IRB 2011-41 (Rev. October 11, 2011)

Bulletin No. 2011-41October 11, 2011

HIGHLIGHTSOF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied upon as authoritative interpretations.

INCOME TAX

Rev. Rul. 2011–22, page 489.Federal rates; adjusted federal rates; adjusted federallong-term rate and the long-term exempt rate. For pur-poses of sections 382, 642, 1274, 1288, and other sectionsof the Code, tables set forth the rates for October 2011.

Rev. Rul. 2011–24, page 485.Telecommunications services under section 199. Thisruling determines in certain situations whether a taxpayer pro-viding telecommunications services is deriving gross receiptsfrom services, leasing or renting property, or some combina-tion thereof for purposes of the domestic production activitiesdeduction under section 199 of the Code.

Notice 2011–74, page 496.This notice provides for the suspension of certain requirementsunder section 42 of the Code for low-income housing creditprojects in order to provide emergency housing relief neededas a result of the devastation caused by Tropical Storm Irenein Vermont beginning on August 27, 2011.

Notice 2011–79, page 498.Extension of replacement period for livestock sold onaccount of drought. This notice explains the circumstancesunder which the 4-year replacement period under section1033(e)(2) of the Code is extended for livestock sold onaccount of drought. The Appendix to this notice contains alist of the counties that experienced exceptional, extreme, orsevere drought during the preceding 12-month period endingAugust 31, 2011. Taxpayers may use this list to determine ifan extension is available.

EXEMPT ORGANIZATIONS

Announcement 2011–63, page 503.The IRS has revoked its determination that Allied Veterans of theWorld, Inc., & Affiliates of Charlotte, NC; Metropolitan FinancialManagement Corporation of Roseville, MN; Saint Rest No. 2Missionary Baptist Church of Chicago, IL; American Homebuy-ers Foundation, Inc., of Conyers, GA; Bundle of Joy Daycare,Inc., of Long Beach, CA; Columbia Basin Animal Rescue andProtection Agency of Kennewick, WA; Handicap Interests Inter-national and World Religions of Saranac Lake, NY; HolographicEcology, Inc., of Santa Barbara, CA; Mattie’s Maternity Homesof Palmdale, CA; Monytek Human Services, Inc., of Pendleton,OR; and Community Day Care Center of Abbeyville, LA, qualifyas organizations described in sections 501(c)(3) and 170(c)(2)of the Code.

EMPLOYMENT TAX

Announcement 2011–64, page 503.This announcement provides notice and details regarding thenew Voluntary Classification Settlement Program (VCSP). TheVCSP will allow eligible taxpayers to obtain similar relief tothat obtained in the current Classification Settlement Program(CSP), which is only available to taxpayers under IRS exami-nation. The VCSP is optional and provides taxpayers with anopportunity to voluntarily reclassify their workers as employ-ees for future tax periods with limited federal employment taxliability for the past nonemployee treatment. To participate,taxpayers must meet certain eligibility requirements, apply toparticipate in VCSP, and enter into a closing agreement withthe IRS.

(Continued on the next page)

Finding Lists begin on page ii.

ADMINISTRATIVE

T.D. 9545, page 490.Final regulations under section 6404 of the Code relate to thesuspension of interest, penalties, additions to tax, or additionalamounts under section 6404(g). Notice 2007–93 obsoleted.

Notice 2011–78, page 497.This notice provides relief to insurance companies administer-ing certain self-insurance arrangements on behalf of an em-ployer or other entity from any information reporting obligationsunder section 6050W of the Code. Insurance companies mayrely on this notice until the regulations under section 6050Ware amended.

October 11, 2011 2011–41 I.R.B.

The IRS MissionProvide America’s taxpayers top-quality service by helpingthem understand and meet their tax responsibilities and en-

force the law with integrity and fairness to all.

IntroductionThe Internal Revenue Bulletin is the authoritative instrument ofthe Commissioner of Internal Revenue for announcing officialrulings and procedures of the Internal Revenue Service and forpublishing Treasury Decisions, Executive Orders, Tax Conven-tions, legislation, court decisions, and other items of generalinterest. It is published weekly and may be obtained from theSuperintendent of Documents on a subscription basis. Bulletincontents are compiled semiannually into Cumulative Bulletins,which are sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletin all sub-stantive rulings necessary to promote a uniform application ofthe tax laws, including all rulings that supersede, revoke, mod-ify, or amend any of those previously published in the Bulletin.All published rulings apply retroactively unless otherwise indi-cated. Procedures relating solely to matters of internal man-agement are not published; however, statements of internalpractices and procedures that affect the rights and duties oftaxpayers are published.

Revenue rulings represent the conclusions of the Service on theapplication of the law to the pivotal facts stated in the revenueruling. In those based on positions taken in rulings to taxpayersor technical advice to Service field offices, identifying detailsand information of a confidential nature are deleted to preventunwarranted invasions of privacy and to comply with statutoryrequirements.

Rulings and procedures reported in the Bulletin do not have theforce and effect of Treasury Department Regulations, but theymay be used as precedents. Unpublished rulings will not berelied on, used, or cited as precedents by Service personnel inthe disposition of other cases. In applying published rulings andprocedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,and Service personnel and others concerned are cautionedagainst reaching the same conclusions in other cases unlessthe facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.This part includes rulings and decisions based on provisions ofthe Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.This part is divided into two subparts as follows: Subpart A,Tax Conventions and Other Related Items, and Subpart B, Leg-islation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references to thesesubjects are contained in the other Parts and Subparts. Alsoincluded in this part are Bank Secrecy Act Administrative Rul-ings. Bank Secrecy Act Administrative Rulings are issued bythe Department of the Treasury’s Office of the Assistant Secre-tary (Enforcement).

Part IV.—Items of General Interest.This part includes notices of proposed rulemakings, disbar-ment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative indexfor the matters published during the preceding months. Thesemonthly indexes are cumulated on a semiannual basis, and arepublished in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

2011–41 I.R.B. October 11, 2011

October 11, 2011 2011–41 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986Section 42.—Low-IncomeHousing Credit

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof October 2011. See Rev. Rul. 2011-22, page 489.

Section 199.—IncomeAttributable to DomesticProduction Activities26 CFR 1.199–3: Domestic production gross re-ceipts.(Also: § 7701.)

Telecommunications services undersection 199. This ruling determines incertain situations whether a taxpayer pro-viding telecommunications services is de-riving gross receipts from services, leasingor renting property, or some combinationthereof for purposes of the domestic pro-duction activities deduction under section199 of the Code.

Rev. Rul. 2011–24

ISSUE

In the situations described below, does ataxpayer that provides telecommunicationservices derive gross receipts from ser-vices to customers, leasing or renting prop-erty to customers, or some combinationthereof for purposes of the domestic pro-duction activities deduction under § 199 ofthe Internal Revenue Code?

FACTS

Situation 1. Z corporation is in the busi-ness of providing telecommunication ser-vices, including the transmission of voice,data, and video communications. Z con-tracts with A, a corporation that is not in thetelecommunications industry, to transmitA’s telecommunications. A has multiplebusiness locations. The contract requires Zto transmit A’s telecommunications at A’sdesired times, to A’s desired destinations,and at a certain speed. If Z cannot transmitA’s telecommunications according to theterms of the contract, then the contract re-quires Z to provide A with a service credit.The contract requires A to make payments

to Z for transmitting A’s telecommunica-tions.

Z’s optical and digital transmissionequipment, usually a Synchronous OpticalNetwork (SONET) ring, and the associ-ated Public Switched Telephone Network(PSTN) are used to transmit A’s telecom-munications. Z’s SONET ring is deployedin a ring topology and interconnects mul-tiple business locations designated by Aso that telecommunications can be trans-mitted between A’s business locationswithout being transmitted to Z’s PSTN.The SONET ring also connects with Z’scentral office, switching center, or remoteterminal so that telecommunications canbe transmitted to and from Z’s PSTN.

The PSTN is comprised primarily offiber optic cable and copper cable thatconnects switching centers with each otherand connects switching centers to remoteterminals. The PSTN is owned by Z andis not dedicated to A or to any of Z’s othercustomers. Z’s PSTN provides a multitudeof different pathways to transmit telecom-munications to and from A’s businesslocations. The SONET ring and PSTNassets used to transmit A’s telecommuni-cations include: (1) network electronics,such as multiplexers, switches, routers,digital cross connects, optical and digitaltransmission equipment; (2) fiber opticcable and/or copper cable; (3) networkfacilities such as a central office; and (4)software.

A owns some telecommunicationsequipment that connects with the SONETring to allow transmission of A’s telecom-munications between A’s business loca-tions or to the PSTN, and transmission ofothers’ telecommunications to A from thePSTN. A’s telecommunications equipmentis located solely on A’s side of the de-marcation point (point of interconnection)as that term is used in 47 C.F.R. Part 68.A’s telecommunications equipment typi-cally includes a router, a channel serviceunit/data service unit, and diagnostics mo-dem (collectively the “customer premisesequipment”). The contract does not re-quire Z to provide any services related toA’s customer premises equipment.

Z owns, installs, operates, and main-tains the SONET ring and PSTN. Z will

replace any SONET ring and PSTN as-sets when repairs or upgrades are required.The contract requires that A grant Z rea-sonable access to A’s premises for the pur-pose of installing, inspecting, testing, rear-ranging, maintaining, repairing, or remov-ing any of the SONET ring assets locatedon A’s premises. Z maintains and repairsthe SONET ring and PSTN at no additionalcharge to A. A is prohibited from installing,inspecting, testing, rearranging, maintain-ing, repairing, or removing any componentof the SONET ring and/or PSTN.

Situation 2. The facts and circum-stances are the same as in Situation 1,except A does not have multiple businesslocations and Z’s dedicated circuit, insteadof a SONET ring, is used to transmit A’stelecommunications to the PSTN and oth-ers’ telecommunications from the PSTN.All telecommunications transmitted toor from A must be transmitted using thePSTN. Z’s dedicated circuit, also referredto as the “local loop” or “last mile,” iscomprised of Z’s equipment (copper orfiber optic cable, point of presence equip-ment, and dedicated or shared equipment).

Z generally does not notify A if Z repairsthe dedicated circuit or PSTN. Z may no-tify A if Z upgrades the dedicated circuit orPSTN. A cannot stop Z from making anynecessary repairs or upgrades to the dedi-cated circuit or PSTN.

Situation 3. The facts are the same asSituation 2 except that A does not own thecustomer premises equipment required toconnect with the dedicated circuit to al-low transmission of A’s telecommunica-tions. As part of the contract for Z to trans-mit A’s telecommunications, Z also pro-vides the customer premises equipment,and provides support services to A in re-lation to managing the customer premisesequipment. The contract provides that itis a lease of the customer premises equip-ment to A, but does not separately state thelease amount.

Z delivers and installs the customerpremises equipment on A’s premises. Z,if necessary, helps maintain the customerpremises equipment by providing tele-phone support services to A’s designatedemployees related to diagnosing problemsand repairing and replacing the customer

2011–41 I.R.B. 485 October 11, 2011

premises equipment. Z can also remotelyperform certain maintenance or diagnostictasks. A’s designated employees completeany required repair or replacement. A isliable for any repair charges or the re-placement cost of the customer premisesequipment if it is damaged or lost. A canrelocate or modify the customer premisesequipment, and may attach it to non-Zequipment with Z’s written authorization,which may not be unreasonably withheld.When the contract terminates, if A doesnot return the customer premises equip-ment or make it available for removal byZ, then A is liable to Z for the customerpremises equipment’s then current marketvalue. A is liable for costs of any restora-tion of the customer premises equipmentbeyond ordinary wear and tear.

LAW AND ANALYSIS

Section 199(a)(1) allows a deductionequal to 9 percent (3 percent in the case oftaxable years beginning in 2005 or 2006,and 6 percent in the case of taxable yearsbeginning in 2007, 2008, or 2009) of thelesser of (A) the qualified production ac-tivities income (QPAI) of the taxpayer forthe taxable year, or (B) taxable income (de-termined without regard to § 199) for thetaxable year (or, in the case of an individ-ual, adjusted gross income).

Sections 199(b)(1) and (b)(2) limit theamount of the deduction allowable under§ 199(a) to 50 percent of the W–2 wagesof the taxpayer for the taxable year thatare allocable to domestic production grossreceipts (DPGR).

Section 199(c)(1) defines QPAI for anytaxable year as an amount equal to the ex-cess (if any) of (A) the taxpayer’s DPGRfor such taxable year, over (B) the sum of(i) the cost of goods sold that are allocableto such receipts; and (ii) other expenses,losses, or deductions (other than the deduc-tion under § 199) that are properly alloca-ble to such receipts.

Section 199(c)(4)(A)(i)(I) provides thatthe term DPGR means the taxpayer’s grossreceipts that are derived from any lease,rental, license, sale, exchange, or other dis-position of qualifying production propertythat was manufactured, produced, grown,or extracted by the taxpayer in whole or insignificant part within the United States.

Section 1.199–3(i)(1) of the IncomeTax Regulations provides that applica-

ble Federal income tax principles applyto determine whether a transaction is, insubstance, a lease, rental, license, sale, ex-change, or other disposition, whether it isa service, or whether it is some combina-tion thereof. Section 1.199–3(i)(4)(i)(A)provides that gross receipts derived fromthe performance of services generally donot qualify as DPGR.

Section 1.199–3(i)(6)(ii) provides thatgross receipts derived from customer andtechnical support, telephone and othertelecommunication services, online ser-vices (such as Internet access services,online banking services, providing accessto online electronic books, newspapers,and journals), and other similar services donot constitute gross receipts derived froma lease, rental, license, sale, exchange, orother disposition of computer software.Example 3 of § 1.199–3(i)(6)(v) concludesthat gross receipts derived from telephoneand related telecommunication servicesrun by computer software produced bythe taxpayer are attributable to a serviceand do not constitute gross receipts de-rived from a lease, rental, license, sale,exchange, or other disposition of computersoftware.

