SECTION 3. MARK-TO-MARKET

REGIME

A. Identification of a covered expatriate’s property and determination of fair market value

For purposes of the mark-to-market regime, the covered expatriate is deemed to have sold any interest in property that he or she is considered to own under the rules of this paragraph other than property described in section 877A(c). For purposes of computing the tax liability under the mark-to-market regime, a covered expatriate is considered to own any interest in property that would be taxable as part of his or her gross estate for Federal estate tax purposes under Chapter 11 of Subtitle B of the Code as if he or she had died on the day before the expatriation date as a citizen or resident of the United States. Whether property would constitute part of the gross estate will be determined without regard to sections 2010 through 2016. In addition, for this purpose, a covered expatriate also is deemed to own his or her beneficial interest(s) in each trust (or portion of a trust), that would not constitute part of his or her gross estate as described in the preceding sentences. The covered expatriate’s beneficial interest(s) in such a trust shall be determined under the special rules set forth in section III of Notice 97–19, 1997–1 C.B. 394. In computing the tax liability under the mark-to-market regime, a covered expatriate must use the fair market value of each interest in property as of the day before the expatriation date in accordance with the valuation principles applicable for purposes of the Federal estate tax, except

or her citizenship and (2) any long-term resident of the United States who ceases to be a lawful permanent resident of the United States (within the meaning of section 7701(b)(6), as amended). Pursuant to section 877A(g)(5), a long-term resident is an individual who is a lawful permanent resident of the United States in at least 8 taxable years during the period of 15 taxable years ending with the taxable year that includes the expatriation date.

Covered expatriate . Section 877A(g)(1)(A) defines the term “covered expatriate” to mean an expatriate who:

(1) has an average annual net income tax liability for the five preceding taxable years ending before the expatriation date that exceeds a specified amount that is adjusted for inflation ($145,000 in 2009) (the “tax liability test”);

(2) has a net worth of $2 million or more as of the expatriation date (the “net worth test”); or

(3) fails to certify, under penalties of perjury, compliance with all U.S. Federal tax obligations for the five taxable years preceding the taxable year that includes the expatriation date, including, but not limited to, obligations to file income tax, employment tax, gift tax, and information returns, if applicable, and obligations to pay all relevant tax liabilities, interest, and penalties (the “certification test”). This certification must be made on Form 8854 and must be filed by the due date of the taxpayer’s Federal income tax return for the taxable year that includes the day before the expatriation date. See section 8 of this notice for information concerning Form 8854.

However, section 877A(g)(1)(B) provides that an expatriate will not be treated as meeting the tax liability test or the net worth test of section 877(a)(2)(A) or (B) if—

(1) the expatriate became at birth a U.S. citizen and a citizen of another country and, as of the expatriation date, continues to be a citizen of, and is taxed as a resident of, such other country, and has been a U.S. resident for not more than 10 taxable years during the 15 taxable year period ending with the taxable year during which the expatriation date occurs; or

(2) the expatriate relinquishes U.S. citizenship before the age of 18 ¹ /2 and has been a U.S. resident for not more than 10

taxable years before the date of relinquishment.

The determination as to whether an individual is a covered expatriate is made as of the expatriation date.

Expatriation date . Section 877A(g)(3) defines the term “expatriation date” as the date an individual relinquishes U.S. citizenship or, in the case of a long-term resident of the United States, the date on which the individual ceases to be a lawful permanent resident of the United States within the meaning of section 7701(b)(6).

Relinquishment of citizenship . Section 877A(g)(4) provides that a citizen will be treated as relinquishing his or her U.S. citizenship on the earliest of four possible dates:

(1) the date the individual renounces his or her U.S. nationality before a diplomatic or consular officer of the United States pursuant to paragraph (5) of section 349(a) of the Immigration and Nationality Act (8 U.S.C. 1481(a)(5)), provided the renunciation is subsequently approved by the issuance to the individual of a certificate of loss of nationality by the United States Department of State,

(2) the date the individual furnishes to the United States Department of State a signed statement of voluntary relinquishment of U.S. nationality confirming the performance of an act of expatriation specified in paragraph (1), (2), (3), or (4) of section 349(a) of the Immigration and Nationality Act (8 U.S.C. 1481(a)(1)-(4)), provided the voluntary relinquishment is subsequently approved by the issuance to the individual of a certificate of loss of nationality by the United States Department of State,

(3) the date the United States Department of State issues to the individual a certificate of loss of nationality, or

(4) the date a court of the United States cancels a naturalized citizen’s certificate of naturalization.

