Ann 2011-71

(ii) Redetermination of the P group’s NUBIG or
NUBIL. (A) Unduplicated built-in gain or loss with
respect to S1 Share 1 and S1 Share 2. The analysis
is the same as in paragraph (i)(B)(1) of Example 2
except that the unduplicated loss is $1.60, computed
as the excess of $17.60 ($20 aggregate basis in the
shares that are sold, tentatively reduced by $2.40, the
shares’ portion (2/10) of the $12 tentative adjustment
that tiered-up from S2) over $16 (the shares’ aggregate value).
(B) Redetermined NUBIG or NUBIL of the
P group. The P group’s redetermined NUBIL is
$11.60, which is the sum of S2’s NUBIL of $20, S1’s
NUBIL of $0, S’s NUBIG of $10, P’s NUBIG or
NUBIL of $0, M’s NUBIG or NUBIL of $0, and the
unduplicated stock loss of $1.60.
(C) Effect of redetermination. Of the $4 loss recognized on the Year 4 sale of Share 1 and Share 2,
all $4 is recognized built-in loss. The group’s redetermined NUBIL is $11.60, and thus all $4 of the $4
recognized built-in loss is subject to limitation under
section 382.
Example 5. NUBIL redetermined to be NUBIG.
(i) Disposition of stock of included member. (A)
Facts. On January 1, Year 1, P owns the sole outstanding share of S stock (basis $10, value $100).
S owns Truck 1 (basis $65, value $50) and Truck 2
(basis $45, value $50). January 1, Year 1, is a change
date for the P group. In Year 3, P sells its S share for
$100.
(B) Determination of the P group’s NUBIG or
NUBIL on change date. S’s assets are Truck 1 (with a
built-in loss of $15) and Truck 2 (with a built-in gain
of $5); therefore S has a separate NUBIL of $10. P’s
sole asset is the share of S stock, which is disregarded;
therefore, P has a separate NUBIG or NUBIL of zero.
Accordingly, on the change date, the P group has a
NUBIL of $10, reflecting the sum of S’s $10 NUBIL
and P’s $0 NUBIG/NUBIL.
(C) Redetermination of the P group’s NUBIG or
NUBIL on disposition of stock of included subsidiary.
(1) Unduplicated built-in gain or loss with respect to
the S share. Under paragraph (g)(7)(ii)(A) of this section, the unduplicated built-in gain or loss with respect to the S share sold in Year 3 is computed by
first treating S’s $10 NUBIL as having been recognized, taken into account, and absorbed immediately
before the ownership change. Then, under paragraph
(g)(7)(ii)(B) of this section, S’s $10 NUBIL is treated
as tentatively adjusting P’s basis in the S share under
the principles of §1.1502–32. Accordingly, P’s tentatively reduced basis in the S share is $10 - $10, or $0.
Further, the value of the S share was $100 immediately before the change date. The share’s $100 value
exceeds the $0 tentatively reduced basis in the share
by $100, and thus P has a $100 unduplicated gain in
its S stock.
(2) Redetermined NUBIG or NUBIL of the P
group. Immediately before P takes into account the
$90 gain on the sale of its share of S stock, the P
group’s $10 NUBIL is redetermined to be a $90
NUBIG, the sum of S’s NUBIL of $10 and the unduplicated gain in the S stock of $100.
(D) Effect of redetermination. Of the $90 gain
P recognized on the sale of the S share, all $90 is
recognized built-in gain and therefore, under section
382(h)(2)(A), the group’s section 382 limitation is increased by $90.

2011–46 I.R.B.

