Part I. Rulings — Internal Revenue Bulletin 2009-42

Section 62.—Adjusted Gross Income Defined

26 CFR 1.62–2: Reimbursements and other expense allowance arrangements.

Rules are provided under which a reimbursement or other expense allowance arrangement for the cost of lodging, meal, and incidental expenses, or of meal and incidental expenses only, incurred by an employee while traveling away from home, satisfies the requirements of § 62(c) of the Code for substantiation of the amount of the expenses. See Rev. Proc. 2009-47, page 524.

Section 162.—Trade or Business Expenses

26 CFR 1.162–17: Reporting and substantiation of certain business expenses of employees.

Rules are provided for substantiating the amount of a deduction for an expense for meal and incidental expenses, or for incidental expenses only, incurred while traveling away from home. See Rev. Proc. 2009-47, page 524.

Section 4041.—Imposition of Tax

The list of countries that allow reciprocal privileges for purposes of the exemption for supplies for civil aircraft of foreign registry is updated and restated. See Rev. Rul. 2009-34, page 502.

Section 4081.—Imposition of Tax

The list of countries that allow reciprocal privileges for purposes of the exemption for supplies for civil aircraft of foreign registry is updated and restated. See Rev. Rul. 2009-34, page 502.

Section 4082.—Exemption for Diesel Fuel and Kerosene

The list of countries that allow reciprocal privileges for purposes of the exemption for supplies for civil aircraft of foreign registry is updated and restated. See Rev. Rul. 2009-34, page 502.

Section 4421.—Certain Tax-Free Sales

26 CFR 48.4221–4: Tax-free sales of articles for use by the purchaser as supplies for vessels or aircraft. (Also: 4041, 4081(a)(1), 4082(e), 6427(l)(4).)

Section 4221(e) reciprocal privileges. The list of countries that allow reciprocal privileges for purposes of the exemption for supplies for civil aircraft of foreign registry is updated and restated. Rev. Ruls. 74-346, 75-190, 75-398, and 75-526 superseded.

Rev. Rul. 2009–34

PURPOSE

This revenue ruling updates the list of countries that allow substantially reciprocal privileges for purposes of section 4221(e)(1) of the Internal Revenue Code (Code).

LAW

Section 4081 imposes a tax on certain removals, entries, and sales of taxable fuel, including kerosene. Section 4082(e) generally exempts from the § 4081 tax kerosene that is removed from any refinery or terminal directly into the fuel tank of an aircraft if such aircraft is employed in foreign trade or trade between the United States and any of its possessions. A similar exemption from the tax imposed by § 4041(c) on other liquids used in aviation is allowed by §§ 4041(d)(5) and (g)(1). The exemptions described above are derived from § 4221(d)(3).

Section 6427(l) sets forth the payment provisions that apply if previously taxed kerosene is used in an aircraft engaged in foreign trade or trade between the United States and any of its possessions.

Section 4221(d)(3) of the Code provides that the term “supplies for vessels or aircraft” means fuel supplies, ships’ stores, sea stores, or legitimate equipment

on vessels actually engaged in foreign trade or trade between the Atlantic and Pacific ports of the United States or between the United States and any of its possessions. For purposes of the preceding sentence, the term “vessels” includes civil aircraft employed in foreign trade or trade between the United States and any of its possessions.

Section 4221(e)(1) of the Code provides that, in the case of articles sold for use as supplies for aircraft, the privileges granted under § 4221(a)(3) in respect of civil aircraft employed in foreign trade or trade between the United States and any of its possessions, in respect of aircraft registered in a foreign country, shall be allowed only if the Secretary of the Treasury has been advised by the Secretary of Commerce that he has found that such foreign country allows, or will allow, substantially reciprocal privileges in respect of aircraft registered in the United States. If the Secretary of the Treasury is advised by the Secretary of Commerce that he has found that a foreign country has discontinued or will discontinue the allowance of such privileges, the privileges granted under § 4221(a)(3) shall not apply thereafter in respect of civil aircraft registered in that foreign country and employed in foreign trade or trade between the United States and any of its possessions.

