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Introduction›SECTION 5. EFFECTIVE DATE

Part IV. Items of General Interest

Internal Revenue Bulletin 2009-20 · 2026-10-03 edition · updated 2026-10-04 · United States

Notice of Proposed Rulemaking by Cross-Reference to Temporary Regulations

Use of Actuarial Tables in Valuing Annuities, Interests for Life or Terms of Years, and Remainder or Reversionary Interests

REG–107845–08

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary regulations.

SUMMARY: These proposed regulations relate to the use of actuarial tables in valuing annuities, interests for life or terms of years, and remainder or reversionary interests. These regulations will affect the valuation of inter vivos and testamentary transfers of interest dependent on one or more measuring lives. These regulations are necessary because section 7520(c)(3) directs the Secretary to update the actuarial tables to reflect the most recent mortality experience available. The text of the temporary regulations (T.D. 9448) in this issue of the Bulletin also serves as the text of these proposed regulations.

DATES: Written and electronic comments and requests for a public hearing must be received by August 5, 2009.

ADDRESSES: Send submissions to CC:PA:LPD:PR (REG–107845–08), room 5205, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG–107845–08), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC, or sent via the Federal eRulemaking Portal at www.regulations.gov (REG–107845–08).

FOR FURTHER INFORMATION CONTACT: Mayer R. Samuels, (202) 622–3090; concerning submissions of comments, Richar.A.Hurst@irscounsel.treas.gov, (202) 622–7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

Temporary regulations in this issue of the Bulletin amend Income Tax Regulations (26 CFR part 1) under sections 642(c)(5) and 664, Estate Tax Regulations (26 CFR part 20) under section 2031, and Gift Tax Regulations (26 CFR part 25) under section 2512. These regulations revise actuarial tables used for the valuation of partial interests in property under section 7520 to reflect the mortality experience based on the 2000 United States census, the most recent mortality experience available.

The text of those temporary regulations also serves as the text of these proposed regulations. The preamble to the temporary regulations explains the temporary regulations.

Special Analyses

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in EO 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because these regulations do not impose a collection of information requirement on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Internal Revenue Code this regulation has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Comments and Requests for a Public Hearing

Before these proposed regulations are adopted as final regulations, consideration

will be given to any written (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. The IRS and the Treasury Department also request comments on the clarity of the proposed rules and how they can be made easier to understand. All comments will be available for public inspection and copying. A public hearing will be scheduled if requested in writing by any person that timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place for the public hearing will be published in the Federal Register .

- - - -

Drafting Information

The principal author of these regulations is Mayer R. Samuels, Office of the Associate Chief Counsel (Passthroughs and Special Industries), IRS. However, other personnel from the IRS and Treasury Department participated in their development.

Proposed Amendments to the Regulations

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * * Par. 2. Section 1.170A–12 is amended as follows:

  1. Paragraphs (b)(2) and (b)(3) are revised.

  2. Paragraph (f) is added. The revisions and addition read as follows:

§1.170A–12 Valuation of a remainder interest in real property for contributions made after July 31, 1969 .

        • (b) - * (2) [The text of this proposed paragraph (b)(2) is the same as the text of §1.170A–12T(b)(2) published elsewhere in this issue of the Bulletin].

2009–20 I.R.B. 1014 May 18, 2009

(d)(3), (d)(4), (d)(5), (d)(7), and (e) to read as follows:

§20.2031–7 Valuation of annuities, interests for life or term of years, and remainder or reversionary interests .

        • (c) [The text of this proposed paragraph (c) is the same as the text of §20.2031–7T(c) published elsewhere in this issue of the Bulletin].

(d) [The text of this proposed paragraph (d)(1) through (d)(5) is the same as the text of §20.2031–7T(d)(1) through (d)(5) published elsewhere in this issue of the Bulletin].

        • (7) [The text of this proposed paragraph (d)(7) is the same as the text of §20.2031–7T(d)(7) published elsewhere in this issue of the Bulletin].

(e) [The text of this proposed paragraph (e) is the same as the text of §20.2031–7T(e) published elsewhere in this issue of the Bulletin].

Par. 8. Section 20.2032–1 is amended by revising paragraphs (f)(1) and (h) to read as follows:

§20.2032–1 Alternate valuation .

        • (f) - - (1) [The text of this proposed paragraph (f)(1) is the same as the text of §20.2032–1T(f)(1) published elsewhere in this issue of the Bulletin].
        • (h) [The text of this proposed paragraph (h) is the same as the text of §20.2032–1T(h) published elsewhere in this issue of the Bulletin].

Par. 9. Section 20.2055–2 is amended by revising paragraphs (e)(3)(iii) and (f)(4) to read as follows:

§20.2055–2 Transfers not exclusively for charitable purposes .

        • (e) * - (3) - * (iii) [The text of this proposed paragraph (e)(3)(iii) is the same as the text of §20.2055–2T(e)(3)(iii) published elsewhere in this issue of the Bulletin].

(3) [The text of this proposed paragraph (b)(3) is the same as the text of §1.170A–12T(b)(3) published elsewhere in this issue of the Bulletin].

        • (f) [The text of this proposed paragraph (f) is the same as the text of §1.170A–12T(f) published elsewhere in this issue of the Bulletin].
        • Par. 3. Section 1.642(c)–6 is amended by revising paragraphs (d), (e) and (f) to read as follows:

§1.642(c)–6 Valuation of a remainder interest in property transferred to a pooled income fund .

        • (d) [The text of this proposed paragraph (d) is the same as the text of §1.642(c)–6T(d) published elsewhere in this issue of the Bulletin].

(e) [The text of this proposed paragraph (e) is the same as the text of §1.642(c)–6T(e) published elsewhere in this issue of the Bulletin].

(f) [The text of this proposed paragraph (f) is the same as the text of §1.642(c)–6T(f) published elsewhere in this issue of the Bulletin].

Par. 4. Section 1.664–4 is amended by revising paragraphs (a)(1), (d), (e)(1), (e)(2), (e)(5), (e)(7), and (f) to read as follows:

§1.664–4 Calculation of the fair market value of the remainder interest in a charitable remainder unitrust .

(a) - * (1) [The text of this proposed paragraph (a)(1) is the same as the text of §1.664–4T(a)(1) published elsewhere in this issue of the Bulletin].

        • (d) [The text of this proposed paragraph (d) is the same as the text of §1.664–4T(d) published elsewhere in this issue of the Bulletin].

(e)(1) [The text of this proposed paragraph (e)(1) is the same as the text of §1.664–4T(e)(1) published elsewhere in this issue of the Bulletin].

(e)(2) [The text of this proposed paragraph (e)(2) is the same as the text of §1.664–4T(e)(2) published elsewhere in this issue of the Bulletin].

        • (e)(5) [The text of this proposed paragraph (e)(5) is the same as the text of §1.664–4T(e)(5) published elsewhere in this issue of the Bulletin].
        • (e)(7) [The text of this proposed paragraph (e)(7) is the same as the text of §1.664–4T(e)(7) published elsewhere in this issue of the Bulletin].

(f) [The text of this proposed paragraph (f) is the same as the text of §1.664–4T(f) published elsewhere in this issue of the Bulletin].

Par. 5. Section 1.7520–1 is amended by revising paragraphs (a)(1), (a)(2), (b)(2), (c)(1), (c)(2) and (d) to read as follows:

§1.7520–1 Valuation of annuities, unitrust interest, interests for life or terms of years, and remainder or reversionary interests .

(a) (1) [The text of this proposed paragraph (a)(1) is the same as the text of §1.7520–1T(a)(1) published elsewhere in this issue of the Bulletin].

(2) [The text of this proposed paragraph (a)(2) is the same as the text of §1.7520–1T(a)(2) published elsewhere in this issue of the Bulletin].

(b) - - (2) [The text of this proposed paragraph (b)(2) is the same as the text of §1.7520–1T(b)(2) published elsewhere in this issue of the Bulletin].

(c) - - (1) [The text of this proposed paragraph (c)(1) is the same as the text of §1.7520–1T(c)(1) published elsewhere in this issue of the Bulletin].

(2) [The text of this proposed paragraph (c)(2) is the same as the text of §1.7520–1T(c)(2) published elsewhere in this issue of the Bulletin].

(d) [The text of this proposed paragraph (d) is the same as the text of §1.7520–1T(d) published elsewhere in this issue of the Bulletin].