Cessation of lawful permanent res- idency. Under section 7701(b)(6), as amended by the Act, a long-term resident ceases to be a lawful permanent resident if (A) the individual’s status of having been lawfully accorded the privilege of residing permanently in the United States as an immigrant in accordance with immigration laws has been revoked or has been administratively or judicially determined to have been abandoned, or if (B) the individual

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individual on a second expatriation is limited to the unused portion of his or her exclusion amount remaining (if any) after the first expatriation, as adjusted for inflation. For example, if a covered expatriate used one third of the exclusion amount for the first expatriation, he or she will have two thirds of the exclusion amount available, as adjusted for inflation, in the event of a second expatriation.

After allocating the appropriate amount of the exclusion amount among the gain assets, the covered expatriate must report gains and losses on the appropriate Schedules and Forms depending upon the character of each asset. Losses may be taken into account only to the extent permitted by the Code, except that the wash sale rules of section 1091 do not apply. Thus, for example, losses are subject to the limitations of section 1211(b).

Example 1. A, a covered expatriate, relinquished his citizenship on November 1, 2009. On October 31, 2009, A owned three assets. As of October 31, 2009, Asset X had a fair market value of $2,000,000 and an adjusted basis of $200,000, Asset Y had a fair market value of $1,000,000 and an adjusted basis of $800,000, and Asset Z had a fair market value of $500,000 and an adjusted basis of $800,000. A must allocate the exclusion amount to each gain asset as follows:

Step 1 . Determine the built-in gain or loss of each asset by subtracting the asset’s adjusted basis from the fair market value of the asset on October 31, 2009.

as otherwise provided in this paragraph. Specifically, fair market value will be determined under section 2031 and the regulations thereunder, but without regard to sections 2032 and 2032A, as if the covered expatriate had died as a citizen or resident of the United States on the day before the expatriation date. For these purposes: (a) the provisions of sections 2701 through 2704 will be applied as if the covered expatriate’s interests subject to those provisions were being transferred to family members; (b) the covered expatriate’s tax liability as a result of section 877A, or otherwise, will not be taken into account; and (c) sections 2055, 2056, 2056A, and 2057 will not be taken into account. A covered expatriate must determine the fair market value of his or her beneficial interest in each trust, other than a nongrantor trust subject to section 877A(f), to the extent the trust would not constitute part of his or her gross estate, in accordance with the Federal gift tax valuation principles of section 2512 and the regulations thereunder without regard to any prohibitions or restrictions on such interest. An interest in a life insurance policy will be valued in accordance with Treas. Reg. § 25.2512–6 as if the covered expatriate had made a gift of the policy on the day before the expatriation date.

Adjusted Basis

B. Allocation of the exclusion amount

The exclusion amount, as described in section 877A(a)(3), must be allocated among all built-in gain property that is subject to the mark-to-market regime and is owned by the covered expatriate on the day before the expatriation date, regardless of whether the covered expatriate makes an election to defer tax with respect to any such property pursuant to section 877A(b). Specifically, the exclusion amount must first be allocated pro-rata to each item of built-in gain property (“gain asset”) by multiplying the exclusion amount by the ratio of the built-in gain with respect to each gain asset over the total built-in gain of all gain assets. The exclusion amount allocated to each gain asset may not exceed the amount of that asset’s built-in gain. If the total section 877A(a) gain of all the gain assets is less than the exclusion amount, then the exclusion amount that can be allocated to the gain assets will be limited to the total section 877A(a) gain.

Each individual is eligible for only one lifetime exclusion amount. Thus, if a covered expatriate becomes a U.S. citizen or long-term resident, and then loses such citizenship or ceases to be a lawful permanent resident and thereby becomes a covered expatriate subject again to section 877A, the exclusion amount with respect to the

FMV Built-in Gain/(Loss)

Asset X $200,000 $2,000,000 $1,800,000 Asset Y $800,000 $1,000,000 $200,000 Asset Z $800,000 $500,000 ($300,000)

Step 2 . Determine the portion of the exclusion amount allocable to each gain asset by multiplying

Asset X $1,800,000 X $626,000 = $563,400 $2,000,000

Asset Y $200,000 X $626,000 = $62,600 $2,000,000

Step 3 . Determine the amount includible in gross income with respect to each gain asset as a result of

the exclusion amount ($626,000 for 2009) by the ratio of the built-in gain on each gain asset over the to

section 877A(a) by subtracting the exclusion amount allocated to each asset from the amount of built-in gain deemed realized with respect to that asset.

tal built-in gain on all gain assets subject to section 877A(a).

