Notice 2006-47

or surface freight transfer facilities (the
$15,000,000,000 national limitation).
Section 142(m)(2)(B) provides that an
issue is not treated as a qualified highway
or surface freight transfer facility issue if
the aggregate face amount of bonds issued
pursuant to such issue for any qualified
highway or surface freight transfer facility
(when added to the aggregate face amount
of bonds previously so issued for such
facility) exceeds the amount allocated to
such facility under section 142(m)(2)(C).
Section 142(m)(2)(C) provides that the
Secretary of Transportation shall allocate the $15,000,000,000 national limitation among qualified highway or surface
freight transfer facilities in such a manner
as the Secretary determines appropriate.
Sections 142(a)(15) and 142(m) apply
to bonds issued after August 10, 2005.
ALLOCATIONS BY DEPARTMENT
OF TRANSPORTATION
While sections 142(a)(15) and 142(m)
are under the jurisdiction of the Internal
Revenue Service, the allocation of the
$15,000,000,000 national limitation is
under the jurisdiction of the Department
of Transportation. On January 5, 2006,
the Department of Transportation published in the Federal Register a notice
soliciting requests for allocations of the
$15,000,000,000 national limitation (71
Fed. Reg. 642).
Except as otherwise provided in this notice, if the Secretary of Transportation allocates a portion of the $15,000,000,000
national limitation to a project or facility,
the Internal Revenue Service shall treat the
portion of that project or facility which is
to be financed with the bonds, as represented in the request for the allocation, as
meeting the definition of qualified highway or surface freight transfer facilities
in section 142(m)(1). Thus, for example, the Internal Revenue Service will rely
on the Secretary of Transportation’s determination in allocating a portion of the
national limitation to a project or facility
that it receives the required Federal assistance under title 23 or title 49 of the
United States Code for purposes of the eligible project or facility definition under
section 142(m). Whether such representation accurately describes the portion of
the project or facility to be financed by
the bonds and whether such portion of the

2006–20 I.R.B.

project or facility is actually financed by
the bonds remains subject to verification
upon examination by the Internal Revenue
Service. A determination by the Secretary of Transportation that a project or portion thereof meets the definition of qualified highway or surface freight transfer facilities is not a determination that: (1) any
amounts are chargeable to a facility’s capital account or would be so chargeable either with a proper election by a taxpayer
or but for a proper election by a taxpayer to
deduct the amounts (see § 1.103–8(a)(1)(i)
of the Income Tax Regulations); or (2) any
other requirements that must be met in order for interest on the bonds to be excluded
from gross income are satisfied.
INFORMATION REPORTING
An issuer of tax-exempt private activity bonds for qualified highway or
surface freight transfer facilities must
complete Form 8038, Information Return
for Tax-Exempt Private Activity Bond Issues, in accordance with the instructions
and complete Part II by checking the box
on Line 11m (Other) writing “qualified
highway or surface freight transfer facility
bonds” in the space provided for the bond
description, and entering the amount of
the bonds in the Issue Price column.

informs taxpayers that they may revoke
certain elections that are currently in effect. Additional guidance regarding these
elections or revocations will be issued, as
needed.
SCOPE
This notice is not intended to be all inclusive, and thus, does not cover each and
every election or revocation of an election that was either created or affected by
the Act. Most notably, this notice does
not address any election or revocation for
which published guidance was issued prior
to May 1, 2006. In particular, this notice
does not address the elections or revocations described in the following sections of
the Act:
1.

Act Sec. 101 — Repeal of Exclusion
for Extraterritorial Income. See section 5 of Rev. Proc. 2001–37, 2001–1
C.B. 1327.

2.

Act Sec. 231 — Members Of Family
Treated As 1 Shareholder. See Notice
2005–91, 2005–51 I.R.B. 1164.

3.

Act Sec. 248 — Election to Determine Corporate Tax on Certain International Shipping Activities Using
Per Ton Rate. See Notice 2005–2,
2005–3 I.R.B. 337.

4.

Act Sec. 422 — Incentives to Reinvest Foreign Earnings in United
States.
See section 7 of Notice
2005–10, 2005–6 I.R.B. 474.

5.

Act Sec. 501 — Deduction of State
and Local General Sales Taxes in Lieu
of State and Local Income Taxes. See
Notice 2005–31, 2005–14 I.R.B. 830.

6.

Act Sec. 833 — Disallowance of Certain Partnership Loss Transfers. See
Notice 2005–32, 2005–16 I.R.B. 895.

7.

Act Sec. 836 — Limitation on Transfer or Importation of Built-In Losses.
See Notice 2005–70, 2005–41 I.R.B.
694.

DRAFTING INFORMATION
The principal author of this notice is
Aviva M. Roth of the Office of Associate
Chief Counsel (Tax Exempt & Government Entities). For further information regarding this notice, contact Aviva M. Roth
at (202) 622–3980 (not a toll-free call).

Elections Created or Affected
by the American Jobs Creation
Act of 2004
Notice 2006–47
The purpose of this notice is to alert taxpayers to various elections under the Internal Revenue Code that were created by
the American Jobs Creation Act of 2004,
Pub. L. No. 108–357, 118 Stat. 1418
(the Act), which was enacted on October
22, 2004, and provide interim guidance on
how those elections may be made. In light
of changes made by the Act, the notice also

892

INTERIM PROVISIONS
The Treasury Department and the Internal Revenue Service provide the following
interim rules to implement the elections

