SECTION 2. DEFINITIONS

For purposes of this revenue procedure—

(1) any reference to “executor” refers to the executor as defined in section 2203;

(2) any reference to “applicant” refers to the person (or persons) authorized to file a petition with the Tax Court pursuant to section 7479;

(3) any reference to “determination” refers to a determination by the Service as to whether an election may be made under section 6166 for one or more closely held business interests or whether a valid election under section 6166 to extend the time for payment has ceased to apply; such term, however, does not include a private letter ruling, technical advice memorandum, or technical expedited advice memorandum issued by the Office of Chief Counsel;

(4) any reference to a “request for a determination” refers to an election filed under section 6166(a) (and, if applicable, an election under section 6166(b)(7), (8) or (10)) or section 6166(h);

as compensation is greater than the amount of the taxpayer’s costs (as determined under this notice) for a flight, however, the taxpayer’s deduction is limited to the taxpayer’s costs.

(9) Interaction with § 162(m)

Any amount for the entertainment use of an aircraft that is treated by the taxpayer as compensation to a specified individual who is also a “covered employee” (as defined in § 162(m)(3)) is subject to § 162(m). Thus, to the extent the covered employee’s “applicable employee remuneration” (as defined in § 162(m)(4)), including remuneration related to entertainment, exceeds $1,000,000, the taxpayer’s deduction is disallowed under § 162(m).

(10) Costs treated as compensation

The amount of costs to which this notice applies is reduced by an amount treated as compensation to a specified individual who is an employee of the taxpayer if the amount is treated as compensation for the flight on the taxpayer’s income tax return as originally filed and as wages for purposes of chapter 24 (relating to withholding of income tax at the source on wages). See § 1.274–2(f)(2)(iii)(A) and Ann. 85–113. For a specified individual who is not the taxpayer’s employee, costs are treated as compensation if the amount for the flight is included in an information return under Part III of subchapter A of chapter 61 (unless not required to be reported under those provisions). See § 1.274–2(f)(2)(iii)(B).

C. REQUEST FOR COMMENTS

The Service and the Treasury Department request comments on issues arising under this notice. Comments should be submitted in writing on or before August 1, 2005, and should include a reference to Notice 2005–45. Comments may be submitted to CC:PA:LPD:PR (Notice 2005–45), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Alternatively, comments may be submitted electronically via the following e-mail address: Notice.Comments@irscounsel.treas.gov. Please include “Notice 2005–45” in the subject line of any electronic communications.

Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (Notice 2005–45), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC 20224. All comments are available for public inspection and copying.

D. EFFECTIVE DATE

This notice applies to expenses incurred after June 30, 2005. The Service will not challenge a reasonable method of determining disallowed expenses incurred after October 22, 2004, and before July 1, 2005. Application of this notice to determine disallowed expenses is a reasonable method.

E. TRANSITION RULE FOR REPORTING DISALLOWED EXPENSES

A taxpayer that incurs expenses to which § 274(e), as amended by the AJCA, applies in a taxable year ending after October 22, 2004, but on or before May 27, 2005, may apply the disallowance of expenses for that taxable year against expenses incurred in the taxpayer’s first taxable year ending after May 27, 2005. Thus, for example, a calendar year taxpayer may choose to adjust its taxable income either (a) for its 2005 taxable year to reflect the disallowance of expenses to which this notice applies that are incurred after October 22, 2004, and before January 1, 2006, or (b) for its 2004 taxable year to reflect the disallowance of the portion of the expenses incurred after October 22, 2004, and before January 1, 2005, and for its 2005 taxable year to reflect the disallowance of the portion of the expenses incurred after December 31, 2004, and before January 1, 2006.

DRAFTING INFORMATION

The principal author of this notice is Michael A. Nixon of the Office of the Associate Chief Counsel (Income Tax & Accounting). For further information regarding this notice, contact Mr. Nixon or Christian Wood at (202) 622–4930 (not a toll-free call).

2005–24 I.R.B. 1231 June 13, 2005