Rev. Rul. 68–109, 1968–1 C.B. 10,holds that switchboards or dial switchingapparatus installed by the taxpayer, a reg-ulated communications utility, at a cus-tomer location and used to furnish com-munications services to tax-exempt orga-nizations or governmental units were eli-gible for the investment tax credit becausethe equipment installed was not owned orleased by the tax-exempt organizations orgovernmental units. The taxpayer retainedall ownership in, and possession and con-trol over, the equipment. The agreemententered into between the taxpayer and thecustomer was not a sale or lease but a ser-vice contract. The services furnished bythe taxpayer and the manner in which theymust be furnished were described in tariffs(which did not include provisions that au-thorized the taxpayer to sell or lease anyof the property in question) on file withthe Federal Communications Commission,and with the pertinent state public utilityregulatory agencies.

Rev. Rul. 72–407, 1972–2 C.B. 10,holds that fully serviced vehicles that werefurnished on a daily basis to a departmentof the United States Government were in-eligible property for purposes of the in-

vestment tax credit because the vehicleswere provided under a lease arrangementrather than a service contract. The rul-ing reasons that the provision of vehicleswas more analogous to the facts under Rev.Rul. 71–397, 1971–2 C.B. 63 (in whichan owner-manufacturer’s machines placedwith and for the use of tax-exempt orga-nizations and governmental units were noteligible for the investment tax credit be-cause the manufacturer did not have pos-session and use of the machines), than tothe facts under Rev. Rul. 68–109. The rul-ing reasons that, because the vehicles werenot part of an integrated network and nogovernment regulations prohibited a leaseof the vehicles, provision of the vehicleswas fundamentally different from the pro-vision of communications services consid-ered in Rev. Rul. 68–109. The vehicleswere provided to the governmental unit bythe taxpayer; however, the taxpayer didnot use them to render services to the gov-ernmental unit. Instead, the placement ofthe vehicles with the governmental unitallowed the governmental unit to provideservices to itself.

In addition, case law addresses whethera contract is a lease or a service contract.For example, in Xerox Corporation v.United States, 656 F.2d 659 (Ct. Cl. 1981),the court held that machines were eligiblefor the investment tax credit because themachines were not leased but suppliedas an integral part of service. The court,after citing Rev. Rul. 68–109 and otherrulings, focused the service-versus-leaseanalysis on the possessory interest a tax-payer retains in the property and whetherthe property is part of an integrated oper-ation. The court described four factors touse when analyzing the possessory inter-est: (1) retention of property ownershipby taxpayer (see Rev. Rul. 68–109); (2)retention of possession and control ofthe property by taxpayer (see Rev. Rul.68–109 and Rev. Rul. 71–397); (3) re-tention of risk of loss by the taxpayer (seeRev. Rul. 68–109); and (4) reservationof the right to remove the property, andreplace it with comparable property.

In Smith v. Commissioner, T.C. Memo.1989–318, in determining whether the tax-payer was eligible for the investment taxcredit, the court listed four factors for dis-tinguishing leases from service contracts:(1) which party has the use and posses-sion or control of the equipment; (2) which

October 11, 2011 486 2011–41 I.R.B.

party operates the machine; (3) whetherthe tax-exempt organization pays for theuse of the machine for some duration, or,instead pays based upon the number ofprocedures executed; and (4) whether theequipment is part of a broader, integratedsystem of equipment and services.

Applicable Federal income tax prin-ciples relevant to determining whether ataxpayer’s gross receipts are derived fromproviding telecommunication services orfrom a lease or rental of property includethe factors described in § 7701(e)(1). Sec-tion 7701(e)(1) provides that for purposesof chapter 1, of which § 199 is a part, acontract that purports to be a service con-tract shall be treated as a lease of propertyif such contract is properly treated as alease of property taking into account allrelevant factors, including whether or not(A) the service recipient is in physicalpossession of the property, (B) the servicerecipient controls the property, (C) the ser-vice recipient has a significant economicor possessory interest in the property, (D)the service provider does not bear anyrisk of substantially diminished receiptsor substantially increased expenditures ifthere is nonperformance under the con-tract, (E) the service provider does notuse the property concurrently to providesignificant services to entities unrelatedto the service recipient, and (F) the totalcontract price does not substantially ex-ceed the rental value of the property forthe contract period.

Although authorities on Federal incometax principles such as those summarizedabove demonstrate that Federal income taxprinciples are generally used to determinea single character for a given transaction,§ 1.199–3(i)(1) provides that, solely forpurposes of § 199, a single transactionmay, depending on applicable Federal in-come tax principles, have both a serviceselement and a lease element. Accordingly,the application of Federal income tax prin-ciples described in § 1.199–3(i)(1) requiresan analysis of relevant factors taken fromFederal income tax principles, but does notrequire a determination of a single charac-ter. However, analysis of the relevant fac-tors may lead to a determination that thetransaction has only a single character ele-ment for purposes of § 199.

In Situation 1, under the applicableFederal income tax principles describedabove, Z is using its SONET ring and

PSTN to provide telecommunication ser-vices to A, not providing a combination oftelecommunication services with a leaseor rental of Z’s SONET ring or PSTN toA. Although a determination for § 199purposes that a transaction constitutes ex-clusively the provision of services requiresthorough consideration of all relevant factsand circumstances, several significant fac-tors in Situation 1 support this conclusion.

For instance, Z maintains control of theSONET ring and PSTN that are necessaryfor Z to fulfill the conditions of its contractwith A. To fulfill the contract terms, Z musttransmit A’s telecommunications at A’s de-sired times, to A’s desired destinations, andat a certain speed. A contracts with Z forthe quantity and quality of telecommuni-cation services, but does not control howZ uses the SONET ring and PSTN to pro-vide the services.

Further, A does not have a possessoryinterest in the SONET ring and PSTN thatZ uses to complete the transmissions. Zmust operate the SONET ring and PSTNbecause, if A makes the payments due un-der the contract to Z, Z is required to trans-mit A’s telecommunications. A does notoperate, maintain, repair or upgrade theSONET ring and PSTN. A grants Z rea-sonable access to A’s premises for the pur-pose of installing, inspecting, testing, re-arranging, maintaining, repairing, or re-moving any of the SONET ring assets lo-cated on A’s premises. Z operates, main-tains, repairs, and upgrades the SONETring and PSTN at no additional charge toA. A is prohibited from installing, inspect-ing, testing, rearranging, maintaining, re-pairing, or removing any component ofthe SONET ring or PSTN. Z is the partywith a possessory interest in the SONETring and PSTN. Z must be able to oper-ate the SONET ring and PSTN because,if Z cannot transmit A’s telecommunica-tions according to the terms of the contract(i.e., A’s desired times, destinations, andspeed), then Z is required to provide a ser-vice credit.

In addition, the SONET ring and PSTNare part of Z’s broader integrated opera-tion of transmitting telecommunications.While the SONET ring allows Z to trans-mit A’s telecommunications between A’sdesignated business locations without ac-cessing Z’s PSTN, the SONET ring alsoconnects with Z’s central office, switchingcenter, or remote terminal so that telecom-

munications can be transmitted to andfrom Z’s PSTN. The PSTN is owned byZ and is not dedicated to A or to any ofZ’s other customers. The PSTN providesa multitude of different pathways to trans-mit telecommunications to and from A’sbusiness locations.

In this situation, A contracts with Z forreliable telecommunication services and Zprovides those services using its SONETring and PSTN subject to the contractterms governing the quantity and qualityof services that Z must provide. Accord-ingly, Z’s gross receipts derived fromtransmitting A’s telecommunications arederived from the performance of serviceswithout the lease or rental of Z’s SONETring and PSTN to A for purposes of § 199.

In Situation 2, under the applicableFederal income tax principles describedabove, Z is using the dedicated circuit andPSTN to provide telecommunication ser-vices to A, not providing a combination oftelecommunication services with a leaseor rental of Z’s dedicated circuit or PSTNto A. Although a determination for § 199purposes that a transaction constitutes ex-clusively the provision of services requiresthorough consideration of all relevant factsand circumstances, several significant fac-tors in Situation 2 support this conclusion.

For instance, A does not control the ded-icated circuit or PSTN as Z maintains thesame control as Z has over the SONETring and PSTN in Situation 1. Further, Adoes not have a possessory interest in thededicated circuit and PSTN that Z uses tocomplete the transmissions. Z, in fact, hasbroader access to a dedicated circuit thana SONET ring. Also, the dedicated cir-cuit is part of Z’s broader integrated oper-ation. The dedicated circuit must connectwith Z’s PSTN to transmit telecommunica-tions to and from A’s business location.

In this situation A contracts with Z forreliable telecommunication services and Zprovides those services using its dedicatedcircuit and PSTN subject to the contractterms governing the quantity and quality ofservices that Z must provide. Accordingly,Z’s gross receipts derived from transmit-ting A’s telecommunications are derivedfrom the performance of services withoutthe lease or rental of Z’s dedicated circuitor PSTN to A for purposes of § 199.

In Situation 3, under the applicableFederal income tax principles describedabove, Z is providing a combination of

2011–41 I.R.B. 487 October 11, 2011

telecommunication services using its ded-icated circuit and PSTN and a lease orrental of Z’s customer premises equipmentto A. Although a determination for § 199purposes that a transaction constitutes acombination of services and a lease orrental requires thorough considerationof all relevant facts and circumstances,several significant factors in Situation 3support this conclusion.

With respect to the dedicated circuit andPSTN, the same analysis applies to Situ-ation 3 as applied in Situation 2. In thissituation, A’s contract with Z also includesthe provision of customer premises equip-ment. The customer premises equipmentis necessary to allow A to connect withthe dedicated circuit so that Z can transmittelecommunications to and from A’s busi-ness location.

A controls the customer premisesequipment in generally the same man-ner as in Situation 2 where A owns thecustomer premises equipment. However,in this case, Z owns, provides necessarytelephone support services for, and canperform certain remote maintenance anddiagnostic tasks on the customer premisesequipment. Nevertheless, A has a pos-sessory interest in the customer premisesequipment. Z must operate the dedicatedcircuit and PSTN, but just as in Situa-tion 2, A operates the customer premisesequipment. A designates employees toperform equipment replacement and re-pair of the customer premises equipment.Z provides telephone assistance, but onlyif necessary. A can relocate or modifythe customer premises equipment, andmay attach it to non-Z equipment withZ’s written authorization, which may notbe unreasonably withheld. A is liable forany repair charges or the replacement costof the equipment if it is damaged or lost.When the contract terminates, if A does notreturn the customer premises equipmentor make it available for removal by Z, thenA is liable to Z for the customer premisesequipment’s then current market value. IfA does return it and the customer premisesequipment has more than ordinary wearand tear, then A is liable for those restora-tion costs. The facts demonstrate in thissituation that A has a possessory interestin the customer premises equipment.

Because A is ultimately the party re-sponsible for ensuring that the customerpremises equipment is available to connectwith the dedicated circuit to allow Z totransmit telecommunications to and fromA’s business location using Z’s dedicatedcircuit and PSTN, the customer premisesequipment should not be considered part ofZ’s broader integrated network.

In this situation A contracts with Z forreliable telecommunication services and Zprovides those services using its dedicatedcircuit and PSTN subject to the contractterms governing the quantity and qualityof services that Z must provide, but A alsocontracts for the lease or rental of cus-tomer premises equipment. Accordingly,Z’s gross receipts derived from transmit-ting A’s telecommunications are derivedfrom a combination of services using itsdedicated circuit and PSTN and a lease orrental of the customer premises equipmentto A.

The terms “lease” and “rent” are usedinterchangeably throughout the Code, andfor purposes of this analysis a distinctionis unnecessary. The characterization of atransaction as a combination of servicesand a lease as opposed to a combinationof services and a rental has no effect under§ 199.

HOLDINGS

In Situation 1, Z’s gross receipts are de-rived from the performance of telecommu-nication services without the lease or rentalof Z’s SONET ring and PSTN to A forpurposes of § 199 and do not constituteDPGR.

In Situation 2, Z’s gross receipts are de-rived from the performance of telecommu-nication services without the lease or rentalof Z’s dedicated circuit and PSTN to A forpurposes of § 199 and do not constituteDPGR.

In Situation 3, Z’s gross receipts are de-rived from a combination of the perfor-mance of telecommunication services us-ing its dedicated circuit and PSTN and alease or rental of the customer premisesequipment described above to A for pur-poses of § 199. Z’s gross receipts de-rived from the performance of services donot constitute DPGR and Z’s gross receiptsderived from the lease or rental of the

customer premises equipment only qual-ify as DPGR if Z meets the other require-ments of § 199 with respect to the customerpremises equipment.

DRAFTING INFORMATION

The principal author of this revenueruling is James A. Holmes of the Officeof Associate Chief Counsel (Passthroughs& Special Industries). For furtherinformation regarding this revenue ruling,contact Mr. Holmes at (202) 622–3040(not a toll-free call).

Section 280G.—GoldenParachute Payments

Federal short-term, mid-term, and long-term ratesare set forth for the month of October 2011. See Rev.Rul. 2011-22, page 489.

Section 382.—Limitationon Net Operating LossCarryforwards and CertainBuilt-In Losses FollowingOwnership Change

The adjusted applicable federal long-term rate isset forth for the month of October 2011. See Rev.Rul. 2011-22, page 489.

Section 412.—MinimumFunding Standards


Section 467.—CertainPayments for the Use ofProperty or Services


Section 468.—SpecialRules for Mining and SolidWaste Reclamation andClosing Costs


October 11, 2011 488 2011–41 I.R.B.

Section 482.—Allocationof Income and DeductionsAmong Taxpayers


Section 483.—Interest onCertain Deferred Payments


Section 642.—SpecialRules for Credits andDeductions


Section 807.—Rules forCertain Reserves


Section 846.—DiscountedUnpaid Loses Defined


Section 1274.—Determi-nation of Issue Price in theCase of Certain Debt Instru-ments Issued for Property(Also Sections 42, 280G, 382, 412, 467, 468, 482,483, 642, 807, 846, 1288, 7520, 7872.)