May 15, 2006

and revocations discussed below. The Service will treat elections or revocations as
effective if they are made in the form and
manner set forth in this notice. These interim rules will apply until further guidance is issued.
A. Title I — Provisions Relating to Repeal
of Exclusion for Extraterritorial Income
1. Act Sec. 102 — Deduction Relating
to Income Attributable to Domestic
Production Activities
Act section 102(c) allows a taxpayer to
revoke an election under section 631(a) of
the Code to treat the cutting of timber as
a sale or exchange. Any section 631(a)
election for a taxable year ending on or
before October 22, 2004, may be revoked
under Act section 102(c) for any taxable
year ending after that date. In addition, any
election under section 631(a) for a taxable
year ending on or before October 22, 2004
(and any revocation of the election under
Act section 102(c)), is disregarded for purposes of determining whether the taxpayer
is eligible to make a subsequent election
under section 631(a). A revocation under
Act section 102(c) will remain in effect until the first taxable year for which the taxpayer makes a new election under section
631(a).
Effective Date: An election under section 631(a) for a taxable year ending on or
before October 22, 2004, may be revoked
for a taxable year ending after that date.
Deadline for Making Election: The revocation must occur by the due date (including extensions) for filing the tax return
for the first taxable year for which the revocation is to be effective.
If, before June 15, 2006, a taxpayer
filed its federal tax return for a taxable
year ending after October 22, 2004, and
the taxpayer wants to revoke a section
631(a) election for that taxable year, the
taxpayer may make the revocation by filing an amended federal tax return for that
taxable year, and all subsequent affected
taxable year(s), on or before November
15, 2006.
If a taxpayer already revoked a section
631(a) election on a federal income tax return that was filed before June 15, 2006,
but did not include with that return all of
the information specified below under Interim Rules, the taxpayer should complete

May 15, 2006

the appropriate line in Part II of the December 2005 or later revision of Form T, if
Form T is otherwise required to be filed,
or prepare a statement revoking the section 631(a) election as specified below under Interim Rules, and attach it to the taxpayer’s next filed federal income tax return.
Interim Rules: The election under section 631(a) may be revoked by either completing the appropriate line in Part II of the
December 2005 or later revision of Form
T, if Form T is otherwise required to be
filed, or attaching a statement revoking the
election to the applicable tax return. The
statement should identify the revocation
as a revocation under Act section 102(c).
If, in accordance with this notice, the taxpayer is revoking a section 631(a) election
for a prior taxable year by filing amended
federal tax return(s), this statement should
be attached to the amended federal tax return(s).
B. Title II — Business Tax Incentives
1. Act Sec. 242 — Modification of
Application of Income Forecast Method
of Depreciation
Act section 242 allows taxpayers, under new section 167(g)(7) of the Code,
to either include participations and residuals expected to be paid before the end of
the tenth taxable year following the taxable year in which the property is placed
in service in the adjusted basis of property
for which the income forecast method of
depreciation is used, or exclude participations and residuals from the adjusted basis of property for which the income forecast method of depreciation is used and
deduct the participations and residuals in
the taxable year that the participations and
residuals are paid. The method elected for
a given property must be applied consistently thereafter.
Effective Date: Property placed in service after October 22, 2004.
Deadline for Making Election: The
election must be made by the due date
(including extensions) for filing the return
for the taxable year the income forecast
property is placed in service.
If, before June 15, 2006, a taxpayer
filed its federal tax return for a taxable
year ending after October 22, 2004, and
if the taxpayer wants to make a section

893

167(g)(7) election for income forecast
property placed in service during that
taxable year, the taxpayer may make the
election either: (1) by filing an amended
federal tax return for the taxable year
in which the income forecast property
was placed in service, and all subsequent
affected taxable year(s), on or before
November 15, 2006; or (2) by filing a
Form 3115, Application for Change in
Accounting Method, for the first or second
taxable year ending on or after December
31, 2005, in accordance with the automatic change in method of accounting
provisions of Rev. Proc. 2002–9, 2002–1
C.B. 327, as modified and clarified by
Announcement 2002–17, 2002–1 C.B.
561, modified and amplified by Rev.
Proc. 2002–19, 2002–1 C.B. 696, and
amplified, clarified, and modified by Rev.
Proc. 2002–54, 2002–2 C.B. 432, or any
successor. The change in method of accounting from filing a Form 3115 results
in a section 481(a) adjustment. Further,
the scope limitations in section 4.02 of
Rev. Proc. 2002–9 do not apply. Moreover, for purposes of section 6.02(4)(a) of
Rev. Proc. 2002–9, the taxpayer should
include on line 1a of the Form 3115 the
designated automatic accounting method
change number “99”.
Section 1.446–1(e)(3)(ii) of the Income
Tax Regulations authorizes the Commissioner to prescribe administrative procedures setting forth the limitations, terms,
and conditions deemed necessary to permit a taxpayer to obtain consent to change
a method of accounting. In addition, section 2.04 of Rev. Proc. 2002–9 provides that unless specifically authorized
by the Commissioner, a taxpayer may not
request, or otherwise make, a retroactive
change in method of accounting, regardless of whether the change is from a permissible or an impermissible method. See
generally Rev. Rul. 90–38, 1990–1 C.B.
57.
In
accordance
with
section
1.446–1(e)(3)(ii), Rev. Rul. 90–38,
and section 2.04 of Rev. Proc. 2002–9,
a taxpayer making a section 167(g)(7)
election for a prior taxable year by filing
amended federal tax return(s) in accordance with this notice is hereby granted
consent to make this retroactive change
in method of accounting using a cut-off
method.

2006–20 I.R.B.

If a taxpayer already made a section
167(g)(7) election on a federal income tax
return that was filed before June 15, 2006,
but did not include with that return all of
the information specified below under Interim Rules, the taxpayer should attach a
statement containing the information specified below under Interim Rules to the taxpayer’s next filed federal income tax return.
Interim Rules: For each property placed
in service during a particular taxable year,
a taxpayer should attach a statement to the
return for that taxable year providing the
name (or other unique identifying designation) of the property, stating how the taxpayer will treat participations and residuals, and providing the date the property
was placed in service. If, in accordance
with this notice, a taxpayer is making a
section 167(g)(7) election for a prior taxable year by filing amended federal tax return(s), this statement should be attached
to the amended federal tax return(s). If, in
accordance with this notice, a taxpayer is
making a section 167(g)(7) election for a
prior taxable year by filing a Form 3115
for the first or second taxable year ending
on or after December 31, 2005, the statement should be attached to the Form 3115.
2. Act Sec. 244 — Special Rules for
Certain Film and Television Productions
Act section 244 allows taxpayers to
elect, under new section 181 of the Code,
to treat the cost of any qualified film or
television production (as defined in section
181(d)) as an expense that is not chargeable to capital account and to deduct it.
This election does not apply, however, to
any qualified film or television production the aggregate cost of which exceeds
$15,000,000 (or $20,000,000 for the areas
specified in section 181(a)(2)(B)). Any
election made under section 181 may not
be revoked without the prior written consent of the Commissioner.
Effective Date: Qualified film and
television productions commencing after
October 22, 2004, and before January 1,
2009. A production commences when
principal photography begins with respect
to the production.
Deadline for Making Election: The
election must be made by the due date
(including extensions) for filing the return
for the taxable year in which costs of the

