2005-68 Rev. Proc.

Bulletin No. 2005-41
October 11, 2005

HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.

INCOME TAX
Rev. Rul. 2005–65, page 684.
Section 355(e). Guidance is provided on whether, under the
described facts, an acquisition and a distribution are part of a
plan under section 355(e) of the Code and section 1.355–7(b)
of the regulations.

3) service not in the course of the employer’s trade or business, and 4) services provided by home workers described in
section 3121(d)(3)(C) are wages subject to Federal Insurance
Contributions Act (FICA) taxes.

EXCISE TAX

Rev. Rul. 2005–66, page 686.

REG–138647–04, page 697.

Federal rates; adjusted federal rates; adjusted federal
long-term rate and the long-term exempt rate. For purposes of sections 382, 642, 1274, 1288, and other sections
of the Code, tables set forth the rates for October 2005.

Proposed regulations under section 4980G of the Code provide guidance regarding employer comparable contributions to
the Health Savings Accounts (HSAs) of employees. The regulations set forth the rules for determining the applicability of the
comparability rules and for determining whether an employer’s
contributions satisfy the comparability rules.

T.D. 9224, page 688.
Final regulations under section 6654 of the Code provide information for making payments of estimated income tax by individuals. The regulations incorporate changes made by the Tax
Reform Act of 1984 and are necessary to update, clarify, and
reorganize the rules and procedures under section 6654. The
regulations do not impose any new requirements for taxpayers.

Notice 2005–70, page 694.
Section 362(e). This notice provides guidance on how to
make an election under section 362(e)(2)(C) of the Code.

TAX CONVENTIONS
Announcement 2005–72, page 692.
U.S.-Mexico MAP Agreement regarding eligibility of fiscally transparent entities to benefits. A copy of the news
release issued by the Director, International (U.S. Competent
Authority), on September 19, 2005 (IR–2005–17), is set forth.

EMPLOYMENT TAX
REG–104143–05, page 708.
Proposed regulations under section 3121 of the Code amend
existing regulations as to the dollar threshold amounts and time
periods used to determine whether payments for 1) domestic
service in a private home of the employer, 2) agricultural labor,

(Continued on the next page)

Finding Lists begin on page ii.

ADMINISTRATIVE
Rev. Proc. 2005–68, page 694.
This procedure provides guidelines for requesting expedited
processing of letter ruling requests for certain reorganizations
and for distributions under section 355 of the Code, and clarifies the requirement that a “significant issue” be present before the Service will rule on certain transactions. Rev. Procs.
2005–1 and 2005–3 amplified.

Announcement 2005–71, page 714.
Revised optional standard mileage rates for 2005. This
announcement advises taxpayers that the Service is revising
the optional standard mileage rates for business, medical, and
moving expenses. Effective September 1, 2005, the business
standard mileage rate is 48.5 cents per mile and the standard
mileage rate for medical and moving expenses is 22 cents per
mile. Rev. Proc. 2004–64 modified.

Announcement 2005–73, page 715.
This announcement contains updates and corrections to Publication 1187, Specifications for Filing Form 1042–S, Foreign
Person’s U.S. Source Income Subject to Withholding, Electronically or Magnetically.

October 11, 2005

2005–41 I.R.B.

The IRS Mission
Provide America’s taxpayers top quality service by helping
them understand and meet their tax responsibilities and by

applying the tax law with integrity and fairness to all.

Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conventions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents 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 substantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, modify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the 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 of
the 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, Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rulings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published 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.

2005–41 I.R.B.

October 11, 2005

Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 42.—Low-Income
Housing Credit
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of October 2005. See Rev. Rul. 2005-66, page 686.

Section 280G.—Golden
Parachute Payments
Federal short-term, mid-term, and long-term rates
are set forth for the month of October 2005. See Rev.
Rul. 2005-66, page 686.

Section 355.—Distribution
of Stock and Securities of
a Controlled Corporation
26 CFR 1.355–7: Recognition of Gain on Certain
Distributions of Stock or Securities in Connection
with an Acquisition.

Section 355(e). Guidance is provided
on whether, under the described facts, an
acquisition and a distribution are part of a
plan under section 355(e) of the Code and
section 1.355–7(b) of the regulations.

Rev. Rul. 2005–65
ISSUE
Under the facts described below, is a
distribution of a controlled corporation by
a distributing corporation part of a plan
pursuant to which one or more persons
acquire stock in the distributing corporation under § 355(e) of the Internal Revenue Code and § 1.355–7 of the Income
Tax Regulations?
FACTS
Distributing is a publicly traded corporation that conducts a pharmaceuticals
business. Controlled, a wholly owned subsidiary of Distributing, conducts a cosmetics business. Distributing does all of
the borrowing for both Distributing and
Controlled and makes all decisions regarding the allocation of capital spending between the pharmaceuticals and cosmetics
businesses. Because Distributing’s capital
spending in recent years for both the pharmaceuticals and cosmetics businesses has
outpaced internally generated cash flow

2005–41 I.R.B.

from the businesses, it has had to limit total
expenditures to maintain its credit ratings.
Although the decisions reached by Distributing’s senior management regarding
the allocation of capital spending usually
favor the pharmaceuticals business due to
its higher rate of growth and profit margin,
the competition for capital prevents both
businesses from consistently pursuing development strategies that the management
of each business believes are appropriate.
To eliminate this competition for capital, and in light of the unavailability of
nontaxable alternatives, Distributing decides and publicly announces that it intends to distribute all the stock of Controlled pro rata to Distributing’s shareholders. It is expected that both businesses will benefit in a real and substantial way from the distribution. This business purpose is a corporate business purpose (within the meaning of § 1.355–2(b)).
The distribution is substantially motivated
by this business purpose, and not by a business purpose to facilitate an acquisition.
After the announcement but before the
distribution, X, a widely held corporation
that is engaged in the pharmaceuticals
business, and Distributing begin discussions regarding an acquisition. There
were no discussions between Distributing
or Controlled and X or its shareholders
regarding an acquisition or a distribution
before the announcement. In addition,
Distributing would have been able to continue the successful operation of its pharmaceuticals business without combining
with X. During its negotiations with Distributing, X indicates that it favors the
distribution. X merges into Distributing
before the distribution but nothing in the
merger agreement requires the distribution.
As a result of the merger, X’s former
shareholders receive 55 percent of Distributing’s stock. In addition, X’s chairman of the board and chief executive officer become the chairman of the board
and chief executive officer, respectively, of
Distributing. Six months after the merger,
Distributing distributes the stock of Controlled pro rata in a distribution to which
§ 355 applies and to which § 355(d) does
not apply. At the time of the distribution,

684

the distribution continues to be substantially motivated by the business purpose of
eliminating the competition for capital between the pharmaceuticals and cosmetics
businesses.
LAW
Section 355(c) generally provides that
no gain or loss is recognized to the distributing corporation on a distribution of
stock in a controlled corporation to which
§ 355 (or so much of § 356 as relates to
§ 355) applies and which is not in pursuance of a plan of reorganization. Section 355(e) generally denies nonrecognition treatment under § 355(c) if the distribution is part of a plan (or series of related
transactions) (a plan) pursuant to which
one or more persons acquire directly or indirectly stock representing a 50-percent or
greater interest in the distributing corporation or any controlled corporation.
Section 1.355–7(b)(1) provides that
whether a distribution and an acquisition
are part of a plan is determined based on
all the facts and circumstances, including
those set forth in § 1.355–7(b)(3) (plan
factors) and (4) (non-plan factors). The
weight to be given each of the facts and
circumstances depends on the particular
case. The determination does not depend
on the relative number of plan factors
compared to the number of non-plan factors that are present.
Section 1.355–7(b)(3)(iii) provides
that, in the case of an acquisition (other
than involving a public offering) before
a distribution, if at some time during the
two-year period ending on the date of the
acquisition there were discussions by Distributing or Controlled with the acquirer
regarding a distribution, such discussions
tend to show that the distribution and
the acquisition are part of a plan. The
weight to be accorded this fact depends
on the nature, extent, and timing of the
discussions. In addition, the fact that the
acquirer intends to cause a distribution
and, immediately after the acquisition, can
meaningfully participate in the decision
regarding whether to make a distribution,
tends to show that the distribution and the
acquisition are part of a plan.

October 11, 2005

Section 1.355–7(b)(4)(iii) provides
that, in the case of an acquisition (other
than involving a public offering) before
a distribution, the absence of discussions
by Distributing or Controlled with the
acquirer regarding a distribution during
the two-year period ending on the date
of the earlier to occur of the acquisition
or the first public announcement regarding the distribution tends to show that
the distribution and the acquisition are
not part of a plan. However, this factor
does not apply to an acquisition where the
acquirer intends to cause a distribution
and, immediately after the acquisition, can
meaningfully participate in the decision
regarding whether to make a distribution.
Section 1.355–7(b)(4)(v) provides that
the fact that the distribution was motivated
in whole or substantial part by a corporate
business purpose (within the meaning of
§ 1.355–2(b)) other than a business purpose to facilitate the acquisition or a similar acquisition tends to show that the distribution and the acquisition are not part of
a plan.
Section 1.355–7(b)(4)(vi) provides that
the fact that the distribution would have
occurred at approximately the same time
and in similar form regardless of the acquisition or a similar acquisition tends to
show that the distribution and the acquisition are not part of a plan.
Section 1.355–7(h)(6) provides that
discussions with the acquirer generally
include discussions with persons with the
implicit permission of the acquirer.
Section 1.355–7(h)(9) provides that a
corporation is treated as having the implicit permission of its shareholders when
it engages in discussions.
ANALYSIS
Whether the X shareholders’ acquisition of Distributing stock and Distributing’s distribution of Controlled are part of
a plan depends on all the facts and circumstances, including those described in
§ 1.355–7(b). The fact that Distributing
discussed the distribution with X during
the two-year period ending on the date of
the acquisition tends to show that the distribution and the acquisition are part of a
plan. See § 1.355–7(b)(3)(iii). In addition, X’s shareholders may constitute acquirers who intend to cause a distribution

October 11, 2005

and who, immediately after the acquisition, can meaningfully participate (through
X’s chairman of the board and chief executive officer who become D’s chairman
of the board and chief executive officer)
in the decision regarding whether to distribute Controlled. See id. However, the
fact that Distributing publicly announced
the distribution before discussions with X
regarding both an acquisition and a distribution began suggests that the plan factor
in § 1.355–7(b)(3)(iii) should be accorded
less weight than it would have been accorded had there been such discussions before the public announcement.
With respect to those factors that tend
to show that the distribution and the acquisition are not part of a plan, the absence of
discussions by Distributing or Controlled
with X or its shareholders during the twoyear period ending on the date of the public announcement regarding the distribution would tend to show that the distribution and the acquisition are not part of
a plan only if X’s shareholders are not
acquirers who intend to cause a distribution and who, immediately after the acquisition, can meaningfully participate in
the decision regarding whether to distribute Controlled. See § 1.355–7(b)(4)(iii).
Because X’s chairman of the board and
chief executive officer become the chairman and chief executive officer, respectively, of Distributing, X’s shareholders
may have the ability to meaningfully participate in the decision whether to distribute Controlled. Therefore, the absence of
discussions by Distributing or Controlled
with X or its shareholders during the twoyear period ending on the date of the public announcement regarding the distribution may not tend to show that the distribution and the acquisition are not part of a
plan.
Nonetheless, the fact that the distribution was substantially motivated by a corporate business purpose (within the meaning of § 1.355–2(b)) other than a business purpose to facilitate the acquisition
or a similar acquisition, and the fact that
the distribution would have occurred at approximately the same time and in similar
form regardless of the acquisition or a similar acquisition, tend to show that the distribution and the acquisition are not part of
a plan. See § 1.355–7(b)(4)(v), (vi). The
fact that the public announcement of the

685

distribution preceded discussions by Distributing or Controlled with X or its shareholders, and the fact that Distributing’s
business would have continued to operate
successfully even if the merger had not occurred, evidence that the distribution originally was not substantially motivated by a
business purpose to facilitate the acquisition or a similar acquisition. Moreover, after the merger, Distributing continued to be
substantially motivated by the same corporate business purpose (within the meaning
of § 1.355–2(b)) other than a business purpose to facilitate the acquisition or a similar acquisition (§ 1.355–7(b)(4)(v)). In addition, the fact that Distributing decided to
distribute Controlled and announced that
decision before it began discussions with
X regarding the combination suggests that
the distribution would have occurred at approximately the same time and in similar
form regardless of Distributing’s combination with X and the corresponding acquisition of Distributing stock by the X shareholders.
Considering all the facts and circumstances, particularly the fact that the distribution was motivated by a corporate
business purpose (within the meaning
of § 1.355–2(b)) other than a business
purpose to facilitate the acquisition or a
similar acquisition, and the fact that the
distribution would have occurred at approximately the same time and in similar
form regardless of the acquisition or a
similar acquisition, the acquisition and
distribution are not part of a plan under
§ 355(e) and § 1.355–7(b).
HOLDING
Under the facts described above, the acquisition and the distribution are not part of
a plan under § 355(e) and § 1.355–7(b).
DRAFTING INFORMATION
The principal author of this revenue
ruling is Ross Poulsen of the Office of
Associate Chief Counsel (Corporate). For
further information regarding this revenue ruling, contact Mr. Poulsen at (202)
622–7770 (not a toll-free call).

2005–41 I.R.B.

Section 382.—Limitation
on Net Operating Loss
Carryforwards and Certain
Built-In Losses Following
Ownership Change
The adjusted applicable federal long-term rate is
set forth for the month of October 2005. See Rev.
Rul. 2005-66, page 686.

Section 412.—Minimum
Funding Standards
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of October 2005. See Rev. Rul. 2005-66, page 686.

Section 483.—Interest on
Certain Deferred Payments
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of October 2005. See Rev. Rul. 2005-66, page 686.

Section 642.—Special
Rules for Credits and
Deductions
Federal short-term, mid-term, and long-term rates
are set forth for the month of October 2005. See Rev.
Rul. 2005-66, page 686.

Section 807.—Rules for
Certain Reserves

Section 467.—Certain
Payments for the Use of
Property or Services

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of October 2005. See Rev. Rul. 2005-66, page 686.

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of October 2005. See Rev. Rul. 2005-66, page 686.

Section 846.—Discounted
Unpaid Losses Defined

Section 468.—Special
Rules for Mining and Solid
Waste Reclamation and
Closing Costs
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of October 2005. See Rev. Rul. 2005-66, page 686.

Section 482.—Allocation
of Income and Deductions
Among Taxpayers
Federal short-term, mid-term, and long-term rates
are set forth for the month of October 2005. See Rev.
Rul. 2005-66, page 686.

2005–41 I.R.B.

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of October 2005. See Rev. Rul. 2005-66, page 686.

Rev. Rul. 2005–66
This revenue ruling provides various
prescribed rates for federal income tax
purposes for October 2005 (the current
month). Table 1 contains the short-term,
mid-term, and long-term applicable federal rates (AFR) for the current month
for purposes of section 1274(d) of the
Internal Revenue Code. Table 2 contains
the short-term, mid-term, and long-term
adjusted applicable federal rates (adjusted
AFR) for the current month for purposes
of section 1288(b). Table 3 sets forth the
adjusted federal long-term rate and the
long-term tax-exempt rate described in
section 382(f). Table 4 contains the appropriate percentages for determining the
low-income housing credit described in
section 42(b)(2) for buildings placed in
service during the current month. Finally,
Table 5 contains the federal rate for determining the present value of an annuity, an
interest for life or for a term of years, or
a remainder or a reversionary interest for
purposes of section 7520.

Section 1274.—Determination of Issue Price in the
Case of Certain Debt Instruments 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 the
long-term exempt rate. For purposes of
sections 382, 642, 1274, 1288, and other
sections of the Code, tables set forth the
rates for October 2005.

686

October 11, 2005

REV. RUL. 2005–66 TABLE 1
Applicable Federal Rates (AFR) for October 2005
Period for Compounding
Annual

Semiannual

Quarterly

Monthly

3.89%
4.28%
4.67%
5.07%

3.85%
4.24%
4.62%
5.01%

3.83%
4.22%
4.59%
4.98%

3.82%
4.20%
4.58%
4.96%

4.08%
4.49%
4.91%
5.32%
6.15%
7.19%

4.04%
4.44%
4.85%
5.25%
6.06%
7.07%

4.02%
4.42%
4.82%
5.22%
6.01%
7.01%

4.01%
4.40%
4.80%
5.19%
5.98%
6.97%

4.40%
4.85%
5.29%
5.74%

4.35%
4.79%
5.22%
5.66%

4.33%
4.76%
5.19%
5.62%

4.31%
4.74%
5.16%
5.59%

Short-term
AFR
110% AFR
120% AFR
130% AFR
Mid-term
AFR
110% AFR
120% AFR
130% AFR
150% AFR
175% AFR
Long-term
AFR
110% AFR
120% AFR
130% AFR

Short-term adjusted
AFR
Mid-term adjusted AFR
Long-term adjusted
AFR

Annual
2.83%
3.27%
4.14%

REV. RUL. 2005–66 TABLE 2
Adjusted AFR for October 2005
Period for Compounding
Semiannual
2.81%
3.24%
4.10%

Quarterly
2.80%

Monthly
2.79%

3.23%
4.08%

3.22%
4.07%

REV. RUL. 2005–66 TABLE 3
Rates Under Section 382 for October 2005
Adjusted federal long-term rate for the current month
Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted
federal long-term rates for the current month and the prior two months.)

4.14%
4.24%

REV. RUL. 2005–66 TABLE 4
Appropriate Percentages Under Section 42(b)(2) for October 2005
Appropriate percentage for the 70% present value low-income housing credit

7.98%

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

3.42%

October 11, 2005

687

2005–41 I.R.B.

REV. RUL. 2005–66 TABLE 5
Rate Under Section 7520 for October 2005
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
SUPPLEMENTARY INFORMATION:

Section 1288.—Treatment
of Original Issue Discount
on Tax-Exempt Obligations
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of October 2005. See Rev. Rul. 2005-66, page 686.

Section 6654.—Failure by
Individual to Pay Estimated
Income Tax
26 CFR 1.6654–2: Exceptions to imposition of the
addition to the tax in the case of individuals.

T.D. 9224
DEPARTMENT OF
THE TREASURY
Internal Revenue Service
26 CFR Part 1
Updating Estimated Income
Tax Regulations Under Section
6654
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains final regulations relating to certain changes
made to the law by the Tax Reform Act
of 1984. These final regulations are necessary to update, clarify, and reorganize
the rules and procedures for making payments of estimated income tax by individuals. These final regulations do not impose
any new requirements for taxpayers.
DATES: Effective Date: These final regulations are effective September 2, 2005.
FOR
FURTHER
INFORMATION
CONTACT: Tatiana Belenkaya of the
Office of Associate Chief Counsel (Procedure and Administration), (202) 622–4910
(not a toll-free number).

2005–41 I.R.B.