NOTIFICATION

The Secretary of Commerce has advised the Secretary of Treasury that the current list of foreign countries that allow substantially reciprocal privileges in respect of aircraft registered in the United States is as follows:

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Afghanistan Lebanon Albania Liberia Antigua and Barbuda Luxembourg Argentina Macau Aruba Madagascar Australia Malaysia Austria Maldives The Bahamas Mali Bahrain Malta Barbados Marshall Islands Belarus Mexico Belgium Federated States of Micronesia Belize Moldova Benin Montenegro Bermuda Morocco Bosnia and Herzegovina Namibia Brazil Netherlands Brunei Darussalam Netherlands Antilles Burkina Faso New Zealand Burma Nicaragua Cameroon Nigeria Canada Norway Cape Verde Oman Chad Pakistan Chile Palau People’s Republic of China Panama Colombia Paraguay Democratic Republic of the Congo (only aircraft fuel and Peru lubricants)

Cook Islands Republic of the Philippines Costa Rica Poland Cote d’Ivoire Portugal Cuba Qatar Czech Republic Romania Denmark Russia Dominica Rwanda Ecuador St. Kitts and Nevis Egypt (only aircraft fuel and lubricants) St. Lucia El Salvador St. Vincent and the Grenadines Ethiopia Samoa Fiji Saudi Arabia Finland Serbia France Singapore Gabon Slovak Republic The Gambia South Africa Federal Republic of Germany Spain Ghana Sri Lanka Greece Suriname Grenada Sweden Guatemala Switzerland Guyana Taiwan Haiti Tajikistan Honduras Tanzania Hong Kong Thailand Hungary Tonga Iceland Trinidad and Tobago India Tunisia Indonesia Turkey Iran Turkmenistan Ireland Tuvalu Israel Uganda Italy Ukraine

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Jamaica United Arab Emirates Japan United Kingdom Jordan Uruguay Kazakhstan Uzbekistan Kenya (only aircraft fuel and lubricants) Venezuela Kiribati Vietnam Republic of Korea Zambia Kuwait Zimbabwe Kyrgyzstan

and related reporting requirements. The regulations treat these disregarded eligible entities as corporations for purposes of employment taxes imposed under Subtitle C of the Code and related reporting requirements.

Under existing §301.7701–2(c)(2)(v), a single-owner eligible entity that is disregarded as an entity separate from its owner for Federal tax purposes is treated as a separate entity for purposes of certain excise taxes reported on Form 720, “ Quar- terly Federal Excise Tax Return ;” Form 730, “ Monthly Tax Return for Wagers ;” Form 2290, “ Heavy Highway Vehicle Use Tax Return ;” and Form 11–C, “ Occupa- tion Tax and Registration Return for Wa- gering ;” excise tax refunds or payments claimed on Form 8849, “ Claim for Refund of Excise Taxes ;” and excise tax registrations on Form 637, “ Application for Reg- istration (For Certain Excise Tax Activi- ties) .” Although liability for excise taxes is not dependent upon an entity’s classification, an entity’s classification is relevant for certain tax administration purposes, such as determining the proper location for filing a notice of federal tax lien and the place for hand-carrying a return under section 6091. Therefore, these temporary regulations clarify that these disregarded eligible entities are treated as corporations for tax administration purposes.

These temporary regulations also make conforming changes to the tax liability rule for disregarded entities in §301.7701–2(c)(2)(iii) and the treatment of entity rule for disregarded entities with respect to employment taxes in §301.7701–2(c)(2)(iv)(B).

Effective/Applicability Date

These regulations apply on and after September 14, 2009.

EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 74–346, 1974–2 C.B. 361, Rev. Rul. 75–190, 1975–1 C.B. 348, Rev. Rul. 75–398, 1975–2 C.B. 434, and Rev. Rul. 75–526, 1975–2 C.B. 435, are superseded.

DRAFTING INFORMATION

The principal author of this revenue ruling is Celia Gabrysh of the Office of Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding this revenue ruling, contact Celia Gabrysh at (202) 622–3130 (not a toll-free call).

Section 6427.—Fuels Not Used for Taxable Purposes

The list of countries that allow reciprocal privileges for purposes of the exemption for supplies for civil aircraft of foreign registry is updated and restated. See Rev. Rul. 2009-34, page 502.

Section 7701.—Definitions

26 CFR 301.7701–2: Business entities; definitions.

T.D. 9462

Department of the Treasury Internal Revenue Service 26 CFR Part 301

Disregarded Entities and Excise Taxes

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

SUMMARY: This document contains final and temporary regulations clarifying that a single-owner eligible entity that is disregarded as an entity separate from its owner for any purpose, but regarded as a separate entity for certain excise tax purposes, is treated as a corporation for tax administration purposes related to those excise taxes. These regulations also make conforming changes to the tax liability rule for disregarded entities and the treatment of entity rule for disregarded entities with respect to employment taxes. These regulations affect disregarded entities in general and, in particular, disregarded entities that pay or pay over certain federal excise taxes or that are required to be registered by the IRS. The text of these temporary regulations serves as the text of proposed regulations (REG–116614–08) published in this issue of the Bulletin.

DATES: Effective Date: These regulations are effective on September 14, 2009.

Applicability Date: For dates of applicability, see §301.7701–2T(e)(2), (e)(5), and (e)(6).

FOR FURTHER INFORMATION CONTACT: Michael H. Beker, (202) 622–3070 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background and Explanation of Provisions

This document contains amendments to the Procedure and Administration Regulations (26 CFR part 301) under section 7701 of the Internal Revenue Code (Code).

Under existing §301.7701–2(c)(2)(iv), a single-owner eligible entity that is disregarded as an entity separate from its owner for Federal tax purposes is treated as a separate entity for purposes of employment taxes imposed under Subtitle C of the Code

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2005 taxable year. Because Z is the successor to X and is liable for X’s 2005 taxes that remain unpaid, Z is the proper party to sign the consent to extend the period of limitations.

Example 2 . The facts are the same as in Example 1, except that in 2007, the IRS determines that X miscalculated and underreported its income tax liability for 2005. Because Z is the successor to X and is liable for X’s 2005 taxes that remain unpaid, the deficiency may be assessed against Z and, in the event that Z fails to pay the liability after notice and demand, a general tax lien will arise against all of Z’s property and rights to property.

(c)(2)(iv)(A) [Reserved]. For further guidance, see §301.7701–2(c)(2)(iv)(A).

(B) Treatment of entity . An entity that is disregarded as an entity separate from its owner for any purpose under §301.7701–2 is treated as a corporation with respect to taxes imposed under Subtitle C—Employment Taxes and Collection of Income Tax (Chapters 21, 22, 23, 23A, 24, and 25 of the Internal Revenue Code).

(B) Treatment of entity . An entity that is disregarded as an entity separate from its owner for any purpose under §301.7701–2 is treated as a corporation with respect to items described in §301.7701–2(c)(2)(v)(A).

(C) Example . (i) through (iii) [Reserved]. For further guidance, see §301.7701–2(c)(2)(v)(C) Example (i) through (iii) .

(iv) Assume the same facts as in §301.7701–2(c)(2)(v)(C) Example (i) and (ii) . If LLCB does not pay the tax on its sale of coal under chapter 32 of the Internal Revenue Code, any notice of lien the Internal Revenue Service files will be filed as if LLCB were a corporation.

(d) through (e)(1) [Reserved]. For further guidance, see §301.7701–2(d) through (e)(1).

