Part III. Administrative, Procedural, and Miscellaneous

Credit for Certain Foreign Withholding Taxes

Notice 2005–90

PURPOSE

This notice provides guidance regarding the application of section 901(l) of the Internal Revenue Code (Code). In particular, it addresses section 901(l)(1)(B), which disallows a foreign tax credit for certain withholding taxes on items of income or gain to the extent the recipient of the item is under an obligation to make related payments with respect to positions in substantially similar or related property. The Treasury Department and the Internal Revenue Service (IRS) expect to issue regulations that incorporate the guidance provided in this notice.

BACKGROUND

Section 832 of the American Jobs Creation Act of 2004 (P.L. 108–357) (the Act) added new subsection (l) to section 901 of the Code. Section 901(l) generally disallows a foreign tax credit for foreign withholding tax on any item of income (other than dividends) or gain with respect to property if (a) the recipient of the item has not held the property for more than 15 days (within a 31-day testing period), exclusive of periods during which the recipient is protected from risk of loss, or (b) the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. Section 901(l)(3) provides that the Secretary may by regulation provide that section 901(l)(1) does not apply to property where such application is not necessary to carry out the purposes of section 901(l). Section 901(l) is effective for amounts that are paid or accrued after November 21, 2004, the date which is 30 days after the date of enactment of the Act. Section 901(l) provides a rule similar to section 901(k), enacted in 1997, which disallows a foreign tax credit for certain foreign taxes paid with respect to certain dividends.

DISCUSSION

The Treasury Department and the IRS remain concerned about transactions that involve inappropriate foreign tax credit results. In this regard, the Treasury Department and the IRS believe that the credit disallowance rules of section 901(l) are important tools in preventing transactions designed for tax purposes to separate foreign taxes from the related foreign income. The language of section 901(l) and its legislative history, however, make clear that the Treasury Department and the IRS are authorized to exercise regulatory authority to prevent application of the general rule of section 901(l) in appropriate cases.

The Treasury Department and the IRS have become aware of certain business arrangements involving computer software licensing in which application of the credit disallowance rules of section 901(l) is not necessary to carry out the purposes of section 901(l). Under a typical business arrangement, a domestic corporation (X) licenses rights to a computer program (the master license agreement) to another domestic corporation (Y) for use in computers and similar and related equipment that Y employs in connection with its business or that it manufactures and markets to customers. Y conducts its business operations through various domestic and foreign subsidiaries, sublicensing rights to X’s computer program to the subsidiaries as permitted under the terms and conditions of the master license agreement. X licenses the computer program to Y rather than directly to each of Y’s subsidiaries because X wishes to centralize its customer relationship with Y and minimize administrative burdens, minimize its exposure to the credit risk and local risk of Y’s foreign subsidiaries, and protect its rights in the computer program. Pursuant to the master license agreement, Y makes payments to X when (a) Y or Y’s subsidiaries reproduce the licensed computer program on computers and other equipment used by Y or Y’s subsidiaries or (b) Y or Y’s subsidiaries reproduce and distribute X’s computer program on computers and other equipment manufactured and marketed to customers by Y or Y’s subsidiaries. Pursuant to the sublicense agreements, Y’s subsidiaries make payments to Y when

they reproduce X’s computer program on computers and other equipment that they use or when they reproduce and distribute X’s computer program on computers and other equipment that they manufacture and market to customers. Foreign gross-basis withholding taxes may be imposed with respect to the payments by Y’s foreign subsidiaries to Y.

As noted, section 901(l) generally disallows a foreign tax credit for foreign withholding tax on any item of income (other than dividends) or gain with respect to property if the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property, and section 901(l)(3) provides that the Secretary may by regulation provide that section 901(l)(1) does not apply to property where such application is not necessary to carry out the purposes of section 901(l).

Pursuant to section 901(l)(3), the Treasury Department and the IRS have determined that the application of section 901(l) to foreign withholding taxes imposed on payments in a back-to-back computer program licensing arrangement in the ordinary course of the licensor’s and licensee’s respective trades or businesses is not necessary to carry out the purposes of section 901(l). For this purpose, a “back-to-back computer program licensing arrangement” is a transaction or series of transactions in which (a) a domestic corporation (the master licensor) transfers a copyright right in a computer program or a copy of the computer program (as those terms are defined in Treas. Reg. §1.861–18(c) and (f)) to a domestic corporation (the head licensee), and (b) the head licensee transfers a copyright right in the computer program or a copy of the computer program to one or more of its affiliates, as permitted under the terms and conditions of the master license agreement, for use in computers and similar and related equipment manufactured and marketed by the affiliate (in the case of a transfer of a copyright right) or for the affiliate’s own use (in the case of a transfer of a copy of the computer program). For this purpose, an affiliate is any member of the head licensee’s affiliated group as defined in section 1504(a),

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may submit comments electronically to Notice.comments@irscounsel.treas.gov . Comments will be available for public inspection and copying. For further information regarding this notice, contact Ms. Chung of the Office of Associate Chief Counsel (International) at (202) 622–3850 (not a toll-free call).