(ii) Disposition of loss asset prior to disposition
of stock of included subsidiary. (A) Facts. The facts
are the same as in paragraph (i)(A) of this Example
5, except that, in addition, in Year 2, S sells Truck
1 for $50, recognizing a $15 loss that is taken into
account and absorbed. As a result of the $15 loss
absorption, P’s basis in the S share is reduced to an
excess loss account of $5 in Year 2 and, thus, when P
sells the S share in Year 3, P recognizes $105 gain on
the sale ($100 sale proceeds + $5 excess loss account
recapture).
(B) Determination of the P group’s NUBIG or
NUBIL on change date. For the reasons set forth in
paragraph (i)(B) of this Example 5, the P group has a
NUBIL of $10 on the change date. Accordingly, S’s
$15 loss on Truck 1 is a recognized built-in loss under
section 382(h)(2)(B), and therefore subject to limitation to the extent of the $10 NUBIL.
(C) Redetermination of the P group’s NUBIG or
NUBIL on disposition of stock of included subsidiary.
(1) Unduplicated built-in gain or loss with respect to
the S share. For the reasons set forth in paragraph
(i)(C)(1) of this Example 5, the unduplicated built-in
gain with respect to the S share is $100.
(2) Redetermined NUBIG or NUBIL of the P
group. For the reasons set forth in paragraph (i)(C)(2)
of this Example 5, the P group’s NUBIG is redetermined to be $90. Immediately before P takes into
account the $100 gain on the sale of its share of S
stock, the P group’s $10 NUBIL is redetermined to
be a $90 NUBIG, the sum of S’s NUBIL of $10 and
P’s NUBIG of $100.
(D) Effect of redetermination. Of the $105 gain
P recognized on the sale of the S share, $90 is recognized built-in gain and therefore, under section
382(h)(2)(A), the group’s section 382 limitation is
increased by $90. The redetermination of P’s original
$10 NUBIL to a $100 NUBIG in Year 4 has no effect
on the treatment of the Year 2 recognized built-in
loss from the sale of Truck 1.

(k) Effective/Applicability date. Paragraphs (g)(1), (g)(7), (g)(8), (h)(2) and
(h)(4) of this section apply to amounts
taken into account with respect to a share
of stock of an included subsidiary on or after the date that final regulations are published in the Federal Register, but only
with respect to ownership changes occurring on or after October 24, 2011. For
amounts taken into account with respect to
a share of stock of an included subsidiary
not described in the preceding sentence,
see §§1.1502–91(g) and 1.1502–91(h) as
contained in 26 CFR part 1 in effect on
April 1, 2011.

(h) * * *
(2) Disposition of stock or an intercompany obligation of a member. Built-in
gain or loss recognized by a member
on the disposition of stock (including
stock described in section 1504(a)(4) and
§1.382–2T(f)(18)(ii) and (f)(18)(iii)) of
another member is treated as a recognized gain or loss for purposes of section
382(h)(2) (unless disallowed) without regard to the extent to which such gain or
loss was included in the determination of
a net unrealized built-in gain or loss under paragraph (g) of this section. Built-in
gain or loss recognized by a member with
respect to an intercompany obligation is
treated as recognized gain or loss only
to the extent (if any) that the transaction
gives rise to aggregate income or loss
within the consolidated group.

SECTION 1. BACKGROUND

*****
(4) Successor assets. * * *
*****

770

Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on October 21,
2011, 8:45 a.m., and published in the issue of the Federal
Register for October 24, 2011, 76 F.R. 65634)

Tribal Economic Development
Bonds — Request for Public
Comment on Volume Cap
Allocation Process and
Optional Extension of Deadline
to Issue Bonds
Announcement 2011–71

Section 1402 of Title I of Division B
of the American Recovery and Reinvestment Act of 2009, Pub. L. No. 111–5,
123 Stat. 115 (2009), added § 7871(f) to
the Internal Revenue Code (the “Code”).
In general, the purpose of § 7871(f) is
to give Indian tribal governments greater
flexibility to use tax-exempt bonds to finance economic development projects,
through the issuance of tribal economic
development bonds (“Tribal Economic
Development Bonds”), than is allowable
under the existing standard of § 7871(c).
Section 7871(f)(1) provides that the Treasury Department shall allocate the $2
billion national bond volume limitation
authority (“Volume Cap”) for Tribal Economic Development Bonds among the
Indian tribal governments in such manner
as the Treasury Department, in consultation with the Secretary of the Interior,
determines appropriate.