November 9, 2009 600 2009–45 I.R.B.

Asset X: $1,800,000 ($563,400)

$1,236,600

Asset Y: $200,000 ($62,600)

$137,400

A must report the amount includible in gross income as a result of the application of section 877A(a) with respect to Assets X and Y (as determined in Step 3), and A’s loss with respect to Asset Z on A’s Form 1040 (or other schedule, as provided in Treas. Reg. § 1.6012–1(b)(2)(ii)( b )) for the portion of A’s taxable year that includes the day before the expatriation date. This Form 1040 (or other schedule) should be attached as a schedule to A’s Form 1040NR for the

Adjusted Basis

remainder of that taxable year. Assuming that Assets X and Y are business assets and that Asset Z is a capital asset, in the absence of other capital gains in the year of expatriation, A’s use of the capital loss from Asset Z would be limited by section 1211(b), as well as other loss-limiting provisions in the Code. However, A’s use of the loss will not be limited by section 1091.

Example 2. The facts are the same as in Example 1, but assume that as of October 31, 2009, Asset X had a fair market value of $2,000,000 and an adjusted basis of $1,700,000. A must allocate the exclusion amount to each gain asset as follows:

Step 1 . Determine the built-in gain or loss of each asset by subtracting the asset’s adjusted basis from the fair market value of the asset on October 31, 2009.

FMV Built-in Gain/(Loss)

Asset X $1,700,000 $2,000,000 $300,000 Asset Y $800,000 $1,000,000 $200,000 Asset Z $800,000 $500,000 ($300,000)

The total gain of all the gain assets for 877A(a) purposes is $500,000. Because the total gain is less than the exclusion amount ($626,000 for 2009), A can

Asset X $300,000 X $500,000 = $300,000 $500,000

Asset Y $200,000 X $500,000 = $200,000 $500,000

Step 3 . Determine the amount includible in gross income with respect to each gain asset as a result of

Asset X: $300,000 ($300,000)

$0

Asset Y: $200,000 ($200,000)

$0

Because all of the gain was excluded under the exclusion amount, A does not recognize any gain as a result of section 877A(a). A must report the loss with respect to Asset Z on A’s Form 1040 (or other schedule, as provided in Treas. Reg. § 1.6012–1(b)(2)(ii)( b )) for the portion of A’s taxable year that includes the day before the expatriation date. This Form 1040 (or other schedule) should be attached as a schedule to A’s Form 1040NR for the remainder of that taxable year. In the absence of other gains for the portion of A’s taxable year that includes the day before the expatriation date, A’s use of the loss would be limited by the loss-limiting provisions in the Code, including section 1211(b). However, A’s use of the loss will not be limited by section 1091.

C. Adjustment to basis of property subject to the mark-to-market regime

Section 877A(a) requires proper adjustments to be made in the amount of any gain or loss subsequently realized with respect to an asset for the amount of gain or loss taken into account under section 877A(a)(2) with respect to that asset. In making such adjustment, the basis of the asset will be adjusted by the amount of gain or loss taken into account under section 877A(a)(2)(A) and (B), without regard to the exclusion amount provided in section 877A(a)(3).

Example 3. The facts are the same as in Exam- ple 1. Assume that Assets X and Z are United States real property interests within the meaning of section 897(c) (“USRPIs”). On October 15, 2013, A, now a resident of country B, sells Asset X for $3,000,000 and Asset Z for $700,000. A’s taxable gain is determined as follows:

Asset X: A’s basis of $200,000 in Asset X is adjusted by $1,800,000 (the amount of gain taken into account under section 877A(a)(2) by reason of the deemed sale under section 877A(a) without regard to the amount excluded under section 877A(a)(3)), resulting in a basis of $2,000,000. The $1,800,000 adjustment to basis is determined without regard to the $563,400 exclusion amount allocated to asset X. A recognizes $1,000,000 of gain ($3,000,000 amount realized - $2,000,000 basis) on this subse

only allocate $500,000 of the exclusion amount to the gain assets.

