Td 9264

Section 1502.—Regulations
26 CFR 1.1502–13: Intercompany transactions.

T.D. 9264
DEPARTMENT OF
THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Guidance Necessary to
Facilitate Business Electronic
Filing and Burden Reduction
AGENCY: Internal Revenue Service
(IRS), Treasury
ACTION: Final and temporary regulations.
SUMMARY: These regulations affect taxpayers that file Federal income tax returns.
They simplify, clarify, or eliminate reporting burdens and also eliminate regulatory
impediments to the electronic filing of certain statements that taxpayers are required
to include on or with their Federal income
tax returns. The text of the temporary regulations also serves as the text of the proposed regulations (REG–134317–05) set
forth in the notice of proposed rulemaking
on this subject in this issue of the Bulletin.
DATES: Effective Date: These regulations
are effective on May 30, 2006.
Applicability Date: For dates of applicability, see §§1.302–2T(d), 1.302–4T(h),
1.331–1T(f), 1.332–6T(e), 1.338–10T(c),
1.351–3T(f), 1.355–5T(e), 1.368–3T(e),
1.381(b)–1T(e), 1.382–8T(j)(4), 1.382–
11T(b), 1.1081–11T(f), 1.1221–2T(j),
1.1502–13T(m), 1.1502–31T(j), 1.1502–
32T(j), 1.1502–33T(k), 1.1502–35T(k),
1.1502–76T(d), 1.1502–95T(g), 1.1563–
1T(e), 1.1563–3T(e) and 1.6012–2T(k).
The applicability of these regulations will
expire on May 26, 2009.
FOR
FURTHER
INFORMATION
CONTACT: Grid Glyer, (202) 622–7930
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
These temporary regulations are being
issued without prior notice and public pro-

2006–26 I.R.B.

cedure pursuant to the Administrative Procedure Act (5 U.S.C. 553). For this reason,
the collection of information contained in
these regulations has been reviewed and,
pending receipt and evaluation of public
comments, approved by the Office of Management and Budget under control number
1545–2019. Responses to this collection
of information are mandatory.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
control number.
For further information concerning this
collection of information, and where to
submit comments on the collection of information and the accuracy of the estimated burden, and suggestions for reducing this burden, please refer to the preamble to the cross-referencing notice of proposed rulemaking published in this issue of
the Bulletin.
Books and records relating to a collection of information must be retained as
long as their contents may become material in the administration of any internal
revenue law. Generally, tax returns and tax
return information are confidential, as required by 26 U.S.C. 6103.

payer’s income tax return. Others require
a taxpayer to include third-party signatures
on such statements or require taxpayers to
attach documents, or information supplied
by a third party.
Explanation of Provisions
1. Reporting Requirements That Were
Simplified, Clarified, or Eliminated
A. Regulations for which the reporting
requirements were simplified or clarified
Some regulations require a taxpayer to
include a statement on or with its return
if it undertakes certain types of transactions. In some cases, these regulations require the taxpayer to submit detailed information about the particular transaction
with its return. In other cases, the scope
of the reporting requirement was unclear.
The IRS and Treasury Department believe
that it is not useful to require taxpayers
to attach all of this information to their
returns. Accordingly, these regulations
simplify and clarify the reporting requirements under several provisions.
B. Regulations for which the reporting
requirements were eliminated

Background
This Treasury Decision amends Treasury regulations under sections 279, 302,
331, 332, 338, 351, 355, 368, 381, 382,
1081, 1221, 1502, 1563, and 6012 of the
Internal Revenue Code (Code) that require
taxpayers to include a statement on or with
their Federal income tax returns. In some
cases, these statements are the method by
which taxpayers elect (or elect out of) a
particular income tax treatment. In other
cases, these statements are the method by
which taxpayers report that they undertook
a particular type of transaction. In both
cases, these regulations often require taxpayers to include detailed amounts of information in these statements, or do not
clearly specify the required information.
In addition, many of these regulations
present impediments that prevent corporate taxpayers from submitting these statements as part of an electronically filed Federal income tax return (e-filing). Some
of these regulations, for example, impede
e-filing by requiring taxpayers to sign a
statement and include it on or with the tax-

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Some regulations require that all shareholders and security holders that receive
stock or securities in certain distributions
or exchanges file statements providing
information about that distribution or
exchange. See, e.g., §§1.355–5(b) and
1.368–3(b). The IRS and Treasury Department have determined that for most
shareholders and security holders these
statements are no longer necessary. Accordingly, these temporary regulations
only require that a “significant holder”
file such statement. In the case of stock,
a significant holder is a holder of stock of
a corporation if at the time of the distribution or exchange such holder owns at
least: (1) 5% (by vote or value) of the total
outstanding stock of such corporation if
the stock owned by such holder is publicly
traded, or (2) 1% (by vote or value) of the
total outstanding stock of such corporation
if the stock owned by such holder is not
publicly traded. See, e.g., §§1.355–5T(b)
and 1.368–3T(b). These regulations use
the definition of publicly traded stock
found elsewhere in the regulations. See,

June 26, 2006

e.g., §§1.1092(d)–1(b), 1.1273–2(f) and
54.4975–7(b)(1)(iv).
In the case of securities, a significant
holder is a holder of securities of a corporation if at the time of the distribution or
exchange such holder owns securities with
a basis of $1,000,000 or more.
2. Regulations That Present Impediments
to E-filing
As described in this preamble in paragraphs 2.A. and 2.B., certain regulations
impose reporting requirements that are impediments to e-filing. The IRS and Treasury Department are issuing these temporary regulations to eliminate such impediments without altering the substantive requirements of the current regulations.
A. Statements required to be signed by the
taxpayer
Some regulations require a taxpayer to
include a statement on or with its return
in order to make an election, or notify
the IRS that the taxpayer is undertaking
a transaction authorized by that provision.
In the case of elections, the current regulations often require the taxpayer to sign
such statement. In these circumstances,
the requirement that the taxpayer sign the
statement is an impediment to e-filing and
superfluous. By signing the return, a taxpayer is attesting to the validity of the
Form 1120 as well as all of the attachments. Accordingly, for these types of
statements, the underlying regulations are
amended to eliminate the requirement that
such statements be signed.
B. Statements required to be signed by
both the taxpayer and a third party
Some regulations require that the taxpayer and another person sign a statement,
and that the taxpayer include such jointly
signed statement on or with its return. In
some cases, the taxpayer is required to provide a copy of this statement, or other information, to the other person and that person is required to include such copy or information on or with its return.
These requirements are impediments to
e-filing. However, in such cases, the joint
signature requirement cannot simply be
eliminated because, in the absence of that
requirement, the taxpayer and the other
person might take inconsistent positions.

June 26, 2006

Therefore, these regulations amend the
provisions with a joint signature requirement to require the taxpayer and the other
person to include a statement on or with
its return indicating that it has entered into
an agreement with the other party addressing the substantive matters covered by
the statement required under the current
regulations. These agreements will contain the same information as the jointly
signed statements required by the current
regulations. Each party will be required
to retain either the original or a copy of
this agreement as part of its records. See
§1.6001–1(e).

cases, for the purposes of these statements,
the IRS and Treasury Department will accept a taxpayer’s good faith estimate of
such fair market value.
Similarly, the IRS and Treasury Department recognize that there are occasionally
situations where a taxpayer may not be
able to precisely determine its basis in a
taxable year in which that basis would not
be relevant to determining the taxpayer’s
taxable income. As in the case of fair market value, for purposes of these statements,
the IRS and Treasury Department will in
these situations accept a taxpayer’s good
faith estimate of such basis.

C. Section 1561

4. Election to Restore Value Under
§1.382–8

Section 1561(a) provides that the component members of a controlled group
of corporations are limited to using the
amounts of the tax benefit items described
therein in the same manner as if they were
one corporation. Section 1561(a) generally provides that such amounts shall be
divided equally among such members.
However, section 1561(a) also provides
that if such members adopt an apportionment plan, they are then permitted to
allocate such amounts among themselves
unequally. Section 1.1561–3(b) provides
the mechanism by which such members
may consent to an apportionment plan.
Section 1.1561–3(b) presents impediments to e-filing. However, the IRS and
Treasury Department have determined that
these impediments cannot be eliminated
without also addressing certain substantive
issues present in these regulations. Addressing these issues is beyond the scope
of this project. Therefore, these issues will
be addressed in separate guidance that the
IRS and Treasury Department expect to
publish later this year.
3. Requirement That Taxpayers Provide
the Fair Market Value and Basis of Assets
or Stock
Certain of these regulations require taxpayers to provide in their reporting statement the fair market value and basis of assets or stock distributed or exchanged in
a transaction. The IRS and Treasury Department recognize that, in some cases, a
taxpayer may not conveniently be able to
provide a precise valuation of property exchanged or distributed in a transaction that
is not taxable in the current year. In those

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In the case of a controlled group of corporations, §1.382–8 provides that, for purposes of determining the section 382 limitation, the value of the stock of each component member of the controlled group of
which the loss corporation is a component
member on the change date must be reduced by the value of the stock of any other
component member that such component
member directly owns immediately after
an ownership change. However, the component member’s value may be increased
by the amount of value that such other
component member elects to restore.
The IRS and Treasury Department are
aware that taxpayers generally elect to restore value from component members that
are foreign corporations. The IRS and
Treasury Department are also aware that
taxpayers occasionally fail to make the
election timely and must file a request for
relief under §301.9100–1. Therefore, to
reduce unnecessary elections and section
9100 requests, §1.382–8T(h)(2) will deem
foreign component members to elect to restore full value to other component members under §1.382–8. Nevertheless, should
such members not wish to restore the full
amount of such value, they may elect not to
restore all or part of such value. Further, a
foreign component member that has items
treated as connected with the conduct of a
trade or business in the United States that it
takes into account in determining its value
under section 382(e)(3) is not subject to
this deemed election.
The IRS and Treasury Department request comments regarding the scope and

2006–26 I.R.B.

application of this deemed election to restore value.
5. Recordkeeping Requirement
The IRS and Treasury Department emphasize that although the amount of information that a taxpayer is required to include on or with its return has, in most
cases, decreased, the taxpayer’s recordkeeping requirement remains unchanged.
Certain of these regulations illustrate the
type of information taxpayers are recommended to keep in order to substantiate
their reporting position.
6. Rev. Proc. 2006–21
Contemporaneously with the issuance
of these temporary regulations, the IRS
and Treasury Department are releasing
Rev. Proc. 2006–21, 2006–24 I.R.B.
1050, to remove e-filing impediments and
reduce reporting requirements currently
found in Rev. Proc. 89–56, 1989–2 C.B.
643, Rev. Proc. 90–39, 1990–2 C.B. 365,
and Rev. Proc. 2002–32, 2002–1 C.B.
959. Each revenue procedure provides
a method for consolidated taxpayers to
request a specified consent or waiver from
the Commissioner without submitting a
request for a private letter ruling. In particular, Rev. Proc. 89–56 permits taxpayers
to request a consent to use a 52–53 week
tax year, Rev. Proc. 90–39 permits taxpayers to request a consent to change the
method for allocating tax liability to members for earnings and profits purposes, and
Rev. Proc. 2002–32 permits taxpayers to
request a waiver of the 60-month limitation on reconsolidation.
7. §1.1502–35
These regulations also include a revision to §1.1502–35 that is not related
to electronic filing or reporting requirements. The revision corrects an error in
the determination of the time period during which suspended losses are reduced
under that section. Specifically, these regulations provide that this time period ends
on the day before the first date on which
the subsidiary (and any successor) is not a
member of the group.
Special Analysis
It has been determined that this Treasury Decision is not a significant regula-

2006–26 I.R.B.

tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. For the applicability of the
Regulatory Flexibility Act (5 U.S.C. chapter 6), refer to the Special Analyses section
of the preamble to the cross-reference notice of proposed rulemaking published in
this issue of the Bulletin. Pursuant to section 7805(f) of the Code, these temporary
regulations will be submitted to the Chief
Counsel for Advocacy of the Small Business Administration for comment on their
impact on small business.
Drafting Information
The principal author of these regulations is Grid Glyer, Office of Associate
Chief Counsel (Corporate). However,
other personnel from the IRS and Treasury
Department participated in their development.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 602
are 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 1.338–10T also issued under
26 U.S.C. 338. * * *
Section 1.1221–2T also issued under
26 U.S.C. 1502. * * *
Section 1.1502–13T also issued under
26 U.S.C. 1502. * * *
Section 1.1502–31T also issued under
26 U.S.C. 1502. * * *
Section 1.1502–32T also issued under
26 U.S.C. 1502. * * *
Section 1.1502–33T also issued under
26 U.S.C. 1502. * * *
Section 1.1502–35T also issued under
26 U.S.C. 1502. * * *
Section 1.1502–76T also issued under
26 U.S.C. 1502. * * *
Section 1.1502–95T also issued under
26 U.S.C. 1502. * * *
Par. 2. Section 1.279–5 is amended by
removing paragraph (h).
Par. 3. Section 1.302–2 is amended by:
1. Redesignating paragraph (b) as paragraph (b)(1).

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2. Revising newly designated paragraph (b)(1).
3. Adding paragraphs (b)(2) and (d).
The additions and revisions read as follows:
§1.302–2 Redemptions not taxable as
dividends.
*****
(b)(1) The question whether a distribution in redemption of stock of a shareholder is not essentially equivalent to a
dividend under section 302(b)(1) depends
upon the facts and circumstances of each
case. One of the facts to be considered
in making this determination is the constructive stock ownership of such shareholder under section 318(a). All distributions in pro rata redemptions of a part of
the stock of a corporation generally will be
treated as distributions under section 301 if
the corporation has only one class of stock
outstanding. However, for distributions in
partial liquidation, see section 302(e). The
redemption of all of one class of stock (except section 306 stock) either at one time
or in a series of redemptions generally will
be considered as a distribution under section 301 if all classes of stock outstanding
at the time of the redemption are held in
the same proportion. Distributions in redemption of stock may be treated as distributions under section 301 regardless of
the provisions of the stock certificate and
regardless of whether all stock being redeemed was acquired by the stockholders
from whom the stock was redeemed by
purchase or otherwise.
(2) [Reserved]. For further guidance,
see §1.302–2T(b)(2).
*****
(d) [Reserved]. For further guidance,
see §1.302–2T(d)(1).
Par. 4. Section 1.302–2T is added to
read as follows:
§1.302–2T Redemptions not taxable as
dividends (temporary).
(a) through (b)(1) [Reserved]. For further guidance, see §1.302–2(a) through
(b)(1).
(2) Unless paragraph (d) of §1.331–1T
applies, every significant holder that transfers stock to the issuing corporation in
exchange for property from such corporation must include on or with such

June 26, 2006

holder’s return for the taxable year of such
exchange a statement entitled, “STATEMENT PURSUANT TO §1.302–2T(b)(2)
BY [INSERT NAME AND TAXPAYER
IDENTIFICATION NUMBER (IF ANY)
OF TAXPAYER], A SIGNIFICANT
HOLDER OF THE STOCK OF [INSERT
NAME AND EMPLOYER IDENTIFICATION NUMBER (IF ANY) OF ISSUING CORPORATION].” If a significant
holder is a controlled foreign corporation (within the meaning of section 957),
each United States shareholder (within the
meaning of section 951(b)) with respect
thereto must include this statement on or
with its return. The statement must include—
(i) The fair market value and basis of the
stock transferred by the significant holder
to the issuing corporation; and
(ii) A description of the property received by the significant holder from the
issuing corporation.
(3) Definitions. For purposes of this
section:
(i) Significant holder means any person
that, immediately before the exchange—
(A) Owned at least five percent (by vote
or value) of the total outstanding stock of
the issuing corporation if the stock owned
by such person is publicly traded; or
(B) Owned at least one percent (by vote
or value) of the total outstanding stock of
the issuing corporation if the stock owned
by such person is not publicly traded.
(ii) Publicly traded stock means stock
that is listed on—
(A) A national securities exchange registered under section 6 of the Securities
Exchange Act of 1934 (15 U.S.C. 78f); or
(B) An interdealer quotation system
sponsored by a national securities association registered under section 15A of
the Securities Exchange Act of 1934 (15
U.S.C. 78o–3).
(iii) Issuing corporation means the corporation that issued the shares of stock,
some or all of which were transferred by
a significant holder to such corporation in
the exchange described in paragraph (b)(2)
of this section.
(4) Cross reference. See section 6043
of the Code for requirements relating to a
return by a liquidating corporation.
(c) [Reserved]. For further guidance,
see §1.302–2(c).
(d) Effective date—(1) Applicability
date. This section applies to any original