November 14, 2011

In Notice 2009–51, 2009–28 I.R.B. 128
(July 13, 2009), the Treasury Department
and the IRS addressed administrative procedures for initial allocations of the $2 billion Volume Cap.
On September 15, 2009, the IRS
announced allocations in an aggregate
amount of approximately $1 billion of
Volume Cap in the first tranche of allocation (the “First Allocation”) of authority
to issue Tribal Economic Development
Bonds. Section 7(f) of Notice 2009–51
provided that if bonds were not issued
by December 31, 2010, for any or all of
the allocation received by an Indian tribal
government from the First Allocation,
then such allocation would be treated as
forfeited. In Announcement 2010–88,
2010–47 I.R.B. 753 (November 22,
2010), the IRS announced an automatic
six-month extension of the administrative
deadline to issue bonds under bonding
authority from the First Allocation from
December 31, 2010, to June 30, 2011,
and a process by which Indian tribal
governments could receive an additional
six-month extension of the administrative
deadline to issue bonds under bonding
authority from the First Allocation from
June 30, 2011, to December 31, 2011.
Section 3 of Announcement 2010–88
provides that an allocation received
pursuant to the First Allocation shall
be treated as forfeited if bonds are
not issued by June 30, 2011, for an
allocation with respect to which the Indian
tribal government does not receive an
additional extension as described in the
announcement, or by December 31, 2011,
for an allocation with respect to which
the Indian tribal government receives an
additional extension.
On February 9, 2010, the IRS announced allocations in an aggregate
amount of approximately $1 billion of
Volume Cap in the second tranche of
allocation (the “Second Allocation”) of
authority to issue Tribal Economic Development Bonds. Section 7(f) of Notice
2009–51 provides that if bonds are not
issued by December 31, 2011, for any or
all of the allocation received by an Indian
tribal government from the Second Allocation, then such allocation will be treated
as forfeited.
Both Notice 2009–51 and Announcement 2010–88 provide that any allocation

November 14, 2011

amounts treated as forfeited may be available for allocation by the IRS as part of
an allocation process to be announced by
the IRS at some future date. The IRS estimates that, as of the date of this announcement, up to 95% or more of the $2 billion
in Volume Cap authorized for Tribal Economic Development Bonds may become
available for reallocation as of January 1,
2012.
SECTION 2. REQUEST FOR PUBLIC
COMMENT ON VOLUME CAP
ALLOCATION PROCESS
The IRS seeks public comment regarding the reallocation of available amounts
of Volume Cap for Tribal Economic Development Bonds in order to facilitate
issuance of such bonds by Indian tribal
governments. These available amounts
include amounts that were previously allocated and have been, or subsequently
are, forfeited under Notice 2009–51 and
Announcement 2010–88. The IRS seeks
public comment from Indian tribal governments and other interested members
of the public regarding appropriate methods to employ and criteria to consider in
reallocating this Volume Cap, based on
facts and circumstances affecting Indian
tribal governments and any other relevant
factors. The public comment deadline is
December 12, 2011.
On July 12, 2010, the Treasury Department published a notice in the Federal
Register (75 Fed. Reg. 39730 (July 12,
2010)) soliciting comments regarding the
Tribal Economic Development Bonds provision in § 7871(f) of the Code. The Treasury Department received 27 responses to
the notice from various Indian tribal governments, tribal organizations, and individual taxpayers. One question in the notice asked about Volume Cap and specifically referenced the $2 billion Tribal Economic Development Bonds authorization
as an example. The responses presented a
wide variety of thoughtful comments and
suggestions regarding Volume Cap.
The IRS is considering potential methods of reallocating Volume Cap that would
use an application process and criteria similar to those used to allocate Volume Cap
under Notice 2009–51. However, in response to tribal and public input and to
facilitate availability of Volume Cap for
projects, the IRS is considering improve-

771

ments to the process and reallocation criteria. The IRS is seeking additional input on the processes and criteria to be included in a method for reallocation. In addition to other processes and criteria, the
IRS is considering improvements relating
to the following categories of information
to increase the likelihood that an allocation
will result in issuance of Tribal Economic
Development Bonds. The IRS seeks general comments on each of these proposed
improvements. Certain additional comments about a proposed improvement are
also specifically requested below.