PART 20—ESTATE TAX; ESTATES OF DECEDENTS DYING AFTER AUGUST 16, 1954

Par. 6. The authority citation for part 20 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * Par. 7. Section 20.2031–7 is amended by revising paragraphs (c), (d)(1), (d)(2),

May 18, 2009 1015 2009–20 I.R.B.

§25.7520–1T(a)(1) published elsewhere in this issue of the Bulletin].

(2) [The text of this proposed paragraph (a)(2) is the same as the text of §25.7520–1T(a)(2) published elsewhere in this issue of the Bulletin].

(3) - * (b) - * (2) [The text of this proposed paragraph (b)(2) is the same as the text of §25.7520–1T(b)(2) published elsewhere in this issue of the Bulletin].

(c) * - (1) [The text of this proposed paragraph (c)(1) is the same as the text of §25.7520–1T(c)(1) published elsewhere in this issue of the Bulletin].

(2) [The text of this proposed paragraph (c)(2) is the same as the text of §25.7520–1T(c)(2) published elsewhere in this issue of the Bulletin].

(d) [The text of this proposed paragraph (d) is the same as the text of §25.7520–1T(d) published elsewhere in this issue of the Bulletin].

Par. 16. Section 25.7520–3 is amended as follows:

  1. In paragraph (b)(2)(v), Example 5 is revised.

  2. Paragraph (b)(4) is revised.

  3. Paragraph (c) is revised. The revised text reads as follows:

§25.7520–3 Limitation on the application of section 7520 .

        • (b) - * (2) - * (v) - * Example 5 . [The text of this proposed paragraph (b)(2)(v), Example 5 is the same as the text of §25.7520–3T(b)(2)(v), Example 5, published elsewhere in this issue of the Bulletin].
        • (b)(4) [The text of this proposed paragraph (b)(4) is the same as the text of §25.7520–3T(b)(4) published elsewhere in this issue of the Bulletin].
        • (c) [The text of this proposed paragraph (c) is the same as the text of §25.7520–3T(c) published elsewhere in this issue of the Bulletin].

Linda E. Stiff, Deputy Commissioner for Services and Enforcement.

(f) - - (4) [The text of this proposed paragraph (f)(4) is the same as the text of §20.2055–2T(f)(4) published elsewhere in this issue of the Bulletin].

Par. 10. Section 20.2056A–4 is amended by revising paragraph (c)(4)(ii)(B) and Example 4 in paragraph (d) to read as follows:

§20.2056A–4 Procedures for conforming marital trusts and nontrust marital transfers to the requirements of a qualified domestic trust .

        • (c) - - (4) - - (ii) * - (B) [The text of this proposed paragraph (c)(4)(ii)(B) is the same as the text of §20.2056A–4T(c)(4)(ii)(B) published elsewhere in this issue of the Bulletin].
        • (d) - - Example 4 . [The text of this proposed paragraph (d), Example 4 is the same as the text of Example 4 in §20.2056A–4T(d) published elsewhere in this issue of the Bulletin].

Par. 11. Section 20.7520–1 is amended by revising paragraphs (a)(1), (a)(2), (b)(2), (c)(1), (c)(2) and (d) to read as follows:

§20.7520–1 Valuation of annuities, unitrust interests, interests for life or term of years, and remainder or reversionary interests .

(a) - - *(1) [The text of this proposed paragraph (a)(1) is the same as the text of §20.7520–1T(a)(1) published elsewhere in this issue of the Bulletin].

(2) [The text of this proposed paragraph (a)(2) is the same as the text of §20.7520–1T(a)(2) published elsewhere in this issue of the Bulletin].

(3) - - (b) - - (2) [The text of this proposed paragraph (b)(2) is the same as the text of §20.7520–1T(b)(2) published elsewhere in this issue of the Bulletin].

(1) [The text of this proposed paragraph (c)(1) is the same as the text of §20.7520–1T(c)(1) published elsewhere in this issue of the Bulletin].

(2) [The text of this proposed paragraph (c)(2) is the same as the text of

§20.7520–1T(c)(2) published elsewhere in this issue of the Bulletin].

(d) [The text of this proposed paragraph (d) is the same as the text of §20.7520–1T(d) published elsewhere in this issue of the Bulletin].

PART 25—GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954

Par. 12. The authority citation for part 25 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * Par. 13. Section 25.2512–5 is amended by revising paragraphs (c), (d) and (e) to read as follows:

§25.2512–5 Valuation of annuities, unitrust interest, interests for life or term of years, and remainder or reversionary interests .

        • (c) [The text of this proposed paragraph (c) is the same as the text of §25.2512–5T(c) published elsewhere in this issue of the Bulletin].

(d) [The text of this proposed paragraph (d) is the same as the text of §25.2512–5T(d) published elsewhere in this issue of the Bulletin].

(e) [The text of this proposed paragraph (e) is the same as the text of §25.2512–5T(e) published elsewhere in this issue of the Bulletin].

Par. 14. Section 25.2522(c)–3 is amended by revising paragraph (e) to read as follows:

§25.2522(c)–3 Transfers not exclusively for charitable, etc., purposes in the case of gifts made after July 31, 1969 .

        • (e) [The text of this proposed paragraph (e) is the same as the text of §25.2522(c)–3T(e) published elsewhere in this issue of the Bulletin].

Par. 15. Section 25.7520–1 is amended by revising paragraphs (a)(1), (a)(2), (b)(2), (c)(1), (c)(2) and (d) to read as follows:

§25.7520–1 Valuation of annuities, unitrust interests, interests for life or term of years, and remainder or reversionary interests .

(a) - - *(1) [The text of this proposed paragraph (a)(1) is the same as the text of

2009–20 I.R.B. 1016 May 18, 2009

portion of the trust corpus necessary to generate a return sufficient to pay the decedent’s retained annuity, unitrust, or other payment.

One commentator suggested that the regulations address the portion of trust corpus of a GRAT includible in the grantor’s gross estate under section 2036 if the deceased grantor retains an interest described in §25.2702–3(b)(1)(ii)(A); that is, the annuity interest retained by the grantor increases annually during the term of the trust (a graduated retained interest). The commentator suggested two possible methods for determining the portion of GRAT corpus includible in the grantor’s gross estate if the grantor dies during the term of such a GRAT.

Another commentator questioned the result in the example contained in §20.2036–1(c)(1)(ii) of the proposed regulations. This example considered the situation where the decedent (D) creates an irrevocable inter vivos trust, under the terms of which all trust income is to be paid to D and E, D’s spouse, in equal shares during their joint lives and, on the death of the first to die of D and E, all trust income is to be paid to the survivor. On the death of the survivor of D and E, the remainder is to be paid to another individual, F. D dies survived by E. The example concludes that, because D retained the right to receive 50 percent of the trust income for a period that did not in fact end before D’s death, 50 percent of the trust’s corpus is includible in D’s gross estate under section 2036. The example also concludes that, if instead E had predeceased D, D would have died while entitled to all of the income from the trust, so that the entire trust corpus would have been includible in D’s gross estate under section 2036.

The commentator noted that, because E is identified as D’s spouse, the example unnecessarily raises issues under section 2523 (gift tax marital deduction). In addition, the commentator opined that, under the facts presented, D has retained the right to receive one-half of trust income during the joint lives of D and E, and the right to receive 100 percent of the trust income if D survives E. Thus, 50 percent of the trust corpus is includible in D’s gross estate by virtue of D’s retained right to receive 50 percent of the trust income during D’s life, and the remaining 50 percent of

(Filed by the Office of the Federal Register on May 1, 2009, 4:15 p.m., and published in the issue of the Federal Register for May 7, 2009, 74 F.R. 21519)

Notice of Proposed Rulemaking

Section 2036—Graduated Retained Interests

REG–119532–08

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains proposed regulations that provide guidance on the portion of trust property includible in the grantor’s gross estate if the grantor has retained the use of the property, the right to an annuity, unitrust, graduated retained interest, or other payment from such property for life, for any period not ascertainable without reference to the grantor’s death, or for a period that does not in fact end before the grantor’s death. The proposed regulations will affect estates that file Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return .

DATES: Written or electronic comments and requests for a public hearing must be received by June 1, 2009.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG–119532–08), Internal Revenue Service, Room 5203, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG–119532–08), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC 20224; or sent electronically via the Federal eRulemaking Portal at http://www.regulations.gov (IRS REG–119532–08).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Theresa M. Melchiorre, at (202) 622–3090; concerning submissions of comments or to request a hearing, Richard A. Hurst at

Richard.A.Hurst @irscounsel.treas.gov or (202) 622–7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

On June 7, 2007, proposed regulations (REG–119097–05, 2007–1 C.B. 74) were published in the Federal Regis- ter [72 FR 31487] providing guidance on the portion of trust corpus properly includible in a grantor’s gross estate under sections 2036 and 2039. The IRS and Treasury Department determined that certain comments received in response to the proposed regulations should be addressed in a separate notice of proposed rulemaking, instead of in the final regulations published on July 14, 2008

[73 FR 40173], as T.D. 9414, 2008–35 I.R.B. 454. Accordingly, this notice of proposed rulemaking proposes additional changes to the regulations in response to those comments.