Background
This document contains amendments to
26 CFR part 1. Section 412 of the Tax
Reform Act of 1984, Public Law 98–369
(98 Stat. 792), repealed section 6015 of
the Internal Revenue Code (Code), which
required individuals to file declarations of
estimated income tax. Public Law 98–369
(98 Stat. 792) is effective for taxable years
beginning after December 31, 1984; however, individual taxpayers still must pay
estimated tax in quarterly installments under section 6654 of the Code.
Explanation of Provisions
In general, section 6654(a) of the Code
provides that in the case of any underpayment of estimated tax by an individual,
there shall be added to the tax under chapter 1 and the tax under chapter 2 for the taxable year an amount determined by applying (1) the underpayment rate established
under section 6621, (2) to the amount of
the underpayment, (3) for the period of the
underpayment. Section 6654(m) authorizes the Secretary to prescribe such regulations as may be necessary to carry out
the purposes of section 6654.
Prior to its repeal in 1984, section
6015 of the Code, and §§1.6015(a)–1
through 1.6015(j)–1 of the Income Tax
Regulations, provided rules for making
declarations of estimated income tax by
individuals. Section 6015 of the Code was
repealed for taxable years beginning after
December 31, 1984. The repeal of section 6015 rendered §§1.6015(a)–1 through
1.6015(j)–1 obsolete, except to the extent
that portions of these sections provide
guidance still relevant to the payment of
estimated tax under section 6654.
These final regulations remove
§§1.6015(a)–1 through 1.6015(j)–1, revise §§1.6654–2 and 1.6654–3, and add
§§1.6654–5 and 1.6654–6. Removing the
obsolete declaration of estimated income
tax regulations and revising the current es-

688

5.0%

timated income tax regulations will clarify
the estimated income tax regulations under section 6654 of the Code. Removal of
§§1.6015(a)–1 through 1.6015(j)–1 also
alleviates any confusion under the current
section 6015 regulations, which address
relief from joint and several liability for
an individual who has made a joint return. Adding §§1.6654–5 and 1.6654–6
will provide additional instructions for
determining estimated tax payments and
additional guidance for nonresident alien
individuals required to make estimated tax
payments.
Special Analyses
Because these regulations are interpretative and generally re-codify, under an existing statute, existing rules promulgated
under a prior statute, notice and public
comment procedures are not required pursuant to 5 U.S.C. 553(b)(A) and (B), and a
delayed effective date is not required pursuant to 5 U.S.C. 553(d)(2) and (3). Because no notice of proposed rulemaking
is required, the provisions of the Regulatory Flexibility Act, 5 U.S.C. 601 (et seq.)
do not apply. Further, because this Treasury decision is not a significant regulatory action for purposes of Executive Order 12866, a regulatory assessment is not
required. Pursuant to section 7805(f) of
the Code, these regulations were submitted
to the Chief Counsel for Advocacy of the
Small Business Administration for comment on their impact on small business.
Drafting Information
The principal author of these regulations is Tatiana Belenkaya, Office of
Associate Chief Counsel (Procedure and
Administration), Administrative Provisions and Judicial Practice Division.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:

October 11, 2005

PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805* * *
§§1.6015(a)–1 through 1.6015(j)–1
[Removed]
Par. 2. Sections 1.6015(a)–1 through
1.6015(j)–1 are removed.
Par. 3. Section 1.6654–2 is amended
by:
1. Revising the last sentence of paragraph (e)(1)(ii).
2. Adding paragraphs (e)(5), (e)(6), and
(e)(7).
The revision and additions read as follows:
§1.6654–2 Exceptions to imposition of
the addition to the tax in the case of
individuals.
*****
(e)* * *
(1)* * *
(ii)* * * For rules with respect to the
allocation of joint payments of estimated
tax, see §1.6654–2(e)(5).
*****
(5) Joint payments of estimated tax—(i)
In general. A husband and wife may make
a joint payment of estimated tax even
though they are not living together. However, a joint payment of estimated tax may
not be made if the husband and wife are
separated under a decree of divorce or of
separate maintenance. A joint payment of

estimated tax may not be made if the taxpayer’s spouse is a nonresident alien (including a nonresident alien who is a bona
fide resident of Puerto Rico or a possession to which section 931 applies during
the entire taxable year), unless an election
is in effect for the taxable year under section 6013(g) or (h) and the regulations. In
addition, a joint payment of estimated tax
may not be made if the taxpayer’s spouse
has a taxable year different from that of the
taxpayer. If a joint payment of estimated
tax is made, the amount estimated as the
income tax imposed by chapter 1 of the
Internal Revenue Code must be computed
on the aggregate estimated taxable income
of the spouses (see section 6013(d)(3)
and §1.2–1), whereas, if applicable, the
amount estimated as the self-employment
tax imposed by chapter 2 of the Internal
Revenue Code must be computed on the
separate estimated self-employment income of each spouse. See sections 1401
and 1402 and §1.6017–1(b)(1). The liability with respect to the estimated tax, in
the case of a joint payment, shall be joint
and several.
(ii) Application to separate returns. (A)
Although a husband and wife may make a
joint payment of estimated tax, they, nevertheless, can file separate returns. If they
make a joint payment of estimated tax and
file separate returns for the same taxable
year with respect to which the joint payment was made, the payment made on account of the estimated tax for that taxable
year may be treated as a payment on account of the tax liability of either the hus-

band or wife for the taxable year, or may
be divided between them in such manner
as they may agree.
(B) In the event the husband and wife
fail to agree to a division of the estimated
tax payment, such payment shall be allocated between them in accordance with the
following rule. The portion of such payment to be allocated to a taxpayer shall be
that portion of the aggregate of all such
payments as the amount of tax imposed
by chapter 1 of the Internal Revenue Code
shown on the separate return of the taxpayer (plus, if applicable, the amount of
tax imposed by chapter 2 of the Internal
Revenue Code shown on the return of the
taxpayer) bears to the sum of the taxes imposed by chapter 1 of the Internal Revenue
Code shown on the separate returns of the
taxpayer and the spouse (plus, if applicable, the sum of the taxes imposed by chapter 2 of the Internal Revenue Code shown
on the separate returns of the taxpayer and
the spouse).
(6) Example. The rule described in
paragraph (e)(5) of this section may be illustrated by the following example:
Example. (i) H and W make a joint payment of
estimated tax of $19,500 for the taxable year. H and
W subsequently file separate returns for the taxable
year showing tax imposed by chapter 1 of the Internal
Revenue Code in the amount of $11,500 and $8,000,
respectively. In addition, H’s return shows a tax imposed by chapter 2 of the Internal Revenue Code in
the amount of $500. H and W fail to agree to a division of the estimated tax paid. The amount of the
aggregate estimated tax payments allocated to H is
determined as follows:

(A) Chapter 1 tax shown on H’s return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$11,500

(B) Plus: Amount of tax imposed by chapter 2 shown on H’s return . . . . . . . . . . . . . . . . . . . . . .

$500

(C) Total taxes imposed by chapter 1 and by chapter 2 shown on H’s return . . . . . . . . . . . . . . . .

$12,000

(D) Amount of tax imposed by chapter 1 shown on W’s return . . . . . . . . . . . . . . . . . . . . . . . . . .

$8,000

(E) Total taxes imposed by chapter 1 and by chapter 2 on both H’s and W’s returns . . . . . . . . . .

$20,000

(F) Proportion of taxes shown on H’s return to total amount of taxes shown on both H’s and W’s
returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(G) Amount of estimated tax payments allocated to H (60% of $19,500) . . . . . . . . . . . . . . . . . . .
(ii) Accordingly, H’s return would show a balance
due in the amount of $300 ($12,000 taxes shown less
$11,700 estimated tax allocated).

(7) Death of spouse. (i) A joint payment of estimated tax may not be made after the death of either the husband or wife.
However, if it is reasonable for a surviving

October 11, 2005

spouse to assume that there will be filed
a joint return for himself and the deceased
spouse for his taxable year and the last taxable year of the deceased spouse, he may,
in making a separate payment of estimated
tax for his taxable year which includes the
period comprising such last taxable year of

689

($12,000/$20,000) 60%
$11,700

his spouse, estimate the amount of the tax
imposed by chapter 1 of the Internal Revenue Code on his and his spouse’s taxable
income on an aggregate basis and compute
his estimated tax with respect to chapter 1
tax in the same manner as though a joint
return had been filed.

2005–41 I.R.B.

(ii) If a husband and wife make a joint
payment of estimated tax and thereafter
one spouse dies, no further payments of
joint estimated tax liability are required
from the estate of the decedent. The surviving spouse, however, shall be liable
for the payment of any subsequent installments of the joint estimated tax. For the
purpose of making an amended payment
of estimated tax by the surviving spouse,
and the allocation of payments made pursuant to a joint payment of estimated tax
between the surviving spouse and the legal
representative of the decedent in the event
a joint return is not filed, the payment of
estimated tax may be divided between the
decedent and the surviving spouse in such
proportion as the surviving spouse and the
legal representative of the decedent may
agree.
(iii) If the surviving spouse and the
legal representative of the decedent fail
to agree to a division of a payment, such
payment shall be allocated in accordance
with the following rule. The portion of
such payment to be allocated to the surviving spouse shall be that portion of the
aggregate amount of such payments as
the amount of tax imposed by chapter
1 of the Internal Revenue Code shown
on the separate return of the surviving
spouse (plus, if applicable, the amount of
tax imposed by chapter 2 of the Internal
Revenue Code shown on the return of
the surviving spouse) bears to the sum
imposed by chapter 1 of the Internal Revenue Code shown on the separate returns
of the surviving spouse and of the decedent (plus, if applicable, the sum of the
taxes imposed by chapter 2 of the Internal
Revenue Code shown on the returns of
the surviving spouse and of the decedent);
and the balance of such payments shall be
allocated to the decedent. This rule may
be illustrated by analogizing the surviving
spouse described in this rule to H in the
example contained in paragraph (e)(6) of
this section and the decedent in this rule to
W in that example.
Par. 4. Section 1.6654–3 is amended by
revising paragraph (a) to read as follows:
§1.6654–3 Short taxable years of
individuals.
(a) In general. The provisions of section 6654, with certain modifications relating to the application of section 6654(d),

2005–41 I.R.B.

which are explained in paragraph (b) of
this section, are applicable in the case of
a short taxable year.
*****
§1.6654–5 [Redesignated as §1.6654–7]
Par. 5. Section 1.6654–5 is redesignated as §1.6654–7.
Par. 6. New §1.6654–5 is added to read
as follows:
§1.6654–5 Payments of estimated tax.
(a) In general. A payment of estimated
tax by an individual shall be determined
on Form 1040-ES. For the purpose of determining the estimated tax, the amount of
gross income which the taxpayer can reasonably expect to receive or accrue, depending upon the method of accounting
upon which taxable income is computed,
and the amount of the estimated allowable deductions and credits to be taken
into account in computing the amount of
estimated tax, shall be determined upon
the basis of the facts and circumstances
existing at the time prescribed for determining the estimated tax, as well as those
reasonably to be anticipated for the taxable year. If, therefore, the taxpayer is
employed at the date prescribed for making an estimated tax payment at a given
wage or salary, the taxpayer should presume, in the absence of circumstances indicating the contrary, for the purpose of the
estimated tax payment that such employment will continue to the end of the taxable year at the wage or salary received by
the taxpayer as of such date. In the case
of income other than wages and salary,
the regularity in the payment of income,
such as dividends, interest, rents, royalties, and income arising from estates and
trusts is a factor to be taken into consideration. Thus, if the taxpayer owns shares of
stock in a corporation, and dividends have
been paid regularly for several years upon
the stock, the taxpayer should, in the absence of information indicating a change
in the dividend policy, include the prospective dividends from the corporation for the
taxable year as well as those actually received in such year prior to determining
the estimated tax. In the case of a taxpayer
engaged in business on his own account,
there shall be made an estimate of gross
income and deductions and credits in the

690

light of the best available information affecting the trade, business, or profession.
(b) Computation of estimated tax.
In computing the estimated tax, the
taxpayer should take into account the
taxes, credits, and other amounts listed in
§1.6654–1(a)(4).
Par. 7. Section 1.6654–6 is added to
read as follows:
§1.6654–6 Nonresident alien individuals.
(a) In general. A nonresident alien individual is required to make a payment of
estimated tax if that individual’s gross income meets the requirements of section
6654 and §1.6654–1. In making the determination under section 6654 as to whether
the amount of the gross income of a nonresident alien individual is such as to require making a payment of estimated income tax, only the filing status relating to
a single individual (other than a head of
household) or to a married individual not
entitled to file a joint return shall apply, unless an election is in effect for the taxable
year under section 6013(g) or (h) and the
regulations.
(b) Determination of gross income. To
determine the gross income of a nonresident alien individual who is not, or does
not expect to be, a bona fide resident of
Puerto Rico or a possession to which section 931 applies during the entire taxable
year, see section 872 and §§1.872–1 and
1.872–2. To determine the gross income
of a nonresident alien individual who is,
or expects to be, a bona fide resident of
Puerto Rico or a possession to which section 931 applies during the entire taxable
year, see section 876 and the regulations.
For rules for determining whether an individual is a bona fide resident of a United
States possession (including Puerto Rico),
see section 937 and the regulations.
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
Approved August 21, 2005.
Eric Solomon,
Acting Deputy Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register on September
1, 2005, 8:45 a.m., and published in the issue of the Federal
Register for September 2, 2005, 70 F.R. 52299)

October 11, 2005

Section 7520.—Valuation
Tables
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of October 2005. See Rev. Rul. 2005-66, page 686.

October 11, 2005

Section 7872.—Treatment
of Loans With Below-Market
Interest Rates
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month
of October 2005. See Rev. Rul. 2005-66, page 686.

691

2005–41 I.R.B.

Part II. Treaties and Tax Legislation
Subpart A.—Tax Conventions and Other Related Items
Mexico LLC MAP Agreement
Announcement 2005–72
Following is a copy of the News Release issued by the Director, International
(U.S. Competent Authority), on September 19, 2005 (IR–2005–107).
U.S., Mexico Reach Mutual Agreement
Regarding Eligibility of Fiscally
Transparent Entities Benefits
IR–2005–107, Sept. 19, 2005

WASHINGTON — On Aug. 26, 2005,
the Competent Authorities of the United
States and Mexico entered into a mutual
agreement (“the Agreement”) regarding
the eligibility of entities that are treated
as fiscally transparent under the laws of
either Contracting State to benefits under
the Convention Between the United States
of America and the Government of the
United Mexican States for the Avoidance
of Double Taxation and the Prevention of
Fiscal Evasion with Respect to Taxes on

Income, along with a Protocol, signed on
Sept. 18, 1992, and as amended by the
Additional Protocol signed on Sept. 8,
1994, and the Second Additional Protocol
signed on Nov. 26, 2002. The Agreement
specifies the cases where fiscally transparent entities are entitled to treaty benefits
and clarifies the procedure for claiming
treaty benefits from Mexico
The text of the Agreement is as follows:

COMPETENT AUTHORITY MUTUAL AGREEMENT
The Competent Authorities of the United States and Mexico hereby enter into the following mutual agreement (“the Agreement”)
regarding the eligibility of entities that are treated as fiscally transparent under the laws of either Contracting State to benefits
under the Convention Between the United States of America and the Government of the United Mexican States for the Avoidance
of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, along with a Protocol, signed on
September 18, 1992, and as amended by the Additional Protocol signed on September 8, 1994, and the Second Additional
Protocol signed on November 26, 2002. The Agreement specifies the cases where fiscally transparent entities are entitled to
treaty benefits and clarifies the procedure for claiming treaty benefits from Mexico. The Agreement is entered into under
paragraph 3 of Article 26 (Mutual Agreement Procedure).
1) Eligibility of fiscally transparent entities for treaty benefits
Paragraph 2(b) of the Protocol provides:
For purposes of paragraph 1 of Article 4 it is understood that:
* * * * *
b) a partnership, estate, or trust is a resident of a Contracting State only to the extent that the income it derives
is subject to tax in that State as the income of a resident, either in the hands of the partnership, estate or
trust, or in the hands of its partners or beneficiaries;
The Competent Authorities agree that in applying paragraph 2(b) of the Protocol, it is understood that income from sources within
one of the Contracting States received by an entity that is treated as fiscally transparent under the laws of either Contracting State,
will be treated as income derived by a resident of the other Contracting State to the extent that such income is subject to tax
as the income of a resident of the other Contracting State.
For example, if a resident of the United States is a member of a limited liability company (“LLC”) organized in the United States,
and the LLC is treated for U.S. federal tax purposes as a partnership, the resident of the United States would be afforded benefits
of the Treaty on the income that the resident derives from Mexico through the LLC to the extent of the resident’s share of that
income. Similar rules would apply to a resident of the United States that is a shareholder of a U.S. subchapter S Corporation, an
LLC that is disregarded as an entity separate from its owner, or a U.S. grantor trust.
It is understood that Mexican law currently does not provide for any fiscally transparent entities. However, if Mexico were to
introduce legislation that provided for the creation of fiscally transparent entities, then it is intended that income received
by such entity will be treated as income derived by a resident of Mexico to the extent that such income is subject to tax as
the income of a resident of Mexico.
Additionally, Mexico agrees to apply this Agreement with respect to amounts paid to an entity created and subject to the laws of
a third state or jurisdiction only where such third state or jurisdiction has in force a comprehensive exchange of information
agreement as provided in Mexican tax provisions and such information is effectively exchanged. The following is the current
list of countries that Mexico has a comprehensive exchange of information in force. Such a list is published under Mexican
administrative regulations and may be amended from time to time.

2005–41 I.R.B.

692

October 11, 2005

•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•

Belgium
Canada
Korea
Israel
Spain
France
Italy
Norway
Netherlands
Singapore
Sweden
Finland
Chile
Ecuador
Romania
Czech Republic

2) Appropriate procedures for claiming treaty benefits from Mexico
A LLC or other entity organized within or without the United States that is treated as a partnership for U.S. tax purposes may
claim treaty benefits by obtaining a certificate of residence on Form 6166 in the same manner as a partnership. A Form 6166
confirms the filing of Form 1065, U.S. Return of Partnership Income, by the LLC and includes a list of members of the LLC that
are residents of the United States for purposes of U.S. taxation. The Form 6166 will inform the withholding agent to contact the
LLC directly to provide information regarding the allocation of a particular payment to a specific member.
A U.S. resident deriving income through a LLC or other entity organized within or without the United States that is disregarded as
an entity separate from its owner for U.S. tax purposes may claim benefits by obtaining a Form 6166 that provides that the LLC is a
branch, division, or business unit of its single member owner and that such single member owner is a resident of the United States.
A U.S. resident deriving income through a U.S. corporation that has made an election to be treated as an S Corporation for U.S. tax
purposes may claim treaty benefits by obtaining a Form 6166 certificate of residence in a manner similar to that of a partnership.
A Form 6166 confirms the filing of an information return, Form 1120S, U.S. Income Tax Return for an S Corporation, as required
for a domestic S Corporation, and includes a list of shareholders that are residents of United States for purposes of U.S. taxation.
3) Effective dates
Upon signature by both competent authorities, this Agreement is effective with respect to Mexican source payments made
to Mexican or U.S. entities to the extent the Mexican statute of limitations is open for such payments. This Agreement is
effective with respect to Mexican source payments made to entities organized in third countries or jurisdictions identified in the
Agreement as of January 1, 2006.
Agreed to by the undersigned Competent Authorities:

Robert H. Green
U.S. Competent Authority

Ana Bertha Thierry
Mexican Competent Authority

Date

Date

October 11, 2005

693

2005–41 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Elections Under § 362(e)(2)(C) they disclose sufficient information to apNotice 2005–70
This notice provides guidance about
how a valid election under § 362(e)(2)(C)
of the Internal Revenue Code can be made
pending the issuance of additional guidance.
BACKGROUND
Section 362(e) was enacted on October
22, 2004, as part of the American Jobs Creation Act of 2004, Pub. L. No. 108–357,
118 Stat. 1418. Section 362(e)(2)(A) of
the Code generally provides that if property is transferred to a corporation as a
capital contribution or in an exchange to
which § 351 applies and the aggregate
basis of the transferred property exceeds
its aggregate value immediately after the
transaction, then the transferee corporation’s basis in such property shall not exceed the fair market value of such property.
Under § 362(e)(2)(C), however, the transferor and transferee can make a joint election to reduce the transferor’s basis in the
stock received to its fair market value, and
no reduction of the transferee’s basis in the
property received will be required. Section
362(e)(2)(C) provides that the election to
reduce stock basis shall be filed with the
return of tax for the taxable year in which
the transaction occurred, shall be in such
form and manner as the Secretary may prescribe, and, once made, shall be irrevocable. Section 362(e)(2)(A) does not apply, and the election under § 362(e)(2)(C)
is not available, to exchanges subject to
§ 362(e)(1).
The Internal Revenue Service and Treasury Department are studying the issues
raised by § 362(e), including the manner in which the election provided under
§ 362(e)(2)(C) might be made. In particular, the Service and Treasury Department
are considering issuing guidance prescribing a particular form and manner for making the election. In the interim, the Service will treat elections as effective under
§ 362(e)(2)(C) if they are made in the form
and manner of the certification set forth
in this notice. The Service will also treat
other statements on or with returns as effective elections under § 362(e)(2)(C) if

2005–41 I.R.B.

prise the Service that an election has been
made with respect to a particular transaction and by particular parties.
PROCEDURES
If the transferor is not a controlled
foreign corporation (CFC) as defined in
§ 957, the transferor may make a valid
election by including a certification as
described below on or with its tax return
filed by the due date (including extensions) for filing its original return for
the taxable year in which the transaction
occurred. If the transferor is a CFC, its
controlling U.S. shareholder(s), as defined
in § 1.964–1(c)(5) of the Income Tax Regulations, may make a valid election for
the CFC by including a certification as
described below on or with each of their
tax returns filed by the due date(s) (including extensions) for filing their original
returns for the taxable year in which the
transaction occurred.
If the election is made as described below, no election need be filed by the transferee (or any controlling U.S. shareholder
thereof).
If the transferor is not a CFC, the transferor can make the election by providing
the following certification: “[insert name
and tax identification number of the taxpayer filing the return] certifies that [insert name and tax identification number
of transferor] and [insert name and tax
identification number of transferee] make
an election under § 362(e)(2)(C) with respect to a transfer of property described in
§ 362(e)(2)(A) on [insert date(s) of transfer(s)].”
If the transferor is a CFC, its controlling U.S. shareholder(s) can make
the election by providing the following
certification: “[insert name and tax identification number of the taxpayer filing the
return] certifies that [insert name and tax
identification number, if any, of transferor
(the CFC)], the controlling U.S. shareholder(s) of which is (are) [insert name(s)
and tax identification number(s) of the
controlling U.S. shareholder(s)], and [insert name and tax identification number, if
any, of transferee] make an election under
§ 362(e)(2)(C) with respect to a transfer

694

of property described in § 362(e)(2)(A) on
[insert date(s) of transfer(s)].”
The common parent of a consolidated
group of corporations can make the election on behalf of its members.
Taxpayers uncertain of the applicability of § 362(e)(2) to their transaction
may make a protective election, which will
have no effect in the event § 362(e)(2) does
not apply to the transaction, but which will
otherwise be binding and irrevocable.
EFFECTIVE DATE
This notice is effective for all elections
under § 362(e)(2)(C) until further notice.
DRAFTING INFORMATION
The principal author of this notice is
Jay Singer of the Office of Associate
Chief Counsel (Corporate). Taxpayers
with comments or questions about making
an election under § 362(e)(2)(C) should
contact Mr. Singer at (202) 622–7530
(not a toll-free call). Taxpayers with comments or questions about CFCs making
an election under § 362(e)(2)(C) should
contact Christopher Trump of the Office
of Associate Chief Counsel (International)
at (202) 622–3860 (not a toll-free call).
26 CFR 601.201: Rulings and determination letters.
(Also Part I, § 368.)

