SECTION 6. APPLICATION IN CASE

OF SHORT TAXABLE YEAR

.01 Special rule for taxpayers with a short taxable year . Section 1.199–2(b) of the regulations provides that, in the case of a taxpayer with a short taxable year, subject to the rules of § 1.199–2(a), the W–2 wages of the taxpayer for the short taxable year shall include only those wages paid during the short taxable year to employees of the taxpayer, only those elective deferrals (within the meaning of § 402(g)(3)) made during the short taxable year by employees of the taxpayer, and only compensation actually deferred under § 457 during the short taxable year with respect to employees of the taxpayer.

.02 Method required for a short taxable year and modifications required in appli- cation of method . The W–2 wages of a taxpayer with a short taxable year shall be determined under the tracking wages method described in section 5.03 of this revenue procedure. In applying the tracking wages method in the case of a short taxable year, the taxpayer must apply the method as follows—

(A) For purposes of section 5.03(A), the total amount of wages subject to Federal income tax withholding and reported on Form W–2 must include only those wages subject to Federal income tax withholding that are actually paid to employees during the short taxable year and reported on Form W–2 for the calendar year ending with or within that short taxable year;

(B) For purposes of section 5.03(B), only the supplemental unemployment compensation benefits paid during the short taxable year that were included in the total in section 5.03(A) as modified

2006–23 I.R.B. 1035 June 5, 2006