Federal rates; adjusted federal rates;adjusted federal long-term rate and thelong-term exempt rate. For purposes ofsections 382, 642, 1274, 1288, and othersections of the Code, tables set forth therates for October 2011.

Rev. Rul. 2011–22

This revenue ruling provides variousprescribed rates for federal income taxpurposes for October 2011 (the currentmonth). Table 1 contains the short-term,mid-term, and long-term applicable fed-eral rates (AFR) for the current month

for purposes of section 1274(d) of theInternal Revenue Code. Table 2 containsthe short-term, mid-term, and long-termadjusted applicable federal rates (ad-justed AFR) for the current month forpurposes of section 1288(b). Table 3 setsforth the adjusted federal long-term rateand the long-term tax-exempt rate de-scribed in section 382(f). Table 4 containsthe appropriate percentages for deter-mining the low-income housing creditdescribed in section 42(b)(1) for build-ings placed in service during the currentmonth. However, under section 42(b)(2),the applicable percentage for non-feder-ally subsidized new buildings placed inservice after July 30, 2008, and beforeDecember 31, 2013, shall not be less than9%. Finally, Table 5 contains the federalrate for determining the present value ofan annuity, an interest for life or for a termof years, or a remainder or a reversionaryinterest for purposes of section 7520.

REV. RUL. 2011–22 TABLE 1

Applicable Federal Rates (AFR) for October 2011

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term

AFR .16% .16% .16% .16%110% AFR .18% .18% .18% .18%120% AFR .19% .19% .19% .19%130% AFR .21% .21% .21% .21%

Mid-term

AFR 1.19% 1.19% 1.19% 1.19%110% AFR 1.31% 1.31% 1.31% 1.31%120% AFR 1.44% 1.43% 1.43% 1.43%130% AFR 1.56% 1.55% 1.55% 1.55%150% AFR 1.80% 1.79% 1.79% 1.78%175% AFR 2.09% 2.08% 2.07% 2.07%

Long-term

AFR 2.95% 2.93% 2.92% 2.91%110% AFR 3.25% 3.22% 3.21% 3.20%120% AFR 3.55% 3.52% 3.50% 3.49%130% AFR 3.85% 3.81% 3.79% 3.78%

2011–41 I.R.B. 489 October 11, 2011


Adjusted AFR for October 2011

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term adjustedAFR

.32% .32% .32% .32%

Mid-term adjusted AFR 1.27% 1.27% 1.27% 1.27%

Long-term adjustedAFR

3.51% 3.48% 3.46% 3.46%


Rates Under Section 382 for October 2011

Adjusted federal long-term rate for the current month 3.51%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjustedfederal long-term rates for the current month and the prior two months.) 3.82%


Appropriate Percentages Under Section 42(b)(1) for October 2011

Note: Under Section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service afterJuly 30, 2008, and before December 31, 2013, shall not be less than 9%.

Appropriate percentage for the 70% present value low-income housing credit 7.48%

Appropriate percentage for the 30% present value low-income housing credit 3.20%


Rate Under Section 7520 for October 2011

Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,or a remainder or reversionary interest 1.4%

Section 1288.—Treatmentof Original Issue Discounton Tax-Exempt Obligations


Section 6404.—Abate-ments26 CFR 301.6404–4: Suspension of interest and cer-tain penalties when the Internal Revenue Service doesnot timely contact the taxpayer.

T.D. 9545

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Part 301

Interest and PenaltySuspension Provisions UnderSection 6404(g) of the InternalRevenue Code

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final regulations and removalof temporary regulations.

SUMMARY: This document contains fi-nal regulations regarding the suspension ofinterest, penalties, additions to tax, or ad-ditional amounts under section 6404(g) ofthe Internal Revenue Code. The final reg-ulations explain the general rules for sus-pension and exceptions to those generalrules, and incorporate a special rule from

October 11, 2011 490 2011–41 I.R.B.

Notice 2007–93, 2007–2 C.B. 1072, re-garding the effective date of the changes tosection 6404(g) made by the Small Busi-ness and Work Opportunity Tax Act of2007. The final regulations affect taxpay-ers who file timely individual income taxreturns and who fail to receive notifica-tion from the IRS of additional tax liabilitywithin the time period prescribed by sec-tion 6404(g).

DATES: Effective Date: These regulationsare effective on August 22, 2011.

Applicability Date: Section301.6404–4(a)(5) applies to notices undersection 6404(g)(1)(A) that are providedby the IRS on or after November 26,2007, and that relate to individual Federalincome tax returns that were timely filedbefore that date.

FOR FURTHER INFORMATIONCONTACT: Nathan Rosen, (202)622–3630 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document amends the Procedureand Administration Regulations (26 CFRpart 301) by adding rules relating to thesuspension of interest, penalties, addi-tions to tax, or additional amounts undersection 6404(g). Section 6404(g) wasadded to the Code by section 3305 ofthe Internal Revenue Service Restruc-turing and Reform Act of 1998, PublicLaw 105–206 (112 Stat. 685, 743) (RRA98), effective for taxable years endingafter July 22, 1998. Section 6404(g) wasamended by section 903(c) of the Amer-ican Jobs Creation Act of 2004, PublicLaw 108–357 (118 Stat. 1418, 1652)(AJCA), enacted on October 22, 2004, andby section 303 of the Gulf OpportunityZone Act of 2005, Public Law 109–135(119 Stat. 2577, 2608–09) (GOZA),enacted on December 21, 2005. Section8242 of the Small Business and WorkOpportunity Tax Act of 2007, Public Law110–28 (121 Stat. 190, 200), extended theeighteen-month period within which theIRS can, without suspension of interest,contact a taxpayer regarding possibleadjustments to the taxpayer’s liability tothirty-six months, effective for noticesprovided after November 25, 2007.

On June 21, 2007, the TreasuryDepartment and the IRS published inthe Federal Register a notice of pro-posed rulemaking and notice of pub-lic hearing (REG–149036–04, 2007–2C.B. 411 [72 FR 34199]), correctedat (72 FR 41045) (July 26, 2007),under section 6404(g). The proposedregulations provided guidance regardingthe suspension of interest, penalties,additions to tax, or additional amountsunder section 6404(g). No commentswere received in response to the noticeof proposed rulemaking and no publichearing was requested or held. Therefore,the proposed regulations are adopted asamended by this Treasury decision. Therevisions are discussed in this preamble.

On June 21, 2007, the Treasury De-partment and the IRS also published aseparate set of temporary regulations(T.D. 9333, 2007–2 C.B. 350 [72 FR34176]), corrected at 72 FR 41022, anda notice of proposed rulemaking bycross-reference to temporary regulations(REG–149036–04, 2007–2 C.B. 365[72 FR 34204]), corrected at 72 FR 41045,under section 6404(g) concerning thesuspension of interest, penalties, additionsto tax, or additional amounts with respectto listed transactions or undisclosedreportable transactions. Those temporaryand proposed regulations are not thesubject of this Treasury decision, andwere published as final regulations onJune 16, 2010 (T.D. 9488, 2010–28 I.R.B.51 [75 FR 33992]).

Explanation of Revisions

The final regulations include new§301.6404–4(a)(5) to address the mattersthat were the subject of Notice 2007–93.In general, section 6404(g) provides thatif an individual taxpayer files a Federalincome tax return on or before the duedate for that return (including extensions),and if the IRS does not timely provide anotice to that taxpayer specifically statingthe taxpayer’s liability and the basis forthat liability, then the IRS must suspendany interest, penalty, addition to tax, oradditional amount with respect to any fail-ure relating to the return that is computedby reference to the period of time thefailure continues and that is properly allo-cable to the suspension period. A notice

is timely if provided before the close ofthe 18-month period (36-month period, inthe case of notices provided after Novem-ber 25, 2007, subject to the provisions of§301.6404–4(a)(5)) beginning on the laterof the date on which the return is filed orthe due date of the return without regard toextensions. The suspension period beginson the day after the close of the 18-monthperiod (or 36-month period) and ends 21days after the IRS provides the notice.This suspension rule applies separatelywith respect to each item or adjustment.

Notice 2007–93 set forth a special rulefor notices under section 6404(g)(1) that(i) are provided by the IRS on or afterNovember 26, 2007, and (ii) relate to in-dividual Federal income tax returns thatwere timely filed before that date. Underthe special rule:

1. If, as of November 25, 2007, the18-month notification deadline had passedand the IRS had not provided notice tothe taxpayer, the suspension described insection 6404(g)(1)(A) would begin on theday after the close of the 18-month period.The suspension would end 21 days afterthe date on which the notice was provided.

2. In all other cases, the suspensionwould begin on the day after the close ofthe 36-month notification period describedin section 6404(g)(1)(A) and end 21 daysafter the date on which the notice was pro-vided.

The final regulations incorporate sub-stantially without change the special ruleof Notice 2007–93 at §301.6404–4(a)(5).

In addition, §301.6404–4(b)(2) was re-vised to remove the reference to section6501(c)(1) and the meaning of fraud, asfraud is not defined in section 6501(c)(1)but is instead generally described undercase law and other guidance. Thus, fraudfor purposes of §301.6404–4(b)(2) has thesame meaning as that provided in case lawand other guidance.

Finally, minor editorial changes weremade to clarify the terms of section6404(g) and to modify a reference to offi-cial IRS forms.

Effect on Other Documents

The following publication is obsolete asof August 22, 2011:

Notice 2007–93, 2007–2 C.B. 1072.

2011–41 I.R.B. 491 October 11, 2011

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in Executive Order12866. Therefore, a regulatory assessmentis not required. It has also been determinedthat section 553(b) of the AdministrativeProcedure Act (5 U.S.C. chapter 5) doesnot apply to these regulations, and becausethese regulations do not impose a collec-tion of information on small entities, theRegulatory Flexibility Act (5 U.S.C. chap-ter 6) does not apply.

Pursuant to section 7805(f) of the Code,the notice of proposed rulemaking preced-ing these regulations was submitted to theChief Counsel for Advocacy of the SmallBusiness Administration for comment onits impact on small business.

Drafting Information

The principal author of these regula-tions is Nathan Rosen of the Office of As-sociate Chief Counsel (Procedure and Ad-ministration).

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 301 isamended as follows:

PART 301—PROCEDURE ANDADMINISTRATION

Paragraph 1. The authority citation forpart 301 continues to read in part as fol-lows:

Authority: 26 U.S.C. 7805. * * *Par. 2. Section 301.6404–0 is amended

as follows:1. Revise the introductory text.2. Revise entries for §301.6404–4(a)

and (b)(1) through (b)(4).3. Revise entries for §301.6404–4(c)

and (d).The revisions read as follows:

§301.6404–0 Table of contents.

This section lists the paragraphscontained in §§301.6404–1 through301.6404–4.

* * * * *

§301.6404–4 Suspension of interestand certain penalties when the InternalRevenue Service does not timely contactthe taxpayer.

(a) Suspension.(1) In general.(2) Treatment of amended returns and

other documents.(i) Amended returns filed on or after

December 21, 2005, that show an increasein tax liability.

(ii) Amended returns that show a de-crease in tax liability.

(iii) Amended returns and other docu-ments as notice.

(iv) Joint return after filing separate re-turn.

(3) Separate application.(4) Duration of suspension period.(5) Certain notices provided on or after

November 26, 2007.(i) Eighteen-month period has closed.(ii) All other cases.(6) Examples.(7) Notice of liability and the basis for

the liability.(i) In general.(ii) Tax attributable to TEFRA partner-

ship items.(iii) Examples.(8) Providing notice.(i) In general.(ii) Providing notice in TEFRA partner-

ship proceedings.(b) Exceptions.(1) Failure to file tax return or to pay

tax.(2) Fraud.(3) Tax shown on return.(4) Gross misstatement.(i) Description.(ii) Effect of gross misstatement.* * * * *(c) Special rules.(1) Tentative carryback and refund ad-

justments.(2) Election under section 183(e).(i) In general.(ii) Example.(d) Effective/applicability date.

§301.6404–0T [Removed]

Par. 3. Section 301.6404–0T is re-moved.

Par. 4. Section 301.6404–4 is amendedas follows:

1. Add paragraphs (a) and (b)(1)through (b)(4).

2. Add paragraph (c).3. Paragraph (d) is amended by adding

a second sentence.The additions and revisions read as fol-

lows:

§301.6404–4 Suspension of interestand certain penalties when the InternalRevenue Service does not timely contactthe taxpayer.

(a) Suspension.—(1) In general. Ex-cept as provided in paragraph (b) of thissection, if an individual taxpayer files areturn of tax imposed by subtitle A onor before the due date for the return (in-cluding extensions) and the Internal Rev-enue Service does not timely provide thetaxpayer with a notice specifically statingthe amount of any increased liability andthe basis for that liability, then the IRSmust suspend the imposition of any inter-est, penalty, addition to tax, or additionalamount, with respect to any failure relatingto the return that is computed by referenceto the period of time the failure continuesto exist and that is properly allocable to thesuspension period. The notice describedin this paragraph (a) is timely if providedbefore the close of the 18-month period(36-month period in the case of noticesprovided after November 25, 2007, subjectto the provisions of paragraph (a)(5)) be-ginning on the later of the date on whichthe return is filed or the due date of the re-turn without regard to extensions.

(2) Treatment of amended returns andother documents.—(i) Amended returnsfiled on or after December 21, 2005, thatshow an increase in tax liability. If ataxpayer, on or after December 21, 2005,provides to the IRS an amended return orone or more other signed written docu-ments showing an increase in tax liability,the date on which the return was filed will,for purposes of this paragraph (a), be thedate on which the last of the documentswas provided. Documents described inthis paragraph (a)(2)(i) are provided onthe date that they are received by the IRS.

(ii) Amended returns that show a de-crease in tax liability. If a taxpayer pro-vides to the IRS an amended return orother signed written document that showsa decrease in tax liability, any interest,penalty, addition to tax, or additional

October 11, 2011 492 2011–41 I.R.B.

amount will not be suspended if the IRSat any time proposes to adjust the changeditem or items on the amended return orother signed written document.