The proposed regulations (REG–119097–05) addressed the amount includible in the gross estate under sections 2036 and 2039 if the grantor retains the right to receive an annuity, unitrust, or other payment from a trust for life, for any period not ascertainable without reference to the grantor’s death, or for a period that does not in fact end before the grantor’s death. The trusts that were the subject of the proposed regulations included grantor retained interest trusts (GRTs), such as grantor retained income trusts (GRITs), grantor retained annuity trusts (GRATs) and grantor retained unitrusts (GRUTs) described in section 2702, whether or not the grantor’s retained interest was a “qualified interest” under section 2702(b), as well as other trust forms, including charitable remainder trusts (CRTs), such as charitable remainder unitrusts (CRUTs) and charitable remainder annuity trusts (CRATs) described in section 664 whether or not the trust met the qualifications of section 664(d)(1), (2), or (3). The proposed regulations incorporated the methodology provided in Rev. Rul. 76–273, 1976–2 C.B. 268, and Rev. Rul. 82–105, 1982–1 C.B. 133. See §601.601(d)(2)(ii)( b ). Under this methodology, the portion of the corpus of a GRT or a CRT includible in the decedent’s gross estate under section 2036 is that

May 18, 2009 1017 2009–20 I.R.B.

odic addition (adjusted for payments made more frequently than annually, if applicable, and for payments due at the beginning, rather than the end, of a payment period (See Table K or J of §20.2031–7(d)(6)) by the section 7520 rate (periodic addition / rate); and the second is 1 divided by the sum of 1 and the section 7520 rate raised to the T power (1 / (1 + rate)^T). For purposes of this formula, T is the time (expressed in years or a portion of a year) between the date of the decedent’s death and the first day of the trust’s first year for which the periodic addition is payable. The periodic addition for each year after the year in which the decedent’s death occurs is the amount (if any) by which the annuity, unitrust, or other payment that would have been payable for that year (if the decedent had survived) exceeds the total amount of payments for the year immediately preceding that year, provided that payments increase (and do not ever decrease). This formula would be:

the trust corpus (reduced by the actuarial value of E’s income interest) is includible in D’s gross estate under section 2036 by virtue of D’s retained right to receive all of the trust income provided D survives E.

Explanation of Provisions

In response to the comments, these proposed regulations provide the method to be used to determine the portion of trust corpus includible in the grantor’s gross estate if the grantor reserves a graduated retained interest in a trust. This method applies to graduated retained interests in property whether or not the property is held in trust.

The portion of the corpus of a GRT or a CRT includible in the decedent’s gross estate under section 2036 is that portion of the trust corpus necessary to generate a return sufficient to pay the decedent’s retained annuity, unitrust, or other payment. Consistent with this approach, the proposed methodology measures the amount of corpus needed to generate sufficient in

come to produce the payments that would have been due even after the decedent’s death, as if the decedent had survived and continued to receive the retained interest. Thus, under the proposed methodology, the amount of corpus necessary to produce the retained graduated interest is the sum of the following amounts: (1) the amount of corpus required to generate sufficient income to pay, without reducing or invading principal, the annual amount payable to the decedent at the decedent’s death calculated pursuant to §20.2036–1(c)(2)(i); and (2) for each succeeding year of the trust, the amount of corpus required to generate sufficient income to pay, without reducing or invading principal, the increase (if any) in the annuity, unitrust, or other payment for that year, deferred until the beginning date of that increase. The formula to be applied in calculating the corpus for each such succeeding year of the trust is the product of two factors: the first is the result of dividing the peri

(Periodic Addition) x (Adjustment Factor) X 1

Section 7520 Rate (1+ Section 7520 Rate) T

shall not be less than the amount of corpus required to produce sufficient income to satisfy the annuity or other payment the decedent was entitled to receive for the trust’s year in which the decedent’s death occurred. In no event, however, shall the amount includible exceed the value of the trust corpus on the date of death.

Proposed Effective Date

All of §20.2036–1(b)(1)(ii), the introductory text of §20.2036–1(c)(1)(ii), Example 1 of §20.2036–1(c)(1)(ii), all of §20.2036–1(c)(2)(ii), and Example 7 of §20.2036–1(c)(2)(iii) are applicable to estates of decedents dying on or after the date of publication in the Federal Regis- ter of the Treasury decision adopting these rules as final regulations.

Special Analyses

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been

Where adjustment factor, if applicable, is the factor for payments made more frequently than annually, and for payments due at the beginning, rather than the end, of a calendar period (See Table K or J of §20.2031–7(d)(6)) and T equals the time period in years from the date of death through the last day of the trust year immediately before the year for which the periodic addition is first payable. The proposed regulations also add §20.2036–1(c)(2)(iii), Example 7, illustrating this computation.

In addition, in response to the comments, §20.2036–1(c)(1)(ii), Example 1 (which was reserved in the final regulations REG–119097–05 (T.D. 9414)) is added. In this example, trust income is payable to D and C, D’s child, in equal shares during their joint lives and, on the death of the first to die of D and C, all trust income is to be paid to the survivor. The example concludes that, if D dies before C, 100 percent of the trust corpus, reduced by the present value of C’s life interest, is includible in D’s gross estate under section 2036. Fifty percent of the trust

corpus is includible in D’s gross estate because D retained the right to receive 50 percent of the trust’s income for life. The remaining 50 percent of the trust corpus (less the present value of C’s outstanding life interest) is includible in D’s gross estate because at D’s death D retained the right to receive all of the trust income if D survived C. This result is consistent with §20.2036–1(b)(1)(ii).

Finally, §20.2036–1(b)(1)(ii) is amended to clarify the computation of the includible amount if the decedent retained the right to receive an annuity or other payment (rather than income) after the death of the current recipient of that interest. Example 1 of §20.2036–1(c)(1)(ii) has been expanded to provide an illustration of this computation. In general, under this computation, the amount includible is the portion of the date of death value of the trust corpus required to produce sufficient income to satisfy the annuity or other payment the decedent would have been entitled to receive if the decedent had survived the current recipient, reduced by the present value of the current recipient’s interest. However, the amount includible

2009–20 I.R.B. 1018 May 18, 2009

amount of corpus required to generate sufficient income to pay the annuity, unitrust, or other payment (determined on the date of the decedent’s death) payable to the decedent for the trust year in which the decedent’s death occurred.

(C) Step 3: Determine, in accordance with paragraph (c)(2)(i) of this section, the amount of corpus required to generate sufficient income to pay the annuity, unitrust, or other payment that the decedent would have been entitled to receive for each trust year if the decedent had survived the current recipient.

(D) Step 4: Determine the present value of the current recipient’s annuity, unitrust, or other payment.

(E) Step 5: Reduce the amount determined in Step 3 by the amount determined in Step 4, but not to below the amount determined in Step 2.

(F) Step 6: The amount includible in the decedent’s gross estate under section 2036 is the lesser of the amounts determined in Step 5 and Step 1.

        • (c) * * * (1) * * * (ii) Examples . The application of paragraphs (b)(1)(ii) and (c)(1)(i) of this section is illustrated in the following examples:

Example 1 . (i) In 2001, Decedent (D) creates an irrevocable inter vivos trust. The terms of the trust provide that all of the trust income is to be paid to D and C, D’s child, in equal shares during their joint lives and, on the death of the first to die of D and C, all of the trust income is to be paid to the survivor. On the death of the survivor of D and C, the remainder is to be paid to another individual, F. In 2009, D dies survived by C. Fifty percent of the value of the trust corpus is includible in D’s gross estate under section 2036(a)(1) because, under the terms of the trust, D retained the right to receive one-half of the trust income for D’s life. In addition, the value of the remaining 50 percent of the trust corpus, less the present value of C’s outstanding life estate, also is includible in D’s gross estate under section 2036(a)(1), because D retained the right to receive all of the trust income for such time as D survived C. If C had predeceased D, then 100 percent of the trust corpus would have been includible in D’s gross estate.

