Rp 2007-12

Part III. Administrative, Procedural, and Miscellaneous
Classification of Certain
Foreign Entities
Notice 2007–10
This notice announces that Treasury
and the Internal Revenue Service (IRS)
will amend § 301.7701–2(b)(8) of the Procedure and Administration Regulations to
add the Bulgarian aktsionerno druzhestvo
entity to the list of entities that are always
treated as corporations under section 7701
of the Internal Revenue Code (Code).
BACKGROUND
The IRS and Treasury issued final
regulations concerning the classification of business entities under section
7701 of the Code on December 18, 1996
(check-the-box regulations). See generally, T.D. 8697, 1997–1 C.B. 215 [61
FR 66584] and §§ 301.7701–1 through
3. Under the check-the-box regulations,
a business entity generally can elect its
classification for federal tax purposes.
However, § 301.7701–2(b)(8) provides a
list of certain foreign business entities that
are always classified as corporations for
federal tax purposes (the per se corporation list).
On December 16, 2005, the IRS and
Treasury published regulations (T.D. 9235,
2006–4 I.R.B. 338 [70 FR 74658]) under
section 7701 of the Code adding certain
foreign business entities to the per se list
of corporations. These regulations were
in response to the adoption by the Council of the European Union of a Council
Regulation (2157/2001 2001 O.J. (L 294))
(the EU Regulation) that recognized a new
business entity, the European public limited liability company (Societas Europaea
or SE).
The SE is a public limited liability company. The EU Regulation provides general rules that govern the formation and operation of an SE, and supplements those
rules for specified issues and issues it does
not otherwise address by reference to the
laws with respect to public limited liability companies for the country in which
the SE has its registered office. An SE
must have a registered office in one of
the Member States of the European Economic Area (which includes all Member

2007–4 I.R.B.

States of the European Union plus Norway,
Iceland, and Liechtenstein). For further
background see T.D. 9197, 2005–1 C.B.
985 [70 FR 19697] and Notice 2004–68,
2004–2 C.B. 706.
As of January 1, 2007, Bulgaria will become a member of the European Union.
Accordingly, an SE will be eligible to have
its registered office in Bulgaria and those
SEs with a registered office in Bulgaria
will, to a certain extent, be subject to the
laws of the public limited liability company in Bulgaria. As a result, and consistent with T.D. 9235, it is appropriate for the
IRS and Treasury to add the public limited
liability company for Bulgaria to the per se
list.
DISCUSSION
The IRS and Treasury will issue temporary and proposed regulations that will
modify § 301.7701–2 to include the Bulgarian aktsionerno druzhestvo on the per
se corporation list. This entity has been
identified as the public limited liability
company in Bulgaria.
EFFECTIVE DATE
The temporary and proposed regulations to be issued adding the Bulgarian
aktsionerno
druzhestvo
to
§ 301.7701–2(b)(8) generally will apply
to such entities formed on or after January
1, 2007. However, they shall also apply to
an entity formed before such date upon a
50 percent or greater change of ownership
subsequent to such date.
The principal author of this notice is
Ronald M. Gootzeit of the Office of Associate Chief Counsel (International). For
further information regarding this notice, contact Ronald M. Gootzeit at (202)
622–3860 (not a toll-free call).

354

26 CFR 601.602: Tax forms and instructions.
26 CFR 1.6045–4: Information reporting on real estate transactions with dates of closing on or after January 1, 1991.

Rev. Proc. 2007–12
SECTION 1. PURPOSE
This revenue procedure supersedes
Rev. Proc. 98–20, 98–1 C.B. 549, and
sets forth the acceptable form of the written assurances (certification) that a real
estate reporting person must obtain from
the seller of a principal residence to except the sale or exchange of such principal
residence from the information reporting
requirements for real estate transactions
under § 6045(e)(5) of the Internal Revenue
Code (Code). This revenue procedure incorporates amendments to section 121
of the Code made by section 840 of the
American Jobs Creation Act of 2004,
Pub. L. No. 108–357, 118 Stat. 1418
(October 22, 2004) (AJCA), as amended
by section 403(ee) of the Gulf Opportunity
Zone Act of 2005, Pub. L. No. 109–135,
119 Stat. 2631 (December 21, 2005) (the
GO Zone Act).
SECTION 2. BACKGROUND
.01 Section 6045(e) and § 1.6045–4 of
the Income Tax Regulations generally require a real estate reporting person (as defined in § 6045(e)(2) and § 1.6045–4(e)) to
file an information return regarding a real
estate transaction and to furnish a payee
statement to the seller regarding that transaction. The information return and statement must include the name, address, and
taxpayer identification number (TIN) of
the seller, and the gross proceeds of the
real estate transaction. This information is
reported on Form 1099–S, Proceeds From
Real Estate Transactions.
.02 Section 312 of the Taxpayer Relief
Act of 1997 (TRA 1997), Pub. L. No.
105–34, 111 Stat. 788 (August 5, 1997), as
amended by the Internal Revenue Service
Restructuring and Reform Act of 1998,
Pub. L. No. 105–206, 112 Stat. 805 (July
22, 1998), effective for sales or exchanges
after May 6, 1997, amended § 6045(e) by
adding a new paragraph (5), which excepts
a sale or exchange of a principal residence

