Part I. Rulings — Internal Revenue Bulletin 2007-42

Section 62.—Adjusted Gross Income Defined

A revenue procedure provides optional rules for deeming substantiated the amount of certain business expenses of traveling away from home reimbursed to an employee or deductible by an employee or selfemployed individual. See Rev. Proc. 2007-63, page 809.

Section 162.—Trade or Business Expenses

Section 267.—Losses, Expenses, and Interest With Respect to Transactions Between Related Taxpayers

Section 274.—Disallowance of Certain Entertainment, etc., Expenses

Section 430.—Minimum Funding Standards for Single-Employer Defined Benefit Pension Plans

26 CFR 1.430(f)–1: Effect of prefunding balance and funding standard carryover balance.

The proposed regulations under section 430(f) provide guidance regarding the use of certain funding balances maintained for defined benefit pension plans. The proposed regulations reflect changes made by the Pension Protection Act of 2006. See REG-113891-07, page 821.

Section 436.—Funding- Based Limits on Benefits and Benefit Accruals Under Single-Employer Plans

26 CFR 1.436–1: Limits on benefits and benefit ac- cruals under single employer defined benefit plans.

The proposed regulations under section 436 provide guidance regarding benefit restrictions that apply to certain underfunded defined benefit pension plans. The proposed regulations reflect changes made by the Pension Protection Act of 2006. See REG-113891-07, page 821.

Section 442.—Change of Annual Accounting Period

This revenue procedure modifies a scope provision and one of the terms and conditions under which the Service grants approval of requests by corporations for changes in annual accounting periods filed under Rev. Proc. 2006–45, 2006–45 I.R.B. 851. See Rev. Proc. 2007-64, page 818.

Section 807.—Rules for Certain Reserves

(Also § 812.)

This ruling suspends Rev. Rul. 2007–54, 2007–38 I.R.B. 604, and informs taxpayers that Treasury and the Service intend to address the issues considered in Rev. Rul. 2007–54 by regulations. Rev. Rul. 2007–54 suspended.

Rev. Rul. 2007–61

Rev. Rul. 2007–54, 2007–38 I.R.B. 604, released on August 16, 2007, addresses the determination of life insurance reserves under section 807 of the Internal Revenue Code for a variable contract where some or all of the reserves are accounted for as part of a life insurance company’s separate account reserves. The ruling also addresses the interest rate used under section 812(b)(2) to calculate required interest on the reserves if the amounts of those reserves are determined under section 807(d)(2).

Sections 807 and 812 were added to the Code by the Deficit Reduction Act of 1984, P.L. 98–369 (the 1984 Act). The legislative history of the 1984 Act provides that the regulations, rulings and case law

under the Life Insurance Company Tax Act of 1959 (the 1959 Act) are to serve as interpretive guides to those 1984 Act provisions that carry over the provisions of prior law. See H. Rep. No. 432, Pt. 2, 98 ^th

Cong., 2d Sess. 1402; S. Prt. 169, Vol. 1, 98 ^th Cong. 2d Sess. 524. Since Rev. Rul. 2007–54 was issued, some taxpayers have argued that the provisions on which the ruling is based carried over from the 1959 Act to the 1984 Act, and that the ruling should not be applied retroactively because its analysis is not consistent with certain authorities under the 1959 Act.

The Treasury Department and the Internal Revenue Service (IRS) believe it is important that the company’s share and policyholders’ share of net investment income be determined in a manner that effectively prevents the double benefit that otherwise would result from the use of tax favored investment income (such as dividends qualifying for the dividends received deduction) to fund the company’s obligations to policyholders. In addition, the Treasury Department and the IRS are mindful of the benefit of notice and public comment and believe the issues in the revenue ruling would more appropriately be addressed by regulation. Accordingly, this ruling suspends Rev. Rul. 2007–54 and informs taxpayers that the Treasury Department and the IRS intend to address in regulations the issues considered in Rev. Rul. 2007–54. Until such time, the issues should be analyzed as though Rev. Rul. 2007–54 had not been issued. Regulations also may provide guidance for determining required interest under section 812(b)(2) if neither the prevailing State assumed rate nor the applicable Federal rate is used to determine the reserves for an insurance or annuity contract. This project has been added to the 2007-2008 Priority Guidance Plan and will be reflected in the next periodic update to that plan.

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 2007–54 is suspended.

DRAFTING INFORMATION

The principal author of this revenue ruling is Stephen D. Hooe of the Office of

2007–42 I.R.B. 799 October 15, 2007

Associate Chief Counsel (Financial Institutions & Products). For further information regarding this revenue ruling, contact Mr. Hooe at (202) 622–3900 (not a toll-free call).

Section 812.—Definition of Company’s Share and Policyholders’ Share

A revenue ruling that suspends Rev. Rul. 2007–54, 2007–38 I.R.B. 604, and informs taxpayers that Treasury and the Service intend to address the

issues considered in Rev. Rul. 2007–54 by regulations. See Rev. Rul. 2007-61, page 799.

Section 898.—Taxable Year of Certain Foreign Corporations

Section 6061.—Signing of Returns and Other Documents

This notice allows Electronic Return Originators (EROs) to sign the following forms by rubber stamp, mechanical device (such as signature pen), or computer software program: Form 8453, U.S. Individ- ual Income Tax Declaration for an IRS e-file Return ; Form 8878, IRS e-file Signature Authorization for Form 4868 or Form 2350 ; and Form 8879, IRS e-file Signature Authorization . See Notice 2007-79, page 809.

October 15, 2007 800 2007–42 I.R.B.