(iii) Amended returns and other doc-uments as notice.—(A) As to the itemsreported, an amended return or one ormore other signed written documentsshowing that the taxpayer owes an addi-tional amount of tax for the taxable yearserves as the notice described in paragraph(a)(1) of this section with respect to theitems reported on the amended return.

(B) Example. An individual taxpayer timely filesa Federal income tax return for taxable year 2008 onApril 15, 2009. On January 19, 2010, the taxpayermails to the IRS an amended return reporting an ad-ditional item of income and an increased tax liabilityfor taxable year 2008. The IRS receives the amendedreturn on January 21, 2010. The amended return willbe treated for purposes of this paragraph (a) as filedon January 21, 2010, the date the IRS received it.Pursuant to paragraph (a)(2)(iii) of this section, theamended return serves as the notice described in para-graph (a)(1) of this section with respect to the item re-ported on the amended return. Accordingly, becausethe filing of the amended return and the provision ofnotice occur simultaneously, no suspension of any in-terest, penalty, addition to tax or additional amountwill occur under this paragraph (a) with respect to theitem reported on the amended return.

(iv) Joint return after filing separatereturn. A joint return filed under sec-tion 6013(b) is subject to the rules foramended returns described in this para-graph (a)(2). The IRS will not suspend anyinterest, penalty, addition to tax, or addi-tional amount on a joint return filed undersection 6013(b) after the filing of a sep-arate return unless each spouse’s separatereturn, if required to be filed, was timely.

(3) Separate application. This para-graph (a) shall be applied separately withrespect to each item or adjustment.

(4) Duration of suspension period. Thesuspension period described in paragraph(a)(1) of this section begins the day af-ter the close of the 18-month period (36-month period, in the case of notices pro-vided after November 25, 2007, subjectto the provisions of paragraph (a)(5)) be-ginning on the later of the date on whichthe return is filed or the due date of thereturn without regard to extensions. Thesuspension period ends 21 days after theearlier of the date on which the IRS mailsthe required notice to the taxpayer’s lastknown address, the date on which the re-quired notice is hand-delivered to the tax-payer, or the date on which the IRS re-ceives an amended return or other signed

written document showing an increasedtax liability.

(5) Certain notices provided on or afterNovember 26, 2007. If the IRS providesthe notice described in paragraph (a)(1)of this section to a taxpayer on or afterNovember 26, 2007, and the notice relatesto an individual Federal income tax returnthat was timely filed before that date, thefollowing rules will apply:

(i) Eighteen-month period has closed.If, as of November 25, 2007, the 18-monthperiod described in paragraph (a)(1) of thissection has closed and the IRS has notprovided the taxpayer with the notice de-scribed in that paragraph (a)(1), the sus-pension described in paragraph (a)(1) ofthis section will begin on the day after theclose of the 18-month period. The suspen-sion will end on the date that is 21 daysafter the notice is provided.

(ii) All other cases. In all other cases,the suspension described in paragraph(a)(1) of this section will begin on theday after the close of the 36-month perioddescribed in that paragraph (a)(1) and endon the date that is 21 days after the noticedescribed in paragraph (a)(1) of this sec-tion is provided.

(6) Examples. The following examples,which assume that no exceptions in section6404(g)(2) to the general rule of suspen-sion apply, illustrate the rules of this para-graph (a).

Example 1. An individual taxpayer timely filesa Federal income tax return for taxable year 2005on April 17, 2006. On December 11, 2007, the tax-payer mails to the IRS an amended return reportingan additional item of income and an increased taxliability for taxable year 2005. The IRS receivesthe amended return on December 13, 2007. OnJanuary 16, 2008, the IRS provides the taxpayer witha notice stating that the taxpayer has an additionaltax liability based on the disallowance of a deductionthe taxpayer claimed on his original return and didnot change on his amended return. The date theamended return was received substitutes for the datethat the original return was filed with respect tothe additional item of tax liability reported on theamended return. Thus, the IRS will not suspend anyinterest, penalty, addition to tax, or additional amountwith respect to the additional item of income andthe increased tax liability reported on the amendedreturn. The suspension period for the additionaltax liability based on the IRS’s disallowance of thededuction begins on October 17, 2007, so the IRSwill suspend any interest, penalty, addition to tax,and additional amount with respect to the disalloweddeduction and additional tax liability from that datethrough February 6, 2008, which is 21 days after theIRS provided notice of the additional tax liability andthe basis for that liability. The suspension period in

this example begins 18 months after filing the return(not 36 months) because, as of November 25, 2007,the 18-month period beginning on the date the returnwas filed had closed without the IRS giving noticeof the additional liability. Thus, under the rulesin paragraph (a)(5) of this section, the suspensionperiod begins 18 months from the April 17, 2006return filing date.

Example 2. An individual taxpayer files a Federalincome tax return for taxable year 2008 on April 15,2009. The taxpayer consents to extend the timewithin which the IRS may assess any tax due on thereturn until June 30, 2013. On December 20, 2012,the IRS provides a notice to the taxpayer specificallystating the taxpayer’s liability and the basis for theliability. The suspension period for the liabilityidentified by the IRS begins on April 15, 2012, sothe IRS will suspend any interest, penalty, additionto tax, and additional amount with respect to thatliability from that date through January 10, 2013,which is 21 days after the IRS provided notice of theadditional tax liability and the basis for that liability.

(7) Notice of liability and the basis forthe liability.—(i) In general. Notice to thetaxpayer must be in writing and specifi-cally state the amount of the liability andthe basis for the liability. The notice mustprovide the taxpayer with sufficient infor-mation to identify which items of income,deduction, loss, or credit the IRS has ad-justed or proposes to adjust, and the reasonfor that adjustment. Notice of the reasonfor the adjustment does not require a de-tailed explanation or a citation to any In-ternal Revenue Code section or other le-gal authority. The IRS need not incorpo-rate all of the information necessary to sat-isfy the notice requirement within a sin-gle document or provide all of the infor-mation at the same time. Documents thatmay contain information sufficient to con-stitute notice, either alone or in conjunc-tion with other documents, include, butare not limited to, statutory notices of de-ficiency; examination reports (for exam-ple, Form 4549, Income Tax ExaminationChanges or Form 886–A, Explanation ofItems); Form 870, Waiver of Restriction onAssessments and Collection of Deficiencyin Tax and Acceptance of Overassessment;notices of proposed deficiency that allowthe taxpayer an opportunity for review inthe Office of Appeals (30-day letters); no-tices pursuant to section 6213(b) (mathe-matical or clerical errors); and notice anddemand for payment of a jeopardy assess-ment under section 6861.

(ii) Tax attributable to TEFRA partner-ship items. Notice to the partner or thetax matters partner (TMP) of a partnershipsubject to the unified audit and litigation

2011–41 I.R.B. 493 October 11, 2011

procedures of subchapter C of chapter 63of subtitle F of the Internal Revenue Code(TEFRA partnership procedures) that pro-vides specific information about the basisfor the adjustments to partnership items issufficient notice if a partner could reason-ably compute the specific tax attributableto the partnership item based on the pro-posed adjustments as applied to the part-ner’s individual tax situation. Documentsprovided by the IRS during a TEFRA part-nership proceeding that may contain infor-mation sufficient to satisfy the notice re-quirements include, but are not limited to,a Notice of Final Partnership Administra-tive Adjustment (FPAA); examination re-ports (for example, Form 4605–A or Form886–A); or a letter that allows the partnersan opportunity for review in the Office ofAppeals (60-day letter).

(iii) Examples. The following examplesillustrate the rules of this paragraph (a)(7).

Example 1. During an audit of Taxpayer A’s 2005taxable year return, the IRS questions a charitable de-duction claimed on the return. The IRS provides Awith a 30-day letter that proposes to disallow the char-itable contribution deduction resulting in a deficiencyof $1,000 and informs A that A may file a writtenprotest of the proposed disallowance with the Officeof Appeals within 30 days. The letter includes as anattachment a copy of the revenue agent’s report thatstates, “It has not been established that the amountshown on your return as a charitable contribution waspaid during the tax year. Therefore, this deduction isnot allowable.” The information in the 30-day letterand attachment provides A with notice of the specificamount of the liability and the basis for that liabilityas described in this paragraph (a)(7).

Example 2. Taxpayer B is a partner in partner-ship P, a TEFRA partnership for taxable year 2005. Bclaims a distributive share of partnership income onB’s Federal income tax return for 2005 timely filedon April 17, 2006. On October 1, 2007, during thecourse of a partnership audit of P for taxable year2005, the IRS provides P’s TMP with a 60-day let-ter proposing to adjust P’s income by $10,000. TheIRS previously had provided the TMP with a copy ofthe examination report explaining that the adjustmentwas based on $10,000 of unreported net income. OnOctober 31, 2007, P’s TMP informs B of the proposedadjustment as required by §301.6223(g)–1(b). Byaccounting for B’s distributive share of the $10,000of unreported income from P with B’s other incometax items, B can determine B’s tax attributable to the$10,000 partnership adjustment. The information inthe 60-day letter and the examination report allowsB to compute the specific amount of the liability at-tributable to the adjustment to the partnership itemand the basis for that adjustment and therefore satis-fies the notice requirement of paragraph (a). Becausethe IRS provided that notice to the TMP, B’s agentunder the TEFRA partnership provisions, within 18months of the April 17, 2006 filing date of B’s return,any interest, penalty, addition to tax, or additionalamount with respect to B’s tax liability attributable

to B’s distributive share of the $10,000 of unreportedpartnership income will not be suspended under sec-tion 6404(g).

(8) Providing notice.—(i) In general.The IRS may provide notice by mail orin person to the taxpayer or the taxpayer’srepresentative. If the IRS mails the no-tice, it must be sent to the taxpayer’s lastknown address under rules similar to sec-tion 6212(b), except that certified or regis-tered mail is not required. Notice is con-sidered provided as of the date of mailingor delivery in person.

(ii) Providing notice in TEFRA partner-ship proceedings. In the case of TEFRApartnership proceedings, the IRS mustprovide notice of final partnership admin-istrative adjustments (FPAA) by mail tothose partners specified in section 6223.Within 60 days of an FPAA being mailed,the TMP is required to forward notice ofthe FPAA to those partners not entitled todirect notice from the IRS under section6223. Certain partners with small inter-ests in partnerships with more than 100partners may form a Notice Group anddesignate a partner to receive the FPAAon their behalf. The IRS may provideother information after the beginning ofthe partnership administrative proceedingto the TMP who, in turn, must provide thatinformation to the partners specified in§301.6223(g)–1 within 30 days of receipt.Pass-thru partners who receive notices andother information from the IRS or the TMPmust forward that notice or informationwithin 30 days to those holding an interestthrough the pass-thru partner. Informationprovided by the IRS to the TMP is deemedto be notice for purposes of this section tothose partners specified in §301.6223(g)–1as of the date the IRS provides that noticeto the TMP. A similar rule applies to no-tice provided to the designated partner ofa Notice Group, and to notice provided toa pass-thru partner. In the foregoing situ-ations, the TMP, designated partner, andpass-thru partner are agents for direct andindirect partners. Consequently, notice tothese agents is deemed to be notice to thepartners for whom they act.

(b) Exceptions.—(1) Failure to file taxreturn or to pay tax. Paragraph (a) of thissection does not apply to any penalty im-posed by section 6651.

(2) Fraud. Paragraph (a) of this sec-tion does not apply to any interest, penalty,addition to tax, or additional amount for

a year involving a false or fraudulent re-turn. If a taxpayer files a fraudulent returnfor a particular year, paragraph (a) of thissection may apply to any other tax year ofthe taxpayer that does not involve fraud.Fraud affecting a particular item on a re-turn precludes paragraph (a) of this sectionfrom applying to any other items on that re-turn.

(3) Tax shown on return. Paragraph (a)of this section does not apply to any inter-est, penalty, addition to tax, or additionalamount with respect to any tax liabilityshown on a return.

(4) Gross misstatement.—(i) Descrip-tion. Paragraph (a) of this section does notapply to any interest, penalty, addition totax, or additional amount with respect to agross misstatement. A gross misstatementfor purposes of this paragraph (b) means:

(A) a substantial omission of income asdescribed in section 6501(e)(1) or section6229(c)(2);

(B) a gross valuation misstate-ment within the meaning of section6662(h)(2)(A) and (B); or

(C) a misstatement to which the penaltyunder section 6702(a) applies.

(ii) Effect of gross misstatement. Ifa gross misstatement occurs, then para-graph (a) of this section does not applyto any interest, penalty, addition to tax,or additional amount with respect to anyitems of income omitted from the returnand with respect to overstated deductions,even though one or more of the omitteditems would not constitute a substantialomission, gross valuation misstatement, ormisstatement to which section 6702(a) ap-plies.

* * * * *(c) Special rules.—(1) Tentative carry-

back and refund adjustments. If an amountapplied, credited or refunded under section6411 exceeds the overassessment properlyattributable to a tentative carryback or re-fund adjustment, any interest, penalty, ad-dition to tax, or additional amount with re-spect to the excess will not be suspended.

(2) Election under section 183(e).—(i)In general. If a taxpayer elects under sec-tion 183(e) to defer the determination ofwhether the presumption that an activity isengaged in for profit applies, the 18-month(or 36-month) notification period de-scribed in paragraph (a)(1) of this sectionwill be tolled for the period to whichthe election applies. If the 18-month (or

October 11, 2011 494 2011–41 I.R.B.

36-month) notification period has passedas of the date the section 183(e) electionis made, the suspension period describedin paragraph (a)(4) of this section will betolled for the period to which the electionapplies and will resume the day after thetolling period ends. Tolling will begin onthe date the election is made and end onthe later of the date the return for the lasttaxable year to which the election appliesis filed or is due without regard to exten-sions.