•

•

Project cost. The application process
may require information regarding the
estimated cost of the project, including
the portion to be financed by Tribal
Economic Development Bonds and
any portion to be financed by other
sources, if any, and how the estimated
cost was determined.
Plan for financing. The application
process may require information on
the plan for financing for the project,
including the following: (1) all reasonably expected sources and uses of
financing and the expected security
and sources of payment for the bonds,
(2) the anticipated date of issuance
of the Tribal Economic Development
Bonds and any other source of financing, (3) the issuer’s reasonably expected schedule for spending proceeds
of the Tribal Economic Development
Bonds and any other financing taking
into account such things as required
permits, engineering studies, architectural plans, and other commitments
or studies that are required in order
for the project to proceed with due
diligence, (4) whether amounts to be
made available by the Tribal Economic
Development Bonds plus other available funds (whether obtained through
financing or otherwise) are sufficient
to pay for the cost of the project, (5)
whether the Tribal Economic Development Bonds are marketable taking
into account the type and location of
project, the creditworthiness of the applicant, and other considerations, and
(6) whether the applicant will be able
to obtain financing from other sources
if required for project costs. The IRS
seeks specific comments on appropriate evidence to show the applicant’s

2011–46 I.R.B.

•

•

ability to obtain the expected security
and sources of payment for the bonds.
Evidence of readiness to issue. The application process may require information regarding an allocation recipients’
ability to use the allocation to issue
Tribal Economic Development Bonds
prior to the forfeiture deadline. A recipient’s ability to use the allocation
to issue Tribal Economic Development
Bonds prior to the forfeiture deadline
may be indicated by information relating to project cost and readiness,
marketability of Tribal Economic Development Bonds, and availability of
other required financing. Additionally,
the application process may require a
demonstration that, assuming receipt
of the requested Volume Cap and based
on the project and financing structure
described in the application (including the proposed security and source of
payment for the bonds), the proposed
bonds are expected to satisfy, upon issuance, all applicable requirements for
Tribal Economic Development Bonds
under federal tax law (for example, this
could be demonstrated through discussion with or preliminary tax analysis
from a recognized public finance attorney or law firm). The IRS seeks comments on the appropriate evidence that
will ensure that recipients are ready to
issue bonds and to use the proceeds
of such bonds if an allocation is received. Should the IRS require documentation supporting the readiness of
an applicant to issue the bonds and to
construct the project? If so, what documents should be required?
Allocation process. The IRS is considering a two-step allocation process.
The first step would be to provide applicants with written commitments for
an allocation award in the order of priority based on the application submission date and amount requested. The
second step – the actual allocation –
would be made a certain number of
days before closing, for instance, 60
days before closing on the loan or issuance of the bonds. The IRS seeks
specific comments on the number of
days an allocation would be “locked
in” before closing, as well as the maximum number of days from the date of
the allocation award commitment letter to the date of the actual allocation.

2011–46 I.R.B.

•

Reduced allocations. The IRS is considering a process to award allocations
less than the amount requested if the
total amount of Volume Cap requested
exceeds the remaining amount of unused and unallocated Volume Cap.
Generally, a reduced allocation would
not be awarded unless the applicant
demonstrates that it has the additional
financial resources to complete the
project.

Consistent with Executive Order
13175, the IRS expects to hold multiple
telephone consultations during the period
commencing on the publication of this
Announcement and ending December 12,
2011. After the consultations are completed and the comments are received and
considered, the IRS expects to provide
information about the determined process
through published guidance.
SECTION 3. SUBMISSION OF
COMMENTS.
Interested persons should send comments by mail to Internal Revenue
Service, CC:PA:LPD:PR (Announcement 2011–71), Room 5203, P.O. Box
7604, Ben Franklin Station, Washington, D.C. 20044. Alternatively, comments may be hand delivered Monday
through Friday between the hours of
8:00 a.m. and 4:00 p.m. to Courier’s
Desk, Internal Revenue Service, 1111
Constitution Avenue, NW, Washington, D.C. 20224, Attn: CC:PA:LPD:PR
(Announcement 2011–71). Comments
may also be transmitted electronically via the following e-mail address:
[email protected].
Please include “Announcement 2011–71”
in the subject line of any electronic
communication.
Written comments
should be received by December 12, 2011.
All submissions will be available for
public inspection and copying.
SECTION 4. OPTIONAL EXTENSION
OF ADMINISTRATIVE DEADLINE TO
ISSUE BONDS
Except as otherwise provided in this announcement, an Indian tribal government
that received an allocation of volume cap
from the First Allocation (if such Indian
tribal government received an extension