(ii) Assume the same facts as above, except that the trust provides that, rather than all the income, an annuity of $10,000 per year is to be paid to D and C in equal shares during their joint lives and, on the death of the first to die of D and C, the entire $10,000 annuity is to be paid to the survivor for life. On D’s date of death, the fair market value of the trust is $120,000 and the section 7520 rate is 7 percent. At the date of death, the amount of trust corpus needed to produce D’s annuity interest ($5,000 per year) is $71,429 ($5,000/.07). In addition, assume the present value of C’s right to receive $5,000 annually for the

determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations and, because these regulations do not impose on small entities a collection of information requirement, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Internal Revenue Code, this regulation has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Comments and Requests for a Public Hearing

Before these proposed regulations are adopted as final regulations, consideration will be given to any written (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. The IRS and the Treasury Department also request comments on the clarity of the proposed regulations and how they may be made easier to understand. All comments will be available for public inspection and copying. A public hearing may be scheduled if requested in writing by any person that timely submits written comments to the IRS. If a public hearing is scheduled, notice of the date, time, and place for the hearing will be published in the Federal Register .

Drafting Information

The principal author of these regulations is Theresa M. Melchiorre, Office of Associate Chief Counsel (Passthroughs and Special Industries), IRS.

- - - -

Proposed Amendments to the Regulations

Accordingly, 26 CFR part 20 is proposed to be amended as follows:

PART 20—ESTATE TAX; ESTATES OF DECEDENTS DYING AFTER AUGUST 16, 1954

Paragraph 1. The authority citation for part 20 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * * Par. 2. Section 20.2036–1 is amended by:

  1. Revising paragraph (b)(1)(ii) and paragraph (c)(1)(ii) introductory text.

  2. Adding paragraphs (c)(1)(ii) Ex- ample 1, (c)(2)(ii), (c)(2)(iii) Example 7, and two sentences at the end of paragraph (c)(3).

The revisions and additions read as follows:

§20.2036–1 Transfers with retained life estate.

        • (b) * * * (1) * * * (ii) A decedent reserved the right to receive the income, annuity, or other payment from transferred property after the death of another person who was in fact enjoying the income, annuity, or other payment at the time of the decedent’s death. In such a case, the amount to be included in the decedent’s gross estate under this section does not include the value of the outstanding interest of the other person. If the other person predeceased the decedent, the reservation by the decedent may be considered to be either for life, or for a period which does not in fact end before death. If the decedent retained the right to receive an annuity or other payment (rather than income) after the death of the current recipient of that interest, then the amount includible in the decedent’s gross estate under section 2036 is the amount of trust corpus required to produce sufficient income to satisfy the entire annuity or other payment the decedent would have been entitled to receive if the decedent had survived the current recipient (thus, also including the portion of that entire amount payable to the decedent before the current recipient’s death), reduced by the present value of the current recipient’s interest. However, the amount includible shall not be less than the amount of corpus required to produce sufficient income to satisfy the annuity or other payment the decedent was entitled, at the time of the decedent’s death, to receive for each year. In no event, however, shall the amount includible exceed the value of the trust corpus on the date of death. The following steps implement this computation.

(A) Step 1: Determine the fair market value of the trust corpus on the date of death.

(B) Step 2: Determine, in accordance with paragraph (c)(2)(i) of this section, the

May 18, 2009 1019 2009–20 I.R.B.

remainder of C’s life is $40,000. The portion of the trust corpus includible in D’s gross estate under section 2036(a)(1) is $102,857, determined as follows:

(A) Step 1: Fair market value of corpus. $120,000

(B) Step 2: Corpus required to produce D’s date of death annuity ($5,000/.07). $71,429

(C) Step 3: Corpus required to produce D’s annuity if D had survived C ($10,000/.07).

$142,857

(D) Step 4: Present value of C’s interest. $40,000

(E) Step 5: The amount determined in Step 3 reduced by the amount determined in Step 4, but not to below the amount determined in Step 2 ($142,857 $40,000, but not less than $71,429).

(F) Step 6: The lesser of the amounts determined in Steps 5 and 1 ($102,857 or $120,000).

$102,857

$102,857

        • (2) * * * (i) * * * (ii) Graduated retained interests —(A) In general . For purposes of this section, a graduated retained interest is the grantor’s reservation of a right to receive an annuity, unitrust, or other payment as described in paragraph (c)(2)(i) of this section, payable at least annually, that increases (but does not decrease) over a period of time, not more often than annually.

(B) Other definitions —( 1 ) Base amount . The base amount is the amount

of corpus required to generate the annuity, unitrust, or other payment payable for the trust year in which the decedent’s death occurs. See paragraph (c)(2)(i) of this section for the calculation of the base amount.

( 2 ) Periodic addition . The periodic ad- dition in a graduated retained interest for each year after the year in which decedent’s death occurs is the amount (if any) by which the annuity, unitrust, or other payment that would have been payable for that year if the decedent had survived exceeds the total amount of payments for the

(1) Annual Payment

(2) Prior Year Payment

year immediately preceding that year. For example, assume the trust instrument provides that the grantor is to receive an annual annuity payable to the grantor or his estate for a 5-year term. The initial annual payment is $100,000, and each succeeding annual payment is to be 120 percent of the amount payable for the preceding year. Assuming the grantor dies in the second year of the trust (whether before or after the due date of the second annual payment), the periodic additions for years 3, 4, and 5 of the trust are as follows:

(1 - 2) Periodic Addition

Year 3 144,000 120,000 24,000 Year 4 172,800 144,000 28,800 Year 5 207,360 172,800 34,560

due at the beginning, rather than the end, of a payment period (see Table K or J of §20.2031–7(d)(6)) by the section 7520 rate (periodic addition / rate); and the second is 1 divided by the sum of 1 and the section 7520 rate raised to the T power (1 / (1 + rate)^T).

( i ) That formula is:

( 3 ) Corpus amount . For each trust year in which a periodic addition occurs (increase year), the corpus amount is the amount of trust corpus which, starting from the decedent’s date of death, is necessary to generate an amount of income sufficient to pay the periodic addition, beginning in the increase year and con

tinuing in perpetuity, without reducing or invading principal. For each year with a periodic addition, the corpus amount required as of the date of death is the product of two factors: the first is the result of dividing the periodic addition (adjusted for payments made more frequently than annually, if applicable, and for payments

(Periodic Addition) x (Adjustment Factor) X 1

Section 7520 Rate (1+ Section 7520 Rate) (1+ Section 7520 Rate) T

each year for which a periodic addition is first payable. The sum of these amounts represents the amount of trust principal that would be necessary to generate the annual payments that would have been paid to the decedent if the decedent had survived and had continued to receive the re

( ii ) Where adjustment factor, if applicable, is the factor for payments made more frequently than annually and for payments due at the beginning, rather than the end, of a calendar period (See Table K or J of §20.2031–7(d)(6)) and T equals the time period in years from the date of

death through the last day of the trust year immediately before the year for which the periodic addition is first payable.

(C) Amount includible . The amount includible in the gross estate in the case of a graduated retained interest is the sum of the base amount and the corpus amount for

2009–20 I.R.B. 1020 May 18, 2009

served graduated retained interest. The amount of trust corpus includible in a decedent’s gross estate under this section, however, shall not exceed the fair market value of the trust corpus on the decedent’s date of death. The provisions of this section also apply to graduated retained interests in transferred property not held in trust.

(iii) * -

Example 7 . (i) On November 1, year N, D transfers assets valued at $2,000,000 to a GRAT. Under the terms of the GRAT, the trustee is to pay to D an annuity for a 5-year term that qualifies as a qualified interest described in section 2702(b). The annuity amount is to be paid annually at the end of each trust year, on October 31st. The first annual payment is to be $100,000. Each succeeding payment is to be 120 percent of the amount paid in the preceding year. Income not distributed in any year is to be added to principal. If D dies during the 5-year term, the payments are to be made to D’s estate for the balance of the GRAT term. At the end of the 5-year term, the trust is to ter

minate and the corpus is to be distributed to C, D’s child. D dies on January 31st of the third year of the GRAT term. On the date of D’s death, the value of the trust corpus is $3,200,000 and the section 7520 interest rate is 6.8 percent. D’s executor does not elect to value the gross estate as of the alternate valuation date.