June 26, 2006

Federal income tax return (including any
amended return filed on or before the due
date (including extensions) of such original return) timely filed on or after May 30,
2006.
(2) Expiration date. The applicability
of this section will expire on May 26, 2009.
Par. 5. Section 1.302–4 is amended
by revising paragraph (a) and adding paragraph (h) to read as follows:
§1.302–4 Termination of shareholder’s
interest.
(a) [Reserved]. For further guidance,
see §1.302–4T(a).
*****
(h) [Reserved]. For further guidance,
see §1.302–4T(h)(1).
Par. 6. Section 1.302–4T is added to
read as follows:
§1.302–4T Termination of shareholder’s
interest (temporary).
(a) The agreement specified in section
302(c)(2)(A)(iii) shall be in the form of a
statement entitled, “STATEMENT PURSUANT TO SECTION 302(c)(2)(A)(iii)
BY [INSERT NAME AND TAXPAYER
IDENTIFICATION NUMBER (IF ANY)
OF TAXPAYER OR RELATED PERSON, AS THE CASE MAY BE], A DISTRIBUTEE (OR RELATED PERSON)
OF [INSERT NAME AND EMPLOYER
IDENTIFICATION NUMBER (IF ANY)
OF DISTRIBUTING CORPORATION].”
The distributee must include such statement on or with the distributee’s first
return for the taxable year in which the
distribution described in section 302(b)(3)
occurs. If the distributee is a controlled
foreign corporation (within the meaning
of section 957), each United States shareholder (within the meaning of section
951(b)) with respect thereto must include
this statement on or with its return. The
distributee must represent in the statement—
(1) THE DISTRIBUTEE (OR RELATED PERSON) HAS NOT ACQUIRED, OTHER THAN BY BEQUEST
OR INHERITANCE, ANY INTEREST
IN THE CORPORATION (AS DESCRIBED IN SECTION 302(c)(2)(A)(i))
SINCE THE DISTRIBUTION; and
(2) THE DISTRIBUTEE (OR RELATED PERSON) WILL NOTIFY THE

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INTERNAL REVENUE SERVICE OF
ANY ACQUISITION, OTHER THAN
BY BEQUEST OR INHERITANCE, OF
SUCH AN INTEREST IN THE CORPORATION WITHIN 30 DAYS AFTER
THE ACQUISITION, IF THE ACQUISITION OCCURS WITHIN 10 YEARS
FROM THE DATE OF THE DISTRIBUTION.
(b) through (g) [Reserved]. For further
guidance, see §1.302–4(b) through (g).
(h) Effective date—(1) Applicability
date. This section applies to any original
Federal income tax return (including any
amended return filed on or before the due
date (including extensions) of such original return) timely filed on or after May 30,
2006.
(2) Expiration date. The applicability
of this section will expire on May 26, 2009.
Par. 7. Section 1.331–1 is amended
by revising paragraph (d) and adding paragraph (f) to read as follows:
§1.331–1 Corporate liquidations.
*****
(d) [Reserved]. For further guidance,
see §1.331–1T(d).
*****
(f) [Reserved]. For further guidance,
see §1.331–1T(f)(1).
Par. 8. Section 1.331–1T is added to
read as follows:
§1.331–1T Corporate liquidations
(temporary).
(a) through (c) [Reserved]. For further
guidance, see §1.331–1(a) through (c).
(d) Reporting requirement—(1) General rule. Every significant holder that
transfers stock to the issuing corporation in
exchange for property from such corporation must include on or with such holder’s
return for the year of such exchange the
statement described in paragraph (d)(2) of
this section unless—
(i) The property is part of a distribution made pursuant to a corporate resolution reciting that the distribution is made
in complete liquidation of the corporation;
and
(ii) The issuing corporation is completely liquidated and dissolved within
one year after the distribution.
(2) Statement. If required by paragraph (d)(1) of this section, a signif-

2006–26 I.R.B.

icant holder must include on or with
such holder’s return a statement entitled, “STATEMENT PURSUANT TO
§1.331–1T(d) BY [INSERT NAME AND
TAXPAYER IDENTIFICATION NUMBER (IF ANY) OF TAXPAYER], A SIGNIFICANT HOLDER OF THE STOCK
OF [INSERT NAME AND EMPLOYER
IDENTIFICATION NUMBER (IF ANY)
OF ISSUING CORPORATION].” If a
significant holder is a controlled foreign
corporation (within the meaning of section 957), each United States shareholder
(within the meaning of section 951(b))
with respect thereto must include this
statement on or with its return. The statement must include—
(i) The fair market value and basis of the
stock transferred by the significant holder
to the issuing corporation; and
(ii) A description of the property received by the significant holder from the
issuing corporation.
(3) Definitions. For purposes of this
section:
(i) Significant holder means any person
that, immediately before the exchange—
(A) Owned at least five percent (by vote
or value) of the total outstanding stock of
the issuing corporation if the stock owned
by such person is publicly traded; or
(B) Owned at least one percent (by vote
or value) of the total outstanding stock of
the issuing corporation if the stock owned
by such person is not publicly traded.
(ii) Publicly traded stock means stock
that is listed on—
(A) A national securities exchange registered under section 6 of the Securities
Exchange Act of 1934 (15 U.S.C. 78f); or
(B) An interdealer quotation system
sponsored by a national securities association registered under section 15A of
the Securities Exchange Act of 1934 (15
U.S.C. 78o–3).
(iii) Issuing corporation means the corporation that issued the shares of stock,
some or all of which were transferred by
a significant holder to such corporation in
the exchange described in paragraph (d)(1)
of this section.
(4) Cross reference. See section 6043
of the Code for requirements relating to a
return by a liquidating corporation.
(e) [Reserved]. For further guidance,
see §1.331–1(e).
(f) Effective date—(1) Applicability
date. This section applies to any original

2006–26 I.R.B.

Federal income tax return (including any
amended return filed on or before the due
date (including extensions) of such original return) timely filed on or after May 30,
2006.
(2) Expiration date. The applicability
of this section will expire on May 26, 2009.
§1.332–6 [Removed]
Par. 9. Section 1.332–6 is removed.
Par. 10. Section 1.332–6T is added to
read as follows:
§1.332–6T Records to be kept and
information to be filed with return
(temporary).
(a) Statement filed by recipient corporation. If any recipient corporation received
a liquidating distribution from the liquidating corporation pursuant to a plan (whether
or not that recipient corporation has received or will receive other such distributions from the liquidating corporation in
other tax years as part of the same plan)
during the current tax year, such recipient corporation must include a statement
entitled, “STATEMENT PURSUANT TO
SECTION 332 BY [INSERT NAME AND
EMPLOYER IDENTIFICATION NUMBER (IF ANY) OF TAXPAYER], A CORPORATION RECEIVING A LIQUIDATING DISTRIBUTION,” on or with its return for such year. If any recipient corporation is a controlled foreign corporation (within the meaning of section 957),
each United States shareholder (within the
meaning of section 951(b)) with respect
thereto must include this statement on or
with its return. The statement must include—
(1) The name and employer identification number (if any) of the liquidating corporation;
(2) The date(s) of all distribution(s)
(whether or not pursuant to the plan) by
the liquidating corporation during the current tax year;
(3) The aggregate fair market value and
basis, determined immediately before the
liquidation, of all of the assets of the liquidating corporation that have been or will
be transferred to any recipient corporation;
(4) The date and control number of any
private letter ruling(s) issued by the Internal Revenue Service in connection with
the liquidation;

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(5) The following representation: THE
PLAN OF COMPLETE LIQUIDATION
WAS ADOPTED ON [INSERT DATE
(mm/dd/yyyy)]; and
(6) A representation by such recipient
corporation either that—
(i) THE LIQUIDATION WAS
COMPLETED ON [INSERT DATE
(mm/dd/yyyy)]; or
(ii) THE LIQUIDATION IS NOT
COMPLETE AND THE TAXPAYER
HAS TIMELY FILED [INSERT EITHER
FORM 952, “Consent To Extend the Time
to Assess Tax Under Section 332(b),” OR
NUMBER AND NAME OF THE SUCCESSOR FORM].
(b) Filings by the liquidating corporation. The liquidating corporation must
timely file Form 966, “Corporate Dissolution or Liquidation,” (or its successor
form) and its final Federal corporate income tax return. See also section 6043 of
the Code.
(c) Definitions. For purposes of this
section:
(1) Plan means the plan of complete
liquidation within the meaning of section
332.
(2) Recipient corporation means the
corporation described in section 332(b)(1).
(3) Liquidating corporation means the
corporation that makes a distribution of
property to a recipient corporation pursuant to the plan.
(4) Liquidating distribution means
a distribution of property made by the
liquidating corporation to a recipient corporation pursuant to the plan.
(d) Substantiation information. Under
§1.6001–1(e), taxpayers are required to
retain their permanent records and make
such records available to any authorized
Internal Revenue Service officers and employees. In connection with a liquidation described in this section, these records
should specifically include information regarding the amount, basis, and fair market value of all distributed property, and
relevant facts regarding any liabilities assumed or extinguished as part of such liquidation.
(e) Effective date—(1) Applicability
date. This section applies to any original
Federal income tax return (including any
amended return filed on or before the due
date (including extensions) of such original return) timely filed on or after May 30,
2006.

June 26, 2006

(2) Expiration date. The applicability
of this section will expire on May 26, 2009.
Par. 11. Section 1.338–0 is amended by
revising the entry for §1.338–10(a)(4)(iii)
and adding entries for §1.338–10(c) and
§1.338–10T to read as follows:
§1.338–0 Outline of topics.
*****
§1.338–10 Filing of returns.
(a) * * *
(4) * * *
(iii) [Reserved]
*****
(c) [Reserved]
§1.338–10T Filing of returns (temporary).
(a)(1) through (a)(4)(ii) [Reserved]
(iii) Procedure for filing a combined return.
(a)(4)(iv) through (b) [Reserved]
(c) Effective date.
(1) Applicability date.
(2) Expiration date.
*****
Par. 12. Section 1.338–10 is amended
by revising paragraph (a)(4)(iii) and
adding paragraph (c) to read as follows:
§1.338–10 Filing of returns.
(a) * * *
(4) * * *
(iii) [Reserved]. For further guidance,
see §1.338–10T(a)(4)(iii).
*****
(c) [Reserved]. For further guidance,
see §1.338–10T(c)(1).
Par. 13. Section 1.338–10T is added to
read as follows:
§1.338–10T Filing of returns (temporary).
(a)(1) through (a)(4)(ii) [Reserved].
For further guidance, see §1.338–10(a)(1)
through (a)(4)(ii).
(iii) Procedure for filing a combined return. A combined return is made by filing a single corporation income tax return in lieu of separate deemed sale returns for all targets required to be included
in the combined return. The combined
return reflects the deemed asset sales of
all targets required to be included in the

June 26, 2006

combined return. If the targets included
in the combined return constitute a single affiliated group within the meaning of
section 1504(a), the income tax return is
signed by an officer of the common parent of that group. Otherwise, the return
must be signed by an officer of each target included in the combined return. Rules
similar to the rules in §1.1502–75(j) apply
for purposes of preparing the combined return. The combined return must include a
statement entitled, “ELECTION TO FILE
A COMBINED RETURN UNDER SECTION 338(h)(15).” The statement must include—
(A) The name, address, and employer
identification number of each target required to be included in the combined return; and
(B) The following declaration: EACH
TARGET IDENTIFIED IN THIS ELECTION TO FILE A COMBINED RETURN
CONSENTS TO THE FILING OF A
COMBINED RETURN.
(a)(4)(iv) through (b) [Reserved]. For
further guidance, see §1.338–10(a)(4)(iv)
through (b).
(c) Effective date—(1) Applicability
date. This section applies to any original
Federal income tax return (including any
amended return filed on or before the due
date (including extensions) of such original return) timely filed on or after May 30,
2006.
(2) Expiration date. The applicability
of this section will expire on May 26, 2009.
§1.351–3 [Removed]
Par. 14. Section 1.351–3 is removed.
Par. 15. Section 1.351–3T is added to
read as follows:
§1.351–3T Records to be kept and
information to be filed (temporary).
(a) Significant transferor. Every significant transferor must include a statement
entitled, “STATEMENT PURSUANT
TO §1.351–3T(a) BY [INSERT NAME
AND TAXPAYER IDENTIFICATION
NUMBER (IF ANY) OF TAXPAYER], A
SIGNIFICANT TRANSFEROR,” on or
with such transferor’s income tax return
for the taxable year of the section 351
exchange. If a significant transferor is
a controlled foreign corporation (within
the meaning of section 957), each United
States shareholder (within the meaning of

1155

section 951(b)) with respect thereto must
include this statement on or with its return.
The statement must include—
(1) The name and employer identification number (if any) of the transferee corporation;
(2) The date(s) of the transfer(s) of assets;
(3) The aggregate fair market value and
basis, determined immediately before the
exchange, of the property transferred by
such transferor in the exchange; and
(4) The date and control number of any
private letter ruling(s) issued by the Internal Revenue Service in connection with
the section 351 exchange.
(b) Transferee corporation. Except as
provided in paragraph (c) of this section,
every transferee corporation must include
a statement entitled, “STATEMENT PURSUANT TO §1.351–3T(b) BY [INSERT
NAME AND EMPLOYER IDENTIFICATION NUMBER (IF ANY) OF
TAXPAYER], A TRANSFEREE CORPORATION,” on or with its income tax
return for the taxable year of the exchange.
If the transferee corporation is a controlled
foreign corporation (within the meaning
of section 957), each United States shareholder (within the meaning of section
951(b)) with respect thereto must include
this statement on or with its return. The
statement must include—
(1) The name and taxpayer identification number (if any) of every significant
transferor;
(2) The date(s) of the transfer(s) of assets;
(3) The aggregate fair market value and
basis, determined immediately before the
exchange, of all of the property received
in the exchange; and
(4) The date and control number of any
private letter ruling(s) issued by the Internal Revenue Service in connection with
the section 351 exchange.
(c) Exception for certain transferee corporations. The transferee corporation is
not required to file a statement under paragraph (b) of this section if all of the information that would be included in the statement described in paragraph (b) of this
section is included in any statement(s) described in paragraph (a) of this section that
is attached to the same return for the same
section 351 exchange.
(d) Definitions. For purposes of this
section:

2006–26 I.R.B.

