SECTION 2. BACKGROUND

.01 Section 911(a) of the Code allows a “qualified individual,” as defined in section 911(d)(1), to exclude foreign earned income and housing cost amounts from gross income. Section 911(c)(4) of the Code allows a qualified individual to deduct housing cost amounts from gross income.

.02 Section 911(d)(1) of the Code defines the term “qualified individual” as an individual whose tax home is in a foreign country and who is (A) a citizen of the United States and establishes to the satisfaction of the Secretary of the Treasury that the individual has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire taxable year, or (B) a citizen or resident of the United States who, during any period of 12 consecutive months, is present in a foreign country or countries during at least 330 full days. .03 Section 911(d)(4) of the Code provides an exception to the eligibility requirements of section 911(d)(1). An individual will be treated as a qualified individual with respect to a period in which the individual was a bona fide resident of, or was present in, a foreign country, if the individual left the country during a period for which the Secretary of the Treasury, after consultation with the Secretary of State, determines that individuals were required to leave because of war, civil unrest, or similar adverse conditions that precluded the normal conduct of business. An individual must establish that but for those conditions the individual could reasonably

an established securities market within the meaning of § 409(l)(1).

Section 1042 generally provides that, if the taxpayer or executor so elects, gain on the sale of qualified employer securities which would be recognized as long-term capital gain is recognized only to the extent the gain exceeds the cost of qualified replacement property acquired within the replacement period. This treatment applies only if the sale is to an ESOP or eligible worker-owned cooperative that holds at least 30 percent of the corporation’s stock after the sale, and various other conditions in § 1042(b) are satisfied. In addition, under § 1042(c), the only securities eligible for this treatment are employer securities defined under § 409(l) and issued by a domestic C corporation that has no stock outstanding that is readily tradable on an es- tablished securities market .

Final regulations under § 401(a)(35) were issued on May 18, 2010 (75 FR 27927). Under § 1.401(a)(35)–1(f)(5), a security is readily tradable on an estab- lished securities market if the security is traded on a national securities exchange that is registered under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f). The regulations also treat a security as readily tradable on an established securities market if the security is traded on a foreign national securities exchange that is officially recognized, sanctioned, or supervised by a governmental authority and where the security is deemed by the Securities and Exchange Commission (SEC) as having a ready market under SEC Rule 15c3–1 (17 CFR 240.15c3–1). Under the current SEC rules, a security that is included on the FTSE Group (FTSE) All-World Index is deemed to have a ready market. Section 1.401(a)(35)–1 is effective for plan years beginning on or after January 1, 2011.

Readily tradable on an established securities market or established market

Under this notice, the terms readily tradable on an established securities mar- ket and readily tradable on an established market, with respect to employer securities, each mean employer securities that are readily tradable on an established securities market within the meaning of

§ 1.401(a)(35)–1(f)(5) for purposes of the following provisions: (1) § 401(a)(22); (2) § 401(a)(28)(C); (3) § 409(h)(1)(B); (4) § 409(l); and (5) § 1042(c)(1)(A).

Effective Date

This notice is effective for plan years beginning on or after January 1, 2012. However, this notice is not effective until plan years beginning on or after January 1, 2013 for any plan that is sponsored by an employer with respect to which, on March 14, 2011, neither the employer nor any member of its controlled group (within the meaning of § 409(l)) has any common stock that is readily tradable on an established securities market within the meaning of § 1.401(a)(35)-(1)(f)(5)(A) (relating to securities that are traded on a national securities exchange that is registered under section 6 of the Securities Exchange Act of 1934), but the employer or a member of its controlled group has common stock that is readily tradable on an established securities market within the meaning of § 1.401(a)(35)-(1)(f)(5)(B) (relating to securities that are traded on a foreign national securities exchange that is officially recognized, sanctioned, or supervised by a governmental authority and is deemed by the SEC as having a “ready market” under SEC Rule 15c3–1, within the meaning of § 1.401(a)(35)-(1)(f)(5)(B)). Taxpayers (including any employer sponsoring a plan described in the preceding sentence) can rely on this notice for periods after March 14, 2011.

Drafting Information:

The principal author of this notice is Robert Gertner of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this notice, please contact the Employee Plans taxpayer assistance answering service at 1–877–829–5500 (a toll-free number) or e-mail Mr. Gertner at RetirementPlanQuestions@irs.gov .

26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement; determination of correct tax liability. (Also: Part I, § 911, 1.911–1.)

2011–11 I.R.B. 551 March 14, 2011

have been expected to meet the eligibility requirements.

.04 For 2010, the Secretary of the Treasury, in consultation with the Secretary of

State, has determined that war, civil unrest, or similar adverse conditions precluded the normal conduct of business in the follow

Date of Departure

Country On or after

Cote d’Ivoire December 19, 2010

Haiti January 13, 2010

ing countries beginning on the specified date:

file an amended return, should contact a local IRS Office or, for a taxpayer residing or traveling outside the United States, the nearest overseas IRS office.