January 22, 2007

from the § 6045(e) information reporting
requirements if the seller provides the real
estate reporting person with a certification
setting forth certain written assurances, including an assurance that the residence is
the seller’s principal residence (within the
meaning of § 121) and an assurance that
the full amount of the gain on the sale or
exchange of the principal residence is excludable from gross income under § 121.
.03 Section 312 of TRA 1997 also
amended § 121 to provide new rules for
the exclusion of gain on certain sales or exchanges of a principal residence. Section
121, as amended, provides that a taxpayer
may exclude from gross income up to
$250,000 of gain on the sale or exchange
of a principal residence if certain conditions are met. In certain circumstances, a
married individual filing a joint return for
the taxable year of the sale or exchange
may exclude from gross income up to
$500,000 of gain. This exclusion also applies to the sale or exchange of stock held
by a tenant-stockholder in a cooperative
housing corporation (as defined in § 216)
and may apply to the sale or exchange of
a remainder interest in a principal residence if the taxpayer so elects. See Code
§§ 121(d)(4) and (d)(8).
.04 Section 840 of the AJCA, as
amended by the GO Zone Act, amended
§ 121 to provide that the exclusion for
gain on the sale or exchange of a principal
residence does not apply if the principal
residence was acquired by the taxpayer in
a like-kind exchange in which any gain
was not recognized under § 1031(a) or (b)
within the prior five years.
SECTION 3. SCOPE
This revenue procedure applies to the
information reporting requirements under
§ 6045(e) for a sale or exchange of a principal residence.
SECTION 4. SELLER CERTIFICATION
.01 To be excepted from the information reporting requirements in § 6045(e)
on the sale or exchange of a principal residence (including stock in a cooperative
housing corporation), the real estate reporting person must obtain from the seller
a written certification, signed by the seller
under penalties of perjury, that assurances
(1) through (6) set forth in section 4.02

January 22, 2007

of this revenue procedure are true (or, in
the case of assurance (6), not applicable).
For purposes of this certification, the term
“seller” includes each owner of the residence that is sold or exchanged. Thus, if a
residence has more than one owner, a real
estate reporting person must either obtain
a certification from each owner (whether
married or not) or file an information return and furnish a payee statement for any
owner that does not make the certification.
.02 The assurances are:
(1) The seller owned and used the residence as the seller’s principal residence for
periods aggregating 2 years or more during
the 5-year period ending on the date of the
sale or exchange of the residence.
(2) The seller has not sold or exchanged
another principal residence during the
2-year period ending on the date of the
sale or exchange of the residence.
(3) No portion of the residence has been
used for business or rental purposes after May 6, 1997, by the seller (or by the
seller’s spouse or former spouse, if the
seller was married at any time after May
6, 1997).
(4) At least one of the following three
statements applies:
The sale or exchange is of the entire
residence for $250,000 or less.
OR
The seller is married, the sale or exchange is of the entire residence for
$500,000 or less, and the gain on the
sale or exchange of the entire residence is
$250,000 or less.
OR
The seller is married, the sale or
exchange is of the entire residence for
$500,000 or less, and (a) the seller intends
to file a joint return for the year of the sale
or exchange, (b) the seller’s spouse also
used the residence as his or her principal
residence for periods aggregating 2 years
or more during the 5-year period ending
on the date of the sale or exchange of the
residence, and (c) the seller’s spouse also
has not sold or exchanged another principal residence during the 2-year period
ending on the date of the sale or exchange
of the residence.
(5) During the 5-year period ending on
the date of the sale or exchange of the residence, the seller did not acquire the residence in an exchange to which section
1031 applied.