2006–20 I.R.B.

production are first paid or incurred. The
taxpayer also should attach a statement
to the return for each subsequent taxable
year in which costs of the production are
paid or incurred.
If a taxpayer begins principal photography of a production after October 22,
2004, but first paid or incurred costs of the
production before October 23, 2004, the
taxpayer is entitled to make a section 181
election for those costs. If, before June
15, 2006, the taxpayer filed its federal tax
return for the taxable year in which the
costs of the production were first paid or
incurred, and if the taxpayer wants to make
a section 181 election for that taxable year,
the taxpayer may make the election either:
(1) by filing an amended federal tax return for the taxable year in which the costs
of the production were first paid or incurred, and all subsequent affected taxable
year(s), on or before November 15, 2006,
provided that all of these years are open
under the period of limitations on assessment under section 6501(a); or (2) by filing
a Form 3115, Application for Change in
Accounting Method, for the first or second
taxable year ending on or after December
31, 2005, in accordance with the automatic
change in method of accounting provisions
of Rev. Proc. 2002–9, 2002–1 C.B. 327,
as modified and clarified by Announcement 2002–17, 2002–1 C.B. 561, modified and amplified by Rev. Proc. 2002–19,
2002–1 C.B. 696, and amplified, clarified,
and modified by Rev. Proc. 2002–54,
2002–2 C.B. 432, or any successor. The
change in method of accounting from filing a Form 3115 results in a section 481(a)
adjustment. Further, the scope limitations
in section 4.02 of Rev. Proc. 2002–9 do
not apply. Moreover, for purposes of section 6.02(4)(a) of Rev. Proc. 2002–9, the
taxpayer should include on line 1a of the
Form 3115 the designated automatic accounting method change number “100”.
Section 1.446–1(e)(3)(ii) of the Income
Tax Regulations authorizes the Commissioner to prescribe administrative procedures setting forth the limitations, terms,
and conditions deemed necessary to permit a taxpayer to obtain consent to change
a method of accounting. In addition, section 2.04 of Rev. Proc. 2002–9 provides that unless specifically authorized
by the Commissioner, a taxpayer may not
request, or otherwise make, a retroactive
change in method of accounting, regard-

894

less of whether the change is from a permissible or an impermissible method. See
generally Rev. Rul. 90–38, 1990–1 C.B.
57.
In
accordance
with
section
1.446–1(e)(3)(ii), Rev. Rul. 90–38,
and section 2.04 of Rev. Proc. 2002–9,
a taxpayer making a section 181 election
for a prior taxable year by filing amended
federal tax return(s) in accordance with
this notice is hereby granted consent to
make this retroactive change in method of
accounting using a cut-off method.
If a taxpayer already made a section
181 election on a federal income tax return that was filed before June 15, 2006,
but did not include with that return all of
the information specified below under Interim Rules, the taxpayer should attach a
statement containing the information specified below under Interim Rules to the taxpayer’s next filed federal income tax return.
Interim Rules: For each production
to which the election applies, a taxpayer
should attach a statement to the return for
the taxable year in which costs of the production are first paid or incurred stating
that the taxpayer is making an election
under section 181 and providing the name
(or other unique identifying designation)
of the production, the date principal photography commenced (if applicable), the
cost paid or incurred for the production
during the taxable year, the qualified compensation (as defined in section 181(d)(3))
paid or incurred for the production during
the taxable year, and the total compensation paid or incurred for the production
during the taxable year. If the taxpayer
expects that the total cost of the production
will be significantly paid or incurred in
an area specified in section 181(a)(2)(B),
the statement also should identify the area
and the cost paid or incurred in that area
during the taxable year.
If a taxpayer pays or incurs additional
costs of the production in any taxable year
subsequent to the taxable year in which
costs of the production are first paid or
incurred, the taxpayer should attach a
statement to the return for that subsequent
taxable year providing the name (or other
unique identifying designation) of the production, the date principal photography
commenced (if applicable), the cost paid
or incurred for the production during the
taxable year, the aggregate cost paid or

May 15, 2006

incurred for the production during the
taxable year and all prior taxable years,
the qualified compensation (as defined
in section 181(d)(3)) paid or incurred for
the production during the taxable year,
the aggregate qualified compensation paid
or incurred for the production during the
taxable year and all prior taxable years,
the total compensation paid or incurred
for the production during the taxable year,
and the aggregate total compensation paid
or incurred for the production during the
taxable year and all prior taxable years. If
the taxpayer expects that the total cost of
the production will be significantly paid
or incurred in an area specified in section
181(a)(2)(B), the statement also should
identify the area, the cost paid or incurred
in that area during the taxable year, and
the aggregate cost paid or incurred in that
area during the taxable year and all prior
taxable years.
If, in accordance with this notice, a taxpayer is making a section 181 election for
a prior taxable year by filing an amended
federal tax return, the above statements,
as applicable, should be attached to each
amended return. If, in accordance with this
notice, a taxpayer is making a section 181
election for a prior taxable year by filing
a Form 3115 for the first or second taxable year ending on or after December 31,
2005, the statement in the above paragraph
should be attached to the Form 3115 except
the amounts of the cost or compensation
paid or incurred for the production should
only be the amounts paid or incurred in
taxable years prior to the year of change
(as defined in section 5.02 of Rev. Proc.
2002–9).
C. Title III — Tax Relief for Agriculture
and Small Manufacturers
1. Act Sec. 313 — Apportionment of
Small Ethanol Producer Credit
Act section 313 allows a cooperative
described in section 1381(a) of the Code
to elect, on an annual basis, under new
section 40(g)(6) of the Code, to allocate
the cooperative’s small ethanol producer
credit pro rata among its patrons on the
basis of the quantity or value of business
done with or for its patrons for the taxable
year.
Effective Date: Taxable years ending
after October 22, 2004.