(ii) Example. In taxable year 2007, tax-payer begins training and showing horses.On January 4, 2011, the taxpayer electsunder section 183(e) to defer the determi-nation of whether the horse-related activitywill be presumed (under section 183(d))to be engaged in for profit. Accordingly,under section 183(e)(1), a determinationof whether the section 183(d) presumptionapplies will not occur before the close

of the 2013 taxable year. Assume thatin 2014, the IRS is considering issuinga notice of deficiency for taxable year2009 regarding tax deductions claimedfor the horse-related activity. Pursuantto paragraph (c)(2)(i) of this section, the36-month notification period under para-graph (a)(1) of this section will be tolledwith respect to taxable year 2009 for theperiod to which the section 183(e) electionapplies. This tolling of the notificationperiod begins on January 4, 2011 (thedate the taxpayer made the section 183(e)election) and ends on the later of April 15,2014, or the date the taxpayer’s return fortaxable year 2013 is filed.

(d) Effective/applicability date. * * *Paragraphs (a), (b)(1) through (b)(4), and(c) are effective on August 22, 2011.

Steven T. Miller,Deputy Commissioner forServices and Enforcement.

Approved July 15, 2011.

Emily S. McMahon,Acting Assistant Secretary of

the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on August 19,2011, 8:45 a.m., and published in the issue of the FederalRegister for August 22, 2011, 76 F.R. 52259)

Section 7520.—ValuationTables


Section 7872.—Treatmentof Loans With Below-MarketInterest Rates


2011–41 I.R.B. 495 October 11, 2011

Part III. Administrative, Procedural, and MiscellaneousVermont Low-Income HousingCredit Disaster Relief

Notice 2011–74

The Internal Revenue Service is sus-pending certain requirements under § 42 ofthe Internal Revenue Code for low-incomehousing credit projects to provide emer-gency housing relief needed as a result ofthe devastation caused by Tropical StormIrene in Vermont beginning on August 27,2011. This relief is being granted pursuantto the Service’s authority under § 42(n) and§ 1.42–13(a) of the Income Tax Regula-tions.

BACKGROUND

On September 1, 2011, the Presidentdeclared a major disaster for the Stateof Vermont. This declaration was madeunder the Robert T. Stafford DisasterRelief and Emergency Assistance Act,42 U.S.C. 5121 et seq. Subsequently,the Federal Emergency ManagementAgency (FEMA) designated jurisdictionsfor Individual Assistance. The State ofVermont has requested that the Serviceallow owners of low-income housingcredit projects to provide temporaryhousing in vacant units to individualswho resided in jurisdictions designatedfor Individual Assistance in Vermont andwho have been displaced because theirresidences were destroyed or damagedas a result of the devastation caused byTropical Storm Irene. Based upon thisrequest and because of the widespreaddamage to housing caused by TropicalStorm Irene, the Service has determinedthat the Vermont Housing Finance Agency(Agency) may provide approval to projectowners to provide temporary emergencyhousing for displaced individuals inaccordance with this notice.

I. SUSPENSION OF INCOMELIMITATIONS

The Service has determined that it isappropriate to temporarily suspend certainincome limitation requirements under § 42for certain qualified low-income projects.The suspension will apply to low-incomehousing projects approved by the Agency,

in which vacant units are rented to dis-placed individuals. The Agency will de-termine the appropriate period of tempo-rary housing for each project, not to ex-tend beyond September 30, 2012 (tempo-rary housing period).

II. STATUS OF UNITS

A. Units in the first year of the creditperiod

A displaced individual temporarilyoccupying a unit during the first year ofthe credit period under § 42(f)(1) will bedeemed a qualified low-income tenantfor purposes of determining the project’squalified basis under § 42(c)(1), and formeeting the project’s 20–50 test or 40–60test as elected by the project owner under§ 42(g)(1). After the end of the temporaryhousing period established by the Agency(not to extend beyond September 30,2012), a displaced individual will nolonger be deemed a qualified low-incometenant.

B. Vacant units after the first year of thecredit period

During the temporary housing periodestablished by the Agency, the status of avacant unit (that is, market-rate or low-in-come for purposes of § 42 or never previ-ously occupied) after the first year of thecredit period that becomes temporarily oc-cupied by a displaced individual remainsthe same as the unit’s status before thedisplaced individual moves in. Displacedindividuals temporarily occupying vacantunits will not be treated as low-incometenants under § 42(i)(3)(A)(ii). However,even if it houses a displaced individual, alow-income or market rate unit that wasvacant before the effective date of this no-tice will continue to be treated as a va-cant low-income or market rate unit. Sim-ilarly, a unit that was never previously oc-cupied before the effective date of this no-tice will continue to be treated as a unitthat has never been previously occupiedeven if it houses a displaced individual.Thus, the fact that a vacant unit becomesoccupied by a displaced individual willnot affect the building’s applicable frac-tion under § 42(c)(1)(B) for purposes of

determining the building’s qualified basis,nor will it affect the 20–50 test or 40–60test of § 42(g)(1). If the income of oc-cupants in low-income units exceeds 140percent of the applicable income limita-tion, the temporary occupancy of a unit bya displaced individual will not cause ap-plication of the available unit rule under§ 42(g)(2)(D)(ii). In addition, the projectowner is not required during the temporaryhousing period to make attempts to rentto low-income individuals the low-incomeunits that house displaced individuals.

III. SUSPENSION OFNON-TRANSIENT REQUIREMENTS

The non-transient use requirement of§ 42(i)(3)(B)(i) shall not apply to anyunit providing temporary housing to adisplaced individual during the temporaryhousing period determined by the Agencyin accordance with section I of this notice.

IV. OTHER REQUIREMENTS

All other rules and requirements of§ 42 will continue to apply during thetemporary housing period establishedby the Agency. After the end of thetemporary housing period, the appli-cable income limitations contained in§ 42(g)(1), the available unit rule un-der § 42(g)(2)(D)(ii), the nontransientrequirement of § 42(i)(3)(B)(i), and therequirement to make reasonable attemptsto rent vacant units to low-income individ-uals shall resume. If a project owner offersto rent a unit to a displaced individual afterthe end of the temporary housing period,the displaced individual must be certifiedunder the requirements of § 42(i)(3)(A)(ii)and § 1.42–5(b) and (c) to be a qualifiedlow-income tenant. To qualify for the re-lief in this notice, the project owner mustadditionally meet all of the following re-quirements:

(1) Major Disaster Area

The displaced individual must haveresided in a Vermont jurisdiction desig-nated for Individual Assistance by FEMAas a result of the devastation caused byTropical Storm Irene in Vermont begin-ning on August 27, 2011.

October 11, 2011 496 2011–41 I.R.B.

(2) Approval of the Vermont HousingFinance Agency

The project owner must obtain approvalfrom the Agency for the relief describedin this notice. The Agency will determinethe appropriate period of temporary hous-ing for each project, not to extend beyondSeptember 30, 2012.

(3) Certifications and Recordkeeping

To comply with the requirements of§ 1.42–5, project owners are required tomaintain and certify certain informationconcerning each displaced individual tem-porarily housed in the project, specificallythe following: name, address of damagedresidence, social security number, and astatement signed under penalties of perjuryby the displaced individual that, becauseof damage to the individual’s residence ina Vermont jurisdiction designated for Indi-vidual Assistance by FEMA as a result ofthe devastation caused by Tropical StormIrene in Vermont beginning on August 27,2011, the individual requires temporaryhousing. The owner must notify theAgency that vacant units are available forrent to displaced individuals.

The owner must also certify the date thedisplaced individual began temporary oc-cupancy and the date the project will dis-continue providing temporary housing asestablished by the Agency. The certifica-tions and recordkeeping for displaced in-dividuals must be maintained as part ofthe annual compliance monitoring processwith the Agency.

(4) Rent Restrictions

Rents for the low-income units thathouse displaced individuals must not ex-ceed the existing rent-restricted rates forthe low-income units established under§ 42(g)(2).

(5) Protection of Existing Tenants

Existing tenants in occupied low-in-come units cannot be evicted or have theirtenancy terminated as a result of efforts toprovide temporary housing for displacedindividuals.

EFFECTIVE DATE

This notice is effective September 1,2011 (the date of the President’s major dis-

aster declaration as a result of the devasta-tion caused by Tropical Storm Irene in Ver-mont beginning on August 27, 2011).

PAPERWORK REDUCTION ACT

The collection of information containedin this notice has been reviewed and ap-proved by the Office of Management andBudget in accordance with the PaperworkReduction Act (44 U.S.C. 3507) undercontrol number 1545–2217.

An Agency may not conduct or sponsor,and a person is not required to respondto, a collection of information unless thecollection of information displays a validOMB control number.

The collection of information in this no-tice is in the section titled “OTHER RE-QUIREMENTS” under “(3) Certificationsand Recordkeeping.” This information isrequired to enable the Service to verifywhether individuals are displaced as a re-sult of the devastation caused by Tropi-cal Storm Irene in Vermont beginning onAugust 27, 2011, and thus warrant tempo-rary housing in vacant low-income hous-ing units. The collection of information isrequired to obtain a benefit. The likely re-spondents are individuals and businesses.

The estimated total annual recordkeep-ing burden is 150 hours.

The estimated annual burden perrecordkeeper is approximately 15 minutes.The estimated number of recordkeepers is600.

Books or records relating to a collectionof information must be retained as longas their contents may become material tothe administration of the internal revenuelaw. Generally, tax returns and tax returninformation are confidential, as requiredby 26 U.S.C. 6103.


The principal author of this notice isDavid Selig of the Office of AssociateChief Counsel (Passthroughs & SpecialIndustries). For further informationregarding this notice, contact Mr. Selig at(202) 622–3040 (not a toll-free call).

Nonapplication of Section6050W to InsuranceCompanies that AdministerCertain InsuranceArrangements

Notice 2011–78

PURPOSE AND BACKGROUND

Section 6050W of the Internal Rev-enue Code requires information returns tobe made for each calendar year by mer-chant acquiring entities and third partysettlement organizations with respect topayments made in settlement of paymentcard transactions and third party networktransactions occurring in that calendaryear. The requirement to make informa-tion returns applies to returns for calendaryears beginning after December 31, 2010.

In August 2010, the Treasury Depart-ment and the Internal Revenue Servicepublished final regulations providing guid-ance to assist persons required to reportpayment card and third party networktransactions to payees of those transac-tions. T.D. 9496, 2010–43 I.R.B. 484,75 F.R. 49821 (August 16, 2010). Underthe final regulations, a healthcare networkgenerally is outside the scope of section6050W because a healthcare networkdoes not enable the transfer of fundsfrom buyers to sellers. §1.6050W–1(e)(Example 17). The preamble to the finalregulations acknowledges a commentto the effect that a self-insurancearrangement likewise should be treatedas outside the scope of section 6050W.75 F.R. at 49823; 2010–43 I.R.B. at486. Although the final regulationsdo not address this issue directly, thepreamble states that the suggestion wasnot adopted “because this arrangementcould create a third party payment networkof which the health insurance entity isthe third party settlement organizationto the extent that the health insuranceentity effectively enables buyers (theself-insuring companies) to transfer fundsto sellers of healthcare goods or services.”

DISCUSSION

Upon further consideration, the Trea-sury Department and the Internal RevenueService have decided to amend the exist-ing regulations under section 6050W to

2011–41 I.R.B. 497 October 11, 2011

expressly provide that an insurance com-pany or an affiliate administering a self-in-sured arrangement on behalf of an em-ployer or other entity on a cost-plus ba-sis, or under an Administrative ServicesOnly (ASO) plan or an Administrative Ser-vices Contract (ASC) plan, will not betreated as a third party settlement organi-zation. Insurance companies and their af-filiates may rely on the interim guidanceprovided in this notice until the regulationsare amended.

Before amending the existing regula-tions, the Treasury Department and the In-ternal Revenue Service invite commentsfrom the public regarding the contents ofthis notice. Comments should be submit-ted by November 3, 2011 to:

Internal Revenue ServiceAttn: CC:PA:LPD:PR

(Notice 2011–78)Room 5203P.O. Box 7604Ben Franklin StationWashington, D.C. 20044

or hand deliver comments Mondaythrough Friday between the hours of8 a.m. and 4 p.m. to:

Courier’s DeskInternal Revenue ServiceAttn: CC:PA:LPD:PR

(Notice 2011–78)1111 Constitution Avenue, N.W.Washington, D.C. 20224

Alternatively, persons may sub-mit comments electronically viae-mail to the following address:[email protected] should include “Notice 2011–78”in the subject line. All commentssubmitted by the public will be availablefor public inspection and copying in theirentirety.


The principal author of this no-tice is Girish Prasad of the Office ofAssociate Chief Counsel (Procedure andAdministration). For further informationregarding this notice, contact Mr. Prasadat (202) 622–4910 (not a toll-free call).

Extension of ReplacementPeriod for Livestock Soldon Account of Drought inSpecified Counties

Notice 2011–79

SECTION 1. PURPOSE

This notice provides guidance regard-ing an extension of the replacement pe-riod under § 1033(e) of the Internal Rev-enue Code for livestock sold on account ofdrought in specified counties.

SECTION 2. BACKGROUND

.01 Nonrecognition of Gain on Invol-untary Conversion of Livestock. Section1033(a) generally provides for nonrecog-nition of gain when property is involuntar-ily converted and replaced with propertythat is similar or related in service or use.Section 1033(e)(1) provides that a sale orexchange of livestock (other than poultry)held by a taxpayer for draft, breeding, ordairy purposes in excess of the numberthat would be sold following the taxpayer’susual business practices is treated as aninvoluntary conversion if the livestock issold or exchanged solely on account ofdrought, flood, or other weather-relatedconditions.

