notice14) 8, 411

Insurance tax, insurance companies, interest rate tables (RR 6) 6,349

Interest:Investment:

Federal short-term, mid-term, and long-term rates for:January (RR 2) 3, 286February (RR 7) 6, 362

Letters rulings:And determination letters, areas which will not be issued

from:Associate Chief Counsel and Division Counsel (TE/GE)

(RP 3) 1, 113Associate Chief Counsel (International) (RP 7) 1, 232

And information letters issued by Associate Offices, determi-nation letters issued by Operating Divisions (RP 1) 1, 1

Maximum vehicle values, special valuation rules, 2012 (RP 13)3, 295

Passive activity losses and credits limited (REG–109369–10) 9,434

Proposed Regulations:26 CFR 1.275–7, revised; treasury inflation-protected securi-

ties issued at a premium (REG–130777–11) 5, 347

INCOME TAX—Cont.26 CFR 1.368–1, amended; corporate reorganizations,

guidance on the measurement of continuity of interest(REG–124627–11) 8, 417

26 CFR 1.382–3, amended; application of section 382 seg-regation rules to small shareholders (REG–149625–10) 2,279

26 CFR 1.469–0, amended; 1.469–5, –5T, –9, revised; passiveactivity losses and credits limited (REG–109369–10) 9, 434

26 CFR 1.6038D–0 thru –8, added; reporting of specified for-eign financial assets (REG–130302–10) 8, 412

26 CFR 1.6045–1, amended; 1.6045A–1, amended;1.6045B–1, amended; basis reporting by securities brokersand basis determination for debt instruments and options(REG–102988–11) 4, 326

Publications:1187, specifications for filing Form 1040-S, foreign person’s

U.S. source income subject to withholding, electronically;correction (Ann 6) 6, 366

1220, specifications for filing Forms 1097, 1098, 3921, 3922,5498, 8935, and W-2 electronically; correction to Rev.Proc. 2011–40 (Ann 2) 2, 285; correction (Ann 6) 6, 366

1239, specifications for filing Form 8027, employer’s annualinformation return of tip income and allocated tips, elec-tronically; correction (Ann 6) 6, 366

Recurring item exception (RR 1) 2, 255Regulations:

26 CFR 1.45D–1, added; 1.45D–1, amended; new marketstax credit (TD 9560) 4, 299

26 CFR 1.275–7T, added; treasury inflation-protected securi-ties issued at a premium (TD 9561) 5, 341

26 CFR 1.368–1, amended; 1.368–1T, removed; corporatereorganizations, guidance on the measurement of continuityof interest (TD 9565) 8, 378

26 CFR 1.881–3, amended; conduit financing arrangements(TD 9562) 5, 339

26 CFR 1.954–3, amended; 1.954–3T, removed; guidance re-garding foreign base company sales income (TD 9563) 6,354

26 CFR 300.0, amended; 300.12, revised; 300.13, added; userfee to take the registered tax return preparer competencyexamination (TD 9559) 2, 252

26 CFR 901.11, amended; regulations governing the perfor-mance of actuarial services under the Employee RetirementIncome Security Act (ERISA) of 1974; correction (Ann 4)4, 335; correction (Ann 5) 5, 348

26 CFR 1.6038D–0T, thru –8T, added; reporting of specifiedforeign financial assets (TD 9567) 8, 395

Regulations governing the performance of actuarial services un-der the Employee Retirement Income Security Act (ERISA) of1974; correction (Ann 4) 4, 335; correction (Ann 5) 5, 348

Reporting of specified foreign financial assets (TD 9567) 8, 395;(REG–130302–10) 8, 412

Safe harbor reporting:Eligible REMICs required to report on Schedule Q informa-

tion with respect to REMIC assets (Notice 5) 3, 291

2012–9 I.R.B. v February 27, 2012

INCOME TAX—Cont.Guidance for REIT investing in certain REMIC regular and

residual interests (RP 14) 3, 296Section 304 transactions (Notice 15) 9, 424Standard mileage rates, 2012 (Notice 1) 2, 260Technical Advice Memoranda (TAMs) (RP 2) 1, 92Transitional relief for section 6045B issuer returns and state-

ments for 2011 organizational actions (Notice 11) 5, 346Treasury inflation-protected securities issued at a premium (TD

9561) 5, 341; (REG–130777–11) 5, 347User fee to take the registered tax return preparer competency

examination (TD 9559) 2, 252

SELF-EMPLOYMENT TAXLetter rulings and information letters issued by Associate Of-

fices, determination letters issued by Operating Divisions (RP1) 1, 1

Technical Advice Memoranda (TAMs) (RP 2) 1, 92

February 27, 2012 vi 2012–9 I.R.B.

2012–9 I.R.B. February 27, 2012

February 27, 2012 2012–9 I.R.B.

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