Step 2 . Determine the portion of the exclusion amount allocable to each gain asset by multiplying

the allowable exclusion amount ($500,000) by the ratio of the built-in gain on each gain asset over the total built-in gain on all gain assets subject to section 877A(a).

section 877A(a) by subtracting the exclusion amount allocated to each asset from the amount of built-in gain deemed realized with respect to that asset.

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quent actual disposition of Asset X. Because A is now a nonresident alien individual as defined under section 7701(b), and because Asset X is a USRPI, that gain is subject to section 897.

Asset Z: A’s basis of $800,000 in Asset Z is adjusted downward by $300,000 (the amount of loss taken into account under section 877A(a)(2) by reason of the deemed sale under section 877A(a)), resulting in a basis of $500,000. A recognizes $200,000 of gain ($700,000 amount realized - $500,000 basis) on this subsequent actual disposition. Because A is now a nonresident alien individual as defined under section 7701(b), and because Asset Z is a USRPI, that gain is subject to section 897.

D. In-bound step-up in basis for nonresident aliens becoming resident aliens

Section 877A(h)(2) provides that, solely for purposes of determining the tax imposed by reason of section 877A(a), property that was held by a nonresident alien on the day that individual first became a resident of the United States (within the meaning of section 7701(b)) will be treated as having a basis on such date of not less than the fair market value of such property on such date. A covered expatriate to whom this basis adjustment rule applies may make an irrevocable election, on a property-by-property basis, not to have such rule apply. The election must be made on Form 8854, which must be filed with the covered expatriate’s Federal income tax return for the taxable year that includes the day before the expatriation date. See section 8 of this notice for information concerning Form 8854.

The IRS and Treasury Department intend to exercise their regulatory authority to exclude from this step-up-in-basis rule United States real property interests within the meaning of section 897(c) (“USRPIs”) and property used or held for use in connection with the conduct of a trade or business within the United States. Thus, if on the date the nonresident alien first became a resident of the United States, the nonresident alien held property that was a USRPI or was property used or held for use in connection with the conduct of a trade or business within the United States, then the basis of such property may not be stepped up to fair market value under 877A(h)(2). If, however, prior to becoming a resident of the United States, the nonresident alien was a resident of a country with which the United States had an income tax treaty, and the nonresident alien held property

used or held for use in connection with the conduct of a U.S. trade or business that was not carried on through a permanent establishment in the United States under the income tax treaty of such country and the United States, then that property is eligible for a step up in basis to fair market value under 877A(h)(2).

Example 4 . A first became a resident of the United States when A became a lawful permanent resident (green card holder) on April 1, 1995. On April 1, 1995, A owned Asset S with a basis of $400X and a fair market value of $700X and Asset T with a basis of $500X and a fair market value of $300X. Neither Asset S nor Asset T is a USRPI or property used or held for use in connection with the conduct of a trade or business within the United States. On June 30, 2010, the fair market value of Asset S is $1,300X and the fair market value of Asset T is $800X. On July 1, 2010, A ceases to be a lawful permanent resident and becomes a covered expatriate within the meaning of section 877A(g)(1)(A). A does not make the irrevocable election not to have the rule of section 877A(h)(2) apply. Therefore, Assets S and T will each be treated for purposes of the mark-to-market regime as having a basis of not less than the fair market value on April 1, 1995, so that Assets S and T will be treated as having a basis of $700X and $500X, respectively, on June 30, 2010, for purposes of determining the tax under section 877A(a). A will be deemed to realize $600X ($1,300X -$700X) of gain with respect to Asset S and $300X ($800X -$500X) of gain with respect to Asset T, for a total of $900X.

Example 5 . The facts are the same as in Exam- ple 4 . If A makes an irrevocable election on Form 8854 not to have the rule of section 877A(h)(2) apply with respect to Asset S because A does not want to incur the expense of having an appraisal conducted with respect to Asset S’s fair market value on April 1, 1995, A will be deemed to realize $900X ($1,300X $400X) of gain with respect to Asset S.