S Corporation Family Shareholder Election

Notice 2005–91

PURPOSE

The purpose of this notice is to inform taxpayers that Treasury and the Internal Revenue Service intend to issue future guidance regarding the election under § 1361(c)(1)(D) of the Internal Revenue Code, which allows members of a family to be treated as a single S corporation shareholder (hereinafter, the election). The election was created by § 231 of the American Jobs Creation Act of 2004, Pub. L. No. 108–357, 118 Stat. 1418 (the Act), which was enacted on October 22, 2004. The guidance will provide that the election is made in a manner similar to that described in this notice. Until such guidance is issued, taxpayers may rely on this notice.

BACKGROUND

Section 231 of the Act allows any family member to make an election under new § 1361(c)(1)(D) of the Internal Revenue Code to treat all members of the family as one shareholder of an S corporation for purposes of determining the number of shareholders of the corporation. The election is relevant only to the determination of whether the corporation has no more than 100 shareholders as required under §1361(b)(1)(A) and has no impact on any other existing requirement for qualification as an S corporation.

The term “members of the family” is defined in §1361(c)(1)(B) to include (i) the common ancestor, (ii) the lineal descendants of the common ancestor, and (iii) the spouses (or former spouses) of the lineal descendants or of the common ancestor. The common ancestor may not be more than six generations removed from

except that foreign corporations and section 936 corporations meeting the ownership requirements of section 1504(a) are also included in the affiliated group.

For purposes of this notice, a backto-back computer program licensing arrangement will be in the ordinary course of the licensor’s and licensee’s respective trades or businesses if (1) the arrangement is consistent with normal business practices of the master licensor, independent of tax considerations, such as maintaining a centralized customer relationship with its licensee and minimizing administrative burdens and commercial risks; (2) the master licensor or one or more members of its affiliated group (as defined in section 1504(a)) is regularly engaged in the business of selling, leasing, or licensing computer programs; and (3) in the case of each transfer of a copyright right in the computer program or a copy of the computer program to an affiliate of the head licensee, where the payments with respect to such transfer are subject to foreign withholding taxes, the affiliate uses the copyright rights or the copy of the computer program in a trade or business within the meaning of Treas. Reg. §1.367(a)–2T(b)(2) and (b)(5).

Pursuant to section 901(l)(3), the Treasury Department and the IRS expect to issue regulations providing that section 901(l)(1)(B) will not apply to disallow a credit for foreign gross-basis withholding taxes imposed on income or gain with respect to back-to-back computer program licensing arrangements described in the preceding two paragraphs. In addition, the Treasury Department and the IRS are considering issuing regulations providing that section 901(l)(1)(B) generally will not apply to payments between members of the same consolidated group. The Treasury Department and the IRS also contemplate issuing regulations under section 901(k) and (l) addressing issues on which comments are solicited below.

EFFECTIVE DATE

The exception from the application of section 901(l)(1)(B) described in this notice is effective for amounts that are paid or accrued after November 21, 2004 (the effective date of section 901(l)). Until regulations incorporating the guidance set forth in this notice are issued, taxpayers may

rely on the guidance contained in this notice.

REQUEST FOR COMMENTS AND CONTACT INFORMATION

The Treasury Department and the IRS request comments concerning the exception to section 901(l)(1)(B) described in this notice and any additional issues that should be addressed by regulations. In particular, comments are requested on (a) whether the licensing exception should apply in the case of sublicenses to related parties that are not corporations (and which test of “relatedness” should apply), (b) the extent to which the licensing exception should apply if the master licensor or head licensee is a foreign corporation, (c) other types of licensing arrangements and types of property that should be covered by the licensing exception, (d) what restrictions should apply as part of the ordinary course of a trade or business requirement, and (e) other types of transactions that are not within the purposes of section 901(l) and the reasons for excluding such transactions from the application of section 901(l).