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(6) In cases where the seller’s basis in
the residence is determined by reference
to the basis in the hands of a person who
acquired the residence in an exchange to
which section 1031 applied, the exchange
to which section 1031 applied occurred
more than 5 years prior to the date of the
seller’s sale or exchange of the residence.
SECTION 5. FORMAT FOR MAKING
SELLER CERTIFICATION
A sample certification form that may
be used by a real estate reporting person
to obtain the applicable assurances from
the seller is provided in the Appendix of
this revenue procedure. Use of this sample certification form is not required. The
requirements of the certification under
§ 6045(e)(5) will be met if the content and
wording of a written certification provide
the same information as required by section 4 of this revenue procedure.
SECTION 6. OBTAINING AND
RETAINING SELLER CERTIFICATION
The real estate reporting person may
obtain a certification at any time on or before January 31 of the year following the
year of the sale or exchange of the residence. The certification must be retained
by the real estate reporting person for 4
years after the year of the sale or exchange
of the residence to which the certification
applies.
SECTION 7. PENALTIES
A real estate reporting person who relies on a certification made in compliance
with this revenue procedure will not be liable for the penalties under § 6721 for failure to file an information return, or under
§ 6722 for failure to furnish a payee statement to the seller, unless the real estate reporting person has actual knowledge that
any assurance is incorrect.
SECTION 8. EFFECT ON OTHER
DOCUMENTS (when applicable)
Rev. Proc. 98–20 is superseded.
SECTION 9. EFFECTIVE DATE
This revenue procedure is effective for
sales or exchanges of a principal residence
occurring after January 22, 2007.

2007–4 I.R.B.

SECTION 10. PAPERWORK
REDUCTION ACT
The collections of information contained in this revenue procedure have
been reviewed and approved by the Office
of Management and Budget in accordance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545–1592.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
The collection of information in this
revenue procedure is in section 4 and 5
of this revenue procedure. This information is required to exempt a real estate re-

porting person from the requirement to file
an information return and furnish a payee
statement reporting the sale or exchange of
a principal residence. The likely respondents are individual taxpayers who sell or
exchange a principal residence and real estate businesses.
The estimated total annual reporting
burden for respondents is 383,000 hours.
The estimated burden per respondent is
10 minutes. The estimated number of respondents is 2,300,000. The frequency of
responses is on occasion.
The estimated total annual burden for
recordkeepers is 37,500 hours.
The estimated annual burden per
recordkeeper is 25 minutes. The estimated number of recordkeepers is 90,000.

Books or records relating to a collection
of information must be retained as long
as their content may become material in
the administration of any internal revenue
law. Generally, tax returns and return information are confidential, as required by
26 U.S.C. 6103.
SECTION 11. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Timothy S. Sheppard of the
Office of Associate Chief Counsel (Procedure & Administration). For further
information regarding this revenue procedure, contact Mr. Sheppard at (202)
622–4910 (not a toll-free call).

APPENDIX
CERTIFICATION FOR NO INFORMATION REPORTING ON THE SALE OR
EXCHANGE OF A PRINCIPAL RESIDENCE
This form may be completed by the seller of a principal residence. This information is necessary to determine whether the sale
or exchange should be reported to the seller, and to the Internal Revenue Service on Form 1099–S, Proceeds From Real Estate
Transactions. If the seller properly completes Parts I and III, and makes a “true” response to assurances (1) through (6) in Part II (or
a “not applicable” response to assurance (6)), no information reporting to the seller or to the Service will be required for that seller.
The term “seller” includes each owner of the residence that is sold or exchanged. Thus, if a residence has more than one owner, a
real estate reporting person must either obtain a certification from each owner (whether married or not) or file an information return
and furnish a payee statement for any owner that does not make the certification.
Part I. Seller Information
1. Name
2. Address or legal description (including city, state, and ZIP code) of
residence being sold or exchanged

3. Taxpayer Identification Number (TIN)
Part II. Seller Assurances
Check “true” or “false” for assurances (1) through (5), and “true”, “false”, or “not applicable” for assurance (6).
True False
[]

[]

(1) I owned and used the residence as my principal residence for periods aggregating 2 years or more during
the 5-year period ending on the date of the sale or exchange of the residence.

[]

[]

(2) I have not sold or exchanged another principal residence during the 2-year period ending on the date of
the sale or exchange of the residence.