(ii) The amount includible in D’s gross estate under section 2036(a)(1) is determined and illustrated as follows using the methodology contained in paragraph (c)(2)(ii)(C) of this section:

(iii) An illustration of the amount of trust corpus (as of the decedent’s death)

necessary to produce the scheduled payments is as follows:

Year 3 Year 4 Year 5 Includible

Amount

Additional Annuity $34,560 Deferral Period $453,026 $453,026

Additional Annuity $28,800 Deferral Period $403,193 $403,193

Annuity in Year

of Death

$144,000 $2,117,647 $2,117,647

Total amount included in gross estate (sum) $2,973,866

umn D in year 3 also would have to be so adjusted. Under the facts presented, section 2039 does not apply to include any amount in D’s gross estate by reason of this retained interest. See §20.2039–1(e).

(3) * * * Paragraph (b)(1)(ii) of this section is applicable to estates of decedents dying on or after the date of publication in the Federal Register of the Treasury decision adopting these rules as final regulations. The introductory text of paragraph (c)(1)(ii) of this section, Example 1 of paragraph (c)(1)(ii) of this section, all of paragraph (c)(2)(ii) of this section, and Ex- ample 7 of paragraph (c)(2)(iii) of this section, are applicable to estates of decedents

(iv) A total corpus amount (as defined in paragraph (c)(2)(ii)(B)( 3 ) of this section) of $2,973,866 constitutes the principal required as of D’s date of death to produce (without reducing or invading principal) the annual payments that D would have received if D had survived and continued to receive the retained annuity. Therefore, $2,973,866 of the trust corpus is includible in D’s gross estate under section 2036(a)(1). The remaining $226,134 of the trust corpus is not includible in D’s gross estate under section 2036(a)(1). The result would be the same if D’s retained annuity instead had been payable to D for a term of 5 years, or until D’s prior death,

at which time the GRAT would have terminated and the trust corpus would have become payable to another.

(v) If, instead, D’s annuity was to have been paid on a monthly or quarterly basis, then the periodic addition would have to be adjusted as provided in paragraph (c)(2)(ii)(B)( 3 ) of this section. Specifically, in Column D of the Table for years 4 and 5 in this example, the amount of the principal required would be computed by multiplying the periodic addition by the appropriate factor from Table K or J of §20.2036–7(d)(6) before dividing as indicated and computing the amounts in Columns E through G. In addition, Col

May 18, 2009 1021 2009–20 I.R.B.

(3) - * (vi) - - (B) Circumstances in which Periodic Trigger deemed not to occur.

        • Par. 3. Section 1.482–7A is amended by revising the applicable date as follows:

§1.482–7A Sharing of costs .

Regulations applicable on or before January 4, 2009.

        • Par. 4. Section 1.482–7T is amended as follows:

  1. Paragraph (b)(5)(iii) Example 4 .(i) is revised.

  2. The fifth sentence of paragraph (b)(5)(iii) Example 4 .(iii) is revised.

  3. The first two sentences of paragraph (c)(3) are revised.

  4. The last sentence of paragraph (g)(4)(i)(E) is revised.

  5. The second sentence of paragraph (g)(4)(i)(F)( 1 ) is revised.

  6. The first sentence of paragraph (g)(4)(vi) is revised.

  7. The first sentence of paragraph (g)(7)(v) Example 1 .(i) is revised.

  8. The seventh sentence of paragraph (g)(7)(v) Example 1 .(ii) is revised.

  9. The last sentence of paragraph (g)(7)(v) Example 1 .(iii) is revised.

  10. The last sentence of paragraph (g)(7)(v) Example 1 .(iv) is revised.

  11. The last sentence of paragraph (g)(7)(v) Example 2 .(iii) is revised.

  12. The second, fourth and last sentences of paragraph (g)(7)(v) Example 2 .(iv) are revised.

  13. The first sentence of paragraph (k)(1)(iv)(B) Example 1 . is revised.

  14. The first sentence of paragraph (k)(1)(iv)(B) Example 2 . is revised.

  15. Paragraph (k)(1)(iv)(B) Example 2 .(i) is revised.

  16. The first sentence of paragraph (k)(3)(ii) is revised.

  17. Paragraph (k)(4)(i) is revised.

  18. Paragraph (m)(2)(viii) is revised.

§1.482–7T Methods to determine taxable income in connection with a cost sharing arrangement (temporary).

        • (b) - *

dying on or after the date of publication in the Federal Register of the Treasury decision adopting these rules as final regulations.

Linda E. Stiff, Deputy Commissioner for Services and Enforcement.

(Filed by the Office of the Federal Register on April 29, 2009, 8:45 a.m., and published in the issue of the Federal Register for April 30, 2009, 74 F.R. 19913)

Section 482: Methods To Determine Taxable Income in Connection With a Cost Sharing Arrangement; Correction

Announcement 2009–39

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Correcting amendment.

SUMMARY: This document contains corrections to final and temporary regulations (T.D. 9441, 2009–7 I.R.B. 460) that were published in the Federal Register on Monday, January 5, 2009 (74 FR 340) providing further guidance and clarification regarding methods under section 482 to determine taxable income in connection with a cost sharing arrangement in order to address issues that have arisen in administering the current regulations. The temporary regulations affect domestic and foreign entities that enter into cost sharing arrangements described in the temporary regulations.

DATES: This correction is effective March 5, 2009, and is applicable on January 5, 2009.

FOR FURTHER INFORMATION CONTACT: Kenneth P. Christman, (202) 435–5265 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

The final and temporary regulations that are the subject of this document are under sections 367 and 482 of the Internal Revenue Code.

Need for Correction

As published, final and temporary regulations (T.D. 9441) contains errors that may prove to be misleading and are in need of clarification.

- - - -

Correction of Publication

Accordingly, 26 CFR part 1 is corrected by making the following correcting amendments:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * * Par. 2. Section 1.482–0T is amended by revising the entries of §1.482–2T(f)(2) and §1.482–7T(e), (g)(2)(ix)(D)( 2 ), (g)(4)(i)(D), and (h)(3)(vi)(B) as follows:

§1.482–0T Outline of regulations under section 482 (temporary) .

§1.482–2T Determination of taxable income in specific situations (temporary) .

        • (f) - - (2) Election to apply paragraph (b) to earlier taxable years.

§1.482–7T Methods to determine taxable income in connection with a cost sharing arrangement (temporary) .

        • (e) Reasonably anticipated benefits share.
        • (g) - * (2) - * (ix) - * (D) - - ( 2 ) One variable input parameter.
        • (4) - * (i) - - (D) Only one controlled participant with nonroutine platform contributions.
        • (h) - *

2009–20 I.R.B. 1022 May 18, 2009

(5) - - (iii) * - Example 4 . - * * (i) The facts are the same as in Example 1 except that P does not own proprietary software and P and S use a method for determining the arm’s length amount of the PCT Payment for the P-Cap patent rights different from the method used in Example 1 .

        • (iii) * * * See §1.482–4(c)(4). - * *
        • (c) - * (3) - - - For purposes of §1.482–1(b)(2)(ii) and paragraph (a)(2) of this section, a PCT must be identified by the controlled participants as a particular type of transaction (for example, a license for royalty payments). See paragraph (k)(2)(ii)(H) of this section. - * *
        • (g) - * (4) - * (i) - - (E) * * * For converting to another form of payment, see generally §1.482–7T(h) (Form of payment rules).

(F) * - ( 1 ) - - - See, for example, §1.482–7T(g)(2)(v)(B)( 1 ) (Discount rate variation between realistic alternatives).

        • (vi) - - - For purposes of this paragraph (g)(4), any routine contributions that are platform or operating contributions, the valuation and PCT Payments for which are determined and made independently of the income method, are treated similarly to cost contributions and operating cost contributions, respectively. - * *
        • (7) - - (v) - - Example 1 . - * * (i) USP, a U.S. electronic data storage company, has partially developed technology for a type of extremely small compact storage devices (nanodisks) which are expected to provide a significant increase in data storage capacity in various types of portable devices such as cell phones, MP3 players, laptop computers and digital cameras. - * *

(ii) - - - FS undertakes routine distribution activities in its markets that constitute routine contributions to the relevant business activity of exploiting nanodisk technologies. - * *

(iii) * * * Therefore, the present value of the nonroutine residual divisional profit is $1.336 billion.

(iv) * - * Therefore, FS’s PCT payments should have an expected present value equal to $802 million (.6 x $1.336 billion).

Example 2 . - * * (iii) * * * Therefore, the present value of the nonroutine residual divisional profit in USP’s territory is $39,243X and in CFC’s territory is $19,622X (for simplicity of calculation in this example, all financial flows are assumed to occur at the beginning of each period).