(1) Significant transferor means a person that transferred property to a corporation and received stock of the transferee
corporation in an exchange described in
section 351 if, immediately after the exchange, such person—
(i) Owned at least five percent (by vote
or value) of the total outstanding stock
of the transferee corporation if the stock
owned by such person is publicly traded,
or
(ii) Owned at least one percent (by vote
or value) of the total outstanding stock
of the transferee corporation if the stock
owned by such person is not publicly
traded.
(2) Publicly traded stock means stock
that is listed on—
(i) A national securities exchange registered under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f); or
(ii) An interdealer quotation system
sponsored by a national securities association registered under section 15A of
the Securities Exchange Act of 1934 (15
U.S.C. 78o–3).
(e) Substantiation information. Under
§1.6001–1(e), taxpayers are required to
retain their permanent records and make
such records available to any authorized
Internal Revenue Service officers and employees. In connection with the exchange
described in this section, these records
should specifically include information
regarding the amount, basis, and fair market value of all transferred property, and
relevant facts regarding any liabilities
assumed or extinguished as part of such
exchange.
(f) Effective date—(1) Applicability
date. This section applies to any original
Federal income tax return (including any
amended return filed on or before the due
date (including extensions) of such original return) timely filed on or after May 30,
2006.
(2) Expiration date. The applicability
of this section will expire on May 26, 2009.
Par. 16. Section 1.355–0 is amended
by removing the entry for §1.355–5 and
adding an entry for §1.355–5T.
The revision and addition read as follows:
§1.355–0 Outline of sections.
*****

2006–26 I.R.B.

§1.355–5T Records to be kept and
information to be filed (temporary).
*****
§1.355–5 [Removed]
Par. 17. Section 1.355–5 is removed.
Par. 18. Section 1.355–5T is added to
read as follows:
§1.355–5T Records to be kept and
information to be filed (temporary).
(a) Distributing corporation—(1) In
general. Every corporation that makes
a distribution (the distributing corporation) of stock or securities of a controlled
corporation, as described in section 355
(or so much of section 356 as relates to
section 355), must include a statement
entitled, “STATEMENT PURSUANT
TO §1.355–5T(a) BY [INSERT NAME
AND EMPLOYER IDENTIFICATION
NUMBER (IF ANY) OF TAXPAYER], A
DISTRIBUTING CORPORATION,” on
or with its return for the year of the distribution. If the distributing corporation
is a controlled foreign corporation (within
the meaning of section 957), each United
States shareholder (within the meaning of
section 951(b)) with respect thereto must
include this statement on or with its return.
The statement must include—
(i) The name and employer identification number (if any) of the controlled corporation;
(ii) The name and taxpayer identification number (if any) of every significant
distributee;
(iii) The date of the distribution of the
stock or securities of the controlled corporation;
(iv) The aggregate fair market value
and basis, determined immediately before
the distribution or exchange, of the stock,
securities, or other property (including
money) distributed by the distributing corporation in the transaction; and
(v) The date and control number of any
private letter ruling(s) issued by the Internal Revenue Service in connection with
the transaction.
(2) Special rule when an asset transfer
precedes a stock distribution. If the distributing corporation transferred property
to the controlled corporation in a transaction described in section 351 or 368, as
part of a plan to then distribute the stock or

1156

securities of the controlled corporation in
a transaction described in section 355 (or
so much of section 356 as relates to section 355), then, unless paragraph (a)(1)(v)
of this section applies, the distributing
corporation must also include on or with
its return for the year of the distribution
the statement required by §1.351–3T(a)
or 1.368–3T(a). If the distributing corporation is a controlled foreign corporation
(within the meaning of section 957), each
United States shareholder (within the
meaning of section 951(b)) with respect
thereto must include the statement required by §1.351–3T(a) or 1.368–3T(a)
on or with its return.
(b) Significant distributee.
Every
significant distributee must include a
statement entitled, “STATEMENT PURSUANT TO §1.355–5T(b) BY [INSERT
NAME AND TAXPAYER IDENTIFICATION NUMBER (IF ANY) OF TAXPAYER], A SIGNIFICANT DISTRIBUTEE,” on or with such distributee’s return
for the year in which such distribution
is received. If a significant distributee is
a controlled foreign corporation (within
the meaning of section 957), each United
States shareholder (within the meaning of
section 951(b)) with respect thereto must
include this statement on or with its return.
The statement must include—
(1) The names and employer identification numbers (if any) of the distributing
and controlled corporations;
(2) The date of the distribution of the
stock or securities of the controlled corporation; and
(3) The aggregate basis, determined
immediately before the exchange, of any
stock or securities transferred by the significant distributee in the exchange, and
the aggregate fair market value, determined immediately before the distribution
or exchange, of the stock, securities or
other property (including money) received
by the significant distributee in the distribution or exchange.
(c) Definitions. For purposes of this
section:
(1) Significant distributee means—
(i) A holder of stock of a distributing
corporation that receives, in a transaction
described in section 355 (or so much of
section 356 as relates to section 355), stock
of a corporation controlled by the distributing corporation if, immediately before the
distribution or exchange, such holder—

June 26, 2006

(A) Owned at least five percent (by vote
or value) of the total outstanding stock
of the distributing corporation if the stock
owned by such holder is publicly traded;
or
(B) Owned at least one percent (by vote
or value) of the stock of the distributing
corporation if the stock owned by such
holder is not publicly traded; or
(ii) A holder of securities of a distributing corporation that receives, in a transaction described in section 355 (or so much
of section 356 as relates to section 355),
stock or securities of a corporation controlled by the distributing corporation if,
immediately before the distribution or exchange, such holder owned securities in
such distributing corporation with a basis
of $1,000,000 or more.
(2) Publicly traded stock means stock
that is listed on—
(i) A national securities exchange registered under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f); or
(ii) An interdealer quotation system
sponsored by a national securities association registered under section 15A of
the Securities Exchange Act of 1934 (15
U.S.C. 78o–3).
(d) Substantiation information. Under
§1.6001–1(e), taxpayers are required to
retain their permanent records and make
such records available to any authorized
Internal Revenue Service officers and employees. In connection with the distribution or exchange described in this section,
these records should specifically include
information regarding the amount, basis,
and fair market value of all property distributed or exchanged, and relevant facts
regarding any liabilities assumed or extinguished as part of such distribution or exchange.
(e) Effective date—(1) Applicability
date. This section applies to any original
Federal income tax return (including any
amended return filed on or before the due
date (including extensions) of such original return) timely filed on or after May 30,
2006.
(2) Expiration date. The applicability
of this section will expire on May 26, 2009.
§1.368–3 [Removed]
Par. 19. Section 1.368–3 is removed.
Par. 20. Section 1.368–3T is added to
read as follows:

June 26, 2006

§1.368–3T Records to be kept and
information to be filed with returns
(temporary).
(a) Parties to the reorganization. The
plan of reorganization must be adopted
by each of the corporations that are parties thereto. Each such corporation must
include a statement entitled, “STATEMENT PURSUANT TO §1.368–3T(a)
BY [INSERT NAME AND EMPLOYER
IDENTIFICATION NUMBER (IF ANY)
OF TAXPAYER], A CORPORATION A
PARTY TO A REORGANIZATION,” on
or with its return for the taxable year of
the exchange. If any such corporation is
a controlled foreign corporation (within
the meaning of section 957), each United
States shareholder (within the meaning of
section 951(b)) with respect thereto must
include this statement on or with its return. However, it is not necessary for any
taxpayer to include more than one such
statement on or with the same return for
the same reorganization. The statement
must include—
(1) The names and employer identification numbers (if any) of all such parties;
(2) The date of the reorganization;
(3) The aggregate fair market value and
basis, determined immediately before the
exchange, of the assets, stock or securities
of the target corporation transferred in the
transaction; and
(4) The date and control number of any
private letter ruling(s) issued by the Internal Revenue Service in connection with
this reorganization.
(b) Significant holders. Every significant holder, other than a corporation a
party to the reorganization, must include a
statement entitled, “STATEMENT PURSUANT TO §1.368–3T(b) BY [INSERT
NAME AND TAXPAYER IDENTIFICATION NUMBER (IF ANY) OF TAXPAYER], A SIGNIFICANT HOLDER,”
on or with such holder’s return for the taxable year of the exchange. If a significant
holder is a controlled foreign corporation (within the meaning of section 957),
each United States shareholder (within the
meaning of section 951(b)) with respect
thereto must include this statement on or
with its return. The statement must include—
(1) The names and employer identification numbers (if any) of all of the parties to
the reorganization;

1157

(2) The date of the reorganization; and
(3) The fair market value, determined
immediately before the exchange, of all the
stock or securities of the target corporation
held by the significant holder that is transferred in the transaction and such holder’s
basis, determined immediately before the
exchange, in the stock or securities of such
target corporation.
(c) Definitions. For purposes of this
section:
(1) Significant holder means—
(i) A holder of stock of the target corporation that receives stock or securities in
an exchange described in section 354 (or
so much of section 356 as relates to section
354) if, immediately before the exchange,
such holder—
(A) Owned at least five percent (by vote
or value) of the total outstanding stock of
the target corporation if the stock owned
by such holder is publicly traded; or
(B) Owned at least one percent (by vote
or value) of the total outstanding stock of
the target corporation if the stock owned
by such holder is not publicly traded; or
(ii) A holder of securities of the target corporation that receives stock or securities in an exchange described in section 354 (or so much of section 356 as relates to section 354) if, immediately before
the exchange, such holder owned securities in such target corporation with a basis
of $1,000,000 or more.
(2) Publicly traded stock means stock
that is listed on—
(i) A national securities exchange registered under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f); or
(ii) An interdealer quotation system
sponsored by a national securities association registered under section 15A
of the Securities Exchange Act of 1934
(15 U.S.C. 78o–3).
(d) Substantiation information. Under
§1.6001–1(e), taxpayers are required to
retain their permanent records and make
such records available to any authorized
Internal Revenue Service officers and employees. In connection with the reorganization described in this section, these
records should specifically include information regarding the amount, basis, and
fair market value of all transferred property, and relevant facts regarding any liabilities assumed or extinguished as part of
such reorganization.

2006–26 I.R.B.

(e) Effective date—(1) Applicability
date. This section applies to any original
Federal income tax return (including any
amended return filed on or before the due
date (including extensions) of such original return) timely filed on or after May 30,
2006.
(2) Expiration date. The applicability
of this section will expire on May 26, 2009.
Par. 21. Section 1.381(b)–1 is amended
by revising paragraph (b)(3) and adding
paragraph (e) to read as follows:
§1.381(b)–1 Operating rules applicable
to carryovers in certain corporate
acquisitions.
*****
(b) * * *
(3) [Reserved]. For further guidance,
see §1.381(b)–1T(b)(3).
*****
(e) [Reserved]. For further guidance,
see §1.381(b)–1T(e)(1).
Par. 22. Section 1.381(b)–1T is added
to read as follows:
§1.381(b)–1T Operating rules applicable
to carryovers in certain corporate
acquisitions (temporary).
(a) through (b)(2) [Reserved]. For further guidance, see §1.381(b)–1(a) through
(b)(2).
(3) Election—(i) Content of statements. The statements referred to in
paragraph (b)(2) of §1.381(b)–1 must
be entitled, “ELECTION OF DATE OF
DISTRIBUTION OR TRANSFER PURSUANT TO §1.381(b)–1(b)(2),” and
must include: [INSERT NAME AND
EMPLOYER IDENTIFICATION NUMBER (IF ANY) OF DISTRIBUTOR OR
TRANSFEROR CORPORATION] AND
[INSERT NAME AND EMPLOYER
IDENTIFICATION NUMBER (IF ANY)
OF ACQUIRING CORPORATION]
ELECT TO DETERMINE THE DATE
OF DISTRIBUTION OR TRANSFER
UNDER §1.381(b)–1(b)(2). SUCH DATE
IS [INSERT DATE (mm/dd/yyyy)].
(ii) Filing of statements. One statement
must be included on or with the timely
filed Federal income tax return of the distributor or transferor corporation for its
taxable year ending with the date of distribution or transfer. An identical statement
must be included on or with the timely

2006–26 I.R.B.

filed Federal income tax return of the acquiring corporation for its first taxable year
ending after that date. If the distributor
or transferor corporation, or the acquiring
corporation, is a controlled foreign corporation (within the meaning of section 957),
each United States shareholder (within the
meaning of section 951(b)) with respect
thereto must include this statement on or
with its return.
(b)(4) through (d) [Reserved]. For
further guidance, see §1.381(b)–1(b)(4)
through (d).
(e) Effective date—(1) Applicability
date. This section applies to any original
Federal income tax return (including any
amended return filed on or before the due
date (including extensions) of such original return) timely filed on or after May 30,
2006.
(2) Expiration date. The applicability
of this section will expire on May 26, 2009.
Par. 23. Section 1.382–1 is amended
by:
1. Revising the entry for §1.382–2T(a)
(2)(ii).
2. Revising the entry for §1.382–8(c)
(2).
3.
Redesignating the entry for
§1.382–8(e)(4) as the entry for
§1.382–8(e)(5).
4. Adding entries for paragraphs (e)(4)
and (j)(4) of §1.382–8.
5. Revising the entry for paragraph (h),
and removing the entries for paragraphs
(h)(1), (h)(2) and (h)(3), of §1.382–8.
6. Adding entries for §1.382–8T.
7. Removing the entry for §1.382–11.
8. Adding entries for §1.382–11T.
The additions and revisions read as follows:

(c) * * *
(2) [Reserved]
*****
(e) * * *
(4) [Reserved]
(5) Predecessor and successor corporation.
*****
(h) [Reserved]
*****
(j) * * *
(4) [Reserved]
§1.382–8T Controlled groups
(temporary).
(a) through (c)(1) [Reserved]
(c)(2) Restoration of value.
(c)(3) through (e)(3) [Reserved]
(e)(4) Foreign component member.
(i) In general.
(ii) Exception.
(e)(5) through (g) [Reserved]
(h) Time and manner of filing election
to restore.
(1) Statements required.
(i) Filing by loss corporation.
(ii) Filing by electing member.
(iii) Agreement.
(2) Special rule for foreign component
members.
(i) Deemed election to restore full
value.
(ii) Election not to restore full value.
(iii) Agreement.
(3) Revocation of election.
(i) through (j)(3) [Reserved]
(j)(4) Effective date.
(i) Applicability date.
(ii) Expiration date.
*****

§1.382–1 Table of contents.
§1.382–11T Reporting requirements
(temporary).

*****
§1.382–2T Definition of ownership
change under section 382, as amended by
the Tax Reform Act of 1986 (temporary).
*****
(a) * * *
(2) * * *
(ii) [Reserved]

(a) Information statement required.
(b) Effective date.
(1) Applicability date.
(2) Expiration date.
Par. 24. Section 1.382–2T is amended
by removing and reserving paragraph
(a)(2)(ii) to read as follows:

§1.382–8 Controlled groups.

§1.382–2T Definition of ownership
change under section 382, as amended by
the Tax Reform Act of 1986 (temporary).