Rev. Proc. 2005–68
SECTION 1. PURPOSE
This revenue procedure amplifies Rev.
Proc. 2005–1, 2005–1 I.R.B. 1, which
explains how the Service provides advice
to taxpayers on issues under the jurisdiction of the Associate Chief Counsel
(Corporate), the Associate Chief Counsel
(Financial Institutions and Products), the
Associate Chief Counsel (Income Tax and
Accounting), the Associate Chief Counsel
(International), the Associate Chief Counsel (Passthroughs and Special Industries),
the Associate Chief Counsel (Procedure
and Administration), and the Division
Counsel/Associate Chief Counsel (Tax
Exempt and Government Entities).
This revenue procedure also amplifies Rev. Proc. 2005–3, 2005–1 I.R.B.

October 11, 2005

118, which sets forth the areas of the
Internal Revenue Code under the jurisdiction of the Associate Chief Counsel
(Corporate), the Associate Chief Counsel
(Financial Institutions and Products), the
Associate Chief Counsel (Income Tax and
Accounting), the Associate Chief Counsel (Passthroughs and Special Industries),
the Associate Chief Counsel (Procedure
and Administration), and the Division
Counsel/Associate Chief Counsel (Tax
Exempt and Government Entities) relating
to issues on which the Internal Revenue
Service will not issue letter rulings or determination letters.
SECTION 2. BACKGROUND
.01 Current Procedures
Section 7 of Rev. Proc. 2005–1 provides general instructions for requesting
letter rulings and determination letters.
Section 7.02(4) of Rev. Proc. 2005–1
states that the Service ordinarily processes
requests for letter rulings in order of the
date received, and that expedited handling
is granted only in rare and unusual cases.
Section 8.05(1) of Rev. Proc. 2005–1
provides that if a ruling request lacks essential information, the branch representative will tell the taxpayer that the request
will be closed if the Associate does not
receive the information within 21 calendar days from the date the information is
requested, unless an extension of time is
granted.
Section 3.01 of Rev. Proc. 2005–3
outlines specific questions and problems
on which the Internal Revenue Service
will not issue rulings or determination
letters. Section 3.01(31) of Rev. Proc.
2005–3 provides that the Service will
not rule on whether a transaction qualifies under § 332, § 351 or § 1036 for
nonrecognition treatment, or whether it
constitutes a corporate reorganization
within the meaning of § 368(a)(1)(A) (including a transaction that qualifies under
§ 368(a)(1)(A) by reason of § 368(a)(2)(D)
or § 368(a)(2)(E)), § 368(a)(1)(B),
§ 368(a)(1)(C), § 368(a)(1)(E), or
§ 368(a)(1)(F), and whether various consequences (such as nonrecognition and
basis) result from the application of that
section, unless the Service determines that
there is a significant issue that must be
resolved to decide those matters. If the
Service determines that there is a signif-

October 11, 2005

icant issue, and to the extent the transaction is not described in another no-rule
section, the Service will rule on the entire
transaction, and not just the significant
issue. Requests for rulings on whether a
transaction constitutes an acquisitive corporate reorganization within the meaning
of § 368(a)(1)(D) or § 368(a)(1)(G) or
whether a transaction constitutes a corporate distribution under § 355 are not
subject to the significant issue limitation.
Section 3.01(31) of Rev. Proc. 2005–3
further provides that a significant issue is
an issue of law that meets the following
tests: (1) the issue is not clearly and adequately addressed by a statute, regulation,
decision of a court, tax treaty, revenue ruling, revenue procedure, notice, or other authority published in the Internal Revenue
Bulletin; (2) the resolution of the issue is
not essentially free from doubt; and (3) the
issue is legally significant and germane to
determining the major tax consequences of
the transaction.
.02 New Procedures
The significant issue limitation set forth
above is designed to increase the time
available to the Service for processing
letter rulings on transactions that involve
the most difficult issues. Despite this willingness to rule on these transactions, the
Service understands that taxpayers often
execute transactions intended to qualify
as reorganizations under § 368 that involve significant issues and distributions
intended to qualify under § 355 without
submitting letter ruling requests. Based
on numerous comments from taxpayers
and their representatives, the Service has
concluded that this practice is attributable,
in part, to the length of time typically associated with the letter ruling process.
The Service believes that it can better serve taxpayers and more effectively
administer the internal revenue laws by
resolving these issues through the private
letter ruling program. Accordingly, to
encourage taxpayer participation in this
program, Section 7.02(4) of Rev. Proc.
2005–1 is amplified to provide expedited
treatment for letter rulings on transactions intended to meet the requirements
of either § 368 or § 355 for which such
treatment is requested pursuant to this revenue procedure, subject to the restrictions
of Section 3.01(31) of Rev. Proc. 2005–3.
Instead of the typical processing period,
the Service will endeavor to complete and

695

issue letter rulings on these transactions
within ten weeks from receipt of the request. It is the intention of the Service
to process on an expedited basis all letter ruling requests on these transactions,
provided the requirements of this revenue
procedure are met. If these requirements
are not met, the Service will process the
letter ruling request in the usual manner.
If the transaction involves an issue or issues not entirely within the jurisdiction of
the Associate Chief Counsel (Corporate),
the ruling request will be processed in the
usual manner unless each Associate Chief
Counsel having jurisdiction over the transaction agrees to process the ruling request
on the expedited basis provided herein.
Section 8.05(1) of Rev. Proc. 2005–1
is amplified to provide that if an expedited
ruling request lacks essential information,
the branch representative will tell the taxpayer that the information must be submitted within 10 calendar days from the date
of the request for additional information,
unless an extension of time is granted. If
the information is not submitted within 10
calendar days (with any extension) but is
submitted within 21 calendar days (with
any extension), the ruling request will be
processed in the usual manner.
This revenue procedure also clarifies
the term “significant issue,” as defined in
Section 3.01(31) of Rev. Proc. 2005–3,
for all transactions to which the significant
issue requirement applies, including transactions not being considered on an expedited basis.
This is a pilot program that applies
to ruling requests postmarked or, if not
mailed, received after September 14,
2005. This pilot program will be evaluated by the Service periodically.
SECTION 3. REQUEST FOR
COMMENTS
The Service requests comments regarding the pilot program. Comments should
refer to Rev. Proc. 2005–68, and should
be submitted to:
Internal Revenue Service
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044
Attn: CC:PA:RU
Room 5226

2005–41 I.R.B.

or electronically via the Service internet
site at:
[email protected]
(the Service comments e-mail address).
All comments will be available for public
inspection and copying.
SECTION 4. PROCEDURE
.01 Rev. Proc. 2005–1 is amplified by
adding the following sentence to the first
paragraph of section 7.02(4):
Notwithstanding the previous sentence,
expedited handling may be available for
certain transactions intended to qualify as
reorganizations described in § 368 or distributions described in § 355 as provided
in Rev. Proc. 2005–68, Section 4.02.
.02 Rev. Proc. 2005–1 is amplified by
adding the following paragraphs to section
7.02(4):
EXPEDITED LETTER RULING
PROCESS FOR REORGANIZATIONS
AND FOR DISTRIBUTIONS UNDER
SECTION 355: If a taxpayer requests
a letter ruling on whether a transaction
constitutes a reorganization under § 368
or a distribution under § 355 and asks for
expedited handling pursuant to this provision, the Service will grant expedited
handling. If expedited handling is granted,
the Service will endeavor to complete and
issue the letter ruling subject to Section
3.01(3) of Rev. Proc. 2005–3 within ten
weeks after receiving the ruling request. If
the transaction involves an issue or issues
not entirely within the jurisdiction of the
Associate Chief Counsel (Corporate), the
letter ruling request will be processed in
the usual manner, unless each Associate
Chief Counsel having jurisdiction over an
issue in the transaction agrees to process
the letter ruling request on an expedited
basis.
To initiate this process, the taxpayer
must (i) state at the top of the first page of
the request letter: “Expedited Handling is
Requested” and (ii) provide the Associate
Chief Counsel (Corporate) with a copy of
the request letter by facsimile transmission
(fax), without attachments, when the formal request is submitted. The fax copy

2005–41 I.R.B.

should be sent to (202) 622–7707, Attn:
CC:CORP (Expedite). In due course, the
taxpayer must also provide the Associate
Chief Counsel (Corporate) with a draft ruling letter setting forth the relevant facts,
applicable representations, and requested
rulings in a manner consistent with the format used by the Associate Chief Counsel
(Corporate) in similar cases. See section
7.02(3) of Rev. Proc. 2005–1. In addition,
the taxpayer must ensure that the formal
submission of its letter ruling request complies with all of the requirements of Rev.
Proc. 2005–1 (including the requirements
of other applicable guidelines set forth in
Appendix E of Rev. Proc. 2005–1). See
section 8.05(1) of Rev. Proc. 2005–1 for
a modified requirement regarding the submission of additional information. If the
taxpayer does not satisfy the requirements
of this paragraph, the letter ruling request
will not be processed on an expedited basis, but instead will be processed in the
usual manner.
.03 Rev. Proc. 2005–1 is also amplified
by adding the following paragraph to section 8.05(1):
The Service will not endeavor to
process a ruling request on the expedited
basis provided by Rev. Proc. 2005–68,
Section 4.02, unless the branch representative in Associate Chief Counsel (Corporate) receives all requested additional
information within 10 calendar days from
the date of the request for such additional
information, unless an extension of time
is granted. If the information is not provided within 10 calendar days (with any
extension) but is provided within 21 calendar days (with any extension), the letter
ruling request will cease to be processed
on an expedited basis and instead will be
processed in the usual manner.
.04 Rev. Proc. 2005–3 is amplified by
adding the following sentence as the last
sentence in the paragraph entitled “Significant Issue” in section 3.01(31):
An issue of law will be considered not
clearly and adequately addressed by the
authorities above, and its resolution will
not be essentially free from doubt when,
because of concern over a legal issue (as

696

opposed to a factual issue), taxpayer’s
counsel is unable to render an unqualified
opinion on what the tax consequences of
the transaction will be.
SECTION 5. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 2005–1, 2005–1 I.R.B. 1
and Rev. Proc. 2005–3, 2005–1 I.R.B. 118
are amplified.
SECTION 6. EFFECTIVE DATE
This revenue procedure applies to
all ruling requests postmarked or, if not
mailed, received after September 14, 2005.
SECTION 7. PAPERWORK
REDUCTION ACT
The collections of information in this
revenue procedure have been previously
reviewed and approved by the Office of
Management and Budget (OMB) in accordance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545–1522.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
Books or records relating to a collection
of information must be retained as long as
their contents may become material in the
administration of any internal revenue tax
law. Generally tax returns and tax return
information are confidential, as required
by § 6103.
SECTION 8. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Emidio J. Forlini, Jr. of the
Office of Associate Chief Counsel (Corporate). For further information regarding
this revenue procedure, contact Mr. Forlini
at (202) 622–7930 (not a toll-free call).

October 11, 2005

Part IV. Items of General Interest
Notice of Proposed
Rulemaking

SUPPLEMENTARY INFORMATION:

Employer Comparable
Contributions to Health
Savings Accounts Under
Section 4980G

This document contains proposed Pension Excise Tax Regulations (26 CFR part
54) under section 4980G of the Internal
Revenue Code (Code). Under section
4980G of the Code, an excise tax is imposed on an employer that fails to make
comparable contributions to the HSAs of
its employees.
Section 1201 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Act), Public Law
108–173, (117 Stat. 2066, 2003) added
section 223 to the Code to permit eligible
individuals to establish HSAs for taxable
years beginning after December 31, 2003.
Section 4980G was also added to the Code
by the Act. Section 4980G(a) imposes an
excise tax on the failure of an employer
to make comparable contributions to the
HSAs of its employees for a calendar year.
Section 4980G(b) provides that rules and
requirements similar to section 4980E (the
comparability rules for Archer Medical
Savings Accounts (Archer MSAs)) apply
for purposes of section 4980G. Section
4980E(b) imposes an excise tax equal to
35% of the aggregate amount contributed
by the employer to the Archer MSAs of
employees during the calendar year if
an employer fails to make comparable
contributions to the Archer MSAs of its
employees in a calendar year. Therefore,
if an employer fails to make comparable
contributions to the HSAs of its employees during a calendar year, an excise tax
equal to 35% of the aggregate amount
contributed by the employer to the HSAs
of its employees during that calendar year
is imposed on the employer. See Sections 4980G(a) and (b) and 4980E(b). See
also Notice 2004–2, 2004–1 C.B. 269,
Q & A–32.

REG–138647–04
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains
proposed regulations providing guidance
on employer comparable contributions to
Health Savings Accounts (HSAs) under
section 4980G. In general, these proposed
regulations would affect employers that
contribute to employees’ HSAs.
DATES: Written or electronic comments
and requests for a public hearing must be
received by November 25, 2005.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–138647–04), room
5203, Internal Revenue Service, POB
7604, Ben Franklin Station, Washington, DC 20044. Submissions may be
hand delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to CC:PA:LPD:PR (REG–138647–04),
Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW,
Washington, DC. Alternatively, taxpayers may submit comments electronically via the IRS Internet site at
www.irs.gov/regs or via the Federal eRulemaking Portal at www.regulations.gov
(IRS - REG–138647–04).
FOR
FURTHER
INFORMATION
CONTACT: Concerning the proposed
regulations, Barbara E. Pie at (202)
622–6080; concerning submissions of
comments or a request for a public hearing, Kelly Banks at (202) 622–7180 (not
toll-free numbers).

October 11, 2005

Background

Explanation of Provisions
Overview
The proposed regulations clarify and
expand on the guidance regarding the

697

comparability rules published in Notice
2004–2 and in Notice 2004–50, 2004–2
C.B. 196, Q & A–46 through Q & A–54.
I. Comparable Contributions in General
An employer is not required to contribute to the HSAs of its employees.
However, in general, if an employer makes
contributions to any employee’s HSA, the
employer must make comparable contributions to the HSAs of all comparable
participating employees.
Comparable
participating employees are eligible individuals (as defined in section 223(c)(1))
who have the same category of high deductible health plan (HDHP) coverage.
The categories of coverage are self-only
HDHP coverage and family HDHP coverage.
These proposed regulations incorporate
the rule in Notice 2004–2, Q & A–32 that
contributions are comparable if they are either the same amount or the same percentage of the deductible for employees who
are eligible individuals with the same category of coverage. An employer is not
required to contribute the same amount
or the same percentage of the deductible
for employees who are eligible individuals with self-only HDHP coverage that it
contributes for employees who are eligible
individuals with family HDHP coverage.
An employer that satisfies the comparability rules by contributing the same amount
to the HSAs of all employees who are
eligible individuals with self-only HDHP
coverage is not required to contribute any
amount to the HSAs of employees who
are eligible individuals with family HDHP
coverage, or to contribute the same percentage of the family HDHP deductible
as the amount contributed with respect to
self-only HDHP coverage. Similarly, an
employer that satisfies the comparability
rules by contributing the same amount to
the HSAs of all employees who are eligible
individuals with family HDHP coverage
is not required to contribute any amount
to the HSAs of employees who are eligible individuals with self-only HDHP coverage, or to contribute the same percentage

2005–41 I.R.B.

of the self-only HDHP deductible as the
amount contributed with respect to family
HDHP coverage.
II. Calculating Comparable Contributions
The proposed regulations clarify that
contributions to the HSAs of certain individuals are not taken into account in determining whether an employer’s contributions to the HSAs of its employees satisfy the comparability rules. Specifically,
contributions to the HSAs of independent
contractors, sole proprietors, and partners
in a partnership are not taken into account
under the comparability rules. In addition, the comparability rules do not apply
to amounts rolled over from an employee’s
HSA or Archer MSA or to after-tax employee contributions.
The proposed regulations also clarify that the categories of employees for
comparability testing are current full-time
employees, current part-time employees,
and former employees (except for former
employees with coverage under the employer’s HDHP because of an election
under a COBRA continuation provision
(as defined in section 9832(d)(1)). The
proposed regulations provide that the
comparability rules apply separately to
each of the categories of employees. If
an employer contributes to the HSA of
any employee in a category of employees,
the employer must make comparable contributions to the HSAs of all comparable
participating employees within that category. Therefore, the comparability rules
apply to a category of employees only if
an employer contributes to the HSA of any
employee within the category. For example, an employer that makes comparable
contributions to the HSAs of all full-time
employees who are eligible individuals
but does not contribute to the HSA of any
employee who is not a full-time employee,
satisfies the comparability rules.
The categories of employees set forth
in these proposed regulations are the exclusive categories for comparability testing. An employer must make comparable contributions to the HSAs of all comparable participating employees (eligible
individuals who are in the same category
of employees with the same category of
HDHP coverage) during the calendar year
without regard to any classification other
than these categories. Therefore, the com-

2005–41 I.R.B.

parability rules do not apply separately to
groups of collectively bargained employees. While the comparability rules apply
separately to part-time employees, there is
no similar rule permitting separate application of the comparability rules to collectively bargained employees. Neither section 4980E nor section 4980G provides
an exception to the comparability rules
for collectively bargained employees. Accordingly, an employer must make comparable contributions to the HSAs of all
comparable participating employees, both
those who are covered under a collective
bargaining agreement and those who are
not covered. Similarly, the comparability
rules do not apply separately to management and non-management employees.
The proposed regulations also provide
that the comparability rules apply separately to employees who have HSAs and
employees who have Archer MSAs. However, if an employee has both an HSA and
an Archer MSA, the employer may contribute to either the HSA or the Archer
MSA, but not to both.
The proposed regulations incorporate
the rule set forth in Q & A–53 of Notice 2004–50, which provides that if an
employer limits HSA contributions to
employees who are eligible individuals
with coverage under an HDHP provided
by the employer, the employer is not required to make comparable contributions
to the HSAs of employees who are eligible individuals with coverage under
an HDHP not provided by the employer.
However, if an employer contributes to
the HSAs of employees who are eligible individuals with coverage under any
HDHP, in addition to the HDHPs provided
by the employer, the employer is required
to make comparable contributions to the
HSAs of all comparable participating employees whether or not covered under the
employer’s HDHP. The proposed regulations also provide that similar rules apply
to employer contributions to the HSAs of
former employees. For example, if an employer limits HSA contributions to former
employees who are eligible individuals
with coverage under an HDHP provided
by the employer, the employer is not required to make comparable contributions
to the HSAs of former employees who are
eligible individuals with coverage under
an HDHP not provided by the employer.
However, if an employer contributes to

698

the HSAs of former employees who are
eligible individuals with coverage under
the employer’s HDHP, the employer is
not required to make comparable contributions to the HSAs of former employees
who are eligible individuals with coverage under the employer’s HDHP because
of an election under a COBRA continuation provision (as defined in section
9832(d)(1)).
The proposed regulations also incorporate the rule set forth in Q & A–46
of Notice 2004–50, which provides that
the comparability rules will not be satisfied if an employer makes HSA contributions in an amount equal to an employee’s
HSA contribution or a percentage of the
employee’s HSA contribution (matching
contributions) because if all comparable
participating employees do not contribute
the same amount to their HSAs, they will
not receive comparable contributions to
their HSAs. In addition, the comparability
rules will not be satisfied if an employer
conditions contributions to an employee’s
HSA on an employee’s participation in
health assessments, disease management
programs or wellness programs because if
all comparable participating employees do
not elect to participate in all the programs,
they will not receive comparable contributions to their HSAs. See Q & A–48 of
Notice 2004–50. Similarly, the comparability rules will not be satisfied if an employer makes additional contributions to
the HSAs of all comparable participating
employees who have attained a specified
age or who have worked for the employer
for a specified number of years, because
if all comparable participating employees
do not meet the age or length of service
requirement, they will not receive comparable contributions to their HSAs. See
Q & A–50 of Notice 2004–50.
III. Procedures for Making Comparable
Contributions
The proposed regulations provide that
in determining whether the comparability
rules are satisfied, an employer must take
into account all full-time and part-time employees who were eligible individuals for
any month during the calendar year. An
employee is an eligible individual if as of
the first day of the month the employee
meets all of the requirements set forth in
section 223(c). An employer may comply

October 11, 2005

with the comparability rules by contributing amounts at one or more times for the
calendar year to the HSAs of employees
who are eligible individuals, if contributions are the same amount or the same percentage of the HDHP deductible for employees who are eligible individuals with
the same category of coverage and are
made at the same time (contributions on a
pay-as-you-go basis).
An employer may also satisfy the
comparability rules by determining comparable contributions for the calendar year
at the end of the calendar year, taking into
account all employees who were eligible
individuals for any month during the calendar year and contributing the correct
amount (a percentage of the HDHP deductible or a specified dollar amount for
the same categories of coverage) to the
employees’ HSAs by April 15th of the following year (contributions on a look-back
basis).
If an employer makes comparable HSA
contributions on a pay-as-you-go basis, it
must do so for each comparable participating employee who is an employee during
the time period used to make contributions.
For example, if an employer makes HSA
contributions each pay period, it must do
so for each comparable participating employee who is an employee during the pay
period. If an employer makes comparable contributions on a look-back basis, it
must do so for each employee who was
a comparable participating employee for
any month during the calendar year.
In addition, an employer may make all
of its contributions to the HSAs of employees who are eligible individuals at the beginning of the calendar year (contributions
on a pre-funded basis). An employer that
makes comparable HSA contributions on a
pre-funded basis will not fail to satisfy the
comparability rules because an employee
who terminates employment prior to the
end of the calendar year has received more
HSA contributions on a monthly basis than
employees who worked the entire calendar
year. If an employer makes HSA contributions on a pre-funded basis, it must do so
for all employees who are comparable participating employees at the beginning of
the calendar year. An employer that makes
HSA contributions on a pre-funded basis
must make comparable HSA contributions
for all employees who are comparable participating employees for any month dur-