.02 Replacement Period. Section1033(a)(2)(A) generally provides that gainfrom an involuntary conversion is rec-ognized only to the extent the amountrealized on the conversion exceeds thecost of replacement property purchasedduring the replacement period. If a saleor exchange of livestock is treated as aninvoluntary conversion under § 1033(e)(1)and is solely on account of drought, flood,or other weather-related conditions that re-sult in the area being designated as eligiblefor assistance by the federal government,§ 1033(e)(2)(A) provides that the replace-ment period ends four years after the closeof the first taxable year in which any partof the gain from the conversion is realized.Section 1033(e)(2)(B) provides that theSecretary may extend this replacement pe-riod on a regional basis for such additionaltime as the Secretary determines appro-priate if the weather-related conditionsthat resulted in the area being designatedas eligible for assistance by the federal

government continue for more than threeyears. Section 1033(e)(2) is effective forany taxable year with respect to which thedue date (without regard to extensions) fora taxpayer’s return is after December 31,2002.

SECTION 3. EXTENSION OFREPLACEMENT PERIOD UNDER§ 1033(e)(2)(B)

Notice 2006–82, 2006–2 C.B. 529, pro-vides for extensions of the replacement pe-riod under § 1033(e)(2)(B). If a sale or ex-change of livestock is treated as an invol-untary conversion on account of droughtand the taxpayer’s replacement period isdetermined under § 1033(e)(2)(A), the re-placement period will be extended under§ 1033(e)(2)(B) and Notice 2006–82 untilthe end of the taxpayer’s first taxable yearending after the first drought-free year forthe applicable region. For this purpose, thefirst drought-free year for the applicableregion is the first 12-month period that (1)ends August 31; (2) ends in or after the lastyear of the taxpayer’s 4-year replacementperiod determined under § 1033(e)(2)(A);and (3) does not include any weekly periodfor which exceptional, extreme, or severedrought is reported for any location in theapplicable region. The applicable regionis the county that experienced the droughtconditions on account of which the live-stock was sold or exchanged and all coun-ties that are contiguous to that county.

A taxpayer may determine whetherexceptional, extreme, or severe droughtis reported for any location in the ap-plicable region by reference to U.S.Drought Monitor maps that are pro-duced on a weekly basis by the Na-tional Drought Mitigation Center. U.S.Drought Monitor maps are archived atwww.drought.unl.edu/dm/archive.html.

In addition, Notice 2006–82 providesthat the Internal Revenue Service willpublish in September of each year a listof counties, districts, cities, or parishes(hereinafter “counties”) for which excep-tional, extreme, or severe drought wasreported during the preceding 12 months.Taxpayers may use this list instead ofU.S. Drought Monitor maps to determinewhether exceptional, extreme, or severedrought has been reported for any locationin the applicable region.

October 11, 2011 498 2011–41 I.R.B.

The Appendix to this notice containsthe list of counties for which exceptional,extreme, or severe drought was reportedduring the 12-month period ending Au-gust 31, 2011. Under Notice 2006–82,the 12-month period ending on August 31,2011, is not a drought-free year for an ap-plicable region that includes any county onthis list. Accordingly, for a taxpayer whoqualified for a four-year replacement pe-riod for livestock sold or exchanged on ac-

count of drought and whose replacementperiod is scheduled to expire at the end of2011 (or, in the case of a fiscal year tax-payer, at the end of the taxable year that in-cludes August 31, 2011), the replacementperiod will be extended under § 1033(e)(2)and Notice 2006–82 if the applicable re-gion includes any county on this list. Thisextension will continue until the end of thetaxpayer’s first taxable year ending after adrought-free year for the applicable region.

SECTION 4. DRAFTINGINFORMATION

The principal author of this notice isSue-Jean Kim of the Office of AssociateChief Counsel (Income Tax & Account-ing). For further information regardingthis notice, contact Ms. Kim at (202)622–4960 (not a toll-free call).

APPENDIX

Alabama

Counties of Autauga, Baldwin, Barbour, Bibb, Blount, Bullock, Butler, Calhoun, Chambers, Cherokee, Chilton, Choctaw,Clarke, Clay, Cleburne, Coffee, Conecuh, Coosa, Covington, Crenshaw, Cullman, Dale, Dallas, DeKalb, Elmore, Escambia,Etowah, Fayette, Geneva, Greene, Hale, Henry, Houston, Jackson, Jefferson, Lee, Lowndes, Macon, Madison, Marengo, Marion,Marshall, Mobile, Monroe, Montgomery, Perry, Pike, Randolph, Russell, Saint Clair, Shelby, Talladega, Tallapoosa, Tuscaloosa,Walker, Washington, Wilcox, Winston.

Arizona

Counties of Apache, Cochise, Coconino, Gila, Graham, Greenlee, Maricopa, Navajo, Pima, Pinal, Santa Cruz.

Arkansas

Counties of Arkansas, Ashley, Baxter, Benton, Boone, Bradley, Calhoun, Carroll, Chicot, Clark, Clay, Cleburne, Cleveland,Columbia, Conway, Craighead, Crawford, Crittenden, Cross, Dallas, Desha, Drew, Faulkner, Franklin, Fulton, Garland, Grant,Greene, Hempstead, Hot Spring, Howard, Independence, Izard, Jackson, Jefferson, Johnson, Lafayette, Lawrence, Lee, Lincoln,Little River, Logan, Lonoke, Madison, Marion, Miller, Mississippi, Monroe, Montgomery, Nevada, Newton, Ouachita, Perry,Phillips, Pike, Poinsett, Polk, Pope, Prairie, Pulaski, Randolph, Saint Francis, Saline, Scott, Searcy, Sebastian, Sevier, Sharp,Stone, Union, Van Buren, Washington, White, Woodruff, Yell.

California

Counties of Modoc, Siskiyou.

Colorado

Counties of Adams, Alamosa, Arapahoe, Archuleta, Baca, Bent, Boulder, Broomfield, Cheyenne, Clear Creek, Conejos, Costilla,Crowley, Custer, Denver, Douglas, El Paso, Elbert, Fremont, Gilpin, Huerfano, Jefferson, Kiowa, Kit Carson, Larimer, LasAnimas, Lincoln, Logan, Mineral, Morgan, Otero, Park, Phillips, Prowers, Pueblo, Rio Grande, Saguache, Sedgwick, Teller,Washington, Weld.

Delaware

County of Sussex.

Florida

Counties of Alachua, Baker, Bay, Bradford, Brevard, Broward, Calhoun, Charlotte, Citrus, Clay, Collier, Columbia, DeSoto,Dixie, Duval, Escambia, Flagler, Franklin, Gadsden, Gilchrist, Glades, Gulf, Hamilton, Hendry, Hernando, Highlands,Hillsborough, Holmes, Indian River, Jackson, Jefferson, Lafayette, Lake, Lee, Leon, Levy, Liberty, Madison, Marion, Martin,Miami-Dade, Monroe, Nassau, Okaloosa, Okeechobee, Orange, Osceola, Palm Beach, Pasco, Pinellas, Polk, Putnam, Saint Johns,Saint Lucie, Santa Rosa, Seminole, Sumter, Suwannee, Taylor, Union, Volusia, Wakulla, Walton, Washington.

2011–41 I.R.B. 499 October 11, 2011

Georgia

Counties of Appling, Atkinson, Bacon, Baker, Baldwin, Banks, Barrow, Bartow, Ben Hill, Berrien, Bibb, Bleckley, Brantley,Brooks, Bryan, Bulloch, Burke, Butts, Calhoun, Camden, Candler, Carroll, Catoosa, Charlton, Chatham, Chattahoochee,Chattooga, Cherokee, Clarke, Clay, Clayton, Clinch, Cobb, Coffee, Colquitt, Columbia, Cook, Coweta, Crawford, Crisp, Dade,Decatur, DeKalb, Dodge, Dooly, Dougherty, Douglas, Early, Echols, Effingham, Elbert, Emanuel, Evans, Fayette, Floyd,Franklin, Fulton, Gilmer, Glascock, Glynn, Gordon, Grady, Greene, Gwinnett, Habersham, Hall, Hancock, Haralson, Harris,Hart, Heard, Henry, Houston, Irwin, Jackson, Jasper, Jeff Davis, Jefferson, Jenkins, Johnson, Jones, Lamar, Lanier, Laurens,Lee, Liberty, Lincoln, Long, Lowndes, Macon, Madison, Marion, McDuffie, McIntosh, Meriwether, Miller, Mitchell, Monroe,Montgomery, Morgan, Murray, Muscogee, Newton, Oconee, Oglethorpe, Paulding, Peach, Pickens, Pierce, Pike, Polk, Pulaski,Putnam, Quitman, Randolph, Richmond, Rockdale, Schley, Screven, Seminole, Spalding, Stephens, Stewart, Sumter, Talbot,Taliaferro, Tattnall, Taylor, Telfair, Terrell, Thomas, Tift, Toombs, Treutlen, Troup, Turner, Twiggs, Upson, Walker, Walton, Ware,Warren, Washington, Wayne, Webster, Wheeler, Whitfield, Wilcox, Wilkes, Wilkinson, Worth.

Hawaii

Counties of Hawaii, Honolulu, Kalawao, Kauai, Maui.

Illinois

Counties of Adams, Alexander, Brown, Cass, Champaign, Christian, Clark, Coles, De Witt, Douglas, Edgar, Edwards, Fulton,Gallatin, Greene, Hancock, Hardin, Henderson, Knox, Lawrence, Logan, Macon, Macoupin, Mason, Massac, McDonough,McLean, Menard, Mercer, Montgomery, Morgan, Moultrie, Peoria, Piatt, Pike, Pope, Sangamon, Schuyler, Scott, Shelby,Tazewell, Wabash, Warren, White.

Indiana

Counties of Bartholomew, Boone, Brown, Clark, Clay, Crawford, Daviess, Dearborn, Decatur, Dubois, Fayette, Floyd, Franklin,Gibson, Greene, Hamilton, Hancock, Harrison, Hendricks, Henry, Jackson, Jefferson, Jennings, Johnson, Knox, Lawrence,Madison, Marion, Martin, Monroe, Montgomery, Morgan, Ohio, Orange, Owen, Parke, Perry, Pike, Posey, Putnam, Randolph,Ripley, Rush, Scott, Shelby, Spencer, Sullivan, Switzerland, Union, Vanderburgh, Vermillion, Vigo, Warrick, Washington, Wayne.

Iowa

Counties of Appanoose, Davis, Des Moines, Henry, Jefferson, Johnson, Keokuk, Lee, Louisa, Mahaska, Monroe, Muscatine,Poweshiek, Van Buren, Wapello, Washington.

Kansas

Counties of Allen, Anderson, Barber, Barton, Bourbon, Butler, Chase, Chautauqua, Cherokee, Clark, Coffey, Comanche, Cowley,Crawford, Dickinson, Edwards, Elk, Ellis, Ellsworth, Finney, Ford, Gove, Grant, Gray, Greeley, Greenwood, Hamilton, Harper,Harvey, Haskell, Hodgeman, Kearny, Kingman, Kiowa, Labette, Lane, Lincoln, Linn, Logan, Lyon, Marion, McPherson, Meade,Montgomery, Morris, Morton, Neosho, Ness, Osage, Osborne, Ottawa, Pawnee, Pratt, Reno, Rice, Rooks, Rush, Russell, Saline,Scott, Sedgwick, Seward, Stafford, Stanton, Stevens, Sumner, Trego, Wallace, Wichita, Wilson, Woodson.

Kentucky

Counties of Adair, Anderson, Ballard, Boone, Bourbon, Bracken, Breckinridge, Bullitt, Butler, Caldwell, Calloway, Campbell,Carlisle, Carroll, Casey, Christian, Clinton, Crittenden, Cumberland, Daviess, Edmonson, Fayette, Fleming, Franklin, Fulton,Gallatin, Grant, Graves, Grayson, Green, Hancock, Hardin, Harrison, Hart, Henderson, Henry, Hickman, Hopkins, Jefferson,Jessamine, Kenton, Larue, Lincoln, Livingston, Logan, Lyon, Marion, Marshall, Mason, McCracken, McLean, Meade, Mercer,Metcalfe, Muhlenberg, Nelson, Nicholas, Ohio, Oldham, Owen, Pendleton, Pulaski, Robertson, Russell, Scott, Shelby, Simpson,Spencer, Taylor, Todd, Trigg, Trimble, Union, Warren, Washington, Wayne, Webster, Woodford.

Louisiana

Parishes of Acadia, Allen, Ascension, Assumption, Avoyelles, Beauregard, Bienville, Bossier, Caddo, Calcasieu, Caldwell,Cameron, Catahoula, Claiborne, Concordia, De Soto, East Baton Rouge, East Carroll, East Feliciana, Evangeline, Franklin, Grant,Iberia, Iberville, Jackson, Jefferson Davis, Jefferson, La Salle, Lafayette, Lafourche, Lincoln, Livingston, Madison, Morehouse,Natchitoches, Orleans, Ouachita, Plaquemines, Pointe Coupee, Rapides, Red River, Richland, Sabine, Saint Bernard, SaintCharles, Saint Helena, Saint James, Saint John the Baptist, Saint Landry, Saint Martin, Saint Mary, Saint Tammany, Tangipahoa,Tensas, Terrebonne, Union, Vermilion, Vernon, Washington, Webster, West Baton Rouge, West Carroll, West Feliciana, Winn.

Maryland

Counties of Allegany, Dorchester, Frederick, Garrett, Saint Mary’s, Somerset, Washington, Wicomico, Worcester.

October 11, 2011 500 2011–41 I.R.B.

Minnesota

Counties of Cook, Lake, Saint Louis.

Mississippi

Counties of Adams, Amite, Attala, Bolivar, Calhoun, Carroll, Chickasaw, Choctaw, Claiborne, Clarke, Clay, Coahoma, Copiah,Covington, DeSoto, Forrest, Franklin, George, Greene, Grenada, Hancock, Harrison, Hinds, Holmes, Humphreys, Issaquena,Jackson, Jasper, Jefferson, Jefferson Davis, Jones, Kemper, Lafayette, Lamar, Lauderdale, Lawrence, Leake, Leflore, Lincoln,Lowndes, Madison, Marion, Marshall, Monroe, Montgomery, Neshoba, Newton, Noxubee, Oktibbeha, Panola, Pearl River,Perry, Pike, Quitman, Rankin, Scott, Sharkey, Simpson, Smith, Stone, Sunflower, Tallahatchie, Tate, Tunica, Walthall, Warren,Washington, Wayne, Webster, Wilkinson, Winston, Yalobusha, Yazoo.

