Notice 2006-6

Bulletin No. 2006-5
January 30, 2006

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. 2006–6, page 381.
LIFO; price indexes; department stores. The November
2005 Bureau of Labor Statistics price indexes are accepted
for use by department stores employing the retail inventory
and last-in, first-out inventory methods for valuing inventories
for tax years ended on, or with reference to, November 30,
2005.

T.D. 9236, page 382.
Final regulations under section 1374 of the Code provide that
(a) section 1374(d)(8) applies to any transaction described in
that section that occurs on or after December 27, 1994, regardless of the date of the S corporation’s election under section 1362; and (b) for purposes of section 633(d)(8) of the Tax
Reform Act of 1986, as amended, a corporation’s most recent
S election, not an earlier election that has been revoked or
terminated, determines whether or not it is subject to current
section 1374.

REG–104385–01, page 389.
Proposed regulations under section 168 of the Code provide
guidance on the normalization requirements applicable to public utilities that benefit (or have benefited) from accelerated depreciation methods or from the investment tax credit permitted
under pre-1999 law. The regulations permit a utility whose assets cease to be public utility property to return to its ratepayers the normalization reserve for excess deferred income taxes
(EDFIT) with respect to those assets and, in certain circumstances, also permit the return of part or all of the reserve for
accumulated deferred investment tax credits (ADITC) with respect to those assets. A public hearing is scheduled for April
5, 2006.

Notice 2006–6, page 385.
This document notifies taxpayers and material advisors of a
future change to the categories of reportable transactions
under proposed section 1.6011–4 of the regulations. The
Service and Treasury Department will be issuing temporary
and proposed regulations under section 1.6011–4 that will
remove from the categories of reportable transactions under
section 1.6011–4(b)(1) the category of transactions with a
significant book-tax difference currently set forth in section
1.6011–4(b)(6). Until the amended regulations are issued,
taxpayers and material advisors may rely on this notice.

Notice 2006–10, page 386.
Hurricane Katrina evacuation allowances. This notice discusses the income and employment tax treatment of special
allowances paid by federal executive agencies to employees
and their dependents to reimburse certain expenses incurred
while evacuating from the Hurricane Katrina core disaster area
and staying at a safe haven.

EMPLOYEE PLANS
Notice 2006–8, page 386.
Weighted average interest rate update; 30–year Treasury securities. The weighted average interest rate for January 2006 and the resulting permissible range of interest rates
used to calculate current liability and to determine the required
contribution are set forth.

(Continued on the next page)

Finding Lists begin on page ii.
Index for January begins on page iv.

EXEMPT ORGANIZATIONS
Announcement 2006–9, page 392.
The Nunoi Foundation of Los Angeles, CA, no longer qualifies
as an organization to which contributions are deductible under
section 170 of the Code.

EMPLOYMENT TAX
Notice 2006–10, page 386.
Hurricane Katrina evacuation allowances. This notice discusses the income and employment tax treatment of special
allowances paid by federal executive agencies to employees
and their dependents to reimburse certain expenses incurred
while evacuating from the Hurricane Katrina core disaster area
and staying at a safe haven.

ADMINISTRATIVE
Notice 2006–6, page 385.
This document notifies taxpayers and material advisors of a
future change to the categories of reportable transactions
under proposed section 1.6011–4 of the regulations. The
Service and Treasury Department will be issuing temporary
and proposed regulations under section 1.6011–4 that will
remove from the categories of reportable transactions under
section 1.6011–4(b)(1) the category of transactions with a
significant book-tax difference currently set forth in section
1.6011–4(b)(6). Until the amended regulations are issued,
taxpayers and material advisors may rely on this notice.

Notice 2006–10, page 386.
Hurricane Katrina evacuation allowances. This notice discusses the income and employment tax treatment of special
allowances paid by federal executive agencies to employees
and their dependents to reimburse certain expenses incurred
while evacuating from the Hurricane Katrina core disaster area
and staying at a safe haven.

Rev. Proc. 2006–15, page 387.
This procedure provides the maximum vehicle values for
use of the special valuation rules under regulations sections
1.61–21(d) and (e). These values are indexed for inflation and
must be adjusted annually by referring to the Consumer Price
Index (CPI).

Announcement 2006–10, page 393.
This document provides notice of a public hearing on proposed
regulations (REG–131739–03, 2005–36 I.R.B. 494) relating to
the IRS preparing or executing returns for persons who fail to
make required returns. The hearing is scheduled for March 8,
2006.

January 30, 2006

2006–5 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.

2006–5 I.R.B.

January 30, 2006

Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 61.—Gross Income
Defined

Section 472.—Last-in,
First-out Inventories

26 CFR 1.61–21(e): Vehicle cents-per-mile valuation.

26 CFR 1.472–1: Last-in, first-out inventories.

A revenue procedure provides maximum vehicle
values for which the special valuation rules of regulations sections 1.61–21(d) and (e) may be used. See
Rev. Proc. 2006-15, page 387.

LIFO; price indexes; department
stores. The November 2005 Bureau of
Labor Statistics price indexes are accepted
for use by department stores employing
the retail inventory and last-in, first-out
inventory methods for valuing inventories
for tax years ended on, or with reference
to, November 30, 2005.

Section 280F.—Limitation
on Depreciation for Luxury
Automobiles; Limitation
Where Certain Property
Rev. Rul. 2006–6
Used for Personal Purposes
A revenue procedure provides maximum vehicle
values for which the special valuation rules of regulations sections 1.61–21(d) and (e) may be used. See
Rev. Proc. 2006-15, page 387.

The following Department Store Inventory Price Indexes for November 2005
were issued by the Bureau of Labor Statistics. The indexes are accepted by the Internal Revenue Service, under § 1.472–1(k)

of the Income Tax Regulations and Rev.
Proc. 86–46, 1986–2 C.B. 739, for appropriate application to inventories of
department stores employing the retail
inventory and last-in, first-out inventory
methods for tax years ended on, or with
reference to, November 30, 2005.
The Department Store Inventory Price
Indexes are prepared on a national basis
and include (a) 23 major groups of departments, (b) three special combinations of
the major groups — soft goods, durable
goods, and miscellaneous goods, and (c) a
store total, which covers all departments,
including some not listed separately, except for the following: candy, food, liquor,
tobacco, and contract departments.

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE
INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS
(January 1941 = 100, unless otherwise noted)

Groups
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.

Nov. 2004

Piece Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Domestics and Draperies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Women’s and Children’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Men’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Infants’ Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Women’s Underwear. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Women’s Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Women’s and Girls’ Accessories . . . . . . . . . . . . . . . . . . . . . . . . . . .
Women’s Outerwear and Girls’ Wear . . . . . . . . . . . . . . . . . . . . . . .
Men’s Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Men’s Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Boys’ Clothing and Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jewelry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Toilet Articles and Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and Bedding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Floor Coverings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Housewares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Major Appliances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Radio and Television. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recreation and Education2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Home Improvements2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Automotive Accessories2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2006–5 I.R.B.

381

507.8
535.3
656.6
842.9
584.3
518.5
342.0
583.1
376.8
542.5
581.5
430.1
879.0
789.1
998.6
601.7
590.2
711.8
201.6
40.7
79.5
130.6
113.1

Nov. 2005
480.6
508.2
684.7
868.9
564.1
548.8
339.8
582.1
368.3
542.1
574.9
403.5
861.4
803.1
1001.0
596.7
612.3
701.9
204.3
38.1
77.6
137.2
116.5

Percent Change
from Nov. 2004
to Nov. 20051
-5.4
-5.1
4.3
3.1
-3.5
5.8
-0.6
-0.2
-2.3
-0.1
-1.1
-6.2
-2.0
1.8
0.2
-0.8
3.7
-1.4
1.3
-6.4
-2.4
5.1
3.0

January 30, 2006

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE
INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS
(January 1941 = 100, unless otherwise noted)

Groups

Nov. 2004

Nov. 2005

Percent Change
from Nov. 2004
to Nov. 20051

Groups 1–15: Soft Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Groups 16–20: Durable Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Groups 21–23: Misc. Goods2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

566.4
380.5
92.9

561.0
376.2
93.1

-1.0
-1.1
0.2

Store Total3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

499.6

495.4

-0.8

1

Absence of a minus sign before the percentage change in this column signifies a price increase.
Indexes on a January 1986 = 100 base.
3
The store total index covers all departments, including some not listed separately, except for the following: candy, food, liquor,
tobacco, and contract departments.
2

DRAFTING INFORMATION
The principal author of this revenue
ruling is Michael Burkom of the Office
of Associate Chief Counsel (Income Tax
and Accounting). For further information regarding this revenue ruling, contact
Mr. Burkom at (202) 622–7924 (not a
toll-free call).

Section 1374.—Tax
Imposed on Certain
Built-In Gains

tus and later elect again to become S corporations.
DATES: Effective Date: These regulations
are effective December 21, 2005.
Applicability Dates: Section 1.1374–8
applies to any transaction described in
section 1374(d)(8) that occurs on or after
December 27, 1994. Section 1.1374–10
applies for taxable years beginning after
December 22, 2004.
FOR
FURTHER
INFORMATION
CONTACT: Stephen R. Cleary, (202)
622–7750, (not a toll-free number).