May 15, 2006

Deadline for Making Election: The
election must be made on a timely filed
return (including extensions) for the taxable year to which the election applies.
If, before June 15, 2006, a cooperative
filed its federal tax return for a taxable
year ending after October 22, 2004, and
if the cooperative wants to make a section
40(g)(6) election to allocate the cooperative’s small ethanol producer credit
pro rata among its patrons for that taxable year, the cooperative may make the
election by filing an amended return for
that taxable year on or before November
15, 2006. If a cooperative already made
a section 40(g)(6) election on a federal
income tax return that was filed before
June 15, 2006, but did not include with
that return all of the information specified
below under Interim Rules, the cooperative should attach a statement containing
the information specified below under Interim Rules to the cooperative’s next filed
federal income tax return. Once made,
the election is irrevocable for that taxable
year. Pursuant to section 1347(b) of the
Energy Policy Act of 2005, Pub. L. No.
109–58, 119 Stat. 594, 1056, effective for
taxable years ending after August 8, 2005,
the election shall not take effect unless the
cooperative provides written notice of the
election that is mailed to its patrons during
the payment period described in section
1382(d).
Interim Rules: The election may be
made by attaching the statement described
in the instructions to Form 6478, Credit
for Alcohol Used as Fuel, to the cooperative’s return. The cooperative should notify its patrons of the amount of credit apportioned to them in a written notice or on
Form 1099–PATR, Taxable Distributions
Received From Cooperatives, on or before
the last day of the payment period (as defined in section 1382(d)) for the taxable
year of the cooperative.
2. Act Sec. 322 — Expensing of Certain
Reforestation Expenditures
Act section 322 allows taxpayers to
elect, under section 194(b) of the Code, to
treat up to $10,000 of reforestation expenditures with respect to any qualified timber
property as an expense that is not chargeable to capital account and to deduct those
expenditures in the year paid or incurred
under section 194(b). The remainder of

895

the reforestation expenditures for the year
may be amortized over 84 months under
section 194(a).
Taxpayers making an election for a
qualified timber property under sections
194(a) or 194(b) should create and maintain separate timber accounts for each
qualified timber property and should include all reforestation treatments and the
dates upon which each was applied. Any
qualified timber property that is subject
to a section 194 election may not be included in any other timber account (e.g.,
depletion block) for which depletion is
allowed under section 611. At no time
may an amortizable timber account become part of a depletable timber account
for purposes of deduction under section
165(a). The timber account should be
maintained until the timber is disposed of
through sale, harvest or other transaction.
All records relating to a qualified timber
property account also should be maintained until disposal occurs.
Effective Date: Reforestation expenditures with respect to a qualified timber
property paid or incurred after October 22,
2004.
Deadline for Making Election: The
election must be made on a timely filed return (including extensions) for the taxable
year in which the reforestation expenditures with respect to a qualified timber
property were paid or incurred.
If, before June 15, 2006, a taxpayer
filed its federal tax return for a taxable year
ending after October 22, 2004, in which reforestation expenditures were paid or incurred after October 22, 2004, with respect to any qualified timber property, and
if the taxpayer wants to make a section
194(b) election for the reforestation expenditures paid or incurred during that taxable
year, the taxpayer may make the election
either: (1) by filing an amended federal
tax return for the taxable year in which
the taxpayer paid or incurred the reforestation expenditures for which the taxpayer
wants to make the election, and all subsequent affected taxable year(s), on or before November 15, 2006; or (2) by filing
a Form 3115, Application for Change in
Accounting Method, for the first or second
taxable year ending on or after December
31, 2005, in accordance with the automatic
change in method of accounting provisions
of Rev. Proc. 2002–9, 2002–1 C.B. 327,
as modified and clarified by Announce-

2006–20 I.R.B.

ment 2002–17, 2002–1 C.B. 561, modified and amplified by Rev. Proc. 2002–19,
2002–1 C.B. 696, and amplified, clarified,
and modified by Rev. Proc. 2002–54,
2002–2 C.B. 432, or any successor. The
change in method of accounting from filing a Form 3115 results in a section 481(a)
adjustment. Further, the scope limitations
in section 4.02 of Rev. Proc. 2002–9 do
not apply. Moreover, for purposes of section 6.02(4)(a) of Rev. Proc. 2002–9, the
taxpayer should include on line 1a of the
Form 3115 the designated automatic accounting method change number “101”.
Section 1.446–1(e)(3)(ii) of the Income
Tax Regulations authorizes the Commissioner to prescribe administrative procedures setting forth the limitations, terms,
and conditions deemed necessary to permit a taxpayer to obtain consent to change
a method of accounting. In addition, section 2.04 of Rev. Proc. 2002–9 provides that unless specifically authorized
by the Commissioner, a taxpayer may not
request, or otherwise make, a retroactive
change in method of accounting, regardless of whether the change is from a permissible or an impermissible method. See
generally Rev. Rul. 90–38, 1990–1 C.B.
57.
In
accordance
with
section
1.446–1(e)(3)(ii), Rev. Rul. 90–38,
and section 2.04 of Rev. Proc. 2002–9, a
taxpayer making a section 194(b) election
for a prior taxable year by filing amended
federal tax return(s) in accordance with
this notice is hereby granted consent to
make this retroactive change in method of
accounting using a cut-off method.
If a taxpayer already made a section
194(b) election on a federal income tax return that was filed before June 15, 2006,
but did not include with that return all of
the information specified below under Interim Rules, the taxpayer should complete
Part IV of the December 2005 or later revision of Form T, if Form T is otherwise
required to be filed, or prepare a statement containing the information specified
below under Interim Rules, and attach it
to the taxpayer’s next filed federal income
tax return.
Interim Rules: The election may be
made by entering the deduction claimed
on the appropriate line of a taxpayer’s income tax return for the year in which the
reforestation expenditures were paid or incurred, and either completing Part IV of

2006–20 I.R.B.