In addition, comments are requested on the definitions of “related payments” and “positions in substantially similar or related property” for purposes of section 901(k) and (l). In particular, comments are requested on the application of section 901(k) where the recipient of a dividend is obligated to make payments under an arrangement where such payments reflect not only the amount of the dividend but also other factors, such as changes in the value of the dividend-paying stock, dividend performance or changes in the value of a portfolio of stocks, or obligations under a debt instrument, annuity, or insurance contract. Finally, comments are requested on how regulations should address the effect of hedging transactions (including hedges of risk with respect to interest rate or currency fluctuations and credit risk) on the holding period and related payment rules of section 901(k) and (l).

Written comments may be submitted to the Office of Associate Chief Counsel (International), Attention: Ginny Chung (Notice 2005–90), CC:INTL:3, Internal Revenue Service, 1111 Constitution Avenue, NW, IR–4555, Washington, DC 20224. Alternatively, taxpayers

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The corporation is required to keep records in accordance with § 6001 and the regulations thereunder.

The principal author of this notice is Bradford R. Poston of the Office of Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding this notice, contact Bradford R. Poston at (202) 622–3060 (not a toll-free call).

Hurricane Katrina Relief Under Sections 101 and 103 of the Katrina Emergency Tax Relief Act of 2005

Notice 2005–92

PURPOSE

This notice provides guidance relating to the application of sections 101 and 103 of the Katrina Emergency Tax Relief Act of 2005, P.L. 109–73 (KETRA) for qualified individuals and eligible retirement plans. KETRA was enacted on September 23, 2005. Under section 101 of KETRA, qualified individuals receive favorable tax treatment with respect to distributions from eligible retirement plans that are qualified Hurricane Katrina distributions (Katrina distributions). A Katrina distribution is not subject to the 10% additional tax under § 72(t) of the Code (including the 25% additional tax under § 72(t)(6) for certain distributions from SIMPLE IRAs), is generally includible in income over a 3-year period, and, to the extent the distribution is eligible for tax-free rollover treatment and is contributed to an eligible retirement plan (recontributed) within a 3-year period, will not be includible in income. Section 103 of KETRA increases the allowable plan loan amount under § 72(p) of the Code and permits a suspension of payments for plan loans outstanding on or after August 25, 2005, that are made to qualified individuals.

BACKGROUND

Under § 402(c)(8) of the Code, an eligible retirement plan includes an individual retirement arrangement (IRA) under § 408(a) or (b), a qualified plan under § 401(a), an annuity plan under § 403(a), a section 403(b) plan, and a

the youngest generation of shareholders who would be members of the common ancestor’s family (but for the six-generation limit for identifying the common ancestor). This test is applied as of the later of the effective date of § 1361(c)(1), as amended by the Act, or the time the S corporation election under § 1362(a) (the S corporation election) is made. The election may be made (except as provided in Treasury regulations) by any member of the family. The election does not affect the requirement under § 1362(a)(2) that an S corporation election must be consented to by all shareholders, whether or not "members of the family,” who are shareholders at the time of the S corporation election.

The election may be made for taxable years of the S corporation beginning after December 31, 2004. The election will be effective as of the first day of the S corporation’s taxable year identified in the election as the first taxable year of the corporation for which the election is effective, and shall remain in effect until terminated as provided in regulations prescribed by the Secretary.

FAMILY SHAREHOLDER ELECTION

A member of the family who is (or is treated under § 1361 and the regulations thereunder as) a shareholder of the S corporation may make the election. The election is made by notifying the corporation to which the election applies. The notification shall identify by name the member of the family making the election, the “common ancestor” of the family to which the election applies, and the first taxable year of the corporation for which the election is to be effective.

For purposes of identifying the common ancestor (who does not have to be alive at the time the election is made) any spouse or former spouse of the common ancestor will be treated as being in the same generation as the common ancestor, and any spouse or former spouse of a lineal descendant of the common ancestor will be treated as being in the same generation as the lineal descendant to whom that spouse is or was married.

For purposes of the election, the estate of a deceased member of the family will be considered to be a member of the family during the period in which the estate, or

a trust described in § 1361(c)(2)(A)(iii), holds stock in the S corporation.