*****

*****

*****

1158

June 26, 2006

(a) * * *
(2) * * *
(ii) [Reserved]. For further guidance,
see §1.382–11T(a).
*****
Par. 25. Section 1.382–8 is amended as
follows:
1. Revising paragraphs (c)(2) and (h).
2. Redesignating paragraph (e)(4) as
paragraph (e)(5).
3. Adding new paragraphs (e)(4) and
(j)(4).
The additions and revisions read as follows:
§1.382–8 Controlled groups.
*****
(c) * * *
(2) [Reserved]. For further guidance,
see §1.382–8T(c)(2).
*****
(e) * * *
(4) [Reserved]. For further guidance,
see §1.382–8T(e)(4).
(5) Predecessor and successor corporation. * * *
*****
(h) [Reserved]. For further guidance,
see §1.382–8T(h).
*****
(j) * * *
(4) [Reserved]. For further guidance,
see §1.382–8T(j)(4)(i).
Par. 26. Section 1.382–8T is added to
read as follows:
§1.382–8T Controlled groups
(temporary).
(a) through (c)(1) [Reserved]. For further guidance, see §1.382–8(a) through
(c)(1).
(2) Restoration of value. After the value
of the stock of each component member
is reduced pursuant to paragraph (c)(1) of
§1.382–8, the value of the stock of each
component member is increased by the
amount of value, if any, restored to the
component member by another component
member (the electing member) pursuant to
this paragraph (c)(2). The electing member may elect (or may be deemed to elect
under paragraph (h)(2)(i) of this section
in the case of a foreign component member) to restore value to another component

June 26, 2006

member in an amount that does not exceed
the lesser of—
(i) The sum of—
(A) The value, determined immediately
before the ownership change, of the electing member’s stock (after adjustment under paragraph (c)(1) of §1.382–8 and before any restoration of value under this
paragraph (c)(2)); plus
(B) Any amount of value restored to
the electing member by another component member under this paragraph (c)(2);
or
(ii) The value, determined immediately
before any ownership change, of the electing member’s stock (without regard to
any adjustment under this section) that is
directly owned by the other component
member immediately after the ownership
change.
(c)(3) through (e)(3) [Reserved]. For
further guidance, see §1.382–8(c)(3)
through (e)(3).
(4) Foreign component member—(i) In
general. Except as provided in paragraph
(e)(4)(ii) of this section, foreign component member means a component member
that is a foreign corporation.
(ii) Exception. A foreign component
member shall not include a foreign corporation that has items treated as connected
with the conduct of a trade or business in
the United States that it takes into account
in determining its value pursuant to section
382(e)(3).
(e)(5) through (g) [Reserved]. For further guidance, see §1.382–8(e)(5) through
(g).
(h) Time and manner of filing election
to restore—(1) Statements required—
(i) Filing by loss corporation. The
election to restore value described in paragraph (c)(2) of this section must be in the
form set forth in this paragraph (h)(1)(i). It
must be filed by the loss corporation by including a statement on or with its income
tax return for the taxable year in which
the ownership change occurs (or with an
amended return for that year filed on or
before the due date (including extensions)
of the income tax return of any component
member with respect to the taxable year in
which the ownership change occurs). The
common parent of a consolidated group
must make the election on behalf of the
group. The election is made in the form of
a statement entitled, “STATEMENT PURSUANT TO §1.382–8T(h)(1) TO ELECT

1159

TO RESTORE ALL OR PART OF THE
VALUE OF [INSERT NAME AND EMPLOYER IDENTIFICATION NUMBER
(IF ANY) OF THE ELECTING MEMBER] TO [INSERT NAME AND EMPLOYER IDENTIFICATION NUMBER
(IF ANY) OF THE CORPORATION TO
WHICH VALUE IS RESTORED].” The
statement must include the amount of the
value being restored and must also indicate that an agreement signed and dated
by both parties, as described in paragraph
(h)(1)(iii) of this section, has been entered
into. Each such party must retain either
the original or a copy of this agreement as
part of its records. See §1.6001–1(e).
(ii) Filing by electing member. An
electing member must include a statement
identical to the one described in paragraph
(h)(1)(i) of this section on or with its
income tax return (or with an amended return for that year filed on or before the due
date (including extensions) of the income
tax return of any component member with
respect to the taxable year in which the
ownership change occurs) (if any) for the
taxable year which includes the change
date in connection with which the election described in paragraph (c)(2) of this
section is made. If the electing member
is a controlled foreign corporation (within
the meaning of section 957), each United
States shareholder (within the meaning of
section 951(b)) with respect thereto must
include this statement on or with its return.
It is not necessary for the electing member
(or the United States shareholder, as the
case may be) to include this statement on
or with its return if the loss corporation
includes an identical statement on or with
the same return for the same election.
(iii) Agreement. Both the electing
member and the corporation to which
value is restored must sign and date an
agreement. The agreement must—
(A) Identify the change date for the loss
corporation in connection with which the
election is made;
(B) State the value of the electing
member’s stock (without regard to any adjustment under paragraphs (c)(1), (c)(3),
(c)(4) and (c)(5) of §1.382–8 and paragraph (c)(2) of this section) immediately
before the ownership change;
(C) State the amount of any reduction required under paragraph (c)(1) of
§1.382–8 with respect to stock of the
electing member that is owned directly

2006–26 I.R.B.

or indirectly by the corporation to which
value is restored;
(D) State the amount of value that the
electing member elects to restore to the
corporation; and
(E) State whether the value of either
component member’s stock was adjusted
pursuant to paragraph (c)(4) of §1.382–8.
(2) Special rule for foreign component
members—(i) Deemed election to restore
full value. Unless the election described
in paragraph (h)(2)(ii) of this section is
made for a foreign component member,
each foreign component member of the
controlled group is deemed to have elected
to restore to each other component member the maximum value allowable under
paragraph (c)(2) of this section, taking into
account the limitations of §1.382–8.
(ii) Election not to restore full value.
(A) A loss corporation may elect to reduce
the amount of value restored from a foreign component member (the electing foreign component member) to another component member under paragraph (h)(2)(i)
of this section in the form set forth in this
paragraph (h)(2)(ii). It must be filed by
the loss corporation by including a statement on or with its income tax return for
the taxable year in which the ownership
change occurs (or with an amended return
for that year filed on or before the due
date (including extensions) of the income
tax return of any component member with
respect to the taxable year in which the
ownership change occurs). The common
parent of a consolidated group must make
the election on behalf of the group. The
election is made in the form of a statement
entitled, “STATEMENT PURSUANT
TO §1.382–8T(h)(2)(ii) TO ELECT NOT
TO RESTORE FULL VALUE OF [INSERT NAME AND EMPLOYER IDENTIFICATION NUMBER (IF ANY) OF
ELECTING FOREIGN COMPONENT
MEMBER] TO [INSERT NAME AND
EMPLOYER IDENTIFICATION NUMBER (IF ANY) OF THE CORPORATION
TO WHICH SUCH VALUE IS NOT TO
BE RESTORED].” The statement must
include the amount of the value not being
restored and must also indicate that an
agreement signed and dated by both parties, as described in paragraph (h)(2)(iii)
of this section, has been entered into. Each
such party must retain either the original
or a copy of the agreement as part of its
records. See §1.6001–1(e).

2006–26 I.R.B.

(B) An electing foreign component
member must include a statement identical to the one described in paragraph
(h)(2)(ii)(A) of this section on or with its
income tax return (or with an amended
return for that year filed on or before
the due date (including extensions) of
the income tax return of any component
member with respect to the taxable year
in which the ownership change occurs)
(if any) for the taxable year which includes the change date in connection with
which the election described in paragraph
(h)(2)(ii)(A) of this section is made. If
the electing foreign component member
is a controlled foreign corporation (within
the meaning of section 957), each United
States shareholder (within the meaning
of section 951(b)) with respect thereto
must include this statement on or with its
return. It is not necessary for the electing
foreign component member (or United
States shareholder, as the case may be) to
include this statement on or with its return
if the loss corporation includes an identical
statement on or with the same return for
the same election.
(iii) Agreement. Both the electing foreign component member and the corporation to which full value is not restored must
sign and date an agreement. The agreement must—
(A) Identify the change date for the loss
corporation in connection with which the
election is made;
(B) State the value of the electing foreign component member’s stock (without
regard to any adjustment under paragraphs
(c)(1), (c)(3), (c)(4) and (c)(5) of §1.382–8
and paragraph (c)(2) of this section) immediately before the ownership change;
(C) State the amount of any reduction required under paragraph (c)(1) of
§1.382–8 with respect to stock of the
electing foreign component member that
is owned directly or indirectly by the corporation to which value is not restored;
(D) State the amount of value that the
electing foreign component member elects
not to restore to the corporation; and
(E) State whether the value of either
component member’s stock was adjusted
pursuant to paragraph (c)(4) of §1.382–8.
(3) Revocation of election. An election
(other than the deemed election described
in paragraph (h)(2)(i) of this section) made
under this section is revocable only with
the consent of the Commissioner.

1160

(i) through (j)(3) [Reserved]. For further guidance, see §1.382–8(i) through
(j)(3).
(4) Effective date—(i) Applicability
date. This section applies to any original
Federal income tax return (including any
amended return filed on or before the due
date (including extensions) of such original return) timely filed on or after May 30,
2006.
(2) Expiration date. The applicability
of this section will expire on May 26, 2009.
§1.382–11 [Removed]
Par. 27. Section 1.382–11 is removed.
Par. 28. Section 1.382–11T is added to
read as follows:
§1.382–11T Reporting requirements
(temporary).
(a) Information statement required. A
loss corporation must include a statement
entitled, “STATEMENT PURSUANT
TO §1.382–11T(a) BY [INSERT NAME
AND EMPLOYER IDENTIFICATION
NUMBER OF TAXPAYER], A LOSS
CORPORATION,” on or with its income
tax return for each taxable year that it
is a loss corporation in which an owner
shift, equity structure shift or other transaction described in paragraph (a)(2)(i) of
§1.382–2T occurs. The statement must
include the date(s) of any owner shifts,
equity structure shifts, or other transactions described in paragraph (a)(2)(i) of
§1.382–2T, the date(s) on which any ownership change(s) occurred, and the amount
of any attributes described in paragraph
(a)(1)(i) of §1.382–2 that caused the corporation to be a loss corporation. A loss
corporation may also be required to include certain elections on this statement,
including—
(1) An election made under
§1.382–2T(h)(4)(vi)(B) to disregard
the deemed exercise of an option if the
actual exercise of that option occurred
within 120 days of the ownership change;
and
(2) An election made under
§1.382–6(b)(2) to close the books of
the loss corporation for purposes of allocating income and loss to periods before
and after the change date for purposes of
section 382.
(b) Effective date—(1) Applicability
date. This section applies to any original

June 26, 2006

Federal income tax return (including any
amended return filed on or before the due
date (including extensions) of such original return) timely filed on or after May 30,
2006.
(2) Expiration date. The applicability
of this section will expire on May 26, 2009.
§1.1081–11 [Removed]
Par. 29. Section 1.1081–11 is removed.
Par. 30. Section 1.1081–11T is added
to read as follows:
§1.1081–11T Records to be kept and
information to be filed with returns
(temporary).
(a) Distributions and exchanges; significant holders of stock or securities. Every
significant holder must include a statement
entitled, “STATEMENT PURSUANT TO
§1.1081–11T(a) BY [INSERT NAME
AND TAXPAYER IDENTIFICATION
NUMBER (IF ANY) OF TAXPAYER],
A SIGNIFICANT HOLDER,” on or with
such holder’s income tax return for the
taxable year in which the distribution or
exchange occurs. If a significant holder
is a controlled foreign corporation (within
the meaning of section 957), each United
States shareholder (within the meaning of
section 951(b)) with respect thereto must
include this statement on or with its return.
The statement must include—
(1) The name and employer identification number (if any) of the corporation
from which the stock, securities, or other
property (including money) was received
by such significant holder;
(2) The aggregate basis, determined
immediately before the exchange, of any
stock or securities transferred by the significant holder in the exchange, and the
aggregate fair market value, determined
immediately before the distribution or exchange, of the stock, securities or other
property (including money) received by
the significant holder in the distribution or
exchange; and
(3) The date of the distribution or exchange.
(b) Distributions and exchanges; corporations subject to Commission orders.
Each corporation which is a party to a distribution or exchange made pursuant to an
order of the Commission must include on
or with its income tax return for its taxable
year in which the distribution or exchange

June 26, 2006

takes place a statement entitled, “STATEMENT PURSUANT TO §1.1081–11T(b)
BY [INSERT NAME AND EMPLOYER
IDENTIFICATION NUMBER (IF ANY)
OF TAXPAYER], A DISTRIBUTING OR
EXCHANGING CORPORATION.” If the
distributing or exchanging corporation is
a controlled foreign corporation (within
the meaning of section 957), each United
States shareholder (within the meaning of
section 951(b)) with respect thereto must
include this statement on or with its return.
The statement must include—
(1) The date and control number of the
Commission order, pursuant to which the
distribution or exchange was made;
(2) The names and taxpayer identification numbers (if any) of the significant
holders;
(3) The aggregate fair market value
and basis, determined immediately before
the distribution or exchange, of the stock,
securities, or other property (including
money) transferred in the distribution or
exchange; and
(4) The date of the distribution or exchange.
(c) Sales by members of system groups.
Each system group member must include a statement entitled, “STATEMENT
PURSUANT TO §1.1081–11T(c) BY
[INSERT NAME AND EMPLOYER
IDENTIFICATION NUMBER (IF ANY)
OF TAXPAYER], A SYSTEM GROUP
MEMBER,” on or with its income tax
return for the taxable year in which the
sale is made. If any system group member
is a controlled foreign corporation (within
the meaning of section 957), each United
States shareholder (within the meaning of
section 951(b)) with respect thereto must
include this statement on or with its return.
The statement must include—
(1) The dates and control numbers of all
relevant Commission orders;
(2) The aggregate fair market value and
basis, determined immediately before the
sale, of all stock or securities sold; and
(3) The date of the sale.
(d) Definitions. (1) For purposes of this
section, Commission means the Securities
and Exchange Commission.
(2) For purposes of this section, significant holder means a person that receives
stock or securities from a corporation (the
distributing corporation) pursuant to an order of the Commission, if, immediately before the transaction, such person—

1161

(i) In the case of stock—
(A) Owned at least five percent (by vote
or value) of the total outstanding stock
of the distributing corporation if the stock
owned by such person is publicly traded,
or
(B) Owned at least one percent (by vote
or value) of the total outstanding stock of
the distributing corporation if the stock
owned by such person is not publicly
traded; or
(ii) In the case of securities, owned securities of the distributing corporation with
a basis of $1,000,000 or more.
(3) Publicly traded stock means stock
that is listed on—
(i) A national securities exchange registered under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f); or
(ii) An interdealer quotation system
sponsored by a national securities association registered under section 15A of
the Securities Exchange Act of 1934 (15
U.S.C. 78o–3).
(4) For purposes of paragraph (b) of this
section, exchange means exchange, expenditure, or investment.
(5) For purposes of paragraph (c) of this
section, system group member means each
corporation which is a member of a system
group and which, pursuant to an order of
the Commission, sells stock or securities
received upon an exchange (pursuant to an
order of the Commission) and applies the
proceeds derived therefrom in retirement
or cancellation of its own stock or securities.
(e) Substantiation information. Under
§1.6001–1(e), taxpayers are required to
retain their permanent records and make
such records available to any authorized
Internal Revenue Service officers and employees. In connection with the distribution or exchange described in this section,
these records should specifically include
information regarding the amount, basis,
and fair market value of all property distributed or exchanged, and relevant facts
regarding any liabilities assumed or extinguished as part of such distribution or exchange.
(f) Effective date—(1) Applicability
date. This section applies to any original
Federal income tax return (including any
amended return filed on or before the due
date (including extensions) of such original return) timely filed on or after May 30,
2006.

2006–26 I.R.B.