Missouri

Counties of Barry, Barton, Bollinger, Butler, Carter, Christian, Clark, Dade, Dunklin, Greene, Jasper, Knox, Lawrence, Lewis,McDonald, Mississippi, New Madrid, Newton, Oregon, Ozark, Pemiscot, Ripley, Schuyler, Scotland, Scott, Shannon, Stoddard,Stone, Taney, Vernon, Wayne.

Nebraska

County of Deuel.

New Jersey

Counties of Atlantic, Burlington, Hunterdon, Mercer, Middlesex, Monmouth, Ocean, Somerset.

New Mexico

Counties of Bernalillo, Catron, Chaves, Cibola, Colfax, Curry, DeBaca, Dona Ana, Eddy, Grant, Guadalupe, Harding, Hidalgo,Lea, Lincoln, Los Alamos, Luna, McKinley, Mora, Otero, Quay, Rio Arriba, Roosevelt, San Juan, San Miguel, Sandoval,Santa Fe, Sierra, Socorro, Taos, Torrance, Union, Valencia.

North Carolina

Counties of Alamance, Anson, Beaufort, Bertie, Bladen, Brunswick, Cabarrus, Camden, Carteret, Caswell, Chatham, Chowan,Cleveland, Columbus, Craven, Cumberland, Currituck, Dare, Davidson, Duplin, Durham, Edgecombe, Franklin, Gates, Granville,Greene, Guilford, Halifax, Harnett, Henderson, Hertford, Hoke, Hyde, Johnston, Jones, Lee, Lenoir, Martin, Mecklenburg,Montgomery, Moore, Nash, New Hanover, Northampton, Onslow, Orange, Pamlico, Pasquotank, Pender, Perquimans, Person,Pitt, Polk, Randolph, Richmond, Robeson, Rowan, Rutherford, Sampson, Scotland, Stanly, Tyrrell, Union, Vance, Wake,Warren, Washington, Wayne, Wilson.

Ohio

Counties of Adams, Brown, Butler, Clermont, Clinton, Darke, Greene, Hamilton, Highland, Montgomery, Preble, Warren.

Oklahoma

Counties of Adair, Alfalfa, Atoka, Beaver, Beckham, Blaine, Bryan, Caddo, Canadian, Carter, Cherokee, Choctaw, Cimarron,Cleveland, Coal, Comanche, Cotton, Craig, Creek, Custer, Delaware, Dewey, Ellis, Garfield, Garvin, Grady, Grant, Greer,Harmon, Harper, Haskell, Hughes, Jackson, Jefferson, Johnston, Kay, Kingfisher, Kiowa, Latimer, Le Flore, Lincoln, Logan,Love, Major, Marshall, Mayes, McClain, McCurtain, McIntosh, Murray, Muskogee, Noble, Nowata, Okfuskee, Oklahoma,Okmulgee, Osage, Ottawa, Pawnee, Payne, Pittsburg, Pontotoc, Pottawatomie, Pushmataha, Roger Mills, Rogers, Seminole,Sequoyah, Stephens, Texas, Tillman, Tulsa, Wagoner, Washington, Washita, Woods, Woodward.

Oregon

Counties of Klamath, Lake.

Pennsylvania

Counties of Bedford, Bucks, Fayette, Franklin, Fulton, Somerset.

South Carolina

Counties of Abbeville, Aiken, Allendale, Anderson, Bamberg, Barnwell, Beaufort, Berkeley, Calhoun, Charleston, Cherokee,Chester, Chesterfield, Clarendon, Colleton, Darlington, Dillon, Dorchester, Edgefield, Fairfield, Florence, Georgetown,Greenville, Greenwood, Hampton, Horry, Jasper, Kershaw, Lancaster, Laurens, Lee, Lexington, Marion, Marlboro, McCormick,Newberry, Oconee, Orangeburg, Pickens, Richland, Saluda, Spartanburg, Sumter, Union, York.

2011–41 I.R.B. 501 October 11, 2011

Tennessee

Counties of Benton, Carroll, Cheatham, Chester, Crockett, Davidson, Decatur, Dickson, Dyer, Fayette, Gibson, Hardeman,Haywood, Henderson, Henry, Hickman, Houston, Humphreys, Lake, Lauderdale, Madison, Montgomery, Obion, Perry,Robertson, Shelby, Stewart, Tipton, Weakley, Williamson.

Texas

Counties of Anderson, Andrews, Angelina, Aransas, Archer, Armstrong, Atascosa, Austin, Bailey, Bandera, Bastrop, Baylor, Bee,Bell, Bexar, Blanco, Borden, Bosque, Bowie, Brazoria, Brazos, Brewster, Briscoe, Brooks, Brown, Burleson, Burnet, Caldwell,Calhoun, Callahan, Cameron, Camp, Carson, Cass, Castro, Chambers, Cherokee, Childress, Clay, Cochran, Coke, Coleman,Collin, Collingsworth, Colorado, Comal, Comanche, Concho, Cooke, Coryell, Cottle, Crane, Crockett, Crosby, Culberson,Dallam, Dallas, Dawson, Deaf Smith, Delta, Denton, DeWitt, Dickens, Dimmit, Donley, Duval, Eastland, Ector, Edwards, El Paso,Ellis, Erath, Falls, Fannin, Fayette, Fisher, Floyd, Foard, Fort Bend, Franklin, Freestone, Frio, Gaines, Galveston, Garza, Gillespie,Glasscock, Goliad, Gonzales, Gray, Grayson, Gregg, Grimes, Guadalupe, Hale, Hall, Hamilton, Hansford, Hardeman, Hardin,Harris, Harrison, Hartley, Haskell, Hays, Hemphill, Henderson, Hidalgo, Hill, Hockley, Hood, Hopkins, Houston, Howard,Hudspeth, Hunt, Hutchinson, Irion, Jack, Jackson, Jasper, Jeff Davis, Jefferson, Jim Hogg, Jim Wells, Johnson, Jones, Karnes,Kaufman, Kendall, Kenedy, Kent, Kerr, Kimble, King, Kinney, Kleberg, Knox, La Salle, Lamar, Lamb, Lampasas, Lavaca, Lee,Leon, Liberty, Limestone, Lipscomb, Live Oak, Llano, Loving, Lubbock, Lynn, Madison, Marion, Martin, Mason, Matagorda,Maverick, McCulloch, McLennan, McMullen, Medina, Menard, Midland, Milam, Mills, Mitchell, Montague, Montgomery,Moore, Morris, Motley, Nacogdoches, Navarro, Newton, Nolan, Nueces, Ochiltree, Oldham, Orange, Palo Pinto, Panola, Parker,Parmer, Pecos, Polk, Potter, Presidio, Rains, Randall, Reagan, Real, Red River, Reeves, Refugio, Roberts, Robertson, Rockwall,Runnels, Rusk, Sabine, San Augustine, San Jacinto, San Patricio, San Saba, Schleicher, Scurry, Shackelford, Shelby, Sherman,Smith, Somervell, Starr, Stephens, Sterling, Stonewall, Sutton, Swisher, Tarrant, Taylor, Terrell, Terry, Throckmorton, Titus, TomGreen, Travis, Trinity, Tyler, Upshur, Upton, Uvalde, Val Verde, Van Zandt, Victoria, Walker, Waller, Ward, Washington, Webb,Wharton, Wheeler, Wichita, Wilbarger, Willacy, Williamson, Wilson, Winkler, Wise, Wood, Yoakum, Young, Zapata, Zavala.

Virginia

Cities of Charlottesville, Chesapeake, Colonial Heights, Emporia, Franklin, Hopewell, Petersburg, Richmond, Suffolk, VirginiaBeach, Williamsburg, Winchester. Counties of Albemarle, Amelia, Brunswick, Caroline, Charles City, Chesterfield, Clarke,Culpeper, Cumberland, Dinwiddie, Essex, Fauquier, Fluvanna, Frederick, Gloucester, Goochland, Greene, Greensville,Hanover, Henrico, Isle of Wight, James City, King and Queen, King William, Lancaster, Loudoun, Louisa, Madison, Mathews,Mecklenburg, Middlesex, New Kent, Northumberland, Nottoway, Orange, Page, Powhatan, Prince George, Rappahannock,Richmond, Rockingham, Shenandoah, Southampton, Spotsylvania, Surry, Sussex, Warren, Westmoreland, York.

West Virginia

Counties of Berkeley, Grant, Hampshire, Hardy, Jefferson, Mineral, Morgan, Preston, Tucker.

October 11, 2011 502 2011–41 I.R.B.

Part IV. Items of General InterestDeletions From CumulativeList of OrganizationsContributions to Whichare Deductible Under Section170 of the Code

Announcement 2011–63

The Internal Revenue Service has re-voked its determination that the organi-zations listed below qualify as organiza-tions described in sections 501(c)(3) and170(c)(2) of the Internal Revenue Code of1986.

Generally, the Service will not disallowdeductions for contributions made to alisted organization on or before the dateof announcement in the Internal RevenueBulletin that an organization no longerqualifies. However, the Service is notprecluded from disallowing a deductionfor any contributions made after an or-ganization ceases to qualify under section170(c)(2) if the organization has not timelyfiled a suit for declaratory judgment undersection 7428 and if the contributor (1) hadknowledge of the revocation of the rulingor determination letter, (2) was aware thatsuch revocation was imminent, or (3) wasin part responsible for or was aware of theactivities or omissions of the organizationthat brought about this revocation.

If on the other hand a suit for declara-tory judgment has been timely filed, con-tributions from individuals and organiza-tions described in section 170(c)(2) thatare otherwise allowable will continue tobe deductible. Protection under section7428(c) would begin October 11, 2011,and would end on the date the court firstdetermines that the organization is not de-scribed in section 170(c)(2) as more partic-ularly set forth in section 7428(c)(1). Forindividual contributors, the maximum de-duction protected is $1,000, with a hus-band and wife treated as one contributor.This benefit is not extended to any indi-vidual, in whole or in part, for the acts oromissions of the organization that were thebasis for revocation.

Allied Veterans of the World, Inc. &AffiliatesCharlotte, NC

American Homebuyers Foundation, Inc.Conyers, GA

Bundle of Joy Daycare, Inc.Long Beach, CA

Columbia Basin Animal Rescue andProtection AgencyKennewick, WA

Community Day Care CenterAbbeville, LA

Handicap Interests International andWorld ReligionsSaranac Lake, NY

Holographic Ecology, Inc.Santa Barbara, CA

Mattie’s Maternity HomesPalmdale, CA

Metropolitan Financial ManagementCorporationRoseville, MN

Monytek Human Service, Inc.Pendleton, OR

Saint Rest No. 2 Missionary BaptistChurchChicago, IL

Voluntary ClassificationSettlement Program

Announcement 2011–64

I. PURPOSE

The Internal Revenue Service (IRS)has developed a new program to permittaxpayers to voluntarily reclassify work-ers as employees for federal employmenttax purposes. The Voluntary Classifica-tion Settlement Program (VCSP) allowseligible taxpayers to voluntarily reclas-sify their workers for federal employmenttax purposes and obtain relief similar tothat obtained in the current ClassificationSettlement Program (CSP). The VCSP isoptional and provides taxpayers with anopportunity to voluntarily reclassify theirworkers as employees for future tax peri-ods with limited federal employment taxliability for the past nonemployee treat-ment. To participate in the program, thetaxpayer must meet certain eligibility re-quirements, apply to participate in VCSP,and enter into a closing agreement withthe IRS.

II. BACKGROUND

Whether a worker is performing ser-vices as an employee or as an indepen-dent contractor depends upon the facts andcircumstances and is generally determinedunder the common law test of whetherthe service recipient has the right to di-rect and control the worker as to how toperform the services. In some factual sit-uations, the determination of the properworker classification status under the com-mon law may not be clear. For taxpayersunder IRS examination, the current CSPis available to resolve federal employmenttax issues related to worker misclassifica-tion, if certain criteria are met. The exami-nation CSP permits the prospective reclas-sification of workers as employees, withreduced federal employment tax liabilitiesfor past nonemployee treatment. The CSPallows business and tax examiners to re-solve the worker classification issues asearly in the administrative process as pos-sible, thereby reducing taxpayer burdenand providing efficiencies for both the tax-payer and the government.

In order to facilitate voluntary resolu-tion of worker classification issues andachieve the resulting benefits of increasedtax compliance and certainty for taxpay-ers, workers and the government, the IRShas determined that it would be benefi-cial to provide taxpayers with a programthat allows for voluntary reclassification ofworkers as employees outside of the ex-amination context and without the need togo through normal administrative correc-tion procedures applicable to employmenttaxes.

III. ELIGIBILITY

The VCSP is available for taxpay-ers who want to voluntarily change theprospective classification of their workers.The program applies to taxpayers who arecurrently treating their workers (or a classor group of workers) as independent con-tractors or other nonemployees and wantto prospectively treat the workers as em-ployees. To be eligible, a taxpayer musthave consistently treated the workers asnonemployees, and must have filed all re-quired Forms 1099 for the workers for theprevious three years. The taxpayer cannot

2011–41 I.R.B. 503 October 11, 2011

currently be under audit by the IRS. Fur-thermore, the taxpayer cannot be currentlyunder audit concerning the classificationof the workers by the Department of La-bor or by a state government agency. Ataxpayer who was previously audited bythe IRS or the Department of Labor con-cerning the classification of the workerswill only be eligible if the taxpayer hascomplied with the results of that audit.

IV. EFFECT OF VCSP

A taxpayer who participates in theVCSP will agree to prospectively treat theclass of workers as employees for futuretax periods. In exchange, the taxpayerwill pay 10 percent of the employmenttax liability that may have been due oncompensation paid to the workers for themost recent tax year, determined under thereduced rates of section 3509 of the Inter-nal Revenue Code; will not be liable forany interest and penalties on the liability;

and will not be subject to an employmenttax audit with respect to the worker clas-sification of the workers for prior years.Additionally, a taxpayer participating inthe VCSP will agree to extend the periodof limitations on assessment of employ-ment taxes for three years for the first,second and third calendar years beginningafter the date on which the taxpayer hasagreed under the VCSP closing agreementto begin treating the workers as employ-ees.