(iv) - * - Consequently, the present value of the arm’s length amount of the PCT payments that USP should pay to FS for FS’s platform contribution is $10,007X (.255 x $39,243X). - - - Consequently, the present value of the arm’s length amount of the PCT payments that FS should pay to USP for USP’s platform contribution is $12,362 (.63 x $19,622X). Therefore, FS is required to make a net payment to USP with a present value of $2,355X ($12,362X $10,007X).

        • (k) - - (1) - - (iv) - - (B) - - Example 1 . The contractual provisions recorded upon formation of an arrangement that purports to be a CSA provide that PCT payments with respect to a particular platform contribution will consist of payments contingent on sales. - * *

Example 2 . An arrangement that purports to be a CSA provides that PCT payments with respect to a particular platform contribution shall be contingent payments equal to 10% of sales of products that incorporate cost shared intangibles. - * *

(i) The contingent payment terms with respect to the platform contribution do not have economic substance because the controlled participants did not act in accordance with their upfront risk allocation; or

        • (3) - - (ii) - - - For purposes of this section, the controlled participants may not rely solely upon financial accounting to establish satisfaction of the accounting requirements of this paragraph (k)(3). - * *

(4) - - (i) - - - Each controlled participant must file with the Internal Revenue Service, in the manner described in this paragraph (k)(4), a “Statement of Controlled Participant to §1.482–7T Cost Sharing Arrangement” (CSA Statement) that complies with the requirements of this paragraph (k)(4).

        • (m) - - (2) - - (viii) Paragraph (k)(4)(iii)(A) of this section shall be construed as requiring a CSA Statement with respect to the revised written contractual agreement described

in paragraph (m)(2)(vi) of this section no later than September 2, 2009.

LaNita Van Dyke, Chief, Publications and

Regulations Branch, Legal Processing Division,

Associate Chief Counsel (Procedure and Administration).

(Filed by the Office of the Federal Register on March 4, 2009, 8:45 a.m., and published in the issue of the Federal Register for March 5, 2009, 74 F.R. 9570)

The Allocation of Consideration and Allocation and Recovery of Basis in Transactions Involving Corporate Stock or Securities; Correction

Announcement 2009–40

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Correction to notice of proposed rulemaking.

SUMMARY: This document contains a correction to a notice of proposed rulemaking (REG–143686–07, 2009–8 I.R.B. 579) that was published in the Federal Register on Wednesday, January 21, 2009 (74 FR 3509) providing guidance regarding the recovery of stock basis in distributions under section 301 and transactions that are treated as dividends to which section 301 applies, as well as guidance regarding the determination of gain and the basis of stock or securities received in exchange for, or with respect to, stock or securities in certain transactions. The proposed regulations affect shareholders and security holders of corporations. These proposed regulations are necessary to provide such shareholders and security holders with guidance regarding the allocation and recovery of basis on distributions of property.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations under sections 301, 302, and 304, Theresa Kolish, (202) 622–7530; concerning the proposed regulations under sections 351, 354, 355, 356, 358, 368,

May 18, 2009 1023 2009–20 I.R.B.

  1. On page 3515, column 3, §1.304–2(a)(1), lines 1 through 3 from the bottom of the paragraph, the language “302(a) or 303 does not apply. For the amount constituting a dividend in such cases, see §1.304–6.” is corrected to read “302(a) or 303 does not apply.”.

  2. On page 3515, column 3, §1.304–2(a)(3), line 2 from the bottom of the paragraph, the language “transferors basis in the stock of the” is corrected to read “transferor’s basis in the stock of the”.

  3. On page 3516, column 1, §1.304–2(c), line 2, the language “examples in this section, each of” is corrected to read “examples in this section, each”.

  4. On page 3516, column 2, §1.304–2(c) Example 3 .(i), line 4, the language “common) and then acquired all of the” is corrected to read “common stock) and then acquired all of the”.

  5. On page 3516, column 3, §1.304–2(c) Example 3 .(i), first line of the column, the language “common stock for $100). Only corporation Y” is corrected to read “common stock for $100). Only Corporation Y”.

  6. On page 3516, column 3, §1.304–2(c) Example 3 .(ii), lines 4 through 11 from the bottom of the paragraph, the language “other 2 blocks of corporation Y shares. After the redemption transaction, all of Corporation W’s shares in corporation Y, including the deemed shares that are redeemed, are treated as exchanged in a recapitalization described in section 368(a)(1)(E). As a result, corporation W will have 100 shares in corporation Y, 50 shares” is corrected to read “other 2 blocks of Corporation Y shares. After the redemption transaction, all of Corporation W’s shares in Corporation Y, including the deemed shares that are redeemed, are treated as exchanged in a recapitalization described in section 368(a)(1)(E). As a result, Corporation W will have 100 shares in Corporation Y, 50 shares”.

§1.351–2 [Corrected]

  1. On page 3517, column 2, §1.351–2(b) Example ., line 11, the language “to C. Gain, but not loss, is recognized by D.” is corrected to read “by C. Gain, but not loss, is recognized by D.”.

1001, and 1016, Rebecca O. Burch, (202) 622–7550; concerning the proposed regulations under section 861, Jeffrey L. Parry, (202) 622–4476 (not toll-free numbers).

SUPPLEMENTARY INFORMATION

Background

The correction notice that is the subject of this document is under sections 301, 302, 304, 351, 354, 355, 356, 358, 368, 861, 1001, 1016, and 1374 of the Internal Revenue Code.

Need for Correction

As published, the notice of proposed rulemaking (REG–143686–07) contains errors that may prove to be misleading and are in need of clarification.

Correction of Publication

Accordingly, the publication of the notice of proposed rulemaking (REG–143686–07), which was the subject of FR Doc. E9–1100, is corrected as follows:

  1. On page 3509, column 2, in the preamble, under the caption “SUMMARY:”, line 3, the language “301, 302, 304, 351, 354, 356, 358, 368,” is corrected to read “301, 302, 304, 351, 354, 355, 356, 358, 368,”.

  2. On page 3509, column 3, in the preamble, under the caption “FOR FURTHER INFORMATION CONTACT:”, line 5, the language “under sections 351, 354, 356, 358, 368,” is corrected to read “under sections 351, 354, 355, 356, 358, 368,”.

  3. On page 3510, column 1, in the preamble, under the paragraph heading “Explanation of Provisions”, second paragraph, line 6, the language “lead to the possibility of variant” is corrected to read “led to the possibility of variant”.

  4. On page 3510, column 1, in the preamble, under the paragraph heading “Explanation of Provisions”, second paragraph, line 5 from the bottom of the paragraph, the language “was needed reconsidered. See REG–” is corrected to read “needed reconsideration. See REG–”.

  5. On page 3510, column 2, in the preamble, under the paragraph heading “Explanation of Provisions”, second paragraph of the column, line 2, the language “that a share of stock is the basic unit of”

is corrected to read “that a share of stock is a basic unit of”.

  1. On page 3511, column 2, in the preamble, under the paragraph heading “C. Dividend Equivalent Reorganization Exchanges”, first paragraph of the column, line 7 from the bottom of the paragraph, the language “of stock solely for nonqualifying” is corrected to read “of stock solely for qualifying”.

§1.301–2 [Corrected]

  1. On page 3513, column 3, §1.301–2(a) Example .(i), last line of the column, the language “$25 (Block 1) and 75 were acquired on Date” is corrected to read “$25 (block 1) and 75 were acquired on Date”.

  2. On page 3514, column 1, §1.301–2(a) Example .(i), first line of the column, the language “2 for $175 (Block 2). On December 31, when” is corrected to read “2 for $175 (block 2). On December 31, when”.

§1.302–5 [Corrected]

  1. On page 3514, column 1, §1.302–5(a)(3)(i), line 4 from the bottom of the column, the language “ treated as loss . If all the shares of the” is corrected to read “ treated as a loss . If all the shares of the”.

  2. On page 3515, column 1, §1.302–5(e) Example 2 .(ii), last line, the language “5(a)(3)(ii)).” is corrected to read “5(a)(4)).”.

  3. On page 3515, column 1, §1.302–5(e) Example 3 .(ii), line 2 from the bottom of the column, the language “shares of common stock. Therefore, the only” is corrected to read “shares of preferred stock. Therefore, the only”.

  4. On page 3515, column 2, §1.302–5(e) Example 4 .(i), last line, the language “stock of Y.” is corrected to read “stock of Corporation Y.”.

  5. On page 3515, column 2, §1.302–5(e) Example 4 .(ii), line 4, the language “deferred loss on a disposition of the” is corrected to read “deferred loss on the disposition of the”.