(2) Expiration date. The applicability
of this section will expire on May 26, 2009.
Par. 31. Section 1.1221–2 is amended
by revising paragraph (e)(2)(iv) and
adding paragraphs (i) through (j) to read
as follows:
§1.1221–2 Hedging transactions.
*****
(e) * * *
(2) * * *
(iv) [Reserved]. For further guidance,
see §1.1221–2T(e)(2)(iv).
*****
(i) through (j) [Reserved]. For further guidance, see §1.1221–2T(i) through
(j)(1).
Par. 32. Section 1.1221–2T is added to
read as follows:
§1.1221–2T Hedging transactions
(temporary).
(a) through (e)(2)(iii) [Reserved].
For further guidance, see §1.1221–2(a)
through (e)(2)(iii).
(iv) Making and revoking the election. Unless the Commissioner otherwise
prescribes, the election described in paragraph (e)(2) of §1.1221–2 must be made in
a separate statement that provides, “[INSERT NAME AND EMPLOYER IDENTIFICATION NUMBER OF COMMON
PARENT] HEREBY ELECTS THE APPLICATION OF §1.1221–2(e)(2) (THE
SEPARATE-ENTITY
APPROACH).”
The statement must also indicate the date
as of which the election is to be effective.
The election must be filed by including
the statement on or with the consolidated
group’s income tax return for the taxable
year that includes the first date for which
the election is to apply. The election applies to all transactions entered into on or
after the date so indicated. The election
may only be revoked with the consent of
the Commissioner.
(e)(3) through (h) [Reserved]. For
further guidance, see §1.1221–2(e)(3)
through (h).
(i) [Reserved]
(j) Effective date—(1) Applicability
date. This section applies to any original
consolidated Federal income tax return
due (without extensions) after May 30,
2006. However, a consolidated group may

2006–26 I.R.B.

apply this section to any original consolidated Federal income tax return (including
any amended return filed on or before the
due date (including extensions) of such
original return) timely filed on or after
May 30, 2006.
(2) Expiration date. The applicability
of this section will expire on May 26, 2009.
Par. 33. Section 1.1502–13 is amended
by revising paragraphs (f)(5)(ii)(E) and
(f)(6)(i)(C)(2) and adding paragraph (m)
to read as follows:
§1.1502–13 Intercompany transactions.
*****
(f) * * *
(5) * * *
(ii) * * *
(E) [Reserved]. For further guidance,
see §1.1502–13T(f)(5)(ii)(E).
(6) * * *
(i) * * *
(C) * * *
(2) [Reserved]. For further guidance,
see §1.1502–13T(f)(6)(i)(C)(2).
*****
(m) [Reserved]. For further guidance,
see §1.1502–13T(m)(1).
Par. 34. Section 1.1502–13T is added
to read as follows:
§1.1502–13T Intercompany transactions
(temporary).
(a) through (f)(5)(ii)(D) [Reserved].
For further guidance, see §1.1502–13(a)
through (f)(5)(ii)(D).
(E) Election. An election to apply paragraph (f)(5)(ii) of §1.1502–13 is made in
a separate statement entitled, “[INSERT
NAME AND EMPLOYER IDENTIFICATION NUMBER OF COMMON
PARENT] HEREBY ELECTS THE APPLICATION OF §1.1502–13(f)(5)(ii)
FOR AN INTERCOMPANY TRANSACTION INVOLVING [INSERT NAME
AND EMPLOYER IDENTIFICATION
NUMBER OF S] AND [INSERT NAME
AND EMPLOYER IDENTIFICATION
NUMBER OF T].” A separate election
must be made for each such application.
The election must be filed by including
the statement on or with the consolidated
group’s income tax return for the year of
T’s liquidation (or other transaction). The
Commissioner may impose reasonable
terms and conditions to the application

1162

of paragraph (f)(5)(ii) of §1.1502–13 that
are consistent with the purposes of such
section. The statement must—
(1) Identify S’s intercompany transaction and T’s liquidation (or other transaction); and
(2) Specify which provision of
§1.1502–13(f)(5)(ii) applies and how it
alters the otherwise applicable results under this section (including, for example,
the amount of S’s intercompany items and
the amount deferred or offset as a result of
§1.1502–13(f)(5)(ii)).
(f)(6) through (f)(6)(i)(C)(1) [Reserved].
For further guidance, see
§1.1502–13(f)(6) through (f)(6)(i)(C)(1).
(2) Election. The election described in
paragraph (f)(6)(i)(C)(1) of §1.1502–13
must be made in a separate statement entitled, “ELECTION TO REDUCE BASIS
OF P STOCK UNDER §1.1502–13(f)(6)
HELD BY [INSERT NAME AND EMPLOYER IDENTIFICATION NUMBER
OF MEMBER WHOSE BASIS IN P
STOCK IS REDUCED].” The election
must be filed by including the statement
on or with the consolidated group’s income tax return for the year in which
the nonmember becomes a member. The
statement must identify the member’s basis in the P stock (taking into account the
effect of this election) and the number of
shares of P stock held by the member.
(f)(6)(ii) through (l) [Reserved]. For
further guidance, see §1.1502–13(f)(6)(ii)
through (l).
(m) Effective date—(1) Applicability
date. This section applies to any original
consolidated Federal income tax return
due (without extensions) after May 30,
2006. However, a consolidated group may
apply this section to any original consolidated Federal income tax return (including
any amended return filed on or before the
due date (including extensions) of such
original return) timely filed on or after
May 30, 2006.
(2) Expiration date. The applicability
of this section will expire on May 26, 2009.
Par. 35. Section 1.1502–31 is amended
by revising paragraph (e)(2) and adding
paragraphs (i) through (j) to read as follows:
§1.1502–31 Stock basis after a group
structure change.
*****

June 26, 2006

(e) * * *
(2) [Reserved]. For further guidance,
see §1.1502–31T(e)(2).
*****
(i) through (j) [Reserved]. For further
guidance, see §1.1502–31T(i) through
(j)(1).
Par. 36. Section 1.1502–31T is added
to read as follows:
§1.1502–31T Stock basis after a group
structure change (temporary).
(a) through (e)(1) [Reserved]. For further guidance, see §1.1502–31(a) through
(e)(1).
(2) Election. The election described
in paragraph (e)(1) of §1.1502–31 must
be made in a separate statement entitled, “ELECTION TO TREAT LOSS
CARRYOVER AS EXPIRING UNDER
§1.1502–31(e).” The election must be
filed by including the statement on or with
the consolidated group’s income tax return for the year that includes the group
structure change. The statement must
identify the amount of each loss carryover
deemed to expire (or the amount of each
loss carryover deemed not to expire, with
any balance of any loss carryovers being
deemed to expire).
(f) through (h) [Reserved]. For further
guidance, see §1.1502–31(f) through (h).
(i) [Reserved]
(j) Effective date—(1) Applicability
date. This section applies to any original
consolidated Federal income tax return
due (without extensions) after May 30,
2006. However, a consolidated group may
apply this section to any original consolidated Federal income tax return (including
any amended return filed on or before the
due date (including extensions) of such
original return) timely filed on or after
May 30, 2006.
(2) Expiration date. The applicability
of this section will expire on May 26, 2009.
Par. 37. Section 1.1502–32 is amended
by revising paragraph (b)(4)(iv) and
adding paragraphs (i) through (j) to read
as follows:
§1.1502–32 Investment adjustments.
*****
(b) * * *
(4) * * *

June 26, 2006

(iv) [Reserved]. For further guidance,
see §1.1502–32T(b)(4)(iv).
*****
(i) through (j) [Reserved]. For further
guidance, see §1.1502–32T(i) through
(j)(1).
Par. 38. Section 1.1502–32T is added
to read as follows:
§1.1502–32T Investment adjustments
(temporary).
(a) through (b)(4)(iii) [Reserved].
For further guidance, see §1.1502–32(a)
through (b)(4)(iii).
(iv) Election. The election described
in paragraph (b)(4) of §1.1502–32 must
be made in a separate statement entitled,
“ELECTION TO TREAT LOSS CARRYOVER OF [INSERT NAME AND
EMPLOYER IDENTIFICATION NUMBER OF S] AS EXPIRING UNDER
§1.1502–32(b)(4).” The election must be
filed by including a statement on or with
the consolidated group’s income tax return for the year S becomes a member.
A separate statement must be made for
each member whose loss carryover is
deemed to expire. The statement must
identify the amount of each loss carryover
deemed to expire (or the amount of each
loss carryover deemed not to expire, with
any balance of any loss carryovers being
deemed to expire) and the basis of any
stock reduced as a result of the deemed
expiration.
(b)(4)(v) through (h) [Reserved]. For
further guidance, see §1.1502–32(b)(4)(v)
through (h).
(i) [Reserved]
(j) Effective date—(1) Applicability
date. This section applies to any original
consolidated Federal income tax return
due (without extensions) after May 30,
2006. However, a consolidated group may
apply this section to any original consolidated Federal income tax return (including
any amended return filed on or before the
due date (including extensions) of such
original return) timely filed on or after
May 30, 2006.
(2) Expiration date. The applicability
of this section will expire on May 26, 2009.
Par. 39. Section 1.1502–33 is amended
by revising paragraph (d)(5)(i)(D) and
adding paragraph (k) to read as follows:

1163

§1.1502–33 Earnings and profits.
*****
(d) * * *
(5) * * *
(i) * * *
(D) [Reserved]. For further guidance,
see §1.1502–33T(d)(5)(i)(D).
*****
(k) [Reserved]. For further guidance,
see §1.1502–33T(k)(1).
Par. 40. Section 1.1502–33T is added
to read as follows:
§1.1502–33T Earnings and profits
(temporary).
(a) through (d)(5)(i)(C) [Reserved].
For further guidance, see §1.1502–33(a)
through (d)(5)(i)(C).
(D) If a method is permitted under paragraph (d)(4) of §1.1502–33, provide the
date and control number of the private letter ruling issued by the Internal Revenue
Service approving such method.
(d)(5)(ii) through (j) [Reserved]. For
further guidance, see §1.1502–33(d)(5)(ii)
through (j).
(k) Effective date—(1) Applicability
date. This section applies to any original
consolidated Federal income tax return
due (without extensions) after May 30,
2006. However, a consolidated group may
apply this section to any original consolidated Federal income tax return (including
any amended return filed on or before the
due date (including extensions) of such
original return) timely filed on or after
May 30, 2006.
(2) Expiration date. The applicability
of this section will expire on May 26, 2009.
Par. 41. Section 1.1502–35 is amended
by revising paragraph (c)(4)(i) and adding
paragraph (k) to read as follows:
§1.1502–35 Transfers of subsidiary stock
and deconsolidations of subsidiaries.
*****
(c) * * *
(4) * * *
(i) [Reserved]. For further guidance,
see § 1.1502–35T(c)(4)(i).
*****
(k) [Reserved]. For further guidance,
see §1.1502–35T(k)(1).

2006–26 I.R.B.

Par. 42. Section 1.1502–35T is added
to read as follows:
§1.1502–35T Transfers of subsidiary
stock and deconsolidations of subsidiaries
(temporary).
(a) through (c)(3) [Reserved]. For further guidance, see § 1.1502–35(a) through
(c)(3).
(4) Reduction of suspended loss—(i)
General rule. The amount of any loss suspended pursuant to paragraphs (c)(1) and
(c)(2) of §1.1502–35 shall be reduced, but
not below zero, by the subsidiary’s (and
any successor’s) items of deduction and
loss, and the subsidiary’s (and any successor’s) allocable share of items of deduction and loss of all lower-tier subsidiaries,
that are allocable to the period beginning
on the date of the disposition that gave
rise to the suspended loss and ending on
the day before the first date on which the
subsidiary (and any successor) is not a
member of the group of which it was a
member immediately prior to the disposition (or any successor group), and that
are taken into account in determining consolidated taxable income (or loss) of such
group for any taxable year that includes
any date on or after the date of the disposition and before the first date on which
the subsidiary (and any successor) is not
a member of such group; provided, however, that such reduction shall not exceed
the excess of the amount of such items over
the amount of such items that are taken
into account in determining the basis adjustments made under §1.1502–32 to stock
of the subsidiary (or any successor) owned
by members of the group. The preceding
sentence shall not apply to items of deduction and loss to the extent that the group
can establish that all or a portion of such
items was not reflected in the computation
of the duplicated loss with respect to the
subsidiary on the date of the disposition of
stock that gave rise to the suspended loss.
(c)(4)(ii) through (j) [Reserved]. For
further guidance, see §1.1502–35(c)(4)(ii)
through (j).
(k) Effective date—(1) Applicability
date. This section applies to any original
consolidated Federal income tax return
due (without extensions) after May 30,
2006.
(2) Expiration date. The applicability
of this section will expire on May 26, 2009.

2006–26 I.R.B.

Par. 43. Section 1.1502–76 is amended
by revising paragraph (b)(2)(ii)(D) and
adding paragraph (d) to read as follows:
§1.1502–76 Taxable year of members of
group.
*****
(b) * * *
(2) * * *
(ii) * * *
(D) [Reserved]. For further guidance,
see §1.1502–76T(b)(2)(ii)(D).
*****
(d) [Reserved]. For further guidance,
see §1.1502–76T(d)(1).
Par. 44. Section 1.1502–76T is added
to read as follows:
§1.1502–76T Taxable year of members of
group (temporary).
(a) through (b)(2)(ii)(C) [Reserved].
For further guidance, see §1.1502–76(a)
through (b)(2)(ii)(C).
(D) Election—(1) Statement.
The
election to ratably allocate items under paragraph (b)(2)(ii) of §1.1502–76
must be made in a separate statement
entitled, “THIS IS AN ELECTION UNDER §1.1502–76(b)(2)(ii) TO RATABLY
ALLOCATE THE YEAR’S ITEMS OF
[INSERT NAME AND EMPLOYER
IDENTIFICATION NUMBER OF THE
MEMBER].” The election must be filed
by including a statement on or with the
returns including the items for the years
ending and beginning with S’s change
in status. If two or more members of
the same consolidated group, as a consequence of the same plan or arrangement,
cease to be members of that group and
remain affiliated as members of another
consolidated group, an election under this
paragraph (b)(2)(ii)(D)(1) may be made
only if it is made by each such member. Each statement must also indicate
that an agreement, as described in paragraph (b)(2)(ii)(D)(2) of this section, has
been entered into. Each party signing the
agreement must retain either the original
or a copy of the agreement as part of its
records. See §1.6001–1(e).
(2) Agreement. For each election under paragraph (b)(2)(ii) of §1.1502–76, the
member and the common parent of each
affected group must sign and date an agreement. The agreement must—

1164

(i) Identify the extraordinary items,
their amounts, and the separate or consolidated returns in which they are included;
(ii) Identify the aggregate amount to be
ratably allocated, and the portion of the
amount included in the separate and consolidated returns; and
(iii) Include the name and employer
identification number of the common parent (if any) of each group that must take
the items into account.
(b)(2)(iii)
through
(c)
[Reserved].
For further guidance, see
§1.1502–76(b)(2)(iii) through (c).
(d) Effective date—(1) Applicability
date. This section applies to any original
consolidated Federal income tax return
due (without extensions) after May 30,
2006. However, a consolidated group may
apply this section to any original consolidated Federal income tax return (including
any amended return filed on or before the
due date (including extensions) of such
original return) timely filed on or after
May 30, 2006.
(2) Expiration date. The applicability
of this section will expire on May 26, 2009.
Par. 45. Section 1.1502–95 is amended
by revising paragraphs (e)(8) and (f) and
adding paragraph (g) to read as follows:
§1.1502–95 Rules on ceasing to be a
member of a consolidated group (or loss
subgroup).
*****
(e) * * *
(8) [Reserved]. For further guidance,
see §1.1502–95T(e)(8).
(f) through (g) [Reserved]. For further guidance, see §1.1502–95T(f) through
(g)(1).
Par. 46. Section 1.1502–95T is added
to read as follows:
§1.1502–95T Rules on ceasing to be a
member of a consolidated group (or loss
subgroup) (temporary).
(a) through (e)(7) [Reserved]. For further guidance, see §1.1502–95(a) through
(e)(7).
(8) Reporting requirements—(i) Common Parent. Except as provided in paragraph (e)(8)(iii) of this section, if a net
unrealized built-in loss is allocated under
paragraph (e) of §1.1502–95, the common
parent must include a statement entitled,