V. APPLICATION PROCESS

Eligible taxpayers who wish to partici-pate in the VCSP must submit an applica-tion for participation in the program. Infor-mation about the VCSP and the applicationwill be available on www.irs.gov. Alongwith the application, the name of a con-tact or an authorized representative witha valid Power of Attorney (Form 2848)should be provided. The IRS will con-

tact the taxpayer or authorized represen-tative to complete the process once it hasreviewed the application and verified thetaxpayer’s eligibility. The IRS retains dis-cretion whether to accept a taxpayer’s ap-plication for the VCSP. Taxpayers whoseapplication has been accepted will enterinto a closing agreement with the IRS tofinalize the terms of the VCSP and will si-multaneously make full and complete pay-ment of any amount due under the closingagreement.

VI. DRAFTING INFORMATION

The principal author of this announce-ment is Joseph Perera of the Office of theDivision Counsel/Associate Chief Coun-sel (Tax Exempt & Government Entities).For further information regarding thisannouncement, contact Joseph Perera at202–622–6040 (not a toll-free call).

October 11, 2011 504 2011–41 I.R.B.

Definition of TermsRevenue rulings and revenue procedures(hereinafter referred to as “rulings”) thathave an effect on previous rulings use thefollowing defined terms to describe the ef-fect:

Amplified describes a situation whereno change is being made in a prior pub-lished position, but the prior position is be-ing extended to apply to a variation of thefact situation set forth therein. Thus, ifan earlier ruling held that a principle ap-plied to A, and the new ruling holds that thesame principle also applies to B, the earlierruling is amplified. (Compare with modi-fied, below).

Clarified is used in those instanceswhere the language in a prior ruling is be-ing made clear because the language hascaused, or may cause, some confusion.It is not used where a position in a priorruling is being changed.

Distinguished describes a situationwhere a ruling mentions a previously pub-lished ruling and points out an essentialdifference between them.

Modified is used where the substanceof a previously published position is beingchanged. Thus, if a prior ruling held that aprinciple applied to A but not to B, and thenew ruling holds that it applies to both A

and B, the prior ruling is modified becauseit corrects a published position. (Comparewith amplified and clarified, above).

Obsoleted describes a previously pub-lished ruling that is not considered deter-minative with respect to future transac-tions. This term is most commonly used ina ruling that lists previously published rul-ings that are obsoleted because of changesin laws or regulations. A ruling may alsobe obsoleted because the substance hasbeen included in regulations subsequentlyadopted.

Revoked describes situations where theposition in the previously published rulingis not correct and the correct position isbeing stated in a new ruling.

Superseded describes a situation wherethe new ruling does nothing more than re-state the substance and situation of a previ-ously published ruling (or rulings). Thus,the term is used to republish under the1986 Code and regulations the same po-sition published under the 1939 Code andregulations. The term is also used whenit is desired to republish in a single rul-ing a series of situations, names, etc., thatwere previously published over a period oftime in separate rulings. If the new rul-ing does more than restate the substance

of a prior ruling, a combination of termsis used. For example, modified and su-perseded describes a situation where thesubstance of a previously published rulingis being changed in part and is continuedwithout change in part and it is desired torestate the valid portion of the previouslypublished ruling in a new ruling that is selfcontained. In this case, the previously pub-lished ruling is first modified and then, asmodified, is superseded.

Supplemented is used in situations inwhich a list, such as a list of the names ofcountries, is published in a ruling and thatlist is expanded by adding further names insubsequent rulings. After the original rul-ing has been supplemented several times, anew ruling may be published that includesthe list in the original ruling and the ad-ditions, and supersedes all prior rulings inthe series.

Suspended is used in rare situations toshow that the previous published rulingswill not be applied pending some futureaction such as the issuance of new oramended regulations, the outcome of casesin litigation, or the outcome of a Servicestudy.

AbbreviationsThe following abbreviations in current useand formerly used will appear in materialpublished in the Bulletin.

A—Individual.Acq.—Acquiescence.B—Individual.BE—Beneficiary.BK—Bank.B.T.A.—Board of Tax Appeals.C—Individual.C.B.—Cumulative Bulletin.CFR—Code of Federal Regulations.CI—City.COOP—Cooperative.Ct.D.—Court Decision.CY—County.D—Decedent.DC—Dummy Corporation.DE—Donee.Del. Order—Delegation Order.DISC—Domestic International Sales Corporation.DR—Donor.E—Estate.EE—Employee.E.O.—Executive Order.

ER—Employer.ERISA—Employee Retirement Income Security Act.EX—Executor.F—Fiduciary.FC—Foreign Country.FICA—Federal Insurance Contributions Act.FISC—Foreign International Sales Company.FPH—Foreign Personal Holding Company.F.R.—Federal Register.FUTA—Federal Unemployment Tax Act.FX—Foreign corporation.G.C.M.—Chief Counsel’s Memorandum.GE—Grantee.GP—General Partner.GR—Grantor.IC—Insurance Company.I.R.B.—Internal Revenue Bulletin.LE—Lessee.LP—Limited Partner.LR—Lessor.M—Minor.Nonacq.—Nonacquiescence.O—Organization.P—Parent Corporation.PHC—Personal Holding Company.PO—Possession of the U.S.PR—Partner.

PRS—Partnership.PTE—Prohibited Transaction Exemption.Pub. L.—Public Law.REIT—Real Estate Investment Trust.Rev. Proc.—Revenue Procedure.Rev. Rul.—Revenue Ruling.S—Subsidiary.S.P.R.—Statement of Procedural Rules.Stat.—Statutes at Large.T—Target Corporation.T.C.—Tax Court.T.D. —Treasury Decision.TFE—Transferee.TFR—Transferor.T.I.R.—Technical Information Release.TP—Taxpayer.TR—Trust.TT—Trustee.U.S.C.—United States Code.X—Corporation.Y—Corporation.Z —Corporation.

2011–41 I.R.B. i October 11, 2011

Numerical Finding List1

Bulletins 2011–27 through 2011–41

Announcements:

2011-37, 2011-27 I.R.B. 37

2011-38, 2011-28 I.R.B. 45

2011-39, 2011-28 I.R.B. 46

2011-40, 2011-29 I.R.B. 56

2011-41, 2011-28 I.R.B. 47

2011-42, 2011-32 I.R.B. 138

2011-43, 2011-35 I.R.B. 198

2011-44, 2011-33 I.R.B. 164

2011-45, 2011-34 I.R.B. 178

2011-46, 2011-34 I.R.B. 178

2011-47, 2011-34 I.R.B. 178

2011-48, 2011-36 I.R.B. 227

2011-49, 2011-36 I.R.B. 228

2011-50, 2011-38 I.R.B. 409

2011-51, 2011-38 I.R.B. 409

2011-52, 2011-38 I.R.B. 409

2011-53, 2011-38 I.R.B. 409

2011-54, 2011-38 I.R.B. 409

2011-55, 2011-38 I.R.B. 409

2011-56, 2011-38 I.R.B. 409

2011-57, 2011-38 I.R.B. 409

2011-58, 2011-38 I.R.B. 410

2011-59, 2011-37 I.R.B. 335

2011-61, 2011-39 I.R.B. 453

2011-62, 2011-40 I.R.B. 483

2011-63, 2011-41 I.R.B. 503

2011-64, 2011-41 I.R.B. 503

Notices:

2011-47, 2011-27 I.R.B. 34

2011-50, 2011-27 I.R.B. 35

2011-51, 2011-27 I.R.B. 36

2011-52, 2011-30 I.R.B. 60

2011-53, 2011-32 I.R.B. 124

2011-54, 2011-29 I.R.B. 53

2011-55, 2011-29 I.R.B. 53

2011-56, 2011-29 I.R.B. 54

2011-57, 2011-31 I.R.B. 84

2011-58, 2011-31 I.R.B. 85

2011-59, 2011-31 I.R.B. 86

2011-60, 2011-31 I.R.B. 90

2011-61, 2011-31 I.R.B. 91

2011-62, 2011-32 I.R.B. 126

2011-63, 2011-34 I.R.B. 172

2011-64, 2011-37 I.R.B. 231

2011-65, 2011-34 I.R.B. 173

2011-66, 2011-35 I.R.B. 184

2011-67, 2011-34 I.R.B. 174

2011-68, 2011-36 I.R.B. 205

2011-69, 2011-39 I.R.B. 445

2011-70, 2011-32 I.R.B. 135

Notices— Continued:

2011-71, 2011-37 I.R.B. 233

2011-72, 2011-38 I.R.B. 407

2011-73, 2011-40 I.R.B. 474

2011-74, 2011-41 I.R.B. 496

2011-75, 2011-40 I.R.B. 475

2011-76, 2011-40 I.R.B. 479

2011-78, 2011-41 I.R.B. 497

2011-79, 2011-41 I.R.B. 498

Proposed Regulations:

REG-137128-08, 2011-28 I.R.B. 43

REG-112805-10, 2011-40 I.R.B. 482

REG-120391-10, 2011-39 I.R.B. 451

REG-125592-10, 2011-32 I.R.B. 137

REG-131491-10, 2011-36 I.R.B. 208

REG-101352-11, 2011-30 I.R.B. 75

REG-109006-11, 2011-37 I.R.B. 334

REG-118809-11, 2011-33 I.R.B. 162

REG-122813-11, 2011-35 I.R.B. 197

REG-126519-11, 2011-39 I.R.B. 452

Revenue Procedures:

2011-38, 2011-30 I.R.B. 66

2011-39, 2011-30 I.R.B. 68

2011-40, 2011-37 I.R.B. 235

2011-41, 2011-35 I.R.B. 188

2011-42, 2011-37 I.R.B. 318

2011-43, 2011-37 I.R.B. 326

2011-44, 2011-39 I.R.B. 446

2011-45, 2011-39 I.R.B. 449

Revenue Rulings:

2011-14, 2011-27 I.R.B. 31

2011-15, 2011-30 I.R.B. 57

2011-16, 2011-32 I.R.B. 93

2011-17, 2011-33 I.R.B. 160

2011-18, 2011-39 I.R.B. 428

2011-19, 2011-36 I.R.B. 199

2011-20, 2011-36 I.R.B. 202

2011-21, 2011-40 I.R.B. 458

2011-22, 2011-41 I.R.B. 489

2011-24, 2011-41 I.R.B. 485

Treasury Decisions:

9527, 2011-27 I.R.B. 1

9528, 2011-28 I.R.B. 38

9529, 2011-30 I.R.B. 57

9530, 2011-31 I.R.B. 77

9531, 2011-31 I.R.B. 79

9532, 2011-32 I.R.B. 95

9533, 2011-33 I.R.B. 139

9534, 2011-33 I.R.B. 144

9535, 2011-39 I.R.B. 415

9536, 2011-39 I.R.B. 426

9537, 2011-35 I.R.B. 181

Treasury Decisions— Continued:

9538, 2011-37 I.R.B. 229

9539, 2011-35 I.R.B. 179

9540, 2011-38 I.R.B. 341

9541, 2011-39 I.R.B. 438

9542, 2011-39 I.R.B. 411

9543, 2011-40 I.R.B. 470

9544, 2011-40 I.R.B. 458

9545, 2011-41 I.R.B. 490

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2011–1 through 2011–26 is in Internal Revenue Bulletin2011–26, dated June 27, 2011.

October 11, 2011 ii 2011–41 I.R.B.

Finding List of Current Actions onPreviously Published Items1

Bulletins 2011–27 through 2011–41

Announcements:

2007-47

Updated and superseded by

Ann. 2011-59, 2011-37 I.R.B. 335

Notices:

2006-101

Amplified and superseded by

Notice 2011-64, 2011-37 I.R.B. 231

2007-93

Obsoleted by

T.D. 9545, 2011-41 I.R.B. 490

2010-23

Modified and supplemented by

Notice 2011-54, 2011-29 I.R.B. 53

2010-81

Amended and supplemented by

Notice 2011-63, 2011-34 I.R.B. 172

2010-88

Modified by

Ann. 2011-40, 2011-29 I.R.B. 56

Proposed Regulations:

REG-118761-09

Hearing scheduled by

Ann. 2011-38, 2011-28 I.R.B. 45

REG-151687-10

Hearing scheduled by

Ann. 2011-48, 2011-36 I.R.B. 227

Revenue Procedures:

72-36

Amplified and modified by

Rev. Proc. 2011-42, 2011-37 I.R.B. 318

2004-29


Rev. Proc. 2011-42, 2011-37 I.R.B. 318

2007-35


Rev. Proc. 2011-42, 2011-37 I.R.B. 318

2008-24

Modified and superseded by

Rev. Proc. 2011-38, 2011-30 I.R.B. 66

2008-32

Superseded by

Rev. Proc. 2011-39, 2011-30 I.R.B. 68

2011-4

Modified by

Rev. Proc. 2011-44, 2011-39 I.R.B. 446

Revenue Procedures— Continued:

2011-14

Modified by

Rev. Proc. 2011-43, 2011-37 I.R.B. 326

2011-35


Rev. Proc. 2011-42, 2011-37 I.R.B. 318

Revenue Rulings:

58-225

Obsoleted by

Rev. Rul. 2011-15, 2011-30 I.R.B. 57

Treasury Decisions:

9527

Corrected by

Ann. 2011-49, 2011-36 I.R.B. 228

1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2011–1 through 2011–26 is in Internal Revenue Bulletin 2011–26, dated June 27, 2011.

2011–41 I.R.B. iii October 11, 2011

October 11, 2011 2011–41 I.R.B.

2011–41 I.R.B. October 11, 2011

October 11, 2011 2011–41 I.R.B.

INTERNAL REVENUE BULLETINThe Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue

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