26 CFR 1.1374–8: Section 1374(d)(8) transactions.

SUPPLEMENTARY INFORMATION:

T.D. 9236
DEPARTMENT OF
THE TREASURY
Internal Revenue Service
26 CFR Part 1
Section 1374 Effective Dates
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains final regulations that provide guidance concerning the applicability of section 1374 of
the Internal Revenue Code to S corporations that acquire assets in carryover basis
transactions from C corporations on or after December 27, 1994, and to certain corporations that terminate S corporation sta-

January 30, 2006

Background
This document contains amendments
to 26 CFR Part 1. On December 22, 2004,
temporary regulations (T.D. 9170, 2005–4
I.R.B. 363) regarding the applicability
of section 1374 to S corporations that
acquire assets in certain carryover basis
transactions and to certain corporations
that terminate S corporation status and
later elect again to become S corporations
were published in the Federal Register
(69 FR 76612). A notice of proposed rulemaking (REG–139683–04, 2005–4 I.R.B.
371) cross-referencing the temporary regulations was published in the Federal
Register for the same day (69 FR 76635).
The temporary regulations provide that (1)
section 1374(d)(8) applies to any transaction described in that section that occurs
on or after December 27, 1994, regardless
of the date of the S corporation’s election

382

under section 1362, and (2) for purposes
of section 633(d)(8) of the Tax Reform
Act of 1986, as amended by the Technical
and Miscellaneous Revenue Act of 1988,
a corporation’s most recent S election, not
an earlier election that has been revoked
or terminated, determines whether or not
it is subject to current section 1374.
No comments were received responding to the notice of proposed rulemaking,
and no public hearing was requested
or held. The proposed regulations are
adopted with no substantive change by this
Treasury decision, and the corresponding
temporary regulations are removed.
Special Analyses
It has been determined that this regulation 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) and (d) of the Administrative Procedure Act (5 U.S.C. chapter
5) does not apply to §1.1374–8(a)(2)
of these regulations. With respect to
§1.1374–10(c) of these regulations, it has
been determined, pursuant to 5 U.S.C.
553(d)(3), that good cause exists to dispense with a delayed effective date. This
section, which is substantively identical to
currently effective temporary regulations,
merely continues to provide necessary
guidance to taxpayers with respect to the
application of the transition rule regarding
qualified corporations in section 633(d)(8)
of TRA, as amended by TAMRA, and,
accordingly, with respect to the applica-

2006–5 I.R.B.

tion of section 1374 to asset dispositions
which occur during taxable years beginning after December 22, 2004. Because
§1.1374–8(a)(2) does not impose a collection of information on small entities, it is
not subject to the provisions of the Regulatory Flexibility Act (5 U.S.C. chapter 6).
It is hereby certified that §1.1374–10(c)
of these regulations will not have a significant economic impact on a substantial
number of small entities. This certification
is based on the fact that §1.1374–10(c) of
these regulations addresses an uncommon
fact situation not likely to affect a significant number of small entities. Therefore,
a regulatory flexibility analysis is not required. Pursuant to section 7805(f) of the
Code, the notice of proposed rulemaking
preceding these final regulations was submitted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on its impact on small business.
Drafting Information
The principal author of these regulations is Stephen R. Cleary of the Office
of Associate Chief Counsel (Corporate).
Other personnel from Treasury and the IRS
participated in their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1 — INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding entries in numerical order to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.1374–8 also issued under 26
U.S.C 337(d) and 1374(e).* * *
Section 1.1374–10 also issued under 26
U.S.C. 337(d) and 1374(e).* * *
Par. 2. Section 1.1374–0 is amended
by revising the entries for §1.1374–8 and
adding an entry for §1.1374–10(c) to read
as follows:
§1.1374–0 Table of contents.
*****

2006–5 I.R.B.

§1.1374–8 Section 1374(d)(8)
transactions.

§1.1374–10 Effective date and additional
rules.

(a) In general.
(b) Effective date of section 1374(d)(8).
(c) Separate determination of tax.
(d) Taxable income limitation.
(e) Examples.

*****
(c) Termination and re-election of
S corporation status—(1) In general. For
purposes of section 633(d)(8) of the Tax
Reform Act of 1986, as amended, any reference to an election to be an S corporation
under section 1362 shall be treated as a
reference to the corporation’s most recent
election to be an S corporation under section 1362. This paragraph (c) applies for
taxable years beginning after December
22, 2004, without regard to the date of the
corporation’s most recent election to be an
S corporation under section 1362.
(2) Example. The following example
illustrates the rules of this paragraph (c):

*****
§1.1374–10 Effective date and additional
rules.
*****
(c) Revocation and re-election of S corporation status.
(1) In general.
(2) Example.
Par. 3. Section 1.1374–8 is amended
by:
1. Redesignating paragraphs (b), (c),
and (d) as paragraphs (c), (d), and (e), respectively.
2. Revising paragraph (a).
3. Adding new paragraph (b).
The revision and addition read as follows:
§1.1374–8 Section 1374(d)(8)
transactions.
(a) In general. If any S corporation acquires any asset in a transaction in which
the S corporation’s basis in the asset is determined (in whole or in part) by reference
to a C corporation’s basis in the assets (or
any other property) (a section 1374(d)(8)
transaction), section 1374 applies to the net
recognized built-in gain attributable to the
assets acquired in any section 1374(d)(8)
transaction.
(b) Effective date of section 1374(d)(8).
Section 1374(d)(8) applies to any section
1374(d)(8) transaction, as defined in paragraph (a)(1) of this section, that occurs on
or after December 27, 1994, without regard to the date of the corporation’s election to be an S corporation under section
1362.
*****
§1.1374–8T [Removed]
Par. 4. Section 1.1374–8T is removed.
Par. 5. Section 1.1374–10 is amended
by revising paragraph (c) to read as follows:

383

Example. (i) Effective January 1, 1988, X, a
C corporation that is a qualified corporation under
section 633(d) of the Tax Reform Act of 1986, as
amended, elects to be an S corporation under section
1362. Effective January 1, 1990, X revokes its S
status and becomes a C corporation. On January 1,
2004, X again elects to be an S corporation under
section 1362. X disposes of assets in 2006, 2007,
and 2008, recognizing gain.
(ii) X is not eligible for treatment under the transition rule of section 633(d)(8) of the Tax Reform Act
of 1986, as amended, with respect to these assets. Accordingly, X is subject to section 1374, as amended
by the Tax Reform Act of 1986 and the Technical and
Miscellaneous Revenue Act of 1988, and the 10-year
recognition period begins on January 1, 2004.
(iii) To the extent the gain that X recognizes on the
asset sales in 2006, 2007, and 2008 reflects built-in
gain inherent in such assets in X’s hands on January
1, 2004, such gain is subject to tax under section 1374
as amended by the Tax Reform Act of 1986 and the
Technical and Miscellaneous Revenue Act of 1988.

§1.1374–10T [Removed]
Par. 6. Section 1.1374–10T is removed.
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
Approved December 9, 2005.
Eric Solomon,
Acting Deputy Assistant
Secretary of the Treasury (Tax Policy).
(Filed by the Office of the Federal Register on December 20,
2005, 8:45 a.m., and published in the issue of the Federal
Register for December 21, 2005, 70 F.R. 75730)

January 30, 2006

Section 6011.—General
Requirement of Return,
Statement, or List
A notice notifies taxpayers and material advisors
of a future change to the categories of reportable
transactions under section 1.6011–4 of the Income
Tax Regulations. See Notice 2006-6, page 385.

January 30, 2006

Section 6111.—Disclosure
of Reportable Transactions
A notice notifies taxpayers and material advisors
of a future change to the categories of reportable
transactions under section 1.6011–4 of the Income
Tax Regulations. See Notice 2006-6, page 385.

384

Section 6112.—Material
Advisors of Reportable
Transactions Must Keep
Lists of Advisees, etc.
A notice notifies taxpayers and material advisors
of a future change to the categories of reportable
transactions under section 1.6011–4 of the Income
Tax Regulations. See Notice 2006-6, page 385.

2006–5 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Notification of Removal of the
Transaction With a Significant
Book-Tax Difference Category
of Reportable Transaction
Under § 1.6011–4
Notice 2006–6
The purpose of this notice is to notify
taxpayers and material advisors of a future change to the categories of reportable
transactions under § 1.6011–4 of the Income Tax Regulations. Until regulations
reflecting this change are issued, taxpayers and material advisors may rely on this
notice.
BACKGROUND
Section 1.6011–4 requires a taxpayer
that participates in a reportable transaction
to disclose the transaction in accordance
with procedures provided in § 1.6011–4.
Similarly, § 6111 of the Internal Revenue Code, as amended by the American
Jobs Creation Act of 2004, Pub. L. No.
108–357, 118 Stat. 1418 (the Act), requires that each material advisor with
respect to any reportable transaction make
a return setting forth information identifying and describing the transaction and any
potential tax benefits expected to result
from the transaction by the date specified by the Secretary. Section 6112, as
amended by the Act, requires material
advisors to maintain lists identifying each
person with respect to whom the advisor
acted as a material advisor and containing
such other information as the Secretary
may by regulations require.
Under § 1.6011–4(b), there are currently six categories of reportable transactions. One category of reportable transactions is a transaction with a significant
book-tax difference. A transaction with
a significant book-tax difference is defined in § 1.6011–4(b)(6) as a transaction
where the amount for tax purposes of any
item or items of income, gain, expense, or
loss from the transaction differs by more
than $10 million on a gross basis from
the amount of the item or items for book
purposes in any taxable year. The amount
of an item for book purposes is normally
determined by applying U.S. generally

2006–5 I.R.B.