772

of the administrative deadline to issue
bonds pursuant to such allocation to December 31, 2011, pursuant to the process
described in Announcement 2010–88) or
the Second Allocation may submit a written request for an extension of time of
three months from December 31, 2011, to
March 31, 2012, to issue Tribal Economic
Development Bonds pursuant to those allocations. Indian tribal governments must
submit requests for such extensions to the
IRS by November 30, 2011. A request
for an extension must include: (1) a copy
of the allocation letter from the IRS for
the allocation to which the request relates;
and (2) statements from an official of the
Indian tribal government duly authorized
to execute legal documents on behalf of
the Indian tribal government in making
the request, made under penalty of perjury, including (a) a statement explaining
the reason for the extension of time, (b)
a statement that the Indian tribal government reasonably expects to issue Tribal
Economic Development Bonds pursuant
to such allocation on or before March 31,
2012, to finance the project described in
the Indian tribal government’s original application (“Application”), (c) a statement
that upon issuance of the bonds, the Indian tribal government will proceed with
due diligence to spend the proceeds of the
bonds for the qualified project described
in the Application, and (d) a statement that
such official has knowledge of the relevant facts and circumstances relating to
the request and the Application, has examined the request and the Application, and
that the information contained in the request and the Application is true, correct,
and complete. The request for an extension must also include documentation that
demonstrates the reasonableness of the
statements that the bonds are expected to
be issued on or before March 31, 2012 and
that, subsequent to the bond issuance, the
Indian tribal government will proceed with
due diligence to expend bond proceeds
for the qualified project described in
the Application.
Extensions are not
expected to be granted unless the
request demonstrates that there is both a
substantial and reasonable basis for the
expectation of bond issuance on or before
March 31, 2012 and an expectation of
proceeding with due diligence to expend
the bond proceeds for the project.

November 14, 2011

A request for an extension must be
submitted by mail to the Internal Revenue Service (IRS), SE:T:GE:TEB:CPM,
Attention: Mark Helfer, 1122 Town &
Country Commons, Chesterfield, Missouri 63017.
A request for an extension should not
include an inquiry relating to deviations
from information submitted in the Application under Section 8 of Notice 2009–51.
Section 8 of Notice 2009–51 provides
that an allocation of Volume Cap is valid
notwithstanding insubstantial deviations
from the information submitted in the Application. Section 8 of Notice 2009–51
also describes criteria applicable to determinations of whether a deviation with
respect to the information submitted in
the Application is insubstantial, as well
as procedures to apply for approval of
specific insubstantial deviations.
For requests submitted in compliance
with the requirements described in this An-

November 14, 2011

nouncement for extensions from December 31, 2011, to March 31, 2012, the IRS
expects to confirm the extensions by December 31, 2011.
If bonds are not issued by March 31,
2012, for any or all of an allocation of Volume Cap received by an Indian tribal government with respect to which the Indian
tribal government receives an extension as
described in this section, then any part of
such allocation that is not used is treated as
forfeited. Any allocation amounts treated
as forfeited may be available for reallocation by the IRS as part of an allocation
process already announced or to be announced by the IRS at some future date.
SECTION 5. EFFECT ON OTHER
TIMING REQUIREMENTS

feiture of allocations of Volume Cap received by Indian tribal governments pursuant to the First Allocation or the Second
Allocation.
SECTION 6. DRAFTING
INFORMATION
The principal authors of this announcement are Todd Mitchell of the IRS office of
Tax Exempt Bonds and Telly Meier of the
IRS office of Indian Tribal Governments.
However, other personnel from the IRS
and Treasury Department participated in
its development. For further information
regarding this announcement, contact
Debbie Cho of the IRS office of Tax
Exempt Bonds at (714) 347–9431 (not a
toll-free call).

Except as otherwise provided in this announcement, this announcement does not
modify any provisions relating to the for-

773

2011–46 I.R.B.