June 26, 2006

“STATEMENT OF NET UNREALIZED
BUILT-IN LOSS ALLOCATION PURSUANT TO §1.1502–95(e),” on or with
its income tax return for the taxable year
in which the former member(s) (or a new
loss subgroup that includes that member)
ceases to be a member. The statement
must include—
(A) The name and employer identification number of the departing member;
(B) The amount of the remaining
NUBIL balance for the taxable year in
which the member departs;
(C) The amount of the net unrealized
built-in loss allocated to the departing
member; and
(D) A representation that the common
parent has delivered a copy of the statement to the former member (or the common parent of the group of which the former member is a member) on or before the
day the group files its income tax return for
the consolidated return year that the former
member ceases to be a member.
(ii) Former Member. Except as provided in paragraph (e)(8)(iii) of this section, the former member must include a
statement on or with its first income tax return (or the first return in which the former
member joins) that is filed after the close of
the consolidated return year of the group
of which the former member (or a new
loss subgroup that includes that member)
ceases to be a member. The statement will
be identical to the statement filed by the
common parent under paragraph (e)(8)(i)
of this section except that instead of including the information described in paragraph (e)(8)(i)(A) of this section the former member must provide the name, employer identification number and tax year
of the former common parent, and instead
of the representation described in paragraph (e)(8)(i)(D) of this section the former member must represent that it has received and retained the copy of the statement delivered by the common parent as
part of its records. See §1.6001–1(e).
(iii) Exception. This paragraph (e)(8)
does not apply if the required information
(other than the amount of the remaining
NUBIL balance) is included in a statement
of election under paragraph (f) of this section (relating to apportioning a section 382
limitation).
(f) Filing the election to apportion the
section 382 limitation and net unrealized
built-in gain—(1) Form of the election

June 26, 2006

to apportion—(i) Statement. An election under paragraph (c) of §1.1502–95
must be made in the form set forth in this
paragraph (f)(1)(i). The election must
be made by the common parent and the
party described in paragraph (f)(2) of this
section. It must be filed in accordance
with paragraph (f)(3) of this section and
be entitled, “THIS IS AN ELECTION
UNDER §1.1502–95 TO APPORTION
ALL OR PART OF THE [INSERT THE
CONSOLIDATED SECTION 382 LIMITATION, THE SUBGROUP SECTION
382 LIMITATION, THE LOSS GROUP’S
NET UNREALIZED BUILT-IN GAIN,
OR THE LOSS SUBGROUP’S NET
UNREALIZED BUILT-IN GAIN, AS
APPROPRIATE] IN THE AMOUNT
OF [INSERT THE AMOUNT OF THE
LOSS LIMITATION OR NET UNREALIZED BUILT-IN GAIN] TO [INSERT
NAME(S) AND EMPLOYER IDENTIFICATION NUMBER(S) OF THE CORPORATION (OR THE CORPORATIONS
THAT COMPOSE A NEW LOSS SUBGROUP) TO WHICH ALLOCATION IS
MADE].” The statement must also indicate that an agreement, as described in
paragraph (f)(1)(ii) of this section, has
been entered into.
(ii) Agreement. Both the common parent and the party described in paragraph
(f)(2) of this section must sign and date the
agreement. The agreement must include,
as appropriate—
(A) The date of the ownership change
that resulted in the consolidated section
382 limitation (or subgroup section 382
limitation) or the loss group’s (or loss subgroup’s) net unrealized built-in gain;
(B) The amount of the departing member’s (or loss subgroup’s) pre-change net
operating loss carryovers and the taxable
years in which they arose that will be subject to the limitation that is being apportioned to that member (or loss subgroup);
(C) The amount of any net unrealized
built-in loss allocated to the departing
member (or loss subgroup) under paragraph (e) of §1.1502–95, which, if recognized, can be a pre-change attribute
subject to the limitation that is being apportioned;
(D) If a consolidated section 382 limitation (or subgroup section 382 limitation) is
being apportioned, the amount of the consolidated section 382 limitation (or subgroup section 382 limitation) for the tax-

1165

able year during which the former member
(or new loss subgroup) ceases to be a member of the consolidated group (determined
without regard to any apportionment under
this section);
(E) If any net unrealized built-in gain is
being apportioned, the amount of the loss
group’s (or loss subgroup’s) net unrealized
built-in gain (as determined under paragraph (c)(2)(ii) of §1.1502–95) that may
be apportioned to members that ceased to
be members during the consolidated return
year;
(F) The amount of the value element
and adjustment element of the consolidated section 382 limitation (or subgroup
section 382 limitation) that is apportioned to the former member (or new
loss subgroup) pursuant to paragraph (c)
of §1.1502–95;
(G) The amount of the loss group’s (or
loss subgroup’s) net unrealized built-in
gain that is apportioned to the former
member (or new loss subgroup) pursuant
to paragraph (c) of §1.1502–95;
(H) If the former member is allocated
any net unrealized built-in loss under paragraph (e) of §1.1502–95, the amount of
any adjustment element apportioned to
the former member that is attributable to
recognized built-in gains (determined in a
manner that will enable both the group and
the former member to apply the principles
of §1.1502–93(c)); and
(I) The name and employer identification number of the common parent making
the apportionment.
(2) Signing the agreement. The agreement must be signed by both the common
parent and the former member (or, in the
case of a loss subgroup, the common parent and the loss subgroup parent) by persons authorized to sign their respective income tax returns. If the allocation is made
to a loss subgroup for which an election
under §1.1502–91(d)(4) is made, and not
separately to its members, the agreement
under this paragraph (f) must be signed
by the common parent and any member of
the new loss subgroup by persons authorized to sign their respective income tax
returns. Each party signing the agreement
must retain either the original or a copy of
the agreement as part of its records. See
§1.6001–1(e).
(3) Filing of the election—(i) Filing by
the common parent. The election must be
filed by the common parent of the group

2006–26 I.R.B.

that is apportioning the consolidated section 382 limitation (or the subgroup section 382 limitation) or the loss group’s net
unrealized built-in gain (or loss subgroup’s
net unrealized built-in gain) by including
the statement on or with its income tax return for the taxable year in which the former member (or new loss subgroup) ceases
to be a member.
(ii) Filing by the former member. An
identical statement must be included on or
with the first return of the former member (or the first return in which the former
member, or the members of a new loss subgroup, join) that is filed after the close of
the consolidated return year of the group
of which the former member (or the members of a new loss subgroup) ceases to be
a member.
(4) Revocation of election. An election statement made under paragraph (c)
of §1.1502–95 is revocable only with the
consent of the Commissioner.
(g) Effective date—(1) Applicability
date. This section applies to any original
consolidated Federal income tax return
due (without extensions) after May 30,
2006. However, a consolidated group may
apply this section to any original consolidated Federal income tax return (including
any amended return filed on or before the
due date (including extensions) of such
original return) timely filed on or after
May 30, 2006.
(2) Expiration date. The applicability
of this section will expire on May 26, 2009.
Par. 47. Section 1.1563–1 is amended
by revising paragraph (c)(2) and adding
paragraph (e) to read as follows:
§1.1563–1 Definition of controlled group
of corporations and component members.
*****
(c) * * *
(2)(i) through (iii) [Reserved]. For
further guidance, see §1.1563–1T(c)(2)(i)
through (iii).
*****
(e) [Reserved]. For further guidance,
see §1.1563–1T(e)(1).
*****
Par. 48. Section 1.1563–1T is added to
read as follows:

2006–26 I.R.B.

§1.1563–1T Definition of controlled group
of corporations and component members
(temporary).
(a) through (c)(1) [Reserved]. For further guidance, see §1.1563–1(a) through
(c)(1).
(2) Brother-sister controlled groups—
(i) One corporation. If on a December
31, a corporation would, without the application of this paragraph (c)(2), be a
component member of more than one
brother-sister controlled group on such
date, the corporation will be treated as
a component member of only one such
group on such date. Such corporation may
elect the group in which it is to be included
by including on or with its income tax return for the taxable year that includes such
date a statement entitled, “STATEMENT
TO ELECT CONTROLLED GROUP
PURSUANT TO §1.1563–1T(c)(2).” This
statement must include—
(A) A description of each of the controlled groups in which the corporation
could be included. The description must
include the name and employer identification number of each component member of
each such group and the stock ownership
of the component members of each such
group; and
(B) The following representation: [INSERT NAME AND EMPLOYER IDENTIFICATION NUMBER OF CORPORATION] ELECTS TO BE TREATED AS A
COMPONENT MEMBER OF THE [INSERT DESIGNATION OF GROUP].
(ii) Multiple corporations. If more than
one corporation would, without the application of this paragraph (c)(2), be a component member of more than one controlled
group, those corporations electing to be
component members of the same group
must file a single statement. The statement
must contain the information described in
paragraph (c)(2)(i) of this section, plus the
names and employer identification numbers of all other corporations designating
the same group. The original statement
must be included on or with the original
Federal income tax return (including any
amended return filed on or before the due
date (including extensions) of such return)
of the corporation that, among those corporations which would (without the application of this paragraph (c)(2)) belong
to more than one group, has the taxable
year including such December 31 which

1166

ends on the earliest date. That corporation must provide a copy of the statement
to each other corporation included in the
statement and represent in its statement
that it has done so. Either the original or
a copy of the statement must be retained
by each corporation as part of its records.
See §1.6001–1(e).
(iii) Election—(A) Election filed. An
election filed under this paragraph (c)(2) is
irrevocable and effective until a change in
the stock ownership of the corporation results in termination of membership in the
controlled group in which such corporation has been included.
(B) Election not filed. In the event no
election is filed in accordance with the provisions of this paragraph (c)(2), then the
Internal Revenue Service will determine
the group in which such corporation is to
be included. Such determination will be
binding for all subsequent years unless the
corporation files a valid election with respect to any such subsequent year or until
a change in the stock ownership of the corporation results in termination of membership in the controlled group in which such
corporation has been included.
(c)(2)(iv) through (d) [Reserved]. For
further guidance, see §1.1563–1(c)(2)(iv)
through (d).
(e) Effective date—(1) Applicability
date. This section applies to any original
Federal income tax return (including any
amended return filed on or before the due
date (including extensions) of such original return) timely filed on or after May 30,
2006.
(2) Expiration date. The applicability
of this section will expire on May 26, 2009.
Par. 49. Section 1.1563–3 is amended
by revising paragraph (d)(2)(iv) and
adding paragraph (e) to read as follows:
§1.1563–3 Rules for determining stock
ownership.
*****
(d) * * *
(2) * * *
(iv) [Reserved]. For further guidance,
see §1.1563–3T(d)(2)(iv).
*****
(e) [Reserved]. For further guidance,
see §1.1563–3T(e)(1).
Par. 50. Section 1.1563–3T is added to
read as follows:

June 26, 2006

§1.1563–3T Rules for determining stock
ownership (temporary).
(a) through (d)(2)(iii) [Reserved].
For further guidance, see §1.1563–3(a)
through (d)(2)(iii).
(iv) Statement. If the application of
paragraph (d)(2)(ii) or (iii) of §1.1563–3
does not result in a corporation being
treated as a component member of only
one controlled group of corporations on
a December 31, then such corporation
will be treated as a component member
of only one such group on such date.
Such corporation may elect the group in
which it is to be included by including
on or with its income tax return a statement entitled, “STATEMENT TO ELECT
CONTROLLED GROUP PURSUANT
TO §1.1563–3T(d)(2)(iv).” The statement
must include—
(A) A description of each of the controlled groups in which the corporation
could be included. The description must
include the name and employer identification number of each component member of
each such group and the stock ownership
of the component members of each such
group; and
(B) The following representation: [INSERT NAME AND EMPLOYER IDENTIFICATION NUMBER OF CORPORATION] ELECTS TO BE TREATED AS A
COMPONENT MEMBER OF THE [INSERT DESIGNATION OF GROUP].
(v) Election—(A) Election filed. An
election filed under paragraph (d)(2)(iv) of
this section is irrevocable and effective until paragraph (d)(2)(ii) or (iii) of §1.1563–3
applies or until a change in the stock ownership of the corporation results in termination of membership in the controlled
group in which such corporation has been
included.
(B) Election not filed. In the event no
election is filed in accordance with the
provisions of paragraph (d)(2)(iv) of this
section, then the Internal Revenue Service
will determine the group in which such
corporation is to be included. Such determination will be binding for all subsequent years unless the corporation files a
valid election with respect to any such subsequent year or until a change in the stock
ownership of the corporation results in termination of membership in the controlled
group in which such corporation has been
included.

June 26, 2006

(d)(3) [Reserved]. For further guidance, see §1.1563–3(d)(3).
(e) Effective date—(1) Applicability
date. This section applies to any original
Federal income tax return (including any
amended return filed on or before the due
date (including extensions) of such original return) timely filed on or after May 30,
2006.
(2) Expiration date. The applicability
of this section will expire on May 26, 2009.
Par. 51. Section 1.6012–2 is amended
by revising paragraph (c) and adding paragraph (k) to read as follows:
§1.6012–2 Corporations required to make
returns of income.
*****
(c) [Reserved]. For further guidance,
see §1.6012–2T(c).
*****
(k) [Reserved]. For further guidance,
see §1.6012–2T(k)(1).
Par. 52. Section 1.6012–2T is added to
read as follows:
§1.6012–2T Corporations required to
make returns of income (temporary).
(a) through (b) [Reserved]. For further
guidance, see §1.6012–2(a) through (b).
(c) Insurance companies—(1) Domestic life insurance companies—(i) In general. A life insurance company subject
to tax under section 801 shall make a return on Form 1120L. Except as provided in
paragraph (c)(4) of this section, such company shall file with its return—
(A) A copy of its annual statement
which shows the reserves used by the
company in computing the taxable income
reported on its return; and
(B) A copy of Schedule A (real estate)
and of Schedule D (bonds and stocks), or
any successor thereto, of such annual statement.
(ii) Mutual savings banks. Mutual
savings banks conducting life insurance
business and meeting the requirements
of section 594 are subject to partial tax
computed on Form 1120 and partial tax
computed on Form 1120L. The Form
1120L is attached as a schedule to Form
1120, together with the annual statement
and schedules required to be filed with
Form 1120L.

1167

(2) Domestic nonlife insurance companies. Every domestic insurance company
other than a life insurance company shall
make a return on Form 1120PC. This includes organizations described in section
501(m)(1) that provide commercial-type
insurance and organizations described in
section 833. Except as provided in paragraph (c)(4) of this section, such company
shall file with its return a copy of its annual
statement (or a pro forma annual statement), including the underwriting and investment exhibit for the year covered by
such return.
(3) Foreign insurance companies. The
provisions of paragraphs (c)(1) and (c)(2)
of this section concerning the returns and
statements of insurance companies subject
to tax under section 801 or section 831 also
apply to foreign insurance companies subject to tax under those sections, except that
the copy of the annual statement required
to be submitted with the return shall, in the
case of a foreign insurance company that
is not required to file an annual statement,
be a copy of the pro forma annual statement relating to the United States business
of such company.
(4) Exception for insurance companies
filing their Federal income tax returns
electronically. If an insurance company
described in paragraph (c)(1), (c)(2), or
(c)(3) of this section files its Federal income tax return electronically, it should
not include on or with such return its
annual statement (or pro forma annual
statement), or any portion thereof. Such
statement must be available at all times for
inspection by authorized Internal Revenue
Service officers or employees and retained
for so long as such statements may be material in the administration of any internal
revenue law. See §1.6001–1(e).
(5) Definition. For purposes of this section, the term annual statement means the
annual statement, the form of which is approved by the National Association of Insurance Commissioners (NAIC), which is
filed by an insurance company for the year
with the insurance departments of States,
Territories, and the District of Columbia.
The term annual statement also includes
a pro forma annual statement if the insurance company is not required to file the
NAIC annual statement.
(d) through (j) [Reserved]. For further
guidance, see §1.6012–2(d) through (j).

2006–26 I.R.B.

nal return) timely filed on or after May 30,
2006.
(2) Expiration date. The applicability
of this section will expire on May 26, 2009.

Par. 53. For each entry in the “Location” column of the following table, remove the language in the “Remove” column and add the language in the “Add”
column in its place:

Location

Remove

Add

The last sentence of the introductory text
to §1.302–4

The following rules shall be applicable
in determining whether the specific
requirements of section 302(c)(2) are
met:

The rules described in paragraph (a) of
§1.302–4T and in paragraphs (b) through
(g) of this section apply in determining
whether the specific requirements of
section 302(c)(2) are met.