accepted accounting principles for worldwide income.
In 2004, the Internal Revenue Service released Schedule M–3, Net Income
(Loss) Reconciliation for Corporations
With Total Assets of $10 Million or More,
for corporations that file Form 1120, U.S.
Corporation Income Tax Return, effective
for taxable years ending on or after December 31, 2004. On August 2, 2004, the
Service and Treasury Department released
Rev. Proc. 2004–45, 2004–2 C.B. 140,
which provided procedures for filing the
Schedule M–3 that are deemed to satisfy
a taxpayer’s disclosure obligations for
reporting transactions with a significant
book-tax difference under § 1.6011–4.
Rev. Proc. 2004–45 also announced that
the Service and Treasury Department will
continue to evaluate whether the disclosure requirements described in the revenue
procedure and Schedule M–3 provide the
Service and Treasury Department adequate information regarding significant
book-tax differences. In December 2005,
the Service released draft Schedules M–3
and instructions for corporations and partnerships that, in general, have total assets
of $10 million or more and that file Forms
1120–PC, U.S. Property and Casualty
Insurance Company Income Tax Return,
1120–L, U.S. Life Insurance Company
Income Tax Return, 1120–S, U.S. Income
Tax Return for an S Corporation, or 1065,
U.S. Return of Partnership Income. When
finalized, these Schedules M–3 will be
effective for tax years ending on or after
December 31, 2006.
Based on a review of the Forms 8886,
Reportable Transaction Disclosure Statement, and Schedules M–3 received during
the most recent filing season, the Service
and Treasury Department have concluded
that the book-tax difference category of
reportable transactions under § 1.6011–4
is no longer necessary. As a result, the
Service and Treasury Department will be
issuing temporary and proposed regulations under § 1.6011–4 that will remove
from the categories of reportable transactions under § 1.6011–4(b)(1) the category of transactions with a significant
book-tax difference currently set forth in
§ 1.6011–4(b)(6).

385

REMOVAL OF BOOK-TAX
DIFFERENCE CATEGORY UNDER
§ 1.6011–4
The removal of the book-tax difference category of reportable transactions
will apply to transactions with a significant book-tax difference that otherwise
would have to be disclosed by taxpayers
under § 1.6011–4 on Form 8886 (or on
Schedule M–3 as prescribed in Rev. Proc.
2004–45) on or after January 6, 2006, the
date this notice is released to the public.
Consequently, for those affected transactions, taxpayers are not required to file a
disclosure statement solely because the
transaction has a significant book-tax difference under § 1.6011–4(b)(6).
The removal of this category of reportable transaction also will apply to
transactions with a significant book-tax
difference that otherwise would have to
be disclosed by material advisors under
§ 6111 on Form 8264, Application for Registration of a Tax Shelter, on or after January 6, 2006. For those affected transactions, material advisors are not required to
file a disclosure statement solely because
the transaction has a significant book-tax
difference under § 1.6011–4(b)(6).
Similarly, the removal of this category
of reportable transaction will apply to
transactions with a significant book-tax
difference for which lists under § 6112
otherwise should have been prepared and
maintained beginning on or after January
6, 2006. For those affected transactions,
material advisors are not required to prepare and maintain lists solely because the
transaction has a significant book-tax difference under § 1.6011–4(b)(6).
This notice does not relieve taxpayers
or material advisors of any disclosure, registration or list maintenance obligations
for transactions that should have been disclosed or registered, or for transactions for
which lists should have been prepared and
maintained, prior to January 6, 2006. Further, this notice does not relieve taxpayers
of any obligation to file a Schedule M–3.
If a transaction with a significant
book-tax difference also is described
in § 1.6011–4(b)(2) through (5) or (7),
the transaction is a reportable transaction under § 1.6011–4 for which disclosure may be required by taxpayers under

January 30, 2006

§ 1.6011–4, and for which disclosure and
list maintenance may be required by material advisors under §§ 6111 and 6112,
respectively.
DRAFTING INFORMATION
The principal author of this notice
is Tara P. Volungis of the Office of the
Associate Chief Counsel (Passthroughs
& Special Industries). For further information regarding this notice, contact
Ms. Volungis at (202) 622–3080 (not a
toll-free call).

Weighted Average Interest
Rate Update
Notice 2006–8
Sections 412(b)(5)(B) and 412(l)(7)
(C)(i) of the Internal Revenue Code gen-

erally provide that the interest rates used
to calculate current liability for purposes
of determining the full funding limitation
under § 412(c)(7) and the required contribution under § 412(l) must be within
a permissible range around the weighted
average of the rates of interest on 30-year
Treasury securities during the four-year
period ending on the last day before the
beginning of the plan year.
Notice 88–73, 1988–2 C.B. 383, provides guidelines for determining the
weighted average interest rate and the
resulting permissible range of interest
rates used to calculate current liability for
the purpose of the full funding limitation
of § 412(c)(7) of the Code.
Section 417(e)(3)(A)(ii)(II) defines
the applicable interest rate, which must
be used for purposes of determining the
minimum present value of a participant’s
benefit under § 417(e)(1) and (2), as the
annual rate of interest on 30-year Treasury

Month

Year

30-Year
Treasury
Weighted
Average

January

2006

4.85

For Plan Years
Beginning in:

Drafting Information
The principal authors of this notice
are Paul Stern and Tony Montanaro of
the Employee Plans, Tax Exempt and
Government Entities Division. For further information regarding this notice,
please contact the Employee Plans’ taxpayer assistance telephone service at
1–877–829–5500 (a toll-free number),
between the hours of 8:30 a.m. and
4:30 p.m. Eastern time, Monday through
Friday. Mr. Stern may be reached at
1–202–283–9703. Mr. Montanaro may
be reached at 1–202–283–9714. The telephone numbers in the preceding sentences
are not toll-free.

January 30, 2006

securities for the month before the date
of distribution or such other time as the
Secretary may by regulations prescribe.
Section 1.417(e)–1(d)(3) of the Income
Tax Regulations provides that the applicable interest rate for a month is the annual
interest rate on 30-year Treasury securities as specified by the Commissioner for
that month in revenue rulings, notices or
other guidance published in the Internal
Revenue Bulletin.
The rate of interest on 30-year Treasury
securities for December 2005 is 4.65 percent. Pursuant to Notice 2002–26, 2002–1
C.B. 743, the Service has determined this
rate as the monthly average of the daily determination of yield on the 30-year Treasury bond maturing in February 2031.
The following 30-year Treasury rates
were determined for the plan years beginning in the month shown below.

90% to 105%
Permissible
Range

90% to 110%
Permissible
Range

4.37 to 5.10

4.37 to 5.34

Treatment of Certain
Travel, Lodging, and Other
Allowances Paid by Federal
Executive Agencies to
Employees Evacuated From
Hurricane Katrina Core
Disaster Area
Notice 2006–10

Katrina core disaster area” means that portion of the Hurricane Katrina Disaster Area
determined by the President to warrant individual or individual and public assistance from the federal government under
the Robert T. Stafford Disaster Relief and
Emergency Assistance Act. See § 2(2) of
the Katrina Emergency Tax Relief Act of
2005, Pub. L. No. 109–73, 119 Stat. 2016
(2005).

SECTION 1. PURPOSE

SECTION 2. BACKGROUND

This notice provides guidance on the
federal income and employment tax treatment of special allowances (as defined in
5 C.F.R. §§ 550.403(c) and 550.405(b)(2))
paid by federal executive agencies (as defined in 5 U.S.C. § 105) to employees
(as defined in 5 C.F.R. § 550.401(b)(2),
(3), and (4)) to reimburse certain expenses
the employees and their dependents incur while evacuating from the Hurricane
Katrina core disaster area and staying at
a safe haven as a result of the extraordinary damage and destruction caused by
Hurricane Katrina. The term “Hurricane

In the wake of Hurricane Katrina,
which was a Presidentially declared disaster, federal executive agencies may make
payments to their employees to reimburse
the costs of travel, lodging, meals, and
incidental expenses the employees and
their dependents incur while evacuating
from the Hurricane Katrina core disaster
area and staying at a safe haven. Federal
executive agencies are authorized to pay
these special allowances to employees under 5 U.S.C. § 5523(b) (“An employee in
an Executive agency may be granted such
additional allowance payments . . . .”)

386

2006–5 I.R.B.

and 5 C.F.R. § 550.403(c) if the employees and their dependents “are evacuated
in the United States because of natural
disasters or for military or other reasons
that create imminent danger to their lives.”
5 C.F.R. § 550.401(a). The payments authorized by 5 C.F.R. § 550.403(c) include
travel expenses and per diem payments to
offset direct added expenses the employees and their dependents incur due to an
evacuation. Additional special allowance
payments for subsistence expenses, as authorized by and computed under 5 C.F.R.
§ 550.405(b)(2), may be paid for a period
not to exceed 180 days after the effective
date of the order to evacuate. Federal executive agencies generally must determine
the amount of the special allowance payments for the employees and their dependents consistent with the Federal Travel
Regulation (FTR), 41 C.F.R. Chapters 300
through 304. For dependents under 12
years of age and for payments made after
the first 30 days of evacuation, the special
allowance payments are paid at a rate less
than the maximum per diem. 5 C.F.R.
§ 550.405. The regulations authorizing
these payments are silent as to whether
federal executive agencies are required
to take into account reimbursements from
other payors when determining the amount
of a special allowance.
Section 61 provides that except as otherwise provided in subtitle A of the Code,
gross income means all income from whatever source derived.
The Victims of Terrorism Tax Relief
Act of 2001, Pub. L. No. 107–134, 115
Stat. 2427 (2001), added § 139 to the
Code. Section 139(a) provides that gross
income shall not include any amount received by an individual as a qualified disaster relief payment.
Under § 139(b)(1), a qualified disaster
relief payment includes any amount paid to
or for the benefit of an individual to reimburse or pay reasonable and necessary personal, family, living, or funeral expenses
incurred as a result of a qualified disaster,
but only to the extent any expense compensated by such payment is not otherwise compensated for by insurance or otherwise.
Section 139(c) defines a qualified disaster to include:
(1) a disaster that results from a terroristic or military action (as defined in
§ 692(c)(2));

2006–5 I.R.B.