October 11, 2005

ing the calendar year, including employees
hired after the date of initial funding.
If an employee has not established an
HSA at the time the employer funds its
employee’s HSAs, the employer complies
with the comparability rules by contributing comparable amounts to the employee’s
HSA when the employee establishes the
HSA, taking into account each month that
the employee was a comparable participating employee. However, an employer is
not required to make comparable contributions for a calendar year to an employee’s
HSA if the employee has not established
an HSA by December 31st of the calendar
year.
The proposed regulations provide that
if an employer determines that the comparability rules are not satisfied for a calendar
year, the employer may not recoup from
an employee’s HSA any portion of the
employer’s contribution to the employee’s
HSA because under section 223(d)(1)(E),
an account beneficiary’s interest in an
HSA is nonforfeitable. However, an employer may make additional HSA contributions to satisfy the comparability rules.
An employer may contribute up until April
15th following the calendar year in which
the non-comparable contributions were
made. An employer that makes additional
HSA contributions to correct non-comparable contributions must also contribute
reasonable interest.
IV. Exception to the Comparability Rules
for Cafeteria Plans
The legislative history of the Act states
that the comparability rules do not apply
to HSA contributions that an employer
makes through a cafeteria plan. See Conf.
Rep. No. 391, 108th Cong., 1st Sess.
843 (2003), 2004 U.S.C.C.A.N. 1808.
See also Notice 2004–2, Q & A–32. The
nondiscrimination rules in section 125
of the Code apply to HSA contributions
(including matching contributions) made
through a cafeteria plan. Generally, a cafeteria plan is a written plan under which
all participants are employees and participants may choose among two or more
benefits consisting of cash and qualified
benefits. Unlike the cafeteria plan nondiscrimination rules, the comparability rules
are not based upon discrimination in favor
of highly compensated or key employees.
Therefore, an employer that maintains an

699

HDHP only for highly compensated or key
employees and makes HSA contributions
through a cafeteria plan only for those
eligible employees, does not violate the
comparability rules, but may violate the
cafeteria plan nondiscrimination rules.
V. Waiver of Excise Tax
In the case of a failure which is due to
reasonable cause and not to willful neglect,
all or a portion of the excise tax imposed
under section 4980G may be waived to the
extent that the payment of the tax would be
excessive relative to the failure involved.
See sections 4980G(b) and 4980E(c).
Proposed Effective Date
It is proposed that these regulations apply to employer contributions made on or
after the date the final regulations are published in the Federal Register. However,
taxpayers may rely on these regulations for
guidance pending the issuance of final regulations.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory assessment is not required. It also has been
determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations.
This notice of proposed rulemaking does
not impose a collection of information on
small entities, thus the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the
Code, these proposed regulations will be
submitted to the Chief Counsel for Advocacy of the Small Business Administration
for comment on its impact on small business.
Comments and Requests for Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written comments (a
signed original and eight (8) copies) or
electronic comments that are submitted
timely to the IRS. The Treasury Department and the IRS specifically request
comments on the clarity of the proposed
rules and how they can be made easier

2005–41 I.R.B.

to understand. In addition, comments
are requested on the application of the
comparability rules to employees who
are on leave pursuant to the Family and
Medical Leave Act of 1993, Public Law
103–3, (107 Stat. 6, 1993, 29 U.S.C. 2601
et seq.). Comments are also requested
concerning employer matching HSA contributions made through a cafeteria plan.
Specifically, whether the ratio of an employer’s matching HSA contributions to
an employee’s salary reduction HSA contributions should be limited, and whether
employer matching contributions exceeding a specific limit should be subject to
the section 4980G comparability rules.
All comments will be available for public
inspection and copying. A public hearing
will be scheduled if requested in writing
by any person that timely submits written
comments.

§54.4980G–3,
§54.4980G–5.

Drafting Information

Q–1. Do the comparability rules apply
to amounts rolled over from an employee’s
HSA or Archer Medical Savings Account
(Archer MSA)?
Q–2. If an employee requests that his
or her employer deduct after-tax amounts
from the employee’s compensation and
forward these amounts as employee contributions to the employee’s HSA, do
the comparability rules apply to these
amounts?

The principal author of these proposed
regulations is Barbara E. Pie, Office of
Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities), Internal Revenue Service. However,
personnel from other offices of the IRS and
Treasury Department participated in their
development.
*****

§54.4980G–4,

and

§54.4980G–1 Failure of employer to
make comparable health savings account
contributions.
Q–1. What are the comparability rules
that apply to employer contributions to
Health Savings Accounts (HSAs)?
Q–2. What are the categories of HDHP
coverage for purposes of applying the
comparability rules?
Q–3. What is the testing period for
making comparable contributions to employees’ HSAs?
Q–4. How is the excise tax computed if
employer contributions do not satisfy the
comparability rules for a calendar year?
§54.4980G–2 Employer contribution
defined.

Proposed Amendment to the
Regulations

§54.4980G–3 Definition of employee for
comparability testing.

Accordingly, 26 CFR part 54 is proposed to be amended as follows:

Q–1. Do the comparability rules apply
to contributions that an employer makes to
the HSAs of independent contractors?
Q–2. May a sole proprietor who is
an eligible individual contribute to his or
her own HSA without contributing to the
HSAs of his or her employees who are eligible individuals?
Q–3. Do the comparability rules apply
to contributions by a partnership to a partner’s HSA?
Q–4. How are members of controlled
groups treated when applying the comparability rules?
Q–5. What are the categories of employees for comparability testing?
Q–6. Is an employer permitted to
make comparable contributions only to
the HSAs of comparable participating
employees who have coverage under the
employer’s HDHP?

PART 54—PENSION EXCISE TAXES
Paragraph 1. The authority citation for
part 54 is amended by adding an entry in
numerical order to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Sections 54.4980G–0, 54.4980G–1,
54.4980G–2, 54.4980G–3, 54.4980G–4,
and 54.4980G–5 also issued under 26
U.S.C. 4980G. * * *
Paragraph 2. Sections 54.4980G–0,
54.4980G–1, 54.4980G–2, 54.4980G–3,
54.4980G–4, and 54.4980G–5 are added
to read as follows:
§54.4980G–0 Table of contents
This section contains the questions for §54.4980G–1, §54.4980G–2,

2005–41 I.R.B.

700

Q–7. If an employee and his or her
spouse are eligible individuals who work
for the same employer and one employeespouse has family coverage for both employees under the employer’s HDHP, must
the employer make comparable contributions to the HSAs of both employees?
Q–8. Does an employer that makes
HSA contributions only for non-management employees who are eligible individuals, but not for management employees
who are eligible individuals or that makes
HSA contributions only for management
employees who are eligible individuals but
not for non-management employees who
are eligible individuals satisfy the requirement that the employer make comparable
contributions?
Q–9. If an employer contributes to the
HSAs of former employees who are eligible individuals, do the comparability rules
apply to these contributions?
Q–10. Is an employer permitted to
make comparable contributions only to the
HSAs of comparable participating former
employees who have coverage under the
employer’s HDHP?
Q–11. If an employer contributes only
to the HSAs of former employees who
are eligible individuals with coverage under the employer’s HDHP, must the employer make comparable contributions to
the HSAs of former employees who are
eligible individuals with coverage under
the employer’s HDHP because of an election under a COBRA continuation provision (as defined in section 9832(d)(1))?
Q–12. How do the comparability rules
apply if some employees have HSAs and
other employees have Archer MSAs?
§54.4980G–4 Calculating comparable
contributions.
Q–1. What are comparable contributions?
Q–2. How do the comparability rules
apply to employer contributions to employees’ HSAs if some employees work
full-time during the entire calendar year,
and other employees work full-time for
less than the entire calendar year?
Q–3. How does an employer comply
with the comparability rules when some
employees who are eligible individuals do
not work for the employer during the entire
calendar year?

October 11, 2005

Q–4. May an employer make all of
its contributions to the HSAs of its employees who are eligible individuals at the
beginning of the calendar year (i.e., on a
pre-funded basis) instead of contributing
on a pay-as-you-go or on a look-back basis?
Q–5. Must an employer use the same
contribution method as described in
Q & A–3 and Q & A–4 of this section
for all employees who were comparable
participating employees for any month
during the calendar year?
Q–6. How does an employer comply with the comparability rules if an employee has not established an HSA at the
time the employer contributes to its employees’ HSAs?
Q–7. If an employer bases its contributions on a percentage of the HDHP deductible, how is the correct percentage or
dollar amount computed?
Q–8. Does an employer that contributes
to the HSA of each comparable participating employee in an amount equal to
the employee’s HSA contribution or a percentage of the employee’s HSA contribution (matching contributions) satisfy the
rule that all comparable participating employees receive comparable contributions?
Q–9. If an employer conditions contributions by the employer to an employee’s
HSA on an employee’s participation in
health assessments, disease management
programs or wellness programs and makes
the same contributions available to all employees who participate in the programs,
do the contributions satisfy the comparability rules?
Q–10. If an employer makes additional
contributions to the HSAs of all comparable participating employees who have attained a specified age or who have worked
for the employer for a specified number of
years, do the contributions satisfy the comparability rules?
Q–11. If an employer makes additional contributions to the HSAs of all
comparable participating employees who
qualify for the additional contributions
(HSA catch-up contributions) under section 223(b)(3), do the contributions satisfy
the comparability rules?
Q–12. If an employer’s contributions
to an employee’s HSA result in non-comparable contributions, may the employer
recoup the excess amount from the employee’s HSA?

October 11, 2005

§54.4980G–5 HSA comparability rules
and cafeteria plans and waiver of excise
tax.
Q–1. If an employer makes contributions through a section 125 cafeteria plan
to the HSA of each employee who is an eligible individual are the contributions subject to the comparability rules?
Q–2. If an employer makes contributions through a cafeteria plan to the HSA
of each employee who is an eligible individual in an amount equal to the amount of
the employee’s HSA contribution or a percentage of the amount of the employee’s
HSA contribution (i.e., matching contributions), are the contributions subject to the
section 4980G comparability rules?
Q–3. If an employer provides HDHP
coverage through a cafeteria plan, but the
employer’s HSA contributions are not provided through the cafeteria plan, do the
cafeteria plan nondiscrimination rules or
the comparability rules apply to the HSA
contributions?
Q–4. If under the employer’s cafeteria plan, employees who are eligible individuals and who participate in health assessments, disease management programs
or wellness programs receive an employer
contribution to an HSA, unless the employees elect cash, are the contributions
subject to the comparability rules?
Q–5. May all or part of the excise tax
imposed under section 4980G be waived?
§54.4980G–1 Failure of employer to
make comparable health savings account
contributions.
Q–1. What are the comparability rules
that apply to employer contributions to
Health Savings Accounts (HSAs)?
A–1. If an employer makes contributions to any employee’s HSA, the
employer must make comparable contributions to the HSAs of all comparable
participating employees. See Q & A–1
in §54.4980G–4 for the definition of
comparable contributions. Comparable
participating employees are eligible individuals (as defined in section 223(c)(1))
who have the same category of high deductible health plan (HDHP) coverage.
See sections 4980G(b) and 4980E(d)(3).
See section 223(c)(2) and (g) for the definition of an HDHP. See also Q & A–5
in §54.4980G–3 for the categories of em-

701

ployees and Q & A–2 in this section for
the categories of HDHP coverage.
Q–2. What are the categories of HDHP
coverage for purposes of applying the
comparability rules?
A–2. The categories of coverage are
self-only HDHP coverage and family
HDHP coverage. See sections 4980G(b)
and 4980E(d)(3)(B).
Q–3. What is the testing period for
making comparable contributions to employees’ HSAs?
A–3. To satisfy the comparability
rules, an employer must make comparable
contributions for the calendar year to the
HSAs of employees who are comparable participating employees. See section
4980G(a).
Q–4. How is the excise tax computed if
employer contributions do not satisfy the
comparability rules for a calendar year?
A–4. (a) Computation of tax. If employer contributions do not satisfy the
comparability rules for a calendar year,
the employer is subject to an excise tax
equal to 35% of the aggregate amount
contributed by the employer to HSAs for
that period.
(b) Example. The following example
illustrates the rules in paragraph (a) of this
Q & A–4:
Example. In this Example, assume that the HDHP
provided by Employer A satisfies the definition of an
HDHP for the 2007 calendar year. During the 2007
calendar year, Employer A has 8 employees who are
eligible individuals with self-only coverage under an
HDHP provided by Employer A. The deductible for
the HDHP is $2,000. For the 2007 calendar year,
Employer A contributes $2,000 each to the HSAs
of two employees and $1,000 each to the HSAs of
the other six employees, for total HSA contributions
of $10,000. Employer A’s contributions do not satisfy the comparability rules. Therefore, Employer
A is subject to an excise tax of $3,500 (i.e., 35% x
$10,000) for its failure to make comparable contributions to its employees’ HSAs.

§54.4980G–2 Employer contribution
defined.
Q–1. Do the comparability rules apply
to amounts rolled over from an employee’s
HSA or Archer Medical Savings Account
(Archer MSA)?
A–1. No. The comparability rules do
not apply to amounts rolled over from an
employee’s HSA or Archer MSA.
Q–2. If an employee requests that his
or her employer deduct after-tax amounts
from the employee’s compensation and
forward these amounts as employee con-

2005–41 I.R.B.

tributions to the employee’s HSA, do
the comparability rules apply to these
amounts?
A–2. No. Section 106(d) provides that
amounts contributed by an employer to an
eligible employee’s HSA shall be treated
as employer-provided coverage for medical expenses and are excludible from the
employee’s gross income up to the limit in
section 223(b). After-tax employee contributions to an HSA are not subject to
the comparability rules because they are
not employer contributions under section
106(d).
§54.4980G–3 Definition of employee for
comparability testing.
Q–1. Do the comparability rules apply
to contributions that an employer makes to
the HSAs of independent contractors?
A–1. No. The comparability rules apply only to contributions that an employer
makes to the HSAs of employees.
Q–2. May a sole proprietor who is
an eligible individual contribute to his or
her own HSA without contributing to the
HSAs of his or her employees who are eligible individuals?
A–2. (a) Sole proprietor not an employee. Yes. The comparability rules apply only to contributions made by an employer to the HSAs of employees. Because
a sole proprietor is not an employee, the
comparability rules do not apply to contributions he or she makes to his or her
own HSA. However, if a sole proprietor
contributes to any employee’s HSA, he or
she must make comparable contributions
to the HSAs of all comparable participating employees. In determining whether
the comparability rules are satisfied, contributions that a sole proprietor makes to
his or her own HSA are not taken into account.
(b) Example. The following example
illustrates the rules in paragraph (a) of this
Q & A–2:
Example. In a calendar year, B, a sole proprietor
is an eligible individual and contributes $1,000 to B’s
own HSA. B also contributes $500 for the same calendar year to the HSA of each employee who is an
eligible individual. The comparability rules are not
violated by B’s $1,000 contribution to B’s own HSA.

Q–3. Do the comparability rules apply
to contributions by a partnership to a partner’s HSA?
A–3. (a) Partner not an employee. No.
Contributions by a partnership to a bona

2005–41 I.R.B.

fide partner’s HSA are not subject to the
comparability rules because the contributions are not contributions by an employer
to the HSA of an employee. The contributions are treated as either guaranteed payments under section 707(c) or distributions
under section 731. However, if a partnership contributes to the HSAs of employees who are not partners, the comparability rules apply to those contributions.
(b) Example. The following example
illustrates the rules in paragraph (a) of this
Q & A–3:
Example. (i) Partnership X is a limited partnership with three equal individual partners, A (a general partner), B (a limited partner), and C (a limited
partner). C is to be paid $300 annually for services
rendered to Partnership X in her capacity as a partner without regard to partnership income (a section
707(c) guaranteed payment). D and E are the only
employees of Partnership X and are not partners in
Partnership X. A, B, C, D, and E are eligible individuals and each has an HSA. During Partnership X’s Year
1 taxable year, which is also a calendar year, Partnership X makes the following contributions—
(A) A $300 contribution to each of A’s and B’s
HSAs which are treated as section 731 distributions
to A and B;
(B) A $300 contribution to C’s HSA in lieu of
paying C the guaranteed payment directly; and
(C) A $200 contribution to each of D’s and E’s
HSAs, who are comparable participating employees.
(ii) Partnership X’s contributions to A’s and B’s
HSAs are section 731 distributions, which are treated
as cash distributions. Partnership X’s contribution
to C’s HSA is treated as a guaranteed payment under section 707(c). The contribution is not excludible
from C’s gross income under section 106(d) because
the contribution is treated as a distributive share of
partnership income for purposes of all Code sections
other than sections 61(a) and 162(a), and a guaranteed payment to a partner is not treated as compensation to an employee. Thus, Partnership X’s contributions to the HSAs of A, B, and C are not subject to the
comparability rules. Partnership X’s contributions to
D’s and E’s HSAs are subject to the comparability
rules because D and E are employees of Partnership
X and are not partners in Partnership X. Partnership
X’s contributions satisfy the comparability rules.

Q–4. How are members of controlled
groups treated when applying the comparability rules?
A–4. All persons or entities treated as a
single employer under section 414(b), (c),
(m), or (o) are treated as one employer. See
sections 4980G(b) and 4980E(e).
Q–5. What are the categories of employees for comparability testing?
A–5. (a) Categories. The categories of
employees for comparability testing are as
follows—
(1) Current full-time employees;
(2) Current part-time employees; and

702

(3) Former employees (except for former employees with coverage under the
employer’s HDHP because of an election
under a COBRA continuation provision
(as defined in section 9832(d)(1)).
(b) Part-time and full-time employees. Part-time employees are customarily
employed for fewer than 30 hours per
week and full-time employees are customarily employed for 30 or more hours
per week. See sections 4980G(b) and
4980E(d)(4)(A) and (B).
(c) In general. The categories of employees in paragraph (a) of this Q & A–5
are the exclusive categories for comparability testing. An employer must make
comparable contributions to the HSAs
of all comparable participating employees (eligible individuals who are in the
same category of employees with the
same category of HDHP coverage) during
the calendar year without regard to any
classification other than these categories.
Thus, the comparability rules do not apply
separately to collectively bargained and
non-collectively bargained employees.
Similarly, the comparability rules do not
apply separately to groups of collectively
bargained employees.
Q–6. Is an employer permitted to
make comparable contributions only to
the HSAs of comparable participating
employees who have coverage under the
employer’s HDHP?
A–6. (a) Employer-provided HDHP
coverage. If during a calendar year, an
employer contributes to the HSA of any
employee who is an eligible individual
covered under an HDHP provided by
the employer, the employer is required
to make comparable contributions to the
HSAs of all comparable participating employees with coverage under any HDHP
provided by the employer. An employer
that contributes only to the HSAs of employees who are eligible individuals with
coverage under the employer’s HDHP is
not required to make comparable contributions to HSAs of employees who are
eligible individuals but are not covered
under the employer’s HDHP. However,
an employer that contributes to the HSA
of any employee who is an eligible individual with coverage under any HDHP, in
addition to the HDHPs provided by the
employer, must make comparable contributions to the HSAs of all comparable

October 11, 2005

participating employees whether or not
covered under the employer’s HDHP.
(b) Examples. The following examples
illustrate the rules in paragraph (a) of this
Q & A–6:

amounts in excess of the annual contribution limits in section 223(b).
(b) Examples. The following examples
illustrate the rules in paragraph (a) of this
Q & A–7:

Example 1. In a calendar year, Employer C offers
an HDHP to its full-time employees. Most full-time
employees are covered under Employer C’s HDHP
and Employer C makes comparable contributions
only to these employees’ HSAs. Employee W, a
full-time employee of Employer C and an eligible
individual, is covered under an HDHP provided by
W’s spouse’s employer and not under Employer C’s
HDHP. Employer C is not required to make comparable contributions to W’s HSA.
Example 2. In a calendar year, Employer D does
not offer an HDHP. Several full-time employees, who
are eligible individuals, have HSAs. Employer D
contributes to these employees’ HSAs. Employer D
must make comparable contributions to the HSAs of
all full-time employees who are eligible individuals.
Example 3. In a calendar year, Employer E offers
an HDHP to its full-time employees. Most full-time
employees are covered under Employer E’s HDHP
and Employer E makes comparable contributions
to these employees’ HSAs and also to the HSAs of
full-time employees who are eligible individuals and
who are not covered under Employer E’s HDHP.
Employee H, a full-time employee of Employer E
and a comparable participating employee, is covered
under an HDHP provided by H’s spouse’s employer
and not under Employer E’s HDHP. Employer E
must make comparable contributions to H’s HSA.

Example 1. In a calendar year, Employer F offers
an HDHP to its full-time employees. Most full-time
employees are covered under Employer F’s HDHP
and Employer F makes comparable contributions
only to these employees’ HSAs. Employee H, a
full-time employee of Employer F and an eligible
individual has family coverage under Employer F’s
HDHP for H and H’s spouse, Employee W, who
is also a full-time employee of Employer F and an
eligible individual. Employer F is required to make
comparable contributions to H’s HSA, but is not
required to make comparable contributions to W’s
HSA.
Example 2. In a calendar year, Employer G offers
an HDHP to its full-time employees. Most full-time
employees are covered under Employer G’s HDHP
and Employer G makes comparable contributions to
these employees’ HSAs and to the HSAs of full-time
employees who are eligible individuals but are not
covered under Employer G’s HDHP. Employee W,
a full-time employee of Employer G and an eligible
individual, has family coverage under Employer G’s
HDHP for W and W’s spouse, Employee H, who is
also a full-time employee of Employer G and an eligible individual. Employer G must make comparable
contributions to W’s HSA and to H’s HSA.