§1.338(h)(10)–1(f)

§1.331–1(d), and §1.332–6

§1.331–1T(d) and §1.332–6T

The last sentence of
§1.382–2T(h)(4)(vi)(B)

paragraph (a)(2)(ii) of this section

paragraph (a) of §1.382–11T

The first sentence of §1.382–6(b)(2)(i)

§1.382–2T(a)(2)(ii)

§1.382–11T(a)

The second sentence of §1.382–8(a)

paragraph (c) of this section

paragraphs (c)(1), (c)(3), (c)(4) and (c)(5)
of this section and paragraph (c)(2) of
§1.382–8T

The third sentence of §1.382–8(a)

paragraph (c) of this section

paragraphs (c)(1), (c)(3), (c)(4) and (c)(5)
of this section and paragraph (c)(2) of
§1.382–8T

§1.382–8(c)(3)

paragraph (c)(2) of this section

paragraph (c)(2) of §1.382–8T

The first sentence of §1.382–8(c)(4)

paragraphs (c)(1), (2), and (3) of this
section

paragraphs (c)(1) and (c)(3) of this section
and paragraph (c)(2) of §1.382–8T

§1.382–8(c)(5)

this paragraph (c)

paragraphs (c)(1), (c)(3), (c)(4), and
(c)(5) of this section, and paragraph (c)(2)
of §1.382–8T

The fifth sentence of §1.382–8(f)

paragraph (c) of this section

paragraphs (c)(1), (c)(3), (c)(4), and
(c)(5) of this section, and paragraph (c)(2)
of §1.382–8T

§1.382–8(g), Example (1)(b)(2)

paragraph (c) of this section

paragraphs (c)(1), (c)(3), (c)(4), and
(c)(5) of this section, and paragraph (c)(2)
of §1.382–8T

The second sentence of §1.382–8(g),
Example (1)(c)

paragraph (c) of this section

paragraphs (c)(1), (c)(3), (c)(4), and
(c)(5) of this section, and paragraph (c)(2)
of §1.382–8T

§1.382–8(g), Example (2)(c)

paragraph (c)(2) of this section

paragraph (c)(2) of §1.382–8T

The first sentence of §1.382–8(g),
Example (2)(e)

paragraph (c)(2) of this section

paragraph (c)(2) of §1.382–8T

§1.382–8(g), Example (3)(b)

paragraph (c)(2) of this section

paragraph (c)(2) of §1.382–8T

§1.382–8(g), Example (3)(c)(1)(B)

paragraphs (c)(1) and (2) of this section

paragraph (c)(1) of this section and
paragraph (c)(2) of §1.382–8T

The second sentence of §1.382–8(g),
Example (4)(c)

paragraph (c)(2) of this section

paragraph (c)(2) of §1.382–8T

(k) Effective date—(1) Applicability
date. This section applies to any original
Federal income tax return (including any
amended return filed on or before the due
date (including extensions) of such origi-

2006–26 I.R.B.

1168

June 26, 2006

Location

Remove

Add

The second sentence of §1.382–8(g),
Example (5)(c)

paragraph (c)(2) of this section

paragraph (c)(2) of §1.382–8T

The first sentence of
§1.1502–32(b)(4)(v)(A)

paragraph (b)(4)(iv) of this section

paragraph (b)(4)(iv) of §1.1502–32T

The first sentence of
§1.1502–32(b)(4)(v)(B)

paragraph (b)(4)(iv) of this section

paragraph (b)(4)(iv) of §1.1502–32T

§1.1502–35(c)(4)(ii)(B)

§1.1502–76(b)(2)(ii)(D)

§1.1502–76T(b)(2)(ii)(D)

§1.1502–76(b)(2)(ii)(A)(2)

paragraph (b)(2)(ii)(D) of this section

paragraph (b)(2)(ii)(D) of §1.1502–76T

§1.1502–92(e)(1)

§1.382–2T(a)(2)(ii)

§1.382–11T(a)

The first sentence of §1.1502–92(e)(2)

§1.382–2T(a)(2)(ii)

§1.382–11T(a)

The first sentence of §1.1502–94(d)

§1.382–2T(a)(2)(ii)

§1.382–11T(a)

The second sentence of §1.1502–94(d)

§1.382–2T(a)(2)(ii)

§1.382–11T(a)

The last sentence of §1.1502–95(b)(3)

paragraph (f) of this section

paragraph (f) of §1.1502–95T

The last sentence of §1.1563–1(c)(2)(iv),
Example (1)

subdivision (ii) of this subparagraph

paragraph (c)(2)(i) of §1.1563–1T

The last sentence of §1.1563–1(c)(2)(iv),
Example (1)

the district director with audit jurisdiction
of N’s return

the Internal Revenue Service

The third sentence of §1.1563–1(c)(2)(iv),
Example (2)

subdivision (iii) of this subparagraph

paragraph (c)(2)(ii) of §1.1563–1T

The third sentence of §1.1563–1(c)(2)(iv),
Example (2)

the district director with audit jurisdiction
of the return of the corporation whose
taxable year ends on the earliest date

the Internal Revenue Service

The last sentence of §1.1563–1(c)(2)(iv),
Example (2)

district director

Internal Revenue Service

The second sentence of
§1.1563–3(d)(2)(i)

subdivisions (ii), (iii), and (iv) of this
subparagraph

paragraphs (d)(2)(ii) and (iii) of this
section, and paragraph (d)(2)(iv) of
§1.1563–3T

The first sentence of §1.6043–2(a)

§1.332–6(b), 1.368–3(a), or 1.1081–11

§1.332–6T(a), §1.368–3T(a), or
§1.1081–11T

The first sentence of §301.6011–5T(a)
(twice)

§1.6012–2

paragraphs (a), (b) and (d) through (j)
of §1.6012–2, and paragraph (c) of
§1.6012–2T

PART 602—OMB CONTROL
NUMBERS UNDER THE PAPERWORK
REDUCTION ACT
Par. 54. The authority citation for part
602 continues to read as follows:

Authority: 26 U.S.C. 7805.
Par. 55. In §602.101, paragraph (b) is
amended to read as follows:
1. The following entries to the table are
removed:

§602.101 OMB Control numbers.
*****
(b) * * *

CFR part or section where
identified or described

Current OMB
control No.

*****
1.332–6
1.382–11
1.351–3
1.355–5

June 26, 2006

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CFR part or section where
identified or described
1.368–3
1.1081–11

Current OMB
control No.
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1545–2019
1545–2019

*****
2. The following entries are added in
numerical order to the table:

§602.101 OMB Control numbers.

(b) * * *

*****

CFR part or section where
identified or described

Current OMB
control No.

*****
1.302–2T
1.302–4T
1.331–1T
1.332–6T
1.338–10T
1.351–3T
1.355–5T
1.368–3T
1.381(b)–1T
1.382–8T
1.382–11T
1.1081–11T
1.1221–2T
1.1502–13T
1.1502–31T
1.1502–32T
1.1502–33T
1.1502–35T
1.1502–76T
1.1502–95T
1.1563–1T
1.1563–3T
1.6012–2T

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1545–2019
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1545–2019
1545–2019
1545–2019
1545–2019
1545–2019
1545–2019
1545–2019
1545–2019
1545–2019
1545–2019
1545–2019
1545–2019
1545–2019
1545–2019
1545–2019
1545–2019
1545–2019
1545–2019
1545–2019
1545–2019

*****
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
Approved May 19, 2006.
Eric Solomon,
Acting Deputy Assistant Secretary
of the Treasury (Tax Policy).
(Filed by the Office of the Federal Register on May 26, 2006,
8:45 a.m., and published in the issue of the Federal Register
for May 30, 2006, 71 F.R. 30591)

Section 1563.—Definitions
and Special Rules
Temporary and proposed regulations simplify,
clarify, or eliminate taxpayer reporting burdens.

2006–26 I.R.B.

They also eliminate regulatory impediments to the
electronic filing of certain statements that taxpayers
are required to include on or with their Federal income tax returns. See T.D. 9264, page 1150. See
REG-134317-05, page 1184.

Section 2032A.—Valuation
of Certain Farm, etc.,
Real Property
26 CFR 20.2032A–4: Method of valuing farm real
property.

Special use value; farms; interest
rates. The 2006 interest rates to be used
in computing the special use value of farm
real property for which an election is made
under section 2032A of the Code are listed
for estates of decedents.

1170

Rev. Rul. 2006–32
This revenue ruling contains a list of the
average annual effective interest rates on
new loans under the Farm Credit System.
This revenue ruling also contains a list of
the states within each Farm Credit System
Bank Chartered Territory.
Under § 2032A(e)(7)(A)(ii) of the Internal Revenue Code, rates on new Farm
Credit System Bank loans are used in computing the special use value of real property used as a farm for which an election
is made under § 2032A. The rates in this
revenue ruling may be used by estates that
value farmland under § 2032A as of a date
in 2006.
Average annual effective interest
rates, calculated in accordance with

June 26, 2006

§ 2032A(e)(7)(A) and § 20.2032A–4(e)
of the Estate Tax Regulations, to be used
under § 2032A(e)(7)(A)(ii), are set forth in
the accompanying Table of Interest Rates
(Table 1). The states within each Farm
Credit System Bank Chartered Territory
are set forth in the accompanying Table
of Farm Credit System Bank Chartered
Territories (Table 2).

Rev. Rul. 81–170, 1981–1 C.B. 454,
contains an illustrative computation of an
average annual effective interest rate. The
rates applicable for valuation in 2005 are
in Rev. Rul. 2005–41, 2005–28 I.R.B.
69. For rate information for years prior
to 2005, see Rev. Rul. 2004–63, 2004–2
C.B. 6, and other revenue rulings that are
referenced therein.

DRAFTING INFORMATION
The principal author of this revenue ruling is Lane Damazo of the Office of the Associate Chief Counsel (Passthroughs and
Special Industries). For further information regarding this revenue ruling, contact
Lane Damazo at (202) 622–3090 (not a
toll-free call).

REV. RUL. 2006–32 TABLE 1
TABLE OF INTEREST RATES
(Year of Valuation 2006)
Farm Credit System Bank Servicing State in
Which Property is Located

Rate

AgFirst, FCB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7.13

AgriBank, FCB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.02

CoBank, ACB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.19

Texas, FCB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.76

U.S. AgBank, FCB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.73

REV. RUL. 2006–32 TABLE 2
TABLE OF FARM CREDIT SYSTEM BANK CHARTERED TERRITORIES
Farm Credit System Bank

Location of Property

AgFirst, FCB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Delaware, District of Columbia, Florida, Georgia, Maryland,
North Carolina, Pennsylvania, South Carolina, Virginia,
West Virginia.

AgriBank, FCB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Arkansas, Illinois, Indiana, Iowa, Kentucky, Michigan,
Minnesota, Missouri, Nebraska, North Dakota, Ohio,
South Dakota, Tennessee, Wisconsin, Wyoming.

CoBank, ACB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Alaska, Connecticut, Idaho, Maine, Massachusetts, Montana,
New Hampshire, New Jersey, New York, Oregon,
Rhode Island, Vermont, Washington.

Texas, FCB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Alabama, Louisiana, Mississippi, Texas.

U.S. Agbank, FCB. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Arizona, California, Colorado, Hawaii, Kansas, New Mexico,
Nevada, Oklahoma, Utah.

come tax returns. See T.D. 9264, page 1150. See
REG-134317-05, page 1184.

Section 6012.—Persons
Required to Make Returns
of Income
Temporary and proposed regulations simplify,
clarify, or eliminate taxpayer reporting burdens.
They also eliminate regulatory impediments to the
electronic filing of certain statements that taxpayers
are required to include on or with their Federal in-

June 26, 2006

Section 6166.—Extension
of Time for Payment of
Estate Tax Where Estate
Consists Largely of Interest
in Closely Held Business
26 CFR 20.6166–2: Definition of an interest in a
closely held business.

Real property interests; closely held
business. This ruling updates the guidance
provided by Rev. Ruls. 75–365, 75–366,

1171

2006–26 I.R.B.

and 75–367, and provides certain safe harbors and a non-exclusive list of factors that
are likely to be relevant in determining
whether a deceased owner’s activities with
regard to certain real property were sufficiently active to support a finding that the
real property interest constitutes a closely
held business interest for purposes of section 6166 of the Code. Rev. Rul. 75–365
revoked and Rev. Rul. 75–367 revoked in
part.

Rev. Rul. 2006–34
ISSUE
Whether the real property interests described in the situations below constitute
interests in a closely held business for purposes of section 6166 of the Internal Revenue Code.
FACTS
In each situation, the real property
interests are included in the decedent’s
gross estate and aggregate in value more
than 35 percent of the decedent’s adjusted
gross estate within the meaning of section
6166(b)(6). Further, in each situation the
only assets that might be part of a closely
held business are the interests described.
In each situation, the eligibility requirements of section 6166(b) regarding the
number of partners, members, or shareholders or the percentage of capital interest
in the partnership or LLC or voting stock
in the corporation are satisfied.
Situation 1. A died on January 1, 2005.
At the time of death, A owned a ten store
strip mall titled in A’s name. A personally
handled the day-to-day operation, management and maintenance of the strip mall.
A also personally handled most repairs.
When A was unable to personally perform
a repair, A hired a third party independent contractor. A selected the contractor
and reviewed and approved the work performed.
Situation 2. B died on February 1,
2005. At the time of death, B owned a
small office park titled in B’s name. The
office park consisted of five separate twostory buildings, each of which had multiple
tenants. B hired DEF Management Corporation (DEF), a property management
company in which B had no ownership interest, to lease, manage, and maintain the
office park, and B relied entirely on DEF

2006–26 I.R.B.

to provide all necessary services. The primary duties of DEF’s employees consisted
of advertising to attract new tenants, showing the property to prospective tenants, negotiating and administering leases, collecting the monthly rent, and arranging for independent contractors to provide all necessary services to maintain the buildings and
grounds of the office park, including snow
removal, security, and janitorial services.
DEF provided a monthly accounting statement to B, along with a check for the rental
income, net of expenses and fees.
Situation 3. Same as Situation 2 except
that B owned 20 percent in value of the
stock of DEF.
Situation 4. C died on April 1, 2005. At
the time of death, C’s assets included the
one percent general partner interest and a
20 percent limited partnership interest in a
limited partnership. The limited partnership owned three strip malls that, collectively, constituted 85 percent of the value
of the limited partnership’s assets. The
partnership agreement required C, as the
general partner, to provide the limited partnership with all services necessary to operate the limited partnership’s business, including daily maintenance to and repairs
of the strip malls. From 1992 until death,
C received an annual salary from the limited partnership for C’s services as general
partner. In performance of C’s obligations
under the limited partnership agreement,
C (either personally or with the assistance
of employees or agents) performed substantial management functions, including
collecting rental payments and negotiating
leases, performing daily maintenance and
repairs (or hiring, reviewing and approving
the work of third party independent contractors for such work), and making decisions regarding periodic renovations of the
three strip malls.
Situation 5. D died on May 1, 2005. At
the time of death, D owned 100 percent of
the stock in MNO Corporation (MNO), a
dealership in the business of selling automobiles, automotive parts and related supplies, and repair services. D made all
decisions regarding MNO, including the
approval of all advertising and marketing
promotions, management and acquisition
of inventory, and matters relating to dealership personnel. D also supervised all employees of MNO. In addition to the stock
of MNO, D directly owned Real Property P. Real Property P was constructed for