Additionally, for purposes of the election, the members of the family will include:

(1) Each potential current beneficiary of an electing small business trust (ESBT) who is a member of the family,

(2) The income beneficiary of a qualified subchapter S trust (QSST) who makes the QSST election, if that income beneficiary is a member of the family,

(3) Each beneficiary of a trust who is a member of the family, if the trust was created primarily to exercise the voting power of stock transferred to it,

(4) The member of the family for whose benefit a trust described in § 1361(c)(2)(A)(vi) was created,

(5) The deemed owner of a trust treated as wholly owned under subpart E of Part I of subchapter J of Chapter 1 of Subtitle A of the Internal Revenue Code, if that deemed owner is a member of the family, and

(6) The owner of an entity disregarded as an entity separate from its owner under § 301.7701–3 of the Procedure and Administration Regulations, if that owner is a member of the family.

If a corporation has two or more elections in effect and the members of one family for which the election has been made (the inclusive family) include all the members of another family for which the election was also made (the subsumed family), then the members of the inclusive family will be counted as one shareholder for purposes of § 1361(b)(1)(A) as long as the inclusive family’s election is in effect, and the members of the subsumed family will not be counted as a separate and additional shareholder.

The election will be effective as of the first day of the corporation’s taxable year designated by the shareholder making the election. Any election will remain in effect until terminated as provided in regulations.

Taxpayers may have already taken certain actions in order to make this election by various forms of notification to the corporation or to the IRS. In order for the election to be effective for taxable years beginning after December 31, 2004, taxpayers will need to provide the information described in this guidance to the corporation (to the extent not already provided to the corporation).

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governmental deferred compensation plan under § 457(b). Distributions from these plans are generally includible in the distributee’s gross income in the year of the distribution. For example, for qualified plans, § 402(a) provides that any amount actually distributed to a distributee is taxable to the distributee in the taxable year of the distribution under § 72. Similar rules exist for section 403(b) plans under § 403(b)(1), for governmental section 457(b) plans under § 457(a), and for IRAs under § 408(d)(1).

Section 402(f) provides that a plan is required to provide a distributee, within a reasonable period of time before an eligible rollover distribution is made, with a written explanation of the distributee’s rollover rights and the tax and other potential consequences of the distribution or rollover.

Section 402(c)(4) provides that any distribution of all or a portion of the balance to the credit of an employee under a qualified plan is an eligible rollover distribution with certain exceptions. These exceptions include substantially equal periodic payments over a specified period of at least 10 years, or for the life or the life expectancy of the employee (or the employee and the employee’s designated beneficiary); minimum distributions required under § 401(a)(9); and any distribution that is made upon the hardship of an employee. This same definition of eligible rollover distributions applies to distributions from section 403(b) plans under § 403(b)(8) and governmental section 457(b) plans under § 457(e)(16). Generally, any distribution from an IRA is eligible for rollover except a required minimum distribution or certain distributions from inherited IRAs.

Under § 401(a)(31), if a distributee elects to have an eligible rollover distribution paid directly to an eligible retirement plan and specifies the eligible retirement plan to receive the distribution, a qualified plan must pay the distribution to that eligible retirement plan in a direct rollover. Similar rules apply to section 403(b) plans under § 403(b)(10) and governmental section 457(b) plans under § 457(d)(1).

Q&A–14 of §1.401(a)(31)–1 of the Income Tax Regulations provides that if a plan accepts an invalid rollover contribution, the contribution will be treated, for purposes of applying the qualification requirements to the receiving plan,

as if it were a valid rollover contribution, if two conditions are satisfied. First, when accepting the amount from the employee as a rollover contribution, the plan administrator of the receiving plan reasonably concludes that the contribution is a valid rollover contribution. Second, if the plan administrator later determines that the rollover contribution was an invalid rollover contribution, any amount attributable to the invalid rollover contribution (including earnings) must be distributed to the employee within a reasonable amount of time after the determination.

Under § 402, if an eligible rollover distribution is contributed to an eligible retirement plan in a direct rollover or within 60 days from the date of distribution as a rollover contribution, the amount rolled over is not includible in the distributee’s gross income.

Section 72(t)(1) imposes an additional tax on early distributions from eligible retirement plans. In general, this additional tax is equal to 10% of the portion of the distribution that is includible in income. For any amount distributed from a SIMPLE IRA during the 2-year period described in § 72(t)(6), the rate of the additional tax is increased from 10% to 25%. Section 72(t)(2) provides a number of exceptions to this additional tax, including, for example, exceptions for distributions made on or after the employee attains age 59 ¹ /2, distributions made to a beneficiary on or after the employee’s death, distributions made because of the employee’s disability, and distributions that are a part of substantially equal periodic payments made over the employee’s life or life expectancy.