§1.304–2 [Corrected]

  1. On page 3515, column 3, §1.304–2(a), the language “ In general ” is corrected to read “ In general —”.

2009–20 I.R.B. 1024 May 18, 2009

  1. On page 3522, column 1, §1.358–2(i) Example 2 .(i), line 5 from the bottom of the column, the language “shares of corporation Y stock. Again, J is not” is corrected to read “shares of Corporation Y stock. Again, J is not”.

  2. On page 3522, column 2, §1.358–2(i) Example 3 .(i), line 10, the language “a reorganization under section 368(a)(1)(E).” is corrected to read “a reorganization described in section 368(a)(1)(E).”.

  3. On page 3522, column 3, §1.358–2(i) Example 5 .(ii), line 10, the language “is not dividend equivalent, such terms” is corrected to read “does not have the effect of a dividend, such terms”.

  4. On page 3523, column 1, §1.358–2(i) Example 6 .(i), line 8, the language “reorganization under section 368(a)(1)(A).” is corrected to read “reorganization described in section 368(a)(1)(A).”.

  5. On page 3523, column 1, §1.358–2(i) Example 7 .(i), line 6, the language “of Corporation X in a reorganization under” is corrected to read “of Corporation X in a reorganization described in”.

  6. On page 3523, column 2, §1.358–2(i) Example 8 .(ii), line 5, the language “liability of J, the rules of paragraph (g) this” is corrected to read “liability of J, the rules of paragraph (g) of this”.

  7. On page 3523, column 2, §1.358–2(i) Example 9 .(i), lines 9 through 11, the language “Corporation X in a reorganization under section 368(a)(1)(D). Pursuant to the terms of the plan of reorganization, J surrenders J’s” is corrected to read “Corporation X in a reorganization described in section 368(a)(1)(D). Pursuant to the terms of the plan of reorganization, J surrenders”.

  8. On page 3523, column 2, §1.358–2(i) Example 9 .(ii), line 5 from the bottom of the column, the language “recapitalized in a reorganization under” is corrected to read “recapitalized in a reorganization described in”.

  9. On page 3523, column 3, §1.358–2(i) Example 10 .(i), lines 12 thru 14, the language “Corporation X in a reorganization under section 368(a)(1)(D). Pursuant to the terms of the plan of reorganization, J surrenders J’s” is corrected to read “Corporation X in a reorganization described in section 368(a)(1)(D).

  10. On page 3517, column 2, §1.351–2(b) Example ., line 9 from the bottom of the paragraph, the language “of $100 (B) $30 cash and 30 shares of stock” is corrected to read “of $100); (B) $30 cash and 30 shares of stock”.

§1.355–1 [Corrected]

  1. On page 3518, column 2, §1.355–1(e)(2), line 13, the language “section 356 or both sections 355 and 356” is corrected to read “section 356, or both sections 355 and 356”.

§1.356–1 [Corrected]

  1. On page 3518, column 3, §1.356–1(d) Example 3 .(i), lines 3 through 7, the language “on Date 1 for $3 each (Block 1) and 10 shares of stock of Corporation X on Date 2 for $9 each (Block 2). On Date 3, Corporation Y acquires the assets of Corporation X in a reorganization under section 368(a)(1)(A).” is corrected to read “on Date 1 for $3 each (block 1) and 10 shares of stock of Corporation X on Date 2 for $9 each (block 2). On Date 3, Corporation Y acquires the assets of Corporation X in a reorganization described in section 368(a)(1)(A).”.

  2. On page 3518, column 3, §1.356–1(d) Example 3 .(ii), lines 14 through 18, the language “exchange of the Block 1 shares of Corporation X stock, $50 of which is recognized under section 356 and paragraph (a) of this section, and J realizes a gain of $10 on the exchange of the Block 2 shares of Corporation X stock,” is corrected to read “exchange of the block 1 shares of Corporation X stock, $50 of which is recognized under section 356 and paragraph (a) of this section, and J realizes a gain of $10 on the exchange of the block 2 shares of Corporation X stock,”.

  3. On page 3518, column 3, §1.356–1(d) Example 4 .(i), lines 5 through 7, the language “exchange for J’s Block 1 shares of stock of Corporation X and $100 of cash in exchange for J’s Block 2 shares of stock of corporation X.” is corrected to read “exchange for J’s block 1 shares of stock of Corporation X and $100 of cash in exchange for J’s block 2 shares of stock of Corporation X.”.

  4. On page 3518, column 3, §1.356–1(d) Example 4 .(ii), lines 4

through 12, the language “Corporation Y in exchange for J’s Block 1 shares of stock of Corporation X and $100 of cash in exchange for J’s Block 2 shares of stock of Corporation X and such terms are economically reasonable, such terms control. J realizes a gain of $70 on the exchange of the Block 1 shares of stock, none of which is recognized under section 354. J realizes a gain of $10 on the exchange of the Block 2” is corrected to read “Corporation Y in exchange for J’s block 1 shares of stock of Corporation X and $100 of cash in exchange for J’s block 2 shares of stock of Corporation X and such terms are economically reasonable, such terms control. J realizes a gain of $70 on the exchange of the block 1 shares of stock, none of which is recognized under section 354. J realizes a gain of $10 on the exchange of the block 2”.

§1.358–1 [Corrected]

  1. On page 3519, column 2, §1.358–1(d) Example ., line 11, the language “the distribution of a dividend. A’s ratable” is corrected to read “a distribution of a dividend. A’s ratable”.

§1.358–2 [Corrected]

  1. On page 3519, column 3, §1.358–2(a)(1), line 4, the language “distribution to which section 354, 355” is corrected to read “distribution to which section 354, 355,”.

  2. On page 3519, column 3, §1.358–2(b), line 6, the language “section 354, 355 or 356, the following” is corrected to read “section 354, 355, or 356, the following”.

  3. On page 3521, column 3, §1.358–2(g)(2), line 4, the language “section 351 applies stock or stock and” is corrected to read “section 351 applies, stock or stock and”.

  4. On page 3522, column 1, §1.358–2(i) Example 1 .(i), line 6, the language “of Corporation X in a reorganization under” is corrected to read “of Corporation X in a reorganization described in”.

  5. On page 3522, column 1, §1.358–2(i) Example 1 .(ii), line 2 from the bottom of the paragraph, the language “of corporation Y stock have a basis of $1.50” is corrected to read “of Corporation Y stock have a basis of $1.50”.

May 18, 2009 1025 2009–20 I.R.B.

Pursuant to the terms of the plan of reorganization, J surrenders”.

  1. On page 3523, column 3, §1.358–2(i) Example 10 .(ii), line 10 from the bottom of the column, the language “be recapitalized in a reorganization under” is corrected to read “be recapitalized in a reorganization described in”.

  2. On page 3524, column 2, §1.358–2(i) Example 13 .(i), line 9, the language “reorganization under section 368(a)(1)(A).” is corrected to read “reorganization described in section 368(a)(1)(A).”.

  3. On page 3524, column 3, §1.358–2(i) Example 14 .(i), line 9, the language “reorganization under section 368(a)(1)(A),” is corrected to read “reorganization described in section 368(a)(1)(A),”.

  4. On page 3525, column 1, §1.358–2(i) Example 15 .(ii), line 3 from the bottom of the paragraph, the language “each has a basis of $6 and is treated as having” is corrected to read “each has a basis of $5 and is treated as having”.

  5. On page 3525, column 1, §1.358–2(i) Example 16 .(i), line 4, the language “Shares of Corporation Y in an exchange to” is corrected to read “Shares of Corporation Y stock in an exchange to”.

  6. On page 3525, column 1, §1.358–2(i) Example 17 .(i), line 2, the language “ Facts .The facts are the same as Example 1,” is corrected to read “ Facts . The facts are the same as Example 16,”.

§1.358–6 [Corrected]

  1. On page 3525, column 2, §1.358–6(f)(3), line 4 from the bottom of the paragraph, the language “1 revised April 1, 2008 for the year” is corrected to read “1 revised April 1 for the year”.

§1.861–12 [Corrected]

  1. On page 3525, column 3, §1.861–12(c)(2)(vi), lines 1 through 3, the language “Adjustments in respect of redeemed stock for taxpayers using the tax book value method. Solely for” is corrected to read “ Adjustments in respect of redeemed stock for taxpayers using the tax book value method . Solely for”.

  2. On page 3525, column 3, §1.861–12(c)(2)(vi), lines 13 through 15, the language “taken into account under §1.302–5(a)(3) as of the close of the

redeemed shareholder’s taxable year (unrecovered” is corrected to read “taken into account under §1.302–5 as of the close of the redeemed shareholder’s taxable year (deferred”.

