SECTION 5. EFFECT ON OTHER

DOCUMENTS

This document modifies and supersedes Rev. Proc. 2003–25, 2003–1 C.B. 601.

one transaction in which book income exceeds taxable income by $3 million for an income item, tax expense exceeds book expense by $5 million for an expense item, and tax expense exceeds book expense by $4 million for a second expense item (none of which are excluded from § 1.6011–4(b)(6) in section 4.02 of this revenue procedure), then the transaction has a book-tax difference of $12 million and is a reportable transaction under § 1.6011–4(b)(6).

.02 Exceptions. If a particular item for a specific transaction is excluded from the determination of the book-tax difference under this revenue procedure, future items reflecting that book-tax difference are also excluded from the determination of the book-tax difference for that transaction in future years, even if the subsequent reversal of the item, for example through cost recovery or an asset disposition, gives rise to a book-tax difference. Book-tax differences arising by reason of the following are not taken into account in determining whether a transaction has a significant book-tax difference under § 1.6011–4(b)(6):

(1) Items to the extent a book loss or expense is reported before or without a loss or deduction for federal income tax purposes.

(2) Items to the extent income or gain for federal income tax purposes is reported before or without book income or gain.

(3) Depreciation, depletion under § 612 of the Internal Revenue Code, and amortization relating solely to differences in methods, lives (for example, useful lives, recovery periods), or conventions, as well as differences resulting from the application of §§ 168(k), 1400I, or 1400L(b).

(4) Percentage depletion under § 613 or § 613A, and intangible drilling costs deductible under § 263(c).

(5) Capitalization and amortization under §§ 195, 248, and 709.

(6) Bad debts or cancellation of indebtedness income.

(7) Federal, state, local, and foreign taxes.

(8) Compensation of employees and independent contractors (whether or not individuals), including stock options, pensions, severance, and retirement.

(9) Charitable contributions of cash or tangible property.

(10) Tax exempt interest, including municipal bond interest.

(11) Dividends as defined in § 316 (including any dividends received deduction), amounts treated as dividends under § 78, distributions of previously taxed income under §§ 959 and 1293, and income inclusions under §§ 551, 951, and 1293.

(12) A dividends paid deduction by a publicly-traded REIT.

(13) Patronage refunds or dividends from cooperatives without a § 267 relationship to the taxpayer.

(14) Items resulting from the application of § 1033.

(15) Items resulting from the application of §§ 354, 355, 361, 367, 368, or 1031, if the taxpayer fully complies with the filing and reporting requirements for these sections, including any requirement in the regulations or in forms.

(16) Items resulting from debt-for-debt exchanges.

(17) Treatment of a transaction as a sale, purchase, or lease for book purposes and as a financing arrangement for tax purposes.

(18) Treatment of a transaction as a sale for book purposes and as a nontaxable transaction under § 860F(b)(1)(A) for tax purposes, not including differences resulting from the application of different valuation methodologies to determine the relative value of REMIC interests for purposes of allocating tax basis among those interests.

(19) Items resulting from differences solely due to the use of hedge accounting for book purposes but not for tax purposes, the use of hedge accounting under § 1.446–4 for tax purposes but not for book purposes, the use of integrated hedge accounting under § 988(d) and § 1.1275–6 for tax purposes but not for book purposes, or the use of different hedge accounting methodologies for book and tax purposes.

(20) Items resulting solely from (i) the use of a mark-to-market method of accounting for book purposes and not for tax purposes, (ii) the use of a mark-to-market method of accounting for tax purposes but not for book purposes, or (iii) in the case of a taxpayer who uses mark-to-market accounting for both book purposes and tax purposes, the use of different methodologies for book purposes and tax purposes.

(21) Items resulting from the application of § 1286.

2004–50 I.R.B. 968 December 13, 2004

spect to sales proceeds and not to the receipt of other income, such as interest received on bonds held in inventory.

(2) Transactions involving a brief asset holding period under the principles of § 246(c)(4) solely by reason of (i) a hedge that reduces only the risk of interest rate or currency fluctuations, or (ii) a guarantee issued by a person that is related to the taxpayer within the meaning of §§ 267(b) or 707(b).

(3) Transactions involving a debt instrument that has a term of 45 days or less if the taxpayer’s holding period in the debt instrument equals the debt instrument’s entire term. For purposes of this paragraph (3), the taxpayer’s holding period in the debt instrument is determined under § 1.6011–4(b)(7), except that the taxpayer’s holding period is not reduced as a result of a hedge or guarantee described in paragraph (2) of this section.

(4) Transactions resulting in a foreign tax credit for withholding taxes imposed in respect of non-dividend income or gain with respect to any property that are not disallowed under § 901(l) (including transactions eligible for the exception for securities dealers under § 901(l)(2)).