(e)(2) Paragraph (c)(2)(iii) of this section applies on and after September 14, 2009. For rules that apply before September 14, 2009, see 26 CFR part 301 revised as of April 1, 2009.

(e)(3) through (e)(4) [Reserved]. For further guidance, see §301.7701–2(e)(3) through (e)(4).

(e)(5) Paragraph (c)(2)(iv)(B) of this section applies with respect to wages paid on or after September 14, 2009. For rules that apply before September 14, 2009, see

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. For applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6), please refer to the Special Analyses section of the preamble to the cross-reference notice of proposed rulemaking published elsewhere in this issue of the Bulletin. Pursuant to section 7805(f) of the 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.

Drafting Information

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

- - - -

Amendments to the Regulations

Accordingly, 26 CFR part 301 is amended as follows:

PART 301—PROCEDURE AND ADMINISTRATION

Paragraph 1. The authority citation for part 301 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * * Par. 2. Section 301.7701–2 is amended by:

Revising paragraphs (c)(2)(iii) and (c)(2)(iv)(B).
Redesignating paragraph (c)(2)(v)(B) as paragraph (c)(2)(v)(C) and added new paragraph (c)(2)(v)(B).
In newly-designated paragraph (c)(2)(v)(C), Example (iv) is added.
Revising paragraph (e)(2). The additions and revisions read as follows:

§301.7701–2 Business entities; definitions .

- - - (c) - - (2) - - (iii) [Reserved]. For further guidance, see §301.7701–2T(c)(2)(iii).

(iv) - - (B) [Reserved]. For further guidance, see §301.7701–2T(c)(2)(iv)(B).

- - - (v) - - (B) [Reserved]. For further guidance, see §301.7701–2T(c)(2)(v)(B).

- - - (e) - - (2) [Reserved]. For further guidance, see §301.7701–2T(e)(2).
- - - Par. 3. Section 301.7701–2T is added to read as follows:

§301.7701–2T Business entities; definitions (temporary) .

(a) through (c)(2)(ii) [Reserved]. For further guidance, see §301.7701–2(a) through (c)(2)(ii).

(iii) Tax liabilities of certain disre- garded entities —(A) In general . An entity that is disregarded as separate from its owner for any purpose under §301.7701–2 is treated as an entity separate from its owner for purposes of—

( 1 ) Federal tax liabilities of the entity with respect to any taxable period for which the entity was not disregarded;

( 2 ) Federal tax liabilities of any other entity for which the entity is liable; and

( 3 ) Refunds or credits of Federal tax. (B) Examples . The following examples illustrate the application of paragraph (c)(2)(iii)(A) of this section:

Example 1 . In 2006, X, a domestic corporation that reports its taxes on a calendar year basis, merges into Z, a domestic LLC wholly owned by Y that is disregarded as an entity separate from Y, in a state law merger. X was not a member of a consolidated group at any time during its taxable year ending in December 2005. Under the applicable state law, Z is the successor to X and is liable for all of X’s debts. In 2009, the Internal Revenue Service (IRS) seeks to extend the period of limitations on assessment for X’s

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Michael F. Mundace, Acting Assistant Secretary of the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on September 10, 2009, 11:15 a.m., and published in the issue of the Federal Register for September 14, 2009, 74 F.R. 46903)

26 CFR part 301 revised as of April 1, 2009. (e)(6) Paragraphs (c)(2)(v)(B) and (c)(2)(v)(C) Example (iv) of this section apply on and after September 14, 2009.

(7) [Reserved]. For further guidance, see §301.7701–2(e)(7).

(8) Expiration Date . The applicability of paragraphs (c)(2)(iii), (c)(2)(iv)(B),

(c)(2)(v)(B), (c)(2)(v)(C) Example (iv), (e)(2), (e)(5) and (e)(6) of this section expires on or before September 11, 2012.

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

Approved August 31, 2009.

2009–42 I.R.B. 506 October 19, 2009