(2) a Presidentially declared disaster (as
defined in § 1033(h)(3)); or
(3) a disaster resulting from an accident
involving a common carrier, or from any
other event, that is determined by the Secretary to be of a catastrophic nature.
Section 139(d) provides that for purposes of chapter 2 and subtitle C of the
Code, a qualified disaster relief payment
shall not be treated as net earnings from
self-employment, wages, or compensation
subject to tax.
Because “of the extraordinary circumstances surrounding a qualified disaster, it
is anticipated that individuals will not be
required to account for actual expenses in
order to qualify for the [§ 139] exclusion,
provided that the amount of the payments
can be reasonably expected to be commensurate with the expenses incurred.” Joint
Committee on Taxation Staff, Technical
Explanation of the “Victims of Terrorism
Tax Relief Act of 2001,” As Passed by the
House and Senate on December 20, 2001,
107th Cong., 1st Sess. 16 (2001).
SECTION 3. APPLICATION
.01 Payments Made by Federal Executive Agencies to Which This Notice Applies
The special allowances described
in 5 U.S.C. § 5523(b) and 5 C.F.R.
§§ 550.403(c) and 550.405(b)(2) that
an employee receives as a result of Hurricane Katrina will be treated as reasonable,
necessary, and excludable from the gross
income and wages of the employee under
§ 139 to the extent that the expenses compensated by the special allowances are not
otherwise compensated for by insurance
or otherwise.
Federal executive agencies that pay
an employee special allowances authorized by 5 U.S.C. § 5523(b) and 5 C.F.R.
§§ 550.403(c) and 550.405(b)(2) as a
result of Hurricane Katrina will not be
required to report the special allowances
(even if the expenses are otherwise compensated for by insurance or otherwise) on
Form W–2, Wage and Tax Statement, or
to deduct and withhold taxes from these
amounts. In addition, the IRS will not
require either a Federal executive agency
or its employee to include any amount of
Hurricane Katrina special allowances in
wages for employment tax purposes (even
if the expenses are otherwise compensated
for by insurance or otherwise).

387

.02 Payments Made by Federal Executive Agencies to Which This Notice Does
Not Apply
The rules provided in section 3.01 of
this notice do not apply to payments not
described therein. For example, the rules
do not apply to advance payments of
pay, allowances, and differentials under
5 U.S.C. § 5522(a) and to payments made
by a federal executive agency to compensate an employee for expenses incurred in
relocating to the disaster area.
SECTION 4. DRAFTING
INFORMATION
The principal author of this notice is
Sheldon A. Iskow of the Office of Associate Chief Counsel (Income Tax and Accounting). For further information regarding this notice, please contact Mr. Iskow
at (202) 622–4920 (not a toll-free call).

26 CFR 1.61–21: Taxation of fringe benefits.
(Also Internal Revenue Code §§ 61, 280F.)

Rev. Proc. 2006–15
SECTION 1. PURPOSE
.01 This revenue procedure provides:
(1) the maximum value of employer-provided vehicles first made available to employees for personal use in calendar year
2006 for which the vehicle cents-per-mile
valuation rule provided under section
1.61–21(e) of the Income Tax Regulations may be applicable is $15,000 for a
passenger automobile and $16,400 for a
truck or van; (2) the maximum value of
employer-provided vehicles first made
available to employees for personal use in
calendar year 2006 for which the fleet-average valuation rule provided under section 1.61–21(d) of the regulations may
be applicable is $19,900 for a passenger
automobile and $21,400 for a truck or van.
SECTION 2. BACKGROUND
.01 If an employer provides an employee with a vehicle that is available
to the employee for personal use, the
value of the personal use must generally
be included in the employee’s income
and wages. Internal Revenue Code § 61;
Treas. Reg. § 1.61–21.

January 30, 2006

.02 For employer-provided passenger automobiles (including trucks and
vans) made available to employees for
personal use that meet the requirements
of section 1.61–21(e)(1) of the regulations, generally the value of the personal
use may be determined under the vehicle
cents-per-mile valuation rule of section
1.61–21(e). However, regulations section
1.61–21(e)(1)(iii)(A) provides that for a
passenger automobile first made available after 1988 to any employee of the
employer for personal use, the value of
the personal use may not be determined
under the vehicle cents-per-mile valuation
rule for a calendar year if the fair market
value of the passenger automobile (determined pursuant to regulations section
1.61–21(d)(5)(i) through (iv)) on the first
date the passenger automobile is made
available to the employee exceeds a specified dollar limit.
.03 For employer-provided vehicles
available to employees for personal use
for an entire year, generally the value of
the personal use may be determined under the automobile lease valuation rule
of section 1.61–21(d) of the regulations.
Under this valuation rule, the value of
the personal use is the Annual Lease
Value. Provided the requirements of regulations section 1.61–21(d)(5)(v) are met,
an employer with a fleet of 20 or more
automobiles may use a fleet-average value
for purposes of calculating the Annual
Lease Values of the automobiles in the
employer’s fleet. The fleet-average value
is the average of the fair market values of
all the automobiles in the fleet. However,
section 1.61–21(d)(5)(v)(D) of the regulations provides that for an automobile first
made available after 1988 to an employee
of the employer for personal use, the value
of the personal use may not be determined
under the fleet-average valuation rule for a
calendar year if the fair market value of the
automobile (determined pursuant to regulations section 1.61–21(d)(5)(i) through
(v)) on the first date the passenger automobile is made available to the employee
exceeds a specified dollar limit.
.04 The maximum passenger automobile values for applying the vehicle
cents-per-mile and the fleet-average value
rules reflect the automobile price inflation
adjustment of Code section 280F(d)(7).
The method of calculating this price inflation amount for automobiles other than

January 30, 2006

trucks and vans uses the “new car” component of the Consumer Price Index (CPI)
“automobile component”. When calculating this price inflation adjustment for
trucks and vans, the “new trucks” component of the CPI is used. This results
in somewhat higher maximum values for
trucks and vans. This change reflects the
higher rate of price inflation that trucks
and vans have been subject to since 1988,
and is consistent with the change announced in Rev. Proc. 2003–75, 2003–2
C.B. 1018, for purposes of calculating depreciation deductions. See also Rev. Proc.
2004–20, 2004–1 C.B. 642, and Rev.
Proc. 2005–13, 2005–12 I.R.B. 759. For
purposes of this revenue procedure, the
term “trucks and vans” refers to passenger
automobiles that are built on a truck chassis, including minivans and sport utility
vehicles (SUVs) that are built on a truck
chassis.
SECTION 3. PROCEDURE
.01 Maximum Automobile Value for
Using the Cents-per-mile Valuation Rule.
An employer providing a passenger automobile for the first time in calendar year
2006 for the personal use of any employee
may determine the value of the personal
use by using the vehicle cents-per-mile
valuation rule in section 1.61–21(e) of the
regulations if its fair market value on the
date it is first made available does not
exceed $15,000 for a passenger automobile other than a truck or van, or $16,400
for a truck or van. If the fair market
value of the passenger automobile exceeds
this amount, the employer may determine
the value of the personal use under the
general valuation rules of regulations section 1.61–21(b) or under the special valuation rules of section 1.61–21(d) (Automobile lease valuation) or section 1.61–21(f)
(Commuting valuation) if the applicable
requirements are met. See Rev. Proc.
2004–20 for guidance on determining the
maximum value of passenger automobiles
first made available during calendar year
2004, and Rev. Proc. 2005–48 for guidance on determining the maximum value
of passenger automobiles first made available during calendar year 2005.
.02 Maximum Automobile Value for
Using the Fleet-Average Valuation Rule.
An employer with a fleet of 20 or more
automobiles providing an automobile for

388

the first time in calendar year 2006 for
the personal use of any employee for an
entire year may determine the value of
the personal use by using the fleet-average valuation rule in regulations section
1.61–21(d)(5)(v) to calculate the Annual
Lease Values of the automobiles in the
fleet. The fleet-average valuation rule may
not be used to determine the Annual Lease
Value of any automobile if its fair market
value on the date it is first made available
exceeds $19,900 for a passenger automobile other than a truck or van, or $21,400
for a truck or van. If all other applicable requirements are met, an employer
with a fleet of 20 or more vehicles consisting of passenger automobiles other than
trucks or vans as well as trucks and vans
may use the fleet-average valuation rule
as long as none of the vehicles exceed
their respective maximum allowable values. If the fair market value of any passenger automobile in the fleet exceeds these
amounts, the employer may determine the
value of the personal use under regulations
section 1.61–21(f) (Commuting valuation)
or the general valuation rules of section
1.61–21(b), or may determine the Annual
Lease Value of such automobile separately
under the automobile lease valuation rule
of section 1.61–21(d)(2) if the applicable
requirements are met.
SECTION 4. EFFECTIVE DATE
This revenue procedure applies to employer-provided passenger automobiles
first made available to employees for personal use in calendar year 2006.
SECTION 5. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Frederick L. Wesner of the
Office of Division Counsel/Associate
Chief Counsel (Tax Exempt/Government
Entities). For further information regarding the maximum automobile value
for applying the valuation rules of regulations section 1.61–21(e)(1)(iii)(A)
(the vehicle cents-per-mile valuation
rule), and section 1.61–21(d)(5)(v)(D)
(the fleet-average valuation rule), contact
Frederick L. Wesner at (202) 622–6040
(not a toll-free call).

2006–5 I.R.B.