Q–7. If an employee and his or her
spouse are eligible individuals who work
for the same employer and one employeespouse has family coverage for both employees under the employer’s HDHP, must
the employer make comparable contributions to the HSAs of both employees?
A–7. (a) In general. If the employer
makes contributions only to the HSAs of
employees who are eligible individuals
covered under its HDHP, the employer is
not required to contribute to the HSAs of
both employee-spouses. The employer
is required to contribute to the HSA of
the employee-spouse with coverage under the employer’s HDHP, but is not
required to contribute to the HSA of the
employee-spouse covered under the employer’s HDHP by virtue of his or her
spouse’s coverage. However, if the employer contributes to the HSA of any employee who is an eligible individual with
coverage under any HDHP, the employer
must make comparable contributions to
the HSAs of both employee-spouses if
they are both eligible individuals. If an
employer is required to contribute to the
HSAs of both employee-spouses, the
employer is not required to contribute

October 11, 2005

Q–8. Does an employer that makes
HSA contributions only for non-management employees who are eligible individuals, but not for management employees
who are eligible individuals or that makes
HSA contributions only for management
employees who are eligible individuals but
not for non-management employees who
are eligible individuals satisfy the requirement that the employer make comparable
contributions?
A–8. (a) Management v. non-management. No. If management employees
and non-management employees are comparable participating employees, the comparability rules are not satisfied. However, if non-management employees are
comparable participating employees and
management employees are not comparable participating employees, the comparability rules may be satisfied. But see
Q & A–1 in §54.4980G–5 on contributions
made through a cafeteria plan.
(b) Examples. The following examples
illustrate the rules in paragraph (a) of this
Q & A–8:
Example 1. In a calendar year, Employer H
maintains an HDHP covering all management and
non-management employees. Employer H contributes $1,000 for the calendar year to the HSA of
each non-management employee who is an eligible
individual covered under its HDHP. Employer H

703

does not contribute to the HSAs of any of its management employees who are eligible individuals
covered under its HDHP. The comparability rules are
not satisfied.
Example 2. In a calendar year, Employer J maintains an HDHP for non-management employees only.
Employer J does not maintain an HDHP for its management employees. Employer J contributes $1,000
for the calendar year to the HSA of each non-management employee who is an eligible individual with
coverage under its HDHP. Employer J does not contribute to the HSAs of any of its non-management employees not covered under its HDHP or to the HSAs
of any of its management employees. The comparability rules are satisfied.
Example 3. In a calendar year, Employer K
maintains an HDHP for management employees
only. Employer K does not maintain an HDHP for
its non-management employees. Employer K contributes $1,000 for the calendar year to the HSA of
each management employee who is an eligible individual with coverage under its HDHP. Employer K
does not contribute to the HSAs of any of its management employees not covered under its HDHP or to
the HSAs of any of its non-management employees.
The comparability rules are satisfied.

Q–9. If an employer contributes to the
HSAs of former employees who are eligible individuals, do the comparability rules
apply to these contributions?
A–9. (a) Former employees. Yes. The
comparability rules apply to contributions
an employer makes to former employees’
HSAs. Therefore, if an employer contributes to any former employee’s HSA,
it must make comparable contributions to
the HSAs of all comparable participating
former employees (former employees who
are eligible individuals with the same category of HDHP coverage). However, an
employer is not required to make comparable contributions to the HSAs of former employees with coverage under the
employer’s HDHP because of an election
under a COBRA continuation provision
(as defined in section 9832(d)(1)). See
Q & A–5 and Q & A–11 in this section.
The comparability rules apply separately
to former employees because they are a
separate category of covered employee.
See Q & A–5 in this section.
(b) Examples. The following examples
illustrate the rules in paragraph (a) of this
Q & A–9:
Example 1. In a calendar year, Employer L contributes $1,000 for the calendar year to the HSA of
each current employee who is an eligible individual
with coverage under any HDHP. Employer L does
not contribute to the HSA of any former employee
who is an eligible individual. Employer L’s contributions satisfy the comparability rules.
Example 2. In a calendar year, Employer M contributes to the HSAs of current employees and former

2005–41 I.R.B.

employees who are eligible individuals covered under any HDHP. Employer M contributes $750 to the
HSA of each current employee with self-only HDHP
coverage and $1,000 to the HSA of each current employee with family HDHP coverage. Employer M
also contributes $300 to the HSA of each former employee with self-only HDHP coverage and $400 to
the HSA of each former employee with family HDHP
coverage. Employer M’s contributions satisfy the
comparability rules.

Q–10. Is an employer permitted to
make comparable contributions only to the
HSAs of comparable participating former
employees who have coverage under the
employer’s HDHP?
A–10. If during a calendar year, an
employer contributes to the HSA of any
former employee who is an eligible individual covered under an HDHP provided
by the employer, the employer is required
to make comparable contributions to the
HSAs of all former employees who are
comparable participating former employees with coverage under any HDHP provided by the employer. An employer that
contributes only to the HSAs of former
employees who are eligible individuals with coverage under the employer’s
HDHP is not required to make comparable contributions to the HSAs of former
employees who are eligible individuals
and who are not covered under the employer’s HDHP. However, an employer
that contributes to the HSA of any former
employee who is an eligible individual
with coverage under any HDHP, even if
that coverage is not the employer’s HDHP,
must make comparable contributions to
the HSAs of all former employees who
are eligible individuals whether or not
covered under an HDHP of the employer.
Q–11. If an employer contributes only
to the HSAs of former employees who
are eligible individuals with coverage under the employer’s HDHP, must the employer make comparable contributions to
the HSAs of former employees who are
eligible individuals with coverage under
the employer’s HDHP because of an election under a COBRA continuation provision (as defined in section 9832(d)(1))?
A–11. No. An employer that contributes only to the HSAs of former employees who are eligible individuals with
coverage under the employer’s HDHP is
not required to make comparable contributions to the HSAs of former employees
who are eligible individuals with coverage
under the employer’s HDHP because of an

2005–41 I.R.B.

election under a COBRA continuation provision (as defined in section 9832(d)(1)).
Q–12. How do the comparability rules
apply if some employees have HSAs and
other employees have Archer MSAs?
A–12. (a) HSAs and Archer MSAs.
The comparability rules apply separately
to employees who have HSAs and employees who have Archer MSAs. However,
if an employee has both an HSA and an
Archer MSA, the employer may contribute
to either the HSA or the Archer MSA, but
not to both.
(b) Examples. The following examples
illustrate the rules in paragraph (a) of this
Q & A–12:
Example 1. In a calendar year, Employer N contributes $600 to the Archer MSA of each employee
who is an eligible individual and who has an Archer
MSA. Employer N contributes $500 for the calendar
year to the HSA of each employee who is an eligible individual and who has an HSA. If an employee
has both an Archer MSA and an HSA, Employer N
contributes to the employee’s Archer MSA and not
to the employee’s HSA. Employee X has an Archer
MSA and an HSA. Employer N contributes $600 for
the calendar year to X’s Archer MSA but does not
contribute to X’s HSA. Employer N’s contributions
satisfy the comparability rules.
Example 2. Same facts as Example 1, except that
if an employee has both an Archer MSA and an HSA,
Employer N contributes to the employee’s HSA and
not to the employee’s Archer MSA. Employer N contributes $500 for the calendar year to X’s HSA but
does not contribute to X’s Archer MSA. Employer
N’s contributions satisfy the comparability rules.

§54.4980G–4 Calculating comparable
contributions.
Q–1. What are comparable contributions?
A–1. (a) Definition. Contributions are
comparable if they are either the same
amount or the same percentage of the deductible under the HDHP for employees
who are eligible individuals with the same
category of coverage. Employees with
self-only HDHP coverage are tested separately from employees with family HDHP
coverage. See Q & A–1 and Q & A–2
in §54.4980G–1. An employer is not required to contribute the same amount or
the same percentage of the deductible for
employees who are eligible individuals
with self-only HDHP coverage that it contributes for employees who are eligible
individuals with family HDHP coverage.
An employer that satisfies the comparability rules by contributing the same amount
to the HSAs of all employees who are

704

eligible individuals with self-only HDHP
coverage is not required to contribute any
amount to the HSAs of employees who
are eligible individuals with family HDHP
coverage, or to contribute the same percentage of the family HDHP deductible
as the amount contributed with respect to
self-only HDHP coverage. Similarly, an
employer that satisfies the comparability
rules by contributing the same amount
to the HSAs of all employees who are
eligible individuals with family HDHP
coverage is not required to contribute any
amount to the HSAs of employees who are
eligible individuals with self-only HDHP
coverage, or to contribute the same percentage of the self-only HDHP deductible
as the amount contributed with respect to
family HDHP coverage.
(b) Examples. Assume that the HDHPs
in Example 1 through Example 7 satisfy
the definition of an HDHP for the 2007
calendar year. The following examples illustrate the rules in paragraph (a) of this
Q & A–1:
Example 1. In the 2007 calendar year, Employer
A offers its full-time employees three health plans,
including an HDHP with self-only coverage and a
$2,000 deductible. Employer A contributes $1,000
for the calendar year to the HSA of each employee
who is an eligible individual electing the self-only
HDHP coverage. Employer A makes no HSA contributions for employees with family HDHP coverage or for employees who do not elect the employer’s
self-only HDHP. Employer A’s HSA contributions
satisfy the comparability rules.
Example 2. In the 2007 calendar year, Employer
B offers its employees an HDHP with a $3,000
deductible for self-only coverage and a $4,000
deductible for family coverage. Employer B contributes $1,000 for the calendar year to the HSA of
each employee who is an eligible individual electing
the self-only HDHP coverage. Employer B contributes $2,000 for the calendar year to the HSA of
each employee who is an eligible individual electing
the family HDHP coverage. Employer B’s HSA
contributions satisfy the comparability rules.
Example 3. In the 2007 calendar year, Employer
C offers its employees an HDHP with a $1,500
deductible for self-only coverage and a $3,000
deductible for family coverage. Employer C contributes $1,000 for the calendar year to the HSA of
each employee who is an eligible individual electing
the self-only HDHP coverage. Employer C contributes $1,000 for the calendar year to the HSA of
each employee who is an eligible individual electing
the family HDHP coverage. Employer C’s HSA
contributions satisfy the comparability rules.
Example 4. In the 2007 calendar year, Employer
D offers its employees an HDHP with a $1,500
deductible for self-only coverage and a $3,000
deductible for family coverage. Employer D contributes $1,500 for the calendar year to the HSA of
each employee who is an eligible individual electing

October 11, 2005

the self-only HDHP coverage. Employer D contributes $1,000 for the calendar year to the HSA of
each employee who is an eligible individual electing
the family HDHP coverage. Employer D’s HSA
contributions satisfy the comparability rules.
Example 5. (i) In the 2007 calendar year, Employer E maintains two HDHPs. Plan A has a $2,000
deductible for self-only coverage and a $4,000 deductible for family coverage. Plan B has a $2,500
deductible for self-only coverage and a $4,500 deductible for family coverage. For the calendar year,
Employer E makes contributions to the HSA of each
full-time employee who is an eligible individual covered under Plan A of $600 for self-only coverage and
$1,000 for family coverage. Employer E satisfies the
comparability rules, if it makes either of the following
contributions for the 2007 calendar year to the HSA
of each full-time employee who is an eligible individual covered under Plan B—
(A) $600 for each full-time employee with
self-only coverage and $1,000 for each full-time
employee with family coverage; or
(B) $750 for each employee with self-only coverage and $1,125 for each employee with family coverage (the same percentage of the deductible Employer
E contributes for full-time employees covered under
Plan A, 30% of the deductible for self-only coverage
and 25% of the deductible for family coverage).
(ii) Employer E also makes contributions to the
HSA of each part-time employee who is an eligible
individual covered under Plan A of $300 for self-only
coverage and $500 for family coverage. Employer
E satisfies the comparability rules, if it makes either
of the following contributions for the 2007 calendar
year to the HSA of each part-time employee who is
an eligible individual covered under Plan B—
(A) $300 for each part-time employee with selfonly coverage and $500 for each part-time employee
with family coverage; or
(B) $375 for each part-time employee with selfonly coverage and $563 for each part-time employee
with family coverage (the same percentage of the deductible Employer E contributes for part-time employees covered under Plan A, 15% of the deductible
for self-only coverage and 12.5% of the deductible
for family coverage).
Example 6. (i) In the 2007 calendar year, Employer F maintains an HDHP. The HDHP has a
$2,500 deductible for self-only coverage, and the
following family coverage options—
(A) A $3,500 deductible for self plus one dependent;
(B) A $3,500 deductible for self plus spouse;
(C) A $3,500 deductible for self plus two or more
dependents;
(D) A $3,500 deductible for self plus spouse and
one dependent; and
(E) A $3,500 deductible for self plus spouse and
two or more dependents.
(ii) Employer F makes the following contributions for the calendar year to the HSA of each fulltime employee who is an eligible individual covered
under the HDHP—
(A) $750 for self-only coverage;
(B) $1,000 for self plus one dependent;
(C) $1,000 for self plus spouse;
(D) $1,000 for self plus two or more dependents;
(E) $1,000 for self plus spouse and one dependent; and

October 11, 2005

(F) $1,000 for self plus spouse and two or more
dependents.
(iii) Employer F’s HSA contributions satisfy the
comparability rules.
Example 7. (i) In the 2007 calendar year, Employer G maintains an HDHP. The HDHP has a
$1,800 deductible for self-only coverage and the
following family coverage options—
(A) A $3,500 deductible for self plus one dependent;
(B) A $3,800 deductible for self plus spouse;
(C) A $4,000 deductible for self plus two or more
dependents;
(D) A $4,500 deductible for self plus spouse and
one dependent; and
(E) A $5,000 deductible for self plus spouse and
two or more dependents.
(ii) Employer G makes the following contributions for the calendar year to the HSA of each fulltime employee who is an eligible individual covered
under the HDHP—
(A) $360 for self-only coverage;
(B) $875 for self plus one dependent;
(C) $950 for self plus spouse;
(D) $1,000 for self plus two or more dependents;
(E) $1,125 for self plus spouse and one dependent; and
(F) $1,250 for self plus spouse and two or more
dependents.
(iii) Employer G’s HSA contributions satisfy the
comparability rules because Employer G has made
contributions that are the same percentage of the deductible for eligible employees with the same category of coverage (20% of the deductible for eligible
employees with self-only coverage and 25% of the
deductible for eligible employees with family coverage). Employer G could also satisfy the comparability rules by contributing the same dollar amount for
each category of coverage.
Example 8. In a calendar year, Employer H offers
its employees an HDHP and a health flexible spending arrangement (health FSA). The health FSA reimburses employees for medical expenses as defined in
section 213(d). Some of Employer H’s employees
have coverage under the HDHP and the health FSA.
For the calendar year, Employer H contributes $500
to the HSA of each employee who is an eligible individual, but does not contribute to the HSAs of employees who have coverage under the health FSA or
under a spouse’s health FSA. In addition, some of
Employer H’s employees have coverage under the
HDHP and are enrolled in Medicare. Employer H
does not contribute to the HSAs of employees who
are enrolled in Medicare. The employees who have
coverage under the health FSA or under a spouse’s
health FSA are not comparable participating employees because they are not eligible individuals under
section 223(c)(1). Similarly, the employees who are
enrolled in Medicare are not comparable participating employees because they are not eligible individuals under section 223(b)(7) and (c)(1). Therefore,
employees who have coverage under the health FSA
or under a spouse’s health FSA and employees who
are enrolled in Medicare are excluded from comparability testing. See sections 4980G(b) and 4980E.
Employer H’s contributions satisfy the comparability
rules.

Q–2. How do the comparability rules
apply to employer contributions to em-

705

ployees’ HSAs if some employees work
full-time during the entire calendar year,
and other employees work full-time for
less than the entire calendar year?
A–2. Employer contributions to the
HSAs of employees who work full-time
for less than twelve months satisfy the
comparability rules if the contribution
amount is comparable when determined
on a month-to-month basis. For example, if the employer contributes $240 to
the HSA of each full-time employee who
works the entire calendar year, the employer must contribute $60 to the HSA
of a full-time employee who works three
months of the calendar year. The rules set
forth in this Q & A–2 apply to employer
contributions made on a pay-as-you-go
basis or on a look-back basis as described
in Q & A–3 in this section. See sections
4980G(b) and 4980E(d)(2)(B).
Q–3. How does an employer comply
with the comparability rules when some
employees who are eligible individuals do
not work for the employer during the entire
calendar year?
A–3. (a) In general. In determining whether the comparability rules are
satisfied, an employer must take into account all full-time and part-time employees who were employees and eligible individuals for any month during the calendar year. (Full-time and part-time employees are tested separately. See Q & A–5 in
§54.4980G–3.) There are two methods to
comply with the comparability rules when
some employees who are eligible individuals do not work for the employer during
the entire calendar year; contributions may
be made on a pay-as-you-go basis or on
a look-back basis. See Q & A–9 through
Q & A–11 in §54.4980G–3 for the rules
regarding comparable contributions to the
HSAs of former employees.
(b) Contributions on a pay-as-you-go
basis. An employer may comply with
the comparability rules by contributing
amounts at one or more times for the
calendar year to the HSAs of employees
who are eligible individuals, if contributions are the same amount or the same
percentage of the HDHP deductible for
employees who are eligible individuals as
of the first day of the month with the same
category of coverage and are made at the
same time. Contributions made at the employer’s usual payroll interval for different
groups of employees are considered to be

2005–41 I.R.B.

made at the same time. For example, if
salaried employees are paid monthly and
hourly employees are paid bi-weekly, an
employer may contribute to the HSAs of
hourly employees on a bi-weekly basis
and to the HSAs of salaried employees on
a monthly basis. An employer may change
the amount that it contributes to the HSAs
of employees at any point. However, the
changed contribution amounts must satisfy the comparability rules.
(c) Examples. The following examples
illustrate the rules in paragraph (b) of this
Q & A–3:
st

Example 1. (i) Beginning on January 1 , Employer J contributes $50 per month on the first day of
each month to the HSA of each employee who is an
eligible individual. Employer J does not contribute
to the HSAs of former employees. In mid-March of
the same year, Employee X, an eligible individual,
terminates employment after Employer J has contributed $150 to X’s HSA. After X terminates employment, Employer J does not contribute additional
amounts to X’s HSA. In mid-April of the same year,
Employer J hires Employee Y, an eligible individual,
and contributes $50 to Y’s HSA in May and $50 in
June. Effective in July of the same year, Employer J
stops contributing to the HSAs of all employees and
makes no contributions to the HSA of any employee
for the months of July through December. In August,
Employer J hires Employee Z, an eligible individual.
Employer J does not contribute to Z’s HSA. After Z
is hired, Employer J does not hire additional employees. As of the end of the calendar year, Employer J
has made the following HSA contributions to its employees’ HSAs—
(A) Employer J contributed $150 to X’s HSA;
(B) Employer J contributed $100 to Y’s HSA;
(C) Employer J did not contribute to Z’s HSA;
and
(D) Employer J contributed $300 to the HSA of
each employee who was an eligible individual and
employed by Employer J from January through June.
(ii) Employer J’s contributions satisfy the comparability rules.
Example 2. In a calendar year, Employer K offers its employees an HDHP and contributes on a
monthly pay-as-you-go basis to the HSAs of employees who are eligible individuals with coverage under
Employer K’s HDHP. In the calendar year, Employer
K contributes $50 per month to the HSA of each of
employee with self-only HDHP coverage and $100
per month to the HSA of each employee with family
st
HDHP coverage. From January 1 through March
th
30 of the calendar year, Employee X is an eligible individual with self-only HDHP coverage. From
st
th
April 1 through December 30 of the calendar year,
X is an eligible individual with family HDHP coverage. For the months of January, February and March
of the calendar year, Employer K contributes $50
per month to X’s HSA. For the remaining months of
the calendar year, Employer K contributes $100 per
month to X’s HSA. Employer K’s contributions to
X’s HSA satisfy the comparability rules.

(d) Contributions on a look-back basis. An employer may also satisfy the

2005–41 I.R.B.

comparability rules by determining comparable contributions for the calendar year
at the end of the calendar year, taking
into account all employees who were eligible individuals for any month during the
calendar year and contributing the correct
amount (a percentage of the HDHP deductible or a specified dollar amount for
the same categories of coverage) to the employees’ HSAs.
(e) Example. The following example
illustrates the rules in paragraph (d) of this
Q & A–3:
Example. In a calendar year, Employer L offers its employees an HDHP and contributes on a
look-back basis to the HSAs of employees who are eligible individuals with coverage under Employer L’s
HDHP. Employer L contributes $600 (i.e. $50 per
month) for the calendar year to the HSA of each of
employee with self-only HDHP coverage and $1,200
(i.e., $100 per month) for the calendar year to the
HSA of each employee with family HDHP coverage.
st
th
From January 1 through June 30 of the calendar
year, Employee Y is an eligible individual with famst
ily HDHP coverage. From July 1 through December
31, Y is an eligible individual with self-only HDHP
coverage. Employer L contributes $900 on a lookback basis for the calendar year to Y’s HSA ($100
per month for the months of January through June and
$50 per month for the months of July through December). Employer L’s contributions to Y’s HSA satisfy
the comparability rules.