the December 2005 or later revision of
Form T, if Form T is otherwise required
to be filed, or attaching a statement to the
return that includes the following information for each qualified timber property
for which an election is being made: the
unique stand identification numbers, the
total number of acres reforested during the
taxable year, the nature of the reforestation treatments, and the total amounts of
the qualified reforestation expenditures eligible to be amortized under section 194(a)
or deducted under section 194(b). If, in
accordance with this notice, a taxpayer is
making a section 194(b) election for a prior
taxable year by filing amended federal tax
return(s), this statement should be attached
to the amended federal tax return(s). If,
in accordance with this notice, a taxpayer
is making a section 194(b) election for a
prior taxable year by filing a Form 3115
for the first or second taxable year ending
on or after December 31, 2005, the statement should be attached to the Form 3115.
An election under section 194 may be
revoked only with the consent of the Commissioner, which will only be granted in
rare and unusual circumstances. An application for consent to revoke an election
under section 194 should be submitted to
the Internal Revenue Service in the form
of a letter ruling request. The application
should contain all of the information necessary to demonstrate the rare and unusual
circumstances that would justify granting
the revocation including: the name and address of the taxpayer, the taxable years for
which the election was in effect, and the
reason for revoking the election.
3. Act Sec. 338 — Expensing of Capital
Costs Incurred in Complying With
Environmental Protection Agency Sulfur
Regulations
Act section 338 allows small business
refiners (as defined in section 45H(c)(1) of
the Code) to elect, under new section 179B
of the Code, to deduct 75 percent of the
qualified capital costs (as defined in section 45H(c)(2)) that are paid or incurred
by the taxpayer during the taxable year.
In general, qualified capital costs are costs
paid or incurred during a certain period to
comply with the Highway Diesel Fuel Sulfur Control Requirements of the Environmental Protection Agency. The basis of
any property must be reduced by the por-

896

tion of the cost of the property taken into
account under the election. Any election
made under section 179B(a) may not be
revoked without the prior written consent
of the Commissioner. This notice does
not apply to the election under new section
179B(e), which was added by section 1324
of the Energy Policy Act of 2005.
Effective Date: Qualified capital costs
that are paid or incurred after December
31, 2002, in taxable years ending after that
date.
Deadline for Making Election: The
election must be made by the due date
(including extensions) for filing the return
for the taxable year in which the qualified
capital costs are paid or incurred.
If, before June 15, 2006, a taxpayer
filed its federal income tax return for a taxable year ending after December 31, 2002,
in which qualified capital costs were paid
or incurred after December 31, 2002, and
if the taxpayer wants to make a section
179B(a) election for all qualified capital
costs paid or incurred during that taxable
year, the taxpayer may make the election
either: (1) by filing an amended federal tax
return for the taxable year in which the taxpayer paid or incurred the qualified capital
costs for which the taxpayer wants to make
the election, and all subsequent affected
taxable year(s), on or before November 15,
2006, provided that these years are open
under the period of limitations on assessment under section 6501(a); or (2) by filing
a Form 3115, Application for Change in
Accounting Method, for the first or second
taxable year ending on or after December
31, 2005, in accordance with the automatic
change in method of accounting provisions
of Rev. Proc. 2002–9, 2002–1 C.B. 327,
as modified and clarified by Announcement 2002–17, 2002–1 C.B. 561, modified and amplified by Rev. Proc. 2002–19,
2002–1 C.B. 696, and amplified, clarified,
and modified by Rev. Proc. 2002–54,
2002–2 C.B. 432, or any successor. The
change in method of accounting from filing a Form 3115 results in a section 481(a)
adjustment. Further, the scope limitations
in section 4.02 of Rev. Proc. 2002–9 do
not apply. Moreover, for purposes of section 6.02(4)(a) of Rev. Proc. 2002–9, the
taxpayer should include on line 1a of the
Form 3115 the designated automatic accounting method change number “102”.
Section 1.446–1(e)(3)(ii) of the Income
Tax Regulations authorizes the Commis-

May 15, 2006

sioner to prescribe administrative procedures setting forth the limitations, terms,
and conditions deemed necessary to permit a taxpayer to obtain consent to change
a method of accounting. In addition, section 2.04 of Rev. Proc. 2002–9 provides that unless specifically authorized
by the Commissioner, a taxpayer may not
request, or otherwise make, a retroactive
change in method of accounting, regardless of whether the change is from a permissible or an impermissible method. See
generally Rev. Rul. 90–38, 1990–1 C.B.
57.
In
accordance
with
section
1.446–1(e)(3)(ii), Rev. Rul. 90–38,
and section 2.04 of Rev. Proc. 2002–9,
a taxpayer making a section 179B(a)
election for a prior taxable year by filing
amended federal tax return(s) in accordance with this notice is hereby granted
consent to make this retroactive change
in method of accounting using a cut-off
method.
If a taxpayer already made a section
179B(a) election on a federal income tax
return that was filed before June 15, 2006,
but did not include with that return all of
the information specified below under Interim Rules, the taxpayer should attach a
statement containing the information specified below under Interim Rules to the taxpayer’s next filed federal income tax return.
Interim rules: The election may be
made by entering the deduction claimed
at the appropriate place on a taxpayer’s
federal tax return for the taxable year in
which the qualified capital costs are paid
or incurred, and by attaching a statement
to the return providing the amount of the
qualified capital costs, the calculation of
the deduction under section 179B, a description of the property for which the
basis is reduced by the portion of the cost
of the property taken into account under
the election, and the amount of that basis reduction. If, in accordance with this
notice, a taxpayer is making a section
179B(a) election for a prior taxable year
by filing amended federal tax return(s),
this statement should be attached to the
amended federal tax return(s). If, in accordance with this notice, a taxpayer is
making a section 179B(a) election for a
prior taxable year by filing a Form 3115
for the first or second taxable year ending

May 15, 2006

on or after December 31, 2005, the statement should be attached to the Form 3115.
4. Act Sec. 339 — Credit for Production
of Low Sulfur Diesel Fuel
Act section 339 allows cooperative organizations described in section 1381(a) of
the Code to elect, on an annual basis, under new section 45H(g) of the Code, to apportion any portion of the low sulfur diesel
fuel production credit for the taxable year
among patrons eligible to share in patronage dividends on the basis of the quantity
or value of business done with or for those
patrons for the taxable year.
Effective Date: The election applies to
expenses paid or incurred after December
31, 2002, in taxable years ending after that
date.
Deadline for Making Election: The
election must be made on a timely filed
return (including extensions) for the taxable year to which the election applies. If,
before June 15, 2006, a cooperative filed
its federal tax return for a taxable year
ending after December 31, 2002, and if
the cooperative wants to make a section
45H(g) election to apportion any portion
of the low sulfur diesel fuel production
credit for that taxable year among patrons
eligible to share in patronage dividends
for that taxable year, the cooperative may
make the election by filing an amended
return for that taxable year on or before
November 15, 2006, provided that all of
these years are open under the period of
limitations on assessment under section
6501(a). If a cooperative already made
a section 45H(g) election on a federal
income tax return that was filed before
June 15, 2006, but did not include with
that return all of the information specified
below under Interim Rules, the cooperative should attach a statement containing
the information specified below under Interim Rules to the cooperative’s next filed
federal income tax return. Once made,
the election is irrevocable for that taxable
year.
Interim Rules: The election may be
made by attaching the statement described
in the instructions to new Form 8896, Low
Sulfur Diesel Fuel Production Credit, to
the cooperative’s return. The cooperative
should notify the patrons of the amount of
credit apportioned to them in a written notice or on Form 1099–PATR, Taxable Dis-