Section 401(k)(2)(B)(i) generally provides that amounts attributable to elective contributions under a qualified cash or deferred arrangement may not be distributable to participants or beneficiaries earlier than severance from employment, death or disability, plan termination, or attainment of age 59 ¹ /2. This same restriction applies to any amount attributable to qualified nonelective contributions and qualified matching contributions under qualified cash or deferred arrangements. An amount equal to the dollar amount of elective contributions can generally be distributed upon hardship of the employee. Parallel rules apply to custodial accounts under § 403(b)(7)(A)(ii), to annuity contracts under § 403(b)(11), and to

governmental section 457(b) plans under § 457(d)(1)(A).

Section 72(p) imposes certain requirements relating to plan loans. Unless these requirements are satisfied, an amount received by a participant as a loan is treated as having been received as a distribution from the plan (deemed distribution). Deemed distributions are includible in income and are subject to the 10% additional tax under § 72(t), unless an exception applies.

Under § 72(p)(2)(A), a plan loan (when added to the outstanding balance of all other loans outstanding) must not exceed the lesser of (1) $50,000 reduced by the excess of the highest outstanding balance of loans from the plan during the 1-year period ending on the day before the date on which the loan is made over the outstanding balance of loans from the plan on the date that the loan is made or (2) the greater of $10,000 or one-half of the present value of the participant’s nonforfeitable accrued benefit under the plan. Section 72(p)(2)(B) provides that a loan must be repaid within 5 years. However, an exception to the 5-year repayment rule applies for loans used to acquire any dwelling unit that will be used (determined at the time the loan is made) as the participant’s principal residence. Section 72(p)(2)(C) requires substantially level amortization of a plan loan (with payments not less frequently than quarterly) over the term of the loan.

Q&A–10(a) of § 1.72(p)–1 of the regulations provides that the failure to make any installment payment when due, in accordance with the terms of a loan, violates § 72(p)(2)(C) and, accordingly, results in a deemed distribution at the time of such failure. However, the plan administrator may allow a cure period and § 72(p)(2)(C) will not be considered to have been violated if the installment payment is made not later than the end of the cure period, which period cannot continue beyond the last day of the calendar quarter following the calendar quarter in which the required installment payment was due. If there is a failure to pay the installment payments required under the terms of the loan (taking into account any cure period allowed under Q&A–10(a)), then the amount of the deemed distribution equals the entire outstanding balance of the loan (including accrued interest) at the time of such failure.

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plan’s treatment of the distribution. This different treatment could occur, for example, if a qualified individual has more than one plan distribution that meets the requirements of a Katrina distribution. This different treatment could also occur if a qualified individual has distributions from more than one eligible retirement plan.

D. Certain Katrina distributions are permitted to be recontributed.

Subject to certain exceptions, distributions from an eligible retirement plan that satisfy the requirements of a Katrina distribution under section 1.C of this notice are permitted to be treated as Katrina distributions. Such distributions may be included in income ratably over 3 years and are not subject to the 10% additional tax under § 72(t) of the Code. However, only a Katrina distribution that is eligible for tax-free rollover treatment under § 402(c) (and 402(e)(6)), 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16) is permitted to be recontributed to an eligible retirement plan, and such recontribution will be treated as having been made in a direct rollover to that eligible retirement plan.

In the case of a distribution from an eligible retirement plan other than an IRA, only a Katrina distribution that is an eligible rollover distribution within the meaning of § 402(c)(4) is permitted to be recontributed to an eligible retirement plan. Thus, periodic payments (for a period of at least 10 years, or the life or the life expectancy of the employee (or the lives or joint life expectancies of the employee and the employee’s designated beneficiary)) and required minimum distributions are not permitted to be recontributed to an eligible retirement plan even though those distributions are permitted to be treated as Katrina distributions if they satisfy the requirements under section 1.C of this notice. In the case of a distribution from an IRA, only a Katrina distribution that is eligible for rollover treatment under § 408(d)(3) is permitted to be recontributed to an eligible retirement plan. Thus, required minimum distributions are not permitted to be recontributed to an eligible retirement plan. Any Katrina distribution (whether from an

SECTION 1: QUALIFIED HURRICANE KATRINA DISTRIBUTIONS

A. Special tax treatment for Qualified Hurricane Katrina distributions.

Section 101 of KETRA provides for special tax treatment for a Katrina distribution. Section 101 of KETRA provides an exception to the 10% additional tax under § 72(t) of the Code (including the 25% additional tax under § 72(t)(6) for certain distributions from SIMPLE IRAs), allows the distribution to be included in income ratably over 3 years, and provides that the distribution will be treated as though it were paid in a direct rollover to an eligible retirement plan if the distribution is eligible for tax-free rollover treatment and is recontributed to an eligible retirement plan within 3 years of the date of the distribution. Section 101 of KETRA also permits special treatment for Katrina distributions under employer retirement plans, as described in section 2 of this notice.