Q–4. May an employer make all of
its contributions to the HSAs of its employees who are eligible individuals at the
beginning of the calendar year (i.e., on a
pre-funded basis) instead of contributing
on a pay-as-you-go or on a look-back basis?
A–4. (a) Contributions on a pre-funded
basis. Yes. An employer may make all
of its contributions to the HSAs of its employees who are eligible individuals at the
beginning of the calendar year. An employer that pre-funds the HSAs of its employees will not fail to satisfy the comparability rules because an employee who terminates employment prior to the end of
the calendar year has received more contributions on a monthly basis than employees who have worked the entire calendar year. See Q & A–12 in this section. Under section 223(d)(1)(E), an account beneficiary’s interest in an HSA is
nonforfeitable. An employer must make
comparable contributions for all employees who are comparable participating employees for any month during the calendar year, including employees who are eligible individuals hired after the date of
initial funding. An employer that makes

706

HSA contributions on a pre-funded basis
may also contribute on a pre-funded basis
to the HSAs of employees who are eligible individuals hired after the date of initial
funding. Alternatively, an employer that
has pre-funded the HSAs of comparable
participating employees may contribute to
the HSAs of employees who are eligible
individuals hired after the date of initial
funding on a pay-as-you-go basis or on a
look-back basis. An employer that makes
HSA contributions on a pre-funded basis
must use the same contribution method for
all employees who are eligible individuals
hired after the date of initial funding.
(b) Example. The following example
illustrates the rules in paragraph (a) of this
Q & A–4:
Example. (i) On January 1, Employer M contributes $1,200 for the calendar year on a pre-funded
basis to the HSA of each of employee who is an eligible individual. In mid-May, Employer M hires
Employee B, an eligible individual. Therefore, Employer M is required to make comparable contributions to B’s HSA beginning in June. Employer M
satisfies the comparability rules with respect to contributions to B’s HSA if it makes HSA contributions
in any one of the following ways—
(A) Pre-funding B’s HSA by contributing $700 to
B’s HSA;
(B) Contributing $100 per month on a pay-asyou-go basis to B’s HSA; or
(C) Contributing to B’s HSA at the end of the
calendar year taking into account each month that B
was an eligible individual and employed by Employer
M.
(ii) If Employer M hires additional employees
who are eligible individuals after initial funding, it
must use the same contribution method for these employees that it used to contribute to B’s HSA.

Q–5. Must an employer use the same
contribution method as described in
Q & A–3 and Q & A–4 of this section
for all employees who were comparable
participating employees for any month
during the calendar year?
A–5. Yes. If an employer makes comparable HSA contributions on a pay-asyou-go basis, it must do so for each employee who is a comparable participating
employee during the pay period. If an employer makes comparable contributions on
a look-back basis, it must do so for each
employee who was a comparable participating employee for any month during the
calendar year. If an employer makes HSA
contributions on a pre-funded basis, it must
do so for all employees who are comparable participating employees at the beginning of the calendar year. An employer
that contributes on a pre-funded basis must

October 11, 2005

make comparable HSA contributions for
all employees who are comparable participating employees for any month during the
calendar year, including employees who
are eligible individuals hired after the date
of initial funding. See Q & A–4 in this section for rules regarding contributions for
employees hired after initial funding.
Q–6. How does an employer comply with the comparability rules if an employee has not established an HSA at the
time the employer contributes to its employees’ HSAs?
A–6. (a) Employee has not established
an HSA. If an employee has not established
an HSA at the time the employer funds its
employees’ HSAs, the employer complies
with the comparability rules by contributing comparable amounts to the employee’s
HSA when the employee establishes the
HSA, taking into account each month that
the employee was a comparable participating employee. However, an employer is
not required to make comparable contributions for a calendar year to an employee’s
HSA if the employee has not established
an HSA by December 31st of the calendar
year.
(b) Example. The following example
illustrates the rules in paragraph (a) of this
Q & A–6:
st

Example. Beginning on January 1 , Employer
N contributes $500 per calendar year on a pay-asyou-go basis to the HSA of each employee who is
an eligible individual. Employee C is an eligible
individual during the entire calendar year but does
not establish an HSA until March. Notwithstanding
C’s delay in establishing an HSA, Employer N must
make up the missed HSA contributions for January
th
and February by April 15 of the following calendar
year.

Q–7. If an employer bases its contributions on a percentage of the HDHP deductible, how is the correct percentage or
dollar amount computed?
A–7. (a) Computing HSA contributions. The correct percentage is determined by rounding to the nearest 1/100th
of a percentage point and the dollar amount
is determined by rounding to the nearest
whole dollar.
(b) Example. The following example
illustrates the rules in paragraph (a) of this
Q & A–7:
Example. In this Example, assume that the HDHP
provided by Employer P satisfies the definition of an
HDHP for the 2007 calendar year. In the 2007 calendar year, Employer P maintains two HDHPs. Plan
A has a deductible of $3,000 for self-only coverage.
Employer P contributes $1,000 for the calendar year

October 11, 2005

to the HSA of each employee covered under Plan A.
Plan B has a deductible of $3,500 for self-only coverage. Employer P satisfies the comparability rules
if it makes either of the following contributions for
the 2007 calendar year to the HSA of each employee
who is an eligible individual with self-only coverage
under Plan B—
(i) $1,000; or
(ii) $1,167 (33.33% of the deductible rounded to
the nearest whole dollar amount).

Q–8. Does an employer that contributes
to the HSA of each comparable participating employee in an amount equal to
the employee’s HSA contribution or a percentage of the employee’s HSA contribution (matching contributions) satisfy the
rule that all comparable participating employees receive comparable contributions?
A–8. No. If all comparable participating employees do not contribute the same
amount to their HSAs and, consequently,
do not receive comparable contributions
to their HSAs, the comparability rules are
not satisfied, notwithstanding that the employer offers to make available the same
contribution amount to each comparable
participating employee. But see Q & A–1
in §54.4980G–5 on contributions to HSAs
made through a cafeteria plan.
Q–9. If an employer conditions contributions by the employer to an employee’s
HSA on an employee’s participation in
health assessments, disease management
programs or wellness programs and makes
the same contributions available to all employees who participate in the programs,
do the contributions satisfy the comparability rules?
A–9. No. If all comparable participating employees do not elect to participate
in all the programs and consequently, all
comparable participating employees do
not receive comparable contributions to
their HSAs, the employer contributions
fail to satisfy the comparability rules. But
see Q & A–1 in §54.4980G–5 on contributions made to HSAs through a cafeteria
plan.
Q–10. If an employer makes additional
contributions to the HSAs of all comparable participating employees who have attained a specified age or who have worked
for the employer for a specified number of
years, do the contributions satisfy the comparability rules?
A–10. No. If all comparable participating employees do not meet the age or
length of service requirement, all comparable participating employees do not receive

707

comparable contributions to their HSAs
and the employer contributions fail to satisfy the comparability rules.
Q–11. If an employer makes additional contributions to the HSAs of all
comparable participating employees who
qualify for the additional contributions
(HSA catch-up contributions) under section 223(b)(3), do the contributions satisfy
the comparability rules?
A–11. No. If all comparable participating employees do not qualify for the
additional HSA contributions under section 223(b)(3), all comparable participating employees do not receive comparable
contributions to their HSAs, and the employer contributions fail to satisfy the comparability rules.
Q–12. If an employer’s contributions
to an employee’s HSA result in non-comparable contributions, may the employer
recoup the excess amount from the employee’s HSA?
A–12. No. An employer may not
recoup from an employee’s HSA any
portion of the employer’s contribution
to the employee’s HSA. Under section
223(d)(1)(E), an account beneficiary’s interest in an HSA is nonforfeitable. However, an employer may make additional
HSA contributions to satisfy the comparability rules. An employer may contribute
up until April 15th following the calendar year in which the non-comparable
contributions were made. An employer
that makes additional HSA contributions
to correct non-comparable contributions
must also contribute reasonable interest.
However, an employer is not required to
contribute amounts in excess of the annual
contribution limits in section 223(b).
§54.4980G–5 HSA comparability rules
and cafeteria plans and waiver of excise
tax.
Q–1. If an employer makes contributions through a section 125 cafeteria plan
to the HSA of each employee who is an eligible individual, are the contributions subject to the comparability rules?
A–1. No. The comparability rules do
not apply to HSA contributions that an employer makes through a section 125 cafeteria plan. However, contributions to an
HSA made under a cafeteria plan are subject to the section 125 nondiscrimination
rules (eligibility rules, contributions and

2005–41 I.R.B.

benefits tests and key employee concentration tests). See section 125(b), (c) and
(g) and Prop. Treas. Reg. §1.125–1,
Q & A–19, (49 FR 19321).
Q–2. If an employer makes contributions through a cafeteria plan to the HSA
of each employee who is an eligible individual in an amount equal to the amount of
the employee’s HSA contribution or a percentage of the amount of the employee’s
HSA contribution (i.e., matching contributions), are the contributions subject to the
section 4980G comparability rules?
A–2. No. The comparability rules do
not apply to HSA contributions that an employer makes through a section 125 cafeteria plan. Thus, where matching contributions are made by an employer through
a cafeteria plan, the contributions are not
subject to the comparability rules of section 4980G. However, contributions, including matching contributions, to an HSA
made under a cafeteria plan are subject
to the section 125 nondiscrimination rules
(eligibility rules, contributions and benefits tests and key employee concentration
tests). See Q & A–1 in this section.
Q–3. If an employer provides HDHP
coverage through a cafeteria plan, but the
employer’s HSA contributions are not provided through the cafeteria plan, do the
cafeteria plan nondiscrimination rules or
the comparability rules apply to the HSA
contributions?
A–3. (a) HDHP provided through cafeteria plan. The comparability rules in section 4980G apply to the HSA contributions. The cafeteria plan nondiscrimination rules apply only to HSA contributions
made through a cafeteria plan irrespective
of whether the HDHP is provided through
a cafeteria plan.
(b) Example. The following example
illustrates the rules in paragraph (a) of this
Q & A–3:
Example. Employer A provides HDHP coverage
through its cafeteria plan. Employer A automatically
contributes to the HSA of each employee who is an
eligible individual with HDHP coverage through the
cafeteria plan. Employees make no election with respect to Employer A’s HSA contributions and have no
right to receive cash or other taxable benefits in lieu of
the HSA contributions. Employer A contributes only
to the HSAs of employees who have elected HDHP
coverage through the cafeteria plan. The comparability rules apply to Employer A’s HSA contributions
because the HSA contributions are not made through
the cafeteria plan.

Q–4. If under the employer’s cafeteria plan, employees who are eligible indi-

2005–41 I.R.B.

viduals and who participate in health assessments, disease management programs
or wellness programs receive an employer
contribution to an HSA, unless the employees elect cash, are the contributions
subject to the comparability rules?
A–4. No. The comparability rules do
not apply to employer contributions to an
HSA made through a cafeteria plan. See
Q & A–1 in this section.
Q–5. May all or part of the excise tax
imposed under section 4980G be waived?
A–5. In the case of a failure which is
due to reasonable cause and not to willful neglect, all or a portion of the excise
tax imposed under section 4980G may be
waived to the extent that the payment of
the tax would be excessive relative to the
failure involved. See sections 4980G(b)
and 4980E(c).
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on August 25,
2005, 8:45 a.m., and published in the issue of the Federal
Register for August 26, 2005, 70 F.R. 50233)

ments would affect employers that make
these payments and employees that receive these payments. These proposed
amendments would provide guidance to
assist these taxpayers in complying with
the law.
DATES: Written or electronic comments
and requests for a public hearing must be
received by November 25, 2005.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–104143–05), room
5203, Internal Revenue Service, POB
7604, Ben Franklin Station, Washington, DC 20044. Submissions may be
hand delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to: CC:PA:LPD:PR (REG–104143–05),
Courier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW, Washington, DC, or sent electronically, via
the IRS Internet site at www.irs.gov/regs
or via the Federal eRulemaking Portal at http://www.regulations.gov/ (IRS
REG–104143–05).

Application of the Federal
Insurance Contributions Act
to Payments Made for Certain
Services

FOR
FURTHER
INFORMATION
CONTACT: Concerning the proposed
regulations, please contact Paul Carlino
of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt and
Government Entities), (202) 622–0047;
concerning submissions of comments or
to request a public hearing, please contact
LaNita Van Dyke, (202) 622–7180 (not
toll-free numbers).

REG–104143–05

SUPPLEMENTARY INFORMATION:

AGENCY: Internal Revenue Service
(IRS), Treasury.

Background

Notice of Proposed
Rulemaking

ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains
proposed amendments to regulations relating to payments made for service not
in the course of the employer’s trade
or business, for domestic service in a
private home of the employer, for agricultural labor, and for service performed
as a home worker within the meaning
of section 3121(d)(3)(C) of the Internal
Revenue Code (Code). These proposed
amendments would provide guidance concerning the application of the Federal
Insurance Contributions Act (FICA) to
these payments. These proposed amend-

708

This document contains proposed
amendments to the Employment Tax Regulations (26 CFR part 31) under sections
3102, 3121(a), 3121(a)(7), 3121(a)(8),
3121(a)(10), and 3121(i) of the Code.
The Federal Insurance Contributions Act
(FICA) generally imposes tax on each employer and employee. Under section 3111,
FICA tax is imposed on the employer in
an amount equal to a percentage of the
wages paid by that employer. Under section 3101, FICA tax is also imposed on the
employee in an amount equal to a percentage of the wages received by the employee
with respect to employment. Section 3102
requires the employer to collect the tax imposed under section 3101 by deducting and

October 11, 2005

withholding the amount of the tax from the
wages as and when paid. Section 3121(a)
defines wages for FICA tax purposes as
all remuneration for employment unless
otherwise excepted. Sections 3121(a)(7)
(relating to domestic service in a private
home of the employer and to service not in
the course of the employer’s trade or business), 3121(a)(8) (relating to agricultural
labor) and 3121(a)(10) (relating to service
performed as a home worker within the
meaning of section 3121(d)(3)(C)) provide exceptions to the definition of wages
for FICA tax purposes. Section 3121(i)(1)
provides that in the case of domestic service described in section 3121(a)(7)(B),
any payment of cash remuneration for
such service which is more or less than
a whole-dollar amount, to the extent prescribed by regulations, may be computed
to the nearest dollar.
Section 3102(a) provides that an employer may deduct an amount equivalent
to the FICA tax imposed by section 3101
from any payment of cash remuneration to which sections 3121(a)(7)(B),
3121(a)(7)(C),
3121(a)(8)(B)
and
3121(a)(10) apply, even though at the
time of payment the total amount of such
remuneration paid to the employee by the
employer in the calendar year is less than
the dollar threshold amount used to determine whether the remuneration is wages
for FICA tax purposes. An employer that
chooses to withhold FICA taxes imposed
by section 3101 prior to reaching the dollar threshold amount used to determine
whether the remuneration is wages for
FICA tax purposes must repay the employee the withheld amount if the dollar
threshold is not met in the calendar year. If
the withheld amount has been deposited,
the employer must repay or reimburse the
employee the withheld amount in accordance with the rules under §31.6413(a)–1
of the regulations.
Changes to sections 3102(a) and
3121(a)(7)(B) were made by section
2(a)(1) of the Social Security Domestic Employment Reform Act of 1994,
(SSDERA), Public Law 103–387 (108
Stat. 4071). The SSDERA also added section 3121(x). Changes to section 3102(a)
were made by section 424(b) of the Social
Security Protection Act of 2004 (SSPA),
Public Law 108–203 (118 Stat. 493,
536). Changes to section 3121(a)(8)(B)
were made by section 8017(b) of the

October 11, 2005

Technical and Miscellaneous Revenue
Act of 1988 (the 1988 Act), Public Law
100–647 (102 Stat. 3342, 3793) and section 9002(b) of the Omnibus Budget Reconciliation Act of 1987 (the 1987 Act),
Public Law 100–203 (101 Stat. 1330,
1330–287). Changes to sections 3102(a),
3121(a)(7)(C) and 3121(a)(10) were made
by sections 355(a) and 356(a) of the Social Security Amendments of 1977 (the
1977 Act), Public Law 95–216 (91 Stat.
1509, 1555). These statutory changes
are not reflected in the existing regulations of §§31.3102–1, 31.3121(a)–2,
31.3121(a)(7)–1,
31.3121(a)(8)–1,
31.3121(a)(10)–1,
and 31.3121(i)–1.
These proposed regulations would amend
these existing regulations to reflect the
statutory changes.

ble dollar threshold is adjusted annually
under the formula described in section
215(a)(1)(B)(ii) of the Social Security
Act, Public Law 74–271 (49 Stat. 620).
Under section 3121(x), if any amount as
adjusted under section 215(a)(1)(B)(ii) is
not a multiple of $100, such amount is
rounded to the next lowest multiple of
$100. For calendar year 2005, the applicable dollar threshold is $1,400.
Section 3121(i)(1) provides that in the
case of domestic service described in section 3121(a)(7)(B), any payment of cash
remuneration for such service which is
more or less than a whole-dollar amount,
to the extent prescribed by regulations,
may be computed to the nearest dollar.
The amendment to section 3121(a)(7)(B)
made by the SSDERA requires changes to
the regulations under §31.3121(i)–1.

Domestic Service in a Private Home of
the Employer

Agricultural Labor

Section 3121(a)(7)(B) provides an exclusion from wages for FICA tax purposes
of certain cash remuneration paid by an
employer to an employee for domestic
service in a private home of the employer. The SSDERA amended the dollar
threshold amount and time period used
to determine the exclusion under section
3121(a)(7)(B). The SSDERA also added
section 3121(x).
Prior
to
SSDERA,
section
3121(a)(7)(B) provided that cash remuneration paid by an employer in any
calendar quarter to an employee for
domestic service in a private home of the
employer was excluded from wages for
FICA tax purposes if the cash remuneration paid in such quarter by the employer
to the employee for such service was
less than $50. The SSDERA amended
section 3121(a)(7)(B) to provide that cash
remuneration paid by an employer in any
calendar year to an employee for domestic
service in a private home of the employer
is excluded from wages for FICA tax
purposes if the cash remuneration paid
in such year by the employer to the
employee for such service is less than the
applicable dollar threshold (as defined in
section 3121(x)) for such year. SSDERA
is effective for cash remuneration paid
after December 31, 1993.
The applicable dollar threshold (as
defined in section 3121(x)) is $1,000
for calendar year 1995. The applica-

Section 3121(a)(8)(B) provides an
exclusion from wages for FICA tax purposes of certain cash remuneration paid
by an employer in any calendar year to
an employee for agricultural labor. The
1987 Act and 1988 Act amended section
3121(a)(8)(B) to change the test for determining whether cash remuneration paid
by an employer to an employee for such
service is wages for FICA tax purposes.
Prior to the 1987 Act, section
3121(a)(8)(B) provided that cash remuneration paid by an employer in any calendar
year to an employee for agricultural labor
was excluded from wages for FICA tax
purposes unless the cash remuneration was
$150 or more, or the employee performed
agricultural labor for the employer on 20
or more days during such year for cash remuneration computed on a time basis. The
1987 Act amended section 3121(a)(8)(B)
to provide that cash remuneration paid by
an employer in any calendar year to an employee for agricultural labor is excluded
from wages for FICA tax purposes unless
the cash remuneration paid in such year
by the employer to the employee for such
labor is $150 or more, or the employer’s
expenditures for agricultural labor in such
year equals or exceeds $2,500.
The 1988 Act added language to
3121(a)(8)(B) to provide that the test
of whether the employer’s expenditures
for agricultural labor in any calendar year
equal or exceed $2,500 has no effect in de-

709

2005–41 I.R.B.

termining whether remuneration paid to an
employee in such year constitutes wages
under this section if such employee 1) is
employed in agriculture as a hand-harvest
laborer and is paid on a piece rate basis
in an operation which has been, and is
customarily and generally recognized as
having been, paid on a piece rate basis in
the region of employment, 2) commutes
daily from his permanent residence to the
farm on which he is employed, and 3) has
been employed in agriculture less than 13
weeks during the preceding calendar year.
Nonetheless, amounts paid to these seasonal workers count towards the $2,500
test when applying section 3121(a)(8)(B)
to other agricultural workers. The 1987
and 1988 Acts are effective for cash remuneration paid after December 31, 1987.
Home Workers
Section 3121(a)(10) provides an exclusion from wages for FICA tax purposes
of certain cash remuneration paid by an
employer to an employee for service described in section 3121(d)(3)(C) (relating
to home workers). The 1977 Act amended
the dollar threshold amount and time period used to determine the exclusion under
section 3121(a)(10).
Prior to the 1977 Act, section
3121(a)(10) provided that cash remuneration paid by an employer in any calendar
quarter to an employee for service described in 3121(d)(3)(C) (relating to home
workers) was excluded from wages for
FICA tax purposes if the cash remuneration paid in such quarter by the employer
to the employee for such service was less
than $50. The 1977 Act amended section
3121(a)(10) to provide that remuneration
paid by an employer in any calendar year
to an employee for service described in
section 3121(d)(3)(C) (relating to home
workers) is excluded from wages for FICA
tax purposes if the cash remuneration paid
in such year by the employer to the employee for such service is less than $100.
The 1977 Act is effective for cash remuneration paid after December 31, 1977.
Service Not in the Course of the
Employer’s Trade or Business
Section 3121(a)(7)(C) provides an exclusion from wages for FICA tax purposes
of certain cash remuneration paid by an
employer to an employee for service not

2005–41 I.R.B.