897

tributions Received From Cooperatives, on
or before the last day of the payment period
(as defined in section 1382(d)) for the taxable year of the cooperative.
D. Title IV — Tax Reform and
Simplification for United States
Businesses
1. Act Sec. 401 — Interest Expense
Allocation Rules
Act section 401 allows worldwide affiliated groups (as defined in new section
864(f)(1)(C) of the Code) to make a onetime election, under new section 864(f) of
the Code, to allocate interest expense on
a worldwide basis. Act section 401 also
provides a one-time election to expand the
financial institution group of a worldwide
affiliated group. Once made, the elections
apply for the taxable year for which made
and all subsequent taxable years, unless revoked with the consent of the Secretary.
Effective Date: The election to allocate
interest expense on a worldwide basis may
be made only for the first taxable year beginning after December 31, 2008, in which
a worldwide affiliated group exists that includes at least 1 foreign corporation. The
election to expand a financial institution
group may be made only for the first taxable year beginning after December 31,
2008, in which the pre-election worldwide
affiliated group includes 1 or more financial corporations.
Deadline for Making Election: Each
election must be made by the due date (including extensions) for filing the return for
the first taxable year to which the election
applies.
Interim Rules: Guidance for making
these elections, which first become available in taxable years beginning after 2008,
will be provided in the instructions to Form
1118 or in other guidance at a later date.
2. Act Sec. 404 — Reduction to 2 Foreign
Tax Credit Baskets
Act section 404 allows taxpayers to
elect, under new section 904(d)(2)(H)(ii)
of the Code, to treat foreign tax paid or
accrued in taxable years beginning after
December 31, 2004, and before January
1, 2007, on an amount that does not constitute income for U.S. tax purposes as
imposed on general limitation income or
financial services income. Once the elec-

2006–20 I.R.B.

tion is made, it applies to the taxable year
for which made and all subsequent taxable
years beginning before January 1, 2007,
unless revoked with the consent of the
Commissioner.
Effective Date: Foreign taxes paid or
accrued in taxable years beginning after
December 31, 2004, and before January 1,
2007.
Deadline for Making Election: The
election must be made by the due date
(including extensions) for filing the tax
return for the first taxable year to which
the election applies.
If, before June 15, 2006, a taxpayer
filed its federal tax return for a taxable
year ending after December 31, 2004, and
if the taxpayer wants to make a section
904(d)(2)(H)(ii) election for foreign taxes
paid or accrued during that taxable year,
the taxpayer may make the election by
filing an amended federal tax return for
the taxable year in which the foreign taxes
were paid or accrued, and all subsequent
affected taxable year(s), on or before
November 15, 2006.
Interim Rules: An election to treat tax
on amounts that do not constitute income
for U.S. tax purposes as imposed on financial services income should be made by attaching a statement to the applicable tax
return and including the foreign taxes for
which the election is made on the separate
Form 1116 or Form 1118 filed with respect
to financial services income. No separate
statement is required to elect to treat taxes
on amounts that do not constitute income
for U.S. tax purposes as imposed on general limitation income. See Treas. Reg.
§ 1.904–6(a)(1)(iv). If, in accordance with
this notice, a taxpayer is making a section
904(d)(2)(H)(ii) election for a prior taxable year by filing amended federal tax return(s), this statement should be attached
to the amended federal tax return(s).
3. Act Sec. 408 — Translation of Foreign
Taxes
Act section 408 allows taxpayers that
otherwise must translate foreign income
tax payments at the average exchange rate
to elect, under new section 986(a)(1)(D) of
the Code, to use the exchange rate in effect on the date the taxes are paid, provided
the foreign taxes are denominated in nonfunctional currency. Once made, the election applies to the taxable year for which

2006–20 I.R.B.

made and all subsequent taxable years unless revoked with the consent of the Commissioner.
Effective Date: Taxable years beginning after December 31, 2004.
Deadline for Making Election: The
election must be made by the due date
(including extensions) for filing the tax
return for the first taxable year to which
the election applies.
If, before June 15, 2006, a taxpayer
filed its federal tax return for a taxable
year ending after December 31, 2004, and
if the taxpayer wants to make a section
986(a)(1)(D) election for that taxable year,
the taxpayer may make the election by
filing an amended federal tax return for
the taxable year in which the foreign taxes
were paid or accrued, and all subsequent
affected taxable year(s), on or before
November 15, 2006.
Interim Rules: A taxpayer may elect
to use the payment date exchange rates
to translate all foreign income taxes, or
it may elect to use the payment date
exchange rates to translate only those nonfunctional currency foreign income taxes
that are attributable to qualified business
units with U.S. dollar functional currencies. The election should be made by
attaching a statement to the applicable
tax return. The statement should identify
whether the election is made for all foreign
taxes or only for foreign taxes attributable
to qualified business units with a U.S. dollar functional currency. If, in accordance
with this notice, a taxpayer is making a
section 986(a)(1)(D) election for a prior
taxable year by filing amended federal tax
return(s), this statement should be attached
to the amended federal tax return(s).
E. Title VII — Miscellaneous Provisions
1. Act Sec. 706 — Certain Alaska Natural
Gas Pipeline Property treated as 7-Year
Property
Act section 706 allows taxpayers to
elect, under new section 168(i)(16)(B)(ii)
of the Code, to treat any Alaska natural gas
pipeline (as defined in section 168(i)(16))
that is placed in service after December
31, 2004, and before January 1, 2014, as
being placed in service on January 1, 2014.
If the election is made, the Alaska natural
gas pipeline that is subject to the election
will be subject to depreciation beginning