Part IV. Items of General Interest
Notice of Proposed
Rulemaking, Notice of Public
Hearing, and Withdrawal
of Previous Proposed
Regulations
Application of Normalization
Accounting Rules to Balances
of Excess Deferred Income
Taxes and Accumulated
Deferred Investment Tax
Credits of Public Utilities
Whose Assets Cease to be
Public Utility Property
REG–104385–01
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking,
notice of public hearing, and withdrawal of
previous proposed regulations.
SUMMARY: This document contains proposed regulations that provide guidance
on the normalization requirements applicable to public utilities that benefit (or
have benefited) from accelerated depreciation methods or from the investment
tax credit permitted under pre-1991 law.
The proposed regulations permit a utility whose assets cease to be public utility
property to return to its ratepayers the normalization reserve for excess deferred income taxes (EDFIT) with respect to those
assets and, in certain circumstances, also
permit the return of part or all of the reserve for accumulated deferred investment
tax credits (ADITC) with respect to those
assets. This document also provides notice
of a public hearing on these proposed regulations and a withdrawal of proposed regulations [REG–104385–01, 2003–1 C.B.
634] published March 4, 2003, at 68 FR
10190.
DATES: Written or electronic comments
must be received by March 21, 2005. Requests to speak and outlines of topics to be
discussed at the public hearing scheduled
for April 5, 2006, at 10 a.m. must be received by March 15, 2006.

2006–5 I.R.B.

ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–104385–01), room
5203, Internal Revenue Service, PO Box
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–104385–01),
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
www.regulations.gov (indicate IRS and
REG–104385–01). The public hearing
will be held in the IRS Auditorium, Internal Revenue Building, 1111 Constitution
Avenue, NW, Washington, DC.
FOR
FURTHER
INFORMATION
CONTACT: Concerning the proposed regulations, David Selig, at (202) 622–3040;
concerning submissions of comments, the
hearing, or to be placed on the building access list to attend the hearing,
Richard Hurst, at (202) 622–7180 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed
amendments to the Income Tax Regulations (26 CFR Part 1) relating to the
normalization requirements of sections
168(f)(2) and 168(i)(9) of the Internal
Revenue Code (Code), section 203(e)
of the Tax Reform Act of 1986, Public
Law 99–514 (100 Stat. 2146), and former section 46(f) of the Code. Proposed
regulations relating to the normalization
requirements applicable to electric utilities that benefit (or have benefited) from
accelerated depreciation methods or from
the investment tax credit permitted under
pre-1991 law [REG–104385–01] were
published in the Federal Register on
March 4, 2003 (the 2003 proposed regulations). The 2003 proposed regulations
would have provided rules under which
electric utilities whose electricity generation assets cease to be public utility
property, whether by disposition, deregulation, or otherwise, could continue to

389

flow through certain reserves associated
with those assets without violating the
normalization requirements. In response
to public comments and after further analysis, the 2003 proposed regulations are
withdrawn, and new regulations are proposed in this document.
Normalization Method of Accounting
Section 168 of the Code permits the use
of accelerated depreciation methods. Section 168(f)(2) provides, however, that accelerated depreciation is permitted with respect to public utility property only if the
taxpayer uses a normalization method of
accounting for ratemaking purposes.
Under a normalization method of accounting, a utility calculates its ratemaking
tax expense using depreciation that is no
more accelerated than its ratemaking depreciation (typically straight-line). In the
early years of an asset’s life, this results
in ratemaking tax expense that is greater
than actual tax expense. The difference
between the ratemaking tax expense and
the actual tax expense is added to a reserve
(the accumulated deferred federal income
tax reserve, or ADFIT). The difference between ratemaking tax expense and actual
tax expense is not permanent and reverses
in the later years of the asset’s life when the
ratemaking depreciation method provides
larger depreciation deductions and lower
tax expense than the accelerated method
used in computing actual tax expense.
This accounting treatment prevents
the immediate flow-through to utility
ratepayers of the reduction in current taxes
resulting from the use of accelerated depreciation. Instead, the reduction is treated
as a deferred tax expense that is collected
from current ratepayers through utility
rates, and thus is available to utilities as
investment capital. When the accelerated
method provides lower depreciation deductions in later years, only the ratemaking
tax expense is collected from ratepayers
and the difference between actual tax
expense and ratemaking tax expense is
charged to ADFIT.
Excess Deferred Income Tax
The Tax Reform Act of 1986 (the 1986
Act) reduced the highest corporate tax rate

January 30, 2006

from 46 percent to 34 percent. The excess deferred federal income tax (EDFIT)
reserve is the balance of the deferred tax
reserve immediately before the rate reduction over the balance that would have been
held in the reserve if the 34 percent rate
had been in effect for prior periods. The
EDFIT reserves were amounts that utilities
had collected from ratepayers to pay future
taxes that, as a result of the 1986 Act reduction in corporate tax rates, would not
be imposed.
Section 203(e) of the 1986 Act specifies the manner in which the EDFIT reserve must be flowed through to ratepayers under a normalization method of accounting. It provides that the EDFIT reserve may be reduced, with a corresponding reduction in the cost of service the
utility collects from ratepayers, no more
rapidly than the EDFIT reserve would be
reduced under the average rate assumption method (ARAM). For taxpayers that
did not have adequate data to apply the
average rate assumption method, subsequent guidance permitted use of the reverse South Georgia method as an alternative. In general, both the average rate
assumption method and the reverse South
Georgia method spread the flow-through
of the EDFIT reserve over the remaining
lives of the property that gave rise to the
excess.
Accumulated Deferred Investment Tax
Credits (ADITC)
Former section 46 of the Code similarly
addressed the flow-through to ratepayers
of the investment tax credit determined
under that section. Under former section
46(f)(1), the rate base (the amount on
which the utility is permitted to collect a
return from ratepayers) could be reduced
by reason of the credit if the reduction in
the rate base was restored not less rapidly
than ratably. If the rate base is reduced, the
credit may not also be used to reduce the
utility’s cost of service. Under former section 46(f)(2), an electing utility could flow
through the investment credit not more
rapidly than ratably (that is, could reduce
the cost of service collected from ratepayers by no more than a ratable portion of the
credit) over the investment’s regulatory
life. The balance of the credit remaining to
be flowed through to ratepayers would be
held in a reserve for accumulated deferred

January 30, 2006

investment tax credits (ADITC). If the
utility elected ratable flow-through of the
credit, the rate base could not be reduced
by reason of any portion of the credit.
Private Letter Rulings
The IRS has issued a number of private
letter rulings holding that flow-through of
the EDFIT and ADITC reserves associated with an asset is not permitted after
the asset’s deregulation, whether by disposition or otherwise. These rulings were
based on the principle that flow-through
is permitted only over the asset’s regulatory life and when that life is terminated
by deregulation no further flow-through is
permitted. After further consideration, the
IRS and Treasury have concluded that former section 46(f) does not, in all cases,
prohibit flowthrough of ADITC reserves
after deregulation and that section 203(e)
of the Tax Reform Act does not preclude
flowthrough of the EDFIT reserve with respect to deregulated property.
Explanation of Provisions
The 2003 proposed regulations provided that utilities whose generation assets
cease to be public utility property, whether
by disposition, deregulation, or otherwise
(deregulated public utility property), may
continue to flow through EDFIT reserves
associated with those assets without violating the normalization requirements.
The rate of flowthrough was limited to the
rate that would have been permitted under a normalization method of accounting
if the assets had remained public utility
property. But for section 203(e) of the
1986 Act, the entire EDFIT reserve would
have been flowed through to ratepayers
when the reduction in rates became effective, whether the assets to which the
EDFIT reserve was attributable remained
public utility property for their entire useful life or were subsequently deregulated
or sold. As noted in the preamble of the
2003 proposed regulations, the IRS and
Treasury have concluded that section 203
of the 1986 Act provides a schedule for
flowing through the EDFIT reserve but
that nothing in that section suggests that
something less than the entire reserve
should ultimately be flowed through to
ratepayers. Accordingly, these proposed
regulations retain the rule of the 2003 proposed regulations, with the effective date

390

changes described below, for generation
assets and extend the application of the
rule to all other public utility property.
The 2003 proposed regulations also
provided similar rules under which utilities could continue to flow through ADITC
reserves associated with deregulated generation assets without violating the normalization requirements. The proposed
regulations did not address the treatment
of deregulated assets under former section 46(f)(1) (relating to the use of the
investment credit to reduce the taxpayer’s
rate base). After further consideration,
the IRS and Treasury have concluded that
flowthrough of the ADITC reserve should
not continue after deregulation except to
the extent the utility is permitted to recover
stranded costs after deregulation.
If an asset qualifying for the investment tax credit is purchased by a utility, the allowance of the credit, without
flowthrough, lowers the utility’s actual
tax expense but does not result in higher
tax expense for ratepayers than would
have been the case if the asset had not
been purchased. Thus, in the absence of
flowthrough, the investment tax credit is
a subsidy from the Federal government
for the purchase of the asset rather than a
transfer from ratepayers to the utility. The
underlying policy of former section 46(f)
is to share this subsidy between ratepayers and utilities in proportion to their
respective contributions to the purchase
price. In general, former section 46(f)
treats ratepayers as contributing to the
purchase price when ratemaking depreciation expense with respect to the asset is
included in the rates they pay, resulting
in full flowthrough over the asset’s regulatory life. In the case of a deregulated
asset, the contribution of ratepayers can be
appropriately measured by the ratemaking depreciation expense they are charged
with respect to the asset and any additional
stranded cost that the utility is permitted
to recover with respect to the asset after its
deregulation.
Accordingly, the proposed regulations
permit flowthrough of the ADITC reserve
with respect to public utility property to
continue after its deregulation only to the
extent the reduction in cost of service does
not exceed, as a percentage of the ADITC
with respect to the property at the time
of deregulation, the percentage of the total stranded cost that the taxpayer is per-