in the course of the employer’s trade or
business. The 1977 Act amended the dollar threshold amount and time period used
to determine the exclusion under section
3121(a)(7)(C).
Prior to the 1977 Act, section
3121(a)(7)(C) provided that cash remuneration paid by an employer in any calendar
quarter to an employee for service not
in the course of the employer’s trade or
business was excluded from wages for
FICA tax purposes if the cash remuneration paid in such quarter by the employer
to the employee for such service was less
than $50. The 1977 Act amended section 3121(a)(7)(C) to provide that cash
remuneration paid by an employer in any
calendar year to an employee for service
not in the course of the employer’s trade
or business is excluded from wages for
FICA tax purposes if the cash remuneration paid in such year by the employer
to the employee for such service is less
than $100. The 1977 Act is effective for
cash remuneration paid after December
31, 1977.
Explanation of Provisions
These proposed regulations would
amend the existing regulations to reflect
current law.
The proposed regulations relating to domestic service in a private home of the
employer would amend existing regulations §§31.3102–1, 31.3121(a)–2(c), and
31.3121(a)(7)–1 to reflect changes implemented by the SSDERA and to be applicable as of that date. For cash remuneration paid prior to January 1, 1994 (the
effective date of the SSDERA), taxpayers
should rely on the regulations applicable at
the time such cash remuneration was paid.
The proposed regulations relating to
agricultural labor would amend existing
regulations §§31.3102–1, 31.3121(a)–2(c)
and 31.3121(a)(8)–1 to reflect changes
implemented by the SSPA, the 1987 Act
and the 1988 Act and to be applicable as of
that date. For cash remuneration paid prior
to January 1, 1988 (the effective date of
the 1987 Act and the 1988 Act), taxpayers
should rely on the regulations applicable
at the time such cash remuneration was
paid.
The proposed regulations relating to
home workers and/or to service not in
the course of the employer’s trade or

710

business would amend existing regulations §§31.3102–1, 31.3121(a)–2(c),
31.3121(a)(7)–1 and 31.3121(a)(10)–1
to reflect changes implemented by the
1977 Act and to be applicable as of that
date. For cash remuneration paid prior
to January 1, 1978 (the effective date of
the 1977 Act), taxpayers should rely on
the regulations applicable at the time such
cash remuneration was paid.
The proposed regulations relating to
computation to the nearest dollar of cash
remuneration for domestic service would
amend the existing regulations under
§31.3121(i)–1 to reflect changes implemented by the SSDERA and to be applicable as of that date. For cash remuneration
paid prior to January 1, 1994 (the effective
date of the SSDERA), taxpayers should
rely on the regulations applicable at the
time such cash remuneration was paid.
Proposed Effective Date
These proposed regulations would be
applicable on the date of publication of the
Treasury Decision adopting these regulations as final regulations in the Federal
Register. The regulations relating to domestic service in a private home of the employer would apply to cash remuneration
paid on or after January 1, 1994. The regulations relating to agricultural labor would
apply to cash remuneration paid on or after January 1, 1988. The regulations relating to home workers and/or service not
in the course of the employer’s trade or
business would apply to cash remuneration
paid on or after January 1, 1978. The regulations relating to computation to the nearest dollar of cash remuneration for domestic service would apply to cash remuneration paid on or after January 1, 1994.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory assessment is not required. It also has been
determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) and the Regulatory Flexibility Act
(5 U.S.C. chapter 6) do not apply to these
regulations, and therefore, a Regulatory
Flexibility Analysis is not required. Pursuant to section 7805(f) of the Code, this

October 11, 2005

notice of proposed rulemaking will be submitted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on its impact on small business.
Comments and Requests for Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS.
The IRS and Treasury Department specifically request comments on the clarity of
proposed regulations and how they can be
made easier to understand. All comments
will be available for public inspection and
copying. A public hearing may be scheduled if requested by any person who timely
submits comments. If a public hearing
is scheduled, notice of the date, time and
place for the hearing will be published in
the Federal Register.
Drafting Information
The principal authors of these proposed regulations are Paul J. Carlino and
Michael A. Swim, Office of the Division
Counsel/Associate Chief Counsel (Tax
Exempt and Government Entities). However, other personnel from the IRS and
Treasury Department participated in their
development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 31 is proposed to be amended as follows:
PART 31—EMPLOYMENT TAXES
AND COLLECTION OF INCOME TAX
AT SOURCE
Paragraph 1. The authority citation for
part 31 continues to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 31.3102–1 is amended
by:
1. Revising paragraph (b).
2. Redesignating paragraph (c) as paragraph (d).
3. Adding new paragraph (c).
4. Adding paragraph (e).

October 11, 2005

The additions and revision read as follows:
§31.3102–1 Collection of, and liability
for, employee tax; in general.
*****
(b) The employer is permitted, but not
required, to deduct amounts equivalent to
employee tax from payments to an employee of cash remuneration to which the
sections referred to in this paragraph (b)
are applicable prior to the time that the sum
of such payments equals—
(1) $100 in the calendar year, for service
not in the course of the employer’s trade
or business, to which §31.3121(a)(7)–1 is
applicable;
(2) The applicable dollar threshold
(as defined in section 3121(x)) in the
calendar year, for domestic service in a
private home of the employer, to which
§31.3121(a)(7)–1 is applicable;
(3) $150 in the calendar year,
for agricultural labor,
to which
§31.3121(a)(8)–1(c)(1)(i) is applicable;
or
(4) $100 in the calendar year, for service performed as a home worker, to which
§31.3121(a)(10)–1 is applicable.
(c) At such time as the sum of the cash
payments in the calendar year for a type
of service referred to in paragraph (b)(1),
(b)(2), (b)(3) or (b)(4) of this section
equals or exceeds the amount specified,
the employer is required to collect from
the employee any amount of employee tax
not previously deducted. If an employer
pays cash remuneration to an employee
for two or more of the types of service referred to in paragraph (b)(1), (b)(2), (b)(3)
or (b)(4) of this section, the provisions
of paragraph (b) of this section and this
paragraph (c) are to be applied separately
to the amount of remuneration attributable
to each type of service. For provisions
relating to the repayment to an employee,
or other disposition, of amounts deducted
from an employee’s remuneration in excess of the correct amount of employee
tax, see §31.6413(a)–1.
*****
(e)(1) The provisions of paragraphs (a)
and (d) of this section apply to any payment made on or after January 1, 1955.
(2) The provisions of paragraphs (b)
and (c) of this section that apply to any

711

payment made for service not in the
course of the employer’s trade or business or for service performed as a home
worker within the meaning of section
3121(d)(3)(C) apply to any such payment
made on or after January 1, 1978. The
provisions of paragraphs (b) and (c) of this
section that apply to any payment made
for domestic service in a private home of
the employer apply to any such payment
made on or after January 1, 1994. The
provisions of paragraphs (b) and (c) of
this section that apply to any payment
made for agricultural labor apply to any
such payment made on or after January
1, 1988. For rules applicable to any payment for these services made prior to the
dates set forth in this paragraph (e)(2), see
§31.3102–1 in effect at such time (see 26
CFR part 31 revised as of April 1, 2005).
Par.
3.
Section 31.3121(a)–2 is
amended by:
1. Revising paragraph (c)(1).
2. Redesignating paragraphs (c)(2) and
(c)(3) as paragraphs (c)(3) and (c)(4), respectively.
3. Adding new paragraph (c)(2).
4. Revising newly designated paragraph (c)(3).
5. Adding paragraph (d).
The additions and revisions read as follows:
§31.3121(a)–2 Wages; when paid and
received.
*****
(c)(1) The first $100 of cash remuneration paid, either actually or constructively,
by an employer in any calendar year to an
employee for—
(i) Service not in the course of the
employer’s trade or business, to which
§31.3121(a)(7)–1 is applicable, shall be
deemed to be paid by the employer to the
employee at the first moment of time in
such calendar year that the sum of such
cash payments made within such year is at
least $100; or
(ii)
Service
performed
as
a
home worker within the meaning
of section 3121(d)(3)(C), to which
§31.3121(a)(10)–1 is applicable, shall be
deemed to be paid by the employer to the
employee at the first moment of time in
such calendar year that the sum of such
cash payments made within such year is
at least $100.

2005–41 I.R.B.

(2) Cash remuneration paid, either actually or constructively, by an employer in
any calendar year to an employee for domestic service in a private home of the employer to which §31.3121(a)(7)–1 is applicable, and before the sum of the payments of such cash remuneration equals
or exceeds the applicable dollar threshold
(as defined in section 3121(x)) for such
year, shall be deemed to be paid by the
employer to the employee at the first moment of time in such calendar year that the
sum of such cash payments made within
such year equals or exceeds the applicable dollar threshold (as defined in section
3121(x)) for such year.
(3) Cash remuneration paid, either actually or constructively, by an employer in
any calendar year to an employee for agricultural labor to which §31.3121(a)(8)–1
is applicable, and before either of the
events described in paragraphs (c)(3)(i)
and (c)(3)(ii) of this section has occurred,
shall be deemed to be paid by the employer to the employee at the first moment
of time in such calendar year that—
(i) The sum of the payments of such
remuneration is $150 or more; or
(ii) The employer’s expenditures for
agricultural labor in such calendar year
equals or exceeds $2,500, except that
this paragraph (c)(3)(ii) shall not apply in
determining when such remuneration is
deemed to be paid under this paragraph if
such employee—
(A) Is employed as a hand-harvest laborer and is paid on a piece rate basis in
an operation which has been, and is customarily and generally recognized as having been, paid on a piece rate basis in the
region of employment;
(B) Commutes daily from his permanent residence to the farm on which he is
so employed; and
(C) Has been employed in agriculture
less than 13 weeks during the preceding
calendar year.
*****
(d)(1) The provisions of paragraphs (a)
and (b) of this section apply to any payment of wages made on or after January 1,
1955.
(2) The provisions of paragraph (c) of
this section that apply to any payment of
wages made for service not in the course of
the employer’s trade or business or for service performed as a home worker within

2005–41 I.R.B.

the meaning of section 3121(d)(3)(C) apply to any such payment made on or after
January 1, 1978. The provisions of paragraph (c) of this section that apply to any
payment of wages made for domestic service in a private home of the employer apply to any such payment made on or after
January 1, 1994. The provisions of paragraph (c) of this section that apply to any
payment of wages made for agricultural labor apply to any such payment made on or
after January 1, 1988. For rules applicable to any payment of wages for these services made prior to the dates set forth in
this paragraph (d)(2), see §31.3121(a)–2 in
effect at such time (see 26 CFR part 31 revised as of April 1, 2005).
Par. 4. Section 31.3121(a)(7)–1 is
amended by:
1. Revising paragraphs (c)(1) and
(c)(2).
2. Adding paragraphs (c)(3), (d) and
(e).
The additions and revisions read as follows:
§31.3121(a)(7)–1 Payments for services
not in the course of employer’s trade or
business or for domestic service.
*****
(c) Cash payments. (1) The term wages
does not include cash remuneration paid
by an employer in any calendar year to an
employee for—
(i) Domestic service in a private home
of the employer, unless the cash remuneration paid in such year by the employer
to the employee for such service equals or
exceeds the applicable dollar threshold (as
defined in section 3121(x)) for such year;
or
(ii) Service not in the course of the employer’s trade or business, unless the cash
remuneration paid in such year by the employer to the employee for such service
equals or exceeds $100.
(2) The tests relating to cash remuneration are based on the remuneration paid
in a calendar year rather than on the remuneration earned during a calendar year.
The following example illustrates this provision:
Example. On March 31, 2004, employer X pays
employee A cash remuneration of $100 for service
not in the course of X’s trade or business. Such remuneration constitutes wages subject to the taxes even
though $10 thereof represents payment for such service performed by A for X in December 2003.

712

(3) In determining whether wages have
been paid either for domestic service in a
private home of the employer or for service
not in the course of the employer’s trade or
business, only cash remuneration for such
service shall be taken into account. Cash
remuneration includes checks and other
monetary media of exchange. Remuneration paid in any other medium, such as
lodging, food, clothing, car tokens, transportation passes or tickets, or other goods
or commodities, is disregarded in determining whether the cash-remuneration test
is met. If an employee receives cash remuneration from an employer in a calendar year for both types of services the pertinent cash-remuneration test is to be applied separately to each type of service. If
an employee receives cash remuneration
from more than one employer in a calendar year for domestic service in a private
home of the employer or for service not in
the course of the employer’s trade or business, the pertinent cash-remuneration test
is to be applied separately to the remuneration received from each employer.
(d) Cross references. (1) For provisions
relating to deduction of employee tax or
amounts equivalent to the tax from cash
payments for the services described in this
section, see §31.3102–1;
(2) For provisions relating to time of
payment of wages for such services, see
§31.3121(a)–2;
(3) For provisions relating to computations to the nearest dollar of any payment of cash remuneration for domestic
service in a private home of the employer,
see §31.3121(i)–1.
(e) Effective dates. (1) The provisions
of this section apply to any cash payment
for service not in the course of the employer’s trade or business made on or after
January 1, 1978 and for domestic service
in a private home of the employer made on
or after January 1, 1994.
(2) For rules applicable to any cash payment made prior to the dates set forth in
paragraph (e)(1), see §31.3121(a)(7)–1 in
effect at such time (see 26 CFR part 31 revised as of April 1, 2005).
Par. 5. Section 31.3121(a)(8)–1 is
amended by:
1. Revising paragraphs (c), (d), and (e).
2. Adding paragraph (h).
The addition and revisions read as follows:

October 11, 2005

§31.3121(a)(8)–1 Payments for
agricultural labor.
*****
(c) Cash payments. (1) The term wages
does not include cash remuneration paid
by an employer in any calendar year to an
employee for agricultural labor unless—
(i) The cash remuneration paid in such
year by the employer to the employee for
such labor is $150 or more; or
(ii) The employer’s expenditures for
agricultural labor in such year equal or
exceed $2,500, except that this paragraph
(c)(1)(ii) shall not apply in determining
whether remuneration paid to an employee
constitutes wages for agricultural labor if
such employee—
(A) Is employed as a hand-harvest laborer and is paid on a piece rate basis in
an operation which has been, and is customarily and generally recognized as having been, paid on a piece rate basis in the
region of employment;
(B) Commutes daily from his permanent residence to the farm on which he is
so employed; and
(C) Has been employed in agriculture
less than 13 weeks during the preceding
calendar year.
(2) The application of the provisions of
paragraph (c)(1) of this section may be illustrated by the following example:
Example. Employer X pays A $140 in cash for
agricultural labor in calendar year 2004. X makes no
other payments to A during the year and makes no
other payment for agricultural labor to any other employee. Employee A is not employed as a hand-harvest laborer. Neither the $150-cash-remuneration test
nor the $2,500-employer’s-expenditures-for-agricultural-labor test is met. Accordingly, the remuneration paid by X to A is not subject to the taxes. If
in 2004 X had paid A $140 in cash for agricultural
labor and had made expenditures of $2,360 or more
to other employees for agricultural labor, the $140
paid by X to A would have been subject to tax because the $2,500-employer’s-expenditures-for-agricultural-labor test would have been met. Or, if X had
paid A $150 in cash in 2004 and made no other payments to any other employee for agricultural labor,
the $150 paid by X to A would have been subject to
tax because the $150-cash-remuneration test would
have been met.

(d) Application of cash-remuneration
test. (1) If an employee receives cash remuneration from an employer both for services which constitute agricultural labor
and for services which do not constitute
agricultural labor, only the amount of such
remuneration which is attributable to agricultural labor shall be included in deter-

October 11, 2005

mining whether cash remuneration of $150
or more has been paid in the calendar year
by the employer to the employee for agricultural labor. The following example illustrates this paragraph (d)(1):
Example. Employer X operates a store and also
is engaged in farming operations. Employee A, who
regularly performs services for X in connection with
the operation of the store, works on X’s farm when
additional help is required for the farm activities. In
the calendar year 2004, X pays A $140 in cash for
services performed in agricultural labor, and $4,000
for services performed in connection with the operation of the store. X has no additional expenditures
for agricultural labor in 2004. Since the cash remuneration paid by X to A in the calendar year 2004 for
agricultural labor is less than $150, the $150-cash-remuneration test is not met. The $140 paid by X to
A in 2004 for agricultural labor does not constitute
wages and is not subject to the taxes.

(2) The test relating to cash remuneration of $150 or more is based on the cash
remuneration paid in a calendar year rather
than on the remuneration earned during a
calendar year. It is immaterial if such cash
remuneration is paid in a calendar year
other than the year in which the agricultural labor is performed. The following example illustrates this paragraph (d)(2):
Example. Employer X pays cash remuneration
of $150 in the calendar year 2004 to employee A
for agricultural labor. Such remuneration constitutes
wages even though $10 of such amount represents
payment for agricultural labor performed by A for X
in December 2003.

(3) In determining whether $150 or
more has been paid to an employee for
agricultural labor, only cash remuneration
for such labor shall be taken into account.
If an employee receives cash remuneration in any one calendar year from more
than one employer for agricultural labor,
the cash-remuneration test is to be applied
with respect to the remuneration received
by the employee from each employer in
such calendar year for such labor.
(e) Application of employer’s-expenditures-for-agricultural-labor test. (1) If
an employer has expenditures in a calendar year for agricultural labor and for
non-agricultural labor, only the amount of
such expenditures for agricultural labor
shall be included in determining whether
the employer’s expenditures for agricultural labor in such year equal or exceed
$2,500. The following example illustrates
this paragraph (e)(1):
Example. Employer X operates a store and also
is engaged in farming operations. Employee A, who
regularly performs services for X in connection with
the operation of the store, works on X’s farm when
additional help is required for the farm activities. In

713

calendar year 2004, X pays A $140 in cash for services performed in agricultural labor, and $4,000 for
services performed in connection with the operation
of the store. X has no additional expenditures for
agricultural labor in 2004. Since X’s expenditures
for agricultural labor in 2004 are less than $2,500,
the employer’s-expenditures-for-agricultural-labor
test is not met. The $140 paid by X to A in 2004 for
agricultural labor does not constitute wages and is
not subject to the taxes.

(2) The test relating to an employer’s
expenditures of $2,500 or more for agricultural labor is based on the expenditures
paid by the employer in a calendar year
rather than on the expenses incurred by
the employer during a calendar year. It is
immaterial if the expenditures are paid in a
calendar year other than the year in which
the agricultural labor is performed. The
following example illustrates this paragraph (e)(2):
Example. Employer X employs A to construct
fences on a farm owned by X. The work constitutes
agricultural labor and is performed over the course of
November and December 2003. A is not employed
by X at any other time, however X does have other
employees to whom X pays remuneration of $2,000
for agricultural labor in 2003. X pays A $140 in cash
in November 2003 and $140 in cash in January 2004,
in full payment for the work. The $140 payment to
A made in November is not wages for calendar year
2003 because the $150-cash-remuneration test is not
met and X’s total expenditures for agricultural labor
for such year are not equal to or in excess of $2,500.
The $140 payment to A made in January is not wages
for 2004 because the $150 cash-remuneration test is
not met. However, if X pays additional remuneration
to employees for agricultural labor in 2004 that equals
or exceeds $2,360, the employer’s-expenditures-foragricultural-labor test will be met and the $140 paid
by X to A in 2004 will be considered wages. It is
immaterial that the work was performed in 2003.

*****
(h) Effective dates. The provisions of
this section apply to any payment for agricultural labor made on or after January 1,
1988. For rules applicable to any payment
for agricultural labor made prior to January
1, 1988, see §31.3121(a)(8)–1 in effect at
such time (see 26 CFR part 31 revised as
of April 1, 2005).
Par. 6. Section 31.3121(a)(10)–1 is
revised to read as follows:
§31.3121(a)(10)–1 Payments to certain
home workers.
(a) The term wages does not include
remuneration paid by an employer in any
calendar year to an employee for service performed as a home worker who
is an employee by reason of the provisions of section 3121(d)(3)(C) (see

2005–41 I.R.B.

§31.3121(d)–1(d)), unless the cash remuneration paid in such calendar year by
the employer to the employee for such
services is $100 or more. The test relating to cash remuneration of $100 or
more is based on remuneration paid in a
calendar year rather than on remuneration
earned during a calendar year. If cash
remuneration of $100 or more is paid in
a particular calendar year, it is immaterial
whether such remuneration is in payment
for services performed during the year of
payment or during any other year.
(b) The application of paragraph (a) of
this section may be illustrated by the following example:
Example. A, a home worker, performs services
for X, a manufacturer, in 2003 and 2004. In the performance of the home work A is an employee by reason of section 3121(d)(3)(C). In March 2004, A returns to X articles made by A at home from materials
received by A from X in 2003. X pays A cash remuneration of $100 for such work when the finished
articles are delivered. The $100 includes $10 which
represents remuneration for home work performed by
A in 2003. The entire $100 is subject to the taxes.
Any additional cash remuneration paid by X to A in
2004 for such services is also subject to the taxes.