E. Deferral of payment of tax under the mark-to-market regime

Deferral election. Section 877A(b) provides that a covered expatriate may make an irrevocable election (“deferral election”) with respect to any property deemed sold by reason of section 877A(a) to defer the payment of the additional tax attributable to any such property (“deferral assets”). The deferral election is made on an asset-by-asset basis. In order to make the election with respect to any asset, the covered expatriate must provide adequate security (defined below) and must irrevocably waive any right under any U.S. treaty that would preclude assessment or collection of any tax imposed by reason of section 877A. If the IRS subsequently determines that the security provided for the deferred tax no longer qualifies as ade

quate security, the deferred tax and interest will become due immediately, unless the covered expatriate corrects such failure within 30 days after the IRS mails notification of such failure to the last known addresses of the covered expatriate and the covered expatriate’s U.S. agent.

Subject to the preceding sentence, the time for payment of the tax attributable to a particular deferral asset under the markto-market regime is extended until the earlier of the due date (without extensions) of the covered expatriate’s income tax return for (a) the taxable year in which the asset is disposed of by sale, non-recognition transaction, gift, or other means, or (b) the taxable year that includes the date of death of the covered expatriate. However, a covered expatriate may pay any tax deferred under section 877A(b), together with accrued interest, at any time.

Interest accrual. Section 877A(b)(7) provides that for purposes of section 6601, the last date for the payment of tax will be determined without regard to the deferral election. Interest will be computed at the underpayment rate established under section 6621 from the due date of the return (without extensions) for the taxable year that includes the day before the expatriation date and will compound daily under section 6622 until the date the tax is paid.

Waiver of treaty benefits. Section 877A(b)(5) provides that a covered expatriate may not make a deferral election with respect to a particular asset unless the covered expatriate makes an irrevocable waiver of any right under any U.S. treaty that would preclude the assessment or collection of any tax imposed by reason of section 877A. The covered expatriate must make the waiver on Form 8854, which must be filed with the covered expatriate’s Federal income tax return for the taxable year that includes the day before the expatriation date. See section 8.C of this notice. Additionally, acknowledgment of such waiver must be noted in the agreement to defer tax with respect to a particular property (“tax deferral agreement”) as described below.

Adequate security/Tax deferral agree- ment. Section 877A(b)(4)(A) provides that, in order to make a deferral election with respect to any asset, the covered expatriate must provide adequate security with respect to such asset. Section 877A(b)(4)(B) defines the term “adequate

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ered expatriate who elects to defer the tax attributable to one or more assets must determine the amount of tax imposed by reason of section 877A(a) attributable to each asset deemed sold pursuant to section 877A(a). The tax imposed by reason of section 877A(a) is the difference between (a) the covered expatriate’s tax liability for the portion of the taxable year that includes the day before the expatriation date as reflected on a Form 1040 with respect to that portion of the taxable year and that includes the net taxable gain resulting from all deemed sales under section 877A(a) and (b) the covered expatriate’s tax liability for the portion of the taxable year that includes the day before the expatriation date as reflected on a Form 1040 with respect to that portion of the taxable year but that does not include the net taxable gain resulting from all deemed sales under section 877A(a).

The amount of tax imposed by reason of section 877A(a) that is attributable to each asset is determined by multiplying the amount of tax imposed by reason of section 877A(a) by the ratio of (a) the gain, if any, includible in gross income under section 877A(a) with respect to that particular asset to (b) the gain includible in gross income by reason of section 877A(a) with respect to all gain assets deemed sold pursuant to section 877A(a). The tax attributable to that particular asset, computed as described in the preceding sentence, is the amount of tax that that a covered expatriate may elect to defer under section 877A(b) with respect to that asset. The effect of such election is to reduce the amount of tax currently due and payable by the amount of the tax attributable to the asset with respect to which the election is made.

Example 6. The facts are the same as Example 1, except that A elects to defer the tax attributable to Assets X and Y. Assume that A’s taxable income for the portion of the taxable year that includes the day before the expatriation date without regard to section 877A is $1,300,000, and that the tax liability on that taxable income is $300,000. Also assume that A’s taxable income for that same period, including the $1,100,000 net gain resulting from all deemed sales under section 877A(a) (and taking into account the amount excluded pursuant to section 877A(a)(3)), is $2,400,000, and that A’s total tax liability with respect to that taxable income as reflected on a Form 1040 is $500,000.

Step 1. Determine the amount of tax imposed by reason of section 877A(a) by subtracting A’s tax liability for the portion of the taxable year that includes the day before the expatriation date computed without taking into account section 877A(a) ($300,000)

security” as (1) a bond that is furnished to, and accepted by, the Secretary, that is conditioned on the payment of the tax (and interest thereon), and that meets the requirements of section 6325, or (2) another form of security for such payment (including letters of credit) that meets such requirements as the Secretary may prescribe.