898

on January 1, 2014, and will be 7-year
property under section 168(e)(3)(C).
Effective Date: Property placed in service after December 31, 2004.
Deadline for Making Election: The
election must be made by the due date
(including extensions) for filing the return
for the taxable year the Alaska natural
gas pipeline is placed in service (determined before the application of section
168(i)(16)(B)(ii)).
Interim Rule: The election may be
made by not claiming any depreciation for
the pipeline on the return for the taxable
year the Alaska natural gas pipeline is
placed in service (determined before the
application of section 168(i)(16)(B)(ii)) if
this taxable year is before the taxpayer’s
taxable year that includes January 1, 2014.
F. Title VIII — Revenue Provisions
1. Act Sec. 909 — Sales or
Dispositions to Implement Federal
Energy Regulatory Commission or State
Electric Restructuring Policy
Act section 909 allows taxpayers that
realize qualified gain from a qualifying
electric transmission transaction (QETT)
to elect, under new section 451(i) of the
Code, to recognize all or part of the gain
ratably over an 8-year period beginning
with the year that includes the date of the
QETT.
Effective Date: QETTs after October
22, 2004, and before January 1, 2007 (subsequently extended by the Energy Policy
Act of 2005 to QETTs before January 1,
2008).
Deadline for Making Election: The
election must be made by the due date
(including extensions) for filing the return
for the taxable year in which the QETT
occurred.
If, before June 15, 2006, a taxpayer
filed its federal tax return for a taxable
year ending after October 22, 2004, and
if the taxpayer wants to make a section
451(i) election for a QETT occurring during that taxable year, the taxpayer may
make the election either: (1) by filing an
amended federal tax return for the taxable
year in which the QETT occurred and all
subsequent affected taxable year(s), on or
before November 15, 2006; or (2) by filing
a Form 3115, Application for Change in
Accounting Method, for the first or second

May 15, 2006

taxable year ending on or after December
31, 2005, in accordance with the automatic change in method of accounting
provisions of Revenue Procedure 2002–9,
2002–1 C.B. 327, as modified and clarified
by Announcement 2002–17, 2002–1 C.B.
561, modified and amplified by Revenue
Procedure 2002–19, 2002–1 C.B. 696,
and amplified, clarified, and modified
by Revenue Procedure 2002–54, 2002–2
C.B. 432, or any successor. The change
in method of accounting from filing a
Form 3115 results in a section 481(a) adjustment. Further, the scope limitations in
section 4.02 of Revenue Procedure 2002–9
do not apply. Moreover, for purposes of
section 6.02(4)(a) of Revenue Procedure
2002–9, the taxpayer should include on
line 1a of the Form 3115 the designated
automatic method change number “103”.
Section 1.446–1(e)(3)(ii) of the Income
Tax Regulations authorizes the Commissioner to prescribe administrative procedures setting forth the limitations, terms,
and conditions deemed necessary to permit a taxpayer to obtain consent to change
a method of accounting. In addition, section 2.04 of Rev. Proc. 2002–9 provides that unless specifically authorized
by the Commissioner, a taxpayer may not
request, or otherwise make, a retroactive
change in method of accounting, regardless of whether the change is from a permissible or an impermissible method. See
generally Rev. Rul. 90–38, 1990–1 C.B.
57.
In
accordance
with
section
1.446–1(e)(3)(ii), Rev. Rul. 90–38,
and section 2.04 of Rev. Proc. 2002–9, a
taxpayer making a section 451(i) election
for a prior taxable year by filing amended
federal tax return(s) in accordance with
this notice is hereby granted consent to
make this retroactive change in method of
accounting using a cut-off method.
If a taxpayer already made a section
451(i) election on a federal income tax return that was filed before June 15, 2006,
but did not include with that return all of
the information specified below under Interim Rules, the taxpayer should attach a
statement containing the information specified below under Interim Rules to the taxpayer’s next filed federal income tax return. Once made, the election is irrevocable.
Interim Rules: The election may be
made on a statement attached to the return

May 15, 2006

for the taxable year in which the QETT
occurred, that provides all of the details
regarding the QETT, including a description of the items of property sold; the date
of the QETT; the amount of proceeds realized and the amount of gain realized; a
description of any exempt utility property
purchased, its cost, the date of purchase,
and the identity of the purchaser (taxpayer
or other member of the taxpayer’s affiliated group); and a representation indicating the total cost of exempt utility property
the taxpayer intends to purchase.
If, in accordance with this notice, a taxpayer is making a section 451(i) election
for a prior taxable year by filing amended
federal tax return(s), this statement should
be attached to the amended federal tax return(s). If, in accordance with this notice, a taxpayer is making a section 451(i)
election for a prior taxable year by filing
a Form 3115 for the first or second taxable year ending on or after December 31,
2005, the statement should be attached to
the Form 3115.
PAPERWORK REDUCTION ACT
The collection of information contained
in this notice has been reviewed and approved by the Office of Management and
Budget in accordance with the Paperwork
Reduction Act (44 U.S.C. 3507) under
control number 1545–1986.
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.
The collections of information in this
notice are in sections A.1., B.1., B.2., C.1.,
C.2., C.3., C.4., D.2., D.3., and F.1.
1. Act Sec. 102 (section A.1.)
The estimated total annual reporting or
recordkeeping burden is 100 hours.
The estimated annual burden per respondent/recordkeeper varies from 15
minutes to 1 hour, depending on individual circumstances, with an estimated
average of 30 minutes. The estimated
number of respondents or recordkeepers
is 200.
The estimated annual frequency of responses (used for reporting requirements
only) is once.
The likely respondents are businesses
or other for-profit institutions, farms and
individuals.