(c) In the event an employee receives
remuneration in any one calendar year
from more than one employer for services
performed as a home worker of the character described in paragraph (a) of this
section, the regulations in this section are
to be applied with respect to the remuneration received by the employee from each
employer in such calendar year for such
services. This exclusion from wages has
no application to remuneration paid for
services performed as a home worker who
is an employee under section 3121(d)(2)
(see §31.3121(d)–1(c)) relating to common law employees.
(d) Cash remuneration includes checks
and other monetary media of exchange.
Remuneration paid in any other medium,
such as clothing, car tokens, transportation passes or tickets, or other goods or

The mileage rate that applies to the
deduction for charitable contributions is
fixed under § 170(i) of the Internal Revenue Code at 14 cents per mile.
The revised standard mileage rates set
forth in this announcement apply to de-

2005–41 I.R.B.

commodities, is disregarded in determining whether the $100 cash-remuneration
test is met. If the cash remuneration paid
in any calendar year by an employer to
an employee for services performed as a
home worker of the character described in
paragraph (a) of this section is $100 or
more, then no remuneration, whether in
cash or in any medium other than cash,
paid by the employer to the employee in
such calendar year for such services is excluded from wages under this exception.
(e)(1) For provisions relating to deductions of employee tax or amounts equivalent to the tax from cash payments for services performed as a home worker within
the meaning of section 3121(d)(3)(C), see
§31.3102–1.
(2) For provisions relating to the time of
payment of wages for services performed
as a home worker within the meaning of
section 3121(d)(3)(C), see §31.3121(a)–2.
(3) For provisions relating to records
to be kept with respect to payment of
wages for services performed as a home
worker within the meaning of section
3121(d)(3)(C), see §31.6001–2.
(f) The provisions of this section apply to any payment for services performed
as a home worker within the meaning of
section 3121(d)(3)(C) made on or after
January 1, 1978. For rules applicable to
any payment for services performed as a
home worker within the meaning of section 3121(d)(3)(C) made prior to January
1, 1978, see §31.3121(a)(10)–1 in effect at
such time (see 26 CFR part 31 revised as
of April 1, 2005).
Par.
7.
Section 31.3121(i)–1 is
amended as follows:
1. Redesignating the undesignated text
as paragraph (a).
2. Remove the language “quarter” each
place it appears and add “year” in its place
in newly designated paragraph (a).
3. Adding new paragraph (b).

The addition reads as follows:
§31.3121(i)–1 Computation to nearest
dollar of cash remuneration for domestic
service.
*****
(b) The provisions of this section apply
to any cash payment for domestic service
in a private home of the employer made
on or after January 1, 1994. For rules applicable to any cash payment for domestic service in a private home of the employer made prior to January 1, 1994, see
§31.3121(i)–1 in effect at such time (see 26
CFR part 31 revised as of April 1, 2005).
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on August 25,
2005, 8:45 a.m., and published in the issue of the Federal
Register for August 26, 2005, 70 F.R. 50228)

Optional Standard Mileage
Rates
Announcement 2005–71
This announcement informs taxpayers that the Internal Revenue Service is
modifying Rev. Proc. 2004–64, 2004–49
I.R.B. 898, by revising the optional standard mileage rates for computing the deductible costs of operating an automobile
for business, medical, or moving expense
purposes and for determining the reimbursed amount of these expenses that is
deemed substantiated. This modification
results from recent increases in the price
of fuel.
The revised standard mileage rates are:

(1) Business

48.5 cents per mile

(2) Medical and moving

22 cents per mile

ductible transportation expenses paid or
incurred for business, medical, or moving
expense purposes on or after September 1,
2005, and to mileage allowances that are
paid both (1) to an employee on or after
September 1, 2005, and (2) with respect

714

to transportation expenses paid or incurred
by the employee on or after September 1,
2005.
The standard mileage rates set forth in
Rev. Proc. 2004–64 continue to apply
to deductible transportation expenses paid

October 11, 2005

or incurred for business, medical, or moving expense purposes before September 1,
2005, and to mileage allowances paid both
(1) to an employee before September 1,
2005, and (2) with respect to transportation
expenses paid or incurred by the employee
before September 1, 2005. All other provisions of Rev. Proc. 2004–64 remain in
effect.

cations for Filing Form 1042-S, Foreign
Person’s U.S. Source Income Subject to
Withholding, Electronically or Magnetically. This information is general in nature. There are no legislative or format
changes. Information provided in Rev.
Proc. 2004–63, 2004–45 I.R.B. 795 (dated
November 8, 2004), is still valid with the
exception of the following items:

EFFECT ON OTHER DOCUMENTS

1.

The Martinsburg Computing Center
was renamed the Enterprise Computing Center-Martinsburg (ECC-MTB).

2.

IRS/ECC-MTB now offers an Internet connection at http://fire.irs.gov
for electronic filing. The FIRE System will be down from December 23,
2005, through January 3, 2006, for
upgrading. It is not operational during this time for submissions.

Rev. Proc. 2004–64 is modified.
DRAFTING INFORMATION
The principal author of this announcement is John Roman Faron of the Office
of Associate Chief Counsel (Income Tax
and Accounting). For further information regarding this announcement, contact
Mr. Faron at (202) 622–4930 (not a tollfree call).

Updated Information
for Publication 1187,
Specifications for Filing Form
1042-S, Foreign Person’s U.S.
Source Income Subject to
Withholding, Electronically or
Magnetically
Announcement 2005–73
This announcement provides updated
information to Publication 1187, Specifi-

October 11, 2005

3.

Beginning in Tax Year 2006, processing year 2007, IRS/ECC-MTB will no
longer accept 31/2-inch diskettes for
filing 1042-S information returns.

4.

Additional special characters were
added (e.g., period, apostrophe, pound
sign and forward slash). The special characters can be used in the
“W” record, fields 14–133 Withholding Agent’s Name Line 1–3; fields
134–213 Withholding Agent’s Street
Line 1 & 2; “Q” record, fields 94–213
Recipient’s Name Line 1–3; and,
fields 214–293 Recipient’s Street
Line 1 & 2.

715

5.

IRS/ECC-MTB strongly encourages
all electronic or magnetic media filers
to submit a test. Testing dates will be
November 1, 2005 through December
15, 2005.

6.

The following change was made to
the Withholding Agent “W” Record,
field position 13, field title Withholding Agent’s EIN Indicator:
a.

Note: Use EIN indicator 1 only if
the Withholding Agent’s EIN begins with “98” and the Withholding Agent’s City, State and Country Code fields indicate that the
Withholding Agent is not a U.S.
Withholding Agent.

Publication 1187 is available through
the IRS Website www.irs.gov.

2005–41 I.R.B.

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the effect:
Amplified describes a situation where
no change is being made in a prior published position, but the prior position is being extended to apply to a variation of the
fact situation set forth therein. Thus, if
an earlier ruling held that a principle applied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare with modified, below).
Clarified is used in those instances
where the language in a prior ruling is being made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguished describes a situation
where a ruling mentions a previously published ruling and points out an essential
difference between them.
Modified is used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A

and B, the prior ruling is modified because
it corrects a published position. (Compare
with amplified and clarified, above).
Obsoleted describes a previously published ruling that is not considered determinative with respect to future transactions. This term is most commonly used in
a ruling that lists previously published rulings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.
Superseded describes a situation where
the new ruling does nothing more than restate the substance and situation of a previously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same position published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single ruling a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new ruling does more than restate the substance

of a prior ruling, a combination of terms
is used. For example, modified and superseded describes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously published ruling is first modified and then, as
modified, is superseded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original ruling has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the additions, and supersedes all prior rulings in
the series.
Suspended is used in rare situations
to show that the previous published rulings will not be applied pending some
future action such as the issuance of new
or amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.

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.

Abbreviations
The following abbreviations in current use
and formerly used will appear in material
published 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.

2005–41 I.R.B.

i

October 11, 2005

Numerical Finding List1

Notices— Continued:

Revenue Rulings— Continued:

Bulletins 2005–27 through 2005–41

2005-69, 2005-40 I.R.B. 622

2005-40, 2005-27 I.R.B. 4

2005-70, 2005-41 I.R.B. 694

2005-41, 2005-28 I.R.B. 69

Announcements:
Proposed Regulations:
2005-46, 2005-27 I.R.B. 63

2005-42, 2005-28 I.R.B. 67
2005-43, 2005-29 I.R.B. 88

2005-47, 2005-28 I.R.B. 71

REG-144615-02, 2005-40 I.R.B. 625

2005-44, 2005-29 I.R.B. 87

2005-48, 2005-29 I.R.B. 111

REG-131739-03, 2005-36 I.R.B. 494

2005-45, 2005-30 I.R.B. 123

2005-49, 2005-29 I.R.B. 119

REG-130241-04, 2005-27 I.R.B. 18

2005-46, 2005-30 I.R.B. 120

2005-50, 2005-30 I.R.B. 152

REG-138362-04, 2005-33 I.R.B. 299

2005-47, 2005-32 I.R.B. 261

2005-51, 2005-32 I.R.B. 283

REG-138647-04, 2005-41 I.R.B. 697

2005-48, 2005-32 I.R.B. 259

2005-52, 2005-31 I.R.B. 257

REG-149436-04, 2005-35 I.R.B. 454

2005-49, 2005-30 I.R.B. 125

2005-53, 2005-31 I.R.B. 258

REG-156518-04, 2005-38 I.R.B. 582

2005-50, 2005-30 I.R.B. 124

2005-54, 2005-32 I.R.B. 283

REG-104143-05, 2005-41 I.R.B. 708

2005-51, 2005-31 I.R.B. 163

2005-55, 2005-33 I.R.B. 317

REG-121584-05, 2005-37 I.R.B. 523

2005-52, 2005-35 I.R.B. 423

2005-56, 2005-33 I.R.B. 318

REG-122857-05, 2005-39 I.R.B. 609

2005-53, 2005-35 I.R.B. 425

2005-57, 2005-33 I.R.B. 318

REG-129782-05, 2005-40 I.R.B. 675

2005-54, 2005-33 I.R.B. 289

2005-58, 2005-33 I.R.B. 319

REG-133578-05, 2005-39 I.R.B. 610

2005-55, 2005-33 I.R.B. 284

2005-59, 2005-37 I.R.B. 524

Revenue Procedures:

2005-60, 2005-35 I.R.B. 455

2005-56, 2005-35 I.R.B. 427
2005-57, 2005-36 I.R.B. 466

2005-61, 2005-36 I.R.B. 495

2005-35, 2005-28 I.R.B. 76

2005-58, 2005-36 I.R.B. 465

2005-62, 2005-36 I.R.B. 495

2005-36, 2005-28 I.R.B. 78

2005-59, 2005-37 I.R.B. 505

2005-63, 2005-36 I.R.B. 496

2005-37, 2005-28 I.R.B. 79

2005-60, 2005-37 I.R.B. 502

2005-64, 2005-37 I.R.B. 537

2005-38, 2005-28 I.R.B. 81

2005-61, 2005-38 I.R.B. 538

2005-65, 2005-38 I.R.B. 587

2005-39, 2005-28 I.R.B. 82

2005-62, 2005-38 I.R.B. 557

2005-66, 2005-39 I.R.B. 613

2005-40, 2005-28 I.R.B. 83

2005-63, 2005-39 I.R.B. 603

2005-67, 2005-40 I.R.B. 678

2005-41, 2005-29 I.R.B. 90

2005-64, 2005-39 I.R.B. 600

2005-68, 2005-39 I.R.B. 613

2005-42, 2005-30 I.R.B. 128

2005-65, 2005-41 I.R.B. 684

2005-69, 2005-40 I.R.B. 681

2005-43, 2005-29 I.R.B. 107

2005-66, 2005-41 I.R.B. 686

2005-70, 2005-40 I.R.B. 682

2005-44, 2005-29 I.R.B. 110

Tax Conventions:

2005-71, 2005-41 I.R.B. 714

2005-45, 2005-30 I.R.B. 141

2005-72, 2005-41 I.R.B. 692

2005-46, 2005-30 I.R.B. 142

2005-47, 2005-28 I.R.B. 71

2005-73, 2005-41 I.R.B. 715

2005-47, 2005-32 I.R.B. 269

2005-72, 2005-41 I.R.B. 692

2005-48, 2005-32 I.R.B. 271

Treasury Decisions:

Notices:

2005-49, 2005-31 I.R.B. 165

2005-48, 2005-27 I.R.B. 9

2005-50, 2005-32 I.R.B. 272

9208, 2005-31 I.R.B. 157

2005-49, 2005-27 I.R.B. 14

2005-51, 2005-33 I.R.B. 296

9209, 2005-31 I.R.B. 153

2005-50, 2005-27 I.R.B. 14

2005-52, 2005-34 I.R.B. 326

9210, 2005-33 I.R.B. 290

2005-51, 2005-28 I.R.B. 74

2005-53, 2005-34 I.R.B. 339

9211, 2005-33 I.R.B. 287

2005-52, 2005-28 I.R.B. 75

2005-54, 2005-34 I.R.B. 353

9212, 2005-35 I.R.B. 429

2005-53, 2005-32 I.R.B. 263

2005-55, 2005-34 I.R.B. 367

9213, 2005-35 I.R.B. 440

2005-54, 2005-30 I.R.B. 127

2005-56, 2005-34 I.R.B. 383

9214, 2005-35 I.R.B. 435

2005-55, 2005-32 I.R.B. 265

2005-57, 2005-34 I.R.B. 392

9215, 2005-36 I.R.B. 468

2005-56, 2005-32 I.R.B. 266

2005-58, 2005-34 I.R.B. 402

9216, 2005-36 I.R.B. 461

2005-57, 2005-32 I.R.B. 267

2005-59, 2005-34 I.R.B. 412

9217, 2005-37 I.R.B. 498

2005-58, 2005-33 I.R.B. 295

2005-60, 2005-35 I.R.B. 449

9218, 2005-37 I.R.B. 503

2005-59, 2005-35 I.R.B. 443

2005-61, 2005-37 I.R.B. 507

9219, 2005-38 I.R.B. 538

2005-60, 2005-39 I.R.B. 606

2005-62, 2005-37 I.R.B. 507

9220, 2005-39 I.R.B. 596

2005-61, 2005-39 I.R.B. 607

2005-63, 2005-36 I.R.B. 491

9221, 2005-39 I.R.B. 604

2005-62, 2005-35 I.R.B. 443

2005-64, 2005-36 I.R.B. 492

9222, 2005-40 I.R.B. 614

2005-63, 2005-35 I.R.B. 448

2005-65, 2005-38 I.R.B. 564

9223, 2005-39 I.R.B. 591

2005-64, 2005-36 I.R.B. 471

2005-66, 2005-37 I.R.B. 509

9224, 2005-41 I.R.B. 688

2005-65, 2005-39 I.R.B. 607

2005-68, 2005-41 I.R.B. 694

2005-66, 2005-40 I.R.B. 620

Revenue Rulings:

2005-67, 2005-40 I.R.B. 621
2005-68, 2005-40 I.R.B. 622

2005-38, 2005-27 I.R.B. 6
2005-39, 2005-27 I.R.B. 1

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2005–1 through 2005–26 is in Internal Revenue Bulletin
2005–26, dated June 27, 2005.

October 11, 2005

ii

2005–41 I.R.B.

Finding List of Current Actions on
Previously Published Items1

Revenue Procedures:

Bulletins 2005–27 through 2005–41

Obsoleted by

Announcements:

Rev. Rul. 2005-43, 2005-29 I.R.B. 88

64-54

Revenue Procedures— Continued:
Section 7 superseded by

66-33

Rev. Proc. 2005-56, 2005-34 I.R.B. 383
Section 8 superseded by

Obsoleted by

Rev. Proc. 2005-58, 2005-34 I.R.B. 402
Section 9 superseded by

Rev. Rul. 2005-43, 2005-29 I.R.B. 88

Rev. Proc. 2005-59, 2005-34 I.R.B. 412

69-13

93-22

Obsoleted by

Obsoleted by

Rev. Rul. 2005-43, 2005-29 I.R.B. 88

Rev. Proc. 2005-44, 2005-29 I.R.B. 110

70-8

98-18

Modified by

Obsoleted by

Rev. Proc. 2005-46, 2005-30 I.R.B. 142

Rev. Proc. 2005-45, 2005-30 I.R.B. 141

71-1

99-39

Obsoleted by

Superseded by

Rev. Rul. 2005-43, 2005-29 I.R.B. 88

Rev. Proc. 2005-60, 2005-35 I.R.B. 449

72-22

2000-27

Obsoleted by

Modified and superseded by

89-111

Rev. Rul. 2005-43, 2005-29 I.R.B. 88

Rev. Proc. 2005-66, 2005-37 I.R.B. 509

Amplified by

83-77

2000-31

Notice 2005-61, 2005-39 I.R.B. 607

Superseded by

Superseded by

2001-42

Rev. Proc. 2005-63, 2005-36 I.R.B. 491

Rev. Proc. 2005-60, 2005-35 I.R.B. 449

Modified by

87-8

2000-49

Rev. Proc. 2005-66, 2005-37 I.R.B. 509

Obsoleted by

Superseded by

2005-4

Rev. Proc. 2005-44, 2005-29 I.R.B. 110

Rev. Proc. 2005-41, 2005-29 I.R.B. 90

Modified by

87-9

2001-9

Notice 2005-62, 2005-35 I.R.B. 443

Obsoleted by

Superseded by

2005-10

Rev. Proc. 2005-44, 2005-29 I.R.B. 110

Rev. Proc. 2005-60, 2005-35 I.R.B. 449

Clarified by

89-20

2001-16

Notice 2005-64, 2005-36 I.R.B. 471

Superseded by

Superseded by

2005-38

Rev. Proc. 2005-52, 2005-34 I.R.B. 326

Rev. Proc. 2005-42, 2005-30 I.R.B. 128

Modified by

90–11

2002-9

Notice 2005-64, 2005-36 I.R.B. 471

Modified by

Modified and amplified by

2005-51

Rev. Proc. 2005-40, 2005-28 I.R.B. 83

Modified and superseded by

90-30

Notice 2005-57, 2005-32 I.R.B. 267

Section 4 superseded by

Rev.
Rev.
Rev.
Rev.

Proposed Regulations:

Rev. Proc. 2005-54, 2005-34 I.R.B. 353
Section 5 superseded by

2002-49

REG-108524-00

Rev. Proc. 2005-55, 2005-34 I.R.B. 367
Section 6 superseded by

Rev. Proc. 2005-62, 2005-37 I.R.B. 507

84-26
Obsoleted by
REG-149436-04, 2005-35 I.R.B. 454
2004-72
Updated and superseded by
Ann. 2005-59, 2005-37 I.R.B. 524
2005-36
Modified by
Rev. Proc. 2005-66, 2005-37 I.R.B. 509
2005-53
Corrected by
Ann. 2005-61, 2005-36 I.R.B. 495

Notices:

Corrected by

Rul. 2005-42, 2005-28 I.R.B. 67
Proc. 2005-35, 2005-28 I.R.B. 76
Proc. 2005-43, 2005-29 I.R.B. 107
Proc. 2005-47, 2005-32 I.R.B. 269

Modified, amplified, and superseded by

Rev. Proc. 2005-56, 2005-34 I.R.B. 383
Section 7 superseded by

2004-50
Rev. Proc. 2005-49, 2005-31 I.R.B. 165

Withdrawn by

Rev. Proc. 2005-58, 2005-34 I.R.B. 402
Section 8 superseded by

Ann. 2005-55, 2005-33 I.R.B. 317

Rev. Proc. 2005-59, 2005-34 I.R.B. 412

REG-100420-03

90-31

Corrected by

Section 4 superseded by

Ann. 2005-57, 2005-33 I.R.B. 318

Rev. Proc. 2005-52, 2005-34 I.R.B. 326
Section 5 superseded by

Ann. 2005-68, 2005-39 I.R.B. 613
REG-142686-01

REG-102144-04
Corrected by
Ann. 2005-56, 2005-33 I.R.B. 318

Superseded by

2004-54
Superseded by
Rev. Proc. 2005-65, 2005-38 I.R.B. 564

Rev. Proc. 2005-54, 2005-34 I.R.B. 353
Section 6 superseded by
Rev. Proc. 2005-55, 2005-34 I.R.B. 367

2004-64
Modified by
Ann. 2005-71, 2005-41 I.R.B. 714
2005-1
Amplified by
Rev. Proc. 2005-68, 2005-41 I.R.B. 694

1

A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2005–1 through 2005–26 is in Internal Revenue Bulletin 2005–26, dated June 27, 2005.

2005–41 I.R.B.

iii

October 11, 2005

Revenue Procedures— Continued:
2005-3
Amplified by
Rev. Proc. 2005-61, 2005-37 I.R.B. 507
Rev. Proc. 2005-68, 2005-41 I.R.B. 694
2005-6
Modified by
Rev. Proc. 2005-66, 2005-37 I.R.B. 509
2005-16
Modified by
Rev. Proc. 2005-66, 2005-37 I.R.B. 509

Revenue Rulings:
65-109
Obsoleted by
Rev. Rul. 2005-43, 2005-29 I.R.B. 88
68-549
Obsoleted by
Rev. Rul. 2005-43, 2005-29 I.R.B. 88
74-203
Revoked by
Rev. Rul. 2005-59, 2005-37 I.R.B. 505
82-29
Modified and clarified by
Rev. Proc. 2005-39, 2005-28 I.R.B. 82
2005-41
Corrected by
Ann. 2005-50, 2005-30 I.R.B. 152

Treasury Decisions:
9149
Removed by
T.D. 9221, 2005-39 I.R.B. 604
9186
Corrected by
Ann. 2005-53, 2005-31 I.R.B. 258
9193
Corrected by
Ann. 2005-62, 2005-36 I.R.B. 495
9205
Corrected by
Ann. 2005-63, 2005-36 I.R.B. 496
9206
Corrected by
Ann. 2005-49, 2005-29 I.R.B. 119
9207
Corrected by
Ann. 2005-52, 2005-31 I.R.B. 257
9210
Corrected by
Ann. 2005-64, 2005-37 I.R.B. 537

October 11, 2005

iv

*U.S. Government Printing Office: 2005—310–365/20026

2005–41 I.R.B.