2006–5 I.R.B.

mitted to recover with respect to the property. In addition, the credit may not be
flowed through more rapidly than the rate
at which the taxpayer is permitted to recover the stranded cost with respect to the
property.
As in the case of the EDFIT reserve,
these proposed regulations extend the
flowthrough rule for generation assets
to all public utility property. In addition, these proposed regulations provide
equivalent rules for property to which former section 46(f)(1) (relating to rate base
restoration) applies.
Proposed Effective Date
The 2003 proposed regulations would
have applied to public utility property
deregulated after March 4, 2003. Utilities
would have been permitted an election to
apply the proposed rules to property that
was deregulated on or before that date.
Comments suggested that deregulation
agreements between utilities and their regulators entered into before the March 4,
2003 proposed effective date were based
on the only guidance then available (i.e.,
the private letter rulings issued by the IRS)
and that the availability of a retroactive
election could effectively change the terms
of those agreements. Although private letter rulings are directed only to the taxpayers who requested them and may not be
used or cited as precedent, the IRS and
Treasury have concluded that the Secretary’s authority under section 7805(b)(7)
to provide for retroactive elections should
not be exercised in a manner that impairs
existing agreements between utilities and
their regulators. Accordingly, these proposed regulations do not include a similar
election to apply the regulations retroactively.
As noted above, these proposed regulations are broader in scope than the 2003
proposed regulations. Accordingly, these
regulations are proposed to apply to public
utility property that becomes deregulated
public utility property after December
21, 2005. For public utility property that
becomes deregulated public utility property on or before December 21, 2005,
the IRS will follow the holdings set forth
in the private letter rulings that prohibit
flow-through of the EDFIT and ADITC
reserves associated with an asset after the
asset’s disposition. Flowthrough will be

2006–5 I.R.B.

permitted, however, if it is consistent with
the 2003 proposed regulations, and occurs
during the period March 5, 2003, through
the earlier of the last date on which the
utility’s rates are determined under the
rate order in effect on December 21, 2005,
or December 21, 2007.
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 and, because the regulations do
not impose a collection of information on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply.
Therefore, a Regulatory Flexibility Analysis is not required. Pursuant to section
7805(f) of the Code, this 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 Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any comments that are
submitted (in the manner described in the
ADDRESSES caption) timely to the IRS.
All comments will be available for public
inspection and copying. Treasury and IRS
specifically request comments on the clarity of the proposed regulations and how
they may be made clearer and easier to understand.
A public hearing has been scheduled for
April 5, 2006, at 10 a.m. in room 7218 of
the Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC.
Because of access restrictions, visitors will
not be admitted beyond the Internal Revenue Building lobby more than 30 minutes
before the hearing starts. Due to building
security procedures, visitors must enter at
the Constitution Avenue entrance. In addition, all visitors must present photo identification to enter the building.
The rules of 26 CFR 601.601(a)(3) apply to the hearing.
Persons who wish to present oral comments at the hearing must submit com-

391

ments and submit an outline of the topics
to be discussed and the time to be devoted
to each topic (signed original and eight (8)
copies) by March 15, 2006.
A period of 10 minutes will be allotted
to each person for making comments.
An agenda showing the scheduling of
the speakers will be prepared after the
deadline for receiving outlines has passed.
Copies of the agenda will be available free
of charge at the hearing.
Drafting Information
The principal author of these regulations is David Selig, Office of the Associate Chief Counsel (Passthroughs and
Special Industries), IRS. However, other
personnel from the IRS and Treasury
Department participated in their development.
*****
Withdrawal of Proposed Regulations
Under the authority of 26 U.S.C.
7805, the notice of proposed rulemaking (REG–104385–01) published in the
Federal Register on March 4, 2003 (68
FR 10190) is withdrawn.
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
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 * * *
Par. 2. Section 1.46–6 is amended by
adding paragraph (k) to read as follows:
§1.46–6 Limitation in case of certain
regulated companies.
*****
(k) Treatment of accumulated deferred
investment tax credits upon the deregulation of public utility property—(1) Scope.
This paragraph (k) provides rules for the
application of former sections 46(f)(1)
and 46(f)(2) of the Internal Revenue Code
with respect to public utility property that
ceases, whether by disposition, deregulation, or otherwise, to be public utility
property (deregulated public utility property).

January 30, 2006

(2) Ratable amount—(i) Restoration
of rate base reduction. A reduction in
the taxpayer’s rate base on account of
the credit with respect to public utility
property that becomes deregulated public
utility property is restored ratably during the period after the property becomes
deregulated public utility property if the
amount of the reduction remaining to be
restored does not, at any time during the
period, exceed the restoration percentage
of the recoverable stranded cost of the
property at such time. For this purpose—
(A) The stranded cost of the property
is the cost of the property reduced by the
amount of such cost that the taxpayer has
recovered through regulated depreciation
expense during the period before the property becomes deregulated;
(B) The recoverable stranded cost of the
property at any time is the stranded cost of
the property that the taxpayer will be permitted to recover through rates after such
time; and
(C) The restoration percentage for the
property is determined by dividing the reduction in rate base remaining to be restored with respect to the property immediately before the property becomes deregulated public utility property by the stranded
cost of the property.
(ii) Cost of service reduction. Reductions in the taxpayer’s cost of service on
account of the credit with respect to public utility property that becomes deregulated public utility property are ratable during the period after the property becomes
deregulated public utility property if the
cumulative amount of the reduction during
such period does not, at any time during the
period, exceed the flow-through percentage of the cumulative stranded cost recovery for the property at such time. For this
purpose—
(A) The stranded cost of the property
is the cost of the property reduced by the
amount of such cost that the taxpayer has
recovered through regulated depreciation
expense during the period before the property becomes deregulated;
(B) The cumulative stranded cost recovery for the property at any time is
the stranded cost of the property that the
taxpayer has been permitted to recover
through rates on or before such time; and
(C) The flow-through percentage for
the property is determined by dividing the
amount of credit with respect to the prop-

January 30, 2006

erty remaining to be used to reduce cost
of service immediately before the property
becomes deregulated public utility property by the stranded cost of the property.
(3) Cross reference. See §1.168(i)–(3)
for rules relating to the treatment of balances of excess deferred income taxes
when public utility property becomes
deregulated public utility property.
(4) Effective dates—(i) In general. This
paragraph (k) applies to public utility property that becomes deregulated public utility property after December 21, 2005.
(ii) Application of regulation project
REG–104385–01 to pre-effective date reductions in cost of service. A reduction
in the taxpayer’s cost of service will be
treated as ratable if it is consistent with
the proposed rules in regulation project
REG–104385–01, 2003–1 C.B. 634, and
occurs during the period March 5, 2003,
through the earlier of the last date on which
the utility’s rates are determined under the
rate order in effect on December 21, 2005,
or December 21, 2007.
Par. 3. Section 1.168(i)–3 is added to
read as follows:
§1.168(i)–3 Treatment of excess deferred
income tax reserve upon disposition of
deregulated public utility property.
(a) Scope. This section provides rules
for the application of section 203(e) of
the Tax Reform Act of 1986, Public Law
99–514 (100 Stat. 2146) with respect to
public utility property (within the meaning
of section 168(i)(10)) that ceases, whether
by disposition, deregulation, or otherwise,
to be public utility property (deregulated
public utility property).
(b) Amount of reduction. If public utility property of a taxpayer becomes deregulated public utility property to which this
section applies, the reduction in the taxpayer’s excess tax reserve permitted under
section 203(e) of the Tax Reform Act of
1986 is equal to the amount by which the
reserve could be reduced under that provision if all such property had remained public utility property of the taxpayer and the
taxpayer had continued use of its normalization method of accounting with respect
to such property.
(c) Cross reference. See §1.46–6(k) for
rules relating to the treatment of accumulated deferred investment tax credits when

392

utilities dispose of regulated public utility
property.
(d) Effective dates—(1) In general.
This section applies to public utility property that becomes deregulated public
utility property after December 21, 2005.
(2) Application of regulation project
REG–104385–01 to pre-effective date reductions of excess deferred income tax
reserve. A reduction in the taxpayer’s
excess deferred income tax reserve will
be treated as ratable if it is consistent with
the proposed rules in regulation project
REG–104385–01, 2003–1 C.B. 634, and
occurs during the period March 5, 2003,
through the earlier of the last date on which
the utility’s rates are determined under the
rate order in effect on December 21, 2005,
or December 21, 2007.
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on December 20,
2005, 8:45 a.m., and published in the issue of the Federal
Register for December 21, 2005, 70 F.R. 75762)

Deletions From Cumulative
List of Organizations
Contributions to Which
are Deductible Under Section
170 of the Code
Announcement 2006–9
The name of an organization that no
longer qualifies as an organization described in section 170(c)(2) of the Internal
Revenue Code of 1986 is listed below.
Generally, the Service will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the Service is not
precluded from disallowing a deduction
for any contributions made after an organization ceases to qualify under section
170(c)(2) if the organization has not timely
filed a suit for declaratory judgment under
section 7428 and if the contributor (1) had
knowledge of the revocation of the ruling
or determination letter, (2) was aware that
such revocation was imminent, or (3) was
in part responsible for or was aware of the
activities or omissions of the organization
that brought about this revocation.

2006–5 I.R.B.