899

This information is needed to inform
the IRS that an election under section
631(a) has been revoked in accordance
with Act section 102(c).
2. Act section 242 (section B.1.)
The estimated total annual reporting or
recordkeeping burden is 500 hours.
The estimated annual burden per respondent/recordkeeper varies from 30
minutes to 10 hours, depending on individual circumstances, with an estimated
average of 1 hour. The estimated number
of respondents or recordkeepers is 500.
The estimated annual frequency of responses (used for reporting requirements
only) is once.
The likely respondents are individuals
and businesses.
This information is needed to ensure the
consistent treatment of participations and
residuals for each property.
3. Act section 244 (section B.2.)
The estimated total annual reporting or
recordkeeping burden is 500 hours.
The estimated annual burden per respondent/recordkeeper varies from 30
minutes to 10 hours, depending on individual circumstances, with an estimated
average of 1 hour. The estimated number
of respondents or recordkeepers is 500.
The estimated annual frequency of responses (used for reporting requirements
only) is once.
The likely respondents are individuals
and businesses.
This information is needed to ensure
that each film or television production
qualifies for the deduction.
4. Act section 313 (section C.1.)
The estimated total annual reporting or
recordkeeping burden is 40 hours.
The estimated annual burden per respondent/recordkeeper varies from 30
minutes to 1.5 hours, depending on individual circumstances, with an estimated
average of 1 hour. The estimated number
of respondents or recordkeepers is 40.
The estimated annual frequency of responses (used for reporting requirements
only) is once.
The likely respondents are cooperatives
described in section 1381(a).
This information is needed to support
the pro rata apportionment among patrons
of the cooperative, as allowed by section
40(g)(6).
5. Act section 322 (section C.2.)

2006–20 I.R.B.

The estimated total annual reporting or
recordkeeping burden is 3 million hours.
The estimated annual burden per respondent/recordkeeper varies from 30
minutes to 3 hours, depending on individual circumstances, with an estimated
average of 1.5 hours. The estimated number of respondents or recordkeepers is 2
million.
The estimated annual frequency of responses (used for reporting requirements
only) is once.
The likely respondents are large timber
producers and independent timber producers, including nonindustrial landowners.
This information is needed to prevent
the improper shifting of basis between
qualified timber properties for which depletion is available and qualified timber
properties for which depletion is not available because an election under section 194
has been made.
6. Act section 338 (section C.3.)
The estimated total annual reporting or
recordkeeping burden is 75 hours.
The estimated annual burden per respondent/recordkeeper varies from 30
minutes to 1 hour, depending on individual circumstances, with an estimated
average of 45 minutes. The estimated
number of respondents or recordkeepers
is 100.
The estimated annual frequency of responses (used for reporting requirements
only) is once.
The likely respondents are businesses.
This information is needed to ensure
that the deduction is properly determined
and to ensure the specific identification of
each property for which the basis is reduced.
7. Act section 339 (section C.4.)
The estimated total annual reporting or
recordkeeping burden is 50 hours.
The estimated annual burden per respondent/recordkeeper varies from 30
minutes to 1.5 hours, depending on individual circumstances, with an estimated
average of 1 hour. The estimated number
of respondents or recordkeepers is 50.
The estimated annual frequency of responses (used for reporting requirements
only) is once.
The likely respondents are cooperatives
described in section 1381(a).
This information is needed to support
the apportionment of the section 45H(g)
credit among patrons of a cooperative.

2006–20 I.R.B.

8. Act section 404 (section D.2.)
The estimated total annual reporting or
recordkeeping burden is 7,500 hours.
The estimated annual burden per respondent/recordkeeper varies from 15
minutes to 1 hour, depending on individual circumstances, with an estimated
average of 30 minutes. The estimated
number of respondents or recordkeepers
is 15,000.
The estimated annual frequency of responses (used for reporting requirements
only) is once.
The likely respondents are large multinational corporations that are financial services entities.
This information is needed to enable the
IRS to verify the computation of the allowable foreign tax credit.
9. Act section 408 (section D.3.)
The estimated total annual reporting or
recordkeeping burden is 25,000 hours.
The estimated annual burden per respondent/recordkeeper varies from 15
minutes to 1 hour, depending on individual circumstances, with an estimated
average of 30 minutes. The estimated
number of respondents or recordkeepers
is 50,000.
The estimated annual frequency of responses (used for reporting requirements
only) is once.
The likely respondents are large multinational corporations.
This information is needed to enable the
IRS to verify the computation of the allowable foreign tax credit.
10. Act section 909 (section F.1.)
The estimated total annual reporting or
recordkeeping burden is 1,000 hours.
The estimated annual burden per respondent/recordkeeper varies from 30
minutes to 2 hours, depending on individual circumstances, with an estimated
average of 1 hour. The estimated number
of respondents or recordkeepers is 1,000.
The estimated annual frequency of responses (used for reporting requirements
only) is once.
The likely respondents are providers of
electric transmission services.
This information is needed to ensure
that the gain from the sale of certain electric transmission property is properly reported.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in

900

the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
EFFECT ON OTHER DOCUMENTS
Rev. Proc. 2002–9, 2002–1 C.B. 327,
as modified and clarified by Announcement 2002–17, 2002–1 C.B. 561, modified and amplified by Rev. Proc. 2002–19,
2002–1 C.B. 696, and amplified, clarified,
and modified by Rev. Proc. 2002–54,
2002–2 C.B. 432, is modified and amplified to include these automatic changes in
method of accounting in the APPENDIX.
DRAFTING INFORMATION
The principal author of this notice is
Henry S. Schneiderman of the Office of
Associate Chief Counsel (Procedure &
Administration). For further information
regarding the elections under Act sections
401, 404 or 408, contact the Office of
Associate Chief Counsel (International) at
(202) 622–3800 (not a toll-free call). For
further information regarding the elections
under Act sections 102, 242, 244, 313,
322, 338, 339 or 706, contact the Office of
Associate Chief Counsel (Passthroughs &
Special Industries) at (202) 622–3000 (not
a toll-free call). For further information
regarding the election under Act section
909, contact the Office of Associate Chief
Counsel (Income Tax & Accounting) at
(202) 622–4800 (not a toll-free call).
26 CFR 601.201: Rulings and determination letters.

Rev. Proc. 2006–23
SECTION 1. PURPOSE AND
BACKGROUND
.01 Purpose. This revenue procedure
sets forth the procedures by which taxpayers may obtain assistance from the
U.S. competent authority under the provisions of tax coordination agreements
entered into between the Internal Revenue Service (IRS) and the tax agencies
of American Samoa, Guam, the Commonwealth of the Northern Mariana Islands
(NMI), the United States Virgin Islands
(USVI), and Puerto Rico (collectively,
the possessions), as described in section
1.02 of this revenue procedure. The tax

May 15, 2006