1172

MNO and contained unique features tailored to an automobile dealership, including a showroom and office space and areas
for servicing automobiles and storing inventory. D leased Real Property P to MNO
under a net lease, and MNO’s employees
performed all maintenance of and repairs
to Real Property P.
LAW
Section 6166(a)(1) of the Code permits
an executor to elect to pay part or all of the
estate tax imposed by section 2001 in two
or more (but not exceeding ten) equal installments if a decedent was a citizen or
resident of the United States on the date
of death, and if the value of an interest
in a closely held business (the “closely
held business amount” as defined in section 6166(b)(5)) which is included in the
decedent’s gross estate exceeds 35 percent
of the adjusted gross estate.
Section 6166(b)(1) defines the term “interest in a closely held business” to mean:
A. an interest as a proprietor in a trade
or business carried on as a proprietorship;
B. an interest as a partner in a partnership
carrying on a trade or business, if— (i)
20 percent or more of the total capital
interest in such partnership is included
in determining the gross estate of the
decedent, or (ii) such partnership had
45 or fewer partners; or
C. stock in a corporation carrying on a
trade or business if— (i) 20 percent
or more in value of the voting stock
of such corporation is included in determining the gross estate of the decedent, or (ii) such corporation had 45 or
fewer shareholders.
I.R.C. § 6166(b)(1). The determination
as to whether an interest qualifies as an
interest in a closely held business under
section 6166(b)(1) shall be made as of the
time immediately before the decedent’s
death. I.R.C. § 6166(b)(2)(A). Thus, a
decedent must own an interest in a closely
held business immediately before death
to be eligible for an extension of time for
payment under section 6166.
Under section 6166(b)(9)(A), for purposes of section 6166(a)(1) and determining the closely held business amount, the
value of an interest in a business does not
include the value of that portion of the interest that is attributable to passive assets

June 26, 2006

held by the business. The term “passive asset” is defined in section 6166(b)(9)(B)(i)
as any asset other than an asset used in carrying on a trade or business.
Revenue Ruling 75–366, 1975–2 C.B.
472, involved a decedent whose gross estate included farm real estate operated by
tenant farmers. The decedent paid 40 percent of the expenses, received 40 percent
of the crops, and actively participated in
important management decisions of the
tenant farms. The decedent made almost
daily visits to inspect and discuss farm operations, and occasionally delivered supplies to the tenants. The ruling held that
farming under these circumstances was a
productive enterprise like a manufacturing
enterprise and was distinguishable from
the mere management of investment assets. Therefore, the decedent’s farm assets
constituted an interest in a closely held
business for purposes of section 6166.
Revenue Ruling 75–365, 1975–2 C.B.
471, also involved a decedent’s interest in
real estate. In that ruling, the Service considered a situation in which the decedent
individually maintained a fully equipped
business office to collect rental payments
on commercial and farm rental properties,
receive payments on notes receivable, negotiate leases, make occasional loans, and
direct by contract the maintenance of the
properties. The ruling held that the decedent was merely an owner managing investment assets to obtain the income ordinarily expected from them, and was not
conducting a trade or business. Therefore,
the commercial and farm rental properties
and notes receivable included in the decedent’s gross estate did not constitute an interest in a closely held business for purposes of section 6166.
Revenue Ruling 75–367, 1975–2 C.B.
472, held that a decedent’s ownership
of 100 percent of the stock of an electing small business corporation that built
homes on land owned and developed by
the decedent, together with a business
office and warehouse used both by the
corporation and by the decedent in the
land development activities constituted
an interest in a closely held business.
The ruling held, however, that the eight
homes that were owned by the decedent
and rented to tenants and for which the
decedent collected rents, made the mortgage payments, and performed necessary

June 26, 2006

repairs and maintenance, did not constitute an interest in a closely held business
because the decedent’s interest in those
homes merely represented an investment.

•

The amount of time the decedent (or
agents and employees of the decedent,
partnership, LLC, or corporation) devoted to the trade or business;

ANALYSIS

•

Whether an office was maintained
from which the activities of the decedent, partnership, LLC, or corporation
were conducted or coordinated, and
whether the decedent (or agents and
employees of the decedent, partnership, LLC, or corporation) maintained
regular business hours for that purpose;

•

The extent to which the decedent (or
agents and employees of the decedent,
partnership, LLC, or corporation) was
actively involved in finding new tenants and negotiating and executing
leases;

•

The extent to which the decedent (or
agents and employees of the decedent,
partnership, LLC, or corporation) provided landscaping, grounds care, or
other services beyond the mere furnishing of leased premises;

•

The extent to which the decedent (or
agents and employees of the decedent,
partnership, LLC, or corporation) personally made, arranged for, performed,
or supervised repairs and maintenance
to the property (whether or not performed by independent contractors),
including without limitation painting,
carpentry, and plumbing; and

•

The extent to which the decedent (or
agents and employees of the decedent,
partnership, LLC, or corporation) handled tenant repair requests and complaints.

In order for an interest in a business
to qualify as an interest in a closely held
business under section 6166, a decedent
must conduct an active trade or business,
or must hold an interest in a partnership,
LLC, or corporation that itself carries on
an active trade or business. Based on
the definition of a passive asset in section 6166(b)(9)(B)(i), section 6166 applies
only with regard to an active trade or business, as distinguished from the mere management of investment assets.
In determining whether the activities of
the decedent, partnership, LLC or corporation constitute an active trade or business,
the activities of agents and employees of
the decedent, the partnership, LLC or corporation are also taken into consideration.
The fact that some of the activities are conducted by third parties such as independent
contractors who are neither agents nor employees of the decedent, partnership, LLC
or corporation, will not prevent the business from qualifying as an active trade or
business so long as these third-party activities are not of such a nature that the activities of the decedent, partnership, LLC
or corporation (and their respective agents
and employees) are reduced to the level of
merely holding investment property.
Often, day-to-day real estate operations
and activities are performed by independent contractors, such as property management companies. If a decedent, partnership, LLC, or corporation uses an unrelated property management company to
perform most of the activities associated
with the real estate interests, that fact suggests that an active trade or business does
not exist.
To determine whether a decedent’s interest in real property is an interest in an
asset used in an active trade or business,
the Service will consider all the facts and
circumstances, including the activities of
agents and employees, the activities of
management companies or other third parties, and the decedent’s ownership interest
in any management company or other
third party. The Service will consider the
following nonexclusive list of factors:

1173

No single factor is dispositive of
whether a decedent’s activities with respect to the real property (or the activities
of a partnership, LLC, or corporation
through which decedent owns the real
property) constitute an interest in a closely
held business for purposes of section 6166.
HOLDINGS
(1) In Situation 1, A provided significant services to the strip mall tenants. A
personally handled the day-to-day operation, management and maintenance of

2006–26 I.R.B.

the strip mall. A’s activities went beyond
those of a mere investor collecting profits
from a passive asset. Moreover, even in
situations in which A hired independent
contractors to perform repairs that A could
not perform personally, A was involved
in the selection of the contractors and reviewed and approved the work performed.
Under these circumstances, the use of independent contractors on occasions when
A could not personally perform the work
does not prevent A’s activities from rising
to the level of the conduct of an active
trade or business. Thus, A’s ownership
of the strip mall qualifies as an interest
in a closely held business for purposes of
section 6166. (The result would be the
same if the strip mall had instead been
held in a single-member LLC owned by
A, and the LLC were disregarded as an
entity that is separate from its owner under
§§301.7701–1 through 3 of the Procedure
and Administration Regulations.)
(2) In Situation 2, in determining
whether B was a proprietor carrying on an
active trade or business with respect to B’s
interest in the office park, the activities
of DEF Management Corporation (DEF)
and its relationship with B are taken into
account. DEF and its employees provided
all necessary services for B’s office park.
B had no ownership interest in DEF. B’s
reliance on DEF to perform all necessary
services, B’s lack of any significant participation in the management or oversight
of the property, and B’s lack of any ownership interest in DEF are all factors that
weigh heavily against a finding that the office park was used by B in an active trade
or business. Thus, B was not a proprietor
in an active trade or business and B’s interest in the office park does not qualify as
an interest in a closely held business for
purposes of section 6166.
(3) In Situation 3, DEF provided all
necessary services with regard to the man-

2006–26 I.R.B.

agement and maintenance of the office
park, including advertising to attract new
tenants, showing the property to prospective tenants, negotiating and administering
leases, collecting the monthly rent, and
arranging for third party independent contractors to provide all necessary services
to maintain the buildings and grounds of
the office park, including snow removal,
security, and janitorial services. These
activities are sufficient to conclude that
DEF was actively managing the office
park. Because B owned a significant interest in DEF, the activities of DEF with
regard to the office park allow B’s interest
in the office park to qualify as an interest
in a closely held business for purposes of
section 6166.
(4) In Situation 4, the determination of
whether the limited partnership was carrying on a trade or business for purposes of
section 6166 is made with reference to the
partnership’s activities. Because the limited partnership, rather than C, owned the
interest in the strip malls, the nature and
level of the activities of the limited partnership must be evaluated. The limited partnership, acting through its general partner
C, handled the day-to-day operations and
management of the strip malls. The activities of C on behalf of the limited partnership included (either personally or with
the assistance of employees or agents) performing daily maintenance of and repairs
to the strip malls (or hiring, reviewing and
approving the work of third party independent contractors for such work), collecting
rental payments, negotiating leases, and
making decisions regarding periodic renovations of the strip malls. Thus, the limited partnership carried on an active trade
or business. Because the strip malls were
used in carrying on the partnership’s active trade or business, they are not passive assets under section 6166(b)(9) and
their value is not excluded from the value

1174

of C’s interest in the partnership for purposes of section 6166. C’s interest in the
limited partnership qualifies as an interest
in a closely held business for purposes of
section 6166. (Because C owned at least
20 percent of the partnership, the conclusion would be the same even if C’s activities were instead performed by another
employee, partner or agent of the partnership).
(5) In Situation 5, MNO was engaged in
an automobile dealership business. Thus,
MNO was conducting an active trade or
business at the time of D’s death. Consequently, D’s 100 percent stock interest in
MNO qualifies as an interest in a closely
held business. In addition, Real Property
P was used exclusively in the business of
MNO under a net lease from D. As in Situation 3, because D owned a significant
interest in MNO, whose activities with regard to Real Property P constituted active
management, D’s interest in Real Property
P also qualifies as an interest in a closely
held business.
EFFECT ON OTHER REVENUE
RULINGS
Rev. Rul. 75–365, 1975–2 C.B. 471,
is revoked, and the portion of Rev. Rul.
75–367, 1975–2 C.B. 472, relating to the
eight rental homes is revoked.
DRAFTING INFORMATION
The principal author of this revenue ruling is Tracey B. Leibowitz of the Office
of the Associate Chief Counsel, Procedure
and Administration (Administrative Provisions and Judicial Practice Division). For
further information regarding this revenue
ruling, contact Laura R. Urich at (202)
622–4940 (not a toll-free call).

June 26, 2006

Part III. Administrative, Procedural, and Miscellaneous
Deduction for Energy Efficient
Commercial Buildings
Notice 2006–52
SECTION 1. PURPOSE
This notice sets forth interim guidance,
pending the issuance of regulations, relating to the deduction for energy efficient
commercial buildings under § 179D of the
Internal Revenue Code. Specifically, this
notice sets forth a process that allows a taxpayer who owns, or is a lessee of, a commercial building and installs property as
part of the commercial building’s interior
lighting systems, heating, cooling, ventilation, and hot water systems, or building
envelope to obtain a certification that the
property satisfies the energy efficiency requirements of § 179D(c)(1) and (d). This
notice also provides for a public list of software programs that must be used in calculating energy and power consumption for
purposes of § 179D. The Internal Revenue
Service and the Treasury Department expect that the rules set forth in this notice
will be incorporated in regulations.
SECTION 2. BACKGROUND
.01 In General. Section 1331 of the
Energy Policy Act of 2005, Pub. L. No.
109–58, 119 Stat. 594 (2005), enacted
§ 179D of the Code, which provides a
deduction with respect to energy efficient
commercial buildings. Section 179D(a)
allows a deduction to a taxpayer for part
or all of the cost of energy efficient commercial building property that the taxpayer
places in service after December 31, 2005,
and before January 1, 2008. (See section
2.02 of this notice.) Sections 179D(d)(1)
and 179D(f) allow a deduction to a taxpayer for part or all of the cost of certain partially qualifying commercial building property that the taxpayer places in service after December 31, 2005, and before
January 1, 2008. (See sections 2.03, 2.04,
and 2.05 of this notice.) For purposes of
this notice partially qualifying commercial
building property is property that would
be energy efficient commercial building
property but for the failure to achieve the
50-percent reduction in energy and power

June 26, 2006

costs required under section 2.02(1)(c) of
this notice.
.02 Energy Efficient Commercial Building Property.
(1) In General. Energy efficient commercial building property is depreciable
property that satisfies each of the following conditions:
(a) The property is installed on or in
any building that is located in the United
States and is within the scope of Standard
90.1–2001. (See section 5.02 of this notice for the description of buildings within
the scope of Standard 90.1–2001 and section 5.06 of this notice for the complete description of Standard 90.1–2001.)
(b) The property is installed as part of—
(i) the interior lighting systems,
(ii) the heating, cooling, ventilation,
and hot water systems, or
(iii) the building envelope.
(c) It is certified that the interior lighting systems, heating, cooling, ventilation,
and hot water systems, and building envelope that have been incorporated into
the building, or that the taxpayer plans
to incorporate into the building subsequent to the installation of such property,
will reduce the total annual energy and
power costs with respect to combined
usage of the building’s heating, cooling,
ventilation, hot water, and interior lighting systems by 50 percent or more as
compared to a Reference Building that
meets the minimum requirements of Standard 90.1–2001. The required 50-percent
reduction must be accomplished solely
through energy and power cost reductions
for the heating, cooling, ventilation, hot
water, and interior lighting systems. Reductions in any other energy uses, such
as receptacles, process loads, refrigeration, cooking, and elevators, are not taken
into account in determining whether the
50-percent reduction is achieved.
(2) Maximum Amount of Deduction.
(a) In General. The deduction for the
cost of energy efficient commercial building property installed on or in a building
shall not exceed the excess (if any) of—
(i) the product of $1.80 and the square
footage of the building, over
(ii) the aggregate amount of the § 179D
deductions allowed with respect to the
building for all prior taxable years.

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(b) Application to Multiple Taxpayers.
If two or more taxpayers install energy efficient commercial building property on or
in the same building, the aggregate amount
of the § 179D deductions allowed to all
such taxpayers with respect to the building
shall not exceed the amount determined
under section 2.02(2)(a) of this notice.
.03 Partially Qualifying Property: Energy Efficient Lighting Property.
(1) In General. Energy efficient lighting property is partially qualifying property, within the meaning of section 2.01
of this notice, that is subject to either the
permanent rule in section 2.03(1)(a) of
this notice or the interim rule in section
2.03(1)(b) of this notice.
(a) Permanent Rule. Partially qualifying property is subject to the permanent
rule if it is installed as part of the interior
lighting systems of a building and it is certified that the interior lighting systems that
have been incorporated into the building,
or that the taxpayer plans to incorporate
into the building subsequent to the installation of such property, will reduce
the total annual energy and power costs
with respect to combined usage of the
building’s heating, cooling, ventilation,
hot water, and interior lighting systems
by 162/3 percent or more as compared to
a Reference Building that meets the minimum requirements of Standard 90.1–2001.
The required 162/3-percent reduction must
be accomplished solely through energy
and power cost reductions for the heating, cooling, ventilation, hot water, and
interior lighting systems. Reductions in
any other energy uses, such as receptacles, process loads, refrigeration, cooking,
and elevators, are not taken into account
in determining whether the 162/3-percent
reduction is achieved.
(b) Interim Rule. Partially qualifying
property, within the meaning of section
2.01 of this notice, is subject to the interim
rule if it is not subject to the permanent rule
in section 2.03(1)(a) of this notice, if it is
installed as part of the interior lighting systems of a building before the date on which
final regulations under section 179D are
published in the Federal Register, and it is
certified that the interior lighting systems
that have been incorporated into the build-

2006–26 I.R.B.