B. Definition of qualified individual.

For purposes of this notice, a qualified individual is an individual whose principal place of abode on August 28, 2005, is located in the Hurricane Katrina disaster area as defined in section 2(1) of KETRA and who has sustained an economic loss by reason of Hurricane Katrina. For purposes of the relief provided under KETRA, the term “Hurricane Katrina disaster area” as set forth in section 2(1) means the entire states of Louisiana, Mississippi, Alabama, and Florida. ¹

C. Definition of Katrina distribution.

Section 101(d)(1) of KETRA defines a Katrina distribution as any distribution from an eligible retirement plan made on or after August 25, 2005, and before January 1, 2007, to a qualified individual. Section 101(b) of KETRA limits the amount of distributions that can be treated as Katrina distributions to no more than $100,000.

A qualified individual is permitted to designate a distribution described above as a Katrina distribution. This designation is permitted to be made with respect

to any distribution that would meet the requirements of a Katrina distribution without regard to whether the distribution was on account of Hurricane Katrina. Thus, periodic payments and required minimum distributions received by a qualified individual from an eligible retirement plan on or after August 25, 2005, and before January 1, 2007, are permitted to be treated as Katrina distributions. Similarly, any distribution received by a qualified individual as a beneficiary can be treated as a Katrina distribution. In addition, a reduction or offset of a participant’s account balance in order to repay a plan loan, as described in Q&A–9(b) of § 1.402(c)–2 of the regulations, is permitted to be treated as a Katrina distribution. However, any amount described in Q&A–4 of §1.402(c)–2 of the regulations is not permitted to be treated as a Katrina distribution. Thus, the following amounts are not Katrina distributions: corrective distributions of excess contributions under § 415, excess elective deferrals under § 402(g), excess contributions under § 401(k), and excess aggregate contributions under § 401(m); loans that are treated as deemed distributions pursuant to § 72(p); dividends paid on applicable employer securities under § 404(k); and the costs of current life insurance protection. See section 1.D of this notice for rules relating to which Katrina distributions are permitted to be recontributed to an eligible retirement plan.

The definition of Katrina distribution under section 101(d)(1) of KETRA does not limit the designation of a Katrina distribution to amounts withdrawn solely to meet a need arising from Hurricane Katrina. Thus, even though a qualified individual is required to have sustained an economic loss, Katrina distributions are permitted without regard to the qualified individual’s need and the amount of the distribution is not required to correspond to the amount of the economic loss suffered by the qualified individual.

As explained in section 2.C of this notice, an employer retirement plan is also permitted to treat a plan distribution described above as a Katrina distribution. It is possible that a qualified individual’s designation of a Katrina distribution may be different from the employer retirement

1 This definition applies solely for purposes of relief provided under KETRA and does not apply for purposes of relief under other provisions. For example, see Notice 2005–73, 2005–42 I.R.B. 723, which defines taxpayers affected by Hurricane Katrina and designates disaster areas for purposes of the relief provided under § 7508A.

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employer retirement plan or an IRA) paid to a qualified individual as a beneficiary of an employee or IRA owner (other than the surviving spouse of the employee or IRA owner) cannot be recontributed. See section 4.C of this notice for rules relating to recontributions of Katrina distributions.

In general, a distribution from an employer retirement plan made on account of hardship is not an eligible rollover distribution. However, if such a distribution satisfies the requirements under section 1.C of this notice, then the distribution is not treated as made on account of hardship for purposes of this notice and, thus, any portion of the distribution is permitted to be recontributed to an eligible retirement plan. See section 4.C of this notice for rules relating to recontributions.

E. Definition of principal place of abode.

An individual’s principal place of abode is where the individual lives unless temporarily absent due to special circumstances. A temporary absence from the household due to special circumstances, such as illness, education, business, vacation, or military service, will not change an individual’s principal place of abode. See §§ 1.2–2, 1.152–1(b), and 1.152–2(a)(2)(ii) of the regulations for information relating to a temporary absence from a principal place of abode. If an individual’s principal place of abode was in the Hurricane Katrina disaster area immediately before August 28, 2005, and the individual evacuated because of Hurricane Katrina, the individual’s principal place of abode will be considered to be in the Hurricane Katrina disaster area on August 28, 2005.