  1. On page 3525, column 3, §1.861–12(c)(2)(vi), line 4 from the bottom of the column, the language “unrecovered loss (and allocated among” is corrected to read “deferred loss (and allocated among”.

§1.1001–6 [Corrected]

  1. On page 3526, column 2, §1.1001–6(c), line 10 from the top of the column, the language “still unliquidated. Solely for purposes of” is corrected to read “still unliquidated investment. Solely for purposes of”.

LaNita Van Dyke, Chief, Publications and

Regulations Branch, Legal Processing Division,

Associate Chief Counsel (Procedure and Administration).

(Filed by the Office of the Federal Register on March 4, 2008, 8:45 a.m., and published in the issue of the Federal Register for March 5, 2009, 74 F.R. 9575)

Deletions From Cumulative List of Organizations Contributions to Which are Deductible Under Section 170 of the Code

Announcement 2009–41

The Internal Revenue Service has revoked its determination that the organizations listed below qualify as organizations described in sections 501(c)(3) and 170(c)(2) of the Internal Revenue Code of 1986. Generally, the Service will not disallow deductions for contributions made to a listed organization on or before the date of announcement in the Internal Revenue Bulletin that an organization no longer qualifies. However, the Service is not precluded from disallowing a deduction for any contributions made after an organization ceases to qualify under section 170(c)(2) if the organization has not timely filed a suit for declaratory judgment under section 7428 and if the contributor (1) had

knowledge of the revocation of the ruling or determination letter, (2) was aware that such revocation was imminent, or (3) was in part responsible for or was aware of the activities or omissions of the organization that brought about this revocation.

If on the other hand a suit for declaratory judgment has been timely filed, contributions from individuals and organizations described in section 170(c)(2) that are otherwise allowable will continue to be deductible. Protection under section 7428(c) would begin on May 18, 2009, and would end on the date the court first determines that the organization is not described in section 170(c)(2) as more particularly set forth in section 7428(c)(1). For individual contributors, the maximum deduction protected is $1,000, with a husband and wife treated as one contributor. This benefit is not extended to any individual, in whole or in part, for the acts or omissions of the organization that were the basis for revocation.

Michael and Laura Gallop Family

Foundation Agoura Hills, CA Physician Directed Care

Southfield, MI Winston County Community

Development Corporation Louisville, MS EMF Debt Management Inc.

Pittsburgh, PA Lil Pals & Gals Daycare Center

Association Tulsa, OK Heartland Women’s Foundation, Inc.

Tribune, KS CF Moore Charitable Foundation

Chicago, IL Waimano Auxiliary a/k/a Kokua Mau

Work Center Ewa Beach, HI The American Dream

West Jordan, UT Henry Jacobson Family Foundation

Ross, CA Dreamkeepers of America Inc.

Memphis, TN Community Workshop on Economic

Development Pueblo, CO Hope Alive, Inc.

Pueblo, CO Building Successful Lifestyles, Inc.

Topeka, KS

2009–20 I.R.B. 1026 May 18, 2009

demonstrates that such failure was due to reasonable cause and not willful neglect and if once the partnership becomes aware of the failure, the partnership attaches the certificate and computation, as well as a written statement setting forth the reasons for the failure to comply with the requirements of paragraph (d)(3)(i) of this section, to an amended Form 8813 or amended Forms 8804 and 8805 for the relevant period. All such submissions should be sent to the address provided in the instructions to Form 8804–C.

        • (e) * - (2) - * Example 2 . - * * (i) Assume the same facts as in Example 1. - * * (ii) * * * As described in Example 1, NRA’s year 4 U.S. income tax return is a qualifying U.S. income tax return because it will report income or gain effectively connected with a U.S. trade or business and is described under paragraph (b)(2)(iii)(C) of this section. Although NRA’s year 5 U.S. income tax return reports income or gain effectively connected with a U.S. trade or business or deductions or losses properly allocated and apportioned to such activities it is not a qualifying U.S. income tax return under paragraph (b)(2)(iii) of this section. - * *
        • Example 4 . - - - NRA timely-filed (within the meaning of paragraph (b)(2) of this section) U.S. income tax returns for years 1 through 6 reporting its allocable share of ECTI (or loss) from XYZ (and timely paid all tax shown on such returns). - * *
        • Example 6 . - * * (ii) If PRS had considered only $900 (or a lesser amount) of NRA’s certified net operating loss when computing and paying its 1446 tax during year 4 then, under paragraph (d)(2)(iii) of this section, PRS would not be liable for 1446 tax because it did not consider a net operating loss greater than the amount actually available to NRA.

Par. 3. Section 1.1464–1 is amended by revising paragraph (c) to read as follows:

§1.1464–1 Refunds or credits .

        • (c) Effective/Applicability date . The last sentence in paragraph (a) of this section shall apply to partnership taxable years beginning after April 29, 2008 .

Par. 4. Section 1.6151–1 is amended by revising paragraph (e) to read as follows:

§1.6151–1 Time and place for paying tax shown on returns .

Hummingbird Tribal Foundation

Woodside, CA Diamond-A-CAT-A-ME, Inc.

Houston, TX Constitutional Educational Research

Foundation Rancho Cordova, CA Family Home Providers, Inc.

Cumming, GA

Special Rules To Reduce Section 1446 Withholding; Correction

Announcement 2009–42

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Correcting amendments.

SUMMARY: This document contains corrections to final regulations (T.D. 9394, 2008–21 I.R.B. 988) that were published in the Federal Register on Tuesday, April 29, 2008 (73 FR 23069) regarding when a partnership may consider certain deductions and losses of a foreign partner to reduce or eliminate the partnership’s obligation to pay withholding tax under section 1446 on effectively connected taxable income allocable under section 704 to such partner. The regulations will affect partnerships engaged in a trade or business in the United States that have one or more foreign partners.

DATES: This correction is effective on April 2, 2009, and is applicable on April 29, 2008.

FOR FURTHER INFORMATION CONTACT: Ronald M. Gootzeit at (202) 622–3860 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

The final regulations that are the subject of this document are under sections 1446, 1464, 6071, 6091, 6151, 6302, and 6414 of the Internal Revenue Code.

Need for Correction

As published, final regulations (T.D. 9394) contains errors that may prove to be misleading and are in need of clarification.

Correction of Publication

Accordingly, 26 CFR part 1 is corrected by making the following correcting amendments:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * * Par. 2. Section 1.1446–6 is amended as follows:

  1. Paragraph (c)(2)(i) is revised.

  2. The last sentence of paragraph (d)(3)(ii) is revised and a new sentence is added at the end of the paragraph.

  3. Paragraphs (e)(1)(vi) second occurrence, (e)(1)(vii), and (e)(1)(viii) are redesignated as paragraphs (e)(1)(vii), (e)(1)(viii), and (e)(1)(ix), respectively.

  4. The first sentence of paragraph (e)(2) Example 2 .(i) is revised.

  5. The third and fourth sentences of paragraph (e)(2) Example 2 .(ii) are revised.

  6. The fourth sentence of paragraph (e)(2) Example 4 . is revised.

  7. Paragraph (e)(2) Example 6 .(ii) is revised.

The revisions and addition read as follows:

§1.1446–6 Special rules to reduce a partnership’s 1446 tax with respect to a foreign partner’s allocable share of effectively connected taxable income .

        • (c) - - (2) - - (i) Form of certification . A partner’s certification to a partnership under paragraph (c)(1)(i) or (iii) of this section shall be made using Form 8804–C, “ Certificate Of Partner-Level Items to Reduce Section 1446 Withholding, ”in accordance with the instructions of the form and the rules of this section.
        • (d) - - (3) - - (ii) - - - To permit the partnership to reasonably rely on such certificate, the partnership shall be considered to have satisfied the requirements of paragraph (d)(3)(i) of this section if the partnership

May 18, 2009 1027 2009–20 I.R.B.

(e) Effective/Applicability date . Paragraph (d)(2) of this section shall apply to publicly traded partnerships described in §1.1446–4 for partnership taxable years beginning after April 29, 2008 .

LaNita Van Dyke, Chief, Publications and

Regulations Branch, Legal Processing Division,

Associate Chief Counsel (Procedure and Administration).

(Filed by the Office of the Federal Register on April 1, 2009, 8:45 a.m., and published in the issue of the Federal Register for April 2, 2009, 74 F.R. 14931)

2009–20 I.R.B. 1028 May 18, 2009

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Internal Revenue Bulletin 2009-20

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