If on the other hand a suit for declaratory judgment has been timely filed, contributions from individuals and organizations described in section 170(c)(2) that
are otherwise allowable will continue to
be deductible. Protection under section
7428(c) would begin on January 30, 2006,
and would end on the date the court first
determines that the organization is not described in section 170(c)(2) as more particularly set forth in section 7428(c)(1). For
individual contributors, the maximum deduction protected is $1,000, with a husband and wife treated as one contributor.
This benefit is not extended to any individual, in whole or in part, for the acts or
omissions of the organization that were the
basis for revocation.
The Nunoi Foundation
Los Angeles, CA

Substitute for Return; Hearing
Announcement 2006–10
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of public hearing on proposed rulemaking.
SUMMARY: This document provides notice of public hearing on proposed regulations (REG–131739–03, 2005–36 I.R.B.
494) relating to the IRS preparing or executing returns for persons who fail to make
required returns.

DATES: The public hearing is being held
on Wednesday, March 8, 2006, at 10 a.m.
The IRS must receive outlines of the topics
to be discussed at the hearing by Wednesday, February 15, 2006.
ADDRESSES: The public hearing is being
held in the IRS Auditorium, Internal Revenue Building, 1111 Constitution Avenue,
NW, Washington, DC. Due to building security procedures, visitors must enter at the
Constitution Avenue entrance. In addition,
all visitors must present photo identification to enter the building.
Mail outlines to: CC:PA:LPD:PR
(REG–131739–03), 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–131739–03), Courier’s Desk, Internal Revenue Service, 1111 Constitution
Avenue, NW, Washington, DC. Alternatively, taxpayers may submit outlines
electronically via the Federal eRulemaking Portal at www.regulations.gov (IRS
and [email protected]
(REG–131739–03).
FOR
FURTHER
INFORMATION
CONTACT: Concerning submissions
of comments, the hearing, and/or to be
placed on the building access list to attend the hearing Treena Garrett, (202)
622–7180 (not a toll-free number).

(REG–131739–03) that was published in
the Federal Register on Monday, July 18,
2005 (70 FR 41165).
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who have submitted written or electronic comments and
wish to present oral comments at the hearing must submit an outline of the topics to
be discussed and the amount of time to be
devoted to each topic (signed original and
eight (8) copies) by February 15, 2006.
A period of 10 minutes is allotted
to each person for presenting oral comments. After the deadline for receiving
outlines has passed, the IRS will prepare an agenda containing the schedule
of speakers. Copies of the agenda will
be made available, free of charge, at the
hearing. Because of access restrictions,
the IRS will not admit visitors beyond
the immediate entrance area more than 30
minutes before the hearing starts. For information about having your name placed
on the building access list to attend the
hearing, see the “FOR FURTHER INFORMATION CONTACT” section of this
document.
Guy R. Traynor,
Federal Register Liaison,
Publications and Regulations Branch,
Legal Processing Division,
Associate Chief Counsel
(Procedures and Administration).
(Filed by the Office of the Federal Register on January 13,
2006, 8:45 a.m., and published in the issue of the Federal
Register for January 17, 2006, 71 F.R. 2497)

SUPPLEMENTARY INFORMATION:
The subject of the public hearing
is the notice of proposed rulemaking

2006–5 I.R.B.

393

January 30, 2006

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.

January 30, 2006

i

2006–5 I.R.B.

Numerical Finding List1

Tax Conventions:

Bulletin 2006–1 through 2006–5

2006-6, 2006-4 I.R.B. 340

Announcements:

2006-7, 2006-4 I.R.B. 342
2006-8, 2006-4 I.R.B. 344

2006-1, 2006-1 I.R.B. 260
2006-2, 2006-2 I.R.B. 300

Treasury Decisions:

2006-3, 2006-3 I.R.B. 327

9231, 2006-2 I.R.B. 272

2006-4, 2006-3 I.R.B. 328

9232, 2006-2 I.R.B. 266

2006-5, 2006-4 I.R.B. 378

9233, 2006-3 I.R.B. 303

2006-6, 2006-4 I.R.B. 340

9234, 2006-4 I.R.B. 329

2006-7, 2006-4 I.R.B. 342

9235, 2006-4 I.R.B. 338

2006-8, 2006-4 I.R.B. 344

9236, 2006-5 I.R.B. 382

2006-9, 2006-5 I.R.B. 392
2006-10, 2006-5 I.R.B. 393

Notices:
2006-1, 2006-4 I.R.B. 347
2006-2, 2006-2 I.R.B. 278
2006-3, 2006-3 I.R.B. 306
2006-4, 2006-3 I.R.B. 307
2006-5, 2006-4 I.R.B. 348
2006-6, 2006-5 I.R.B. 385
2006-8, 2006-5 I.R.B. 386
2006-10, 2006-5 I.R.B. 386

Proposed Regulations:
REG-107722-00, 2006-4 I.R.B. 354
REG-104385-01, 2006-5 I.R.B. 389
REG-137243-02, 2006-3 I.R.B. 317
REG-133446-03, 2006-2 I.R.B. 299

Revenue Procedures:
2006-1, 2006-1 I.R.B. 1
2006-2, 2006-1 I.R.B. 89
2006-3, 2006-1 I.R.B. 122
2006-4, 2006-1 I.R.B. 132
2006-5, 2006-1 I.R.B. 174
2006-6, 2006-1 I.R.B. 204
2006-7, 2006-1 I.R.B. 242
2006-8, 2006-1 I.R.B. 245
2006-9, 2006-2 I.R.B. 278
2006-10, 2006-2 I.R.B. 293
2006-11, 2006-3 I.R.B. 309
2006-12, 2006-3 I.R.B. 310
2006-13, 2006-3 I.R.B. 315
2006-14, 2006-4 I.R.B. 350
2006-15, 2006-5 I.R.B. 387

Revenue Rulings:
2006-1, 2006-2 I.R.B. 261
2006-2, 2006-2 I.R.B. 261
2006-3, 2006-2 I.R.B. 276
2006-4, 2006-2 I.R.B. 264
2006-5, 2006-3 I.R.B. 302
2006-6, 2006-5 I.R.B. 381

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2005–27 through 2005–52 is in Internal Revenue Bulletin
2005–52, dated December 27, 2005.

2006–5 I.R.B.

ii

January 30, 2006

Finding List of Current Actions on
Previously Published Items1
Bulletin 2006–1 through 2006–5
Notices:

Revenue Procedures— Continued:
2005-4
Superseded by
Rev. Proc. 2006-4, 2006-1 I.R.B. 132
2005-5

2005-44

Superseded by

Supplemented by

Rev. Proc. 2006-5, 2006-1 I.R.B. 174

Notice 2006-1, 2006-4 I.R.B. 347

2005-6

Proposed Regulations:

Superseded by
Rev. Proc. 2006-6, 2006-1 I.R.B. 204

REG-131739-03
Corrected by
Ann. 2006-10, 2006-5 I.R.B. 393
REG-138647-04
Corrected by
Ann. 2006-4, 2006-3 I.R.B. 328

Revenue Procedures:

2005-7
Superseded by
Rev. Proc. 2006-7, 2006-1 I.R.B. 242
2005-8
Superseded by
Rev. Proc. 2006-8, 2006-1 I.R.B. 245
2005-9

96-52

Superseded for certain taxable years by

Superseded by

Rev. Proc. 2006-12, 2006-3 I.R.B. 310

Rev. Proc. 2006-10, 2006-2 I.R.B. 293

2005-12

97-27

Section 10 modified and superseded by

Modified by

Rev. Proc. 2006-1, 2006-1 I.R.B. 1

Rev. Proc. 2006-11, 2006-3 I.R.B. 309
Modified and amplified by

2005-61

Rev. Proc. 2006-12, 2006-3 I.R.B. 310

Rev. Proc. 2006-3, 2006-1 I.R.B. 122

2002-9

2005-68

Modified by

Superseded by

Rev. Proc. 2006-11, 2006-3 I.R.B. 309
Modified and amplified by

Rev. Proc. 2006-1, 2006-1 I.R.B. 1
Rev. Proc. 2006-3, 2006-1 I.R.B. 122

Rev. Proc. 2006-12, 2006-3 I.R.B. 310
Rev. Proc. 2006-14, 2006-4 I.R.B. 350

Revenue Rulings:

2002-17

74-503

Modified by

Revoked by

Rev. Proc. 2006-14, 2006-4 I.R.B. 350

Rev. Rul. 2006-2, 2006-2 I.R.B. 261

Superseded by

2004-23
Superseded for certain taxable years by
Rev. Proc. 2006-12, 2006-3 I.R.B. 310
2004-40
Superseded by
Rev. Proc. 2006-9, 2006-2 I.R.B. 278
2005-1
Superseded by
Rev. Proc. 2006-1, 2006-1 I.R.B. 1
2005-2
Superseded by
Rev. Proc. 2006-2, 2006-1 I.R.B. 89
2005-3
Superseded by
Rev. Proc. 2006-3, 2006-1 I.R.B. 122

1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2005–27 through 2005–52 is in Internal Revenue Bulletin 2005–52, dated December 27,
2005.

January 30, 2006

iii

2006–5 I.R.B.

ESTATE TAX

INDEX
Internal Revenue Bulletins 2006–1 through
2006–5

Letter rulings and information letters issued by Associate Offices, determination letters issued by Operating Divisions (RP
1) 1, 1
Technical Advice Memoranda (TAMs) and Technical Expedited
Advice Memoranda (TEAMs) (RP 2) 1, 89

The abbreviation and number in parenthesis following the index entry
refer to the specific item; numbers in roman and italic type following
the parentheses refer to the Internal Revenue Bulletin in which the item
may be found and the page number on which it appears.