Each covered expatriate who makes a deferral election must enter into a tax deferral agreement with the IRS. Execution of the agreement by the IRS will constitute acceptance by the Secretary of the security as adequate security. A template of a tax deferral agreement is provided in Appendix A of this notice. Any covered expatriate who wishes to enter into a tax deferral agreement under this notice must submit to the following address a request to enter into a tax deferral agreement (“deferral request”) by the due date of his or her return for the taxable year that includes the day before the expatriation date:

Internal Revenue Service PO Box 331 Drop Point S607-F8854 Bensalem, PA 19020

The deferral request must include (1) two signed copies of the template agreement provided in Appendix A of this notice, (2) a description of the asset(s) with respect to which the covered expatriate is electing to defer tax, (3) an attachment showing the calculation of the tax attributable to such asset(s) under the method set forth below, (4) documentation of the proposed security offered to secure the deferral of tax, (5) a copy of an agreement with a U.S. agent, as described below, and (6) a copy of the covered expatriate’s return for the taxable year that includes the day before the expatriation date. Provided that the security offered by the covered expatriate is determined to be adequate to secure the tax being deferred, the IRS will sign the tax deferral agreement and provide one copy to the covered expatriate.

Additionally, the covered expatriate must attach a copy of the deferral request to his or her return for the taxable year that includes the day before the expatriation date. The covered expatriate may file the deferral request simultaneously with his or her tax return.

The tax deferral agreement must be periodically renewed according to the terms provided in the agreement. If the agreement is not renewed within the time frame specified in the agreement, the collateral will be applied to the tax liability and interest.

Appointment of U.S. agent . In order to make a deferral election, a covered expatriate must appoint a U.S. person to act as the covered expatriate’s limited agent for purposes of accepting communication related to the tax deferral agreement from the IRS on behalf of the covered expatriate, the timely enforcement of the terms of the tax deferral agreement between the covered expatriate and the IRS, and applying section 7602 and all related procedural provisions of the Code with respect to a request by the IRS to examine records, for the production of testimony, or for a summons by the IRS for such records or testimony related to the enforcement of the tax deferral agreement.

In order to authorize a U.S. person to act as an agent, the covered expatriate and the agent must enter into a binding agreement that is substantially similar in form to the agreement provided in Appendix B of this notice. The agreement must be executed by the covered expatriate and the agent and must be submitted as part of the deferral request. The authorization must remain in effect for as long as the tax deferral agreement remains in effect.

If the U.S. agent resigns, liquidates, or terminates its responsibility as an agent of the covered expatriate, the covered expatriate must, within 90 days, notify IRS-Advisory (Telephone: 954–423–7344, Fax: 954–423–7809) in writing at the following address:

Advisory 7850 SW 6th Court Mail Stop 5780 Plantation, FL 33324–3202

This notification must contain the name, address, and TIN of the new U.S. agent (if any). If no new agent is appointed, then the tax deferral agreement will be in default and the collateral will be applied to the deferred tax and interest attributable to all of the deferral assets.

Determination of tax attributable to particular assets. Deferral of tax is made on an asset-by-asset basis, and a cov

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from A’s tax liability for that period including the taxable gain resulting from all deemed sales under section 877A(a) ($500,000). The amount of tax that must be allocated among the assets deemed sold pursuant to section 877A(a) is $200,000.

Asset X $1,236,600 X $200,000 = $180,000 $1,374,000

Asset Y $137,400 X $200,000 = $20,000 $1,374,000

Asset Z $0 X $200,000 = $0 $1,374,000

For the portion of the taxable year that includes the day before the expatriation date, A has a total tax liability of $500,000, but, due to A’s deferral elections with respect to Assets X and Y, A will report and pay only $300,000 with A’s return for that portion of the year. Of the $200,000 deferred tax, $180,000 is attributable to Asset X and $20,000 is attributable to Asset Y. If instead of electing to defer the tax attributable to Asset X and to Asset Y, A had elected to defer only the tax attributable to Asset X ($180,000), A would have been required to pay $320,000 of tax with A’s return for that portion of the year (the total tax otherwise due of $500,000 less the $180,000 of tax attributable to Asset X which tax A has elected to defer).