[]

[]

(3) I (or my spouse or former spouse, if I was married at any time during the period beginning after May
6, 1997, and ending today) have not used any portion of the residence for business or rental purposes after
May 6, 1997.

2007–4 I.R.B.

356

January 22, 2007

True False
[]

[]

(4) At least one of the following three statements applies:
The sale or exchange is of the entire residence for $250,000 or less.
OR
I am married, the sale or exchange is of the entire residence for $500,000 or less, and the gain on the sale or
exchange of the entire residence is $250,000 or less.
OR
I am married, the sale or exchange is of the entire residence for $500,000 or less, and (a) I intend to file a
joint return for the year of the sale or exchange, (b) my spouse also used the residence as his or her principal
residence for periods aggregating 2 years or more during the 5-year period ending on the date of the sale or
exchange of the residence, and (c) my spouse also has not sold or exchanged another principal residence
during the 2-year period ending on the date of the sale or exchange of the principal residence.

[]

[]

(5) During the 5-year period ending on the date of the sale or exchange of the residence, I did not acquire the
residence in an exchange to which section 1031 of the Internal Revenue Code applied.

True False N/A
[]

[]

[]

(6) If my basis in the residence is determined by reference to the basis in the hands of a person who acquired
the residence in an exchange to which section 1031 of the Internal Revenue Code applied, the exchange to
which section 1031 applied occurred more than 5 years prior to the date I sold or exchanged the residence.

Part III. Seller Certification
Under penalties of perjury, I certify that all the above information is true as of the end of the day of the sale or exchange.

Signature of Seller

26 CFR 601.204: Changes in accounting periods and
in methods of accounting.
(Also Part I, §§ 446, 461, 481; 1.446–1.)

Rev. Proc. 2007–14
SECTION 1. PURPOSE
This revenue procedure provides procedures by which a taxpayer may obtain the
automatic consent of the Commissioner
under § 446(e) of the Internal Revenue
Code to change its method of accounting
for liabilities for services or insurance to
comply with Rev. Rul. 2007–3, page 350,
this Bulletin.
SECTION 2. BACKGROUND
.01 In Rev. Rul. 2007–3, the Internal Revenue Service addressed the issue of
when a taxpayer using an accrual method
of accounting incurs a liability for services
or insurance under § 461. The ruling holds
that a liability for services or insurance is

January 22, 2007

Date

not fixed by the mere execution of a contract for the future provision of services or
insurance. Instead, all the events have occurred that establish the fact of the liability when (1) the event fixing the liability,
whether that be the required performance
or other event, occurs, or (2) payment is
due, whichever happens earliest.
.02 Under § 446(e) and § 1.446–
1(e)(2)(i) of the Income Tax Regulations,
a taxpayer generally must secure the consent of the Commissioner before changing
a method of accounting for federal income
tax purposes. To obtain the Commissioner’s consent to a change in method,
§ 1.446–1(e)(3)(i) generally requires a taxpayer to file Form 3115, Application for
Change in Accounting Method, during the
taxable year in which the taxpayer wants
to make the proposed change. Section
1.446–1(e)(3)(ii) authorizes the Commissioner to prescribe administrative procedures that provide the terms and conditions
necessary for a taxpayer to obtain consent
to change a method of accounting. The
terms and conditions the Commissioner
may prescribe include whether the change

357

is to be made with a § 481(a) adjustment,
and if so, the § 481(a) adjustment period,
or on a cut-off basis.
.03 Rev. Proc. 2002–9, 2002–1 C.B.
327 (as modified and clarified by Announcement 2002–17, 2002–1 C.B. 561,
modified and amplified by Rev. Proc.
2002–19, 2002–1 C.B. 696, and amplified, clarified and modified by Rev. Proc.
2002–54, 2002–2 C.B. 432), provides procedures under § 446(e) and § 1.446–1(e)
for obtaining the automatic consent of the
Commissioner to change certain methods
of accounting for federal income tax purposes. Specifically, Rev. Proc. 2002–9
applies to a taxpayer requesting the Commissioner’s consent to change to a method
of accounting described in the APPENDIX of that revenue procedure. Rev. Proc.
2002–9 is the exclusive procedure for a
taxpayer within its scope to obtain the
Commissioner’s consent. See Rev. Proc.
2002–9, sections 1 and 4.01.

2007–4 I.R.B.