EXCISE TAX

Key to Abbreviations:
Ann
Announcement
CD
Court Decision
DO
Delegation Order
EO
Executive Order
PL
Public Law
PTE
Prohibited Transaction Exemption
RP
Revenue Procedure
RR
Revenue Ruling
SPR
Statement of Procedural Rules
TC
Tax Convention
TD
Treasury Decision
TDO
Treasury Department Order

Health Savings Accounts (HSAs), employer comparable contributions, public hearing on REG–138647–04 (Ann 4) 3, 328
Letter rulings and information letters issued by Associate Offices, determination letters issued by Operating Divisions (RP
1) 1, 1
Technical Advice Memoranda (TAMs) and Technical Expedited
Advice Memoranda (TEAMs) (RP 2) 1, 89

EXEMPT ORGANIZATIONS
Annual notice to donors regarding pending and settled declaratory judgment suits (Ann 1) 1, 260
Information reporting by organizations that receive charitable
contributions of certain motor vehicles, boats, and airplanes
(Notice 1) 4, 347
Letter rulings:
And determination letters, areas which will not be issued from
Associates Chief Counsel and Division Counsel (TE/GE)
(RP 3) 1, 122
And information letters, procedures (RP 4) 1, 132
User fees, request for letter rulings (RP 8) 1, 245
List of organizations classified as private foundations (Ann 5) 4,
378
Revocations (Ann 3) 3, 327; (Ann 9) 5, 392
Technical advice to IRS employees (RP 5) 1, 174

EMPLOYEE PLANS
Determination letters, issuing procedures (RP 6) 1, 204
Full funding limitations, weighted average interest rate for:
January 2006 (Notice 8) 5, 386
Letter rulings:
And determination letters, areas which will not be issued
from:
Associates Chief Counsel and Division Counsel (TE/GE)
(RP 3) 1, 122
Associate Chief Counsel (International) (RP 7) 1, 242
And information letters, procedures (RP 4) 1, 132
User fees, request for letter rulings (RP 8) 1, 245
Reporting requirements, fair market value, Roth IRA conversion
(RP 13) 3, 315
Technical advice to IRS employees (RP 5) 1, 174

GIFT TAX
Letter rulings and information letters issued by Associate Offices, determination letters issued by Operating Divisions (RP
1) 1, 1
Technical Advice Memoranda (TAMs) and Technical Expedited
Advice Memoranda (TEAMs) (RP 2) 1, 89

EMPLOYMENT TAX
Disaster relief, Hurricane Katrina, treatment of special evacuation allowances (Notice 10) 5, 386
Letter rulings and information letters issued by Associate Offices, determination letters issued by Operating Divisions (RP
1) 1, 1
Regulations:
26 CFR 31.3121(a)(2)–1, amended; 32.1, amended; sickness
or accident disability payments (TD 9233) 3, 303
Technical Advice Memoranda (TAMs) and Technical Expedited
Advice Memoranda (TEAMs) (RP 2) 1, 89
Treatment of sickness or accident disability payments (TD 9233)
3, 303

2006–5 I.R.B.

INCOME TAX
Acceptance agent revenue procedure (RP 10) 2, 293
Accounting methods:
Automatic consent to change procedures (RP 12) 3, 310
Automatic consent to change, replacement cost method for
parts inventory of heavy equipment dealers (RP 14) 4, 350
Normalization, public utilities (REG–104385–01) 5, 389
Simplified service cost and simplified production methods,
consent procedures (RP 11) 3, 309
Advance Pricing Agreement (APA) Program, administration (RP
9) 2, 278

iv

January 30, 2006

INCOME TAX—Cont.

INCOME TAX—Cont.

Annual notice to donors regarding pending and settled declaratory judgment suits (Ann 1) 1, 260
Bonds, private activity bond, definition, tax-exempt bonds issued
by state and local governments (TD 9234) 4, 329
Book-tax filter of reportable transactions under regulations section 1.6011–4, removal (Notice 6) 5, 385
Corporations:
Clarification of section 1374 effective dates (TD 9236) 5, 382
Entity classification, classification of:
Foreign entities, per se corporations (TD 9235) 4, 338
Japanese Tokurei Yugen Kaisha (TYK) (RR 3) 2, 276
Estimated tax payments by corporations (REG–107722–00)
4, 354
Information reporting for distributions with respect to securities issued by foreign corporations (Notice 3) 3, 306
Passive foreign investment company (PFIC) purging elections:
Foreign corporation no longer satisfies definition of PFIC
under section 1297(a) (TD 9231) 2, 272
Foreign corporation no longer treated as PFIC under section 1297(a) or (e) (TD 9232) 2, 266; (REG–133446–03)
2, 299
Transfers to corporations, corporate formations, corporate reorganizations (RR 2) 2, 261
Credits:
Low-income housing credit, satisfactory bond, “bond factor”
amounts for the period:
January through March 2006 (RR 5) 3, 302
Disaster relief, Hurricane Katrina, treatment of special evacuation allowances (Notice 10) 5, 386
Disclosure and use of tax return information, new and additional
rules for electronic consent (REG–137243–02) 3, 317
Employer-provided vehicles, maximum values for which the
special valuation rules of regulations sections 1.61–21(d) and
(e) may be used (RP 15) 5, 387
Forms:
8609 revision, 8609-A replaces Schedule A (Form 8609)
(Ann 2) 2, 300
Information reporting by organizations that receive charitable
contributions of certain motor vehicles, boats, and airplanes
(Notice 1) 4, 347
Interest:
Investment:
Federal short-term, mid-term, and long-term rates for:
January 2006 (RR 4) 2, 264
Inventory:
Heavy equipment dealers, replacement cost method of accounting (RP 14) 4, 350
LIFO, price indexes used by department stores for:
November 2005 (RR 6) 5, 381
Leases, tax-exempt use property (Notice 2) 2, 278
Letter rulings:
And determination letters, areas which will not be issued
from:
Associates Chief Counsel and Division Counsel (TE/GE)
(RP 3) 1, 122

January 30, 2006

Associate Chief Counsel (International) (RP 7) 1, 242
And information letters issued by Associate Offices, determination letters issued by Operating Divisions (RP 1) 1, 1
Private foundations, organizations now classified as (Ann 5) 4,
378
Proposed Regulations:
26 CFR 1.46–6, amended; 1.168(i)–3, added; application of
normalization accounting rules to balances of excess deferred income taxes and accumulated deferred investment
tax credits of public utilities whose assets cease to be public utility property (REG–104385–01) 5, 389
26 CFR 1.56–0, –1, revised; 1.6425–2, revised; 1.6425–3,
amended; 1.6655–0, added; 1.6655–1 thru –3, revised;
1.6655–4 thru –6, added; 1.6655–7, removed; 1.6655–5 redesignated as 1.6655–7 and revised; 301.6655–1, revised;
corporate estimated tax (REG–107722–00) 4, 354
26 CFR 1.1291–9, revised; 1.1297–0, revised; 1.1297–3,
added; 1.1298–0, –3, revised; guidance on passive
foreign investment company (PFIC) purging elections
(REG–133446–03) 2, 299
26 CFR 301.7216–0, added; 301.7216–1, –2, –3, revised;
guidance necessary to facilitate electronic tax administration (REG–137243–02) 3, 317
Regulated investment company (RIC), commodity swaps (RR 1)
2, 261
Regulations:
26 CFR 1.141–0, –1, –15, amended; 1.141–13, added;
1.145–0, –2, amended; 1.149(d)–1, amended; 1.150–1,
amended; obligations of states and political subdivisions
(TD 9234) 4, 329
26 CFR 1.1291–9, amended; 1.1297–0, revised; 1.1297–3,
added; 1.1298–0, –3, added; 602.101, amended; guidance
on passive foreign investment company (PFIC) purging
elections (TD 9231) 2, 272
26 CFR 1.1291–9T, added; 1.1297–0T, added; 1.1297–3T,
revised; 1.1298–0T, –3T, added; 602.101, amended; guidance on passive foreign investment company (PFIC) purging elections (TD 9232) 2, 266
26 CFR 1.1374–0, –8, –10, amended; 1.1374–8T, –10T, removed; section 1374 effective dates (TD 9236) 5, 382
26 CFR 301.7701–2, –2T, amended; classification of certain
foreign entities (TD 9235) 4, 338
Revocations, exempt organizations (Ann 3) 3, 327; (Ann 9) 5,
392
Stocks, application of section 409A to outstanding stock rights
(Notice 4) 3, 307
Substitute for return, Internal Revenue officer or employee, hearing on REG–131739–03 (Ann 10) 5, 393
Tax conventions:
Japan Investment Bank memorandum of understanding
(MOU) (Ann 6) 4, 340
Superseding U.S.-Mexico LLC mutual agreement procedure
(MAP) (Ann 8) 4, 344
U.S.-Canada Appeals memorandum of understanding (MOU)
(Ann 7) 4, 342

v

2006–5 I.R.B.

INCOME TAX—Cont.
Technical Advice Memoranda (TAMs) and Technical Expedited
Advice Memoranda (TEAMs) (RP 2) 1, 89
Waiver of penalties for failure to report loan origination fees and
capitalized interest (Notice 5) 4, 348

SELF-EMPLOYMENT TAX
Letter rulings and information letters issued by Associate Offices, determination letters issued by Operating Divisions (RP
1) 1, 1
Technical Advice Memoranda (TAMs) and Technical Expedited
Advice Memoranda (TEAMs) (RP 2) 1, 89

2006–5 I.R.B.

vi

U.S. GPO: 2006—320–797/20042

January 30, 2006